The 2017 residential market in New York City was a year that started with uncertainty, followed by ups and downs, and 2018 looks to be not much different.
Executives at brokerages around NYC are predicting a mixed bag in the residential landscape, as tax reform uncertainty, a glut of inventory in the ultra-luxury sector, and middle-class families treading water in the rental market threaten to shake things up.
However, some remain upbeat about what’s in store for 2018, like Halstead Property chairman and CEO Diane Ramirez. She said while uncertainty slowed down the market at the end of the year in both 2016 and 2017, this year, she expects less hesitancy from buyers.
“I’m feeling very optimistic moving forward into 2018,” said Ramirez. “I think it’s because there’s a always a buildup of buyers when there’s a slowdown. They don’t go away. They’re interested, but they just hesitate, but then that buyer pool comes back. I don’t see anything in the foreseeable future that’s going to create that hesitancy again.”
Though she acknowledged many have expected the recent passage of the Tax Cuts and Jobs Act of 2017 to have an effect on the market, she says it’s too early to tell what exactly it could entail.
“I think some are realizing it could be marginally positive,” she said. “What I think creates optimism, is that business thinks [tax cuts] are positive, and I think if the corporate world is optimistic, that bodes well for the real estate industry.”
Ramirez’s words of wisdom to her agents this year revolved around a much-spoken phrase lately: aspirational pricing.
“I don’t care if it’s even a wish for the seller,” she said. “You can start at an aspirational price but you must have a strategy to get them to a right price and not just chase the market down. They must be very clear it’s aspirational and they have to be willing to budge a little bit, otherwise you’re going to sit, and you’re going to sit for a long time.”
Aleksandra Scepanovic, founder and managing director of Brooklyn-based Ideal Properties, had a less positive take on the the tax reform, which she believes could turn potential middle-class home buyers into “captive renters.”
“It may also delay this long awaited and talked about entry of millenials into the sales market,” said Scepanovic. “This was one of the first years they were supposed to come forward in droves.”
On the flip side, Scepanovic said it could positively impact the luxury market, and have “little to no effect” for real estate owned by the top earners in the City.
“I think the tax plan will definitely start impacting people’s decisions to buy and sell homes in 2018” she said. “We have seen some trepidation when it was first announced in its original form. While top earners are not as affected, middle income families may choose to reconsider involvement in real estate transactions.”
But while some potential buyers many choose not to enter the market, good product in established neighborhoods, like townhouses in Brownstone Brooklyn and the Upper East Side, will always do well.
“They will always bring top dollar and a number of interested parties,” said Scepanovic. “Certain aspects of the market will remain untouched by whatever forces are temporarily at work, including tax reform.”
She sees the market as a pendulum: if there is a slowdown in one sector, like sales, then the rental market will see an uptick.
“That’s the whole message for 2018. If we do see a lot of constriction in sales, we will see pickup in rentals,” said Scepanovic.
Mark Chin, who leads the Tribeca office of Keller Williams Realty, looks at 2018 as a year of uncertainty.
“I think will take the better part of a year or two for the market to settle down and understand what’s going on,” said Chin. “The uncertainty will slow down the velocity of the market. II think we may be in a place where you won’t see as many sales transactions in next 12 to 18 months.”
Chin pointed out the disparity in property taxes from one area of NYC to another. In Tribeca, annual property taxes can easily be ten times the annual cost for a home in Red Hook. And with the SALT tax deduction reduction, those looking to buy in high-taxed neighborhoods may think twice.
“I think there’s going to be pockets of differential activity,” said Chin. “At the super high end, we’re going to see Wall Street very likely hitting record bonuses again. Because of the tax changes, which are geared for corporations, that means Wall Street is going to be on steroids for awhile. And they are still the largest component of New York City income. You’ll see those people still doing ok.”
Overall, Chin paints a complicated picture of the market, with certain areas suffering while others do well.
“To use broad strokes, there will be a softening in prices, certainly a slowdown in the number of transactions, and almost certainly we’ll see an uptick in interest in multifamily as an asset class,” said Chin.
Chin forecasts a downward pressure on higher prices, specifically those in the price ranges that will be disproprotionately affected by the loss of mortgage interest deduction.
“We may see people coming from Tribeca or other expensive Manhattan areas and saying hey, we can move to Brooklyn and get more space, and get less taxes. So i think you’ll see continued interest in the Brooklyn luxury side for that reason.”
Douglas Wagner, the director of brokerage services at BOND, said going into 2018, the rental market is headed for more landlord concessions and price drops.
“We’re going into 2018 with the largest inventory hangover that the rental market has seen,” said Wagner. “I’m afraid that’s going to mean continued incentives: free rent, owner-paid, but it could also signal lower rents. Ultimately it becomes about the monthly rent payment, and they’ve just gotten out of control at all levels. Tenants are finally holding place and looking for the best deals they can find and negotiating with landlords to stay put at a lower cost.”
“I think it’s a good time to be a good broker,” said Wagner, who sees the South Bronx as the most anticipated area for renters, with thousands of new development units in the pipeline.
“In the rental market, this incredible pool of inventory means customers have a choice. For tenant rep agents, from a consumer standpoint, being a good broker means finding the deals among all the inventory, the best incentives. Sometimes where you can get away not paying fees or security deposits. Having an agent to keep all that it one place is extremely valuable. I think that prices will probably come down and normalize in 2018, which means people will actually move.”