What 2019 NYC residential real estate sales slump could mean for CRE


The Manhattan residential real estate market took a downturn in 2019—the year was one of the worst in almost a decade—according to a recent Wall Street Journal report. Existing Manhattan apartment sales dropped to the slowest pace since 2011 and some brokers have left the field because of the sales slump. Meanwhile apartment prices fell to four-year low during the third quarter and did not improve in the fourth quarter, according to The Wall Street Journal.

“It was a difficult year and one of the most difficult years of my career,” Compass broker Leonard Steinberg told The Wall Street Journal.

Record-setting sales for high priced homes—but not much else

One part of the Manhattan residential real estate market saw success in 2019—homes sales for at least $25 million, according to The Wall Street Journal. Fifty-six apartments and townhouses were bought at that price point, which was a record for any year. There are also some optimistic signs for the 2020 Manhattan residential real estate market. According to Warburg Realty Chief Executive Frederick Peters, newer listing are coming in at more reasonable prices and older properties’ listings are dropping, increasing the likelihood that buyers will finally make a deal.

“Every day we get hordes of emails about price reductions, 20 to 25 a day,” Peters told The Wall Street Journal.

Taxes are part of the reason for dip in Manhattan residential real estate sales

The market decline came as a surprise given the current economy’s strength, according to Gregory J. Heym, chief economist at Halstead and Brown Harris Stevens.

“Usually apartment prices only come down this much in a recession, when people are worried about their jobs and their investments,” Heym told The Wall Street Journal.

Other factors have hurt the Manhattan residential real estate market however. There are higher transfer taxes on property sales that exceed $2 million and the federal tax changes that lowered state and local taxes’ deductibility. Those same federal tax changes increased the cost of home ownership in high tax locations like New York City. Also, even though there hasn’t been a recession, the fear of one reduced sales in 2019, according to The Wall Street Journal.

“It is a period of ‘peak uncertainty,’” Miller Samuel, Inc. President and appraiser Jonathan Miller told The Wall Street Journal. “Rational thinking does not apply.”

How residential real estate sales slumps could affect CRE

The Wall Street Journal’s report is focused on residential real estate, but what’s going on with residential is often an indicator of CRE activity. In this case, if residential sales in Manhattan are slumping, tenant occupancy could be a concern for CRE owners. Whether it is Manhattan or another city, workforces need somewhere to live. If employees can’t afford to live in a given city, they might move elsewhere and potentially commute there for work. That’s the best-case scenario.

There’s also the chance they’ll find work in an area where it’s more cost effective for them to live and forgo the city altogether—that could lead to a worker shortage for city-based companies making it tougher for them to operate. If that were to happen, companies might have to follow their employees’ lead and find a less expensive place in which to operate. Suddenly, CRE owners are impacted by this domino effect caused by workers not being able to afford living in Manhattan, thus opting to work elsewhere forcing businesses to find properties in areas where potential employees can afford to live. Even as prices come down, it’s still extremely expensive to live and work in New York City. Will the drop in prices HELP CRE by swinging the pendulum more towards affordable residential prices in NYC? It might but if the City government continues using the residential market simply as a way to raise revenues, this drop in prices may not have the desired effect of making New York a more affordable place. There is anecdotal evidence that the crazy cost of living in Silicon Valley and the San Francisco area is driving even well paid workers in search of more affordable area of our country.

Manhattan residential retail real estate market 2020 outlook

According to The Wall Street Journal, a 33 percent increase in condo sales in new buildings helped offset some of the dwindling existing apartment sales. However, older lower-priced apartment sales (below $1 million) increased 5.8 percent during the fourth quarter of 2019 from a year earlier due to buyers’ attraction to lower mortgage interest rates.
However, brokers are still concerned. Brown Harris Stevens CEO Bess Freedman told The Wall Street Journal that legislators’ plans to impose a yearly pied-à-terre (second residence) tax could hurt a lot of the market.

“It will destroy our industry and kill a lot of jobs,” Freedman said.
Freedman also described the Manhattan residential real estate market as, “in oversupply mode,” but noted it could be enticing to some buyers. “For buyers, I call this an opportunity market,” she told The Wall Street Journal.

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