Broad Generalizations: Leaking Documents, Super Luxury Sales Stall, Softening but High Rents Edition
I’ve been tracking the housing for thirty years and some things never change. When markets turn up or down, there is an intensity of scrutiny at the change on anything tangentially connected whether presented in the right context or not. This week we had were given the Panama Papers leak.
No one seems to know why voters are so pissed off. Perhaps this Mossack Fonseca T-Shirt can decipher the mystery pic.twitter.com/XnymDwW3oO— Barry Ritholtz (@ritholtz) April 8, 2016
The largest document leak in history fits in nicely with the Manhattan, Miami (or any large U.S. metro) housing market) narrative of the past five years. A super luxury new development boom with $50+ million sales, the lack construction of affordable housing, a surge of international buyers, The U.S. Treasury’s rule against high end all cash buyers in Manhattan and Miami, abuse of LLCs and limited supply of housing for mere mortals are fascinating to read about.
The Miami Herald story – How secret offshore money helps fuel Miami’s luxury real-estate boom – that connect the dots between the Panama Papers and south Florida real estate was what everyone seemed to be talking about this week.
I’m no apologist for money laundering, tax dodging and other bad behavior but I get uncomfortable with how much this narrative is being painted with broad brushstrokes as it pertains to high end housing. Hopefully we’ll see more drill down to specifics as time moves on. Perhaps that’s why few in real estate seemed to be aware of the fire at 740 Park Avenue, considered the most prestigious co-op building in Manhattan.
Misleading (Irresponsible) Story Telling
A recent commentary piece in CNBC made many real estate industry participants absolutely livid: “This real estate market is about to crash“. Stories like this are absent of context and paint a picture of the NYC housing market as if represented by only $50 million to $100 million sales. Then it’s only a hop, skip and a jump to say – with the oversupply of super lux new development condos – that all of Manhattan is going to crash. It was based on sales at 432 Park Avenue, a super luxury condo tower, except that:
- Super lux market accounts for 8% of all sales (north of $5 million)
- Purchases there are dominated by “cash buyers” but there are also many mortgage purchasers with low LTVs
- It is not dominated by foreign buyers
- It is under construction
- It is 70% sold and my appraisal firm visits weekly to do appraisals as the units are finished.
- The super luxury market is a circus side show to the balance of the market
- Existing home sales in Manhattan represented 78% of all sales in 1Q16 and is plagues by low supply
The same logic applies to fears of a recession. My friend Barry Ritholtz pens one of my favorites of his Washington Post column: What are the chances of a recession? Not what you’d think.
Rental Market Growth Is Cooling
One of the byproducts of the financial crisis that began for the consumer in 2008 has been tight credit. As I have said many times, the financial crisis was a credit crisis with housing as a symptom. We are still in the hangover phase of the crisis since credit conditions have not normalized. To be clear, mortgage lending is less restrictive by non-bank lenders than it is with bank lenders, but it remains a serious issue across the U.S. housing landscape. This is key driver for high rents and falling homeownership rates. New multi-family home starts have been grinding higher for that very reason – but is starting to cool off.
The U.S. apartment market is clearly cooling as this WSJ piece by Laura Kusisto suggests
- “The national vacancy rate, which has risen for three consecutive quarters, hit 4.5% in the first three months of the year, up from a recent low of 4.2% in the second quarter of 2015, according to market research firm Reis Inc.”
- “Average rents, meanwhile, increased by 4.1% to $1,248 in the first quarter from a year earlier, compared with the 2015 first quarter’s 5% increase, according to Axiometrics Inc., an apartment research company.”
Potentially most alarming to housing economists: Demand for new apartments in the first quarter was about half its typical level. The number of occupied new apartments across the country climbed by just over 20,000 units in the first quarter, compared with the five-year average of about 40,000 for the quarter, according to apartment tracker MPF Research. The firm’s analysts said they aren’t sure if the unexpectedly sharp drop will turn into a long-term trend.
We released our monthly NYC rental market research for Douglas Elliman Real Estate yesterday covering the Manhattan, Brooklyn and Queens markets and 2 of the 3 markets showed price trend weakness. Brooklyn, of course, remained the outlier, seeing continued price growth. The Manhattan market saw it’s first year over year decline in median rent after 24 months of consecutive price growth (click on each of the graphics to open the reports).
Of course it’s only gone negative for one month, but the trend of cooling year over year rent growth since August is pretty compelling.
But when you look at the trajectory of rents since the end of the Great Recession, you can see how much more rents have risen in smaller apartments than larger apartments. With ahead of trend population growth and record job growth with no new supply to address the entry market, the market has hit some sort of affordability threshold, forcing many NYC renters to look further away from central business districts or the suburbs.
The new development space has been skewed to luxury rentals because of onerous land costs and as a result, the rent growth of larger apartments has seen a far weaker pattern.
New market research published this week
Including the rental report mentioned above, we released a bunch of new research this week through Douglas Elliman Real Estate. Next week we present 5 markets in south Florida.
Elliman Report: Brooklyn Sales 1Q 2016
Elliman Report: Westchester Sales 1Q 2016
If you need something rock solid in your life (particularly on Friday afternoons), sign up for my Housing Note here. And be sure to share with a friend or colleague. They’ll feel better than an LLC, you’ll be glad there were no leaks and I’ll be painting broad brushstrokes.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Reads I Enjoyed
- How Reporters Pulled Off the Panama Papers, the Biggest Leak in Whistleblower History [Wired]
- Revealed: The NYC real estate players identified in the Offshore Leaks database [The Real Deal NY]
- Bankruptcy Is Bellwether of New York’s Condo Market [WSJ]
- Fire at Apartments That Attract Wealthy New Yorkers [NY Times]
- Russian billionaire’s mega-mansion can’t get off the ground [NY Post]
- The newest tax haven for the wealthy could be right here in the U.S. [Marketplace]
- Four things to remember about the value of a larger lot [Sacramento Appraisal Blog]
- Photos Take You Inside the Narrowest House in the World [Curbed]
- GLUT: The U.S. Economy and the American Worker in the Age of Oversupply [Thirdway/Dan Alpert]
- China’s Little Emperors Prop Up Aussie Housing Market [Bloomberg]
- Will You Ever Be Able to Buy Your Own Home? [Bloomberg]
- White City: The New Urban Blight is Rich People [Newsweek]
- Cities for Everyone [NY Times]
- Flatiron Building, Admired but Rarely Copied, Inspires Developers [NY Times]
- How secret offshore money helps fuel Miami’s luxury real-estate boom [Miami Herald]
- Here’s Why New York Real Estate Developers Are Richer Than Ever [Forbes]
- What The Hell Happened In East New York? [Digg]
- The cycles are cycling more cyclically [FT Alphaville]
- South Bronx Sees a Rise in Market-Rate Rentals [WSJ]
- What are the chances of a recession? Not what you’d think. [Ritholtz/WaPo]
- “Bold as Brass” Architect Zaha Hadid’s Most Groundbreaking Works [Slate]
My New Content, Research or Stuff
- "Renter fatigue" means concessions are up and rents are (slightly) down in Manhattan [Brick Underground]
- [WSJ]U.S. Apartment Market Shows Signs of Losing Steam [WSJ]
- Manhattan rents drop for first time in 2 years [The Real Deal NY]
- Manhattan rents dropped in March – Elliman Report [CNNMoney]
- Elliman Report: Manhattan, Brooklyn & Queens Rentals 3-2016 [Miller Samuel]
- Elliman Report: Queens Sales 1Q 2016 [Miller Samuel]
- Elliman Report: Brooklyn Sales 1Q 2016 [Miller Samuel]
- Elliman Report: Northwest Queens Sales 1Q 2016 [Miller Samuel]
- Elliman Report: Westchester Sales 1Q 2016 [Miller Samuel]
- Elliman Report: Putnam & Dutchess Sales 1Q 2016 [Miller Samuel]
- Manhattan Rents Drop For the First Time In 2 Years [Curbed NY]
- Radio: Miller: We’ve hit an affordability threshold [Bloomberg]
- Brooklyn home prices climbed in the first three months of 2016 [Crains]
- Manhattan Renters Get a Break After Two Years of Surging Costs [Bloomberg]
- Manhattan Landlords Throw In Extras to Lure Renters [WSJ]
- [VIDEO] ‘Soft at the Top, Strong in the Middle’ for NYC Multifamily [Globe St]