By Holly Dutton
It was a year in residential real estate in New York City that saw plummeting inventory, record sales volume and the emergence of ultra-savvy buyers into the marketplace, who aren’t settling for anything less than spectacular.
“People aren’t shelling out millions just to be somewhere,” said Robert Danker, president of Prime Manhattan Residential. “It’s a good push by the consumer, demanding well thought out, high-quality homes, which is what some of the better and more active developers are delivering, and really taking the time and spending effort not to just build something, but focus on the quality and utility of what they’re building. If you build it they will come — and it’s happening.”
According to Danker, Hell’s Kitchen and Nomad are neighborhoods that stood out in 2013.
“One day, somebody flipped the switch and Nomad lit up,” he said. “There are a lot of savvy developers very active there, and a very short time ago it wasn’t even on the radar.
“Before Eataly was there, you couldn’t give space away. Mario Batali was either very lucky or very smart, but he helped begin the transformation years ago.”
While Nomad is now a well-established neighborhood, Hell’s Kitchen is still up and coming.
“When Hudson Yards starts to twinkle and people start occupying residential or retail there, all the smaller buildings are going to start to convert and create a neighborhood,” said Danker.
Jonathan Miller, of Miller Samuel Real Estate Appraisers, sees the big takeaway of 2013 as the records sales volume and no relief in inventory.
“We had in the summer of the heaviest [sales] volume in history, in 27 years of tracking the market,” said Miller. “We experienced the release of pent-up demand from the past couple of years.”
National events such as the fiscal cliff at the end of 2012 that was narrowly averted in January, the election cycle, and continued uncertainty about the economy led buyers in recent years to press pause.
“A lot of people were on hold, waiting to see how things played out,” he said.
After a major surge in sales in the fourth quarter of 2012 due to capital gains tax returning, many expected 2013 to be mild in comparison.
But with the release in pent-up demand from prior years coupled with a spike in mortgage rates in early summer of this year, a lot of buyers “got off the fence” to into the market before mortgage rates rose further.
“When you look back at 2013, I see it as somewhat of an anomaly, or an outlier in the future,” said Miller. “I don’t think the heavy volume in 2013 is sustainable, but I do believe the market has a pretty solid footing as we go into 2014.”
Though there were many new development projects that came to the market in 2013, most were in the top 10 percent of the housing market, the luxury sector. For the other 90 percent, new product was nominal.
Inventory in 2013 fell to its lowest levels since 2000, according to Miller, the lowest since he began tracking it that year. Miller’s forecast for 2014 is that inventory will trend somewhat higher, but still be “inadequate,” continued high-end new development entering the market, and continued strong interest from international buyers.
“I think one issue in 2014 will be a rise in mortgage rates, which will temper the pace of the market to a certain degree,” said Miller. “I think sales activity will be below what we saw in 2013 but still at a historically normal level.”
Stephen Kliegerman, president of Halstead Properties Development Marketing, also forecasts continued strong sales in the new year.
“I think we’ll continue to see price appreciation and people will be very in tune to any new product that comes into the marketplace,” said Kliegerman.
In areas like Hell’s Kitchen, Harlem and western Brooklyn, Kliegerman see a lot of potential for both sales and rentals over the next year.
“Hell’s Kitchen continues to flourish and continues to see tremendous new development opportunities,” said Kliegerman.
“I think that neighborhood, with Hudson Yards being developed, is benefitting from the focus and interest in the far west side.”
Already open is Gotham West, a 1,200-unit rental complex on West 45th Street. JDS Development and Property Markets Group recently unveiled Stella Tower at 435 West 50th Street in Hell’s Kitchen, a 51-unit building with apartments priced from $1.5 million to $9 million.
540West, a 114-unit condo under construction on West 49th Street is going to “modernize the already desirable Hell’s Kitchen neighborhood,” according to co-developer Jonathan Landau, CEO of Fortis Property Group.
Fortis chairman Louis Kestenbaum said, “540West is the future of Hell’s Kitchen. The site plan is innovative with an abundance of light, privacy and common areas. ”
According to Jed Kolko, chief economist at Trulia, the online apartment site, home buyers in general are optimistic about 2014 with 74 percent of Americans recently reporting that home buying was part of their personal American dream.
However, Kolko said there is little doubt buying a home will be more expensive in 2014 than in 2013. Although price increases are expected to slow from 2013’s fast pace, prices will still rise faster than both incomes and rents.
Also, mortgage rates will be higher in 2014 than in 2013, thanks both to the strengthening economy (rates tend to rise in recoveries) and to Fed tapering, whenever it comes.
But will also remain cheaper than renting, according to Kolko.
2014 will also bring more inventory to the market next year, partly due to new construction, but primarily because higher prices will encourage more homeowners to sell.
Also, buyers looking for a home for themselves will face less competition from investors, who are scaling back as prices continue their slow rise.
Mortgages should be easier to get because higher rates have slashed refinancing activity and pushed some banks to ramp up their purchase lending.
New mortgage rules coming into effect in 2014 will give banks better clarity about the legal and financial risks they face with different types of mortgages, hopefully making them more willing to lend, said Kolko.
“All in all, more inventory, less competition from investors, and more mortgage credit should all make the buying process less frenzied than in 2013 – for those who can afford to buy,ˮ added the economist.
The latest Trulia Price Monitor showed that asking home prices rose year-over-year 12.1% nationally and more than 20% in 10 of the 100 largest metros. But it also revealed that these price gains are already slowing sharply in the hottest metros.
How much prices slow matters less than why. “If prices are slowing for the right reasons, great: growing inventory, fading investor activity, and rising mortgage rates are all natural price-slowing changes to expect at this stage of the recovery,ˮ explained Kolko. “But prices could slow for unhealthy reasons, too: if we have another government shutdown or more debt-ceiling brinksmanship, a drop in consumer confidence could hurt housing demand and home prices.ˮ
The online real estate database Zillow has challenged users to questions its 2014 predictions, namely that mortgage rates will rise to five percent; home values will increase by three percent; it will be easier to get a mortgage this year and; overall home ownership levels will reach their lowest points in two decades. Dr. Stan Humphries, Zillow’s chief economist, explained, “The housing bubble was fueled by easy lending standards and irrational expectations of home value appreciation, but it put a historically high number of American households – seven out of ten – in a home, if only temporarily.
“That homeownership level proved unsustainable and during the housing recession and recovery the homeownership rate has floated back down to a more normal level, and we expect it to break 65 per cent for the first time since the mid-1990s.ˮ