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During the last quarter of 2012, the New York real estate market buzzed with activity. An extraordinary culmination to an already strong year, November and December saw closing after closing as sellers hurried to take their capital gains before the looming tax changes on 2013. This desire to capitalize on lower tax rates made 2012 one of the strongest years ever for the already active Manhattan and Brooklyn marketplaces.
More than anything else, our market continues to be driven by inventory shortage. (See the chart below from Urban Digs for a comparison of inventory levels over the past four years.) This trend is likely to continue in 2013 as owners of larger properties become more reluctant to sell them into the new increased capital gains tax environment. Even in the studio and one bedroom markets, which have been awash with apartments in recent years, the combination of high rents and low interest rates have driven a substantial amount of absorption (although in these categories, more than others, considerable inventory still remains, especially on the Upper East Side east of Third Avenue.) 2012 saw the return, in force, of competitive bidding, as many properties of all sizes received multiple offers from buyers eager to make their purchases as the economy gradually improved and their housing options became tighter and tighter. An interesting sidebar here is that, while prices did rise during 2012, the sense of excess which characterized 2006 and 2007 has not been visible in most areas of the marketplace. Co-ops, in particular, have not seen huge price increases with the exception of a few trophy sales at the ultra high end of the market. Prices are strong, but even when numerous buyers vie for the same property they all keep their heads. People just don’t want to overpay!
This moderation has been less visible in the condominium market, especially for the trophy properties like 15 Central Park West and One FiftySeven. This fact illustrates the growing schism between local and long-distance buyers, both in what they choose and what they are willing to pay for it. The ultra luxury condominiums in the 59th Street axis attract foreign buyers (can Steve Wynn be considered a foreigner?) paying huge prices with flight capital. In this rarefied atmosphere the market witnessed several sales for over $10,000 per foot. But when one moves 20 blocks uptown, to 79th Street, the two new condominiums going up there are selling for substantially less than half that number. Why? Because the 50s and low 60s appeal to foreign buyers, while 79th Street, the heart of the Upper East Side, appeals mostly to local residents. These two constituencies have different sized pocketbooks AND different feelings about real estate purchases. For non-U.S nationals, many of whom own multiple homes, New York is both a fun place to visit and a safe haven for their money, and it is still cheaper than many of the world’s other great cities. New Yorkers, on the other hand, are mostly buying because they want a home and, like home buyers everywhere, they don’t want to pay too much for it. At Walker Tower, the hugely successful and extraordinarily beautiful new condo in the old Verizon building on West 18th Street, you see a mix of both. Hip foreigners, Hollywood stars, and local successes are all paying $3000 per foot or more to live in Chelsea’s hottest building.
The Brooklyn market continues to be one of the city’s big success stories. Neighborhoods which many Manhattanites had never heard of a few years ago, like Windsor Terrace and Fort Greene, now boast multiple million dollar home sales and highly competitive market environments. Cultural institutions like the Brooklyn Academy of Music and the Brooklyn Museum attract a larger and larger following, and world class events now take place at the newly completed Barclay Center at the nexus of Flatbush and Atlantic Avenues. Brooklyn has become firmly entrenched, not as an alternative to Manhattan, but as a cultural and residential destination in its own right.
Any review of the last quarter of 2012 must also acknowledge the devastation caused by Hurricane Sandy in late October. Sandy has called into question the viability of some of the city’s (and New Jersey’s) most popular waterfront neighborhoods. The devastation in the Rockaways and Red Hook, the extended periods without power in parts of Tribeca and the flooding in Alphabet City and the Lower East Side all illustrated the city’s overall lack of preparedness for what seems likely to be a recurring problem in the years to come. How these neighborhoods deal with rebuilding and restoring their infrastructure, and how the city, the state, and the country address the need to safeguard these densely populated, low lying coastal areas, remains to be seen. But change is needed if these neighborhoods are to remain viable for both residential and commercial use.
And now we leave 2012 and enter 2013 with the threat of the fiscal cliff averted, at least for now. Although much work remains to be done to put the nation’s fiscal house in order, I am still confident about our market’s prospects for 2013. All over the nation, real estate sales show improvement. Inventory is down and purchase prices are slowly rising. I don’t believe even a drive over the fiscal cliff will derail the economy for long. Congress will have to backtrack and address its issues during the first quarter of 2013 if they cannot arrive at some agreement in the next 24 hours. So we may well see a bumpy first quarter. Stocks will seesaw and jumpy buyers may move to the sidelines. But overall our local economy and our housing market are essentially stable and are on course to deliver another year of solid sales.
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