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Manhattan Residential Real Estate Is Still a Great Long-Term Investment

2017 was a languishing year for the residential real estate market in Manhattan. While the stock market showed almost a 25 percent gain, the average sales price for Manhattan was flat. 2017 was a very rare time in the New York City residential real estate market amid a strong U.S. equities market and low unemployment.

2018 has exhibited further weakness that can be attributed to the nation’s new tax law, which contains the loss of state and local income tax (SALT) deductions and newsworthy political and trade news that makes buyers jittery. In fact, apartment sales in Manhattan dropped slightly over 10 percent year-over-year per the Wall Street Journal during the second quarter. This follows a first quarter that saw approximately a 24 percent decline in sales compared to 2017, according to appraisal firm Miller Samuel. Demand has fallen with approximately one in five Manhattan listings showing consistent zero open house attendance during the the spring market. This season has consistently been the best indication of the market, with many New Yorkers buying and selling this time of the year to get their families situated before schools open in the fall. In addition, inventory is rapidly on the rise. The amount of monthly new supply that was placed on the market during the months of March, April, and May all broke the previous monthly decade record. The amount of supply hitting the market is affecting all Manhattan neighborhoods and price points. Many Manhattan neighborhoods are exhibiting a 50 percent year-over-year increase in inventory below the $1 million price point. This is a far cry from the low inventory years of 2013 to 2015 when bidding years were quite common.

However, Manhattan residential real estate is still a great long-term investment amid whatever the current trends say. In fact, the increase in average sales price starting at the beginning of 2001 until the present outpaces the stock market by a sizable percentage. If you purchased an apartment early in 2008 before the last recession and want to sell now, which includes the current market correction, the average sales price still represents a 21 percent gain. While it cannot be easily sold like a mutual fund or other publicly traded investment, investing in real estate can be very rewarding and a great way to diversify your portfolio. Manhattan has had historically a low vacancy rate, as there are always people moving here for jobs and school. An investor can still find a healthy cash flow with the long-term appreciation that is greater than the stock market.

When a negative economic event trigger occurs and liquid markets sell off, Manhattan real estate is thought of as a safe haven. When the subprime crisis was happening, every other housing market across the country was suffering worse than Manhattan. The reason is that Manhattan is all about co-ops and condos plus luxury townhouses, where only those with very good financial security are able to purchase. Most co-ops have a 25 percent debt-to-income ratio and require 24 months of mortgage and maintenance in reserves post-closing. Co-op standards are stricter than most banks. These stringent policies helped to make Manhattan one of the first markets to recover after the last recession, as the borough has very few foreclosures. The economic fundamentals of the real estate market are still very strong. Manhattan is the nation’s leading center of banking, finance, and communications. It is still arguably the preeminent global financial center, unquestionably the global media capital—and there is still only one Broadway. Technological companies want a presence in Manhattan and are not going anywhere. Take security in Manhattan real estate as a safe haven.

 

Eric Mendelsohn
Warburg Realty
emendelsohn@warburgrealty.com
516-840-3516

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