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Market Overview |
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January 13, 2011
The New York City real estate market bottomed in the 2nd quarter of 2009 after the 2007 real estate bubble burst. The New York City Home Price Case-Schiller index has dropped over 21% from its peak, reaching its previous level in 2004. However, with signs of economic recovery, the real estate market is once again starting the coming year with confidence and optimism.
Until the 3rd quarter of 2010, the New York City real estate market has shown signs of stabilizing. Not only have the number of sales and price indicators increased, properties sold more quickly than the same time in the previous year. For example, for the condo market in Brooklyn, the median sales price was $515,000, 3.7% higher than $496,860 in the same period last year and 6.2% higher than $485,000 in the prior year's quarter. Price per square foot increased 17.1% to $530 in the third quarter from $453 in the same period last year and up 2.6% from $517 in the prior quarter. Average sales price followed the same pattern increasing 8.4% to $591,015 in the third quarter from $545,220 in the prior year's quarter and 4.8% above $563,889 in the prior quarter. Additionally, the average days on market—the number of days between the date of last list price change to the contract date—was 109 days, nearly two months faster than the 165 days on the market of the prior year's quarter.
Generally, the demand for apartments fluctuates with economic cycles. This is due to the impact of consumer income, employment, availability of credit, investment returns and property values. In addition to economic cycles, population also plays a pivotal role in determining demand of residential units. Until recently, these factors have indicated sustainable supports for the revival of the real estate market in New York City area.
The unemployment rate continues to trend downward. The national unemployment rate is currently 9.4%, down from 9.9% a year ago, and is expected to remain around 9% for months to come. In New York, the unemployment rate in New York is 8.3%, which is below the national level and is far below those of hard hit states like Nevada and Florida. About 20% of the state's revenue is generated on Wall Street. The financial sector employs a significant number of New Yorkers. With the revival of the financial sector, the New York City employment rate and annual household income are expected to pick up in years to come.
Mortgage rates maintain historically low. According to Freddie Mac, on January 13, 2011, the average rate on the 30-year mortgage dropped to 4.71%. It hit a 40-year low of 4.17% in November. In the foreseeable future, the Federal Reserve is expected to keep mortgage rates low in order to spur economic growth and ease the foreclosure pressure nationwide. The low mortgage rate and its consequential affordable monthly mortgage payments create a strong incentive for buyers to enter the real estate market. Furthermore, for first-time home buyers, the FHA loan only requires 3.5% down payment.
New York City's population continues to grow despite the hit of subprime meltdown, with its global attraction as a leading city in finance and arts. Temporary decrease in the number of jobs did not trigger large population decrease, in contrast to those less economically robust states like Nevada, Florida and Georgia, who suffered most from economic downturn. Population projections from the Department of City Planning anticipate a 1.1 million increase by 2030, bringing the city's population total to 9.1 million. The New York region continues to be the leading metropolitan gateway for legal immigrants admitted into the United States. In the long run, the increase of population will provide sustainable demand in housing.
Despite improved employment, record low mortgage rates and a proliferating population, new real-estate development in New York City is still facing challenges. Prior to the financial crisis, the economic downgrading and credit crunch relegated many projects to a total stalled or hibernated mode. In the Brooklyn area, its new construction sector flourished before 2007; however, when the economic downturn hit, many construction developers were heavily impacted. The drop in condo sales forced many developers to rent out unsold units, decreasing rental prices and increasing rental inventory. Going forward, once the demand starts to pick up, unit prices will face pressure from historical inventories and the revival of once-stalled projects. For example, in Brooklyn, there were 6,630 listings in inventory at the end of the third quarter of 2010, up 18.4% from 5,600 listings in the same period last year and 5.6% above the 6,280 listings in the prior quarter. Inventory has been higher each quarter than that of its corresponding quarter in the previous year.
Compared to the inventories accumulated from past years, newly ground-up projects can be more competitive in terms of price because the acquiring cost and construction cost have decreased substantially. With marked down property price in Brooklyn, specifically in the Bedford-Stuyvesant area, developers now can buy vacant land or reconstruction properties at appealing prices. Furthermore, investors are expected to get a cash deal discount from distressed properties. Meanwhile, buying distressed loans from a bank short sale is another feasible way to lower the cost. With our proven track record of investor return, in-depth construction expertise and a strong network with banks, Ore International can move with agility and maximize profit by maintaining construction and marketing services at comparatively low prices, thereby mitigating the effect of economic cycles. Furthermore, with over 10 years of successful transactional experience in real estate investments and asset management and our continuous deal flow, Ore International is fully prepared for larger investments once bigger opportunities hit the market.
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Phone 1.718.783.2121 Fax 1.718.783.7616 info@oreinternational.com
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