The poor are getting poorer but the rich, it appears, are no longer getting richer. With apartment vacancies at 9-month highs [6], Bloomberg reports [7] that Manhattan's luxury-home market is rapidly losing its luster. Prices have been dropping every month since February, when they reached their highest point on record, and, as one analyst notes, "the downward trend in that decline hasn’t abated, and we haven’t seen it wavering in any way."
As we detailed previously [6],
The vacancy rate in November was 2.87 percent, up from 2.31 percent a year earlier and the highest since August 2006, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Landlords eager to fill empty units lured tenants with the most concessions since 2011.
[8]
The rise in vacancies suggests tenants are reaching the upper limits of what they’re able to pay after more than four years of almost continuous rent growth, according to Jonathan Miller, president of Miller Samuel. In November, the median monthly apartment rent climbed 3.9 percent from a year earlier to $3,361. Leasing costs have jumped more than 18 percent since the end of the recession in June 2009.
“We’re reaching the point where things can’t go up as much,” Miller said in an interview. “The economics don’t make much sense anymore.”
...
“The conditions that are driving rents higher haven’t changed,” Miller said. “What’s changed is the acceptance of it, the affordability of it.”
The luxury-apartment market, the top 10 percent of all rentals by price, was the only category with a decline in prices. The median rent in November fell 1.4 percent to $8,537.
“Complaining about high rents in Manhattan is nothing new, but now it’s becoming more visceral to tenants,” said Miller, who’s been tracking the apartment market since 1991.
“We’re hitting the point where affordability is really becoming a much bigger issue than it has been in the past.”
And now luxury home prices are falling...
[9]
Prices for luxury homes are moving in the opposite direction from the broader Manhattan market, where values are still rising and discounts are few. New York’s high-end inventory has ballooned in recent years as developers focused on building large and lavish units in an appeal to wealthy investors, who now appear to be more hesitant to buy. Listings for more moderately priced homes, meanwhile, haven’t been replenished because the high cost of land makes building in that range unprofitable, and owners are reluctant to sell because they can’t afford to trade up.
The result is a pool of listings that’s light on the properties that more people want to buy, Lightfeldt said. In the third quarter, the supply of homes for sale in the top fifth of the the market rose more than in any other segment, jumping 8.9 percent to 4,055 units, according to StreetEasy. For the other four levels combined, listings declined more than 3 percent.
The Federal Reserve, in its December Beige Book of regional economic conditions, noted the same bifurcation in the New York market, citing a “supply glut” of high-end homes and slackening buyer demand for them. The top price tier was also the only one in which sellers as a group didn’t get their full asking price in the third quarter, StreetEasy data show.
“Every asset has a threshold in pricing and once you push past it, you’re going to see the buyers resist,” said Donna Olshan, president of Olshan Realty Inc. and author of a weekly newsletter on the New York luxury market.
Olshan, who defines luxury as units listed for at least $4 million, described having had four good sales weeks out of the past four months, with prospective buyers choosing to pause rather than submit to ever higher prices.
“We have a lot of overpriced apartments on the market and that’s the reason for a slowdown,” said Olshan, who said she believes the market has plateaued rather than peaked.
“Tremendous overpricing means that marketing periods are longer, and the people who are overpriced are going to have to correct.”
The luxury market “has been over-served and the demand seems to be fully satiated,” said Lightfeldt of StreetEasy.
The firm’s price index is based on a representative sampling of resales in a given month, which are compared to their previous sales prices.
Demand for the most-expensive homes has also been dimmed by the weakening of the euro against the U.S. dollar, gyrations in the Chinese stock market and a losing year for hedge funds, Olshan said.
“You take all of those factors and you sprinkle them onto a real estate market that was overpriced to begin with, and you’re going to feel it,” she said.
* * *
So what market's property bubble explodes next?
[10]
[11]
