Billionaires Turning Pale? Rents and Housing Prices Fall, breaking the “Manhattan Myth”
There is something unusual happening in the Manhattan property and housing markets, which are known to be the most popular markets in the world – the housing prices are falling. Even rents, which were said to “never go down”, are dropping as well. This “Manhattan myth” is likely broken, and billionaires investing in the ultra-luxury properties might turn pale. What is happening in the Manhattan property and housing markets? Here are reports.
No “Tricks” Are Working on Manhattan Myth
According to the Elliman Report for March 2018 released by a U.S. major real estate brokerage, Douglas Elliman Real Estate, for the New York City and Manhattan areas, the median rent for March fell 3.2 percent from a year ago, to $3,290. That is the biggest decline since 2014. March marked the fourth consecutive decline in the median rent, alarming some people who think that it might be the beginning of broken Manhattan myth, said to never fall.
It is not unique to just Manhattan. In fact, there are “tricks” for never-falling rents. Landlords do not lower rents but practically discount rents by offering concessions such as a free rent and gift cards if they have a hard time finding renters. For example, they may choose to increase a rent for $3,000 by 5 percent up from last year, to $3,150. If they cannot find a renter, then they would offer a month of free rent. It practically can be a discount, but “statistically” the rent is up by 5 percent.
These tricks stay behind where people say, “Manhattan rents keep going up”, “Manhattan rents never fall”, and “Manhattan myth exists”.
For some background, three months of free rent was the norm after the 2008 financial crisis. A friend of mine was very happy about that. In her case, her rent was discounted by 20 percent with three months of free rent. However, the rent not is “statistically” lower as it remains the same at par value.
The reason why landlords avoid lowering rents in this way is that it is not easy to raise the discounted rents once again. If a rent is lowered from $3,000 to $2,900 and raised to $3,150 in the following year, which is 8.6 percent up sharply, renters are likely to resist the rise in the rents.
Despite those tricks, the fact that “statistical rents” are getting lower might show that renters have more power to negotiate. From another perspective, even if landlords offer free rent, they would still have vacancies left which will put them into a position where they need to respond to lower rents.
The Manhattan rental market is now in an unusual situation where the “trick” of offering a free rent will no longer work.
Home Prices Fall 8.1 Percent, The Lowest Sales Volume in Six Years
The decrease is seen not just in rents but home prices as well. The average home sale price between January and March across Manhattan is $1.93 million, 8.1 percent down from the previous quarter. The median sales price fell 2 percent to $1.08 million.
“Sales volume” for the January-March quarter fell 24.6 percent from the previous quarter to 2180. That is the lowest level in six years and the largest decline in nine years. In other words, the plunge is equivalent to the one after the financial crisis.
The number of homes for sale in Manhattan rose 4.4 percent to 6,125 from the previous year, and inventory significantly rose 6.1 months from the previous year to 8.4 months. In addition, the percentage difference between the list price and the sales price was 5.5 percent up from 4.2% in the previous year (1.3 points up).
People are facing construction rushes at a high pace in and around Manhattan in growing economy, which can lead to further “oversupply” in the property and housing markets.
Property and Housing Markets Are “Turning Around”
The U.S. economic expansion started in July 2009 and has reached eight years and 10 months in May 2019, the nation’s second longest on record since the war. The longest record since the war is 10 years, but in the Fed Survey conducted prior to FOMC (Federal Open Market Committee) in May, 81 percent answered the economic expansion could update the longest record, presenting an optimistic forecast.
Despite the good forecast, the stock prices still continue to fall. It is because people might be watching over stagflation.
Consumer spending increased by 1.1 percent in the January-March quarter from the previous quarter, a drastic decrease as opposed to a 4 percent increase in the previous quarter. Some people say consumer spending in the January-March quarter was a reaction to the high increase in the previous quarter . The reason is that new car sales in U.S. in April drastically fell 5.5 percent from the same month last year. The April-June quarter had a bad start since auto sales is said to be a “barometer” of the economy’s health and consumer spending.
Meanwhile, the CPI (consumer price index) rose 2.4 percent in March, and the PCE (personal consumption expenditures) price index increased 2 percent in March, which reached the target by FRB (Federal Reserve Board).
The economy is now in the situation where price increases in the economy downturn, meaning that the above-mentioned “stagflation” should be a concern because spending is sluggish while inflationary pressure is becoming strong.
In an FOMC statement issued in May, some part related to inflation was changed to both overall inflation and inflation for items other than food and energy have “continued to run below 2 percent” to “moved close to 2 percent” in the last statement.
The following sentence existed in the last statement, but was deleted from the May statement: The economic outlook has strengthened in recent months. The markets translate this statement as “inflationary pressure is becoming strong while relatively economy is not so strong”. Accordingly, this caused the plunge in the share prices due to alarming stagflation.
The yield of 10-year Treasury note crossed 3 percent late in April, and the share prices declined., It is expected “inflationary pressure is getting stronger from now onwards”. (stock traders on Wall Street)
As of April 26, U.S. 30-year mortgage rates climbed to 4.58 percent, reaching their highest level since August 2013. Some people suggest higher mortgage rates can hurt those who are willing to buy a house, and now we can tell the property and housing markets in Manhattan, which was once called myth, “are turning around”.