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Manhattanites, Real Estate and the Trump Administration: New York City through a Presidential Lens
All Articles > Manhattanites, Real Estate and the Trump Administration: New York City through a Presidential Lens

Manhattanites, Real Estate and the Trump Administration: New York City through a Presidential Lens

Manhattanites, Real Estate and the Trump Administration: New York City through a Presidential Lens


February 01, 2017 | By Dan Bamberger & Aaron Gordon


Before we begin
 

We strive for quality above all else with each of our monthly Bamberger Reports. We also don’t shy away from telling our stories with a strong dose of personal opinion on all things real estate and Murray Hill.

This issue of the report is no different. But given the controversy surrounding the policies and ideologies championed by Donald Trump, the driving force behind the topics discussed in this month’s newsletter, as well as our own opinions regarding the man and his administration, we felt the need to stress that we have attempted to arrive at all conclusions presented below with an empirical and objective eye regardless of the biases we may hold as individuals.

As always, we welcome your thoughts, comments and concerns. Onto the report.

What Happened to New York City Real Estate in 2016?

 

In a nutshell, the luxury market was at a quasi-standstill by the end of the year.

This is, of course, when compared to what has happened to the real estate industry here in Manhattan since the Great Recession. In the past half-decade, the island has seen a record amount of activity in building development, construction, and transactions. And with brokerage firm Douglas Elliman reporting a previously unheard of $1.95 million average apartment value in the fourth quarter of 2015, many prognosticators expected this sort of behavior to continue at the onset of this past election year.

But according to real estate analytics site UrbanDigs, brokers across the city were already reporting a 20% drop in signed apartment contracts by the end of February when compared to rates from the same period the year prior, dipping to a level not seen since 2009.

The news did not get better as the months– and the election season– wore on. At the end of the 2015 3rd Quarter, buyers agreeing to pay over asking price reached a record 31%. At the end of the same quarter in 2016, that number stood at just 17%, according to both Miller Samuel and Douglas Elliman.  By the new year, both signed contracts and closed sales were down by 15%– an 18% drop in luxury sales, as per a report by brokerage firm Orshan Realty– and the average amount of time spent by previously owned apartments on the market crept up by one work week to a total of 72 days.

At the same time, the vacancy rates of Manhattan apartments rose to 2.11%, the highest in seven years, according to Bloomberg.

 

It’s important to keep track of rates like these. Not only so you, the New York home owner, and experts can properly modify expectations for the market in 2017, but because building development, especially those of luxury condos, has continued to skyrocket even as the demand continues to descend.

 

Consider also the following facts, courtesy of an alarmist but must-read article from CNBC titled “This Real Estate Market is about to crash”: 5,377 luxury condo units in development in 2016 will soon hit the market. The average time on market for these new apartments now averages 90 days, an even longer time than the amount spent by those in older buildings. At a time when the strength of the dollar makes those apartments even pricier, many in the NYC real estate world must ask themselves what the ramifications will be for some of their biggest clients: foreign buyers.

 

It’s in this climate that we must consider the implications of a Trump presidency.

 

Via Trumptowerny.com

 

Trump and Real Estate

 

In addition to calling for a wall on the U.S.-Mexico border, reversing his previously steadfast stances on abortion and women’s health, and proposing a registry for Muslims, Donald Trump campaigned on a more traditional Republican approach to the American economy.

 

And the reality is that his platform– tax breaks for the upper class, looser government regulations, job creation through investment in infrastructure, and repealing Dodd-Frank, to name a few– does not lack in appeal to members of our city’s luxury real estate business. In theory.

 

While his predecessors surpass him in terms of political experience, legal knowledge and military service, Trump cemented his name, fortune and notoriety developing buildings across New York City. His real estate empire may have expanded throughout the nation and overseas, but projects in Manhattan and Queens– his native borough– were his starting points and his crown jewels.

 

It should come as no surprise then that Trump’s connections to the world of Manhattan real estate are unprecedented for a U.S. president. And his peers came out in droves to support him during his presidential run, garnering endorsements and donations from figures like Vector Group CEO Howard Lorber, Midtown Equities Founder Joseph Cayre and legendary broker Louise Sunshine, herself a former Vice President of the Trump Organization. In turn, it seems like Trump will count on them to bring his policies to fruition, most recently tapping developer Richard LeFrak and Vornado CEO (and campaign advisor) Steven Roth to oversee an infrastructure development plan worth $1 trillion.

 

But what about Trump’s protectionist, isolationist and anti-globalization rhetoric? Many experts worry that his comments may soon have an impact on the global economy at large. Others, like economist Sam Chandan, have argued that Trump’s destabilizing rhetoric may paradoxically drive more foreign money into the New York real estate market, simply because of the city’s unwavering long-term stability when compared to markets in other global capitals.

 

A Word from Dan Bamberger and Staff Writer Valeria Rotella

 

While last year’s dip in the market may have been unexpected for many, just remember that it was a dip and not a crash. We’re seeing many more pared down expectations for 2017, but speculators still predict market growth.

 

In what might become the first instance of sustained inflation above 2% since the Great Recession, the Wall Street Journal recently published economist predictions for the economy to expand 2.2% in the coming year, with an additional 2.3% in 2018. Inflation is expected to follow suit at 2.2% in 2017 and 2.4% in 2018.

 

With inflation, inevitably, comes a rise in federal interest rates, which in turn means steeper mortgage rates. But while a stagnating luxury market in NYC combined with premonitions of higher interest rates sounds like a tough road ahead for prospective home buyers, our research tells us that Murray Hill has little reason to worry about 2017.

 

For starters, consider the fact that Murray Hill apartments are consistently undervalued when compared to their nearest competitors in the luxury market.

 

 

As of the time of this writing (January 2017), Trulia reports that the average price per square foot in Murray Hill rests at $1,473. Despite this being a 12.8% increase from last year’s average of $1,306, Murray Hill continues to dominate its neighbors in terms of affordability: Gramercy Park’s average price per square foot clocks in at $1,627, Chelsea’s at $1,701, Flatiron looms at $1,737 and Midtown Center stands bloated as ever at $1,841.

But what about those mortgage rates? As with any new administration, there is a currently a great deal of speculation regarding the future behavior of mortgage rates under Trump’s tenure. Some economists say to expect a steep hike in the immediate future; meanwhile, other commentators, such as New York Times’ economic correspondent Neil Irwin, have flat-out dismissed this possibility.

 

But let’s say that mortgage rates do go up. Let’s say they rise several points above the current national average (3.92%, as estimated by Zillow). Would increased rates in the near future negate the fiscal advantages of buying in Murray Hill?

According to our research, not at all.


In November 2016, StreetEasy’s market report stated that the median sales price for an apartment in Murray Hill stood at $633,500. We took this figure and factored in the average down payment made by home buyers in Manhattan– 26%, according to PropertyShark’s December 2016 estimate. To calculate maintenance fees for co-ops (common charges for condos are calculated by measuring each owner’s percentage in common interests, which can vary widely on a case to case basis), we took the average size of a 1 bedroom in NYC (750 square feet according to StreetEasy) and multiplied it by the average percentage of maintenance charged per square foot (1.7%, according to appraisal firm Miller Samuel). We arrived at an average of $1,275 in co-op maintenance fees per month.

 

 

Using a basic mortgage calculator, we found that an increase of up to 5.5% in rates would not yield a higher increase than $600 a month in mortgage payments. And while renting as an alternative to buying removes the added burden of maintenance fees, insurance and taxes, we strongly believe this short-term benefit pales in comparison to the longer-term investment of building home equity in an area that has consistently appreciated in value over the last 15 years.


In Conclusion

Personal views and opinions aside, we tend to agree with prognosticators that believe our city’s market will continue to grow during the Trump administration, despite his controversial statements. But that may have nothing to do with the man himself. New York’s stability speaks for itself, especially in comparison to the problems facing other major cities in the West. London faces a potential economic exodus with the implementation of Brexit. Paris’ consistent problems with crime and terrorism make it a less appealing investment for foreign buyers. Rising populist movements across Europe make real estate growth a lower priority than, say, political stability.

 

But New York will always be New York, and the city tends to proceed with business as usual despite what may be happening in the rest of the country, or the world at large. If the Great Recession couldn’t stop investment in infrastructure and homes, it seems unlikely that Donald Trump will be able to bring down one of the most stable markets on the planet.

 

As for our own neck of the woods, Murray Hill-ites have little to worry about. Despite their strong position in the market, apartments in Murray Hill are consistently undervalued and prove to be the exception to speculations made about the mainstream luxury market of Midtown Manhattan.

Make it yours,
Dan and Valeria

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