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Manhattan Market Update: Halfway Through 2019

Manhattan Q2 Market Report

Manhattan - First of the year was a mixed bag if you collectively look at Q1 and Q2. Q1 got the year off to a slower start when looking at the market on a year-over-year (YoY) basis, however, Q2 finished with a 31% increase in sales compared to Q1 and a 7% increase YoY. This yearly increase in sales volume was the first time for Manhattan in nearly 18 months.

So what is driving the real estate market, and what do we expect as we think about the rest of 2019?

Taxes:

At both a national and local level, taxes have been a huge influence on the luxury market thus far in 2019 and will likely continue to be so. From a National, perspective, the reduction of State and Local Taxes (SALT), have certainly had an impact in a high-tax marketing like Manhattan. Some benefits of homeownership such as tax deductions have been reduced as a result of the new Federal tax laws.

On a local level, the passage of a new Progressive Mansion Tax can be observed in Q2, but we likely have not seen the full brunt of the impacts this may have on the higher end of the market - $10M+. The increase of YoY sales volume for Q2 2019 can likely be attributed to Buyers that pushed up closings in to late June to avoid the new, increased, progressive taxes that took effect as of July 1, 2019.

Furthermore, after July 1, the Manhattan market went nearly 3 weeks without a property over $10M going in to contract. If this is any indication of the Progressive Mansion Tax’s impact on the luxury market, it is certainly not favorable. This will be a key trend to monitor for the remaining part of 2019, specifically the volume of deals at $10M where the tax liability as escalated as a result of this.

 Pricing:

Looking at the data and negotiating for our clients, it is evident that pricing is still an ongoing issue, namely, the market is saying properties are still a bit overpriced. With that said, price reductions have been instrumental to keep product moving. Sellers are reducing prices for luxury properties anywhere between 9-11% before they enter contract. Pricing will continue to normalize in order to keep transactions moving through the rest of 2019.

With that said, pressure on pricing is being influenced by myriad things including inventory and negotiability. We are certainly in a Buyer’s market, however, there are many Buyer’s that continue to sit on the sidelines. Buyers know they can get a deal and have a wide array of selection, so they can become stubborn in instances, waiting for a deal they think is “better” to come down the line. As a result of increased inventory and a degree of Buyer hesitancy, time on the market has climbed for the luxury market in Manhattan. In Q2, average time on market had climbed to 168 days. This number can escalate quickly as price tier increases. We have seen some ultra-luxe properties on the market in excess of 365 days.

Politics:

Similar to the impact of Taxes, we have seen and expect political impacts to be felt from both the local and national levels. Thinking about the remaining part of the year, the 2020 Election will definitely have an impact on the market in some way as we progress towards the election throughout the cycle. That, of course, remains to be seen, but we expect some impact on the market at a larger level

Additionally, aspects of the current political climate that have resulted in Macroeconomic impacts such as a possible Trade War with China and Stock Market volatility have ancillary effects that trickle in to the luxury market. Largely, both of these events have contributed to some of the lingering hesitancy in the market from Buyers despite amazing deals being prevalent on properties.

At a local level, there has been influence on the market as a result of political decisions that resulted in Amazon pulling out of NYC as the location of its second headquarters as well as the recent passage of updated Rent laws by City Council.

Manhattan Q2 Inventory by Type
Manhattan Luxury Real Estate Q2 Sales by Unit Type

 

We Sat Down With a Mortgage Expert: Here's What You Need to Know

Interests Rates Extend Declines

Mortgage Rates have been been on the decline year over year, and touched a 16-month low in recent weeks. While rates have been at historic lows for quite some time now, they are once again at very low rates. Near the end of May, the 30-year fixed, the benchmark Mortgage product, was at 3.99%. Many factors are putting downward pressure on Mortgage Rates such as U.S.-Chine Trade War concerns, Brexit, and concerns of weak economic growth.

Given rates are low, now is a great time to lock in a rate if you are considering financing. We often get asked many questions from our Buyers surrounding Mortgages - what’s best for me? Is this a good rate? Given Mortgages are top of mind for many in the current environment, we sat down with Mortgage export, Donna Vitalone, a Senior Lending Officer with Citi.

Victoria Shtainer: What are some of the most important factors to consider when deciding between a fixed rate and adjustable rate mortgage - time in residence? Affordability in the future? Etc.

Donna Vitalone: A number of important factors come to mind that the borrower should consider and weigh when deciding between a fixed rate and an adjustable rate mortgage.  First and foremost is determining where you are in the human life cycle based on your age plus your marital and employment/job status.  I think it’s equally important that the borrower also take into consideration:

  • whether or not it’s the borrower’s first home;

  • the length of time the borrower expects to own the property: 5 years, 10 years, longer than 10 years;

  • is the borrower upwardly mobile or is planning to downsize; 

  • is the borrower’s job the type that could possibly require relocating at any time in the future; 

  • does the borrower have a particular objective with regard to the mortgage such as either having the flexibility to manage monthly cash flow or is likely to rapidly pay down mortgage with bonus income or receipt of a large inheritance.

Victoria Shtainer: What is the most common mistake you see Buyers make when selecting a mortgage, or the biggest misconception about Mortgage product options?

Donna Vitalone: I’d say the most common mistake buyers make when choosing a program is to regard of a mortgage as just a loan when in fact they should consider choosing the program in much the same way they would any other financial planning tool where future plans will likely be given consideration;

Among the many misconceptions the most common I hear is “avoid paying points because it’s expensive”.  However, the truth is paying points can be a smart financial planning tool for primary home buyers who, by taking advantage of federal income tax benefits, by paying points not only buy down their interest rate but also see a reduction in their taxable income.

Victoria Shtainer: If you take a fixed rate loan, and rates drop continue to drop, are you locked in, or do most fixed rates loans give borrowers the flexibility to refinance to a lower rate?

Donna Vitalone: Because most fixed rate mortgage programs do not include prepayment penalties, they give homeowners the ability to take advantage of a lower interest rate environment by refinancing their fixed rate mortgage.  However, in deciding whether to refinance the borrower should be sure to first ask the loan officer to prepare a cost benefit analysis to confirm an advantage exists. 

Victoria Shtainer: As a Buyer, should I be most concerned about my credit score as it relates to getting the best rate?

Donna Vitalone: Definitely; a buyer whose financial house in order is also a borrower with a high credit score and one the bank will regard as being low-risk.  The borrower is certain to save money by the lower interest rate that will most likely be offered by the bank.   

The opposite is true for the buyer with a lower credit score who the bank will see as a high-risk borrower that should expect to be offered a much higher interest rate.  That buyer first think about engaging a credit repair firm that works with borrowers to improve their credit score by removing the derogatory information responsible for impacting their credit.  However, planning ahead is key for the prospective borrower when choosing this approach as the credit repair process often can be a protracted one. 

Victoria Shtainer: What is a Mortgage Product you have been leaning into recently that most Buyers may not be aware exists as an option to finance?

Donna Vitalone: Well there are three programs that come to mind with the first being relationship pricing.  While talking with clients I’ll often try to identify certain eligible assets which can lead to interest rate discounts on their mortgage if moved to my bank.

Another involves buying down the interest rate by paying points because for a client whose looking to manage their monthly payment it sometimes can be a more cost effective strategy than reducing the loan amount with a larger down payment.  This recently came up with one my clients who wanted to have a specific monthly payment.  I was able to show her that spending roughly $20,000 to pay points that would buy down the interest rate turned out to be a less costly approach than reducing her loan amount by adding another $90,000 to her down payment.  Needless to say, she was thrilled. 

Last, for clients wanting liquidity to meet unexpected expenses I’m most likely to suggest taking out Home Equity Line of Credit.

About Donna Vitalone:

Donna joined Citibank in 2018 bringing with her nearly thirty years’ experience in the mortgage banking industry. She has held positions as Market Development Manager, Correspondent Account Executive, Producing Sales Manager and Mortgage Loan Officer with organizations including JPMorgan Chase, Wells Fargo Bank, and Bank of America.  During that time, she has closed over $900 million in residential mortgages and winning many production and management awards as a result. 

 

2019 Outlook: What to Expect for the New York City Real Estate Market

New York City Skline

As we enter a new year, we welcome new expectations for the housing market as we think about the year ahead. Briefly looking back at 2018, the year started off on a different note than it ended, namely rates rose to their highest levels in decades by year’s end, and the market fully transitioned to a Buyer’s Market. How do we expect 2019 to pan out?

The year ahead is likely to be a bit tougher than 2018 and remain soft overall as a result of the Fed. Prices remaining at minimum stable would be a positive, and a small rate of price appreciation would be even better. When people see their home rise in value, they feel wealthier whereas declining home values can spark a feeling of an impending recession. Thinking about 2019, we identified 4 areas of focus 1) Interest Rates, 2) Millennials, 3) Inventory, and 4) Rentals.

Interest Rates

We anticipate that interest rates will continue to rise in 2019 given the strong economic fundamentals and low unemployment rate in the US economy. Rates may begin to approach levels that finally squeeze some folks out of the market and into a smaller home than originally planned. Rising rates may also encourage some would be “Trade Ups” to stay put. Increasing rates is likely to impact first-time buyers most heavily as increased rates means less buying power. From a larger, national housing market perspective, this could also contribute to slowing sales as Buyers grapples with higher mortgage rates and recent rapid price increases over the past few years. 

Millennials

Millennials may be more at the forefront of the 2019 market than they were in 2018. This group could be a large driving force on the buy side of the market, especially for entry-level priced properties in New York City. The largest portion of Millennials will be ages 29-30 in 2019, a prime age for first-time homeownership. In a market such as New York, Millennials tend to be more affluent and savvy consumers, understanding the value in buying a property versus paying New York rent prices over the long term. Successful Millennials who have worked in industries such as Finance and Tech are likely armed with enough cash for a down payment.  Studio-1-bedroom properties priced below $2M are appealing to this group of Buyers. 

Inventory

Inventory is likely to remain elevated in NYC in 2019. New Developments continue to come to market and close, projects remain in the pipeline, and resale inventory will continue to come to market as well. This will be especially evident in the luxury sector of the market ($4M+) which has been experiencing a glut of inventory versus demand, a factor resulting in the shift to a Buyer’s Market. Average asking prices were inflated approximately 10% throughout 2018, and we expect the same to hold true throughout 2019. This means that Sellers had to take a significant reduction from Ask in order to get deals done. It is important to remember that deals get done when the price is right!

Rentals

Rent prices could likely see an uptick in 2019, attributed to the arrival of Amazon and increased demand. Amazon will bring with it a large number of high paying jobs, and thus increased demand from their employees as well as peripheral interest generated when a company such as Amazon picks a city as their home base. Google has also been discussing bringing a large number of net new jobs to NYC. Whether we see an increase in rent asking prices with concessions available or the dropping of concessions with asking prices remaining consistent resulting in a net effective increase in rent remains to be seen. We feel the latter is a probable scenario as landlords tend to drop concessions with demands increases as there is more competition for units. Additional rental inventory is something to watch in 2019 as it relates to pricing as this could be a factor that keeps a lid on rising rental prices.

What Do Rising Interest Rate Mean for the Housing Market?

rising mortgage rates

Mortgage rates of been on the rise lately, with the most recent tear higher garnering quite a bit of attention. The 30-year fixed rate is approaching 5%, a number that hasn’t been seen since around 2011. Remember, while rates are high relatively speaking, rates are still lower than what was observed in the 70s, 80s, and 90s.

The expectation is that rates will continue to rise with economists forecasting we will see 5% by the end of 2018 and could possibly see 6% by the end of 2019. Why are rates rising so rapidly? The most recent jobs report was indicative a strong economy with unemployment the lowest it has been in decades. A strong job market translates to a strong economy, and a strong economy means rising interest rates. 

So, what do rising rates mean for home buyers and the housing market? Remember the following

You Have Mortgage Options 

When headlines and the press speak to mortgage “rates” they are referring to the 30-year fixed rate. This is the most expensive mortgage product as it has the longest built in protection period. But what if you do not plan to be in the home for that long…why pay a premium for time protection that you may not need?

Many buyers are shocked to see all the various mortgage products that exist when they sit down and discuss their needs and options with a Mortgage Broker. A qualified Mortgage Broker will be able to advise on which product makes the most sense given your qualifications and time horizon. 

Control What You Can 

There are aspects that you can control when it comes to financing your home and getting the best rate possible. Two of the biggest influencing factors are 1) down payment and 2) credit score. 

Down payment:

The amount of money you put down on a home is one of the biggest tools you can use to lower your monthly payment because the more you put down, the less money you are borrowing. We understand getting a substantial down payment can be challenging, especially for first-time homebuyers who may be younger and faced with high student debt.

It is also important to remember that any down payment 20% or greater will remove the need for Private Mortgage Insurance (PMI) which can be a substantial savings on your monthly payment.

Credit Score:

If you have ever borrowed money, you know the importance of a strong credit score as it relates to getting the most favorable rates. Yes, you do not need the best credit score out there to qualify for a mortgage, however, the better your score the better the rate you will receive which means the lower your monthly payment will be. Turning a credit score around can take some time, so if purchasing a home with financing is in your future and your credit is damaged, start working hard now to get it on the rebound.

Tax Benefits

There are tax benefits to having a mortgage which are something to consider. While many do not know exactly where they stand in terms of tax liability given the new changes to tax code, we expect to get more clarity after filing 2018 returns.  

With that said, interest paid on a mortgage is generally tax deductible. Under the new tax laws, if you take out a new mortgage, you can deduct up to $750,000 in mortgage interest from your taxes.  In a sense, this makes your effective mortgage payment lower as you are getting benefits when you file your taxes…something to keep in mind.

Questions about taxes? We are not tax advisors and would defer you to your qualified tax advisor who has a full picture of your tax liabilities.

If You Are a Seller

Rising mortgage rates may not only impact buyers, those actually taking on a mortgage, but could also have an impact if you are a seller, so it is important to say abreast of market trends. 

Sellers – enlist the advice of your broker in regard to pricing. Your broker will be attuned to trends in the neighborhood and know if impacts are being felt as a result of rising rates. This is especially important for sellers who are selling property that is more likely to appeal to first-time home buyers who are more pressed for cash and concerned with monthly payments. Will a reduction in price make your property more attainable for them?

It is important for sellers to understand the buyer’s perspective given we are currently in a Buyer’s Market. Buyers are faced with a one-two punch of rising rates plus increased home prices over the past few years. Price your property according to what the market is dictating if you want to sell.

What does it all mean? We feel rising rates will certainly have impact on some home buyers that are on the cusp of affordability, however, we do not feel that rates are at a point where it could completely stall the market and put large downward pressure on pricing. In fact, some pent-up demand may be spurred to “jump” in to the market as affordability (of monthly payments) becomes a concern. People see the pace at which rates are rising and do not want to be priced out because of higher rates in a few months.

7 Mistakes First-time Homebuyers Make

Homebuyer Mistakes

Buying your first home can be one of the most stressful decisions as it is most likely the largest purchase of your life. As a first-time buyer, you feel pressured to have everything go exactly as planned, ultimately ending up in your dream palace in the sky. Throughout the purchase process, we see first-time buyers make mistakes that affect his or her ability to land the property of his or her dreams.

Below is a list of 7 mistakes frequently made by first-time buyers. Partner yourself with an educated broker, and you will soon be on the way to calling your dream house home!

1. NOT HIRING A BROKER:

First-time buyers, especially those that are unfamiliar with transacting in real estate, have a large misconception that if they hire a broker, they are going to have to pay. This is not the case. When it comes to buying, unlike renting, the seller’s agent splits the commission with the buyer’s (your) agent. With that being said, you only stand to gain with partnering with a reputable broker when conducting your home search.

2. LACK OF PRE-APPROVAL:

If you are planning to finance the purchase of your home, it is imperative that you get a pre-approval letter from your mortgage company. This will help you in two ways: 1) you know that you will even get approved and 2) what amount the bank is willing to lend to you. For the latter, some are pleasantly surprised that they are approved for more than they originally thought, while sometimes, the approval may come in lower than expected. This is important, however, so you know at what price point you can shop. Many first-time buyers feel that this is not urgent and say “I will get it later!” The sooner you have your pre-approval in hand, the sooner you will be a competitive buyer in the marketplace. Mortgage pre-approvals are generally valid for 3 months, so even if you don’t find an apartment immediately, you are better prepared for the search by getting the letter from the start.

3. BROKER ACCESS TO LISTING:

This relates to mistake #1 in that, often, first-time buyers believe that they have to go direct (without a broker) to a listing that they are interested in because it is that listing agent’s listing. All brokers have access to all listings. So no matter what broker you partner with as a buyer, they can take you to any listing throughout the city. You will not get a better deal by going alone!

4. INDECISIVENESS:

Buying your first home will probably be one of the most stressful purchases of your life. First-time buyers can suffer from indecisiveness, especially in the Manhattan market which offers so many options. If you find what feels to be the perfect home, bid on it and focus on that apartment. Too often, first-time buyers cannot commit to a property and miss out on a deal that meets their criteria. 

5. EDUCATION:

Hiring a reputable broker is 90% of the equation while the other 10% is on you as the buyer. Be sure to do your homework regarding all the components that go into purchasing a home. How much will insurance be? Utilities? The more you understand what expenses are involved and what the state of the market is, you will know what you can realistically afford and focus your search accordingly. 

6. BUYING DIRECT WITH THE SELLER’S AGENT:

This, too, related to mistake #1- notice a theme? Too often, first-time buyers buy direct (without a buyer’s broker), which can hurt them in the end. It is important to understand that while the seller’s agent is thrilled with a double commission, throughout the entire purchase process they are legally obligated to the seller, not you. the buyer. This means that the seller’s interests are prioritized before yours. Make sure you are represented by a broker that has your best interests at heart so you can feel confident that you received the best deal.

7. UNDERESTIMATE THE COMPLEXITY OF THE PROCESS:

Often when dealing with something we have never done, we have expectations or assumptions of how to approach it and handle it. We see many first-time buyers that underestimate the complexity of the real estate transaction process. The steps of going from offer submission to the closing table is like navigating a minefield. There is a myriad of things that can popup between contract signing and closing that may complicate the deal or threaten it, often things you would not anticipate as a non real estate professional. Your broker will seamlessly guide you throughout the process. 

What to Expect When Buying a Property for Investment Purposes

investing in real estate

Recent stock market volatility have you concerned about your portfolio? Real estate is one of the largest sectors of investment, both public and private. In times of volatility and uncertainty, we are reminded about the safety of a real estate holding. While it could never be guaranteed that something will definitely appreciate in price, the long-term trend suggests that real estate does appreciate in value over the long-run while not being subjective to wild price swings that you might see in an equity.

Many financial planners would argue that real estate should be a holding in any well-balanced portfolio. Additionally, real estate has the potential to create substantial yield while you hold the asset thanks to the ability of renting the property. Thinking about investing in real estate and planning to rent it out? We assist many clients with buying, whether resale or preconstruction, as an investment vehicle to rent out. It is always recommended that you speak to your financial planner and tax advisor to understand the role of real estate in your portfolio and tax situation.

We can help you hone in on an apartment that meets your needs for an investment, and additionally, can help you successfully rent it as we understand what prospective tenants are looking for and what they value.

So, you made your investment purchase and want to rent your apartment, what are prospective tenants looking for? What can you do to extract more value out of your investment?

What Prospective Tenants are Looking For:

Value- The state of the rental market will dictate just how much value a prospective tenant may seek, but value is always something a renter will be looking for. Hire a broker to help position your apartment on the market to remain competitive with other listings in the building and within a similar price range.

  • How much are the application fees? Should you consider paying them as a concession to remain competitive?
  • Will you pay the broker’s fee?
  • What are the building amenities? Is access to them an additional fee?

Aesthetics- While this is something more personal, we do see, however, that the majority of renters are looking for a unit that offers light and some views as well as an overall clean condition. If you bought preconstruction, your unit should be in brand new condition for the first tenant. On the other hand, if you bought a resale unit, be sure to make sure the unit has a clean appearance to attract as many prospective tenants as possible.  They will be paying attention to things such as:

  • Condition of bathrooms, kitchen, and flooring – are edges of doors, counters, etc. clean? Do the appliances function properly? Is the flooring cracked?
  • Does the apartment need a fresh coat of paint?

While some of these may seem like small items, they ultimately influence a prospective renter’s decision to pick one apartment over another, especially if they are deciding between units within the same building.

Ways to Extract Additional Value out of Your Investment:

There are additional ways to squeeze a bit more rent out of your unit and also have an increased likelihood to win over a prospective tenant as they are shopping around. While some of them are an expense upfront, they are some of the most common requests we see from prospective renters. Thus, you will most likely recoup the cost of these investments into your property.

  • Consider building out the closets to maximize storage with systems such as California Closets
  • Install Electric Shades/Window Treatments
  • Ensure the washer/dryer are good machines. It may be worth it to upgrade the machines from the base units that came with the apartment

Hiring a broker will be crucial to maximize the rent received. They are able to position your apartment on the market to appeal to the right audience and spend the time to understand the intricacies of the board package and fees.

  • Price correctly! Rely on your broker’s expertise to price correctly so you can rent sooner rather than later.
  • Get the condo leasing application to review the fees. That way, your broker can speak to prospective tenants about all fees associated with the unit. Additionally, this is important to understand in case you need to offer concessions to remain competitive
  • Good photos matter!
  • Get a floorplan of the unit to place online with the listing

We currently have a wonderful selection of apartments on the market for rent:

50 Riverside Boulevard, 11L

50 Riverside Boulevard, 11L

4 Bed | 4.5 Bath | $24,995/MO - View Listing

One West End Avenue, 28C

One West End Avenue 28C

3 Bed | 3.5 Bath | $14,995/MO - View Listing

188 East 64th Street, 2603

188 East 64th Street 2603

1 Bed | 1 Bath | $3,995/MO - View Listing

Additionally, we have successfully executed leases for our clients around the city including:

  • One Beacon Court - 32C, 39D, and 34B
  • 255 East 74th Street, 5B
  • 20 Pine Street, 1007
  • One57

Questions about investment in property with the goal of renting the unit for income? Contact us to arrange an appointment to discuss your goals and we can tailor a collection of units to meet your needs.

2018 Outlook: What to Expect for the New York City Real Estate Market

2018 Housing Market Outlook

Many people have been asking what we expect for the Real Estate market in 2018. While it is a bit early to tell the impact of one of the major items at play in 2018, namely tax reform, 2018 looks to be favorable for the real estate markets largely due in part to a strong job market and strengthening economies globally. We have broken down our 2018 outlook into 4 key areas – tax reform, economic backdrop, inventory, and rentals

Tax Reform

The new tax law is likely to be the most impactful to the 2018 real estate market compared to our other key areas, and is a large element of uncertainty for the housing market. This sweeping overhaul with changes from personal to corporate taxes has provisions that are expected to impact real estate markets, especially in high tax states such as New York, New Jersey, and California.

The 2 changes to be most aware of in the bill are the capping of State and Local deductions to $10,000 and the reduction of the Mortgage Interest Deduction from $1MM to $750,000. Both of these changes could make owning a home more expensive than previously planned for some individuals and impact the amount being considered to mortgage a home.

We are only 10 days into the New Year, so the impact of changes are still unclear. Q4 2017 activity was strong, and historically Q4 momentum carries in to the beginning of the following year. We see 2 possible scenarios that could unfold as a result of the tax changes:

  • Pace of sales slows at the beginning of 2018 as buyers might pause and speak to their accountants in an effort to try to better understand their new tax picture before making a purchase. In this scenario, we see downward pressure on pricing.
  • Volume and Pace of transactions from Q4 continues into 2018 as buyers may recognize that the uncertainty that may be instilled in some regarding tax reform creates opportunity, and they seize this opportunity. Additionally, buyers are likely armed with padded investment accounts and year-end bonuses.

Regardless of scenario, the largest impact of the tax bill is likely to influence buyers in the $1M+ to $5M price range.

Economic Backdrop

Moving into 2018, there are a lot of favorable economic indicators that create a favorable backdrop for housing. It is important to remember that the real estate markets are highly correlated to both the job and stock markets. Economies around the world are expected to grow in 2018 with some foreign economies outpacing U.S. growth – could foreign buyers increase in 2018?

Here in the U.S., the Fed increased their growth outlook for 2018 in their minutes released in December. Their notes utilize language that suggests a job market that will continue to remain strong, and, perhaps, grow slightly while being accompanied by rising wages. This is a positive for the housing market. Additionally, the Fed is currently suggesting 3 rate hikes in 2018 as Yellen’s term comes to an end.

The consensus among analysts is that equity markets will continue to rise in 2018. While the magnitude of the rise may not be as large as in 2017, gains will continue to add to already large investment accounts.

Inventory

We expect high inventory in the luxury market to persist in 2018, or increase with additional new condo inventory coming to market.  Developers are continuing to reshape the New York City skyline in partnership with some of the best names in architecture. Projects like 125 Greenwich and 262 Fifth Avenue will increase luxury condo inventory. Increased inventory at the higher end of the market will continue to pressure pricing at this level.

To remain competitive with the pool of wealthy buyers, we expect developments to continue to push the bar. Central Park Tower is a great example of this as they are trying to allure global titans to call the building home for their pied-a-terres or place to park money in the US market. Over-the-top amenities will continue to be the norm in both condo and rental buildings.

Rentals

The rental market peaked in 2017 after being on a march higher for quite some years. We all saw the rental market take a turn in 2017 with rents seemingly dropping across the board. We expect concessions to remain at all-time highs throughout 2018. Landlords will need concessions to lure tenants to their units. The continued pipeline of new inventory that will come on the market should cap rental prices from overly rises in 2018. However, the continued attraction of New York – labor market, culture, etc. will serve as a floor for rental prices so we do not expect any large scale drops in 2018. 

How the GOP Tax Proposal Could Impact Real Estate

GOP Tax Bill

The GOP Tax Reform efforts are garnering headlines across the board as the potential for a new tax plan could have impacts on personal taxes, business, and of course, housing. How will the current proposal impact real estate? At a high level, the current bills would have impact on taxes and mortgages, which in turn could impact the larger market if they skew incentives of buyers, sellers, and homeowners. In both the House and Senate versions, homeownership still looks advantageous as compared to renting, and homeowners will always build equity as a result of price appreciation.

It is important to think of the plan in the context of the entire housing market, not just the Manhattan. Median prices in Manhattan are incredibly higher than the national average, so there are always unique impacts of any legislation in a city such as New York. Both plans are more beneficial for buyers at lower price points, specifically sub $300,000. With both plans, financial benefits of homeownership decrease as home price increases.

Taxes:

Under both plans, tax liabilities for homeownership will generally go up. Some propose eliminating deductions while others do not. Remember, property taxes stay with the owner for the life of the property, they do not go away like a mortgage payment once it is paid off. Both bills propose nearly doubling the standard deduction which in turn will reduce the number of people itemizing their return.

  • Senate plan proposes eliminating state and local deductions, including property taxes. The House plan will leave the ability to make deductions, but will cap state and local deductions at $10,000.
  • House Bill will result in nearly 1/5 of homebuyers experiencing a higher tax liability
  • Senate bill will result in all buyers and current owners seeing an increased tax liability

Mortgages:

The ability to deduct mortgage interest is one of the financial benefits of owning a home that, sometimes, can help in making it more efficient to own rather than rent. Currently, a homeowner can deduct interest on mortgages up to $1 million.

  • House bill will cut this deduction to $500,000 while the Senate bill leaves the deduction unchanged
  • According to CoreLogic, fewer than 3% of mortgages are over $500,000
  • it is not certain whether this would apply to new mortgages only, or also to existing ones BUT the version of the bill that the House passed would leave the deduction where it is for existing loans. Because of this, people might want to consider closing before year's end.

So how would these changes impact the market? Given the higher costs of homeownership in both bills, buyers may not purchase as expensive of homes as pricier homes generally come with higher tax liabilities which could be even higher now. On the other hand, current owners could be more incentivized to just stay put and not trade up to larger homes or move to cities where a job is as cities are generally higher taxed areas.

Overall, the largest impacts of the bills would be in high tax states such as New York, New Jersey, Connecticut, and California given the proposals to eliminate various deductions. Of course, the road to tax reform is long, and it is unsure what will be in the version of the bill that comes out in the end, if any.

 

 

5 Common Questions About Investing in a Home

5 Things to Know When Investing in a Home

Buying a home is one of the largest decisions and financial transactions in many people’s lives. Because of the scale of this transaction, stress and anxiety level can go through the roof with the question – Is this the right decision for me? Is this the home I should be investing in?

Whether a first-time home buyer, or a seasoned real estate investor adding to your portfolio, questions arise during every transaction. In our experience working with buyers, sellers, renters, and investors across all experience ranges, here is a list of the most common questions we get asked when it comes to investing in a home. 

Was housing crisis during the financial crisis just a black swan event to be put behind us, or did it show that homes are not the safe and profitable holdings?

Not all those that purchased homes during the crisis of ‘08 were negatively impacted, however, the ripple effect did bring down the overall market. Those that were hit hardest were buyers that stepped up to buy properties they could not afford, largely amplified by mortgage lenders who had much more relaxed lending guidelines and approved individuals for mortgages they could not truly afford. The latter was largely responsible for the subprime mortgage crisis during this time period.

The crisis revealed the dangers of over leveraging. While a mortgage can be a great thing, taking on too much debt can lead to many issues, especially in a home purchase. A large majority of those severely wiped out by the housing crisis mortgaged the purchase of the home with minimal equity down, thus they had no skin in the game so to speak and we were willing to just walk away from their payments as a result. This is why so many homes went into foreclosure.

Any market, financial or otherwise, is subject to a crisis, however, the housing crisis has resulted in more restrictions imposed on lenders, and is certainly more prevalent in the back of buyers’ minds as they asses what they can afford.

Now that home values have recovered, what's the smartest home owning strategy going forward? Is it safe to assume a home will steadily appreciate?

Plain and simple – buy what you can afford! Consult with a mortgage advisor to receive a pre-approval letter if you are financing your home purchase. The pre-approval letter will reveal in what price range you should be shopping.

Time horizon is certainly a contributing factor to price appreciation. Because of the additional costs of a real estate transaction, a timeline of at least 5 years is usually a standard outlook to outweigh the costs of buying versus renting. This, of course, varies from market to market, and even neighborhood to neighborhood. If you envision yourself staying put for quite a while, we tend to see real estate prices appreciate over a long time horizon.

Is it safe to assume the home will be a substantial asset for funding retirement through a downsizing or reverse mortgage?

Owning a home is credited as one of the largest contributions or “escalator” to wealth. With that being said, substantial price appreciation can be observed on homes owned for multiple decades. Upon retirement, some individuals do not need the large family home they used to raise their families, and downsize. Downsizing generally results in additional gains pocketed from the price appreciation of the original home versus the price paid for the new, smaller home. Again, this is very market dependent as a smaller home in a different market may not equate to a smaller price tag all the time.

As to whether the additional “income” from a home sale can fund retirement, that is something the client should consult their certified financial advisor in regards to as everyone’s financial situation and needs in retirement vary.

As a young investor, what do I have to do to ensure I will be able to successfully purchase a home?

For many young couples looking to purchase their first home, the largest obstacle in achieving that is coming up with the down payment. There has been a definite shift towards this being a large struggle over the last decade as more and more young couples are burdened with large amounts of student debt given the increased costs of education. They are then forced to rent, which can be costly, and have minimal bandwidth to save for a down payment with all their various financial obligations.

A minimum 5-year timeline is reasonable in most markets in order to cover the costs of the transaction on both the buy side and the sell side if moving down the road versus price appreciation over that timeframe. Of course, the longer one stays in the home, the more the transaction costs are spread out over time which is coupled with additional time opportunity for price appreciation.

It does not necessarily always make sense to reach for the most expensive home. If buying the most expensive home they can afford means tapping out their budget and being on the line with meeting monthly expenses, this is probably not the wisest decision. Instead, buyers should look to purchase something in their price range that they love yet still allows them to live their daily lives while meeting financial obligations.

What kinds of misconceptions and fears are you seeing in the market among all your clients?

Working with buyers in the current NYC market, we would identify a lack of urgency as the biggest commonality across different price points. Buyers have an advantage over sellers in the current market as well as a large selection of inventory including both resale and new construction. This can lead buyers to stretch out a search as they feel what they are looking for will “still” be there.

In regards to young people taking on debt – as referenced in some responses above, we think the young buyer’s mentality towards debt has definitely changed living through the financial crisis as well as coupled with the increasing amount of student debt. As a result, some can be apprehensive to take on additional debt with a mortgage. However, talking through some of the advantages of mortgages, such as tax benefits, as well as reviewing the myriad of products available with a mortgage broker can alleviate some of these upfront concerns. We are seeing younger people having to rent longer than their predecessors given the inability to save for a down payment rather than aversion to taking on debt in the form of a mortgage.