The stock market is soaring. Unemployment is falling. And consumers seem newly confident. But at least one major obstacle is preventing a surge in residential sales in New York City: Even if buyers want to purchase homes, there aren’t many to choose from.
In fact, the current inventory crunch, the worst in recent memory, has become the defining feature of New York’s residential market.
At the end of the first quarter, there were just 4,960 co-ops and condos in Manhattan for sale — a stunning 34 percent decrease from 7,560 in the same period of last year, according to data from Douglas Elliman. That’s the steepest year-over-year plunge in more than a decade, according to appraiser Jonathan Miller, who prepared the Elliman data and who has tracked the city’s inventory since 2000.
Current inventory is hovering around 2004 levels, before the real estate boom gathered steam. Inventory peaked in 2009 and has been falling ever since, Elliman’s data shows.
Why the shortage?
One key reason is the slowdown of new residential development during the downturn, when construction loans were scarce and those that did get issued were far smaller than they were during the boom. Even as residential development heats up again, banks are far more comfortable underwriting loans for developers to build rental properties rather than condos, industry insiders said.
And these days, there are fewer external financial incentives in terms of tax abatements, like the now-expired 421a, which prompted developers to rush projects into the ground, resulting in a flood of residential inventory in the city.
Simple demographics may be to blame, too. The city is now adding about 50,000 residents a year, according to U.S. Census records, but the number of homes being added to the market is not keeping pace. Indeed, just 10,599 apartments and single-family homes were built in 2012, compared with a recent high of 33,911 in 2008, according to permits filed with the city’s Department of Buildings.
Low crime rates, improved subways and more family-friendly amenities are among the factors fueling the city’s popularity, said Ken Fisher, a real estate attorney and former City Council member.
Other factors restricting residential inventory today include continued high unemployment and tight credit, industry experts said. Homeowners who are struggling financially or fear they can’t get a mortgage can’t upgrade to larger apartments, said Neil Garfinkel, a veteran real estate attorney who represents buyers and sellers. That means they’re unlikely to put their own homes on the market.
“If you can’t trade up, you’re probably not going to sell,” he said.
Adding insult to injury — for buyers, at least — is that the lack of supply is sending prices of available homes through the roof.
“In a perverse way, tight credit is making housing prices rise, which is completely contradictory,” Miller said. “But it is definitely keeping inventory from entering the market in a normal way.”
The tight market conditions have also led to regular bidding wars. Garfinkel estimated that one out of every three Manhattan buyers who comes to his office has engaged in a bidding war of some kind. Last year, by contrast, he might have seen that in just one in 10 deals. “Things have heated up significantly,” he said.
None of the major Manhattan neighborhoods have been spared by the inventory shortage, according to an analysis of data provided to The Real Deal by the listings website StreetEasy.
Below is a neighborhood-by-neighborhood breakdown, detailing which areas have been hit hardest and which are seeing less severe inventory shortages.
Upper East Side (30 percent drop since 2009)
Sweeping from Central Park to the East River and north to 96th Street, the Upper East Side is among the largest neighborhoods in the city, and also among the ritziest.
There were 1,773 apartments for sale on the Upper East Side during the second week of last month, down 30 percent from 2,547 during the same week in 2009, according to StreetEasy’s data. During the same week in 2012, there were 2,219 units listed, 20 percent more than last month’s available Upper East Side inventory.
At the same time, the average asking price, not surprisingly, has risen. It shot up 14 percent to $3.2 million last month, from $2.8 million in 2012.
The shortage comes despite a slew of new condo projects in the neighborhood, like a pair from Harry Macklowe: 737 Park Avenue, which hit the market this past fall, with 103 condos, and 150 East 72nd Street, which started selling its 22 units in January. There’s also developer Aby Rosen’s 109-unit condo conversion at 530 Park Avenue, which launched sales last summer.
In addition to those high-profile new projects, sales continue at Manhattan House, the famed 534-unit conversion project at 200 East 66th Street.
Yet while it may seem like those condos should be boosting inventory levels, they aren’t pouring enough units on the market to make much of a difference, said Sofia Song, vice president of research at StreetEasy. Besides, units in new buildings are typically released in phases, so their impact can be subdued.
Upper West Side (32 percent drop since 2009)
Across Central Park, inventory has fallen as well. The Upper West Side — which StreetEasy defines as the area from West 59th to 125th streets — had 1,320 listings on the market last month, down 32 percent from 1,934 listings in 2009. And like on the Upper East Side, the dip has been especially pronounced in recent months. There were 1,634 listed units during the second week of April 2012, 19 percent higher than last month’s figure.
This comes despite the fact that new condos like the Laureate, a 76-unit, 20-story development at West 76th Street, have launched in recent years. But the number of new units hasn’t been enough to significantly move the inventory needle. And the Laureate, which started sales in February 2011, appears to have just one sponsor unit left, a three-bedroom on the 10th floor at $4.6 million, according to StreetEasy.
And as might be expected, prices have crept up, too. The average listing price in the neighborhood last month was $2.42 million, up from $2.3 million at the same time in 2012 and $2.1 million in 2011.
The Upper West Side is especially starved for apartments priced from $1 to $3 million, which generally buys a one- or two-bedroom unit in the area, according to Leonard Steinberg, a Douglas Elliman broker. He said those apartments appeal to the broadest cross-section of buyers: empty-nesters, foreigners looking for crash pads, young couples and investors.
Steinberg partly blamed the current inventory squeeze — which he referred to as a “crisis” — on sellers’ reluctance to price homes properly.
In addition, he said, some owners just don’t want to move, especially since capital gains tax rates are higher now than they were a year ago.
“There’s a big share of money in any transaction that you won’t see again,” Steinberg said. “It’s slowing the pace of transactions.”
Greenwich Village (40 percent drop since 2009)
Greenwich Village, which includes the West Village, is home to some of the city’s wealthiest residents. But there are limits to what deep pockets can do when there’s very little on the market.
According to StreetEasy, there were only 434 apartments on the market in the area — which stretches from West Houston to West 14th Street and Bowery to the Hudson River — in April. That’s a solid 40 percent drop from 726 in 2009 and a 13 percent decline from 501 listings last year.
Inventory is especially limited because much of the area, about 50 blocks, is landmarked and therefore restricted from new development, said Fisher.
Rudin Management’s construction of 350 condo units at the former St. Vincent’s hospital will ease the logjam somewhat down the road, Fisher said. But those units are not expected to hit the market until 2014. Another new project in the area is the 91-unit 150 Charles Street, from the Witkoff Group. According to published reports, units there have been selling quickly (at high prices), despite the fact that construction is nowhere near complete.
Still, many developers have bypassed building in the area in recent years in favor of the East Village instead, where there are more development opportunities.
“They are no longer looking at Third Avenue as being a barrier,” Fisher said.
Murray Hill/Gramercy/Flatiron (28 percent drop since 2009)
The Murray Hill/Gramercy/Flatiron area, which stretches from East 14th to 42nd streets, is seeing a slightly less severe inventory crunch than other areas.
There were 821 listings on the market in the three adjacent East Side neighborhoods last month, 28 percent less than 1,134 in 2009.
As in with other areas, the slide has accelerated since last year, dropping 17 percent from 994 listings.
For its part, Gramercy continues to attract marquee-name condo developers, like the Zeckendorf brothers, best known for the blockbuster 15 Central Park West. Their 18 Gramercy Park debuted last year, though it only brought 16 apartments to the area, seven of which have sold, according to StreetEasy.
The 98-unit Tempo, on 23rd Street and Second Avenue, launched sales in 2010, but has rolled its condos out in phases. And during the downturn, many were converted to rentals.
But Murray Hill may have slightly more inventory than other neighborhoods, said Shaun Osher, chief executive of CORE.
He said the area tends to attract specific groups, like well-heeled buyers of townhouses east of Lexington Avenue and twentysomethings fresh out of college. Still, many of those young residents are renters, not buyers, who stay for just a few years before graduating to new neighborhoods.
Murray Hill has a “loyal following, but not a very broad demographic of buyers,” is how Osher put it.
Soho (33 percent drop since 2009)
Soho may be home to a trendy set of New Yorkers, but the small geographic area has in recent years become as much of a retail hub as anything else.
As of last month, Soho had only 149 listings on the market. That’s down 33 percent from 221 in 2009 and 22 percent from 192 last year.
According to StreetEasy’s boundaries, Soho is bounded by Lafayette, Canal, West and West Houston streets, and includes the Hudson Square enclave that’s emerged in the last decade.
And Soho values are skyrocketing: In April 2012, the average asking price was $3.3 million. By last month, that figure had jumped 40 percent to $4.6 million.
Elliman’s Steinberg is currently listing a condo at 497 Greenwich Street for $4.25 million. Despite the fact that the property is in need of renovation, it has two offers, and he said he expects more in the next few months, now that the sellers have finally moved out.
Steinberg said open houses tell just as much of a story as statistics do: One hundred buyers can easily show up for a Manhattan open house.
“And only one gets to buy it, so that means 99 are stumping around like the ‘Night of the Living Dead,’ looking for a home,” said Steinberg, who added that the current inventory squeeze is the worst he’s seen in his 17 years in the business.
Brokers noted that a hurdle to development in Soho is the “artist in residence” requirement, which applies to dozens of blocks and mandates that artists live in the converted commercial loft space within the allotted boundaries. The city does grant exceptions, though, like at 111 Mercer Street, which launched last fall. But that project added only four units.
Hudson Square, which is outside of the artist-in-residence zone, on the other hand, may shake up the status quo soon. In March, the City Council approved a sweeping rezoning of the area, paving the way for former printing plants and large empty lots along Canal Street to be used for residential projects.
Tribeca (48 percent drop since 2009)
This affluent Downtown area saw one of Manhattan’s steepest drops in inventory.
The neighborhood had 447 homes for sale in April 2009, but last month that number had dropped 48 percent to 232. About half that drop has come since April 2012, when there were 303 listings, or 23 percent more than there are now.
The area also saw an average listing price of $5.14 million, the highest of all 11 neighborhoods, with prices climbing steadily for the last few years. In 2011, the average apartment price in Tribeca was $3.7 million, while in 2012 it was $4 million. (For all neighborhoods, a small number of sales or a few outlier deals may skew averages dramatically in a given year.)
The heavy demand is, in many ways, being driven by the area’s strong public schools, like the now-overcrowded Public School 234.
Despite Tribeca’s popularity, the area — which stretches from Broadway to the Hudson River and from Canal to Barclay streets — is relatively small.
“There’s not much left to be developed or converted,” said CORE’s Osher, who predicted that just 500 units will come to market there in the next few years.
Buyers looking for new construction in Tribeca, where much of the housing stock is industrial buildings that have been converted into lofts, are most likely to find it clustered in the northeast corner of the neighborhood.
For example, 93 Worth, a condo conversion CORE is marketing, has sold 70 percent of its 92 homes in only four months, Osher said. Meanwhile, the 20-story Franklin Place, which is developed by the Elad Group, has 53 units, though sales have not yet launched. Elad’s 250 West Street condo conversion has 111 units, but just a handful, including a $42 million penthouse, remain.
Perhaps the most high-profile of the new Tribeca buildings is 56 Leonard, a 60-story skyscraper with 145 units being developed by Hines and the Alexico Group. The Herzog and de Meuron–designed building, sources said, typifies the supply crunch. Corcoran Sunshine Marketing Group, which is handling sales, said 70 percent of the units at the newly launched building are already sold.
Financial District (24 percent drop since 2009)
The area south of Fulton Street at Manhattan’s tip saw more new development during the boom than any other part of Manhattan. As a result, its supply of available apartments has not dropped as steeply as other neighborhoods.
As of last month, there were 427 apartments available for sale in the Financial District (excluding Battery Park City), down 24 percent from 564 in 2009. But the decrease has been comparatively mild as of late: From last year to this, inventory decreased 10 percent from 476 listings.
But a catch-22 is in play in the area, said Richard Rothbloom, a broker with Brown Harris Stevens who specializes in the Financial District.
Knowing about the inventory squeeze, some would-be buyers are staying put, convinced there’s nothing out there for them, he said. “And I don’t see things changing much this summer, as people usually list in the spring,” he added.
Conversions of office buildings have slowed to a trickle, with few new projects in sight. In December, Rothbloom said, he sold one of the last sponsor units at 20 Pine, a 35-story condo conversion that first hit the market in 2007. There are some sponsor apartments left at 350-unit condo-hotel 75 Wall Street, he said, since developer the Hakimian Organization rented them out rather than selling them. But those come on the market only occasionally.
Meanwhile, there are 23 listings on the market at the W Downtown Hotel & Residences, according to StreetEasy, with the cheapest being a $1.1 million studio.
Some frustrated FiDi home-seekers are now looking in Brooklyn instead, Rothbloom said. He noted that a recent client who lives in a two-bedroom in the Financial District and wanted to upgrade to a unit with a terrace or garden is now searching in Carroll Gardens and Park Slope, “or something close to a subway line.”
Central Harlem (41 percent drop since 2009)
In April 2009, there were 452 co-ops and condos for sale in this part of Harlem, which StreetEasy defines south of West 155th Street. This year there are just 266, a drop of 41 percent.
That may be one reason why prices have crept upwards, growing from $767,000 in April 2011 to $794,000 in 2012 to $875,000 last month.
Few large condos have gone up in the neighborhood since the boom, when there were a slew of projects including the 249-unit Kalahari on West 116th Street and the 160-unit Fifth on the Park.
But the area is still drawing interest. Early last month, the Real Estate Board of New York hosted an open house event featuring 10 Central Harlem listings. The event, which showcased listings such as a two-unit brownstone townhouse at 165 West 126th Street priced at $2.5 million, was aimed at introducing buyers to Harlem properties.
Midtown West (51 percent drop since 2009)
There was a time when few would have considered this part of Manhattan to be a hot residential market, but the boom changed that. Indeed, new towers filled the West 42nd Street corridor, like Extell Development’s 551-unit condo the Orion and the Moinian Group’s 475-unit Atelier.
But despite its unconventionality, or maybe because of it, this neighborhood — which spans West 30th to 59th streets, from Eighth Avenue to the Hudson River — lured many foreign buyers, who liked its proximity to major tourist attractions.
Overseas investors may have a hard time parking their money there today, however.
As of last month, there were only 257 units for sale in Midtown West, a 51 percent decrease from 521 in 2009. The inventory is also 33 percent lower than it was last year at this time, when there were 385 listings available.
Not surprisingly, prices have swung hard in the other direction: The average list price in 2009 was $1.4 million, but in 2013, it was $1.9 million, a 36 percent spike.
Sources said developers seem reluctant to commit to condo projects because Manhattan land costs are so high. Research from the Marketing Directors shows that land prices in the borough have risen by 50 percent in the last few months.
To come out ahead, developers would have to be able to charge at least $2,000 a square foot for their finished product. That price point would only work for targeting luxury buyers, which not all projects can do, Fisher said.
Chelsea (43 percent drop since 2009)
Chelsea also saw a large inventory drop, despite being a darling for developers.
In April 2009, Chelsea had 576 listings, compared to 331 at the same time this year, a 43 percent decrease. Predictably, average listing prices have jumped, from $2 million to $2.4 million in that same time period, the data shows.
The neighborhood, located from West 14th to 30th streets and Sixth Avenue to the Hudson River, encompasses the hot High Line area.
A Corcoran broker who frequently works in the area, but asked to remain anonymous, said strong demand is one reason for the lack of inventory. In the last few weeks, he said, open houses have drawn roughly double the number of people there were a year ago.
“There’s a real increase in buyer confidence out there,” he said.
Still, big new developments are in short supply now that projects like Jean Nouvel’s 100 Eleventh Avenue and the 15-unit condo tower at 200 Eleventh are sold out.
And newer condos in the area have tended to be petite, like 455 West 20th Street, the new 21-unit Brodsky Organization project inside the General Theological Seminary. Even the hulking Walker Tower, under construction at 212 West 18th Street, is adding just 53 units.
East Village/Lower East Side (31 percent drop since 2009)
Inventory in this mostly young Downtown area, where protests recently erupted over the arrival of a 7-11 convenience store, has also dropped.
The combined neighborhood on Manhattan’s East Side — which runs from 14th Street to Canal — had 281 listings in 2009. Last month, there were only 194 listings, 31 percent fewer. Since last year alone, when there were 266 listings, the area has seen a 27 percent decline in available for-sale units.
The average asking price now is $1.3 million, up from $1.2 million last year.
Recent developments, though, have crept in on the edges. Orange Management’s 123 Third Avenue condo launched in 2010 and has sold all 47 of its units except a penthouse, according to StreetEasy.
And there are others on its heels: The Jefferson, an 82-unit condo on a long-empty lot at 211 East 13th Street, off Third Avenue, is rising fast. It’s being constructed by a team that includes Ironstate Development, the Shnay Brothers and Charles Blaichman.
The dearth of for-sale units has had another upside in the enclave: The rental market in the area has benefited, said Jason Misrahi, chief operating officer at Misrahi Realty, a brokerage based on Rivington Street.
“It definitely juiced up my rental market,” he said. Rents in the area, which run to $2,400 for a studio, continue to climb, he said.
Correction: A previously published version of this story said that 200 Eleventh Avenue has 150 units. In fact, it has 15 units.