There's a fabulous house party going on in town — but it's doubtful you're on the guest list. The rich and famous are celebrating the Big Apple housing market. What a boom!
"There's a lot of euphoria" according to Noah Rosenblatt of the Manhattan real estate web site UrbanDigs. New York City real estate news site The Real Deal labeled the luxury market "manic" and reported vacant land in Manhattan selling for up to $800 per buildable square foot, about equal to the square foot price of finished luxury condos just a few years ago. One expert said raw land at $800 a square foot would require apartment prices of $2,500 a square foot. To extrapolate, that's $2.5 million for a not-so-special 1,000 square foot apartment.
Brisk sales and rising prices have fueled residential real estate in the city's outer boroughs. Many Brooklyn neighborhoods are just as hot as Manhattan. A townhouse in Queens is under contract for $3 million, a record price in that borough. The Real Estate Board of New York says home sales outside Manhattan rose 13.4% year-over-year in the second quarter.
Across America, Standard & Poor's Case-Schiller index of residential sales reports, prices are up over 12 percent in the last year, and 2.5 percent just in April, the last month numbers are available for.
It's largely driven by supply and demand, the one economic concept we all understand. Available inventory is down — that's supply. Realtor Douglas Elliman, who issues quarterly reports, says supply in Manhattan was down 31.3 percent in 2013's second quarter compared to the same period last year.
Meanwhile, demand is rising.
No lesser authority than Frederick Eklund, star of Bravo's reality show "Million Dollar Listing", says, "You have a $15 million buyer in New York and can't find anything. It's chaotic out there." His co-star Ryan Serhart claims, "In Manhattan there's bidding wars everywhere."
{pullquote}The rich and famous are celebrating the Big Apple housing market. What a boom!{/pullquote}
The New York Times ran an article ("In a Seller's Market, Every Minute Counts") reporting it's a seller's market in New York City where "open houses are packed to capacity, bidding wars and all-cash offers have almost become the norm, and some listing prices actually rise, not drop, after a home is listed."
The Times quotes a broker saying "it's the kind of insanity you live for in this business" while relating the story of a two-bedroom, two-bath condo "aggressively" listed for $1.89 million earlier this year. Within 24 hours he had a flurry of requests to see the listing, so he raised the price to $1.99 million and scheduled an open house. In no time there were multiple offers. The sale finally closed, all cash, for $2.16 million.
The Times offered advice. Move fast. Don't wait for the open house. Forget about getting a deal. Be the first to make an offer. Make a bigger down payment (30 or 35 percent is the new 20 percent). Think about waiving contingencies.
So the law of supply and demand dictates prices rise. Party on!
Last month, Harvard's Research Center published a study with a cautionary title: "A Housing Recovery, But Not for All Americans." Steeped in the kind of detail and methodology you'd expect from Harvard research, the report essentially gave notice to most Americans and certainly most New Yorkers that if you're not already at that party you might not be on the guest list. It's not just that your invite went missing in the mail.
The report says there are 12.1 million extremely low-income renter households in America, but only 6.8 million housing units affordable to them. That's a game of musical chairs where most low-income families come up short.
About 37 percent of American households, 42.3 million of them, spend more than 30 percent of pre-tax income on housing — that's the federal government definition of "unaffordable" housing. Over 20.6 million households spend over 50 percent on housing, the definition of "severely burdened" unaffordable housing. In New York state, 22 percent of households fall in the "severely burdened" category.
The Harvard study documents "severely housing cost burdened" families spend 1/3 less on food, 50 percent less on clothing and 80 percent less on health care than an average family. To be clear, most of these households are working families. Seven of 10 households earning full-time minimum wage are in the "severely burdened" category.
More disheartening, it's getting worse. The law of supply and demand is working against poorer families. Renter households increased by 1.1 million in 2012, roughly equal to the entire growth of all American households, but the number of affordable apartments isn't close to keeping pace. April 2013 was the 34th consecutive month of rent increases averaging 2.5 percent annually. Meanwhile, the number of rental vacancies fell for a third year in a row.
If you don't believe Harvard, you can read the same story in the just published "State of New York City's Housing and Neighborhoods, 2012," from NYU's Furman Center for Real Estate and Urban Policy. Their annual housing report documents city rents are high and growing. Real estate prices in New York City fell 20 percent during the recession while rents increased by 8.5 percent in constant dollars. New York City's market rate rent in 2011 averaged $1,540.
Furman reports that from 2005 to 2011 median gross city rent increased 10 percent while median household income actually decreased. The average New Yorker's rent burden — the percentage of before tax income going to housing costs — rose from 29.9 percent to 32.5 percent, meaning average New Yorkers were renting unaffordable apartments by federal standards. An astounding 31 percent of New Yorkers spend more than half their income on housing making them severely cost burdened. In New York City, 78 percent of all low-income renters are officially "rent burdened".
Every Sunday many New Yorkers turn to the real estate section to read about "The Big Ticket", the most expensive sale of the week in Gotham. Invariably it's a 6,000 square foot, $28 million, sky-high penthouse with views and terraces. Or it's an historic home on a storied street with its own name at $35 million. There, and in a hundred glass enclosed condo buildings and blocks of brownstones in New York City, the grandiloquent house party is going on.
Most of us can read about it, but we're not really invited. Far more important than an open door, though, would be a commitment to more affordable housing. That would let more people throw a house party of their own.
Jeff Foreman is Policy Director for New York City's Care for the Homeless. Follow him on twitter @JeffForeman2
