2014 Price Predictions

Oxy..tough question. Inventory is at levels never seen before and sales\demand are as robust as ever. IMHO, 2014-2015 will be the years of no inventory and strong economy\demand. 12%-15% sounds about right for 2014.

that's +12%-15% :)

Agree.

2014 is going to be robust across the board. Ala Brooklyn style all around.
10-15% sounds about right.

If there was one reaction I didn't expect it would be 100% agreement! Any naysayers or should I say nahsayers?

I've noticed that over the last few months a lot of sellers were too ambitious on their pricing and had to make some reductions, which suggests that prices are evening out. Anecdotally most of the people I knew looking either bought or have stopped looking because the market was just too hot and prices were overvalued in their views. Throw in rising interest rates and I think the growth slows. So I'll go +5 to +7.

One thing that could really skew is if there is an increase in foreign demand (since we are talking condos), which might happen given changes to capital gains in UK for foreign buyers.

Well, Oxy, the new owners' chief economist here beg to differ from your projections:

http://therealdeal.com/blog/2013/12/19/u-s-home-prices-see-biggest-jump-since-05-zillow/

“The housing market continued to build on the positive momentum that began in 2012,” Stan Humphries, Zillow’s chief economist, said in a statement to Bloomberg News. “Low mortgage rates and an improving economy helped bring buyers into the market.”
Price increases will slow down in 2014, Humphries predicted, closer to the historic norm of three to five percent.

I agree with ottawanyc 12%, way to high as higher interest rates will slow the market but it doesn't slow over night.

nice..thx for starting this up. I think SE Condo Index has 1 more month at most of increases from the pipeline then the slower fall/winter months will kick in and I have to believe the index will naturally fall due to normal market forces (hard to stay at this new peak without tremendous deal vol).

I think the index will top out here and fall a bit..but then I expect a more modest 2014, compared to 2013. Maybe in the 4% to 7$ range when all is said and done.

Lets just keep in mind the index is sales date based, so it will be 3 months or so behind the market. So Oct 2013 # of 2184 probably reflects where market was trading around June/July or so. My systems show peak deal vol in April & May, which saw 1440+ deals signed in each of those months. Right now monthly deal vol pace is in the 970s..so I think this is yet to fully filter through the index.

Now, will credit & equities allow for the same environment to continue in 2014?

Cheers all! Happy holidays!

Nice change from the sentiment back in 2008-2010 when the bears were out in full force. But with prices up demographics of buyers is likely to continue to be characterized by those financed by older richer parents, foreign money, and older home owners downsizing from the burbs. Also think we see a continued focus on investor properties.

I don't think mortgage rates matter that much here. We can withstand a 100 bps rise, and a good deal more.

Negative ten percent.

Adding fuel to the ramp up, esp Brooklyn?

"Now the biggest landlords are seeing yet another way to make money from single-family home rentals. The same firms that have dominated buying of homes to rent, including Blackstone and Colony, are pitching a new line of business -- offering loans to smaller landlords with as few as five houses. "

http://www.bloomberg.com/news/2013-12-20/wall-street-unlocks-profits-from-distress-with-rental-revolution.html

@urban... I'd like some insight on your data. I see inventory at close to 3,700 today. That's a lot less than the 4,500 we started 2013 with. I also see pending sales running at 2,700 which shows some signs of slowing but still continues to be above the corresponding numbers in 2012.

For the condo index itself, I wouldn't surprise me if January, Feb or March were slow or even negative in some months. On average Jan, Feb, March see average increases of 0.3% per month with February being negative on average. However, Q2 sees an average increase of 1.1% per month.

@riversider - I wholeheartedly agree and I think I saw Jonathan Miller write a column on how insensitve prices are to interest rates in Manhattan. However, I think there's another category of buyer. First generation wealth. The entrepreneurs, the sports stars, the music moguls, the hedge funders etc... Overall, we all know that incomes are historically high from an inequality perspective. But that pales compared to the inequality of wealth or investment income.

Higher interest rates will NOT slow the market. Higher interest rates are a result of a stronger economy which means higher wages which more than offsets those interest increase costs.

From Ottawa: "One thing that could really skew is if there is an increase in foreign demand (since we are talking condos), which might happen given changes to capital gains in UK for foreign buyers."

very interesting thank you for posting. learn something every day. So foreign investors will have to pay capital gains tax on property similar to ny, paris etc. I was always curious as to why London property was always so popular with foreigners. Why London was more than double the price of a similar apartment in manhattan(the greatest city in the world). Now I know why.....wow this is pretty significant. More foreign money will now flow to Manhattan not to London.

Belgarid posted one of the most interesting real estate articles I have ever read

http://www.bloomberg.com/news/2013-12-20/wall-street-unlocks-profits-from-distress-with-rental-revolution.html

You know they are going to bundle this into a real estate REIT and those buying into it will probably lose money.

You have taxes, maintenance, insurance and vacancy. yet Blackstone is claiming they are making 10%. Yeah right.
Wait till interest rates start rising

Yes Steve, as a good colony and loyal subjects to the Queen we gave the Bank of England our very useful governor. His (Carney's) policy has long been to keep lending rates extremely low, but to avoid creating a housing bubble. So now UK is adopting loads of policies similar to what we've had in Canada for a while to purposely stop rapid growth. Coupled with the strengthening US dollar I think a lot of uber-rich will increasingly look to Manhattan to park cash in RE, as capital gains are actually pretty low here. Not sure how this impacts on the Index.

@steveF and @ottawanyc. Another thing for London is the much lower property taxes and the lower monthlies. In London, I owned a 3 bedroom house. The ANNUAL property tax (Council Tax) was around $2,000. A far higher % of buildings are single occupancy so there are no other monthly charges. In tandem with a typical 2-3% total realtor cost (not 5-6%) and the friction costs of holding property are generally far lower than NYC.

The UK is great from a tax perspective as long as you don't need to earn and pay taxes on an income!

excellent information. thank you Oxy.

Transaction costs are much higher for a buyer in the UK for wealthy buyers. 7% stamp duty on properties over £2m ($3.2m). Realtor costs much lower than NYC at 1.5-2% but that doesn't make up for the stamp duty.

Yes council tax is lower than NYC property taxes, but again that does make up for it.

NYC is cheap to London, and would need to go up 60% to match London on price per square foot and rental yield.

Introduction of capital gains tax for foreigners will send wealthy buyers to NYC.

I own property in Soho, NYC and Chelsea, London, so am pretty up to scratch on this stuff.....

7-8% increase in NYC seems very feasable.

Maybe the lower realtor cost does make up for the higher stamp duty. It's just nice you don't have to pay it as a buyer!

Sohoman, great point. I am no expert on London market but love to get your thoughts on below. To answer the original post 5 percent is my best guess.

1. NYC condos also have 1 percent mansions tax, 1.92 percent mortgage tax, 45bps title insurance. Almost 3.5 percent. Additional expenses in selling make up 7 percent stamp tax.
2. Sales commission is naturally better in London. Of course, people like me using Keith B. have gotten 2% back on more than one transaction at the time of buying.
3. Taxes in nyc for a $3mm 2000 sq ft condo are min $2000 per month unabated. 24k per year vs London 5k per year. Call it additional 20k drag. Assuming 4 percent discount rate (without factoring in nyc real estate tax increases), that is 500k discount as a minimum. If you assume 2 percent tax increase, discount rate will be roughly 2 percent making it a 1mm discount, So you are London eqt 2000 per sq ft.
4. Maintenance is a wash as you are really paying for gas, water, heat, building , maintenance, and potentially doorman, In London, you will also pay for these services.

Every commodity will increase in price due to the demand and supply reactions.

3 days and no response to 300_mercer? Help! Anyone please!!! 300 significantly stretched financially to make his purchase, he really needs the advice. Anyone! Please!

soho.. Is that 7% stamp duty on properties relatively new? I remembered it being closer to the NY Mansion Tax but admittedly I haven't owned property over there in 10+ years.

As we come to the end of 2014, I thought I would check in and see how people are feeling we'll end the year. For whatever reason the streeteasy condo index is still showing September and I'm guessing we've seen some continued slowing. I'll leave it for another day to think about 2015 predictions.

Take my 2014 and apply it to 2015.
Thank you and happy new years.

ditto

"Take my 2014 and apply it to 2015.
Thank you and happy new years."

- yuuuup! see u all next year!

hmm

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Happy New Year!

Ok - we now have 2 months under our belt. Any further takers for predictions for 2015?

My gut feel is that this will be a year for coop owners vs. condos. There are lots of positive economic signs from the broader U.S. economy with the first signs of some real bottom up wage inflation (Walmart and others) which can only be healthy for the broader market. Rates remain subdued but don't have a big impact on the Manhattan market place.

For condos, though, global macro forces are all going in the wrong direction for foreign buyers and I think we are seeing some retreat which has to play into the condo market.

As such, I'm thinking 3-4% condo increases with coops doing better.

>Ok - we now have 2 months under our belt. Any further takers for predictions for 2015?

Yes, this year will be cold, the market will be up, gas will be cheap, and it will be Walker vs. Warren.