We crunched the numbers for the 2012 real estate market in Manhattan and have found some interesting trends regarding increased consumer demand and the amount of new inventory scheduled to hit the market in 2013.
When analyzing the number of building permits submitted and approved for 2013, our research suggests a shortage in luxury condo inventory will continue through the rest of this year and beyond.
In a typical year, the demand for new construction in Manhattan can absorb approximately 5,000 units and the 2013 inventory will fall far short of meeting that demand. Our analysis also suggests the demand for luxury apartments in 2013 will be greater than normal because of:
Global Demand For Real Assets In New York City - In response to economic instability abroad, the resilience of the New York City real estate market has led it to be considered a safe haven investment.
Low Resale Activity - Many current homeowners are hesitant to sell because of the lack of available housing to transition into.
Pent Up Local Demand - The increasing availability of credit and increasing consumer confidence levels are causing many individuals to seriously consider buying again.
The absence of a YOY increase in the average Price/SF of Manhattan luxury condos in 2012 ($1,301/SF in 4Q-2012, compared to $1,295/SF in 4Q-2011) despite the fact that inventory remained low and demand remained high, suggests condo prices will rise, maybe significantly, in 2013 as economic principles catch up to reality.
Basic economics states that a decrease in supply coupled with increased or constant demand will increase the price of the underlying asset since the two are inversely proportional. NCM suggests that, since the price effect of this supply/demand imbalance did not materialize in 2012, condo prices must rise in 2013.
Research from the Corcoran Sunshine Marketing Group sets the number of available listings at 5,366, a 24 percent drop from last year. The listed inventory of the condo market fell even lower with a 36.9 percent decrease. This is the smallest level of product availability since the first quarter of 2005, and the shrinking inventory has had unmistakable effects on the market.
With limited supply comes strong demand. This basic economic principle can be seen at work in the record condo prices in the fourth quarter of 2012. The average price of condos soared to highs of $1,689 per square foot, surpassing previous records to the delight of owners. The median-sales price of the luxury market increased an impressive 7 percent from 2011.
Despite the shortage of inventory -- or perhaps, in part, because of it -- the sheer number of contracts signed skyrocketed as well. 12,384 contracts were signed in 2012. This marks a 19 percent increase from 2011, and the highest sales since 2007. In the luxury market alone, the number of sales increased by 29.4 percent, regardless of a 9.6 percent decrease in listed inventory. The co-op market also saw an amazing 56.4 percent increase in sales over the past year.
Certain neighborhoods also recorded startling growth. Sales in Morningside Heights surged by a stunning 145.5 percent, while the East Village rose by 81.1 percent. The West End Avenue corridor along Riverside Drive saw a 71.6 percent increase in sales, and Park Avenue corridor and Sutton Place in Midtown East saw gains of 66.9 percent and 49 percent, respectively.
Even with global financial markets in a state of uncertainty, Manhattan Real Estate has never been stronger. The market has surged dramatically, achieving record prices and sales even with a rapidly diminishing inventory.