While there is much discussion about prices getting too high for both residential properties and development sites, economists are saying that this boom is being built on a more solid foundation than past booms, as The Real Deal magazine reports.
During the market run-ups in the 1980s, 1990s and the early 2000s, prices shot up higher and faster. In addition, there were even more new residential units added to the market.
A look back shows that the boom of the 1990s saw prices rise by about 84 percent, and they jumped a staggering 116% during the boom of the early 2000s, according to real estate appraisal firm Miller Samuel. This time around, prices have only increased by about 19% since the first quarter of 2013, when they began trending upward. (Prices did start recovering in 2010, but significant increases didn’t come until later.)
“In the context of prior booms, it feels like we’re still in the early stages,” said Jonathan Miller, Miller Samuel’s president.
According to listings website StreetEasy, Manhattan’s median prices have been steadily climbing for 27 consecutive months, the second-longest rise since 2003.
Prices have been rising slowly, said Alan Lightfeldt, StreetEasy’s data scientist, “but that’s in line with what we believe is a healthy market.”
He said the opposite was true in 2006 and 2007, when there were 19 months of steep price gains, followed by the market crash.
Prices in 2004 were driven by “fast and loose credit.” At that time, inventory levels were rising rapidly, as homeowners were rushing en masse to sell their properties and cash out at the top of the market.
Now, prices are rising for the opposite reason. “People can’t sell their homes because they have low equity and as a result, there’s an inventory shortage,” Miller said.
Brokers tend to agree on the fact that prices rising more slowly than they did in previous cycles is a good thing.
Following the 1980s bust, the market experienced a “V-shaped” recovery — meaning that it dropped fast, but then bounced back quickly, mirroring the vertical shape of the letter V.
The current recovery has been “L-shaped” in the sense that the economy didn’t bounce back quite as fast.
The New York City real estate market began to percolate around the end of 2010. That movement was prompted by buyers and sellers believing the Bush-era tax cuts were about to expire. Prices then “moved sideways” for several years, meaning they were relatively flat, until 2012. In early 2013 people got off the fence and we started to see the mood change.
Last year, more than 2,400 new units hit the market and this year, nearly 6,000 new condos are set to come online.
But that’s far less than the 8,000 units that launched in 2007. Plus, new development still accounts for just 10% of sales in Manhattan. At the peak of the last boom in 2006 new development and newly converted residential units accounted for nearly 58% of sales.
New York is a much more diversified economy than 10, 15 years ago. This also helps stabilizing the market and bring in more resources and internal demand.