Brokers like to quote market reports showing that NYC Co-op “inventory” is lower than last year, and that in general, there are fewer homes on the market now than in the past few years. What does this mean, and why is this happening?
First, the word “inventory” needs to be explained. While homes are not like cars that sit on a lot, the amount of homes that are for sale at any given moment is the “inventory” that buyers have to choose from. There is also the “shadow inventory” that people referred to a few years ago – homes that would have been for sale but for the fact that they have mortgages that have put them under water, keeping them temporarily off market. But those don’t have much of a presence in the NYC since most homes are purchased with a 15% or more down payment, and the market never had the sustained dip that others have had.
But the question remains – why are there less homes for sale now – specifically in the NYC market – than there have been historically?
There are all kinds of theories about why (both macro and micro) but our opinion is that people prefer cities to suburbs more than they did in the past. It used to be that the “first home” segment of the market was heavily favored towards urban living, but that as people advanced to other stages of life, they would gradually leave for the suburbs. This started in the 1950s when highways opened up suburban neighborhoods, and many middle class families fled to suburbs for lower crime and open spaces.
However as we now see, with a steep decline in the crime rate, and the appreciation for a shorter commute and greener footprint, city living is a more and more attractive alternative not just for young singles, but for families, retirees and other demographics. Others have pointed out that suburban homes were designed to have a full time “homemaker”, and that families with a homemaker are in rapid decline.
And as fewer people leave, and demand grows, inventory declines and prices increase.
This is exacerbated in Manhattan and to a lesser but still significant extent, Brooklyn, by the fact that all new construction seems to only be for the wealthy and foreign investors, with prices from $2-4K/foot.
So with the new construction market favoring the wealthy, what’s an average buyer to do? RealDirect CEO, Doug Perlson, offers the following 3 tips:
“First, if you want to live in a “hot” neighborhood, buy a co-op over a condo (assuming you can qualify). You will get more bang for your buck, because you will not be competing with investors and foreign buyers, who are typically limited to condominiums.
Second, consider neighborhoods that are “up and coming” rather than the ones that you have been priced out of. For example, if you can’t find the perfect home in Park Slope, consider Jackson Heights, where a charming pre-war classic 6 apartment could be less than half of the price.
Third, use RealDirect and get back up to 1 percent on your purchase to offset the sting of the high price.”
And if you are a seller, congratulations! You are selling into a market with limited choices for buyers, so you should see a great return on your investment.