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Mark Chin

July 29, 2022
5
The Insider is a weekly blog by the Rubin Team at Douglas Elliman, focusing on hot properties and current NYC real estate market trends and insights.

The Insider: It’s the Dollar, Stupid! Investing in NYC real estate with an eye on currencies

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| The Insider is a weekly blog by the Rubin Team at Douglas Elliman, focusing on hot properties and current trends in the NYC real estate market.

Views for miles (no exaggeration!) from the 17th floor
Prewar
We’re suckers for fixer-uppers in great buildings
Corner unit
Greenwich Village
Doorman/elevator/bike room/pets allowed
(check, check, check, check!)
Opportunity to create an ivory-tower masterpiece
$1,345,000
1 Bed, 1 Bath, 1,000 Amazing views!

CLICK HERE FOR MORE INFO

Call 212.321.7111 for an Insider showing!

LISTING COURTESY OF BROWN HARRIS STEVENS
Today’s Insider is dedicated to the topic of the (recently) mighty US dollar. We’ve been hearing travel is cheap in Europe, but that’s not all. Let’s take a look:
The Euro is essentially at parity with the dollar, the first time in twenty years. And it’s down almost 15% against the dollar in the last year thanks to Russia’s invasion of the Ukraine.
The “Great” British pound is down over 13% in the last year.
All of this might seem like bad news when it comes to foreign investment in NYC real estate. However! According to Statista, the largest buyers of our city’s real estate are Canada, Mexico, and China (in that order)…
… and the dollar has been relatively stable against those currencies (the following are one year percent changes):
  • USD/CAD +3.15%
  • USD/MXN +2.19%
  • USD/CNY +4.59%
Sure, on the margin we might see less buying from the UK, but their share was only 4% of residential purchases anyway. With the Fed expected to do another 75 basis point move in the Fed Funds rate followed by perhaps a few more 25 basis point raises, the dollar looks to continue in its strength. This may actually induce greater buying from Canada, Mexico, and China in the short term.

What Does This Mean For NYC Real Estate?

What the dollar does versus other currencies for those people that earn their money in dollars and invest here is not really relevant. The best strategy for those people right now is to buy a rental property and take advantage of the staggeringly high prices in the rental market.
If you are a foreign investor looking for a blue chip asset that will provide modest income and a stable home for some portion of your real estate portfolio, the same strategy applies.
If you are looking to take advantage of cheap prices in Europe or the UK due to the US currency being strong, buying property there might be a good idea. Take this caveat, however: during winter the Russian-created energy crisis will disproportionately hit western Europe. With more interest rate hikes on the near term horizon here suggesting an even stronger US dollar, you may want to wait until early 2023 to make that investment.
Have a great weekend, everyone!
The Insider is a weekly blog by the Rubin Team at Douglas Elliman, focusing on hot properties and current NYC real estate market trends and insights.
July 22, 2022
2

The Insider: “It’s the Interest Rate”… Really?

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Over 2,100 SF of outdoor space (!)
3 Beds, 3.5 baths in 2,500 SF interior space
10 foot ceilings
New construction
Entire top floor of the building
Private keyed elevator access
Skyline views
Doorman & Concierge
Gym
Bold-faced name appliance package

$7,495,000

CLICK HERE FOR MORE INFO

Call 212.321.7111 for an Insider showing!

LISTING COURTESY OF BLU REAL ESTATE

As I’ve written before, New York City is subject to different market forces than other places, mainly because of the amount of wealth required to buy here. Because of our price point ($2.15M average price in Manhattan as reported by the 2nd quarter Elliman Report), purchasers have larger loans and are typically selling assets to fund their home purchase. With the S&P 500 down 800 points since the beginning of the year and interest rates up, we’ve been hearing some clients thinking of putting their purchases on hold because of these two factors.
Let’s break it down. Starting with interest rates, how high are they, really? If you look at the headline numbers in the press or go to (for example) the St. Louis Fed’s website to look at the national averages, you would be right to be alarmed:
—PBS News Hour
But NYC isn’t really a conforming loan market, which would entail loan amounts under $647,200 for a co-op or condo. We are a jumbo loan market, which for loan sizes above the conforming loan limits is quoted by Greg Socha or Wells Fargo as of this morning are coming in at 4.50%.
Gregory A. Socha
Private Mortgage Banker
NMLSR ID 62414
Wells Fargo Home Mortgage
150 East 42nd Street 32nd Floor | New York, NY 10017
MAC J0161-313
Tel 212-214-7762 | Cell 917-327-5492 | Fax 866-369-2219
In my view, a 4.5% 30 year fixed rate is still pretty darn low and oughtn’t to deter anyone in this price point from purchasing.
The story with the stock market is more nuanced. As everyone will have noticed, the first half was disastrous in stocks, with the worst six month performance since the Great Depression. Yeah, that hurt. But when stocks have performed this badly, they tend to bounce back very significantly in the second half:
“We believe the fundamental risk-reward for equities will be improving as we enter the second half of the year, with growth-policy tradeoff likely to turn, from both sides,”
— Dubravko Lakos-Bujas, Global Head of Equity Macro Research at J.P. Morgan
If you are looking for everything to line up perfectly, then, for your real estate purchase, apparently you are waiting for this scenario:
  1. Before the end of the year, interest rates start coming down again
  2. Stocks explode, making you feel rich again
  3. The real estate market tilts into a buyer’s market so you get a cheap entry point
  4. We briefly tilt into a recession, giving employers the power to force everyone back into their offices, which would be good for NYC, but then the recession goes away so you can feel confident about your real estate purchase
  5. The war in Ukraine ends, Russia plays nice, and China stops saber-rattling over Taiwan
  6. Pfizer miraculously discovers a universal vaccine for every viral antigen that has no side effects and requires one shot.
The truth is, there is never a perfect time to buy an apartment. These questions are always relevant, however:
  1. Would a different apartment improve your lifestyle substantially?
  2. Can you afford it?
If the answers to those two questions are “yes”, then consider blocking out the noise and realizing that if you are buying for the medium to long term you will, with a high degree of probability, make money on your property.
Have a great weekend, everyone!
July 15, 2022
2

The Insider: The Housing Squeeze

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The Insider is a weekly Email from the Rubin Team at Douglas Elliman Real Estate, NY. covering trending topics on the current New York Market and featured hot property tips.

We’re suckers for Bond Street
Condo
1,100 SF private outdoor terrace
10.5” Ceilings
2 beds, 2 full baths
Airy and light
Amazing energy

$4,550,000

Call 212.321.7111 for an Insider showing!

 

 

LISTING COURTESY OF BROWN HARRIS STEVENS

 

Average rental prices in Manhattan just broke $5,000 – an all time record.
—NY Post
Elliman reports the average days on market are down and average and median prices are up:
—Douglas Elliman
And yet NYC office towers are still only at 40% capacity. What is going on?
  1. Leading up to 2008, credit was lax and lots of people who were marginal buyers got loans. Not now. The credit box is a lot tighter, so those excluded from the mortgage market are renting.
  2. Affordability has taken ~50% hit since the beginning of the year with rising interest rates. Anyone on the affordability margin has been kept in the rental market.
  3. With rents rising and rental concessions disappearing, many renters are opting to stay where they are as the switching costs are at a high point.
So that’s what’s happening right now. What about in the medium term future?
Unfortunately, a developer tax exemption, widely used to finance rental units just expired:
—Commercial Observer
And it won’t even be considered for renewal for six months. The point of 421-A was to incentivize developers to build affordable housing, which they did. Roughly 70% of new multifamily construction in recent years utilized it. The problem was that construction, being expensive, is biased to the expensive side of the market. Add in the incentives for low-income housing and you have the middle without any new supply. Read: $3,500 one bedrooms. Which has been supply constraining (for years) the sort of affordable rentals that young professionals need when starting their careers and middle class renters need generally.
In short, we see no relief for renters on the supply side in the near term foreseeable future. There might be demand side relief in the form of a recession, if that happens.
Have a great weekend, everyone!
July 8, 2022
2

The Insider: Off To the Races?

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Super Rare Opportunity on Central Park West, 3,900 SF!

Off market combo

Sponsor unit – NO BOARD APPROVAL

No financing limits

Highly exclusive Central Park West co-op

Has never been on the market before

Three exposures

Original details

Private entrance

10.5’ Ceilings

Working Fireplaces

Central air and washer/dryer allowed

Offered at around $9m, ~$2,300/SF – another in the building is on the market for ~$3,625/sf (renovated)

Gut renovation required – create to your exact specs

Spectacular roof deck – must be seen to be believed!

Call 212.321.7111 for an Insider showing!
LISTING COURTESY OF CORCORAN
For all the news of inflation, inflation, inflation… there seems to be a break happening now. Let’s consider:
Gas prices have been down for 24 days in a row
Retailers are suffering under huge oversupply of inventory and are cutting prices across the board:

Read Article

—Bloomberg

—CBS News

With prices at the pump and in stores coming down, as well as cooling national housing data, it’s likely there will be only one or two more interest rate hikes before the trend reverses.

—Bloomberg

Remember this: Manhattan real estate is highly sensitive to the S&P 500 in a way that the suburbs are not. Buyers for a $400,000 home in the suburbs save cash for a down payment and buy based on their monthly ability to pay a mortgage. When prices are in the millions, buyers sell stocks (and other assets) to buy real estate. So when the stock market is down, this impacts the demand side in the city.
On the other hand, if (as is our thesis) decreasing prices and interest rates spark a stock market rally, then we should have an anticipatory run up in the S&P 500. This will fuel a very active demand-driven real estate market in the 4th quarter of 2022 and into the first half of 2023.
Happy Friday, everyone!
July 1, 2022
2

The Insider: Market Uncertainty? BBQ!

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Magical Corner of Soho
Prewar 3400 SF penthouse loft
Private roof
Dramatic double-height great room
Views for miles
Private key-lock elevator
Bold-faced named appliances and finishes
Central air

$6,688,000

Call 212.321.7111 for an Insider showing!
LISTING COURTESY OF BROWN HARRIS STEVENS
As we enter the July 4th weekend, it seems there is a lot of uncertainty in the air.
Source: The New Yorker
Some pundits predict rising interest rates:
—CNN Business
While others are speculating on a drop in interest rates:
—CNN Business
Similarly in stocks, some are betting further pain in the stock market:
—Market Watch
While others expect a rally to get us back to even by year end:
—Investor’s Business Daily
Let’s take a look at some cold, hard data that pertain to all of us:
The numbers are clear: the vast majority of us will be spending time this weekend at a cookout, barbecue or picnic. With that in mind, let’s rest the question of what the vast money flows across the globe are doing, and enjoy the weekend with friends and family.
Happy Fourth of July from the Rubin Team!
June 24, 2022
2

The Insider: Whither NYC Real Estate

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13 foot ceilings and 4,200 Sq Ft.

Industrial feel

Completely renovated

Central air

Gorgeous surfaces throughout:

brick, walnut, marble, steel, glass

Beamed ceilings

Vented exhaust in kitchen

$6,950,000

Call 212.321.7111 for an Insider showing!

BOOK A PRIVATE TOUR

LISTING COURTESY OF BROWN HARRIS STEVENS

Buyers and sellers of apartments and townhouses here can forget that New York City is a city of renters. 70 percent of our housing stock is rental apartments. As you can see from the chart below, this contrasts heavily with the rest of the country, which has the opposite ratio – about 30 percent of the housing stock is rental.

Sources: American Community Survey, NYU Furman Center
So when rental prices surge here in NYC, as they have been…
The effect spills over to the sales market in a far more profound way than it does elsewhere.  In this case the high rental prices will continue to push people to buy apartments, at least in the sub $2M price range. Above that price, the transitive effect will be lesser (a person paying $10,000 a month in rent cannot for the same monthlies purchase an apartment over $2M taking into account interest rates at over 5% and the common charges and real estate taxes or maintenance).

This means that the lower end of the market will continue to be stronger than the high end. We have in fact seen the high end start to stumble a little. As this week’s Olshan Report says:

“Twelve contracts were signed last week in Manhattan at $4 million and above, 13 fewer than the previous week. It was the worst week in the luxury market since the week of December 28, 2020, when 10 contracts were signed. This anemic performance coincided with the S&P 500 Index dropping 5.8%, its worst week since March 2020. The S&P has fallen 11 of the last 12 weeks.”
Source: LUXURY MARKET REPORT 2022 Report on Contracts Signed Manhattan Residential Properties $4 Million and Above June 13-19, 2022
Further we are going to see supply constraints ongoing as people remain in their current homes because financing is so much more expensive. Wouldn’t you rather keep a 3 percent mortgage on your current home then pay high prices and lock in a 5.5 percent mortgage? That calculus is going to continue into the next year as homeowners focus on the real frictional cost of switching to another apartment.
All in all, we believe that the market will bifurcate with the under $2M segment continuing to be relatively strong, while the luxury market will come under pressure as the financial markets continue to show volatility to the downside.
June 17, 2022
2

The Insider: How To Weather This Storm

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2,800 Sq Ft.
Authentic cast iron loft building
Ultra low monthlies
Stunning interior architecture and design
Soaring ceiling heights
Floor to ceiling windows
On one of the best cobblestone blocks in Soho
$5,350,000
Call 212.321.7111 for an Insider showing!

 

LISTING COURTESY OF COMPASS

 

We have been fielding a lot of questions about global asset turmoil recently and what we think about it. So today’s Insider is dedicated to showing how to think about global money flows and how they might impact New York City real estate.
Let’s start with some facts.
1: Equities are down, and in bear market territory:
2: The bond market is getting slammed as interest rates go up (bond yields and bond prices move inversely)
Source: CNBC
3. Gold prices have swooned in the last 3 months:
Source: Gold.org
4. Cryptocurrencies have been in a scary free-fall:
Source: World Coin Index
5. AAAAAnd Inflation is soaring:
With more sellers than buyers in equities, bonds, gold, and crypto there is a LOT of cash sloshing around global financial markets at the moment. Cash is not a safe haven, though, with inflation at 8% y-o-y as measured 3 days ago by the Labor Department – a 40 year high.

How are we to make sense of all of this? Let’s start with remembering that the cause of all of this turmoil is inflation. Inflation destroys value, and taken to extremes undermines governments.  This explains the Fed’s drastic 75 basis point increase in the Fed Funds rate this week.  We are likely to be in a period of strong inflation at least until the war in the Ukraine and the zero-Covid policy in China are over. What “inflates” during these times? Prices of things, particularly hard assets. And real estate is the pre-eminent hard asset of them all.

How do you pick what real estate to buy? Turbulence typically sees money moving to safe havens – in other words to blue chip assets. The premier blue chip real estate market in the USA is New York City. There is no second place.

Our conclusion is this. In a world where most asset classes are hemorrhaging and inflation is soaring, the most sensible long term asset class is real estate. New York City represents the ne plus ultra of that market.
June 10, 2022
1

The Insider: NYC Crime Not an Issue, Supply and Demand OTOH…

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What’s not to like?

Inground pool (!)

Separate carriage house in the back of the property

Elevator

Seven fireplaces

$6,995,000

Call 212.321.7111 for an Insider showing!

LISTING COURTESY OF LESLIE J. GARFIELD

I moved to New York City in 1988 and remember being reasonably freaked out the first time I had a “pan handler” pull a gun on me and relieve me of all of my cash. By the end of my 4 years at Columbia I had lost count of the number of times someone I knew was mugged at gun or knifepoint.  It seems the city is engulfed in a new wave of crime and New York City is back to those days.
But is it really? Bloomberg reports that contrary to the constant crime chatter and anecdotal evidence, New York is not only the safest of any of the six largest American cities…
It is also the second safest of all US metropolitan areas…
And on top of all that it is safer than either the suburbs or the countryside!
Let’s stop talking about how bad crime is in the City, shall we?  Okay, it’s true you are more likely to actually see a crime or read about it in the NY Post. But the crime is not likely to happen to you. So relax.
Check out this graph from Bloomberg which shows the dramatic outflow from NYC of households during the pandemic, but also the reversal of that trend. Both were far more dramatic than what other cities saw.
Our analysis is that this is what is causing BOTH the tight rental and tight sales market (both shown in the charts below).
Think about it this way. If you owned an apartment and moved out during the pandemic period but still own your apartment, you are unlikely to sell until you find out if your boss is going to require you to be back in the office full time. And if you don’t own but are moving to New York for employment, and are unsure about future work-from-home policies, you are likely to rent to preserve your flexibility should the situation change. In other words, the rental market is super hot and driven by demand. The sales market remains hot because it is supply constrained.
Have a great weekend!
June 3, 2022
1

The Insider: Sales Spike as NYC is Losing Residents

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Loft
In Greenwich Village
Industrial feel, with concrete floors and brick walls
Private outdoor space
Working fireplace
Prewar
Central Air
Beautifully renovated
Views for days

$2,850,000

Call 212.321.7111 for an Insider showing

LISTING COURTESY OF CORCORON

 

New York City loses 300,000 residents while the rental market hits all time highs and the pace of signed contracts has been blistering. What gives?
The City reports NYC lost 300,000 residents between the start of the pandemic and mid 2021, and it looks like we’re still losing residents.
At the same time rental prices are at all time highs for one bedroom and two bedroom apartments:
Source: Zumper
And consider the blue line in the graph below, which shows strong buying demand as the number of contracts signed increases to a blistering pace from mid 2020 to currently.
How can all of these things be happening simultaneously?  Here is our analysis.
FIRST:
People are learning to be efficient working from home. They just aren’t doing it with three roommates. In short, since the pandemic started more people are living by themselves, which increases the demand for apartments.
SECOND:
Remote work means that more people are doing remote work from New York City. At first this seems counterintuitive, but people love New York for the culture and the food. So why not do your work from an apartment, have no commute, and still get NYC as your playground?  The worst part of NYC living is the commute, not the work. Get rid of the commute and BOOM, lots of people want to live here. Surprise, surprise.
THIRD:
New York City is the only truly blue chip city in the USA for investment purposes.  As other asset classes go haywire (crypto of course, but bonds and stocks as well) real estate is looking like a very stable asset class to park money in.  It might go up and it might go down, but it isn’t likely to go down 30% in a month, for crying out loud.
Yes, the market may be cooling a bit (we will cover that next week) but for now, even cash isn’t a safe haven with inflation the way it is.  So we will continue to advocate for significant percentage of everyone’s assets to be allocated to real estate in the City.
January 7, 2022
2

The Great Exodus and Strong Return to NYC

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In the last 3rd quarter 2021 data dump, Miller Samuel reported that compared with 3rd quarter 2019, average prices in Manhattan are up 14.7%, unit count is up 76.6%, and sales volume in dollars is up over 100%.  In other words, whatever Covid discount there was has evaporated, and the market has, by certain measures, never been stronger.

Two pictures show what’s happening, both published in a paper entitled “The Pandemic’s impact on NYC Migration Patterns” by the Scott Stringer (NYC’s Comptroller). 

This shows the net moves out of Manhattan and prime Brooklyn in 2020 vs 2019.


The next graphic shows the reverse subsequently happening: net moves back to the city in a window between June and September in 2021. 

Of course we are not out of the pandemic, and the virus has a habit of making fools out of prognosticators. That being said, one thing is clear: employment is strong for white collar workers, and these are the people that buy homes. Having spent a year away from the city, many are returning because of comforting vaccine mandates, high vaccination rates, and jobs that are no longer work from home every day.

We expect this trend to continue into 2022, with high stock prices, relatively low inflation and the attractiveness of NYC as a place to live and work driving demand.