While low interest rates may suggest now is the time to buy, the soft rental market coupled with a limited supply of starter condo and co-op apartments is challenging conventional wisdom.
For some would-be buyers, renting for another year or two is becoming a necessity given rising sales prices and tight inventory, according to brokers.
Serjik Markarian, an agent with Manhattan-based brokerage FirstService Realty [TRDataCustom], said he worked with two buyers in the past six months who decided to hold off on their search for a new residence because they believe sales prices will drop in the near future. Moreover, he noted, there’s little indication that the low interest rate environment will change drastically in the next year.
Markarian added that concessions in the rental market were “a great incentive for renters to renew their leases and wait for another year or two to buy.”
Seventeen percent of leases signed during the second quarter had some kind of landlord incentive, according to real estate brokerage Citi Habitats.
“Landlords are still getting significant rents; they’re against reducing pricing especially because the summer season is their prime time,” Citi Habitats president Gary Malin told The Real Deal. “But when concessions are close to 20 percent, that tells you the market needs that kind of concession to do deals.” He said his agents could close more deals if prices were more in line with renters’ expectations.
On top of an already soft rental market, nearly 40,000 market-rate apartments are expected to come online in New York City in the next three years, according to recent estimates by Irvine, Calif.-based Ten-X, the online real estate company formerly known as Auction.com. With that influx, Ten-X predicted the city’s vacancy rate among rentals could top 10 percent by 2017.
“The supply is such a big number, it’s difficult to envision all of that being taken up right away,” said Ten-X’s chief economist, Peter Muoio, describing how a surge of inventory will further suppress rent increases, making renting more appealing to potential buyers. “People are like, ‘I can get this brand new apartment with all these amenities for a decent price because [landlords] are making deals.’”
Meanwhile, the sales market for entry-level buyers is firing on all cylinders.
Overall, the median sale price in Manhattan hit $1.1 million during the second quarter, up 13.1 percent year over year, according to real estate appraisal firm Miller Samuel. As for the absorption rate — the number of months it would take to sell the listed inventory — properties between $1 million and $1.5 million moved much more quickly than the rest of the market. Co-ops in that price range had an absorption rate of 4.9 months compared to condos’ 7.8 months and both were under the 10-year average of around eight months.
“For fringe buyers, I think softening rental rates coupled with near-record highs in the sales markets makes the decision much easier,” said Noah Rosenblatt, founder of real estate analytics site UrbanDigs.com. “The $1 million to $2 million market is the sweet spot, and the $5 million market is seeing weakness,” he added.
To be sure, Platinum Properties’ Danny Hedaya said people who want to buy are still doing so. “If you can find a deal, it’s a good time to purchase,” he said. But because the sub-$3 million market is so tight, he said, his clients either rent or try to be less selective.
Not that there are many bargains to be found in the under-$3 million market, cautioned Doug Wagner, who supervises the sales, leasing and commercial divisions at Bond New York.
Kobi Lahav, an agent at Mdrn Group, a small, tech-focused residential firm in Manhattan, said the market dynamics have some clients looking at the sales and rental markets simultaneously. “People are definitely trying to find deals to buy,” he said. They are, meanwhile, demanding deals to rent. “A slower market in Manhattan is still an expensive market, and in this kind of market clients know they have the upper hand,” he said.
But however alluring the rental market may be, Malin argued that determined buyers aren’t likely to abandon the quest for homeownership.
“While there is a relationship between the two, it’s not as significant as people want to make it,” he said. “Those in the sales market will stay, unless they can’t fund what they want and they’ll be forced to rent. If you’re a renter, you’ll stay a renter.”