Fresh off first-quarter reports that prices in the residential real estate market took another dramatic leap, brokers report that foreign buyers are investing even more heavily in smaller condominium units.
Several large residential real estate brokerages reported hikes of as much as 23 percent in the average sales price of a Manhattan apartment in the first three months of the year. The median sales price, often considered a more reliable indicator, also increased by 16.5 percent to $705,000, according to a report issued by Prudential Douglas Elliman.
Jonathan Miller, president and chief executive officer of Miller Samuel Inc., who prepared the report, said price records were set within a range of housing categories, showing the overall strength of the market.
Larger three- and four-bedroom apartments captured 30 percent of the market share based on the number of transactions, an increase of 6 percent from the previous quarter, Miller said.
“That came at the expense of the remainder of the market,” he said. “Where I’m seeing activity is the upper segment of the market.”
More recently, brokers have reported they’ve seen an influx of one-bedroom and studio apartments on the market. Some of these units are being purchased by investors to flip, and many of these profit-minded buyers are foreign investors.
Joyce Mincheff, a sales broker with the mid-market brokerage Manhattan Apartments Inc., said she’s handled transactions on smaller Midtown condominiums that appreciated as much as 30 percent in less than three months, including one 500-square-foot unit in mint condition that sold in late January for $345,000 and was recently flipped for $450,000.
“If you get the right deal, [the appreciation] is far greater than 20 percent, and particularly for good investor properties,” she said.
Elese Reid, a broker with the luxury residential brokerage Edward Lee Cave, noticed a large number of smaller units on the market recently.
“I do see new properties coming on, and the largest percentage of the new listings are in the smaller properties the one-bedrooms and studios,” she said.
In the past three months, Reid said she’s seen a surge in the number of foreign buyers, especially those looking for investment units. Currently, she is working with many buyers from London.
“I think that’s mainly what’s driving the condominium prices up,” she said. “They are buying condominiums for investment, and some make it very clear they’re going to sell them as soon as they close.”
Mincheff said she’s seen a lot of interest from countries across the board, but South American buyers have been prominent.
Besides foreign money, bonuses from Wall Street, which were up 10 percent to 15 percent this year, are still filtering into the real estate market. While Reid said she has Wall Street clients still seeking the perfect apartment in a market with little inventory, Mincheff said she has seen a different effect from bonuses.
“A lot of the properties that are for sale right now are from people who have received their Wall Street bonuses, know that their properties are priced well in this market, and want to take the growing family to the suburbs,” she said.
Apartment inventory continued to be scarce in March, when it contracted 3.7 percent from February, and that has been keeping the volume of sales lower, with a 6.2 percent decrease in the first quarter of 2005 from the previous quarter, Miller said. That in combination with other factors is driving up prices into double-digit growth.
“The first quarter reflects Wall Street bonus money, the concern about mortgage rates rising soon and a fairly tight supply scenario,” Miller said. “You put all these three factors together, and you have a rapid rise in prices.”
Those prices will most likely stay high in the second quarter, though there won’t be such dramatic growth, he said. The traditional spring season comes to an end around the Fourth of July,
“In the long run, the market cannot sustain doubledigit growth every quarter,” Miller said. “Going forward, especially if we see modest growth in mortgage rates which actually seem to be reversing themselves now and seem to be dropping again but if we do see a rise, that’s going to take some of the heat off the market.”
In mid-April, Freddie Mac reported that interest rates on 30- and 15-year fixed rate mortgages, along with five-year adjustable rate mortgages, were all in slight decline. Those rates were 5.91, 5.46 and 5.31.
Though brokers were already reporting a small fall-off in activity in mid-April in preparation for the summer season, Miller said that in the past couple years, interest rates have also played a role in keeping the summer season stronger than it has been traditionally.
Not just the sales market has been booming. The rental market, which anticipated its traditional spring pick-up in April, was preparing for growth in prices due to low vacancy rates.
First-quarter Manhattan rental vacancy rates were at 1.67 percent, according to Citi Habitats.
“There is a definite correlation between low vacancy rates and an increase in prices,” said Gary Malin, chief operating officer at Citi Habitats. “When vacancies drop below 2 percent, it’s usually a sign that rents are poised to rise.”
Some rental brokers say they believe they are already seeing growth in prices, and Miller, who also collects some rental data, said there may be more activity in the market in anticipation of rising interest rates.
“But I think the prices have leveled off, or are firming, rather than rising,” he said.