The stock market is doing great. Unemployment is decreasing. And consumers seem newly confident. But at least one significant obstacle is preventing a surge in home sales in Midtown West and other major New York City areas: Even if people want to purchase homes, there aren’t that many to choose from. In fact, the current inventory crunch, the worst in recent years, has become the defining feature of the City’s residential market.
At the end of the first quarter, there were only 4,960 co-ops and condos in Manhattan for sale — a sharp 34 percent decrease from 7,560 in the same period of last year, according to a data research firm. That’s the steepest year-over-year plunge in over a decade, according to a local appraiser who has tracked the city’s inventory since 2000. Currently, the inventory is hovering around 2004 levels, before the real estate boom gathered steam. Inventory peaked in 2009 and has been decreasing ever since, the data shows.
Why the Shortage?
One primary reason is the slowdown of new residential development during the downturn, when construction loans were scarce and the ones that did get issued were far smaller than they were during the boom. Even as residential development heats up again, banks are more comfortable underwriting loans for developers to build rental properties versus condos, say industry insiders. And these days, there are less external financial incentives in terms of tax abatements, such as the now-expired 421a, which prompted developers to rush projects into the ground, which resulted in a flood of residential inventory in the city.
Basic demographics could be to blame, too. The city is now adding approximately 50,000 residents a year, according to U.S. Census records, but the number of homes being added to the market is not keeping up with the pace. Indeed, just 10,599 single-family homes and apartments were built in 2012, compared with a recent high of 33,911 back in 2008, according to permits filed with the city’s Department of Buildings.
Improved subways, low crime rates and more family-friendly amenities are among the factors fueling the city’s popularity, said a real estate attorney and former City Council member. Other factors restricting residential inventory today include tight credit and high unemployment, experts say. Homeowners who are financially challenged or fear they can’t get a mortgage can’t upgrade to bigger apartments, said a veteran real estate attorney who represents sellers and buyers, which means they’re unlikely to put their own homes on the market.
Adding insult to injury — for homebuyers, at least, is that the lack of supply is sending prices of the homes that are available through the roof. Ironically, tight credit is making housing prices higher, which is completely contradictory, industry insiders say. It is definitely keeping inventory from entering the market in a normal way, they add.
Tight market conditions are also leading to regular bidding wars. It’s estimated that one out of every three Manhattan buyers has engaged in a bidding war of some kind. In 2012, by contrast, that usually only occurred in one out of every 10 deals. Things have heated up significantly since then. None of the major Manhattan neighborhoods have been spared by the inventory shortage, according to a data analysis.