The Manhattan listing inventory can be very volatile when certain segments of the market deviate from overall market trends. The chart from Miller Samuel helps provide some context. The sale of studio and one bedroom apartments in 2010 helped wake the luxury market and spur the Year of the Trophy Property in 2011/2012. As inventory has significantly fallen since the record sale at 15 Central Park West we see that the four bedroom listings begin to fall in line with the inventory of the other market segments. As the listing inventory of each segments return to equilibrium we see a perfect storm starting to emerge: low interest rates, low inventory, pent up demand, and global investors looking to make smart money moves in the end of the era of low interest rates.
CHART (Miller Samuel)
Rising Interest Rates
The end of the era of historically low interest rates is upon us, or at least that is how investors have reacted Federal Reserve Board Chairman Ben Bernanke’s June 19th statement that “the downside risks to the outlook for the economy and labor market have diminished”. Despite this, Bernanke has not said that there would be an immediate change in the bank’s easy money policy. However, the reaction of investors in the anticipation of this policy change was quite evident as the 10-year Treasury yield hit a low of 1.66% on May 2nd and rose to 2.44% on June 21st. The U.S as well as global stock markets also took a nosedive following the announcement with the Dow plunging 559 points in two days.
Interest Rate Forecast
How fast and how far the interest rates will go up is certainly still to be determined, but Moody’s Analytics predicts the 10-year Treasury yields will go from today’s 2.44% to 3.5% in 2014 and to 4.5% by the end of 2015. Other forecasts see rates rise to the neighborhood of 4% in 2014. The global credit market represents a wildcard in any prediction, so there can certainly be no sure thing.
Effects of Rising Rates
Locking up assets in bank savings accounts, certificates of deposit and Treasury bills has paid just a fraction of a percent over the past several years. Rising interest rates will also hurt investment portfolios containing bonds or long-term bond mutual funds. It is no surprise that $24.4 Billion was pulled out of bond funds in the two weeks after the announcement by Bernanke.
Diversification: Manhattan’s Luxury Real Estate Market
As no one knows for sure the outcome of the rising rates, diversification continues to be important in investments. Despite the end of cheap money, rates on loans will continue to climb gradually so there is should not be too much pressure on rushing into taking on debt.
CHART (Miller Samuel)
Manhattan’s luxury real estate market continues to yield higher returns for resellers as median prices climb very close to 2008 numbers making it a very sound investment and attracting a great deal of attention from a global audience. If you are looking to take advantage of the free money before it is gone and investing into property in Manhattan, or you are looking to secure the highest price for a property you already own, taking advantage of the perfect storm, please don’t hesitate to contact us.