Speculation in New York’s real estate market continues to swirl as concerns about how market turmoil, cheap oil, and a boom in residential development will play out in 2016. In a time of growing uncertainty, the question that continues to be asked is when the bottom will fall out of New York’s housing market? To answer this question, we took a look at conditions surrounding past booms.
While there has been a lot of talk about price growth in the past few years, today’s gains seem much less severe when compared to percentage price growth in previous market cycles. The period from 1998 to 2001 saw prices rise a staggering 83.7 percent, only to be outdone by the period from 2003 to 2008 with prices rising 116 percent. When put into context, our current cycle measured from 2013 to present has only seen a rise in prices by a much healthier 19%. We still see room for price growth in this cycle given how sound the lending market has been and pending avoidance of any major global economic events.
Pricing isn’t the only concern surrounding New York’s real estate market. Manhattan has also seen a surge in new development, with an estimated 5,593 new units filed with the Department of Buildings in 2015. However, this number is down significantly from 2014, which saw 11,130 filings for new units. When compared to previous cycles, such as the period from 1982 to 1987 when more than 242,000 units were converted to co-ops, the number of cranes seen around Manhattan seems much less intimidating. It is also important to consider that new development sales only make up about 10 percent of all sales today’s market, compared to almost 58 percent in 2006.
While there are certainly many opinions on the issue, history seems to agree there is room for New York’s real estate market to grow during this cycle. Whichever way the market does end up going, there is certainly still room to maneuver. We recommend recognizing an opportunity when you see it: While prices are seemingly high in New York, interest rates remain historically low, and rental growth predictions are good. Exploring development may be another avenue to consider while commodity prices are low, if you can find the right property to invest in.