July 1 2016: Current Events
There’s a lot of talk these days about current market conditions.
The presidential election, the changing demographics, and the latest hot and not-so-hot locations are both in the papers and readily overheard in restaurants and at parties. “What’s with this market?” is the very first thing homeowners, would-be buyers, and colleagues ask.
While this is not an end-of-conversation blog, I felt the need to present my view on it, thus this brief departure from my self-imposed one-blog-per-month schedule. While giving one more edit, Brexit happened. And yikes ... it was no longer a quick edit.
I hope I get this posted before something else happens.
Navy Beach, Montauk June 29, 2016 by Morgan Anderson
The Election
Everything I’ve read seems to indicate that once we get into an election cycle, especially if a president is ending a second term, uncertainty sets in — and not just in real estate. Markets don’t like the unknown, so the pace of mergers and acquisitions, business expansion, and hiring also slows down.
Apparently, this effect is heightened when the polls are narrow and the rivalry is contentious. (Sound familiar?) And historically, the uncertainty continues through the first year of a new president’s term. At this point, we could be facing another 18 months of would-be homeowners sitting on the sidelines. It is too soon to know what effect the UK’s decision to leave the EU may have in this country and in our real estate market, but it’s safe to conclude that the addition of another — and such a monumental — unknown will not turn things around any sooner.
The Demographics
Up until now, the Baby Boomers have been the largest generation in the United States.
Theoretically, as this generation retires and downsizes, they should be leaving beachside shoes for their grandchildren to fill. You may know them as the Millennials, who are now the largest segment of the housing market. But, in practice, that is not happening.
It’s dangerous to generalize, but nonetheless, here I go: Boomer grandparents selling their “resales” in not-so-cool locations are not attracting Millennials, who are seeking new, modern homes in the hottest locations. Those grandparents, the Boomers, are trying to sell their Park Ave co-ops to their adult grandchildren, the Millennials, who want new condos downtown and in Brooklyn.
As a result, there’s inventory that is not attracting the buyers, and insufficient inventory where buyers wish to be.
Hot vs. Not-So-Hot Locations
Neighborhoods don’t go in or out of fashion overnight. Little by little, a few “pioneers” find a location they can afford, their friends follow, and new shops, restaurants, and clubs open while prices are relatively low. Seemingly suddenly, a “who-would-live-there” neighborhood is where everyone wants to be.
However, this shift isn’t as sudden as it seems. For a long time, Montauk, which is now incredibly hot, was the overlooked and thus less expensive hamlet. Same with Brooklyn, which was also once too far and uninteresting, until it wasn’t.
The most popular locations are not forever. History by definition is slow, but when today’s 20–30 somethings have families, they will be building new or renovating out-of-style homes on properties left behind by the retired Baby Boomers. This won’t happen from one day to the next, and it will probably start with some one-off good deals until the next pioneers settle in. Private schools will bring folks back to Carnegie Hill, and Main Streets will bring the same aging Millennials to East Hampton and Southampton.
Inventory Without Buyers ... or, in Real Estate Speak: A Slow Absorption Rate
When the balance shifts to more supply than demand, prices adjust. My colleague Fred Peters of Saunders' partner Warburg Realty wrote an interesting blog post [Buyer Power] about the state of the market in New York City, which typically leads the Hamptons market by a few months. Following suit, I think we will see a shift in power to buyers with a resultant adjustment in prices, and a new look at some of the older, out-of-fashion neighborhoods.
But for all our talk about buyers sitting out of the market and desirable locations changing incrementally over time, remember: It’s dangerous to generalize. Not everyone is sitting on the sidelines. Deals are happening in all locations and at all price points when motivated buyers are introduced to realistic sellers
© 2016 Diane Saatchi