The US remains the dominant world economy, and trends in its housing market have significant global implications. Kate Everett-Allen examines the fortunes of this critical market as price growth begins to build momentum.
The US economy provides a mixed picture. Four years since it was announced that the recession was over GDP growth stands at 1.8%, unemployment is hovering around 8% and wages are struggling to rise above inflation. Despite this, mainstream house prices in the US are now 9.3% higher than a year ago and new home sales are at their highest level for five years.
Economic indicators at a national level are still somewhat sluggish to the extent that the Federal Reserve has yet to withdraw its QE stimulus measures. Foreclosures are still high in historic terms and mortgage lending has yet to pick up (figure 1) but there are pockets of strong growth.
In New York and Miami – following the artificial spike in activity created by the ‘fiscal cliff’ at the end of 2012 – most analysts predicted, particularly at the top end of the market, a slowdown in 2013 but were proved wrong.
The median price of luxury condominiums in New York rose by 8.2% in the year to June, and by 5.9% in Miami. Co-operatives, by comparison, recorded little change in price due in part to the restrictions placed on international buyers by most co-operative boards.
International buyers account for around a third of sales above $3m in the New York sales market but closer to 50% in its equivalent new homes market.
The key price determinant in 2013 has been supply, or the lack of it, brought about
by tight credit conditions. The number of apartments for sale in Manhattan is currently at a 12-year low. Unable to secure finance, potential vendors are staying put, limiting the turnover of homes in all but the new homes market.
The housebuilding pipeline was effectively turned off in 2007 and both Manhattan and Miami sold only a ‘shadow inventory’ up until 2012 when new projects began to complete. With the development cycle lasting approximately two years we are only now starting to see these projects enter the market. Absorption levels are high, particularly in New York, even at prices of $4,000 per sq ft and above.
Figure 1: US recovery timeline. Mortgage lending ($bn) vs US house prices (Indexed, 100 = Q1 2007).
New York snapshot
The final three months of 2012 saw the highest number of fourth quarter sales in 26 years, fuelled in part by the threat of the ‘fiscal cliff’. The predicted slowdown in 2013 failed to materialise, instead, sales in New York in the second quarter of 2013 were at their highest level for six years. All sectors of the market saw strong activity but the key narrative was the lack of supply.
Figure 2: Purchase costs compared. Typical cost of purchasing a US$3m property for a non-resident
(% of property price)
New York’s inventory has not fallen because demand has strengthened significantly, supply has been falling for three years yet sales have only picked up recently. Instead, homeowners are biding their time. Around 44% of US homeowners with mortgages have low or negative equity and due to tight credit conditions a large number no longer qualify for finance.
New York’s luxury market is defined as the top 10% of the housing market. For the past two years this has largely corresponded to the $3m+ price threshold. It is perhaps no coincidence therefore that the starting price of the majority of new developments in Manhattan is now around $3m.
Soho, TriBeCa, Upper West Side, Upper East Side and Little Italy represent the markets targeted by luxury buyers. The 57th Street Corridor is increasingly a focus of new development activity and is already home to One57 and 432 Park Avenue.
Source: Knight Frank