As Bloomberg notes, apartment prices in Manhattan are at record levels. Q1 Mean and median prices are up 15% and 22% y/y respectively. Drilling into the detail a little further, the median price for 3+ bedroom apartments skyrocketed to $4.0mm, a whopping 30% y/y.
On the surface the aforementioned would indicate a market that’s hot, and about to get hotter, but be careful with that assumption. While Q1 saw record high prices, it’s important to remember that prices are a relatively lagged number. Prices that hit now are a reflection of deals that just recently closed, but contracts entered into months ago. A different way to gauge the residential real estate market is to take a look at the number of contracts signed (is activity picking up or slowing down), and months of supply (is the market over supplied).
First, when you look at contracts signed, you see indications that the market is steady but cooling, at least as it relates to the past few years. Signed contracts dropped of 11% y/y.
Secondly, when you look at months of supply, you see perhaps an even more disturbing number. In each category, months of supply is trending up y/y, and even more significantly when you look sequentially. This means that there is a glut of residential real estate out there, and if economics holds true at all, prices will inevitably come down, perhaps quite a bit.
As we pointed out, the Treasury started to crack down on “secret” buyers of luxury real estate back in January, who as we have been warning since August 2012, has been the primary source of funds for the ultraluxury housing segment. This is presumably one reason for the recent slowdown in contracts signed. We wonder who is going to get burned by positioning themselves to flip a luxury apartment to the next wave of hot money entering the US.
The ultimate question we have, in the aftermath of the Panama Papers revelation, is this:
How many of the people behind shell LLCs used to purchase luxury NYC real estate will be exposed
— zerohedge (@zerohedge) April 3, 2016
Charts: Corcoran Group
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