A Manhattan real estate market turnaround? Maybe… rentals poised to lead prices

New York City’s vacancy rate continued to fall in May, going below 1% for the first time in 2.5 years, (to .98% from ~3.5% in 2009). National vacancy rates however average ~7%, according the National Multi-Housing Council.  

Economics could explain the shift:

What’s behind the uptick? Locally, the Manhattan economy seems to be recovering, evidenced by improvement in technology & healthcare hiring reported by the NYS Budget Office. The city’s unemployment rate fell to 9.8% from 10% in April, though many expect more financial sector job losses.

Manhattan renters not only face monthly rate increases, but many of the big landlords including Lefrak, Related Cos. & Rockrose are no longer picking up brokers’ fees, which can amount to ~1 month’s rent.

Resale prices could follow suit:

Average rents for 1 bedrooms (about 40% of the NY rental inventory) are in the $2,600-$3,100 range, and posting ~2%-3% monthly increases.

On the resale side, a recent Wall St. Journal article reported that median prices of Manhattan co-ops & condos rose 13%-14% in May, vs. spring season in 2009- recognized as one of the worst market bottoms in 15 years.  

Bottom line: Is the uptick sustainable?

Here’s why we skeptics abound:

- average price gains didn’t occur for all apartments types;

- there’s still a glut of unsold condo units (“shadow inventory”) that still hasn’t been absorbed;

- we lack a broad-based employment recovery;

- the risk of a stronger dollar putting-off foreign buyers (caused by  European market instability) is higher than ever;

- interest rates are near historical lows but financing requirements   haven’t yet returned to rational levels, which could temper demand.

That said, the Manhattan market tends to tends to be the last major U.S. submarket to fall and the first to rebound after a recession. So we’ll be looking really closely at Q2 numbers to see if the trend is our friend!