I am constantly asked by those who are concerned about the short-term outlook whether this is a good time to purchase an apartment. This question overlooks the long-term value of real estate. Buyers should look at an apartment as a place to live as well as an investment. There are too many unknowns that can influence the short-term market. If looked at historically, residential real estate is one of the best investments around. While it may not produce the annual returns of a hedge fund, it does more than hold its own against equities.
For example, let’s compare Manhattan apartment prices and the S&P 500 Index from 1995-2004, the latest 10-year period for which statistics are available. The S&P 500 increased 96 percent during that 10-year period, according to Financial Service Facts. By comparison, the median price of a Manhattan apartment was up a whopping 192 percent according to Prudential Douglas Elliman reports. Co-op apartments increased 171 percent and condominiums 223 percent.
The current market should really be looked at through a big picture lens, not a narrowly focused short-term view.
This issue of whether or not to buy reflects the uncertainty in residential real estate. As you know, we get conflicting reports in the news media about the market’s health and an atmosphere of skittishness is rampant. The national media, in particular, which focuses on homes, rather than apartments, gives contradictory information about sales and housing starts on a month-to-month basis, so no clear picture has emerged. The New York City market, however, is very different from the rest of the country and we need to focus on what is happening here, rather than in Atlanta, Los Angeles or Peoria.
Often overlooked in the current residential market is real estate’s value as more than an investment. An apartment is a usable commodity, while a stock certificate is not. While real estate offers an excellent opportunity for a sound investment, a buyer is getting a tangible that has considerable utilitarian value. It is their home and helps create their quality of life. A home says a lot about people, where they are in the world and their ambitions. It becomes a statement about them.
This brings us to the current market. There is more inventory now on the market than in recent years due in large part to the condominium boom and it is taking longer to sell an apartment. The condominium boom gives buyers more options, with the market slowing down they are taking longer to view all their options before buying.
In a report prepared for Prudential Douglas Elliman by the appraisal firm of Miller Samuel Inc., the average sale price in Manhattan was $1.39 million in the quarter ending June 30. That’s an increase of 6.6 percent over the first quarter of this year and a 5.2 percent increase over the comparable quarter last year. Condominium prices were weaker than co-ops, reflecting the large number of sales in new buildings with smaller, less expensive apartments. Condominiums made up half the sales, though there are more co-ops in the city. This was attributed to intensive marketing campaigns by new condos.
Whatever the fluctuations based on supply or mortgage rates, I am confident the long-term integrity of the market is solid. My advice to buyers is to stop looking at the real estate market as they would the stock market and return to the traditional view of buying a home that long-term has excellent appreciation value. The market, when one clears away the fog of confusion, is very attractive.
Sellers, after years of rapidly escalating prices, all too often are setting the asking price too high and stubbornly refusing to lower it. This has led to a bit of stand-off, another reason the market has slowed. My advice to sellers is to manage their expectations and be realistic. Prices, as shown by the Miller Samuel report, are higher than a year ago. But, increases are in the single digits, not double digits.
For a second, close your eyes and envision yourself 10 years from now. What would you say about the apartment purchase you did or did not make this year. Most likely, if you did not buy, you’ll regret it.