The World Before Us
Listening to debates about globalization always makes me think of the Bruce Springsteen song “My Hometown.” Bruce sings “Foreman says these jobs are goin’, boys, and they ain’t comin’ back.” Fear or resentment towards the global economy will not put the toothpaste back in the tube. Standards of living are so much higher in the U.S. than in third world countries, and the voices of workers so much stronger, that there will not in the foreseeable future be a time when it is cheaper to manufacture most goods and machinery here than in Mexico or Asia. Sadly, the Rust Belt is rusty for a reason.
For us in New York real estate, global demand has been both a blessing and a curse. The demand from foreign buyers sparked our market in the wake of the last recession and drove it through 2014. Enormous condominium properties experienced dizzying prices per square foot, and those high-end sales trickled down into prices for both co-ops and smaller condo units. This in turn priced many individuals and families out of the Manhattan marketplace, while at the same time giving sellers a considerable sense of control.
One of the problems with globalization, however, is that everything affects everything else. So even if there is recovery (albeit slow) in our economy, overseas events matter. A cheaper euro means less incentive for European buyers to purchase here. Same with the British pound. A slowing Russian economy, led by a punitive demagogue, leads to wealthy Russians who are afraid to expatriate their rubles. Chinese buyers too face increasing difficulty getting money out of their country, which is in the midst of a huge economic re-set as the government tries to figure out how much it should prop up both the currency and economic growth.
In our marketplace today, no longer fueled by foreign demand, that ultra high-end of the condominium market, in which giant units sold for $85 million or $90 million a few years back, finds itself oversaturated and short on buyers. As of October 1, there are about 75 residences for sale in Manhattan for over $30 million. Considering how rich you have to be to consider buying one of those, there is what can only be described as a limited pool of buyers (especially once you eliminate those people who already bought one!)
Fortunately, developers, who control much of this super-expensive product, follow the market. They want to make their best deal and move on. The challenge in the marketplace today rests more with individual owners who are reluctant to accept that last year’s prices are no longer achievable today. The gung-ho buyers of five years ago have mostly hit “Pause.” In this difficult global environment, hedge funders face diminishing returns and escalating withdrawals. IPOs are slow and banks are increasingly hobbled by regulation. Oil costs less than at any time in recent memory. It’s not an easy time to make the kind of money required to buy a New York apartment at 2015 prices. And it’s an election year, with one of the most contentious campaigns in living memory creating even more anxiety in the general population.
No one ever knows what will happen next. That said, historical experience suggests that, once the election is resolved and assuming our economy continues on its growth trajectory, however slow, our market will stabilize and experience an increase in activity. Not necessarily escalating prices, but buyers who, in larger numbers, feel comfortable making the substantial commitment a real estate purchase requires. Which means two things: first, that January should see an uptick in sales, and second, that the next two months should provide an opportunity for buyers who will buck the trend and transact now.