July 2017 — A Mid Year Review
How is the Market Faring So Far in 2017?
As we begin July so, too, does the new quarter. With the arrival of Q3, we officially have half of 2017 in the books. We have consistently been discussing a few main themes as market drivers since the beginning of year, namely the Trump Effect, Rising Interest, the Wealth Effect, and Demand. Now that two quarters are in the books, how have these forces shaped the market and where does it currently stand as we enter the second half of 2017?
The Trump Effect: The arrival of the Trump Administration in January brought hopes for new policy that trickled into markets both financial and real estate. Hopes of tax cuts, a repeal in Dodd-Frank, and other promises spurred a flurry of activity in the market. The passage of time has revealed some doubt in the ability of the administration to push these agenda items through which ultimately impacts investor sentiment. While overall many are still bullish on the impact of the administration and policy given the pro-business mindset, some renewed hesitation is once again apparent in buyers.
Rising Interest Rates: Interests rates have played a key role in the 2017 market thus far as anticipated. Even though rates remain at historical lows, they are quite higher compared to 2016 lows. This encouraged a flurry of activity once rates hit 4% in early 2017 as buyers financing their purchase were compelled to finally make a decision out of desire to lock in a rate. There has been some volatility in the 30-year fixed rate, however, we anticipate additional rising as The Fed continues tightening Monetary Policy.
The Wealth Effect: There is no shortage of wealth among luxury buyers with stock portfolios flush with cash as equity markets are at all-time highs. This has played out in two ways: 1) people are staying invested in equities out of hopes of continued gains and bullish sentiment and 2) some individuals are rotating out of highly valued equites into other investments such as real estate. Real estate continues to provide attractive yield as an alternative asset within an investment portfolio.
Demand: Demand, and activity within the market, has fluctuated with seasonality as expected. However, the start to the year was exceptionally strong with Q1 activity 15% higher YoY. A divergence between the magnitude of activity, time on market, and price wars continues to exist between the lower end of the market and the luxury market. The former has high demand versus the availability while the latter is experiencing an ongoing wave of price normalization and longer time on market. Properly priced properties continue to sell well and reduce time on market across all price points.
Neighborhood Focus: Chelsea
Chelsea continues to be a desirous neighborhood, attracting a mix of people to the areas restaurants, art galleries, and convenient location. Pricing is rebounding in the neighborhood, boosted by the arrival of many luxury projects specifically along the Highline corridor. We expect median prices to continue to rise as closings continue at projects such as 520 W. 28th Street.