A report from Douglas Elliman and Miller Samuel says that the average sales price for Manhattan real estate fell 7.5% in the fourth quarter of 2019.
The average sales price fell to $1.8 million, while the median sales price fell below $1 million.
Sales of apartments priced at $5 million or more fell 38% in Q4, leaving behind a two-year supply of luxury apartments on the market.
Now, CNBC says there is an eight-month supply of unsold apartments. Out of the previous nine quarters, eight have seen a drop in real estate sales in Manhattan, a considerably pricey market.
Tax pressures and rising inventory are what brokers say may keep buyers at bay.
“I think we’ll see more of the same,” Jonathan Miller, CEO of Miller Samuel, said to CNBC. “The problem with saying that 2020 will mark the bottom is that it suggests it will go up after that. And I think we still have another couple of years of moving sideways.”
Last summer, a new mansion tax hit the multimillion-dollar apartment market in New York.
Buyers were rushing to close before the new state taxes kicked in on July 1.
The new taxes boost the previous 1% fee on sales of $1 million and above – known as a “mansion tax,” though it applies to all types of homes, not just townhouses – to 1.25% for sales priced above $2 million and 3.9% for a sale of $25 million or more. The transfer tax increases from 0.4% to 0.65%.
This means that the mansion tax makes already high-tax states, like New York, more expensive.
CNBC said there is an expected 2,000 new condos to come onto the market this year, but buyers are steering to the rental market, even in luxury.
The National Association of Home Builders and Wells Fargo, which publish the monthly report, revealed sentiment increased by 5 points to 75, markingthe highest reading since June of 1999.
“Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates, and a strong labor market,” said NAHB Chairman Greg Ugalde.
In December, the index measuring current sales conditions rose to 84 points, while buyer traffic grew to 58 points and sales expectations over the next six months inched forward to 79 points.
The three-month moving averages for regional HMI scores show the South grew to 76 points, the West increased to 84 points and the Midwest climbed to 63 points. However, the report indicates the Northeast declined to 61 points.
Although sentiment improved in a majority of the nation’s regions, NAHB Chief Economist Robert Dietz warns homebuilders across the country continue to grapple with affordability concerns.
“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability,” Dietz said. “Higher development costs are hurting affordability and dampening more robust construction growth.”
NOTE: The NAHB/Wells Fargo Housing Market Index gauges builder opinions of single-family home sales and expectations, asking for a rating of good, fair or poor. Builders are also asked to rate prospective buyer traffic from very low to very high. The scores are used to calculate a seasonally adjusted index with a rating of 50 or over indicating positive sentiment.
The cost of rent in the U.S., particularly in certain metro areas, is too darn high.
Nearly half of U.S. rental households are spending more than the recommended 30% of their income on rent, according to a report from Apartment List. (The national rate went from 49.5% in 2017 to 49.7% in 2018.)
And according to Apartment List, “in 19 of the nation’s 25 largest metros, a household earning the median renter income would be cost-burdened by the median rent. Of the 100 largest metros, the median renter would be burdened in 64 metros.”
Among the biggest metros in the U.S., Miami has the highest cost burden rate at 62.7% — this means that 62.7% of its renters are spending more than the recommended 30% on rent. Not far behind is New Orleans at 60.1% The two largest metros in the U.S. by population, New York and Los Angeles, are at 52.2% and 56.9% respectively. Given their size, NYC and LA house the highest number of cost-burdened individuals.
“Certainly, the worst offenders — places like Los Angeles, Boston, San Diego, Miami — these are places where it’s not always easy to build as many houses as you’d like, but also their economies have been very strong, so the increases in rental [costs] become an unfortunate byproduct of that,” Igor Popov, chief economist at Apartment List, told Yahoo Finance.
By state, Florida has the highest cost burden rate at 56.5%. Other high cost-burdened states include New York, New Jersey, California, Colorado, Louisiana, and Connecticut — notably places along the coasts.
“We’re seeing that especially coastal cities — where adding new housing is difficult but economies are booming — those are the places where affordability issues are stacking up the most,” Popov said. “With that said, it is a national problem so even cities that aren’t necessarily in the housing affordability debate every day still have a lot of renters who are struggling.”
Supply and demand
Then there is San Francisco, which has a cost burden rate below the national average — despite the fact that the city has the highest rent in the country. This is because of rent control, Popov explained.
“A lot of the people who are able to live and rent in San Francisco are ones that have been in rent-controlled apartments for some time,” he said. “And so a good chunk of the city is covered by rent control. When you look at who’s actually able to rent in the market, a lot of families are able to afford it because they are basically paying below market rates.”
He continued: “The market rates in San Francisco are essentially the highest in the country. If you’re just moving to San Francisco and looking for an apartment, the prices are very high. But formally, the majority of people that are able to comfortably add rent are the ones who aren’t paying the market rate, but are usually in a rent-controlled apartment. Rent control often plays a role in these affordability numbers, often driving a wedge between the market rate that a new resident would pay, versus the rent-controlled rate the existing residents pay.”
Because of high rents in many of these cities, residents often turn to surrounding areas to reside for more financially feasible places to live. This is the case of Riverside, Calif., a city near Los Angeles, where the median rent accounts for approximately 36% of a person’s income.
“Riverside is actually seeing a lot of people who are migrating from the LA metro in search of more affordable options, but that demand is, in turn, driving up the price there as well,” Popov said.
‘I guess we went in the wrong direction’
Supply and demand wasn’t the only factor that affected the increase in rent-burdened households last year. Rental increases also outpaced wage growth in 2018, the first time since 2011.
“There’s a lot of factors for why that might be but on a very macro level, I think this economic expansion has been one that hasn’t [benefited] low-income households very well,” Popov said. “That shift was a bit surprising especially given that … we’ve seen a lot of high-income renters flooding in the rental market. In some ways, they’ve been padding the stats, so to speak, because they’ve come in and they’ve typically been able to afford their rentals, so they’ve made it look like things are getting better but this year, I guess we went in the wrong direction.”
From 2017 to 2018, there were nearly 300,000 more cost-burdened rental households throughout the U.S., which Popov described as “a big change in the number of people that have gone from being able to afford their housing to technically living in a place that they’re unable to afford.”
“You risk them moving away and that could both affect the economy and the economic diversity of a city when the renters move away, and you risk not being able to attract talent to grow the economy, and you risk not having basically that next generation being able to come and move to the city to keep it vibrant,” Popov said. “I think of this on a city-by-city basis and on that level, there are a lot of markets where maybe the flag isn’t being raised for the first time — maybe it’s been raised for a while.”
Contracts for new, single-family home sales inched down 0.7% in September to a 701,000 seasonally adjusted annual rate according to estimates from the joint release of HUD and the Census Bureau. The decline came off a downwardly revised August estimate, which was decreased from an initial reading of 713,000 to a new estimate of 706,000. Year-over-year, the September estimate is 15.5% higher. Sales in September continue strength supported by lower mortgage rates.
Total sales for the first nine months of 2019 (527,000) were 7.2% higher than the comparable total for 2018 (491,000). We expect sales volume to continue to trend up slightly in the coming months as more new homes are built.
For the first nine months of 2019 (and relative to the first nine months of 2018), new home sales were up 12.8% in the South, 7.3% in the West, and down 10.3% in the Northeast and 10.6% in the Midwest, due to some tax reform related effects and affordability.
Compared to last month, inventory of new homes for sale declined 0.6% to 321,000 in September. It is the fourth straight decline since June 2019. The current months’ supply stands at a balanced level of 5.5.
Median new home sales price (price of a home in the middle of the distribution) dropped 7.9% in September to $299,400 compared to August ($325,200) and 8.8% lower than a year ago ($328,300). Median new home sales price dipped below $300,000 for the first time since May 2016.
About 15% of newly built home sales are priced under $200,000 in September, compared to 10% last month and 9% one year ago. While more affordable entry-level homes were sold in September, the number of new homes priced above $400,000 decreased.
According to NAHB analysis of the Survey of Construction (SOC), nationally, there were 881,076 new single-family units started in 2018, 4% higher than the units started in 2017. It was the double of the units started in 2011, and still 49% less than the peak of 2007 (1,731,171 units).
Among all the nine Census divisions, new single-family units started in the South Atlantic, West South Central and Mountain Divisions exceeded 100k in 2018. These three divisions represent 21 states, while the number of new single-family housing starts in these three divisions accounted for about 62% of the total new single-family housing starts in 2018.
In addition, there were 98,760 new single-family units started in the Pacific Division and 78,858 units started in the East North Central Division in 2018. The Pacific Division accounted for 11% of the total new single-family housing starts, while the East North Central Division accounted for 9%. The other four divisions, including East South Central, West North Central, Middle Atlantic and New England, accounted for the remaining 18% of the total new single-family housing starts.
The scatter plot below compares the nine Census divisions’ annual growth rates of new single-family housing starts in 2017 and 2018. The red line represents the national level in 2018. The X-axis presents the annual growth rates in 2017; the Y-axis presents the annual growth rates in 2018. Each division grew at the different pace, while, nationally, new single-family housing starts rose by 4%. Four out of the nine divisions grew faster than the national level. The New England Division and the Mountain Division led the way with a 13% increase each, followed by the West South Central Division with an 8% increase, and the South Atlantic Division with a 4% increase. Meanwhile, the growth rates of the other five divisions were below the national level.
As shown in Figure 2, compared to last year, the New England Division and the Mountain Division had an acceleration in growth in 2018. Noticeably, the New England Division grew by 13% in 2018, after a 5% growth rate in 2017. Meanwhile, six out of the nine divisions, including South Atlantic, East North Central, Pacific, Middle Atlantic, East South Central and West North Central, experienced a deceleration in growth in 2018. Among them, the West North Central Division experienced the largest deceleration with a decline of 14% in 2018. Moreover, the West South Central Division grew by 8% in 2018, unchanged from 2017.
Startups are racing to fix the construction productivity problem at large. VCs poured $3.1 billion into Construction Tech in 2018. Most of this money went towards modular housing companies or software that promises to optimize current processes such as project management and communication. Yet neither of these buckets addresses the labor shortage head-on. Many startups claim that robots might.
Over the last year, I have been looking into the startups trying to plug this gap with construction robotics.
With such an acute labor shortage, felt deeply by contractors and developers, are robots really the next best thing? What tasks can they accomplish on site today? Most importantly, will the customer— real-life, historically risk-averse contractors and developers—adopt robotics with open arms? If so, when?
The Construction Robotic Landscape
The robotics companies that currently exist take on the shape of a subcontractor. They use robotics to accomplish a vertical task on site like excavation, drywall installation, painting, and roofing. Some companies are inserting their autonomous software into pre-existing construction machinery. While other start-ups are adapting manufacturing robotics and small self-driving vehicles to do construction tasks.
Most construction robotics companies promise to reduce construction costs by 1) cutting down on labor expenses, 2) taking less time to accomplish a task by working longer shifts and into the night, and 3) performing tasks faster—not by actually working faster than a human, but by shortening downtime between sub-tasks.
It’s important to note that many of the companies I spoke to are in their pilot phase. They are testing their technologies on live construction sites for the first time and require additional engineering oversight to get the job done. If these pilots (which may take six-plus months) run successfully, these construction robotics companies will most likely be ready for commercial use in one-and-a-half to two years. The biggest technological hurdles for robotic construction technology at the moment are 1) seamlessly integrating into an already-complicated construction site, 2) working off of plans and maps that evolve as they work, 3) being able to execute the task as well as a contractor.
However, the biggest challenge of all remains whether developers and contractors will adopt the technology at large.
The Customer: Curious, Risk-averse, & Cost-aware
Even though the labor shortage is real, one can’t help but wonder: if the construction industry has been hesitant to adopt technology in the past, will they adopt robotics today?
Unlike in manufacturing, where a single owner is incentivized to operate as efficiently as possible and invests in large capital expenditure projects that pay off over time, construction managers are motivated to turn around a single project as cost-effectively as possible while delivering to the architect’s specifications. They only work on a handful of projects each year, so they have a low willingness to experiment.
From speaking to contractors, I found that they would be willing to adopt technology or hire a robotics sub-contractor if there was proof that the robotic option could drastically reduce costs on their project.
To understand the biggest opportunity for cost savings, I set out to understand what costs the most on a construction site. While this data is challenging to obtain and costs are extremely variable site-to-site, through conversations with contractors, I have seen some patterns emerge, which I plot in the accompanying graph. Costs tend to be held up in a few key verticals, and then widely distributed across most other tasks.
% of Overall Cost CREDIT: JULIETTE CILIA
Of the verticals that tend to cost the most today (structural support [i.e., concrete and steel] and mechanical and plumbing), not many can be automated because of the complexity of the task or we have yet to uncover companies in those verticals. Some verticals that proportionally cost less but still incur significant costs and are deployed across asset types, like drywall and bricklaying, are appealing, but it is unclear how quickly a large-scale contractor would rush to adopt them.
In the near future we will see more companies tackling the cost-consuming tasks on big development projects. CREDIT: PXHERE.COM
The space is still evolving, but I suggest holding off on large checks until we see movers who can tackle some of the costlier verticals, like cast-in-place concrete or facade installation. Automating these jobs will save contractors major money and could be widely adopted in time. While construction robotics are still maturing, I believe that in the next two to three years, we will see more companies tackling the cost-consuming tasks on big development projects, helping us finish more of our cities, offices, hospitals, and homes on time.
Facebook’s advertising practices are, once again, under scrutiny.
This week, Gov. Andrew Cuomo called on the Department of Financial Services (DFS) to investigate Facebook’s ad practices that, according to reports, allow New York state-regulated advertisers to exclude consumers—even those looking for housing—through zip code information, based on classifications including race, sex, disability, national origin, religion, and familial status, the Daily News first reported.
“Facebook touts its advertising platform as a powerful means for housing and housing-related advertisers to reach desired consumers,” a statement from Cuomo’s office reads.
“The allegations against Facebook advertisers are extremely troubling and fly in the face of everything that New York stands for,” Cuomo said in a statement. “I am calling on the Department of Financial Services to investigate these claims and help ensure that New Yorkers seeking housing for themselves and their families are not discriminated against in any way.”
In March, following several legal actions, the American Civil Liberties Union (ACLU) announced a civil rights settlement with the tech giant as it vowed to take steps to ensure that advertisers could not discriminate when sending credit, job, and housing ads to users.
“As the internet—and platforms like Facebook—play an increasing role in connecting us all to information related to economic opportunities, it’s crucial that micro-targeting not be used to exclude groups that already face discrimination,” Galen Sherwin, senior staff attorney at the ACLU, said in a statement.
Shoppers in Westchester will be spending a little more after New York Gov. Andrew Cuomo signed a bill to increase sales tax in county municipalities.
Cuomo signed the Westchester Property Tax Payer Protection Act on Sunday, June 30, which will increase sales tax by 1 percent – up to 8.375 – in the county’s 20 villages, 19 towns, and the cities of Peekskill and Rye. It takes effect on Aug. 1.
As part of the bill, the property tax levy will remain flat for the next two years. The proposal is expected to help stabilize the county’s finances after losing its AAA rating – the highest ranking available – in each of the Big 3 rating agencies, last year.
The sales tax hike is expected to generate nearly $150 million in sales tax revenue annually, including nearly $60 million through the end of the year.
The Westchester County Board of Elections has scheduled a special meeting to enact the measure on Monday, July 1, County Executive George Latimer said. Latimer noted that “(his) administration is working on a number of very specific actions that will be implemented immediately in response to this news” that will be announced at a press conference on Monday, July 8 at Greenburgh Town Hall.
“Today in Westchester County we are grateful Gov. Andrew Cuomo signed the Property Tax Payer Protection Act,” he said. “This county owes a debt of gratitude to the governor and New York lawmakers, especially Senate Majority Leader Andrea Stewart-Cousins, Speaker of the New York State Assembly Carl Heastie and Westchester’s New York State Delegation Leader Assembly Member Gary Pretlow, for giving property taxpayers relief, and for giving us the ability to stabilize the county’s finances.”
The current tax rate in most of the county is 7.375 percent. That rate is a point higher in Westchester’s biggest cities of Mount Vernon, New Rochelle and White Plains, and slightly higher than those in Yonkers. The proposal would see a jump to an 8.375 percent countywide, with Yonkers maintaining the highest rate.
Officials noted that the proposed rate is the same as Rockland County, and slightly lower than Nassau and Suffolk County on Long Island.
“We fought a long hard battle for parity with other counties and with other cities in our own county, and today we are able to say property taxpayers will soon see some relief,” Latimer said. “This is a victory for municipalities and school districts in this County – today we all benefit.
“This is a new day in Westchester County, and I am thankful and proud of the teamwork and unity exhibited to accomplish this.”
The spring home buying market got off to a disappointing start in April, as sales sputtered and the state marked the ninth consecutive month of year-over-year sale declines, a new report Thursday shows.
The median sale price of a single-family house was unchanged in April, at $250,000, on a 5-percent decline in sales, according to the monthly report from The Warren Group, which tracks real estate trends in New England.
Sales closed in April typically would have gone under contract 45-60 days earlier, right around the traditional start of the spring homebuying season.
Through the first four months of this year, sales are down nearly 7 percent, compared with the same period in 2018. In the same period, the median sale price fell 1.2 percent, to $240,000, compared with $243,000 for the same four-month period last year.
Hartford County’s home sale market did better than the state as a whole in April. Sales were flat, but the median sale price crept up 1.4 percent to $223,000 from $219,000 for the same month a year ago.
Across all the state’s eight counties, all but Hartford, Litchfield and Middlesex counties saw year-over-year sale declines in April. The deepest decline was registered in New London County, down 16.6 percent compared with April of 2018.
The statewide median sale price was pulled down by declines in Fairfield, Tolland and Windham counties. Price gains in the other five counties — the highest being a 11-percent year-over-year rise in Middlesex County — were not strong enough to lift the overall median price to an increase.
So far in 2019, the four-month trend for sales and prices paid is disappointing for the state’s housing market, which has struggled to recover from the last recession, which ended in March 2010. There were hopeful signs in 2018 when Connecticut registered its third consecutive annual gain in median sale price. The velocity of sales remain a concern, however, failing to show upward momentum.
The median sale price is a well-watched indicator of changes in sale prices and trends affecting property values. But it doesn’t necessarily mean all home prices and values, for that matter, are moving in the same direction.
The U.S. inventory of homes for sale was flat in the first quarter, compared with a year earlier, the first time since 2016 there wasn’t a decline, according to a Truliareport.
Inventory increased in 50 of the nation’s 100 largest metro areas, up from just 19 areas one year ago. Starter-home supply rose 3.5% year-over-year – the fastest annual growth rate observed in more than 6 years – while the number of luxury homes on the market fell 4.5%, the report said.
The increase likely is being driven by homes lingering on the market as high prices put them beyond the reach of first-time buyers, according to the report. About 54% of homes for sale were in the starter- or trade-up-home segments – in other words, the first few rungs of the housing ladder.
“The markets with the greatest growth in inventory are also markets where prices have rapidly risen to notoriously high levels and supply has been severely constrained over the past few years,” the report said. “This rapid appreciation has caused affordability to deteriorate more quickly in these areas, and the nascent rise in inventory may actually reflect an exhaustion of demand in these communities, more than it reflects a greater number of sellers listing their homes.”
The 10 markets with the largest gains in inventory are also among the nation’s most-expensive housing markets, including the San Francisco Bay Area, Seattle, Los Angeles and San Diego.
“Even in these markets, dramatic increases in inventory – especially among starter homes – have yet to stem the tide of declining affordability,” the report said.
Nationally, there were 273,282 newly-listed homes on the market during the first quarter, down 6.9% from the 293,481 in the year-earlier period. In other words, inventory growth was driven by homes that were listed in prior quarters.
“Inventory growth seems to be driven more by ebbing demand rather than an infusion of new supply,” the report concluded.
The first quarter data may be representing the tail-end of a housing slump caused by November’s eight-year high in mortgage rates that since then have fallen.
At the end of March, the U.S. average rate for a 30-year fixed mortgage had the largest one-week decline in more than 10 years, dropping to 4.06%, according to Freddie Mac. Since then, it has bounced around in a narrow band, and this week averaged 4.1%.
In March, pending home sales increased 3.8% as the cheaper financing costs brought more buyers into the market, according to the National Association of Realtors.
Last week, an index measuring mortgage home-purchase applications rose 5% from a week earlier and was 5% higher than the year-ago week, according to the Mortgage Bankers Association.
“We saw a good week for the spring home buying season,” MBA’s Joel Kan said in the report released on Wednesday.