In the following charts and graphs you can see how the market stacks up against last month and this month last year.

“Landlord concessions continue to be the exception, as rental demand and prices press higher”

• Median net effective rent was $3,064 for the first quarter, 9.1% higher than $2,808 in the prior year quarter.
• Rental price per square foot increased to $52.57, reaching its highest level since the third quarter of 2008, just as the credit crunch began.
• The listing discount, the spread between the original list price and rent, compressed in the first quarter to 2.2% from 2.7% in the prior year quarter. This was consistent with the 14.3% increase in new rental activity over the same period.
• Use of landlord concessions fell to 11.1% within all new rentals from 36.8% over the same period last year.
• New rentals of studios increased 16.1%, 1-bedrooms increased 13.5%, 2-bedrooms increased 14.5% and 3-bedrooms increased 20.7%. The 4-bedroom rental market decreased 21.5% over the same period.

“Employment conditions have continued to slowly improve, inventory levels have remained modest, and new development stabilized, but tight mortgage underwriting conditions remain a challenge to the market.”

• Median sales price was $775,000, 0.9% below $782,071 in the prior year quarter. Price per square foot increased 6%, and average sales price increased 0.8% over the same period.
• The S&P’s downgrade of US debt, paired with the European debt crisis, Wall Street bonus concerns, and large swings in the stock market indices all contributed to the market’s slowed pace leading into the first quarter. As a result, the number of sales slipped 3.5% to 2,311 from 2,394 in the prior year quarter.
• Active listing inventory slipped 0.6% to 7,560 in the first quarter from 7,605 in the prior year quarter, but remained consistent with the 7,478 quarterly average over the past ten years.
• Days on market—the number of days between the last price change, if any, and the contract date—saw a 25-day increase to 152 days from 127 days as older inventory was sold off.
• Listing discount—the percent difference between the list price at time of sale to the sales price—increased to 6.3% from 4.5% in the same period last year.

Manhattan rental apartment buildings’ market value increased 15 percent, cooperative apartment buildings increased 9.5 percent and condominium units 7.1 percent compared to a year ago.

In Brooklyn, rental apartment buildings increased 3.9 percent, cooperative apartment buildings 1.6 percent and condominium units 1.2 percent compared to 2011.

Compared to the peak of the market in 2007, the market value of Manhattan rental apartment and cooperative apartment buildings has increased 22.5 percent, and condominium units increased 48.2 percent according to the City of New York.

In Brooklyn, the market value of rental buildings was up 3.5 percent, cooperative apartments 18.4 percent.
These market value increases have resulted in a 40 percent increase in real property taxes since the peak of the market in 2008.

From MIke Slattery, Senior Vice President, REBNY Research Department

MARKET RECAP

Home sales have developed a positive up trend in the past six months, and it appears that trend will be sustained at least into the near future.

The pending home sales index rose 2.0 percent in January to hit 97, the highest reading in nearly two years. New contract signings were particularly strong in the South, which posted an impressive 10.5-percent gain. The good is that the rest of the country isn’t lagging far behind: national year-over-year contracts are up 8.0 percent.

Lower prices are an obvious factor in driving sales volume. While lower prices drive demand, they also reduce supply. Home supply has been dropping nationally for some time now, though concrete numbers are tough to gauge given the uncertainty over the hidden inventory of foreclosed properties. The estimates we’ve seen on these shadow homes range between two million to four million nationally.

Whatever the actual numbers are on distressed properties, it appears many markets have already reached peak saturation, which means levels should begin falling. According to analysts at Clear Capital, Atlanta and Tuscon, Ariz. are two regions likely to see a drop in REO properties during the year. We wouldn’t be surprised to see similar prognostications forthcoming for Las Vegas, Phoenix, and Central California.

The fact markets are reaching an REO saturation point is one sign that housing is reaching a tipping point. Affordability is another. In many parts of the country, affordability is at a multi-decade high.

We’ve been preaching over the past year that residential real estate is the investment for the next decade. We stand by our exhortations. Unfortunately, many potential buyers still feel otherwise. They are weary of catching a falling knife; that is, buying a property that will continue to depreciate.

Falling knives were a very real concern three years ago; that’s not the case today. Yes, home prices nationally could continue to fall, but you always have to look past national numbers to the local market – many of which are rebounding.

Mortgage rates are another reason we like real estate. Rates continue to skim along a 60-year low. But the economy is improving – GDP posted a better-than-expected annual 3.0-percent growth rate for the fourth quarter of 2011. What’s more, job growth has accelerated and unemployment has dropped. In other words, rates are unlikely to go much lower.

Costs associated with mortgages could go higher, though. The buzz on the new HARP 2.0 is growing louder and attracting many underwater borrowers keen to refinance. The buzz will grow even louder over the next month as interest intensifies.

Rising loan demand tilts the table toward lenders, so we think its prudent for potential buyers to not wait and to take advantage of what remains a very low-cost mortgage financing market.

The Foreclosures-to-Rental Solution

We tend to become more cautious when a theme grips the market. Residential rental property is the hottest theme these days. Even the great Warren Buffett is bullish on rentals, declaring that he would buy a couple hundred thousand single-family homes and rent them, if only he had a way to manage them.

Another prominent supporter of rentals, Lewis Ranieri, the co-inventor of the mortgage-backed security, lays out the case in a research paper for using federal entities to support converting foreclosed properties into rentals. According to Ranieri, his foreclosure-to-rental model can be developed in “most every market in the United States,” and thus help clear the distressed-housing overhang.

We see a few unintended consequences, though. When markets don’t develop organically, there tends to be inefficiency – you get too much or too little of something. Just look at housing for the past six years. The market was incentivized for more home ownership, and we got too much of it.

Single-family rental properties are fine, to be sure, but large swaths of single-family rentals might not be. Rents are rising, but they don’t always rise. Rents impacted capitalization rates. If rents drop, so will capitalization rates and property values. In addition, renters don’t care for properties as well as owners. Could a higher percentage of neglected properties translate into more downward price pressure for owners?

All we’re saying is that before we ask for something we need to be sure we really want it; unintended consequences can be very costly in the long run.

Graph Courtesy from NY Times in an article by Vickie Elmer March 1, 2012.  Data and Commentary provided by Fred Ashe, from DE Capital Mortgage.

“Manhattan housing prices and sales activity have remained stable for the past three years, despite the general economic turbulence.”

• The number of sales remained above the 10,000 sale threshold for the second consecutive year and for the fourth time in the decade. There were 10,161 sales in 2011, the third highest total of the decade. The total was 1% above the prior year total of 10,060, but 24.3% below the 2007 housing boom peak of 3,430. The weakest period of sales activity for the decade was in 2009, the year after the “Lehman tipping point” in late 2008 when the credit crunch and low consumer confidence stifled sales activity.

• There were 7,221 listings at the end of 2011, nominally less than 7,232 listings at the end of 2010. The 2011 result was 3.8% less than the 7,506 inventory in 2002. Modest inventory levels have been the key to market stability in the past two years.

• The year-over-year price indicators were mixed but have continued to remain relatively stable for the past three years after the sharp price correction at the end of 2008. The 2011 median sales price of a Manhattan apartment was $850,000, 3.4% below $880,000 in 2010. The price indicator was at its fourth highest level in the decade and 88.9% above the 2002 level.

• The number of days to sell a Manhattan apartment was 127 in 2011, 8 days slower than in 2010, but roughly the same as the 126 day average days on market for 2002.

• Listing discount, the percentage difference between the list price at time of sale and the sales price, was 4.3%, down from 7.1% in 2010. Buyers and sellers were more in sync on establishing sales price in 2011 than they were in 2010.

 The Federal Reserve took center stage last week following through with its commitment to become more transparent.  The Fed has revealed that it intends to keep rates “extraordinarily low” for a longer period than thought, potentially through 2014.  Additionally, the Fed has now officially stated that it will use an inflation target to help control monetary policy.  Following the Fed’s announcement, Fed Chair Bernanke revealed that the Fed is considering a QE3, potentially later this year.  Mortgage rates had been on the rise until this statement which many interpreted as the fed showing signs that it has significant concerns about the overall state of the economic recovery.

This week is jam packed with economic news and data for markets to digest.  We have both ISM Indices due, Consumer confidence, and the monthly employment data.  Should any of these reports reveal signs of economic slowing, mortgage rates are likely to move back toward record lows.  However, a week of positive economic data could nudge rates just slightly higher at the week’s end.

 Graph Courtesy from NY Times in an article by Vickie Elmer January 27, 2012.  Data and Commentary provided by Noori Rafael, from GFI Capital Resources Group, Inc.

• New York City average home prices and sales citywide declined compared to the same time last year
• 60 percent of the brokers surveyed are optimistic for 2012 and expect next quarter’s residential market to be slightly better or much better than this quarter
• There was a seven percent increase in brokers reporting executing contracts of sale at the $3 million and above price range

Top 4 Building Features/Amenities:

• Doorman building
• Laundry in unit
•  Private storage space
• On-site fitness center

Most Popular Areas:

• East Side with 27 percent of all closed sales,
• Downtown with 22 percent of all closed sales
• West Side with 19 percent of all closed sales
• Brooklyn with 16 percent of all closed sales.

 Excerpted from REBNY Press Release January 26, 2012

“Tight mortgage credit conditions continued to drive rental prices and activity higher.”

• The median net effective rent (face rent less landlord concessions) jumped 9.5% from $2,950 to $3,121 in the same period last year. The year-over-year-gains were consistent across all rental price indicators.
• The 2-bedroom and 3-bedroom markets outpaced their smaller counterparts,increasing 14% and 18.1% respectively over the same period.
• New rental activity (excluding lease renewals) was up 10% from 7,217 to 7,942 in the same quarter last year.
• About 7.4% of new leases had some form of landlord concession compared to the 40.5% in the prior year quarter. For those leases with concessions, the average amount was the equivalent of 1.2 months of free rent.
• Days on market—the number of days from original list date to lease signing—was at its second fastest pace of 37 days in 15 years, which is when we began tracking this metric.