John Petro

NYC’s Condo Glut

An article in Crain's describes the state of New York City's condo market. Basically, even as new condos sit on the market with nary a buyer in sight, there are even more condos that are nearly finished but have not come up for sale yet.

"The financial district and Williamsburg were overbuilt," says Jorden Tepper, executive director of sales at Century 21 NY Metro. "It will take these neighborhoods longer to correct themselves in this depressed market."

It's not that these neighborhoods were overbuilt, it's that they were overbuilt with luxury housing that is out of reach for all but the wealthiest New Yorkers. These condos were built for a segment of the market that just doesn't really exist right now. A year ago, young wealthy professionals were snatching up these properties because they were expecting a certain income, or investors from overseas thought they could make a quick buck by flipping a condo in the white-hot Manhattan market. Not any more.

But there is still a need for housing in New York City--the city estimates that we must add at least 265,000 new housing units to the city's supply by 2030. These units aren't going unsold because no one wants them. They're going unsold because the prices are just completely insane. Just seven years ago, the median price per square foot in Manhattan was about $500. But new developments in Brooklyn were asking almost $900 a square foot. It turns out these prices didn't reflect reality.

Unfortunately, this isn't translating into lower home prices. Rather, because of the financing developers took on to build these developments, many can't drop their prices and are forced to declare bankruptcy instead. Others are turning to rentals.

But at this point, even the rental market is glutted, and the stream of new units shows little sign of slowing.

The rental market is not glutted. In fact, with a rental vacancy rate of 2.8 percent, the rental market is pretty much as tight as ever. Rents may be dropping, but this isn't necessarily because of a glut. Rather, it reflects the end of unrealistic expectations, at least for now.

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Posted at 4:53 PM, Aug 10, 2009 in
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