For a city that never sleeps, home buyers are willing to fork over a lot of money for a place to rest their heads. In Manhattan, the average sales price for apartments set a new record of $1.87 million in the second quarter this year, according to the Elliman Report from real estate firms Douglas Elliman and Miller Samuel. (On an inflation-adjusted basis, it's still down slightly from a 2008 record of $1.93 million, according to Miller Samuel.)
But looking at the video above, you might be surprised what 'average' gets you. Try 1,275 square feet for a $2.25 million condo in a neighborhood where brokers tell us a buyer can still find a good value (the financial district).
And average is really nothing when you look at the ultra-luxury real estate market in the city, as New York appraiser and consultant Jonathan Miller, President and CEO of Miller Samuel, does. More and more over the last few years, super tall condo buildings with properties north of $10 million dollars have been springing up.
"A few years ago there weren’t very many of them so it was a frenzy, now we have a lot of development going on and there just isn’t the same sense of urgency," says Miller. Sales for luxury properties in the second quarter fell just over 20% from last year according to data from Miller Samuel/Douglas Elliman. But qualitatively, Miller says it's a reflection of excess demand having been absorbed, with sales now at a lower level but still elevated, and not reflecting a weakening market. "If the word normal applies it’s more normalized than it’s been in years."
But sky high prices of $100 million in some cases don’t sound normal. And when it’s hard to tell what’s steeper, the buildings or the price tags, news headlines ponder the existence of a bubble, with concerns about overbuilding or weakening foreign investor demand as the dollar strengthens and economies like Russia's struggle.
It’s not something Douglas Elliman real estate broker Ariel Cohen, who sells places in the $1 to $ 5 million dollar range, is asking. Why?
"There is very little leverage [as] opposed to the market in 2007, so when everybody says a bubble for me that doesn’t even relate to where we are in today’s market,” he says, noting that about half of his transactions are cash.
In fact, nearly half (44%) of all apartment sales in Manhattan during the second quarter were paid in cash, 58% if you look at condos only, according to data from Miller Samuel and Douglas Elliman.
And when you get into the $20 million and above range, executives with both firms say buyers usually pay in cash.
So is it possible to have a bubble built on this much cash, without the leverage commonly associated with home buying? Miller isn't sure how that would be possible.
New York real estate attorney Shari Olefson agrees.
"It’s really a segmented type of a market so I’m not that concerned about a bubble being created," Olefson tells us. "It’s really isolated and the funding behind it is private, it’s cash deals, so there’s not going to be the kind of ripple effect if these projects go south."
Olefson and Miller say these buyers can afford to lose that cash if their investments don’t pan out.
“They’re not carpenters or nurses becoming real estate speculators," Miller explains. "At $10 million or above these are big numbers and these are the fourth or fifth home of these individuals.”
In other words, they’re not in it for the rental income, but to park their money. Despite the new construction, some properties are seeing speedy sales before they’re even built. For instance, developer Vornado Realty Trust (VNO) in May reported brisk sales at 220 Central Park South, it's residential tower under construction where a penthouse is reportedly listed at $100 million. One-third of condos were sold after six weeks, amounting to $1.1 billion. And heading downtown, Greenwich Lane, where a penthouse is listed for $26.5 million, is 85% sold according to the developer, and the first move-ins aren't until early Fall.
The developers aren’t in a rush to sell the condos that aren’t moving, according to Miller. He says that’s because their leverage is lower, too, and they can last longer without budging on price. He points to midtown skyscraper One57, which was at the forefront of the tall, luxury tower phenomenon, and has had properties on the market since 2011 but still has 20% left to sell. This building set a record, with a $100.5 million penthouse sale.
Douglas Elliman’s senior vice president of global markets Richard Jordan tells us he thinks demand for luxury is there, not only in New York, but also key markets like Miami, Los Angeles and San Francisco where the median sale price of homes is now well over a million dollars. That's up more than 100% in the last several years, according to Paragon Real Estate Group’s June report.
"San Francisco is just on fire," says Stan Humphries, chief economist of real estate marketplace Zillow (Z). He tells us says the city is one of the markets where they are concerned about a bubble, "but what leads us to not be as concerned are the fact that rents are so unaffordable...buying looks a little rich but it looks like a steal relative to rents.”
That leads Humphries to believe prices for buying and renting will continue to rise as long as construction lags the job growth and tech money.