Is the NYC housing market in a bubble?

New York City is a global destination with a dynamic housing market and lots of moving parts.

Figuring it out is not easy. StreetEasy makes it a little easier.

Brad Inman interviews Alan Lightfeldt to get the latest market trends. Lightfeldt is an economist and senior data analyst for StreetEasy, which is owned by Zillow.

For three years, he has managed consumer-facing data products and has been chief data spokesman at StreetEasy. He oversees the production and design of data communications as the chief creative force behind StreetEasy data visualizations, market reports and fact briefs.

Hear Alan Lightfeldt’s economic rundown at Global Connect — register now

Brad Inman: Greetings, Inman readers and listeners. I’m really excited to have with me Alan Lightfeldt, who is an economist and senior data analyst for StreetEasy, which is the data guru site and service in New York City owned by Zillow.

For the last three years, Alan has managed the consumer-facing data products and has been chief data spokesman at Street Easy, delivering all kinds of juicy, interesting data. Welcome, Alan.

Alan Lightfeldt: Thanks again for having me, Brad.

So, Alan, let’s dive right into it. You’ve got some great data, and data tells us almost everything. Any new data you’re seeing around New York City that interest you, or do you know something funny, offbeat or insightful that you might share with the Inman readership?

Sure — I would just correct you to say that data can tell us everything, not almost everything, and in terms of New York City data, we track the New York City real estate market very closely every single month. And what we have found — sort of an interesting trend, at least lately — is slowing price growth.

The headline news, often, is how expensive real estate can be, in Manhattan and Brooklyn in particular. But the data tells us that it’s on a slower trajectory, at least for the remainder of 2016.

And is that across the board — is that low-end, high end, super-high-and, cover the gamut?

So our projection for slower growth is for all housing types at all price points. But when you break it out as we do by price point segments, we have found that the luxury market — in particular in Manhattan — has started to see declines already, and so the forecast there would be slower growth and perhaps even further declines as supply really outweighs waning demand for luxury products in Manhattan in particular.

So tell me this, Alan. You’re an economist, so you know supply-demand imbalance or balance tells us everything. Let’s look at the push and pull, here. On the demand side, are the rich sitting on the sidelines not buying as much luxury, because of, I don’t know, elections, volatility, China, South America, oil prices collapse? Or is it the supply side, where we’re suddenly getting a ton of supply, which I know is coming online pretty quickly in New York?

Let’s start with supply and the fact that there really has been an increase in the number of units available, particularly at the luxury end. So developers — probably because they’re seeing better profit margins at the luxury end, but also because of high construction and land costs in Manhattan — they’ve been really targeting luxury condos, and that’s basically all that we’ve seen in the last couple of years.

And the problem with this is that they’re unloading a ton of new inventory basically at the same time. You don’t have to look any further than 57th Street in Midtown to see the kind of exuberance that Manhattan developers approach the luxury market. And so now, buyers have more options, and I think they’re able to perhaps negotiate a better discount on available products. And we’ve started to see that price, the typical price that is paid for luxury apartments, is starting to decline in Manhattan.

Are you able to actually get data on the developers? How do you can find out what they’re doing with the prices?

We are tracking in real time what the listing prices are for these apartments and ultimately what they get for them, and we do that by looking at recorded sale data provided by the city.

And no one can hide behind that, that’s. Everyone else to more or less report it if they pass on title, is that true?

Unfortunately for developers, that’s true.

Private owners are a different story — we’ll get to that in a second.

So on the demand side — volatility in world markets tends to help Manhattan real estate as it’s is seen as a safe investment. And so when you see markets that are highly volatile, whether it’s China or elsewhere lately, that tends to help the attractiveness of Manhattan real estate.

But I think with the dollar strengthening, it appears to be more expensive to invest in Manhattan. And there’s also this recent announcement by the Department of Treasury where they’re going to require “mystery buyers” who purchase properties using a limited liability company, an LLC, to reveal their true identity, and so that could also chill demand for luxury properties if you have to unmask your true identity and report that to the Department of Treasury.

So when the government requires this unmasking, then it changes the game.

It can certainly change the game, and I don’t think they have actually enacted this rule yet but they’ve targeted Manhattan in particular because it became such an overwhelming trend, where these properties were purchased by unknown identity — they just used an LLC — and I would imagine that there are probably tax implications there.

Gotcha. Let’s move on to other questions. So it sounds like supply and demand, it’s the double whammy here. Luxury is feeling the pain of the double whammy. The buy side, curbing buyer appetite, and a lot of supply. Good news for buyers. They can cut deals, as you said.

How is the market doing overall? Is there a bubble in the New York real estate market; is the air finally coming out of the bubble? Do you see this trend getting worse and crashing?

We classify it or characterize it as a market that’s going from a boil to a simmer. So in 2014 and 2015, we saw the robust growth throughout Manhattan and Brooklyn, and in some cases double-digit price growth year over year. And that has started to slow to a more reasonable 6 percent in Manhattan.

And so I wouldn’t say this is at all a crash or an imminent fall for the market. It’s something that happens to markets, they sort of wax and wane. We’re entering, I think, a far more healthy growth pattern at around 4 to 6 percent — that’s a number we like to see. And that’s growth in sales prices.

And so on the whole, I would say that this is a market that looks a lot like 2013 and a lot less like 2015.

Let’s talk about this. Lots of new luxury buildings with units that won’t sell — any evidence that they’re looking at converting these to luxury rental, and how’s the luxury rental market doing — is that something you’d want to do?

Well, it’s certainly something that many people are doing now. So we looked at, in buildings that were constructed in the last few years, how many of the new sales have been relisted as a rental, and in some of these buildings it’s upwards of 70 percent of all sales have then converted into rentals, so it’s certainly a strategy, and I think it speaks to how Manhattan real estate in particular is seen as an investment.

And so you might not have the intent to actually live in the unit. You want to buy while the getting is good and you see a market for rentals. So a lot of people are purchasing in Manhattan and then converting it to a rental, and I think it’s a very popular option in particular with these luxury buildings.

NYC is also attracting these LLC buyers, these mystery buyers — and this LLC, we should just explain to our listeners who don’t know, is a limited liability corporation. So I, Brad Inman, instead of telling the world that I bought a unit there, I create an LLC, and then no one knows Brad Inman bought the unit.

Now, I assume this is for celebrities, super-rich people who don’t want to be exposed, crooks. I don’t know. wWho does this, and how is that unraveling?

Anybody who wants to remain discreet for whatever reason — it could be that you’re royalty or your celebrity or you just simply don’t want the likes of Street Easy or anyone else unmasking who you are and being able to cite you as a purchaser in a building.

In Manhattan, we know that they tend to be purchasing very high-end products, so LLC purchases are heavily concentrated in the downtown area as well as Midtown, circling Central Park. And this is highly correlated with where most of the luxury buildings are located in Manhattan.

So they want to be downtown to go to the clubs, or they want to be on 57th to be with other billionaires?

I think they’re chasing the latest and greatest buildings that are being constructed, and so there’s a lot of that new development happening along 57th Street, in and around the Park. And then recently, downtown, there’s been a renaissance of luxury development as well, and so that’s kind of a new area, at least within recent history, of a really high concentration of the luxury buildings.

It’s always interesting to me. For someone local, you don’t want to hang out in Midtown, really. It’s pretty boring, but is suddenly popular. I guess someday Times Square might come back as a place to live.

Let’s go down a list as quickly as we can, and I’ll say the neighborhood, and you’ll say hot, cool or room temperature. Let’s start with the Upper East Side: hot, cold or room temperature?

Room temperature.

OK, Lower East Side?

That’s hot — still hot. Still hot. Particularly among the rental market — there’s a lot of demand for Lower East Side and not a whole lot of supply.

Now this next is my neighborhood, so be careful here, Alan: Greenwich Village.

That’s room temperature.

Really?

Greenwich Village is what we would call a blue chip neighborhood; it’s sort of popular but it’s neither hotter or colder, from what we saw last year.

Interesting, I’m going to tell my local broker. West Village, now moving to the buffed-up area where all the young bankers suddenly decided to live 10 years ago, what’s going on there?

Still room temperature, and for the same reasons that Greenwich Village is room temperature.

SoHo and TriBeCa — same story?

SoHo and TriBeCa are hot. They are hot. A lot of a lot of SoHo and TriBeCa is landmarked, and so we see these constraints on any new development happening, and so what little development there is tends to be boutique, very high-end. These are among the most expensive neighborhoods in the city.

Alphabet City, do you cover that?

Alphabet City, that’s hot.

And that’s affordability, right, in part? People searching for better prices?

Alphabet City is part of what we’d call East Village, and for the same reason that Lower East Side is hot — a lot of demand, particularly for reasonably priced rentals or sales — and so we see a lot of demand there. It’s certainly hot.

How about the Wall Street area?

Wall Street area is hot, we would call it the Financial District. But with the addition of a brand new transit center there, there’s a lot of new retail options — something of a renaissance happening in the Financial District, so I’m going to call it hot.

Chelsea. Still hot?

Still hot.

How’s Hell’s Kitchen? A lot of people talking about that area lately.

Hell’s Kitchen is hot, it’s hot in its own right, but it’s also very close to a lot of new developments around Hudson Yards on the West side, so we’re expecting big things of this neighborhood, I would call this hot.

The beauty of Hell’s Kitchen is a quarter of restaurants — does that all get displaced by this, or does that just mean more demand as all those people move in there?

Certainly more demand, and that’s the point. I think the area that you’re talking about with Restaurant Row — that’s not going anywhere. I think that’s a smart amenity to be kept and not something that developers want to destroy.

Do you have any way of having an outlook for Hudson Yards? It’s just huge.

Well, New York City and particularly Manhattan hasn’t seen development of this scale in decades, maybe longer, and so it really is interesting for us to see the practically entire West Side being completely reshaped by this development.

I think it’s going to be a case of a rising tide lifting all boats, where real estate values in neighboring Chelsea and Hell’s Kitchen are going to start to rise once not only the residential units come in, but I think there’s also a commercial opportunity. There’s a park and there’s plenty of office space going on, so I think the West Side is primed to see significant growth in home values and rent prices as Hudson Yards develops.

Gotcha. So, Billionaire’s Row/West 57th. Is that too early to tell?

I’m calling that cold. It was hot last year, it’s cold this year for reasons we talked about with the luxury market. You can’t separate Billionaire’s Row from the luxury market — they’re one and the same, and they go down together.

Upper West Side.

Room temperature.

Harlem.

Definitely hot. And this is true of a lot of neighborhoods above 100th Street in Manhattan where more buyers, more renters are moving upwards to find value and affordability, and we’re seeing a lot of a lot of new demand in Harlem.

Fantastic. How about let’s let’s run through Brooklyn really quick. Williamsburg.

Cold

Cold, wow. Who would have ever thought that?

Yeah, there’s a proposal to shut down the L train that’s causing a lot of havoc among potential renters and buyers there, unsure of whether or not they’d even be able to easily get into Manhattan for a year or longer, so right now we’re going to call that cold.

I’m sure the hipsters will revolt and stop that. Brooklyn Heights.

That’s room temperature. Brooklyn Heights is like the West Village of Brooklyn; it’s a blue-chip community, neither much hotter or colder from last year.

Park Slope.

Cold.

Bedford-Stuyvesant.

Super hot.

East Brooklyn, I hear, is the up-and-coming hottest neighborhood — am I right?

East Brooklyn is our submarket distinction for a lot of neighborhoods in the eastern part of the borough. East New York in particular is seen as a hot neighborhood because of rezoning that’s happening; it’s accessible via plenty of transit lines, so I’m going to call that hot.

Clinton Hill.

Also hot for the same reasons.

Crown Heights — same story?

Same story, definitely hot; it neighbors Bed-Stuy, and I think they’re very similar definitely hot.

Long Island City. I hear that’s.

The best views in Manhattan are in Long Island City, I’m going to say that’s hot.

And finally, let’s go over to where the billionaires also hang out, the Hamptons. What’s going on in the Hamptons?

I’m going to call the Hamptons room temperature. I hate to ever use the blue-chip analogy but, this is sort of a safe investment, it’s not any more or less popular than what we’ve seen in the past.

This is fantastic. Alan, I’d like to invite you April 7, our Global Connect conference is in New York City. II’d love to have you on stage; we could do the same thing. Would you be interested and are you available that day?

I am available, especially if I could just say it’s hot or not.

Hey, Alan, thank you very much. And keep up the good work. I don’t like getting a lot of emails, but I love getting the Street Easy emails because I love real estate and I love data, and you put it together in a really fantastic way. Thank you very much for being with us today.

Hear Alan Lightfeldt go neighborhood-by-neighborhood again at Global Connect — register now