As the economy continues to heat up, the low housing supply is having a negative impact on affordability. According to Zillow, renters are spending 42% of their monthly income on their rent in the NYC metro area, while homeowners are spending 26% on their mortgage payment. Housing permits have not kept up with the record demand. These trends are leading indicators for continued property value appreciation.
Rental and condo inventories are at all-time lows for a multitude of reasons. Due to the recession which started in 2008, property developers pushed the brakes on their projects. Only within the last two years has there been enough confidence in the economy to restart these developments. Since project development to completion can be a three year pipeline, the supply has not yet caught up with demand. Additionally, many developers have seen the improving economy as an opportunity to skip affordable options and go straight for high-end luxury development.
The inventory issue will not improve anytime soon. With the increased trend of urban living and millennials starting to move out on their own and even starting to seek homeownership, the demand for the mid-level luxury segment in NYC will continue to increase. Even as development pipeline turns into usable inventory, it will not be able to keep up with the demand.
Prospective homeowners whose primary consideration is affordability should look to live in the periphery of popular neighborhoods. This is where deals can be found. There are many developing neighborhoods that are up and coming in NYC. They are often in the line of mass transit and are starting to become solid communities, which are packed with amenities like grocery stores, coffee shops, restaurants and nightlife.
Prospective homeowners should be living below their means and wipe out any existing debts. This will put these individuals in a position to receive good financing terms. Additionally, I would recommend that now is not the time to look for perfect. They should look for something that comfortably fits within their price range and which will allow them to ride the market up.
In two years, they’ll be able to sell, receive non-taxable capital gains and be able to upsize. If prospective homeowners look for perfect, they may miss the opportunity to ride the market, and they’re savings won’t keep up with increased property values. The existing interest rate environment makes it a perfect time to take on financing. Rates are at record lows, and they have been highly speculated to rise in 2016.
What are your views on the housing market? Are you positioning yourself to make a purchase or sale? Or are you waiting on the sidelines for other indicators?
Would love to hear your feedback!