They say if you can make it here you can make it anywhere, and that old line certainly rings true for Manhattan's renters. With rental prices skyrocketing across Manhattan, days on the market down, and landlord concessions plummeting, New York City is truly a tough market for those looking to lease or ready to rent.
Last week I mentioned that Manhattan's real estate market has remained robust (strikingly so) despite deep depression across the country. There, I was referring mostly to buying and selling -- but the rental market deserves a double-take as well:
Median rent price was up from $2,849 in the fourth quarter 2010 to $3,121 in the fourth quarter of 2011. Let me save you the trouble of tabulating that in your head: that's an increase of almost 10%. But such a meteoric rise in rent hasn't put a damper on the market in the least. Rather, days on the market is down a stunning 36.2% (from just last quarter!) to an average of 37 days. Apartments are going at the second fastest pace in the last 15 years.
Landlords certainly are not doing much to help move property. They don't have to. Landlord concessions (such as free months, or free gym membership) are down to 7.4% from 40.5% in the 4th quarter of 2010. That's a staggering statistic -- and it's revealing about the state of the rental market. Don't bank on a free month of rent when you sign your next lease.
So what is going on here? For one thing, a shaky stock market means many would-be buyers are reluctant to take the plunge. Renting, thus, remains a red hot alternative. This is true across the entire country, but nowhere is it more apparent than Manhattan.
But it's not there is no supply to meet increased demand: Inventory increased 2.5%, indicating that more people are putting listings on the market for rent rather than selling. In a show of cautious optimism, more and more people are holding on to properties waiting for sales prices to increase. Developers, meanwhile, are rushing to convert spaces to rental. Be that as it may, the ratio of current listings to previous quarter rentals (4721/7942) indicate that absorption will continue at a rapid rate, and that there is still room for plenty of inventory on the market.
This rental crunch is really the result of ever tightening credit guidelines. With the economy as it is, many people have a tough time qualifying for a mortgage. Meanwhile, those who do qualify may be discouraged to apply by all the news of credit restrictions.
All of this really circles back to the pervasive climate of economic uncertainty. As the markets have taken a hit, many people do not feel as though there is job security. They may have missed out on a raise or a bonus this year, and this sort of unease prevents many from investing in a home for themselves.
But the rental market, like all things, is cyclical: if this trend continues, prices will eventually reach an unaffordable level, and people will either be forced out of the city, or will begin to bite the bullet and buy -- perhaps realizing that purchasing is smarter in the long haul.
When, exactly, will that tipping point occur? Unless you have a crystal ball, it's hard to predict. But experts say that -- accounting for inflation -- we are still 27% below the rental peaks in the 4th quarter of 2006... So it looks like we may have quite some time to go.