Making sense of the NYC real estate market with Jonathan Miller

Emily Myers (00:03):
I'm Emily Myers, and this is the Brick Underground Podcast where we cover everything you need to know about New York City real estate, whether you are buying, selling, renting, or renovating. In this episode, I'm joined by Jonathan Miller, president and CEO of the appraisal firm, Miller Samuel. Jonathan tracks what's going on in the rental and sales markets for Douglas Elliman and has been analyzing the data on New York City real estate for decades and increasingly covers other suburbs and metro areas, so can put everything that's happening in New York into the national context. Jonathan, hi!

Jonathan Miller (00:39):
Great to be here.

Emily Myers (00:41):
So, Jonathan, this is the show where you talk about the data, and I try to get you to give our listeners advice based on that data, which you always resist quite sensibly. Of course, at Brick Underground, we use your numbers to compile our quarterly market analysis. For those listening who want to read these, go to They are there to help you make informed decisions on your housing goals. But, Jonathan, everyone really just wants to know how this real estate story pans out. Can we start with rents in New York City? They appear to be staying stubbornly high. What's the data saying?

Jonathan Miller (01:17):
One of the problems with looking at housing markets right now is that year over year comparisons are overstating the, uh, the change in the market. Um, when we look at leasing activity or sales activity on a year over year basis, I think everybody needs to realize that 2021 was a rocket ship, you know, that that rents were going straight up. And when we compare against that, um, it's not real.

Emily Myers (01:47):
So what you're saying really is that the 2021 data makes it, a very muddy picture in terms of trying to compare where we are now., but obviously in 2021, rents climbed very quickly now 2022, they're well above pre pandemic levels.

Jonathan Miller (02:06):
Right. Right. We're looking at around 15%, give or take. And the way to properly compare current conditions with pre pandemic—pre pandemic, meaning pre lockdown—uh, is to compare the same period that last occurred before the pandemic began. So essentially what I'm saying is compared to October of 2019, you know, rental prices, median rent is up about 15%. And that's the way to look at it. But the, I think the thing to, to realize or to pay the most attention to in the rental market is that rents are higher, but also concessions are lower, you know, concessions meaning, what landlords give like free rent or pay the broker commissions, there was a disproportionate amount of that going on. And actually the market share of landlord concessions actually really bottomed in the last couple of months. And in the month of October, it's actually starting to rise a little bit again. Um, and I think that's a function of prices leveling off or slipping. Um, when I say slipping, I'm talking about a half a percent, like not huge numbers, um, but essentially rent over the last couple of months has moved sideways. There is a polarization that's going on where luxury, the luxury market, which is the top 10%, uh, really starting, I believe around, um, $8,000 a month and higher, which I don't mean to ca be cavalier about the numbers, but something like that, that's the top 10%. Uh, that market is still, we're seeing rents rise and in fact, luxury rents that new reach, new highs. And so essentially the the high end, the super, you know, the super high end of the market is making the overall market move sideways when in reality there's a slight downward drift in rents.

Emily Myers (04:10):
And just going back to your point about a 15% increase when we compare to 2019 is a 15% increase over three years then not that surprising. Is that what you're trying to say?

Jonathan Miller (04:24):
I'm not sure what I'm trying to say other than, uh, you know, 5% a year is a, uh, you know, at 15% through a year is 5% a year. If you just say it was even each year, the, the same amount each year is, um, is, you know, double the inflation at the time. So it is a relatively robust growth. It's certainly not record breaking. Um, but I, but I, you know, what kind of amazed me is we went through this rollercoaster over the last three years in terms of rental pricing is, I remember when, you know, the trajectory was straight up in 2021, but it was still below pre pandemic. And I remember everybody talking about how expensive rents were and everything, but I think people were caught up in the hoopla because relative to pre pandemic, they were below. Um, and that's why we had a tremendous, i I dubbed it during this period, the, the Youth renaissance where we had younger people flooding into the city, um, because rents were less, or they had been priced out before, and this seemed like a good opportunity. And then rents kept rising and then went beyond what the, um, pre pandemic levels were. Um, and so it, um, I, I don't have numbers on how many, what percentage of people stayed or renewed, but I think it's higher than we think. I think it was, it's helped prime the prime the pump in terms of getting people back into the city.

Emily Myers (05:54):
And you were making a point about luxury rents. People are going to luxury rentals in a way that we perhaps is we haven't seen, or is it, is it a surprising move

Jonathan Miller (06:07):
Once the lockdown hit in the pandemic? And ever since we've seen a disproportionate strength in higher housing markets, whether it's luxury rental or the upper half of the rental market, uh, the upper half of the purchase market. And I think in a very simplistic explanation, I think part of that is because the higher your salary or net-worth, in theory, the more mobile you are and the more mobile you are, the more you're willing to pay to live exactly where you want, as opposed to maybe living where you don't want, but it's a convenient commute or, you know, whatever the other reasons are.

Emily Myers (06:48):
You mean you're less prepared to compromise.

Jonathan Miller (06:51):
I think that's a good way to put it, less compromising because you have more flexibility, um, in your relationship between work and home. Just as a sort of general brushstroke statement, obviously, you know, that that can vary by profession and job, etcetera.

Emily Myers (07:08):
And of course, privacy and, uh, outdoor space became at a, a premium for many people during the pandemic. And, and, but there is a connection isn't there now, uh, in the luxury perhaps with the sales market. And although I'm not quite ready to leave the rental market alone yet, uh, perhaps it is worth pointing out the, the connection between the sales market and the rental market here, because what we're seeing is the mortgage rates are going up and that is, yeah, making would-be buyers less, uh, keen to close on a property or less perhaps able to close on a property. And so instead they're putting that down payment into, a higher-end rental. Is that, is that what we're seeing?

Jonathan Miller (07:52):
Yeah, I think, uh, the way I would look at it is, um, you know, we're sort of at 'peak uncertainty' and uh, and you know, that's a combination of, you know, rates are more than double where they were at the end of 20, uh, 21. Um, and you know, there's this sort of misunderstanding that, hey, Manhattan, the purchase market is 50% cash, meaning half of the market. And as you skew higher in price, the higher you go in price, the more higher the probability someone's paying cash and not getting a don't need to finance to, to, to buy, um, is a misnomer because they assume, well, if they don't, if there's fewer people getting mortgages at the high end or less dependent on it, uh, then they don't care what mortgage rates are. And that's absolutely false because they're looking at the financial markets which are also, uh, seeing tremendous volatility from Fed policy. So you know, I think it just adds one more sort of check mark to the list of uncertainty and, uh, you know, on top of the war in Ukraine, you know, fuel prices, food prices, and general inflation, you know, the Fed trying to damage the economy literally with a baseball bat are maybe figuratively would be the right description. Um, and trying to create unemployment and, and damage to the economy and the economy is being very resilient except for housing, because housing is slowing down because of the drop in affordability combined with uncertainty.

Emily Myers (09:32):
Going back to sales, then, are prices falling. Is it a buyer's market? Are there deals for buyers out there?

Jonathan Miller (09:40):
So I think the, the general answer is no to everything sort of, you know, prices are up, but we're seeing prices either level off or slip, um, a bit. Um, we're still seeing bidding wars, um, bidding wars in the second quarter, which was, uh, sort of before the full impact of rising rates really hit Manhattan. Uh, bidding wars had a 9% market share, now it's 7%. It's, you know, they're still happening, um, just less, less often. I think I would describe the market as, so for example, if you compare median price to pre pandemic, meaning third quarter of 2019, prices are up 12.6%. If you look at it, you know, in the short term we are seeing a slip, uh, in, in prices. And I think that's a function of interest rates, but I also think it's, um, something where we're seeing, we're seeing a larger decline in higher end activity, uh, uh, because in many cases those purchases are more discretionary, than someone that, you know, is bursting at the seams in their home and they need more space or, you know, some other scenario versus someone that's looking, you know, uh, maybe less, uh, there's less of an urgency. And so they're pausing, they're waiting and, and I think that's part of the reason why we have this disproportionate surge in luxury market pricing.

Emily Myers (11:17):
Okay, so owners can take some comfort that, uh, values of property are not falling. You said it's not a buyer's market, so it's, the edge is still with a seller because the buyers perhaps have a, have a war chest that they, still have money that they can spend and, even against, uh, rising mortgage rates and buyers are struggling, are going to struggle to find deals.

Jonathan Miller (11:45):
You're right, the sort of the general idea is that we're sort of in transition from a, insanely strong sellers market to a buyer's market. We're just not quite there yet. The other thing that I think is super important in the context of discussing the state of the housing market, and this just doesn't apply just to the city, it applies to, um, you know, the suburbs that surround the city, um, is that I think the number one metric to pay attention to in general isn't price trends, it really is inventory. And I don't think people realize, so for example, in Manhattan, inventory is not bloated, you know, uh, you know, typically what you expect to see in a, uh, declining sales environment, sales are down, remember from 2021, sales are down 18.4%, but sales are up 44% from pre pandemic. So sales activity is still elevated, you know, inventory, I almost wanna say it's a Goldilocks level, just right, it's not too high or not too low, but the outlining suburbs of New York City, um, inventory was obliterated. Meaning that supply was, I, I don't want to sound like I'm sort of, you know, overly exaggerating, but it literally was wiped off the face of the earth. And my simplistic example, I may have told you this before, but I love the, the example just because it gives people context about the, the sort of the suburban markets that ring New York City. And the reason why I bring this up is because with the chronic lack of inventory in the suburbs in, you know, in many cases that ends up keeping people in the, in the city, you know, inventory is somewhat consistent with long term norms. Whereas, for example, um, in a town that I just moved out of after 30 plus years in Connecticut, um, three years before the pandemic, the the inventory in my town was consistently 200 condos in single family homes. And then a year after the pandemic, um, with rates collapsing, um, and demand surging in the suburbs, the listing inventory fell to 50. So there was went from 200 to 50, that's a 75% drop, and you look at them and go, wow, that's, that's a big drop. And then a year later, before the Fed increases in the spring, I mean in rates, um, or influencing rates higher and early 2022 inventory then fell to 12. Wow. So you went from 200 to 50 to 12. And when I say 12, I say that thinking of the word obliterate because that is, um, an unsustainable condition. So now, now with the spike in rates, inventory has quadrupled it's back to 50, which is still 75% below pre pandemic levels.

Emily Myers (14:59):
Yeah, no, it's a really interesting point. So what you're saying really is there's nothing to buy in the suburbs, but there are apartments here in New York City, you said a sort of Goldilocks level of inventory, so not too much, not too little. And when that goes in a different direction, that is going to indicate to buyers or sellers, you know, where their strength is. How do we read those numbers then? For New York City?

Jonathan Miller (15:21):
One of my favorite metrics in housing is months of supply, and that means how many months it would take to sell all the available inventory at the current rate of sales. And in the third quarter of this year, it was 6.3 months. In Manhattan, that number in the 20 years that I've been tracking inventory is eight and a half months. So we're at 6.3 versus 8.5. That means that the market is moving at a, at a much faster pace than what we've been averaging over the last two decades.  It's not at a record low, it reached that level a year ago, at 5.1, but it is, also not nearly as slow as during the financial crisis. You're looking at, an absorption rate that was 26.2 months, over 26 months. So the market right now, if you do the math, is it, it's absorbing at a much faster pace,, than we saw during the sort of peak in 2021 in terms of moving very quickly. But it's, it's also compared to the financial crisis, it's moving three times faster just to give you proper context.

Emily Myers (16:40):
No, that's really interesting. So when you see months of supply hit eight months, the moment that you said that they're 6.3, but when you hit, when we hit eight months, that means you've got a, a balanced market and when it goes down as as it is right now at 6.3, that means this,

Jonathan Miller (16:57):
It's moving faster.

Emily Myers (16:58):
Yeah. And, and a 10, 12 month, supply just, just gives buyers a little bit more time.

Jonathan Miller (17:05):
Correct. And, and so the lower the number, the higher the probability that prices will rise or are, are not, um, not fall. Um, so as the market rises, the mar the prices level off too as well because the way to think of months of supply in sort of a, you know, in everyday terms is I think of it as the pace of the market, how it feels when you're on the ground looking at properties like are you frenzied? It feels like there's nothing happening and you know, right now the market feels a little bit faster on the ground than it, than a normal market.

Emily Myers (17:47):
Yeah. So if your broker's breathing down your your neck, it's likely to be less than eight months of supply <laugh>. But no, it's interesting because it's a kind of hidden metric. We're so sort of focused on the, on the dollar numbers, but in fact...

Jonathan Miller (17:58):
Right, the reason why I like it is because it's the intersection of supply and demand. In other words, you're looking at supply, which is listing inventory and demand, which is evidence of sales. Now as sales slow, even though sales are higher than pre pandemic, but lower than the record levels in 2021, um, you're seeing the market slow, but at the same, the sales slow, but the same token inventory is not high. Uh, so it's this sort of unusual situation. We would expect inventory to surge, to jump, uh, when sales slow, but we're not seeing that. And part of the reason is because rates were too low for too long. So anybody that refied or purchased in the last three or four years is sort of wedded to their mortgage, right? They don't, you know, if they become a buyer, they have to give up the, the 2.75 or whatever great rate they enjoy, um, and then, you know, get something that's much higher. Um, and, and so there's like a stickiness to their existing property be, you know, as time pass passes at eases. But right now that's part of the, one of the reasons why inventory is not surging is that rates were so extremely low that more and more people sort of, you know, are we, for lack of better word, wedded to their rate.

Emily Myers (19:29):
And is it arguably that also inventory isn't surging? Because as you've mentioned several times, the mortgage, uh, the, the lending environment has been very conservative, so people aren't getting into trouble with their mortgages and aren't being forced to sell, which has been was, which is a picture that we saw, during the, uh, financial crisis.

Jonathan Miller (19:51):
That's exactly right. And the way to look at it is the, the change or the pivot since the fed move, I sort of shocked everybody and there's like this pause until you get your arms around it. But you know, we've been so used to a very low level, um, for so long that it takes people a while to adjust. Um, but on top of that, every time people start adjusting to it, which, uh, you know, in my anecdotal observation is 30 to 45 days to get your arms around the new rate as a, if you're a buyer, the rates go up again. You know, like it's been this perpetual third, you've had 4 75 basis point increases in a row. Um, supposedly there's only a couple left and they're gonna be lower. Um, but then, you know, no sure if or when rates will come down, it depends on how, how close we creep towards a recession.

Emily Myers (20:49):
Okay. You said the word <laugh>. You have said in the past that the only way we begin to see a bit more affordability in New York City ...

Jonathan Miller (21:00):
Is a recession.

Emily Myers (21:02):
Is a recession. Exactly. So you gotta be careful what you wish for, I think is the message there.

Jonathan Miller (21:08):
Low rates have effectively made housing less affordable. And the reason for it in this cycle is because even though the payments are lower, you know, when the rates, when a rate drop occurs, that also makes the sales price higher. Like there's an inverse relationship. And then on top of it, rates were too low for too long. I, I, in my opinion, a good year too long, uh, at a, at a rock bottom level, that inventory was obliterated because inventory, um, is this living, breathing organism that takes a certain time to sort of refresh and expand percolate. And when you throw record late rates at it and just wipe it, wipe it, you know, off the face of the earth, it's hard for it to come back and sort of meet demand. And that's what we had. So by having lack of, you know, chronically low inventory that keeps pricing higher, it also keeps pricing prices from correcting in any kind of big way because there's a firm underpinning under price if we go into a recession and the economy is much weaker. Supply is, you know, relatively low throughout the New York City metro area unlike, you know, other, other sort of gray, uh, economic periods.

Emily Myers (22:29):
But we're talking about inventory in the sales market and, and I just wanna mention inventory in the rental market because we have heard recently of tens of thousands of apartments sitting empty. This is data that's been attributed to the Department of Homes and Community renewal and I think the New York City housing and vacancy survey, done by the US Census Bureau. It sounds counterintuitive, but I think if you go back to 2019 when there were changes to the rent laws in New York, and that made it much more difficult for landlords to cycle their apartments out of the rent stabilization program then, uh, and of course rent stabilization being that important part of the city's attempts to preserve affordable housing and, um, right, obviously getting one of these apartments is, is great because you get automatic lease renewals and annual rent, right? Increases capped at, at percentages. So, uh, these reforms then made landlords feel they were under attack. Uh, they could no longer deregulate their apartments and charge the higher rents by doing renovations.

Jonathan Miller (23:33):
Right? It removed all upside, like the ability to, to convert. Um, I think the, you know, the rent law was, you know, was done with best intentions to protect tenants, but what it effectively did was, um, if there's no financial upside for someone that owns a building, um, and they can't, uh, rent for more than what it costs to run it, meaning, you know, in, you know, there's caps on rent but, and limitations on, you know, upside for, you know, uh, capital improvements, anything like that, that's essentially been knocked out of the picture. You know, insurance, uh, taxes, utilities, uh, repairs and maintenance. All those things are not subject to restraint. They're inflation driven. And when those expenses are rising faster than income at some point doesn't make sense to rent, you actually are losing money. I wish this could be resolved somehow between Albany and landlords in the city because I fear this leads us right back into what we saw in the sixties and seventies and early eighties where the, the rent stabilized market becomes, you know, the sort of the picture of what we saw in the Paul Newman movie for Apache, the Bronx, where it was just, and I came here in the mid eighties, uh, right when we were coming out of that multi-decade era. And it would be unfortunate to have to go back to go back into it. Um, but that is what appears to be happening. It's like shifting or turning a super tanker. It just takes a long time and it's, once you get it going, it's hard to stop it from turning. Uh, this is not in the city's best interest. Right. Uh, more supply is how you make rents more reasonable. And, you know, the limitations, the difficulty in building and the difficulty in making, you know, an economic profit for an investment that's not in the city's best interest, it's workers have to be able to afford to live here. Right. And this is not unique to New York. You know, I think the advice to people looking now is, um, be patient and be prepared to give up what you originally wanted. Um, at least to this point, I don't, I'm not looking for a huge pivot to affordability in a short period of time.

Emily Myers (26:11):
Well, Jonathan, brilliant. That was Jonathan Miller, president and CEO of the appraisal firm, Miller Samuel. At you can find hundreds of articles on every aspect of buying, selling, and renting in New York City, including plenty of information about tenants rights and how to navigate your rent either when you're signing a lease or when you are renewing. We also have articles with in depth neighborhood intel Sign up for our newsletter. We also have helpful tools. Check out our rent calculator and we love answering your questions, so please do get in touch. I'm Emily Myers. Thanks for listening to the Brick Underground Podcast. For more information, head to brick The podcast is produced by myself and Jenny Falcon.