A Tale of Two Markets: ‘Luxury vs. Traditional’

February 27, 2018 | By Evan Paliotta

The phrase “the rich are getting richer” is one that is difficult to refute.  Since our primary drive is preservation, once these wealthy individuals accrue a large sum of economic energy, they tend to seek the safest, strongest means to preserve their wealth. Manhattan real estate has been one of the safest havens for the über wealthy to conserve their wealth and live in opulence.  

In the decade after the housing debacle of 2007-2008, the demand for luxury housing has risen as the supply of wealthy individuals has increased.  To satisfy this demand, developers got to work on projects such as One57 W 57th and 432 Park Ave on ‘billionaire’s row’ and most recently Hudson Yards.  

Wealthy foreigners have flooded these buildings and when money pours into an area, businesses come into the area to satisfy the needs of these wealthy individuals.  Therefore consumer prices increase and the people who have lived in these areas for years are seeing their purchasing power quickly diminish.

The displaced persons (still wealthy by U.S. and global standards but not relative to the Uber wealthy NY crowd) move to tangential neighborhoods that are slightly less expensive and thus displace the people that were living there for years…. the cycle continues.

We call this process “squeezing out” and it creates a ripple across all NYC real estate markets.  This is why real estate prices in neighborhoods like Upper Manhattan, and many parts of Brooklyn and the Bronx have been increasing at alarming rates.  

All in all we’re seeing a regression to the mean; a glut of supply in the luxury markets, followed by mass displacement thus driving up the prices of the lower end real estate markets. With the new tax code, lagging markets, talks of interest rate hikes, the Fed not rolling over their matured bonds, the flattening of the yield curve, and discussions of selling trillions of dollars of U.S. treasuries, these trends will certainly deviate.  How you ask?  I don’t even think the ghost of Nostradamus could predict.

Let’s see how this plays out folks.



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