SEPTEMBER 6, 2016 - 8:59AM BY VIRGINIA K. SMITH

As the city wakes from its summertime languor and the real estate market climbs out of its

customary August slump, it's a perfect time to look at what's in store for the rest of the year. And

with recent reports of softening in the sales and rental markets, as well as 421a confusion, L train

shutdown mania, and uncertainty over the election, suffice it to say the next few months are

likely to be anything but boring. Below, what NYC buyers, sellers, and renters can expect as the

weather cools:

Is there really wiggle room in the sales market, or is it just for the ultra-rich?

Over the last several months, there's been a much-discussed "softening"—broker code for

slowdown—in sales for the headline-grabbing, multi-million-dollar condos at the very top of

the market. But can we expect that trend to continue, and perhaps more importantly, to trickle

down into the rest of the sales market?

Short answer: It's a mixed bag. "The 'need-tos' are always going to buy, but the ego-driven

'want-tos' in the market above $15 million have cooled," says Douglas Elliman's Darren

Sukenik. International turmoil, a shaky global economy, and recent New York crackdowns on

anonymous LLC buyers have indeed all combined to give luxury investors pause, while buyers

in a more down-to-earth price range (and who actually live in their apartments) will always be

looking, keeping prices in that segment of the market more stable. "The luxury market

strength has been long overplayed, and we’re seeing that in living color and right now,"

says Miller Samuel's Jonathan Miller.

For the rest of the market, "We're still seeing a ton of strength at the lower end of the market,"

says RealDirect founder and CEO Doug Perlson. "There's lots of activity under $1 million and

up to around $2 million, and above that is where you see a slowdown." This is in part because

there's less of a glut of inventory at the lower end, and also because these are buyers who tend

to depend on financing rather than going all-cash, and therefore continue to be enticed into

the market by interest rates, which have been low for some time now, and recently have dropped

even further. (More on this later.)

But particularly in the high end, says Sukenik, "There's a flight to quality. Luxury buyers will

still respond to properties that are the first and only of their kind, for instance, those with

locations right on the park, or on the waterfront. There's a little more choice now, and if they're

going to buy, they're going to buy into the one-of-a-kind properties." Translation: Unique and

high-quality projects are still generally doing a brisk business, but new developments that were

hastily slapped together to take advantage of the booming market? Not so much. These days, if

buyers are shelling out, they want what they're getting to truly be worth the money. ("You're

seeing a lot more negotiating by developers, which is a good thing as far as bringing price and

actual value closer together," as Miller puts it.)

"All this stuff is actually good," adds Perlson. "We wind up returning to a more normal market

as opposed to the seller's market that we've seen for the last five years or so. Things become a

little bit more rational and pricing becomes a little bit more normal."

When will landlords move past concessions, and finally lower rents?

Many beleagured renters' hearts skipped a beat this summer over news that after a years-long

streak of nonstop price hikes, rents have essentially stopped climbing, and in some places, even

dropped a bit.

And while the slowdown is, as with the sales market, largely concentrated in the high-priced

(and arguably overpriced) top 10 percent of the market—generally for rentals, above $7,500 in

Manhattan—as we head into the cooler months, which are traditionally a time when rents drop

a bit and concessions rise, that could translate into more deals than usual for renters.

"Whether it's a good market or a bad market, during the fall and winter months there's a natural

slowdown," says Citi Habitats president Gary Malin. "Vacancies typically rise, prices become

more negotiable, and incentives are added. Owners realize they'd rather get people in now,

before the winter, than wait to see what happens."

Particularly in a market where concessions (such as a waived broker fee, or a free month or two

of rent) are already more available than usual—and renters are fed up with astronomical asking

prices—Malin says "owners will have to be more open to suggestion about pricing. It can never

hurt to ask for a price adjustment." (Though, he warns, it might be smart to consult a broker

about what kind of discount you can reasonably expect, so you don't overdo and cause the

landlord to walk away from the deal entirely.)

While rents don't seem likely to fall by a significant amount—Miller recently called them a "high

plateau"—there are also a lot of new development rental buildings just now entering the market

in areas like downtown Brooklyn. Malin says "it will be interesting to see how they all compete

with one another." Expect increased offers of concessions—which are already higher than usual

for this time of year—and (relative) negotiability on price.

Is the outcome of the election going to throw everything into chaos?

Given that global turmoil generally—and events like Brexit specifically—have already had

tangible effects on the New York City real estate market, it's not unreasonable to wonder how

November's presidential election will come into play, regardless of which candidate you pick

on the ballot.

Most likely, say our sources, the uncertainty and acrid contention surrounding the election will

give investors a temporary pause (part of which is already happening), but ultimately end in

business as usual for the NYC market.

"Markets don't like uncertainty, and the more sophisticated buyers and invested are the ones

who take that into account more," says Perlson. "There's a lot of doom and gloom around the

election, and it colors people's perceptions of whether they want to make a big purchase. No

one has a crystal ball, but these things will likely continue to impact the fall market."

Adds Miller: "It becomes a self-fulfilling prophecy when everyone in the industry says there's a

slowdown because of the election." However, he expects this cycle to likely play out similarly to

the 2012 election, where there was a temporary slowdown in the lead-up to November, then a

"release of pent-up demand" in January after the dust had settled. "We won't really see a

reprieve until 2017," he explains.

Moreover, given the status of New York City property as an evergreen investment, uncertainty

can ultimately lead buyers to double down on real estate, says Sukenik. "I wish I could say that

for the rest of the country, but it's a very Manhattan-centric thing," he tells us. "When people

are nervous about the stock market or the world economy, they either keep their money on the

sidelines or put it into New York City housing."

However, this is primarily true in more established neighborhoods (Soho, the Upper East Side,

and the like) than in neighborhoods that've recently seen rapid spikes in prices. "There are

areas that I call 'high beta' neighborhoods, that move disproportionately with the market,"

explains NeighborhoodX founder Constantine Valhouli. "When times are good, they zip up,

but when times are bad, they get slammed hard. For instance, Williamsburg is even relatively

high-beta, and Central Harlem has been in the last couple of cycles, but now more amenities

have filled in, so I think it might hold steadier. I'll definitely be keeping an eye on areas like

these in the fall." If things start to look bad for the city's economy or housing market, then, look

to the so-called "emerging" neighborhoods as a bellweather for a larger market slowdown.

But don't expect to see the same effect rippling through the world of rentals. "The overall

economy is the issue for the rental market, as job numbers and salaries aren't keeping up with

rent growth," says Malin. "But you need a place to live, and if you're not going to buy, you're

going to rent, so the rental market is as subject to these types of fluctuations related to current

events." In other words, don't expect your vote to have any effect on your monthly rent bill

payment.

Are mortgage rates going stay crazy low?

One of the more interesting (if disturbing) stories of the last several months was England's

disastrous "Brexit" vote to leave the European Union. And while the vote has already drastically

affected currencies and dealt a blow to the U.K. housing market (often a direct competitor of

NYC), and generally sent shockwaves through the global economy, it's also had one interesting

side-effect: causing interest rates to drop even further from already historic lows.

This has been welcome news both for buyers and for homeowners looking to

refinance. "Because rates are as low as they've ever been, there's relative affordability that makes

the regular buyer say, 'Okay, I may never have an opportunity like this again'," Perlson says.

And for fear of shaking up the economy just as it's heating back up, the Fed isn't likely to boost

rates soon. "I'm highly skeptical that there's going to be significant interest rate growth over the

next year or two," says Miller. "The Fed has had so much trouble with this issue, that I don't

know what could change in the short term."

Indeed, after last week's lukewarm jobs report, it's looking increasingly unlikely that the Fed

will make any major moves on rates in the near future.

However, he adds, this news isn't entirely rosy, particularly for first-time buyers. "The irony I

think is that as rates lower, credit tightens, because the margin of profit gets much smaller for

lenders," Miller explains. "And then what good is affordability if you don't qualify for a mortgage

in the first place?"

Is everyone in Brooklyn still freaking out about the L train?

In a word: yes. Though it won't go into effect until 2019, the L train shutdown looms large for

North Brooklyn, as well as lower Manhattan.

And while it's early yet for what Perlson calls an "inevitable" drop in rents in neighborhoods

like Williamsburg and Bushwick, the effects of the transit disruption are already being felt in

the sales market. "We're seeing a lot more sales inventory pop up along the Williamsburg-

Bushwick corridor, especially multi-family buildings," he says, as owners of rental properties

brace for a likely drop in their monthly incomes.

Prices on these properties won't immediately drop this fall, as sellers test the market to see what

they can get, Perlson notes. "But if it gets to the point that there's a glut, there will be pressure

on prices sooner rather than later. You might see multifamilies dipping in price over the next

year or two ahead of what's happening," he adds.

"Long term, of course, it will be fine," he says. "But short term there will be buying

opportunities if you can stand the headache of the commute, or lower return if it's an

investment."

"The people in potentially the worst position are condo owners," adds David Maundrell, Citi

Habitats' EVP of New Developments for Brooklyn and Queens. "Their rental income will be

hit, and if they’ve moved out already, they’re left with a dilemma: reduce the rent to whatever

the market may bear, ride out the downturn, or dump the property and move on?"

On the rental side, Maundrell expects L train expats to scatter all over Brooklyn (and even back

to parts of lower Manhattan) to neighborhoods like Greenpoint, Prospect Heights, Crown

Heights, and downtown Brooklyn.

Is anyone ever going to fix 421a—or affordable housing?

One of the bigger stories of 2016 has been the expiration of the 421a tax abatement, long a key

factor in encouraging developers to include affordable apartments in their projects (think so-

called "80/20" buildings). And even as Governor Andrew Cuomo shops around a proposed

compromise to revive the program, expect gridlock—and developer uncertainty—over the issue

to continue through the end of the year.

"What's going on with 421a is the biggest mess in 40 years," says Julia Vitullo-Martin, a senior

fellow at the Regional Plan Association. "Cuomo's proposing a version in which the state would

subsidize the difference between the wages developers have been paying, and the wages the

union is demanding. It would be a first for the state of New York—it's just loony." Indeed, while

much of the real estate industry has stayed mum on whether or not the proposal is viable, there

are plenty of other critics voicing concerns that the plan would be an undue burden on

taxpayers, and set an expensive precedent for business owners.

Heidi Burkhart, founder of Dane Real Estate, an affordable housing consulting firm, says

there's been tons of discussion between developers and equity partners over how to make

projects work without 421a. "The whole community is hopeful [for a solution to bring it back],

because it helps for a lot more development," she says. "And I do think that having mixed

income is the right way to go on developments, as it helps encourage mixed-income

neighborhoods."

Though 421a has fielded plenty of criticism from affordable housing advocates who say the tax

abatement encouraged pricey new developments without adding enough low-cost housing—

and these same housing groups haven't shown much enthusiasm for Cuomo's proposed

revamp—no new programs have emerged to replace it since the expiration.

"In a way it’s simple," adds Vitullo-Martin. "If you think New York needs more affordable

housing, you really need to configure the 421a bill so it is profitable for developers to build

affordable apartments. If it’s not profitable for them to build, then they’re going to market-rate

housing, and that’s the end of the story. And it’s not going to get resolved soon."

"I think we're far, far away from 421a coming back," concurs Rob Solano, co-founder of

Churches United for Fair Housing. "It's disappointing, because it's a program that could be

great."

As for future affordable housing initiatives on the horizon, Burkhart points to the need to bring

office tenants and jobs into farther flung neighborhoods, not just housing and retail. "I haven't

seen it in business development, and I want to make that change," she says. "My whole mindset

is to bring companies like Facebook, Google, FreshDirect, out into these neighborhoods to

their workers who normally have to commute an hour, and then that encourages growth."