Posted by Leonard Steinberg on December 17th, 2011

If there is one thing people consistently ask me, it has to be: “How is it that the real estate market in New York continues to be so active, even through such tough economic times?” My answer is not a simple, quick one. Its rather complex and detailed. Here is how I break it down:

1)  New York has a small percentage of owned real estate, with only about 30% either condominium, co-op, townhouse or condop. The remaining 70% are rental properties.

2) New York has always attracted a global buyer, now more so than ever. Of all the cities in the USA, New York is the one that caters best to the international wealthy, old and new. So for anyone wanting to ‘park’ dollars in residential real estate, New York is at the top of the list.

3) The volume of TOP QUALITY sale real estate is even smaller. Quality buildings with quality units are a small percentage of apartments.

4) Real estate follows life: deaths, divorces, births, marriages, mergers, re-locations. These elements continue regardless of economies. New York caters mostly to a wealthier audience: With very, very few options of high quality rental properties, the wealthy prefer home ownership as a means to control the quality of their home environment.

5) New York attracts the most ambitious and the biggest risk-takers: The new rich have become the high-betas of our economy. With their dependence on financial markets, their leverage and their hyperspending, the top 1% have income swings that now are more than twice as high as those of the rest of the population. As fortunes are made and lost, real estate sales and purchases follow suit. The beta of the top 1% nearly quadrupled between 1982 and 2007 to 2.39. The top 0.01% had a beta of 3.96, making even the riskiest tech stocks look safe by comparison. Economists and wealth managers say the betas of the rich have soared even higher in recent months as markets gyrated sharply.

6) Wealthy people like control: the concept of living in a rented property is still for many of the very wealthy a lesser lifestyle: If you won the lottery to-day, would you want to rent or own?  Wealthy people like to install super-sophisticated electronics into their homes: this large an investment is completely unjustifiable in a rented property.

7)  Home is a status symbol in New York’s wealthy circles. Living in a mediocre home is often not very effective when trying to impress professional contacts, let alone trying to convince that super-model girlfriend into marriage….

8) The great pretenders:  Many in New York live well beyond their means, mostly in the hope of reaching their dreams, and often by faking it to the outside world for status. This group has the capacity to fall in tough times.

When I started in real estate many years ago, I remember a top broker being interviewed about the dessimated Japanese buyer market (the South Americans and Russians of to-day)……she reminded all in the room that just like a revolving door, there is a market as they buy on the way up, and another market as they sell on the way down. Brutal, but probably simply a reality of big city life.