A recent Bloomberg article is unequivocally bullish for New York (Manhattan) real estate. To paraphrase, inventory is at record lows according to Miller Samuel, so buyers will have to bid aggressively for whatever is available for sale. “There were 4,749 apartments on the market at the end of December, a 34 percent decline from a year earlier and the lowest number since Miller Samuel began tracking the data in 2000.”

Several factors are contributing to the low inventory level. Prices are not yet high enough to entice those who bought near the top to list their apartments. Following the American Taxpayer Relief Act of 2012, higher taxes on Capital Gains (+5% for some people) and for Medicare Contributions (+3.8% for some) mean sellers may hold out for even higher prices to net the same profit.

High rents and low inventory may also discourage sellers from selling one home when they cannot find a suitable replacement at a reasonable price, or cannot qualify for financing at prime rates.

Finally, some also speculate that the expected tax increases resulted in a pull forward of deals into 2012, particularly at the end of the year.

On the flip side, however, the new tax laws could have a negative “wealth effect” as most taxpayers expect a higher tax bill. That could dampen the demand side of the equation. However, it seems that there is a reasonable argument that the effects could be temporary as the mortgage interest tax deduction and exclusion on gain from sale of principal residence were left alone, and most of the tax increases were to previous levels, not new historic highs.

It will be interesting to gauge the impact on the local real estate market of rebuilding after Sandy. Federal aid was just approved following the fiscal cliff deal. Perhaps a subject for another post.

Altogether, it sounds like both sellers and buyers have reasons to be reluctant, which could result in a quiet year.

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