New York City is a colossal urban jungle, but what strikes me is the surging housing market rental prices in not only Manhattan, but also the strong price appreciation in the borough of Brooklyn.
Average home prices peaked around $550,000 in early 2006, prior to a steady decline since then. Yet if you look at regions, especially Manhattan and Brooklyn, the demand for housing and rentals is strong, and this has created a surge in rental prices.
What has been apparent in New York City over the past decade has been the clean-up of the city, along with the rapid development in the surrounding areas close to Manhattan, such as Brooklyn. A look at Brooklyn shows an area that is rapidly growing with multiple new businesses, hotels, and housing market projects reclaimed from former industrial lands.
Whole Foods Market, Inc. (NASDAQ/WFM), for instance, built its largest outlet in Brooklyn that was previously on industrial land. There are now plans for further development in the area. The end result has been a boom in the housing market in Brooklyn for both property buyers and renters. A look at the rental prices in Brooklyn show rental rates as high as $5,000 a month or more for a two-bedroom apartment. The former docklands in Brooklyn have been transformed into a beautiful urban area with paths, expensive condos, and a great view of New York City.
The rise is staggering and clearly indicates a booming housing market there.
The situation in Brooklyn and New York City is indicative of many areas across the country.
Just take a look at the S&P Case-Shiller Home Price Index, which shows the steady rise in housing prices across the country and in the top 20 metropolitan areas since a bottom in early 2012. The index is still far below its previous high in 2006, so there’s clearly more upside in the housing market.
Chart courtesy of www.StockCharts.com
Of course, the prevailing low interest and mortgage rate environment pushed by the Federal Reserve has created years of recovery in the housing market. With rates holding at historical lows and with a somewhat encouraging improvement in the jobs market, I expect the housing market to continue to improve in the metropolitan areas, especially the urban areas that are in demand, such as New York City, Chicago, or San Francisco.
To benefit from the recovery in the housing market, you can continue to play the homebuilders, along with exchange-traded funds (ETFs) and companies that focus on accumulating real estate. Examples are The Blackstone Group L.P. (NYSE/BX), which has been accumulating cheap and foreclosed properties over the last few years and, hence, is holding properties that have increased in value; and housing market ETFs such as iShares US Real Estate (NYSEArca/IYR) and Vanguard REIT Index ETF (NYSEArca/VNQ).
I also like some of the home supplies companies, which you can read about in “Investment Opportunities Left in Housing After Weak January Sales?”