Today in Real Estate

The second quarter was truly the tale of two markets. On the one hand, both prices and sales volume were up-up-up. While the data mostly appeared positive, the prevailing sentiment was that the market had seemingly slowed to a halt. The disconnect stems from the nature of the data -- prices and sales volume data reflect closed deals that had been negotiated months earlier, when inventory was relatively scarce and demand was high. And while it's no secret that stock portfolios have been decimated by macroeconomic factors the last year, real estate had been holding up comparatively well -- folks were still getting good interest rates on jumbo loans and they were committed to buying... until they weren't.

After a small dip in April, the market had clearly cooled off by late May. The interest rate hikes finally caught up with buyers, and a hesitancy to liquidate stocks coupled with the belief that the market had become "too hot" made many buyers take the summer off. But perhaps the biggest factor, and what almost always chills our market, is uncertainty. As noise of an imminent recession grew louder and economic indicators (inflation, stock market, etc.) continued on a downward trajectory, many buyers adopted a "wait-and-see" approach which seems to be dominating the summer market. The inventory crunch is over, yet signed contracts are down double-digit percentages. In Manhattan, the market shift is now obvious: year-over-year, there were 5.7% more listings but 24.6% fewer signed contracts.

Looking closer at a month-by-month basis, the shift becomes more clear. Both the higher and lower end of the market (above and below $3.5M, respectively) saw a dip in April which recovered a bit in May, with greater recovery in the higher-end of the market. However, in June, often the busiest time in the market, there was a significant drop in signed contracts in both segments.

The story in Brooklyn is less dramatic but trending similarly. The number of closed sales increased 1% year-over-year despite severe inventory shortages, and Q2 closed sale prices hit the highest values on record ($975K median, $1.261M average, and $905 average price per square foot) - while discounts sank to the lowest level since 2017 (just 3% on average). Again, these figures mostly reflect deals that were negotiated two or more months before closing. Signed contracts were down 21.1% year-over-year, indicating that the record growth trends of the recent past may be slowing.

There continues to be an inventory crunch for townhouses as their share of the market hit an all-time low pushing the average sale price of townhouses up 16.9% year-over-year, surpassing an average of $1.5M for the first time. Condo sales also saw striking price increases, with average sale prices up 14.9% year-over-year. Only coops saw essentially no growth in prices, coming in with a median price $515K, down from $520K in Q2 of last year, and average price $692K, down from $725K this time last year.

Geographically, Northwest Brooklyn, which encompasses highly sought-after neighborhoods like Brooklyn Heights, Cobble Hill, and Park Slope, had the most contracts signed for the quarter, representing 36.3% of all signed contracts borough-wide but only 20% of total inventory, meaning that the lag in activity in other areas is even more stark than the overall picture would suggest. This is especially true for East Brooklyn (which includes Bed-Stuy, Crown Heights, and Prospect Lefferts) and South Brooklyn, which saw no increase in contracts but a marked increase in inventory. While this decline represents a significant departure from the hyperactivity in the Brooklyn market in 2021, dramatic decreases in prices are improbable, given that inventory remains tight, especially in the most in-demand areas and for certain product types (i.e. townhouses).

While it's becoming clear that many buyers have adopted a “wait-and-see” attitude, the shifts in both Manhattan and Brooklyn present a unique opportunity for those willing to make a move in coming months. Sellers have already begun adjusting pricing downward, especially in Manhattan, and anecdotally we know that negotiability is rising. Especially for buyers sitting on proceeds from a recent lucrative sale or otherwise looking to invest their cash, this summer could prove to be a "dip" to capitalize on.

We were honored to be included in the year's Real Trends America's Best Real Estate Professionals List - Ranked #174 By Volume for a Small Team (2-5 Agents) in NYC.

The average monthly rent in Manhattan reached $5,000 for the first time ever last month. The jump is partly a product of some would-be buyers re-committing to renting in the face of increasing mortgage rates. (CURBED)

New York City’s post-lockdown real estate bonanza is over. Contract signings were down last month in NYC and surrounding areas. (THE REAL DEAL)

Despite hitting new records in Q2, there are signs the Brooklyn and Queens sales markets are starting to cool. (BRICK UNDERGROUND)

Sales contracts for Manhattan apartments plunged by nearly a third in June as the city’s scorching real estate market started to cool. While prices haven’t started falling yet — at least not broadly -- buyer attendance at open houses and multiple bids have all but evaporated. (CNBC)

Mayor Eric Adams and the New York City Council enacted the Fiscal Year 2023 (FY23) NYC budget. Budget items critical to the real estate industry, as outlined by the Real Estate Board of NY (REBNY) include:

  • New Property Tax Rates: Property taxes are ultimately a function of both the billable assessed value and tax rates. In the new budget (effective July 1, 2022 for FY23), billable assessed values increased across all classes, with Citywide taxable assessments up +7.05% overall. In terms of rates, Tax Class 2 Buildings (4+ Unit Apartment Buildings, including Condos/Coops) had its first increase in six years. When you combine changes in taxable assessments and tax rates, Tax Class 2 units will see an average increase of +7.28%, while Tax Class 4 will see an average +6.88% increase vs. last year.

  • Public Safety: Additional funding for the NYPD; Funding for the Subway Safety Plan; Expansion of the Precision Employment Initiative to connect individuals at risk of participating in gun violence with jobs

  • Clean Streets and Sanitation: Funding to support increased citywide litter basket pickup; Restored Sanitation Funding

  • Homelessness Prevention and Affordable Housing Access: Capital funding for affordable housing programs, including HPD and NYCHA; Funding for City FHEPS vouchers; Funding for Drop-in Centers, Safe Haven Beds, and Stabilization Beds; Funding to increase mental health support and outreach for unhoused individuals

  • Other REBNY Priorities: Additional funding for the urban forest, tree maintenance and tree plantings; Funding to enhance the Office of Building Energy and Emissions (Local Law 97 implementation); Funding to assist with expediting FDNY inspection processes

Updated: Jul 22

A gradual chill continued in the Manhattan market last month, with inventory rising while macroeconomic factors – rising interest rates, inflation, decline in the stock market, and recession fears – put downward pressure on demand. Anecdotally, the decline in the stock market has been the overwhelming reason for buyers exiting the market. Not only have buyers seen their net worths shrink (making some less qualified for purchases), but the prospect of selling in a bear market has deterred them from liquidating holdings and in some cases, affected expected parental gifts for the same reason. We have not perceived rising interest rates to be nearly as big of a factor as almost all of our buyers have been securing rates from 3.5-4.5% (higher than a year ago but not prohibitive) on their recent loans, and not the 5%+ rates that have made headlines.

In May, active inventory saw its first notable uptick (up 4.8% vs. April and 0.4% year-over-year), while signed contracts were down both month-over-month (-9%) and year-over-year (-22.6%). This pushed overall prices down slightly versus last month, although still up year-over-year. Looking closer at these market-wide figures, there was a big difference between coops and condos. Coops saw a 3.9% uptick in inventory yet a substantial -18.5% drop in contracts. On the other hand, both condo inventory and signed contracts were up versus last month (though contracts were down 16.5% from the condo-spree of Spring 2021).

As we’ve come to expect, the Brooklyn market has been resilient to external factors, with all price metrics (median and average sale prices and average PPSF) again up from April and year-over-year. However, a slight uptick in inventory has curbed the ferocity of bidding wars on some less-special properties. Market-wide, average days on market increased (+7.2% vs. April) and contract activity declined (-9.9% vs. April and -20.6% vs. last May). Nonetheless, rare properties – e.g. 2+ beds with outdoor space in popular neighborhoods or townhomes – are still moving quickly and receiving multiple offers, especially those priced attractively or in especially high-demand / low inventory areas.

In contrast to Manhattan, Brooklyn coops outperformed condos last month, with larger increases in price metrics and a smaller decline in both days on market and signed contracts. This can perhaps be attributed to a continued discrepancy in inventory: condo inventory was up 10% vs. April (+2.8% year-over-year) while coop inventory was only up 3% vs. April, and was actually down -8.3% year-over-year.

Real Estate News

Nationally, luxury home sales fell almost 18 percent February-April, quite a turnaround from a year ago when these sales were up a whopping 80%. Notably, among the top 50 metros analyzed, Long Island’s Nassau County saw the biggest drop in luxury home sales, down 45.3 percent, but neighboring New York City was the only metro with a rise in luxury sales, up 30 percent. (REAL DEAL NATIONAL)

In less than 10 years, Compass has become the #1 real estate brokerage in America (RealTrends 500) and one of the youngest companies ever to make the Fortune 500.

N.Y.C. Companies Are Opening Offices Where Their Workers Live: Brooklyn. (NY TIMES)

The frenzied pace of the NYC sales market is calming down, a result of more listings on the market and slowing demand. With less competition, buyers have gained some breathing room—they can take a day or two to make an offer—something not possible in recent months. (BRICK UNDERGROUND)

Corporate executives in May bought shares in their companies at a rate not seen since the early days of the Covid-19 pandemic in what some Wall Street analysts said was an encouraging sign for the US stock market. (FINANCIAL TIMES)

Legislative Updates

Below are some important updates on what happened – or rather, did not happen – as the NYS Legislature wrapped its session last week. Thank you to Joshua Kopelowitz, Partner and Co-Chair of the Real Estate Litigation practice of Fox Rothschild, for alerting us to these developments.

The NYS legislature broke without passing the Good Cause Eviction Bill, which means it won't pass this calendar year, but it remains an important issue for residential landlords to watch. The proposed bill would have essentially barred landlords from ending a tenancy except for certain lease violations and imposed universal rent control by limiting rent increases on all apartments. More details on the bill here.

The NYS legislature also did not extend, renew, or replace the Affordable New York Housing Program known more commonly as 421-a, which gave developers a multi-year property tax exemption for setting aside 20 percent of their units as rent-stabilized. Note, properties already participating in the 421-a program are not affected, only developments that are not part of the program by the June 15, 2022 deadline. Commercial Observer

While the moratoriums are still expired and most NYC Real Estate attorneys do not think they are coming back, there are still protections for tenants (e.g., New York’s Tenant Safe Harbor Act, Emergency Rental Assistance Program (ERAP), etc.). See more detailed guidance from the AG office here.

The red-hot market in Manhattan finally showed signs of cooling in April. The number of signed contracts declined month-over-month for the first time since December (-10.7% from March), and inventory levels increased (+5.3% from March). The most obvious reasons for the shift are rising interest rates and an expected seasonal increase in inventory in April (historically, inventory levels are highest April-June). Putting this into perspective, the market is still very strong, but this shift may be the beginning of a trend toward normalization after an unprecedented frenzy in the market.

Closed sale data continued on an upward trajectory, but these figures are a lagging indicator reflecting deals that were negotiated and went into contract 2-3 months ago. Closed sale prices were substantially higher than in March (and up double-digit percentages year-over-year) reflecting the surging market during Q1. Properties spent less time on the market and traded at prices that were very close to ask versus last month and last year.

Since the start of 2022, Downtown Manhattan neighborhoods represented the lion's share of sales and commanded the highest prices, with Nolita, West Village, and SoHo at the top of the list. On the other end of the spectrum, the lowest prices were in Upper Manhattan, followed closely by Midtown East, and then Battery Park City.

In Brooklyn, rising interest rates seem to have had little effect on the market thus far – prices were up again across all metrics, and days on market and negotiability were down. Inventory did rise slightly, but not as much as total signed contracts. The number of condo contracts declined slightly despite an increase in corresponding inventory, but the data is not so significant as to represent a trend in our view. Overall, Brooklyn buyer demand remains high, and the market seems ready to absorb far more than this small increase in inventory.

Since the start of 2022, DUMBO, Cobble Hill, and Boerum Hill have commanded the highest prices while homes in East New York / Brownsville, Prospect Lefferts Gardens, and South Brooklyn have sold for the lowest.

Real Estate News

Could renovation costs be coming DOWN in the near future? When interest rates rise, it also becomes more expensive to borrow against a home’s equity to pay for renovations. Less demand for renovation materials and labor could reduce some of the recent runaway prices. (MARKETWATCH)

With mortgage rates on the rise, Manhattan’s residential market took a breather in April. While one month does not make a trend, April might indicate some stabilization of what has been a fiercely competitive Manhattan market. (TRD)

The City is thriving, but renters who scored a pandemic deal now face rent-renewal sticker shock. Citywide rents rose 33% between January 2021 and January 2022, with some landlords offering renewals at up to double the discounted Covid-era rates. (NYTIMES)

Interest rates just exceeded 5% for the first time since 2011, but that might not be the reality for many buyers who are taking out larger ("jumbo") loans or are open to adjustable rate and other loan products. (WSJ)

Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square