While transaction activity in August lagged compared to 2021 and 2022 levels, the main indicator – contracts signed – was on par with historical averages. Despite record-setting interest rates, prices did not decline month-over-month and year-over-year due to unusually low inventory levels, and competition for well-priced desirable listings remains robust.

We expect an influx of new listings this month, as we do every September, but to what extent this will track with historical norms – or if inventory will remain constrained – is a big unknown. If interest rates appear to stabilize or even decline, it would be a release valve for pent-up listings; however, most don't expect a significant uptick in activity until spring or fall of next year.

In Brooklyn, inventory levels remained at historic lows last month, with new listings and total inventory figures down double digits once again. Closed sale prices declined slightly and days on market ticked up, although - as we've come to expect - this does not necessarily reflect the market conditions in the most in-demand areas, specifically North Brooklyn (Williamsburg & Greenpoint) and Northwest Brooklyn (BoCoCa, DUMBO, Brooklyn Heights, Fort Greene, Prospect Heights, Park Slope, etc.) where we are still seeing bidding wars and over-asking closed sale prices. In August these areas accounted for only 28% of active inventory, but 36% of all contracts signed.
On the other hand, South Brooklyn inventory, primarily 1-2 family homes, made up 57% of total Brooklyn inventory but only 48% of signed contracts. Declining prices for houses – the chief property type in this area – contributed the most to Brooklyn's overall decline in prices; condo sale prices actually increased and coop prices remained unchanged borough-wide in August.

Mortgage rates continued to tick up, peaking at just under 7% for jumbo loan sizes on August 22, a 21-year-high. However, the most recent Jobs Report, released on September 1, gives some cause for optimism on the rate-front because it showed that the job market is finally cooling, which is good news for rates.
The US had been experiencing stronger-than-expected job growth for a very long time, and the Fed has been holding out for sustained below-trend growth to ensure inflation is on track to reset to their 2% target. The most recent report indicated that fewer jobs were added to the American economy than expected, and unemployment rose from 3.5% to 3.8% in August. This is exactly what the Fed is looking for to stop rate hikes. While there hasn’t been a significant improvement on mortgage rates yet, we may see a small one as we get closer to the Fed Meeting later this month. While we are not expecting a dramatic drop in rates this fall, we are hopeful that the Fed is done with the rate hikes, and we will begin to see a slow but steady decline over the rest of this year and into 2024.

The end of AirBnB in NYC? Local Law 18, effective as of Tuesday, limits how Airbnb operates in the city - effectively banning it entirely for many guests and hosts. From now on, all short-term rental hosts in New York must register with the city, and only those who live in the place they’re renting—and are present when guests are staying—can qualify. (WIRED)
Goldman Sachs now predicts a 15% chance of a recession, down from 20%. Bank of America and JPMorgan also lowered recession calls. (CNBC)
After more than a decade of rock-bottom interest rates, real estate lenders and borrowers in New York City are in a precarious situation. The rapid rise of rates and declining property values in some sectors - most notably commercial office buildings - have prompted lenders to be more selective about what sectors they lend in, and to whom. (THE REAL DEAL)
US homebuilder stocks have defied conventional wisdom about the effects of rising mortgage rates, rallying furiously and attracting an $814M bet from Warren Buffett’s Berkshire Hathaway. Shares in DR Horton, Lennar and NVR, which Berkshire disclosed it owned this week, have risen about a third apiece this year, far outpacing the S&P 500 stock index. Rising rates have proved a blessing for homebuilders because their rapid rise has in effect trapped many current owners in their properties, reducing the stock of existing houses for sale and driving would-be buyers to new properties. (FINANCIAL TIMES)
In July, Manhattan contract activity was essentially on par with last year and within the realm of historical averages, though on the lower range of what we are used to seeing. New contracts declined from June (~16%) and throughout the month, aligning with seasonal patterns. Inventory levels remain historically low, with new listings in July down 16.7% vs. last year.
While the market is slow, prices have not budged much, due both to the strength of the high-end market and the lack of inventory/activity in general. In fact, median closed sale prices only decreased by ~2% from last year, despite deals being negotiated in a far less favorable interest rate environment (with rates up ~2%+ since then). The average days on market currently stands at 68 days -- a 10% decrease year-to-date and a 3% decrease from the previous month, but a significant 36% increase from the previous year.

It is interesting to note that ~65% of all deals in the second quarter were cash, which disproportionately affects the higher end of the market (75% of deals over $5M were cash). So while interest rates have cooled the lower end of the market, overall metrics are buoyed by the higher end.
Listing traffic, new inventory, contract activity, and open house attendance have all declined sharply since Memorial Day. Though traffic had been building, open house attendance changed course in June with almost half of all open houses reporting zero visitors consistently each week. Inventory had been surpassing historical averages in the earlier part of the quarter, but fell short in June, likely due to sellers holding out in the face of diminished demand.

The Brooklyn market continues to be defined by two words: inventory constraint. While July contracts signed were essentially level with prior years, new listings were down compared to both 2022 and 2021, when inventory levels had already hit record lows. This has led to a net supply deficit, with listings absorbed faster than they can be replenished. It is easier to sell a property in Brooklyn now than any other July since 2019, even with rates making the cost of ownership higher. Despite such favorable conditions for sellers, many are staying put rather than listing because of the lack of options (and relative costs) of moving within the borough. As a result, the Brooklyn market has, in some ways, felt slower than Manhattan; there is simply nothing for buyers to even go out and see.Despite all this, prices in Manhattan have not declined significantly and remain neutral. There is some negotiability, but not enough to motivate buyers causing the lack of activity/transactions. As expected, days on market has increased and – 29% of homes sold in Q2 took 180+ days to enter contract. We don't expect to see many price reductions until fall, as sellers may be waiting out the slow summer in hopes of greater buyer interest and traffic in the fall.


On July 5th the Fed released the minutes of its June 16th meeting, which showed that we had been very close to an 11th straight increase, and that "the moderate pace of interest rate decisions" would continue. In response, rates spiked but eased with the July 12 release of the Consumer Price Index Report. The Fed's 25 bps raise at its July 26 meeting was anticlimactic as it was long expected and banks had already factored it into their rates. Despite the hawkish tone in June, it’s not expected that the Fed will be as aggressive in further rate hikes in 2023, suggesting rates could stay around current levels. But as Yogi Berra said, "It's tough to make predictions, especially about the future."

With both signed contracts and new listings down in Manhattan and Brooklyn and a seasonal lull anticipated in August, the summer is shaping up as a long one for agents and brokerages. (THE REAL DEAL)
Mayor Eric Adams launched the "Get Sheds Down" initiative to improve sidewalk construction sheds and scaffolding in NYC. The plan encourages prompt removal and replacement with aesthetically pleasing alternatives like safety netting. (NY1)
Rental brokers oppose a Council bill that would stop landlords from charging applicants for broker fees. They argue it may lead to fewer listings, higher rents, and less experienced brokers.
The share of Manhattan home purchases without financing jumped to almost two-thirds (65%) of all deals in Q2, a record high in nine years of data-keeping. Cash buyers represent 75.4% of all sales properties $5 million and up. The high end of the market is showing a lot of strength with the median sales price for the luxury market was a 3.9% increase over the prior year and the fifth rise in six quarters. (BLOOMBERG)
While the first quarter of 2023 started off with promise, continued interest rate increases, general economic uncertainly (i.e. in the banking sector), and low inventory levels resulted in a lackluster second quarter, especially in Manhattan. The market slowed even further in June, an earlier-than-usual start to the summer slump, as both buyers and sellers seem stuck in their wait-and-see stance.
This month in our newsletter, in addition to our usual focus on the Manhattan and Brooklyn markets, we will also include a brief section specifically on mortgage rates and the macroeconomic climate. We've also brought back our monthly collection of homes highlighting certain price points/areas or features.

While Manhattan contract activity was nowhere near the unusual lows of Fall 2022, things fizzled rather than heated up as the spring turned into summer. March contract activity – which was essentially even with historical averages for the first time since August of 2022 – was a peak and not the start of a trend as many had hoped. The failures of SVB and Signature Bank in March arguably brought on a wave of buyer hesitancy, and contract activity in April dipped well below historical averages. Contracts signed seemed poised to recover in May, but rate-relief never came and economic uncertainty continued to mount (including the collapse of First Republic) leading to another dip in contracts in June.
Listing traffic, new inventory, contract activity, and open house attendance have all declined sharply since Memorial Day. Though traffic had been building, open house attendance changed course in June with almost half of all open houses reporting zero visitors consistently each week. Inventory had been surpassing historical averages in the earlier part of the quarter, but fell short in June, likely due to sellers holding out in the face of diminished demand.


Despite all this, prices in Manhattan have not declined significantly and remain neutral. There is some negotiability, but not enough to motivate buyers causing the lack of activity/transactions. As expected, days on market has increased and – 29% of homes sold in Q2 took 180+ days to enter contract. We don't expect to see many price reductions until fall, as sellers may be waiting out the slow summer in hopes of greater buyer interest and traffic in the fall.

In Brooklyn the market remained resilient, with overall metrics still positive relative to historical performance (albeit more restrained than what we've seen in the last decade). Once again, averages were buoyed by the continuing strength of certain neighborhoods/property types, while other areas, most notably South Brooklyn, have been experiencing many of the same challenges as Manhattan.
Brooklyn contract activity was down compared to Q2 2022 – the last strong quarter before elevated rates and economic uncertainty began to weigh heavily on buyers, but was still above historical levels even with lower-than-usual new inventory levels. While inventory ticked up in May, with new listings over historical averages for the first time since June 2022, June saw another sharp decline, keeping competition high and negotiability low. Median sales prices rose compared to the first quarter, and the median listing discount – calculated as a rolling 2-month average of the difference between the original asking price and the closed sales price – declined in both May and June.


Q2 also saw a greater percentage of over-asking sale prices (23.01%) compared to Q1 (20.03%). While still nowhere near early 2022 levels (33.7% of sales closed over-asking in BK in Q2 2022), current price metrics and activity levels in Brooklyn indicate an active market, constrained more by lack of inventory than limited buyer demand. There continues to be massive variation among neighborhoods, product type, and price-point. In the most in-demand areas and products, bidding wars are still common albeit with fewer participants. Anecdotally, what we have seen for the most in-demand properties is 2-5 strong offers from the most competitive buyers – instead of 8-10 offers that run the gambit – with winning bids still coming in substantially over ask with very strong terms.

It might be hard to believe it was only Q2 of 2022 when rates started going up last year. The average rate then on a 30-year fixed jumbo loan was about 4.25%, and the average rate this year over the same time period is a whopping 1.625% higher. Rates this last quarter bottomed out in early April (around 5.375%) but increased steadily over the quarter and have only gone up further in July.
The last meeting of the Fed took place on June 13-14 and as widely expected, they did not raise rates at that point. While mortgage rates reacted favorably to this news, the industry's optimism was short-lived. Last week, the Fed released the minutes from that meeting and it turned out that we were shockingly close to seeing the 11th straight increase in rates and that it is almost certain that the Fed will continue to steadily raise rates for the rest of the year. According to Chair Powell, “We expect the moderate pace of interest rate decisions to continue.” CME Group’s FedWatch tool puts the probability of rates being increased later this month at 88%, and financial markets are telling us that there is a 95% probability that the Fed is going to increase rates by another 25 basis points to the range of 5.25 - 5.50%. In response to the Fed's hawkish stance, we are now seeing conforming 30-year fixed rates over 7% at most banks.
Recent macroeconomic indicators offer some cause to be optimistic. Recent jobs data was a mixed bag with some indicators up (which may embolden the Fed) and others missing the mark (which could counsel restraint in further rate increases). The payrolls jobs report from this past Friday showed 209K jobs added in June, the first miss vs expectations in over a year, and revisions helpfully subtracted 110,000 jobs from the May and April data. But data also showed the labor force participation rate among 25-54-year-olds (prime working age) at the highest rate we've seen since May 2002.
On the inflation side, the ISM manufacturing index, also known as the purchasing managers' index (PMI), a monthly indicator of U.S. economic activity based on a survey of purchasing managers at more than 300 manufacturing firms, showed a decline from 44.2 to 41.8, a level which has historically coincided with headline #CPI inflation of close to zero. Services inflation follows ISM very closely and is on the decline as well. The next CPI report comes out next week and may force a real debate within the Fed on the upcoming rate increase.
While it seems unlikely that any of these trends will cause the Fed to change course now, they may strengthen the argument that inflation is continuing to moderate and rate hikes are no longer needed. Normalizing rates – or at least the prospect of imminent normalizing rates – should hopefully spur the real estate market into action with plenty of pent-up demand and supply.

A dozen national real estate groups have joined New York landlords' legal fight against the state's 2019 rent stabilization laws, filing briefs asking the U.S. Supreme Court to overturn the landmark legislation. While they have been unsuccessful in the lower courts, if it chooses to hear the case, this Supreme Court could be landlords' best shot. (BISNOW)
New York became the first state in the country to ban natural gas and other fossil fuels in most new buildings constructed after 2027. The ban does not impact existing homes or buildings with gas stoves. (NYTIMES)
Available office space in Manhattan reached an all-time high in 2Q 2023, with 70.3 million square feet (19.7%) ready for leasing. (THE REAL DEAL)
It seems like Manhattan deals fell off a cliff this spring, but the numbers are less shocking than they appear. Co-op and condo sales plunged more than 30% in the second quarter of this year compared to the second quarter of 2022, the heyday of the pandemic-era sales boom, but those uneven comparisons will end soon. (BRICK UNDERGROUND)
Mortgage rates have soared to their highest level of the year, dealing another blow to prospective buyers already socked by high prices and a shortage of homes on the market. According to Freddie Mac, the average rate for a 30-year, fixed-rate mortgage climbed to 6.81% as of July 6, driven by a resilient economy, persistent inflation and a more hawkish tone from the Federal Reserve. (FORBES)