Today in Real Estate

Low inventory was the defining feature in real estate markets across the country last month, including in both Manhattan and Brooklyn.

In Manhattan, overall inventory levels were 20.2% lower than in February of last year, and the minimal (2.3%) increase from January was a much smaller uptick than we would expect this time of year. Due to the low inventory, average days on market has continued to decline (down 5% versus last month and almost 14% compared to last February), and prices are still on the rise – the average price per square foot for February sales was up 23.3% compared to the same time last year. While there were fewer signed contracts than in February of last year, the ratio of signed contracts to available inventory was higher, similar to what we saw in January. Not surprisingly, negotiability also continued to decline (down to 4% last month) indicating that new inventory is being absorbed more quickly – and at prices much closer to asking – in the current market.

Looking more closely at Manhattan’s sub-markets, we have noticed an uptick in demand for condos recently. Even in prime downtown areas where condos are scarce, and buyers used to be more open to coops as a result, many more buyers are not insisting on condos. With more buyers living/commuting between multiple residences, there seems to perhaps be more importance placed on the flexibility that condos offer, such as ease of subletting, pied-a-terre use, etc. Contracts signed for condos were up by almost 20% last month compared to January, while condo inventory rose less than 2% during the same period. By contrast, there were only 5% more coop contracts signed, despite a 2.7% increase in available inventory. This isn’t to say the coop market has struggled – in fact the average price per square foot for coops rose last month in every size category (studios to 4+ beds). The condo market was in decline well before Covid, and overall was harder hit during the peak of the pandemic, so it will be interesting to see if this dynamic shifts and Manhattan condos once again regain a stronger footing in the market.

In Brooklyn, inventory remained at an all-time low last month with essentially zero uptick compared to January – highly unusual given the expected seasonality of the market. Given the low supply, bidding wars dominated. It is not unusual for larger properties (2+ bed) in popular neighborhoods, and especially those with low monthlies and outdoor space, to command a dozen or more bids with several all-cash buyers in the mix.

The most explosive growth in Brooklyn prices last month was in the townhouse market. With extremely low inventory, townhouse prices rose by double digits last month compared to both January 2022 AND February of 2021, and average days on market was down 10% versus January and a whopping 25% compared to February 2021. We saw this first-hand with our buyers in certain neighborhoods. Lower-priced, appealing 1-2 unit townhouses (e.g. under $3.5M million in BoCoCa, Park Slope, Fort Greene, etc. and below $2.5M in Windsor Terrace, South Slope, Bed-Stuy, etc.) were snatched up briskly and at prices far exceeding their asking. By contrast, prices for February coop and condo closings remained fairly in-line with both January 2022 and Feb 2021, and only the largest (3-4 bedroom) coop and condo homes that closed last month saw a significant year-over-year increase in average price per square foot.

The NYC real estate market has been off to a strong start in 2022. In Manhattan, low inventory and strong demand has pushed median prices up (+4.8% vs last month and +21.1% vs January 2021). As expected, this has meant shrinking days on market (-14% vs. January 2021) and much less negotiability. The average discount for closed sales in January was an astounding 3%, far less than the average discounts we saw the month before (6%) and in January 2021 (11%). While fewer contracts were signed, the ratio of signed contracts to available inventory was much higher. January also saw marked growth in the Manhattan luxury market, with signed contract activity up around 20% compared to January 2021, up 35% from January 2020 (pre-Covid) ... and up close to 65% from January 2019! With three quarters of steady growth across all sale metrics, all signs point to the end of the “Covid market” in Manhattan.

In Brooklyn, the inventory crunch was felt even more acutely and prices are yet again on the rise. There was an uptick in new listings in January, but total inventory is still at the lowest levels since we began tracking the market.

This trend of growth in the borough is nothing new, and the Brooklyn market lost little (if any) ground even during the worst of the pandemic. Going into 2022, the Brooklyn market was already breaking records: In the last quarter of 2021, the average closed sale price in Brooklyn was up 11.7% vs. the same time in 2020, median sale prices were up 7.5%, and a staggering ~20% of all sales closed over-asking. So far, 2022 seems poised to continue that growth. The average sale price last month was up 4% compared to December and up 15% compared to January 2021. Average days on market also decreased, down 5.5% compared to December and down a striking 14.9% compared to January of last year.

Rentals hit an all-time high average price of $3,400 in December, and we expect that prices will only continue to rise in coming months due to low inventory, increased demand, and a boomerang back from concessions given on leases signed prior to May 2021. Inventory was very low last month – there were about 50% fewer new listings compared to January 2021, and while more inventory should become available in coming months, we expect this will be offset by an increase in demand from renters who are priced out of the sales market and the last wave of returning workers finally coming back to in-office work.

The Post-Covid Market

Much has been said about the renewed strength of the NYC real estate market in recent months. The Manhattan market, which had been in a lull for a few years, has been on the rebound since late 2020 and is once again officially a "seller's market." In the first quarter of 2021, the total number of Manhattan closings increased by a striking 37% compared to the fourth quarter of 2020. Recent contract activity has also reached numbers not seen in many years. Since the start of this year, total signed contracts in Manhattan surpassed 2019 figures for the same period by more than 50%. The luxury market in particular is on an "extraordinary streak," according to the Olshan Report, which tracks contracts over $4M.

As for Brooklyn, sales had plateaued in recent years, including throughout the early part of the pandemic, but since the late Fall, sales have been climbing once again. Inventory has remained very tight and competition has been fierce, especially for properties under $2.5M that check all the boxes. Contrary to the doom-and-gloom predictions of an exodus, NYC appears to be experiencing a surge in housing demand.

The picture on the ground has been hectic. Showings are still, by and large, by appointment only. For some properties, this has meant that simply getting an appointment before the barrage of offers has been a challenge. More deals are being made, but the time it takes for transactions to close has increased as lenders, attorneys, and management companies have struggled to keep up with the pace. This has kept us busy, but we're grateful for the resilience and renewed vigor of the market coming out of the pandemic.

Covid After-Effects

With all these positive market reports, what has been much less reported are some after-effects of the “Covid market” that has been affecting our transactions recently. Coupled with the overwhelming volume, which has led to lender delays and prolonged closing timeframes all around, we've encountered some unique challenges recently:

- Low Appraisals -

Many people think an appraiser provides an objective, unassailable "valuation" of a property. However, what they don't realize is that bank appraisals are limited by some very strict guidelines that apply uniformly. While the guidelines do allow for "adjustments" based on an individual appraiser’s judgement and their understanding of market conditions and trends, appraisals can sometimes be far less reliable than one would think - especially in rapidly changing market conditions.

Across Manhattan and Brooklyn, we’ve seen a recent spate of low appraisals which I believe can be attributed to Covid's effect on the market last year. Appraisers predominantly rely on sold listings to justify contract prices, and banks require that any sold listings included in their report must have closed in the last year. Given there were essentially zero contract/sales activity for 3+ months of 2020, the pool of available comparable sales that appraisers can choose from is much smaller than usual. Also, most deals that were negotiated during or directly after "NY on Pause" (March 21-June 28 for real estate activities) entered contract at a time of huge uncertainty and were therefore at lower levels (and with steeper discounts) that are not indicative of current market conditions. This is an issue that will resolve itself in time as more sales that reflect current market conditions continue to close. In the meantime, we have been advising our sellers to consider financing contingent offers carefully, especially with a downpayment of 20% or less since this provides no cushion for a low appraisal.

- Co-op Board Applications -

The second Covid after-effect we've observed is a heightened scrutiny by co-op boards in considering purchase applications – particularly when evaluating self-employed applicants, many of whom were negatively affected in some way by Covid-related restrictions in their industries last year. Co-op boards consider income and liquidity in evaluating purchasers, and both of these metrics have become harder to meet as a result of Covid. Usually, boards look at the last two years' income, but with 2020 being an aberration for many, we have had to hope that boards would consider an applicant's historical income and 2021 year-to-date information. On the liquidity side, many boards seem to be looking for increased reserves to protect against "another Covid."

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