Updated: Dec 7, 2022
The Fall market in Manhattan has been turning out as we expected. As interest rates have continued to climb, contract activity has continued to decline. Prices have still not followed suit, however, and inventory levels continue to drop as many sellers elect to delay listing until until Spring or Fall 2023 in hopes of riding out the high-rate environment. More specifically, contract activity was down more than 40% last month year-over-year; however, looking past 2021 and 2020 (both outlier years), contract activity is only 12% lower than in October 2019 and 20% lower than the October average for the years 2008-2021. Supply has remained relatively stable, despite this decline in contract activity, as there have been 20% fewer new listings this October compared to 2021 and 7% fewer than in October 2019.
While it's impossible to say for sure, most of the NYC real estate community is anticipating a quiet end to 2022, with the current trends continuing. While overall prices have not budged much so far, price reductions continue to come in and we suspect negotiability is up, particularly in some sectors. We expect to see the results of this in sale metrics for the first quarter of 2023, when deals currently being negotiated close. Anecdotally, while our team has had fewer listings this Fall, those we had entered contract relatively early this season and at good prices. Well-priced properties that have value are still trading despite the interest rate environment and we have seen more cash buyers than expected, especially for the coop market.
The NYC rental market continued to cool slightly last month, with the Manhattan median rent price down slightly from $4,700 in September to $4,585 in October. However, inventory remains extremely tight, and October's median price is still 25% higher year-over-year -- and even more dramatically elevated compared to pre-pandemic rents. A Forbes article this month indicates investor demand for NYC multi-family properties remains high, as they offer an attractive alternative to hedge against inflation and market volatility in the near future.
In Brooklyn, inventory shrunk even further with both new listings and total supply down by double digit percentages year-over-year in October. This kept days on market and median price metrics even with last year, despite substantial drops in contract and sales activity. The fervor of bidding wars has cooled, though the imbalance in supply and demand -- particularly for townhouses in prime areas -- has kept prices high. We have seen several instances where sellers are making deals pre-market rather than listing with the expectation of a massive bidding war as they would have done 6 months ago.
Stocks dropped after the Federal Reserve again sharply raised interest rates on November 2, and while the Fed did hint at a possible slowdown in the pace of increases indicated it still has work to do in its fight against inflation. (WSJ)
Sharply higher mortgage rates caused mortgage demand to drop to the lowest level since 1997. Mortgage rates fell slightly to start this week, but are still well over 7% after starting the year at around 3%. (CNBC)
Forbes Investment Sales & Capital Services Groups indicate free market apartment buildings in NYC will remain an attractive long-term inflation hedge for investors due to the long-term supply constraint for apartments in New York City (a projected deficit of 560,000 units by 2030) and rent growth. (FORBES)
In the face of skyrocketing rents, some NYS lawmakers on the left who have traditionally been fierce critics of the real estate industry are shifting to embrace new housing development, even if it’s not fully affordable. (NYTIMES)
There are pros and cons of owning a "Penthouse" apartment in NYC, but one big pro is resale. On average, penthouses tend to sell for about 5 to 10 percent more than non-penthouse apartments and tend to be less affected by market volatility. (BRICK UNDERGROUND)
Updated: Dec 7, 2022
After a very slow Summer when prospective buyers were seemingly "gone fishing" for anything but apartments, a looming question is what to expect this Fall and beyond. Based on current data and analyses by real estate experts, and what we are seeing on the ground, we anticipate low transaction volume through the end of the year and into early 2023, but we don't expect prices to drop off a cliff. As we are already seeing from September's figures (with new listings down 12% year-over-year), sellers who don't have to sell immediately will likely wait out the current interest rate environment which is expected to stabilize and improve next year after peaking in early 2023. Particularly with the robust rental market, many sellers will hold if they can rather than settle for lower prices, especially given that recovery of buyer demand (tied to interest rates) is on the horizon. Lower inventory should exert upward pressure on prices even in the face of lower demand, keeping prices relatively steady after the modest correction we've already seen. Data from September support this: even with contract activity down dramatically (-33.7% year-over-year), prices largely held steady with median sale prices and price per square foot essentially the same month-over-month and even up slightly year-over-year. Of course, not all sellers are able to hold their properties, so buyers can take advantage of discounts and negotiability, particularly on some products. And some buyers will shrug off currently high mortgage rates on the belief that they will be able to refinance at a lower rate relatively soon. Anecdotally, we are seeing more cash buyers than usual, even on entry-level coops which historically sell with financing. While the buyer pool is markedly smaller than a year ago, we have seen an uptick in activity across our listings since Labor Day, in terms of both appointment requests and offers received, with some listings even receiving multiple offers. So, at least some buyers are back from the Summer slump. Assuming no unexpected shifts in macroeconomic trends or October's market data, the sky is far from falling, though it might be a slower 6-12 months for us agents in Manhattan.
The Manhattan rental market, which was fodder for many news stories over the Summer (e.g. "July Scorcher: Manhattan Rents Hit $5000 For the First Time"), cooled slightly, but rental inventory remains tight and prices are still well above pre-pandemic averages. All these forces are interrelated, and as rents normalize and even go down, that should rein in inflation, which in turn feeds into Fed policy on interest rates, and so it goes.
In Brooklyn, inventory shrunk further with both new listings and total supply down by double digit percentages year-over-year in September. This kept days on market and median price metrics even with last year despite substantial drops in contract and sales activity. Continuing the trend from previous months, Brooklyn metrics varied dramatically based on area and property type. As we’ve come to expect, NW Brooklyn – which includes high demand areas like Cobble Hill, Carroll Gardens, Fort Greene and Park Slope – had a far higher share of total signed contracts (29%) than inventory (23%), whereas South Brooklyn accounted for 52% of total listings but only 48% of contracts.
Rising residential rents drove last month's inflation figures with the surging cost of shelter accounting for about 40% of last month’s cost of living increase. (THE REAL DEAL)
According to a recent report, homes most vulnerable to price declines in a potential economic downturn are found in the suburbs of New York City (most in NJ), Chicago metropolitan area, and throughout California. (BLOOMBERG)
September homebuying activity in NYC and its suburbs were down 20 - 30% across the board last month compared to a year ago but still above normal levels. (THE REAL DEAL)
The real-estate sector is still adjusting to rising mortgage rates, recession fears, and a strong job market, which in NYC has led to highly unpredictable results; one property might sell in three days with three offers, while a similar one a block away can remain on the market for three months without a bid. (MARKETWATCH)
The U.N. calls on the Fed and other Central Banks to halt interest-rate increases, warning that further policy tightening risks pushing the global economy into recession followed by prolonged stagnation. (WALL STREET JOURNAL)
July was a slow month in Manhattan though things seemed to perk up slightly toward the end of the month as interest rates stabilized and even came down and the stock market rallied. The current activity levels seem to have slipped into the usual seasonal market slowdown this time of year and seem to be more indicative of pre-2020 levels. While 2021 was a gangbuster year for the Manhattan market, looking back at 2019 as a comparison point provides context: Total contracts signed in July 2022 and 2019 are comparable - 774 Manhattan contracts were signed in 2019 versus 824 this year, and the luxury market is significantly stronger with luxury contract volume 50% higher in 2022 than 2019 (and only down -15% versus 2021).
Overall contracts and inventory rates were fairly well-matched throughout the city, although as per usual Downtown Manhattan contracts (28%) slightly exceeded inventory (24%), while Midtown East listings made up 19% of inventory but only 16% of contracts signed. While median sale prices remained relatively stable, we would not expect to see the effects of the Summer slowdown until more of those sales actually close in the coming months.
In Brooklyn, average and median sale prices tracked another month of increases, although PPSF figures were buoyed by notably strong PPSF figures in the townhouse market (+15.6% vs. July of last year). Anecdotally, we are still seeing bidding wars and incredibly low inventory levels with all our townhouse buyers, and inventory levels in the most in-demand areas for all product types has remained quite low.
So while marketwide contract activity in BK shows a dramatic decline compared to July of last year, looking closer at the geographic distribution shows that there is a big disparity among regions. North-West Brooklyn - which includes high-demand neighborhoods like Carroll Gardens, Cobble Hill, Boerum Hill, Park Slope, Prospect Heights & Fort Greene - represented just 22% of inventory but 35% of signed contracts; conversely, South and East Brooklyn made up a combined total of 67% of inventory, but only 55% of contracts.
While it remains to be seem how the fall market will play out, as long as interest rates and the stock market stabilize, especially in Manhattan, we might be looking at a return to pre-Covid normalcy and seasonality. There should be a bump in inventory mid September through October, and inventory leftover from the Summer will likely resort to price reductions.
Mortgage rates fell this week as concerns about a recession outweighed worries about inflation. (WASHINGTON POST)
The Manhattan sales market has slowed down. While it may seem dramatic, the data suggests the market is not crashing, but simply returning to normal, seasonal volume. In other words, the slowdown appears to be more of an issue of comparison, and less of a macroeconomic shift. It’s not a crash, it’s a reversion to the mean. (FORBES)
Nearly 2 million square feet of office space was leased in Midtown in July, a three-fold jump from July 2021 and more than in any month since December 2018. (THE REAL DEAL)
The economic policy bill will likely maintain SALT deduction caps and end the tax break on carried interest deductions which benefits private equity and hedge fund managers. (BLOOMBERG)