July 2023 Market Recap

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 REAL DEAL)

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)

Q2 2023 Market Recap

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)

Q1 2023 Market Recap

While the market seemed to be gaining momentum in early 2023 after a very slow second half of 2022, various economic factors (stock market fluctuations and distress at banks) dampened transaction activity starting in early March. As rising rates made borrowing more costly, many sellers refused to budge and buyers were left waiting for price drops that never came. Though sellers have finally begun to react to diminished buyer demand by lowering prices and increasing negotiability, until something really gives, this trend will likely continue through at least the first half of 2023.

It is important to note that while many indicators appear weak, they are largely in line with pre-pandemic historical averages or weak-to-average years like 2018-2019, but other forces have kept prices relatively stable compared to those years. Market-wide there were 2,500 sales in Manhattan last quarter, a pace similar to what we saw in historically slower years such as 2018 and 2019. Much has been said about a drastic decline in sales year-over-year (-38%), but the significance of this figure is exaggerated in light of the fact that Q1 2022 had set a fourteen-year record high for first quarter sales. The total number of contracts signed last quarter was also significantly below last year (-37%), but was up compared to the end of 2022 and seemed to gain momentum until the bank collapses in early March. Transaction activity also paled compared to buyer interest -- open house traffic and inquiries have been up consistently last quarter compared to the end of 2022 -- which indicates that the market is hopefully poised for a recovery.

Even with new listings lagging compared to last year, longer time to contract and fewer signed contracts caused Manhattan total supply to increase. However, current inventory is still 13% below historical first quarter averages, and the lowest for a first quarter since 2017. Inventory levels varied based on price-point and size: there were fewer lower-end, smaller apartments on the market as buyers gravitated toward these units, leaving more options on larger, over $1M apartments.

Prices declined for the second consecutive quarter with median price at its lowest point since Q2 2020 and average price at a two-year low. However, some of this could be attributed to an increased share of sales in the lower-end of the market (smaller homes and co-ops). While demand for these smaller, lower-priced home saw a marked decline during the immediate post-pandemic recovery as buyers sought larger spaces and took advantage of low mortgage rates to stretch their budgets, sales under $1M comprised 50% of Manhattan closings in the last quarter, their highest market share in three years.

While it remains to be seen how the rest of the Spring market progresses in Manhattan, it is clear that consumer confidence and interest rates will both play a large factor. Mortgage rates have been volatile, but trending downward for 5 weeks since SVB collapsed, and ticked down again since the March inflation data came out earlier in the week. If inflation continues to come down we can expect rates to follow, and mortgage rates will eventually drop as well.

The Brooklyn market was affected by the same factors last quarter, albeit far less noticeably. Higher mortgage rates and overall economic concerns have cooled the market, but the borough continues to be teflon-tough in the most in-demand neighborhoods.

Most notably, inventory was again down by double-digits (from already record-low figures). Fewer new developments hit the market and on the resale side, many sellers appear hesitant to list in a weaker economic climate and even more hesitant to let go of their low-interest mortgages to commit to a high interest rates when prices have not budged much in many neighborhoods. This is the sixth consecutive quarter of declining inventory, reaching the second lowest number of available listings since 2014 (excluding the pandemic “pause” in 2020).

While both total sales and contracts signed were down compared to last year, which was an outlier, both figures were on par with pre-pandemic Q1 historical averages (2010-2020), indicating that despite massively constricted inventory, Brooklyn buyers are still pushing to get deals done.

Brooklyn median price decreased 7% year-over-year last quarter making Q1 2023 the lowest median price we’ve seen in Brooklyn in the last ten quarters, but this reflects more of a shift in the types of sales rather than a drop in prices. The majority of sales were below $750K with buyers gravitating toward smaller homes, and resale condo and co-op median sale prices actually increased year-over-year; only new development fell. Looking at the various sub-markets, median sale prices increased last quarter in almost all of the most in-demand Brooklyn neighborhoods, including Williamsburg & Greenpoint, BoCoCa, Brooklyn Heights, DUMBO, Downtown, Fort Greene, Clinton Hill & Prospect Heights, with a meaningful decline in only in Park Slope & Gowanus (-17% Y-o-Y, due almost entirely to the fact there were essentially no new development closings there this quarter) and South Brooklyn (-13% Y-o-Y).

Clearly the Brooklyn market remains strong in most areas, and while economic uncertainly and interest rates have put some buyers on the sidelines and "upgrades" on pause, there are still more buyers than homes in many areas, and we continue to see bidding wars on many properties.

The average number of inquiries received by for-sale listings on StreetEasy was 9% above its pre-pandemic level in February indicating strong buyer interest, However, with affordability as a top concern, NYC buyers have shown patience in finding a home within their budget.

(STREETEASY)

Beginning in 2024, Local Law 97 requires that residential and commercial buildings of 25,000 SqFt +reduce greenhouse gas emissions and meet new energy efficiency goals, or face severe fines. Despite some available grants and rebates, updating the required infrastructure won’t come cheap.(NY1)

After a tumultuous few years, many hoped that the housing market would improve this spring. No such luck according to Jonathan Miller, a leading appraiser.

“This is the year of disappointment... The sellers aren’t going to get their 2021 prices, and buyers aren’t going to get a substantial savings on the price." (NYTIMES)

Mayor Adams outlined his plans to create more affordable housing, including controversial ideas to convert offices to apartments and a “modern-day, almost-SRO concept” of shared dormitory style living. (GOTHAMIST)

Recovery is lagging for NYC's commercial real estate sector. According to New York Fed, “While the residential rental market has bounced back, the retail and office markets have remained slack - largely due to the shift to remote work and online shopping.” (REUTERS)