February 2023 Market Recap

The February data in Manhattan seems counterintuitive at first given that the prevailing sentiment we hear is that there is "no inventory." Inventory is in fact not off from historical trends -- overall supply is close to normal levels and new listings coming on the market are over 400/week which is expected for late February. Buyer interest has also picked up substantially based on open house attendance and anecdotally on the response we've been getting on our listings. So why are signed contracts still down substantially year-over-year and compared to historical averages?

The answer seems to be the unusually high number of listings being taken off the market by sellers. Listings being taken off market are up drastically year-over-year (10% marketwide and over 25% for resale) and even more compared to an average year (e.g. number of resale listings taken off-market is 33% higher than February 2019). Sellers who are not getting the offers they want are more readily pulling off-market to either wait it out or rent out the properties rather than adjusting pricing or expectations to make deals happen. New listings are being absorbed quickly, leading many buyers to feel like existing inventory has grown stale. With buyers interested but in no hurry to transact, they simply seem to be waiting for more options. Without a glut of new listings or adjusted seller behavior, we are unlikely to see contract figures catch up to historical levels this Spring.

It is important to note that despite being below historical figures, the market is much stronger than the Fall. February closed with five straight weeks of growth in the number of signed contracts (with a blip during President's Day week) and the end of the month seemed to be trending upward closer to historical levels. Buyer activity at Manhattan open houses has remained consistent since the start of the year – 2.2-3.1 visitors per open house on average, which is higher than anything we saw in Q4 of 2022.

Manhattan median closed sale prices during February declined about ~7% year-over-year, but we expected this since these deals were negotiated in Q4 of 2022, what many consider the bottom of the market. On the ground now, prices for new listings do not seem to reflect further discounts. Median PPSF -- which is a measure of condo, not coop, pricing -- ticked up slightly in February hitting record levels according some data sources. Rather than indicate an upward shift in prices, our best guess to explain this trend is that only the strongest (more luxurious or in better condition) condos entered the market in the second half of the year, with sellers of weaker units sitting tight until the overall market improved.

In Brooklyn, some have pronounced that the borough is entering a "buyer's market" but this does not reflect what many of our buyers continue to experience. This is because Brooklyn is the proverbial tale of two cities. Some areas of Brooklyn have declined (with overall supply up and lower demand) creating pockets of opportunity for buyers and bringing down overall metrics. However, competition remains fierce in other areas of the borough (i.e. NW Brooklyn, which includes areas like BK Heights, Fort Greene, DUMBO, Park Slope, BOCOCA and Prospect Heights), where demand continues to dramatically out-pace supply.

In February, South Brooklyn (everything south of the Prospect Expressway) accounted for 57% of total inventory but only 41% of contracts. On the flip side, listings in NW and North Brooklyn (Greenpoint & Williamsburg) made up 28% of total inventory but a whopping 42% of February contracts. While there is some variation between inventory / contract activity in certain areas of Manhattan, it is nowhere near this magnitude. The disparity has made marketwide Brooklyn figures (and headlines) somewhat meaningless, and it is critical to have an advisor familiar with the sub-markets to be able to provide accurate advice.

While it remains to be seen how 2023 will unfold, anecdotally we've recently had good traffic at all our new Manhattan listings, while our Brooklyn buyers have been frustrated by very minimal new inventory. Assuming interest rates remain stable, we are cautiously optimistic for the year but expect transaction levels to remain below historical averages at least through the Spring market unless there is a shift in seller sentiment.

After months of going down, mortgage rates have risen again, now up 0.75% from where they were at the start of February. (HOUSINGWIRE)

While some BK metrics suggest an increasing buyer's market, but on the ground buyer demand has remained strong and discounts remain hard to find. (FORBES)

A new study by RentCase highlights some interesting data points, notably that three NYC boroughs are home to some of the smallest apartments in the county... other top-5-smallest locales include Seattle & Portland. (TIMEOUT)

Ranking NYC's Most Expensive Neighborhoods - Nolita officially unseated Billionaires’ Row for the highest average price in 2022 (TRD)

January 2023 Market Recap

The 2023 market is already showing signs of promise after a sluggish second half of 2022. Many are speculating that the worst is behind us in light of the following national metrics:

1. There was a 25% increase in weekly mortgage applications three weeks ago, and an additional 7% increase last week.

2. Mortgage rates are at a 4-month low and are expected to hold steady or decrease.

3. There’s an increase in buyer interest, open house traffic, and offers.

4. Pending closings were down 30+% at points in the Fall, but over the last few weeks pending listings in most major markets are flat year-over-year.

5. Home builder sentiment improved for the first time in a year.

These trends largely track in NYC. Top NYC mortgage officers we have spoken to have seen a dramatic uptick in prospective buyers seeking or renewing their pre-approval letters since early- to mid-January. Rates are now at a 4-month low (about one percent or 100 basis points below October levels) and lenders believe this is only the beginning of improving rates. This sentiment was further buoyed by Wednesday's announcement by the Fed of a modest 1/4 point rate increase with a "couple more" expected in coming months. The stock market and 10-year Treasury rate responded positively, and some banks cut their rates almost immediately (for example, Citibank by 1/8 percent). The jobs report added a bit of a wrinkle, coming in much stronger than expected with over half a million new jobs added to the economy. Generally, concerns over rising unemployment serve as the main brakes on the Fed raising rates to control inflation, so this seemingly leaves the Fed open to more rate hikes. But at this point the lending industry seems to be focused on what the report said about wage growth, which remained stable, supporting the Fed’s interpretation that the US has entered a period of disinflation. While it is impossible to say for sure what the Fed will or will not do, there is some confidence that inflation was transitory and has gotten under control, easing the pressure on the Fed to raise rates, which likely means stable to decreasing rates over time.

Since the start of the new year, NYC has also seen a notable uptick in buyer activity. In addition to increased mortgage applications, open house attendance is up markedly. Compass agent open house surveys throughout November and December showed Manhattan open houses receiving 1.09-1.51 buyers on average, with more than 35% getting zero visitors. Since the start of the new year average weekly attendance has ticked up to 2.24-2.46 visitors, and the percent of open houses with zero visitors has dropped below 15% for the last three weekends. Brown Harris Stevens' open house survey reports similar results with average Manhattan visitors at 2.03-2.53 visitors weekly on average since January 18 versus 0.96-1.21 in October and November.

Pending sales -- or "in contract" listings in NYC parlance -- have not recovered in NYC to the same extent as in other markets, on paper. In Manhattan, versus many other markets, it takes on 7-20 days from the time an offer is accepted for a contract to be signed. Due diligence often takes up the lion's share of this time, and is not a factor in many other markets. Given this lengthy time to contract, we wouldn't expect January activity to be fully reflected in January contract figures but would expect a bump in February.

Closed sale prices were down in January reflecting market volatility caused by lower transaction volume. As we noted in our Fall newsletters, inventory was way down in the Fall as many sellers opted to wait out what was viewed as a blip in the market. While special properties traded at or above what they would have in a strong market, other properties did not fare as well bringing down overall metrics. However, it is important to note that we are talking about a small number of "deals" on these properties, versus historical prior downturns where supply remained high causing widespread contraction in prices.

Continuing a trend we saw throughout the end of 2022, Manhattan new inventory remained below historical averages in January, as some sellers still seemed wary to enter the market, though this might change as January trends become publicized. Based on rates, inventory levels, open house traffic, and our experience on the ground, we anticipate February to reflect more clearly the positive trends in the market.

As we’ve come to expect, Brooklyn was overall less affected by rising rates in the Fall, and since the start of the new year has seen an even faster uptick in activity than Manhattan. In addition to significantly higher open house traffic - 4+ visitors on average based on all Compass agent open house surveys since the start of the year - January contract activity, while nowhere near the manic levels we saw in January 2021 and 2022, were slightly higher than in January 2020, indicating Brooklyn market activity is still in line with pre-pandemic norms.

Inventory in Brooklyn remains constrained, especially in certain areas, with ~31% fewer new listings entering the market this January than last. January closed sale price metrics in Brooklyn all saw year-over-year increases, unlike in Manhattan, indicating that while fewer deals were done in the final quarter of 2022, prices in Brooklyn have not softened. As rates continue to improve we expect buyer demand to increase, with fast paced absorption and multiple offers on certain property types remaining hallmarks of the Brooklyn market in 2023.

The Fed unanimously approved a quarter-point interest rate hike on Wednesday, slowing the pace of its increases in a clear sign that the central bank is seeing progress in its battle with inflation. The decision comes after months of jumbo-sized rate increases intended to cool the economy, and marks the return to a more traditional interest-rate policy. (CNN)

Gov. Kathy Hochul proposed extending the 2022 construction deadline for New York City projects grandfathered under the now-expired 421a program, giving developers until 2030 to finish their projects and still receive the lucrative tax break. (REAL DEAL)

"Days on market" -- the number of days, weeks, months, or even years a listing has been for sale -- is not a straightforward metric and its effect on pricing and negotiations is more nuanced than one might think. (BRICK_UNDERGROUND)

With mortgage rates at their lowest point since September, mortgage application volume jumped nearly 28% compared the week of January 18. (CNBC)

October 2022 Market Recap

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)