May 2022 Market Update

A gradual chill continued in the Manhattan market last month, with inventory rising while macroeconomic factors – rising interest rates, inflation, decline in the stock market, and recession fears – put downward pressure on demand. Anecdotally, the decline in the stock market has been the overwhelming reason for buyers exiting the market. Not only have buyers seen their net worths shrink (making some less qualified for purchases), but the prospect of selling in a bear market has deterred them from liquidating holdings and in some cases, affected expected parental gifts for the same reason. We have not perceived rising interest rates to be nearly as big of a factor as almost all of our buyers have been securing rates from 3.5-4.5% (higher than a year ago but not prohibitive) on their recent loans, and not the 5%+ rates that have made headlines.

In May, active inventory saw its first notable uptick (up 4.8% vs. April and 0.4% year-over-year), while signed contracts were down both month-over-month (-9%) and year-over-year (-22.6%). This pushed overall prices down slightly versus last month, although still up year-over-year. Looking closer at these market-wide figures, there was a big difference between coops and condos. Coops saw a 3.9% uptick in inventory yet a substantial -18.5% drop in contracts. On the other hand, both condo inventory and signed contracts were up versus last month (though contracts were down 16.5% from the condo-spree of Spring 2021).

As we’ve come to expect, the Brooklyn market has been resilient to external factors, with all price metrics (median and average sale prices and average PPSF) again up from April and year-over-year. However, a slight uptick in inventory has curbed the ferocity of bidding wars on some less-special properties. Market-wide, average days on market increased (+7.2% vs. April) and contract activity declined (-9.9% vs. April and -20.6% vs. last May). Nonetheless, rare properties – e.g. 2+ beds with outdoor space in popular neighborhoods or townhomes – are still moving quickly and receiving multiple offers, especially those priced attractively or in especially high-demand / low inventory areas.

In contrast to Manhattan, Brooklyn coops outperformed condos last month, with larger increases in price metrics and a smaller decline in both days on market and signed contracts. This can perhaps be attributed to a continued discrepancy in inventory: condo inventory was up 10% vs. April (+2.8% year-over-year) while coop inventory was only up 3% vs. April, and was actually down -8.3% year-over-year.

Real Estate News

Nationally, luxury home sales fell almost 18 percent February-April, quite a turnaround from a year ago when these sales were up a whopping 80%. Notably, among the top 50 metros analyzed, Long Island’s Nassau County saw the biggest drop in luxury home sales, down 45.3 percent, but neighboring New York City was the only metro with a rise in luxury sales, up 30 percent. (REAL DEAL NATIONAL)

In less than 10 years, Compass has become the #1 real estate brokerage in America (RealTrends 500) and one of the youngest companies ever to make the Fortune 500.

N.Y.C. Companies Are Opening Offices Where Their Workers Live: Brooklyn. (NY TIMES)

The frenzied pace of the NYC sales market is calming down, a result of more listings on the market and slowing demand. With less competition, buyers have gained some breathing room—they can take a day or two to make an offer—something not possible in recent months. (BRICK UNDERGROUND)

Corporate executives in May bought shares in their companies at a rate not seen since the early days of the Covid-19 pandemic in what some Wall Street analysts said was an encouraging sign for the US stock market. (FINANCIAL TIMES)

Legislative Updates

Below are some important updates on what happened – or rather, did not happen – as the NYS Legislature wrapped its session last week. Thank you to Joshua Kopelowitz, Partner and Co-Chair of the Real Estate Litigation practice of Fox Rothschild, for alerting us to these developments.

The NYS legislature broke without passing the Good Cause Eviction Bill, which means it won't pass this calendar year, but it remains an important issue for residential landlords to watch. The proposed bill would have essentially barred landlords from ending a tenancy except for certain lease violations and imposed universal rent control by limiting rent increases on all apartments. More details on the bill here.

The NYS legislature also did not extend, renew, or replace the Affordable New York Housing Program known more commonly as 421-a, which gave developers a multi-year property tax exemption for setting aside 20 percent of their units as rent-stabilized. Note, properties already participating in the 421-a program are not affected, only developments that are not part of the program by the June 15, 2022 deadline. Commercial Observer

While the moratoriums are still expired and most NYC Real Estate attorneys do not think they are coming back, there are still protections for tenants (e.g., New York’s Tenant Safe Harbor Act, Emergency Rental Assistance Program (ERAP), etc.). See more detailed guidance from the AG office here.

April 2022 Market Update

The red-hot market in Manhattan finally showed signs of cooling in April. The number of signed contracts declined month-over-month for the first time since December (-10.7% from March), and inventory levels increased (+5.3% from March). The most obvious reasons for the shift are rising interest rates and an expected seasonal increase in inventory in April (historically, inventory levels are highest April-June). Putting this into perspective, the market is still very strong, but this shift may be the beginning of a trend toward normalization after an unprecedented frenzy in the market.

Closed sale data continued on an upward trajectory, but these figures are a lagging indicator reflecting deals that were negotiated and went into contract 2-3 months ago. Closed sale prices were substantially higher than in March (and up double-digit percentages year-over-year) reflecting the surging market during Q1. Properties spent less time on the market and traded at prices that were very close to ask versus last month and last year.

Since the start of 2022, Downtown Manhattan neighborhoods represented the lion's share of sales and commanded the highest prices, with Nolita, West Village, and SoHo at the top of the list. On the other end of the spectrum, the lowest prices were in Upper Manhattan, followed closely by Midtown East, and then Battery Park City.

In Brooklyn, rising interest rates seem to have had little effect on the market thus far – prices were up again across all metrics, and days on market and negotiability were down. Inventory did rise slightly, but not as much as total signed contracts. The number of condo contracts declined slightly despite an increase in corresponding inventory, but the data is not so significant as to represent a trend in our view. Overall, Brooklyn buyer demand remains high, and the market seems ready to absorb far more than this small increase in inventory.

Since the start of 2022, DUMBO, Cobble Hill, and Boerum Hill have commanded the highest prices while homes in East New York / Brownsville, Prospect Lefferts Gardens, and South Brooklyn have sold for the lowest.

Real Estate News

Could renovation costs be coming DOWN in the near future? When interest rates rise, it also becomes more expensive to borrow against a home’s equity to pay for renovations. Less demand for renovation materials and labor could reduce some of the recent runaway prices. (MARKETWATCH)

With mortgage rates on the rise, Manhattan’s residential market took a breather in April. While one month does not make a trend, April might indicate some stabilization of what has been a fiercely competitive Manhattan market. (TRD)

The City is thriving, but renters who scored a pandemic deal now face rent-renewal sticker shock. Citywide rents rose 33% between January 2021 and January 2022, with some landlords offering renewals at up to double the discounted Covid-era rates. (NYTIMES)

Interest rates just exceeded 5% for the first time since 2011, but that might not be the reality for many buyers who are taking out larger ("jumbo") loans or are open to adjustable rate and other loan products. (WSJ)

February 2021 Market Update

The real estate market had its strongest February in many years, with Manhattan sales leading the charge and even the decimated rental market gaining some ground.

Much like its meteoric decline at the peak of Covid, the Manhattan market's recovery since the start of 2021 has been swift. February signed contract volume jumped by nearly 160% compared to September 2020, and was up 24% compared to just one month before. This sudden uptick in buyer activity in Manhattan ushered in increased absorption (with total inventory declining 4%), decreasing discounts, and the return of the bidding war, especially in Downtown listings priced <$2M. While February’s average and median sale price and PPSF figures were still slightly lower than early 2020 figures, there is a growing consensus that the Covid discount era in Manhattan is firmly over as the average discount from asking prices has shrunk to below pre-Covid levels. As the market heated up, many sellers were spurred into listing ahead of the traditional "Spring" market with new inventory in February up compared to historical levels.

A combination of factors may have contributed to the recent rebound, including continued low interest rates, renewed optimism following vaccine news, federal financial aid earmarked for NYC, and the impending change in administration at Gracie Mansion. The recent v-shape recovery in the stock market and increased savings during the lockdowns has also grown the net worth of many would-be buyers.

Across the river in Brooklyn, contract activity also increased in February, albeit less dramatically than in Manhattan. Contract volume grew by 9% compared to January, and was up 6% compared to February 2020, while average days on market decreased by ~3%. Discounts in Brooklyn remained few and far between, as the borough-wide average discount dropped to just 5% for homes sold in February, representing a 4% decline from January, and a 2% decline from last February (pre-Covid). Unlike in Manhattan, Brooklyn prices increased in February, with average and median prices up 4-5% from January, and up by double digits (~17%) compared to this time last year.

New inventory levels in Brooklyn have been exceptionally low this year, and overall inventory declined another 4% between January and February, leaving many Brooklyn buyers waiting for the influx of new listings this Spring.