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August 2023 Market Recap

While transaction activity in August lagged compared to 2021 and 2022 levels, the main indicator – contracts signed – was on par with historical averages. Despite record-setting interest rates, prices did not decline month-over-month and year-over-year due to unusually low inventory levels, and competition for well-priced desirable listings remains robust.

We expect an influx of new listings this month, as we do every September, but to what extent this will track with historical norms – or if inventory will remain constrained – is a big unknown. If interest rates appear to stabilize or even decline, it would be a release valve for pent-up listings; however, most don't expect a significant uptick in activity until spring or fall of next year.

In Brooklyn, inventory levels remained at historic lows last month, with new listings and total inventory figures down double digits once again. Closed sale prices declined slightly and days on market ticked up, although - as we've come to expect - this does not necessarily reflect the market conditions in the most in-demand areas, specifically North Brooklyn (Williamsburg & Greenpoint) and Northwest Brooklyn (BoCoCa, DUMBO, Brooklyn Heights, Fort Greene, Prospect Heights, Park Slope, etc.) where we are still seeing bidding wars and over-asking closed sale prices. In August these areas accounted for only 28% of active inventory, but 36% of all contracts signed.

On the other hand, South Brooklyn inventory, primarily 1-2 family homes, made up 57% of total Brooklyn inventory but only 48% of signed contracts. Declining prices for houses – the chief property type in this area – contributed the most to Brooklyn's overall decline in prices; condo sale prices actually increased and coop prices remained unchanged borough-wide in August.

Mortgage rates continued to tick up, peaking at just under 7% for jumbo loan sizes on August 22, a 21-year-high. However, the most recent Jobs Report, released on September 1, gives some cause for optimism on the rate-front because it showed that the job market is finally cooling, which is good news for rates.

The US had been experiencing stronger-than-expected job growth for a very long time, and the Fed has been holding out for sustained below-trend growth to ensure inflation is on track to reset to their 2% target. The most recent report indicated that fewer jobs were added to the American economy than expected, and unemployment rose from 3.5% to 3.8% in August. This is exactly what the Fed is looking for to stop rate hikes. While there hasn’t been a significant improvement on mortgage rates yet, we may see a small one as we get closer to the Fed Meeting later this month. While we are not expecting a dramatic drop in rates this fall, we are hopeful that the Fed is done with the rate hikes, and we will begin to see a slow but steady decline over the rest of this year and into 2024.

The end of AirBnB in NYC? Local Law 18, effective as of Tuesday, limits how Airbnb operates in the city - effectively banning it entirely for many guests and hosts. From now on, all short-term rental hosts in New York must register with the city, and only those who live in the place they’re renting—and are present when guests are staying—can qualify. (WIRED)

Goldman Sachs now predicts a 15% chance of a recession, down from 20%. Bank of America and JPMorgan also lowered recession calls. (CNBC)

After more than a decade of rock-bottom interest rates, real estate lenders and borrowers in New York City are in a precarious situation. The rapid rise of rates and declining property values in some sectors - most notably commercial office buildings - have prompted lenders to be more selective about what sectors they lend in, and to whom. (THE REAL DEAL)

US homebuilder stocks have defied conventional wisdom about the effects of rising mortgage rates, rallying furiously and attracting an $814M bet from Warren Buffett’s Berkshire Hathaway. Shares in DR Horton, Lennar and NVR, which Berkshire disclosed it owned this week, have risen about a third apiece this year, far outpacing the S&P 500 stock index. Rising rates have proved a blessing for homebuilders because their rapid rise has in effect trapped many current owners in their properties, reducing the stock of existing houses for sale and driving would-be buyers to new properties. (FINANCIAL TIMES)


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