In January, following a record setting 2021 post Covid recovery, I wrote that Manhattan real estate was poised for a strong 2022. Sales volume last year totaled $30B—6% greater than the previous record set in 2007. During the first half of this year, sales volume reached $15.6B, the highest half year mark in a decade. However, in an environment of unrelenting inflation, rising mortgage rates, continuing war and volatile investment markets, uncertainty is spreading, and we are in the ninth successive week of declining signed contracts. As buyers and sellers pause to acknowledge some new realities, the next six months are more likely to be about gaining balance.
Following are some on the ground impressions and key takeaways from our Q2 2022 Manhattan Market Report:
● Our market is decelerating, and we’re seeing fewer signed contracts, more price reductions, a modest increase in inventory, but fewer appointments and offers. It is summer, so a seasonal slowdown is no surprise. Q1’s hyper active market characterized by bidding wars and high demand makes the current lull appear all the more dramatic by comparison.
● Higher interest rates, which have been rising faster than at any other time in recent history, have come as a shock to buyers, from first timers to those trading up from smaller units who are reluctant to give up their cheaper mortgages. While borrowing rates are still at historic lows, it will take time for this realization to set in. Dare I say I recall when rates exceeded 18% in the early 80s? Interestingly, the 30-year fixed rate dropped for a second consecutive week, this week from 5.7% to 5.3%—a 7% decline. Another mortgage rate hike is expected before year end however.
● With rising rates and fewer mortgage applications, the lending environment has become super competitive. Lender options vary from bank to bank based on loan type, credit history and financial profile, so now is definitely the time for borrowers to shop and compare. Adjustable rate products are competing with new 40-year fixed choices.
● If you’re a cash buyer, now is your moment to leverage the opportunities. According to economist Jonathan Miller, the number of all cash sales reached 53% in the second quarter—more than half of all NYC purchases.
● The mixed messages are somewhat confusing. A strong jobs report in June with unemployment at a 50-year low and wage gains exceeding forecasts coexists with the highest inflation in over 40 years. Wages may be rising at a 5.1% annual pace, but with prices up 8.6% as of May, consumers are dipping into savings, and credit card balances are rising.
● An out-of-control, perhaps unsustainable, rental market with average rents up by 39% YOY and inventory down by 51% YOY is influencing long term renters to consider a purchase and start building equity. Similarly, sellers who are unwilling to accept the market deceleration are also considering renting their properties for the short term.
It’s “the great rebalancing of 2022” as my friend and colleague Leonard Steinberg terms the current cycle. Moving to parity will be good for both buyers and sellers. Economist Greg Heym believes that the coming recession will be short with economic growth returning with the new year in 2023. If this is your time to make a real estate move because of a life event such as birth or death, marriage or divorce, job loss or relocation, pay little mind to the sensational headlines. Do align your goals with an experienced agent who understands that real estate is hyper localized.