Change in our local residential real estate market, and for that matter in life, is a given and our only constant. For every up, there comes a down, and for every step forward, there’s a step or two back. Life has its turns, and real estate has its cycles. Today we are experiencing a decline which many consider a long overdue correction; it’s welcomed by some but painful to others especially to current sellers who purchased during the peak of either 2014 or 2007. Today’s market is defined by rising inventory, slipping prices, more time on the market and multiple price reductions.
A decade past the Great Recession of 2008, we’re well into our 9th year of national economic growth, reportedly the longest, albeit the slowest recovery ever, one that is simultaneously witnessing a volatile stock market, a steady unemployment rate just below 4% and a rising GDP which grew 4.1% last quarter, the strongest increase since 2014. Over the last 12 months, consumer prices inched up 2.9%, the biggest inflationary uptick since September 2008. Additionally this year international trade tensions have been escalating, and two more Fed rate increases are expected. Since the real estate marketplace began to transition in 2016, buyers and sellers have been coming to terms with market changes, and their agents have been working to manage shifting expectations.
Generally housing transactions are triggered by life events such as birth and death, marriage and divorce, and job loss and relocation which pay no mind to cycles. Empty nesters enter the market when their kids have flown the coop. First time buyers make a purchase when renting no longer makes financial sense. In a declining market, there’s less discretionary trading up and some sellers come to market looking to take chips off the table acknowledging that downward price pressure is more likely to persist than not.
As prices have been decreasing, time on the market has been increasing. Let’s take a close and revealing look at the weekly Olshan Luxury Report which tracks signed contracts for properties priced over $4M. During a representative 5 week period from June 25th through July 29th, 95 properties went to contract with an average 405 days on the market; for these properties it took an average low of 269 days on the market to an average high of 536 days to get to contract. What’s the takeaway? Patience is essential. Urgency left the market more than two years ago, so today’s luxury sellers need staying power to endure. Sellers need to be reminded that it’s the buyer who ultimately determines a property’s value, not the agent or the seller. That said, purchasers have been taking their sweet time. Moreover we are finding that even when we achieve the asking price on our listings, we are negotiating with only one or at most two bidders and not a lineup of panting buyers.
It’s wise for today’s sellers who are trading up or scaling down to consider their two transactions separately, one deal at a time. In this market, it’s especially important to sell first and not only to generate funds to make the trade, but to favorably stack the cards for the co-op board as an unencumbered candidate without baggage.
Buyers who are prepared to search for value today are finding it. More than ever, today’s buyers are cautious, value driven and price sensitive. Two years ago while they may have refused to begin a negotiation unless they considered the price to be realistic, today they are not evening going to look at a property until the price is on target. “Call me when they drop the price,” is the new refrain.
Buyers are advised not to fear jumping into the market. Take your time to review purchasing opportunities, but don’t hesitate when you walk into the space you can call home. If you delay, you may find someone else has scooped up your dream residence. A cautionary word to bottom fishers is to resist this knee jerk temptation as you’re unlikely to prevail and more likely to set the stage for another more reasonable bidder. If you make a logical opening offer, you’re more likely than not to get a counter.
New York’s appeal as a super city will not tarnish as long as our streets remain safe and clean and our local economy robust. The opportunity for price appreciation is still greater in NYC than other global financial centers like Hong Kong, Sydney and London. Unique among the world’s cities, New York attracts a vibrant populace—those who seek opportunities in education, business and the arts. This is Jay-Z’s NYC “where dreams are made of”—a city that generates excitement, innovation and energy, whose diverse citizens sit on the boards of cultural and philanthropic institutions, where venture capital is found and entrepreneurial spirit is nurtured. We’ll look back at this period as the great adjustment years.
Enjoy these last weeks of summer. Happy August and see you in September.