We’re just past the 10-year anniversary of Lehman’s 2008 collapse and into the 9th year of U.S. economic recovery which trumpets at least three robust measures: a 3.7% unemployment rate that’s the lowest in nearly 70 years, a 20% rise in GDP, and a bull stock market that’s up more than 50% from 2007 even after the last two-day downward slide. While corporate profits continue to climb, wages remained relatively flat during the decade-long growth cycle, and debt has been mounting steadily particularly among millennials whose student loans have risen to a reported $1.5 trillion. The current housing slowdown which began in NYC at the upper end of the market is now palpable in every market category, and it behooves the real estate professional to set realistic goals and manage client expectations.
In Manhattan residential real estate, we experienced the market’s bottom in 2009 and its peak in 2015 when 31% of properties sold over the asking price. We’ve been transitioning to a buyer’s market for the last couple of years. Since 2009, there’s never been a better time to purchase a home, despite spiking interest rates and tax reform concerns. It’s illuminating to review the highlights of Compass’s Quarterly Market Insights Report for Q3 2018 which presents stats for current inventory, contracts signed and closed sales and reviews prevailing trends in 15 unique Manhattan neighborhoods. The complete report may be found here.
Here are 7 key takeaways:
Active listings totaled 6,987 units, an 8% YOY increase with inventory gains highest on the Lower East Side (37% up) and in Gramercy (27% up).
The number of listings priced below $1M rose 24% YOY, which means there’s heightened competition among sellers for first time buyers. The market is experiencing a new slowdown in this category as the inventory of studio and one-bedroom units rises.
Listings priced between $1M-$3M were up 10% YOY, but listings priced above $10M declined 26% YOY.
The number of contracts signed was nearly the same as last year, totaling 1,948 contracts—just 1% less than Q3 2017. The best performing market was the $5-10M (30% up) and the highest performing neighborhood was the Upper East Side (18% up).
The absorption rate was 8.5 months of supply. A balanced market hovers at 6 months. Buyers have the negotiating edge.
The total number of closings decreased 18% YOY to 2,616 transactions, consisting of 1,163 condos (44% of the total) and 1,453 co-ops (56% of the total). Many buyers are turning back to co-op purchases as new development condos linger at still unattainable prices despite widespread sponsor discounts and concessions.
Median asking prices decreased by 11% to $1.55M YOY with condos declining 9% YOY to $2.2M and co-ops declining 13% YOY to $995K, registering the lowest asking price in 3 years since 3Q 2015.
Declining prices, expanding inventory and increasing time on the market bode well for buyers in all price categories. Rising interest rates however are impacting the market and stalling decision making. Most sensitive to even small rate hikes, entry level purchasers feel the additional sting of increased borrowing costs. As of this writing, the rate for a 30-year fixed mortgage is 5%, the highest level in seven years and a full point higher than last year. In November 2016 after the presidential election, the rate was just below 3.5%. Additional rate hikes are expected.
Price cutting is occurring regularly in every market category with sellers’ agents broadcasting “buyer bonanzas,” $1M price reductions amid “must sell” advertising. In a market that lacks urgency, buyers appear poised to purchase now to sidestep even higher interest rates later. But the moves today’s purchasers are making are deliberate, measured and unhurried. Sellers are advised to heed the wise counsel of their agents and capture buyer attention with a realistic price and a camera-ready styled property. As market conditions change, expectations shift but the laws of supply and demand prevail.