A perfect storm for New York home buyers? Be ready!
In Manhattan, sellers have had the upper hand since late 2020. In Brooklyn, sellers have had the advantage even longer. However, the past few weeks have seen a noticeable slowdown in contract signings in both boroughs.
There are a myriad of potential reasons that could be happening. For starters, it could be due to the post-pandemic low-rate “sugar rush” for real estate. Or maybe because many of the city’s shoppers have already decamped to the Catskills or the Hamptons. Or it could be that the volatility in stocks, bonds and crypto simply dampened the mood. Finally, buyers might just be worried about the growing risk of recession. Either way, there are plenty of reasons why buyers prefer caution to action.
Yet, while there may not be a single reason behind the drop in activity, one thing is clear: this summer, a long-awaited window of opportunity will likely open up for buyers. To be clear, this is not a price call. Rather, it is an overview of how changing market conditions may alter supply and demand dynamics to favor buyers in the months ahead.
NYC Real Estate is behind the markets
A comparison of New York real estate with various other types of markets suggests that even though major stock indices, such as the S&P 500 and NASDAQ, have fallen significantly, the volume of New York City real estate transactions has not yet followed suit.
Indeed, the chart below shows that while most markets are already down sharply, trading volume in New York is still near its highs. Of course, just because the markets have gone down doesn’t mean New York real estate will follow suit. On the contrary, the broad decline paints a picture of buyer and seller sentiment. Falling asset prices tend to interrupt buyers and slow the market. A slower market means less competition for buyers, leading to wider gaps between supply and demand. Wider gaps indicate that the lack of inventory is no longer the asset it was six months ago. Instead, sellers must compete on price or risk staying in the market longer than expected, or even withdrawing their listings.
Supply vs demand
Supply in Manhattan and Brooklyn is starting to grow, albeit slowly, as demand begins to fade. As this trend continues, the bid/offer ratio (the “Market Pulse”) will continue to fall from levels consistent with a seller’s market.
While the Market Pulse has been in seller’s market territory since the end of 2020, at the current pace, it will most likely slip into neutral market territory by mid-summer. Of course, since this is an aggregate measure, there will be pockets of comparative strength and weakness. Still, the balance of power appears to be shifting between buyers and sellers, just as the market heads into the typically slow summer season.
Notice to sellers: sales are slow
Prices follow trading volume, so a slowdown in the market today suggests that prices likely peaked in the first quarter. However, since recorded sales data can take months to become public information, the final tally will not be known until the third or fourth quarter of 2022. With advance knowledge of a work slowdown, sellers should concentrate on working to negotiate now before a wider knowledge of prices is known. It is better to give up a few percentage points on price now than to linger in the market and give up several percentage points later.
window of opportunity
The short to medium term outlook for real estate in New York is murky at best. After a record volume of transactions, buyers appear exhausted and ready not only for a seasonally slow summer break, but also for a break from the bidding wars constrained by supply and intense competition.
At the same time, with various economic indicators significantly lower, the overall shopping landscape looks bumpier than it did six months ago. Sellers have no doubt noticed the slowdown in open house attendance and overall buyer engagement, and may finally be open to negotiation.
However, this may be a short-lived opportunity. Sellers tend to pull listings when their price is not met, and if that is the case, buyers will again find themselves short of supply. So the next few months could offer both choice and negotiation for less rate-sensitive buyers.
Conclusions on the buyer side
To take advantage of this window of opportunity, buyers should prepare by understanding their local market inventory, knowing their financing plan, and identifying potential candidates. Don’t ignore outdated properties that may be trying to find the market via previously unsuccessful price cuts. These sellers will be the most emotionally affected by the slowdown in demand and more likely to hire a lower bid to sell the venue as quickly as possible.
Finally, as seasonality returns to the market, buyers should remember that demand will likely pick up in early fall. Therefore, the slow and hot summer months could be the biggest window of opportunity for short-term buyers.