Elegran Manhattan Market Update: December 2022

Manhattan Market Update

Despite the significant number of concurrent headwinds — lofty mortgage rates, losses within the financial markets, inflation, recession fears, etc, many Manhattan metrics remain at pre-pandemic averages. And that’s a win, as we’ve been reporting for months. Dangerously close to sounding like a broken record, we have “news” to report, in the sense that certain metrics are diverging from those pre-pandemic averages. Where we are seeing great strength is in price per square foot, which has not only recovered post-COVID but is on par with the high water mark set at various points throughout 2015–2019. Where we see weakness is in terms of demand, measured by contracts signed. Although NYC demand (all boroughs) has been performing at or above historical averages since July (when climbing mortgage rates threw cold water on the 18-month period of record demand and price inflation), an outperforming Brooklyn has been carrying the weight of an underperforming Manhattan.

Manhattan Supply

Why should you or your Clients be concerned with the number of for sale units in Manhattan? As a standalone number, there’s little importance and there’s certainly plenty to go around. However, it is important to see November supply relative to historical levels. As mentioned, there are a number of deleterious forces swirling about, any of which could adversely affect the NYC residential real estate market. But as we see monthly numbers posted for the metrics we follow, including supply, many are historically normal and historically normal means a healthy market. Note: “Total Supply” refers to inventory on the market at a given time. “New Supply” refers to new inventory that came on the market in a specific time period.

Manhattan Buyer Activity

As noted above, demand for Manhattan residential real estate has been trending below its historical average. The graph below illustrates this insight, as this November posted the fewest contracts signed during the 11 year period observed.

The graph below further illustrates our point, that demand has cooled from a record 18-month period that began Q1–2020. And as discussed, mortgage rates have pulled the trendline down to a level below the pre-pandemic average.

Manhattan Leverage Indicator

Elegran’s Leverage Indicator informs us whether the current is a buyer’s or a seller’s market; i.e, which party possesses transactional leverage. Looking at the graph below, this is indicated by the direction of trendlines. Our indicator also informs us regarding the relative strength of that leverage, indicated by the slope of those trendlines. Per below, Manhattan is in the grips of an exceptionally strong buyer’s market.

Price/SF & Discounts

A brief look at the chart below reveals that, following the COVID pullback, price/sf has quickly returned to previous highs reached at various points throughout 2015–2017 and 2019.

The accretion of COVID pent-up demand and future demand pulled forward by rising mortgage rates quickly brought listing discounts down throughout 2021 and H1–2022. However, as mortgage rates continued to rise and cooled demand over the summer, discounts have begun to ascend again, as the chart below illustrates:

What this means for…

Buyers:

• Supply became markedly overheated during 2021 and H1–2022 and mortgage rates have curbed demand to below pre-pandemic levels, keeping Manhattan in the throes of a strong buyer’s market. Remember, a buyer’s market means that buyers should be rewarded for their patience.

Sellers:

• The current market favors buyers, so sellers need to set their expectations to pre-pandemic levels, not at 2021 levels or even H1–2022 levels where demand and price inflation were robust.
• Sellers who are not commanding their desired sales price should consider renting their home instead, at least for a year or two, and capitalize on the strong rental market and high rents.

Renters:

• Although peak rental pricing has cooled slightly, rents remain significantly inflated as mortgage rates keep would-be buyers from participating in the for sale market and force them to rent instead.

Investors:

• Rents are still historically high, but price/sf is well on its way, so the value proposition of an investment apartment for an all-cash buyer is still interesting, but no longer a slam dunk.
• Foreign investors; however, depending upon their native currency, have the opportunity to realize significant capital gains upon the sale of their asset.

Please contact us if you would like to learn more …