Overall Manhattan Market Update: March 2024

Demand Remains Strong Amidst Stubborn Interest Rates

Despite persistent challenges posed by fluctuating interest rates, demand for Manhattan properties remained robust in February. Contract activity surged 23% compared to January, surpassing last year's figures by 9% for the same period. However, the market's supply side did not witness a proportional increase typical for February, with only a marginal rise of 3% compared to January, and total supply was 3% lower than the previous year.

As demand outpaces supply, leverage is gradually shifting from buyers to sellers. This supply-demand imbalance has resulted in reduced negotiability for buyers, signaling a potential upward pressure on prices shortly.

The Elegran | Forbes Global Properties Manhattan Leverage Index indicates that sellers gained some traction last month and are likely to maintain this advantage through the spring season. This suggests a more favorable environment for sellers in the coming months.

SALES

– “Neutral” markets don’t exist because buyers and sellers are constantly playing tug-of-war for leverage

–  At times (e.g., the past 10 months), there’s no clear winner as buyers & sellers reach equilibrium.¹

– Based on the data, sellers gained a small advantage in February. 

- Demand (measured by contracts signed) increased in the seller’s favor.

- Median listing discount decreased in favor of the sellers 

- Median PPSF (Price Per Square Foot) decreased in the buyer’s favor.

- Supply increased compared to the previous month, in the buyer’s favor, but remains lower YoY in the seller’s favor.

RENTALS

– From the all-time high of $4,300 in May & July, the median rental price has retreated to $4,095.

– While lower than the recent highs, the median rental price increased from $4,000 to $4,095 in February and is likely to continue moving higher heading into the peak rental season this summer.

INVESTMENTS

– Total return is generated by net rental income & price appreciation.

– All-cash buyers can expect a cap rate between 2.7% - 3.2%.

– Since the average JUMBO mortgage rate APR is 6.9%², there is no net rental income on leveraged purchases.

Elegran | Forbes Global Properties Manhattan Leverage Index

The Elegran | Forbes Global Properties Manhattan Leverage Index is powered by four indicators: supply, demand, median price per square foot (PPSF), and median listing discount.  

It 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 the curve, where:

- An increasing trend from left to right indicates a seller’s market

- A decreasing trend from left to right indicates a buyer’s market

Our indicator also informs us regarding the relative strength of that leverage, indicated by the slope of the curve, where:

- A gentle slope indicates a weak advantage by one party over the other

- A sharp slope indicates a strong advantage

But the numbers are not important.  What is important is the direction and slope of the curve.  For the last few months, it’s been a stalemate between buyers and sellers with a relatively balanced market.  In the last month, sellers gained a slight edge as demand rose while supply remained limited.  In the coming months, expect this trend to continue, with leverage increasingly favoring sellers as demand intensifies and supply remains constrained compared to the prior year.

Manhattan Supply

Manhattan supply has followed a similar cadence - pandemic excluded - for the past decade, as the chart above clarifies.  Supply increased by 3% in February compared to January, tracking seasonal trends, but remains 3% lower than last year.  Supply remains anchored near a 4-year low.    

What this means for:

- BUYERS: When supply increases, there's more inventory to choose from.  Supply is increasing as the spring season approaches, but supply is lower than last year's period.  

- SELLERS: The more inventory on the market, the more competition a seller faces. As supply increases heading into the spring, sellers will face increasing competition, but supply remains lower than last year.  

Anticipate a rise in supply in March, providing buyers with more options.

Manhattan Demand

A 23% increase in the number of contracts signed from January to February showcases that demand has accelerated as we approach spring. This February, demand was 9% higher than last February. 

What this means for:

- BUYERS: More competition.

- SELLERS: More activity.

Expect a sustained uptick in contract activity in the upcoming months, as spring typically marks the peak season for Manhattan's real estate market. This surge in contract activity is poised to offset any rise in supply, creating a more competitive market environment where leverage tilts increasingly in favor of sellers, with buyers facing heightened competition.

Manhattan Median PPSF

The median PPSF is at its lowest point in the past 12 months, down 3% from January 2024, indicating an economic advantage for buyers.

What this means for:

- BUYERS: Prices are moving in their favor.

- SELLERS: Prices are moving against their interests.

Anticipate a reversal of the current downward pricing trend in the upcoming months as leverage transitions from buyers to sellers. It's plausible that prices have reached their cyclical low point, as various factors are aligning to drive prices upward in the near future.

Manhattan Median Listing Discount

The median listing discount in February has decreased compared to January, indicating a shift in favor of sellers.   

What this means for:

- BUYERS: There was a decrease in February, which is unfavorable for buyers, who have less negotiating power today than last year.

- SELLERS: Sellers have slight leverage over the buyers this month. However, the listing discount is still over 5% for the third month in a row.

Declining discounts are a precursor to rising prices.

RENTAL REMARKS

In January⁴, the median rent in Manhattan increased slightly and remained near record highs, and is poised to increase further heading into peak rental season this summer. The 30-Year Fixed Rate JUMBO Mortgage Index⁵ is trending at 7.3%, and the average JUMBO APR is 6.9%⁶.  So, it’s a “catch-22” for renters, as the rent versus buy scale may feel equally punitive on both sides.

INVESTOR INSIGHTS

The total return is driven by net rental income and capital appreciation. For all-cash investors, Manhattan cap rates are currently 2.7 - 3.2%. Unfortunately, there is no net income potential for those investors using a large percentage of leverage, with the average JUMBO mortgage APR at 6.9%.  Timing and a strong USD may afford foreign investors, depending on their native currency, the opportunity to realize significant capital gains upon selling their assets.

References

1. According to the Elegran | Forbes Global Properties Brooklyn Leverage Index

2. JUMBO mortgage rate APR data courtesy of Bank of America, Chase, and Wells Fargo

3. Data courtesy of UrbanDigs

4. Data courtesy of Miller Samuel, Inc.

5. Data courtesy of Federal Reserve Bank of St. Louis

6. JUMBO mortgage rate APR data courtesy of Bank of America, Chase, and Wells Fargo

If you would like to chat about the most recent market activity, feel free to contact us at info@elegran.com or connect with one of our Advisors.

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Welcome to Elegran | Forbes Global Properties, where our mission is to revolutionize the world of real estate. Founded in 2008 by Michael Rossi, our journey began with an unwavering drive for motivation, innovation, and a genuine care for our clients.

As an independently owned brokerage, we pride ourselves on our elite team of "advisors," offering a personalized touch that goes above and beyond the traditional real estate experience. Armed with robust data insights, we empower our clients to make informed decisions that lead to success.

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