Happy Holidays!
Last week the Fed indicated a slowing of their historically rapid and massive interest rate hikes. While the intent was to slow price escalations – which it has – it has also made purchasing a home significantly less affordable. 2022 saw rates increase too far and fast. Year to date, compared to 2021, the median and average prices of a home in Manhattan both increased by roughly 6%. We have 11% more inventory on the market but contracts signed are down by 45% (compared to an extraordinary 2021). Home sales in the U.S. nationally are projected to end the year at 5.8 million—a 16% slide from 2021’s multi year high. The drop will continue into 2023, with home sales expected to slide a further 13%, to 5.1 million, according to the average estimate from four government data sources and housing trade groups.
This is a supply-deprived correction and re-balancing of markets. 12 years of under-building and slowed construction will only exaggerate undersupply, which is the primary driver of home inflation. Unlike 2007-10, this market is not grossly overbuilt, the banks have not acted recklessly, and we have not seen large price declines.
Rental Market We expect that rents will continue to rise even more over the next 12 months due to the following factors:
- High interest rates preventing first time homebuyers from buying.
- High interest rates preventing existing homeowners to upgrade, and instead opting to rent.
- Builders are focusing more on building homes to rent, further depleting the supply of for sale homes.
- Wait-and-see buyers opting to rent in the hopes of home prices coming down.
- Potential buyers who have lost their jobs are unable to secure financing.
Mortgage Rates Mortgage Rates Fall to 6.33% in Biggest 4-Week Decline Since 2008. The average rate on a 30-year fixed-rate mortgage declined this week, leading to the largest four-week retreat in 14 years, according to Freddie Mac
New Development After months of whiplash in residential markets, November brought some welcome stability to new development sales in New York. Developers reported 186 contract signings last month, an 11% increase from a sluggish October, according to a new report from Marketproof. That’s still down 21% from November 2019, but roughly on par with other months since the Federal Reserve began raising interest rates. The contracts were for apartments asking a combined $548.5 million, up nearly 50% from October’s total. The median price of the units was $2.4 million, down about 10%.
Luxury Market 14 contracts were signed last week in Manhattan at $4 million and above, 1 less than the previous Thanksgiving holiday week. Condos outsold co-ops 12-1, and 1 townhouse was in the mix. Despite a lackluster week, there was impressive action in the ultra-luxury market, where four of the contracts were signed asking over $20 million. For over a decade now, the co-op market has underperformed the condo market. Only one co-op above $4M has gone into contract over the past two weeks.
2023 Housing Pricing Predictions:
- CoreLogic forecasts indicate that home prices will increase by 4.1% from October 2022 to October 2023.
- Redfin expects the median U.S. home-sale price to drop by roughly 4%
- Morgan Stanley predicts that average housing prices could decline as much as 10%
- Zillow projects typical U.S. home values to fall 0.6% from October 2022 to January 2023, before recovering and posting 0.8% growth by the end of October 2023
- Goldman Sachs G-10 home price model suggests home prices will decline by around 5% to 10% from the peak in the U.S
We look forward to connecting again in the New Year!
