As the third quarter closed out, we remain in a market where many buyers are afraid to commit. Whether it be rising interest rates, oversupply of inventory, tax reform, or the fear of a correction, buyers are sitting on the sidelines and it’s causing a market slowdown and inventory to pile up. Sellers have been forced to bring prices to where demand actually is and we saw 800 listings with price reductions the week following Labor Day.
Insights to Consider:
- A Decade After the Financial Crisis, Owners See Profits. It’s been 10 years since the financial crisis. The average sale price in Manhattan is now 2% higher than the peak in November 2007 and 28.5% higher than the bottom of the market in September 2008.
- The Penthouse Glut. A flurry of listings has brought the total number of penthouses on the market to 443. This is a 19% increase since March and a 16% increase year-over-year. It is typical that we see inventory, especially luxury, increase in the fall, but still, it’s a significant jump from last year. In addition, 15% of all PHs listed in Manhattan saw price cuts in September. One aspect to consider is defining what a penthouse actually is. It used the be the top floor of a building but now more and more new developments have several PH floors.
- Queens and Brooklyn Outperform Manhattan Rentals. For the 39th straight month, Manhattan landlords have been offering rental concessions. Manhattan’s median net effective rent dropped 2% year-over-year, to $3,310 in August. Brooklyn’s net effective rents fared better, with a 0.1% drop to $2,849 in August, while concessions in the borough rose for the 31st month in a row. By comparison, rents in Queens have increased with fewer concessions. The borough’s net effective median rent rose 5.7% year-over-year, to $2,921 in August, while the share of concessions fell to 38.6% in August from 44.7% last year.
- Mortgage Rates Hit 7 Year High. Mortgage rates rose to nearly 5%, the highest in more than seven years and the biggest weekly increase in two years. According to Freddie Mac, the average 30-year fixed-rate mortgage is 4.9%. To put this into perspective, a $1m mortgage at 4% costs $4,774/month while at 5% that cost rises to $ 5,368 per month (that difference is the cost is equal to approximately $214,000 in additional payments over 30 years). Although rates have been rising for months, nearly 5% is still low historically. Ten years ago the rate was just over 6% and thirty years ago it was above 10%. While the increases can be a bit alarming, they’re expected. It’s the normalization of the unrealistic rates that we’ve seen over the last several years. According to the FED, you should expect to see more rate hikes over the coming 12 months.