Last month our team had the opportunity to speak with Fox Business about what recession fears meant for buyers. For the full article please click here. As sales volume goes down, due to rising interest rates and recession fears, prices follow. We were experiencing record volume and pricing earlier this year. With the rise of interest rates the market will have to reset to a new normal, and leverage will continue to shift towards buyers from where we were.
Some of our buyers experiencing 'buyer fatigue' from missing out on homes have put their searches on hold, as rates have gone up and recession fears loom. Those who can stomach the uncertainty have a real opportunity in this market. We are finally seeing buyers empowered with more choices, more time to make decisions and more negotiation power. This is also a great time for those buyers looking to upgrade their properties. Selling a $1,000,000 home at a 5% discount and purchasing a $2,000,000 at a 5% discount will certainly net you ahead.
If rates come down next year and the financial markets improve, there will be pent up demand which will lead to buyer competition and we believe prices will go up again. For cash buyers, who are rate immune, this is the moment they have been waiting for. We have seen cash buyers and foreign investors come out of hibernation.
Some items to consider as 2022 carries on:
Q3 Update The latest quarterly Manhattan residential data shows resilience as the market normalizes after a hyperactive 2021. High-interest rates and record inflation deter those at more attainable price points, but buyers are willing to pay in all price categories when properties are priced right. As mortgage rates rose, condo sales declined the most. Overall, condo sales declined 15.7% compared to last year, and co-op trades jumped 21.9% compared to last quarter, strong indicators that most buyers are looking for more affordable apartments. The average sales price for all apartments was $1.9 million, up 5.2% from 2021 but down 8.7% quarter-over-quarter.
Contract activity shrank sharply, foreshadowing an evolving market. Contracts signed dwindled 37.3% year-over-year and 38% compared to Q3. Whatsmore the average price of contracts also trickled downward by 10.5%. The most significant shift was downtown, where contracts dropped 42.8% year-over-year. Nevertheless, it is essential to remember contracts signed do not include off-market deals, which have escalated in recent years.
While comprehensive Q3 data represent a market correction, some things remain unchanged. First, New York real estate has historically appreciated, and people will always need a place to live. While the bidding wars and soaring prices of 2021 may start to be over, it would be a mistake to sour on Manhattan real estate in the long run.
Rising Mortgage Rates The rate on a 30-year fixed mortgage averaged 6.66% this week. Last year at this time, the typical rate was 2.99%. Mortgage activity has fallen nationally to its lowest level in 25 years, according to the MBA’s survey for the week ending Sept. 30. Mortgage applications plunged 14.2% from one week earlier. The decline was led by an 18% drop in applications to refinance mortgages. Refi applications were down 86% from last year at the same time. Applications to purchase homes were down by double digits, too, falling 13% from the previous week’s survey. They were down 37% from last year.
Sounds pretty bad? Yes, it is, but headlines have sensationalized this.. In Manhattan most buyers don’t have conforming loans (loans under $647,200) grabbing headlines. Most buyers have Jumbo loans with rates that are significantly lower. We are hearing and seeing high networth clients secure loans in the low 4’s from local and private banks.
New Developments New-development contract signings in September fell below pre-pandemic levels for the second time in three months, according to a report by Marketproof. While the number of deals fell by 16 percent, the median and price-per-square-foot numbers hardly changed, which means the drop from August was equally divided between big-ticket and below-average apartments. While activity is roughly on par with 2019 levels, price per square foot is up 22 percent since then. Contracts can take months to become closed sales, and some never do, but they provide a more current picture of the market. While contracts are down, it’s more of a return to normalcy, than the highs of 2021.
Luxury Market 12 contracts were signed last week in Manhattan at $4 million and above, two fewer than the previous week. It was the third week in a row of declining sales. The midweek Jewish holidays could have contributed to this, but more realistically it is a pause due to rising interest rates and a chaotic stock market.