We enter October in an inflationary bear market; as interest rates rise and the stock market declines, we see the first drop since 2020. Manhattan apartment sales fell 18% in the third quarter, putting the brakes on 2021’s market comeback. Despite this decline in sales activity, levels remained significantly higher than in pre-pandemic conditions.
Source: Douglas Elliman
What’s next For Manhattan’s real estate market? Here is your Q3 market analysis.
Prices remain high this September with average price rising almost 4% from August to $1.985 million but overall, this third quarter it’s down almost 9% compared to Q2. Price increases are slowing down.
Contract signed activity in quarter 3 dropped by a staggering 38%, but the total number of sales remains significantly higher than pre pandemic levels, 44% higher to be exact than Q3 of 2019, and 23.6% higher than Q3 in 2018.
In September, 714 contracts were signed, almost 18% less than the previous month of August and there are 3 ways we can go from here: recover and go up above seasonal trend, stay in seasonal trend, or see another wave down.
As for supply, while inventory is increasing, it is not surging; we aren’t anywhere near the highs of 2020, but more in the middle of the record highs and lows of the last 2 decades. New listings for this quarter are down 17% from last year indicating that owners are holding off on putting their property on the market. Many of them will either wait or rent their unit out.
When the market corrected with a burst of abnormal peak activity after the covid slump at the end of 2020, we told sellers to sell and buyers to wait or be willing to jump in and transact at that level. We are now changing the tone and shifting to a buyer’s market, and in a unique leverage period for buyers. Market pulse is at 0.39- this is the aggregate market condition, which indicates a pretty strong buyer's market. Now notice this- we see this big drop, but looking at it from a historical standpoint, we are exactly where we are seasonally every mid to late October – there is always a drop.
The smart buyers are buying now. We all want to sell when it’s high and buy when it’s low. Well, this is the buyer’s paradox. You’ve been waiting for this moment, and then what happens? Buyers get scared and have concerns Or, they think we will see more fire sales and huge discounts. This is not true, liquidity is actually down and during times like this we see much more off market, more sellers that are renting and overall, much less available inventory. It is important to understand that the market has already fallen, found a new level, significantly lower from where we were, but has now stabilized. Buyers, this is the market you’ve been waiting for, and we have been discussing it for some time.
If you are a cash investor- you have a huge advantage: the rental market is going up and the sales market is going down, and you should be getting a good discount on your cash premium.
Sellers, you have to look at the market condition and adjust, and if you do not, you will pay the price of waiting.
The rental market is cooling off after its record-breaking summer, but it is still strong. The price and inventory help the sales market overall.
So let’s recap:
Manhattan’s housing market has started responding to rising mortgage rates and the stock market decline. Sales have dropped in Q3, but levels remain significantly higher than pre-pandemic levels.
Average price and contract signed activity has slowed down this quarter but, put into historical context, are higher than in 2018 and 2019, and are in keeping with seasonal trends for this time of year.
Buyers and cash investors have a real window of opportunity to snag a good deal, and savvy sellers will look at the current conditions and adjust their expectations.