Is the window of opportunity for real estate buyers in New York finally wide open?
In early June, we discussed the possibility of a window of opportunity opening for Manhattan buyers as trading volume declined. In July, we believed the market was returning to normal with fear levels exceeding the data. Now, in August, the window of opportunity may be open as the market is weaker – but no longer falling.
In mid-April, the market began to cool as mortgage rates rose. The decline felt fast and furious, with the number of contracts signed, a large measure of market activity, down 30% from a year ago. Buyers, it seemed, had simply walked away from the market.
In reality, however, the market was simply readjusting to typical seasonal levels, with trading volume still above 2019, the last pre-pandemic year of 2019 and the new benchmark for “normal.” Now, in August, with a few months of data to analyze, it’s safe to say that the Manhattan market is stabilizing. In other words, the market is no longer actively falling and it looks like today’s levels are the new normal.
Below are three data points that suggest activity is resetting at these levels.
1. The pace of 30-day trading volume is stabilizing
The 30-day rolling measure of signed contracts currently stands in the mid-800s, suggesting that the fear peak of this down cycle may have occurred in late June and early July, when each passing day indicated a slowing down of the rhythm. Since then, buyers seem to be narrowly (read: cautiously) pulling back in the market.
If price is the great equalizer, the market may have found a supply. The re-emergence of buyers suggests that the market has pulled back to the levels needed to bring reluctant participants back to the table. Interestingly, the current low point in activity in 2022 remains well above the low point of 2019 and relatively close to the low point of last year. Stabilization closer to the 2021 low compared to the 2019 low, albeit with several weeks of summer sluggishness ahead, suggests that market liquidity, despite a seemingly fast and furious deceleration, remains robust.
2. Inventory pressures persist
While much attention has rightly been given to buy-side activity, two underappreciated phenomena are at work in the background: the decline in new listings and the number of listings taken off the market.
Although the decline in new listings is seasonal and expected, it keeps pressure on buyers by removing additional choices from the market. Similar to the decreasing pace of new listings, the increasing pace of listings being taken off the market is mostly seasonal and expected. However, while in 2019 the number of listings withdrawn from the market gradually increased from May to June at the start of the summer, in 2022 the number jumped by 50% from May to June.
From a buyer’s perspective, even with lower contract activity, the combination of fewer new listings and more deleted listings serves to effectively cancel out new inventory. While buyers may not feel a shortage of inventory, they may feel that available inventory is dwindling, which unlike a glut of inventory, helps speed up decision time.
3. Trading leverage stabilizes
To understand the current state of leverage, whether owned by buyers or sellers, it is necessary to understand the real-time balance of supply and demand.
One method is to examine the ratio of signed contracts to active listings (the “Market Pulse”). This metric peaked in early 2022 and began to decline as the growing pace of active listings eclipsed the pace of signed contracts. Recently, however, this metric appears to have broken its downward trend with a slight rebound, as supply is now declining faster than trading volume.
Similar to the inventory pressures mentioned above, as buyers have seen lower prices over the past few months, they are now also seeing other buyers. In short, trading volume has increased relative to market size, preventing an imbalanced “buyer’s market” by balancing bargaining power.
put it all together
Compared to the first quarter, the level of market activity is significantly lower. Currently, however, there appears to be stabilization around current levels. Of course, where it goes from here remains unknown until a catalyst, such as changing seasonal trends or a notable macroeconomic event, triggers the next directional move. Anyway, there are three paths from here:
- The volume of transactions increases.
- Trading volume remains at current levels.
- The volume of transactions decreases.
While these results are inherently unpredictable, with the downgrade in the rearview mirror and real-time indicators showing a slight bounce off the lows, current market sentiment points to a higher likelihood of trading volume rising in the coming months. come rather than fall. down to 2019 lows.
Tips for sellers
Lower trading volume in the second quarter will likely lead to lower prices in the third quarter. While the actual numbers are still evolving and won’t be fully known for a few months, early indications suggest declines in the 5-8% range. Therefore, current and potential sellers should be very cautious, if not skeptical, when looking at completed deals that were signed in Q1 or early Q1, as these sales represent a different market.
Instead, sellers need to be aware of their immediate competition and first-time buyer traffic to gauge whether their price is appropriate. Sellers should also keep in mind that a lower level of buyer activity will likely result in a longer duration in the market.
Finally, sellers should understand that early September will likely see a new wave of listing activity at the start of the fall season, which may necessitate aggressive price reductions for those currently in the market but with no traffic. buyers or contracts in hand.
Tips for Buyers
While New York’s decline may not have been as deep or violent as other real estate markets across the country, buyers here should understand that New York City has not seen price increases. parabolic over the past three years.
As the most bubbly markets erupt, New York City is simply returning to normal. Add to that declining supply, a booming but buoyant rental sector, and the resetting of transaction volume activity to its normal seasonal average, and it equates to a market that has found its new level. In short, buyers need to understand that the market is no longer falling. Buyers who were waiting for a better environment to submit an offer finally have it: prices are softer, sellers are more inclined to negotiate and the market is stable.
Finally, buyers should realize that although contract volume has fallen by 50%, it has fallen from abnormally high levels to normal. In other words, although the market is not dead, the stabilization of trading volume suggests that the leverage the market currently offers may not last.
Since the move took place, we have to adjust our biases. I am much less negative today than three months ago for the simple fact that a change has taken place. We now have to wait for new market signals and macro triggers to tell us where we are going from here.