The Manhattan real estate market entered the typical busy fall season in a quote-unquote buyer’s market. To many, that conjures up visions of panicked sellers hastily making fire-sale deals at enormous discounts with whatever intrepid buyers remain. Others thought that with mortgage rates above 6%, cash would be king, and with it, they would get substantial discounts for the ability to get a deal done quickly without any financing contingencies attached.
So far, however, neither scenario has panned out. Frankly, as far as buyer’s markets go, this one is pretty lousy. To wit:
- No desperate sellers
- No obscenely great deals
- Not too many more choices
- Still plenty of buyer competition
As such, it’s shaping up to be a battle of data versus perception to determine whether we actually are in a buyer’s market. We’ll break it down further and keep the score below. Deals are not falling out of the sky
Over the last twenty years, there have only been a few buyer’s markets in Manhattan. Credit that to generally robust long-term demand helping to keep growing inventory in check. Buyer’s markets are created when there is an imbalance between supply and demand. As measured, it’s when there are relatively more units for sale than there are units in contract. The overhang in supply leads to seller competition which manifests itself in the listing discount.
Below we can see the median listing discount for Manhattan with the buyer’s markets shaded in.
Discounts tend to average more than 6% during these periods. Today, however, the data suggest the median listing discount is still below 6%. Granted, it has risen sharply as the market slowed and is likely higher for many units on the market today.
However, compared to the degree it fell in early 2021, as buyers were signing contracts left and right, the current rise upward has been relatively tame. In fact, the median listing discount for contracts signed after less than 30 days on market is still 0%. Units priced at the market are still selling and selling quickly. So, score one for data.
The score: Data 1 – Perception 0
Lackluster inventory
The listing season this fall has been notably lackluster. Supply is barely above where it was in 2021, below where it was in 2019 — the last more-or-less typical year before the pandemic — and well below where it was in 2020. While buyers have more choices now compared to two months ago, it’s well below expectations and suggests that competition among sellers is not as fierce as buyers perceive.
The score: Data 2 – Perception 0
Sellers are not panicking
The lack of notable discounts is an insight into the current mindset of sellers. Prices, as reported in the recently released quarterly reports, are showing discounts from the peak, but that is not surprising. The market has shifted lower. Many buyers are seeing data on falling prices and imagining that sellers want out at any price.
However, this is not news to sellers. Today’s sellers understand the market mechanics of the past six months and believe they have priced appropriately. While some are likely asking more than they can reasonably expect, many others are pricing at market. They are doing this because, for most of them, today’s prices are still above where they bought.
Looking at current inventory levels, the average last sale date for units on the market today is roughly 2014, when the median price was $830,000. The current median asking price is $1.4 million, suggesting that sellers still have plenty of room before desperation sets in.
Indeed, a look at price action by purchase year shows that besides units bought in 2021 and 2022, only peak Manhattan sales from 2016-2018 are still showing less than 10% appreciation since purchase. Generally speaking, if a seller today bought before 2016, they are likely sitting on a greater than 30% gain.
In short, sellers are not panicking, but most are essentially playing with house money at this point. Certainly, many would prefer to have top-ticked the market back in April, but many of today’s sellers appear to be happy to make fair deals — meaning negotiating down to market, but not throwing in thousands of dollars in concessions simply to get a deal. It’s easier to wait for market conditions to improve when playing with the house’s money. Figuratively and literally!
The score: Data 3 – Perception 0
Sellers are locked into low rates
A lot has been written about this topic recently, but it is worth noting that deciding to sell in order to upgrade became a lot harder when rates moved up earlier this year. Many sellers who locked in rates below 3% might just make do with their space instead of giving up a low payment.
Compare this to 2008-2009, when adjustable rates reset, and many sellers found themselves not only upside down on their home purchases but also facing quickly-rising monthly payments. While 2008-2009 was a buyer’s market as well, it was an entirely different one.
Finally, the continued strength of the rental market breaks the sell high/rent low equation. Even though rents have eased off recent highs, they are staying stubbornly elevated. So, even with mortgage payments, sellers have no reason to give up lower monthly costs to rent.
The score: Data 4 – Perception 0
Still plenty of buyer competition
When sellers compete, buyers win discounts. The perception in a buyer’s market is that sellers are all competing with each other, and buyers can bank on automatic discounts.
That is just not the case today.
As mentioned above, the median listing discount from the original listing price for units on the market less than 30 days remains at 0%. In effect, units priced at the market are trading quickly at their asking price. True, discounts are rising for mispriced units lingering on the market, but with supply remaining in check, competition for fresh listings remains among buyers, not sellers.
Lastly, the $4M+ luxury market — which is often a bellwether for Manhattan — is on track to notch three consecutive months of gains in deal volume. Compared to other Octobers since 2015, 2022 is right on track to be normal. It’s certainly below 2021’s epic Spindletop-style blowout but above 2019 and 2020 and right in line with 2016-2018, when the market was also coming off a peak. To sum it up: if luxury sales are a glimpse into the future, there is a whole lot of normal ahead.
Altering perceptions to fit reality
As we’ve discussed, a window of opportunity exists for buyers in Manhattan, but it is not what it is perceived to be. News reports of home prices plunging 30% are not the reality here. Instead, Manhattan continues to see motivated buyers, albeit fewer of them, negotiating with comfortable sellers. While pressure on buyers has eased, it has not really shifted to sellers, who have yet to really feel any pain from this shift down.
Advice for Sellers
Prices, as reported by quarterly reports, will likely head lower simply because higher volume quarters of 4Q21, 1Q22, and 2Q22 will be compared against today’s lower volume environment. With that in mind, the paramount issue for serious sellers is to correctly identify their local market and price accordingly in order to maximize price and minimize time on market.
As shown, proper pricing should lead to a deal within 30 days, while aspirational pricing could lead to months on the market and a discount that essentially brings the asking price back to today’s levels. Also, sellers should bear in mind that for all practical purposes, the market basically hibernates from mid-November to mid-January as thoughts turn to holidays and holiday recovery. Knowing this, sellers should not immediately jump to drastic measures when buyer traffic predictably drops off in the months ahead.
Advice for Buyers
As demonstrated, a buyer’s market does not mean buyers hold all the cards. Yes, deal volume is down, and fewer buyers are searching across a slowly growing pool of supply, but given that supply is not accelerating, many buyers are chasing after the same well-priced units within days of listing.
For buyers trying to make sense of this, the best advice is to know your price, know your market, and jump on opportunities when you can. Too many buyers are holding on to the perception that the New York City markets will crash. The reality is that New York City prices did not go parabolic and will likely not crash as expected. True, fast-money condos may fall more than slow-money co-ops, but the decline is more of a deflation back to normal.
With this in mind, remember that only an immediate need for liquidity will drive sellers to become desperate. Otherwise, they appear more than happy to wait this market out.