Suddenly Normal Feels Like Crashing

Begining at the end of 2020 and continuing through the first quarter of this year, the New York City real estate market was on a crazy, wild high. The sudden end of the frenzied buying period, coupled with turbulent news in the financial markets, makes it feel like the real estate market is crashing — but it isn’t.

We are simply returning to a more normal market, which feels strange after eighteen months of reading the word “unprecedented” on a regular basis.

I keep a close eye on the signed contract volume. Signed contracts are a much more immediate measure of the market activity as opposed to closings, which can lag by three or more months from the time of signing. During 2021 when transaction volume broke all records, 313 contracts on average were signed per week. If we look at the third quarter results of 2016-2019 (I am excluding 2020 because the market was shut down by the Governor for a number of weeks), the average contracts signed stood at 2,395 per quarter or about 200 signed contracts per week.

The week of May 14, 2022 we saw the number of signed contracts drop below 300 per week after a forty-week streak and they have continued to decline hovering around a more normal 200 per week during June and July.

What does this mean for pricing? At the end of the second quarter this year, the median price was $1,246,000 — a mere 4% over last year at the same time. It seems like a paltry increase when national housing prices escalated by about 24%. In the second quarter of 2019 the median price was $1,225,000 in New York City. Pricing in Manhattan hasn’t increased dramatically in the past two years. Unlike many parts of the country, the demand has been in balance with the supply.

The unknown right now is what demand will look like in the next six months. While approximately 50% of all buyers pay cash, the majority of buyers under the $2 million mark do secure a mortgage. In the past few months, mortgage rates surged to 6%, a high not seen since 2008.

Last week, mortgage rates retreated to 4.99%. While historically low, a percentage point can impact affordability for many buyers. Properties below $2 million could certainly see less demand, making pricing and presentation all the more critical if you are a seller.

Meanwhile, the historic high rental rates — they hit $5,000 per month for the first time in New York City’s history — are driving many would-be renters into the purchase market. This new source of demand could keep overall sale prices steady in this segment of the market.