During the fourth quarter of 2022, New York City buyers retreated to the sidelines as mortgage rates escalated from a low of 2.5% the previous year to rates beyond 7%. The sudden and steep increase was ice cold water on what had been a very hot market.
Yet that doesn’t explain the full scope of the slowdown, as 55% of the buyers paid all cash last quarter. After two years of stellar sales volume in the luxury market, demand slowed. Sales over $2 million fell 31% annually. Declining demand ultimately impacted pricing and the median price dropped 8% to $1,107,000. Overall signed contracts, which show the real-time health of the market, were the lowest they have been since 2008.
An 8% decline in property values sounds like a big drop, yet nationally the average price downturn was closer to 35%. When we compare how NYC home prices fared compared to other asset classes, 2022 was a great year for NYC real estate. The stock market was down about 20%, tech stocks were down by as much as 50% and if you invested in crypto you could have lost as much as 80%. Overall, the NYC real estate market continues to be a safe haven.
The last week of December, which is normally a dormant time in the market, I suddenly got very busy. Motivated buyers were still in the market and with mortgage rates settling down closer to the 5.5% mark or lower and with sellers offering more negotiability, there were deals to be done before the ball dropped.
Inventory is now up 4% with approximately 6,500 homes on the market — a decent amount of selection unless you are looking for a studio or a one bedroom. The first-time buyers snapped up a good deal of that inventory last year when they were faced with dramatically higher rents. Wisely, many people chose to buy as a hedge against inflation.
It is also now harder to find a co-op as they always trade at a lower price than condos, which saw a 12% boost in supply. What is interesting about this statistic is it shows New Yorkers’ long term commitment to the city. Co-ops frequently cannot be rented out easily which means the people who purchased these homes plan on living in them for the foreseeable future.
Predictions for the remainder of the year are challenging due to uncertainty around mortgage rates, inflation, and the global economy. Here are some factors which will influence the potential direction of the first quarter.
- Mortgage rates have come down and are currently hovering around 5.5% which is bringing buyers back.
- The amount of the conforming loan in NYC has increased to $1,089,300, putting the median priced homes into conforming loan territory and not in the higher priced jumbo market which translates into lower rates for more buyers.
- Inventory is up 4% in NYC although Midtown and Upper Manhattan did not experience a supply increase last quarter.
- Rents are still high and while they have come down slightly from last summer’s high prices, they are not likely to decline dramatically making the case to purchase more compelling.