A Special Spring: High Mortgage Rates And Reduced Values Ruled New York Real Estate In Q2 2024

As the second quarter began, New York’s real estate market awakened from the doldrums in which it ... [+] had languished for the first quarter of 2024.

As the second quarter began, New York’s real estate market awakened from the doldrums in which it had languished for the first quarter of 2024. Deals in all price categories began to emerge. Inventory, which has seen a modest increase over the spring, remains spotty. Plenty of properties needing work remain on the market; the New Yorker’s desire to buy mint condition has not abated as they see both construction prices and supply chain issues impact the cost of renovation. A decade ago, a nice renovation could be executed for $300 per square foot; the price for that same renovation now sits closer to $600 per square foot, and more high-end, name-designer or architect-driven projects can easily run to $1000 per square foot. In this environment, price drives absorption more than any other factor. That said, new condominiums remain popular as buyers will still pay a premium for a move-in-ready experience with superior amenities.

But determining the ACTUAL price of any condo remains tricky. Developers, who are acutely conscious of the way closing prices drive sales, constantly make deals with invisible concessions. The recorded sale price of any new condominium apartment may not reflect changes the developer has agreed to make to the unit, transfer and mansion taxes they have agreed to pay, or lawyer’s fees they pick up. And during the post-COVID period, the same has become true for co-ops: Boards will often insist that, to approve a deal, a contract price be artificially increased, only to be settled at the closing by the allowance of a “renovation credit” given by the seller to the buyer to bring the price back down to the agreed-upon amount.

During the spring months, sales at $4 million and up substantially decreased relative to the same period a year earlier. Over the eight weeks ending in mid-June, these sales declined 11% from those during the previous year. [Source: Olshan Luxury Market Report.]

At the same time, a modest uptick in the larger sales ($8 million and above) reflects the ongoing commitment of many wealthy individuals and families to building a life in the city.

SPRING LUXURY MARKET SALES TREND | 2023 vs. 2024 | Showing Manhattan closed sales volume over $4M ... [+] count year-over-year, March - May

Meanwhile, inventory in the smaller apartment market (priced at $2 million and below) has ticked up between 15% and 25% since the year began, indicating slow absorption combined with a typical spring jump in new listings. These properties, more than those at higher price points, are highly sensitive to interest rates, since most buyers in this category are financing.

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MONTHS OF INVENTORY | Less than $600K, $600K - 1M, $1 - 2M, $2 - 5M, $5M+ | Showing absorption rate ... [+] for all Manhattan property types by price point, January - May 2024

So while the sales market has definitely improved since the first quarter, it remains sluggish unless prices are exactly calibrated to reflect today’s somewhat reduced values and unless buyers trading one apartment for another can bring themselves to sacrifice their 2.75% mortgages for new ones at 6.75%!

In contrast, the rental market remains as tight as it has ever been. Rents have soared in recent years as inventory remains low, and multiple offers exceeding asking prices remain a norm in much of Manhattan, Brooklyn, and Queens. Caught between an extremely tight rental market and a sales market squeezed by higher interest rates, many consumers choose to stay put, at least for now.

FEDERAL ELECTION YEAR CLOSED SALES DIFFERENTIAL | FEDERAL ELECTION YEARS vs. NON-FEDERAL ELECTION ... [+] YEARS | Showing Manhattan co-op contract sales trends, 90-day contract to close, 2008 - 2019

Looking ahead, the presidential election looms on the horizon. The latter part of the third quarter and the earlier part of the fourth quarter will, if history is any indication, be slow as uncertainty about who will be leading the country has both buyers and sellers watching the polls rather than the real estate market. But once the election is over, the pace of sales will almost certainly pick up. Everyone prefers certainty to uncertainty, no matter their preference. And New York will remain, in the best sense of the word, a liberal city, filled with diversity of culture – accepting and embracing of everyone.

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