A month ago, I posted a video and a blog post calling the bottom of the market. I got a little bit of pushback, but mostly got a lot of encouragement, and puzzled questions. It is time to clarify what I meant, with the hope that it helps move the conversation away from “New York is Dead” and towards “New York is Back, Baby!”
Here, we’ll cover three main points:
- Just because we’re at the bottom, prices will not likely move up for a little while
- Not every seller got the message, because sellers don’t price to the message
- The market is down 20-25% from the peak, not worse. Wait for more, at your peril.
We’re At The Bottom, But Not at the Start of a Recovery Yet
The last sustained dip in our market was during the 2008-2009 recession. The end of 2009 marked four quarters of price drops, increase in inventory, and a market pause that now seems so quaint. As of October 2009, we saw prices start to climb back to pre 2008 levels almost immediately. A rocket ship of a stock market put confidence in the real estate, along with strong growth in Manhattan.
We’re in a very different time today. We may see sale prices continue at the levels where they “print” today- that is, become public- for some period of time. This is largely because there hasn’t been sufficient transaction volume yet to provide market data. In the best of times, the number of residential real estate transactions – apartments and townhouses- in a given year is lower than you think. Take away nearly all the transactions, as what happened suddently this year, and you saw a lack of buyer confidence in pricing. The common thought had been that no one wanted to buy a property, if it was going to be worth less next year. Remove that fear, and a market can recover. As we get more closing prices, we get less fear. So, for now, we’re AT the bottom. Purgatory? Not really. Just a perfect time to get a deal.
If we think of the market as Britney Spears, this is the song she would be singing right now. It’s my blog, so hope you enjoy this tune from the late 90’s:
Sellers Don’t Price Their Apartments “Accurately”
This is a simple buyer fantasy that never comes true. Selling prices are exactly what they should be. They’re going to walk into Willy Wonka’s big candy room with the river, and everything is edible (and calorie-free). Unfortunately, the asking prices of apartments are not, on the whole, reflective of a market, EVER. Buyers- get over it. I’ll talk about some myths in another blog post. But in the framework of calling a bottom, you’re not seeing the asking prices reflect that bottom because they NEVER reflect the market exactly. The closing prices are reflective of the market. Get over it! You have to make offers. This is no diet pill that works without exercise.
I Know, You Want the Market to be Down By 40%. What Buyer Doesn’t?
As closing prices become public, we’re starting to see a trend. From the peak, in many cases, prices are down 20-25% from the peak. Now, we can argue that the peak was in 2016, or 2017, or in some cases, even 2018. But what we can see is that other than in some unique sales, prices are NOT down 40%. And if you’re waiting for this, you’re going to be sorely disappointed. Momentum is building, the month-over-month and year-over-year data are showing what I wrote about last month and even earlier in the month. Take heart. You’re a lucky buyer who didn’t buy three or four years ago. But even if you were, and you want to trade up, you may STILL make out and be fine! Lose a little today, save a lot more when you upgrade. Silver linings, silver linings.
Did That Help?
I hope this has helped clarify what I meant about the bottom of the market. As closing prices continue to become public, we will see more and more sellers become aware, and more buyers, too. This can only help increase transaction volume, and motivate buyers- that is, a return to a healty market. Once this is happening in earnest- Yes, we’ll see prices start to move up. As in any cycle, there will be an uneven recovery depending on price point and neighborhood. So disagree with me as you must, but recent numbers should continue to reflect everything I’m saying here! Happy New Year! -S
You can check out all of my musings about the New York City Residential Real Estate Market by heading to my YouTube Page and Subscribing. Thanks! -Scott