How Is The Market?
This is the evergreen question, isn’t it? The answer completely depends on who is asking it. Why? Because each person thinks of the Real Estate market differently.
First-time buyers are thinking of one-bedroom apartments; empty nesters, another; homeowners are thinking about their own property or what they may be trying to upgrade to in the next 12-24 months; investors are thinking about opportunities at this moment in the market cycle. In a nutshell, it’s a personal question- and demands a personalized answer.
The market not a monolith. The articles that will start coming out next week about Q3 2022 will include a lot of nuance, much of which will be missed. And worse, there is a risk that you may draw the wrong conclusion from a data point that doesn’t apply to the segment of the market you’re worried about. So let’s tackle a few segments of the market, what’s affecting them, and give you a framework to look at those reports that will be out next week:
Small Apartments (Studios and One-Bedrooms)
This is the sub $1mm market. Mortgage rates are impacting this segment more than any other, even in New York City. Be careful- if the loan you seek is below the current conforming limit of $647,200, your mortgage rate is going to be much higher than that of a “jumbo loan.” Ah, the irony! The first-time buyers, who are more likely to need a loan than any other segment of New York buyers, face the steepest rates. Is it fair? Will private lenders step into this segment? I would think this is the riskiest traunch of loans for banks to consider, and the most likely to be left untouched by non-GSEs (Government-sponsored entities). Fannie Mae will remain the main lender here.
What will be the impact? Small apartments will see a significant slowdown. They already are. ALERT! If you’re a cash buyer- there is a LOT of opportunity in this segment. If you have access to the Bank of Mom and Dad- that is, family help to purchase- it may be a good time to get out there, too.
Medium Apartments (Larger One-Bedroom Units to Small Three Bedrooms)
This is a tricky part of the market. Developers are not building anything new in this segment whatsoever. So in the long-run, these properties will continue to appreciate. These are bread and butter properties that are usually in cooperative buildings. Right now, these are the in-demand units that many buyers want and need. Priced in the $1-2.5mm range. Pied-a-terre buyers, empty nesters selling in the suburbs and moving in, families- though fair housing laws would dictate that we pretend we don’t know to whom we are marketing. Because the demand is so high in this segment, and inventory remains relatively low, values will hold up better here- and competition will remain pretty strong. Even if rates have risen- and buyers’ assets have been hit by stock market issues- this is “need to have” segment that should fair better through tougher weather.
I expect that renovated units in this segment with realistic sellers will sell their homes relatively quickly, though at a slower pace than in 2021 But all is not lost. ALERT!– Sellers, take note and get your apartments on the market now. And be careful with pricing. We’re still hovering around 2019 levels.
Larger Apartments (Three-to-Five Bedroom Units)
This WSJ article does a remarkable job of summing up the mindset of sellers in this segment. They have a big house or apartment that they’d like to sell. The market in the suburbs has softened, because a higher percentage of buyers rely on mortgages – and they can’t offload their homes. Or, alternatively, they are paralyzed, because the mortgage rate at which sellers are currently borrowing- below 3%, say- will double if they sell their home and buy a new one. Therefore, unless they are not taking a mortgage on a new, smaller home, the financing cost of the new place may be the same or higher than the old, larger home! You can see why, then, sellers in this boat are not flooding the market with inventory. Other well-capitalized sellers are taking a wait-and-see approach. This segment of the market isn’t frozen, but it’s relatively small.
The combination means that buyers don’t have much to choose from in New York City. Well-priced, renovated homes will be well-received. But sellers will be harder to find, and buyers should not be shocked at competition for good apartments. Overpriced homes will sit longer. ALERT! The opportunity is here NOW for all-cash buyers, buyers ready to do work, and those who believe, AS I DO, that mortgage rates will go down in early 2023. Lock in a great place at a great price right now. And make aggressive offers.
Luxury Apartments (New Development and $10mm+)
These are buyers, generally, who are more immune to a bear market in stocks. And these are buyers who made a lot of money in the past 2-3 years. This is a WANT-to-have, not a NEED-to-have. Unfortunately, there are fewer New Development units available today than buyers expected. Worse, the pipeline for what will be available in the short- and medium-term is rapidly shrinking. Developers of current projects have reached 50%-90% thresholds for their projects. Therefore, those who are searching in this segment may be a little disappointed either (1) not to find a lot of varied options for what they want, or (2) pricing a bit higher than they hoped.
While waiting has paid off many times for patient buyers, I don’t expect patience to be a virtue in this segment of the market today. There may not be much to replace what sells in the next 6-12 months. ALERT– You have to know what questions to ask to get the best deal possible in this segment- but don’t expect massive discounts. Bring in a broker and bid accordingly! New York is still amazing. And it’s getting better all the time. Don’t you want to enjoy it?