Buyers and Sellers are Misreading the Signs of Today’s Market
As mortgage rates rise and the stock market wobbles, you cannot blame buyers and investors for getting excited. After all, the last 18 months have been extraordinary for sales volume in Manhattan and across the rest of the United States. I can imagine that buyers who missed out on COVID lows might wish for a return to them- without the incredible stress of a pre-vaccine world. Let’s not kill our parents and grandparents, let’s just buy apartments and rip the faces off frustrated sellers. Is that it?
Well, this has morphed into a number of assumptions, spoken or otherwise, that
are likely to run counter to the realities in the real estate market- and are certain to surprise and sabotage your search. Let’s lay them out!
Myth Number One: There is Going To Be So Much Inventory!
This is probably the assumption that most buyers don’t talk about. It seems so likely- why bother expressing it. Well, we’re already seeing how that may not be true. When new property comes online, and things are selling more slowly, wouldn’t there be a pileup of property? Yes, if every seller keeps his or her apartment on the market. It’s not playing out that way. In the last two months, we see a reversal of what happened in March, April, and May, which was a net GAIN of inventory. Now, the combination of sales and sellers are taking their units OFF the market has more than offset the number of units coming on the market.
How will this feel to buyers? It will look like there still isn’t enough good property to get excited about. We’re still seeing bidding wars- IN THE MIDDLE OF JULY!! – for good property. This will cause some significant cognitive dissonance in the minds of buyers. Sorry about that.
Myth Number Two: Prices Are Going To Drop Massively.
This built-in pool of owners who have paid cash will have much more optionality on selling or holding- this is doubly true for condominium owners who can rent out their units in a very strong rental market. Many sellers are well-capitalized and will weather any downturn- if there is one- rather than crystallize a loss. That is, they’ll hold before they take a bath on the sale of their apartment. For other coop owners, some will choose a “wait and see” approach and not put their properties on the market until the market signals a clearer direction. What this means is that lower demand is the main reason why prices might drop. Now, that can be a strong pressure on prices, but right now we’re not seeing the bottom fall out of the buyer side of the market. Let’s not forget that pricing is still below the peak of 2016-2018. If prices don’t change at all, you’re STILL getting a fabulous deal.
Over the next few months, we may indeed have less insane demand and it’s likely to see some price softening- but nothing catastrophic. So, if you’re holding out for 20% price drops, you are likely to be disappointed. Maybe you want to buy in Europe while the dollar is at par with the Euro? I could see your upside putting your money in Euros today as a smarter move (this is not investment advice, of course). Waiting for a massive, catastrophic price drop in the NYC market may be a fool’s errand. You may unfortunately wait just long enough to have mortgage rates get even more annoying, without enough price drops to justify the delay. This myth is the one that everyone is espousing quite publicly. To be sure, it’s an overly optimistic/pessimistic viewpoint (depending which side of the deal you’re on) and one where waiting for it to come true has more downside than upside.
Number Three: My All-Cash Position Is Going To Make Me All-Powerful
I have advised all-cash buyers to be opportunistic in this market. But when we speak, and discuss their strategy for their purchase, I’m certainly not telling them that they will become omnipotent in the midst of a softer market. If you’re in a similar situation, you shouldn’t get cocky, either. Cash buyers have made up 40-50% of all buyers in this market for a long time. Some sellers may be pressured, but the chances that the property you love will be owned by a distressed seller are slim. You should resign yourself to getting just a good price, and not a steal. Steals are rare in most markets, and usually only in hindsight. As I say from time to time- Welcome to New York.