By Quentin Fottrell
First, the good news.
The median sales price for residential properties sold in Manhattan rose to a record high in the second quarter, up 10.6% annually to $1.25 million, while the average sales price reached its third-highest on record, a report by property appraiser Miller Samuel Inc. and real-estate brokerage Douglas Elliman said this week.
“The number of sales increased to the highest total for a second-quarter since 2007,” the report said. “Cash buyer market-share rose to the third-highest tracked, rebounding from the low recorded five quarters ago.”
Now for the bad news: While co-op and condo median sales rose to the highest on record in the second quarter, sale contracts for co-ops and condos fell nearly 30% on the year in June to 1,318. “This suggests that the current quarter represents a peak period of closed sales activity,” the report said. “The market share of bidding wars fell from the prior quarter’s four-year high of 9.3% to 8.5%, with the average amount of premium paid to fall to 4% from 5.3% over the same period.”
Frederick Warburg Peters, the president of Coldwell Banker Warburg, sounded a grimmer outlook for the Manhattan real-estate market in his own second-quarter market report, released this week. “Throughout the second quarter, that slowdown has accelerated: fewer signed contracts, fewer bidding wars, more price reductions, and a gradual increase in available inventory,” he wrote. “The gradually slowing sales market manifests in all boroughs and at all price points throughout the city.”
A cooling market and elevated prices are a double-edged sword. Higher interest rates, fears of a recession, and people dipping into their savings at a time when inflation has hit a 40-year-high all prevent people from buying a home, even as they spend a higher portion of their income on rent.
The median monthly rent in New York City is $3,300, 53% higher than the national median of $2,155. Indeed, one real-estate agent recently told MarketWatch that New York City’s rental market was “nuts.”
“Transaction volume is slowing down in Manhattan because it’s really hard to afford a home there, even at the lower end of the market,” said Jeff Tucker, a senior economist at Zillow. “The volume of contracts signed for the most expensive homes in Manhattan are still climbing month-over-month, but it’s the opposite situation for the most affordable homes. Existing homeowners who might want to move — especially if they refinanced over the last two years — are looking at mortgage rates that start with a 5 instead of a 2. It puts pressure on both buyers and sellers.”
On that last point, Manhattan is a microcosm of a nationwide phenomenon. Affordability nationwide has reached its lowest level since 2007, Mark Fleming, the chief economist for title insurance company First American Financial Corporation, wrote in a recent note. “For home buyers, there are few options to mitigate the loss of affordability caused by the increase in mortgage rates and home prices,” he said. “One way to offset the decline in affordability is with an equivalent, if not greater, increase in household income.”
Still, higher house prices have also locked millions of people who are not earning Manhattan salaries out of the housing market. The national median house price is $349,816, according to Zillow — meager by Manhattan standards, but pricey given that prices have risen nearly 21% over the last year, far outstripping wage inflation of roughly 5% per year . To put those national house prices in context, the average annual salary in the U.S. hovers at $53,490.
“Ballooning mortgage interest rates should accelerate the rebalancing of the market by lowering demand both in New York City and across the country,” Tucker said. “Monthly mortgage payments are continuing to rise — so competition for homes is easing up, as some buyers get priced out of certain markets. Across the country, pending sales are still growing month over month, but new listings are growing faster, causing the inventory of active listings to climb.”
Another silver lining: “May is one of the busiest months for home buying, so while pending sales are rising, they are now lower than at the same time last year,” Tucker added. “The market is cooling because supply is beginning to outpace demand — the beginning of a welcome change for buyers right now. So far, though, that’s more like a silver lining of how the lowest affordability in 15 years is decreasing competition. So while buyers will face less competition, their buying power has fallen off.”
Of course, Manhattan is a unique market and has a “completely different” price point and homeownership rate (24%, vs. 65% nationwide) from the rest of the country, Danielle Hale, the chief economist at Realtor.com, told MarketWatch. The city emptied during the early days of the pandemic, providing some value for prospective buyers, but recovered ground last year.
Sales volatility is notably lower in the New York City metro area than in other metro markets, Hale’s research shows, but price volatility is actually slightly higher than in the average metro — except for red-hot markets like Miami and Las Vegas. “The price volatility is somewhat surprising and could stem from the size of the metro area, which gives a wide range of individual prices and thus means the median price could be more subject to changes in the mix of what is for sale.”
In New York, however, “buyers are particularly attuned to economic and financial-market conditions,” she added, “and that could be indicative of what we are seeing in the rest of the country.”