Elegran Manhattan Market Update: January 2023
Overall Manhattan Market Update: January 2023
Manhattan Market Update: 20% Less Demand? Consider Us Lucky.
As we start 2023, our principal focus is, yet again, demand. Why the constant focus on demand? Because it is the fuel that powers the engine. If demand is strong then things are in motion. Compared to the pre-pandemic average (defined as Jan 5, 2015 to Mar 1, 2020), Manhattan demand spent the last half of 2022 hovering at -20%. Frightening, right? Well, no, not really. Not in the context of the 30 other worldly months that preceded it.
Recent demand can best be narrated and understood if we liken it to a giant pendulum, one that is subject to both the force of gravity and time. Please allow us to explain and please reference the below visual as we do so. For approximately 217 days, COVID pulled demand down far below the pre-pandemic average, bottoming at –75%. Instead of percentage, let’s make a 1:1 reference to a vague, yet more tangible system of measurement, “units”. So COVID pulled the demand pendulum 75 units to the left (arbitrarily assigned) for a period of 217 days.
However, once the FDA granted EUA (Emergency Use Authorization) for the Moderna vaccine, demand was reinvigorated, passing through equilibrium and creating a period of greater than average demand that nearly mirrored the COVID trough in terms of both magnitude and duration, 224 days to be exact. Nothing surprising here; in fact, this is textbook economics — and physics — regarding an equal and opposite reaction.
So, 75 units to the left for 217 days, then 75 units to the right for 224 days… back to the left now, correct? Well, yes, but no. The moment demand reverted to the mean as it should have, i.e., returned to parity with the pre-pandemic average, another spike occurred, lasting 84 days. And then, rising mortgage rates pulled forward future demand, creating yet another spike that lasted 168 days. Three consecutive swings to the right totalling 476 days.
In July, the demand pendulum finally swung through equilibrium and back to the left (downside). After a low of –75% and three peaks of approximately +75%, we would imagine that it would return to –75% for a significant period of time. But, once again, demand has defied what we term “pendulum economics” and is suspended at –20%. After 18-months of record-breaking and nearly unhealthy demand, –20% is a best case scenario.
Manhattan Supply
Last month, we challenged the importance of tracking supply in NYC since it’s usually aplenty. For our research department, it’s an important metric because it’s the “yin” in the supply : demand struggle. For agents and consumers, supply levels can be an important consideration of listing timing, as they crest in June and October and trough in August and December. And, it’s important for all of us to compare current supply levels to historical levels as a litmus test — one of many — for whether or not the market is “normal,” or average. In the previous section, we used the 5-year period before COVID as the most recent “normal” point of reference. Doing so again here, we are enlightened that December’s total supply number is average, being within 3% of the historical reference, while new supply is atypically low at –22% below average. We’ll keep an eye on that. Note: “Total Supply” refers to inventory on the market at a given time. “New Supply” refers to new inventory listed during a specific time period.
Manhattan Buyer Activity
As noted previously, demand for Manhattan residential real estate has been trending below its historical average. The graph below illustrates this insight, as this December posted the fewest contracts signed during the 10-year period observed.
Manhattan Leverage Indicator
Elegran’s Leverage Indicator informs us whether the current is a buyer’s or a seller’s market; i.e, which party possesses transactional leverage. Looking at the graph below, this is indicated by the direction of trendlines. Our indicator also informs us regarding the relative strength of that leverage, indicated by the slope of those trendlines. Per below, Manhattan is in the grips of an exceptionally strong buyer’s market.
Price/SF & Discounts
Following the COVID-induced trough, as the chart below illustrates, price/sf quickly returned to previous highs reached at various points throughout 2015–2017 and 2019, and remains there this month.
As the chart below illustrates, demand and listing discounts are inversely proportional. When COVID fears drove down demand during 2020, median listing discount was high. But when demand reached record levels throughout 2021 and H1–2022, discounts plummeted. Once steadily climbing mortgage rates turned off the demand spigot in July, listing discounts began to rise quickly again. And with demand currently trending at –20% below its pre-pandemic average, it’s no surprise that December’s median listing discount is higher than last month’s.
What this means for…
Buyers:
- Due to lower than normal demand, Manhattan continues to be a strong buyer’s market — meaning — buyers should be rewarded for their patience.
- Don’t expect prices to decrease when mortgage rates finally decrease. Rather, all else equal, prices will either remain the same or rise as mortgage rates drop.
Sellers:
- A buyer’s market suggests that sellers should move forward with haste, since the potential for increasing inventory and decreasing demand can cause their target sale proceeds to slip away.
- Sellers who are betting that prices will strengthen in the near future, should consider leasing as rents have slipped a bit, but are still historically very high.
Renters:
- A resistance level was reached over the summer that forced rents to cool off. That being said, they’re still not far from recent records. Although waning buyer demand may cause purchase prices to cool too, high mortgage rates still tip the rent versus buy scale for many towards leasing.
Investors:
- Mortgage rates have let the air out of cap rates, but cash buyers can still source opportunities on account of near record rents.
- Although the dollar is not as strong as it was several months ago, foreign investors, depending on their native currency, still possess the opportunity to realize significant capital gains upon the sale of their asset.
- The weakening dollar creates opportunities for foreigners to purchase Manhattan real estate and experience the favorable cap rate and historic stability and price appreciation.
Please contact us if you would like to learn more …
About Us
Our goal is simple: to humanize the world of real estate. Michael Rossi founded Elegran in 2008 on the dual premise of motivation and innovation, with a third sustaining principle added over the years: care. Unique in the industry as an independently owned brokerage with agents known as “advisors” and a data-centered approach, the firm has become a key player in the New York brokerage world. The exclusive NYC member of the invitation-only Forbes Global Properties network, Elegran oversaw well over $500 million in sales volume in 2019, tripled market share in 2020 and sold US $1B in 2021.Headquartered in the center of Manhattan, Elegran is solely dedicated to serving the incomparable needs of the New York City metropolitan region. For more information about Elegran, visit www.elegran.com.
