New York's Condo Market Hits Reset As Interest Rates, Uncertainty Take Their Toll
Vickey Barron was in the middle of negotiating an $11M condo deal when the stock market started turning this spring.
“A lot of the buyer’s money was in the stock market, and within two weeks they lost a pretty good chunk of that,” Barron told Bisnow. “So they backed out and said, ‘You know what, we’re just going to wait.’ People are nervous about what’s happening in the world and what’s going to happen next.”
The number of signed contracts for condo sales in New York City has been falling since April, according to the latest report from Douglas Elliman. New condo contracts signed in Manhattan last month fell by 29% compared to the previous June.
Experts speaking to Bisnow said that the declining number of signed condo contracts — which shows how NYC’s housing market is doing in real time — is indicative of the market stabilizing after a bumper 2021.
The Federal Reserve’s June interest rate hike, raising interest rates by three-quarters of a percentage point, is making loans more expensive. With the Fed dangling another interest rate hike on the horizon, inflation still climbing and stock market volatility, brokers say some buyers are deciding against completing deals.
Global economic events are partially fueling the slowdown in sales, according to Olshan Realty President Donna Olshan. The war in Ukraine, the Fed’s interest rate hike, inflation and stock market uncertainty are all factors she believes are affecting purchase decisions.
“That is a very potent cocktail,” she said. “It creates downward pressure on the market.”
The drop in signed contracts provides a stark contrast to new listing numbers, according to Douglas Elliman’s numbers. This June saw 808 new condo listings in Manhattan compared to 709 in the same month during 2021, translating to a 14% increase.
Economic uncertainty was a buzzkill for the market in the spring, typically its busiest season, according to Miller.
“There's nothing a housing market hates more than uncertainty,” he said.
The bump in inventory largely came from condos in the $1M to $4M and $5M to $10M price brackets, with condos valued at over $20M also entering the market in higher volumes. But inventory decreased for lower- and mid-priced condos, with the number of those worth less than $500K dropping by 13.3% and almost 21% fewer condos priced between $4M and $5M than a year ago.
Inventory trends may be catching up to some of the demand trends: Douglas Elliman’s numbers show a 66.7% decline from a year ago in signed contracts for the lowest-priced condos.
That shows what kind of buyer is still in the market, Brown Harris Stevens Development Marketing President Stephen Kliegerman told Bisnow.
“What we've seen drop off is the buyer that was stretching themselves to begin with, who were only able to buy because interest rates were beyond historic lows. I think that that buyer has been weeded out of the marketplace for now,” Kliegerman said. “But we do see the all-cash buyer in the market, the buyer that's looking to put their money into hard assets.”
Cash deals, having dropped during 2021, are back, several of the brokers who spoke to Bisnow said — but all-cash purchases are still below their usual levels. They accounted for 54.3% of all condo buyers in Q2, according to Miller, compared to the 58.9% average over the past eight years.
The lowest level of cash purchases in those eight years was during the first quarter of 2021, according to Miller, when they dropped to 47.1%.
“I think part of the reason, at least during 2021 — before our rates spiked at the end of the third quarter — is mortgage rates were incredibly low. They were held at the bottom for an unusually long length of time,” Miller said. “With rates being higher, we're seeing this pivot to a modest increase in cash buyers.”
The decline in contract signatures and the increase in cash purchases may be signs of a previously hot market cooling to a sustainable temperature, Douglas Wagner, BOND New York’s manager of brokerage services, told Bisnow.
“My takeaway from that is OK, the market’s still healthy and condos are still in demand, even if maybe we've crested the peak,” Wagner said.
In the current market, Wagner said, some sellers are choosing to hold on to their assets for now, believing they are worth more than the offers they’re receiving and adding to the slowdown.
“Suddenly there are not as many showings, not as many requests, not as many people in an open house,” Wagner said. “That needs to send a message to sellers: If you're serious about selling because you need to, liquidate your asset and move on. If you think you're going to sell it this year, you might have to make a correction to meet the market where the market is.”