You’re going to hear the narrative that the real estate market is shifting. It’s easier to sell the negative. It’s clickable.
Articles titled “10 Reasons Everything is Going to be Okay!” appeals to very few.
It’s easier to get your attention if I’m screaming, “the sky is falling”
The real estate market and market at large are shifting. It’s true. The sky might be falling for the myriad of reasons I outlined below. But if we zoom out, it isn’t so bad.
But when I zoom out, it’s not so bad. Recent shifts in the Manhattan real estate market might be cause for concern. These recent shifts could lead to something bigger.
The real estate market has one enormous tailwind, Millennials. We’re making money, we’re shacking up, and we’re buying homes. That’s why I’ll remain bullish.
Below are a few things I’m watching as I navigate the market.
The real estate market isn’t going to crash. We might see a correction, but a crash is a different story. Today’s borrower is highly qualified. Lending requirements are still very conservative.
One of the largest mortgage providers in the country, Ellie Mae, will distribute regular data about Millennial borrowers across the country. Below you can see NYC MSA. By all accounts, the average borrower is doing just fine. This isn’t the GFC.
Large-scale layoffs would need to happen for homeowners to panic sell, and the outstanding equity built since 2020 would need to evaporate to the point that scorned buyers wouldn’t be able to afford the new inventory.
Interest rates are 2% higher than they were a year ago. But historically, it’s still inexpensive. Some of our parents bought their homes at 2x-3x today’s rates.
Yes, it still hurts if you missed out on 2020s interest rates
But this allowed the housing market to cool. This was the only way homes don’t appreciate further.
The truth is, we still haven’t seen this affect appreciation yet. Prices have continued to set records.
In NYC, prices are still up YOY. There are still multiple offers in this market.
Sellers need to be flexible and avoid anchoring to 2021. We’re in one of the most liquid markets we will ever see. Well-priced inventory will sell within weeks. Please don’t blow it.
If you anchor and hold out with aspirational asking prices will miss out on a great opportunity.
Interest rates have stabilized over the last two weeks, and the 30-year mortgage has come down. June will be a big month in understanding where they go next.
But let’s take a look at this historically. There are 6221 homes for sale. We’d have to go back to 2018 to get a sub-6 K supply. There are still a lot of buyers looking for homes.
Times have changed. Agents will need to negotiate more, and we’ll probably see more price reductions. As long as everyone is flexible, apartments will continue to trade.
The contracting activity will probably persist throughout the summer. But, monthly contract activity is still above average. Days on the market, price reductions, and the pace with which we’ve transacted should trend negatively.
If it continues to trend above the 10-year average, that’s a sign that we’re still in a bull market for NYC real estate. It’s worth watching.
Landlords are getting their money’s worth after an abysmal 12 months during the pandemic.
The rental market is still scary. Inventory is low. Companies have begun calling employees back into the office.
The 2022 graduating class hasn’t even moved in yet. That means tenants will have more pain ahead. These potential buyers could be a headwind for real estate sales, especially at the lower ket, where sales haven’t been as robust.
I don’t have any good news for my renter friends other than that this could be 2021. Last year, there were lines out the door for everything we listed. We should see a slowdown, but there is more to come.
Have you tried flying lately? Inflation isn’t going away anytime soon. We might have peaked in April, but it could persist for years. This negative sentiment will lead to consumers tightening their belts moving forward. But, we’ve already seen retail giants like Target and Amazon report deceleration.
They’ve also reported overhiring and leasing too much warehouse space.
I’m new to this, but this tells me that demand destruction is happening. We should start seeing sales and price reductions in retail moving forward, which would signify inflation receding.
Lastly, the FED will start unwinding their balance sheet starting…well, yesterday. The Fed’s goal is to control inflation, which they’ll continue doing. As I said above, we might have seen peak inflation in April.
The housing market has slowed down nationwide, and significantly, retail supply has built up. I assume that unemployment will follow suit and tick up.
Interest rates spiking have decelerated housing demand. Homebuyers will readjust expectations moving forward and continue buying. Homeownership is still a piece of the American dream, and the supply available is still historically limited.