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Thoughts from my Desk - January 2024

TL;DR:

  • Market Overview: 2024 is aligning with a more stable market, reminiscent of 2019, moving away from the volatility of 2020-2023.
  • Interest Rate Trends: Gradually, the stabilization of interest rates leads to a potential shift towards a balanced market.
  • Real Estate Commission Changes: There is an emerging trend of buyers' agents negotiating commissions directly, with less than 2% of Manhattan listings deviating from traditional commission structures.
  • Supply Dynamics: A shift to below-average supply post-2021, signaling a return to normal market conditions.
  • Buyer's Market Transition: Transition into a buyer's market, offering more options for buyers and necessitating strategic pricing for sellers.
  • Days on Market Trends: There is a noticeable increase in the average days on the market, with variances across different price segments.
  • Pending Sales Insights: 40% year-over-year increase in pending sales, particularly strong in the 2M+ market segment.

 

Welcome back to our real estate newsletter, and a very Happy New Year to all of you! As we begin 2024, it's an exciting time to examine the changes and opportunities in our real estate market.

We understand that everyone's time is valuable, and you may only sometimes have the time to delve into every detail. For those of you with a tight schedule or who prefer a quick update, the TL;DR section at the beginning provides all the essential points you need to stay informed. It's a concise summary designed for a rapid read.

Thank you for remaining a part of our community and for your interest in the real estate insights we share. Your engagement and feedback are what make this newsletter a valuable resource for all of us.

Here's to a prosperous and enlightening year ahead in real estate!

Real Estate Commission Changes and Their Impact

In a significant shift within our industry, the structure of real estate commissions is changing. The traditional model, where sellers typically cover the buyer’s agent commission, is being reevaluated. We're now moving towards a scenario where buyer's agents may need to negotiate their commissions directly in advance. This change isn't widespread but is gaining momentum and could reshape how transactions are handled. Read more about this change here.

In Manhattan, most listings still offer a buyer's commission. However, this trend might evolve, with many sellers choosing not to include commission payments. I advise sellers to remain open to offering commissions, at least for now, to avoid deterring potential buyers.

This shift reflects a broader industry movement towards transparency and flexibility in commission structures. It’s a development that both buyers and sellers should be aware of, as it may influence strategies and negotiations in the real estate market.

 

The Supply Problem Explained

The current market is less about a lack of demand and more about a supply constraint. Data analysis from Urbandigs shows that 2020 and 2021 were exceptional years with an unusual supply pattern. From mid-2020 to mid-2022, we saw above-average new listings. However, since July 2022, the trend has shifted to a below-average supply, aligning more with historical norms.

This decrease in new listings can be attributed to the higher costs associated with new mortgages, deterring ups and downsizing. The reluctance to engage in new purchases with higher financial implications has reduced market fluidity.

A closer look reveals that total supply hit its lowest point on January 8, 2024. Predictably, we should witness a gradual increase in supply until June, followed by a seasonal dip and another rise around October. This pattern offers both challenges and opportunities for buyers and sellers in the coming months."

 

 

Market Pulse: Transitioning to a Buyer's Market

We're currently experiencing a buyer's market, a notable change from the high-energy dynamics of 2021. This means more options, negotiating power for buyers, and a need for sellers to be more strategic and patient.

The frenzied bidding wars of 2021 were outliers, not a healthy market norm. Now, as interest rates begin to stabilize, we're moving towards a more balanced market. This shift should lead to increased showings, more reasonable pricing, and a steadier volume of transactions.

For context, the Tri-state area's housing market appreciates about 4% annually. The spike in 2021 was well beyond this, posing challenges for recent buyers in realizing gains on quick sales.

To illustrate these trends, I’ve included an appreciation chart. It gives a visual perspective of the recent market shifts compared to historical averages, offering valuable insights for buyers and sellers in this evolving landscape."

Days on Market and Pricing Strategies

It's interesting to note that the real estate industry's 'Days on Market' metric has seen a significant shift lately. A property's average time on the market has increased by 5% to 85 days, compared to 49 days in July 2022. This change in trend highlights the importance of pricing strategy in today's market dynamics. It's worth noting that different market segments are responding differently, with some properties experiencing longer selling periods due to a mismatch in demand.

A closer look at the data shows specific trends in different price segments. Properties priced between 1 and 2 million dollars took 27% longer to sell, while the ultra-luxury segment (10 million dollars and above) experienced a more significant increase of 60%, translating to an additional 70 days on average to sell. However, properties priced under 600,000 dollars are selling faster than before.

Both buyers and sellers can benefit from this data. For sellers, it emphasizes the importance of setting a realistic price point to attract potential buyers efficiently. A well-priced property that aligns with market expectations can significantly reduce the time it spends on the market. On the other hand, buyers can use this information to evaluate the market and negotiate more effectively. Understanding how long properties have been on the market in their preferred price range can provide valuable insights for making informed decisions.

I have included a 'Days on Market' chart to provide a clearer perspective. This visual tool helps to comprehend the market's current status and identify trends that could influence future real estate decisions.

 

Analyzing Pending Sales Trends

In an encouraging sign, pending sales have surged by 40% year-over-year. The chart shows a gradual decline in pending sales until December 2020, with each year's peak falling short of the preceding. Then came the anomaly of 2021, which disrupted established patterns and reset expectations.

Traditionally, pending sales reach their zenith in June, post the high-activity season, and hit their lowest point in January. If the trend holds, we're looking at approximately 800 new listings coming to the market, which suggests a potential rise in pending listings to about 3200 by June 2024.

The most significant spikes in pending sales are seen in the higher-end segments. The 2M+ market saw substantial activity, with a remarkable 76% increase in pending sales for properties over 10M. This uptick clearly indicates renewed interest and confidence in the premium market.

I’ve included a "Pending Sales" chart below to illustrate these trends better.

 

 

My Take: Predictions for 2024 and Beyond

As we head into 2024, the housing market is expected to stabilize, similar to how it was in 2019. Interest rates have been volatile over the past few years, but this has paved the way for a more balanced housing market. As a result, bidding wars are likely to become less aggressive, supply is expected to increase steadily, and the number of days properties remain on the market is expected to follow a more consistent pattern.

New York City's real estate market is known for its steadiness compared to other cities, and it is expected to experience less volatility than other markets, which are still correcting from the growth experienced during the pandemic.

This is a unique opportunity for buyers to make strategic decisions because inventory is expected to increase, but competition is also rising. For sellers, it's important to price their property accurately to ensure a quick and effective transaction since the market will be responsive to pricing strategies. This responsiveness will become evident through the frequency and quality of showings and offers.

If you're a tenant, it's important to consider your financial situation when deciding whether renting or owning a property is the best option. Renting in some neighborhoods can be financially sound, and it's a misconception that renting is always a loss. Upcoming analyses will highlight the complex decision of renting versus buying, emphasizing that homeownership is more than just a financial calculation and comes with personal achievements.

Closing Remarks

We've explored the dynamic real estate market, covering important changes such as the evolving commission landscape and nuances of a buyer's market. For personalized advice, schedule a free consultation with me. Thanks for reading.

If you have any questions, please get in touch with us. Send an email at [email protected].




Work With Michael

Michael has a deep understanding of real estate; but more than that, a genuine desire to help his client's reach their goals. He is passionate about gaining a deep understanding of the market and believes utilizing data to make better purchase and sales decision allows him to better serve his clients needs.
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