Recently, the New York City real estate market has been experiencing a trend that has not been seen in nearly a decade. For higher-priced homes, some sellers are receiving offers that are 20%-25% lower than the asking price, and homes are staying on the market longer. This market cooling can only mean one thing… New York real estate has become a buyer’s market.
According to one report, units priced at $1 million can expect to be on the market for 100 days, and the time frame is even longer for homes at the $8 million price point. This shift has been building for more than a year, but data has finally confirmed that real estate transactions currently have a tendency to favor the buyer over the seller.
Why the Shift?
There are various economic factors that have contributed to this shift.
One factor is reduced foreign investments, particularly from Chinese investors. The Chinese have put controls on outflows of capital which has reduced Chinese demand for property in New York City. The fed has raised short-term interest rates and has begun reversing years of Quantitative Easing and has begun Quantitative Tightening of $50 billion monthly. In addition, since passing the Republican tax cuts of 2017 the federal deficit has reached $100 billion per month. The combination of the two is raising the federal government’s borrowing costs across the yield curve and causing volatility and repricing of various entire categories of assets like oil and technology stocks. Mortgage rates are the highest since 2011 making homes more expensive to own.
Lastly, the new federal property tax law is a factor. When filing tax returns in 2019, people may notice how it affects their finances. This is especially true for homeowners with greater home equity and larger mortgages. The law caps write-offs at $10,000. Additionally, personal local real property taxes can no longer be deducted at all. Because New York real estate is traditionally more expensive than in many other states, it’s anticipated that many residents of the city will feel the law’s effect.
What Sellers Should Expect
If you’re selling in New York City, this is definitely a trend you should be aware of. You may not receive the multiple offers you would normally expect. Deals resulting from a single offer are becoming increasingly commonplace. This doesn’t mean you should fold and sell your property for far less than it’s worth, but you should be realistic about values.
Experienced sellers know that the market fluctuates. Depending on their specific neighborhood and property, they may have to accept a bit below the asking price, assuming the property is priced correctly.
What Buyers Should Know
Whether you’re buying a property for investment or for your own personal use, it’s no secret that you can score a better deal in a “buyer’s market” than a “seller’s market.” However, you shouldn’t expect that every seller will accept a lower offer, or that you’ll definitely be the only interested party.
If priced correctly, homes and apartments could still receive multiple offers, but it may not be necessary for your first offer to be above asking price (which is often the case in a seller’s market).
Are Renter’s Affected?
If a property has been on the market for a long time without any offers that the seller deems acceptable, they may choose to instead rent the property. Rental prices are historically lower in the winter months, and we’re seeing that same trend this season. It will be interesting to see how the recent market shift affects rental costs in the long term.
The real estate market in NYC has become much more discriminating. Buyers are properly accounting for differences in the real estate taxes and common charges between different units whereas they hadn’t in the past. They’re discounting units that are too large or have inefficient layouts. That said, I still see record prices and very fast sales for units in desirable locations that are efficient sizes with great design. So for terrific homes, there is demand and the fear of losing out especially when the buyer has the feeling that a property is unique and won’t be easy to find again.
As a buyer, we are welcoming a better balance between buyers and sellers than we’ve seen over the last few years.