#18 "The Pendulum Shifts and Timing is Everything" Roberto Cabrera's Market Report for New York City

Boroughs & Burbs, the National Real Estate Conversation

The Pendulum Shifts & Timing is Everything

Since there are NO deals in the Hamptons, focus on Manhattan before the pendulum fully swings back to sellers. Timing becomes one of the most crucial factors. Everybody always asks, “How’s the market?” Because Manhattan is segmented into so many micro-markets, a Tribeca loft versus a midtown high-rise condo versus an Upper West Side townhouse or an Upper East Side studio etc….this question is too vague and has a multiplicity of answers. Generally though, the market’s on fire; demand is outpacing supply. Sellers have become more realistic, which has become an invitation for buyers to join the party. Buyers too have realized there is middle ground; that 50% off sale they anticipated never happened. This engagement between both parties is infectious and has resulted in deals….many deals. Deal volume in February was up over 30% as compared to February 2020 (which if you remember was a pre-covid volume). Activity has been most robust in the lower price points; 70+% of all deals are occurring below $2M and 85% below $3M. The luxury market, loosely defined as the top 5% of all inventory (approx. $5M and up), which had been sluggish, is catching up. We are seeing numbers which reflect far busier times like in 2015 & 2016.
Whereas it is still a buyers’ market, the pendulum has shifted direction. Like never before, virtually every metric is in the buyer’s favor. One of my industry colleagues, a head of one of the major firms, said, “If you're not a buyer in THIS market, you are simply not a buyer.” It is my opinion, that the past 8 months have been the single greatest buying opportunity in Manhattan, that I have witnessed in my 23 year career. Never have so many metrics lined up for buyers, all at the same time. Let’s compare where we are now to some of the other great historical buying opportunities during that time. Note: if you are not a buyer, please disregard what I have to say, as I am not pressuring you to buy; however, for those who do want to buy, you will find this interesting. These great buying opportunities most often follow catastrophic events. Let’s take the 4-5 months post-Sept 11th and the 12 months following the collapse of Lehman Bros. in 2008/9. Whereas those were incredible opportunities, consider that in 2001, inventory was still very lean, so the supply-side of “the supply & demand principle” was still tight. And consider that interest rates were 6-6.5%. Right now we are sub 3%. I want you to look at the table in the "Mortgages & Interest Rates" section of this newsletter, to truly understand the impact of even 1 percentage point in interest rates. It's shocking. In post-Lehman Bros. 2008/9 inventory and interest rates were less of an issue than in 2001, as there was more inventory but interest rates were still at 5-6%. The biggest factor then was liquidity. There was no money; people struggled to get financing.

For buyers today, not only is inventory ample (meaning choices), sentiment on the seller’s side has been poor (meaning negotiability) and interest rates are near all-time lows, 3% or less for a 30 year jumbo loan. However, the pendulum on virtually all three of these metrics is starting to change course. Although there is 10% more overall inventory than last year at this time, that number is contracting. Again, not because apartments aren’t coming on the market, but because deal volume is outpacing that incoming supply; it’s essentially musical chairs for Manhattan apartments. While prices have not yet increased, it is precisely this deal activity which is beginning to give sellers a bit more resolve (meaning they are becoming less and less negotiable). And the big one is interest rates; they are slowly rising. This factor will affect the whole marketplace, as it reduces purchasing power. So if you are a buyer, the getting is still good...very good…and in your favor, but it is slipping away.