New Yorkers are white-knuckling a turbulent summer buyer's market

In July, Inman gazes at the glitter and glam of the luxury real estate market. Snapshots of the country’s top luxury markets, advice from leading agents, features on what affluent homeowners want now and a breakdown of the top sales of 2023 (so far) are all in the cards leading up to Inman Luxury Connect, Aug. 7-8 at the Aria in Las Vegas. Make plans to join us now.

This is the seventh article in an 11-part series spotlighting housing markets in Virginia, Texas, Florida, California and New York and the U.S. market. Read the entire Summer Cooldown series here as stories are published throughout July.

The early pandemic hit New York City harder than most as it became the second and largest epicenter of infections. Locals said the NYC was eerily silent, with the sounds of round-the-clock ambulances and daily neighborhood rallies for doctors, nurses and front-line workers replacing the liveliness of usual city life.

Residents’ brief, yet intense, exodus to the suburbs from 2020 to 2021 brought the market to its knees as landlords and sellers launched New York City into a full-on renters’ and buyers’ paradise with unprecedented price cuts. Developers also sweetened the pot by offering six-figure concessions, such as covering a year’s worth of transfer and property taxes.

By 2022 NYC started to sprout back to life, with agents telling Inman the city’s real estate market showed glimmers of returning to its normal pace. “Inventory has finally caught up with the rest of the country,” Manhattan-based independent broker Matthew Bizzarro told Inman in March 2022. “And it’s going to be absorbed very quickly this spring.”

But like much of the country, the sudden and dramatic rise in mortgage rates in mid-2022 threw NYC into a rollercoaster of wavering leverage and demand that have buyers and sellers white-knuckling their way through a market in flux.

Redfin’s latest data shows NYC home sales are down 29.4 percent year over year, with median sales prices sliding 1.22 percent annually to $800,000. However, Zillow’s Home Value Index shows the median home prices climbing 3.9 percent annually to $716,097 — 10.48 percent lower than Redfin’s estimate.

Statewide median price and sales growth estimates track closely to NYC, with median sales prices climbing between 2 to 3 percent annually to the mid-400k (Zillow estimate) or mid-500k (Redfin estimate) range. Sales are also down by double-digits (-22.8%) with median days on the market reaching 21 days.

“Last year, interest rates started really ratcheting up, and the mortgage rate crossed 5 percent for the first time in a long time,” UrbanDigs Co-Founder John Walkup said. “Volume just kind of died. It’s like someone unplugged the fan — everything slowed down and stopped.”

After the initial shock of rising rates wore off, Walkup said sales volume increased in October, just for it to dip again in November. The up-and-down has continued well into 2023, with New York City real estate oscillating around historical means.

“I’ve been stepping back and looking at the trends. We were way above trend, then we were under trend, and then we were tagging along trend,” he said. “Now we’re just back above it. The buyers are starting to come back after about a year pause or so.”

NYC buyers have the upper hand — and they’re using it

As agents in other locales find themselves in a market where neither buyers nor sellers solidly have the upper hand, Compass broker and team leader Julia Hoagland said New York City buyers are officially back in the driver’s seat.

“Inventory has been pretty low statistically in seller’s market territory for most of 2023,” she said. “But just recently, it popped up into buyer’s market territory.”

Hoagland said New York City kicked off the year with 4 to 5 months of inventory, which pushed buyers to embrace fixer-uppers for the first time in three years. “The pandemic kind of freaked a lot of people in New York City out in terms of renovating because buildings literally shut down in the middle of projects,” she said. ” Those projects went under contract and sold after being on the market for months, or even over a year or so.”

However, Hoagland said inventory started to slowly climb throughout the spring, reaching a 9.4-month absorption rate in May. It declined in June and July to 9.2 months and 8.3 months, respectively, but still offers buyers a firm foundation in the NYC market.

“In general, we’re very conscious of the fact that a lot of people exit the city after Memorial Day,” she said. “June and July are slower than May and the months prior, but we’re active and having open houses during the week. We want to capture people while they’re in the city.”

For those staying in the city, Coldwell Banker Warburg broker Lisa Chajet said they can scoop up a good deal. It won’t be the 20 to 30 percent discounts seen earlier in the pandemic, she said, but homesellers are adjusting list prices to account for the uptick in mortgage rates.

“I don’t think we’ll ever come back to those [2 to 3 percent] rates again; however, I feel like 5 percent compared to what they were 30 years ago, it’s not so terrible,” she said. “But prices have come down. So with prices down and mortgage rates up, it amortizes to the same number.”

Chajet said she advises homesellers to price right below the last comp since today’s homebuyers have less borrowing power. By bringing the list price down, it attracts more buyers and provides an opportunity for them to offer a better down payment — something that ultimately works out for both parties.

“That’s not what they want to hear, but my job is to counsel them. I give them the facts,” she said. “When somebody bought this apartment for $1.5 million in 2017, with $2,200 for monthly maintenance and $2,200 for a mortgage, they were carrying this property for $5,000 a month.”

“Well now, because the interest rates have come up, it’s gonna cost them $7,000 to carry it because it’s probably another $1,000 per month,” she added. “So how do they make it work? They have to bring the price down. We’re in a market where over-pricing is not going to get you anywhere.”

When it comes to market segments, Walkup said each borough offers something different for New York buyers. Manhattan is condo, co-op and apartment driven, while Brooklyn and Queens are central locations for townhomes. Walkup also noted NYC’s existing-home inventory is a good mix of housing types, while new developments are almost exclusively condos.

“In terms of just the regular stuff that’s going on, it’s mostly co-op and condo, and it’s coming on at a pace that’s slightly now above historical trends, he said. “That’s a good thing. That’s the fuel for the market. Buyers can actually have selection, and they have the competence to bid because we got a little bit of stability behind us.”

“On the other hand, all of the new buildings — like 99 percent of them — they’re all going to be condo,” he added. “As time goes on, more condos are coming into the market simply because those are the apartments that are being created. No one’s making co-ops anymore. Very rarely does it happen.”

Hoagland echoed some of Walkup’s insights, saying that she’s turning investor clients toward the condominium market or the townhouse market, as it’s impossible to rent coops with any kind of regularity. “International purchasers, investors or otherwise have a hard time purchasing co-ops, because the co-op boards require U.S. assets and U.S. credit, and the dollar right now is pretty strong,” she said.

As for buyers searching for primary residences, Hoagland said she’s not seeing a specific trend in features and amenities that are consistently on buyers’ lists, outside of unit size. Otherwise, she said buyers are taking their time to see what the city has to offer, with more people venturing out of Manhattan and into Brooklyn.

“I looked at the stats in terms of the pricing versus median sales, and then median sales actually rose a little bit more than average pricing, which would indicate that bigger units were trading,” she said. “I mean, there’s a lot that you need to dig into there in terms of condition and all kinds of different things, but bigger units are still winning.”

“During the pandemic, bigger units definitely became all the rage because people needed to do everything in their homes,” she added. Now the pandemic is more or less behind us, I would’ve expected smaller units trading more than bigger units in the data. But that’s not what’s happening.”

Walkup also struggled to find a throughline in what buyers want; however, the agents he works with said condo buyers, in general, are a little more focused on having lounges, roof decks, gyms and other amenities.

“We actually had a conversation with a group of agents earlier this week, and one of them had a unit that just was not selling,” he said. “She was looking at all of the comps, and it was, according to her, absolutely priced right.”

“One of the things we discovered was, it lacked a few of the things that some of these other competitors had, like a lounge,” he added. “But these amenities are so dispersed at this point, it’s really difficult to kind of pinpoint any one thing that’s ‘Oh, this is the mandate that everybody has to have, and if your building doesn’t have it, you’re screwed.'”

Walkup said he’s noticed a rise in niche amenities like pet spas — “That’s a little crazy,” he said — but location ultimately wins out in a city like New York.

“Different people obviously have different decisions, but I would say the one amenity that does rule them all: location, location, location,” he said. “Just you look at the units down in downtown Manhattan. The demand for those is perennially strong, and the prices are perennially higher and that’s because people just want to be there.”

“And so if something’s missing a roof deck, or maybe it’s missing a courtyard or it’s missing a gym, that’s okay, because they like the location,” he added.

Looking beyond New York City

Hamptons-based Douglas Elliman Lord Chapin Team agent Nikola Cejic and Rochester-based HUNT Real Estate ERA broker and Regional VP Susan Ballard said New York City is often the focus of conversations about New York real estate.

“If you draw a 99-mile radius around New York City, that is the capital of the whole world,” Cejic said. “I know we’ve always had London as a competitor for that spot, but I personally think it’s New York City. So you know, there’s no other place like it that you can drive out two hours in any direction, and be within miles of the saltwater and the natural beauty of New York. You can get the best of both worlds.”

Meanwhile, Ballard said she often gets questions about how close she’s to New York City and shocks people with her answer. “I always get that question,” she said. “When I say a seven or eight-hour drive, they don’t realize how far Rochester and Buffalo are from New York City. You can’t get much further away in New York State than those two locations.”

Although Cejic and Ballard love the Big Apple and its significance to the state, both said it’s more important now than ever for people to understand the nuances of each major metro’s real estate market. While NYC is in the midst of a buyers’ market, Rochester and Buffalo are dealing with early-pandemic-level bidding wars. And the Hamptons, as usual, is a world unto itself.

“Rising mortgage rates had the anticipated impact in terms of the inventory,” Ballard said in reference to the lock-in effect among sellers across the country. “But the demand has defied the mortgage rates. When mortgage rates go up you expect you’re going to see fewer and fewer buyers out there, but that has not been the case.”

Rochester’s median home price is 62.5 percent below New York City, with most homes going on the market for $300,000 or less. The affordability of homes has put homebuyers in a frenzy, Ballard said, with inventory dropping dangerously low to 0.8 months of supply.

“There’s extreme competition for those homes,” she said. “We’ve been hovering around 1.4 to 1.3 months of supply in the Buffalo/Niagara region, but to be far under one month supply in Rochester is a little concerning.”

“Obviously sellers think it’s great,” she added. “But in terms of having a strong and stable market, we need more supply.”

Ballard said Rochester homes are going under contract in one day and selling within seven, with 40 to 50 offers per home. Although the list price is $300K or below, homesellers are often clenching sales prices $100K to $150K above asking with little to no contingencies.

“Because the demand is still so high among the buyers and inventory is so low, we’re still seeing offers where individuals are offering cash so they don’t have to go with a mortgage contingency. They’re waiving inspection contingencies as well,” she said. “Buyers are desperate and agents are desperate to find houses. The word desperation has come up frequently over the last several months.”

Ballard said Rochester buyers can’t turn toward new construction, since the costs are far too high.

“We don’t have as much new housing stock when you compare Rochester and Buffalo to NYC, for example,” she said. “We’re a blue-collar city and it’s very expensive in New York State to go through the development process, there’s a lot of restrictions and obstacles. So we don’t have the large production builders in New York state needed to increase inventory levels to the levels that we need.”

Cejic said the Hamptons are dealing with a similar inventory issue, as the uber-exclusive enclave is quickly running out of buildable land due to regulations.

“We’re running out of available buildable land. Right now if you do a search in the Hamptons, you’re gonna find, maybe if you’re lucky, 15 listings, whether it’s land or small houses for under a million,” he said. “The main driving thing here is the town has just as much money as any other buyer. Every time somebody buys land, the town gets money to buy more land and preserve it.”

“So our crisis here is not even dealing with buyers and sellers. It’s more so that we’re running out of affordability,” he added. “Honestly, affordability is out the door at this point. Affordable doesn’t exist.”

However, Cejic said the buyers and sellers in the Hamptons deal with affordability in a totally different way than buyers in other areas of the country. Since the Hamptons’ homeowners and homebuyers are extremely wealthy, and see a purchase as a nice-to-have rather than a need-to-have, the sales process can, and often does, take years to complete.

“So not only the buyers don’t have to buy, but also sellers don’t have to sell here. There are homes that have been listed for 10 years, and they don’t really need to sell,” he said. “Buyers come out here, and the one thing I get asked all the time is, ‘Why has this house been on the market for so long?’ Sometimes there’s a problem with it and sometimes it’s a little overpriced.”

“The seller doesn’t necessarily have to sell, they’re just kind of hoping to get their price. They can hold on to it, they can rent it out and cover all of their yearly expenses, by renting it for two months in the summer,” he added. “Buyers and sellers are like two rams going at it. No one wants to give up, and they don’t necessarily have to. But there has to be a solution at some point.”

Cejic said deals in the Hamptons are always unique, as homesellers’ decisions are influenced by the stock market and international economies rather than mortgage rates. Cejic also said many Hamptons homeowners come from deep generational wealth, where their families have lived in the area for decades. With that in mind, he said agents must focus on being a longtime advisor and learn to create urgency.

“One of the most important things when doing real estate in the Hamptons is creating urgency, whether it’s with buyers or with sellers,” he said. “It’s a very sensitive process because real estate is a psychology-oriented industry, and so you really have to get in and understand people’s stories on the personal level.”

“That’s why every time we get a lead service reaching out to us, I shut it down right away because everything is done here based on personal relationships and trust,” he added. “You have to look out in the best interest. Not selfishly, but in making everybody happy and making sure nobody gets hurt. That is the only way to get the deal done.”

Right now, urgency comes from a slowing rental market.

“Commentators say luxury is sheltered, and that downturns can’t happen to our segment of the market,” Nest Seekers International Chief Economist and multistate broker Erin Sykes said. “Well, you know, prices have been cut in half for Hamptons rentals this season. There’s just not as much demand.”

“That top tier of the market on the rental segment, they feel like they want to get out of dodge. They want to go to Europe, they want to travel, they want to do something other than go to the Hamptons,” she added. “They’ve lived there the majority of the last three years when was such an Exodus out of the cities.”

“Now people have moved back into the cities, and they just want to shake up their lives a little bit.”

Cejic backed up Sykes’ insights, saying the area’s rental market has faltered this year.

“Our rental market was not the best this year, and usually our rental market and our sales are very connected. If one is good, the other one is bad, and vice versa. And so this year, our rental market was kind of off a bit,” he said. “That kind of worries me. It could affect the sale prices this summer.”

The NY State of Mind is alive and well

Although this summer has been a rollercoaster for New Yorkers, the agents Inman spoke to are optimistic about how their markets will enter 2024.

“It’s kind of been like a rollercoaster of just small ups and downs, ups and downs. Nothing drastic,” Cejic said. “We usually have two selling seasons, which are spring and fall. We always prepare for the worst, but I think the fall is going to be a good buying season.”

Hoagland and Chajet said August is typically a slower month for New York City; however, there could be some great momentum during the fall as people end their early-pandemic hiatuses and return to city life.

“I was born and bred in New York City,” Chajet said. “It’s a rollercoaster, right? You’re up, you’re down, you’re up, you’re down. But there’s a lot of energy right now in New York, and it feels really good. People like, after the pandemic, which is hopefully totally behind us, have this energy, like, ‘Oh, my God, I’m living again.'”

Hoagland said she’s seeing an influx of empty nesters who are eschewing the typical retiree playbook and are opting to spend their golden years experiencing the best of city life.

“They’re like, ‘We want to have some fun in the city and pay a lot lower property taxes — we pay other taxes, of course — but they don’t need to think about schools anymore, they’re coming in,” she said. “Yes, Florida doesn’t have a state income tax and that’s compelling, especially with the state and local tax (SALT) law changes in 2017.  However, you know, some people just really are willing, including myself, to pay for what New York has to offer.”

Walkup also highlighted the return of NYC social life as a buoy to sales, but he’s keeping an eye on a few wildcard factors leading into the fall, including the stock market, mortgage rate growth, inflation, recession fears, and the city’s soaring rental market. If the Fed is able to cool inflation successfully, Walkup said the fall could be relatively robust, especially as stable rates could push more renters into homeownership.

“We’re probably going to see you record rents throughout summer, and when bring it back to the sales market, usually your costs in the sales market are a lot more stable,” he said. “You can kind of bank on, if you get a mortgage, what mortgage payments are going to be. If you buy a co-op or a condo, you’re going to have monthly charges associated with that, which are pretty steady too.”

“So yeah, you’re going to have higher initial costs because you’ve got to put down a big downpayment and you have some closing costs, but the monthly payments you make on the sale side can be significantly lower than the rental side,” he added. “I think a lot of people might start looking at their finances and kind of looking at what they want to pay.”

In Rochester, Ballard anticipates the fall will look a lot like the summer. However, she’s coaching her agents to resist being reactive and focus on being proactive.

“We are obviously getting our team and our salespeople to go back to the basics to talk to their former customers because I think one of the reasons why existing homeowners are not jumping in as sellers is that they are concerned about where they might have to go,” she said. “We’re encouraging our team to have conversations with potential sellers about how we can help to find them the right property for them and get a little bit proactive, especially if they’re relocating out of the city.”

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Email Marian McPherson