Everybody continues to ask where New York City’s real estate market is right now. Up, down, flat or what? The question comes up all the time, in the face of conflicting information in the media.
The answer – The market is in a downward moving pattern. Prices and values have dropped and will continue to fall over at least the next few months.
But what does this mean for buyers and sellers.
Should buyers wait and refrain from buying? There are costs to waiting. Prices have already fallen five to 15 percent, depending on the market sector in which you are searching. Yes, prices still may drop further, and what you are buying may be worth less in the near future. But the bottom of the market is not when you get the best deals. When the market bottoms out, two things will happen:
1) Interest rates will be higher. If interest rates rise half a point but the purchase price drops five percent, you will end up paying more per month and overall for your real estate. To break that down: You pay one million dollars for an apartment. If you save five percent off the asking price, you save $50,000, a significant amount of money. But if you are financing 80 percent and rates jump half a point, you will pay $234 more per month, or $84,240 over the lifetime of the loan.
2) More buyers get aggressive and it becomes harder to get reductions off of the asking price. Cash buyers and investors flock the market when it bottoms. In 2015, there was $12.2 billion volume of sales in Manhattan. In 2014 it was $15.1 billion, and 2013 was $14.9 billion. Less sales are happening because of low demand. This is one of the reasons the market is falling. But it is also why you can get a great deal now.
We are representing buyers who are seeing offers accepted well below asking prices. We are also seeing some of the best properties sit, when in other markets they’d be swooped up in days. So even if asking prices drop another five percent next year, you may still be able to close at a lower price today rather than when the bottom comes. Experienced, savvy sellers get this.
So what does this mean for sellers? Should they wait to sell for when the market to improves? In some cases, yes. If you need to get a price, then maybe you should wait. Depending on how damp that particular sector is, keep that property off the saturated market. But for many sellers, that is not a possibility. The market doesn’t turn on a dime. Sellers that expect it to “be better next year” are fooling themselves.
Say the market falls another five percent over the next 24 months. Then it would be fair to say it could stay flat on the bottom for a year before inventory drops and prices start to rise. Then it will grow slowly, and may in two years go up five percent. That’s a five-year turn. That means it may take 60 months just to get back to where it is today. Then you need to wait another year or two for your value to increase. So it’s not about waiting a year, it’s about waiting five to seven years. Many people can’t or don’t want to do that. If that is your situation, then today is not a bad time at all to sell.
Nobody can say it is a great time to buy and sell at the same time with a straight face. Markets always favor one side, and today it is the buyer. But buyers are making less then advantageous purchases every day, and sellers are moving properties for amazing numbers. What’s important in this season is to be smart and take well-planned actions. People are beating the market every day, today is no different.