Manhattan Real Estate Update: What’s Really Happening Right Now


By Roberto Cabrera

What do we know? What can we predict? What follows might seem lengthy, but information worth digesting to truly understand what is currently happening.

Simply stated, market activity has chilled, nearly 70-75% by some measures. As new listings have slowed to a trickle, the overall inventory level has dropped to 5,100, down from what would typically be around 7,000 (courtesy UrbanDigs). Although several thousand apartments have come off the market, the good news is the pace of this exodus has slowed.

The question is, when, and if, all these homes will come back to market? Similarly, although new deals are indeed happening, they are also down to a trickle; the momentum carried over from the first couple weeks of the crisis has now waned. The Olshan Report, which tracks luxury in-contract activity for properties over $4M reported that only one contract was signed above that level last week. According to the report, that has not happened since the week of February 2-8, 2009.

Although, many are resorting to virtual showings, few contracts are being signed as a result. There is no replacement for stepping into a property and absorbing that experience. Once the “Shelter at Home” order is lifted, what will showings look like? Sellers need to become comfortable allowing strangers back into their homes, while buyers will, likewise, have to be comfortable going into a strangers home. Open houses will be non-existent except for ones that are “by appointment only”, while all showings will likely require masks and gloves.

In times of crisis we always encounter pent up demand from buyers, built up from the prior months of inactivity. In past crises we have seen inventory decrease, but we’ve never experienced such mass removal of property from the marketplace as we are seeing now. This time, will the pent up buyer demand be outpaced by the pent up seller need to get their properties sold. Activity is bound to jump, as life demands it; there will be some flight from the city to “safer” suburbs, job losses, downsizing, divorce, growing families, sadly…deaths, etc. These factors force people to move and should precipitate robust activity. Do we think sellers’ need to sell will outpace that buyer demand? If so, we are bound to see prices fall, but not as drastically as some anticipate. Remember that it was already a buyer’s market, with high inventory, sluggish deal volume and pricing having methodically deflated from the peaks of 2015/16.

Which of the supply and demand curves will be dominant this time? Some believe there are fire sales happening, in which sellers are accepting just any price in order to get out. I have personally not experienced or heard of a particular scenario like that yet. I am certain there might be some, but they are likely few and far between at the moment.

Negotiability and RE-negotiation (on current deals) are definitely occurring in increasing numbers; however again, not to the degree some have suggested. Buyers tend to think the market is off 20-30% while sellers feel it is closer to 5%. The deals that are being renegotiated are likely averaging 2-3% off the original agreed upon price. Probably between 2-5% for properties under $5M and in some cases up to 10% for those above that level. The discounts are not higher, like the crises of 9/11 and the 2008/9 financial meltdown, simply because, again, the marketplace had already experienced 4-5 years of consistent decline. Note: those declines were primarily driven by unfavorable real estate policy that had been put in place including, but not limited to: the reduction in the SALT (state and local tax deductions), increases in the mansion and transfer taxes, rent regulations on multi-family properties and limits on LLC purchases.

The renegotiations we are seeing now occur when the buyer has some leverage over a seller who must sell. If the seller is not in a must-sell situation, they are less inclined to give any concession at all. There are also rare cases of buyer’s walking away from their 10% deposits.

This typically only happens when and if they feel the value of the property has dipped below that 10%. This is a unique decision which, in my opinion, would only serve the buyer in very few instances. Note: voluntarily walking-away must be differentiated from a bank’s refusal to lend due (for example) to someone losing their job.

New construction properties will likely be experiencing some of the higher price discounts primarily because of the already high inventory which was present prior to the crisis. They may also be experiencing a few more broken deals, as they may not be able to deliver units prior to a “drop-dead date” already established in the contract, which would allow a buyer to walk away and recoup their deposit.

It is still a buyer’s market, as they have more protection now than ever before. We are seeing growing numbers of mortgage contingencies and even funding contingencies (which protect the buyer in the event the lending institution fails to fund the purchase at closing, due to factors unrelated to the buyer). Attorneys are also incorporating “Covid Clauses” which provides the parties with flexibility on the timetables stipulated in the contract. Many specified dates and obligations in the contract may not be achievable due to current restrictions due to Covid, so this clause provides reasonable consideration to cure those items.

Attorneys are running an obstacle course orchestrating closings. They are dealing with managing agents, lenders, title companies, buyers, sellers and brokers with varying degrees of flexibility and authority to perform their duties, but they are persevering and getting deals closed, albeit slowly. Buyer’s attorneys have been completing due diligence by temporarily accessing Dropbox files, where they can review a building’s board minutes. Closings are taking several weeks to schedule and several days to execute. Original documents get FedEx’d around and notaries are occurring virtually.

Interest rates are also in the buyer’s favor, as they remain historically low. The 30-year jumbo fixed rate mortgage has fallen below 3.0% in some cases. I will say that again, below 3%. That said, lending standards have increased across the board. Lenders are requiring buyers have higher credit scores, cash reserves and down payments.

Unfortunately, the closing prices which will reflect where we are now will not be revealed for 3-6 months, when these transactions actually close and get recorded. Consider that properties going into contract now are being appraised based on closing values over the past 6 months. Likewise, the recorded closings in August and September will measure the actual drop we are experiencing now. This will surely lower appraisal values and put downward pressure on pricing. If, however, pent up demand to buy is substantial enough, it could create competitive bidding situations. How will that affect pricing? Will activity in the marketplace be more robust? If so, will more sellers re-list their properties, meaning increased inventory? These are conflicting forces which make the future hard to predict. Where will the balance land?

These are all the major considerations both buyers and sellers are sorting through. The second half of this year could be one of the busiest markets we have seen in years. If, in the coming months, you determine the time will be right for you, opportunities can be found. For various reasons financing will be more challenging; consequently, cash will often provide leverage. Every single person’s situation is unique; so there is no universal silver bullet solution. Likewise, every neighborhood will experience its own unique transition, so they must be studied independently of one another.

Roberto Cabrera
Licensed Real Estate Broker
Brown Harris Stevens


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