We have gone from record-low rates to rising rates…and rising…and rising, and then…we began to hear the phrase “higher for longer” (meaning sustained high levels). And now we’re actually beginning to hear predictions about rate cuts. Premature as they may be, some predictions are signaling a rate drop as early as mid/late Spring, while others say not until Q4 2024. The fact is, no one really knows when rates will actually come down, especially with a strong economy which shows consumer spending still strong, the unemployment rate at a relatively low 4% and inflation still above the target rate. Regardless, a more positive narrative is on the horizon.

This doesn’t mean back to normal (whatever that means), but it does mean that sentiment will improve and players on both sides (buyers and sellers) will come back to the dance floor. The question is, what song will be playing? Probably a Waltz, but it COULD plausibly gravitate to some sort of House music. Increasing numbers of sellers who have been on the sidelines, waiting for rates to moderate, will finally choose to list. The elevated inventory will also seduce those buyers who’ve been waiting for improved affordability. The result should be a busy and competitive Spring.

Until then though, the market remains heavily in favor of the buyer (a rare instance over the past 25-30 years)…Why?

• Inventory is lean (relatively), approximately 4.1% lower than a year ago; but there are still nearly 6,600 properties on the market.
• Deal Volume is 12% lower year-on-year for the 12 months leading into November.
• Prices are approximately 7-9% lower than one year ago. For a while this had not seemed to be the case, partially because the data on actual sold and closed deals always lags. This also means that the deals being done now will likely print at even lower numbers come February and March. The reality is, it’s been a slow and methodical erosion which will need to be respected by sellers as they enter the marketplace this Spring.
• Sentiment is at an all-time high level of “meh”.

…and all of this is compounded by a heavy dose of seasonality. We are in one of most notoriously slow times of the year, Thanksgiving to mid-January, when the masses check out due to holiday demands and travel and bonus earners choose to hold off to see what they will actually earn.

Courtesy: UrbanDigs

The sluggish market activity has been overwhelmingly driven by the high interest rates. Buyers have been substantially affected by affordability while sellers have been resistant to relinquishing their 3% mortgage rates to simply turn around and become buyers themselves. Who can blame them when staring 7.5 – 8% in the face? Here’s the rub…high interest rates are a better evil than competition. The Great Paradox that wasn’t (watch video). It’s hard to communicate how futile it feels when you are competing for a property with other bidders. Mortgage rates can be refinanced, but if you cannot secure a property to begin with, there is nothing to refinance. Remember, the greatest barrier to entry into the Manhattan market is not the price (or even the interest rates), it’s the competition.

Even now, there are properties that garner immediate attention and sell quickly with multiple interested parties. These are generally special and/or well-priced properties that stand out among the host of stale ones that have been languishing.

As bad as one might interpret all this, right now is an extraordinary opportunity to find a good property and buy it. This seasonal slowdown we are experiencing is compounding the prior 15 months of weak deal volume. However, buyers will emerge by late January and beyond. This momentum generally builds and remains sustained until June, with the peak happening somewhere in the middle. The wild cards right now are the interest rates; people are seeking certainty. Right now, this certainty would be defined by just knowing rates will not go up further. For others though, it won’t be until they actually see a cut in rates. When that occurs (perhaps mid-late 2024), the masses will indeed join the dance floor. We will look back on the end of 2023 and the onset of 2024, much as we did following Sept 11th in 2001, the Spring of 2009 after the financial crisis and the Fall of 2020, as we emerged from Covid. This will be the opportunity defined just prior to the interest rate thaw. Consider the moment.

Note: the market is infinitely segmented, from a park block Upper East Side townhouse to a Tribeca loft to an Upper West Side pied-a-terre to a Billionaire’s Row luxury condo in the sky…you name it, your needs are unique. Please feel free to reach out to me to discuss all of this data and how it affects your personal segment of the market.

I always say: 1) Anyone interested in buying or selling, should be rolling up their sleeves to determine whether the time is right to sell or if there’s a home/investment property out there for them; and 2) Who represents you matters…your best investment is often in the broker you choose; find someone with experience, who you feel you can trust.