Tag: supply and demand

  • Is the US Real Estate Market Finally Starting to Cool Off?

    According to recent trends witnessed primarily in California, but largely nationwide, the supply in the housing market appears to be growing, while the demand is shrinking. This is what experts are counting on leading to a “cool off” period in real estate prices. “Today, week after week, we see more and more inventory come on the market and demand is down,” said broker Justin Itzen. He added, “Buyers have more to choose from, they can be more selective” (Moscufo, ABC News). Taylor Marr, chief economist of Redfin, echoed a very similar narrative. Marr made a distinguishment between expensive coastal markets and cheaper, rural housing markets. As Itzen’s remarks indicated, Marr concurs coastal cities located in California, New York, etc. will witness most of the impact.

    But that still leaves the larger question unanswered; are we looking at a nationwide real estate cooling period? According to an investors report Redfin released at the very start of August 2022, the share of home listings that have been on the market for more than 30 days has increased more than 12% from 2021. Due to inflationary effects, interest rates for average mortgages were between 5-6% in July 2022, compared to 2-3% July 2021. Inflation and rising prices (or rates) go hand-in-hand, but this increase is steep enough to leave tangible impressions. With more listings, dropping prices, and definite near future housing market uncertainty, we’re hopefully finally entering a buyer’s market.

    Importantly, Iesha McTier-Whyte, a broker selling middle to high-end homes in Newark, NJ advised she’s seen the same pattern. However, she doesn’t view it as a bad thing. “It’s nice to see [the market] cool down and kind of go back to the basics,” McTier-Whyte said. “What we experienced last year was like no other”. Itzen’s partner, Gio Helou, remarked “buyers are [now] able to actually go through the natural home buying process”. Assumingely, Helou meant that buyer’s now have the luxury of options. They no longer have to make the same kind of extraordinary sacrifices to simply purchase a family home.

    At one point, “homes were going within days for way over the asking price,” said Tim Sherman, a prospective homebuyer. When he and his wife found a home in Huntington Beach, CA, they began considering liquidating investments to purchase it. Not only “15% over the asking price,” commented Sherman, “but it was now over the market estimates of what the property was worth” (Moscufo, ABC News).

    The end to Sherman’s story really ties into the underlying assertion of this article. That first house fell through, but he and his wife did wind up purchasing a home. As soon as they saw the photos their broker sent them, they put in an immediate offer. Their former home in Dallas then sold in just one day (Moscufo, ABC News). If that’s any indication of the market dynamics moving forward, expect lower prices, more supply, and increased quality listings. A true win-win, both for individual homeowners and for real estate investors. As for the critics who continue to say there’s somewhat of a 2008-like “housing bubble” getting ready to pop, there’s little quantitative evidence to support the theory. Yet even the critics concede:

    “There is now a huge supply of new houses for sale, in all stages of construction, over 9 months’ supply in total, according to the Census Bureau. In terms of the number of houses, by June [2022], there were 463,000 new single-family houses at all stages of construction for sale, the highest since May 2008, and up by over 30%, from a year ago.”

    -Wolf Richter, The Wolf Street Report

    Their perspective is investors need to remain patient, as market conditions are continuing to return to their equilibrium. After what we’ve witnessed with the COVID-19 global pandemic, anything is possible, but conceptually, our economy isn’t close to the same state it was in heading into the 2008 financial collapse. We have far more restrictions on speculative investments, strict leverage ratios, mandatory reporting requirements, etc. The lessons of 2008 essentially taught us how to avoid widespread economic fragility when a significant market starts looking vulnerable. Additionally, the credit worthiness, financial disclosures, and ability to repay have all tightened considerably for buyers. Time will only tell whether we are in the midst of a “cooling off” period, or if we’re about to witness about bubble bursting. From our research and observations, we see it as more of a buyer’s market than a ‘fragile’ housing market.  

  • New York City’s Housing Market Finishes Strong in 2021; Slowdown Expected in 2022?

    New York City’s residential real estate market closed 2021 with many arguing it had the strongest performance in three decades. By mid-October, Manhattan contract signings already surpassed the previous record, which was 12,520 in 2013 (UrbanDigs). With a little under two weeks left in 2021, closings reached 14,774 (Cavanaugh, TheRealDeal). Already, that’s more than double the 2020 total. Despite a rise in listings, that level of closings undoubtably depleted inventory. Are we heading towards a residential real estate market slowdown in NYC in 2022?

    UrbanDigs found that through December 5th, 2021, listings had exceeded the 2008-2018 average by 18%. Net new inventory – the number of monthly new listings, minus contracts signed and listings taken off-market – surprised many market experts. Astonishingly, buyers bought out the increased supply at an even faster pace. Net new inventory dropped below zero in 9 of 11 months during 2021, to negative 861 units (Cavanaugh, TheRealDeal).

    For buyers, prices have steadily risen in tandem. For the first time since 2015, listing discounts fell consistently throughout the year, even as buy-side competition increased. The luxury market, considered properties with a selling price of $4M and up, had the best year since 2014 (UrbanDigs). Buyers spent over $14B so far and with less than a couple weeks left in 2021, this represents a 19% increase over the previous record of the last three decades (UrbanDigs).

    Even with the residential housing market’s red hot 2021 performance, UrbanDigs co-founder John Walkup does not have nearly the same forecast for 2022.

    “Deal volume may slow through the holiday season, especially with fewer units coming to market”

    -John Walkup, Co-Founder of UrbanDigs

    He continued with stating he feels the next quarter could be noticeably slower than Q4 of 2021.

    “A slowdown in buy-side activity may cause inventory levels to rise, pressuring prices”

    -John Walkup, Co-Founder of UrbanDigs

    Furthermore, he predicted a “multi-quarter lull in 2022” for the luxury market.

    Walkup’s predictions for 2022 aren’t exactly universally accepted by known residential real estate experts. Jonathan Miller, President and CEO of Miller Samuel, had a different sentiment in his latest report for Douglas Elliman. Miller sees deals in Manhattan and Brooklyn continuing to outpace listings heading into 2022, as they have closing 2021. His report cautions real estate market participants not to be surprised if there isn’t as noticeable a slowdown in 2022.

     “Inventory is continuing to collapse, and that’s why we anticipate continued price growth into the new year”

    -Jonathan Miller, President & CEO of Miller Samuel

    According to the Wall Street Journal (WSJ), the Federal Reserve may hike interest rates as early as March 2022. Walkup believes this could “put an upper bound on condo prices, with luxury and new development prices falling first”. Simultaneously, Walkup assured the luxury lull will be “nothing too drastic”, estimating discounts maxing out at 5%.

    In a peculiar comparison, the WSJ noted that condos, as an asset class, lag behind the exceptional performance of the S&P 500 Index (Joe Wallace, Wall Street Journal). The S&P hit a 67th record high in the third to last week of 2021 (Alexander Osipovich, Wall Street Journal). Since the 2008 US financial collapse was largely related to assets and various securities in the housing market, it’s not surprising during that time, both the stock market and the value of real estate took a hit as a result (Cavanaugh, TheRealDeal). UrbanDigs found that since January 2008, the S&P increased 230%, while the price per square foot of a new Manhattan condo rose 68%.

    “The frothy activity observed in the NYC real estate market since the reopening has yet to translate into anything approaching the gains seen on the broader equity index”

    -John Walkup, Co-Founder of UrbanDigs

    While that may be true, you cannot live in an index, or any stock portfolio.

    Interest rates could also be a major influencing factor for foreign investment. Should the Fed raise rates, this would further strengthen the USD, which already surged to a 16-month high in November 2021 according to Barron’s. As a result, this places buyers with wealth in other countries in a disadvantageous position. So much so, Walkup pontificates, that this will dissuade foreigners from buying US real estate. Instead, Walkup believes they are likely to liquidate their current holdings. He goes on to state, “2022 could be the year of the foreign sellers”.

    In anticipation of the opposite, NYC brokers geared up for an influx of foreign buyers, ahead of travel bans being lifted from 33 countries in November 2021. The increasing prevalence of the Omicron variant is heavily pushing a slowdown on that effort. Nonetheless, a rebound of residential real estate in overseas markets suggests foreign investor fears may be receding.

    “On the whole, I think travel bans take a back seat to [profit and loss] statements. So whereas a lifted travel ban could certainly stimulate some activity, if NYC investment returns are viewed as less than optimal due to currency fluctuations or price volatility, foreign buyers will look elsewhere.”

    -John Walkup, Co-Founder of UrbanDigs

    On a more granular level, Walkup expects continued strong townhouse demand and a renewed interest in “fixer-uppers”. Compared to the 2008 – 2018 average, in 2021 average monthly sales volume of Manhattan townhouses rose by nearly 50 percent. Walkup feels the market will likely remain hot, as buyers continue pursuing space and privacy, inspired by the COVID-19 pandemic. He sees sales and prices continuing to rise, as more homes are snapped up, thereby depleting inventory.

    The demand for renovated units, however, could be ebbing (UrbanDigs). In October 2021, UrbanDigs released a report outlining a roughly 30 percent divide between prices of renovated units and “fixer-uppers”. The prevailing theory seems to be supply chain problems, with labor shortages and rising material costs being the main catalysts. This helps explain why a very substantial block of buyers opted to avoid properties requiring extensive renovation.

    Walkup said in 2022, the spread between renovated and unrenovated units has potential to narrow. Increasingly tightening supply compels buyers to opt for units in need of some TLC. All-in-all, especially considering NYC has remained a historically hot buyer’s market when it comes to residential real estate throughout all of 2021, it’s too early to truly predict what 2022 will bring. The Omicron variant’s spread throughout the US, as well as the world, will surely have an impact. Other external economic factors will continue to impact NYC’s housing market as well, as all eyes are on the Fed. If and when the Fed chooses to hike up rates, investors should expect the entire landscape of residential real estate in NYC, as well as the entire United States, to change.  

  • New York City’s Housing Market Finishes Strong in 2021; Slowdown Expected in 2022?

    New York City’s residential real estate market closed 2021 with many arguing it had the strongest performance in three decades. By mid-October, Manhattan contract signings already surpassed the previous record, which was 12,520 in 2013 (UrbanDigs). With a little under two weeks left in 2021, closings reached 14,774 (Cavanaugh, TheRealDeal). Already, that’s more than double the 2020 total. Despite a rise in listings, that level of closings undoubtably depleted inventory. Are we heading towards a residential real estate market slowdown in NYC in 2022?

    UrbanDigs found that through December 5th, 2021, listings had exceeded the 2008-2018 average by 18%. Net new inventory – the number of monthly new listings, minus contracts signed and listings taken off-market – surprised many market experts. Astonishingly, buyers bought out the increased supply at an even faster pace. Net new inventory dropped below zero in 9 of 11 months during 2021, to negative 861 units (Cavanaugh, TheRealDeal).

    For buyers, prices have steadily risen in tandem. For the first time since 2015, listing discounts fell consistently throughout the year, even as buy-side competition increased. The luxury market, considered properties with a selling price of $4M and up, had the best year since 2014 (UrbanDigs). Buyers spent over $14B so far and with less than a couple weeks left in 2021, this represents a 19% increase over the previous record of the last three decades (UrbanDigs).

    Even with the residential housing market’s red hot 2021 performance, UrbanDigs co-founder John Walkup does not have nearly the same forecast for 2022.

    “Deal volume may slow through the holiday season, especially with fewer units coming to market”

    -John Walkup, Co-Founder of UrbanDigs

    He continued with stating he feels the next quarter could be noticeably slower than Q4 of 2021.

    “A slowdown in buy-side activity may cause inventory levels to rise, pressuring prices”

    -John Walkup, Co-Founder of UrbanDigs

    Furthermore, he predicted a “multi-quarter lull in 2022” for the luxury market.

    Walkup’s predictions for 2022 aren’t exactly universally accepted by known residential real estate experts. Jonathan Miller, President and CEO of Miller Samuel, had a different sentiment in his latest report for Douglas Elliman. Miller sees deals in Manhattan and Brooklyn continuing to outpace listings heading into 2022, as they have closing 2021. His report cautions real estate market participants not to be surprised if there isn’t as noticeable a slowdown in 2022.

     “Inventory is continuing to collapse, and that’s why we anticipate continued price growth into the new year”

    -Jonathan Miller, President & CEO of Miller Samuel

    According to the Wall Street Journal (WSJ), the Federal Reserve may hike interest rates as early as March 2022. Walkup believes this could “put an upper bound on condo prices, with luxury and new development prices falling first”. Simultaneously, Walkup assured the luxury lull will be “nothing too drastic”, estimating discounts maxing out at 5%.

    In a peculiar comparison, the WSJ noted that condos, as an asset class, lag behind the exceptional performance of the S&P 500 Index (Joe Wallace, Wall Street Journal). The S&P hit a 67th record high in the third to last week of 2021 (Alexander Osipovich, Wall Street Journal). Since the 2008 US financial collapse was largely related to assets and various securities in the housing market, it’s not surprising during that time, both the stock market and the value of real estate took a hit as a result (Cavanaugh, TheRealDeal). UrbanDigs found that since January 2008, the S&P increased 230%, while the price per square foot of a new Manhattan condo rose 68%.

    “The frothy activity observed in the NYC real estate market since the reopening has yet to translate into anything approaching the gains seen on the broader equity index”

    -John Walkup, Co-Founder of UrbanDigs

    While that may be true, you cannot live in an index, or any stock portfolio.

    Interest rates could also be a major influencing factor for foreign investment. Should the Fed raise rates, this would further strengthen the USD, which already surged to a 16-month high in November 2021 according to Barron’s. As a result, this places buyers with wealth in other countries in a disadvantageous position. So much so, Walkup pontificates, that this will dissuade foreigners from buying US real estate. Instead, Walkup believes they are likely to liquidate their current holdings. He goes on to state, “2022 could be the year of the foreign sellers”.

    In anticipation of the opposite, NYC brokers geared up for an influx of foreign buyers, ahead of travel bans being lifted from 33 countries in November 2021. The increasing prevalence of the Omicron variant is heavily pushing a slowdown on that effort. Nonetheless, a rebound of residential real estate in overseas markets suggests foreign investor fears may be receding.

    “On the whole, I think travel bans take a back seat to [profit and loss] statements. So whereas a lifted travel ban could certainly stimulate some activity, if NYC investment returns are viewed as less than optimal due to currency fluctuations or price volatility, foreign buyers will look elsewhere.”

    -John Walkup, Co-Founder of UrbanDigs

    On a more granular level, Walkup expects continued strong townhouse demand and a renewed interest in “fixer-uppers”. Compared to the 2008 – 2018 average, in 2021 average monthly sales volume of Manhattan townhouses rose by nearly 50 percent. Walkup feels the market will likely remain hot, as buyers continue pursuing space and privacy, inspired by the COVID-19 pandemic. He sees sales and prices continuing to rise, as more homes are snapped up, thereby depleting inventory.

    The demand for renovated units, however, could be ebbing (UrbanDigs). In October 2021, UrbanDigs released a report outlining a roughly 30 percent divide between prices of renovated units and “fixer-uppers”. The prevailing theory seems to be supply chain problems, with labor shortages and rising material costs being the main catalysts. This helps explain why a very substantial block of buyers opted to avoid properties requiring extensive renovation.

    Walkup said in 2022, the spread between renovated and unrenovated units has potential to narrow. Increasingly tightening supply compels buyers to opt for units in need of some TLC. All-in-all, especially considering NYC has remained a historically hot buyer’s market when it comes to residential real estate throughout all of 2021, it’s too early to truly predict what 2022 will bring. The Omicron variant’s spread throughout the US, as well as the world, will surely have an impact. Other external economic factors will continue to impact NYC’s housing market as well, as all eyes are on the Fed. If and when the Fed chooses to hike up rates, investors should expect the entire landscape of residential real estate in NYC, as well as the entire United States, to change.