Sales of New York City co-ops and condos, like all forms of housing across the country, suffered when the pandemic hit in 2020. After a rebound that stretched into early this year, sales are once again on the skids — this time thanks to the recent rises in interest rates which, the government hopes, will tame galloping inflation and avert a recession.
Far fewer people bought apartments in Manhattan and Brooklyn last month than in July 2021, according to new research from the brokerage Douglas Elliman, continuing a decline that began when the Federal Reserve started raising interest rates this spring.
And now, Crain’s reports, the number of homes being put on the market appears to be tumbling too, as sellers decide it’s better to stay put than fetch reduced prices for their apartments. The result: a double-whammy, with buyers reluctant to make bids because of high prices and rising interest rates, and with sellers cool to the idea of accepting lower offers. Supply and demand are trending downward at the same time.
“If sellers believe they are not going to get as high a number as they would have two years ago, they’re hanging on,” says Richard Ferrari, the president of Elliman’s northeastern division. “But prices are not really coming down, which makes this sort of a unique situation.”
Indeed, Ferrari adds, by keeping their condos and co-ops off the market, thus reducing supply, reluctant sellers are basically propping prices and contributing to a vicious market cycle.
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While purchases have declined for months, levels of new inventory had generally been stable, making July’s dive a fresh cause for concern. Among the concerned are co-op and condo boards that rely on flip taxes from apartment sales to feed their bottom line. A decline in apartment sales spells a decline in revenue — and will force boards to look elsewhere to make up any budget shortfalls.
Last month, sellers in Manhattan listed 562 condos, down from 677 in July 2021, a 17% decrease. And that drop represents a sharp reversal from June, when sellers then put up 808 condos for sale versus 709 in the previous year, an increase of 14%. Co-op sellers also seemed to pull back on listings, with a 19% decline in July from a year ago. In June, in contrast, the year-over-year drop was just 3%.
In a way, sellers finally appear to be as spooked by recession worries as buyers, who in July continued to show restraint. In Manhattan last month, there were 337 contract-signings, down from 509 in July 2021, a 34% drop, according to Elliman. Meanwhile, in June 2022, the year-over-year decline was 29%, Elliman said, adding a caveat that summer 2021 enjoyed being part of an unusually strong housing market.
The softness in Manhattan’s co-op resale market was similar, with a 43% decline in contracts in July versus a year ago. In June, the year-over-year dip was 30%.
In general, New York’s housing market has swooned since March, when the Fed first raised interest rates, in that case by a quarter of a percentage point. Since then, there have been three more rate increases, including one by three-quarters of a percentage point in late July.
The slowdown in co-op and condo listings and sales may be partly attributable to history. After years of historically low interest rates, homebuyers have grown accustomed to cheap money, and now they may be overreacting to this year’s relatively modest rises in interest rates.
Ferrari attempted to put the disconnect in perspective: “Yes, borrowing costs are higher than they’ve been. But they are still historically low and in line with 2018, which was a normal market.”
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