In Manhattan, as the weather heats up, the market traditionally cools off a little.
click chart to enlarge
source: Corcoran Group, April 2009, contacts signed
(above) Price negotiability, April 2009: This chart shows that we are negotiating substantial price discounts for buyers, after asking price reductions on many properties. The largest spreads are for three bedroom or larger units. Condo buyers have been able to generally negotiate larger discounts than co-op apartment buyers, which usually come to market as less expensive than condominiums.
That creates opportunities for buyers as offers are often a bit more scarce, and traffic slows down, due to vacations and the weekend migration out to the east end of Long Island. Summertime could be the best time in several years to negotiate for a new home. Conditions for buyers are ideal:
- Even with discounted asking prices, price negotiability is unusually high for the Manhattan market (see chart)
- The median price of all properties (condo + co-op) are down 26% in April 2009 from a year earlier.
- Mortgage rates are at historic lows, with interest well under 5%
- Inventory remains high, creating an excellent selection of homes for buyers in all price categories
coming to grips with shifting realities
I wrote about the disconnection between buyer's and seller's points of view earlier in the year, when the first quarter report
was released: "owners who want to sell are not yet embracing the new realities of the market... Buyers, on the other hand, can be dire in their predictions about the market, fueled in part by negative press and blogs that irrepressibly look for the worst case scenarios." Consumer confidence
is substantially up since then. The first quarter was characterized by a lack of transactions, little moved. They remain substantially off from a year ago, but company wide we experienced a greater number of contracts signed in both March and April. This corresponded with both price reductions and the greater degree of negotiability off asking prices that sellers are beginning to conceded to, as the chart here shows. It acknowledges more of an an acceptance by some sellers of the market's statea psychological adjustment that manifests itself in done deals. Buyers and sellers are beginning to find common ground, albeit not without a bit of haggling over price.
I've represented buyers for the past few months who have gotten great deals, and they have all taken considerably longer to negotiate than usual. I've done deals in Manhattan and Brooklyn, in new developments and resale properties. In more than a couple of instances, multiple offers were present, but the other buyers, convinced that no one was going to buy, were surprised to find out that they had lost the deal. Just because it's a buyer's market doesn't mean that aren't other buyers who recognize value too. It is where having a reliable agent's guidance can be crucial. It feels just as bad to loose the property that you have your heart set on, in any market. Those who did have the common sense to follow my advice, digest the data that I presented, and close the deal, I believe will find that they purchased at, or very near to the bottom. More importantly, they purchased when the confluence of factors cited above allowed them to get a home that they love and are able to afford.
Waiting for prices to drop drastically further? Low rate mortgages have contributed recently to the market's affordability, and may well help cushion the downward trend. Apartment inventory, although high, appears to also be stabilizing due to a virtual halt in new development project starts. Consider that a purchaser of a property at $650K, putting 20% down and borrowing $500K at an interest rate of 4.75% will pay $2608 monthly on a 30 year fixed mortgage. If rates rise just 1.75% to 6.50% (a rate we've seen within the past year, and still very low historically), the payment would increase by 17% to $3160 monthly. The property would have to be reduced by another $90K or about 14%, just to achieve monthly cost parity in this scenario, even more for it to be any better of a deal. How likely is that? Moving forward, the unknowns about the economic recovery, how long it will take, and how inflation could put upward pressure on rates, are sure to be a point of debate. But for a person looking to cut a great deal now, live in the property, and hold it for several years, there is little reason to hesitate.
Sellers holding out for an unrealistic price, need to understand that the market has spoken, and every week on market unsold is working against them. Interest rates increasing, and a little more downside in prices are likely in my opinion; but the ultimate timing of these factors is very hard to see with certainty. Sellers need to get ahead of the curve now. Feel free to call or comment with any questions.
April 2009 Inventory and negotiability report (pdf 420 kb)
Market snapshot, April 2009
First quarter 2009 Manhattan market report