Manhattan Market Update: A Potential Shift From a Buyer’s to a Seller’s Market

Our leverage indicator has four inputs: supply, demand, median price per square foot, and median listing discount (all data courtesy of UrbanDigs).

As is typical of spring, supply has been ticking up, which favors buyers. Price/SF is waning and median listing discount is on the rise, both of which also favor buyers. So, it would appear to be a buyer’s market if not for demand.

Demand has been intensifying rapidly, shifting the direction of the curve — at least since January — toward a seller’s market. Whether this is only a temporary shift (within the larger trend of a buyer’s market) remains to be seen.

But the take-home message is this: demand is strong. It’s so strong, in fact, that it may have single-handedly shifted the market toward favoring sellers.

Manhattan Supply

Our weekly reports discuss the bi-annual supply cycle with crests in spring and fall and troughs in summer and winter. The end of Q1 marks the halfway point en route to the June peak.

The bar charts below illustrate that both total and new supply levels in March were higher than their pre-pandemic 2013–2019 averages.

Manhattan Buyer Activity

For the first time in eight months, we can report that the current month’s demand, as measured by contracts signed, exceeds its pre-pandemic average.

Manhattan Leverage Indicator

Elegran’s Leverage Indicator tells us whether current market conditions favor buyers or sellers, helping to pinpoint which group has more transactional leverage over the other. Looking at the graph below, this is indicated by the direction of trendlines. Our indicator also informs us about the relative strength of that leverage, as indicated by the slope of those trendlines.

The change in direction of the line in January 2023 (shown by the purple block below) may indicate a transition from a buyer’s market to a seller’s market. However, as we can see from the choppy nature of the data, there’s a very large number of “false positives” as well. To mitigate these false positives, which entails smoothing out the curve and improving accuracy, we added a fourth input this month: median listing discount.

Price/SF & Discounts

Price-per-square-foot has trended downward over the past few months but is still on par with previous highs reached at various points throughout 2015–2017 and 2019. However, it’s important to note that this indicator lags the market by approximately three months, according to a comprehensive study conducted by Marketproof.

The chart below shows that listing discounts are still sharply on the rise, pointing to a strong buyer’s market and contradicting the recent potential shift to a seller’s market, as suggested by our leverage indicator. However, like price/sf, the listing discount is a lagging indicator because we have to wait approximately three months until a transaction closes and is posted to ACRIS.

What this means for …

Buyers:

• Although we don’t feel comfortable making the call on a shift to a seller’s market just yet, we can confidently say that the leverage recently afforded to buyers has eroded substantially.
• The recent bank failures may have expedited the Fed’s transition to a less hawkish stance on interest rates. An end to rate hikes may further increase demand and, subsequently, further erode the transactional leverage that has been in buyers’ back pockets since March of last year.

Sellers:

• Demand and rates appear to be moving in favor of sellers, possibly ushering in a seller’s market.
• Although we have suggested for quite some time that sellers lease out their residences while they wait for better listing conditions, it may soon be time to change that “FOR LEASE” sign to a “FOR SALE” sign.

Renters:

• A resistance level was reached last summer that forced rents to cool off. That being said, rent rates are still high. Then again, so are asking prices, and 6.5% mortgage rates still tip the rent-versus-buy scale for many toward leasing.

Investors:

• Mortgage rates have left little “meat on the bone” in terms of leveraged cap rates, but cash buyers can still source opportunities on account of high rents.
• On the sell-side, a relatively strong USD offers foreign investors — depending on their native currency — the opportunity to attain significant capital gains upon the sale of their asset.
• On the buy-side, the weakening dollar creates opportunities for foreigners to purchase Manhattan real estate and lock in its notorious stability and potential for price appreciation.

If you would like to chat about the most recent market activity, feel free to contact us at info@elegran.com or connect with one of our Advisors.