Has the New York real estate market peaked? Agents are reporting a slowdown that started at the end of the summer: Sparsely attended open houses, properties sitting on the market with no offers, price cuts.
“Prices kept climbing and climbing, and the market started not being able to handle it. Sellers weren’t listening and just went too far, and now everybody’s taking a step back,” said a manager of a Brooklyn office for a major firm who requested anonymity because he wasn’t authorized by his company to speak on the record.
Buyers may have reached a limit to what they are willing or able to pay. The standard approach of adding 10 percent to the last sale price is no longer flying, agents told Brownstoner. They stressed they are not seeing a dip — and certainly not a crash — but a slowing of the intense acceleration in prices that has become the norm in the Brooklyn market since 2012.
“People say it only takes that one buyer. But we have become used to lots of buyers,” said one agent, who said her business has not been negatively affected.
The slowdown started as early as the end of the summer or in mid-September, depending on who you ask.
“It’s a bit too early to tell if the market is turning but we are clearly experiencing a buyer’s market moment in Manhattan and Brooklyn,” said Gabriele Sewtz of Compass. “What we are seeing is price corrections,” with buyers rejecting the properties priced 10 percent above the last sale. “Buyers are very hesitant to make offers. I think that is one element took everyone by surprise,” she continued. “If you are overpriced or the buyer thinks you are overpriced, you will not even get an offer.”
“The market brought it on itself, it can’t continue to add on and on,” said an agent.
Houses in Bed Stuy. Photo by Cate Corcoran
The first two weeks of the fall season were business as usual with bidding wars and “things flying off the shelves,” said Sewtz. But right around the time when there was news of global economic uncertainty in mid September, and the Fed put off raising interest rates, the market “came almost instantly to a standstill.”
The cooling off is not the usual seasonal slowdown, said brokers, because that does not usually start until Thanksgiving.
Developers of new buildings have reduced their projections, said one agent. “Our projections for income on land of commercial sites are more conservative now. After 18 months of development, the price per square foot is now not what we thought it would be six months ago. There’s uncertainty, people are holding back decisions, it’s not as crazy as it was six months ago.” On one project, the current projections are seven percent lower than what they were six months prior, he said.
Homes that need work, homes that are overpriced or at the high end of the market are not getting bids. Townhouses in the $1,200,000 to $1,500,000 range (whether in central, north or northwest Brooklyn) and rare types of properties such as new condos in Cobble Hill are getting multiple offers and going into contract quickly.
“On the lower end, things that are priced right are still getting great traffic and things are selling — things are going into contract at a good clip,” said the manager.
“We’re all very touchy on this topic right now. Nobody wants to tell the truth,” said a veteran agent who requested anonymity. “If we had talked 16 days ago I probably would have given you a different report. We get reports every day and see price drop after price drop — evidence prices are softening.”
“Buyers have been strained the last couple years, they’re up against many all cash buyers, there are also bidding wars — buyers get tired at some point,” she continued. “I’ve been doing this for 30 years and you can smell these things coming. Prices escalated tremendously. The sellers start getting very aggressive, at a certain point buyers start taking a breather. They get tired.”
Buyers are waiting for the right thing to come along as opposed to jumping on whatever they can get, she said. “It’s not like the market is falling apart but there are signs that there is a little bit of reality creeping into the marketplace. I think the pace of rising prices has to slow. I personally think it has risen too fast. I don’t think we’re heading into a crash of any kind. It might be a little easier to get some stuff here. People might catch a break and prices won’t escalate as fast as they have been.”
Open houses have been sparsely attended, and some agents at REBNY and NYRS meetings have said they are seeing a pullback. After a quiet fall, there was a rush at open houses the first weekend of November — possibly in response to news of interest rates rising again.
6th Street in Park Slope. Photo by Cate Corcoran
“We are up 30 percent from last year and bringing in exclusives,” said Trish Martin, Managing Director of Sales for Brooklyn for Halstead. “We’ve been very busy. We’ve had a couple of price reductions but that’s not the norm…It’s not to say we’re zooming ahead like the last market but we’re certainly not concerned.”
“If there has been a slowdown in the number of buyers out there, it hasn’t meant a slowdown in the number of offers coming in and being accepted,” she said.
Both the sales contingency and the 20-percent-down offer are back — good news for buyers.
“The last time I saw sales contingencies was in 2008 after Lehman Brothers,” said an agent. “I cannot recall having a single accepted offer with 20 percent down in 2012, 2013 — here in 2015 offers are accepted.”
New developments are offering incentives such as three months of real estate taxes paid, she added.
Statistics available through September show a very robust market overall, with inventory up and time on market down in Brooklyn. It was the second strongest third quarter for closings in Brooklyn in seven years, according to Corcoran’s Q3 2015 report.
There was a 7 percent increase in inventory in the third quarter vs. the same period last year. The number of contracts signed was up 9 percent. Average days on the market was down 14 percent — the lowest in seven years. Median price per square foot was up 27 percent vs. the third quarter of 2014.
A Snapshot of the Current Quarter
A new market-data app from Compass shows the latest data available, including for the not-yet-completed fourth quarter of this year. So far, what it shows is that the number of listings on the market, in contract, and sold are down for the fourth quarter vs. the third quarter in select neighborhoods, such as Cobble Hill and Bed Stuy. But since the quarter is not yet over, the numbers could change — particularly closed sales.
A smattering of news stories in the last two weeks have warned of similar market slowdowns with a softening of the high end of the market in San Francisco and London. The Post quoted a “major investment broker” who claimed the New York market is “past its peak.”
A true picture of the fall season and the fourth quarter will not emerge until sales close, are recorded, and appear in the public record, which will be months from now. But even if the numbers do show a fall slowdown, the market could rally in spring.
The market could get a shot in the arm in these few weeks before Thanksgiving as buyers again try to squeeze in a sale before interest rates rise. If interest rates rise, though, a slowdown in sales prices would not be surprising.
When the numbers for the fourth quarter are all in, Brownstoner expects the median price per square foot will still exceed that of the third quarter — with a smaller increase than in prior seasons.
[Photos: Barbara Eldredge]
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