Frederick Peters
President Emeritus
Conventional wisdom always indicated that you don’t try to sell New York City properties in the summer. “Everyone’s in the country,” old-time agents would tell you. But the world has changed. With two-income families, people don’t go to the country for the summer like they once did. And since the pandemic, they are just as likely to be in the country as the city at any time. The super-rich just jet from place to place at will to shop and buy whenever and whatever they want. And, most importantly, the vast majority of sales in New York are made with people who leave town now and then on the weekends but are home most of the time in the city. And those people are looking for real estate all the time.
So unsurprisingly, the numbers in the Olshan Luxury Market Report (tracking deals at $4 million or more) dropped considerably between June, an average of 29 deals a week, and July/August – averages of 21 and 18 deals, respectively. The good news came more in the markets below $4 million, where sales remained steady throughout the summer. September has been busy again in the higher price points, with weekly averages around 27 deals, while remaining steady for lower-priced properties. The interest rate drop, already built into the markets by Labor Day, helped fuel that pick-up as stocks soared.
The third quarter disappointed some expectations by not coming in with a bang of new inventory. Overall, the lack of inventory impacts the sales market substantially as the months go by. While new development continues to come online, it does so at considerably lower numbers than two or three years ago. Much of what is available today is “clean-up:” trying to sell the remaining apartments in buildings where most units are already bought and inhabited. For current apartment owners, especially those in larger units that they have owned for a long time and for which they paid relatively little, the double trouble of higher interest rates on a potential new purchase and hefty capital gains taxes on their sale profit leads many not to move to smaller spaces even when doing so would be more convenient. This has a further dampening effect on inventory.
Finally, co-op sales numbers are dampened by the almost universal need for renovation and the ongoing monetary gap between buyer and seller expectations. Between supply chain issues and the difficulty of renovating for under $500 a foot (and often more), very few buyers have the time and/or patience to remodel an apartment. Those that do expect a BIG price discount, which sellers often feel reluctant to give. So more people every year are choosing new construction, into which you can move with just your clothes and your toothbrush. That said, a certain group of New Yorkers will always desire a home in the stately buildings that line the most storied avenues of Manhattan. Owning a prewar home on Park or Fifth or Central Park West means buying a co-op.
Even as we have seen the ebb and flow of sales deals, the rental market has remained fast and expensive. Properties often rent within 72 hours of hitting the market, often with multiple offers. High interest rates have driven many customers from the sales market, as have substantial increases throughout the city in maintenance, common charges, and taxes on owned properties which, when combined with lost opportunity cost on the money used to make a purchase, can make renting seem like a viable financial option. It is also important to remember that the current younger generation of prospective property acquirers, who have come of age since the recession, have not seen real estate as the wealth building investment which it has been for older generations. In inflation-adjusted dollars, there has been virtually no growth in property values since 2015, and many properties are selling for less than the owners paid for them 8 or 9 years ago.
To summarize, August saw strong transaction volume for this usually slowest of months, while September has seen a bounce in activity driven by declining interest rates and a strong stock market. Fourth-quarter sales in election years are hard to predict, but it seems likely that 2025 will be a stronger year than the past three have been. As to prices, who knows? It will take some time for them to return to the levels of 2016, but 2025 could see the stirrings of increased prices for some properties and neighborhoods. After all, if new condominiums on Third Avenue can command prices formerly reserved for buildings west of Lexington, New York City’s real estate market can still surprise us.
