Feb. 23, 2023
The New York City housing market offers buyers and sellers abundant opportunities to build wealth and enjoy a premier urban lifestyle, from Uptown to the Financial District and from the East River to the Hudson.
A global center of finance, Manhattan has historically experienced a robust economy with competitive salaries, a high-yield rental income for investors, and lucrative deals to be made by savvy entrepreneurs and business owners. Even amid cyclical market fluctuations, such as the one we’re experiencing right now, the NYC housing market has proven to be resilient and quick to recover, making investing in New York City real estate a sound long-term investment.
With a new year comes new housing market forecasts. If you’re wondering where the NYC housing market is headed in 2023, read on for seven predictions that are already having a big impact on buyer activity and sales.
NYC Housing Market Is Expected to Return to Normal
At the end of 2022, analysts predicted that the housing market would begin to stabilize at the beginning of 2023 and “return to a long-lost normalcy” by spring, according to economists’ predictions at the National Association of Realtors® (NAR) annual Real Estate Forecast Summit.
We’re beginning to see the forecast ring true with interest rates already declining from 7.08 % in Q4 of 2022 to a rate of 6.32% for a 30-year fixed-rate mortgage on February 16, 2023, according to Freddie Mac. “If inflation continues to slow and rates stabilize, that could bring more buyers back to the market and boost demand for housing,” says NAR Chief Economist Lawrence Yun.
Manhattan Luxury Housing Market Forecast – 2023
Buying luxury real estate is a wise investment because home values appreciate over time, which makes a luxury purchase a smart long-term move. There’s a lot of buyer activity, and agents are busy showing properties. Many of the empty properties on Billionaire’s Row have been purchased. As Asia lifts travel restrictions as the year progresses, more luxury contracts are expected to be signed, since Asia makes up a large majority of buyers in the ultra high-end market.
During the week of February 13 to February 19, 2023, the city saw 31 contracts for luxury properties signed for over $4 million, according to data provided by Olshan Realty. Of those 31 properties, seven contracts exceeded $10 million, boosting weekly sales volume in Manhattan to $272 million and it was the largest weekly number of contracts signed since the 39 mark achieved in the middle of May in 2022.
Luxury properties sold by neighborhood (2/13/2023 - 2/19/2023)
Data source: Olshan
Big Demand for Luxury Properties
The appeal for luxury properties is stronger than ever. Luxury buyers, operating at the high end of the market, especially seek out homes in coveted locations. Who can resist a spacious dreamy, penthouse with floor-to-ceiling windows and an oversized terrace with stunning views, and all the amenities, venues, and services that come with luxury buildings such as rooftop decks, outdoor space, access to nearby restaurants, resident lounges, pools, and dedicated concierge and doorman services.
Paying in Cash, Luxury Buyers Won’t Feel Interest Rate Pain
Roughly 47% of Manhattan buyers are all cash, insulating them from higher interest rates. Some international investors concern themselves with fluctuations in the stock market and foreign exchange rates rather than interest rates. Luxury buyers tend to pay for real estate in the following ways:
- Buying properties in cash if they have the capital
- Taking out a loan against their portfolio
- Liquidating stocks, commodities, or other assets
- Using equity funds to finance the sale
- Cashing out or borrowing against real estate they own
- Using private credit
Some Sellers Will Sweeten Deals With Mortgage Rate Buydowns
If an owner is eager to sell in a market prone to high-interest rates, the seller can offer buyers a mortgage buydown, also called an interest-rate buydown. A buydown is a strategy sellers use to help close a deal when buyers, wary of high-interest rates, are on the fence about a purchase. With a buydown, rather than lowering the price or a buyer walking away, the seller agrees to pay points on a mortgage. Contrary to what you may have heard, you can do this in Manhattan and I can introduce you to my resources that can help execute this strategy.
Mortgage buydowns are also a popular trend with builders. According to Nanayakkara-Skillington, the National Association of Home Builders’ Assistant Vice President of Forecasting and Analysis, 59% of builders use incentives such as mortgage rate buydowns as well as price cuts to seal deals. Bright MLS data indicates that 40% of sellers have used buydowns and cut prices to sell properties. Let’s examine two kinds of buydowns.
Permanent Mortgage Rate Buydowns
Permanent mortgage rate buydowns can be beneficial for both buyers and sellers. For example, a seller lists a condo for $400,000. The buyer offers a price of $380,000. By the seller offering an interest rate buydown, the buyer will receive $20,000 savings over the life of the loan.
Here’s how it works: The seller will pay two percentage points on the buyer’s mortgage which will cost the seller a total of $8,000. In return, the buyer will receive a reduced monthly interest rate of $0.5%. Because interest compounds over time, the buyer will save nearly $20,000 by the end of the loan term and the seller will only need to contribute $8,000 rather than cutting $20,000 off the asking price. Everyone wins.
Temporary Mortgage Rate Buydowns
Another buydown both parties can agree to is a temporary mortgage buydown, also called a temporary interest rate buydown. The seller pays a couple of percentage points on the interest out of the sale proceeds. This lowers the interest rate on the loan for the buyer for the first three years.
Temporary buydowns don’t save buyers money over the life of a loan, but they can provide relief for buyers who expect to earn higher income in a few years or anticipate refinancing when rates get lower, while also helping owners sell a home more quickly. One type of temporary buydown you can do is a 3-2-1 buydown. Here’s how it works:
- The seller pays the interest rate to the lender at closing.
- The buyer‘s monthly interest rate is reduced by 3% in the first year.
- The buyer’s interest rate is lowered by 2% during the second year.
- The buyer’s interest rate is lowered by 1% during the third year.
Office-to-Residential Conversions Could Ease Housing Shortage
Ongoing strong demand has meant that New York City has experienced a housing shortage in the past few years, helping to drive up the value of NYC real estate. While the city has issued 59,000 permits to developers for affordable new housing, they will take time to complete. Developers in Manhattan have gotten creative and, thanks to the rise of remote and hybrid work, are now dipping their toes into office-to-residential conversions.
One example project can be found in a landmark building at One Wall Street, an Art Deco office tower that now provides Manhattan with 566 new luxury condos. The property is one of many conversions slated for 2023. As more permits gain approval and offices are converted to residential specifications, the housing market will increase its inventory supply.
Migration of New Residents Will Continue to Increase
More people are once again moving into Manhattan, with Bloomberg heralding the borough’s comeback. As more businesses reopened, wage growth spiked to the highest rate in 20 years, and more people returned to the office, even on a part-time basis, fewer people migrated out of Manhattan and many returned.
People are moving in from other metropolitan areas and some New Yorkers who left for the suburbs during the pandemic are back, motivated by suburban housing increases and the desire for Manhattan’s vibrant, walkable, and convenient urban lifestyle, and abundant amenities such as restaurants, world-class museums, broadway shows, art galleries, nightlife, entertainment, and shopping.
Source: Melissa, OMB published on Bloomberg.com
More Renters Are Considering Homeownership
In December 2022, tenants saw lease renewals soar by 40% to 50%. The average rental price spiked to $5,243, an increase of 18.1% over the previous year. This was great news for real estate investors, who saw record-breaking rental yields.
However, tenants who were ready for a long-term commitment and could swing the down payment started looking for properties to make the jump into homeownership and build equity. While some people relocated to boroughs such as Queens and Brooklyn — or out of New York City entirely — 73% of aspiring New York City home buyers searched for properties in Manhattan, according to real estate search data.
Is New York City in a Buyer’s or Seller’s Market?
As the Manhattan real estate market continues to shift, an important question on top of everyone’s mind is this: “Are we in a buyer’s or a seller’s market?” In 2021 and the first half of 2022, the entire United States, which included Manhattan, experienced a red-hot seller’s market. However, now we’ve transitioned from an unprecedented seller’s market to a market that favors buyers. Currently, in New York City, buyers have the edge, especially cash buyers, who make up roughly 50% of buyers in the market.
It’s also important to note that the New York City housing market isn’t as “cool” as we’ve heard in the news. Yes, sales might be down from the pandemic-buying frenzy that produced a record-breaking number of contracts signed. However, sales in Manhattan are 44% higher now than they were before the pandemic, according to Jonathan Miller, President and CEO of Miller Samuel.
This fast-moving market comes with lots of variabilities, says Bright MLS Chief Economist Lisa Sturtevant. “This means both buyers and sellers might need to reset expectations for a successful sale.
New York City is a dynamic and exciting environment, and the NYC housing market is no exception. If you’re looking to buy or sell, and need a seasoned Manhattan real estate professional to help you navigate a complex and rewarding housing market, message me or call (917) 719-1277 today.
- Luxury Outlook Report l Sotheby's
- Seller buydowns can help home sellers struggling to find buyers in a restrictive financial environment l Business Insider
- Mortgage Buydowns Are Making a Comeback l The Wall St. Journal
- On The Horizon: Markets to Watch in 2023 and Beyond l NAR
- More People Are Moving to Manhattan Than Before the Pandemic l Bloomberg
- A Turtle Bay Townhouse With Wall-To-Wall Windows l Curbed
- Olshan Luxury Market Report l Olshan
- Mortgage Rate Predictions So Far Are Bearing Out l NAR
- Compound Interest Calculator l Business Insider
- The Evolution of a Masterpiece l One Wall Street
- A Housing Market Hangover l New York Times
- Is now a good time to invest in Manhattan, New York residential property? l Castle Avenue
- Making sense of the NYC real estate market with Jonathan Miller