Decrease in Inventory: New York Real Estate Market in Q2 2023
During the second quarter of 2023, the real estate market in New York City has experienced volatility similar to that of the stock market. While the demand for ultra-luxury apartments, both condos and co-ops, has remained sluggish, smaller units, which had shown promise in April and May, have now also lost momentum. In the market for one and two-bedroom properties, those that previously attracted multiple offers in April are now lingering unsold through the month of June. Despite modest improvements in economic conditions since the beginning of the year, the slowdown in purchasing activity can likely be attributed to diverging perspectives on value between buyers and sellers.
Certain segments of the market face particular challenges that make their unattractiveness to buyers understandable. Properties across various price ranges, sizes, and locations struggle to sell due to poor conditions. The scarcity of construction assistance, continued disruptions in the supply chain leading to slow installations, and a general shortage of contractors willing to work in the city have resulted in both increased costs and prolonged timelines for major renovations, often exceeding a year. Additionally, co-op buildings with summer work policies further prolong renovation schedules and costs. Purchasers investing in a large co-op building subject to such rules should anticipate a three-year project, during which they will need to finance the renovation while covering the expenses of their current accommodations, as well as monthly maintenance fees for the property undergoing renovation.
The issue of monthly payments also acts as a hindrance to potential buyers. As prewar and early postwar buildings near or surpass their 100th anniversaries, ongoing maintenance requirements have driven up maintenance fees. The city’s growing hesitance towards tax abatements has contributed to the rise in maintenance costs, alongside increasing labor expenses. Presently, labor and taxes account for over 50% of monthly payments made by co-op and condo owners. Moreover, maintenance fees have surged to two or three times what they were fifteen years ago, while condo carrying costs, no longer benefiting from tax abatements, can easily reach $15,000 or even $18,000 or $20,000 per month for a well-lit 2,000-square-foot unit. The rise in interest rates exacerbates this issue further.
The Olshan Luxury Report reveals a contrasting reality in the market for properties listed at $4 million and above. Recent weeks have witnessed a surge in trades within this price range, marking some of the highest numbers seen in years. Understanding the coexistence of these perspectives requires delving into the complexities at play.
While the majority of sales occur within the $1.5 million and below bracket, followed by the $1.5 million to $3 million range, it is important to note that the market is not driven solely by high-value transactions (i.e., $10 million and above) that often receive media attention. Although there has been an increase in purchases at $4 million and above, this growth is offset by a decline in sales, particularly in June, within the lower price segments where the majority of transactions occur. Donna Olshan’s reported rise in numbers largely signifies seller price concessions. It is noteworthy, however, that sales exceeding $10 million are relatively scarce. Additionally, while co-ops still outnumber condos, the Olshan Report typically includes two to three condo sales for every co-op sale, a fact that co-op board members should pay heed to.
In normal circumstances, buyers seeking substantial discounts, which sellers may be reluctant to offer, might turn to rentals as a short-term solution. However, 2023 presents its own challenges in this regard. While the rental market has experienced a slight cooling-off over the past three months, rents remain historically high in mid- and downtown Manhattan, Brooklyn, and Queens, with no immediate indications of a downward trend. Limited supply coupled with high demand renders rentals priced at $5,000 or less highly desirable, often resulting in multiple bids and remarkably swift lease agreements.
Overall, the inventory of well-maintained properties at appropriate sale prices remains scarce. Listings websites witness hundreds of price reductions each week, often insufficient to attract buyer interest. Moreover, the competition for affordable rentals is fierce, with four prospective tenants vying for every $4,000 rental property in many parts of Manhattan, Brooklyn, and Long Island City.