Manhattan’s Housing Problem – Newsweek

A stalemate between buyers and sellers in Manhattan this summer has plunged the borough’s real estate market in a “self-reinforcing cycle of low sales volume” which has caused it to become stagnant, according to real estate analytics firm UrbanDigs.

According to a report shared exclusively with Newsweek, buyers and sellers in Manhattan are stuck into what John Walkup, co-founder of real estate data analytics firm UrbanDigs, calls a “volume trap.”

While the spring season began on “a promising note with early months showing contract volume up year over year,” the report reads, after May “buyer enthusiasm faded, and sales volume slowed.”

Buyers are waiting for more inventory to be added, giving them more leverage to lower prices; sellers, on the other hand, are holding out for prices and demand to go up, so that they can in turn have stronger negotiating power.

The result of this widespread hesitation is that both buyers and sellers in Manhattan are being extremely cautious this summer, and the market isn’t moving in any clear direction.

At the moment, homes in New York City’s most famous borough remain expensive: the median asking price for a home in Manhattan was $1.41 million in June, up 6.4 percent compared to a year earlier, according to UrbanDigs data.

High prices, together with high mortgage rates, might be discouraging buyers: as of July 25, the 30-year fixed rate was 6.78 percent, according to Freddie Mac. But Walkup writes that those are not the only reason why sales are down in Manhattan. “[B]uyers are simply not excited about the market,” he said.

On the other hand, stubbornly high mortgage rates might make sellers a lot more reluctant to put their homes on the market and purchase a new property.

“The oft-discussed ‘lock-in’ effect means would-be sellers sitting on sub-4 percent mortgages are extremely reluctant to part with their low rates,” Walkup wrote.

“Hence, there is less supply and, subsequently, less demand, as sellers simply hold tight as they wait for better market conditions or higher prices to alleviate any financing differentials.”

There’s also a sense of uncertainty linked to the November presidential election, as there’s a lack of clarity about “what New York City will look like in the near future,” the report reads, in terms of urban policies, economic recovery and infrastructure developments.

But Manhattan’s housing market’s problems might go away once the cycle it’s stuck in is broken—and the lowering of mortgage rates could play a role.

“We’ve seen rates drop below 7 percent over the last few weeks, which has already brought some buyers out of the woodwork,” Walkup told Newsweek in a written statement. “As a result, demand has stayed pretty steady, even during these summer weeks that usually slow down.”

“To me, this suggests that the fall market, typically the second busiest season, could be more active than we expected. Lower rates could break the lock-in effect, encouraging more sellers—who are also buyers—to jump in,” Walkup said.

“So, we could see a seasonal uptick get turbocharged. While it feels like we’re in a bit of a lull at the moment, we could be on the verge of some serious movement.”