Expectations vs. reality — How buyers and sellers are grappling with a changing real estate market

It’s complicated.

Homeowners want top dollar and who can blame them? The NYC unemployment rate is low and mortgage rates are low too — a great recipe for increasing prices.

According to Marketproof economic analysis, sales prices have increased by 43% since 2006. But those numbers only tell half the story.

As prices have gone up, seller expectations have risen even more. This contrasts with a period in 2015 when expectations and reality were in sync. In fact, buyers were actually paying asking prices. Back then, New Yorkers could afford to meet sellers numbers. Now they can’t — and the chasm is widening.

 

Homeowners have been overly ambitious in their pricing and are now experiencing a reality check.

– Marketproof Research

 

Sales are plummeting

Sales reached a six-year low in 2018, and 2019 has been more of the same. In Manhattan, the number of sales has decreased each year since the peak sales year of 2013, dropping over 20 percent. Final sales figures for 2019 are expected to be lower than those in 2009 following the financial crash.

In the third quarter of this year, Marketproof data shows sales down by 14 percent compared to the same time last year with the median sales price also down by 8 percent. With a median Manhattan sales price now under a million dollars, it represents a 17 percent decline compared to the same time last year.

We’re in a buyer’s market

“There are consistent clues that we’re seeing a shift in the velocity of the market, and moving away from an extreme seller’s market,” Javier Vivas, director of economic research for realtor.com, told the Wall Street Journal. “There’s some uncertainty that happens when you’re coming down from great heights. But those higher-priced, historically hot markets are really now getting more of that correction and moderation.”

Home equity can be overrated

Owning a home with increasing equity is not the panacea it once was. Owners seem to know this too. According to the Federal Reserve, borrowing against home equity is declining — and owners are sitting on their equity balances like squirrels hoarding nuts in the winter.

Why? Increasing taxes without income growth.

The value of equity balances is being offset by interest deduction caps, retiring tax abatements, and increasing NYC assessment rates. NYC’s tax revenue will pass $29B in 2019, more than double the $14B in taxes collected in 2008.

Income growth lags behind sales prices

The disparity between income and home prices has been widening nationwide too. Per capita income rose 25% between 2011 and 2018. Home prices rose 48% during that period, according to the NY Times.

Mortgage rates could be a game changer

There is one potential gamer changer in the whole equation: mortgage rates. In July 2019 the Fed lowered the current fed funds rate to 2.25 percent. If rates continue to stay low or drop further the housing market may splutter back to life and NYC may again see packed open houses. If the rates increase, however, expect sellers on lower-priced properties to follow the lead of higher-end developers — and finally drop asking prices.

Disclosure: Marketproof powers the real estate listings for Brownstoner, a publication of Schneps Media, which is the parent company of amNewYork.

Kael Goodman

Kael Goodman is the CEO of Marketproof, Inc., a Brooklyn based proptech company that combines real-world experience, data, and analytics to help both consumers and real estate professionals gain the information and expertise they need.