Last week, we highlighted the observation that the average mortgage rate during our historical frame of reference* was roughly 4.1%, while the current rate is approximately 6.2%. So, rates today are 50% higher, yet demand for NYC residential real estate is the same. That’s a powerful statement.
In our monthly roundtable, one of our agents — who spent three decades as a principal of Oppenheimer & Co — made the observation even more potent when he discussed the real cost of capital. To cover that point here, let’s look through investors’ lenses for a moment.
An investor’s balance sheet calculates a rate of capitalization (“cap rate”) that factors in debt service and net income and is weighed against the yield of what is considered to be a “risk-free” investment such as a 2-year Treasury. During the 2015–2019 period, the risk: return ratio for leveraged ownership of a NYC apartment was palatable because the return on the Treasury bill was almost nothing.
But now, not only are mortgage rates 50% higher, that same T-bill is returning 4.5% without the expense and effort of a real estate transaction.
So, investment purchases — we can safely assume — have waned, but end-users have filled the void. Said differently, investor demand for NYC is down, but homeowner demand is up. Despite mortgage rates. Despite the real cost of capital.
Powerful statements rendered even more powerful.
* the period January 5, 2015, to March 1, 2020
Manhattan Supply
As the curve’s historical shape, i.e, the bi-annual peak/trough cycle, clearly illustrates, supply is crawling out of its Winter hibernation towards the Sprint peak. The metric was up again slightly this week to 6,079 units, including the 311 new listings that were posted.
Chart courtesy of UrbanDigs
Brooklyn Supply
Without Manhattan’s depth of historical data to clearly illustrate the trend, it still exhibits a similar bi-annual supply cycle. And, like Manhattan, supply is now off the Winter low en route to the Spring peak, up to 2,933 units this week, including 168 new listings.
Chart courtesy of UrbanDigs
Manhattan Pending Sales
Will historically reach their lowest level in February so, not surprisingly, the metric is down slightly this week to 2,126 units and should soon reverse course en route to the typical June peak. Like supply, we want to point out the bi-annual cycle for those pre-pandemic years.
Chart courtesy of UrbanDigs
Brooklyn Pending Sales
Without a historical pattern to reference, we’re left to assume that pending sales in Brooklyn follow those same patterns that describe Manhattan. As such, the metric, down ever so slightly to 1,442 units this week, should be approaching the seasonal February trough and is forecast to peak in June.
Chart courtesy of UrbanDigs
Manhattan Contracts Signed
Demand was higher, albeit slightly, than its historical average for the first time in nearly 4 months, with contracts up from 161 to 207. We’ve removed that trendline and made the data point black so that it can be seen more easily. Because the metric has reverted to its mean, we believe that this marks the end of the seasonal winter slowdown.
Brooklyn Contracts Signed
Signed contracts were up significantly from 99 to 125 and it appears that Brooklyn has now done it for the 5th consecutive time — reverted to its mean only to bounce off en route towards a 6th straight peak. That mean, its pre-pandemic benchmark, has become the metric’s support level for the past 2 years.
New Development Insights
As reported by Marketproof, this week, 65 new development contracts were reported across 46 buildings. The following were the top-selling new developments of the week:
- THE NEWKIRK (Flatbush)
- 450 WASHINGTON (Tribeca)
- ROSE HILL (Nomad)
- THE SOLAIRE (Battery Park City)
