The Manhattan Media Pendulum Swings To A ‘Buyers Market’ On Square Footage Shrinkage

  • Average size of a Manhattan apartment fell YOY 5.1%, driving down median 1.5%
  • Square footage is trending lower which is what is lowering prices
  • The premature use of “buyer’s market” suggests more supply improved affordability

Our research on the second quarter Manhattan sales market was published yesterday and an ensuing classic New York Post headline caught my attention. No, not the salacious ‘Headless Body Found In Topless Bar‘ but along the same lines, Manhattan is now a ‘buyer’s market’

Source: New York Post

Throughout my career, communicating the results of our market research (since 1994) has always been challenging. Press outlets need to cut to the chase and give their readers a clear take on the results. But their messaging tends to be a product of the demographic of their readership or the actual time readers view their publication – at least that’s how I think about it. This post is a little too much Manhattan-centric for all my readers but you’ll get the broader U.S. housing market point.

Media Consumption Lessons From A Commuter

Before the digital news age when I started commuting by rail from Connecticut to my appraisal firm in New York City in 1990, each rider’s newspaper of choice was evident when held up to read. I could scan across the commuter rail car at any time and quickly discern what publications were being read. For years it was always the same pattern. The New York Times, Financial Times, and Wall Street Journal dominated the morning commute as they geared up for their work day. Tabloids like the New York Post (with a tall boy can of beer in hand) were the popular choice on New York homeward-bound trips. I suspect the same patterns would be found today with digital news delivery.

Of Pendulum Swings – Buyers

I can’t stand the “pendulum swing” analogies used in the “buyers market” versus “sellers market” discussions but it tends to sell tabloids. Here are a couple of headlines on the non-tabloid-like coverage of the Manhattan report without ‘Buyers Market’ references:

  • Manhattan Co-Op And Condo Deals Increase For The First Time In Two Years [Brick Underground]
  • Manhattan Home Sales Unexpectedly Rise As Buyers Cave On Rate Cuts [Bloomberg]

The “pendulum swing” analogy as a way to simplify market housing coverage is common, yet we know performance can vary greatly by price points. A Manhattan studio apartment buyer behaves differently than a 5-bedroom penthouse buyer overlooking Central Park. There is nothing subtle in saying “it’s a buyer’s market” since it applies to all buyers. The idea of the market swinging to all buyers means it’s just a hop, skip, and a jump to saying it swung from favoring all sellers.

Both buyers and sellers have been tied up for two and a half years with the distortion caused by the wild swing in mortgage rates. Hence, the phrase “buyer’s market’ actually refers to more supply and better pricing as a result. Yet buyers remain saddled with much higher mortgage costs. During the pandemic era, cash purchases were unusually low as a share of total sales as mortgage rates fell to the floor and it was more logical to get a 2.75% 30-year mortgage rate (free money). After the Fed pivot in early 2022 as mortgage rates soared, so did cash sales.

Of Pendulum Swings – Sellers

The lock-in effect initially kept sellers from selling because they would have to become buyers at higher rates to do so. Current sales levels remain below historic norms in Manhattan, as well as nationwide, so by definition, the pendulum did not come from the seller’s favor since there have been a lot fewer sales over the past two and a half years despite low inventory.

Some of the coverage of the report with ‘Buyers Market’ references:

  • Manhattan Is Now A ‘Buyer’s Market’ As Real Estate Prices Fall And Inventory Rises [CNBC]
  • Manhattan Is Now A ‘Buyer’s Market’ As Home Prices Fall With More Than 8,000 Apartments Still Available [NY Post]

In our quite busy Manhattan listings chart, 2024 is above the long-term average which has helped play a role in more sales to occur in Q2-2024. Supply isn’t bloated but it is indeed on the high side when compared to the average since 2000 and more favorable to buyers.

I’m glad I’m not currently a home buyer because the phrase “buyers market” infers only that there is more listing competition and therefore more affordable prices. The challenge to the “lower prices” part of the “buyer’s market” proclamation is that the average size of a Manhattan sale that closed in the quarter by 5.1% to 1,197 square feet. Manhattan’s median sales price fell 1.5% year over year to $1,181,679. Price per square foot actually rose 1.8%. In other words, pricing isn’t down despite more inventory and higher interest rates.

Smaller Sized Sales Driving Down Prices

In the quest for affordability, buyers are seeking smaller homes. More supply entering the market helps, but its not entering markets enough to significantly improve affordability. National metrics have been showing smaller sized newly built homes trend smaller over the past decade.

Single-Family Home Size Moves Lower to More than a Decade Low
Source: NAHB

Note the trend lines in the following Manhattan charts. It’s all about square footage in the quest for affordability.

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