Why now may be a great time to invest in New York City real estate

The common question I always receive from future homeowners and investors in any market is "Is it a good time to buy in NYC right now?" and "How do I know I am not overpaying for my NYC apartment?". To make things simple, it goes back to the simple rule of "buy low and sell high". How are these determined you might ask? Historical data. There's a quote by Bernard M. Baruch I love that I feel is most relevant, "Nobody ever lost money making a profit".

In this article, you'll find several golden nuggets which include 4 Steps in how to determine the value of a condo or coop in NYC, 4 Steps in how to determine if an apartment in NYC is a good investment, 3 reasons why now may be the best time to invest in New York City real estate, Bottom Formation in the Market Pulse, plus answers to questions such as 'Are the Peak Terminal Fed Funds Rate / Rates Behind Us' and 'Is The Pace of Price Action Declines Stalling'. Lastly, advice is given to both buyers and sellers given the current and upcoming market conditions.

NYC Buy Signal in Play

Written by Noah Rosenblatt of UrbanDigs December 5, 2022, who is an elite analyst assisting Living New York.

Here is a quick timeline of client research notes issued to Premium UrbanDigs subscribers over the past year:

Dec 5, 2021 - Seller Market Alert - “The Case to List NOW”

Feb 2, 2022 - Sell Signal - “Sell Signal in Play!”

May 9, 2022 - Sell Signal - “Sugar High for NYC Markets”

Aug 17, 2022 - Buyer Market Alert - “Buy-side Alert - 1st Wave Down Complete Sep 22, 2022 - Buyer Market Alert - “Eyeing a Buyers Market”

Nov 17, 2022 - Buyer Market Alert - “Eye of the Storm as Buyers Still in Control”

Today we discuss our first Buy side signal and reiterate our stance that we are likely in the eye of the storm, as discussed in the Nov 17th note. The main topics for this discussion are:

1. Peak Terminal Fed Funds Rate / Rates coming in?
2. Bottom formation in the Market Pulse
3. Pace of price action declines stalling?

Are Peak Terminal Fed Funds Rate Behind Us?

Markets are forward-looking, inefficient discounting mechanisms. They look 6-9 months ahead and are often wrong and in need of resetting. The last few weeks have suggested that the markets believe that the Fed fund Terminal Rate has been reached, as this rate declined from 5.1% to around 4.9% for the second quarter of next year. This means the Fed is expected to slow down rate hikes and perhaps not go as high as previously expected. This had a “risk on” effect in tradable markets as both equities and bonds rallied. Falling mortgage rates were a direct result of the terminal rate declining, fueling the rally.

Bottom Formation in Market Pulse

The market pulse is a ratio of pending sales to active supply. It rises as the market strengthens and leverage is shifting toward sellers. It falls as the market weakens and leverage shifts toward buyers.

A bottom formation tends to occur when a decelerating market starts to show signs of a positive turnaround. This reshapes the downward slope to a flatter one, and sometimes, but not always, precedes a period of recovery. The bottom formation is circled in the chart below, as well as the COVID bottom signal and arrows of past signals.

Signs are pointing towards a slight recovery after a notable shift down from the early 2022 peak. Buyers, take notice of the opportunity shift in your favor.

Is The Pace of Price Action Declines Declining?

I like to think of down cycles in terms of depth and duration. How deep do we fall, and how long does this drag on? For depth, it's good to look at the rate of change of declines for signs we may be seeing any changes. For example, does the latest sales data suggest we are still in an active, aggressive freefall of prices, or something different? Sorry buyers, we are not in an active, aggressive freefall of prices situation. You may need to look into outside markets for that type of price action. Here in Manhattan, I see mixed price action preliminary data brewing for Q4, which would suggest the rate of decline from Q2 to Q3 and Q3 to the current Q4 may be changing for the positive. In other words, it appears we are no longer in active decline, rather, the market is likely stabilizing and even slightly bouncing off of whatever lows we hit. Remember, markets tend to overreact and then normalize to where they ultimately need to be.

Here is a snapshot of Preliminary Q4 sales data - notice the qtr to qtr % change in price per sqft and sales price trends.

We still have 3+ weeks of sales data to file in, so these numbers will likely change.

But for now, it is what it is, and it certainly is interesting to suggest that the second derivative (the slope) of price action decline may also be declining, signaling we may have arrived at our new level.

For the duration, where to from here? Bounce? Range Bound? Another wave down? This cycle is yet to be fully written, and contract activity is still below trend, so until that bounces back, we are likely headed onto the range-bound path. Whether we have a new wave up or down will depend on rate volatility, the Fed, risk assets, credit spreads, and other macro indicators.

Advice for Sellers: Take advantage of this bridge between deceleration and potential market recovery and acceleration. The latter two may not play out. For now, the market seems to have found its way and slightly rebounded at a time that typically sees seasonal weakness. Price properly at the onset of listing and listen carefully to what the market is telling you. React swiftly if you decide to test the market, which is not a recommended strategy given today's data. It is still a buyer's market, and while bid activity is no longer actively falling, we are hovering at a lower level that is below the seasonal trend, which means this market is notably more illiquid than it was at the start of the year. Wider bid-ask spreads mean a longer time on the market and higher discount rates for sellers, so don't let go of quality bids if they are near the realm of acceptability.

Advice for Buyers: If you are seeking out a market bottom, you MUST look at real-time trends, as the closed sales data does not reflect the current market. Rather, closed sales data is a rearview mirror reflection of a market that existed 4-6 months ago, so that doesn't help. Is it possible we have another wave down in the future? Of course. For now, though, relief in rates driven by market expectations of a less aggressive Fed is normalizing the data and signals we use to make buyer and seller alert calls. The facts are: supply is falling, pending sales are showing signs of nearing a bottom formation, the market pulse is showing a bottom formation, mortgage rates have fallen, and the latest mixed price action data is, at the very least, suggesting we are no longer in active decline. Could this be peak leverage right now for buyers? Time will tell. However, recent data-flow data suggest this is as good as it gets for buyers until something on the outside forces us onto a different path. 

Further Notes by Michael Holt of Living New York

4 Steps in how to determine the value of a condo or coop in NYC

1. Research historical sales within the same building, specifically with the same layout
2. Compared to current apartments being sold in the same building and similar buildings with an emphasis on the same floor plan within the same building.
3. Compare the floor height, condition, type of market in which it sold, and if there was any significant difference in light/air/view.
4. Use one of the top real estate agents in NYC. Not all agents run or know how to run value analyses. Living New York runs value analyses and provides offer strategies for its clients. The reports are extremely informative and gives our clients confidence in the decisions they're looking to make whether that's buying an investment property or buying their first home in NYC. Running these reports takes a long time and making mistakes can be crucial. It's free to use a buyer's agent in New York City so why not work with the best?

4 Steps in how to determine if an apartment in NYC is a good investment

1. Determine the historical data to support higher valuations (see above).
2. Run an analysis to determine your returns. Take into account the appreciation, cash flow, and tax savings projections
3. Decide if the returns you are looking for are realistic compared to the other opportunities being offered. Compare the cash on cash return, cap rate, risk profile, exit strategies, cash flow, and tax savings.
4. Use one of the top real estate agents in NYC. Not all agents run or know how to run value analyses. Living New York run value analyses and provide offer strategies for its clients. The reports are extremely informative and gives our clients confidence in the decisions they're looking to make whether that's buying an investment property or buying their first home in NYC. It's free to use a buyer's agent in New York City so why not work with the best?

Three reasons why now may be the best time to invest in New York City real estate.

1. Recent data flows in comparison to historical trends show we are in a buyer's market
2. Top real estate agents in NYC are seeing more deals. In other words, more apartments are priced below historical values.
3. Recent data flows in comparison to historical trends show this could be the bottom of the market for buyers suggesting now would be a good time to purchase or at the least begin searching for deals.

If you have questions regarding the real estate market and whether it's a good time to buy or sell in NYC please don't hesitate to reach out to Living New York. Contact us by calling (332) 331-8899 or email us at [email protected].

Interested in subscribing to our newsletters? Click here to receive our emails to make sure you never miss a beat (we won't blow up your inbox). Choose from Holt's Trending, Off-Market Listings, Holt's Monthly Market, and Open House List.