Buyers, listen up. Sellers can wait a month or two without too much worry, but after a few months… [+] After a few months it becomes clear that prices need to be lowered and this is where real sellers start to step up.
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With the market leveling out for summer, many buyers and sellers are eager to trade in their floor plans for flip-flops. Typically, this is business as usual: The Manhattan market goes into a lazy hibernation for the summer, waiting for the spring surge to drag on through late September before activity picks up again.
But this summer may be different.
The drop in transaction volume during the spring season has many sellers frustrated. When you talk to professional agents and brokers, you get the impression that there are few buyers and the market is tough. But that’s only the seller’s perspective.
What about from a buy-side perspective? Interestingly, when you look through that lens, the market looks pretty good.
Volume Trap
Manhattan typically sees its most active months in the spring, when volume rebounds sharply from winter lows, hits its annual high and then tapers off in June. But this year, the market started strong but finished weakly.
Typical volume peaks in March, April, and May were met with a period of mild stagnation. At the same time, active inventory refused to grow beyond year-ago levels, and the market fell into a volume trap. Sellers, sensing a lack of buyer activity, anticipate not finding low interest rates or being unable to achieve the price or leverage they want, and choose to postpone putting their properties on the market. This mutual hesitation leads to even fewer transactions, perpetuating the cycle: low volume perpetuates low volume, as both sides wait for some catalyst to move forward.
Window of opportunity
For sellers, the volume trap means staying on the market longer or lowering the price multiple times to secure a deal, which is why many real estate agents who represent sellers see the current market as tough. But for buyers, the opposite is true: this summer could be a golden opportunity to find value.
Here's how to play:
#1—Inventory
Active inventory is expected to peak at a low level this year and taper off into the summer. Many buyers will head to the beach and wait for the post-Labor Day wave of new listings to resume their search. The ideal value properties have been on the market all spring, so it's not those properties that value-minded buyers are interested in. It's sellers who saw the market get away with them. Some may have considered making a bid, but nothing happened. As a result, the number of days on the market is increasing. Buyers looking for a bargain should look at properties that have remained on the market for several months to get a sense of the pool of possibilities.
Number of active listings in Manhattan by days on market as of mid-June 2024
Urban Digs
#2—Price
Sellers are only concerned with how much they can sell for and how long it will take. But in the end, it all comes down to price. If you are at market price, your home may stay on the market for a shorter time initially, but if you are above market price, your home may stay on the market for a longer time. Since we are looking at sellers who have been on the market for a few months already, it is safe to assume that their price was not very high. Plus, this knowledge takes time to sink in.
Sellers may wait a month or two without too much worry, but after a few months it becomes apparent that a price reduction is necessary and that's when true sellers step up. Rather than taking down the listing in search of better market conditions, they keep it on the market and reduce the price. Keep an eye on listings that have had their price reduced after a few months.
For properties that have been on the market a long time and haven’t been reduced in price, remember that even if you haven’t reduced the price, the seller may be mentally ready to accept a lower offer now than they were a few weeks ago.
Manhattan median property price reductions in May
Urban Digs
Going Against the Flow
Nothing described here is too revolutionary. Finding serious sellers has been the hallmark of value investing in real estate for many years. But what makes this summer different is the combination of market conditions and the realization that the current sluggish situation is temporary.
As mentioned above, this market is sideways while waiting for a catalyst. Whether it's lower mortgage rates or a post-election lull, there is likely pent-up demand on the sidelines waiting for a safer time. If that happens, everything falls apart. The leverage buyers have today could disappear within a few weeks.
So while buyers may not have as many options or financing terms, there's potentially a great opportunity to negotiate the price of a Manhattan home before the situation swings back in sellers' favor.