the great slowdown

Properties are taking longer to sell and fewer deals are being inked.

The first quarter of 2018 saw the largest year-over-year decline in total sales since the second quarter of 2009, during the heart of the financial crisis. Across coops, condos, and townhouses, New York City saw a 25% decline in sales volume vs. the same period last year, and the slowdown was seen across all product types, from studios to luxury penthouses.

Over the past year, the market has begun to shift from a hot seller’s market, where bidding wars and selling prices over ask were the norm, to more of a buyer’s market. As prices are beginning to stabilize, buyers are becoming pickier and are willing to wait for the right deal. And as website after website offer tips on presenting low-ball offers, buyers are becoming more savvy.

So what’s driving the slowdown? And why should you consider buying now?

1. Tax Reform. With the adoption of the tax reform bill in 2017, the cost of home ownership will go up for many:

• SALT Cap - Before, homeowners could write-off 100% of their property taxes, but there is a now a $10,000 cap on SALT (State and Local Tax) deductions. That means that individuals living in high-taxed states like New York will likely have no allotment left for property tax deductions after deducting their state and local taxes. For illustrative purposes, assumimg real estate taxes of $1,000/month on a $1,250,000 condo, that homebuyer would lose $12,000 in real estate tax deductions per year. At a 35% effective tax rate, that’s $4,200 in lost benefit.
• Mortgage Interest Cap – Homeowners used to be able to deduct the interest on their mortgage up to $1,000,000, but the tax reform bill decreased that threshold to $750,000. For a $1,000,000 loan ($1,250,000 purchase price with 20% down) at 4.5%, that means over $11,000 less in mortgage interest deductions per year (another $4,000 in lost benefit).

2. Higher Mortgage Interest Rates – while rates are still at historic lows, we’ve seen them rise nearly 1% since last year. On that same $1,000,000 loan used in the example above, that results in ~$800/month in additional payments, or $10,000/year! When compounded with fewer write-offs due to tax reform, this sample homebuyer would be spending about $1,200/month more after taxes – or $14,000 per year!
 
For a walkthrough of these calculations, please reach out to me directly and I’ll be happy to explain the changes. If you know me, you know that I LOVE walking through numerical examples!
 
3. Less Accessibility – since the financial crisis in 2008/2009, prices in New York have skyrocketed, mainly driven by historically low interest rates and more accessible prices. However, StreetEasy recently released an interesting opinion piece arguing that the slowdown we’re currently seeing isn’t so much caused by tax reform or increasing interest rates, but rather that prices have gotten so high that accessibility is now the true culprit. In short, there weren’t as many deals inked in Q1 2018 because there are simply fewer buyers who can afford what’s on the market.

So Why Consider Buying Now?
As interest rates continue to rise, so too does the cost of homeownership. Now is a great time to still take advantage of rates under 5%. Also, while not all sellers aren't willing to accept the changing market conditions, many are starting to recognize that prices are stabilizing and that their property will likely sit if they don't open themselves up to negotiating. So for many buyers, now is a great time to find a deal - if you're patient.

If you're ready to start looking for one of those great deals, give me a call. I'd love to get you into your dream home!