Reprinted from Mansion Global, August 2022

A confluence of economic factors—including rising mortgage interest rates, inflation and decreasing stock values—is having a cooling effect on real estate sales across the U.S.

In New York City, where investors are also grappling with record-breaking apartment prices in Manhattan, many would-be buyers are taking a step back, compounding the typical seasonal slow down.

For those who intend to buck the trend, take the plunge and buy now in the City, there are opportunities to find deals—perhaps for the first time in many months. And co-ops in particular are a good product to focus on, brokers say, for buyers looking for better negotiability. 

Realtors predict that co-ops will maintain their value better over the long-term, and buyers will find the best value now in something that’s been sitting on the market. They may not get a price reduction, but the seller will be more negotiable.

Despite the smaller pool of buyers and diminished competition, buyers should not expect a market that has shifted wholly in their favor. Supply remains low throughout New York City, and many homeowners feel reluctant to list their properties amid increased economic uncertainty. 

“We have very tight inventory because people can’t move so easily now,” said Jessica Cohen, a broker with Douglas Elliman in New York. “When you think about letting go of a home you might have bought in the last 10 years and buying back into a market that’s higher priced, with higher interest rates, it just doesn’t make sense.” 

In fact, some home sellers are opting to rent temporarily and wait to buy until the market cools further and prices come down for this very reason, according to The New York Times. 

But trying to time the market in this way can be difficult, if not impossible.

Brokers predict that buyers who have the purchasing power now and are thinking long-term will find some interesting opportunities in the near future.

Outlook for Sales in New York City

After an initial drop with the onset of the pandemic in early 2020, sales for both co-ops and condos in New York picked up dramatically, with a busy pace continuing into the early months of 2022. In April, total co-op sales were up by 10.9% and condo sales by 23.1% year over year, according to data from Realtor.com. Buyer demand drove prices up, too. 

“We had 12 to 18 months of incredible velocity and price appreciation,” Ms. Cohen said. “But with interest rates almost doubling and portfolio values decreasing, that impacts buyers. It feels right now like things are stabilizing and we’re seeing more normal pre-pandemic behavior.” 

As of June, sales of co-ops and condos in Manhattan were down 30% year over year, according to Douglas Elliman’s market reports. Prices, however, remain high, with Elliman finding the median sales price for the second quarter at a record $1.25 million for all Manhattan apartments. 

“We had a very hot sellers market in April and May, but things have shifted and slowed down a bit,” Ms. Cohen said. “Aspirational pricing is not working well for sellers, and brokers are not getting as much traction now. Buyers are not feeling as squeezed, and sellers are a bit more nervous.” 

Within the broader co-op and condo market, there are housing types lingering longer on the market than others, brokers say. Smaller apartments, especially studios and one-bedrooms, and apartments that are not in turn-key condition, are less popular than roomier apartments that don’t require any renovation. 

“We’re seeing buyers who want to upgrade in terms of size, views, outdoor space and buildings with more amenities,” Ms. Cohen added. “There’s less appetite for studios and one-bedrooms.” 

Co-ops vs. Condos

Co-ops and condos are not necessarily cosmetically or structurally different from each other, but there are key distinctions. Co-op buildings are corporations, and rather than owning units themselves, residents own shares in the corporation and have a proprietary lease that allows them to occupy the unit. Condos follow a traditional ownership structure. Co-ops often have stricter financial requirements than condos, too. But in both co-ops and condos, residents pay monthly maintenance fees.  

Co-ops comprise 75% of New York City’s apartment stock, but condos tend to be more expensive, and in many cases, newer. Realtor.com found that between January and June of 2022, 50.6% of condo sales in Brooklyn and 72.9% of condo sales in Manhattan were for over $1 million. Meanwhile, 15.9% of Brooklyn co-ops and 39.4% of Manhattan co-ops during the same time period sold for over $1 million. 

Co-ops are generally cheaper to buy, in other words, and they may prove to be better long-term investments as well.

According to brokers, when condos are brand new, they sell the best, for the highest price, but they don’t always recoup the investment five to 10 years later.  With a new condo, you’re buying it at the best it’s going to be, when everything is fresh and exciting. In five to ten years, there will be other new condos. 

Co-ops maintain their value better over the long-term 

Within the co-op market, specific apartment types are more likely to offer buyers room to negotiate. 

“There’s an interesting phenomenon now, due to supply chain issues and the cost of construction, where buyers don’t have the appetite to do work,” Ms. King-Brown said. “If you’re open to renovating and looking for something for the long-term, you can find really good value in co-ops that need some work right now.” 

However, buyers may run into challenges with co-op boards that don’t want units in their buildings to appear to decline in value. 

Co-op boards, made up of elected residents of the building, are responsible for a host of building-related duties, but are perhaps best known for their board interviews of prospective residents and their ability to approve or reject would-be buyers. 

“We’re seeing a lot more co-op board rejections than usual,” Ms. Cohen said. “It seems that boards are not so comfortable with letting things trade for prices that feel too low, because they want to protect values for the other shareholders. If you do happen to negotiate a fantastic deal in a co-op, you have to hold your breath that you don’t have a board that will block the sale.”

And it’s not out of the question for buyers to find relative deals on condos now. Although activity was still higher than it was in May of 2019, sales slowed in new development condos in April and May. Brooklyn saw the steepest drop from April to May, with sales down by 22%. 

For developments that launched during these slower months and are under pressure to meet sales thresholds, there may be opportunities to negotiate. 

“If you’re looking in a development where there are multiple units for sale at similar price points, or the development launched a bit late and the timing was bad, there could be real opportunities there,” Ms. Cohen said. “No matter how special one unit is, if there are five available you can have the upper hand.”