From interest rates and economic indicators to global events and local labor patterns, market trends … [+]
Manhattan, in the heart of New York City, is a center of global real estate interest and its dynamic market reflects various economic, social and geopolitical factors. Given its relative importance, here are five critical areas or factors likely to influence the Manhattan real estate market in the months to come. Through a combination of data-driven insights and market trends, this article attempts to provide some guidance on potential directions the Manhattan market may take in the coming months.
No. 1: Interest rates and mortgage rates
With the interaction between the Federal Reserve’s target rate, the 10-year Treasury yield, and mortgage rates, significant changes in these rates can impact the Manhattan real estate market. Note the significant positive evolution of rates compared to the drop in contracts signed. Although the correlation between mortgage rates and demand is negligible, the historically significant movement in rates has certainly forced buyers to re-examine affordability issues.
What we’re watching: If Fed Funds futures as they stand today are correct and the Fed starts cutting rates in May or June of next year, we could start to witness a drop in mortgage rates. Such a scenario has the potential to boost demand, particularly in a non-surplus market, as current expectations regarding future costs become more manageable.
% change since April 2022
No. 2: The strength of the general economy
The S&P 500, often considered a barometer of the general economy, provides insight into the health and direction of the broader market. If interest rates stabilize or decline, the stock market could see another rise, which could lead to increased demand in the real estate market. A strong stock market often signals increased consumer confidence, which typically translates into greater activity in the real estate sector. Despite rising rates and threats of recession, the S&P 500 has demonstrated remarkable resilience since January 2022, suggesting resilience that underlines the U.S. economy.
What we’re seeing: If the economy manages to avoid a long-awaited recession and consumers remain strong, the wealth effect could come back into play and boost Manhattan sales again, particularly in the luxury sector.
Manhattan Contracts Signed Against S&P 500 | Truncated at +100% to show details
No. 3: The 2024 presidential election
Historical data reveals a notable trend in the Manhattan real estate market around election periods. There is a downward trend in supply and demand. While this could be due to election-related uncertainties, it’s likely more of a seasonal effect since the Manhattan market typically begins to slow down during the holidays around the same time. Regardless, buyers and sellers tend to take a cautious approach to the market, resulting in reduced activity. Post-election clarity sets in around the same time the peak spring season begins. Manhattan typically sees a burst of activity in March/April, which is more likely due to seasonal trends than a reduction in uncertainty.
What we’re seeing: If the 2024 election becomes another diametrically opposed political choice, buyers could pause to wait, forcing go-to sellers to cut prices to stimulate demand.
No. 4: Geopolitical uncertainties
Global events, particularly in regions such as the Middle East and Ukraine, can impact global markets, including real estate. Although direct correlations can be complex, such geopolitical tensions sometimes lead investors to seek safety.
What we’re seeing: If events begin to cast a broader shadow, we could see increased demand for safer, U.S. dollar-denominated assets, which could translate into a supply of Manhattan apartments from foreign investors.
No. 5: Dynamics of returning to the office
The evolving work landscape, particularly the hybrid model, has led to significant changes in Manhattan. According to a white paper According to foot traffic analytics firm Placer.ai, the percentage of Manhattan workers returning to the office returned to more than 80% of its January 2020 level by June. While this figure appears to be stagnant at these levels, it suggests that the previous work-from-home mentality in 2021 and early 2022 has not significantly deterred deals and that further gains could help revive the economic health of local businesses, thereby laying a foundation for buyer demand.
What we’re seeing: If Manhattan workers continue to return to the office, Manhattan real estate could see increased demand from current commuters or those looking to stay in vibrant urban neighborhoods.
Looking towards 2024
As the final weeks of fall wind down, Manhattan’s real estate market finds itself at a crossroads, with various macro and micro factors vying for influence. From interest rates and economic indicators to global events and local labor patterns, the market’s trajectory is shaped by many elements. Although challenges persist, we see the resilience and dynamism of Manhattan real estate remaining one of its defining characteristics.