The Insider Index continues to move back towards a more balanced market as you can see above.
This shows why the Index is moving nicely: contracts signed are ticking up while there are fewer price drops than a week ago. You can see how sensitive this measure is to stock prices and mortgage rates, which have been both moving favorably in the last week.
This week the Insider is focusing on price trends, and how to think about NYC in the context of what’s happening nationally. Realtor.com just published an article entitled ‘No One Wants To Catch a Falling Knife’: What To Expect in the Housing Market for the Rest of 2022”, and reading it, one would come to the conclusion that the sky is falling. Well maybe it is, but don’t expect it to be the same here as it is in other places.
Let’s look at some charts:
This chart plots median prices over time in Sacramento CA, a prototypical hot market in the pandemic. You will notice that the January 2020 median price was about $420,000 and the peak was achieved in summer of 2022 at just about $625,000, a 49% increase over two and a half years.
Let’s look at Manhattan:
The January 2020 figure was $1.1 million, and the peak was achieved in May of 2022 of $1.26 million, an increase of 14.5%. The obvious conclusion: New York city has far less room to fall.
The paper is rather involved, so let quote the relevant points from Goldman’s own summary:
- Policymakers tend to stop hiking when year-over-year inflation is still relatively close to its peak, rather than waiting for it to fall significantly.
- Relatively large rate cuts tend to come fairly quickly after the hiking cycle ends.
Why do I think this is significant? Because the headline of last week was that inflation had come down more than expected.
If sustained, this would imply we are very near the end of the tightening cycle. To quote from the Goldman Sachs report: “On average, hiking cycles ended when year-over-year inflation was within 10% of its peak (e.g. down from 5% to 4.5%).” As you can see we are within that range right now
So where does that leave us in terms of buying/selling strategy? The Insider has been harping on this point for months, but it boils down to: don’t be a sheeple. New York didn’t see the same massive price expansion that much of the country did during the pandemic. So don’t expect it to fall far, either, if the market softens. This means you should have the confidence to buy during this period of weakness knowing that real estate is inherently a long term investment. If you wait until the Fed is dropping rates, you will be in a very competitive market, with bidding wars making it difficult to get the home you want.
Have a great weekend, everyone!