It’s August and it’s been hazy, hot and humid since early July. We’ve been busy throughout the summer months, and now we’re actively prepping properties for what we expect will be a reinvigorated post Labor Day market. 

Two key market dynamics are at play in the current marketplace: the anticipation of lower interest rates and a wave of summer price drops. The former is expected to stabilize the latter, and there are implications for both buyers and sellers.

Are monetary policymakers moving too slowly toward lower interest rates? Inflation is slowing, dropping to its lowest point in over 3 years. At the same time, unemployment rose from 4.1% to 4.3% in July. Though Fed officials left interest rates unchanged at a twenty year high of 5.3% at their July meeting, Fed Chair Powell signaled the strong likelihood of a reduction when they meet again September 18 with the caveat--“if we get the data that we hope” on inflation and unemployment. On July 18, per Freddie Mac, the weekly average 30-year conforming mortgage interest rate fell to 6.77%, from a late October 2023 high of 7.8%. The most recent loan interest rate drop is the first of what many are hoping will be a string of rate cuts starting in September. 

Higher Rate of Price Adjustments. Currently the trend this summer shows a significant increase in the number of price reductions compared to last year. Overall, price adjustments are more common, as both buyers and sellers adapt to the changing landscape. More sellers are reducing their list prices, suggesting that initial asking prices were set too high given market conditions. While summer is traditionally a slower period for real estate, the comparison to last year indicates that this seasonal trend might be exacerbated by other underlying factors. 

Interest rates influence buyer confidence and purchasing power. If buyers are cautious or unable to secure favorable mortgage terms, they are less willing to meet what they perceive to be too-high asking prices, so sellers feel pressured to lower prices to make their listings more attractive.

Implications for buyers: Buyers may find more opportunities to negotiate prices and terms, as sellers become more willing to compromise. A higher number of price reductions might indicate a larger selection of properties within a buyer's budget, potentially allowing for more choice and better deals. Staying patient, exploring a variety of options, and being prepared for negotiations can yield favorable outcomes.

Impact on sellers: Sellers need to price their properties more competitively from the start to reduce days on market and to attract attenton in a more discerning market. The presentation of a property, including professional staging and high-quality photographs, is crucial in differentiating a listing and enhancing the property’s appeal.

As the economy normalizes, and if and when the Fed ultimately acts, we’re expecting buyers to move from the sidelines to the forefront and renters to look more earnestly to build equity instead of paying super high monthly rents. We remain positive about the long-term outlook for Manhattan real estate. We are ready to serve. See you in September.