Depending on the type of construction your company does, it’s always valuable to understand what’s going on with real estate so you can consider implications on your strategy and business and make adjustments to plan accordingly.
Norada Real Estate Investments recently issued its 2023 New York Housing Market: Prices, Trends & Forecast for 2023. Comparing February 2022 to 2023, closed sales decreased by 34.3%. Median sales prices dropped 6.3%. New listings were down by 15.8%. Pending sales were down by 8.1%. Home inventory was down by 8.2% (the 40th straight month of a decrease). Days on the market went up by 4.7% (to 67 days).
Then, the New York State Association of Realtors® (NYSAR) released a report on April 20, providing insights through March of this year. The report indicates the housing market was slowing even further when for the 41st consecutive month, year over year comparisons showed inventory dropping across the state. Inventory decreased 12.4%. Closed sales were down 28.4%. Pending sales decreased 11.2%. New listings were down 22.9%. The 30-year fixed rate mortgage was up from February’s 6.5% to March’s 6.54%. Median sales price was down 6.1%.
According to the Norada report, “The New York State housing market is likely to continue struggling in 2023 due to the low inventory of homes and rising mortgage interest rates. However, as the interest rates start to decline, they can increase demand for real estate and raise home prices. The National Association of REALTORS® predicts that interest rates will gradually decrease in the coming months, reaching around 5.0 percent by the end of 2023. This could help boost the housing market by making it easier for buyers to obtain mortgages and increasing demand for homes.”
So far, interest rates aren’t cooperating. According to FinTechBuzz.com, “The slowdown in residential construction is the result of myriad factors, including labor and materials shortages and lingering red tape from Covid-19. But also, interest rates work like gravity; as they rise, they pull asset values back down. Lower asset values translate to lower profit margins. Thus, many investors and buyers are holding onto their money as opposed to pursuing slim profit margins on a single-family build.”
When it comes to the commercial market, FinTechBuzz.com reports, “Demand is also drying up in some corners of commercial real estate, while projects are taking 24 to 48 months longer to complete. A higher employment rate will manifest greater demand for office space, while greater consumer spending power results in more demand for hospitality and retail. Currently, retail and hospitality are seeing reduced demand, while projects like multifamily housing complexes and infrastructure remain promising. While higher rates will still reduce profit margins on such projects, they will likely become the core focus for commercial real estate and construction companies as the government attempts to stabilize inflation.”
As for the commercial market in New York, CostarNews.com reports: “Commercial property sales in New York, driven by a decline in Manhattan, slumped by more than half in the first quarter from the end of last year as higher interest rates and worries about a looming recession seized up lending and investment across the country. The plunge is setting the city up for its worst annual commercial property sales expected since 2009, according to a study from real estate firm Avison Young.”
All of this is underscored by growing concerns about pending commercial real estate debt coming due, with financial leaders sounding some alarms but the Fed holding fast to the position that regional and local banks are in a good position to handle what’s coming. Stay tuned…
While you focus on the myriad of factors impacting real estate and ultimately construction, you can depend on RBT CPAs to focus on your accounting, tax, audit, and financial advisory needs. We believe we succeed when we help you succeed. Learn more. Give us a call today.