The June sell-off did a job on them.
By Wolf Richter for WOLF STREET.
Manhattan luxury real estate vs. stock market downward spiral in June: In the week through June 19, only 12 sales contracts were signed for condos, co-ops, and townhouses with asking prices of $4 million and above, the worst week since the week of December 28, 2020 ( with 10 contracts), according to today’s weekly report by Olshan Realty.
The number of contracts was about one-third of the average number of contracts signed in the prior 52 weeks, and down 70% from the same week in June last year (41 sales).
“This anemic performance coincided with the S&P 500 Index dropping 5.8%, its worst week since March 2020. The S&P has fallen 11 of the last 12 weeks,” Olshan’s report said.
There have been other reports on this phenomenon – though not quite as real-time-ish and as brutal: What is pulling the rug out from under luxury real estate isn’t necessarily the spike in mortgage rates – though that can play a role too by massively boosting the carrying costs of luxury real estate – but the plunge in stock prices that is throwing all kinds of previously taken-for-granted equations and feelings of wealth into uncertainty.
An analysis by Redfin, released earlier in June, found that sales of luxury homes – priced in the top 5% of the local market – during the three-month period through April across the US plunged by about 18% year over year — a lot smaller drop than what is now occurring in Manhattan. But the Redfin report was for data only through April, and stocks have dropped quite a big further since then.
“There are only two instances in the past decade when there were steeper declines: the three months ending June 30, 2020 (-23.6%) and the three months ending May 31, 2020 (-21.6%),” the Redfin report said.
The Redfin report blamed the “cooling” of the luxury housing market on “soaring interest rates, a tepid stock market, inflation, and economic certainty.”
The expression, “tepid stock market,” to describe the situation the stock market has been in since January should earn Redfin the understatement-of-the-year award.
And yet, luxury sales in these three months through April cited in the Redfin report hadn’t yet been impacted by the recent sell-off in stocks, including the brutal drop last week.
“The year-over-year cooldown is also a reflection of the market for high-end homes coming back to earth following a nearly 80% surge in sales a year ago,” Redfin said.
Sales of non luxury homes had dropped only 5.4% over the same three-month period through April, the Redfin report found.
But this was before the recent spike in mortgage rates to 6%. In the three months through April covered by the Redfin report, the average 30-year fixed mortgage rate went from about 3.7% to just over 5%. But in June, the 30-year fixed mortgage rate went over 6%, adding another layer of complications for potential home buyers.
But unlike the Redfin report, Olshan’s data today – the 70% year-over-year plunge in the number of sales contracts of homes priced at $4 million and above in Manhattan – was impacted by at least part of the 11% stock market swoon in June so far.
Stock market sell-offs, if sustained, get a little unnerving for people who have a lot at stake in the stock market, especially if the dynamics point at further repricing of assets as a result of a long and hard tightening cycle by the Fed, which is now belatedly cracking down on raging inflation.
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