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 SP 500 Index dropping 5.8%, its worst week since March 2020. The SP 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 much 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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