It’s been a dramatic few years for the condo and co-op market, swinging from red-hot to rather difficult, with most regions nationwide feeling at least some of the effects. Some of the factors underlying the shifts are rooted in pre-pandemic policy changes, while others are a direct result of pandemic-era economic pressures and the measures taken to combat them. While multifamily residential markets in some parts of the country have actually benefitted from the current climate, overall the abovementioned factors have come together in something of a ‘perfect storm’ that’s casting a pall over the market nationally.

The Big Picture

During the pandemic, housing sales took off nationwide. The crisis triggered something of a mass migration of homeowners from urban markets into suburbs and exurbs, and from snowbelt states to sunbelt states. Prices for new homes, condos, co-ops, and even rentals reached historic highs, much of that being the result of extremely low interest rates, plus infusions of cash into the public’s hands from government assistance programs meant to keep the economy afloat while the pandemic dragged on. One result of that confluence was that much of the existing and new housing inventory was snapped up–and combined with construction slowdowns thanks to both supply-chain and pandemic-related disruptions, that meant much less available product going forward.   

Toward the end of the pandemic, in early 2022, the first substantive inflationary spike became evident. To control and ultimately tame the worst inflation in 40 years, the Federal Reserve chose a path toward higher interest rates. Nothing says ‘the party’s over’ to homebuyers like a doubling (or more) of interest rates.

To take a deeper dive into where we are and where we are going, CooperatorNews sat down with Jonathan Miller, President and CEO of national real estate appraisal and consulting firm Miller Samuels Inc. and the author of the Douglas Elliman Market, reports to get his take on the subject. (Some remarks have been lightly edited for length. -Ed.)

CooperatorNews: What trends in 2024 most affected co-op and condo prices in NYC? What factors contributed to current market conditions, and are those factors expected to continue?

Miller: “The spike in mortgage rates that began in early 2022 affected markets throughout the country. Sales slowed to levels that were 10 to 20 percent below long-term norms. Interestingly, there was little impact on prices overall. They were a little softer than previously, but not by much. The frenzy of sales activity that occurred previously and stripped many markets and regions of inventory slowed. The way we must think of housing prices in the wake of the pandemic—which was the biggest boom in decades—is lackluster. Sales are slow. Plain and simple. A big part of this is driven by the spike in interest rates, which have more than doubled in three years. Yet again, prices haven’t changed. One could argue that prices are off by single-digit percentages, and that’s a function of inventory.  When you think about the housing market today, it’s very repetitive nationally.

“In essence and with hindsight, what we have today is an interesting phenomenon: because the Federal Reserve kept interest rates too low for too long, we have a market in which housing prices have essentially ranged from moving sideways to increasing.

“Normally, what happens in a sales downturn is that there is a negative event that changes the market. In this case, that event was the dramatic increase in mortgage rates. Typically, when we see a surge in mortgage rates, we expect sales to slow and inventory to skyrocket, which it didn’t. And normally, sales prices fall sharply. That also did not happen.”

CooperatorNews: What factors or circumstances were specific to the condo and co-op markets, respectively? What do you project for shared community sales this coming year?

Miller: “We do see differences in different segments of the market. Sales are brisker at the high end of the condo market. When we look at the picture overall, compared to condos, the co-op market remains lackluster in terms of weaker sales activity.  That’s largely because as a market, co-ops are lower priced than condos. The lower they are on the price spectrum, the more those units depend on and are sensitive to mortgage rates.

“As a general rule, we see more cash buyers in the condo market than the co-op market. Therefore, those buyers bypass the restraints of higher mortgage rates.  The other aspect is that we’re clearly seeing a little bit stronger activity as you move up in price. Part of that is that condos are generally higher priced, but it’s not a dramatic difference between segments of the market; it’s very subtle. One of the reasons for that is that buyers have been waiting three years for rates to come down. With the outcome of the election and potentially greater inflationary policies in the new administration—particularly based on tariffs—participants in both condo and co-op markets aren’t expecting rates to come down.  

“We do expect that the co-op market will be more challenged than the condo market. Co-ops are the point of entry for many first-time buyers and are very rate-dependent. Expectations are that the Federal Reserve will make one more cut of 25 basis points. After that, it’s unlikely we will see much more cutting for a long while. 

“The high cost of borrowing puts a premium on buyers who are all-cash over those who require mortgages. Specifically, in the New York City co-op market at the end of third quarter 2024, cash buyers represented 47.9 percent of purchasers, while in the condo market, all-cash buyers were 65.9 percent. Clearly, condo buyers have greater ability to work around rate problems.”

CooperatorNews: What about levels of uncertainty due the election?

Miller: “As concerns the election, I’ve looked at this. A few months ago The New York Times published a study I did looking at four markets nationally. What we found was that during those even years when we have a presidential or congressional election, we found a slowdown of three to five percent, no matter which party, candidate, etc. ran or was elected. Immediately after an election, there’s a release, and the market catches up in three to four months. These slowdowns and pick-ups had no real impact on pricing, though. I expect this year to be the same.

“This past cycle though, there was a potential for misinformation and misperception to play a role, but fundamentally I don’t believe the market was impacted in real terms.  

“Beginning in July of 2024, there was a big jump in contract activity. That was before the Federal Reserve cut rates in September. The way to think of that event, even before the Fed cut rates, is that it was just a surge in getting back to zero; no real growth here. The other component in that equation is the idea that consumers have been waiting for rates to come down, which would energize the market. But, as I said before, that’s a long time to wait in the real world. Think of it this way: a young couple has triplets in a one-bedroom apartment. They’ll have outgrown that home long before a rate cut’s effects are felt. At some point, people stop waiting—and that’s what we have seen in the past four to five months. Buyers are getting used to the rate environment.  

“In my opinion, the low rate environment wasn’t good for the market. It made housing more expensive than it should have been, and the result was a decimated inventory, overall. The low rates caused an unrealistic environment. Therefore, in predicting what’s coming, inventory is the most important metric today.  I think it will take five years or more for the inventory to normalize.”

CooperatorNews: What else do you see ahead in 2025?

Miller: “I would suggest that if we assume that mortgage rates don’t change dramatically, both co-ops and condos will see more transactions than they saw in 2024. Both have flat-to-rising prices, but nevertheless, condos will sell better than co-ops. To make another general statement, I also think the higher-end market is generally poised for higher prices than the middle and entry level markets. In New York, where co-ops are more commonly found than in other markets, higher-end condos have more upside than higher-end co-ops, because condos as a form of housing stock have significantly challenged the co-op market share. The top end of the co-op has been crushed by new condos.”

“At the end of 2023, in a period of rising mortgage rates, I said that 2024 would be ‘the year of disappointment’ because of low sales. Given the same question now, I say 2025 will be a year of less disappointment. Additionally, in 2025, I’m suggesting we are probably going to see even higher rates with an uptick in activity and seeing pricing move a little bit higher.”

AJ Sidransky is a staff writer/reporter for CooperatorNews, and a published novelist. Hemay be reached at alan@yrinc.com.