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Typically when looking at New York City, throughout recent history, demand has remained relatively unchanged (save for blips of more international demand, demand for different types of product, or shifts in taste) whereas SUPPLY has been the most major issue. Countless articles have been written about the “oversupply” of luxury residences in Manhattan and Brooklyn, with speculators saying that we will have a dropoff in pricing because so many developers will be holding so much luxury product as we charge into the 2020’s.
What we are seeing now is a very interesting shock to the system, where demand has essentially halted for a very short period of time. We don’t know precisely when or how it will pick back up.
There are stories out of China and the Far East that buyers are “revenge shopping” and demand for apartments and homes is now exceeding pre-crisis levels for a short time, and supply can’t keep up. And there are arguments made in NY, by myself included, that supply will likely face a shock within the next couple of years because of a lack of more development (banks likely won’t finance it, developers will not be able to finish projects, etc.). But now there is also the glaring issue that demand for apartments and homes, particularly in cities, may be adversely affected for the short term.
Regarding pricing, we know that New York is resilient and will stabilize and grow over the long term. Plain and simple. What we care about is the short term and how this will affect pricing over the upcoming quarters. I want to share some data and stories from my own work right now.
Number of apartments on the market in Manhattan alone right now is down about 31% from typical levels this time of the year. That is crazy. Sellers have removed their product from the market and brokers are holding back their typical spring listings.
Developers might not introduce product for a while, or not be able to build it, causing a larger supply crunch.
Demand at this exact moment is down very low, because of the basic difficulties to transacting. Even WHEN somebody is ready to transact, many buildings are not allowing showings, and the city has still deemed real estate showings non-essential. San Francisco just extended their lockdown until June 1; I would be surprised if NYC didn’t follow suit.
Online traffic on the WHOLE is down just over 10%. For my own listings though, it has been stable. Inquiries for virtual tours has climbed, and international interest in NYC has grown (because of people sniffing deals).
People who were not buyers before have become them. I am 28. Most of my immediate peers are not buyers or hadn’t thought about it. But they are not planning to leave New York, most of them have not lost their jobs, and with interest rates low and a perception of prices dropping, more attention has turned to buying.
So what will this likely cause? It has the potential to be a whole big nothing. According to studies run by Zillow, national prices are expected to drop 3% due to coronavirus. To put this in perspective, from 2008-2012, prices dropped 30%. In New York, they dropped only 11%-- so take ⅓ of the drop in ‘08, and can we expect only a 1% drop? But, I do expect because of sheer fear and shakiness, prices for buyers will drop more than this in the extremely short term (Q2).
The other thing to think about in the short term is opportunity on the SELL side to be noticed. A WSJ article today points that many high-end sellers are choosing to put their homes on the market because there are simply less of them. Think about how much easier it is to get noticed when over 30% of the competition is gone. Will you field low offers? Yes. Will you face some hurdles in showings? Yes. But do you have a better opportunity to “stand out” if your property is special? Probably!
Nobody has to have completed Econ 101 to understand simple supply and demand. But digging into it and understanding the short term and long term effects takes a bit more thinking.
Ian Slater is the Founder of the Slater Team at Compass and can be reached at slater@compass.com or 646.645.8192
Have a listing you think should be featured contact us or email at Jeremy@offthemrkt.com to tell us more! Follow Off The MRKT on Twitter and Instagram, and like us on Facebook.
I will begin this post by saying that all of my predictions and thoughts below are just that, thoughts, and educated guesses based on my expertise in residential real estate.
Slater Team’s business is split between helping sellers, developers, renters, landlords, and investors. Looking back at 2019 sales numbers, our business was 61% on the purchase side and 39% on the sell side. Thus, I frequently am advising clients on what to purchase, where to look, and am looked at to make predictions and help make investment decisions. This has become an increasingly difficult thing to do in the time of COVID, but for today’s guest post I want to speak to OFFTHEMRKT’s readership as if they were on of my own buyer clients-- and predict neighborhoods, building types, and price points that will be winners and losers this year.
The market is definitely going to be ripe with opportunities for buyers-- we are going to have sellers more motivated to sell than they have been in a very long time and interest rates held near zero (keep in mind, this does not always translate to mortgage rates) for the foreseeable future. But as buyers we must be careful what deals we choose, and not just be motivated by discounts.
When buying in an environment like this, always seek stability. Buying into a building that has established value is crucial, so focus on sales history, quality of developers and reputation, owners in the building, and for new developments, percentage that is in contract and/or closed already.
If you are seeking a huge discount and have an appetite for risk, you can look at new developments that are lightly sold-- but there is a big question at the moment where the values of the buildings will go, and as an early buyer this can be hard to predict. A not-so-sold building can be exposed to a pressuring lender pushing prices down for more transactions, for instance. For the most part, a strong broker will know the amount in contract in a building, and this can be very helpful.
Longtime recognizable addresses and streets will win out: buyers will rush to quality and not be as willing to take a risk on a less established building or area. The best performing locations are those that are limited for building: “landmarked” neighborhoods in New York, for instance, or “listed” buildings in Europe. A zoning-imposed limit on construction and style always makes it more difficult for more product to be added to a neighborhood, so focus on those neighborhoods that have historic charm and will be that way forever. While it may be more difficult to get a brand new building, or views, it has proven to be a great investment long-term.
With everyone cooped up for this time, I think that the desire for larger apartments will come back into style and many will be looking to size up-- whether sizing up in square footage, light, outdoor space, view, or amenities. The concept of a “microapartment” being enough in New York City likely will become a very challenged notion. New York may for a time, not be thought of as “everyone’s living room”-- buyers will want their own living room!
So for a purchaser, if you can, think instead of buying a one bedroom, a two bedroom or larger may end up being a better investment for you. Not only can you have a home office or additional space, but long term the apartment will be more desirable, too.
As is always my opinion when consulting with buyers, as long as a building offers the amenities that you want and enough to satisfy the future resale buyer pool, a boutique building is normally better than a very large building. In the times of post-COVID, I feel this will be magnified: buyers are going to want to know that their building doesn’t have thousands of neighbors and they want to have a hold on who is on their floor.
Large buildings come with inherent investment risks: it is very difficult to control the value of your apartment with so many potential sellers in the building, often, you have a lot of competition on the market at the same time, and if you are purchasing into a new development, it many times means the developer has a lot of product to sell! Smaller buildings usually offer more unique floor plans (or even one-offs) and when you resell you may face little or no competition. Thus I encourage buyers to look into these types of buildings as stronger investments.
Ian Slater is the Founder of the Slater Team at Compass and can be reached at slater@compass.com or 646.645.8192
Have a listing you think should be featured contact us or email at Jeremy@offthemrkt.com to tell us more! Follow Off The MRKT on Twitter and Instagram, and like us on Facebook.
