This is a sponsored post published on the West Side Rag but details the consequences of three major problems hitting hard at urban NYC. The first is the massive move out to the suburbs or second homes of substantial chunks of the residential population that lived here before COVID-19 hit. Those fleeing are taking with them a good chunk of the real estate and income tax paying population.
The second problem hitting Manhattan real estate and businesses, large and small, is that office workers are not coming back to the high rises. Elevators are difficult to manage in a way that meets social distancing requirements so it’s easy for all involved if the employees stay home. But the reduced daily inflow of potential customers combined with the third problem, the virtual stop of tourism (particularly from overseas), means that the small restaurants and businesses that lived off that population are dying, if not already dead.
It’s a testament of the general faith in NYC and its ability to come back from disaster that real estate prices have dropped by so little, so far. New York is doing an extraordinary job at maintaining a positive test result well under the key one percent — but by forbidding restaurants to serve meals indoors and keeping bars closed. Entertainment that would usually please packed audiences have simply not found a way to resume operation. If these key draws for tourists, workers and even residents are not resumed within a real period, we could see considerably greater changes in the real estate market (and all other aspects of the city economy).
Posted on August 13, 2020 at 9:45 am by West Sider
Market activity has likely bottomed out, with contract-signed activity off over 80% from last year at this time; HOWEVER, there are signs of life, as the market is now beginning to breath. Although this activity is off by such an extraordinary margin, we are beginning to see a trend in a positive direction; meaning we are making a turn. Inventory levels are beginning to increase once again…slowly, but trending in the right direction. These are sellers who are setting the table for the anticipated open of the real estate market to apartment showings beginning on June 22nd.
Noah Rosenblatt of UrbanDigs has defined our marketplace in three stages and I could not agree more. The destruction phase, the normalization phase and the recovery phase. It seems we’ve fully experienced the destruction phase and just now are beginning to see that transition into the normalization phase. The puzzle pieces are beginning to be dumped on the table. The questions are: How many pieces will there be? How many players will be grabbing at those pieces? And what will it look like in a few weeks?
Since showings were suspended, there has been growing focus on virtual showings. These have served as only snacks for purchasers. For the most part these initiatives have been helpful, but have fallen short of providing the perspective needed to commit to a transaction. Note: when showings begin, activity will certainly increase, but each showing will be controlled (and with gloves and masks). Open houses, unless “by appointment only” are likely a thing of the past, as buildings and home owners will not want multitudes of people tracking through their buildings.
Mortgage brokers are seeing an increase in loan applications, a sign of buyer interest in the marketplace. Pent-up demand from buyers is anticipated to be substantial, as life simply demands movement. Leases have ended, jobs have been lost, downsizing, upgrading, more children, schools etc. Prior to the pandemic the market was, for the first time in 4-5 years, on the verge of making a turn back in the seller’s favor. It was anticipated to be a very strong Spring and Summer, a moderate Fall (due to the notorious uncertainty of an election year) and then a return to a very strong Winter and Spring of 2021. That momentum though was completely broken and buyers have been provided some bonus time to capitalize, especially considering current low interest rates. One’s ability to take advantage of these conditions is unique to the individual and their own personal circumstances and risk appetite.
Although we are seeing a reverse of fortune for sellers, one thing we have identified for sure is that they are not accepting super low offers. Any cases of such a thing happening are very isolated. Whereas there are discounts, they seem to be averaging 3-5% off the asking price. There are larger discounts stretching up to 10% and even 12%, typically only in the higher price ranges, but that level of discount is far fewer in number. The past years of decline have already been built-in to the majority of the pricing levels across all price ranges.
A few final thoughts: As I mentioned prior, the second half of this year could be one of the busiest markets we have seen in years. For various reasons, financing will be more challenging now; consequently, cash will often provide leverage. Every single person’s situation is unique; so there is no universal silver bullet solution. Likewise, every neighborhood will experience its own unique transition, so they must be studied independently of one another.