What’s Going to Happen to Real Estate the Rest of 2020?
^ Anyone who innocently asks me “How are you holding up?” at the perfectly wrong moment these days
Let’s just call it: no one’s doing particularly well right now. My hair is below my rib cage with 3-inch roots, I’m finishing mezcal bottles at an alarming rate, the line between what situations are and are not “pants optional” is becoming blurred, and subconsciously (and alarmingly) I’ve started defaulting to opening doors and doing elementary tasks solely using my elbows, so that’s going to turn into a fun nervous tick when this is all over.
We will emerge from this soon and the world will get back on its feet. Most of us will have developed a dependency on a 5pm cocktail, but goddamnit, we’ll be functioning. In the meanwhile, much of life-after-quarantine has been shrouded by a question mark. Topically, for those of you with leases expiring or wanting to enter the sales market, you’ve been asking me “So what’s next?”
So fix yourself a cocktail, sit back, and we’ll cover how things stand and if the last 7 weeks of mezcal have given me clairvoyance, where I see the market going…
Meanwhile my daily accomplishments over the past 7 weeks:
*wiping away single tear* God, this year was off to a such a great start. The market bottomed out October of 2019, caught its breath over the 2019 holiday season, and 2020 began on a wonderful note, with both buyers and sellers eager to make deals coupled by a resurgence of inventory.
However with shelter-in-place, the last two weeks of March brought the real estate industry to its knees. New rental and sales inventory plummeted during this time, with a 52% drop in rental listings and a 73% decrease in sales inventory. The number of homes entering contract between the beginning and end of March plummeted by 58%; the opposite of March activity historically. Despite the drop-off in rental inventory over March, asking rents have not changed. Incentives, like free rent and “no broker fee”, have also decreased as landlords are feeling their own economic strains yet haven’t seen a drop in demand for their apartments. Most sellers and landlords are keeping units off of the market for the time being as they wait for things to stabilize.
For anyone thinking that rental prices will drop on the other side of this, think again. With such little inventory and continued demand, landlord are commanding average or higher-than-average prices right now. Despite the economic uncertainty brought on by the pandemic, the median rent in Manhattan reached a record high in StreetEasy’s Price Index in Q1 of $3,324, a 3.4% annual increase. Brooklyn rental prices have to this point remained relatively unchanged by the pandemic. Brooklyn rents increased 5.2% year-over-year, reaching a record high of $2,755. The rise in rental prices was happening prior to COVID-19, as would-be buyers decided to wait on purchasing and continued to rent, contributing more demand to the market and sustaining rental prices across the city. As you’re probably aware, May is historically the busiest month in leasing in New York due to all the June 1st move-in’s. However this year, most landlords offered tenants a 2-3 month extension for April/May/June leases, which would push them out to July/August/September. I would say that from what I’ve heard from my landlord and from speaking with other agents with large accounts, 70% of people took the extension. So that means fairly low inventory until we get to the end of May/first week of June and that July 1 move-in date comes up.
On the sales front, Manhattan’s median sales price dropped to $1.07 million, a six-year low for the borough. Brooklyn sales price index, however, remained the same year-over-year at $704,783. However, please do not use this as a generalization across all neighborhoods and boroughs. On one end, Nolita saw a startling 173% increase in its median recorded sales price year-over-year, bringing it to $2.33 million. Midtown saw an 85% increase to $3.34 million, while Cobble Hill’s jumped 68% to $2.65 million and Prospect Lefferts Gardens’ rose 57% to $1.1 million. On the other end of the spectrum, the steepest drop in year-over-year median recorded sales price occurred in Midtown South, where prices dropped 62.8% to $795,000. Central Park South trailed with a 50.2% decrease in median recorded sales price to $1.23 million. Carroll Gardens saw a 38.7% decrease to $1.475 million
For everyone thinking that sale prices are going to dramatically drop, I wouldn’t get too comfortable with that idea. First off, inventory will be lean. Anyone who is selling in the market needs to sell. Either they lost money in the market and need to regain capital or they’re knowingly selling at a loss to graduate to a purchase under-market, netting even between the transactions. However, in a down market, you can’t count on the same surplus of inventory. The market bottomed out in October of 2019 – professionally, I do not believe we’re going to see a further reduction in prices. A lot of these sellers unfortunately bought at the peak of the market in 2013-2014, and due to that, many are grappling with the reality that they are selling for very little profit or a loss. They are well-aware of how aggressive buyers are aiming to be with offers and have no incentive to drop prices knowing that will prompt even lower offers. That being said, I do think that positive side of this situation for buyers is that there is more negotiation room. Instead of lowering prices, every listing agent is counseling his or her seller to work with every offer they get, which is what most are doing. So buyers will capitalize on this market by negotiating, getting an accepted offer a lower price than they would have previously.
Take away: home-shopping season has simply been postponed for a few months. Prices for rentals will not slip, if anything the opposite will occur as competition will be more fierce with April/May/June renters now vying for properties at the same time as July/August/September renters. For sales, don’t expect prices to slip either. With a lot of buyers throwing their hat in the ring due to low interest rates and the hopes of capitalizing on a down market, competition will actually be much greater than expected and supply will be on the lower side, which will keep pricing honest.Remember when there’s low supply and high demand, prices don’t fall.