Um, Hello I’m Trying to Buy/Rent in New York Right Now and What the (Expletive) Is Going on?
^ Every renter/purchaser either 1) shamelessly lying to pull at the heart strings of the landlord/seller or 2) irresponsibly offering over-ask just to land a spot without considering the long-term financial implications
As a baby of the 80s who developed her conscious self in the 90s, I will knowingly go out of my way to make a Titanic reference, regardless of its relevancy. I’ve been using it frequently to explain to my family what it’s like dating in your 30s as a woman. How I set the scene: you know when you’re deep into the second VHS of Titanic, third class is pretty much underwater and the crescendo of chaos is building at an alarming rate. Up on deck, things are looking grim, with people throwing finishing moves upon other terrified passengers in order to carve a path closer to the few remaining lifeboats. Unfortunately, for many of the growingly optimistic folk who are next up for a lifeboat, thinking they’re in the clear, they will tragically come to find that their lifeboat is fatally damaged or once aboard, it goes onto crash into the water during descent due to rushed off-boarding. There are only a few, viable lifeboats left and…hundreds of desperate, panic-stricken passengers looking for a way off of this sinking ship, all while the passengers who safely escaped are watching the unbridled mayhem unravel from afar, comfortable in their own calmly bobbing vessels. Add to that, unrealistically I still think I’m going to end up with Leonardo DiCaprio when all is said and done.
For everyone who is still with me on the other side of that analogy, this also eerily applies to the current climate for both buyers and renters. There is an overwhelming amount of demand, slim selection of inventory (a lot of which isn’t great quality), people are doing questionably sane things to obtain said-properties, no one has any idea what’s coming and furthermore, any comfort that the situation is getting better.
While I don’t have a crystal ball, patterns do repeat themselves, real estate observes loose cycles, and you can predict future market conditions (barring there isn’t a global pandemic or an economic depression) based upon the current climate and the expected economic forecast.
Left: Everyone this past spring, plotting their return to New York after fleeing during covid, well-rested, full of renewed hope, salivating over the sweet deal they’re going to get on an apartment
Fast forward 6-8 months
Right: Everyone now, just absolutely bludgeoned by the market
So what’s my take (that I cannot be held liable for speculating) on what’s to come for the New York Sales and Leasing markets?
The Renter’s Market
There is no way to be currently living in New York and not also be keenly aware of the absolute mayhem that is the rental market. I touched on this last newsletter, but to bring everyone up to speed, right now we’re experiencing what’s most poignantly described as a Perfect Storm working against renters. First, inventory is exceptionally low; what used to be a busy time for rentals is now crickets supply-wise, due to most renters in 2020 having pushed lease renewal dates into the fall and winter since summer was still peak Covid. Second, everyone who left the city has been and still is coming back in a swarm, doubling the competition for the few apartments available. Bidding wars are rampant, apartments are either getting snatched the minute they pop up or receiving dozens of applications. This has been the case since spring and this harrowing trend for renters has yet to let up. The upcoming silver lining is that inventory should see a slight uptick with people leaving apartments they can no longer afford because the months free they received at lease signing are not being offered year two. Many landlords in peak covid times qualified tenants off the net-effective rent (taking into consideration the months free) not off the market rent; since the renewals are based off the market rent, many people will be displaced because they are simply do not qualify for their current homes.
Now for my forecast of what’s to come: this trend of very low inventory coupled with fierce demand will continue for the next 3-6 months. With offices mandating that employees spend at least a few days in-person and the city getting closer to pre-pandemic normalcy, I personally don’t see demand waning. Inventory should become a bit more flush as, like I said, folks who are priced out of their current arrangements have to re-enter the market, but that will add further competition to the market in return. My advice for individuals who currently have an apartment which is safe, they enjoy enough, and they can afford – stay. Do not leave. The rental market won’t truly return to its normal cadence until summer 2022 in my opinion, however things should start becoming more favorable for renters this winter. For the foreseeable future, expect to pay full broker’s commission, most likely bid slightly over asking rent (and budget that into your search so you don’t waste your time/develop false expectations), and prepare to have far fewer apartments to choose from, all at slightly bloated pricing and you’ll have to apply immediately in order to have a shot of locking a place down.
The Buyer’s Market
So this one is a bit more tricky to call because the real estate market the last 18 months has been anything but predictable.
One of the biggest influencers of the market is interest rates. Mortgage rates hit record lows in 2020 and have been creeping up, ever so slightly, since. They are still historically low, however the Feds have admitted that the window is closing for rates of these amounts, with 2022 being a *much* different picture for borrowers as bonds sell off and the expectation for inflation is high. To put things in context, I personally had a buyer get a rate of 2.1% back in December of 2020; fast forward to now, the average 30-year fixed rate is back over 3%. If mortgage rates rise on average 0.25-0.5% higher, you’re going to see the housing market start to slow down a bit. However, don’t misread this and think this calls for prices to drop simultaneously.
Price growth is expected to remain elevated through the rest of the year and into 2022 because millennials will keep demand high. Keeping this specific to New York, as the suburban markets shot up like a wildfire this past spring, the New York market appreciated at a more gradual rate. Being the most sound and stable market in the country with regards to trepidation in market swings, that also means its reemergence after covid has been more cautious compared to other markets. Significant amounts of people are returning to New York, both prior residents and new transplants, which is further fueling this gradual price increase we’ll see well into 2022.
Supply is also difficult to make an educated call on. In order to sell, you need to have somewhere to move into. So you have to ask yourself, how many individuals out there are looking to throw their own home up for sale and also enter this market as a buyer, considering market conditions. Right now in New York, inventory is razor thin. The push of this past spring faded as summer began and the typical autumn market bump that happens between September and October has yet to occur. Some sellers are waiting to list because they anticipate prices will grow markedly into 2022; however, that cannot be guaranteed due to increasing interest rates and the impact on buyer activity.
I personally think Q4 will be a quiet quarter with regards to inventory coming onto the market. The first 6 months of 2022 will be interesting, as the market will take into account the trend of interest rates, inflation, geopolitical nonsense, the pace of returning to the office, and how much we’ve furthered ourselves from covid. Prices will continue to rise, however buyer activity will be noticeably weaker than what we experienced spring 2021. The spring 2022 market will be the next noticeable push inventory-wise, as some uncertainty will have been settled with regards to the financial picture of the country and the trajectory of mortgage rates. Into 2022, we should see the market begin to even itself out with buyers and sellers, balancing the supply and demand to a better place than it is right now.