What has the greatest ability to influence Manhattan real estate this year, more than even supply, demand and interest rates? Vaccine distribution. Gathering is what makes NYC so vibrant and appealing. Offices across the city remain vacant with only a few employees showing up every day. Without vaccine distribution, we cannot gather for meals in restaurants, Broadway shows, concerts, movies and so much more. It may take the better part of a year for the vaccine to be sufficiently distributed for life to become more normal. Until such time many, who would normally be in the city, will stay away. This single factor will continue to overshadow the market.
The second greatest influence is the ability to work from home, which is clearly here to stay, and fundamentally alters how people live. I remain optimistic and realistic about what 2021 will bring. However, before I explain to you what is likely to happen this year, let’s take a look at the fundamental forces underpinning the market.
Inventory was lower in December, than earlier in the fourth quarter, because of strong buying activity as measured by signed contracts, which in many weeks surpassed 2019 metrics. This is an encouraging trend, yet the overall supply of inventory is still high, with approximately nineteen months of supply on the market. Right now some homes are temporarily off the market for the holiday season and we don’t know if sellers are waiting for later in January to put their homes on the market, or even March. The first two weeks of January is the time to keep a close eye on inventory levels. Those who don’t have to sell, but want to sell, may sit on the sidelines to see where prices go in the first quarter, keeping the potential supply lower than it would have normally been this time of year.
Most sellers adjusted their pricing expectations in 2020. In the first quarter of 2020, we saw renewed activity coming off of a 2019 slow down in which pricing adjusted downward. It looked like it was going to be a very strong year as buyers reacted to the improved pricing. The pandemic hit, shutting down the market for three months, leading to further price adjustments. Because pricing is now in line with current demand, we are not likely to see buyers able to negotiate a large percentage off of the list price as we did earlier in 2020. There will still be great deals to be found but this really depends on the motivation of the individual sellers. In general, midtown Manhattan is offering great value because daily life has been impacted by the lack of a vibrant commuter community. Deals can also be found in Upper Manhattan and the Upper East Side. You can also find tremendous value with developers who are trying to move inventory. Bear in mind that although some new developments discounted by as much as 40% in 2020, these apartments still trade at a higher price per square foot compared to resale listings. Additionally, some new developments are such hot sellers, that there are no discounts available at all. Value in new development is truly found building by building.
Demand is where it will get interesting. In the second half of 2020, we saw buyers come out with great enthusiasm and they got deals done. While the majority of the activity was in the sub $3 million market in 2020, we did see the luxury market come to life in late October. This trend has sustained over many weeks and has already carried into 2021. Everyone is reassessing their need for space. Manhattanites have had the time to figure out where and how they want to live and now they are making those changes. Some families, who decamped to the burbs, found out that they are city dwellers and are returning to their small apartments ready to sell and upgrade. Don’t assume this means that only large apartments and townhouses will be selling. The need for more space can be a grown daughter moving out of her parent’s two bedroom, because they need the second bedroom for a home office, and they are buying her a studio. This could be the year of the great reshuffle across various price levels. How people live has fundamentally changed and now we have learned how to accommodate those changes. For those who can afford it, expect them to upgrade to much larger apartments with outdoor space or even townhouses. The sleepy townhouse market came to life in the fourth quarter as well heeled buyers sought out space and privacy.
Interest rates are expected to remain low but many banks are tightening their lending requirements, specifically in Manhattan. Some banks are requiring as much as 25%-30% down for a jumbo as opposed to 20%. 30 year fixed rates are below 3%, which is the lowest rates we have seen since 1971, but you will need more cash to close than you did prior to 2020, which could dampen demand.
So now that we have examined the drivers of the 2021 real estate market, here is what I expect will happen.
2021 is a very difficult year to predict. Right now because the vaccine is not widely distributed, I am expecting a continuation of the December market, with ever increasing transaction rates and less negotiability, now that market pricing is appropriate. Overall, I believe the transaction levels will be much higher, and that is the real headline for 2021. Prices in my view are likely to be stable. We will see headline grabbing, high flying sales and hear stories of some steals, but overall I am expecting price stability. The Manhattan real estate market is showing signs of great resilience.
Happy New Year!
Julia Boland, The Boland Team
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