{"id":38568,"date":"2020-08-18T14:12:05","date_gmt":"2020-08-18T11:12:05","guid":{"rendered":"https:\/\/www.propertyshark.com\/Real-Estate-Reports\/?p=38568"},"modified":"2020-08-18T15:28:45","modified_gmt":"2020-08-18T12:28:45","slug":"examining-the-new-york-residential-investment-market-post-lockdown","status":"publish","type":"post","link":"https:\/\/www.propertyshark.com\/Real-Estate-Reports\/2020\/08\/18\/examining-the-new-york-residential-investment-market-post-lockdown\/","title":{"rendered":"Examining the New York Residential Investment Market Post-Lockdown"},"content":{"rendered":"\n

We Lend CEO Ruben Izgelov takes a deep dive into New York City’s post-lockdown residential investment market for the story behind the headlines. <\/em><\/p>\n\n\n\n

Undeniably, the residential markets in New York City and across the state were on a hot streak pre-COVID. In fact, prior to April of this year, there had been 50 consecutive month-over-month (M-o-M) increases<\/a> in average prices.<\/p>\n\n\n\n

Unfortunately, such impressive growth was bound to come to an end given the severe restrictions that were imposed upon individuals and businesses during the peak of the pandemic. However, robust residential property values have held firm throughout the crisis \u2014 both in New York and across the country. For instance, in June, the median sales price nationally was up 3.5% year-over-year (Y-o-Y<\/a>).<\/p>\n\n\n\n

Digging a little deeper into the data, the driver of this price growth becomes quite apparent: lack of inventory. In fact, total housing inventory in June was down 18.2% as compared to the same period last year. This, coupled with historically low interest rates, causes upward pressure on pricing. This dynamic is largely the case in New York. Although, that said, when it comes to the New York residential investment market in the new normal, it becomes a tale of two areas: NYC and suburbia.<\/p>\n\n\n\n

<\/span>In the City: A Look Beyond the Home Price Headlines<\/span><\/h2>\n\n\n\n

At the beginning of July, a slew of headlines in prominent media outlets proclaimed the largest price drops in a decade<\/a> in Manhattan. And, at first glance, a 17.7% drop in the median sales price in Q2 of 2020 compared to the previous year does send alarm bells ringing. However, a more focused analysis shows that this decline doesn\u2019t really compare apples to apples.<\/p>\n\n\n\n

Essentially, a number of factors have contributed to fewer super-prime properties entering the Manhattan market during this period. For example, wealthier homeowners have little incentive to sell at the moment and can \u201cwait it out.\u201d <\/p>\n\n\n\n

What\u2019s more, there was a spike in super-prime closings in Q2 2019 as buyers rushed to avoid the new mansion tax. Therefore, much of this reported price drop could likely be attributed to mid-market properties making up a much larger percentage of total closings in Q2 2020 \u2014 which, of course, deflated average prices.<\/p>\n\n\n\n

Specifically, the NYC sales market did achieve Y-o-Y price growth between 2% and 4%<\/a> in all but one of the weeks from the beginning of March until the second week of June. Furthermore, low inventory and reduced transactional activity due to lockdown restrictions helped to balance out supply and demand \u2014 and, therefore, stabilize prices.  <\/p>\n\n\n\n

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The first significant Y-o-Y and month-over-month price declines came in June as transactional activity began to increase \u2014 and Manhattan was the root cause. Specifically, June 2020 recorded a staggering 37% Y-o-Y decrease, while the M-o-M decrease was 19%. The other boroughs, though, were all up Y-o-Y: Brooklyn increased 1.14%; Bronx rose 11%; and Queens went up 3.22%. <\/p>\n\n\n\n

But, notably, everywhere but Queens experienced a M-o-M decrease in June, including -2.56% in Brooklyn and -5.84% in Bronx. Therefore, this M-o-M price drop correlates with the M-o-M increase in the supply of inventory in June.  <\/p>\n\n\n\n

When analyzing these figures, it\u2019s important to keep them in the correct context. For instance, there\u2019s already been plenty of speculation about the new era of flexible, work-from-home arrangements that the pandemic has ushered in, as well as the influence that this would have on city-center living. <\/p>\n\n\n\n

As a result, some  are looking for data points like these to validate this theory. But, although these data points and rental prices show that prices are dropping significantly in Manhattan relative to other areas, it\u2019s far too early to draw any conclusions on the longer-term effects of the pandemic, new forms of work and the influence on city-center living.<\/p>\n\n\n\n

Moreover, as previously mentioned, the Manhattan Y-o-Y figure is somewhat of an outlier due to the effect that the incoming mansion tax had on sales in June 2019. And, although the Manhattan M-o-M decrease in June is a significant number, this could also be an indicator that fewer super-prime properties are closing because the high end of the market is less incentivized to buy or sell right now. This is in direct opposition to low interest rates, which stimulate the low to mid end of the market.<\/p>\n\n\n\n

Ultimately, while it\u2019s possible that we could expect to see declining demand \u2014 and, therefore, prices \u2014 in areas near white-collar employment, a dramatic drop in a single month just a few months into the new normal doesn\u2019t confirm this.<\/p>\n\n\n\n

<\/span>Rents Declining in Manhattan, But Not in Other Boroughs<\/span><\/h2>\n\n\n\n

While the effect on sale prices is still too early to call, what is becoming clearer is the direction of the rental market. Naturally, the rental market is more responsive to market conditions, and initial data supports the hypothesis that demand will drop for rentals that are closest to the business district.<\/p>\n\n\n\n

In the previous quarter, 35% of all rentals<\/a> in Manhattan were discounted, the largest of which were in the heart of white-collar office districts, including the Flatiron District at -45% and the Financial District at -40%. For landlords, the Manhattan rent index fell 0.9% to $3,236, with the most expensive 20% of the market experiencing the greatest decline \u2014 down 1.4% to $6,325.<\/p>\n\n\n\n

Across the other four boroughs, a clear pattern emerges: much lower discounting and continued growth in rent prices (albeit at a much slower rate than pre-COVID). In Brooklyn, 25.6% of rentals were discounted, while the market as a whole managed a rent increase of 2.6% to $2,728. Queens also had a higher-than-usual amount of discounting at 22.5%, but the market still managed a 1.2% increase to $2,196.<\/p>\n\n\n\n

<\/span>Goodbye City, Hello Suburbs?<\/span><\/h2>\n\n\n\n

Meanwhile, outside of the city and across the state, some key locations are already seeing the effect of increased demand for suburban and rural homes with good links to the city. In particular:<\/p>\n\n\n\n