Our Real Estate Market Predictions for NYC in 2022

In the first half of 2021, New York City’s housing market took a nosedive due to the pandemic. However, things quickly improved in the second half of the year as renters and buyers began returning to the city. Sales prices rose and, in some cases, exceeded pre-pandemic prices, with more Manhattan apartments being sold in Q3 than at any time in the last 32 years. The sudden burst in demand quickly evaporated any Covid discounts and concessions as things moved into a seller’s market. Now with Covid infections starting to rise again due to Omicron, everyone is wondering what awaits us in the new year ahead.

To give you the short of it, buyers and renters can expect to see prices steadily rise in the coming months as both demand and interest rates look set to continue. The silver lining here suggests the city is recovering and returning to a new normal. Let’s take a closer look at what to expect as we lay out our real estate predictions for NYC in 2022.

The Luxury Property Market Might go through a Cooldown in Q1

After a three-year slowdown, the luxury property market experienced a surge in sales over the last months of Q4, 2021. Even with new listings still coming on the market, the flurry of sales activity was enough to reduce inventory levels, with the result that prices are now going up. Real estate analysts are divided on what this will mean. Some insist this surge will continue, while others believe it will taper off some in Q1 as buyers take a wait-and-see approach. If buyer activity does slow, this will lead to rising inventory and pressure sellers to lower prices again.

However, buyers might also feel pressured to move faster if they see more foreign buyers returning to the market. As early as March, potential interest rate hikes (more on this below) could also spur buyers to act now while they still can. If a lull in buyer activity does reduce prices in the luxury market, don’t expect anything too drastic. At most, the price reduction is unlikely to be greater than 5%.

One area that investors will want to keep an eye on for 2022 is the luxury townhouse market, particularly in the downtown Manhattan neighborhoods. Townhouse prices are still well below their peak in 2015, but that may be about to change as buyers look for larger properties that come with privacy. The following 12 months may see the townhouse market reach new heights at sales activity and prices.

Mortgage Rates May Go Up

The surge in sales during the last half of 2021 was driven in part by historically low interest rates – due to the heavy purchasing of mortgage-backed securities by the Federal Reserve to support the economy during the pandemic. With rising inflation now pushing the Fed to slow down on these purchases, mortgage rates are expected to increase in the coming months. One report by the NYT suggests that interest rates may rise as much as three times in 2022; others predict four rates increases.

With the increasing spread of Omicron, it is uncertain if the Fed will move ahead with its plan. This is the wild card in play here, as it is still unknown how severe this variant is. For now, interest rates can be expected to hover around 3% for the first months of 2022. But if the Fed moves ahead with its plan to raise interest rates, we may see an increase of .25% to 0.5% from March onwards. Buyers concerned about any rise in rates might want to act soon. Worth noting, though, that the NYC market did well enough when rates were at 3.625%.

Expect a Lot of Competition in the Rental Market

Anyone looking for an NYC rental in 2022 will be in for a tough time. That may sound like a typical year in the Big Apple, but the competition is becoming extraordinarily fierce. Gone are the discounts and concessions landlords were offering tenants at the height of the pandemic. In their place is a massive surge in rental prices and an unending avalanche of eager renters looking to secure their slice of the apple. The rental price surge has been particularly pronounced in Queens and Brooklyn.

With many New Yorkers who left during the lockdown having returned by now, we can expect a slowing in demand. However, a tale of two cities. The low-end of the rental market may start to cool and approach more seasonal levels as time passes. The high-end market is seeing a steady increase in prices and bidding wars. Many New Yorkers who continue to work from home have their eyes set on larger apartments in doorman buildings with choice amenities. This growing demand has led to bidding wars that can make renters feel like they’re in the sales market. Things may get particularly intense in the summer as more businesses reopen, though that does depend on how things go with Omicron.

We’re seeing more renters locking in their prices through longer leases to offset. Worth considering if you’re thinking about renewing your lease.

Are International Buyers Returning in Force? Yes, No, Maybe

When the U.S. reopened to vaccinated travelers in early November, we saw a steady boost of foreign buyers snapping up luxury properties that had been languishing on the market. The expectation was that this would continue in 2022, with the result that we saw domestic buyers also jumping into the market before foreign buyers re-entered the market. However, Omicron has now thrown a wrench in that prediction. The new forecast is that while the number of foreign buyers will increase, it will not be the influx previously expected. Several European countries have already begun implementing lockdown measures again in response to Omicron.

There may be a rise in buyers from China that may offset the losses from Europe. The ongoing fallout from the defaults of large Chinese real estate developers is near certain to lead to Chinese investors repositioning funds into safe havens like NYC. This could potentially lead to billions of dollars in investments into the residential real estate sector. Even better, many Chinese buyers tend to have few issues with buying sight-unseen, meaning any border closures or flight restrictions may have little effect on this expected surge.

Renovated Units will be More Attractive to Buyers.

Anyone thinking of selling their NYC residential unit this year will have an edge if they’ve recently gone through a renovation. The continuing supply chain issues and labor shortages have made renovations costly and time-consuming. Buyers are now more hesitant than ever to take on a fixer-upper or any property needing TLC because of such issues. Since last year, the resale gap between renovated and non-renovated units has grown by 30%. That said, this gap may start to narrow as the year progresses. Much will depend on Omicron’s full impact and whether the current supply chain issues worked out.

Properties with outdoor space also have an even more significant advantage over those that don’t, as buyers seek homes that fulfill all their needs. Buyers are also prepared to pay a premium, as much as 20% more than comparable properties with no outdoor space.

Buyers will be More Concerned about Potential Flooding.

The tragic impact of hurricane Ida has left a deep impression on New Yorkers who experienced it firsthand. Areas that weren’t considered vulnerable to flooding became inundated with water within hours, prompting many to think twice about where they will rent or buy in the future. An updated flood zone map of NYC by FEMA is currently being created; the updated version could include twice as many buildings now at risk than previously thought.

This is sure to impact the priorities of buyers and renters in the year ahead. Homes in higher-risk flood zones already see increases in their flood insurance premiums. These concerns will almost certainly extend to outside investors who saw footage of the flooding and are worried about climate change in the city’s future. If Sandy was a wake-up call, then Ida was a stark reminder.

Final Thoughts

Market predictions are far from an exact science. Anyone thinking of buying a home or investment property this year would do well to act fast before interest rates rise and demand increases further. While we can’t say for sure how things will go for the NYC market in 2022, we can point out those areas that buyers, sellers, and investors should keep an eye on as the year progresses.

Despite the uncertainty that Omicron brings to the table, the NYC market is showing potential solid growth in all areas this year. Those who stand to gain the most from this will be the ones who recognize the trends and act fast.