2020 has certainly been an eventful year for both New York City and the wider world. Coming at a time of already high vacancies, an underfunded affordable housing system, and an overbuilt luxury condo market, the COVID-19 pandemic has thrown more fuel on the fire and left us with a badly shaken market. Fortunately, the arrival of a vaccine is a cause for hope. But pandemic or no pandemic, there are still many lingering questions about what the new year will bring. When will the real estate market recover, and what will it look like in terms of supply, demand, and price?
Here we’re going to pull out our crystal ball and offer the best analysis we can of what to expect in the new year. Presently, there’s too much uncertainty to offer any concrete predictions. But we can offer a glimpse of the biggest issues and what we should focus our eyes on in the coming months.
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Economic Recovery will be Slow and Painful.Economic Recovery will be Slow and Painful.
New York has always bounced back from previous downturns such as the 2008 Recession, 9/11, and the fiscal crisis of the 1970s. All experts are in agreement that we’ll recover from this one as well. But to say that it will be a slow and painful recovery would be an understatement. As of November 2020, NYC’s unemployment rate is still 12.1%, after hitting 20% in June and July, as many as a third of NYC’s 230,000 small businesses have closed as of July, with more than half a million jobs lost in the private sector.
A weak economy means falling rental prices. In October, the median asking rents in Manhattan were at their lowest level since 2010 and are projected to drop even further by the middle of next year. By some estimates, the drop will be as much as 7.7% to 11.3%. Until jobs begin to return, rental demand and prices will not return to their pre-pandemic levels. Even with a vaccine now on the way, recovery is expected to be slow and could take a year or more.
Bleak numbers like these are bad for everyone in the city. Overall, New York State is projected to suffer a $59 billion revenue shortfall over the next two years. How long the city takes to recover is a huge unknown right now. Much will depend on how fast a vaccine can be distributed, whether the city will receive federal aid, and how many New Yorkers will permanently leave. From an economic perspective, we can expect a difficult year ahead in 2021.
2021 will be a Busy Year for Homebuyers2021 will be a Busy Year for Homebuyers
While the pandemic has had a severe impact across the whole city, it’s impacted some New Yorkers worse than others. Job losses have disproportionally affected outer-borough residents and lower-wage workers, leaving higher-income workers largely unaffected. Those wealthy New Yorkers who’ve managed to keep their jobs will be able to take advantage of a huge buyer’s market in 2021.
But don’t hold out for any fire-sale prices. The market was already three years into a price correction before the pandemic even struck. Still, we see wide discounts and a growing level of market activity since lockdown restrictions were eased. In October 2020, there were 2,975 recorded residential sales, an increase of 71% from September, according to REBNY’s October report. November saw a further increase in sales volume, though this time only by 3% with 3,078 recorded transactions. A shortfall attributed to a spike of infections in November led to some lockdown restrictions being reimposed. This suggests that barring lockdown restrictions, there is a lot of demand for NYC homes.
What will become of the city’s oversaturated new-development market is also a big question. Out of more than 16,000 condo units that have been constructed in the last six years, 25% remain unsold. So far, we do not see many distressed sales. But that could change in the new year as developers start to run out of options. With U.S. mortgage rates also at an all-time low and a vaccine now on the way, expect 2021 to be a busy buying season for New York City.
Major Political Changes are on the way.Major Political Changes are on the way.
Expect to see big changes in 2021 as Democrats try to use their supermajority in the state senate to advance their progressive agenda. City and state legislators are currently mulling several measures meant to discourage speculative investment and increase renter protections. These include a potential vacancy tax, a Pied-à-Terre tax, and a possible reevaluation of the broker fee. Opponents of these moves contest that this will lead to a “death spiral” of over-taxation that could scare away the city’s wealth. The city’s real estate interests are now gearing up for a tough fight in the year ahead.
Ground zero for this fight will be the upcoming primary election on June 22, 2021. It’s expected to be the city’s most consequential since 2013. With term limits now forcing out Mayor de Blasio and most of the city council, the battle is now underway for the city’s real estate interests.
The Fears of an Urban Exodus will Subside.The Fears of an Urban Exodus will Subside.
When the pandemic first struck, it caused a mass exodus and fears of the impending death of NYC. It’s a narrative that long-time residents are very familiar with, having heard it before in previous crises. Once again, these pronouncements have proven to be overblown. Every major city experienced an urban exodus when the pandemic arrived, and nearly all of them have shown signs of recovery since then. New York City is no different, and we have every bit of confidence that once the vaccine becomes widely available, most of those who left will return.
Many of them already regret leaving and are eager to come back. It turns out it’s not easy for New Yorkers to adjust to country and suburban life. They miss the diversity and excitement that can only be found on the streets of New York. Where else but New York can you find so many food options to fit all budgets or so many late-night bars and theaters? For now, much of the social scene and entertainments that make New York what it is are not open. But once they are again, the city is sure to regain its old vibrancy and energy.
The Character of Manhattan will Change.The Character of Manhattan will Change.
While the pandemic and urban exodus effects are expected to reverse course, they will still leave a lasting impact on NYC. Nowhere will this be more apparent than Manhattan. As the cultural and historic center of the city, it will remain a highly desirable location. However, with falling rent prices, the doors are now opening for a new age cohort to enter the scene. Make no mistake; Manhattan will never be cheap. But it will become more accessible to younger residents with a broader range of incomes.
The rise of the work-from-home model is also likely here to stay. Many companies are already planning to reduce their office footprint and implement a partial work-from-home model. Older employees with families are likely to prefer this as it allows them to remain living in the more affordable outer suburbs. Younger employees who don’t want to miss out on networking and socializing opportunities will prefer to live in Manhattan. What this means is a generational change is on the way. The daytime working population of Manhattan will get younger.
What the full effects of this will be is hard to gauge. But we may see changes in buyer preferences and neighborhood makeup. The closure of many luxury retail chains is also expected to have a marked effect. Any new stores that take their place are likely to cater to this younger, more diverse breed of New Yorkers. Only time can tell. But for now, our advice is to keep an eye on these changes and see how they might impact buyer demand and preferences.