By Ian Slater | September 3rd, 2020
It is now quite evident that New York, across all tiers of the market, is on sale and has been since March. The coronavirus crisis has caused a displacement that is unprecedented in the city, resulting in a large supply jump with a limited climb in demand. I am seeing deals happen that I personally am surprised by, occasionally even mis-predicting where a property will sell to my own buyer, and having it sell lower than predicted (i.e., a more motivated seller than I envisioned). It is probably the best buying opportunity in a generation. But I am writing today’s blog to really consider the level of pressure that exists in the market.
The level of sale grows as you go up in value: above $4M, there are certain deals where I am seeing 30%+ discounts from previous pricing. Not frequently, though.
While 94% of the contracts up to now since the shutdown in March have been sub-$3M, the number of luxury contracts (above $4M) has been steadily growing week by week-- as more and more buyers pick up these deals. The volume of sales above $4M was down 28% year-over-year during August-- not actually that bad of a statistic, with all things considered, particularly during the slowest year of the month.
Buyers are swimming in the market searching for deals. But: they are comparing this to the 2008 crisis, salivating for an opportunity to triple or quadruple their money on real estate just like those who purchased during the crisis then did if they sold at the peak of the market in 2015.
There are several major differences, and several major problems to this expectation, and it all comes down to the level of pressure on the market.
The 2008 crisis was fueled by a credit crunch (true inability to get a mortgage), a stock market crash (ample savings wiped out), and a massive fear of the real estate market (a housing market collapse). The current crisis is marked by displacement-- not a real estate market crash-- and not a stock market crash. Back then, cash was king, and there was immense pressure on people to sell because their savings were wiped out and there was zero understanding of what real estate was even really worth.
Today, this is a different scenario:
- Banks are lending, at historically low interest rates, and in fact cannot keep up with the level of demand. More mortgages and refinances are being given than ever before.
- The stock market is literally at historic highs, with stocks gaining 60% since the March drop. Anyone exposed to the stock market, which is essentially the entire NYC real estate market, is up. A lot. Particularly those exposed to finance or tech have made a lot of money in the past six months.
- Most sellers, unless they are very exposed to the hospitality industry in my experience, don’t have a lot of pressure on them to sell, and it is more of a want than a need.
- Most sellers see a vaccine as a sort of “panacea” to the market, and the vaccine is now being reported to release beginning in November (in two months!). This has added a level of patience to the market.
What we are dealing with is disjointed supply and demand graph. According to UrbanDigs, supply is up about 31% year over year
. Buyers are actually confused with how much is on the market and they don’t know what to buy. But, because they have the ability to
, they will buy when they find the right thing. And because sellers are doing so well in most of their other investments, they have the patience to “wait this out” and only consider offers that are generally within reason.
The point is relatively simple: at the moment, while the buying opportunity is once-in-a-lifetime, it’s not the same pressure that we had in 2008. The once-in-a-lifetime opportunity comes because pricing in NYC is tempered, interest rates are insanely low, and many buyers have high liquidity because of stocks. But sellers are in the same boat. They understand that the supply issue is a real issue, and that pricing is not where it was in 2015, but they also understand that pricing does not need to be where it was in 2009. Because, the pressure isn’t there.