Pent Up Demand


By Ian Slater | Updated April 6th, 2020
It needs no reiteration now that we are currently living through an unprecedented disaster in New York, with the city on complete lockdown and movement heavily restricted because of the mounting coronavirus crisis. Not only is the city in a situation where the disease continues to spread and at speedy rates, but the mortality rate is now quickly mounting, too. In the face of this, the city will be likely locked down for at least another thirty days, meaning all non-essential work and travel is banned or highly discouraged. 
Real estate is by nature a person to person, person to space business and regardless of how much a buyer or renter may want to look at an apartment virtually or tour online, I find it hard to believe anyone will transact while the act of physically showing remains illegal, unless a buyer is offered the “deal of a lifetime.” This sentiment is echoed by market data: clearly this is resulting in a massive decline in contracts and leases signed. This week’s and last week's Olshan Report, a week-by-week tracking of luxury contracts signed (defined as those asking north of $4M), crashed to two contracts for each week. A healthy amount is north of twenty, a “great week” is over thirty, to put that in perspective. We don’t need to ask where the buyers went-- they are in their apartments, at their second homes, or renting outside of the city to wait this out and keep their families safe. 
The only times this had been matched or there were less contracts signed were two weeks in 2009: late August, and Christmas week-- both slow weeks normally, exacerbated by the collapse of Lehman Brothers that year. What makes this stat potentially more jarring is that the final week of March is historically one of the strongest of the year.
But what are most experts, scientists, doctors, and *eye roll* politicians predicting?-- that if we all do our part, social distance, and isolate, we will get our arms around this in a matter of time and be able to reopen our cities and towns, and eventually businesses. We will be able to begin showing again. We will be able to socialize again. People will go back to work and the economy will stabilize. We just don’t know how long it will be. 
If I look back on my short career, which I started in 2013 when the market in NYC was on fire, the one thing that more established brokers told me then was that the reason for the insanity of that market was based enormously on one key fact: there was huge amount of pent up demand of buyers who hadn’t bought in years, because nothing was transacting. And, there was little development to purchase, anyway, because nobody was building. This is mirrored a bit by the current environment, as the city has frozen development applications since March 17th, which will have a chilling effect on long term inventory, per an BisNow.
Will this be the case on the tail end of the coronavirus outbreak? Except, perhaps in a more magnified way? Yes, certainly, it will take time to bounce back from the loss of employment, and it will take time to psychologically bounce back from the idea that living in a city poses greater risk than a house. Some highly exposed, not-so-sold, or leveraged developers will potentially have to face a reckoning (construction loans are not cheap!) if this lasts for a while. Initial information coming out of China, per the South China Morning Post (and yes, I acknowledge that these numbers may not be verifiable or for that matter, trustable), is that real estate sales have jumped three fold in tier 1 cities in China because of pent up demand and real estate sales offices opening up again. The article notes that prices have been capped by the government which is helping-- but this is an interesting phenomenon to see-- if we cap our prices on the tail end of this, might we see similar outcomes?
All I know is that every $4M+ buyer that I know or have has not decided to abandon the city-- in fact, quite the opposite; it has become clearer in their minds what enjoyment lies within cities that they are missing now that everyone is in quarantine. Those two contracts signed last week are due to this exogenous yet highly serious issue-- but an issue with a likely time limit. 
When we come out of this, will we perhaps see more movement than ever in this segment of the market because of pent up demand again? Time will tell!

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