New York City is the U.S. epicenter of the coronavirus pandemic, and the local economy has been harshly impacted by the health crisis. But the city’s residential real estate market was facing problems before the pandemic hit town.
According to the Real Estate Board of New York, the city’s total sales volume during the first quarter of this year fell 16% year-over-year from $10.5 billion to $8.7 billion. Total residential transactions also took a 16% year-over-year hit, down from 10,382 sales in the first quarter of 2019 to 8,702 sales during the first three months of this year.
But after the pandemic paralyzed the city’s economy and created a healthcare nightmare in its hospitals, the housing market took an even sharper dive. According to data from PropertyShark, residential sales activity sank from the second week of March to the end of the month in a 61% year-over-year freefall. Sales activity during the first two weeks of April were 62% below the same period one year earlier.
But while sales were evaporating, prices kept moving upward. PropertyShark found the $675,000 median sales price at the end of March was almost 5% higher year-over-year. By the third week of April, the city recorded a $750,000 median sales price that was the highest for 2020.
Getting deals transacted in the city during this period has been difficult.
“The only deals that are really getting done are with people who saw apartments before the middle of March and were still interested in buying,” said Jason Haber, associate broker with Warburg Realty. “Otherwise, there is very little deal flow right now.”
John McDonagh, principal with McDonagh Properties, described the market as “frozen” and has recently found himself being sought out more for advice than showings.
“We’ll get calls coming in from people that are asking for my opinion on which way the market is going to go, is it a good time to buy and a good time to sell – things like that,” he said.
McDonagh’s focus includes the Riverdale section of the Bronx, which is home to luxury cooperative apartment complexes, but he noted that since the city’s lockdown began in March “brokers and potential customers aren’t allowed entry in the majority of the buildings.”
Gabe Leibowitz, associate real estate broker with Douglas Elliman, observed that real estate brokers that can access available properties need to navigate extra layers of planning and coordination.
“The city’s regulations are, basically, to work from home and do everything virtually,” he said. “Some buildings are permitting one-on-one showings with management approval, along with proper face masks and gloves, plus only one person at a time under social distancing requirements. Other buildings are simply not allowing anybody in at all, while others will allow videographers in to take a virtual tour with the broker, or the broker can do a virtual tour.”
Leibowitz added showings in vacant units are easier to arrange than an occupied space, but many potential listings are now off the market until local regulations are loosened. While Leibowitz stated it could be another month before normal business practices can resume, he is still able to transact business.
“I have a deal now where contracts are going out and that transaction was done entirely virtually,” he said.
Mortgage brokers are also trying to make the best of the situation. Scott Valins, principal and loan officer at Scott Capital Group, acknowledged his volume of inquiries is significantly lower today, with increased requests focused beyond the Big Apple.
“The inquiries are about second homes or potential relocation outside of the city,” he said. “I had a client call me who was weighing his options about buying a place in Fort Greene [Brooklyn]. But now, he said he was pivoting to a second home on Shelter Island. I think they will keep their rental in Brooklyn and own a place outside of the city.”
Valins is also able to satisfy luxury housing customers via jumbo mortgages, adding “some local banks and credit unions are secure enough to lend” on this product.
But the inability for real estate professionals to access the city’s luxury properties is sending some buyers elsewhere. Noble Black, an associate broker with Douglas Elliman specializing in luxury real estate, said the market today is “in the Hamptons and Florida and everywhere else” rather than the city. And while Black is getting calls for virtual showings on luxury properties, he admitted he has to wait before he can build his sales volume up again.
“For the most part, buyers are getting their ducks in a row by doing their research, and they’re going to want to see a property in person before signing a contract,” he said. “There’s definitely activity out there, but there’s not the deals yet. I do think that will quickly come back once they lift the restrictions and we can actually get in and people go back to viewing in-person.”
Meanwhile, the city’s mortgage brokers are keeping busy with refinances. Valins defined his refinance activity as “through the roof now” thanks to low rates and the desire of borrowers to “improve their financial profile.”
Also preoccupied with refinances is Sean Bloch, broker and owner at Block Financial Resources, who estimated his current activity is “probably 95% refinance compared to 5% origination. There are some purchases taking place, but certainly it’s a refinance market as far as the mortgage industry is concerned.”
However, the local 1.9% mortgage tax makes refinancing more complicated locally than in other areas.
“The big challenge right now in refinancing is the mortgage tax assignment process,” Bloch explained. “And that’s where you essentially avoid paying mortgage tax a second time, after you’ve already paid for it when you purchase the property.
“It’s a process where the original lender and the new lender have their attorneys connect and agree to assign the mortgage tax from one lender to the other. The process of doing this requires the original lender to retrieve the original documents from closing, and so that process takes a long time.”
One area where Bloch is seeing much less activity involves foreign buyers who viewed New York City’s residential market for both domiciles and investment vehicles.
“We have one right now,” he stated. “And we happen to come up relatively high on search engine searches, so a lot of international buyers reach out to us. And I’ve seen that number drop over the past couple months.”
Warburg Realty’s Haber is fielding inquiries from what he described as “opportunistic buyers who are looking to come into town this summer to buy on the dip.” And these inquiries are not only from overseas buyers but from other parts of the country.
“I’ve spoken to people in the Midwest and California, and one or two in France and the Czech Republic,” he said. “I’m working with a group of buyers in China and they’re waiting to see what happens. They’re on pause right now. My guess is they’re going to wait through the presidential election – I don’t think we’ll be buying until afterwards.”
On the rental side of the housing market, it appears that many tenants are eager to exit the city. A new survey from Douglas Elliman and Miller Samuel found new leases for Manhattan apartments plummeted year-over-year by 71% in April to 1,407, the lowest total in a decade, while the vacancy rate hit a 14-year high.
The viability of New York City’s housing market is also being challenged by Ned Lamont, the governor of neighboring Connecticut, who used a CNBC interview to claim a rising number of New Yorkers are eager to abandon the city and move to his state.
“There’s no question about it – phones are ringing off the hook at real estate offices all throughout southern Connecticut,” Lamont said. “People are realizing that telecommuting doesn’t mean you have to be in New York City five days a week. It means that if you have to stay home for a period of time, having a nice little backyard is not a bad way to do it.”
However, Douglas Elliman’s Leibowitz responded to the negativity by tapping into New York Yankees icon Yogi Berra’s witticism about having déjà vu all over again.
“There was a lot of talk about something like this after 9/11, that everybody was going to leave New York and they wouldn’t want to be here anymore,” he said. “And there was some concern for the first six months about it after things began to somewhat normalized. I think there will be definitely people leaving the city, but there’ll be others coming in. I’m not particularly concerned about that – New York is New York, and that won’t ever change.”