The winners and losers when New York’s luxury home market reopens

IN early 2020, New York’s luxury real estate market was finally showing signs of life. There was a large oversupply of new condos, but buyer and seller expectations – never aligned in the best of circumstances – were slowly beginning to move in tandem.

Manhattan sales volumes were up 13.1% year over year in January-march 2020, according to a Douglas Elliman report, even as median prices declined by a modest 2.6% for the same period.

Now, more than two months into the Covid19 pandemic shutdown, with the summer sales season looming, the industry is once again bracing itself for an uncertain market.

“Prices had been falling for several years at the high end,” says Jonathan Miller, president/ceo of appraiser Miller Samuel Inc. “The question is: Will sellers and developers at the top of the market capitulate to another step-down?”

Dozens of factors could impact the luxury housing market. The most pressing being the speed with which the city opens; the timeframe white-collar job workers return to their offices; will services and amenities that make neighbourhoods desirable still exist; the strength of the stock market; the strength of the US economy; when that vaccine becomes available; and whether the shutdown pushes New Yorkers to live in the countryside.

“The second-home market in this crisis is suddenly viewed as an equal partner to primary residences,” Miller says.

“We could see less of prices rising to the stratosphere for primary residences, and more resources devoted to a second-home market, so that people could realistically live in both at any given time.”

With no robust sales data available, there is uncertainty. “We had 20 transactions last week in new development sales,” says Shaun Osher, the founder/ceo of real estate brokerage Core NYC.

“But closings don’t define where the market is right now; they define a market that’s already gone by.”

Because the spring sales season was effectively cancelled, Osher says, “We have a huge pent-up inventory of product that’s going to flood the market in the next 30 days-60 days. It will be interesting to see what that does to pricing and consumer confidence.”

Industry sources suggest that some property types could sell more easily than others.

“If a property is renovated, there’s going to be a stronger demand,” says Donna Olshan, president of the luxury brokerage Olshan Realty Inc. “Who wants to renovate in this environment?”

Similarly, the convenience of walking to work could take on added import. “Everyone talks about location in real estate,” Osher says.

“But Brooklyn was already priced high, and if people can buy the same apartment in Manhattan and walk to work, that’s going to be a huge driving factor.”

Another major winner could be the city’s suburbs. “Look, if you love the city, but it doesn’t have schools, restaurants, broadway, sports games, museums, it will not look like New York anymore.

“Someone sitting in their apartment might decide to try the suburban experiment. That could work out better for people with children. It’s the reality.”

Finally, she says the market for one-bedroom apartments “will probably hold up well, because those are not people with a big discretionary income – and very often, don’t have kids,” she explains. “They’ll make sacrifices [in living/working arrangements], because they already do make sacrifices.”

“The people who are going to get crushed are the developers,” Olshan says. “Many of them have a lot of debt and no velocity of sales.

They can’t find their way out of this environment quick enough.” Some developers, she continues, “could go into foreclosure or make bulk sales.” Everyone “will have to adjust to new realities.”

One of those realities might be restrictive entry/exit rules regarding open houses.

Currently, some co-ops don’t allow non-residents to enter the building. “Will buildings even allow open houses? I doubt it,” Olshan says.

“Some may say they don’t want residents to show their homes at all, because they just don’t want the risk. We just don’t know. The virus controls the show.”

A further possible casualty: the borough of Brooklyn, for the same reason Manhattan real estate might become more desirable.

“Living in Brooklyn is great, but how are you going to get there if you don’t want to take the subway?” Olshan asks.

“Even if you can afford a car service, that means you’re in a car for 45 minutes; would you just be better off doing the suburban experiment?”

One thing is relatively certain: Luxury housing prices won’t rise soon.

“First, how fast will sellers capitulate to the next step down in prices?” Miller says. “Secondly, how long does this next step last?”

For the first time in decades, no one has a good answer.

“I’ve done this for 40 years, and right now this looks like complete chaos,” says Olshan. “If I could predict the market, I would be on my yacht cruising the Mediterranean right now, so I don’t hold much stock in my predictions – or anyone else’s, for that matter.” — Bloomberg