It has been a banner year for New York City’s residential real estate market, but all good things must come to an end.
By October, Manhattan contract signings had already surpassed the previous record — 12,520 in 2013, real estate data firm UrbanDigs. The firm’s data dates back to the 2008 financial crisis. With two weeks left in the year, closings have reached 14,774, more than double the 2020 total.
That depleted inventory, despite a rise in listings. Through Dec. 5, listings had exceeded the 2008-2018 average by 18 percent, the report found. But buyers gobbled up supply at an even faster rate, driving net new inventory below zero in nine of 11 months this year. In November, net new inventory — the number of monthly new listings, minus contracts signed and listings taken off-market — was negative 861 units.
Prices have risen in tandem. For the first time since mid-2015, listing discounts fell consistently throughout the year as buy-side competition increased, the report noted. The luxury sector — units going for $4 million and up — bolstered that performance, notching its best year since 2014. Buyers have spent over $14 billion so far in 2021, a 19 percent increase over the previous record.
But UrbanDigs co-founder John Walkup foresees less churn in the first quarter of 2022.
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“Deal volume may slow through the holiday season, especially with fewer units coming to market,” he wrote, noting the next quarter may be noticeably slower than the current one.
“A slowdown in buyside activity may cause inventory levels to rise, pressuring prices,” Walkup added, noting prices on luxury deals may see a “multi-quarter lull in 2022.”
Walkup’s predictions conflict with those of Miller Samuel President and CEO Jonathan Miller. Reflecting on his latest market report for Douglas Elliman, which showed deals in Manhattan and Brooklyn outpacing listings. Miller said he expects the trend and its impact on prices to hold steady.
“Inventory is continuing to collapse, and that’s why we anticipate continued price growth into the new year,” Miller told The Real Deal.
Walkup said the likelihood that the Federal Reserve will hike interest rates — the Wall Street Journal reported it may do so as early as March — could “put an upper bound on condo prices, with luxury and new development prices falling first.” He assured that the luxury lull would be ”nothing too drastic,” estimating discounts from zero to 5 percent.
Though far from an apples-to-apples comparison, condos as an asset class have lagged behind the outstanding performance of the S&P 500, the report highlighted. The index hit its 67th record high last week, the Wall Street Journal reported.
The stock market and the value of real estate both took a hit during the 2008 financial crisis. Equities, however, historically a more volatile asset class, have staged a more dramatic comeback.
The S&P 500 is up 230 percent from January 2008 and posted much of its gains over the past two years; meanwhile, the price per square foot of new Manhattan condos has risen 68 percent since 2008, UrbanDigs found.
“The frothy activity observed in the NYC real estate market since the reopening has yet to translate into anything approaching the gains seen on the broader equity index,” Walkup said. That said, you cannot live in a stock portfolio.
Barring a spike in interest rates, Walkup said, condos could continue to appreciate into 2022 as the most recent wave of purchases is recorded.
Interest rates could also influence the buying decisions of foreign investors. If the Fed moves to raise rates, it will further strengthen the U.S. dollar, which surged to a 16-month high in November, Barron’s reported. That weakens the buying power of people whose wealth is in other currencies.
That could dissuade foreigners from buying U.S. real estate in 2022 and entice some to liquidate their current holdings, Walkup said. “2022 could be the year of the foreign sellers,” he wrote.
New York City brokers had geared up for an influx of foreign buyers ahead of travel bans being lifted in 33 countries last month.
The Omicron variant and new travel bans threw that into doubt. However, a rebound in overseas markets, following news that symptoms associated with the variant are mostly mild among vaccinated individuals, suggests that investor fears are receding. The Biden administration’s travel ban applies to seven countries in southern Africa.
“On the whole, I think travel bans take a back seat to [profit and loss] statements,” Walkup said in an email. “So whereas a lifted travel ban could certainly stimulate some activity, if NYC investment returns are viewed as less than optimal due to currency fluctuations or price volatility, foreign buyers will look elsewhere.”
On a more granular level, Walkup expects continued strong townhouse demand and a renewed interest in fixer-uppers.
In 2021, the average monthly sales volume of Manhattan townhouses rose by nearly 50 percent, compared to the average from 2008 to 2018. Walkup said the market will likely remain hot as buyers continue to pursue space and privacy, inspired by the pandemic. He sees sales and prices continuing to rise, especially Downtown, as more homes are snapped up, depleting inventory.
The demand for renovated units, however, could be ebbing. In October, UrbanDigs released a report outlining a nearly 30 percent divide between prices of renovated units and fixer-uppers. Labor shortages and rising material costs, caused by supply chain problems, pushed buyers to avoid properties requiring extensive renovation.
Walkup said in 2022, the spread between renovated and unrenovated units might narrow, as tightening supply compels buyers to opt for units in need of some TLC.