As the first few regions of New York enter Phase 1 of the State’s re-opening plan, I wanted to share some data on where the NYC real estate market is now, and what we may see in the second half of 2020.
Current Market Conditions
Since the “NY on PAUSE” order began on March 22, agents have been extremely limited in their ability to list, market, and show properties. While some transactions have taken place, most have been closings of deals that had been negotiated before March 22nd. From mid-March through the end of April, very few new sales listings entered the market, and many active listings were temporarily de-listed. Agents are not permitted to show listings in-person, and even when this restriction is lifted (possibly in mid- to late-June), we may see many buildings continue to restrict the access of real estate agents.
Since May 1, we have seen a handful of new listings come to market – there were 37% more new listings the week of 5/4 than the previous week -- but overall new listings are still down about 78% compared to last year. Most new asking prices appear to be at pre-COVID levels and we have not seen price reductions on existing inventory; however, this is not an accurate reflection of where we expect prices to be as (1) it is premature for price reductions when showings are limited/non-existent, and (2) agents/sellers expect most new offers to be significantly below ask and for sale prices to show greater-than-usual negotiability.
There is very little hard data, but we have received the results of a few surveys that provide us with some preliminary insight on negotiability. This data is not comprehensive, as it only includes responses of brokers who opted-in to respond, but I find it useful nonetheless. These surveys suggest that prices will begin to trend ~ 5-10% lower as real estate activity resumes. It’s also clear that a fair number of buyers expect greater negotiability and discounts, which sellers still seem unwilling to accept.
Halstead Survey - Based on 105 offers self-reported by agents between 3.22 - 5.8:
The average difference between ALL offer prices and ALL ask prices was 13.79% (105 replies)
The average difference between offer and ask in deals that were ACCEPTED was 6.78% (40 replies)
The average difference between offer and ask in deals that were REJECTED was 18.10% (65 replies)
The average difference between ALL offers and ALL asks was 15.59% (76 replies)
The average difference in deals where offer was ACCEPTED was 7.25% (26 replies)
The average difference in deals where offer was REJECTED was 19.92% (50 replies)
The average difference between ALL offers and ALL asks was 9.09% (23 replies)
The average difference in deals where offer was ACCEPTED was 4.93% (13 replies)
The average difference in deals where offer was REJECTED was 15.08% (10)
Thank you to Fritz Fagan, Exec. Director of Sales and Leasing for Halstead Manhattan, for sharing this information.
Compass Negotiability Survey 3/16 to 4/15 - Based on 61 offers self-reported by agents (includes both accepted and rejected offers):
In MANHATTAN (39 offers):
15 offers < 4% below-ask
12 offers 4-9.91% below-ask
6 offers 10-15% below-ask
3 offers 16-20% below ask
3 offers +21% below-ask
69% of all offers made were <10% below-ask
In BROOKLYN (22 offers):
12 offers < 4% below-ask
6 offers 4-9.91% below-ask
2 offers 10-15% below-ask (both for townhouses priced $2M-$4M)
1 offer 21%+ below-ask (for a +$2M condo, not accepted)
+82% of offers made were <10% below-ask.
Compass Survey for Offers Made 4/15 - 5/15 - Compass later changed the survey questions and methodology, and the more recent survey tied the negotiability to results. Based on 119 offers self-reported by agents:
In MANHATTAN (79 Total Offers):
52 offers (66%) were SUCCESSFUL (meaning they led to an accepted offer)
27 offers (34%) were REJECTED
38% of ACCEPTED offers were <4% below-ask
85% of ACCEPTED offers were <10% below-ask
78% of REJECTED offers were >10% below-ask, and 56% were >15% below-ask
In BROOKLYN (40 Total offers):
30 Offers (75%) were SUCCESSFUL (meaning they led to an accepted offer)
10 offers (25%) were REJECTED
50% of ACCEPTED offers were <4% below-ask, another 47% were 4-9.9% below-ask
Only 1 ACCEPTED offer was +10% below-ask
Only 4 REJECTED offers were <10% below-ask, while 60% (6 offers) were >10% below-ask
Expectations for 2020 Market Activity
With the current drought of listings, the big question is when will new listings come to market and how will negotiability, buyer interest, and overall sales activity change throughout 2020. Currently, I’m expecting to see two bursts of listings:
Mid-to-Late June --
Hopefully NYC’s infection data will continue to decline over the next few weeks, and we will qualify to enter Phase 1 of the State’s re-opening plan by mid-June. This will allow construction, manufacturing, and wholesale business to resume. Assuming infection rates and other metrics remain stable, we could be ready to enter Phase 2 – which includes professional services such as real estate – a few weeks later. In Phase 2 we expect there to be a significant uptick in sales activity. My expectations for this period are as follows:
There are many listings in queue, and while there is some pent-up demand in the market, the rush of inventory will likely outpace this demand.
Listing prices will likely be similar to pre-COVID, as there will still be very limited closed sale data that reflects transactions made during the pandemic.
Most offers made/accepted will likely be lower than ask.
To the extent there are buyers out there in June, they will be looking for deals.
Many buyers (and sellers) will opt to "wait and see" through the summer.
Activity and demand in the market will likely vary widely by price-point, with the higher end of the market (+$2M) seeing far less activity than the <$2M market, especially as many of these buyers have left the city for the summer.
Early September (after Labor Day) –
Given the talk of a possible resurgence of the virus in late Fall, I expect most sellers will opt to list ASAP in September to get ahead of a potential second wave. Everyday life may be somewhat back to normal at that point, and buyers are likely to feel more comfortable with their financial and job security, especially if the economy is on the mend.
It will be significant for both buyer and seller confidence during this period if we have evidence of improved treatments/prognosis for COVID-19, especially if these indicate that a significant resurgence is unlikely.
Even without this, if schools have opened back up, many more prospective buyers will have returned to the City.
This should result in an increase in demand, although lingering economic uncertainty and quality of life issues may mean that some buyers are still hesitant to pay premium prices.
We can also expect to see an adjustment in listing prices due to a new wave of closed sale comps from the Summer months that will be available come Fall.
Expectations for Pricing in 2020 & Beyond
Overall, I expect that inventory will exceed demand for the remainder of 2020. While many sellers will try to wait out 2020 with the hope of listing in a more settled market next Spring, there will inevitably be a backlog of properties with sellers who just can’t wait – and most of these properties will be listed at essentially the same time. Also, while mortgage rates are still very low, sellers are still likely to have a more limited pool of buyers, as lending standards have tightened. It is significantly harder for buyers with low liquidity to qualify for loans, and most major banks are unwilling to lend more than 80% LTV (20% down).
It’s hard to say what effect this will have on prices market-wide. Some agents fear adjustments of 15+% across the board. Noah Rosenblatt of Urban Diggs predicts 10-15% (maybe more for higher priced properties) dip over the summer reflecting closed sales where the negotiations took place during COVID for sellers that had to sell, he expects a bounce back to half those levels over Fall, and then a gradual recovery to pre-COVID levels by next Spring.
My expectation lies somewhere in between. I don’t think there will be a sustained drop in prices over 10% for most properties. I think a 5-10% drop for Manhattan resales is a reasonable expectation over the next year, but I expect we will also see significant variations based on product type (co-op, condo, townhouse), location, and price point (higher end affected more than lower end). Homes with lower monthly charges, outdoor space, and washer dryer in unit will likely fare better than others. Price volatility and time to recovery will be impacted by these considerations, and it might take longer than next Spring to see an across the board return to pre-COVID levels. Although we anticipate a normalization of buyer behavior by early 2021, supply may continue to outpace demand as 2020 listings catch up and we potentially see additional new inventory due to the effects of COVID.
Updated: Oct 27, 2020
First and foremost, we wish you and your loved ones good health, renewed positivity, and as much sanity as possible during this challenging time. Our team is here, as always, to answer your real estate questions. We are working overtime with our sales managers, attorneys, lenders, and other partners to understand the regulatory changes for landlords, tenants, and homeowners. We are also closely watching the market and seeing creative ways that real estate transactions are proceeding amidst the uncertainty and social distancing.
Landlords and tenants. NYS has issued a 90-day moratorium on all eviction proceedings, and Fannie Mae has stated that it will suspend mortgage payments for all multi-family landlords who suspend evictions.
Mortgage Forbearance. NYS has suspended mortgage payments owed by individuals affected by the coronavirus for 90 days, tacking on those payments at the back end. Note that while these will not have a negative effect on borrower's credit score, but our lender partners have told us that the forbearance will still be visible on borrower's history on subsequent mortgage applications.
Virtual Closings. Remote notarization is now permissible making virtual closings possible. It is still the decision of the lender, seller’s attorney, buyer’s attorney, and management company whether to participate in a virtual closing.
Restrictions on showings. While residential and commercial real estate and associated professionals (inspectors, appraisers, etc.) have been classified as essential service providers, most brokerages are advising against any in-person showings or other contact. Many buildings are restricting access to real estate brokers, inspectors, appraisers, etc. at their discretion.
Move-in/move-outs. While movers/moving is considered "essential business," many buildings are restricting move-in and move-outs. While such bans are likely justified given the current health risks, some buildings have made exceptions where individuals and their movers have offered certain assurances regarding health and safety.
Relief for small business owners & independent contractors. Congress has passed comprehensive legislation which expands relief for small businesses and independent contracts affected by COVID-19.
At this point, the market has hit a pause. There have been about a third the amount of new inventory compared to average March numbers, and a big chunk of existing inventory has been pulled of the market. Accepted offers that were yet to go into contract, have largely hit pause or may be attempting to re-negotiate price. The only real activity right now seems to be from opportunistic buyers who are putting in deeply discounted offers. There is no data yet to see whether sellers will accept deep discounts or how this will impact prices. The sale market is braced for low levels of activity until May, or more likely June.
Compass Rental Survey results show that almost half of apartments rented since March 15 were rented sight unseen, and most rental properties were secured with little or no discount over the time period.
NYS halted all “non-essential” construction work on March 27 in light of the growing coronavirus pandemic. The order from Empire State Development has temporarily suspended a wide swath of residential and commercial construction, while allowing some work deemed necessary — like building hospitals, infrastructure projects, affordable housing and homeless shelters — to continue. According to the guidelines, non-essential construction work is still permitted to continue in certain emergency circumstances, such as continuing a project if it would be unsafe to allow it to remain undone. (POLITICO)
The true economic toll of shutting down New York City is likely to become clearer after April 1, when rent is due for the more than 60% of New York City residents who are renters. In just a month’s time, the lives of millions have been turned upside down, with countless New Yorkers now jobless and unsure when the City will be able to get back to work. While it's unclear how many renters in New York City will have a hard time paying, landlords and the real estate industry say they are bracing for as many as 40% of tenants skipping their April rent payments. (NY TIMES)
If you have any questions or want additional information or resources about recent COVID-19 guidance for landlords, tenants, home-owners, buyers, or sellers, our team is always here to discuss.
Updated: Oct 27, 2020
An apartment combination is the stuff of lore for many New Yorkers, but if you're one of the lucky few for whom that opportunity may present itself, there are many things to consider before making the offer on your neighbor's apartment. Theoretically, combining two adjacent co-op or condo apartments requires nothing more than removing a kitchen and creating a doorway-sized opening in a wall to join the two units. However, creating an new apartment that actually feels like a home in terms of flow, functionality and durability will require a much more extensive renovation.
Before you take the plunge, it’s important to consider the costs associated with combinations, both to make sure your budget can foot the bill, but also to make sure the value of the apartment you plan to create will be worth more than the sum of its parts in a resale.
Start with your building
Confirm your building will allow a combination, and find out as much as you can about what the process will entail. Depending on your particular circumstances, it may be desirable to purchase hallway or other common space from the building.
It is also important to understand the building's rules for this type of renovation, which is usually contained in the alteration plan. Your building's fees for renovation, use of elevators, protection of hallways, and potential penalties for exceeding the scheduled timeline will all factor into your budget. Costs will also vary based on what your building will require of your renovation, for example if you must update all electrical during a renovation or when the building requires you engaged a structural engineer.
Understand the costs with a team of experienced professionals
While the costs of a renovation can range from $200-$500 a square foot, this does not begin to address the question of what is a reasonable budget for a particular combination. Vertical combinations are more expensive than adjacent, but the condition of the respective units and the final vision you have for the combination (custom features are a major driver of cost) will make a huge difference.
Apartment combinations almost always require an architect. Many architects will charge a percentage to provide full-scale service from design and drawings to construction management, but if you are on a budget, it may be possible to reach another arrangement such as hourly or a flat fee. It is most important to be upfront about your expectations on scope of work and budget when speaking to architects.
Similarly, it is important to get quotes from several contractors to get a sense of what it will cost to get the work done. At a preliminary phase, it is difficult for contractors to estimate costs without drawings or a sense of the level of finishes desired for the combination. A trusted architect may be able to help you formulate a plan and anticipate other professionals you may need to hire (an expeditor to submit plans and navigate the permitting process, asbestos abatement, structural engineering certifications, or major electrical or plumbing upgrades).
The importance of a thoughtful layout
While there are legal requirements for light and ventilation when creating or moving kitchens, bathrooms and bedrooms, other factors are important to consider when creating your new floorplan. All too often, combination apartments have odd room sizes, weird areas of “dead” or unusable space, or just seem to flow weirdly. An experienced architect or designer will be able to offer you advice on how best to configure your new space, and create a floorplan that will maximize both functionality and value of your home. Keep in mind that not every combination may result in a desirable larger home that feels like it was meant to be a single space.
Moving major systems: kitchens and bathrooms
Other than in a few specific situations, New York City only permits one kitchen per apartment. A kitchen demolition can run anywhere from $5,000 to $8,000, but it’s important to consider whether your demo requires moving plumbing or waste risers. Plumbing risers are the most expensive thing to move around. Even if one apartment has a bathroom that lines up with the other apartment’s kitchen, you won’t necessarily be able to blast through the wall to create a giant kitchen or bathroom. The risers—which begin in the basement and end at the top floor—likely serve an entire line of apartments, so buildings usually forbid moving them for safety reasons, and to avoid major disruption to other building residents. If you are allowed to shift a riser line, keep in mind that it will likely add a at least $10-20K to the cost of your renovation.
The devil is in the details
Combining apartments that are mismatched in quality (e.g. if one is in estate condition) poses additional design challenges. However, even if you’re combining two renovated apartments, blending finish work between the two will almost always require updating trim, moldings, doors and windows. Surprisingly, this finish work may be one of your largest expenses, as it will typically involve custom millwork, framing, and built-ins. High-end custom millwork, such as full height bookcases, storage cabinets or elaborate wall panels, can run you anywhere from $200 per linear foot to $800 per linear foot.
Look at the big picture
While much of our focus here has been on the costs, ultimately the goal is to create value. Speak to an experienced real estate agent to get a sense of a realistic offer on the neighboring apartment and what the resulting combination may be worth. Their guidance may even shape your renovation plans including decisions on number of bedrooms/baths that would be most desirable as well as what level of finishes are likely to be appropriate at a certain price point.