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2016 was a year of uncertainty in the national economy, and closed with the stock market up but interest rates rising. While NYC Real Estate has traditionally been a market less affected by certain market factors, it is certain that some of the economic and political trends emerging in 2017 will have an effect on the market. It is impossible to predict exactly how thing will change during 2017, but here is our compilation of some major trends predicted from experts at Fortune, Curbed, and DNAInfo:
1. Interest rates will increase
In December, the Federal Reserve raised interest rates for only the second time since 2006, and a majority of the members of the Fed's rate-setting board predict there will be three more increases coming in 2017. These decisions will cause mortgage rates to rise, potentially making it more difficult for prospective homebuyers to be able to afford the home of their dreams. (In fact, those rates have already started creeping up.) But don't worry too much about this trend. As Redfin Chief Economist Nela Richardson predicts in a recent blog post, "We expect mortgage interest rates to increase, but to no higher than 4.3 percent on the 30-year fixed rate." That's still a great deal compared to historical norms.
Modern Residential’s Zach Ehrlich believes rate increases may actually positively affect the market by narrowing the spread between the asking price and bidding price. "More sellers will adjust pricing to ensure they don't get caught in receding sales market," he said. "More buyers will lock-in and pull the trigger given upward trend of rates." He also predicts that some potential buyers will opt to continue renting instead as their buying power decreases.
Redfin's Richardson also points out that though rates may rise, mortgage credit will likely be more widely available due to slightly looser lending standards. She points out that the Federal Housing Administration will likely lower fees it charges first-time homebuyers, a continuation of a trend begun in the Obama administration, under which it lowered fees in 2015. In addition, starting in 2017, government-owned mortgage companies Fannie Mae and Freddie Mac will begin backing larger mortgages for the first time in over a decade, making it easier for buyers in expensive markets to finance their purchases.
2. Landlords will continue offering deals
CurbedNY, in an analysis of rental reports from multiple brokerages for the final month of 2016, notes that the rental market did not end the year with a bang. December marked a record amount of leases signed with concessions, 26.4 percent. That’s double the amount from the same time last year, which saw 13.1 percent of leases with concessions. Despite all that, the median rent in Manhattan is still higher than it was last year: $3,388/month as compared to $3,350, however, the December median changes to $3,291 when you factor in these concessions.
The numbers in Brooklyn tell a similar story: landlord concessions more than doubled from one year ago (from 6.5 percent with concessions to 13.7 percent), as brokers saw a surge of new leases (52.5 percent higher than last year), due to new development and tenants pushing back on rents. But the borough actually saw its median rent slide year-over-year for the fifth time in six months, from $2,807/month a year ago to $2,700 this December.
Finally, in Queens—which has shown inconsistent pricing all year—rents increased for the sixth time in 12 months. In fact, all price indicators moved higher, as more new developments entered the market. The overall median rent was $2,850, up 11.7 percent from last December.
Experts predict these trends will continue in the new year. The rental market will remain “soft” into spring, claims Ehrlich of Modern Residential, with inventory increasing as new projects open. Smart renters will negotiate with current management companies to limit or block increases and in some cases may even be able to get concessions on existing apartments if they speak up,” he advised. The incentives, however, are largely in the new developments, said BOND New York’s Douglas Wagner, giving some renters a misconception about how widely available deals are. “We’re seeing people coming in for lower-priced apartments thinking they’ll get a deal,” he said. “If you’re spending $4,200 a month you can get a free month, but not necessarily if you’re spending $2,400.”
3. The Second Avenue subway will boost the Upper East Side
Regardless of whether the MTA meets its deadline at the end of this month, the Second Avenue subway is expected to be ready for the spring buying and rental season. “Rental demand east of Third Avenue will change overnight,” Ehrlich said. “Expect more sales activity with units and buildings there as well. It’s easier for the average buyer to understand once they see subway opened and operating.”
4. South Williamsburg will become more popular
With the construction of the mega-project at the former Domino Sugar site and the 18-month shutdown of the L train between Brooklyn and Manhattan pegged for 2019, the South Side of Williamsburg is gaining ground, many brokers said. A rental with about 80 units, a shared roof deck with outdoor grills and garden plots on a third floor terrace — located near the Marcy Avenue J, M, Z stop — has been leasing briskly, said Mehul Patel, COO of Midwood Investment and Development, of the 282 S. Fifth St. project. “It’s near the first stop over the [Williamsburg] Bridge, well placed considering eventual shutdown of L train,” he said. But don’t discount the Northside just yet, especially as jobs are expected to move to 25 Kent Ave. And while rental and condo prices will likely dip because of the L train, Benaim said, “2017 would be a good time to buy in the neighborhood, as prices will rebound afterward.”