If you’ve ever wanted to own a home in a place like New York City, now may be your chance. Thanks to powerful pandemic-driven trends—including city dwellers’ desire to live in less populous locales and the permanent move to working from home among many former office employees—2020 represents a rare opportunity to buy an urban apartment at a discount.
Many industries have been impacted by Covid, and real estate is no exception. When it comes to residential real estate, however, it’s not all been bad news. In fact, far from it. Nationally, the residential market is “super strong,” in the words of Lawrence Yun, chief economist at the National Association of Realtors. Despite a small dip in the number of homes under contract for sale in September, year-over-year activity across the country is up by double-digit percentages, according to the real estate group’s October housing market report.
The fuse for that boom has been lit by a combination of record low mortgage rates and unusually tight supplies of homes for sale. But the explosion has been a dud when it comes to big cities, especially New York City.
Residential real estate transactions in the Big Apple were down 40% year over year in July, and dropped further to a 58% year-over-year deficit in August, according to a report from the New York City Comptroller. Meanwhile, the Real Estate Board of New York says the falloff in residential transactions was the worst it’s seen since it started keeping track in 2006.
Dollar volume was off even more, according to the board’s figures, falling 50% throughout the city—with Manhattan seeing the largest decline, down 66%. Citywide, the average residential sales price for condos and coops was $975,806, a 13% decline in a year. While those may not sound like indicators of a fire sale, when the price of a New York City apartment can be expressed in six figures, it does signal something of a price war.
How the Work-From-Home Shift Impacts Housing
The negative trend in New York City real estate could well get worse in coming months. Some of the explanation for falling New York City real estate prices lies in the desire of urban dwellers to live where there’s less density.
One potential factor driving falling prices for urban homes is the changing work environment. With so many people working from home during the pandemic, there’s less of a need to live closer to the office. That trend looks like it is here to stay and could even accelerate.
For instance, Larry Fink, CEO of financial behemoth BlackRock, said that as few as 60% of its employees will return to the office by next summer. And Fink’s assessment may be optimistic. An October survey of major employers by the Partnership for New York City found only 48% of employees are likely to be physically back in the office by next July. That’s down from an estimate of 54% the month before.
As the major urban center of the pandemic so far, New York City may be seen as unique. Other cities, conceivably, may not be hit as hard. However, other cities with strong ties to tourism—think Miami, Los Angeles, San Francisco and Chicago—also may experience economic slowdowns as travel stays depressed until the pandemic eases.
The Case Against Buying in a Big City
Before plopping down earnest money on a discounted urban condo, it’s worth considering the case against buying downtown. One of those is that, after many years of increasing populations, the major cities had already begun showing declines before the pandemic hit.
According to Census Bureau figures released earlier this year, several of the nation’s most populous counties lost inhabitants from 2018 to 2019. That group includes the cities of Los Angeles, Chicago and New York. As is the case with e-commerce, the arrival of Covid has simply accelerated pre-existing trends.
This could give pause to a would-be purchase of a downtown dwelling. If the pandemic flight phenomenon is only exacerbating a previous long-term trend away from urban living, it could mean that the major metros are going to keep losing population for an extended time. That could bode ill for the future market value of a home bought even at today’s marked-down prices.
There is also the possibility of a large new supply of urban apartments coming on the market in the form of office spaces converted to residential use. Similar initiatives to rezone commercial properties into living spaces in New York City were successful in the mid-1990s, and some claim it could work again.
Where the Deals May Be Found
Keep in mind that the pandemic has impacted people in different ways. Those who can work from home—primarily higher-income knowledge workers—have been far less affected by employment and earnings disruption than service workers and others who have to be physically present to do their jobs.
Translated into real estate terms, this means that the impact of the urban real estate downturn is likely to be most strongly felt in lower-priced homes that are in less desirable locations, are older or have fewer amenities. These are likely to be the best places to acquire an urban apartment bargain, in addition to requiring a lower overall outlay of money.
One or more vaccines may arrive soon, but the wheels of real estate turn slowly. The loss of rental income from departed commercial and residential tenants likely will force many properties into foreclosure. The process of restructuring urban projects will take years. During that process, the marginal properties will likely take most of the hits and will represent most of the opportunities. The most desirable properties will retain their appeal to the higher-income buyers least affected by the pandemic.