What’s the outlook for the real estate market in 2020?
If you ask brokers from Washington DC and Boston, they’d paint a bright year ahead, and point to low interest rates and a shortage of inventory as contributors to market strength. Since price escalation has slowed, stable prices and demand will now persist. At the national level, a majority of homes in urban areas have experienced declining growth in value.
But you’ll see a different story for the New York City real estate market.
The NYC market recovered quickly from the recession of 2008-2009, with property values losing only about 25% in Manhattan compared to 33% nationwide. NYC also had fewer foreclosures and achieved faster price growth compared to other markets in the US. Beyond 2009, real estate prices in New York quickly increased at about 4% annually, seeing its highest levels in 2015. Prices climbed up equal to or went beyond 2009 peak level. But when the rest of the US market continued its growth at a modest rate, that’s when the New York market slowed down.
The increase in inventory of new condos in 2015 to 2016 made buyers more cautious. The purchases by the Russians and Chinese that the developers were expecting did not materialize. The end of election year 2016 created even more uncertainty as the market waited to see what the new leadership would bring. Then there was the loss of state and local tax (SALT) deductions in 2017, which created a negative effect on states with high tax rates like NYC. This added financial burden heightened the uneasiness felt by NYC property owners.
The state of NYC real estate in the past years has been unconnected to the movement of the stock market. Which is remarkable, as the city is the finance capital of the world. As interest rates remain low and stock prices surge upwards, the downward trajectory of Manhattan real estate prices persisted. This phenomenon is seen even in Brooklyn, which is showing signs of declining growth in the past few years.
At present, the real estate market in NYC seems to have bottomed out, comparable to 2012 prices, and prices are expected to stabilize around this level. Many sellers will take their sweet time to modify their expectations to accept this reality.
Compared to stocks, real estate is not readily convertible to cash. A real estate transaction, the buy and sell process, is often burdensome and takes a lot of time. For many people, when you buy a home, you invest in your future. Looking at 2016, buyers were uneasy about staking their future in an environment of political uncertainty, climate change, and crumbling infrastructure.
But New York City still holds a lot of promise. With its population of diverse ethnicities, NYC remains an exciting, dynamic hub where one can still glimpse what’s beautiful in good old USA. The real estate market will continue to have its highs and lows. The market will not be forever in decline. The future presents plenty of opportunities for fearless buyers.