Nicole's Eye On Real Estate | Spring 2020 | How will the real estate market recover after the pandemic?
Dear Friends & Client,
As you read this, I hope you and those you love are safe, healthy, and at home!
Many of you have reached out to me with the same questions and concerns about the real east market these days, and there are a lot of speculations on how the market will recover after the pandemic. The immediate tendency of many is to look at the numbers post 9/11 and the 2008/09 economic crisis.
One common denominator in times of crises is uncertainty. However, the nature and cause of a crisis cannot be ignored when we are trying to parallel the conditions and directions of the market. Today's market is unlike both 9/11 and the 2008/09 market so we cannot compare recovery time based on either. The duration of this recovery most likely will have to do with 1) virus containment and 2) when peak shutdown is lifted. On the other hand, unlike during crises in the past we have a massive fiscal and monetary stimulus. And in my opinion we are starting to see a “melt up” of some type due to new information and numbers coming out just in the last week as well.
At the same time, there is still too much unknown in terms of how long we will be in isolation which is why hard numbers cannot be provided. The real estate market is in somewhat of a holding pattern. If the pandemic slows down in the next month, we expect to see a sharp increase in sales throughout the summer and quick normalization. If the pandemic carries into the summer and unemployment numbers continue to rise, we expect prices to go down and a longer road to recovery.
Current Market Metrics: The pandemic leaves a lot of uncertainty as far as where Real Estate will go. What we do know with regards to activity on the market, as far as the immediate effect, is that supply is down 28% compared to last year and 21% compared to last month. Having said that, pending deals (demand) is down only 2% compared to last year and 4% compared to last month. And the “market pulls” (pending-to-active-ratio) is actually up 36% compared to last year and 22% compared to last month. This “market pulse” is showing that leverage is moving in favor of sellers. However, the ratio is being skewed by the amount of shadow inventory (homeowners that want to sell but are pulling their apartments off the market).
A lot of properties were simply taken off the market and no one knows if this inventory is coming back. This time of the year both supply & demand is normally on incline, but going into the Summer the equilibrium can shift either way. The bottom of the market was December 2019 and in the beginning of this year we were slowly starting to come out of the buyers market and because of the inventory shortage and historically low interest rates the prices are not dropping. We still see contracts with 7 to 10% discounts on average across all products.
Rent and mortgage pulse? With 6.6 million Americans now unemployed and nearly a third of renters unable to make rent for this month, a federal pause on rent and mortgage payments has been widely proposed. About 2 million homeowners are skipping their monthly mortgage payments, according to industry data released last week, a number that is forecast to rise further as more Americans lose their jobs as a result of the corona-virus pandemic. Approximately 3.74% of home loans are in forbearance as of April 5, according to mortgage bankers Association data, up from about 2.73% the prior week.
On the Sales front: Closings are still happening, although not without challenge. All parties involved in the transaction have had to get creative completing their part virtually and remotely. Few new transactions are happening; most occurring were already in process pre-Covid. The majority of buyers are holding off their searches until they can resume viewings in person, but daily activities online are on the rise.
On the rental front: Both, agents & renters, have quickly switched gears to getting apartments rented via “virtual tours'. With clear and proper information being conveyed the comfort level of renters completing the process “site unseen” has increased. Renters understand that if they need to move for May or June it’s likely that they will have to become accustomed to this “new norm”. Make sure, if you are actively looking, to visit all companies' websites as many brokers are no longer funding StreetEasy!
In the interim, please stay healthy and try to remain positive! We will get through this together.
I strongly believe in the great future of New York City and I’m here to help to navigate your next move. Feel free to reach out to me if you have any specific questions about current market conditions or any news items I listed below.
With Love, Faith and Hope.
Nicole