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When Is the New York City Real Estate Market Going to Crash?

Millionacres logo Millionacres 5/6/2021 Motley Fool Staff
When Is the New York City Real Estate Market Going to Crash? © Provided by Millionacres When Is the New York City Real Estate Market Going to Crash?

Recently, Google (NASDAQ: GOOGL) reported that the search term "When is the housing market going to crash?" increased by 2,450% in the past month. That's a lot of people waiting for the other shoe to drop in this hot seller's market.

If any of those frantic searches were conducted by home investors in New York City, there's good news: While the Big Apple is still struggling post-pandemic to recover in the commercial real estate market, the residential market is hot. Even with what seemed to be a massive exodus of residents from heavily populated Manhattan during lockdown, the residential market has picked up steam in the city, and it's also going strong in the other four boroughs.

A look at the market in the five boroughs

Is the housing market going to crash any time soon in New York City? Read on for insight from real estate agents and brokers in each of the boroughs.

Manhattan

"I don't see any imminent crash in the seller's market, which we are just entering into -- and not in all market segments -- in New York City," says Michael J. Franco, broker at Compass. He notes that while the rest of the country has been hot, New York is just getting started.

Franco notes the rise in the median asking price of homes in Manhattan. According to a report from UrbanDigs, the latest price of a Manhattan property under contract was $1.2 million, a 14% increase from March 2020, just when the pandemic threw the market into turmoil.

Says Franco:

The timing is interesting. Sellers didn't really start dropping their prices last March at the beginning of the core pandemic, so the increase in asking price is likely due to an optimistic outlook on the market by sellers and their agents. There is also limited inventory in certain market segments resulting in the ability to ask for a higher price.

One thing to note about Manhattan: Rather than using the median price for properties as a metric, we should instead be looking at price per square foot (PPSF). A recent report from John Walkup, the co-founder of UrbanDigs, states that people are purchasing larger units at a lower price per square foot, which means a PPSF recovery is likely the more appropriate barometer to use in determining the value of real estate in Manhattan.

Brooklyn

"Brooklyn weathered the COVID market better than Manhattan did and is only getting hotter as life returns to New York City," says Steven Gottlieb, an agent with Warburg Realty. "The success of the vaccine rollout, warmer weather, and the sparks of life returning to New York City has injected consumer confidence back into the market, and buyers have been coming out of the woodwork in force."

Says Gottlieb: "I don't see a crash coming to the market, and I think that as long as COVID recovery continues, the worst is behind us." He mentioned that Brooklyn could also benefit from Manhattanites who want more breathing room and are in the market for a brownstone.

"In the wake of COVID, classic Upper East Side co-op buyers are considering what life would be like in Park Slope or Cobble Hill or Boerum Hill, perhaps paying lower real estate taxes and not sharing an elevator with strangers," Gottlieb says.

Queens

"I don't realistically see a 'crash' coming to Queens, because properties are still selling at lower price per square foot than they were prior to COVID," says Lucas Callejas, an agent with Triplemint.

Callejas notes that while median prices are up as buyers are spending more overall, they are also getting a better deal than they would have in late 2019 or the first quarter of 2020. He says there will be a return to a more normal market as interest rates go up again and sellers are less willing to negotiate prices.

Queens is also benefiting from interborough moves. Says Callejas:

The Queens market is being driven by people moving out of Manhattan, looking for neighborhoods with more space for their dollar. We are still seeing the pent-up demand that was artificially suppressed during COVID. As inventory comes into normal ranges and the 2020 buyer pool exhausts itself, the market will have normalized.

The Bronx

"I do not feel that we have a housing bubble, but rather a lack of supply," says Justin R. Simmons, associate broker with DKC Realty Group. He cites the historically low interest rates creating more demand, noting that as they begin to creep up again, some buyers will be pushed out of the market.

Says Simmons: "Homeowners are also in a very strong equity position today compared to the Great Recession, and the mortgage standards in place now after the Recession should mean that most people can afford the homes they buy." While foreclosures are still a concern, Simmons says that lenders are encouraged to provide alternatives to buyers, particularly those who are owner-occupants.

Staten Island

"With a 3.5 months' supply of inventory as of the end of March 2021, we are in a seller's market on Staten Island," says Joan Camerlengo, broker/owner of Joan Camerlengo Realty. "The average sales price of a home increased to $615,737 -- an increase of 6.1% as compared to $580,317 in March 2020."

Camerlengo notes that if interest rates continue to rise, it will affect the loan amount that a buyer qualifies for. When this occurs, it usually means there will be less of a demand for housing, resulting in prices leveling or, in some cases, dropping.

Says Camerlengo: "While I do not foresee a housing market crash, my 27 years of experience in real estate sales has taught me that real estate markets are cyclical."

The bottom line

Call off the frantic Google search for now. Things are looking good for residential real estate in New York City. But it's in a New Yorker's blood to be a bit wary -- especially after surviving a global pandemic.

Says Gottleib: "If there is another wave or surge of cases and we return to lockdown, then we may see listed property begin to languish again and another dip in market activity, but that doesn't seem to be where we are headed."

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