Author: John Wang, Graphics: Nina Tagliabue
The BRB Bottomline
The coronavirus has thrown housing markets across the country into flux. Now that the pandemic has begun to subside, is it finally safe for people to dip their toes in and take a risk in the New York housing market?
Why New York?
New York is a flagship city that is a microcosm for greater housing trends in the United States. The mass influx of young people entering New York has created a mega-city with mass urbanization efforts struggling to keep up with a rapidly growing population. The same trend has been developing in other cities—urbanization in the United States has been constantly increasing since the turn of the millennium, before which it was showing acceleration and exponential growth. It is predicted that by the mid 21st century, over two-thirds of the global population will live in urban areas.
Furthermore, investors tend to test the waters with their new strategies in New York first before moving on and executing those strategies on other megacities. The trends that appear to materialize in New York will eventually extend and “trickle down” to other cities, and offer promising patterns to follow in real estate investments elsewhere. In 2008, investors dipped their toes in the luxury apartment market in New York before committing to luxury apartment markets elsewhere.
What Changed and Why?
In the wake of the coronavirus, the trend of urbanization and migration towards urban centers has paused. In New York, what once was a popping real estate market with steadily growing housing prices crashed to near historic lows. The market crashed harder than it did after the 2001 9/11 terrorist attacks, as well as the Financial Recession Tenants once had the motivation of living close to their work to decrease commute time. Once COVID-19 broke out and work transitioned to an online setting, however, that motivation disappeared. People also wanted to escape from New York, which was a virus hotspot at the beginning of the pandemic. These two driving forces caused people to stream out of New York and into other, less densely-packed cities, as well as nearby rural and suburban areas. Between the beginning of March and the end of October 2020, New York City residents filed 295,103 change of address requests. Many of my friends’ families moved out of their apartments into their vacation homes out in Long Island or Upstate New York.
New York has notoriously high housing prices, especially in locations close to the city center of Manhattan, so lower prices in other cities such as Philadelphia were especially appealing as alternatives to New Yorkers. These other cities took advantage of the situation in New York and quickly offered many incentives and perks for new tenants to move into their apartment complexes. These perks–things such as already furnished apartments, game rooms, and roof decks – were extremely effective in drawing New Yorkers over to their buildings. To compensate for the sudden exodus out of the city, New York landlords dropped prices massively in a desperate attempt to fill their buildings.
Despite the initial drop in housing prices, landlords did expect prices in the long term to rebound back to their normal, pre-pandemic 2019 levels. Their expectations were reflected in their decisions to offer only short-term leases and to keep many spaces off the market. Those decisions seem to be vindicated now during the COVID recovery. The median house price in New York was 18% up from the level exactly one year ago in 2020. Recently, the median apartment resale price in Manhattan was at $999,000, the highest median price on record. It appears that the landlords made a good call to put off sales or rentals of their properties during their panic.
The Improved Situation
Several versions of the coronavirus vaccine are out already, with rapid efforts to vaccinate the U.S. population well underway. People have the feeling that coronavirus is finally “ending.” Whether or not that feeling is substantiated, it has had important implications for the New York City housing market. Many of the primary reasons that once drove tenants away have since disappeared. As businesses and workplaces open back up, many people once again have to live close to their work. In addition, the psychological effect of believing coronavirus is almost over is contributing towards a growing trend where people are feeling less and less concerned about the pandemic. People who once moved away in fear of being caught in the pandemic are starting to migrate back to New York. As supply and demand dictates, housing prices have started to go up again. Compared to last year, the average sale price of a home in New York was up 16.8%; in September 2021, the number of homes that were sold was up 82.6%. They have been steadily rebounding since October 2020, growing and gaining traction in the recovering market.
Still, housing prices in the city are on average about 28% lower than they were in early 2020. Interestingly, remote work is also beginning to gain popularity as people are learning that it is not necessary to work on site. Keeping that in mind, now may be a good time for individuals to dip their toes in the New York City housing market to take advantage of the situation while prices still have not recovered. The housing supply is in a good spot, making it relatively easy for new, small investors to enter the market. There is the concern of high unemployment stemming from the coronavirus reducing reentry demand. On the surface it seems worrying to investors since less people will have the financial capability to purchase housing, but this risk is short term in nature – the job markets and employment infrastructure in New York are robust enough to bounce back quickly.
COVID-19 has certainly changed a lot about our culture. It’s created an even more prevalent digital lifestyle and has produced a tendency to challenge existing rules and norms. Those changes extend to our preferences for housing, and have created opportunities for investors to invest in several neighborhoods to take advantage of those trends.
As such, there are currently several neighborhoods in New York City ripe for investment: Bayside, Hudson Yards, and the West Village. Each tells a different tale about various growing trends as a result of the pandemic.
A Few Key Trends and Neighborhoods
Bayside: Houses over Apartments
Even before COVID-19, there was a growing demand for houses instead of apartments, with soaring demand for single-family homes. So many people struggled with their short-term housing situations due to the economic turmoil of COVID-19. As a result, more and more people will continue to look for more permanent housing after the pandemic. Having a permanent home is frequently associated with the success and stability of older generations, and coming out of the pandemic, younger generations very well may want to emulate that.
Bayside, a quiet residential neighborhood, is located in Eastern Queens. Usually, living in a more suburban neighborhood comes with the sacrifice of being far away from the city center, which would increase commute times. That isn’t a concern with Bayside—although it is quite far from Manhattan, it is only a 30 minute train ride to Penn Station via the Long Island Railroad, making the commute for workers very fast and easy once in-person workplaces do reopen.
The current median price of a house in Bayside is $622,500, which is 22.2% lower than the pre-COVID median price, which was hovering around $800,000 and still on the rise when the virus struck. As of April 2021, the market for homes in Bayside is still a buyers’ market—there are more homes supplied than demanded. As the demand for houses over apartments will continue to rise after COVID-19 ends, the market for homes in Bayside will inevitably become a balanced market and may very well quickly even become a sellers’ market, causing the prices to rebound and continue its rapid growth. Even already, we are witnessing Bayside houses bounce back massively. According to StreetEasy, asking prices for Bayside homes have risen by $80,000 in a single month since March 2021. The rise in popularity of houses in Bayside is so immense that even during the pandemic, its population continued to grow while that of its neighboring regions plummeted. These are all encouraging signs that point towards a healthy, sustained growth in prices up to a cap at least as high as $800k, the pre-COVID median price. But as that growth is noticeably accelerating, it might not be long before that cap is hit and the window to invest in Bayside shrinks. If buyers manage to squeeze through that window and purchase homes before it’s too late, they will have a great investment on their hands.
Hudson Yards: Large-Scale Redevelopment of Industrial Areas
We’ve seen this same story elsewhere fairly recently in New York in another neighborhood in Long Island City. Hudson Yards, once a decrepit, industrial neighborhood with empty yards and construction projects, is quickly blooming into one of New York’s premier waterfront neighborhoods. Just as neighborhoods like Long Island City and Williamsburg turned empty lots and that “liminal space”-feel into high value properties, Hudson Yards has that potential and then some. Over recent years, the Hudson Yards area has been rigorously developed into one with fancy high-rises and views over the Hudson River. New modern-looking structures have also been constructed in the neighborhood — think, the Vessel, a popular tourism destination where visitors love to take photos of the unique architecture.
Source: https://twitter.com/artedirektor/status/1165606299876429824/photo/1
Hudson Yards is a huge buyers’ market, with many uninhabited apartments on the market. The median home selling price right now is at a meager $675k; apartments at this price in New York City that are located this close to the waterfront, as well as the city center are absolutely unheard of. Compare this to the cheapest alternative, Long Island City, with a median selling price of $950,000, or the hot neighborhood right across the Bowling Green of Brooklyn Heights, with a median selling price of $1,500,000. Unlike Long Island City and Brooklyn Heights, which are located across the East River in Queens and Brooklyn, Hudson Yards is right in the heart of Manhattan and offers residents the luxury of a short commute to their workplaces.
As residents stream back into the city after COVID, seeking cheap housing, they will inevitably look to Hudson Yards as an inexpensive and practical option, driving up prices in the future. Development of the area is gaining momentum. Businesses on the rise such as Coinbase are staking their claim there by building fancy new offices, bringing more life and foot traffic to the neighborhood. Beautiful new parks have also been constructed on the Hudson River waterfront, further injecting value into the area. As that development continues over the coming months and years, there is a lot of money to be made by investing in the future of Hudson Yards.
The West Village: Large Amounts of Abandoned High-End Apartments
Housing in general took a big hit because of the pandemic, and luxury apartments were among those who took the biggest hit. Because of the pandemic, residents lost a large amount of disposable income, making it so that many could no longer afford to live in expensive areas, instead pivoting to lower-cost housing elsewhere.
The West Village neighborhood in Manhattan is a prime example of this phenomenon. A buyers’ market for apartments there is hard to come by, especially after a whopping 42% spike in median prices pre-Covid. During Covid, thousands of residents fled, driving down the prices and causing landlords to have to offer heavily discounted prices in a futile attempt to fill up empty spaces. New York is on the cusp of Covid recovery, and the discounted prices offered now won’t last for long.
The West Village won’t fill up as immediately as cheaper neighborhoods will, but eventually people will find themselves in a situation where they need luxury housing and thus drive back up the prices. Interest in apartments in the West Village is shooting up, to the extent where some landlords are asking applicants to make their final offers in a sort of “bidding war” where the final price goes far beyond the initial asking price. Soon, more and more spaces in the West Village will enter these bidding wars, making now a good time to make moves buying property there before market prices are driven back to pre-coronavirus levels and higher.
Take-Home Points
As the coronavirus recovery goes well underway, property values are bound to rise all around New York City, as well as around other American metropolitan areas. But these three neighborhoods demonstrate promising signs about trends that have appeared as a result of the pandemic. While the properties in most neighborhoods are on the inevitable rebound back to their initial levels, Bayside, Hudson Yards, and the West Village are likely to hit that level and even more.
Since Bayside and the West Village are already fully developed neighborhoods, and Hudson Yards is developing at a lightning-fast pace, properties there can not just be bought for investment purposes—they can also be bought at absolute steal prices Whether you’re buying for a quick cash grab or for a long term place to call home, buying properties in those three neighborhoods will be your best bet for an investment.