The New York City real estate market has always been a force of its own. With the business, culture and opportunities the Big Apple offers, the city enjoys near-constant interest from buyers at home and abroad.
Still, the last few years have thrown some curveballs, and even with NYC’s clout, the market suffered — particularly during 2020 and 2021, when COVID precautions shut down much of the city.
Fortunately, NYC real estate has recovered some since then, though with fluctuations. Prices skyrocketed and then moderated, supply dropped and then improved, and consumer sentiment wavered, too. What does it all mean for the future of New York City real estate? Here’s what data from the U.S. New Housing Market Index tells us.
[READ: Phoenix Housing Market Forecast]
How the New York Housing Market Changed in 2022
Single-family housing permits in the New York-Newark-Jersey City Metropolitan Statistical Area — the largest MSA in the country with 20 million residents — started 2022 off strong, hovering above the pre-pandemic norms of 2018 and 2019. But by November, permits had nosedived, dropping from a 2022 high in July of 1,248 to just 798. They’ve since improved a bit, with 945 permits approved in January.
Still, the total permits approved in the last three months come in under the previous year. Between November 2021 and January 2022, 3,227 single-family housing permits were approved in NYC. For the same period a year later, it was just 2,747, a nearly 15% decrease over 12 months.
As Jessica Peters, a real estate agent with Douglas Elliman in New York City, put it, “With new developments, there is way more demand than inventory to satisfy it.”
Multifamily permits are on a worse trajectory. They’ve dipped from their April 2022 five-year high of 4,714 to just 2,625 as of January. In the last three months, only 9,076 multifamily permits were approved in New York City. That’s down nearly 20% from the 11,300 permits approved a year previously.
Despite all this, Peters says she expects to see more new construction inventory “available in the next 12 to 24 months.”
New York City Housing Supply and Demand
When mortgage rates dropped to record lows in 2020 and 2021, buyers gobbled up NYC’s available housing supply. At one point in 2021, there was just a 2.8-month supply of homes (a balanced market is around six months).
Once mortgage rates started to rise again in 2022, buyers and sellers alike pulled back: the former not wanting the higher costs of those rates and the latter not willing to trade in their record-low rates for much higher ones.
At that point, supply began to slowly rise, and as of January, the city had a 5.1-month supply of homes available. That’s up almost 2% compared to last year and well above the nation’s 3.2-month supply.
The boost in supply, plus higher mortgage rates, is giving buyers a bit of an edge when searching for a property, Peters says.
“Buyers know what they want, and they want it now,” Peters says. “Previously, they were willing to buy properties that needed renovations because it was easier to facilitate. Now, that’s not the case as costs are much higher. The narrative has shifted from, ‘We can work with this,’ to, ‘This needs to work for us.'”
NYC rental vacancies have been falling since 2022 began, according to the U.S. Census Bureau. As of December, they held steady at a five-year low, with just 3.1% of all units vacant. That’s about 1% lower than the year prior and well under the nation’s 5.8% vacancy rate.
If you look at how much consumer sentiment has improved over the last few months, it’s not a huge surprise that properties are in high demand. Though overall sentiment is down 2.3% for the year, per the University of Michigan Index of Consumer Sentiment, it has actually increased 15 points since June, rising from a mere 50 (out of 100) to nearly 65.
[Read: The Rise of Built-for-Rent]
Mortgage applications show strong demand, too. According to the Mortgage Bankers Association, applications to purchase a home were up 3% annually for the week of March 17. In February, new home applications jumped 1.2% over the year and 4% compared to the previous month.
“There is a lot of activity in the market overall,” says Mete Basakinci, a real estate agent at LEVEN Real Estate in New York.
Median Home Price in New York City
NYC housing prices dropped starting in mid-2022, when rising mortgage rates forced many buyers out of the market. As a result, sellers had to lower listing prices (or at least be more willing to negotiate), just to get buyers in the door.
Since then, the median price has fallen from $710,000 in July to $650,000 as of January, according to Redfin. It’s now 1.2% lower than a year ago, though still much higher than the nation’s $383,000 median.
One detail to note is that prices did increase slightly between December and January, but only by a very small amount ($5,000). Still, it could be indicative of a trend, particularly as we head into the typically hot spring home buying season.
“That downward trend has somewhat stabilized, but it really depends on the neighborhood you’re in as well as the property type,” Peters says. “In general, prices are maintaining and properties are not sitting on the market very long. We are also still seeing bidding wars and heavy traffic at open houses.”
Rent prices have essentially mirrored that of home prices since mid-2022, peaking in the summer and then falling by year’s end. Despite this, they’re still up a whopping 9% in January 2023 compared with the year prior, clocking in at a median $3,065 per month, according to the Zillow Observed Rent Index. This time last year, the typical rent was $2,810.
With construction costs up nationally 12% and vacancies in the New York MSA at a five-year low, there’s a chance rents could move up even further, especially if multifamily permits don’t turn around. (And according to our forecast, they won’t).
[Is the Rental Market Finally Softening?]
Unemployment Trends in New York City
The New York City job market has largely recovered from the hits it took during the pandemic. Currently, nearly 10 million people were employed in the metro area as of December, per the U.S. Bureau of Labor Statistics. That’s up 344,000 compared to December 2021.
In the construction sector alone, the New York metro has gained 4,400 new jobs over the last year, taking the industry’s full employment count up to 46,000.
Unemployment in the city is low, too. Just under 4% of New Yorkers were unemployed — a 1% improvement from the year prior. The rate is slightly higher than the nation’s 3.5%.
The foreclosure rate is higher in New York, too. According to Black Knight, just under 1% of all New York properties were in foreclosure as of December. While this is down 0.2% compared with December 2021, it’s also notably higher than the U.S. average. Nationally, only 0.37% of properties were in foreclosure.
Builder Confidence in New York City improves
Builder confidence sank considerably in 2022, just after interest rates began to rise. In May, the National Association of Home Builders/Wells Fargo Housing Market Index rated builder sentiment in the Northeast at 76 out of 100. By December, it had fallen to just 31.
It appears builders are starting to feel more confident, though, as sentiment has jumped steadily since December, rising back up to 46 out of 100. That’s slightly higher than the national sentiment, which sits at 42.
Nonresidential construction, which is measured using architectural billings, has edged up slightly over the last year. According to the Architecture Billings Index, these are up four points over the year and are right on par with typical pre-pandemic (2018-2019) rates.
New York City Real Estate Market: Predictions
With builder confidence and consumer sentiment rising and unemployment relatively low, it seems that NYC real estate is holding steady — and should continue to do so.
The trajectory likely hinges on interest rates and builder activity. Forecasts predict both single-family and multifamily housing permits will decline through June, which could put a damper on future inventory levels, increasing competition and keeping prices elevated.
As Peters puts it, “When inventory is limited, you won’t see price declines.”
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New York City Housing Market Forecast originally appeared on usnews.com
