Coronavirus impact on Manhattan property
Posted by Wei Min Tan on April 10, 2020
The Coronavirus (COVID-19) has impacted the Manhattan property market dramatically, especially after March 15, 2020. Our vibrant market has been brought to a total standstill while we await this pandemic to pass. For investor buyers, this is an excellent time to consider Manhattan especially in Q2 and Q3 when the market opens up again.
We thought market was improving between Jan to March 15, 2020
Between Jan to March 15, 2020, it appeared that the Manhattan market may be on a recovery as evidenced by the jump in sales volume. As example, condo sales volume was up 19 percent in Q1. Before March 15, property showings were still going on albeit with hand sanitizers and no handshakes. There was a large decrease in sales inventory because of sellers’ concern that the coronavirus may depress their property prices. Perhaps more importantly, sellers were trying to avoid having large groups of strangers into their property touching this and that during open houses.
According to Jonathan Miller of Miller Samuel, March is typically the month sellers put apartments on the market. Historically, number of listings in March increased by 7 to 10 percent. But this year, the increase has been only 2 percent. Sellers with a choice are waiting for the coronavirus pandemic to subside. This differentiates those who have flexibility in selling and those who really want to sell.
After March 15, the Manhattan property market just stopped
Starting around March 15, New York City came under a state of emergency and lockdown. Only essential workers were allowed to work. Real estate agents and property showings were prohibited. The U.S. became the country with the highest number of coronavirus (COVID 19) infections while New York City became the new global epicenter of the coronavirus. Number of infections and deaths skyrocketed.
The Manhattan property market came to a standstill and everyone was working from home. In real estate, working from home is not working, because this line of work involves viewing property which just stopped.
The Q1 market data came out after March 31 and the below are key metrics. Most important to note are price per sqft came down 17.5 percent to $1,923. In addition, sales volume was up by 19.2 percent but this is reflective of the pre-March 15 period. Months of supply came down by 22.8 percent to 9.5 months as sellers held off from listing their property.
Manhattan condominiums Q1, 2020:
Average price $2.587 million (-22.7% vs last year)
Avg price per sqft $1,923 (-17.5%)
Sales volume 1,020 (+19.2%)
Months of supply 9.5 months (-22.8%)
Federal Reserve cut rate to near zero
The stock market experienced massive declines while investors fled to the bond markets which lowered bond yields. The 10-year Treasury bond yield fell to 0.729% yesterday. For context, it was at 2.621% a year ago. Mortgage rates are most correlated with the yield of the 10-year Treasury. As the 10-year Treasury yield goes down, so do mortgage rates. But in this case, mortgage rates didn’t go down commensurately as will be described later.
The Federal Reserve Bank announced plans to cut interest rates to near zero in a move to help the U.S. through this pandemic. As result, the current fed funds rate was cut to between 0% to 0.25%. This compared to a range of between 1% to 1.25% previously.
Mortgage rates at 50-year low
Mortgage rates were at 3.29% around the time the Fed announced the rate cut, a 50-year low since Freddie Mac began tracking in 1971. It has increased to 3.73% today as lenders deliberately raised rate to stave off the surge in application and refinancing volume. Mortgage applications were up 192 percent while refinancings up 79 percent compared to a year ago.
Last week, I spoke to a mortgage broker experienced with foreigner mortgages. One day the rate was 4.625%. The next day it went down 50 bps to 4.125 percent! That’s a dramatic drop. For a $1 million loan, the 50 bps decrease in rate translates into a monthly payment reduction of $295.
For buyers, this is the time for the cheapest debt in history. The challenge is to be able to close in time per the date on the signed contract because banks are heavily understaffed to handle the volume.
Read about Foreign Buyer Guide to Manhattan property
Will be very tough for sellers while buyers will have a huge advantage
In summary, the Manhattan property market, along with everything else, is at a standstill. Small businesses are losing massive amounts of money. The $2 trillion stimulus package is not reaching the intended recipients (small businesses, the unemployed…) because of government red tape and inefficiency. The New York unemployment insurance website and phone line have be jammed and people cannot file claims.
Specific to real estate, it is the most difficult time for sellers who need to sell because buyers cannot and will not view property. New development sales offices are the only ones showing property but it’s virtual (via video).
For investor buyers, the question is how long the slowdown will last. Unquestionably, investors will have a huge advantage after the coronavirus pandemic is over and the market reopens. Mortgage rates are at historic lows, the market will have fear and the properties that are still showing after the reopening are from sellers who really need to sell.
It is important though, to come into the market in Q2 or Q3 while the recovery is in process (and not a year after when the fears are over). As Sept 11 and Lehman demonstrate, the market will recover and normalize again.
Read about Manhattan property price appreciation trend
What We Do
Manhattan property broker focusing on global investors buying Manhattan condos to rent out for diversification and long term return-on-investment.
1) Identify the right buy based on objectives
2) Manage the buy process
3) Rent out the property
4) Manage tenants
5) Market the property at the eventual sale
1) Halcyon new development in Midtown East close to United Nations.
2) 99 John Street, represented client in the purchase and eventual sale.
Apartment has very rare 500 sqft terrace, commanding premium resale price.
3) Pre-war condo at Parc Vendome, managed renovation process and
rented out within 1 week after renovation completed.
Article updated April 10, 2020
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