Is now a good time to invest in Manhattan, New York residential property?
Posted by Wei Min Tan on September 16, 2022
The Manhattan, New York residential property market had a tremendous year in 2021. However, the trend slowed in 2022 as mortgage rates doubled from a year ago. Higher mortgage rates make it more expensive for buyers needing financing. Rates went up because of 40-year high inflation and the Federal Reserve’s tightening policies in efforts to cool down inflation and avoid a recession.
Why was last year so robust? Sales volume for the overall condo and coop markets in 2021 was the highest in 32 years because of low mortgage rates, pent up demand, reopening of the economy and overall optimism as more than 70 percent of New Yorkers were vaccinated. The recovery in Manhattan residential property from the Covid pandemic was very swift.
I am often asked, during the pandemic and currently, whether now is a good time to invest in Manhattan property. There is no short answer. Let’s understand the overall context a bit more.
Covid 2020 to swift recovery in 2021
The bottom of the Covid market was between May to July 2020. From there, pending sales, referring to contracts in pipeline waiting to close, was increasing weekly until late 2021 when it started stabilizing. In Q3 and Q4 2021, we experienced record number of weeks with 300+ contracts signed.
Supply was decreasing dramatically as contracts signed exceeded number of new listings coming onto the market. For context, Q4’2021 sales volume was 82 percent higher than Q4’2020. Q1’2022 sales volume was 46 percent higher than a year ago.
Client’s three-bedroom condo with open views, we rented out in 1 week. We targeted larger sized apartments post Covid in anticipation of the market’s need for more space. Weimin’s article, Investing in large 3-bedroom apartment to rent out in Manhattan.
Covid impact on Manhattan property
The Manhattan market was weak from mid 2017 through 2019. This was despite a strong economy (both U.S. and New York City) and record low unemployment rates. In Q1’2020, it first appeared that we were starting the recovery as evidenced by an increase in sales volume (before March 15, 2020). Then after March 15, 2020, New York City was hit by COVID 19 at unprecedented levels and the property market came to a standstill.
The real estate market was locked down from mid March 2020 to end of June 2020. As the market reopened end of June 2020, uncertainty was at the highest. Clients didn’t know how long the recovery would take, retailers closed down, restaurants could not reopen for indoor dining.
The rental market was hit even harder. Because of work-from-home policies at companies, renters didn’t renew leases and moved out of Manhattan. New Yorkers had a once-in-a-lifetime opportunity to work from anywhere they want while saving on Manhattan rents. Market rents dropped 25 percent, inventory shot up 3x and vacancy rate shot up 5x.
Why was the Manhattan market soft from 2017 to 2019?
Manhattan property experienced a slowdown from mid 2017 through 2019, typical with property cycles. Looking at property price data going back to 1999, Manhattan condominium prices were going up from 1999 to 2008, had a dip in 2009 and remained flat in 2010, and then went back up from 2011 to 2017.
Read about Wei Min’s style in Best Manhattan property agents and Role of a buyer’s broker.
The 7-year up cycle ran its course and 2017 to 2019 was a down cycle. If 2009/2010 can be a gauge, it previously was down one year (2009) and remained flat another year (2010). Manhattan experienced a dip between 2017 and 2019, and due to COVID 19, 2020 saw the dip extending as the market and entire U.S. economy came to a standstill. The original 2017 to 2019 slowdown started with the market’s reaction to the decreased tax deductibility on primary residence property. And then it was driven by (i) increased mansion tax and oversupply in the $5m+ high end segment, (ii) increased inventory, (iii) the typical down cycle after an up cycle (2011-2017).
Read the latest Manhattan property market report
Fear and reopening
Early 2020 saw sales volume increasing but then Covid hit NYC. The market came to a standstill from mid March through end of June 2020. Looking back, May to July 2020 was the bottom of the Manhattan market. My clients who bought during that time made the right move and got the best deals. But this is hindsight. The uncertainty then was how long was the Covid impact going to last, and whether it was the end of cities and dense living.
The media talked about the death of big cities. People started moving out of Manhattan and to the suburbs. The suburbs saw a surge in the real estate market starting around July 2020.
Client’s West Village investment condo which we negotiated during Covid lockdown in May 2020. Got amazing terms and price. This 12th floor apartment has a lot of blue sky views, a rare feature in Manhattan.
After the market reopened in July 2020, the real estate industry slowly resumed amid a lot of new protocols. eg Covid forms, very limited showings. Urbandigs, a Manhattan data analytics firm, started tracking weekly activity including the charts below.
Market Supply has been picking up, the peak was in late 2020.
Demand: Refers to contracts in pipeline waiting to close. Notice the bottom was around July 2020.
The current Manhattan property market – recession and inflation
Post Covid shutdown (Mar to June 2020), pending sales, referring to contracts in pipeline waiting to close, increased weekly since July 2020 and only started stabilizing around June 2021. The surge in the sales market was dramatic in 2021 and it was driven by low mortgage rates, pent up demand and overall optimism on the New York economy recovering.
Sales volume in the second half of 2022 started slowing down. This is because mortgage rates have been increasing driven by the Federal Reserve’s rate increases. Inflation was 8.3 percent in August 2022, but reached 9.1 percent in June 2022 and 8.5 percent in July 2022. We’re having 40-year high inflation currently. Recession fears are everywhere as GDP growth contracted despite strong job growth and a record low 3.5 percent unemployment rate.
Inflation (below): We’re having the highest inflation levels since the 1980s. This is because of pent up consumer demand, a robust job market, energy supply disruptions from the Russian invasion of Ukraine and supply chain issues from China.
Mortgage rate (below): Inflation led to the Federal Reserve increasing interest rates. This in turn led to increasing mortgage rates. The 30-year fixed mortgage rate is now at 6 percent, more than doubling the rate last year. Since 50 percent of Manhattan buyers need mortgage financing, it’s now a lot more expensive for them in terms of monthly payments. As result, many potential buyers became renters.
Manhattan condominium historical appreciation
Market Pulse shows we moved away from a seller’s market and approaching Neutral (the middle band). I consider us being in a buyer’s market because only in recessions does the line ever go to the bottom band.
Deal example: Client’s condo at 111 Murray, opposite Goldman Sachs HQ (the green building). Booked at pre-construction, prices up about 20 percent. Weimin’s article, Investing in Tribeca property.
How much Manhattan residential condos cost now
Back in 1999, price per sqft was $480. The peak was in 2017 at $2,149. The below are key data points on a Manhattan condominium in Q2, 2022.
Average price $3.04m (+15.4% vs prior year)
Price per square foot $2,132 (+11%)
Transactions 1,768 (+9.4%)
Months of supply 6.9 months (-5.5%)
Condo sales volume in Q2’2022 increased 9.4 percent compared to prior year. Price per sqft is still lower than the peak in 2017.
Deal example: Client bought and then sold this prewar condo that is one block from the World Trade Center, New York’s largest development.
Rents at record level
During Covid 2020, because of work-from home policies, a lot of renters did not renew their leases and moved out of Manhattan. One year later in 2021, as companies required employees to be back at the office, those who moved out of Manhattan moved back, driving up the rental market.
The rental market kept going up and in June 2022, the average Manhattan rent exceeded $5,000 for the first time. It was all over the news. July 2022 (graph below) went up further to $5,113, or a 27.5 percent increase compared to prior year. Rental price per sqft in July 2022 was $81.24, or a 19.9 percent increase compared to prior year.
Why is this happening? Because of (i) inflation, (ii) renter pool increased as potential buyers became renters. All this while the supply of inventory decreased by 43.5 percent to 6,669 units.
Investors are experiencing record rental yields with the rent increases. With our investor clients’ condo properties, we have been increasing rents from 30 to even 50 percent.
Investor client’s prewar condo purchased post pandemic which we rented in 2 days. Weimin’s article, Strategy of investing in distinguished prewar condos.
Why investors globally invest in Manhattan property
During the pandemic, I represented international clients in negotiating the best terms in memory. Recently, the increase in foreign demand increased even further. Manhattan and London are deemed the world’s top two cities for asset diversification and price stability. These are the world’s only two Alpha++ cities.
Key reasons high net worth individuals globally invest in Manhattan are:
(1) Asset diversification
(2) Stable price increases
(3) Low credit risk
(4) Tax breaks such as depreciation
Investing in a penthouse Manhattan apartment
When do we return to normal
True normalcy will come when everyone returns to the office and the shut down storefronts get occupied again. Currently, the tourists buses are all over NYC, restaurants are busy, the subway is having its record ridership since March 2020. The mask mandate in public transportation and schools has been lifted as of 2 weeks ago. Since Labor Day, a lot more people have returned to work.
Many companies are urging employees to come into the office more, while employees are fighting for their work-from-home days. In this tight labor market, ironically it’s the bosses and senior management who are at the office to encourage more people to return. There are still many empty retailers that closed down from the pandemic. On Chambers Street from Broadway to West Side Highway, I counted 29 vacant storefronts. Meanwhile, we see a few new businesses as well.
Weimin’s article, What does a luxury apartment in Manhattan mean?
Is now a good time to invest in Manhattan property?
In 2021 we were in a seller’s market. Now, it’s a buyer’s market. Buyers (especially those buying all-cash) have the advantage. Prices have recovered significantly from the Covid bottom, but price per sqft is still lower than the peak in 2017. Rental yields are high as rents are at record levels.
There are certainly good buys and negotiability. Q1 GDP declined 1.6 percent while Goldman Sachs just slashed Q2 forecast to 0.7 percent, just shy of recession territory. Inflation and recession are the major fears.
Yes, it’s a good time to buy Manhattan property now. The sale market is slow because of doubling of mortgage rates while the rental market is at record levels. The price per sqft trend for Manhattan condos is stable appreciation in the long run (graph below). It dips during recessions but being the most valuable real estate in the world, Manhattan always recovers.
Weimin’s article, How recessions impact Manhattan property.
Read about How to buy new launch property in Manhattan
Deal example: Represented multiple buyers at 130 William, FiDi’s new development with very low carrying costs and full amenities. Proximity to the Fulton Street subway station and high quality finishes such as marble bathroom, solid wood doors make this a good buy.
What We Do
We focus on global investors buying Manhattan condos for portfolio 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
Notes: This article was updated September 16, 2022
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