The Real Estate Market Will Remain Strong in 2022
With any crazy real estate market, there are those who are already telling me, “Well, I heard there’s going to be a recession in two years!”
Others have asked me some pretty reasonable questions:
“How will rising interest rates impact the market?” “Is Ukraine going to impact the market?” “Will inflation impact the real estate market up or down?”
All good questions, and worth thinking about. I hate to say this, but at some point, maybe in a year, maybe in five, there will be a change in the market. Markets are cyclical. And rates are rising. And there is a war going on. And as much as we love our inexpensive items from Amazon and Walmart and Target, supply chain issues will continue to bite us and drive up consumer goods.
But the bigger conversation around real estate should be about which external factors will drive the market down, or UP.
Let’s discuss five reasons why the market will remain strong this year.
Pricing Is Not At a Peak
Unlike the suburbs, or every other market in America, it seems- New York City is not at a pricing peak. There is still more inventory here- about 4.5 months’ worth- than in those markets, too. Everywhere you look, in Westchester for instance- there is less than TWO MONTHS of inventory. And new highs are being hit every day. It is a sellers’ market here, but the pricing is still about 10% below the top. Translation- room to run for real estate- up. Speaking of being below the peak…
People Have Forgotten about 2018 and 2019
The market was really slow here for at least two years before COVID-19 hit us. The stock market was strong, and there didn’t seem to be enough confidence in the real estate market for people to make moves. Things in 2020 were just about to go bananas, then…. and so, we watched 2021 pick up right where expected 2020 to be.
Can we just discuss how this song didn’t get much more press last year? “I’ve got a feeling ’21 is gonna be a good year….” – take a listen!!
When things were going so well in the stock market and in real estate… what a perfect song to refer to! My point is that we’re not in the middle of a cycle. We’re pretty close to the beginning- one year in. Barring something cataclysmic, it’s more likely that we see the market continue moving up than down. So my bet is on the upswing. Let’s not forget that hiring is happening in New York on an epic scale. The basic of supply and demand by qualified buyers will help, too. And even if we don’t see double digit appreciation, we will still see sales volume continue to be near to records.
Inflation May Be On The Rise, But Buyers (Not Banks) Have So Much Money In Their Pockets
You may remember 2008-2009, when the Fed bailed out banks. The biggest difference between that time, and what happened during the Pandemic, is that the Fed effectively bailed out companies and consumers. Not only that, but the uneven impact from the pandemic was that that white collar folks came out with much, much more money in their pockets. So, we may be seeing costs rise everywhere, but outsized gains in income, and a stock market that is nearly back to par for the year would position many buyers well to continue to make purchases. We’ve been watching it for a year. Again, it’s more likely that just as with records in the art market being set, that we’d see more, not fewer, real estate purchases this year. It’s the safer bet.
Buyers In New York Are Less Impacted by Retail Mortgage Rates
Early this week, we had a buyer tell us that they still got 2.75% for a borrowing rate- Not from a regular bank, but from their private bank, First Republic. Compare this to the “sky is falling” reaction to rates climbing above 4%…
Qualified buyers in New York will continue to have access to very sexy borrowing rates. We’re still in an historically low borrowing environment, and if buyers decide to financing a little less to offset slightly higher borrowing raes- they will. But it’s still VERY cheap capital in NYC. Elsewhere, with low inventory and rising rates- they may see a cooling off, but here, given the balance sheet strength of most New York buyers (or their parents), there is a lot of room before rates take too large a bite out of our run.
And What If The Stock Market DOES Take a Dip?
Wouldn’t people move their money into other high-quality asset classes? Wouldn’t New York City real estate be seen as the most high-quality, blue-chip hard assets around? I was at an event last week with our new mayor, Eric Adams. He made a great point in a speech that day, his full-throated endorsement of the strength of New York City. He reminded us of the appeal of America, why New York remains the center of the American Dream. “There is no French dream, there is no Polish dream, but there is an American dream,” he said, to massive cheering.
New York is high quality. And New York will continue to benefit, even if the stock market take another dip.
I’ll Throw In One Extra Reason – FOMO
People aren’t just owning one primary home anymore. It seems they have co-primary houses! And as life opens back up, as gala photos hit instagram, the FOMO that newly-minted Florida residents will likely just mean more purchases, not more sales. People aren’t LEAVING New York. They are making sure they continue to have a presence here. They’re hedging their lives on a bigger scale than ever before!
Have a great month! – Scottie