I’m still talking about the bottom of the market this month, but I like to put on my psych-major hat on from time to time. Let’s face it, the psych hat is on every day. New Yorkers are nuts (including me)!
There are some enduring myths around real estate that I’d like to hit on, as they usually get in the way, whether the market is up or down. In this market, there are some particularly pernicious fallacies that will stop a buyer cold, or keep an apartment from selling. Lastly, there are some new sentiments that are approaching myth status. We’ll talk about them, too.
1. Apartments Are Just Like Stocks
New York City is a finance town, albeit a town that hasn’t relied upon Wall Street solely as its driving force for many years. Its denizens remain a force in the residential real estate market nevertheless. This myth is showing up today when I hear the phrase, “I’m surprised that prices aren’t lower.” What that implies is that somehow, real estate is the same as a stock. That there is a market price, and the sellers should know that, and they should price the apartment or townhouse appropriately. Of course, this isn’t how it works. It never worked this way. Real estate is an ILLIQUID asset. It doesn’t work like a stock, it doesn’t trade like a stock. It’s not a stock! If you’re shocked that asking prices aren’t reflecting the closing prices, remember that there is one thing that is the same with the stock market and the housing market (yes, I know there are other things, too, but have some fun with me)- there is an ASK and a BID. In real estate, that gap can sometimes, like today, be a bit wider than a stock trader is used to.
2. Sellers Are Going To Get Desperate
I would think this myth rears its head at the bottom of every cycle. It shows up as “I want to get an amazing deal” or “I think there are going to be some desperate sellers and I’m going to steal an apartment.” This, again, is a fantasy. A super annoying fantasy. The annoying REALITY is that owners of real estate in New York City are among the most qualified you would find anywhere. It would serve you well to think of the entire city as one big cooperative building, where nearly everyone is well-capitalized. In a market like this, it is tantalizing to imagine some seller who is going to run out of money and have to dump his apartment. We do see “distressed sellers,” of course. We read about developers in trouble, and hotels selling at a discount, debt being traded, and funds jockeying for position to try and gobble up buildings at times like this- but if you think that you’re going to see a tsunami of distressed residential sellers, you may be sorely disappointed. Take your 20-25% discount from the peak of the recent cycle, and enjoy it. Just don’t wait too long for unicorns. This market is special and cheap enough!
3. New York Real Estate Always Appreciates
In times like these, we are reminded of what we’ll soon forget. That there are market cycles in New York City real estate, just like everywhere else. As soon as the market recovers, and prices begin to move up, buyers will leave this behind. On a long enough time horizon, New York City has certainly appreciated wildly. But if we strip out those sellers who have owned their apartments for more than twenty years, I believe that roughly half of sellers are breaking even, losing a little, or losing a bit more than that if they’re selling today. So no, market timing is critical in New York as everywhere else. Suburban sellers, Hamptons sellers are the beneficiaries of this moment, and New York City sellers may be on the losing side.
4. Isn’t Everyone Leaving Town?
This is my favorite new old saw. The press wrote about it so heavily, that I get this question at least once a day. “Is everyone leaving town?” My answer?
NO! They aren’t.
What actually happened? Hundreds of thousands of young professionals left town, going back to their parents’ house, going to a country house. Leaving their leases behind. That did happen. And the rental market got CRUSHED, down 30-40% from pre-COVID rental prices. These professionals will come back. We’re actually already seeing it in the rental market.
Also, families accelerated their moves to the suburbs, as they would have done. Those who stayed back are getting great prices if they choose to buy in New York.
But not everyone left town. New York ain’t dead. It’s not even sleeping. It’s just cranky and waiting in line for a vaccine.
The press had a lot of fun writing about this myth, creating this myth, and I look forward as they shift into “Everyone’s coming back” stories. Which will happen, SOON. Trust me on this.
5. People Will Make Offers Where They Want
This is the most irritating myth that endures through all cycles, and afflicts sellers, to their peril.
The idea is that a seller wants to price an apartment too high, assuming that a buyer will just make an offer where they think the appropriate level is. Well… SEE MYTH #1. They are in direct conflict with each other, and generally the biggest impediment to transactions happening.
We are in a binary market right now, where overpriced apartments sit, and well-priced apartments get offers and deals. The attitude of expecting savvy, value-oriented, deal hungry buyers to simply make an offer at some significant discount is highly misguided. Today, especially so, but at almost any time, buyers won’t take a seller like this seriously.
6. Brokers Just Want to Get Apartments Sold, at Any Price.
I added this one just to see if you’re still reading…. If you got here, thanks!
Brokers get a bad reputation, but the most successful New York City agents are successful because we prepare, we do our homework, and we report what we see about the market. If your apartment isn’t selling today, it’s 99% about price. Hire a broker you trust, and you’ll get your apartment sold at the highest price possible, to a qualified buyer for your building.
We didn’t talk about some of the other myths such as the value of trying to be a “direct buyer” as a money saver- it’s usually a recipe for disaster for all but the most savvy buyers. But there’s always next month, and next year!
You can check out all of my musings about the New York City Residential Real Estate Market by heading to my YouTube Page and Subscribing. Thanks and Happy New Year! -Scott