The financial markets have had a wild ride so far in 2022. Between dramatic swings in both stocks and cryptocurrency values, the specter of inflation casting a pall over the broader U.S. economy, and now Russia's invasion of Ukraine leading to acute geopolitical tension as well as some short-term plunges within the stock market. Investors have always leaned on residential property- Particularly in NYC- as a stable cornerstone in any well-balanced portfolio. This volatile moment may be creating a particular incentive for buyers to move more of their holdings into real property.
Financiers flocking to property in chaotic times are hardly a brand new phenomenon.
"Real estate has been acting as a substitute for bonds for a long time," said Marci Rossell, chief economist of Luxury Portfolio International. "The world is now a place that's not nearly as safe as we thought it was. So when people perceive the world is getting riskier, they save more, not less, and real estate continues to be the asset of choice to preserve principal and provide appreciation."
Many buyers are concerned about global financial risk or fundamental portfolio diversification. However, real estate is something you can live in; something to touch, sleep in and rent out if you’re an investor. In simpler terms, it’s brick and mortar. Still, this calculus becomes more complicated when buyers enter the market after close to two years of rabid demand and rapid price increases.
"Certainly, given the backdrop of concerns around sustained elevated inflation levels, the natural go-to is real estate or real assets," said Amanda Agati, a chief investment officer of PNC Asset Management Group. "[But] you have to be very careful and look at it on a market-by-market or city-by-city basis, because it's definitely not a buyer's market, it's more of a seller's market."
Part of the reason well-off buyers are eyeing property as a place to park some of their assets: After the last two years, those assets have grown to previously unseen heights. At the same time, the pandemic created a greater sense of importance around homes as a combination haven, school, gym, recreation center, and office, a phenomenon that hasn't gone away even as offices and businesses reopen.
"Especially after Covid, buyers are certainly still looking to buy homes for themselves and recognize it as more of a needed asset. They want larger spaces because people are working from home more, and they're putting a good amount of equity into that," said Peter Zaitzeff, an agent with Corcoran in New York City.
"Because of the wealth creation over the last two years, which has been exponential, they have the liquidity to invest in homes, which they see as an excellent investment, especially this year," Mr. Zaitzeff added. Buyers who have seen sudden spikes in the value of their stock holdings may also want to consider properties as a means of rebalancing their overall portfolios.
Now that we’ve been talking about inflation and real estate as an excellent hedge versus having it in the bank buyers in the last couple of years have become much more heavily invested in stocks and investment assets than real estate, but now there is much more urgency on the purchase.
Beyond the realm of traditional wealth accumulation, buyers suddenly flush with enormous cryptocurrency gains are making their presence known in property markets as well, and view real estate as an avenue for transferring their newfound wealth from a highly volatile asset into a highly stable one.
Agents have been seeing a massive push from crypto people to invest in real assets. Unsure of it is due to an overall cycle that has gone up in the last couple of years and now investors are seeing real money and thinking maybe this is not going to happen this way forever.
While investment-minded buyers are snapping up properties across the country (and Ms. Agati noted that recent growth trends in areas like Florida, Texas, and the broader Sun Belt region are expected to continue), New York City continues to have an evergreen appeal as both a desirable market and a reliable growth asset.
Coming out of the depths of the pandemic, the city also has a particular and time-sensitive advantage: Real estate prices haven't skyrocketed to the same degree seen in most other cities across the country, making one of the world's most expensive cities a comparative bargain for buyers with wealth to spread around.
Prices in New York have not gone up to the peak level that they once were in 2015 whereas, in other areas of the country, they’re unexpectedly high. Even though NYC had a historic year in 2021 we just came back to normalcy in terms of pricing. This dynamic can present a particularly appealing option for sellers looking to trade up after netting record-breaking bids in other parts of the country.
Many people are coming from other places because the real estate market is so strong that they potentially got a high sales number on their homes. Some have sold their houses for 25%abaove what they initially expected and are now saying they have an opportunity to move back to New York and compete.
With a citywide inventory crunch, the window of opportunity for luxury buyers hoping to bargain hunt in the city may be closing quickly.
Most high-end buyers also understand New York real estate to be a stable long-term investment play. Based on historical performance real estate markets like Manhattan offer stability and asset diversity is one way to hedge risks.
Mr. Zaitzeff added, "High-equity wealthy people have done this for a long time. You can leverage real estate in a way that you can't leverage equities, and at 2% interest, it's free money for these guys."