New York City's Housing market began its incredible comeback from the pandemic. While the pandemic started, there were significant dips in rent and home prices. But as we ring in the new year, there is both good and bad news for 2022. New Yorkers can expect to continue moving towards a full recovery- which is good news for the market. However, the housing market is predicted to continue with increases in rent and home prices which will also mean the housing market will be expensive. We've put together five significant vital aspects to consider as we embark on 2022.
Pandemic Rental Concessions Will End, Causing a Wave of New Inventory and Priced-Out Renters
In the summer and fall of 2021, NYC saw rents recover to a pre-pandemic level driven by high renter demand and concessions that did not end up renewing as a lease ended. A concession is measured by the share of homes on the market that offers one or more months of free rent. In 2021, Q1 had the highest percentage of concessions in the city's record, with a whole 42.8% of rentals. Even more units than in Q3 of 2020. however, many of these units returned to their gross rents within a year. The rate at which these pandemic concessions will turn over will peak again in Q1 of 2022 when nearly the same number of units come back onto the market-- this time without any discounts. With renters facing higher gross rents, many will no longer be able to afford their apartments, which will add to a flood of both demand and inventory in Q1 and beyond.
The rate at which people move to the city during the winter months typically declines. Therefore, there will be fewer renters on the market in Q1 2022 than compared to q3 2021, but with much more inventory. More inventory than demands could mean that rents may stagnate or fall in Q1. However, if this were to occur, it would likely be brief. Rents are sure to rise again as many more people make their way back to the city in the summer and new deals from spring 2021 expire.
International Demand Will Drive Luxury Home Prices Up
The Q1 housing prediction of the sales market in 2022 will continue to be a tale of two cities. Luxury prices are now rising after a three-year slowdown. But on the other hand, home prices in the bottom price tier will remain flat.
We've seen that the luxury housing market is having a moment. The top two most expensive tiers for homes in Manhattan and the most costly tier in Brooklyn are rising fast, according to the Streeteasy Price Index.
We can expect to see an influx of more international investments in residential real estate and increased luxury demand after the pandemic pause and pent-up demand. Due to the wealthy accumulating more wealth from a surge in tech stocks and the fully vaccinated, international visitors can resume traveling to the U.S.
While homes in the bottom tier of prices are seeing a pause in growth, many New Yorkers were affected by economic repercussions during the pandemic, which was exacerbated by job losses. The bottom tier of home in Brooklyn and Queens fell more than any other tier in Q3 in 2021.
While being good news for prospective buyers, it is bad news for current homeowners. The lack of demand for the lowest-priced homes is further lowering prices, causing homeowners to lose equity in their investments and sellers to lose profits. Decreased demand for these more affordable homes will likely lead to flat or even falling home prices within that tier.
Climate Change Will Become a Bigger Consideration for NYC Buyers
The following 2022 housing prediction has been brought into focus after the recent tragedies of Hurricane Ida. The devastating impacts on the city have added another layer to buyers' shifting priorities: flooding. Years ago, Sandy raised the issue of coastal flooding for all New Yorkers, but after Ida, New Yorkers located inland now have pluvial flooding to worry about. Therefore, climate change will be an essential consideration for many.
The flood maps for NYC are outdated and do not show which areas are most vulnerable to pluvial flooding. FEMA had proposed an updated map, which found that twice as many buildings than ever before were at risk.
Homeowner's wallets are already impacted as the higher the flood risk, the higher the insurance premiums in flood-prone areas rise. According to FEMA data, prices will go up for at least 62% of flood insurance policies in New York City. For 27,200 properties, the rise will be modest, not more than $120 a year. But about 10% or 5,400 properties will see their yearly costs leap by more than $120.
The NYC Sales Market's Course Correction Will Continue
In the past 3-4 years, a sales market slowdown was created by "irrational" market behavior. Due to speculative purchases paired with expensive new construction, prices rose by over 10% year-over-year between 2013 and 2015. This led to a surplus of luxury inventory relative to demand, thus falling prices from 2018 to 2020. However, the pandemic sparked an overall rise in NYC home prices for the first time in three years.
At the beginning of the pandemic, low mortgage rates triggered a surge in demand, creating an outside force due to prices having fallen enough.
Home sales resumed and then reached record highs, allowing prices to recover. Thus, the market is much more rational now than a few years ago. It's functioning according to supply and demand market mechanisms, rather than artificially induced pricing from overly optimistic developers and sellers or bubble-like behavior.
Our 2022 NYC housing prediction is that this course correction will continue in the coming year. There likely won't be another recession that will lead to another massive drop in rates. Thus, there won't be a sudden, externally motivated spike in demand. Ultimately, it's up to the supply side — the new construction, the developers, the sellers — to price their listings correctly to avoid another sales market slowdown.
But what about the demand side? With sustained demand from home shoppers, buyers can expect fewer price cuts and more bidding wars in 2022. Currently, no neighborhood in the city has a sale-to-list price ratio above 100%. In other words, on average, homes closed at or below their asking price in all neighborhoods in the city. That may change in 2022.
Demand for NYC's Hot, Amenity-Rich Neighborhoods Will Continue to Rise
Now that shopping, restaurants, and nightlife have reopened, living close to neighborhood amenities is essential again to New Yorkers who can afford to do so.
As seen on Streeteasy's 2022 Neighborhoods to watch, the hottest neighborhood in Manhattan is also among the most expensive. Soho tops the list, along with the West Village and Flatiron. However, the fun is not limited to Manhattan. Brooklyn hotspots also made the list, including Dumbo, Fort Greene, Bushwick, Gowanus, and Red Hook, which provide a similarly diverse range of restaurants and nightlife that make them attractive places to live.
According to Data from Streeteasy, subway ridership is up, more restaurants reservations are being made, rents are recovering, and more homes are selling than ever before. Meaning NYC's recovery is near.