If you look at the overall national trends, the housing market is doing exceptionally well. We’ve pulled out of the slump from the economic recession of 2008, and home prices are steadily inching higher.
But this rate isn’t consistent everywhere in the country; some areas are still straggling far behind, while others are displaying even stranger trends.
It should be no surprise that the areas most likely to deviate from the national averages are densely populated urban areas with tightly packed populations, a faster rate of change, and of course, more volatile demand.
So how is New York City, the biggest city in the United States, faring?
The New York real estate market
Overall, New York’s real estate market is being influenced by three major trends:
- Higher prices: Prices for homes and apartments have risen dramatically over the past several years, with apartment prices increasing 27.9 percent and townhouses increasing 58.3 percent in the past decade. This is making it harder and harder to find affordable housing, especially in high-demand areas. In 2016, the median sales price for a co-op or condo in Manhattan was a whopping $1.1 million, making it practically unaffordable for anyone who wasn’t already wealthy. The median price for townhouses has jumped from $3.125 million in 2007 to nearly $5 million today.
- Lower rent prices: Strangely enough, rent prices aren’t directly mirroring the increased prices of real estate. Rent is slowly declining, with the median rent in Manhattan falling from $3,382 last year to $3,350 today. New development apartments cost a bit more, but otherwise, rent prices are falling, bit by bit. There have also been more perks available for renters, including a few months of free rent included in certain leases.
- Less purchasing and development: Overall, there’s less purchasing and development going on in New York City. There are fewer new developments emerging, and businesses are becoming wary of building too much within the city. This is partially responsible for the increase in prices; it spawns from limited inventory.
So what’s behind these major trends? There are dozens of factors at play here, but these are some of the most important to note:
Part of the problem in New York is the same issue the entire country is facing: baby boomers.
The high-volume, aging members of the baby boomer generation are reluctant to sell their homes, creating limited inventory, which pushes home prices up even higher.
Historically, older populations would sell their homes after their children moved out or after retiring, but this is happening less and less, resulting in a decline in home turnover.
Demand for homes in New York isn’t fading. The city is seeing an economic boom, attracting more job hunters, students and young talent into the metropolitan area.
Established adults are more than willing to pay, despite the skyrocketing housing prices, so there’s no counterbalance to the reduced inventory.
Renter demand decreases
The millennial generation has historically preferred renting to owning, but the tide may be beginning to shift.
With mortgages readily available to most consumers and a clear path for millennials to build good credit and afford housing, demand for rental units is decreasing, pushing rent prices lower.
When new homes hit the market, they tend to disappear fast, and this has a few different effects.
First, buyers are willing to pay more to secure a home they really want. Second, it artificially keeps inventory at all-time lows. It also creates a kind of hunger for property in the area due to its own popularity.
Finally, though it’s a national-scale effect, interest rates are still near all-time lows. Banks are more than willing to lend money to anyone with a decent credit score who can afford the payments on the housing they want.
This is pushing more people to buy property in New York and away from renting.
What comes next?
It’s hard to say where the New York market will go from here. It’s unlikely that there will be a surge in development, and inventory will likely remain low.
Accordingly, it’s possible for prices to increase even further — in fact, some experts have opined that the housing market in NYC is still undervalued.
Still, the imbalance between purchase and renting prices and the stagnation of the market can’t last forever. It’s likely we’ll see a shakeup in the next few years, if not sooner.