By Esther Reizes-Lowenbein
The novel Coronavirus hit the world like nothing ever before. As this new norm became a reality, it all turned south: People began—and continue—quarantining themselves to enable the slowdown of this plague.
Soon after, Governor Andrew Cuomo announced the shut-down of “non-essential” workplaces, such as bars, restaurants, and in-person house showings by realtors. Eventually, the ban for in-house showings was removed. However, many buyers stopped searching, listings came off the market, and there was a significant decrease in closings. Our current situation is uncertain; the unknown is scary.
IT’S ALL UPHILL
Luxury real estate seems to have halted, and no one knows when normalcy will resume. Experts can speculate, but no one is certain of when it is best to act or jump back into the market. Several factors will ultimately lead to a boost in the NYC market, but the uphill timing is still unknown.
The stock market fluctuation differs from the real estate market. This was evident when stocks tanked by 30 percent in one day, just one week into the COVID-19 shut down in NYC. Eleonora Srugo, a licensed real estate salesperson at Douglas Elliman, suggests that the value of NYC apartments will not drop in the same manner as the stocks. On the other hand, it is the high net-worth group that is usually invested in the stock market. The volatility of the stock market induces fear and anxiety in those invested, causing the luxury tier of the market to be hit hard.
Another factor to consider is how the unemployment rate has grown significantly in the last few weeks. Thirty percent of the population have lost their source of income, affordability levels dropped. Many individuals on the verge of going into contract on their dream home, have rescinded their offers, and are reconsidering if they are currently capable of making the same purchase.
THE STATE OF LUXURY
As buyers will scramble to take advantage of a good deal, there will be a shortage of luxury real estate supply. Banks will not finance new developments as easily. This will lead to higher demand for inventory.
Residential real estate depends on a healthy residential jumbo and unconventional mortgage system. Currently originating jumbo mortgages is becoming problematic as the banks—the loan originators—begin to encounter liquidity issues. According to Levi Bialestock, VP at FM Home Loans LLC, the problem stems from MBS (Mortgage Back Securities) sales on the secondary market as the buyers encounter a liquidity squeeze. A ripple effect ensues, causing restrictions in qualification terms.
Many factors lead to colossal market recovery, but it will take several months post-quarantine to get there. There are a lot of challenges that we need to overcome. Will realtors be comfortable to host open houses once again? Will sellers want strangers in and out of their homes? Bringing strangers into view of one’s home substantially undermines the premise of social distancing. Zoom and FaceTime will be new platforms used to facilitate closings.
FOCUS ON NECESSITY
Real estate affiliates have conflicting thoughts and predictions of how and when they think the luxury real estate market will rebound. Eleanora believes that we will get into full swing by late summer. In her opinion, residential real estate will rebound faster than the commercial assets of real estate, although it will not be the same again. The first to return to the market will most likely be the ultra-high net worth investors. Usually, it is the audacious businessmen/women who see the opportunity as well as have the disposable income and experience
As a managing member at H Equities, Elliot Horowitz believes that the high-end condo market has had a problem for some time. As a debt and equity investor who has done several condo projects, Elliot believes that this high-end market of $10 million+ is thin, to begin with. As the market declines, the higher stratosphere market will continue to deteriorate as these buyers will look to obtain better deals.
Mark A. Neuhauser, a NY based real estate attorney, argues that although luxury real estate may incur a small decrease, purchase prices will generally remain the same as pre-Coronavirus. Mark and his team continue to sign contracts and conduct closings while waiting with the rest of the world for a normal return.
Charles Fabbella, a member of Ben-Bay Realty Company, seems to agree with Mark. He says that in the long run, a buyer who could afford to buy a luxury home in the first place will be able to do so once this pandemic subsides. Additionally, after being hunkered down for 60 days or so, they will make sure their home is more comfortable. Levi thinks things will get back to normal and possibly better than before.
My hope is that this terrifying pandemic ends faster than expected and that the stock market and the luxury real estate market, re-emerge better than before.
Esther Reizes-Lowenbein is a Licensed Real Estate Salesperson at eXp Realty. For more information contact her at firstname.lastname@example.org or call 718249514.