How the Pandemic Will Impact the NYC Metro Real Estate Market

Photo by Brandon Jacoby on Unsplash


Written by Max Vishnev, licensed NJ Realtor and real estate investor

We are slowly beginning to lift our heads again and are starting to see the light at the end of the tunnel. But I don’t think we’ll be going back to business (or life) as usual any time soon. In fact, I believe that this pandemic will cause a tectonic shift, in terms of how young professionals in large cities live, work, socialize, and conduct business.

In this post, I want to share my thoughts on how I think the pandemic will impact the housing market in the NYC Metro area, specifically, at least for the duration of 2020 and perhaps beyond.

My personal prediction is that many of the previously-trendy parts of New York City with the highest urban density will see a drop in home values during the rest of 2020, while less crowded urban and more suburban areas in the NYC Metro area will see an upswing. 

This will be largely driven by 5 factors.

Five Reasons Why Property Values Will Drop in NYC and Increase Outside the City:

1. A flight to more personal space, both indoors and out.

2. Qualified buyers looking to take advantage of historically low mortgage rates.

3. A shift in the relative perceived value (price-wise) of a NYC apartment versus a home outside the city.

4. “Remote” work arrangements becoming more prevalent post-pandemic, reducing or eliminating concerns over commute times and distance from a physical office.

5. Health and safety concerns over a possible second wave and the risks associated with remaining in a crowded city and high-density apartment buildings.

Before we get into the nitty-gritty, allow me to start with some basic facts and stats about New York City:

New York, especially the borough of Manhattan, is and has always been a housing market dominated by renters, not home-owners. That is partly driven by geography. After all, the island of Manhattan only contains 23 square miles, while being home to around 1.5 million residents. The other four boroughs are home to another 7 million residents, or more than two Chicagos put together.

So when you combine a lack of space with incredible population density, you end up with a city where the majority of the denizens are renters living in mostly high-rise buildings. After all, when you think about New York City, what type of building comes to mind? Either a skyscraper or an old, brick, 6-story building with a metal fire-escape. At least, that’s what I think of.

And if you’re a young high-earning Millennial, the idea of working and “playing” in the city is a very attractive lure – enough for countless 20-and-30-somethings to rationalize the really high rents. Stayed out a bit too long for Thursday night happy hour? No worries, just Uber it home! Paying $3,000 for a 500-sq-ft studio in a luxury building? So what? You’re mostly there to eat take-out, watch Netflix, and sleep anyway.

But all that was pre-pandemic. 

The NYC lifestyle has been completely turned on its head. Suddenly, most New Yorkers are spending days and nights stuck inside their small and overpriced apartments, which have felt increasingly smaller with each passing day.

The gym, your favorite café, bar, and bistro, the office – all escapes from the confines of your “cozy” flat – all suddenly closed. And there are only so many shows one can binge-watch before cabin fever sets in.

To top it off, the prototypical young office professional has been trying to work from home for the last month and a half with their girlfriend/boyfriend, fiancée, or spouse also trying to work from home. And all they have is a coffee table and a breakfast island for flat surfaces.

Now, let’s take a step back and look at the housing costs of city life.

New York City Cost of Living:

The median rent across Manhattan in the winter of 2020 was right around $3,600 a month, according to Curbed New York. When you consider the fact that the average apartment in Manhattan is a one-bedroom (since there are plenty of studios to balance out the two-bedroom units) and that the average apartment size is between 700 and 750 square feet, the stay-at-home and social-distancing period caused by the pandemic might cause a lot of city renters to seriously re-evaluate their housing situation.

Timing is important here, because a lot of leases expire in the summer (since many people tend to move and sign new leases in the summer). And I think it’s a safe bet that a lot of Manhattanites who have been renting for a while and still have jobs have been having serious conversations about buying a place outside the city, while munching on their Uber Eats dinner from their favorite “take-out only” restaurant.

Let us also not forget that 30-year mortgage rates are near historic lows right now, which means that employed borrowers with excellent credit scores can probably qualify for a home loan at a rate lower than at any other point in the last 50 years, with the exception of November of 2012, when average 30-yr rates hit a historic low of 3.31%. Right now, very qualified borrowers should be able to lock in a rate lower than that.

What does that mean in practical terms? To help us compare apples to apples, let’s take the median rental price in Manhattan (again, pre-pandemic) of $3,600 and look at how much “house” that would buy you outside of the city but still in the “metro area” (within an hour commute to Manhattan).

What NYC Rent Can Buy You in the Suburbs:

For this analysis, I will assume the annual property taxes are $12,000 and that annual home insurance is $1,200. I will also estimate an additional $100 a month in water/sewage plus heating expenses (note: this is an annualized average, so the winter bills for heat would be offset by the warmer months when no heat is needed).

I realize that different towns have different tax rates, but I am using a number that I think represents a good median for most areas (medians get rid of “outlier” towns with really low and really high tax rates).

I will then assume that the borrower/home-buyer has a FICO score of 750 or higher, has the funds for a 20% down payment (those many borrowers can usually put down less than 20% for a primary residence purchase), and can lock in a 30-year mortgage at 3.25% interest (which as of this writing is very realistic, based on my conversations with trusted lenders). I will then use mortgagecalculator.org to figure out what home value that current renter (and our prospective home buyer) could afford while remaining within the $3,600 threshold.

Using these assumptions, a Manhattan renter paying the median price of $3,600 could afford to purchase a $700,000 home!

After putting down 20%, the loan amount would be $560,000, which would equate to a monthly principal & interest payment of around $2,400, plus $1000 in taxes, $100 in home insurance, and $100 in heating and water (again, annualized monthly average).

I can’t speak for Long Island or Westchester, since I’m a licensed Realtor in NJ, not NY, but $700,000 can buy you some really nice houses in many parts of Northern NJ. In fact, that amount would even buy you a renovated multi-family home in some nice towns, where your net housing cost would actually be lower thanks to tenant income.

And a house at this price point would have plenty of room for an office (or even TWO separate offices!), a fitness studio, and a nice backyard for the kids to play in.

Of course, a Manhattan renter used to a 700-sq-ft apartment may not need all that “house”. And this period of tremendous economic uncertainty may actually be a great time to consider lowering one’s housing costs.

On that note, if we stick to my numerical assumptions above and change the home value to $500,000 from $700,000, the monthly principal & interest payment around $1700, for a total monthly overhead of just over $2,900 (once you add in taxes, insurance, water, and heat, which, for simplicity’s sake, I’ve kept the same as in my earlier example – in reality, the tax figure would actually be lower, since the assessed value would be lower for a smaller/less expensive house).

$500,000 can buy you a really nice 3-to-4-bedroom, 2-bath home, with a finished basement, a garage, and a yard, in plenty of nice towns in Northern NJ.

What can $500,000 buy you in Manhattan, waterfront Queens, or large swaths of “brownstone” Brooklyn? Not much. Maybe a one-bedroom condo or co-op apartment in a non-doorman building.

In fact, the average real estate sale price in Manhattan at the start of 2020 was $1,089,060, according to StreetEasy. Brooklyn’s average sale price, meanwhile, was $707,436. And it’s worth stating the obvious here: When we talk about average sale prices, especially in Manhattan, we are talking about mostly apartments (either condo or co-op), not houses.

So the average NYC renter would go from renting a small apartment in a large building with a lot of people and no private outdoor space to owning an apartment in the same or very similar circumstances.

Which brings me to a related point:

What Are the Biggest Reasons Most New Yorkers Are Willing to Rent in the City?

1. The city offers convenience and endless options within walking distance of most apartments -- from bars, cafes, and restaurants to gyms, dry cleaners, and grocery stores.

2. They don’t want a long commute to work.

3.  They like the city’s hustle and bustle.

4.  Their friends are also renting in New York City.

Well, these aspects of city life have been dramatically altered by the pandemic. Most of our favorite cafes, bars, and restaurants are closed (unless they are doing take-out). Who knows how many will re-open? All gyms are also closed. And how safe will people feel going back when they do open their doors again? After all, sweating isn’t as much fun with a mask on (unless you’re into that sort of thing). And who needs a gym anyway when you can build your own in the finished basement, with plenty of room for yoga mats, free weights, and even one or two Pelotons!

Also, with millions of New Yorkers being forced to work remotely, and in many cases, doing so quite productively, I think many companies will realize that flexible work arrangements that were previously just “one fine day” talking points on quarterly company calls are now going to become a serious priority item.

Firstly, many company executives will see that as a great way to retain their top talent.

Secondly, companies can then scale down their office space needs and lower fixed expenses, which ensures that they can hire more talent.

If remote work arrangements become part of the “new normal” – whether part-time or full-time, the commute time from one’s home to the office will no longer be as relevant, or for some workers, may become totally irrelevant.

Thirdly, with concerns over keeping our distance to avoid getting very sick, coupled with talks about a possible second wave, especially if certain social restrictions are lifted too soon, the city’s “hustle and bustle” won’t have the same allure in the eyes of some people. And even when some of our favorite bars, cafes, and restaurants do re-open, will they have the same vibe and appeal if they are operating at a fraction of their capacity due to distance restrictions?

And if your friends are having the same conversations, perhaps your Sunday brunch in the latest crowded East Village hot spot will become a backyard brunch by summer. 

Of course, I’m not saying all will be doom and gloom. In fact, I really hope that many service-oriented businesses can survive and thrive post-pandemic in my favorite city that I called home for most of my life until recently. Nor am I suggesting that all Manhattan renters (or renters in other expensive and densely populated parts of NYC, including sections of Brooklyn and Queens) will buy a house in the ‘burbs next month.

But some will, and the number of such buyers will be greater than it otherwise would have been sans COVID-19.

By the way, moving to the NYC suburbs is not the only feasible option. Some NYC renters may look to buy a starter home or a luxury condo in a less crowded market right across the Hudson River, like Downtown Jersey City or along the Weehawken waterfront. Yet others might give up on NYC Metro prices all together and move to a cheaper metro area, especially if their company allows them to work remotely.

Millennials, COVID-19, and Housing Trends:

By some estimates, the Millennial generation (which generally includes people born between the early 80s and mid 90s) will soon exceed the Baby Boomer generation in terms of headcount.  That alone is a huge demographic driver of the natural movement from young people living in small city apartments to settling down, buying their first home, and starting a family.  

But I think the pandemic will have a two-fold impact on the mindset of a significant portion of the “Millennial” population, especially college-educated professionals in their late 20s and 30s that would like to remain in the NYC Metro area.

First, COVID-19 may accelerate the timetable for some Millennials who were thinking about eventually buying a home and moving out of the city to do so sooner. “Maybe in a few years” might become “Hey, let’s see what we can afford now.”

Second, the pandemic might lead other Millennials to shift their mindsets from “I’m never leaving the city – I’m perfectly happy in my apartment, and I love my neighborhood and my commute” to “I’m sick and tired of my tiny, overpriced apartment and my loud neighbors, and I really need a bigger place with a home office and a private yard.”

Conclusion:

In summary, I believe that the COVID-19 pandemic has created a unique set of circumstances that will cause a palpable shift in how many New Yorkers live, work, socialize, exercise, play, and relax. This shift will increase demand for homes outside of New York City, led by city renters looking to buy their first homes. In turn, the same trend will push prices down for condo and COOP units in the city, especially in Manhattan, where average apartment prices exceeded $1,000,000 pre-pandemic.

I expect a lot of New York City buyers to come out of the woodworks in droves once social-distancing guidelines have been loosened or lifted and open houses are allowed to resume. Except, instead of checking out that condo or co-op for sale around the corner, I think more people will be hopping on the PATH, LIRR, or MetroNorth to see “what’s on the other side.”