2020 energy feels a lot like listening to the song “American Pie.”
But February made me shiver
With every paper I’d deliver
Bad news on the doorstep
I couldn’t take one more step.
Years after writing ‘American Pie,’ Don McLean called the song an indescribable photograph of America that he tried to capture in words and music. He said the lyrics were about the state of society at the time (1972).
These days, “the paper” “gets delivered” to our phones, and the news comes almost non-stop. But just like back then, the news in 2020 has been somber in such a way that poets will try to capture these moments in lyrics and prose the way McLean did years before.
Even if there was some upbeat strumming along the way, the story told in ‘American Pie’ didn’t have a fairytale ending.
I met a girl who sang the blues
And I asked her for some happy news
But she just smiled and turned away
2020 is almost over, but the story of this year is not. This isn’t ‘American Pie,’ it’s ‘The Apple Peeled,’ so on this page, we get to say when it’s over. We’ll be telling the story of New York City through the lens of real estate for months and years after happy news starts trickling in. In fact, there’s a lot to be optimistic about already, specifically with regard to the state of the real estate market.
Here are a few reasons to be optimistic about the future of New York City real estate:
HOPE AND CLARITY
Uncertainty has a way of paralyzing entire real estate markets, and for quite a while we’ve been living inside a cloud of uncertainty. For starters, there’s a pandemic ripping through some parts of our country and in many other countries all around the globe. Nine months into this and we’re setting records for daily cases.
But Monday we got news from Pfizer that one of their vaccines has been testing 90% effective. COVID-19 has already had a longer lasting impact on city real estate than both 9/11 and the 2008 financial crisis. A safe, effective vaccine is our ticket back to normal, so this potential breakthrough is stunningly positive!
Separately, many of our buyer clients have laid low in the past during an election year because they weren’t exactly sure which candidate’s policies would ultimately set the path for our future. For what seems like forever, we’ve been glued to an extremely contentious race for the presidency. Certainly, it didn’t do anything to stir up more activity in Manhattan.
But finally this week, we learned that Joe Biden would become the 46th President of the United States. Regardless of your politics, having an answer to that question eliminates another variable. We’re reasonably aware of which policies are likely to change significantly. Clarity.
THE STOCK MARKET
On the heels of every major network calling a victory for Biden and Pfizer’s vaccine announcement, the stock market surged, with the Dow gaining nearly 1700 points on Monday, hitting an all-time high.
FORECASTS
Goldman Sachs – In early October, Goldman Sachs told its investors that a Democratic sweep in which they had control of the Presidency, the House, and the Senate would result in the economy recover more quickly than it would under Republican leadership.
With two runoffs for two Senate seats in Georgia, control of the Senate is still in the balance. Goldman Sachs points out that Biden would increase taxes for corporations, but his administration has promised an enormous amount of government spending. That spending in combination with low interest rates could revive a struggling economy, their analysts said.
More recently, Goldman Sachs said the long-term effects to the economy from the coronavirus would be limited. They anticipated a “V-shaped” recovery with a bounce back in 2021. The forecasts do assume that an effective Coronavirus vaccine will be introduced in the coming months or sooner.
Moody’s – In late September economists at Moody’s Analytics similarly predicted that the U.S. economy would grow at a 4.2% average pace during Biden’s first term, compared with a likely rate of between 3.1% – 3.5% if Donald Trump remained president or the Republicans maintained control of the Senate.
MORTGAGE RATES
Last week Freddie Mac said rates hit record lows for the 12th time this year. The 30-year fixed rate mortgage averaged 2.78%, the lowest rate in their survey’s history which dates back to 1971. Last November, the same rate was 3.7%.
For further perspective, a $1 Million loan at 3.7%, on a 30-year fixed rate mortgage would have a principal and interest payment of $4,603. A $1 Million loan at 2.78%, on a 30-year fixed rate mortgage would have a principal and interest payment of $4,098, a difference of $505 per month in favor of the consumer.
Separately last week, the Fed Chairman Jerome Powell announced the Fed would keep its benchmark interest rate close to zero and would continue to purchase investments that will ensure rates stay down for the foreseeable future. The fed projected that rates could stay this low until 2024.
PENT-UP DEMAND
Last month in researching an article for the Apple Peeled, we discovered that in each of the last 3 presidential election cycles, there was a pronounced increase in Manhattan real estate transactions in Q2, Q3, and Q4 in the year after the election. We were surprised though to find that transaction numbers weren’t suppressed in the quarters leading up to those 3 elections. For the most part, total transactions were typical and average in those quarters.
So, if there’s a safe vaccine, we think we’ll see the same type of post-election year bump in 2021, but this time around one of the variables was changed. Because of COVID, transactions were miniscule in Q2, and Q3, and won’t look amazing in Q4. This time around, there will be pent-up demand. It will be very interesting to see what happens if that all comes together at the same time.
OPTOMISM AND OPPORTUNITY
Most of us can barely remember what life was like pre-COVID. In spite of that tired admission, there was a whole lot of optimism written into the last 14 paragraphs. It feels kind of nice delivering news that’s half full and completely optimistic.
Even if it’s taking too long and even if there are a few more hurdles to climb, it feels like we’re getting closer to normal. New York is going to be SO MUCH FUN!
OH, BY THE WAY
The price per square foot to buy an apartment in Manhattan is significantly lower today than it was pre-pandemic. Seller’s are becoming more realistic. Sponsors at newly developed condominiums are offering concessions that completely cover closing costs. Mortgage rates just hit record lows again. If you’ve ever considered buying real estate in New York City, or buying more real estate in New York City, you have all the leverage right now. Timing is everything.