In mid-2015, New York City made headlines for hosting two condominium developments offering, in addition to a variety of ultra-luxurious amenities, the extremely rare bonus feature of on-site parking. The price tag attached to what DNAinfo referred to at the time as the new “ultimate status symbol” was a cool $1 million. One building offered three of these spaces as add-ons in conjunction with a penthouse purchase, while the other had a handful available on a first-come, first-served basis. It was just one more piece of evidence to the collective population that you really cannot go wrong with New York City real estate.
Except, oddly enough, the way the headlines read these days, it appears that you can. Every news outlet that covers housing is carrying headlines about New York City and its alleged housing bubble. In fact, I’ve seen search engines pushing old content about New York and a housing bubble to the top of the results. Nearly regardless of the actual content of the research cited in these articles, much of which is sound, the headlines scream, “Watch Out for These 20 Bubble Housing Markets,” “U.S. Housing Bubble Crash Begins in New York” and “NYC Market Saturated.” These headlines started in 2016, and they’ve done nothing but build momentum since the Big Apple market has, indeed, begun to level off.
Recently, Warburg Realty published a report containing observations, analysis and data about the New York City housing market. Frederick Peters, the company’s CEO, observed boldly in the opening sentence of that report, “The third quarter demonstrated beyond any doubt that we have moved into a buyer’s market. As the media began to focus on the increase in unsold inventory not just in the new development market, but also in resales, buyers became emboldened. Offers 20% and 25% below asking prices began to flow in, a phenomenon last seen in 2009.”
Peters went on to note that, as is usually the case in real estate, “different neighborhoods and price segments have experienced the change to different degrees and in different ways.” However, the really important takeaway from this report is not whether or not New York City is entering a transitional phase in its latest real estate cycle (it is), but what Peters credited for the rising momentum of the trend: the media.
I’ve written before about how our interconnected, digital world is changing real estate investing and the way our housing markets and local economies interact and evolve. This report from Warburg is certainly not the first or the 500th time someone has credited (or blamed) the media for something. However, the way media coverage is affecting housing market movements cannot be denied, and furthermore, responsible real estate investors cannot necessarily afford to overlook the vast, overarching impact of public perception on real estate investment vehicles.
Historically, real estate investors considered real estate and real-estate-related assets somewhat insulated from the swings of consumer sentiment. Sure, the stock market could swing from the skies to the depths and back again because Wall Street investors were “nervous” about something that hadn’t even happened yet, but real estate was different. It was “real,” and that meant it did not fluctuate based on fear factors and consumer confidence to the same degree that other investment vehicles might. After all, you can’t sell your house every time you get stressed about what the president and Congress are up to. It just doesn’t make sense.
Now, however, our real estate market is different. According to the National Association of Realtors, the vast majority of homeowners (84% in 2017) considered homeownership to be a sound investment. Reasons for this included general consensus that money spent on housing built the homeowner’s wealth and that owning a home at the point of retirement was extremely important. Most also stated they believed homeownership to be “a good investment opportunity to build long-term wealth and increase net worth.”
These are all good ways to look at homeownership and to look at real estate investing, but when homeowners begin to view their family’s household shelter as an investment, it changes everything because it vastly expands the “investing” population and changes how those homeowners make housing decisions. For example, they may choose to sell sooner, list lower or higher, or hold longer for reasons outside of household preference. Furthermore, when Wall Street money, by way of institutional investment firms, begins to view single-family properties as viable investments — and they undeniably do at this point — the “rules” for real estate are rewritten.
Suddenly, there are many, many more players in this game, and not all are immune to the tempting and dangerous allure, the fear factor of consumer sentiment, confidence indices and, of course, high-speed asset liquidation when things look stormy. That, my friends, changes the face of our industry.
Today’s housing market is still, in my opinion, far more stable than, say, the stock market for many investors. Thanks to technology, digital connections and more information than most of us know what to do with on nearly every topic and perspective imaginable, real estate is no longer immune to the sentimental swings that the industry’s reputation for relative illiquidity initially bought it. If you are a real estate investor whose livelihood relies on market savvy, on accurate forecasting, on being ahead of the crowd, then you can no longer afford to look away from the headlines. If there are enough of them, they will very well play a role in shaping your returns.