Bullish Market Factors for 2023
1. Chances for a soft landing for the economy are still fairly good. Goldman Sachs, at the time of this printing, projects only a 35% chance the US will enter a recession in 2023. Goldman sees real personal income bouncing back in 2023 and increasing at the rate of 3% as inflation wanes.
2. The new development pipeline coming to market in 2023 remains modest. This will play a role in keeping supply at reasonable levels and upward pressure on pricing – especially for almost-new condominium resales in new development projects. For the right property, buyers are still willing to pay a premium, and this will only get more intense as the gap of inventory in the new development pipeline reveals itself.
3. Developer financing for new condominium development projects has all but dried up. With uncertainty in the macro environment comes much more scrutiny on new condominium projects. Expect less inventory in the pipeline in the next 5 years. This is bullish for resales.
4. Rental prices remain high and have increased again year over year, anywhere from 10% to over 20%, depending on the segment of the market. High rents will continue to compel buyers to consider purchasing. We do not see an end in sight in 2023 to the high rental valuations.
5. The average price per square foot in Manhattan is up 5.2% year to date. For perspective, Gold (spot) has declined 2.6% YTD, the S&P 500 is down 15.5% YTD Apple is down 18.3% YTD, and BTC is down 66.1% YTD. Cash, Bonds, Stocks, and Crypto investors are all sitting on the sidelines, and that cash has to go somewhere. Perhaps it will be in NYC real estate.
6. The return of the overseas buyer. What has been missing from the post-COVID real estate recovery has been any meaningful impact from non-US resident buyers entering the market. While these buyers were never a large percentage of the market, many of their deals were in the super-luxury category and helped drive higher $psf averages and record sales. There will be more competition for inventory as these buyers return. Take a walk around Soho or 5th Avenue, and you will see for yourself that many overseas buyers are already here visiting and enjoying all NYC has to offer. Expect this trend to continue as foreign national buyers seek the stability of NYC real estate as an investment.
7. What we have been seeing and will likely continue to see in 2023 are high-net-worth individuals and family offices buying high-quality collector real estate to preserve generational wealth. Prime NYC real estate is considered to be a safe haven.
8. The Fed is slowing the intensity of rate hikes. This brings us closer to the “Fed Pivot.”
9. Inflation turning the corner will bolster the financial markets, reel in interest rates further, and increase the affordability of real estate.
10. As of Q4 2022, 31% of all sales in Manhattan are trading at or over the asking price. This is a great example of how reasonable inventory levels can keep the market tight even in a slower market.
Bonus: NYC didn’t have the same exponential growth from 2020 to 2022 that many other US markets did (think Florida, Utah, Tennessee and Texas). These states have seen a dramatic reversal as they revert back to mean. NYC is much less likely to experience this reset.