The Northeast real estate market to start off 2020 is being marked with tight inventory, high prices, and the fear of rent control measures.
Massachusetts Real Estate Market
Despite COVID-19’s impact, the Boston housing market is set to resume being among those strongest in the nation. Ranking as the “second-most recovered” of the Top 50 US Metros as of mid-June, according to the Boston Globe, the metro has benefitted from continued development in the Tech sector, as well as a strong COVID-19 response. Additionally, Realtor.com reports that the median sales price is up ~10% from a year ago despite the pandemic. Elsewhere, the Boston Herald reports sales prices up around 12% in April 2020 from April 2019, despite the state being at the height of the crisis at that time. This likely could have been precipitated by an even tighter demand that same month as inventory dropped. One point of note; as the college-heavy city awaits further information about the Fall semester as the coronavirus continues its spread, inventory otherwise leased by college students may become available, easing the financial burden on those interested in living in the city.
Proximity to hard-hit New York has been a blessing and a curse for Connecticut. Primary owners face the quagmire that is the state’s fiscal nightmare; rents have long faced a rent-burden, with more than half the state’s population paying more than 30% of their income towards rent, and over a quarter paying over 50% of their income towards rent, per The CT Mirror. Home to many individuals now staring down the barrel of corona-related unemployment, it is unlikely that relief will be coming before the state’s moratorium on evictions expires. For owners with delinquent tenants, it may be hard to replace these losses as the unemployment rate continues to spike. However, for those who can still claim employment, the lockdown orders in New York have driven many out of the city. Lawrence Young, the chief economist for the National Association of Realtors, predicts a “V-shaped” recovery. Demand has spiked- the United States Postal Service has reported than over 10K people registered a change of address from NY to CT since mid-March. In June, as the state began to reopen, the average sales price of an SFR in Fairfield County increased 17%, per the Ridgefield Press from the same period the year before. As the state begins its recovery, it is likely that these numbers will continue their upward trend, particularly in commuter-friendly areas.
New York Market
New York is decidedly a tale of two regions in the coronavirus era: one that tells of Manhattan and the boroughs, and one that tells of the suburbs.
In the boroughs, two decades of revival appear to be coming to an end. In mid-March, NYC became the virus epicenter, grinding all real estate, including construction, ground to a halt. In early June, the City began entering the phased reopening of the state, but the damage continues. Landlords are among the worst-hit groups; 2/3 of residents of the city rent, and with ~1M unemployed (New York Times), landlords are stymied with their own bills. Millions of delinquent tax dollars at a time when the city is staring down a shortfall to cope with corona-related costs. This could get worse as the Tenant Safe Harbor Act has been put in place to prevent evictions of jobless tenants, but without the corresponding mortgage assistance of landlords at a time when large sectors of the economy (tourism, indoor dining, theater, hospitality, etc.) have no estimate of a return to “normal.” A quarter of the City’s renters have not paid rent since March. Compounding the problem, rents are plummeting as people break leases and leave the city for cheaper, less dense options as an acceptable of “work-from-home” culture grows (Bloomberg). The impact of the virus also comes on the heels of the last two years of capped mortgage tax deductions put forth by the Trump Administration. For current investors and would-be investors, it could appear to be a long slog if the economic impact of the virus continues to fester.
By contrast, any delay in the market caused by the shutdown has resulted in a huge spike in business with the warm weather. Throughout the Hudson Valley, inquiries and offers on homes have quadrupled in some places. Demand has increased for homes with outdoor space, particularly for entertaining in a socially-distanced manner, rooms for gyms and offices, and larger kitchens—all areas that saw shutdown or were lacking during the city’s lockdown, and practically unfathomable in-home amenities in NYC. The demand is so great that even the luxury market is seeing leaps; in Westchester, contracts for homes priced at over $2M jumped ~40% in May 2020 from May 2019. On Long Island, residential closings are up ~34% (Riverhead News Review). Additionally, prices across Nassau and Suffolk are skyrocketing as demand increases with the threat of another potential lockdown looming. Inventory remains tight, so now might be the time for investors to sell, or landlords to raise prices as the urban flight continues.
New Jersey Real Estate
New Jersey, like it’s neighbor, was severely impacted by COVID-19. With the demand from people moving out of the city to commutable suburbs, the state is seeing a boom in housing demand. About ~70% of would-be buyers in April 2020, at the height of the state’s battle with the disease, were looking for “suburban homes” (Wall Street Journal). With the increased demand, it may be hard to find a home to afford; SFR prices are on pace to see the largest price increases since 2005, prior to the so-called “Great Recession” (Bloomberg). Prices are up nearly ~9.5% from the same period in 2019 (NJ 105.1). In the counties immediately surrounding NYC, Bergen, Essex, Union, and Middlesex, Otteau Valuation Group sees the trend continuing, and predicts the largest annual price increase for SFRs in a whopping 16 years. For investors who have retained inventory in the area over the last several years, 6-12 months may be the sweet spot in terms of timing, if looking to sell. For those who have SFR for rent, rent increases are warranted, as people are desperate to increase their space after being indoors for the better part of four months. This is particularly true in that SFRs can be as much as quadruple the size of a two-bedroom apartment in Manhattan for roughly the same price. In either scenario, investors in NJ will stand to profit big time in the coming months and years.
Rhode Island Local Market
Despite facing similar issues to its northeastern neighbors, Rhode Island’s median multifamily reached new highs in May 2020- a 14% increase from May 2020. With a strong investor-driven market in the pre-COVID era, sales plummeted during the pandemic, which is to be expected as investors seek to retain their property. Again, legislation in Providence, in particular, to prohibit the eviction of delinquent tenants may continue to be an issue, but proximity to Boston and a studier economy should leave investors more willing to explore opportunities in Rhode Island, as opposed to elsewhere.
New Hampshire Real Estate
Inventory continues to remain problematic in New Hampshire. As of May 2020, inventory is down 40% from the prior year, with most would-be sellers citing the pandemic as a deterring factor (Coldwell Banker). Sellers are resistant to the idea of strangers in their homes during this time, as well as the uncertainty of what the market will bring, resulting in “historic” lows. As a consequence, available inventory is lasting for roughly only ~50 days on the market. Something to keep an eye on in NH, as well: a potential piece of legislation that would keep delinquent tenants and homeowners out of eviction after the state’s emergency order is lifted. It would prohibit tenants in 5+ units from being evicted if they have fallen behind on payments during the state of emergency, unless the tenant fails to comply with a six-month payment plan, excluding late fees. This would further burden already-strapped landlords, many of whom are struggling to make ends meet and working with out-of-work tenants, while basic utilities increase, such as water and electricity, while people have stayed home.
Maine Real Estate Market
Maine’s affordable housing crisis has only been exacerbated post-corona as unemployment sweeps through the state. Owners can begin eviction procedures 60 days after the state’s emergency order expires, and it is set to do beginning in early August, barring any additional legislation or executive orders. In a state facing a massive inventory crunch pre-virus, it remains to be seen what additional measures potential investors can take other than to avoid Maine for the time being. Opportunities will remain slim, and as unemployment continues to grow, it’s unclear how many of the ~42K renters in the state will be able to make payments (Maine Beacon). Even if opportunities arise from foreclosures as a long-term consequence, it’s unclear how things will shake out as of yet.
Pennsylvania Local Market
Pennsylvania’s real estate market has returned full-bore despite much of the state’s real estate professions being shut down between April and the end of May. According to the West-Penn Multi-List, home sales are up 10% in May 2020 over the same month last year; prices are up 13% from the same time period. With market conditions generally being more affordable in Allegheny and other western counties as opposed to their eastern counterparts, buyers might be ready to take the leap, aided by low-interest rates and an increase in savings rate from 8% in February to 33% in April, per PNC. Philadelphia has not lost its edge, either. In April, inventory reached a 10 year low, despite massive unemployment numbers as the city issued stay-at-home-orders. Redeployment of funds (say, from a canceled wedding into a down-payment); New Yorkers leaving the ravaged five boroughs; and taking advantage of local tax abatement ordinances are among the dozens of reasons that CBS lists as to why Philly has picked up where it left off in late March—with a red-hot market.