“Remember June 15, remember today. Because it is the day New York rose again.”
That was New York governor Andrew Cuomo last week welcoming the lifting of nearly all remaining Covid-related restrictions in the state. The ceremony, noted the FT, had the feel of a victory declaration after a long war.
The City is indeed battle scarred but the wounds are healing quickly. The state has now vaccinated 70% of its adult population. Traffic is close to pre-pandemic levels. Restaurants are crowded, flights are packed – even Yankee Stadium is back at full capacity.
Cities were predicted to be a major casualty of the pandemic. Over the past year, from Europe to North America and beyond, the dense shared endeavour that urban life represents appeared to be an almost critical weakness.This New York Post piece declaring New York City “dead forever” by comedy club co-owner James Altucher was perhaps the high watermark of that belief.
Yet fears that the pandemic would be the death knell for cities are looking increasingly wide of the mark. Jerry Seinfeld (who else?) did a better job of dismantling Altucher’s argument than I could. His response also revealed an underlying truth about the wealthy that is increasingly relevant to prime residential markets globally:
“You moved to Miami. Yes, I also have a place out on Long Island,” he said. “But I will never abandon New York City. Ever.”
The wealthy, like Seinfeld, are mobile. They have second homes or the ability to rent elsewhere for several months. Many of them chose to leave Manhattan when much of what makes the city great was shut, but for the most part those moves were temporary.
In fact, of the 3.57 million people who moved out of New York City for at least eight weeks last year, just 70,000 have remained out of the city, according to Unacast, a research firm that analyses mobile phone data. In Manhattan, the epicentre of New York’s luxury housing market, there was a 138% spike in temporary changes of address during the year to February, postal service data obtained by Bloomberg reveals.
These temporary moves, often to nearby locations, gave rise to what Miller Samuel’s Jonathan Miller coined “coprimary living”, as Manhattanites purchased homes in Connecticut, the Hudson Valley and the Hamptons with the intention of splitting their time between two locations.
“For the affluent, instead of trading up in the city or getting a second seasonal home, it is an equal home,” he told CNN. “This is changing the way the people think about a primary residence and we are seeing people lengthen the tether that connects work and home.”
These coprimary purchasers were a small contributor to the suburban surge in house prices. A much bigger factor was renters who, emboldened by the lowest mortgage rates in history, did indeed purchase homes on a significant scale in peripheral locations and tertiary cities. But that too looks to be turning.
Manhattan renters signed almost 10,000 new leases during May, four times the number a year earlier. Availability, though about a third above the long-term average, has plummeted 27% since January.
Rental values look to have reached the bottom and, spurred by incentives, renters are now locking in longer leases. But this is only partly about value – workers can also hear corporate America calling them back.
On Monday June 14th, Goldman Sachs staff streamed into their Manhattan HQ, following orders to return from chief executive David Solomon. At a conference call on the same day Morgan Stanley chief executive James Gorman told staff, “if you can go into a restaurant in New York City, you can come into the office.”
There’s still some way to go – as of two weeks ago, an average of 31% of office workers had returned to the workspaces they occupied before the pandemic – but it’s clear what once looked like a great reset is going to be something much more tame.
A rapid recovery
These are just a few reasons why, following three years of softening prices, the prime residential market is on the cusp of a rapid recovery. Prices are down 5.8% in the twelve months to April and leading indicators suggest those declines will begin to narrow.
Bidding wars are increasingly common and city-wide inventory, though still nominally above the long run average, has declined 22.5% since late summer, according to Scott Durkin, president and chief operating officer of Douglas Elliman.
Robust sales activity will eat into that further. First quarter sales were just 4.2% shy of the long-run average, according to Durkin. The number of newly signed contracts for co-ops, condos and family homes in Manhattan has expanded significantly compared to last year for six straight months, according to data from Miller Samuel.
New York’s wealthy have had a good year, too. Answers from some 400 wealth advisors to The Wealth Report 2021 Attitudes Survey suggest US wealth advisors were amongst the most optimistic globally, with 58% citing an increase in their clients’ wealth.
Our current forecast has prime property prices stabilising to end the year flat, but I’m betting on a return to growth as that New Yorkers that took temporary leave of their city come back for good. Or as Seinfeld puts it: “[New York City] will sure as hell be back. Because all of the real, tough New Yorkers…loved it and understood it, stayed and rebuilt it.”