As a de facto cultural capital of the East Coast, many journalists, talking heads, and aspiring futurists like myself have been keeping a close eye on how New York City is faring following its early role as a major COVID-19 hotspot. With its dense and diverse population, those of us looking in from the outside can use it as a data mine to inform our predictions for how other major American cities will fare in the short- and long-term futures.
According to the articles published in the Wall Street Journal’s “Mansion” section dated Friday, August 21st 2020, the pandemic “slams into the luxury market and creates one of the toughest business environments in decades.” The article then goes on to describe the appalling price cuts (some as high as 46%) experienced by homeowners attempting to sell their luxury townhomes and condos here in the fifth month of the COVID-19 panic. Author Katherine Clark presses home the point that these market constrictions are coming “at a rate that surpasses both the 2008 financial crisis and the period immediately following the 9/11 terrorist attacks.”
With statistics like a 56% drop in Manhattan home sales from 23 March and 16 August 2020, it’s not too risky to say that all models as we know them are broken. Even though we’ve been living in an age of pandemics as early as when HIV/AIDS became prevalent in the 80’s, this is the first time in the memory of anyone alive right now that we have faced a highly contagious respiratory virus that has the potential to infect and kill anyone on the planet, regardless of their economic class, religion, sexual orientation, etc. Predictive models that we’ve been relying on for decades were summarily incinerated the moment COVID-19 became an unchecked pandemic in America.
Naturally, humans are trying to fill the vacuum left behind by our newfound inability to predict the future as reliably as we’d like. Watching a large city like NYC is a great starting point, so it begs the question: when will Raleigh, NC follow New York City’s lead? When will we begin to see substantial drops in home buying? When will we begin to feel the effects of de-urbanization as residents flee from the high-risk city centre to a safer, more spaced out suburban neighborhood?
We Already Have
While luxury properties are traditionally not something worth tracking since NYC, especially Manhattan, is so expensive compared to what the average person will encounter, in this case they’re worth watching as an indicator of what’s to come. Something I’ve learned from having a family member in the upper echelons of a Fortune 100 company is that the more money you have, the more access to inside information you are afforded. Those at the top of the food chain were able to move sooner than the rest of us and it’s been trickling down ever since. The uber-wealthy in Manhattan have been trying to sell their downtown properties with little success, so it’s reasonable to expect those in areas with less astronomical prices to feel the same defeats.
Based on information in the Triangle Multiple Listing Service (TMLS), the service which records all real estate transactions in Wake County and surrounding areas, Downtown Raleigh homeowners have already missed the mark. In the 7 months prior to 12 March 2020 (a date often cited as the start of NC’s lockdowns,) the most expensive property sold in MLS area 001, which contains most of downtown Raleigh, closed at $770,000. In the 5 months since 12 March 2020, the most expensive property sold in the same MLS area sold for $360,000. And this isn’t for lack of trying; the total number of properties sold in this pre-COVID period was 521. The total number sold in this post-COVID period to date was 1,469. Allow me to reiterate: in 5 months, the total number of properties closed tripled while the median sale price was cut in half ($431,250 down to $278,500).
People are bolting. Homeowners are cutting their losses and getting out of these congested areas while they still can. The average number of days on the market before closing is just about the same - 8 days on average pre-COVID and 7 days on average post - but the range of price you can demand for what was previously a prime piece of downtown Raleigh real estate has significantly lowered.
What Does It All Mean?
In short, this means that if you’ve been reading along with me since the start, you’re not surprised by this. Just as I’ve gone back and updated every article each time a rich person with teams of analysts speaks into a microphone and confirms something I wrote about (on average) 6-8 weeks sooner, I’m updating all of you with this empirical data from my own little team of TMS algorithm analysts confirming that yes, COVID-19 has changed the real estate world forever.
As you can see in the data above, homes aren’t sitting on the market for very long. As prices fall, we can expect to see this continue. One of the very first topics I wrote about was the power of the local investor to poise themselves to be prepared and ready to act when the time was right to start buying up local property, an activity which would subsequently stimulate the local market as homeowners are able to move to their next property. As downtown prices are falling, local investors are becoming more and more hungry to snatch up each property as it comes available in anticipation for the inevitable economic recovery following COVID-19, supporting a low number of days on market before going under contract.
On 15 August, Zillow CEO Rich Barton came out and said the same thing your humble real estate professional has been saying since March: the coronavirus pandemic has initiated a permanent paradigm shift in the way Americans live and work. The real estate industry has responded to the pandemic just like every other industry, and, like others, its response is permanent. From air shafts in architectural designs mitigating spread of disease to suburban and ex-urban developments becoming more popular, every pandemic sends people away from cities. Not to say that this makes country life as accessible or enviable for all who would want to leave cities - perhaps it's just moving to an area with a lower cost of living & higher quality of life (closer to a favorite activity or family) - catastrophes always accelerate technological advances. Telecommuting is here to stay.
Don't fault major corporations for their market-sensitive positions in saying "We'll get back to normal real soon!" I watched my own company say to my face "Don't worry, the offices will open to the public soon enough, just be patient" while simultaneously sacking the receptionist. Corporations can be forgiven just like politicians for saying what people want to hear in order to avoid panic. But the savvy buyer is now following the wealthy buyer. A client living in the Upper West Side of Manhattan reported this week that even the most dilapidated barn in the suburban/rural areas of Northern Connecticut are being bought up like hot cakes while downtown brownstones are sitting vacant on the market for indefinite periods of time as buyers continue to balk at the idea of living in a congested area.
For those who are unable to buy a home until they sell their current home, which sits in the city centre, prices have dropped substantially to 1/3 of asking prices on penthouses in downtown areas. This lack of liquidity will increase the rental market in desirable mixed-use, pedestrian-friendly areas like North Raleigh. Perhaps even all those storage units built over the last decade might finally be filled by people moving in rather than holding on. While downtown apartments are, understandably, difficult to sell, a 40% drop in listings for suburban homes is starting to show the efficacy of a family having a family home to call their own. It is now the base of everything.
Jessica Mohr is a licensed real estate broker working in her hometown of Raleigh, North Carolina.