As we head into fall, I am often asked about where the real estate market is heading. This year, numerous competing issues are making it difficult for me to predict exactly what will unfold. The spotty movements of this past summer raise some very big questions that we need to have answered before knowing how everything will shake out.
In general, since the pandemic, people generally value their downtime much more. Summer is a time of respite for many, eager to take a break from the stress and intensity of work—and news of all the executive orders, proposed legislation, global politics, and world wars.
Post-pandemic demand for real estate was fueled by one of the biggest run-ups in history, resulting in the typical selling times for property no longer existing and being seasonally defined. However, inflation and mortgage rate hikes have forced people to wait on the sidelines.
I think many sellers are hoping that the president’s consideration of eliminating the capital gains tax may provide a significant opportunity for those who have been sitting on properties for decades to reap a solid return on their investment.
As such, it would allow them to cultivate true wealth creation by saving on considerably high capital gains, which in turn becomes the catalyst for people to be able to buy and sell with a higher profit. As with all political maneuvers, it remains to be seen how this will ultimately play out.
CNBC breaks it down this way:
- Under current law, property sales are subject to capital gains taxes once profits exceed $250,000 for single filers or $500,000 for married couples filing jointly.
- Since 1997, those thresholds have never been indexed for inflation, and more home sales are subject to capital gains as property values rise.
“Homeowners who have lived in a home as their primary residence for at least 24 months in the five years before the sale receive an exemption on the first $250,000 of gains for individuals and $500,000 for married couples filing jointly,” Newsweek reports.
The National Association of REALTORS’ research has found that nearly 29 million homeowners, roughly one-third of the market, already face potential capital gains taxes if they sell, “and that number is expected to climb sharply over the next decade.”
“These tax burdens create a ‘lock-in effect,’ especially for seniors, discouraging people from selling and keeping much-needed homes off the market,” Newsweek summarizes.
This proposal aside, at the end of the day, we are dealing with a much more fundamental issue in NYC: the mayoral race. Until it is decided who is elected, we won’t know what is going to happen here, especially whether the potential new legislature could lean towards socialism or capitalism. Ultimately, who is in power will determine how the city values real estate as an asset.
If the Democratic nominee, Zohran Mamdani, wins the election, potential real estate impacts involve rent stabilization and affordability, such as a rent freeze for rent-stabilized apartments. This could potentially disincentivize property owners from investing in maintenance and improvements, impacting the quality of NYC housing stock.
Mamdani also claims to want to invest in 200,000 publicly subsidized affordable housing units over a 10-year period. Some experts suggest this large-scale construction effort would be wrought with challenges.
More importantly, according to CNN, Mamdani’s real estate proposals are sending jitters through the NYC luxury real estate market. His proposed “millionaire tax” would prompt luxury home buyers and owners to consider moving out of state, which could significantly impact this market segment. Additionally, developers and investors would also face reduced incentives.
Fox Business concurs, citing a real estate expert who reports, “Consumers are taking a step back to wait and see how this plays out, because if a socialist is elected mayor of New York City, I don’t think it’s going to be good for the long-term health of our local economy and the real estate industry.”
While Andrew Cuomo and current mayor Eric Adams are still duking it out as NYC’s independent frontrunners, a win for Cuomo would ostensibly mean prioritizing and streamlining development processes, potentially leading to faster approvals and fewer regulatory roadblocks. He is also a proponent of zoning changes, which can lead to gentrification in some areas. As such, Politico suggests the well-heeled industry is rallying around his bid for mayor.
And lastly, if Adams secures a win, he would likely continue to keep housing supply a central focus, particularly with his “City of Yes” initiative, which aims to build up to 80,000 new homes in 15 years, and his “Manhattan Plan” to add 100,000 new homes in that borough over the next decade. Like Cuomo, his plans would include zoning changes, massive conversions, and encouraging development around transit hubs. Adams also supports allowing accessory dwelling units (ADUs) and eliminating parking mandates for new construction to facilitate the creation of housing. According to a NY1 segment this summer, “Mayor Eric Adams may be the new favorite candidate of the city’s business and real estate community.”
If Adams is successful in increasing housing supply and affordability, he could possibly slow the rapid real estate appreciation NYC has seen lately, especially in the luxury market, according to NY1. “Some wealthy New Yorkers have expressed concerns about potential tax increases or changes in policy under a different administration, potentially accelerating their plans to move outside of NYC.”
Lastly, the Republican candidate, Curtis Sliwa, would likely modify or repeal Adams’ “City of Yes” initiative and revert zoning to its previous state. This could mean a slowdown or halt to development projects already in motion and deter others from starting at all.
Sliwa does suggest ending unfair property tax increases on working-class owners and forcing large corporate landlords to pay more. He might also repeal the 2019 laws targeted at rent-stabilized landlords.
According to the New York Post, in essence, “a Sliwa victory could lead to a shift in real estate priorities, with a stronger emphasis on local zoning control, fair taxation for homeowners and renters, and the revitalization of existing housing stock, possibly impacting large-scale development and corporate real estate interests.”
As we watch all this play out, eager buyers and sellers are sitting on the sidelines, ready to cast their lines once the direction of potential changes and local initiatives becomes clear. Only time will tell, but one thing is already clear: The real estate market in NYC is always a key focal point, not just locally, but nationally and globally. All eyes will be on NYC this fall, keen on seeing what transpires and how real estate experts guide clients to maximize their value.
