Wow, what a year 2023 has been! The shifting market, rising interest rates, and inventory remaining a critical problem created a perfect storm of obstacles. In addition, the epic markets of recent past years loomed large as we attempted to outperform those record-breakers.
As we reflect on 2023 – the hits and the misses – most of all, I hope we carry what we have learned this year into 2024. Based on the knowledge I gleaned from last year, I have some thoughts, predictions, and maybe even some tips to provide.
New Year’s resolutions aside, early 2024 will be an opportunistic time to purchase market share in real estate.
However, I suspect it will not be an easy market; 2024 will bring more push and pull. To wit: Real estate professionals will not only have to work harder, but smarter to make good deals happen. This level of dealmaking will involve a different type of negotiation to bridge the gap between buyer and seller. Additionally, this nuanced way of negotiating will take more time, patience, and strategy, not to mention more creative ways to finance, to attain it. I will take all of what I have learned from the past year’s real estate challenges and wins and bring this wisdom into 2024’s market.
Rates and tight inventory can create a false narrative about demand. Since there is not a lot of product suitable for some specific needs or valued at the correct price, many trades are created based on this lack of inventory, not necessarily because of greed. Another market condition is that product is sitting on the market 90 days longer than usual, but that does not indicate that you will not obtain your price.
This does not mean one should wait to get into the market. Some believe that if they wait, they will get a better opportunity to buy. However, I feel that there is no time like the present to take the opportunity of market share! It is my inherent belief – and has been reiterated in many of my reports over the years – that buying when few others are not creates the most opportunity for negotiability.
Right now, one can purchase a property with a $5.5M ask for $4.7M. That is noteworthy and very significant. This is indeed opportunity knocking at your door!
Yes, rates are still high – they certainly are not in the sweet spot they once were. However, you can always refinance a rate, but you cannot refinance the buy-in price.
So, while I fully recognize that, fiscally, it may look daunting on paper, it could prove to be one of the most brilliant ways to get into a trophy property for a considerable discount. Remember, financing can always be reorganized on a monthly basis as inflation and rates start to adjust.
It is essential to be realistic about rates and realize they will not likely return to 2.5%. However, I do predict an adjustment well below 8%. What goes up must eventually come down. That is when it makes sense to be in the game.
Being flexible will be paramount. Sellers will have to be willing to give and buyers must remain imperturbable and creative to reorganize financials to appease a bank to secure a loan.
There are many other factors to consider as we head into 2024.
We must keep our eyes on the amount of job loss the U.S. will face. It is important to be cognizant of what happens to the bonus pool and vesting schedule that comes due. Related: Usually, in the year’s first quarter we will know if bonuses will be hearty or paltry. This will dictate the levels of purchasing power and investment interest that buyers will have.
Inflation and rates will always impact real estate and many other areas. If rates adjust down, people will come out of the woodwork. If the market is flooded with buyers, pricing will go up, creating an out-of-reach experience for those who have been waiting – maybe for too long.
There is also a lot of perceived instability coming into play. As geopolitical strife continues, it could impact how much money foreign investors can bring into the country. The perception of safety in major cities, particularly NYC, is always a concern. The good news is that even with this discord, foreigners still find NYC one of the world’s safest places to park investment money.
With an upcoming U.S. presidential election, this will be a year of transition. As such, some buyers may want to wait until our national elections are decided to see what new legislation may affect them.
Additionally, state legislation changes will also impact our buying and selling power. According to the New York Times, this past spring, Governor Hochul’s series of executive actions, designed to promote residential real estate development, imploded. Over the summer, Hochul attempted to assuage some of this damage by creating a controversial program to advance project rezoning areas halted by the expiration of 421-A, but unions ultimately shot it down. Everyone will be looking to the Governor on how she plans to stimulate the housing market in 2024.
Similarly, all eyes are on Mayor Adams regarding housing inventory and zoning legislation. According to Politico, Mayor Adams’ platform is focused highly on real estate, with promises to encourage private real estate projects. He has pushed key industry priorities in Albany, like a controversial 421-A extension tax break. In his first year of office, the mayor-appointed Rent Guidelines Board approved the highest rent increase in nearly a decade. It will be crucial to watch what new city legislation will be offered that could affect our market.
Antitrust suits involving agent commission structures are another hot development. The New York Times reported that last month, the National Association of Realtors and several brokerages were ordered to pay $1.8B in damages to home sellers who said they were forced to pay excessive fees to real estate agents. This recent ruling created a precedent for other states to follow suit. As such, according to The Real Deal, a NYC antitrust suit was recently filed against REBNY and a slew of NYC brokerages, with more suspected to flood the court system. This will impact both buyers and sellers. More to come on this in a future newsletter.
While many of these factors are beyond our control, below are some tips on how buyers and sellers can prepare for the year ahead regarding real estate.
Now that there is a bit of downtime before the frenzy of the new year, it is an apt time to reflect on what you are looking for in terms of needs and wants in a building, as shelter is always a valued commodity. Everyone has a wish list, but realistically speaking, now is the time to decide what is a necessity versus a luxury.
As we return to normalcy post-pandemic, many people value a simpler way of living. It makes sense that people value intelligent amenities more than frivolous ones.
Sellers should take note, as well, when deciding what renovations may bring about the most value.
After being in cramped spaces that are not always ideal for a work-from-home environment, many people seek to separate their personal and work lives to create a better balance. They want areas of their home to be an oasis against the chaos of the work day. The amenities that used to impress are now being streamlined. Gone are the days of pet spas and aspirational amenities that go unutilized.
The pandemic has taught us to look for quality-of-life experiences, such as access to better food and nutrition and optimal peace of mind, including quiet rooms for meditation or yoga, beauty spas, air purification, and energy efficiency. According to Freddie Mac, energy-efficient homes sell faster and for more money than homes that are not optimized. And according to a recent Forbes article, private outdoor space is one of the top amenities buyers are looking for post-Covid. Having a ‘reset experience’ – whether as simple as a private outdoor space or more elaborate like a private pool within the property – is highly desirable. Other perks like accessibility to enjoyable nature activities or being able to easily get on a boat or helicopter to a relaxing destination are more valued than ever.
Overall, I believe that 2024 will be a year of massive opportunity, a chance to take market share, and, at the same time, a year of hard work. I am enthusiastic about the possibilities and excited to watch us build and rebuild. I am also extremely focused on what is required to make next year even more successful. I look forward to assisting you with your housing needs in the new year.
I am deeply honored to have worked alongside the people on my team and, simultaneously, to have helped guide the clients who elected to trust me with their process and take the leap into the real estate market.
Above all else, I would like to wish all of you a very meaningful, safe, and joy-filled New Year.