Making New York City real estate predictions is always complicated, but several key economic factors are driving forces in the NYC market: rising interest rates, the push for affordable housing and continued saturation of the high-end rental market. Other drivers are the opening or shutting of subway stations and the debut of some important buildings in mega-projects. (For more, see New York City Real Estate: A Safe Haven?)
New York City Real Estate Predictions: The Economic Factors
- Interest Rates – The Federal Reserve raised interests rates for the second time in three months in March 2017 and signaled expectations to do so twice more in 2017 and three times in 2018. This will likely encourage those who have been saving for a down payment to move up their plans to buy more quickly and take advantage of the current historically low rates. Zach Ehrlich, CEO of Mdrn. Residential, told DNAInfo.com that “more sellers will adjust pricing to ensure they don't get caught in [a] receding sales market, [while] more buyers will lock in and pull the trigger given [the] upward trend of rates.”
- Supply – Given the saturation of available high-end apartments, experts expect concessions to continue but not a lowering of rental prices. For example, some apartments are offering as many as three months of free rent to attract tenants, instead of lowering prices. “Owners are very slow at first to adapt and reducing rent is typically a last resort,” Gary Malin, president of Citi Habitats, told Brick Underground. He explained that tenants looking for high-priced rentals have too many options from which to choose, so landlords have to offer incentives. Unfortunately, those searching for middle- or low-income housing won’t get the same benefits.
- Affordable Housing – What will happen in the affordable-housing arena is still a big unknown as the city sorts out what to do with the 421-a tax abatement program, established to encourage the construction of new affordable housing. Mayor Bill de Blasio wants to revive it, but the New York City Independent Budget Office released a report in January 2017 concluding that the city wasted $2.5 billion to $2.8 billion in tax expenditures from 2005 to 2015. According to the report, “As New York policymakers look to revive 421-a (or a similar variant), giving greater attention to the program’s benefit levels so as not to oversupply tax subsidies would help make better use of scarce public resources.”
A Subway Opening and Closing
- Second Avenue Subway – Now that the Second Avenue subway is opened, housing near its stations will definitely help the spring buying and rental season. “Rental demand east of Third Avenue will change overnight,” Ehrlich said to DNAInfo.com. “Expect more sales activity with units and buildings there, as well. It’s easier for the average buyer to understand once they see [the] subway opened and operating.”
- L Train – South Williamsburg is also gaining popularity, thanks to the expected 18-month shutdown of the L train between Brooklyn and Manhattan, necessitated by tunnel repairs to damage caused by Hurricane Sandy. While this won’t happen until 2019, changes in real estate are already being seen. The area near the first subway stop in Brooklyn after crossing the Williamsburg Bridge is already seeing an increase in popularity.
Mega-Projects Expected to Open Buildings in 2017
- Hudson Yards – Two new buildings, one residential and one commercial, will affect real estate. The tower at 50 Hudson Yards is expected to become New York’s most expensive office building, and the condominium at 35 Hudson Yards will be launching sales this year.
- Essex Crossing – There will be affordable-housing lotteries for two buildings in on the Lower East Side in 2017. At this time applications are being taken for the first building.
- Pacific Park – An affordable-housing lottery opened in January for Prospect Heights, Brooklyn's second affordable-housing building, at 38 Sixth Ave., with more to follow.
The Bottom Line
New York will see many developments in 2017 real estate, driven by factors such as rising interest rates, negotiations for a new affordable-housing law, oversupply in the high-end rental market, transportation alterations and building openings in ongoing mega-projects. While predicting the extent of their effects is inevitably a chancy business, change is certainly coming to the Big Apple's real estate market. (For more, see How Expensive Is New York City – Really?)