By Jeffrey Arestivo, Head of Residential Real Estate Sales, North America
January 11, 2021Posted InReal Estate
Our website no longer supports your current web browser version, which means you are no longer able to access this website. Please update your browser to continue.
The US luxury real estate market was not spared the significant change that the pandemic brought with it akin to numerous other segments of the economy. What really happened and how did it happen so quickly?
The COVID-19 pandemic became the dominating topic of 2020 as it took hold of the global economy in the second week of March, and subsequently hit human mobility and wellbeing. As a result, uncertainty hit the markets bringing about a general decline in the valuations of many assets, and an inevitable lowering of interest rates with a domino effect on mortgages.
The 10-year Treasury note yield – considered a main driver of fixed-rate mortgage pricing – dropped by as much as 1% very quickly. With rates at historic lows, the opportunity for homeowners to take advantage and save money, cash out equity in their homes, and purchase any home they could find outside of the big cities became paramount – and it all happened near simultaneously.
The impact of the COVID-19 crisis on the mortgage market was very different to that of the global financial crisis of 2008-09. This time around banks’ lending practices were in great shape heading into the pandemic. Banks simply had money to lend, and did. However, with all the volume coming in at one time, no bank was prepared for the ensuing onslaught of mortgage applications that overcame the entire industry for several months.
Looking back at the situation in March from a vantage point early on in 2021, it’s clear that paradigm shifts with regards to residential real estate happened quite rapidly. First of all, the exodus from big city real estate has been happening for years, but the COVID-19 pandemic accelerated the noticeable shift into a short timeframe. Some estimate three to five years’ worth of outflows happened in only a few short months.
The second paradigm shift was the need for space. Space for your kids to learn at home, for your home office, for your recreation, and even for your dog – all became incredibly important. And the third major paradigm shift was the thinking of many homeowners. It shifted from the home being a good investment and increasing in value as the primary reason for ownership to an emphasis on the quality of life.
With most banks posting record mortgage volumes and enjoying strong profits in their mortgage businesses in 2020, early indications for 2021 suggest mortgage interest rates will remain low and stable. We believe refinancing could be down by as much as 40% but purchases are expected to increase by 10% in 2021.
Outside of major cities, we’ve seen a lack of available home inventory combined with massive demand that has created bidding wars above asking price. Going in the opposite direction, Manhattan, New York, has suffered from a huge oversupply of properties that came to market around 2018, and remained vacant even prior to the devastating impact of COVID-19. Apartment values particularity in the $4 million-plus market have taken the brunt of it with luxury realtors saying discounts currently range from 15% to 25% below pre-COVID 19 prices.
If what’s unfolded in Manhattan is any indication, such market sentiment is likely to get worse in city centers as the pandemic rages on before it gets better. But it will get better. Positive news about vaccine distribution brings hope as does the allure of museums, restaurants, opera, and the many other things that make big cities so great.
Our residential real estate teams stand at the ready to support and provide guidance for clients on their residential real estate financing needs. With all of the choices our clients have at their disposal, we continue to provide the personal touch that discerning clients require and set the standard for accomplishing their goals as a team.Contact us