Thoughts on the pandemic and its effects on the Manhattan housing market

Sunday, March 22, 2020

How will the Manhattan housing market be affected by the Covid 19 pandemic?  What are the short and the longer-term effects?  This is an attempt to address these questions.  Let us begin with the belief that we have the tools and the will with which to manage this crisis, however awkwardly and imperfectly.  

Short term: what is happening now?

Right now, there are no statistics on transactions.  If this crisis is like the last one, deals that were pending are concluding, being renegotiated or aborted, but it is likely that the volume of new deals has collapsed.  Indeed, on Friday, March 20, the governor ordered a city-wide lock down.  Showing real estate is not an essential service.

Many, both buyers and sellers can choose when to act, and until circumstances normalize, relatively few will choose to do so.  Most owners do not want or need to sell in a crisis, and excepting the opportunistic, most are too distracted or terrified to buy.

Does this means that prices are lower?  In a circumstance where there is no market, which is now the case for most properties, there is no answer.  If I had to sell my cooperative apartment today, sight unseen, on-line, I would likely have to accept a severe discount.  Temporarily, my most cherished asset is worth very little. 

Social distance at home in Manhattan, March 22

The Manhattan housing market does not react to crises in the same way as the stock market.  It is much less liquid; prices do not measurably change on a daily basis—indeed it is sometimes difficult to discern trends in the quarterly data.  Some sellers will drop their prices, anticipating a difficult environment for a very long time, but in a wealthy market, where few are under duress, there may be relatively few “good deals” in the near term, and a lower asking price may be no more than acceptance of last year’s market reality.

Sellers, like the rest of us, have read that a vaccine will be found in the next year-to-18 months.  Most/many of them will decide to wait, or stay in place, until the market revives.  Until a new “normal” is achieved, either by the success of our current social-distance and “lock-down” protocols, a medical breakthrough (or series of them), or an acceptance of some  frequency of illness and death, there may be no significant revival in sales volume.

The coming months

As this crisis persists, even at a less panicked level, sellers will begin to adjust to a “new normal”. Some, perhaps few at first, will start dropping their prices, choosing to “move-on”, for reasons practical or financial, in an attempt to attract the few buyers who are in in the market.  These buyers will step in as they see real opportunities, and this will lead the market “down”, restoring liquidity. Prices may drop in increments, that is not all at once. Our market may not see significantly lower prices for some weeks or months, or even a year, but, eventually, the rest of the market will follow until the crisis abates and sale volume is restored.  

Something like this happened during the financial crisis of 2008, of which the bellwether was the collapse of Lehman Brothers in September.  At the end of this post is a table of Manhattan cooperative and condominium price averages beginning in 2005. These indicate that:

-Average and median prices peaked in the first and second quarters of 2008 and began to fall in the 3rd quarter.  

-But prices, on average, did not hit bottom until the 2nd and 3rd quarters of 2009, and a sustained recovery did not begin until the 3rd quarter of 2010.  (Regarding sale volume, the quarterly peak was earlier, in the second and third quarters of 2007; it dropped to its lowest levels in the 1st and 2nd quarters of 2009.)

-Average prices did not recover to early 2008 levels until the beginning of 2014.   

As I remember it, from the observation of individual transactions, these averages hid varying and sometimes substantial value declines for certain types of apartments.  There was a shift to more desirable apartments, to “quality”, in the weaker market.  Less desirable apartments—unrenovated,  poorly located, without daylight, or with high monthly maintenance charges—became more difficult to sell. 

Some version of this scenario may happen in this crisis.  Covid 19 is much more dramatic and personal; many people are suddenly without work, and there may be many deaths. But there will be medicines and a vaccine, so the worst effects will have a much-too-long, but limited, time frame.  The market may snap back quickly, once a reliable vaccine is available. 

For now the market may slow substantially.  In some weeks, we will be back to work and back on the streets, but the medical crisis will still not have been fully resolved.  Prices and sale volume are likely to suffer, until a lasting medical solution is found and the economy revives.

Looking back and to the longer term

When the market does revive, and it will, it may not immediately return to its earlier prices and habits. By earlier prices, I mean those that prevailed in late 2019 and the first eight or ten weeks of 2020.  Habits are a bit different; they are the pattern of preferences that dictate how the market determines relative value.

Most of the time, we think about prices—are they going up or down?  But there are equally interesting changes in the pattern of preferences. 

Over the past forty years the major changes in this market have been a function of increased wealth and its dispersion within Manhattan. 

Manhattan is a much richer place than it was when I first moved here, after college in 1975.  There is a lot more wealth, and wealthy buyers now choose different locations and different types of housing.  Whereas in the suburban era, following the Second World War, wealthy New Yorkers retreated primarily to the Upper East Side, or to smaller enclaves on the East River or in Greenwich Village, an expansion began in the 1980’s—to the Upper West Side, to brownstone Brooklyn, and perhaps most significantly, to Downtown.  This trend has continued with the revival of Harlem, the recent new towers in the financial district and north of Madison Square Park, and most prominently with the “super-talls” along Central Park South and West 57th Street.  

Central Park South, January 1, 2019, by Rhododentrites, Wikimedia Commons

With the geographic expansion came new types of housing: the loft and the condominium.

At first the lofts were taken over by artists, and the condominium units were smaller and architecturally banal, often pied-a-terre.  Now these housing types have expanded in size, in height, in design, and in luxury.  Virtually everything new or converted is a condominium; the most expensive new apartments are in the newest high-rise condominium towers.  The Upper East Side and pre-war cooperatives, while still very fine, have lost relative value and prestige. 

Will Covid 19 change these trends?   There have been articles on social distancing as the new “normal”, on the possibly increased frequency of viruses and, consequently, the relatively lesser desirability of high-density living.  I believe that these changes are temporary, once a cure has been found.  Note the very temporary impact of 9/11 and Hurricane Sandy, even Downtown which was attacked and the most prone to flooding. People will go back to work; they will want to be together, and the economy will revive, whatever the damage.  Prices will go down, perhaps substantially, and then they will go back up.

I am 66 years old.  Among those who are important to me, a number are at risk.  So I  brace myself against  possible illness or loss.  At this time of life, dying is acceptable, but losing someone who matters—a hurt that would heal but not recover.      

My great-grandmother, and one of her children, died in New York during the great flu epidemic of 1918.  My father never knew her and never spoke about her, although he did speak about her husband and her successful, wealthy brothers and the support they continued to give his family. (They clearly did not forget her.)  I have only her name, Clara Picker, and a photograph of her with her family, dated 1899.  Like my father then, most of the world is younger now and fortunately will move-on and recover. 

Clara Picker with her husband Solomon Sicular
and older children, Odessa 1899

It is interesting to contrast our reactions to Covid 19 with our reactions to the climate crisis. Climate is a  longer term issue and much more likely to impact our habits.  We will face enormous costs as we face more frequent storms, coastal flooding and fires; and these costs may require much higher taxes, in order to protect ourselves from worse.  Eventually, our coast lines will be abandoned.  Some centuries from now, there will be no Manhattan housing market.  Consider the impact that a reduction in tax-deduction benefits has had on our housing market, before this crisis, and then consider the much greater impact of this issue, over the longer term. 

Covid 19 is a short-term crisis, and better protecting ourselves against pandemics is a relatively modest investment.  I believe that we will finally have the will to make that investment.  Perhaps we will even now find the will to better protect ourselves against the climate crisis.  For now, the pandemic need not fundamentally alter our housing market.

Quarterly Average and Median Cooperative and Condominium Closed Prices for Manhattan as of February 29, 2020 Source: Brown Harris Stevens Analytics

QuarterSalesAverage PriceMedian Price

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13 Responses to Thoughts on the pandemic and its effects on the Manhattan housing market

  1. Lilian Sicular says:

    Thanks. Never knew about 1919 family losses… Lilian

  2. John Philip says:

    Sun, Mar 22, 2020 at 9:50 PM wrote:
    Dear Larry,

    As always, thoughtful – and good statistical base. And I think I agree things will come back. But there is a factor here that I am turning over in my head a lot: how did we ever get into such a panic about something so much less lethal than the flue you mention. How did we get to the point that we stabbed our economy so ruthlessly and threw over huge parts of our civil rights in the course of several emergency decrees by Governors. Of what are we so scared? And if so scared of this – what happens next time with something more serious.

    The death rate from Covid – if you follow the CDC website – has been dropping daily. We have many more cases, not so many new deaths. So we are now seeing a death rate in the US of about 1.3 % – worldwide 4%. The ordinary flue – 1%.

    86% of those with this flu recover, mostly with no or extremely mild symptoms. 80% of those who die are elderly – and are not even termed dead from corona virus but rather dead from a cause ‘linked’ to corona virus.

    Hospitals claim to be overwhelmed. In NY we have 15,000 cases approximately – and a hospital system that has served 8 million people for decades. Overwhelmed by 15,000 cases? Of which 86% will likely recover and will not need sustained treatment? That means about 2100 need sustained hospital care. Overwhelmed??

    And all the war imagery by authorities – this is a ‘war’ – ventilators are the ‘missiles’ of the conflict, etc.

    All of what I wrote is publicly available info, and considered reliable (the CDC basically).

    Yes, we will recover – but something supremely dysfunctional has occurred – its causes are not clear to me – but it does not bode well.

    Always, John

  3. Gerry Perlman says:

    Thank you for your thoughtful and encouraging report
    Wishing you and your loved ones health

  4. David Sicular says:

    Wonderful piece.

    I love the photo. I wonder if she was pregnant with Adele at the time.

    I had been looking forward to making a date to get together. I guess that will have to wait. Maybe virtually

  5. Stephanie Pincus says:

    Thanks Larry for this thoughtful and perceptive piece. As the pandemic continues to evolve and the economic damage mounts, additional factors will undoubtably come in to play. Uncertainty is the new normal and this certainly applies to real estate. Stephanie

  6. Matthew Collins says:

    Larry —
    Thank you for your thoughtful and personal viewpoint.

    I hope the country can get this crisis behind us, through the application of science and compassion, and find a way to work toward remedying some of the root causes that caused us to need such a drastic reaction.

    It is entirely possible that going forward we will have future situations where we have to temporarily shut down and isolate the population for our own good – recurrences of Covid-19, the emergence of new viruses. In terms of housing, what does this mean for apartments? The trend in condominium development below the high-end has been toward smaller and open floor plans (kitchen as part of the living room, sub-700 Sq. foot units, sliding doors to separate spaces, etc.) . Will layouts with distinct work space become popular (those ‘bonus rooms’ that legally aren’t bedrooms, but might be fine as a workspace)? Similarly, many new developments are built with a substantial number of amenity spaces – gyms, play rooms, lounges, screening rooms, dining areas, decks, etc. All my friends in buildings with these spaces report that they are shut down. To what extent will these spaces become liabilities, rather than assets to their related unit?

    • larrysicular says:

      Matthew, I very much appreciate your detailed comment. This one and the second one you sent me, which I encourage you to post. Your thesis regarding changing preferences is a very good one. The desire for home work spaces may become even more pronounced than it has been, and shared spaces may indeed be avoided.

      However, I think that the collective consciousness may forget the lessons of this epidemic, unless or until there is another.
      The reason for this doubt the market’s response to 9/11 and Hurricane Sandy. Both taught lessons, about the vulnerability of Manhattan, and specifically of lower Manhattan to storm surge, which were discussed at the time, but have largely been forgotten. Of course the pandemic is a crisis so universal that its impact on our collective behavior may be greater–I certainly hope so.

      • Matthew Collins says:

        Larry –
        Following up on my post and our conversation: I graphed your data, as I was curious to see a visual of the prices over the period (something to do while staying in!).

        Here are total sales:

        I think it’s interesting that overall sales have been on a downward trend since 2005. Is it the case that the Manhattan market stabilized (i.e., there was less turnover in Manhattan), while sales moved to Brooklyn and Queens as these more affordable areas became desirable?

        How do you square the decline in sales from 2015 on with the number of new units (principally condos) that have come online since then? In September 2019 the NYTimes noted that “among the more than 16,200 condo units across 682 new buildings completed in New York City since 2013, one in four remain unsold, or roughly 4,100 apartments”. A Bloomberg article from January of this year estimated that there was a ‘shadow inventory’ (completed, not formally listed for sale) of nearly 6,000 recently completed units. With developers’ construction loans coming due, if sales are flat or declining developers may have to take significant price cuts to move inventory, which would put downward pressure on all prices. The alternative could be to convert the buildings to rentals, or sell units in bulk to investors who would run them as rentals (moving price pressure from the purchasers market to the renters market).

        Here are the average and median price graphs:

        Meanwhile, the average and median prices have increased, with, to my view, an extended flat period that ran from mid-late 2008 into early 2014 while the economy recovered and people made decisions about whether they really wanted to live in NY.

        Further on the discussion about the values of ‘amenity spaces’: As you wrote, we may forget the lessons until there is another crisis. I do think it’s likely that we may well have sustained periods (1-3 months) of occasional social distancing, as this virus ebbs and flows, or as new ones arise. Buildings with these spaces may face increased pressure to keep them open during these periods, with resultant higher expenses to keep them cleaned and operable.

        All the best,

        — MJC

  7. larrysicular says:


    Thank you for focusing on overall sale volume decline since 2005. I do not have an answer as to why this is the case. We cannot compare to earlier years, since co-op sales were not recorded until 2006. However, a reasonable approach to this question might be observed by comparing volume trends in different segments of the market, be they segments defined by condo vs. co-op, by price, by room count or by neighborhood. Anther interesting question is whether incomes have kept up with overall price increases during this period. Perhaps another area of investigation while at home waiting out Covid 19.

    Regarding conversion of the unsold condo stock to rentals, that may be an eventuality, but at the very high price and luxury levels at which many of the newer condos have been built, this is likely to be a temporary and difficult measure. Generally, in Manhattan, the higher the price range, the lower the return possible from rental income.

  8. Rich Herschlag says:

    Excellent article. As an engineer working in the area, I just a couple of weeks ago advised a client not to ditch the added third story in Brooklyn while repairing structural problems. I rarely stick my neck out on such financial decisions, but I’m older than he and his wife and have seen the long term trends enough to advise against a panic move. The numbers presented bear that out.

    The question posed by the article is at the nexus of so many significant issues. Still one more to consider is the possible forthcoming reduction in residential construction and how the corresponding reduction in supply might help prices bounce back.

    • larrysicular says:

      Thank you Rich, at this point we are all afraid that this may be worse than the crisis post 2008. But how much worse?

      Regarding a halt to new construction. Those in the ground will be finished, and I am reading that there is a backload of unsold new units. So it may be some years before supply tightens. However, lower prices will eventually help to revive what may be a very weak market in the coming months (or more).


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