Sunday, May 17th, 2020
There is a line in the movie, Draft Day, “We live in a different world than we did 30 seconds ago”. This could not be further from the truth than it is today. The region was primed and headed into a strong real estate market entering 2020. Today, although the demand to own a home is still strong and interest rates are at historic lows – there is doubt in the mind of some buyers to take the plunge into homeownership.
Having worked in Community Development and Housing for over 30 years – I have never witnessed such economic loss across the board. Today’s challenges are very different from past economic recessions and natural disasters. The economic engine in the United States has never been turned off, essentially overnight. Although the indicators are pointing in the right direction to begin the process of turning the engine back on – we don’t know with any certainty, when.
The Hudson Valley real estate market was primed and had a strong head of steam entering 2020…and then everything was flipped on its head.
The Real Estate Market Pre-COVID-19 – strong and steadily improving
- Most of the markets in the Hudson Valley were in a Seller’s Market – 6 months or less of housing inventory with strong demand and sales of homes priced in the lower and middle end of the market. Homes priced in the higher end of the market were not doing as well, which may have been a result of the tax policy shift known as SALT (State and Local Taxes).
- Inventory has declined by over 16% since 2016, which put upward pressure on prices.
- Interest rates were hovering around 3.6%
- Although the inventory was low, the number of sales had been increasing
Today’s Real Estate Market – rapidly changing
In mid-March 2020, the state locked down the economy and required businesses to close with the exception for what was deemed “essential”. On April 1, 2020, Empire State Development adjusted the list of essential business activity with regard to Real Estate to include residential and commercial showings along with back office real estate work, appraisal services, and home inspections with the following caveat:
Essential Businesses must continue to comply with the guidance and directives for maintaining a clean and safe work environment issued by the Department of Health and every business, even if essential, is strongly urged to maintain social distance to the extent possible. The following functions of real estate and/or realtors (sic) are considered essential: Residential home and commercial office showings; home inspections; and residential appraisers. Back-office real estate work is deemed essential, but please utilize telecommuting or work from home procedures to the maximum extent possible.
So what did that mean in this time of social distancing?
Changes in Real Estate Transactions
The real estate industry is based on close, person-to-person business activities including home tours with realtors, closings in attorneys’ offices, as well as numerous exchanges with home inspectors and appraisers, as well as between buyers and sellers. The ability to continue to move forward as an industry relied on creative thinking. Here are just some of the changes that were made to address the rapidly changing real estate landscape:
In the Short Term
Virtual Showings – although recent NYS Executive Orders permitted Realtors to conduct home tours – the manner in which it is done has changed. Current guidelines allow Realtors to offer virtual home tours if the Sellers will allow access, but Realtors may not meet with Buyers or Sellers in person.
Home Inspections – The International Association of Certified Home Inspectors acted quickly to offer a five-hour COVID-19 Safety Certification so that Homes Inspectors could understand and minimize the risks of COVID-19 while continuing to complete Home Inspections during the PAUSE. Home inspections are now generally conducted without buyers present and then wrapped up virtually via video so that the home inspector can convey summary of findings.
Contracts & Closings – Due to social distancing requirements, closings have been challenging for attorneys, title companies, realtors, lenders, and buyers and sellers. New York State has allowed virtual notary services and many attorneys are conducting their contract reviews by phone or video chat. For closings, attorneys and lenders have devised ways to minimize contact between parties, including pre-signing documents, offering staggered schedules for signing parties and even drive-thru closings.
Thoughts for the Future
Working in a public policy and planning organization that re-examines the economy, potential shifts in demographics and the real estate market, I am asked many questions about housing, the real estate market and how recovery will look. However, I can say this – there are uncertain times ahead for the real estate market.
The sales volume is likely to continue to decline, but due to pent up buyers demand coupled with anticipation of an outward migration from NYC to the Hudson Valley, there may be upward pressure on pricing. Interest rates are at historic lows, many buyers are still working, and the Hudson Valley is likely to see market pressure from the NYC metropolitan area. The ability to work from home will also play a part in the demand for housing in the Hudson Valley.
On the other hand, there are many anecdotal stories from professionals in the real estate industry about properties being purchased sight unseen with cash offerings. The reason, in part, is that people want to escape the highly dense, urban center of NYC. This can be compared to what occurred after 9/11 – people wanted to get away from the urban core to the safety of the suburbs and slower lifestyle. Many people still employed in NYC were then faced with a long commute 5-days a week and as a result – “country” living was not for them. The slight demographic shift caused by 9/11 was short lived and many NYC transplants moved back to the city. It is possible that the Hudson Valley region will see another demographic shift, but right now, there is insufficient hard data to back the claim.
Another change is the manner in which business is conducted today. Because of social distancing and other requirements to shelter in place, the landscape within the work environment has changed. Many people have been forced into a remote work environment. Today’s technology allows many, not all, workers to conduct business from a home office.
The traditional 9-5 day in the office is no longer the norm or a condition of employment. Many employers are recognizing remote work as a benefit to the employee and to their own bottom line. The employer can reduce their cost of infrastructure – less office space, while the employee now has the ability to eliminate, or shorten their commute and have more time for family and community. This new working paradigm will likely shape the new economy, add to the potential of a demographic shift from the urban core to the suburbs, and will ultimately alter the real estate market.
Therefore, the residential market in the Hudson Valley may see an increased demand – especially for some of the larger homes with sufficient space for a home office and even other in-home amenities like home gyms and media rooms. Simultaneously the demand for office space in the highly dense urban core of NYC may see a decline in demand. Small office space in the Hudson Valley and the Co-Work and We-Work office models may see an increase in demand.
There is no playbook or blueprint on how to recover because this recovery is a moving target. Nevertheless, through innovation and creativity, along with adherence to the guidelines, the real estate market can gain momentum again.
