The 2023 Housing Forecast for NYC

The new year is in sight, and housing market predictions for 2023 are popping up everywhere.

Top of everyone's mind is the question of inflation and mortgage rates.

While inflation appears to be slowing, it's expected to remain above the Federal Reserve’s target of 2% throughout 2023. Since the Fed will likely keep interest rates elevated through much of next year, the 30-year mortgage rates will remain elevated in 2023.

Yes, buyers are regaining negotiating power, but 2023 won't see that power squarely in their favor. 

The experts are weighing in on the 2023 forecast for New York City. I've compiled a summary of their predictions for you.

NYC home prices will stabilize.
Higher mortgage rates have slowed the competition among NYC buyers, which in turn has caused listings to stay on the market longer and sellers to cut their asking price. 

Many would-be sellers who locked in a low mortgage rate over the past few years are unwilling to trade it in for today’s much higher rates. The low supply of available homes will limit a decline in NYC home prices.

Renter demand will cool, but a dip in rents will be slow to materialize.
The rental market will take longer to cool down mainly because of the limited inventory of rental units. Buyers who were priced out of purchasing will likely remain in the rental market at least until the spring, which may keep rents high. And despite record-high rents, New York City renters are still willing to pay up to avoid having roommates. 

NYC homeowners will be better prepared for a possible recession.
The NYC housing market was already on a course correction prior to the pandemic—and home prices then fell nearly every month from the start of the pandemic until July 2021. This was in contrast to other parts of the country, where typical home values began soaring in mid-2020. 

The bulk of NYC homeowners who purchased a home prior to and during the pandemic are sitting on positive equity, which bodes well for them even if home values decline more meaningfully next year. NYC homeowners are also on stronger financial footing compared to the 2008 financial crisis. The mortgage delinquency rate in New York state was at only 2.7% in September of this year, in line with the historically low national rate of 2.8%.*

The rental construction boom will restart.

Many developers are waiting to take action on new construction projects, which have the potential to alleviate the rental inventory shortage. The city could experience a meaningful increase in the supply of market-rate rentals over the next few years.

However, it remains to be seen how many of the permitted developments will materialize as those projects, too, are affected by elevated inflation and borrowing costs.

2023 will be a pivotal year for the office-to-residential conversion debate.
Because so many New Yorkers continue to work from home, NYC-area office occupancy remains at about 46% of pre-pandemic levels. Converting under-utilized commercial buildings in Manhattan to apartments is one solution to alleviating ongoing housing shortages in NYC. 

However, these conversions require significant investments of time, money, and effort. It also brings significant challenges, including required changes to local zoning laws or even state law. 2023 will show whether NYC can deliver those regulatory changes. 

NYC will continue to see an influx of new residents.
Despite high rents, the city continues to draw interest from potential new residents wishing to move from other areas. Just last month, rental search volume on StreetEasy originating from areas outside New York City was almost double the level prior to the pandemic. This robust interest in NYC rentals, despite affordability issues, highlights the solid recovery of the NYC economy, which by September of this year had regained 97% of the jobs lost during the pandemic.**

If you have any questions about what's expected in 2023, let’s connect! I'm here to help you navigate the market and achieve your real estate goals.

Primary Source: StreetEasy
*  Source: Black Knight Mortgage Report
** Analysis by NYC Office of the Comptroller