After a brutal 2019, luxury real estate agents were really hoping that 2020 was going to be their year. In the UK, the high-end market in central London was just starting to rebound after a five-year price slump; in New York, brokers were hoping for green shoots after a bruising final quarter, in which sales volumes of Manhattan homes priced above $7 million fell by nearly half.
But then came the lockdown. With much of America under strict orders to stay at home, a business that relies on in-person viewings and inspections is now enduring another major setback.
“We’re in a state of paralysis right now that is unprecedented,” said Jason Haber, a broker with Warburg Realty in Manhattan. Before the lockdown, he said, activity had been starting to pick up after a year in which the New York market had been blighted by increased taxation and an oversupply of new condo developments.
People who viewed apartments before the city shutdown was imposed on March 16 have continued to transact, according to Haber. “I had clients who just missed out on a $5 million apartment,” he said. “They had seen it before the lockdown and bid on it, but by the time we were ready to put in an offer the apartment was gone.”
For those that didn’t get in under the wire, it’s now a waiting game. “It will cause a backlog, and when it clears I am cautiously optimistic as I have a bunch of buyers out there ready to make offers,” said Haber. “The stock market shot up 9 percent, we have a $2 trillion stimulus bill, there’s a sense that we’re going to get through this, and there will be a rebound on the other side. There is pent-up demand.”
Outside New York, brokers were more circumspect. “When financial markets or international events turn volatile, wealthy buyers tend to become very cautious,” Patrick Carlisle, chief market analyst for Compass in the San Francisco Bay Area, told Robb Report back in December. Now, he says, “Activity has been hit hard across the board.” His figures show that more than 900 luxury home listings were removed from the market in the Bay Area in the week beginning March 16, compared to fewer than 200 every week since the beginning of this year.
In central London, activity had just returned to prime areas such as Kensington, with prices rising in the three months to mid-March—only the second time in nearly six years that the area has seen quarterly growth, according to Savills. The rise was only 0.9 percent, but it represented a resurgence in confidence post-Brexit and national elections in January.
“Had someone asked me on March 1 if coronavirus would have an impact on business I would have said, don’t be silly,” says Camilla Dell, founder of Black Brick, a high-end London buying agency. “Twenty-five days later, the answer is a complete U-turn. Business has dropped off amazingly quickly.”
Transactions will remain low throughout the summer, predicts Lucian Cook, head of residential research at Savills. The result on prices, he said, will depend on “how long it suppresses the domestic and global economy, how people perceive its potential impact on their wealth over the longer term and the extent to which they turn to bricks and mortar as a store for that wealth.”
According to Dell, all her clients’ deals have been put on hold. “For people who negotiated a price before March 1 but have not yet transacted, the big concern is what will the value be in six months’ time.” The effect on prices is unknown, she says, as there are no transactions to record.
“Once we’re out of lockdown, then we will see what’s happened to the London market—profits will be down, businesses will be suffering, there will be unemployment—then we will see the effects filter through to the data.”
Within every real estate downturn, there lies opportunity. “There are always buyers circling when people start panic-selling,” Dell says. “We have had phone calls from clients saying they have cash and are interested in distressed sales, but it’s not a flood. In general people are battening down the hatches and keeping their powder dry.”
New Yorkers, in contrast, will exploit the opportunity, in Haber’s view. “Clients are saying to me that that it’s a great time to move into real estate,” he says. “Over the past three years, the stock market has been going up and real estate has been going down, so now is a good time to get in and get good prices and low interest rates.”