“What’s my apartment worth?” Every residential real estate agent in New York City hears that question at least once at every cocktail party or dinner with friends. And we are (or should be) always prepared, with a broad knowledge of market trends and enough information about the interlocutor to have at least some idea. One top agent always researches sales in the building and the neighborhood before attending any dinner party being held in someone’s home. But this preparation, and the ability to answer this question, begs a larger question for the asker: what’s it worth to you?
One of the most significant shifts I have observed in the residential marketplace over the arc of my 40-plus-year career reflects the changing way owners view their homes: is it more a financial or an emotional commitment? Up until the late 1980s, the primary focus in making a home purchase reflected personal/family priorities. While real estate historically increased in value, the growth was never such as to make it primarily an investment. Starting in the early 1990s, as New York recovered from its recessions, this changed. The investment value of the home (not to mention the possibility of using it as a cash machine through refinancing) began to overtake its emotional value as the primary concern of homeowners. This trend has only been exacerbated by the extreme fluctuations in the value of both homes and securities over the past 15 years. It’s all dollars and cents!
At the same time, the Millennial generation has come of age during this time of financial instability, during which real estate values, while fluctuating substantially, have not increased much. A home purchased in New York in 2006 or 2007, indexed for inflation, is not worth significantly more today than it was when purchased. As a result, Millennials have been slow to come to homebuying. With apparent fatalism, their spending has focused more on experience than on ownership. But since the pandemic, a shift is underway. Emotional value now accounts again for the larger portion of residential purchasing decision-making, as it did during the 1970s and 1980s. And it is driven in substantial part by the evolving lives of Millennials.
As some of these younger people in their late 20s and 30s begin to couple up and start families, their attitude to homeownership has changed. While still not entirely convinced of the ECONOMIC benefits of homeownership, they increasingly appreciate the non-tangible EMOTIONAL benefits. The pandemic has fostered these feelings as well; there’s nothing like being restricted to home territory for months at a time to develop an appreciation for the importance of a welcoming residence to overall mental health.
In today’s New York City marketplace, trophy purchasers have receded into the background. And even at the giddiest of times, they have always been a small minority of those purchasing homes within the city. Our market faces stiff headwinds, with our hometown industry, the finance world, experiencing a difficult year as interest rates climb. Nonetheless, the ongoing activity at prices $4 million and below is fueled not by foreign money (although that is returning) or by billionaires. Today’s buyer wants a home. They see value in the market as prices fall away from the exuberant highs of 2021, but that explains only part of the continuing demand for homes. Today’s buyers have lived through the pandemic and the economic peaks and valleys of the past two and a half years. They understand the intrinsic, non-monetary value of where they live. More than anything, they want to close their front door behind them and say, with a sigh of relief, “I’m home.” THAT is what their apartment is worth!