For many of you who are tuned into the markets, you have have noticed some extreme volatility last week. With inflationary fears mixed with algorithmic sell-offs, it comes to no surprise that market participants are on edge. Is this the big correction we've been waiting for? It's important to note that despite the recent loss of stock market gains, we are still in a bull market. The American economy is resilient and corporate earnings will show new strength, given the 2018 tax reform that has slashed corporate tax rates.
So how do drops in the stock market impact the price of NYC real estate?
In the short-term, volatility will not have an impact on pricing of New York City real estate. While the stock market is able to rapidly move up and down, condominiums, co-ops and town home prices do not move in pricing at the same pace. Rather, the cost of NYC real estate is greatly impacted by macro-economic principles.
Here are several macro events that will have significant impact on NYC real estate pricing:
- Shrinking growth of the US economy (i.e. recessions)
- Large corporate losses across the board and the market shifting from a bull to bear market
- Financial services industry showing large, consistent losses
- Tax reform on real estate deductions
- Inability for foreign investors to effectively transfer their money to the United States
- Oversupply of housing stock
How do you preserve wealth through real estate?
Stock market jitters may cause fear and concern even amongst the most seasoned investors. However, the key to being faced with volatility is that it gives you the opportunity to reflect on your asset allocation. Are all your eggs in one basket? This may result in a wild roller coaster ride. Or are you diversified? While you may see downturns in some asset classes, you may find stability in others.
New York City real estate continues to be an asset class that enables its buyers to preserve and grow their wealth. With decades of growth and continued stability, it comes to no surprise that wealth from across the world flows into this city and into its real estate.
What happened to NYC real estate prices in 2008?
Clients often ask what happened to NYC real estate market during the recession that began with the financial meltdown in 2008. The high-end was heavily impacted with sales stalling for several years. However, this created new opportunities for market entrants. Owners that held on through that rough patch in the economy and new buyers were handsomely rewarded with massive gains, as the city's housing stock continued to be undersupplied in future years. It's important not to confuse a stock market correction with an economic downturn.
Overall
Don't let short-term stock market swings impact your view on the value of an investment in NYC real estate. If anything, extreme volatility should awaken your perspective that it may be the right time to see if you are well diversified across different asset classes, real estate included.