Looking back on 2020 to make decisions in 2021 is a bit like driving while looking in the rear view mirror. No pun intended but you know that saying “hindsight is 2020?” While the past may not predict the future, we are seeing trends that can help navigate a quickly changing market in 2021.
To start, you’ll find an overview of the North American Luxury Market for 2020 with highlights and statistics for Main Line and Center City communities in my year-end Luxury Market Report:
While a market shift was predicted as early as 2017 due to normal real estate cycles, the effects of the COVID pandemic in 2020 created quickly shifting micro-market changes no one anticipated.
The market is hot, except where it’s not. I don’t mean to be sarcastic but for sellers who were on the market in 2020 and didn’t sell – it can be painful to hear how hot the market is when that wasn’t their experience. Even in a hot market, successful selling requires an aggressive, creative strategy with targeted marketing locally, nationally and internationally.
For buyers, many have felt scorched by the heat of escalating values, competing offers and limited inventory, especially in the suburbs.
There’s no one easy answer to “how’s the market.” In complicated times it’s more important than ever to take a deep, consultative look at the specific market trends that can impact your real estate goals.
What does all that data mean?
I’ll cut to the chase and share my personal insights.
Philadelphia and communities on the Main Line survived the mortgage crisis without a dramatic bubble and burst. We’ll weather through this pandemic as well.
Do we have a bubble? Leading economists say price escalations are not a bubble but a market response to high demand and low inventory. That’s reassuring, but it also means values are likely to shift as supply and demand changes in 2021.
Philadelphia’s Center City
We can anticipate the desirability of Philly’s low density cosmopolitan lifestyle to retain value. How much and in what areas is impossible to predict.
However, as detailed in my market report, the number of new contracts increased in Rittenhouse Square end of 2020 meaning buyers are taking strategic advantage of a strong buyers market, following a national trend for pied-a-terre condo purchase in metropolitan centers.
Main Line suburban communities
Many Main Line home owners who planned to downsize decided their home actually fits for them long term. However, for those who have considered selling in the near future, now is the time to take action and benefit from high demand and low inventory.
You’ll see below that New York suburban markets began cooling off at the end of 2020 with fewer sales, an early indicator of a softer market.
We cannot assume that escalated suburban market values today will remain the same throughout 2021.
New York buyers on the Main Line
From Manhattan to the Main Line was a common story for 2020. Buyer demand for suburban homes on the Main Line made a huge impact.
Competing cash offers for luxury homes that had previously languished with months, even years on the market literally flipped luxury market areas like Gladwyne with a movement you might call Billionaire’s Row to Billionaire’s Village.
Homes with pools and the ability to add a pool became a top post-COVID ‘must have’ for buyers along with work from home flex space, gyms and media rooms. Large estate homes that were seen as undesirable in 2019 started receiving competing cash offers.
What can we learn from New York’s market changes?
Much of the 2020 increase in demand and values on the Main Line was driven by post-COVID urban flight from Manhattan to the Main Line. When the pandemic hit New York city early and hard, we saw an influx of Manhattan buyers on the Main Line as early as February.
Just as New York was months ahead of Philadelphia facing the pandemic, their real estate market may serve as an early indicator for trends coming in 2021.
A recent New York Times article summarized the complex market effects of COVID-19 for New York boroughs – The Market Collapse of 2020 highlighting trends in Manhattan as well as suburban areas.
Is demand for suburban living cooling?
New York appraiser Johnathan L. Miller who covers Manhattan, West Chester, Long Island and Fairfield Connecticut sees the New York suburban demand cooling;
“The pandemic didn’t create a new class of suburban buyers — mostly, it accelerated the plans of New Yorkers who were already thinking of moving. And while sales remain elevated in several suburbs, compared to last year, their meteoric rise plateaued in the late summer. I think peak suburb has passed.”
While New York suburban demand is cooling, we still have a strong demand suburban living as we can see in the December statistics below:
Will the Main Line follow New York and cool off in 2021? Perhaps, but I anticipate a spring surge of buyer activity as leases signed during the early COVID urban exodus in 2020 come to an end. Buyers are making a more final decision in 2021 on where and what to call home.
We face the potential of a softening demand by summer or fall of 2021 following the trends in New York suburbs as adjustments to our post-COVID work from home realities settle in as our new normal.
Rents for Center City prime locations struggled in 2020 following similar challenges throughout the country in cosmopolitan locations.
For instance, the median rent in Manhattan dipped lower than 2010.
As reported on my blog, Paul Levy, President and CEO of Center City District spoke to the Path to Philadelphia Recovery in November. Council Member Allan Domb joined the discussion with comments about about Center City’s soft luxury rental market.
As you can see, the effect of COVID on our housing market on the Main Line and in Center City is complex, and quickly changing.