In the second half of 2021, New York City’s housing market began an incredible comeback from the first half’s dip in rents and home prices. That brings both good news and bad news for 2022. New Yorkers can expect the city to continue moving toward a full recovery — good news for the market, and for New Yorkers taking advantage of all the city has to offer. However, it also means the housing market in 2022 will be expensive, with rents and home prices continuing to increase. Here are StreetEasy’s 2022 NYC housing predictions.

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    Pandemic Rental Concessions Will End, Causing a Wave of New Inventory and Priced-Out Renters

    Summer and fall 2021 saw NYC rents recover to near pre-pandemic levels. This was driven by high renter demand and concessions that did not renew when leases ended.

    StreetEasy measures concessions as the share of homes on the market that offer one or more months of free rent. Q1 2021 had the highest share of concessions in the city’s record. 42.8% of rentals in Manhattan, or 24,361 units, received a concession. Even more Manhattan units, 24,751, received a concession in in Q3 2020. Many of these units returned to their gross rents within a year’s time. The rate at which these pandemic concessions turn over will peak again in Q1 2022, when nearly the same number of units will come back onto the market — this time without the discounts. Facing higher gross rents, many renters who can no longer afford their apartments will be forced to move. This will add to a flood of both demand and inventory in Q1 2022 and beyond. 

    In addition, the rate at which people move to the city typically declines in the winter months. Thus, outside of those returning for office reopenings, there will be relatively fewer renters on the market in Q1 2022 than in Q3 2021, but much more inventory. More inventory than demand means that rents may stagnate or fall in Q1 2022. If this happens, though, it will likely be brief. Rents are sure to rise again as more people move back to the city in the summer, and new deals from spring 2021 expire.

    On a related note, many NYC renters are currently pushing for the Good Cause bill. This proposed legislation would limit rent increases on lease renewals and prevent landlords from evicting a tenant even after their lease expires.

    International Demand Will Drive Luxury Home Prices Up 

    Our NYC housing prediction for the 2022 sales market? It will continue to be a tale of two cities. On the one hand, luxury prices are now rising after a three-year slowdown. On the other hand, home prices in the bottom price tier will remain flat. 

    The luxury housing market is having a moment. The top two most expensive tiers of homes in Manhattan and the most expensive tier in Brooklyn are rising the fastest, according to the StreetEasy Price Index. During the pandemic, the wealthy accumulated more wealth from the surge in many tech stocks. In addition, fully vaccinated international visitors were allowed to resume travel to the U.S. in November. This influx could lead to more international investment in residential real estate in New York City, and increased luxury demand after the pandemic pause and pent-up demand. 

    Manhattan Homes Under $1M on StreetEasy Article continues below

    However, homes in the bottom tier of prices are seeing a pause in price growth. Many New Yorkers were affected by the economic repercussions of the pandemic, which was further exacerbated by job losses. The bottom price tier of homes in Brooklyn and Queens fell more than any other price tier in Q3 2021. While this may come as good news for many aspiring buyers, it is bad news for the current owners of the homes. The lack of demand for the lowest priced homes is lowering prices further, causing homeowners to lose equity in their investment. (And sellers to lose profits.) Decreased demand for these more affordable homes will likely lead to flat or even falling home prices in that tier.

    Climate Change Will Become a Bigger Consideration for NYC Buyers 

    Our next 2022 NYC housing prediction was brought into focus by the recent tragedies of Hurricane Ida. Its devastating impacts on the city added another layer to buyers’ shifting priorities: flooding. Sandy raised the issue of coastal flooding for New Yorkers, but after Ida, New Yorkers located inland now have pluvial flooding to worry about. Climate change will be an important consideration for many.

    NYC’s current flood maps are out of date and do not show which areas are vulnerable to pluvial flooding. FEMA proposed an updated map for New York City, which found that twice as many buildings as before were at risk. The higher flood risk is impacting homeowners’ wallets already, as insurance premiums in flood-prone areas rise. According to FEMA data, prices will go up for at least 62% of flood insurance policies in New York City. For 27,200 properties, the rise will be modest, not more than $120 a year. But about 10% or 5,400 properties, will see their yearly costs leap by more than $120.

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    The NYC Sales Market’s Course Correction Will Continue

    The sales market slowdown of the past 3-4 years was created by “irrational” market behavior. Prices rose by over 10% year-over-year between 2013 and 2015, due to speculative purchases paired with expensive new construction. This led to a surplus of luxury inventory relative to demand, and thus, falling prices from 2018 to 2020.

    But the pandemic sparked an overall rise in NYC home prices for the first time in three years. At the start of the pandemic, prices had finally fallen enough that an outside force – low mortgage rates – triggered a surge in demand. Home sales resumed and then reached record highs, allowing prices to begin to recover. Thus, the market is much more rational now than it was a few years ago. It’s functioning according to market mechanisms of supply and demand, rather than artificially induced pricing from overly optimistic developers and sellers, or bubble-like behavior. 

    Our 2022 NYC housing prediction is that this course correction will continue in the coming year. There likely won’t be another recession that will lead to another massive drop in rates. Thus, there won’t be a sudden, externally motivated spike in demand. Ultimately, it’s up to the supply side — the new construction, the developers, the sellers — to price their listings properly in order to avoid another sales market slowdown. 

    What about the demand side? With sustained demand from home shoppers, buyers can expect fewer price cuts and more bidding wars leading into 2022. Currently, no neighborhood in the city has a sale to list price ratio above 100%. In other words, on average, homes closed at or below their asking price in all neighborhoods in the city. That may change in 2022. 

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    Demand for NYC’s Hot, Amenity-Rich Neighborhoods Will Continue to Rise

    Now that shopping, restaurants, and nightlife have reopened, living close to neighborhood amenities is important again to New Yorkers who can afford to do so. As seen in our 2022 Neighborhoods to Watch, the hottest neighborhoods in Manhattan are also among the most expensive. Topping the list is SoHo, along with the West Village and Flatiron. But the fun is not limited to Manhattan. Brooklyn hotspots that also made the list include Dumbo, Fort Greene, Bushwick, Gowanus, and Red Hook, which provide a similarly diverse range of restaurants and nightlife that make them attractive places to live.

    This year, StreetEasy partnered with Investopedia and other businesses in the city to create an index on the city’s progress. Together, we found that subway ridership is up, more restaurant reservations are being made, rents are recovering, and more homes are selling. In November, this Investopedia Recovery Index for the city reached a score of 80 out of 100 for the first time since the pandemic. NYC’s recovery is near.