Quadruple Tug-of-War
The state of the market in New York City and interest rates has been a topic on many people's minds lately. The way I see it, there are four major factors at play right now, all pulling in opposite directions.
1) Sellers:
New York City has a new unique seller type. They've invested at least 20% down in their property, if not more (some co-ops even require 50% down payments). As a result, most sellers are heavily invested in their real estate. Also, a lot of sellers in New York City don’t “need” to sell. They would “like to sell“ as a matter of lifestyle change or for convenience, but, as you know, Manhattan's purchase and sale markets are made up of extremely wealthy people. To be frank, they can afford to hold their places, even as prices have meandered their way down approximately 5% (10% in some cases) since the highs of the post-pandemic buying boom. Sellers are holding the line with regards to prices.
2) Buyers:
Buyers want to purchase. Even in this market. However, many feel that prices need to adjust for the current economic conditions, and they aren't willing to pay (in most cases) top dollar for property at this point. They want adjustments in pricing that reflect today's realities. They want their purchase to be more fiscally responsible, less emotional and are reluctant to just give what sellers demand. Many deals today, even after a meeting of the minds on price, are renegotiated with credits and contract price adjustments in the 11th hour of contract negotiations.
3) Interest Rates:
Along with buyers' frustration about pricing, interest rates are the obvious reason buyers don't want to pay top dollar. Today, 7% to 7.5% interest rates are the norm with higher rates to come possibly(?)!. These high rates are causing buyers to rethink their entire purchase and their personal needs/obligations to purchase a property in New York City. I have an opposing thought on this: While interest rates are high, prices have come down, and for the reasons I’ve outlined above, buyers should take advantage of lower prices and refi when rates dip! I tell all of my buyers, if you can afford to buy now, you should. You can purchase at a discount and refinance if (when) rates adjust. When interest rates drop even little, the pressure of pent-up buyer demand is real and palpable and will drive prices back up. If that happens, buyers have lost the opportunity to purchase in a “down“ market. If you can afford that higher rate for a little while- take the discount.
4) Rental Market:
The rental market is currently very strong compared to past years. However, Interest rates and higher HOA fees have made most purchases much higher on a monthly basis than they would be to rent the same property! So prospective buyers are asking themselves “why”. Why drop a 20% to 25% down payment on a property when I can have that money grow in a simple high-interest account and earn returns faster than it would appreciate in my real estate purchase? Even if they offset the gains with the rental expenses, leasing still has a strong upside potential. My antithesis to this is that your real estate investment is not a short-term investment strategy; it's a place where you live and have your money grow over time. If you purchase and hold, enjoy the property and then sell at the appropriate time, you'll make back your “rental fees“ and probably make a sizable return on the real estate.
In conclusion: These four factors have driven the New York City market into a nearly frozen state. While all these four factors are pulling, in the middle of the tug-of-war are listings that aren't moving as fast as they once were, even just last year or the year before! Overall, transaction rates are down about 10% to 15% for September. Interesting stuff, but I do feel that “buyer pent-up demand“ will rule the day in the not too distant future. The market just needs a little push from the Fed in the way of lower interest rates. Just a tad
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