A Resilient NYC Real Estate Market
If you’re like most of my clients, you have concerns about how the Federal Reserve’s recent decision to raise interest rates three-quarters-of-a-point is likely to affect the NYC real estate market. Our market has historically been more resilient to rate increases than the national market, for several reasons.
First, between 40 and 47% of transactions in NYC are all cash at any given time. This is a significant bulwark against rising interest rates we have that the rest of the country doesn’t.
Second, the average national buyer is using an FHA loan to put down 5 or 10% on a $375k purchase. Because a majority of the NYC market is coops, and our average purchase price is $1.9m, the typical NYC buyer is putting down over 20% on a loan amount of over $1m. The lower loan-to-value ratio, jumbo loan amount, and fact that the average NYC buyer has much better credit than the average US buyer, all qualify NYC borrowers for rates almost an entire point lower than the national average. For these reasons, NYC real estate tends to suffer less and rebound more quickly from market corrections than the rest of the country.
Mortgage Rates in NYC
Speaking of market corrections, the rest of the country was due for one even before interest rates rose: The average US sale price has risen 36% the last two years, while the NYC market is only now getting back to its 2019 pricing. The rest of the country has been on a tear while NYC has only recently regained its pre-COVID footing. What will become far more important over the next couple of years, is expert mortgage bankers able to offer flexible loan products. While conventional rates on a 30-year-fixed are currently at 6.25% with jumbos at 5.5%, 7 and 10/1 ARMS are at 4.75%, and 4.5% with 30% down. This is a significant savings, and with the average NYC homeowner reselling every six years, one more borrowers will look to take advantage of.
How does it affect Sellers?
For sellers, if you’re looking to upgrade to a larger home, it may be worth your while to wait and see what affect current market conditions have for the rest of the year. While attempts to predict the future are mostly unhelpful, there is virtually no evidence that prices will increase. Waiting-and-seeing may especially be in your interest if you have a lot of equity in your current home and can therefore borrow less on your purchase. If you’re looking to cash out your home equity, your buyer pool will likely have more buying power now than three or six months from now. If you’re a purchaser, rates could very well hit 8% by end-of-the-year.
This is likely temporary, so borrowers should have the opportunity to refinance any loan taken this year in the next 36 months. It also matches what interest rates were in 2000, and is well below what they were from 1980 to 2000. For these reasons, it’s wise not to try to time the bottom of the market. Historically, NYC buyers looking to time the bottom of the market have been disappointed. You’re likely to have more buying power now than end-of-the-year, and we cannot count on a price correction to offset rising mortgage rates.