The latest data reveals a striking trend in Manhattan’s real estate landscape: a surge in cash purchases accounting for over two-thirds of home sales last quarter, marking a record high. The driving force behind this shift is the soaring mortgage rates, which have soared to around 6 per cent, dissuading all but the wealthiest buyers from taking on loans.
Pamela Liebman, CEO of Corcoran, a prominent real estate brokerage, highlighted this phenomenon, stating that nearly 70 per cent of Manhattan properties were acquired without mortgages in the final quarter of 2023, a significant leap from the 55 per cent seen in the same period in 2022. High mortgage rates are creating a significant barrier for potential buyers without substantial financial resources, leading many to opt for renting instead. Corcoran’s report further underscores this trend, indicating a 4 per cent increase in new leases in Manhattan and Brooklyn in January 2024 compared to the previous year, alongside a record median rent of $3,950.
The reluctance to incur mortgage debt has led to a “void in the middle” of the property market, with affluent buyers dominating while those unable to pay cash face challenges amid escalating rents. The median sales price for Manhattan apartments reached $1.15 million in the fourth quarter, up 5 per cent from a year earlier, approaching the record high of $1.25 million set in the second quarter of 2022. However, the pace of buying has slowed, with prime properties lingering on the market for extended periods, contrasting with more affordable markets like Charlotte, North Carolina, where homes sell rapidly.
Despite a slight uptick in transactions in January, Thomas Ryan, a property economist at Capital Economics, notes that the US housing market remains stagnant, with transactions significantly below the 2010s average. Erin Sykes, a real estate agent and economist, attributes the surge in cash purchases to buyers seizing opportunities amid rising mortgage rates, viewing them as an advantageous time to strike deals. The challenges facing buyers in New York are further compounded by a severe housing shortage attributed to regulations limiting rent increases and the expiration of tax incentives for new construction projects. Mayor Eric Adams has proposed converting obsolete office buildings into residential towers as a potential solution, although this presents technical and cost-related hurdles.
The supply crunch has significantly reduced vacancy rates, plummeting from nearly 4.5 per cent in 2021 to 1.4 per cent, exacerbating affordability concerns and pricing many out of the market. As Liebman aptly summarizes, New York’s housing market is currently facing rough terrain, posing significant challenges for aspiring buyers.