If you’ve been thinking about moving to New York you may want to reconsider, following a new report from a real estate broker.
Cash is King
The Big Apple’s real estate scene has hit a new level of exclusivity, with high mortgage rates pushing out everyone except the richest buyers. The latest trend? Buying homes with cold, hard cash.
New York’s New Real Estate Trend
It’s official: nearly 70% of homes in Manhattan bought in 2023’s last quarter were purchased with cash. That’s a massive jump from 55% back in 2022, but what’s driving this change?
High Rates, Higher Stakes
Well, sky-high mortgage rates of around 6% are making it tough for anyone without a big bank account to secure a loan.
Cash Buyers Take Over NYC
As Pamela Liebman, CEO of real estate brokerage Corcoran, explained to the Financial Times, “High mortgage rates are creating a real void for people who don’t have the strong finances that are required to buy in cash. It’s driving people who would be home buyers in New York into renting.”
Priced Out
As buying becomes more out of reach, more and more people are turning to the rental market.
Renting Rises
Corcoran’s latest report shows a 4% spike in new tenancies in Brooklyn and in Manhattan this January compared to last year.
Record Rents
Meanwhile, rents soared to the highest they’ve ever been – at a median high of $3,950. “It tells me that people are not willing to take on a certain level of debt in mortgages,” Liebman explained.
Supply Struggles
The lack of housing supply is pushing up rents, while the opportunity to get a foot on the property ladder is becoming a pipe dream for many New Yorkers.
Cash Buyers Snap Up Properties
The gap in the property market is growing even wider, and those without the ability to buy with cash are getting frozen out while the rich keep snapping up properties.
Psychological Play
“Part of it is psychological,” Liebman said. “Everyone thinks rates are going to come down. So they’d rather pay cash now and refinance later.”
Price Peaks
The median sales price for a Manhattan apartment reached $1.15 million in the fourth quarter, up 5% from last year. It’s nearing the record $1.25 million mark that was set in 2022, just as the Fed started hiking rates.
Market Slowdown
But despite these sky-high prices, the market is slowing down. Attractive properties are now sitting for months instead of going within days.
National Housing Slump
The US housing market in general isn’t doing much better. Property economist Thomas Ryan says that even with a slight uptick in January, the market is “still practically frozen.” Last year, property transactions in the US fell below 4 million, a long way from the pandemic peak of 6 million.
Liquidity Wins
Cash isn’t just king in New York. Erin Sykes, a real estate agent in New York and Miami, stated that cash purchases have been rising for a while now.
Cash Buyers Lead the Charge
“So many were in cash before because they needed to win the bidding wars,” Sykes said. “The people aggressive enough to do a transaction now are the people who have liquidity or move counter to the market.”
Housing Shortages
New York’s real estate problems are being made worse by a serious housing shortage, which Developers blame on regulations limiting rent increases and the expiration of a decades-old tax incentive.
Construction Collapse
New residential construction permits dropped a huge 55% in the last quarter of 2023 compared to 2022.
Office Conversions
Mayor Eric Adams has floated the idea of converting old office buildings into apartments to help with the housing crisis, but architects and developers warn that this is a complicated and expensive solution that won’t produce nearly enough new apartments.
Vacancy Vanishes
The housing supply issues have driven vacancy rates in New York down from nearly 4.5% in 2021 to just 1.4% now, according to the New York City Comptroller. “The affordability in New York is rough right now. It’s taking a lot of people out of the market,” Liebman said.
Affordability Crisis
New York City’s real estate market is increasingly becoming a playground for the rich. With mortgage rates high and cash purchases king, average buyers are being left in the dust. This is not an issue with a quick fix, and it will require a lot of thought to find solutions.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
