New York City’s housing market in 2023 is in a cloud, with weak sales and challenges for buyers and sellers alike, largely due to the highest mortgage rates in 20 years, according to a new report. Ta.
Mortgage rates that hit 8% in October, the Ukraine war, and Hamas’ attack on Israel have pushed the Big Apple into a tailspin, according to a report released Wednesday by Coldwell Banker Warburg, the luxury real estate firm of Coldwell Banker. The volatility of real estate has increased.
Frederick Warburg Peters, president emeritus of Coldwell Banker Warburg, said that by 2023, despite signs of “urban health” such as crowded restaurants, concert halls and theaters, the city’s Residential real estate had a weak year in some respects, the report said. Big-ticket items like large co-ops, townhomes, and condos took longer to sell.
New York City real estate is behaving counterintuitively.
Many properties in the $5 million to $10 million price range took four to six months to find a buyer, according to data from real estate data analytics firm Urban Digs used in the report. Peters added that cheaper one- and two-bedroom properties had been on the market for months. Historically, homes in New York City take about three months to sell, according to an October 2023 report from real estate search engine StreetEasy.
At the same time, the median home price in New York City rose 7.6% to $839,000 as of November 2023, according to Realtor.com. Limited supply and high demand are factors contributing to the price increase.
Rising home prices are good for sellers, but they keep new buyers out of the market. Inventory sitting on the market for too long is an indication that the home was overpriced to begin with, meaning high prices are impacting both buyers and sellers.
“Sellers all believe their property is worth more than other comparable properties. That’s just human nature,” Peters says. “Aspirational pricing does not help sellers in this market.”
The Big Apple’s rental market also got tighter in 2023, with prices rising. Peters calls this an “interesting phenomenon” because typically an expensive and tight rental market motivates people to buy. But that wasn’t the case last year, when high mortgage rates shut out first-time and affordable home buyers.
Complex market conditions have left many buyers “caught in the middle,” Peters said. “Financing is very expensive, but the rental market is also very expensive. It’s a difficult time to enter the market in the city.”
Peters explains that this phenomenon primarily stems from supply and demand issues. After the world opened up after the pandemic, people were worried about buying a home and took advantage of lower rent prices instead, he said. But rent controls now limit the city’s landlords from raising rents, he said, so many people continue to rent instead of buying.
“Additionally, the supply of new rental properties is also limited because there is not a lot of new rental property construction going on,” he says. “At the lower end of the market (below $4,000), all of this was like a perfect storm.”
New York City housing outlook for 2024
Like many other real estate organizations, Coldwell Banker predicts that mortgage rates will continue to ease in 2024, but not to the sub-3% rates in 2021. Still, Peters says many wealthy buyers will finance their properties despite rising mortgage rates. Because they often think their cash would be better invested elsewhere.
“Unless you’re really wealthy, you don’t want to spend that much money on real estate when you want the money,” Peters says. Even if he feels like he’s costing him 5% or he’s 6% because of the mortgage interest rate, if he can get a 10% return on that money, “Of course I’ll do it.” “Yes,” he says.
Some wealthy real estate investors and consumers plan to take out loans, but rising mortgage rates are still keeping some wealthy people from buying in 2023. Luxury real estate transactions began to decline in the third quarter of 2023 compared to the beginning of the year. Only 231 home sales of $4 million or more were signed in New York City in the third quarter, compared to nearly 400 in the second quarter, according to the Olshan Luxury Market Report.
“I don’t really expect this year to be fundamentally different than last year. There’s always going to be a luxury market, because there’s always going to be a luxury market. New York is still New York.” Peters says. “Even for the wealthy, the interest rate environment is kind of a disincentive because many investors feel they could make more money with their money elsewhere.” It’s an election year, “so people are going to be holding their breath for the second half of the year,” which will slow the market further, he added.
Generally, when mortgage rates fall, more people return to the housing market, but even by 2024 mortgage rates will not have fallen enough to make a meaningful difference, Peters said. To tell. He added that it was unrealistic to think that house prices would “explode” if mortgage rates fell to 5%.
“Even if mortgage rates fall, we don’t expect prices to rise significantly, because the prices that formed in the teens and 2021 were rather the result of people paying 2.5% on mortgages. The money was essentially free. ” he says. “Even in 2024, buyers will still be paying twice as much on their mortgages. It’s unrealistic to think things will go back to the way they were.”