By Konrad Putzier
While Manhattan’s residential real estate market continues to boom, rising mortgage rates are starting to leave their mark.
Contract activity in the third quarter was down 30 per cent, according to Streeteasy’s quarterly report. This downturn is mainly seasonal, and contract activity is still 10% above the third quarter of 2012.
But a 15.3% rise in broken contracts in the past quarter indicates that rising mortgage rates have made homes unaffordable for some buyers, Streeteasy noted.
In July, when mortgage rates saw a particularly steep rise, the number of broken contracts increased by a staggering 37%. Moreover, the report said studios fared comparatively well — fueled in part by investors not reliant on mortgages paying in cash.
Rising mortgage rates may have also led to the highest market share of co-op sales in nine years at 62%, Douglas Elliman’s quarterly report noted, as potential buyers scrambled to close deals before mortgage rates rise further. The median sales price in the co-op market was up 0.8% $705,325 and the number of sales jumped 37.6 per cent to 2,378.
As impactful as mortgage rates have been, they couldn’t cool down Manhattan’s booming residential market.
Inventories continued their decline in the third quarter to a record low, leading to the quickest absorption rate on record with 3.6 months, according to Douglas Elliman. This was down from 5.9 months a year ago. Manhattan’s listing inventory fell by 21.9% to 4,567, while the average days on the market fell by 53.9% to 88 days, both on a year-to-date basis.
The market pace was also fueled by market-wide sales transactions in Manhattan reaching the highest level since Q2, 2008, as Corcoran’s report noted.
Corcoran found a 5% increase in market-wide closed sales to 4,164 and a 12% in the average sales price to $1.487 million since the same time period a year ago.
Corcoran’s report also noted that the last quarter that had more reported closings — Q2, 2008 — had an inventory level 73% higher than Q3, 2013. The report said this illustrates the extraordinary sales performance in the past quarter, despite a shortage of properties for sale.
There is reason to believe that Manhattan’s residential real estate market will continue to be hot. TOWN Residential’s quarterly report found a 60% year-over-year increase in building permits for New York’s five boroughs — typically an indicator of confidence in the market.
Streeteasy research boss Sofia Song said she expects prices and contract activity “to steadily increase toward the end of the year.”
But it also cautioned that the lowering of loan caps by Fannie Mae and Freddie Mac, starting in 2014, will hurt mid-segment buyers, and may offset the effects of the Fed’s decision to keep down mortgage prices.