Stop me if you’ve heard this one:

“Banks are lending at nearly zero percent.

After my deductions, money cost less than 1.5%.

Why wouldn’t I borrow as much as I could?”
This is the conversation I’m having with buyers right now.

They understand that their buying power has doubled since the time of 6% rates.

Since purchase prices haven’t doubled, this certainly seems to be playing an outsized role in the current strength of the real estate market.

Assuming that a buyer has all the features a bank wants and is willing to endure the arduous underwriting the process requires- seems like buyers require

marathon-like endurance these days- then there is light at the end of the tunnel.

A bright light that is attracting buyers like moths to a flame.
Currently, buyers can take a jumbo loan with a 30-year fixed mortgage at 3.5% interest rate.

Below $417,000 the rates drops 1/4 of a point to 3.25%.

Historically low.

Interest-only products reach near 2% now, sometimes even lower for someone who doesn’t see a loan needing to extend past 5 years.
But it’s not just buyers of cooperatives and condominiums.

Developers, too, have been hugely active, taking advantage not of these retail rates, but super low institutional rates.

The inventory crisis that I wrote about last month, that has been on my mind for months- could be helped in part by the inventory which will almost definitely be hitting the market via New Development.

I have focused on the luxury end of the market, where buildings like 432 Park, Carlton House, high end housing stock like 101 West 87th (which I’ll cover in my new development section), and 141 East 88th Street have been proving the merit of building large apartments and catering to those buyers.
What I hope to see, what we

could likely see over the next 12-18 months is more 1-2 bedroom condominium units via new development.

Not every new construction can be located in a prime area.

Not every developer can deliver the highest of the high end.

Some will, by design and desire, decide to build 1-2 bedrooms units.

They will come on the market in the $1100-1400 per square foot range, depending on location- and there will be eager buyers to snap them up.
Unfortunately, the rental market will bring competition of its own.
Developers have run the numbers and will bring many more all-rental projects to market because they can borrow at such low rates.

They will rent up the entire building, sell the building to an institutional investor, and go on to build whatever the market seems to be calling for at that future time.

Of course, it should not go without saying that not every prospective buyer can find a property in his/her price range.

And the rental market, up 10-20% this year, reflects massive pent-up demand for rental housing in NYC.

I used to laugh about the concept of a “housing crisis” which is built into some of the language in legislation for rent regulation.

But really, there are not enough apartments on the market for the rental or sales demand.

In 2008-2009 both the rental and sales market were down- when people felt they were inversely related.

Now we’re seeing the other side.

Some have argued that the rental prices will dip- which wouldn’t be a terrible thing.

But unless something cataclysmic happens, rents will remain high.
Anecdotally, newbies to New York City, in their 20’s, are flocking to Brooklyn.

Manhattan has become unaffordable for a vast majority of new graduates, even those lucky enough to get jobs out of college.

Rental buildings in Brooklyn will end up being a profitable direction to take new construction, to the chagrin and dismay of many a buyer.

We haven’t even covered the lack of inventory in Williamsburg, Park Slope, and other area which my team covers, on both sales and rental sides.
Will we see enough new condo construction in the mid-range?

Investors will be competing with primary buyers.

If rates stay near this range, we’ll see huge appetite for these units that make it to the sales market, but I don’t know that it will be nearly enough in the next 6-12 months to get through demand.
The other side of this discussion is how impactful a rate increase of 1/8, 1/4, 1/2, or more in the rate- also known as 12 basis points, 25 basis points, 50 basis points, etc- will be on buyers’ psyches.

Buyers will argue that if rates tick up 1/2%, this

could be disastrous on the sales

market.

Rate increases would change developer math as well, bringing more condos vs rentals to market, which wouldn’t be a bad thing.

Something to think about.
Also, I’ve already written that some of the gains would be tempered by rate increases, but we have the Fed working to keep rates low, and inflation, shocking to me that it has still stayed away, still doesn’t seem to be on the near-term horizon.
My view will be that rates, while fluctuating to the news in DC over the next 6-12 months,

will leave open

window of time available for buyers of all stripes to make moves.
We shall see.
That’s all for now.

We have great mortgage experts to help you, should you wish to take this from reading to action.

Have a great month!
-Scott