Tumultuous Real Estate Market About to Settle Down, Experts Say
MANHATTAN — As mortgage rates rise, Manhattan's real estate market is about to get a little less tumultuous, real estate experts said.
The spring selling season was the busiest since the last boom, according to StreetEasy.com's Manhattan residential market report released Tuesday, which tracked a record high of 4,185 new contracts signed in the second quarter of this year.
That was up 35 percent from previous quarter and 22 percent from the same time last year.
"You had very little inventory and very low rates. People were thinking, 'I better enter the market now before I'm priced out.' That's the buyers' mentality," StreetEasy's Sofia Song said.
"Brokers always say, 'Now is the time to buy,'" she added. "I would say now is the time because we already know the rates are going up.... That is our crystal ball."
The average rate for a 30-year fixed mortgage jumped this week to 4.46 percent from 3.93 percent — the biggest one-week increase ever recorded.
Sales volume might increase in the short term as buyers worry about even bigger mortgage rate increases due to the Federal Reserve's plans to remove its market support by mid-2014, Song predicted.
But she said the increase wasn't likely to have a negative impact on the market.
"You have to put it into perspective," she added. "When my parents bought their house in 1986, rates were 11 or 12 percent."
Amid the recent frenzy of the market, some apartment prices jumped 25 percent in the last two months alone and were up 50 percent from two years ago, Douglas Elliman broker Brian Meier wrote in his July newsletter.
He said most properties were being snatched up within a week of being listed.
The third quarter will likely continue to be very active, but the market may slow down after that, said real estate expert Jonathan Miller, who wrote the Manhattan market report for Douglas Elliman, also released Tuesday.
When credit eases because mortgage rates are higher, "you expand the universe of people who qualify for financing," he explained.
Higher mortgage rates mean some people will decide to wait to buy, paring back some of the demand, Miller said.
"It takes some of the froth out of the market," he said. "Even though rates are at still near historic lows, you take a little of the edge off."
Inventory will likely increase, he noted.
"Easing of credit is what brings more inventory on the market," Miller said, explaining sellers may have had to wait until they could get financing to buy a new home before they could put their current home on the market.
The data crunchers at StreetEasy found that inventory was up 8.4 percent from last quarter, which eased some competition.
"Inventory finally stopped bleeding," said Song, who thought some owners may have been tempted to list their apartments because of signs of a strong sellers' market, bidding wars and a 33 percent year-over-year decrease in price cuts.
Inventory, however, was still down 11.4 percent from a year ago, StreetEasy found.
And Elliman's report — which said the median Manhattan sales price was up 4.3 percent from last year to $865,000 — found that inventory fell again in June after rising slightly in May. It was the lowest second quarter on record for Manhattan's inventory, the report said.
Despite an uptick in new construction, the apartments set to come to the market in Manhattan won't create enough new inventory since they are mostly luxury digs aimed at top 10 percent of the market, Miller said.
"What about the other 90 percent?" he asked.
Entry-level buyers made up the bulk of the purchasers in the second quarter — 55 percent of contracts were for apartments listed below $1 million, according to StreetEasy. But the high end of the market didn't fare too poorly, with 489 contracts signed for homes listed for $3 million and above — a 38 percent increase from the year before.