How Has NYC Residential Real Estate Handled Inflation?

The Weekly Recap

Good Morning and Happy Memorial Day Weekend! Mortgage rates fell for the third consecutive week and are now below 7%, the NYC rental market is depressing, more Fed officials are coming out in support of holding rates steady, the DOJ is pushing for a breakup of LiveNation, banking regulators are discussing slashing new capital requirements for banks. OpenAI is using an eerily similar voice likeness to Scarlett Johansson for their talking AI and Equinox ditched its partnership with Kiehl’s angering members.

And, if you missed last weeks newsletter on Common Mistakes to Avoid When It Comes to Getting a Mortgage, you can click on through for some helpful tips.

How Has NYC Residential Real Estate Handled Inflation?

Inflation data continues to drive monetary policy. Although the April numbers moved in the right direction for the first time in almost five months, it was not enough to keep governors of the Federal Reserve or Chairman Powell to move away from the ‘higher for longer’ mantra of interest rates. One of the segments of the market and economy that is hit hardest by continued high interest rates and inflation is residential real estate. Here is how each segment of the market has handled the higher rate environment in NYC:

Rental Market: Renters are disparately impacted by inflation more than any other segment of the market. While buyers can lock in an interest rate for 30 years and re-finance down, renters are beholden to the year over year changes in economic conditions. According to a report in Curbed, 1 in 5 New Yorkers now spend more than 50 percent of their income on rent and those earning the city’s annual average wage can afford only 5 percent of available inventory. Shelter costs (rents) are one of the main drivers for inflation and with interest rates remaining high to combat inflation, its keeping first time homebuyers in the rental market creating more demand in a space with very little inventory, driving prices and competition up. The median rent for an apartment in NYC is currently $4,220.

Rent is the single largest net-outflow of capital for any individual. If as a renter you have the means to buy but are waiting for rates to come down, it could cost you hundreds of thousands of dollars in paid rent and lost appreciation. The below chart illustrates how much rents have jumped in such a short time.

Buy-Side of the Market: High rates have hindered some homebuyers from entering the market but it has not completely stopped those who have come to terms that we may never see a 0% Fed rate environment again and that higher rates are a part of life moving forward. Buyers who ask if now is a good time to buy, my retort is always, “it’s never a bad time to own” and that “your return on investment in real estate is not determined by timing the market, but by time spent in the market”. You are better off buying in a high rate environment with lower pricing, than a low rate environment with higher pricing. Once rates get below 6% and we see a number like 5.99% for the average 30 year fixed mortgage, we will see a massive entrance into the market place which will drive pricing up.

Sale-Side of the Market: Inventory is low across the city, although we have seen more units come to market over the past few months albeit not enough to make an immense impact. Sellers are uniquely positioned that if they come to the market and are priced correctly, they could go into contract within 30-45 days. We’ve seen instances as well of buyers who have been looking on the market for quite some time, that when a really great property comes to market, that sellers can expect numerous offers and move to “best and finals” from buyers. People who purchased in super low rate environments are hesitant to list because they would then need to purchase in a higher rate environment which is keeping inventory levels low. Even as rates drop, new inventory to the market will lag behind the influx of new buyers who have stronger purchase affordability.

Inflation is a tax on everybody regardless of income or class. With positive news from the April CPI report as well as the low jobs report, it can be an indication that the economy is slowing down and our monetary overlords at the Federal Reserve will start to bring interest rates down. Fingers crossed for that September rate cut.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan.

Mortgage Rate Update

Mortgage rates fell below 7% for the first time in over a month as treasury yields continue to soften. Total inventory for both new and existing homes is up nationwide and with greater supply coupled with increasing inventory is an encouraging trend and sign for the housing market.

News You Can Use

• NYC Rents Are So High That Only 5% Are Affordable for the Average Salary Bloomberg

• Fed’s Collins, Mester Emphasize Need for More Data to Cut Rates Bloomberg

• Dimon Led Bank of CEO’s to Fend Off Tougher Capital Rules Wall Street Journal

• One of the Last Big Bears on Wall Street Turns Bullish on US Stocks Bloomberg

• Private Equity Wants In On College Sports Wall Street Journal

• Fed’s Governor Waller Wants ‘Several Months’ of Good Inflation Data Before Cutting Rates CNBC

• US Regulators Reconsider Capital Hike for Big Banks Reuters

• Record NYC Memorial Day Travel Signals Traffic Delays for Region Bloomberg

• Scarlett Johansson Hired Lawyers to Push Back on ‘Eerily Similar’ OpenAI Voice Bloomberg

• Equinox Members Strike Back After Gym Removes Kiehl’s Products Daily Mail

The Deep Insight

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