Back HomeThe real estate market and the federal reserve rate
In the past decade, the New York City real estate market has seen price surges, has endured economic panics, has skyrocketed, and now the market has come to a halt because of extremes overflow in supply. At first, sellers and developers alike thought there were no buyers ready for the market. However, there is a demand for these types of properties but not at the prices that were once seen in 2014 when luxury condos peaked in price at an astonishing eight figures.
“The corridor in Midtown that holds many of these buildings, West 57th Street, has experienced what broker Dolly Lenz calls “a complete halt” in activity from über-wealthy buyers, and there are similar signs of a slowdown happening elsewhere” (1). Many of the buyers are waiting because they think the stock and real estate markets are unstable. Or perhaps they are waiting for sellers to drop prices. There currently is not an immediate demand for these properties; most of the properties will be for investment use. Even developers are currently putting projects on hold.
“It’s not that there aren’t any buyers at this level,” real estate appraiser (and Curbed columnist) Jonathan Miller told the Times. “It’s that there aren’t buyers willing to pay 2014 prices” (1). Currently, both mortgage rates and interest rates are low, which lowers the perceived risk for a new buyer to purchase a luxury condo. The Federal Reserve generally aims to keep interest rates low to encourage investments and further stimulate the economy. With the threat of unstable markets both abroad and domestically nearly over, there is a possibility of the Fed raising interest rates to be sure that inflation does not totally increase.
That being said, this potential rate hike could affect the real estate industry in multiple ways. The Real Deal wrote recently that “on the one hand, it indicates a healthy economy, which means more demand for office space, retail and housing. On the other hand, higher benchmark rates tend to trickle down to higher mortgage rates and bond yields, which raise the cost of financing and put downward pressure on commercial property prices” (2). When the next Federal Reserve meeting occurs in September, it should be interesting to see (firstly) if they do change the interest rates to be higher and (secondly) if they do, how this in turn will affect the real estate industry (and, more specifically, the luxury condominium market in Manhattan).
(1) NY Curbed
(2) The Real Deal
