Back HomeThe End of the Golden Era for Low Interest Rates: Sellers Take Note
Nov. 8
Latest market reports have suggested that the Federal Reserve will increase interest rates in December from 0 to .25%, keeping inflation in check. November 6’s jobs report brought nothing but good news, with employment sitting at a benchmark of 5% and wage growth steadily increasing 6 cents per hour, or an annualized 2.5% gross salary take home. This news, then, necessitates some fine-tuning so that a money surplus does not drive the economy into overdrive, or, in simple terms, devalue the dollar.
New York real estate is about to become a lot more expensive. A December rate hike will effectively alter the identity and behavior of New York property buyers and sellers. To what end, it’s too soon to say, but a conservative estimate is that sellers, who’ve enjoyed naming their prices in a low inventory environment, will find it necessary to court buyers and negotiate their bottom lines.
Third quarter reports from the Corcoran Group indicate that Manhattan sellers have experienced their properties selling 26% faster than last year (days on market). In addition to resale co-op and condo inventory dropping a substantial 26% and 5%, respectively, their smaller unit properties have experienced price hikes, up 5% for co-op studios/10% for co-op one- bedrooms, and 15% for condo studios and 7% for condo one bedrooms since 3Q14.
New development has experienced a 69% increase in sales over the past year, with studio prices bumping up 1% and one-bedroom prices jumping up 9%. With that steady wave of buyers, the market has undergone a 30% reduction in months of supply, or total units available.
While these statistics suggest a general positive market slope, what is worthy of seller notice is the impending change in financing cost that will alter these numbers.
Cash buyers may not look twice at paying sticker price, but first time primary residence buyers are, historically, the most apprehensive about a policy that makes a given property that much more expensive. This sentiment, in turn, often necessitates negotiation on the part of the seller and leverage on the part of the buyer.
Buyers have been long primed for a rate hike, and the market has enjoyed a cyclical period of sustained highs. These stifling high sticker prices, notes Corcoran broker Antonia Watson, won’t be supported by the market much longer given the fed’s promise to make borrowing funds more expensive in the coming year.
A fundamental aspect for sellers to understand going into a more expensive marketplace is that market policy is built on succession; one policy builds on another. Similar to the way the cost of living rises every year, the cost of borrowing in a relatively monied market rises year over year.
Noted in CNN Money’s “What a Fed rate hike would mean for you,” Robert Denk, senior economist at the National Association of Home Builders, clarifies, “The precise starting date [of rate hikes] is much less important than the path of rate increases that follows.” Translation: .25% is only the tail’s end of what’s up the fed’s sleeve.
The most important upcoming data sellers should watch out for going into the fourth quarter is year over year contracts signed in Manhattan, Brooklyn, and Queens. This information will illustrate the strength of the market and buyer willingness to purchase property despite ballooned cost.
At this rather late point in the game, sellers looking to maximize profit would do well to consider listing in the short time before the fed’s next announcement.
Written by Alexandra Gámez New York
