Interest Rates: Santa or Grinch?
A: Fed Chairman Alan Greenspan boosted the key feds funds rate by another 1/4 point today to 4.25%. Every time interest rates move up, buyers in the NYC Housing market face higher borrowing costs and can afford LESS of a purchase price.
HOWEVER: The Fed did change one aspect of his quarterly statement that is very widely watched by major trading markets and economists. Alan Greenspan dropped the description of current rate hikes as "accomodative", indicating that the Fed is closer to an END to interest rate hikes.
WHAT TO EXPECT: A RISE in Stock Markets as this was a very pleasant surprise. A RISE in demand for NYC Housing Markets as it appears more likely that only 1 more interest rate hike is in the works, and not 2! This should keep buyers happy knowing that 30YR Fixed rates will remain below 7% for a bit longer.
Its the basis of most of my fundamental analysis when I view the NYC housing markets. Where are interest rates going? Personally, I think we have another 2-3 interest rate hikes left in the tank (due to rising inflationary indicators such as gold & oil, and a fast growing US economy), which would inevitably bring 30YR fixed mortgage rates closer to the 7% mark. As interest rates get closer to or go above this level, sellers of New York City real estate should be prepared to lower their asking prices as buyers face higher borrowing costs.
I would expect the higher end apartments, the luxury 2-4 bedroom condos and co-ops, to get hit the hardest first, especially those in neighborhoods that are not near Central Park or a good school district. As most real estate professionals advise, LOCATION-LOCATION-LOCATION, this is where it becomes most true: IN A DOWN MARKET!
For example, a luxury 2BR condo on 85th & Madison Avenue (UES) will not experience as drastic a pullback in eventual selling price as a luxury 2BR condo near 28th street and 2nd avenue (Murray Hill) would. There will always be value in New York City for closeness to Central Park, and for being in a reputable school district, such as PS 6 in the Upper East Side. Apartments in these areas should be somewhat protected in a downturn.
In addition, studios and small 1BR's will also be somewhat protected, simply because of the fact that there is more demand for this type of apartment. As prices declince back to realty, buyers who were 'priced out' 6 months ago, all of a sudden will find good value and rush back into purchasing mode.
As for the end of the interest rate hike cycle, keep reading www.urbandigs.com for the latest information on the overall fundamentals that lead to the feds ultimate decision.
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