Manhattan Prices Will Drop
A: Sorry to report it to you like this, but welcome to this very new world of higher rates! I've discussed it and discussed it and tried my best to prepare buyers and sellers about what is going on macro-economically that would lead to a higher interest rate environment. Now its here and prices will have to come down to compensate for more expensive loans!
10YR Treasury Note Surges to 5.11%! All I can say is WOW and watch out for all those with resetting ARM's, high credit debt, or serious buyers who now have to re-analyze their max budgets! Check out my past stuff to get re-acquainted on what I discussed and how to adjust:
Jobs Market Strong - Rates Headed Higher
10YR Surges - Mortgage Rates Next
Economy Still Strong - Yields Rise
Rates Going Higher - How To Adjust
Interest Rate Talk Likely To Begin Again
Expect the effect on buyer activity to hit home in a month or so as buyers realize what is going on at a lag! This will be one tough summer in Manhattan unless inventory trends stay as tight as they have been keeping buyers options low.
Posted by Steve
Thu Jun 7th, 2007 02:00 PM
Sure Noah, higher interest rates related to higher inflation will lead to increased loan costs "however" the infamous however usually higher interest rates are related to an economy that is chugging along quite robustly which means increasing wages. Higher wages offset completely if not more so, those higher interest rates. The bond market is saying that the economy will expand and higher rates will follow. But as stated above that economic expansion leads to bigger payroll which means more to spend on those Manhattan condos.
Posted by ModularHomeFinder
Thu Jun 7th, 2007 03:53 PM
Thanks for the info. I look forward to future posts.
Posted by uwsider
Thu Jun 7th, 2007 05:24 PM
To Steve,
In theory, higher rates would lead to higher pay. But the following factors need to be accounted for
- it may take 12-18 months from now before meaningful pay increases offset higher mortage rates. The rates are goin up NOW affecting buyers NOW. The buyer may or may not see a meaningful pay increase
- the increase in rates may come at a cost of jobs ( loan agents, builders, less money for speculators... this all trickles down)
- if the trend is come the old "oh, I can always re-fi later" excuse to buy at inflated prices is gone
This will be interesting to watch.
Posted by Noah
Thu Jun 7th, 2007 06:39 PM
Steve - All good points by you and UWSider. But I feel strongly that right now rates are rising because of inflation fears NOT because our economy is growing too fast and is so strong it needs to slow down.
Yes, the US economy is strong, but rates are rising because of global inflation fears that finally are becoming a concern for markets. Europe and Asia's economies are growing much faster than ours!
So, I think the stock selloff is because the market is realizing that the US economy being too striong is NOT the reason why rates are rising; rather inflation is the reason and thats not good for equities. A strong economy could be reason to maintain equity levels, even if rates are rising to try to slow things down. Not so here.
Posted by Dave
Fri Jun 8th, 2007 03:42 AM
Rising inflation is a global problem - same here in England and Euroland - we are seeing rising inflation and concurrent interest rate rises.
There is no way in the world that in an era of rising inflation, central banks will allow wage settlements to increase too much. Doing so would be shooting themselves in the foot as they struggle to contain inflation through increased rate rises.
Wage inflation is 100% something you cannot rely on to counteract the interest rate rises we are - and will be - seeing going forward.
Posted by uwsider
Fri Jun 8th, 2007 08:53 AM
Noah,
Off topic - FYI, I'm using firefox browser at work and at home (1.07) and I ALWAYS need to hit refresh before seeing updates to the main page and comments. You may want to investigate as i ONLY see this with your site
Posted by Noah
Fri Jun 8th, 2007 09:29 AM
yea me too..hmm. Also when i use IE i see weird characters in content, but now when i use firefox..ill try to find out
Posted by havensofmanhattan
Fri Jun 8th, 2007 10:15 AM
I use firefox too and this always happens to me.
Posted by journalist
Fri Jun 8th, 2007 11:54 AM
i would say nyc is still flippers' heaven, since we got too many legal and illegal immigrants keep rushing in
look at the below filpping record:
1809 7th Ave Apt 6E at 110 and 111st
MANHATTAN block:1820 lot:61 2/6/2006 BOTH RPTT AND RETT 265,000
in just a couple of months, this flipper announced a deal is done to sell it for $649000 !!!
and this is an HDFC coop, what HPD means for low-income families
you see how crazy it is?
Posted by Ed
Fri Jun 8th, 2007 06:44 PM
didnt mortgage rates rise at the same time last year, and then came down by the years end?
Posted by John K
Sat Jun 9th, 2007 10:13 AM
Oh, Noah, how contrarian of you!
If prices drop at all, expect the media to just go crazy.
I don't think anyone would be sad if they did drop, right? And, any drop would be insignificant, right?
I mean, even if prices dropped 50%, on average, that would only mean prices in Manhattan would become "expensive" instead of "ridiculous".
Posted by Chris Lengquist
Sun Jun 10th, 2007 12:53 PM
In the long run wages will increase. IMO, the prices will have to drop in the short run to compensate for the higher interest rates. Great insight.
Posted by mike
Mon Jun 11th, 2007 01:01 PM
And what is going to happen when this country elects a democratic president to go along with the democratic congress....taxes will go up, further reducing the income that remains after taxes available to pay those adjusting mortgages, if you think we have rising defaults now just wait.
Posted by ft
Mon Jun 11th, 2007 06:37 PM
mike, this was the worst comment i have ever seen on this blog. period
Posted by bobo
Tue Jun 12th, 2007 03:15 PM
I rent in Manhattan, and trust me, I want prices to fall so I can jump in... but I believe they will not. Lofty asking prices might come down but no one will be selling their home for less than 2006 prices. With that being said, Manhattan is a big place and demand could slow for fringe neighborhoods and high end luxury.
Jobs will drive apartment prices much more than rates ever will. Until we see a recession prices will be very sticky. The difference in monthly payment for an 800k, 30yr loan at 8% vs 6% is $1,100. Peple will tighten the belt, rent out a room or chose a smaller sized apartment to make that mortgage pmt. In addition there are mortgage loan products to ease that pmt (i.e. interest only loans that will only be $540 above the 6% pmt.)
You have to have a J-O-B if you want to live in me!