New York City’s housing market went dark in 2023 as sales slumped largely due to the highest mortgage rates in two decades, creating challenges for buyers and sellers alike, according to a new report.
Mortgage rates that peaked at 8% in October, the war in Ukraine, and Hamas’ attack on Israel increased volatility in the Big Apple’s real estate, according to the report released Wednesday from Coldwell Banker Warburg, the luxury real estate office of Coldwell Banker.
Despite signals of “urban health” in 2023—like busy restaurants, concert halls, and theaters—the city’s residential real estate had a weak year in some respects, Frederick Warburg Peters, president emeritus of Coldwell Banker Warburg, wrote in the report. Big-ticket items including large co-ops, townhomes, and condos took more time to sell.
New York City real estate is moving counterintuitively
Many properties in the $5 million to $10 million price range took four to six months to find a buyer, according to data from real estate data analytics company UrbanDigs that was used in the report. Even less expensive one- and two-bedroom properties sat on the market for months, Peters added. New York City homes historically take about three months to sell, according to an October 2023 report from real estate search engine StreetEasy.
At the same time, the cost of the median-priced home in New York City rose 7.6% to $839,000 as of November 2023, according to Realtor.com. Limited supply and high demand are the driving factors for rising prices.
Although higher home prices are good for sellers, it’s keeping new buyers out of the market. Inventory sitting on the market for longer also signals that homes are priced too high to begin with—meaning that high prices are affecting both buyers and sellers.
“All sellers believe their property is worth more than they believe other comparable property is worth. That’s just human nature,” Peters says. “Pricing aspirationally doesn’t serve sellers in this market.”
The rental market in the Big Apple also got tighter and more expensive in 2023, which Peters calls “an interesting phenomenon” because an expensive and tight rental market usually drives people to buy, he says. But not last year, when high mortgage rates kept first-time home buyers and buyers of lower priced homes out.
The complicated market conditions left many buyers “caught between a rock and a hard place,” Peters says. “Financing is extremely expensive, but the rental market is also extremely expensive. It’s a tough moment to enter the marketplace in the city.”
Peters explains that this phenomenon largely stems from a supply and demand issue. After the world opened up following the pandemic, people were unsure about purchasing a home, and instead took advantage of lowered rental prices, he says. But now because of rent control, the city’s landlords are limited in how much they can raise rent, and many people, therefore, are continuing to rent instead of buying, he says.
“In addition, there just hasn’t been much new rental construction, which also constrains the supply of new rentals,” he says. “At the lower end of the market ($4,000 and below), all of this has been something of a perfect storm.”
2024 NYC housing outlook
Like many other real estate organizations, Coldwell Banker predicts that mortgage rates will continue to ease in 2024—but not to the sub-3% rates of 2021. Still, despite higher mortgage rates, many wealthy buyers will finance their properties, Peters says, because they often think they can invest their cash better in something else.
“Unless they’re really really wealthy, they don’t want to commit so much of their money to a real estate purchase when they’d rather have the money,” Peters says. If they feel as if the mortgage rate is costing them 5% or 6%, but they can make 10% on the money, “then obviously they will do that,” he says.
Although some wealthy real estate investors and consumers will finance, higher mortgage rates still kept some of the rich from buying in 2023. Luxury real estate deals started to slump in the third quarter of 2023 compared to earlier in the year. In the third quarter, there were only 231 contracts signed in New York City for home sales of at least $4 million, compared to the nearly 400 in the second quarter, according to the Olshan Luxury Market Report.
“I don’t really anticipate this year being radically different from last year, there will continue to be a luxury sales market because there’s always one; New York is still New York,” Peters says. “Even for rich people, the interest rate environment is something of an inhibitor because many investors feel they can make more money with their money elsewhere.” Plus, we’re officially in an election year now, “which means that the second half of the year is going to have people holding their breath,” causing even more of a slowdown in the market, he adds.
Lower mortgage rates, generally speaking, will bring more people back to the housing market, but mortgage rates won’t drop enough in 2024 to make a meaningful difference, Peters says. Believing that home prices will “explode” once mortgage rates drop to 5% is unrealistic, he adds.
“I wouldn’t look for big price increases as mortgage rates come down because the prices that were created in the teens or 2021 were more the result of people paying 2.5% for mortgages. Money was basically free,” he says. “In 2024, buyers will still be paying double that for a mortgage. To think that it’s going to go back to where it was is unrealistic.”
