How Mortgage Rates Influence Manhattan’s Resale Market

The residential real estate market in Manhattan is subject to various influences, with mortgage rates playing a significant role. Understanding how these rates impact the resale of condos and co-ops can provide valuable insights for buyers, sellers and real estate professionals. This post explores the broader trends and examines the subtle shifts in buyer preferences as mortgage rates fluctuate, focusing exclusively on the resale condo and co-op market.

Broader Trends

Mortgage rates significantly influence the resale market for condos and co-ops in Manhattan. Generally, when mortgage rates decrease, the market experiences an increase in sales activity for both property types. Conversely, an increase in mortgage rates typically results in a decline in sales.

As of the first quarter of 2024, there was a noticeable 54% drop in the number of transactions compared to the peak in the third quarter of 2021. This trend underscores the market’s sensitivity to mortgage rate changes. However, external factors like the 2008 Financial Crisis and the COVID-19 pandemic can disrupt these trends, adding layers of complexity to the market dynamics.

Co-ops vs. Condos: Impact of Rising Mortgage Rates

When mortgage rates rise, the market sees a shift in buyer preferences towards co-ops. Co-ops tend to be more affordable than condos, making them more attractive to buyers facing higher borrowing costs. Most recently, co-ops sold for 27% less per square foot than condos.

In the first quarter of 2024, co-ops achieved 69% market share as average mortgage rates reached 7.3% the previous quarter. This suggests that higher mortgage rates can nudge buyers towards co-ops, although the overall impact on market share is modest.

Falling Mortgage Rates and Condo Preferences

Conversely, lower mortgage rates generally result in a slight increase in condo sales. Lower rates reduce the cost of financing, making the relatively more expensive condos more accessible to buyers.

By the first quarter of 2024, condo market share was at a low of 31% as mortgage rates peaked. When rates were at their lowest, 2.9% in Q4 2020, condo sales increased to 37%, indicating a modest preference for condos when borrowing is more affordable.

Adding It All Up

The decision between purchasing a co-op or a condo in Manhattan is influenced by mortgage rate fluctuations, though the shifts in preferences are not dramatic. Higher rates tend to increase the appeal of co-ops due to their lower price points, despite the more rigorous approval processes and regulations. In contrast, lower rates make condos slightly more attractive, with their greater flexibility and fewer restrictions, even at a higher cost.

Ultimately, while mortgage rates influence the Manhattan resale market for condos and co-ops, the changes in buyer preferences between these two property types are relatively modest. Understanding these dynamics is essential for navigating the Manhattan real estate market effectively.

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