Cash, Mortgage Rates and Mamdani
It’s late October, which means that the fall market is in full swing, and we are enjoying some refreshingly upbeat sales activity!
Interest Rates. Financing buyers are coming off the sidelines in greater numbers spurred by interest rates hovering around 3-year lows (woohoo!). One of our buyers just got quoted 4.65% on a 7 year ARM, which is incredible! Cash remains the dominant source of closing funds, but, with borrowing costs trending downward, we are all hopeful for a return to the days when transaction volume was up with more financing buyers pounding the pavement.
When the Federal Reserve started raising interest rates post-covid to combat inflation, mortgage rates began what turned out to be their steepest ascent in history. Rates did not reach the levels that Boomers saw in the early 80s when they peaked around 18% after increasing by around 50% over a 15-month period. But when they eclipsed 7% in early November 2022, mortgage rates had more than doubled in just one year, after an extended period of absurdly low rates when everybody who owned a home secured a rate around (or below) 3%. This dynamic stopped the residential real estate market’s post-covid recovery in its tracks and has essentially muted certain market segments for the past few years. New inventory slowed because homeowners weren’t listing their properties without a meaningful selection of suitable replacements (if they could even afford an upgrade at double the financing cost) and would-be buyers were sticking it out in the rental market for the same reason.
Now, if we are able to secure a relatively stable period of lower interest rates, we are predicting a material increase in deal volume in certain market segments, namely the “lower” end of the market (under $2M). Sellers will list their properties in greater numbers because, while they may not have been willing to trade a 3% interest rate for 7%, they will likely feel better about participating in the market with a 4.5%-5% rate, especially with Wall Street bonuses up and the S&P 500 at record highs. With more sellers adding inventory (and joining the market to trade up or downsize), more buyers will also be exiting the rental market to buy, creating a healthier sales market that will likely see prices rise.
Cash v. Mortgage. While NYC has a very diverse residential marketplace with meaningful inventory at all price points, the mortgage market really only affects sub $3M sales. For the past few newsletters, we have been highlighting the breathtaking numbers of cash v. financing buyers in the market, but if you drill down further into those numbers, the segmentation of the “buyers-with-mortgages” market becomes much clearer. In Q3, 65.3% of all Manhattan deals closed without a mortgage, but those numbers look a lot different when you examine the price points. Over 90% of transactions in excess of $3M closed all cash, but when you get to the $1M and below segment, that number drops below 40%. Additionally, when you look at sales data from the periods when interest rates were very low, the percentage of cash buyers below $1M was consistently below 25% of the market. This is why we expect sales to surge at the lower end of the market if we see a relatively stable period of lower interest rates – there is just so much pent-up demand waiting patiently for a more affordable buying and financing opportunity.
Will the Sky(line) Fall if Mamdani Moves Into Gracie Mansion? Finally, a note on the mayoral election – let’s all calm down and take a deep breath. While a mayoral election is always an emotionally-charged high stakes event, this year’s election seems particularly so, given the polarizing views and attributes of each of the candidates, as well as the general feeling of uncertainty around the country and world right now. As real estate brokers, we have the privilege of speaking regularly with dozens of high-achieving individuals who are in the midst of the largest personal financial transaction of their lives, which gives us a very interesting perspective on this election. There is undeniable concern among many about what the city may look like in a Mamdani administration, but, despite the alarmist clickbait hogging all of the airtime, we do not foresee a mass exodus if he is elected nor a descent into a 1970s “Bronx-is-Burning” urban hellscape. New York City’s strength lies in its ability to adapt and endure, as seen time and again with its emergence from 9/11, the financial crisis and the pandemic, and even with the federal government’s threats to starve the city of much needed infrastructure funding, we will, no doubt, persevere and remain our country’s crown jewel gateway for many generations to come.
Digs Realty Group Q3 2025 Newsletter
