After a long run of some of the lowest mortgage interest rates seen in quite a long time, rates are starting to climb and are already more than a full point higher than they were even a few months ago. In the past, rising mortgage rates meant that new homeowners would be paying more for their monthly payments. Over time, this would force the prices of homes lower to make the home more attractive to buyers. Just as with everything else that has happened over the last couple of pandemic-riddled years, history cannot tell us what is going to happen today. There are so many factors right now that are leading to higher mortgage rates while not necessarily impacting the prices of the homes that are up for sale.
As we have seen in the news, the prices of everything have gone up dramatically. There are all sorts of reasons for the increase in prices from the lock-downs in 2020 to supply chain issues to the war in Ukraine. In an effort to forestall inflation, the Fed has raised its rates on interest that banks charge each other, which impacts the mortgage rates. However, if you look at mortgage interest rates compared to inflation, rates are still relatively cheap right now.
Rising Rent in New York City
The pandemic has led to all sorts of issues for landlords and tenants. Tenants weren’t paying rent, and in an effort to attract renters, many landlords dramatically dropped their rents for prime space in some of the hottest areas of Manhattan and Brooklyn. Now that New York is all but completely reopened for business and landlords are once again able to evict tenants who are not paying rent, rents in New York City are skyrocketing. In many cases, landlords are upping the rent on their properties by 40%. This increase is driving many people to consider whether they want to spend all that money and get nothing to show for it. Why pay almost $4,000 a month for a rental when you can put that money toward equity in a home of your own? With many renters trying to escape the astronomical cost of rent, the number of people looking for homes on Long Island is still extremely high. Even with increased mortgage rates, homes are seeing bidding wars driving prices up as opposed to pricing going down, which is what you would expect to see when rates go up.
People are Leaving New York
While the market is still filled with people who are not scared off by higher rates thanks to the still relatively reasonable rates and astronomical rents, the people who are averse to spending so much on a home are not even entering the local market knowing they have little chance of securing a home in the neighborhood they want. Many people who have lived their whole lives in New York are taking the opportunity to look for new areas where the cost of living is not quite so high. States like Florida, Texas, New Mexico, and Arizona are seeing an influx of northerners looking to escape ever-increasing real estate prices. With these people leaving New York, there is no downward pressure on the Long Island market leaving prices on Long Island fairly static despite market forces which you would expect would lead to lower prices.