Is it the perfect time to be a cash buyer in NYC? We think so, and we’ll explain below.
1. High-Interest Rates
Current world events have been causing significant economic damage to areas that typically produce many of the most popular goods. Material and labor shortages combined with the shortages of certain goods and increased demand for money are hiking up inflation and driving up interest rates. And this is all a vicious cycle, with continued lockdowns prompting a dramatic ascent in inflation rates, while interest rates are being increased in an attempt to soften the blow of inflation.
Additionally, the increase in interest rates is lowering property values. Home affordability for buyers moves further out of reach as mortgages skyrocket and prices lurch higher out of budget. Increased interest rates devalue properties because fewer buyers are eligible to make a purchase based on what they can afford, pushing owners to consider lowering prices for buyers.
Economists are predicting that rents will continue rising across the real estate market for the next two to three years. Many renters sought new locations and solace in rent reductions due to Covid. Now with the U.S. recovering from the pandemic and the city attempting to transition into some semblance of what it was before, rents are going back up. Renters cannot compete, scrambling to try to accommodate the changes in pricing, while unemployment numbers rose simultaneously over the last two years, making circumstances even more challenging.
The fact remains that only about 23% of New Yorkers can afford the current median rent. Residents must make a salary of $110,000 to afford the median asking rent of $2,750 for available apartments in the city. Renters are navigating perilous circumstances, generating an environment once again more advantageous for cash buyers who already have a bit of a leg up.
Inventory in NYC has recently seen a significant decrease. In 2021, real estate experts recorded the lowest year of inventory in history, worsened by the number of buyers swarming on the market. Data for 2022 proposes that the current inventory on the market is a one-month supply, meaning that if no new homes are available, there will be no homes to buy after a one month period.
As people continue to lose their jobs and companies are affected by the remnants of Covid, more foreclosures have also been recorded. Property values are being adversely affected by the foreclosures as well, skewing comparable sales within the neighborhoods in which they occur. This is particularly important to note because even if a foreclosed property is not directly comparable, it still has the ability to depreciate an area or entire neighborhood due to proximity, further diminishing the supply of sellable inventory.
Buyers have generally expressed a heightened sense of caution given the current circumstances, slowing down the housing market. But the slowing has actually created less competition for prospective buyers — motivating some buyers to act with urgency and motivating most sellers to get their properties off the table as soon as possible. Demand is projected to pick up in the early fall, and buyers are in prime territory to purchase before the end of the summer while the getting is still good.
An investor’s main concern is maximizing their profits. The “buy low, sell high” mantra is often hailed in an attempt to buy when prices are lowest and sell when prices reach their peak. Following this motto, the ideal time to invest in the real estate market is when the market has slowed. Investing now while the housing market is low is a potential advantage for buyers to get ahead of competitors before the market picks back up.
Once the market begins to turn upward, it is also estimated that buyers will gain more confidence and be willing to get back in the game and begin purchasing properties with more vigor, resulting in a better payoff for those who were ahead of the curve.