New York’s housing market is becoming an increasingly difficult proposition for households trying to buy their first home, with elevated property prices and mortgage rates above 7% combining to push entry-level affordability further out of reach.A new analysis by personal-finance company Achieve, cited by New York Post, places the New York metropolitan area as the fifth-hardest market in the US for getting on the property ladder. An entry-level home in the metro costs about $489,359, while the median household income is $99,155.Based on a 10% down payment and the assumption that mortgage payments should account for no more than 30% of gross income, Achieve calculated that a household would need to earn about $114,380 a year to comfortably afford an entry-level property — roughly 15.4% more than the typical household earns.Mortgage rates rise as home supply remains tightThe affordability squeeze comes as the average 30-year fixed mortgage rate has climbed back above 7%, making borrowing more expensive for buyers already facing high prices.But analysts say mortgage rates are only part of the problem. Jonathan Miller, an appraiser at StreetMatrix, told The Post that a shortage of homes for sale is preventing the market from correcting in the way it normally would when borrowing costs rise.“When we think about affordability, I think the influence of inadequate inventory is more powerful on the affordability topic than actual rates themselves,” Miller said.Typically, higher mortgage rates would reduce demand, increase inventory and eventually put downward pressure on prices. That has not happened to the same extent in New York.“Mortgage rates are over 7%, and prices are still rising, right? That’s not logical to many people,” Miller said. “But the reason it’s not logical is because the limited inventory is distorting everything.”Another factor is the mortgage “lock-in effect”. Homeowners who secured mortgages at rates as low as 2.75% have little incentive to sell and replace those loans with mortgages carrying rates of around 7%.The result is a cycle in which:
- Higher rates make purchasing a home more expensive.
- Existing owners are reluctant to give up their low-rate mortgages.
- Fewer homes come on to the market.
- Limited supply helps keep prices elevated.
Buyers cut budgets as cash purchasers gain an edgeJessica Peters of Douglas Elliman said buyers were being “squeezed from both sides”, as borrowing costs remained high while prices held firm, particularly in sought-after neighbourhoods with limited supply.“New Yorkers also have to account for maintenance or common charges, taxes and closing costs, so the monthly carrying cost can become substantial very quickly,” Peters said.Rather than abandoning the market altogether, buyers are adjusting their expectations by:
- Increasing down payments where possible;
- Lowering their overall budgets;
- Expanding searches into different neighbourhoods; and
- Choosing smaller apartments or co-ops instead of condos.
The divide is particularly pronounced between cash-rich buyers and those dependent on mortgages. Donald Brennan of Engel & Völkers New York City, Brownstone Brooklyn, North Fork and Hoboken said buyers currently working with advisers at his New York City office were all paying cash.“The people that are still buying are the cash buyers,” Brennan said.For those hoping that lower mortgage rates will eventually solve the problem, however, analysts warn that cheaper borrowing alone may not restore affordability. If rates fall, a fresh wave of buyers could return to a market where housing supply remains limited, potentially putting further pressure on prices.Miller also cautioned against relying on the idea of buying now and refinancing later, saying that strategy increasingly amounts to “gambling on more affordability later on”.“If you’re waiting for rates to come down, I think that’s gonna be a long wait,” Miller said.
