Why isn’t a bevy of buyers biting the bullet?


The yellow line represents the 30-year fixed-rate mortgage from October 1970 until now. (Reproduced with the permission of Mortgage-X.com)

As almost everyone knows, there was a time that mortgage rates soared into the high teens.  I remember it well.

With interest rates as low as they are, I’ve been wondering why buyers in Manhattan aren’t eager to snap up properties with funds borrowed at record lows.  Taking into account government subsidies in the form of tax deductions, how could this fourth quarter’s activity be so relatively sluggish?  (It is, though the Q3 reports may lead you to believe otherwise.)

A poll in yesterday’s New York Times and an account of Ben Bernanke’s big speech last Friday provided me with some insight.

First, the speech, which was focused on inflation, deflation and what the Fed plans to do about those issues.

The chairman of the Federal Reserve Board allowed that the institution would pump money into the economy–print money–in an effort to stave of deflation.  In a deflationary environment, consumers resist spending because they expect prices to fall.  At the same time, unemployment rises because consumers aren’t spending enough to sustain sufficient business activity.  Many consumers either lose their jobs or worry about losing them.

A deflationary spiral is devilishly difficult from which an economy can extract itself.

Making deflationary concerns more pointed was a politically oriented poll of 1,139 adults in New York State.  The research by the New York Times found that fully 69 percent of the respondents worry that they or someone in their household will be laid off within the next year.  Also troubling to respondents were state budget strains.

Of course, nothing about Manhattan is typical of the state or the nation.  Indeed, bonuses on Wall Street, where a significant percentage of the city’s employment income emanates, are estimated to total more than $140 billion for this year (and they may be paid in December rather than January because of tax-reform concerns).  At the same time, consumer confidence nationally has plunged to a 45-year low.

So what’s going on here?  In my humble opinion, it’s hard to imagine that prospective buyers are acting irrationally.

I’d characterize buyers in Manhattan as the worried well-off.

They are worried about the economy.  They are worried about jobs.  They are worried about the likelihood that the price of housing will continue to slide.  And they are worried, with very good reason, that interest rates will keep dropping.

To my mind, the housing market exemplifies micro-deflation.

For those lacking any urgency to purchase property, what would be a compelling argument for them to reduce their reluctance to bite the bullet?

The only one I can conjure is that buyers who plan to stay where they might move for several years have a negligible chance of losing money and substantial opportunity to improve their lifestyle and meet the needs of a changing household.

Try as I might, however, I find little reason to be optimistic about the health of Manhattan’s housing market in the coming months.

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

M: 347-886-0248
F: 347-438-3201

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