By:  Benyamin Davidsons

A new report shows that a record majority of New Yorkers purchased their Manhattan homes outright with cash.  As reported by the NY Post, the report is shocking as the average home price in Manhattan stands at $2 million.  The latest quarterly survey of Manhattan sales from appraisers Miller Samuel and brokerage Douglas Elliman shows that a whopping 67.9% of home sales in the fourth quarter of 2023 were cash sales.  Usually about 50% of the Manhattan home transactions are in cash, while the latest figure  “exceeds two-thirds of all sales to reach a record-high market share,” the report said.  The figure is also a big jump from the 55% of wealthy homebuyers who paid outright for their homes in December 2022.

Per the Post, Tim Malone, a luxury real estate advisor on the Steven Cohen Team and Douglas Elliman, said that he’s seen this cash trend “all year long.”  “The sky-high mortgage rates have had a direct impact on buying trends, especially in the luxury market,” said Malone, who currently has listings priced between $650,000 and $20 million.  “More than half of my buy side deals were all cash last year,” he said.

The average 30-year fixed home loan was at 6.62% as of Thursday, per mortgage buyer Freddie Mac.  That’s double the rate compared to a year ago in January 2022, when rates first started climbing as the Federal Reserve began to fight inflation with aggressive tightening.  The benchmark federal funds rate, which is the overnight lending rate between U.S. banks, is currently at 5.25% to 5.50%, marking a 22-year high, not seen since early 2001. This led the benchmark 30-year home loan to peak at 8% late last year.

An 8% borrowing rate means that a buyer taking out a 30-year mortgage on a home priced at $410,200 (the average price of an already-standing home in the US, per Bankrate), with a 10% downpayment would translate into payments of roughly $3,000 per month.  Thats up 60% for the same house compared to 2020, the Post reported. By paying outright, well-off homebuyers with plenty of liquid assets can pay just the tag price and skip past the interest rates.

Usually, monthly mortgage rates cost the same or less than monthly rent payments on an apartment.  This was true between 1996 and mid-2003.  In October, however, commercial real estate firm CBRE found that the average monthly mortgage payment was a staggering 52% higher than the average monthly rent on a house or apartment.  This ratio hasn’t been so high since before the 2008 housing crash, The Wall Street Journal reported.

This whole phenomenon threatens to price out middle- and lower-class buyers, who have to tack on heavy interest increasing their costs to own a home.  Also, this leads to less transactions as homeowners would do best to stay put, rather than taking on a new higher-rate mortgage. About 80% of current US mortgages are from buyers who purchased homes when rates were low– with interest rates below 5%, per The WSJ.

With the new rates, even downsizing to take advantage of lower sticker prices would be counterproductive because of the higher mortgage rates.  This leads to less homes available on the market overall.  “Rising mortgage rates had kept listing inventory from entering the market as homeowners were reluctant to enter the market and lose their low rates.  Listing inventory declined annually over the past three quarters,” said Douglas Elliman’s Q4 Manhattan report.