Gregory J. Heym
Executive Vice President, Chief Economist
Mortgages Rise, But So Do Prices
April 20, 2006 -- CONVENTIONAL wisdom says that when interest rates rise, housing prices go down. So why then, with fixed interest rates currently at a four-year high and creeping higher, are New York City housing prices continuing to climb?
"The biggest problem right now is uncertainty," says Eric Barron, president of Barron Mortgage Group. "The instability is scaring people into doing one of two things."
Buyers, Barron says, are either jumping into a 30-year fixed rate because they worry that rates won't go back down, or they're being more honest with themselves about how long they'll hang onto their homes.
Those who realize that they're not going to keep the home they're buying for the long-term are turning to five-year, seven-year and 10-year adjustable-rate mortgages.
"When people think that rates are going up, they want to buy because they want to lock in a rate because they fear they won't come down as quickly as they went up," says Greg Heym, chief economist at Halstead Property. "But people who bought 20 years ago at, like, 15 percent still think 6.5 percent is affordable."
Plus, Manhattan buyers aren't as interest-rate sensitive as buyers in the rest of the country. That's because co-ops, which often have restrictions on how much a buyer can finance, comprise the largest portion of housing stock.
Despite the city's current condo boom, around 75 percent of Manhattan apartments are co-ops.
"This doesn't completely insulate the market, but it gives it a little more protection," Heym says.
Thursday, April 20, 2006