NYC rental market has ‘gone sideways’ amid highly elevated rent prices: Broker
Douglas Elliman Broker Frances Katzen joins Yahoo Finance Live to break down the trajectory for the rental market as rent prices remain high in cities like New York, in addition to commenting on mortgage rate trends and homebuyer activity.
DAVE BRIGGS: Home prices and rents continue to cool off across the country, but not right here in New York City. The nation's largest rental market saw the median monthly rent tick up. That number-- and it's a big one-- 4,095 from 4,000 in October. The average rent in Manhattan an eye popping 5,249, up 19% year over year. Frances Katzen is with the Katzen Team at Douglas Elliman here in New York City. Boy, those are some shocking numbers. Nice to see you, Frances. Is this an aberration or the beginning of a new trend?
FRANCES KATZEN: You know, it's a really interesting time. We would think, based on inflation, that in some way, we would see some softening in the rental market. But it's just not happening. I suspect because of that inflation and rates going up, it's put all of the would be buyers into the rental camp. And the rental market has gone sideways with a median blend now of 5,300 for a one-bedroom from 4,000. Insane.
SEANA SMITH: It is insane. It's hard to wrap your mind around. Frances, when you take a look at-- I guess, any end in sight to this? Because mortgage rates, while they have come back over the past four weeks, they're still very high, especially when you compare it to what we've seen over the last two years. So it doesn't seem like this trend is going to end anytime soon.
FRANCES KATZEN: I would be doing a disservice to predict it. But I will say this. I do think that the rates are going to come down somewhat. And I think that's going to push people back into the sales market. However, I do think that New York is a huge driver for new market and new business and new jobs. And I think that's the new trend that's happening. It's sort of absorbing all of that inventory, creating that tightening. I mean, we have less than 2.4% vacancy rate in the month of November, which is an off peak season.
DAVE BRIGGS: New York City always not the best barometer of the country, but I am curious about the impact of rates beginning to tick back down. Are you seeing sales pick up? And what are the trends here in the city?
FRANCES KATZEN: Great question. I mean, I think that the philosophy right here in New York right now is that people are going to buy. There has been a capitulation in the market overall over these past months. And I think that if you do know how to structure your rates, meaning going through a portfolio lender, which are hyper competitive against these more vanilla loan banks, you can get really competitive rates, especially if you're going to hold on to the asset for four to seven years. You can buy down the rate and actually make it work for you.
SEANA SMITH: Yeah, buyers getting a little bit more creative in this environment. Frances, is this consistent, what we're seeing play out in New York City, is this consistent with what we're seeing play out nationwide? Or does that vary a bit?
FRANCES KATZEN: I think it's varying. I think it really depends on the actual adjustments around the sales market around the country. And I we're seeing quite a softening. I also think the banks need to lend, and I think it's going to be up to them and the surrounding states to decide how they want to get creative as well. New York's always been a little bit more on the edge. But I do think overall, people want to get out of renting, and they want ownership. They want to own equity.
DAVE BRIGGS: Largely speaking, the market has been relatively frozen by the rates on both sides. You say this is a good time to buy, though. Why?
FRANCES KATZEN: When there is fear and uncertainty, there is negotiability. And when there's negotiability, there's opportunity. You do not want to be buying when everybody else is buying because there's no value add to that. So if you can construct and find a way to get in now, it becomes much more advantageous long-term, performance wise.
SEANA SMITH: Frances, when you take into account what needs to happen in order for supply-- I know, obviously, when you take a look at those vacancy rates on the rental side, at least in New York City, clearly, there's just nothing on the market. But on the buyer side of that, is that consistent? And how long until you think that picture begins to improve?
FRANCES KATZEN: The buy side, I think that there's going to be a consistent opening. But I think the misconception here is that if they wait, it'll get more opportunistic. And my response to that is, there's only so far a seller will go to drop their price, at which point they simply take the unit off the market. They're not going to sell below a certain threshold. So if there is that softening, it's that moment to go and not to sort of hedge and predict when, quite frankly, I think most sellers know what their values are, and they're not going to go too far down.
DAVE BRIGGS: And lastly here, in the city, largely speaking, there was this exodus, a mass exodus, and primarily to Florida during the pandemic, and certainly, parts of Connecticut and New Jersey as well. Has that begun to reverse itself? Where are the buyers coming from?
FRANCES KATZEN: That's a great question. It has reversed itself. I think that people are realizing that even though they're in Florida, they may want to have their children schooled in New York City or that the jobs are now fully performing in person, and they can't do remote.
And while I recognize it's a nice tax break, there are plenty of other places right now-- Texas, for example, is tax-free. It has-- there are many different ways to do this. And I think people are now realizing that people coming back to New York are going to get the best value because the pricing has come down. There's an opportunity to get in and get big and more space when they were priced out before.
SEANA SMITH: Certainly is a lot of demand for New York City right now. France Katzen, great to have you, of Douglas Elliman. Thanks so much for joining us.