The subprime lending industry’s meltdown may have a slight impact on Manhattan mortgages, but it won’t affect New York as much as it has other areas.
A nationwide pullback by subprime mortgage lenders has led to tighter credit standards for consumers whose plastic privileges aren’t in the greatest shape. But some market watchers believe newfound restraint by lenders will affect the mortgage market as a whole, meaning borrowers looking for prime loans at lower rates could have a tougher time finding money for home loans. If that happens, it might start to pressure Manhattan mortgage activity.
Prudential Douglas Elliman chief executive Dottie Herman said it has already started to crimp buyers’ ability to borrow money to buy homes.
“I do think — and I see it already — it is going to tighten lending,” Herman told Reuters last month.
Others are less certain of the impact but say it’s something to watch closely.
“Credit tightening will be the most important thing to watch over the next year,” said Jonathan Miller, president and CEO of appraisal firm Miller Samuel. “When you place more restrictions on a sale, you temper the amount of transactions that may occur. In a robust market like ours at the moment, it likely won’t have much of an impact, but in a depressed market, the effect is compounded significantly.”
Only 1.1 percent of Manhattan home loans were subprime in 2005, the last year for which data was available, according New York University’s Furman Center.
Eric Barron, president of Barron Mortgage Group, said the pullback by banks won’t significantly affect Manhattan’s residential market, although some borrowers will be cut out by the stricter guidelines or will have to pay more up front.
The bigger effect on the market is that Alternative A, or Alt-A, mortgages have started to tighten, Barron said. Alt-A loans are made to borrowers with credit ratings that fall between prime and subprime, or to homeowners who have prime credit but seek a riskier loan, often one which requires less income documentation.
The typical borrower in Manhattan has a larger group of banks available and a wider range of options than the subprime or Alt-A borrower.
“Even if some loan programs tighten, there are plenty in the pool,” Barron said.
Nationally, the credit tightening may further slow down an already sluggish housing market. But the Manhattan market has remained strong. The average price of an apartment in the first quarter of the year was $1,290,391, up 5.4 percent from the previous quarter. The number of sales reached 3,474, an impressive 42.3 percent rise from the fourth quarter. Listing inventory consisted of 5,923 homes for sale, down 0.2 percent, another good sign for the market.
The forecast for sales activity remains optimistic in the second quarter — sales are expected to stay at or above first-quarter levels, said Miller. Price appreciation also is expected to continue at a steady clip in the second quarter.
The second half of the year is when tighter credit and a shift in buyers’ attitudes could result in a slowdown, said Miller.