A surge of apartment buyers and lookers, hoping to catch interest rates before they rise any further, leapt into the Manhattan housing market in August, competing for the small number of properties available during the traditionally slow month.
The combination of an increased number of buyers and low inventory created an upswing in bidding wars on properties, according to some brokers.
“There is no inventory now in the market and buyers are competing for what s out there,” said Jacky Teplitzky, a vice president at Corcoran, who said she had bidding wars on three properties she brokered recently. “People traditionally don t put their home on the market in August, so the people that are doing it are really benefiting,” she said.
“Buyers are worried rates are going to go up further and they will get left behind,” said Steven L. James, senior executive vice president and director of Eastside sales for Douglas Elliman. “People are still getting 30 year lows, instead of 40 year lows. The rates are still low enough.”
Other brokers said they didn t see much increased buying, but more looking.
“There have been more people looking,” said Gary Kiyan, Listings and System Manager for DJ Knight.
In mid-August, rates reached a new high of 6.625 percent before settling back a bit. The six weeks prior to that saw the sharpest increase in any six-week span since 1987.
James said that rates will have to go to “seven or eight percent before they have an impact” on buying activity.
Teplitzky said she had a bidding war for a 2-bedroom, 2-bath apartment on the Upper East Side that was listed for $655,000. She said the owner received three bids above the asking price on the property, which would have sold for $630,000 a few months ago.
James gave the example of a bidding war on a $145,000 one bedroom apartment his company was selling in the East 70s. “There have been bidding wars all summer in different price categories,” he said. “At this point, buyers are very frustrated with what s out there.”
Kiyan had a more modest assessment of the situation.
“I wouldn t say it s an incredible anomaly,” he said. “There have been a lot of people shopping. Interest rates are generally low, and some people are saying I don t want to miss the boat. ”
Another indication of the market in August was the number of brokers who were still sticking around the office. Of the 230 brokers at Elliman s Eastside office, few had left for vacation as of the middle of the month, James said. “They have to notify the company if they are out of the city for more than two days,” he said. “They could be out in the Hamptons, or in Martha s Vineyard. But looking at the vacation sheets, very few are gone. On paper, it shouldn t be that way.”
James said that since the middle of April, Elliman has seen an increase in contracts signed, and that the number of contracts over $1million has doubled since April, though there was a slight drop off in mid-August. He said he hoped the overall good news would continue through September. “At a recent meeting we had, I asked how many brokers had an exclusive coming after Labor Day, and more than 90 percent raised their hands and said they did,” he said.
Kiyan said that September, when more inventory comes on the market, will be the real test of how the market is doing.
Mortgage rates will be the big question. The Federal Reserve left its overnight interest rate unchanged at 1 percent last month, and strongly suggested that it would not raise interest rates until at least some time next year. But with concerns about deflation, there was also no indication that the central bank would lower the federal funds rate below one percent or that it would pump money into the economy by buying longer-term Treasury securities. That makes a decline in mortgage rates unlikely.
Rising mortgage rates are affecting how buyers are financing. Shorter term rates, such as the 1-year ARM (at 3.75 percent in mid-August) have shown a bit more stability, rising more slowly than the fixed-rates have. This has caught the attention of recent home buyers who are opting more and more lately for the lower starting rates of the ARMs as opposed to the somewhat higher fixed-rates.
Borrowers are also increasingly taking out loans in which their monthly payments for the first few years are used to pay only the interest. One of the nation s largest mortgage lenders, Wells Fargo, said last month that applications for interest-only mortgages worth $200,000 or more jumped 28 percent in July and had increased another 11 percent as of mid-August. Buyers are trying to keep monthly payments what they would have been two months ago, unwilling to accept the still historically low rates that 30-year fixed mortgages carry.
The Mortgage Bankers Association of America said last month that nationally requests for refinancing are off nearly 60 percent from their recent peak, and had been declining for the previous five weeks.
Overall, the National Association of Realtors (NAR) is predicting that even with the sharp rise in mortgage interest rates in recent weeks, housing markets will maintain strong levels. “We now think the 30-year fixed should stay below 6.5 percent for the balance of 2003, and that s still very favorable when you look at where rates have been over the last four decades,” said David Lereah, chief economist for NAR. “Home sales in the second half of the year won t be as robust, but we ll still see an annual record.”