“Barring a recession,” record-breaking NYC rents will keep rising

Mortgage rate hikes driving would-be buyers into rental market

A photo illustration of rising rents in New York City (iStock)
(iStock/Photo Illustration by Steven Dilakian for The Real Deal)

If a hot housing market brought rents to boil, the cool-down should cause apartment prices to fall, right?


In June, the average Manhattan rent topped $5,000, a historical first, according to a report by appraisal firm Miller Samuel for Douglas Elliman. Meanwhile, the borough’s median rent, which reached a record $4,000 in May, edged up to $4,050 last month.

Those gains came as surging mortgage rates caused home sales to dip. And where did many of those home hunters end up?

The rental market.

Rising rents, which have characterized this year’s market, have become increasingly tied to surging mortgage rates, according to Jonathan Miller, report author and CEO of appraisal firm Miller Samuel.

“The spike in mortgage rates has immediately tipped people on the margin into the rental market,” Miller said. “And the rental market was already tight before rates began to jump.”

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As the Federal Reserve aggressively hiked interest rates to rein in inflation, mortgage rates have risen by the sharpest margin in nearly three decades, according to Forbes.

Year to date, the average rate for a 30-year mortgage has jumped over 3 percentage points to 5.8 percent in the third week of June. That’s the highest rate since 2009, according to data from FreddieMac.

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In some suburban markets, the trend of buyer-turned-renter has already reared its head.

In Westchester, sales “showed a modest decline,” in the second quarter, Miller wrote, as closings in the county fell more than 5 percent annually. That’s after a 6.6 percent drop in the first three months of 2022. In Dutchess County, listing inventory rose annually for the first time in nearly three years as the number of sales fell annually for the second straight quarter.

“The market is transitioning,” Miller said. “Part of the slowdown in sales in the second quarter was a spike in [mortgage] rates.”

The good news for landlords (and bad news for renters) is rents have at least a couple more months to run up, according to Miller.

New lease signings peak in August, meaning rental demand will continue to grow while rising mortgage rates push more buyers into rentals, exacerbating the supply squeeze.

“Beyond that, in the fall, all bets are off,” Miller said.

The report author theorized that if the Fed hikes rates far enough, it could sink the economy into a recession. Recessions bring job losses, which dampen rental demand and eventually pull down rents.

“But on the other hand, the opposite of a rising market is not a falling market,” Miller cautioned.

He said it’s possible that rents will plateau at a high level, a scenario experts have projected throughout 2022.

“Barring a recession, I’m not so sure what relief there is for renters, at least for the next year,” Miller concluded.