Manhattan homebuyers are starting to favour mortgages over cash

MOVE over cash buyers. A higher percentage of house hunters are using mortgages to fund purchases in Manhattan’s market, driving sales up for a second straight quarter.

Closings of co-ops and condos climbed 6.7 per cent in the three months to September compared with the previous quarter, according to appraiser Miller Samuel and brokerage Douglas Elliman Real Estate. The percentage of those sales that were done in cash fell to the lowest share in nearly two years as mortgage rates eased ahead of the Federal Reserve’s rate cut in September.

It’s a sign that “lower rates and better financial markets” are luring buyers using loans to pay for deals, said Jonathan Miller, president of Miller Samuel.

“This is not an all-or-nothing situation where rates reach a certain threshold and the floodgates open and everyone is back in the market,” Miller said. “But cash buyers are not as dominant as they were, meaning finance buyers might be coming back.”

While Manhattan sales in the third quarter were down from a year earlier – Miller called transaction activity “tepid” – there are signs that lower borrowing costs are starting to stoke more deals. In September, new signed contracts to buy Manhattan condos surged nearly 75 per cent from the same month a year earlier, while contracts on Brooklyn condos rose 12 per cent.

For the co-op market in Manhattan, contracts to buy those units dropped 8 per cent in September from the same month a year earlier. That was driven by a pullback in buyer activity around more expensive listings.

Brokerage Coldwell Banker Warburg said demand for co-ops has been hurt by the “almost universal need” for renovation.

“Very few buyers have the time and/or patience to remodel an apartment,” said the firm’s report. “Those that do expect a big price discount, which sellers often feel reluctant to give.”

It’s a different story for more affordable co-ops. Contracts for Manhattan co-ops priced between US$500,000 and just under US$1 million increased 43 per cent in September from the same period a year earlier, according to the Miller Samuel and Douglas Elliman report. That spike is the largest annual increase in three years, according to Miller.

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Co-ops in that price range in Brooklyn posted an even bigger bump in contracts, surging 133 per cent in September.

“The increase in sub-$1 million contracts is indicative of first-time buyers being sucked back in,” Miller said.