Mortgage Buyers Reenter the Co-op and Condo Market

Not so very long ago, cash was king in New York City real estate transactions. Co-op and condo buyers avoided an inflation-fighting surge in interest and mortgage rates by plunking down cash for apartments. Then came the Federal Reserve Board's sharp, half-point cut in the benchmark interest rate in September — after mortgage rates had already begun to come down — and suddenly cash is not looking so kingly.

Closings of co-ops and condos climbed 6.7% in the third quarter of 2024 compared with the previous quarter, according to appraiser Miller Samuel and brokerage Douglas Elliman Real Estate. And the percentage of those sales that were done in cash fell to the lowest share in nearly two years.

It’s a sign that “lower rates and better financial markets” are luring buyers using loans to pay for deals, Jonathan Miller, president of Miller Samuel, tells Crain's. “This isn’t an all-or-nothing situation where rates reach a certain threshold and the floodgates open and everyone is back in the market. But cash buyers aren’t as dominant as they were, meaning finance buyers might be coming back.”

To provide a bit of historical context, Miller writes in his Housing Notes newsletter: "For the last decade, Manhattan cash sales have averaged 50% of all co-op and condo sales while mortgage rates averaged 4.4% over the same period. During the pandemic, when mortgage rates dropped to the floor, the cash sale market share fell to decade lows in the low 40s as mortgage origination volume surged."

Now, with mortgage and interest rates heading down, mortgage buyers are beginning to overtake cash buyers. And sales volume is picking up. In September, new signed contracts to buy Manhattan condos surged nearly 75% from the same month a year earlier, while contracts on Brooklyn condos rose 12%.

For the co-op market in Manhattan, contracts to buy those units dropped 8% in September from the same month a year earlier as buyers shunned 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,” according to the firm’s report. “Those that do expect a big price discount, which sellers often feel reluctant to give.”

However, there's good news at the lower end of the co-op market. Contracts for Manhattan co-ops priced between $500,000 and just under $1 million increased 43% in September from the same period a year earlier, according to the Miller Samuel and Douglas Elliman report — the largest annual increase in three years. Co-ops in that price range in Brooklyn posted an even bigger bump in contracts, surging 133% in September.  

Miller attributes the surge in sub-$1 million contracts to the reappearance of first-time buyers.