No Quick Surge in City's Real Estate Market After Interest Rate Cut

Buyers and sellers of New York City co-ops and condos cheered the news Wednesday that the Federal Reserve had cut its benchmark interest rate by a surprisingly large half a percentage point — the biggest cut since the housing crisis in 2008 and the pandemic meltdown in 2020. More cuts are expected before the end of this year and into 2025. But this heartening news should not lead potential buyers and sellers to expect an overnight flurry of apartment sales.

"Next year will be a lot more robust in terms of volume of transactions," Shimon Shkury, president of Ariel Property Advisors, tells Crain's. "But I think we'll start seeing it this year."

Adds David Schwarz, principal at the developer Slate Property Group: "We're not like bond traders where immediately, tomorrow, you have all this activity. I would say typically deals are 60 to 120 days out. I'd imagine three to four months from now, we'll see a real impact."

While mortgage rates are tied to the Fed's benchmark interest rate, the two do not march in tandem. According to Freddie Mac, the average interest rate for 30-year fixed mortgages was 6.09% on Thursday, down from 6.2% last week and 7.19% a year ago. They had been as high as 7.79% 11 months ago. The Fed's surprisingly large cut on Wednesday indicates that the bank believes inflation is under control and now is the time to bolster the job market.

Still, the news is good even if the effects will not be felt immediately. “The big cut is a positive for both buyers and sellers, and should help make the market more liquid,” Brett House, a professor at Columbia Business School, tells Brick Underground.

Lower rates benefit homeowners and co-op boards who want to refinance their current mortgage. Home equity credit lines have also been dropping in advance of the expected interest rate cut. And yet another advantage of lower interest rates is that they will encourage renters to become buyers of co-op and condo apartments, likely easing pressure on record-high rents.

But all this will take time. Remember: interest rates are still twice as high as they were when the pandemic hit, though they're still below historic levels. Rates averaged about 7.8% over the past half-century, according to Freddie Mac, which began tracking borrowing costs in 1971. In the early 1980s, rates stretched well into the double digits, exceeding 18% in 1981. That makes a rate of 6.09% — and falling — sound pretty attractive.

"It doesn't mean that affordability either for the sales market or the rental market is going to improve dramatically overnight," Jonathan Miller, head of the Miller Samuel appraisal firm, tells Crain's. "But it is the first step in about a two-and-a-half year wait."