Manhattan rents drop for first time in two years; may be close to plateau

Manhattan apartment rents fell for the first time in two years last month as tenants were lured to the home-buying market and those who remained pushed back on landlord increases, a sign rates may be close to a plateau.

The median monthly rent dropped 3.1 per cent from a year earlier to US$3,095, the first such decline since June 2011, according to a report by appraiser Miller Samuel and broker Douglas Elliman Real Estate. The vacancy rate climbed to 2.66 per cent, the second-highest in three years, from 1.85 per cent a year earlier.

An abrupt increase in mortgage rates has pushed more New Yorkers into the sales market as buyers rush to make deals before borrowing costs rise further. Manhattan home purchases jumped to the highest level since 2007 in the third quarter, Miller Samuel and Douglas Elliman said in a report last week. Transactions for one-bedroom apartments reached a 15-year high, suggesting much of the influx came from first-time buyers.

"Where did those people come from? They came from the rental market," Jonathan Miller, president of Miller Samuel, said in an interview. "The spike in rates pulled people out of the rental market into purchase market. You can see that in the vacancy rate."

The average rate for a 30-year fixed mortgage climbed to a two-year high of 4.58 per cent in August from a near-record low of 3.35 per cent in early May.

Manhattan landlords, emboldened to raise their prices after a 17 per cent jump in average rents since the start of 2011, may be starting to get resistance from tenants. The number of new leases signed in September jumped 36 per cent from a year earlier to 3,445 as some renters sought cheaper deals, Miller said.