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

Median monthly cost of a flat falls to US$3,095 as tenants rush to buy homes with interest rates rising or seek better deals to stay put

PUBLISHED : Wednesday, 16 October, 2013, 12:00am
UPDATED : Wednesday, 16 October, 2013, 5:13am

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.

Manhattan units available for rent took an average of 45 days, or 16 per cent longer, to find tenants than they did a year earlier, while landlords agreed to discounts of 3.9 per cent, compared with 2.3 per cent a year ago, Miller Samuel and Douglas Elliman said.

"Rental-market prices are very high and they can't really go much higher for the most part because a lot of the economic factors that would allow them to go higher, such as good hiring, don't exist," said Gary Malin, president of brokerage Citi Habitats, which released a separate Manhattan report showing rents that were little changed since last year.

"There's not a lot of units available, so as a landlord, I don't have to change my prices, but if I push my pricing too much, renters are going to go somewhere else," Malin said.

Rents are poised to be generally stagnant for the next six months as the employment rate remains relatively unchanged and tenants reach the limit of what they can afford to pay after two years of rising prices, Malin said.

New York city's unemployment rate has hovered at 8.7 per cent since June, according to the state Labour Department. The city added 84,700 jobs in the 12 months to the end of August, a 2.5 per cent increase.

A limited supply of new multifamily properties will prevent rents from decreasing dramatically, Miller said. At the same time, they are unlikely this year to top the previous peak of US$3,265 set in the fourth quarter of 2006.

"There's an affordability issue right now because the economy isn't robust like it is in 2006," Miller said. "Can rents be a lot higher? Doesn't seem like it. Can rents be a lot lower? Doesn't seem like it."

In its report, Citi Habitats said that rents remained "generally stable" in the third quarter compared with a year earlier, climbing 1.1 per cent for one-bedroom units and declining less than 1 per cent for studios and two-bedrooms. Six per cent of all leases signed in the quarter came with some landlord concession such as a month's free rent or the payment of broker's fees, Citi Habitats said.

Across the East River in Brooklyn, rents soared 10 per cent in September to a median of US$2,800, the second-highest in five years of record keeping, as tenants flocked to the most populous borough in search of more affordable options, Miller Samuel and Douglas Elliman said. New lease deals climbed 32 per cent to 457, while apartments took 33 days on average to find a tenant, a 28 per cent decrease from a year earlier.

Brooklyn also saw a strong sales market in the quarter, with the median sale price of homes rising to US$564,720, the highest in 10 years of record-keeping, according to a separate report

Van Yu saw the strength of both Brooklyn markets through the prism of his own home sale in Boerum Hill, and a subsequent attempt to rent an apartment nearby. Yu, a psychiatrist in Manhattan, listed his 74-square-metre co-op for US$695,000 in June, and accepted a cash offer four weeks later of US$700,000. Seeking more space for himself, his wife and two children, Yu thought they'd have better luck as renters rather than buyers, only to find the competition was just as heavy.

After three weeks of searching, with a US$3,400 budget, and 12 apartment visits, the couple beat out at least two other renters for an 1,100-square-foot duplex in Cobble Hill. They agreed to pay US$3,450 a month and as part of the deal, they'll care for the backyard space attached to their unit, above which the landlord lives, said Yu, 43.

"I was surprised by what you were getting for the amount you were willing to spend," said Yu, who works at Janian Medical Care, which serves the homeless. "I thought it would be easy to find a place to rent with the sales market being what it was."