Manhattan apartment rents fell for the first time in two years last month as tenants were lured to the homebuying 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 percent from a year earlier to $3,095, the first annual decline since June 2011, according to a report today by appraiser Miller Samuel Inc. and broker Douglas Elliman Real Estate. The vacancy rate climbed to 2.66 percent, the second-highest in three years, from 1.85 percent in September 2012.
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 percent in August from a near-record low of 3.35 percent in early May.
Manhattan landlords, emboldened to raise their prices after a 17 percent 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 percent 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 percent longer, to find tenants than they did a year earlier, while landlords agreed to discounts of 3.9 percent, compared with 2.3 percent 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 today 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.
Jael Weinberg began looking for a new apartment after the landlord of the Soho unit she shared with two friends raised the $3,975 monthly rent by $1,500 when the lease came due in July.
Weinberg, 22, a senior at New York University who also works as an artist at a pottery studio, decided to get her own place. She sought at least 500 square feet (46 square meters), an elevator and windows where light wasn’t obscured by another building. The neighborhood didn’t matter, as long as she could stay within a $2,200 budget.
During her three-week search, “every place I looked at was willing to negotiate to some degree, which was nice,” she said.
She settled on a condo for rent at 50th Street and Eighth Avenue that had been on the market for almost six weeks, said Weinberg’s broker, Susan Raskin-DiLeo of Citi Habitats. The studio, which included a balcony and was listed at $2,375, needed some minor repairs and required a “few hundred dollars” in application fees for the condo board’s consideration. In exchange for the hassle, the owner agreed to knock $100 off the asking rent.
“They would not have been so willing to negotiate a year ago, but a year later, there’s more inventory,” said Raskin-DiLeo, adding that she’s also “starting to see a few more situations” where the landlord will pay the broker’s fee.
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 percent since June, according to the state Labor Department. The city added 84,700 jobs in the 12 months through August, a 2.5 percent increase.
Arguing that wages are little changed and that tenants are “struggling” to pay rent, Bill de Blasio, New York’s Democratic candidate for mayor, has called for a one-year rent freeze at the city’s rent-stabilized apartments, his spokesman, Dan Levitan, said in an e-mail. The reports released today apply only to Manhattan’s market-rate apartments.
A limited supply of new multifamily properties will prevent rents from decreasing dramatically, according to Miller. At the same time, they they are unlikely this year to top the previous peak of $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 percent for one-bedroom units and declining less than 1 percent for studios and two-bedrooms. Six percent 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 percent in September to a median of $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 percent to 457, while apartments took 33 days on average to find a tenant, a 28 percent decrease from a year earlier.
Brooklyn also saw a strong sales market in the quarter, with the median sale price of homes rising to $564,720, the highest in 10 years of record-keeping, according to a separate report today.
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 800-square-foot co-op for $695,000 in June, and accepted a cash offer four weeks later of $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 $3,400 budget, and 12 apartment visits, the couple beat out at least two other renters for a 1,100-square-foot duplex in Cobble Hill. They agreed to pay $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.”