Some say a rising tide lifts all boats. The economic history of our nation since 1973 directly contradicts that notion: Since that year, real wages have been flat for the bottom 40% of income earners, while purchasing power has declined. It does seem, though, like a shrinking tide lowers all boats. That, at least, is what some buyers in today’s New York apartment market are finding as they begin searching for mortgages.
On the one hand, mortgage rates have once again fallen to relatively low levels. The shrinking tide of the national economy, however, has banks worried about clients’ abilities to pay back their loans – even those with excellent credit.
“Sure,” banks say, “you might have a great job right now, but most analysts are predicting double-digit unemployment for at least a six-month span of time shortly, so, well, you might not have that great job for very long.”
Because of the larger realities of the US labor market, the New York real estate market, along with the other major US real estate markets, have fallen victim to mortgage providers’ newly stringent guidelines and operating procedures. Even the paperwork can be a deterrent: Many potential home buyers are giving in and continuing to rent in the face of providing banks with nearly every financial form that they can find.
Even the insurance companies are complaining about the new attitude of the major New York City banks, claiming that policies can’t be sold at the rates banks are demanding. This has put an unusually large strain on builders and owners of smaller unit New York apartment buildings.
Perhaps the most egregious example: Banks have demanded clients with apartments on high floors in large New York City apartment buildings get flood insurance. While New York City real estate agents say that there is nothing new about the occasional bank being overly sharp with their demands, what is new is that nearly all banks are behaving in this manner.
Ironically, this might help the long-term value of existing properties, which may benefit from the resulting reduction in building rates. Many banks are demanding that units be more than half or even seventy percent sold before they issue construction loans.
It’s certainly not a good thing for the market as a whole, but those buyers who do have access to ample credit now find themselves enjoying a doubly-exclusive world: buyers that are desperate to sell, and a set of competing buyers restricted in size due to the current credit crunch.