Welcome to the first installment in a weekly series of Q & As that will look at trends in the mortgage and real estate industries. This week, we spoke to Ray Rodriguez, the regional mortgage sales manager for New York at TD Bank. The main takeaway: cities remain largely popular despite what you may have heard, and rising mortgage rates won’t matter as much for housing affordability as limited supply.
The conversation has been edited for length and clarity.
There’s been a lot of talk this year about how the urban housing market softened in the pandemic. Does that track with what you’ve seen?
In New York City the outer boroughs are very well alive. We’ve seen a lot of activity in the Bronx. Staten Island holds its own but we’ve seen a skyrocket of activity in Brooklyn and Queens. We’ve seen some bargain hunters come in on the higher end in Manhattan. We’re seeing people moving out of high-rise condos and coming into multi-units. What we’re seeing in condo sales, it’s mostly about outdoor space. There’s a very large high-rise in Brooklyn, each unit has a balcony, and it’s sold very quickly.
There are a lot of bidding wars, you’re seeing people go 10-15 percent above asking price.
The unit sales in Manhattan have been slow for almost a year. Everybody associates New York City with Manhattan alone. We have seen people move out of the city, quite a few. It’s still too early to tell if work from home is the future. If we go back into our offices you’ll see people move right back into Manhattan.
What’s the outlook for housing in big cities as the recovery really gets underway?
People who are used to living an urban lifestyle are going to continue an urban lifestyle. I’m thinking of two of my employees who purchased condos in the city, they upgraded to have outdoor space. They have balconies now. New York City in particular shows that it’s been resilient through all the events we’ve been through. In the next 12 months we’ll return to 2019-style business as usual. Some of my friends in the city, you can’t pay them to leave right now.
As a company, we’re still seeing good numbers in Boston, the Philly market is still alive, Florida has been big for us. The urban markets are still doing well. First-time homebuyers are going to get squeezed a little bit with the recent rise in interest rates. Whatever market we’re in, cities are not going to go dead. They might be struggling a bit right now but they’re going to come back alive.
We do continue seeing people buy investment properties in the city as well.
I see housing affordability continuing to improve as more units come online, and appropriate pricing is the key. Often developers don’t want to lower the sale price, so they’ll offer incentives like a free parking spot or upgraded amenities. With new condo developments, the prices won’t drop that much but the concessions will increase over time.
More broadly, what do you expect the real estate market to look like this year?
I think it’s going to be much better than last year. The more vaccines are out there, the more people can resume their jobs, the more restaurants come back, the more people can enter the homebuying market. It’s just a matter of if there’s enough units at the right pricepoint for homebuyers to buy.
With the rise in interest rates and a low supply, first time buyers are really going to struggle.
Where are mortgage rates headed?
It will be a couple steps forward a couple steps back, but when you look at the historic range, we’re still at historic lows.
Going back to business school, I had a professor who said, “sometimes you and I are right about the market but the market’s always right.” I would say 60 percent of the business we were doing a year ago was refinances, but this month, 75 percent of the business we’re doing is purchases. The purchase market is going to be very robust this year, we’re already seeing it.
Pre-pandemic we were in the mid-three range and right now we’re right at about three. Interest rates will gradually go up. We had two rate spikes this month in February. There’s nothing foreseen that says they’ll jump up to 5 percent. I think you’ll see very gradual changes in the interest rate.
Any advice for new homebuyers?
I would say before beginning your search for a home, speak to a trusted mortgage professional to find out how much down payment you’ll have to come up with, but also how much closing costs will be. The earlier you can get prequalified for a loan and find out what the total cost is, the more prepared you’ll be to shop.