I’m back from vacation and here to report that I and my team have experienced our first "casualty" as a result of tightening lending standards. The bad news is that the buyer who has decided not to sign the contract for one of our exclusive properties has backed out because her interest rate is going to be more than a point higher than she originally anticipated. It seems that her retired status and lack of income is negatively impacting her financial picture despite her asset rich portfolio. The good news is that another qualified buyer was waiting in the wings to snap up the property. The key word here is "qualified" as that definition has changed dramatically over the past 30 days. Many who were considered qualified buyers just one month ago are finding that their monthly payments at current interest rates are making ownership less attainable.
So what are these people to do? Rent? With rental vacancy rates in the city reported to be less than 1%, that isn’t necessarily the answer. Are these "marginal" borrowers going to be forced to leave the city? For many who don’t the option to stay where they are, I think that will be the unfortunate reality. I have always maintained that Manhattan is moving toward being an exclusive island for the wealthy and as the wealthy are being less affected by tightening lending standards and high rents, the trend towards an ultra-lux Manhattan continues.
Having said that, let’s not count out the middle class just yet. The largest percentage of these buyers still qualify for mortgages at competitive interest rates. Those "marginal" buyers who don’t will have to stay put or consider leaving the city. Don’t feel too badly about those 2 options though. It could be much worse. Just ask those struggling right now to avoid foreclosure.