Median rent for an apartment in Manhattan rose to $4,150 a month in July, up 29% from a year earlier, according to a monthly report from brokerage firm Douglas Elliman and Miller Samuel Real Estate Appraisers and Consultants. This is up 2.5% from June.
Average rents crossed the $5,000 per month threshold last month, reaching a record high of $5,113 per month.
And rents are expected to rise even further in August, which marks the final month of the annual peak rental season, said Jonathan Miller, president and CEO of Miller Samuel.
“It will continue to remain marginal till next month, as higher demand is expected to put upward pressure on prices,” he said.
Will rents continue to rise?
But what happens after August? While the rental market in Manhattan may cool, apartments are not expected to become more affordable.
“There’s not necessarily ‘falling rents’ as opposed to ‘rising rents,'” Miller said, adding that prices will continue to rise, just not as fast as they have been, or that rents will remain stable and flat.
“A lot of people After hiring activity peaks in August, affordability is expected to improve somewhat,” Miller said. “But the only way I see it is if the Fed’s baseball bat to the economy does more damage in the form of job losses. That is not a desirable situation.”
If job losses are significant, demand for apartments in Manhattan may decline as people double up or leave the city, resulting in downward pressure on prices.
A more likely scenario, however, is that renters may continue to see higher rents through the end of the year, but prices won’t rise as quickly, Miller said.
Homebuyers are flooding the rental market
The Federal Reserve does not directly set the interest rates borrowers pay on mortgages. Instead, mortgage rates tend to track 10-year US Treasury bonds. But they are indirectly affected by the Fed’s efforts to tame inflation.
Mortgage rates have risen quickly since the start of this year, with average rates for a 30-year, fixed-rate mortgage moving from 3.22% in January to 5.81% in June, before settling between 5% and 5.5% in July, according to Freddie Mac. Last week, the average rate fell by just over 5% to 4.99%.
A rise in mortgage rates has made buying a home unaffordable for many buyers, resulting in more people putting their buying plans on hold and deciding to rent instead, putting more pressure on the rental market, Miller said.
“The buying market frenzy has been transferred to the rental market frenzy through Fed policy,” Miller said. “I think it’s going to come down to external factors like unemployment and hard landings to see what happens next.”