Rent Prices in Manhattan
Rooftop Bars, Blue Skies, and Rent... is at ALL-TIME HIGHS?!?!
The real estate market in Manhattan, New York City, has seen an upward trend in rent prices in recent years, hitting all-time highs in July of 2022. Moving to the Big Apple in a few months, I’ve been closely following the rental market in hopes of seeing the rental prices decrease, but that’s not the case. Trust me, I know NYC is about as far from “cheap” as possible, but I didn’t think rent rates were going to rise past the July 2022 highs.
Manhattan has always had the reputation of being one of the most expensive cities in the world to live in, and rent prices have been increasing steadily over the years, but not this fast, this quick. New York City median rental rates hit all-time highs, $4,150 for a one bedroom and $5,680 for a two bedroom according to QZ.
Below are a couple of charts showing the median prices for apartments in New York City, broken down into the boroughs. Obviously, I didn’t include Staten Island because we all know it’s not really part of New York City.
Prices went down in 2020 after COVID happened, but around the beginning of 2021 the median asking price started increasing, and increasing incredibly fast too. Many believed it would continue in the past until asking prices hit pre-pandemic levels, then slow down and tamper off. But no, demand to rent an apartment in NYC kept increasing, and as a result rental prices kept increasing. It wasn’t until the summer of ‘22, when morons (soon to be me :D), realized paying $4,000 for a 2 bedroom 1 bathroom 400 square foot apartment doesn’t make sense. The decrease in demand led to a temporary decrease in median asking price, until about November of ‘21, when the median asking price started increasing again.
Looking at the chart below, you can see the inverse relationship between total rental inventory and median asking price. This signals a clear supply demand relationship.
However I think there is more to it than just supply and demand. Looking at the Inventory chart, the current inventory levels, it is around the 2014-2015 inventory levels, yet the median prices are roughly $750 more per month. Even with inventory of rental units fluctuating throughout 2014 - 2019, the median asking price stayed roughly the same, a little bit but always staying near $3,400 for Manhattan, $2,600 to $2,700 for Brooklyn, and $2,400 for Queens. The only exception is the Bronx, which steadily increased rates from 2015 to 2020.
I believe this high and rising monthly rental rates are a byproduct of COVID and the impact it had in the real estate industry. The chart below shows that vacancy rate skyrocketed during COVID, reaching all-time highs by almost 8%, 3x the average vacancy rate in NYC. Comparing that data with the median asking prices in 2020-2021, landlords were offering really cheap leases just to minimize their loss or break even from the impact COVID had.
Wondering if it was apartments in general in NYC, I started researching the average median asking price to buy an apartment. Looking at the table below, you can see that the asking price is increasing from 2020 but still far off from all-time highs in 2015, almost $350,000 off.
So if the asking median price to buy apartments are increasing, but still a ways off from all-time highs, it leads me to believe that the residential rental market in the real estate industry in NYC was hit hard by COVID, way harder than you expected. With many landlords most likely having to refinance their mortgages because of the significant vacancies and high inventory count not generating cash flow, they most likely applied for an adjustable-rate mortgage, providing them with a short-term solution for their problems. While it was expected for the Fed to raise rates, no one expected the Fed to raise rates this high, this fast (if you said you knew it was going to happen exactly like it did… you’re a liar, just stop it!).
The rising rent prices in Manhattan are a complex issue influenced by several factors, but I do think the rapid increase in average asking monthly rent signals that these landlords are in a really tough position. Although the economy is weakening, the landlords have to continue to increase their average monthly asking rent in order to keep up with their mortgage. I do think it will continue to increase as 2023 carries on (unfortunately). I believe this is yet another example of us not knowing the full effect that COVID and the rapid interest rate hikes will have on our economy.
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