New York Banking Rates

What Can We Expect from New York Mortgage Rates in 2013?

new york mortgage rates 2For local residents considering buying a home and taking on a mortgage loan, understanding the local housing market can help them make a smart purchase decision. So what can we expect from New York mortgage rates this year?

Housing Markets Vary by State

After half a decade characterized by a vicious cycle of falling prices and spiraling foreclosure rates, the national housing market is undoubtedly on the mend. In most American housing markets, home prices rose on a consistent basis during the latter half of 2012 — Phoenix and Detroit, according to Bloomberg, each saw double-digit price rises despite playing host to struggling economies that have yet to diversify in response to the recession that followed the recent financial crisis. For thousands of struggling homeowners in these areas, this turnaround is a welcome development after years of pain.

Of course, not every major housing market is experiencing a pricing renaissance. The health of a given region’s housing market is closely tied to that of its broader economy. The enormous Chicagoland real estate market, for example, continues to struggle precisely because the trade area of nine million people remains mired in an economic holding pattern brought on by declining industrial production and an unfavorable regulatory regime.

New York Housing Market Mystifies

Given the region’s stagnant economy, Chicago’s stubborn housing recession makes sense. By contrast, the New York housing market’s ongoing struggles make less sense in light of the state’s somewhat rosier economic picture. Despite an economic-activity uptick of better than 1 percent, New York State’s home prices declined by more than 1 percent during 2012. Even prices in the New York City market fell by 1.2 percent.

While plenty of factory towns in upstate and western New York have been in functional recessions since the 1980s, the state’s economic figures are typically skewed by the vibrant downstate economy. Now that the financial crisis and recession are in the rear-view mirror, New York City’s job-creating engine has revved up once more and is on track to churn out tens of thousands of jobs in 2013. Overall, the state’s 2012 economic growth rate of 1.1 percent was depressed by ongoing local recessions in places like Rochester and Albany.

Then again, the state’s rate of economic growth has slowed in defiance of the national trend. As such, it appears likely that the fortunes of New York’s housing market will diverge from those of a majority of American states. The expected weakness in the state’s housing market during the coming year may keep local mortgage rates depressed relative to the slowly-rising rates that could characterize many other markets. This is due to several closely-related factors.

The Nation’s Average Mortgage Rate

It’s important to keep the overall state of the national mortgage market in perspective. By historical standards, mortgage rates remain quite low in virtually every area of the country. At below 4%, the rate on a 30-year fixed mortgage is lower than it has been in decades. In New York State, rates are even lower: It’s possible to procure a 30-year fixed mortgage at an annual rate of less than 3.4%.

New York’s Unique Economic Environment Results in Higher Rental Rates

Lack of demand is to blame for much of this peculiar price action. The downstate New York housing market is far more expensive, competitive and built-out than the national market as a whole. In this densely-populated region, apartments and condominiums account for a far larger proportion of the housing stock than in the typical metropolitan area.

Meanwhile, the single-family homes that do exist in downstate New York tend to be far more luxurious and consequently more expensive than their counterparts in other parts of the country. As such, many downstate New Yorkers who might be able to afford a home somewhere else are forced by the area’s unique economic environment to continue renting in perpetuity. A recent New York Federal Reserve study indicates that it continues to make sense for the average New Yorker to rent his or her house in spite of the region’s reputation for sky-high rents.

Historically High Home Prices

Despite exceptionally low New York mortgage rates, the average monthly NY mortgage payments of homeowners are well above the national average. This is because the state’s home prices are far higher than they are in most other places. This trend is especially pronounced in New York City and in Long Island’s two suburban counties. The New Yorkers who own homes in these areas appear to be struggling to pay their mortgages at higher rates than their peers in cheaper parts of the Midwest and South.

New York Home Prices Could be Driven Down in 2013

At the same time, certain regulations make it fairly difficult for banks to foreclose on delinquent New York homeowners. In fact, many banks have simply given up on initiating new foreclosure proceedings for the time being. This has created a dangerous situation in which thousands of homeowners across the New York metropolitan area have stopped paying their mortgages without being kicked out of their homes.

As this situation persists, even more homeowners will cross the 90-day non-payment threshold for “serious delinquency” and open themselves to the possibility of foreclosure proceedings. Should the state’s private banks choose to foreclose en masse on these tens of thousands of delinquent borrowers, a sudden glut of newly-foreclosed homes on the auction block could drive down prices on a statewide basis. If housing prices in the New York metro area were to collapse without warning, it’s entirely possible that mortgage rates across the state could fall below 3 percent by the end of 2013.

Interest Rates are one of Chad’s favorite subjects to write about. When he’s not writing about banking, he’s probably writing about housing and construction related businesses.