Rate Hike Fears Shake Broker Confidence

NEW YORK CITY—Residential and commercial brokers here are showing some concern over the potential impact of a hike in interest rates and the continued lack of two-bedroom apartments will have on the New York City real estate market.

The Real Estate Board of New York released its Broker Confidence Index for the second quarter on Thursday. Residential and commercial brokers polled by REBNY recorded a slight drop in confidence as compared to the first quarter of this year.

The Overall Broker Confidence Index for the second quarter of 2015 was 8.84, down from last quarter's 9.05 and virtually unchanged from a year ago. Despite the dip in the overall index this quarter, brokers' perceptions of the market continue to lean positive, REBNY states.

“Our survey found that brokers are slightly less confident in the market six months from now, which is largely due to interest rates. This seems to be a more significant concern for the residential brokers whose activity is more directly impacted by changes in rates,” says REBNY president John Banks.

The Commercial Broker Confidence Index was 9.47, a slight increase from last quarter's 9.24. Likewise, the Commercial Broker Confidence Index in the market six months from now was 9.10, up from last quarter's 8.92. Brokers credit to employment growth as a key factor for their positive outlook on the market. REBNY states that commercial brokers' anticipation of an interest rate increase in the future and uncertainty about some aspects of the global economy, particularly the Greek and Chinese economies, were the key concerns cited as impacting their confidence in the market six months from now. One commercial broker said to REBNY pollsters, “Job growth continues to be the most significant driver of future market performance. [The] market is 'cooling' a bit, but there is still velocity (and urgency).”

The Residential Broker Confidence Index decreased to 8.21 from 8.86 last quarter. The issue of concern was the lack of inventory, particularly the low inventory of two-bedroom apartments that has been an issue for the past year-and-a-half. In addition, uncertainty over interest rates left many residential brokers unsure of how the market will be performing six months from now. Confidence in the market six months from now dipped to 7.93, from 8.82 last quarter.

Despite the reduction in confidence in the market six months from now, brokers were positive about robust sales volume, the growing popularity of new neighborhoods, and increased demand, especially in Brooklyn and Queens. They anticipate that this popularity will result in a strong pick-up in new development and increased inventory in the long run.

One residential broker remarked, “Increased interest rates will impact the economic environment.” Another residential broker related, “A sustained rise in interest rates and/or a slowing in the flow of Chinese capital into the U.S., particularly in New York City, would have a dampening effect on the residential market.”