Busting the myth: Manhattan prices don’t track mortgage rates

Conventional wisdom suggests that when mortgage rates rise, home prices fall. The logic is as simple as it is obvious: as borrowing becomes more expensive, fewer people can afford to buy, so prices must fall to fill the gap. Conversely, when interest rates fall and affordability improves, buyers compete with each other to secure a deal, and prices tend to rise.

It’s a neat story. But it doesn’t necessarily hold up in Manhattan.

For the past fifteen years, the Manhattan apartment market has followed its own rules. When we dug into the price per square foot (PPSF) data for resale apartments and compared it to the 30-year jumbo mortgage rate since 2010, we expected to see a familiar inverse correlation: rising interest rates lead to falling prices. However, the price line in Manhattan zigzagged, ultimately revealing that it does not move with mortgage rates, unlike many suburban or Sun Belt markets.

Let’s talk about correlation – or lack thereof

First the numbers. It turns out that there is virtually no correlation between apartment prices per square meter and mortgage interest rates, regardless of price. We ran the numbers from 2010 to 2024 and the correlations were almost flat. (Reminder: The closer the number is to 1 or -1, the stronger the relationship. These weren’t even close.) The details and full heatmap are below:

• All sales: +0.04 (no correlation)
• Less than $1 million: –0.08 (very weak negative)
• Less than $2 million: +0.01 (nothing here)
• Less than $3 million: –0.05 (negligible at best)
• $3M+: +0.18 (a somewhat flirty relationship, but still weak)

Across the entire price spectrum, mortgage interest rates do not determine pricing. Even when we introduced a three-month lag to account for the typical lag between contract and close (prices today vs. closes 90 days from now), the story remained the same: no meaningful correlation.

So, what gives?

The reason why the financial severity of interest rates doesn’t apply here as it does in, say, Scottsdale or the Atlanta suburbs: Manhattan is a vertical market with unique fundamentals.

Let’s go through a few possible explanations.

1. Cash is (still) king

In the second quarter of 2024, 62.3% of all sales in Manhattan were made in cash only Miller Samuel data. Even in the sub-$1 million range, 52% of deals were cash. Above $5 million? Nearly all buyers (99.6%) simply wrote a check.

So if the majority of buyers are not interest rate sensitive, interest rate increases will not necessarily act as a brake on pricing. In other words: the affordability of the mortgage interest does not play a role if the buyer does not even apply for a mortgage.

2. Policy overload

If you’re a developer, investor, or even a first-time buyer in New York, chances are you’re facing a policy curveball. Since 2015, the landscape has changed dramatically at all levels, national, provincial and city:

And that’s just the highlight reel. In Manhattan, policy changes often outweigh monetary policy when it comes to influencing purchasing behavior. Shifts in tax law or rent regulation can ripple through the market more quickly and with greater impact than a 25 basis point interest rate move, which can take weeks to materialize.

3. Wealth effect > Interest effect

At the top end of the market, where the only semi-notable correlation existed, prices appear to be more in line with the broader economic cycle than with interest rates. Think stock markets, IPO liquidity, bonus season and rising alternative assets. These buyers are playing a different game, and their purchases are often driven by wealth appreciation or tax planning, rather than mortgage math. That means a correlation of +0.18 for apartments over $3 million more likely represents wealth cycles, not financing costs.

4. It is a market of many markets

Manhattan is not one market. It is a web of micro-markets, layered with nuances. From the dense Upper West Side to the soaring glass towers of Midtown, the dynamics vary from block to block and even from building to building. Local demand cycles, inventory constraints and price sensitivities play a much bigger role than what happens at the Fed or the local credit union.

Zoom in and it becomes even clearer: the sub-$3 million market, where you would expect to see the most interest rate exposure due to the increased level of borrowing to get deals done, shows no meaningful correlation. Buyers in this mass market are influenced more by competition with cooperatives, stock shortages and renovation premiums than by rates.

Action points: Forget rates: pay attention to supply and the temperature of the advertising environment

For buyers

If you’re a buyer trying to time the market, don’t obsess over price headlines. Instead, keep an eye on inventory trends, days on market, and price drops. The best opportunities arise when the local stock market environment is challenging, properties are stalling and sellers, who are likely experiencing exhaustion, are starting to grow impatient.

For sellers

If you are a seller in this market, the level of situational awareness must be high. Although this is the fall season, it is also a compressed season compared to the longer and stronger spring market. In addition, overall uncertainty among buyers is higher than normal as we approach the upcoming mayoral elections. Even as rates have fallen in recent months, the market remains “challenging” with seasonally soft demand in many local areas. Know your market, know your product, fit into that market and know your seasonal lines. Be price conscious and if you test the market with a modestly ambitious initial asking price, consider a quick price adjustment if the open market doesn’t respond as you hoped.

The bottom line

The idea that rising interest rates equal falling prices doesn’t quite hold up in Manhattan. Even with a lag analysis, the data shows that the market is largely indifferent to mortgage rate movements. If anything, it dances to the rhythm of demographics, local policies, tax laws, cash liquidity, and ultra-local idiosyncrasies between supply and demand.

This does not mean that rates do not matter. For price developments, rates are only one piece of the puzzle. Larger macro and micro trends are also at play, and in many cases an outsized one – think Covid or the Great Financial Crisis. While interest rates can drive buyer activity and influence timing, prices are more dependent on macro and microeconomic factors, such as the rental market, investor interest and local policies.