- Thomas Moran Weekly Recap
- Posts
- The Era of Cheap Money Is Over—Now What?
The Era of Cheap Money Is Over—Now What?
The financial landscape has changed—higher rates are here to stay, and NYC real estate is evolving. In this market, hesitation is costly. Here’s what you need to know to stay ahead.
Thomas Moran
February 20, 2025
The Era of Cheap Money Is Over—Now What?
2025 isn’t just another year—it’s a financial reset. The cheap money era is dead, and we’re entering a world where 7% mortgage rates aren’t an anomaly; they’re the new baseline.
If you’re still waiting for rates to fall, I have bad news: this might be as good as it gets. The last time we saw an economic setup like this—high debt, sticky inflation, and a Fed hesitant to cut—we got a decade of rising borrowing costs. The 1960s started with 5% rates. By the 80s, they were north of 15%.
The message is clear: The risk isn’t buying now—it’s waiting and getting priced out forever.
Let’s break down why this market shift is happening, what it means for real estate, and why acting now could be your best move.
Higher for Longer: The Economic Shift Reshaping Housing
Source: Bloomberg | Photographer: Win McNamee/Getty Images North America
The Fed hasn’t said it outright, but the writing is on the wall: low mortgage rates aren’t coming back anytime soon. If you’re waiting for rates to drop before buying, you might be waiting forever.
For over a decade, the U.S. economy thrived on artificially low borrowing costs—fueled by trillions in stimulus, minimal inflation, and strong global demand for U.S. bonds. That era is over. Today, we’re facing a perfect storm of structural inflation, record-high government debt, and a global shift away from U.S. Treasuries—all pushing mortgage rates higher, not lower.
The national debt now sits at $34 trillion (120% of GDP)—the highest level in U.S. history outside of wartime. The government is running a $2 trillion annual deficit, meaning it must issue more bonds just to stay afloat. But here’s the issue: foreign buyers—once a major force keeping borrowing costs low—are stepping away.
China, which once held $1.3 trillion in U.S. debt, has been steadily reducing its holdings, while BRICS nations are accelerating efforts to move away from dollar-based trade. As foreign demand shrinks, the U.S. is being forced to offer higher yields to attract investors—pushing up long-term borrowing costs, including mortgage rates.
At the same time, inflation remains persistent. While CPI has cooled from its 9% peak, it’s still hovering at 2.9%—well above the Fed’s 2% target. Unlike past cycles, this isn’t just demand-driven inflation—it’s structural. Housing shortages, rising labor costs, and supply chain disruptions won’t be solved by rate cuts alone. The Fed knows this, which is why they’ve walked back their early 2024 "rate cut" narrative.
The result? Higher rates aren’t a short-term trend—they’re the new financial reality, and the effects are already playing out in the housing market. The financial landscape has shifted, and anyone still expecting a return to 3-4% mortgage rates is chasing a scenario that no longer exists.
What Does This Mean For NYC Real Estate?
NYC’s real estate market isn’t slowing—it’s adapting. Mortgage rates may be higher, but the real threat to buyers isn’t borrowing costs—it’s supply. With fewer homes available and buyer activity still strong, the competition for prime real estate is only going to get tougher.
For buyers, the window to negotiate in this high-rate environment won’t last forever. For sellers, inventory is still in your favor—for now. But waiting too long could mean selling in a market where more competition forces price cuts.
In this market, decisiveness wins.
While rising interest rates have slowed some housing markets nationwide, New York City remains a different beast. Here, it’s not rates driving the market—it’s supply. In a typical rate hike cycle, you’d expect prices to drop as borrowing becomes more expensive. But in NYC, a lack of available inventory is keeping competition strong. Manhattan’s housing inventory dropped 17% from December 2024 to January 2025—the sharpest decline in over a decade. New listings have fallen across the board as homeowners locked into ultra-low mortgage rates refuse to sell, while high construction costs are making it difficult for developers to bring new inventory to market.
This supply squeeze is why prices aren’t crashing, even with mortgage rates at 7%. Contract activity is still strong, with the number of homes entering contract up 10.7% year-over-year. The luxury segment remains especially resilient, with 45% of transactions being all-cash, insulating high-end buyers from interest rate fluctuations. At the same time, Manhattan rents have surged 9% YoY, reinforcing long-term price appreciation and making homeownership increasingly attractive for those weighing rent vs. buy decisions.
Source: UrbanDigs
For buyers, high rates don’t mean there aren’t opportunities. The frenzy of bidding wars has cooled, giving today’s buyers more negotiating power than they had in 2021-22. Many sellers, particularly those in the mid-tier segment, are now willing to negotiate price adjustments or offer concessions, such as mortgage rate buy-downs. Buyers who act now can secure properties before rates potentially climb further—if 10-year Treasury yields push past 5%, mortgage rates could approach 8%, making today’s 7% look like a bargain. Additionally, opportunities exist in select Brooklyn and Queens neighborhoods, where growth potential remains strong.
For sellers, low inventory is working in your favor—for now. Well-priced, move-in-ready homes are still moving quickly, especially in sought-after areas like Tribeca, the West Village, and Billionaires’ Row. The luxury market remains strong due to high-net-worth buyers who are less sensitive to borrowing costs. However, waiting too long could backfire. If more homeowners adjust to the new rate environment and list their properties later in the year, growing inventory could introduce more competition, potentially leading to price adjustments. Sellers who price strategically and present their homes well through staging and professional marketing will have the best chance of attracting serious buyers while demand remains strong.
The story of 2025 isn’t about a collapsing real estate market—it’s about a shifting one. Higher rates have changed how buyers and sellers operate, but NYC’s market is still highly active, with prices holding due to limited supply. For buyers, waiting for prices to drop could be a costly mistake, especially if mortgage rates climb higher. For sellers, inventory is still in your favor—but if you wait too long, more competition could force price cuts.
In this market, decisiveness wins. The best opportunities won’t wait—will you?
Pick Of The Week
For those of you who might not know, beyond the bustling world of real estate, I'm quite the sports fan! As we dive deeper into the season, I thought, why not sprinkle a little fun into our newsletter? Every week, I'll share my "Pick of the Week" for sports betting. While my expertise is firmly in real estate, I think this will be an enjoyable twist for our readers. But remember, it's all in good fun and purely for entertainment – always wager responsibly!
Andre Ringuette/4NFO/World Cup of Hockey
Pick of the Week: USA Moneyline 🇺🇸
Tonight, we ride with USA (-145) vs. Canada in the 4 Nations Face-Off Final.
Forget the NBA All-Star snoozefest—4 Nations has been awesome. Team USA has been the best squad in the tournament, dominating at 5-on-5 with Matthews, Eichel, and Tkachuk leading the charge. Canada? Stacked, sure. But this is our time. The USA hasn’t won a true best-on-best since ‘96, and you better believe we’re not losing to Canada with a trophy on the line.
The Reason: We don’t lose to Canada. #FiftyFirstState
Contact Me Today
Feel free to reach out to discuss more in-depth about your real estate goals, share your thoughts about my newsletter, or to share what you're experiencing in this market. I look forward to hearing from you!
