Miller’s research firm, Miller Samuel Inc., along with brokerage Douglas Elliman Real Estate, just released one of its regular updates on the state of the Manhattan market, and saw the share of all-cash buyers in real estate’s crown-jewel borough hit an all-time high in the fourth quarter of 2023. Miller’s latest report shows something that we’ve known all along: Wealthy buyers can pay all cash for the real estate they want. But it shows something else surprising, to Miller: This is a bet on the market becoming a bit easier for homebuyers in 2024, in a way. 

“The surge in cash deals likely reflects the market’s anticipation that rates will be lower in the next few years,” Miller tells Fortune. “And there will be an opportunity to obtain a lower-rate mortgage,” he says. 

Of all Manhattan buyers, 67.9% paid all-cash for their home in the fourth quarter, a 17.6% year-over-year jump, which, the report said, was mainly due to the surge in mortgage rates. Historically, cash buyers have made up between 40% to 50% of the Manhattan housing market.

Mortgage rates peaked at 8% in October 2023, a two-decade high. In turn, mortgage-based sales fell 32.5%, the report shows. 

Many housing experts and economists forecast lower mortgage rates for this year, but not the sub-3% rates we saw during the pandemic. For example, Capital Economics doesn’t expect mortgage rates to fall below 6% until the end of 2025. However, lower mortgage rates mean that more buyers can enter the market and more will be using a mortgage to finance their purchase. The current 30-year fixed-rate mortgage is 6.72%, according to Mortgage News Daily.

“While I do think cash sales will continue to remain above longtime levels, the expected uptick in mortgage-related sales will pull down the market share of cash buyers,” Miller says. “Sales growth in the mortgage sector is where the largest gain in sales will likely occur.”

Cash sales also give more bargaining power to the ultrawealthy buyer—further exacerbating the issue of first-time homebuyer affordability, Nicholas Ritacco, portfolio manager and director of finance at New York City–based IB Global Real Estate Funds, tells Fortune. 

More cash sales in the market “definitely makes it more difficult” for new homebuyers “since cash deals get a little bit more bargaining power,” he says. “We have seen parents helping out their kids with cash to help, then get into their home, and then just pay them back when rates are lower to refinance.”

Home sales prices in Manhattan

Home sales prices in Manhattan also increased in the fourth quarter—the first time they increased in more than a year. The median home sales price was $1.15 million, a 5.1% year-over-year gain. The average sales figures also show a significant change. The average sales price of a home in the borough was more than $2 million, a 3% quarter-over-quarter increase, and a nearly 4% year-over-year increase. Miller expects this trend to continue.

“Although the expected slide in mortgage rates will bring more listings into the market, that will be largely offset by the rise in sales,” he says. “Prices are expected to rise modestly in 2024 because of the underpinning of limited supply.”

The lock-in effect is largely to blame for limited housing supply in Manhattan and the U.S. at large. This phenomenon swept the housing market in 2023 as high mortgage rates discouraged current homeowners from putting their house on the market, forcing them to forgo the extremely low rates they locked in during the pandemic. 

“Rising mortgage rates had kept listing inventory from entering the market as homeowners were reluctant to enter the market and lose their low rates,” according to the report. “Listing inventory declined annually over the past three quarters due to the impact of unusually low mortgage rates during the pandemic era.” 

At the end of the fourth quarter, there were just more than 6,400 listings in Manhattan, down 1.7% year over year and 3.5% below the pre-pandemic level. What’s more, listings were even slower to sell in the fourth quarter, despite low inventory levels. Indeed, the pace of the market (the number of months to sell all listings at the current sales rate) was eight months, or 3.9% slower than in 2022.

The entire New York City real estate market was slow in 2023, another report released Wednesday shows. Big-ticket items including large co-ops, townhomes, and condos took months to sell, according to the report from Coldwell Banker Warburg, a real estate office of Coldwell Banker. That’s largely due to aspirational pricing by sellers, Frederick Warburg Peters, president emeritus of Coldwell Banker Warburg, tells Fortune.

“All sellers believe their property is worth more than they believe other comparable property is worth,” Peters says. “That’s just human nature.”

It’s unlikely that affordability will improve in 2024, Ritacco adds.

“Until there is a substantial decrease in rates, there will not be a significant change in affordability,” he says.