Foreign Capital Is Leaving New York City. Local Buyers Are Filling the Gap

Written by:

Alejandra Rodriguez

Date:

29 May 2026

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New York City’s real estate market in mid-2026 looks different from just a few years ago. International buyers have largely stepped back, interest rates remain elevated, and a politically charged local environment has added uncertainty. Yet beneath these pressures, the market is quietly recalibrating. For those paying close attention, opportunities are beginning to emerge.

Few observers have a more distinctive vantage point than Anya Levitov, principal and licensed broker at Verus Real Estate Inc. Having built her practice around international buyers relocating from Russia and other parts of Europe, Levitov has watched the composition of New York’s buyer pool change in real time. “We are now working with mostly local buyers and investors,” she notes – a reality that reflects broader shifts in geopolitics, immigration sentiment, and global capital flows.

Foreign Buyer Retreat

The retreat of foreign buyers from New York did not happen overnight, nor for a single reason. Levitov traces the turning point to before the pandemic, when Chinese buyers – once a significant source of demand – began disappearing from the market. European investors followed. Italians held on longer than most, drawn by what Levitov describes as a lasting romantic attachment to New York as a world capital. That, too, has faded. “Right now, all of our Italian investors are sellers, and properties in many parts of Italy have appreciated more than in New York,” she says.

The current political climate has accelerated the pullback. High-net-worth individuals from countries facing additional scrutiny at the U.S. border are increasingly reluctant to commit capital here. Levitov points to a client who purchased a $20 million property, was treated poorly at the border on arrival, and ultimately sold without ever taking occupancy. “We really should not be scaring such people away,” she says. “It’s not a good move.”

Today’s Active Buyers

With international demand diminished, the market has pivoted toward local end-users and domestic investors. The buyer pool is diverse, but motivations share common threads.

Empty nesters returning to the city after raising children in the suburbs represent one growing segment. A recent transaction illustrates the pattern: a couple purchased a one-bedroom near Lincoln Center after their youngest child left for college, creating a pied-à-terre while keeping their suburban home. At the other end of the family lifecycle, young parents are making location decisions driven by school access. Another recent deal involved a couple relocating to Manhattan from Massachusetts, specifically to enroll their child in a dual-language public school. Levitov points to the city’s educational infrastructure as an underappreciated draw.

A third category is straightforward move-up buying – families trading a two-bedroom for a three-bedroom as needs evolve. These transactions are modest in narrative but steady in volume, forming the backbone of the current purchase market.

Rental Market Pressure

While purchase activity remains measured, the rental market is under significant pressure. Elevated mortgage rates have kept many would-be buyers on the sidelines, funneling demand into rentals and pushing prices sharply higher. Levitov notes that a high-floor one-bedroom in midtown can now rent for $6,000 – a price point the market had not seen in years.

The dynamic is self-reinforcing. Owners who might otherwise sell are instead listing their units for rent, keeping purchase inventory artificially low. Levitov sees a nuance that headline inventory figures miss: many owners currently renting out their apartments are open to selling if approached directly. Motivated buyers working with well-connected brokers can access inventory that never officially hits the market.

Investment Returns Shrink

The economics of New York City residential investment have grown harder to justify. Yields in Brooklyn, once a reliable destination for value-oriented buyers, have compressed to around 5%, while financing costs sit at 6.5% to 7%. That negative spread means investors must subsidize their holdings out of pocket – a proposition that has cooled enthusiasm considerably.

As a result, some investors are looking beyond the five boroughs entirely. Markets in upstate New York – including Binghamton, Ithaca, and Rochester – have drawn interest for their lower acquisition prices, modest renovation costs, and stable student tenant demand. Returns in these markets can reach 9% to 10%, a meaningful contrast to what New York City currently offers. “We have to find other opportunities with a higher rate of return so that it makes sense to invest,” Levitov says.

Suburbs Hold Steady

The broader tri-state area tells a more resilient story, shaped by conditions that took hold during the pandemic and have yet to reverse. Inventory in established suburban markets across Connecticut and New Jersey never fully recovered from pandemic-era demand, and flexible work arrangements have kept pressure in place. “People are now more comfortable with commuting because they can commute just a couple of times a week,” Levitov observes.

She is careful to note that these are not monolithic markets. Prestigious pockets of Fairfield County or Bergen County behave differently from less sought-after areas in the same states. The common thread across nearly every submarket is the lock-in effect of low-rate mortgages. Owners sitting on 3% financing have little incentive to sell into a 7% rate environment, which simultaneously suppresses inventory and prevents many existing owners from trading up.

In the current environment, condition and pricing are the primary determinants of how quickly a property sells. Move-in-ready homes priced accurately for today’s market are finding buyers. Properties requiring work, carrying location compromises, or priced above market are sitting. The bifurcation is sharp, and it rewards sellers who invest in presentation and price honestly.

Rate Risk Ahead

Looking ahead, the variable that concerns Levitov most is the direction of interest rates. Inflation running above 3% leaves little room for the rate relief that would meaningfully unlock buyer demand and seller inventory. There is some hope that current inflationary pressure is transitory – tied to energy prices rather than entrenched in the broader economy – but the outcome remains uncertain.

For buyers and investors willing to look carefully and move decisively, the current market offers real opportunity precisely because so many participants are sitting still. The combination of rental owners open to off-market sales, suburban lock-in effects constraining supply, and a narrowed but active buyer pool suggests the next phase of the market will reward those who understand where deals are forming rather than waiting for conditions to feel comfortable.

About the Expert: Anya Levitov is a Principal and Licensed Real Estate Broker at Verus Real Estate Inc., operating in the New York City residential market.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.