All Things Business: It was a tumultuous and challenging year in real estate

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All Things Business: It was a tumultuous and challenging year in real estate

How can one describe real estate in 2023?

It was challenging, impossible, and difficult for buyers and renters.  Mortgage rates being as high as they were with 11 increases over 18 months have caused a lot of pain and disruptions to so many looking for their first place to call home.

Its severity affected a good portion of purchasers who had less than stellar opportunities whether it was from battling a bidding war environment not seen before; as well as a lack of choices from a historically diminished low inventory.

Due to these bidding war situations, prices kept escalating in this artificially created atmosphere with fear of missing out rearing its ugly head for those who became way too emotional in the buying process; as if it was the end of the world if they didn’t get something.

Due to this untenable situation, this inevitably pushed so many back onto the sidelines waiting for lower rates, and prices, greater housing inventory, saving more money or just leaving New York State altogether.

I do not see the possibility of lower prices on the horizon because of continued current demand and from those entering their “purchasing years” as well as the continued lack of affordable tenant housing.

I don’t see developers catching up for between 5-10 years going forward, as they do not want to overbuild and get stuck, as they did in 2006-2008.

Although more construction is happening,  lack of affordable and buildable land on Long Island is another factor that has come into play too, causing many to jump back on the fence and wait or join the exodus out of New York State to the top 5 lower-cost states (from InsiderMonkey.com 12/22/23)  like  Florida, New Jersey, Arizona, Pennsylvania, and Texas.

The Federal Reserve and Jerome Powell haven’t increased rates the the last meetings due to the positive outcomes of the slowly decreasing inflation numbers.

I have said in past columns, that I am a bit suspicious about the numbers that make up the Consumer Price Index making up core inflation; when energy, food, and housing are not included in the computations, due to their volatility in creating a stable inflation composite.

Although the first two have come down slightly, housing is still not cost-effective for those who want to purchase, so I believe “real inflation” is higher than what they are putting out to the public.

Some economists (Forbes January 23, 2023, contributor Q.ai) say the Fed should consider using super core inflation as a barometer (CPI plus PCE-personal consumption index), stripping out the volatile aspects of food, energy, and housing from the traditional CPI.

At this point, there is no clear agreed-upon definition of super core inflation. My professional opinion, although I am not an economist, is that true accurate inflation today should include food, energy, and housing, even though they are very volatile commodities.

But I believe that it would scare consumers from spending, which is 70% of our economy, if included, showing a higher than normal inflation number and maybe enabling it to reach the 2% rate faster, that Jerome Powell wants.

True and accurate transparency can be a very slippery slope when it comes to politics and our economy.   A column from Greg Iacurci from CNBC on Dec 12 stated the CPI index rose 3.1% in November year over year)down from 3.2% in October according to the U.S. Bureau of Labor Statistics.

Although gasoline, natural gas, and some food prices are lower, housing to purchase and rent is considerably higher as well as motor vehicle insurance and repairs, admission to events, and many other categories of things that consumers spend their incomes on, which is part and parcel of the PCE.

There are predictions that the Fed will lower interest rates by the middle of 2024, but they are not committing to any numbers.

But the stock market has been rallying over the last few weeks on the potential of it occurring.  This would bode well for purchasers seeking to get back into the market.  I’ll take a wait-and-see attitude.

However, a key determining factor is the high price of housing on Long Island and current high rates and affordability.  If those who have bought in the last two years, who paid a high price and interest rate, fall into any of the following categories, then major affordability issues could occur in the future:

  • Potentially lose their business or job
  • Overwhelming mortgage and credit card debt
  • Disabilities and death occurrences
  • Marital status

This may cause those homeowners to consider having to sell to potentially avoid foreclosures and poor credit scores affecting their future for purchasing or renting.

If they have sufficient equity, some banks just might consider a moderation of their mortgage interest as was done in the crisis in 2008.  However, every lender has their policy and each case would be looked out, showing proof of loss of business or job and the lack of income and whatever the bank would request to show need.

But planning, knowing what your future might hold and selling right now, and taking your equity with you before a direr event occurs; and keeping your positive credit history would go a long way in securing another place to live.

Call me for a free consultation.  Happy and enjoyable holidays and a more healthier and lucrative New Year to all my clients and friends

Philip A. Raices is the owner/broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck.  For a “Free” 15-minute consultation, value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: [email protected] or via https://WWW.Li-RealEstate.Com

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