At this point in time, pretty much everyone is aware of how low the housing inventory is and how difficult the challenge is to find a house, townhome, condo, or co-op. More important is how high the interest rates are and the substantial cost of purchasing whether it be residential, condos, co-ops, or even investment properties.
Way back when rates were this high the price of a home, condo, co-op, or investment property was at least five times less costly and it appeared that most salaries were able to handle the monthly payments and cost of living. Today it’s a whole different ball game and the pressure on those trying to purchase and make an investment is much greater. No one knows, especially Fed Chairman Jerome Powell, when rates will subside and come down to a more affordable level so that more potential purchasers can get back in to become homeowners.
Even renting has become very expensive as so many married couples and singles have abandoned ship and are sitting on the sidelines in a rental or just staying where they are in a a parent’s home waiting for a more beneficial and advantageous time when interest rates become lower. That is the big $64,000 question!
As mentioned in last week’s column, a great number of people (182,000 in 2022) have left New York State completely for less costly states, like Texas, North and South Carolina, Georgia, and Florida, and others, where overall taxes are considerably lower. However, here is a list of states that have no State income tax whatsoever: Texas, Florida, Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming.
But one must do their due diligence and check to see what other taxes those states levy in lieu of not having to charge income taxes to determine which state(s) have the greatest advantage financially to save you money. New York State needs to rethink how it taxes us and determine a better way to collect money, so we do not continue to lose our valuable resource, our people. I have my own ideas on how this could be accomplished, which I will propose in a future column.
In some situations where some homes were overpriced, there were price adjustments in February and March. But due to still strong demand from purchasers, prices have begun to increase once again. This does not mean all prices have increased, but mint and diamond homes are selling at a premium, at or above the asking list price. So for those who are paying outright for the purchase without financing or putting down a large down payment, let’s say 30-60%, the financing doesn’t appear to be a major problem.
When and if rates decrease, one can always refinance to reduce monthly mortgage payments. The important thought to keep in mind and to consider is that unless you are earning more money wherever you have it invested, and feel more comfortable handling it that way, then that is what you should continue to do.
When you consider the compounding effect of buying now, however, the potential increase in your wealth could be far greater in an ownership position than waiting for interest rates and home prices to come down as that may take several years. As an example, if you buy a $900,000 home and put 20% down out of pocket and prices increase 1%, that’s an increase in value of $9,000 and you are leveraging that value today to earn that return and enjoy your home.
This, of course, is on paper. In order to earn the same 1% or more on your investment, you would have to have available, liquid $900,000 to invest in stocks, crypto, and triple tax-exempt bonds. Most do not have that amount of money. Predicting the rate of return on investments, all things being equal today, as many of you have experienced, is a precarious and uncertain journey. One must be absolutely certain of the outcome, which becomes futile and next to impossible to do.
So you need to do some calculations and strategizing to ascertain, the risks and rewards and understand what is really important, besides the rate of return. To be in an ownership position for the long term and over time, building appreciation and equity as you pay down your mortgage is a sort of forced saving. The other positive is that the money spent will enable your family to build and grow roots in the community as well as develop potential lifetime friendships.
How does one put a price and/or value on that? It is impossible and only you can determine what is most important for you and your family going forward. Also, being close to parents and relatives can be a variable in wanting and needing to stay put. Affordability is the defining factor.
Being creative and working with sellers to provide financing has worked for us very successfully in our brokerage and it makes for a win/win situation for all parties, enabling buyers to purchase and sellers to take advantage of saving and deferring capital gains. The other unfortunate option is wasting your money on a rental, providing the landlord with all the benefits, tax deductions, income, and appreciation, or residing in a parent’s home or leaving NYS altogether.
P.S. We truly want to thank everyone who participated and attended our quite successful 2nd Annual “American Cancer Society Fund Raiser at Governor’s Comedy Club on Thurs June 1.
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 40 years of experience in the Real Estate industry. 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 Just email or snail mail (regular mail) him with your ideas or suggestions on future columns with your name, email and cell number and he will call or email you back.