All Things Real Estate: Has the heated real estate market left you behind?

All Things Real Estate: Has the heated real estate market left you behind?

The obviously insane increases observed in real estate prices and values lately from 17.4 percent on average across the U.S. in 2021 led the Case-Shiller Report to calculate a year-over-year rise of 19.7% in July, while CoreLogic showed 18 percent and FHFA 19.2 percent. The major reason has been a total lack of sufficient inventory.

This is basic high school education of supply vs. demand economics. Low supply, higher than normal demand and historically low interest rates are allowing so many more buyers to enter the market, causing these major increases in home prices. Most important is the lack of sufficient construction of new homes from 2008-2015 due to the fear by builders of having excess inventory in case of another downturn, leaving them holding costly inventory. However, over that seven-year period millions of new willing and qualified purchasers entered the market, creating an oversaturated tsunami of consumers and our lower-than-normal interest rates stimulating our economy and the buying frenzy that ensued.

But over the next two months price increases should be more moderate at 11.2 percent as inventory increases and demand slow just a bit. Price increases are not expected to decline over the next five years while rates are still historically low. Home prices and values will not depreciate in the foreseeable future and increases will continue, as long as interest rates don’t rise out of the range of what is currently affordable for the majority of purchasers, allowing demand and sales to continue at a much more normal pace.

There has been a slight increase in inventory compared to the spring of 2021. Annualized home sales from 2019 was one of the best in the past 10 years, except for 2017, which was a bit better. But 2020 (Covid-19 pandemic environment) affected the first two quarters and then the third and fourth quarters came back like a bat out of hell and made buyers exit major cities like a hurricane.  Armed with a voracious appetite, they purchased homes with more open, safe and private surroundings with work at home spaces.

2021 has also been quite above average. Increased material costs, especially for wood products and other materials that are used in the building process, have caused higher construction costs and have also been impacted by supply chain issues with slower than normal production due to Covid causing major labor issues in unloading the vessels off shore. All this has had an effect on new home sales as well as price increases on new and used autos and many other everyday consumer goods and products.

Rates have increased to 3.01 percent recently due to the federal government’s easing of their monthly purchases of $120 billion worth of Bonds, as no one else was buying them. As rates increase, they will cause borderline buyers to exit the market, or if they are smart to at least consider being in an ownership position by buying a condo, HOA or even a co-op, which in the majority of localities will be more affordable. This will still enable them to take part in the American Dream of being a homeowner and take advantage of long-term appreciation, tax deductions, and becoming their own landlord. This will put them in a strong position to have the same power to control and determine their destiny if and when they want to move again and not someone else who may or may not renew their lease.

I have been saying for years that renters will never, ever be able to get a fixed lease for 30 years unless they apply and obtain a mortgage. This is how one begins to grow their long- term wealth. Many say a home is not an investment, but really over 10, 20, 30 and 40 years it really does make sense. However, if you are one of those rare and amazing stock pickers and investors who can gain greater investment value on your money year over year without any risk and beat the average appreciation of owning your own home, then that just possibly maybe more to your advantage.

But if not, then owning your own place, and more importantly, building strong roots in a community, potential long-term friendships and having greater privacy is worth it. Not being subjected to enduring transient noisy tenants all around you as well as smelling their food, and of course increases in your rent over the years make ownership well worth the money! So be creative and begin today to figure out how you can make it happen and become a homeowner. There are a multitude of sources online for you to create a plan to accomplish this. However, if you need assistance in learning how, then call me!

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 and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S). For a “FREE” 15 minute consultation, a 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] 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.

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