Since 2020 the pandemic has shut down many businesses, causing people and families to leave major cities to work remotely away from the crowds and Covid- 19 in the supposedly safer, less dangerous environment in suburbia.
This was one of the stimuli along with the lowest rates on record that propelled the local and domestic U.S. real estate market to excel to heights never experienced in history. This led to a white-hot sizzling period of time in our real estate market to a much quicker transition in the past year where buyers and sellers suddenly faced a more frigid climate with the doubling of rates.
This has occurred in the locations where builders and fix and flippers out West have completed projects and pending construction has been sitting idle for the last six months. The No. 1 reason is rising interest rates. I am quite sure as those houses continue to languish on the market and cannot even find renters, that hedge funds like Black Rock as well as Warren Buffet, (who made a huge bet on real estate in Detroit for pennies on the dollar after the implosion of our market in 2008) or other substantial funded entities will be waiting on the sidelines for the right time to consider purchasing in bulk at major discounts. Even those areas which have a high concentration of investors will have a more difficult time renting as business and job losses ramp up in 2023, and negative cash flow cause them to sell at prices lower than what they had paid.
As I mentioned last week, there are three scenarios that have been causing people and families to leave the market (and New York State) or stay put where they are currently residing. Either you have been priced out of the market due to the doubling of our rates or are fearful that you will be purchasing at the top of the market or you don’t want to give up your much lower interest rate to buy up in the market with a higher rate. However, when moving up it’s usually the best time to sell. (ask me why).
However, when paying in cash for an outright purchase one will be less affected by interest rates and won’t be a deterrent. Negotiations could be more favorable for buyers and this will come into play more and more going forward. Especially at this time of the year, and if and when we are hit with a major snowstorm in February, buyers might just be in the most advantageous position to make their best deal. Moreover, as a seller, and to your advantage, with cash buyers, there won’t be a bank involved that essentially will be more conservative in the lending process to consumers; and their appraisals might be lower than the contract price. This, in turn, will either cause the buyer to come up with a larger down payment or most likely what I am experiencing is a likely renegotiation of the contract price or worst-case scenario, leave the deal.
As a new agent, you were fortunate and your timing and luck were spot-on when you entered the business (or if a buyer, who bought when rates were historically low) in 2020 and 2021 and were able to do what was necessary and required enabling you to earn a living and for a few a lot more. However, today, going forward, this market will define and separate men from boys and women from girls in determining who survives in the business.
If you have been watching Million Dollar Listing NY or LA, you will notice the change in both markets as prices and rates have escalated especially on the higher-end properties. Although wealthy people have less of an issue purchasing, especially for cash; they will be a much tougher group when it comes to asking and sale prices.
Sellers, be prepared, as there will be many more instances when they will go for your jugular, try to cut your heart out, or do their best to try to stress you out when negotiating. If you price your property correctly, and you have “tough skin,” you will minimize and possibly eliminate these tough times. As prices moderate and come down, and you are still thinking that pricing your place way above what the comparables sales show, then you just might sit on the market waiting much longer for that elusive purchaser unless there are quick adjustments to your price.
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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.