Now that the real estate market in some locations has softened or severely slowed, and inventory is increasing, the question is “should I buy now or wait until prices decrease or just maybe crash like in 2008?
This will probably not occur as inventory is less than two months—in 2008 inventory was around 11 months. However, housing construction has slowed on the fear that companies don’t want to get stuck with inventory in the future. It’s a really tough question to give an exact answer to due to all the conflicting signs and events that are going on here in the United States and around the globe.
Interest rates doubled in the last eight months (although rates were down the previous week (4.90%) and are up this week for a 15-year fixed APR to 4.97% and the 30-year fixed is 5.75% APR (previous week 5.30%, but still historically low). The continued fear of inflation, which has been the highest in 40 years (not 8.6% as the Fed conveys to us, but when you add back food and energy 18%).
Most amazing is the increase in job creation (non-farm) of 372,000 jobs in June was reported last week with a 384,000 rate in May, showing businesses are still hiring and the economy still very strong but high inflation still is not controlled. The uncertainty of the Ukraine situation as to what the final outcome might be is also a factor, but oil prices are finally coming down below $100 a barrel (I think there is oil company gouging).
There are contradicting signs, but my professional opinion is that we are just a speck above a recession as GDP (Gross Domestic Product) decreased anywhere from 1.4%- 1.6% in the first quarter of 2022 (down from a positive increase of 6.9% from the fourth quarter of 2021). But whether we will have a soft or a much more challenging harder landing will be determined as we move forward and see the numbers that come about over the next six months.
Could we go into a depression? I hope not! This could have a potentially huge effect on housing purchases and other commodities that make our economy as 70% based on consumer spending. Housing is a huge integral segment of the U.S. economy and when a home isn’t purchased, there is a domino effect as everything else that is bought for that home tends to follow suit and people slow or stop spending on those items.
Another variable that could affect our economy and housing has been raising its ugly head as the new variants of the Covid-19 pandemic, the new BA.1-BA.5 all first detected in South Africa.
With all these variables in the mix, determining where housing will go is a somewhat of a crapshoot. So far inflation has not been controlled, so everything is costing more and there is less disposable income.
But if you are going to potentially live in your home for at least 7-10 years, then purchasing will still be a better bet as opposed to renting, unless you are a fantastic stock picker and can earn more playing the investment game. Rents will be escalating as more look to rent, competing for the limited current inventory. Many will be waiting on the sidelines to save more money for a down payment and to see where the market will go before jumping back in to purchase.
This winter could present some opportunities to purchase depending on the weather and if we have a substantial amount of snow, some sellers may be more motivated to leave sooner for warmer climates. They just might be a bit more negotiable in selling their homes. Inventory is still tight in the Long Island area as well as many other locations (out West it has increased two- and three fold over the last year, as buying has slowed drastically, especially in overvalued areas).
Although more jobs than expected have been created, you have to look at your personal finances and situation to determine will your purchase be the best decision to make for you and your family’s future. Can you consider an apartment instead of a house? Will your job or income be there in the future to support your expenditures? Can you afford the total monthly payments plus have a little extra on the side for emergencies?
You can always refinance in the future, assuming rates will come down and it will make sense in the pocketbook. If the market slows excessively, then the banks will be forced to lower their rates. Consumers have less disposable income to spend at the moment, due to food and energy costs causing store inventories to increase so you will see sales occurring and wait until the pre-holiday sales begin, I know I can’t wait until that day comes.
Bottom line, you have to decide very carefully about home ownership, but as history has shown, it has been the number one way to build wealth in the U.S., grow roots in the community and gain life-long friendships and connections.
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) as well as the new “Green Industry” Certification for eco-friendly construction and upgrades. 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]