Some still downplay and believe that we aren’t yet in a recession. But as history has shown us two quarters of negative GDP, which we experienced in the first half of this year, indicate that we are technically in one right now and it’s getting worse.
Will it deepen to a situation that is far more serious and worse for our economy?
There are a number of layoffs occurring across many industries—tech (28,000 since the beginning of 2022) and retail shopping (100,000 from Amazon alone in the second quarter), according to insiderintellegence.com. Unlike the last two years, the slowing of business growth combined with higher wages has forced most companies to rethink their strategies going forward and to begin the layoff process in earnest.
I believe that there is and will be a future correlation between the number of layoffs and the continued reduction and softening in housing prices.
Currently, this is being experienced more in the overvalued locations out West and down South, where prices over the last year increased by over 25%. But interest rates and inflation have had their negative effect on the market since the beginning of the year. Although Long Island’s economy has generally been very self-sufficient and stronger than the national average, future layoffs and an increase in housing inventory may turn our still current seller’s market into a more balanced one or possibly a buyer’s market.
Long Island unemployment in July was 3.3% (Nassau County 3.2% and Suffolk County 3.4%) up from 2.9% in June—below the national average of 3.6% as per the New York State Labor Dept.
The unemployment rate for July 2022 was well below the unemployment rate recorded in July 2021 of 4.7%. The number of jobs created in July 2022 was 33,100 over July 2021. According to the Labor Dept., the following sectors created the most activity: 8,900 jobs were added in the leisure and hospitality industry, 7,600 jobs created in professional and business services and 7,500 in trade, transportation and utilities.
Across the United States. at least 48.1% of homeowners in the second quarter had at least 50% equity in their homes compared with 34.4% a year earlier in 2021, according to real estate data company Attom.com. More information can be obtained on https://www.corelogic.com/intelligence/homeowner-equity-insights/
Also today there is a basic foundational strength to the current market as there are a
greater number of substantial and creditworthy purchasers.
Some 65% had above average credit scores of 760 or higher in the second quarter of 2022, according to the Federal Reserve Board of New York and Equifax, compared with 38% from 2003-2006 when lending requirements were much more lax.
Owning rental property or multi-family units is and will be the most beneficial hedge against the recession for those who own. Moreover, the value of those
properties will increase in value due to the stronger demand as there will be an excellent supply of tenants who either left the market or no longer qualify to
purchase; or they may be feeling the cost in purchasing no longer makes any economic sense.
The individuals in the service sector will need to rent, which will most likely be
their only way going forward due to inadequate income or substandard credit to purchase. The speed in which the housing inventory will increase will be determined in
whether continued increases in interest rates (next increase supposedly will be 3/4 % at the next Fed meeting at the end of September) to control our inflation will be successful.
The higher the rates the more demand will cool off and in turn home price deceleration. For prices to decrease, our inventory has to grow to at least six months. The speed in which this will advance will depend on how fast and far rates will accelerate and the side effects of our future inflation. New construction is also slowing as overall costs to build have accelerated due to supply chain issues and the lack of availability with the Covid-19 complete shutdowns in China.
Moderately priced housing is a huge issue as the higher local prices have shut down the
dreams of many looking to purchase their first homes and has fueled the demand in less costly states.
Although price adjustments have been occurring, the luxury market is faring better as the 5-10% of those buyers aren’t as affected by the economy or by mortgage rates. However, the key component in selling is pricing correctly and realizing the time it takes to find a buyer will no longer be an overnight occurrence and will take considerably longer.
Could the current recession lag on and become worse or deepen into a possible depression? I am predicting things could get much worse if solutions do not come to pass very soon. Unfortunately for many, it just might be a much colder winter than normal.
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) and Green Energy. 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] his monthly digital
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https://www.turnkeyrealestate.com and fill out the form on the