Over the next 3 months our real estate market will be impacted further over increased rates. With the proposed 1/2% increase in March by Fed Chair Jerome Powell we could see a further softening in the demand to purchase. It appears that higher rates will be held in place for a while until he sees inflation consistently coming down and is controlled. I do not see that his original 2% inflation target will be reached and most likely 4-5% might be more realistic. As per Vicinity Energy publication, natural gas and oil for heating have increased a staggering 525% since June of 2020 and not seen since 2008. The war in Ukraine, our short supplies and Liquid Natural Gas exports to Europe have caused major issues. Although prices have temporarily been reduced at the pump due to millions of gallons of oil being brought onto the market from our Strategic Reserves storage, and slower demand; prices will continue to increase as we head into the busier driving periods of spring and summer . With all the money given out during the Pandemic and the excessive spending and demand reducing the supply of consumer goods, contributing to supply shortages, and the effect of the war in Ukraine, prices have increased substantially over the last 18 months and have not come down much at all.
It will take a while to know what will happen and will depend on several variables. How many future layoffs will occur in tech, retail and internet based and other industries? How much higher will interest rates go? When will the Fed pivot and lower rates? What impact on the housing industry have in adding continued pain to our economy when those who want to purchase are no longer able to; leading to less purchasing of consumer and commercial goods e.g. refrigerators, stoves, dish washers, microwaves, and construction and purchases, for cement, steel, wood, windows, etc. Less buying in turn will reduce our labor force further. It is currently happening, even though more jobs are being created, the long term affects will take and be experienced maybe a year or two or more from today.
There is an inverse correlation between unemployment and inflation. Higher unemployment equals less inflation as there is less spending and lower unemployment produces more spending and higher inflation.
Consumer spending has added to increased personal debt. It’s getting worse for those living from pay check to pay check as they are now relying on their credit cards on a more regular basis to get by. Credit card debt has reached 866 billion in the 3rd quarter of last year representing a 19% increase year over year. What impact on the housing market, mortgages and foreclosures will it have?
Unlike the tragic 2008 debacle, the silver lining is that the majority of local homeowners, as well as those throughout the U.S. have gained substantial equity built up in their homes over the last few years; allowing them to stay above water and not walk away from their mortgage obligations.
However, for whatever reasons for those who may want to stay but financially cannot; they should try to sell while prices are still historically high, and should be thinking and planning for alternatives. When you lose a job or business and cannot pay your mortgage and other debts it becomes very traumatic. It can be extremely difficult in thinking about what to do. Why wait for medical bills, loss of income and divorce become one of the 3 major reasons that people declare bankruptcy. However, if you have sufficient or substantial equity then you could still be able to sell and still have a good sum of money to take with you. However, procrastination, stress and no thought out plan and waiting to try to delay the inevitably will not be the best path to take. Unless you spend the time to create or have a logical and pragmatic plan, hoping and praying that your financial picture might improve just might be an attempt at futility.
The most advantageous way is to determine and ascertain how to increase one’s income; whether taking on a new job(s) or starting a side hustle by learning how to take the necessary steps through online education in becoming more entrepreneurial.
Whether the Fed continues to increase rates or finally pivots will determine whether our economy heads into a hard recession in 2023 and beyond or maybe just continue a soft one as we have been experiencing since early 2022, leading to an easy landing. We will find out over the next 6-12 months or longer. It appears that all the experts are split as to what will happen with their quality thesis backing up their propositions. Their reasoning provides merit to their conclusions. It is extremely challenging to truly determine who will be right or wrong.
One of the variables is the demand on housing and the increase in inventory. If demand were to decrease substantially, thereby aiding to continued and reduced sales activity and increasing our housing inventory, then this will contribute to lower prices (but not a crash, unless inventory were to increase above 8+ months) then a difficult and tougher recession would ensue. Inflation is slowing coming down and might come down in the 6+% range. Moreover, a decrease in consumer spending, which is 70% of our economy will occur as credit card debt becomes unmanageable and people stop their conspicuous and non-essential spending.
What the Fed does over the next few months with interest rates and inflation, impacting your family situation then serious decisions will have to be made as to what is best for you going forward.
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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 (C.I.P.S) as well as the new “Green Industry” Certification for eco-friendly construction and upgrades. 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