As we all know, housing inventory is low, but so are interest rates extremely low too. It’s what I’ve called a perfect storm for not only purchasers but for sellers as well. The highest prices benefit the sellers and the lowest rates are advantageous for buyers.
What I see more and more, however, is that sellers are tending to overprice their homes because they think that they have platinum and that everyone will pay the price because today there aren’t too many choices. On the other hand, buyers are in many instances are not willing to trade off for either a different town nearby or a different style home or they have to have a larger property than their price point can accommodate.
I can understand the mindset of some sellers who have renovated or upgraded their homes and are enjoying the new environment and the thought of selling and moving becomes a distant thought that they have now pushed off to sometime in the future, whenever that might be. I believe getting out at the top as prices have reached a pinnacle really isn’t enough to make more sellers consider selling.
I think one of the reasons is that so many think these insane increases will continue as long as inventory is at historic lows and builders really cannot catch up in constructing the millions of homes that are needed to satisfy demand at the current time. However, the one factor that many are not considering is that interest rates will have to trend up.
Maybe some just don’t understand what is going on with the more than $10 trillion that the Fed has printed out of thin air, with nothing really backing it up (we used to have a gold standard until President Nixon did away with it in 1971, an extreme measure intended to end a currency war that destroyed the faith in the U.S. dollar). Today, we only have the good faith in the U.S. Ggovernment backing the value of our dollar. Will this be enough going forward? Time will tell!
So with all the money given out over the past 18 months and still being provided through various programs and the Fed easing off on buying back our bonds, interest rates invariably will have to increase. The question will be how much and how high will they go. Inflation is literally “off the hook” and I believe more and more people are becoming aware that it is much worse than we are being told when adding energy, (gas and this winter’s heating expenses) and food to the equation.
So as rates rise the cost of building new homes will increase, especially with the current supply shortages of almost everything and the increases that many materials, e.g. wood and cement, have endured since the Covid-19 pandemic began. Eventually, inventory will increase, lowering prices to some degree on existing homes.
But the $64,000 question is when? Will it be next year in 2022, 2023, or even three to five years from now? So my advice to sellers is if you are so comfortable that you could live the rest of your life in your home, then enjoy it. However, if not, then begin contemplating a future plan and figure out when you might consider selling before rates increase, reducing and cooling off demand and potentially lowering your value.
Buyers, on the other hand, need to begin getting more realistic and pragmatic in their outlook as to what is really important in their search to find their “next place to call home.” Even if you can’t afford a single-family home, but want to be in a specific town, then consider a condo or even a co-op in a financially stable building. But by all means, get out of your rental and buy something. Even if it means moving out of the area or state, stop being a tenant and transition into becoming an owner and stop transferring your wealth into your landlord’s bank account and begin increasing yours over the long run.
Waiting is the worse situation to put you and your family in, so buy into the current lowest interest rates. The way to accomplish this is to go through a trading-off process as well as through a downsizing of your “needs and wants” to just purchase something somewhere. Inflation will eventually be your savior and benefit to your future wealth.
As Ray Dalio, CEO and founder of Bridgewater Associates Hedge Fund, always says, “cash is trash” unless invested in an asset that will increase over time — either stocks, a business or at least purchasing your own home.
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.