As we all know, interest rates are historically low, demand is exceptionally high (for those homes and properties that are priced correctly) and inventory is less than four months, the lowest on record. This has, for the most part, caused home prices in 2020 to increase between 9 percent and 13 percent, depending on the area even though inflation was less than 2 percent.
This is a casebook example of a supply-and-demand economic scenario that some of us learned in school. However, it is an impossible and untenable situation for the long haul. But how many really remember how it all works, with supply, demand, inventory variables in the mix? The question is how long will price increases continue as interest rates stay low for the foreseeable future (maybe one to two years) adding to the current demand?
Due to the Covid-19 pandemic, all of a sudden sales had come to a sudden halt, then zoomed ahead starting in the late second to third quarters. With the loss of populations leaving major cities and states, (New York, Chicago, Miami, etc.), the slow rollout of the vaccines, and the increase in prices, the question now arises: How much longer will the market sustain itself when demand really begins to cool off?
I have spoken to numerous buyers and done a lot of reading and research and I am observing that slowly but surely there is an increase in those beginning to either stay put because prices are elevating to beyond what they can afford or feel comfortable paying. Hundreds of thousands have fled cities locally and across the U.S. to purchase homes in less densely populated areas. Those fortunate in not having to travel to work due to Covid-19 have assisted in fueling and bolstering our market and kept it buoyant and above water, except for office space and retail.
But prior to Covid-19, I could see the cooling-off of our markets. As prices have continued to climb and sales become more sluggish (18 percent decrease as per One Key MLS), comparing 2020 to 2019 in Long Island, and due to lack of inventory, more and more families and individuals are leaving New York state for more reasonably priced cities and states. In the next few years, prices will become flat, level off, and will have to decrease as all cycles eventually reverse direction.
With the continued printing of dollars for our next stimulus package, interest rates will have to remain low because the $27 trillion-plus of national debt (separate from our international debt) would cost the U.S. government (and us) $2.9 trillion and probably much more over the next decade if the Fed Funds overnight rate to banks were to increase as opposed to staying the same near 0.25 percent. This is from a report in 2015 by the Congressional Budget Office and Dean Baker, a director at the Center for Economic and Policy Research in Washington.
Depending on the eventual increase in interest rates, this will have the greatest detrimental effect on our economy as well as the cost of our national and international debt. Over the the next four years the decisions that will be made may determine in huge part how our economy and democracy begin to mend and whether or not we will remain a dominant player in the world we live in.
Joe Biden and Kamala Harris together can and will play a major role in healing our divided nation and be able to compromise and come to fair and equitable solutions and agreements between the Republicans and Democrats with the least amount of game playing and finagling. This will begin to heal our country and economy, but the big $64,000 question is whether or not they will step up to the plate and do whatever is necessary and beneficial for the majority of U.S. citizens to really and truly finally get it done. So we can then begin once again to feel they are working for us and not us working for them.
The next four years will be a defining moment in how we all will get along and in those times when we may agree to disagree but in a respectful and understanding way. Our survival and the potential for as many as possible to benefit from our prosperity and to excel through educating those most in need will totally depend on those who will voluntarily participate by having candid and honest intentions. This will make the most indelible and long-lasting impact to enable the process of keeping our democracy intact, viable, and healthy.
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 39 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: Phil@TurnKeyRealEstate.Com 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