It’s obvious to everyone that prices for consumer goods, food, gas (up $1.20 since 2020) and heating fuel, among almost everything else, have increased substantially. Wood products and components for constructing homes have risen sharply, adding $36,000 to the price tag of an average home. Supposedly, supply chain issues have been the cause due to the lack of labor, truck drivers, even the glue for plywood and the tiny pine beetle that had caused the demise of 15 years of log supplies in British Columbia, Canada, which was enough wood to build 9 million homes. They are continuing to chew their way through hardwood forests in Alberta, Canada. and the Pacific Northwest.
It also takes about two years to build a mill to cut the wood and many were built in 2018-2019 in the South which are just coming online. But I am curious as to how many companies in various sectors of our economy might have been jumping on the bandwagon and began gouging by raising prices arbitrarily? I have seen it just with Covid testing kits in some local pharmacies. Have you?
With population growth down over the last 10 years but current demand being abnormally and historically high mainly due to the pandemic, prices of homes have continued to escalate and may continue to rise for maybe another one to two years. If the current issues with variants continue, this just might keep the market going. However, as interest rates slowly increase, this will eventually cool off demand and eliminate those who just won’t be able to afford to buy, causing them to rent or stay put where they are. This, in turn, will cause reduced demand and pull back in construction.
Inflation makes the cost of everything increase, so the value of your dollar today will be reduced by at least 15 percent in 2022, which is why holding any excessive amounts of currency and not having it invested in an asset, such as some rental real estate, commodities, emerging markets abroad, gold, silver or even some crypto currencies to hedge against what will eventually happen to your purchasing power until the ravaging effects of inflation subside, is not wise.
It’s possible that hyper inflation could raise its ugly head as the Fed is running out of band- aid fixes or are we in a stagflation situation? This will continue to have a domino effect on the price of wood and the necessary materials to construct homes. There will be a correlation between interest rates, demand, inventory and whether or not home prices will stabilize or possibly decrease. There are way too many variables in the mix to know for sure what the end results will be. My prediction is by 2023, the market will have changed either moderately or more aggressively.
Today, to anyone with a variable rate mortgage or a reverse mortgage who worries about interest rates, I would suggest they refinance to a fixed rate asap. However, as forbearance extensions end, you should call your lender or loan servicer and explain your situation and if necessary, ask for another extension, unless you had gotten one right after the CARES Act, which will not allow you to apply for another one. Or you can work something out so you can avoid going into foreclosure.
You also want to try to keep your credit in good standing, so don’t avoid communicating with your bank as this will be to your advantage in staying in your home. Unfortunately, there will always be those who avoid calling, so then the Lis Pens (notice of pending action) process begins, leading to foreclosure. More important is if you are having or will be having issues paying your mortgage and cannot work things out with your lender, then here is a suggestion. If you currently have excellent equity, this is the most opportune moment in time to consider cashing in while prices and demand are historically high and interest rates are still very low. The next two years may be great for some. But for so many more it will be very difficult.
The United States is at a tipping point in its future financial stability and our position as a global empire because we have kicked the can and our financial reckoning down the road for over half a century.
With that, I would like to wish all my readers a happy, enjoyable and healthy holiday season and a healthier, happier and lucrative 2022.
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.