Just a note from last week’s article. I forgot to mention as part of my lemonade story.
I somehow forgot to mention, after a month or so, my dad had asked me where I got the frozen lemonade from? I said from the freezer, where else would I have gotten it; I don’t drive, I am only 7!
Then he said, “who’s frozen lemonade do you think it is? I said, it’s ours!
He said, no, no, no, that’s mommy’s and daddy’s; so, give me some money!
I then pulled out some cash, to pay my parents back for the lemonade that I had used.
But of course, we negotiated what I had owed and I think I paid below retail, more like, wholesale; the way we like to purchase investment properties today, if you can find them (mostly out of state)!
The moral to this short snippet of a story, is that there is always a price to pay, whether it be about money, time, effort and being honest and transparent, when you are trying to earn money!
Now to my subject for this week; are you waiting for prices to come down before you purchase?
Try to get your down payment together?
Waiting for interest rates to come down again?
Enjoying renting, thinking that you have no obligations and not locked into a mortgage? Are you crazy?
You are stuck every month paying your landlord’s mortgage, taxes etc. or if no mortgage, you are building or adding his or her wealth or retirement fund; while yours is being decreased each and every month.
Your landlord has the hedge against inflation and you do not; because your lease eventually will be renewed and do you think the rent will stay the same or increase?
Most likely increase, the way this market is progressing! So you see, you do have an obligation each and every month; it’s called rent!
Prices are not coming down anytime soon in many areas, especially in Long Island. As per FedRate.Com, the median price of a new home in the U.S. as of December 2017 was $336,700 and in January 2018 was $323,000.
The average price of a new home in the U.S. in December 2017 was $394,600 and in January 2018 was $382,700.
Remember this is countrywide and at this point has not had any major effect on local prices, due to the fact we have more “used homes” than new homes in Nassau, Suffolk and Queens.
The inventory of used homes in the U.S. at the end of December 2017 was 1,460,000 and by the end of January 2018, the preliminary data showed that it had spiked up to 1,520,000 (not yet varied) throughout the U.S, maybe because of the harsh winter in various areas, slowing the contracts and closings.
However, in June 2011, when the market finally bottomed out, the inventory was 3,160,000 and then finally decreasing a small amount to 3,150,000 in July 2011.
So you can observe that our U.S. inventory is less than half of what it had been in July 2011.
However, today our home inventory is at historic lows, with less than 4 months of availability in Long Island and demand is at a 35 year high and interest rates are still very low.
However, there is an excess of new home inventory in many areas of the country accounting for the reduction in prices on new homes.
But locally, where you buy a new home at those prices? I don’t think so! I don’t think you could buy a postage stamp in Harlem or out in the Island for those prices, let alone, a new home, (in case some of you don’t understand the new internet lingo.
There is a correlation between interest rates rising and Inventory increases since this situation is starting to push individuals and families out of the “buying” market and into rental in many geographic regions in the U.S.
However, locally our market, due to its strong economy and jobs, is doing extremely well; over the top demand for the limited supply of used homes; however, new homes, depending on their price points are languishing longer before being sold.
In New York City, condos and Co-ops above $2,500,000 are taking longer to sell and more negotiations are occurring. The higher the price, the longer it is taking to find a purchaser and much more negotiations are occurring.
However, those that are below that threshold are selling very well. Brooklyn is the hot spot that is doing exceptionally well, Dumbo, Bed-Stuyvesant, Williamsburg, Boerum Hill, Cobble Hill, Crown Heights, Brownsville; some areas are still a bit challenging, to say the least, but that is why prices are lower than NYC.
Anyone that is reading my column or if you know anyone that is in a rental or contemplating renting, tell them to beg, borrow and steal (only kidding) to try to get into some kind of ownership position, before rates go back to the normal 6.5-7 percent, (that they were between 1955-1975)and their monthly costs increase dramatically.
Then again, if you aren’t buying and now renting, what do you think the cost of your lease will be each year?
Stable like a mortgage for 30 years or with increases upon each renewal or every other renewal. You will watch your wealth be transferred from your pocket to your landlords, sounds like a real advantageous situation if you are a landlord, but a real loser if you are the tenant.
When inflation rears its ugly head, then you will see prices increase on many things and eventually the replacement cost of real estate will also escalate too as well as prices!
So my advice to everyone that is not in an ownership position, do something about it if you are able to; try to get a gift (as opposed to a loan, which will increase your debt/income ratio for financing purposes) from your parents or relatives or anyone else.
Feel free to reach out to me so we potentially figure out a creative strategy to place you in an ownership position. I have several cutting-edge ideas that I can share with you.
Lastly, if you are an owner of higher priced homes above $2 million, you should really consider the market and have a plan to think about selling now, before rates go up higher; because your audience might or might not be able to afford your home as rates rise or psychologically, they might back off, as they have done in the “Big Apple.”
It’s not because they can’t afford to purchase, but, like vultures, they are circling the market, waiting for prices to drop further.
I would suggest that those who can afford to, and don’t need to cash out, should provide prospective purchasers short or longer term mortgages, since the rate of return in banks today is a measly .50-.75 percent, not much to write home about, when you could derive 4-8% or more, depending on the prospective buyers, income, credit, debt/income ratio; since there would be a lien on the home, as your security, until the mortgage gets satisfied.
Rates are rising and may never be as low as they had been, so you can now notice that banks are advertising higher returns on 2-5 year or longer notes, anticipating the increases in the federal funds rates and the related increases in mortgage interest rates.
Lastly, we shall observe and see over the next few years, what impact the new tariffs that are supposedly going to be imposed, on Steel and aluminum imports from Canada, Mexico, Japan and China will have on housing and those capital and consumer goods, whose prices may be affected as well as the jobs attached to them!
Phil Raices is the owner/broker of Turn Key Real Estate at 7 Bond St. in Great Neck. He has earned the designations as a graduate of the Realtor Institute and is a certified international property specialist. He can be reached by email:[email protected] or by cell (516) 647-4289 to answer any of your questions or article suggestions or provide you a free comparative market