Well, we experienced another interest rate increase the other week, which is not helpful to the purchasers and not really helpful to the sellers either. Those who have homes at the higher end of the spectrum locally and in NYC, are experiencing much less traffic and a serious slowdown in the market.
Obviously, the cost of financing has increased dramatically over the last few years, from the low of 2.5 percent for a 30-year fixed rate for a full documentation loan to now hovering around the 5 percent rate; albeit, it had to go higher as the economy, jobs and the mindset of the public became more positive and so many purchasers and investors were jumping back into the market, pushing pressure on interest rates and “quantitative easing” has done its job, as far as the Fed is concerned.
Developers and builders could not keep up with the demand as the buying public stripped down the inventory from a normal six to seven months to a now 4.3 month supply.
However, as I mentioned in last week’s column, inventory is slowly increasing and interest rates are having an effect on those who are trying to purchase, but are being shut out of the market due to down payment and monthly overhead.
I see the major issue is how much of the “higher end” inventory was constructed over the last six years in NYC. What else could a developer do but to construct over the top condos for the rich and wealthy consuming public, who devoured units faster than they could put them up.
Land values were so great, the only choice was to build those type of units and price them accordingly at the upper end of the spectrum (I say the stratosphere) in order to turn a profit that the developers expected, after paying their hard and soft costs.
My new neighbor, who had bought next to me a short time ago, could not possibly have bought similar square footage in a NYC apartment, compared to the home he was able to purchase out on the North Shore of Long Island.
Moreover, the icing on the cake was he eliminated his NYC income tax, which we do not pay out in Long Island. This all depends on what his earnings are, and hopefully is saving him some serious money.
One bedroom apartments in certain areas of NYC had been selling for one million or more. Two and three+ bedrooms were (and some are still trying) selling in the multiple millions, again depending on their location.
I believe the glory days are over for now. The ten thousand dollar cap on real estate taxes (S.A.L.T. — state and local taxes) has also exacerbated the reduction in prices on all those homes or properties with very high taxes. I also see an increase in the number of people coming out of NYC and its outlying areas, where there is a city income tax, and opting for searching in Westchester, Long Island and other states.
Home sales are below last year’s levels, home values are appreciating at a slower pace, and there are reports showing purchasing demand softening. This has some thinking we may be entering a buyers’ market after sellers have had the upper hand for the past several years. Is this really happening?
The market has definitely softened. However, according to two chief economists in the industry, we are a long way from a market that totally favors the purchaser, as I quote
Dr. Svenja Gudell, Zillow chief economist: “These seller challenges don’t indicate we’re suddenly in a buyers’ market — we don’t expect market conditions to shift decidedly in favor of buyers until 2020 or later. But buyers certainly are starting to balk at the rapid rise in prices and home values are starting to grow at a less frenetic pace.”
Danielle Hale, chief economist of realtor.com, says “The signs are pointing to a market that’s shifting toward buyers. But, in most places, we’re still a long way from a full reversal.”
In addition, Pulsenomics, Inc. recently surveyed over one hundred economists, real estate experts, and investment and market strategists and asked this question: “When do you expect U.S. housing market conditions to shift decidedly in favor of homebuyers?”
Only five percent said the market has already shifted. Here are the rest of the survey results: seven percent say by the end of 2018; 13 percent in 2019; the majority 43 percent say 2020; 18 percent say 2012; 6 percent say 2022; and 9 percent say after 2022.
Bottom line: the market is beginning to normalize, but that doesn’t mean we will quickly shift to a market favoring the buyer. We believe Ivy Zelman, author of the well-respected ‘Z’ Report, who best explained the current confusion: “With the rate of home price appreciation starting to decelerate alongside the uptick in inventory… we expect significant debate about whether this is a bullish or bearish sign. In our view, the short-term narrative will probably be confusing, but more sustainable growth and affordability will likely be the end result.”
Look at your real estate taxes and if you are on the higher end, start contemplating selling; for the time is right. On the other hand, if you don’t want to lose equity (think of how much you have appreciated over the years) as rates increase and prices soften, by waiting, and are thinking of selling, do not hesitate any longer; it’s the right time to pull the trigger and downsize or reduce your costs.
But have you given any thoughts about your monthly costs, real estate taxes, heating, costs of maintaining your home, e.g. Repairs to your roof, utilities or any unforeseen issues or emergencies that might pop up? Also, have you noticed how many around you are selling and new neighbors moving in? Then maybe, just maybe you should consider selling.
But first thing to is create a plan of what you really need to do. If you need some advice, feel free to reach out to me and I will try to help you by providing some straightforward guidance with a tried and true plan for the future.
However, if you are very comfortable where you are and may or may not have a mortgage, and money is not an issue, since the cost of staying put is doable, (and you beeline down to Florida during the winter months) then by all means, stay where you are and live your life and enjoy!
Philip A. Raices is the owner and broker of Turn Key Real Estate at 3 Grace Ave., Suite 180, Great Neck, N.Y. 11021-2415. He has earned designations as a graduate of the Realtor Institute and a Certified International Property Specialist. Receive regular “free” updates of sold homes in your area and what your home would sell for in today’s market or search on www.Li-RealEstate.Com. Raices can be reached by email at Phil@TurnKeyRealEstate.Com or by cell at 516-647-4289.