Real Estate and Mortgages

Dated: April 22 2023

Views: 127

Real estate markets are showing strange behavior indicating major upheaval. Real estate and financial markets are very closely interlinked and we can always determine the strengths and weaknesses and any potential distress by observing the financial markets.

With the failure of Signature Bank, SVB, and then Credit Suisse, a lot of focus has been on the regional banks. So far, the issue remains that due to lack of incentive to the savers, the deposits have been moving to the MMF/ USTs (Money Market Funds or US Treasuries) and then some to the larger Commercial Banks. Our local markets are facing pressure due to lack of adequate inventory and now in conjunction with the financial stress and the Federal Reserve increasing the interest rates, it is getting costly for a typical borrower to afford the purchase.

Rates were trending sub 4% and in some cases under 3% last year and within 1 year the rates have gone from the historical lows to as high as 7%. Recently they have started trending down but there is huge uncertainty. The Fed funds rate is still high and the Fed reserve has clearly indicated their intention of fighting the inflation by raising the rates again in May. Even though the markets have been predicting the Feds to pause or ease the interest rate there is no guarantee that it would actually play out in that manner. The CPI and PPI readings are indicating that the inflation pressures are easing a bit but with the ongoing war between Russia and Ukraine and OPEC announcing the production cuts in the oil output, the spotlight is back on inflation. The experts are now concerned that if the gasoline prices start trending up again, all the progress which was made in the fight vs inflation could come undone. The feds may have to keep on increasing the rates to counter this and the mortgage rates may start trending up again.

The question then becomes what will be the impact of these rate hikes on the mortgage rates and then eventually on the real estate market? If the history is any guide, then we are looking at some turbulence ahead.

Are you, as a buyer or a seller, prepared?

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Tarantej (T.J.) Singh

Tarantej (TJ) Singh is a licensed New York State Real-Estate Broker, Licensed General Contractor and founder of Fourth Avenue Real Estate and Fourth Avenue Merchants – a real estate entrepreneur....

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