What in the world is going ON?

Dated: September 29 2023

Views: 340

So, it's been like forever since I posted. Life goes so fast that sometimes a lot happens and it feels just like a blink of an eye! Last I posted, I was worried about the failure of the regional banks and ramifications from the fall out. It seems that the government handled everything well. Apart from some financial institutions going under, there was no wide spread damage.

Over the months, something else has been going on now. The Feds have been consistently indicating that they will keep on raising the interest rates to bring the inflation monster under control and yet the financial markets have been thinking that there were being bluffed. The stock markets which panicked back when the banking crisis happened, have retraced almost a lot of the losses. However, there is another concern that has popped up now.

The Fed funds rate influences the rates around world and with this steady increase of the interest rates, the mortgage interest rates just like car loans, personal loans etc. have also been trending higher. Back in the late spring, when we were in the midst of rate increases, my personal opinion was that the interest rates, will probably go as high as 8% - 9%. The immediate concern was that what affect it would have on the housing market? I was convinced that the market will start buckling above 6% range. Today, the interest rates are trending around 7.75% - 8%, depending upon what part of the country are you in, your credit rating etc. etc. And yet, the market is still strong!!!

As you all know, that apart from the brokerage business, I develop properties also and I was pleasantly surprised that all my construction projects sold out. The sales came in at higher than asking prices and all of the sales were All Cash. Even on the brokerage side, 8 out of 10 transactions are being sold in cash! This is an absurdly high number. On one end, the rates are so high that it makes sense that the customers want to buy cash and avoid carrying higher interest rate mortgages but on the other end, the inverse relationship between the price of real estate and interest rate has become unhinged!

What's happening is, that with the interest rate going from low 3% to high 7%, the price of the homes should have dropped significantly. Instead, the prices have either stayed put or in some cases, they actually climbed higher. The transaction volume, on the other hand, has slowed down. There is a strange status quo playing out in the market.  The sellers want to sell but they cannot sell because they probably have no existing mortgage on their property or very low interest rate mortgage. But wherever they are moving out to, the prices have climbed so high that they are either priced out or if they take a mortgage, they are getting insanely high rates. The buyers are facing the same dilemma, they have seen prices climb up from 500s to mid-high 800s in our area like Bellerose/Floral Park and the interest rate has gone up from low 3% to high 7%. 

I just realized that this has been a very long post. But hey, I haven't been posting much so there was a lot to catch up on. I will try to be more consistent and keep on providing valuable insights.

Till next time then. Be safe and be well.

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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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