Like sugar, alcohol, or your Tik Tok browsing habits, the February Jobs Report proved that, in excess, one can experience too much of a good thing. On February 3rd, the Bureau of Labor Statistics showed that an incredible 517,000 new jobs were created in the month of January. At first glance, this would appear to be a net positive, right? After all, more jobs mean more Americans running around with cash in their pocket and a burning desire to spend that cash. Well, inflation can easily be defined as too much money chasing after too few goods and, after nearly a year of Federal Fund rate hikes, it seems as though Jerome Powell hasn’t quite yet conquered this country’s appetite to indulge in caviar facials at the local luxury day spa.
The release of such shocking employment numbers was quickly followed by the government’s monthly Consumer Price Index (CPI) which substantiated economists’ concerns. Inflation had dropped in the first month of the year but only by a tenth of a percentage point. Suddenly, January’s optimistic forecasts of a soft landing were replaced with doomsday prognostications. It was painfully obvious that the 4.5% aggregate increase in interest rates in the past year hadn’t had the impact that the Federal Reserve would have hoped and further rate hikes would be necessary. The next of these increases will be announced on March 22nd when the Federal Open Markets Committee convenes. Rates will absolutely increase by .25%, however, a half-point increase isn’t out of the question.
So, how does this impact the real estate market? Mortgage rates, currently pegged at 7%, are going to continue their upward climb. Obviously, we have no idea when inflation will be vanquished but, until it is, rates will continue to experience upward pressure, and more buyers will head to the sidelines and bide their time. The buyers who remain engaged will mostly be those that have to purchase rather than those who want to buy. There’s a lot of speculation, based on both behavior and hard data that those who want to purchase will begin to re-enter the market only when mortgage rates drop to or below 6%. Sadly, that doesn’t look as though it’s going to happen any time soon.
Those who are entering the market on the selling side are also defined, almost exclusively, as those who need to sell. “Rate Lock” is the phrase that is used to describe their reluctance. Of the mortgages currently in place to finance homeownership, 99% of them (that’s the actual statistic) are below 6%- many are locked in at 3%. Why sell now and exchange that rate for one that is significantly higher? If, however, your current circumstances compel you to sell, well, you’ll be amply compensated for doing so. For the third consecutive year, homeowners are securing multiple bids and selling significantly over asking price. Once again, water cooler conversations are peppered with anecdotes about property selling $100,000 or more above list price.
In the short term, this lack of inventory, the concomitant increase in prices, and rising interest rates have conspired to create the worst affordability index on record. That’s an easy concept to understand when you consider the fact that, in Monroe County, there are only 79 properties on the market for sale, priced in excess of $200,000. This inventory drought makes it increasingly difficult for the average American to enter the legion of landowners and it’s going to take a while until more can afford to purchase. This is, of course, by governmental design, and impediments will remain in place until the economy is more stable.
What will it take to increase the inventory of available homes? New construction is one key component but economic uncertainty means that builders remain reluctant. Thankfully, homebuilder sentiment grew by seven points- the greatest increase in more than a year- but is still currently lodged at only 42. I still contend that governmental intervention is necessary to help reduce the enormous expense of preparing building lots for shovels and backhoes. Although I don’t believe that Governor Hochul’s recently announced New York Housing Compact will solely provide the answer, perhaps it will act as a catalyst for local governments to take action. For the moment, if you’re looking to purchase, Graywood Homes has recently completed four beautiful houses for sale in Henrietta priced in the low $400,000’s. Definitely worth looking at!
Ultimately, despite inflammatory headlines, I believe that the housing market is stable- there’s just not a lot of activity. Homeowners will, most likely, remain in place and enjoy the increase in property value unless. Buyers will probably re-enter the market in greater numbers in the latter half of this year or the beginning of next. If you’re a buyer and interested in purchasing now- and refinancing later- give us a call. We’d love to tell you about off-market opportunities or other strategies that will allow you to prevail. Until then, patience, more than anything, will be necessary!
Feel free to contact me at any time to talk about your real estate needs! 330-8750 or mark@marksiwiec.com