Yesterday, Fed Chairman Jerome Powell said, “ I would say if you’re a homebuyer, you need a bit of a rest.“ Misunderstanding this quote and drawing the wrong conclusions about the New York City housing market could end up costing you money.
Let’s unpack what all of that means for the housing update in 2022. The Fed increased interest rates by 0.75% last week in an effort to tamp down inflation which has been running at 8.6%. Economists are predicting that the chance of a recession is approximately 45%. If you lived through the 2008 recession and read Chairman Powell’s quote, you might automatically assume that the housing market is headed for a dramatic price reduction but that is not necessarily true.
The 2008 recession was caused by the subprime mortgage crisis and the housing bubble. This potential recession has very different root causes and the housing market is healthy. Across the country, demand is outstripping supply. At this point it is estimated the country is short 5.6 million homes. Two big changes happened in the housing market since 2008. The first is regulations have eliminated most risky loans and we saw the rise of the institutional investor fueling demand. If you are waiting for prices to plummet you could miss a great opportunity and spend too much money on rent.
New York City tends to be an outlier and does not necessarily follow the national housing trends. Most of 2020 while the national housing market was on fire, New York City was anemic making a spectacular rebound in 2021. The volume of signed contracts has eased over the past few weeks in comparison to last year; a year which posted historical numbers. While New York City saw record-breaking transaction volume in 2021, we didn’t see the same run-up in appreciation that the rest of the country enjoyed. By all metrics, the New York City market is still robust. I am seeing some properties reduce their prices but the majority began with aspirational listing prices.
Real estate is a hedge against inflation and gives you the opportunity to fix your housing costs. You do not want to be at the mercy of the rental market if you can avoid it. Mortgage rates are over 5%, inflation stands at 8.6% and headlines about a possible recession will cause many buyers to halt their searches. The absolute best time to buy is when there is fear and uncertainty in the market. Other buyers will freeze and this will give you a competitive advantage. I don’t know how long this will last but I am telling all my buyers to get out there and find a great property! What is the worst thing that can happen? If you lock in an interest rate at 5% and the interest rates go up, you look like a genius. If the interest rates go down, you can refinance and you’re still a genius. Stop throwing your money away on rent.
If rising mortgage rates are pushing up your potential monthly cost making it look like you cannot afford home ownership, I have some suggestions. The first is to look at an adjustable rate mortgage. In the past, these were considered to be dangerous and irresponsible instruments but their structure has changed so that you can lock in an interest rate for up to seven years. It will dramatically reduce your monthly payments. Additionally, if you’re buying in New York City, there is a Bank special program and they also offer substantially reduced mortgage rates. If you’re interested, reach out to me and I will put you in touch with them.
Volatile markets require sound advice grounded in the facts and not headlines. If you are looking to create your housing strategy, reach out to me today and I’d be happy to help.