Business & Real Estate: Has the increase in inventory, prices and interest rates had an effect on sales?

Real Estate Broker/Owner with Turn Key Real Estate 31RA0874656

As of this column, the answer is yes on the higher priced homes and no on the mid- to lower-priced homes.

However, after reading several information sources, watching the interest rates and price increases in 2018, this has made affordability more and more daunting for about one third of millennial and other renters, who are having challenges coming up with the down payment (as well as the monthly costs) in many markets, as per Frank Martell, president and CEO of CoreLogic, a leading global property information, analytics and data-enabled solutions provider.

As of June, in the top 100 markets, 24 percent were undervalued, 35percent were at value, and 41 percent were overvalued.

When it was broken down to the top 50 markets, 14 percent were undervalued, 32 percent were at value, and 54 percent were overvalued.

These figures may not exactly relate to our local Long Island statistics; however, I see increased inventory year-over-year and sales are down over 2017 (but increased July- to Aug. 2018, since many want to be before the school year.)

But we shall see what effect the increase in prices and interest rates will be going forward.

I quote from a CoreLogic Forecast: While the CoreLogic Home Price Index Forecast suggests U.S. home prices will be up 5.5 percent year-over-year in Jan. 2019, some mortgage rate forecasts translate into a 16 percent gain in the mortgage payments homebuyers will face.

One way to measure the impact of inflation, mortgage rates and home prices on affordability over time is to use what we call the “typical mortgage payment.”

It’s a mortgage-rate-adjusted monthly payment based on each month’s U.S. median home sale price. It is calculated using Freddie Mac’s average rate on a 30-year fixed-rate mortgage with a 20 percent down payment.

It does not include taxes or insurance. The typical mortgage payment is a good proxy for affordability because it shows the monthly amount that a borrower would have to qualify for in order to get a mortgage to buy the median-priced U.S. home.

A consensus forecast suggests mortgage rates will rise by about 0.82 percentage points, or 82 “basis points,” between Jan. 2018 and Jan. 2019.

The CoreLogic HPI Forecast suggests the median sale price will rise 4.1 percent in real terms over that same period (or 5.5 percent in nominal terms).

Based on these projections, the inflation-adjusted typical mortgage payment would rise from $773 in Jan. 2018 to $887 by Jan. 2019, a 14.8 percent year-over-year gain.

In nominal terms, the typical mortgage payment’s year-over-year gain would be 16.2 percent.

An IHS Market forecast calls for real disposable income to rise by just under 4 percent this year, meaning homebuyers would see a larger chunk of their incomes devoted to mortgage payments.

For those who cannot keep up with this scenario, the market will become more costly to enter for those who will not be able to either come up with the down payment or the monthly cost of their housing.

As per our local Multiple Listing Service of Long Island: Long Island Housing Data for Aug. 2018 Category Aug-18 Jul-18 percent change Aug-17 change; Long Island Median Home Price$ 485,000 $ 475,500 2.00 percent $445,000 8.99 percent Contracted (Pending)” $456,750 $465,000 -1.77 percent $445,000 2.64 percent; Monthly Closed Sales Activity 3,945 3,684 7.08percent 4,409 -10.52percent Monthly Contracted Sales Activity 3,906 3,652 6.96 percent 3,829 2.01 percent Available Residential Inventory 17,405 17,711 -1.73 percent 16,646 4.56 percent.

The Aug. 2018 closed median home price for Long Island, which includes Nassau, Suffolk, and Queens housing data, was $485,000 representing a 9 percent increase over last August.

Nassau County reported a $550,000 closed median home price in August representing a 7.4 percent increase over $512,000 reported by MLSLI last year. Suffolk County reported a closed median price of $405,000, which represents a 9.2 percent increase over $371,000 reported a year ago.

Queens reported a closed median home price of $615,000 representing an increase of 15 percent over $535,000 reported in Aug. 2018. The total number of Long Island residential inventory in Aug. 2018 was 17,405 representing a 4.6 percent increase over last year.

As housing inventory increases, slowly but surely and interest rates increase, this will have a continued effect on who can afford to live locally. Will it force more people out of the area, maybe out of NYS, to other areas in the U.S., where the affordability will be much less?

Are we turning into the elite “haves” who are fortunate to have earnings to enable us to stay put and those have-nots, who will have to leave related family and friends to other destinations? It sure does appear that way.   What will this afternoon's, (hopefully small) rate hike by the Fed do to our housing market going forward?  Slow it down or put the brakes on it?

Philp A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 Great Neck. 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 He can be reached by email, at: Phil@TurnKeyRealEstate.Com, or by cell: (516) 647-4289.


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Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello and welcome to the rain, sorry I have not seen your blogs before.  We all learn from each other.


Sep 26, 2018 10:20 AM #1
Philip A. Raices
Turn Key Real Estate - Great Neck, NY
1 of the Most Knowledgeable Brokers on the Net!

Hey Will,

We are sooo busy in this industry and with social media, who has time to respond to everyone and to hire someone with all the extra costs we experience, we do the best we can.  I have been blogging for many years and have a weekly column that 100K read:  then search for Phil A Raices  to see my most recent columns  I try to post something at least once a week on Activerain.  But the market is slowly changing and I see more purchasers pulling back and either staying in their current rental, inlaws, or now just considering a rental as opposed to buying.  I just posted a new article today, check it out!

Oct 09, 2018 08:51 AM #2
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