In Washington recently, the Fed Chairman Jerome Powell’s thought was to lower the interest rate soon. But my question is why? Is the economy not moving fast enough, aren’t companies now doing well, especially since this will not necessarily create a fast track to more employment? Will companies borrow more money to expand and will the demand be there to purchase more products, even though the tariffs that have been imposed have actually hurt businesses that import products and merchandise and we have been paying for those extra costs anyway or have we decided to pull back on our purchases?
I question whether lowering rates a quarter-point will allow more families and individuals to purchase a primary residence. And if so, will that quarter-point truly make that much of a difference or will the reduction in rates allow those “borderline borrowers” to sneak through the buying process, even though later on, depending upon what type of mortgage they secure, put them in a precarious position to truly be able to afford their home? As it is, housing inventory is still at a five-month level (normal inventory is six to seven months), although in many areas price appreciation has slowed to half of what it was previously the last 12 to 18 months.
Prices are still historically high, however, and have surpassed 2007-2008 highs, and real estate taxes are definitely higher in most regions, putting the cost of housing that much higher. Families’ and individuals’ salary increases have not moved that much and in most situations have been flat or less than what they were 40 years ago as per the Pew Research Center (https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/) as related to the purchasing power of the dollar when factoring in inflation. Most of the money went to the higher end of most major companies, to the CEOs, (chief executor officers) CFOs (chief financial officers) COOs (chief operating officer) and the upper management. In recent years the information has shown that these officers’ salaries were thousands of times greater than the average workers’ wages or salaries. Just the top 10 percent of wage earners showed a 15.7 percent increase over the bottom 10 percent, which had increases of just 3 percent.
My thoughts on the outsourcing of jobs and the one theory (from The Pew Research article of 8/7/18 by Drew Silver) is that rising benefit costs – particularly employer-provided health insurance – may be constraining employers’ ability or willingness to raise cash wages. According to the Bureau of Labor Statistics-generated compensation cost indices, total benefit costs for all civilian workers have risen an inflation-adjusted 22.5 percent since 2001 (when the data series began) vs. 5.3 percent for wage and salary costs. That doesn’t bode well for those seeking the American Dream of homeownership as the discrepancies of wages and salaries continue.
The potential reduction in interest rates will mostly assist in the refinancing as well as the purchasing of more properties, because those who have the capital will jump into this hot market. I do not envision housing inventory to truly become “normal” for the foreseeable future, due to the continuing demand and those millennial, Generation Xs and Ys and future individuals and families continually entering the housing market. The types of housing needed on the lower end are not being constructed fast enough to keep pace with the current and future demands of the market. Even though in some states the minimum wage has increased to $15 per hour, can a family or individual even afford to purchase their first primary residence? When you add all the costs of ownership, I don’t think so.
More important is that a down payment of even 3.5 percent can be cumbersome and a burden to many, when most can’t save even that amount. If you take the average price of a home in the United States of $252,000(certainly not in our areas of Long Island and the North Shore), one would need to save $8,820 just as a down payment and then add whatever additional closing costs, legal and transfer and mortgage fees, etc. It becomes pretty much impossible. Translate that into what a home costs in our area, then you understand what the younger generation is up against. Come on parents and relatives, help them out so they can stay instead of exiting Long Island and New York state.
I am currently engaged in a sale to a veteran who has done several tours in Iraq and Syria and is afforded excellent benefits via the V.A., such as qualifying for a 100 percent loan, (although the individual is putting down 3.5 percent on contract), free attorney services, a 65 percent reduction in real estate taxes plus the Star exemption, which once applied for will kick in 2020. But then again she has put her life on the line for all of us and is much deserving of whatever benefits that are afforded to her by the Veterans Administration. Unfortunately, most aren’t veterans and are not receiving these benefits.
Again, lowering the rates, will not truly benefit the majority of those looking to purchase their first homes, but may cause the potential of future short sales and foreclosures for those just getting in under the “wire of affordability.” Maybe grants that I elaborated about in my column the other week could be expanded to assist those individuals and families seeking ownership. I would like to see more educational programs offered by the local, state or federal government to help those to increase their incomes by starting a side business or just getting a second job, as needed. I have seen the programs out there, but most are not aware of them, due to the lack of marketing and advertising.
I think Gov. Cuomo should consider spending less on trying to attract companies to relocate to the state with 10-year “no tax” incentives, which don’t seem to be successful at all, and then spend more dollars on getting all those individuals who are leaving the state for other less costly states better opportunities. He should encourage them to stay put by making them aware of the other sources of education to either increase their salaries and wages or start their own side businesses. Here is a link to a government site that just might assist those who are looking to earn more money: https://www.usa.gov/start-business. What I have found is that people who I have come across, especially in my industry (and I am sure it occurs in all industries) aren’t always entrepreneurial, but lazy and lack the drive, diligence, perseverance and skill sets to succeed and need that weekly paycheck. However, if one can just push one’s self and stick it out, success can be yours, but at a price by learning, absorbing and applying the knowledge gained that have helped others succeed. This is the path to take for one to earn the greater income to maybe purchase that first home, house, condo, co-op. Do you have what it takes?
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S.). He will provide you with “free” regular updates of sold and new homes in your town via the Multiple Listing Service of Long Island (MLSLI)or go to WWW.Li-REalEstate.Com as well as a “free” value analysis of what your home might sell for in today’s market without any “strings” attached. He can also provide a copy of “Unlocking the Secrets of Real Estate’s New Market Reality or Our Seller’s or Buyer’s Guides for “Things to Consider when Selling or Purchasing your Home. Just email or snail mail(regular mail) him with your request with your name, email and cell number and he will send it out ASAP. For a consultation, he can be reached by cell: (516) 647-4289 or by email: Phil@TurnKeyRealEstate.Com to answer any of your questions or concerns.