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Hobgoblins and Bad News
A steady diet of negative news certainly hasn’t helped my outlook on the world.
And I have become convinced of this:
It’s not that there is more bad news right now- though there is plenty.
It’s that the particular channels we have now, Facebook, Twitter, 24-hour news cycle, among many, are very good at creating a haze of negativity.
I speak to so many buyers and sellers, and the sense I get is that all of this negativity is not helping the housing market.
A steady diet of bad news isn’t good for you
As an experiment, I decided to take a few weeks off from media consumption, with the notion that if something were important enough I would hear about it from osmosis, email alerts, or good old fashioned word of mouth.
Lo and behold, the grey clouds parted and I’ve found a lot more energy to think BIG about the market.
Which is why you’re reading this, right?
So let’s put saber rattling, attorney payoffs, shootings, marches, and all of that haze to the side, and talk New York City housing market.
Okay? Here are the five things that I’m hearing that People are Worrying About.
One of my favorites morning reads is Matt Levine’s Money Talk.
Like his daily hilarious dose of the goings-on in the world of finance, let’s discuss why these worries in the housing market are to be expected, for the most part, why people will still continue to worry about them regardless of a particular moment in the housing market.
People are Worried about Overpaying
I hear this a lot right now.
“Buyers are really worried about overpaying in the market.”
I mean, when do people ever NOT worry about overpaying?
I guess when the housing market is moving up there’s less of a focus on it, but I’ve yet to meet a buyer who wants to overpay for an apartment.
Perhaps, in a bidding situation, a buyer will acknowledge that he may be overpaying, by a little, but it is a strategic move.
In general, what are buyers really trying to say?
They are saying that they are trying to time the market.
And they don’t want to accidentally buy too high when the market may go down a little bit further.
And there’s more. They actually are excited that prices are where they are, because they didn’t buy two or three years ago, when certain size units and classes were priced higher.
And they may be getting a little greedy, and want to time their purchase perfectly.
Where I come out on this is that it’s generally quite hard to time any market, be it the stock market or the housing market.
If you were lucky enough to have waited, for whatever reason, not to buy, and what you want to buy is on offer at a slightly lower price- don’t get greedy.
There remains a limited inventory in the market.
Buyers remain out there are are making decisions, and you could easily lose out on a property that will eventually be worth more.
Be thoughtful, but don’t wait forever.
Worrying is like a rocking chair, it gives you something to do, but won’t get you anywhere….usually
People are Worried About Mortgage Rates
This is a favorite. Of course buyers are worried about mortgage rates.
When rates were 6 percent twelve years ago, they were historically low.
They are still below 4 percent.
If the thought is that mortgage rates going up will drive down the housing market, and by waiting you’ll get a better price- that may work if you are paying cash- that is, if you don’t have to worry about mortgage rates!
If rates go up, the money that you invest elsewhere will make more money with lower risk.
If you really are worried about mortgage rates, and rates go up from 4% to 5%, which is a 25% jump- the question I would put to you is this: Do you really think the housing market is going to drop 25%? Considering that the market didn’t drop 25% in 2008-2009, and it’s already come down 10-12% in some cases, why would it go down that much?
It seems that this is more of a worry than it should be.
It seems again that trying to thread the needle, to pay lowest price while rates are low- that is the challenge, and it’s quite hard to time things perfectly.
People are Worried About the Tax Bill
Ok, we’ve had about a quarter (3 months) to digest the new tax bill.
And my clients have consulted with their tax experts.
I’ve asked everyone I can to tell me about their feelings on the tax bill that passed late 2017.
What have I found?
Unless people were already packing their bags for Florida, people are simply adjusting to a new reality.
They aren’t going to leave New York in protest.
Maybe it’s slowed down decision making a bit, maybe it’s going to cost high earners a little more to live in New York.
Ok.
It stinks and I’m sad about it, too.
But it is not materializing into the disaster that was predicted.
I live in one of the top 3 high tax burden states.
The tax bill is a huge bummer.
But for many people it may not be as big a cost as once thought, and it’s not proving to be as large of an impediment as was thought initially, for people looking to buy.
People are Worried About Real Estate Taxes
I understand that people are looking at the taxes levied by New York City on Real Estate.
Are taxes high?
Yes, as high as they’ve ever been.
Do they continue to go up?
Yes, real estate tax continues to be a steady source of income for New York City.
Is it crazy?
No.
First, taxes here are much, much lower than anywhere else in the suburbs, certainly compared to the purchase price of apartments and townhouses in New York.
Perhaps a townhouse on the Upper East Side will have $100,000 annual taxes, but is worth $6-9mm.
In the suburbs around Westchester, a property worth $3mm or so could easily have the same real estate taxes.
Again, I do not see a uniquely awful situation brewing in New York City.
It’s worse in the suburbs.
By a lot.
Some of the discussions from 2+ years ago, when the city was considering an extra tax on the super high end- all of that was shelved- and the high end has been much, much slower anyway.
Those people are making tons of money in the equity markets- and simply took a break from real estate.
They’ll come back when they’ve made enough in those markets.
I will say this- if buyers are already considering moving to lower tax states in the Southeast, such as Florida, North Carolina, etc- it’s only accelerating a migration that had begun well before December’s new tax plan coming into effect.
People are Worried About the Stock Market
During the last 12-24 months, many sellers have been confounded- if the stock market is doing well, why isn’t the housing market? It’s a reasonable question.
And now that the stock market has taken a pause in the last few weeks, with a bit more volatility in the last 2 months- will the housing market suddenly be more correlated with the stock market.
Why would the housing market only be correlated on the way down?
There are way too many moving pieces to simply look at two factors expect to see one’s impact on the other so clearly.
Underlying these “worries” about the stock market is a sense that some buyers want the market to take a tumble- and it already has.
They want to take advantage of a narrative that allows them to make lower offers.
I don’t hold any of this against buyers.
But it can be pretty transparent, especially when prices are already down in the housing market.
Articles have been written of late that point out the discounts in the market.
Again, greedy buyers may lose out on these opportunities.
In All
Buyers want reasons to worry.
People like to worry.
It makes them feel cozy if they have things to worry about.
People find things to worry about!
I’ve heard of sellers who track the sales prices of houses and apartments that they’ve sold to see where values are going forward.
They worry about decisions that they’ve already made!
In the uncertainty of the housing market in NYC, we will continue to see these worrisome “hobgoblins” surface.
And a solid 90-95% of these worries are simply a result of needing something to focus on with a lack of real information to go on.
Food for thought!
Maybe a diet of positive thought will help our market find more solid footing across all neighborhoods and price points!
Thanks for reading.
More next month- Scott