Feb. 26, 2019

Mortgage Rates Hit 12 Month Low

The punch bowl has been given back to the housing market in the form of low interest rates.  Mortgage rates are the lowest that they’ve been in 12 months, which is going to have a great effect on this spring selling season.  This past week, interest rates on 30-year fixed rate mortgages averaged 4.35%.  Towards the end of last year, we were just under 5% on a 30-year fixed.  But why is this so significant?

Interest rates are defined as the cost of borrowing money.  The American economy heavily depends on financed assets.  Cars, Houses, Boats, etc. – Are for the most part, financed.  When people can afford to borrow more because interest rates are lower, they have more buying power.  If interest rates are low a buyer can afford a bigger/better home in a better neighborhood.  Low interest rates also give buyers the confidence that they’re buying a home in a market where prices will either remain to same or grow in the short term.  Had the situation been the opposite, where people felt a rise in rates was something that we’d be seeing in the short term, they would hold off on buying a home – because the price of their asset would likely decline in the short term.  Rising interest rates are not good for asset prices, because incomes typically don’t change very quickly. In a market where interest rates rise too fast somethings got to give for people to be able to afford what they’re trying to buy.  Usually, in that case, the price of the asset is where a concession needs to be made for potential buyers to be able to afford the asset.  So, the flow of credit and price at which money costs to borrow (The Interest Rates) – are the most important factor in housing.

Mortgage rates move in tandem with the 10-year U.S. Treasury note.  Bond Yields, which decline as the price of bonds rise, were caught in the volatility that we saw at the end of last year.  The yields have declined as the Federal Reserve keeps talking in favor of changing the pace at which they reduce the bonds they hold on their balance sheet.  The acceleration of debt from Trumps new policies are being financed by the issuance of these bonds.  Due to the massive issuance of this significant debt, the excess supply of these bonds could erode the price & demand of these products.  However, for now there is more buying than selling of these asset types.

So, to draw this blog to a close, I’d like you to reference the graph below that shows how mortgage applications rise when interest rates fall.  This spring we are seeing an extremely favorable market with regards to real estate.  Sellers are going to be able to sell their houses for numbers that they desire, and buyers will be able to afford more.  Everybody wins.  However, we don’t know how long this will last.  Remember, just two months ago most people thought we were headed for an economic disaster.  Seize the market when market conditions allow you to, and right now it’s looking really good.

Feb. 21, 2019

SALT Deductions & Long Island Real Estate

Here we are in the first year of Donald Trump’s new tax plan, and Americans are starting to digest all the changes that have taken place with this new policy.  The new tax plan certainly has its benefits.  The new corporate tax rate is 21%, the revised tax brackets are all putting more money in the pockets of workers, and there’s been a hike in the standard deductions to $12,000 for an individual and $24,000 if your married filing jointly.  All these things are great, but what about the new SALT deduction laws and how does it affect us in Nassau & Suffolk County?

The new tax plan has limited the SALT deductions to $10,000 in property taxes against your income.  As we know, here on long island and in most democratic states like NY/California – our property taxes are very high.  Its not uncommon for people in middle class neighborhoods to have property taxes of $25,000 per year.  In the more high-end neighborhoods, we see $55,000-$65,000/year in property taxes as being a common number paid by homeowners.  Nassau County ranks 6th and Suffolk County ranks 15th in the percentage of homeowners that are paying more than$10,000/year in property taxes throughout the country. Nearly half the homes in Nassau and one third of the homes in Suffolk fall into that statistic.  Nassau County has about 26,000 residents paying $20,000/year or more in property taxes, and Nearly 9,000 residents paying $30,000/year or more in property taxes.  Suffolk has 15,000 residents that pay more than $20,000/year in property taxes.

Just based on the above numbers, it’s obvious that Long Island is going to feel pain with regards to real estate, as a result of this law change.  The change effects too many people that reside here for it not to.  The question is, what will the changes look like?

The tax change has a bigger effect on your finances with the higher your property taxes are.  It is my belief that people who are well to do are very strategic with all their finances.  They themselves, or their money managers, understand the tax plans inside and out.  They arrange their affairs around those tax laws so that they can maximize every dollar they can.  If the wealthy Long Island residents begin to see that by re-arranging their affairs, they can keep a significant amount of money in their pocket – they will likely do it.  We keep seeing articles in the news regarding New Yorkers fleeing to states that have better tax benefits.  I don’t know if any of these claims have been confirmed, but its certainly not out of the realm of possibility.  The Real Deal cited a report where moving to a state like Florida can add up to 12% to your bottom line.  When your talking about big numbers, 12% can be significant to a wealthy person.

In the last year and a half, the luxury market on Long Island has consistently declined over time.  Whether you can attribute that specifically to SALT is not conclusive.  There are a lot of different things happening in our very fast changing world that can all be contributing factors.  One thing that we know, is that it doesn’t help.

In the middle-class price points, we likely won’t see any disruption.  We expect the $400,00 - $600,000 price points to remain unscathed from this tax plan.  In fact, like most other parts of the country, it may even help if a married couple takes the standard deduction of $24,000. 

On the flip side of the coin, not everyone is here for the tax benefits.  Nassau and Suffolk county are end-user real estate markets.  Most of us are here because our ancestors laid down roots, and we plan to be here for generations to come.  furthermore, we are in one of the greatest places in the world to live.  We have 4 seasons – white winters, a colorful spring & fall, and warm summers with some of the best beaches in the world.  We’ve got some of the best school systems in the country, the greatest city in the world a quick train ride to the west, and the Hamptons to the east.  When you think about it like that, paying a little extra in taxes really isn’t so bad.

Feb. 21, 2019

A Few Quick Tips for Selling Your Home in the Spring

Even though it’s the middle of the winter season, before you know it, spring will be here. Typically in most real estate markets, the spring is when it really begins to heat up. The spring real estate market generally yields the highest prices for those selling their home. This is only possible though if the proper preparations are taken before spring is upon us!

 

If you’re thinking of selling your home in the spring, you must know that even though you may receive top dollar for your home, the competition will also be the strongest. This means it’s absolutely critical that you’re prepared for the spring real estate market so you can knock out your competition.

1)      Get listed before the Spring inventory rush

If you’re thinking of selling your home in the spring, you must know that even though you may receive top dollar for your home, the competition will also be the strongest. What’s the best way to beat out the fierce competition that will be at hand? Make sure you are listed before everyone else. Getting your house on the market first is the most efficient way to get the absolute best price for your house.  Being a “big fish in a small pond” by being on the market when everyone else isn’t, will always result in more interest, and therefore a higher sales price.

2)      Start consulting with a realtor NOW

Homeowners tend to wait until they are 100% ready sell to start their interviewing process with potential agents. This is one of the worst things you could do. I always tell my clients that we should have a pre-listing meeting 2-4 weeks before they are actually ready to bring it to market. In those meetings we discuss the price of the home and anything I believe that needs to be changed prior to the listing that will optimize the price.

3)      Know what your plan is

One huge mistake sellers make is not knowing what their plan is once they sell their home. Are you planning on buying another home once your home sells? Do you have the option to move in with family? Can you rent, if need be? These are things you should think about and know the answers to before the spring real estate market hits. It’s a great idea to discuss your financing options with a local lender before you list your home for sale. If you can get pre-approved to purchase a home non-contingent, if need be, it can give you a huge advantage over any seller who is selling their home subject to finding a suitable property to purchase.

4)      Clean & Organize

I know it’s cliché but it’s imperative to give your home a thorough “spring cleaning.” This doesn’t mean wait until spring, though. Be proactive and start cleaning now; you’ll be glad you didn’t wait. A huge turnoff for prospective buyers are foul odors. Things such as smoke odors and pet odors can kill home sales.

 

Here are just a few things to make sure you clean before listing your home:

  • Wash your windows
  • Dust your blinds
  • Dust baseboard trims
  • Clean appliances
  • Clean shower(s) & toilet(s)
  • Clean inside cabinets

 

When selling a home, it’s important that you de-clutter and organize your home, too. A great way to achieve this is by packing. It may sound silly seeing as you haven’t listed your home for sale yet, but you will need to pack at some point anyways, so why not do it now! Clean out closets and pack away anything that you don’t have a necessity for. It is incredible how much better a home will show and how much quicker it will sell if it’s organized and de-cluttered.

5)      Consider having a Pre-List Inspection

One of the biggest reasons a home sale gets derailed is due to the home inspection. Most buyers will opt to have their offer contingent on an acceptable home inspection. Some buyers can even get alarmed and scared by the smallest home inspection finding and can use this to renegotiate the offering price. It can be easy to avoid this possibility and have your home inspected by a professional before listing it.

Feb. 19, 2019

The Highest Offer is the Best Offer... Right?

The Highest offer is the best offer… Right?

NOPE!  Contrary to what most people think, the highest offer is not always the best offer.  It’s hard for most people to understand that sometimes taking the most money is not always the best decision, especially when you’re talking about their home.  When someone classifies a house as their ‘home’ and they have emotional ties to it, they immediately believe that it’s the most expensive house in the neighborhood.  Now try telling them to take the deal from the buyer who’s offering them $10,000-$20,000 less strictly because the terms are more favorable.  But why would you do that?  Why would anyone take a significantly less amount of money when selling one of their biggest assets?  Let’s look at some reasons why…

TIME KILLS ALL DEALS!  This past summer, we did a deal in which a buyer wanted to wait a full six months to close on a property.  We had two buyers at the table: one that was offering more money and wanted to close in six months, and another who was offering a little less but was ready to close in 30 days.  We begged our seller to take the deal in which the buyer was ready to close in 30 days, and we explained that 6 months is an eternity in real estate, and anything can happen to make the deal go sideways in that length of time.  Unfortunately, all our seller saw was the dollar signs and the convenience of not having to rush to move out of the apartment and organize their affairs.  This property went into contract last summer and was set to close November 1st.  In the summer of last year, the market looked great – But in the last quarter of last year, it looked like the financial markets were all going to melt down.  As a result, the buyer tried everything in his power to back out of the deal.  The seller had already moved out and headed down to Florida for retirement.  Thankfully, we had a little bit of meat on the stick… which leads me to my next point…

CASH DOWN ON CONTRACT IS HUGE!  The buyer from the example above put $50,000 down at contract with no contingencies in the contract at all.  Had he walked away from the purchase, the seller was entitled to keep that deposit.  The buyer had even offered the seller $20,000 to walk away from the deal, but the seller did not grant him the ability to walk away without losing the full 50k. 

CONTINGENCIES…  Had the buyer built any contingencies into the deal, he probably would have gotten that money back and been able to walk away with his deposit.  Luckily for our seller, we came to an agreement in the summer to remove the mortgage contingency from the contract.  What’s a mortgage contingency?  A mortgage contingency is when a buyer is going to buy a house, but if for some reason they can’t secure a loan – they can walk away from the deal and keep their deposit.  Some people also buy houses with the sale of their existing house being a contingency.  So, in that case, if the sale of their current home falls apart for any reason – they can walk away from the purchase of their new home.  In short, when negotiating a contract of sale in the world of real estate – no contingencies is the best position for the seller.

CASH IS KING!  We live in a very fast-moving world, and what moves faster than cash? Nothing.  We previously discussed why time is so important to keeping a deal together, and cash expedites the sales process significantly.  The mortgage process is a long one and can slow a deal down if the buyer isn’t squeaky clean with an 800-credit score.  These banks create a file for buyers and that file gets submitted to an underwriter.  That underwriter reviews the file with a fine-tooth comb – and if anything at all in that file is a red flag, you can be sure that the ‘clear to close’ won’t be coming anytime soon.  However, all cash buyers don’t have to deal with that process – which is why cash is king.

Lastly, if your buyer has no choice but to finance, THE MORE MONEY DOWN THE BETTER – In a rising real estate market, you have to sell the home twice.  Once to the buyer, and next to the appraiser from the bank.  When market prices are trending upward, prices out pace closed sales.  The past 12 months of closed sales are what banks typically go by when appraising homes.  So, in this scenario, its not uncommon for an appraisal to come back short.  With most conventional loans, the loan is based on 80% of the appraised value of the home.  If the buyer is only putting down 20% and the house doesn’t appraise, then they can walk away from the deal.  However, if they’re putting down 30%, they can’t because the cash down covers the difference.

So, to sum it all up – the highest offer is NOT ALWAYS THE BEST OFFER!  Though we’d like to think that it is, there are too many negotiable variables in a real-estate transaction for it to be that simple.  You have to look at the whole deal from a bird’s eye view and look at where the buyer has possible outs.  The more you can minimize those scenarios, the more rock solid a deal is. 

Feb. 18, 2019

The 2019 Real Estate Market Outlook

Here we are, its February 18th and we’re just about a month and a half into 2019 and things are looking a lot better now than they did at the end of last year.  In the last quarter of 2018, it almost seemed like we were headed towards a financial crisis.  The Federal Reserve had been raising rates at a pace that the markets just couldn’t handle, we saw the Dow Jones lose 5,000 points, Trump’s new tax plan was a significant change that most people didn’t understand yet, and we’ve had a lot of political divide in our country.

 The Fed is really the most important player in this game of real estate, because they essentially control the flow of credit.  They control interest rates and the money supply.  It is said that there is somewhere around 53 trillion American dollars in circulation and 50 trillion of it is credit.  So, when the Federal Reserve started tightening the money supply and raising rates, the markets didn’t have a good reaction to it.  Since the 08-09 crisis, we’ve been living in the second longest economic expansion in the country’s history.  The reason we’ve had this expansion is because interest rates were held at historically low numbers, and the government had been issuing & selling bonds to expand the money supply.  When this is the case, people borrow money and transact in business and building.  It’s the best possible economic scenario, specifically for real estate.  This is why when you go to New York City you see 50+ cranes and construction sites where they’re building a new tower or renovating a new town house.  This is also why you’re seeing builders coming into Long Island Neighborhoods, knocking houses down, building new constructions, and selling them for crazy high prices.  This has all been happening because rates have been at historic lows.  Borrowing money is cheap, and cheap money creates economic stimulus.  Builders are borrowing and building at low rates, and buyers are buying houses at low rates – the scenario couldn’t cater to a better real estate market.

At the tail end of last year, we saw the reversal of all this stimulus.  The Fed’s tightening had finally caught up to them.  The markets lost over 5,000 points, we saw interest rates hit 5% on a 30-year mortgage, mortgage applications were down 20+ percent nationally, and inventory started to build.  Things looked bleak for a moment there.  But shortly after the new year, The Fed announced that its going to put a hold on raising rates and stop the tightening.  Almost immediately we saw a shift back to optimism in the markets with the Dow now sitting just below 26,000 and houses started to move again.  The uncertainty that was keeping money on the sidelines was no longer there.  All that being said, this reversal in policy will likely lead to another strong selling season with healthy prices and low inventory. 

One note to add with regards to the optimism in the short term is that I personally don’t believe that this will last much longer.  At best, we’ve probably got another two to three years of a strong market with credit flowing nicely.  At some point though, we will see a downturn in the economy as its just an inevitable part of these cycles.  With that said, if you plan on selling your home because of some life change that will be occurring in the next 3-5 years – My best guess is that you may never get as much money for your home than you will now (at least in the short term, a long-term play is a different discussion entirely).  So, good luck and here’s to a great selling season in 2019! 

Feb. 14, 2019

Amazon Pulls Out of Long Island City

Sayonara Amazon!  We’re sure you’ve heard by now that Amazon will not be settling in Long Island City after all.  The news was reported this morning, and its not being taken well by most in the real estate industry.  Before we go down the rabbit hole and discuss the topic, lets try and understand the fundamentals of how this decision all came about. 

To understand why we’ve gotten to this point with Amazon, its probably best to take a step back and try to learn a little more about big business in America.  When a business gets big enough, about 500 or more employees, states/cities/towns start to entice them to come set up shop in their respective state/city/town.  They’ll provide incentives to help make the decision to move or expand appealing for the company.  The reason behind this is because business creates revenue for the local governments and population growth.  The employees of that business pay payroll taxes to the local government, they buy houses in the local real estate markets & pay transfer fees to the local cities, they go out to dinner at the local restaurants, they pay sales tax at local grocery stores, and the owners of those respective restaurants and businesses pay taxes on those revenues – and so on and so forth.  In the end it’s a net positive for the city in revenue growth in the long term and provides for a very exciting future for all.

While big business moving in is typically seen as good fiscally, there is a flip side of the coin.  The opposition are the local stores and families that simply cannot keep up with the change.  As big new business moves in, and a neighborhood quickly gentrifies – a lot of very fast changes occur for the people and families that predated these changes.  A quick changing neighborhood can disturb the existing residents and force them to make certain changes that they probably aren’t ready for, or just didn’t want to undertake in the first place.  This is where you’ll find resistance to a company like Amazon coming to town.

The deal for Amazon was to come to Long Island City and receive 3 Billion dollars in incentives from the city.  They were going to be building a campus, while occupying 1 million sqft in the Citi building.  They were planning on moving 25,000 jobs to the new campus and some thought over the course of 20-25 years that number could grow to 40,000 jobs.  All in, some projected this to generate $27 Billion dollars in economic activity over the next 10 years.  Unfortunately, they were met with opposition from local state and city elected officials.  Some of the local community was reportedly not happy with the idea of a big corporation moving in either, although polling suggests they had 70% support from the local community.  Governor Cuomo even went so far as to point out that his own political party “put their own narrow political interests above the community.”  So, Amazon is moving on – bringing their campus to Nashville, TN.

With regards to real estate, this is a devastating blow to Long Island City.  Prior to Amazon announcing that it would be coming to the area, the market had gotten very soft.  Developers had over-developed the area with years of inventory that had to be absorbed, and interest rates were trending upward which restricts lending for buyers.  Once they announced they had plans to come to the area, the market flipped to a seller’s market overnight.  Developers and property owners were ecstatic that there was a pool of new buyers in town.  The announcement promoted massive optimism for a strong market for Long Island City, in the near future.  Some think that western parts of Nassau County would have also seen employees buying in their neighborhood for the school districts and suburb feel.  Now that Amazon has pulled out, we’re right back at square one. 

I think the bigger point here is that Amazon would have been pioneering a new community.  Long Island City would have changed forever with the addition of Amazon and its employees. What would it all have looked like in 10… 15… 20 years from now had they come?  What’s it going to look like in that time because now they’re not coming?  What other businesses would have come to the area or opened locally because they were there?  Does this whole thing with Amazon discourage businesses from coming to New York in general? 

We won’t ever know the answers to some of the above questions, but I hope our city leaders and elected officials learned something from this loss.  Personally, and maybe a little selfishly, the announcement of Amazon’s decision is something that saddens me.  I believe it would have been a great addition to New York City, and a whole new beginning for Long Island City.