We hope that everyone had a wonderful Thanksgiving and that the abundance, charity, and family-focus of this holiday continues throughout the year. We were very grateful for the opportunity to give back during the Thanksgiving holiday to help feed families in need. We truly appreciate our role in the New York City community and, as a team, strive to be positive, supportive, and community minded.
November was a very interesting month, to say the least. After a trying presidential campaign, we finally had the election that ended very differently than many had predicted or expected. We also saw the stock market climb and the U.S. dollar surge against other major currencies to values unseen in more than a decade. Interest rates also began climbing and the Fed affirms that a hike is likely next month as well. How is all this related and what are the predicted effects of this confluence of events?
According to government-backed mortgage buyer Freddie Mac, the week before the election, the interest rate on a standard 30-year mortgage averaged 3.54% and has since jumped to 4.03%. Interest rates tend to go up as economic indicators point towards an improved economy and inflation. We do not predict that interest rates will rise dramatically as the economy is still somewhat fragile and the Fed is not looking to knock it off course. Mike Fratantoni, the Mortgage Bankers Association’s chief economist, believes that interest rates will stay under 4.5% next year.
The new administration has also given strong indications that they are going to repeal and pull back on many of the regulations that the previous administration placed on Wall Street and the banking industry. Bank stocks shot up on November 9th and so has the yield on the 10-year Treasury bond.
A loosening of lending regulations and higher interest rates typically go hand in hand. Rising interest rates will make many would-be-buyers jump off the fence and into action as they try to get into a property before the rates rise even more. However, in general, rising interest rates also tend to lead to lower prices as consumer purchase power shrinks. Many economists are predicting that this could be offset by a combination of inflation, a strengthening economy, and looser lending policies.
As always, the New York City real estate market is really a tale of many cities. The top of the market is mired in over-supply and, although many of these strong economic indicators should result in a net benefit, this overarching problem is a long way from over. Look for luxury and high priced properties to continue their downward pricing trend. Even with higher interest rates creeping in, the lower end of the market is still fundamentally characterized by low inventory and high demand. We do not predict the same softening to occur here. The middle of the market would certainly benefit from an improved economy. This is the segment that truly will be effected most dramatically by the policies and economic outcomes of the next few months.
We will continue to keep you up to date on recent happenings and trends in the market. We hope that you find this informative and useful and, please, as always, reach out with any questions on how you can take advantage of these current trends or how to protect your real estate assets. Also, feel free to reach out with any questions regarding a specific trend or segment of the market. The LevinKong Team is available to serve all your New York City real estate needs and those of your friends, family and colleagues.