NYC-based boutique law firm Pardalis & Nohavicka brings the latest legal updates from the world of real estate. Pardalis & Nohavicka handles an eclectic array of matters, representing individuals and business owners in civil litigation, criminal cases and business transactions, currently litigating and representing clients throughout the United States and around the world.
Unfortunately, when it comes to deciding whether it’s a good time to buy or sell, the answer isn’t straightforward. That’s because there are a lot of factors to consider. For instance, the current mixed-macro environment has made it difficult to gauge the housing market.
On the negative side:
- Interest rates are higher than they were before the pandemic, thereby causing many people to be unable to afford the higher monthly payments despite lower housing prices.
- There is frequent news of job cuts in certain sectors of the economy.
- There is war and turmoil on the Eurasian continent and beyond.
- A global recession is looming (if it isn’t already here).
On the positive side:
- All things considered, the overall job/labor market is recovering and strong.
- Inflation is considered to have peaked and is starting to decline.
- Interest rate increases are beginning to slow.
- Recent GDP growth figures are above consensus estimates.
- The stock market is recovering from the lows of September/October 2022.
Furthermore, there are also long-term fundamentals to consider. First, organic demand (not attributable to institutional buyers) still appears to be substantial as many are simply waiting on the sidelines for better prices. Reasons for this organic demand could include:
- A residence that’s no longer sufficient for one’s current needs.
- A need to relocate due to reactionary purchases during the last few years.
- A desire to make a first purchase due to a “coming of age.”
- Learning to accept and live with the COVID situation.
- Mandatory work in office, at least part-time.
- Untenable commutes after moving away from COVID epicenters.
- Lifestyle requirements given one’s age, background and personal tastes.
Second, the housing market is not like the stock market. Granted, one may observe that housing prices tend to have a lagging corresponding effect compared to the stock market. But people tend to buy homes to live in, although there is certainly an investment component to it. And, generally, there is no reason for most people to sell unless they purchased the property specifically to flip it or are experiencing financial duress. Additionally, one can’t bet against the housing market in order to drive prices down (at least not directly).
Third, this downturn is not like the 2008 housing market crash. Specifically, the quality of home buyers is higher now. The mortgage qualification process is also stricter nowadays due to lower debt-to-income ratio, additional income and asset verification requirements. For comparison, in 2008, professionals in the real estate industry discussed how buyers would not be able to afford their mortgages under normal circumstances because they were borrowing more than 95% of the value of the property with little to no income verification.
Fourth, it’s likely that there will be increased competition for quality housing in the long-term. While some people may be surprised by this, the supply of housing appears to be low — particularly quality housing supply. And, studies show that new construction permits have been trending down for the past year or so. However, there have also been increasing discussions among the new administration in New York regarding changes to existing zoning laws to accommodate additional housing. Of course, realistically, it takes many years for new housing to come “online.”
Fifth, unlike other developed nations, the portion of the population at their peak spending years (25 to 65 years old) will be increasing in the United States for the next two decades or so. Concurrently, there will also be an increase in housing demand for the largest generation — the Millennials, who are now in the prime years of their life looking to buy their first home.
Sixth, a member of a well-known developer in NYC put it simply: There’s “no more land” to build on in quality areas. Essentially, there’s no more quality land to develop quality residential housing. Obviously, there is still some quality land available, but not at favorable prices and quantities.
Seventh, many foreign/international buyers still consider the United States — in particular, New York City — a desirable place to invest or “park” their money due to the Eurasian conflict and its trend toward more socialistic and, in some cases, totalitarian forms of governments. Moreover, buyers from these areas are usually “flush” with cash and are “all-cash” buyers, which intensifies the competition and pricing for limited quality housing.
Finally, here are some suggestions and precautions to keep in mind in any market.
- Avoid reactionary purchases. If possible, take some time to consider the people, area and reasons for purchasing for the long-term.
- Buy what you can afford. Ask yourself if you can afford your monthly payments if you lose your current source of income for six months to a year. Life happens.
- Avoid variable interest rate loans, if possible, and stick to fixed-rate mortgages. This allows you to stabilize and budget around your single-largest monthly payment.
- Avoid buying sight unseen (no matter how tempting). It’s difficult to ascertain the quality of the house, lifestyle and neighborhood.
- Don’t rely solely on low interest rates to purchase as it doesn’t show the true picture of affordability. You still have to pay back the principal on the mortgage. Purchasing at higher interest rates can even be better, depending on the price of the property.
- Work with a real estate agent and other professionals who understand your needs — both financial and personal.
John Pak serves as the Real Estate Chair at the Law Offices of Pardalis & Nohavicka. He is a transactional attorney specializing in acquisitions, dispositions and leasing. A graduate of Brooklyn Law School, he received his BA in Political Science from New York University. Prior to joining PN Lawyers, John owned his own private law practice for 15 years and a title company for 6 years.
Taso Pardalis is a founding partner of the Law Offices of Pardalis & Nohavicka, a leading full- service NYC law firm with offices in Manhattan, Queens and WeWork. Taso may be a well-known attorney with many cases making headlines in major media outlets, but at heart, he is a true entrepreneur that believes in supporting the small business community. His areas of concentration are: Intellectual Property, Trademarks, Corporate, Business Law and Real Estate Law.