Remember when interest rates were as low as 2.5%? The Federal Reserve (Jerome Powell) cut the rate on March 3 and March 15, 2020, reducing the funds rate to a range of 0%-.25%. Then, on April 29, 2020, the rate was effectively “0%.”
This basically allowed banks to lend each other money overnight without any cost. This was done to keep our economy from crashing, which in turn lowered all rates across the board, most importantly, mortgage costs to historic lows.
The Fed pumped trillions of dollars into the economy, providing relief for American families. It also purchased 500 billion in treasury securities and 200 billion in government-guaranteed mortgage–backed securities.
However, on March 23, 2020, the Fed board decided to have open-ended unlimited purchases of those securities, I assume to be on the safe side..
A total of $13 trillion was created: $5.2 trillion for COVID relief, $4.5 trillion for quantitative easing, and $3 trillion for infrastructure. This was the main culprit causing our hyperinflation, but it was also a necessary (or was it) evil.
Over 65% of homeowners refinanced at the lowest rates in history. At the time, this was an amazing opportunity and allowed them to save billions of dollars in interest costs.
However, what was going to be the long-term effect on real estate that no one anticipated? At the time, it was understandable and appeared reasonable and smart as to the reasons behind all the reductions. as printing Trillions of dollars and pumping so much money into the economy to save the U.S. from catastrophic default.
As families and individuals who were financially capable began voraciously buying homes to escape the crowded cities and the COVID-19 threat of infection, housing inventory dwindled severely right into 2025.
When supply decreases and demand increases, costs go up, as did the prices of homes, ballooning out of sight—basic economics 101. It was different this time compared to the implosion in 2008, when those who lost their jobs, businesses, etc., with 1 million+ homes in foreclosure or short sale situations, things were very bleak and disastrous, and housing prices collapsed. This time around, it went in the opposite direction.
Locally, with the lack of reasonably priced buildable land, much higher costs, and more strict zoning rules and regulations, and the time it takes to secure permits, lower-priced homes are no longer feasible on Long Island.
This has caused the exodus of many families and individuals to leave the area for other destinations. As mentioned in last week’s column, we (New York State) are third behind California and Florida in losing more people than are relocating here.
The monumental issue about why inventory is so low is 2-fold, one is that all those that refinanced don’t want to lose those historic rates and sell their homes, condos, coops, etc. and the current interest rates that are three times higher than what they were in 2021-2022 that enabled so many to save money. Sales are down due to this fact.
Rates should never have been allowed to be reduced to their historic lows. We became a bit spoiled, and possibly a little bit more pain might have helped in not creating the excessive inflation and demand, causing higher prices.
However, many on the lower end of the financial spectrum benefited. More importantly, it was estimated that over 17%/200 % of the PPP and EIDL monies were disbursed to fraudulent entities, mostly abroad.
There wasn’t enough carefully devised oversight, and things were not at all planned out properly for the Trillions of dollars that were rapidly provided and given out.
My belief is that this has become a major dilemma for the necessary and needed housing and has caused prices to escalate beyond what anyone has ever anticipated or experienced in history.
There is a domino effect occurring: the loss of people or the lack of workers moving to other states is harming local businesses’ bottom lines. However, if you believe what we are told, that inflation is lower, I have a cheap bridge to sell you.
The costs for everyday staples, from whatever tariffs have been implemented, have increased, only adding insult to injury, to the affordability of daily living.
We have initiated and created a rental society for future generations, especially for those with large student and credit card debt.
In 2025, younger and older Baby Boomers will have the most available finances to purchase, as Gen Xers and older Millennials have been pushed back into third and fourth place, respectively, when Millennials were number one from 2014-2021.
I don’t know how our housing situation can or will be solved going forward. Maybe the government, with the assistance of some caring entrepreneurs, will come up with some solutions.
However, if something isn’t figured out and resolved, this will be the greatest and most detrimental and lost opportunity for a great majority to build a family’s future wealth.
As they say, the rich get richer and the have-nots get poorer.
Credit to: nar.com, money.com, bls.gov
Philip A. Raices Broker Consultant of Turn Key Real Estate,
3 Grace Ave Suite 180 in Great Neck, NY 11021-2415
For a free 15-minute consultation, value analysis of your home, or to answer any of
your questions or concerns, call
(516) 647-4289 or by email: Phil@TurnKeyRealEstate.Com Search properties at your leisure and convenience at:
https://WWW.Li-RealEstate.Com
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