What goes up, must come down — and sooner than later is certainly the hope when it comes to skyrocketing mortgage interest rates. While rates were at historic lows during most of the pandemic, current home buyers aren’t enjoying that luxury. Historically high inflation and recent Federal Reserve decisions have driven up interest rates. Low inventory and high demand mean home prices aren’t coming down, either, and it all puts tremendous pressure on potential buyers. As interest rates continue to climb, we asked those in the know: How has this affected the Long Island real estate market? And what do they predict for 2023?
Gail Holman, Compass
“The current state of ever-increasing mortgage rates, high demand and low inventory has combined into a strenuous market for home buyers. In Long Island especially we find that homes on the market are becoming slightly “overvalued.” The leading cause of the increased home prices was low inventory and high demand. Currently, the change in mortgage rates, which are record-breaking increases, has drastically slowed the number of applications. In the coming months, we can expect to see a subtle ease in the strain for buyers on Long Island as more homes come onto the market and sellers see their homes stay on the market longer with fewer offers. The time has come for sellers to reset their expectations. Buyers that are eager for a drop in home prices are going to be disappointed. Those drops are not going to be severe. It’s safer to expect the market will stabilize and return to a pre-pandemic norm in 2023.”
Seth Pitlake, The Louise Pitlake Power Team, Douglas Elliman Realty
“Since the rise of interest rates a few months ago we have lost our “stretch” buyers — or the buyers that were using the lower rates to buy more home and the ones willing to overlook imperfections in properties just to be able to buy something, making the “as is” transaction the norm and fueling the urgency to buy mentality. As the market has shifted, we are not seeing the same pressure to purchase from our buyers, and they are taking more time to evaluate their purchase, as they feel they are not only paying top dollar for the product but also paying a premium due to the higher interest rates. What we are expecting to see, moving into 2023, is that homeowners are going to have to make certain their properties are in tip-top condition as the new buyers are being more particular in their purchases and certainly more particular in what they expect for their dollars spent. Perceived value to the buyer will be that they are getting what they pay for on their terms, not the sellers!”
Alana Benjamin, Compass
“For the first time in several years, we are seeing some great homes in “hot markets” throughout the North Shore sitting for many days without offers. Mostly this applies to homes that need work or homes that are priced too high for the current market conditions. Finding a home in a good location sitting on the market is really where buyers today can feel the market difference from earlier this year. This is an opportunity for buyers with patience, vision, and sometimes a willingness to renovate. On the flip side, there remains a high demand for homes that are “turn-key,” especially in the undera- million up to $3 million range. For these properties, we are still seeing some bidding wars, which can be difficult to swallow for buyers who feel that they should be able to pay less now that rates have risen. I do think we will see an active spring market, as many buyers sitting on the sidelines will need to jump in and purchase, especially those looking to get in for school in fall 2023. Even with rising rates, a mortgage is an easy way to ward off inflation, particularly when rents are extremely high in feeder markets like Manhattan and Brooklyn. The truth is we all need somewhere to live!”
Amy Rosenberg, The Alexis Siegel and Amy Rosenberg Team, Douglas Elliman
“While rising interest rates are certainly a consideration for Long Island home buyers, the law of supply and demand is still a driving force. Inventory is very low and there are still a lot of serious buyers out there who either lost houses in bidding wars or were deterred from even trying to buy due to skyrocketing prices and pandemic-induced job- and financial insecurity. I believe that rising interest rates, combined with a leveling out of home prices, will lead to a more balanced market in 2023; however, the market will continue to favor sellers due to low inventory and buyer demand. Additionally, potential sellers who refinanced at very low interest rates over the past couple of years may be hesitant to sell, since it is harder to justify downsizing when your monthly mortgage payment may be staying the same due to higher interest rates. Hopefully, more properties will hit the market in early 2023, prices will level out and, despite higher interest rates, the intense buyer pressure felt during the pandemic should start to subside.”
David Barkstedt, David Barkstedt Team, SERHANT.
“With the Fed raising mortgage interest rates to curb inflation, it’s important to keep in mind that today’s current rates are still competitive and low in comparison to the last 50 years, and now is still a great time to buy. To be a competitive purchaser one year ago, you had to offer over asking price and waive contingencies to increase your chances of having your offer accepted. Now, there are fewer people looking for homes, decreasing the likelihood of a bidding war. For 2023, I expect rates to continue to increase until the Federal Reserve can stabilize inflation. As a homebuyer, I would focus on my ideal monthly payment versus the interest rate. An increased rate change from a few months ago doesn’t drastically change your monthly payment. In most cases, it is still less expensive to own than rent, even at today’s rates. Other alternatives to explore include adjustable rate mortgages that tend to be a half point lower than a fixed rate mortgage. Economists are predicting that within 36 months or less rates will decline, and today’s buyers will have the opportunity to refinance at a lower rate.”