The effect of interest rates, credit crisis on housing

Philip A. Raices

Philip A. Raices

Right now for some, everything looks rosy.  Home prices, although not increasing at the same excessive pace, are still going up on Long Island.  But in other locations around the U.S. prices have moderated down, especially where much of the new construction has occurred.  But for a majority of others, things may look downright challenging and dismal.  With our national debt at 32+ trillion, credit card debt increasing to a stifling level month after month and student debt of 1.77 trillion owed by 45.3 million borrowers down from 45.4 million students in the 2nd quarter of 2021.  0.63% of student loans were 90 days or more delinquent as of the 2nd quarter of 2023 down from 4.55% in the 2nd quarter of 2022.  

Pres. Biden tried his best to assist in a small way by allowing $10,000-$20,000 of student debt to be waived.  But the Supreme Court nixed that possibility, so don’t blame him.  Now, student debt payments had to be resumed as of the last day of November.  In 2023, people have been spending like there would never be a reckoning that it has to eventually be paid back. 

It all appears in some situations to be much worse due to TikTok and Instagram videos and posts spewing false and inaccurate information, as usual, about our economy; which for the most part has re-emerged from the catastrophic effects of the Pandemic to a stronger economic position than any other industrialized nation, pre-pandemic.   It is very easy to point fingers at presidents as if they are the ones that cause all our economic problems.  However, the Federal Reserve has a much greater influence over our economy.  Our housing is being directly affected by interest rates.  To curb inflation, rates had to rise, but then again, I believe it was done a year too late, and too many increases (11) since 2022, causing a severe slowdown in housing sales with the lack of inventory. 

In my opinion, luck occurs when you are in the right place at the right time.  As an example, looking back when President Clinton left office he provided the largest surplus in history, (given to then President Bush, who spent it all on a war), as well as a balanced budget, and no deficit.  Much of it was from increased taxes from the wealthy, and increased social security taxes, all assisted by a booming economy.   Check out how the economy has done since LBJ:

The current dilemma is that we are “dammed if you do lower rates and dammed if we don’t.” We are sort of in a “checkmate” situation in continuing to ease inflation which has receded from the high of 9% down to 3.2% as of October 31st according to   The issue  I have is that the Fed doesn’t account for the costs of energy and food in their inflation numbers, as they are volatile commodities.  

So depending on whether or not you truly believe their CPI numbers and their honest and accurate effect on inflation is up to what you read and how you extrapolate them.  So as the saying goes, “Figures don’t lie, but liars figure.”

I as well as almost everyone else cannot know, predict, or anticipate how our housing market will come back to a more normal and balanced inventory of 6-7 months and with reasonable interest rates for the majority of people to be able to afford to purchase.  Will a possible recession in the foreseeable future, cause a reduction in interest rates as the economy falters and slows?  Will demand possibly slow causing prices to continue to moderate lower; or will continued high rates also decrease demand and force prices down?  As Fed Chair Jerome Powell, seems to playing his cards to keep rates where they are or as he says “pausing” as inflation lately has been declining ever so slowly.  I am quite sure that he would love to bask in the sunshine of success if Fed rates came back down to 2% as it was before the Pandemic.  But if all this were to occur, mortgage rates being lower or some might say, more reasonable in the purchasing of homes and demand again escalating then what would happen with prices?  Would they continue to increase even at a faster pace? Also, would the continued lack of inventory also have a profound effect on prices? Currently, the U.S. is deficient in approximately 2.3- 6.5 million homes if you include single and multi-family homes and rental units. The main reason is the lack of construction over the last 10 years, due to the past fears of the bubble and implosion in the 2008 housing market. Builders are still afraid of over-producing and being stuck with inventory as is occurring in certain areas out west.

As of last month, reported by Redfin the median list price was $750K, 4.9%, and a $451 price per square foot increase year over year.  The median sale price was $649,000 with a 6.4% increase year over year.  The median sale price in October per square foot on Long Island was $420, a 7/7% rise compared to the previous year.  Long Island’s suburban desirability and access to NYC, and its’ resilience and growth have created an environment that is very different than other areas throughout the U.S.

Currently, with the entire student and other debt that is piling up, will so many be shut out of the market forever and only be able to reside in rentals?   2024-2025 will be defining years as what changes will occur.  But one thing is for sure, rates need to come down for more buyers to enter the market, or much larger down payments must be attained to secure a piece of the American Dream.

Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck.  He has 40 years experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S.) and in 2022 has earned his National Association of Realtors “Green Industry designation for eco-friendly construction.  He will provide you with “free” regular updates of sold and new homes in your town via the Multiple Listing Service of Long Island (MLSLI) or go to WWW.Li-RealEstate.Com and you can “do it yourself (DYI) and search on your own.  For a “FREE” `15 minute consultation, as well as well as a “FREE printout or digital value analysis  of what your home might sell for in today’s market without any obligation or “strings” attached.  He can also provide a copy of “Unlocking the Secrets of Real Estate’s New Market Reality, and our Seller’s and Buyer’s Guides for “Things to Consider when Selling, investing or Purchasing your Home.

Leave a Reply