Here we are, its February 18th and we’re just about a month and a half into 2019 and things are looking a lot better now than they did at the end of last year. In the last quarter of 2018, it almost seemed like we were headed towards a financial crisis. The Federal Reserve had been raising rates at a pace that the markets just couldn’t handle, we saw the Dow Jones lose 5,000 points, Trump’s new tax plan was a significant change that most people didn’t understand yet, and we’ve had a lot of political divide in our country.
The Fed is really the most important player in this game of real estate, because they essentially control the flow of credit. They control interest rates and the money supply. It is said that there is somewhere around 53 trillion American dollars in circulation and 50 trillion of it is credit. So, when the Federal Reserve started tightening the money supply and raising rates, the markets didn’t have a good reaction to it. Since the 08-09 crisis, we’ve been living in the second longest economic expansion in the country’s history. The reason we’ve had this expansion is because interest rates were held at historically low numbers, and the government had been issuing & selling bonds to expand the money supply. When this is the case, people borrow money and transact in business and building. It’s the best possible economic scenario, specifically for real estate. This is why when you go to New York City you see 50+ cranes and construction sites where they’re building a new tower or renovating a new town house. This is also why you’re seeing builders coming into Long Island Neighborhoods, knocking houses down, building new constructions, and selling them for crazy high prices. This has all been happening because rates have been at historic lows. Borrowing money is cheap, and cheap money creates economic stimulus. Builders are borrowing and building at low rates, and buyers are buying houses at low rates – the scenario couldn’t cater to a better real estate market.
At the tail end of last year, we saw the reversal of all this stimulus. The Fed’s tightening had finally caught up to them. The markets lost over 5,000 points, we saw interest rates hit 5% on a 30-year mortgage, mortgage applications were down 20+ percent nationally, and inventory started to build. Things looked bleak for a moment there. But shortly after the new year, The Fed announced that its going to put a hold on raising rates and stop the tightening. Almost immediately we saw a shift back to optimism in the markets with the Dow now sitting just below 26,000 and houses started to move again. The uncertainty that was keeping money on the sidelines was no longer there. All that being said, this reversal in policy will likely lead to another strong selling season with healthy prices and low inventory.
One note to add with regards to the optimism in the short term is that I personally don’t believe that this will last much longer. At best, we’ve probably got another two to three years of a strong market with credit flowing nicely. At some point though, we will see a downturn in the economy as its just an inevitable part of these cycles. With that said, if you plan on selling your home because of some life change that will be occurring in the next 3-5 years – My best guess is that you may never get as much money for your home than you will now (at least in the short term, a long-term play is a different discussion entirely). So, good luck and here’s to a great selling season in 2019!
