Housing market on LI may foretell bumpy 2024

It has been more than a year since the Federal Reserve began its efforts to bring down inflation by increasing interest rates more than ten times and by removing more than a $1 trillion in the nation’s money supply.

During that time, consumer debt and related defaults are approaching record levels, housing inflation continues to stifle home sales, fueling rent increases, 7% mortgage rates and sluggish sales. Still, the nearly 5% overall inflation rate remains stubbornly above the 2% inflation rate target set by the Fed. Clearly, home buyers and sellers, as well as renters, are engaged in a challenging real estate sector. And where the housing market goes suggests much about what the 2023-2024 economy.

Housing inflation has been driven by the highest mortgage interest rates in 15 years, resulting in sluggish existing home sales with slight decreases in their selling prices, higher new home construction costs and higher selling prices. This market trend has been caused by a tight housing inventory which has supported higher housing prices. On Long Island, for example, the 4,710 homes listed for sale are 50% below the March 2020 inventory of homes listed for sale.

A factor in sustaining a tight existing housing supply for sale are those potential home sellers who either do not have any home mortgage on their homes or a refinanced mortgage with a low interest rate. These folks, who would normally sell their homes for a tidy profit and move elsewhere, now ask themselves where they would move to when they look at the housing market and find that it is less expensive to remain in their homes. It doesn’t make economic sense to move. Thus, their houses aren’t on the market, stifling an inventory buildup.

One need only look at the Millennials. America’s largest home buying nd, anow in their 20s and 30s. They are in the peak years for moving out of their parents’ homes and attempting to purchase their own. This important market is struggling to find jobs in industries where they wish to work, and in jobs that meet their skill sets and salary requirements. They are struggling with the household income and downpayment necessary to buy a home. Furthermore, many are burdened with student debt, and with student debt about 9% of all debt and with mortgages 70% of household debt, having enough cash for a home purchase adds to the challenge of housing inflation.

Clearly, housing inflation is a low inventory problem; a higher selling price problem; a higher mortgage interest rate problem; and a higher construction cost problem. The high mortgage rates and the economic uncertainty about the possibility of a recession has slowed down home sales as well.

As we turn to the last six months of 2023, the Fed is sure to increase interest rates, hoping not to lead the economy off a fiscal cliff. The 2024 economy surely looks like a bumpy ride.