The number one topic in the real estate world right now is, when will the red hot housing market cool off? With the pandemic in our rearview mirror, will the housing market return to more normal patterns by the end of the year?
In a seller’s market, as we are experiencing right now, competition among buyers is intense. The COVID crisis created a surge in buying activity and this, coupled with a decrease in supply, fueled the rise in home prices.
Are home builders catching up and increasing supply? There is some evidence of that, but we are not being flooded with new inventory. Are older homeowners now more willing to sell? This too seems to be happening. Will the eviction forbearance that has artificially kept thousands of homes from reaching the market since Mach 2020 finally end? It appears, stress appears, that nationally the eviction moratorium will expire at the end of this month.
When you add it all up, most of the signs seem to be pointing in the same direction, an easing of the feverish demand for homes. But consensus is that home prices will remain high. Why? Demand remains strong long-term – demographics is indeed destiny. Also, the exodus from urban areas to the suburbs and rural areas looks like a sustained trend, regardless of short-term factors like the pandemic.
The biggest wild card in this scenario is interest rates. Most economists are forecasting higher rates, but not dramatically higher rates, in the months ahead. Best guess? Mortgage rates will likely be near the 3.5% mark by year-end. Historically, that’s relatively low. That said, any rise in rates further squeezes out new buyers.
If you’re looking to refinance your residence or an investment property, now is the time. Of all of the factors I’ve discussed in this blog, the experts agree most about one thing – interest rates will rise.
Let’s shift gears and touch on a more sensitive subject, the effort to influence local zoning laws with Federal legislation. As of the date of this blog, Congress has not passed any form of the infrastructure bill, but that may happen soon. Potentially included in this mammoth legislation are provisions that would heavily penalize local governments for maintaining single-family home zoning restrictions.
The arguments for Federal intervention in local zoning decisions are that climate change, racial injustice, and the affordable housing crisis are all negatively impacted by single-family home restrictions. Those on the other side of the issue say that zoning laws should be set by the community affected by those laws and not through a nationally mandated incentive and penalty scheme.
The proposed changes would allow developers to build multi-family rental units and owner-occupied properties on previously single-family zoned land. From a purely real estate development perspective, no doubt forcing communities to allow denser construction, smaller lot sizes, and removing multi-family restrictions would be a bonanza for certain developers.
Traditionally, a municipality’s physical feel and architectural aspects have been the local government’s basic function. If this is changed, ostensibly by Washington saying you cannot access millions of dollars in Federal funding if you don’t change your zoning laws, it might literally remake the landscape of our society.
Here’s a good example of how this works. The legal drinking age in America was raised to 21 in 1984. The Federal government did not have the power to mandate that any state raise the drinking age to 21, but it did have the ability to say, if you don’t raise your drinking age to 21, you will get no Federal money for your highways. Since all states need Federal highway funding to keep their roads in good shape, every state complied.
The proponents of Federal intervention in local zoning laws are taking the same approach as President Reagan did with underage drinking in the 80s – if you refuse to comply with Federal mandates, your community cannot access specific Federal funding.
It’s a bit surprising that this issue has largely flown under the national media radar. I’m making you aware of it in this blog because, as both Americans and real estate investors, this is a proposed change to our laws that could significantly impact your day-to-day life.
I have to add that, as you likely already know, Westchester County spent seven years fighting Obama-era Department of Housing and Urban Development (HUD) accusations that the county’s zoning laws were racist. In 2017, HUD agreed that Westchester’s zoning laws were indeed race-neutral. Westchester County refused to give in to the idea that building heights, sewer placements, etc., were “restrictive practices,” and they prevailed.
To refresh your memory, here’s a link to a YouTube video about the resolution of this dispute – Westchester HUD settlement.
If you’re a landlord and no longer have the time or desire to handle rental property management on your own, we can help. Maybe your current property management company is not giving you the top-tier service you deserve. If so, reach out. We are there for you.
Please give me a ring at 914-355-3277 or send me an email at Linda@Sterlingpsi.com. Together, let’s form a plan for you to take full advantage of the current conditions and put in place a robust, long-term program for your success.