Posts Tagged ‘interest rates’


Saturday, March 7th, 2015

Posted by Leonard Steinberg, president of COMPASS, on March 7th, 2015

As unemployment figures continue to drop, the likelihood of rising interest rates strengthens……and this may cause a spike in pricing as buyers rush to buy to capitalize on the current low (but rising) interest rates. Rising prices may force some to turn to renting, which would further create the imbalance between supply and demand in the rental markets and push renting pricing up. The next 4 months will be very telling indeed.


Friday, April 25th, 2014

mortgages1Posted by Leonard Steinberg on April 25th, 2014

The number of mortgages issued has dropped dramatically compared to a year ago fueling concerns that rising interest rates could have a negative impact on the housing market in general…..the bulk of the drop is attributed to the drop-off in re-financing.  $235 billion in mortgage loans were originated during the first quarter of 2014, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013. Home sales also slowed throughout the country in the first quarter.

Is this the new normal? The era of generally falling interest rates and cheap money that began in 2000 appears to have come to an end, slowing the concept of re-financing which until recently was almost certain to lower your monthly payments. The 30-year fixed-rate mortgage stood at 4.5% last week, up from 3.6% a year ago. 4.5% is INCREDIBLY low on historical standards (Rates were 18.5% in 1981!), yet just like any sale rack, once you start discounting, its only the ‘60% off’ rack that feels cheap after a while. Mortgages for home purchases were basically flat from a year ago yet down from the fourth quarter of 2013. Applications for purchase mortgages last week ran nearly 18% below the level of a year ago.

How will this news impact construction? How will it impact the Fed’s decisions? Has job creation and wages not kept up with the markets to fuel sufficient demand? Will those who own homes with very low mortgage rates be less inclined to move  as they are at risk of spending much more monthly on their monthly payments not only because mortgage rates have risen but also because house pricing has gone up too…..the combination could simply make it un-affordable for many whose wages have not risen the same. In some parts of the country like Florida and Nevada a big chunk of sales over the past 5 years have been to investors and bargain hunters….more than 80% of condos have sold without a mortgage! That inventory of cheap leftovers has dried up, and now the market has to return to a more ‘normal’ setting.

The Manhattan luxury real estate market may not be as adversely affected by this news, although even the bulk of those earning $ 500k+ per year also make their buying decisions based on monthly payments. “Affordable” is not a concept exclusively for the poor. I have too often heard brokers complain that their buyers are not rich enough to buy the apartment they really want: “what is wrong with them????” The reality is we can only afford what we can afford. Critical now is that banks do not loosen up their standards too much to encourage people to live well beyond their means. Those with poor credit scores who have shown a history of fiscal irresponsibility should not be provided loans at the expense of all others: we have been there and done that before and it was UGLY!


Thursday, November 7th, 2013

Posted by Leonard Steinberg on November 7th, 2013

The European Central Bank cut interest rates to a new record low on Thursday, responding to a slump in inflation that has sparked fears the euro zone’s economic recovery could stall. Is this a move as a result of too much government spending and over-taxing? Were taxes raised before these economies recovered? Growth of the economy and balancing budgets is the key to a successful, sustainable recovery: Balance the budget with cuts then move on:  it’s called “personal responsibility” something sorely lacking in our world.  Pandering to different groups for the sake of votes and elections just delays the pain, a pain felt mostly by the people the ‘system’ is trying to help. Governments do not create jobs, they simply transfer wealth and that is not something anyone can live with….most of Europe is BROKE.  If industries and the wealthy move out, jobs go with them and growth declines making things worse. its a cruel system at times but dealing with the truth and reality, however hard it may be, is the only solution. Only once an economy truly improves should you tax higher to curb inflation. Deflation is worse. Record high unemployment in the euro zone is pressuring wages and spending, and banks are still reluctant to lend to the real economy, another key source of growth.

Elected officials should look at this closely: California Governor Brown is doing a remarkable job of being a centrist, pragmatic leader, when all believed he was a nutty left-wing liberal out of control…..California has a balanced budget, a combination of entitlement cuts, tax hikes AND incentives for commerce.  I suspect Mayor-elect de Blasio will be equally smart about our City and economy.


Wednesday, September 18th, 2013

Lehman-collapse-310x333Posted by Leonard Steinberg on September 18th, 2013

This week, five years ago, the global financial crisis reached a fever pitch with the collapse of Lehman Brothers. Today the U.S. Federal Reserve is expected to begin its long retreat from ultra-easy monetary policy by announcing a small reduction in its bond buying, while stressing that interest rates will remain near zero for a long time to come. Most economists expect the Fed to scale back its monthly purchases by about $10 billion, taking them to $75 billion, signaling the beginning of the end to an unprecedented episode of monetary expansion that has been felt worldwide. The cash faucet is being toned down.

The Fed will announce its decision in a statement following a two-day meeting at 2 p.m., and Fed Chairman Ben Bernanke will hold a news conference a half hour later. It is also set to release fresh quarterly economic and interest rate projections. The Fed has said it will not begin raising rates until the unemployment rate hits 6.5 percent, provided inflation does not hit 2.5 percent. August’s jobless rate stood at 7.3% in August.

When they slashed overnight rates to zero in late 2008, the Fed launched an extraordinarily bold campaign to shelter the U.S. economy and included three rounds of bond purchases that more than tripled its balance sheet to around $3.6 trillion, sparking intense criticism from those who feared the measures would create an asset bubble or fuel inflation. But the central bank’s show of force was credited with saving the U.S. and world economies from a much worse fate.

With the U.S. economy now on a somewhat steady, if tepid, recovery path and unemployment falling, policymakers have said the time was drawing near to begin ratcheting back their bond buying with an eye toward ending the program around mid-2014. While U.S. government bond yields and mortgage rates have shot higher in anticipation of less Fed support, the central bank will still be expanding its balance sheet for many more months as it tries to wean the economy and financial markets from its ever-expanding stimulus.

Weaning seems more prudent than slashing, and keeping interest rates low will be important to keep the housing market healthy, where it has already shown some signs of a slowdown in parts of the country. Even the explosively strong Manhattan real estate market is now at a pace that one would term ‘normal’. Now we enter the next major phase of the real estate market where the volume of inventory will rise considerably, although much of it coming from new construction will require long waits for delivery as many of these buildings are expected to be completed 12-30 months from now. With most developers focused exclusively on larger, very high priced apartments, will the market experience over-supply in certain classifications that were once acutely under-supplied?





Wednesday, June 5th, 2013

OB-XS715_RATES_E_20130605133301Posted by Leonard Steinberg on June 5th, 2013

The Wall Street Journal asks the question whether rising interest rates could stop the improving housing markets in the USA. Interest rates have climbed past 4% in the past month. The truth of the housing market is that in the hardest hit areas, prices fell so low as to be below the future expected cash flows from their rental values. So Wall Street stepped in with bag-loads of very cheap cash(yes, that is why it is mostly cash sales because no one else has that kind of cash), to take advantage of these distressed bargains. This could explain why this housing recovery has been so narrow and bifurcated.

If interest rates rise, the return on investment models will become more challenging to hit. It doesn’t matter if they have no “mortgage”, the rate of return is benchmarked versus something and 10-year Treasuries is probably one benchmark used. The buyer needing a mortgage will have tougher hurdles to hit to be eligible under Fannie and Freddie “conforming loan” rules, especially since so many middle class workers are experiencing declining real wages. All of this barely applies to real estate sales in Manhattan, but this could certainly alter the mood of the US markets in general.



Saturday, February 16th, 2013

Posted by Leonard Steinberg on February 16th, 2013

It’s official in the mainstream press(although looking in the rear-view mirror is often a bit late): housing prices across the board are rising: Prices for single-family homes climbed in almost 88 percent of U.S. cities in the fourth quarter as the housing recovery broadened. The best-performing metro area was Phoenix, where prices increased 34 percent from a year earlier. I am estimating escalation in Manhattan this year of around 10-15% and I fear that escalation has already happened, with jaw-dropping speed…….just as we predicted a few months ago. It will take a while for many buyers to adjust to the ‘new normal’. Once upon a time, $ 1,000/sf seemed like a steep price to pay……now that’s what you pay for a storage room. The effects of LUXOFLATION have taken hold. Remember what Mayor Bloomberg said a few years ago: until the housing market recovers, there will be no recovery. Now one could be certain that economic recovery has officially begun.

The median sales price rose from a year earlier in 133 of 152 metropolitan areas measured, the National Association of Realtors said in a report yesterday. In the third quarter, 120 areas had gains. An improving job market and low interest rates are driving up prices by fueling demand for a tightening supply of listings. The national median price for an existing single-family home was $178,900 in the fourth quarter, up 10 percent from the same period last year. That was the biggest gain since 2005, according to the Realtors group.

So what’s next? Rising interest rates? Sub-prime mortgages? Excessive home equity loans? Hopefully the folly of previous cycles is not repeated…..


Friday, September 21st, 2012

Posted by Leonard Steinberg on September 21st, 2012

Interest rates are at record lows, so financing a property today is more affordable than ever. Here are some disturbing facts to absorb:

1)  Is everyone who has a mortgage and takes the tax deduction part of Mitt Romney’s 47%?…..the mortage deduction is a government subsidized handout….basically. I know many New York real estate owners who take this ‘handout’ who would never vote for Obama…. How disgraceful and stupid of Romney not to see this and a host of other government handouts and ‘breaks’ that benefit more than just Obama voters….and how absurd of Obama to ‘feel’ for the poor 47% when so many of them are not poor at all. Both look ridiculous!

2)  Yes, mortgage rates are super-low….but QUALIFYING for a mortgage is much, much tougher (a good thing!)….so ultimately the beneficiaries of low interest rates are primarily the wealthy. Some of the requirements to qualify for a mortgage these days border on the absurd, and the appraisal process has become a bit of a joke.


Friday, September 14th, 2012

Posted on September 14th by Leonard Steinberg

Fed. chief Ben Bernanke delivered some great news for the financial markets and especially real estate land: he plans on keeping interest rate low ‘well into 2015′:  That bodes especially well for New York real estate buyers who currently confronted with ultra-limited inventory of existing apartments will feel safer buying into the new slew of new construction buildings (150 Charles Street, 560 West 24th Street, 7 Harrison Street, 71 Laight Street, 1107 Broadway, etc) that will only be deliverable 12-24 months from now. The effects of these comments on the stock market did not hurt either….

Much of this promise will depend on whether Bernanke is still the Fed chief in 2015….Of course, Bernanke could always serve a third term as Fed chairman. But there are two problems with that. First, he’d have to be offered the job, something Republican presidential nominee Mitt Romney has vowed not to do. Its also not clear if Bernanke would even take the job. He has not commented on the matter publicly, but acquaintances speculate that he wouldn’t.


Wednesday, January 25th, 2012

Posted by Leonard Steinberg on January 25th, 2012

Some good news for the real estate markets (and markets in general): To-day the Federal Reserve pushed back the likely timing of an eventual interest rate hike until late 2014, much later than it had previously said, as it nurses a still-sluggish economic recovery. In a historic step toward greater transparency, the Fed announced an official inflation target of 2 percent. Three of the 17 policymakers expect rates will need to rise this year and two others did not see any increase until 2016.

Low interest rates are historically good for the residential real estate market, and this indication for the future is healthy, although it certainly will remove any urgency a buyer may have had they believed a rates rise was imminent.  For new developments it is especially important, as a buyer committing to-day to buy in a new building that could only close in 2013 or 2014 has some measure of re-assurance that rates will not rise, or rise significantly at the time they are ready to close.

Now lets hope that 2% inflation target can be maintained: all indicators in Manhattan lead me to believe otherwise. Then again, the official inflation rate does not take into account the cost of housing, fuel or food (believe it or not!) even though rents and food costs rose close to 10% in 2011 in New York.


Tuesday, November 2nd, 2010

What will be the results of to-day’s election?  Chances are we will see a distinct shift to the right nationally, although locally the shift will be less pronounced we imagine. How will this all affect New York real estate?  Here are our predictions:

1)  GREEN BUILDING: This area will be less supported by the Federal government, although we think the movement is so strong already, private enterprise will trump government and the shift towards more self-sustaining green construction will continue and escalate regardless. Private enterprise is ruled by profits, and green building, while expensive at first, may just be cost-effective over the longterm. And the New York luxury buyer is beginning to demand it.

2)  TAXES: A lesser tax burden on New Yorkers will only fuel more spending. That cannot hurt. If (IF) corporations feel they will have a lower tax burden, they may actually start spending the trillions of dollars they have stashed away…..that could fuel jobs, corporate profits, and corporate spending on equipment and infrastructure. More jobs means fewer people reliant on the State’s coffers….more money in Albany  means less stress on the State to further raise taxes (we pray!). All of this adds up to more money for real estate.

3)  INTEREST RATES:  With tighter fiscal policies, it may be possible that we will see the end of the very low interest rates, especially if any signs of inflation appear.

So what do you think will happen after this election?