Gregg Menell | Source | CEO - Managing Broker at Pendulum Property Group
Gregg Menell
Owner and managing broker of Pendulum Property Group. Attorney and Wharton MBA. Through Pendulum’s “client-first” approach, we act as advisers, not sales people, and deliver unique market insight for better decisions, outstanding client service and greater value than the competition.
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Pendulum Property Group (http://www.penpropny.com)
CEO - Managing Broker
started Oct 2018
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The Federal Reserve’s Interest Rate Increases Create Default Risks In Major Sectors
“Increased borrowing costs will definitely have an impact on those homeowners who have adjustable-rate mortgages,” Gregg Menell CEO, Managing Broker of the Pendulum Property Group told me in a recent interview. He explained that “these borrowers will see a substantial increase in their monthly payments and may be forced to sell. The problem is, where are they going to go? Their next mortgage will be just as expensive, and the rental market is frothy as well.”
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Commenting on the issue, Gregg Menell of the Pendulum Property Group said, “Today’s typical homebuyer wants a “move-in ready” home and is willing to pay a premium for it. A house that needs to be gutted requires time, inconvenience and capital because the renovations performed after the purchase will either have to come from cash on hand or a home equity loan. When buying a new or renovated home, the buyers are able to finance 80% of those upgrades through their mortgage – obviously a more attractive proposition when rates were at 3%. Furthermore, the buyer will likely have to pay for two homes during the renovation, an additional cost and further disincentive to do the work on their own.
Selling to a builder can be attractive because, typically, there are no contingencies (mortgage, appraisal, inspection) and thus less risk. This assumes, however, the seller receives a fair price. The 250+ contracts YTD in Scarsdale were handled by 140+ different buyers’ agents. The best way to ensure a seller receives the highest price is by listing on the MLS so all buyers have a chance to compete. Two of the aforementioned sales were not on the MLS and, thus, the sellers may not have known what the market was willing to bear. Perhaps they opted for an easier sale process and were OK with that.
From a town budget/tax perspective, it is better to have new construction as it will lead to higher tax revenue. But from a diversity perspective, however, it will make it harder for lower income families to join our community.
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Higher interest rates, coupled with the speed in which they have moved, have exacerbated an already challenging housing market. First time buyers, who already faced stiff competition and low affordability given low inventory, are now hampered by the higher cost of capital. The speed at which interest rates have risen has also thwarted homeowners’ plans to sell, keeping inventory low. Downsizers are second guessing making the move because swapping a 3% mortgage for a 6% mortgage reduces the financial incentive to sell. Similarly, the move-up buyer is finding homes out of reach given the higher rates. The gears of the market feel stuck. Until these homeowners can find a place to go that makes financial sense, inventory will likely remain low
In Scarsdale, NY, for example, we had ~120 homes on the market at this time in 2018. We now have just 31. Inventory is anemic and there is sufficient demand to keep prices at current levels, despite the move in interest rates.
