All things real estate: Can’t buy a home, condo or co-op?

All things real estate: Can’t buy a home, condo or co-op?
Philip Raices

Millennials, Gen Z and Gen X are struggling to be first-time homeowners.  But due to steep student loans, credit card debt and salary levels, they are unable to save enough for a down payment, let alone pay back the money they owe.

This has become particularly challenging over the last 10 years as the COVID-19 pandemic has caused a paradigm shift not ever seen before. People were leaving large populated and crowded cities to escape being near other humans to reduce the possibility of becoming infected.

Those who could exit probably were in much better financial shape than most.  They began gobbling up the available housing stock, on Long Island and across the U.S., causing prices to spike and escalate at an abnormal rate.

So as inventory was reduced year over year during the last four years, prices went in the opposite direction, up and up.

What also fueled this volatile environment were rates that were reduced to never-before-seen lows of 2.5%, as my daughter and son-in-law were lucky to take advantage of purchasing a new home.

As they say, luck is timing and that’s all it is.  Sometimes being in the right place or knowing how to be in that right place at the right time creates your luck.

To add insult to injury there was the physical and digital creation of excessive sums of currency by our government out of thin air, (not backed by anything but the good faith of the U.S. government) providing life-lines — or what I would call “giveaways” — to so many, who may or may not have needed that capital.

It surely created a perfect storm for our inflation problems.  Everyone appeared to be flush with spendable dollars, and there began the supply chain issues of too many purchasers with money chasing a limited availability of goods.

So many were no longer in the employment arena, thereby not producing or handling goods and services.  Everything began snowballing and spiraling out of control in an extremely destructive and chaotic situation.

Supply shortages occurred not only here in the U.S. but globally.  People stopped working for a time and driving and traveling less and less. I remember reading in July 2020, that West Texas Crude, the benchmark for American oil prices, went to zero dollars and sellers had to pay the buyers to take it off their hands because there was nowhere to store it.

Moreover, I also remember purchasing gas out on the North Fork of Long Island for $1.97 per gallon and I am sure some of you did, too.   Things sure did look quite bleak.  But today with everyone back out driving, flying, and traveling all over, crude oil is approaching $80 per barrel and who knows what the price will be by the time you read my column.

It’s always about supply-demand economics.  High demand with a lack of supply raises prices; low demand and excess supply lowers prices.

There are other paths that Millennials, Gen Z, and Gen X can take under the current economic conditions to improve their future without purchasing a home, condo, or coop.  Look at other assets that are much less costly and will be a future hedge against inflation and the potential devaluation of the dollar going forward.

Hard assets are the name of the game.  Educating oneself to have a solid safety net for your current dollars would be a very prudent course of action.

Throughout history, gold, silver, and other precious metals have been an excellent hedge against inflation.  They have increasingly been used in the industrial production of cars and in their catalytic converters, computers, and many other components and processes.  However, we now have cryptocurrencies such as Bitcoin, Ethereum, and other digital assets that appear to be taking hold not only locally in the U.S. but also around the Globe.

China has outlawed Bitcoin, as I believe that it was a threat to their Renminbi (RMB), which is the official currency of China called the Yuan, the principle unit of account for that currency.

Doing your research and gaining the education and knowledge, will go a long way in ascertaining and determining where to invest your additional dollars compared to letting them sit in your bank, gaining very negligible interest.

With our current rate of inflation of 3.9% (closer to 8%+ when you factor in shelter, energy, and food costs into the equation), your loss is about 7.5% of purchasing power just this past year.

Not only that, you are paying income taxes on the measly interest that you are receiving, so you are in a losing position as your money continues to lose its value year in and year out.

Even quality stocks that pay dividends will outshine your bank interest rates. By diversifying, there hopefully will be a day, when your future wealth will continue to accumulate to a point where homeownership will become a reality.

More importantly, if you have sufficient funds in your Roth or regular IRA or Pension Plan, as a first-time purchaser you can use that money to buy a home, also for continuing education and medical purposes.

You should seek out your financial planner or CPA to further discuss your options and some may be in a much stronger position to purchase.  Lastly, some sellers will provide financing, to reduce and defer their capital gains taxes on the sale of their home.

If you need any assistance or advice or need recommendations for a CPA or CFP (Certified Financial Planner),  call me for a consultation.

Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. For a free 15-minute consultation, value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: [email protected] or via https://WWW.Li-RealEstate.Com

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