Sholom and Shani Schiff, otherwise very happy newlyweds, were concerned about housing. Everyone was talking about the rapid rise in home prices—a townhouse in Lakewood now cost as much as a mansion did just a few years ago! Even further away from the center of town, the prices were astronomical. Although their rental was fine, they worried where the market was headed.
Would this real estate boom soften, or did they miss their chance of ever owning their own home?
First, a Mashal
If I asked you to predict the weight a particular baby will reach each year of its future life, how would you answer that question in a thoughtful way? The first year of its life, a baby grows very rapidly, but clearly, it’s not going to continue tripling in size forever. On the other hand, you know that barring some catastrophe, this baby will definitely get much bigger over the years.
You may look at some general statistical data and the baby’s gene pool. But even siblings can have wide disparities in body weights, and there’s definitely no predicting how much pastrami and kishke this baby will consume down the line.
Clearly, predicting even this relatively simple matter is quite hard. You know with almost certainty where things are headed, but at the same time, have little specific clarity.
Booms Can’t Last Forever
Similarly, it’s a lot easier to predict that housing prices in frum areas will generally, over the long term, rise considerably, but it’s almost impossible to predict where precisely the numbers will be month by month and year by year. During an extraordinary boom, it may feel like real estate prices will continue flying upward forever, but just like human beings’ weights, prices can’t triple every year indefinitely. At some point, desirable real estate becomes out of reach and prices slow down, or even fall.
Booming Frum Demand
It’s so hard to predict short-term investment pricing because so many variables play a role. Demand for homes is obviously a huge component that drives pricing. In frum communities, we tend to have large families and cluster together, so it’s easy to predict that long-term demand will be strong and prices will rise accordingly. Barring some catastrophe or unusual behavioral shift, prices in frum areas will be higher in the long run, which is why most frum families should buy homes once they are settled in.
Things Do Change
But even frum housing demand changes. For example, over the past decade or so, demand for housing in Brooklyn has eased a bit as other areas became relatively more attractive, such as Staten Island and Lakewood. Lakewood now has similar characteristics to the Brooklyn of 30 years ago, with booming demand driven by the growth of spiritual and material opportunity. It’s anyone’s guess where and by how much demand will shift to less expensive and less crowded areas.
Big Supply Increases
That leads us to the knotty question of supply. As Lakewood’s surrounding towns become more hospitable for Orthodox Jews, the supply of desirable housing increases. And as pricing in Lakewood and immediately adjacent neighborhoods explodes, it becomes more and more attractive to leapfrog further out. This kicks off a virtuous cycle where development of Orthodox infrastructure makes the less crowded areas more desirable and a better relative bargain, so demand goes up, bringing in even more infrastructure and home development. At some point, new supply options can take the edge off price increases or even lead to lower prices in the most expensive spots.
Even Out of Town
Similarly, the ever-higher prices and crowding in Lakewood and Brooklyn makes it more attractive to settle in burgeoning out-of-town communities. Especially with regard to states that have tuition vouchers and politicians that are more welcoming to conservative values, it’s becoming much more typical for young couples to consider out of town a preferred option, not a b’di’eved. If frum infrastructure grows rapidly elsewhere, a changed mindset about community options could alter local supply and demand significantly over time. Lower local demand could then further ease pricing pressures.
National Variables Matter Too
Beyond our internal factors, significant cost variables affect real estate on a national level. Escalating construction costs has been a major issue pushing housing prices higher all over the US, albeit not at the same rates. Where are prices for lumber and cement headed down the road? And how about the availability of excavators, carpenters, plumbers, electricians, HVAC technicians, etc.? I don’t think anybody knows the precise answer to these questions, though some pundits will express their opinions with great confidence.
Interest Rates
There’s also always uncertainty about interest rates. Because real estate is so heavily dependent on mortgages, the price of homes are tightly intertwined with the price of money. When rates were rock-bottom, people of modest means were able to swing even more expensive homes, pushing prices up. This trend has reversed strongly now. Consider what happens when the possibility facing a young couple switches from buying a townhouse for $400,000 at 3% to buying the same townhouse for double the price and double the rate. At some point, the monthly payments become prohibitive, and many buyers are priced out. So, prices ease or even fall.
So, where are interest rates headed? How high will they go and for how long? Nobody knows for certain.
Navigating Uncertainty
If you were hoping for a black-and-white answer, I’m sorry to have disappointed you. The real world is far grayer than most people recognize. It’s extremely difficult to predict, which is why making decisions about real estate, or any investment for that matter, is never black and white. If you need a home and can afford the mortgage, you should probably buy one. Even if there’s a chance you may come out ahead by waiting, you may also end up priced out of the market, which is a much worse proposition.
Without Panic
On the other hand, I’m a bit skeptical about people panicking and grabbing a house at any price, in any neighborhood, even though they are not really ready for this major financial step. Unless you have your heart set on a specific area which may indeed become unattainable at an affordable price, it’s almost certain that new neighborhoods with reasonable pricing and infrastructure will open up down the line. I can hear the argument that it’s worthwhile to buy a house and rent it out to hedge your bets, but recognize that while you may come out ahead with this strategy, you may come out behind too. Either way, panic is never a good thing.
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