Published: October 31, 2023 | Updated: November 7, 2023

'If not now, when?'

Raphael Barta

Raphael Barta

I have been active in the real estate industry as a developer and as a broker, for many years. I cannot recall a time when headlines advised buyers to stay on the sidelines, and sellers to tread water. This sentiment applies to the single-family housing market, to commercial properties, and to vacant land. Apparently, according to the general media, most real estate is over-valued, and yet apparently there still isn’t enough of it on the market. There are so many contradictions in the data that it is almost impossible to make sense of it.

The obvious issue is interest rates of course: that gets all the worrisome coverage. But there were healthy functioning real estate markets — and affordability — long before interest rates were 2%. In fact the ultra-low rates of the past several years are the anomaly: the economy did pretty well with rates far above that. And if the majority of would-be participants (buyers & sellers) listen to this advice, won’t that just cause a surge in demand when the media signal that it’s now ok to jump back into the market? The last meeting of the Federal Reserve, the folks responsible for the interest rate shenanigans, seemed to resolve the inflation target rate of 2% was being achieved, and perhaps their scorched earth policies would not result in a recession after all. Their “soft landing” was standing right there next to that unicorn. But the labor market and consumer spending remained buoyant, and perversely, this sign of regular people doing alright makes them nervous.

Every couple weeks the Fed holds a Treasury bond sale: this is how the US finances its $33 trillion debt. At the last such sale, the underwriters were forced to hold a large percentage because fixed debt with reckless government spending coupled with rampant inflation erodes the value of a longer term bond. But that sobering fact of lackluster demand did not get to really make an impact because Hamas decided to commit the insane atrocities of the Oct. 7 invasion of Israel, and once again the ten year Treasury became a safe asset in a crazy world. Mortgage rates tend to track that ten year T-bill rate, and mortgage rates are what economists call “sticky downward” i.e. once the mortgage lender sees a nice fat 7.5% they’re reluctant to trim it back.

This is true of all lending: the cost of money, whether it is for a home mortgage or financing a business, is not going to collapse downward. Successful homebuyers and successful small businesses will thrive even with 8% interest rates because they are not over-leveraged and have the cash flow to service higher interest payments. The 2% rates were an artificial stimulant, a subsidy.

So amidst all this uncertainty, what gives? As far as I can tell, there has been no improvement in the quality of life in the major urban centers (like Portland, San Francisco, Los Angeles, etc). And, there has been no deterioration in the quality of life here in North Idaho. The COVID pandemic and the remote work movement opened people’s eyes that there are better ways to live. These large urban centers face huge challenges in crime, homelessness, the deterioration of the social fabric.

Our challenges here are different — we have opportunity challenges — we can build the kinds of communities we want here. It takes leadership and nerve and determination, all of which we have plenty of. So, if not now, when? Let’s do it!

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Raphael Barta is an associate broker with a practice in residential, vacant land and commercial/investment properties (raphaelb@sandpoint.com).