James Lane Post
Nov. 19, 2022
Erin Sykes might look familiar if you follow real estate. She is often on business news platforms like CNBC, TODAY, CNN, Bloomberg, Forbes, and many others to discuss the translating of real estate trend data into insights for both industry and the consumer. Why, you ask? She’s the Chief Economist for Nest Seekers International and covers Palm Beach, the Hamptons, and New York City as a broker.
Erin, you must be in a whirlwind of interviews with all the upheaval going on because of the rising interest rates. How are you interpreting the news for luxury markets exactly?
The average 30 year mortgage rate actually dropped 60 basis points from 7.22% to 6.62% on news that inflation rose less than expected in October (with CPI increasing 0.4% instead of the 0.6% estimate). Though the stickiness of inflation is still ever-present, this glimmer of hope is what the markets had been waiting for as we saw the DOW close +3.70%, NASDAQ +7.35%, and S&P +5.54% on Thursday [November 11]. The policy-sensitive two-year Treasury note tumbled 30 basis points, to 4.33%. Inflation is still running at a 7.77% annual rate, well beyond the 2% goal, but the rally served as a bright spot none-the-less, reassuring weary investors that the worst may indeed be behind us.
Thank you for such a deep-dive into the numbers! Is it still devastating when so many luxury properties are purchased with cash or when they can do lower adjustable mortgages and/or refinance in a year or two?
When people “buy in cash” they don’t actually withdraw the money from their account. Most of the time these transactions involve a liquidity credit line, which is a loan against your own assets, or similar. Thus, many of the luxury buyers who are highly invested in the stock market saw a reaction of purchasing power this year as their portfolios took 20%+ hits. At the same time, we saw mortgage rates rise very quickly. ARMS requests thus did pick up, but no where near the rate at which we saw buyers use the tool in 2008.
Inputs into individual mortgage rates go well beyond the Fed Fund Rate, and include metrics on inflation, unemployment and jobless claims, credit scores, down payments, and demand for mortgages. With demand for new mortgages down over 40% from last year, reaching the lowest level since 1997, and refinance demand down 87% from last year, lenders are looking to buy downs and sweeteners to spark interest in the slower market. This is the opportunity many side-lined buyers had been hoping for.
What is the smartest way to use money today in terms of investments and real estate?
Always look for opportunities when others are sitting on their hands. We are not seeing fire-sales, but there is definitely negotiability.
Do you believe there is an impending recession coming and what does the timeline look like from an economist’s viewpoint?
Moving forward, we expect to see a more cautious and less aggressive Fed focused on easing extreme volatility. After four consecutive 75 basis point hikes, it is likely we will see a moderated 50 basis point increase in December, giving Americans time to catch their breadth and monetary policy makers time to see the ongoing, rolling effects of previous decisions. It is clear that we should not interpret a slower pace of rate hikes and moderating inflation as an easing, but more of a plateau and holding patterns to curtail the stickier, long term effects of inflation.
It is very possible that we have been in the actual depths of recession for months, with a stock market bottom already fixed, and Q4 2022/Q1 2023 challenges already priced in. With this comes the nearing light at the end of the tunnel, though we can expect it to take time to unwind and rebalance excess money supply.
We just got out of an unprecedented time of frenzied buying up of real estate on the East End. Inventory is incredibly low and prices are still steady without much movement in coming down. Do you think this will change? Are we back where we were in 2019, pre-pandemic?
Because of persistent inflation, costs to build are still at all time highs. This is helping to hold resale prices more stable. Until inflation slows, we will continue to see higher prices in the luxury market.
In terms of a recession, what are the pros and cons to selling a home in a region like the Hamptons?
Typically, we see more price stability in affluent areas like the Hamptons. That said, higher price points don’t trade as often so you need to allow a longer sales timeframe — the past two years excluded.
Where do you get your numbers for your insights? Are there margins of error or a formula to interpret them?
I pull directly from each local MLS (or a similar outlet like OutEast). Data is only as good as its inputs, because there have been a number of off-market deals in the past couple years, many of these transactions are not captured by MLS. This is where being boots-on-the-ground and working the Hamptons and Palm Beach markets as an agent allows me to see potential trends before they are reported in monthly recaps.
What are some amenities that your clients look for in purchasing a home now that wasn’t the case before?
Large home offices with dedicated Zoom-friendly areas are top of the priority list. Fitness amenities; including pools, gyms, saunas, basketball courts, etc. are not far behind.
It must have been so chaotic when the pandemic happened. How did you deal with all of that and did it change the way you work now post-pandemic?
I thrive in chaos, so I was able to “pull out in front” and build my business exponentially during the pandemic. I expanded my territory to include Palm Beach, Miami, The Hamptons, New York City, and the Jersey Shore. This will allow me to work with the same clients in multiple locations and enjoy living in all my favorite spots as well!