The effect of the debt ceiling on consumer spending & housing

BY PHILIP A. RAICES

We reached our debt spending limit on January 19th but hopefully have enough money to pay our current debts (not new ones). Congress has approximately until June to be able to raise our debt limit; otherwise, the U.S. will be in default on our obligations to pay our bills; an event that has never occurred. However, in 2011, when similar issues arose, the creditrating agency, Standard and Poor’s downgraded the credit rating of the U.S. Government for the first time in its history; although Moody’s and Fitch kept the higher AAA ratings because they felt we were headed in the right direction but were very concerned about our future debt. As I am limited to further explaining as much as I would like, the following 2 links will provide a further clearer understanding published on 11/9/15 and 1/18/23 about our debt crisis then and now: https:// www.gao.gov/blog/2015/11/09/debtlimit-101 https://www.thebalancemoney. com/national-debt-by-year-comparedto-gdp-and-major-events-3306287

Unfortunately, at this point in time, the Republicans are refusing to increase our debt limit unless there are considerable reductions in Social Security, Medicare, Medicaid, and other appropriations and budget considerations already in effect. But what about the military, which they are always in favor of increasing? As one of his concessions to becoming Speaker, McCarthy agreed to a 10-year spending limit for the military based on its 2022 budget that could lead to a 10% decrease in funding; also the GOP also wanted to defund the IRS by 80 billion.

The Democrats, including President Biden, say social benefits are off the table and are totally against this action. So for now they are at an impasse and nothing will get accomplished even though they have some time to figure out an agreement. Now the focus has been obscured by the Biden classified document issues and it will take time away from the debt-limit issue which will add to prolonging and coming to a solution that both parties must agree upon.

The House is controlled by the Republicans and the Senate is still by the Democrats and they are at loggerheads right now. Most current and future issues along with procrastination will be a major enigma as part of their typical modus operandi in the way Congress approaches difficult decisions. Our reckoning and its effect will be upon all of us as crucial agreements and decisions will most definitely have to be made in the very near future. Time will continue to pass as the critical June deadline approaches. Most will go about their daily lives not truly understanding what will happen unless the full Congress authorizes the increase in our National Debt limit.

In 2023 consumer spending will surely decrease as the continued effects of inflation, layoffs, lost businesses, and high-interest rates. Although local real estate has done fairly well with the current demand being what it is during these inflationary times, the lag effect and the time it takes for a greater shock haven’t been totally felt just yet. Unless rates come down and inventory increases, the impact on reduced sales will be felt, especially as demand decreases when individuals and families (millennials and Gen Zs) become less serious about buying and either stay where they are, go into affordable rentals, or leave NYS altogether; as baby boomers are also exiting to reduce their expenses too. Last year had seen a net loss of 180,000 people fleeing NYS, the highest in the U.S. to less costly states, such as Florida and Texas, which had the greatest influx as well as Idaho, South Carolina, and South Dakota gaining too. More info here: https://www.timesunion.com/ state/article/New-York-continues-tolead-nation-in-population-17674233.php

However, in those states where investors and flippers and construction are highly concentrated and have financed e.g., Idaho, Florida, North Carolina, Georgia, Texas, Tennessee, Ohio, Missouri, Indiana, and Alabama noted in an article by KM Business Information US, Inc will have the most difficulty. Refinancing will raise their costs dramatically and finding new buyers and tenants will be extremely challenging as new inventory hits the market. As an example, D. R Horton the largest U.S. builder is having some difficulty selling their newly constructed homes as cancellations were up 32% in the 4th quarter of 2022. That’s up from 19% in the 2021 quarter and 8% above the 3rd quarter cancellation rate. They have resigned to leasing them in certain locations, which has also been somewhat challenging too, such as Dallas-Fort Worth where their corporate office is located, Houston, Austin, Atlanta, and Phoenix; and many more are being completed that will come onto the market in 2023. If you are planning to move now, might be an opportune time to consider those cities to gain a huge advantage in purchasing as they will be much more negotiable as their inventory sits idle and languishes in the market. However, larger investors will be jumping in as potential unemployment increases and in turn, prices come down where they will see their opportunity to buy in bulk and be your greatest competitor. More on D.R. Horton: https://seekingalpha.com/ article/4560677-keep-an-eye-on-drhorton-in-2023

More info on the current and future state of real estate in the U.S.: https://www.usbank.com/ investing/financial-perspectives/ investing-insights/interest-ratesimpact-on-housing-market.html

Also, here is a study completed by the National Association of Realtors on the profile of buyers and sellers back in 2022: https://store.realtor/2022-nar-profile-of-home-buyers-and-sellers-download/

Things will continue to digress this year unless there is a pivot in rates, which isn’t necessarily in the cards at the moment, where the scope and intensity of the recession is still unknown. However, I believe the number one advantage that many Long Island communities possess that keeps and enables those who can truly afford to stay, is top-notch and highly-ranked school districts. Other benefits are the cultural diversity, scenic beaches, and camping, hiking trails, and green spaces. Here are links to many more reasons why to live or move to Long Island: https://www.longisland.com/50reasons-to-love-life-on-long-island. html https://www.luckytolivehererealty. com/blog/top-5-reasons-you-shouldchoose-to-live-on-long-island https://dumbomoving.com/ reasons-why-people-move-to-longisland/

In order to keep more people from leaving, Democratic Governor Hochul has recently proposed 800,000 additional units for middle-income individuals and families as well as lower-income qualified in and around NYC and especially on Long Island. To get this accomplished, usurping, as needed, local restrictive housing zoning regu- lations will be necessary. Long Island Republicans have come out against this potential action, saying there are better ways to accomplish this ever-pressing situation. If so, I would like to know and look forward to when I can read or hear their plans as to what they would be considering; as time is of the essence in our continuing dilemma of lack of housing. This would hopefully stem the tide of those leaving the area.

2023-2025 will be pivotal years for housing and we need our answers today and not sometime in the future when it just may be too late for New York and Long Island.

Continue to Donate to the Ukrainian Crisis and save a life or 2: https://usaforiom.org/iomsukraine-response/

Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 40 years experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S.) and in 2022 has earned his National Association of Realtors “Green Industry designation for eco-friendly construction. He will provide you with “free” regular updates of sold and new homes in your town via the Multiple Listing Service of Long Island (MLSLI) or go to https://WWW. Li-RealEstate.Com and you can “do it yourself (DYI) and search on your own. For a “FREE” `15 minute consultation, as well as well as a “FREE printout or digital value analysis of what your home might sell for in today’s market without any obligation or “strings” attached. He can also provide a copy of “Unlocking the Secrets of Real Estate’s New Market Reality, and our Seller’s and Buyer’s Guides for “Things to Consider when Selling, investing or Purchasing your Home.

You can email or snail mail (regular mail) him with your request or ideas, suggestions or interview you for a specific topic and a Q & A for a future column with your name, email and cell number. He will email or call you back and respond to your request ASAP as long as he has your complete name, cell, email and/or full home or business address. Again, for a “FREE” 15 minute consultation, he can also be reached by cell: (516) 647-4289 or by email: Phil@ TurnKeyRealEstate.Com to answer any of your questions and concerns in selling, investing, purchasing, or leasing residential or commercial property.