NYC Real Estate and Inflation

One year ago this month my phone stopped ringing, today the real estate market in NYC has shown a pulse. In the last month we have seen increased web traffic and a flurry of signings of sales contracts in the normally slow summer months. Overall, according to Street Easy.com there were 838 contacts signed in  August, up 27.2% from the same month a year ago. The big question preoccupying everyones minds is whether this upturn is here to stay or only a pause in a bear market that will last for years. David Dreman from Forbes  magazine put it better than I could he said, “In the end you can’t obsess over figuring out the answer. Markets are unpredictable. Instead of trying to time the market, think about what is going to happen over the next decade and how you will cope with it. You should be thinking about the purchasing value of the dollar. Central banks, including our not-so-omniscient Federal Reserve, will again fail to take the punch bowl away from the party soon enough, keeping stimulative polices going far past the point when unemployment has turned a corner and the financial debacle is behind us. Treasury Secretary Geithner and Fed boss Bernanke are trapped by politics and events. They make pronouncements downplaying the inflation threat, but inflation will hit like a tsunami within three years, maybe sooner. What do you do to defend yourself? Buy stocks, buy real estate and sell bonds…. If inflation hits hard, the chief culprit of the bear market–real estate–is likely to be one of the best investments in the years ahead. Buy a home if you don’t already have one or a second home if you can afford one.”

I don’t know if he is right or wrong but I will say that interest rates are at an all time low, prices are down 20% and though this recent flurry of residential activity has decreased inventory there are a lot of good apartments to choose from. Obviously I am a broker and I want you to buy but David Dreman is right, inflation will play a part in all of our financial futures and if inflation rises buying a home at a 10 year low with a mortgage rate of 5% is a great financial play.

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