Staten Island real estate

How the Federal Reserve's Anti-Inflation Strategy May Impact Staten Island Real Estate

  • George K. Wonica Sr.
  • 09/15/23

Inflation has wreaked havoc on the economy in the last few years. Consumers have witnessed the prices of everyday items skyrocket. While these price hikes greatly impact any family's discretionary spending, it has an even more profound impact on large purchases, such as real estate. All areas of the country, even relatively affordable areas, such as Staten Island, have been subject to the effects of massive inflation.

Generally speaking, inflation has an inverse relationship with demand; as inflation rises, home demand decreases. This drop in demand is often the result of consumer uncertainty. They are much more reluctant to purchase a home in turbulent economic conditions as the value could drastically drop. Additionally, when inflation rates are high, the dollar's buying power is reduced, meaning consumers get less for their money than when inflation rates are low. Therefore, many potential homebuyers opt to 'wait out' the conditions of inflation to purchase at a more favorable time.  

The Federal Reserve's anti-inflation strategy relies on flexible average inflation targeting (FAIT), with which the Fed has stated it hopes to achieve an average inflation of 2%, considered the ideal inflation rate. The Federal Reserve will use monetary policy to support this strategy, which controls the money supply and amount of credit available in the market. 

Ultimately, the Federal Reserve's monetary policy will impact interest rates by setting the federal funds rate, which also impacts the rates available to commercial and personal borrowers. We see this principle at work in recent actions by the Federal Reserve. The establishment has raised the federal funds rate ten times throughout 2022 and 2023, most recently in June. Currently, the Fed is in a holding pattern and has stated that there will be no changes in the interest rates for the time being.

While there are no more planned interest rate hikes in the foreseeable future, it is still true that 30-year mortgage rates are averaging over 7%, which is the highest level seen in over twenty years. And the reality is that this has put a huge damper on homebuilding and homebuying activities.

But what does that all mean for Staten Island real estate? Like other areas of the nation, supply exceeded demand for homes in Staten Island, which pushed home prices up between 2020 and 2022. Demand has dropped since the Fed's policy has resulted in higher interest rates than we have seen in decades. People just aren't willing to purchase a home in these economic conditions. And who can blame them? According to the National Association of Realtors, the average monthly mortgage rose 85% from $1,212 in January 2022 to $2,243 in August 2023.

However, some savvy homebuyers have recognized that the real estate market is stabilizing with the anti-inflation strategy in place. They also realize that even if they enter into a mortgage at a higher interest rate than during other times, refinancing is still an option when the interest rates inevitably fall again. It may be better to secure the home now while demand is low than to compete with many other purchasers when the demand drops. To learn more about the Staten Island real estate market, contact Wonica Realtors today!

Wonica Realtors & Appraisers are Staten Island's #1 independent full-service real estate firm, serving the needs of the community for over 30 years. Whether you are buying, selling, renting, or relocating, our staff of highly trained professionals will provide quality realty services with personal attention to your individual real estate needs.

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