Downward Pressure on Real Estate

Rising Costs

Interest rates were expected to go down this year. Inflation was supposed to subside. Oil was supposed to remain stable. All of that changed when the US and Israel decided to take action in Iran. Since then, oil has risen, understandably. Unfortunately, rising oil prices have led to rising inflation, which has lead to rising interest rates. When we get a new Fed Chairman it was widely expected the Fed would begin reducing rates sometime this year. That may be off the table. Some say rates may need to rise again.

Alternative to Raising Interest Rates

The Fed could vote to raise interest rates, but we think the more likely scenario is to lower the Fed’s balance sheet through quantitative tightening. This is a process whereby the Fed reduces its holdings of mortgage-backed securities, which inevitably would lead to higher mortgage rates. The difference is that rising rates would be set by the market, not the Fed. The Fed is still in restrictive policy at the stated rates. This would buy time until we see if oil prices level out or decline.

Venezuela

Believe it or not, Venezuela may be key to lower oil prices in the US if they can increase production. Many people ask if the United States is a net producer of oil, why are our gas prices going up? The truth is, the United States hasn’t built a refinery in almost 50 years. Oil has been frowned upon for a while. Permits are hard to get, and capital has been reluctant to invest given the backlash against oil.

Many US refineries were designed to refine heavier lower quality crude oil from countries like Canada and Mexico. We are forced to export much of our oil due to refinery limits, so essentially, it’s like trading better oil for heavier oil. If we had more refining capacity for our own oil, we could use more of our own oil.

We are building a new refinery in Texas for the first time in a while, but it won’t be online until 2029. This is where Venezuela comes in. If we can help them increase their production, more of that oil can find its way to the US. Remember, Venezuela stole our oil companies’ property and did not reinvest, so their oil capacity fell off even though they hold the richest reserves in the world.

Energy Holds the answers

When we get oil stabilized, this will help the US and our economy. We were on a good path. As AI increases, energy will be the key driver in a country’s success. The Southwest Florida real estate market has been resilient. It feels like it was about to go on a run. The good news is, whenever we come out of energy stalemate, Southwest Florida may do better than other areas of the country. We were down when everyone else was up due to hurricanes. It’s our time to rise, if we can get the stars to align.

Thinking of Selling? Call Sande Ellis or Brett Ellis at 239-489-4042 and learn how to make your home visible to the AI Algorithm. Or visit www.SWFLhomevalues.com for an instant online value estimate. Of course, for the best estimate, talk to Brett of Sande. Don’t let the downward pressure on real estate hold your home sale back.

Good luck, and Happy Selling!