Feeling the pinch: High home prices, inflation impacting Long Island real estate

For six months, Sandra Bryan and her husband, Neil, have been looking for a house to buy before August, which is when they must vacate their rented home in Huntington.

Their $450,000 budget would have been considered a healthy one two years ago for the neighborhoods they’re considering on the south shore of Suffolk County, but they have been finding it very difficult to find a three-bedroom home.

“We’ve been having a lot of roadblocks,” Bryan said. “We bid and then someone else bids more than us.”

The stress the Bryans are feeling is just one type of squeeze that homebuyers are facing as they also contend with rising interest rates and inflation.

Long Island home prices hit record highs in May, with the median sale price in Nassau County reaching $686,000, or 8% higher than the median in May 2021 and the Suffolk median sale price reaching $555,000, or 11.2% higher than a year earlier, according to OneKey MLS.

And the combination of higher home prices and higher interest rates — mortgage rates climbed to 5.91% last week — means people are paying more for their monthly mortgage payments than a year ago. 

This all comes as inflation recently hit a new 40-year high of 8.6%. Americans are feeling the pinch as the price of groceries, gas, lumber and paint has skyrocketed and are not only looking for ways to save by postponing vacations or a haircut or buying a new car, but are also putting off home repairs and renovations on homes.

High inflation and future expectations that inflation will be elevated have caused mortgage rates to rise, and that means Long Islanders buying a house now will have higher monthly payments.

Postponing repairs

As the owner of a home improvement company, Chuck Mastro would typically not have any problem fixing up his mother-in-law's Hampton Bays summer house that he is trying to sell, but the cost of materials is “ridiculously inflated right now,” he said.

“At one point we were thinking about replacing the shingles with vinyl siding, but after COVID, the prices of everything went through the roof, so we decided not to do that,” said Mastro, 59, who owns Talex Home Improvement of Roslyn Heights. Instead, he will replace old shingles and repaint the exterior.

The cost of plywood to replace a rotted subfloor on another job: $200 instead of the usual $75, he said. To fill up his truck with gas used to cost $75 and now it costs $130. And while the cost of lumber came down in May to $651 per 1,000 board feet from a peak of $1,329, according to NASDAQ, it's still higher than it was pre-pandemic.

“Most people understand what’s going on” when he quotes a price for a project, Mastro said. “Hopefully things settle down but who knows, things are crazy right now.”

Stephen Zappalla, an agent with Keller Williams Realty in Suffolk, said one seller, when faced with a nearly $250,000 quote to add a dormer and do a kitchen renovation, decided to hold off for now.

And the high cost of renovations has prompted some sellers to change their minds about putting their homes on the market, Zappalla said, exacerbating the problem of low inventory.

James Hogan, an agent with Daniel Gale Sotheby’s International Realty in Westhampton Beach, said homeowners are opting for small touches, like painting, forsaking the larger renovations they did at the beginning of the pandemic. “I don’t see people gutting kitchens, unless they’re flipping houses,” he said. “I think we’re back to pre-pandemic levels of smaller repairs.”

Higher interest rates

Joyce Coletti, a Douglas Elliman real estate agent in Long Beach, said her buyers are mostly first-time homeowners who are having a problem with the interest rates going up.

“What I am seeing is a complete change in the market from last year,” she said. “Everybody was buying. Everybody.”

Rick Moro, a 50-year-old engineer, recently bought a house in East Atlantic Beach for about $800,000 and just listed his Long Beach house.

“When I found this new property, I saw interest rates going up three months ago, and within a month they went from 3 to 4%,” he said. “If I didn’t lock in a month ago, it would have impacted me a lot.”

Last year, he co-signed a loan with his two daughters in their early 20s to buy a house in Lynbrook. They didn’t have the money to buy themselves, and instead of them renting or staying at home, he helped back them when interest rates were much lower.

Priced out

“More people are being priced out of the market,” said William Jacobs, an agent with Keller Williams Realty Greater Nassau. “They were qualified six months ago, now they can’t afford it.”

The inflated prices are hurting buyers in the middle- and lower-income brackets, those with budgets under $600,000. “They get the rude awakening that the payment will be additional from what they were paying six months ago,” he said.

Kelly Knowles, a dental assistant, and her fiance, Al Stoliarov, an electrician, have postponed their wedding after a fruitless eight-month search for a house in the West Babylon and Lindenhurst areas, where each lives with their parents.

They’re looking in the $450,000 to $500,000 range, a budget they were optimistic about when they started their search. But a two-bedroom house near her parents in West Babylon went into a bidding war that sold for $30,000 over asking, putting it around $500,000. 

“It was ridiculous,” Knowles said. “That house was probably under $300,000 in 2019.” They have shifted their search to Centereach and Selden.

Even with their combined incomes, which she gave in the $160,000 to $180,000 range, buying a home is “going to be very, very tight,” she said. “I feel extremely stuck. I’m 33, he’s 34 and at this point living on Long Island is almost impossible.”

“Because of rising interest rates, buyers are losing out on purchasing power,” Zappalla said. “We’re seeing that every single day in this market.”

A buyer approved for a $500,000 loan six months ago with a 3% interest rate may now have it dropped to $450,000 with an interest rate in the 6% range because they’re only approved for a certain debt-to-income ratio. Lenders typically say the ideal debt-to-income ratio should be no more than 28%, or 36% including all expenses, according to Bankrate.com.

“Deals have died that have been under contract,” Zappalla said.

He advises buyers to speak to their loan officers to get their numbers reverified every month or so. “You don’t want to put an offer in and you find out that you’re not approved anymore because interest rates went up,” he cautioned.

For the Bryans, their house hunting has felt even more frustrating as they contend with rising home prices as well as the family’s FHA loan, a mortgage insured by the Federal Housing Administration, which has deterred some sellers. With an FHA loan, properties can’t exceed certain price maximums, a problem in a highly competitive and inflated housing market.

Sellers have told them they’re going with a buyer with a conventional mortgage or an all-cash offer.

“It’s like a rat race,” said Sandra Bryan, 54, a medical biller and coder, who emigrated from Jamaica about a decade ago with her husband, 47, who works in information technology. “We’re regular people who work hard — and we’re almost out on the street.”

They have been renting a home in Huntington for about five years with their grown children and have been searching in Huntington, Deer Park, Lindenhurst, Bay Shore, Wheatley Heights, Babylon, Amityville, Massapequa, Farmingdale and beyond. This would be their first time buying a house, something that would be “really life-changing for us,” Bryan said.