Real Estate Information Archive

There are two crises in this country right now: a health crisis that has forced everyone into their homes and a financial crisis caused by our inability to move around as we normally would. Over 20 million people in the U.S. became instantly unemployed when it was determined that the only way to defeat this horrific virus was to shut down businesses across the nation. One second a person was gainfully employed, a switch was turned, and then the room went dark on their livelihood.

The financial pain so many families are facing right now is deep.

How deep will the pain cut?

Major institutions are forecasting unemployment rates last seen during the Great Depression. Here are a few projections:

• Goldman Sachs - 15%
• Merrill Lynch - 10.6%
• JP Morgan - 8.5%
• Wells Fargo - 7.3%

How long will the pain last?

As horrific as those numbers are, there is some good news. The pain will be deep, but it won’t last as long as it did after previous crises. Taking the direst projection from Goldman Sachs, we can see that 15% unemployment quickly drops to 6-8% as we head into next year, continues to drop, and then returns to about 4% in 2023.

When we compare that to the length of time it took to get back to work during both the Great Recession (9 years long) and the Great Depression (12 years long), we can see how the current timetable is much more favorable.

Bottom Line

It’s devastating to think about how the financial heartache families are going through right now is adding to the uncertainty surrounding their health as well. Hopefully, we will soon have the virus contained and then we will, slowly and safely, return to work.

With over 90% of Americans now under a shelter-in-place order, many experts are warning that the American economy is heading toward a recession, if it’s not in one already. What does that mean to the residential real estate market?

What is a recession?

According to the National Bureau of Economic Research:

“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

COVID-19 hit the pause button on the American economy in the middle of March. Goldman Sachs, JP Morgan, and Morgan Stanley are all calling for a deep dive in the economy in the second quarter of this year. Though we may not yet be in a recession by the technical definition of the word today, most believe history will show we were in one from April to June.

Does that mean we’re headed for another housing crash?

Many fear a recession will mean a repeat of the housing crash that occurred during the Great Recession of 2006-2008. The past, however, shows us that most recessions do not adversely impact home values. Doug Brien, CEO of Mynd Property Management, explains:

“With the exception of two recessions, the Great Recession from 2007-2009, & the Gulf War recession from 1990-1991, no other recessions have impacted the U.S. housing market, according to Freddie Mac Home Price Index data collected from 1975 to 2018.”

CoreLogic, in a second study of the last five recessions, found the same. Here’s a graph of their findings:

What are the experts saying this time?

This is what three economic leaders are saying about the housing connection to this recession:

Robert Dietz, Chief Economist with NAHB

“The housing sector enters this recession underbuilt rather than overbuilt…That means as the economy rebounds - which it will at some stage - housing is set to help lead the way out.”

Ali Wolf, Chief Economist with Meyers Research

“Last time housing led the recession…This time it’s poised to bring us out. This is the Great Recession for leisure, hospitality, trade and transportation in that this recession will feel as bad as the Great Recession did to housing.”

John Burns, founder of John Burns Consulting, also revealed that his firm’s research concluded that recessions caused by a pandemic usually do not significantly impact home values:

“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”

Bottom Line

If we’re not in a recession yet, we’re about to be in one. This time, however, housing will be the sector that leads the economic recovery.

Some Highlights

• Expert insights are painting a bright future for housing when the economy bounces back – and it will.
• We may be facing challenging economic times today, but the housing market is poised to help the economy recover, not drag it down.
• Let’s connect to make sure you’re informed and ready when it’s time to make your move.

The Coronavirus (COVID-19) has caused massive global uncertainty, including a U.S. stock market correction no one could have seen coming. While much of the news has been about the effect on various markets, let’s also acknowledge the true impact it continues to have on lives and families around the world.

With all this uncertainty, how do you make powerful and confident decisions in regard to your real estate plans?

The National Association of Realtors (NAR) anticipates:

“At the very least, the coronavirus could cause some people to put home sales on hold."

While this is an understandable approach, it is important to balance that with how it may end up costing you in the long run. If you’re considering buying or selling a home, it is key to educate yourself so that you can take thoughtful and intentional next steps for your future.

For example, when there’s fear in the world, we see lower mortgage interest rates as investors flee stocks for the safety of U.S. bonds. This connection should be considered when making real estate decisions.

According to the National Association of Home Builders (NAHB):

“The Fed’s action was expected but perhaps not to this degree and timing. And the policy change was consistent with recent declines for interest rates in the bond market. These declines should push mortgage interest rates closer to a low 3% average for the 30-year fixed rate mortgage.”

This is exactly what we’re experiencing right now as mortgage interest rates hover at the lowest levels in the history of the housing market.

Bottom Line

The full impact of the Coronavirus is still not yet known. It is in times like these that working with an informed and educated real estate professional can make all the difference in the world.

Some Highlights:

• If you’re thinking of buying a home and you’re not sure where to start, you’re not alone.
• Here’s a guide with 10 simple steps to follow in the homebuying process.
• Be sure to work with a trusted real estate professional to find out the specifics of what to do in your local area.

The housing market has started off much stronger this year than it did last year. Lower mortgage interest rates have been a driving factor in that change. The average 30-year rate in 2019, according to Freddie Mac, was 3.94%. Today that rate is closer to 3.5%.

The Census Bureau also just reported the highest homeownership rate since 2014 for people under 35. This is evidence that owning their own home is becoming more important to Millennials as they reach the age where marriage and children are part of their lives.

According to the latest Realtors Confidence Index Survey from the National Association of Realtors (NAR), buyer demand across the country is strong. That’s not the case, however, with seller demand, which remains weak throughout most of the nation. Here’s a breakdown by state:Demand for housing is high, but supply is extremely low. NAR also just reported that the actual number of homes currently for sale stands at 1.42 million, which is one of the lowest totals in almost three decades. Additionally, the ratio of homes for sale to the number purchased currently stands at 3.1 months of inventory. In a normal market, that number would be nearly double that at 6.0 months of inventory.

What does this mean for buyers and sellers?

Buyers need to remain patient in the search process. At the same time, buyers must be ready to act immediately once they find the right home.

Sellers may not want to wait until spring to put their houses on the market. With demand so high and supply so low, now is the perfect time to sell your house for the greatest dollar value and the least hassle.

Bottom Line

The real estate market is entering the year like a lion. There’s no indication it will lose that roar, assuming inventory continues to come to market.

In 1963, Martin Luther King, Jr. led and inspired a powerful movement with his famous “I Have a Dream” speech. Through his passion and determination, he sparked interest, ambition, and courage in his audience. Today, reflecting on his message encourages many of us to think about our own dreams, goals, beliefs, and aspirations. For many Americans, one of those common goals is owning a home: a piece of land, a roof over our heads, and a place where our families can grow and flourish.

If you’re dreaming of buying a home this year, the best way to start the process is to connect with a Real Estate professional to understand what goes into buying a home. Once you have that covered, then you can answer the questions below to make the best decision for you and your family.

1. How Can I Better Understand the Process, and How Much Can I Afford?

The process of buying a home is not one to enter into lightly. You need to decide on key things like how long you plan on living in an area, school districts you prefer, what kind of commute works for you, and how much you can afford to spend.

Keep in mind, before you start the process to purchase a home, you’ll also need to apply for a mortgage. Lenders will evaluate several factors connected to your financial track record, one of which is your credit history. They’ll want to see how well you’ve been able to minimize past debts, so make sure you’ve been paying your student loans, credit cards, and car loans on time. Most agents have loan officers they trust that they can refer you to.

According to ConsumerReports.org,

“Financial planners recommend limiting the amount you spend on housing to 25 percent of your monthly budget.”

2. How Much Do I Need for a Down Payment?

In addition to knowing how much you can afford on a monthly mortgage payment, understanding how much you’ll need for a down payment is another critical step. Thankfully, there are many different options and resources in the market to potentially reduce the amount you may think you need to put down up front.

If you’re concerned about saving for a down payment, start small and be consistent. A little bit each month goes a long way. Jumpstart your savings by automatically adding a portion of your monthly paycheck into a separate savings account or house fund. AmericaSaves.org says,

“Over time, these automatic deposits add up. For example, $50 a month accumulates to $600 a year and $3,000 after five years, plus interest that has compounded.”

Before you know it, you’ll have enough for a down payment if you’re disciplined and thoughtful about your process.

3. Saving Takes Time: Practice Living on a Budget

As tempting as it is to settle in each morning with a fancy cup of coffee from your favorite local shop, putting that daily spend toward your down payment will help accelerate your path to homeownership. It’s the little things that count, so start trying to live on a slightly tighter budget if you aren’t doing so already. A budget will allow you to save more for your down payment and help you pay down other debts to improve your credit score. A survey of Millennial spending shows,

“70 percent of would-be first-time homebuyers will cut spending on spa days, shopping and going to the movies in exchange for purchasing a home within the next year.”

While you don’t need to cut all of the fun out of your current lifestyle, making smarter choices and limiting your spending in areas where you can slim down will make a big difference.

Bottom Line

If homeownership is on your dream list this year, take a good look at what you can prioritize to help you get there. Let’s get together today to discuss the best steps you can take to start the process.

There’s a current narrative that owning a home today is less affordable than it has been in the past. The reason some are making this claim is because house prices have substantially increased over the last several years.

It’s not, however, just the price of a home that matters.

Homes, in most cases, are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by over a full percentage point since December 2018. Another major piece of the affordability equation is a buyer’s income. The median family income has risen by approximately 3% over the last year.

The National Association of Realtors (NAR) releases a monthly Housing Affordability Index. The latest index shows that home affordability is better today than at almost any point over the last 30 years. The index determines how affordable homes are based on the following:

“A Home Affordability Index value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index of 120 signifies that a family earning the median income has 20 percent more than the level of income needed pay the mortgage on a median-priced home, assuming a 20 percent down payment so that the monthly payment and interest will not exceed 25 percent of this level of income (qualifying income).”

The higher the index, therefore, the more affordable homes are. Here is a graph showing the index since 1990:Obviously, affordability was better during the housing crash when distressed properties – foreclosures and short sales – sold at major discounts (2009-2015). Outside of that period, however, homes are more affordable today than any other year since 1990, except for 2016.

The report on the index also includes a section that calculates the mortgage payment on a median priced home as a percentage of the median national income. Historically, that percentage is just above 21%. Here are the percentages since June of 2018:Again, we can see that affordability is much better today than the historical average and has been getting better over the last year and a half.

Bottom Line

Whether you’re thinking about buying your first home or moving up to the home of your dreams, don’t let the false narrative about affordability prevent you from moving forward. From an affordability standpoint, this is one of the best times to buy in the last 30 years.

According to an Urban Institute study, homeowners who purchase a house before age 35 are better prepared for retirement at age 60.

The good news is, our younger generations are strong believers in homeownership.

According to a Freddie Mac survey,

“The dream of homeownership is alive and well within “Generation Z,” the demographic cohort following Millennials.

Our survey…finds that Gen Z views homeownership as an important goal. They estimate that they will attain this goal by the time they turn 30 years old, three years younger than the current median homebuying age (33).”

If these aspiring homeowners purchase at an early age, the Urban Institute study shows the impact it can have.

Based on this data, those who purchased their first homes when they were younger than 25 had an average of $10,000 left on their mortgage at age 60. The 50% of buyers who purchased in their mid-20s and early-30s had close to $50,000 left, but traditionally purchased more expensive homes.Although the vast majority of Gen Zers want to own a home and are somewhat confident in their future, “In terms of financial awareness, 65% of Gen Z respondents report that they are not confident in their knowledge of the mortgage process.”

Bottom Line

As the numbers show, you’re not alone. If you want to buy this year but you’re not sure where to start the process, let’s get together to help you understand the best steps to take from here.