Coming up on today’s episode we’ll cover…
• The lack of home inventory
• Why we’re experiencing a buying frenzy
• And what this all means for sellers
Should we be panicking about a RECESSION coming?
People shouldn’t worry too much. In fact, Morgan Housel, a prominent economist, is saying, there is no need to worry about the recession as “It might be over before we realized it began.”
When is it predicted that this BARELY NOTICEABLE RECESSION is going to be taking place?
Grouping four surveys of analysts and economists together, almost 47% say that the recession is going to occur before the end of next year. Another 28% say it’s going to happen early in 2021. So the vast majority are predicting the recession will occur in the next 18-24 months
How will HOME PRICES factor in the recession?
In the recession of 2008, prices dropped dramatically because the number one trigger of that recession was the housing crash and the number two trigger was a mortgage market meltdown. So, of course, it impacted the housing industry because it was the housing industry that caused the recession. But, if we look at the four of the five recessions prior to that, home values actually went up, and the only time they didn’t, they went down by less than two percent. So, we don’t foresee prices dropping this time.
Are home price INCREASES going to continue then?
Looking at a survey of 6 respected sources in the industry, including Freddie Mac and Fannie Mae, we’re looking to continue with an upward trend of home values similar to what we have already been experiencing over the last few years.
What about mortgage INTEREST RATES? How is the future looking for prospective buyers? Should they be sitting on the fence for a while?
The 30 year fixed mortgage rate peaked at the end of last year, at 4.75% and has come down almost a whole percentage point since June of last year. This is making buying a home more affordable that it has been in a few years.
How does even a 1% drop in interest rate can affect the HOME PRICES for buyers?
In our market place, the average home is around $250,000 and at a 4.75% interest rate that would have been a monthly principal and interest payment of about $1300.
That same payment amount of $1300 will now allow a buyer to go all the way up to about $285,000 at the current interest rate of 3.84%.
So buyers currently have far more buying power… Do you want to elaborate on this?
Sure! Affordability is made up of three things:
• Home prices • Ability to earn (meaning wages) • Interest rates
I can’t believe in the early 1980s, INTEREST RATES rates were in the HIGH TEENS! Around 18%! And people were still buying homes! I would say then that buyers are looking in pretty good shape at the moment!
Well, because interest rates are going down and wages are going up, what we can say is those two more than make up for the increase in house prices. So yes, it’s an excellent time for buyers to move forward with a purchase.
What about the GAIN IN HOME EQUITY? How’s that looking and is it pretty much the same throughout the nation?
On a national average, equity is definitely increasing. However, individually, there are three states (Connecticut, Delaware and North Dakota) that have seen a decrease is equity due to specific local issues in those states. Of course the overwhelming majority of states have seen a strong increase in home equity with Florida on average gaining $8,000 in equity in the last 12 months.
What advice should we give RENTERS who have the credit and income to make a purchase?
Definitely renters should be making steps to purchase prior to their next lease renewal. Wealth creation in families is really important and is built largely on homeownership and consequently home equity growth. Even with conservative predictions, over the the next five years, a home valued at $250,000 will be worth about $287,750. If you’re renting you’re missing out on growing your family’s wealth.
Is wealth creation the only thing RENTERS MISS OUT on if they don’t buy?
As well as losing out on possible wealth creation, renters are finding that rents have increased quite considerably over the past 9 years, making rent payments in many cases equivalent to a mortgage payment on the same size of home, but without the homeownership benefits. Generally mortgage payments will stay the same over the life of the loan, but rent payments generally increase annually.
We’ve talked about the financial benefits (wealth creation and stable housing payments), but what are some of the NON-FINANCIAL BENEFITS of homeownership?
Great question! Some of the non-financial benefits include many homeowners saying they’re happier, feel more secure, and believe it’s the best decision they’ve ever made!
Is there any specific group that’s more interested in PURCHASING a home right now?
It’s hard to talk about home buying without discussing millennials. This particular group it seems are coming off the fence and getting serious about buying now as a recent survey shows 1/4 of millennials are interested in buying a home in the next 12 months!
Thank you to all of you for watching! We hope you enjoyed our market update!
And if you’re wondering if now is a good time to buy or sell, email or call us today!