Hear all about it below from when Joe went LIVE to discuss.  Or, feel free to read all about it below!

 

Goal for today is not to scare you, but educate you

 

There’s a lot of talk about are we at our peak, are we in a bubble and/or is a crash impending, and did I miss my chance to sell or should I wait to buy?

 

I bought my first home with my wife in 2004.  We bought brand new construction in what was hindsight the worst time to purchase.  We lived the experience that so many of you also lived. So I speak from the heart when I deliver this message.  I should also state that I was working for a nationwide lender and then a local brokerage in the mid-2000s and saw some of the mortgage products being offered - even if the company I worked for wasn’t actively selling some of these products.  

 

We all remember the mid to late 2000s.  The economy as a whole crashed. Stocks were down, home prices were down, unemployment was up, and we were involved in two wars overseas.  What were some indicators that a crash was looming?

 

I’ll be using the term supply or housing supply.  This refers to a time period in which if no new homes were listed, how long it would take for every home in that market to be sold.  Thanks to co-worker Jeni Gohl for the article from keepingcurrent.com. In this article, they explained that a normal housing inventory is a 6 months supply.  So again, this is the norm and where inventory levels SHOULD be. In 2008, we had an 11 month supply of homes.

 

Leading up to 2008, we had mortgage companies (many of whom are out of business now) offering sub-prime mortgages where you could get a fairly reasonable interest rate on a purchase or refinance and have low 500 credit scores along with various hits on your credit that lenders today would never allow for financing today.  There were all kinds of 100% financing, interest only mortgages, stated income mortgages which were intended for business owners and arguably bartenders or wait staff that don’t easily show all of their income as a standard W2 wage earner may. However, these mortgages were made available to a bigger crowd. I could probably do a 40 minute video about mortgage products and how they adversely impacted all of us.

 

Going back to 2008, when the funny mortgages were coming to an end, we also had an 11 month supply of homes available.  So here we were with an above average supply along with the inability to secure financing for many people

 

So, our first difference, for those that are comparing today to then is that we don’t have a foreseeable default in mortgages and we don’t have an abundance of homes on the market today.  

 

So what is going on out there?  Well, there is a slow shift occurring.  Of 10 million homes listed on Zillow in June, 14.2% saw a price reduction.  This was slightly higher than in 2007. We should note, this notes multi-million dollar homes, luxury homes, median priced homes, and for sale by owner homes.  But facts are facts and there were more price reductions in 2018 than there were in 2017. In fact, Zillow stated 25 of the 35 largest metropolitan areas saw reductions.  And Zillow’s chief economist stated “there are very early preliminary signs that the winds may be starting to shift ever so slightly”

 

Inman.com recently spoke with brokers and agents in Minnesota, Denver, Seattle, Chicago, LA, San Diego, Boston, Miami & New York. These are all hot markets where inventory has consistently been around 1-1.5 months.  They all said the inventory is still crazy low, but it is slightly higher than one year ago. I will note this is true locally for homes in the $500-750,000 range.

 

Nationalmortgagenews.com spke with Corelogic’s chief economist about the possibility that markets have been overheated and stated “it doesn’t necessarily mean that tomorrow or next week or next month or even next year prices are going to crash”  And going back to the article in keepingcurrent.com it was noted that IF we start to see a truly weakened demand for homes, we’ll finally get to normalcy and rising home values should coincide with normal appreciation at a rate of 3.6%. Again, this means not a crash or a bubble popping, but a return to normalcy.  It doesn’t mean deflating values, but stopping double digit value increases year after year for many local markets. CNBC interviewed James Young, director for the Washington Center for Real Estate Research at the University of Washington. He stated a bubble appears when you have the prices going up without demand going up.  Prices have gone up with demand over the last handful of years.

 

There are some concerns, but most are not local and in fact, not even a national concern. When median income levels don’t meet median home sales, you could have some concerns.  For example, the median income for San Francisco is about $90,000 but the median home price is $900,000. A person or family earning $90ish cannot qualify for a home at $900,000.  This is true for a few other markets. But just because prices are high somewhere doesn’t mean they fit this category. In fact, Manhattan is a prime example where although prices tend to be well over $1M, the median income is also so high that it is normal for people living there to be able to afford the homes that are for sale.  

 

So, let’s talk about price reductions.  First, as much as we may not like to admit it, areas like California tend to be first to market for things.  They were first to market for some of those funny mortgages that eventually we all had, and they’re first to market to see luxury home sales slowing and prices reducing.  Michigan was slower to recover and has a lot of good things going out throughout Metro Detroit with job growth as well as the west side of the state. It’s very possible we won’t have the same impact of what’s going on out west, but we are seeing price reductions here as well.  Just this morning 96 homes on the local MLS had a price reduction. There has been a phenomenon by sellers and us too, to continually push the envelope with home prices. Because the house down the street sold for $150,000, we agree to sell yours for $165,000. Because there have only been a few sales, and your house is even nicer than the last one, we are listing it significantly higher than we would have done a year ago.  And, in certain price points, there are more options. Homes above $300,000 give more options than below simply because you can always consider new construction. There aren’t a lot of builders locally building for under $300,000. But if your price point is $400,000, then suddenly you can look at both new and existing homes. That means the demand is just a little lower and therefore is even more important to price accordingly.  

 

In a CNN Money interview they discussed and debunked that people are not overleveraged for homes.  Go back through this presentation and note how many different sources are all saying the same thing.  Inventory is still ridiculously low. That is true locally as well. But, we are not being projected to begin a crash.  We are not projected to burst a real estate bubble. However, we may begin to see a normalized market where prices are not skyrocketing and maybe even departing this seller’s market where we see 8, 12, 20 offers on properties.  

 

Now, today, it is still a good time to be a buyer and seller.  Buyers, you’re still stuck with the inventory concerns and maybe paying above asking price for your home.  But if you believe all the sources I quoted and plenty more, then you’ll believe that prices aren’t going down they just aren’t going to continue at the rapid rate we have seen.  Sellers, you can still take advantage of a lack of inventory and hold the ball in your court. But you can not lose sight of the fact that buyers are more conscious than they have been the last few years.  Buyers are more patient than they have been. And, as people will still fear a crash, even after all the debunking I just provided, they’re still scared. So, now more than ever, proper pricing and marketing for your home is important.