“ I heard the market was red hot and homes are selling for more than the asking price” this is what we are hearing daily from our clients. Is this true anymore or is something else going on now? All you hear on the TV and Radio is that the Real Estate Market is red hot, but is this really true? In my 37 years in the Real Estate and Mortgage business, I have never seen a market quite like this one we are experiencing. I also hold a degree in economics and have not seen anything like this in history. So what’s going on, one minute things are going crazy with low interest rates and more buyers than sellers. The next minute everything slows down.
This is happening across the board, interest rates are still at historic lows, but it appears everyone that has had the opportunity to refinance and take advantage of the low rates has done sone so. Or is it that, like COVID, we are about to experience a second wave of people refinancing and buying homes. We have never seen such a market in the past so there is no real model to judge this on. But we have seen a dramatic slow down in home buying and refinancing over the last 3 months. In California, they lifted the mask mandate, and it appears those that have been locked down decided to all go on vacation at the same time.
We generally see a summer lull in Real Estate, however, this one is far more pronounced than ever before. It has me and others asking if this lull is just that or is it something else? I do see this as the market seeking an equilibrium point, not an all-out bust. I have seen big news in the markets before and the way the markets tend to react to this is by over-correcting on both sides. I would liken this to stretching a rubber band and letting it go, it will spring up then back down then reach an equilibrium point. Right now, in the real estate market, we are seeing a bounce down or a slowdown after it was super-heated.
Another factor that we have not seen before is that California was shut down for 15 months and people were told to stay inside and not travel. In a normal year, people would travel all time of the year but the last year and a half have been far from normal. What we saw during the pandemic was people staying home not traveling, so when they were told they could now go out and about they did and they are still are taking vacations and traveling not thinking about Real Estate or their mortgages. Couple that with their kids being out of school they are taking full advantage of the time they have out of their houses seeing family they have not seen in months and enjoying the outdoors while the weather is good.
Understanding how humans think is a big part of economics. So as schools reopen in August and kids head back to the classrooms that will leave the parents back home and working with the time to think about their living situation and their financial situation. Coupled with low-interest rates that the Federal Reserve says they are keeping low until 2023 I believe that the Real Estate market will pick up again by the end of August and into September, but it will not be at the pace we saw during the height of the pandemic thus the bounce. Another interesting phenomenon that will be discontinued in September is the extra $300 a week in unemployment benefits. This will send people back to the workforce, but will the economy be able to accept all of these long-term unemployed folks that took advantage of the system? As an employer, I would not hire an able-bodied person who chose to stay on government assistance rather than work as that shows me laziness and I think this will be a big issue in the high-end job market. Entry-level jobs like Walmart, retail jobs, and restaurant workers will be happy to take these folks back into the workforce as those workers can easily be replaced if they don’t work out. But I digress, those entry-level workers will not be homebuyers in the immediate future but having them back in the workforce will allow management and owners to realize a better income level so those folks will be the benefactor of the ability to purchase real estate. So my crystal ball says that by September we should start to see Real Estate pick back up for all the reasons that are not the standard reasons for Real Estate to boom or bust. To get started today and beat the rest of the crowd call one of our Real Estate Professionals to get pre-approved for a home loan and start your search as new listings hit the market you will be there first. If you have been waiting for your credit score to improve before refinancing start now ahead of the crowd Interest Rates are still in the 2’s and 3’s. Call MAE Capital Real Estate and Loan to get started at 916-672-6130.
I have heard that some people are worried about the future value of their homes amidst this pandemic. I am hear to tell you that in my 35+ year stint in the mortgage and Real Estate industry and with my degree in economics I have never seen anything like this. I saw the stock market crash in 1987, the financial meltdown of 2006-2010 and various different corrections to the markets over the years. This was sudden and could not have been foreseen, unlike these other crisis’ this one came when an otherwise healthy world economy was doing well. Shutting down the economies across the world is something we have never seen before and really hope to never see again in my lifetime. It is going to take a bit to get the economies up and running again not for lack of desire to get up and running again but the fear of catching what has been advertised as a deadly virus, whether you believe it or not.
We all know the toils and the riffs of this virus and I am not hear to tell you what to believe but to show you facts from an economic point of view of the housing market. The housing markets are all dependent upon demand, demand to buy and sell. If we look at Real Estate from a demand side you can see in some areas have pent up demand, meaning that buyers have been sitting on the proverbial sideline waiting to buy until the virus threat has subsided. This holds true for potential sellers as well. The homes that are being listed during this time come with several guidelines in order to show them, so buyers and sellers may be set back with the showing guidelines. The changes to show homes are that a Realtor and the people looking at a house must wear mask and gloves, the Realtors has to call the listing Agent to obtain a special code to show a house so it can be tracked from the central Metrolist computer system. These are new rules and are not too bad to show a house and home sellers should be comfortable that there won’t be any residue, if you will, from people looking at their homes.
I think the biggest challenge the Real Estate industry will be to get potential home buyers qualified for a home loan coming out of this crisis. Interest rates are great and that will not be the problem it will be the job losses that may hold down demand for buyers to buy. Also those folks that let their credit go during the crisis will inhibit some potential home buyers from buying a home. An economy is dependent upon people working and when a mass number of people found themselves suddenly laid off from great paying jobs those people will not feel comfortable going out and buying a home very soon after they go back to work. On the other hand those that have been working from home and may live in a city may want to move out from the big cities to get away from overcrowding and may be looking to move to the outlaying subdivisions figuring working from home away from the big city may be a better alternative. That would create listings in the cities and demand for housing in the suburbs.
Home prices or values are based on demand and that will vary from town to town and city to city. Housing prices have not been affected yet by this pandemic, other than Real Estate sales as everything else during this crisis basically stopped or paused as a better hopeful word to use. To view the Real Estate Industry as paused is far easier to digest than to say it has stopped, as it has not stopped. We are, in fact, we are starting to see the pent-up demand from both sellers and buyers. As the shelter in place orders drag on, especially in California, people are beginning to push back from the order and go out and look at homes and list homes for sale. We have seen an increase in this activity in the last couple of weeks and our clients are telling us that they are more than ready to get moving rather it be buying or selling. No one knows what will happen with jobs but it is a fact that the longer this goes on the more job loss there will be as employers just can’t keep all the staff they had if the demand for their product has not come back.
So time will tell what will happen for sure, but I have some ideas and areas in the economy that I have been watching to get a handle and a pulse on the market. I see pent-up demand to hit first with an initial push to buy homes and sell homes. Once this initial demand wears off it will depend on the job market to dictate who can buy and who can’t. The more people that have jobs and feel comfortable with buying a large purchase such as a home will help the overall economy. Home buying and selling also creates jobs in home improvement areas such as contractors and home improvement stores. We have already seen a increase in demand at home improvement stores, but not sure yet if that is to improve their home to live longer in or to improve it to sell it. I also see that those folks that have been locked up in their homes in the cities getting tiered of the small confined space and may want to move to the suburbs where there is more space for a family to move around. I see Real Estate sales as gaining momentum as we are slowly released from the stay at home orders or as people become more frustrated with them. NO matter how you feel about all this virus stuff Real Estate will be bought and sold during all this and after all this.
I don’t see values declining the way they did during the financial crisis of ’08-10 as the reason for that decline was the weakness in financial markets and lack of liquidity. Meaning that the reason for the decline in values during that crisis was due to the evaporation of products that allowed people to buy a home with little or no money at all and when it was determined that the holders of those mortgage notes were not solvent a massive sell of occurred. Once the financial markets started to fail during that crisis and people ended up with negative equity in their homes they just let them go to foreclosure. Since then we have put some stops in the lending world that requires people to actually fully qualify to buy a home before the can buy a house, unlike the prior crisis. So in this health crisis we are not seeing anything like the financial crisis as people that own home now had to qualify for it and are more financial stable than before. However, we do have to look at all of those people that have lost their jobs during this crisis. This will be the single biggest factor in this health crisis verses the financial crisis. So the longer this goes on the longer it will take to see what will happen to values, but in my opinion, I think initially we will see an increase in demand then a slight drop off in demand until we get back to a more full employment situation like we were before this crisis. I see a steady or flat Real Estate market moving forward as people always need housing. I do not see a large decline in values, especially in California, as I see the types of jobs to where people make enough money to qualify to buy a house still here as those folks are working from home where in the last crisis we had jobs evaporate not shift like we see here. The future remains to be seen but I like to be an optimist on this as I believe people are resilient and will come out of this stronger and smarter. As usual if you need help with qualifying for a home loan or buying or selling Real Estate call us we are here for all of your Real Estate needs (916) 672-6130.
In California, as with the rest of the Nation, the Real Estate markets are red hot. What exactly does that mean, you ask? Well, simply put, there are more home buyers out looking to buy homes then we have seen in years. There are multiple reason for this, but the biggest driving factor is the low interest rate environment. Low interest rates are also causing a refinance boom for home owners to lower their monthly payments. There are some limiting factors that are inhibiting otherwise qualified home buyers from getting in the market while rates are low. Specific limitations are the Dodd/Frank rules that have choked down the qualifying criteria for a home loan. However, while the rules are far stricter for owner-occupied homes the demand is still there and we are now starting to see builders building homes again.
Low interest rates allow for people to qualify for more of a house with the income they have. These lower interest rates are also causing the prices of homes to go up from the demand to buy affordable housing. It is interesting to watch this market as the homes in the “sweet spot”(this is where the housing affordability is in relation to the local incomes, in the Greater Sacramento area this “sweet spot” has risen to homes between $300,000 and $450,000 in value) are being pushed higher in value, while the upper end homes are not in as much demand. This is usually caused by first-time buyers entering the marketplace in the “sweet spot”. We are seeing the pent up demand start to work its way into the first time buyer markets as most of the first time home buyers grew up through the recession and the great Real Estate crash of the beginning of the century. These home buyers are feeling more comfortable with their income and do not want to repeat what their parents had happen to them. As these home buyers get later into their 20’s and into their early thirties they are entering the Real Estate Market older than the generation before them. This is causing more demand as these first time buyers are mixing in with the move up buyers and the people that lost their homes in 2008-2011 that are now re-entering the market. Coupled with lower the lower interest rates you have a market ripe to expand.
Sellers of homes are having a tough time pricing their homes and their Agents are helping but still it is a challenge. If you are looking at selling your home, and the house down the street with the same floor plan just sold 2 months ago for a lower price but there is nothing else for sale in the neighborhood, that same home may sell for 5-10% more today. The problem with that is that an appraiser will have trouble appraising the house, as the comparable sales will be older and homes selling outside the neighborhood are selling for more, proportionately. So how do you price your home? One of my tricks would be to price the house up about 5-10% than what the market is for the neighborhood and accept offers at the higher price to see what kind of demand your home is bringing. The higher demand will result in full price offers knowing that the house will not appraise. At this point 2 things can happen; one, the seller can sell it for the appraised value by lowering their price, already knowing the that house was priced higher than market to begin with, and or option number two; the buyer can bring the difference in cash to the table to make the deal work. Option number two, with the buyer bringing in more cash, probably will not work if the house is under contract with a FHA or VA loan. As FHA and VA buyers, most of the time, do not have much cash to work with as they are generally first time buyers using their savings to buy the house. A seller should take into consideration the type of financing they will accept on their home prior to putting it on the market.
All potential home buyers in this marker should be approved for their financing prior to even starting to look. This should be a given, but there are Agents out there so excited to have a potential home buyer to work with they miss this valuable step. If a buyer makes an offer on a home that becomes accepted and Both Agents (the one representing the buyer and the one representing the seller) don’t get this approval first the escrow could potentially fall out later in the transaction due to the lack of loan approval and everyone has wasted their time. Believe it or not I have seen this more lately as we also do loans for those folks that don’t otherwise qualify for traditional financing and they call us in desperation to get a loan after they have been declined for traditional financing. Sometimes we can help but most of the time we should have talked to them before they made the offer. With these cases the buyer has wasted everyone’s time and if the seller is in a hurry to sell because they may have bought another house, that deal may also fall through. All potential home buyers have to look at the big picture, not only for themselves, but for all the folks involved in a Real estate transaction. I know that is unrealistic, but if this article can help one transaction I have done my job by writing this.
All the new regulations with the Dodd/Frank act and the CFPB (Consumer Finance Protection Bureau) making lenders qualify all potential home buyers of primary residences on their verified income, has reduced demand a bit as it has disqualified the self-employed segment of the home buying population as well as others that should be able to buy homes. It also has made it significantly harder to obtain financing for a primary residence as the laws and regulations has made lenders so self-conscious about approving loans that lenders are fearing the fines that the Government can levy on them that they have tightened their standards making it harder to obtain a traditional loan. These laws have played a roll in keeping the demand under control, but I worry for the future when the markets cool off and the supply exceeds the demand. Housing supply in excess of demand will cause Real Estate prices to plummet quicker than ever before.
Summer housing is red hot now and should stay healthy for near future as Rates should stay low. The Federal Reserve will probably not raise rates in the near future as the underlying economy is not as good as the numbers being produced from the Government indicate. We are also in an election year, one that is probably the most important one of last 50 years, and that will also keep short-term rates low as the current powers want to keep the same political agenda going for the next 4 years. The long-term implications of the Real Estate markets will hinge greatly on the next administration America elects. One candidate that is a Real Estate mogul and is second generation Real Estate wealth who knows the value the Real Estate markets play in the American economy, and another candidate that is a career politician that has not done one good act during the time she has been in public offices. Not to name names, but if you are interested in Real Estate and how it drives the American Economy you know what you should do with your vote. Capitalism is what has made America great and the more we move towards Socialism the closer we get to our demise as a nation. History proves this to be true with Russia, Greece, Spain, Portugal and a dozen other European countries that have failed in that experiment. Britain’s have seen this first hand as they were one of the countries supporting the failed counties in the European Economic Union, that is why they voted to leave and start to help themselves again. I digress, Real Estate is the best wealth vehicle America has, so I am a little partial to the industry as I have given the last 32 years of my life to this industry. I wish everyone GOOD LUCK and happy hunting out there. as always if we can help you with your Real Estate or Mortgage needs we would love to talk with you. (916) 672-6130 www.maecapital.com.
Is it time to buy Real Estate? Is it time to invest in Notes? These questions face investors every day. With the Stock Markets hitting all-time highs you might be asking yourself if you should take your money out of those markets and buy real estate or focus your new investments in Real Estate and Real Estate related investments. Great questions, so let’s explore what is going on to drive the Real Estate Markets upward over the next few years in California, and might just be the case for the entire Nation.
Basic economic theory states that where there is a shortage of supply prices will go up. So the question of supply in the Real Estate Markets comes to question here. The supply of Real Estate is actually a ridiculous concept as there has always been a limited supply of Real Estate, as last I checked the world is not adding any new land. That being said, we already know there is a limited supply of Real Estate and we also know that our population keeps growing, and the housing markets have to keep up with that demand. Problem has always been to keep up with that demand and not over building while attempting to keep pace with demand.
In 2005 we hit record highs in building new housing and commercial space. It has taken until now to actually have demand catch supply in housing. In economics we call this the equilibrium point. Have we reached this equilibrium point or is it just a moving target. As we know economics is very fluid and has several factors that affect the theory. In housing there are far more factors that actually effect housing, such as jobs in the area, demographics, or the age of the population. As an example of how jobs affect the Real Estate Market, take a look at the Silicon Valley in the San Francisco Bay area. Here there are a limited supply of housing and high paying tech jobs in a concentrated area. People tend to want to stay within a 20 mile radius of their jobs. Thus, you have a limited supply of homes with a high demand for them with people making a higher than normal income. The average price of a single family home in this region is over $900,000. Prices in this region of California are so high that a worker with a normal paying job just can’t get in to the buying market in this area. If you take this micro economy model and apply the basic theory to any Real Estate area you will be able to see what areas are poised to see increases in Real Estate Values.
Although, this sounds easy, people have been trying to do this with accuracy for decades. We also have to take demographics into the big picture. Yes, that age groups that are buying Real Estate and what has traditionally been their trends. Traditionally, the average age of the first time home buyers have been in their mid-twenties, and we have seen this pretty consistently for the last 70 decades. However, this trend has been bucked in last decade. Yes, the traditional 20 something’s buying their first home has actually moved to the early thirties. This is due largely to the economic rescission that started in 2005 through 2011. When a formative child or teen see their parents go through the Real Estate hangover, or failure, they tend to stay away from what hurt their parents. Another huge reason the 20 something’s have not entered the Real Estate Market has been the lack of good paying jobs. The government has been telling us that the unemployment number has been declining, but what they have neglected to tell us is, the jobs created have only been in the low paying areas. If you have low paying job that maybe you had to take to get started or survive with, those jobs don’t qualify you to buy a home but the unemployment numbers go down. The number of better paying jobs has increased over the last few years allowing for more people to consider buying a home.
Now that your economic lesson is over we can apply what you have learned to the Real Estate Markets. We now know that supply and demand affect the Real Estate Markets, and that good paying jobs or the lack of good paying jobs in a specific area will also affect the Real Estate Market. We know that a certain group of traditional home buyers have stayed away from buying Real Estate longer than normal trends have been. So what does all this mean and how do you apply this to your Real Estate Investing plan? It means that we are starting to see those millennials enter the market several years later than they usually did and we also see that the next generation is right on their heels to buy at the same time. We also know that new house building has not been active since 2005 due to the lack of demand from the recession. We know that it will take time for builders to start building again as the demand heats up. We know the job market is regional and some urban areas have better jobs than others with different pay scales in California.
Looking at California there are areas that are more affordable areas than others due to these factors, but what areas are the best for investors? A first time home buyer will buy in the area in which there income is produced in. A Real Estate investor has to evaluate what their overall plan is, such as flipping, holding and creating rental income, or investing in Notes in a specific area. The affordability has to be taken into consideration as well. We know that places with high demand such as the Silicon Valley, and certain Beach communities in Southern California will always have a high demand. These high demand areas are not really that good for investors as there is a high cost to enter those markets and they are not as liquid as they should be for an investor. Most investors are looking for returns that will can be consistent and fairly liquid. That being said, a stable job area is always a good for investors to be looking in. Areas like Sacramento and surrounding communities have a high government job market which creates a stable job market. Regions like the Los Angeles area have the entertainment industry, as well as a good mix of financial and manufacturing type jobs.
Overall California has a good job market and is poised for growth. The most affordable housing markets in California are located in the Central Valley, From Sacramento on the Northern end to Bakersfield on the Southern end of the Central Valley. As we see more folks hitting the Real Estate Markets we are going to see supply of homes for sale dwindle and that will send prices rising again. This makes now the best time to invest and hold in Real Estate that we have seen in over a decade. Builders will start to enter the market but will not be able to keep up with demand for a year or two, keeping prices rising. Knowing that builders were heavily hit by the last Real Estate Bubble, they will be hard pressed to build as fast as they did in the past, keeping supply limited during this new business cycle and prices up. So all in all Real Estate Investors should be looking to invest now either in the Real Estate itself or by investing in Notes. Notes are a great investment as you can get high yields with very low risk with rising Real Estate Values. As Real Estate rises in value people are far less likely to let their house go to foreclosure, making investing in Real Estate a far safer risk than before. At MAE Capital Real Estate and Loan we look forward to helping you with your Real Estate needs from buying and selling Real Estate to investing in private notes. We look forward to assisting you with all of your Real estate needs.