Blog with MAE Capital

It wasn’t too long ago that we were looking at multiple offers on million-dollar homes and fights erupting on homes in the affordability range.  This was just in March of this year.  We are looking at something dramatically different now with interest rates driving the changes.  Those million-dollar homes are now sitting on the market longer and we are now seeing price reductions in that price range.  While in the affordability range we are seeing the demand get sucked up quickly and houses are coming on the market at a much faster rate.

I will start with the analysis on the upper end of the market, those million dollars plus homes.   I now can say without a doubt that the top of the Real Estate Market was March of this year.  Since then, interest rates have risen above 5% which alone has slowed the market.  In March of this year, you could still get a home loan with an interest rate in the 3’s, and now with rates in the 5’s that has cut the purchasing power of potential home buyers by a lot.  What we have seen is that people were qualified back in March for one loan amount and didn’t realize that rates have risen as much as they did and while they were not looking they no longer qualified for the homes that were in their price range.   Watching the Multiple Listing Service or MLS we are seeing more properties that were in pending status come back on the market with no fault of the seller but turns out buyers no longer qualify with the higher rates.

In the affordability range (here in California) is between $450,000-$650,000 we have seen more homes hit the market in the last several weeks.  As potential home sellers realize that the top of the market has come and gone they are now putting their homes on the market.  I believe that potential sellers have waited to market their homes until the top of the market and now that we are there, they are all putting their houses on the market at the same time.  This is great news for potential home buyers that have been beaten out of the Real Estate market and decided to sit on the fence until this very thing happens.   Demand will quickly be eaten up and inventory will continue to rise.    As interest rates continue to rise this will cut a significant amount of potential home buyers from the market.  So, if you fall into this price range of home buyer then I believe it won’t be long before we enter a buyer’s market.

As interest rates rise and inventory rises, prices will have to soften a bit to get buyers to buy.  In addition to that, those sellers will be making concessions to get potential buyers to buy their home.  A sales concession is when a seller pays for pest work to be done, the buyer’s closing costs, and other things to entice a potential home buyer to buy their home.  This is what is commonly referred to as a buyer’s market.  This will occur once the pent-up demand slows down and interest rates price home buyers from the market.  This is not something we like to see; however, I believe this will not cause a manic sell-off as we saw in 2008 through 2011.  The reason is simple we don’t have a money crunch like the last Real Estate correction.   Money is still available but at a much higher rate and we have relatively full employment, and we are not seeing mass lay-offs as we saw during the recession of 2008-2011.   This is not to say that it still can’t happen.  The way this would happen is if the Federal Reserve continued to raise Interest Rates past the equilibrium point which is where we could be today.

If you are a home buyer today my advice would be to buy as soon as you can as interest rates will continue to rise.  At MAE Capital Mortgage we have a “Lock and Shop” option for home buyers.  The “Lock and Shop” is once we have you approved for a loan amount, we can lock in today’s interest rates.  The lock period could be up to 180 days to give you the opportunity to look for the right home or if you are having a new home built it will allow time for the build.   Doing this will cost you a little more than if you were to have a home a lock your rate for 30-60 days, but in a rising interest rate market, it could save you hundreds on your monthly payment.  We are at a rare place in history where the Federal Reserve has already told us that they will have 2-3 more rate changes this year alone.  That said the “Lock and Shop” option offered by MAE Capital Mortgage Inc. is an easy choice to do if you are shopping for a home to buy in the next few months.

If you are a Potential seller in this market, know where your house falls in the affordability range.   The higher the value of your home the more difficult it is going to be to sell your home.   If you are considering selling your home in the next 6 months now should be the time to get your home on the market to get the very best price.  My advice would be to talk with a MAE Capital Real Estate Agent about getting your home on the market and devise a strategy with them to get the highest and best price for your home.  Here at MAE Capital, we are no strangers to changing Real Estate Markets and how to market to the changes our Agents are seasoned pros and our newer agents have the energy and mentors to get you the very best price for your home.  We also have a bundling program that when you list, sell and buy your next home with us and use our mortgage options we will buy your interest rate down so you have a lower than market interest rate thus a lower payment as our realtors will put some commission towards your closing costs on the new loan.  This program is great and is not offered by any other Real Estate firm.   

If you are considering buying or selling now would be the time to get on it.  I can say that next month the Interest rates will be higher, and so will gas prices, and food prices.  Inflation is here to stay for a while and the Federal Reserve has said they will be continuing to raise rates, we know that gas prices will continue to rise until we either produce more domestically or cut our demand, which is not possible.   We also need to keep a watchful eye over geopolitical events as they could cause even more problems to our economy.   We are living in a very unique time with a very unstable economy, high gas prices, high inflation, and a government that wants to spend more money and raise the minimum wage, and raise taxes, all of which will cause even more inflation.   

 

Posted by Gregg Mower on May 18th, 2022 11:47 AM

“ 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.

Posted by Gregg Mower on August 5th, 2021 2:14 PM

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.   

Posted by Gregg Mower on March 5th, 2015 1:41 PM

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MAE Capital Real Estate and Loan

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