By the time you read this, I am sure you have read about what is happening worldwide with pending war. It appears that our own Government is provoking conflicts all over the world and at home for no reason affecting all aspects of business including the Real Estate Industry. At home, the Department of Justice now taking up a side against the Real Estate Industry. In addition, our own government, specifically the Department of Labor and Statistics is feeding us information on inflation and employment that is clearly wrong or manipulated. If you are not asking these questions you should be, as something is going on that is out of our control and is seriously harmful to all of us no matter which side of the fence you stand on politically.
Looking at the state of the world we must ask why is the United States provoking all of these conflicts all over the world? Our media has been telling Americans that it is Russia and China and that is just propaganda so why? The only conclusion I have for this is the US Dollar. The US dollar has been the world’s reserve currency since 1944 and is now being threatened by Russia and China as they are creating alliances with nations all over the globe to start a new reserve currency. You may have heard of the BRICS nations by now, which comprise of Brazil, Russia, India, China, and South Africa and many more nations have joined this movement over the last several years. Why would our government be concerned with this you may ask, it is simple, power and dominance is the answer. As it stands today, and it is changing rapidly, if you want to buy goods globally, specifically oil, you would have to convert whatever currency you have to dollars in order buy these goods. Those countries that have to convert are at an automatic disadvantage to the US Dollar. What Russia and China are creating is a system that would require the US to convert the dollar to another currency thus devaluing the dollar and creating a threat to the Central Banking system. This possibly is an explanation that makes the most sense logically. It makes no sense to make China our enemy when we literally import just about everything from China it is like we are biting the hand that feeds us. As for Russia they need Ukraine’s resources such as their gold and precious metals to back the new currency. Our government has been keeping all this from its citizens in an effort to hide the fact that all these conflicts are over money and that doesn’t fit their narrative. Again, this is not substantiated and is just a theory based on logic and what is going on in the world today. As we all watch to see what is unfolding the average American is being choked by inflation and is not being able to save or afford to buy a house with the high interest rates caused by the high inflation.
Another attack on the Real Estate industry, specifically of late, has been the lawsuits filed by prosecutors in certain states with regards to the way Agents are compensated. The National Association of Realtors (NAR) was recently found guilty of non-disclosure of buyer’s Agent’s commissions upfront as were several large National Real Estate Franchises and Companies. This has sparked confusion and frustration in the Real Estate community. The industry has been in the process of changing the way they disclose since the settlement by creating new forms and even more confusion for the consumer. Now the Federal Department of Justice, the DOJ, has begun to look at this further as they apparently don’t like the Real Estate Industry and we can only guess why. Yes, we are witnessing the weaponization of our government against its citizens or that’s what the actions look like. We are living in very trying times in the Real Estate Industry and these disruptions to our way of doing business is furthering the decline in the industry.
To further make things seem like we are living in a bizarre world the Federal Department of Labor Statistics is putting out economic numbers that both the Stock Market and the Federal Reserve have used for decades to determine the direction of the economy. These numbers have been indicating that inflation is under control or is at least cooling down, but what they are not telling you is that those numbers take out Food and Energy inflation, both of which we know have been going up consistently. People are feeling this in their everyday lives and have taken measures to keep themselves financially secure. I might say, many Americans are steaming mad as their ability to save and live a happy life has diminished with these economic times. In the mortgage business, persistent high interest rates have taken the majority of people out of the real estate market as they simply can’t afford a $3,500-$5,000 mortgage payment as they would need to show $10,000-$15,000 in monthly income to qualify for those payments and those payments equate to a starter home in California of $500,000-$650,000. This economy is not sustainable.
To conclude, I have been in the Mortgage / Real Estate Business for 40 years now and I have never seen the business as slow as it is now. I have seen the Stock Market crash of 1987, 2008-2009, and the pandemic crash of 2020 but what we are experiencing now is far worse and has been lasting for a more sustained time and no relief in sight. This Real Estate market and high interest rates have been declining since 2022 and with war on the horizon and more misinformation being fed to us daily, I don’t see an end. I like to be a realist in life and a logical thinker, however, I have only seen negatives and nothing on the table to fix the situation. I see both political parties as compromised as well as our banking system and with more bank failures on the horizon due to bad commercial loans this is going to take a bit to get through and I pray that we all come out of this as better humans and realize that we are all better united as divided we will fall.
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.