Is the Real Estate Market Heading Toward Another Crash?

  Many people have been asking me if we’re headed toward another real estate market crash. Here are my thoughts.  
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Is the real estate market going to crash? I’ve been getting that question more frequently, so today I wanted to give you my answer.

There are plenty of differences between what we saw in the crash about 10 years ago and what we’re seeing in the market right now. We peaked in the summer of 2007 before dropping 45% and bottoming out in 2012. Since that time, we’ve seen an upward trajectory in the market.

We’re due for a correction soon, but a crash is unlikely. A recession is certainly plausible. However, a recession simply means we’ll see a slowing in the pace of growth, which is healthy and needed. Here are a few different statistics that show we are in a different place then we were back then.

In 2005, everybody with a pulse could get a subprime mortgage loan. In fact, $620 billion was loaned in subprime mortgages back then. That made up 20% of all mortgages. These days, we are only seeing about $56 billion spent in subprime loans, which is only 5% of the market. This means that the banking industry has learned their lesson and isn’t being irresponsible with loans like they were in the past.

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Homeowners are much more responsible with their equity these days.

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Banks have certainly increased their lending standards since the market crash. In 2016, the loans given out by lenders were the highest quality of loans that we’ve seen in the previous 15 years. Back in 2001, the average FICO score for a homebuyer was 490, which is awful. In 2009, that figure jumped to 686—a much more reasonable score.

Finally, American homebuyers are much more responsible when it comes to using their equity. In 2006, homeowners were pulling out $85 billion worth of equity. A lot of it was being misused in the form of buying second homes, cars, and other unnecessary expenditures. These days, our community has been much more responsible. Although values have come back to where they were before the crash, only $14 billion was pulled out for equity in the last year.

In the Puget Sound area, our average sale price is now above where it was at the peak in 2007. People understand the market better and are more responsible with their assets.

If you have any questions about the market, your home, or your future buying or selling plans, don’t hesitate to reach out and give us a call or send us an email. We look forward to hearing from you soon.

The Cost of Waiting to Purchase a New Home

Waiting to buy may not be your best option. Here is why.

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What is the cost of waiting to purchase a home right now? Today I am going to look at this for both first-time and move-up buyers and what it equates to when it comes to your pocketbook.

If you are contemplating purchasing a home, you should know that it is a scarce inventory market. There aren't a lot of options available. For this reason, I wanted to arm you with some good information to make sure you understand how this can relate to your bank account at the end of the month and beyond.

Let’s say we’re working off a home price of $500,000. As of August 2018 in the greater Puget Sound area, the average interest rate is about 4.57% if you put down 20% on a 30-year loan. This means that your payment, if you bought a $500,000 home today, would be $2,554 per month.

From now to next year, CoreLogic is projecting that we will see a 5.3% increase in home values. I think that this is reasonable given that the average yearly appreciation of home values has been about 5% going all the way back to World War II.

With a 5.3% increase, that $500,000 home will be worth $526,500 in just a year.

The average yearly appreciation of home values has been about 5% going all the way back to World War II.

Freddie Mac is projecting that interest rates are going to be at 5.1% by the third quarter of 2019. That would increase your payment from just over $2,500 to $2,858.63. This is a $304 per month difference in the cost of purchasing the exact same home at different times.

I consider $304 to be a significant amount and it could really make a difference if you look at the annual amount of $3,652. You could either save that money or invest it and make an exponentially larger impact on your financial state years down the road by acting sooner rather than later. If you look at it over 30 years for how much you are paying extra, it is $109,000.

If you are a move-up buyer, meaning you own a home that is less expensive than the house that you want to move into, the gap actually grows. For example, if you have a 5% increase in your $300,000 existing house and you want to buy a $500,000 home, the increase is going to be much larger for the larger home. From there, the gap grows further.

I want to help you find your next best step. If you have any questions about this or are interested in buying or selling, please feel free to contact me. I look forward to speaking with you soon.