Existing home sales came in lower than expected. 4.91 million compared to the consensus estimated of 4.93 million. Even bigger news was the fact that the median home price in the US declined 9.7%. Down to $203,100 average sales price. So let's talk about why this is so important if you want to succeed. A 9.7% depreciation in home values, the product you sell, means that you are asking clients to purchase something that according to the news is going to be worth less a year from now than it is currently selling for. No one is ever going to buy that so you better know this little nugget of info if you plan on closing another sale anytime soon. "That's not happening in our market" doesn't work with any consistency, "Don't listen to the media" isn't going to work with many clients. Perception is everything so regardless of what you know or what your opinion is on the topic, the truth is the only thing that works without fail. Math doesn't lie, neither do the laws of economics. It's like gravity, tell me it's not there and I'll prove you wrong every time.
So, the question is, "Is my house worth less today than it was a year ago?" Yes and no, depends on perspective, not perception. In real dollars, perhaps and since we're using US Median price of $203,100 then you can't use "not in my market" because that's the average. If you go to the store and purchase a loaf of bread, the bread costs what it costs and you either buy it or you don't based on what that price is with very little obvious influences acting on that decision other than your personal budget and the price tag on that bread. This is not true with homes. Are you saying that a year ago, you might have been willing to spend $20 on a loaf of bread and today you're only willing to spend $3? (Assuming you have the same budget, the same income, etc. Nothing has changed except what you are willing to purchase bread for.) The answer is no, $20.00 for a loaf of bread is insane. So flip that into real estate. Are you telling me that you would pay $203,100 for a house today that a year ago you would've paid $225,000 for? The answer now is "well, it depends." The bread example didn't "depend on" anything right? The $225,000 depends on the following: What do I have to do to get it and do I have the ability to do that? If I have $20,000 available, a year ago, I could use that for down payment and still have money left over. My opportunity cost of spending that money is the same but I don't have to use as much of it so the opportunity cost of purchasing the house is lower. Today, guideline tightening being the culprit here, means I would have to use that full $20,000 to purchase the home so now the opportunity cost of buying is much higher. i.e., I can't do anything else with that money EXCEPT buy the house. Another factor, credit scores. 15% of the population has a credit score between 680-699. That 15% of the population had the same terms available to them, for the most part, as someone with a 740 credit score a year ago. Now, that's not even close to being the case. So you've decreased your pool of potential buyers by 15%. Both of those two factors, higher opportunity cost of the purchase and 15% decrease in buyers, have pushed down demand for that property. The question is not "Is my house worth less today than it was a year ago?" The question instead is "Did I buy my house for more than it was worth a year ago?" Sounds silly and redundant, but think about it and you'll see the difference. Lose credit standards, immediate access to hundreds of competing lenders in your immediate market, historically low interest rates, or "cheap money" to put it another way, all artificially increased demand thereby artificially increasing price.
So when your client asks you, "if I buy this house, will it be worth less today than it will be in a year?? I saw 9.7% lower values on the news!" The answer is "I saw that to, can you believe that people were paying almost 10% too much for houses a year ago?!" And then just explain why house prices were so inflated (see my explanation above....) and why now is actually the PERFECT time to buy. Because the prices are actually now CORRECT and fair market value becasue only people like you (as said to your client of course) who can afford it and have good credit can purchase this and therefore supply and demand have corrected themself.
No one can deny that, it's fact and it's very exact and scientific. It's not your "opinion of your local market" or media bashing. It's simple tride and true economics.
So all this boring financial mumbo jumbo I post isn't for my own entertainment, it's for your knowledge and to arm you and give you the leg up on the Realtors that don't see why this is even relevant or necessary. Slowly, those members of the Realtor heard are being thinned and the ones that are paying attention to the financial markets will be the only ones left on the other side of this market shake up. Call me and I will be more than happy to help and answer any more questions if you have them. Imagine what I can do with your clients when you tell them to call me for their mortgage?
Credit Part 4-
10% of your score is derived from what types of credit you have.
- A mixture of all types of credit is best.
- 3 to 5 revolving credit cards is optimal.
- Having a mortgage in your mix raises your scores.
- New credit temporarily decreases your score because it will show unrated. Once you've made a payment, it will report as "paid as agreed" and your credit scores will subsequently increase as a result.
Implement this side of it, i.e. opening more credit cards etc., after you've tested the water and have a good budget in place. Don't jump into this immediately, 10% of your score as opposed to the much higher percentages in part 1-3. This could get out of hand if you let it so this is to move you up into that next level only after you've pr oven yourself in the earlier stages of credit building.
Hope this helps!
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