Your Market's Slowing Down? Here's why...

By
Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141
https://activerain.com/droplet/5dBm

Your Market's Slowing Down?  Here's why...

 

     Across the nation, many in the real estate industry are beginning to talk about a slowdown in the market place. Rather than hours on the market, homes are beginning to spend days and weeks on the ad pages.  Instead of 10-15 offers, 'competitive' situations are involving 2-3 buyers with some slightly under-list price offers.  While things still lie heavily in a seller's favor, something seems to be happening.  One agent I saw deemed it not a slowdown, but a "Shift".  Well my jargon-ridden-you've-read-too-many-Gary-Vee-books-recently-friend, a shift in which the market slows down and homes sit on the market longer after years of homes selling at a furious pace already has a name.  It is, in fact, called a slowdown.

 

 

     First, some facts.  Home buying is still a tremendous opporutinty for stability and wealth in our country.  Impending recession or not, now is still a fantastic time to buy.  Homes will continue to appreciate (something about birth-death rate, inventory-demand, taxes, blah blah another blog for another day...).  Interest rates will be moving up, making it smarter for Metro Rent Increasessomeone to buy today than tomorrow.  

 

 

     With all of those attributes pointing toward the fact that buyers should (still) be in a frenzy, then why are we starting to see a slowdown?  Why are rumblings amongst the real estate community that things are about to get tough?

 

 

     I would point to a single cause - there are likely hundreds of real causes, but only a handful of major ones, and the biggest of all is appreciation.  Classic supply and demand models have played out perfectly over the past couple of years - low inventory of a hot commodity (homes) has driven prices up.  Many, many people have jumped back into the market, buying despite prices skyrocketing above what's been supported by comps, and in many cases, common sense.  Savings have gone toward paying above appraised value.  Cash has been put to work to win bidding wars.  People have done just about anything they could to land a new home due to the fact that dream homes aren't being built like they used to be.

 

 

     But under it all, wages haven't come up.  Home prices have.  Rents have.  But wages have not.  In many major markets, we've seen home appreciation at the low end 5%+, and on the high end upward of 15% in markets like the Bay area in California and Seattle, WA.  Wages though, are lagging severely, with wage growth stuck a hair above 3%.  It's simple math, really.  If home prices continue to go up 8%, and rents go up 5-6%, with wages goingWage growth chart up 3% - eventually, we reach the point where people can no longer afford housing.  The only way to bring things back to balance are extreme wage growth (not gonna happen...see above note about impending recession), or home values need to come down.   OR, of course, inventory could be increased to balance the market, but in most markets, this is a pipe dream.  

 

 

     There are $0 down programs for buyers in many markets, but with those programs borrowers see the reality of a rising rate market and costly PMI that severely eats into their buying power.  Sure, they could afford a mortgage with 20% down, but rents are too high to save any substantial amount for a down payment.  Plus, all the while they're saving, home prices and interest rates are going up, so the extra savings are barely putting a dent in the potential home buyer's dilemma.

 


     So we've identified a major problem?  What's the solution?  For one, homes need to come down in price.  Home buying hysteria needs to stop - people are still only staying in homes 10 years on average (and this is skewed higher by the fact that many people had negative equity 10 years ago - in fact, they HAD to stay in their homes if they wanted to avoid a short sale for at least 3-5 years of those 10).  So it makes no sense for most people, especially entry level buyers, to start off with negative equity.  It's not a big deal when you buy a Honda Civic.  It's a really big deal on a $250,000+ home.  Buy based on comps, long term financial goals, and ability,  and not based on the "I want it now so I need it now" mentality that so many people have.  

 


     The government should also be helping.  Not with handouts, but by bringing back the benefit of the FHA loan.   When HUD changed the mortgage insurance model of FHA, it all but killed the program - no buyer wants to be stuck with PMI for the life of a loan, and in a rising rate environment, there may never be an opportunity to refinance into a better loan than the one available today.  Conventional loan alternatives have pricing based on credit, so borrowers with credit even just slightly south of perfect are faced with higher rates and mortgage insurance premiums than the FHA loan comes with.  FHA changing their PMI model to match the conventional model would open the door to more buyers who have trouble saving a down payment.

 

     One final way we could help is in educating more buyers to the alternative loan products out there.  203k and other renovation loans can help buyers enter more affordable homes and create the home they want, rather than overspending for a home that already has all the upgrades, bells, and whistles.   As Fannie Mae and Freddie Mac sort out the hurdle of qualifying the rising number of people participating in the gig economy  , opportunities will open to those who have the income, but not the documentation, to qualify for a low down payment mortgage.  Help should be on the way from the mortgage industry, but the big question is "will it be enough?".

 

     For now, inventory is low, rates are still low, deductions are still available, and home ownership is still a straight path to wealth and stability.  It's a great time to buy, but we need to open the door to more buyers.  

 

 

close

Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Jason Kardos 08/01/2018 06:37 PM
  2. Janna Scharf 08/02/2018 10:31 AM
  3. Susan Jacobsen 08/02/2018 12:39 PM
Topic:
Real Estate Industry
Groups:
Mortgages
The Lounge at Active Rain
"Whacked"!!!
Bananatude
Bartender, Make it a Double
Tags:
economy
housing slowdown
housing industry

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Ambassador
662,755
John DL Arendsen
CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS - Leucadia, CA
Crest Backyard Homes "ADU" dealer & Contractor

Great post John Meussner I think a question I asked and you answered may have fueled fodder for this brilliant share. In a sentence. Exponetial Growth = The Law of Deminishing Returns. And I don't even think that's Newtonian. Just good ole logic?

Aug 01, 2018 08:29 PM #25
Ambassador
662,755
John DL Arendsen
CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS - Leucadia, CA
Crest Backyard Homes "ADU" dealer & Contractor

John Meussner  I think you have an issue with Rafael Luciano. Looks like he's SPAMMING your post. 

Aug 01, 2018 08:36 PM #26
Rainmaker
254,260
Pam Jank
Coldwell Banker Schneidmiller Realty - Coeur d'Alene, ID
Your Coeur d'Alene & North Idaho Real Estate Pro

Thank you.  I agree that all of this needs to be said.  Buyers an Seller need to take notice.  Prices escalated so fast here in Coeur d'Alene over the past couple of years it brings back feelings of the CRASH and BURN of 2009. It was scary then just before the crash.  It's starting to feel scary right now. 

Aug 01, 2018 09:31 PM #27
Rainmaker
1,503,205
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

I think someone needs to kick Rafael Luciano out of the Rain! I've never seen so many spam messages from one person in one post.

Aug 01, 2018 09:37 PM #28
Rainmaker
1,508,540
Amanda S. Davidson
Amanda Davidson Real Estate Group - Alexandria, VA
Alexandria Virginia Homes For Sale

John, your post is spot on for what's happening in my market and I agree 100%. I have only seen one FHA loan in the past 2 years and when I first got into real estate we saw them all the time. Things are still moving quickly inside the beltway but, I've seen it slow further out. 

Aug 02, 2018 05:40 AM #29
Rainmaker
1,272,797
Wayne and Jean Marie Zuhl
Samsel & Associates - Clark, NJ
The Last Names You'll Ever Need in Real Estate

Great post with a compelling argument. Nothing says "Great Post" more than the spam-bots coming out in full force, also!!

Aug 02, 2018 05:54 AM #30
Rainer
488,135
Jason Anderson
Platinum Realty - Bixby, OK
Realtor®, Organizational Expert

Great post. It's refreshing to see an industry professional with a grasp of reality! I see too many people in the industry hype up the market with complete disregard to what is actually going on. You hit the nail on the head as to what is going on in many parts of the country. I am licensed in a few states and witnessed huge appreciation in areas (DSM, IA for example) that just cannot be supported-but agents and sellers dont want to hear any of that, while other areas (Oklahoma) have been  balanced-but is in the midst of a little slowdown.

At the end of the day, most people still have to rely on a mortgage for their home, so rates do matter - but I dont see huge jumps in rates for a while yet, so I believe price plays the biggest role along with the more recent changes in loan packages such as FHA.

One final note: This "I want in now" attitude of many people is actually hurting their chances of home ownership. Sit back and save a little-don't go out buying the newest car, fanciest clothes, newest phone. Youd be amazed at how that can change your home-buying power!!

Aug 02, 2018 06:23 AM #31
Rainmaker
2,415,688
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

This is worthy of a seminar....

Aug 02, 2018 06:42 AM #32
Rainer
256,349
Thom Disch
Broker Dynamix - Libertyville, IL
Our Broker Dynamix System generates quality leads

I don't think you have your facts right.  I just read an article in the WSJ that says wages are growing at their fastest pace in 10 years. (https://www.wsj.com/articles/u-s-employment-costs-rose-in-the-second-quarter-1533040473) and your Wage Growth Chart confirms this. 

The counter to your argument is that when wages were still growing at 2% (for the previous 10 years and home prices dropped by as much as 30% in some markets we didn't see a huge jump in home buying.  The recent real estate boom has taken place with worse wage growth than we are currently seeing.  Have property prices increase more rapidly than wages? Maybe but I'm not sure since I haven't seen and you don't quote home price increases and where do prices and wages stand compared to ten years ago.

 

Aug 02, 2018 07:00 AM #33
Rainer
8,062
Hilary Meader
Fathom Realty - Anna, TX

I agree with your post here, as reflected in the DFW area. There are pockets of the metro area that are still selling well, but those are the older homes that are priced well. Even in the outer acreage properties that I prefer to sell, selling prices are showing us that under 500K are the way to sell. Buyers seem to be 'settling' for lacks in the house or property amenities just to be able to stay under 500K. 

Though DFW is growing jobwise, the wages don't seem to follow the housing craze that happened here for the last 3 years. When Toyota chose to move their headquarters here, the market went insane, with overbidders, cash buyers from pricey CA homesellers (it took half of what you sold your CA home for to buy a similar one here; for awhile), and first time buyers trying to compete. 

All of a sudden, we are seeing more Back On Markets (alot due to financing falling out) and price reductions, just in the past 3-4 months. The Sellers that just put their homes up (and we agents that priced based on previous market $$) are being slapped now. 

And yes, no one wants the 'forever' PMI. Are lending restrictions growing all over? Is the BOM scenario due to financing happening throughout the US?

Not a good time for a new agent to jump in, for sure. 

Aug 02, 2018 08:11 AM #34
Ambassador
662,755
John DL Arendsen
CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS - Leucadia, CA
Crest Backyard Homes "ADU" dealer & Contractor

I also think the buyers pool has shrunk and most of the folks who could purchase a property have done so in this most recent buying traunch Thom Disch.

I recently wrote a very similar post  and received an array of answers very similar to what I've been reading here. I've known John personally and have been following him regularly since I joined AR in '08. I think John's vision, insignt and experience is pretty spot on.

But allow me to present a different take. What I'm seeing as a broker, contracotr and investor, is an increase in homeowners leverging equity in order to purchase F&F's.

This was a great thing to do up until a couple of years ago when values were on the rise, inventories in decline and multiple cash offers and quick closes were in abundance.  Many of these property/homeowners have been doing or have done this multiple times and their banks keep funding their deals further leverging their equity and increasing their debt service burden.

However, these F&F's aren'f flying off the shelves like they used to in our area and many are starting to age as much as 90 to 120 days. So here sit flippers (quite a number according to lenders we work with) over extended on their mortgages with very high payments on their primary residence holding properties that  aren't moving. Now they not only have an increased burden on their own home but there paying hard money interest on their F&F property/s as well.

I'm blaming the lenders for allowing this to start creeping up. You would think after the last melt down due to a the loose lending practices that they would be a bit more conscience and selective about $GREEN$. Or is it GREED? What their now allowing in ther portfolios is becoming worrisome. 

Aug 02, 2018 08:16 AM #35
Rainmaker
124,601
Mary Ann Daniell Realtor
Coldwell Banker United, Realtors - Subsidiary of NRT LLC - Killeen, TX
Delivering Successful Results Since 1999

Lot's to think about in this post.   We still see all types of financing here.. and VA is still big since we are near Fort Hood, so the downpayment issue is not as critical.  What HAS happened in new construction is the intersection of rising prices due to material costs with the rise in interest rates.    New construction has slowed.  This might be a great opportunity for that home owner in an older area to put their nice house on the market and reap a good price.

Aug 02, 2018 09:39 AM #36
Rainmaker
247,043
Doug Kaller
Academy Mortgage, Reno, NV - Reno, NV

Thank you for the well thought out analysis. I don't believe the Northern Nevada market has slowed. Homes priced under $350,000 are still selling within days. The change is with the appraisals. A large number of appraisals are now coming in for less than the contract price. 

Aug 02, 2018 12:48 PM #37
Ambassador
1,793,380
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Completely agree with you. Thanks for the thoughtful observations - we have been noticing it in our market for the past four months. 

Aug 02, 2018 02:44 PM #38
Rainmaker
47,164
Youree Lundy
Keller Williams Advantage III Realty - Orlando, FL
Your Realtor For Life

In the Orlando Market, prices have been pushed up dramatically by the influx of evacuees due to the storms in other areas.  The rental market is insane; the owners who would have sold are instead renting at a 20-30 increase in rents. This leaves us with a shortage of entry level homes.  New construction single family starts at over $300,000 and wages at entry level do not at all support those prices.  Townhomes start in the $250,000 range, but adding the HOA fees has them out of reach also.  Wages in some of the region (Lake Nona) are up, but elsewhere we are just like everyone else.  We will see......

Aug 02, 2018 03:10 PM #39
Rainmaker
964,412
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Excellent post!  It's so important to make good financial decisions, especially after such a bad recession. Working with  a young couple this weekend, their first home.  It will be interesting to see if they understand what I try to explain, namely all of the above!

Aug 02, 2018 04:59 PM #40
Rainmaker
782,379
Kevin Mackessy
Blue Olive Properties, LLC - Highlands Ranch, CO
Dedicated. Qualified. Local.

We have a huge drop off in Denver this time of year where both the rental and sale markets get flooded with new listings.  It shifts considerably to the buyer's favor.

Aug 03, 2018 11:24 AM #41
Rainmaker
169,013
Deborah Grimaldi
Albert Realtors - Cranston, RI
(401) 837-9633

Thank you for sharing this information, I have noticed a slow down in our State as well. 

Aug 04, 2018 06:33 AM #42
Rainer
198,015
Macy Babb ... North Georgia Realtor
Re/Max Around Atlanta Realtor - 404-234-6166 - Cartersville, GA
Realtor, SFR, HUD/REO Certified

Great information... a healthy market needs homes at all price points, some counties around me now have zero options for the first time buyers and the new construction homes are at a price point that few can afford and are starting to "pile" up- hence driving prices back down

Aug 04, 2018 07:24 AM #43
Rainer
496,743
Sham Reddy
H E R Realty, Dayton, OH - Dayton, OH
CRS

It could very well be summer pause while families are more focussed on getting their vacations out of the way than home buying

Aug 05, 2018 05:01 AM #44
Post a Comment
Spam prevention
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Ambassador
880,501

John Meussner

#MortgageMadeEasy Walnut Creek, CA 484-680-4852
Ask an Expert!
*
*
*
*
Spam prevention