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Recession Watch: Will Another Downturn Rock the Housing Market?

by Mary Gilbert


The Great Recession has receded in the rearview mirror, and pretty much every American would like to keep it that way, thank you very much. But we're still all too aware that the whole financial disaster was precipitated by a deluge of bad mortgages. Sure, we've had nearly a decade of booming home sales and prices. But now that they're slowing their roll, the whispers are starting to mount: Is another recession around the corner?

About 39% of Americans think the economy is slowing down, while 17% think we're already in a recession or depression, according to a recent Gallup poll.

Yes, we might see a recession soon, economists say—but there's no need to panic. That's because the financial factors that helped cause last decade's crash don't exist this time around.

"We're just scared because of what happened last time. And that's not what's going to happen [again]," says Lisa Sturtevant, a housing consultant and chief economist at Virginia Realtors, the state's real estate association.

If there is another recession, she says, "most people are not going to lose their house. Most people are not going to lose their jobs.”

That's a relief to hear—but then again, few experts predicted the last housing bust.

If a downturn does hit, probably toward the end of this year or the beginning of next year, most economists believe it will be brief and not nearly as painful as the last one. They anticipate that unemployment, currently at an extremely low 4%, will tick up slightly and there will be fewer new jobs created. But they don't envision widespread layoffs resulting in scores of foreclosures and plunging home prices, as we saw in 2008–09.

“We’re at a record-low level of unemployment. The economy can’t stay here," says Chief Economist Danielle Hale of realtor.com®. She forecasts a recession beginning within the next two years. "This one will be mild."

Why it looks like we're due for a recession

Although a recession can be precipitated by a housing bust, trade war, or global event, this time the U.S. economy may simply become a victim of its own success.

With national unemployment so low, employers have to compete hard for talent by offering higher wages. Those increased costs are often passed onto consumers. This in turn causes inflation as goods and services become more expensive. If inflation rises much higher than wages, then the country has a problem.

Enter the U.S. Federal Reserve. It battles inflation by notching up interest rates. The downside is that makes it more expensive for businesses to borrow money to expand or bring on more workers. And that can effectively slow down the economy.

It's like someone blowing too much air into a balloon—eventually a little needs to be let out or it'll pop. Similarly, the Fed needs to siphon off a little of the economy's helium. It hiked rates four times last year, when the economy was hurtling along, but this year it may do it only once, if at all.

Actually, economic cycles in which the economy is growing and more jobs are being created historically don't last more than a few years. The longest stretched from 1991 to 2001. This summer will mark the longest economic expansion in U.Shistory from the trough of the crisis in June 2009.

So the good times eventually must come to an end.

This slowdown, coming on the heels of a wild run-up in home prices, may feel like déjà vu. But the main culprit behind the previous housing market bust was the torrent of subprime mortgages doled out to underqualified and often uninformed buyers. When those owners defaulted, it created a domino effect, ultimately affecting all corners of the nation's economy.

After that, lending laws were considerably tightened across the board. Borrowers today must be in much better financial shape in order to snag a mortgage.

"Underwriting is a lot tighter, and the [loans] are a lot less risky," says Joel Kan, who oversees economic and industry forecasting at the Mortgage Bankers Association. "Households are in a better position to absorb the shock than they were back then."

Will a recession lower home prices?

Buyers on a budget shouldn't pin their hopes on a recession to create a vast clearance sale of deeply discounted properties. Prices aren't expected to plummet, although they may dip in more expensive markets. Overall, price appreciation will likely just continue to slow.

But if the Fed lowers interest rates again to counteract a poor economy, mortgage rates will likely go down, too. That will also make it cheaper to buy a house.

"If there is a recession, the people with stable jobs will see it [as] a second-chance opportunity to buy a home," says Lawrence Yun, chief economist of the National Association of Realtors®. Yun doesn't anticipate a recession this year, or next. "Prices may [or may not] come down. But certainly buyers will be in a better negotiating position."

And even in a shakier economy, overall demand for housing, which keeps prices up, isn't going to evaporate. The huge millennial population is getting older, settling down, and having children—and searching for homes of their own. Those life factors are not likely to change, and they create a massive demand for housing. A decade ago, it was mostly Gen Xers at that stage, a smaller generation with less impact.

The places that are most likely to see prices sink are more expensive markets that have experienced years of steep price hikes. For example, Silicon Valley's San Jose, CA, could see corrections, says Hale.

Markets with more housing than buyers, such as Miami, where new developments have been going up at a breakneck pace, may also soften, says Norm Miller, a real estate finance professor at University of San Diego.

The luxury market, which is the priciest 5% of homes in any area, will also probably be affected.

"There are just more expensive homes [than affordable ones] for sale, and so the luxury market is likely to be more vulnerable to price corrections in the event of a recession," says Hale.

A recession could worsen the housing shortage

One of the signatures of the past recession was the overabundance of newly built homes. When the economy collapsed and the buyers disappeared, builders across the nation were forced out of business basically overnight. Abandoned construction sites were littered across the country. The industry still hasn't caught up with the renewed demand, and another recession could worsen the situation.

Only about 875,00 single-family homes were built last year, according to the National Association of Home Builders. But the nation needed about 1.1 million to ameliorate the shortage. If another downturn hits, builders will likely construct even fewer homes, says Rob Dietz, chief economist of the NAHB.

That means when the country recovers, we could experience even greater housing shortages than we've seen over the past few years.

The pace of single-family home construction growth is already slowing down, from 9% in 2017 to about 3% in 2018. Dietz predicts it will be less than 2% in 2019.

Building is expected to remain strong in places with strong population growth, such as the Southeast, Texas, and the mountain states of Montana, Idaho, Colorado, and Utah. Folks need places to live, after all.

But the current higher mortgage rates make it harder for folks to buy homes. Meanwhile, inflation results in higher land, materials, and construction labor costs. That typically translates into fewer new homes going up.

“For builders, it means that demands will fall back in some markets and they will pull back," says Dietz.

Renters won't be spared by a recession

Cash-strapped tenants hoping for a rent break likely won't get lucky even if the economy does start to slump. Rent price growth is likely to slow or even stall as fewer folks are going to be dropping big bucks on housing, says Greg Willett, chief economist at RealPage, a property management technology and analytics company focused primarily on rentals. But it's not likely to fall.

The exception is the luxury market, where landlords will have the most trouble finding tenants.

"Luxury will feel the pain first,” says Willett.

There could be some longer-term consequences as well as fewer rental developments are typically built when the economy sputters, so when things are a bit rosier, there may be fewer units available to fill demand.

Depending on how long the recession lasts, some condo buildings that can't find buyers may eventually go rental. That's most likely in places with an oversupply of housing, such as Miami, Miller says.

"[The last] financial crisis was unique with an unprecedented number of foreclosures, home price declines, and a stunning drop in homebuilding," says Dietz. “The question is whether we’re going to experience a soft landing, a bumpy landing, or a crash landing."

Contact The Mary Gilbert Group for all your Real Estate needs! 541.371.5500 or [email protected] 

By: Realtor.com, Clare Trapasso

Should You Jump Into the Current Real Estate Market?

by Mary Gilbert

Deciding you’re ready to buy a house is a big moment in your life, whether it’s a first time purchase or you’re snatching up yet another investment property. The home buying process is fraught with dangers, both real and imagined, as well as very real financial risks.

That’s why there are so many pieces of advice about when to buy a house. The truth is that there’s no one answer for anyone. Because market conditions can vary dramatically, there’s no way to safely predict if or when the neighborhood you’re looking at will be ripe for the picking. These are the times when having a really knowledgeable Realtor comes in handy.

Today’s Real Estate Market: An Overview

You should have some idea of what you’re walking into before you jump in the real estate market. Sometimes, there’s way too much supply (too many houses for sale) and not enough buyers — this is a “buyer’s market,” and that’s who has the upper hand in negotiations. Sometimes there are too many buyers and not enough supply — a “seller’s market.” Often, there are roughly balanced parts supply and buyers, which makes for a very healthy and predictable market.

We’re not in a healthy and predictable market at the national level. There are currently way too many buyers who want to buy at any price and not nearly enough new homes being built, nor are there enough existing homes to meet demand. Generally, this would push prices up. However, since interest rates are increasing, some buyers are starting to get squeezed out of the market entirely, which should be pushing prices back down, but doesn’t seem to be.

What we seem to have right now, as of the writing of this blog, is a market that’s sort of stalling. Normally, the summer is the craziest time of the year for Realtors — no one wants to pull their kid out of school mid-year to move across the city. And although many Realtors are reporting that they have plenty of potential, well-qualified buyers, they’re fighting over scraps as the supply continues to shrink.

Should You Be Trying to Buy Right Now?

Depending on who you are and where you are in your life journey, the competitive, weirdly stalled market we have this year may be as good a time as any for you to buy. Below is a brief breakdown of major buyer types and how the market could affect them if they were to buy today:

First time homebuyers. Jumping into the real estate market as a first timer is always a little terrifying, but the current market may give you a serious complex. If you’re buying a house to live in, not one that you expect will make you a bundle down the road, and your life is fairly settled, there’s no time like the present to go down the home purchase road. Just bear in mind that you will probably have to write several offers before you land that starter home — give yourself plenty of time for houses that will get away.

Maturing family. When you’re looking for that last house, the one you’re going to send your kids away to college from, the most important thing is finding a house that’s suitable for your family. There’s no time that’s better or worse for this purchase, especially if your plan is to hold it indefinitely. Sure, you may end up paying a little bit more now than you would have a couple of years ago, but the value you get from living in the house, as well as natural appreciation, generally ensure you come out a little bit ahead. It beats renting, anyway.

Empty nester. Aging in place is the thing these days, and for good reason. That just creates one big problem: not enough inventory that will accommodate mobility equipment like walkers and wheelchairs that you may ultimately need. Housing starts are really rising, though, so you might as well visit a few Open Houses to see if there’s a builder out there that you can picture building the home where you’ll retire. Although existing homes can work for your needs, new construction gives you the option to create an age in place friendly universal design from the foundation up.

Investor. Investors! You are literally the only group on this list that should be seriously concerned about the timing of your purchases. Since owner-occupied homes tend to be held for the long term, the risk to those buyers is minimal, but you’re looking to buy and almost immediately start making money.

Finding a good price on a listed home may be tricky right now, but switching gears to the building of new homes will introduce a lot of competition. Buying and holding properties as rentals could pay off, but only if you really buy them right. Now may not be a great time for you to buy if you have investments that are already paying for themselves. It would, however, be a pretty good time to unload properties that you’ve fully depreciated or those that just really don’t fit in with your portfolio.

When it comes down to it, the biggest factor you should be considering when purchasing real estate that you intend to occupy is whether or not you’re really ready for homeownership. A close second, of course, is whether or not you can really afford a house, but your Realtor and mortgage lender will help you with that part.

You’ll have to decide for yourself if today is a good day to buy, there’s no way to know what the market will look like in five to 10 years when you may want to buy again.

Let Your Realtor Be Your Guide…

Just like the HomeKeepr community helps you find home pros that can fix just about any problem you might have related to your current or future home, your Realtor is the best person to go to when it comes to the question of timing your real estate purchase. If they tell you to punch it, then all systems go.

Contact The Mary Gilbert Group today! 541.371.5500 or [email protected]

By: home.homekeepr.com

How A Lack of Inventory Impacts the Housing Market

by Mary Gilbert

The housing crisis is finally in the rear-view mirror as the real estate market moves down the road to a complete recovery. Home values are up, home sales are up, and distressed sales (foreclosures and short sales) have fallen to their lowest points in years. The market will continue to strengthen in 2018.

However, there is one thing that may cause the industry to tap the brakes: a lack of housing inventory. Buyer demand naturally increases during the summer months, but supply is not keeping up.

Here are the thoughts of a few industry experts on the subject:

Lawrence Yun, Chief Economist at National Association of Realtors

“The worsening inventory crunch through the first three months of the year inflicted even more upward pressure on home prices in a majority of markets. Following the same trend over the last couple of years, a strengthening job market and income gains are not being met by meaningful sales gains because of unrelenting supply and affordability headwinds.”

Sam Khater, Chief Economist for Freddie Mac

“As we head into late spring, the demand for purchase credit remains rock solid, which should set us up for another robust summer home sales season. While this year’s high rates – up 50 basic points from a year ago – have put pressure on the budgets of some home shoppers, weak inventory levels are what’s keeping the housing market from a stronger sales pace.”

Javier Vivas, Director of Economic Research for Realtor.com

“The dynamics of increased competition and buyer frustration are unlikely to change…In fact, the direction of the trend is pointing to a growing mismatch between the pool of prospective buyers and existing inventory.”

Bottom Line

If you are thinking of selling, now may be the time. Demand for your house will be strong at a time when there is very little competition. That could lead to a quick sale for a really good price.

 

 

Let’s get together to discuss your options! 541.371.5500 or [email protected].

 

By: KCM Crew

 

 

Don’t Wait to Sell Your House! Buyers Are Out Now

by Mary Gilbert

Recently released data from the National Association of Realtors (NAR) suggests that now is a great time to sell your home. The concept of ‘supply & demand’ reveals that the best price for an item is realized when the supply of that item is low and the demand for that item is high.

Let’s see how this applies to the current residential real estate market.

SUPPLY

It is no secret that the supply of homes for sale has been far below the number needed to sustain a normal market for over a year at this point. A normal market requires six months of housing inventory to meet the demand. The latest report from NAR revealed that there is currently only a 3.6-month supply of houses on the market.

Supply is currently very low!

DEMAND

A report that was just released tells us that demand is very strong. The most recent Foot Traffic Report(which sheds light on the number of buyers who are actually out looking at homes) disclosed that “foot traffic grew 10.5 points to 52.4 in March as the new season approaches.”

Demand is currently very high!

Bottom Line

Waiting to sell will only increase the competition between you and all of the other sellers putting their houses on the market later this summer.

If you are debating whether or not to list your home, let’s get together to discuss the conditions in our market. 541.371.5500 or [email protected].

By: KCM Crew

US Housing Market Still In ‘Buy Territory’!

by Mary Gilbert

According to the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index, the U.S. housing market has continued to move deeper into buy territory, supporting the belief that housing markets across the country remain a sound investment.

The BH&J Index is a quarterly report that attempts to answer the question:

In today’s housing market, is it better to rent or buy a home?

The index examines the entire US housing market and then isolates 23 major cities for comparison. The researchers “measure the relationship between purchasing property and building wealth through a buildup in equity versus renting a comparable property and investing in a portfolio of stocks and bonds.” 

While 13 of the 23 metropolitan markets examined moved further into buy territory, markets like Dallas, Denver, and Houston are currently deep into rent territory. Due to a lack of inventory, the home prices in these areas have increased by 6.7%6.3%, and 5.3%  respectively from a year ago.

According to Eli Beracha, Ph.D., Co-Creator of the index, home prices will begin to return to more normal levels.

Our data indicates that prices are above their 40-year trend but not significantly so as they were in 2007. Rather than a crash, I anticipate slower growth in prices accompanied by longer marketing times for sellers and increasing inventories, which should bring prices back in conjunction with their 40-year trend.”

Bottom Line

The majority of the country is strongly in buy territory. Buying a home makes sense socially and financially, as rents are predicted to increase substantially in the next year. Protect yourself from rising rents by locking in your housing cost with a mortgage payment now. 

Let the expert's at the Mary Gilbert Group assist you with all your real estate needs! 541.371.5500  or [email protected] 

By: KCM Crew

712,000 Homes in the US Regained Equity in the Past 12 Months!

by Mary Gilbert
712,000 Homes in the US Regained Equity in the Past 12 Months! | MyKCM

CoreLogic’s latest Equity Report revealed that “over the past 12 months, 712,000 borrowers moved into positive equity.” This is great news, as the share of homeowners with negative equity (those who owe more than their home is worth), has dropped more than 20% since the peak in Q4 of 2009 (26%) to 4.9% today.

The report also revealed:

  • The average homeowner gained approximately $14,900 in equity during the past year.
  • Compared to Q3 2016, negative equity decreased 22% from 3.2 million homes, or 6.3% of all mortgaged properties.
  • U.S. homeowners with mortgages (roughly 63% of all homeownershave seen their equity increase by a total of $870.6 billion since Q3 2016, an increase of 11.8%, year-over-year.

The map below shows the percentage of homes by state with a mortgage and positive equity. (The states in gray have insufficient data to report.)

712,000 Homes in the US Regained Equity in the Past 12 Months! | MyKCM

Significant Equity Is on The Rise

Frank Nothaft, Chief Economist at CoreLogic, believes this is great news for the “housing market.” He went on to say:

“Homeowner equity increased by almost $871 billion over the last 12 months, the largest increase in more than three years. This increase is primarily a reflection of rising home prices, which drives up home values, leading to an increase in home equity positions and supporting consumer spending.”

Of the 95.1% of homeowners with positive equity in the U.S., 82.9% have significant equity (defined as more than 20%). This means that more than three out of four homeowners with a mortgage could use the equity in their current home to purchase a new home now.

The map below shows the percentage of homes by state with a mortgage and significant equity.

712,000 Homes in the US Regained Equity in the Past 12 Months! | MyKCM

Bottom Line

If you are one of the many homeowners who are unsure of how much equity you have in your home and are curious about your ability to move, let’s meet up to evaluate your situation. Roseburg Properties Group - 541.371.5500 or [email protected] 

By: KCM Crew 

There’s More to a Bubble Than Rising Home Prices

by Mary Gilbert
There's More to a Bubble Than Rising Home Prices | MyKCM

What truly causes a housing bubble and the inevitable crash? For the best explanation, let’s go to a person who correctly called the last housing bubble – a year before it happened.

“A bubble requires both overvaluation based on fundamentals and speculation. It is natural to focus on an asset’s fundamental value, but the real key for detecting a bubble is speculation…Speculation tends to chase appreciating assets, and then speculation begets more speculation, until finally, for some reason that will become obvious to all in hindsight, the ‘bubble’ bursts.

I have taken to calling the housing market a ‘bubble’.”

– Bill McBride of Calculated Risk calling the bubble back in April 2005

Where do we stand today regarding speculation?

There are two measurements that are used to determine the speculation in a housing market:

  1. The number of homes purchased by an investor and
  2. The number of homes being flipped (resold within a twelve-month period)

As compared to 2005, investor purchases are down dramatically (from 23% to 13%) and so is flipping (from 8.2% to 5.7%). McBride explains:

“There is currently some flipping activity, but this is more the normal type of flipping (buy, improve and then sell). Back in 2005, people were just buying homes and letting them sit vacant – and then selling without significant improvements. Classic speculation.”

What are the experts saying about speculation in today’s market?

DSNews recently ran an article which asked two economists to compare the speculation in today’s market to that in 2005-2007. Here is what they said:

Dr. Eddie SeilerChief Housing Economist at Summit Consulting:

“The speculative ‘flipping mania’ of 2006 is absent from most metro areas.”

Tian LiuChief Economist of Genworth Mortgage Insurance:

“The nature of housing demand is different as well, with more potential homeowners and far fewer speculators in the housing market compared to the 2005-2007 period.”

And what does McBride, who called the last housing bubble, think about today’s real estate market?

Sixty days ago, he explained:

“In 2005, people were just buying homes and letting them sit vacant – and then selling without significant improvements. Classic speculation. And even more dangerous during the bubble was the excessive use of leverage (all those poor-quality loans). Currently lending standards are decent, and loan quality is excellent…

I wouldn’t call house prices a bubble – and I don’t expect house prices to decline nationally like during the bust.”

Bottom Line

Speculation is a major element of the housing bubble formula. Right now, there are not elevated percentages of investors and house flippers. Therefore, there is not an elevated rate of speculation.

Let's discuss your home buying or home selling options! 541.371.5500 or [email protected] 

By: KCM Crew

Home Sales Expected to Increase Nicely in 2018

by Mary Gilbert
Home Sales Expected to Increase Nicely in 2018 | MyKCM

Freddie MacFannie Mae, and The Mortgage Bankers Association are all projecting that home sales will increase in 2018. Here is a chart showing what each entity is projecting in sales for the remainder of this year and the next.

Home Sales Expected to Increase Nicely in 2018 | MyKCM

As we can see, each entity is projecting sizable increases in home sales next year. If you have considered selling your house recently, now may be the time to contact Roseburg Properties and put it on the market. 541.371.5500 or [email protected] 

By: KCM Crew

Where Are the Home Prices Heading in The Next 5 Years?

by Mary Gilbert
Where Are the Home Prices Heading in The Next 5 Years? | MyKCM

Today, many real estate conversations center on housing prices and where they may be headed. That is why we like the Home Price Expectation Survey.

Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts, and investment & market strategists about where they believe prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.

The results of their latest survey:

Home values will appreciate by 5.0% over the course of 2017, 4.0% in 2018, 3.2% in 2019, 3.0% in 2020, and 3.0% in 2021. That means the average annual appreciation will be 3.64% over the next 5 years.

Where Are the Home Prices Heading in The Next 5 Years? | MyKCM

The prediction for cumulative appreciation increased from 17.8% to 18.4% by 2021. The experts making up the most bearish quartile of the survey are projecting a cumulative appreciation of 6.7%.

Where Are the Home Prices Heading in The Next 5 Years? | MyKCM

Bottom Line

Individual opinions make headlines. We believe this survey is a fairer depiction of future values.

Contact Roseburg Properties Group for all your home buying and home selling needs! 541.371.5500 or [email protected]

By: KCM Crew 

58% of Homeowners See a Drop in Home Values Coming

by Mary Gilbert

According to the recently released Modern Homebuyer Survey from ValueInsured58 percent of homeowners think there will be a “housing bubble and price correction” within the next 2 years.

After what transpired just ten years ago, we can understand the concern Americans have about the current increase in home prices. However, this market has very little in common with what happened last decade.

The two major causes of the housing crash were:

  1. A vast oversupply of housing inventory caused by home builders building at a pace that far exceeded historical norms.
  2. Lending standards that were so relaxed that unqualified buyers could easily obtain financing thus enabling them to purchase a home.

Today, housing inventory is at a 20-year low with new construction starts well below historic norms and financing a home is anything but simple in the current mortgage environment. The elements that precipitated the housing crash a decade ago do not exist in today’s real estate market.

The current increase in home prices is the result of a standard economic equation: when demand is high and supply is low, prices rise.

If you are one of the 58% of homeowners who are concerned about home values depreciating over the next two years and are hesitant to move up to the home of your dreams, take comfort in the latest Home Price Expectation Survey.

Once a quarter, a nationwide panel of over one hundred economists, real estate experts and investment & market strategists are surveyed and asked to project home values over the next five years. The experts predicted that houses would continue to appreciate through the balance of this year and in 2018, 2019, 2020 and 2021. They do expect lower levels of appreciation during these years than we have experienced over the last five years but do not call for a decrease in values (depreciation) in any of the years mentioned.

Bottom Line

If you currently own a home and are thinking of moving-up to the home your family dreams about, don’t let the fear of another housing bubble get in the way as this housing market in no way resembles the market of a decade ago. Contact Roseburg Properties today at 541.371.5500 or [email protected]

By: KCM Crew

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Mary Gilbert
Keller Williams Realty Umpqua Valley
2365 NW Kline Street, Suite 201
Roseburg OR 97471
541-371-5500
Fax: 541-371-5501

© Keller Williams Realty, Inc. is a real estate franchise company. Each Keller Williams office is independently owned and operated. Keller Williams Realty, Inc. is an Equal Opportunity Employer and supports the Fair Housing Act.