Monday, November 19, 2018

21 Housing Market Factors That Will Affect Pricing and Sales in 2020


two people are confused about direction of the housing market. Cartoon bubble above their head shows graphs going all directions.


After writing and reporting about the housing market for over a decade (and commonly getting it right except for interest rates), I have been perplexed about the direction of housing prices and sales as we look through and past the COVID 19 crisis. Most of my prior reporting has focused on eight major factors: Inventories, affordability, interest rates, population trends, projected new housing, current pricing, the economy, and the rent vs buy equation. Another factor has also played a part at times - investors, including foreign buyers.

If you need a mortgage, call Bill Rayman right now at (310) 453-4016. 

If you take a quick look at each of those, five of the eight would bode very well for continued increases in prices and flat-to-increasing sales as inventory allows:

  1. Inventory is still very low - People are not listing
  2. The underlying economy was still red hot prior to COVID 19
  3. The population is bursting with new families
  4. New housing starts in the pipeline are generally insufficient to meet overall demand
  5.   Interest rates are at historic lows, and likely to continue at these levels

       The other three are either soft or negative
  1. Increasing housing prices have outstripped increasing income in the middle class
  2. The wealthy overseas buyer is not as active in the US right now
  3. Investors are no longer scooping up bargains, as bargains are harder to find

A huge factor doesn’t really fit with the above. This would be the rent vs buy equation. Generally, as rents rise, tenants consider buying. Of course, as rents rise, investors are willing to pay more for rental properties, and builder are attracted to build more. Lots of moving parts there. The reality is that very, very few markets have anywhere close to enough affordable housing when you combine owned and rented units, and there isn’t enough being built to catch up with population.

Overall, there is still a huge squeeze on tenants to afford apartments, and many are doubling up who don’t prefer that arrangement. Thus, this 9th issue would point towards more demand for purchased housing.

If these were the only factors at work, you might expect a flat market, and that seems to be what we have right now. But, a fantastic article in the NY Times provided a few nuances. Moreover, in a shocking development, the letters to the editor provided significant insights that the author didn’t uncover. Here are some fascinating elements to consider. Each, on their own, would not have much effect on the market, but taken together they might give hints as to future trends.

  1. Grandma still isn’t selling – This is huge and is reducing inventory. But if she sells, she still needs to live somewhere and there is no rental property available at reasonable prices.
  2. Millennials are still living at home – This is reducing demand, but will these kids still live at home at 35 or 40? This could be a huge demand component that is lurking.
  3. Student debt a huge problem – For some professionals this debt is six figures and hurts their ability to borrow or pay. For some middle-class young people, the debt is less substantial, but still cuts into what they can afford.
  4. Very little affordable housing being built – You will hear that new home sales are down, and that homebuilders are despondent. The reality is that they are not building the homes that new families want. This is partly due to the reality that building a smaller home isn’t as profitable, given all the regulations and the cost of land. Affordable housing predicted to go from 20% of new builds to 30%.
  5. Earnings are just starting to improve. Through the first eight years of the recovery, earnings have been very flat. With unemployment so low, it would be odd to see earnings not respond, and now they are. This will improve affordability.
  6. Immigration will increase – legal and illegal. Every nation with low birth rates must increase immigration or their economy will stagnate. One way or the other the US will see more immigrants moving here due to our huge demand for labor. This will increase demand.
  7. Doubling and tripling-up – Singles are commonly living with roommates who would rather not be. This is, of course, due to the cost of rentals. As these individuals find a better job, they will be adding to demand.
  8. End of mortgage deduction - The changes in the tax law that increased the amount of the standard deduction, eliminated a major advantage to ownership. This is a factor right now, but will play itself out. 
  9. Massive housing wealth – Those who owned their home 10 years ago are now sitting on massive amounts of home equity. If these individuals choose to move, they have substantial down payments, whether they are moving up or downsizing. 
  10. The millennials and Z gen are not that different than the boomers or X gen that went before. Their folks and other relatives are likely to be needed for down payment help. The good news is that the older generation has massive equity, and may have also created additional wealth through the soaring stock market.
  11. Concentrations in major urban areas – In the major tech cities, prices are high due to lack of new places to build. Los Angeles, San Francisco, Boston, NYC, and other such cities can only build up. While these areas may see some relaxation in rental pricing over the next two or three years, it will only be a pause.   
  12. Lower expenses in other home budget areas beside housing – This is a huge factor in the last 25 years. We are spending less and less AS A PERCENT OF TOTAL INCOME on food, cars, clothes, entertainment, travel, children, and almost every other category of expense. This frees up dollars to be spent on housing. The result is that the average individual or family has more money to compete in the market.

For instance, if a family used to spend on average 70% of their $50,000 a year income on everything but housing, they would have $15,000 a year to spend on housing. If their cost for everything else dropped to 50%, then they have $25,000 to spend on housing. This provides more buying power, and therefore more competition for scarce resources. Put another way, we aren’t spending 50% on housing because we have to. We are spending 50% because we can.

2020 Housing Forecast


Where does all this leave us? What might 2020 bring in sales and prices? 

Most economists believe that the economy will perk right back up after the social distancing is lifted. If you use the panic around the 911 as a good example, then housing did fine after the panic was over. So here is the prediction starting in June. 

  • Location, location, location – Real estate will still be about location in 2019. Crazy high rents and prices for luxury apartments and condos in major cities are likely to soften. The same can’t be said for middle and affordable housing. This will likely be steady to up. There is some indication of significant softening in the very high-end luxury market.
  • Areas with lots of building, such as the Inland Empire in Southern California, may see slackening demand for resales, but the demand is great due to outward migration from the urban and suburban areas where prices are much higher. Therefore, don’t expect much downward pressure on pricing, and rents will continue up.
  • Suburbs that are fully built out will likely see continued increases if the business climate holds.
  • Sales will follow established patterns. Activity will bounce up in March with excellent sales in the Spring.
  • The Fed might pause on interest rates. They are probably as low as they are going to get in late March.
  • Days on market will increase, but still not reach traditional norms.
  • What might seem like dropping prices will be temporary bargain hunting during the crisis.

Maybe you have a very different opinion. Please leave your comments below.

If you need a mortgage, call Bill Rayman right now at (310) 453-4016. Bill specializes in tailoring a mortgage to fit your needs. When you work with someone like Bill, you will realize that there are many, many products on the market, and one size does not fit everyone. Call (310) 453-4016














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Thursday, July 26, 2018

Will $120 a Month Make the Deal on a $1,000,000 Home Purchase – Interest Rate Facts




Cartoon of two people carring the words interest rates up a steep hill


Morgage interest rates are way down. We have returned to the amazing and historically unique time when mortgage interest rates on 30-year fixed mortgages hovered under 4%, even dropping to under 3.5% in March 2020. This aberration did not result In a massive influx of new home purchases in 2018 or in new home building. The reasons for this are many and varied, but while the US enjoyed these rates, the main benefactors were existing homeowners who refinanced.

Simultaneously, the lack of new residential construction and the inclination for seniors to age-in-place, created shortages in available homes and apartments to buy or rent, driving prices and rents up rapidly.

Now we are back to crazy low rates. To give you some historical perspective, check this chart.

graph described in surrounding text


From 1900 – 1967 rates were narrowly confined between 5% and 6%, except for a brief time at the end of WWII.

From 1967 – 2007 Rates ran up starting in 1967 all the way through the housing bubble bust of 2007. During this period rates were well above 6%, climbing as high as 17% in the credit crisis of 1982.

graph described in surrounding text


2007 – 2018. The housing bust, bank debacle, great recession combination drove mortgage interest rates to unimagined lows for over a decade. With the economy getting stronger, the Fed has seen fit to increase Fed Funds Rates and is starting to sell off assets purchased to keep the economy from crashing. The net intended affect is to send all interest rates higher to stave off potential inflation above the Fed goal of 2% annually.

graph described in surrounding text

But, the COVID 19 has caused the market to make many adjustments. One of those is to send mortgage interest rates back to under 4% on 30-year fixed mortgages.

Will we have extenuating circumstances? Who can know? The primary driver of mortgage interest rates is bond interest rates and Federal Reserve rates. Some would argue that we have a bond bubble caused by massive borrowing in the government and public spheres. If that we to bust, we could see bond rates go much higher. Very few are expecting that in the near term.

The economy could accelerate out of control after COVID 19, creating inflation, and Federal Reserve efforts to slow the economy down using higher interest rates. It is hard to find anyone predicting economic growth above 4%, and most seem to agree that the economy could grow quite a bit without serious inflation.

What does all this mean to the average citizen who owns a home or is contemplating purchasing a home?

As noted in the headline, each decrease in the interest rate of 0.25%, from say 4.0% to 3.75% will decrease the payment on a $500,000 home by $60 a month or about 0.025% of the payment of $2450 (including property tax, insurance, etc.) Another way to look at it is that the decrease of an entire 1% will decrease the payment by $240.
If this buyer was maxed out on their ability to pay, either by their own budgeting or by the mortgage underwriting, they might now qualify easily or even increase their expectations to a home of about $550,000. For the first time homebuyer this could be an issue and could drive up prices by some amount.

However, a huge part of the market right now is all cash deals, high-roller tech employees, and homeowners looking to move up or down. The first group has high incomes, the second group has flexibility regarding down payments. So you need to be prepared to fight against the high down payment or all cash offers.

The mitigating forces that are likely to keep home prices moving up

Demand was high, before COVID, increasing, and likely to continue to increase.
Supply is low, decreasing, and unlikely to increase compared to supply
Current home prices have not retaken 2007 levels in many neighborhoods when adjusting for inflation.

If you’d like to review the details of those three assertions, please go here.

Assuming those three statements to be true, the upward force on prices has been at the rate of about 7% per year. A ballpark guess might be that the interest rate increases might slow that in half for a couple of years. But there’s one more mitigating force that needs to be considered.

People tend to panic, and the panic in this case would cause folks to try and get the today rate at 3.5% before it goes back to 5%, and under one theory of investing, they would be correct. This theory assumes that to the extent that you wish to own, and that you intend to own for many years into the future, even if you sell and buy one or more times in your life, what you pay to make your initial purchase will not be that consequential.


Final recommendation

If you want to own your own home, or if you want to buy a different residence, don’t fret the price or the interest rate. Make the wisest decision regarding your needs, the neighborhood, and your ability to pay. The rest will sort itself out over time.

In order to be fully equipped to win bidding wars, you will want to have a fully underwritten pre-approved mortgage when you go house shopping. Not just a pre-approval letter. To learn more about the difference, give Bill Rayman a call at 310-453-4016

To learn more about current rates or to arrange for a fully underwritten mortgage prior to looking for a home, call Bill Rayman today at 310-453-4016












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12 Easy Household Budget Hacks That Will Save You $250 - $500 or More - Guaranteed




bags of money
One sage said: “It is easier to save money than it is to make more.” That may or may not be the case for you, but if you follow the steps below, I can pretty much guarantee you that you will save at least $250 a month and maybe $500 or more. How many more hours would you have to work each month to make that much? How much more house could you afford? What would it do for your credit report.

  1. Get rid of recurring charges you don’t need anymore – Go through every bank statement and every credit card statement. Look for recurring charges that you have forgotten about from online resources, magazine drives, newspaper subscriptions, and more. We’ll assume you find one of these at $10 a month. You might find way more.
  2. Call your cable TV provider. Tell them you are considering going off grid or switching to satellite. If you have satellite, call the provider and tell them you are thinking of switching to cable. Watch the dance begin. You are very likely to end up with at least $20 or more in savings. Now call the competition with your new rate and see what they will do. You are likely to end up with the same or better rate and some kind of promotional money or free stuff for switching.
  3. Go off the grid on cable. Between Apple TV, Hulu, NetFlicks, RedBox, Amazon Prime, and other TV offers, it is hard to justify any upgrades to basic service on cable or satellite. The savings for getting off of cable could easily be $50 or more.
  4. On to your cell phone, internet, and land line providers. This gets a bit more complicated, but the cost of all of this is dropping fast. By changing providers, bundling, unbundling, and just shopping, you are very likely to end up saving another $30 a month and improving MBPS. Recently I tried to end my land line service, but the bundle cost less with it that without. 
  5. Saving on your utilities. The water company (at least in California) will be happy to help you cut down your water use. Check with your supplier to find out how to get free or reduced costs products to reduce use in bathrooms and irrigation. Then check to see what the recommended water needs are for your yard. The electric company will help you with lighting and other ways to save on electricity. LED lights are fantastic and save a huge amount of money. Switch appliances to natural gas to save even more. Saving $25 or more per month for these changes should be a cinch.
  6. Budget. Keep a penny by penny ledger of all expenses for three months. There are many online tools that can help with this process. Once you see where the money is going, you will almost certainly be able to find ways to cut that won't hurt even a little bit. We’ll put this down as $25.
  7. Shop your car insurance. We have 4 drivers on the policy, so your results may vary. Don’t forget to check Costco or AAA. It is not unusual to save $100 or more. You should also review your other insurance policies annually to make sure you have the coverage you need, and to see about savings on rates. Life insurance is another very likely savings point.
  8. Speaking of Costco. The savings by purchasing your groceries and other items at Costco are real and significant. Costco marks up all items by 15%. What they buy for $10.00, you pay only $11.50.  Most discount department stores mark up 50% to $100.  So you would pay $15.00 - $20.00. I know you have to buy huge quantities. Find nooks all over the house for storing commodities. Buy and extra freezer. A one-time small cost for huge savings. Multiple online sources report Costco as cheaper than Walmart, Sam’s, and Amazon Prime. Imagine the savings compared to your local chain market. Potential savings of at least $25 per month per person.
  9. Amazon Prime. When it isn't a Costco item, why not buy on Amazon Prime?!? Pricey toothpaste, supplements, household items and more are almost always cheaper on Amazon than at Target or CVS. And there is no freight and no auto expense. When you need more, you have a record of what you bought. Savings of another $10 per person per month.
  10. Get rid of any high interest credit card. Use the savings from these other suggestions to first pay off all credit cards with interest rates higher than your mortgage interest rate. The only good use for a credit card is to build credit. Pay them off every month. Or get an interest free credit card and transfer all balances into the interest free card. If you owe $10,000 on credit cards that charge interest and you put this on an 18 month no interest card, you’ll pay 3% for the transfer ($300) and save at least $1800 if you pay the card off in the 18 months for a savings of $100 a month. Most families will save at least $25 per month. If you owe more than that, try a credit union for a low interest loan. If you owe a lot more, consider a HELOC.
  11. Take your lunch to work. Eating out a lunch is expensive and usually not great for your waistline. A normal lunch your make at home will cost under $2.50. Savings of $100 a month and maybe 10,000 calories.
  12. We promised not to suggest changes to lifestyle, but if you want to add another huge amount of savings, get rid of one expensive, useless or worse, habit. Smoking, buying booze in bars, daily Starbucks, fast food, gambling (including lotto.)  This could be the biggest savings of all. An expense of just $10 per day is $300 a month.

We would love to hear from you in the comments. How much did you save? What will you do with the savings. If you are interested in purchasing residential real estate for any purpose, primary home, second home, investments, or some combination, Bill Rayman can help you secure the exactly appropriate mortgage for your needs. Call Bill now at (424) 354-5325
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