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5 Simple Graphs Proving This Is NOT Like the Last Time

3/30/2020

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5 Simple Graphs Proving This Is NOT Like the Last Time

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With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:
​
                    “With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”

There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.
1. Mortgage standards are nothing like they were back then
​

During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.
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2. Prices are not soaring out of control

Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.
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There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000's.

3. We don’t have a surplus of homes on the market. We have a shortage.

The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.
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​4. Houses became too expensive to buy

The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:
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​5. People are equity rich, not tapped out

In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:
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During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.
Bottom Line

If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears. 
Feel free to contact me if you have any questions regarding buying or selling a home in Chandler or the East Valley of Arizona during these uncertain times.

"Real Estate is not just a job for me, it's about making a difference in the lives of others"

Troy Erickson Realtor
Call/Text: (602)295-6807

TroyEricksonRealtor@gmail.com
Facebook.com/TroyEricksonRealtor

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The #1 Misconception in the Homebuying Process

3/23/2020

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The #1 Misconception in the Homebuying Process

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After over a year of moderating home prices, it appears home value appreciation is about to reaccelerate. Skylar Olsen, Director of Economic Research at Zillow, explained in a recent article:
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“A year ago, a combination of a government shutdown, stock market slump and mortgage rate spike caused a long-anticipated inventory rise. That supposed boom turned out to be a short-lived mirage as buyers came back into the market and more than erased the inventory gains. As a natural reaction, the recent slowdown in home values looks like it’s set to reverse back.”
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CoreLogic, in their January 2020 Market Pulse Report, agrees with Olsen, projecting home value appreciation in all fifty states this year. Here’s the breakdown:
  • 21 states appreciating 5% or more
  • 26 states appreciating between 3-5%
  • Only 3 states appreciating less than 3%
The Misconception

Many believe when real estate values are increasing, owning a home becomes less affordable. That misconception is not necessarily true.

In most cases, homes are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by almost a full percentage point since this time last year.
Another major piece of the equation is a buyer’s income. The median family income has risen by 5% over the last year, contributing to the affordability factor.
​

Black Knight, in their latest Mortgage Monitor, addressed this exact issue:
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 “Despite the average home price increasing by nearly $13,000 from just over a year ago, the monthly mortgage payment required to buy that same home has actually dropped by 10% over that same span due to falling interest rates…
Put another way, prospective homebuyers can now purchase a $48K more expensive home than a year ago while still paying the same in principal and interest, a 16% increase in buying power.”
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Bottom Line

If you’re thinking about purchasing a home, realize that homes are still affordable even though prices are increasing. As the Black Knight report concluded:
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“Even with home price growth accelerating, today’s low-interest-rate environment has made home affordability the best it’s been since early 2018.”
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Feel free to contact me if you have any questions about the home buying process, and what it takes to purchase a home in Chandler or the East Valley of Arizona.
​

"Real Estate is not just a job for me, it's about making a difference in the lives of others"

Troy Erickson Realtor
Call/Text: (602)295-6807
TroyEricksonRealtor@gmail.com
Facebook.com/TroyEricksonRealtor
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How Much “Housing Wealth” Can You Build in a Decade?

3/18/2020

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How Much “Housing Wealth” Can You Build in a Decade?

Building wealth by owning a home
Earlier this month, the National Association of Realtors (NAR) released a special study titled Single-Family Home Price Gains by Years of Tenure. The study estimates median home price appreciation over the last 30 years based on the length of homeownership.
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Below are three graphs depicting the most important data revealed in the study.

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How much have home prices increased?

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One of the first measures of the financial benefits of homeownership is the net worth (in the form of equity) an owner can build over time. The study showed the average increase in home values based on how long homeowners stayed in a home.
Gaining equity the longer you own a home
What was the percentage of appreciation?
​

Another way to look at this is by the percentage increase in value over time, called appreciation:
Growing appreciation as a home owner
Was this appreciation consistent throughout the country?
​
Today, when we think of markets that have done well over the last decade, we have a tendency to think about San Francisco, San Diego, Seattle, and other West Coast cities. Though it is true the West Region showed the highest price growth over the last three decades, we can see how every region of the country did quite well in ten-year increments:
Home Appreciation over 10 years
This data validates the claim that homeownership is great for building wealth. The importance of this information was highlighted in the study’s first sentence:
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“Homeownership is an important source of wealth creation, enabling current homeowners and succeeding generations to move up the economic ladder.”
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Bottom Line
​

Homeownership has many financial and non-financial benefits. The accumulation of “housing wealth” through increased equity is a major one. If you’re thinking of buying a home for the first time or moving up to your dream home, the sooner you make the move, the sooner your net worth will begin to grow.
​
​
Feel free to contact me if you have any questions about the home buying process, and what it takes to purchase a home in Chandler or the East Valley of Arizona.
​

"Real Estate is not just a job for me, it's about making a difference in the lives of others"

Troy Erickson Realtor
Call/Text: (602)295-6807
TroyEricksonRealtor@gmail.com
Facebook.com/TroyEricksonRealtor

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The Overlooked Financial Advantages of Homeownership

3/10/2020

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The Overlooked Financial Advantages of Homeownership

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There are many clear financial benefits to owning a home: increasing equity, building net worth, growing appreciation, and more. If you’re a renter, it’s never too early to make a plan for how homeownership can propel you toward a stronger future. Here’s a dive into three often-overlooked financial benefits of homeownership and how preparing for them now can steer you in the direction of greater stability, savings, and predictability.
1. You Won’t Always Have a Monthly Housing Payment

According to a recent article by the National Association of Realtors (NAR):
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“If you’ve been a lifelong renter, this may sound like a foreign concept, but believe it or not, one day you won’t have a monthly housing payment. Unlike renting, you will eventually pay off your mortgage and your monthly payments will be funding other (possibly more fun) things.”
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As a homeowner, someday you can eliminate the monthly payment you make on your house. That’s a huge win and a big factor in how homeownership can drive stability and savings in your life. As soon as you buy a home, your monthly housing costs will begin to work for you as forced savings, coming in the form of equity. As you build equity and grow your net worth, you can continue to reinvest those savings into your future, maybe even by buying that next dream home. The possibilities are truly endless.
2. Homeownership Is a Tax Break

One thing people who have never owned a home don’t always think about are the tax advantages of homeownership. The same piece states:

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“Both the interest and property tax portion of your mortgage is a tax deduction. As long as the balance of your mortgage is less than the total price of your home, the interest is 100% deductible on your tax return.”
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Whether you’re living in your first home or your fifth, it’s a huge financial advantage to have some tax relief tied to the interest you pay each year. It’s one thing you definitely don’t get when you’re renting. Be sure to work with a tax professional to get the best possible benefits on your annual return.
3. Monthly Housing Costs Are Predictable

A third item noted in the article is how monthly costs become more predictable with homeownership:

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“As a homeowner, your monthly costs are most likely based on a fixed-rate mortgage, which allows you to budget your finances over a long period of time, unlike the unpredictability of renting.”
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With a mortgage, you can keep your monthly housing costs steady and predictable. Rental prices have been skyrocketing since 2012, and with today’s low mortgage rates, it’s a great time to get more for your money when purchasing a home. If you want to lock-in your monthly payment at a low rate and have a solid understanding of what you’re going to spend in your mortgage payment each month, buying a home may be your best bet.
Bottom Line

​
If you’re ready to start feeling the benefits of stability, savings, and predictability that come with owning a home, reach out to a local real estate professional to determine if buying a home sooner rather than later is right for you.
Feel free to contact me if you have any questions about the home buying process, and what it takes to purchase a home in Chandler or the East Valley of Arizona.
​

"Real Estate is not just a job for me, it's about making a difference in the lives of others"

Troy Erickson Realtor
Call/Text: (602)295-6807
TroyEricksonRealtor@gmail.com
Facebook.com/TroyEricksonRealtor
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How Interest Rates Can Impact Your Monthly Housing Payments

3/4/2020

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How Interest Rates Can Impact Your Monthly Housing Payments

How Interest Rates affect your Monthly Housing Payments
Spring is right around the corner, so flowers are starting to bloom, and many potential homebuyers are getting ready to step into the market. If you’re thinking of buying this season, here’s how mortgage interest rates are working in your favor.
​​

Freddie Mac explains:
“If you’re in the market to buy a home, today’s average mortgage rates are something to
celebrate compared to almost any year since 1971…

Mortgage rates change frequently. Over the last 45 years, they have ranged from a high
of 18.63% (1981) to a low of 3.31% (2012). While it’s not likely that the average
30-year fixed mortgage rate will return to its record low, the current average rate of
​3.45% is pretty close — all to your advantage
.”
To put this in perspective, the following chart from the same article shows how average mortgage rates by decade have impacted the approximate monthly payment of a $200,000 home over time:
How Interest Rates Can Impact Your Monthly Housing Payments
Clearly, when rates are low – like they are today – qualified buyers can benefit significantly over time.
Keep in mind, if interest rates go up, this can push many potential homebuyers out of the market. The National Association of Home Builders (NAHB) notes:
“Prospective home buyers are also adversely affected when interest rates rise. NAHB’s
priced-out estimates show that, depending on the starting rate, a quarter-point increase in
the rate of 3.75% on a 30-year fixed rate mortgage can price over 1.3 million U.S.
households out of the market for the median-priced new home.”
Bottom Line

If your financial situation allows, now may be a great time to lock in at a low mortgage rate to benefit greatly over the lifetime of your loan. Buying a home sooner rather than later could lead to substantial savings and long-term financial growth for you and your family.

Feel free to contact me if you have any questions about the home buying process, and what it takes to purchase a home in Chandler or the East Valley of Arizona.
"Real Estate is not just a job for me, it's about making a difference in the lives of others"

Troy Erickson Realtor
Call/Text: (602)295-6807
TroyEricksonRealtor@gmail.com
Facebook.com/TroyEricksonRealtor
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    Chandler and East Valley Blog: Troy Erickson Realtor

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    Troy Erickson

     "Real Estate is not just a job for me, it's about making a difference in the lives of others."​

    Troy has been blogging about Chandler and East Valley Real Estate in Arizona since 2006.  He stays current on local Chandler real estate by attending educational classes, and talking with title companies, home inspectors, lenders, members of the Chandler community, as well as constantly working with home buyers, home sellers, and investors within the Chandler and East Valley community.

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