Will Surging Unemployment Crush Home Sales?

 

Will Surging Unemployment Crush Home Sales? | MyKCM

Ten million Americans lost their jobs over the last two weeks. The next announced unemployment rate on May 8th is expected to be in the double digits. Because the health crisis brought the economy to a screeching halt, many are feeling a personal financial crisis. James Bullard, President of the Federal Reserve Bank of St. Louis, explained that the government is trying to find ways to assist those who have lost their jobs and the companies which were forced to close (think: your neighborhood restaurant). In a recent interview he said:

“This is a planned, organized partial shutdown of the U.S. economy in the second quarter. The overall goal is to keep everyone, households and businesses, whole.”

That’s promising, but we’re still uncertain as to when the recently unemployed will be able to return to work.

Another concern: how badly will the U.S. economy be damaged if people can’t buy homes?

A new concern is whether the high number of unemployed Americans will cause the residential real estate market to crash, putting a greater strain on the economy and leading to even more job losses. The housing industry is a major piece of the overall economy in this country.

Chris Herbert, Managing Director of the Joint Center for Housing Studies of Harvard University, in a post titled Responding to the Covid-19 Pandemic, addressed the toll this crisis will have on our nation, explaining:

“Housing is a foundational element of every person’s well-being. And with nearly a fifth of US gross domestic product rooted in housing-related expenditures, it is also critical to the well-being of our broader economy.”

How has the unemployment rate affected home sales in the past?

It’s logical to think there would be a direct correlation between the unemployment rate and home sales: as the unemployment rate went up, home sales would go down, and when the unemployment rate went down, home sales would go up.

However, research reviewing the last thirty years doesn’t show that direct relationship, as noted in the graph below. The blue and grey bars represent home sales, while the yellow line is the unemployment rate. Take a look at numbers 1 through 4:Will Surging Unemployment Crush Home Sales? | MyKCM

  1. The unemployment rate was rising between 1992-1993, yet home sales increased.
  2. The unemployment rate was rising between 2001-2003, and home sales increased.
  3. The unemployment rate was rising between 2007-2010, and home sales significantly decreased.
  4. The unemployment rate was falling continuously between 2015-2019, and home sales remained relatively flat.

The impact of the unemployment rate on home sales doesn’t seem to be as strong as we may have thought.

Isn’t this time different?

Yes. There is no doubt the country hasn’t seen job losses this quickly in almost one hundred years. How bad could it get? Goldman Sachs projects the unemployment rate to be 15% in the third quarter of 2020, flattening to single digits by the fourth quarter of this year, and then just over 6% percent by the fourth quarter of 2021. Not ideal for the housing industry, but manageable.

How does this compare to the other financial crises?

Some believe this is going to be reminiscent of The Great Depression. From the standpoint of unemployment rates alone (the only thing this article addresses), it does not compare. Here are the unemployment rates during the Great Depression, the Great Recession, and the projected rates moving forward:Will Surging Unemployment Crush Home Sales? | MyKCM

Bottom Line

We’ve given you the facts as we know them. The housing market will have challenges this year. However, with the help being given to those who have lost their jobs and the fact that we’re looking at a quick recovery for the economy after we address the health problem, the housing industry should be fine in the long term. Stay safe.

DISCLAIMER: The information contained in this blog is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this email.

Posted on April 6, 2020 at 4:16 pm
DAWIT WOLDE | Category: Blog

Looking to the Future: What the Experts Are Saying

Looking to the Future: What the Experts Are Saying | MyKCM

As our lives, our businesses, and the world we live in change day by day, we’re all left wondering how long this will last. How long will we feel the effects of the coronavirus? How deep will the impact go? The human toll may forever change families, but the economic impact will rebound with a cycle of downturn followed by economic expansion like we’ve seen play out in the U.S. economy many times over.

Here’s a look at what leading experts and current research indicate about the economic impact we’ll likely see as a result of the coronavirus. It starts with a forecast of U.S. Gross Domestic Product (GDP).

According to Investopedia:

“Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health.”

When looking at GDP (the measure of our country’s economic health), a survey of three leading financial institutions shows a projected sharp decline followed by a steep rebound in the second half of this year:Looking to the Future: What the Experts Are Saying | MyKCMA recent study from John Burns Consulting also notes that past pandemics have also created V-Shaped Economic Recoveries like the ones noted above, and they had minimal impact on housing prices. This certainly gives hope and optimism for what is to come as the crisis passes.

With this historical analysis in mind, many business owners are also optimistic for a bright economic return. A recent PricewaterhouseCoopers survey shows this confidence, noting 66% of surveyed business owners feel their companies will return to normal business rhythms within a month of the pandemic passing, and 90% feel they should be back to normal operation 1 to 3 months after:Looking to the Future: What the Experts Are Saying | MyKCMFrom expert financial institutions to business leaders across the country, we can clearly see that the anticipation of a quick return to normal once the current crisis subsides is not too far away. In essence, this won’t last forever, and we will get back to growth-mode. We’ve got this.

Bottom Line

Lives and businesses are being impacted by the coronavirus, but experts do see a light at the end of the tunnel. As the economy slows down due to the health crisis, we can take guidance and advice from experts that this too will pass.

DISCLAIMER: The information contained in this Blog is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this website.

 

 

Posted on April 2, 2020 at 3:52 pm
DAWIT WOLDE | Category: Blog

Do you Need to Postpone your Mortgage Payment Due to Coronavirus? Here’s How.

 

As the economic impacts of the coronavirus pandemic begin to be felt, many people are worried about how they’ll make their mortgage payments, especially if they’ve been furloughed or laid off from their jobs.

The good news is mortgage lenders are quickly making accommodations. Mortgage giants Fannie Mae and Freddie Mac both have ordered lenders, including to stop foreclosure proceedings, to be more flexible with borrowers, reducing or suspending payments for a specified period of months.

First off, and most important, don’t just stop paying your mortgage. Mortgage lenders are handling deferment requests in different ways. The best idea is to reach out to your lender directly and work with them to create a payment plan. That’s as easy as calling the phone number on your mortgage bill.

Based on the government’s order, lenders will be willing to kicks payments down the road and no negative credit reporting, no collection calls or letters, and no late fees. However, this program is a deferral of mortgage payments, not forgiveness.  So, while you might not be able to pay a mortgage for a specific numbers of months, when that time period is over and/or you go back to work, you could be expected to deliver all the missed payments as well as the current one in a lump sum. For many people, that could be a devastating blow. Again, check with your lender to see if this might be the case and to come up with a plan that makes sense for you.

A better bet, however, is to request a mortgage modification. This enables you to skip payments for a set period, then pay them back in a variety of different ways. Some mortgage companies will spread the missed payments out over several months. Others, in the best-case scenario, will add the missed months to the end of your mortgage, extending the life of the loan, but not creating a financial hardship for you.

Because new mortgage rules around the coronavirus change so quickly, it’s important for you to communicate with your lender about the latest options available to you.

DISCLAIMER: The information contained in this blog is for general information purposes only. While I endeavor to keep the information up to date and correct, I make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this website.

Posted on March 30, 2020 at 4:18 pm
DAWIT WOLDE | Category: Blog

Don’t Let Frightening Headlines Scare You

Don’t Let Frightening Headlines Scare You | MyKCM

There’s a lot of anxiety right now regarding the coronavirus pandemic. The health situation must be addressed quickly, and many are concerned about the impact on the economy as well.

Amidst all this anxiety, anyone with a megaphone – from the mainstream media to a lone blogger – has realized that bad news sells. Unfortunately, we will continue to see a rash of horrifying headlines over the next few months. Let’s make sure we aren’t paralyzed by a headline before we get the full story.

When it comes to the health issue, you should look to the Centers for Disease Control and Prevention (CDC) or the World Health Organization (WHO) for the most reliable information.

Finding reliable resources with information on the economic impact of the virus is more difficult. For this reason, it’s important to shed some light on the situation. There are already alarmist headlines starting to appear. Here are two such examples surfacing this week.

1. Goldman Sachs Forecasts the Largest Drop in GDP in Almost 100 Years

It sounds like Armageddon. Though the headline is true, it doesn’t reflect the full essence of the Goldman Sachs forecast. The projection is actually that we’ll have a tough first half of the year, but the economy will bounce back nicely in the second half; GDP will be up 12% in the third quarter and up another 10% in the fourth.

This aligns with research from John Burns Consulting involving pandemics, the economy, and home values. They concluded:

“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices), and some very cutting-edge search engine analysis by our Information Management team showed the current slowdown is playing out similarly thus far.”

The economy will suffer for the next few months, but then it will recover. That’s certainly not Armageddon.

2. Fed President Predicts 30% Unemployment!

That statement was made by James Bullard, President of the Federal Reserve Bank of St. Louis. What Bullard actually said was it “could” reach 30%. But let’s look at what else he said in the same Bloomberg News interview:

“This is a planned, organized partial shutdown of the U.S. economy in the second quarter,” Bullard said. “The overall goal is to keep everyone, households and businesses, whole” with government support.

According to Bloomberg, he also went on to say:

“I would see the third quarter as a transitional quarter” with the fourth quarter and first quarter next year as “quite robust” as Americans make up for lost spending. “Those quarters might be boom quarters,” he said.

Again, Bullard agrees we will have a tough first half and rebound quickly.

Bottom Line

There’s a lot of misinformation out there. If you want the best advice on what’s happening in the current housing market, let’s talk today.

DISCLAIMER: The information contained in this Blog is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this website.

Posted on March 26, 2020 at 3:08 pm
DAWIT WOLDE | Category: Blog

5 Simple Graphs Proving This Is NOT Like the Last Time

5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

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.5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

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.5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCMThere’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 2000s.

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.5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

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:5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCM

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:5 Simple Graphs Proving This Is NOT Like the Last Time | MyKCMDuring 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.

DISCLAIMER: The information contained in this Blog is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this website.

Posted on March 16, 2020 at 7:31 pm
DAWIT WOLDE | Category: Blog

Southern Nevada Home Prices Finally Break All-Time Record While Supply Keeps Shrinking

 

–Existing local home prices finally broke their all-time record, while the housing supply keeps shrinking. However, it remains to be seen if new concerns about the spread of the Coronavirus domestically will dampen what is shaping up to be a competitive home-buying season.

–The median price of existing single-family homes sold in Southern Nevada through its Multiple Listing Service during February 2020 was $316,000. That was up 3.6% from January and up 6.7% from February of 2019, passing the previous record of $315,000 set in June of 2006.

 

–Meanwhile, the median price of local condos and townhomes sold in February was $175,000, the same as January and up 6.1% from February of 2019.

–The total number of existing local homes, condos and townhomes sold during February was 3,089. Compared to the same time last year, February sales were up 25.7% for homes and up 14.0% for condos and townhomes.

 

–The local housing supply continues to shrink to historically low levels. The current sales pace equates to less than a two-month supply of homes available for sale. A six-month supply is considered a more balanced market.

–By the end of February, 4,240 single-family homes listed for sale without any sort of offer. That’s down 40.6% from one year ago. For condos and townhomes, the 1,214 properties listed without offers in February represented a 30.8% drop from one year ago.

DISCLAIMER: The information contained in this Blog is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this website.

Posted on March 7, 2020 at 4:56 am
DAWIT WOLDE | Category: Blog

Impact of the Coronavirus on the U.S. Housing Market

 

Impact of the Coronavirus on the U.S. Housing Market | MyKCM

 

The Coronavirus (COVID-19) has caused massive global uncertainty, including a U.S. stock market correction no one could have seen coming. While much of the news has been about the effect on various markets, let’s also acknowledge the true impact it continues to have on lives and families around the world.

 

With all this uncertainty, how do you make powerful and confident decisions in regard to your real estate plans?

The National Association of Realtors (NAR) anticipates:

“At the very least, the coronavirus could cause some people to put home sales on hold.”

While this is an understandable approach, it is important to balance that with how it may end up costing you in the long run. If you’re considering buying or selling a home, it is key to educate yourself so that you can take thoughtful and intentional next steps for your future.

For example, when there’s fear in the world, we see lower mortgage interest rates as investors flee stocks for the safety of U.S. bonds.

 

This connection should be considered when making real estate decisions.

According to the National Association of Home Builders (NAHB):

“The Fed’s action was expected but perhaps not to this degree and timing. And the policy change was consistent with recent declines for interest rates in the bond market. These declines should push mortgage interest rates closer to a low 3% average for the 30-year fixed rate mortgage.”

This is exactly what we’re experiencing right now as mortgage interest rates hover at the lowest levels in the history of the housing market.

Bottom Line

The full impact of the Coronavirus is still not yet known. It is in times like these that working with an informed and educated real estate professional can make all the difference in the world.

 

DISCLAIMER: The information contained in this Blog is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this website.

Posted on March 5, 2020 at 10:04 pm
DAWIT WOLDE | Category: Blog

Entry-Level Homeowners Are in the Driver’s Seat

Entry-Level Homeowners Are in the Driver’s Seat | MyKCM

One thing helping homeowners right now is price appreciation, especially in the entry-level market. In the latest Home Price Insights report, CoreLogic reveals how home prices increased by 4% year-over-year and projects prices will rise 5.2% by December 2020.

Why is this good news for the homeowners?

When prices appreciate, homeowners gain equity. In addition, those planning to sell this year, especially in the entry-level market, can potentially earn a substantial profit.

Dr. Frank Nothaft, Chief Economist at CoreLogic, says:

“Moderately priced homes are in high demand and short supply, pushing up values…Homes that sold for 25% or more below the local median price experienced a 5.9% price gain in 2019, compared with a 3.7% gain for homes that sold for 25% or more above the median.”

As Dr. Nothaft indicates, the lack of inventory continues to drive home price growth. This means there’s a high demand for homes in this tier of the market, making it a great time to consider using your equity to move up to a bigger or more premium home.

When you upgrade your home, you may be able to find the amenities or features you’ve dreamed of – such as a yard to plant or garden in with your family this spring, or more outdoor space for entertaining this summer. Maybe it’s the master bath you’ve always hoped for, or a garage to finally park your car inside.

Whatever you choose, if you’re moving out of an entry-level house, you’re likely going to be in the driver’s seat as a seller.

Bottom Line

If you’d like to own a bigger home, let’s get together to discuss your situation. You may be surprised by the current value of your home and the equity you’ve gained.

DISCLAIMER: The information contained in this Blog is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this website.

Posted on February 25, 2020 at 5:52 pm
DAWIT WOLDE | Category: Blog

Las Vegas Housing Market Starts 2020 With Home Prices, Sales up From One Year Ago

 

 

LAS VEGAS – The local housing market kicked off the new decade with home prices and sales increasing from the same time last year, but giving back gains made in December. So says a report released by the Greater Las Vegas Association of REALTORS® (GLVAR).

GLVAR reported that the median price of existing single-family homes sold in Southern Nevada through its Multiple Listing Service (MLS) during January 2020 was $305,000. That was down 2.6% from December, but up 1.7% from January of 2019. Meanwhile, the median price of local condos and townhomes sold in January was $175,000. That was down 1.7% from December, but up 2.9% from January of 2019.

 

“January is usually one of our slowest months for home sales and prices, and this month was a good example of that seasonal trend,” said 2020 GLVAR President Tom Blanchard.

After seeing the median local home price in December come within a few thousand dollars of its all-time peak($315,000), Blanchard said he still expects that price record to fall sometime this year.

“I think it’s a good bet that this will be the year we finally break the record for our median home price,” he said. “At the same time, it’s important to keep in mind that we’re still not back to our all-time high set way back in 2006. Most markets around the country have already surpassed their pre-recession record for home prices. When you factor in the rate of inflation over that time, you could argue that local home prices should be much higher than they are.”

The total number of existing local homes, condos and townhomes sold during January was 2,875. Sales were down from December. But compared to the same time last year, January sales were up 25.2% for homes and up 22.8% for condos and townhomes.

 

That year-over-year sales increase reverses last year’s trend. According to GLVAR, the total number of existing local homes, condos and townhomes sold in Southern Nevada during 2019 was 41,269. That was down from 42,876 total sales in 2018 and from 45,388 in 2017.

By all indications, Blanchard expects the local housing market in 2020 “will look a lot like it did last year,” with gradually increasing or stable home prices, strong demand for housing and a persistently tight supply. As long as Southern Nevada continues to enjoy economic, job and population growth, he expects the housing market to continue on its current course.

The local housing inventory started 2020 the way it ended in 2019, with just over a two-month supply of homes available for sale, with the supply shrinking from the previous month and year.

By the end of January, GLVAR reported 4,906 single-family homes listed for sale without any sort of offer. That’s down 32.4% from one year ago. For condos and townhomes, the 1,418 properties listed without offers in January represented a 16.7% drop from one year ago.

About the GLVAR: GLVAR was founded in 1947 and provides its more than 14,000 local members with education, training and political representation. The local representative of the National Association of REALTORS®, GLVAR is the largest professional organization in Southern Nevada.

DISCLAIMER: The information contained in this Blog is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this website.

Posted on February 18, 2020 at 11:25 pm
DAWIT WOLDE | Category: Blog

Strength of the Economy Is Surprising the Experts

Strength of the Economy Is Surprising the Experts | MyKCM

We’re currently in the longest economic recovery in U.S. history. That has caused some to ask experts to project when the next economic slowdown (recession) could occur. Two years ago, 67% of the economists surveyed by the Wall Street Journal (WSJ) for the Economic Forecasting Survey predicted we would have a recession no later than the end of this year (2020). The same study done just three months ago showed more than one third of the economists still saw an economic slowdown right around the corner.

The news caused concern among consumers. This is evidenced by a recent survey done by realtor.com that shows 53% of home purchasers (first-time and repeat buyers) currently in the market believe a recession will occur by the end of this year.

Wait! It seems the experts are changing their minds….

Now, in an article earlier this month, the Wall Street Journal (WSJ) revealed only 14.3% of those economists now believe we’re in danger of a recession occurring this year (see graph below):Strength of the Economy Is Surprising the Experts | MyKCMThe WSJ article strongly stated,

“The U.S. expansion, now in its 11th year, will continue through the 2020 presidential election with a healthy labor market backing it up, economists say.”

This optimism regarding the economy was repeated by others as well.

CNBC, quoting Goldman Sachs economists:

“Just months after almost everyone on Wall Street worried that a recession was just around the corner, Goldman Sachs said a downturn is unlikely over the next several years. In fact, the firm’s economists stopped just short of saying that the U.S. economy is recession-proof.”

Barron’s:

“When Barron’s gathers some of Wall Street’s best minds—as we do every January for our annual Roundtable—we expect some consensus, some disagreement…But the 10 veteran investors and economists who convened in New York on Jan. 6 at the Barron’s offices agree that there’s almost no chance of a recession this year.”

Washington Post:

“The U.S. economy is heading into 2020 at a pace of steady, sustained growth after a series of interest rate cuts and the apparent resolution of two trade-related threats mostly eliminated the risk of a recession.”

Robert A. Dye, Chief Economist at Comerica Bank:

“I expect that the U.S. economy will avoid a recession in 2020.”

Bottom Line

There probably won’t be a recession this year. That’s good news for you, whether you’re looking to buy or sell a home.

DISCLAIMER: The information contained in this Blog is for general information purposes only. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the Blog posts or any other information contained in this website.

Posted on January 30, 2020 at 5:25 pm
DAWIT WOLDE | Category: Blog

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