The Housing Market

Probably the easiest to read and most informative big picture of what is happening in the housing market across the globe is an ING International Survey entitled “Homes and Mortgages − Home Costs and Prices” that included 14,725 people in 15 countries. Download the survey results and see if you agree whether your country is on the right track.

Other areas you will find interesting are multi-generational living, how much of monthly take-home pay is spent on a mortgage, will your family help in the home purchase, and what percentage of buyers expect to buy before they turn thirty?

Real Estate is a financial decision, but it is a decision sitting in an ocean of emotion.

Based on comments by Howard Archer, chief economic advisor to the EY ITEM Club,  London home prices fell year over year for the sixth consecutive year. On the positive side, the UK as a whole had a year on year increase of 2.5%, even if it was the lowest increase since July 2013.

Uncertainty seems to be the word of the day as 2018 ended with five months of declining sale agreements.

But what about 2019 and Brexit? It appears a 2% gain or a 5% loss in home values are projected depending on an approved Brexit deal.

The Telegraph has an article entitled “Five ways you can protect yourself from the Brexit house price slump“. You might find it helpful.

Forbes recently had an article entitled “The Best Emerging Real Estate Markets In Europe For 2019“. Can you guess which Countries or Cities are on that list?  What City had condos increase 20% in value compared to the 8% for the rest of the country? Where did housing prices increase by 20% over the last year due to the Golden Visa System?  What city was named the European Capital of Culture? Do you know where prices increased by 39.4% last year? What? Was that a typo? No, 39.4% is correct. Lastly, what City has 70% rentals compared to its neighboring city where values increased by 17%, compared to their national average of 10%. I hope you read the article.

In Episode 10 I referred to the 60 Minutes segment on the Australian Real Estate Market entitled “Bricks and Slaughter“. Then there was Greg Clough’s response to the interview which he participated in. Now, what has been happening in the Australian real estate market since those September videos came out?

In November News.com.au had an article entitled “‘Deep recession’: House prices could fall more than 30 percent in UBS doomsday scenario” They reviewed various scenarios where Peak to Trough price declines ranged between five and thirty percent.

One of the better quotes was by UBS analyst Jonathan Mott who said “Sentiment in the housing market turns from FOMO (fear-of-missing-out) to FONGO (fear-of-not-getting-out). ”

There are sad realities to a declining market with reduced home equity and little to no borrowing power, ruined credit, the emotional drain of missing payments and for many, the feeling of shame because they lost a job and for the first time in their lives find themselves, even if briefly, homeless.

For some of those who are still in the market, the fear of getting out, or of not being able to get out, is akin to a slow death by torture.

This emotional wave of sentiment often becomes a driving economic force that morphs into a Sunami, which accelerates the destruction in its path.

In a more recent article out in January, it was noted that Australia is going to have one of the worst housing price declines in the world for 2019.

Amidst struggle there is hope.

The Housing Market and its prices are expected to stabilize in 2020.

Although unemployment, at 5.6%, is the lowest since StatsCan started keeping records in 1976, Canada’s housing market is struggling.  With 80% more consumer debt than in 2008 and increasing interest rates and federal standards that reduce borrowing power by 20%, Canadians are feeling the budget crunch.

Practically speaking, Toronto and Vancouver mortgage holders had an average monthly increase of $112.50 between 2017 & 2018.  Counting consumer debt and rate hikes, the total increase in cash outlay affecting the average budget was $212.50 per month.  See charts and graphs at Macleans.ca.

The math of finances doesn’t begin to tell how lives are affected. Where do most families cut out over $200. of “discretionary income” to compensate for this change?  How will these changes affect family members and how they feel about themselves and each other?

Thankfully, what is true in Toronto and Vancouver, isn’t necessarily true throughout Canada where the debt to income ratio has remained pretty steady over the last nine quarters according to Canada Housing and Mortgage Corp (CMHC).
In fact, it has gone down in areas like Edmonton (-8.3%) and Calgary (-7.9%).

This is of no help to those with variable rate mortgages but the CMHC also said three-quarters of all loans have fixed rate terms

Is the U.S. Market headed for a big-time crash, 2007 style, considered by some to be the worst in U.S. history. Or will it be more of the real estate market slowing with moderate appreciation of between 2.2% according to Realtor.com and 3.8% as Zillow.com projected?

Zillow took 35 of the largest markets in the U.S. and determined that in December, year over year appreciation for 19 out of 35 had slowed down over the previous year over year period.  Of course, that also means 16 of 35 had not slowed down.  Go to the Zillow, then the Home Value Index Graph and choose your region on the left side and on the right side choose ZHVI yoy.  These graphs give an easy to understand visual of which direction and how dramatically values have changed.

Speaking of home appreciation and home values, have you ever wondered how many people have lots of equity in their homes? Say 50% or more?  There is a map by Attom Data Solutions that is searchable by zip code to find out how equity rich your zip code is. The map is embedded below in our Transcript version of this podcast.  You can search by your zip code using the magnifying glass icon and see what the number and percentage of homes have loans of less than 50% of their value.

Click on this link for more information.

What percentage of homeowners do not have a mortgage?

Move.org has a great article ranking the percentage of No Mortgage Home Owners by state.  Do you know what percentage your state has?  The highest is West Virginia at 54.06%. So more than half of all West Virginians have no mortgage. In California, in 2017, there were 2 million homeowners without a mortgage.

Is this just a U.S. thing?   No, because in the UK. about one out of every three homeowners is mortgage free.

What is the housing market going to be doing and what should our response be?

As a real estate Broker, I was watching a video with coach Tom Ferry who was interviewing Steve Harney of Keeping Current Matters. The topic had to do with the U.S. Housing Market and the narrative, what is said and how we say it. There is a point where Steve is talking about how people are looking for the doomsday scenarios and what they find are headlines followed by “fluff”.  If that was what he wanted to do, which is opposite to all he stands for, he said his headline would read:  “Housing Market Under Attack – Values Disappearing”  It is worth listening to his entertaining explanation of how this headline would play out explaining the possibility of  life on Mars and how that would crash the housing market.

The next time you hear or read something online, on TV, or on your phone, imagine yourself walking through a grocery store, every idea, concept, or line of thinking is really a grocery item designed to get your attention. There is a video entitled “Top 10 Grocery Store Tricks to Get You to Buy More“. Let’s go over a few of those areas.

When you first come into a grocery store does the smell of baked goods cause you to smile or emotionally grab you through the sense of smell?  Headlines will often do that using the opposite side of the coin through your sense of fear. If you have kids in College the pending College Loan debt structure may be your tipping point. Or the increasing rate of auto loan defaults.

Did you ever notice lots of sweets and other “kid-friendly” consumer goods are right at the top of the grocery basket level?  Once your mind starts thinking of the problems and stresses you feel, read about, see or listen to, you will probably see instance after instance of that following you around the internet.

Ever go to the grocery store to get an item or two but end up with a basket full? If you started off with a smaller cart or used a basket you have to carry through the store, you probably wouldn’t be as likely to overbuy.

It is not easy, but if you find yourself fearful as you read the real estate news, just maybe the headline isn’t the full story and you might choose to focus on ways to minimize the risk of what you fear.  If the mind gravitates toward what we think about, then focusing on solutions might put us in a better place. For those who have concern but not fear, maybe you should choose to use a smaller grocery cart.  Just because a lender says you can afford it, doesn’t mean you have to fill that proverbial cart up with high monthly payments.

For those who own their house and have no mortgage, congratulations, but be sensitive to those who may not be as fortunate as you.  They may not say something, but chances are you have a friend who is under some, or a lot of financial stress. Whether taking them to lunch, sharing some cash, or sending a letter of encouragement,  it will all be appreciated!

Thank you for listening to Price-Reduced.com and always remember, financially speaking, “When it comes to real estate, the best time to buy or sell is when you don’t have to.”