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Another Housing Market Crash 2022

November 30, 2022 By Dan Leave a Comment

housing market crash

The latest interest rate increases by the Federal Reserve and the hype about the housing market crash, the truth is that it is not the Federal Reserve that is controlling interest rates. The Fed is merely trying to keep up with soaring inflation. The Fed has raised interest rates five times in the last 12 months, and there are more planned increases this year.

Table of Contents

  • Prices are Likely to Drop Before Leveling Off
  • The Housing Shortage
  • New Builds are Slowing Impacting Future Supply

In recent years, the average American household has been able to borrow a little less than 3% of their income toward a mortgage. But that rate has more than doubled in the past year. Mortgage rates are now nearing 7%.

This is the first time in more than a decade that the average American has seen rates this high. The Fed hopes that elevated interest rates will spur a housing slowdown. Those rates are causing a housing slump that's affecting home sales across the country.

Despite the Fed's efforts, housing activity is still slowing. Mortgage purchase applications are at their lowest point in more than two years. There's also a significant amount of foreclosure activity. This means more homeowners are struggling to make their mortgage payments.

As a result, the Fed is preparing for more interest rate increases, which will further slow down home sales and the housing market. There are two more 75 basis point rate hikes scheduled for November and December. The Fed expects that the housing market will slow down next year.

In the short term, the mortgage rate spike will spur a slight increase in inflation. But the real effects of the Fed's actions will be felt with lag. This is because the Fed is backing off of buying MBS securities. In fact, implied 10-year Treasury forward yields are flat over the next five quarters.

The Fed has taken the first step to taming inflation by slapping a 75 basis point hike on interest rates. However, the Federal Open Market Committee has also taken the next step, announcing a 3-point hike in the federal policy rate in 2022.

The Fed's actions are slowing the housing market, which is good news for housing investors. Home prices are now being pulled down by the forces of supply and demand. As a result, it will be easier for big investors to buy more single-family homes. However, as housing demand continues to weaken, prices could still fall in the near future.

Prices are Likely to Drop Before Leveling Off

Despite a year of record home prices, the housing market is cooling. The housing supply is nearly 57 percent of the level it was at the beginning of the year. This increase is partly due to a higher number of listings and longer sales cycles.

While a mild housing market correction is unlikely, a recession could lead to larger home price declines. Oxford Economics estimates that employment levels are the key factor in determining the severity of a downturn.

If unemployment levels rise, more homeowners will be forced to sell their homes. This could drive prices down faster, though.

Many homeowners who have owned for extended periods of time have amassed a significant amount of equity. They may finally get a chance to sell their homes and get some relief from the surging prices.

The strong labor market should increase the chances of a benign correction. Many aspiring homebuyers have delayed purchases in hopes of lower mortgage rates. However, high borrowing costs and a deteriorating economic outlook may keep buyers from buying.

The housing market is still very much overvalued, according to Fitch Ratings. It predicts that 89 percent of the nation's major metro areas are overvalued.

Moody's Analytics expects home prices to decline by 10 percent in the next few years. The company analyzed 322 regional housing markets and found that all but four would see a home price decline.

Fannie Mae's Economic and Strategic Research group expects single-family home sales to fall by 2.4% in 2022. The ESR group predicts home price growth to be 7.6%.

Goldman Sachs, in a report last week, predicted that home prices would drop by 5% to 10% over the next year. The firm's model predicts that prices will level off and stabilize around March 2024.

While many analysts have forecasted home price declines of 20%, a recession will likely lead to much larger drops. Zillow and John Burns Real Estate Consulting have predicted home prices to fall by 10 percent in the next six to 12 months.

Despite the forecasts, economists believe that the housing market will not crash in the next few years. However, mortgage rates could climb to 8.5%. In addition, demand for residential real estate is weak in many cities across the U.S., which will reduce the supply of available homes for sale.

The Housing Shortage

Despite the fact that the housing market shortage isn't new, it's not necessarily the only reason for the recent drop in home prices. A number of reasons have contributed to the recent housing market correction, including a slowdown in construction, increasing interest rates, and affordability challenges.

According to Up For Growth, a Washington-based group focused on the housing shortage, supply was decreasing in about 75% of the nation's metro areas. The group analyzed data from the U.S. Department of Housing and Urban Development and the Census Bureau.

The group found that in addition to the lack of housing, the United States is also having a problem with houses being built. This is because construction stopped after the housing crash.

According to the study, the nation needs about 1.6 million more homes to make the housing market more affordable. This deficit is especially acute for millennials entering the market. It's also likely to have consequences for the health of the national economy.

According to Goldman Sachs research, the housing market will experience a decline in the amount of home sales this year and will continue to shrink through 2022. However, the research firm predicts that housing market activity will start to pick up again in 2024.

Goldman Sachs' research project shows that home prices will grow at an average annual rate of 3.8% over the next five years. This rate of growth is a bit lower than it was last year, but it's still higher than in most recent years.

Despite the recent decline in home prices, the housing market shortage isn't going away. According to the National Association of Realtors, the supply of existing homes is 2.4 months. The housing shortage has remained a problem in several big metro areas over the past decade.

While the housing shortage isn't going away anytime soon, a combination of external factors should flatten the bubbling market. This will eventually lead to a healthier balance between buyers and sellers. However, it will take years to close the deficit.

Eventually, a healthy housing market will provide more affordable housing options for excluded households.

New Builds are Slowing Impacting Future Supply

Despite recent growth in housing prices, the demand for new homes is expected to continue increasing. Supply-chain constraints are still keeping the supply of housing below the level required to sustain demand. This will keep prices high for the foreseeable future.

The housing supply chain is not as efficient as it was prior to the COVID-19 pandemic. This has hampered home builders' ability to scale up construction. In addition, labor shortages have increased. This constraint will keep housing construction slow, but is unlikely to significantly influence demand.

New home permits declined in April for the fifth straight month. Permits were down 3.2% to 1.819 million units in April. The decline is likely due to a drop in housing starts. This was accompanied by a drop in single family housing starts. Single family starts decreased 3.9%, bringing the total decline in the housing starts sector to 7.3%.

Permitting activity for new construction increased slightly in October. Permits for buildings with two to four units rose 8.2%. In addition, permits for single family homes increased 2.7%. This represents the highest rate of housing starts for the five-unit or greater category since April 1986.

Despite the growth in construction activity, the demand for housing remains high. This is evident by the increase in new listings on Zillow. The median price to cost ratio remains at 2.84 in 2013, which is above the minimum profitable production cost (MPPC). The Wharton Residential Land Use Restrictions Index is the same magnitude as Saiz's elasticity measure.

Housing construction is largely a function of interest rates, but the supply chain is strained by low productivity and high labor costs. A lack of affordable housing has stymied many would-be homeowners. This has contributed to the higher prices for new homes. Moreover, the rising price of land has driven up total costs.

A backlog of housing projects has also grown. The Commerce Department reported a record backlog of houses to be constructed. This indicates that home building has been undergoing a transition.

Home prices are likely to continue rising in the near future, but at a slower rate than in recent years. There will be less new housing construction in the near future, which will also affect the price of housing.

Filed Under: Real Estate News Tagged With: Economy, Housing Market, Investing, Real Estate

5 Things To Know About Investing in MultiFamily Properties in Seattle or Tacoma

September 11, 2020 By Dan Leave a Comment

Investing in MultiFamily Properties in Seattle or Tacoma

When looking for your real estate niche, one good option is Investing in Multi-Family Properties in Seattle or Tacoma. In this post, we offer a few things investors should be aware of before buying duplexes, quads, or an apartment building in Seattle or Tacoma. 

Do you want to diversify your real estate portfolio? Investing in multifamily properties in Seattle or Tacoma is a great way to do it! With a single purchase, you can easily become the proud owner of multiple rentable units. Every month, you can make a regular income from these units. Before you jump into multifamily real estate investment, there are a few things you should know. Here are 5 things you should know about investing in multifamily properties in Seattle or Tacoma.

Table of Contents

  • Finding The Right Tenants
  • You’ll Have Unique Repairs
  • Disputes Between Tenants
  • Living There Can Help
  • Know Your Numbers
    • Do you have questions about investing in multifamily properties in Seattle or Tacoma? Reach out to us today to get all the answers you need! (425) 365-0207

Finding The Right Tenants

As a landlord, your primary goal is to secure a long-term tenant that will be able to pay their bills on time with little to no fuss. Ideally, you don’t want someone who is going to complain every time they hear a noise in another unit or footsteps going up the stairs. They should be reasonable, easy-going, yet quick to report a problem should something be seriously wrong. Looking for compatible neighbors, respectful people, and tenants who want to stay long-term is the ideal situation for any landlord.

You’ll Have Unique Repairs

Making repairs to a multifamily home or apartment building is a bit different from repairs to a single-family home. For example, if flooding occurs, it could damage many units, thus meaning more repairs and a larger dent in your rental income. You will have to deal with multiple uninhabitable units, which means less money coming in the door.

Many investors will allow at least 5% of your profits to go toward things like roof repairs and painting, and another 5% to go toward routine maintenance. That said, you’ll be able to make these repairs much easier. For example, replacing the roof on a 12 unity apartment building will be much less expensive than replacing the roofs on 12 single-family homes.

Before you buy a multifamily property in Seattle or Tacoma, make sure you understand the condition and what it will cost to attract the right tenants and quickly get the property rented out.

Disputes Between Tenants

What happens if there is a disagreement between tenants? How will things be mediated and rules be enforced? All of this should clearly be outlined in your lease along with consequences for violating the rules put in place. You will need to create a plan for yourself to handle these sorts of issues. Most disagreements can be resolved peacefully, but if you find yourself in a dispute, you may need to get a professional mediator to help you out.

Neighbor troubles often snowball, and you will find that are complaining about every little thing. You’ll want to try to settle the dispute as quickly as possible to keep the peace in your building and for your other tenants.

Living There Can Help

One “hack” new investors often use, is to buy a multifamily property in Seattle or Tacoma, and live in one of the units themselves. This will allow the investor to buy a multifamily property of 4 units or fewer using an FHA loan. An FHA loan has a much lower interest rate than the other loans you can get to purchase an investment property.

There are some strings attached to an FHA loan, however. One of those being that you need to live there yourself for a while before you are able to rent out the whole building. While you may not like the idea of moving into a multifamily property, in most cases, you will be able to live free while building equity, and your loan will be paid off.

Know Your Numbers

Before making any investment, you’ll need to do the math. Make sure you understand the expenses and the income generated by the property. What you have left after paying the bills is your net operating income. You should also understand the cap rate, the local vacancy rate, and the rate of return. Make sure to get it all on paper from the previous owner, so you know exactly what you are walking into. If you know the vacancy rate, for example, you will know how many units you need to have occupied at any given time to turn a profit.

Before you buy a multifamily property in Seattle or Tacoma, make sure you have run the numbers and done your homework. Investing in multifamily real estate can offer less competition and a higher rate of return when the right properties are found. Our team can help you find the best multifamily properties for sale in Seattle or Tacoma!

Do you have questions about investing in multifamily properties in Seattle or Tacoma? Reach out to us today to get all the answers you need! (425) 365-0207

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Filed Under: Real Estate News Tagged With: Investing, multi family, multifamily, multifamily investing

Innovative Investing & Business Building

April 22, 2016 By Dan Leave a Comment

MoneyMachineSketch(This sketch is by Joe Mercadante)

Around this time last year, I wrote an article highlighting ideas for paying for your child's college education. One of the best strategies to pay for college is to actually investing in rental real estate. This will be an update including the steps we’ve used ourselves.
1. When our daughters were very young, we decided to buy rental properties in order to fund their monthly college savings plans. We bought these homes with mortgages and our goal was to create $250 a month of positive cashflow for each of them after paying taxes, insurance, and the mortgage payment. This $250 a month would be invested into a brokerage account for their future college expenses. We followed this plan for years and over time their college savings compounded slowly. During this time the savings account for my oldest daughter grew to a little under $60,000. This included the $250 monthly contributions and the increase in market value of the various investments.

$250 invested per month turned into $60,000 in 16 years.

2. Last year, when my oldest daughter was a sophomore in high school, we used $40,000 of her college savings to buy a single-family rental home for cash. This home is within 2 miles from our home. It was a foreclosure and we needed to invest another $5,000 to make repairs, paint, and install new flooring. After completing the renovations, she was left with around $15,000 in her college savings account… read more

Source: Compounding in Action | Innovative Investing & Business Building Ideas

Filed Under: Real Estate News Tagged With: Cash Flow, cashflow, college, college fund, Investing, Investments, rental, savings

ABOUT ME

Daniel Terry is a licensed Broker and Investor with Jae Evans Real Estate in Bellevue, Washington. Daniel has over 18 years of experience in the real estate industry, including home purchases and sales, property leasing, and various real estate investment strategies such as flipping and wholesaling. Read More…

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