Not Everything that Goes Up Must Come Down

While California’s housing market inventory continues to remain low and rates hold steady, home values continue to climb.

I believe the 2008 market crash created a false outlook on housing prices. My clients often say, “I am waiting to buy a home because prices are so high and they have to come down.” However, improved business practices confirm that what goes up will not always come down to a grinding halt as it did in 2008.

Leading up to the crash in 2008, there were bank loans no one had to prove they could pay back and there were lenders selling junk paper as “A” paper in the form of mortgage-backed securities on the secondary market. There were also borrowers buying homes with no money down, using two loans with short terms of only two or three years before the rate adjusted. These facts, along with overzealous buyers and illogical speculation, led to the market overheating before it burst.

Over the past 10 years, loans have required borrowers to prove their ability to pay it back. It is not to say that there cannot or will not be defaults or foreclosures. Some borrowers will have life-changing events or their financial situation could change affecting their ability to pay back their loan. But the vast majority of the loans will be paid back on time.

The points I am making are simple: learn the current facts and do not spend time guessing on the best time to buy based on past events.

• Housing prices are up over 50% since 2008.

• Home prices have risen an average of 11.4% per year since 2012.

• Consider other economic factors like unemployment, the stock market, and the rate at which first time homebuyers are entering the market. Consider your current ability to pay back the loan you take out.

• Create a purchase plan to address the number of years you want to own. This will estimate the return you could earn, how long it may take to pay off points on the loan, and how long before you should sell without losing money.

With all of these realities, the message I want to send is that there is no better investment than buying a home. For most of us, it is the only TAX FREE investment we will ever have! Given the current tax codes, this can equate to $250,000 for a single person and up to $500,000 for a married couple.

It is true that housing prices are cyclical. I have no doubt, at some point, the market will soften and prices will flatten, or even decrease. But when this happens it will be MUCH less dramatic than what we saw in 2008. The financial markets will not be crumbling along with the housing markets. Homeowners generally have a lot of equity and can absorb a downturn in the market.

Increasing values are indicated by low unemployment, increasing wages, huge gains in equity by those who made it through the 2008 crash, and lessons learned by speculators and lenders.

I have said it before and I will say it again:

It is still a good time to buy!

Rates have remained at historical lows and The Fed’s tune has recently changed indicating there may be fewer rate hikes in 2019.

Let me help you LOVE your next purchase!