March 2019 Market Update

Randy
Are we heading for another recession?

Brad
Hey guys, we’re back with our March 2019 market update and we are seeing a ton of thrilling headlines in the news here lately that we’d like to address.

Randy
Check out this headline from Market Watch. Cash-out mortgage refinances are back, will homes become ATM’s again?

Brad
What they’re saying is that we’re going back to 2008 when people were totally irrational in pulling money out of their house for depreciating assets.

Randy
This headline is factually correct. Cash-out refinances were at 89% at the worst in 2006 and they’re at 81% at the end of Q-three of last year but they’re not giving you the full picture. If you go further into the report, you’ll see the amount of equity cashed out is nowhere near where it was in 2006. We’re talking one-sixth of the amount, so although the percentage is up, people aren’t wasting it on depreciating assets like before.

Brad
How about this next one from Yahoo Finance. Consumer debt hits four trillion. Americans are diving deeper and deeper in the red.

Randy
So although this title is again correct, Americans are not deeper in the red. According to this housing debt service ratio for mortgages as a percent of disposable income, which is a much more important number than overall debt, the American debt service ration is actually the best it’s been in at least 40 years. This means American families are paying much less in regard to how much money they’re making.

Brad
We have to remember that headlines are meant to draw emotion to get you to click on the site, so don’t take everything you’re seeing at face value.

Randy
So click the link below if you want more headline busts and our actual market update numbers and as always have a great home buying and selling day.

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Here are some other Headlines:

This one from Bloomberg: “Housing bear who called 2008 slowdown, Stack sees risk of worst year for housing since the last crash.”

We don’t really understand where he’s getting his information from. We like what Logan Mohtashami from Financial Truth said. “I don’t expect big declines in demand or massive monthly supply spikes like we saw in 2006 and 2008 to create any meaningful price declines in any markets. We have to be mindful that the housing cycle never had a boom in total home sales. The epic sales decline that some housing bears are praying for will not happen in 2019.”

So, when someone says it’s going to be a horrible year, they’re talking about the number of transactions and prices. Financial Truth is saying neither one of those two things look like they’re going to happen and they’re not the only ones saying that. Let’s take a look at transactions:
That housing bear said we’re going to have the worst year since 2008. Well, Fannie Mae says we’re going to do a little bit better than breakeven, Freddie Mac says we’re going to do better than breaking even, and the Mortgage Bankers Association’s projections show we’re going to do phenomenally well. Now, the other question is well, what about prices, and when people look at pricing, they like to look at this graph going all the way back to 2000 to the end of last year
When they look at this, they see a roller coaster because it went up during the housing boom and came crashing down and now, it’s going back up again. You could take the stance that we’re heading back up to the top of that roller coaster setting ourselves up for another crash. Take a look at this graph in a different light. Let’s assume we took what the real price was in 2000 and we said that we just added to it the 3.6% historic level of appreciation. Forget about what actually happened, let’s assume it just took normal appreciation. If we follow that through we can see that prices today are almost exactly where they should have been from the beginning.
IF prices kept on going up six, eight, or ten percent, we most certainly would be heading to a housing bubble; but up until this point, we’re exactly where we should be. So, going forward, we’re seeing that overall, the housing market still favors sellers, but it’s slowing, trending toward historic norms. When the market did hit that peak where we could get into trouble, we started seeing the housing market prices softening, not crashing. Take a look at this chart of the home price changes in the last ten months compared to that same month of the previous year:
We can see prices are clearly not crashing down. They’re coming into a soft landing more toward historical norms of about 3.6%. If we’re going to use the analogy of the housing crash, this plane is coming in so softly we’re not even going to feel the wheels hit the ground. So, that’s what’s taking place right now and it’s projected to continue.

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