BY JESS GARRISON · SELLING YOUR HOME
By now everyone has heard “This Real Estate market is crazy”! We’ve all heard the stories. Home listed for $300,000, 30 showings, 10 offers. The house ends up selling for $340,000, inspections waived, and a guaranteed appraisal (if the home doesn’t appraise for the price offered, the buyer will pay the difference in cash). We all drop our jaw and say “how did we get here”
This question can be answered a few different ways. I would like to start by backtracking to the crash of our economy in 2008. I don’t need to bore you with another blog about why everything crashed in 2008. What I do want to touch on is what happened after this crash. The value of residential homes fell for several years. Around 2012 we started seeing prices begin to rebound for the first time since the bottom fell out. The FED had dropped interest rates to record lows. Foreclosures were starting become fewer and fewer. When foreclosures did hit the market, they were no longer undercutting the current inventory by 30% or 40% like they had in the preceding years. Buyers were coming out from hiding and beginning to dip their toes back in the Real Estate pond.
Builders were shutting down shop, getting out of the business and finding other work. The builders that were able to stick it out had skeleton crews, and were surviving off of remodel projects and other small side jobs. It’s safe to say that construction on a mass scale (subdivisions) came to a screeching halt. For the most part the pause button was hit for about 8 to 10 years.
During that time our population continued to increase, and an entire generation (millennials) were either in high school, college, or just starting out in the real world with their first job. For the most part, the 2008 crash did not affect them (student loan debt is looked at different by lenders when considering debt to income ratios). We had an entire generation who watched their parents, aunts, uncles, etc lose their homes and their entire livelihood. What was born was a generation of some of the smartest buyers we’ve ever seen. Millennials generally go to their lender with an amount they are willing to spend on a monthly mortgage. The lender then tells them what price home they should look at based on this number. The generations before them would purchase a home for the maximum amount the lender told them they were approved for. They didn’t stop to figure out if this was an amount they could comfortably afford every month. In addition, interest rates were so low that it made things painfully obvious that purchasing a home was much cheaper than renting an appartment. A down payment on a home was 3.5% to 5% based on your loan, and interest rates floated between 3% & 4%. Where the generations before them were forced to put down 20%, and locking in at interest rates between 8% and 15%. What we had was a generation of buyers able to purchase homes at a younger age then we had ever seen before in our nation’s history.
So here we are in 2017, 2018. New homes aren’t being built, a small army of young buyers are ready to go, record low interest rates, minimal down payments required, and buyers who went through a foreclosure back in 2008,2009,2010 that are now able to purchase a home again. What we were looking at was a perfect storm. Supply and demand is economics 101. Demand for a home was growing by the day, and the supply of available homes was low and shrinking. New construction was so far behind that they weren’t in a position to come to our rescue. An entire generation of would be young builders were forced to go into another trade or work path because no one was building for about 10 years. Builders couldn’t find laborers to build homes. It took a few years, but builders started ramping things up. At that same time cost of materials seemed to be growing by the day. So here we were with a possible lifeline (new construction) that got so expensive that within a few short years became so expensive that they left a huge chunk of would-be buyers in the dust. Fast forward to today, and you can’t really build a new home along the Lakeshore in a great school system for under 500k.
Anyone who has purchased a home before 2020 (and in some cases even in 2021) are sitting on a mountain of equity, that’s no surprise. The issue that everyone is facing is where the heck do I go, and can I even comfortably afford a monthly payment on a house of at that price? The fear of what to do next is causing an additional log jam in the available inventory. We as Realtors are working through this. We have unique ways to help you sell your home and ensure that you won’t be homeless while you are finding your new home. Knowledge is power. Pick up your phone, call a Realtor you know and trust, and ask these questions. Every marketplace has their own techniques to get you through this process. Contact a lender you know and trust. Tell them the amount of equity you have in your current home (based on what your Realtor says you will walk away with after the sale of your home). Tell them how much you could put down on your new purchase with all of this equity. You will most likely be surprised that the amount of equity you put down will make your monthly payments much more affordable than you thought. Knowledge is power. Pick up the phone and ask questions. Once you have the actual answers (not something a friend or relative who sold a home last year told you), you can make informed decisions on what’s right for your situation.