Did you know in the 1970's Interest rates bounced between 7% & 11%. In 1981 they actually went up as high as 18%. This means that Loans were more expensive until they created more money by way of a little big experiment called Quantitative Easing
Banks & Lending
It may appear to be the fault of our financial institutions as they do have the most control over our economic health and in order for them to continue contributing to a failing system(2008 Financial Crisis) more rules and regulations had to be put in place to continue down the rabbit hole. It is no secret we live in a volatile democracy where paper magically becomes money just so we can continue building more debt. More people have jobs but they barely make enough to pay rent, bills, credit card and school debt. Not to mention this generation has a ton more Student loan debt than any generation which arguably, is entirely the result of our Government creating too many subsidies for higher education rather than actually lowering the cost of education. Of course, subsidies are beneficial for people in need but they also mean more money is available for businesses/institutions to make so in turn, programs are created, jobs are created in order to capitalize on free money. Not that this is a bad thing but everything has a cost.
In short, this generation(millennials) just doesn't have enough money to keep up with the cost of living even though they work longer hours or more than one job in some cases. Today, the debt that most people incur or qualify for surpasses what they can actually pay back. For example; lenders use gross income to qualify a person for a loan instead of using net income which is what you have after tax, the money you actually pay your bills with. We are now a country rooted in undying debt. The cost would have to be lowered in some sector of our government to initiate a remedy but that day is far.
Government Funds & Home Developers
So one of the biggest issues at hand is the supply of housing. One of the biggest questions is why aren't there more housing being built. Though there are(were) some government funds available for home developers to build more homes, these funds come with conditions. Conditions that some businesses and communities may be opposed to such as requiring builders to build a certain amount of affordable or fixed rent housing. This type of housing gets a lot of push-back from people who are concerned about the value of their neighborhoods being diminished or the change in demographics that such housing would bring about. Landlords/builders are faced with how expensive it may be in terms of the wage restrictions required for hiring people to build and the number of units they would have to build just to satisfy low-income housing requirements and still make a profit rather than a lost. Its safe to say that new home development comes with a lot of red tape.
Though some initiatives with recent bills have been finalized such as the SB2-Building Homes & Jobs Act, to help stabilize funds for the variety of niche housing needed in California by tacking on a tax to Real Estate Transactions, it will still take a few decades for the volume of homes to catch up with the demand. According to a UC Berkeley Study it can take a long time before the change will have a trickle down affect on rents and home purchases.
It cannot be ignored that California has had major economic growth, specifically between San Jose and the East Bay, It has resulted in the biggest impact on driving housing cost just within the last 10 years. Some of the biggest Tech and Social Media Companies have made this place home Google, Facebook and Skype to name a few. Although they create thousands of jobs and drive more people to California, indirectly housing becomes scarce so prices go up. The type of jobs that are created in this Tech Environment are, no doubt, well paying jobs so naturally people are willing to pay more for housing, outbidding the natural market by a land slide.
Coincidentally, some of the areas that have seen the biggest increase in housing cost have also had the least amount of new home development in general. Approving a permit to build has become a tool for local officials and people of those communities who don't want a denser population. They use it to stall time on development projects while appearing to cooperate with the much needed housing to accommodate its growing population by approving permits every blue moon. For example in Palo Alto this year so far only 3 multi-family home projects have been approved totaling to be about 15 units. These 15 units will most certainly not accommodate a town of 67,000 people in need of affordable housing.
SO THE QUESTION REMAINS....WHO IS TO BLAME?
While there is so much to be discussed on a micro scale in terms of all the wonderful cities of California and their building permit mandates, government funding and where the money is really used and of course the rising cost of higher education which by the way I had no clue a percentage of school tuition is used to pay off UC-State retirees pensions according to NPR. On a Macro Scale I think its impossible to entirely point the finger at the government sector or the private sector alone due to the very codependent relationship between the two. The easy way to cure a hang over is to drink more right? In other words the government makes more money and we take it because we need it and to think about the actual cost of doing so is over our heads so yes, I will take another drink.
By Bianca Wright
Me: So what do you think about Sacramento?
Person from San Francisco: Its nothing up there, its dry and hot, I could never live there. Its nothing to do, like what do you do in Sac?
Lets face it, Sacramento has always had a reputation for being hot, dry and boring. Harsh words, I know but coming from a place where buildings tower over a city that never sleeps and people live on top of each other, its a pretty honest perspective.
According to Tony Merevick of Thrillest.com Sacramento is #5 on the list of "25 Best Cities To Find A Job In 2017" In comparison to some of California's top Tech and Industry driven cities, Sacramento has some catching up to do however the momentum of growth in this city has not gone unnoticed. Sacramento thrives in the Government sector, in fact according to Indeed.com, 25% of Sacramento's employment is made up of jobs within government. This city also holds a record for being the most diverse in California which definitely attracts a different array of businesses from Big Tech(Intel) to top System Management Companies such as Sky Slope. Not to mention all of the hot and dry space here. There is so much room to build! As I mention in my last Blog one of the reasons for lack of inventory right now is a shortage of lots to build on.
Now what does Job growth have to do with anything? One of the biggest things people consider when moving to a great place to live is employment, Sacramento has that on lock :-) Coupled with being one of the most affordable places to live you would definitely find a great balance between home and work life. Unfortunately living in a place such as San Jose for example can be stressful if your not doing exceptionally well. There is a huge gap between the amount of income one makes and the actual cost of living. According to Zillow the average price per SQFT for Sacramento is $227 compared to San Jose which is $580. If you do the math, to purchase a Single Family Home with about 1100 SQFT, in Sac your going to pay roughly $249,700 compare to San Jose you will pay $638,000. These numbers are purely based off an average. In reality your probably going to pay around $800,000 for a home in San Jose and about $330,000 for a home in Sac, considering they are move in ready and comparable to the market.
So far Sacramento still looks great! So what about the "What do you do in Sacramento" factor. Well, with diversity comes a great innovative urban community. Sacramento puts on one of the largest Concerts In The Park in the heart of Downtown with roughly 6000 people in attendance. Not to mention all of the new and very improved restaurants, Clubs & Music venues surrounding the amazing, newly constructed Golden One Center, home of The Kings, which now host some of the biggest names and events in California. Just to top it off, Sacramento has the State Fair every year. SACRAMENTO IS THE CAPITAL!
So next time someone ask you what you think about Sacramento, just say "Sacramento is Great & Growing :-)
Check Out My Market Update For Sacramento!!
Feel free to contact me with any questions about Real Estate! Use me for your source of information :-)
By Bianca Wright
For the first time in a long time there are not enough homes to keep up with demands. According to Kevin Graham's Blog with Quicken Loans titled " What to Expect This Home Buying Season" he mentions how there is only three and a half months of inventory at this time. This simply means that its more of a Sellers Market. In other words, homes are being sold at a faster rate of which they are being listed. This is great for Sellers however, Home Buyers have to be well equipped to get in the market and battle for what they want. You have to be a solid, vetted Buyer. So What do you need to be a Solid Buyer? A few great ways to start is talk to a Lender. If your financials are kinda shaky it may be good to get advice on what you should do and shouldn't do leading up to the months you start your home search.
A little bit about my Journey: A few months ago, I decided I wanted to purchase a home sometime within the next 8 months or when my lease is up. I started speaking to a good friend of mine who is also a kick a!# Loan Originator. I told him my crazy impossible idea of wanting to buy a Home and he said "...well, lets get you started to see what you can afford..." this made me feel good so I started the process with him. Recently I told him I was named as an authorized user on a few credit cards that were leaning over the 50% use of credit mark. Using over 30% of a credit card would have a negative affect if not paid off in due time or before your statement closing date. I suggested that I could remove myself as an authorized user since I'm not the primary account holder. He said "...No, don't do it..." he explained to me that these credit cards may be the very foundation of my credit history and by removing them, my credit score may be negatively affected.
So back to the topic "So Many Home Buyers But Not Enough Homes" Aside from the Market being a Sellers Market, their are other factors affecting the issue at hand such as the low unemployment rate and the high cost of Labor & Lumber. According to Zillow Research titled "Why is home buying demand so high..." They explain how the unemployment is rate at a historic low. Before March of this year, the natural rate of unemployment has always sustained at 4.7%. In May the National Unemployment rate was recorded at 4.3% according to the U.S. Bureau of Labor Statistics. This means people are sustaining jobs and paying there bills. These are a few of the building blocks that makes for a motivated buyer, coupled with a pretty affordable market(depending on where your searching), it is still considered a great market for an average working class person to purchase.
Who thinks about the Cost of Labor and Lumber when buying a home? Nobody, and that's ok. Its one of those things you as a Home Buyer can't control unless you were thinking about building your own home. According to Kelsey Ramirez of Housingwire.com in her article titled "Home Builder Confidence Soars In May" She talks about how Home Builders are very optimistic about the future of building however they are currently dealing with "...high material cost and lack of lots & labor..." This is definitely one of the many reasons why there is only three and a half months of inventory left.
If its not one thing its another. With Real Estate there will always be to many variables to consider and uncertainty among all of them. Nothing is final, not even the final sales price of a home. The value will change tomorrow and the next day. The best thing you can do is become a solid Buyer, know what you want and know that you could afford it.
-Kevin Graham - What To Expect This Home Buying Season
-Zillow Research - Why is Home Buying Demand So High?
-Kelsey Ramirez - Home Builder Confidence Soars In May
Image by - glasbergen.com
By Bianca Wright
“Knowledge is power” Literally, having information allows you to make a better decision period. However, having too much information may pose as a negative on your ability to execute a decision or to be decisive at all. According to John White of Inc.com, in his Article titled “How Millennials are Changing The Housing Market” he mentions how this generation has the most information available on the housing market compared to generations before. He also elaborates on how Realtors may need to change their approach in helping buyers find homes in order to capitalize on the opportunity to work with millennial buyers.
So where to begin with this? As a Millennial (a person born between 1980-2000 according to Time Magazine) I agree that we do live in an age of information thus allowing for better decision making, taking more calculated risk and well… I’m going to be extra candid and say it also encourages us to be more mindful. Maybe that’s too far but it’s hard for people to get away with saying “I didn’t know”...yes you did, you liked it on Facebook. This is a great day and age that we live in however, knowing exactly what you want in a home is less than half the battle. Honestly, it’s probably 10% of the home buying process. Once you know what you’re looking for, the rest is all about locating a property that fits your budget. Actually, let me reverse that statement. The very first step is knowing your budget so you’re not swimming upstream with no place to go. And yes, this is what Realtors see when you want to go out and look at homes without a pre-approval letter from your lender.
It is hard for me to take the opposition of something that I am allegedly apart of, being a millennial that is, but as a licensed Agent, working in the field of Real Estate, far to often people get discouraged by what they can’t have. Purchasing a home is more than just creating a vision board of what you like. Have your lender put together a vision board of your finances, that will be a great start!
In short, Millennials know exactly what they want. With so much information instantly available, it is very easy to google anything and see it in front of you, on the screen that is. Seeing is believing as many people say however, in this case knowing is believing and I believe I can’t purchase an $800,000 dollar home in the Bay on an FHA Loan alone due to loan limits because I know FHA will only finance my home purchase up to $636,150 in high cost areas according 2017 FHA Loan limits. This is not something people are aware of when starting the Home buying process. Should they be aware of it? At some point yes if they are serious and motivated.
Have you ever hung the phone up in someones face because you knew they were about to reveal a big secret to you and you didn't want that burden of knowing. Having so much information available to you is kinda like that. You are placed in a position where you are somewhat responsible for knowing what you are getting yourself into.
By Bianca Wright
This guy might show up again if Mortgage lending rules are eased. Change is good and it may be exactly what this economy needs to create better consumer confidence. However, the very reason for restrictive lending policies today may become a reality again if this new change goes to far.
As The Trump Administration pushes for a more flexible Financial Institution with Lending by repealing the Dodd Frank Act, one who has experienced the 2008 financial crises would question his intentions. Its obvious that these changes would directly help those Subprime Borrowers qualify for a mortgage. Just to speculate on what could change, you may see more people with lower credit scores and higher debt to income(DTI) ratios purchasing homes which is great for majority of us but in hindsight it may just turn out to be that same old familiar horror story we all know with a nice new cover.
On September 30th of 2010, American Economist Ben Bernanke delivered a great summary of The Dodd Frank Act(DFA) and some of the issues it would remedy. The DFA made strong progress by creating the Consumer Protection Agency that regulated big Financial Institutions thus ending big corporate bail-outs which was definitely a huge expense on Tax Payers. When the financial crisis hit this country, it also hit globally especially for industrial countries. With American spending and employment taking a drastic dive, so did international spending on imports and exports. Writer Joel Havemenn of the Encyclopedia Britannica in his article title "The Financial Crisis of 2008" Summarizes how the stock Market really took a plunge in 2008 loosing nearly 34% of its value in the Dow Jones Industrial Average.
So whats the catch 22? In short Trump will make available more opportunities for people to become Home Owners thus allowing investors to gain more which will create a soaring level of consumer confidence and a magical playground for investors. You can almost imagine Trump pointing and yelling at everyone saying "You get a house and you get a house and you get a house" But with opportunity comes a cost. Of course people will snatch their chance at Home Ownership and investors will milk as much as they can while the moment is euphoric. The cost in this case, as in 2008, would be that our financial institutions become susceptible to risk once again.
At this point, most predictions of repealing the DFA can only be based off speculation as we sit patiently on the other side of closed doors literally and wait for the results. No need to panic yet but its hard not to when considering the Precedent .
Lending Tree - https://www.lendingtree.com/glossary/what-is-subprime-borrower
Economist Ben Bernanke Summary of Dodd Frank Act - https://youtu.be/WYJArv6fzms
GLOBAL FINANCIAL CRISIS - https://www.britannica.com/topic/Financial-Crisis-of-2008-The-1484264
Consumer Reports - http://www.consumerreports.org/mortgages/how-trump-plan-would-ease-mortgage-lending-rules/
I cover Real Estate Market information, RE Investing, legislation, loans and other stuff :-) My Goal is to bring facts to the table in hopes to open up a dialect among real people. Far to often the topic of Real Estate is perceived to be foreign when in fact it directly affects all of us. So lets talk about something that matters.