Friday Update July 2, 2021
499 existing single family homes up for sale here locally today. That's down from last week and I bet the 4th of July weekend has a whole lot to do with it. People not wanting to show their houses or deal with the hassle of negotiating real estate contracts. I don't blame you guys and I hope you enjoy the holiday. I'll be working. Call me if you want to talk about stuff.
June set another record. These are unofficial numbers as agents will likely still input a few sales for June but we saw 1728 single family and patio homes close out last month. That makes our inventory about 10 days worth. The median listing price was $425,000. The median sales price was $450,000. Keeping in mind these are May contracts closing out through June let's keep an eye on July data to see if my colleagues are freaking out for a valid reason or just because their specific listing isn't selling fast enough. I promise to keep you updated.
If the market is slowing down at all its only because prices are getting to a point where most people just can't afford it. This is how we get to stagflation and its really not a good thing. Luckily the government is here to help, again. How so? But allowing for a lifetime of indentured servitude of course!
The 40 year mortgage has arrived and a fun fact about it is that Americans are going to embrace it faster than the points on their Coscto Citi cards. In an effort to make homes affordable GNMA figures why not stretch out the loan term? That makes sense you just break up the payoff over an extra 10 years and that will help people make ends meet. Remember no one cares how much anything costs, only how much it costs a month. How could this possibly backfire? First let's look at the bulletproof government logic, these are after all college graduates making decisions and they deserve my respect.
Let's say the median price of a house is $450,000 and for the sake of simplicity we're going to look at just principal and interest assuming 0% down. 450k financed over 30 years at a rate of 3% brings a payment of about $1,898 a month. Again not including insurance, taxes, any PMI or anything else, PI only. 450k financed over 40 years at 3.25% gets you a payment of $1,676. Affordability right there guys! Problem is solved and no one should be left wanting in the land of milk and honey. In the 30 year option the house ends up costing you like $675,000, in the 40 year option about $805,000 without factoring in taxes and insurace. Bank wins. But that's just the beginning.
It's a pretty well noted fact that when you give people more money to spend people spend more money. This isn't true for every individual but for the masses it is. In the above scenario what lenders will be telling people is "Congratulations, you qualify for $450,000 on a 30 year fixed or you qualify for $490,000 on a 40 year fixed!" Then the jolly Realtors will set up a search based on $490,000 and off we go looking at our "forever homes". The real issue with this whole scheme is that it's just going to make housing even more expensive and even more unattainable. The market has a talent for sniffing out certain inefficiencies and capitalizing on them. For example a few years ago BAH went up for the troops at Ft Carson. People with a hindered understanding of economics said "oh thank God, now the troops will be able to afford nicer homes". And within no more than 2 months the market adjusted upward to soak up the increase in BAH. Affordability wise it's like it never happened.
Same thing will happen as people stretch their loan terms. They will be buying houses at the top of their budget but now stretching that over 40 years instead of 30. If you think that buyers are rational and thinking about anything other than their monthly payment then you unfortunately would be wrong more than 90% of the time. Over my years of selling many hundreds of homes I can count on my 2 hands the times I've seen 15 year notes used. And those times were investors buying rental properties. The average buyer will almost certainly, almost every time max themselves out for the longest period possible to get the home they want. This is just human nature. People work hard and feel like they deserve to have nice things. And the banks are in the business of finding ways to say yes to nice hard working people as long as it means increased profit for the bank, of course.
The yield curve is starting to flatten. Rates have gone down a bit. This is something I'm going to keep a super close eye on because right now it's just like a point on a graph, not quite a trend yet. Will for sure rant more on this later.
In summary I wish people would pay attention to what things cost. Not just their monthly payments. Have a fun and safe holiday!