Friday Update November 27, 2020

I sincerely hope you had a great thanksgiving and that you either

a.  Did not spread a whole bunch of Covid to your friends and family or

b.  That you lived life according to your own moral compass and that your neighbors didn't snitch you out like punks.

Either way I really hope you had a great holiday in this weird year of the Lord, 2020.

333 single family homes for sale here in El Paso County.  That's it, that's a record low and the inventory is exceptionally poor.  Houses that sold 2 years ago are often selling for 100k more today.

Call me or text me if you want to sell a house.  I'll make it painless and profitable and maybe fun!

I really can't emphasize enough just how low this inventory truly is and how stupid people sound when they say things like "this market is going to crash just like 2008".

No, it isn't because it can't.  Here's why.  

The last market peak here locally was in 2007.  At that point we had over 7,000 units on the market moving about 1,000 a month.  That's a 7 month supply yea?  Prices were rising as foreclosure rates were spiking, but because people get blinded by FOMO (fear of missing out) junkier and junkier loans kept the market propped up.  In 2006 as prices rose we had 2,554 foreclosures in El Paso County, in 2007 another 3,551, in 2008 as the party was drawing to an end we had 4,470 and then in 2009 as the hangover set in we had 5,288 foreclosures.  Like not foreclosure starts but actual A to Z foreclosures where people lost their homes and those then hit the already very saturated market.  We had 12 months plus supply which caused prices to drop about 22% in 6 months.

Why it won't happen again this time around?  Not to say it will never happen again, just saying not now or anytime in the near future.  YTD we have guess how many foreclosures?  Less than 300.  That's on top of a market inventory of less than 2 weeks supply.  What this means is that even if we had a 2009 style meltdown we would still be short inventory.  And due to the amount of money creation at the central bank level (5 trillion since March 2020) most homeowners have a healthy amount of equity in their homes even if they have been missing payments.  That gives them options the folks in 2009 could only dream of.  Crazy right?  

People all over the place in person and on line say the same very stupid thing.  They say "when the market crashes that will be the time I can finally afford to buy a house!".  Unless you're stashing away $250,000 plus in cash right now then no.  Markets crash when supply significantly exceeds demand right?    A good example of that would be certain parts of the midwest where the population is shrinking and the housing supply stays level, prices have to drop as people leave for other places like Colorado.

Most people, like 90% plus have to get a mortgage in order to buy a house.  The availability and cost of credit has a direct impact on the housing market and that correlation should be beyond obvious.  Markets crash when people lose the ability to get credit either because of mass unemployment or more likely than that due to a shock in the debt market that causes rates to spike.  (Think Lehman Bros, AIG, and the credit freeze that came with it)  So let's paint a super simple picture.  For every 1% increase in mortgage rates buyer's lose about 10% of their purchasing power while the payment stays the same.  Hypothetical below, talk to a lender about what you qualify for.

At 2.25% interest a buyer can buy for $400,000, at 3.25% same buyer can only afford $360,000, at 4.25% only $320,000 and so on.  But the payment stays the same and this is the part that people tend to be totally oblivious to!  Most people, like the vast majority of people in the United States can not afford to buy a house in it's true meaning.  They finance the house.  They buy the payment.  Renters do the same thing, they rent in a range they can afford to pay.  Makes sense though because most people get paid a relatively set amount every two weeks or monthly right?

 So is affordability calculated by total price or by monthly price?  You tell me.  Don't be the guy waiting for the market to crash without understanding what that means.  Real estate isn't bitcoin or XRP guys, you don't get into it for quick speculative gains.  Treat housing as a long play without taking into account any short term fluctuations and you're gonna do great.