Birmingham Real Estate News & Market Trends

You’ll find our Birmingham blog to be a wealth of information, covering everything from local market statistics and home values to community happenings. That’s because we care about the community and want to help you find your place in it. Please reach out if you have any questions at all. We’d love to talk with you!

May 22, 2018

How to Downsize Your Belongings After You Downsize Your Home

There are plenty of reasons why homeowners decide to move to somewhere smaller after a few years in their family-sized house. One common motivator is the fact that your children have left the nest, leaving you with extra rooms to clean, and space that you simply don't need. While moving to a smaller home can make your life cozier and more convenient, it does present a significant issue - sorting through your keepsakes and antiques.

Whittling a lifetime's worth of collectibles and belongings down for the move to a smaller home can be both complex, and emotional. It's difficult to determine what you should keep, what you should toss, and what you might want to give away. Here are a few tips that could help to make the process easier.

1.     Start Early

Ideally, from the moment that you decide that you're going to move to a smaller home, you should think about reducing the number of things you own. If you wait until you've signed a contract, and you're counting the moments down until your move-in date, then you could end up getting overwhelmed and throwing everything in a moving box - giving yourself even more work to do when you arrive at your new home.

It's particularly important to start sorting through your belongings early if you've got antiques that you want to sell. Remember, different collectors look for different types of antiques. Giving yourself to find the right auction house in Alabama or list your items on the correct website will make it more likely that you get a sale.

2.     Start Small, But Make Definitive Decisions

When you're ready to start sorting through your belongings, you should aim to work on one room slowly, maybe over the course of an entire weekend. Trying to downsize your entire house at once can be a nightmare and make it harder for you to focus on what you need to do.

As you look at the antiques that simply won't fit in your new home, try to make definitive decisions about what you're going to do with them. In other words, don't have a "maybe" pile. Decide which pieces you're going to take with you, and for the rest, speak to one of the dozens of antique appraisers in Birmingham, Alabama, and ask them for tips on who might be willing to buy your collections. Some will even take pieces off your hands there and then.

3.     Expect Some Emotional Ties

While you might want to sell off as much as your old clutter and valuable possessions as possible before you move into your new home, there's bound to be at least some things that you're going to struggle to part with. Often, these are the pieces that have an emotional connection, or a part in the story of your life.

Although downsizing will require you to make a few sacrifices, be kind to yourself and hold onto a few things if you can. If you're really attached to an item, hand it over to a friendly moving team, like our friends at Bellhops Moving in Birmingham and find a place for it in your new home.



Posted in Real Estate Advice
May 22, 2018

The 'lost generation' of millennials born in the 1980s may never be as rich as their parents

 

Millennials born in the 1980s are at greater risk of accumulating less wealth during their lives, according to a new report by the Federal Reserve Bank of St. Louis. I doesn't appear they will be much relief for the Baby Boomer Sell-Off.

  • Millennials face unique financial struggles compared to previous generations.
  • Millennials born in the 1980s are at the risk of becoming a "lost generation" that accumulates less wealth during their lives, according to a new report by the Federal Reserve Bank of St. Louis.
  • Coming of age during the Great Recession, this millennial cohort has faced high unemployment rates, an increased cost of living, and mounting debt.

From saving longer to buy a home to facing increasing living costs, millennials are balancing myriad money woes compared to previous generations. This will have a direct effect on future real estate markets.

All of these hurdles combined mean they're at risk of accumulating less wealth during their lives. As a quick recap, millennials are defined as the generation born between 1981 and 1996, growing up or entering the workforce during the Great Recession as a result they have a different attitude about owing real estate.

Those born in the 1980s are at the greatest risk of becoming a "lost generation" for wealth accumulation, reveals a new report by the Federal Reserve Bank of St. Louis.

"Not only is their wealth shortfall in 2016 very large in percentage terms, but the typical 1980s family actually lost ground in relative terms between 2010 and 2016, a period of rapidly rising asset values that buoyed the wealth of all older cohorts," write the report's authors.

 

 

 

Posted in Real Estate Advice
May 21, 2018

Blockchain Technology is coming to the Real Estate Industry

 

 

 

The digital technology that made bitcoin and other cryptocurrencies possible is starting to be used in real estate—and it could soon disrupt how homes are bought, sold, and insured.

 

Blockchain technology, which is basically a shared, online ledger, has the potential to lessen inspection and title insurance fees, cut down on sales commissions, and reduce mortgage fraud as it's rolled out over the next few years.

 

The advantage of the technology: Anyone within the network has access to blockchain, but no one can go back in and edit it. Every bit of recorded information in it is permanent.

 

Blockchain technology could revolutionize the real estate industry?

 

Blockchain is still in its early-adoption years, and large companies from just about every industry are exploring how to use it. It hasn't caught fire—yet. But among other things, it's expected to eliminate some of the more mundane, and costly, mountains of paperwork involved in real estate transactions. This could save buyers and sellers some much-needed dough.

The reason all of this matters is because buying or selling a house involves a long series of time-consuming chores, most of them involving paper forms, attorney visits ... and waiting. Once a paper deed is transferred from the seller to the buyer, it goes to the local town clerk, where it is recorded in a ledger and stored in a drawer.

 

But what if it could all be done electronically instead?

 

How could blockchain save consumers cash?

 

Blockchain is part of the technology that was developed by a computer coder or coders known by the alias Satoshi Nakamoto in 2009 to create the cryptocurrency bitcoin. Cryptocurrencies, as most people know by now, are essentially digital money, used by everyone from hackers to more legit, mainstream businesses such as travel website Expedia.com. Because cryptocurrencies exist only digitally, Nakamoto came up with a distributed ledger that sits on hundreds of computers, keeping track of every transaction connected to the currency.

 

Since the ledger resides not on one computer but many, advocates believe blockchain is impossible to hack.

 

The decentralized system helps make the blockchain safer from hacking.

 

That magical combo of transparency and security is key to lessening the amount of due diligence required surrounding real estate transactions. Paperwork such as deeds could be readily available to whoever wants to see them in one central, digitized location. That means real estate agents, attorneys, and insurers would no longer have to physically trudge to the town clerk's office to

 

Every time a transaction is updated, it would appear on the blockchain that everyone accesses. There would be no need to reconcile it, or verify it, like what's needed in databases or when merging information from different streams or ledgers. And no one could go back in and erase information, the way they could easily do in, say, a shared Google document.

 

The goal is to protect the buyer and mortgage lender from any liens (debts against the property), unpaid loans, or even illegal work that has been done on the property.

 

For example, in many localities, a mortgage is not recorded on a deed for two weeks. And homeowners are never informed when a lien has been placed on a property until they attempt to sell the home.

 

The typical homeowner paid about $1,374 in title insurance in 2018, but that amount varies based on the owner's credit score, loan amount, and the location of the abode. Folks purchase the insurance to protect themselves from unknown liens such as outstanding mortgages on the property, or someone else swooping in and claiming they own their property.

 

How blockchain could help protect buyers from fraud

 

It isn't just about eliminating paperwork. Blockchain technology may also help eliminate mortgage fraud, which has been described by the Federal Bureau of Investigations as one of the fastest-growing white-collar crimes.

 

Today, if fraudsters want to steal a home, they can copy an existing deed and use a software graphics program to insert their own names as the owners. They can then file the new deed with the county and potentially even sell the property. And this crime occurs more often than most would like to concede.

 

If a property sale was registered on blockchain, a criminal would not be able to change the history of the online deed because copies of that history exist on hundreds of different computer systems.

 

Posted in Real Estate News
May 11, 2018

How to Use Facebook Ads to Enhance Direct Mail Campaigns

 

I use a lot of direct mail. If I don’t spend $100.00 per month on postage I don’t feel I’m doing my job.  I do this because I feel that people are more likely to read a letter than an email.  With direct mail I can choose who I communicate with and the message I want to deliver, when I want to deliver it.  I also send out Just Listed and Just Sold postcards.  Then I reinforce my direct mail using Facebook ads. 

Prepare Your Mailing Data for Upload into Facebook 

If you use direct mail, your mailing data is valuable for marketing on Facebook, too. With the mailing data, you can show Facebook ads to your direct mail recipients who are also Facebook users. This approach is a wonderful way to expose potential customers to your message in multiple ways. 

To begin, prepare your mailing data for import into Facebook Business Manager or Ads Manager by creating a CSV* file. Your goal is to compile as much data as you can. Facebook allows you to target Custom Audiences based on several factors: 

  • Email 

  • Phone Number 

  • First Name 

  • Last Name 

  • City 

  • State/Province 

  • Country 

  • Date of Birth 

  • Year of Birth 

  • Age 

  • Zip/Postal Code 

  • Gender 

  • Mobile Advertiser ID 

  • Facebook App User ID 

Because you’re working from a mailing list, at minimum you should have names and zip codes; however, the more data you have, the better. You can create a CSV file in a spreadsheet program like Excel and include a header for each data point you have. 

To set up your audience, click Create Audience and select Custom Audience from the drop-down list. In the pop-up window that appears, choose Customer File. 

You’ll work through about four steps in Facebook to prepare to upload the data. First, tell Facebook you want to upload a file and select the CSV file of the mailing data you created. After the file is uploaded, you’ll be prompted with a field mapping window. This maps the column headers in your CSV file to data categories that Ads Manager or Business Manager uses. 

Go through the list and make sure Facebook recognizes and maps the fields you want to use to build your audience; ignore the fields that aren’t relevant. Again, use name and zip code at minimum, but email and anything more is better. Facebook says the more data you use, the higher the match rate. 

Continue following the prompts through the upload process to hash (securely upload) your data and start processing your audience file. You’re all set to start building the campaign. Depending on the size of your import data, it might take a little while for Facebook to build your audience. I’ve found that about 70% of the names that I upload into a Facebook Custom Audience match up with a Facebook page. 

This is a link to a video that I did on the recent changes that are being implemented that will effect your ability to use Facebook as an advertising vehicle for your business.

https://youtu.be/EGhYse6vCAA

Be sure to Subscribe to my YouTube Channel.

Posted in Real Estate Advice
May 11, 2018

How to build your real estate data base?

When it comes to professional networking online, LinkedIn is the top platform — not Twitter, and not even Facebook. It has fewer members than Facebook with?467 million users worldwide, but the platform provides a robust marketing and engagement system featuring group discussion boards, private messaging and blogging. 

Best of US Homes sees LinkedIn as a vehicle to market our luxury homes.  We share all our blog posts, we write articles and we share our luxury home videos.  LinkedIn gives us the opportunity to connect with our target market for our luxury listings and build our data base of potential buyers and sellers.  Again, content is king, we operate on a philosophy of give, give and give and sooner or later we will receive. 

LinkedIn has more to do with selling our brand than selling homes.  It’s our vehicle to establish our professional reputation online and gain much-needed exposure to local banks, investors and business owners. 

As a real estate agent, it’s important to pay attention to your profile.  If a home buyer gets a letter, an email, or sees you on conventional media or social media the first thing they will do is Google your name or your company name and that will lead them to LinkedIn and your profile.  Trust me this can be a deal maker or a deal breaker. 

LinkedIn is fantastic too for building your data base.  Everyone wants more connections, so asking to connect and getting a confirmation needs to be a part of your daily activity. 

In the upper left corner click on Search > People> just blow the Search in Location you’ll get a drop down, enter your city, click Apply. 

You will be presented with and endless list of professionals in your city.  Start connection with them.  LinkedIn doesn’t want you to overdo this so limit your connections to 50 per day. Once you exhaust the list sit back and collect connections. 

When you click connect on a name you’ll be taken to a screen that will give you the option to Send a Note or Send Now this is a sales opportunity that most agents miss. I know this because the majority of connect requests that I receive there is no note.   

I click Send a Note and here’s my note: 

We’re seven years into the Baby Boomer Sell-Off. Last year 650 homes at $750,000 plus were brought to market and only 322 sold.  The Baby Boomer Die-Off, starts in 2023, the severity of this problem will affect our entire economy.  I’d like to be your source for timely information on this problem.   

Do you see what I’m doing?  I’m giving them information and then I’m giving them a reason to connect.  The other benefit of the note is it will weed out those that have no interest in my unique sales proposition, so they won’t become an unsubscribe later when I enter them into my mailing list.  

Do this on a daily basis until you run out of new contacts.  This is part of your building awareness in the community and hopefully build your stable of Influencers. 

This is a link to a video that I did on building your data base on LinkedIn.  Be sure to Subscribe to my YouTube Channel, my next video will be on using Facebook under the new rules. 

https://youtu.be/9ldEbJESp7Y

 

 

 

Posted in Real Estate Advice
May 10, 2018

The Uncomfortable Truth about American Recovery

 

It’s a story we’ve heard all too often following the 2008 housing crisis…

And despite what you’re hearing from the mainstream media about this so-called “economic recovery,” it’s a story we’re going to hear again and again and again in the coming years.

Have some people benefited from this record long bull market?

Absolutely.

The richest Americans who own most of the financial assets have seen their wealth skyrocket.

But for hundreds of millions of Americans who don’t belong to the 1%… who were so completely devastated from the last crisis that they were either unable or unwilling to participate in the “recovery”... things HAVEN’T improved.

In fact, for many, things have gotten worse.

And this map proves it...

 

See all that blue?

Those are the prosperous parts of America where there’s been strong economic growth, new jobs, rising home values, and higher pay over the past two decades.

And no surprise, most of that prosperity is concentrated in the fast-growing western cities and tech hubs… like San Francisco, Seattle, and Austin, TX.

But see all that orange and red?

That’s the America this “recovery” left behind… the old industrial cities that were once the engine of our economy…

Which means even a tiny bump in the road…

Like an unexpected medical expense, the loss of a job or decrease in pay, a slight increase in the everyday cost of living…

Could send millions of Americans are just one phone call away from experiencing the embarrassment and shame of losing their homes.

So, forget all the fake news you’re hearing about the real estate market being safe again because of the shortage of inventory and record homestarts…

Forget about the record highs in the stock market…

And forget about all the promises the White House and Congress have made…

Because here’s the truth about America...

The 2008 Housing Crisis is FAR from Over...
In Fact, the REAL Carnage is Only Just Beginning!

And we’re already starting to see the cracks deepening in this fake “housing recovery” all across America as a silent foreclosure crisis continues to gain momentum.

 

 

 

 

 

 

 

 

In August 2017, five states (and D.C.) saw significant year-over-year increases in foreclosure filings –– Mississippi is up 9%, Vermont is up 12%, Louisiana is up 59%, Washington D.C is up 67%, Wyoming is up 79%, and Alaska up 100%!

Nearly a quarter of the nation’s largest metro areas are seeing rising foreclosures… including some of the hottest housing markets in the country like Denver, Austin, Dallas, Nashville, and Columbus, Ohio.

Even New York City is seeing foreclosure auctions explode to levels we haven’t witnessed since 2009!

And if it’s getting this bad in the best markets in America… it has the potential to be much, much worse everywhere else.

Which is why today is a critical moment for you, your family, and your future way of life.

Because according to my research...

In 2018, Your Home’s Value
Could Drop By 50% OR MORE!

This warning isn’t an easy one for most people to hear… and I take no pleasure in telling you your home value could collapse and your retirement could be ruined...

Sell Your House NOW Before It’s Too Late!

 

Posted in Real Estate News
May 2, 2018

Billionaire Has Put Half His Net Worth Into Gold

Some big investors see warning signs ahead for markets but are holding their positions. Egyptian billionaire Naguib Sawiris is taking action: He’s put half of his $5.7 billion net worth into gold.

He said in an interview Monday that he believes gold prices will rally further, reaching $1,800 per ounce from just above $1,300 now, while “overvalued” stock markets crash.

If he's right how is this going to effect the Birmingham housing market.

How is the Birmingham Luxury Home Market going to be affected by the coming recession?

Capital is the lifeblood of a modern economy. Traditionally, capital was the money that was saved and lent.  But in modern banking, with fractional-reserve lending, banks can create capital digitally out of thin air.  This increased availability of capital helps economic growth, but if not properly managed, it can be disastrous. Economist Hyman Minsky blamed excessive debt for most financial crises.  He identified three types of debt.  The safest debt, which he called ‘hedge financing’, is responsible for creating economic growth. The borrower invests capital in productive economic activities, from which cash flows can service the interest and eventually pay off the principal. A riskier debt, called ‘speculative financing’, involves credit to marginal businesses—often forced by the government through priority-lending schemes—where current cash flows are sufficient only to pay the interest, and the principal has to be rolled over to a later date. Sometimes that works out, but an economic downturn exacerbates the risk of default.  The third kind of debt, which Minsky called ‘Ponzi financing’, was most dangerous because borrowers use the capital not to invest in productive activities, but to buy assets hoping to flip them at a higher price, repay the debt, and book a profit.

Minsky’s concluded that protracted periods of stable economic growth, where hedge financing and sound investment opportunities dominate, encourage both borrowers and lenders to take more risk until speculative and Ponzi financing start to dominate.  This leads to inflation in asset values, particularly real estate and stocks.  When asset prices stop rising, and the bubble pops, bad loans pile up, and the entire scheme starts to unravel.  An example, would be when in 2008 housing prices collapsed in the US. People, who borrowed and had invested in homes in the hope of repaying the loans from the price appreciation, started to default.  Financial products with payoffs tied to these loans began to unravel, and financial institutions that had insured these products became insolvent overnight.  The rest is history, as over $20 trillion in global wealth was lost within a brief time.

As a result of quantitative easing our national debt has grown from $8 trillion in 2009 to $20.6 trillion today, quantitative easing was the government policies which bailing out the banks and auto industry and financed the growth of our economy after the 2009 financial crisis.  Don’t be too hard on our government for running up so much debt, US personal debt is $18 trillion, Mortgage debt $14.9 trillion, and student loan debt of $1.5 trillion (27% in default). Add all our US debt together and total US debt is $69.5 trillion with interest payments totaling $2.6 trillion per year at 3.74%. Today’s prime rate is 4.5%, historically normal prime rate is 6.5%; if we see a 2% rise in prime rate, debt service on the ever increasing $69.5 trillion will grow to over $4.0 trillion per year.

You understand debt, it’s not a problem if you have the income to pay it down (hedge financing); but wait, our Gross National Product is $19.8 trillion, Federal Tax Revenue are $3.3 trillion, while interest on the National debt of $20.5 trillion is $284 million (1.2%) a year, interest rates are going up and we’re not paying down the principal (speculative financing).  A year ago, the 10-year treasury was paying 2.395% today it’s up to 2.868%, that’s a 20% increase in one year.  The 10-year treasury is what the government sells to the buyers of our debt.  If 10-year treasuries get up to 4.5%, where it was before the Federal Reserve started printing money in October 2007, the interest on the national debt will be 50% of federal tax revenues; but wait we just cut federal taxes and we already have a federal budget deficit of $717.8 billion per year.

How do you think all this going to work out?

Bridgewater Associates founder, Ray Dalio recently said he sees a growing chance of a recession as the U.S. enters a “pre-bubble stage.”

“I think we are in a pre-bubble stage that could go into a bubble stage,” the hedge-fund manager said during a Harvard Kennedy School’s Institute of Politics on Wednesday, February 22, 2018.

Dalio, whose hedge fund manages some $160 billion, making it the world’s largest fund, pegged the probability of a recession by the 2020 presidential election at 70%. A recession is sometimes technically defined as two consecutive quarters of economic contraction; however, many economists define such a pullback in growth as a significant fall in activity across the economy that lasts more than a few months.

What does all this have to do with your luxury home? 

There are already more sellers of luxury homes in Birmingham than there are buyers.  Over the past seven years no more than 50% of homes listed for $750,000 or more have sold in any year.  This is a result of The Baby Boomer Sell-Off, The Demographic Inversion, (there are 25% fewer Generation-Xer’s than Baby Boomers) and the financial crises of 2007 – 2010, many Generation-X’er’s lost their jobs, homes and any equity they had built up.  Now throw in a recession that will be equal or greater than the 2007 through 2010 financial crisis and the number of luxury homes sold each year will drop to 25% or lower and they will sell at heavy discounts.  Learn more on my website blog www.BestofUSHomes.com.

This recession is going to happen, ask your financial advisor, your banker, read the Wall Street Journal.  The only question is when?

If you aren’t prepared to stay in your home for the next 10 years… sell now.

If I can be of any assistance; call me.

 

Posted in Real Estate Advice
April 19, 2018

Easy Money Fuels Bubbles

Easy-money policies across the globe have set us up for some rocky times ahead. Here's why, and what Baby Boomers and investors should be doing now to protect themselves.

 In the 1990s we had the dot-com bubble. In the 2000s we had the real estate bubble. And now we have the central bankers’ bubble.

 The central bankers’ bubble has formed thanks to a concerted effort by several government central banks around the world to boost their economies. Since 2008 they’ve used a combination of strategies, including setting low interest rates (even negative interest rates in certain countries), buying their own government bonds and even buying actual stocks. This has driven up asset prices worldwide. Due to all this stimulus, we are currently in the second-longest bull market in history. March 2018 marked the nine-year anniversary of this bull market!

 I believe that this current bubble will burst, sending asset prices down again.

 Easy Money Fuels Bubbles

 Since the very beginning of lending, when you borrowed money from someone you paid that loan back with interest. Remember the days of 18% CDs in the 1980s? However, many countries today have exactly the opposite: very low interest rates. Historically, artificially low interest rates lead to real estate bubbles and stock market bubbles. That’s because people can afford to pay more for that asset due to the lower monthly payments from those low interest rates. The reason why real estate bubbles often correspond to a rising stock market is that as real estate prices rise, people feel good financially and often spend more money. Higher spending leads to higher company profits and thus higher stock prices.

 Since 2008, to keep interest rates low, keep the markets liquid and subsidize our banking system, the U.S. government has bought $4.5 trillion in U.S. government bonds. And we’re not alone in this stimulus strategy … the Bank of Japan owns approximately 66% of Japanese ETFs. And Switzerland’s government’s bank has over $88 billion invested in U.S. stocks alone.

 Currently, more than a dozen European countries have negative or 0% interest rates, including Germany, Switzerland, Denmark and France. Japan has negative interest rates as well.

 Once Rates Start Rising, the Tide Turns

 Rising interest rates are a big concern to a debt-fueled bubble, and interest rates have nearly doubled in the past year in the United States. On July 1, 2016, the U.S. 10 Year Treasury Note was paying 1.46%. About a year and a half later, on Feb. 21, 2018, it had doubled to approximately 2.94%. It has since slipped a bit from there, today at 2.91%. The U.S. government has stated that it will start selling its $4.5 trillion of government bonds back in the market over time, unwinding that stimulus, which also has caused interest rates to rise. In February 2018, the Dow reacted to this increase in interest rates with a drop of 10.3% in only two weeks!

 Another factor that could affect the global economy is China’s potential real estate bubble. China has built entire cities that are completely empty to stimulate its economy and keep its markets moving forward. Regrettably, many Chinese citizens are investing in WMPs (wealth management products) that invest in real estate and other speculative assets, which are like the CDOs in America that got our economy in trouble back in 2009.

 Our Most Troubling Issue: The Aging Baby Boomers

 Perhaps the biggest concern we have right now is America’s aging population. Right now, every day approximately 10,000 Baby Boomers are turning 65, and this will continue for over 10 more years. These retirees will be turning on Social Security and Medicare and may be taking money out of the stock market instead of contributing to it like they did during their working years. In addition, retirees typically downsize their homes and spend less on average than they did during the earlier part of their lives when they were still working. Reduced spending is bad for the U.S. economy, because 69% of our economy is based on consumer spending. This aging demographic is a real potential threat to America’s consumer spending-based economy. As the number of retiring Baby Boomers grows so will the inventory of their larger homes in the outlying suburbs.  As the Boomers start dying it will turn into “Who can sell their homes first”, contest, and those that loose will face a supply and demand crisis.

 What this Means for Investors and Retirees

 In the face of these mounting challenges, retirees and retirement savers alike must establish a risk management to minimize the risks of the market cycles. If you’re between 65 to 80 and are pursuing your retirement dreams your main goal at this point is to not give back all the gains you’ve made over the past nine years since 2009. You’re more concerned with managing principal and income, than making big gains going forward … because the more risk you take on, the more upside potential you have but the more downside risk you face, and most of you never want to go through another 2008 again.

 When it comes to your real estate, recognize that you are facing a closing window of opportunity.  In most communities across the United States if you have a hone valued below $400,000 there is a hot real estate market and the Millennials are anxious to buy your home but as you pass through the $750,000 price point there is a reversal for a Sellers’ Market to a Buyers’ Market.  My advice is to price your home competitively, to update your kitchens and baths and paint your walls in neutral colors.  Make your home easy to buy.

 The markets, whether it be stock or real estate, are driven by fear and greed. Warren Buffett has a saying about the stock market and investing: "Be fearful when others are greedy and greedy when others are fearful." The stock market has been feeding the greedy for nine years now and the housing market as been doing the same on the low end, so act accordingly.

 

Posted in Real Estate Advice
April 12, 2018

What If the Housing Bust Didn't Happen?

What If the Housing Bust Didn't Happen?

 

  • Even by the most optimistic projections, it will take until the end of 2019 for home values to get back to the level where they would have been if the housing bust didn’t happen. On average, panelists said it’s likely home values won’t reach those levels for more than five years, at least.
  • On average, experts expect home values to climb 4.8 percent in 2018, with annual appreciation slowing to 3.7 percent in 2019 and to 2.7 percent by 2021 before accelerating somewhat to 2.8 percent annual growth by 2022, according to the Zillow Home Price Expectations Survey.

A decade after the worst of the housing bust, and after years of well-above-average home value growth, the housing market has yet to emerge from the shadow of the Great Recession. And by most accounts home values will, for years to come, continue to be below what might have been.

Even by the most optimistic projections, it will take until the end of 2019 for home values to reach the level where they would have been had the recession never happened, according to the most recent Zillow Home Price Expectations Survey of more than 100 economists and experts nationwide.[1] On average, panelists said it’s likely home values won’t reach those levels for more than five years – well into the 2020s, at least, and perhaps beyond.

And more panelists said that recently passed tax reform had them feeling more pessimistic about U.S. home values over the next five years than optimistic.

Home Price Expectations

In the dozen years prior to the onset of the housing boom and bust (1987-1999), home values grew at an average annual pace of 3.6 percent.[2] If the recession and housing bust had never happened and home values had continued to grow at that same, steady pace year-after-year, the median U.S. home would have been worth about $214,500 as of the end of 2017.

But, of course, the boom, bust and recession did happen, and the market continues to play catch up. As of December, the median U.S. home was worth $206,300 – despite six years[3] of annual average home value growth of 5.3 percent during the recovery, a pace well above the historic average. The most optimistic quartile of survey respondents said they expect home values to grow at a 5 percent average annual rate over the next five years. The most pessimistic said they expected just 1.6 percent annual growth, on average, through 2022. Among all respondents, the average expected annual growth rate over the next five years was 3.4 percent – a rate slightly below pre-recession norms.

When asked how recent passage of the new tax law impacted their overall outlook for U.S. home values over the next five years, 41 percent of panelists with an opinion said their outlook was more pessimistic, compared to 31 percent who said their outlook was more optimistic. Of those with an opinion, 28 percent said their five-year outlook on home values was unchanged as a result of tax reform.

On average, respondents said they expected home values to gain 4.8 percent in 2018, with annual appreciation slowing to 3.7 percent in 2019 and to 2.7 percent by 2021 before accelerating somewhat to 2.8 percent annual growth by 2022. Panelists said they expect bottom-third, entry-level home values to grow 6 percent in 2018, down from 8.5 percent annual growth currently but still double the expected pace of top-third annual home value growth (expected to be 3 percent in 2018, down from 3.6 percent currently).

 

[1] The Zillow Home Price Expectations Survey is a quarterly survey of more than 100 economists and real estate experts nationwide, sponsored by Zillow and conducted by Pulsenomics. The survey asks experts to offer their expectations for growth in the U.S. Zillow Home Value Index over the next five years, as well as offer their opinion on a series of supplemental questions determined by the survey authors. The most recent survey edition collected responses from 105 panelists and was fielded between Jan. 29 and Feb. 12, 2018.

[2] According to the S&P/Case-Shiller U.S. National Home Price Index (Single family, NSA)

[3] Jan. 2012-Dec. 2017

 

Posted in Real Estate Advice
Feb. 27, 2018

How is the Birmingham Luxury Home Market going to be affected by the coming recession?

Besides building a real estate business I study the global financial markets; I’m a retired financial advisor and it’s in my blood.  I have some information that I feel compelled to share with you.  It’s my answer to this question.

How is the Birmingham Luxury Home Market going to be affected by the coming recession?

Capital is the lifeblood of a modern economy. Traditionally, capital was the money that was saved and lent.  But in modern banking, with fractional-reserve lending, banks can create capital digitally out of thin air.  This increased availability of capital helps economic growth, but if not properly managed, it can be disastrous. Economist Hyman Minsky blamed excessive debt for most financial crises.  He identified three types of debt.  The safest debt, which he called ‘hedge financing’, is responsible for creating economic growth. The borrower invests capital in productive economic activities, from which cash flows can service the interest and eventually pay off the principal. A riskier debt, called ‘speculative financing’, involves credit to marginal businesses—often forced by the government through priority-lending schemes—where current cash flows are sufficient only to pay the interest, and the principal has to be rolled over to a later date. Sometimes that works out, but an economic downturn exacerbates the risk of default.  The third kind of debt, which Minsky called ‘Ponzi financing’, was most dangerous because borrowers use the capital not to invest in productive activities, but to buy assets hoping to flip them at a higher price, repay the debt, and book a profit.

Minsky’s concluded that protracted periods of stable economic growth, where hedge financing and sound investment opportunities dominate, encourage both borrowers and lenders to take more risk until speculative and Ponzi financing start to dominate.  This leads to inflation in asset values, particularly real estate and stocks.  When asset prices stop rising, and the bubble pops, bad loans pile up, and the entire scheme starts to unravel.  An example, would be when in 2008 housing prices collapsed in the US. People, who borrowed and had invested in homes in the hope of repaying the loans from the price appreciation, started to default.  Financial products with payoffs tied to these loans began to unravel, and financial institutions that had insured these products became insolvent overnight.  The rest is history, as over $20 trillion in global wealth was lost within a brief time.

As a result of quantitative easing our national debt has grown from $8 trillion in 2009 to $20.6 trillion today, quantitative easing was the government policies which bailing out the banks and auto industry and financed the growth of our economy after the 2009 financial crisis.  Don’t be too hard on our government for running up so much debt, US personal debt is $18 trillion, Mortgage debt $14.9 trillion, and student loan debt of $1.5 trillion (27% in default). Add all our US debt together and total US debt is $69.5 trillion with interest payments totaling $2.6 trillion per year at 3.74%. Today’s prime rate is 4.5%, historically normal prime rate is 6.5%; if we see a 2% rise in prime rate, debt service on the ever increasing $69.5 trillion will grow to over $4.0 trillion per year.

You understand debt, it’s not a problem if you have the income to pay it down (hedge financing); but wait, our Gross National Product is $19.8 trillion, Federal Tax Revenue are $3.3 trillion, while interest on the National debt of $20.5 trillion is $284 million (1.2%) a year, interest rates are going up and we’re not paying down the principal (speculative financing).  A year ago, the 10-year treasury was paying 2.395% today it’s up to 2.868%, that’s a 20% increase in one year.  The 10-year treasury is what the government sells to the buyers of our debt.  If 10-year treasuries get up to 4.5%, where it was before the Federal Reserve started printing money in October 2007, the interest on the national debt will be 50% of federal tax revenues; but wait we just cut federal taxes and we already have a federal budget deficit of $717.8 billion per year.

How do you think all this going to work out?

Bridgewater Associates founder, Ray Dalio recently said he sees a growing chance of a recession as the U.S. enters a “pre-bubble stage.”

“I think we are in a pre-bubble stage that could go into a bubble stage,” the hedge-fund manager said during a Harvard Kennedy School’s Institute of Politics on Wednesday, February 22, 2018.

Dalio, whose hedge fund manages some $160 billion, making it the world’s largest fund, pegged the probability of a recession by the 2020 presidential election at 70%. A recession is sometimes technically defined as two consecutive quarters of economic contraction; however, many economists define such a pullback in growth as a significant fall in activity across the economy that lasts more than a few months.

What does all this have to do with your luxury home? 

There are already more sellers of luxury homes in Birmingham than there are buyers.  Over the past seven years no more than 50% of homes listed for $750,000 or more have sold in any year.  This is a result of The Baby Boomer Sell-Off, The Demographic Inversion, (there are 25% fewer Generation-Xer’s than Baby Boomers) and the financial crises of 2007 – 2010, many Generation-X’er’s lost their jobs, homes and any equity they had built up.  Now throw in a recession that will be equal or greater than the 2007 through 2010 financial crisis and the number of luxury homes sold each year will drop to 25% or lower and they will sell at heavy discounts.  Learn more on my website blog www.BestofUSHomes.com.

This recession is going to happen, ask your financial advisor, your banker, read the Wall Street Journal.  The only question is when?

If you aren’t prepared to stay in your home for the next 10 years… sell now.

If I can be of any assistance; call me.

 

 

Kerry J Grinkmeyer

205 919 6006

BestofUS Homes@gmail.com

 

Posted in Real Estate Advice