More and more economists are predicting a recession is imminent as the result of the pullback in the economy caused by COVID-19. According to the National Bureau of Economic Research:
“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
Bill McBride, the founder of Calculated Risk, believes we are already in a recession:
“With the sudden economic stop, and with many states shutting down by closing down schools, bars and restaurants…my view is the US economy is now in a recession (started in March 2020), and GDP will decline sharply in Q2. The length of the recession will depend on the course of the pandemic.”
How deep will it go?
No one knows for sure. It depends on how long it takes to beat this virus. Goldman Sachsanticipates we will see a difficult first half of the year, but the economy will recover in the second half (see below):This aligns with the projection from Wells Fargo Investment Institute:
“Once the virus infection rate peaks, we expect a recovery to gain momentum into the final quarter of the year and especially into 2021.”
Again, no one knows for sure how long the pandemic will last. The hope is that it will resolve sometime over the next several months. Most agree that when it does, the economy will regain its strength quickly.
Bottom Line
This virus is not only impacting the physical health of Americans, but also the financial health of the nation. The sooner we beat it, the sooner our lives will return to normal.
With all of the havoc being caused by COVID-19, many are concerned we may see a new wave of foreclosures. Restaurants, airlines, hotels, and many other industries are furloughing workers or dramatically cutting their hours. Without a job, many homeowners are wondering how they’ll be able to afford their mortgage payments.
In spite of this, there are actually many reasons we won’t see a surge in the number of foreclosures like we did during the housing crash over ten years ago. Here are just a few of those reasons:
The Government Learned its Lesson the Last Time
During the previous housing crash, the government was slow to recognize the challenges homeowners were having and waited too long to grant relief. Today, action is being taken swiftly. Just this week:
The Federal Housing Administration indicated it is enacting an “immediate foreclosure and eviction moratorium for single family homeowners with FHA-insured mortgages” for the next 60 days.
The Federal Housing Finance Agencyannounced it is directing Fannie Mae and Freddie Mac to suspend foreclosures and evictions for “at least 60 days.”
Homeowners Learned their Lesson the Last Time
When the housing market was going strong in the early 2000s, homeowners gained a tremendous amount of equity in their homes. Many began to tap into that equity. Some started to use their homes as ATM machines to purchase luxury items like cars, jet-skis, and lavish vacations. When prices dipped, many found themselves in a negative equity situation (where the mortgage was greater than the value of their homes). Some just walked away, leaving the banks with no other option but to foreclose on their properties.
Today, the home equity situation in America is vastly different. From 2005-2007, homeowners cashed out $824 billion worth of home equity by refinancing. In the last three years, they cashed out only $232 billion, less than one-third of that amount. That has led to:
37% of homes in America having no mortgage at all
Of the remaining 63%, more than 1 in 4 having over 50% equity
Even if prices dip (and most experts are not predicting that they will), most homeowners will still have vast amounts of value in their homes and will not walk away from that money.
There Will Be Help Available to Individuals and Small Businesses
The government is aware of the financial pain this virus has caused and will continue to cause. Yesterday, the Associated Pressreported:
“In a memorandum, Treasury proposed two $250 billion cash infusions to individuals: A first set of checks issued starting April 6, with a second wave in mid-May. The amounts would depend on income and family size.”
The plan also recommends $300 billion for small businesses.
Bottom Line
These are not going to be easy times. However, the lessons learned from the last crisis have Americans better prepared to weather the financial storm. For those who can’t, help is on the way.
In times of uncertainty, one of the best things we can do to ease our fears is to educate ourselves with research, facts, and data. Digging into past experiences by reviewing historical trends and understanding the peaks and valleys of what’s come before us is one of the many ways we can confidently evaluate any situation. With concerns of a global recession on everyone’s minds today, it’s important to take an objective look at what has transpired over the years and how the housing market has successfully weathered these storms.
1. The Market Today Is Vastly Different from 2008
We all remember 2008. This is not 2008. Today’s market conditions are far from the time when housing was a key factor that triggered a recession. From easy-to-access mortgages to skyrocketing home price appreciation, a surplus of inventory, excessive equity-tapping, and more – we’re not where we were 12 years ago. None of those factors are in play today. Rest assured, housing is not a catalyst that could spiral us back to that time or place.
According to Danielle Hale, Chief Economist at Realtor.com, if there is a recession:
“It will be different than the Great Recession. Things unraveled pretty quickly, and then the recovery was pretty slow. I would expect this to be milder. There’s no dysfunction in the banking system, we don’t have many households who are overleveraged with their mortgage payments and are potentially in trouble.”
In addition, the Goldman Sachs GDP Forecast released this week indicates that although there is no growth anticipated immediately, gains are forecasted heading into the second half of this year and getting even stronger in early 2021.Both of these expert sources indicate this is a momentary event in time, not a collapse of the financial industry. It is a drop that will rebound quickly, a stark difference to the crash of 2008 that failed to get back to a sense of normal for almost four years. Although it poses plenty of near-term financial challenges, a potential recession this year is not a repeat of the long-term housing market crash we remember all too well.
2. A Recession Does Not Equal a Housing Crisis
Next, take a look at the past five recessions in U.S. history. Home values actually appreciated in three of them. It is true that they sank by almost 20% during the last recession, but as we’ve identified above, 2008 presented different circumstances. In the four previous recessions, home values depreciated only once (by less than 2%). In the other three, residential real estate values increased by 3.5%, 6.1%, and 6.6% (see below):
3. We Can Be Confident About What We Know
Concerns about the global impact COVID-19 will have on the economy are real. And they’re scary, as the health and wellness of our friends, families, and loved ones are high on everyone’s emotional radar.
“Several economists made clear that the extent of the economic wreckage will depend on factors such as how long the virus lasts, whether governments will loosen fiscal policy enough and can markets avoid freezing up.”
That said, we can be confident that, while we don’t know the exact impact the virus will have on the housing market, we do know that housing isn’t the driver.
The reasons we move – marriage, children, job changes, retirement, etc. – are steadfast parts of life. As noted in a recent piece in the New York Times, “Everyone needs someplace to live.” That won’t change.
Bottom Line
Concerns about a recession are real, but housing isn’t the driver. If you have questions about what it means for your family’s homebuying or selling plans, let’s connect to discuss your needs.
The 2020 Millennial Home Buyer Report shows how this generation is not really any different from previous ones when it comes to homeownership goals:
“The majority of millennials not only want to own a home, but 84% of millennials in 2019 considered it a major part of the American Dream.”
Unfortunately, the myths surrounding the barriers to homeownership – especially those related to down payments and FICO® scores – might be keeping many buyers out of the arena. The piece also reveals:
“Millennials have to navigate a lot of obstacles to be able to own a home. According to our 2020 survey, saving for a down payment is the biggest barrier for 50% of millennials.”
Millennial or not, unpacking two of the biggest myths that may be standing in the way of homeownership among all generations is a great place to start the debunking process.
Myth #1: “I Need a 20% Down Payment”
Many buyers often overestimate what they need to qualify for a home loan. According to the same article:
“A down payment of 20% for a home of that price [$210,000] would be about $42,000; only about 30% of the millennials in our survey have enough in savings to cover that, not to mention the additional closing costs.”
While many potential buyers still think they need to put at least 20% down for the home of their dreams, they often don’t realize how many assistance programs are available with as little as 3% down. With a bit of research, many renters may be able to enter the housing market sooner than they ever imagined.
Myth #2: “I Need a 780 FICO® Score or Higher”
In addition to down payments, buyers are also often confused about the FICO® score it takes to qualify for a mortgage, believing they need a credit score of 780 or higher.
Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans, shows the truth is, over 50% of approved loans were granted with a FICO® score below 750 (see graph below):Even today, many of the myths of the homebuying process are unfortunately keeping plenty of motivated buyers on the sidelines. In reality, it really doesn’t have to be that way.
Bottom Line
If you’re thinking of buying a home, you may have more options than you think. Let’s connect to answer your questions and help you determine your next steps.
With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:
“With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”
There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.
1. Mortgage standards are nothing like they were back then.
During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.
2. Prices are not soaring out of control.
Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.
3. We don’t have a surplus of homes on the market. We have a shortage.
The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.
4. Houses became too expensive to buy.
The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:
5. People are equity rich, not tapped out.
In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.
Bottom Line
If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.
The residential real estate market has come roaring out of the gates in 2020. Compared to this time last year, the number of buyers looking for a home is up 20%, and the number of home sales is up almost 10%. The increase in purchasing activity has caused home price appreciation to begin reaccelerating. Many analysts have boosted their projections for price appreciation this year.
Whenever home prices begin to increase, there’s an immediate concern about how that will impact the ability Americans have to purchase a home. That thinking is understandable. We must, however, realize that price is not the only element to the affordability equation. Mark Fleming, Chief Economist at First American, recently explained:
“When demand increases for a scarce (limited or low supply) good, prices will rise faster. The difference between houses and other goods is that we buy them with a mortgage. So, it’s not the actual price that matters, but the price relative to purchasing power.”
While home prices have risen recently, mortgage interest rates have fallen rather dramatically. At the beginning of last year, the 30-year fixed-rate mortgage stood at 4.46%. Today, that number stands over a full percentage point lower.
How does a lower mortgage rate impact your monthly mortgage payment?
Michael Hyman, a research data specialist for the National Association of Realtors (NAR), explained in a recent report that, even though home values have increased over the last year, the monthly cost of owning a home has decreased:
“With lower mortgage rates compared to one year ago, the payment as a percentage of income fell to 15.5%…from 17.1% a year ago.”
When purchasing a home, the price is not as important as its cost. Today, the monthly expense (cost) of purchasing the same house you could have purchased last year would be less. Or, you could purchase a more expensive home for the same monthly expense.
Fleming, looking at all aspects of the affordability equation (prices, wages, and mortgage rates), calculated the actual numbers in a recent blog post:
“Low mortgage rates and income growth triggered a 13.5% increase in house-buying power compared with a year ago.”
Since wages have increased and mortgage rates have dropped to historically low levels, this is a great time to buy your first home or move up to the home of your dreams. As Tendayi Kapfidze, Chief Economist at LendingTree, recently advised:
“If you are in a point in your life where you’re considering buying a home today, it’s a better time to buy than 10 years ago. If you can get a mortgage, you’re getting much lower interest rates, and it enables you to afford more.”
Bottom Line
Whether you’ve considered becoming a homeowner for the first time or have decided to sell your home and buy one that better suits your current lifestyle, now is a great time to get together and discuss your options.
Buying your first home can seem overwhelming. Thankfully, there’s a lot of great information out there to help you feel more confident as you learn about the process. For those in younger generations who aspire to buy, here are three things to consider sooner rather than later in your journey:
1. Understand What it Takes to Purchase a Home
Overall, Millennials make up the largest group of homebuyers in today’s real estate market, and Gen Z is not too far behind. A recent study shared by Freddie Mac shows, however, that Generation Z isn’t as confident in the homebuying process as Millennials. The best thing potential young buyers can do is understand what it takes to buy a home. Learn as much as you can about the mortgage process, down payment options, and the overall steps to take along the way.
2. Realize Your Opportunity to Build Wealth
Homeownership allows you the chance to put a small portion of the home’s value down when you buy, and then watch your appreciation grow on the full value of the home – not just on the down payment. It’s one of the best investments you can make, and a form of ‘forced savings’ working in your favor over time. The added bonus? You get to live there, too.
3. Find Someone You Trust to Help You Through the Process
Having someone you trust to guide you through this process is invaluable. Finding a local real estate expert to help you navigate through the transaction and feel more confident as you make important decisions could be the best choice you make.
For Millennials and Gen Z’ers thinking about buying, today’s historically low interest rates combined with the outlook for future home appreciation is a big win. This means whatever you buy today, you’ll be bragging about 10 years from now. You can feel confident about that!
Bottom Line
If you’re ready, buying your first home sooner rather than later is one of the best decisions you can make. But there are many things to consider before taking that step, so let’s work together to help you confidently navigate the full journey.
Rising home prices have been in the news a lot lately, and much of the focus is on whether they’re accelerating too quickly and how sustainable the growth in prices really is. One of the often-overlooked benefits of rising prices, however, is the impact they have on a homeowner’s equity position.
Home equity is defined as the difference between a home’s fair market value and the outstanding balance of all liens on the property. While homeowners pay down their mortgages, the amount of equity they have in their homes climbs each time the value increases.
Today, the number of homeowners that currently have significant equity in their homes is growing. According to the Census Bureau, 38% of all homes in the country are mortgage-free. In a home equity study, ATTOM Data Solutions revealed that of the 54.5 million homes with a mortgage, 26.7% of them have at least 50% equity. That number has been increasing over the last eight years.
“…the average homeowner gained approximately $5,300 in equity during the past year.”
The map below shows a breakdown of the increasing equity gain across the country, painting a clear picture that home equity is growing in nearly every state.
Bottom Line
This may be the year to take advantage of your home equity by applying it forward, either as you downsize or as you move up to a new home.
The number of building permits issued for single-family homes is the best indicator of how many newly built homes will begin to come to market over the next few months. According to the latest U.S. Census Bureau and U.S. Department of Housing & Urban Development Residential Construction Report, the number of building permits issued in January was 1,551,000. This is a 9.2% increase from December.
How will this impact buyers?
New inventory means more options. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR),explained how this is good news for the housing market – especially for those looking to buy:
“More construction will mean more housing inventory for consumers in the later months of this year…Spring months could still be quite tough for buyers since it takes time to convert housing starts into actual housing completions.”
How will this impact sellers?
More inventory means more competition. Yun continues to say:
“As trade-up buyers move into these newly completed homes in the near future, their existing homes will be released onto the market.”
Today, because of the tremendous lack of inventory, a seller can potentially anticipate:
A great sale price on their house as buyers engage in potential bidding wars.
A quick sale as buyers have little inventory to choose from.
Fewer hassles as buyers want to smoothly secure a contract.
Bottom Line
If you’re considering selling your house, you’ll want to list sooner rather than later. This way, you’ll get ahead of this new competition coming to market and ensure the most attention toward your listing and the best price for your house.
The Coronavirus (COVID-19) has caused massive global uncertainty, including a U.S. stock market correction no one could have seen coming. While much of the news has been about the effect on various markets, let’s also acknowledge the true impact it continues to have on lives and families around the world.
With all this uncertainty, how do you make powerful and confident decisions in regard to your real estate plans?
“At the very least, the coronavirus could cause some people to put home sales on hold.”
While this is an understandable approach, it is important to balance that with how it may end up costing you in the long run. If you’re considering buying or selling a home, it is key to educate yourself so that you can take thoughtful and intentional next steps for your future.
For example, when there’s fear in the world, we see lower mortgage interest rates as investors flee stocks for the safety of U.S. bonds. This connection should be considered when making real estate decisions.
“The Fed’s action was expected but perhaps not to this degree and timing. And the policy change was consistent with recent declines for interest rates in the bond market. These declines should push mortgage interest rates closer to a low 3% average for the 30-year fixed rate mortgage.”
This is exactly what we’re experiencing right now as mortgage interest rates hover at the lowest levels in the history of the housing market.
Bottom Line
The full impact of the Coronavirus is still not yet known. It is in times like these that working with an informed and educated real estate professional can make all the difference in the world.
My name is John Bendele and these are words to live by.
“What is the biggest challenge you are facing in life right now and how can I help?”
I believe when you are able to help others in their struggles, it will always bring a since of joy and accomplishment that is like no other. I enjoy bringing opportunities to people in real estate and in life. To be a lifting hand and a beacon of knowledge. It brings me great joy to guide and support others when making exciting and difficult choices. I have been a licensed realtor for over 7 years in Minnesota. Coming from a construction background, I will provide a wealth of knowledge about homes. Knowing homes allows me to a better negotiator with facts and details some may not. I enjoy working with sellers, investors and buyers.
I grew up in Southwest Texas and moved to Minnesota in 2015. I have lived in the White Bear Lake area until making a move over the lake to Willernie, MN where I now reside. I love spending quality time with my teenage boys who nicknamed me “JoJo”. My favorite things to do are being outdoors on or in the water, BBQing (TX style) and going on any adventure.
I want to bring knowledge, growth, excitement and wealth to the clients I encounter through being a realtor. I look forward to assisting you in your amazing journey in real estate.
Thank you,
John A Bendele
Meet Brittany
Brittany is a mama of three kiddos, a wife of a firefighter and added more love to her home with three dogs and two cats. Outside of the fun she has as an agent and her roles at home she enjoys doing any DIY projects she can get her hands on!
Brittany fell in love with the Real Estate gig in 2019. She grew up in Apple Valley, and now owns her childhood home. I guess you could say she is a south metro pro!
You!
Hey! If you’re looking for your next role as an agent let us know! This could be you!
Meet Shea Amundson
Hey, I’m Shea and I love helping people find a beautiful home that sets their soul on fire!
Meet Katie
Katie comes from the busy world of entertainment and being a Traveling Operations Manager. She transitioned to Real Estate back in 2018 and has been hooked ever since! Katie thrives on training, developing new systems, and helping agents grow! Katie joins Voila with the determination to help every agent and client make their dream a reality whether it be building their business or finding that dream home!
When Katie isn’t working, she is a full-time student at Metropolitan University. She enjoys cooking foods from all over the world, traveling, and has a habit of getting a new tattoo wherever she goes. She is huge into animal conservation and spending time with her dog Sawyer who often joins her on travels!
Meet Sarah Beth Lindstrom
Sarah wants to live in a world filled with innovative businesses daring enough to break the mold…monthly auto-shipments of Laffy Taffy’s, and lots and lots of laughter!!!
Having been in the real estate industry since 2005, her go to role has always been supporting her teams in any way that she can! She has gone from Listing and Transaction Management, to Team Manager, and now Director of Support! She is an ‘introverted extrovert’ that finds the, ‘behind the scenes’ with a hint of showing homes – to be a perfect blend.
When she’s not supporting her Voila Family, she is out getting one more rep in at the gym, finding new healthy recipes to attempt (and then trick her teenager into eating somehow), and enjoying quick road trips to…well, anywhere! She also plays on a competitive volleyball team in the winter, sand volleyball in the summer and softball in the spring and fall.
“Two things define you. The patience you have when you have nothing and the attitude when you have everything.”
Meet Jessi Andersen
In June of 2020 Jessi joined team of Voila…and…it’s that easy!
Ha! No really, it did all begin in June. New to this side of Real Estate, Jessi joined in hopes to take her chatty, outgoing self and bring some good of it! Her natural tendencies of networking and love of growth and goals, have been set in direction – expanding Voila!
Where is Jess when she isn’t nurturing the growth of Voila? Adventuring with her family outside in nature. Or perhaps baking up a new recipe while dancing the day away – and of course cheering for her little athletes at home, as well as the MN Vikings/Twins!
“In the end it is not the years in your life that count. It’s the life in your years” ~ Abe Lincoln
Meet Wyatt Lemon
Wyatt is a Real Estate Extraordinaire, and a Loving Husband, and a Lover of Life and a PAW-rent to 3 awesome dogs. Huge believer in the idea that life is what you make of it, so with that being said I guess you could say the glass is half full! Things I enjoy outside of work are Yoga, being a big time Foodie, and spending time with my family. I grew up in Hugo MN and have been a local resident my whole life. I studied Marketing at Century College as well as St. Cloud State University. I got into Real Estate in October of 2018 and have loved every minute of it!
Meet James Andersen
James Andersen is a human being who believes that the best in others is a reflection of the energy we bring.
Magnanimous behavior is the standard not the exception.
10+ years Army Career
5+ years Married
5+ years Father of Calendar Crushers
5+ years Real Estate Career
30+ years Life Experience
Let’s learn and grow together.
Meet Joey Torkildson
You are writing your own story in life! Is what you are doing right now supposed to be in that story? I hope so!
That’s why my goal is to always sign up, get uncomfortable, inspire through doing, shoot, then aim. We don’t have enough time on this planet to stay mundane and there are too many experiences to be doing one thing for too long! It’s all about the short term experiments!
Quick background: 19+ year US Army Master Sergeant vet; 10+ year transformer of lives through ownership (AKA: Realtor) ; 2+ year CEO of an Expansion Team with Hergenrother Realty Group ; Director of Agent Training with that same organization; Self employed for 12+ years; starting in late 2019 CoFounded a new disruptive real estate brokerage, Voila; Contagiously energetic teacher who loves helping people discover they can accomplish anything; Dad of two extremely crazy and loving boys; Husband of an amazingly supportive and ultimate gardener wife.
Let’s be curious explorers together! I love connecting with people and helping them achieve their goals and I’m a firm believer in the fact that you are one introduction away from your entire life changing!
Two quotes I live by: Amazing things rarely happen in your comfort zone and only those who attempt the absurd achieve the impossible!
This aligns with the projection from Wells Fargo Investment Institute:
