Before we get into the health of the market, I’d like to share a few adorable pictures from our July family adventures. We had a great trip to St. Louis, Missouri, where the kids enjoyed Six Flags Magic Mountain and the City Museum. Anyone who has not seen the City Museum owes it to themselves to check it out – it is insane. As the story goes, this old eccentric rich guy purchased a huge building in St. Louis and basically turned it into an Alice in Wonderland play place for kids and adults. It’s truly one of the coolest man made places I’ve ever visited. We had to pull the kids out kicking and screaming. What a blast!
Speaking of good times… I have an update on the real estate market for you. There are a few key indicators that I watch to judge the overall health of the real estate market and a few of my favorite indicators are in from last month.
First and foremost would be interest rates – my belief is that as long as interest rates stay relatively low, monthly home payments will remain affordable and the fairwayut.com market will continue its ascent. As of today, we are seeing the 30 year in the low 4% range and in the mid to low 3% range on the 15 year fixes. Rates are definitely continuing their accommodative impact on continued real estate price appreciation.
The second indicator I watch is the number of foreclosed homes in the country. During the 2006 to 2010 crash, it was a race to the bottom with these foreclosed homes. Each bank was foreclosing and then trying to sell for an amount less than the competing bank, in order to attract a buyer. This was a lot like a toilet flushing; as the momentum picked up, home prices plummeted. Today is a different story. Last week Black Night (a real estate data aggregator for 2/3rds of the US real estate market) reported that foreclosure inventory fell to its lowest level in more than 6 years. Nationally, the inventory of foreclosed homes dropped 36% from June of 2013, marking the 26th consecutive month of foreclosure declines.
What’s leading to the decrease in foreclosures, you ask? It’s a combination of things – lower unemployment in many areas of the country, rising home prices, which have allowed sellers to sell out of a property versus handing it over to the bank,
as well as well underwritten mortgage loans.
Having just gone through the mortgage process with three different banks (I’m currently building a home, bought a lot and looked to refinance one of my properties), I can tell you underwriting requests are onerous, no matter what type of loan you are looking for. That tougher underwriting process is starting to pay off, in that the loans that have closed are of the highest quality (with the least number of defects/mistakes) ever in the US. Thus, higher quality of loans, less foreclosures and less chance of another mortgage meltdown type event.
I’ve included this infographic from our friends at KCM Blog, as they report an increase in number of homes sold, inventory and prices; all healthy indicators as well.
In summary, I believe there are some areas of the country where real estate is getting overheated and has started to cool. Be cautious if you are buying in some of the coastal areas, which have really taken off. But in most areas of the country I think the market is at a pretty good place for a long term buy and hold strategy, especially when taking into account that you can still finance within 1% of the lowest rates in history.
Thanks for joining me and please let me know there is anything I can do to help you with your next fairwayut.com home purchase or refinance.
Best wishes,
Josh
