Written by Robert Van Essen
While fluctuations in real estate values and mortgage interest rates are expected to occur in any given time period, it must be said that the real estate and mortgage markets have experienced exceptional volatility during the period from 2008 to 2018. During this period homeowners have seen the values of the their properties decrease by as much as 50% and then regain these values in succeeding years; at the same time borrowers have witnessed mortgage rates that have not been seen since the 1940’s.
During this dramatic downturn homebuilders have stayed on the sidelines as it was not economically feasible for them to build large tracts of new homes without the assurance that these homes will be sold.
Currently we are experiencing a resurgence in economic activity throughout the United States that has not been seen since the 1980s; as economic activity accelerates throughout the country a corresponding increase in interest rates will be evident as the Federal Reserve tries to combat future inflation and the possible erosion of the value of the dollar. An increase in property values has also accompanied the dramatic improvement in the economy as a pent up demand for housing across the country and specifically in California has contributed to the rapid increase in value; additionally, many homeowners who lost their homes due to the economic downturn are also re entering the housing market which drives prices up even further.
I have heard many potential buyers refer to a housing bubble bursting in similar fashion to the debacle that happened 10 yrs ago and they have chosen to sit on the sidelines until values decrease as the housing market slows down; I explain to these buyers that one of the largest contributing factors that led to the housing meltdown was the tremendous number of financing programs that were made available to buyers who would not be able to qualify for a traditionally underwritten loan due primarily to lack of adequate income sufficient to make the monthly mortgage payments.
The inevitable result of this massive downturn in the housing market is that mortgage lenders returned to traditional underwriting standards where borrowers would not be able to purchase a home unless they could afford to make the payments; these standards will help prevent an event like this from happening again.
Since real estate is now and will always be one of the largest contributors to wealth generation in this country, my recommendation is that if you are able to purchase a home with a payment that you can afford you should seriously considering purchasing instead of renting…. owning your own home is truly a life changing event.