Housing crash

A while back, Louis Hansen with the Mercury News wrote, “Housing economists and real estate professionals are pessimistic about the Bay Area in 2020 — but don’t expect a crash to bring saner prices or slower sales.” Little did he, or the experts knew what was in a store not just for the Bay Area, but for the whole country. Right now, I am not so sure about what the pandemic means for the entire country, but what I do know is, it might bring saner prices… or not.

The sales of existing homes in February jumped 6.5% month-tomonth to a seasonally adjusted annualized rate of 5.77 million units, according to recent data by the National Association of Realtors. This is the highest jump in 13 years. While this year’s spring was looking way better, for all real estate stakeholders, it took a sharp turn as the economy shut down. The Northeast perhaps was the only region to see a decline, with the sales going down 4.1%, but the situation in the west was a different one. Despite prices being high, sales were up nearly 19%. “I would attribute that to the incredibly low mortgage rates and the steady release of a sizable pent-up housing demand that was built over recent years,” wrote Lawrence Yun, chief economist for the NAR in a release.

At the beginning of the crisis, real estate experts were quite optimistic about the housing markets. American too, while there were fears about a real estate market crash, the stock market crash worsened those fears, and now the question most people are asking, is housing next?

HOUSING CRASH The survey by NAR shows that about 90% of experts agree that the coronavirus pandemic has reduced the interest buyers had. Of those, about 60% are merely delaying buying a home just to see how the next few months will turn out to be, with also most 63% of the hopeful buyers expecting that the prices will go down.

So, the big question is, should we be expecting a housing crash? If we go back in history, you will notice that most of the housing crashes have been caused by asset bursts. And one of the signs of a potential bubble is the rapidly rising home prices. Prices for homes all over the country have been growing in the last decade, reaching an all-time high in Q1,2020 of $212,433. This was a 15% increase than the July 2006 record high of $184,613, according to the Case Shiller HPI. In a similar account, the S&P Homebuilder Select Industry Index has risen dramatically, rising by 250% from 1,372 on October 5, 2011, to 4,867 on February 12, 2020. Since then, it has been falling, reaching 2,486 in March 2020.

The Housing Bellwether Barometer, which is an index for the homebuilders and mortgage companies, in 2017, it skyrocketed like it did back in 2004-05. Another factor that we should be concerned about is the increase in unregulated mortgage brokers. In 2018, these brokers originated 53.6% of the U.S. Mortgages. Additionally, 5 of the nation’s top 10 largest mortgage lenders are not banks and are not regulated by banks, which means, in the event

Even though right now, the FED cut the interest rates, they had been rising. Higher interest rates make the loan much more expensive resulting in slow homebuilding and a decrease in housing supply. A high-interest rate will slow lending, ultimately reducing the demand. However, interest rates have very little to do with the other costs associated with housing, and a slow and steady interest rate won’t create a catastrophe, but when you have a rapidly rising interest rate, you should be worried.

AFFORDING PAYMENTS Back in 2006, high-interest rates preceded the crash. Most borrowers at the time had taken out interest-only loans and adjustable-rate mortgages. Many also at the time had introductory teaser rates that could reset after three years. When the FEDs raised the scales at the same time they reset, borrowers found themselves in a position they could no longer afford the payments. And while the home prices had fallen, most of these borrowers could not make payments or sell the home, which resulted in massive defaults.

But if you can analyze the behavior of the federal funds rate, you will see that between the years 2004 and 2006, the FED raised the rates too fast.

An inverted yield curve is another sign that things are not going on well. When the yield curve on U.S. Treasury notes inverts, it should tell you that something is not right. This is when the interest rates for the short-term Treasurys become higher than the long-term. When the yield curve inverts, it shows that investors think that short-term gains are much more beneficial than the long-term benefits. This wreaks havoc with the mortgage market and often a sign of recession.

Another factor we should be concerned about is the stock market crash. In the last quarter of 2018, there was a violent 20% sell-down in the S&P 500. The S&P 500 is a reflection of the economy, and this 20% sell down ought to be taken seriously. It merely means that the future is not looking so bright.

We should agree that the FED continuously make policy errors, and to add to that, the Trump trade wars, to a slowing global economy, to a potential conflict with Iran, companies will be much more cautious about spending. What do you think? Are we headed for a crash? Let me know.

If you are dying to buy your primary residence today, make sure that you know what is going on in the market right now. Talk to Don Dunbar, a real estate guru with the Dunbar Real Estate group today to find out more about the Oakland and Bay Area housing market. Dunbar is also part of the VIP Agents program powered by The Power Is Now Media. To learn more about the program, and Don Dunbar click here.

Sources; https://www.financialsamurai.com/ time-to-start-worrying-about-thehousing-market-again/ https://www.nytimes. com/2020/03/21/realestate/ coronavirus-pandemic-is-it-agood-or-terrible-time-to-buy-ahome.html https://www.thebalance.com/isthe-real-estate-market-going-tocrash-4153139

• No origination/underwriting fees for VA borrowers • Same rates on FHA & VA loans for 620 up to 800+ credit scores & conventional • Professionals Mortgage Program for CPAs, PhDs, and professionals in the legal and medical fields; 95% LTV No

Private Mortgage Insurance • Several Portfolio Jumbo ARM programs available • First Bank services 95% of the loans we originate • Affinity Discount Program - $500 off closing costs to some of the big major companies in Kansas City – i.e. Black and

Veatch, Cerner, major hospitals and school districts • Purchase First program: We can close a loan in 14 days or less • In house processing/underwriting/closing • Construction loans – fixed loan option • Extended lock options with float down for people that are building or have an extended close date • USDA and down payment assistance programs • 96% of First Bank Mortgage customers reported in a 2016 survey that they would recommend First Bank to family or friends

Ownership We relentlessly focus on our clients’ long term goals and objectives.

to meet all of your personal and business strategies.

Colleagues We empower our personnel to make decisions locally. Flat organizational structure designed to allow highly qualified banking teams to deliver decisions faster than our competition.

Connectivity Our success is measured by building lifelong relationships, one client and one community at a time.

Eric Lawrence Frazier MBA Vice President & Mortgage Advisor (714) 475-8629 eric.frazier@fbol.com 104 E Ontario Ave Corona, CA 92879 NMLS: 461807

• Conventional • Allow up to 10 financed properties • Loan program for working visa holder • FHA • VA • Rural Development

• Available to Physicians, Attorneys, PhDs, and CPAs • One point of contact • Employment must begin prior to first payment • 700 credit score required • $750,000 max loan amount

• Loan amounts up to $2.5 million or higher with executive approval • Portfolio products serviced by First Bank

• Loan amounts up to $1 million • Builder must be a Homebuilder Association (HBA) member with valid General Contractor’s license • Interest only short term fixed construction term loan • Owner-Occupied Only

• Generally no restrictions for primary or second homes • Manufactured Home/Rare Construction • Non-warrantable condo • 660 minimum FICO score

Business Banking Mortgage Wealth Management Mobile Solutions

Peace-of-Mind! Your First Bank Home

Loan Advisor will be with you every step of the way, and local decision-makers provide the quick solutions home buyers need.

Great Rates! It’s not too late to get a great

rate on your mortgage. Contact me today at Incomplete for our current low rates.

Let the highly-trained professionals at First Bank walk you through every step of the process.

Eric Lawrence Frazier MBA Vice President & Mortgage Advisor Incomplete 104 E Ontario Ave Corona, CA 92879

NMLSID: 461807 eric.frazier@fbol.com