1 Timothy 6: 6-7: “But god
liness with contentment is great gain. For we brought nothing into the world, and we can take nothing out of it.”
Over the past 3 years, contentment has been a hard objective to obtain. If you listen to the news, they would have you believe the world is literally coming to an end. The media continually streams negativity with the constant reminder of the death toll associated with Covid-19, the war between Ukraine and Russia, record inflation, uncontrolled crime, unprecedented climate change, impending recession woes, and the list could continue indefinitely.
The objective for Dave Ramsey’s “Real Estate Reality Check” live stream on 7/14/2022, was to inject the American people with some hope in a world immersed in constant negativity and fear. The “Reality Check” started with the facts: 2020 real estate values were up 29%, 2021 real estate values were up 18%, and now in 2022 real estate values are up 8%. Dave Ramsey and many economists remain optimistic for real estate values for 2023, predicting a 3-4% increase for the upcoming year. During the presentation, Dave Ramsey presented information that supported several decades of a steady 3-4% increase in real estate value. Yes, there were some years that exceeded these percentages, and others that did worse (2008), but on average, across the United States, there was always a steady incline. It is important to note that there are certain microeconomic pockets across the U.S.A. where the property values exceed the average yearly percentage increase due to desirable cost of living, favorable politics, and/or fewer Covid restrictions. Conversely, there are small microeconomic pockets throughout the U.S.A. where property values continually decline due to increases in crime and higher costs of living.
This information was presented with the desire to paint an overall picture of the housing market facts during a time when the Fed is raising interest rates at a very quick pace. It also addressed that there is rising fear, in so many Americans, that the increased interest rates and inflation will lead to “another 2008.” The message continually injected into the presentation by Dave Ramsey was “We are not going to go through another real estate value decline that was seen 2008.” In history, there has never been positive correlation between increased interest rates leading to an overall decline in real estate values. A graph was presented from the 1970s when interest rates were 17% and still, the real estate values continued to steadily increase.
2008 vs. 2022
Dave Ramsey highlighted several key differences between the 2008 housing value crisis and recession opposed to the current situation facing America.
New housing starts- 2.07 million
3.7 million homes for sale
Almost 600,000 homes in foreclosure
Less demand for houses due to fewer buyers
55 million gen X in mid 30s
New housing starts- 1.38 million
Approximately 800,000 homes for sale
Less than 100,000 homes in foreclosure
Institutional Investors are buying over 25% of the homes in America (closer to 28%)
Higher demand for houses due to more buyers
66 million millennials in their mid-30s
12 million more households than 2008
When comparing the information, speculation was offered that what we may see in the housing market is not necessarily a devalue in real estate but a price adjustment. This brings up 2 important terms to define: Value vs. Price. Value is what an appraisal will tell you a piece of real estate is worth. Price is what someone is willing to pay for that particular piece of real estate. With the white-hot housing market over the past 2-years, people have been paying tens of thousands of dollars above the value of a piece of real estate due to the high demand. To reiterate, in 2008 there were 3.7 million homes for sale on the market, now there is an estimated 800,000 homes for sale with millions more buyers wanting to get that dream house. Again, in 2008, more homes for sale, fewer buyers. Today, we have fewer homes on the current market but more buyers.
Remaining optimistic for the near future of the real estate market, Dave Ramsey says that he expects the prices to start accurately reflecting the true value of the properties being sold. One possible reason for the price adjustment is the increase in interest rates. On 7/14/2022, when the presentation was given, the 30-year fixed mortgage interest rate was at 5.5%, and 15-year fixed mortgage interest rate was at 4.75%. Dave Ramsey also speculated that the weakened economy and possible pending recession also may bring prices paid for real estate closer to the true appraisal value of the property being purchased.
Dave Ramsey wants people to relax and not over think the current situation. He concluded the “Real Estate Reality Check” presentation with the following words of advice: If you are in a position to sell, then now is a good time to sell. If you are in a position to buy, then now is a good time to buy. George Kamell concluded with encouraging people to try JOMO (Joy of missing out) instead of basing decision off of FOMO (Fear of missing out).
Reviewing Ramsey’s recommendations for buying a home:
Debt free with a 3-6-month emergency fund
Payments no more than 25% of income
15-year fixed mortgage
10-20% down payment
No FHA or VA loans, as they normally have higher fees
If you would want to watch the replay of the livestream or see the charts used, visit the Ramsey Solutions Replay Link Here
If you would like to discuss how the real estate market may effect your individual situation, please contact one of our Financial Advisors or Financial Coaches today! In addition, if you would like to learn about how to invest in real estate, check out this article by our Chief Investment Officer, John-Mark Young on REITS by clicking here.
RAMSEY SOLUTIONS LIVE STREAM SUMMARY: REAL ESTATE REALITY CHECK
July 19, 2022
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