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Judy Naimo, Homeowner Dilemmas: Why it's different this time
Homeowner Dilemmas

Judy Naimo, Homeowner Dilemmas: Why it's different this time

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Judy Naimo

Judy Naimo and friend

The statement I hear most often now is, “Looks like we are in another bubble.”

Here are four things that were different in 2008 that make that unlikely:

• Bad lending practices in the past

In 2008 banks offered easy access to money. In many cases, loans were given with little or no documentation. Even people with bad credit qualified as subprime borrowers.

Borrowers got into high-risk mortgages. Most adjustable-rate mortgages began at a teaser rate that borrowers could afford. A year or 2 later the rates increased to the actual rate, which was more than the homeowner could qualify for or be able to pay.

• Oversupply of housing in the past

Last time there was an 8.2 months of housing inventory (the number of months it takes to be out of inventory if sales continue at the current rate). At the beginning of 2021, the housing supply was 3.1 months. The chief economist for the National Association of Realtors says this “is not a bubble. It is simply lack of supply.”

The supply of existing home sales is as low as late 1990. The lack of supply may not be for the reasons you think. It is not necessarily a bunch of ravenous home buyers. Yes, there has been an increase in people moving because of the pandemic and the work-from-home opportunities it has created.

At the beginning of the year, there were fewer homes on the market because so many sellers felt uncomfortable having strangers walk through their home. And the hangover caused by the last housing boom and bust caused homebuilders to pull back on the number of new homes they built because during the last bubble they were left holding the bag.

• There are so many buyers now

Millennials are now the biggest demographic in this country. The oldest millennial is turning 40 this year. They have put off buying a house much longer than their parents. Like all previous generations, they have decided to settle down and buy a home even though it seemed like that would never happen following the great financial crisis.

Renters can easily spend half a million dollars on rent over 30 years ($540,000 if the rent is $1,500 and never increases) and in the end, wind up just where they started--owning nothing. This segues into the next reason.

• Todays’ interest rates are lower

Owning a home can now be less expensive than renting. And the historically low rates also apply to the jumbo loan market. Upsizing to a less dense area with home features that allow for private workspaces and backyard entertaining can be less expensive than living in a smaller metropolitan home. These loans are true, 30-year fixed products. They require a much more thorough loan application process.

By the end of 2007, there was more than $10 trillion in home equity but more than $9 trillion in mortgage debt. Now there is more than $21 trillion in home equity and $10 trillion in mortgage debt. Homeowners now have quite a bit of equity. And their payments are affordable. The opposite was the case in 2008, so folks had to walk away. This added to the downward spiral.

Prices are rising because there is a confluence of fewer homes for sale, more buyers in the market, and cheap money. Just because prices are rising does not automatically make something a bubble.

If my 40 years of selling homes in this beautiful valley can save you time and money, please pass this tip to your friends.

If you have a question do not hesitate to ask me.

Napa home sales and prices are on the rise, leading to a market where multiple offers are to be expected.

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Judy Naimo is a long-time Napa Valley Realtor. Contact her at Judy@JudyNaimo.com.

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