What will happen to real estate if we go into a recession?

Everywhere you look, experts are warning we could be heading toward a recession, and if true, an economic slowdown doesn’t necessarily mean homes will lose value. A recession does not equal a housing crisis.

Remember that historical context is important. Take a look at the chart below for some helpful perspective.

In 4 out of the last 6 recessions (see chart below), home prices have continued to appreciate.

If a recession happens, it does not necessarily mean home prices will decline. This is one of the most important pieces of information you need to understand as a homeowner or potential buyer.

The other big takeaway if a recession happens: interest rates usually go up at the beginning of an economic decline, but in order to stimulate the economy, they will typically fall.

“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over.” - Fortune

The days of mortgage rates below 3% may be behind us for a while, but we don't know for sure if they’re only going to go up from here.

We need to focus on the big picture. The housing market is still very strong, and previous projections are already outperforming what industry experts forecasted earlier this year. All major real estate institutions are forecasting at least 6 million homes sold in 2022 and that's good news for the economy.

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Looking to buy or sell in the Sacramento, Placerville, or Yolo area? We're here to answer any questions you may have. Drop us a note today!

Selling your home? Five quick improvement tips that make buyers drool

Looking to sell your home? In a hot real estate market, you may not need to make many changes at all because inventory is tight. Sean Black, CEO of Knock, a home buying platform observed that, “three years ago, homeowners had to put a lot more work into their home before listing it. However, even in the current market with homes selling in record time, the data continues to support the benefits of getting your home show-ready.”

Additionally, as interest rates go up, home sales will start to taper off and buyers will find they have more options to choose from. There are a few simple things you can do to help get your home show-ready and appeal to buyers.

Five easy tips

Curb Appeal – If you don’t’ want to make updates, curb appeal is an easy and low-cost option. Trimming back trees and shrubs cleans up the overall appearance and can help your house shine. A fresh layer of mulch creates a feeling of uniformity and newness.

Good to know – A quick power wash can make your house appear brighter and fresher simply by removing years of dirt and stains.

Fresh Paint – An analysis by Knock found that homes with modern renovations sold in an average of eight days, as compared to 12 days without improvements. Homes with two or more improvements sold in an average of six days.

Good to know – When applying fresh paint, choose wisely. Buyers swoon over freshly painted kitchen cabinets, a project that can be completed on a tight budget. Choose neutral colors for walls and paint the whole house in the same color.

New Hardware – New hardware is an easy change that can update the look of your kitchens, bathrooms, and linen closets.

Good to know – Choose a style and finish that both compliments your cabinet boxes but is also current. Apps like Houzz and Pinterest are a great place to get ideas!

New flooring – New flooring is one of the more expensive options, but it can dramatically change the look and feel of your home.

Good to know - When deciding to put in new flooring, opt for the same material in all rooms if possible. This will give your home a more updated feel and makes spaces seem larger! If you don’t have money for new flooring, consider a deep cleaning. A freshly cleaned carpet breathes new life into your space!

Countertop/backsplash upgrade – Upgrading a countertop or backsplash can refresh a stale space. Some companies are able to update counters without any demolition (e.g. Granite overlays).

Good to know –Choose neutral colors for counters and backsplashes because it gives you more flexibility when choosing to update your look and feel, both now and in the future!

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Looking to sell your home in the Sacramento, Placerville, or Yolo area? We're here to answer any questions you may have. Drop us a note today!

Are you a Millennial who thinks homeownership is out of reach?

Born between 1981 and 1996, millennials are the largest living generation with a population of 72.1 million in 2010. A generational shift is happening in home buying as millennials begin to purchase residential real estate. Having grown up in the smart phone and internet era, technology plays a large role in how millennials search for properties. During the Covid pandemic, as home showings moved online, higher earning millennials were among those buying.

The average millennial's annual salary is $47,034 with a net worth of about $8,000. Higher earning, college-educated millennials tend to also have student loan debt which can affect their purchasing power as lenders consider debt-to-income ratio. However, these are not impervious barriers and home ownership is more realistic than many millennials may think—especially since this group takes finances seriously. Getting your financial house in order is a critical foundation for you to buy an actual house.

Five “must-do’s” before buying a house

Set a goal

Some people are very, very lucky and inherit a house or are given one as a gift. For the rest of us, we need a plan. An effective plan looks different for different people so you need to evaluate your situation and decide what might work best for you. The tips in this list are a good start so consider what you can do today to begin moving closer to your goal of home ownership.

Budgeting

Prioritizing expenses is critical, especially if you live paycheck to paycheck and don’t have much wiggle room. Try to figure out if there are any areas where you can cut costs. Monthly subscriptions like Spotify and Hulu are a great start because they can add up. So do those Starbucks runs and eating out. Find ways to reduce your monthly expenses without feeling like you are deprived. Consider making your own coffee at home. Learning how to cook for yourself is a great way to save money and learn valuable new skills! If you have debt to pay down, try to include your debt reduction plan in your budget so you still have room to save money.

Save, Save, Save

If you have a realistic and balanced budget, you should be able to start saving money. Save everything you can and if possible, find side gigs to make more money and put that in savings as well. The quicker you get your down payment saved up, the sooner you can stop paying rent and start investing in your house.

Shiny Credit Score

It may sound cliché but having a good credit score is the holy grail of getting approved for a home loan. You need a good credit score to be an attractive borrower for a lender.

Paying your bills on time and having a balanced debt-to-income ratio (DTI) is key to building a good credit score. A DTI of 43% is the highest ratio a borrower can have and still qualify for a mortgage, but lenders generally seek lower ratios closer to 36%. Most lenders prefer to lend money to borrowers with credit scores that are well above the 620 minimum. Having a high credit score can help you get lower interest rates with smaller down payment requirements.

Investing

Building your net worth is one of the most important things you can do as a Millennial. Don’t wait to start saving money. Save everything you can and start investing now. If your employer offers a 401(k) or similar retirement savings plan, do it. It may be tempting to seek investing advice from your parents or friends—and it’s always good to talk to them for a gut-check—but an unbiased financial advisor will be better equipped to tailor their guidance to your specific situation.

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Are you a first-time home buyer looking for help in the Sacramento, Placerville, or Yolo area? We're happy to answer any questions about the home buying process, no matter how large or small. Drop us a note today!