Out of Crisis Comes Opportunity – Maximize Assets & Minimize Debt

Nationally, home prices have consistently risen over almost the past six years. According to a study completed by CoreLogic (a leading provider of real estate information), home prices rose 6.7% across the U.S. between June 2016 and June 2017.

Additionally, CoreLogic forecasts that national home prices may rise another 5.2% over the next 12 months if the same buy and supply trends continue onward.
“Home prices are marching ever higher – up almost 50% since the trough in March 2011,” explains Frank Martell, President and CEO of CoreLogic. “With no end to the escalation in sight, affordability is rapidly deteriorating nationally and especially in some key markets such as Denver, Houston, Miami, and Washington.
“While the low mortgage rates are keeping the market affordable from a monthly payment perspective, affordability will likely become a much bigger challenge in the years ahead until and when the industry resolves the housing supply challenge.”

Top 15 States 12-Month Change (2016 - 2017)
   
Washington 12.7%
Utah 10.7%
Colorado 9.2%
Idaho 9.1%
Oregon 9.0%
Nevada 7.4%
Michigan 7.2%
New York 6.9%
Hawaii 6.8%
Massachusetts 6.5%
California 6.4%
Arizona 6.1%
Florida 6.1%
Wisconsin 6.0%
Georgia 5.9%

The continued escalation of home prices is in spite of a sluggish economy, especially as it relates to the retail sector and rapidly rising outstanding debt to record highs in several categories including, residential one-to-four unit mortgage loans ($10.33 trillion in the 1st quarter of 2017, per the Federal Reserve), credit cards ($16,000+ per U.S. household), automobile loans ($1.2 trillion), and student loan debt ($1.4 trillion).
Per the New York Federal Reserve, total U.S. household debt reached a record shattering high of $12.8 trillion in the 2nd quarter of 2017.
The most expensive U.S. cities to live in typically have the highest levels of unpaid mortgage debt. According to the credit reporting agency Experian, the top 10 states with the highest mortgage debt per property in late 2016 were as follows:

1. California – $336,250
2. Hawaii – $331,180
3. Maryland – $252,217
4. Massachusetts – $246,004
5. New Jersey – $242,631
6. Virginia – $242,022
7. Washington – $240,098
8. New York – $234,548
9. Connecticut – $232,494
10. Colorado – $230,142

Historically, access to affordable mortgage loans has been the main factor boosting home prices. Whether the loan balance is $100,000, $300,000, $500,000, or $1,000,000, lower interest rates and fees make it much more affordable for the buyer than when interest rates are double-digit.

Annual 30-Year Fixed Rate & Point Fee Averages (1980 - Present)

Year 30-Year Fixed Rate Points
     
1980 13.74% 1.8
1981 16.63% 2.1
1982 16.04% 2.2
1983 13.24% 2.1
1984 13.88% 2.5
1985 12.43% 2.5
1986 10.19% 2.2
1987 10.21% 2.2
1988 10.34% 2.1
1989 10.32% 2.1
1990 10.13% 2.1
1991 9.25% 2.0
1992 8.39% 1.7
1993 7.31% 1.6
1994 8.38% 1.8
1995 7.93% 1.8
1996 7.81% 1.7
1997 7.6% 1.7
1998 6.94% 1.1
1999 7.44% 1.0
2000 8.05% 1.0
2001 6.97% .9
2002 6.54% .6
2003 5.83% .6
2004 5.84% .7
2005 5.87% .6
2006 6.41% .5
2007 6.34% .4
2008 6.03% .6
2009 5.04% .7
2010 4.69% .7
2011 4.45% .7
2012 3.66% .7
2013 3.98% .7
2014 4.17% .6
2015 3.85% .6
2016 3.65% .5
July 2017 3.97% .5

 

(*Source: FreddieMac – http://www.freddiemac.com/pmms/pmms30.html)

In busting markets, when home values begin to fall rapidly due to a poor economy and higher mortgage rates, a person with too much consumer and mortgage debt can get into serious financial trouble as the debt magnifies and compounds over time.
Without investments (or assets) that are appreciating in value to offset the high amounts of debt, it can be a horrific situation.
In booming markets, debt can be good when used as creative leverage to buy and hold or fix and flip real estate. When the mortgage debt hovers near 4% and the property is appreciating in value 6%, 9%, 10%, or 12%+ each year, this can be an incredibly lucrative investment strategy partly because the property’s value is usually much higher than the unpaid mortgage.
Property values and the U.S. and global economies can rise or fall in the short or long term. The combination of cheap mortgage debt and skyrocketing asset prices as seen with home prices (50%+ since 2011) and the stock market can create significant amounts of wealth for investors.
How long will the boom market last? How long will interest rates remain near historical lows?
Do you have investment strategies in place for either a boom or bust scenario over the next year or so?
Either way, there are opportunities for investors in most markets if they focus on minimizing unnecessary and risky debt anchors and maximizing their ownership of positive assets.
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I have over 30 years' experience in the financial and real estate industries. As financing is what truly drives the real estate market, I provide my clients with the best forms of financing options available. I've held eight (8) different types of real estate, securities, and mortgage brokerage licenses throughout my career. I'm also an alumni from the University of Southern California. I own a mortgage company that specializes in residential and commercial lending. For residential loans, I am proud to be partnered with United Wholesale Mortgage (UWM - America's largest wholesale lender). In 2019, UWM funded over $107 billion dollars. We offer some of the best rates and terms nationwide and quickest close options that average near 15 days with completely paperless or doc-less options. I also have financial relationships with hundreds of other financial partners