Broken Dreams: What’s Going on in Housing?

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Have you been waiting to buy or sell a house? Are you tired of renting and have been waiting to purchase your dream home? Brian and Bo give you their thoughts on the housing market so you can make sense of the current housing environment.

The guys first look at few explanations for the suppressed housing market we have experienced the past few years by analyzing an article by Paula Pant, 5 Stats You Need To Know About The Housing Recovery.

  1. New Construction Starts Are Apartment-Centric
  2. Unemployment For Young People Is Still High
  3. Sales of Existing Homes Are Bumpy
  4. Delinquencies and Foreclosures Are Returning to Normal
  5. Homes Are Still Undervalued, But Improving

Brian and Bo also look into an article from Tim Manni simply titled, Why Aren’t More Young People Buying Homes? Here is what they found:

  • A large portion of the buying audience is still absent – young, first time buyers.
  •  Young American’s are still in favor of home ownership. However, there are far fewer young buyers in today’s market than there were post-war baby boomers.
  •  In today’s market, purchasing a home requires substantial savings, long-term job income, a decent down payment, and limited debt.
  •  The trend is also different today than in years past as young buyers are coming to the table with more money and looking for smaller homes on smaller lots. Additionally, in recent years, townhomes have become very acceptable alternatives to single family homes.
  •  The demographic in personal decision making has changed with younger people, who are now mainly looking for ownership after starting a family and having children. A trait contrary to the baby boomers, which would opt for a small starter home at a younger age.
  •  Most young people today may not see a first home come into the picture until they are between 33-35 years old.
  •  Homes have become less of a financial investment in recent years and more of a use asset.

Up to this point, the guys only discussed the symptoms of the market. They continue by giving their thoughts on future interest rate environments and forecast how interest rates may affect the housing market moving forward. They look into the article, Why interest rates may stay very low for a lot longer, written by Tom Petruno.

The article touches on the world debt crisis and how it contributes to lower domestic interest rates. The author even mentions PIMCO co-founder Bill Gross’ estimate of the Fed’s rate being no higher than 2% through the end of the decade! It seems that the Fed is still gunning for major economic growth and willing to maintain suppressed rates if they see any sign of an economic slowdown. Additionally, the overseas central banks comprised specifically of the EBC and Bank of Japan have shown no signs of increased rates.

So, what did this mean for the future of domestic housing prices and interest rates? With no foreign pressure to increase domestic rates on the Fed, we should see the current trend continue, and we could expect thirty year mortgage rates from 4% to 5% for years to come, if all else holds equal. This means the marketplace for new loans could remain very affordable going forward, which would drive even more buyers to the market.

Check back next week, that’s right, next week, for a follow up on this topic as well as further discussion on strategies for entering and exiting the marketplace and how to make home ownership as affordable as possible.

 

Is The Risk Worth The Reward?

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Brian dives into what it takes to be successful in business, finances, and your career, and how that success relates to the risks you take. He covers the habits that seem to drive successful people to push the envelope, and how those are the people who are willing to take risks more often in order to accomplish their goals. He also discusses why people tend to take the easy road and settle for a life that they may only be content with.

So why is it that we, as humans, are typically risk averse and our fear makes us take the road most travelled, the easy way out, and make decisions that feel most comfortable? Margie Warrell, author of the article Take A Risk: The Odds Are better Than You Think, identifies a few similar actions that influence our behavior. Here is what she reports:

  1. We over-estimate the probability of something going wrong.
  2. We exaggerate the consequences of what might happen if it does go wrong.
  3. We under estimate our ability to handle the consequences of risk.
  4. We discount or deny the cost of inaction, and sticking with the status quo.

“Humans are wired to be risk averse” – Margie Warrell

Brian takes it a step further and outlines steps to take in order to take more risk responsibly, and how to begin understanding and conquering risk or your fear of failure. Take that first step, fine tune your priorities and try something that may be out of your comfort zone.

  1. Learn the difference between a calculated risk and a gamble.
  2. Create a plan of action and put a time-line together.
  3. Save money and resources to give your “risk seed” a chance to grow and succeed.
  4. Be prepared to pivot if necessary.
  5. Take a moment to celebrate your successes.

Brian, a huge Steve Jobs fan, took the opportunity to quote the man himself. As it turns out, Jobs seems to know a thing or two about taking risks.

“The greatest artists like Dylan, Picasso and Newton risked failure. And if we want to be great, we’ve got to risk it too.”

“Everything around you that you call life was made up by people that were no smarter than you, and you can change it, you can influence it, you can build your own things that other people can use.”

- Steve Jobs

If there was ever a poem that directly relates to a podcast topic, it is The Road Not Taken, by Robert Frost.

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I –
I took the one less traveled by,
And that has made all the difference. 

- Frost