Timing is Everything. Or is It?
October 6, 2020
2020 has certainly been a challenging year; COVID 19, low housing inventory, less travel, cancelled or postponed events like the Book Fair and El Tour, and high unemployment just to name a few. They all can affect the real estate market.
You may be searching for a place to begin or looking to start an encore career. Either way, it’s likely you’re wondering if the timing is right for real estate. I’ve been developing new licensees for many years and I can tell you that with the exception of a few recessions along the way, the market doesn’t dictate the success of the new agent as much as the new agent does. Attitude, work ethic, communication skills, intuitiveness, attention to detail, enthusiasm and flexibility play a bigger role than the economy. There will always be enough business available for any one agent.
That said, it’s still wise to look at our market, analyze the facts and use them to anticipate the future. Will low inventory and rising home prices lead to another recession? We don’t believe so and following is why. Yes, home sales are meeting and exceeding 2019 despite unprecedented challenges, and we expect to end 2020 where we ended 2019. The pent-up demand that hit the market in early April has kept sales increasing in all market price bands and throughout Arizona. Our profession adapted quickly to COVID and between good showing protocols, virtual tours, Zoom inspections, digital signatures and more, we have been able to carry on.
Is the market too hot? Will this be another 2006? Here’s what’s different. In the 6 years leading up to the last recession, national home price appreciation was high. As high as 12.5% in 2004 and 11.4% in 2005. In the past 6 years, it only ventured as high as 6.4% in 2017 and is now down at 4.7%. That coupled with stricter lending guidelines means less people are over-extended or carrying 100% financing. What about the people in forbearance who aren’t making their mortgage payment or the landlords who own properties with an eviction moratorium under way? According to Keeping Current Matters, 77% of the people with active forbearance who are past due on their mortgage have at least 20% equity in their home. If they have to sell, they can, and are far less likely to be upside down.
Historically low interest rates are also keeping home ownership competitive with any other type of investment. Forecasters such as Zelman & Associates predict home price appreciation to range between 3% and 4.6% in the next 3 years. Dr Lawrence Yun, chief economist for the National Association of REALTORS®, predicts interest rates rising to 6-9% between 2025 and 2030 and home price appreciation in the 5-10% range during the same period. When your equity is controlling a property appreciating at 4.7% or better with a 2.5% loan, you come out ahead. It’s a hedge against inflation.
Is it the time right to begin a real estate career? Economically, yes. If you’re willing to work hard and have most of the skills mentioned above, the timing is as good as ever and certainly better than when I got into the business. You’re the key to your own success.