The Housing Market Now and In the Near Future

Wallace Smith:
With the 1031 exchange business, we occasionally will do a reverse 1031 exchange. Somebody sees what they want to buy. They don’t have the cash for it yet, but they have to figure out some way to buy that property because they know they’re going to sell and get into it. So very, very similar. Yeah. What do you see the market like right now? Do you feel it cooling?

MJ:
Well, it’s more seasonal right now. December and January are the cooler months.

Wallace Smith:
Normal seasonality then?

MJ:
It basically is a bell curve. And summer months, because of school, that is when a lot of homes come on the market. And that’s when a lot of buyers are moving. So just historically, summer months are better to sell and more inventory to buy. And so, we’re sitting mid-January right now. And so it’s one of the slower months. And when we bought our rentals-

Wallace Smith:
How do inventory levels look now compared to times in the past?

MJ:
It’s very similar to last year, but our inventory is so low. There are people just scrambling just to get a home and they’ll do whatever it takes to get it. And sometimes it makes financial sense. And sometimes my sellers will say, “What are they thinking?”

Wallace Smith:
Well, someone close to me, about a year and a half ago, needed a home and was trying to find something the suburban Denver market for less than $400,000. And there was not a whole lot. They managed to squeak one out. I think you know who I’m talking about. And now that’s gone up 34%. So now it’s trying to find something that’s below 500,000 as the entry point.

MJ:
Right. And who would’ve thought that half a million dollars would be a starter home? But that truly is what it is in the Denver Metro area. And you know, we have several counties in the Denver Metro area, but it really is. You have to pay over a half a million for a starter home. Then there’s the condos and town homes. And single family homes are about two thirds, 69%. And then town homes are about 31%. So not quite two thirds and a third. But most people want to buy single family homes.

Wallace Smith:
Well, I know you’ve seen a lot. You’ve seen ninja loans back in the no income, no job or assets. 120% valuation, Community Reinvestment Act, that they were having banks give on properties. Well, of course, there was a bubble and it blew up in 2008. Things are high. Do you think they’re toppy? Do you think there’s an impending doom or bubble right now? I know you’ve talked about equity a little bit.

MJ:
Yes. And we all thought it was high. And then we had the shutdown. And we thought, oh, it’s going to tank the market. But it did just the opposite. Actually, the last two years have been the highest sales in the last 10 years.

Wallace Smith:
Any clues? You think it’s people just wanting to get out of apartments and get single families?

MJ:
Well, there’s a couple of things. I think a lot of people can work from home, so they’re like, if I’m going to be working from home, we need a bigger home. Or if I don’t have to be in this city to work, I want to live where I want to live.

Wallace Smith:
Well, interesting thing with the businesses is, the whole pandemic or whatever you want to call it, it accelerated so many things. There have been a long, steady trend of more people having flex time, working from home or whatnot. And the companies were always so hesitant. It’s like, oh no, they’re going to be sitting at home, watching the football game or something. But productivity actually went up. And not the drive time, satisfaction went up. Now there’s some people who just are not wired to work at home. You got to get up, you can’t be sitting around in the fuzzy bunny slippers all day. I recommend, get up, dress for work like you’re going to go to work, and then go into your place of work at home and work, do your job.

MJ:
Exactly. So back to the market, what is it going to do? I wish I knew. I wish I had a crystal ball a few years ago. I would’ve bought a few more rentals.

Wallace Smith:
Oh my goodness. Yeah.

MJ:
But the millennials, there’s a lot of millennials buying homes. And my husband and I look at all of that too, because we’ve got rentals. And what is our exit strategy? But I think the market, it’s dependent on the interest rates and on what’s happening in the world.

Wallace Smith:
So how big of an impact do you think, what do you think a 1% hike in interest rates would do to the market?

MJ:
Well, it’s going to affect the payment. So instead of maybe buying a $600,000 house, someone might have to dial back and do maybe $550,000. I don’t know the exact numbers.

Wallace Smith:
So if they can’t afford the payment, then they won’t be able to bid it up quite as high. And it might offer a little relief on the pricing, you think?

MJ:
It might. But we thought maybe that would happen last year or the year before, but it did not.

Wallace Smith:
But whoever thought that high, we’d be referring to maybe 4%, 4.5%. I remember my family, they built a home in 1963 in New Jersey. The interest rate was 5.5%. And then they sold a home in 1982 or ’83. I remember those days, the stagflation, Jimmy Carter’s days.

MJ:
It was terrible.

Wallace Smith:
Oh, it was crazy. And I think it was 13%, 14% interest rate at that point.

MJ:
Right. It was actually 16% to 18%. Because we bought our first home, and we got first time home buyer money. And instead of giving money for down payment, that’s what they do now for first time home buyers, they lowered the interest rate. And so we got 13.75. And we thought we had just ripped off the bank. And that was in 1983. And our house just stayed stable.

Wallace Smith:
And we thought we would never, ever again see anything in the single digits, much less five, six or three or two and a half.

MJ:
Right. And our value of our home did not go anywhere for several years. And then we had a downturn in ’89, but then it started going back up in the ’90s.

Wallace Smith:
Let’s see. So what’s the sweet spot right now? It was interesting. You were showing me some graphs where the starter homes and the middle of the curve is around a half million right now. But it’s interesting, because it dropped off. Then there was a blip then in the one to two million range. That was interesting. So how can you address that?

MJ:
So I don’t know. More people are willing to buy those million to $2 million homes. And usually, people have kind of this, I don’t want to go over a million dollars. It’s kind of in their mindset. But just in the last year, the million to two million has moved faster than the eight to nine and nine to a million.

Wallace Smith:
It’s really interesting.

MJ:
And then the over two million is not very much because there’s a smaller pool of buyers who would buy that.

Wallace Smith:
Do you think people are getting overly confident that, well, if we’re going to buy eight or nine, we may as well get a million dollar home?

MJ:
Right. And plus, the pool of buyers for that million dollars, because I had buyers looking at 800 to 900 and they’re like, let’s just bump it up to see. And they found so much more because the pool of buyers for that million dollars is not as strong. There’s not as many buyers. And so they’re, again, supply and demand. And so that, I think, had to do a lot with that.