LESSONS LEARNED

Inman News is reporting this week that the average amount of debt owed by the average person on their principal residence is rising. But it also reports that the average homeowner is handling that debt in a much more responsible way than in previous times. For instance, the number of people who owe 50% or less of their home value is at an all-time high, giving us record levels of home equity. It talks about 3 or 4 other reasons for this. What I am finding in my practice of Real Estate, is that people, although desiring to buy a home, are being very cautious in the process. Now I have no way to quantify this fact, but it is certainly present in the market place. I find that most buyers calculate a conservative level of house payment they are willing to make, given their personal budget, and then stick with it. This has made it very hard to find the right home given, also, that we have a 10 year low inventory of homes from which to choose. Although this fact has driven up prices, for many consumers it has not pushed them to finance their purchase much above that conservative level. Many are choosing to wait or change their desired features or geography in a home. They know purchasing a home is a very sound financial idea, but they are not willing to significantly exceed their self-imposed limit on what they will spend for monthly housing expense. Compare this to the time of period of 2000 to 2006 and you see a dramatic difference. In those years people were very much willing to push up to the limits of what mortgage lenders were willing to provide, given their income and debt ratios. Many were willing to finagle even higher payments than they were allowed and this often produced some very bad decisions regarding the mortgage products they chose. The eventual result was the housing market crash of 2006 to 2012. In the 13 county metro, residential real estate fell 43% during those years. Now, we have gained most of that back over the succeeding 5 years, but the lessons of those years appears to be not lost on the consumers today and this is a good thing. Also, stricter regulations on the types of mortgages available and stricter appraisal guidelines are keeping things in check. The article I am referring to is RISING HOME PRICES DRIVE UP HOMEOWNER DEBT, BUT DON’T PANIC BY Steve Cook of Inman News. You can find this article on my website, MnhomesbyDave.com under the real estate news tab. It is a fairly short, but very insightful piece. Thanks for reading.

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David Feerhusen

David Feerhusen

Broker/Realtor, CDPE, GRI, CRB
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