July Update | Are the Foreclosures Coming?
It’s the beginning of July and I’m hearing a continuous concern and fear from the general public about a wave of foreclosures and a market crash just ahead of us.
Let’s discuss that possibility.
If you have been watching my updates this year, you are aware that I live in the numbers - the data, the history, and the facts … not speculation and emotional reaction.
I really want to get into something I have been hearing from quite a few home buyers out there.
And quite sincerely, it’s my responsibility as an experienced Realtor in Silicon Valley to share the real deal.
So let’s tackle this taboo and scary topic!
Why is this conversation happening, it starts with the media, the pandemic, the unemployment numbers, societal unrest …. we are surrounded 24/7 with these topics today. And quite frankly also because everyone wants a deal, I mean really, who doesn’t want a deal?
Who doesn’t look at this media fiasco and think, the world is on fire?
Let’s talk about the basic numbers surrounding appreciation. Say a home in a less expensive area appreciates 10% from its price of $180,000.
You have 18,000 more in equity. Now, let’s say the typical home price in Silicon Valley, around $1.5 million appreciates 10% … that homeowner gained $150,000 in equity.
Now let’s discuss unemployment in the Silicon Valley, while many other areas are struggling in the job arena, locally we are seeing companies like Apple,
Netflix, Linkedin, Facebook, and many others hiring as their sales and profits are soaring.
Additionally, in our area, most of the people in the service industry (hit the hardest in this pandemic) are not usually the ones purchasing homes.
Let’s look at the scenario of a homeowner losing their job here in Silicon Valley.
That taboo scenario that people feel will lead to foreclosures.
With the lending changes in the past few years, most lenders required homeowners to put down 20% or more while making their purchases.
Additionally, the lenders were also being much more stringent in regards to the requirements for home equity loans, not allowing homeowners to use their largest asset as a piggy bank.
So now let’s talk numbers and math in regards to this situation.
A homeowner unfortunately loses their job and can’t keep up with their mortgage payments.
The first saving grace was that many lenders paused necessary payments for several months to those that were affected.
Now, the most important point ... that homeowner who is now unemployed, will certainly have at least 10% equity in their home from just appreciation AND another 20% from their initial investment.
Simple math now tells us that the homeowner will have at least 30% equity in their home.
What does that mean? If they can’t afford the home anymore, they can sell the home and still have proceeds available to them, they don’t need nor will they want to let the bank take it away from them.
What about the market crashing more than 30%? Well, the worst crash we have seen was the 2008 fiasco in which homes dropped 18% in total.
Back then we had over 13 months of inventory on the market, today, less than 2 months and rampant multiple offers all over our area, causing even more appreciation.
I’m not saying things can’t change, but history and the numbers tell us it’s unlikely they will change that much if at all …
Over my career, I have seen potential home buyer after potential home buyer sit on the sidelines waiting for the perfect time (like last summer) and not act because they want a killer deal that nobody else can get.
If your mindset in our area consists of “I want a deal” more than “I want a home”, I think you have already made your decision to always be a renter or eventually end up leaving the area.
In Silicon Valley, getting the home is …. THE DEAL!
Back to my initial comment, that 10% equity gained earned the Silicon Valley homeowner $150,000 in equity for just owning a home. The renter not only lost that equity, they also paid $40,000 to $50,000 a year in rent.
Put those numbers out over a couple of years and the renter costs themselves over a quarter of a million dollars.
The Bottom Line
You are either in or you're out, you either believe in homeownership or you don’t. Quite honestly, either one is fine, it’s what you feel that is best for you.
I wonder what Warren Buffet would say to that?
However, if you are waiting for the market to crash … Remember the old adage, don’t cut off your nose to spite your face.
If you're trying to strategize the best scenario for you in your real estate sale or investment, reach out to me for the straight talk and the best results.
On the Walker Team, we have a wide range of experts who speak several languages to help you navigate the process with confidence!
Always remember, I am here to educate and navigate, not speculate, and fabricate.