This is Price-Reduced.com where we talk a lot about real estate and a little about life.
Want to dig deeper? Read the transcript version of this podcast for helpful and interesting links.
Are you familiar with the RLB CRANE INDEX ®? Of course when it comes to this index, we are talking about construction cranes and not the bird.
Like a big storm sweeping across the U.S. we have gone from storm watching to crane watching, where commercial construction is booming and unemployment low. Wages are rising and it seems like it is full steam ahead.
If you want the world view, there is the RIB International Crane Index®. What cities have moved in up or down in relative construction cost? Dublin up 3 spots, Sydney up 1, and Auckland up 6 spots. Perth and Christchurch each dropped 4 spots, and Madrid dropping 9.
What is happening in North America? Toronto leads with 97 cranes, Seattle jumped back up from 45 to 65 during a six month period. Portland dipped slightly from 32 to 30.
Where was the real estate market so hot that the number of homes for sale went from 87 down to less than 10 in just forty hours? Why, the same place where the vacancy rate for rental houses is 42%, which is the highest in all of British Columbia. How can this be happening in the town of Kitimat? This is a great example of how development can dramatically affect the local economy of any one city or town. In this case it is the approval of Canada’s LNG (liquified natural gas) project.
The U.S. unemployment rate, at 3.7%, is the lowest since 1969. With all of those potential home buyers working, the real estate boom has to continue, correct?
Won’t increasing interest rates put the brakes on the housing market as homes become more unaffordable?
Probably not in the short run. If you have been thinking of buying but felt no urgency, what might be the tipping point to cause you to move into action and buy that home you have been considering? For many home buyers increasing interest rates would cause them to lock in interest rates before they continue to increase and put home ownership out of reach.
Consider this. A $300,000. Loan amortized over 30 years at 5% interest would cost $1,610.46 per month for thirty years for a total cost of $579,765.60 Rates jumping to 6% would cause your loan payment to go up to $1,798.65 for a total loan cost of $647,514. That is a monthly increase of $188.19 for a total loan cost difference of $67,748.40
So, which side of the coin flip are you calling? Heads, interest rates are rising and better buy now, or tails, prices are going to level off or even decline to offset the higher interest rates?
If you are in an area where “Price Reduced” is a common real estate ad heading, that doesn’t necessarily mean foreclosures are on the rise. View this chart of historical foreclosure rates as well as a U.S. map of color coded foreclosure rates by city which show foreclosure rates are down 75% in the first half of 2018 compared to the peak during the first six months of 2010.
The New York Times recently did a study of the Denver real estate market. There is a slowdown in the acceleration of prices, but they have to this point continued upward. What is happening in Denver as housing becomes unaffordable? Some leave to more affordable housing in other cities. This trend can be seen in other part of the U.S.
Rising interest rates not only affect those buying a home, but also those thinking of selling and buying.
If you bought a home between 2011 and even as recently as part of 2017, you could have borrowed money somewhere in the 3% – 4% range. If you were not getting a job transfer or had a major life change, would you be willing to almost double the cost of the money you borrowed? Another way to look at that is would you be willing to move and replace your current home with one half the size of what you currently have?
In 2016 the number of people in the U.S. who were moving was at an all time low. From 1985 to 2008 the average time spent owning a home in the U.S. was six years. Can you guess what it was in the latest 2018 report? Eight years? Ten years? The average is 13.3 years. Check out this map to see what it is in twenty major U.S. cities.
If you are thinking about buying a home, what month do you think would be one of the best to buy in? Realty Trac tracked 32 million homes over 15 years and on average, those who bought in October paid 2.6% less than market value. That is $2,600 for every hundred thousand dollars of house that you buy.
Do you know which neighborhoods in the Portland Oregon Vancouver Washington Metro area where prices are increasing the fastest? Oregonlive has neighborhood maps and statistics that keep you in the know!
If you wanted to compare the headlines and news reports between 2018 and 2007, what might be one way to do that?
Where to find it? Do you know you can go to Archive.org, also known as The Archive Machine, to find news clips of what was happening in 2007? It describes itself as “a non-profit library of millions of free books, movies, software, music, websites, and more.” You not only have the text version of many books, but also the audio version. A recent article goes into more detail about what is offered on Archive.org including a vast classic video game collection you can enjoy.
The amount of information it has on real estate investing, training and news from many sources around the world is worth taking a look at.
The Communication Conundrum
The real estate sale and purchase process is in some ways very simple. Find the house you want. Put in writing some basics such as how much you will pay, what conditions your offer is subject to and when you want to close and make it yours.
How hard can it be to communicate during this seemingly simple process?
Probably no harder than the daily communication we have with each other in our homes or at work.
In 1990, Elizabeth Newton, a graduate student at Stanford University did an experiment which The Harvard Business Review says illustrates “The Curse of Knowledge.” She created a game where you were either a “Tapper” or a “Listener”. The tappers would choose a song that was well known and tap it out. The Listeners would name the song. There were 120 songs tapped out.
If you were a tapper, what percentage of listeners do you think would correctly name the song you tapped out? In this experiment, the tappers expected 50% of their listeners would be able to do that.
When we are talking, sharing, or explaining something about real estate, or any topic for that matter, what are our expectations that those listening will have a solid understanding on what we are saying? Whether are home or work, don’t we really expect everyone we talk to, to understand what we are saying? After all, it is so clear in our minds.
The experiment showed the tappers had an expectation of 50% correct responses. That expectation was met with the reality of only 3 of 120 songs correctly named.
At 2.5%, that means their expectations were met just one out of every twenty times.
Why such a low rate of understanding? One often stated reason is that the idea, task, or concept in our mind is very clear to us because we are familiar with and have studied it. The question is how to make what we want to convey, as clear to the person we are talking to, as it is to us.
The next time you are sharing something that is important to you, remember the experiment of “The Tappers” and the “Listeners”.
Thank you for listening to Price-Reduced.com and always remember, financially speaking, “When it comes to real estate, the best time to buy or sell, is when you don’t have to.”