The Most Important Trend to Embrace Going Forward

Volume 1: Issue 003 | Read Time: 4 minutes

Happy Friday!

And happy spring! I love this time of year when the weather is still cool, sunshine is abundant, and everything is just starting to turn green. Seeing the first flowers emerge and the bright green buds popping on the very tips of branches is inspiring to me and serves as a good reminder that all seasons change and resilient, new life is often hiding just under the surface.

As you know, my goal is to provide you with relevant information and perspective about our housing market so you can make the best decisions possible when the time comes. So, it makes sense, as the seasonal shift is upon us, that this month’s theme be focused on change – more specifically unpredictable change and what it means for real estate.

Let’s dig in.

Market Trends

One of the more interesting challenges of analyzing a market is discovering trends that aren’t typically quantified statistically. The first quarter of this year presented a perfect example of one such trend for us to unpack.

Volatility

Market fluctuations are normal, and even large swings can be somewhat predictable when we understand the forces at play. However, sometimes the root of volatility isn’t necessarily what is changing, but rather the speed at which things change coupled with our inability to predict what might change next, much less the larger impact those changes may have.

This is very much the current environment we find ourselves in and it’s showing up in the residential markets in the conversations I’m having with other brokers, lenders and title reps. We’re all experiencing similar things – some weekends are super busy; others generate little to no activity. Some homes have dozens of showings and see multiple offers in the first few days and some amazing properties sit for weeks before they get a pop of activity and go under contract. All of this with little regard for the area, price point, or the home itself in most cases.

The problem with volatility is that our human brain isn’t a fan of change. It likes easy and predictable because it uses far less energy when it can replicate a routine or a set of decisions without doing much work. Change causes our brain to work harder. It has to spend additional mental, emotional, and physical energy to keep us safe and on track. It’s the reason we tend to respond to change as if it’s something to be avoided.

However, if we avoid volatility, we may also miss out on the help it can offer. It can motivate a burst of buyer activity that generates multiple offers for a seller. It can increase showing activity before buyers miss out on a better interest rate or a lower price on a home. It can even motivate a seller to accept an offer sooner than they might in a more stable environment.

The solution? Lean into the unpredictability, be patient, and wait for our opportunity to use it to our advantage. Embrace it, make friends with it. You may not want to invite it over for dinner, but you should at least try to find a good working rhythm with it where you can stay grounded when it’s unhelpful, and appreciate it when it swings things in your favor. It’s always easier to work with a friend than fight against a foe.

Opportunities

One of my convictions about real estate is that there is always opportunity somewhere in the market. There are times, however, when the opportunity is less about buying or selling and more about using the resources we already have, to set ourselves up for future success.

Accessing Home Equity

Most trends we look at have their biggest impact on people who are actively participating in the market as buyers or sellers. Volatility is a different animal because it’s one of the few market conditions that can have a disproportionately larger impact outside of the market because it can impact other areas of life in profound ways.

One of the primary opportunities created by homeownership, is the equity that develops as the home appreciates and the loan balance is paid down over time. It’s common to understand this benefit from a wealth-building perspective but the same equity can also provide a viable safety net when accessed through a Home Equity Line of Credit, or HELOC.

Most banks and credit unions will offer HELOCs that allow a homeowner to access up to 80% of the value of a home, and many will go to 90% if you are willing to pay for an appraisal to document the value.

Here’s how it works: let’s say your home is worth $600,000. Your current mortgage balance is $400,000. A HELOC would offer you the ability to access the difference between 80% of your home’s value and your current mortgage balance:

$600,000 (you current home value) x 80% = $480,000

$480,000 - $400,000 (your current mortgage balance) = $80,000 in available funds (or up to $140,000 in this example if the HELOC was up to 90% of the home value)

Most HELOCs are interest-only loans meaning your monthly minimum payment is the interest generated on the money you withdraw. My back of the napkin estimate is to plan on a cost of roughly $100 a month for every $10K you withdraw. Most of these remain interest-only for a period of fifteen or twenty years, and, while it’s typically an adjustable rate, it tends to be far more manageable than a fully amortized loan.

I’ve always seen our HELOC as a safety net – it’s there to buy us time to make a good decision without the anxiety of being out of options in critical situations.

It can be the difference between getting behind in your mortgage and having the time to get a new job. It can mean being able to make a large repair or buffer against something unexpected without having to sell the home. It can also be a way to access equity to leverage it into another investment, but that’s a discussion for another time.

As you would expect, there are income requirements and an underwriting process so it can take a bit to get one open. The key, as with most safety nets, is to get it in place before you need it.

As always, if you’re happy where you are, that’s truly the best-case scenario. I’m here to help if and when that changes.

Until next month, be safe, and be well,
Scott