Is The Gilbert Housing Market Shifting?

The last two years have been either a blessing or a curse in the housing market.  If you are a homeowner, the sustained price growth has been a blessing as valuations have risen over 20% from the same time in 2016.  Families that have listed their home for sale have been able to expect multiple offers on their homes from buyers eager to enter the market.  Many times these homes have sold at or above the listing price.  On the other hand, many first time home buyers have seen the market over the last 2 years as a curse.  With home values rising rapidly with no end in site, there has been heavy competition.  Many buyers have not been able to buy in their desired areas and many have left the market dejected after being beat out on multiple houses by competing buyers.  As the prices have risen steadily many potential buyers have felt like they missed their opportunity and home ownership will be forever out of their reach.   Recently however, their are a number of factors that just may finally shift the odds back in the buyers favor.  Here at The Reeves Team we are going to break down the reasons we may be in for a shift from a sellers market to a buyers market.

Are we in a perpetual sellers market?

The short answer to this question is No.  A common phrase you will hear in wall street is “Trees don’t grow to the sky”.  The meaning behind this is simple,  If you watched a tree grow from its youth you would see it grow at a steady rate.  If you see a tree grow 2 feet a year for 10 years it would be rational to assume the tree will continue growing forever and after awhile it would reach all the way to the sky.  As we already know this isn’t the case, but many people seem to use that reasoning when looking at the housing market.  Since 2012 we have seen sustained growth in the Gilbert housing market.  That is 7 straight years of nearly 10% gains each year.  When you see homes appreciate this consistently for that amount of time its easy to think it will continue going up forever.  Unfortunately, we have a fairly recent example of how volatile the housing market can be when we all endured the 2008 financial crisis.  It is unlikely we will see any steep corrections like the one we witnessed a decade ago, there is a strong possibility prices could begin to decline slowly giving buyers much more leverage when negotiating for a new house.  

What are some of the reasons we could see a slowdown in the housing market?

There are a number of reasons we could see a slowdown, and not all of them have to come to fruition to make the slowdown a reality.  The biggest factor to consider is rising interest rates.  The rates a homeowner has to pay when getting a loan on a home can dramatically affect the mortgage payment each month.  Rates were brought down to almost zero after the financial crisis in 2008 and stayed there for quite some time.  Borrowers were able to purchase homes where a large portion of the payment was going to principal and less to interest, this allows them to pay more for homes and stay within budget.  Because interest rates were low and stayed low for a long time prices have marched steadily higher.  Now that the federal reserve has began to raise interest rates and home prices are at or near all time highs it is squeezing potential buyers out of the market.  When there are less buyers that means sellers will need to compete harder to land one willing to pay the going rate for their home.  We are starting to see home homes listed for sale, but currently its only a slight uptick.  If more homeowners begin to worry about falling prices and begin to list their homes we could see even further price reductions.

How bad could it get?

This is a very interesting time not only in housing but also in the overall economy.  Not only have we had extremely low interest rates over the last decade, we have also had quantitative easing in which the federal reserve pumped billions of dollars into the economy annually.  The federal reserve has not only raised interest rates it has also stopped its policy of quantitative easing.  The Fed still has trillions of dollars on its balance sheet that it now needs to sell which could further put pressure on the overall economy.  We also have record low unemployment levels and a growing economy which helps offset some of the negativity in the markets.  We could see a temporary dip and then a march higher or we could possibly see a longer more protracted sell off leading to lower prices over the next couple of years.  One thing is pretty clear, we wont see anything nearly as bad as we saw in 2008 when the sub prime mortgage rates took down the whole economy.  

So what do you think?  Will we see a buyers market over the next several quarters or will we continue to march higher as we have done over the last 7 or 8 years?  Leave your thoughts in the comments section below.

 

Can You Purchase A Home With Bitcoin And Other Cryptocurrency?

Bitcoin has only been around for ten years, but in that short time it has accomplished quite a lot.  Bitcoin has proven useful as a decentralized currency and created an alternative to every currency before it that is backed by and controlled by centralized governments. Bitcoin and alternative cryptocurrencies have been in the news often over the last two years.  First, for the spectacular run up in value in 2017 that made early investors returns that you couldn’t find in traditional markets.  Bitcoin unfortunately stayed in the news in 2018 as it lost over 80% of its value from the peak in December 2017.  While bitcoin has proven itself as a secure alternative to fiat currency, it has not proven itself to be a stable asset or store of value.

As the price has fluctuated The Reeves Team has had several questions from Bitcoin investors.  Questions include if they can use their bitcoin to purchase a home or qualify for a mortgage.  While some of the regulatory issues around Bitcoin are still unclear we will break down what we do know and how you can best use cryptocurrency when purchasing a home.  We will also discuss the current process of selling your cryptocurrency to pay for your down payment, and if its possible to use your Bitcoin to qualify for a mortgage. 

Before we jump into those topics we first want to provide a warning. As we have seen over the past two years Bitcoin is an extremely volatile asset.  While using your cryptocurrency to make a home purchase could be a great decision there are also many ways in which it could go wrong.  The first consideration to make is what happens if the price plummets.  Are you planning on paying for the entire down-payment, or even the entire home in Bitcoin?   If you are, it would be prudent to start moving funds from cryptocurrency into dollars.  If you wait until the last minute to convert from Bitcoin to USD the price could plummet leaving you without the funds to close and possibly in breach of contract.  The second consideration is if the price goes up.   Are you mentally prepared to pull your funds out to purchase a house and have the price double the next day?  Bitcoin can swing wildly in both directions so please make sure you are prepared for all scenarios. 

Using Bitcoin to qualify for a mortgage

So lets tackle the big question the team often gets.  Can I use my Bitcoin to qualify for a mortgage?  We have even had situations where a client could not qualify if the amount of Bitcoin they owned was not included.   When applying for a mortgage a bank will want to see verification of how you hold the funds that you have in your account.  In the not to distant past if your funds were the result of selling Bitcoin or if the funds were still in Bitcoin, the bank was almost certainly not going to work with you.  Much of the reason for not allowing funds associated with bitcoin was because Fannie Mae one of the largest players in the mortgage industry had not given Bitcoin the green light.  Recently Fannie Mae has clarified its position and given us clarity on when Bitcoin can be used to help qualify for a mortgage.  As of this writing it is possible to secure a mortgage using your cryptocurrency holdings. In order to qualify it is important to have exact documentation of the original purchase as well as documentation of any of the cryptocurrency that has been sold. This is great news for anyone who wants to turn some of their risky cryptocurrency assets into a much more stable investment in a home.

Using Bitcoin as a down-payment

If you do plan on selling your Bitcoin or other cryptocurrency to pay for the down payment there are a few other considerations.  Again, documentation will be key as any holes in documentation could result in your mortgage application being rejected.  In addition it is important to make sure you only transact in U.S. Dollars.  If the currencies are converted into any other currency it can cause additional headaches and could also result in your application not going through.  If you sell your cryptocurrency for a down-payment you will also need to be aware of the tax implications.  Any profits you have made on your Bitcoin investment will need to be reported to the IRS.  While there are still some gray areas with reporting cryptocurrency profits it is very clear in this situation that taxes will be owed on the profits you take from your sale. 

If you have any additional questions about purchasing a home using cryptocurrency, or just buying/selling a home in general, please contact The Reeves Team.  Let us know what you think about Bitcoin and if you think selling cryptocurrency to purchase a home is a good idea in the comment section below.