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How Could Climate Change Affect Gilbert Housing

Climate change is a hot button topic.  Most people have a strong feeling one way or the other if climate change is man made or just a part of the earths normal cycle.  At The Reeves Team we aren’t here to pick a side.   What we do know is that, regardless of if its because of man made carbon dioxide, the earth is getting warmer. The planet’s average surface temperature has risen about 1.62 degrees Fahrenheit (0.9 degrees Celsius) since the late 19th century. Most of the warming occurred in the past 35 years, with the five warmest years on record taking place since 2010.  We also know that this has caused more sporadic weather patterns.  Here at The Reeves Team we don’t take sides we just tell you how it can affect you and the Gilbert housing market.

Coastal Migration

A huge number of mortgages each year are written for high risk homes near or on the coast.  Up to $100 billion worth each year. Over 300,000 existing coastal homes will be repeatedly flooded, or lost altogether, within the next 30 years, according to sea-level calculations that the Union of Concerned Scientists publishes. Many high population states including California, Texas, Florida, and New York are vulnerable. Currently with housing prices continuing to rise in these areas the market is not properly factoring in these long term risks.  As the volatility in weather continues to rise over the coming decades many homeowners will give up on the coastal regions and head to other areas in the country with similar weather.  Arizona is in a great place to accommodate these homeowners, and in particular California residents.  We are within driving distance to California, we have similar weather with no snow year around and our house properties look like massive bargains compared to what people are currently paying on the coast of California.  We have already started to see a shift and many of the newer residents of Gilbert and the surrounding areas come from California and other high value coastal areas.

Warming Of The Valley

So the good news is that we should see a rise in transplants from coastal areas that feel like our housing is a bargain.  On the negative side we will see more of something else we already have an abundance of. Heat.  The Phoenix metro area is the second fastest warming city in the U.S. and our average summer temperature is nearly 2 degrees hotter than it was in 1970.  Some of the negative affects this may bring include; An increased need for water while at the same time a decrease in our water supply. An increase in the length of our mosquito season.  We will also see an increase in the amount of days with extreme heat.  We currently have over 6 more days a year with heat reaching above 110 degrees than we did in 1970.  We will also see an increased likelihood of drought as the temperatures steadily increase.  So what does this mean for home prices?  Well as we see an influx of people moving in from coastal areas, we can expect those gains to be offset somewhat by those that are trying to beat the heat and decide to migrate elsewhere.  With increases in technology including advancements in home insulation and multi pane windows as well as increases in Air Conditioning efficiency we can hopefully offset some of the negatives by continuing to keep our living environments sheltered from the elements.

Back To The Midwest?

Over the previous decades we have seen a mass exodus of residents of the mid-west.  Populations in rural Midwestern cities have plummeted and even major cities populations in the Midwest have stayed stagnant to slightly down, such as Chicago.  In the meantime cities populations in the west and near the coast have exploded.  Arizona has been one of the biggest winners as we have seen our population continue to grow steadily over the previous decades. With the increases in population in the coastal areas, as well as increased weather volatility and increased prices will we see a reverse in this trend?  Will people eventually look at the costs of living in the Mid-West and determine the costs are just to good to be true?  One major reason people have shifted out of the Midwest has been jobs, but now that America’s employers are starting to allow for a more remote workforce this could allow for people to acquire a relatively high paying job while still having the incredibly low living expenses of living in the Midwest.

So what do you think?  Will we continue to see the temperatures rise?  Have you considered moving from Arizona back to the Midwest?  Let us know in the comments below.

Has The Housing Bull Market Just Gotten Started?

At The Reeves Team we are in constant contact with our clients and with residents of Gilbert and the South East Valley. Because we stay in close contact we know that the sentiment recently among residents is that a recession is near and housing prices are about to dive lower. It does make sense on a certain level, home prices have more than doubled in less than a decade from their low in 2011. Home prices are also higher now than they were at the height of the housing bubble in 2008. We have heard residents and even readers of our blog comment for the last few years that another housing collapse is imminent and that they will wait on the sidelines before finding a better time to jump in. While these are all very good points there are other ways of looking at it and we want clients of The Reeves Team to be the most informed in the valley. So here are a few reasons we may not be seeing a dip in housing prices, but instead we are just getting started on this bull run.

Chronic under-supply of homes

Since the 1950’s there have been on average 1.5 million new homes built per year in America.  However, when the market crashed in 2008 it not only scared off home buyers, it also scared off home builders.  Since 2008 an average of only 900,000 thousand new homes have been built, this is while the population in America continues to grow.  As you can see from the chart we have less than a 6 month supply of homes listed for sale currently and that number is trending downward abruptly.  If these trends continue you can expect home prices to go up in the short term and not down.

Interest rates at historic lows

Low interest rates get home buyers motivated and allow them to purchase homes at higher prices and still fit it into their budget.  Rates are down over a percentage point from their peak just over a year ago.  The average rate is now near 3.5% for the average single family home.  These low rates have fueled the housing inventory to fall 2.5% from last September to this September.  We have also seen home prices below $200,000 fall 10% compared to a year ago as affordable housing becomes more and more competitive to find.  Previously experts were predicting housing inventories to stay flat but now they are revising those estimates and are beginning to forecast steep declines in the future.  So with less inventory and with home builders still building at historically low rates, we can expect to see more price rises in the future.

Homebuilder confidence is surging

Home builders have been beaten up over the last decade.  Many went out of business after the 2008 housing crisis and those that survived limped along for many years.  If you talk to them now though they are singing a different tune.  Fueled by shortages and low interest rates builder confidence has surged to its highest level in years according to the National Association of Home Builders.  On a scale from 1 to 100 with anything over 50 being positive the metric jumped 3 points in October to 71.   Breaking down these numbers a little further sales expectations over the next 6 months rose 6 points to 76 and buyer traffic was also up 4 points to 54.  Homebuilder valuations on the stock market are also skyrocketing as wallstreet is beginning to understand we may just at the beginning of this housing bull run.

Millennials to flood the market soon

Finally we get to the millennials.  While we have maligned this group for living in their parents basements and not getting jobs, its possible we judged them to harshly to soon. The average age of a first time home buyer is 33.  The average age of a millennial right now is 34.  Love or hate the millennial generation, their are a lot of them.  More so than any other generation in fact, even larger than the baby boomers.  They are just not entering their peak earning years and will begin flooding the markets looking for homes.

So what do you think?  With all of these signs pointing bullish do you think we are just getting started or do you believe as many others do that we are still in for a housing pullback before things get better?  Let us know in the comment section below.

Should I Rent My Home Or Put It On Airbnb

Back in the good old days it was simpler.  If you were buying a new home you had limited options.  You could sell your existing home or keep it as a rental property.  If you kept it as a rental property you would either need to find a property management company and pay a third party a significant amount of your rent, or you would need to set aside a large amount of your time and dedicate it to being a landlord for your property.  Then everything changed.  In 2008 in the face of the financial crisis,  Airbnb was launched and the real estate world would never be the same.  Now second home owners and investors have another viable option.  Airbnb allows owners to open up their units to short term tenants, in much the same way a hotel would work.  Many home owners come to The Reeves Team with questions regarding the benefits of renting vs listing on Airbnb so we are going to break down the options to help you decide which is best for you.

Where is your home located?

Like most things in real estate location is a huge consideration when determining what to do with your home.  If you have a home in a highly trafficked area you will likely see higher returns on your investment.  Another important thing to consider is will your home be in demand more at certain times of the year than others.  For instance, if you have a home very close to the cubs spring training facility you can expect great returns when travelers come into town to view the games, but the rest of the year your returns will be more on pace with the average in the valley.  Now for instance if you have a home near downtown Gilbert or downtown Scottsdale you can expect higher than average returns on your Airbnb listing throughout the year due to there not being a real off season.  You can also expect higher returns during the winter months than in the summer as more people flock to the valley during the winter than they do in the summer.

Do you need a stable return from your investment?

As we mentioned above you can expect some variation in income if you decide to list your home on Airbnb.  This is even more true if you have a home that will have high demand but only seasonally.  You will need to budget accordingly and plan ahead for the months that do not have as high of demand and make sure to stay current with your pricing so you do not under charge during the peak months and lose out on potential revenue.  You must also make sure you adjust your prices down during the off season to make sure your property continues to get utilized and is priced competitively with other homes on the market.  With renting you know what you are getting.  Renting is more of a set it and forget it situation. You know the price you will be receiving every month and can budget accordingly.  If you are someone who is ok with fluctuations and wants to maximize the potential of your home Airbnb may be the way to go.  However, if you like consistency renting may be a better option for you.

Do you want access to use your property during some periods throughout the year?

One of the biggest benefits to using Airbnb is that you can have access to your property when you need it.  You can block out dates and stay in your home as you wish.  This is great for home owners that do not live in the valley but that visit frequently.  If you already live in the valley and don’t need access to the property then this is not a consideration to take into account.  If you have a home up north in the white mountains you use as a vacation home, this would be a perfect opportunity to rent on Airbnb the weekends it is not in use.

How big is your home?

The size of your house will matter when determining the amount you can charge for your property on Airbnb. If you have a one bedroom condo in a business area you will be in good shape, but if its in a family travel destination it may not be as marketable.  Also if you have 5+ bedrooms in your home you can anticipate multiple families staying in the house and will be able to charge significantly more than a 3 bedroom house.

Let us know what you thought of this breakdown between renting and listing your second home on Airbnb.  Have you tried both? If so which do you prefer?  Let us know in the comments below.

How Will The Trump Trade War Affect The Gilbert Housing Market

There has been no lack of drama surrounding the trade war with China.  At first many Americans believed the trade war would be over quickly and China would give into the demands of President Trump.  The stock market and home prices were largely unaffected in the beginning. As the tariffs on Chinese imports continued to rise there was more market volatility but it always seemed as though a deal was around the corner.   Now that talks have broken down and the tariffs have been increased to 25% more people are starting to believe we are in for the long haul on the China trade war. At The Reeves Team we are frequently asked for our opinion. So if we are in for a long trade war how can we expect this to affect the housing market and the Gilbert housing market in particular?  This is a complex issue and we are in some very interesting financial times.  What we mean by that its possible bad news for the housing market could actually end up being good news, at least in the short term.  Confused?  We will explain.

Trade war direct affect on housing market

First, lets put this into perspective.  There are direct effects that the trade war will have on real estate, and there are indirect effects.  The direct effects caused by the tariffs are the cost of material goods needed to build new houses as well as the goods needed to remodel existing homes. Rob Dietz the chief economist at the National Association of Home Builders stated that the new 25% tariffs will cost home builders an additional 2.5 billion when funding the construction of new houses.  This cost will need to be passed on to the consumer in the form of higher home prices which could in turn lower the amount of home sales and slow the economy further.

Some of the indirect effects the trade war has on housing prices is the increase in uncertainty.  Across the country over 12 million people plan on selling their primary residence within the next year.  Among those 12 million homeowners 44% of them said the trade war has made them consider selling their home earlier than anticipated to keep from losing value if the trade war continues.  If many homeowners decide to sell and the market begins to get saturated with homes you will see the prices start to dip and houses staying on the market longer.

What happens if the federal reserve lowers rates?

So we have laid out the reasons why a trade war could hurt the United States economy, and in normal financial times this would be it.  Its fairly obvious that tariffs on foreign goods from China and negative sentiment from homeowners can only be a negative right?  Well not so fast, it turns out we don’t live in normal financial times.   With the federal reserve seemingly eager to cut rates the trade war and the resulting slowing economy may give the federal reserve the ammunition that they need to decrease rates.   I know what you may be thinking, didn’t the federal reserve just increase rates multiple times last year and promise three more cuts in 2019?  If that is what your thinking you would be right, however it seems like they are set to do a complete 180.  Many economists have estimated the fed may cut rates up to 3 times over the next year.  So how does this affect homeowners?  Great question! Well the primary way it will help homeowners is that buyers will be able to pay more for houses because interest rates will chew up a smaller amount of the payment they can afford.  The second way that it will help home prices is that lower interest rates tend to help spur economic growth and will help with consumer confidence.  So we may be in a rare situation where good news is good, and bad news is good.  If there is a trade agreement announced that should be good for the overall housing market, if the trade war drags on and the fed cuts rates that could also be good for the housing market.

So what do you think?  Are we in a win/win situation?  Let us know in the comments section below.

When will the huge water park being built in Gilbert open?

Gilbert Arizona has announced it will be opening one of the worlds biggest and best water parks in the nation.  As families look to find any way they can to get outdoors during the summer months, aquatic centers and splash pads have been popping up all over the valley.  We haven’t seen anything quite like this before however.  The town of Gilbert recently announced the park will called The Strand @ Gilbert.

What is it?

The Strand will be a massive new Gilbert Regional Park.  This park will be unique in that it will be operated by a private company once built.  The park will encompass more than 270 acres and the water park itself will be 25 acres in size.

Where is it?

The Strand @ Gilbert is being built at the intersection of Higley and Queen Creek roads.

What activities will be there?

This is where it gets really exciting.  Current plans include some incredible attractions.  A cable ski lake is being built that will allow skiers and wakeboarders to be pulled by an electrically driven cable.  This will be a huge advantage for all those that love water sports.  Currently Gilbert residents flock to the lakes that surround the phoenix metro area, but soon they wont have to leave the neighborhood, oh and don’t forget you wont need to buy a boat either! A surf lagoon is also being built.  This isn’t your standard wave pool as there will be rideable waves for those brave enough to give it a go. There is also going to be a massive inflatable water park for kids of all ages.   There will be multiple swimming areas of varying depths for kids and adults of all sizes to enjoy.  Another very unique feature to be included will be real sand beaches to give you the feel of the ocean without the 5 hour drive to the coast.  There will also be restaurants and clubhouse to relax at.

When will it be ready?

The Strand is expected to open in the summer of 2020.  Stay tuned to RelocateAZ for updates when an exact date is announced.

How can we expect this to affect Gilbert housing prices?

This should have a very positive affect on housing prices in the Gilbert area.  While we at The Reeves Team expect it to help all Gilbert housing, the impact will be felt most for houses directly surrounding the new park.  If you are interested in purchasing a house near the new park let us know and we will be happy to find your dream home.

So what do you think of the new park being built?  Are you as excited as we are or do you have reservations? Let us know in the comment section below.

Has The Gilbert Housing Market Reached Peak Garage?

The garage has had an important place in the hearts of American homeowners.  After the passing of the Federal Highway Act in 1921 car ownership in America soared.  This started our love of cars and our obsession over where to store them.   In ‘confessions of an automobilist’ an article written in June of 1925 it states, “Real estate men testify that the first question asked by the prospective buyer is about the garage.”  The article also goes on to note that “The house without a garage is a slow seller.”  Here at The Reeves Team we can assure you that the article from 1925 is as true today as it was then.  

Garages have never been more popular than they are today.  Over 80% of homes sold in 2017 had a garage, that is up over 20% from the 1960s.  Its not just the homes with garages that are increasing, its also the amount of garage spaces with each house that are increasing.  Last year 17% of new single-family homes sold had 3 or more garages spaces.  So garages have never been more popular than they are today, but will changes in the way Americans are living affect the way we use our garages? 

Ride sharing services such as Uber and Lift are making it easier for households to downsize the amount of vehicles they need.  A household that used to require one vehicle for each adult can now have one shared vehicle and use ride sharing services to supplement when there is a need for a second vehicle. Currently this trend is only popular among millennials, but if the same trend occurs with cars as it did with cable television, automobile companies should be concerned.  The question is, will the growth of ride sharing companies make a big enough dent in car ownership that houses with multiple car garages begin to decrease instead of increase?

Ride sharing companies are not the only threat to garages. If you live in the the Phoenix Metro you are probably familiar with the self driving cars that are buzzing around our roadways.  Most Gilbert residents view these as a competitor to ride sharing services, but in time it could be more.  Google has already announced that one of its long term ambitions is to have subscription services that you pay monthly for access to rides on demand.  Subscriptions services such as these could further allow families to downsize to just one car for the entire household.  It may even allow bold individuals to eliminate vehicle ownership all together. 

So while it is getting clearer that automobile ownership is probably at its peak and will begin to slow down over time, does that mean the same thing will happen to garages?  In today’s housing market we are conditioned to see houses with garages as beautiful. In most peoples eyes houses with 3 car garages have more curb appeal than than those with a two car garage or carport, but will this change in the future? 

So is it possible we could look at 3 car garages as eyesores in 20 years?  Will garages become detached from houses and hidden away in the back yard as they used to be?  The answer is no.  There are a few reasons why we haven’t reached peak garage and the trend for 3+ car garages is not going away any time soon.  

The primary reason garages are here to stay is that more and more households have become multi generational.  Even though the recession has been over for nearly 9 years the number of multi generational homes continues to grow. Over 20% of households in the United States include two or more adult generations.  With homes housing more adult family members the need for storage and easy access to that storage will continue to increase.  So while we might not be keeping as many cars in our garages in the future we will not have a problem keeping them full. 

Another reason garages are not going away is because while cars may soon start disappearing, recreation vehicle ownership continues to grow at a staggering pace. A recent trend the home builders have been experimenting with is selling houses with the option of incorporating an RV garage.  Our clients have been loving these houses with many choosing a specific builder because they offer the RV garage option.  American will always love their toys and home builders are responding by creating even larger garages so homeowners can more easily store them.

So it is clear to us that we have not reached peak garage.  Instead garages will continue to be an important part of home ownership for years to come.  Do you agree that garages are here to stay? Let us know if you agree or disagree in the comment section below.

How Opendoor, Offerpad and ZillowOffers are changing the home selling experience.

The the recent entry of Zillow offers the Gilbert area has become flooded with iBuyers.  iBuyers are companies that are attempting to streamline the process of selling a home.  You may have heard radio commercials for Opendoor or Offerpad on your commute to work.  Or maybe you have seen Zillow advertising to purchase your home as you browse their site.  We at the Reeves team have been getting more and more questions about these services.  We will shed some light on the differences between iBuyers and the traditional home selling process.  We will also answer some of the most common questions are clients have been asking us. 

The most common question we get is “Will they offer me the same amount I would make if I sold my house myself?”.  The short answer to this question is No.  You will not make as much by selling your home to an iBuyer service as you will through a traditional sale.  The reason for this is simple.  Ibuyers such as Opendoor will need to resell your home at a higher price to make a profit.  If the companies broke even on the sale of the homes they would be losing money as they have to employ a employees to facilitate the transactions.  

So what is the benefit of using an iBuyer?  Offerpad and other similar companies are trying to make the process of selling your home as simple as possible and hope that buyers are willing to pay a premium for this simplified process.  One thing to note is if you are working with an experienced real estate professional that puts their clients needs first, such as The Reeves Team, the home selling process can be tailored to your needs without paying the premium that iBuyers will charge.

Another question we get is, do these iBuyers charge a fee?  The answer to that question is yes.  While the fees can vary from company to company, most iBuyers hover around the 7% mark which is higher than you would pay working with an experience real estate team. While many people look at these companies as home flippers the companies themselves are trying to distance themselves from that narrative and suggesting they make their money from the fees associated with the sale and not from price appreciation.  

So should you use an Ibuyer such as Zillow Offers or Offerpad?  While these companies do offer flexibility in the home selling process, we recommend using a licensed real estate professional that your trust.  If you are open and honest when communicating what you need from the home selling process you can recreate the ease of selling to an iBuyer without paying the extra fees they will charge for the convenience.  This is also a great time to remind you about The Reeves Team 90 day sale guarantee!

So what do you think of the new iBuyer startups?  Let us know in the comment section below. 

 

 

 

5 Tips To Avoid Water Damage In Your Gilbert Home

As Arizona residents we don’t often find ourselves overly concerned with flooding and water damage. It rarely rains, and most of our homes are build above ground with basements being a rarity. However, when it does rain we can often get substantial amounts of rain all at one time. Arizona residents are familiar with downpours we receive during monsoon season. October isn’t a time many Gilbert Homeowners typically associate with large amounts of rain, however this October we are seeing a different story. Less than halfway through the month and we have already set a record for the most rain in recorded history in the phoenix area. With these facts in mind The Reeves Team is providing you 5 helpful tips to keep your home from taking on any water during this unseasonably wet October.

1. Determine How water flows Around Your house
One good thing about getting this much water all at one time, is that it allows us the opportunity to see how water flows on and around our homes. So the next time we get a large amount of rain grab a hold of your umbrella and march out into the rain to see if anything is concerning. Watch how the water flows on your roof and where the majority of the water is dumped on to the ground. You can check to see if there is any erosion at the points where the bulk of the water comes off of the roof. Its also a good idea to see how the water runs once it lands on the ground. Make note of anything you want to change once the clouds blow over and we get our typical sunshine back again.

2. Repair or replace roof Tiles or Shingles
Many leaks occur from our roofs. With tile roofs it can be difficult to determine if repairs need to be made. If you are concerned you can have a licensed roofer inspect your roof and let you know if repairs are necessary. You should also have the underlayment inspected on your tile roof as that is often the cause of leaking in Arizona Homes. Its also extremely difficult to tell the condition of the underlayment so its a good idea to have this checked out when purchasing a home.

3. Ensure your lot is properly graded
There are two types of grading around a home. Positive grading and negative grading. Positive grading means the slope of the land is away from your home and your foundation. Negative grading is the opposite and means the slope of the land is towards your foundation. As a homeowner you want positive grading so when you have heavy rains the water is not trying to get into and under your foundation. If you have a basement this becomes even more important. When you purchase a home you should have the home inspector check the grading. Its also important to think about your grading whenever you make changes to the outside of your home, such as adding vegetation or structures on the property.

4. Regularly clean and maintain your eavestroughs and gutters so that they’re not blocked
Not every home in the Phoenix area has gutters, but if you do have them it is important to make sure they are clean and free from debris. If your home has gutters it is for a reason. The gutters help ensure runoff doesn’t accumulate in the wrong areas. Gutters are typical of homes with basements to ensure the water does not runoff into an area that can cause water damage to your home. Set a calendar alert in your phone before monsoon season and when leaves begin to fall to make sure your gutters are in good working order.

5. Know how to turn off the water supply to your house
Many leaks occur through burst pipes or backups in your homes plumbing. It is important you know where the water shutoff is to your home. Often times in Gilbert your main water valve will be close to the street for convenient access. Some shutoffs will require a specific tool so make sure you have one available. If there is ever an emergency you will be glad you knew how to shut the water off quickly.

If you follow these tips you will feel much more comfortable when large storms arrive or when the unexpected happens in your home. Water damage can be a difficult thing to deal with as a homeowner so take as many preventative measures as you can. Let us know what other tips you have for preventing water damage in the comment section below. If you have any questions of want additional tips please reach out to The Reeves Team.

How Will The Looming Federal Reserve Rate Hikes Affect Gilbert Housing

We at The Reeves Team have been getting a number of questions regarding the upcoming interest rate hikes and how it may affect the Gilbert real estate market. The federal reserve has been raising the federal funds rate at a rapid pace over the last year. In the last year there have been 3 rate hikes of .25% and it looks like its poised for two more rate hikes by the end of the year. Depending on your view this can be seen as a positive or a negative. The optimistic view is that the federal reserve feels confident enough in the economy to continue raising rates without hurting the economy to badly. Its true that our economy has been doing well for nearly a decade at this point and it has not shown any signs of slowing down. The pessimistic view is that 5 rate hikes in a year is to much to fast and could cause a pullback in the housing market or could even cause the next recession. The Reeves Team will take you through a look at some of the possibilities and technical jargon you may hear over the coming months regarding the federal reserve rate hikes and how it could affect the Gilbert housing market.  If you have not read Troy Reeves State of the Phoenix Housing Market it is also a great place to get his take on where we stand. 

Why do people believe the Fed will raise interest rates twice by the end of the year?

The federal reserve used to keep its decisions on interest rates a tightly guarded secret.  Nobody besides the central bankers knew if the rate would go up, down or stay the same until the announcement was made.  This policy changed in the mid-70’s after the federal reserve raised rates quickly from 5.75% to 13% and then back down to 7.5% in a relatively short period of time.  This caused confusion among the banks and the businesses who kept prices high because they didn’t know what to expect.  This stop-go monetary policy was replaced by what we now know as forward guidance.  The forward guidance provided by the central bankers has economists convinced that two more rate hikes are coming before the year end.  The president views the increase in the rate to be harmful to the growth of the economy and has forcefully spoken out against multiple rate hikes by the year end.  Having the president attempting to influence the fed rate policy is a break from tradition and many believe may in fact force the federal reserve to raise rates twice to show its autonomy from the executive branch.  Unless things in the economy change drastically it is reasonable to expect the federal reserve will increase rates twice by the end of 2018.

Can it really cause a recession if the Federal Reserve raises interest rates to fast?

The short answer is Yes.  We have historical examples of economic downturns that were created because of the federal reserve misjudging the strength of the economy and raising interest rates to fast. The most recent example is the recession in the 1980’s when interest rates were raised rapidly from 6% to 10% and created a recession almost single handed.  The most famous example of over-tightening by the federal reserve is the great depression. In fact in 2002 Ben Bernanke who was on the Federal Reserve at the time apologized for the federal reserves role in the great depression saying “Regarding the Great Depression, … we did it. We’re very sorry. … We won’t do it again.” So as a Gilbert homeowner or a potential homeowner  it is important to pay attention when the federal reserve starts to increase interest rates at a rapid pace.  The question we have to ask is if the economy is strong enough to bear these increased interest rates.  Currently the unemployment rate is below 4% from a high of nearly 10% in 2009.  We are also seeing strong growth in the housing market and stock market even though the market expects another two rate increases.  These indicators give us hope that we may not be ready for another recession in the short term.

Is it possible that interest rate rises could actually help the real estate market?

When the Federal Reserve decides to increase interest rates it is generally seen as a negative for the housing market.  It is seen as a negative because higher interest rates mean that more of a borrowers monthly payment will go to interest.  When interest rates go up, potential homeowners purchasing power goes down.   As potential homeowners can afford less home, sellers will often need to lower their prices to accommodate the reduced purchasing power.  There are a couple of reasons why this is not always the case.  First off, the Federal Funds Rate is not always as closely tied to the aver 30 year mortgage rate as most people would assume. 

As you can see from the chart above the federal funds rate and the 30 year fixed mortgage are loosely correlated but they are no where near identical.  You can see the funds rate rose dramatically from 2004 to 2006 and then dropped substantially in 2008 all while the 30 year fixed interest rate remained relatively steady. The second reason that interest rate rises could actually increase home values is FOMO.  FOMO or fear of missing out is the phenomenon that occurs when buyers feel like if they do not get in now they may never be able to get in.  As you can see from 2004 to 2006 the Federal Funds Rate was actually increasing at a dramatic pace while the housing boom was occurring and home values were rapidly appreciating.  By now we all know that was not the only thing that caused the market to run up and subsequently crash but it does show that its possible to have price appreciation while the federal rate is increasing. 

If the rate hikes do cause a downturn in the housing market how bad could it get?

It is hard to believe that he housing crash and the great recession are nearly a decade old at this point.  While its been nearly 10 years it was such a big event that it is still fresh in most peoples memory.  So most home owners and home buyers are aware of just how bad prices can crash when they do go down.  While we remember how bad it was last time, it is important to remember that the circumstances have changed dramatically and we are not in the same place we were 10 years ago.  While interest rates were rising in 2008 when the financial crisis occurred, the crash can be attributed more to the subprime mortgage epidemic and the lack of solvency for major financial institutions.  Banks have been careful not to recreate the same issues that caused the crash last time.  If the federal reserve does raise rates to quickly and the economy and housing is negatively affected, it is unlikely to be as dramatic and can hopefully be corrected more quickly than the previous crash.  

Its also important to not that home prices had a dramatic spike before the crash in 2008.   As you can see from the chart above the price of homes went parabolic starting in 2004 and ending in 2006.  Then there was a huge sell off and over correction in the market that ended in 2009.  Since then the price of homes have normalized and are currently much closer to where they should have been if they continued the trend before the massive run up in 2004.  So while the rise looks dramatic from 2012 to 2018 it is important to keep in mind that home prices were dramatically oversold before they began to bounce back. 

What is the yield curve and what happens if it inverts?

Currently there is a lot of talk about the yield curve and how it can be an indicator or a potential recession.  It is important to note that just because the yield curve inverts does not mean we are due for a recession. With that being said an inverted yield curve has preceded the last 7 recessions so it is certainly something to keep your eye on.  So what is a yield curve? 

To put it simply, a yield curve is the return you get for purchasing bonds depending on the length of time before their maturity.  Typically if you purchase a bond for a shorter amount of time you would expect less return on that investment.  As you can see from the chart currently the yield curve is not inverted, you will “yield” more from purchasing a 30 year bond than you will for purchasing a 1 year bond.  However this curve is flattening and if interest rates continue to rise we could see an inversion of this curve.  This is something to keep an eye on as it has accurately predicted the past 7 recessions.  However, each time is different with a unique set of circumstances and history doesn’t always repeat itself, but it does tend to rhyme.

Conclusion

So we at The Reeves Team have thrown a bunch of information at you.  Hopefully you have learned a lot and will now be able to more accurately understand the relationship between the Federal Reserve Rate and the Gilbert Housing Market.  However, you may still be asking yourself what does it all mean?  Is now a good time to buy a home? Or sell my current home?   While there are headwinds that are coming for the housing market, we are in a much better position than we were before the crash in 2008.  If there is a pullback in the market it will likely be much smaller and shorter than the previous pullback.  It is also not certain that the market will pull back at all, we could continue to see sideways price movement or even sustained growth. It is unlikely we will continue to see the 12 to 15 percent increases year over year we have been seeing in the Gilbert market over the next year or two.   While there is sure to be a lot of news and information around the market in the next few months, take everything with a grain of salt.  We still have a great economy and more people than ever want to live in the Gilbert area.

Arizona Balloon Classic

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The Reeves Team was proud to bring one of the most recognized corporate symbols on the planet to the Arizona Balloon Classic. At seven stories tall, the RE/MAX Hot Air Balloon grabs attention wherever it goes. This year The Reeves Team Sponsored the third Annual event held in Gilbert Arizona.

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The Re/Max Balloon grabs attention wherever it goes.

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Our talented Balloon Pilots gave rides to a few lucky families.

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Troy Reeves and his twin boys pose with a family prior to a flight.

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The Reeves Team and the classic Hummer brand teamed up with the Balloon to make this year an unforgettable event.

IMG_5746 Not content with just watching the balloons these onlookers decided to send their own balloons up.IMG_5822

Troy poses with potential clients and other members of the Re/max family for this photo inside the balloon!

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The Re/max balloon pilot getting the balloon ready for the big glow!

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A client of the Reeves Team signs the disclaimer before going up for an early morning ride.

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Troy poses with the Hummer that doubles as a chase vehicle.