Most often our clients come to us for advice about doctor mortgage loans, but from time to time those same doctors also need to know about what is happening in the real estate market and is it the right time for them to buy in Utah. There is an element of fear in many of the conversations I’ve been having with doctors recently stemming from current real estate values, which have just recently returned to pre-crash valuations in many areas of the country.
Our doctor clients are aware of this and they are very astute in wanting to avoid making the same mistakes as those who bought right as the bubble was peaking in 2006 to 2008. So where are we today in the real estate cycle and how can a doctor mortgage loan help?
Let’s take a look at a few of the fundamentals that are driving the real estate market higher.
2016 was an interesting year, with massive surprises including the Trump presidency, Brexit, and a stock market that continues to grind higher to new all-time records. How these events and the events ahead might ultimately impact home values is beyond our crystal ball; but we do have some FUNDAMENTALS to share with you. Please feel free to forward this analysis to anyone who might benefit.
Last year, U.S. housing was up 7.1% nationally. That is an incredibly strong national number considering we are nearly 10 years into the recovery. One of the points I bring up to our doctor clients, is that the current growth is very different than the pre-bubble growth. The pre-bubble growth was fueled by FAKE demand. That FAKE demand was from liar loans (stated income, stated assets, stated employment), it was from investors who were buying dozens of homes not to rent as a part of a long term plan, but with the hope the property would go up 25% in 6 months and they could flip the house. It was also fueled by negative amortizing loans that enabled speculators to buy lots of properties, make ridiculously low payment and hope for appreciation. This FAKE demand then spurred builders to build four times the historic national average of new homes, thus resulting in a massive supply problem, right when buyer demand was waning due to the mortgage meltdown and these exotic loan products going away.
It was the perfect storm fueled by FAKE demand and lots of greed. But ask yourself this question, is that what is fueling this real estate market? Not at all! This market is real buyers, with real jobs, real income, real down payments, looking for housing for their families. So our home valuation levels are approaching all time highs, but the fundamentals are totally different and our clients that have used doctor mortgage loans to buy homes for their families in the last few years are doing really well.
Let’s go back to the 7.1% appreciation annually in the U.S. last year and see how that might have effected you. If you had bought a $250k home with 5% down in December 2015, your annualized return on investment was 142%.
That’s right, your $12,500 down payment is your investment, but the entire $250k home appreciated 7.1%. That is the magic of owning real estate; not only does your cash down payment appreciate, the entire value of the property appreciates. We like to think a doctor mortgage loan can help you because our mortgage loans for doctors allow you to put down as little as 3% while at the same time completely avoiding mortgage insurance. That means you can start owning real estate in Utah and benefiting from appreciation, while retaining more money to pay down student loans or to start investing for retirement.
Will housing continue to appreciate? That is the ultimate question our doctor clients want answered. I believe if you ignore the noise out of the media and look at the fundamentals, it looks like demand will continue to outpace supply in the years ahead.
The Joint Center of Housing Studies just came out with its household formation report. Between 2005 and 2010 the U.S. averaged 680,000 new households per year (net migration into the U.S. and kids moving out on their own forming new households). From 2010 to 2015 that number grew to 890,000 new households. Between 2015 and 2025 momentum will build with an estimated 1,360,000 new households per year.
Where are all these new households going to live? Sure, some of them will rent, but eventually everyone tires of annual rent increases and the neighbor’s hip hop music at 2am…
Each year between now and 2025 the U.S. will add 1.36M new households, in addition to the previously formed households; they will continue to fight for the best real estate in our local communities in Utah. We are already seeing this take shape, take a look at the national supply of homes for sale, any reading under 6 months’ supply is considered low inventory (supply), we are below 4 months currently, which is extremely low supply of available housing.
So what does this mean?
It means beyond the noise in the media, the FUNDAMENTALS point to more potential buyers and increased demand between now and 2025. This comes at a time where supply is already extremely low. My guess is your return on investment might not be 142% annually going forward, but it’s likely to do pretty well.
If you have questions regarding doctor mortgage loans and what you might qualify for, I’d encourage you to contact Josh Mettle directly (855) 260-9932 and we can give you a personalized overview of how a doctor mortgage loan might work for your situation.
Josh Mettle is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNAs, and physician assistants. You can enjoy great physician real estate and mortgage advice here or by visiting his book site. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here. Copyright© 2017 eJLM LTD. All Rights Reserved