Analyzing Dave Ramsey’s Real Estate Predictions

April 11, 2024

Dave Ramsey’s Victory Lap: The Prediction That Held True

In a recent episode of “The Ramsey Show,” Dave Ramsey brought up a bold statement he made back in July 2022 regarding the U.S. housing market. Despite the rising interest rates brought on by the Federal Reserve, Ramsey said there was “zero chance” of a housing crash. Time has proven him correct, as the housing market has maintained relatively stable prices, challenging the mass fears of a real estate downturn. Does this outcome showcase Ramsey’s deep understanding and experience within the real estate industry? You would think after 46 years that would be the case, but let’s analyze below and get my take on it.

Lane’s Thoughts

I remember seeing these comments. It went viral in my “real estate” world. Every agent and their mother were posting these positive comments on their social media. Why? Because somebody who is well-respected in the financial world said something positive about real estate when every other headline was fearing a major real estate downturn. But it still bothered me. I didn’t like when others in my industry shared those comments without any additional insight or commentary. There was nothing specific about their marketplace. For example, in Orange County, we were and have been drastically under-supplied. There was nothing for buyers to purchase. So regardless of the rate, the writing was on the wall. It’s simple supply and demand. In 2023, we saw the fewest number of homes hit our market in more than 2 decades. And so far in 2024, the number of new listings coming to our marketplace is even worse. So what does that mean for the future of prices? Well, I won’t spoil my predictions until we get to Ramsey’s below. Continue reading.

The Supply Crunch and Its Implications

Ramsey attributed his original and accurate prediction to basic supply-demand dynamics. Despite higher borrowing costs potentially lowering home sales, he foresaw that the limited housing supply would keep prices stable or even push them higher. This view aligns with a recent report from the National Association of Realtors (NAR), which calculated a 5.7% increase in home prices over the past year. Unfortunately for first-time homebuyers, the combination of rising prices and mortgage rates has significantly impacted home affordability, with only a small fraction of homes being accessible to households with average incomes.

Lane’s Thoughts

One of the main reasons we’re having supply issues is the fact that current homeowners who refinanced their mortgage to a rate in the 2-4% range have zero motivation to get rid of it. These homeowners are looking at two different options: 1) Stay in the home, keep the rate, and love the low payment that will go unchanged for the life of the loan, or 2) Keep the home, keep the rate, and rent the home out for more money than the overall monthly payment of the home. And with option 2, not only does the home not come onto the market to help with the inventory, but those homeowners are more than likely purchasing another home, taking an additional home off the market. The supply crunch is a real issue that’s felt across the nation, and Orange County is no exception. The limited inventory has been a significant driver of price increases in our area, making it challenging for first-time homebuyers. How do we fix it? Initially, the Fed thought increasing interest rates would cool pricing within the real estate market. Recently, Fed Chair Jerome Powell mentioned they didn’t anticipate the unwillingness of homeowners to get rid of their low-interest rate mortgages. So he stated that he would like to see rates come down. This will then increase affordability for homebuyers and hopefully encourage homeowners to put their homes on the market. I think the issue will remain though. Homeowners holding onto their homes, renting it out instead, and then buying another. Builders will need to help solve the inventory problem. Orange County however is quite already built-out. So Orange County property values should remain strong and thus Mr. Ramsey might be right on his prediction again.

Ramsey’s Housing Forecast: A Continuing Crisis

Looking ahead, Ramsey doesn’t see a quick resolution to the housing supply issue. The gap between supply and demand is substantial, indicating that prices are likely to continue their upward trajectory. While Ramsey doesn’t specify his expectations for interest rates, he offers a piece of advice to homebuyers: focus on finding the right home at the right price, and consider refinancing when rates improve.

Lane’s Thoughts

This is similar advice to what I am giving my homebuyers of today. Let’s work with today’s factors: Your job, your income, what you can afford, what you’re qualified for, what your budget is. Then calculate those figures based on today’s rates and prices. If your career is stable and secure, and you can afford the home at today’s rate and price, that will indicate you’re ready to buy. If and when rates go down, you’ll refinance and then you’ll be even more comfortable with the overall monthly payment and affordability of your home. Finding your dream home can be challenging due to high demand and low supply, it’s crucial to prioritize the long-term value and fit of a property. Interest rates may fluctuate, but the right home can serve as a vital foundation for personal and financial growth.

In Conclusion/Lane’s Final Thoughts

Dave Ramsey’s prediction of home values continuing to appreciate is right in line with mine as well. We’re in the trenches every single day and see it. Our buyers are competing against multiple offers, there’s not much available for them to see, and our sellers are setting records in the neighborhood for the highest ever sales price. The only way things change is to see more inventory. We’re just not seeing the inventory coming. Every month so far in 2024, we’re seeing year-over-year decreases in new listings coming to the market and year-over-year increases in the number of closed sales. So a decrease in new listings and an increase in closed sales depletes the overall availability of active homes for sale for buyers. Hence the competition and bidding wars.

Whether you’re a first-time buyer or looking to invest further in the market, understanding these trends is key to making informed decisions. We’re here to help!