Episode 6: The Compound Effect and Understanding a Market Shift

“Gradually then suddenly.” This concept is the underlying theme of this episode. Hosted by Steve Shuff and Rob St John, this episode of Real Estate Radio Now briefly discusses one of the favorite books of the hosts, “The Compound Effect” by Darren Hardy. The whole idea of the compound effect is that, over time, the smallest of choices add up, compound, and prove to be key elements in determining the result. What are the smallest habits you can control, alter if needed, to reach the desires results that you seek. Maybe it is building wealth; maybe losing 30 pounds. Whatever it is, it begins with a series of the smallest choices, over a period of time, consistently executed and improved, until all of the sudden; POW! You ask yourself “how did I get here!?” That is the impact of a compounding choice. You can go forever it seems without any progress whatsoever, until one day where it all becomes very obvious. That’s the idea behind gradually then suddenly. Steve reflects on one example form the book where Hardy explains how an aircraft leaving LAX, being one percent off its course to NYC, can land the plane in a place it never intended. Such is life. The decisions we make everyday, though we may not think they are either positive or negative choices with impact, over time can add up to create an outcome that can be quite surprising if not intended.

If you would like to pick up a free audio book of “The Compound Effect” by Darren Hardy you can do so by visiting www.audibletrial.com/realestateradionow. “There’s nothing more exciting than listening to a book like this, being read by the person who wrote it. The passion and excitement for their material comes right through.” – Steve Shuff

Regarding real estate, Rob states that we are on the verge of a shift. However he notes that it is important to realize that the real estate market is always in a state of shift. It is that gradually then suddenly impact that we see over time, but we don’t realize it until it has happened.

Rob and Steve talk about the rumblings of a “shifting” market on the horizon, and what exactly that means to the general public. There are a few factors that impact a shifting market, but one thing is true; the market is always in a shift. Think about it, home values dont simply jump over night. Interest rates don’t go from 8% to 3% all of the sudden. No, in fact, it takes time for the market to reach significant points that seem extreme. For example, home prices have been on the rise for a while now… the question is this: for how long can can home values continue to steadily rise. You see, the market will need to correct itself to remain stable. One way for the government to have an influence on the stability of the market is to control interest rates.

The national average since the late 90s or so sets right around 6.6%. Today and for the last few years, the interest rate has been hanging around 3.5%. Whether we like it or not, one thing is inevitable… the interest rate will rise. The real question is, when?

But the real key to this whole puzzle, and the piece that will be most obvious that a shift has taken place is that of affordability. The national average for the amount of money someone contributes their annual income toward their mortgage has been right around 21.6%. Today, people are spending an average of 15% of their income on housing. Home ownership is the most affordable as it has been EVER. So what does this mean for home buyers? This means that the home a home buyer can afford today, will be very unaffordable “tomorrow.” It doesn’t mean one should go out and buy all the home they can… unless that’s the goal. Rather a frugal home buyer can maximize their dollar and position themselves for financial success in all areas thanks to the affordability of homes today. As for home sellers.. they have the best shot at getting top dollar for their home, not because of rising home prices in full, but simply because a larger population can actually buy their home! So sellers that think they would like to ride the wave of rising home prices, and decide to wait to sell to “get more,” will in fact lose in the long run due to the fact that the home prices will stabilize due to a lesser number of home buyers that can afford the same home…. therefore, you have the “shift.”

Folks, don’t fear the shift. Simply educate yourself so you can gracefully flow with it.

This episode is brought to you by Bello Dimora Real Estate Professionals, your source for intelligent real estate consultation. You can find Bello Dimora online at www.bellodimora.com

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