It’s Not the 2021 Market

(0:13) All right, Will and Charlie back here with the Beyond the Rate podcast. We’re going to (0:19) talk a little bit today about the different markets we’re in. So we’re going to compare (0:23) 2021 to today’s market.Charlie, tell us about the 2021 market. (0:31) Yeah. Yeah, we saw a post a couple of days ago.What did it say? Everyone wants the 2021 rates. (0:39) They don’t remember, or maybe they weren’t even there for the 2021 market, right? So it was (0:48) interesting because there were so many buyers. I think they said there were almost a million more (0:58) buyers than sellers in that market in 2021.And rightly so, because rates were so low. (1:06) So when I would take a loan application, I would forget about the client. I take the app, (1:16) maybe I’ll talk to you again in a couple of months.That’s literally what the mentality was. (1:20) They would check in, hey, can you price this out? Something like that. But it would literally take (1:27) weeks to a couple of months to actually get under contract because there was so much competition.(1:33) And so they would have to, let’s say hypothetically, there was a house that they (1:37) liked for 400,000. They’d have to offer 415, 420, 425 with no seller concessions. Buyer paid all (1:45) closing costs in order to get into the house.If it was a good house, not even an amazing house, (1:51) just a good solid house. And I remember talking to my realtor partners (1:59) because they were like, man, I’m so busy. Golly, I’m just so busy.I’m like, oh man, yeah. (2:04) And they’re like, are you busy? I’m like, I guess I’m busy. Like, yeah, I’m busy.There’s refis (2:09) that we’re working on, but it’s something you can’t handle because you have tasks and you’re (2:14) working. The realtors were so busy because they were driving around showing homes to clients so (2:21) much every weekend. Oh, we got to go get back out there again because our offer didn’t get (2:26) accepted.They were having to write so many offers that the realtors were busier than they really (2:32) were because they were spending four or five times the amount of time with each client than (2:38) they’re used to because that’s just what it took. It’s just crazy. So yeah, everybody wants those (2:45) rates, but you don’t want what it took to actually get under contract.So fast forward to (2:52) today, the script is totally flipped. So now completely different market and it’s a completely (3:03) different value proposition that we’re seeing now. So now Will, you’ve been licensed now for a (3:12) 2021 wave.So you’ve only really known this more neutral slash buyers market. So what is it like? (3:24) What are you seeing in this market right now in terms of the buyers’ abilities, sellers, (3:31) what the realtors are looking at? What are you seeing? (3:33) Yeah. So I mean, like you said, it’s completely opposite market.And the buyers that… (3:40) I mean, recently, we’ve had some really savvy buyers that are taking advantage of the market (3:47) and taking advantage of the situation that they’re in to get these homes at a much lower price than (3:56) list price. They’re being aggressive. And people that are selling, they have to sell.(4:02) They got to get out of their house. They’re moving, whatever they’re doing. And I mean, (4:07) there are, I think you said that there were a million more buyers and sellers in 21.Well, (4:15) there’s probably about a half million. Now there’s about a half million more (4:19) sellers than buyers. Correct.(4:21) I don’t know. It kind of seems like they’re maybe that’s not even correct because a lot of these (4:28) houses are… I mean, some of these houses on the market that I’ve walked into, I’ve got some (4:33) clients that have some houses around here. And they’re nice houses.And they’re having to reduce (4:38) the price, reduce the price. And so the buyers who aren’t afraid of the interest rate, they’re (4:44) savvy buyers because they’re taking advantage of getting a house 5%, 10% under list price, (4:52) getting all the sellers concessions to take care of closing costs. And they’ll figure out the (5:01) interest rate later, but they’re still not paying much more now than they would if it’s a seller’s (5:08) market and you’ve got to come to the table full price.That’s what the savvy buyers are doing. (5:16) They’re looking at, and a lot of this is we’re trying to help them understand everything. (5:21) And so you look at two options of paying full price with splitting closing costs with the seller (5:28) or paying 92% of list price with seller concessions, with sellers taking title costs.(5:38) Right. (5:38) I mean, the monthly payment isn’t that much different, but your cost basis (5:42) is so much lower getting a good deal right now. (5:46) Correct.Yeah. The way you structured it earlier, because people also forget that if you come (5:56) and if other than a VA loan, obviously, right, where there’s no down payment, (6:00) where typically most people do no down payment, but like, hypothetically, if you’re a conventional (6:05) buyer and let’s just say just for easy math, you’re doing 20% down, right? Like if you get (6:12) $20,000 off of the list price, then that’s just reducing. It’s also, it’s not just a list price, (6:23) it’s reducing your down payment amount.So now you’re doing, what, $44,000 less (6:33) out of your pocket on the down payment, as well as any closing cost assistance (6:40) that you’re looking at, right? So yeah. So it’s the savings in several places (6:49) that we’re talking about. And then the strategy, I put out a post earlier and it said, (6:59) everyone’s trying to time the market.The problem with timing the market is when the rates go down (7:08) and now it’s time for you to find your house. Everyone else who’s timing the market is trying (7:12) to find their house too, right? And otherwise, if you do what you’re saying and take advantage of a (7:21) reduced price, because here’s the part, I don’t think when rates do work their way back down, (7:26) which they will, I don’t think that houses are going to get more expensive. But what I do think (7:32) is that houses will sell for list price and not have to be reduced, right? And that’s where the (7:41) competition part of it comes back in.But let’s just say once you do, let’s say you buy now, (7:48) and our timing of the market is literally a push of the button. It’s because of refinance. (7:55) Because now rates, we find your strike price.We say, Mr. Conventional homeowner, what rate are (8:03) we targeting? Six and a quarter, 6%, right? Once we get there, I’m pushing a button. It takes all (8:10) of, I have everything already. We have your app.We have everything done. All we got to do is (8:14) reactivate it, right? And take a few minutes, push the button. The timing of the market’s much (8:21) easier when you have a refi, right? And then on top of that, you’ve acquired the house (8:32) for 5% or 10% less than what you would have otherwise if you time the market and everyone’s (8:40) trying to get that 6% rate when they purchase the house.And you’ve come out of pocket significantly (8:44) less. Right. If you’ve got the seller taking closing costs, plus your down payment amount, (8:50) like you mentioned in that scenario, down payments of $4,000 less.Closing costs, (8:56) let’s say they’re 10 grand, you get $10,000 in seller concessions to cover that. It’s $14,000 (9:02) less out of your pocket. I don’t think people are considering the amount of savings out of pocket (9:16) that can be had right now.It’s tremendous. Because would you rather have… (9:22) I mean, that’s the part that a lot of times when we’re talking to clients about, (9:27) should I buy the rate down? Well, if you’re paying for it, probably not. If the seller’s (9:34) paying for it, yeah.Yeah. We could use that to buy the rate down. But are you really going to (9:38) see that gain? It’s funny is that when I talk to clients about, they’re thinking, (9:45) oh, I should do an extra down payment.Usually you want to do what gets you the best (9:54) possible financing scenario that you feel comfortable with. So a lot of times, (9:58) most of the time it’s like for conventional buyers, 5% down, because that’s typically the (10:02) minimum amount to still get good terms on the loan. Or you go all the way to 20.You go all (10:09) the way to 20%. Then you get, obviously the rate is a little bit better, but then there’s no (10:14) mortgage insurance. After that, the $10,000 that you put down saves you about 60 bucks per month.(10:24) So a lot of times when I say that to clients, they’re like, oh man, that’s not really worth (10:27) the 60 bucks per month. Now there’s two layers to it. If you get the house for 20 or 30 grand less, (10:36) that’s not money out of your pocket.You’re just negotiating with the seller. (10:39) So that’s a backwards way of saving money because now that 30K less, now that’s $180, (10:45) $200 per month lower on saving simply because of a lower loan balance. And then you need to (10:52) look at it the other way too.If the seller is contributing to closing costs, and again, (10:57) let’s use easy math, $10,000, that $10,000 is worth 60 bucks a month to you. Man, I would (11:02) rather have 10K in the bank than that 60 bucks per month on the payment. So it’s like there’s all (11:10) these numbers that you can really consider, but at the end of the day, the value proposition is (11:15) the equity, that little piggy bank that your home is growing in value and, or that you start off (11:24) with, right? Yeah.And here’s another thing too, is that nobody, you shouldn’t buy a house and (11:33) plan on selling it in a year or two, but that does happen, right? Correct. It happens. So (11:41) in this scenario where you’re getting the house at a discount, essentially, (11:47) that really helps when you go to resell it.Yep. Yep. And there are a lot of people that (11:53) are in trouble right now because all they focused on was the interest rate.And they (11:58) bought the $500,000 new build house and the new build, you know, the builder paid down (12:05) to get that, that 4.99 or 4.5 or whatever rate. Right. And now they have to sell, (12:12) but their loan balance started super high.Right. And now they’re in trouble. (12:17) So the $50,000 of incentives were built into that price.(12:20) Yeah. And now they’re competing with the builder’s new homes as well. (12:24) Exactly.Yeah. So here’s another chart that I’ll share this. And then anybody who’s actually just (12:33) straight up listening and not watching, we will describe it to you, obviously, but (12:40) this was, so this is orange line is showing the average mortgage rates.And I just did the last (12:46) like five years. And then the blue shaded area are mortgage applications. And so this is the (12:52) actual data that we’re talking about when, when we’re saying once rates dropped to 6%, that 6% (12:58) that’s when the market heats up again.And so again, if you’re listening, we saw here, (13:04) beginning of 2023 rates got close to 6% and mortgage applications spiked, right? (13:10) Then September, 2024 rates got close to six again, spiked in towards the end, last quarter of 2025. (13:18) In the very beginning of this year, again, getting close, getting down and getting it, (13:23) getting right there at 6%. Everyone sees that 5.99 mortgage application spike.These are, (13:28) this is all your competition jumping into the market. And so it’s not just that we’re saying, (13:36) we think this will happen. This is what happens.This is the actual data. (13:42) And the value proposition that I really liked how you bring it up is the two stages, right? It’s two (13:49) stages of this strategy. It’s the acquisition cost of the property.Then it’s eventually getting (13:57) that low rate, right? All right. So now we’ve discussed that. Will, question.Let’s say you’re (14:04) a realtor. If you’re a realtor right now, and you have a client who just saw all the news, right? (14:11) These last couple of weeks. And they, they say, you know what? I’m going to take a pause because (14:18) the Fed raised rates, rates, mortgage rates have ticked up.And we just want to pause right now (14:23) our search because we, we don’t think it’s the right time. Maybe, maybe we think it’s, (14:28) the rates are too high. We want to wait.How, what would you say to keep them engaged in this, (14:34) in this home search? Yeah, I think that’s a great question. It’s probably a scenario that’s (14:39) happening quite often right now. You know, there’s a reason every buyer has a, has a budget.And the (14:47) reason why their budget is that amount is because that’s how much they want to spend per month. (14:51) So, you know, if you can, if you can still spend that much per month, but still get the house, (15:00) then basically you just have to reverse engineer it and say, okay, well, you’re going to spend the (15:06) same amount per month if we get the house for, you know, 465 as opposed to the list price of 500. (15:14) So, if we can, if we can still acquire that house, even though you’re going to have a 7% interest (15:20) rate or whatever it might be, is that, I mean, that’s actually a better scenario.Like, yeah, (15:27) your interest rate’s higher, but what if you can acquire that house for 30, 40, $50,000 less than (15:34) what it’s listed for? Because look, you have to look at it as in a, in a certain way of, (15:39) I only want to spend X amount per month. And so this offer reflects that amount and you put the (15:47) ball into the seller’s court and let the seller give them the opportunity to say no, because quite (15:52) frankly, a lot of sellers right now, they just want an offer. And they can’t be saying, saying (16:00) no to any offer.They’ve got to entertain offers. And if you have a, I mean, I don’t think now is (16:08) an environment where sellers are going to get offended by, you know, what people will consider (16:16) lowball offers. I mean, they might, but they’re not in a position to say no.So I really think (16:24) it’s just a great opportunity for buyers who are willing to, to overlook a temporary interest rate. (16:32) And I hate, I hate like game planning for that because it’s kind of the whole like marry the (16:40) house date the rate thing. You have to, but, but if you’re planning this for say four years, (16:47) if you come out for like a four year game plan, you’re more, I mean, it’s pretty high chances (16:54) that you’re going to have a chance to refinance into a better interest rate for the next four years.(16:59) Right. And if you’re, if you’re still spending about the same amount per month (17:03) as you had originally planned, but now your cost basis, that house is you got it for four 60 (17:10) instead of four 95, 500, five 10, whatever. Right.You’re in a much better financial (17:16) situation long-term than you otherwise would be by waiting six months, a year, 18 months. What (17:22) if interest rates come down? What if this Iran oil stuff gets solved in the next two months? (17:28) And what if interest rates come down to six and a half percent and everybody’s, you know, (17:35) happy and excited about, you know, the market. I mean, we could see big shifts, you never know.(17:41) So, right. And that’s, and that’s what we discussed on the last podcast was the, our (17:51) confusion as to the Fed hike, right? Yeah. So the last podcast that we did, this was along that (17:59) topic of our confusion as to why they hiked the Fed funds rate, because, you know, they’re wanting (18:05) to fight inflation and that’s what we do want.We want inflation to come down. But as we are (18:10) talking about all the data points already point to every sector of the market is coming down (18:18) in price with the exception of oil, obviously. Right.Yes. And there’s nothing that, that the (18:30) Federal Reserve governors can do. They can’t hop in a C-130 and fly on over to Iran with the rest of (18:38) the, you know, contingent that might be engaged in this conflict.Right. And they can’t negotiate. (18:47) They’re not negotiating the end of this, this conflict.So, so as we look at things and like (18:52) you said, if, if, and when the Iran conflict gets the dust settles on it, all the other data points (18:59) are pointing at inflation’s coming down, therefore all other rates and yields start coming down along (19:08) with it. And then we do see those rates being pulled. Now, obviously we can’t say with (19:14) for certainty when that happens and or how quickly, but all we can do is look at the chart (19:20) and the data.It was literally right after the bombs were falling in Iran when we got, (19:29) yeah, you know, rates started spiking. So we can say with confidence that it should (19:35) trend back the other way. But like you were saying, the key is building around your budget.(19:43) That’s what we do. We were reverse engineer. That is the, we will use that terminology a lot.We (19:48) reverse engineer to find the property, the budget that fits within the home price that fits within (19:56) your monthly budget. Right. And then, but yeah, it’s a good idea for the realtor to have that in (20:00) mind as well.You know, the realtor knows the terms, has the, have the fee sheet and, and (20:06) negotiate properly for the client to accomplish those goals. (20:10) Yeah. And I think a big part of it is to not be afraid to make offers, right? I mean, (20:19) sellers, sellers want offers, they need offers and you know, they’re not going to be offended (20:25) by aggressive offers.That’s just the environment we’re in. So all they can do is say no. (20:32) Yeah.What’s the worst that can happen? They can say no. Yeah. The second worst that (20:37) can happen is they counter.Yeah. And those are the only two worst things that can happen. (20:45) Yeah, exactly.Like a counter is still, a counter is good. A counter means that they’re, (20:51) they’re, you know, really know where they stand. Right.So, yeah, I mean, I think that could help (20:58) a lot. And just, you know, just, just working with, you know, somebody who’s going to add value. I (21:07) mean, we add a lot of value to our clients and the whole process.And we’re not just, we’re not (21:14) just putting together, you know, a pre-approval and sending it with no information. I mean, (21:21) work with us and let us help. Let us help.That’s, that’s the thing. That’s what I want. (21:25) I want my realtor partners to let me help them.Right. Yeah. Because we actually like it.We (21:35) it’s kind of boring. Like we actually want to, I’d rather be in the room negotiating, but (21:43) I won’t say anything. I’ll just listen.But right. I might, I might pop up, you know, (21:48) pipe up a little bit here and there. I’d love to lead it, but yeah.Yeah. Like, (21:54) yeah. We, we wish, you know, we wish for a little bit of that conflict.We want to be in there. (21:58) Yeah. Thank you.