Market Update: Mortgage Rates DROP With Cease Fire (Will It Last?)

Jeb (0:06): Ted's got the listings lined up in a row. Josh brings the numbers, making things grow. First time buyers stepping through the door. Keys to the castle are what we're here for. Navigating through the homebuyers maze.

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Josh (2:11): Happy Wednesday, everybody. You, if you're a regular here, you notice we're again a man down. Last week, Jeb was out at a home inspection, and this week is spring break. He has three growing boys, and they are out in the Palm Springs area enjoying some r and r, which they have richly deserved and earned. So, again, we're gonna do the same thing we did last week.

Josh (2:33): I'm gonna go through all of the charts, including the real estate stuff that Jeb has. Most importantly, we are here to answer your questions. So a lot of times, we end up in the last five, ten minutes with a flurry of questions and not so many at the beginning. So you have a question you would like to get it answered, throw it in the comments now, and we will absolutely, get to them. But let's jump in and get to the topic of today's show.

Josh (2:58): So mortgage rates drop with a ceasefire. Will it last? Well, you're gonna see in a second, this dummy here jinxed us by putting that title on the show, and throwing the information out there, and we didn't really end up the day with any improved pricing. But before we do that, I wanted to point out again, April 14, the day before tax day, much more fun than tax day. Jeb and Josh will be doing the BuyWise Blueprint workshop.

Josh (3:23): We've distilled everything that we teach here on the show down to about ninety minutes. And give you a complete game plan there to your first home. Whether you're planning on doing it next month or anytime in the next year gives you a really good factual basis in what you need to know. So we definitely recommend signing up there. There's a link in the description, but it's the educatedhomebuyer.com/workshop will take you to the registration link.

Josh (3:50): So check it out. We would love to see you guys there. With that, let's jump into the slides. So this is the first one that I was talking about. This is the fifteen minute chart today of the ten year treasury.

Josh (4:02): Mortgage mortgages, mortgage rates, mortgage bonds are gonna follow pretty closely, but that green arrow on the left side, that is a gap down. Meaning we closed at one level yesterday and and opened at a lower level today. That's usually a very bullish sign. You can see throughout the morning until about noon Pacific continued that slide down. We hit the lowest levels of the day around 04:23.

Josh (4:25): So that's almost, you know, in the last day down 10 basis points, which would mean interest rates, mortgage rates about an eighth of a percent better. But you can see we started trading sideways as some news came out and by the end of the day, ended up basically, you can see with this fancy dash line here that I put on here, ended up basically exactly where we closed yesterday. So gap filled, no good news there and why. We gotta ask why did that happen? That happened because the hope with the ceasefire is that the Strait Of Hormuz was gonna open.

Josh (4:57): The hundreds of ships that are stranded there, I believe there's over a thousand oil tankers and a bunch of liquid national natural gas tankers trapped in the The Gulf and need to get out through the Strait Of Hormuz. Basically, Iran has decided we're gonna hold this hostage. One of the things that they want is to have Lebanon stop being Lebanon be part of the ceasefire. And for now, they claim their military is gonna take control of the strait and charge a toll for anyone coming through it, and those tolls are really, really high for anyone without ties to Iran. Obviously, that doesn't work for us, calls into question the ceasefire in general.

Unknown Speaker (5:35): So when we look at this, we're no better off than we were yesterday despite the fact that you see markets want to move better. They want a resolution, they want the straight open and they want more certainty to get bond yields and mortgage rates back a little bit lower than where they are currently. But let's go through in detail. You've heard us talk the the two indexes here, the one there on top is the VIX index and the bottom is the MOVE index. The MOVE is Bank of America's bond volatility index.

Josh (6:05): VIX is the stock market volatility index. And for mortgage rates, for mortgage spreads, we want that volatility to be low. And you can see for the better part of last year, it was low and dropping. And as this has taken off, shot up on the right side of the chart here over the last day or so, they had dropped. The VIX and the move index had dropped, and we're not going to see that if this ceasefire doesn't last.

Josh (6:29): Why is this important? Why does it matter? This here is, West Texas crude oil futures. So the gray line there at the bottom, that was prewar, February 27. Basically, futures were saying that from now until the 2028, we were gonna go from low oil prices to even lower oil prices.

Josh (6:49): So now today, we're looking at that green line, and the green line is now saying that by the 2028, the markets are still projecting that oil is gonna be down under $70 a barrel, but we're looking at like October before the market currently thinks we're going to get to that level. So that inflationary pulse of higher prices due to energy costs, fertilizer costs, food costs, everything that comes from oil and filters through is going to be with us for the better part of six months. Not good, not positive for mortgage rates, but you're seeing the market hold up pretty well. The mortgage market hold up pretty well in the face of this. We're gonna get some data this week on inflation.

Josh (7:29): The Fed's preferred measure of inflation is the PCE. We get that tomorrow. The data that comes out tomorrow is worthless because of the shutdowns that the government experienced. That is February's data, February pre operation epic fury, so no impact of the increase in oil prices. But this is Truflation's look at it.

Josh (7:48): They I've seen some improvement over the last week. I don't quite know how, but down from 2.23, it was 2.5 or so a week ago, a little bit lower than that. But let's look at the Cleveland Feds Nowcast here. They do a pretty good job of this and they are predicting point two six on PCE for tomorrow, point two three month over month for the core PCE, and we're basically looking at the the same levels that we've seen, two six seven and two eight three. So no improvement there.

Josh (8:16): Actually, possibly a little bit of worsening even though that's pre Iran issues there, but all these red boxes here that we put up, you can see next month, the Cleveland Fed is projecting a jump of point six one and the following month, point three seven, which will take core PCE up to three and a half. So about a 1% increase in about ninety days. CPI does come out Friday and you can see that is March data, March post February 28, attacks info and they're projecting a spike to point eight four month over month that will take us to three and a quarter, on the year over year CPI. So anyway, you can see it not good. If you had told me those are the numbers that we were gonna see sixty days ago, I would have said mortgage rates are gonna be a good bit higher than where they are right now.

Josh (9:02): So we're actually pretty fortunate to see what we're seeing. So in addition to inflation, the energy costs, the flip side of growth in the economy, the flip side of what the Fed needs to do with their dual mandate is jobs. So we get weekly, the ADP jobs report, and this week showed a big jump, 26,000 versus last week, I believe it was 14 or 15,000. We had a couple of of weeks prior to that down under 10,000. So last week we had the jobs report and that was sort of a surprise to the high side.

Josh (9:32): Well, ADP at least for now is corroborating a little bit of that. Now if we saw four more weeks like that, that's still only a 100,000 jobs created for the next month or the last month. A backwards looking dataset, but doesn't necessarily give you a picture of a robust jobs market, but also not one that is faltering too badly. I thought this was a cool look at it. Yahoo Finance put this up.

Josh (9:56): This is again from the Bureau of Labor Statistics. We've chopped back and forth month over month. So going back to June, down 20,000. July, up 64. August, down 70.

Josh (10:06): September, up 76. October, down a 140,000. Then back up 41,000. Down 17,000. Up one sixty.

Josh (10:13): Down one thirty three, up one seventy eight. I don't believe that that number is yo yoing like that. So I don't know what's going on with the datasets. We see are seeing big revisions month over month. So even though we saw for for March, we saw a big 178,000 jobs created.

Josh (10:29): We also had a big revision to the prior month and made it look even worse. So data's not jiving there. We're gonna see over the long haul. If you average those out, it's pretty anemic growth under a 100,000 jobs a month, which previously was considered well below replacement level for jobs in the economy and would generally have led to an increase in the unemployment rate. This here shows probably why we haven't seen any recessionary forces or seen interest rates improving.

Josh (11:00): So you saw there in COVID, we ended up with a lot of unemployed people for every job opening. Once we've corrected to that, we have essentially one person for every job opening out there. So if everyone took if everyone who is in the jobs market took all of the jobs available, we would have 0% unemployment right now. So when we don't have multiple people vying for the jobs that are available, we don't really have a problem in the jobs market. So sort of the balance of looking at those two things, we have the Atlanta Fed's GDP now.

Josh (11:30): We had seen last week, we're down to about 2%, took another big dip this week down just barely over 1%. So that is really where we're at right now. Markets are worried about the inflationary pulse in the short run. In the longer run, the longer this goes, that will be a big drag on the economy. We will see less growth.

Josh (11:50): We will see higher unemployment and maybe they they balance out. So again, we need some sort of resolution to this sooner rather than later. Today, we got the Fed minutes from last month's meeting, so we know what they did. They didn't do much. It was fairly bull bearish in the press conference, but the the minutes there of their meeting basically shows that they see two sided risks from their on war, which no doubt.

Josh (12:13): We know that we've got two sided risks. We have the risk that in the long run, it can bring down the economy. In the short run, it's highly inflationary. As of now, we had a few more members saying, hey. The next appropriate move may be to hike rates versus cutting rates.

Josh (12:27): At the beginning of the year, we were looking at two cuts this year. It has started increasing towards three, and now we're essentially at zero. This is the aggregated probabilities for the rest of the year, and you can basically see all the way out till October, we have greater than 90% chance of nothing changing. Even all the way into next year, we're at 65% chance for the next year of of no cuts. So right now, it's looking like best case, the Fed just stays out of the way.

Josh (12:53): I thought this was interesting. This is that chart that basically shows you at the beginning of the year all the way through right before Operation Epic Fury started there. We were counting on two cuts, 50 basis points that quickly went to 25 and then is sitting here at zero. And this is a couple weeks out of date, but you can see from the Fed futures market, that is what it is looking like. So here is the ten year chart as of today.

Josh (13:16): The green bar on the right side could have been a lot better. We are definitely still under that four thirty level, which is important. If we can stay below it, if we can get some sort of opening in the straight, we would see a rundown to four nineteen, which would be some improvement in interest rates. The best thing we can say here over the last few weeks is that we have not seen a worsening in interest rates. So what does that mean?

Josh (13:40): You know, from a month ago when we were just seeing the first impact, we're up about a quarter percent over the week and over a day, point 05%. So we're at 6.4 per Mortgage News Daily for the best qualified borrowers, seven eighty plus credit score, 25% down on a conventional loan. FHA and VA had been holding up a lot better, but they're a little bit backed up there at that 5.9 ish range. So your mileage will vary. If you're in the market, you wanna see the difference between a basic preapproval and someone just throwing numbers at you on a full road map, use the link that you see there, on the scroll and also down in the description, jebsmith.net/start.

Josh (14:18): Our team can help mortgage wise in about 36 states, which covers 92, 93 of the inquiries that we get. So most of you, you reach out, we're gonna be in an area where our team can help you with a complete roadmap. We get you your top end purchasing power, a maximum of what you can do. We then dial that into where you're comfortable in terms of a monthly payment. So not just the max we can qualify you for, but where you wanna be.

Josh (14:39): We're gonna show you the differences between your different mortgage options in terms of monthly payment, cash to close, and help you come up with a game plan. So before you ever get in a car with a realtor, before you ever walk into an open house, you know what you can do and what you're comfortable doing. So use that link, we would love to help you with that. If you're looking for a realtor, Jeb has an amazing network of realtors throughout the country that can help you there as well. So let's get into the real estate charts here and see what happened in that market.

Josh (15:06): Inventory up week over week, which is what we're expecting. We are in the time of year where you can see that we're going to be in an uptrend, a seasonal uptrend. So increased from 713,000 available homes to 723,000. Last year we were about 691,000. So up about 30,000 or 20,000 homes for you to choose from if you were out there nationwide in the market.

Josh (15:30): For us here locally, Orange County was up 1% week over week to 3,817 homes available for sale. Huntington Beach pretty similar, up about 1.59. We're not seeing the big uptrend. We would normally see a little bit bigger pickup here for the spring. So it'd be interesting again to see how this shakes out through the rest of the year.

Josh (15:52): In terms of new single family, new listings, there were 70,000 new homes came to market last week, pretty similar with where we were last year, a good bit higher than where we were two years ago in 2024, but pretty similar year over year. Pending sales, same story there. The last three years have been really, really similar. 70,676 homes went pending, last last week, and that's 71 seventy thousand one ninety one on the market, seventy thousand six seventy six off the market. So you can see that's not really a recipe for this continued growth in inventory.

Josh (16:28): We've a cool chart in here from Resy Club that kinda tells that story in a better way. So percentage of properties with recent price reductions holding basically stable there at about 34%, very similar trend line to what we saw last year, so not a whole lot of news there. And this is the chart that I was talking about. We've had people saying, just wait. This is the year inventory is really gonna spike.

Josh (16:50): We saw the run up last year that kinda got to more of a more normal level and this is the year where where they just shoot up, and we are not in any way seeing this. Florida, one of the the base cases for what you're looking at a big correction, they are actually down 8% in inventory year over year. So seeing some stabilization at least inventory wise there. The only state in the country really is the is is Washington, the Pacific Northwest up 31% and up 21%. California only up 5% year over year.

Josh (17:20): Texas only up 9% year over year. So that's normalization, that's improvement, that is a better position for you as a buyer. If you're out in the market, definitely have more homes to choose from, definitely seeing less pressure to do things that are not in your best interest, but when we look at it here, here is the chart from last year. So the one on the right is the one I just showed you. The one last year we were seeing California up 50%, Nevada up 57%, Florida up 34%.

Josh (17:48): It looks like Georgia, they're like 41%. Almost every state was seeing 20 to 40 year over year increases and now for the most part, we're looking at single digits or low double digits. So definitely a different story year over year. This one, a little bit of an interesting story there. Empty nesters own 28% of large homes while millennial families only own 16%.

Josh (18:13): Let's look at Jeb's family. Jeb's a young man, beautiful wife, three growing boys. Now for them, they were lucky. They were able to move up and buy a bigger home that works for them, but we have a lot of older folks, you know, twenty five, thirty years further down the line, their kids have gone off to college, started families of their own and they're still in this bigger home. So we have a lot of those people sort of with excess shelter and because of ultra low interest rates, because of the cost of moving, because of the cost of of new homes, they're just staying put.

Josh (18:43): So these things have a way of working themselves out over time. We would just like to see that working out sooner rather than later. This is an interesting chart, especially in contrast to the next one. So where did Americans move? This shows net migration.

Josh (19:01): So the blue states this is not a politics chart, but the states there that are shown in blue had an increase. The states there in red that happened to be the blue states are the ones showing a loss. So California and New York obviously the worst in terms of net migration per 10,000 inhabitants. So for every 10,000 people there was a net loss of 28 people in New York, 25 in California, 10 in Washington, nine in Oregon And these are all really nice places to live and yet the politicians in those areas don't realize why their policies are making people choose to move to places that they have a little bit better cost of living and tax situation than any number of things. This was interesting.

Josh (19:44): In the same week here, Resi Club throws up this chart because I get this question a lot. If we're seeing negative net migration out of California, well then eventually home prices in California have to get more affordable, right? So they looked at Miami, New York City, Seattle and you'll see here Los Angeles also. So Los Angeles for every thousand residents, Los Angeles California had a net loss of 10 residents, but we also had a net international migration into Los Angeles California of about four people. So it would be interesting to see international migration can be people from South of the border, from South America that are here legally, illegally that may or may not be wealthy immigrants, but we do have a lot of Asian immigrants, Eastern European, European in general, a lot of wealthy people are coming here.

Josh (20:32): I saw a flip for sale from a wholesaler today and I look, I'm like, that is a really ugly house. It was $1,250,000 for a very ugly house and you look at their calculations for the after repair value and showing the comps, homes in the neighborhood are selling for 2,250,000.00. So for one and a quarter, you can come to LA and get one of those ugly houses. So if you are just tuning in right now, a quick reminder for you next Tuesday, April 14, 05:30 Pacific, 08:30 Eastern to give everyone time to get home, and tune in. Jeb and I are doing the educated homebuyers blueprint.

Josh (21:07): It's a ninety minute workshop where we go through everything you need to know to educate and empower yourself to make good decisions in the housing market. So if you're looking at buying in the next one to three months, if you're looking at buying in the next year, show up, educate yourself. We have some great discounts there, some great information. We get good feedback every time we do this in terms of the value of that. This again here is the chart.

Josh (21:30): All of the pinky states there, we can assist you in, our team can assist you in. I'm licensed in eight or nine of them. We have team members licensed in most of them. I will be part of that process for you. So if you're looking for financing, you want that road map for exactly how to do it, to get all your questions answered, to go in eyes wide open, use the link there, jebsmith.net/start.

Josh (21:51): If you're in one of those blue states, that doesn't mean don't reach out. I've got a team at another local company, folks that I trust really, really well that can assist in all but two of those. So no matter where you are, we can definitely help. Jeb can connect you with a realtor. But with that, let's jump in and see what questions you guys have.

Josh (22:11): Now you're gonna have look at my ugly face full screen here. So as always, Dixieland is in here with the first comment of the day. Listing from Minnesota, excellent topic. Thanks for the notification and smashed the thumbs up. So let's jump in here, mister Nice Guy.

Josh (22:28): Mister Nice Guy, were you here last week, and is this the same property you were asking about last week or am I confusing you with another listener? Says, I am writing an offer for 18% below list. I had a realtor produce a CMA that matched my own CMA from a year ago. Is it true that appraisal take 50% of basement square footage? The basement square footage, I don't believe there is a hard and fast rule of what they're gonna do.

Josh (22:52): It depends on if it's finished, it depends on egress, it depends on the comps and and how the market values it. We wanted to bring in the guy from the Sacramento Appraisal Blog and have him on an episode here. We were gonna record an episode of the podcast with him, but we actually had him on and had connection problems. We never got him back on. So if we can get an internet connection for him, I'd love to have him on because I'm sure you guys have some questions from that end.

Josh (23:21): So you followed up, it would support your offer if true, but really comes back to how it is valued in current market and how finished that basement is. In general, an unfinished basement is given a little to no value. If it's fully finished, it has bathroom, it has egress, then it absolutely can be used. So we have Aurelius, the regular viewer, here every week. Says thanks for the great info, mister nice guy with the follow-up that it was the same property.

Josh (23:53): It says, I would grant it the same finish as the main floor. So are you saying that as it sits, it has the same finish as the main floor or you would go in and update it and upgrade it to have the same finishes as the main floor? That's the the important question there. So again, if you are watching at home, you have questions, mortgage, real estate, economics, you want life advice, we're here. We got another thirty, thirty five minutes to answer you guys questions.

Josh (24:20): Don't have a whole lot of questions in the queue. Wanted to give you guys a heads up for next Monday, we have a very different and I think a very cool episode of the podcast. Juan and Soledad, we were fortunate enough to be able to help them buy their home here in Southern California. Got them into that property closed a week, ten days ago, and we did a thirty minute breakdown on everything he wishes you knew, everything he wishes he knew, and a deep dive kind of in their transaction so you can look over their shoulder if you're in the market to kinda see what that looks like. So let's look.

Unknown Speaker (24:56): This is a really good question. So no. Noelle. Garza 6827 says, we're in Texas. We want we want to buy a house for $2.50 to $2.70 max.

Josh (25:07): How much do we need to have saved for all the process? We're looking to buy in winter to get better incentives. I'm not sure that there's that seasonality. Hopefully, you're working with a realtor that can tell you that there is some basis in doing that. We have the chart that we show quite often here and generally what you see is the appreciation is clustered in the middle of the year.

Josh (25:30): So that spring buying season through the middle of summer, April, May, June, July, August, those five months see the majority of the appreciation in the year. So if we wait twelve months, again, some areas in Texas are not appreciating, so you wanna know your market, you wanna be talking to an expert that can give you the numbers and show you what's happening there, but if we get any appreciation, you're likely to see it through these months. So I'm not sure that you're gonna get anything better next year than you would now. If you're looking at new homes, new construction, that can obviously change, but I can tell you we've had people in Texas in that price point. Definitely a lot of new construction, smaller builders buying those homes or building those homes and getting good incentives on those.

Unknown Speaker (26:14): I don't know that the seasonality is gonna work for you. But back to your the important part of your question, how much we need to have saved for all of the process? Well, easy one is your down payment. Unless you're a veteran or buying in a rural area that's USDA available eligible, you can't do the zero down so we need to have a down payment. So what does a down payment look like?

Josh (26:36): 3% down conventional for a first time buyer, three and a half percent down FHA. So if we're looking at that $2.50 price range, say 7,500 to $9,000 for a down payment, and then we wanna look at what do closing costs run. Texas is pretty reasonable on the closing costs, but depending on at what point in the year you buy, having to establish your impounds can take a lot of money because if we get towards the the end of the year but on a purchase, again, you you you generally have an offset because you're gonna get a credit of some of that from the seller. But I would say fairly safe to look at 3% total probably gonna be closer to two, two and a half, but 3% again on top of that. So if you say 18,000, 18 to 20,000, you're in a perfect position to do anything.

Josh (27:24): And again, a lot of our folks buying in Texas in that price range are able to negotiate incentives. So we've had a bunch of people get in here recently where the only thing they're coming in with is that down payment. So no matter how early you are in that process, if you wanna talk about it, you wanna go through, you wanna get the numbers that are custom to your situation to the time of year when you're likely to close, we'd be happy to go through that with you. Use the link below, jebsmith.net/start. Alright.

Josh (27:53): Let's look at this question here. Young Lou o six says, good evening. I have put my three and a half percent FHA new construction from New York to SC. Estimated completion is August. Do you think rates will reach 7% for FHA?

Josh (28:08): If this gets worse, when do you think I should lock? Interesting question. We have a couple of folks. I don't have anyone out as far as August right now, but I got a a May closing and a June closing and that May closing actually went in the contract at the February right before this stuff jumped off. And we made the decision fairly early on to do a longer term lock and it's proved to be the right decision for most people who are looking at a thirty day escrow right now, I am advising them to lock.

Josh (28:36): We saw a nice improvement this morning that evaporated by the end of the day. So you can see there's some pent up pressure for yields to move lower if there's a resolution. I don't believe there's a resolution coming super quickly. The fact that we were talking about a ceasefire last night and Iran is saying our military is gonna control the the Strait and we're gonna charge large tolls to anyone not aligned with us politically, that doesn't work for The US. So whatever it takes to continue to try and meet our objectives there in The Gulf is going to happen.

Josh (29:05): So this is not likely to be over soon. We're seeing those sort of competing pressures that we went through in the open that it's likely to slow the economy, but some of that slowing is due to the high cost of energy, which is inflationary, makes things cost more. I don't know that rates will go that much higher. We talked at the top of the show, that's a full percent higher for FHA between now and August. I do not think that is the case.

Josh (29:30): If we were to look here let's actually, I wanna show you something. Just gotta get back to the right chart. Okay. So this is the ten year. Every one of those lines is kind of an important level for us to either hold or to break through on the way down.

Josh (29:51): So the two that I would be looking at if I was in that longer term timeframe would be looking at the four forty level and then probably again at four fifty. So that's only about a quarter percent higher. If we stay under $4.40, I wouldn't worry about locking. I wouldn't worry about the day to day movements of the market. If we get above $4.40, I would have a serious conversation with myself and say, if it gets to $4.50, do I want to pay for that longer lock?

Josh (30:22): You know, mister Nice Guy follows up here with a question for you. Hey. Can you get a a no cost float down, until August? There's pretty much no such thing as a no cost float down. Some of the builders' lenders do it because they want to keep these deals under contract and hold them together.

Josh (30:38): We haven't really had that happen since 2022 when we were on that, really quick, and aggressive uptrend in interest rates, but, they can and will do it if we were to see that move. And it doesn't mean it's no cost. It means it's no cost to you. They're eating and absorbing that cost of saying we'll lock and we'll give you one time opportunity to float down. They just build it into their business model much like they do the large incentives that they're offering right now.

Josh (31:05): So looking here, Noeli says, thank you. I'm already subscribed for your next webinar. Right now we're not working with an agent because we're getting ready with everything before we start. It's a great way to go about it. Get your ducks in a row, get your timeline.

Josh (31:17): I think you'll walk away with some really good information from from the the workshop and whenever you're ready we can tighten up those numbers even if you're still six to twelve months out. We can get you a good look at current numbers and put you in a position for when you are ready to go. We got Jay Edwards, I almost said Jedwards but it's a it's Jay Edwards. We are in Georgia and buying a new build. We're able to lock in the rate within thirty days for a VA loan.

Josh (31:42): With the ongoing conflict, how much you expect the rates will lower or raise? I'll just go back to what I just said. I don't expect this conflict to be resolved. I think this two week ceasefire is is much ado about nothing. Again, if we pull up this same chart, if you look here if you look here really over the last one, two, three, four, five, six, six trading days, we've been in that range from like four two nine to four three four.

Unknown Speaker (32:13): So over the last week, not a lot of movement. If that continues to be the case and we don't see a lot of movement, You could float and see if we and don't see my own picture. There I am. So hopefully, you guys didn't lose me. I lost the Internet connection here.

Josh (32:58): But what I was saying is I would watch the 04:30 level on the ten year. We're just below it right now. If we don't stay below it, four thirty four would be another line in the sand because we could, if there is a resolution, see rates get an eighth to maybe even as much as a quarter better within the next week or two, but you're looking at a thirty day time frame. For the most part, I would lock it in and just be done with it versus continuing to see what is going to happen over that timeframe. So we've got a really good question here and we actually did a very recent episode on this.

Josh (33:36): How do bank statements? Well, Ben says, how do bank statement loans work? Example, a 175,000 ish in deposits per year. I do my own taxes though. Refi primary at about 35% LTV, high credit, low debt.

Josh (33:48): So the 35% LTV works very largely in your favor because most of those loans are done at much higher LTVs. So when those lenders sell their pools of loans, having a 35% in there brings down the weighted average loan to value. The high credit also helps. Your your high credit increases when they go to sell that pool of loans, the weighted average FICO in there. So you should get pretty darn good pricing.

Josh (34:12): Now in terms of how does the bank statement loan work, they're gonna go through those bank statements and any things that are transfers, we're gonna back out. Any things I have a borrower that she has a couple of lines of credit. So occasionally, there'll be like big deposits in that are just a transfer over or withdrawal from her line of credit. They're gonna go through and they wanna see real business deposits. In general, if we don't give the lender any other reason to use a different number, they're gonna use 50% of those deposits.

Josh (34:39): So in your situation, 87,500. We can also provide a business narrative that explains why we wanna use a lower figure, why it's reasonable for your business, and that business narrative includes, hey, how many employees do I have? If I got 10 employees, 50% is probably a a pretty conservative number to use for an expense factor. If there's no employees, you work out of your own home, and you operate off of word-of-mouth, I've literally seen for some of those borrowers a 10% expense factor, which is probably an overstatement for theirs. So that's the number that you wanna work with.

Josh (35:11): Some lenders, some investors that we work with that we place those loans with require a CPA to give a letter in support of a lower expense factor. Some of them will allow it if the narrative makes sense. So go back and check it out. I do not remember but it's in the last ninety days. We did a full episode of the podcast that gives you all of the details.

Josh (35:30): So if you're watching here on Jeb's channel, you're not a subscriber to the podcast, go check it out. You can see it on YouTube at youtube.com forward slash at the educated home buyer. We do a deeper dive than than what Jeb is able to do in his ten to twelve minute videos and we're able to have a back and forth conversation for about thirty to forty minutes on all these topics. So go through it, check out that bank statement loan episode. I think you will enjoy it.

Josh (36:00): Well, let's let's look at this. So Anoop says, what is your assessment of the probability for stagflation? If that appears, what will happen to rates? So stagflation, you have a flat or shrinking economy while you have higher inflation. To a degree, there's people saying, hey, we have that, but historically, what have we called stagflation?

Josh (36:19): It's what you saw in the late seventies, early eighties when you have five, six, seven, ten, 15% inflation and a flat or shrinking economy. So we have virtually no chance of that being the issue going forward, but to a degree, we have higher inflation than what we've been used to having, and that's likely to continue here for the next six to twelve months. And you're seeing based off of line of Fed's GDP now that is leading to lower growth. We're probably gonna have positive growth, but one to 2%. So to a degree, depending on how you wanna define it.

Josh (36:56): But what you're seeing is the markets are forward looking. They're already pricing this in to mortgage rates. I don't think we're gonna see rates get a lot worse. I think the fact that the market has traded sideways for the last couple of weeks tells us that the bond market thinks the worst of it is behind us, but also the fact that they haven't dropped, that we don't see a solution coming ahead. So if you're in the market, I wouldn't try to time it with the idea that rates are gonna be higher in the future or lower in the future and giving you a better entry point.

Josh (37:24): They are what they are. Keep your cost to a minimum. Don't do crazy things like some of these online lenders try, Here, I put two points in the the box a so you can get a half percent lower rate. It's a five year break even but you have a lower payment and a better interest rate to tell your neighbor how low your interest rate is. Those would be the things that I would want to steer clear of.

Unknown Speaker (37:48): Very nice comment there from Ayesha Kurland, basically thanking us, that they've learned a bunch about this and listened when, they bought their first house. So glad you found value in the show. I'm glad we've been a help in your career and in helping you get in there. So let's look at this one. Mister threes 83 questions.

Josh (38:09): One, generally speaking, how long should it take for preapproval as w two versus ten ninety nine? I'm not sure what the question there is. First part of the question is pretty easy, how long should it take for pre approval? W-two versus ten ninety nine, are you asking do you have both? Did you make a change?

Josh (38:24): It really shouldn't make that much of a difference. Most October folks, it's gonna come back to a schedule c on a tax return or they're gonna have an entity like a partnership or an S Corp that it's reported on that tax return. So it doesn't take a lot longer to do that but you know, an easy w two loan, we got one in yesterday and we'll be presenting options to the borrower. We got it in last night. I talked to the borrower in the morning.

Josh (38:49): He got his information last night and we'll be having an options call tomorrow. Maybe give it another twenty four hours for self employment. And then here is it better to decide on a lender before finding a realtor or vice versa or it doesn't matter? Hopefully you're doing both early on in the process. What Jeb always likes to say is one of the first conversations or one of the first questions he's gonna ask you in his first conversation is, hey, have you been preapproved?

Josh (39:11): And if the answer is no, it's gonna be, we'll call Josh. Let's figure out what the numbers are because it doesn't make sense to go show you homes that may be out of your price range, that may be beneath your price range, that you may qualify for but have no interest in the monthly payment or qualify for income wise and not have the money for the down payment and closing cost. So the numbers are primary there in terms of you knowing them and you being eligible to buy the home and a realtor is gonna find value in that. So it's self serving. I'm a mortgage guy but I've never had a realtor be unhappy that you've gone through that roadmap process and we've penciled out all the numbers and you know exactly what you're walking into.

Josh (39:48): If you go, hey I've gone through this, I can qualify for FHA and conventional, I want to go conventional, I could do 5% but we're choosing to do 3%. It looks like my total cash to close is $28,000 and I have $50,000 in the bank. They're gonna like that. It's gonna tell them how to proceed, how to write offers, and how much leverage they have for you. But no realtor is gonna be bummed if you start with them either.

Josh (40:12): They're just gonna wanna get you connected with a lender. So good question. Let's go here to coach Gary Tennis. Quote for my new construction is coming in at around 45% of my monthly. Confident this new home build will raise my income at least 20%.

Josh (40:29): Am I thinking too risky trying to capitalize on clientele? So you're I'm I'm assuming that coach Gary, you're you're teaching tennis full time and you think that the new home is gonna raise your income 20%. Is that because we're putting a tennis court at the backyard that's gonna allow you to have lessons there at home which could easily make it better, easier, more convenient? Is it that it's in a community with tennis courts and a lot of tennis players, so you just think there's gonna be a bigger client base. I can tell you especially in higher cost areas, we close borrowers at 45% all the time and I haven't had a borrower lose a home in since basically the GFC.

Josh (41:07): I say that the funny thing is back in the nineties when the market was recovering, when homes were very cheap in Southern California, the very first single family purchase I ever did was in Anaheim and it was a first payment default. The people never made a payment. They were engaged, They were getting married. The groom's parents gave them the money for the down payment and closing cost. The wedding never happened.

Josh (41:31): They never made a payment. They lost their home and both had a foreclosure on the record. And they didn't have to have a divorce, they just never actually ended up getting married. So from that end, just it happens but it's pretty rare and I have people at 45. I have people, we have someone listening right now in the thread here that we close at a 56% debt to income ratio.

Unknown Speaker (41:52): They've been in their home seven, eight months not having any problems making their payments. So know your situation, know your spending, know your budget. That's one of the things that we cover in the workshop. A 45 doesn't scare me, but it's definitely your right to be thinking about it and to think all the way through what's gonna be the cause of that increase of the 20% there in your income. So Ben, good question.

Josh (42:14): Do we have a website for my lending business? Yes. It is buywisemortgage.com. Buy, b u y, like buy a house. Wise, w I s e, like wise old owl.

Josh (42:24): Mortgage, mortgage.com. Some people don't hear that silent t in there. So buywisemortgage.com. Go check it out, a lot of content there. We are getting ready to relaunch the podcast website.

Josh (42:39): The podcast website is fine, not super great for helping you guys get the information that you want. One of the things that we're going to have there in the new website is an am I ready to buy quiz. A lot of times we get these questions from you guys, well, here's my situation, am I ready? We've distilled 200 episodes of the podcast down into a two minute quiz that gives you a score and then based off that score gives you a report on where you're at and then better yet a 10 episode curated playlist for where you are in the process. So we should have that link up and available for you guys next week, but we'll we'll get to work on that.

Josh (43:17): So Dixieland has a very off topic question, but I opened up the floor to off topic questions. You guys ask anything you want, and if we can, we'll answer. So a little off topic, are there any good fishing charters in your neck of the woods? So absolutely. We got Newport Harbor down here.

Josh (43:33): San Pedro is is that way, and I'm sure there's charters out of Long Beach as well. You can go out, someone will take you all the way out to Catalina. You can catch all different sorts of fish. This guy is not a fisherman or an open ocean boater. I am a freshwater guy and mainly for water sports, not fishing, but I guess someone could consider fishing a water sport.

Josh (43:54): They put it on ESPN, they have fishing tournaments. So definitely lots of good fishing around here. A lot of our friends are super into it, have boats that they take out or go out on a charter, catch tuna, all sorts of stuff. So absolutely. It looks like you guys are slowing down on questions.

Josh (44:12): Maybe we've answered them all. I'll give you guys a minute or two to jump in there but just a reminder, check out the podcast next week, an interview with Juan about his process of coming to buying his next home and becoming a first time landlord. How he did it, all of the details there. He didn't do it alone, his wife did it, they are a true partnership, you'll pick that up in the episode. Super cool episode, I'm looking forward to it, I'm looking forward to the feedback that you guys have.

Josh (44:38): Again, a reminder that next week, next Tuesday, we're doing the workshop, so go out to the educatedhomebuyer.com, the educatedhomebuyer.com/workshop. Totally free, ninety minute workshop teaches you everything you need to know about buying your first or next home in a real condensed, quick, easy to digest format and then Gemini are there to do a little q and a afterwards. But for the most part, most people don't have a lot of questions. We've done this, like, ten, twelve times now. We every time we get you guys feedback, update it, and improve it, and go through that.

Josh (45:18): Again, here, I'll give you guys a look at the map. So this map here shows you all of those non blue states we can lend directly in. We can get you connected with the vetted experts in any of those blue states who will take very very good care of you and any of those states. We have a strong network. I can't oversell this, Jeb's network of realtors, I've closed deals with probably fifteen, twenty different realtors around the country.

Josh (45:53): All of them professional, know their job, know their market and will do a great job for you. So we do have a couple questions here popping up. So this is John. How much does the property tax increase annually in California? There is no no amount that is set.

Josh (46:14): It's how much home prices go up. But thanks to prop 13, prop 13 passed in 1978, the Howard Jarvis Taxpayer Association, you are capped. They can only go up 2% a year. Some people get caught on the wrong side of this because let's say you have ten years where there's no increase and then home prices spike 20% in that eleventh year, you can get 2% for every year. So they can go up a large amount, but for the most part, 2% is is where you are capped.

Josh (46:45): So wouldn't worry too much about that. Coach Gary comes back says yes, two courts, not one tennis court, two courts in the backyard and a full time job. I would think that would be beneficial. If I were gonna go get tennis lessons, I would like that I could just go over to your house, cruise in the backyard and get my lesson. So we've got another one here, a follow-up from Ben on that bank statement loan.

Josh (47:07): Does it matter that my house sits on 17 acres, 1.2 value roughly looking to refi two fifty in California? Probably not. What generally matters is that it is primarily residential in nature and the value isn't as much in the land as it is in the house. So most times not a problem. You know, we've done loans on 50, a 100 acres.

Josh (47:28): So if you're in California and you wanna go through that, either go back, start with that episode or just use that link, jeffsmith.net/start or the educatehomebuyer.com/start, whichever channel you're looking at there. That will get you connected with me and we'll go through it and we can get you some details and get you some numbers on it. But it sounds like you're in a good position there. So another question here from RealMad forty six and then it's Real Madrid. He's not actually really angry.

Josh (47:57): I'm currently sitting on the sidelines and renting. I'm working on saving up a down payment of at least 5%. Any updates in the Phoenix area? Are home prices decreasing? For the most part, it's been a very sideways market out there and it varies city to city.

Josh (48:10): There are cities that are appreciating and there are cities that are a little less desirable and they are decreasing a little bit. If you're wanting to get connected with a real estate pro, again, most of the agents that we're we work with are never going to be unhappy about getting connected with you early, getting you on their list, keeping you updated in the areas that you're interested in. We have a very, good agent that Jeb works with out of the Phoenix market that I rely on. Had a good question with him and he walked me through some details on the property that I was considering buying out there that he he told me in no uncertain terms, you do not want that house. Was able to get some good information on it.

Josh (48:51): Well, here, let's look at this. It's actually a really good question. Could you explain how the process works when when working with a broker who's based in another state? Like to understand how the assistance you provide works when you're not located in the same area. Let's start by saying it doesn't vary in any way shape or form.

Josh (49:07): In the last twelve months of my California borrowers, borrowers here in Orange County, here locally, exactly one has come into the office. Another one scheduled a trip to come into the office and she decided, you know what, that's pain in the butt. I'm on the Far Side of Los Angeles and you're in Orange County, why don't we do a Zoom? We jumped on the Zoom, went through everything. So that's exactly how it works for our clients out of state.

Josh (49:29): Some people just wanna do a phone call. I do prefer a Zoom or a Meet. Way better for you to see that I'm a real person sitting in a real office having real conversations. You can look at our five star reviews, a 135 star reviews on my site or on on my Google My Business page. So just Google BuyWise Mortgage, check that out.

Josh (49:48): Read through it. Read through and see are the people saying the things that are important to you, not just five star reviews, but things they're saying about working with me and my team, does that mesh up with what you are looking for? We're not the right answer for everyone. You might be looking for something that we're not a good fit for. I don't think that's the case, but how does that process work?

Josh (50:05): You use that link below. We schedule a call. I use essentially it's a three step process, but I don't mean that to sound cumbersome. The first one is a discovery call. Some loan officers will say, hey, great, you wanna get qualified?

Josh (50:18): Go fill out my application, here's the link. We do not start there. We need to have a discovery call where you get all your questions answered, where you ask me anything you want about the process and we're gonna ask you some questions. We're gonna find out are you self employed or do you work for someone else? How much do you have to work with?

Unknown Speaker (50:34): Is that sitting in a checking account or you need to borrow it from a four zero one k or is it coming from a gift from a family member? Do we have any credit issues? How much debt do we have? What do the scores look like? And it lets me know what we're gonna need to gather from you.

Josh (50:46): Once we finish that call and everyone's on the same page, hey, sounds like we can get you qualified for what you want and sounds like we both wanna work with each other, which I'm say is 90 plus percent of the time people are ready to move forward and ready to work with us, we're gonna send out a link to our portal where you complete the loan application, you provide your income and asset documentation, photo ID. With that comes in, my team gets it all set up and reviewed, everything renamed so it's easy for me to read. We go through it and we send you a few different options. Sometimes those options like a veteran is probably gonna use a VA loan 99% of the time, so we're not gonna give them different loan options. We might show them different price points.

Josh (51:25): They might say hey I wanna see $2.50, $303.50 just so I know cash to close monthly payment so I can figure out where my comfort level is. Sometimes we get folks, talk to a listener in Florida today, they're getting the opportunity to possibly buy the home that they're renting and for them it was minimum down. 3% down versus FHA three and a half and he wanted to see what down payment assistance looked like. Most people when they see down payment assistance they say no thank you unless they truly don't have the money. So that, we go through that comparison and again, answer all of your questions on that options call and now we've dialed in.

Josh (52:00): Okay, cool. My max is $270,000 I wanna go FHA because it has a lower payment. I have enough cash to close if I get a $5,000 seller credit and we can put that all in a message there for your realtor. We can connect you with the realtor or we can connect with the realtor that you select. So again, it really it does not vary.

Josh (52:20): I have a buyer here buying in Huntington Beach. His agent is in Huntington Beach. I have not seen her in the last three years, talked to her on the phone every couple weeks, have not seen her in person in three years. That borrower we've been working with for the last twelve months, he lives here in our city, he's buying here in our city, has never come into our office and it's probably not all that different for lenders around the country. Everybody's busy.

Josh (52:44): No one wants to go and spend time dealing with this but they do want the FaceTime. They still want that meeting. You know, when I started doing this stuff in the nineties, we would go out to a borrower's house. The time was on me to go out and travel to them and that wasn't time effective for anyone, especially when we needed to gather documentation, get photocopies of it, return their documents to them. So thankfully we have a lot of technology to streamline and make that process really easy.

Josh (53:10): So hopefully that answered for you. But again, if you look a lot of times those reviews, the people will say where they're at, know, we close three to five loans for people outside of California every month, some months more like seven or eight. So a lot of Texas, a lot of Florida, a lot of Tennessee. So Arizona comes up a bunch, we're adjacent to Arizona. I'm licensed along the entire West Coast, Idaho, Washington, Oregon.

Josh (53:33): So really it doesn't make all that much of a difference. There are differences in the closing practices, whether you close in a wet state where everyone goes to the title company and signs the loan docs and the loan closes right there or an escrow state like California where you go sign the docs, they send them back to us and a day or two later that's gonna close. But we can walk you through that. The loans are the same from state to state, the taxes, the insurance, the impounds vary, the closing practices vary, but the actual nuts and bolts of what loan is best for you, that doesn't change from state to state. So long answer to what was an otherwise easy question.

Josh (54:09): Hopefully that helps. So Brian says, you know off the top of your head how much a mortgage payment of $4,000 including taxes? 7 to 800 in California, what purchase price? Brian, we just need a bunch more information. Off the top of my head, no, because the big difference is, is gonna depend on how much money you're putting down.

Josh (54:27): Are we doing 3%? $800,000 home in California, first time buyer can do 3%. You might also be doing 20%. They're gonna be very very different monthly payments. Use the link below.

Josh (54:38): We can do a brief call. We can do a detailed call. We can get you initial information. Like I said, that options call up front. Sometimes it's just to get you some basic info, establish communications, and then to to re you know, circle back later once you're actually ready to do something.

Josh (54:55): So coach Gary, one of my builders of choice is taking a while to get back to me with numbers. It's been about twenty days. Is that a way they're telling me they're not interested in working with me? It could be. Could just be that they're really busy.

Josh (55:09): Most good builders in most parts of the country right now are very busy. So building, remodeling is is a tough business from the buyer side, the borrower side, just because the good contractors, have a backlog of business in most parts of the country. So Dixieland follows up, says he's only fished in lakes myself, but considering doing a charter, I thought it would be fun. I would say it would be fun. I'm just not like an ocean boat person that I don't get super seasick, but I don't love it.

Josh (55:39): Scares me a little bit. Seen too many shark movies, all that stuff. Ben says he'll check out the website. Definitely give it a look. Reach out.

Unknown Speaker (55:47): If you have any questions, shoot us an email at infoeducatedhomebuyer dot com. Both Jeb and I see that. If you have a real estate question, he'll get back to you. Mortgage question, I'll get back to you. Throw them both in there, we'll probably both get back to you.

Josh (56:00): So John, a very difficult to answer question. Got a 30,000 lower appraisal than last year closing in August. Why? Depends on where you're at. Depends on what's happening in your area.

Josh (56:11): So could be a lot of different answers there to that. We would just need a bunch more info and probably get a look at both of the appraisals. But anyways, we are right up against it here at an hour. Appreciate you guys showing up. If you're looking at buying in the next three, six, twelve months, go out to the educatedhomebuyer.com/workshop.

Josh (56:32): Sign up for the workshop next Tuesday. We'd love to see you there. Love to get your questions answered and start building a relationship with you guys. We'll be back here every week, every Wednesday. Next week we'll be the the full team in in the house because we're doing the the workshop on Tuesday.

Josh (56:48): We'll be back here Wednesday. Jeb will give you the real estate side himself. I'll go back through the numbers. We will all hope and pray that we have some type of resolution in the next week, though doubtful in the situation in The Gulf, and we can see some improvement in rates and some more certainty for those of you who are wanting to buy. So, yeah, from from that perspective, again, appreciate you guys being here.

Josh (57:11): Dynamite routine, ask question, is this ending? We go about an hour, it's been just about an hour. Most of the questions are worked through here in the next hour. If you have questions and you wanna see it, you can definitely check out a replay. This is live on my on Jeb's channel and on the podcast channel, wherever you wanna go.

Josh (57:33): If you have not liked this, definitely give it a thumbs up. It helps the algorithm, helps people see it. If you haven't subscribed to the podcast channel, to Jeb's channel, do that. Make sure you can stay up to date. Mister Nice Guy says, see if you can get the appraiser back on.

Josh (57:47): We will reach out to him. He runs a blog. He's very good at the information and they definitely there's some insights on what they do on the appraisal side. But what we'll probably would need you guys to do is send in some appraisal questions ahead of time because I'd hate to have them on here and get two appraisal questions. So again, appreciate you guys being here.

Josh (58:04): We've been on for just about an hour. That's about how long we go. Real Mad says thanks for everything. You guys are awesome. And I say no.

Josh (58:12): You guys are awesome. You show up every week. You ask good questions. You keep us on our toes. If we can help, use that link, jeffsmith.net/start.

Josh (58:20): If you just have questions, use info at the educatedhomebuyer.com. We will get you the answers that you need. Until then, buy right, borrow smart, and build wealth. Adios, amigos.