The U.S. economy added far more jobs than expected in January which could cause The FED to Change Their Stance On A Potential Pause or Pivot with Rates. How could that affect the Housing Market? Will The FED continue to remain aggressive as the job market shows strength but Productivity Plunges? In this LIVE, we discuss the latest updates on the economy along with any changes in the housing market data in addition to answering your first time home buyer questions to help you navigate buying a house or selling a home in 2023.
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For Show Notes, See Below 👇
[00:00:00] Jeb Smith, Huntington Beach Realtor: All right guys, welcome to the show. I appreciate you guys being here. This is where we answer your real estate questions live, give you a, give you an update on the economy. Just, you know, have some fun on the channel. Um, if this is your first time joining us, we appreciate you being here. If you’re one of our regular viewers, our normal viewers, we appreciate you being back.
Josh just hopped on last minute. So, uh, welcome back, Josh.
[00:03:18] Josh Lewis, California Mortgage Broker: I could have swore it was like 10 or 15 minutes until we, uh, we need to get going here. And I looked up, I’m like, wow, it’s 4 59. Time flies when you’re having fun, . Oh, boy,
[00:03:27] Jeb Smith, Huntington Beach Realtor: are we having fun? Uh, so what’s happened in the economy over the last week? So, I think the biggest thing, right, Jo?
Uh, Josh, let’s start with this, is that a d p last Tuesday, I believe, came out with a jobs report and basically said that 106,000 or so jobs were created in the private sector on Tuesday. And we came on the show on Wednesday and basically said, eh, jobs should probably fall in line with that when the, uh, bl s reports their numbers on Friday.
Well, to our surprise, the b l s uh, came out with a number of 516,000 jobs, uh, that were created on Friday. And if you don’t do math, uh, not very good with math, that’s considerably higher than the hundred and 6,000 that were talked about in the a d P report. Uh, which in turn, uh, didn’t, you know, the market didn’t take that in stride.
Uh, we saw interest rates jump up. We saw the 10 year jump up. We saw a lot of volatility in the market. And as we’ve discussed many times on the show, volatility isn’t good, uh, for interest rates. In fact, good economic data is actually bad for rates. Um, if you want rates to improve, you really want the economy to go the other direction.
Uh, and there are a lot of people out there that believe the economy’s not doing quite that well. But I thought we would start today’s episode before we talk about. You know, inflation and, and where rates are at the moment. And talk about the, the misdirection, if you will, or, or the changes in how those numbers are calculated.
Josh, that, uh, made the numbers report so high. [00:05:00] Yeah. And we actually have a chart. Do we wanna pull that up now or do we wanna wait? Yeah, pull it up. All right. And for those of you listening on the podcast at the moment, uh, you can get these charts, um, you know, there’s a link in there to a community that Josh and I have, uh, it’s free where we provide all these charts.
We, we talk about what we’re actually reading, provide some more charts, all of that good stuff. So if you’re interested in seeing this, um, you can go to that, to that link. And, uh, if you’re not familiar with the podcast, you can check it out on any platform. And if you’re listening on the podcast and not familiar with the YouTube channel, you can find us here too.
So anyway, Josh, this is what we’re talking about.
[00:05:34] Josh Lewis, California Mortgage Broker: So the market, the, the jobs report that Jeb is talking about, the market reacted very negatively to it. So let’s just look here. Um, last Friday, where were we at? Friday was the third, right? Yeah, Friday the third. We opened the day basically at 1 0 1, 6 71, and closed the day.
40, about 40 basis points worse. And we had lost 20 or 30 basis points the day before. So Thursday and Friday, the two days after we met, if you were here with us last week, um, everything kind of went downhill from there. And the primary reason is we were hitting layers of resistance. We don’t have a lot of good news to feed the movement of rates better in the right direction.
And to the contrary, we got something unexpected that jobs report of 500,000 jobs caught everyone off guard markets react and then try to absorb and digest. So by Saturday morning, like immediately, I have a Peter book, VAR puts out a report every. Month, like within an hour or two of the jobs report, he goes through the full report, dissects it and gives you a, a, a view of it.
And he was like, this doesn’t smell right. The numbers just don’t seem right. So by Saturday morning we got this one here says the household data looked huge at 894,000 jobs added, except that the BLS made a normal adjustment to the population controlled data where they actually added 810,000 of these jobs.
So if you. Take out the adjustments they made, and there’s nothing nefarious about this. They do it every 12 months and there is a methodology to it. It’s not like they get to pull a number out of their hat and just go, Hey, here’s our adjustment. Um, they followed it. This is what it gave us. But bottom line, if you take away that seasonal adjustment that they do once every 12 months, their numbers would’ve matched a d p.
So a lot of what we saw this week, the reaction of the market and the direction that things were going, um, the tone that has been set. Worst rates in the near term are all based off of this jobs report. And what I was actually pulling together, Jeb, while, uh, while I was losing track of time, was adding another slide here because we saw some weakness Monday also, and that was largely due to the Minneapolis Fed President, um, Neil Cash.
Carey, I believe he’s a voting member of the Fed right now. He had a bunch of comments. He had, he was at, did a, a press conference and he said, I was surprised by the jobs report in January. Well, him and all of us were surprised by it and then makes the conclusion we’re not seeing much imprint of our actions on the labor market.
So we talk about this every week, Jeb, what do they want to do? They want to bring inflation down. They want to cool the jobs market. They want to cool the housing market. I mean, their primary. But we’ve talked, they have, the Fed has two primary objectives. Keep inflation at or below 2% and maintain close to full employment.
Well, where we’re at right now is beyond full employment. And generally full employment was considered to be around 5% unemployment and we’re sitting at 3.4, 3.5 depending on whose numbers you believe based off of this last one. So he says we have to bring the labor market into balance and we haven’t done it yet.
I’m not lowering my rate path, still thinking 5.4% for the terminal rate, um, not changing my forecast for rates now. Then he follows up and says Nobody should overreact to one report. And in the big context of it, Jeb, if you look at at this reaction, it’s not that big. Rates are maybe a quarter percent worse than they were prior to the report.
So it reacted not a huge reaction. So what he’s saying, and this is exactly what the Fed is thinking when they’re meeting and what they’re talking about, it says it’s hard to imagine strong jobs growth can occur with wage growth moderating. Yet, we have some other charts in here, Jeb, that we’ll go through that show that wage growth is moderating.
Historically, anytime you have very low unemployment, that gives power to the employees to get raises from the employers. And you talk about this, uh, wage spiral, wage based spiral, um, that’s what the worry is and that’s what the fed’s worrying about. So they want unemployment a little bit higher, so employees don’t have this pricing pressure on their employers and they’re not seeing that.
Um, and there’s some, there’s some reasons for it. So Jeff, like I said, we’ll go through some of the other charts, but where we are right now, that’s the, the big thing is the market is still digesting this unbelievably good jobs report from last week and seeing how that impacts fed actions moving forward.
Yeah. And we’ve seen Fed
[00:09:51] Jeb Smith, Huntington Beach Realtor: members, including Powell, basically say that, you know, essentially they need to, to, to go higher on the rates and remain higher. Um, and, and in his press [00:10:00] conference yesterday came more or less gave a a similar speech to that. So the likelihood. Of us seeing another quarter point hike is very, very, very baked into the cake at this point.
I think it’s sitting at 90% today, uh, for the March meeting. And then the May meeting actually is up considerably from where it was, I think sitting at like 70%, uh, for another quarter point raise. So the likelihood of us seeing higher, uh, fed funds rate I is, is, is there, um, it, it’s, it’s very likely to happen, uh, which in turn, if it does happen, it shouldn’t create additional volatility.
It’s a lot what they say in, you know, after, before these meetings that really creates that volatility. And so next Wednesday when we come on the show will actually have received the infl, the inflation data, uh, for January. It reports on February four, actually Valentine’s Day. So next Tuesday we’ll get that information.
So we’ll be able to digest that on the show next week. Uh, but with that said, Josh, I think it’s, uh, let’s move into some other charts here and talk about some other things that are happening, um, in. In the, in the world of real estate, uh, first is inventory. Inventory is continuing to decline. So nationwide, we actually saw a drop.
2% in available inventory puts us at 457,000 homes. So if you’ve been following, its each week, that number has been going down, um, since the start of the year, in fact. So here in Orange County, sitting at 2,334 homes, Huntington Beach 1 59, both of those numbers are lower than last. That’s not a good thing, guys.
If you want, in order for the market to start rebounding, you need a little bit more inventory out there, right? Lower amounts of inventory, uh, basically creates price stability to some extent, um, kind of lock sellers in place and, and gives them no option to move if they’re even considering moving. Uh, low inventory is not a good thing.
We wanna see inventory levels go up and we, you know, not necessarily double, but we want to see them, you know, continuing to rise week over week. It just shows, uh, you know, gives buyers more opportunity to find the right house. It gives sellers more opportunity to sell their house, buy another house, all of that good stuff.
Next week. Uh, next chart. Again, just another, um, chart showing new listings coming into the market. The, the part that’s kind of a lighter pink in the back are showing the ones that went into, uh, that were listed, but immediate sales. So you can see there are properties that are coming on the market immediately going under contract.
Um, that number is actually increased since, uh, since the end of the year. Our next chart here is gonna show you. Fewer price reductions are actually taking place. So fewer sellers are actually having to reduce prices. A lot of that has to do with the buyer demand that we’ve seen. Uh, and that’s because, you know, interest rates dropped, right?
We saw interest rates below 6% for a lot of well qualified buyers out there. Since then, we’ve actually seen rates go up a little bit. Uh, and a lot of it has to do with the volatility that we’ve seen over the last week, which we’ll get an update from Josh here in just a minute on that. We looked at the BLS data.
Um, Josh, so let’s talk about rates. So what has, last week you were talking, um, well-qualified buyers, you could get a rate in the fives. Um, can you still do that today? If you’re well-qualified? Do you have a good down payment, high credit scores, or is everybody in the sixes? Well, absolutely
[00:13:17] Josh Lewis, California Mortgage Broker: You, you and I have a client, um, I believe a, a watcher from the show are definitely from your channel.
Came from there, has been looking for a home for two years, gets one under contract, and he would like to lock at five and a half percent. Um, that’s gonna require a couple points and we’re advising against that. Um, zero points is gonna be hard to be under six, which we’re, that’s where we were last week.
So anywhere week over week rates are an eighth to maybe a quarter of a percent higher. So what I wanted to show with this chart, this is what we see. The, the part there in bold, that the weekly distribution is Thursdays at 12:00 PM Eastern time. So 9:00 AM Pacific every Thursday. This hits the wires and you start seeing, uh, interest rates hit five month.
So that came out last Thursday and next Friday, what do we see? Rates get worse. Monday rates get worse. Most of us don’t get our news from the newspapers anymore. So you’re seeing things in your Google Feed. So if you’re looking at housing, if you’re looking at houses, you’re seeing these articles because they think you’re interested in mortgage rates.
And what you are seeing is a quote from last week. So I wanted to show you this. This is the Optimal Blue Mortgage market, uh, index that they put out. These are actual rates being locked by lenders, and I didn’t necessarily want to show what those rates are. I wanted to show the trends. So the, the difference of the three lines, Jeb goes, Hey, why are there three lines?
We got 30 year fixed, jumbo, and f h a. You can see they essentially moved together, but not in lockstep. So this goes back 90 days, the beginning of. We saw this nice green line here, um, with a down trend. So from November through the beginning of the year, basically sideways, there’s a little bit of upwards pressure, and then we started this downward trend again around the beginning of the year.
That red arrow is this week. So is it a big move? No, [00:15:00] it’s not a big move up, but it is a move up in interest rates almost back to where we were at the beginning of the month. So we spent all month going down, down, down, down, down in little tiny moves and. in the last three, four days. We give the majority of it back.
Now, if we were to draw another line on there from the beginning of November to now, you can see we have a down trend. The downtrend is still intact. Jeb, we went through the numbers probably three or four shows ago of what we expect the c p I numbers to look like all the way through May. Mm-hmm. this month isn’t, isn’t expected to look great.
It’s not gonna be bad, right. But it’s sort of like, um, the crack for the markets over the last two, three months has been, Hey, we get good news every month. When C P I comes out, it keeps showing inflation down, inflation down, inflation down. It’s probably gonna be improved, but not a huge improvement.
Pretty much flat, uh, what we see next week. So it’ll be interesting to see how the markets react to that. Um, we also, in addition to Powell speaking yesterday, a couple of additional, uh, fed members out talking, we had a 10 year auction. Mortgage rates most closely follow the 10 year. Recently it’s been more like the five and the seven year treasury.
Um, it was actually a really good auction. Most people grade the auction today in a, which is kind of surprising and it’s kind of surprising that we didn’t see more improvement in rates today. We were 16 basis points better, which in essence that means like an eighth in in fees. So zero points yesterday, you would’ve got a 16 credit from a lender today if that all got passed along from lenders.
So what I wanted to point out here is please don’t look at the numbers, uh, that you’re seeing in the headline saying rates are lower because. It’s almost what it just seems to, without fail what they capture on Thursday, it’s gonna go a different direction over the next couple of days. So, um, the mortgage News Daily puts out an index daily that lets you see where things are happening happening.
You can always go to the Optimal Blue Mortgage Market Index. You can Google that. It shows you what’s happening more in real time versus, uh, Freddie Mac putting out a number once a week. And previously, Jeff, it was just a survey they called lenders and said, Hey, what rates are you quoting? Oh yeah. And how many points?
And then they would put it out. So it’s the gold standard in the sense that it’s been used for 40 years to track what’s happening in mortgage rates. It’s garbage in reality in terms of what it is. Well, and and it’s like
[00:17:16] Jeb Smith, Huntington Beach Realtor: Josh mentioned but didn’t say directly. The data’s a week old for the most part.
They, they get it on Thursday, but they take, they, they, well they post it on Thursday, but they’re actually getting that information. What, on Monday, right? Yeah. That week. Very early in the
[00:17:31] Josh Lewis, California Mortgage Broker: week. Yeah. So
[00:17:32] Jeb Smith, Huntington Beach Realtor: it, by the time they post that data, it’s already outdated. Um, and so, you know, if you’re following that, trying to lock a loan or following that, trying to figure out what the market’s.
it’s gonna misinform you. So just make sure you’re talking to a lender that can give you the right information, the correct information. Um, you know, the Mortgage News Daily has, uh, a ticker at the top too, uh, that, that shows more updated rates. But the problem with that is that, again, it’s showing one rate and then people take that rate as the, you know, the gospel, if you will, in, you know, there’s 40 different factors that go into your interest rate.
So again, you need to be making, you know, having that conversation with a lender just to make sure your number is accurate before you go out there and, and, you know, think that one, that that’s your rate, because it could be lower than what’s actually being posted out there. Um, Josh, this takes us into natural gas futures.
What does that have to do with rates in the housing?
[00:18:26] Josh Lewis, California Mortgage Broker: Nothing. I wanted to make Californians feel better. Um, I haven’t been able to heat my pool or jacuzzi all winter here because it’s like $150 to do so. Um, you know, I’ve seen a couple of condo complexes our place out in the desert, there’s I think 55 pools in there.
They’re only heating 15 of them this winter because, uh, natural gas prices are triple. Um, this does in indirectly lead into inflation. If you look back as recently as June, and then again in August, we were up at $9 and 68 cents. Um, well, I don’t know what their measurement is of, of how they, what measure of liquid natural gas you’re getting with that, but it’s down to 2 41.
So it’s basically down 75%. There’s reasons why we’re not seeing that directly yet in California, but for most of the country, um, natural gas price is much lower that goes into fertilizer. Um, crazy as it sounds. Liquid natural gas goes into fertilizer, can help food prices. So, For the most part, people are thinking supply is up, supply is gonna remain elevated, and we should see the end of that inflation, which begs the question.
Someone that’s a liquid natural gas expert would have to tell me why we got to $10, uh, per whatever it is. Um, and we’re now at two 50 when that’s the general consensus and expectation going forward is that we will see these lower prices remain. All
[00:19:42] Jeb Smith, Huntington Beach Realtor: right. Uh, job openings by industry, Josh, so, you know, we got the, the labor report, you know, showing 517,000 jobs at added regardless of the number being reported, there’s job growth, right?
So there are job openings and if you’ve been out more or less, and, and a [00:20:00] lot of those jobs were what in hospitality? I believe, um, if I remember correctly, uh, based. Leisure and hospitality. I think were, were the big, big component of that. Um, if you’ve been out there, been to restaurants, you know that, uh, they’re lacking good, uh, good workers in a lot of these places and you see the help wanted signs.
[00:20:19] Josh Lewis, California Mortgage Broker: yep. This, so this chart just shows that obviously the last recession, that big fat gray bar there, job openings were. People got fired and people weren’t hiring. So we had high unemployment and employers weren’t looking for new employers employees. So now you look at that trend, we also saw, uh, a dip down, a big quick dip down, uh, at the start of Covid and then shot back up.
So if you look, the red line is just a trend. Over time, we’re kind of normalizing back towards trend. So the Fed is looking at this and saying, Hey, the market’s too tight. Uh, we’re worried about wage pressure by employees having, uh, pricing power, but it is normalizing. And Jeb, the next chart there kind of shows what this leads to.
So the Fed is looking at record low or close to record low unemployment figures and saying, this is gonna be a problem, it’s gonna lead to higher wages. This, uh, three different measures. Those three lines are three different measures of aggregate wages. It doesn’t look at, a lot of times when you see, uh, in a jobs report, say, wages were up.
Well, what do you mean by that? Hourly wages were up or weekly. wages were up, so maybe you didn’t, no one got a raise per hour, but they worked more hours. So there’s, what this is doing is just aggregating how much money did all American employees make. And you see again, post covid, everyone had, uh, power to either change jobs and get a higher rate of pay or go to their boss and ask for a higher rate of pay.
So we were up at 15, 16% wage growth for employees, and now we’re normalizing back down again. We look at a long-term trend as that dash line there, and we’re normalizing back towards that. But in the quotes that I was giving you from Neo cash carry, they’re sitting here worried and saying, it’s hard to imagine strong jobs growth can occur with wage growth moderating, but I’m showing you a chart here that since middle of 2021, wage growth has been moderating.
They’re just saying, we can’t believe it. It’s not true. Can’t happen. Back to the, the chart showing those job openings and why they’re higher and above trend. Basically what, what the theory is, no one knows for sure why this is, but why we have that gap, why we’re above, so far, above that trend line. People are are saying that we had boomers retiring early because of Covid and just deciding not to come back to the workforce.
And there’s a theory out there that there’s people with long covid and disability related to covid. So we have a smaller workforce, so that may just be the new normal that we have more job openings over the long haul. But that was what we were, we’re looking at there.
[00:22:46] Jeb Smith, Huntington Beach Realtor: And if you think Josh needs a new camera lens, do me a favor and put it in the chat because that lens sucks.
Sitting in the dark a moment ago, uh, this final chart just basically came out of an article that I read prior to coming on the show. It’s from Bloomberg. It was talking about traders. There are traders out there now predicting, uh, actually there was a bet, uh, I think it was like a 37 million bet, uh, that ends up paying 187 million or something crazy like that if, uh, the Fed funds rate peaks above 6% at 6% or higher.
But nevertheless, just shows that, uh, projections are tending to run higher, um, than where we currently are at the moment. Uh, but a lot of traders see those coming down as we move into early 2024 and 2025. So your guess is as good as mine people. Uh, but with that, I think Josh, we’re gonna get into some questions and we don’t really have a lot of questions tonight.
It should be really easy. We, the show’s gonna last like two minutes. We, we might, yeah, we might
[00:23:50] Josh Lewis, California Mortgage Broker: go home early.
[00:23:51] Jeb Smith, Huntington Beach Realtor: Well, the show’s gonna last like two minutes. Um, one of the, there was a comment here and, and I’m just gonna put it up. Uh, Henry, John is, is, is someone that doesn’t really care for us, I think puts a lot of negative comments in here, so we’re just gonna read it.
[00:24:04] Josh Lewis, California Mortgage Broker: thought, I thought, I thought he was someone that signed his name backwards. That’s how you get from John Henry to Henry John. Is that how you do it?
[00:24:10] Jeb Smith, Huntington Beach Realtor: Yeah, yeah. You start with your last name first. Uh, basically says you can’t have a recession with record low unemployment. Just saying keep raising rates to battle inflation.
Inflation isn’t a problem. Like we’re, we’ve already proven that inflation is coming down. Inflation is likely to be at the fed’s,
[00:24:28] Josh Lewis, California Mortgage Broker: 2% target probably
[00:24:29] Jeb Smith, Huntington Beach Realtor: sometime this year at the rate that we’re going. Um, and if it matches the previous six months, it’s gonna be there by June. Uh, so inflation at the moment is, is not the problem.
Um, the problem is, uh, Basically a a, a strong labor force and housing is still. Doing opposite of what I think the Fed really wanted to, uh, to, to try to pull back, right? They, they thought, uh, raising rates was going to slow inflation. Um, but what they have failed to realize at the moment, [00:25:00] Josh, is that a lot of what they did over the last couple of years by bringing interest rates low, super low, actually ended up having a bigger impact on the housing market than what they’re doing now, which is raising rates because it locked people into their properties.
And, uh, I think that’s going to continue to be a problem for a long period of time. The
[00:25:20] Josh Lewis, California Mortgage Broker: the Fed is doing, what they should do after doing some horrific things during Covid, they had to raise aggressively the three quarter, three quarter, three quarter, we get four, three quarter hikes. We got ’em and we got ’em fast.
Um, went to a half and now we’re down to a quarter and they’re saying, Hey, if we keep seeing data like this, if we keep seeing hot jobs reports, which they’re not going to because we have that seasonal adjustment, once ti one time a year, it’s going to still be strong employment. Moderate, median, uh, level wage growth and inflation is going to be coming down.
So they still need to say what they’re saying. If they say, Hey, job well done, we’re awesome. We fixed inflation, then the market’s gonna react to that and push rates lower and heat up the economy and generate some of the things that they wanted to stop. So they have to keep saying, we think we’re gonna raise another quarter, another quarter, possibly another quarter after that, they have to say, Hey, we’re worried about these things.
We don’t like the unemployment rate this low. We’re worried about wage growth by saying that and keeping the markets thinking that they are in play to continue raising rates, they are going to keep it from going down. Part of the concern, so I, I said cash. Carey said, housing market is starting to show signs of life again.
That makes our job harder. They don’t like that there’s a floor underneath the housing market. Jeff, we’ve been saying that since the fourth quarter of last year. When and if as long as rates moderate, it’s going to put a floor under this market and they’re saying, Hey, we’re morons. We inflated the market more than it should have been by keeping rates too low for too long.
And now we would like to sort of deflate that bubble despite the fact that anyone that bought last year with a 3% down would be in trouble in that situation. And the markets are saying inflation is controlled, rates are coming down, it’s putting a floor under home price. And they’re saying, oh, we don’t like that.
They came out so much and said, one of his other comments was, uh, if conditions are easier, we would’ve to do more on rates. There’s also our balance sheet, though, the bar to changing that path that’s quite high and what they mean. We had a question last week, Jeff. Someone said, what do they do with their balance sheet?
What do they do with quantitative tightening? If they had to, they could start selling treasuries and mortgage bonds and push rates up real quick, real fast. They don’t want to do that. They need to stay the heck out of the way as much as possible and slowly run off that portfolio over time. But um, After causing the problem, the Fed has done a pretty decent job with limited tools at their disposal and limited options of managing us towards something of a soft landing.
Agreed. Yeah. I mean, if they wanted
[00:27:50] Jeb Smith, Huntington Beach Realtor: to crash housing, they could do it fairly easily. Uh, and so anybody out there saying that’s their goal, it’s not their goal. They’re just trying to slow the growth that we’re seeing in, in basically all sectors, um, in including housing because of, of, of, of how it’s impacting inflation.
But we’ve talked about, you know, the rental numbers coming down, you’re likely to start seeing those, you know, in the March and April numbers, uh, with regards to the inflation data, uh, inflation data with c P I reports and, and that should help bring inflation down quicker. So it’ll be interesting to see.
When inflation gets down, Josh, to, I, I would say a more reasonable level. Um, maybe not to their 2%, but maybe it’s, it’s, it’s reading, uh, you know, on a, on a 12 month range, maybe it’s reading in the, in the three somewhere, but employment is still reporting high. Are they still an aggressive stance or are they at that point more of a let’s keep rates high and we’re just gonna stay here until we see further, um, direction in, in, in the data?
We don’t, we don’t
[00:28:53] Josh Lewis, California Mortgage Broker: know. Yeah. I don’t think, I don’t think it dictates more hikes past two to possibly three more quarter point hikes. But what it does is, you know, as recently as two months ago, 60 days ago, less than 60 days ago, the market was pricing in rate cuts By the end of this, Unlikely to happen until you have unemployment above 4% and inflation under 4%.
So look at the 4% level. They want inflation, uh, unemployment above 4% and, uh, un uh, and inflation under 4% and continuing to trend in the right direction. That’s gonna happen rather quickly. We, we, again, went through the, the, the May C P I number are once likely to happen there. You’re gonna have a three handle on that and, and possibly into the, the mid to high twos by fall.
And, and when that happens, if unemployment is, is still really low and hopefully wage growth is moderated and is not pushing things up, they’re just gonna sit on the sidelines. There’s no reason for them to cut unless they feel like they’re being too restrictive. And nothing that they’re seeing or we’re seeing right now says that they’re being too restrictive.
It’s not, and you know, it, it’s kind of slowed the market, [00:30:00] but it hasn’t stopped a anything. We’ll see what happens going forward. No, absolutely.
[00:30:03] Jeb Smith, Huntington Beach Realtor: So we’re gonna go into a question from Anya. Um, Anya’s got a couple of different questions, but there’s one that I want to, um, talk about more specifically because I think more people are dealing with it right now when buying housing.
Um, and that’s the idea of paying points, Josh. So why do you advise now, whether you’re advising your client or just giving your thoughts on it that you can, you can clarify there, but why are you saying you shouldn’t pay points in this market?
[00:30:32] Josh Lewis, California Mortgage Broker: Points are a sunk cost. So you, what do, you don’t ever, you don’t ever get them back once you pay them.
So what you are saying is, I will give you money upfront. and I will pay you less money over time, but you never have the option to get that back.
[00:30:46] Jeb Smith, Huntington Beach Realtor: You do have the option if you do a temporary buydown. What if you do like a, uh,
[00:30:49] Josh Lewis, California Mortgage Broker: we’re not, we’re not talking about that’s not paying points. That’s okay. Paying for a temporary buydown, two very different things.
Okay. Fair enough. Okay. Um, so I, if, if you’re looking at that, it is a sunk cost, the money is gone, you never get it back. The only way you get it back is over time. So lender. Are pretty smart. You are taking out one loan and you say, I know what I’m going to do with this. I’m gonna pay points, I’m gonna keep this loan for 10 years.
May be true. They know when they make 10,000 loans based off of that rate sheet, that on average they’re gonna run about four to four and a half years before someone either moves or refinances. For the last 40 years, we did finally break the 40 year down trend in interest rates earlier this year, thanks to the wisdom and wonderful moves of the Fed during Covid.
But we had a 40 year down trend. It doesn’t mean that rates go direct, uh uh, always down, but when we have a spike up, you could count on within three to five years rates going down and going lower than they went at the last time. So we’ve set that bar really low. We were down into the two s for 30 year fixed rates.
Um, I don’t know that I would want to bet that we get back there. I also wouldn’t want to bet against it. History tells us it’s likely to happen, um, but when we’re still very elevated into the high fives and. A, a normal long run rate going back 120 years or so is somewhere in mid fours. Um, so take out what the, what is the reality of federal deficits?
Um, what the Fed has shown that they do in times of crisis, it is very likely that rates are going to go lower. We’ve talked about Jeb. Rule of thumb, when does it make sense to refinance? Take 120, take your loan amount, take $125,000 and divide your loan amount. So if you have $125,000 loan, probably doesn’t make sense to refinance unless you can save a percent.
You have a $500,000 loan, you only need to save a quarter percent, 125 divided by 500.25. Now, if you have a million dollar loan, makes sense to refi if you can save an eighth of a percent 0.1 25. So some of this comes down to if you’re taking out a really small loan, if you’re in Iowa and you’re buying a $200,000 home and you’re putting 25% down, it’s $150,000.
Loan rates have to. I’m not, I’m using it as an example where you could buy a home for $200,000 and you could have a very small loan and it’s a much higher threshold to cross before it would ever make sense for you to refinance. So maybe you say, okay, I’m, I have the closing costs here that I’m paying for, so I would like to pay a point or two, get that lower rate and take it off the table or move that threshold much lower to where I would ever have to refinance.
But if you’re in a more normal area, what’s normal? Median is now 4 75 or are we over 500 nationwide? Uh, under, no, under it’s under, call it four 50 and say even if you did 10% down, it’s a $400,000 loan. The average person needs to save quarter to a half percent to save, uh, money to make it worthwhile to refinance.
So do we believe that 6% is normal and there’s not gonna be an opportunity to get five and a half or five, much less, four and a half or four in the near term future, the next 2, 3, 4 years? You have to get out five years before you break even, and the more points you pay, the further you get away from the par rate.
The par rate that the lender says is zero points. I’m not gonna give you a credit and I’m not gonna charge you anything for that rate. That’s what they’re saying is the yield they need on their money. The further you get away from that par rate, either going higher to get a credit or lower by paying points, the more.
The, the, the, you have, you have diminishing returns. So a point will generally get you a quarter percent lower in rate. You can’t always get to a half percent lower with two points, and you can rarely get three quarters of a percent lower with three points. The further you get away from par, the less like the less the lenders like that, they want you somewhere near their par rate.
So no matter where you are in terms of paying those points, the calculation comes out. Your breakeven is gonna be somewhere between four and a half and seven years before you take into account the time value of money and any tax benefits. So when we look at that, it just generally doesn’t benefit you unless you believe that rates are going to be at this level or higher or within half percent lower of this or higher for the [00:35:00] foreseeable future.
And you’re never going to move. There you go.
[00:35:04] Jeb Smith, Huntington Beach Realtor: That was a really long way to get there. , but it’s a good answer. People
[00:35:08] Josh Lewis, California Mortgage Broker: will still continue to ask and still not 100% understand cuz it’s somewhat
[00:35:13] Jeb Smith, Huntington Beach Realtor: complicated. There you go. Uh, the idea is that there’s a really good chance interest rates are going to be quite a bit lower in the next few years and it would make it, it, it would, uh, prevent you from refinancing or add additional cost to the, the idea of refinancing to take on a lower rate.
Uh, you know, John thinks, uh, that we’re both old here, Josh. Um, nothing’s changed week over week there. Um, let’s see.
[00:35:39] Josh Lewis, California Mortgage Broker: I’m, I’m just happy he comes back every week and
[00:35:42] Jeb Smith, Huntington Beach Realtor: tells us we’re old. I think he probably just makes that comment and then leaves, uh, let’s see, we got another question here. Um, logical thinker.
What is a seller funded down payment and how does it work? So are you familiar with a seller funded
[00:35:55] Josh Lewis, California Mortgage Broker: down. Seller cannot fund your down payment under any loan program. You have to have it coming from your own funds. That can be a gift. Um, but a seller is never an acceptable source of funds. You probably saw something about, uh, seller funded buy down and just conflated buy down versus down payment.
You can absolutely have the seller pay for your buy down. You cannot have them pay for your down
[00:36:16] Jeb Smith, Huntington Beach Realtor: payment. Okay. I’m gonna take us down a different road here because people have this sort of question all the time, even though this is not the question asked. What if uh, somebody has a $500,000 home, it’s worth 500,000, but they’re willing to sell it to me for 400,000.
So essentially there’s a hundred thousand dollars of equity in that property with me purchasing it. Am I able to use that a hundred thousand dollars equity towards to act as my down payment? So I’m putting 20% down, or is that not the. No,
[00:36:46] Josh Lewis, California Mortgage Broker: for the lender’s purposes, all loan programs, it is the lesser of sale price or appraised value.
So what you’re saying is this home will appraise for $500,000. That’s the market value, but I’m buying it for $400,000. So therefore I have a hundred thousand of equity. From the lender’s perspective, they’re not necessarily looking at equity, they’re looking at skin in the game, you would have zero skin in the game.
They don’t do zero down loans other than VA and U S D A. So from that perspective, you’re gonna have mortgage insurance. It’s still gonna be treated as a 3%, 5%, 10% down. Um, the good news is after six months, although Freddie just changed this to 12 months, after six months, you can come back, have an appraisal done, get a new loan, and count all of your equity.
[00:37:24] Jeb Smith, Huntington Beach Realtor: stuff. Uh, there is a question related to va, so I’m just gonna hop into that here real quick. Josh. Uh, two part question. Thoughts on VA rehab loans? Uh, maybe explain what a rehab loan is for those who are listening, not familiar with those, and what are the pros and cons?
[00:37:41] Josh Lewis, California Mortgage Broker: So, um, it’s a cool program, very, very similar to an F HHA 2 0 3 kk.
Um, the differences would be lost on you guys. It’s important for us as a loan officer to kind of know the quirks and differences of the program, but they’re essentially the same. It’s a little bit easier than the FHA 2 0 3 K. There are not a lot of lenders that do them. You’re gonna pay a slightly higher interest rate, but it allows you to buy a property that needs work, um, and, and finance the cost of the improvements or make improvements to your own property and cover the, the cost of it.
So, awesome program. If you are interested, um, I, I will try and post here in the comments here when Jeb’s answering another question. I did an hour long interview. With an agent friend of mine out of Texas and a loan officer in Texas that they just closed one together and the agent actually acted as the general contractor on that.
Um, she’s kind of amazing. So, um, those two just did an awesome job of answering all of my questions on a VA rehab loan. So I’ll post the link to that YouTube video. It’s about 45, 50 minutes, but those two give you everything A to Z that you need to know about VA rehab loans. Are
[00:38:46] Jeb Smith, Huntington Beach Realtor: there any. So we got the positives.
You can buy a house and rehab it, um, with, with that cost financed if you will. So are there, are there any downsides, any risk? Well, you,
[00:38:58] Josh Lewis, California Mortgage Broker: you have the carrying cost while you possibly can’t live in the property during the rehab. Um, it takes time. You’re paying an above market interest rate, uh, because there’s additional risk to the lender.
So it’s gonna be a more expensive loan in both closing costs and rates and things can change. You can have difficulties. We talk about this, people ask us all the time, Jeb, should I buy a house or should I build one? Cause I can get a lot cheap and I think I can, I can build it for less. We had someone on the other week, I can get building materials at cost.
I can build some equity into the property. For the most part, every construction project takes longer than it’s supposed to and costs more than it’s supposed to. So you have some of that risk in a VA rehab loan as well. But for the most part, no, they legit are, um, as good as they sound. . Awesome,
[00:39:43] Jeb Smith, Huntington Beach Realtor: awesome, awesome.
All right, uh, let’s see. We’ve got another question here, Josh, about, um, re casting. So, um, let’s talk about re casting. So what is a recast? Uh, it says, do most lenders, do most bank [00:40:00] lenders conventional loans do free re casting? Is there a formula to determine if it’s worthwhile? So, a recast, if you will. I’ll explain it real quick, Josh, and you can kind of answer the question.
A recast is, say you get a more, say you buy a house for 500,000, just say your, your loan is 500,000. Let’s say you come into a lump sum of cash, 50 grand, a hundred grand tann, grand, whatever your number is, and you want to send it into your lender to pay down the balance of your mortgage. Well, there’s something called a recast that some lenders will do that will allow you to take that 10, 15, 20, whatever that number.
And apply it towards the principle. And once they apply it towards the principle, they’ll rebalance, recast your loan, if you will, and take your, your interest rate that you had and base it off the new loan amount. Right? So if you put a sizable down payment down, it could lower your payment considerably by doing that recast.
So Josh, do all banks do it? How does it work? Um, is it worth.
[00:40:58] Josh Lewis, California Mortgage Broker: I can say with certainty that not all do, but is it 1% that wouldn’t agree to it? Is it 5%? Not sure. I’ve never had a borrower attempt to make a large principle reduction and then do a recast and be turned down. What I can’t say is it’s never going to be free.
It is a loan modification. It requires the lender to prepare some documentation. Have you signed it? Get it recorded. So, Count on a couple hundred dollars, up to maybe $500 of costs to do that. But it can absolutely be worthwhile, especially if you make a large payment. I have a client right now that’s buying a 1.9 million property before selling their free and clear 1.6 million property.
As soon as that property gets sold, they’re gonna pay it down to like a $350,000 mortgage. I don’t think anyone wants a 1.5 million mortgage payment when you have a $350,000 loan. So with that, we are lucky it is a portfolio lender. I can tell them with certainty that that lender will work with them on their, their recast, but there will be a small cost to it.
[00:41:58] Jeb Smith, Huntington Beach Realtor: All right, we’ve got a couple of additional questions here that are, that are good that I want to touch on. Um, let’s see this one, uh, Eric says, I know in this market, buyer paid points don’t make sense. What about seller paid points? Do they make sense? So seller paid points, you’re, you’re paying for that one way or the other.
Right. So I will tell you, in my market at the moment, it’s competitive out there on a lot of properties because we don’t have a lot of listings. So the idea of, you know, e every mortgage broker, every realtor telling you three months ago that, Hey, listen, ask your seller for closing costs, they’re likely to do it cuz their house is sitting on the market not getting any attention.
That’s fallen by the wayside a little bit. Uh, but let’s answer the question directly. So if it seller paid points, you’re paying for them one way or the other, if the seller is willing to give you money to buy down that rate, the seller is probably also willing to give you a little bit of money off the price of that property.
So is it a free, you know, um, rate adjustment or rate buy down? Just because the seller’s paying it? I would say no. You’re, you’re, you’re paying for it one way or the other. Um, but is it better to have the seller do it? I, I mean, if that makes you feel better. Um, you know, couple months ago, I would say absolutely in this market.
I think the idea, you know, that rates have come down a little bit. Um, I don’t know that I’d be spending a bunch of money buying, you know, paying points just because of, of what Josh mentioned earlier. So just, just my thoughts on that. Now, some market’s out there Yeah. Might, might be a little bit different, right.
Um, but I could tell you across the board, kind of what I’m seeing and talking to other agents that, uh, you know, sellers are. Are getting a little bit more competitive now just because the market, um, has adjusted in favor of sellers because of rates coming down a little bit.
[00:43:43] Josh Lewis, California Mortgage Broker: Jeb, I literally had this conversation with a client last night.
She’s buying a million dollar condo here in la. She has a comfort level with a payment. Um, and the only way we could get to it is by charging two points. So she said, no problem. Seller’s motivated. I’m gonna get the seller to pay it, so I don’t care. I said, okay, realize one way or the other, you are paying it.
So another way, or just clarifying what you just said is you’re paying it one way or the other. So if the seller, it’s $20,000 in her situation and roughly a million dollar purchase, $20,000 in reduced purchase price, if they’re willing to give up $20,000 or $20,000 in points in terms of the monthly payment.
Paying the points and buying the rate down will have about a three to one greater impact on lowering your payment. That’s the positive that says, Hey, have ’em pay the points, get the lower monthly payment. The downside is it’s a sunk cost. If rates drop to 5% in six months with her million dollar loan, we’re gonna refinance that, and she don’t ever get back those $20,000.
Whereas if she had paid nine 80 for the house and we refinanced in six to 12 months, she’s, she’s just fine. Now, in her situation, she’s only doing 5% down. We don’t know what the market’s gonna do. May not be possible to refinance. No matter what rates do, she has a comfort level with the payment. We went through the numbers and penciled it out.
It’s not the decision that I would make, [00:45:00] but it’s the right decision for her.
[00:45:01] Jeb Smith, Huntington Beach Realtor: There you go. Good. Good. Uh, VR Watch says When buying a house and seeing the house with an agent before offer and pre-inspection, what are the two most important things to check to ensure the house is in fair condition? It’s difficult.
Um, each house is gonna be a little bit different. I like to check the major systems of the house, if you will, the most costly items of the house. So I pay attention to what the roof looks like. Um, some of those things are, are difficult to assess if, if you haven’t done it for a long time. Like sometimes a roof can look like it’s not, you know, that bad, and then it ends up needing to be replaced entirely.
So just one of those things. But I look at the roof, I look at H V A C, the furnace, the condenser. Are they newer? When were they installed? Uh, I like to look at plumbing, especially on an older house. Um, you know, some here in, in, in Orange County, long Beach, you have some houses that were built in the fifties and sixties that have gal galvanized plumbing.
Some of it’s never been changed. So looking at that stuff, looking at the water heater, I’m looking at things that are gonna. Big amounts of money to replace if, if they go bad. That’s kind of how I’m looking at things. And also, a lot of times you can tell how a seller has kept up with the house over the, over years and years of, of living there by the things they’ve done to the property.
If, you know, you go in there and the furnaces original, the water heaters, original, you know, the roofs, all this, you know, and you, the, the house just doesn’t feel like it’s being kept up. The shits are it, it hasn’t been. Um, so it, it’s, but it’s different for each person. I don’t think there’s a. Hard, fast rule for doing it.
I just, I like to look at the things that are gonna cost me the most money as the buyer. Um, and say, what does this, you know, what does this cost to replace Windows? That sort of thing, because that’s where you’re gonna spend the most amount of money.
[00:46:51] Josh Lewis, California Mortgage Broker: Yeah. I, I’d say the same thing, Jeff. There’s not one thing, um, do a thorough inspection.
Uh, if it’s an older property, you know, I have a client right now who’s buying, you know, a, a five year old home like, The inspector’s gonna pick up most everything. If it’s a 40 year old home, I would be there during the inspection and walk through and look at everything. Jeb, like you said, look at the electrical panel, look at the water heater, check out all of the outlets.
Um, ask the inspector if you’re not gonna go in the attic. It’s easy to paint over, uh, a stain where there was a leak, but you generally don’t go up in the attic and fix the things you don’t see. Um, looking underneath the house, if it’s not, if it’s a race foundation, um, just take your time. Look, look at everything.
And if it doesn’t look right or something’s weird, ask a question. So if you’re there, the inspector should know these things and they may not be looking, uh, in as detailed a manner as you. So if you’re there, you can ask ’em, Hey, I saw this. Is that mean anything? Or, or is that important? And they can clarify for you.
No good stuff.
[00:47:47] Jeb Smith, Huntington Beach Realtor: And, and, and your agent, like, I mean, you need an agent that’s detail oriented, right? That, that is looking at some of the stuff. I mean, I’m, I’m a good and a bad person to go look at property with because. I’ll stick my foot in my mouth, um, when, when, when showing people property, because I point out all the negatives, um, in some way.
But I, I, I want to do that so that as a buyer, if that’s the property for you, there’s no inci like, you know, I mean, not everything because I’m clearly not an inspector, but I, I look at things in detail and say, did you see that? Or, make sure you’re looking at that. And the reason for that is cuz I don’t want any surprises.
I don’t want you to get, you know, put in an offer and then figure out that, hey, this is there. Or never even notice that because nobody pointed it out. So just, and, and that’s not necessarily your agents, I wouldn’t say it’s their job to do, but I think good agents want you to know everything, good or bad.
And, um, so that you can make the right decision. Anya has another question, Josh. She has two, but let’s just go quickly. This is a great question. Quickly. Um, so then we’ll start with this one, and the second question is, what’s the best rate? You, cro you quoted, you quoted recently? Um, h how low was it? So we’ll go with, with this question first, which is, can you streamline a VA rehab loan?
So with, with VA and f H A, you can actually streamline the loan, which means that if you have an F h A loan or a VA loan, you can refinance that loan with no income documentation and no appraisal, right? So if rates drop, you have one of those loans, you can do a refinance and not have to provide any additional documentation in order to get or take advantage of that lower rate.
So can you do it on a rehab?
[00:49:28] Josh Lewis, California Mortgage Broker: Absolutely. And that’s, that’s one of the big benefits to it. It’s gonna be a expensive loan while you have it, but again, 210 days from your first payment, you can do a streamline, which is simply a refinance with no income, qualifying, no appraisal. So fairly easy. Um, no matter what happens in the market, you’ll have the ability to take advantage of lower rates if and when they arrive.
[00:49:48] Jeb Smith, Huntington Beach Realtor: All right. Now the question that everyone wants to know, Josh, what is the best rate you’ve.
[00:49:53] Josh Lewis, California Mortgage Broker: Recently, um, 4.875. And it was kind of similar to the other situation we were talking about. Someone that was considering paying a couple [00:50:00] of points on it was either an FHA or a VA loan. And, and with a couple points you can get those into the fours, even after the recent pop up here.
We still wouldn’t recommend paying the points, but you can do it. So, Jeb, let me throw one other one up here. Cause I think it’s sort of along the same lines. K C W says Wells Fargos offered me five and an eighth for a 30 year fixed. Um, it beats the best broker rate. I’ve been approved for five and a quarter, uh, approved four at five and a quarter.
Do big banks offer better rates? They absolutely do not Look at your pre-approval letter. Every time I see a Wells Fargo pre-approval letter, it has an absurd interest rate. The last one I saw said five and an eight. With a 5.95 a p r. They amounted to, I believe, $28,000 in points that you would have to pay to get that.
Um, what I would say, if it is legit, it could be legit from Wells Fargo and it is only for private banking clients. They will, you know, Uh, just do bend over backwards for private banking clients. But if you don’t have 500,000, a million dollars in an account, there you are absolutely paying a ton of points for a five and the eighth rate.
We haven’t lost a deal to Wells or Chase in years, maybe 20 15, 20 16, they were buying the jumbo market with really low rates. Um, but anything now that’s not jumbo, not private client, it’s, it’s just not gonna be there. And that is their mo They’re gonna pre-approved. You give you a letter here, you’re pre-approved.
It’s five and an eighth. Oh yeah. You gotta pay 28,000 in points to get it. That’s it.
[00:51:22] Jeb Smith, Huntington Beach Realtor: Um, that’s all. Michael has a question. Um, something I’m not familiar with at all says, have you heard of the Helper Act? That’s a new bill to provide VA type loans to first responders and teachers. Do you think it’ll.
[00:51:36] Josh Lewis, California Mortgage Broker: Familiar with it at all, Josh? Not in any way, shape, or form. The thing to always remember with anything that is proposed like this, they’re supposed to be, uh, revenue neutral. So that’s going to cost money to ensure those loans. And they can’t necessarily go into the FHA or VA pools, so it’s not as easy as a politician may think they can propose it.
They can say, I tried to do this for first responders. Um, but a lot of hurdles would have to be crossed to make that happen.
[00:52:05] Jeb Smith, Huntington Beach Realtor: All right. Uh, is it a good idea to pay off your mortgage before you retire, two years before you retire? Josh, is there any reason to pay it off? .
[00:52:15] Josh Lewis, California Mortgage Broker: So I prefer to think in terms of your freedom point.
What point in your life do you want to be free from having a mortgage? You can do that by prepaying the loan and paying it off. You can do it by aggressively saving and investing and accumulating enough funds that when you arrive at retirement that you can pay it off. I think it’s important that when you get to the, the point in your life where you’re not gonna have, uh, income or as big of income, an active income from a job you go to every day, that you can drastically reduce that, uh, housing payment.
So is it a good idea to do it two years before you retire? It’s fine. One of the downsides and one of the reasons why some people will save and invest is it maintains as many tax benefits as possible through their prime earning years. And then if taxable income decreases a bunch in retirement, then take some assets and pay it off when it’s no longer a benefit.
Never a wrong answer. No one ever went broke paying off their mortgage. I have a client that only does 15 year mortgages and then aggressively prepays them. I think it’s nuts, but he laughs at me and goes, well, I always owe this much against my home relative to its value and makes me happy. Yeah. And, and,
[00:53:21] Jeb Smith, Huntington Beach Realtor: and I think it depends on how much you have left on that mortgage.
Right? I mean, if you have the ability to pay it off and, and you’re early in that mortgage, I mean, you’re gonna pay a lot of interest over the life of that mortgage. Whereas if, you know, you only had a couple of years remaining on that mortgage, towards the end, you’re paying mostly principal anyway. Very little interest is actually, um, being accumulated towards the end of that mortgage.
So it might not make sense to pay it off. It may make sense just to keep that money, invest that money. Have the money for, for, you know, um, other reasons or, or what have you. So I think each situation’s a little bit different for each person. Um, Josh, where, question, question, uh, Alvin. Alvin says, we’re gonna, am I gonna make another video about investment properties out of state?
Like a new video? I can, um, it’s, it’s, if, if that’s something you guys wanna see, let me know. I’m happy to do it. And do I own any out-of-state properties where, and how much? I don’t own any out-of-state investment properties at the moment. I have, I’ve owned, um, uh, out-of-state properties in the past.
Unfortunately, I sold them, uh, because it would be very nice if I still had them. Uh, but no, we’ve, we’ve talked about other markets and the idea of buying property in those markets, the cash flow and, and all of that. And, and for a lot of people, you know, that might be the answer, right? I mean, if you’re looking in your market at the moment and you’re going, this is where I wanna live, but I can’t afford to buy, Well, maybe you rent where you wanna live and you buy a property outta state and invest in real estate in other places, uh, where it is a little bit more affordable.
And I’m actually gonna talk about that in, in a video. Um, so I just don’t know when I’m gonna film that. , I got [00:55:00] a lot of time. I mean, just so much time to do this. I don’t know when I’m gonna do. Isn’t
[00:55:03] Josh Lewis, California Mortgage Broker: that what we talk about every day, Jeb? We’ve got so much time and nothing to fill it. Let’s do more
[00:55:08] Jeb Smith, Huntington Beach Realtor: stuff.
Yeah. But um, yeah, so at the moment I don’t, you know, if there’s something specific you want to know, put it in the chat and we can, uh, we can cover it in a video. Uh, burn it up. Would buying and Barstow California for cash, for cash flow be a good idea? I mean, the high desert in California, the prices are blowing up, so that is why I am looking at Barstow.
So I think buying in California for cash flow is difficult, uh, concept for most people to wrap their minds around just because it requires a large down payment for most people. You know, even in Barstow, I, I would say the median home price, I’m guessing. So don’t you know, shoot me here. It’s probably 350, $400,000, somewhere in that ball.
Three 50, let’s go three 50. If it’s an investment property, I mean, you’re putting, you know, 70,000 or so dollars down minimum. Um, and having a much higher interest rate. And I don’t know what something out there like that’s gonna cash. You know, what, what kind of rent that’s gonna bring in. I, I, it, it’s difficult, it’s difficult to get properties to cash flow in California without a sizable down payment.
Even with rent being up, it’s, it’s difficult. You, you’re much better taking that same investment and probably going outta state and buying something and getting a lot more cash flow. Now, here’s the caveat, you’re probably not gonna get the appreciation that you might get in California, but I, you gotta weigh both.
You gotta figure out what it is you’re, you’re trying to accomplish. But Barstow for me, I don’t know that that’s where I’d be, um, I’d be, be investing, but hell, I don’t
[00:56:40] Josh Lewis, California Mortgage Broker: know. Josh, thoughts. Median home value in Barstow, according to Zillow is $257,000 up nine. It’s more than I thought, up 9.7% year over year.
So it was 2 25, 2 30 this time last year. Mm-hmm. , um, I, I wouldn’t count on it for appreciation, like if, if we’ve talked about it before and, and I’m, I’m gonna make a, a quest to dig through my Google Drive and find my slide deck where we showed the, the changing heat map from like 1997 through 2007. And what happens with home values, it was Southern California and it showed that when the market heats up, it starts at the coast and it goes and goes inland, inland, inland, inland.
So you get all the way out to the high desert, also experiences a big boom, and then when it cools down, it starts first in the high desert and works its way back to the coast. And the last thing impacted are the beachfront properties in Malibu. So from that perspective, Barstow is gonna be very volatile.
um, wouldn’t count on it for cash flow. I’m sure there are a few industries in Barstow that require people to be located out there, and so there would be some sort of desirability for those folks. Other than that, I have never heard a person say, I would like to live in Barstow, California. They might like to stop there and go to the outlets or get an in-N-out on the way to Vegas, but no one actually wants to live there, so I wouldn’t want to own anywhere where anyone.
Want to live that they just have to live or it’s the only place they can afford to live. And Jeb, the thought that I had that occurred to me, you, this was what, probably a year ago, you said, Hey, an agent, uh, that I know has this listing here in Arkansas, and it was $119,000. Yeah, it was nice. I’m not saying it was a palace, but equivalent here in California will be $500,000.
Oh, easily. Yeah. A, a $257,000 house in Barstow would be half as nice as this house. The rents would be probably the same in Arkansas. So same rent for half the price, uh, uh, of the home. And there are actually people at that portion of Arkansas, I would say. Yeah, I’d like to live here.
[00:58:34] Jeb Smith, Huntington Beach Realtor: Yeah, no, it, it, it’s, it, it is crazy once you start looking at it.
But being from like a rural area, I look at some of these houses on a map and I’m like, there’s nothing around it. Like, you know, being in California for so long, I’m so jaded that, you know, looking at a, a, a piece of property out in the middle of nowhere, I’m like, eh, I’m not sure I can invest in that. But nevertheless, people do.
And there’s a lot of people moving to those or buying investment properties in those areas because of, of that cash flow. Uh, Jeff says, do I plan on doing any more collab videos in the future? You know, honestly, the collab videos don’t really perform very well. Um, on my channel. Uh, you know, they get some views, but that’s not, not really, um, like the other videos that I post.
So I’ve kind of refrained from doing them for that reason. Um, I’m not against them. Uh, so if you have suggestions, let me know. I’m open, I’m open to ideas, uh, simply easy accounting account. accountant, not sure. Uh, what percentage of your income should a mortgage payment be? Josh? Is there, is there a gold
[00:59:38] Josh Lewis, California Mortgage Broker: standard?
So, no. The, the trick, trick part of the question is should, should, um, it should be a percentage that you are comfortable with. Um, and if you’re, uh, very aggressive daredevil type, it should be less than you are comfortable with. Um, I have clients that tell me they can handle a payment that I can calculate and know absent a side [01:00:00] job that I don’t know about.
There’s no world in which they can pay for. Um, You see all sorts of different rules of thumb throughout time. You know, when I started back in the nineties, conventional loans, the, the actual guideline was 28% housing to income ratio. So that’s gross income, 28% of your housing income. I can’t tell you when the last time I saw one that low.
I probably could, I would’ve to dig through here and it’ll be a wealthy client who’s getting a little mortgage, um, that, uh, they’ve, they’ve built up equity and paid down mortgages over time, so they don’t need to borrow a whole heck of a lot. But for your general first time buyers, um, conservative borrowers are in the thirties on the housing to income ratio, aggressive, uh, are in the 40 to 50% range.
And if they’re super aggressive VA buyers, they might be at 60 or 70%. But, uh, I would say for a first time buyer, if you could keep it at a third of your gross income, that’s a very comfortable level. Uh, if you’re in a high cost area, that might not be. All right. Good
[01:00:56] Jeb Smith, Huntington Beach Realtor: stuff. Uh, Mohammed’s asking, can you assume a VA or an FHA loan as a second home?
So Josh, uh, do VA and FHA need to be primaries or can they be second
[01:01:09] Josh Lewis, California Mortgage Broker: homes? It’s a really good question. My, my gut instinct, I can’t tell you for a certain, my gut instinct would be no. But, um, in terms of VAAs summable, a non-veteran can assume a VA loan. So, uh, if a non-veteran can get a VA loan by assuming it, maybe a non-owner occupant could also get a VA loan, maybe we can do some research and come back and answer that n next week.
Uh, what I will say and answer this is, uh, it’s much greater idea in theory than it actually is. In fact, I, I don’t know, um, many, if any of these assumptions that people keep asking about are actually happening.
[01:01:44] Jeb Smith, Huntington Beach Realtor: All right. Uh, Ariel, um, is basically asking about buydown. So Ariel, prior to you coming on, we actually did a, a really.
An extended, uh, Josh didn’t take a breath for like two minutes and, and gave a full, uh, thought on, on buying the interest rate down. Um, so with the,
[01:02:03] Josh Lewis, California Mortgage Broker: the three year buy down, I think he’s asking about a temporary 3 21 buy down. Um, and Jeb, you hinted at that when I answered that question. Two very different things.
I don’t love it, but I like it better than a permanent buy down because if rates drop, you can take whatever is remaining in your escrow account that is paying for that buy down and use it to either permanently buy the rate down or pay your loan down. So if you’re getting the seller to give you a big chunk of money, at least that money is there and available for your use.
Should rates go down? It’s not a sun. .
[01:02:35] Jeb Smith, Huntington Beach Realtor: There you go. Hopefully that answers your question.
[01:02:37] Josh Lewis, California Mortgage Broker: And one, one other comment here for Ariel, um, says he has an 850,000 pre-approval letter, but he hasn’t done a hard hit yet. I would say he has an 850,000 pre-qual letter. They may have looked at, um, income and assets, so better than just your regular pre-qual.
But until we pull that credit, I can’t run an automated underwrite without a credit report. So, We can look at it and give you an educated expert opinion that we think you’re, uh, pre-approved eligible, but can’t know it until you actually have the credit report. So I, I totally get it, Jeff. This is something I get from people all the time.
Hey, I don’t wanna pull my credit yet. Can you tell me what I can be approved for? It really is an advanced pre-qualification at that point when we’re looking at income and assets. But not pulling credit can be appropriate for people who have better credit and are a little further off from buying. But for the most part, it is well worth, um, getting the credit pulled and having the certainty when you’re making your plans.
[01:03:32] Jeb Smith, Huntington Beach Realtor: Uh, been on for one hour at the moment. Uh, if you are so inclined, you found any value here at all, uh, do me a favor, hit the like button again. It helps. The YouTube algorithm helps. Josh and I accomplish our goal of educating home buyers, guiding you through that real estate process and, and really just helping.
Create educated, uh, home buyers, uh, by providing the information you need to make the right decisions. So, do me a favor and do that. And if you haven’t already, uh, you know, as many of you guys know, we have a podcast, uh, that we put out every Tuesday and we cover real estate topics in, you know, a I would say in, in a lot of detail, Josh.
Um, you know, anywhere from a 20 to a 40 minute dive into a subject. This past week we talked about finding deals in the market on and off the mls. So if you’re trying to find a deal in this market, it’s worth listening to If you’re on the podcast now. , you know, we appreciate you. Um, you know, send us a rate and review.
If you haven’t done that already, if you’re here and you like the podcast, let us know. We’re always open to additional topics too. We’re getting some traction
[01:04:37] Josh Lewis, California Mortgage Broker: with that podcast. Our audience has doubled in the last two months, at least according to our, our metrics.
[01:04:42] Jeb Smith, Huntington Beach Realtor: Yeah, I mean, hell, it’s doubled in the last, like two weeks.
Um, to some regard it’s, it’s, it’s pretty wild, uh, how quickly it’s growing. So, uh, but a lot of that has to do with you guys and the support, and for that we are appreciative. Lastly, if you need a lender mortgage person, [01:05:00] professional
[01:05:00] Josh Lewis, California Mortgage Broker: real estate guy, girl. ,
[01:05:03] Jeb Smith, Huntington Beach Realtor: whatever. There’s a link scrolling at the bottom.
It’ll take you to somebody that we know, like, and trust that can guide you through that process. So with that, Josh, back to the show. We got less viewers tonight. Did we piss people off?
[01:05:13] Josh Lewis, California Mortgage Broker: Did we do something last week? We did that or we made a bad thumbnail.
[01:05:16] Jeb Smith, Huntington Beach Realtor: Maybe ba I think it’s a bad title is what I think it is.
Uh, but nevertheless, hey, we’re here. You know, you learn and, uh, you move on. Josh, we have some questions, um, asking about different counties. Uh, this one is about Sonoma County. Uh, ask what we think. Reason is they are buying a second home there. I don’t know enough about Sonoma County other than I like wine and therefore I like Sonoma County.
Uh, I know some agents that work that market, uh, that are, you know, really good friends of mine and do very well and, and swear by Sonoma. So, uh, because of that I have to think that it’s a very nice area. Um, outside of property values and all of that, I, I don’t, I can’t really give you much detail. I don’t know what that market’s doing at the moment.
Uh, but I do know it’s a popular place for. Second homes, four people vacationing. Um, so if it’s right for you, then it’s right. How’s that? Uh, let’s get this off the screen. Josh. Nobody cares to see that anymore. Um,
air Eric is asking us if there’s a solar eclipse tonight in Orange County. Eric, here’s the thing, man, I get up so early in the morning, what I consider early in the morning that I’m not around to find out if there’s solar eclipses at night. If there’s full moons. Dude, I drive home, going to bed, wake up in the mor, I, I guess I could find out if it was like four 30 in the morning, I could tell you.
But outside of that, I have no help to you, Josh. Is there a solar ec clips tonight? You’re awake at that time?
[01:06:50] Josh Lewis, California Mortgage Broker: I don’t know. I don’t know. That stuff.
[01:06:52] Jeb Smith, Huntington Beach Realtor: You don’t follow, you don’t follow the patterns
[01:06:56] Josh Lewis, California Mortgage Broker: over, over my pay grade.
[01:07:00] Jeb Smith, Huntington Beach Realtor: Uh, Richard average rates on investment properties these days. Josh, what are you seeing?
I know there’s a lot of factors. So let’s just say best case scenario, 25% down, you know, high credit scores.
[01:07:14] Josh Lewis, California Mortgage Broker: Best case would be 40% down, 40% down. You’re looking at about a half percent above market. So if we say we’re plus or minus 6%, you’re probably plus or minus six and a half percent. Maybe slightly worse than that because lenders aren’t paying up for the higher note rates.
It’s not actually a higher rate that Fannie and Freddie require for an investment property. They actually have points in the form of a loan level price adjustment. Most people choose not to pay them out of pocket, so they pay it with a higher rate. Right now, lenders aren’t paying up for the higher note rates quite the way they would.
So normally I would say six and a half. I haven’t priced one recently. Maybe more like six and three quarters.
[01:07:47] Jeb Smith, Huntington Beach Realtor: There you go. Uh, here’s the thing, Alvin earlier. Ask me if I was gonna do any, uh, new videos on investing outta state, when in
[01:07:57] Josh Lewis, California Mortgage Broker: fact, I think Alvin, I was, where’s video? Where’s Alvin’s YouTube channel?
I, I won’t wanna investing outta
[01:08:03] Jeb Smith, Huntington Beach Realtor: state. Alvin bought four single family houses in Ohio, Cleveland area, uh, for 30,000
[01:08:10] Josh Lewis, California Mortgage Broker: each. Turnkey. Put
[01:08:12] Jeb Smith, Huntington Beach Realtor: Section eight in, uh, put section eight people in them. Rented ’em for 1203 a month. Kind of a weird number, but I like it. Uh, the mortgage with taxes, insurance, everything is 300 bucks a month.
So making $900 a month each times four 30, $600 per month, people, Alvin’s got the right formula. You don’t need to invest in California real estate when you can put $120,000 into property and get that kind of return. That’s good. ,
[01:08:41] Josh Lewis, California Mortgage Broker: and I can say this with almost certainty, Alvin is never gonna see the appreciation that even Barstow would likely see in the next 20 years.
And I can also say with 110% certainty, Alvin doesn’t care. That type of cash flow pays for itself. Like I look back, I have, uh, a couple of of people that I was in their programs or, or followed, um, that back in the last downturn were looking at Detroit and Cleveland. Um, and same thing, turnkey homes, 10, $12,000 because, uh, it just, you could do it.
My barber bought one in Detroit for 12 grand. He did like an $8,000 rehab on it, and it’s worth like 60 now. But they pay it about the thousand dollars a month in rent. He owes nothing on it because he used the rent for two years. We just pay it.
[01:09:26] Jeb Smith, Huntington Beach Realtor: No, I mean, I remember, you know, at the, I would say the bottom of the market, um, in oh 8, 0 9, somewhere in there, they were selling properties in Detroit for like five grand.
Like you could buy a property for $5,000 and people were like, hell no, I’m not buying that. It’s not going anywhere. The market’s gonna crash today. Those properties are worth 60, $70,000. So if you were smart enough to buy ’em, a lot of that got re gentrified. Um, K C W gave a $5 super chat, so thank you.
Said, just put in an offer betting that rates will stay around high 4%, low [01:10:00] 5% with, uh, LA Metro, uh, 1.2 million range condo pricing stabilized mini, I’m so confused. Uh, you just put in an offer betting that rates will stay around high four fours, low fives, who took the bet. Josh, did you take
[01:10:17] Josh Lewis, California Mortgage Broker: that bet? I didn’t take the bet.
I’m, I’m just appreciative that we have a cute dog picture and $5 to go buy an 8 0 5 with .
[01:10:26] Jeb Smith, Huntington Beach Realtor: We need more clarification. K C W. Um, I’ve got the LA Metro is 1.2 million ranged condo. Uh, but I don’t, I don’t know who, who took your bet at at that? They’re fool whoever took that bet. Uh, let’s see. Raffi thinks we could get more views if we were the ca crash bros.
I don’t disagree with that. I just don’t wanna be that, that person.
[01:10:52] Josh Lewis, California Mortgage Broker: What, what we did think that we would do is we would wear masks and, and sit at these desks and pretend we weren’t us and just make crash videos, although would be the masked crash pros. And it would probably just go like supernova, like immediately.
[01:11:04] Jeb Smith, Huntington Beach Realtor: it’d be hilarious, wouldn’t it? If, if same voices save
[01:11:08] Josh Lewis, California Mortgage Broker: everything, same desk, same
[01:11:10] Jeb Smith, Huntington Beach Realtor: everything, just, just a mask on and, and give the opposite of what we give here. Yeah. Classic. Classic. Uh, Eric thinks K c w is taking that bet. I bet. By putting in an offer this week, 5%, 30 year fixed, 1.2 million condo. Hey, listen, if you got a 5% 30 year fixed, um, without buying down the rate, congrats to you.
That’s, that’s, or she bought that on the rate embedding that it doesn’t go lower and she’s confident with her 5% or his 5%. Not
[01:11:42] Josh Lewis, California Mortgage Broker: sure e either way. So it’s funny, we, we had a comment back here. Um, going back to what percentage of your income should go to this? Someone said, um, my rent is 16% of my income.
You guys are all crazy. Well, okay, a portion of that mortgage payment for K c w for anyone else looking to enter the market is going towards principle over time that will appreciate you do get tax benefits. We go back to, and hate to sound like a broken record, homeowners have 44 times greater net worth than renters today.
You can run the numbers and tell me why renting makes all the sense in the world, but hopefully at some point you are making a plan of when it makes sense for you to step into becoming a homeowner, especially if you’re watching a show about mortgage and real estate. But secondary, uh, to that if you don’t want to own it can be done.
There are, um, Monk, like engineers out there who are good with numbers and great at investing and they live in a one bedroom apartment and they save all that extra money and invest it well and, uh, arrive at wealth without ever having bought a home. So it’s possible. Um, it just doesn’t happen in the aggregate.
[01:12:47] Jeb Smith, Huntington Beach Realtor: There you go. Uh, let’s see. Josh, do you think the rise in consumer credit has to do with the amount of 0% AP offers?
[01:13:02] Josh Lewis, California Mortgage Broker: I plead ignorance. I don’t look at any credit card offers. Are they offering 0% a p r offers, uh, teasers to get you in and, and to consume more debt? I think the problem is people, um, burn through all of the excess savings post covid from being locked up and unable to buy stuff and go places and getting yeah, checks from Donald J.
Trump, um, that, that money’s been burned through and the spending that people have to do is going on credit cards. But it certainly doesn’t hurt if, if you can do it 0% tell yourself in the short run, it’s not costing you any money. Agreed.
[01:13:32] Jeb Smith, Huntington Beach Realtor: Yeah. I don’t pay attention to credit card offers either. I don’t know.
The last time, actually, I did get a new credit card this year just because of, uh, of travel points with, with the card. Um, they were willing to give me 80,000, 80,000, 80,000 points with Chase Sapphire thing. If I spent like, I don’t know, Three grand within a couple of months and we were gonna do it anyway.
So we did it and paid it off and got that. But outside of that, I haven’t gotten a credit card in, I don’t know how long. Very, very long time. But I think that’s the ideas that people are spending on, on credit. Yeah. What’s up? You were gonna make a comment
[01:14:03] Josh Lewis, California Mortgage Broker: there. Oh, I, I finally gave in a couple years back and said, this is dumb.
We buy, uh, you know, hundreds of dollars or stuff every month on Amazon, and they give you 5% back, and it gets us a couple hundred dollars a year to have that extra credit card. That was the last one I, I took.
[01:14:17] Jeb Smith, Huntington Beach Realtor: There you go. Uh, Jessica, if I am an 11 month paycheck employee, I work in the schools and I plan to buy around September, would it look bad for underwriting purposes when buying a home?
A friend told me it would.
[01:14:31] Josh Lewis, California Mortgage Broker: Or Josh, get new friends. Get new friends. Or
[01:14:36] Jeb Smith, Huntington Beach Realtor: do they know you’re a teacher and they just average it over a 12 month span?
[01:14:40] Josh Lewis, California Mortgage Broker: Neither. They wanna find out are you 11 month or 12 month employee? If you’re an 11 month employee, some school districts will pay you over 12 months. So 99 times out of a hundred with a school employee of any sort, we will have to get a verification of employment and we will have to ask for them to comment.
Are you 10 and a half months, 10 [01:15:00] month, 11 months? And accurately calculate the income. You’re never gonna slide it by them. You can’t buy in a different part part of the year, and the lender’s not gonna know it. Underwriters are not dumb. They can be difficult, but they are not dumb. Good stuff. And
[01:15:13] Jeb Smith, Huntington Beach Realtor: the pitcher of Jessica there at Horseshoe Bend.
Actually went there, what? Not this past year, the year before. Awesome. Out there. Um, did the canyons with my bride on our anniversary. It was awesome. Um, so cool, cool picture. Uh, my son Nash. Best comment of the night. Look at that. I pay my kids to sit here and help the algorithm out by watching the videos.
I make them comment and this is it. You get to eat now, son. That’s great. Just kidding. All right. Uh, Nash probably knows more about YouTube than I do, and I’m not even joking. I’m being a hundred percent serious.
[01:15:55] Josh Lewis, California Mortgage Broker: Um, let’s see. I, I like, I like this one. Jeb, Dorothy. The route to success. So she’s in SoCal, Dorothy Route real estate.
She’s in SoCal as well, and started following you when you had a small amount of subscribers. Super cool to see how far your channel has come. Love all the videos. Um, we should talk about Jeb’s origin story when, um, and we probably should go back Jeb and show some of those 20 13, 20 14 videos. Wow. So people could see the awesome that we had there.
[01:16:27] Jeb Smith, Huntington Beach Realtor: So, Dorothy, thank you for that, by the way. Um, I believe, I know I don’t know your mom, but I, I think you guys were a team or are a team, so I, I know the name. Uh, but anyway, I appreciate it. Uh, you don’t want to see the origin of, of this, but all the videos are out there. Um, so back in 2000, we’re gonna go a little bit off of.
You know, subject here for a moment, we’re not off subject, cuz I guess we’re, that’s what we’re talking about. But out, out of answering questions. So back in like 2012, 13, I had a real estate coach that was like, you gotta get into video, you gotta start doing video. And I was, no, absolutely not. I’m not doing that.
I’m not setting up a camera, I’m not doing video. Well, I decided to do video, um, and it was a video here and there, there were nothing, you know. There’s still nothing. But they were less than nothing back then. And you know, you post one here and there and then Josh and I got the bright idea that back in, I don’t, was it 2013?
It wasn’t 2013 that we did that, that it was No way. Dude,
[01:17:33] Josh Lewis, California Mortgage Broker: it’s so bad, bro. I’ll, I’ll pull the video up right now. Do
[01:17:36] Jeb Smith, Huntington Beach Realtor: not, it’s so bad. It’s more, it’s worth, it’s awful for both of us.
[01:17:40] Josh Lewis, California Mortgage Broker: Um, nevertheless, you can’t, you can’t say who it was worse for. It’s bad for both of us. . But nevertheless, we did videos back then and they were so
[01:17:48] Jeb Smith, Huntington Beach Realtor: bad.
And then, I don’t know, something happened about three or four months before Covid. I was like, you know what? I’m gonna start doing the video thing. Uh, and just providing education. And then Covid happened and I didn’t really have a job for a couple of months and I took a deep dive into video and here I am today with another job and.
It’s all part of the game. The progress, I guess the consistency. We need consistency. We need
[01:18:12] Josh Lewis, California Mortgage Broker: to show this. I just pulled it up. It was September, 2014. We need to pull up. Oh my God, this is so bad. like, so bad. Like I, I believe I’m like 270 pounds in this picture. Oh, Jeb. Jeb has a crazy haircut. We have, uh, a synthetic barnwood background.
There’s so much awesome going on in this video. It looks like a, a used car commercial from the seventies . It is so awful. How about this? At
[01:18:39] Jeb Smith, Huntington Beach Realtor: the end of tonight’s episode, we’ll play it. How’s that?
[01:18:41] Josh Lewis, California Mortgage Broker: So if you’re watching now, hold out. Hold out. We’ve already lost lights by, by just talking about, by talking about it.
[01:18:47] Jeb Smith, Huntington Beach Realtor: it. But anyway, uh, we’ll, we’ll be here at the end. We’ll show it. Uh, Let’s see, Eric, it’s because we don’t think it’s going to crash and burn. We think that, you know, after two years of crazy appreciation that it’s likely that, you know, market has to pull back a little bit, which is what we’ve seen.
You’re likely to see some sideways movement, but we know, again, long-term benefits. Voting real estate, we know, uh, long-term real estate is going to go up and therefore we want to educate. Right? I mean, the goal here with the channel always has been to educate and let you guys make that decision. We’re not here telling you to buy a house, not here telling you to sell a house, not here telling you to do anything.
Just answering questions and letting you take, uh, that information for what it’s worth. And, um, yeah, and using that. So, but I appreciate the comment,
[01:19:36] Josh Lewis, California Mortgage Broker: Jeff. Let this up here. This, um, was something I meant to get into the slides and didn’t. Mm-hmm. . CoreLogic comes out with their numbers every month. This is their projections.
And I don’t mean to say, Hey, here’s the facts, because the wizards at CoreLogic said, uh, in 2020 due to Covid, we were gonna drop 6% in value. They came back in 2021 and they said we were gonna drop 3% in value. Now they’re forecasting 3% appreciation going forward. But going back to the [01:20:00] crash, I had a discussion with this with a client today.
He and his wife are both traveling nurses. They’re in Hawaii right now. They make net $5,000 a month. They can save at a rapid clip. Their rent there is $2,000 and they’re living in Hawaii. They want to buy here in SoCal. But going through this, I said like, Historically long haul Southern California’s 7% appreciation.
Well, I don’t see how we get 7% appreciation the next 2, 3, 4, 5 years. We have to have a normalization. So I’m not super bullish on real estate. I still think it makes sense to buy and own when it’s the right point in your life, which you’ve probably heard us say ad nauseum for the last few years here on the show.
But even CoreLogic is looking at it saying, yeah, month over month numbers were down 0.4%. They’re saying next month they think they’re gonna drop 0.2% nationwide. Um, year over year we’re up 6.9%. They’re expecting we’ll be up 3% this year. I think, uh, you could come up with a reasonable number. Tell me anywhere from down 5% to up 5% in the next 12 months.
And I’m all ears. You tell me much outside of that, you’re telling me you’re crazy. Like you’re just telling me I have an agenda and I want to have something that’s clickbait headline. Either I’m gonna tell you why home prices are gonna go up or down 15, 20% in the next year cause it’s just not going to happen.
[01:21:18] Jeb Smith, Huntington Beach Realtor: Um, Antons, what do you guys think about the Inland Empire area? So that’s here in Southern California. It’s a little bit further from the coast, I think. Uh, it depends. I mean, it depends on where in the, in Inland Empire, it depends on why you’re moving there. Um, if your job is there and that’s where you wanna be, then great.
I, I don’t think there’s anything wrong with living out there. Um, I don’t wanna live out there personally. I wanna be by the coast. Uh, but being by the coast comes with higher price tags and, and other things, but that’s just me. So it’s all about buying for the right reasons. What are the reasons that you’re, you’re doing it.
Why are you doing it? Um, I think that’s what you need to focus on and, um, yeah, and, and, and really having somebody ask you the right questions to be able to, to help you make that.
[01:22:03] Josh Lewis, California Mortgage Broker: Jeb at risk of boring people who are not in Southern California. The Inland Empire is a big area. We talk. Um, yeah. You know, I have clients buying in Rancho Cucamonga all the time.
They’re one, 1.2, 1.4 million. Um, we have people that are in the high desert buying at 400, $450,000, and those are very, very different markets and how they’re going to react. The thing that I will say, if we go back 15 years to the last downturn, The Inland Empire wasn’t nearly as built out. Um, Southern California population wasn’t as high as it is right now.
Um, I think the Inland Empire is going to perform better going forward as the population spreads out and kind of fills out these areas. What used to be outlying areas are more dense and there’s more people with more jobs that live there. And that heat map I was telling you guys about where it goes from the coast all the way to the desert back to the coast in terms of what heats up the fastest and cools down the first, I think the Inland Empire will do better and it is more affordable.
So there’s people that logically and rationally make the decision that, Hey, I’m still in SoCal. I can still get to a Dodger game. I can still go to San Diego and go to the beach. Uh, but I can afford to, to live in a home here that’s a little bit lower price. Or I can afford a nicer home at the same price that I would get a not as nice home in LA or Orange County.
[01:23:15] Jeb Smith, Huntington Beach Realtor: There you go. There you go. Um, couple more questions. Uh, well, let’s see.
[01:23:23] Josh Lewis, California Mortgage Broker: Uh,
[01:23:25] Jeb Smith, Huntington Beach Realtor: nothing, nothing. Super, super interesting that, um, let’s just answer this here, Luis. Uh, Luis. So how do you calculate active duty military pay for qualifying income? Um, so. Are there some things you can gross up? Are there it’s, yeah.
[01:23:45] Josh Lewis, California Mortgage Broker: It’s easy with some quirks. So you need to get the leave an earning statement. The leave an earning statement. The first thing you wanna look at and see when their estimated separation date is. We need to make sure they’re going to remain in the service and that income is likely to continue. Um, if it is coming up in the next 12 months, you need to get a statement from the veteran and their commanding officer that they are eligible to, uh, to reenlist and intend to reenlist.
But now when we get to the income, you have the base pay that’s taxed, that is treated normally. Um, then you have some additional figures there. I have a client right now, he’s a pilot. He gets, um, flight pay. He gets, uh, b a s, which is subsistence paid. Food and then a housing, uh, allowance. So all of those are not taxed, and those can be grossed up if needed to get you to a higher income.
Grossed up. What does that mean? Non-taxed income? Since we use gross income before taxes for your regular income, if that income isn’t taxed, we use a factor to increase it, to make it similar to gross income for someone with taxable income. So not all that complicated, but semi complicated.
[01:24:49] Jeb Smith, Huntington Beach Realtor: All right. Uh, Josh, I had something I was gonna say and my brain just, um, does not remember what that is, so I [01:25:00] digress.
I don’t know. Josh, where do we go from here? Uh, S S N N Media says, uh, as experts. So what do you believe should be the standard d t I ratio to buy a house? So I think this kind of goes along. The question is what should, um, you know, uh, Your, uh, um, you know, your D T I B when buying. Here’s the thing is, is the standard is very difficult for, for many reasons, and that’s because not all income is reported in, in ways.
So your d t i, if you’re a wage earner, is going to be a little bit different than say, my wage, my d t i as a self-employed business owner because of maybe the way I write off things. And so maybe I have more income coming in than is actually reported. Therefore, I would be affected, uh, in a negative way.
Um, if I had, uh, a ton of write-offs in my business, in, in, in being able to qualify for a home, right? Because they’re gonna look at my income and say, Hey, this guy doesn’t make that much money. He can’t qualify to buy this house because, you know, or his d t i is this so he can only be approved for this when in.
it’s completely different. So I don’t know that there should be a standard for everyone. I think it, you know, that’s part of, um, the freedom I guess in, in having different types of loan programs that allow different flexibility and, and allowing you to use compensating factors and different things to get to a higher debt to income ratio comes more down to the person.
I mean, you know, should the, should, should the, the lender, um, be telling people, Hey, you shouldn’t be getting a mortgage over this. Or should they just be saying, Hey listen, this is how much we’ll give you. It’s up to you to figure that out. And so I, you know, I’m, I’m much a believer of, of the second way, right?
I mean, you can’t, um, parent everyone. At some point people have to make big boy decisions and part of that is figuring out your budget. Josh, I know I just went off a tangent
[01:27:04] Josh Lewis, California Mortgage Broker: there. Look, look at it this way. Those of you that watch regularly have heard my comments. I don’t like government in intervention.
I don’t like government regulation, but. . We had some craziness prior to the downturn in 2008, so the government came in and set standards. Those standards prevent the problems that we had prior to the downturn, but they also put good people in really difficult situations. The best example that I can give prior, To Dodd-Frank and the qualified mortgage guidelines and ability to repay rules that we have now, Fannie Mae and Freddie Mac would approve loans up into a 60 something percent debt to income ratio.
Who would they approve those loans for? Very high credit scores, lots of equity and generally refinances where someone is lowering a payment. I had situations when the Fed stepped in in 2010, 2011, 2012, and was was doing quantit. Uh, easing and basically pushing rates lower. I had retired people, a woman in San Francisco.
She had a a two unit building and it was like seven and a half percent rates were 5% at the time, and it was like a $700,000 loan. We could not refinance her cuz we could not show the, she, she had the ability to repay despite the fact that she had forever paid the payment at 7.5% and we were gonna be saving her five, $600 a month.
We couldn’t use common sense in that situation. So that’s the trouble with standards. Um, kind of going back to VA loans, the thing that I really like, VA will allow you to go to a very, very high debt to income ratio, but only if you pass their residual income test, which shows that you have enough money to pay your utilities.
Um, you know, the, the basic expenses a after your net income comes in. So there are ways of doing it that are better than the blanket guidelines that we have from the government right now. But, uh, that being said, the government’s rules are better than no rules that we had before that. There you go. Um,
[01:29:01] Jeb Smith, Huntington Beach Realtor: Michael is closing this Friday.
Been watching us for a while. Thanks for all the advice. How much equity should I have in order to refinance at a later date? Um, when the numbers make sense. Um, you know, talk to a lender when, when you think the opportunity is there with, with lower rates. You know, Josh earlier gave you the kind of the, the how to qualify it, right?
You take your loan amount or take 125,000, divide it by your loan amount, and you’re gonna come up with, with a number. Um, and, and once you know, you can save, once the number makes sense or, or rates are down that low, then it’s an opportunity for you to refinance. But you have to, to see if it makes sense, right?
It’s not always going to make sense for you. How much is it gonna cost you to do that refinance? How long are you gonna be on the property? How long does it take to pay off that if there are cost involved? So, There’s a lot going on there. It’s not just a straightforward answer. Um, so just when you’re, when you’re ready to, to, to have that conversation, reach back out or [01:30:00] check out some of the other videos I’ve done when talking about refinancing, cuz they’re, they’re
[01:30:03] Josh Lewis, California Mortgage Broker: in that regard, I would say, Jeb, with that equity is irrelevant to the refinance decision.
other than if it impacts the effective interest rate. So if you have mortgage insurance and you say, okay, here’s my rate plus my mortgage insurance. Now we would factor the potential savings into that. So if we say, we’re looking here saying, um, home price appreciation should be minus five to plus 5% in the next 12 months.
If they dropped 5% and you had put 10% down, you’re now at the 5% equity position and you would probably have more expensive mortgage insurance. So rates would have to drop more to make it make sense the other way around. If the rates or if the equity position increases, you can get cheaper or get rid of mortgage insurance.
And that can also impact the decision of when it makes sense to refinance. Good stuff. Josh. I, you
[01:30:51] Jeb Smith, Huntington Beach Realtor: know, I think tonight we might cut this short. Um, let’s answer a couple more questions and, and then maybe we head out early with, uh, with a video of us from a long time ago. Uh, Raul says Chiefs or Eagles, Josh,
[01:31:04] Josh Lewis, California Mortgage Broker: that’s, that’s the important question, right?
[01:31:07] Jeb Smith, Huntington Beach Realtor: Well, I guess if you’re accused your Eagles man gonna be, it’s,
[01:31:10] Josh Lewis, California Mortgage Broker: well, we’re all gonna be watching it on Sunday. That would be, yeah. But commercials, do you have a dog in the fight? Do you care? I don’t. I don’t. But I love me some. Jalen Hertz. I don’t, I have, no, I don’t. Usually there’s a team that I dislike and I root against them.
I like both of them. Uh, I, I like Jalen Hertz. I’ll take the Eagles.
[01:31:25] Jeb Smith, Huntington Beach Realtor: There you go. I, I’m going Eagles too. Um, you know, I I, I, I have friends that have friends that, that are former Eagles and he’s gonna be at the game. Therefore, I’m rooting for him to have a good time while he is at the game. That’s the only reason I care.
Outside of that, I don’t care. Hey, um, I think, hey, I think my kids are going for Kansas City though. Yeah,
[01:31:45] Josh Lewis, California Mortgage Broker: bef, depending on what Courtney’s answer was today we have a, a viewer here that says, do either of you need assistance? Just moved here and need a job asap. So maybe the job you were talking about earlier today would be a good fit
[01:31:56] Jeb Smith, Huntington Beach Realtor: for ’em, you know, and you can reach out and we’ll, we’ll have a conversation, see what it is you’re looking for, and we’ll see if we have a position for that.
Um, let’s go with this one, Josh Lilly says, uh, what is the chance for the lender to find out your loan changed? If you moved it to an llc, what will they do? Would they cancel my loan since I have a low interest rate, uh, but also want to have asset protection, so the title of my property moves into an llc.
Josh, does that hinder anything? Does it change anything? So
[01:32:25] Josh Lewis, California Mortgage Broker: remember Josh is not a lawyer or a CPA or any of those things, um, but I almost no risk of them lo calling the loan due because just like you can take it from yourself as an individual and deed it to the llc, you can deed it from the L l C back to you as long as the beneficial interest to the L L C is the same as the ownership interest, very unlikely that you would’ve a problem.
So say it’s you and a spouse, um, you know, Lily fam and Joe Fam, uh, husband and wife is joint tenants, and it goes to the fam. Uh, llc and you two are the owners. The same Beneficial interest exists, very unlikely that the lender’s going to have a problem. They have you on the hook with the note, uh, that you, uh, are, have signed up for that loan.
They don’t wanna make the loan to the llc. They wanna make the loan to you as an individual. They already did that, so very unlikely that you would’ve a problem if you did have a problem. Deed it back to yourselves individually. If you want to do it, go ahead and do it. Just remember it is gonna be a pain in the ass every time you wanna refinance that property in the future.
[01:33:27] Jeb Smith, Huntington Beach Realtor: And then side note, Josh, let’s talk about this for a sec. So it’s been in your personal name, you deed it to an lll C so now it, it went from personal to an lll C Does that actually protect your assets there? Because I, my understanding, and maybe I’m in incorrect in this, in this under in understanding or interpretation, is that if you, if you truly get somebody that knows what they’re doing on the other side that wants to sue you, they can essentially see that at some point that L L C.
Right, that it was transferred from your personal, um, property into the L L C and they can essentially go around that. Right? Um, because at some point there was pro personal money used to buy that property, therefore the asset protection is no longer there. Does that make sense? It increases.
[01:34:13] Josh Lewis, California Mortgage Broker: No, you are a hundred percent correct.
What are we talking about? It’s called, the technical term is piercing the corporate veil. Um, it would be a very thin corporate veil and I would be of the opinion that probably, uh, an expert litigator would have a pretty easy time getting through that. Um, so I’m not sure how much asset protection it’s giving you, but you would no longer be the owner, but you would have pretty much identified that you have the beneficial interest in that L L C, uh, as well.
Yeah. And I know
[01:34:38] Jeb Smith, Huntington Beach Realtor: a lot of videos and a lot of people out there talking about buying investment property, putting it in your L L C to protect yourself and having these shell corporations and it’s owned by another Shell corporation and blah, blah, blah. Great. I mean, Unless you’re made of like millions and millions of dollars and have done some really shady shit and, and you’re at the risk [01:35:00] of getting sued, it’s a lot of money to be spending on corporations that really at the end of the day may or may not benefit you.
Um, especially if you live in California and you’re having to file taxes on each one of these and pay, you know, the franchise tax board, 800 bucks per filing on something that made no money and anyway, um, really only needed for people that, that have high net worth in my opinion. But I don’t know, that’s just me.
Um, mine’s in a trust and that’s about the extent. Josh, where are we? We’re an hour and 35 minutes in. Um, you know, we don’t really have anybody liking the video. 56 people tonight. Uh, they think we suck. Uh, but if you are and you haven’t, uh, enjoying the show and you haven’t already, do us a favor and hit the, the thumbs up there.
again, it helps the algorithm. Um, on top of that, I would ask that if you haven’t done so already and you’re in the need of something good to listen to, uh, while you’re, while you’re driving, while you’re out in the garden planning flowers, boys, it’s Valentine’s Day on Tuesday. Men, women, whatever, you’re into Valentine’s Day on Tuesday.
If you haven’t booked a reservation for a restaurant, you’re probably too late. But you should start thinking about doing it now. Um, start thinking about where you’re getting flowers. Now. Get the card. Now, this is coming from a guy that doesn’t plan anything and I’m already ahead of you guys. I mean, shows you where my focus is.
Voice, uh, ladies, whatever. Uh, but anyway, check out the podcast if you’re listening, uh, looking for something to listen. Josh, where, where are we going from here? Are you playing a video of
[01:36:37] Josh Lewis, California Mortgage Broker: Oh boy. Not, not yet. We’re not there yet, but, uh, Raul Raul’s got a $25,000 bet on the Eagles. Nice,
[01:36:46] Jeb Smith, Huntington Beach Realtor: nice. Raul, what’s the
[01:36:47] Josh Lewis, California Mortgage Broker: payoff?
What’s the I won, I want to see the bedding. Slipper. I don’t believe it. That’s a lot of money on a 50 50 coin toss game. I don’t believe it. I’m
[01:36:54] Jeb Smith, Huntington Beach Realtor: dude, did you see what’s his, I don’t know. His name Just won $500,000 in Vegas. He won his salary for the year in Vegas. No. Who on I, I forget. I don’t even know what game I was playing.
I just saw it. I, I saw the highlight quickly. I was like, what? But anyway, uh, in the forties. In the forties is what the payout is. And Jay coming in here at the end asking where Dan Dana’s been here
[01:37:17] Josh Lewis, California Mortgage Broker: the whole time, bro, you are slacking. Start. You didn’t, you’re not impressing her for Valentine’s Day.
Showing up late and asking where she’s at. She’s thinking you’re not cat catting around chasing other girls. . Oh,
[01:37:29] Jeb Smith, Huntington Beach Realtor: guys. Um, Let’s see here. Let’s see. Where are we at? Josh? I, I’m waiting for Raul to come in with the strong money here, letting us
[01:37:37] Josh Lewis, California Mortgage Broker: know Jay has some great advice
[01:37:40] Jeb Smith, Huntington Beach Realtor: and there we go. Figure out which team re bet for the other team.
That’s fair advice. Um, who is who? What is Revenge Con? What is that? Is that like a who,
[01:37:51] Josh Lewis, California Mortgage Broker: who that, who, who that? Uh, maybe you’ll buy some real
[01:37:56] Jeb Smith, Huntington Beach Realtor: estate if I win. Listen, if you don’t own real estate and you’re putting $25,000 on this game, I’m coming after you, bro. Alright, Josh, I think we reached the point in the shell.
Hour and 38 minutes in
[01:38:09] Josh Lewis, California Mortgage Broker: where we chase everyone off with our quality, uh, 10 year old dances. How much of this are you playing?
[01:38:14] Jeb Smith, Huntington Beach Realtor: I think that’s important to,
[01:38:15] Josh Lewis, California Mortgage Broker: I think 10, 10 seconds. People will get the gist and run for the Hills , including
[01:38:20] Jeb Smith, Huntington Beach Realtor: us. All right, bro. Put
[01:38:22] Josh Lewis, California Mortgage Broker: it up there. I guess. Hold on, hold on, hold on. We, Jesse says that she was watching from her tv, which I appreciate.
I love watching YouTube from the tv. It’s way better, but she says it doesn’t allow for comments, so she had to actually open up her laptop. YouTube needs to figure out how to, you can talk to your remote or something and make comments. That would be way, way
[01:38:40] Jeb Smith, Huntington Beach Realtor: better. That is fair. I think that’s a uh, uh, a fair co.
You can do thumbs up and stuff on the TV though. I know, because my kids watch a lot of YouTube on the TV and I’ll sit there and watch it too, and then I feel bad that I’ve watched it and I haven’t done anything, so I always go hit the thumb. and them, they don’t care. They just watch the videos. So I’m trying to give some love back and do what I’m asking other people to do.
All right, Josh?
[01:39:02] Josh Lewis, California Mortgage Broker: Um, hold, hold on. I actually did, did that to say Jesse had a question. So she went, oh, sorry. All the way to the keyboard. We, she opened up her laptop for us. We probably should answer her damn question. So have people overbought with high D t I and unaffordable houses, what are the odds of them defaulting?
Very, very minimal because in the last year, sales volume was much lower relative to time immemorial. Prior to that, um, most people are sitting on massive amounts of equity with very low interest rates. The loans that were underwritten and approved in the last year, those people qualified for the mortgages, still strict underwriting guidelines, still very high average FICOs.
Would they be more likely to default than loans from 2020 or 2015? Yes, they would. Um, but I, I, I don’t think that, that there’s an appreciable level of systemic risk based off of just the last year’s worth of loans.
[01:39:51] Jeb Smith, Huntington Beach Realtor: All right.
[01:39:52] Josh Lewis, California Mortgage Broker: There you go. Good stuff. All right. You, you doing it? No. Go for
[01:39:56] Jeb Smith, Huntington Beach Realtor: it. Uh, guys, we appreciate you being here.
We appreciate the [01:40:00] support. If you want to laugh hysterically, stick around for another 10
[01:40:04] Josh Lewis, California Mortgage Broker: seconds here. Here it goes. Hey there. This is Jeb Smith, broker owner of Coastal Realty Group. Today I’m here with my preferred lender, Josh
[01:40:13] Jeb Smith, Huntington Beach Realtor: Lewis, the certified mortgage consultant. So bad barbecue.
[01:40:17] Josh Lewis, California Mortgage Broker: Today you were the most important issues that comes up when I’m
[01:40:20] Jeb Smith, Huntington Beach Realtor: working with clients who are just starting in a homeline process.
Are reading that, we’re reading them, and that is the
[01:40:25] Josh Lewis, California Mortgage Broker: topic of pre-qualification versus pre-app. I look like your bodyguard. I look like your bodyguard. I’m sitting there just, Hey, don’t mess with this guy. . This is so bad. Oh boy guys, holy. Give it cow. Give a, give a like, or a thumbs up if you want Jeb to post that video as his next video on his channel,
No chance. It’s still out there on the internet. Guys, go check it out. It is. Eric says, that dude ate Josh. That is true. . That is true. Oh, and Anya’s mean. So there was a little fluffy at the time. A wee bit fluffy dude there. There’s one where you
[01:41:01] Jeb Smith, Huntington Beach Realtor: literally look like a giant capacity. I gotta find that one too.
[01:41:04] Josh Lewis, California Mortgage Broker: There’s . Oh God, so bad. Oh, actually we kept more people on than, than I thought. You’re gonna get a lot of likes if you post that on your channel as your next video. People say now. . Yeah. We’re going
[01:41:16] Jeb Smith, Huntington Beach Realtor: off on a tangent now. When people go, Jeb, I wanna make videos. What does it take? It takes take
[01:41:22] Josh Lewis, California Mortgage Broker: a, make a thousand of them.
[01:41:23] Jeb Smith, Huntington Beach Realtor: It takes a lot of that guys. It takes being willing to put
[01:41:27] Josh Lewis, California Mortgage Broker: that out
[01:41:28] Jeb Smith, Huntington Beach Realtor: there for people to see and keeping it there for hell. That, that was however many years ago. That was nine years
[01:41:35] Josh Lewis, California Mortgage Broker: ago. Yeah. Woo.
[01:41:38] Jeb Smith, Huntington Beach Realtor: And believe it or not, that actually there was a link to my website on one of these, off my website for a pre-approval thing for a long time.
Anyhow, guys, we appreciate you being here. We appreciate the support. If you haven’t checked out the podcast, we appreciate you doing it. Like the video, subscribe to the video, whatever, man. We appreciate you guys and, uh, until next Wednesday, audios.
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