The housing market is continuing to slow with higher interest rates and lower buyer demand but there are still opportunities in this housing market. Which homes are still fetching a premium and selling quickly? Which are homes are sitting on the market longer with sellers lowering their prices? Where are the opportunities in this real estate market? In this episode, Josh and Jeb discuss why homes that are nicely remodeled in good locations are still selling quickly while the outdated homes are getting much traction. On top of that we also discuss the waiting “opportunity” in order to help you become The Educated Homebuyer.
Connect with me 👇 Jeb Smith (huntington beach Realtor/orange county real estate) DRE 01407449 Coldwell Banker Realty ➡I N S T A G R A M ➳ https://www.instagram.com/jebsmith ➡Y O U T U B E ➳https://www.youtube.com/c/JebSmith
Connect with me 👇 Josh Lewis (Huntington Beach Certified Mortgage Expert) DRE 01209148 Buywise Mortgage M:714-916-5727 E: firstname.lastname@example.org ➡I N S T A G R A M ➳ https://www.instagram.com/borrowsmartjosh ➡Y O U T U B E ➳https://www.youtube.com/c/buywiseborrowsmart
✅ – Want to get connected with us or to a local expert in your market, please reach out at http://www.theeducatedhomebuyer.com/expert
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Show Notes Below:
TEHB – #34
[00:00:00] Jeb Smith, Huntington Beach Realtor: Welcome back to the Educated Home Buyer, where our goal is to help you buy right, borrow smart, and build wealth through real estate ownership and financing. So we just came out of one of the hottest housing markets on record, where every single house fetched a premium, regardless of condition, regardless of location, and in some cases, regardless of price.
[00:00:27] So Josh, we are talking all the time to new buyers, looking at taking advantage of the market. So I wanna spend a little bit of time. And actually talk about where the opportunities are at the moment. Are there any opportunities I’m writing offers for clients who still aren’t getting offers accepted?
[00:00:44] We’ve been at this for six, eight months with some of these clients, and we’re gonna talk about these stories. What they’re looking at and likely why they’re not having success in a market where things have slowed down, where prices are lower in some cases and [00:01:00] why it’s still frustrating in some markets out there to be a buyer.
[00:01:03] So, Josh, I’m gonna throw it your way here and just let’s you mentioned a quote earlier from Lawrence Yun. Chief Economist for the National Association of Realtors, and I think that’s a good place to start
[00:01:12] Josh Lewis, California Mortgage Broker: Absolutely. And that was, they just released, So we’re here in October. We just released a SEP September existing home sales report and.
[00:01:19] It was good to hear this confirmation because this is what you and I are seeing anecdotally and we’re like, are we crazy? Are we just dealing with a specific subset of buyers? We said, despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price. And I believe the actual Quote from him went on to say the average above list price is like 1.2%.
[00:01:38] So compare that, contrast that to the last couple years where 70, 80% of homes were selling above list and they were going 6, 7, 8, 10% above list. It’s definitely moderating, but I can tell you I have two clients, a joint client your in-laws and a client that I. They’re making competitive offers and they’ve missed on 4, 5, 6 homes.
[00:01:59] They’re not missing by a ton. There’s not someone coming over the top and blowing ’em out of the water, but they’re missing. So, I’m getting a feel from the folks that I’m working with, that there’s almost three separate markets out there right now. The first one that we’re gonna talk about that these clients that we’re dealing with are having a tough time.
[00:02:16] Are the people that want the HGTV ready turnkey homes that have been updated, renovated, look nice? That’s not the majority of the homes, but there’s a lot of them out there. Coming off a couple years of rapid appreciation, people were able to do cash out, refinances, pickups, fix up their homes. So, there’s more of that inventory out there than what we would’ve seen.
[00:02:36] Then you have middle of the bell curve. The homes that are not gross, they’re not horrifically dated. They were possibly updated in the nineties. And you have some older clients that are in their seventies and they’re moving to be closer to family, whatever it may be. But they renovated in the nineties, they took great care of their home, but.
[00:02:51] It’s just outta date. I mean, it sounds crazy. I, again, I think I’m younger than I actually am because I go the nineties. So it wasn’t that long ago, 20, 25 years ago. Remodeled is, going to look dated today. So in, in terms of that, the other piece that you have is the true fixers, and we’re gonna go into all three of those categories of properties.
[00:03:15] And Jeb, we talked about this a year ago. People would come to us, Hey, these home prices are nuts and people are making multiple offers. I want to go get a fixer. And what we were seeing in the downturn or in the hot market, the, that type of property was almost the worst investment you can make.
[00:03:30] You buy a fixer and a downturn, you’re gonna get an even bigger discount to market, right? And then you can build sweat equity, upgrade the property, fix it to your tastes. When the market is hot, you’re getting less of a discount than what it requires to bring that. To that turnkey condition. And most of the folks that I know, the bought homes that needed work ended up regretting it because of the high cost of materials contractors being backed up.
[00:03:52] All of the horror stories that you see on hgtv, on these properties when when someone tries to do their own renovations or be their own general contractor. So [00:04:00] with that, Jeb, that’s kind of what I’m seeing there is those three different strata of properties. How is that playing out for buyers
[00:04:06] Jeb Smith, Huntington Beach Realtor: now?
[00:04:07] Let, let’s talk about that for a moment though, because you said something important. Fixers were selling at a premium. I started the podcast by talking about we’re coming out of a market where, basically every home was selling at a premium regardless of condition and or location.
[00:04:21] And both of those things are very important when determining the value of a property. Typically, you’ve probably heard your parents, your grandparents say it, you wanna buy the worst house in the best neighborhood, right? Because location is everything you. In most areas of the country, you can’t pick a house up and move it.
[00:04:38] Although I’ve seen it done in North Carolina where I’m from, they’ve actually picked up houses and moved them. So the majority of people out there aren’t going to be able to move their home. So you really think about, okay, I want to be in a good location. Typically, that means for a lot of people, that means being in the interior of a neighborhood.
[00:04:53] Maybe it’s close to the beach, maybe it’s in the school district that you want to be. Over the last couple of years, what we saw was the [00:05:00] homes that back to freeways, that back to streets that were noisy. You and I talked about one, one that cited to a railroad track and needed everything, and I went and actually showed that properties to my clients.
[00:05:11] The foundation on it was sloping. There were so many problems with this. And I told my clients, I said, There’s no world in which this thing can sell for a premium in this market. And it did. It ended up selling for over the asking price. Those are the crazy stories that we’ve seen over the last year, couple of years.
[00:05:29] And there’s less of that right now. Right? So now the market’s settling and as Josh mentioned earlier, There are homes still selling above the asking price. And you might say, Well, Jeb that’s crazy that the market’s declining and my market is different. Remember, real estate’s local. So depending on where you are, it might be a little bit different.
[00:05:47] And there are other people out there going, of course, they’re selling above the asking price. Those people probably drop their price significantly because they wanna sell it. I’m talking about homes in this market that are [00:06:00] priced correctly based on comparables, and we’ll even talk about it a scenario here in just a.
[00:06:04] Where I looked at the comparables, thought a property was maybe overpriced and it sold instant, almost instantaneously. So I wanna start today by talking about which
[00:06:13] Josh Lewis, California Mortgage Broker: properties
[00:06:14] Jeb Smith, Huntington Beach Realtor: Are still fetching a premium and selling quickly. And unfortunately, this is of the category that a couple of my clients at the moment fit into.
[00:06:22] And it’s an only unfortunate for me and them. We’re doing a lot of work and not really making a lot of progress just because there’s still competition out there in these types of properties. And Josh, you hinted at it earlier, and we’re talking about the turnkey properties, the model homes, and I’m not necessarily talking about walking into a new construction property that is a model home, but in some.
[00:06:46] Maybe I am depending on where you’re located, I know there are areas of the country where new construction is sitting and not selling quickly because, there’s a surplus of property here in Southern California, we don’t have that situation, so a lot of the new construction [00:07:00] is still moving quickly.
[00:07:01] But the homes I’m talking about are existing sales. They’re resales of properties that were built in the last couple of years and that’s only a small piece of it. Some of these. Weren’t necessarily built in the last couple of years, but were nicely upgraded, nicely updated on the inside. And looks like the HGTV property, the grays and whites, the courts countertops, walls have been opened up, one big, great room, if you will.
[00:07:22] These are the homes still fetching a premium, and you and I talked about it, Josh yesterday. Not even like preparing for this, just in having a conversation and you wonder, is it, is the buyer looking at that property and willing to make a strong offer or an offer above the asking price because they’ve been in this game, I call it a game quote unquote game for the last couple of months getting outbid, really wanting these types of properties.
[00:07:48] And maybe they don’t have the excess the available cash, the ability to go in and renovate or remodel, they just wanna buy it like that to start with, right? They don’t have the additional funds to do all of this stuff. So [00:08:00] they’re willing to put a little bit more focus on making a stronger offer up front in getting that property because they know they’re not gonna have to come in and remodel.
[00:08:08] Or is it just, there, there’s still a lack of these certain types of properties out there, and so when one comes on the market, people just don’t want to miss the next opportunity. Well here,
[00:08:19] Josh Lewis, California Mortgage Broker: can kinda give you some insight into that anecdotal one story. But, my, my wife, one of her best friends Kim, her husband Robert, Very handy.
[00:08:28] This guy right here, not handy. You’re somewhere in the middle, but I am not handy. So when, if I look at something needing work, I go, Okay, who am I gonna hire? How busy are they? What are they gonna charge? He has basically renovated their entire current home. They would like to move. She doesn. To deal with that, live through it live through a construction zone, work through the timing of it.
[00:08:47] You know, he doesn’t necessarily wanna spend months of all of his free time doing the extra work. So all of those things come into play. Some people don’t have the extra money, some people don’t feel like they have time. Let’s say you’ve got like your family, [00:09:00] three kids that you know anywhere from elementary school working on to junior high sports after school stuff, you’re.
[00:09:07] When are we gonna be able to work around this so our people are willing to pay a premium for that time savings of being able to walk in to a property that’s absolutely ready to go, that they can see for themselves. Some people don’t have design sense or design taste. They’re like, I know what I like when I see it, but I can’t go pick 50 different materials and put them all together and make ’em come together and look right.
[00:09:28] Even if I had the time, energy, and money. To make it happen. So there’s a million reasons why people are willing to pay premium for those properties. And there’s a reason why we’re seeing a tur, a return to normality for these properties that are either true fixers or just dated in that it’s in a general market.
[00:09:46] The things that we just talked about, there’s a value to those. So if a property requires. Paint carpet and a new kitchen before you move in. There’s the cost to that. So that cost should come off of that home [00:10:00] relative to the one across the street that has all of those things done. But there’s also a cost in time.
[00:10:05] How long does it take me? Let’s say it’s 45 days to do all those things before I can move in. If my payment’s $4,000 a month, that’s $6,000 of cost. I have to live somewhere else while I can’t live in my house. So you have all of that, and then you get into the fact that you have a smaller buyer pool.
[00:10:21] Cuz some people only have enough money for their down payment and to move into the house. They don’t have an extra 30, 50, $60,000 to do those upgrades. So that is why we typically see a discount above and beyond what the actual hard cost of dialing that house in. And we’re seeing sort of their return to that and the hard market.
[00:10:42] Jeb, you tell me as a realtor when you’re going out and listing a property, I think that’s the hard conversation because everyone thinks their home is the best and is wonderful, and they see their 1990 remodel, that they’ve done a fantastic job of keeping in perfect condition. The carpet still looks great, everything’s perfect, and they go they sold [00:11:00] for you.
[00:11:00] Seven 80, I should get 7 85. My house is beautiful. And you have to explain to them what we just went through. How is that conversation going with sellers of the middle of the bell curve or fixer type properties? It’s
[00:11:12] Jeb Smith, Huntington Beach Realtor: definitely a tougher conversation. It’s turning into more of a professional’s market.
[00:11:16] I might have listed this stat at some point on another podcast. It’s something that was memes all over the internet. Every realtor in the that, is currently active or maybe not even active, was posting and it was like something like 91% of agents have it sold a house in a market where homes were sitting on the market in average of more than 45 days, with interest rates higher than 4%.
[00:11:38] So I think wow, like that’s a good majority of agents haven’t been in a market where things are a little bit tougher. And the reality is we haven’t had one of these markets in quite some time because, it’s, things have been moving pretty consistently for the last 10 years or so. And so they’re definitely difficult conversations, but what we try to do is bring some context and with regards [00:12:00] to rates days on market, it’s just kind, it’s a full conversation.
[00:12:03] And at the end of the day, As much as I think I’m right that you know what we say, the customer’s always right, so it’s an opportunity to say, Hey, listen. If that’s what you think it is, we’ll try it. But we’re gonna know really quickly because the good homes, which we’ll talk about here in just a minute, are still selling quickly.
[00:12:19] So in two weeks, if you don’t have activity, if we’re not getting calls, showings, whatever, we know there’s a problem. And so that problem is likely going to end up being price. And what I can tell you here when I say good homes are still selling quickly, A good example in fact, I’ve got two and the first one is some clients, again, making an offer.
[00:12:39] The price was listed at 1,000,002 50. I’ve been on the market. Two, two or three days, we made an offer at 1,000,002 60. So $10,000 above the asking price. My clients were putting about 23, 20 4% down. On that property. We shortened all the contingencies on it. Made a really strong offer. Took out, nope, we didn’t ask for term termite.
[00:12:57] We didn’t ask for home warranty. We were willing to do a shorter [00:13:00] term escrow, but they wanted 30 days, so we gave them the 30 days and we gave them a free 30 day seller rent back. So no, no cost of them to stay in the property for an additional 30 days after escrow closes. And I thought we had a pretty strong offer, quite frankly.
[00:13:14] Looked at comps o of where properties had sold and one down the street had sold about a month ago for about $30,000 less. And it wasn’t quite as nice as this property, but again, rates were probably a percent lower at that time. But in, in having the conversation with clients, I said, Listen, it’s a pretty house.
[00:13:32] You guys have missed out in this neighborhood. We know homes sell at the asking price they sell quickly. Let’s go in and make a strong offer. And based on the conversation I had, I thought we had a really good chance of getting it accepted or at least getting a reasonable counter back. And I got a call the very next day saying, We’ve already got offers above 1.3.
[00:13:50] So within five days, $50,000 above the asking price. And this property was what we talked about earlier. It was the turnkey property. It was beautiful inside. It [00:14:00] was in a newer, newly built community. They were built in 2020. Just had a lot of things working for it. On top of that, you talk about, there’s another thing that, that, that is tough in this market and those homes that are in a good location, right?
[00:14:14] And it might be near the beach. It might be, like I said, in the school district, it might be in the newly built community of, say, Baker Ranch, which is where this property was, and my clients want to be in that community. It’s not. But that’s what they love and that’s where they want to be. And so not only did that property have the turnkey the cosmetic look and everything that, that most people are wanting these days, it was also in the location that, that people wanted.
[00:14:38] And the second example, and I’ll be really quick with this, is property near the beach this past week. Two bedroom, two bath Pacific Coast Highway in Huntington Beach in a building where these properties don’t come up quite as often. You often get the one bedrooms coming up. This is a two bedroom.
[00:14:51] Had some clients fly in from out of the country because they’ve been looking for this particular property. It’s only on the market. A couple days we did a virtual showing. They liked what they saw, so [00:15:00] they confirmed and came down, flew down to see the. We saw it in person. They were talking about an offer.
[00:15:05] They wanted it to take a night and think about it, I get a call from the agent the next day saying they had already accepted an offer. So we’re and this is 1,000,001 50. We’re talking price points that aren’t super inexpensive here. These aren’t, entry level price points for a lot of people.
[00:15:21] And this was a second home. So these are people looking to buy a second home, whereas the first property was the primary. So there are still people buying properties. It’s just the ones that are in the good locations. The ones that are, desirable cosmetically are the ones that are selling quickly, Josh.
[00:15:37] But that leaves opportunities in the market. Right. And so let’s talk about where those opportunities are. Where are you? Homes not sell above the asking price. Homes sit on the market homes, having to reduce their prices.
[00:15:50] Josh Lewis, California Mortgage Broker: Is it safe to say, Jeb, that we’ve covered so far the inverse of what the topic is, Wanna talk about where the Yeah, no, I are think that’s fair.
[00:15:56] The opportunities are not in beautiful turned key homes [00:16:00] cuz those for the most part are still getting at market a one, 2%, 3%. In the instance you’re talking about almost a 10% premium to market, which is pretty rare. But they may have slightly underpriced it or weren’t prepared for what they thought the market value was.
[00:16:12] So, If you want to go out and find a beautiful turn key home, just be prepared to play, pay close to market value and nothing less than what the comparable sales are out there. So we’re talking about an opportunity to get a deal on a home. We Jeb covered properties that have some deferred maintenance properties that are aged and dated.
[00:16:31] Could be a very nice home. One came up on the market that I looked at today. I’m like, I get it. That’s a, that’s, it’s nice. It’s got granite countertops, oak cabinets nicer updated appliances, but they were all updated in the nineties and you could tell that the occupants of that home attack, you were really
[00:16:46] Jeb Smith, Huntington Beach Realtor: crapping on the nineties.
[00:16:47] Taking greats were really good years for me.
[00:16:49] Josh Lewis, California Mortgage Broker: Well, it, when you get to the eighties is when things look incredibly dated in the nineties I remember my first home I bought in the nineties and we renovated it. And these homes look a lot like what we did. You know, we did [00:17:00] light maple cabinets and a cream granite countertop, something that there’s just no one, a buyer today would never do it.
[00:17:06] It looks great. It’s just, it’s not the current modern style. You don’t
[00:17:09] Jeb Smith, Huntington Beach Realtor: things like they used to. Josh,
[00:17:11] Josh Lewis, California Mortgage Broker: Jeb, you had things that. More earth tones. The beige walls and white ceilings were super popular then in the contrasting molding, now everything’s white. Maybe you want a really light gray or the grayish colors in there.
[00:17:24] So it, it’s just it really comes down to looking at properties that are not going to be something you would see in a magazine. So is that a full blown fixer or is that a little bit of work? So you have to gauge the things that we talked about earlier. Do you have how much, if any, additional funds do you have after closing to do those things?
[00:17:45] Jeb Smith, Huntington Beach Realtor: And Josh, And this, I’m not crapping on buyers but a lot of ’em think they gotta get in and do the remodel immediately. And on fixers. Real fixers. Yeah. In some cases you do, You can’t. They’re unlivable, Right? I mean, unlivable in the sense that they’re just disgusting [00:18:00] on the inside.
[00:18:00] Right? If a bank’s gonna finance it theory, it’s in livable condition. But for some people, you know, it’s just, you might need to go in and do some basic things on there, but you don’t have to do a full blown remodel in order to live in a property. In fact, I’ll be one to tell. That in a lot of cases it actually makes sense to live in that property for some period of time before you do the remodel and really figure.
[00:18:23] The things that you wanna change, that you wanna do. I’ve made the mistake of buying a property and putting stuff into it very quickly just to move in and then having regrets because it was done quickly and not done right. And just multiple things. But a lot of buyers out there at the moment are really, they don’t want to sacrifice on living in something that, that needs that work because it’s not pretty and it’s not what they want.
[00:18:45] And I, I get it. I understand it. But if you want to find value in this market, that’s really where you gotta look.
[00:18:53] Josh Lewis, California Mortgage Broker: So Jeb I would say you, you made a really good point there, and it could have been easy to miss to me the best [00:19:00] opportunity because most people are not do it yourselfers, super handy with a bunch of cash left after closing to take on a major fixer or a big renovation.
[00:19:09] And opportunity is that same nineties house that we’re talking about, I’ll compare it to my home. When we bought it the people who we had bought it from purchased from a lady who was the original owner in 1972. They bought in 1997, did a bunch of work and we bought in 2003. I didn’t love their taste.
[00:19:26] There was a lot of oak, a lot of stuff that just it wasn’t, I’m like you spent money to redo this And it’s already a little bit dated, but it was. Just fine. So that home that’s dated but has been kept up really nice, has solid surface countertops, Had updated appliances, but maybe they’re 20 years old, but still super nice and clean.
[00:19:44] That’s a home that you’re probably gonna get under market. Save some money there. And you can move your family into a clean, nice home and enjoy while you tick off the different projects. If you came over to my house, Jeb and I showed you the [00:20:00] number of different projects that we had done. Everything in our home in those 19 years that we’ve lived there has been redone, but.
[00:20:08] We didn’t really ever do one big major overarching project where everything was redone. We did do the kitchen and the master bath at the same time. Other than that, everything was a one off project where you can kind of make it what you want. It’s wonderful. In a perfect world, if you can wave a magic wand and you have the money sitting there in a contractor ready to do perfect work, and you’re ready to make those decisions and deal with that time to have it all done at once it’s.
[00:20:32] But it also, if we’re talking about how do we get in, how do we get a deal on a nice property in the current market? Without going to some of the other unique issues to a property that you’re gonna go through here in a minute. I would say go after one of those nice, clean. Stated properties because those are not flying off the shelves, like the beautiful turnkey stuff.
[00:20:51] Jeb Smith, Huntington Beach Realtor: No. And we talk about location being everything. And here’s something I don’t want you to sacrifice on is where you want to live so that you can [00:21:00] buy a property. And what I mean by that, I’m not saying don’t. You know, it’s a tough thing to say because location is really everything, right? So if there’s a school district you wanna be in, or you wanna be in a certain community, I’m not saying go buy a home in another community just to own a property and then later have regrets.
[00:21:16] You gotta be willing to understand what you’re doing and why you’re doing it. And with that, homes, like we talked about at the beginning, it of the. The homes that are backing the streets, the homes that are closer to freeways that have a little bit more noise that are maybe a little bit on the further outskirts of where you want to be.
[00:21:32] There’s opportunities in those properties now. I understand not wanting to sacrifice location over, in, in just getting a home. But in some cases maybe that’s, that is the opportunity. Maybe that’s the, that you live into it, you live in that property for a period of time.
[00:21:47] Maybe it’s five, seven years or whatever, while figure out where your next move is. I see a lot of. Trying to buy their forever home when they’re 30. And it’s that’s, yeah, that’s being their first home. I [00:22:00] get it. Like I, I’d love to do the same thing, but you know, they’re not willing to take the sacrifice of saying, You know what, I’m just gonna go try a condo for now.
[00:22:07] I’m gonna live in a town home for now. Maybe it’s not, the five bedrooms I want with the 2,500 square feet and perfectly upgraded, but it gives me an opportunity to be in the house, raise a family, start a family. If that’s the goal, and then at some point in the future you’re able to leverage that property and maybe buy the next one, or maybe you keep that property as a rental and buy the next one.
[00:22:28] So there’s opportunities out there and it’s those homes like many of you know, that have been sitting on the market a little bit longer. The homes where you’ve seen multiple price drops. Price cuts, right? When you’re seeing a house, just stay at the same price forever. In my eyes that seller’s not motivated.
[00:22:44] Now it could be the seller’s not motivated. It could be the agents not, telling or having the right conversation with the seller to, to adjust the price. Maybe they don’t wanna have that conversation. Maybe somebody’s stubborn or whatever. But the ones that are actually reducing the price, having price improvements and what have you, over a period of time, those people [00:23:00] are motivated.
[00:23:00] There’s some motivation there. We’re going into a slower time of year. We’ve actually talked. You know, the next couple of months in the market are the slowest time cyclically every year, right? The seasonality. If your home is on the market during this time, that’s an opportunity if you’re a home buyer in this market.
[00:23:17] And what the other things that we mentioned, and I’ll just kind of recap on are, the homes that need some cosmetic work p people don’t understand or realize, and a lot of people don’t have the eye, and I get that too, but how inexpensive carpet and paint are in a property and how much those two things.
[00:23:35] Can transform a property and maybe not even carpet, like an lvp or some sort of tile or whatever it is you want to, Those two things alone can transform a property, just paint and carpet alone. So while you’re looking for the fully upgraded property, maybe you look for the one that, Hey, listen, kitchen cabinets are okay.
[00:23:53] Countertops are pretty good shape, bathrooms are good shape, don’t really care for the paint. Flooring sucks. You know [00:24:00] it’s carpets dated. That stuff is relatively inexpensive and really, like Josh mentioned the time to do it, it’s not 45 days. The time to do those two things is probably a week and really transform a property.
[00:24:11] So those are where the opportunities are, Josh. But lastly I think this is something that I really think is important here and I, we probably should have started with it, but people that are looking for the opportunities in the market that think that, Hey, listen, I’m gonna. For prices to come down.
[00:24:29] That to me is the opportunity is the lower prices, the foreclosures, if you will, the distress properties. That’s where the opportunity is. What does that look like in the market right now with interest rates high? Because you’ve got two, you’ve got two different sets of people out here and a lot of ’em are contradicting themselves in many ways, saying, Hey, listen, rates are going higher and we’re going to see prices lower and that’s gonna make things more.
[00:24:54] Higher rates, lower prices, more affordable. And looking at that, you think maybe, [00:25:00] I mean that, that might make sense until you actually run the numbers. But. For those that are waiting for that right opportunity. Josh, what are your thoughts? Well, I’ll
[00:25:09] Josh Lewis, California Mortgage Broker: say this. If you knew for a fact rates were going higher, it’s a virtual certainty that prices will go lower.
[00:25:15] There’s a debate as to whether we sort of muddle through at current prices with very minimal appreciation to a little bit of depreciation. But if we go from a low sevens rate to a mid eights rate, Home prices are coming down and it’s because of exactly what you said. We’ve talked a million times here on the show.
[00:25:31] It’s affordability income. It’s a measure of income to home prices and interest rates. So what percentage of household income goes to the monthly payment? If it’s go up to eight and a half, we’re. To such a new level that those values have to come down. We did an episode previously, Jeb, about why home prices are sticky to the upside.
[00:25:50] It’s because what we’re seeing right now is likely temporary. Does temporary mean six months, 18 months, 36 months? Most people are in. 30 year fixed [00:26:00] rates. So if they were to sell their property and buy another one, they’re gonna be in a much higher rate. If they were to sell their property and rent, they’re probably gonna pay more to rent.
[00:26:08] So people will push that decision out, see what happens with interest rates. So if you think you’re waiting, that rates are gonna go up and home prices are going to come down. You have the number today, j but was it a $500,000 property with 20% down it’s current. 40% more expensive, or you would need a 40% decrease in the home value to get back to what that payment was last December with a 30% and
[00:26:33] Jeb Smith, Huntington Beach Realtor: interest.
[00:26:33] That’s at today’s rates. Right. So if you saw rate and when I said that Josh, I probably should have clarified a little bit. Yeah. That there is an opportunity, like you said, for rates to go up in, prices to come down. But what I’m trying to get at is that doesn’t necessarily make things more affordable.
[00:26:47] Affordable, right? You think in your head it makes it more affordable because prices came down, but it doesn’t, You don’t understand a lot don’t of people don’t understand how much that interest rate truly impacts that [00:27:00] monthly payment. So what we talked about here is, at a $500,000 home purchased at a 3% rate, that payment.
[00:27:06] 1650 and that’s not exact. So it’s pretty close to that number. That same payment today at a seven and a half percent rate is like 26 50. So it’s about a thousand dollars difference. So if you wanted that same payment that the person had at a 3% rate, that 1650 ish, you need you need home prices to drop by 40% to like $300,000 and finance two 40 to be able to get that same payment.
[00:27:31] So, Yeah, maybe there’s a world in which that happens. I don’t see it. The opportunity in this market isn’t trying to pick the top or the bottom. It’s always about buying, when it’s the right time in your life. And we’ve talked about that. And maybe right now is not the right time. Maybe, there’s just a lot going on with uncertainty and you’re just not in the right head space to own a home.
[00:27:49] That’s okay. I mean, that, there’s nothing wrong with that. But at the same time, understand, you gotta understand market. You know, the logistics if you will. [00:28:00] If rates start to come back down and moderate, that’s likely to put a flooring in housing. Again, buying when the right time, Maybe that’s a year from now, maybe it’s now hard to say, but just make sure you’re, thinking about that, having those conversations.
[00:28:13] When making that decision. So Jeb, a hundred
[00:28:15] Josh Lewis, California Mortgage Broker: percent. We, you and I just agreed here that if rates were to go up another percent and a half, that’s going to make prices fall further. Does not increase affordability, does not make the monthly payment any better for you and your family or make it more likely that you’re gonna enter the market.
[00:28:28] The MBA just released their forecasts for next year. They. That rates will decline to near 5% next year. Fannie Mae was out about six, eight weeks ago saying they expect rates somewhere around four and a half percent. One of the leading forecasters for interest rates in the mortgage and real estate industry.
[00:28:44] Zillow has given them their Golden Boot Award or whatever the heck it is for best interest rate forecast for out the last six years. He thinks under 5% within the next nine months. If we see that if we agree that interest rates going up will put pressure on home prices, interest rates coming down will [00:29:00] give us some support.
[00:29:00] It’s not to say that we’re gonna see a huge amount of appreciation, but the opportunity in that Jeb, we had talked about not just getting the right home but managing that Look at a seven year arm or a 10, six arm, if you can get a half percent discount to the current market. When you do that, don’t pay any points for the loan.
[00:29:20] I talked to a client this morning, they’re looking somewhere between 900 and a million, and we could basically do 6% at one point on a 30 year fixed, or we could do 6% at zero points on a ten six arm. So we can give them 10 years of insurance against higher interest rates and save them 9,000 $9,500 at closing so that when rates drop, whether that’s six months, 18 months, 36 months down the line, they don’t have any sunk costs in that loan, we can roll it down to 6% five and a half percent.
[00:29:50] 5% whatever rates bottom. Probably not going back to that two and a half, 3% that we were doing a bunch of loans at in 2021 and 2022 or early 22. But [00:30:00] definitely moderating from where we are right now. So there’s that opportunity. Don’t pay points to chase an interest rate. There’s a lot of people out there talking about two one buy downs, which is a temporary buy down.
[00:30:11] There’s a cost to that. So if we’re having, either you’re paying it yourself or the seller’s paying it, that’s a sunk cost. If rates drop in the next 12 to 24 months, you never get to recoup that benefit. We also have permanent buy downs. If the seller pays a couple points and you buy the rate down a half, You never get that money back, whereas you could have re reduced the price that you paid for the home.
[00:30:33] So these are things that you have to consider and have to come to terms with what your expectations are of interest rates going forward. I’ve done this for 26 years. I follow interest rates very closely. I have four or five of the best experts in the industry. They don’t agree 100%. They look at different measures, but most all of them do believe that we’re gonna.
[00:30:51] Significantly lower rates in the next 12 to 24 months. So take that into consideration when you’re looking at properties, if you’re trying to get in at the best [00:31:00] price possible and position yourself for the long run. Don’t chase after the turn key homes and definitely don’t give up on a nice.
[00:31:08] Somewhat dated home in a better neighborhood that’s gonna fit your needs over a longer term to find something in a lesser neighborhood, a lesser location, smaller square footage that’s turned key and dialed in the way you want it. And consider how you’re structuring your financing and not having a bunch of sunk costs at closing to not be able to recoup those over the life of the loan because you end up refinancing somewhere in the next one to three years.
[00:31:29] Nah, good stuff.
[00:31:30] Jeb Smith, Huntington Beach Realtor: I’m not sure I could add anything else. To provide any more value. Well said Josh. But if you need a referral to a professional real estate agent and or mortgage professional, there’s a link in the description below. But for now, we appreciate you listening. We appreciate your support.
[00:31:44] We’ll talk to you soon. Adios.
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