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Buying Still Makes Sense · The Ground Game

• 0:02
  SPEAKER_00: Welcome to the ground game for mortgage professionals built for the fight.
• 0:09
  SPEAKER_00: Hosted by Brian Lovell and Mark Mylam.
• 0:14
  SPEAKER_00: All right, so welcome to another episode of the Ground Game Podcast.
• 0:17
  SPEAKER_00: As always, here with Mark Mylam.
• 0:19
  SPEAKER_00: I am Brian.
• 0:20
  SPEAKER_00: Thanks for tuning in.
• 0:21
  SPEAKER_00: Hey, so Mark, let's get into um home sales specifically.
• 0:26
  SPEAKER_00: Okay.
• 0:26
  SPEAKER_00: Right?
• 0:26
  SPEAKER_00: Let's talk to uh buyers a little bit.
• 0:29
  SPEAKER_00: So, in light of the current rate market we're in, uh last week we tipped over, last week being like the end of the week was September 11th.
• 0:37
  SPEAKER_00: We tipped into the 7% range really on Thursday of that week.
• 0:42
  SPEAKER_00: We kind of gone.
• 0:43
  SPEAKER_00: Yeah.
• 0:45
  SPEAKER_00: We kind of know that that's gonna be the rate environment for the near future, right?
• 0:50
  SPEAKER_00: So you're a home buyer, right?
• 0:53
  SPEAKER_00: Good market to buy in.
• 0:55
  SPEAKER_00: What's your advice?
• 0:56
  SPEAKER_01: Always, well, that that question always goes back to something we talked about, I think, in one of the first episodes, which is it a lot depends upon your personal circumstance, right?
• 1:03
  SPEAKER_01: If it's a good time to buy for you based upon, you know, what's going on in your life?
• 1:08
  SPEAKER_01: Is your family growing?
• 1:09
  SPEAKER_01: Is your job evolving?
• 1:10
  SPEAKER_01: Your headquarters is now going to be across town, you're gonna have a lengthy commute, or what what is it that's going on in your life?
• 1:16
  SPEAKER_01: You're going through a divorce, all that.
• 1:18
  SPEAKER_01: So everything outside of housing still is paramount over what's happening inside of housing when you're trying to make this decision.
• 1:26
  SPEAKER_01: But there are metrics and factors that I think people misperceive about answering that question for themselves.
• 1:33
  SPEAKER_01: For instance, I've heard of this from a ton of clients that I don't know that I want to buy now because you know, more supplies coming online, the price of houses is going down.
• 1:42
  SPEAKER_01: Okay.
• 1:43
  SPEAKER_01: Right.
• 1:43
  SPEAKER_01: There's that perception.
• 1:44
  SPEAKER_01: Same thing with interest rates.
• 1:46
  SPEAKER_01: Interest rates are really, you know, too high.
• 1:48
  SPEAKER_01: I think interest rates are gonna go, I'm gonna wait for interest rates to come back down again.
• 1:51
  SPEAKER_01: Yeah.
• 1:51
  SPEAKER_01: So it's almost always when I hear the argument and they're focusing on the metrics of housing, it's almost always around the price of the asset and the the cost of financing.
• 2:01
  SPEAKER_01: Yes.
• 2:01
  SPEAKER_01: Right.
• 2:01
  SPEAKER_01: Yep.
• 2:02
  SPEAKER_01: And so when we look at it and we really get into the price of the asset, new home prices for sure have declined.
• 2:08
  SPEAKER_01: There's no doubt.
• 2:09
  SPEAKER_01: Whether you're looking at NAR data or you're looking at Redfin data, or you're looking at um, you know, the FHFA home price index, new home sales definitely declined.
• 2:17
  SPEAKER_01: Almost double digits for sure.
• 2:19
  SPEAKER_01: And the reason there is that that this is a business asset, right?
• 2:22
  SPEAKER_01: If you and I are selling widgets, uh, or if we're selling beer and all of a sudden all this extra beer has come onto the market and we don't have enough beer drinkers, we're gonna cut the price of the market.
• 2:35
  SPEAKER_00: So this is driven by inventory, is your argument there?
• 2:37
  SPEAKER_01: For sure, on new homes.
• 2:39
  SPEAKER_00: On new homes.
• 2:40
  SPEAKER_01: Because the seller of the asset is a business.
• 2:42
  SPEAKER_01: Yes, right.
• 2:43
  SPEAKER_01: When you get into existing homes, that supply-demand logic does not fly.
• 2:48
  SPEAKER_01: No.
• 2:48
  SPEAKER_01: And I know there's people out there who disagree with me.
• 2:50
  SPEAKER_01: I did read your comments.
• 2:51
  SPEAKER_01: I read your comments, and I challenge you to a duel, to a data duel.
• 2:58
  SPEAKER_01: I will data duel you because the data does not support the idea that more inventory makes existing home sales crash unless you want to point to 2008, 2009.
• 3:09
  SPEAKER_01: Significant difference in those homeowners versus homeowners today.
• 3:12
  SPEAKER_01: They didn't have much equity, their interest rates were adjustable or high.
• 3:17
  SPEAKER_01: And when we look at the homeowners today, if they even have a mortgage, right?
• 3:21
  SPEAKER_01: Something like 40 something percent of all homes are owned free and clear.
• 3:23
  SPEAKER_01: If they even have a mortgage, they have the world's greatest inflation hedge.
• 3:28
  SPEAKER_01: I the mortgage on the home that we are sitting in is two and three quarters for me.
• 3:33
  SPEAKER_01: Yeah, there ain't any chance I'm paying that thing off early.
• 3:36
  SPEAKER_01: No, right?
• 3:36
  SPEAKER_01: I mean, I'm making money.
• 3:37
  SPEAKER_00: No, no, you wouldn't make extra payments on that.
• 3:39
  SPEAKER_00: That would, yeah.
• 3:40
  SPEAKER_01: And and so for for someone to for to come along and offer me money for this home, if I was in a position of thinking, hey, maybe it's time for Ashley and I to downsize, or maybe we want to move across town to a different place.
• 3:52
  SPEAKER_01: I'm in an incredibly advantageous position as a seller.
• 3:56
  SPEAKER_01: Yes.
• 3:56
  SPEAKER_01: And I don't really need to.
• 3:58
  SPEAKER_00: You don't need to, yes.
• 3:59
  SPEAKER_01: And if I don't get the price I'm looking for, yeah, I'm not doing it because I am so financially secure.
• 4:05
  SPEAKER_00: Whereas the builder needs to sell, build a great.
• 4:07
  SPEAKER_00: Right?
• 4:07
  SPEAKER_00: They've got inventory out of the ground and it it's like it's like any other widget that you sell.
• 4:13
  SPEAKER_00: If you're holding on inventory, it has a cost until it's no longer a cost of goods sold, right?
• 4:19
  SPEAKER_00: Right.
• 4:19
  SPEAKER_00: So I I think one of the things too, Mark, and I'll say this at the risk of we never do another loan for a builder again, uh, is that you know, I think that builders in any market really are in a position where they can naturally inflate the cost of that product.
• 4:40
  SPEAKER_00: Because when you think about when you're building in a development, the appraisal is controlling the value, right?
• 4:50
  SPEAKER_00: And since all of the comps are going to be in the development that they're doing, you just periodically gotta tick up that price and the appraised values and the comps follow, and boom, next thing you know, you're selling a home for much more than you were when you first got the development out of the ground.
• 5:09
  SPEAKER_01: And that's their job, this is their business, right?
• 5:12
  SPEAKER_01: Yeah, yeah, yeah.
• 5:13
  SPEAKER_01: You don't we never fault a builder for that.
• 5:15
  SPEAKER_01: You never fault any business owner for trying to maximize the revenue that they get from the business that they're in.
• 5:21
  SPEAKER_01: Existing home sales aren't that.
• 5:23
  SPEAKER_01: Like as an existing home seller, I am not a business.
• 5:26
  SPEAKER_01: I am not in the business to move inventory.
• 5:29
  SPEAKER_01: I'm in the business to get what I think is a fair price for something I am probably emotionally attached to and I don't have to sell.
• 5:37
  SPEAKER_01: That's a very different business transaction than new home sales.
• 5:41
  SPEAKER_01: They're almost apples and oranges.
• 5:43
  SPEAKER_01: Yeah.
• 5:43
  SPEAKER_01: And for the longest time, you you just said it.
• 5:46
  SPEAKER_01: So if you go back to 2012, all right, let's go back to 2012.
• 5:50
  SPEAKER_01: New homes, new home prices were about$50,000 higher than equivalent existing home prices, right?
• 5:56
  SPEAKER_01: The median sales price of a new home was about a$50,000 premium you were going to pay for that on average because you're getting a brand new home.
• 6:03
  SPEAKER_01: Yes, right.
• 6:04
  SPEAKER_01: It's flipped now.
• 6:06
  SPEAKER_01: Existing homes are actually about$50,000 more expensive than new homes.
• 6:12
  SPEAKER_00: Well, that's because now builders are having to do price cuts and put incentives in place because they got to get rid of the inventory that they have.
• 6:19
  SPEAKER_01: Underscoring my point, right?
• 6:21
  SPEAKER_01: That it's not like the home's not still new.
• 6:23
  SPEAKER_01: It's not like the home it doesn't still have a whole bunch of new technology in it that your existing home might not.
• 6:28
  SPEAKER_01: Yeah.
• 6:29
  SPEAKER_01: You there is still value in all of those things, but there's not not to a potential seller on the existing home sales side.
• 6:36
  SPEAKER_01: And this is where I come back to you, commenter, and challenge you to say, look at the data.
• 6:41
  SPEAKER_01: The data would tell you that even with existing, so as of last uh last week, when the NAR published its data, existing home inventory is at 4.9 months of supply.
• 6:51
  SPEAKER_01: That's just existing homes.
• 6:52
  SPEAKER_01: Yes.
• 6:52
  SPEAKER_01: We're not talking about new homes.
• 6:53
  SPEAKER_00: And six is balanced.
• 6:55
  SPEAKER_01: Six is balanced on existing, we're at 4.9.
• 6:57
  SPEAKER_01: On new homes, we're at 10 months.
• 6:59
  SPEAKER_01: We're at 10 months of new home supply.
• 7:02
  SPEAKER_01: Those builders are cutting.
• 7:04
  SPEAKER_01: And if you think inventory is the way out of this, good luck.
• 7:07
  SPEAKER_01: I was gonna say, but but Mark, but Mark, let's talk.
• 7:12
  SPEAKER_01: Inventory is supposed to be the way out of this.
• 7:14
  SPEAKER_01: Right.
• 7:15
  SPEAKER_01: This is where legislators have got it wrong, and where most people have it wrong.
• 7:18
  SPEAKER_01: And I'm not I'm not pointing fingers or blaming anyone because it's an easy thing to get wrong.
• 7:24
  SPEAKER_01: Because in most business transactions, additional supply does lower the cost of something.
• 7:30
  SPEAKER_01: Not in this, not with existing home sales.
• 7:32
  SPEAKER_01: And when you have 10 months of supply and you're a builder out there and you're in, let's assume that your market is national average.
• 7:40
  SPEAKER_01: So if you're a builder and you're looking around going, there's 10 months worth of supply, are you building into that market?
• 7:45
  SPEAKER_01: Are you gonna build more into that market, especially going into Q4 when demand is already weak?
• 7:51
  SPEAKER_01: We're gonna get the National Association of Home Builders uh, you know, confidence index.
• 7:56
  SPEAKER_01: We're gonna get the builders' sentiment index.
• 7:59
  SPEAKER_01: I think it's late this week.
• 8:00
  SPEAKER_01: It's probably gonna come in at 32 to 33.
• 8:03
  SPEAKER_01: Uh uh and that is awful pessimistic territory for builders.
• 8:07
  SPEAKER_01: Okay.
• 8:08
  SPEAKER_01: Builders are not optimistic about what they're building into because of how much homes are sitting and how much they're having to cut.
• 8:14
  SPEAKER_01: Yeah.
• 8:14
  SPEAKER_01: It is, and it's not playing out in terms of home prices.
• 8:17
  SPEAKER_01: The NAR, year over year, just published 1.6% increase to prices and of existing homes year over year.
• 8:24
  SPEAKER_01: The FHFA, 2.1%.
• 8:27
  SPEAKER_01: That's so we're really close to each other in terms of those metrics.
• 8:31
  SPEAKER_01: Existing home prices keep going up, even though inventory keeps going up, because it's not a traditional business.
• 8:36
  SPEAKER_00: All right.
• 8:37
  SPEAKER_00: So listen, at the risk of every borrower that we're currently doing business with stopping looking at existing homes and running straight to a builder, here's my question is because of inventory being as high as it is on the builder side of this, yeah, they're going to have pressure to increase incentives.
• 8:58
  SPEAKER_00: So I'm talking things like builder forwards, where now, you know, this builder's offering, I can get you a rate at 499.
• 9:04
  SPEAKER_01: Or buy your rate down.
• 9:06
  SPEAKER_00: Right.
• 9:06
  SPEAKER_00: Yeah.
• 9:06
  SPEAKER_00: Which so, which I mean, well, we that's a whole different conversation.
• 9:11
  SPEAKER_00: But um, what what do you say about that?
• 9:14
  SPEAKER_00: Like, yeah, I should should should a buyer run to new construction, I guess is what I'm saying.
• 9:19
  SPEAKER_00: I get the enticement of it.
• 9:21
  SPEAKER_01: I totally understand how a buyer would want to be, would would be lured in by that.
• 9:25
  SPEAKER_01: That's why the builder's doing it.
• 9:27
  SPEAKER_01: Um, the problem you have to ask yourself is the moment I buy that home, right?
• 9:32
  SPEAKER_01: Especially if it's in a developed subdivision or a developing subdivision or neighborhood, and that builder's got to put more and more supply on the market there, am I gonna be buying an asset that is actually depreciating?
• 9:45
  SPEAKER_01: Because new home sales are depreciating right now.
• 9:48
  SPEAKER_01: Yep.
• 9:49
  SPEAKER_01: And if you're buying a home that is very similar to the home that's right next to it and the home that's across the street because it's in a develop a new development neighborhood, there's a pretty decent chance that that's gonna happen.
• 10:00
  SPEAKER_01: I'll give you a very personal example.
• 10:03
  SPEAKER_01: So in 2008, I got divorced.
• 10:05
  SPEAKER_01: And in 2008, I had to find a place that I could live, number one, and that I could have my kids come stay with me.
• 10:12
  SPEAKER_01: And it was a, and so I had a very advantageous, I found this townhome, really beautiful townhome, brand new construction.
• 10:20
  SPEAKER_01: And I went under contract and I bought it for$380,000 in 2008.
• 10:25
  SPEAKER_01: I could not sell it for$330,000 four years later.
• 10:30
  SPEAKER_01: Yes.
• 10:30
  SPEAKER_01: Couldn't sell it for$50,000 less.
• 10:33
  SPEAKER_01: I could not get rid of it.
• 10:34
  SPEAKER_01: I had to convert it into a rental property, which was fine.
• 10:37
  SPEAKER_01: That wound up working out okay long run to be able to convert it to a rental property.
• 10:41
  SPEAKER_01: That's the danger of buying new construction.
• 10:44
  SPEAKER_01: 100%.
• 10:45
  SPEAKER_01: And you just have to be eyes wide open about it.
• 10:47
  SPEAKER_01: I'm not saying don't go buy new construction.
• 10:48
  SPEAKER_01: I'm just saying don't go buy new construction expecting the appreciation that you're gonna get in an existing home.
• 10:53
  SPEAKER_00: You got to do it the right way.
• 10:54
  SPEAKER_00: Like as an example, if you only intend to live in the property for let's say it's for three, five, or seven years and you're moving into development that's in say phase one, yep, you could have a problem, you know, when it when they when your three or five years is up for sure if they still have active active inventory in there.
• 11:11
  SPEAKER_00: I got a buddy of mine right now who does poor guy feel bad for him.
• 11:15
  SPEAKER_00: He he uh sold a rental property, did a 1031 exchange to buy another rental property in new construction.
• 11:22
  SPEAKER_01: Oof.
• 11:23
  SPEAKER_00: Now he needs to get some cash.
• 11:25
  SPEAKER_01: Yeah.
• 11:26
  SPEAKER_00: And he's trying to sell that home.
• 11:28
  SPEAKER_00: Yeah, and he can't get for it what he paid for it.
• 11:31
  SPEAKER_00: Yeah.
• 11:32
  SPEAKER_01: This is the interesting thing about appreciating assets, right?
• 11:36
  SPEAKER_01: Like there are certain cars that you can buy that you know when I buy this car, unless I just treat it like crap, this car might actually even appreciate, right?
• 11:45
  SPEAKER_01: Like a classic vintage, like an Austin Healy or a some kind of you know, unique investment.
• 11:50
  SPEAKER_01: Whereas if you just go buy the new car off the lot, it it that is more than likely a depreciating asset.
• 11:59
  SPEAKER_01: You have to think about not just monthly payment, not just can I afford it?
• 12:03
  SPEAKER_01: Are we going to be happy there when we move in in December?
• 12:07
  SPEAKER_01: You have to think, am I buying an appreciating asset or a depreciating asset?
• 12:12
  SPEAKER_01: And the only way you can know that definitively is to look at the trajectory of new home sales and existing home sales.
• 12:18
  SPEAKER_00: So I just thought of something that goes back to a conversation we were having was just a couple of minutes ago, where you talked about there was a season where new homes were priced about$50,000 more than existing homes.
• 12:29
  SPEAKER_01: And that's typical.
• 12:30
  SPEAKER_00: But folks jump into that because it's got this teaser rate and all these incentives.
• 12:35
  SPEAKER_00: They're gonna give us this hugely upgraded kitchen and the flooring and the teaser rate.
• 12:42
  SPEAKER_00: But at the end of the day, you essentially financed over the course of 30 years that extra$50,000.
• 12:50
  SPEAKER_00: Yeah.
• 12:51
  SPEAKER_00: The economics don't play out.
• 12:53
  SPEAKER_01: Yeah.
• 12:54
  SPEAKER_01: Agreed to a low.
• 12:56
  SPEAKER_01: Here's what I'll say about that.
• 12:57
  SPEAKER_01: I think in a normal economic environment, there should be a premium for a new home.
• 13:03
  SPEAKER_01: It's new, it's brand new.
• 13:04
  SPEAKER_01: Yeah.
• 13:05
  SPEAKER_01: Like, and it probably has a lot of modern features, whether that's safety features from codes that have been passed, or maybe it's convenience features.
• 13:14
  SPEAKER_01: I remember that everybody went through that time period where everybody had an iPod plug-in as well.
• 13:19
  SPEAKER_01: Like there's so many different things now that you can build into a home that you're only going to get with a new home, that there should be a premium for it.
• 13:27
  SPEAKER_01: What you can't do is conflate the seller of a new home with the seller of an existing home.
• 13:33
  SPEAKER_01: They are not the same entity.
• 13:35
  SPEAKER_01: Speaking of this, it's a great supply-demand thing.
• 13:37
  SPEAKER_01: Okay.
• 13:38
  SPEAKER_01: So when Creature Comforts first started making Tropicalia, you couldn't get it anywhere.
• 13:42
  SPEAKER_01: They were sold, they wouldn't make large batches of it.
• 13:45
  SPEAKER_01: In fact, if you could find a six-pack of it at the grocery store, people would like wait for the delivery to get it.
• 13:51
  SPEAKER_01: Yeah, and they created this buzz around it to where Tropicalia, yeah.
• 13:55
  SPEAKER_01: And it was this sort of supply-demand thing.
• 13:58
  SPEAKER_01: And now you can find it anywhere.
• 14:00
  SPEAKER_01: But at that point in time, I remember when it first came out, there was like this whole deal of well, what what day do you get your delivery?
• 14:05
  SPEAKER_01: Talking to the Kroger or the public.
• 14:07
  SPEAKER_01: Really?
• 14:07
  SPEAKER_01: And they would tell you, and you'd be like, Well, I'm gonna be here.
• 14:09
  SPEAKER_01: And they'll be like, Well, we can only sell you one six-pack of this.
• 14:12
  SPEAKER_01: Wow.
• 14:12
  SPEAKER_00: Yeah, that is so crazy.
• 14:13
  SPEAKER_00: Isn't that crazy?
• 14:14
  SPEAKER_00: No, it's crazy now because I feel like it.
• 14:16
  SPEAKER_00: I've been, you and I have been to dinner enough that I feel like I could have ordered that for you.
• 14:21
  SPEAKER_00: Because, like, when you when you order a beer, that's what you get.
• 14:24
  SPEAKER_00: That's pretty much what I get.
• 14:25
  SPEAKER_01: That's what Patrick gets too.
• 14:26
  SPEAKER_00: It is, that's what Patrick gets as well.
• 14:28
  SPEAKER_00: I could just order it for you guys.
• 14:30
  SPEAKER_00: Um, so uh, let's go back to existing home sales versus um new home sales.
• 14:37
  SPEAKER_00: So, inventory being what it is, we're almost in a balanced market.
• 14:43
  SPEAKER_00: You said 4.9.
• 14:44
  SPEAKER_01: 4.9 on existing.
• 14:45
  SPEAKER_01: When you add in new, we're at 5.3.
• 14:47
  SPEAKER_00: Yeah.
• 14:48
  SPEAKER_00: Which we're pretty close to a balanced market.
• 14:50
  SPEAKER_00: So even with interest rates being just a tick higher, um, new home or home appreciation in general should be slowing, correct?
• 15:01
  SPEAKER_01: Well, and it did um until the most recent uh report from the FHFA.
• 15:07
  SPEAKER_01: Okay.
• 15:07
  SPEAKER_01: So we did see we saw home appreciation slow from roughly 6% going back, you know, a year and a half to two years ago, down to 1.3, 1.5%.
• 15:17
  SPEAKER_01: Okay.
• 15:17
  SPEAKER_01: But the most recent FHFA home price index just came out, which by the way is a super comprehensive nationwide index, it uh it actually started ticking back up 2.1%.
• 15:28
  SPEAKER_01: So we saw this bottoming out and then this rise back up again.
• 15:32
  SPEAKER_01: And and this is where I I know even some of the people that I speak with that are like, yes, you're right, existing home sales have not collapsed, prices are still going up, but it will only last for so long.
• 15:44
  SPEAKER_01: I would counter that and just say, we don't know that.
• 15:47
  SPEAKER_01: And the reason we don't know that is we have never lived through a period of time in American history where homeowners are in such an advantageous position.
• 15:56
  SPEAKER_01: We've never seen it to where they've got this much equity in this amount of time and have a locked-in interest rate in the twos or threes.
• 16:04
  SPEAKER_01: Yeah, these people are in incredibly advantageous positions and just thinking that just because there's more homes on the market, that suddenly they're just going to discount theirs.
• 16:14
  SPEAKER_01: Yes.
• 16:15
  SPEAKER_01: I just, you know, unless it's a divorce situation or a distress, uh my business went bankrupt, and I this is my last source of wealth, I just don't see it.
• 16:25
  SPEAKER_01: And I don't think it's going to be widespread enough to cause it.
• 16:27
  SPEAKER_00: Yeah, it's interesting because I, you know, I look at a lot of the markets that we our business is in, and it's it's different market to market.
• 16:35
  SPEAKER_00: Like I look at like the um, I don't know if you call it the Midwest, like where Indiana, Kentucky, Michigan, Ohio.
• 16:43
  SPEAKER_01: Close enough.
• 16:44
  SPEAKER_00: What is that?
• 16:44
  SPEAKER_00: It's uh we'll call that let's call that the Ohio Valley region.
• 16:47
  SPEAKER_00: Let's do it.
• 16:48
  SPEAKER_00: Okay.
• 16:49
  SPEAKER_00: So and we're seeing um homes there sell for over-ask.
• 16:53
  SPEAKER_00: Yeah, you know, whereas like you're we're here in Atlanta right now, not gonna happen here in Atlanta.
• 16:58
  SPEAKER_01: Not gonna happen in some neighborhoods.
• 17:00
  SPEAKER_01: I think there's other neighborhoods I've seen where there's still uh uh demand, bidding war, you know, and if you go in with you know 21-day contingencies, you're out.
• 17:08
  SPEAKER_01: There's no way.
• 17:09
  SPEAKER_01: Or if you're making a contingent offer, not gonna get accepted.
• 17:11
  SPEAKER_01: Yeah, there's still that level of it.
• 17:13
  SPEAKER_01: You're right, it's more pronounced as you go into the the northeast and the Midwest right now.
• 17:18
  SPEAKER_01: Yeah.
• 17:18
  SPEAKER_01: The Sun Belt certainly had its day, uh, and that day will come back again for sure.
• 17:24
  SPEAKER_01: I think the thing that people misunderstand or misinterpret is the nature of the seller, and that matters.
• 17:30
  SPEAKER_01: You have to pay attention to that.
• 17:31
  SPEAKER_01: That is when you're imagine if you were selling on Amazon to a seller that was a person with a personal asset, and you were trying to buy their grandmother's silver.
• 17:41
  SPEAKER_01: Just because you're creating more silver out there somewhere, yeah, doesn't mean they're gonna be willing to discount their grandmother's silver.
• 17:48
  SPEAKER_00: Yeah.
• 17:49
  SPEAKER_00: Yeah.
• 17:49
  SPEAKER_00: So ultimately, kind of what you were saying is that the existing home seller, being that they've got tons of equity, they've got low rates, they're patient, right?
• 17:58
  SPEAKER_00: They're not in a hurry to sell this home is what's driving the pressure with new construction.
• 18:04
  SPEAKER_01: I think what's driving the pressure with new construction is that there's not enough buyers.
• 18:08
  SPEAKER_01: You know, and we well, we just overall, we can just look at volume.
• 18:11
  SPEAKER_01: Like we're gonna finish out this year with total home sales somewhere probably around 4.6 to 4.7 million.
• 18:19
  SPEAKER_01: So this whole idea that, you know, that you know, built builders understand that dynamic and they got to cut their price.
• 18:26
  SPEAKER_01: It's just existing homeowners don't.
• 18:28
  SPEAKER_00: Yeah.
• 18:28
  SPEAKER_00: You know, something interesting.
• 18:29
  SPEAKER_00: This is a caveat, not really maybe uh I don't want to say inappropriate for this episode, but it got me thinking one of the things that I'm seeing a lot of right now is uh home equity lines are up almost 50, 60 percent for sure, you know, over the same time period last year.
• 18:47
  SPEAKER_00: Oh, yeah.
• 18:48
  SPEAKER_00: And I looked at the mortgage bankers index last week.
• 18:50
  SPEAKER_00: Did you know that cash out refinances was actually up month over month?
• 18:54
  SPEAKER_01: Well, personal savings rate is really down.
• 18:56
  SPEAKER_01: Like you're you're we're getting down to very low levels of personal savings.
• 19:00
  SPEAKER_01: And the reason consumer spending has held up so so well is because people have been drawing down on that massive amount of savings that they accumulated during the pandemic.
• 19:09
  SPEAKER_01: Yeah.
• 19:10
  SPEAKER_01: But it is reaching thresholds, not unlike the strategic petroleum reserve.
• 19:14
  SPEAKER_01: Yeah, it's reaching thresholds to where no longer do I have that.
• 19:18
  SPEAKER_01: Well, now where do I turn?
• 19:19
  SPEAKER_01: Now where do I go?
• 19:21
  SPEAKER_01: And that they're going to the equity in the home, right?
• 19:23
  SPEAKER_01: And then they don't want to sabotage that first mortgage rate they have, so they're gonna go to the home equity line of credit.
• 19:28
  SPEAKER_01: Or if they're really desperate, they will go to that first mortgage rate.
• 19:31
  SPEAKER_00: Yeah.
• 19:31
  SPEAKER_00: Okay.
• 19:32
  SPEAKER_00: Mark, anything else you want to add on this subject that we didn't maybe hit?
• 19:37
  SPEAKER_01: This is the part that Austin will edit out.
• 19:40
  SPEAKER_01: Yeah.
• 19:40
  SPEAKER_01: Because I can't quite think of anything.
• 19:42
  SPEAKER_00: He's standing in the corner at the guy said Well, yeah, why don't we just take our uh the mortgage rate with us?
• 19:51
  SPEAKER_01: Yeah.
• 19:52
  SPEAKER_00: Okay, so you so Austin's bringing up a conversation about uh mortgage portability.
• 19:57
  SPEAKER_01: Right, portable mortgages.
• 19:58
  SPEAKER_00: Yeah, portable mortgages.
• 19:59
  SPEAKER_00: Wouldn't that be great?
• 20:00
  SPEAKER_00: Here's the thing.
• 20:01
  SPEAKER_00: Is that as good of an idea as the 40-year mortgage?
• 20:03
  SPEAKER_01: It's uh first of all, it's not retroactive, so you can't go back and take the one that you got, you know, back in the 2010 decade or during the pandemic.
• 20:11
  SPEAKER_01: So if you want to take this one with you, um, but but the problem with that is these mortgages are are pooled, you know, post-closing.
• 20:20
  SPEAKER_01: And because they're it's a highly liquid in investment, and because all the mortgages are essentially underwritten to the same criteria, there's a lot of investment in it.
• 20:28
  SPEAKER_01: And when you start swapping out the collateral that backstops the loan for a different piece of collateral, well, then you're fundamentally changing the instrument.
• 20:36
  SPEAKER_01: It's a very complex.
• 20:38
  SPEAKER_00: I mean, honestly, if if that was going to happen, I think it would increase mortgage rates.
• 20:43
  SPEAKER_01: Yeah, I do too.
• 20:44
  SPEAKER_01: Yeah, those mortgage backed securities, these agency mortgage backed securities, and 80% of all mortgages or or used to be 80% of all mortgages, a little less now, uh, of all mortgages were the conforming conventional variety.
• 20:55
  SPEAKER_01: Yeah.
• 20:55
  SPEAKER_01: Right?
• 20:55
  SPEAKER_01: That the good old-fashioned 30-year fix that Fannie Mae and Freddie Mac are buying are are extending and guaranteeing, those are a very liquid investment because they're all the same, right?
• 21:06
  SPEAKER_01: They're all underwritten to the same criteria.
• 21:09
  SPEAKER_01: They don't have any unique features like prepayment penalties or any sort of customization.
• 21:14
  SPEAKER_01: And so it's very easy to make those attractive to investment dollars.
• 21:18
  SPEAKER_01: Yeah.
• 21:18
  SPEAKER_01: And the moment you start tinkering with that, like portability, for instance, boy, then that that all of a sudden is going to have a negative impact on the overall security, and investors are gonna may demand a higher yield because they don't know where you're gonna take that mortgage, right?
• 21:33
  SPEAKER_01: That they don't know that what that property is like.
• 21:36
  SPEAKER_01: So I 100% agree with you, mortgage portability isn't the way to go.
• 21:39
  SPEAKER_00: Yeah.
• 21:40
  SPEAKER_00: All right.
• 21:40
  SPEAKER_00: So listen, the ground game for those mortgage pros built for the fight.
• 21:46
  SPEAKER_00: Uh, I would say this whether you're an operator, whether you're a leader, or whether you're a loan officer in this space, this podcast is for you.
• 21:55
  SPEAKER_00: If you've got something that you would like us to talk about, leave it in the comments.
• 21:59
  SPEAKER_00: Or if you just want to troll us on social media and tell us how stupid we are, you could do that too, I guess.
• 22:05
  SPEAKER_00: Um, but thanks for tuning in.
• 22:07
  SPEAKER_00: Don't forget to like, subscribe, and share.
• 22:09
  SPEAKER_00: Until next time.