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4% Mortgages Are Back: The New Construction Deals Buyers Need To Understand · The Jon Sanchez Show

• Jon G. Sanchez: Good Tuesday afternoon too. Welcome to the John Sanchez Show on News Talk seven eighty KOH. It's a pleasure to be with you and a pleasure to be with my co host. Around the horn we shall go. Mr. Corey, Edge of Edge Really, how you doing, Big C? Cory Edge: I'm doing very doing very well, sir. How are you? Good. Jon G. Sanchez: All right. Very well, thank you. Very well. Dwight Millard of On Q Home Loans, how are you? Dwight Millard: Hey John, I'm doing fantastic. You living the dream. Living it every day. Yep. Jon G. Sanchez: Just living the living the living the dream, right, brother? Living the dream. That's it. I I have to tell you, the the boys and I were chatting before the show and Dwight's like, this topic, this is this is exactly what I'm living with. This is what I'm seeing each and every day and and going through, right? Dwight Millard: It's everywhere, John. It's everybody's looking for the interest rate. Well, you know, Corey said it years ago. It's all about the payment. You know, with a car, it's the same with a house right now. So they just don't underst they just don't Jon G. Sanchez: absolutely. That's the society that we find ourselves in. Dwight Millard: understand there's usually a trade off for rates that are different than what you're looking at. So that's what we'll talk about. Jon G. Sanchez: Yep. Yep. Exactly. Dwight Millard: Yeah. Jon G. Sanchez: You got it. Yeah, we got a we got a great great topic lined up for your day. Let me tell you about that after I go through the stock market recap. We will of course get to the topic. So, you know, as we've been discussing and as Dora will discuss today, we solidly have mortgage rates, the 30-year mortgage back above the 7% mark. But what if I told you that some home builders are advertising rates averaging under, you ready for this? Four. That's right, you heard me correctly. Sounds amazing, right? But if you're smart, which I know all of you are, you're gonna be saying, Well, wait a minute, hold on a second. There's got to be a catch to this. Well, today, Corey Dwight and myself are gonna break down builder incentives and whether a brand new home could actually cost you less than a resale home. Corey, answer that question. Is that the case? Cory Edge: yeah, I mean I guess if there's a lot of stuff that goes into that Dwight Millard: Mm-hmm. Cory Edge: that question. But yes, a brand new home can be less expensive, I guess, on a monthly basis, depending on the deal you structure. In Jon G. Sanchez: Right. Cory Edge: the long run, is it? Who knows? But yes. Jon G. Sanchez: Exactly. Dwight, give us a quick tease. What what the heck's going on out there with with home builders? I mean, we're going to Dwight Millard: Yeah. Jon G. Sanchez: be talking the nationals. We're not going to pick on anybody, but this is exactly the these studies that I came across. This is exactly what you've been talking about before when we t when we do shows about incentives and things, and you're going, you know what, how do I as a mortgage banker, how do I compete against XYZ national builder that is offering now again sub four I was shocked to learn sub four percent. Really shocked. Dwight Millard: Mm-hmm. Mm-hmm. Mm-hmm. Yep. Yep. Yep. Yep. Yeah. Yeah. Yeah, John. I I I mean, it's all about getting rid of inventory. And you're correct. You take the nationals, Toll, Lenar, D.R. Horton, you know, they're the ones drawing first blood. If they're getting very, very aggressive, and everybody else has to kind of come in line a little bit. I unfortunately, I don't think a lot of your regional or local home builders can get as aggressive, but I mean they've got to try. So there's just different ways, but these are Yeah. I mean it's all about the rate. All you're trying to do is get the person to walk through the the model. That's really what you're trying to do. Jon G. Sanchez: Right. Right. Dwight Millard: And nothing does it better than a three sub four interest rate. Jon G. Sanchez: Can c can they give up not saying they would, but I'm just curious, could they give up any any quality or any upgrades or anything like that? just to make sure Dwight Millard: Is Jon G. Sanchez: that, you know, like you said, Dwight, that you're getting that person in the door. W is that enough for them to get in there? Dwight Millard: We just John, we lost you for a second. Ask that question again. Yeah. Yeah. Jon G. Sanchez: okay, let me I'm sorry, let me let me ask you again. Getting them in the door, as you said, for that four percent, is that enough where they can again I'll I hate to use this term, but I'll just use it anyways. Cut corners in the house, right? Not not upgrade quite so much, not you know, this benefit, not that benefit. Because they know that it's gonna cost them to get that person in the door and to buy that house. It's gonna cost them money, as you're gonna explain how how this works. Cause there is no free lunch. Dwight Millard: Yeah, yeah, yeah. Well, I the good news I think, John, in most cases is the sales side is separate from the construction side. So I don't think the sales most of the st most of the construction people, including the foreman, don't even know what the homes are going for, the discounts, the incentives. So I think they're just doing what their job is. That's the nice thing that they're they're you know, maybe in a smaller builder, they know more. But no, I don't I don't think I think they just understand this is the name of the game right now, right? I mean if you're gonna move some inventory. You gotta get creative. You've gotta get sub four to get you know, to get creative. Jon G. Sanchez: Corey, what's your opinion on this? Cory Edge: I don't think that they purposely cut corners. What I do think they do is they know the environment we're in. We've been in it long enough. They probably Jon G. Sanchez: Yes. Cory Edge: bought this block of loans before the most recent, you know, increase in rates. So Jon G. Sanchez: Mm-hmm. Mm-hmm. Cory Edge: they're gonna sit down and say, listen, we're gonna have to give everybody 25,000 in rate buy downs. We're gonna have to do this. So behind the scenes, let's do two less windows, let's do a lower grade comp shingle, let's do, you know, it's Jon G. Sanchez: There you go. There you go. That's what I was waiting to find out. Yeah. Cory Edge: I I was arguing with or I was talking to somebody the other day about roofs and sewer lines. Like you they're things that buyers expect and you have to have them, but they I don't want to say they have no benefit, but to the seller, you're like, well, I don't get anything out of that because the buyer expects it. So I can spend Jon G. Sanchez: Sure. Cory Edge: 50 grand and I still get the same price for the house. Because you have to have a sewer line. Jon G. Sanchez: Right, right. Right. Cory Edge: and so it's kind of the same thing where the builders will come in and say, these buyers aren't gonna know if the roof is gonna last 50 years or 25 or I mean, I'm sure it's somewhere in the fine print. But they will keep their mar they know what their sales incentive costs are, but they're gonna keep their margins where they need to be to make Wall Street happy. So they'll cut the corner Jon G. Sanchez: Yes. Cory Edge: somewhere else, but not by not by screwing people, right? Like it's just a lesser Jon G. Sanchez: Sure, sure. Cory Edge: quality house. Jon G. Sanchez: Well, I mean, it's Dwight Millard: Yeah. Jon G. Sanchez: it's I forgot what I got the other day, some fast food item, which I don't eat fast food often, but I was a breakfast. Yeah, it was a breakfast burrito. That's what it was, a jack in the box. And I turned to my wife, we're we're heading into town, it was a Saturday morning, and and I opened this thing up and I'm like, this is like half the size. What it used to be, right? What it used to be. Dwight Millard: Mm-hmm. Jon G. Sanchez: So what what is that shrinkflation or whatever they the the the term they've come up with? So it's everywhere, right? You look at all the the I don't know, hundreds of components that go into a house, to your point, Corey. You know, what if you didn't make the cabinets, you know, I'm gonna pick a number three quarters of an inch thick, but you made them an eighth of an inch thick, right? How much is that gonna save in shipping and construction Cory Edge: Mm-hmm. Dwight Millard: Mm-hmm. Yeah, yeah. Jon G. Sanchez: and what you're buying from the supplier? So there's a lot of different areas they can they can cut corners, reduce costs, etc. Dwight Millard: And and John, you're Cory Edge: What in it? Dwight Millard: at you're you're correct. I mean, that rolls down to the subs, right? You're squeezing now the Jon G. Sanchez: Yes. Dwight Millard: subs. They're bare you know, and so guess what? They find more work and more opportunities in a resale or something, you know, a service call versus so it's complicated. Jon G. Sanchez: Right. Cory Edge: Well, and the interesting thing with the string flashing, I agree with you, is imagine a house. A lot of them don't have medicine cabinets now. Instead of eight Jon G. Sanchez: Mm. Cory Edge: can lights, they've got five can lights. I mean, all these cutbacks, Jon G. Sanchez: There you go. Cory Edge: if the market ever comes back and is super strong again, they're not going to put all that stuff back in it. They're just gonna have a fatter profit margin. So the how Dwight Millard: Raise the price. Yeah. Jon G. Sanchez: Great points, Cory Edge: the houses you're buying today are the houses that you will buy for the near future. Yeah. Jon G. Sanchez: Of the future. Interesting. Interesting. You know, the first thing that came to mind is you gave that explanation, Corey. And again, great explanation. Is some some auto dealers, right? Some auto dealers went really lean on their inventory and they've stayed that way. If you, if you drive Dwight Millard: Mm-hmm. Jon G. Sanchez: by some, some pretty large dealers here in northern Nevada, they've never really got back to where they were in regards to inventory pre COVID. Right. Their inventory is still very, very low. I was having this discussion with with a an employee of one of these dealerships the other day, and he said, We're never gonna go back, right? Because it it costs those dealers, they they get, you know, typically, at least when I was in the auto finance business, 90 days to sell that vehicle at Cory Edge: Mm-hmm. Jon G. Sanchez: a very low interest rate, the flooring cost. After that, it jumps up significantly and it really starts eating into you know the profit margin, which is very small on a on a new vehicle for a dealer. Very, very small. So Yeah, I I think that's just the world that we're in. It's shrinkflation and and lean and mean and so on and so forth. And yeah, I think you're right. Dwight Millard: Yeah, so thank you. Jon G. Sanchez: Just we're we're never gonna go back to where it was. Just never gonna go back. Cory Edge: Yep. Jon G. Sanchez: Incredible. Well Dwight, it's gonna be it's gonna be an interesting show with you and and kind of taking us behind the scenes. Something Corey just said Dwight Millard: Mm-hmm. Jon G. Sanchez: that that really piqued my interest also is you know, they he w they went out the dealer or the home builder went out and bought a block of loans. I want I want you guys to explain that 'cause again, there's a lot of lot of lot of things people Dwight Millard: yeah. Cory Edge: . Jon G. Sanchez: just have no idea that goes on behind the scenes. And again, To see, yeah, sub four percent offer somewhere. It's it's Cory Edge: you Dwight Millard: Mm-hmm. Jon G. Sanchez: I just I I mean, I I I gotta just ask this, Corey, then I'll get to the stock market side. Dwight Millard: Yeah. Jon G. Sanchez: How do you compete in a resale, in a, in a, in an existing home when a brand new home, let's say again, is at three and a half percent interest, and again, we're gonna get into the term of that and so on and so forth. how do you compete with that? You know, from from a resale versus a brand new home standpoint. Cory Edge: If they're an apple to an apple, the exact same houses, then you really can't compete. But there are some trade-offs with new homes. With new homes, it's brand new. Nobody's ever been there. It's beautiful, but you don't have landscaping. You don't have drapes. You don't have all this stuff. Some people don't like brand new neighborhoods because you don't have the old growth trees and all this stuff yet versus Jon G. Sanchez: Okay. Cory Edge: where the resale does. But you're right. The resale can't do that. Although if the market gets bad enough, not saying it's bad now, but if the market got bad enough, then the seller of the property has the same maybe not to the extent, they can buy it on the buyer's rate as well. Jon G. Sanchez: Good point. Cory Edge: And so the resale market can act like the new market if they had to. Jon G. Sanchez: Okay. Dwight Millard: John, the only and Corey's absolutely right, but you got to be careful about what your incentive, you know, there's a cap. So these sell, you know, based upon what program the borrower's getting. So a one-off resale versus a big builder. The the trick there, what Corey's been referring to, is they go out and they buy a commitment, a forward commitment. They spend a lot of money buying this block of money. Jon G. Sanchez: Mm-hmm. Dwight Millard: Then they can buy down inside of that block of money. So they're buying it down twice. And a single home Jon G. Sanchez: Sure. Buying it down twice, okay. Dwight Millard: seller is not gonna go buy a commitment, a forward commitment. Jon G. Sanchez: Right. Dwight Millard: So that is where it's giving the builder a little bit, the big ones, the big ones, John, that's where it gives them a little bit of a leverage over everybody else, even small builders and individual resales. Jon G. Sanchez: Okay. Right. yeah. Definitely we're a small builder. Fascinating. It's gonna be a great topic. We've titled it Four Percent Mortgages Are Back to New Construction Deals Buyers Need to Understand. We'll get into the details of that momentarily. When we come back, we're gonna get into the stock market side of things today. Another record setting day on the NASDAQ, a little sloppy on the downside, but we'll give you all the details. Welcome back to the John Sanchez show on News Talk780KOH with Corey H Vegrility, Dwight Millard of OnQ Home Loans. All right, we're gonna get to our topic here in a moment. Four percent mortgages are back. That's right. You heard me correctly. Four percent mortgages. But like with anything, there may be some catches, and that's our that's our responsibility to share with you behind the scenes of what Dwight Millard: And I mean Jon G. Sanchez: how some of these builders can can do this. All right, but first let's get the stock market side of things out of the way. interesting day today, nothing too real significant. we were pressured on the Dow throughout almost the entire session. Never finished a positive territory or never really made it into positive territory, finished down 185, 0.36%. significant pressure on some banks, which I'll share with you in a moment. And we finished again 185 loss 0.36 percent with a Dow closing at 51,863. NASDAQ, second day in a row that it set a new record, up 122 points, 0.45%. God bless AI. 27,244 was our close and unchains on the SB 500. Don't see that very often. Finish at 7,764. Before I turn it over to Dwight, let me just hit some of these movers here today. financial stocks. Now, 10-year treasury just up one basis point at a yield 497. But we're starting to see Dwight a little flattening of the yield curve, and that's putting pressure on the banks. brokerages and banks. Schwab today was down six dollars and fifty-three Cory Edge: Thank Jon G. Sanchez: cents, six point one one percent loss, Wills Fargo. Down $3.38, 3.91%. Allstate had an interesting day, lost thirteen dollars and fifty cents, five point five six percent decline, closed in at two twenty-nine thirty-six. Allstate, you guys are gonna love this story. not only were they pressured kind of, you they get kind of get thrown in the financial side of things on down days like this, but the New York Times reported today that Meta with this new AI agent that they they just came out with a couple days ago called Muse N USE. It's helping users find insurance. The AI agent is. And that, of course, highlights the potential for AI agents to disrupt the established consumer service channels. You can't tell me that these insurance companies, guys, are not excited about AI being able to do this. Can you imagine the billions and billions of dollars that these insurance companies, the Berkshire Hathaways, meaning the progressive and Allstate and right on down the line, Citigroup. The billions of dollars they would save annually if they didn't have to pay agents commissions. I mean, agents will never go away completely because there's you know there's a lot of value there. But let's say the lower tier Dwight Millard: Yeah. Jon G. Sanchez: agents that don't do a lot of business, more of a drag on the on the balance sheet of these insurance companies, imagine how excited they are behind the scenes. They're not gonna admit it, but that AI agent could come in and, you know, refer them over to to Allstate or Citigroup or you know, or travelers, I mean. I mean, interesting. Now, what was interesting, meta today down $4.65, but Expedia dropped when the news came out that I just shared with you. But then Expedia finished the day down 32 cents. But the stock recovered most of those losses after they announced a partnership with Muse to bring the AI-powered trip planning to hotels and other travel offerings. So there you find AI making its way into that area there. Lenar was a strong stock today. Up we're gonna be talking home builders, $4.97 6.37%. To eighty three five was announced today that Berkshire Hathaway increased their stake in the company, building on the early shess sess and strength of the company. Crude oil wasn't a problem today. Fifty-six cent loss, ninety-five twenty-one a barrel. same with gold, very quiet, four dollar and fifty cent pullback, four thousand three seventy-six sixty, and as I said, a one basis point increase on the tenure at a yield of four ninety seven. Mr. Millard, the floor is yours. Dwight Millard: Yeah, absolutely. So I I mean here's the headline, right? Lowest interest rates in one week. So I mean we'll take anything, John. But so you're thir Jon G. Sanchez: Dwight, you need to pause when you're on radar. Lowest interest rates in one week. Because you caught my attention earlier. What are you talking about, lowest interest rates? Dwight Millard: In one week. Yeah. the 30-year fix according to more mortgage news daily is 7.17. That's down two basis points Cory Edge: you Dwight Millard: from yesterday. Your FHA and VAs are back in the inside of the seven, six point eight, six point eight two. But John hence, the reason why you created this topic is because 7.17 doesn't set very well with people when they're look when they're looking at the bottom line payment, right? What is my bottom line? Cory Edge: Okay. Dwight Millard: And you know, John, it's funny because we we talk about all the things that go into that payment, you know, the stew of payment, but now people are separating and isolating out the PI payment, the P and I part of it, right? So it's they're what Jon G. Sanchez: What do you mean? What do you mean they're isolated? Dwight Millard: you know, we would you know, a lot of times you say, Well, the the the the payment is X and you're estimating the the taxes and the interest that have it been inflated, right? Now I I go back and I'm just quoting my PI payment, right? The P and I on this is only Jon G. Sanchez: Mm-hmm. Right. Cory Edge: Okay. Okay. Dwight Millard: Twenty hundred dollars. Twenty one hundred PNI. That's that's not a bad But Jon G. Sanchez: so you're it down. Jeez. Dwight Millard: then you add taxes, insurance, and all those problems. But yeah, but it's it it that's why this topic is really people are just trying to find the payment, right? They're just trying to find Jon G. Sanchez: Okay. Yeah. Dwight Millard: the payment and we'll we'll go through it's it's it's probably the most common thing going on right now. Jon G. Sanchez: I still don't understand, guys. I still don't understand why the government does not come out and just say, look at we're now offering a 40-year mortgage or 45 or a 50-year mortgage. What difference does it make, right? No one stays in their house. I mean, the average is what, do I? 10 years, Corey? 10 years, right? Isn't that the average like Cory Edge: Yeah. Jon G. Sanchez: the time someone owns a house? again, payment driven society, but whole nother topic. Many, many Dwight Millard: Yeah. Jon G. Sanchez: other ways to solve this problem. All right, boys, let's get let's get things started. We'll squeeze in a couple minutes here before we we have to go to break. So, you know, as we said at the beginning of the show, there is a a real interesting situation unfolding where you have the major home builders that are offering sub four percent mortgages. That's right. You heard me correctly. yesterday, well, again, as Dwight just said on the on the mortgage side of things, but let me give you another number, right? Dwight, you you you just indicated where'd you the thirty year was today? seven seven point one seven. Okay. Here's another number. Dwight Millard: Seven point one seven. Jon G. Sanchez: 3.92%. Now, according to new research from realtor.com, Cory Edge: you Jon G. Sanchez: nearly one out of every seven new construction listings advertised some type of a reduced mortgage rate in the month of August. And the average advertised rate was three point nine two percent. Again, that's the average. Three point nine two percent. So do I when we come back from the break, you Dwight Millard: Mm-hmm. Yep. Jon G. Sanchez: know, how in the world can someone be sitting at their desk at home in the car, wherever they may be right now. And go, wait a minute here. A second ago Malar just said, Cory Edge: you Jon G. Sanchez: you know, we're at seven nineteen on the thirty year mortgage. Now you're telling me the national average, you know, among seven Welcome back to the John Sanchez show on News Talk 780KOH with Dwight Millardov on Q Home Loans, Corey Edge, of course, of Edge Reality. All right, once again, let's tell you how we fared in the market today. Like I said, fairly lackluster on the Dow and the S P side of it. Finished down 185 the Dow 0.36%, unchanged on the SP, but a record close on the Nasdaq up 122 points. All right, the four percent mortgages are back. New construction deals, that you need to understand, it's like anything, it's Dwight Millard: Mm. Jon G. Sanchez: not as good on the surface as it appears to be. Dwight Millard: Yeah. Jon G. Sanchez: Now it was interesting. before we get into this topic, we we want to share something with you. So KB Homes, after the close today, reported earnings numbers. They beat on the revenue side. They had a slight miss on the earnings per share side. Right now the stock's down 65 cents in the after hours, 1.34% loss to $47.94. But Mr. Edge, you uncovered some very interesting comments made by the what I believe CEO of KB Homes during the analyst conference call just a short time ago. Share that with us if you would. Cory Edge: Yeah, I don't know if it's the CEO or somebody up there. And again, what I was looking for trying to find, I like to look at their profit margins because we talk about how small their profit margins are. And I wanted to see how much they were attributing towards the mortgage buy downs. And I didn't know this, but it says the KB management said that they rarely use buy downs unless they have to for standing inventory and went on to say, or went on to publicly criticize competitors like Lenar and D.R. Horton. who they say artificially fund aggressive 4.25 mortgage buy downs. He went on to say that he warned, I'm sorry, that buyers purchasing from these builders are effectively overpaying for the structure to secure a lower rate, creating a high risk that those buyers will immediately find themselves underwater if they need to resell them. And that makes sense. We talked about this like six months ago. Yep. Yep. Jon G. Sanchez: I e I was gonna say those are words you guys both have said. Yep, those are words you both have said. let's explain that in in a little bit slower terms here. So take it take it put it in layman's terms, Corey. Cory Edge: Well, I don't want to get sued. I don't know that this is anybody's practice, Jon G. Sanchez: No. Cory Edge: but if you can imagine, if you're going to take a, let's call it, I don't know, we'll use 10 points to Dwight's example and the average price at 450. So if you're going to spend $45,000 extra on a house to get that buyer's rate down, these builders are very smart. They've gone through their numbers. They're somehow going to make up that difference either in less lights, less medicine cabinets, the things we talked about. or by raising the price in order to keep their margins the same. If you raise the price artificially, because that's not a function of the market, that's just an artificial raise, then by definition, you've overpaid for the house and you're going to be upside down from day one. I think we'll get into discussion later in this talk of why don't they just take the, in this case, $45,000 and reduce the price? the builders don't want them reducing the price because that ruins the whole flywheel, right? They need it to stay in the bucket that it's in to keep, it's my opinion, the artificial prices of the whole neighborhood up. And then people don't kind of realize what's going on until you have to throw that house out to the normal resale market and compare it to everybody else. And one real quick thing, and then I'll jump off the soapbox. I'd mentioned two or three weeks ago, maybe a month ago, but I was doing comps for somebody in a new home subdivision out in Sparks. This particular person was underwater, which kind of blew me away that they were underwater. I said, I can't, you're underwater. There's nothing I can do. But then when I pulled the houses, I would say at least 30 or 40 % of them were underwater as compared to the resale market. So Dwight Millard: 450. Cory Edge: that's kind of an example of what happens inside of the little community. But then when you got to go outside the community, it doesn't work anymore. Jon G. Sanchez: So question is, where's the appraiser in this mess? If these homes are overinflated, where's the appraiser? Why isn't he catching that or she catching Cory Edge: Well, he, well, I mean, I wish we had Richard on or maybe he can chime in, but I think, and I might be wrong. So Richard, if I'm wrong, I'm sorry and call me or call it into the show. Dwight Millard: Yeah. Cory Edge: But I think he appraises against other units in the subdivision. Dwight Millard: Mm-hmm. Mm-hmm. Cory Edge: So if it starts out artificial, then it just builds on itself artificial. Dwight Millard: to artificial but John they do have to note now any credits given by the the the the builder so yeah so that's yeah Jon G. Sanchez: They do. Okay. Dwight Millard: it's part of the report now so yeah it's it's it's Corey is absolutely correct I mean you're gonna make up you can't just go to four point or what do you said three point nine two rates without trying to make it up somewhere and I think it's a combo like to Corey's point I think there are less cans you know maybe the countertops Jon G. Sanchez: Sure. Dwight Millard: the cabinets are cheaper and You know, I I'm gonna no, but I'm gonna raise it a little bit. So I'm gonna raise I'm gonna the quality is gonna go down. That will help offset whatever I've got to pay, John. And you know, we were talking off air. I just wanted to, you know, we said mortgage rates today are 7.17. FHA's Jon G. Sanchez: But not but not sixty five thousand dollars worth, right? Maybe Cory Edge: So that's my way of saying thank you. Dwight Millard: trading slightly better, but I wanted to just start at the basic and say, okay, if you came to me, John, you're not going to a build or you just don't know what you're doing yet. You came to me and said, Hey, what is my I want the lowest rate. What can I get? The very lowest I'll pay for. Four point seven five. And that wasn't we weren't that Jon G. Sanchez: Best you can do. Dwight Millard: that wasn't that long ago that we were, you know, that wasn't Jon G. Sanchez: Yep. Yep. Dwight Millard: too bad. Ten points today, at least with OnCu. It's ten points. I mean it Jon G. Sanchez: So I've got to pay 10% to buy down to get Dwight Millard: Ten points. Jon G. Sanchez: four and three quarters when I can go to a builder. And Corey, correct me if I'm wrong. Does a buyer really give a you know what if that house is I mean, they have no way of knowing that it's in this hypothetical sixty five thousand dollars more than what it really should be, and it's up that high be you know to get this rate. The buyer doesn't really care, right? Like you guys keep saying, you guys keep saying it's all about the payment. Cory Edge: Well, I mean, if you lay, I would assume, you know, if people are normal and you laid it out with a mathematical, like, here's what you're doing, they would be like, what? I thought I was getting it for Dwight Millard: Why would I do that? Yeah. Cory Edge: market value and a 3 % rate. I didn't realize I'm paying over market value to get the 3 % rate. Jon G. Sanchez: Yeah. Yep. Dwight Millard: But but John, Jon G. Sanchez: Yep. Dwight Millard: that's why when I when I said 4.75 is 10 points, how do you get a 3.92? So it is truly a 321 buy down. That's that's the most aggressive interest rate buy down you can do. It's a temporary, you go three percent lower than your start rate. So you have to Okay, okay. Yep, yep, yep, yep, yep. Jon G. Sanchez: Okay. I I've gotta stop you. I gotta s cause you're gonna go down a path, you're gonna lose everybody, and this is very this is the gist of the show. Okay, so let's go s back a couple steps to White and talk about how these lenders go out and they buy a block of money, then work your way up to the three two one to come to a three ninety two. Dwight Millard: Okay. Yeah, so so typically that they're not gonna just go pay for a block of money at today's price. You've got to get a little bit better than you know, to so you can advertise. So what they're gonna do is they're gonna probably go pay at least a point and a point and a half buy down on, but John, this is 10, 20 million dollars, right? I mean, this is a lot Jon G. Sanchez: Sure, sure. Dwight Millard: of money they're paying up front. So when you buy a these are large builders, John, when you buy a forward Jon G. Sanchez: Yes. Dwight Millard: commitment. All your incentives now, let's just keep going with FHA. You have a six percent incentive. You can still now apply that full six percent incentive even because you didn't have an identified buyer in that commitment. So they paid, let's just round it up. Let's say they took paid two points inside the forward. All right, I'm gonna buy the rate down, it's gonna cost me two points. Then I'm gonna give you six points inside the commitment. I just paid eight points, which is probably really, really close, John, to what's going on out there with these big ones. They just paid eight points. So on a $500,000 house, right? I mean, that yeah, you know, yeah, it's and so where do you make it up? And that's the only way you're gonna get down to a 3.92 is Jon G. Sanchez: Okay. Dwight Millard: do a 321 buy down off of a 6.92 start rate. So if you're at 7.17 today, I gotta get to 692. So I gotta buy that down first inside my forward, and then I'm gonna buy down to the 392. And it and it but it's temporary. It's one year. Then you go to four nine two, then you go to five nine two, then you Jon G. Sanchez: There we go. There we go. Dwight Millard: go to six nine two. And if the market hasn't changed, then you are if we're still in this you know event, you know, this conflict, you don't like to call it, but if we're still in this, John, there's possibility in three years you you if you didn't like the payment at six point and if you don't like the payment at five and a half, you're gonna really be in trouble for three years from now. Jon G. Sanchez: So theoretically, what you guys are saying, this could almost be to be real extreme, this could almost be an 0809 scenario brewing under the surface, right? Because if Cory Edge: you Jon G. Sanchez: to your point, Dwight, if you know, again, we're not saying this is going to happen, but in three years, if rates don't come down, and that you know what started as a 392 mortgage is now a 692 mortgage, that that that buyer every year that payment's going up and up. This is what happened in 08. Nobody could refinance and they were there or you know, so their loan, you know, amortized and they they went from two thousand a month to five thousand dollars a month. They're like, screw this, I can't afford it. I'm walking. This is a in a sense, a a version of that, right? Dwight Millard: It it can't it can't be. John, look how many people we lost when rates went up two percent. Jon G. Sanchez: Yes. Right. Dwight Millard: I mean, we lost a ton now. You're gonna get two percent just in the second year increase in your start rate. You know, so I mean it's it has the if yeah, if we don't get something corrected, but you've already got those three, two ones and two one buy downs already coming, you know. John, those were taken out three or two and three years, four years ago. Jon G. Sanchez: Okay. Okay. Dwight Millard: And these people are now sitting at high rates. You can't refinance. What are you refinancing? To Corey's point, you might be upside down right now. Yeah. Jon G. Sanchez: Right. Yeah, the Psycho eight nine. You can't refinance. Yep, you're upside Cory Edge: They're Jon G. Sanchez: down. Cory Edge: higher than they were had they taken a fixed rate three years ago. Dwight Millard: Take it yeah, they take in the fi yeah. Yes. Jon G. Sanchez: Boy, Corey, as you always say, the pendulum always swings one direction too much, right? Always swings slowly. Cory Edge: Slowly, yeah, it moves slowly. Jon G. Sanchez: It does indeed. All right. Now that we've scared the heck out of everybody, let's come back, boys, and let's give some solutions. What are some of the things that if s if someone this Saturday is walking into their favorite housing track by national builder and they see 392, 4% somewhere around there, let's lay out what some questions and and numbers that they should be looking to to see if this makes any sense or not for them. Let's protect them. Welcome back to the John Sanchez show on New Stalk seven eighty KOH Corey Edge, your phone number, sir. Cory Edge: 673-6700. Jon G. Sanchez: Mr. Lard. Dwight Millard: Yeah, two four zero two zero two two. Jon G. Sanchez: Beautiful. All right. What a fascinating topic. This is one of those days I wish we had about three hours because there's so much more that we wanna go over. Corey, would you mind regurgitating what you just came up with if you have it still at your fingertips? This is fascinating news. Looking at the profitability of Lenar versus DR Horton and what these buy downs are doing. Cory Edge: Yeah, just real quick because of the report today on KB. So DR Horton third quarter grossed $905 million. Call it Lennar only grossed 284. Sold about the same amount of houses, about the same selling price. Lennar's margins were incredibly smaller. So when you dig into why, it says that they averaged 12 % mortgage rate buy down per house. which with our quick math, put some close to 50 grand per house that they are spending to bring those rates down. And it goes on to say that that is Lenore's strategy. Their strategy is to shrink their margins and keep building no matter what. But it's just a, it's a weird, it's a time bomb. So. Dwight Millard: But John, those Jon G. Sanchez: Take Dwight Millard: are the sign Jon G. Sanchez: them. Dwight Millard: readers on all of them. They they're advertising the rates, you know, on top Jon G. Sanchez: Yes. Dwight Millard: of their signs. I mean, and that's what's getting that's what they're just trying to drive traffic, right? And if they get people who don't understand what the buy down looks like, especially a temporary buy down, you know, you gotta know what. No, no, no, no, no, no, yeah. Jon G. Sanchez: Come on, Dwight, does the average person understand what a buy down is? No. They're gonna come in and go, what's my payment? Let me sign here. Here's my deposit. Let's get this roll ball rolling. Okay, let's protect our listeners, Dwight. Let's start with you. What Dwight Millard: Yeah. Jon G. Sanchez: do they need to be thinking about when they walk in that sales office and this is offered to them? Dwight Millard: But John, I would just yeah, I I I would just keep it as real as I can. And what I mean by that is give me the best price you can give me. Don't don't throw anything in here. I don't want incentives. I don't want all this junk yet. Tell me what my price is going to be, and then if you have any benefit there, I think I would lean more towards the affordability of a permanent buy down. Albeit it's not gonna be that great. So you might get into a six and a half rate, six and three quarters, but at least you know what you have, right? You know the devil Jon G. Sanchez: Permanent's the keyword. Dwight Millard: you have. Permanent is the key. The buy down only comes into play if you're prepared or if it's a short term, like you know, you're gonna be in a particular particular location for a couple of years, you're gonna get transferred or something. Maybe then you might do it, but it John, it's kind of like the pay option arms. Remember those, the pick your payment negative arm that people got in so much trouble on those. And this Jon G. Sanchez: Yeah, yeah. yeah. Yep, pick a payment. Yeah. Dwight Millard: is kind of the same way, you know, and if If home values don't go up and we start getting job losses, we've got problems. Jon G. Sanchez: I gotta I I gotta fight back, brother. You know I love you and I have the world respect, but you and I both know there's no way the consumer is gonna go in there and say, okay, knock off Dwight Millard: I know. Jon G. Sanchez: thirty thousand dollars off of this. It like you've said before, thirty thousand is nothing when it comes to a payment. Dwight Millard: Not gonna make, yeah. Jon G. Sanchez: But if you get me, you know, four percent versus the market rate of seven seventeen, and I can feel that difference, you know, in in my take home. Am I right on that? Dwight Millard: You're you're right on that, but you gotta go with Corey's point that you may be immediately, depending on how they got you there, depending on how they got you there, John, and Corey said they made nine nine hundred and what you know, and the Yeah. Cory Edge: Yeah. Yeah. Jon G. Sanchez: Yeah. But that's not the way human nature works. Yeah, yeah. Nine hundred and two million. Dwight Millard: They got there somehow, so it may be on your back. I I mean I Jon G. Sanchez: Okay. Dwight Millard: get I agree with you, but Jon G. Sanchez: Okay. Corey, what's your advice to protect our audience? Cory Edge: I think just be as educated as you can. And I do agree with you that in the moment with good salespeople barking at you, Jon G. Sanchez: Yes. Cory Edge: they're probably just going to sign the paper and it, know, Hey, theoretically, these are all adults. So if they understand their ramifications and they want to sign the deal, go ahead and sign the deal. It is what it is. It hurts you. If you have to get out of it really quick, it hurts you. If you lose your job, like we've talked about Jon G. Sanchez: Yes. Cory Edge: the AI and the this and that and the economy is doing good, but one day it won't do good. So you have to think about those things as far as I can afford this low payment, but can I afford the one that's $700 more per month if something happens? Jon G. Sanchez: Dwight, Dwight Millard: And John, there's a yeah, John, there's a middle of the road though. Yeah, there's a middle Jon G. Sanchez: talk about that real quickly. About the qualification. Yeah. Dwight Millard: of the yeah, but there's a middle of the road. You don't have to do a three, two, one. You can do a one and a half one. Yeah, I mean, so there there are some compressions there you can look at. But yeah, real quick. So what do you want me to talk about? What's the the yeah, you have to qualify. Yeah, on any temporary buy down, you gotta you gotta Jon G. Sanchez: the on a on a three two one, if that's what these builders are offering, you gotta qualify on the on the higher rate, the highest rate there. Dwight Millard: you gotta qualify at the fully indexed, fully annortized rates. So there's no benefit in qualifying, even though you start. Jon G. Sanchez: Okay. Could we real quickly guys with sixty seconds left, could we could we use the analogy date the rate in this scenario? I mean, we're pretty high in rates right now. If I Dwight Millard: Always. Yeah, of course. Jon G. Sanchez: was a betting man, I'd say we're pretty close to a peak. Dwight Millard: Yeah. It's a yeah, it's a short date, but yeah, I would I would yeah. I mean that gives you the one yeah. Jon G. Sanchez: Yeah. Corey, I see that smirk and you're going, Sanchez, that's a risky way to go. I know that I know that look on your face. That's right. That's right. Exactly. Cory Edge: It's a one night stand. Do you think we're really, you think we're pinked out at rates? I don't know. Jon G. Sanchez: Yeah, we're real close. Yeah, we're real close. Yeah, exactly. Dwight Millard: Okay, well that Cory Edge: Then I get, yeah, you can roll the dice. Jon G. Sanchez: Yeah. Yeah. Yep. In my opinion you can. Yeah. Yeah. Yeah. Exactly. Exactly. Dwight Millard: Yeah. And you may only have to roll it for a year, John. You can refinance in a year. I don't know. Yeah. Cory Edge: But then remember the cost to refinance, Dwight. Like, well, I don't know what the average cost to refinance, so it costs money. Dwight Millard: Right. Yeah. Yeah. And Jon G. Sanchez: Right. Yeah. Well Dwight Dwight Millard: well and j yeah, exactly. Jon G. Sanchez: at zero. He'll do it all other goodness. All we gotta fly, boys. I'm gonna I'm getting yelled at. Great job, fellas. Cory Edge: Okay. Jon G. Sanchez: We'll do it again tomorrow on the John Sanchez show. God bless.