What You NEED TO KNOW About REAL ESTATE Investing | Episode 112

Okay, well, this is where you come to get all things on how to buy your first home. And right from the start, I realized from all the responses that I got that lots of people were clamoring for this information. Well, it turns out that I vastly underestimated the need for this information. I'm talking in a massive way. A recent survey from Zillow showed that 90% of Americans know how many children Kim Kardashian has like, but fewer than 33% know how to get pre approved for a mortgage. Holy crap. Let's talk about this. So if you want to stay up on things besides, you know, random pop culture, click subscribe. Like, bang that bell. We've got new housing episodes coming out every week. What is up my how to buy a homies. Yeah, there was a recent survey that came out, brought to you by our friends at Zillow, that said that nearly 90% of the United States adults know that Kim Kardashian and Kanye west have four children. And about 70% of the United States adults knew about the reunification of bennifer. But only 33% of adults know the benefits of getting a pre approval for a mortgage. So I want to start today's episode with some of these depressing stats that came from the surve. And then instead of complaining about it or making fun of you misinformed millennials and Gen Z people, because, you know, I don't feel that I'm gonna get on the proactive side of this. I'm gonna do something novel. I'm actually gonna help you. Since it is totally not your fault that no one told you about this stuff. First some fun, and then we'll get into a current market update. So if you happen to be one of the people that answers the phone when someone calls and asks you this survey, please, you know the answer to these questions. Okay? Fun time. Here's some more of the not so greatest hits from the recent what People Know About Housing survey. The majority of the survey respondents believe that just getting a pre approval actually locked in your lower rates. This is absolutely not true. It's the first step that you do to get a pre approval. But locking into them doesn't mean that you lock into a lower rate. And it doesn't even mean that you lock your rate. Each bank and each lender, they've got different rules on how those locks work. And just getting a pre approval doesn't mean that you get the rate of that day. And I'm getting a lot of people that will reach out to me and Ask me one quick question and want the answer. And we'll talk more about the quick answer expectation epidemic that I'm seeing at the end of the show. But this was just another example of people going, oh, I do this. I get that. Cool. That's all I have to do. Not quite. Another one of the answers that was just highly disturbing was that most adults thought that the pmi, also known as the private mortgage insurance, people thought it applied to every single transaction, and it actually only applies to transactions when you put less than 20% down. I spend most of my time on this podcast justifying and explaining that if you're savvy and smart and a financial baller, you can actually use PMI to utilize a low down payment. Pay the PMI and you're actually going to save money because you're only going to have that PMI temporarily. And you can do that instead of trying to save up the whole 20% while your rent is going through the roof and the market is appreciating. But apparently it turns out that not only did people not know that, but that they didn't realize when you did not have pmi. So that was a stunner. And then there was one that homeowners also had a lot of misinformation on cryptocurrency. Color me shocked. As well as the purpose of home appraisals and offering earnest money. Survey answers were low, low, low on that. The only factor that the respondents seem to have a good grasp of when it came to things dealing with homeownership was credit scoring. With a majority, understanding payment history is crucial to to a good score. Awesome. That's great. I also have this comment on that. Duh. People doing the survey, it just blows my mind that they don't think about where you guys are coming from. Of course, adults who have been renting for a little while but haven't bought a house yet, of course they understand credit scores because credit scores are the things that they've already had to deal with in their years when they've been adulting. Whether you're renting a home or buying a car, you've had to deal with credit and the other stuff is brand new to them. So instead of spending all your time doing a survey to figure out what these people don't know, how about spending some time putting out some content that makes sense to them so they can understand this. Come on, man, help the people out. You know, and it's funny, I did actually even see a flaw in the one thing that they said was good. I did see a flaw. Do you see what, do you remember what it said? It said the only factor respondents had a good grasp of was credit scoring, with the majority understanding that payment history is crucial to a good score. Okay, now those longtime homies out there, what do you see that's wrong with that sentence or incomplete you finding it? They said understanding that payment history is crucial to a good score. That's only one fifth of the equation. Payment history is very important. It's one of the larger chunks of the credit pie. If you don't know what I'm talking about, I'm not kidding right now. Google, how do they calculate my credit score? There's like 7,000 pie charts and then you should print one up and stick it on your wall because payment history is one. But the other four factors are credit history inquiries, balance usage, and credit mix. And of course, if you want to know how all that stuff works so you can do more than the average respondent does, go back and listen to all the credit episodes. There's a billion of them on the podcast. Okay, gang, so what do I like to do when I get depressing information about the generation getting ready to take over the world and they're just uninformed? I try to help. Oh, no, I take that back. First I blame the man and the system for not educating you, and then I bring in my proactive response to help you have more knowledge about the biggest financial decision you were ever going to make in your life. And hopefully you're going to know more about this than the Kardashian babies. But not Star Wars. If you know more about Star wars and buying your house, that is perfectly acceptable. Now, since I just spent that time, you know, kind of ragging on those folks who didn't know the things in the survey. How about I start with some good news to make you all feel better about yourself for you want to be first time homebuyers. By the way, I'm not ragging at all. Ignorance is fine. It's not your fault. So let me give you some good news to start with and then we'll get into all the facts and details. We're starting to see headlines right now about a cooling market. As I said in the last episode, bad headlines are good for you. Just like cooling headlines are good for you if you're a first time homebuyer. And it's really great news for those of you who maybe are at that point where you're out there shopping for homes and you're getting crushed and so right now you're listening to this in the fetal position with your headphones on, crawled up on the floor and you're hoping that you can get some good news because it just feels impossible out there with unaffordable homes and the competitiveness that just makes it feel like you're going into battle. And you're having a damn hard time hearing me go on and on and on about my practical positivity. Well, I'm here with some promising news. Sellers are making price cuts in some areas and the bidding wars are starting to ease up a little bit. Now, of course, this is all relative, but that's a headline that actually has some truth behind it. Now, of course, if you keep searching like I do, real estate dork, then you're going to find other reports saying that it's still stupid competitive out there even though the inventory is rising. So who do you believe? Well, when it comes to figuring out who I believe I've got one master data or data. I love Brett Spiner. He's fantastic. Data and facts, those are my gods when it comes to real estate. So let's take a look at some of that. Here's some things to give you hope if you're a first time buyer. There are five signs the housing market is starting to slow down. There's a shift happening in the housing market after more than a year or two years actually of soaring demand, exploding home prices and increasing real estate sales have all been going nuts. Well, we're just starting to see now the market's starting to cool off. Taylor Marr, the chief economist at Redfin, said, quote, the housing market isn't crashing, but it's experiencing a hangover as it comes down from unsustainable high. Continue on. Mortgage rates have increased more than two and a half percentage points. Actually, it's up to about three points right now. And lots of buyers, they're either bowing out or they're recalculating their price points and their, maybe even their must haves and some of the things they're looking to buy because of these new numbers with the new mortgages. I mean, you could seriously, if you started doing your planning and thinking about it, you might have doubled the amount of interest that you're paying three points from March to today. And I've seen this firsthand all over the country. I have lots of listeners and unicorns reporting in as a result of these changes in the mortgage rates. And there have been people bowing out or recalculating or figuring something else out. And one of the things we've seen as a result of that is the year over year sales. They have been dropping in recent months. Keep in mind they've been dropping but they were freaky going up before that. So cooling and slowing down doesn't mean gigantic drop. It just means going back to normal. In a Fannie Mae survey. Damn. Another survey. In a survey on homebuyer sentiment, a record 79% of respondents, based on the crazy changes in the mortgage rates and the unaffordability of homes, 79% said it was a bad time to buy a home. And they didn't mean bad meaning good, they meant bad meaning bad. Personally, you know, I don't agree with the sentiment of the 79% of the would be first time home buyers. My reasons are based more on on my masters my God's data and facts. Most people right now who are answering the survey are answering that based on emotions. And all of my data and facts decline in that index. And there are other reports that show foot traffic, people visiting the homes. It's 24% now. This could be a temporary change because it feels like June and July. There was a lot of stuff that slammed at everybody regarding the economy and inflation and the Fed raising rates. And it happened all at once. And also that was exact same time that every buyer had to start doing some major recalculation because the rates, they went from 3 to 6% just this year in 2022. Eventually prices are going to stabilize more and then the buyers who remain in the game right now, they're going to have a little bit of time without prices going through the roof and looking our monthly payment change by hundreds or even thousands of dollars because their rate went from 3 to 6%. When we get into August and September of this year, everyone who's shopping for a home will have already adjusted to understanding that their rate's going to be 6% range. So that is one article with some pretty solid facts backing up the opinion that housing is slowing down. And that's five different ways that it said it. But what else are people saying? I mean, is the boom over? Are we going to crash or is this going to be a correction? One thing that everyone needs to remember is no matter who you listen to, it's all relative. The past two years are record breaking in nearly every way. So there really is nowhere to go but into a slowdown. We had record low mortgage rates in 2021 and we also had at the same time, as far as the population goes, a bunch of millennials were reaching Their home buying years at that age. And all of that led to a huge demand from buyers. Now, at the same time that that giant demand came up, it was cheapest it could ever be to buy a home. And there were a bunch of people that weren't the right age to buy a home. And everyone started, but inventory was crazy low. So smash that all together and you get a crazy market gumbo. But it cannot stay hot forever. And we're starting to see it. So most people are saying, again, correction, slow down, not a crash. If you take a look at the showing time index, that's one of the folks that checks out how many people are making appointments to see homes showing time. Their traffic shows that. According to agents and brokers, this is where we are with buyer demand. Look at this data that goes all the way back to 2019. It gives you a good baseline. Now, the baseline are all those numbers in gray right there. Those gray numbers right there that the baseline, that's 2019. And then it shows the skyrocketing prices going through the pandemic in the blue. And while the current buyer demand, which is there in the green, is moderately slow. Take a look. It's still way above our baseline 2019 levels. And since 2019 was such a strong year for the housing market, this helps to show that where we are right now, the market isn't crashing. We're mimicking another strong time. It's just a turning point and it's moving back towards those pre pandemic regular levels. Something else that's happening is the headlines are also talking about how existing home sales, they're declining. Right. But the perspective on how they're declining, that actually matters. So we're going to take a look at the existing home sales once again, all the way back to 2019. On the graph, you see 2019, same story there, there in gray, then the blue blowing up numbers. Those are the pandemic skyrocketing. And now we get the green. Now that's where we are in April 2022. But all the headlines say, oh, the market's slowing down. The number of homes being sold is less. Yeah, but it's still more than the gray, which was a very strong 2019 market. So it's very important that when you're comparing today to the abnormal pandemic years, that you're not comparing to those, but you actually need to understand that this recent data is better compared to the 2019. So if all this recent data and the headlines are shaping your thoughts and opinion, look at a more Typical year. When you're comparing today's data to help you with your perspective, the current market is not set for a crash or a correction. It's just a turning point into those pre pandemic levels. So in general, nothing in the recent market can be summed up in general. How's that? It's all relative. And to say that we've been experiencing a relatively normal market would be saying that, like Tom Brady is a relatively good quarterback or that John Mulaney is relatively funny. No, it's all relative. Since we love lists, here are the five reasons today's housing market is anything but normal. Number one, guess what? Mortgage rates. Again. If you think about. You go back and you look over the decades, we've gone up slowly from 8% in the 70s to 12% in the 80s. And then from the 90s and 2000s and 2010s, we went from 8% to 6% to 4%. Think about that. That was 30 years of that. Well, over the last six months, we went from 3% to 6%. That ain't normal. And then number two, something that is abnormal, the home appreciation. According to Black Knight, which is a housing data and analytics company, the average home appreciation on a residential real estate price since 1995, it's been 4.1%. 2021 was 19.5%. That's like what's four, almost five times, four and a half times more than the average. That's crazy. And in 2022, we've still been going up four or five, six, seven percent. So that's 22, 23, 24, 25% over the last 18 months. That is going to put a big giant skew in that 4.1 average appreciation since 1995. So that means we got to hit a slowdown on a correction. Number three, in the usual market, the low inventory. Raise your hand right now if you're sick of me talking about low inventory. Okay, cool. Now drop your hand down real fast and smack yourself on the head there. Why? Because this is important to understand. I want you to make sure you get this in your head. Home supply has been a national disaster and a huge problem for over three years. If not going back all the way to 2010 and 11, but it never seems to get mentioned. The low inventory, it's affecting everything with housing. And the fact that we're 607% less inventory than we were in 2008 means that this is not a crash. There's not enough supply to cover even a minuscule demand. Number four. And why things are weird right now. How long does it take to sell a home? Your days on market. The days on market, that's a stat that is an indication of how hot the market is, tells you how quickly homes are in 2019 before the pandemic. According to Fred, which is not some dude down the hall in my office, it's actually a respected leader in the gathering of economic data, especially when it comes to housing. It's the Federal Reserve bank of St. Louis. Why the Federal Reserve bank of St. Louis is called Fred, I have no idea. But it's a great resource. The average days on market back in 2019, about 68 days in 2022. And this goes all the way up to the summer. Even with the big jump in mortgage interest rates, it's still at 40 days. And that is way, way lower than that if you're talking about entry level homes. Because that 40 days still includes a lot of the jumbo larger homes around here. For me, it's about two days on the market still to today and it's middle of June 2022. And speaking of that, the fifth one is the number of offers per listing. We've never seen anything like this in 2013. When I was doing working with a lot of first time buyers back then too, I did see a lot of multiple offers and kind of learned how that whole process worked. For the first time in my career in real estate, it's the first time I saw it. That crazy. It started up again in 17, 18, 19, 2019, we had about 2.2 per home. That's how many offers there were on a home. Now again this, keep in mind, this also includes the bazillion dollar homes that only get one random weird offer on the entry level. It's a lot higher than in 2022. We're looking at five offers per home. And again, that's way higher when you're talking about the entry level homes. It's more like 20. I have seen 20, 30, 40. I saw one that had I think 89 or 92 offers on it. So in a slowdown, not a crash, but a slowdown, this still means we're going to have five to 10 offers. In fact, I just sold an entry level home last week, early June here in 2022. I had nine offers in the first two days. Nine. And we ended up selling it to the highest bidder. Want to know what that was? $75,000 over list price. Things are weird right now. And it's not just in housing. Things are weird everywhere. Russia thing is jacking up the whole gas price thing. What the heck is that all about? The stock market has gone bare for the first time in forever. The Fed just raised interest rates 3/4 of a point. They haven't done that since 1994. Inflation's the highest it's ever been, in fact, 40 years and everyone's out there talking about a recession. Hell, you won't talk weird. Even beer manufacturers are having low inventory right now, claiming that the supply chain is making it harder to get brown glass. So that's got to be a big bummer for those of you who drink Modelo, Sam Adams Red Stripe Newcastle. Oh, speaking of that, I'm old drink, haven't done that in a while. It's going to be a sober episode for you. I'm sorry about that, gang. So housing's in a very unusual spot and expecting it to crash, it's just not a wise move. Understanding the underlying principles of where we've recently been means that where we're going, even though it's going down, it's still above a normal level. So that creates just a bizarre forecast and a really difficult translation and trying to figure out what the headlines actually mean. We had an unprecedented quick rise up, but that damn low inventory. I keep talking about it, but it's important. That likely means that we are not going to crash, but we're going to correct. Searching for all these answers could be uber frustrating. And I'm getting lots of listeners seeking quick answers to me because they're getting in a transaction, they're like, hey, should I buy this house? I found out that it needed this thing to be fixed and that thing to be fixed. Should I get asked for a credit or repair? Should I pull out? And so people are coming to me these quick questions and they expect that I'm going to be able to just give them a quick little answer. It's what I call the expectation epidemic and this is the way I want to think about it. The easiest way to get your answers is to read the instruction manual before you start building something and trying to put it together. You can find your instruction manual for buying a home and how to buy a home.com as a matter of fact, the how to Buy a Home First Time Home Buyer Starter kit. And that's going to be everything you need@howtobuyahome.com youm got your link to the podcast, the YouTube channel, my Instagram, my TikTok and tons of free content. And of course you can always help others find their instruction manual by leaving me a review on Apple and and don't forget now on Spotify. Review me, please. Okay, so the expectation epidemic to prove my point that sometimes you have to you can't just ask one question before you start a process. You actually need to try to get as many answers found out before you get into the process. So to prove that point, I'm going to save that for another podcast and make you come back as I talk to you about the whole epidemic that I'm seeing for the expectations and quick answers. See, you got to read the whole manual before you start building it. So get to work. Read that manual. Educate yourself@howtobuyhome.com because guess what? You can do this. Sam.