1929 FBF: Mortgage Rates, Fannie Mae Loan Limits & Increasing Property Values

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So my name is Mitch Russo and I'm getting started in real estate investing. And I keep When I came to this conference to learn more about what Jason does, after listening to his podcast and loving it for as many months as I have, I figured it was finally time to meet the man behind the voice and explore his methods for real estate investing, which so far have been fabulous. I love the way he ties information together. I love the way he sources other people to present their way of doing things as well.

So.

So for me, this conference is eye opening. It's fascinating and it will lead me to making much better real estate investments, I'm sure.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there. And he's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman, with the complete solution for real estate investors.

Welcome to episode 1334.

1334. And do we have some good news for you real estate investors? You have a lot to be thankful for.

Thanksgiving is coming up. You got an early Christmas present or.

A Hanukkah present or whatever present. Well, Adam, Adam's with me today.

Adam, on Seinfeld, it was Festivus.

Festivus for the rest of us, yes.

You got a Festivus present, everybody.

Early.

And that is Fannie Mae and Freddie Mac, the two biggest buyers of secondary mortgages in the entire known universe. Maybe in a parallel universe there's a bigger one. They have increased the loan limit to more than 510,000 bucks. That means the conforming loan limit on.

These mortgages that are considered conforming, in other words, they're not jumbo loans, has.

Increased by about $100,000 in just three short years. Now, real estate is a credit based asset class and that means the more credit is available, the more prices will increase.

Now, isn't it odd and ironic and.

Bass ackwards that Fannie Mae and Freddie Mac, their stated purpose is to increase home ownership and to make it available to more people. And yet by increasing the amount of credit in the system, the amount of borrowing power home buyers have, they are just simply putting a band aid on the problem and kicking the can down the road.

Because when you increase the amount of money available for purchasing properties, you go.

Right into the classic definition of inflation.

Or the cause of it.

The classic cause of it, which is what? Dear listeners, you know it all too.

Well because I've told you before on the last 1300 and some odd episodes.

And that is you have a larger.

Supply of dollars chasing a limited supply of assets. And what are you going to get?

You're going to get a tightening in supply and the supply and demand curve will push prices right up through the roof. And that's what they've been doing basically.

Since the creation of these agencies after the Great Depression.

Adam, what say you?

Well, it definitely is allowing more and more prices to go up because they look at it and they say year over year, from 2018 to 2019, prices went up 5.38%. So then they're going to raise the rate 5.38% going into 2020. So what they're doing is they're just saying, well, we went up 5% last year, so we need to go up 5% this year. And it's just like you were saying, it's a domino effect, you know, so next year, if it goes up 4%, they're going to say, well, we need to go up another 4% and another 4%, another 3%. And then even if home prices drop, they don't decrease. Now, they do say that they won't increase it again until levels hit what they were before the decline. But it goes up and up and up, but it never comes down.

Right? Which is like any government program, right?

They always spend more, they never spend.

Less, they always make more regulations. They don't repeal old regulations. Although, you know, Trump has, I don't know, I haven't kept track. But, you know, that's one of the things he said he was going to do. I, I think he has done that to some extent. I, I don't know how much if he's been able to keep that promise or not. But, but whatever. I don't mean to get Trumpy in Here, because everybody will have a fit and, you know, the Trump derangement syndrome will come out.

By the way, you can ask Alexa what that is.

It's. She's got a good definition of it, actually. I asked her.

So you don't want to get into it, but let's go into it.

No, no, no, let's not go into it. I am sick. I don't. Politics bore me. Boring. Boring.

Okay, so let's dig into this a little deeper.

Let's go into this article we're looking at here and tell us a little bit more about it, Adam, in a little more depth here, if you would.

Yeah. So as we all know, the Great Recession happened in the late 20th 20s, I guess, and it didn't increase at all. The Fannie and Freddie limits didn't increase at all until 2016. Then they increased from 417,000 to 424,000. So it went up $7,000. And then it went up again another. The next year, it went up $30,000. And then in 2018 and 2019, it went up another $30,000. Well, this next year it's going up about $25,000. So we've seen steady increases. I mean, you're looking at $25,000, $30,000 a year. I mean, that's basically money.

Basically $100,000 more available credit.

That is not classified as a jumbo loan. Now, why does that matter?

Because jumbo loans are priced higher.

They're more expensive.

There's more risk for the lender.

So you're going to pay a higher rate on a jumbo loan if you can help it. You definitely want to get a conforming loan.

And the price of housing always tracks these loan limits. They're very, very related, of course.

Interest rates, job creation, wage increases, infl, deflation, stagnation. All of this stuff matters, of course, but the loan limits matter big time.

Absolutely.

Very, very important.

Yeah, you can only charge what people can get, right?

Exactly.

Or actually, not necessarily what they're. What they can get, what they're willing to get. And most people aren't willing to go get jumbo loans because they know rates are going to be more than they.

Want to spend, more expensive, harder to qualify, etc. Etc. Etc. Okay.

And so data from the FHFA, okay, that agency shows that home prices increased by 5.38% on average between the third.

Quarter of 2018 and the third quarter of 2019.

Welcome to this week's edition of Flashback Friday. Your opportunity to get some good review by listening to Episodes from the past that Jason has hand picked to help you today in the present and propel you into the future.

Enjoy now. Important to understand, of course, not new.

For you regular listeners.

Please don't fall asleep on me. I'm going to repeat a concept here, but I'll say it differently.

Maybe it'll hit you differently this time. So again, linear cyclical, on hybrid markets.

Three types of markets and the cyclical.

Markets have been in decline. So when you average all of these.

Markets in, in these linear and hybrid markets, appreciation has been significantly higher than that. But you take a lot off in those cyclical markets like New York City.

That have really been hit pretty hard lately. Okay, so for areas in which 115% of the local median home value exceeds the baseline conforming limit.

Okay, cyclical markets, right?

Well, for the most part.

Yeah, yeah, for the most part, the maximum loan limit will be higher than.

The baseline loan limit. Okay.

So they give you a little bit of a hedge there in those markets.

To be able to borrow a little bit more even. Okay.

And this establishes the maximum loan limit in those areas as a multiple of the area median home value while setting a ceiling on that limit of 150%.

Of the baseline loan limit.

So in other words, you can't go.

Above that 150% of the baseline no matter what.

Okay.

Yeah. So you're looking $750,000. You can't go over that.

Yeah, well, median home values generally increased.

In high cost areas in 2019. Well, I don't know if that's really true. I would argue with that.

But driving up the maximum loan limits in many areas, the new ceiling loan limit for one unit properties, now these.

Are for not duplexes, not triplexes, not fourplexes, and certainly not more. That's considered commercial properties will be 760.

$65,600, which is equivalent to 150% of.

$510,400, which is the baseline. Go ahead.

Well, I was going to say the 115%, you're having to look at a median price of $586,960. So you're looking at a market that is expanding rapidly or is at a high limit to begin with once you get into that 115%. So some markets, the high flying cyclical, you look at your, you know, California's, your New York's, you know, even getting to that 765, getting under that might be hard in some places.

It's very challenging to do that. Yeah.

Because I Remember whenever I was in Long beach, you know, a couple two years ago, my, I was visiting some old friends of mine and they were, we did not live, we lived in a blue collar neighborhood whenever I was there. And they were saying that the cheapest home on their street sold for $750,000 a couple of years before. I mean, and that's not in the nice parts.

Yeah, yeah, I know, it's pretty amazing.

And of course, most of these cyclical.

Markets are markets where we're seeing, you know, people flee those markets because of the cost of living and the high taxes and the intrusive government and so forth.

So this might apply more to hybrid markets that haven't hit that yet, who are higher priced but not insane. Like Austin where I'm in. This could actually help tame some of the pricing if it. Because prices have been going up here like crazy. So it could potentially tame and slow down a hybrid market.

Yeah, it's pretty interesting because there have.

Been some very significant price increases in the hybrid markets. Okay.

You can still buy a decent property.

In those markets for those, those loan limits and be within them.

Now also something to remember, don't look at the loan limit as the price of the house. Remember, if people are putting 10% down or 20% down, this is the size.

Of the loan, not the price of the house. Okay. The 510 number or the 765 number.

Is 80 or 90% of the ultimate sale price number.

Okay. So just make sure you notice that. Okay.

All right, good.

So that puts, just so you know, people, that puts the home price at 638,000 if you're putting 20% down.

Thanks for the quick math on that.

And so that's for the 510 baseline price.

Okay.

Now this other article that we might.

Want to look at is what I just referred to. And since we're talking about that, let's look at that one.

Okay. So Case Shiller, okay.

Which, you know, if you're looking at the original Case Shiller index, very misleading. Only 20 markets, 75% of those markets are cyclical markets where they're just too high flying. They're markets that never make sense for investors. They're the places we would never Recommend. Okay.

But 25% of them are the linear markets.

Right.

So Case Shiller says, listen to this.

This is pretty amazing.

I mean, it just shows you the.

Power of this economy.

Yes, there are some clouds on the horizon. I'll be the first to say that.

I think there are, you know, several areas that are causes of concern.

But let me tell you, this has been the longest economic expansion in history. It is absolutely incredible what is happening.

Or what has happened in the economy so far. And I'm saying incredible. Good.

Love or hate the Trumpster, fine, I don't care.

But the guy's a businessman and he's good for the economy. I said that before. I had my reservations about him, but not from the economic side. Okay.

Okay. So just September 2019 saw an annual price increase of 3.2% nationwide.

Okay.

So nothing too amazing about that, but in some cities, I mean, like Phoenix, Charlotte, Tampa, really big gains, and I.

Don'T have specific numbers on that, but some of these markets have really experienced some significant gains.

And I would argue that Phoenix has.

Been a hybrid market for a long.

Time, kind of in the middle of the linear and cyclical. But Charlotte and Tampa, they could be moving into the hybrid territory.

And we'll let you know when we think that has actually happened.

Really pretty amazing, really pretty crazy thing.

About Phoenix is they said it's the top spot for the fourth consecutive month. So, I mean, it's been clipping along for a while there. And they said the Southeast is the strongest region, I think, in the country is. You know, Charlotte, Tampa, and Atlanta were rising at more than a 4% rate. So.

And let me tell you, folks, I've been telling you to invest there since 2004, okay? For 15 years, I've been recommending it. And if you listen to me, you made a ton of money. Okay?

So congratulations. Congratulations.

All right.

Hey, let's listen to a couple of messages. We've been meaning to get to this. We want to play a couple messages.

For you on the show.

And you know when someone leaves you.

A voicemail, folks, not everything is totally on topic, okay? So relax. Some of it is.

And come on, Jason, they've been listening to you for a long time. You're not always on topic, as we know. Tangent alert.

Come on.

I never go on a tangent.

I never go on a tangent. Me.

Little old me.

Never.

Anyway, okay, so let's listen to a couple of these.

Adam and I have some comments for you, but also our listeners have some comments. And some of these listeners are guests on the show. Some are insiders who work for us.

We.

We just made a mailbox where we wanted to just some of the stuff.

You send us, we wanted to share it with the entire audience.

So be careful when you leave us a message because it might go on the air. Okay? Just know that that's full disclosure right now.

And then some are from our staff and our investment counselors, like Adam, leaving messages as well. So let's just knock out one or two of these, if we can. Here we go.

It was so much fun speaking at the conference. Your clients and the people who attended, they're just great.

So this is Evan, who you've heard.

On the show before. He's a client of ours. We also had him as one of the guest speakers at Prophets in Paradise. And that's what he's referring to in every dimension.

Just fun, smart. It's really.

It was.

It was wonderful. I'm so happy to be connected with you and part of the community. It was just wonderful. And, you know, when you were talking about information bites in real estate, one thing that occurred to me is the fragmentation, which you talk about all the time. Embrace the fragmentation that actually plays to our advantage with information in the stock market, the more information, the technology makes stocks less attractive because everything is priced in the whole efficient market hypothesis. But with fragmentation, we can actually exploit the information differential because we. There's actually advantages to having more information and understanding some of what we hold by combining. My thoughts are a little bit total, still a little bit unclear about that. But I actually think, as you pointed out, that the value of our properties is better because of technology. And I think the value of our technology is increased because of the fragmentation of the market. Whereas in such a efficient market like the stock market, technology just makes returns more even and there's less advantage for the average investor. Anyways, such a great conference, such a great weekend.

So what Evan was referring to is my opening keynote speech at Profits in.

Paradise where I talked about the atoms, and that's the properties we own, right?

The physical assets. But I also talked about the bits and the bytes, the information, and how.

That empowers us as investors, and how.

Literally technology has increased the value of.

Our real estate portfolios.

And I gave several examples of that. And when he talks about the stock market. See, the bad thing about the stock market is that pretty much everybody has the information. You kind of have a hard time getting an advantage there because literally, it's literally illegal and you could go to prison.

For what?

Trading on insider information in the stock market. But there isn't any such law that.

I'm aware of in the real estate world as a real estate investor.

And one of the beauties is when you listen to a show like this and you come to our events, you get the latest and greatest ideas on how to capitalize on that information, the bits and the bytes to make your.

Properties and your portfolio in your investing experience just much more valuable.

Literally, the technology has increased the value of our properties. Adam, thoughts?

Yeah. If you walk into the stock market or whenever you go into the stock market, if you have the audacity to believe you're the smartest person in the room, you're wrong. You know, when you go in there, you are not the smartest one in the room.

But it's so funny the way you say that when you walk into the stock market, like it's working in a Walmart.

Well, I mean, you can. There's still traders on the floor. There aren't many of them, but there's still some out there. But if you are going and investing in the stock market and think you're the smartest one in the room, you know, or on the Internet, you're wrong. But you can be one of the smartest who goes into the market for properties. You know, you can be armed with knowledge of, you know, upcoming trends. Upcoming trends or, you know, new.

Just that, tools that you can use.

To increase the value of your portfolio. Right.

You know, once you get in there, but you know, you can also, you can find out about developments that are going to be happening. You know, we are in a better position than other home buyers because we have market specialists selling us properties that aren't on the mls, that other people can't find. If you're on Wall street and someone was selling you stock that you can't find, what you were just talking about, you're going to jail. But here it's completely legal. And we have providers who don't want to deal with the retail buyer. They dealt with them before. They don't want to deal with them anymore. So you can be the smartest one in the room with real estate if you play your cards right.

Yep, yep. Very good point. Very good point.

Okay, so let's take one more message.

Jason, you know how you're always saying that real estate income, property is a great hedge because if interest rates go up, you can eventually have higher rental income, even though your capital appreciation, even though the appreciation might go down? Well, I was thinking it's also a great sort of hedge politically. So I have this tenant that has major student loan debt. And I'm thinking, you know, what if someone like Elizabeth Warren gets elected and, or Bernie Sanders, let's say there's a huge forgiveness of student loan debt, she's much more likely to stay a good tenant. Whereas if she doesn't and say Trump's Reelected, then of course, it's all, we don't know for sure, but the market's likelier to improve that there's likely to be greater inflation and the value of the asset will go up. So in some ways, income property is not only a financial hedge and can adapt in both contexts, but it's also a political hedge because both contexts have upside for income property.

So that's an interesting point. You need to hedge politically with every investment.

You have monetary risk and financial risk.

But you also have political risk. And that's why one reason that the US has always been such a great place to invest in any asset class.

Not just real estate, because it's got good rule of law and very, very low political risk.

If you were to invest in any.

Other of many countries, I mean, we've got 189 countries listening to us right. Right now. Which, by the way, I just love that. Thank you all for listening. We're so thankful for you.

And that is so cool.

People would argue that there's anywhere between about 195 and about 200, maybe 203 countries in the world, depending on how.

You count them, and189 of those countries.

Are listening to us right now. So America, known as the Brinks truck of the world when it comes to the safety of your investments.

Adam, what he was talking about in terms of the political hedge, I was thinking, I hadn't really thought about the student loan forgiveness. If the student loan forgiveness happens, our tenants are going to have a whole lot more money for rent increases. That's the first thing that went through my head.

That's literally inflationary, right?

I mean, Democrats are almost always inflationary in the sense because they're irresponsible spenders. Okay, they spend more. But nowadays, I don't know. I think both sides are just as irresponsible as the other.

But yes, you don't have to raise the minimum wage, just forgive the student loan debt. And that's a giant raise for most people. In fact, you know what would be.

An interesting study, and we should look at this for a future episode. You know, I bet Doug is listening. Doug is one of our investment counselors, of course, and a frequent speaker at our conferences.

And he's probably, Doug, I bet you're just pulling out your calculator or your spreadsheet right now and you're about to.

Do a study on this. I just know it.

And he's going to take the average student loan debt and he's going to take the average pay and then he's going to calculate what that really means.

If you were to call that an increase in hourly wage, what that forgiveness of student loan debt would mean. Right. So Doug, I bet you're doing that right now.

And almost all that would go towards renters because most people with that massive student debt aren't property owners.

Right, right. They're renters. Yeah. Yeah.

Very interesting. Very interesting. Okay, Adam, let's do the Mortgage update.

And then we will wrap it up.

But I do want to say be sure to go to Jason hartman.com ask that's Jason hartman.com ask and ask or tell us anything you want there. And we will, we will endeavor to answer your questions and consider your comments thoughtfully and carefully.

Okay. Let's go to the Mortgage Update.

Welcome to this edition of the Mortgage minutes.

We are joined by one of the.

Lenders in the Jason Hartman Network here to talk about what all is going on in our world of lending. How are you doing?

Not bad, man.

What's shaking with you?

Oh, just trying to buy another property in the next future. So let's talk about for our investors out there who are looking to buy a new house right now, new investment property. If they're looking at a hundred thousand dollar house and they've got 25 or 20% down, what can they look forward to seeing whenever they get your estimate?

Well, the average individual I've been working with lately in that range seems to be 740 plus credit scores pretty commonly. And I've locked a lot of those deals lately. I've locked many people at about 4.75 for that 20% down, $100,000 acquisition. And then I had some that elected to do the 25% down and that happened to come in at 4.25%. So it seemed like a much bigger gap between the two than what I'd seen in the past.

Nice. Now we've been seeing obviously the Fed has been doing their cuts and there have been talk about, you know, the U.S. potentially. I think Janet Yellen came out recently and said, you know, 2020 might be rough is the Fed's unease with the economy and people like Yellen's unease with the economy. How is that impacting the rates that we're seeing right now?

Well, it had had a negative impact to the rates just in the last little while. So at one point we did see rates get, you know, they were below like they are now. Then they actually went up for probably about two weeks. And then recently in the last probably week, week and a half, they got Right back down to where they were previously. And a lot of it is with the Fed rate cuts was actually kind of given some concerns of it being an inflationary environment and we have inflation go up, that means, you know, the dollar is declining in value. The places where we go to get our money, the mortgage backed securities, those who invest in those mortgage backed securities like pension funds and retirement funds and 401ks and IRAs and mutual funds, all those that are putting their money there, they're not big on a long term instrument when the money, the instrument they're being paid back with is losing value at a rapid rate. Now we all know with inflation anyways already losing extremely rapid rate, but the Fed, you know, tickling those numbers and trying to keep them within 2% and there was some inflationary concerns and that's what spiked that. Also in that last couple of weeks you noticed that we hit the stock at the all time high again. Actually, you know, not really even again. It just reached another plateau. So there's also a lot of money being sucked over to that. Even though it doesn't make any sense, it's still being pulled over there. And so every time you start getting a jump in other instruments such as equities, you'll see long term instruments like bond suffer for a little bit and then investors will calm down, the heat will get a little bit cooler again in the markets and they'll work their way back to those long term safer instruments. So the economy worry is out there. I think one of the other things I believe will help interest rates going forward that there's a lot of conversation about because of the state of the economy, of the Fed warming up that quantitative easing again.

Yeah, I was laughing to myself whenever I saw the stock high. And it made me think back to the turn of the century whenever people were saying, I think that book came out, it was Dow 30,000. Still waiting on that one.

I remember when The Dow hit 10, that was a big damn deal. It was my first year in the industry, 1998 when that happened, I got in in the end of 97, so I'm 22 years in as of next month. And I remember when I hit 10,000, everybody's running up and down the quarters of this courtyard of this company that with this office building. I was at like what's everybody dancing about? The Dow hit 10,000. Like I don't know what that means, you know. And so now, now we're knowing what that means and I'm shaking my head all the time. I can't believe we're even remotely knocking close to 30,000.

What are you thinking is going to happen in the next couple months? Like if we go into, if the worst fears come true and we see a recession starting in 2020, what are your thoughts on how the rates will react and how much they might swing?

I believe we're going to be continued on a trajectory of lower interest rates. How much? It's kind of hard to say to me. It's insane that we're even as low as we are. But what I keep telling all my real estate investors that I work with doesn't matter anywhere. Whichever way they swing, this person is still going to benefit significantly with where they're at because it's kind of hard to believe that they'll get much higher than, you know, 5 to 5.7% like where they peaked out in the last 24 months. And even at that we'd shown with the tax deductibility and the other benefits in the inflationary environment we live in, that the interest rates, even if they did swing up, does not really hurt the real estate investor. The homeowner, yes, real estate investor has very, very, very small movement. When you start factoring in all the things associated with their, their benefiting of being the most tax favorite asset class on the planet. They take advantage of inflation to offset compound interest. All those things play in their favor regardless of what the rate is. But I still believe interest rates are going to go down based upon what I'm hearing and the various economists that I subscribe to. And if that's the case, take advantage of the situation. And if the recession comes and forces some housing issues, all we're doing is create a larger pool of renters for us as investors to be able to give opportunities of housing to and then we might even see cheaper housing again in certain markets because of isolated bubbles. I'm always bullish on especially a recessive economy.

Now obviously investors have a tendency to not necessarily worry about the, the slowdown or pickup of home inventory necessarily. But have you been seeing more mortgage starts coming in or fewer or what's your kind of velocity going on?

Me personally, I know we've seen a lot of slowness or at least things slow down a little bit in the industry as a whole. Mine's been growing. I mean, I closed 83 transactions last month, or was it 84, something like that we're putting on my team at least. I mean we've seen as many as 10 contracts a day pretty commonly. So we're not, we're not slowing down. We're continuing to gain momentum.

If we compare the 83, 84 to maybe what you were seeing in like May or June, kind of where are we in that regard?

Very similar.

Okay.

I mean, it really, it's been pretty heavy trajectory. We got a little bit more going on right now because we as an organization in the last six months sat down as a company and we got with the board and we started digging into the margins and everything and really started figuring out where can we be rate wise compared to the rest of the market and be able to service our clients and not be in a negative position, but also give them the best that we can possibly find. And since those days, sitting in the boardroom with the, with the executives of this organization and talking with those who buy our loans from us and the capital markets division who services our loans, and we found that sweet spot, we did see an increase, a rather significant increase once we started to be able to offer the best that we can find and the margins that we can cut down and really make sense of and still be profitable, but not the expense of our clients. And we have seen the large, large benefit to our pipeline as a result of that. So I could, I can honestly say that we've seen a huge uptick in the last probably four or five months. So June's when it really started to get traction and then it's been nothing but really cranking cents.

Well, that's fantastic. Is there anything else you want to say to the investors and listeners out there?

Just keep your mind open exactly what you're looking at. As far as the people you're working with. It's all about the groups you're working with, the individuals who are helping you achieve it, not so much about all the other things are happening in the economy. The economy is designed to benefit you more than you can realize right now. It's not something you can be able to figure it out until down the road, but you know, secure great people to work with and that will change the dynamics of your business.

All right, well, until next time, keep closing.

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