Shocking Mid-Year Market Update: Prices on the Rise!

Transcription

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Pete: What's up? Thank you so much for joining this podcast. And this episode, we met with Wayne Martin again, it's our third or fourth time meeting.

And we did another debrief of the first half of the year of how and what's going on with the real estate market. You definitely want to tune in. Wayne is a plethora of knowledge, he's super knowledgeable, he's been a broker for a long time.

And I hope to see you soon. And thanks so much for joining. All right, we got Wayne Martin here from Real Estate One here.

And Wayne, you've been in this market for a very, very long time in the Shaftesbury Community Market. And this is our third or fourth time doing a market update. Yeah, that's right.

I love doing it.

Wayne: Yeah, this is the perfect time because we're, you know, midway through the year. And so we can really talk about what we've seen in the marketplace and where it's going.

Pete: Yeah, like what's happening, what happened the first half of the year? And where do we think it's going to go the next half of the year?

Wayne: Right. And there's some questions, we were talking about politics or at least the election, you know, how does election affect housing? And what does that mean?

And so we're going to jump into that too.

Pete: Yep. And talk about that. Yeah, I get a lot of clients that ask me that question.

Wayne: Right. And then another question that we're going to cover is, you know, maybe you're in a home and you're kind of vacillating back and forth about moving up, down or around, whatever. And we're going to talk about some strategies that will help you find the house that you truly want because the inventory is low before you lock in and selling your home.

Pete: Yeah.

Wayne: And so there's a very specific strategy that we use to keep in control so you can get that next dream home.

Pete: And I would bet that there's a lot of sellers or people that want to sell that just are worried about that. Absolutely. And the only reason why they're not pulling the trigger is because they don't see a house they love.

Wayne: Right. And there's a way to do it. I've been in the business pretty much all my life, but really focused on Redding area for the last over 20 years.

And so it's very specific to Redding about how we go about it because it's a little more tricky here than if you were in the city. So because we're more of a rural town, there's things that we have to look for. But we'll jump into that a little bit later on.

But let's start with a recap, right?

Pete: Yeah, yeah. Let's go over the recap. So what we got here, thanks for providing these statistics here, Wayne.

So we got the year to date up to the end of June, and then we also have the month of June number. Correct. So you want to start by going off of the year to date?

Sure. What we got here?

Wayne: Sure. Okay. So year to date closings, we're down about 20% in transaction volume.

So that's a significant drop as far as the number of transactions.

Pete: That's 1,140 total for the year. Right. 1,140 divided by six, that's 190 transactions per month.

Per month, approximately. Yeah, per month. And to give our audience some...relate that to a couple of years ago, what was that? What was that number per month? Like how many transactions per month?

Wayne: It would probably be double that.

Pete: So like 3,400? Yeah, more like 400.

Wayne: Yeah, 3,400. Yeah, 3,400. Okay.

You know, just depending. I mean, a couple of years ago was COVID and, you know, we can't really kind of go by the past. It has been a crazy ride since 2007, 8.

Pete: Yeah. It's been wild.

Wayne: Yeah. Anyway, but taking a look at last year, year before, when interest rates started to rise, after we had this meteoric rise in equity, right? Yeah.

It just went wild.

Pete: Yes.

Wayne: Almost 20% in three years. Yeah. So that's a pretty significant rise for real estate.

Pete: Yeah.

Wayne: And what's interesting is it hasn't really tapered off, and I don't expect it to taper off as far as pricing.

Pete: You mean taper off, meaning it hasn't declined from there?

Wayne: It stayed pretty- It stayed pretty even.

Pete: It may be going up a little bit.

Wayne: Yes. Yeah. We're going to talk about that.

We'll jump into that. When you start looking at average sales prices over the last three years, actually, let's just talk about that right now.

Pete: Yeah.

Wayne: So the average sales price in 2022 was $428,800, let's say, and these are statistics done by appraisers.

Pete: Yeah.

Wayne: A leading appraiser. I want to- Oh, yeah.

Pete: I see it right here.

Wayne: Give a shout out to- Sprinkle. Yeah. Sprinkle.

He's awesome. What a great group. If you need an appraisal, they're amazing.

I highly recommend that you go with Bob Sprinkle. There's a plug for you, Bob. But it's true.

So the other thing is, so 2022 was $428,800, 2023 it dropped to $421,000 and change. Now this year, six months into it, it's up, let's see, almost $4,000, so $425,000.

Pete: It's inching up there.

Wayne: It's inching up.

Pete: Yeah.

Wayne: And it shows in our other statistics that we follow, year-to-date statistics, the average sale has been around $402,000 and change. And so it's jumped in six months almost 1.9% now.

Pete: Almost 2%.

Wayne: Almost 2%. Yeah. Yeah.

Pete: That's good.

Wayne: Think about that. 2% within, in this higher interest rate in six months. Yes.

So it could potentially rise up to 4%. Yeah.

Pete: It's trending 4%, 4 to 5%. Yeah.

Wayne: Yeah. So as far as new listings are concerned, we're up 5%. We have about 1,800 new listings.

Pete: And what's that 5%? How many do we have right now, would you say?

Wayne: How many listings?

Pete: On the market.

Wayne: On the market. Yeah.

Pete: Is it like 600 and something, six something?

Wayne: Let me look and see. Active listings, yeah, a little over 600.

Pete: Yeah.

Wayne: I got it in this particular.

Pete: Oh, okay. Yeah. Yeah.

A little over 600. Yeah. So that's about 5%.

Nothing alarming. Is that alarming?

Wayne: No. No. And what's kind of interesting, we were talking about this a little bit earlier, there's what I call them junk food houses and then there's healthy houses.

Pete: Yeah. Yeah. So what I mean by junk food houses is we're seeing inventory sellers coming on and their homes are not prepared for good sale.

They need roofs, they have pest work, they have decks, they have all these things and the sellers are thinking, well, it's just a seller's market. There's not a lot of inventory. I'm just going to be able to move that.

Well, those properties that are listed like that, that are overpriced, they push the price, then what they do is, myself as a realtor, I use those houses to sell the good houses.

Pete: Oh, interesting.

Wayne: Any good realtor will do that. It's like, hey, this is your money. You could be buying this thing and pump another 50 grand into this thing or you could buy this house over here.

Pete: Yeah. It's pretty much done.

Wayne: Yeah. And it makes the sale of the nice houses easy and it actually drives those prices up.

Pete: Wow.

Wayne: At the expense of these other ones that are not prepared properly because they either don't have the money or they're working with realtors that are not telling them the truth about the marketplace because they don't want to hear it. Sellers don't like to hear your house is not at par with the market. But they need to hear it.

Pete: They need to hear it.

Wayne: They need to hear it and it'll help them. Absolutely. It'll help them instead of just sitting there on the market.

Pete: Right. Right. Exactly.

I mean, any house will sell based upon price.

Wayne: Yeah.

Pete: I mean, that's the truth.

Wayne: Yeah.

Pete: It's, you know, everybody goes, oh, location, location, location. Well, you can have a crappy location, but if you price it correctly, you're going to sell immediately. Yeah.

If you're going to meet the market. The market tells you what your home is worth. Yeah.

Wayne: Right. There's enough people coming through. They're looking at it.

If they're not writing an offer, you're, you're at least 5%, 3 to 5% over market. If you get down in that 3% range, they might be going through and you're getting not necessarily good offers. But if you meet the market, you can, you can garner a number of offers immediately and potentially push your price up.

Pete: So the pricing strategy of, oh, I can always come down. Yeah. It, it's statistically, and I've been doing this a long time.

When they do surveys about that, the ones that start high and chase the market down, they always net less. Than starting lower and sell.

Wayne: And moving up. Yeah.

Pete: Or just, just meet the market.

Wayne: Meet the market. Yeah.

Pete: And that, and, and that's, that's more of an art form than a science. It's just trying to build a strategy because you're competing against, if you're a seller, you're competing against what will that money buy in other homes that you're competing with.

Wayne: Yeah, of course.

Pete: You know, that's it. I'm going to show, you know, the buyer as many houses in that price range and, and, you know, your house is competing with that way.

Wayne: Yep. Yeah. Anyway.

Makes sense. Yeah. So to, to, to your point, what you're saying is there's the inventory is up 5%, but a lot of it's crap.

Pete: A lot of it's junk.

Wayne: A lot of it's junk food.

Pete: A lot of it's junk. It's junk. Yeah.

Wayne: Yeah. And so if the home is priced well and it's, and it's a decent home, it'll sell quickly.

Pete: It'll sell quickly.

Wayne: Yeah.

Pete: It might need a little paint, but if it needs a lot of new windows, it needs a roof. Well, those are big expenditures for somebody moving into a home. So you also have to kind of think about it.

I think about it in terms of if I'm buying a used car and I have good maintenance records and it's really straight, you know, there's no dance or, you know, it might be a little knickknack things here. You're not going to, you're going to pay more for that. But when you have a car that might be just as good, but it's got some big dance or, you know, has torn upholstery, you know, maybe need some engine, a little bit of engine work tune up.

Well, that creates a lot of unknown. So if I'm going to buy that car, I'm going to discount it.

Wayne: Right.

Pete: Yeah. Because it's effort. It's unknown.

You know, it's like, oh man, this is going to be a hassle. I can just buy this car that's, you know. And maybe this car gets a little premium for being dialed.

That's the way it works in the real world.

Wayne: Yeah.

Pete: And houses are just the same.

Wayne: Yeah.

Pete: So, you know, for sellers, they need to get their head around that.

Wayne: Yeah. So, so yeah. And it makes sense because that's what flippers do.

They just go in and they, they, they get the discount and then they fix it up and they sell it for a premium because it's dialed. No one, you don't have to.

Wayne: They did all the work. And so they deserve the profit if there's profit, if they buy it correctly. Yeah.

You know? Yeah. So that's the way that works.

Now, if we're working for, with a buyer and my buyer's pre-qualified and they might have some skill or they have a brother or cousin or uncle or, you know, aunt or whatever, they can do this stuff and they're not afraid of it and they understand it.

Pete: Yeah.

Wayne: Sometimes buying those houses that, that need work, we can get them a better deal. It isn't necessarily they're going to steal it, but they can build some equity into it going in the door if they're willing to do sweat equity. So that's a way for somebody to get into.

Now, if, depending upon the financing now, what about financing? How would you help that buyer in the financing arena?

Pete: For like, I'm showing that work. For like a fixer, for like a, for something that's, yeah.

Wayne: Kind of a light fixer, needs paint, needs some, you know, a little bit of word work here and there. It's not extreme.

Pete: Yeah. I will, we'll finance it for sure. The biggest thing we'll look out for is to make sure that there's no health and safety issues with the home.

So as long as that buyer can move in and live there day one, you know, then they'll be fine on getting a mortgage.

Wayne: So define health and safety issues as far as an appraisal is concerned.

Pete: Yeah. So health and safety would mean that if you get hurt, potential of getting hurt, and someone's definition of potentially getting hurt is different than what a buyer might think. Right.

So like, for example, if you go into a house and there's exposed wiring or maybe the electrical caps are off or something like that, that would be a health and safety issue.

Wayne: Or torn, I've seen it where they've called out torn carpet that needs to be just repaired. Correct.

Pete: Correct.

Wayne: Just repaired so it's not a trip hazard.

Pete: Correct. Think of, think of health and safety, not necessarily for an adult, but for a two year old. Right.

That's a little different. Yeah. Yeah.

Wayne: Yeah.

Pete: Let's touch the plug. Woo! Yeah.

And so, because the bank doesn't know who's going to be in that property.

Wayne: Correct.

Pete: Your friends, family coming in. Right. You know, it could be a two year old any day coming into that property.

Wayne: Yeah. Absolutely. Somebody elderly.

Pete: That's how they think of the health and safety. Correct.

Wayne: Yeah.

Pete: So, and then there's different loans that have more, they have, they're more, they're not as, they're more conservative I should say. Like, for example, FHA, they're, you know, peeling paint is a health and safety. Right.

You know. Right. So, but, you know, we'll work with it.

But that's easy to work through. Absolutely.

Wayne: Peeling paint. Yeah. Peeling paint, they'll just brush it off and, you know, prime it and call it good.

So it's not something we're not used to, but a good realtor with experience working with a great lender, we can create a strategy to help you get into that home.

Pete: Yeah.

Wayne: And work with the seller and the selling agent. Hopefully we have a good seller that has a good agent. Yes.

That can really understand it and we can kind of massage the deal and, and make it work. Yeah. For everybody.

Pete: Yeah, absolutely.

Wayne: Buyer and seller.

Pete: Yeah. Yeah. No, that's good.

So, so Wayne, so that's, so that's total up to, up to, up to end of June. Last month, last month, the number of transactions was about, was down about 10%. Correct.

We had three months of inventory for the month of June. And you want to go over months of inventory? I think that's super because that determines whether a seller market or a buyer's market Correct.

Wayne: Correct.

Pete: So you want to talk about that?

Wayne: So I'm going to talk a little bit about that. So on average in our industry, when we look at inventory, months of inventory, so how many houses are on the market and then how long it takes to sell the average house. So six months of inventory roughly is equilibrium between the seller and the buyer negotiating.

It's no one has an advantage.

Pete: So basically what the math is there, you take the total number of inventory divided by the total number of transactions happening. Correct. That's the number.

Wayne: That's the number we go by.

Pete: Yeah. And it could be, that number could be three. So what this is saying.

Wayne: So this is saying three. So this is basically giving a seller an advantage. If they are priced properly in the marketplace, they will have better terms and there's a higher propensity that that home will garner more money.

And if that continues, that three months of inventory continues in the marketplace for the next six months, that buyer is going to, you know, probably have more appreciation.

Pete: You benefit from the appreciation.

Wayne: The benefit of the low inventory. So it's kind of an interesting concept. You go, oh, you know, it's a seller's market.

Well, all of a sudden you have a house.

Pete: Once you have a house, then you can become a seller.

Wayne: Yeah. Yeah. Or you're gaining equity as if you have a home ownership.

So that's kind of an important thing to realize.

Pete: So what makes a buyer's market versus a seller's market?

Wayne: There's like a number. A buyer's market is just too much inventory.

Pete: Like a number. Yeah. So I've always been told if that number is more than six months, then it would be a buyer's market.

If that number is less than six months, then it would be a...

Wayne: It tends towards the advantage of the seller.

Pete: Advantage of the seller. Six months. So basically what they're saying here in your numbers here, we had three months of inventory.

That's basically taking, let's say, 600 homes on the market divided by 200 transactions that were done, let's say. Right. And there was three.

That's three. So that's technically, if you go three months, all 600 of those homes will be sold. Will be sold.

Wayne: Yeah. Yeah.

Pete: It's a little more complex than that.

Wayne: What's the lowest? But we don't need to get in the weeds on it. What's the lowest months of inventory we've ever seen?

Pete: That we've ever... What I've ever seen?

Wayne: Yeah. Like...

Pete: Is less than one month.

Wayne: Less than one month of inventory.

Pete: Yeah. When you have a run.

Wayne: That's a hot market.

Pete: That is an incredibly hot market. And we saw that actually, when was that? I think it was 2005.

Wayne: Oh, wow.

Pete: I think 2005 was like that. We also had low inventory at the beginning of COVID. That was really tough.

But then once they dumped interest rates, it went ape crazy.

Wayne: Yeah. So it might've gotten close to that number in 2020 or 2021, maybe.

Pete: Possibly. Yeah. I mean, it's incredible.

Wayne: You've seen this stuff. So what about the most amount of months?

Pete: Oh my gosh. Who?

Wayne: Of inventory.

Pete: Well, I've been in this business all my life. So let's roll back. And most people weren't born by this time that are listening to this podcast, probably.

But 1981. Really? That's the most you've seen.

18% interest rates. So suck it up and enjoy this six and a half to 7%. Because we had 18% rates.

Pete: Yeah. The SNLs collapsed. There were a lot of reasons why that happened, but that lasted a few years and then it eventually went down.

I mean, we went to a local bar here and we toasted. You know, when it went over 10%, we go, oh, we'll never see 10% ever again. You know, we were all crying in our beer.

But we still did transactions. But yeah, it was like, you could not get rid of a house. The other thing, the other period was the mid nineties was like that.

Inventory was pretty high. Inventory was very high. So if you wanted to sell a house, I'd moved to Sacramento around 96, I think it was, whatever was selling real estate there and had a mortgage company at that time too.

And I think interest rates were eight and a half, I think, eight and a half, nine, eight and a half, eight. It started, the rates started to descend after 96.

Pete: Yeah.

Wayne: Again, you probably weren't born yet.

Pete: 96?

Wayne: Oh yeah, I was 16. But anyway, so it was, yeah, it was, there was a lot of inventory. And so sellers, in order to get their home sold, they would, we would ask them, paint the interior of your house, do your pest work, anything that's broken, fix it because we want to make it easy as possible so you can get it sold.

Pete: Yeah.

Wayne: If they had to sell it. And they would do that. They would do everything.

And it was fabulous because transactions were much, much easier then. They would do all the reports, do everything. And even if they didn't have the money to do it, they would get a home inspection and then, then we would have subcontractors figure out what it would cost and, and we would negotiate, massage the deal so they could get moved.

But that's what it took.

Pete: Wow.

Wayne: Yeah. And then the market turned and interest rates came down and the economy turned and the rest is history.

Pete: Yeah. No, that's, that's, that's cool.

Wayne: So.

Pete: Yeah. So now basically three months is pretty good. Three months is great.

Wayne: For a seller.

Pete: A seller, if you meet the market, you're going to get that home sold.

Wayne: And for a buyer because you can start getting that appreciation.

Pete: Absolutely. Yeah. You know, the thing for a buyer is, in my view, and I've bought and sold a lot of property, a lot of times I flip property and had I kept the property, I would have made as much money with less risk by just getting in and holding onto it and then moving into it.

Like just buying my first property, moving into it, let it rise, accumulate more money, buy my next property, rent the one that I was in, but just getting in the property. One of the things that I see some buyers make is they're renting and the house is pretty nice. You know, but they're spending big money on rent.

Wayne: Yeah. They're renting on a nice house. They're renting a nice house and it's, and you're flushing your money down the toilet.

Pete: Yeah. Right? Yeah.

Wayne: Pretty much. Yeah. You know, but if you could step back and go, you know, I'm going to step back and step down a little bit.

My first house is going to be my first investment property.

Pete: Yeah.

Wayne: Two years, three years from now, I'm moving up the food chain.

Pete: Yeah.

Wayne: And so getting that idea and just like, okay, I'm going to tough it out. I'm just going to accessorize this house and make it nice. Right?

Pete: It's going to be smaller. Yeah. Let me ask you this.

What do you think the biggest fear is right now with buyers in general?

Wayne: With buyers in general?

Pete: Yeah.

Wayne: I think they're afraid of the payment and not truly understanding the benefits of home ownership.

Pete: Yeah.

Wayne: And, um, I, I think there's a little bit of uncertainty. We were talking about politics right now. You know, we're in this whole race for the presidency and there's a lot of- Every four years.

And we're not talking about which side you're on because we don't care about that. I mean, you might care, but that's not part of this conversation.

Pete: What you're saying is there uncertainty right now.

Wayne: Yeah. Whenever there's uncertainty, people hold back. Right?

The confused mind says no.

Pete: Yes.

Wayne: Well, sometimes you have to have a little courage and that goes to your advantage if- Wow. I love that. Right?

Pete: Yeah. Absolutely. Yeah.

Wayne: 100%. Courage can give you advantage in a market like this. I mean, Warren Buffett says when prices are high and crazy, you know, he's holding his money, you know, and he's waiting for the right deal.

And then when the, when the newspaper deliverer guy says, get in the stock market, he's like, that's a little bit of a problem, you know, but with, with housing now that the thing about it that I think is what's going to happen here locally is I've just seen all this employment that is coming to town. You have a lot of medical- So much opportunity. A lot of opportunity without a lot of increase in inventory.

There's a lot of not, there's not a lot of building going on that's affordable. So if you're in a home, it just means that, you know, your home is becoming more and more valuable.

Pete: If you own a house right now, long term, just keep, keep going, keeping on.

Wayne: Patient. Keep on, keep it on.

Pete: So I heard that, I heard a definition of patience because, you know, with, I think it relates because with- Yes, sure. With buyers, you know, they, they, some, some buyers, they want to get in and, you know, they want to be able to, oh, I want to turn this around and sell it in a year and make sure I don't lose my butt. Right.

Well, it's patience. So like the definition of patience I heard is finding something else to keep your attention on. It's true, you know, like if I'm sitting there watching a flower grow, you know, I'm waiting for it and waiting for it.

But if I, if I'm not, if I'm just doing my thing every day, all of a sudden, three weeks later, all of a sudden, oh, there's a flower there. I was, I was a patient. I was being patient.

Wayne: Right. You know, because I, my mind and focus was on something else. Right.

Pete: So he said the definition of patience, so is focusing on, finding something else to put your mind on or focus on. Right. So if you're an owner and you own a house or if you are a buyer, buy the house or keep owning the house and find something else to keep your mind occupied.

Wayne: So I want to bring something up about rentals. So you, you know, you, you go, well, I want to rent and you know, I don't want responsibility and I'm going to save all this money because I'm renting. And there's a fallacy in that because when you're renting, you're buying a house for somebody else.

Essentially, that's, that's really it. So you're losing that opportunity of appreciation of the tax write-offs of a forced savings account.

Pete: Right.

Wayne: Right. Because you have to put your money in there and you're paying the principal down. In the beginning, it's not a lot, but if you play the long game and, and you work with it, you can actually, you know, increase your principal payments.

Pete: Oh yeah. Yeah.

Wayne: Yeah. A long game.

Pete: A long riding with your tax write-offs. Yeah.

Wayne: Well, not just that, but the income's going to continue to go up. Right. Right.

Pete: That's what a lot of people don't understand or don't think about. Yeah. Inflation.

Income going to continue to go up and minimum wage keeps going up.

Wayne: Well, minimum wage. And then say, you know, as you're in your job, depending upon your, your age group and where you're at in your, your job, you're generally moving up. You know, but you have all these factors working for you.

But when you rent, inflation works against you, especially in, in the greater Redding, Shasta County area, because as employment comes, new people come and you have restricted growth in housing, rents go up. And this is the other thing that I've seen over and over and over again. You go, oh yeah.

I'm paying my rent. No big deal. Well, what happens now, and I'm seeing this a lot because I'm getting a lot of phone calls from people that own rental properties and they've owned them for 30 years and they're baby boomers and they are cashing out.

So guess what's going to happen to you? You're going to get a 30 or 60 day notice.

Pete: How expensive and what a pain in the neck it is to move. Another deposit and then not getting your deposit back potentially.

Wayne: But having to look for and compete for a new rental and it's going to be more expensive. It's not getting cheaper. Right?

Pete: Yeah. No.

Wayne: We're not seeing that.

Pete: No, absolutely not. No, there's not a glut of housing and a glut of rentals. Well, the shortage of housing is hard for not just buyers, but also renters finding a place to rent.

Wayne: Right. Yeah. So it's lack of housing.

Pete: And there's some good developments coming in with K-2 apartments and stuff, but still...

Wayne: That's all pretty much Section 8 kind of stuff. I mean, a lot of people in Shaftesbury County will qualify for that.

Pete: Don't get me wrong. But it's not like a comparable to what you're saying, like a house or something.

Wayne: Correct. Or you're renting a duplex. Right.

Pete: For a family size of two to three.

Wayne: You need a yard, you got a dog, or you got a boat, or you got a car you're working on, or your wife has a quilting machine in the garage. All that stuff. And you're one step away from home ownership.

And so the thing about it is you're at risk of being evicted, right? And I see a bunch of people, yeah, I've been in this rental and I got two dogs and all that. It happens all the time.

And then the people that own that house, I got to sell it, I'm cashing out. I'm done with this stuff. And now you have two dogs, you have no assets, and you may not have enough cash to really deal with the new deposits.

Pete: Another challenge for renters, and I know we're hitting the renter pretty hard.

Wayne: Pretty hard. Sorry, guys, but this is the truth. You need to hear this.

Pete: Another challenge for renters is, for me as a homeowner and an investor, I own some rentals. I don't want to do long-term. Right.

I mean, some people do. Don't get me wrong.

Wayne: Right, right, right.

Pete: Some people do because, I would rather do because of the technology, I can do daily or I can do what you call midterm. I like, really, really like midterm. And the reason why I like it is because I can sell it if I needed to after, you know, let's say I do, you know, want to sell this house and upgrade it, you know, to a fourplex or something.

Well, I could then sell it. And so, therefore, you have all these midterm and daily rentals that renters can't get long-term rentals.

Wayne: Right.

Pete: So, that's hard for them. Right. Which also drives the price up for the long-term rental.

Wayne: Exactly.

Pete: Yeah.

Wayne: That's true. You know, it's just, it's hard because, you know, a lot of renters get frustrated with that.

Pete: Oh, yeah. Absolutely. But the reality is, you can either buy somebody else a house or you can buy a house and have a retirement.

Wayne: Yeah. And if you get really savvy, you can build a lot of wealth.

Pete: Yeah. Absolutely.

Wayne: It's one of the, it's probably the number one wealth strategy for the average person.

Pete: Huge leverage.

Wayne: Huge leverage. Yeah. You know, and there's other factors too, you know.

So, you as a lender and me as a former lender, but now, you know, just really focused on real estate, you know, we want our people to win. And so, it isn't just a strategy of getting out of a rental and buying a house. There's a strategy of we're here to help advise you how to improve your credit.

Pete: Yeah.

Wayne: You know, we're encouraging you to, you know, learn more about your craft as you grow in your industry. You know, pay down your debt. Keep it under control.

Pete: Yeah.

Wayne: What's the number one thing with credit cards? Do you go over 50% of their available balance or not?

Pete: Absolutely not. Never.

Wayne: Never?

Pete: Never.

Wayne: You're better off to have more credit cards and stay below that 50% and make those payments.

Pete: Yeah. Absolutely.

Wayne: And always have a little balance.

Pete: Absolutely.

Wayne: Yep. I mean, things like that, little strategies like that can drive your credit score up to 800.

Pete: Yep. Yep. Yeah.

Wayne: Absolutely. Does an 800 credit score get better than a 640? Oh, it gives you so much more possibility on that mortgage.

Pete: So much more, but it's not just the interest rate that people think about, but it's also, if you don't have that big, large down payment, you also get a massive discount on mortgage insurance. Yes. So like if you have an 800 credit score, it's even 740, 750 credit score, way cheaper mortgage insurance than what an FHA loan is.

So you have a lot more opportunities to save money and build wealth.

Wayne: Right. Yeah.

Pete: Yeah.

Wayne: Absolutely. Pretty incredible, huh? Yeah.

Pete: Yeah. Yeah. It's a pretty amazing game when you start getting into it and then start understanding how it can really work for you.

Wayne: Yeah.

Pete: But you got to get in the game.

Wayne: You got to get in the game.

Pete: Yeah.

Wayne: Yeah. You got to get in the game. So obviously, I mean, I know your stance, but for the next six months, what are you thinking we see with home prices and interest rates?

Wayne: I think they're just going to gradually continue to go up based upon what we're seeing.

Pete: Yeah.

Wayne: And as more people, I really think from talking politics or at least the presidential, whoever gets in, then everybody will know what they're dealing with. There's going to be more certainty, less confusion. So more people will be going into the market, and I think that that's going to push prices up.

Pete: Yeah. I agree with that. I get a lot of questions, like we talked about in the beginning, is, oh, I think rates will come down because it's an election year.

Wayne: Yeah. That doesn't... Well, let's talk about...

You know, people are hoping the Federal Reserve, this, that, whatever, and they focus on the Federal Reserve, but it's really the bond market.

Pete: Yeah. It's the bond market.

Wayne: And the bond market is tied to inflation numbers. Correct. Is that correct?

Pete: 100% correct.

Wayne: Okay.

Pete: Why don't you explain that in layman's terms, how that works?

Wayne: Yeah. So essentially, how would I explain inflation? So more dollars chasing fewer goods.

So like, you know, inflation happens when they essentially print more money and there's not enough goods, and so it drives prices higher. Right. Right?

When there's more demand on things, well, what happens is the government doesn't want us to have like a 10%, 12%, 13%, 14% inflation. Oh, no.

Pete: That's disastrous.

Wayne: So they got to slow that down. Right. So what to do...

What do you do to slow it down? Well, what you do is you try to take money back out of the economy and not have as many dollars there. You got to take money out, and that's what they've been doing to slow down inflation.

Inflation was as high as like 9%, 10%, I think, you know, in 2020, late 2022 and early 2023, but it's come down since.

Pete: Dramatically. Dramatically.

Wayne: So 30-year fixed mortgages. So think of it like this. You have $100,000, and you're going to invest that for 30 years because that's what these mortgages are.

They're 30-year notes.

Wayne: 30-year mortgage.

Pete: Notes. Yeah. So you have $100,000.

You invest your, let's say you're, you know, coming into retirement, you want a fixed rate of return. Right. Right?

On your money. So if you think of it like you're borrowing your own money, you're going to buy a mortgage. Well, that mortgage is going to give you a certain percent every month.

Well, it doesn't make sense when you're only getting a 3% because interest rates were at 3%. Okay. It doesn't make sense for you to get 3% over 30 years when the price of milk is going up and your gas is going up and your, it's fixed income.

You're getting that 3%, and all of a sudden everything around you is going up in price. Right. That doesn't make sense.

So now you have to get rid of that 3% and you have to figure out how to get 6% or keep up with the inflation of the higher price milk and the higher price eggs and the higher price gas and the higher price rent. Right. Yeah.

So that's my best explanation of inflation.

Wayne: Right. Right. Yeah.

Well, and there always will be inflation because the other thing that happens in monetary policy is- It's a mandate. It's mandated that we need about 2% inflation because new dollars need to pay for cheaper dollars in the past, and it's kind of a weird concept when you first get your head around it. It's like, well, how's that work?

Well, it's like you're discounting the money. You're discounting your dollars going farther in a way paying off old debt because inflation- Yeah.

Pete: It's such a cool thing. I mean, a 30-year fixed mortgage is so cool. I mean, think about everyone that got a 30-year mortgage at 3%.

They're reaping the benefit of inflation because now they have this debt. They're only paying 3% on that money.

Wayne: Right.

Pete: Right? And so they're taking more dollars because now there's more dollars in the economy. Right.

And they might be getting paid more and chasing down this old debt.

Wayne: Old debt. At 3%.

Pete: This old debt that's at 3%. Yeah.

Wayne: And that's actually created one of the reasons why housing's going up because people that are sitting on those 3% loans, they do not want to give them up.

Pete: Yeah. They're reaping the benefits.

Wayne: So a lot of the phone calls that I'm getting for sellers, all you sellers out there that are baby boomers or traditionalists, anybody that's really kind of over 60, they're retiring, you're on acreage, you've got a big house, or you're older and you can't deal with steps anymore. We see a lot of that. We see those houses coming on the market.

They either own them all cash and so they're able to move easily, but if they have debt on them, they go, I don't really want to sell. It's hard. It's a hard call.

Pete: Yeah.

Wayne: Something catastrophic usually has to happen. The kids step in and put mom and dad in a home or the hospital or whatever. So we're seeing those houses go on the market, but people that are a three and two and it's perfect size for them, they're healthy or whatever, they are not coming on the market.

You got to have death, divorce, bunch of kids.

Pete: You could think of it like this too. So with interest rates being at high sixes, low sevens right now. Which is a good rate.

Wayne: It's a good rate. So you could think of the same thing that the 3% guy got, because what if inflation does go rampant again? Well then that means rates would go to nine, 10%.

Pete: And then you're sitting there with a nice juicy 7% rate and now rates are at 10%. You have a good, excellent rate. And the reason why those 10% rates are there is because of inflation.

What does that mean? It means everyone's making more money. And so it's like you're kind of getting the best of both worlds out here almost.

By what you're saying is chasing down old dollars with new debt.

Wayne: Well one of the things that a lot of people may not realize or they don't want to hear, America's in the process of reshoring back to the Northern Hemisphere. Our largest trading partners for the United States is Canada and Mexico. They're working on moving away from China?

Pete: China.

Wayne: And that's been going on. And there's a number of reasons for that. There's a certain economist that I listen to and they really talk about it.

Pete: That's interesting. I didn't know that.

Wayne: But when you reshore, there's a lot of capital improvements. You have to build the factories. You have to educate the workers.

So you have a lot of infrastructure investment that causes inflation. Now we're probably estimating close to 5 to 10 years of a certain amount of inflation as they're taking jobs out of China.

Pete: And bring them back in.

Wayne: What's interesting to me is Mexico assembly is cheaper than China now.

Pete: What?

Wayne: Yeah, check that out. So they're reshoring over there. There's other countries in Southeast Asia that they're reshoring to.

But all that transfer of assembly, technology, new factories, all that stuff. Wow. It's part of the thing that we're dealing with, with inflation.

And just think about semiconductors. They're building major chip factories outside of Phoenix or in Arizona.

Pete: Are they really?

Wayne: Oh, huge.

Pete: Yeah. I mean, that's great.

Wayne: Intel, and I believe there's another one, has a Taiwan semiconductor. They're putting a plant there.

Pete: And we can export from here.

Wayne: Well, what we want to do is control the high-end technology. Yeah, yeah, yeah, yeah. That'd be really good.

I mean, there's, you know, just think about that. And also, Denise, our daughter is in Texas. And in Sherman, they're $30 billion assembly plant.

You know, just crazy stuff that's going on, because a lot of that has to do with national security.

Pete: Yeah.

Wayne: Right? Because we're like messing with China's like...

Pete: China, Russia.

Wayne: Russia, America. It's like, oh, it's a problem. And so we're bringing this stuff back.

So we have what we need in our modern society and in our capitalistic society.

Pete: That's good. That's cool.

Wayne: Yeah.

Pete: That's the big picture. Yeah, that's big. So I'm going to, so I was watching, speaking of technology, the robots, Elon Musk.

Wayne: Right. Soft topic.

Pete: Hopefully, they won't be showing houses.

Wayne: Yeah, I don't think so. But they will be making spaghetti and doing my laundry. So yeah, I was like, oh, wow, that's cool.

It seems like it's closer than I thought.

Wayne: Oh, robotics.

Pete: Having those in our houses.

Wayne: Well, and there's different types of robotics. There's manufacturing, and then there's personal potential robotics. But we think of robotics where, you know, there's a kind of a humanoid serving us and all that.

Well, you know, that's pretty expensive stuff, right? Yeah. So, you know, but there may be partial robotics doing things in technology that can be mass produced cheaply.

But if you had to go out and buy that robot, it's like buying a Lamborghini, you know? How many people can buy a Lamborghini? That's true.

Pete: Yeah, that's true. I just thought it was funny. Yeah, it's pretty interesting.

And the chips and stuff.

Wayne: Yeah, yeah, yeah. It's fascinating.

Pete: Yeah. So, wow. So anything else you want to share?

Is there any other?

Wayne: Um, not really. I think we kind of covered a lot today.

Pete: Yeah. Yeah, I think that wraps it up for the first half of the year, at least. Yeah.

You know, to sum it all up, it's still a strong market. Strong real estate market.

Wayne: And it's a good time for buyers to get in. You just have to be aware of what you're doing with your finances, with your career, with everything that you're doing. Stop going to Starbucks so much.

Put it in your pocket. Just a story, a little story to end this. So a number of years ago, I decided that I wanted to do something for my wife.

And so I just didn't tell her, but I didn't order a drink going out to dinner for a year and a half. And on her birthday, guess how much money I gave her? This is just like, don't buy a soda.

Don't buy a cocktail.

Pete: No way.

Wayne: You know, or don't buy the second cocktail because I'm going to have a cocktail. But anyway, but $1,800. No way.

On that one simple thing. So I mean, $1,800 is $1,800.

Pete: Well, divide by 12 is like, what is that? Three? Oh, no.

That's like two. Oh, no. What is that?

$1,800. I'm going to do the math on that. That's $900.

$90? $1,800 divided by 12. You can do this.

I believe in you. $150 a month. Right.

$150 a month.

Wayne: Well, imagine if both of you, say you're a couple.

Pete: Yeah, $300 a month. That's $300 a month. It'll get you an extra...

Wayne: $3,600 a year.

Pete: Yeah, it'll get you an extra almost $50,000 in a home.

Wayne: So if you did that three years, you'd have a good down payment.

Pete: There you go.

Wayne: Right. I mean, it's little stuff like that.

Pete: Yeah. You know? Yeah, I like that.

Wayne: Anyway, that's a story. Something to keep in mind. You know, just watch your budget.

You know, be smart. You know, get a goal. If you have a partner, get congruent together, have good conversations and talk to Pete.

Pete: There you go.

Wayne: Really, you know, you need a team to figure this out.

Pete: Yeah, talk to Wayne too. I mean, you know, if you're thinking about selling your home in the next 12 months, you really should start preparing today.

Wayne: Yeah, and it's free of charge. We can help you figure out what to fix, what to do, timing. You know, we're going to be there for you.

We have a lot of great subcontractors and we're going to tell you the truth.

Pete: Yeah.

Wayne: About, you know, what's going on in the marketplace. A little side note. So two years ago, we had a friend come to us.

She had a nice house, big house, pool, all that. And we were looking at it and she goes, well, what's, you know, what's my house worth? So two years ago, we said, oh, it's worth like $775,000.

Well, just today we looked at it. It's up $200,000. Holy moly.

$200,000. Wow. Two years.

Pete: Yeah, that's amazing. How hard would you have to work to save $200,000?

Wayne: That's leverage.

Pete: How much taxes would you have to pay to get that $200,000? $400,000.

Wayne: So that's leverage.

Pete: Now she's on her, you know, this is her fourth or fifth house. She's changing her whole thing. She's downsizing.

But that's pretty amazing. I was like, wow, the renting market is hot.

Wayne: Yeah.

Pete: So anyway, I love that. Let's end with that.

Wayne: That's a great, that's a great ending. Yeah, definitely. Thank you, Wayne.

Pete: Thank you, Pete. Yeah.

Wayne: Okay. We'll see you next month.

Pete: Yeah. Yeah.