How a 30-Year Mortgage Shields You from Inflation's Grip

Transcription

The transcription is auto-generated by a program and may not be accurate to the conversation. To ensure you get all the information from the video properly, you must watch the video.

Josh: Hey, how's it going buddy?

Pete: Good. Good.

Josh: So for all the listeners, I was just complimenting you on your beard.

Pete: Oh. Thank you. It took me a while to grow it.

Josh: I'm very jealous of that thing. How long does it take you to grow a beard like that?

Pete: I started in July of last year, so it'll be coming up on a year. So my buddy, my trainer, actually is the one that got me into the whole beard growing. So four years ago, I said, "Hey, you should grow a beard. You look really good in a beard." And he started growing his beard. Well, now it's down to his waist.

Pete: And he posted some videos on TikTok.

Josh: He looks like a wizard then.

Pete: He does.

Pete: Or a Viking or somewhere in between.

Josh: Somewhere in between.

Pete: And so he posted a video on TikTok and he got 125 million views.

Josh: Well, it's hard to do, man.

Pete: Yeah.

Josh: No, I haven't shaved it in three days. I was telling you that, I don't even grow a beard. So I'm very envious and jealous, and.

Pete: Oh, thank you.

Josh: I don't want to see the Warlock guy you're talking about. I'm sure he looks pretty cool too.

Pete: Yeah, yeah. Yeah. We'll see how it goes.

Pete: It's working right now. It's working right now. So, Josh, thank you so much for coming on. I really appreciate it.

Josh: Absolutely.

Pete: Yeah. So we have Josh Barker. I'd have to do a little introduction for you. So you are Josh Barker, and you live in Redding here. You've been here for a long time. How many years have you been here in Redding?

Josh: Well, I moved up here in 1976. I brought my parents with me. So it's been a while.

Pete: You were what, one year old?

Josh: One year old. Yeah.

Pete: One. Okay. Yeah. Nice. So, a long time in Redding. You've been in real estate for 23 years. You're a husband, a father, and a real estate broker in Northern California with 23 years of experience, and over 7,000 properties sold, which is really impressive. Josh strives to provide the very best service to buyers, and sellers navigating the real estate landscape. Josh has personal and professional experience with investment property acquisition, which is cool, land development, commercial and residential construction, as well as 1031 tax-deferred exchanges.

Josh: Yep.

Pete: So very, very well-known within real estate. Josh is a Redding native, and Marine veteran and has been married to his lovely wife, Nicole, for 25 years. Together they share four amazing children, one of whom has recently joined the family business.

Josh: Yes, that's right. She's 24.

Pete: Yeah, that's awesome. Josh can often be found with his family exploring the area's beauty and the outdoors, including Disneyland. I added that part.

Josh: You should add that part. My wife would appreciate that. And actually I think it's been 26 years married. Otherwise, she'll judge me for that one too.

Pete: Got it. Okay.

Josh: I see everybody. I gave this bio to PD. And one of the questions he asks you is, can you please say something about yourself? So, thank you for reading that.

Pete: Yeah, for sure. Obviously, I've been doing mortgages for 20 years and I met you very early on in my career.

Josh: That's right.

Pete: Yeah. And I got it.

Josh: You guys were at Benchmark. Right?

Pete: No, we. Beneficial.

Josh: What was it? Beneficial. Because you guys were doing seconds back then.

Pete: We were doing seconds.

Josh: That's right.

Pete: And we were charging five points up front.

Josh: Good lord.

Pete: Yeah. It was, that's how I started. That's how I learned how to do a mortgage—and got introduced to you. You helped me buy my first investment property.

Josh: That's right.

Pete: And helped me sell a property.

Josh: Yes.

Pete: I bought a couple of properties for you.

Josh: Yeah.

Pete: And I feel like I've known you for a very long time.

Josh: It's been a while, man.

Pete: I really appreciate you coming on.

Josh: I appreciate you too. Thanks for having me.

Pete: Yeah. So I wanted to start with you just sharing your story of how you actually got in the real estate world.

Josh: Okay.

Pete: Because you obviously have. I can tell you love what you do and you've been doing this for a very long time. What keeps you going? What keeps you active out there in the community?

Josh: Well, you said it earlier, I've got four kids.

Pete: Yeah.

Josh: So there are two things that motivate me. One is paying for college, and the other one is I have four kids. It's easier to go to work every day.

Pete: Yeah. It was expensive.

Josh: Yeah. It was expensive. So, no, I think, I was exposed to sales when I was a kid. My dad was a real estate broker, grandfather was a real estate broker. One of my best friends was a real estate broker. Still is. In fact, we get to work together now. And so it was probably written long before I already knew it.

Pete: Wow.

Josh: That it was have to be something I really fall to.

Pete: Did you know you were going to get into real estate growing up, with all the family members in real estate?

Josh: No, not at all. I mean, in the Marines I thought I would have to stay there forever. It's just that I met my lovely bride of 26 years. And I was deployed a lot. And so in order to keep a marriage together in our situation anyway, because it's hard for married families to stay together when somebody's working all the time, I just felt like I needed to say, okay, this is great, but it's time for me to move on if I want to be in a happy marriage. And then looking at the things that interested me, family I think probably had a little bit of a pull on that just because I had exposure to sales and I was the kid driving around when I was a kid listening to Zig Ziglar and all these guys.

Pete: Yeah.

Josh: So, I probably didn't have a chance.

Pete: And that was influenced by your dad?

Josh: My dad, yeah. So he'd drive around and I'd be listening to these business tapes. And at the time you don't really pay attention, but later you're like, "Hey, I've heard that guy before."

Pete: Yeah. Subconsciously.

Josh: Yeah. Totally.

Pete: Yeah. Okay. So you grew up, your family was in real estate. You had your dad, you met Nicole down in San Diego when you were in the military.

Josh: Yep.

Pete: And then you were like, "Hey, let's go back to Redding, close to my family, and let's get into real estate."

Josh: Yeah. Pretty close. I didn't actually want to come back to Redding. My wife did. I came up here for a family reunion and brought my beautiful fiancé at the time to introduce her to everybody. And she's like, why aren't we living here? And I'm like, because we live in Huntington. That's kind of good down there too.

Pete: Yeah.

Josh: And, because I had just got out of the Marines and we had stayed down there for a little while going to school. And she really did lean into me a little bit about, "Hey, you know what, this is a great quality of life in Shasta County." I think it's a little bit better than the quality of life we were looking at in Huntington. And at that time I couldn't disagree and thank God we did it. Yeah. I made the move.

Pete: Well, you've definitely made a huge impact on our community. I definitely know that for sure. I've always looked up to you as far, as the real estate, and I've always wanted to model my business after yours as well. So like.

Josh: Well, thanks, man.

Pete: It's definitely been an amazing.

Josh: Wow. Well, thank you. That was very nice to say.

Pete: Yeah. Okay. So, along with that, we're in a crazy kind of different market.

Josh: You think so?

Pete: Yeah.

Josh: So you've been paying attention.

Pete: Yes, yes, I have. Very much so. Going into COVID, I had no idea what, obviously none of us knew what COVID was to bring. But coming out of COVID, it's a very different market. Interest rates are higher. And I really wanted to get your, pick your brain on just kind of where we're at right now. There are a lot of people out there who are maybe concerned, maybe unsure, uncertain of the future. There's a lot of things going on with the media. And so when it comes to real estate, it's the number one investment that people have. And so it's a big topic.

Josh: It is a big topic.

Pete: So the first question I have for you is, where do you see the market for real estate values over the next one to five years? Do you think there's going to be any kind of crash, or do you think that? What's going to happen over the next one to five years with your experience on? Yeah.

Josh: Sure. Well, let me just go ahead and grab my crystal ball here, and let me bring that out. Well, I mean, look, let's take crystal balls and set them aside. Let's talk about a few things we do know. Okay?

Pete: Okay.

Josh: The number of new homes being built nationally is really low. I don't think anybody disputes that, right?

Pete: Yeah.

Josh: We are behind on our replenishment rate for new construction. Nobody's really disputing that. Our inflation issue has certainly caused interest rates to go up, which is having an impact on purchasing power. I don't think anybody's disputing that. And then the elephant in the room, we've probably brought in 10 to 12, 13 million people over the last three years. And politics aside, those are economics. The supply side is not keeping up with the demand side. And a lot of those people that we've grown the population of the country by are not babies. These people need places to live.

Pete: Yeah. This is the generation, the baby boomer, or sorry, the millennials and Gen Z-ers. What is it?

Josh: Well, I don't know what the median age is for the kids coming across the border right now, but I'm assuming it's probably 17, 18, 19 years old.

Pete: You're talking about people coming across the border.

Josh: Yeah.

Pete: Got it.

Josh: And I'm talking about the last few years.

Pete: Makes sense. Yeah.

Josh: I mean, because normally historically it's taken about 19 years, or actually 18 years and nine months to grow an 18-year-old. That's how long it's taken, you know.

Pete: 18 years and nine months. Yeah.

Josh: Historically, that's how long it takes, right?

Pete: Yeah.

Josh: We have completely accelerated that process by opening up the floodgates, if you will, of migration. And as a result, we have, again, maybe 12, 13 million people in the country, and no politics on this at all. Just the reality. Is there an increase in demand for housing?

Pete: 100%. Yeah.

Josh: Okay. That is a reality. We were already in a massive deficit for housing to start with. Now we've just magnified that issue. So if you ask me one to five years, and that's why I'm giving you this context, one to five years is hopefully we can begin to tackle the problem.

Pete: To figure as far as inventory.

Josh: That's right. Because we have to be tight on inventory. And the question will be, will home prices go up? Some want to know that. And on both sides of the equation, if you're a seller, you're like, yay. But if you're buying in the same market, you're like, no. The reality of it is, is that what interest rates do will tell us what prices will do. So if rates go down, home values are going up. And if rates stay up, then it's have to be hard. It has to be a harder process.

Pete: Be harder. Yeah. Why do you think that builders haven't been able to keep up? Why do we not have more builders in the market building homes?

Josh: Well, right now, it's because of the interest rates because they're dealing with fixed realities. It costs X amount to buy a piece of property. It costs X amount to develop it and get the permits and entitlements. It takes X amount to buy the supplies and materials. It costs X amount for labor. You add all those numbers together, and you have Y.

Pete: That's really hard.

Josh: Right. And then whatever that Y number is, can a buyer even qualify for it? And so when rates go up, it puts a lot of pressure on purchasing power. You have buyers right now, I mean, if rates drop by 1% today, new construction on new homes would probably be able to kick off a little bit more. But we're not there today.

Pete: Yeah, that makes total sense. Yeah, yeah. So, what I heard you say is that you're very optimistic about real estate staying consistent over the next one to five years.

Josh: I don't think we're going to be oversupplied.

Pete: Yeah. We're not going to be oversupplied. We'll still have a challenge with the supply coming on the market, but the demand will continue to be there.

Josh: I think so. I mean, and I'm not an overly complicated guy. I look at economics for its simplest way of looking at it. You have supply and you have demand. Okay? And the factors that pull on supply and demand are the factors I pay attention to. Right now we're in a housing shortage. And we will continue to be in one as long as we increase our population at the rate at which we're increasing it.

Pete: Yeah. Makes total sense. So, which brings me to my next question, there may be a lot of homeowners out there right now that do have that family size increase. And they need to make a move, or they're hitting that retirement age and they need to make a downsize move. I know there are a lot of families on my end too that are waiting, they're kind of on the sidelines. And that's demand too waiting to happen. So, do you have any kind of recommendations for families that are maybe on the sidelines or potential things that they could think about, not just the interest rate and not just the payment?

Josh: Yeah. I mean, I'd like to say that, but I mean, boy, it's hard. I mean, it's really hard. I listened to some of the reports that come out and they say, oh, the perfect time to buy or sell a home is when you're ready. I'm like, that's not right. I mean, there are good and bad times to sell a home. And anybody that doesn't tell you that isn't being honest, you know?

Pete: Yeah.

Josh: Right now, we have an economy in which a huge number of people either purchased or refinanced at a rate equal to or lower than 3%. And today, if they were to purchase another home, they'd have to relinquish that 3% rate in some cases and buy a home at a 6.5 or 7.5 percent interest rate. That's a massive jump in payment, right?

Pete: Yeah.

Josh: And so for those reasons I say, you may or may not want to do it. Okay? This is why when you and I are looking at this report right now we see that last year there were 3,821 total transactions. And then that's homes that sold, we haven't had that happen in 20 years.

Pete: Yeah.

Josh: It hasn't been that low in 20 years. And so it's because a lot of people are in these homes at extremely competitive interest rates, and as a business decision alone, it doesn't make sense. Now, here's what you probably do want to think about.

Pete: Yeah.

Josh: If you're thinking about waiting for home prices to go up before you sell, you have to ask yourself the question, well, do you have to buy again too? Because if you sell your home for more, yay. But you'll be paying more for the next one. Not so yay. Right?

Pete: Yeah.

Josh: And on the flip side of that, if you're a person that's thinking you're waiting for prices to go down as we said earlier, refer back to inflation or refer back to the housing shortage, the chances of prices of homes being a lot lower than they are today, it's pretty unlikely because interest rates are likely to go down in the future.

Pete: Yeah. That makes sense.

Josh: You gotta weigh it out.

Pete: So what I heard you say is that for the person who's waiting for the market to appreciate before they can sell their house, they have to also think about the buy side because the home's going to be higher as well when they go to buy.

Josh: They're going to be paying more. So here's the question: Do you want to stay in the home you're in now, waiting for the value to go up? Or do you want to be in your ideal home, waiting for the value to go up? Either way, as long as you're in a home, you're going to receive the benefit. Right?

Pete: Yeah, that totally makes sense. Yeah. On the other hand, if you're waiting for home buyers to come back down, then, of course, your home is coming down.

Josh: Your home's coming down too. Yeah.

Pete: Yeah, yeah. It makes sense. If someone's in that position, for that reason, they should probably start thinking about making a move. Either way, on each side of the coin, they're.

Josh: Well, and I don't want to oversimplify this complicated prospect, but if you were to take a scale, you have the black and white and you have the emotional side of a scale, black and white say, I got a 3% interest rate. It may not make a lot of sense to move. But on the emotional side, my family's growing. We are climbing all over each other, and we're not getting along very well. We need a bigger house.

Pete: Yeah.

Josh: You know what I mean?

Pete: Normally, emotions take over logic.

Josh: Right. So you put it on the scale and make a decision. At least that way, if you decide you're going to sell and buy another home to make some more room for your kids, you've made a decision that, you know what, the emotional component at this point outweighs the financial component. You make a very sober decision when you make it, and you could be happy about it.

Pete: Yeah.

Josh: I did that until 2007, 2008. I sold a lot of our properties, actually, just before the market crash, '05, '06 is when we sold our properties off. I think you probably remember that.

Pete: Oh yeah.

Josh: And I was telling everybody the sky was falling. Everybody thought I was smoking weed or something because they didn't believe me.

Pete: Yeah. You called me and said, Pete, sell your house.

Josh: I tried to get you to do that. I don't know. 0:16:07.3

Pete: Yeah.

Josh: You're like, you just want to get paid. I'm like, that's true, but I want you to sell your house. So long story short, you know, what we did was in '07, '08, my wife and I moved into a rental on the River because we had sold everything.

Pete: Yeah.

Josh: And my wife. Except for our commercial stuff, and my wife says to me, she says Josh, this is great. I know you're really happy and proud of yourself, but really we'd like to have a home for the family. I'm like, oh. So, black and white says, wait, the emotional side says Mrs. Barker wants another home. I better figure this out. Right?

Pete: Yeah.

Josh: So I ended up buying a house. It took nine months to move into. But it was because the best deal at that moment, because I had to move forward, but the best deal at the moment was to have somebody build one for us. You know what I mean?

Pete: Yeah, totally makes sense.

Josh: So emotionally justified, though.

Pete: Yeah. So emotions versus black and white. Definitely have the, whoever's watching this, think about the emotion here.

Josh: Weight it out. I'd rather be happily married than have a few more bucks in my pocket. That's for sure.

Pete: Yeah. Makes sense. Yeah. Okay. Cool. Well, that's good. So, for this next question that I wrote down, I was listening to someone, and I don't know if it's the right way to say this question, but I wanted to get your thoughts on it. So this is the question: What is the impact of inflation on a 30-year fixed mortgage? So can you explain how a 30-year fixed mortgage becomes more advantageous during times of inflation, especially considering the aspect of paying back with cheaper dollars over time?

Josh: Oh, man. Well, that's pretty easy, actually. So, let's just say that the historical interest rate was how much?

Pete: On average, maybe 6%, 7%.

Josh: Yeah. 6%, 6.5%. Right?

Pete: Okay.

Josh: So let's just use that number since it's a historical average. If I can secure an asset at 6.5% interest, and here's the thing, I get to receive the benefit of appreciation on that asset. I get to reduce the mortgage liability over a period of time, and I have a hedge against inflation in the future because I have a fixed expense.

Pete: It's fixed. It's not going up.

Josh: It's fixed. It's not going up. I mean, the only thing I might have is insurance, which might go up a little bit. I have property maintenance and repair I might have to deal with, and I might have a little bit of tax increase, but not a lot because, in California, we have Prop 13. So we have some protections here. I've got a great hedge against inflation in the market. And that is something that I think people overlook. I've talked to people living in homes for 20 years, renting them. I'm like, oh, they could own that house twice, you know. And it's just a bummer.

Pete: On the flip side of that, when you say hedge like for a renter, the difference for a renter to then. They're not able to hedge because that payment is not fixed.

Josh: Exactly. Well, and they're paying 100% interest. So, if you don't own the property, you're paying 100% interest. Because you're not putting anything towards paying down a mortgage balance. You don't have any kind of write-off for tax savings for home ownership. You can't have a position in the market to receive appreciation over time. It's costly when you think about it to rent in comparison.

Pete: Absolutely. I 100% agree with that. The way this person was explaining it, too, which is it goes along exactly how you said it was with the hedge, is as inflation continues, I think we'll continue to have inflation, and so there's more dollars have to be coming out into the economy. Those more dollars have to chase the hard assets then. And so when you have a fixed cost on your mortgage, that's how the value continues to appreciate, which I thought was cool.

Josh: Well, and anybody that thinks there won't be inflation, the Federal Reserve has a mandate to cause inflation.

Pete: Inflation. It's so crazy when you think about it like that.

Josh: And it's for decent reasons. I mean, it kind of pushes people into ownership, too, right? So that you have those opportunities to hedge, but, so if the Federal Reserve. Don't fight the Fed, right? If the Federal Reserve has a mandate to cause inflation, I don't think I have to try to fight that.

Pete: Yeah. Totally makes complete sense. So that's cool. I was talking about the Federal Reserve. It's a nice little segue into my next question here: Federal Reserve policies and interest rates. So, a lot of people are wondering when the Feds have to start cutting, considering the current economic climate, do you think the Federal Reserve might lower interest rates? How would such a move affect buyers and sellers in the ready? I know we covered a little bit about this. But think more of like when the Fed has to.

Josh: When do they have to do it?

Pete: Yeah.

Josh: Well, let me call Jerome Powell, and let's find out what he says. What they're looking at typically. The resources I use for this are a handful of economists who try to give us some insight into what the Fed is doing. And then I listen to actually what the Fed's doing. The Fed's pretty big because you have regions too. You know what I mean? So it's not just the Federal Reserve of Jerome Powell, but you also have other entities throughout the country, and they're reserve banks as well. And you listen to what they're saying, which tells you what Jerome's thinking. Right? But in the big picture, they're probably looking at somewhere around May, and they're likely to do an interest rate cut in May. And maybe two to three subsequent cuts at a quarter basis point each by the end of the year is the most recent best guess. The reality is the job market's still pretty hot right now, which it's going to be because you have an infrastructure bill for trillions of dollars that's being spent in the country right now.

Pete: Totally, it's inflationary.

Josh: It's inflationary. And it's funny because the Federal Reserve is trying to target employment at the moment, trying to increase the unemployment rate. But at the same time, they're creating jobs. So, the higher interest rate environment is hitting two people: banks and real estate. And there's not a whole lot of jobs in either of those. There isn't. I mean, when you think about it, it's not.

Pete: Totally.

Josh: And so it's punitive to a very small group of. Or a small. It's a big part of the economy's industry, but not many employees.

Pete: Yeah. So before we started this, we looked at the 20-year history Of Shasta County. And I was looking at it. I created this report. So, like back in 2003, we have the number of transactions. You let me know. Hey, Pete, multiply that by two, and I'll put this up on the screen so you guys can look at it. However, my point on this topic is that creating money in the economy when the Fed raises or decreases the rates affects our industry a lot. Because with your updates, I watch your updates, and you always explain, Hey, we had this amount of transactions, or we're down this percentage for transactions from the previous month. And not like 10 years ago, like five years ago, I thought that was a decline in the market, but really, it's just a number of lower transactions.

Josh: That's right.

Pete: This affects me, the realtors, and affects the lenders.

Josh: That's right.

Pete: So there are not as many commissions going around.

Josh: Correct.

Pete: In the economy, in 2020, we hit $1.1 billion in total real estate. Then it went to $1.4 billion. It was 1.2 billion in 2022. In 2023, we did 926 million. And so it's significant, so it's a half a billion dollars less.

Josh: 50%.

Pete: Less in.

Josh: A couple of years.

Pete: In a couple of years. So we're all used to real estate, and myself included in making these commissions, the business like bringing income in, and that's.

Josh: And spending it.

Pete: Yeah, and spending it. And then all of a sudden, it's just cut.

Josh: Oh, yeah.

Pete: Like 50%. So, in our local Shasta economy, that affects the economy because I'm not going out to eat as much, I'm not spending at the grocery store like I was, and I'm not going on holiday. Well, the holiday's good. It's not bad, but WinCo may be a better choice for each of us.

Josh: We could bleep that out there. The Morgans would appreciate it. Well, I think that it's. You're hitting on something that I think is important, which is that when the volume drops by, in this case, your example, 50%, that has an impact on our industry. Lenders are doing fewer transactions, real estate agents are doing transactions, but that does not mean the homeowner.

Pete: Correct.

Josh: It is dealing with the same 50% correction. Right now, if a seller prices their home competitively in the marketplace, they're going to sell, and they're going to sell relatively quickly too. And for a buyer right now, I don't need to tell you, they already know this: when they go out to shop, there's not a whole lot to choose from. And it's extremely competitive when you find that right home. And so they don't feel like, you know, Hey, this is easy. This is hard right now because the inventory is really low. Because there are a lot of reluctant sellers that are sitting on what we were talking about earlier, that 3% interest rate. But there's one little caveat to this whole thing that we have to accept. If you look at the Carr Fire, right? And then you had the Paradise Fire, home builders in our counties, Shasta, Tehama, and maybe a little bit around the other areas, too, for the most part, they've been very busy since the Carr Fire. And when was that '18, at this point? Somewhere in there.

Pete: That's true. Yeah, 2018.

Josh: I mean, they've been busy since then. They haven't slowed down until the last 18 months. That's when the rates started going up, and they started to see things slow down. So, in our industry, real estate and lending, we were receiving some of the benefits of that, too. You know what I mean?

Pete: Totally.

Josh: We had the tail end of resupplying the housing market, bringing up new listings for sale. So we've been kind of in this regional stimulus, if you will, for a really bad reason. But we had a stimulus from the Carr Fire and then the Paradise Fire. And so we're all at once now we're having higher interest rates. Most of those homes that have to be rebuilt have been rebuilt. And now you have this huge drop in volume compared to years past. And that's a hard reality. I mean, if you think about it from the county's perspective and the city of Redding's perspective, they run a lot of theirs. What they do.

Pete: Permitting.

Josh: Absolutely. They run it off of the fees that they collect for home valuations and the number of transactions and units sold. And this is having an impact on it. But it's still resilient, man. You see, the town is still continuing to fight.

Pete: Yeah. Totally. I was going to. I forgot what I was going to say, but I guess what I'm hearing you say is that it's going to take time for all of that to trickle down to businesses nationwide. I mean, for the last, I mean, and just these numbers, it's multiplied times the whole United States.

Josh: Absolutely.

Pete: On the number of fewer transactions. It takes time for it to slow down before, and this is why they will lower interest rates when the economy slows down.

Josh: They will. Well, when they see unemployment starting to go up and then when they start to see signs that the markets really are slowing down. I mean, because the supply chain has been reestablished now. Right? So that problem's been resolved. Now they're looking at unemployment and saying, Hey, we'd like to see that number go up a little bit. Because they gotta put a cap on wages. I mean, there is a problem with wages, too, because if wages continue to go up, then the cost of goods and services sold also has to go up.

Pete: Continue. Yeah.

Josh: This creates its own inflationary issue, so we're likely to start seeing a cooling-off period now.

Pete: Yeah. So my next question here is national debt. How do you see the national debt and ongoing inflation impacting home buys? Is there a correlation both locally—we touched on this a little bit earlier—and nationally with the national debt? I think the national debt is what, like.

Josh: Over 30.

Pete: $30 trillion.

Josh: Correct. I can't even.

Pete: Fathom.

Josh: I don't even know what it looks like. That's insane.

Pete: That's a lot. So, with the government's increasing debt, does this scare you at all?

Josh: Yeah. I mean, there are two sides to the argument, I suppose. One side of it's, they say, well, it doesn't really matter what the national debt is, as long as they're willing to continue to issue it to you. I'm like, well, that sounds great, but what happens when they stop? I mean, and here's the reality, they can't just pay it all back. If you wrote a check today for the 30 trillion and you paid back everybody that you owe money to, you instantaneously increase the money supply, and inflation will shoot through the stratosphere.

Pete: Oh, big time.

Josh: You know what I mean?

Pete: I didn't even think about that.

Josh: So you can't even pay anybody back, really.

Pete: Yeah, you pay everyone back, and all of a sudden, everyone's got this.

Josh: So what you have is an option probably, and I think this is probably what the Fed's ultimately looking at, it's just to burn money. So when they collect. When the bond becomes mature, they just don't reissue it. And essentially, that's like burning the money. Right? So they just take the money out of the economy slowly but surely. And that's likely the path that we're on. I think your initial question, though, is, how does this have an impact on home values? Well, home value is a fixed position in the market as an asset. So, things inflate over time. Fixed assets inflate, too. I'm not going to say it's like gold, but it's similar because you take ownership of something. However, I would say that we don't own anything. We have the privilege of paying taxes on it and controlling it while it hopefully appreciates.

Pete: Yes. Sorry, I have to go. You said something that I want to clarify for myself: When the bond is paid back, they don't reissue it. Explain.

Josh: Well, that's called quantitative tightening, right? So you have quantitative easing and quantitative tightening. It's a tighter money policy, which is essentially what they're doing. So they're saying, Hey, look, once I get paid back the money I loaned you, right, or I issued you a treasury bill, that's it.

Pete: 10-year treasury. Whatever.

Josh: Right. Right. You gave me your money, and I'm paying you an interest rate. Well, once that thing matures, instead of reissuing it, I'm just going to stop issuing it. And that's a way of removing money.

Pete: Out of the economy.

Josh: Out of the economy.

Pete: And that's what they've been doing.

Josh: Yeah. That's what they're doing right now, which is why they're not buying mortgage-backed securities right now. And if they did. I keep on saying that someday, Jerome Powell will listen to one of my podcasts, right?

Josh: But I truly believe if they were to come out today and offer to buy mortgage-backed securities at around 4.5% for only owner-occupied purchases, period. Okay? And if they did that, you would get people with rates at 3% willing to relinquish them for 4.5%. Do you get what I'm saying? You'd have home builders able to build homes right now because they have a product to sell to somebody who can afford to buy it.

Pete: Interesting. So, you're saying they come in and buy mortgage-backed securities for purchases only.

Josh: That's right. This is for no speculation; it is for owner-occupied only.

Pete: For owner-occupied only mortgage coupon, mortgage-backed securities.

Josh: Absolutely.

Pete: Yeah. That is.

Josh: It's like taking a scalpel and saying, alright, we're going to solve this issue in the housing market because.

Pete: Affordability.

Josh: Well, if you want affordability, you have to increase supply. If you have to increase supply, you have to help with people being able to purchase with an interest rate they can afford to use. Right? So, again, please, everybody, share this a million times. Hopefully, somebody will do something about it because I think that would be a win for everybody plus the Fed. I think it's a good investment, but as a taxpayer, I don't want the Fed servicing notes at 3%. I'd instead get refinanced at 4.5%.

Pete: Right. Totally. 100%. No, that actually makes a lot of sense. So, Josh, I'm going to change this.

Josh: So Pete.

Pete: I have to move from the debt and the Federal Reserve. I think we hit that pretty good. If you. Real estate investment strategies, let's say with your knowledge that you have today, 20-something years in the business, you are a first time home buyer, or you don't own any real estate, you're just, maybe, graduate college or coming into the workforce, what would be your strategy knowing what you know today, like as far as maybe you would get in real estate, but as far as like housing, what would be your strategy? What would you do if you were just coming out?

Josh: As like an investor? Or is that just a homeowner? Potential owner?

Pete: Renter. Yeah, you're just getting started in life. Maybe you just got married or have kids. What's your first move?

Josh: Got it.

Pete: Things are tight. And you're paying rent. And it's going to be a stretch.

Josh: Well, let me give you an example. My oldest daughter, Tristan. Okay? So, she graduated from college. She comes home. She started working in real estate with a family company. Right? And she doesn't do sales right away. She's doing a lot of administrative-related work for us first, and she has started to earn money and do everything else. And then she tells me, Dad, what should I do next? And I said, I think it's time to buy a house, which she did.

Pete: Wow.

Josh: Okay? The reason why I gave her that advice is because I told her, I said Tristan, what you have to understand is that the sooner that you can take a position in the market, the better off you are in terms of appreciation over time. Because you don't have to keep that house you buy forever. But if you take a position in the market and let's say, five years from now you've paid down your mortgage balance a little bit, you've had some appreciation in the market, you have some what we call equity now.

Pete: Equity, yeah.

Josh: You can choose to trade that equity for another property. Or, if you want to keep this as a rental, move on to the next property. But you have to take a position. That's the thing. And so fortunately and credit to her, she decided to take that advice. And I've buried her now in a mortgage that she has to pay every month.

Pete: Now she has to produce.

Josh: She has to produce. But no, I mean, and so I gave you that story just because I think it illustrates the point I'm making: You've got to take a position and then hold that position.

Pete: That's awesome. I heard you say that if you were just getting started, you would try to get into a home as soon as possible.

Josh: Yeah. That's what my wife and I did when we first moved up here. We had to rent for, I think, six or eight months, and then we bought a house as fast as we could—we got into the market quickly.

Pete: Yeah. That's awesome. That was pretty much all my questions, Josh.

Josh: Well, you're an easy man. Thank you.

Josh: Well, I have a few questions for you.

Pete: Okay. Alright.

Josh: So, when it comes to financing, I mean, how do our customers and potential clients prepare themselves for getting funding? What are some tips that you would give to them in terms of what to watch out for?

Pete: Yeah, it's a good question. So many times, I get potential homeowners who come to me and say, I'm not ready to apply yet. I want to do this, this, and this before I come to you and talk to you. And I always tell them, Hey, actually, let's flip that around. Let me help you do that. Let me help you. So, my take on that would be to talk to your lender as soon as possible. Like if you want to get in the real. And buy your first home, even if it's two years down the road, talk to your mortgage guy as soon as possible because they're going to tell you everything you need to know about credit, where your credit is. A lot of people don't realize that the credit score, you don't have to have like perfect credit. And many people think they need to pay down their stuff before buying a house. And it's not true either. I mean, so talking to a lender that they can get advice from, and it's free. It's like you're not paying the lender until the loan closes, but the lenders are there to help you.

Josh: Yeah, they're kind of counseling you. Right?

Pete: Yeah. Absolutely.

Josh: I'm so glad you brought that up because this is something we talk to our agents about a lot is, because we tend to get connected with our clients six to 12 months in advance. It's way earlier now than it ever was before. I mean, 20-something years ago, I mean, we were talking to. When they were a sign call, they wanted to look at the house to buy it. Now we're catching them six, 12 months before, and now you have this opportunity to build a relationship. Then, make some recommendations, as you just said. And I call it shuffling the deck. It's like if you talk to the lender, they might have you kind of reshuffle some of the things you're doing with your finances so that your credit score goes up and what you pay for the rate goes down. By the time you go to shop, you can either buy a better home or buy the same house, but at a lower cost. Who doesn't want that, right? And so, I think the consulting piece is huge. So, I'm super glad you brought that up.

Pete: The other side of that is self-employed. Self-employed families that own a business. Haircutters or hairdressers. You know, there are so many small businesses.

Josh: Sure.

Pete: Redding has a lot of small businesses. A lot.

Josh: Oh, I'm so happy about that too. That's what I love about our community, but they have to figure out their mortgage because of that.

Pete: Yeah, there are many things that you can do as a self-employed borrower because most self-employed borrowers don't want to pay. They want to, including myself and everyone. We all don't want to spend a lot of taxes on the government it makes sense. That's why we're self-employed. But at the same time, Fannie Mae and Freddie Mac only use the net income after the expenses.

Josh: That's right.

Pete: And I get that. And so, for self-employed people, the earlier, the better—even more so for a W2 employee. If it's four years down the road, you're just starting a business, so let's begin strategizing right now. There are things that self-employed borrowers cannot do to pay taxes and get income, like depreciation, business, etc. There are many things that they can use for both sides and get a win-win.

Josh: Yeah. No, I agree. I think that's super wise. It's not that I don't like to pay taxes, and I'm certainly confident I'm paying my unfair share, but I consider it a privilege, and it's probably the cost of rent to live in a great country.

Pete: Absolutely.

Josh: You know what I mean? But on the flip side, I don't want to pay for everybody's taxes.

Josh: So let's get that advice in advance.

Pete: Definitely.

Josh: Good call.

Pete: Cool. Well, thanks a lot, Josh.

Josh: Thank you, too, man.

Pete: I appreciate it, man.

Josh: I appreciate it too.

Pete: You've been awesome. It's a super good time.

Josh: Lots of fun. Thank you.