Overcoming Redding California Inventory Crunch

Transcription

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Wayne: It's always about supply and demand. So, normally, when you have high interest rates, it cuts off the demand. But what's happened is you've also had an incredible decrease in supply.

Pete: Yeah.

Wayne: And the future for Redding is pretty awesome when you look at employment, and it's pretty awesome if you own real estate. But you need to get in the game if you're a buyer.

Pete: Yeah. Wayne.

Wayne: Yes.

Pete: Thanks for coming in.

Wayne: Thanks for having me.

Pete: Yeah. I have had this podcast for a while, and of course, you've seen the room. I wanted you to come on and talk about the market, so first, I thought we would just introduce you. I've known you for a long time.

Wayne: Almost 15 years, at least.

Pete: 15 years, yeah.

Wayne: At least. I remember.

Pete: Yeah, we've become really good friends.

Wayne: Absolutely.

Pete: We've been working together for a long time.

Wayne: Yeah. You are my loan guy. Yeah.

Pete: Well, I appreciate that. I enjoy our friendship, and I enjoy you and Freddie and...

Wayne: Absolutely. It's the same goes for us. And what's great is we're able to do business together.

Pete: Yeah.

Wayne: I totally trust you. You have the inside track. You're a sharp guy. For all of you out there, Pete's the guy. I mean, we've been doing a lot of deals. You do all our personal stuff besides all our clients whenever we can get to you.

Pete: Thank you.

Wayne: Yeah. It's great to work with such a great professional and sharp person.

Pete: Thank you, Wayne.

Wayne: So let's just jump into this, right?

Pete: Yeah, yeah. So, really quickly, I wanted to say that you're a broker.

Wayne: Yes.

Pete: You're a real estate broker. How long have you been in Redding as a broker?

Wayne: Well, we started the brokerage around '98, I believe.

Pete: Okay.

Wayne: Denise, our daughter, started up here in Redding. We were real estate agents for many years. Around 2013, we bought the Windermere real estate franchise. We've been at Windermere ever since, which is a phenomenal company to work for and with. So, yeah.

Pete: Yeah, that's awesome. No, I appreciate that little background. I know you guys have been in the real estate community for a very long time. And you used to do mortgages, too.

Wayne: Yeah, I did—mortgages at one time.

Pete: Yeah.

Wayne: But it's not my thing. I'm not geared for that. I need to be out running around looking at property and helping people.

Pete: Yeah.

Wayne: Yeah, yeah.

Pete: Today's topic is basically just giving an overview of the market. It's 2023. We're halfway through December 2023. Interest rates have been climbing.

Wayne: What a year.

Pete: What a year. Yeah. And I know you'd say, top, you keep up on what's happening with the market and home values. And I have a lot of questions here just on the market. I would love to do this more often just to get our listeners an update on the current market.

Wayne: We can do a monthly real estate report. We publish once a month. We run a number of stats. What's going on in the marketplace? We do a sales trend report. We work with an appraiser locally, which breaks down the market. So it's like inside information. If you'd like the printable monthly sales trend report, we can definitely send it to you. All we need is an email.

Pete: Yeah. And it's local, right? It's local.

Wayne: It's all local information. Although we do a little bit of a national overview at times, we really focus on what's going on here because Redding is a very specific market. It's very different from the rest of California in many ways, and it's very different from a lot of other places around the nation. So, we really try to focus on the greater Redding area.

Pete: Yeah, yeah.

Wayne: Yeah.

Pete: I love that. So, my first question here for you is, can you give us a brief overview of the current state of our local real estate market?

Wayne: Okay, well, that's a big question. So, let's just talk. Let's go into a year-to-date. So, there have been 2430 transactions. We're about 13% less than a year ago.

Pete: Okay. And what does that mean? There were 2430 transactions. Is that the total number of sales?

Wayne: According to our sales, that was the total number of residential transactions. And those are just residential home sales. We're not taking everything into account.

Pete: So what about that on a monthly basis? Total: that's 200 divided by 12.

Wayne: You're a math guy.

Pete: I'm not really a math guy, but about 200 on average.

Wayne: Yeah, about 200 sales a month. Of course, it changes. It's seasonal, so it's going to change. Depending on January, February can be slow. And then actually, August can actually be slow because everybody's traveling. Kids are back in school. Grandparents aren't doing their thing. But overall, yeah, 200 a month.

Pete: And you're saying we're down about 13%...

Wayne: Correct.

Pete: From the previous year?

Wayne: From the previous year.

Pete: So last year, we had more number of sales.

Wayne: Correct. 30% more.

Pete: Got a slowdown. Right. Yeah. Okay.

Wayne: Yeah.

Pete: And so what does that actually mean? When the number of transactions slows down, what does that really mean?

Wayne: Well, it just means that interest rates have actually gone up, and we're fighting. We had a lot of appreciation. I think it was 2021 when we had 19% appreciation.

Pete: Yeah.

Wayne: It was just insane.

Pete: Yeah.

Wayne: I mean, to see that in a year, when you take a look at a 50-year chart, to have 19% appreciation is just unheard of. It's normally not what happens. So we had this steep, growth in equity, which is fantastic, if you were in the market and you had low rates and what... Back then the rates were 3% roughly, right around there.

Pete: Yeah, yeah. High 2s or 3s. Yeah.

Wayne: And so we had the lack of inventory, we had this almost like free money, which was amazing. Never seen it. The only time you see it is when the economy is really messed up, right?

Pete: Yeah. It's true.

Wayne: That's the truth.

Pete: Yeah, yeah. Yeah, that's true.

Wayne: Usually, you're looking at interest rates somewhere. In a healthy economy, they will be around 5% to 7%.

Pete: Yeah. Where they're at right now.

Wayne: People don't want to hear that.

Pete: Where they're at right now.

Wayne: But that is the truth, right?

Pete: Yeah, it is. You're right.

Wayne: Right. If you look at a chart over a 50-year period, the average rate was 8%.

Pete: Yeah. Yeah, absolutely.

Wayne: It makes the economy work, but when they have all these economic policies, they're trying to balance, and they really.

Pete: Manipulate.

Wayne: Manipulate the markets to try to stave off recession or depression. Crazy things happen. Right?

Pete: Yeah. Totally.

Wayne: It affects housing sales.

Pete: Yeah, yeah.

Wayne: The other thing that I want to say is that we're about 20% off on new listings from year to date. This is a year to date. So there are 3000 new listings year to date, and we're down 20%.

Pete: What does that mean?

Wayne: That means there are 20% less houses on the market.

Pete: On the market. Wow.

Wayne: And there are a couple of different ways to think about it, too. When we had those 3% interest rates and 19% appreciation, a lot of magic happened. So a lot of people refinanced, and their mortgage payments dropped in half, or a third, or quarter, which was really a big deal. But what happens is you have all these houses that won't come on the market.

Pete: Because they have lower rates.

Wayne: They have lower rates, and they aren't going to trade them out. I mean, people are going to. Life goes on, and people do move, but it decreases the volume.

Pete: So, to break this down, what you're saying is I have a house, and I refinanced, and I got a 3%. Let's say I owe $400,000 on this house, and I refinanced it. I saved maybe $500 a month, and now I'm paying, let's say, 3%. I have another newborn baby, and I need to upgrade. However, the problem is that I'm sitting on this 3%.

Wayne: Correct.

Pete: And if I want to buy another house, I must upgrade and get a bigger home.

Wayne: Bigger house.

Pete: A four-bedroom instead of a three-bedroom is the best option.

Wayne: Correct.

Pete: I need to do this. But I don't because the rate ranges from 3 to 7 or 3 to 6. The payment is a lot higher, so it doesn't make sense for these sellers. And this is what you're saying. 20% fewer homes were listed for sale this year. And this is why.

Wayne: This is why. A couple of other factors are kind of flowing into this. So, we need to back up to the Carr Fire. We lost 800 houses, and out of those 800 houses that burned, there's only been about 25%, roughly.

Pete: Interesting. Yeah.

Wayne: That has been rebuilt. So 800, what does that leave you?

Pete: 25%

Wayne: Probably.

Pete: 650, maybe, yeah.

Wayne: Yeah. But think about all those houses that are not coming on the market. There's no inventory there, or will there ever be, except for whoever rebuilt and wanna move now or has to move.

Pete: So, we really got an inventory crunch for the Carr Fire?

Wayne: From the Carr Fire.

Pete: Yeah. That was 2018.

Wayne: Right. Now, also think about the Paradise Fire. So, Paradise dislodged a lot of people. At the time the Paradise Fire happened, Chico sold out immediately. I had a friend who made over $100,000 in a week.

Pete: Wow.

Wayne: Because there was no inventory. And just boom. Well, a lot of those people moved into our market.

Pete: They came to Redding.

Wayne: They came to Redding because they liked more of the rural life and didn't want to go anywhere else. That created a surge in new buyers.

Pete: New buyers. Yeah. And it took the inventory.

Wayne: And it took the inventory out again.

Pete: Yeah.

Wayne: So there are a lot of different factors going on here.

Pete: Yeah. It makes sense. Yeah, it makes sense.

Wayne: Yeah. So, I would like to talk about your average sales price. Now, a lot of people are expecting homes to roll back, and I have news for you: That's not going to happen.

Wayne: We've had a little bit of a rollback in pricing, absolutely. But now think about it. We don't have a lot of inventory. Now, rates are going to move down. So what's going to happen, Pete? We're not going to have inventory, and rates are going to move down. What's going to happen?

Pete: A lot more people will be able to afford the payment.

Wayne: Correct.

Pete: More people can afford the payment at a lower interest rate.

Wayne: What is the law of supply and demand? If you don't have inventory and you have more buyers in the market. What's going to happen to sales prices?

Pete: Sales prices will have to go up because it'll increase the inventory demand.

Wayne: Correct.

Pete: More demand. Yeah.

Wayne: Correct.

Pete: Yeah.

Wayne: So one of the things that we're constantly talking with buyers about is getting in the market. Really take a look at your career, see if you can get raises, pay down your bills, work with you, and work on the credit. We have many people say, "Oh, I'm gonna pay everything off." I cautioned my client about that without talking to Pete. Because that's not always the best move. You really need to work with Pete because he knows the magic formulas that drive credit scores up. Make you a better borrower.

Pete: Absolutely.

Wayne: It helps with your interest rate, down payment, etc. Yeah.

Pete: Yeah. It's a great point. A lot of buyers right now don't believe what you're saying. They didn't believe prices were going to go up. And I don't know why this is because if you look at every year, all the way back. I was looking at news articles back in 1980. And there's... If you want to find doom and gloom about the real estate market, you can find it.

Wayne: But it's in short blips.

Pete: And every single year, they say something's kind of crashed.

Wayne: Oh, yeah. Yeah.

Pete: You know what I mean? So, we go back to 1942. Guess how many years out of 1942 out of the last 81 years, how many years did real estate decline out of 81 years?

Wayne: I would say it is probably maybe six or eight times.

Pete: Very close seven. Seven years.

Wayne: Seven. Yeah.

Pete: Two of those years were 1990 and 1991. In 1990, real estate went down 1%, and '91 was 0.1%. It's not a decline.

Wayne: Not a decline. It's just a whole.

Pete: It's more of a breakeven. But the five other years were from 2007, the great recession.

Wayne: Great recession. Yeah. And that was Wall Street's mess they made, which we all paid for. But think about this: that was an incredible time to invest.

Pete: Oh!

Wayne: Oh! Insane amount of money made by people who were ready, willing, and able and had some courage and foresight to see, hey, I can go in. I'm buying something at 50%. It's asset value. And I can make it work, turn it into a rental, and they picked up a couple of 100,000 of equity.

Pete: Yeah.

Wayne: I mean, that's the reality. That's the power of real estate. Now, is that going to happen today? Not. You are not going to see a rollback like that. Period. It is not happening. And yeah, you have a lot of people on the internet who are "all these experts," but they don't know what they're talking about.

Pete: The only way that I could see something, you know, the market somehow even staying close to the same with inventory. The only way I see inventory going up, and I don't even think it's in Redding, but the only way I see this is second homes and investment properties. If people need to sell their second home or their investment properties, there are a lot of second homes out there.

Wayne: Okay.

Pete: And that's the only way I see it. I don't see it happening in Redding, though, because we are a destination location like there's...

Wayne: People don't really understand what's happening in this county or greater Redding area.

Pete: Yeah.

Wayne: So the airport and industrial park are expanding.

Pete: Wow.

Wayne: Now, they've talked about anywhere from 1500 to 2000 jobs being created, manufacturing jobs that tend to bring a lot of money into the community versus the IT new jobs that are created.

Pete: So you get to the airport?

Wayne: So you have the airport and the industrial park.

Pete: Industrial park.

Wayne: Okay.

Pete: Where will the industrial park go in?

Wayne: The industrial park's out by the airport.

Pete: Oh, oh. Okay. Sorry.

Wayne: All right. It's only been 30 years. They've been trying to make this thing work. Well, they finally have gotten it to work. It looks like things are moving along out there. So anticipate that all these jobs that are no longer here are going to be created. You have Bethel, the school, now they're going to increase their student population by another 1500 people. Well, how many teachers? How many support people? All these people that need to be. Have jobs and go in there.

Pete: Yeah.

Wayne: You have the wind to Indian. They're in the process of building a hospital that will employ about 200 people there.

Pete: Wow.

Wayne: Let's see what else is going on. Dignity Health. They have something going on down on the river. Eventually, they'll get that up and running. And so I look at that, and I go, where's all the inventory coming from? Who's going to supply that? If your average sales price is high, let's talk about the average sales price. I got it here. So, the average sales price for November was 440,000.

Pete: 440,000 for November?

Wayne: For November. And so a year ago, it was 410,000.

Pete: Wow.

Wayne: No. Yeah.

Pete: 410,000, which went up—average sales price.

Wayne: Yeah. So, I mean, it's not rolling back. It's hovering around because it's always that supply and demand. Normally, when you have high-interest rates, it cuts off the demand. But what's happened is you've also experienced an incredible decrease in supply. And the future for Redding is pretty awesome when you look at employment, especially if you own real estate. But you need to get in the game if you're a buyer.

Pete: Yeah. I agree.

Wayne: And let's ride this wave.

Pete: I agree.

Wayne: Yeah. Right?

Pete: Absolutely. A 100%. I agree. Yeah.

Wayne: Absolutely. It's like, I should have been smarter and bought every piece of real estate. That would fund itself as an investment.

Pete: Yeah.

Wayne: You know?

Pete: Yeah.

Wayne: I'd be a multi-gazillionaire all my life.

Pete: Yeah. The challenge that I see right now with buyers getting in is affordability. Right? The average rent is roughly the same in Redding. What would you say is the average rent that people are paying right now in Redding?

Wayne: Oh gosh, It's close to 2000?

Pete: I don't know the number.

Wayne: I don't really follow it, but it's up there. It's gone way up.

Pete: Let's, I would say, let's say conservative 1500 bucks.

Wayne: 1500 bucks.

Pete: Yeah.

Wayne: Okay. Let's go with that.

Pete: So, if someone wants to buy a home, what would you say the entry-level home price would be?

Wayne: Oh, if you could find one. We're just closing on a client, and we worked really hard to get up a three-two-up off Lake Boulevard in a nice little neighborhood for right around 300,000. But we had to fight for it. It took us a month and a half.

Pete: Find a good one.

Wayne: Find a good one.

Pete: And they're out there.

Wayne: Oh, yeah. They're out there.

Pete: Yeah. They're out there.

Wayne: But you need to be pre-qualified. You need to really have your finances together and have a great realtor working with you who understands what the lender needs in order for you to get that house.

Pete: Yeah.

Wayne: I see a lot of new realtors, and I'm not necessarily throwing stones. But the problem is that they don't work with a lender close enough, and they write a deal and then write out the lender.

Pete: Yeah.

Wayne: They don't get the conditions and terms they need to help the lender put the package together, get the house, and close it, and they're not renegotiating everything as they go along.

Pete: It's so important to have a good partnership between the lenders. There are so many things. There are so many times when I have agents that I don't necessarily know, and they didn't contact me on the contract, and I have to go back to them and kind of restructure the deal for that customer. But, no, that's a great point. So $300,000, you would say, is entry-level?

Wayne: Yeah, I would say that that's kind of entry. I mean, you can get a little bit less than that, but for a three and two, it's around... It's right in there.

Pete: So let's say $300,000 for entry. Do you know what the payment is for a first-time home buyer for $300,000, roughly?

Wayne: Tell me.

Pete: Around $2600 with today's rate. 2500 to 2600. But with today's interest rates, there is no money down. And, you know, coming in.

Wayne: We're getting 3% closing costs.

Pete: Closing cost credit. Yeah.

Wayne: Right. Got it.

Pete: So let's say your average renter is paying $1500. Mortgage is 2500. Right?

Wayne: Right.

Pete: So why is someone going from 1500 to 2500?

Wayne: Oh my God, there are many great reasons.

Pete: Absolutely. Yeah. I wanted to touch on this point: First-time home buyers are not educated enough to understand these differences. To them, it's just, "Hey, I'm paying an extra $1000. Why am I doing this?"

Wayne: Right.

Pete: You know, and there are many reasons. But to get to my ultimate point, that gap is going to close. So when interest rates do come down, which they did today, did you see what happened today?

Wayne: Tell me.

Pete: Well, the Feds met, and they kept interest rates the same, but the 30-year fixed mortgage came down, and it would.

Wayne: How much?

Pete: I would say it came down about 0.1 to 0.2, right in there. The market was up 70 basis points.

Wayne: So, in layman's terms, what is that? Like seven and... Or whatever.

Pete: You know, according to Freddie Mac, last week's rates were 7.06 on average. So, it's probably going to dip down to 6.8 or 6.9 next week.

Wayne: Yeah.

Pete: Yeah, seven and eight. Roughly next week, it'd probably be back in the sixes, according to Freddie Mac. So, interest rates improved. My point is that $1000 every month, you know, and here's the interesting part: the first-time home buyer market is 50% of the market right now.

Wayne: Okay.

Pete: And when you remove cash buyers and investors, if you remove cash buyers and investors, the first-time home buyers. So what I'm getting at is there are first-time home buyers who are buying real estate right now, and there are a lot of them. The reason is that they're at this age when they are tired of renting and want to get into it. So, there are buyers who are buying for the first time. What I'm getting at is there's still a lot more behind them that have not been bought yet. So that gap of $1000 is going to go down to $500, let's say, with lower rates.

Wayne: And guess who's moving into the market and going to compete?

Pete: More people are coming in. And what will that do? It will drive that $300,000 home up to, who knows, but that's what.

Wayne: Who knows? It's going to. Yeah. Nobody ever truly knows what's going to happen, but the odds are, it's going to appreciate. It's just supply and demand. It's a thing.

Pete: Yeah. Yeah. So I have some.

Wayne: It's a beautiful thing when you're in the market. And what's so amazing is. I was in your conference room before we started this podcast. And I'm flipping through. You have a book in there about all the different loan programs, and there are tons of them for first-time home buyers.

Pete: Correct. Yeah.

Wayne: I mean, it's amazing. I mean, I've been in the business. I'm a third-generation real estate, construction, finance, and development. I've been around the block. I've seen a lot of stuff. There was no point in the real estate history where there have been more loan programs to tailor to buyers.

Pete: Oh. I 100% agree with that.

Wayne: I mean, it's just incredible.

Pete: I 100% agree with that.

Wayne: Even if you can't afford it, you still need to meet with Pete.

Pete: Yeah.

Wayne: And the reason being, and I've seen this over and over and over again, people go, "Oh, I can't afford to buy. It's just out of reach for me." But you know what? If you work with Pete and you work with me, we can get you into a game plan. And usually, believe it or not, a lot of times, it just takes a year to get it all figured out. Get your credit. Figure out what you need to do and what you need to pay off—all these things. So you can go out and start writing offers and get in the game. And then your finances, your home finances, your work finances, everything works together for you. Then you start getting that appreciation, and you start getting the tax write-offs. You get all the benefits of it. That property is for a lot of people. Your first property should be your next rental. One of the things that we have to really work with first-time home buyers is getting your head around. You're probably living in not that great of a place, and you wanna step up into, "Oh, I want my first house to be better." Well, why not just have your first house equal what you're renting and then turn that into a rental later on? That's your entry point.

Pete: Absolutely. I couldn't have said it better myself—a lot of buyers. I educate them on this, you know. A large part of our audience is first-time home buyers. So that's my goal. And so, being a first-time home buyer, it's hard to understand just the whole process of that first house. But I do help them with that next house and the next house.

Wayne: Oh yeah.

Pete: The trick is to keep the house you buy and turn that into a rental and go to the next one. Each time you buy that next house, it gets easier and easier and easier.

Wayne: Absolutely.

Pete: The reason is that when you go to that next house, the income I use for that next house can be the rental income you're getting now—the new rental income plus your regular income. So, your debt ratio is not going higher.

Wayne: Right.

Pete: And debt ratio? Your expenses are not increasing because you're buying a second house, but you're using rental income to help you qualify for that next house. So I help my first-time buyers get to that second home, that third home.

Wayne: Yeah. And we've seen it over and over and over again. We've been in this business a long time.

Pete: Yeah.

Wayne: You've been in the business for 20-odd years.

Pete: Two decades.

Wayne: Two decades.

Pete: Yeah.

Wayne: Yeah. I've been in almost four decades.

Pete: I was watching a YouTube video. This is off track, but I was watching, and he said, "Hey, when you say how long you've been in the business, don't say 20 years, say two decades. It sounds better." So, did it sound better?

Wayne: Yeah. It sounded better. I've got four decades.

Pete: See? Yeah. Four decades. It's like, yeah. And I don't know how I feel about that because everyone knows I've been around for at least two decades.

Wayne: Yeah. But the thing about it is that what's good about it is you're dealing with someone who has a lot of experience. Has seen a lot of really good things and a lot of hard hardship, too.

Pete: Yeah.

Wayne: We've seen that. We've seen the dark side of real estate. Our job is to help you through that. One of the things that I really believe, and what we really have in common, is when we're working with buyers or sellers, we're talking about, we focus on the education part of the business. This is a business. And so we want to educate our buyers and our sellers.

Pete: 100$.

Wayne: And show them the opportunities and the downsides because there can always be a downside.

Pete: Correct.

Wayne: Things happen. Bad things happen to good people. You know, the economy, who knows. They're always screwing around with it. So, you can still have a great foundation to build on and build a future, but you have to get in the game. And the game is knowledge.

Pete: Wow.

Wayne: The game is building a team.

Pete: Yeah. Having a team of knowledge. Yeah.

Wayne: You have to have a team of knowledge.

Pete: Four decades and two, six decades.

Wayne: Six decades. You tag my wife on like we're a hundred years old.

Pete: Yeah. A hundred years. Yeah. That's amazing.

Wayne: Yeah. But it's true. People want to get ahead, and I'm an A-type personality, so I want to get ahead really fast. But at the same time, you have to slow down a bit and let it work.

Pete: Downshift.

Wayne: You got a downshift. Yep. Get in the game and let real estate work for you.

Pete: Yeah.

Wayne: Get into something, focus on your career...

Pete: I love that.

Wayne: Make sure it's stable. Build it. Build equity in what you're doing while building equity in your home. Turn that home into a rental. Get to a place where if you're building a family, say you're having kids, and they're turning into teenagers. And you just absolutely want them on the other side of the house. Well, you'll have equity and income to do that in the next tier.

Pete: Yeah. I love that. Love that. Yeah. A 100%. Yeah.

Wayne: And it is taking that long view and being patient. Many times I wish I were more patient and I was screwing around doing real estate deals all the time, blah, blah, blah, blah, blah. You know, flip, flip, flip. You know, I could have just bought a few properties in a timely manner and just sat on them.

Pete: Yeah.

Wayne: And it would've come out just as well.

Pete: So what I hear you say is that it is not necessarily a race. Don't race to, like, get a bunch of real estate, but slow it down and patience.

Wayne: Patience. And understand the game you're playing. You want knowledge and skill to stack the deck.

Pete: I love that.

Wayne: Right?

Pete: Yeah.

Wayne: Well, you know, you could read books all you want, but you need to go to the experts.

Pete: Yeah.

Wayne: Whether it's Pete or me or somebody else. Any other realtor or any other lender. You need to be with people who have smarts and experience.

Pete: Yeah.

Wayne: And the integrity to tell you the truth. Right?

Pete: 100%. Yeah, 100%

Wayne: So, for instance, let's talk about that. Say, I'm working with a buyer. I think it's really important that no matter which realtor you're working with, the realtor is working closely with the lender. But the realtor also needs to be looking at that property as they're opening the door and doing an inventory on some of the things they're gonna have to negotiate on behalf of you, the buyer.

Pete: That buyer, that buyer. Yeah.

Wayne: And also on behalf of the lender, because you don't want to negotiate on a house that has many problems and can't work through the repairs. Right.

Pete: Yeah. Another good reason to have a lender, you know, to help you with that quickly. Yeah.

Wayne: Absolutely. Absolutely. There are different programs depending on your credit score and your loan value. All these terms are what you'll get introduced to when you work with Pete. It all makes sense, but you need to work with professionals who have your best interest at heart. For instance, when I'm working with a client, I say, "I don't care what you buy, as long as you're aware of what you're buying and it works for you, and we're going to take it out after your purchase, 2, 3, 4, 5 years of maintenance, what does that look like? Can you afford it? You know, what's your game plan? Do you have relatives who can do roofs? What about the pest work? Can we let that slide, or do we need to take care of it? Oh, yeah. You want new carpet, but maybe you need something else."

Pete: Yeah.

Wayne: And so we need to work through that. And I think it's super important. Again, get with a good professional.

Pete: Love it. Love it.

Wayne: Yeah.

Pete: I have a couple more questions for you.

Wayne: Sorry, we don't have.

Pete: No, no, no. That's all right. This is good info, and I'm sure our listeners will get a lot out of what you just were going over. It's awesome information. I am getting a lot out of it too. I'm like, "Man, I need teams in other areas. Experts."

Wayne: Absolutely.

Pete: Yeah. Okay. I want to talk about insurance.

Wayne: Oh my God.

Pete: It was kind of a topic, you know, it's when we're talking about the market and updates, and we have a. Do you want just to explain the insurance situation that we have in Shasta County?

Wayne: Yeah. Because we deal with it day in and day out.

Pete: Yeah.

Wayne: And fire insurance.

Pete: Yeah.

Wayne: Up until the Carr Fire, it was not an issue.

Pete: Yeah.

Wayne: You know, an average house would be possibly anywhere from 500 to 1000 bucks.

Pete: Yeah.

Wayne: Now, we had an insurance policy on our house, which was about 650. Now we're paying 900.

Pete: Wow.

Wayne: It's a small house in town.

Pete: That seems pretty low still.

Wayne: Yeah. It seems pretty low. Yeah. We start hearing all this other stuff. Yeah. But the reality is when the Carr Fire hit, the Paradise Fires hit, we've had these big, massive fires. And the insurance companies have said, "Hey, we're pulling out." And so the only insurance companies that have stayed are jacking their prices up because it's so risky now.

Pete: And there are companies that have gotten out, so.

Wayne: Absolutely.

Pete: As far as I know.

Wayne: Yeah. I don't really wanna get into naming them. But a lot of the big, the big ones.

Pete: Companies, yeah.

Wayne: Yeah. Are not writing insurance policies. And, but we do work with brokers...

Pete: That will help.

Wayne: That will help. And they'll find.

Pete: Yeah. Which is another point that I wanted to make is for any buyer that's looking to buy, it's important to know the location of where you're buying. If you want a couple of acres, it's going to be a higher cost for the insurance, maybe because it's out in the outskirts.

Wayne: Yeah. Well, let me elaborate on that. So, if you're in the county, we just closed a deal. It was 2400 square feet on some acreage. Custom home, but not.

Pete: In the county?

Wayne: It was probably 30, 35 years old in the county.

Pete: Okay.

Wayne: And so we put it in escrow. And so they went out, the buyer went out to get insurance, and their quote was $15,000 yearly.

Pete: 15,000?

Wayne: 15,000.

Pete: Wow. How much was the house?

Wayne: The house was around 700,000.

Pete: 700,000. 15,000. Wow.

Wayne: Yeah. But I've had one for 520,000 roughly, on the other side of the valley up on the hill up towards Montgomery Creek. Custom home. 3800 square feet, probably 15 years old, 20 years old. That was 15,000. But I want to explain a little bit about that because every buyer was going out and purchasing is not all created equal. The reason being, the way it's been explained to me is if you've had claims before, that can greatly affect your insurance on the home you're purchasing.

Pete: As a homeowner, if I had claims on a previous house that I owned.

Wayne: Oh, yeah.

Pete: And then I want to buy this new house.

Wayne: Or you have poor credit or the combination, there's a lot of different combinations.

Pete: It's going to affect my cost of insurance.

Wayne: Yeah. So the next buyer came along, we sold the house, and their insurance policy was 7500. They didn't have any previous claims.

Pete: Instead of 15,000?

Wayne: Instead of 15,000.

Pete: Oh, oh, I see. Interesting.

Wayne: So it's not a bargain, but there's a vast difference.

Pete: It's still a lot.

Wayne: Yeah. It's still a lot. And there's the California Fair plan. So there are ways to negotiate it. You want to get with a broker, you know? Get a referral from us.

Pete: Yeah, help. Yep. Absolutely.

Wayne: And we can send you in a lot of different directions.

Pete: Do you think it'll ever change? Do you think it'll ever return to where we were pre-Carr Fire?

Wayne: No way.

Pete: No?

Wayne: No.

Pete: You don't think so?

Wayne: No, absolutely not.

Pete: Yeah.

Wayne: No. It will not. I mean, it might tone down. And unless the big insurance companies come back in.

Pete: Bring the competition down.

Wayne: Bring the competition down. There's a certain level of safety, but when you think about the baby boomers, you know, the years previous, everybody wanted to live out in the woods on acreage. And insurance was not a factor.

Pete: Yeah.

Wayne: It wasn't a big factor. And, now, it is a big factor. And there are many houses there, and they're unwilling to take the risk without taking a reward.

Pete: So a buyer looking to purchase gets a better deal on their insurance if they're closer to a more urban area instead of a rural area?

Wayne: Yeah, you need to be in an area with a full-time fire department. There are special zones and that, so what we do when a buyer's going out, you know, we have a heart-to-heart talk about them.

Pete: Insurance.

Wayne: About insurance. Because it's going to play into the financing part of it, your affordability dramatically, right?

Pete: Yeah.

Wayne: Right.

Pete: Absolutely. 100%, yeah.

Wayne: So we have a real heart-to-heart. And then, as we're searching, we're saying, "Okay, give that address to your insurance company. See what they come up with."

Pete: Yeah. Nice. Yeah. Before they're even. Yeah. Yeah.

Wayne: If we can, I mean, sometimes you can't do that. You need to write an offer because there's strict competition, but we work through it. So if you're out in the County, it's a big crap shoot. We did one up in Shingletown. We thought the insurance would be through the roof and ended up only being 2000 because it was just down the street from a full-time fire department and fire hydrants around it.

Pete: Yeah. Nice.

Wayne: But it was out in the middle.

Pete: Yeah, it was rural.

Wayne: It was rural.

Pete: It was super rural.

Wayne: Yeah. And it was wood and all that, but it qualified, and everything was great. But then you go down the street a little bit farther, which would have been insane.

Pete: Yeah.

Wayne: So we just need to be careful. Whoever you're working with, you just really need to have a good team. You need. Now, you need a good insurance partner.

Pete: Insurance, yeah.

Wayne: Yeah. The mortgage guy and the realtor.

Pete: Yeah.

Wayne: Right?

Pete: Yeah. Yeah, I would add, depending on your income and what you got going, CPA, good CPA in your corner.

Wayne: Good CPA, yeah.

Pete: Got a trusted person to set up your trust. I would also add a financial advisor and financial planner for your assets.

Wayne: Right. Diversify it a little bit here and there.

Pete: Yeah. That's why it's important to have these professionals around.

Wayne: Absolutely. And 20 years ago, there wasn't much access or knowledge for the average person to go, "Hey, I need to put a team together, blah, blah, blah," and all that, but you need to do it now. And it's easy to do. There are a lot of great people with whom you can build your team.

Pete: Nice. That's awesome.

Wayne: Yeah.

Pete: I have a couple more questions for you.

Wayne: Okay, okay.

Pete: So, next question. This is kind of going to tie it all. What are your best guesses for 2024 with interest rates and home values?

Wayne: Well, you're the interest rate guy more than I am. I would say that they'll probably start coming down slowly, potentially.

Pete: I agree. I agree.

Wayne: You agree with that?

Pete: Yeah.

Wayne: Okay. As that happens, I think that. We're going to see some more inventory come on. I think a lot of people have held off for a number of reasons, but you also have to think about it. For example, in my generation, the baby boomers, a lot of people need to move for many different reasons. And we're starting to see that happen. They're reaching their retirement, where they want to downsize. If they have big mortgages, that doesn't work so well. They're hanging on to their property unless they get sick or need to be with their grandkids; financially, they can make those moves. But real estate will ebb up slightly before it takes off.

Pete: Yeah.

Wayne: But we don't know. Nobody's got a crystal ball. I've been through eight, maybe nine, recessions in my career. So this is pretty lightweight, believe it or not. It's a little weird to see a 19% increase in pricing and then have it roll back 8%, but it didn't roll back 25%. I mean, you're still way ahead. And that's one of the reasons I've heard many people on the internet or whatever write about, "Oh, there's gonna be this big foreclosure volume." No way. People still have equity unless you buy in the last year.

Pete: This has happened in the past. So, I looked at the years on the market Case-Shiller. They have tracked home price appreciation since 1941. And there's 1946 to 1950. I have to look at it again, but I'm just going off my memory. There was about 120% appreciation between those five years. 120 is a lot. So one of those years was close to 19%.

Wayne: Right.

Pete: So 1951, that person that wanted to buy, they're like, "Oh, man, the last five years, real estate's gone up this much. I'm going to wait." And this is a person that qualifies. I'm getting the person who qualifies and can afford the payment of $300,000. I'm going to wait for home prices to come back down. Do you know how long they would have had to wait? Like 46 years. They had to wait 46 years for the price to come down 0.1%.

Wayne: I know.

Pete: Yeah.

Wayne: I know. We see this a lot.

Pete: Yes. So, to put it in perspective, obviously, like what you're saying, anything can happen. I mean, there could be a black swan. The market could go down, but with the numbers and the supply and demand factor, we need a lot more inventory.

Wayne: Right. Right. And especially in Redding.

Pete: We need a lot more.

Wayne: Based on what we talked about previously, the future bodes very well for the Redding area. We were having that conversation about average income versus home prices as if we were the best in California.

Pete: Yeah.

Wayne: Yeah. I mean, think about that. Best in affordability.

Pete: Yeah. Affordability is the best in all of California. Yeah. For the average sales price and average income.

Wayne: Right.

Pete: Yeah.

Wayne: Yeah. So all you people down in those cities and you want to get out, move up here. We're ready for you.

Pete: My last question, Wayne, is whoever comes on the show. I like them to tell their story of the first time you bought a house. So tell us your story of how you bought your first home.

Wayne: Well, it's not that interesting because, again, I'm third-generation real estate construction.

Pete: Oh, okay. Yeah.

Wayne: Yeah. So I was pounding nails when I was 14, building houses. Once I got out of high school.

Pete: What year was this? I'm just kidding. You don't have to tell me.

Wayne: It was a long time ago. But so I ended up building my first house.

Pete: Oh, interesting.

Wayne: I built my first house.

Pete: As of yours.

Wayne: So my grandparents.

Pete: You built your first house.

Wayne: Yeah. My grandparents co-signed for me, and I built my first house, which I built my equity into. And then, I started accumulating real estate.

Pete: So, how did that go? So you bought the land, or how did that all workout?

Wayne: Yeah. So I don't know. A lot of you won't recognize this name, but Jackson Baker, who owned Shasta Redi-Mix, I believe was Shasta Redi-Mix, still does. He owns it. He was doing a lot of development around here. And so he'd go in, put in lots, and we would buy a lot for 7000. We'd put $2000 down, and he'd subordinate the five.

Pete: Oh, he would carry the $5000.

Wayne: Yeah, he would carry the 5000. So then we went to Savings and Loan back in the day. And we get a construction loan. And so because I had a contractor's license and was in it, I was. Because I'd been working, I had some money saved up. And so I was able to build my equity.

Pete: That's amazing. Do you work on the house yourself?

Wayne: Absolutely.

Pete: You pounded the nails and everything?

Wayne: Oh, man, I can.

Pete: Really?

Wayne: I can dig ditches. The concrete frame.

Pete: I had no idea. That's the first time I heard this story. This is cool.

Wayne: Yeah, yeah. And so that was my entry point. The other entry point was where I bought a duplex above Sacramento Street, a place behind the Holiday Inn.

Pete: This is like your second place?

Wayne: Yeah, that was my second place.

Pete: Duplex?

Wayne: Yeah.

Pete: And you moved to one side?

Wayne: Yeah, I moved into one side, and the payment was made. And then...

Pete: They call that house hacking now.

Wayne: House hacking.

Pete: Yeah.

Wayne: Okay. That's new to me.

Pete: You were house hacking back then.

Wayne: Yeah. Yeah. And so, because I was in the business, my family, especially my grandparents, said, "You're not college material, but you can be a contractor."

Pete: Wow.

Wayne: And then I had another good mentor who, right after high school, was a developer. He was a coach at UC Davis. And then, he wasn't making enough money, and he took me to the side and said, "You're not college material." Reality, you know?

Pete: Yeah.

Wayne: I didn't do well in school. But I was a hard worker and fairly street smart, whatever. He says, "Go get your real estate license and combine your real estate license with construction."

Pete: Oh, really?

Wayne: "Learn finance and marketing, and you're gonna make a ton of money."

Pete: No way.

Wayne: Yeah.

Pete: Wow.

Wayne: And that was a real turning point for me.

Pete: Wow.

Wayne: I became a contractor, and had my real estate license here locally.

Pete: And who was the guy who gave you this advice? Was he a contractor?

Wayne: No.

Pete: He was a realtor?

Wayne: No, he was a professor at UC Davis.

Pete: Oh, professor. Got it. Okay.

Wayne: But he shifted gears and started building apartments with a partner, building duplexes, and then got into big projects. He built medical buildings and massive high-end subdivisions and all that. And I was best friends with his son, Hunter.

Pete: Wow.

Wayne: He just took me to the side. He could see that. You know, he just says, "You have all the qualities to make it in this industry."

Pete: Wow.

Wayne: And so it was a turning point for me.

Pete: Yeah.

Wayne: Because I was not that into it, but I didn't have a path.

Pete: Yeah. Wow.

Wayne: That was my entry into it, but I had good mentorship.

Pete: That's awesome.

Wayne: Yeah.

Pete: Yeah.

Wayne: So, for all of you out there, if you really want to get in the game, you can.

Pete: Yeah.

Wayne: But you have to be smart about it. Get the knowledge to build your team.

Pete: Wow.

Wayne: Do the heavy lifting.

Pete: Love it.

Wayne: And you can get in, and then it gets easier and easier and easier...

Pete: Love it.

Wayne: As you go along it. Right?

Wayne: Yeah. Okay.

Wayne: I mean, you've owned a lot of real estate.

Wayne: Absolutely. Yeah.

Pete: Yeah.

Pete: I still own a fair amount.

Wayne: Yeah. Yeah.

Pete: Yeah.

Wayne: Yeah.

Pete: Yeah. Real estate's been my number one source of gaining wealth for sure.

Wayne: Yeah.

Pete: My mortgage practice has been good, but most of my equity and my wealth have been through purchasing real estate. Yeah.

Wayne: Yeah. Yeah.

Pete: For sure.

Wayne: Yeah. Well, great.

Pete: Awesome. Thank you, Wayne, for coming. I appreciate it. Thank you for telling your story there. And I hope to have more of these to help our listeners understand the market and what's happening.

Wayne: Absolutely.

Pete: Seem to have a good deal on our local Shasta County market.

Wayne: Yes.

Pete: And if anyone needs to get ahold of you, how would they get in touch?

Wayne: Reach out to me. You can reach out to me at waynemartin@windermere.com or you can just call my office.

Pete: Yeah. And I'll put that contact info.

Wayne: Yeah. Just put all the contact information, even my cell phone.

Pete: Yeah. Okay.

Wayne: Hey, if you've got questions, I'm here to help.

Pete: Cool.