First-Time Buyers: The $300k House Hack You Need

Transcription

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Pete

So Wayne, we're going to do our monthly update for the month of October with Home Values Real Estate. Yep, we got Wayne Martin here from Real Estate One, been a broker here for a long, long time, over 20 years, and knows the market. And I'm excited to dive into what we got for October.

Wayne

So October, it's interesting, closed transactions for the month was 6% lower than the month before. The average home price, sold price was down almost 2% from the last month. Average days on market is 76 days on the market, which is actually pretty quick.

Pete

Yeah, so what does that mean? Days on the market, that's basically...

Wayne

From listing to close.

Pete

As soon as a home comes on the market, the average is about 76 days before it closes or before it goes into contract?

Wayne

Before it closes.

Pete

Wow, that is pretty quick.

Wayne

So it goes pretty quick if it's... Priced right. Priced right.

And it's 3.7 months of inventory, which usually is an indicator that it would be a seller's market, but in fact, that is not the case.

Pete

Why is that?

Wayne

Well, because there's such limited inventory and with the interest rates where they're at today, there's a little bit of sticker shock from interest rates of years ago that people remember.

Pete

Yeah.

Wayne

So that's adjusted that. But if we look at the market statistics for year to date, it's kind of interesting. We're about 13% below what we were last year, but at the same time, the average year to date sold price is up almost 6%.

New listings, we're getting more new listings coming on. We're about 5% more than what we had last year, which is a good thing. And the average for the overall market has been 86 days.

Pete

Year to date for the year.

Wayne

For the year to date.

Pete

So what I heard you say, year to date, the number of homes that have sold is down about 13%.

Wayne

Correct.

Pete

Why do you think it's down 13% from last year?

Wayne

I think a lot of it had to do with the election, honestly, because a lot of us were going, who's going to be in office? A lot of uncertainty. A lot of uncertainty.

And so people are just kind of waiting and waiting. I know that just a couple of weeks ago, all of a sudden we put three in escrow, like in three weeks.

Pete

Wow. Right after the election.

Wayne

No, before the election, but they voted. And so for some reason that triggered the event of putting more people in the market. I see.

So that was great for us at least.

Pete

Yeah. Yeah. No, that's good.

Yeah. I know a lot of people have been waiting kind of on the side. We're waiting on the sidelines and now we have the election and now we have holidays.

Wayne

So it's not going to be an awesome market between now and the end of December, but homes do sell. They absolutely do sell.

Pete

Yeah. And it could be a great opportunity for buyers.

Wayne

What a great Christmas gift.

Pete

Yeah, absolutely.

Wayne

Absolutely. And you have some good news about interest rates, right?

Pete

Yeah. Today we had a really, really good day. Today, interest rates got better by about eight to almost a quarter percent.

Today's the 25th of November. And I think the big thing there was the reason why interest rates got better today was the markets for some reason liked the pick for the treasury, for the treasury secretary.

Wayne

And who is the treasury secretary?

Pete

Treasury secretary is who creates the budget for the treasury of the U.S. government. U.S. government. And Janet Yellen is currently in office and the president picks who the treasury is.

And Scott Besent is the new treasury secretary or will be the new treasury secretary. Going forward this next term, he was a hedge fund manager. I don't know much about him.

I don't either. The markets liked that pick. And so the bond market at least liked that pick because interest rates are doing better.

Wayne

Seems like overall the economy is strong. Now, we may not feel that in our groceries and gas, but overall, if you look at the statistics, the market has been really good.

Pete

The real estate market has been very, very good, like very strong, very- Yeah, strong. And, you know, with these numbers right here, yeah, the sales are down, the number of transactions, but the average sales price is up for the year.

Wayne

Right. It's a great place to put your money.

Pete

Yeah.

Wayne

Actually, you know, it was kind of funny. We were looking at this one sheet that we have and it talks about 2020 home prices. The average home price was $334,000.

Then in two years, it went from $334,000 to $428,000. Isn't that insane?

Pete

Yeah.

Wayne

And then in 2023, it dipped a little bit by about $8,000.

Pete

Yeah.

Wayne

And now it actually is higher than 2022.

Pete

Yeah, so October- Even with higher interest rates.

Wayne

So it's now 430,000 as an average, which is pretty amazing.

Pete

Yeah. And why do you think that is that the average sales price has been going up this year? So we started the year, the average sales price at 424,000, according to this report.

And this is by one of the local appraisers here in town, right? So 424,000, we're ending, you know, October of this year, we're in Q4, 435,000 currently. So why do you think that the home prices continue to go up with these higher interest rates?

Wayne

Absolutely lack of inventory.

Pete

Yeah.

Wayne

You know, again, there's a big story behind that, which started years ago with the car fires and fires in Paradise and all that, taking a lot of inventory out. And then when COVID hit, we saw the Fed drop interest rates to 3% because it was a crisis, but that's really not sustainable. That's just to dig us out of a economic hole.

Pete

They artificially were keeping those rates lower.

Wayne

Oh yeah. Yeah. They cut them in half.

The average rate, actually in a 50 year, when you look at the 50 year chart, which we've done before, is 8%.

Pete

Yeah.

Wayne

And in my lifetime, that was considered a great rate.

Pete

Yeah.

Wayne

Because we've seen it all over the place. So as it came down, I think, you know, you never know. I don't think rates are, you know, unless we're in a crisis are really going to be that much different.

I mean, there'll be differences, but it isn't, hopefully we will never see that 3% again.

Pete

Yeah. I don't think that we will.

Wayne

That's not good for the economy.

Pete

I don't think that we will. I don't think it's good either. I think that we'll stick around the maybe it'll dip down to maybe in the fives, you know, high fives, high to mid fives.

With the interest rates, it's not necessarily a determination of what home values do.

Wayne

Because- Obviously not.

Pete

Yeah. We're looking at this home prices continue to go up month over month and year over year at a steady pace. And it's not crazy like it was in 2020, but yeah, that makes sense with the lack of interest.

Do you think that the lack of inventory will change anytime soon?

Wayne

No, absolutely not. Yeah. There's a number of reasons for that, especially in the Redding area, which is really what we're talking about, Chasse County Redding area.

And the reason is, is there's not a lot of new construction to really fuel new housing. But even that is really expensive compared to if you're looking at, if we were to take a look at our statistics here, there's high volume between 250 and 300, 300, 350, and 350 to 400. There's a huge amount of action there and not a lot of inventory.

Pete

A lot of demand.

Wayne

A lot of demand.

Pete

A lot of demand between 250 to 350, 400.

Wayne

Right. So when we saw interest rates go to 3%, it was refinanced, right?

Pete

Oh yeah. A lot of people refinanced.

Wayne

Everybody refinanced that needed a loan and could do it. And so those people that are in those loans, they're not selling.

Pete

Yeah. Why would they?

Wayne

Why would they?

Pete

Yeah. Why would they sell?

Wayne

Even if the house doesn't fit them, they're not selling.

Pete

Yeah.

Wayne

And so that's why there's a lack of inventory.

Pete

We need them to sell for home prices to come down.

Wayne

Yeah.

Pete

That's what we need.

Wayne

But that's not going to happen. I don't see that happening anytime soon. Yeah.

Pete

There's no reason why they would sell and get rid of that low interest rate, low payment.

Wayne

Yeah. But the thing about it is I've been doing this pretty much all my life. I've been in real estate, third generation, all that.

When you look at a chart at home pricing, even through recessions, it continues to grow.

Pete

Yeah. That's true.

Wayne

We did that exercise a couple of months ago.

Pete

Yeah.

Wayne

Pretty fascinating.

Pete

Yeah.

Wayne

So it's really important if you're renting and you can improve your job, pay off some of your bills or whatever, and just squeeze in a house and let that equity build over time. I mean, nobody's got a crystal ball, but I mean, when you look at the path of appreciation- Yeah.

Pete

I'm definitely very optimistic for real estate. I'm definitely- I am too. Pro real estate, especially in Chester County.

Wayne

Right.

Pete

In Chester County. Even though it is hard right now, it is very hard. That affordability is hard, 100%.

I'm not denying that, but I'm also very bullish.

Wayne

But you know what? Through my generation, every generation, it's been hard.

Pete

Yeah.

Wayne

It's been hard. That's the reality of it. So we had to drive used cars.

We had to get that little extra income and bonuses or extra hours. We didn't go out to eat all the time. We really had to put it together, get a plan, and go, I want home ownership.

Because we saw home ownership rise with our parents and all that, and it's continued to go on through. So you have to make a decision if you want to build wealth, because it's almost like a forced savings account, and you have tax incentives and hopefully continual appreciation. It's just a great way to build wealth.

Pete

Yeah. 100% agree. 100% agree.

This year, we've had a strong year in real estate. Our average sales price is up. Anything drastic changes you think this next year with it being pretty steady, Eddie, as we go?

Wayne

Pretty steady, Eddie. I believe that. We'll see how the employment market pans out.

There's a lot of things happening in the Reading area that's bringing more jobs.

Pete

Yeah. A lot of optimistic things happening with jobs.

Wayne

Yeah. Dignity Health is expanding. They're doing a bunch of construction down off Cypress and Hartnell.

Pete

Yeah.

Wayne

You got the Wind River to do new- Wind River, they're working on their hospital that they're going to do, and so they're supposed to employ 200 people there. And then the airport's expanding, and there's rumors about different companies coming into town out at Industrial Park that are pretty substantial. They'll give employment, and then you also have Bethel that's doubling their size.

I know they're 1,500 students, so there'll be about 3,000, but in order to- Have that many students, you got to- Hire more staff, have more employees.

Pete

Reading is definitely a great, great, over the next couple of years, there's going to be a lot of growth.

Wayne

Yeah, absolutely. And it's just a wonderful place to live. It's funny, it used to be we'd get a lot of bad press because it would be hot here, but now we're getting a lot of good press from national magazines about Reading as a place to live because of our outdoor- I love it here.

Pete

It's a great community.

Wayne

I love it. I moved away as a kid, and I moved back because you can't beat it.

Pete

I would much rather live here than Bay Area, San Francisco, Fresno, I mean, other than maybe Orange County or right on the beach.

Wayne

But anyway, I don't like the heat that much, if I have a chance. But anyway, it's a great place to invest your money. If you're an investor, it looks like rents are going to continue to go up too.

Now, if you were starting out and you squeezed into a house, what would be your investment strategy? Would you just get in a cheap house?

Pete

Oh, 100%. Yeah. If I was a first-time homebuyer, I was maybe 25, 26 years old, I would look for, they call it house hacking, but I would look for an opportunity where, especially if I was single, I have friends, of course, and so if I get into a home, let's say you buy a home for $300,000, right now that payment's about $2,400 per month with taxes, insurance, and everything included.

And this is with no money down as a first-time homebuyer. So I would look to buy around that $300,000, and there's definitely homes that are coming on the market in that price range, according to these reports. And so I would buy, if it's a three-bedroom, I would look to buy, rent those other two homes out maybe for a thousand- Bedrooms.

Sorry, bedrooms. Two bedrooms. Yeah, I would rent the other two bedrooms out, live in one.

Those bedrooms will rent for $800 a month, and so that's $1,600, your payment's $2,400, so right there you're a thousand maybe, worst-case scenario for your housing payment. And that's what I would do. I would look to find something like that, or maybe a duplex or a fourplex.

If you buy a fourplex, Fannie Mae just changed the rulebook to only have to put 5% down on a fourplex. Oh my God. If you live in one of the units.

If you live in one of the units. Wow, fantastic. Yeah, and so great opportunity, yeah.

Absolutely, that's what I would be doing 100%, because over time, you live there two, three years, you want to move out, put another renter in there. Rent's going to continue to go up. That mortgage payment's going to be 30-year fixed, so it's never going up.

But it can come down, of course, on a refinance, but it's never going up. But your income, if you're young, 24, 25, your income is going to steadily go up over time, so that payment's going to get easier and easier and easier.

Wayne

Right, plus you have inflation working on your side.

Pete

Absolutely.

Wayne

It's horrible in one ways that it takes more dollars. Inflation can print more money, but you're using cheaper dollars to pay- To pay up old debt.

Pete

Historical debt. Exactly, yes, exactly.

Wayne

So then if you have appreciation, so two, three years, even if it's five years, you buy your next house, keep that one as a rental, and off you go.

Pete

It's an amazing financial instrument, the 30-year fixed mortgage.

Wayne

So I'll tell you my hack. The first nine years of my first marriage, we moved 14 times.

Pete

Oh, wow.

Wayne

And we house hacked the heck out of the market. And so we went from zero to almost half a million.

Pete

In equity.

Wayne

In equity. Actually, it was more than that because I got into other development and other stuff like that, but just flipping houses and buying a house and this and that. But the thing about it is you want to be very strategic because I think a couple times I just should have hung on to a couple of more houses and not flip them as much.

But hey, we had two banker's box of stuff and a car and that was it. But we made a boatload of money.

Pete

That's awesome. Yeah, it's a great strategy because every two years, you don't have to pay taxes on what you sell as long as you live there two years.

Wayne

Right, yeah. Well, you can get into 1031. I mean, it goes on and on.

When you really get in an investment groove, it's pretty incredible actually to build wealth that way. For the average person, we actually ran into a lady that lived in L.A. and she was a secretary and her husband was a guy that worked for a post office. They started buying homes in Newport Beach.

They squeaked into like a one-on-one, like a little box. And when we ran into her when she was in her 70s, they owned like 12 houses.

Pete

Wow.

Wayne

Free and clear.

Pete

Anything else you want to add for this next year for maybe December? December is typically a slower month.

Wayne

Yeah, it's going to be slower.

Pete

November, December, I should say.

Wayne

But you know what's so good about it is there's less competition. If you're serious about buying and getting a jump on the first of the year, December is good. Christmas is just one day, right?

Pete

True, yeah.

Wayne

So as realtors, we work all other days.

Pete

Yeah, yeah, yeah, yeah.

Wayne

So if you want to get a jump on it, have a great beginning of January, jump in, get a hold of Pete, get pre-qualified, and we'll rock and roll and see what we can find for you.

Pete

Yeah, I got an excited update. On my website, I have live interest rates now.

Wayne

Oh, wow.

Pete

Yeah, actually I will in a couple of days. I'm putting that in a place where people can actually go in, put their credit score in, they get live interest rates right there on my website.

Wayne

Fantastic, fantastic. The other thing that I want to say is if you're not getting our reports that we're using and we're talking about, you can go to re1.com, let us know, or give us a call at 530-224-2270, which is our office, and talk to Amy. And just leave a message if you don't get Amy, and we'll send you all of your reports on a monthly basis, and then you're first in line for anything that's really cool.

Pete

Yeah. Well, thanks, Wayne.