Real(ty) Talk
Real(ty) Talk
Interest Rates and Investment Opportunities Uncovered
We delve into the nitty-gritty of "founder mode," sharing the exhilarating highs and daunting lows of steering our business ventures hands-on. You'll gain practical insights into why now might be the perfect time for real estate investments, backed by an analysis of inventory, affordability, and the recent Federal Reserve's interest rate cuts. We also spotlight the luxury market in Los Angeles and Orange County, the critical role of choosing the right agent, and exciting opportunities in distressed properties in El Paso. Don't miss out on these timely insights that can help shape your investment strategies and entrepreneurial journey!
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Paul Hanson:
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For more content, follow our socials below:
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Suzanne Seini:
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Paul Hanson:
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Stephen Couig:
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You know we hear that message all the time. We hear we want to wait until rates go down. I mean they're down, this is the time.
Speaker 2:Welcome back Realty Talk podcast, your favorite podcast on the planet. We talk all things real estate and other things.
Speaker 1:Yeah, lots of other things yeah.
Speaker 2:Today's going to be an exciting episode.
Speaker 1:Yeah, we've got big news.
Speaker 2:Yes, Recently, minutes ago. Yes, we're going to be talking today about interest rates. So for some people a very boring subject. For me it keeps me up at night. I could barely sleep last night thinking about this morning's meeting.
Speaker 1:We strategically filmed this right after an announcement was made. That's how excited we are.
Speaker 2:Yeah, our boy Jerome Powell. I don't know him personally, but with how much I follow him I feel like I do. But yeah, a lot to unpack around all that. But I mean, we haven't checked in recently, so what's new? What's new in the?
Speaker 1:world of being the CEO of Innovate Realty. Well, business is good. I mean things. I think I've definitely seen, uh, things picking up a bit, or at least the feeling in the market a little bit, which is nice. Um, personally, you know we talked about my, my dog. I had some, you know, some issues there. Things are are looking better. We're out of the woods there. I had a friend's big birthday this past weekend. We did a themed birthday, so she did a 90s teen movie theme. So yeah, so at first my first reaction was like I should do Dumb and Dumber you know or one of the best movies ever.
Speaker 1:Yeah, totally. But I didn't have a, I didn't have a partner to do that with. I feel like it wouldn't be as cool if I was just like Lloyd without yeah. And then I toyed with Men in Black. I thought that would be kind of fun.
Speaker 2:Great movie.
Speaker 1:I settled on Cruel Intentions and, yeah, so I was Catherine from Cruel Intentions and re-watched the movie though and that's why I'm bringing this up, because re-watched the movie and I would definitely say, re-watching some of these movies that we held in very high regard of those back in those years it was it was pretty cringe. I I mean there were some cringe moments there that I was like in no way should I have been watching that at like 12 years old. So, um, yeah, that was, it was fun, but it was a good time. Costume came out good, um, and yeah, it was, but it was a good time.
Speaker 1:Costume came out good. It's awesome and yeah, it was a good one, so yeah.
Speaker 2:So they probably wouldn't make the movie today.
Speaker 1:Oh, no chance. No chance. There would be a lot of edits, that I mean they would be canceled for sure, Ryan.
Speaker 2:Phillippe canceled Done oh my gosh. Yeah, I mean, I remember the movie, but I don't remember that well.
Speaker 1:Oh yeah, Watch it again, it's yeah.
Speaker 2:But don't have the kids watch it.
Speaker 1:Exactly, yeah, no, it's not going to be a staple in the household for sure.
Speaker 2:Got it, got it.
Speaker 1:Yeah, yeah, any exciting updates over there.
Speaker 2:No, I mean you know we've got a lot of movement, you know, in a lot of the different arms of the business. So I would say you know the most you know, kind of unique update for me is just like you know, and you go through phases in entrepreneurship like there are phases where you're just in grind mode.
Speaker 1:Yeah.
Speaker 2:So, you know, I listened to the All In podcast a fair bit and they're like three or four venture capital guys and one of them is running a business now, um, but last week they talked about founder mode, which you know. It's kind of interesting. I feel like I'm in that mode right now and, and you know, founder mode they define as like you're in the weeds still yeah and you're solving problems, not like you're working on the business, but during certain you know phases you're actually working in and on the business Right yeah.
Speaker 2:So I feel like that for sure in a bunch of the different you know businesses that we're a part of. You know personnel changes, market dynamics, right, you know just a lot of stuff, but it's good. I mean, it's all really good stuff, but feeling tired.
Speaker 1:Yeah, no, I mean, I feel the same way, I think, but I I, as a reminder, I think you know we've got multiple businesses that are like fairly new, you know. So we're, we're pretty deep in it, but um, but a lot of positives coming from it and you know we're going to get there.
Speaker 2:Yeah, yeah, no, I feel really positive. I think you know, for me, the way I define my level of success as I'm going through those different phases is how well I do at balancing my personal needs, which are, you know, working out in the morning, and what I eat. I would say I'm working out, which is awesome. I have to have it, Otherwise I'm an asshole.
Speaker 1:Yeah, yeah, and food so.
Speaker 2:I would say I'm doing a really bad job on that side.
Speaker 1:On diet.
Speaker 2:Yeah, I'm you know, see it need it. Yeah, just eating everything right now, yeah, but let's dive into the Fed.
Speaker 1:Yeah, it's exciting.
Speaker 2:So we I don't know, I shouldn't say we. It's exciting. So we I don't know, I shouldn't say we. I personally believe that the single family real estate market you know, buy and sell side pivots a lot from inventory, but inventory is a response to affordability.
Speaker 1:Right.
Speaker 2:And so you know we're 2024, tail end of 2024 right now, and we're coming off just this really weird 10 years, I would say, or 15 years, where 2008, 2009, we have the housing crisis or whatever, which is really there weren't guidelines on the way that mortgages were written, so that causes. Valuesages were written, so that causes, you know values to just crumble.
Speaker 1:Just as a side note, I think we should do a full podcast episode on the things that I saw in the mortgage world at that time. But continue, yes, let's do it. I would love to hear that.
Speaker 2:So that I think you know spurs this, you know compliance, which decreases the number of buyers and transactions taking place. Builders stop because credit freezes up, and so we have this inventory problem. And then, you know, in the early 2020s, you know things are kind of just speeding up a little bit, but not crazy. Covid hits and nobody has anything to do and you know, transactions kind of slowed down and values just keep propping up, up, up, up up and at one point you could get a 30 year mortgage for like two and a quarter 2.25%, which is essentially free money.
Speaker 1:Yeah.
Speaker 2:Like I don't know that we'll ever see interest rates that low again. Yeah, um, and thenCOVID, you know rates get jacked up Right. So I think at the peak it was like 8.1, 8.2 for a 30-year fixed mortgage, which is massive, massive difference in terms of affordability, and so that had really In such a short time, you know, oh my gosh.
Speaker 2:It was the most drastic increase ever, right, yeah, and so then what we're seeing is that you know if you're moving or selling. It's kind of like you have to move, right, it's not? Hey, maybe we'll move down the street to just a slightly nicer house or a slightly bigger house. People are kind of stuck in these lower interest rate mortgages, and so inventory is still very low in a lot of areas of the US, and we've been talking about it for a couple of months, the Fed has been talking about reducing rates and they met this morning.
Speaker 2:So what's the net result?
Speaker 1:Yeah, so they announced a half a point, half a point, right.
Speaker 2:Half a point.
Speaker 1:So yeah, I mean it's exciting, it's promising. It is the largest rate drop, I think, in four years. So yeah, I mean the only aspect to that is we knew something was coming right. So most of the lenders and the banks they had already kind of built that, built a decrease in there, but it is really promising. As far as you know, there are more talks and I think there are other rate cuts coming. So yeah, I mean it's, it's about I we're going to be in the fives.
Speaker 2:Yeah, it sure feels that way. We're going to be in the fives. Yeah, it sure feels that way. I mean, I think a lot of the listeners, you know, probably don't look at the rates as much as we do, you know, and so I talked to a lot of people this morning like what's going to happen? What's going to happen to 30 year fixed? And I think for the general consumer they might think the Fed cut a half a point. That means rates are going to go down today a half a point, which is not necessarily the case. If we just look back over the last two weeks, three weeks rates have come down. A national average I think three weeks ago was about 6.6-ish, 6.7. And this morning, before the Fed meeting, it was all the way down to like six one.
Speaker 1:Yeah.
Speaker 2:So they've already kind of lowered the 30 year by about a half a point, right? I think most people were expecting a quarter point decrease, not a full half point today, right? But you know, people that are buying mortgage backed securities are pretty damn smart. So I don't know if they have an inside track on that information or not but it looks like they've kind of already responded to that Exactly. So it's possible we wake up tomorrow and see maybe slightly below 6.1 or maybe even slightly higher than 6.1.
Speaker 1:Exactly yeah.
Speaker 2:So that adjustment's already been baked in.
Speaker 1:Exactly, yeah, so I think we're not going to see a huge change from what we've seen over the past few weeks, but I think it's important to note. Like you said, I mean our listeners and the average consumer isn't studying the rates on a daily basis, so you know rates are already there and I think it's important for people to know that and to get that message out there, because you know you might still be thinking rates are higher, but over the past few weeks we already saw that decrease.
Speaker 2:Yeah, and there's I mean there's a bunch of ways, I think, to think about it. You know, if you're sitting on the sideline ready to buy and you're in Southern California looking at a million-dollar house in the last three weeks that just got $400 to $500 cheaper a month yeah, house in the last three weeks that just got $400 to $500 cheaper a month. Same house Inventory really hasn't shifted that much. I mean markets like San Diego. We just talked about this last week. They maybe have 45 days of inventory maybe.
Speaker 2:So it's still a really tough market to be a buyer if you have to buy, but that adjustment makes a really big impact financially.
Speaker 1:Yeah, or you can afford even more now you know, so I think, yeah, it's more important than ever to you know, we hear that message all the time, we hear that you know we want to wait until rates go down. I mean they're down. This is the time. You know we just no, they are not going to be at 2.99, it's not happening but I don't think we'll ever see that again no, I mean yeah, and which is why so many people did lock in at that, and don't want to move, or you know I mean you can't or even pull out equity and purchase more homes, and you know it's um, yeah, it's, we're not going to see that, but we are at the point where rates are affordable.
Speaker 2:Yeah, yeah, I mean, I think one thing that's useful to talk about is just the history of rates. Traditionally, when we look at you know what's going to happen in a market we look at the Fed fund rate and the tenure. Generally, a 30year fixed mortgage over the last 30 years, on average, has been 175 basis points above the 10-year note. So this morning, uh, tenure opened at 366 um 3.66 percent. So you know, if we were on track with historical averages, a 30-year fixed mortgage should really be 5.4%, not 6.1% today, right? So I guess the question poses why 70 basis points higher?
Speaker 2:And I think the reality is these people, or investors, or the market that is buying a mortgage-backed security, right. And I guess maybe it's useful to explain what happens. If you go and buy a house, whether it's a broker or a direct lender, they write that paper right. And I guess maybe it's useful to explain what happens If you go and buy a house, whether it's a broker or a direct lender they write that paper right, and then they either sit and hold it on their balance sheet or they go and sell it to an end investor, and so there has to be some sort of yield or margin there, and these people are really smart, right, and so generally what they're looking at is what's going to happen over the next 10 and 20 years, and, you know, if rates are pretty high, they would anticipate that at some point those rates might come back down again.
Speaker 1:Right.
Speaker 2:And on average before COVID, you know, an American would live in a house for a little over seven years, right With how low those rates were in the twos and threes for so long. We now think or I think a lot of people think that an average American might live in a house for 13 years because they're going to stay in that house until they have to move. But if you had to purchase over the last 24 months and you're sitting somewhere between six and a half and 8%, with rates coming down to six or five and a half at some point in the near future, these investors know that that's going to be refinanced immediately and so they bake in some cushion or yield to make sure that they get repaid. You know some money for putting that slug of capital out, um and so. So until we see some sustainability in the market, I don't think that the mortgage-backed security is going to trade down closer to that. 175 basis points from the 10-year. Maybe it will. I mean, I hope it does.
Speaker 1:Yeah, I wanted to, yeah.
Speaker 2:But I think the big news today is generally when the Fed starts to lower rates, they don't stop Right. They're going to do a few consecutive rate cuts. So I mean, if we can get another quarter point for three or four more cuts, we'll be down into the mid to low fives is what it feels like, right, and we have the next meeting in November. Sixth and seventh, I think, or seventh, and eighth.
Speaker 1:So potentially we could see that before the end of the year, which kind of affects the market and how transactions are usually happening, with seasonality and everything too, because you know, I think we all know that from really from like Halloween to New Year's and even past I mean it really it slows down quite a bit. But if we do see markets drop like that in November, I could anticipate a change there.
Speaker 2:Yeah, yeah. So, as the CEO of a big brokerage with a lot of agents, what you're saying is you normally plan for after Halloween until, like, the Super Bowl that things are going to be kind of slow, right Exactly. So, and you think maybe with these shifts, if we see some more rate cuts, that might not be the case.
Speaker 1:Yeah, I mean, I think it would not be as slow, right? I think if things kind of stay as is, it's going to be like it has been every other year, you know, moving into the holidays, and I mean there's going to be some of that regardless. But if I'm a buyer and I've been on the sidelines and I see interest rates, you know, at five and a half percent, I'm going to take advantage of the holiday season where there's not a whole lot of competition and I'm and knowing that maybe if a seller is listing in that time, they may really need to move. Yeah, because if you're held in open houses before Christmas, you want to move your home. So if I'm a buyer and interest rates are down, I'm taking advantage of that.
Speaker 2:I can look back at the last two or three houses I bought they were all between November and December and they'd been on market for 60 days and personal houses that I've lived in and that that was my exact angle. Yeah, if somebody has, if they're listing today, they probably have to move.
Speaker 2:Yeah, if it's a little bit stale, um, you know, 30, 60, 90 days on market, nobody else is hovering or you know, at a decent price, and so I'll go in at a number that I'm comfortable with and if I get it, I get it, if I don't, I don't. I think right now is an unbelievable time to buy. I shouldn't say that Don't go buy houses if you're an investor.
Speaker 1:I know I'm like you're giving away all the secrets. You love doing that. Yeah, no, I mean it's true.
Speaker 2:The real estate world is so abundant, like we think we want everyone to do. Well, there's so much to go around. I think it's an amazing time to buy. It feels that way at least. One thing we should be talking about is if you do have some debt to income issues. There are kind of unique mortgage programs that you can get into. You can buy down the rate, you can negotiate that into your deal.
Speaker 1:Even credit repair. I think that's really important.
Speaker 1:If we're continuing to anticipate some more drops. What should you be doing right now to prepare for that time? So speaking with your lender and making sure that you're ready to go? I mean, I am working with a client actually myself right now that he is like I don't want to pull my credit yet, I'm just waiting because it's going up all the time. I've done all these things and you know I just want to, I just want to keep waiting and you know it's. It's one of those things where, like, maybe five points isn't going to make a huge difference, like let's, let's get this party started.
Speaker 1:But you know, at the end of the day, like knowing what your credit is and being prepared, I think, is really important if you're going to be making a move soon.
Speaker 2:Yeah, and it's hard to read the future and obviously I wouldn't recommend this to anybody that isn't comfortable taking the risk. But I mean generally, in this kind of a climate, a 7-1 arm is going to be a fair bit cheaper than a 30-year fixed mortgage. So if you believe that rates will come down over the next year or two into the low fives or maybe even the high fours, now's an amazing time to buy.
Speaker 1:Get in at an adjustable rate.
Speaker 2:Yeah, and you know a 7-1 is, you know they basically guarantee the rate's not going to raise for seven years. You have seven years to go and refi. So if you believe that that's going to change, in that seven-year window you'd probably get a little bit of a cheaper rate than 6-1 today.
Speaker 1:Yeah, there are so many creative ways to make it happen If the want is there, between the you know it's I mean between the buy down programs and the adjustable rates, and it's a 40 year, you know it's I mean you can make it work, um you know if if that's really what your goal is.
Speaker 2:I have a question uh, from your position, what do you think is happening in the luxury space? Um, and you know, tying to rates, because you know, in LA, a little over a year ago, they put this luxury tax on real estate that's selling for north of $5 million. We see a lot of deals in, you know, orange County on the coast, that are selling $5, $10, $20 million. How does rate affect the luxury market?
Speaker 1:Yeah, I mean it. It doesn't as much um, but it still does in ways where they you know there might not be capital for this um, for this property. I mean, for the most part, if you're buying a $10 million house, you're not financing that but, but where are your other investments?
Speaker 1:and you know what does your money look like as a whole? But, um, but ultimately, like, once you're at that price point, the the rates aren't aren't affecting it as much as it it normally would in in a, you know, conforming, non-jumbo situation. But you know, I mean, I have seen a loan before on an eight million dollar property and he did a $5 million loan you know, but that's it's very rare yeah.
Speaker 2:Yeah, anything else on the rates and the market.
Speaker 1:I am excited to see what continues to happen. I mean, I think, um, like you said, I mean we might see them. We might see them below five, we might see them go up a little bit, depending on what was baked in. But, um, the bottom line is, if you've been waiting, the time is now.
Speaker 2:Yeah, I mean, if you are on the sideline and you haven't selected an agent, reach out to Innovate. You know, the way I would explain purchasing real estate is it's such a personal experience. You got to love the agent and the agent's got to love the brokerage that they're with. So I'll just give you a huge shout-out. I mean, we meet with our agents once a month at least and then weekly for other trainings and we just had a ton of feedback that you know, the agents that are in our business at Innovate love being at Innovate because of the support they receive, and so I think what that translates into is, if you're going to go and buy something today in Southern California, I would heavily recommend meeting one or two innovate agents.
Speaker 2:Right, because the tools and access to training and programs that they have versus an agent at one of these other big shops is, I mean, like, I guess the example I would give you investors like Buy my House are generally very sharp in the way that they're selecting who sells. You know, inventory and in the last two days we've won five or $6 million of listings away from the big shops because those agents didn't have the tools that our agents have to go and move inventory Um and and. So I would just say, you know, reach out to innovate. If you're on the sideline, if you're thinking about buying or selling, you know there's nobody better in the business than Suzanne to. You know, to train the agents to take care of that transaction for you. Thank you.
Speaker 1:And if you have a distressed property.
Speaker 2:Reach out to us. We want to buy it.
Speaker 1:Yeah In El Paso, especially yeah in El Paso. We still haven't done a deal there.
Speaker 2:I yeah, you know, pass it. We still haven't done a deal there. I know I know Awesome, that is a wrap. Realty Talk podcast. We're so excited for everyone to listen. Please subscribe if you haven't. It helps us out a bunch and we'll see you next week.