Randy Atkinson of CapStar Lending joins the show. We talk about the effects recent bank failures are having on the real estate market, how it's not good to compare the current market to 2006 or 2021 and what is going into home buyers decisions when they are deciding to buy a home in today's market or wait things out a little longer.
Troy: Welcome back to Real Estate Insights here with Troy Schlicker. Today I am joined by Randy Atkinson at Capstar Lending. How's it going today?
Randy: it is going great.
Troy: good to hear. Enjoying some of this nicer, warm weather and stuff that's happening here in Austin. It's why I, it's why I know originally moved down here was to not be dealing with snow in February and March, which my parents are still dealing with. So I'm pretty happy to not be dealing with that at all.
Are you, I can remember, are usually from the area here or
Randy: Yes. I've been here all my
Troy: You're, you just have no desire to go up to the snow part of it that way. You're like,
Troy: you whatsoever.
Randy: I like to visit it, and that's it
Troy: It's a, it is, yeah. It's a, it's fun to experience from time to time, but to not have to deal with on a regular basis is definitely In my opinion, the way to go about it.
Obviously some interesting things happening in the world of finance and mortgages and real estate this week. Definitely wanna talk about that. And probably, again, the elephant in the room that we maybe don't wanna dig too deep into, cuz neither of us are, financial analysts or some of those kind of things.
But the failure of a couple of large banks in the United States, primarily Silicon Valley Bank out in Silicon Valley, not. Has dominated the real estate and financial news the last week or so. I think it happened the very end of last week. Do you have any thoughts or things you'd wanna maybe say about that at all?
Randy: Yeah, what I'm seeing, so again, like you said, I am not I'm not the smartest guy in the room as far as investments and those kind of things. I can tell you about mortgage loans all day long. But what I am seeing is a lot of movement from different buckets to the bond bucket for the mortgage bond bucket.
And what I mean by that is, With everything that's transpired over the last, let's say, end of last week and the beginning of this week mortgage rates have been trading, mortgage bonds have been trading at a way more favorable level, and that's driving interest rates down. And although they're not.
take your breath away. Better rates from last week to this week. We've seen almost a point movement in interest rate, which is a big one in our world. Usually we only see maybe an eighth or less whenever the market moves. And rates are a lot more favorable than what they have been. And they're trending in a more positive direction for people that are gonna be.
Financing to buy a home or to refinance a home. It's a pretty interesting thing. And we were talking before we came on and you hit it. It looks like people are moving their money from what they deem more risky investments to more conservative investments. And right now that looks to be mortgage.
Troy: Yeah. And then that like what a lot of people don't necessarily know or realize, which you're not, if they're not in the business, it's not necessarily a big thing for them to realize, but that right. The. , the, everyone talks about the fed rate. And while the fed rate does impact interest rates, mortgage interest rates to a degree, the rates are more tied to 10 year treasury bonds.
And so because of that bank, the bank failure there, there's one in New York, has, scared investors as a whole to maybe want to back out of some of those banks and put their money in something really safe. and there's not a whole lot that's more safe than US treasuries. And so because of the additional money that's flowed into there, that's brought the rate of those down.
Simple supply and demand side of things. And so that has made mortgage interest rates also decline. I think I was reading somewhere else as well that the thought. potentially was that maybe because of what has happened that the Fed might be less inclined to wanna raise rates based on inflation, which would also keep mortgage rates a little bit lower.
I don't know for sure if that's truly gonna happen especially now that it sounds like the fed's fed is gonna come in and backstop the depositors of those banks to make sure that they're whole, so that maybe it won't impact their interest rate decisions going forward. But, The mortgage interest rate market is a fluid one.
Again, not usually a whole point in one week timeframe, but it's definitely one of those that is continually moving with the market as a whole versus just making changes once a quarter when the Fed talks about raising or lowering interest rates.
Randy: right? Yeah. We're like you said, the 10 year treasury today opened up. And it's, it opened up at 3.7 and it's at 3.44 right now, and that's driving mortgage rates further down. So we're all, we're at like a 70 basis points improvement so far today. And that's been the consensus all week.
I don't know. Going back to what you said I don't know what the Fed will do the next time they meet. There was a sentiment that we were gonna see another half a. Raise in the bank rate. I've heard that it's gonna be more like a quarter I read this morning that they're talking about not even raising it at all at this point.
So a lot of fun, exciting things happening in the financial world.
Troy: And I will say that the other part for, on the mortgage rate side of things is it ki, it reminds me of the price of gas and the fact that as those treasuries fall, the in mortgage rates tend to fall, but at a little bit slower clip trailing it. But when those rates rise, they tend to rise just really fast.
Like the investor side of things wanna make sure they're. They're not losing money the same way gas companies wanna make sure they're not losing money on their product and stuff as well. I've also seen in the news because of those, that reduction in interest rates that there's been a spike in mortgage activity.
And I'm always a little, in general, a little leery of some of the information that's put out there about that. Like obviously a full point in interest rate deduction might bring someone to wanna refinance who has, had a seven and a half percent rate and now might be able to get a six and a half percent rate, but, I, in my experience, not that many people are not buying a home because the rate's at seven and then suddenly if it went to six and a half, they're ready to buy a home.
That's not been my experience with most customers. Yeah. If it, when it was three versus seven, that makes a difference. But it's rare that we see that big of a spread even in a year timeframe. And for you, are you seeing a lot of activity just because of that interest rate going down the half to a full point in the last week or?
Randy: No, what I typically see Troy as clients are usually two to three weeks behind what's going on in the market at that moment. Whenever rates dipped in the beginning of February, I really saw a influx of clients about two weeks, two and a half weeks later, and then the rates had already started to tick back up, and then the conversation was, I thought rates dropped.
But it seems like they're not, they're about the same and that's what I'm seeing too. So like rates right now dropping does not necessarily equate to a lot of people
Troy: Pulling the trigger, right? Like
Troy: you don't suddenly have your eye on, oh, there's this house that I wanna buy, and oh, I just gotta need weight until rates drop to where I want 'em to, and now I can buy it like usually. That house, in a lot of cases may not be there just because as much as the market has changed, it's how good homes are still going at a relatively good clip and stuff.
And so it's the sh the psyche of how people shop for homes. It's usually a much more personal decision on when kind of the time is right for you. And yes, interest rates impact how much you can qualify for, how much you're willing to pay that you feel comfortable having as a monthly payment and stuff.
But, Again, in my experience, it's not necessarily a, oh, there's a small drop in rates and that suddenly br opens the floodgates of people looking to buy a home. That's just not how it goes. So that's the another one, kind of one of those things where the headlines don't really strike a balance with reality.
Randy: Yeah, usually you see that particular scenario with either somebody trying to refinance and time the market, or investors looking to utilize financing to buy investor property because there's less. Involved if it's a primary residence purchase or even a second home. Really it's driven more by emotion and want versus trying to make the most out of an investment.
Does that make
Troy: A hundred percent. Yeah. It's more, it's again, the emotion or a matter of circumstance, right? Like I we're, our kids now are suddenly going from three years old to five years old and they have to start going to school. We wanna move into a better school district. And so we're gonna make that move.
We're, we suddenly are having twins now, so we need to get out of the three bedroom house cuz there's not gonna be enough space for them. We're getting a, we're getting a divorce, so we don't need this huge house anymore. You, those are the kind of things that tend to. Be the reason that an individual person makes the decision to buy or sell a home versus just, oh, that quarter of a percent interest rate's gonna save me $40 a month on my payment.
Now I'm ready to.
With that being said, what are you seeing in the market just as a whole, right? Again, I feel like there's a lot of kind of conflicting information. Again, you see the headlines going back to the interest rates drop, right? The head it's a great headline to say interest rates dropped and they'll only have dropped a quarter of a point.
But see, people see that they dropped and in their mind it's like they went from 7% to 5%, which is rarely the case, right? But the headlines had interest rates drop. But again, I feel like a. It's again, a very interesting market. Having been in real estate now for a decade it's, it feels like what's some of the new stuff and even what people are experiencing individually is just all over the map as far as should I buy, should I wait?
Cuz you have a lot of homes on the real estate on as a realtor. I see a lot of homes that are going, are being. in the first weekend in five or five or six days of being on the market. Now they don't have they're, they don't have, and they shouldn't have the 30 offers that they did two years ago.
That was an abnormality. For most of last year we weren't seeing any homes really go that quickly in the market. And so it definitely feels like there is some renewed activity, but there also feels like there's a decent amount of caution with other people as well.
Randy: Yeah I'm definitely seeing the same thing. I think a lot of it has to do with location, obviously. You said old real estate adage location. Amenities what the property has to offer. But there is one thing that I wanted to go back. You touched on it and I think it's something that's pretty valuable and not many people think about this.
And I was remind and I lose sight of it as well, but how much interest rate really drives payment? And at the end of the day, let's be honest, very few people are gonna buy a. , get a 30 year note and stay in the house for 30 years. The average person moves between every seven to nine years.
If you're looking at my personal family, it's about every three years, but you don't really realize the long-term effect of whatever financing you took in place. You took on if you took a 30 year note. So really we're talking about what the monthly payment is and do. Can we afford that monthly payment?
Is that something that we're comfortable with? All of those things. I ran numbers just yesterday on a three quarters of a million dollar loan, so we're talking about $750,000 every eighth of a point adjustment and rate moved that payment $62 a month. It's not very much. So whatever people here, interest rates have changed and we went from five and a half to six.
That's a huge. Difference in, in the psyche, but then you start to run the math and it's really not that much. So when the rates do drop, it's okay, rates dropped. It's time to do it. Maybe I saved $120 a month.
Troy: And not to take it away from $120, right? But for most people who can afford a home in Austin, because it's not cheap to, to live here, you're the income level that you're having to afford a $750,000 home or 750,000 loan amount means you're making a hundred plus thousand dollars a year, even with a 20% or 30% down payment in that case.
And don't get me wrong, every. , any, almost anyone you talk to, whether you're a millionaire or making minimum wage, if you said, Hey, here's $300, almost anyone would take that. But that doesn't necessarily, it isn't gonna necessarily make or break someone who's making a hundred or $150,000 as a family to get the home that they really want in the neighborhood that they want, assuming that it's within reach right now.
There's a difference if you wanna live in Cedar Park or Westlake. Home prices are different. You're not gonna be able to necessarily just make that, make the move down from Cedar Park to West Lake just because you want to. But if you're, if you have a budget that you can qualify for and then a payment that you're relatively comfortable with, a lot of times the $50 a month isn't, necess isn't the, isn't a the straw that broke the camel's back to not being able to afford that home.
With that being said I know we were talking a little bit you beforehand as well too about the market in that you have been seeing also ramped up activity level does that is that again, in comparison to the end of last year where there was no activity, how does that feel?
And it's not gonna be what it was, 2021. 2020, early 20, 22 levels, I'm sure, but
Randy: and that's okay. That
Troy: No, again, right? We don't I own a home, so I'm really happy my home appreciate as much as it did those two years. But in reality, that's not a great thing for almost any market. So I don't, we don't, I don't want us to go back to that the, that level of home price appreciation cuz it wasn't.
Other than you owned a home and your home appreciated, yay. It wasn't a great thing for people trying to sell. It was definitely not a great thing for people trying to buy, and it wasn't a great thing for affordability, so definitely don't want to get back to that levels. But as someone who's been in the business for a longer period of time, like what, in your experience, what does, is there anything that you can compare this market to from a field standpoint?
In the past
Randy: I will say it's starting to feel more, more like a healthy market. Houses go on if they're priced. Appropriately they go off. If they're not, the market dictates that they're not priced according or appropriately and they sit. But even if there is a home that is to be sold, and let's say it has a lot of deferred maintenance to be done, if it's priced appropriately, it's going to sell.
And I think that's more in line with a healthy market. What we saw a couple years ago was not a healthy market. . There are a lot of things that d drove that, the inventory was so tight that homes were selling for way over asking price. The problem is, or was, and even still as to this day if something like that is going on, sellers are more reluctant to sell because then they realize on the other end, they're probably gonna have to get back into the market cuz they're gonna need somewhere to live.
And so then less people will put their houses on the market, even if. Money to be made just because they're afraid on the back end. How are they gonna get into a house? So now we're not really seeing that, there are still multiple offers, but it's, I wouldn't say it's few and far between, but it's not as common.
Troy: Definitely not as common. And again, when it happens, it's two or three offers instead of 20 or 30. Yeah, no, definitely have people in 20 21, 20 22, where it was like yeah, we think about selling and moving somewhere else, but we don't want to get caught. Having our house be sold, and now we're in this bidding war on the other side and we're e a without a home, which is a big thing for people not to have a place to live.
But also now you're losing out on the, you've sold your home so you're not, that's not appreciated anymore. But now you're riding the wave of home prices going up a lot more. So definitely people weren't, I, there were definitely plenty of people who didn't sell bec because of the dynamics there.
To me it definitely, Feels more like a, 2017, 18 and 19 kind of scenario where here in Austin at least, inventory is still relatively low. And like you say, a good home, doesn't just sit on the market. You can't, if you're really interested in a neighborhood or a specific type of home or some, something very specific, you can't just twi your thumbs and be like, I'll get around to it when I want to.
You have to be ready to make a decision. relatively quickly. That being said, like you say, it's not just any home that's gonna go go for sale. You can't list your home at any price point. People. Buyers understand what, where prices should be, and in a lot of cases, sellers are having to acquiesce to, some closing, co paying for some closing costs, paying for some repairs, doing some things here or there as buyers have more leverage than they've had the last few.
Randy: Yep. Yep. 100% agree.
Troy: with that, like a lot of home buyers, right? So again, a lot of the buyers that I'm seeing too are people that have owned a home. And so like when you've done that, if your home's gone up 30, 40% of the last couple of years, you have a lot more equity to. Put down on your next home, which can be very helpful for people with, as you're moving from a low interest rate to a higher interest rate, if the more money you can put down, that means the less mortgage you have at a higher interest rate.
But for a lot of people, that's not really an option to, to put down 20% or more. And what are some of the different options out there? I think a lot of times, especially first time home buyers, because they haven't been through their process before, but even second and third time home buyers.
Haven't been through the process for 5, 6, 7, 10 years or more. Don't always necessarily know some of the different financing options that might be available to them to help them get into a property if that's the right decision for them, so that way they can start building that equity versus continuing to rent and pay that money to somebody.
Randy: Yeah. First time home homebuyer in my world is somebody that has not own. real estate in the last three years. Okay? So even if somebody has pur purchased a home in the past, but over the last three year period they have not owned, they're considered a first time home buyer. That's also somebody that's buying the very first house.
They can buy a house with as little as 3% down. So it's minimal out of pocket. And then so the think about they're gonna have the 3% down, and then they're gonna have their three buckets. On top of that, there's going to be cost. That's the cost of the loan. The bank's cost any third party fees, like title company fees, state county recording, things like that.
Then they're going to have prepaid, so things that they pay for at closing that pays for something in advance, like interest pay per diem, interest at closing. And then also one year of homer's insurance will be paid at closing, so as soon as they take ownership. , that house will be insured. So if lightning hits the house, as soon as they buy it and it burns it down, it's gonna get rebuilt.
And then you're gonna have an escrow account for taxes and insurance. An escrow account's a fancy term for a savings account, and we're gonna put two months of homeowner's insurance in reserve. We're gonna put three months of property taxes in reserve. So that being said, you're probably looking at your 3% plus, close to probably $15,000 worth of cost, prepaids and escrow.
So total cash to close for first time home. It's not, take your breath away too much. As you start to get into the different types of loan programs, if somebody has owned a home over the last three years, they can still put as little as three and a half percent down up to a certain amount. Then we're looking at 5%, 10%, et cetera, et cetera.
The really cool thing is when you start to understand how financing. You can leverage it to work for you. And what I mean by that is I had some clients that are past clients of mine, they own a house. Currently they're in the scenario that you mentioned earlier. Their family is growing.
They're gonna, they've got one kiddo, they've got another one on the way, and they just need more space. The house they own right now is in a great neighborhood. But they're going to sell it to buy the next house, but they don't really wanna sell it before they find the house, cuz they would be left without a home with a child, a small child.
And they don't really want to show their house while they're still living at it because again, they have a small child and anybody that has kiddos that underst. . Just keeping a house somewhat tidy when you're not trying to have company or show it is difficult. And then the stress of that trying to sell your house and do that same time can be over the top.
So what they're doing is they're going to buy the next house, which is gonna be a fairly more expensive house, typically falls into the jumbo range. And the jumbo range for us means any loan or any financed. greater than what Fannie Mae or Freddie McWell ensure, and right now that limit is 726,200.
So they're actually gonna finance more than that. Typically, when you get into that jumbo range, most jumbo investors want 20% down. But because we have a good relationship, we understand what they're looking to do. We talk through it and go, okay, let's do 10% down. We are going to finance a first loan at 7 26, and then a second.
For the remaining amount, let them move into the new house, get their house ready, prepare the departing residence house ready, prepared, get it sold. And when they sell it, they're gonna take the net proceeds and pay off the second lien. So then they just have that one mortgage out on the new house.
And then when interest rates drop, they're gonna come back and refinance. With a lower rate plus takes additional net net proceeds from the sale and pay down that mortgage. So they're gonna work the system to make it work for them. Does that make sense?
Troy: It does to me a hundred percent obviously as a former loan officer and currently in, in the real estate world. It does, but again, it's one of those things that I think a lot of people, especially first time home buyers, don't realize sometimes what their options are. And so it's one of the reasons that I. Strongly advocate for people to get relationships with a realtor, with marginal officers, with financial advisors, so that way you can have these conversations versus just trying to Google something because. , yes, you'll probably find accurate information, but a lot of times it's much more broad-based.
It'll say, oh yeah, you can get a home with less than 3% down, but it won't have some of the information. It's rare to see the information about first and second liens, or in the last time we talked about bridge loans, and so some of the. Some of the small details that really make the difference in setting you up for the most success are harder to find and harder to understand, and so having that actual conversation, A few months ahead of finding the next home.
Cuz that's the other thing that happens is someone finds the home that they want and now they're running you around trying to get all those pieces in place, which makes it a lot more challenging to get set up properly. But having contacts that can. Assist you and a, an answer questions and even be able to tell you, Hey, this doesn't make sense for you.
Maybe now's not the time because it would take you from a, your current home that's at a 3% interest rate to the new home that's gonna be at six and a half, 7%. And being able to give honest feedback and find those people is a extremely valuable resource when trying to deal with buying or selling.
Randy: I think you hit the nail on the head. The biggest piece of the puzzle is time, and one of the conversations that I have with clients, and I've had this conversation through the years, is, It's on our side until it's not. And when somebody comes to me and says, Hey, I found a house and I want to make an offer, time is already off, not on our side because we haven't done any of the financials prior to that.
The clients that I mentioned just a moment ago, we had this conversation three months ago, so we got, we took our time and got it prepared and worked through it and answered questions so they really felt comfortable about how we were going to structure. and then they started looking at homes and the first two or three homes did not work out for one reason or another.
Either they got beat out by another offer or there was something that came up. They just decided to walk away. But then when they finally found the right house, it wasn't just another piece of the puzzle they had to worry with. It was already taken care of, and they knew which route they were going to go.
Going to back what you're. Time is a huge piece in the whole process of buying a home. And a lot of people unfortunately don't realize that and just wake up some days and go, Hey, let's go look at some open houses. And then all of a sudden they found their dream house and then it's a whirlwind rollercoaster and it's not always the best
Troy: It def it definitely leads to a much, usually the experience is much worse when you do it that way. in a lot of cases, it adds a ton of stress. Even if it does all end up working out, that usually adds a ton of stress to what's already gonna be a stressful situation. It doesn't matter if you've bought or sold, five or six homes buying a home, especially when it's your personal home with an investor is a little different.
They're a little less emotion attached. But if it's your personal home, even if you've bought, a handful of them, there is stress involved. Like you said you guys tend to move every three years. That doesn't mean there's not stress involved when you're going through the process to do it and you're in the business.
Right. still, it's still stressful. And so the more you can plan for that process, the better things are gonna be. And I think again, part of the reason that people don't come and work, come earlier and work, get a plan in place, one is they don't sometimes don't realize that's the process, right?
If you, especially if you've never bought a home before, you don't understand that's how you should do it. But then two, I think I do. Because so much of today's life is on demand and instant buy types of things, like we don't, you don't realize that there are still a handful of different things out there where it's super valuable to have resources and connections to help you through the process.
And so this is, this is one of those things where, you know, having a good. Again, a good mortgage loan officer that you can bounce ideas off of and ask questions about. Having an accountant in a lot of cases is super helpful. There's a reason that the most successful people in the world have these types of people.
And guess what? Talking to a loan officer, talking to a realtor doesn't cost any money. Assuming you're not blowing us up 24 hours a day.
Randy: and then you charge 'em, right?
Troy: I've never gotten to that point. And I can't, Ima I can't imagine that I would, but we'll if I ever have to cross that bridge we'll see what happens.
Troy: Cool. What any kind of ideas or thoughts on where. Things might go from here. Obviously this is 1000 Perspe, 1000% speculation, but I do kinda wonder with this dip in rates now that the Fed has backed the depositor's side of these banks, if things start to settle down, if that might lead to interest rates going back up over the next couple of.
Randy: Yeah, this is just completely specul speculative at this point, but I'm thinking that with what's going on, we're gonna see a, not necessarily a sharp tick down in mortgage rates, but I think we're gonna start to see a sl, a slow, steady downturn. We've had a couple pretty big announcements with the banks and then also inflation data and then job data.
The people that are smarter than me point to May 10th when I believe is a big inflation report set to come out. And then from there, The consensus is that we're gonna start to continually, really go down in, in interest rates at that point. Now, as to what that really means, I don't know if we're gonna get down into the fives again.
Who knows? I've had some people say, Hey, at some point may not happen this year, but next year we, we could back be back into the, to the High Fours. I'm not holding my breath on. . But I am seeing some good positive movement as far as mortgage rates right now. And I'm optimistic that will continue to happen through the remainder of this month and so forth and so on.
Troy: No, definitely the news that you hear for the, over the course of the year seems as if interest rates hopefully will start to come down a little bit since. The spike, obviously that has happened, is supposed to help with the inflation side of things, which once that is a little more under control, would allow them to lower interest rates a bit that way.
Again, I do wonder in the very near term, just because of all the craziness that's gone on, if that might, if we might see a little bit of an uptick in the near, near term. But yeah, hopefully we can get a little bit like say around the high fives, at least low six. By the end of the year and just stabilize that side of things.
And again, obviously it's, there's a lot of factors that'll in indicate where the interest rates should be, but I know it's been pretty obvious over the last. 15 plus years or so that the federal government wants to keep rates relatively low if they can because it just burns growth in all kinds of different sectors.
And so that's good for people looking at buying homes as well too. But they just wanna hopefully get some of the other things that they should have taken care of a little bit earlier this time around under control.
Troy: will see. Cool. I appreciate you jumping on the podcast today and let you get back to, writing those big loans.
Randy: I appreciate you too and it was fun as always.
Troy: Thanks a lot. Talk to you later.
Randy: All right, see ya.
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