Randy Atkinson of Capstar Lending joins the show. We talk about the challenges and opportunities for first time home buyers in the housing market today and where the market is at as well as where we see it headed.
Troy: Hope everyone's doing well today. Today I am joined by Randy Atkinson superstar Loan Officer here in Austin, Texas. Randy, how is it.
Randy: It's going great. How are you?
Troy: Doing well, and I believe you're with, still with Capstar Lending. I know I've known we in our times that we've known each other. You've been with a few different places, but I'm assuming still with Capstone.
Nothing changed this week.
Randy: Yep. Capstar Lending, we're owned by a small little bank called First Bank outta Wichita Falls, but Capstar lending is how we do business.
Troy: Nice. And so it's been an interesting, I'm sure start of the year for you in the mortgage world. Can you maybe what was your rundown for 2022 and where things have started off here in 2023?
Randy: Yeah, it's been definitely interesting to say the least. 2022. Lot of momentum to start the year all the way from 2020 through 2021 at the beginning of 2020. All the way until about May-ish or so, and that's where things really started to slow down quite a bit. And since May of 2022 it has been a completely different market rates have gone up very quickly.
People have backed away from the. Sellers are not able to sell houses like they expected to sell houses as quickly or at the price point. So the market shifted quite a bit. People, some people in our business in the real estate business in general, got out of the business completely just cuz they couldn't make a living. As we've rolled into 2023, things have started to shift a little bit. concerns about inflation have started to ease a little bit. Data is showing a strong economy. Interest rates are starting to settle a little bit, even come down on the mortgage side. So things are starting to get back into more of a organic type setting, and that's bringing more people back to the market to either buy and or.
Troy: Sure. No, one of the things like as loan officers and as real estate agents, obviously we work in parallel a lot of the time, but one of the things that's tricky as a loan officer is. for, especially for someone officers, a decent chunk or sometimes a large chunk of their business can be refinanced stuff.
And that because of the rise of interest rates completely dried up. Even if people were interested in buying or selling home, there was no need to refinance from the 3% rate that you got a year ago, up to six and a half or 7% at this time. But yeah, again, obviously a lot of similar things that I'm seeing too is that.
Af around that may timeframe of 2022, you had people that, obviously inflation started to really spike and be really noticeable, I felt for people, right? Like it was there a little bit earlier, but like it really suddenly felt like it was actually like hitting your pocketbook when you went to the grocery store, hitting your pocketbook when you went to the gas station, all those kind of places.
And . That coupled with obviously a rising in interest rates, which affects affordability for a lot of people's homes. And then the third straw to me, which had been because of those things, people were wondering about their jobs. Like a lot of companies had done hiring freezes, and so it's really hard for someone to want to buy a home when they're like shoot, there's a possibility that we could see layoffs.
And obviously a lot of large companies that are right here in Austin. Have done laps. They haven't all been locally here in Austin, but you have Facebook and Amazon and Google all announcing quad or what quintuple digital layouts, 12,000, 18,000 people. And if you're going to, if you're thinking about buying a home, you wanna have some job stability.
But I would agree with you as well on we're 20, 20 threes at there's a lot of data showing that the worst seems to be behind us, economically speaking. And then with interest. Hitting their kind of water level. They're hopefully a place where they'll stay a little bit maybe, or hopefully come down a little bit.
But at a place where people can digest that and understand, here's what I'm dealing with. It's allowed some renewed interest in the market and renewed interest in your world too.
Randy: Yeah, I think it's a interesting time. If you just look at the last, let's call it eight months it can not feel awesome. But if you take a step back and look at the grand scheme of things, This is really a time where people can buy the house they truly want to buy. Versus let's say two years ago people were buying homes just to buy homes and they weren't necessarily getting the home they wanted.
They had to give up quite a bit as to as far as their wants, whether it be the number of bedrooms or if they wanted a fireplace or a. and many times those particular people had to overpay just to get the home because there was such a frenzy of people trying to buy. Now we're on the other end of that spectrum.
And so sellers that are at bringing their homes to the market right now are trying to do everything they can to market their property to draw in buyers, which is a really nice shift for people that are looking to buy the house, whether it's second, third house, or particularly for those people that it's a first time.
A lot of times those first time home buyers weren't able to compete in the market last couple years because they didn't have the additional cash to bring to the table. They, maybe they had a particular financing product that sellers just weren't willing to accept. And so now, or maybe they just had marginal.
And they were just like, I'm not sure if this is gonna work out. Now they have an opportunity to come in, not only get the house they want, but also maybe dictate some terms on that contract where it's gonna be a really nice property slash investment for them long term.
Troy: Yeah, no that's probably been, that's probably the biggest opportunity going forward, right? If you had wanted to buy a home late 2020, early 2021, but were a first time home buyer who didn't have 20% down, didn't have a lot of additional cash reserves, like there was just no way your offer was gonna get accepted when other people were putting at least 20% down, if not more, or all cash offers.
And Those people, if you know a first time home buyer or a second time home buyer that just doesn't have a ton of cash, now they have the opportunity to get back in the market. Yes, the home prices are not as cheap as they were in early 2021, and interest rates have gone up so that cost of that mortgage is gonna be more, but you can actually go ahead and potentially negotiate with the seller.
Choose you. Within your budget neighborhoods and homes that you want and have some options where there were plenty of first time home buyers that just had to exit the buyer's market because there was just no way their 5% down offer with no appraisal contingency and no other types of things was gonna have a chance of winning the deal.
Randy: Right, and the big key for the first time home buyer is just being able to get in because at some. , that point where they're in helps them piggyback to the next thing, whether it's the next house or maybe they make some money on the equity of that property and they use that to start a business, travel, whatever.
But it's the first entry point into that world of building wealth through real estate. A couple years ago, they just weren't able even to do. It just wasn't possible. So now is the time. Even though maybe the financing terms aren't as favorable, maybe the house prices are a little bit more expensive, but it's now as their time to actually get in and so then they can start to build that wealth 5, 6, 7 years down the road.
Troy: Yeah, no. Again, it's like a lot of things, life are about timing and so you're right. Had obviously, if you had known, Hey, I should buy a home in early 2020. Before the pandemic hits. That would've been great for the last three years to have gone for housing prices, but you're not gonna know those scenarios.
And so usually, especially as a first time home buyer, you've gotta get in when it feels a little uneasy. There's usually gonna be some, shoot, this is more than my this is more than my rent payment. I'm committing myself to a while because you really shouldn't buy and then just turn around and sell if I don't like it.
So it feels like a commitment that way too. But as you mentioned, you're not gonna. Get the benefits of that home price appreciation. You're never gonna get the benefits of stabilizing that monthly payment because over the last three years, if you didn't buy a house and haven't, didn't have that stable principle and interest payment, your rent's gone up quite a bit as well too.
And it's it's still ch While it can still be challenging and stressful for anyone, but especially a first time home buyer to make that leap. it's, if you're ready to make that commitment, it still can be a really good time to do it, and a lot better time than the last couple years have been.
Randy: Yeah, I agree.
Troy: What do you, I know you deal with developers and some different projects and stuff that way. Are you seeing anything on those fronts at all regarding the market?
Randy: What I have seen is the larger track builders. Have slowed down from land acquisition quite a bit. And they're really trying to get what they've got already, their inventory of land slash homes to be built off their books. And so because they're concerned about the economy, the downside of that is, is that's gonna take us back to an inventory crunch.
Because at some point we are going to come out of whatever this is, and people are still gonna need housing. And a lot of people want to buy new homes, but if they're not enough new homes to fill that appetite, resale is gonna be where it's at again. And then here we go back again. Now I'm not gonna, I'm not saying it's gonna go back to the supply and demand situation that we had a couple years ago, because I think interest rates had a big piece of that as well.
But it's gonna st it's gonna definitely. tough. At some point down the line for people that maybe they've decided to wait to see what's gonna happen with the economy. And then when they feel good about it, they're gonna jump back in along with everybody else that has waited to see. And it's gonna be tough again.
And at some point builders are gonna run out of inventory. And then we're here, we're back our here, we're back to the resale piece, and everybody's gonna be going after the same product, which is gonna drive prices up, which is going to continue to. Domino into a lot of people getting frustrated with trying to buy a home,
Troy: Sure. No, I think one thing that a lot of average people don't realize is that Mo a lot of these home builders, especially the larger ones, are publicly traded companies. So they're doing things based on these 90 day quarterly metrics to hits, to hit their publicly public estimates of what they should do so that their stock price looks good and They again, when they need to, they'll slash prices lower than they lower than you would normally do if you're really thinking out 10 years.
But if you're only thinking out the next 10 months, you're gonna do things differently slash the amount of inventory you're buying slash some prices to actually just make sales happen. And then vice versa, you do, you start to have that inventory crunch and then they can, start to build more charge premiums and make additional profits.
that way. The, I've noticed that too. I say even sellers, like we talked about that, how home prices have obviously come down a bit from the peak of May, 2022, but a lot of sellers. Have been, are a good place with their home to where they aren't really having to sell. They're like, ah, let me turn around and actually just rent the property out.
And so that's also, I think, led to a relatively low inventory levels, because right now it feels like there's a ton of homes on the market, but that's compared to 20 21, 20 22. If you look back, the previous years before that, 16, 17, 18, 19 in Austin, here specifically, Yeah, we had definitely way more inventory than the last two years, but we never had a ton of inventory.
And good properties would still go quickly. You'd still have the occasional, multiple offer situation, but it would be two or three people, not 20 or 30 people. And I think I d you know, while I think for the year we're likely to see home prices stay relatively flat, either a bit of a reduction in the interest rates.
Or some really good news job-wise for people, could see enough people come back to the market that we actually potentially see a five or 7% increase in home prices just because the amount of supply is not very high out there in the big scheme things.
Randy: Yep. I also think that going back to the sellers deciding to rent with those interest rates being low they're thinking I could turn this into a rental property, potentially cash flow, and then go buy the next property and put five, 10% down. And then when rates do drop, I'll just refinance that, but I can buy the house and not sell it because, I wanted to maybe sell it a couple years ago, and the price point was here.
Now if I try to sell it, my price point is here, so why would I take my quote unquote loss, even though it's truly not a loss, but in,
Troy: still feels like a loss, right? If you're a homeowner who goes on Zillow, which doesn't have accurate estimates, but if you go on Zillow or you look at the county record, and somehow it looks like your home's valued less than it was, and again, right now your home would likely sell for less than it would've April, May, 2022.
But again like it's only. Like it's only a loss if you had sold it and then had to resell it. Like you don't, it's not an actual physical loss that way, and but it's still mentally hard to not live by that number. That what you could have gotten for it.
Randy: Sure. The biggest, the one that I hear the most often is my neighbor sold it for this. I want to sell it for this. My realtor says I can't sell it for this anymore, so I'm just gonna lease it out.
Troy: Yep. And that's And two, right? Like that. I think that's, There's been a little, there's like news in the market about, all these price reductions and I think more of it, while, again, while home prices definitely aren't going for what they did May, 2022, it's more so the, these price reductions aren't because home prices are falling that dramatically.
It's more because. , you have that. Oh, I know. My neighbors sold it for this. So mine should be worth at least that when, Nope, it should be a little bit less than that because it's the off season, because buyers have not been out really looking for homes right now. And so it's not that prices have fallen near as significantly as a lot of the news outlets or different things want to make it out to be, but.
In each individual seller is, has a hard time, a lot of times understanding what their home's truly worth. And so if you don't have a good realtor assisting with that and saying, Hey, do we want to sell it? Because if you need X, y, Z number, but it's only worth a b ABC number, then maybe you should rent it if you don't have to sell it at that point in time.
And so this, a lot of people are turning that way. Plus, like I say now, if I can rent it, have this ridiculously low interest rate Buddy who's trying to do well in business, would love alone at the rates that people got their mortgages for. And so if you have an asset that's at that interest rate, now suddenly with rents rising, you might be cash flowing that property that might actually help you afford another property, a better property the next time around.
Because now you have three, $400 a month in additional income coming from this rental property that's at three.
Troy: That, and then the other tricky part is going, that I can potentially see happening from a inventory standpoint is a lot of people who may normally move within the city, maybe upsize, downsize, those types of things, because they now have such a good interest rate that they got in the last two years, they're gonna have to, they're gonna think twice about buying that property across town or in the neighborhood that suddenly would require them.
Jump up to that five and a half, 6, 6, 6 and half percent rate because why would I make that move and double the interest rate that I'm paying for home? And so that will also, I think, limit the supply of available homes.
Randy: Yep. I agree.
Troy: What do you see have any kind of predictions or any information or news as far as where it seems like rates are headed for.
Randy: I would love to have that crystal ball.
Troy: Both not be doing this podcast and we'd be retired if we had this crystal ball, so that.
Randy: I really think that we're starting to turn the corner. I think we're gonna continue to have an interesting February march. I think when we get into April, we're gonna start to see, really see the settling of interest rates, and then I think there's gonna be a very slow tick. And mortgage rates.
They're the remainder of 2023, but it's not gonna be this big boom. We're back into the 3% range. Like I don't honestly think we're gonna get into three range for a long time, if not ever again. I think we're probably gonna tick down into the fives, maybe touch high fours, but that would be long term. It's just gonna be a very slow, steady decline, but I don't think it's gonna be anything that's gonna be, ooh, it's going to light a fire.
The rates were held so low for so long that unfortunately this needed to happen. The problem, because they were held so low for so long that. , we were in a bind and rates needed to go up, and unfortunately they went up quickly and nobody wanted be, nobody wanted to be the person that turned the lights out at the party.
Everybody wanted to have rates low and money flowing and available credit, but at some point there's too much, so you gotta tamper that, and nobody wanted to do that, and so it, it went on for too long rates. Then finally, The adults came in and said, okay, we gotta do this. And it hurt and it's hurting still, but it's slowly starting to settle, and that's what I expect to see through the remainder of this year and even into next year.
Troy: Yeah. It's interesting. I feel like this year, like the predictions that national economists do and. The Realtors Association, all those kind of things. I feel like there's been a bigger spread as far as the predictions of what's gonna happen. Anything from down back to the low fives, up to 7% or over 7% for interest rates.
And usually there isn't quite that much disagreement in a lot of cases. I a hundred percent agree with you, like un unfortunately. again, the adults couldn't have gotten together sooner and done the gradual rate rising thing, which they should have done, which would've been beneficial to everyone involved had they done it so that it wouldn't have felt so jarring when they had to r raise interest rates as sharply as they did, as quickly as they did.
It is interesting too about. But unfortunately those same adults like that, again, rates aren't going, in my opinion, down to below 4% anytime soon. And honestly, they probably shouldn't ever, but I actually wouldn't be surprised if at some point in time they don't. Again, I think that's years at a minimum out the road, but. again, the adults at the room, like people to have ac easy access to money. We're a consumer driven society, and so low interest rates mean people buy stuff, which means people are happy, which gets people elected places. And at some point in time I wouldn't be sh I, I would be less shocked now than I would've been, 10 years ago.
And I'd be like, there's never, you're never gonna see stuff at that this low of rates. I feel like at some point in time, proven that they probably will again. But again, I think that's well down the road for that to ever happen.
Randy: At this point, I've learned that I will never be surprised again.
Troy: That's, yeah, that's the biggest thing, right? Like you have your suspicions on where things are going, but you're not if it's completely in the opposite direction, you're not gonna be like I nev didn't see that coming. Like any, anything is possible.
Randy: Yes. It just expects change.
Troy: Again, as a former mortgage loan officer, I know that every once in a while, or not every once in a while, but there are usually loan products out there that pe sometimes people are not as aware of. Is there any kind of special or any kind of loan product that you guys have that maybe people weren't able to take as advantage of as.
Or maybe just didn't have necessarily the last couple of years, but is something that you think would be, could be beneficial to a few people out there.
Randy: Yeah, I, the, one of the things that comes to mind is a bridge loan that we have bridge loans. we're fairly popular some years ago, and they just went away. And it's not a a great, I wouldn't say it's a great loan for a bank, but really it's a loan built to use as a tool to help a consumer buy the next house if they currently own a house.
So the scenario would, . So I own a home and I've got good equity in my house, and I would like to buy another house, and I want to sell my house, and the traditional way would be do what's called or do sell it before I buy or do what's called contingent, meaning that I find a house that I want to buy, I go under contract, but the contract is contingent upon me selling my departing residence.
The problem with that is there are a lot of dominoes that have to line up and fall properly for that to work out. And sellers, let's say that the house that I want to buy, sellers don't love that. So if I come to them and say, Hey, I wanna buy your house, but I have to sell my house, so I want you to hold this house off of the market for me while I work on selling my house.
A seller doesn't necessarily love. So a way to stay in front of that would be utilize a bridge loan. And a bridge loan would be, come to a seller and I say, Hey, I want to buy your house. And the price is negotiated. I buy the house using the bridge loan product, and the way the bridge loan works is it's an interest only payment deferred loan for up to six months.
So basically just as accruing interest in the background, I can move into the new. And then I can start working on preparing my departing residents so I can list it, sell it, all of that. Whenever I do sell it, I will take the proceeds from that cell and whatever I would like to put into my new house, and I will just transfer that over and do a principal reduction, and then I'll refinance that into a traditional 30 year fixed, 15 year fixed, whatever I'm comfortable with at that.
Troy: Yeah. No, again, as a real estate agent, it's definitely I think contingent offers will become more accepted. It's still definitely a, he a They weren't at all the last couple years, but it still is a hesitancy for a lot of other sellers because they, to take your home off the market and know that there's a, the potential that this sale then just doesn't go through.
30, 45 days is always a concern for sellers on those bridge loans. They're they are a really nice product, but they also, you also need to, the consumers need to have a really good understanding on both sides of the thing, right? This is where you have to be listing your. , understand what your true value is in the home you're trying to sell.
Because if you think it's gonna sell for 650,000, it's only gonna sell for 5 75. Now you're in this new house with this interest only loan, and you're not gonna get this other home sold because you don't have it listed at the right price. So it's definitely something that can be super useful, but is something where you have to be very realistic on everything that's going on to make sure that it's done smoothly and. it doesn't cause more stress than the buying and selling process can cause.
Randy: Correct. Correct. And that's something that we'll talk about with clients and go super conservative and go, okay, you may want to sell it for six 50, but what does reality say? And that's when we engage. The realtor and say, Hey, what is a good number that we can use? And then work the math. And the math doesn't lie.
The math doesn't have emotion. And then we can really decide, is this a good fit or is this something that we need to not do? And let's go to the traditional route, what we sell before we buy or go contingent.
Troy: That's why I've always loved math. It does not lie.
Randy: Yeah, not emotion.
Troy: I dunno. That's awesome. Yeah, no, that's some great tips and some good advice and hopefully some people can find that information useful. So I appreciate you taking the time to jump on here and and chat a little bit. It's always enjoyable chatting with you personally, but also, talking real estate and talking mortgages is fun for me,
Randy: for sure.
Troy: Cool. That's awesome. Have a great day.
Randy: All right, you too.
Troy: Thank you.
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