Tom Hallock of Loan People joins the show. We discuss when we expect to see buyers coming back into the market, the potential for a buying frenzy due to many buyers delaying the purchase of a home and why this slowdown is not similar to the 2006 real estate crash. We also discuss the importance of talking to your mortgage company if you are having issues making your payments.
Troy: Welcome back to the podcast. Today I am joined by Tom Hallick of Loan People. How's it going today?
Tom: Doing great. Thanks for having me. Troy.
Troy: Great for having you back on. Got the, got the name right and all that, the name and the business name. And one take, so it only took us to episode two with you, Don, to, to have all that down. I know, we'll getting into it right off the bat, the big kind of information in our world was the C p I data that came out yesterday and unfortunately it showed a small uptick in.
inflation. Nothing crazy. Still down from the highs of late last year, but what did you, what was your kind of takeaways from that, that data and how it might impact interest rates?
Tom: Yeah. Yeah, that was definitely not what we all wanted to see necessarily. But. Talked a little bit about this with people, which is like C P I is a rolling 12 month average. And so when we get January's inflation data, which is what came out yesterday, it's dropping off 2020 twos January, and 2020 twos January was one of the lowest months.
So not unexpected, but at the same time, the market reacts to what the market reacts to, which is, it doesn't look great right now. But I think over the coming months it's gonna keep trending down. But right now, , rates are mostly flat over the course of 2023 as opposed to the big drop-offs we were hoping for.
But that being said I think the trend is still gonna be downward as these reports continue to come out. So a mixed bag, not what we necessarily wanted to see, but also not super unsurprising. But what was your reaction to it? What did you.
Troy: Yeah. The same thing. I know we had also talked about last time how. interest rates are driven by a number of different factors, and it's this could be better to potentially help interest rates and might mean that the Fed, I don't think anyone really expected the Federal Reserve to lower rates anytime soon.
It might cause them to feel like they still need to raise 'em a little bit more, but that doesn't necessarily mean mortgage interest rates won't stay relatively steady because you had talked about that spread. of what investors are needing to really feel comfortable giving loans. And that, and the market has eased a bit that way.
It's also not like that. I also, I'm usually trying to run data on the housing market numbers here in Austin. Try to run 'em before Austin border Realtors actually puts 'em out. And in looking at that for the city of Austin, saw that home prices actually were. Fractionally about one and a half percent compared to the same, compared to January last year.
Now volume was down, less homes being sold, but I don't think a lot of people would have necessarily predicted that. And so it, to me, it shows that things are relatively stable. Again, not seeing a ton of positive news signs and news. , it feels like people have to overinflate whatever the news is, whichever way they wanna go with stuff.
And so it's one of the things, one of the reason I don't watch a ton of news, but it's oh, if it's a, that one, that 0.1% higher on inflation, suddenly it's oh, inflation rose. Or
Tom: Yeah, everything's going
Troy: the, if, yeah. It's it's just it's just interesting, but it feels like things are.
At least relatively stable, like you say, we gotta get rid of for the C P I data, we gotta get rid of these numbers from early 2022 that were really good to really get to see where that average is truly at.
Tom: and Yeah, and that's a great point is one of the big names in mortgage rates and the data that goes into tracking them is Barry Habib and he said that , these numbers are gonna be a little mixed at the beginning of this year, which has been true so far. But then he said coming come April, may, when those inflation numbers were really bad last year once those numbers start dropping off, we're gonna see rates come down pretty precipitously.
He thinks. Who knows? There's also potential for other data other than just inflation, which is . Fun to realize cuz you know, , I think we talked about this briefly before, but inflation is the big metric that everyone's looking at right now. But then there's jobs numbers, there's international data, there's other events that can happen in the world.
And so it's ifl all eyes on inflation for now. But it's also important, as we ease out of this, hopefully, knock on wood that's not gonna be the only thing that people are looking at as far as like where mortgage rates will go.
Troy: Now going back to my. Less than stellar reviews on news and national media. One thing that was in our, in favor for real estate agents and marginal officers was some data that I saw showing an uptick in mortgage applications. And some organizations talking about that being because interest rates dropped marginally, and that being such a good sign for the market, which don't get me wrong, if rates are dropping a little.
That's great. We'll take it. But it's not really how I read the data at all. Like you can read or imply a lot of your own opinion into data sometimes. And like in, in this case, the headlines made it seem like, oh, because rates came down a quarter of a percent, suddenly people were jumping in to buy homes.
And I'm like, that's not making a huge difference in people's decisions to buy or sell a home.
Tom: Yeah. And it's funny cuz I always in my head, so this isn't necessarily true, but in my head I'm always, I always think of it as if there's a fixed number of buyers per year. So there's a number of people who need to buy a home and they're gonna buy a home either this year or they're gonna push it to another time.
If. Q3 and Q4 of 2022 were really low as far as closings, people actually going through with the purchase of a home. Those people didn't just disappear. , like they're still going to be buyers. They just became future buyers. And so at some point a lot of those people are gonna jump back in. And I know a lot of real estate professionals are saying this right now, which, and it's true, which is if people are waiting until rates come down, they're gonna be in the fray with a lot of other people who put off the same decision.
So if you if you can find a way to win in this market, which is maybe a more negotiating power with the seller, something like that, then you know, you can always look at refinancing in the future. And that way you're in a home when there's more of a frenzy out there of people who have been Hanging on, waiting until the rates came down.
Troy: Yeah, no, a hundred percent. Yeah I, again, some of the research that I do to stay on top of the market, I think I'm gonna potentially try to do a video on some of it that I found, but right, like inventory levels are still relatively low. It just feels like they're much higher because there's actual inventory out there, which there wasn't for the last two years.
And so it's oh my gosh, there's everywhere. But that's not really the case. If you look over the last decade, we're still at some of the lowest inventory. That we've been at. And so it, if things like inflation starts to get more under control, interest rates start to come down, companies stop cutting jobs and maybe even start hiring things so that people feel competent in their job security, it wouldn't take a whole lot for the market to turn around really quickly and.
Situations to be not the same as they were the last two years because there are a number of other factors that aren't gonna be the same that way, but to be another really hot market like it has been in Austin for most of the last decade, even prior to the pandemic and all the transient nature of people moving here because of new work from home things and Covid.
Tom: Yeah, and I think we talked about this o off camera at some point, but to me there's three pathways always, which is you either think rates are gonna go up, you think they're gonna stay the same, or you think they're gonna go down. If you think they're gonna go up, then now's your best chance to buy
So you've gotta, you've gotta do it as soon as possible, because it's just gonna cost more to buy the same house in the future if you think they're gonna stay the same. . There's no advantage to waiting. It's not like you need to rush, but at the same time, why would you wait to initiate home ownership?
And if you think rates are gonna go down, that just means that there's gonna be more people jumping into the market in the future. And that means you'll have a refinance opportunity in the future. So you can have negotiating power now and get in there. All signs kind of point to like trying to time the market is gonna be a fool's errand.
Like no matter the pathway, you can be a winner right now.
Troy: Again, try trying to time any market is basically not a good recipe for success. You would, if I rates really did rise up a bunch, the counter argument would be that home prices have to come down cuz of affordability concerns. But again, in what I'm seeing, in the ground level with homeowners is they're able to decide, Hey, we don't really want to sell, or It's challenging because all the buyers have left the market.
We'll just turn around and actually and actually just lease the property out because, if we bought 3, 4, 5 years ago, we can easily cover our mortgage with where rent payments are at right now. So
Tom: And who's paying that rent?
Troy: Yeah, exactly. The people that don't wanna buy homes. And so again like it's a tricky balance.
I can definitely, I have a couple clients as well who are a little bit on the fence because one works at Amazon, one works at Google, and they're, just had 12,000, 18,000 people layoffs. And they're shoot, do I really wanna buy a home and then suddenly find out that my job is being cut six months later?
And so I, I get that part of it. Wanting to be a little bit more, again, that's why for me, I think the job security portion is the tipping point. Once people have that in their mind, then I think there's gonna be a lot more people that enter the market and. If you don't have that job security, yeah, it may be challenging to wanna buy a home, but for most especially first time home buyers, it always feels a bit challenging.
A bit overwhelming, stressful to buy a home because you're making a commitment. You don't wanna be selling in a year or two. Cuz that's not a money winning strategy at all. And you're usually gonna have a higher mortgage payment than you have a rent payment. But the advantage is that you're kinda locking that in long term versus riding the rents that have been continually increasing over the same amount of time that home.
Tom: Exactly. And you're getting the tax benefits and you're contributing toward your equity. But as you mentioned, that's, that should be a longer play in most cases. But yeah, you're exactly right.
Troy: So one of the other things that I had seen in some articles was that there's a study out there where apparently 67% of Americans believe that ho the real estate prices will crash in the next three years. And I can only think that is the case because of, again, News, media and other things again, and it's, most people shouldn't get into the weeds about real estate like you and I do.
It's not their job. Like you, maybe you need to look at if you're buying a home or selling a home, or if you own a home, stay on top of it every once in a while, but it's not necessarily worth getting way deep into it, even though we find it fun. But it's but like it's one of those things that once you are there it is.
I do, this is where I do think it's valuable to. Connections that are actually boots on the ground, right? So like instead of listening to a CNN article or even a Forbes article or all those kind of things don't even just listen to K X A N here in Austin, but have a realtor, have a war zone officer.
Have people you can reach out to and talk to periodically to see what they're actually seeing in the market, because they're gonna have a better idea of when things turn around rather than these national news organizations looking at data that's three months old, six months old. Making up stories because they want clicks on their website so they can continue making revenue.
Tom: Exactly. Yeah, and you're exactly right. I think. And we talked about this off camera again, which is sometimes those articles are just meant to drive clicks because they know people are gonna go on there and say, that's not true, , this is, people like to think that it, there's going to be these giant similarities between right now and 2007, 2008, 2009, that, that timeframe.
And it's just a completely different world. And that starts with the lending world is so vastly different, and we talked about this on the last podcast, is just. that you actually had to qualify for a loan rather than back then when it didn't matter. , if you had a pulse you were gonna get something.
And now, you do have to prove some things that you do have to show some documentation, and that's been a good thing. That means it's been metered growth. That means it's been actual there's some fundamentals to the numbers. It's not just like the numbers came out of nowhere. Yeah, exactly what you're saying is what I see on my side as well.
Troy: Yeah. And again like the fact that, Austin. and the specific numbers would also have these projections of where it would be size-wise in 2030. And what, one of the, two of the biggest reasons for the increasing price is yes, the low interest rates. So it may made easy money, but covid one because you suddenly now, We're at home 24 hours a day, seven days a week for a year and a half meant that home was more valuable to you, not just from a net worth standpoint, but from a livability quality of life standpoint.
And then two, you had. a lot of people that weren't having a good quality of life in a condo in New York City or a condo in San Francisco who are like, let me go find a place where I can still, the parks are open, where I can have a little bit more space in my house. And so people that would've eventually moved to Austin over the course of a decade suddenly did it in the course of a year because because of that.
And so there are some very specific reasons why home prices did what they did. not necessarily gonna be reversed cuz I don't see people ha companies requiring people to move back to San Francisco, requiring them to move back to New York and. Yes, there are some people who might realize, Hey, I enjoy hanging out with people and so this, four bedroom house that I bought all the out in Liberty Hill is too far away from the people that I enjoy hanging out with.
Let me sell that and move back in, into an apartment in the city if they want to. But it's not gonna be a substantial enough number to suddenly have home prices crashing.
Tom: fall out of the sky,
Troy: Yes, exactly.
Tom: And you've brought about a good point, which is those people who are making those decisions right now you mentioned this a little earlier, is just sellers are getting to choose a little bit more when they sell. If you bought prior to 2020, then you still have a pretty sizable equity gain over the last few years.
So like they're sitting on more equity, even if prices relax a little bit more. . And then also if you refinanced or you purchased in 20 20, 20 21, and you have a crazy low interest rate, like a lot of those people aren't willing to let that go into foreclosure. They're gonna do everything they can to keep that, because that in itself, having a mortgage with that low of a rate is an asset in a way.
It's just I don't think there's gonna be that willingness of people to let a property go and. I don't think we're gonna see, there's always an uptick in foreclosures when there's a downturn in the overall market, in the overall economy. But at the same time, I it, I don't think it's gonna be this giant spike that we've seen in the past.
Troy: No. And so again that goes back to the, I was mentioning, so there. , was a spike in pre foreclosure kind of scenarios, cuz it didn't increase. I don't remember the specific percentage, but it has increased quite a bit since 2021 in the last year or so. But but the percentage of people in that pre foreclosure stage is still 80% below what it was in normal times, 2010, 11, 12, and, 200% below what it was in 2006, seven, and eight.
And so again, that's another one where you can be like, Ooh, there's an up. Have a headline. Ooh, there's an uptick in foreclosures. But that doesn't really tell the whole data because it's still, other than again, the last year or two when it was at the rock bottom levels, it's up a little bit from there.
But really, we're at lower levels than we've seen since pre 2020, or excuse me, not 2020 since pre. 2002. So like for 20 years we haven't seen this low of levels in pre foreclosure activity. And so that's another example of why you're not gonna see this plummeting real estate market crash.
Tom: yeah. Yeah. It's such a great point because I, again, I think about things in there's not a fixed number, but there's an average number of things that happen per year. So there's an average number of foreclosures that happen every year. There was essentially a moratorium on foreclosures through 2020 and 2021.
those foreclosure situations, those people going through those situations didn't necessarily just disappear. So yeah, there may be a spike after that goes away, but that doesn't mean that the spike is now gonna become a mountain. It's just those things were built up over time. And so there was a, a bump coming out of that.
But yeah, a great point that that there'll situations hopefully aren't normal , that we're gonna have a 20 20,
Troy: but it's not, yeah, it's not the doomsday scenario that some people wanna make it out to be. For sure. . But speaking on that, talking about, people being hesitant to get into a home because of the job security or someone who's lost their job and now doesn't know how to make their mortgage payment.
And I know you don't specifically deal with servicing, but I think it's important to talk to people about options they may have if they don't feel like they can make a mortgage payment or are worried about being able to make a mortgage payment. Because I think, again, a lot of people, if you're not in the weeds like you and I are, Then you just think shoot, I just can't make a mortgage payment.
But they don't realize that most mortgage service providers, the people that are actually collecting your payment, For the mortgage. They'll have, they have systems in place cuz they really, they don't wanna own your home. That's the other thing is oh, the bank can just own my home. Cuz they wanted foreclosure.
None of them want to own your home. They want someone who can pay a loan. That's what they're set up for success. And so a lot of them have programs to potentially provide some assistance either with delaying payments, su suspending payments for a period of time and doing things to.
Help ease that transition. So maybe if you lost a job for a few months or whatever that may be, maybe have some more information about that. Cause it's not something I've specifically looked into really recently, but I know that's out there for homeowners.
Tom: You're exactly right. And it's not my specialty, but but servicing is something, and you said the most important part of it, loan servicers they don't want to own your home . They want you to keep making payments. That's how the whole system is set up to make money over time. And so yeah if there's a situation where someone doesn't think they can make a payment, if they lose their job, if there's financial hardship, it's really important to reach out to your servicer cuz each loan type is different.
There are different types of workout plans in a lot of situations, but it's important to reach out before just missing payments because if you start missing payments without contacting your servicer, that becomes a much bigger issue. Because that's something that is gonna affect, first of all, it's gonna affect your credit over time because 35% of your credit score is on time payments.
So don't put yourself, don't put your future self in that situation by just letting that happen. But most of all, reach out to them. You won't know. And I think this is a theme of what we're talking about. You won't know. You what programs your servicer has available until you ask. Just ask, call and ask and talk through the, through with them.
Because the , we'll call it a silver lining of 2008, and COVID 2020 is a lot of these servicers were forced to set up programs to help people work things out. So where maybe in the past a servicer would've just. Not taking the call and initiated some sort of foreclosure proceedings, , a lot of them are now like, no, let's work it out.
We'll figure it out. And then, we'll see what we can do to keep people in homes and keep them on some sort of reasonable plan going forward. You're exactly right. Ask.
Troy: like I say it's not, yeah, exactly. Like I say, it's not either of our forte specifically because we're not mortgage servicers, but I'm not aware of any mortgage service or podcasts out there. So I feel like it's getting the news out there, getting that information out there that like, don't, again, and don't get me wrong it's hard for a lot of people when there's change or when there's high stress.
We mo a lot of us tend to freeze in that scenario and kind of put our head in the sand, but the that's the worst thing you do because once you do start to have the late payments, not only does it affect your credit, but now you start to trigger some things in those loan docs that might mean they have to foreclose on a property.
So yeah, ask questions reach out to the service providers because they, again they're, the way they make money is by you making your payments and so
Tom: And every even if you heard a story about someone calling their servicer and getting shut down or something, every situation is different. Every loan is different. Every servicer is different. Just ask the question, make the call. It's worth it. Which again, I think is a theme of a lot of the stuff we talk about , don't
Troy: Yeah. Like you hear the story about, oh, they didn't help me with my thing, but you, they forgot to mention that they hadn't make a pay, hadn't made a payment for the last six months. So they're like,
Troy: down the You just, you rarely get the whole picture. So
Tom: yeah, those little details slip through the cracks sometimes
Troy: of important details. Exactly. One of the things we speaking of reaching out, one of the things we were talking about before we got started that I think is important too, isn't so it's not just if you Have questions or concerns about missing a mortgage payment or something like that, but that if you are, if you're thinking about real estate, whether it's buying a home, selling your home, whatever is that you should potentially re, you're not potentially, you definitely should reach out to, again, a trusted real estate agent, a trusted mortgage loan officer, a financial advisor, because there's a lot of information that isn't necessarily widely known.
Can then prohibit some people from making the decision to buy a home. And so you had talked about a story or two of some people who didn't realize you could put a buy a home with less than 20% down.
Tom: exactly right. And to start this conversation. Most of the conversations I have with people most, they start six to 12 months before an application is even taken. Cuz it's just about getting information, understanding what is out there and then going from there. But yeah, I get a, I've gotten a lot of emails of people saying, oh, I'm planning to buy in three or four years because I, I need to build up to get that 20% down payment.
Most people first time home buyers can get a conventional mortgage loan with 3%. . Now there are caveats, there are ifs, there are thens, but at the same time that's something that is possible for so many homeowners. And if they're waiting that long to get that 20% down, they're gonna miss out on equity gain.
They're gonna miss out on the tax benefits. It's one of these things that like, if they. The sooner that they talk to a real human about it to see what their situation can allow, then the sooner they can know exactly what to expect and maybe change their goals, maybe move their goals up.
So that, that's something that I've run into a lot recently is people saying they're waiting till they have more. And now is a great market for buyers cuz there's more equilibrium than we've had in the last few. To be able to say, oh, okay, maybe I do qualify with less down and maybe I can ask for some closing costs from the seller.
Whereas if rates come down and the market gets hotter and sellers are less willing to participate and less willing to negotiate then it makes it a little bit harder. It makes it a little more
Troy: again. You may miss out cause you have to go back to, maybe multiple offer scenarios. Again, I don't think it's gonna get to the 20 and 30 offers on a home like it was. Last couple years, but even just two or three offers on a home where suddenly you only have 5%, 3% to put down makes a difference if that other person has 20%.
So then it can be tricky to win a multiple offer situation. But for most people, for a lot of homes right now, you're not seeing that a lot. And so you have, again, more. negotiating power. More flexibility in your circumstances now than you've had in the last at least couple of years. And honestly, even some, I would say even going back to probably like almost 2015, 16, the most negotiating strength you've had.
Not quite some time.
Tom: Yeah, I think even pre Covid Austin specifically had such a, and you would know this, there's such been such a low amount of inventory for so long that, like you said, , if a market equilibrium is six months of inventory, we're at three. That still means it's a seller's market, but at the same time, that's two more months than we've had.
So it like take take the win
Troy: exactly. Very much wanted to kinda, I, again, speaking of what people don't necessarily know, and again, I don't know how many people will listen to the podcast and then suddenly remember a unique loan product five years down the road or five months down the road, we'll say five months down the road when they're ready to actually purchase a home.
But one of the loans you had mentioned that. is a little unique that people probably don't know about, but also that be one reason they don't know about it is that it's not a loan that everyone can qualify for because the situations have to be right, but is an investor cashflow loan.
Tom: Yeah, exactly right. And so these type of loans are still available. It's. , it's for a little bit more sophisticated of an investor usually, but there are a lot of people who, maybe they're self-employed, they write off all their income, so they can't income, qualify for an a traditional mortgage, but they wanna buy an investment property.
They want that next investment. These investor cash flow loans, if the monthly payment, the total monthly payment is gonna be covered by the market. , then that's the income qualifying. So there are sub parameters and things beyond that, but at the same time, that takes that income qualifying piece out of it and boils it down to just those numbers.
So there are some more sophisticated products like that are still out there that people can take advantage of. So that's, I know we're talking about two ends of the spectrum where it's like first time home buyer can put a lot less down and then there's also , these more sophisticated investment property.
Where people can qualify for something that they may have thought that they couldn't. Again, it's just asking the questions, talking with professionals. Talking with professionals in the market about your specific situation, because every situation is different. I'm sure you see this on the realtor side too, which is.
everyone's unique. It's so easy to think that you can paint with broad strokes, but everyone's scenario and situation is just a little bit different. And those little differences can be a big factor in whether someone can buy a property right now as opposed to waiting.
Troy: Yeah. That and again, we're, I know for you and for me, both we're happening to have like quick answers to different things, right? Someone, oh, do I need 20% to purchase a home? No. But in reality, it's why it's important to have a little bit deeper conversations because you know someone who thinks, oh, I'm.
Self-employed by right off all my income. Would I be able to get a loan Like on first blush, that's no. But if you don't realize that they're, part of their self-employment is that they own other investment properties, till they have that history of showing they know how to manage investment properties, now shoot.
Maybe now we can actually do something for 'em. And so I think a lot of people. Want the just a quick, quick type into Google Answer when if you provide more information, provide the whole story of what you have going on, then suddenly there's a loan product or a property area or different things that might be of value because we know the whole picture where.
you're not generally gonna bring up that product, especially if it's the first time home buyer. Right off the bat, okay, you're not gonna work, you haven't an investment property before. We're not gonna trust you that you're gonna be able to manage this and make and make money off it because it's not as easy as just getting, getting rent in and stuff.
But really sitting down and having an idea of that full picture is a huge benefit to providing the best advice to a home buyer as.
Tom: Yeah, no, exactly right is, yeah, knowledge of what is out there. Knowledge of your situation is huge. And I know I mentioned that usually I'm talking to people six to 12 months before they even apply. There have been cases where I've talked to people years and years before they've applied, but at least they knew what goal they were working towards.
And when the time came, they had that knowledge, they had that power, and they were able to go into a situation with that ready to go. And then sometimes, , you have that initial conversation and the next day is an application, and then they're making offers that weekend. It's just, it's as soon as,
Troy: When you suddenly realize you don't need the 20% down, you're like, oh, great. We can go shopping this weekend. That's amazing.
Tom: why not? Yeah, and I'll, I've had clients this year where they weren't sure what they would qualify for. They didn't know whether it was time, whether it was right or not. They didn't know if they had enough money. We talked through it, we got an application and literally they were shopping that weekend.
So it's just one of those things you gotta talk through.
Troy: Not the knowledge is super, super helpful regardless of the direction you decide to go.
Troy: Cool. I appreciate you jumping on the podcast this time and always fun talking to you and so look forward to do it again soon.
Tom: Thanks for having me again, Troy. I always enjoy it. Thank you.
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