Josh Baker Real Estate Podcast #6

🏠💰Home Value Tool➔ Frequently Asked Questions How does balloon payment work? Balloon payments are established dates on which the remaining balance of the loan is due in full. Are balloon payments a good idea? Balloon payments should be carefully considered and are not the ideal loan instrument for everyone. Are balloon payments a good idea? Balloon payments should be carefully considered and are not the ideal loan instrument for everyone. How fast do mortgage interest rates change? Mortgage interest rates change on nearly a daily basis. What is the single most significant factor affecting the real estate market? Availability of financing, minimum credit score requirements, and interest rates have the largest impact on the real estate market. What happens when interest rates hike? For every one percent the 30-year mortgage interest rate increases, the borrower's purchasing power is reduced by up to ten percent. How does an interest rate hike affect inflation? Rising interest rates have a negative impact on consumer demand. Over time, reduced demand can reduce inflation. What factors affect interest rates? Investor demand for bonds on the open market has an impact on interest rates. Who decides the price of a home? Property owners typically set the list price for a home. Both buyers and sellers collectively determine the final selling price for a home. How do they determine the value of your home? The value of a home is typically determined by reviewing national mortgage trends, local sales data, and comparable property sales over the previous 3-6 months. Transcription* The transcription is auto-generated by a program and may not be accurate to the conversation. In order to ensure you get all the information from the video properly, you must watch the video. Joey: Let the games begin. It's Joey Gartin here with Josh Barker. Josh: Hello, Joey. Thank you. Joey: So there's been a lot going on this last week. Actually, it's been over the last few weeks, the same topics keep bubbling up because they are like the big rocks. I always as that term used, you hear the rocks, hear the pebbles, right? Josh: Yeah. Joey: Well, the rocks that are big are still big and potentially getting bigger, like interest rates are kind of moving very, very fast, and that is a major contributor to our market, whether it's up or down. And interest rates, unless you've been on an island somewhere, you probably know the interest rates have been going up very steadily. Josh: They have, I think right now, we're at 5.5% on the average 30-year fixed mortgage, and that's up from about 2.9% in the fall of last year, so we're up to over 2% right now. That's a lot. Joey: It's a lot. It's huge. Josh: That's significant. Yep. Joey: And like we said, I think we were talking about it last summertime, the time before we talked about it, that impacts the lower portion of the market much more than it does the higher, and that's your first-time buyers, that's your investors. Josh: Yep. Joey: Right? Josh: Yeah. Joey: So those are two major buyers in this market... Josh: Well, I actually know what just happened just recently was that the interest rate on non-owner occupied, so let's say I was an owner who wanted to buy a rental, but the rates now for non-owner occupied are significantly higher than they are for an owner-occupied. So Fannie and Freddie, who purchases these mortgages, typically after they're funded, basically came out and said, "No, we're not buying them, we want the rates higher." And it's in an attempt, I think, to try to push more attention towards homeownership, and so I think that's one of the reasons they made that decision, but what used to be a pretty low, an inexpensive rate for non-owner occupied, that's gone up a lot. So if anybody who's listening to this or watching this and thinks that the rates on an investment property are the same as on the owner-occupied, that is not the case right now. Joey: They've always been a little bit higher, just like a tiny... Your primary residence, you always get a little bit better, but... Josh: No, this is significantly higher. Joey: This is significant? Josh: Yeah, and without quoting it, I would just say it would be shocking to you and you'd probably wanna check with the mortgage lender. Joey: So that's gonna slow down. I get that kind of concept of like, "Oh, we wanna help first-time buyers more." And it's like, "Okay, well, then why not keep those interest rates a little... If you can do something with that program to where you keep first-time buyers... " Josh: Good idea. They disincentivize somebody from using a mortgage to buy an investment property because the rates are higher for it, right? Joey: Yeah. Josh: So they essentially, they're doing that. They're trying to reduce the competition for what could have been an owner-occupied purchase. I'm assuming that's what they're doing, 'cause that's certainly what their net effect is on the market, is as you have less investment activity taking place as a result of those interest rates going up because it has an impact on the return on investment. So the higher the rate, the lower the return. The lower the return, the harder it is for an investor to wanna make that purchase. So it's probably working if that's what their goal was. Joey: Now, we talked about before that one of the big differences between this market and the market that we saw in the early 2000s that collapsed was that we didn't have a huge investment before. I think you were saying it was around 10%, which is very small. Josh: Oh yeah, no, on the last market update that we sent out to everybody, we actually talked about that in length, is that if you look at what the market was in 2003, '04, '05, 2003, 2004, 2005, and then... The peak of the market was in 2006, and then it started to show some problems, and then it started to decline pretty quickly. Understand, back then we had buyers that would walk into our office that were qualified in a 30-year fixed mortgage, who were gonna be buying a subdivision for, let's say, $300,000. But if they went to a non or to a stated income loan or a variable interest rate or a negative amortization or interest-only loan, now they can buy up to $500,000 for that home, right? Joey: Yeah. Josh: And so it's a completely different property, same monthly payment. And that's what was happening in 2004 and '05. It's a big reason why we had the market crash like it did, is because we had a lot of people purchasing way outside of what they really should be purchasing because those all had balloon payments to 'em. Within a few years, you were gonna have to pay the higher payment amount. Whereas today, we don't have purchases like that. Those loans are not available, they're illegal. The Dodd-Frank bill that was written years ago to clean that up, eliminated those types of transactions from being, even being available to the general public. So we don't have that today. Back then, 2005 and '06, you had the 620 and below credit score was a significant portion of the purchasing market. Joey: Wow. Josh: Where today, it's a very small portion of the market. So those things are different. And then back then, I think it was 40%-50% of all purchases at the peak of the market back then in 2005, '06, it was like 40%, 50% of it was speculation. Joey: Wow. Josh: Yeah. Whereas today, like I said, it's less than 10%. So we have a lot of good things about the market right now in terms of its stability of it. I'm not saying that we're not gonna slow down, I'm not saying that we won't see something... We might even give back some value if rates were to go crazy, but in terms of the stability of the loan itself, people buying homes today are strong credit, good down payments, sourced incomes, and sourced employment. The stability of the market now is way better than it was 15 years ago. Joey: Yeah. So that, I mean 40%-50% speculation. I do remember people were pulling out equity to buy the second home, 30... I don't hear that very often at all. In fact, I don't hear that at all. Josh: Yeah, I haven't heard it much either. Yeah, I haven't heard it a lot. If I have, I think I've heard 'em of paying down student loans and paying off other debts and not necessarily what they were doing back in '04, '05, '06, is that they were taking that money out and then go buy the next rental with it. Joey: Exactly. Josh: And we don't see that happening at all in any mentionable level today. Yeah. Joey: So interest rates are going up, that's gonna slow the market down. Of course, we're coming out to one of the hottest markets of all time. Josh: Yes. Joey: Last summer was, some of the sales... But I still see, I was about to say that some of the sales I saw were very, very high, but I was looking at some of the listings and they're still even higher. Josh: Yes. Joey: So when you say, I feel like there's gonna be a little bit of course correction. And I've never... I've heard people, especially on social media, they'll get mad at the real estate agents when they see a home listed for a certain price and say, "Hey look, their job is to get their client the absolute most that they can." Josh: Right. Joey: Now, the home price is determined by the marketplace. It's not determined by the agent. That's why an agent that undervalues the house, "Oh, hey, we got three offers at 20-30 grand over." It's like, "Well, clearly you didn't assess properly," or "Well, it's been listed for 90 days and we haven't got an offer." Again, you assessed improperly in the other direction. So it's not the agent. But I do see some listings that I'm like, "Man, how did that pitch meeting go?" Josh: Somebody got pitched, whether the buyer pitched the agent or the agent pitched the seller or the seller pitched the agent. Joey: I'm thinking retail plus 30%, blue-chip player like myself deserves a little something extra, like $10,000 cash in a gym bag. Josh: Everybody wants more. Well, and to your point, I think that anybody that's listening to this and owns a home or watches it, I think they would agree that they... And they know this too. Everybody feels like their home is worth more. And you want it to be. And then when you get to the reality of it, I think that I always kinda feel like sellers are ultimately the ones that decide what the price is that they list it for. Joey: Exactly. Josh: But it's a collection or a collaboration of what a buyer and a seller are willing to do in a deal that actually establishes the market, and that's where the market is. So there's no fault in testing the market. There's risk involved in over-pricing 'cause you could sit on the market for a longer period of time. And the attractiveness of a brand new listing starts to diminish quickly if it sits on the market for too long. So it has an impact on value. So sellers, when they come on the market, it's wise to probably try to nail the value as soon as you can. 'Cause if any... In the worst-case scenario might get competing offers selling it for a higher price anyway. Whereas if you over-price and you miss that window of being the new listing and now you're... The value of that home might begin to diminish in the eyes of a buyer, you could potentially sell for less than what it's worth or what you could have gotten if you would have priced it right out the gate. And so it's always a... Listing properties is challenging. Sellers have a... They're challenged in that. And agents are too. Joey: It's funny the psychology of days on market. I have... 'Cause I practiced real estate at one point. And when people would say like, "Yeah, I like that house and everything. But look at the days on market. We're gonna... " It's like... Then they watched an episode of Pawn Stars and they're just like, "So hey, let's offer them 50 cents on the dollar." I'm like, "What? What?" So it's a huge psychological factor where there must be something wrong that we're missing. Why has it been in the market so long? It's like maybe it's waiting for you. Josh: Yeah, you're right. It's interesting you say that because I think that over the years I've noticed that there's a... The days on... Well, price reductions, for example. I've had sellers over the years ask, "Well, the price reduction, is that gonna make us look desperate?" And I'm like, "No, it actually makes you look motivated." So buyers interpret price reductions as motivation. But they interpret days on the market as something's wrong with the property. And so that's been our experience of what we've observed over the years of talking with buyers and sellers. And so that's a pretty big aha, I think. So don't allow days on market to accumulate too much. And the exception of that, of course, would be is if you have an extremely unique property or you're in a very unique price point. Well, then it could take days on market to find that person. So I'm not saying it works for everybody. But for the lion's share of the inventory that gets moved through the market, it should be happening in a reasonable amount of time. And if you're sitting too long, there's probably something wrong. Joey: And then there's two points in my mind that come out of that. Number one, the importance of a good market... I was gonna say like market analysis. Market analysis. Market overview. Josh: Yeah, yeah. Joey: Saying, "This is what we're seeing your home is worth." And it's not an art form. It's actually a science. It's just not everybody practices that science fully. It's like a math problem that's got about 30 variables, but most people are like, "Can we just stop at six variables?" Well, then you might sit on the market or you might have like, "Wow, that sold so fast." You were a little under market. So it's important. Market analysis of a home is super important. Josh: It is. So what we kinda do in that regard is we'll look at the market from a national perspective first. So we'll look at the overall availability of financing. Lenders kinda refer to it as availability of credit. And then we look at the overall interest rates. Because those two things have an impact on what's happening in your county. And so then in the county, you look at what's overall happening in each price range in terms of supply relative to demand. And then we go one layer deeper, which is to look at what's selling in a particular subdivision or homes that are similar to the one that you're comparing to. And it's that holistic approach that really gives you a really good perspective on what the market's doing. And so like for example, right now, between $500,000 and $600,000, the inventory in the last 60 days has jumped dramatically. I mean, it's up almost 65%. Joey: Oh wow. Josh: So yeah, a year ago we had 50-60 homes for sale in that price point by the end of March the last year. And this year, at the end of March, we had like 115. Joey: Oh wow. The buyers have options. Josh: Yes. And it's because of those interest rates. So when those interest rates went up, it had an impact on purchasing power by up to, at this point, about 20-25%. So, buyers that were qualified six months ago at two and three-quarter percent, they're qualified at 25% less today. And so that's starting to show up in our inventories. Joey: That's a huge number. Josh: It is. It is. I mean, we're still in a seller's market. Our inventories are so tight, that it's not having an impact on value at this point. But because the inventory is growing, days on market could get extended. We could expect to see... If it continues to happen like this, we could expect those prices to definitely plateau. I mean, that first shot across the bow of the Fed raising the interest rate a quarter percent and the corresponding effect of the tapering, reducing the amount of mortgages that they're purchasing now, it's starting to show up in the mortgage market. And I told our agents the other day, I said, "Make sure that our buyer clients in the market understand that what's happening with the interest rates was on purpose." Josh: The Federal Reserve is actually making an attempt to prevent the housing market from appreciating at the speed that your milk and your eggs and everything else is going up. And they're doing everything they can to target that so they can prevent homes from getting out of reach and having it not be affordable for anybody. Do you know what I mean? Joey: Yeah. Josh: There's absolutely the impact of inflation. So if I were a buyer in the market right now, I'd just be grateful the rates are higher because it's that targeting that they're doing right now that's preventing those home prices from going up higher. Joey: It's about a year ago, I was listening to... I wish I could remember the gentleman's name. I know you'd know who he is. It's like Ali Abdelaziz or something like that. He's a famous guy. Bear Stearns brought him in. And he gave an hour of talk, and he talked about some of the driving factors in the real estate market. And he talked about how after 2007, 2008, because of what happened, there was... Almost all new construction slowed down to almost zero. Josh: Oh yeah. Joey: And so there was this glut of people that were coming up, that were gonna be home buyers, but there was no replacement of inventory, and it was gonna hit... It was already starting to hit, but he said it was really... He laid out several factors on why, 'cause we're like, "Why is the housing market going crazy?" We're not seeing those loans where you just pull out the equity, buy the second, pull out the equity, buy the third. Something is driving it, and it was that there were a lot of people that are... Were living at home in their early, early 20s, and they're ready to buy, and there's nothing there. There's no inventory. It hit at the same time as a global pandemic... There's just a lot of factors. Like the pandemic hit it... Josh: Yeah, and you're touching on like the family formation, even though they may not be forming a family, it's like you're getting out of the basement. And you're having more people wanting to participate in the housing market in one form or another. Because you've got one or two options when you move on when you move out of mom and dad's house. You're gonna go rent and rent with friends or rent by yourself, or you're gonna go buy a house and maybe rent a room to a friend or something. But you're gonna do one or the other. So right now we're over five million housing units short in the country just to meet the existing demand. And right now the population in the country is still growing. So either way, there's gonna be an impact. So right now, with interest rates going up, if our sales volumes drop, which I would say that's probably the safest estimate to say that sales volumes as interest rates continue to go up, if they do, which I think all the experts are saying they will, it's gonna have a corresponding effect on demand. And those buyers who don't buy that home, where are they gonna go? Joey: They're gonna rent. Josh: They're gonna rent. And what it's gonna happen to the rents? Joey: They're gonna go up. They already have. Josh: Because the demand is going to go up. Joey: That's right. JB: And so as the rents go up, now the cost of homeownership or the value proposition of homeownership becomes more attractive because it's like, "Hey, I'm paying $2,500 a month for rent on this place," or "I could buy a home very similar at $2,300 a month." So why don't do that? You know what I mean? Joey: Yeah, absolutely. Josh: When I hear all these things about this massive crash, and I'm not here to have a crystal ball, maybe there's some crazy thing that I don't see, but I don't see a headwind that puts us in a housing crash. And the reason why? 'Cause people need a place to live. Reason why? We have five million housing units short. Reason why? Family formation, people moving out of their parents' houses, people wanting to buy rentals, immigration. All of that stuff that's happening is having an additional demand on the existing housing supply. Joey: Especially with like we talked about in California has... It lost people. We lost, for the first time, a Congressional seat, but Redding is the exception inside that rule where it's like, "No, people are leaving Los Angeles." Josh: Correct. Joey: They're leaving... Josh: Big cities. Joey: Big San Jose, but not everybody is leaving the state. A lot of them are coming into this area, and we have... It's very hard to replace inventory in the Redding area. Very, very hard. Josh: Well, and I read an article that wasn't too long ago, I think it was a Hoover Institute if that's the one that's out of Stanford. So don't quote me on that, but I think that's where I read it at. But the number one reason for moving out of the state, and some of these people will probably think it's politics, but what it was on that report was affordability. Joey: I was gonna say taxes or housing or something. The fact that you make $150,000 a year in San Jose and you're sharing an apartment with three other people. Josh: That's right. That's right. Joey: You can't buy... And that's like, "Wait, that's a good pay for an engineer in mid-20s," and so if you have a teleworking and stuff like that... Josh: Well, and that ties back to my point of earlier with the sales team we talked about a few days ago where I said just, it's a great thing that the Federal Reserve is raising rates. They've gotta do everything they can to essentially try to prevent the housing market from inflating with this inflation we're experiencing right now. They've got to. Because you can't have housing, the value of homes goes up and then drop right away. That's a negative impact on a lot of families, right? Joey: Yeah. Josh: So when you're going through this major issue where you have a supply chain disruption, you have probably labor participation, access to the supply chain lines, all these things that are going on that you've gotta be careful with that are causing a lot of the inflation we have right now, you don't want that to transfer into the housing market at this point, because it's probably short-lived. 18 months from now, I would imagine supply chains are probably gonna be, I'm not saying the 100% back to what they were, but they're gonna be much better than they are today. You know what I mean? So if prices start dropping everywhere else, but now your poor house was overvalued and now it's dropped a lot, that wouldn't be good either. I think the Feds are doing a good job. I'd like to see how that impacts the market going forward, 'cause all the experts are saying the rates are gonna blow up a little bit more. Joey: Yeah, I was thinking about of all the headwinds and tailwinds because you just... You named a lot of tailwinds. All the headwinds and tailwinds in Redding, the interest rate seems like the only real headwind, 'cause our housing inventory is still tiny. Josh: It's still tiny. Joey: Like how far are we off? Josh: Well, right now we're at about 1.8 months supply of housing. It's called our absorption rate. Joey: That's it? Josh: Yes, and so for our listeners, what that means is that if you didn't... If no other homes came up for sale, it would take 1.8 months to sell off 100% of the existing housing inventory. Now, by definition, that is a seller's market. So anything up to three months as a seller's market. Four to five months is kind of a neutral market, and then six months and beyond is what's considered a buyer's market. And again, we're at 1.8 months supply. And not every price point's the same. That's the overall number. If you get into that price point at $500,000 to $600,000 and $600,000 to $700,000, and all those things as the price gets up in those higher ranges, that absorption rates growing. It's higher. It's a higher number than 1.8. And in some cases, it's considered to be a buyer's market. The upper-end market tends to be more of a buyer's market. Why? 'Cause the demand is lower than the supply. Joey: Yeah. And also they're not as influenced by interest rates that you're gonna allow your cash buyers or people that are putting such large amounts down that the interest rate doesn't affect their purchasing power, like it does when you're in... Josh: It doesn't usually affect the home they're going to buy. Joey: Yeah, yeah. Josh: Whether they wanna buy or not, it might. But what they buy not as much. Joey: So housing inventory is still very low, interest rates have gone up, we've got inflation. So inflation, the interest rate is an attempt to control inflation in the housing, so the Feds doing this it just sounds so counter-intuitive from hearing a real estate broker say like higher interest rates are a good thing. Josh: Well, if you're not thinking only about yourself. If you're looking at the next generation, you're looking at the folks, you know... I've changed now when I was like 25, 30 years old. I'm like. No, I want the rates at zero, right? Because you're trying to do everything you can to leverage and all those things, but I think as you get older, you begin to realize, you know what? There's a whole lot of other people that are impacted by all the things that happen. So I want my kids to own homes. I don't want to them to get priced on the market. I don't wanna see them have to leave the Redding area because they can't afford to live here. That's what's happened to folks in the Bay area. Let's say you grew up in Sunnyvale, California. And like a year... Joey: You saw some change. Josh: You saw some change. Joey: In your life. Josh: And a lot of your kids might have graduated from college in the Midwest somewhere, they came back to their town in Sunnyvale, and all of a sudden they can't even afford a home anymore. And so now they're saying, "Sorry, mom and dad, but I'm leaving the state." And you don't wanna put your kids in a situation where they can't afford to live where they've grown up, if that's what they wanna do. So for those reasons, I'd like to see housing... That's a selfish reason but that's what I wanna see. But I think when you look at the housing overall right now, I think you could argue that right now prices are probably still fairly priced for what you're getting... Think about the work and the effort that goes into getting to acquiring a home and building a home and all those things, I don't think we're way out of whack on value right now. Joey: Well, it's funny 'cause the number, it's... The other day, I was listening to a couple of guys talk and they were... 'Cause it's tax time, right? Josh: Yeah. Joey: So people are like, "Oh, my accountant told me I need to buy... " And it was two guys talking and one of them went and bought $103,000 truck. And the other said, "I raise. I bought $119,000 truck." Josh: Trucks for that price? Joey: One was a... The 103,000 was a brand new GMC Denali full one tonne, cup holders. Josh: You spend 120 grand on a vehicle like that, it better do my taxes. Joey: That was the motivation. And they had cup holders and everything. They're really, really stacked... Windows rolled down. It was really nice. But no, but they're saying that I'm just like, "Wow, if you're willing to pay 100-plus thousand dollars for a truck, not an 18-wheeler, but just the truck that's gonna be hard to park when you go to Costco, like suddenly a house for 380,000, that's three of those trucks." Josh: No, well, there you go, you're talking about inflation in a major way. And the dirty little secret that probably people wouldn't believe when I say this, but the federal government wants inflation, the Federal Reserve wants inflation. If you were to go right now online and look at the Federal Reserve, they will tell you in black and white, in writing, that their target inflation number is I think 2% or 2.5%, that's their target. That means that if it was at zero, they would want more inflation. And so it's just a variable that they're working with all the time, and clearly we've out shot it now for the reasons we talked about earlier in the podcast, but inflation right now, it's here to stay. And honestly, they want it. Joey: I was just picturing Charlie Sheen as the chairman of the Feds going, "Winning!" Josh: Well, they're winning right now. And it's scary for a lot of people, especially for those who are watching this or listening to it and they're on a fixed income. When you're seeing all of these things around you, that your services and your different supplies and your food and all the things that you need just to sustain, and your energy costs, and they're all going up, and you're on a fixed income. Those are the people I feel the most sorry for. If you're participating right now in the labor market, it's not affecting you quite as much because your wages potentially are going up, and they certainly could over time because you're participating in a labor market. Where people are on fixed incomes, that's the sad part of this story right now, and that's a big reason why we need to get that inflation cooled down a little bit. Interest rates are gonna be an attempt to that. Josh: Federal Reserve's coming out again and said that they're very aggressively gonna raise it again. We have to wait 'til they do it, but that's what they're saying they're going to do. And all of us in every asset class is gonna be impacted by interest rates. And Warren Buffet I think says it best, that interest rates serve as gravity to value. And so when he gives the illustration, when he says, is that as the interest rate goes up, the gravity on value gets stronger and it pulls value down. Does that make sense? Joey: Yes. Josh: Alright, so when interest rates are extremely low, the gravity is low, and therefore everything inflates in values. That's why the stock market's been on fire for so long, that's why the housing market's been on fire for so long. It's because the rates were effectively at zero. But now that the rates are starting to move up, it serves as gravity, and it slows down that appreciation piece. And in some cases, it even pulls it down if it gets really high. So the Fed knows this, they know the power they have in their hands and they're gonna be... They're gonna be working towards it. Joey: So what do you foresee over the... I mean we are in the, this is the time of year that listings come to market, spring. This is when people from Sunnyvale, Los Angeles, Fresno, and Bakersfield come up and check out the area. What do you see over the market for... Obviously, look deep into your crystal ball, Josh. What do you see for the next 90 to 120 days? Josh: This market's gonna feel hot and strong and powerful, I think, until either the Federal Reserve raises interest rates significantly or we... Joey: Again? Josh: Again. Or we get to the end of summer. I think one of those two things, because we're in that cycle side right now, where we have our normal higher demand, where we have more people moving in from out of the area at this time of year. And we really see that strong market every year, all the way through summer, and I don't see this year being any different. The appreciation piece will be a challenge because as interest rates go up, it's gonna have an impact, like I said, like gravity, it's kind of an impact on appreciation in the market. So I'm not saying prices are gonna be anything close to what they were last year in terms of how fast they appreciate, but I think that we could expect to see some decent demand. And then I think by end of summer, the real question will be what will have that impact been on interest rates in the market. Josh: So the long-term story I think is still strong, because people still need a place to live. We're not over-supplied like we were in 2005 and six when it comes to homes available for purchase, we're under-supplied as a nation. So I think there's better days ahead for the real estate market itself, but we're gonna have a short-term reconciliation and we gotta get through that piece. Joey: That's what I was wondering if you saw anything in the market that you said the properties, the pricing is... You're very attuned to the market. I look at a couple of listings and go, that seems a bit, like I'm happy for you... Like my neighbors have a house listed, and I'm like, "Man, I hope you get every penny." But I feel like you... This is Fonzie jumping the shark. Like, no. Josh: Well, and what you have to do is you have to have a short memory, I think, when it comes to value on homes. If I was to take my experience from 20 years ago selling real estate and took that experience in today in terms of value, I'd be underpricing everything, right? Yeah, so what you have to do is get back to what I talked about earlier on the podcast, which is looking at the national statistics, look at the county statistics, and then zoom into that neighborhood and look at what's going on around your neighborhood right now, that's where you're gonna arrive at the most accurate evaluations. Don't be thinking about five years ago, don't be thinking about 10 years ago, because buyers can't buy from five years ago or 10 years ago, they're dealing with what the market is today, so. Joey: Well, Josh, thank you for your time. I hope people got value out of this, and it's still a seller's market, and if you need a real estate broker. Josh: I'm here to help. Joey: Awesome, thank you, sir. Josh: Yeah, thanks a lot.

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Josh Barker Real Estate Podcast Episode #2

🏠💰Home Value Tool➔ Frequently Asked Questions Is it better to buy established or build? There are Pros and Cons to both buildings or buying existing homes. Building a home can increase the chances of receiving exactly what you want with less maintenance in the first 10 years. However, the process can take longer than expected and the cost can be higher. Purchasing an existing home may cause you to compromise on a few items but can typically be accomplished faster and with less work involved. Many believe the best compromise is to purchase a new existing home from a reputable home builder. What does a 7.5% cap rate mean? Utilizing the capitalization rate value is a great method for evaluating an income property as it takes into account the property’s operational expenses as well as its current vacancy rate. In addition, the Cap Rate value can reveal whether the income property has the ability to pay off a mortgage or not. Cap Rate = Annual NOI / Market Value How long does it really take to build a house? The typical home build period in Shasta County can average 6-8 months. The process can be extended depending upon the amount of land development involved and engineering that may be required to facilitate the build. Transcription* The transcription is auto-generated by a program and may not be accurate to the conversation. In order to ensure you get all the information from the video properly, you must watch the video. Joey: Joey Gartin here with Josh Barker. Again, laughing off-screen before rolling. It's bad stuff, man. Josh: Keeping it real here. Yeah, keeping it real. Joey: So last time we got together... Josh: Yep. Joey: The big topic was Zillow. The fact that Zillow had stopped their purchasing of homes, they were laying off a quarter of their employees, and what impact did that have. And you said, "Hey, not really because they weren't buying anything here." Josh: Exactly. Joey: So I kind of segued into, "Okay, well, how much inventory do we have? What does the market look like?" And one of the topics that arise in that is, we don't see a lot of new construction, or at least, I guess that's very subjective, I don't see a lot of new construction for inventory. Why is that? Josh: Well, I think what you're probably getting to there is like there's no meaningful level of construction that makes everybody go, "Wow, everybody's building everywhere," and it's really a loaded question because it's really a question of, is it the chicken before the egg, or the egg before the chicken, kind of thing, where if we build a lot of new additional homes to add to the housing inventory, do we have enough people to buy those homes that the contractors can keep building them quickly? Or is it a situation where if we build them, the people will come? And that's what makes it really hard is that I think if you get too far ahead of yourself, there's this little doubles in the details kind of thing where absorption rate is really the guiding factor on how many homes are actually sold each month. Josh: And if you add too many homes to the housing supply and you don't have enough people to buy them, they sit. And if you're a contractor building new homes, that's a major problem. We have seen over the last couple of years with the Carr Fire and the fire that was there in Paradise, that that really caused us to have this pretty big construction boom here, because the homes that were burnt down, that were rebuilt, that added to our construction here in the marketplace, but it also gave an opportunity for contractors to buy vacant lots too and build homes as well. So we're starting to see some construction. It's not all bad. It's definitely getting better. Joey: It's starting to trickle in as far as like final production hitting the market. Josh: Oh yeah, yeah, a lot of the Carr rebuilds have already been done, and the homeowners, most of those have already rebuilt at this point. Some of the vacant lots that were sitting out there in the inventory were homes that were burnt down, that was purchased by contractors, most of those have been rebuilt. There are still some vacancy lots out there, but a lot of it has been done, a majority of it has. Joey: Do we have... My next thought is like our volume. How many contractors do we have? 'Cause I can only think of a couple of larger names of actual subdivision developers, right? Josh: Yeah, yeah. Joey: Versus individual contractors. Josh: Yep. I'm not gonna go into the names of them because that would be disrespectful to anybody I didn't mention. Joey: Yeah. Josh: But there's four or five larger ones in town. We have a large national home builder that just came in and acquired a subdivision in West Redding that's gonna be building, in my understanding, in the spring, but as far as contractors, there's a lot. I don't even know how many. I mean it would be over 100, because a lot of them just do one home or maybe two homes a year, and they do it for that reason. They only wanna do one or two a year, so there's a lot of people who do that. And then there's some that are actually more productive and volume-minded, and those are the ones that we normally see running around on the market. Joey: So in your opinion, do you think we have enough new construction in Shasta County? I don't even know what the inventory numbers would be for that, but it seems like there's almost nothing. Josh: It feels that way, but there is. And do we have enough? Probably a little light but for good reason, right? So right now you've got some challenges with contractors. What they're dealing with right now is you have the labor shortage itself. So that plays into this. Can I find enough people to... So that if I go out, make promises and bids on different projects, can I fulfill those promises and bids with people? And then you have the wage piece of it, where some of these folks or the wages are... They're competing against each other a little bit, some contractors are taking labor from other contractors. And so, that's causing wages to go up because one way to lure them over is wage. Joey: Sure. Josh: And so, we're seeing some of that happening. We talked about in our last video about the disruption of the supply chain, and when it's harder to get access to those products that you need, home products like appliances and even paint. I was talking to my friend yesterday and he said that they ordered their paint and it took him like 60 days to get the paint. Joey: Wow. Josh: And I don't know if that has anything to do with the supply chain, maybe there was a warehouse that burnt down somewhere, I don't know, but I just know that there's major issues with supplies, and I think that's putting its own pressure on the ability to supply the market. And you know what, honestly, that might be a good thing because it's certainly keeping us from over-building in our market. We've heard of times in the past where other markets have overbuilt big time and it dragged the whole market down because they over-supplied. We haven't done that here. Joey: We're going through a remodel right now, I mean like a major remodel, we almost doubled the size of our house, and at every point it seems like there's been a supply issue, just product... We have a really good general contractor, I guess I won't name him because we gotta name everybody, but he talked about how juggling the projects, but it was... He would make comments like, he was surprised how long... How many weeks out with just a simple product. Josh: Yeah. Joey: Like a toilet. Josh: Yeah. Joey: Something like... I think my wife picked a couple of sinks and I went down and picked them out, and then they called back and they said, "Oh yeah, we can have those about seven months." And she's like, "What?" Josh: What's my other option? Joey: Yeah, it's like "Show me sinks that we can have within the next few weeks." So we're a few weeks behind, but we also dealt with issues with permits and stuff like that. It just seemed like every step of the way was pushed back a little bit, and I really don't think it was the contractor, 'cause his communication level was so high, and so I just think you're right, there's a lot of supply chains that are disrupted. And we had an issue with the paint too, where they're just like, "Oh no, that one will be months out." So when she went to choose the paint, they gave her guidelines and she said, "Hey, what can I get now?" "Oh, okay, well, then only look at these." The same thing with appliances, and we even got a couple of furniture pieces, I was shocked. We went in there and they're like, "Oh yeah, you can have that in a year." What? Josh: And put that at scale. Imagine you are a contractor that has to develop 40, 50 homes in a year. I mean, think about all those disruptions where you have a great supplier, but all of a sudden that supplier's supplier is now disrupted, and so now your go-to supplier is no longer reliable and it's just... It's a challenge. Josh: I think if we go forward and look at the next two, three, four years, I do see there's an opportunity for us to see some construction here at a meaningful level. And I suspect that with the demand that we have coming from Sacramento, the Bay area in Southern California, that a lot of that is justified. I think we'll be able to fill it. I think there's a lot of homeowners that are currently living in homes now, that they're looking around going, "Well, I have to make a decision to remodel my home, or if we want, we can go pick a new one." And if there was enough of those new ones out there for them to choose from, they might make that choice instead, and so they buy a new home that now provides a resale home to the market as well. And it's a healthy, healthy thing when new construction is being added to the existing housing supply. If anything, it's gonna help us to stabilize the appreciation piece, because seeing appreciation jump as fast as it has is gonna price our children out of a market that we don't want them to leave. Joey: That's one of the things I think about is that everyone is very excited... Well, if you're a home owner, you get very excited when rate... Josh: Home appreciation. Joey: Yeah, it goes up. Thank you. But as the younger home buyers, that's not... Or even people that are thinking about... I've heard a couple of people, like, "Well, I was thinking about selling. But then what do I buy?" Josh: Yeah. Joey: They wanna downsize... Josh: Yeah. Joey: They wanna... The kids have gone off to college and they're like, I kinda want a smaller home... Josh: Yep. Joey: But they're like, You sell, but there's really no inventory. I know there's inventory, but as far as like, numbers go, I think in your market update, you were talking about, our numbers are pretty much... Josh: Just over 600 homes right now. Joey: And last year it was just over... Josh: Well, it was a little higher. About 700, but yeah, it's pretty similar. The whole last 12 months... 18 months since COVID has been... The inventory has been depleted. Joey: Yeah, so is 600 a healthy inventory or... Josh: No. No, not at all. Joey: What do you think a healthy a inventory is? Josh: Probably a 1000 to 1100. And we talk that right now based on sales volumes. Joey: And we talked about how there could be, with the forbearance programs and things that are happening, that we might see some inventory hit the market, a large volume of homes hit the market, so. Josh: Yeah, in one form or another, they might be just regular sales 'cause they have equity. Or they might be a short sell if they didn't have it, any equity, and worse case scenario, foreclosure. And there's gonna be a portion of those, that distressed property from our last video that's gonna be there. I don't think it's gonna have a massive drag on the market because, even if half of them came to the market, it's not large enough to be life-changing in terms of what prices will be. But if you were to describe this perfect housing price appreciation in the market, it would be really 2%, 3%. It would be a... Joey: You track inflation? Josh: Yeah, stay ahead of inflation just a little bit... Not today's inflation. [chuckle] But normal historical inflation, because if prices go up about 2% or 3% a year, after about three or four years, you could choose, if you wanted to, to sell your home. You'd have the equity necessary and probably have enough money to, We'll put something down on the next home. And that's what you really would want, is... 'Cause then people every three or four years have options if they choose to take them. You know what I mean? Joey: Yeah. Josh: That'd be perfect. You wouldn't wanna be too much faster than had an appreciation, because, like we talked about, you want your children to have the capacity to purchase a home and stay in the community that they grew up in, right? You want the person who provides professional services, and even just regular blue-collar services in a marketplace, you want them to be able to own a home as well, so they stay. You want everybody to have some level of an American dream, and it's based on merit, of course, but you still wanna provide some ability that when you do the right things and you work hard, you should be able to own a home. And that's what I love about Redding right now, is that we still, for the most part can do that. Joey: It's still affordable. Josh: It is. I don't mean to disregard anybody that's not able to afford a home, because we feel for that too, and we wanna see that gets solved. But the only way that's gonna get solved as if we add homes to the inventory. Joey: So if someone was coming to you and said, "Hey, we're thinking about building versus buying." Do you point him in a certain direction? Josh: Well, right now, building versus buying is interesting. I would suspect that... You can obviously build and for equal to what you can buy an existing home for. And the only proof of that is in the fact that builders right now can build a home and sell it on the market, right? Joey: Got it. Josh: So you can do it, but there is time involved. So if you're thinking today, I might wanna build a home. It's probably... If you even got started today, it's probably gonna be about a year out, and it could be as even as far as maybe a year and a half. And that's what most people doing all the things right the whole way through. And that's because of the things we talked about. The supply chain disruptions, the lack of labor, how long it takes to get things done. So first thing to think about is, how long will it take, right? The next thing you're gonna be looking at is, a lot acquisition. Are you buying in an existing neighborhood with a lot sitting there waiting for you? Or have the developers got the plans already ready for you? Or are you gonna go out and find a lot on your own? That takes time. And so it's totally doable, but if you haven't done it before, you're definitely gonna wanna pair up with a really reputable builder. They should be able to help you through the process of designing a floor plan... Share with him what your budget is, so you can design a plan where you get what you want for the price you want. All those pieces are gonna be a big part of it, if you're gonna make that decision, but it takes a while. Joey: Do you think it's a good investment right now? Do you think that... 'cause I... Josh: Yeah... Joey: One thing would be, Hey, I wanna do this because I have my dream home in my mind. And so I want this exact home. Josh: Yeah. Joey: And you go, "Okay, then you gotta build it." Or the other would be like, "Well, I'll make equity, because I'm building, even with a general contractor, I should... " Josh: Yeah. Joey: That certain percentage, right? Josh: Yeah, [chuckle] the word "Yield spread premium" comes to my mind, but that's not a great way to describe it. But are you saying, Is there a clear benefit to building over purchasing existing homes? No. There is no financial clear benefit. Joey: Really? Josh: No, it's probably slightly more expensive to build a new home, than it is to buy an existing one. Joey: Wow. Josh: So you don't think you're saving in a ton of money in that way... But look what you get in the trade-off for it? You get a little bit of a house that's more along the lines of exactly what you wanted. It's new. So it comes with the benefits of less maintenance and repair in the next 10 years. Joey: Roof, HVAC system... Josh: Yeah. Joey: All that stuff... Josh: Yeah. Joey: Doesn't need to be replaced in five years. Josh: So there's... Exactly, so there's some built-in conveniences that you get by buying new. And so, maybe on paper it's slightly more expensive, but maybe over the 10-year period, it's not. But I wouldn't say that it's a no-brainer to build right now versus buy. Joey: Are we seeing anything, outside of single-family home construction going on, I've always heard that Redding doesn't have enough... I don't know if the term is low-income housing or what the proper term is, but basically like multi-unit. That's always been a big dig on Redding, that there's... I don't know what that percentage is that they use, where they say, "Hey, this is a certain percentage... " Josh: Higher density. Joey: Higher density. There you go. Josh: Yeah. Joey: We're not seeing any of that, right? I don't even know if we have enough zoning? Josh: Well, the zoning isn't an issue anymore. The state of California passed a couple of laws where they're basically for pushing back on the cities and saying, You have to actually increase your density for the housing, because they don't wanna be in a situation where the housing market gets too out of control. So it's now giving the cities the flexibility to increase their density zoning, even when the general plan originally didn't outline for it. So that's been a change that's taken place. We are seeing some higher density here. We have four or five major apartment complexes that are being built right now just on the west side of town, so. One of them just got completed. There are several more going up. So, there are some higher density units that are coming in. We have some cluster home developments that are coming in. This is where they're like attached living, so you have your nice townhouse and it's attached... One wall is common with the town house next door. And so we see a lot of those cluster homes coming up as well. There's one that's coming up on the west side of town as well right now. There's a couple of bigger ones on the east side of town. And so I do see that happening now. And really the general plan kinda looks like, imagine a large arterial road. Is that the way to say that word? Joey: Arterial? Josh: Arterial. Thank you. And so you see that road coming through. So that first layer is higher density, right along with that road. When you get further back, it starts to drop into a lower priced single family dwelling. And then in the back of that area, would be a higher-end single-family dwelling. And so we're starting to see that kind of pattern up and down the state. So arterial road, higher density right next to it, then smaller single family, and then larger homes behind that. And I think that, that's kind of the game plan I see at a lot of the general plan looking like. Joey: I wasn't aware of all that. The multi-unit... I just notice that... I always check multi-units for sale. So it's one of those things I like to check and you see almost nothing for sale. Josh: They're not selling 'em. Joey: Yeah, they're not selling them. Josh: Yeah, no, no, they're being built to hold... Some of them are using state money, and so a portion of it maybe will be like a low rent a scenario, whatever that means, 'cause I'm not gonna [chuckle] talk about the project, but I'm looked at one recently, I'm like, "That's called low rent? Wow, okay." But [chuckle] there's some people are tapping government money to do that, but a lot of those bigger ones that I'm referring to, they're not being built on speculation and then sold to the market. They're being built and held, and probably will get occupied, establish a cap rate, and then maybe at that point, if they decide to, they might sell it at that point and exchange somewhere else, but no, I think the people you're seeing right now building are holding them. Joey: So, do you wanna talk about the cap rain at all? Is there like a cap rate that you'd say is that the Shasta county cap rate? Josh: I talk to folks that are down in the Bay Area, in Southern California. And it seems like their cap rates are averaging on the really low end, and I don't know why they do it other than future appreciation, but 1% and I see them as high as maybe 3, 3.5%. And that's pretty normal. For them to find more than that, it's that highly educated investor that knows how to find the deal, right? But for average investors, I'd say 1-3% down there. Up here, you're seeing cap rates that are about 5%. And they go up from there. You see them 7%, 8%, 9%. But it really depends on the condition of the property. So our newer inventory, the newer stuff that you're gonna find... And if you get a good buy on it, you might find a cap rate at 4.5%, 5% on new stuff or newer stuff. As it gets older though, that cap rate starts to go up and it looks like a better return on paper, but that's because it's gonna come down the road with more maintenance and repairing and stuff like that. We have investors looking up here, because the cap rates are more attractive than bigger cities. And if they're expecting a return, a place like Redding is an option. Joey: Does the cap rate usually rise by the number of doors in the units? Josh: It could. But it really has to do with how much money are you putting into this project, right? And then what is your net taxable income when it's done and the reconciliation between those two numbers essentially is how you're gonna establish your cap rate. Joey: What about that whole four-unit to five-unit step, because a four-unit or less is a residential loan. So it just looks like the four unit... Oftentimes, I see a fourplex, that's more expensive than a fiveplex. Josh: Yeah. Joey: And I think it's because... Josh: Quadplex tax credit. Joey: Yeah, the availability to finance it versus the second you go to five doors, it becomes a commercial loan... Josh: Yeah. Joey: Rates go up... Josh: Yeah. Joey: You have to put a much larger down. Josh: Yep. Joey: A young person... You don't have to be a young person, but a young person starting out could... Their first purchase could be a fourplex. They live in one of the units and say, "Yeah, this is my primary residence." Josh: Yeah. I've met clients over there that have done that. Joey: It's genius. It's brilliant. Josh: Yeah, it actually is, because you're getting it with less money out of your pocket. You're... 'Cause you can buy them for much less than what you buy an investment property for. And then when you go and you purchase it, now you're renting out the other three, usually almost always covers your own personal rent, so now there's no expense to your living expenses at all. And you're building equity. It's pretty incredible that but your point there is really well-taken that up to four units, you can use FHA financing, which means that you can increase the amount of buyer demand for your property. As soon as you go to five, the down payment goes way up, it shoots way up, because now you're into a non-conforming product. And when you're in that zone, the investor pool, you're getting rid of all the other folks. And now you're only with investors, essentially, that can purchase that property. So it narrows the market. And that's why you could see a fourplex selling for more than a fiveplex. Joey: I don't know how commercial loans work, but in the past, when I've dealt with them, it's like they also want a much larger down payment. You know what I mean? I think it's 30% maybe? You might... Josh: On average. Yeah. Joey: Yeah. And then on top of that, as I said, the interest rates are... I think when residential rates were in the low threes, I still think the commercial was five... Josh: It was. Joey: It was five-plus? Josh: Yeah. Joey: And I think in our last episode, you talked about 1% interest rate reduces your buying power by 10%. So you can see why right? Is that about right? Josh: Yeah, so for every 1% the interest rate goes up, the purchasing power goes down by 10%. So if you qualify at $400,000 at 3%, if that rate then goes to 4%, now you only qualify for a $360,000. Joey: Now, it makes sense why you'll go in and you'll see a property that's four fourplexes parked... Josh: [laughter] Joey: Side by side and they're like, why didn't you just build a 16-plex? Josh: Yeah. Joey: It's like, 'Cause I can sell these four, four... Josh: Correct. Joey: The amount I put... Josh: Yeah, they're probably on four separate lots and have the ability to be financed differently. You have access to credits a lot differently. And that's probably a smart move. Absolutely. Joey: So you're comfortable with the level of new construction. It's buying it, staying just a little bit underneath it, kind of as a safety net for those builders to not over-build. You're comfortable with the level of commercial building that, with the projects we have, what is the marketplace moving forward if we're underneath our inventory, isn't that just gonna cause the appreciation rate to be much higher than you think? If we do get to where inventory meets and exceeds, we're gonna see a drop, right? Josh: Yup. And I think the best way to describe it would be... 'Cause absorption rate is really what it is. A healthy market's gonna be about a healthy market, about four to six months supply of homes, meaning that it would take four to six months to sell the existing inventory if nothing else came up for sale on the market. Our inventories are too low right now, 'cause our absorption rate right now is probably sitting at 2.5 months supply, that's why we're appreciating so fast. But as people start to get moving again, as the supply chain starts to get moving, as people start going back to work, as people feel more comfortable with whatever this pandemic thing is now, whatever that looks like, you'll start to see our inventories begin to grow out of this. I expect this spring that we're gonna see our inventory grow. Josh: Will it grow really fast? It's hard to tell. But if it does grow, that means our appreciation is gonna begin to taper off, and that's not a bad thing. For those that are thinking, "Oh that means the crash", it's like no, it just means that we're hopefully transitioning back to a more stable and slow steady growth real estate market. We don't like big swings in real estate, it affects people's lives too much. It's much safer, it's much more comfortable for people when there's just slow predictable, steady growth. Joey: When was the last time we had that? Josh: Not very often man, 20 years. I think I saw the tail end of it in 2000, 2001, 2002, and then by 2003, started to turn into a pretty crazy market, and it's been bouncing really bad ever since. But prior to that, if you looked it looked actually pretty stable. It's interesting, I wonder if it has anything to do with policy too because it seems like the more that the state has implemented a policy in the housing market, it's really begun to disrupt inventory. And if the Bay area in Southern California were able to increase their housing supply or have some more flexibility with expanding out to other areas in places like Redding could do it with a little lower cost, the housing issue could probably solve itself. For example, I talked to somebody before and I said, "You know if we went back to the building standards of 1992, and just did that for homes up to 1500 square feet, and we said we're gonna do that for the next 36 months. Do you have any idea how many homes would be built on the lower end? Joey: A lot. Josh: A ton, because the cost would be so much lower, right? They wouldn't be dealing with all that out of regulation. And so within 36 months, you could have... Not saying it would solve all the problems but it would be to be a meaningful contribution to solving that housing issue. But I'm not going into the weeds there, I'm just saying that the way that the government has an impact on a policy does have an impact on how many homes get built. Joey: Well, I think a perfect example of policy impacting the market was the capital gains laws that changed in the late 90s which said a married couple can wave up to $500,000, a single person can wave $250,000 on your primary residence if it's been your primary residence 2 of the last 5 years and you can do that unlimited number of times. At that point, you really turned up the flipping of buying a new house every three years. Josh: Yes. Joey: Especially when you combine that with an appreciation market and easy money, the next word that went to my mind was a casino. Joey: I said, "Wait, did they just make a casino? Three sevens, yes." So, I think that had a huge impact, right? Josh: Well, in all these things, there are so many different variables now that have an impact on market valuations. And I think that's part of the challenge is now when I look at what the government's doing... I'm not taking a position left or right or in the middle or anything. I'm literally in a policy and going, "Okay, with that policy this is probably how it's gonna play out on Main Street so that it can be well advised on how to both help our clients but also for our own investment portfolio, what moves we need to make." Joey: Well, can you imagine if all primary residents, had to pay 15% capital gains? You don't think that would slow... Josh: That'd slow the market down. Joey: Slow the market down. Versus, "Hey, let's sell it and buy a boat and buy another house." I think that absolutely has nothing to do with left or right either, it has everything to do with just the policy and... Josh: Yeah, it controls behavior, it has an impact on behavior. Joey: Absolutely. And our access to money, and I wonder how that's gonna play out. I bought my first house, I think in 2001, and I think I got 7% and that was really good at the time. And money has been so cheap for so long, and I don't see any really stopping that. It's almost like it's the new norm, right? Josh: I think so. We're not wise enough and old enough not now to see 80 years into the past. But when I got in the business interest rates for FHA were over 9%, and right now they're in the low 3s. So, and I've seen it this low for a long time now. For them to raise rates is actually a pretty scary thought for me, because most people purchase homes based on what they can afford for a monthly payment. And so, whatever the rate has an impact on what the purchase price is gonna be. So if rates went up to the 9% that I'm saying that I had 20 years ago, that would have a significant impact on what people can qualify to purchase and that would immediately drag the market down. So, no idea. All I know is that if they really can't raise the rates back to the old days. It's just not something that can be done without having a significant consequence. Joey: Yeah, no. And that's another example of policy and that's something that's transcended whoever's been in the White House or whatever that's been for almost 15 years now, it's been super low. Well, Josh, thank you so much... Josh: You bet. Joey: Today, I appreciate that. So, if someone's thinking about building or buying, that your phone number is gonna be listed. They can call you directly and ask to get your advice. Josh: Yeah, just type it into Google or go to reddinghomes.com if you wanna see any of that stuff. Joey: Awesome, thank you, Josh. Josh: Yeah, you bet, and thank you. Joey: You have a good one. *  

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Josh Barker Real Estate Podcast Episode #1

🏠💰Home Value Tool➔ Frequently Asked Questions Can a bank foreclose if you make partial payments? The short answer is yes. A partial payment is considered a breach of contract and could lead to negative impacts on credit, a formal notice of defaults and eventually foreclosure. However, many banks may choose to work with a borrower who is experiencing a short term hardship through the use of a forbearance or loan modification program. Proactive communication with the lender is a positive first step. Will house prices go up in 2022? According to the majority of economists, the housing market is projected to appreciate an average of 5% next year. Major disruptions due to inflation, employment, and interest rates are the largest factors to be considered. What will house prices do in 2022? According to the majority of economists, the housing market is projected to appreciate an average of 5% next year. Major disruptions due to inflation, employment, and interest rates are the largest factors to be considered. What are the steps in foreclosure processing? Typically the lender will first issue a 30 day late notice followed by a 60 day notice of default being filed on the property. Next the lender will issue a notice of intent to foreclose followed by a notice of trustee sale. Finally the home will be offered for sale at an auction and if not sold will be repossessed by the bank. There are variables that could impact the length of time to foreclosure but the process typically averages 6 months. Do banks really want to foreclose? The short answer is No. Banks are in the business of loaning money. However, banks have a fiduciary responsibility to shareholders, and must answer to government agencies in regards to monetary policy and compliance. Do banks lose money on a foreclosure? In many cases banks due in fact lose money foreclosing on a property. The financial impact on a bank can be costly due to the lack of loan performance, the condition of the property deteriorating, the cost of maintaining or repairing the property and of course the cost of legal fees. For these reasons among others, typically a bank would prefer to work out a reinstatement of the loan, a loan modification or a short sale option to avoid foreclosing. How much are banks willing to lose on a foreclosure? Typically, there is no set amount that a bank is willing to lose on a foreclosure. Banks utilize a variety of factors to determine an acceptable loss. These factors include but are not limited to the current market value of the property, the length of time necessary to liquidate the asset and any other legal considerations. Transcription* The transcription is auto-generated by a program and may not be accurate to the conversation. In order to ensure you get all the information from the video properly, you must watch the video. Joey: Okay, so the local market has slowed down a little bit... Josh: Yeah. Joey: I mean that's... But it's also going in the holidays, I would say every year. It kinda slows down a little bit. Josh: Yeah, there's a season to it. Joey: It hit a peak in the summertime, around August. One of the things that we're seeing, and I don't know if that's related to the local market, but we saw Zillow who was gobbling up real estate, not only did they stop that, but they laid off... I think it was like 2000 employees. It was a very large number. Yeah, it was a huge number. It could have been 20,000 but it was significant enough that it hit headlines pretty hard, but what does that? Did that have any effect on the local market here? Josh: No. The short answer to that, no, that didn't. In fact, I was watching some realtors running and posting on Facebook and everything else, "Oh my God, Zillow is not buying... IBuying anymore." And I'm like, "You know what? In Shasta County, there's no reason to freak out about it, 'cause Zillow wasn't buying homes in Shasta County." So it was not a big event when they stopped buying, but essentially what it was, is that Zillow was participating in the iBuyer market, which is where they're buying them with... Institutions are buying in these properties with the intent of just to resell them... Flip properties essentially. In some cases, they would fix them up a little bit and do a small little face left to him and re-market them to the market, but as a whole, they were trying to offer a value, which I think was well-intended, but the second you start buying an investment property or buy a property in general in any market center, you are an investor at that point. And Zillow wasn't really an investor to start with, they were in an advertising company, specialized in advertising products online for buyers and sellers to communicate with. Josh: So what happened was, is that essentially they realized their Zestimate was inaccurate, that they were buying them for too much money. And that when they went to try to resell them for what they thought the Zestimate was reflecting, they couldn't get them sold, so then you had a lot of inventory sitting and in some cases being price reduced below what they even bought them for in order to get them off the books, and so I think they... They're publicly traded, they have to answer to their board, but they also have to answer to their investors, and they said, "We need to stop the bleeding," and made a smart decision of, "You know what, maybe we need to re-look at this." And so they made a decision to stop iBuying, which I'm sure they probably still have some commitments, I'm sure they're probably still closing on some of those transactions that they had already committed to. But they're winding it down. And it's probably a smart thing to do. I mean, an institutional investor buying to flip will never outmaneuver, outperform a local investor who really understands the lay of the land. That know... Real estate's local, people have always heard that. And it's true if you don't know all the little intricacies of a property or an area or a subdivision or what that type of buyer is searching for, you could get slaughtered out there and they did... They got, what, 500 million or more? Joey: When you said that, what I immediately thought of was back in 2007, 2008, when they had the mortgage back securities and they were gobbling them up, but yet credit unions didn't have any problem because there were individual little credit unions that analyzed each loan and they wouldn't give out the bad loan. Josh: That's right. Or... Joey: Whereas the institutions were just gobbling up mortgages. Josh: Yes, yeah, when you took comparisons of different assets... The credit union, to your point, did get hit a little bit, but it wasn't initially, it wasn't because of bad loans, it was because these bad lenders drug the market down so far that even the good loans that they provided were underwater, that's why that market was so exasperated. This market this time isn't like that... I've had a lot of people asking like, "Hey, are we in a bubble?" Those kinds of things. And it's like, "Well, I'm not saying that we won't see the market correct a little bit," because any time you have a period of a major increase over a period of time, and any time there's a breakthrough in pricing, which we've clearly had... We've had 10 years of major growth... Joey: Yeah. Josh: Well, after long periods of growth, there's always some sort of a pullback, some sort of a recession, so it'd be kind of irresponsible to say, "Oh no, not this time." But the good news is, is that the buyers that we see coming, they're purchasing on 30 year fixed mortgages, which means there are no balloon payments, their interest rates are extremely low, which makes them wanna stay in those properties and hold those properties, there's hardly any negative amortization or interest-only products in the market, so we don't have a lot of those issues to deal with. And the investor participation is really low. We're probably talking maybe 10% of the markets investment-related in Shasta County. Joey: Really? Josh: Oh yeah, yeah. And before it was almost 50% in that 2007, 2008 that everybody knows where that market just got hammered, it was because in those periods, major investor participation where today it's 10%. Joey: So you think maybe the... When you say it like a market correction, are there any numbers that come to mind percentage-wise, or any length of time or... I know it's like, Hey. Do you have a crystal ball? Can you tell the future? Josh: Yeah. I'd be retired. Completely if that were the case. But I think what it is is after periods of market expansion for a period of time like I said, I think you could expect to see some retraction. You have another way of investors look as we have tailwinds and we have headwinds. So tailwinds, what are the things that'll push the market up? Well, you have family formation, you have migration, you have wage growth, you have a lack of inventory, you have monetary policy that's easing and that's pushing the amount of pay up where people can afford more. You've got the cost of construction, if it's really high, then that pushes the existing inventory up in value too, if you have a lack of labor, that again can cause prices to get pushed out because you can't really replenish the needed supply. So right now our... Let's say our tailwinds right now are hovering at 7-8%, which are all positives, right, and then you have to... That's your tailwind. And then you look at the headwind, it's like, "Okay, well, what could push pricing down?" And one of them would be as if people were to lose their jobs, if we went into a major recession when people weren't getting jobs, well, then that would reduce the buyer participation and that could have an impact on value. Josh: Do we see that today? Not really, they're even paying people to stay home, right? Joey: Yeah. Not locally anyway. Josh: Yeah, locally. And then you have interest rates, so interest rates are sitting in right around low threes, and the fad is said that they probably would see maybe two rate increases in 2022, and every time they increase, it's only about a quarter basis points, so next year they said, "Hey, rates might go up a half a percent." A lot of people don't know this, but for every 1% that the interest rate goes up, it has up to a 10% impact on your purchasing power. So if we know that the interest rates will likely go up 10% next year, which with inflation where it is, I'm sure they're going to go up, that could have an impact of about 5% on the value. So if you have a tailwind of 7%, you got a headwind of 5%, that means you have positive growth and value of maybe 2%, and that's how those things interact with each other. Does that make sense? Joey: Totally. Josh: Yeah. And whatever ingredients you wanna throw in the cake on the tailwind side or on the headwind side that's up to you and every investor, that's where the speculation comes in, but the principles are settled. Joey: 'Cause I think one of the big factors would be... You said migration, and it just seems like there are a lot of people that are pouring out of the cities, and Redding is still... When you talk about California real estate, Redding is definitely at the lower end cost, it means by quite a bit... Josh: It is. Yeah. Which makes it attractive. Joey: Makes it very attractive. Josh: Yeah. We're seeing a turnover a little bit, if you will, in our population. The composition of our population is changing a little bit. So you've got folks that are moving out and moving into Idaho or Texas or Tennessee, and we have families, mother, father, the children, and they're married off with kids. We have families coming in right now and saying, "Hey, our whole family is moving to another state." It's pretty... In 20 something years, I've never seen that before. And we see some of that right now. And then also on the flip side of it though, we see people moving up here from Sacramento, from the Bay Area, from Southern California, who are saying, "Gosh, we love California, we love the weather, we love the proximity of the big cities were Redding... Love the outdoors that Redding has to offer and we really like the price." So it's interesting, we're starting to see a little bit of a change in that composition. Joey: Do you think that at any point we're gonna see like foreclosures or are we gonna see... I can't remember what the term is, but... 'cause we're being pretty positive right now, we're saying, "Hey, the whole Zillow thing really doesn't affect Shasta County because they never bought here anyway," but is anything gonna turn because... Is it all just roses? Josh: Wouldn't that be nice, right? No, it's not all roses. You've got the pandemic-related impact that we're not talking about, and that's a pretty sobering conversation because no, there were people that understandably fell behind on their mortgages due to employment disruption and things like that, or even sometimes it was landlords who had a rental property and the tenant stopped paying, 'cause they had a disruption in their cash flow and well, now the landlord was expected to burn the responsibility to continue to make payments to the bank and they couldn't do it. So you have some distressed properties in the market. Right now, we have an estimate of just over 2000 property owners in Shasta County who are a period of time behind on their mortgage, and some of those are in a forbearance program, which expired at the... In the summer. And so some of these folks are in a situation or they're gonna have to make a decision, they're gonna have to decide, "Do I modify my loan with my existing lender, if they'll let me and maybe tack on what I didn't pay onto the back of the loan and pay it back over time? Or do I refinance my property based on whatever the criteria is that a lender is gonna require in order to start over again with my loan balance and get current? Josh: And there are some programs I know of that are available for that. Some people might choose if they have equity in their home just to cash in, "Hey, it's time, we might be behind in our mortgage, but we have some equity still we're gonna sell our home anyway." Some are going to decide to do a short sell if they don't have the equity, so they can control when they close and how they close and kind of minimize the damage to their credit, and then unfortunately there'll be some that will ultimately possibly lose their home and go to foreclosure all the way. So we have reconciliation as a community that we are going to have to go through, because if those numbers are correct and it exceeds 2000 that are behind, a portion of those will get fixed and corrected and never reached the market, but there'll be another portion that will reach the market in one form or another. Joey: So 2000, that number sounds really big to me, we're talking about Shasta County, that sounds like... That's a shockingly large number to me. I guess the good news is, if you are in that position, you're not alone and you do have options, and when you said equity in your home, I'm thinking, "Man, if you purchased your home more than two or three years ago, you should have quite a bit of equity." We've seen this market do very, very well over time, definitely for the last 10 years, but even over the last three years, the market has performed very, very well, so you shouldn't be upside down. There might be a... But I think that's gonna be a very small fraction of those people, so get ahead of this and do something about this now, so it sounds like they need to get in touch with either a real estate broker or if they need to get in touch with a loan officer. Find out where they sit. Get their options now. Josh: Yeah. I agree. I think that if a person was in that situation, the very first thing you wanna try to do is figure out what is the actual value of our property right now, and there are means to do that... Joey: Don't use Zillow. Don't get a Zestimate. Josh: Don't get a Zestimate. On our website we have a place where we can check your value, you don't have to sign up for it or anything, it just will give you the value at that in there, but it's still only computer-generated, so it's not gonna be better than having an agent look at it, but it's still something. And I agree, I think you try to figure out where, if you have equity or not, ask yourself the questions. Do I wanna sell my own and cash in on the profits that there are now? Or if I'd prefer to stay and then go down the route of check-in with a lender and see what your options might be? Like I said, sometimes you can modify it along with your existing lender if they have a program for it. Some are right now, because of how many people nationally are going through this, lenders actually have some policies in place for if you have to check with each in the lender individually, but I know that I've heard that if you make a couple of months payments in a row, that then you can qualify for a refinance and so are some options... Josh: The worst thing that somebody could do is just to put their head in the ground, we saw that last time, and that major... This isn't anything like that. But when we saw that for a closer market, we saw before, the ones that really got hurt the most were the ones that put their head in the sand, because by the time they finally wanted to do something, the protections that were awarded by the government were no longer there anymore. And that was the big price to pay for putting your head in the sand. Were the ones that kind of were proactive and working with the banks or doing a short sell or foreclose or whatever it was that they were trying to figure out, when they were proactive, they were going with the group, and with that comes some protections because, in numbers, you have some protections when you're by yourself, they're not gonna carve out a policy just for you, but they will when there are thousands of people that are in that situation. Joey: And it sounds like there are thousands of them. When you said there are about 2000 homes that are in this, like at some point of this forbearance or there just behind, are you talking about people that have just missed their mortgage? What triggers as like they're two months are more behind or is it... I'm trying to get a context of how close those people are too, like, "Hey... Urgency." Josh: Yeah, well, the... My understanding of it is, is that the current reporting agency is once you're 30 day late, they could report it is 30 days late, but because we're in that foreclosure moratorium, there was no... They wouldn't file a notice of default, for example, after 60 days. They didn't have the legal means to do that because that was the very thing that was suspended, but it didn't mean that you didn't have somebody tracking the fact that you're behind on your mortgage, and so I think that's where that information is coming from is that they're basically saying, "Hey, here's the number of people that are behind currently," it doesn't mean they're all gonna foreclose, it just means that these are the ones that are behind, and it's a number that will have to be rectified either they'll have to refinance, they'll have to do some sort of a modification to their existing loan or they'll have to sell it in some way, whether it be an equity sell or short-sell or foreclosure. Joey: Do you think that that's gonna... 'Cause that sounds like a headwind to me based on what... How do you define a tailwind and headwind, if all of a sudden the market gets this huge number of inventory, do you see that having an effect on depreciation next year? Josh: Oh yeah... Well, again, everybody's ingredients that they wanna put into a tailwind or a headwind is up to them, that's where the speculation comes in, and yes, from my own personal speculation in terms of the market for next year, that will be counted as a headwind. Joey: You know, one of the other things, I think that we talk about markets... We're too generalizing when we talk about markets like the national market's one thing, the California market, the Redding market, but even within the market, there are market segments, and I've had friends that were looking to buy and looking to sell, and they're certain segments... I guess it's like stocks, just because the market went up 4% today, it doesn't mean your stock went up 4%, you might it went up 24% it might have gone down 4%. And so there's... Is there a particular segment, do you have those kinds of numbers, you're like, Yeah, out of those 2000 homes, the price is this, and so these are the segments that we're gonna... 'Cause I think of a bunch of inventory at $350,000 is not gonna affect home sales at 800,000 and vice versa. Josh: That's a really good point. So obviously the... Well, the average sales price in the market, to your question is between... It's averting between 390 and 400. Really? Yeah, and it trans down in the fall, in the winter, it always does, 'cause fewer larger homes sell during the holidays, that's just... They're the ones that are doing all the entertaining, all the kids are coming to the big house, so the upper-end market tends to not have as many closings, which has an impact on the average selling price and the fall in the winter, and then that starts to change in the spring. The price point that's pretty much active year-round is the lower price point, so anything that's at that 350 year below in today's market, at that price point is going to move regardless or respective of what time of the year it is, and that's where most of the appreciation consequently actually took place during this whole pandemic, if you will, it's been, that's where most of the largest jumps and value off. What was interesting and COVID that... I look back and I go, "Wow," we weren't used to seeing upper-end properties sell at the volume they were selling at, that was... Josh: That was shocking, but it was because we had people coming in from other markets like San Francisco Bay Area, Sacramento, Southern California, who were buying these expensive homes, at least expensive for us, it wasn't expensive for them, they're buying a 500 square foot Studios for a million bucks, so when they come up here and buy a 4000 square foot home with the beautiful pool for the same price, they're like "This is a no-brainer." But we've seen a lot of those transactions over the last year and a half, and that's largely being 'cause they're been second homes or people that we're able to work from any location, so they chose Redding as a wonderful destination, who wouldn't? It's gorgeous, especially if you still have to get back to the city once or twice a month for work. And so we started seeing some higher-in-price property selling, and I think a lot of it had to do with the pandemic, but what will be interesting going forward is that... Are we popular enough now? Have enough people discovered the beauty that we really do have to offer in the north state to have that volume maybe not stay exactly the same, but stay within a similar realm. Josh: You know what I mean? Maybe it won't be the same number as last year, but if it could be 75% of the numbers of last year, that'd be still great. 'Cause, that would be a lot different than it was three years ago. We were pretty much a hidden secret up here in the North state three years ago compared to what I think we are right now. Joey: And you have factors like telecommuting is much more popular now, COVID really impacted that. And also the Redding airport's expanding quite a bit. They've got direct flights, Vegas, Burbank, LA, obviously, they've always had San Francisco, Seattle. I was talking to Megan Spalding over at Shasta EDC, and she was talking about they wanna expand more, they're looking at like... She threw some things like Denver, Phoenix and that stuff will all have an impact on us. Josh: Well, you'll be able to bring in a more of a working professional that needs to have the access to the airport, the biggest deterrent we have for the working professional, the travels is it's over two hours to the airport, and so we miss out on a market segment because of that, and the airport is obviously a point of attention, and I think if we have some intention with it in terms of expansion, better routes and things like that and if it's reliable. Let's not sugarcoat the reality that some people still have the stigma that it's hard to get a flight out. Josh: Sometimes it gets canceled or whatever, everybody tells me it's gotten better, but for those who were trying to do this 10 years ago, fly out of Redding and then get burned once they're driving to stock right now. So maybe reporting those numbers, how often that they don't get canceled, that might be a good public message to get out there, but no, I think that as telecommuting becomes more viable... And they're still meeting too, it's not like these guys aren't driving back to the city or these gals aren't driving back down to the city to meet once a month, they're still doing that, so they still wanna be within a certain proximity of access to the city, but... Come on. Where would you rather live? You would try to live with... Do you have an hour and a half traffic every day that you have to contend with, or really have a five to 10-minute commute? Joey: And a $4500 rent an apartment versus a... Josh: Yeah, a $3500 house payment on a beautiful home that you can really enjoy. So we have... Our best days are ahead of us. For sure. Joey: Well, that's good to hear. Yeah, that's good to hear. So you don't think that the 2000 homes that are in that are gonna impact us... People shouldn't be concerned. Josh: Well, that... Everybody seems to be emotional these days. So what's gonna happen is, is that as soon as this conversation... Not our conversation, but as soon as the conversation of distress properties becomes more mainstream, you're gonna have articles written that are gonna try to make the worst presentation of it and try to make it look horrible. We had a rainstorm a month ago, and what did they call it? I forgot the name of it, but it was like some funny name for... It was like some cyclone bomb, is what they called it. Right. And it was like, "No, that's called rain. What are you talking about?" So you know they're going to paint a pretty dark grimson picture, but the reality is we have over 4000 homes that are selling here in the county every single year. And so let's say that even 50% of that 2000 or more end up coming to the market in one form or another, that's only a quarter of the inventory, it'll only take one quarter of a year to absorb that inventory and it's not gonna all come at once, so it's gonna get spread out, but it's gonna be... Some of it's gonna be distressed, and so there will be a conversation around it, some people are like, "Oh, finally, I'm right," but I have a feeling it won't last very long. Joey: And they're expanding the loan... The packages, Chris Lam, I saw, he did a little bomb in video he was talking about them potentially offering 40-year mortgages, and I think you might have told me like, "Oh, they've had that around," you don't hear about it often, but it's gonna become a little more mainstream, which is only gonna open up buying power more. Right? Josh: Yeah, yeah. For the listeners, a lot of people, when you go to take out a mortgage, you usually have a 15-year fix has been the historical or a 30-year fix. Those are the two that most people would choose from, but in Europe and in Canada, 40-year mortgages are pretty much mainstream, that's something that gets done all the time, and there's no problem with it, what I like about them or that I think makes them... Okay, is that they're usually fixed for that period of time, there's no balloon payment. And balloon payments are where you get people in trouble because you have to think as a borrower and you're like, "Okay, alright, so there's a balloon payment in five years. How do you know where you're gonna be in five years? Is the market gonna be up or down, am I really gonna be forced to refinance my property based on whatever the market conditions are at that point?" That's the problem with the balloon payment... Right, but these 40-year mortgages are fixed for the 40 years most of the time, and what it does is it brings down the monthly obligation a little bit because you're amortizing over a longer period of time, and so let's say that the fellow reserve raises rates a half a percent next year, and we know that the head one that's created is a negative 5% valuation as a result of that. Josh: Well, if they go to a 40-year mortgage at the same time they raise the interest rates, then that may not have a 5% headwind impact, it might only be 1% at that point. So if they increase the availability of loan products as they're raising interest rates, we probably won't see a major disruption or major headwind created just from the rates alone... But man, I'll tell you right now, if they move to negative amortization or interest-only products with balloon payments, enjoy a 24-month run-up a value and then get ready for the crash, so I just hope they don't decide to get stupid like that. Joey: Well, okay, that's a 24-month crash. I'm like, gonna set my watch. Josh: Yeah, we already say it. 2004 and five was when they ran up the crazy loans available and people used them even though it didn't make sense. They still did it anyway. So hopefully, there are no products available in the market today, and for the most part, it's almost illegal because that DOD Frank bill that was passed after the mortgage crisis before for the most part, basically made it almost illegal to do something... Joey: Well, the difference that I've noticed from then and now is back then you would hear people pulling out equity on the first home to buy the second home and equity is set on by a third, just... I don't hear that. I hear more cash buyers than I hear that, so... Josh: Oh yeah. Absolutely. Well, and to your point, less than... It's roughly, maybe even at the most... And these are numbers that I'm coming from, but what we see in our office and when I talk to other brokerages, but it's 10% of the markets investors, so to your point, that's not happening, they're not pulling equity out and then going and buying another rental property with it, where before, that was very common. Joey: If anything, it seems like the investors are coming from out of the area and they are cash buyers or they're very large down payment buyers, a lot of them, 10, 30 winning out of bigger properties and adding their portfolio by "Hey, I'll gobble up a single-family home in Redding with this $200,000, I need to recognize." Josh: Well, people are chasing cap rates, and that's kind of a different conversation, but people are looking at the cities and trying to buy investment property down there and your cap rate might be 1% or up to 3% return on investment. Where in our area here it's... You're looking at 5%, even 8% cap rates on properties, and I think that people are much more attracted to those numbers. Joey: I don't see a lot of inventory either, when you talk about the cap rate, you're not talking... Are you talking about the single-family home cap, reader you talking about more like multi-family? Josh: Not... Well, just rental in general, so it could be a home or it could be a multi-family situation, but the investors for the most part, or shopping cap rates, and Shasta County has a better cap rate than a lot of other markets, at least currently, and so you do have investors that still wanna purchase, that's that 10% that are buying for investment, there's very little speculation going on right now, there are very few people flipping, there's not a lot of that, but there are people buying and holding, and that's that 10% that are looking at the cap rate and saying, "Hey, I'm gonna give X amount towards this property and I'm okay with the return I'm getting." It's not hard though, 'cause the banks are paying what, 1% right now at the most to save your money in the bank, and you're moving into an inflationary market where inflation 6%, if you don't put the money in a hard asset right now, your money, if I give $100,000, I'll put in the bank account today, based on the numbers, not my numbers, the federal government gave out where the inflation is over 6%, that same $100,000 is now worth $94,000, and that's just what inflict the cost of inflation is, but if I would have taken that $100,000, put it in real estate last year, right? Then let's say I bought a property with leverage, that $100,000 might be worth $150,000 today, so negative 6000 or up 50,000, which one sounds better? Joey: Yeah, so if you really want to get the best of both worlds, you're gonna wanna buy a house and fill it full of crypto miners and then... And solar, don't forget solar. Josh: Yeah. Crypto's a... You know... That's an interesting topic. 0 Joey: I was just kidding. I was just joking. Josh: Yeah. Real estate is obviously the... It's a long game, but I haven't met too many people that bought real estate 20 years ago who lost money today. Joey: No, no, exactly. Josh: So if you can look at it from a long-view perspective, and as long as it's cash flowing, it just makes sense. I use this slide with the team and then I show on a slide of here since 1980s with rent increase. The most it might flatten out for six months, but that thing is at a 45-degree angle and it's been like that for 30 years. So the cost of living, cost of rent, cost of housing goes up. Joey: Oh, absolutely. Josh: And if you own a property and you secured a position in the market where your mortgage doesn't go up every month, it stays the same, but rents are going up every year in theory, or making more passive cash flow on that investment. Joey: I guess one of the things that we've talked about, the big one for me would be... Because one of the things you talked about was access to materials to home builders, we don't have a lot of new construction, and it doesn't move fast here at all, so it doesn't take much for our inventory to drop quite a bit. The big factor is gonna be, I think, employment and locally it looks pretty good. Josh: Yeah it's... Obviously, we have a pretty big disruption when it comes to raw materials. The good news is that in China right now, I was just reading this report, China right now is taking a pretty big hit on their new construction right now, and they compete against us for a lot of those raw materials and appliances and stuff like that. So if China is going through a correction right now where they're gonna have a reduction in demand that's gonna impact them, let's say 20-25%, then that means that we could begin to see our access to materials get better. Our biggest issue, I think, really is in the construction anyway is labor, do we have enough people to do what we need to do, 'cause I think that the material side of it is gonna fix itself over the next 6-12 months. Joey: What... We're running out of time. I wanted to recap. So if anybody is part of that 2000, if you're behind on your mortgage payment, you have options, get ahead of it, don't get behind it, it's... It's putting your head in the sand. It's not gonna help you. No, but there are still programs right now, reach out to a broker, Josh, obviously reach out to Josh or your lender and find out, get ahead of this now, get ahead of the curve. And there are... You have options, you have solutions. Josh: Yes. Joey: This can end very, very well. It doesn't have to be a sad story, doesn't have to be a tragedy. Josh: It can end the best it possibly can if you get ahead of it. Go with the crowd when it comes to these types of situations, go with the crowd because that's where the most protections are available at the government level. Joey: Awesome. Well, thank you, Josh, I appreciate it. And until next time, look out for Josh Barker's market update, it comes out at the beginning of the month? Josh: Yeah, we sent it out every month, it's more... This one's more free conversation, but the one we do each month is more confined to a couple of topics and put some time into that, so it's easy to read. Joey: Awesome, thank you, Josh. Josh: Yeah, thank you too. *      

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