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Navigating Awful Housing Affordability - Rick Sharga Joins Keith
• 45 minThe Fed can raise interest rates, but they cannot create housing supply. Housing intelligence analyst Rick Sharga joins us for the second week in a row. This housing market is awful for primary residence homebuyers. But at GRE Marketplace, you can still buy income properties with rates as low as 4.75%. Rick tells us that the most prosperous markets now favor the: Midwest and Southeast, single-family homes, rental property investors with buy-and-hold strategies. National home prices are appreciating modestly. Home sales volume is still down. Investors now account for more than one-quarter of property purchases. Mortgage delinquencies are near an all-time low. Rick and I discuss why this market is so bad for flippers. High homeowner equity positions ($300K+) support this housing market. Timestamps: The impact of rising mortgage rates [00:02:37] Discussion on how the Federal Reserve's raising of short-term rates has caused mortgage rates to go up, affecting the housing market. The affordability challenge [00:03:38] Exploration of the impact of higher mortgage rates on homebuyers, particularly first-time buyers, and the decrease in affordability. Low supply of homes [00:08:48] Analysis of the low inventory of homes for sale, with a decrease of 9% from the previous year and 47% from 2019, leading to a challenging market. The mortgage rate lock in effect [00:11:05] Discussion on how the mortgage rate lock in effect can crimp demand but cannot create supply. Hottest markets in the Midwest and Southeast [00:11:05] Analysis of the hottest real estate markets in the Midwest and Southeast regions of the United States. Positive turn in home price appreciation [00:13:06] Explanation of how home price appreciation went down but has recently turned positive again. Housing Permits, Starts, and Construction [00:21:24] Discussion on the trends and levels of housing permits, starts, and construction, and the need for builders to increase production. Investor Activity in the Residential Market [00:22:28] Exploration of the percentage of home purchases made by investors, with a focus on small and medium-sized investors and the misconception of institutional investors dominating the market. Delinquencies and Foreclosures [00:24:36] Analysis of mortgage delinquency rates, foreclosure activity, and homeowner equity, highlighting the low delinquency rates, the presence of equity in foreclosed homes, and the importance of early-stage foreclosure sales. The future direction of rents [00:32:00] Discussion on the potential upward pressure on rents due to low affordability and high homeownership rate. Inventory coming to the market [00:33:03] Exploration of the impact of expensive inventory coming to the market and its effect on rent prices. The overall economy and housing market [00:34:03] Consideration of the possibility of a recession, unemployment spike, and foreclosures affecting the housing market. The coach's role in finding real estate deals [00:43:06] Explanation of how an investment coach can help you find the best real estate deals in the marketplace. Advantages of buying properties from marketplace [00:44:20] Reasons why buying properties from marketplace can lead to good deals, including lower prices and absence of emotional seller involvement. Resources mentioned: Show Notes: www.GetRichEducation.com/467 Rick Sharga’s website: CJPatrick.com Rick Sharga on X (Twitter): @RickSharga Get mortgage loans for investment property: RidgeLendingGroup.com or call 855-74-RIDGE or e-mail: info@RidgeLendingGroup.com Invest with Freedom Family Investments. You get paid first: Text ‘FAMILY’ to 66866 Will you please leave a review for the show? I’d be grateful. Search “how to leave an Apple Podcasts review” Top Properties & Providers: GREmarketplace.com GRE Free Investment Coaching: GREmarketplace.com/Coach Best Financial Education: GetRichEducation.com Get our wealth-building newsletter free— text ‘GRE’ to 66866 Our YouTube Channel: www.youtube.com/c/GetRichEducation Follow us on Instagram: @getricheducation Keith’s personal Instagram: @keithweinhold (00:00:01) - Welcome to. I'm your host, Keith Weinhold. Hold a terrific discussion today on the direction of the housing market, including lessons that you can learn for all time plummeting home sales volume and direly low home inventory. Why home price appreciation is taking place now. Could the government soon penalize you for owning too many rental properties? What's the best place for a real estate investor to position themselves in this era? And more today on Get Rich Education. (00:00:33) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get rich education. (00:00:56) - Walking from Horseheads, New York to Nags Head, North Carolina, and across 188 nations worldwide. I'm Keith Weinhold. And you're listening. To get rich education, you are going to get a fantastic market update today. And along the way, you'll also learn lessons if you're consuming this 5 or 10 years from now. Our expert guest was with us last week to discuss the economy. This week, it's episode two of two as we discuss the real estate market. (00:01:25) - He has been the executive VP of markets at some of America's leading housing intelligence firms, and today he's the founder and CEO of Patrick Company, either a market intelligence firm for the real estate and mortgage markets. And he has 20 plus years of experience in those industries. It's the return of Rick Saga Part two of two. It's not imperative that you listen to last week's Part one of two that we can help you see the big picture. Enjoy this long, unbroken interview and then after the break, I'll come back to close it. Just you and I. We're talking with Rick Sagar, expert housing analyst, previously. We talked about the general condition of the economy. And now Rick and I are going to break down the housing market with what's happening there. There's so definitively connected. Keith One of the things to that the Federal Reserve has done by raising those short term rates is caused mortgage rates to go up, right? Mortgage rates tend to run loosely in line with the yields on the ten year US Treasury bonds that we talked about at the end of the first segment. (00:02:37) - Those are now up around 4%. And typically a 30 year fixed rate mortgage will be between one and a half and two percentage points higher than that yield. So in a normal market, we'd be looking at a mortgage rate today of about five and a half to 6%. Instead because of the risk and the volatility that the market is pricing in because they're not sure what the Federal Reserve is going to do next. We're looking at mortgage rates for a 30 year fixed rate loan of over 7%. The most recent numbers from last week from Freddie Mac, we were at almost 7.2% on that average, 30 year fixed rate loan and 6.5% on a 15 year fixed rate loan. You and I were talking before the show and and you know, historically speaking, if we keep these things in context, we're still actually below the 25 year average, which was 8%. But we have a whole generation of homebuyers who've come of age during the period of the lowest mortgage rates in the history of the country. They got spoiled, they got spoiled. (00:03:38) - And to be clear, it's one of the reasons that home prices rose as rapidly as they did and got as high as they are is because you could afford to make monthly payments with a two and a half, three, 3.5% mortgage. Now, you still have home prices about as high as they were then, and you have a mortgage rate that's doubled. And for most home buyers, particularly first time home buyers that make your monthly mortgage payment was going to go up by 45 to 60%. And most of us didn't get that 45 to 60% raise last year. It really had a huge impact on affordability. In fact, this is such an unusual occurrence that according to Freddie Mac, it's the only time in US history when mortgage rates doubled during a calendar year and they didn't just double in a calendar year. Keith They doubled in the space in a few months. It was that kind of systemic shock to the system that really hit the housing market as hard as it did. Right. And they've also nearly tripled in a pretty short period of time. (00:04:35) - Yeah, they really have. And again, going back historically speaking and and get this from Gen Z folks and millennials, when I talk about, you know, the old days of mortgage and I do remember my first mortgage had two numbers to the left of the decimal point. I forget if it was 11 or 12%, but it was something like that. And they basically say, okay, Boomer, but that 11% mortgage was on your $70,000 house, Right. And not, you know, today's median priced home of $430,000 or whatever it is. So it's a fair point. Mortgage rates are not high, historically speaking, but that monthly cost, because of the combination of home prices and higher interest rates, is choking some people and making affordability a problem. And because of that, one of the forward looking metrics that I take a look at is the purchase loan mortgage application index from the Mortgage Bankers Association. So this is the number of people that are applying for loans with the purpose of buying a house. (00:05:35) - They're off almost 30% on a year over year basis right now. You can see without straining your eyes at all the impact that these higher mortgage rates are having on the housing market. And we had almost record numbers of purchase loan applications from the time people who are allowed out of their house during the pandemic until these mortgage rates doubled from 2020 through the early part of 2022, mortgage rates were in the threes and fours and sometimes even in the twos. Yeah, everyone wants to talk about mortgage rates and it is an important discussion to have he
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