Why The Lowest Mortgage Rate May Not Be Your Best Option

Why The Lowest Mortgage Rate May Not Be Your Best Option

Broker | Owner | Mortgage Consultant
Josh Lewis
Published on August 12, 2020
beware of low mortgage rate lenders

Why The Lowest Mortgage Rate May Not Be Your Best Option

Josh Lewis, Mortgage Broker/Owner of BuyWise Mortgage discusses the biggest trap that homeowners and homebuyers can fall into.  Yes, interest rates are at historic lows right now, lower than after the great real estate crash of 2008.

Verify your mortgage eligibility (Jan 21st, 2022)

Today we have a new danger to watch out for…Mortgage call centers staffed with inexperienced “loan officers”.  We use the term very loosely.

Interest rates are not one size fits all.  This is a trap.  Here’s why.

Verify your mortgage eligibility (Jan 21st, 2022)

Jeb Smith:

Hey, guys. Welcome back. Jeb Smith, Real Estate Broker here in Southern California, and I’m back with Josh Lewis of BuyWise Mortgage, who is my local mortgage broker. And we’re back today to discuss interest rates. This week, we got an update that interest rates have once again trended lower.

There are also talks of one of the big lenders out there offering 1.875% on a 15-year fix, so we’re going to discuss that in more detail, along with timeframes on refinancing. How long does it take, as well as how long after refinancing can you refinance again.

Verify your mortgage eligibility (Jan 21st, 2022)

We’re going to touch on all of that as well as the Housing Market. We’re going to get Josh’s take on what’s happening in the market.

Jeb Smith:

And in addition to that, we’re going to just touch on some of the common questions that we get when doing these videos. But before we do that, I’d like to take a minute and say thank you again for taking the time to watch.

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If you’re new to us, do me a favor and hit that subscribe button if you’re interested in staying up to date on all things real estate and mortgage-related. We do these once a week to keep everybody informed and guide you through the process.

Jeb Smith:

So let’s talk interest rates, Josh. Before we got on the call, we talked about them a little bit. Let’s start first off in talking about rates. A 30-year fixed. Where are we today? There’s national news that we trended down, I think to a 2.88 average nationwide on 30-year fixed.

Verify your mortgage eligibility (Jan 21st, 2022)

So, we’ve been talking this whole time about taking advantage of rates, right? If it works for you now, take advantage of it even though we think rates may go lower. So what are you seeing in the market? Where do you see rates going? We’ll start there.

Josh Lewis:

Yeah, let’s start with the headline you were talking about. The Freddie Mac Primary Mortgage Market Survey. They announce it every Thursday. This Thursday it hit 2.88%. So it’s the lowest it’s ever been.

Verify your mortgage eligibility (Jan 21st, 2022)

And we’ve talked about it before. We’re not talking huge amounts lower, but it’s amazing to see that number under 3%. No one ever thought it would get under 3% until maybe in the last couple of months. You start thinking, hey, it’s trending, and you see some things that are happening that could push them to that level.

Josh Lewis:

The most important thing that I always like to tell people, that number is for a week ago. So it’s the last seven days of purchases that Freddie Mac made.

Verify your mortgage eligibility (Jan 21st, 2022)

And it also includes a number of points, which typically that’s about 0.3 to 0.4, I did not see the number they quoted for this week, but it’s been trending up because a lot of lenders are pushing this thought, which is a hundred percent wrong, but I want to hit on it because it answers the other question that you had.

Josh Lewis:

People are saying, “Hey, never thought we’d see rates under 3%, they’re the greatest ever. Why don’t you go ahead and pay a point or two points or two and a half points and let’s get the most amazing rate ever?

Verify your mortgage eligibility (Jan 21st, 2022)

Josh Lewis:

We had a client yesterday that he said, his take on it was, “I don’t ever want to refinance this thing again. What’s the lowest rate you can get me?” We did a 30-year fixed at two and a half. He paid almost two points, it’s like a point and a half to get it.

I don’t think that’s the best thing to do, but you understand from his perspective, he says, “I’m going to take that two and a half, I’m never going to touch it again.” Well, the problem is, if rates go to 1% at some point in the future, he’s probably going to want to do it again.

Verify your mortgage eligibility (Jan 21st, 2022)

Josh Lewis:

So what we were telling clients, and if you flashback to some of the videos, I’ve always said my advice, as long as we think rates are trending down, which not only are they trending down currently, they’ve been trending down for 40 years.

You go back to 1982, Paul Volcker and the Fed broke the back of inflation, rates went from 18% down to pretty much zero right now. So that trend has been intact for 40 years. If we show you the technical analysis, show you the chart, it has never been broken in 40 years.

Verify your mortgage eligibility (Jan 21st, 2022)

It’s come really close. And everyone says, “Oh, this is the end. This is the end of the long bull run in interest rates.” It isn’t. There are a million boring reasons I could give you for why they’re going to trend lower.

We very well could see a situation like… Jeb, I don’t know if you remember, you and I first started doing videos in 2013, 2014. The market got really low in that timeframe.

Jeb Smith:

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They were awful by the way.

Josh Lewis:

They were bad videos. They were really bad videos.

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Jeb Smith:

They’re bad now, but they were really bad then.

Josh Lewis:

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Yeah. We’re not good now, but we were really bad then. So one of those videos popped up and I was trying not to puke, but it was interesting. It was good for a laugh. But the long way of saying back in ’13 and ’14, we were doing 30-year fixed under 4%, three and a half, three and three quarters.

And we’re like, “Hey, get this rate, we’re probably never going to see it again.” But again, that 40-year trend in rates is intact. Here we are six years later and now we’re looking at rates at 3%, at 2-5% if you want to pay a couple of points.

Josh Lewis:

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So anyone betting against the bull run in interest rates has lost for 40 years. So I don’t think anyone should pay a bunch of points to get the world’s lowest rate right now. When whether it’s one year or four years from now, we’re going to get that rate for free.

I believe really strongly you should be doing either low or no-cost loans. In certain instances with lower credit scores, higher loan to value cash out, that’s not always possible. But for the most part, I don’t think anyone should be paying for these loans. So it leads to the question of, how often can I refinance?

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

The simple answer is, you can refinance next month if you want to. There’s nothing prohibiting you from it. Fannie, Freddie doesn’t keep you from doing that. FHA and VA do actually have a prohibition, in simple terms, it’s about 210 days from when you close.

The guidelines are a little bit separate between FHA and VA, but you’re going to be in that loan for six or seven months.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

What I always tell my clients is, when we do this loan and you’re not paying us, we are getting paid. I’m not a charity, I don’t do that loan for free. We get paid by the lender. So what happens is if you pay off that loan within 180 days, we have to pay back all of our compensation and any credit that was paid to you for your closing costs. So that can be expensive.

Our average loan amount is 400 and something thousand dollars. Sometimes it’s $6,000, sometimes it’s $10,000 that you end up having to pay back if something like that happens.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

So if you know and like the person that you’re doing your loan with, I wouldn’t stick them with that. One of the important things, even though in the conventional loan, you can do it in less than six months. After six months on a purchase, you can use the new appraised value, but after six months on a cash-out refinance, the new loan is no longer considered cash out.

Josh Lewis:

Which anyone who has looked at that, cash-out rates aren’t quite as good, they’re riskier loans. So there’s a little bit of a loan-level price adjustment that bumps that interest rate higher. So those people, I’m absolutely screaming from the mountaintops, do not pay points for those.

Verify your mortgage eligibility (Jan 21st, 2022)

Because if rates just stay the same six months from now, once we get to use the new value off of the improvements that a lot of people are doing to their home with their cash out, then we’re in a position to be able to do that. So half the time there’s no rule on when you can do it.

You should be thinking I’m going to be in this loan for at least six months, is there a chance we’re going to be lower at the end of six months?

Yeah. Some of the people that we did, right in March and April are probably looking at doing this again later in the year, but they’re happy that we didn’t say, “Hey, let’s jump in and do the world’s lowest interest rate.”

Verify your mortgage eligibility (Jan 21st, 2022)

Josh Lewis:

As you’ve talked about repeatedly here, United Wholesale has been in the news, banging their drum loudly that, “We have these conquest rates, lowest rates in the world.” So their newest one is 15 years, they are offering 1.875%. and nowhere did they tell you what that costs?

You and I just looked at it, over two points for a gold plated client, 800 credit score, 50% loan to value conforming loan amount. No one wants to pay two points for their loans. No one should pay two points for their loan.

Verify your mortgage eligibility (Jan 21st, 2022)

There’s a good chance that again, whether it’s one year or five years from now, you’re going to get a 1.875 rate on a 15 year for free. So for what it’s worth, do not pay a bunch of points to get a vanity rate right now.

Jeb Smith:

Right. And just to clarify, I think most people watching this probably understand what points are, but it’s a percentage, right? So one point is 1%. So on a $400,000 home, that’s four grand that you’re paying.

Verify your mortgage eligibility (Jan 21st, 2022)

And in this case with that rate that he was just talking about at 1.875%, if you’re paying two points on a $400,000 loan, that’s $8,000. You’re paying just to get that rate.

And I think the average right now is, most people keep their loans for, I think nine years, is the latest stat that I saw. It used to be five to seven. And I think now it’s trended a little higher.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

It had ended up. I bet you when we are going to see new numbers here later on in the year because so many people are refinancing now. We’re seeing a lot of those 2013, 2014 loans that people thought they were going to have forever coming back and refinancing.

So, one of the things that you had hit it on at the open there is, from 2013 to now, the biggest difference, we were still fighting with the appraisals at that time. The market bottomed in about 2010, but it stayed near that bottom until about 13.

When finally by 2013, 2014, 2015, they started seeing value is going up. What we’re seeing now, we’ve had a seven-year run-up in home values. We have a lot of people with a lot of equity in their properties.

Verify your mortgage eligibility (Jan 21st, 2022)

Four or five people that I helped refinance in the last few months bought in that 2010 to 2013 timeframe in Los Angeles County, when prices were really low, they bought single-family homes for like $300,000. Those are $750,000 homes now.

Josh Lewis:

So there was a bunch of deferred maintenance. They got to kind of a fixer then. We just pulled $150,000 out of those homes and now they’re going to go back and do an addition and do a full remodel. So we don’t ever want to look at the home as a piggy bank, but you also do want to look at it as an investment.

Verify your mortgage eligibility (Jan 21st, 2022)

Although a home will last forever, you have to put money back into it over time. So if you have, your kid going off to college, you need $50,000, home equity can be a good way of paying that.

I don’t want to suggest going out and getting your Corvette or a boat like a lot of people did in the early 2000s, but there are good ways of using that home equity, especially at today’s lower interest rates to help several clients here actually consolidate a bunch of debt and then shorten the term on their loan.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

Maybe they had a 30 year, they took out four years ago, we’re doing a 20 year paying off all of their debts. We’re taking five, six years off of that loan, but paying off a bunch of debt and lowering their monthly debt service by over $600 a month. So you want to be strategic about it.

Home equity is hard-earned, and it is an important part of your planning. You want to get to retirement and have your homeownership or your home costs under control, the best way to do that is to pay off your mortgage.

Even if you don’t plan on staying, for us here in California, a lot of people as part of their retirement plan they say I’m going to move to Arizona, I’m going to move to Idaho. I’m going to go somewhere my home costs are lower. Well, if you owe $500,000 on your home when you get to retirement, it doesn’t really help. So we probably should be coming to a plan to get that thing paid off.

Verify your mortgage eligibility (Jan 21st, 2022)

Josh Lewis:

So it’s something that we talk to our clients about and making sure we’re being strategic and not just saying, “Hey, it sure would be nice to have at 2.99 or a 2.875 interest rate. So it’s more strategic. And it goes to, one of the things with rates as low as we have right now, most of our clients are repeat and referral.

We have, if we lined up every lender on the planet, I am way closer to the cheapest in the world than we are to the middle of the road or most expensive.

Verify your mortgage eligibility (Jan 21st, 2022)

Josh Lewis:

But what I will tell anyone, actually, one of our friends that used to run one of the biggest national lenders, [inaudible 00:11:13], works for a private company, but on his blog, he had a post last week, he said, “Yes, it is important to get a good interest rate.”

We talk about this. There are lenders that are still doing bad rates or just charging borrowers a lot for a loan. So you do want to shop and make sure you’re getting the best terms.

Verify your mortgage eligibility (Jan 21st, 2022)

Josh Lewis:

What I can say is, as a broker, we’re approved with 20 different lenders, I can shop 100, 150 in our system. And when I go through there, the two or three best price lenders in there, I would never send them a loan, ever in the world. Because the borrower would have a terrible experience.

They would hate me by the time they were done, they might get that interest rate, it will take 60 to 75 days since we had terrible experience. So a lot of the lenders that are out there, in a market like this, a lot of people will open up a call center by a bunch of lending tree leads, show ads on the radio, billboards, whatever it is.

Verify your mortgage eligibility (Jan 21st, 2022)

And maybe they’re an eighth lower in interest rate, you’re going to pay for that eighth one way or the other.

Josh Lewis:

You can’t call a kid in a call center that’s been doing loans for three months and expect to have a good experience. And you’re certainly not going to have a relationship with them that’s going to help you through the next 20 years of homeownership, arrive at retirement with a chunk of equity that you’ve planned on.

Verify your mortgage eligibility (Jan 21st, 2022)

So be careful, it’s very important that you get an excellent competitive interest rate. I would always be very wary of the lowest interest rate around.

Jeb Smith:

And with that said, I prefaced this conversation with timeframes, right? So timelines are important in the process of refinancing, even purchasing, right? More so than purchasing than refinancing. But like you’ve mentioned a moment ago, going with the guy with the lowest rate out there doesn’t necessarily mean that the service and everything with that are going to be top-level, if you will, five stars, as you mentioned.

Verify your mortgage eligibility (Jan 21st, 2022)

There’s something that maybe you’re giving up in order to get that rate. So what are we looking at right now with regards to timeframes? Purchases? Are we still closing in 30 days? I know the answer to that, but you know, you address it. And then how about refinances? What are we expecting right now with regards to, start to finish?

Josh Lewis:

We’re not unique in this regard, but we prioritize purchases. When we look at our pipeline, we do our morning review with the team. The top of the pipeline is always our purchases. So because our lenders prioritize them, escrow companies prioritize them.

Verify your mortgage eligibility (Jan 21st, 2022)

And it’s not because any loan is more important than another, but purchases have a timeline. Sellers need to know, we’re going to close on this day and move on. There’s a lot more than just one party waiting for a lower interest rate or a little bit of cash out.

So they get prioritized. We’re closing those in about 25 to 30 days. I ask our realtors to not do things like write 21 or 25-day escrows. We’re getting them closed in that timeline, but it is tight. Everyone is backed up from escrow to title, to lenders, appraisers, home inspectors, everything is just taking a little bit longer.

Josh Lewis:

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We measure, in our pipeline, through the process and then on our closed deals shows what we averaged from open to close. And in December, January, we were right in that 23 to 25-day range on almost everything, we’re sitting around here going, “This is a wonderful world.”

Rates are low, we’re busy, but no one’s so busy that you can’t get things through quickly. Once the Coronavirus hit, it’s just continued as rates inch down the turn times drag out a little bit longer. We’re between like 37 and 40 days. So we’re up about 10 days in that timeline. And you look at it, you try and pinpoint where it’s going, it kind of goes everywhere. Everything just takes a little bit longer throughout the process.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

So our purchases are closing in 27, 28, about 10 days longer than that for refinances. If you have weird stuff, curveballs, where you need to subordinate a second mortgage, or you need to get documentation on your solar or a subordination sometimes we need on the solar system, those things can push it out to about 45 days, but most everyone should be able to close in 45 days or less.

Josh Lewis:

So we tell everyone it really is a situation of hurry up and wait, and you don’t want to sound self-serving in this, but I tell our clients, get us everything we asked for as quickly as possible. And then you’re going to go, “What in the heck did I rush for?

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Now we’re just sitting here for 10 days, waiting for underwriting.” Then we get our approval and we go, “Hey, I need these three things from you, the underwriter’s asking to see, please get them to me as quickly as possible.” Then you wait four days again to get back in front of the underwriter to see it. That’s pretty typical.

Josh Lewis:

So there’s a handful of lenders out there that are advertising. “Hey, we have great systems and we have faster turn times. UWM is one of them. Yeah. United Wholesale specializes in super vanilla loans. They don’t do anything left or right of center. So if you fit down that pipeline, they can close them quicker than that.

Verify your mortgage eligibility (Jan 21st, 2022)

The whole conquest program, the longest lock you can have is 22 days. So for the borrowers that fit that, it’s a wonderful thing for us to put them down that path where they can close quicker. But for the most part, when we want to have all of our options available, all of the different lenders, we have a handful of good lenders that are in that 30 to 45-day timeframe. Right now, really only UWM is closing refinances faster than 30 days.

Josh Lewis:

And then the last thing I will close with on that is, I got an email, it’s not a lender that we use we’re approved with, but they popped up today. They will only take 60-day locks. So everything’s just slowly dragging out. So most of the lenders that are getting bogged down and they are saying, “We’ll only take a 45 or a 60 day lock.”

Verify your mortgage eligibility (Jan 21st, 2022)

They’re offering you 30-day pricing because they want to stay competitive as they slow down. The most important thing to remember is just getting with someone that you trust, that when you commit to them and they lock, that interest rate is going to be good.

Josh Lewis:

For the last five, six, the whole year, we’re into August. So seven or eight months we’ve been in a decreasing rate market. There’s no timeline when you couldn’t have lost a lock and yet still ended up as good or better. So it hasn’t been as big of a deal, but at some point, rates don’t go in a straight line down.

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Even if we think two years from now they’re going to be lower than they are today, it’s not a straight line down. We’re going to have periods where they bump up. So just makes sure that you trust the person that you’re working with.

And when you say, “Yep, lock me in. I’m good with those terms.” that you get it locked and it’s locked for the timeframe that you want. And if it runs longer than that, that they’re going to work with you to help that out.

Jeb Smith:

Verify your mortgage eligibility (Jan 21st, 2022)

Got it. I’m going to throw you a curveball real quick. I know we want to talk about the housing market. But I want to ask this question because it comes up as well. And this isn’t something we’ve talked about, but what happens? I lock my loan with you, a 60-day lock where at 3% hypothetically, what if rates go down to 2.75, then what?

Josh Lewis:

So nearly every lender, the thing that you have to realize is that there is an actual cost to a rate lock. So if a lender says, “Yeah, we’re going to give you the best-case scenario to go lower.” A few of our lenders do have that. They have a float down, and most of them don’t have very good rates to start with.

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They’ve just built into the pricing model that they have this in there, this option and the cost for it is already accounted for in the fact that they don’t have the lowest rates. But nearly every lender doesn’t want to lose their pipeline.

It’s been like a Goldilocks market for them the last six months, because rates have been going down, but not so fast that people are coming back and going, “Whoa, I need to renegotiate.”

Josh Lewis:

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But let’s say if we did, let’s say something happens tomorrow and rates drop a half percent and everyone says, “I’m not closing it at 3%. Rates are two and a half percent now.” Nearly every one of them has a float down option built-in there. There’s a cost to it. So let’s say in that example of rates dropped from 3% to two and a half percent. You’re probably only going to get 2.625.

They don’t want to lose the loan. They want to get you a good term, but there’s also a cost for it that they have to cover. So for the most part, that’s what you’re looking at. You’re going to get whatever the market goes to, it’ll last about an eighth of a percent. So you shouldn’t ever have to pick up and move your lender.

Josh Lewis:

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And at the end of the day, for the most part, I don’t think a decision should ever be made over an eighth of a percent of interest. You start getting into a quarter or you start getting to a couple of thousand dollars in closing costs, by all means, that’s a reason to pick a lender.

But I always think someone is better off… you’ve heard me say, I think brokers are better for 90% of borrowers. That being said, more important than the channel, whether they’re a broker or a direct lender or someone that works for a bank, is working with an expert. And I know experts that work in all of those channels.

Josh Lewis:

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So your best bet is getting with an expert who works as a broker. But beyond that, if you can’t find that, an expert is really important, there’s a lot of moving parts in a transaction. And it’s important to have someone that understands all of them, has your best interest at heart, and can look past a commission.

One of the things, I’ve told you this before, when someone’s shopping for loans, we all have an NMLS ID. That’s a nationwide mortgage licensing system. If you go to the NMLS website and plugin someone’s NMLS ID or their name, you can look it up. There’s a tenure self-reported employment history.

Josh Lewis:

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You’re going to see one of two things. There’s a subset of loan officers that have worked at 22 different lenders in the last 10 years. So they’ve been in the business, but they’ve been here, there, and everywhere because they’re never happy, it’s always someone else’s fault, they’re finding the best lender is the next one they’re going to. So be wary of those.

Josh Lewis:

The other one is when you look and the person has been in the business for a year and prior to that, they worked to 24-hour fitness. Prior to that, they were unemployed, prior to that, they were a student. And prior to that, they delivered pizzas.

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And you think I’m joking, but the kids that are doing loans in these call centers, you see these tenure employment histories. Again, your mortgage is something that’s really important.

Josh Lewis:

One of the things that I rail against, and I hate to say their name because they love to send out cease and desist letters and threats of lawsuits. But the biggest lender out there that talks about push button, get mortgage, excuse my language, but it’s a hundred percent bullshit. And they know it’s a hundred percent bullshit.

Verify your mortgage eligibility (Jan 21st, 2022)

Josh Lewis:

They want you to think that you can push a button on an app and get a loan. Their process is no different than anyone else’s. What happens is, you fill out their lead form, which is what their app is, and you get transferred to the kid in the call center.

So everyone wants to believe there’s an easy button. Staples had those commercials with the easy button, everybody wants that. Mortgages are just not streamlined and automated in the way that they should be in the way that other industries are.

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Jeb Smith:

Right. And so I think what Josh is saying is, work with a professional, get a referral. Anything you’re trying to do in this business, any business, get a referral. Whether it’s buying a house, selling a house, get a referral. Mortgage, get a referral. You’re going to buy a car, get a referral.

Work with somebody that’s had a good experience. That’s the best way to make sure and solidify that you’re going to have a similar experience as well. And if you’re wondering the company he’s talking about, I think they’re getting ready to try to IPO, so you can look them up that way as well.

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Josh Lewis:

They did Jeb. They got about half what they were expecting in their IPO.

Jeb Smith:

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So let’s talk about the housing market real quick. I’m going to link here to a video of my updates, right? I do housing market updates at least once a month, sometimes twice a month, depending on what’s happening in the market, you always get the keyboard warriors out there typing back to me, Hey, look, you’re going to say whatever benefits you, because you just want to sell houses and what have you.

To all of those people, I will say, “Look, I’m going to be successful regardless of what kind of market we’re in, whether it’s going up or down or sideways, I don’t care which way it goes.

I’m here to report the facts.” Right? I’ve got boots on the ground. I’m here telling you what’s actually going on in the market.

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Jeb Smith:

But you know, I often introduce Josh to clients and to other people as one of the smarter people I know with regards to finance and housing and what have you. And so with that, I thought we’d give Josh a take on the housing market.

It’s Not something we’ve discussed prior to this, but give your take on what you think the housing market holds. We’re not looking for a five-year forecast, but maybe the next six months to two years based on what’s going on now and where you see things headed.

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Josh Lewis:

So let’s follow up on that. The thing about this, you’ve been in the business almost as long as I have, I’ve done this for 25 years. If I told people what benefited me today, they wouldn’t come back five years from now, 10 years from now.

They wouldn’t refer their friends, family, brothers, sisters. So I don’t get on here and tell people what serves me today. I plan on doing this. I’m 47. I’ll probably be doing this another 20 years. I want all those people to come back and refer their friends. I need to give them good advice.

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Josh Lewis:

So there’s a couple of things I think are really, really important. People do not give a care in the world about what their home costs in terms of the home price. They care what their monthly payment is. I can show you a chart over time that historically a percentage of the average household income goes to housing payment.

It’ll go up and down a little bit over time, but it’s really consistent. So what are we seeing right now? Real home prices, so home prices after you factor in average wages and then interest rates to what percentage of payment goes to the average wages have been decreasing for the last two years.

Verify your mortgage eligibility (Jan 21st, 2022)

With the big rundown and rates, homes have gone up this year. But the affordability, the percentage that someone has to allocate to their home has actually gone down. So that’s what homeowners care about.

Josh Lewis:

Why are home prices going up? Because interest rates are going down and there’s still plenty of people, although a lot of people have been impacted by Coronavirus, their wages are down, their jobs been either lost or shortened, or they’re getting fewer hours.

Verify your mortgage eligibility (Jan 21st, 2022)

That’s real, but there’s also you and I deal with people all day every day, that they haven’t been touched, they have a lot of money. They have a good income. They have money in the bank and interest rates are low.

And they look at this, the home that they wanted to buy last year for 900 is now 950 because the payment at 950 is lower than it was a year ago at 900.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

And the same thing at the $400,000 level, any entry-level price. So you and I are in Huntington beach. I do loans everywhere throughout the state of California.

Entry-level in some areas might still only be 300, $350,000, in some areas it’s $900,000. Anything, whatever that entry-level price is, there are more people wanting to buy those homes that can afford them than there are homes available.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

A report that we saw earlier this week, right after Coronavirus, I believe it was CoreLogic. They did their analysis and they said, home values are going to drop six and a half percent in the next year. And a lot of their analysis was correct. You look at the unemployment figures, you look at the things that they saw.

And they said this is going to result in a six and a half percent decrease in values. They came back and said, “Wow! We were wrong. We are actually up so far a year to date.” But they still stuck to their prediction that a year from now we’ll be down 1%.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

I will bet anyone who’s watching this. You want to bet, come back and let’s put $1,000 in escrow. One year from now, home values will be higher than what they are today. Might be 2%. It might be 4%. It might be 5%. Home values are going to be higher because interest rates are going to stay at this level or lower.

All the people that couldn’t buy in the spring are going to get pushed back later in the year, they still want to buy.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

The other factor that we have is simply demographics. I had done this in the video you and I did two months ago. The largest cohort of Americans since the baby boomers is the millennials. Millennials are buying homes later than baby boomers did. Baby boomers were buying in the 25, 26, 27 range.

Those are buying in the 31, 32 range. Well, guess what, that first wave of the millennials is hitting that point. And maybe they won’t buy at the same rates that anyone else did, prior generations did, but there are so many of them. That there are more buyers trying to get into entry-level homes that it will continue to push home prices up.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

It’s really dangerous to go out three, four, five years, but you tell me one to two years, home prices are going to continue to go up. And I probably would go out four to five years simply because I don’t see anything in that timeframe, pushing rates up significantly from here.

And those millennials, as that wave comes through of demand and supply is not going up. We don’t have anywhere to go but up for home prices.

Jeb Smith:

Verify your mortgage eligibility (Jan 21st, 2022)

I’m going to give you the most common response to these videos. Is, well, unemployment’s at 53 million people. What about all of these people who haven’t paid their rent? What happens when the eviction moratorium or the foreclosure moratorium for all of you people out there that want to correct that, I corrected it for you.

But what happens when that expires? Well, what are we going to do? The world’s going to fall apart, right josh? These are a lot of people that don’t have jobs, and the $600 additional is going away. We’re just going to crash.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

Probably the answer is to go back in time. And the housing bulls in 2006, 2007, what they wanted to say is, home prices had never dropped on a nationwide level. And if anyone wants to see it, I’ll go back. A business partner of mine as a financial advisor and myself, in late 2005 wrote a 20-page white paper warning that home prices were going to drop.

I was horrifically wrong. I thought they were going to drop by 20%. And they ended up in most parts of Southern California, 30 to 50%. I did not foresee the depths of it, but you could see what was coming. And there were very good reasons for it.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

So I’m not a [inaudible 00:28:20] here. I don’t think home prices always go up. But when we look back, what’s happened over the last 10 years, home values are up 50 to 80%, depending on where you bought.

Josh Lewis:

So unless you bought last year with an FHA loan, which some people did, and those buyers are the ones most at risk of possibly losing their home to foreclosure. But most of the people that we’re talking about have 20 to 40% of equity built up in their home.

Verify your mortgage eligibility (Jan 21st, 2022)

And the reason why home values had never dropped, or they always had home values had never dropped on a nationwide level because home prices are sticky to the upside. Why is that? People will lose a car, they will go late on their credit card. They will do anything before they lose their home.

And why was that not true in 2007, 2008? Because we had a lot of buyers late to the game that put no money down. So they had a hundred percent financing, no skin in the game. They lied and said what they made to qualify for the loan. So they never qualified for the loan, to begin with. And they looked up.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

What I can say is the first home that I flipped in 2008, we bought from a guy who didn’t speak English, really nice guy. He owned a landscape company and he had done a stated income loan. And he bought the home for $665,000. We bought it at foreclosure for 265,000, 30 months later. He never qualified for the home.

He was paying $5,000 a month. When the market crashed and the home was worth $265,000, he could rent the same house across the street for $2,000. Why would you try to hold onto that?

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

So when you see a normal market that dips five or 10%, and rents dip five or 10%, and you go, “Hmm, I have a 3% or a three and a half percent interest rate on my home. I’ve got 30% equity in this. I can’t rent this home for what my mortgage payment is.” You will beg, borrow, steal, fight, scratch, claw, do anything to not lose that house.

Josh Lewis:

So, you have far fewer people losing their homes. So even if foreclosures go up, which they can, and most likely will, we have all sorts of government stuff pushing that as far into the future as possible. Think about this, the way the Cares Act is written, you’ve got 180 days with another 180 days behind it.

Verify your mortgage eligibility (Jan 21st, 2022)

So you have a year, the way the federally backed loans, FHA, VA, Fannie Freddie, they have to move those to the back of the loan. If you can’t make those payments up, that is incredible assistance for someone who’s having trouble.

So that alone, if we didn’t already talk about the number of equity people are sitting on, the fact that for the last 12 years, everyone’s actually qualified for their loan with real income and put a real down payment.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

And no one’s ever had this level of assistance to keep people in homes. And then when you get to the fact, let’s say you get to the 18 months or the second 180 days, the 360 days, and you still can’t make your payment, they put it to the back. You can’t go to foreclosure immediately.

So say there’s no moratorium, you can’t make the payment at the end of it, that’s the final notice of default, they have to wait 90 days with a notice of default, they have to file a notice of trustee sale 21 days. If everything goes perfectly, it’s four more months.

So when we say everything shut down in March, Cares Act came what? Late March, early April.

Verify your mortgage eligibility (Jan 21st, 2022)

Jeb Smith:

Yeah.

Josh Lewis:

Verify your mortgage eligibility (Jan 21st, 2022)

You’re talking this time next year before the first foreclosure comes out of it. And anyone that’s hoping and dreaming that there’s going to be a wave of foreclosures and we’re going to see what we saw in 2007, 2008, they don’t understand economics and they don’t understand the reason for the drawdown that we saw.

Home values got way above the longterm trend of where they should have been based on incomes. We have not seen that this time. So there are natural corrections. You go back to the late seventies through the eighties, through the nineties, we get 10 and 20% dips. Is it possible? Yeah, it’s absolutely possible.

But go back and look at those times, you just don’t understand numbers and you’re not looking at the big picture and just wishfully hoping that you’re going to get to buy that $900,000 house for $700,000 or the $500,000 house at $300,000.

Verify your mortgage eligibility (Jan 21st, 2022)

Jeb Smith:

Absolutely. As I said, a little pullback is not a bad thing. In fact, it’s probably welcomed at this point to some extent, just so that we can continue to trend higher. We’re due for some sort of pullback. It’s like a stock at some point, things have to level off in order to go up. But that’s not a crash, that’s not a foreclosure market.

It’s a whole different picture completely. And we could keep going on about this. And in order of saving time, it’s what, we’re 37 minutes into this. I think we’ll wrap it up here. I think we can continue this conversation going forward, but I urge people, comment, ask questions below in the description if you have them.

Verify your mortgage eligibility (Jan 21st, 2022)

We always go back and try to answer them.

Jeb Smith:

If you want to get into touch with Josh, Josh, throw your information up there. We’ll have that as well. And again, we appreciate you taking the time to watch. Any parting words there, Josh?

Verify your mortgage eligibility (Jan 21st, 2022)

Josh Lewis:

No. The last thing I would say, you had two folks reach out to you this weekend. One was in Missouri and one was in Maryland. I’ll just say, I only do loans in California, but between the two of us, we’ve got a really strong network.

We were able to connect both of those people with people that I know and trust, that they’re brokers that are going to do a great job for them. So if you are outside of California, shoot us an email, shoot us a text, be more than happy to get you in contact with someone that can help you wherever you are.

Verify your mortgage eligibility (Jan 21st, 2022)

Jeb Smith:

Cool. And as always, if you need any real estate needs or have any questions there, feel free to reach out directly. So we appreciate taking the time to watch, we appreciate the support. We’ll see you again soon.

Josh Lewis:

Awesome.

Show me today's rates (Jan 21st, 2022)
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