0:06  
Good morning, everyone. And welcome back to stay modern with Murray, a new podcast brought to you by our team here at Murray custom homes. Today we're actually here with Marlon lion, Vice President of Pinnacle Bank, and longtime partner and friend of all of us here at Marcus moms, especially myself. I was just thinking about it before we started this about how long we've actually

0:26  
known each other wild, Matt, how long has it been?

0:29  
I think it was 2008. Eight.

0:31  
That's got to be pretty close

0:32  
to that. Yeah. Yep. See 13-14 years of history. So. Well, thank you for coming on. And I think I think you know, what, the point of today is just to shed a little light on interest rates, everything interest rates, where they're going, maybe just get into, I think there's a lot of confusion amongst people and maybe myself of the difference between the Fed rate interest rates and and where they're going and what heck now, now we have the war to contend with contend with and what that's going to do, but maybe just start high level 10,000 foot view start with with fed rates and interest rates and an all thing interest, you

1:16  
bet Well, I'm not an economist, I'm just a mortgage lender, but I can give you kind of the 10,000 foot view. So the Fed sets the discount rate. And that rate is what banks charge each other. And that is a rate that is just set the rates that mortgage lenders charge that car loan people charge, that is a set that is set by investment companies that buy mortgage loans that buy car loans, that is more of a rate that's driven by the 10 year treasury, the five year Treasury, and that's a openly traded investment that people trade every day that the large investment firms trade every day. So that rate is a market rate, not a set rate like the Fed does. So you'll see next week, the Fed is most likely going to raise the discount rate a quarter to a half a percent. The bond traders have already built that into their trading. So they think that's going to happen. If that doesn't happen. Or if it's if they set a rate higher than expected. You might see mortgage rates go up. Gotcha. If they don't do anything different than expected. Mortgage rates stay the same, because that's already been built in. So it's, it's kind of confusing in that regard. Because gosh, I saw the rates went up. Well, that doesn't necessarily mean the mortgage rates went up. Perfect. So it has something to do with the openly traded market and what people expect the Fed to do.

2:42  
But but they definitely are directly correlated with each other.

2:46  
Yes, sir. Yes, sir. So once the if the Fed does raise rates, the bond traders expect that and they the rates go higher with the bonds as well? Yes. Okay.

2:55  
So you kind of got two different factors. We're working, directly correlated with each other. That's right. And then now diving into listening to a few podcasts on interest rates, and federates. Explain how that correlates with trying to raise inflation or lower inflation rather Sure,

3:11  
sure. So inflation has been for the last year rising, rising, every every report that comes out it, it has gone up. And we expected that the government printed a lot of money last year over the last two years, to keep the economy from failing during COVID. So as they went up, as inflation went up, it should say, that is negative for future growth in the economy. People go, Gosh, I don't want to spend a billion dollars or something I shouldn't have to spend that much for so they peel back. So with rising interest rates, inflation is curbed. Well, with the war, and with the gas prices, and food prices and lack of supply of inputs to building Yep, there's only one way for inflation to go, it's going to go up. And so until that changes, by rising interest rates or other factors, more supply, those types of things, will we're gonna see higher interest rates, and that's what's gonna, hopefully stave off inflation.

4:19  
So I know this is a very simplistic view, but in listening to a few podcasts today and piecing together information, at some point, it seems a little bit backwards. So you have high demand, which is good, right? We want demand. Yes, obviously, we don't want more demand than supply. But that raises inflation, right in which makes the average consumer pay more for a loaf of bread or a gallon of milk. But that in turn also has lower interest rates. Right, so your mortgage for your house is cheaper. So to curb that we raise interest rates, which makes your mortgage payment go up. Right, right. But in turn is supposed to lower inflation, which is supposed to make a gallon of milk girl for bread cheaper, cheaper,

5:12  
right? So

5:13  
is it not? Is it really simplistic to think it's you're trading money from one pocket to the other

5:19  
most that's really what it is. That's really what it is they're trying to keep you from spending, you know, you've got to buy gas, you've got to buy bread, you've got to buy the staples, yep. But maybe you're not going to go buy that fancy car, if rates go up to Gosh, 678 percent, maybe you're not gonna go buy that fancy your house, maybe we're gonna buy a nice house instead of the, over the top house. So it's the it's the expensive items that they're trying to slow you down on Gotcha. Because that moves the needle faster than everyone's got to buy bread gas, you know, stuff to live close. But you're exactly right, though you read that? Exactly. Right. So

5:54  
with that being said, being in your position, do you have a dual take on rising interest rates, obviously, you probably have less business when interest rates go up. But with what you just said, it seems like you almost kind of agree that raising interest rates at some point might be a good thing for the average consumer.

6:14  
Agree it I mean, mortgage lender, Marlin, I want low rates. Marlin the person it doesn't hurt to have those higher rates to drive down inflation. So it is difficult sitting in my chair some days, I want both things.

6:30  
So with that being said, explained to us where you think mortgage rates are now, you know, kind of go back pretty COVID where they were, where we are now where you think they're gonna go. And then and then we can dive into the the effect that that has, as on the average consumer.

6:47  
Sure. So pre COVID, let's go back, let's go back to the 70s and 80s 70s, and 80s, interest rates were 15 to 18%. So people of my age group understand that people younger than me or that don't know, the history, don't understand that these low rate, these are still low rates, let's say rates around three and three quarters to 4%. Today, that's historically low. Over the last 50 years rates have basically fallen from in the inflationary times in the late 70s. To today, things are much lower interest rates today. And that's why the market is probably trending the other way that you know, and COVID in the in the pandemic caused a lot of a lot of supply shortages, and a lot more demand for certain things. And so that's where the rates came from, they went from the 80s basically have come down, they've done nothing but come down since the 80s. But now, pre COVID, like immediately pre COVID rates were about 4%. And here we are again, about just under 4%. Yeah, so they're really still low. But they are trending up now. Are they going to go back to 15 to 18%? Like they were in late 70s, early 80s? Gosh, I hope not. But it's very possible for a short period of time, I think the government getting ahead of it, so that we're not going to have those inflationary times. But some things are out of their control. The Warren in the Ukraine right now, that is driving inflation again. And it's hard to stop that one. Because that's, that's out of our control. So I think I think going forward, we'll see higher interest rates in the next two years. I would say I would not be surprised if we saw 5%. Okay, but that's still historically low. That is still cheap.

8:38  
Yeah. What was the low that we got to?

8:40  
We did some loan that two and three eighths on a 30 year old and some 2% money on 15? Year? So

8:46  
Holy cow. Yeah. So now we're at just three and three quarters on a on a 30. Year. And that's raised a little bit.

8:53  
Did we see a raise? We did? We did? Yep. That as the 10 year Treasury has gone up, that's what's driven that mortgage rate up as well. Okay.

9:01  
So we saw a raise within was in last month. And then you're saying we're going to probably see another one, but that might be already accounted for. Right. Okay. So let's, you know, I don't I don't think a lot of people realize that we're kind of unique in Lincoln with our housing shortage and our lack of, of houses on the market. I think last week in our broadcast with Chris, we were talking maybe 68 houses on the market in Lincoln, Nebraska, of which I think over 50% of those were under contract. So I think in an isolated world in a vacuum, or maybe in larger cities, these interest rates play a much larger role in in housing, sales and housing builds and new construction permits. But in Lincoln, what is your input mean? Meaning as interest rates go up, that doesn't have any effect on the fact that we are still growing and we still have very, very limited or historical low numbers of houses on the market.

10:00  
Correct, it is not slowing us down the slightly higher interest rates, not slowing down the housing market. And Lincoln people still want to buy homes, people still need to buy homes, for many reasons, whether that be they're moving into Lincoln to live, maybe they're moving home from the coasts after COVID. You can work from home, a lot of people are moving back to raise their families in Lincoln, Nebraska versus the Eastern west coast. So I believe interest rates going up a little bit do not does not really slow down the market very much in Lincoln, Nebraska. Yep. You know, again, our pricing is different than the Eastern West Coast to, you know, a $500,000 house, he was different than a $500,000 house in right in eastern west coast. So,

10:43  
so I hear a lot of debate. And and I wouldn't say definitive answers about whether somebody thinks higher interest rates would affect the lower priced houses or higher priced houses, some people seem to be 100% said it's going to be in the 350 to 450 price point that it affects those people the most. And other people think it's going to be the million dollar buyers that are going to be affected the most what's what's your input, I go both ways. But to me, it seems like when you get down to the the affordable houses the first second time homebuyers, they're watching their numbers a lot more, have less money set aside, less expendable cash rate in every penny matters. So when you're talking about taking a $2,000 mortgage payment and raising it to 24 2600, that's substantial to that that income level? What are your thoughts on that?

11:39  
I agree that that it definitely affects the low to moderate income buyer a lot more than the high end Kumbaya. Yeah, because like you said, their budget is tighter than then the millionaire, you know, they just have certain things they've got to pay for every month. And their net income, obviously is going to be affected more by higher interest rate than a person's whose net income it their house payment doesn't matter. You know, it comes out no matter what. It's the first time homebuyer the low to moderate income buyer, that is the one that's got affected by, you know, a rise in interest rates when 1% changes the what they can afford, pretty substantially, you know, if it's a $3,000 house before $4,000, house before 250 house, that number is lower. And that's going to change what the value of that market will be. Absolutely. Now it's got to work through because right now, we're still having high demand low supply. So it's got to work through that. But but as soon as the supply catches up with demand, and rates stay higher, then you might see a slowdown in the in the purchases. Yep. In that in that it low to moderate income range, which

12:47  
if you depend upon who you talk to, it might be a few years, if not longer, before Lincoln catches up. Agree demand to supply or vice versa? Good. Are you allowed to give us some numbers off the cuff of where you were mortgages for housing purchases, pre COVID, and then COVID. And just to give listeners an example of how crazy this markets been,

13:18  
are you saying as far as how many, let's say the bank, did you mean Yeah, or you or me personally, prior to COVID. And I'm just gonna use percentages, let's say we probably did three times as many mortgages and 2020, as we did in 2019. And then we did more in 2021. And slightly more. So. So two years of being three times as busy as we normally would have been. And a lot of those were refinances. Yeah, because rates have fallen. But the purchases were huge increases year over year.

13:57  
So let me ask you a funny question that asked my workers when they say they work three times harder this week than they work last week. I said, Well, you said you were working 40 hours last week. And you also worked 40 hours this week, but you got three times. Did you guys have to ramp up? We did

14:14  
hours and hours? We did. We did well, and we and it was the whole staff. You know, it was kind of the team mentality. You know, you get this, we're gonna do this together because there's no way to stop it. Because it was common. And so yes, it was a lot of, you know, you know, maybe we work 60 hours this week, maybe we weren't 65 The next night, somebody took a couple days off and said, You know, I just need a mental break. And I there's no way I could say no, you know, we all need a little break. But it was just that mentality that it's gonna be this way for a while. And we just have to suck it up and do it. So it was good, good team. Good team. Yep.

14:50  
And I see you once or twice a week, you know, on average, maybe just closings and and I think we both go Come into the closing room with the same beating your head against the wall mentality, kind of, if you know what I'm saying kind of shed a little light on that and what you see with other builders and realtors and people in our industry with I don't want to lead you down the path of saying how hard it's been, but shed a little light on that. And you guys as well work on those extended hours and overtime and push them so hard to just make deals. And, you

15:25  
know, it has been very difficult. So every builder I talked to every sub I talked to have, they've never been so busy. Every lender, I talked to you buddies in the business, oh my gosh, how can we do this again next week? How can we do this again next week. And we just you just keep having you have to, you know, you got to serve the customer. And someday it may dry up a little bit. So you got to put, you got to put nuts away and while the getting's good before the before the winter comes, so catch 22 Isn't it is it is so you don't want to complain that the business is booming? Yep. But you also want to be able to serve the customer well, and do a good job and, you know, go home at night and, you know, hang out with family a little bit. So I remember

16:10  
at one point in me, and you were in the office, we were we were to the point where I think we were both saying I wish COVID would shut our offices down.

16:21  
Can we turn this dig it off? A little bit?

16:23  
Yes. Oh, stuff? Yeah, you're right. It's, you got to get it while it's good. But you wish it would just tapered down a little bit and extend the lifespan of the good, right and just be hot, cold, hot, cold. You know, it's like so much we can so many houses, we can pump out.

16:41  
That's it. And I think customers understand that I think clients do in general. But when it comes to their deal, they want good service. You know, everybody does, I'm a consumer as well, I want good service when I'm the consumer. But I think everybody does understand that. A lot of pushing to the limit, a lot of you know pushing subs to the limit pushing, you know, staff to the limit. It's it's hard, it's hard. And everybody's got that I know, every a lot of fields right now are very busy. Because it's different things have changed with COVID. They're not doing in the office, it's harder to do their job. It's different. They've got to deal with family, maybe kids, they're staying home, because their schools, all this kind of stuff. It's hard for everybody. And so when nobody wants to hear your in my complaints, but I think they feel it too. I think they feel it too. And then I think they understand what we're going through so that they understand, you know, we're doing the best we can to get to the finish line to Well, absolutely. We want them to have a beautiful and we want them to have a good loan. We want them to be able to enjoy their their new new space. So I think people get

17:45  
it when you guys agree. You know, I think that one thing I know we kind of briefly touched on but shed some light on what your thoughts are on. If there's a direct correlation or impact with Ukraine, Russia on on interest rates? I know we talked a little bit about the oil and the gas and inflation. But what do you think it'll have a direct impact on on mortgage interest rates,

18:06  
the one thing it's done, you know, it's affected the stock market adversely. And you've seen your stocks fall here recently, after the war started. The what that does a lot of times is people take the money out of the stock market, big traders, little traders take the money out of the stock market, they flee to the safety of bonds, and that drives rates down. So that might help in the short run, keep mortgage rates a little bit lower, or at least keep them from going up quickly. Because a lot of the money is going into the bond market out of the stock market. It just depends on how long that will last, you know, at some point, people are gonna say, oh, yeah, that's that stock price is low, we're gonna get back into the stock market and take money out of bond market, and then it'll come back up. So I think in the short run, if the war does not drag on too long, you'll see these short term lower interest rates. If it drags on for a while. We don't know. We don't know. It's it's just so unknown. We haven't had a award like this in a while where it could drag other countries in where we're in. That's the uncertainty to you know, what's going to happen with Ukraine, but also what's going to happen with the surrounding countries and Europe and and that deal. It's terrible. It's terrible for these two, aren't we? Yeah. But I can't imagine. Yeah, I cannot imagine, you know, the freedom these folks had and now have to have to maybe go back under Soviet rule, the Russian rule. Yeah. After being free for all these years. So it's financially it's terrible. Obviously, from a personal standpoint, it's terrible.

19:45  
Absolutely. Let's give give the listeners a for instance, if they're just getting ready to apply if they haven't already went through the financial calculator so to speak. You know, we have a lot of buyers at the 400 price point. 500 price point, let's use a $400,000, standard 30 year fixed rate, do you know what we're what? Three and three and three quarters? If we go up to four and three quarters by the time, you know, they close, say they signed today, we get the house built and then they go to lock their rate for four and three quarters. On average. What is that? That what does that do to

20:22  
so that extra 1% would add? Well, I'll do a little bit of rough math cowboy mouth, I'll call it for rate today, it's about $4 per month per 1000. An extra 1% Raise would be about $5 per month per 1000. For every 1000 you borrow. So if you borrowed $100,000, your payment today before 100 give an extra percent higher be $500 a month to our 1000. double that. So it's $4 to $5 a month. So it's fairly substantial for 1% Bump.

20:56  
That's perfect. It's a great way to break it down. Hopefully everybody can remember that. What else do you have? What do you recommend for the average listener? If if you were to make recommendations, knowing what we know today, in your were the average person sitting in a house that could sell it probably for for higher than market value? Considering building the house? Knowing everything we know the war interest rates possibly going up? What what do you have any recommendations, thoughts, opinions on what that person should do? Yeah,

21:33  
well, and I always bring it back to me personally, I always ask the folks I deal with what would you do if you were in my shoes? So I look at my borrowers and say the same thing. Marlon, what would you do? If it was you? If I was building a new house today or thinking about it, once I've made the decision to do so, I would get started as soon as you could, because I'm only expecting costs to keep increasing interest rates to keep rising. Do it sooner rather than later, if you're going to do it, yet make the decision as soon as you can. The good thing is we know rates are still good today, we know that the sale of your house is going to be for a lot more than it was a year two or three years ago. And the with these costs rising, you can at least get your rate locked in. We've got a program where you can lock in your interest rate for one year. Well, so from the day that you signed your contract, we can lock it in for one year from that date. It's awesome. There's a fee to do it. But it's worth the fee, in my opinion, in my personal opinion. So that that is I guess that's my thought on. If you're going to build, I think sooner rather than later is a good way to do.

22:41  
Yeah. What's the outlook of kind of knowing we don't ever know, but seems like we know the interest rates are going to go up. That's a great program. I think I knew that. But that's awesome to know that they can do that. I don't think all banks that we're working with currently do that. But that's that's good to know.

22:59  
I think it is fairly unique in Lincoln. So awesome.

23:02  
All right, everyone. I think we are wrapping up our time for the day. Marlon, thank you so much for coming on today.

23:08  
Thanks, man. Thanks for having me.

23:09  
Yep. Appreciate it very much, guys. Thanks for tuning in to this episode with a good friend Marlon from Pinnacle Bank. We love hearing from all of our partners and sponsors. And if you guys like this episode, be sure to subscribe to stay modern with Murray on Apple and Spotify.