REality

How Buyers And Sellers Can Navigate Today’s Mortgage Market

• Gary Scott

Share episode

Want a clear, no-spin read on where mortgage rates are headed and how to win in this market? We dig into why rates have stabilized in the mid-sixes, what the Jolts report and labor revisions signal, and how sticky inflation and tariff psychology keep pressure on the other side. Then we translate the macro into moves you can actually use: seller-paid buydowns that drop payments into the fives, first-time buyer programs that lower cash-to-close, and a buy-before-you-sell path that unlocks equity so you can pounce when the right house appears.

We walk through the mortgage math behind today’s stability, including the narrowing spread between mortgage-backed securities and the 10-year Treasury, and why that spread may put a five-handle within reach even without big moves in Treasurys. Builders have proven the leverage of payment over price; we show how resale sellers can compete by marketing a target payment and structuring smart concessions. On the demand side, life events continue to drive millions of sales each year, and with two-thirds of owners sitting on 50%+ equity, buyers and sellers have more options than headlines suggest.

Technology and AI are changing the process, not the relationship. Permission-based income and asset verification, AI-powered doc review, and agency risk scoring make approvals faster and more predictable, while seasoned pros focus on judgment, strategy, and trust. Appraisals have steadied as appreciation cools, and more granular data helps right-size value calls. Whether you’re renting at “100% interest,” trying to time a five-handle, or weighing concessions versus price cuts, this conversation arms you with concrete tactics and a realistic timeline.

If this helped you make sense of the market, follow the show, share it with a friend, and leave a quick review—what strategy are you considering next?

Gary:

Good morning, Mark McGoldrick. How are you this morning? Fantastic, Gary. How you doing, buddy? Good, good, good. One of the hot topics always discussed when we think about the real estate market is the mortgage market. So we're going to dive right into it. Why don't you give our listeners just a snapshot of where we sit today in the mortgage interest rate space?

Mark:

We'll do. Man, crazy stuff, Gary. You know, we've got uh inflation uh things to look at. We've got jobs and labor, we've got tariffs, uh, we've got all-time highs in the stock market combined with all-time highs in like gold, and you know, just things that generally don't always come together at the same time. So it makes things kind of interesting, kind of uh unknown, you know, a lot of unknowns out there. So we're uh we're figuring it out. Um, you know, I think the thing we we what we have today is some surety around interest rates. So rates had been hovering in the low sevens to high sixes for the better part of two and a half years, other than a minute about this time last year, where they got a bit better. Um but we've really gone down a range. So we're now probably what 60, 75 days into this six and a half to six and an eighth range. So uh, you know, not in the magic fives that I think people are talking about, but there's some significant savings. I mean, if you're 1% lower in rate and you're sitting on a $400,000 loan, that's $4,000 in your pocket that would have gone towards towards interest. So that's good news, and we've seen some activity that's based on that. It's certainly helped with affordability. You know, you think about affordability, um, you know, it's really since the 2021-22, uh, when the real estate market has slowed down a bit, people have had a chance to have you know two, three years of increased wages, which have been running three to four percent. For a while back in the early 2020s, appreciation was running more than that, so it was hard to keep up. That's not really the case today. So, you know, if your house is two percent more expensive that you're looking at, but you gain four percent in wages, the math on that is pretty good. So lower rates, some higher wages are adding to some affordability. So I think that is a uh that is a good thing. Um, economically, what we're looking at though is tug of war between um the uh inflation and jobs. So jobs do seem to be trending worse, uh, not so much in layoffs, but as new hires seem to be going down. There's something called a Jolts report, which is which is a job openings report. And if you go back four years or so after the beginning of the pandemic, there were twice as many job openings as there were uh people who needed jobs. So now we're about one to one. Uh the folks who watch the Joltz report, I think that there's a little overstating on jobs because you know if I'm if I'm advertising for a coder for my company on the IT side, I might advertise that in five different geographies because I don't know. I don't really, it doesn't really matter to me where that person sits, let's say. So they think that Jolt's is even overstated. So Jolt's report's down a little bit. ADP has had some really negative uh revisions on jobs, BLS has had some negative revisions on jobs. Um BLS is the government report, so we haven't seen that this month due to the uh government shutdown. Um, but you know that just it just seems like it's getting weaker. And and even Jerome Powell said that he thought the jobs were getting weaker, which Jerome has been uh really, really hesitant to say that. So I think um there's that pull, which would generally push interest rates down. On the other side, you have inflation. So inflation was going down and down and really bottomed out in May. Um we started to either see the psychology of uh tariffs or actual tariff costs come into play, and that has moved inflation up a bit, among other things. So, you know, we're we're going up in inflation, which generally pushes rates up. Uh, we're going down in employment, which pushes rates down. Uh, we've got a moment where we're hiring for a new Federal Reserve chairman, and it looks like we can be assured that that Federal Reserve Chairman is going to be dovish on interest rates, meaning wanting lower interest rates, or they're just not going to get that job, right? So there's going to be a bit of a shift in mentality there that I think will uh uh potentially help out. But um, you know, just a complicated time. But you know, where we are today, which is at pretty good interest rates over the last three years. And uh for me, I'm certainly thankful we're where we are today.

Gary:

So two questions. Number one is uh for the listener, the Joltz report, uh uh spell that, number one, and then can the uh uh I'll call it the analytical listener go find that every month? Because I know we're gonna come back a little bit later and talk about consumer confidence because that's always also one of the great lead measures of what we think will happen in the fourth quarter. So just walk us through the Joltz report for those analyticals on the listening to reality today.

Mark:

All right. Jolt's report, J O L T S. It stands for job openings and labor transfers. So job openings on one side, which is you know, how many advertisements are out there for jobs? Right now, there's about 7 million out there, and there's about 7 million unemployed people seeking work. So there's about one to one. Labor transfers are what they call the quits ratio. So, how many people leave their job on purpose, ostensibly to go find a higher paying job, right? That would more normally be why you'd leave your job. Um, and the Fed watches that quits rate because when the quits rate is high, it means the economy of hiring people is pretty good, right? So I leave my perfectly good job for another job on purpose. So the quits rate has gone down, the job openings have gone down. So that Jolt's report is just showing weakness. Um, you know, if you think back to 2022, there was about 13 million job openings. Now there's about seven, so it's different, right? Seven million job openings is still alive, but it's different. So um, you know, that is uh it's what we what you'd be thinking about, all right, this is maybe what the job market looks like over the next three to six months, because these were the jobs that will get filled or not filled over the next three to six months. So it's a bit of a leading indicator.

Gary:

You know, what's interesting to me, Mark, you talk about the last three years, and I think back to June of 2022, which was kind of that moment in time where what I believe is the 24-month spring market that was created through the pandemic really came to a screeching halt. Uh, if we all remember, uh inflation went to 9-1, interest rates uh you know experienced plus 8%, you know, certainly not for a long period of time, but enough to get the attention of most of the consumers out there. And so two things I find interesting. Number one is that we've been at this new interest rate environment for now about 39 months. Like this isn't just a happening. So we've been dealing with it. And then at the same time, and when I was on a market update uh podcast last week with Tony Jarrett, and I would encourage our listeners, if you didn't listen to that, I would listen to that. Because what we have learned is 4 million existing homes sold in 22, 23, uh 23, 24, and now 25. And when you think about new homes, we're probably somewhere between 610 and 750,000. And so what that tells us all is there are events in people's lives outside of interest rates that create uh a supply and a demand for the real for uh buying and selling real estate. And so I think that's a really uh I think that's a great understanding of the market because I do believe that sometimes we get fixated on perhaps what the media suggests. But if you think about 4 million plus 600 to 700 every year for the last three years, when interest rates were not nearly as good as they are today. So one of the stats uh that we look at all the time, and and I'm I'm confident you have this, is the percentage of current mortgage holders that have an interest rate under 6%. Is that number about 90%, Mark?

Mark:

So it's good, you know, it's gone down a little bit, right? Because the last three years have been folks over that. So it's about 80, Gary, uh, you know, or under 6%. And that number will, you know, continue to drop, of course, until we get in there. But you know, it is a vast majority of folks. Uh but there's also a giant population of people who have no mortgage, right? So um and of course, home equity has skyrocketed over the last few years. So all of those uh dynamics are in play for sure.

Gary:

Yeah, so I think uh, you know, equity, the percentage of people that have 50% of or more of equity is like 67%, something like that. And as you said, many people have uh 100% equity uh built in. And so, you know, it's interesting. One of the comments that uh we discussed last week was uh what I termed discretionary home buying and selling, which is which is when somebody decides to get back in in the game regardless of the interest rate. And so it's not an event has you know, it's not my expanded family, it's not you know multi-generational having people move back, it's not right sizing. And I think the other thing, and you've shown this uh graph a couple of times, where we've got a unique uh scenario where uh inventory is growing and interest rates are declining. And that should give particularly the buyer a little bit more time and a little bit more flexibility. Uh, but at the same time, I still believe it's great for the seller, uh, for those sellers who price it right, get it in the right condition. We're finding those still selling quite rapidly. You know, we talked last week, uh, Mark, that the average days on the market, again, this is uh across a large piece of real estate from North Carolina, South Carolina, Virginia, and Georgia is like 55 days. Well, if the average is 55 days, that's gonna tell you that there's a whole bunch that sold in 15 or 20. And then there's a bunch that uh overpriced. And as a matter of fact, I saw an open house in my neighborhood recently. Um, and the the first time I saw the open house was four months ago. And uh it's listed with another firm, and I went in there yesterday. Good young realtor seems to be, and I kept telling him, and I know the seller because he he uh his unit is above mine, and I just said to him, I said, You do know that this is price, and if you price it here, it will sell. And I just said to the guy, I said, Have you told him that? I know what the guy bought it for, and I know what he's selling it for. So it's not about trying to get out of it, right? It's about maximizing my ROI. And and again, these are these are typical things that that people are experiencing. Um, so let me ask a couple of other questions, Mark. Um this is the question that is burning in everybody's mind. When, if interest rate will start with a five.

Mark:

Well, you know, we'll we'll we'll go we'll go back to in a few minutes, Gary, some strategies. Because I think today you could get your interest rate to start with a five if you have the right buyer-seller coordination, right? But the market's really close to it. I would say where we are today with what we know about where the jobs are, the economy is, the stock market is, some wealth effect, we're at the right place. Um, and that is a good place to be because there's some surety in that. Something will need to change. Most likely, rates in the fives, and let's call it like five and three-quarters, so you're not just bouncing in and out of it. Rates in the fives would probably take a weaker job market. That headline will drive those down. Right now, what you're expecting the the uh the market has priced in these two additional rate cuts for the remainder of the year. So when they happen, that's kind of like no news because it's mostly priced in there. So I think if I remember correctly, they do something called a dot plot with Federal Reserve governors, which is what they where they think the rates should be over the next couple of meetings. You don't know who said it, but it got said. So the dot plot had 10 Fed governors calling for two rate cuts. I think it was three Fed governors calling for one rate cut, and unbelievably seven rate Fed governors calling for zero rate cuts, despite what they say. So there's a lot of disparity and probably more than we've ever seen. But I think you know, if the trend line holds on some of the job challenges out there, um, that would drive rates lower with the caveat and competing factor of if you start to push a 4% inflation rate, and I don't know what the magic number is there. Maybe it's 3.7, 3.8, maybe it's all the way at 4.2. If it looks sustainable, that push and pull just gets really, really complicated. One for the Fed, but more importantly for bondholders. And it's really that bond market because mortgages rely really work off of a 10-year treasury bill. And it those are bond traders. The Fed doesn't move that around. So the Fed's mentality will matter, but it's really where the market drives it. So I'll give you one interesting stat that I think is helpful. Um, the mortgage rates, mortgage-backed securities play off of a premium over the 10-year treasury rate. So if you go back a year, we were at about a 2.7% premium. So if you had a treasury bill at 4, that means you would have an interest rate of 6.7. If you go back historically, it would be about 1.7%. So if you had a treasury bill rate of four, you would be at 5.7. So same market rate in the Treasury bill could drive a much lower mortgage-backed security rate. Right now we're at about 2.1, so we're down from the 2.7 to 2.1. And in fact, most of the lowering of mortgage rates has to do with that spread coming down than it does with the treasury bill coming down. The reason is the market has more confidence in the economy and um has more confidence in mortgage banking performance. So that settling down and lack of chaos helps us out. So we got a couple things in place there. So I think you're probably, you know, in the immediate future, we're more likely to see rates in the fives because the mortgage-backed security premiums start to level towards average than you are necessarily pushing that treasury bill down. But where we're sitting right at four today on a uh treasury bill, and a move below, say, like 3.8 would be significant. And that would signal to the market that there is a downward pressure on rate. So that's kind of what I'm watching for. You know, it's a strange moment where it's hard to prognosticate because we are at the right place today and it's a good place and a stable place to be. But so weakness in the job market, if you watch your Joltz report, if you watch your ADP report, assuming the government will come back to start to print their reports out for jobs, maybe November, maybe December, we'll start to look at that. If they stay flat to negative, I think we're going to end up in the fives quicker than we would have expected otherwise.

Gary:

Well, so that's good news. And I think one of the things we have to think about is if if there is a belief that that will happen, we also then have to discuss with today's buyer and today's seller why not to wait. And I think uh part of that has to do with continued appreciation of home prices, albeit not double digits that we all experience. We talked already about home equity. But again, we're blessed in the Carolinas. You know, we think whether it's two to six percent, depending. You know, the market is very, very hyperlocal. Uh, very familiar with some uh recent sales that sold in a day or two versus some that are have been on the market for 90 days. Again, pricing is so critical. Uh so as we think about that, one of the comments that you made earlier, Mark, which I think is very interesting, is uh, you know, in today's environment, if there's a coordination, I think was the word you used between the buyer and the seller, five is there to be had. And so let's just talk about, you know, putting in perspective, buying down from six and an eighth to five and three quarters, what that cost looks like. And is that where the seller becomes proactive, not reactive, not deal with a maybe a home inspection negotiation or a price reduction, but I go proactively and I market my home that uh you can get in the fives if you buy my home that I have listed, uh obviously with our firm. So talk about that a little bit.

Mark:

Yeah, sure. So, you know, there's there's a couple of different kinds of buy downs, permanent buy downs and temporary buy downs. And this is where the seller makes a contribution to the buyer's closing costs and they take those funds and and buy a lower rate with it in the market. So um, we'll talk about permanent buy downs. So, you know, if we if we're sitting at six and an eighth, and let's say the the number either because the math works or just because the psychology of buying this house works at five or three quarters if I'm a seller. If I'm sitting at six and an eighth and I need to get to five and three-quarters, you're probably talking about, Gary, about two percent of the cost or two percent of the the loan balance, right? So five hundred thousand dollar loan balance, ten thousand dollars. When you think about you know how quickly a seller might think to move their price down ten thousand dollars, it's not a lot, you know, it it it to make that work and it might be the difference. So there's some complicating factors, every buyer is different, rates are a function of credit score and how much people are putting down. So it really is that collaboration. But I think coaching a seller to think about hey, this is a possibility to move your house quicker, uh, easier, and at a better price than you would otherwise. And we just have to look to the builders to see just how effective this is. You know, the builders have been buying down interest rates for the last several years. And if we look at at you you talked about, Gary, the you know, basically the 4 million resale homes and the six to 750,000 uh new homes that are done every year. Resale homes were off about 30% from 2019, which is think about like the last kind of semi-normal pre-COVID year. Um, builders are flat to 2019, so they are vastly outperforming resellers. And the reason is that they've got a 2019 interest rate on that house. And a resale uh seller selling their own house typically does not. So the builders have shown us that that move matters for people. So I think that conversation, either because you're a buyer agent and you've got a consumer who's kind of you know fixated on this is the place I want to be. And maybe it's budget, maybe it's what they qualify for, maybe it's just the psychology of being where they want to be, but that's where they want to be. And that same time you have sellers that as agents should be preparing them for that potential differentiation. And where I really think sellers need to think about it is if I live in or near some new construction neighborhoods and the builder down the street, the Lenar, the pultees of the world are buying rates way down, um, we should think, hey, I want to be competitive to that, right? So I want to be able to react to that because I've got some advantages that they don't have. Um, but they have an advantage of really treating house selling like a commodity. So they're just a number to them. There's no emotion to them. So, you know, we should, when we see things that work, we should learn from it. And that's the that's one of the things I've seen more just buy down.

Gary:

It's interesting. One of the uh high recommendations that we've been making to home sellers is don't spend nearly as much time on a competitive closing as you do on the current competition, the current listings that you are competing with in the moment, only because of the fluidity and the uh you know, kind of the the uh less predictability. If I have if I you know, we used to go back six months or you know, to take a look at what has closed. And you know, you just really highlight that if I'm a listing and I'm in a high competitive environment with new construction, I need to think differently about not only the pricing of my property, but the offering that may come with it. So again, I think those are really important things. A couple things I want to jump into. Uh, you know, one of the greatest challenges uh I think our industry has felt in the last 90 days or 90 uh last 36 months, excuse me, is you know, the the percentage of first-time home buyers as a percent of the total continues to decline, and the average age of the first-time homebuyer uh is increasing. What programs are out there for the first-time homebuyer to get into the homeownership game?

Mark:

So, you know, what I think it's amazing. We still, you know, those of us in the industry think it's common knowledge that there are some really low to no down payment options for people. But when you test consumers' knowledge, especially first-time homebuyers, you know, think about folks in their 20s and early 30s, their awareness of that, Gary, is really, really low. So I think as an industry, we need to do a better job of promoting the fact that there are low down payment options, no down payment options, options where you can get closing costs paid, options where you can negotiate things from sellers. So I think just trying to tell that story because at the end of the day, it's a crafted product that we put out there, right? We work with the realtor, we work with the consumer. We try and think, all right, you know, what gaps do you need to close? Do I not have enough savings to buy? You know, this happens all the time. We've got a couple with two incomes, they qualify for that mortgage relatively easily, but they haven't had the time to really accumulate savings. So that's the gap we got to cover. We have strategies for that. Um, it could be somebody really stretching. Um, it could be somebody whose income doesn't really, their income that we use, say on what's on their W-2 or pay stuff, doesn't really reflect what they make because they're at an early start of a uh self-employment situation, something like that. So they can maybe afford to stretch a little bit because that's not they really make more money than that. So what can we do to help them maximize that? So we're finding programs, it's a lot of low-down payment things. It there's more programs out for flexibility with flexibility on income. If you go back to the 2008 to 2012 period with the Dodd-Frank Act and really protecting about the the customer's ability to repay, which is has been a game changer and is the reason we have such a stable real estate market right now. EVA sales are low. Um, but if we take that and still look at ability to repay, but look at it differently on a cash flow basis as opposed to a net income basis. There is a whole cadre of people out there who could qualify to buy a house, can afford to buy a house, and want to buy a house. That really the mortgage industry hasn't served for the better part of 15 years now. So, you know, there is uh there is a little bit more creativity on that side that we've got to go through. And that's for me, what I think about is how do we prepare our loan officers to be the best problem solvers with creative solutions to the issues that your average first-time homebuyer has. Because you're right, it the percentage of first-time homebuyers has dropped precipitously. And those people also have to compete with second, third-time homebuyers who might have a lot of cash to put down because we've all, those of us who are homeowners, we've made a lot of money in the last few years. So we want to give them as much of an edge as we can. So, you know, that is something that is near and dear to our heart to really help those people get into the market.

Gary:

It's interesting. You talk about educating the loan officer to you know move through some creative solutions. I think it's educating our sales force, our trusted advisors, to be uh a little more aggressive and proactive in education to the first-time home buyer. Because I do think there's a lot of uh misconceptions, misunderstandings. And it's interesting. You know, we've all heard uh, you know, the adage that says that uh, you know, I'm concerned about you know, six and an eighth interest rate, and my interest rate on my rent is a hundred percent. Uh what I saw the other day, which was you know equally interesting, was I'm concerned about a six and a half percent interest, but I'm paying my landlord enough rent for him to pay his six and a half percent interest. And so I just think it's uh, you know, I think often uh when you think about the equity buildup in the last five years, and if it's true that the average first-time home buyer was at 38 years old, I often say, I wonder what that group of 38-year-olds would feel had they bought at 33 and gotten the 57 to 62 percent of home price appreciation. So, you know, and you and I know, and we've talked about this uh being in the market for a long time. It is very hard to uh um to play the market and to plan the market. Uh, but at the end of the day, you know, I think, you know, what we believe is that homeownership remains, you know, one of those top one or two or three, definitely the top three, most likely top two, ways to create generational wealth. And the other piece that I think about often, Mark, is the non-financial component of home ownership, which is memories, and you know, there's all kinds of things that come with it, as you and I know. Uh, let's uh I'm gonna shift gears a little bit. Uh there's a we've got a variety of programs. Uh, Howard Hannah Mortgage has a variety of programs, one that you and I uh actually are discussing right now, which is uh buy before you sell. And you know, two things that come out of it. Number one is an education that the program exists. And then number two is sometimes there's a belief that the mortgage company is a service for the buyer. It's our belief that uh the great listing agent is going to leverage some of the programs that we have as a listing tool to create a buyer pool. And so talk a little bit about buy before you sell and some other programs that we have that can be as much a listing tool and resource as a buyer value add.

Mark:

Yeah, absolutely. So buy before you sell, Gary, is uh something that we've seen more and more come up lately. Um, where, you know, that house that you always drive by and you think, boy, if that thing ever comes up for sale, that's the one, right? And you know what it does, and you're absolutely unprepared to move, right? You weren't thinking about it, or maybe you're thinking about it, but you're not ready. Um, I think the next time my family moves, this is probably what happens, right? Is is that's there, we want to make a move, and we haven't done what we needed to do. So um it it is a way to tap into the equity of your former home, to use it to buy the new home. Um, it's for folks who can qualify to do that, and not everybody can qualify to do that. But this is the kind of thing that I think when you're on a uh if you're on a listing presentation, or maybe even before that, right? Just you're starting to talk to your neighbors, your friends, somebody saying, hey, you know, I'm kicking this around, I'm thinking about it, is having a meeting with a loan officer to help that customer see what the future looks like. So if we needed to move before we were ready to move, let's say, what would that cost? What would it look like? What expectations would you have of me? What expectations would I have of you? And figure out just the math on it. Because sometimes just getting the math clear in people's heads is a freeing environment, right? They now know that, hey, I may not even have that house that I got to go on, but I've got a sense of what I need to do to do that. And maybe I'm comfortable with it, maybe I'm not. But you know what I have? I have surety. And that surety, because I know what this is gonna cost and know what it's gonna look like, makes a big difference. So just sharing that type of thing with a seller um is uh you know, is critical because sometimes that the exact house you want, other people think felt the same thing, and you gotta move quickly. And hanging out until you sell your house may not be an option to do that. So uh really, really important thing. You know, we've got um the uh money back guarantee that is really a real realty program that I think people don't think about as much. Uh it be and it has been a Brisk and vibrant seller's market. But we're more in balance now. And having those conversations with folks about what they could do to differentiate your house because you've got a product and product differentiation helps, right? So your product, your house, and doing things a little bit differently can make all the difference in the world. I think you and I uh had a chance to meet with a uh a leadership consultant over the last couple of weeks. And one of the things that he really hammered home was, you know, there's kind of first place and there's second place. So the person who sells their house sell sold all of their house. And the person who came in second and didn't sell their house just didn't sell their house. And that little differentiation, 1%, could make the difference between 100% and 0%. And I think that's going on in the listing world today.

Gary:

You know, I think the other thing, thank you. That's uh great insight and great programs. And I think that uh I like your comment. You know, it's a much more balanced market. It feels like you got a little bit of time, but the other thing you and I speak about often is, you know, when I decide to list my house, even though I may not have identified the home I want, like that is the moment in time as a seller to get with my mortgage consultant and go through all of those options because what you just described, you know, it's interesting. Uh inventory is up 25 to 30 percent, but it's still off, you know, 40 to 45% from where it needs to be to create a buyer's market. And I think that's one of the things the media does not really represent as well as it should is, you know, our month's supply of inventory throughout the market area with a couple outliers is three to four months. And uh, you know, it's six months creates the equilibrium from a buyer-seller environment. So interest or uh inventory is up 30, 35%, 28%. And so there's a common belief that prices will go down, but it it still is uh there's a disparity in the uh in the supply and demand. Uh so you know, we just encourage every seller, the moment you decide to list your house, understand all of the different mortgage programs so that when you go to buy, particularly if you've got a tremendous amount of equity, you know, sometimes people just are going to convert the equity into a down payment, but I also think there's some extensive financial planning that can go into all of the above. So uh just share that a little bit. Um, let's talk a little bit about uh the process. I also think that the mortgage process has become far easier to the borrower through some technology. And I remember back in the day, you know, you had to print out bank statements and you you really had it was an event, uh, an inconvenient event to be the borrower. Uh, I believe that today that experience is got it's far more automated. Technology continues to evolve. So uh share a little bit about that. Just you know, make sure that our first-time uh home buyer listener understands that it it's not nearly as inconvenient as it might have been when you and I bought our first home. True.

Mark:

You know, it's funny, Gary. When the difference between, you know, buying your home first home maybe 30 years ago and what it looked like 25 years ago or five years ago isn't a whole lot. But the last five years, things have moved quite a bit, and we're still really in a transition zone. I think the next five years will be even more different because of analytics and the way the agencies, because Fannie Mae and Freddie Mac, to a lesser extent FHA and the and the VA drive the mortgage experience and how you deliver information. So today we've got some folks, and and today we really cater to whatever the consumer wants to do. So we've got some high-tech folks that really want to be digital first and foremost. Um, we've got some folks who want to sit down and talk about things and do things, you know, write things out on paper, and that's okay too. We're going through that transition. But the ability to get automated feedback on uh employment, income, assets, and bank statements, and all of this is permission-based, right? So this is all a very secure system through the financial markets where it is systems-based, but we can pull that information with the permission of the consumer and just allay a lot of fears and make sure that there's surety. Because I think, you know, one of the challenges with the mortgage business is you, you know, if you go back a few years, you'd make mortgage application, you'd probably close in about 45 days. And then the mortgage company goes and validates everything. And, you know, there there may be something different that comes in based on what we initially talked about. It's not that somebody didn't give us the facts, it's that our version of the facts, like how you earn money, what you what you earn. We have certain ways of calculating that that sometimes are counterintuitive. So now you go through this process and things come back and we validate it and we we work through anything that's different or changes is more or is less. Um, today, the time with which it takes for us to get back that information at times is instantaneous or minutes, and uh at the longest time is still much, much quicker than it was. So the process is different, and as I said, it'll be even more different over the next few years. As you know, um as a mortgage company, we're going through a massive technology change right now. We are changing the infrastructure of our entire system, the way we interact with consumers, the way we process mortgages on the back end, the way we go to the capital markets to price out our loans. All of those will drive a better experience, lower costs for the consumer, better rates for the consumer. And I think you know, that technology is going to have the consumer win. They're gonna feel better about it, the prices will be driven down, and it's a you know, it's just an all-around plus for the consumer for what was really a very manual process, even well into the 2010s. Um, they again look 2010s still looked a lot like 1990. Um, and and we're starting to change that a lot these days.

Gary:

So, a couple final thoughts, final questions. Uh, it would be remiss, you know, a high, a uh significant topic of conversation, I think, for every business, but certainly our business, is uh AI. So uh I'm gonna ask you to grab your crystal ball. What uh what kind of things do you uh see that AI will do to make this process a better process? How might it impact the mortgage business? Uh just what are your kind of initial thoughts on uh artificial intelligence and how uh that will play a role in this process uh, you know, kind of today and into the future. Right.

Mark:

Great question. Um Wow, so much going on there. I'd say, you know, kind of two things come to mind. One is the mortgage process, Gary, has never been all that linear where you do step one, step two, step three, step four. You know, we kind of do step one and then, oh, step three came in before step two, so we're gonna loop back to step one. And AI at some of that processing type stuff is just better than the human brain. The human brain, we really need that person, those people on the back end to think through risk-based processes and spend their time on that. Data and collection and analytics of minutia is where AI is really helping us. So, you know, one of the things that's coming up now is so think about a consumer that sends their W-2's tax returns and bank statements in. They will be crossing through our AI platform, and that AI platform will help our underwriter go, hey, I want you to look at page seven on this bank statement, because there seems to be a little aberration there. As opposed to the underwriter who would have gotten to page seven anyway, but they would have gone through page one and page two and page three, um, thinking about just trend lines that you don't always see. So there's a level of complexity that takes like deep minutiae understanding and puts it right in front of that human being who can then absolutely focus there and solve for whatever it that's showing. So um, you know, the systems will read the W-2s, the pay stuffs, the bank statements. Um, if somebody sends us a uh wants to send us a bank statement and accidentally uploaded their driver's license, things that happen all the time. The system will go, hey, that's a driver's license, and come right back to you and say, Oh, you accidentally uploaded the driver's license. We were asking for the bank statement. As opposed to waiting for a person to go, that was a mistake. So the the efficiency that we'll have, which again drives back into lower cost for the consumers, um, is going to be the game changer for us. Then it comes to a terms of marketing and communication and graphic design. Before this call, you and I were talking about my daughter who's looking at graphic design and me going, I don't know. I, you know, I don't know what that looks like for somebody who's 23 years old, wants to do this for the next 40 years when AI can draw up uh an advertisement for me in a matter of minutes. So, you know, all of those types of communication vehicles, these large language programs, are making it fascinating for all of us uh to figure out. But for us, systems and processes are gonna get easier and faster, more predictive, and we're gonna spend time on things that need real human decisioning knowledge and wisdom, and that's gonna be a better outcome for everybody.

Gary:

Well, I think the the most compelling statistic that has been consistent the last three years, which speaks to the need for uh human capital in this complex real estate transaction, you know, 90 to 91 percent of every buyer and seller has used a real estate professional. I read the other day, Mark, that only 6% were for sale by owner. And if you think about the dynamic of a robust seller's market, one might think that that would be the ultimate time to not need a realtor because I'm I if I price it right, you know, the the demand is going to be particularly high. And the other stat, again, I haven't uh fact checked it, but you know, the average for sale by owner gets $55,000 less than the home value as predicted by listing it with a realtor. So you all can do the math, applying a comp a commission versus a sale price. Um uh again, I keep saying final question, but as I hear you talk, I think about questions that our listeners might have. So uh I think one that we should talk about is uh any thoughts andor recent experiences of the appraisal process. You know, oftentimes when you get really significant price appreciation followed by a softening of that price appreciation, you know, the appraisal part of our process sometimes adjusts itself or overadjusts itself. Any insight on the appraisal process, Mark? Yeah, sure.

Mark:

So um, you know, as things have leveled off over the last uh six to 18 months, let's say, the appraisal process has gotten a bit smoother. When we were running, Gary, you know, 10, 15, 20% appreciation on some of these houses, it's hard for an appraiser because the appraiser, by definition, has to look in the rearview mirror. Whereas the buyer of the house is looking through the windshield, right? They're saying, hey, this house is going to be worth a lot more. The appraiser's going, hey, let's look back six months and see what it's worth today based on yesterday's data. Now, there's some things good appraisers can do to figure that out, but when things were moving as fast as they were moving, it was getting challenging. So it is settled down a lot now. Um, I think that we are way more frequently getting pricing that is reasonable on the houses and getting appraisals that come in at appraisal. So that's been a plus. Um, you know, you just asked me a minute ago about AI. AI is really changing appraising because that is a giant data set that needs to be pushed down into something that is absorbable by a human being. And the AI just has the ability to take a wider data set. So when we look at comps, it's getting a lot better because you know, you're not looking, you're not thinking about somebody who's lived in a market for a while and has a sense that this neighborhood is comparable with this neighborhood. This data set can just be grabbed that is really wide, really broad, and help an appraiser. We now get a risk score. So Fannie Mae and Freddie Mac have developed their own AI-based risk scores so that I don't have to wait to find out what an underwriter thinks, or even more challenging for us, which is we package these loans, we sell them to Fannie Mae and Freddie Mac, they go into mortgage-backed securities, and Fannie Mae looks at it six months later and goes, man, I don't like the decision that you made. That is an economic challenge for our mortgage companies. Today I get a risk score just based on uh one to five, uh, with lower numbers being better. And we know if we've got a risk score of one or two or two and a half, we're just gonna be fine. So that surety, again, goes back into maybe less reserves, which is better pricing for consumers. It's one of the reasons I'm really optimistic that we'll be in a place where we can start to press these costs down. But quite frankly, after the Great Recession, skyrocketed four or five X uh on cost to do mortgages, and that has really settled down and started to push down as we've started to leverage more technology tools out there. And probably no place more than appraising in our business has uh has that made an impact.

Gary:

Awesome. So uh interesting, Mark, and this will be uh the second to last question. So I did uh go on and do a little chat GPT to determine what questions uh I might add to our portfolio today. And you know, obviously, as we prepared for today's uh reality podcast, you know, we knew what we were gonna uh talk about. We would talk about you know, interest rates and we talk about strategies and platforms and AI, and you know, you did a great job digging in the margin, is a very interesting component to better understand why we're where we are. Uh so I am gonna read this is the only one from ChatGPT, but I'm gonna read it directly. And uh so it says, as a leader of our mortgage company, what's your biggest focus right now to ensure long-term stability and trust for clients and our real estate partners? What is your and your team's number one focus as we wrap a bow around 2025 and uh kick off and uh fire up 2026?

Mark:

You know, I think back, Gary, about the statement you just had a few minutes ago about how many clients customers use a realtor in this market and the the results that they get to it. So um, you know, my uh uh loan officers are probably tired of me talking about AI in the sense that if you're a loan officer and your business is built on trust and relationships, AI is not gonna AI you out of a job. If it's not built on trust and relationships, and those are easy words and really hard things to do, um you're gonna have a challenge with technology. So it's staying there. So for me, where that informs our business plan is um, I think of surety. So when we meet with a customer, how can we give them surety that they're, you know, fast forward three weeks, four weeks, six weeks, whenever they go to closing, they've got a fast, reliable uh process that they can count on that will meet their goals. Um, you know, how can we do more things better? And it's through technology, so that the people themselves can be masters of relationships and masters of trust and bring their wisdom and knowledge and experience to the table. So, our technology basically what we're trying to do is engage the consumer however they want to engage. And that can absolutely be across the desk, face to face. It could be somebody filling out an automated application at two in the morning because that's just when they roll. And all of those things are good, they make us efficient, they make it, they give that kind of surety. So we've got to have the best technology, but you know, I think I think of the best technology is kind of like the human brain. You know, you hear like we use 20% of our brains or whatever that number is. We're probably less than that on the technology, right? So we've really got to know how to use it, master it, and uh get the right technology. So today, that's where uh our focus is. Um, we also, you know, it drives the focus on cost containment, which I think will help us. That turns into lower rates for consumers. And then at the end of the day, it's people development. We need to hire the best, have the best training, uh, have the best development, provide the best support, and keep our really high-value people happy and employed here for as long as they want to be in the industry. If we get all that right, Gary, then then things will just go well.

Gary:

So I know that uh our company and our listeners have heard me uh share the following in that AI clearly is uh got an artificial intelligence uh component and definition, but you just said it, you know, uh people use people that they know they try, trust, and they like. And uh trust and relationship, easy to understand, not as easy to implement and execute. Uh and I'll just uh challenge our listeners with AI also as to uh stand for two things. One, we learned from Matthew Ferrara, which is always inspiring, which means you know, we've got to inspire buyers and sellers through our knowledge, through our resources, through our partnerships. And then the other one is authentic interaction. And so if you think about the three AIs, AI uh, you know, um, and you think about artificial intelligence and always inspiring and authentic interaction, if you bundle that up, uh that will that will be a recipe for uh uh singular, individual, and collective success across uh the our companies, which would include mortgage title, insurance, brokerage, relocation, new homes. Uh, but it's also going to be uh an enhanced uh scenario with the consumer. And what we know today is the complexity of our transaction requires us to help guide them and navigate them as evidenced of that stat I left earlier. So with that, Mr. McGaldrick, uh it's funny. Mark and I said, hey, we're gonna do a real quick podcast, like 20, 25 minutes. Uh, we are gonna be at the 50-minute mark. And I got to tell you that uh I encourage you if you're listening while on a walk or you're listening in the car, this would be one of the many that I encourage you to sit down, take notes, and then educate your buyers and sellers, because that's really the definition of a trusted advisor. Mark, thanks for joining. Uh, as always, great. And to our listeners, we appreciate you joining reality podcasts. Happy to be here, Gary. And as always, go birds. Yeah, man. Have a great day. Thank you, bud.

Contributor

Gary Scott

Host