SPEAKER_00 0:00

Hey guys, it's me Peter with uh my partner John.

SPEAKER_01 0:13

Uh who am I to you? Business partner. I'm gonna say that.

SPEAKER_00 0:16

All right, ready? Hey guys, it's me, Peter, with my business partner John. Uh we have our one of our first episodes actually of um Is It Legit? And we're gonna be talking about a variety of things, um, but specifically really with business, uh, things that have to do with business and health, because that's really uh one of our biggest interests. So today we're gonna be talking about real estate. So John and I have been in the real estate industry for about a decade. We have a lot of experience in this area, and we're one of the top realtors here, so um, we're constantly keeping apprised of what's going on in the markets, and we're studying this uh because quite honestly, it's such a crazy market, and people are uh really asking us a lot about what's going on in the market, and um the best thing that we can do, we're not you know people who know the future, we're not uh profits, but at least we can go through data to be able to share with people what's um what we believe could happen. So uh so yeah, I mean, uh John, uh um what are we gonna be getting into today in regards to the market?

SPEAKER_01 1:26

Uh so whatever people see on the news is a lagging indicator of what's actually happening. And us being on the ground floor, making offers, winning and losing, talking to people who are getting ready to buy, you know, or buying or selling or whatever they're doing. Uh the two main thoughts and beliefs is that the market will continue the way it is, and will either slow down a bit, but ultimately continue to appreciate. And the other fear is that the market will crash. So I'm gonna take I'm gonna take the latter uh because that question it those questions are too, those beliefs are too broad. It's more like, well, there's gonna be a storm somewhere. Okay, well, where is the storm? You can't just say there's gonna be a storm in the US. Right. Where's Hurricane Alley? What are the seasons? So I'm gonna take the um the the market will crash.

SPEAKER_00 2:29

And then I think you're gonna take the the the market won't won't crash. Exactly. Yeah. Um well, I mean, to be honest, I uh you know it's it's a hard argument, but I'm gonna try to, especially when it comes to the national market, but I'm gonna try to uh give some of the points there um as to why it won't crash. So basically, you know, a lot of people who lived through 2008, 2010, I mean, they they they lived through a pretty bad housing market crash. We ended up uh uh we lost what 50% of the value for some single family homes, some condominium, 70% of the value. So yeah, people have PTSD. The prices dropped significantly. People lost, unfortunately, lost their homes, they lost all their equity, and um and it was just a really ugly time. And so, of course, people are you know scared to to because they see exactly the same thing that happened last time where you're in these multiple bidding wars and et cetera, et cetera. So um, so one of the things, so does history repeat itself in this uh case? And let's just kind of break down what happened last time in 2008. Well, what happened was the market crashed because we were giving out loans. Uh on the most basic level, we were giving out loans to people who couldn't afford it. We were giving giving out not only one loan, two loans, three to five loans to people who really couldn't afford it. And of course, we also had um instruments like adjustable rate mortgages where you know interest rates um started going up like crazy, and the people's adjustable rates mortgages were you had a payment of let's just say $2,000 one day, now it's $3,000 or $3,500. And that's honestly what was going on. And of course, when people can't afford it and interest rates go up, well, that's where the big crash happened. We were way over leveraged, and um and it all came tumbling down because essentially people started going delinquent, and then that cost foreclosures and supply went way, way up. Um, and people were kind of uh um they they were uh fire selling because they couldn't um they couldn't afford it. So supply went way up, demand went way down because prices were falling, and that's what caused the 2008 crash. Are we doing the same things today? Now, if you look at our mortgage lending practices right now, the answer is no. We are making sure that their credit scores are solid, we're making sure that their debt-to-income ratio is solid, and among other factors, we're actually quite tight with the way uh we we lend. Um, we've gotten smarter, I guess, from the last time that we um used to do these kinds of practices. And so that's why it's it's kind of hard to believe that we're gonna have the same kind of crash. Now, we yes, we are in COVID, and a lot of people lost their jobs, a lot of business owners lost their jobs, and um, you can argue that things um that people are still gonna have trouble paying their mortgage, but it's it's kind of really hard, uh at least especially here in our market, to see that we're we're actually having an influx of inventory through foreclosures and delinquencies. Um the other thing to look at is if you look at the last five recessions, I do I believe there's one in 1980, 1981, 1990, uh, one, and then 2001, the dot-com bubble, and then uh 2008, if you look at those last five, there's only really uh two of them that ended up having a price reduction in the housing market. So in 1980, even with the recession in the stock market and whatnot, we actually had a 6.1% appreciation um in the housing market. In 1981, 3.5% appreciation. In 1991, we went backwards only uh negative 1.9%, right? And then in 2001, we actually, even though there was a market recession, 6.6% appreciation. Even during that time, it shows how solid the market is, which is probably what ended up leading to the 2008 crash because they looked at how solid the housing market was, and they said there's nothing that's gonna happen with the housing market. There's no way these mortgage-backed securities are rock solid, and we can bet um we can bet with it, we can leverage against it, right? That's what ended up causing the 2008, which in 2008 that was a negative 19.7% um loss in value. Um, and that's really national, obviously, it was a lot more in some other uh places, but the point is that a recession doesn't a recession that is inevitable in America, which we know that's gonna come, we can bet on it, count on it, it's already here, doesn't necessarily lead to a housing market crisis. Um that's really that's really my um my well I I'll come up with one last thing. So if you look at the delinquency rates of Washington State, you will actually, so so the national market, um honestly the delinquency uh the delinquencies are higher, but if you look at Washington State specifically, we are actually number 49 when it comes to delinquency rates. So we have the lowest amount of delinquency rates in Washington state, um, as opposed to New York, which is like top five basically. And so I know a lot of people are wondering, oh my gosh, all these businesses are struggling, et cetera, et cetera. But if you actually look at Washington's uh state uh data and delinquency rates and um and potential foreclosure rates, it's actually really, really, really low compared to the rest of the nation. So that's that's my argument against um why the market won't crash.

SPEAKER_01 8:33

So you're saying number one is a better regulation of mortgages and lending practices. Yes. Number two is uh will a crash cause real estate prices to actually drop? And if they have, how much? And in in three of the last five, it actually went up versus going down. Yep. And you're also saying that particularly for Washington, the delinquency rates which track people's non-payment or you know hardships is one of the lowest in the in the in the country here in Washington State. Top three lowest. Okay. So and again, the point of this whole conversation is for all of us to have tools and and and directions on how we can uh seek the truth and where the numbers are so you can make your own decisions. Now, for me, on the other hand, I look at the facts. I look at the fact that there are three big bubbles of debt in the US, which is mortgages, it's student loans and auto loans. And I think because of what's happening in the economy and how COVID has affected a lot of these people's ability, not everywhere, because not everybody, you know, has had hardships. Like if you talk to people in the tech industry here, some of them don't even know what's going on because they're just working from home anyway, right? Remote working was like some people that we know on Amazon, this the remote working started last year. I mean, forget March, you know, I'm sorry, last last year, before COVID and the lockdown. Some other people are not able to pay their mortgages because they've lost their job or they have a reduction in pay. My wife is a nurse practitioner, and she just had to drop you know five percentage points involuntarily because patients aren't coming in, right? So if you look at the number one reason for me is uh the statistic that says uh there are 3.5 million people who or families that are delinquent in their mortgages, and there it's a lot, and there's a lot, and there are um 3.5 and another 2.2 in addition that is seriously delinquent. And to quickly break down the foreclosure process, because you know, we both used to do foreclosures, and I used to go to auctions and actually bid on properties, is you have a notice, uh notice that you haven't paid your your bill, okay, you're late on your mortgage, 30, 60, 90, 120 days, and then you have a no NOD notice of default. Hey, you're you gotta do something here. You know, you're going into foreclosure. Or uh you call it a list pendants, which is just saying you are going to be uh you're going into a legal proceeding that may allow you to lose your house. And then you have options where the bank tries to sell off the property, and if that's not successful, then the bank takes it back in a process called uh you know bank-owned properties or REO real estate owned properties, and then they you know put the lipstick on a pig and just try to sell it on the open market. If you look at the inventory, which is the months of inventory, which is an indicator of how tight the market is either to the seller or the buyer side, and six months is an average market. Six months at the speed at which the homes are selling today, if no new homes came onto the market in six months, all homes will be sold. That's quite a long time. Right now, nationwide, we're at two months, and uh uh statewide we're below one month, and this is an average between all the counties that you haven't even heard of. There's Okanagan County, there's Thursday, like there's all these counties that people just don't really understand that it's not just Bellevue and Seattle and Tacoma. Um, so us being one at the one month mark or below or two months nationally, if all these foreclosures were to hit the market or start to hit the market, it could cause nationwide inventory to go to six months or even higher, which would flood the market with foreclosures, buyers' sentiments would get, I'm sorry, sellers' sentiments would um weaken because they are not able to get the same prices as they did before, which allows more buyers to come into the market and have a better chance of getting the homes. So that would be number one. I think if you are able to track where the foreclosures may happen and when and how quickly they're coming, in some areas, sometime there's going to be a wave of foreclosures. I I don't think that's even I don't I don't think that's really up for debate. The second thing I would say is interest rates. Interest rates have just gone up half a point from uh even three to four weeks ago, which on an average median price point here in King and Snohomish County, you're losing fifty to seventy thousand dollars of buying power immediately. That's a lot at the same uh mortgage payment, you know. Because you know, Joe Schmidt, who makes three thousand a month, goes to you know uh our lender and and the lender says, Great, you're approved for $500,000. With that same, because you don't get a raise, yet with the same dollar per hour wage, your buying power just went to $450,000 or $430 in the worst case scenario, right? So with interest rates historically still being low, because average hit uh historic average interest rates are 6.25 to 6.5%, we're still way, way, way, way, way below that.

SPEAKER_00 14:28

Yeah.

SPEAKER_01 14:28

I I refinanced my house for 4% two years ago, and I thought that was the best rate. I'm like, man, this is thank you, you know. Um so now we're at 3.2 versus 2.8, 2.6 for the best borrowers. And I know this because my wife and I just got approved for a home. Um and you know, that's what it is. So number one, foreclosures, number two, interest rates. If they go up, that's going to put more pressure on the market. Uh I'm sorry, less pressure on the market because less people will be able to buy, and along with the foreclosures, that's going to just allow more inventory to be present for people to have a chance. I think the last thing would be you can look at lending practices. And while we've never, as an industry, given out loans like we did in 2008, there are things that are changing right now. When you go to a lender, you talk to your loan officer, loan officer Sally says, Great, you're approved. Now we have to get you underwritten approved. The underwriter is the is the person who actually gives you the money. That's the people you have to satisfy. Well, last year we had a client who one week before closing was not able to close on a home because they call them COVID overlays. So COVID overlays means they are raising the credit uh the credits or credit score requirements, they're being tougher on the background checks. If you've had some uh questionable history of short selling your home, foreclosures, divorce, whatever, which can all affect your credit score, uh, there being more uh there's there's more scrutiny on those files now. So there's a lot of pressure on the market to show that there is a wave of foreclosures coming, but it's just the question of where is that going to be and and how big the magnitude of that will be. And when the inventory goes to six months from two, well there's just gonna be less competition uh for for buyers and people can maybe actually get into a home around less price instead of offering 200 uh 200k over less price. So that's my argument. And the last thing is um, and the one the one additional thing I want to acknowledge is that the markets are very emotional. And if the markets are affected somewhere, you know the media is gonna focus on that. Sure. It's gonna be a spotlight on those on those cities. Is it the you know the headlines will say, is it 2008 again? You know, CNN's gonna blow it up, and that might cause a ripple effect where the market actually slows down as a whole. Sure, sure.

SPEAKER_00 17:19

So consumer confidence. Consumer confidence. So what I'm hearing from you is basically if you look at supply and demand, obviously, if there's a lot of supply, a little demand, then prices decrease, right? So what you're saying is that uh right now there's uh about two months of a national app at national inventory, and then you say there's 3.5 um months of uh or 3.5 was it million? Uh total five point seven.

SPEAKER_01 17:45

Five point seven uh months of was it months of inventory or million homes that may come onto the market as foreclosure.

SPEAKER_00 17:54

Oh, sorry, okay, so there's two there's there's about two months of inventory. Um if 5.7 million uh uh people go into foreclosure or whatnot, that's going to spike that months of inventory up to above six percent. Or sorry, six months of inventory, which thus will um obviously prices will start dropping. And what you're saying is on the national level, um, you know, I and I'm looking at some of the delinquency rates, I mean it's like over 10%, some places 10%, which is like basically where it was in 2008. I mean, it's gonna get really bad for most other areas. So inventory or foreclosures, delinquencies, that's going to increase the supply. And then you're saying interest rates, if interest rates right now were at what 3.2%? And then if that basically goes back to the national average, like 6%, that's going to significantly decrease that that um that demand. And then thirdly, if lending practices, as lenders start saying, oh, prices are starting to go down, etc. etc., they're going to start wanting to not lend too many people. And and then lastly, the consumer confidence, if people start seeing prices go down and CNN starts uh spotlighting, then it's it's like that spiral. Exactly prices start going down, people's consumer confidence goes down, interest rates go up, and then and lenders are scared, and then just prices and the supply just keeps increasing because now every now all these sellers want to like sell, but then um the buyers don't want to buy, and then that that becomes that whole dynamic. Right. So then let me ask just one last question. Um, given that you know, Washington State, like we're in the top like three lowest delinquencies, shouldn't someone buy? This is what everyone's wondering. Should someone buy in Washington State right now? Prices are ridiculous. You know, multiple offers, people have to basically sell their soul to be able to, you know, have a 10% chance to be able to buy a home. So it's like, should you buy a home right now? And and what are some of your thoughts?

SPEAKER_01 19:59

Well, I mean, long story short, uh my wife and I are in the market right now. I mean, we may actually be so I'm putting an offer in on a property, and I know exactly what I have to do, and I don't feel good about it, but I have to do what I I have to put in the money much over asking to win this property, right? Yeah, and the reason why I'm doing this is because I am taking a bet that there are more than enough jobs to support the economy in along the I-5 corridor. Um and looking at the last recession in you know 2008 to 12, while the state on average dropped 40% total uh along the I-5 corridor, it you know, Seattle, Bell uh Seattle or the East Side or you know, those core areas, it did not drop that significantly because of what was propping up the market. There's now there's you know, Amazon is bigger than be ever before. There's Facebook, Google, Microsoft, uh, Expedia, Nordstrom, Starbucks, Boeing. I mean, I you can keep going. There's a lot of companies. Yeah. Apple. Apple is starting, I heard that. I mean, if you look at the construction backlog of what is happening and who's coming in, the backlog is a there's a long backlog of construction that's just not happening. Yeah. Because uh building the way people build here in in this area is very difficult, which slows down uh the amount of inventory that can be added to the market. So looking at all those things, long story short, I it's hard for me to believe that even if there was a nationwide turmoil that it's gonna crash. And for me, I don't go into a home as a with a primary residence of trying to flip the home because it's a great school district, you know, Munkletoe school. District, one of the best school districts in the area. And I know that my kid, you know, I have two two boys, and they're gonna be there, they can probably go all the way to high school. Yeah. So who cares? Like I I know the long-term uh stability is there, I think the growth will happen. Um and I think that there's no way that the market will crash so significantly because it simply did not last time it it did. The the whole thing happened in 2008. So that'd be my answer. I don't know what your thoughts are.

SPEAKER_00 22:30

Yeah, yeah. And this will be our final um points. Um yeah, yeah. It's really difficult. Obviously, we're realtors, so it's hard for us not to be biased, obviously. But I you know, I'm gonna promise I'm gonna give you the most unbiased answer here. This is my unbiased answer, though. I still believe it's a good time to buy. I think looking at the delinquency rates right now, the job market here, um, we are truly in our own little shell. It's probably not a good idea to buy a home in other states. Um, I can't say all states, but if you look at the delinquency rates, the delinquency rates in other places, like John said, three, you know, 5.7 uh million. I mean, we're talking about a significant amount of homes that will be coming onto the market potentially. And so I don't believe in really investing in other states. Um I believe in investing in our state only because of our crazy job market demand. Um, even if interest rates rise. I mean, we can there's so much affordability because of tech jobs, right? Um and the other thing, some ways to look at this that people don't really look at is uh number one, safety, like true safety, and also inflation. So let me explain safety number one. So I'm just gonna assume the recession, guys. I'm gonna assume a depression, recession, whatever you call it. I'm I I usually think in terms of uh those ways. Even if you were to have the worst case scenario, you lost your job, you everything, the world ended, um, and you were to either own a home or rent a home, in an ownership situation, you will be safer, guaranteed. You have at least so let's just say you have no more income coming in. In a rental situation, you could probably be kicked out within 30 days, maybe 60 days, right? In a homeownership situation, remember it's a privilege to own a home. So if you own a home, it'll take, I mean, the last time this happened, it took at minimum six months, at minimum after you go delinquent, right? Uh to be able to get foreclosed on. But what ended up happening for a lot of people is all these government programs started to want to save the homeowners, and so these government programs basically saved them from losing their homes. And uh even if they didn't pay, there was such a backlog of um foreclosures that a lot of homeowners actually stayed in their homes for over five years. So you want to talk about safety, it's better for you to own a home, right? Secondly, in an inflationary uh situation, which that's where we are right now, basically you're gonna be um, let's just say you were to borrow $100,000. Let's just say you had $100,000 in your bank account, okay? At a 3% inflation rate, which right now we're at 2.25%. Um hopefully that decreases uh or it'll probably increase, but we won't get into that. Basically, if we were at a 3% inflation rate and that $100,000 were to sit in your account for 10 years, that same $100,000 will be worth $74-ish,000. Okay. What's interesting about that is that means if you borrowed $100,000 today to get up for a mortgage, right? Within 30 years, let's just say you owned it for 20 years, the value of the money today is actually going to be significantly less in the future. So you're actually paying back less. Does that make sense? Sure.

SPEAKER_01 26:01

Yeah, yeah.

SPEAKER_00 26:02

So that's why people say to get into actually a lot of debt, not credit card debt, I'm talking mortgage debt, because um if if we had a hyperinflationary situation, actually house prices will continue going up. It'll skyrocket. All the assets will actually skyrocket up. And the people who are holding cash are gonna be the uh the biggest losers, unfortunately. So that's just the way I look at things. Um, and and of course, with our you know, being in the top three lowest delinquency rates in the United States here in Washington, I think that gives people a pretty good stance on um being able to buy a home, even though it's really, really hard. So um, so that's really it.

SPEAKER_01 26:46

I mean, John, if you don't have anything else, uh the one thing I'll say is again, the point of this whole thing is for people to have the tools and the courage to look and seek answers and find answers for yourself, right? These are some of the things that are going in our head every single day when people ask us and that we ask ourselves. In fact, we are doing the same thing. We're buying real estate here, um, at least for me as a primary residence, but I'm holding on to cash so I can buy places somewhere else. Right. So have the courage, have the confidence that everybody can look up these answers for yourselves. Don't take other people's word for it, and um you know figure out the truth.

SPEAKER_00 27:27

Yeah, cool. That's it. Cool. Well, thanks guys for staying tuned to our new Is It Legit uh podcast, and we'll see you guys next time.