WFG's Industry Perspective Q1 2026

What’s ahead for the economy, interest rates, and the real estate market in 2026?

In the Q1 2026 installment of WFG’s Industry Perspective podcast, WFG Founder and Chairman Patrick Stone joins economist Dr. Bill Conerly and host Ken Perry to break down the trends shaping the year ahead.

Key insights from the discussion include:

• Why the U.S. economy is likely to see moderate but slower growth in 2026
• What labor force changes and immigration trends mean for productivity
• Why housing supply and demand are currently more balanced than in recent years
• How global forces—not just the Fed—are influencing mortgage rates
• The growing role of AI in improving efficiency across real estate and settlement services

The conversation also explores critical industry issues including affordability, market consolidation, and the rise of fraud targeting real estate transactions. Stay informed with expert insights that help industry professionals navigate market cycles and plan for what comes next.

Transcript

Ken Perry (00:08):

Hello and welcome to the Q1 WFG Industry Perspective. I am Ken Perry with The Knowledge Coop, and I've got the same two guys from last time because why would we change it up when we have this much brilliance at a table? I've got Pat Stone from WFG. I've got Dr. Bill Connerly. You guys, thanks for coming and joining me again.

Patrick Stone (00:25):

Our pleasure.

Dr. Bill Conerly (00:26):

Great to be here.

Ken Perry (00:27):

I watched the last video we did multiple times. I just loved it because there's so much knowledge out there. There's so much knowledge in your heads that you're sharing that it's kind of fun to just learn again and again and again. So I'm excited for today, especially because things have changed a little bit since last time. Just keeping up with things seems insane. So I appreciate that you guys are going to shed some light on it. And as always, everything they say is exactly true and right and nothing will ever change. Right? We're good.

Dr. Bill Conerly (00:56):

And if you believe that.

Ken Perry (00:59):

Well, let's start with you, Bill. We'll hang out with you for a little while. We'll jump over to you, Pat, and then we'll just kind of do a round robin. But Bill, the economy's pretty interesting right now. There seems to be a slowing of economic growth. Is that really a slowing? Is it just a calming down? What's happening right now?

Dr. Bill Conerly (01:15):

Well, I hear a lot of people who are concerned about it. The actual statistics aren't that bad. Fourth quarter GDP was low, but a lot of that was federal government layoffs and the temporary closure. I'm looking for moderate growth this year in 2026, but it's not going to be as strong as we might have seen our population going down. And well, the native born people are either leaving or the immigrants are leaving, but we're getting a net outflow. So the labor force is not growing like it had been. We will still grow through greater productivity, but the total number for dollars spent and dollars produced will grow at a slower pace because of the limited immigration.

Ken Perry (02:05):

Wow. So you're already seeing the impacts of that.

Dr. Bill Conerly (02:09):

Well, we're seeing a little bit, but I know there's a lot more to come and a lot of our data lags. And we know that there have been deportations and very few people coming across the border into the US as they did in the last year of the Biden administration. So that labor constraint will affect some sectors, construction, agriculture, food processing the most, but it will also spread over the whole economy just a little bit. I think the average person maybe won't notice it unless they're in one of those affected industries, but the aggregate numbers will be okay, but not a barn burner.

Ken Perry (02:49):

So we're not seeing a complete dip. We're seeing just a bit of a slowdown is the estimate.

Dr. Bill Conerly (02:53):

Good point. Good point. It's not a decline. It's not a recession. It's just the growth rate is going to be not as strong as it had been a few years ago.

Ken Perry (03:03):

I want to talk for a second about the shape of the economy. So there's like a V and there's a K I just heard about.

Dr. Bill Conerly (03:11):

People are talking about a K-shaped economy. And the idea behind that is the people at the top are going up, the people at the bottom are going down. So it looks like a K. That has an itsy bitsy tiny bit of truth in it, but not very much. The truth behind it is in the last year, the wage gains for the low skilled people have not been as big as the wage gains for the high skilled people on a percentage basis. So they say, well, the low skilled are not doing very well. They're actually getting wage increases above inflation, but not as big as what the high skills are. And this is a temporary reversal. We had a big gain for low skilled work a couple of years ago when labor was really tight and their wages went very high and now they're getting less of a gain.

(04:12):

So there's a little bit of truth, but generally speaking, I look across the economy and I'm not worried about the low skilled people being worse off. They're just not growing as fast this year as the high skilled people.

Ken Perry (04:26):

When you're looking at numbers, it's fascinating because you have to look at everything. Everything factors, like even when you're talking about immigration or deportation, you look at, okay, well that, does that open up jobs? Does that create more jobs? Do those jobs? You feel like you're looking at everything. With income gains, this is a state by state thing in some cases. If you look at the minimum wage in the state of Washington where we're sitting right now, it's quite a bit higher than it is just one state over in Idaho. Is that all factor? I mean, obviously we're working on averages, right?

Dr. Bill Conerly (04:55):

Well, and this is an important thing for people who work in a particular area to keep in mind that the national statistics may not reflect what's going on in their neighborhood. But if you put me in any city I've never been to before and say, "Hey, what's going on here?" The first thing I'm going to look at is what's the national economy doing? Because if there's national growth, if interest rates are going down or inflation is going up, that will have the biggest effect. And then there are the local factors dominated by the population movements, which are a little bit sluggish. They don't vary month to month, but Texas and Florida, we know are getting a lot of gains in the Northeast and California losing population. So those are the additional things to look at. And a person who's doing business in, say, one particular city, metropolitan area will do best looking at the national data and then adding in whether people are moving in or out.

(06:00):

And that's probably more important than what's in the news headlines, like a new plant opening up or some company doing a layoffs because there's always turnover and churn there. But are people moving into your market area or are they moving out?

Ken Perry (06:13):

Gotcha.That's a big factor.

Dr. Bill Conerly (06:15):

Yeah. Keep that in mind. That's what I call a back pocket idea. Stick it in your back pocket and you can pull it out years later.

Ken Perry (06:22):

I was in Orlando last week. Before that, I was in Atlanta and I am now in the state of Washington and I noticed the gas prices are quite a bit different in each of these. And I know that that raised some anger with people when the statement was made recently that gas is in the twos somewhere, and it is in most of the country. We're like 459 or something like that for a regular. So that also would impact a region,

Dr. Bill Conerly (06:46):

Right? Yeah. And we see a little bit of a change in the composition of business there, but that is slow to change. I do some consulting work for a manufacturing company and there's some particular in Oregon and there are some particular things that have gone against them in terms of state policy, but they think about moving. They have skilled workers who like where they live and so businesses are not moving too much, but a competitor who's in a more business friendly state will grow faster than my client in Oregon just because the numbers are a little better for them.

Ken Perry (07:31):

Interesting. Yeah. They're working on a millionaire's tax in Washington state right now, which is

Dr. Bill Conerly (07:36):

Pretty controversial. I guess you're against that.

Ken Perry (07:40):

Well, it's the S-corporation part that's a problem because S-corps don't actually keep all their money. It's the pass-through revenue. So I hope that they can figure that out. But it is interesting watching how much policy can actually impact economy.

Dr. Bill Conerly (07:54):

Yeah. And at the national level, certainly things like the tariff change, the immigration change are having noticeable effects on the overall economy. And I don't want to get political here, but I would just like the policy changes to go on hold and keep where we are so businesses can plan for the next few years.

Ken Perry (08:18):

What are the impacts of uncertainty? Sometimes you get this uncertainty and nobody knows what to do. Is there like a freezing right now of like, "I'm not spending, I'm not ... I'm like, I don't know what to do right now."

Dr. Bill Conerly (08:28):

I hear this in anecdotes. I have done academic research on the effect of uncertainty. It's hard to find a dollar effect of it. Other people have done it. I thought, "Oh, maybe these guys are better than I am at academic research." They have trouble identifying the dollar impact. But I talk to enough people who are delaying decisions and if you delay decisions enough, that's less spending, less investment, less hiring. So I think it has an effect, but it's hard to quantify.

Ken Perry (09:02):

Gotcha. One of the big changes we've seen or are about to see potentially is we've got a new Fed chair

Dr. Bill Conerly (09:09):

On the

Ken Perry (09:09):

Way maybe, depending on what time people are watching this, but it's looking like it's going to happen, right? One's been nominated. We'll see if that gets through. But there's a lot of talk of, will this guy come in and immediately just start attacking interest rates and obviously the short term interest rates, but what do you think there?

Dr. Bill Conerly (09:26):

Yeah. Well, Kevin Warsch nominated by President Trump. He'll have to be confirmed by the Senate, but then the actual decisions by the Federal Reserve are a committee process. 12 people vote and Warsch will have to convince them to cut interest rates. And right now they are looking at inflation being stubborn and they're saying, "Inflation is above our target. We need to get down to the target for the long run health of the economy." And the people who are worried about inflation are thinking long run health of the economy, and I'm with them on this. But what Warsch may be able to ... The argument he may be able to make is one that Alan Greenspan made almost 30 years ago. Inflation was running high. People at the Fed wanted to raise interest rates and Greenspan said, "I think there's more productivity growth than the official statistics are showing." And he talked the Fed into not raising interest rates and eventually cutting rates.

(10:33):

And he was absolutely right. Productivity did surge, the economy improved and the lower interest rates matched the higher productivity. And Warsh may be able to say AI is improving productivity. We need to keep demand up in pace with supply. But I think it's going to be a hard sell. The most optimistic you could be on falling interest rates is the Fed doing a couple of quarter point cuts just to throw a bone to the White House and maybe deflect attention. But my best estimate is zero changes in short-term interest rates this year.

Ken Perry (11:14):

I love how you actually spelled that all out because I know that a lot of people hear, "Oh, he's going to put this guy in and he's telling him now you get in there and you lower rates," but it's not just him walking in there and lowering rates. It's a committee that has to make that decision. I love that you pointed that out because then it's not a guarantee we're going to see those rates drop. On the 30-year

Dr. Bill Conerly (11:33):

Rates,

Ken Perry (11:34):

Those

Dr. Bill Conerly (11:34):

Have- We got good news. Yeah. Yeah. Right. Yeah.

Ken Perry (11:37):

What happened? I mean, why are we down there and will we continue to-

Dr. Bill Conerly (11:40):

Good question. One fundamental point that's worth making is that when the Fed changes interest rates, they're changing short-term interest rates, not necessarily mortgage rates. Mortgage rates, the mortgage-backed securities that drive home mortgage rates compete with treasury bonds, 10-year treasury bonds, corporate bonds, and it's a global market. So we have seen a drop since the 1st of 2026. We've seen a drop in long-term interest rates in the US, in Canada, Germany, France, the UK, Mexico, Canada, not Japan, but this is a global phenomenon where you think of global savings, global demand for loans, and global savings got a little bit stronger than global demand for loans in the last month. So long-term interest rates have come down and that's why our mortgage rates are down.

Patrick Stone (12:38):

There's also a significant decline in the spread between the 10 year and the 30 year. And that is back to more of a normal range, like 1.6 to 1.8%. It was running over 3% for a long time, which has made mortgage rates artificially high, if you will.

Dr. Bill Conerly (12:58):

Yeah. And that's a good point because what a home buyer pays in a mortgage rate is a combination of these long-term global interest rates, but also the investors, do they want to hold mortgage-backed securities or would they rather hold a regular bond? And with the mortgage-backed securities like a year or two ago when you were talking about this a lot, the investor said, "Hey, interest rates will come down and these people will prepay their mortgages and I'll have to reinvest my money at low interest rates." So I think there's less worry about that, and that's why we've seen this spread come down. And I think it may have another 10 or 15 basis points to go. What do you think, Pat?

Patrick Stone (13:40):

Maybe get down one and a half. Yeah.

Dr. Bill Conerly (13:42):

Yeah. Well, one

Ken Perry (13:44):

And a half.

Patrick Stone (13:45):

Knowing the spread between the 10 and 30

Ken Perry (13:49):

Years. I'm like, "You heard it here first." Stone says it's going to get down to 1.5% interest rates, 30 year fixed for sure.

Patrick Stone (13:56):

Oh gosh. The spread between the 10 year T-bill and the 30-year fixed rate mortgage may get down to 1.5%.

Ken Perry (14:05):

I mean, as far as the long-term interest rates, is there anything globally you see that could cause that to change? Because I know that this is, it's

Dr. Bill Conerly (14:15):

A

Ken Perry (14:16):

Big deal here. Well,

Dr. Bill Conerly (14:16):

The thing that would ... Do you mind if I answer- Go ahead. Go ahead. And then jump in, Pat. Okay. Then you can tell them why I'm wrong. But the thing that most brings down interest rates around the world is recession. Interest rates go down in a recession, but that doesn't mean that if you're in the real estate business, you should want a recession because the effect of people losing their jobs has a bigger impact on home sales than lower interest rates. So if you're rooting for one thing or another, you have to root for people to have jobs, but that makes it hard to root for lower interest rates at the same time.

Ken Perry (14:58):

What about other global shakeups that could do this? There's talk around Iran right now. There's some concerns just globally. I mean, Mexico just had a huge issue with the cartel situation. Do we worry or do you see that potentially triggering some more movement in our economy?

Dr. Bill Conerly (15:15):

Yeah. One of the pieces of data I look at is a survey of what economists on the ground in different countries around the world are saying about their own local economy, the people who know Germany or Mexico or Brazil better than I do, and they're pretty stable in the aggregate. Some of them are more optimistic, some pessimistic, but they average are out for fairly steady growth. But the monkey wrench tariffs and what's going on with trade policy is one monkey wrench for the global economy. And then I always turn to the Middle East. If there's going to be a global calamity, oftentimes it starts in the Middle East, but I'm also a little worried about Taiwan and China. So a major war could have a terrible effect on the whole global economy, but I don't know how to forecast that.

Ken Perry (16:05):

Right. Well, and that's one of the hardest things about being an economist, is you can make these statements and then all of a sudden something happens, you're like, "Well, what just happened?" And

Dr. Bill Conerly (16:12):

Everything

Ken Perry (16:12):

Could turn.

Dr. Bill Conerly (16:13):

There are days when I think I should have studied foreign relations and other days I should have studied psychology and then I'm going back to, maybe I should have studied golf.

Patrick Stone (16:25):

Out of curiosity, Bill, and not to get off on a tangent, but I'm just curious what your feelings are about the debt, the national debt. Is that going to keep our rates from coming down meaningfully?

Dr. Bill Conerly (16:37):

Well, Pat, it has not yet. And it's high and people are worried. The projections are, it gets worse. I don't think there's anybody in Washington DC who cares about the national debt, and they should. They should. I think at some point it will. But what we've seen when other countries run into debt problems is the debt gets worse and nothing happens, gets worse and nothing happens, gets worse and nothing happens. And then suddenly, oh, and the country's in a crisis and nobody ... You don't see signs of it. It's not like interest rates start creeping up in anticipation of it. It's like suddenly it just goes to heck. Yeah.

Patrick Stone (17:20):

We're paying over one trillion a year in interest on our national debt.

Dr. Bill Conerly (17:23):

Is that just you?

Ken Perry (17:24):

Yeah, we should get a refi. What's weird is I think growing up, I don't remember much from elections, but what I do remember growing up is that you had all the commercials back when we watched commercials. Remember that? And there would be these commercials and every president that ran was talking about the national debt. It feels like it was just a big thing and then now nobody seems to talk about it as much.

Dr. Bill Conerly (17:45):

And it's a much bigger thing now than whoever was then. Right.

Ken Perry (17:49):

Is it because nobody has a solution for it? It's just ...

Dr. Bill Conerly (17:52):

Yeah. Nobody in Washington has a solution that's politically viable and the voters around the country have not made that a major issue. So we'll just keep going.

Ken Perry (18:06):

See what happens. Keep borrowing. All right. Let's talk about, speaking of borrowing, affordability and housing is a bit of a problem right now. My daughter's actually looking at, her apartment came up on the lease renewal and they came in and said, "The maximum we can raise your rent is 10%, and so we're going to be super nice and raise at 9.8%." That literally was the letter. And so she's looking around like, "I don't even know what to do. " So apartments are all going up. Housing seems like it's paused just a tiny bit, and you can speak to this too. It seems like it's not on as high of a rise. Am I just what I'm looking at or is that a thing?

Patrick Stone (18:47):

No, that's true. And actually it has been for the last couple years. It's been actually ... One of the things I think is really noteworthy is that personal income growth has actually exceeded inflation and housing price appreciation for the last two and a half years. Now, how long does it take before that has an impact on the psychology of the consumer? My gut is four or five years, and then the consumer starts to realize that they are making more money and they're making more money in relationship to the average cost of living. So that gives people more confidence. Right now, they're still pretty nervous and rightfully so.

Ken Perry (19:23):

All right. One more question for you, Bill, before we move over to Pat Moore. Forward looking, what should we be looking for globally what's going on? What should we be watching so that we can get a feel for whether things are going up or down?

Dr. Bill Conerly (19:38):

I think that it's probably worth looking at two things. One is jobs, employment, and there's a monthly employment report and keep track of that. It's a little hard to interpret if you're used to watching them in the past because of the low immigration and perhaps out migration, but watch the jobs report and then inflation. And these are the things that the Federal Reserve is going to be looking at. So watching these two will help you understand what the Fed is going to do. And it also gives a picture for the overall economy. If inflation continues to be stubborn, their target is 2% and we're closer to three than to two right now. If inflation comes down, the folks at the Fed will say, "Okay, we can cut interest rates," but inflation stays stubborn, look for them to dig in their heels.

Ken Perry (20:30):

Wow. And the jobs report, when you see the jobs report, you've already talked about the impacts of people leaving the country and things like that. When you see the jobs report, if it comes in low, you're always looking at, okay, what just happened? Or is it just like, "Nope, jobs are low. That means the following things must happen at this point."

Dr. Bill Conerly (20:50):

Well, there's kind of a balance of whether you look at the details or the total and in the last couple of months, the details have said federal government employment was down and some of that was DOGE with a time lag and then the shutdown of the government. But generally speaking, I like to look at the aggregate. I look at the details because I'm the kind of guy who looks at everything. And I think that for the average person, running a business, just look at the headline numbers, read the first paragraph of an article, and that'll probably tell you what you need to know.

Ken Perry (21:29):

Gotcha. And on Jobs Report Day, are you always like, you wake up like, "It's Jobs Report Day." And you get your jobs report

Dr. Bill Conerly (21:35):

For Amazon. I slap myself and say, "Oh yeah, you got to do this. " But one of the challenges that an everyday business person has is what to pay attention to and time and attention is the scarcest resource. So I know some people who spend a lot of time reading economics and I think they spend too much time if they're not an economist thinking about the economy rather than their business. So a few key issues relative to your business and then the rest of it just ignore.

Ken Perry (22:13):

Yeah. I think sometimes people are, and this is my own statement, I talk to people who are looking at the market so much, looking for a reason they're not successful. See, look, it's the interest rate. See, look, they're always trying to find the thing that's why they're not doing it, but it's partially because they're spending so much time looking at the thing instead of out there doing the job that would make them some money and that would make them successful. So you dive too deep into the data and you start finding reasons that ...

Dr. Bill Conerly (22:40):

Right. And when we were talking about the K-shaped economy, there's some corporate leaders who are pointing to this for their company's weak sales. They're looking for an excuse, "Oh, well, low income people haven't gotten a high raise." And it's just an excuse. If something goes wrong, I try to point the finger to somebody and you'll see that in the news.

Ken Perry (23:03):

Well, I wonder if next year when we're sitting here doing this for Q1 of 27, I wonder if we're going to see that white collar worker issue with AI taking out some of those white collar jobs and if that K starts to change quite a bit.

Dr. Bill Conerly (23:15):

Yeah, that's a concern. And I think we can have a whole discussion on AI, but as the simple summary is the person who's doing plumbing or carpentry has a more secure job than the person writing computer code.

Ken Perry (23:29):

All right. Pat, let's move over to you. Talk about the real estate industry, the housing market. Are we moving in a good direction

Patrick Stone (23:35):

Right now? We're not moving very much in any direction right now. Although I will say this, I think overall the market is as balanced as it's been for quite a while. Supply and demand are somewhat in alignment with each other. You move to different parts of the country, they're different, but basically you are seeing that there's no major extortion by either too many houses for sale or too many buyers and too few houses. It's pretty much in balance right now.

Ken Perry (24:06):

I think we forgot what normal feels like. And so it feels weird because it's normal, but this does seem like the most normal market I think we've had in a while. Is that fair to say?

Patrick Stone (24:16):

Well, in terms of the volume and the relationship between supply and demand, yeah, there are other factors that are not very normal, but by and large, I think the amount of activity is probably normal given the circumstances that we're dealing with it. Yeah.

Ken Perry (24:31):

The rate lock-in effect, I just had a conversation with somebody the other day who doesn't believe that 5% is going to move people or something in the fives is going to move people who have a 3% mortgage on their house. I think five's not far from three. It's definitely closer than eight was from three.

Patrick Stone (24:51):

Can I ask a question back at you? Yeah. And I'm really asking this to all the people that spend time discussing this topic. How long do people stay in a home? On average right now, it's a little over 10 years. When did they get the 3% mortgage three or four years ago? So why are we even having this conversation? These people aren't selling their home right now. They're not moving right now. It is not a factor right now. I am stunned in the amount of time we spend talking about something that is totally irrelevant at this point in time. I mean, if you bought a home in 21 or 22 and average American spends 10 and a half years in their home now, maybe in 21 or 31, 32 or 33, we can have this conversation.

Ken Perry (25:34):

And that would be a normal time for them to move anyway.

Patrick Stone (25:36):

Yeah.

Ken Perry (25:36):

Yeah. And that actually was the guy's argument I was talking to is like people move when they're ready to move and when they're ...

Patrick Stone (25:41):

Yeah. Regardless of what the mortgage rate is, they move because of a job, because of an expanding family or some other reason, but people don't move because of mortgage rates very often. That's not really the main reason.

Ken Perry (25:55):

Are you guys seeing more refis come through?

Patrick Stone (25:57):

Refis have actually slowed down a little bit. We had a pretty good refi run October, November, December, and even into January, February, they've dropped off. Resales are up nicely, but refis have dropped off.

Ken Perry (26:10):

What about the new construction?

Patrick Stone (26:13):

We're running at about a 1.4 million rate right now, so it's still below where it needs to be given the demand, but the average builder out there is a concern. There's too many unknowns. And if you're a builder, you have to look down the road nine to 18 months. And right now with the level of uncertainty, that's hard to do.

Ken Perry (26:33):

I talked to a builder recently and I never knew the impact of, or the difference between being a small builder and a large builder. And the small builders can't take the kind of losses the large builders can. And so in a market like this, if the houses aren't moving as fast as they had expected them to, the large builders can take that cut and do a massive sale in a community where the small builders just have to watch it happen, but their margins aren't where they ... If you're a builder that's a local builder, that local economy is what drives you. If you're a national builder, you've got other housing markets that might be better for you.

Patrick Stone (27:04):

Yes. A couple large builders we do business with are really focusing on certain areas where the market for their product is good, the price range works, and then they've slowed down on areas where it doesn't. So they have that viability. Yeah.

Ken Perry (27:18):

Let's talk mortgage product just for a little bit. The GSEs, I mean, we used to have so much product, right? There used to be a lot of different loans and apparently some of them didn't go so well, but we went to ... Now we're Fannie Freddy, FHA, USDA, VA. We expect to see more private securitization come out. We expect to see more creative types of loans. I know some DSCR stuff have come out where we've got some better self-employed borrower things, but as far as private label, do you see them competing with the GSEs at any time?

Patrick Stone (27:48):

And there's still a psychological hangover from the financial crisis, which was really precipitated, I think, in large part by Wall Street packaging loans and throwing in a lot of subprime to get the return on the securitized loan up. So I think there's still some reticence on a lot of people's part to go down that road. One thing you are seeing is there is a regulatory initiative to get banks, enable banks to get back into the mortgage business. Banks were doing about 60% of all mortgages prior to the financial crisis. They're down to about 35% of mortgages now. So if you got more banks back into the mortgage market, I think that would make the mortgage market a little bit more competitive and make it possible to have a little bit more fluctuation in product construction type and payment expectations, if you will. So I don't think there's going to be any really new type of products out there.

(28:48):

There's not going to be a 50 year mortgage. That's not going to happen. So we're not going to see a lot of that. I don't think you're going to see a lot of private securitization of mortgages. I certainly hope the regulators watch that so that doesn't happen because that's a death spiral, if you will,

(29:06):

In one man's opinion.

Ken Perry (29:08):

Yeah. Globally, we're one of the only ones with a 30-year fix, right? And so looking at a 40 and a 50-year fixed is ... I mean, I've penciled both of those. And my smartest friends are also penciling these things going, show me how this makes any sense at all. There's not enough savings to justify that you're not paying any of your principal down.

Patrick Stone (29:28):

Yeah, exactly. It's very, very expensive. 50-year mortgage is very expensive. One of the things that's different here too is that people in this country move a lot more,

(29:39):

And then we also do not have the wide variety of housing types and costs. If you go to Europe, I mean, obviously town homes are very popular in Europe and you'll go block after block after block. There's no yard, there's just house after house attached to each other, much more cost effective. And I kind of wish we would wake Pick up on our zoning and allow for more of that type of construction. I remember back in the 70s, I'm dating myself a little bit, but I remember back in the 70s when they came out with the urban growth boundary for Portland. And I thought, "Whoa, this is a great idea." Well, in retrospect, it wasn't because one of the things that hasn't happened is every time we add to the urban growth bond, we got to go back and redo all the infrastructure because we don't build the infrastructure with the idea of the whole thing being used.

(30:28):

We build the infrastructure for each incremental improvement. So it's not very cost effective the way we have it structured right now. We need to revise that.

Ken Perry (30:38):

I live in Camas just 20 minutes that way and they're building now north of Lacamas Lake. They're building massive amounts of townhouses and houses and they're building a Fred Meyer up there. And we're all looking at it going, "Okay, there's a lake and there's a side of the lake that has this much room between another lake. So how are those people all going to get out of that area?" So when you say that, it's like that's exactly what we're dealing with is how can you build without building that infrastructure out? And the infrastructure you're going to have to build is going to take out quite a few houses and businesses that are in the way. So it's just that I love the thought of if we could just think about what we want for the future instead of thinking about what we want for the right now, we'd probably have way fewer problems.

Patrick Stone (31:19):

I think it would help. And we do have to have sort of a reset at some point because this is a very inefficient process on multiple levels.

Ken Perry (31:31):

It seems like kind of going back to the concept of normalization of the market, it seems like for the last three years, there was a lot of consolidation and mortgage. I mean, we've got a lot of enterprise accounts where one company became part of another company, one company left and completely dissolved, and then those same people end up showing up over at another place. And we've just seen so many mergers and acquisitions. And then it feels like this last year, there's been a bit of a pause on that as well. It's not nearly as much as it was. It's not the rapid pace. You're seeing loan officers go from one place to another still, but what do you think about the consolidation of the industry? Are we done with the major moves or do you think there's still some more to go?

Patrick Stone (32:16):

Well, I personally think there's still some more to go. I do think that the industry got really excited in 21 with low rates, a tremendous amount of companies startup. There's a tremendous amount of players out there that are not very efficient. Lenders, realtors, title companies, everybody. And there are too many participants. So one of the issues, I get engaged in conversations occasionally about how do we lower closing costs, overall closing costs. And one of the things that a lot of people don't understand is that lenders, realtors, title companies are all regulated by different entities and different regulatory silos. So the level of interaction between the participants is still minimal and the process itself is still not very efficient. When I started in this business, it took 45 days to close a deal. That was 51 years ago. Now it only takes 45 days to close a deal.

(33:15):

I mean, it is crazy to me, but back to your question, I do think there'll be more consolidation because a lot of participants are not making money right now and are not going to make money. So there is going to be some consolidation in all three segments of the industry.

Dr. Bill Conerly (33:32):

And may I throw in a perspective here? I've seen this happen like in banking where there's massive banks, but there is always an opportunity for the little guy because when you're competing with three or four major corporations, there's one of them that has put in a bad regional manager for a particular area. There's another one that has the wrong product for that particular area, and that's how the little guys make it. They find the weak big guys and they grab clients and then the clients are sticky. So there's opportunity even though there's consolidation.

Patrick Stone (34:12):

I agree with Bill. I would characterize it as, if you can figure out a way to differentiate yourself, and a lot of times a small player can. They can do something a little bit different than everybody else does, and it appeals to a certain segment of the market. So I do think there will continue to be new players, smaller players, big players, but I think the total amount of players is going to go down.

Ken Perry (34:34):

Yeah.

Patrick Stone (34:34):

Yeah.

Ken Perry (34:35):

I do worry that the smaller players ... I've got friends in small broker shops, even large broker shops that are doing just a spectacular job. They care about compliance, they care about doing things right. I also see some of the worst behavior I've seen in a long time, and not just from small players, also from big players. The lack of regulation has caused some of this to spark up again where it's ... A lot of it's in just the compensation. It's not really facing the consumer, but some of it is just the, if nobody's watching, we're just going to get after it and do some things. And look, he did it, he didn't get busted, so we should be fine. So I'm concerned about that.

Patrick Stone (35:10):

Yeah. I think also, I think you're absolutely right. And then I think I'm also concerned in our industry, our pricing is based on the value of the home as is the realtor's commission and as is most of the lending industry's cost basis or revenue basis. So if you think about this, the homes went up, what, 45% in value in the last five years on average. So the prices have gone, closing costs have gone up. We have seen one state regulator, Texas, mandate a 6% decline in title costs. I will be really stunned if we don't see that in more states, because that will be a conversation at NAAC, the National Association of Insurance Commissioners. I'll be surprised if we don't see that in other places. And so I do think there's going to be a real emphasis and need for everybody to focus on operating more efficiently and using AI, if you will, but doing things to operate more efficiently because I do think the cost structure will be under examination.

(36:15):

How impacted it is, I can't tell you. I don't even want to guess, but I do think it's getting attention.That

Ken Perry (36:21):

Was an insurance commissioner that did that or that

Patrick Stone (36:23):

Was

Ken Perry (36:23):

The ... Really?

Patrick Stone (36:24):

Yeah. Wow. Well, state of Texas, lowering title rates by 6%.

Ken Perry (36:30):

Wow. Yeah. I wish there was a credit report commissioner because that seems to be the highest closing cost now. I think it rivals a title insurance premium, but that is interesting. I've not ... I'll have to look into that. That's new. And you're right, when things like that happen, others go, "Huh, I could see Washington do that easily, start to control pricing."

Patrick Stone (36:51):

Yeah. Not to get off on a tangent here, but if you've spent any time engaging with insurance commissioners or participating or watching NAC, National Association of Insurance Commissioners, the applicability or the means with which insurance commissioners regulate rates and practices varies dramatically state to state. Insurance is regulated state to state. Some insurance commissioners look at the title insurance industry and say, "I'm not going to bother because that's such a low percentage of my premiums." The insurance basically is paid on a percentage of your premiums. And so title insurance and premiums compared to life insurance and homeowner's insurance, very low. And so in some states, we don't get any attention at all from the insurance commissioner.

Ken Perry (37:42):

Wow.

Patrick Stone (37:42):

So we will see. We'll see how uniform it is and how broad-based it is.

Ken Perry (37:46):

Wow. All right. Let's talk about why title costs can be high. Specifically, I want to talk about the runoff from fraud. What's been going on in your world, because you're obviously insuring the title and the property, and you've also got to ask Grow where you're closing these loans. Fraud's bad.

Patrick Stone (38:08):

Fraud is unbelievably bad. And it is the biggest ... Fraud and forgery is the biggest source of losses right now in the title insurance industry. And part of that is through automation has become very easy, if you will, for a bad guy to look at a vacant piece of property and position themselves as the owner and refinance it or sell it. And this happens ... We confront this, I can't tell you how many times, but it's thousands of times a month. What? Yeah.

Dr. Bill Conerly (38:43):

Thousands a month.

Patrick Stone (38:44):

Thousands a month nationally. Yeah. We get burned occasionally, but we really have put a lot of time, effort, and money into training our staff on what to look for, to verify things and to be really, really careful because this is the biggest source of losses we have right

Ken Perry (39:00):

Now. Wow.

Patrick Stone (39:01):

Fraud and forgery. Yeah. And in the industry, it's the biggest source of loss.

Ken Perry (39:04):

So somebody trying to buy a house right now, you see one pop up on the market that was vacant, you should go, huh, is this real?

Patrick Stone (39:14):

Well, I think you need to look at it, but houses typically aren't the problem. It's usually vacant property. That's the biggest issue, vacant property. Selling somebody

Ken Perry (39:23):

Else's

Patrick Stone (39:23):

Land. Yeah. Yeah. That's the easiest thing to ... If you're a bad guy, that's the easiest thing to manipulate in terms of property.

Ken Perry (39:32):

Wow. And I mean, you're in it at that point, right? Like you're losing on those deals because you've insured the transaction.

Patrick Stone (39:38):

Well, no, we don't lose because we've insured the transaction, but we will lose if we facilitate someone using fraud or forgery to refinance it or sell it and we close it, then it's our problem.

Ken Perry (39:53):

Geez.

(39:54):

Yeah. I did just get an email saying that my closing docs were ready. And so for anybody watching right now, it was a California title company. It wasn't real. I'm not refinancing or anything on my house. And so when I got it, I'm like, well, obviously this is fraud. I didn't even think to click on it, but if I was in the middle of a transaction, I might've clicked that thing. And so it's just, as always, don't click on anything because a lot of that runs through fake title emails or fake real estate emails looking for your wiring instructions.

Patrick Stone (40:25):

So we advise every client that we will never send them instructions on sending money or doing things like that. It'll all be done verbally. And we do that specifically to avoid someone manipulating or use fraud and forgery to scam dollars, but it still amazes me. We probably put that out in writing. We highlight it in red ink on instructions. We repeat it multiple times, and yet people will still respond to online fake instructions.

Ken Perry (41:04):

I think we've stopped reading sometimes. So the good news is you put it in red. Bold red, I will read bold red when I see it. But it definitely is, it's that almost a laziness of, "Ah, just do whatever," and then they do it. I love that you do it all verbally because that does just save so much pain for everybody involved because people could lose money. I had a buddy wire $2 million and it was a scam and he caught it right before it went out, but it was so legit. It was an email that he got from the realtor, "It's time to put your money in. " And it looked completely legitimate, but it was not at all. And because it was as soon as he looked at it, he made the phone call and said, "Hey, I just did this thing. Do I need to worry?

(41:48):

Was that you guys?" They're like, "That wasn't us at all. " And so because he made the phone call, he got it figured out.

Patrick Stone (41:53):

We work with banks and the industry as a whole has done a good job of working with banks and creating an environment in which there is a little bit of time to shut down a fraudulent transaction. It'll vary by location, bank and circumstance, but by and large, we have a little bit of time if someone realizes something is amiss.

Ken Perry (42:16):

What I want to do in the future, because we're doing these quarterly, and maybe after four or five of these, I want to go back to each time we talk about AI and see what we knew at the time as we're talking about it, because it feels like every day I'm on an AI demo with a company that's created something. AI is my biggest concern right now for the mortgage industry. It's my biggest concern in real estate. The speed at which people can take people's money and commit fraud and send out all kinds of scammy texts. And it's just, you could do it with a press of a button now. And so I just saw a guy say, he thinks with AI, you're basically not going to be able to use text messaging anymore because so many texts come through that are just automated through AI.

(42:58):

It's like, send a text to everybody saying the following, and it's just so many scams. Where's AI doing a good job in the industry right now?

Patrick Stone (43:05):

Well, we're actually pretty ... We have a tech subsidiary and they've put a lot of time and effort into using AI to take time and cost out of the process. One of the things that's just very simple that we did early on is automate buyer and seller packages, and that's saving us 30 to 40 minutes of transaction.

Dr. Bill Conerly (43:25):

Wow.

Patrick Stone (43:25):

Yeah. Now we have eight other projects, eight other formal initiatives going on using AI to take time out of the process. And if you think about, going back to my earlier comment about 45 days, one of the positives, and I mean, I know we're all worried about the downside of AI. One of the positives of AI is that we could very much simplify the process and make it much faster and share information. Now, it has to be regulated, it has to be governed, it has to be used intelligently. I do think we would be a little bit more comfortable if there was more federal regulation around AI. I'm a little bit worried about the lack of oversight, but it is having a meaningful impact on saving us time.

Ken Perry (44:10):

Yeah. Time and money?

Patrick Stone (44:13):

Time and money. Time is money.

Ken Perry (44:14):

Yeah. Yeah. I just saw that I was on a demo today and it's an AI tool that overlays over the other tech you're paying for. And so it makes you more efficient, but it's not replacing the technology you're already paying for. So we're seeing kind of an interesting way some of these tools are being used where we were promised you'd be able to save all of this money and everything would be better. I think it's just taking a little bit. There's a basic law on technology that we tend to overestimate the impact of technology in the short term, and we tend to underestimate, grossly underestimate technology in the long term. So when AI first came out, it was like, "It's going to do all these things right away." And then somebody, it can't even add 12 plus 12. And so then you get these naysayers like, "It's really not.

(44:57):

" We thought it would do a lot, now it's not, but there's some revolutionary game changers that are coming out. I do wonder what it does to jobs over time. Are there jobs, especially white collar jobs that go away? Does it make us so efficient that we're able to lower some prices on some things? Does it affect closing costs?

Dr. Bill Conerly (45:16):

Well, when ChatGPT came out, I dusted off my books on the Industrial Revolution and succeeding technological periods. And what we see is that the average purchasing power of an hour of work goes way up. And inflation is sort of a monetary phenomenon, but how much you get for an hour of work improved. So people were all of a sudden in Old England having two sets of clothes or even three sets of clothes. Think about that when you go into your closet. And I think that we'll see that, but there's also a change. There are always some people who have jobs that are really good and they're really well suited for that go away. And the young people I don't worry about, the older people, a little bit slow to adjust, learn new skills. So there is going to be cost to this, but I think we're going to see that people's living standards are hugely higher.

(46:18):

And the way it's happening is not really through ChatGPT or Claude or Gemini a little bit, but what's happening is these specialized companies are looking at a particular process. "Gee, I know all about this one little niche and they get the AI to make that better and the end user won't know anything about AI. The end user will just say, Oh, I use this program, do this. "Right.

Patrick Stone (46:42):

If I can add to that, one of the things that you don't hear a lot of conversation around is our aging population. You're talking about- I don't know anybody in that

Ken Perry (46:52):

Population. Yeah.

Patrick Stone (46:53):

And then we will be going negative without immigration, we'll be going negative, I think in 2033. And so AI actually may be a boon for that problem because if you look at our workforce right now, it's very heavily weighted on the upper end.

Ken Perry (47:12):

The concern I keep hearing is you've got, you know title, right? You've been in this industry for a lot of years.

Patrick Stone (47:19):

51.

Ken Perry (47:19):

Right. You're the wisdom in title. When you stop working, we depend on the knowledge you've passed down to the next group. And so when that group of people have a question, they're asking you that question, you've always been able to answer those questions. And so you've raised people up. If we start delegating some of those smaller things to AI and we lose the wisdom when you retire, where's the wisdom gap? How will we know when something's wrong?

Patrick Stone (47:43):

Well, we're having that issue because of work from home already. The pandemic already caused that problem, but I think that is a genuine concern. I really do. And leadership is going to have to think this through, provide training and sources of information and education because it will be a problem.

Ken Perry (48:03):

Yeah. I also wonder about this next generation. I was just asking ChatGPT something the other day, and I always talk to my ChatGPT and I was asking a question and my daughter walks in and she's like, " Do you have any idea how many gallons of water you just wasted? "And I went," What? "This is a new generation thing. There's a backlash against AI where the younger people are like, " You're not wanting to go look something up and because of that, you decided that you're just going to waste all of our water and all of our energy. "And it's like, " Oh, that backlash will be fun to watch.

(48:32):

"Them telling me I'm being lazy is new. That's a new twist. I heard recently that something was done about all of the investor purchases of homes. So you've got people like you and me buying houses and then you've got these giant funds that go out and buy houses and that happened a lot. I've seen a lot of concern over, well, if they just move all those at the same time, we could have problems. I've seen concerns over by doing that, they basically took out homes that other people would've bought and therefore heard affordability. Talk about that a little bit.

Patrick Stone (49:06):

Well, I think it was overdone, overemphasized by the press. I think the peak investor purchasing was, it hit 11% of all homes one month.

Ken Perry (49:17):

11?

Patrick Stone (49:18):

Yeah, that was as high as it got.

Ken Perry (49:20):

Wow.

Patrick Stone (49:20):

Yeah. So the amount of homes being sold has always been a fairly minimal amount. There may be certain markets at certain times where there's an impact from a major investor dumping their homes, but I don't worry about it being a significant factor on the overall industry or the overall market.

Ken Perry (49:40):

So this is a good headline, but it's not.

Patrick Stone (49:43):

To me, it's much to do about nothing, to be honest with you.

Dr. Bill Conerly (49:47):

And one of the positive things we've seen is that a person who wants to live in a single family home has more opportunity to rent than before. It used to be kind of rare, and now it's common. And in some communities, the whole community are renters. And I think having more options for people, it's not right for everybody, but for the people it's right for, let's let them have it.

Patrick Stone (50:11):

And be honest with you, if you rent an apartment, you don't think about buying an apartment. If you rent a home, you do think about buying a home. Right, right. So I think it's a positive in some ways. Yeah.

Ken Perry (50:21):

All right. I've got one last question, Bill. We're going to dive into the day-to-day, daily life of Bill. So much of how the economy goes is based on how people feel, right? If I feel scared, I'm probably not going to buy. If I feel great, I'm probably going to buy. How do you even ... You mentioned earlier kind of jokingly the psychology of it all, but it so much is studying society and the way society reacts, right?

Dr. Bill Conerly (50:48):

Yeah. I monitor the consumer confidence index. There's a consumer sentiment index, and I tried to develop econometric models, equations that would predict those. And what I learned was that most of the time, if people have jobs and inflation is low and interest rates are low, they're happy. And some people are grumpy, but jobs, low interest rates, low inflation makes people happy and makes them spend. But there are some unusual times where that relationship doesn't work. So the first Gulf War, American troops in the Middle East, nine eleven, threw everybody in a tizzy. So I like to use those surveys for weird, abnormal things that nobody expected, but for everyday work, man, people will be happy if they've got jobs, low inflation and low interest rates.

Ken Perry (51:48):

So absent chaos in the news, the fundamentals are the fundamentals.

Dr. Bill Conerly (51:51):

Jobs are low inflation and low interest rates. Which

Ken Perry (51:54):

Is why you said those are the things you should be watching for.

Dr. Bill Conerly (51:56):

Over and over and over.

Ken Perry (51:57):

Gotcha.

Dr. Bill Conerly (51:58):

Can I repeat myself?

Ken Perry (51:59):

Yeah, I love it. And interest rates, I mean, I do see more and more people sharing that interest rates have dropped. It feels like when interest rates go up, people start talking about it. "Yeah, the interest rates are high, interest are high. When they go down, I want to see more people saying," Does anybody know that we're actually doing a lot better than we were? "Because last I heard some people on social media, it was eight, and I think some people haven't posted about rates since then.

Dr. Bill Conerly (52:24):

Yeah. And if I may throw a question out.

Ken Perry (52:26):

Yeah.

Dr. Bill Conerly (52:28):

People have a memory of their two or 3% mortgages. They maybe have them or they missed that opportunity. Is that affecting people today? If we had not had that experience of really low mortgage rates, would people feel differently about their sixth than they do today?

Ken Perry (52:46):

Oh yeah, I think so. It's that FOMO, that fear of missing out, if I get rid of my 3%.

Patrick Stone (52:53):

I think that people are still aware of it and still thinking about it. And so it is having some effect, maybe rates will come down, but I think people are starting to realize that was an aberration caused by the Fed spending nine years with quantitative easing.

Dr. Bill Conerly (53:09):

That's

Patrick Stone (53:10):

Not going to happen again, right?

Dr. Bill Conerly (53:11):

Right. I agree with you.

Patrick Stone (53:12):

The 200 billion that Trump allocated to buy mortgage backed securities, mortgage bank securities. Yeah. That had a really teeny little impact. I mean, what did the Fed spend? Like 20, I don't know, two billion or something. I mean, a lot.

Dr. Bill Conerly (53:29):

Yeah.

Patrick Stone (53:30):

So that was an aberration. It's not going to happen again. It just isn't. And I

Ken Perry (53:34):

Think we have to get that message out there more. You're never getting back to three. Enjoy what you've got. Do you want to move?

Dr. Bill Conerly (53:40):

Yeah.

Patrick Stone (53:41):

Can I share this with everybody? My first 18 years in the business, mortgage rates never got under 7.5%.

Dr. Bill Conerly (53:48):

Wow.

Patrick Stone (53:49):

From 1975 to 1993 before they finally got under 7.5%. Now the cost of a home was a lot lower, so the affordability was better, but I mean, when they finally went under 7.5%, we were all stunned after 18 years.

Ken Perry (54:05):

Yeah. Well, it's all perspective, right? It is. All right. It's time for final remarks. So what going into Q2, what remarks for the people that you have? What warnings, concerns, exciting things. What's your final thing you get to say to the people?

Dr. Bill Conerly (54:21):

Well, as an economist, I'm going to say something a little unusual. Don't pay that much attention to the economy. Serve your customers, serve them efficiently, keep your top employees around and encouraged and motivated. That's the most important thing. Now, you do have to keep a little bit of an eye on the economy. As we said, focus on jobs, inflation, and interest rates, but mostly it's about serving your customers and keeping your great employees.

Patrick Stone (54:52):

Love

Dr. Bill Conerly (54:53):

It.

Patrick Stone (54:53):

I would echo Bill's comments and then also encourage everyone to make sure you have a business plan. I mean, the market could go any one of many directions on you, but if you have a business plan and understand that planning is a dynamic process, you can update it and change, but make sure that you are running as efficiently as you can and you're focused on how you operate. Those are the things you can control. I'm a bit of a stoic philosopher. Know what you can control, spend your time and energy on things you can control.

Ken Perry (55:24):

I love it. With that, we will see you next quarter. Thank you for joining us, gentlemen.

Patrick Stone (55:28):

Thank you.