Talk Wealth to Me

#078 Real Estate & Lending in a Pandemic and Beyond with Kelly Kline & Tyler Hagerla

March 26, 2021 Felipe Arevalo, Chase Peckham, Kelly Kline, Tyler Hagerla Season 4 Episode 1
Talk Wealth to Me
#078 Real Estate & Lending in a Pandemic and Beyond with Kelly Kline & Tyler Hagerla
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Talk Wealth to Me
#078 Real Estate & Lending in a Pandemic and Beyond with Kelly Kline & Tyler Hagerla
Mar 26, 2021 Season 4 Episode 1
Felipe Arevalo, Chase Peckham, Kelly Kline, Tyler Hagerla

What an incredible year it has been. We passed the one year anniversary of the pandemic shutting down life as we know it. So many things changed in our daily lives: businesses and schools going remote, working from home, and layoffs and furloughs. In the beginning banks and lenders were giving homeowners an option for forbearance if they faced financial hardship. No one knew how this was going to affect the housing market. It has been quite the year, so we sat down with lending and real estate experts to discuss the market during the pandemic, where we are today and what they see in the future.
 
 Kelly Kline is vice president of One Trust Mortgage https://onetrusthomeloans.com/lo/kkline and shares the latest on rates, lending and more. Tyler Hagerla https://www.corcoran.com/southern-california-real-estate/agents/vista/tyler-hagerla/102721  is a real estate professional in North County San Diego with Corcoran Global Living. Tyler gives us insight on what it's like in this seller's market for everyone, including first-time homebuyers - and what to expect if you're buying or selling.

Support the show (https://www.sdflc.org/help-sdflc/donate/)

Show Notes Transcript

What an incredible year it has been. We passed the one year anniversary of the pandemic shutting down life as we know it. So many things changed in our daily lives: businesses and schools going remote, working from home, and layoffs and furloughs. In the beginning banks and lenders were giving homeowners an option for forbearance if they faced financial hardship. No one knew how this was going to affect the housing market. It has been quite the year, so we sat down with lending and real estate experts to discuss the market during the pandemic, where we are today and what they see in the future.
 
 Kelly Kline is vice president of One Trust Mortgage https://onetrusthomeloans.com/lo/kkline and shares the latest on rates, lending and more. Tyler Hagerla https://www.corcoran.com/southern-california-real-estate/agents/vista/tyler-hagerla/102721  is a real estate professional in North County San Diego with Corcoran Global Living. Tyler gives us insight on what it's like in this seller's market for everyone, including first-time homebuyers - and what to expect if you're buying or selling.

Support the show (https://www.sdflc.org/help-sdflc/donate/)

Intro:

[inaudible] Welcome To Talk Wealth To Me, a safe space podcast, where we chat about anything and everything related to personal finance. The information contained in this podcast is for educational and entertainment purposes only. It does not constitute as accounting , legal tax or other professional advice.

Chase Peckham:

Hello, and welcome to another edition of Talk Wealth To Me and the premier of season four. And it's seems appropriate that we are starting a new season a fresh season as we just passed the one year anniversary of everything shutting down due to the pandemic. And COVID-19, we are in spring and spring is eternal and we are going to be before we know it in the summer, and everyone feels like we're starting to see daylight. We're starting to see people go back to work. Our kids go back to school. We're starting to see normalcy start to come back in one industry that has really blown up and stayed hot that we thought might be affected heavily, but in a different direction is the real estate market. And what's that like right now for first time home buyers, what's that like for people that have owned their home for 10 years and are looking to upgrade or as their families are getting larger, we sit down with two experts in the field. One from the lender side, Kelly Klein , who is the regional vice president of one trust home loans and Tyler Hagerla, who is with Corcoran global living in a real estate agent in the North County, San Diego area. And we sit and talk about what it was like when the pandemic first started and what they did as people were finding themselves, losing their jobs and not knowing whether they could pay their mortgages. Where did they think that it was going to? And where do they see it going in 21 and beyond? [Inaudible] Well guys I can't thank you enough for being here today. This is a topic that is , um, extraordinarily popular , uh, amongst friends and in our industry in Southern California, but I think nationwide as well , um, between getting a home loan and then finding a home to live, especially for first time , home buyers has been extraordinary in the last year plus , uh, and especially considering what happened with the pandemic. And we're now about a year , uh, the one year anniversary of everything shutting down. What has that been like? I mean, when from, and if you guys can take us back a little bit , uh, from, from the real estate side and then the lending side, when, when the pandemic hit Kelly , I'll let you go first on the mortgage side. What were you thinking when this all happened?

Kelly Klein:

Right. Well , uh, first of all, thank you for having us on your show chase. Uh , I was traveling down to Mission Valley for an appointment and , uh, I always , um, follow , uh, a system that I use called Mortgage Market Guide. And it helps me track the way mortgage backed securities are trading and what's happening with the bond markets. And my phone started blowing up with all these rate alerts while I was in the car. And I'm thinking to myself, what, what in the world is going on right now? So I get to where my destination is. I open up my phone and I see the bond market has just gone absolutely haywire. And I'm like, Oh my God, this is crazy. So I get to my office after my appointment and I immediately pull open my pricing engine and I start running interest rates and rates are like a three-quarters of a point lower than they were yesterday. And I'm like, what is happening? And so all I did was immediately pick up my phone and just start calling clients and calling as many people as I could in a week. And I ended up putting 200 loans , uh , in, on the board in 2020. And that's more than 50% higher than any month I've or any year I've ever had it . In my 21 years, I close 200 transactions last year and rates just were insanely low and it was the government's plan to , um , continue to help the economy by driving the cost of money down and creating opportunity for people to be able to borrow cheap money, to be able to keep spending, to keep the economy going amidst the COVID pandemic scare and crisis. So it was, it was a wild year

Chase Peckham:

Tyler you're a local realtor. And I know that you two work together quite a bit. What were your thoughts as far as how that would affect the real estate market? When you're hearing that we can't kids can't go to school. Uh, people can't go to work. There are lots of people being laid off. Shoot. We can't go to a restaurant. What are you thinking is going to happen to the real estate market

Tyler Hagerla:

At that point? It's kind of like, are we allowed to go show houses? Are we like, what , what is our duty to try to, you know, flatten the curve? That was the whole thing. And like, as a , as an agent that's licensed like, okay, well, what can we, and can't we do, you know, and nobody knew, and it was kind of like, are we essential? Are we not? You know, and I think we played that game. And , um, you know, at the time it was a lot of uncertainty, but I had a couple clients that were working and Kelly, we, we got , um, you know, a client and Del Mar we got him into a property and gosh, his, his property value, he got in at a great time, another good friend of mine, I'm in escrow at the time. And Wells Fargo basically sorry to name drop, but they , they, they froze their system. They weren't sending out an appraiser cause they didn't know if they could sell their loans or what was going on. And so Kelly jumped in and saved that deal. Uh , he closed that deal. And what was it? It was suppose it would have been 21 days, but I think he did it in 22 days on a VA you know, 650 , uh , purchase. I literally left that street right now. Kelly, the home prices on that street have gone up a hundred thousand dollars since then.

Chase Peckham:

In one year?

Kelly Klein:

Holly moly.

Tyler Hagerla:

I mean, it's insane. So we kind of break, we kind of braved it, you know, nobody knew. And we also closed , uh, Sean too remember that. And , and that was, that was right when it all was going on and nobody knew, and there were so many people like, Oh, we're going to wait to see what the market does until the election. And wait until after this pandemic calms down and, you know, kudos to them for trusting me and Kelly and , and going through with the transaction. Cause they, I mean, they literally have like a hundred thousand dollars of equity and in that timeframe it's nuts. And so , um, I think I did the same thing Kelly did and I I'll be honest. I rubbed some people the wrong way, but I, I just buckled down and got to work. We've already kind of moved past those numbers and we're right to this year, moving it . And , uh, the dynamic right now to be a home seller is fantastic. The question is where do we go? And then to be a home buyer is not easy. And you know, I see , um, a lot of people wanting to buy houses, but the rules have changed right now. It's not, you go to an open house, you kinda wait and make your decision. It's just getting a , a showing appointment is difficult, let alone getting your offer accepted. I, everybody thought, Oh, well this is going to crash. The market things will go down. Nobody knows what's going to happen. Well, there's a lot of money in the market and the money is cheap and people are in a frenzy to buy.

Felipe Arevalo:

Yeah and that's something we've heard, you know , from home buyers who are in the market where you can't do asking price, you've got to go over and you've got to put an offer ASAP because houses, homes, aren't staying on the market very long at this point in time. Is that something you guys are seeing where there's just because of the demand compared to the supply, there's just going very quickly.

Kelly Klein:

Absolutely. Yeah. It's uh, it's, it's tremendously. The, the scenario that we're dealing with right now is there's just under 2100 homes on the market in San Diego County as of this morning, which is , uh, less than a 30 day supply of homes available in , in a healthy market. There's at 90 days to 120 days of inventory available for people to be purchasing. So we're very, very anemic and the amount of inventory out there. And as Tyler mentioned, you know, in the last 10 years, the U S economy has printed $14 trillion. Like we have just made 14 trillion, extra dollars on the, in the, in the world, in the United States currency. And so there's a lot of money out there. And you know, when you can look at the home values of, let's just, you know , San Francisco, for an example where, you know, a , a thousand square foot flat with maybe two bedrooms and a bath and a half is $2 million. And, and that tech executive can now work from anywhere in the world because they have figured out with technology that they don't need their employees to be in their home office. And they don't have a home office anymore. So now people can work from home anywhere they want to , that guy sells his house for $2.2 million in San Francisco and moves down here and buys a house in Oceanside on the beach for a million. And he's willing to pay 1.3 for it.

Tyler Hagerla:

And not even blink an eye.

Kelly Klein:

He's that much liquid and not even blink an eye at it. So when you have that kind of money, moving territory, people don't care what they pay because they got the, they got so much more for what they sold. And so the sellers turning into buyers is, yeah,

Chase Peckham:

We're seeing that as well. I mean, not just, it's not really just a California thing, is it , um, that there are other States , uh, the , the country as a whole, we're seeing that it's a sellers market pretty much across the board. And is that you think because directly from the pandemic, people are realizing that they don't have to live in these really expensive places and are moving to others, less expensive, lower cost of living places. Yeah .

Tyler Hagerla:

Well, I'll tell you this generalizing a real estate market is not easy to do and you know, I'm deep into it. And I see money from all over. I see, I see all sorts of different things because the idea was like, Oh my God, look at the unemployment rate. Well, there's a lot of people too that have been renting for a long time that are finally taking advantage of the low rates. And so you're getting an influx to your point of people coming from different parts of the country. That's, you know, see , see the values you're, you're seeing a shift of, of markets. And , and so to generalize, it's a little bit tough to do, but to your point, yes, there's people moving out of California, but there's people moving in just as much, and there's not enough houses for those people to come and buy. So to your point before you kinda gotta jump on things because sellers, they don't sell houses every day. They see this beautiful offer come in like sweet. Let's just take that one, right. Might as well. This is. And so you could see a seller making a decision on a Friday afternoon or a Saturday morning instead of waiting through the weekend to have all the showings happen. Uh, so the rules have changed. You know, there's a lot of, a lot of different scenarios that make , uh, make it a little bit difficult or a lot difficult for buyer in this market. And so again, you got to know how to navigate it.

Chase Peckham:

Yeah. I mean, that's, that's an interesting thing because I mean, the point of this podcast too, is we have people that listen for everywhere and they're all over the place. And , and of course, you know, you can't just blanket a statement on, you know , nationally because every region is so different and its own its own , uh , microcosm. But Kelly, if you can talk just as a general rule, first-time home buyers and , and we we've run into a lot of you that are trying to get off that rental train. You talk about the cost of cost analysis between rent and, and then owning your home and the pluses and the minuses, and trying to get people into that. And those people that are trying to get off that rental train that are trying to get into a home are finding it just like serious anxiety every day. I'm never going to get into a home.

Kelly Klein:

Yeah. It's um , it's a, it's a pretty interesting time. And you know, I've been saying this for the last three years and I think we're going to see a lot more of it for the next three years is that the , the baby boomer generation , uh, in the United States right now is tremendously financially well off and their children , um, my, my age people and then the millennials beneath me are going to begin reaping the rewards of some of their parents , um, you know, savings and conservative lifestyles of not spending and saving and trying to pay off their mortgages. And so a lot of what we're seeing Tyler and I with our first time home buyers is mom and dad are the ones leading the charge and saying, Hey son, Hey daughter , um , it's tough when you go buy a house and I've got money, I'm going to help you. Let's get it done. And let's get you out there because this is the cheapest money has ever been like, you know, our parents got their first mortgages were 16 to 18% back in the eighties. And now, you know , they're seeing, they're seeing their loans at two and a half, 2.75%, maybe 2% on a 15 year fixed. So mom and dad are leveraging their house, pulling out money and giving it to their kids and saying, guys, go buy homes. Here's money. Like, let us help you. If you're not prepared to come to the table with more money than that house might appraise for your offer's not going to be looked at, you're going to be at the bottom of that pile. And you know, the people right now who are struggling the most are the buyers who are, you know, your FHA buyers or your 3% down buyers. Those folks right now are the ones who are absolutely getting handed to them decline after decline of offers right now.

Tyler Hagerla:

Yup . It's it's how much it's, how much money do you have in the bank to make up an appraisal difference? You know, those are the type of things that really are getting looked at where, you know, that wasn't even really a topic a year and a half ago, you know? So , um , and to , to talk a little bit further on that, you know, as far as renters where we live out here, you get people that get into, you know, renting on the coast and being in kind of a too good to be true rental. I could, I could live here, but I could never afford this house.

Chase Peckham:

Right.

Tyler Hagerla:

And we see that we see people like that a lot. And then they're like, well, I ran a mortgage calculator and I, you know, I'm paying $1750 and I'm a couple blocks from the beach and Oceanside in a apartment. And if I had to go buy a house, you know, I'd be paying 25 or three grand. Oh my God, how would I do that? And the reality is, as you figure it out, you, you know, you are gaining equity. You, you are putting that money towards a positive spot . And , uh, I see, I see people that have been renting for a long time probably. And I say, you know, they've been renting too long. Right. And , um, and a lot of those people say, well, I'm kind of waiting for the market to go down. You know, they've been waiting for that for 10 years, you know, or, or whatever it is since, since they've been renting. And , um, I think figuring, like I tell people this, if , if you can buy, you should buy. If you can figure out a way to buy, whether you go inland or not, you know, it doesn't have to be your forever house. A lot of times, first time home buyers get a little confused on what they're doing and they're buying a house to live in so many first time home buyers think that they're going to be in this house forever, or they think they're buying an investment and they're not buying an investment. They're buying a home to live in. And their re their investment is living in the house and , and appreciation over time. And I get a lot of times where they're asking me, well, what , what would this resell be? Or if I improve it, how much I sell for , and I'm like, well, when, you know.

Chase Peckham:

Yeah that's impossible to say.

Tyler Hagerla:

That, you know, next year, like seven years, like live in it, upgraded to live in, enjoy it. And, you know, you're building towards a positive , um, you know, end product, whether, you know, you keep the house rented out, down the future, use the appreciation to buy your next house. Um, there's a lot of advantages there. And as a first time home buyer, you don't know until you kind of get in there and get some , some good advice from someone like Kelly. Um, and that we're seeing a lot of those, honestly, Kelly, when she say a lot of renters buying first time , and I, I tell people too , like, man meeting someone like me and Kelly right off the bat, you're going to save a lot of headache, you know? Cause there's no, you know, the, the home buying process Can get a little clouded in a lot of different ways and uncertainty and fears and all that stuff pop into people's minds. So.

Chase Peckham:

Yeah. Take us through that. Kelly , when you're meeting with somebody, let's say it's like a young couple, they've been renting married a couple of years. They're , you know, there's, there's anxiety there. Do we? Don't we? We want, you know, we think we know where we want to live. What is that conversation like when they sit down with you , uh, going through that process for the first time?

Kelly Klein:

So , uh , I ask a couple of important questions and one of the things I like to traditionally lead of with is where do you see yourself in the next five years? How do you think your life may change in the next five years? Are you, are you in a job right now or are you in a career? Um, are you investing in a 401k or are you just, you know, spending every dollar that you get and how do you want to change? Are you, are you thinking about having kids? Are you, is that in the one-year three-year or seven-year plan for you? And, and once I get to understand those things, now we start talking about the reality of what they can afford. And so I always draw two lines for people. I ask them, what do you think you can afford to spend every month on a mortgage payment? And they'll tell me, well, we, you know, we think we can afford X. And I say, okay, cool. So that's our barometer. That's the number that we want to focus in on? What, what is that house price for you that yields you X, monthly payment that you're comfortable with. And then I get to see their financials and I tell them, Hey guys, listen, you can afford X comfortably in your opinion. And in the mortgage world, you can actually afford Y in my opinion. And so here's your price range. You can shop for a house of this price and get your house payment. What you think you want it to be, or you can buy a house that's this price, which you can afford, but you're going to have to change your comfort zone and your lifestyle and your spending habits or your saving habits. And the number one thing that I try to focus in on for people is, you know , look, if you're putting $19,000 a year into your 401k and you look at how much money that is every month out of your paycheck and you turn around and you go, Hey, look, I can start building retirement by building equity in the home that I live in, that will be non-taxed. When I decide to sell that house, where's your money better saved in affording your mortgage payment or stashing money into your 401k. So I teach people a lot of times how to leverage your 401k as a resource to a down payment and how to reduce the amount of contribution to your 401k, to help you feel more comfortable opening up your buying power.

Chase Peckham:

Yeah that makes sense especially if your younger.

Kelly Klein:

Ultimately becomes a retirement plan. Yeah, I mean, it ultimately becomes a retirement plan. You know, you build enough equity in your house, you sell your house, you can sit back and use that money to retire on. You know,

Felipe Arevalo:

You mentioned 401k. Can we touch a little bit more on that, on how that might be leveraged?

Kelly Klein:

So when you're, yeah, when you're employed by a company that provides you with a 401k, you have the ability to take a loan against your 401k. And typically you can borrow up to 50% of your current vested 401k balance. So if you've got a hundred grand built up in your 401k, you've been at your company for seven or eight years, you came out of college and found a job with the company. You're in a career minded position. You've been with your company for a while . You keep growing your salary, you keep stashing money in your 401k, but you're really not saving a bunch of money you're saving in your 401k. And you look at that as your savings plan, right? And so you've got that money in your 401k. Go take a loan against it, borrow your own money, your 401k, provider's going to set you up on a repayment plan to pay back your own self based on taking money out of your paycheck on an amount that you can afford to again, take out of your paycheck. So rather than continuing to put that, let's see what 19 five is the limit now divided by 12. So you could put up to 1600 and twenty-five dollars a month into your 401k. Well, what if you reduce that amount by 800 and took out a loan against your 50 K and paid that $800 a month back to yourself. And now you just created 10% down on a half, a million dollar home by borrowing that 50,000 from your 401k at $800 a month, which you were already putting into your 401k.

Tyler Hagerla:

That's why we call him the loan coach.

Chase Peckham:

And that makes sense. What does that, what are the tax implications on that?

Tyler Hagerla:

A lot of people don't know what they can do, even, you know, takes someone like Kelly to tell them.

Kelly Klein:

Zero

Chase Peckham:

Yeah I mean, there's so many ways.

Felipe Arevalo:

Are there usually fees associated with , uh , taking out their 401k?

Kelly Klein:

Nope. Not unless you not, unless you do a liquidation. So meaning that if you liquidate that money and you close that 401k out, then you have a taxable event on early withdrawal of a retirement fund.

Chase Peckham:

And a penalty.

Kelly Klein:

If you take it as a loan yeah. And a penalty. But if you take it as a loan, you're borrowing your own money and your servicer is going to set you up with whatever interest rate you may be paying back to yourself. So your money is accumulating interest, but that interest is being paid to you. You're paying yourself with interest back on your loan.

Chase Peckham:

So if you think about it as something that is an equity building product.

Tyler Hagerla:

Um , exactly, we're on the same page. You know, you get out of that rental. And so many people are afraid to touch their 401k and buying a home from, you know, Kelly will tell you that . I mean, that's a good spot. If you're to touch it, that's a great spot to put it. And , um, yeah, that's one , once Kelly has that conversation with people and they figure out what they can and can't do, then that's where I come in and , uh, you know, shop within their limits. And , uh, you know, the, the best thing I give to people all the time and want to go find a house and then, and then they'll figure it out. It's like, no, I need you to know what you can and can't do because we're going to probably have to stretch to get the house. And so we gotta be it within your comfort zone. So the best thing you can do is have Kelly run real numbers, you know, before we find the house on hypothetical scenarios. So that way we don't get you in a situation where we're, we're, you're getting bummed out because we're not looking at the right price homes or on the flip side, you can afford more for your dream home. So , um, so it's a great conversation to have with him prior to even, you know , looking at houses on Zillow, honestly.

Chase Peckham:

Well, that's what people get stuck doing, right? They , they look at all the fancy pictures and the photos and how pretty they look and they can get all emotionally caught up into it. But the real start is with Kelly and by when they get to you Tyler. And I know that sometimes it's a team oriented thing, sometimes it's not, but when you're holding a first-time home buyers hand, and we'll just talk about the market, you know , uh, how flexible are you telling your, these clients they need to be?

Tyler Hagerla:

I mean, the best thing I can do right now is get them really informed because, you know, we're, we're not, I , I'm not a high pressure guy. I tell people, listen, we're gonna take as many times out as it takes to, you know , find the right house. But I do have to get them kind of up to speed on what the market's doing and that way, when they do find something, they really like, then I am going to click it into a different gear and you'll, you'll see a different side. Cause that's what it's going to take to get, you know, get out there and actually get it. And I tell people too , the , the good deals that people are getting right now are the offers that are getting accepted.

Chase Peckham:

Well right.

Tyler Hagerla:

Because, you know, I I'll be honest, we're in contract on a place right now and we're 60 K under list. Um, we're in another one where I got them in escrow at list. So, you know, it's not doom and gloom. There's, there's, you know, quote unquote deals out there. People, you know, not every house is going for 10% over. Uh , but you know, in general, yeah, it's, it's a, it's a hot, hot market people, I think, you know, not to get too in depth in some of the scenarios, but you know, there's, every house is different. Every neighborhood is different.

Chase Peckham:

Well, let me put it to you this well, I, of course, you're going to have the higher end homes , uh, that, that they're their own market. But for first time home buyers that are kind of in that middle area, maybe they're within, you know , San Diego is a whole different, but we're talking 400,000 to 800,000 for a single family home or a condo closer to the coast in that neighborhood. Is that tend to be the more , uh, I guess competitive market.

Tyler Hagerla:

Oh yeah. Yeah. I mean, entry level home, kind of in our area, it's going to be around six ish, five 56 ish. You know , that that zone you'll see things , um, you know, that go higher. Um, but yet the condo market is hot, but it's not as hot as the family detached.

Chase Peckham:

Ok.

Tyler Hagerla:

You know, those, those houses are, are, are much more the, you know, the, the condos , uh, you know, with the HOA as sometimes suppress value a little bit, you get into some different areas with , uh , HOA and Mello-Roos, I'll suppress the actual purchase price a little bit. Um, but yeah, I mean, getting, getting people kinda up to speed, you know, I, I try not to get too far ahead of first time home buyers. Um, I have kind of a rating system that's really easy and generic. We just start rating houses on one to 10 price on one to 10 location on one to 10, because not all houses are the same, not all markets are the same. So I have to try to kind of put the houses in some sort of a category that the buyers can, you know, rate it and talk to it with either their spouse or maybe their parents, or whoever's kind of decision-makers , um, put things into a box for them . Um, some people really like that and it helps them because , you know, I tell them if there's three sevens in those categories, that's a house we should put an offer on because nothing's perfect. It's not easy being a buyer right now. Let's just be real. Like it's, it's an interesting market. And , um, if you are able to listen to kind of Kelly coach up, and then me, what we try to create for buyers is what I call buying power. And the more powerful you can be, the more likely you're going to get your offer accepted. So if we do have a good buying power for giving sellers leeway on their move out, you know, maybe that's , uh , uh, right now we're letting sellers stay in their house for 60 days for free. You know, that, that's the thing. Um , we're letting people stay in the house, you know, for , um, you know, shortened timeframe just so they can accommodate their move. Um, that's an area where you can maybe not go up in price, but allow them flexibility. Sellers, sellers love that. Like, because sellers are like, okay, this market's hot. I'm going to sell my house so fast, but I need time to move. And if they see something like that, they're like, Oh man, this is great. So that might even be more valuable than an extra $10,000.

Chase Peckham:

Well , besides the fact that they got to turn around and find a place to , unless they're , they're moving out of state, right. I mean, you can, it may be hot for you to sell, but then you're right back in the same market trying to find a for yourself.

Tyler Hagerla:

Yeah, we will . We kinda , you know, you play every scenario different, but that's one area being able to remove the appraisal contingency and be willing to have the cash to make up the difference. That's a huge one too. And then , uh, having a good , uh, inspection group to be able to go out there and get an inspection done really quickly, understand, you know, where you're gonna make some , uh, give and takes on, on an , on a house, you know , uh, in a different market, you might have a first-time home buyer asking for everything on the inspection list to be fixed and give me a big credit . And you don't really have that luxury right now. So it's important to know what are big ticket, what are things that you might have to do in the future and just prepare those first time home buyers that you're not buying a brand new house and that these are some issues that, you know, you may have to address in the future. And this is the cost. And I've done that so many times on, you know, a request for repair that I can go through an inspection report really quickly and knock out, you know, numbers for things , um, or even get, you know, have an electrician, a plumber, everybody that I have as far as vendors that are really good to work with. Uh , cause I, I want to try to give the buyer peace of mind, right? That they aren't buying some, you know, money pit and , uh, you know, being able to , um , maybe, maybe we're not getting get a big credit, but we're going to let you know what you are going to have to do , um, to get that house to where you'd want it. So , um, those are some things that we would do with first time home buyers to help them get informed on, on how to attack it.

Chase Peckham:

It's incredibly difficult. I mean, I , it takes me back this conversation to when my wife and I made the first offer on our home and it was a different market back then. It's a completely different landscape that we live in right now versus 10 years ago. And that's how things can change. Right. So is it as smart as it is? And let me ask you Kelly and And Tyler, I'd love to hear what you think about this too. As much as we, a lot of people will feel panicked to get into the house now or panic to do something now. Um, and the other way around, I'm afraid to wait for it. Should people just consider the time now and think about it 10 years from now and how it's going to be , uh , looked at.

Kelly Klein:

Yeah, I think , um , to your question, I think an important piece of the puzzle here for people to think about is, you know, interest rates today are , are creeping up to, you know, three and a quarter. Well, you know, it's kind of funny to even say that right in 21 years that I've been in this business, you know, never in history, have we been offering rates under 3%? And this year of 2020, we were offering below 3% rates pretty much for about nine out of the 12 months of 2020.

Chase Peckham:

I'll say thank you.

Kelly Klein:

So to tell people. Absolutely thank you , You and Tyler are both , uh , are both clients as well. Um, but to, to say, look, you know, rates, aren't going to be three and a quarter or three and a half percent forever. Um, the average history of 30 year fixed mortgages is about 5.75. So, you know, we're still offering historically low interest rates. Yes. While the price of homes might be at the highest it's ever been , um, it's a supply and demand thing, right? People are, people are still having babies, right? We're not, you know, our population is not dramatically dwindling and the baby boomer generation is getting older. And they're the ones who own the majority of the real estate in the country. And it's their children who are going to become the ones who are looking to buy that. And so until people start selling it with a , uh , a larger clip of homes going on the market, the demand is going to stay high for houses. And the price of rates is going to stay low. That just said yesterday, like w we have no reason to be raising interest rates until 2023. So that means to me, we're going to see interest rates low for at least two more years now, are they going to be two and a half percent? Well, no, but they're , they're not going to go from three and a quarter to six, right? So we're still going to see affordable money. And as long as people are continuing to be employed in the economy, reopens after COVID starts to settle, as it has been, and people are employed. If people are making money, the affordability index is going to be pressured. And so that's, what's going to slow down the value of homes from going can completely skyrocket. Right now, that's going to be driven, I believe entirely by the cost of money. And as the cost of money continues to increase, the affordability of homes will decrease. And that will slow down the trajectory of the increased home values

Chase Peckham:

Have you guys seen in San Diego County , uh, and or heard , uh, it second home secondary markets , uh, that it seems to me for places like in Lake Arrowhead, Big Bear Lake places on the outside , uh, secondary markets are going crazy right now with people buying second homes because of the pandemic and learning that they can work. Uh, they don't have to commute into their office every day. Do you see that secondary homes being bought pretty quick?

Kelly Klein:

I've, I've done more than a fair share of , uh, home loans for people buying vacation homes. Um, and, and whether they actually use that as their permanent vacation home and they don't rent it out. Um, that's up to them, that's their prerogative. But yeah , uh, I'm seeing a lot of people. Lot of my clients have taken advantage of the cheap money. They've done cash out refinances. Um, they've taken that money. They've used it for down payment money on another house, in another state or another town or a , uh , vacation type spot. And so, yeah, that, that has , um, that has been a trend. And I think that Fannie Mae and Freddie Mac, the , the governing bodies of the mortgage lending industry have taken notice to that. And , um , there's a lot of chatter going on in the, in the oval office , uh, in the house of , uh , the mortgage entities and the CFPB. And , uh , they're talking about throwing risk adjustments into interest rates for second homes and making the interest rates less attractive and the guidelines more strict for people to buy second homes, because they're starting to believe that too many people are leveraging that money. And that's cause for concern that when the markets do shift in turn, they don't want to see another foreclosure boom of all these people who turned around and bought second homes that all of a sudden can't afford them.

Chase Peckham:

And that was, Kelly you couldn't have laid it in my lap any better than that. But that's what I think a lot of people's concerns are not that we would necessarily see the bubble that we saw in 2006, seven, and then ultimately burst in 2008. Uh , but when you see things and the way they're going, obviously there's not the really kind of crazy loans that there were back then, but do we see that? How, how long can this housing market last and is the government, or just the economics in general, going to keep it from bursting again, because we're going to be very aware for what happened the decade and a half ago.

Kelly Klein:

Yeah. You know, what's funny is , um, right out of the gate with COVID the banking industry immediately jumped out in front of the COVID and , uh, concerns and scenarios and said, Hey, look, if you're in a financial hardship, call us, we'll put you into a forbearance plan. And so half the country immediately called up their mortgage servicer and said, Hey, put me into forbearance. Like I can't afford to pay my mortgage, but you know what, a lot of the people who did that were people who didn't need to do it, they were doing it because they're like, well, shoot, if I can get up , if I can get off on making my mortgage payment for the next 12 months, that's great. I'll I could use that money for something else. So a lot of people jumped on that. Well guess what? Like that money doesn't go away and you're going to still repay that debt at some point in time. And what's going to happen is a lot of those people who were the actual ones who did have financial hardship, they may not come out of that. Forbearance may be, may be the straw that broke their back. And they may be the next round of home sellers. As soon as , uh, the forbearance agreements are lifted and the banks start making these people, repay their debt. That could be the next wave of people that need to sell their homes. And , um, you know, it was good for some people and it's going to be really, really bad for others.

Chase Peckham:

Yeah. That's the biggest concern.

Tyler Hagerla:

To that point those are those people that have equity in their homes, Kelly, you know.

Kelly Klein:

Right so they're not going to short selling or foreclosing correct?

Tyler Hagerla:

Correct. Correct. And so, you know, I , Kelly kind of operates a little different world, you know, I kind of operate a little bit more in the here and the now and , um, you know, working people that need a buy , have to buy. And , um, I, I am seeing second home purchases. We're doing those , um, uh , really, you know, I'm working with people that, you know, families get bigger, they need more space, you know, a lot of , uh, downsizing, last homes, single stories. So a lot of the same type of purchases going on. Um, it's just, there's more people that want to do it all at once. It sets the problem.

Chase Peckham:

We see flipping as much. Are we seeing, is that, is that kind of ,

Tyler Hagerla:

No, I mean, now there's still some big companies that are doing it, but there's no small time guys. Um, maybe there's a little bit of an opportunity to buy a house live in it and then sell it after they fixed it up. But the , the reality is, is that you can go on market regardless of the condition and get far more money than a investor calling you up and say, Hey, we'll buy your house for cash. Um, so, you know, we're not seeing a lot of flip product. There are some players in San Diego that are still getting their hands on stuff and having an ability to flip. But , um , our market is not in this state designed for that type of return, that those flippers are looking to get

Chase Peckham:

Well it's amazing. How many robo calls and robo texts and flyers.

Tyler Hagerla:

Oh yeah.

Chase Peckham:

That I get at my house that saying, we'll give you cash. We want, we have people that want to buy your home now. Uh, it it's, it's crazy to think that,

Felipe Arevalo:

It's funny Chase people are trying to buy my house and I don't even have one.

Tyler Hagerla:

one little point, one little point to that is that home sellers, they don't even know how much their house is worth in this market. I had a guy he wanted to, he was going to do for sale by owner and him and his wife both had full-time jobs. And he thought his house was where 675. And I went into the appointment and I'm like, this is, this is a last like November-ish timeframe. Right? So market's still getting hot. So warming up is not what it is today. And so it's like, okay, well, you know, this is how it is. And you know, the normal for sale by owner . Well , we , we do it for a discount and you know, I'm not a discount agent. This is what I do. I guarantee I'll net you, you know, more than what you're thinking, you're going to get, I think your house is more valuable. So we went on market for 700 and I got him 750,500 as is no repairs, nothing. And he's like, Oh my God, Tyler, you're amazing. You know, he loves me. Right? Like thinks I'm the best thing ever. So then in this neighborhood, I get another guy two weeks later call me, he's like, yo, I've been tracking you, you do a lot of sells, our neighborhood, I can't believe this price you got, he's like, come talk to me. We need to move. So I went and talked to him, I just sold his house for 805, 800 , $800,500 in the same neighborhood. So I've essentially raised the standard of that neighborhood, a hundred thousand dollars in less than six months, you know , which is just like mind blowing .

Chase Peckham:

That's how quickly in can happen.

Kelly Klein:

Yeah.

Chase Peckham:

Well to sum this up. And I know that it's really hard. And Kelly, I think I'm going to lean on you in this, in this realm. And this last question is , is looking at this five years from now, where do you see housing? Not only in San Diego, but let's just say Southern California, where do you see the housing market going? Five years, maybe even 10. I know that's hard to know .

Kelly Klein:

Um , 10 is 10 is pretty, pretty tough to figure out, right? You typically see economic cycles in ten year spurts. Um, we're actually on a very, very bullish run here now for about 13 years in running. So there's bound to be a pullback sometime. Um, how significant is that pullback going to be in the real estate world? I don't really think it's going to be a big one in the stock market. There's going to be a correction. Um, and a lot of people are going to freak out and they're going to watch their portfolios take a big dip, but you just don't panic. Right? You just got to ride it out. And, and Tyler said something a little bit earlier, you know , about, you know, first time home buyers kind of wondering what their house is going to be worth. If they did, you know, a new roof and they remodeled the kitchen and how much equity am I going to build in my house? And , and that's, that's all going to be a function of the timing. And it's all going to be a reality of, do you sell it right? And I use this, I use this example to people is just like, look, if you sat down at a poker table with a hundred bucks, and next thing you know, you got a thousand, did you earn a thousand dollars? No, because you're still sitting at the table, right? You only earn that $900 if you cash out and you walk away. So people got to realize that equity is only a ghost in your house, unless you're using it for something or you're selling your house at that point in time. And people need to recognize that you may be equity rich, but don't end up retired in pocket poor because when you're pocket poor, your ability to fund life is reliant on the equity that you have in your house. And if the timing of you needing that equity in your house happens to be at a low point, you just lost, you lose, you, lose it the game of life. And so I think the long answer to your question Chase is, I think we're going to start to see some equity, some equity slowdown . I don't think we're going to see a bubble there's knowing. There's no reason to think that we're in a housing bubble. Um, there's not a bunch of distressed property. There's not a bunch of foreclosures that are sitting in the shadows on banks' books. Um, the delinquency rate of mortgages is near all time lows. Um, the forbearance rates have continued to drop. So people are coming out of forbearance and they're going back to work and they're starting to repay their mortgages and equity is at an all time high. So there's not going to be a bunch of foreclosures. There's not going to be a bunch of short sales because the demand for housing is so high. And the amount of inventory that's out there is so low that if you are becoming a distressed homeowner, you're going to sell your house. And you're going to walk away with at least a dollar. You're not going to sell it short. You're not going to, you're not going to be calling the bank and saying, Hey, I , you know, we're gonna , you're gonna lose 50 grand on this home sale. Um, I don't see that happening, but I also don't see the trajectory of, you know, 15% appreciation in a year continuing either,

Chase Peckham:

Right. The market will eventually correct itself. Hey guys, I can't thank you enough for being here today, Phil and I really appreciate it. This is a super, super hot topic. We , to so many people that we work with are trying to get into homes , uh, and get off the rental train. Uh , and , uh, I can't thank you enough for lending your expertise.

Kelly Klein:

Thank you. I appreciate you guys having us on the show and thanks for , uh, leading , uh, leading some great topics with Tyler. I to tackle with ya.

Chase Peckham:

I appreciate it. Thanks a lot. Tyler, Kelly .

Tyler Hagerla:

Yep. There's a lot of , a lot of fun. You guys .

Felipe Arevalo:

Thank you .

Chase Peckham:

Thanks a lot. Take care. All right . Bye-bye [inaudible] .