Should you be buying a house now?

This Loom discusses whether to buy a house right now, emphasizing that the decision should not be based solely on mortgage interest rates. It explains that while rates matter and refinancing may help if rates drop enough, costs and timing can make refinancing not worthwhile, and it should be truly free if offered. The speaker also ties mortgage rates to 10-year bonds rather than the Fed funds rate, noting recent upward trends due to war, gas prices, and inflation. Finally, it cautions that using AI tools can misprice repair requests, illustrated by a ChatGPT suggestion of $12,000 for a tiny leak that the seller ultimately fixed for under $100 with no mold.

Chapters

00:00

Buying a home now

03:12

Refi costs and break even

05:55

Mortgage rate and tax basics

08:04

Using AI then verify facts

12:25

Vet actions and avoid mistakes

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Conner with Honor - real estate

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Transcript

SPEAKER_00 0:00

Should you be buying a house right now? We're at the first day of July, a lot happening in the world. So let's let's kind of break this down a little bit. Now, if you are going to be buying real estate, you shouldn't be buying it predicated on the interest rate. Now, I know you're going to push back a little, and I get that. Yes, interest rate's absolutely important. If there's a potentiality of the interest rate coming down, at least for the first little while of a mortgage, you can always refi. I know, Connor, I can re-fi, but the problem is, is that going to cost something? Now, there's certain lenders out there that when they write the loan, and you might want to write this down or remember this or talk to your real estate professional, but they'll give you a couple refines for free without cost. And you have to kind of break down without cost what that means. So are they really doing it at the prevailing rate without cost fitting on your credit profile? And if so, probably not a big deal. Because more than likely, if interest rates come down, it's going to be relatively soon. So, at least right now in this present market, let me give you this. Nobody has a crystal ball with this. But backing up what I first said, don't ever buy predicated or dependent on a particular interest rate or increasing or decreasing of, you buy for various other reasons. But if you've only made a few mortgage payments and interest rates come down where it makes sense to refi, and I'll put that in parenthesis, if it makes sense to refi, and let me give you some qualification for that. If interest rates come down just a little bit, maybe an eighth of a point. And let's say you maybe have a free refinance, I don't know if that would be so much worth it. I know it's free, but there might be other costs stacked into it, maybe an appraisal cost and some other kind of cost. So you want to make sure that it truly is free. Then if it comes down in eighth grade, but you might want to save it if you only get one shot at this, and it looks like rates might come down, and again, we don't know. It's kind of like gambling. You know, half a point usually is pretty good advice. If rates come down half a point, sometimes it's worth it. But if rates start to really trend down, like with some of the rumors out there talking about how they're going to have a new uh a new bond out there, a new uh, I don't know what the savings bond would be, but a new governmental bond come out that's more backed by gold, and that might come out July 4th, like a 250-year commemorative edition. That might not be a bad thing for the bond market. We have 10-year bonds, that's typically where the mortgage rate is based on, but it's not so much the Fed rate, because that Fed funds rate, that's the price banks get to go back and forth with the interest they get charged for moving money. So when you hear about the Fed, the Fed funds rate, it's really based on the 10-year bond, that's where the mortgage rates is. And when the government and the world and the and the other powers that be are more confident in the United States and our economy, they buy more of those bonds up and interest rates come down. But when they're not so happy with our economy and everything else, then they sell those bonds off. So then interest rates go up. And interest rates have been trending up because of the war, gas prices, inflation, other issues, people are selling off those bonds. Now, if there was some kind of a renewal in the bond market, something else that popped on that people really wanted to buy into, it could have an impact on interest rates. So we'll have to stay tuned. And the rumor was July 4th on that. But besides all of that, let's talk a little bit about this refi scenario. So if you're purchasing real estate and the interest rate comes down, then you can refi and it's golden. Now, you need to find out what those costs are. As I said before, it could be expensive, it could be not worth it because maybe you have a three-year plan. And what I mean by that is you for sure know if you survive the next three years in your employment, you're going to be leaving California. Or it's a have to downsize, not a not an option, or you have to do some other relocation, or you're going to a home or whatever it may be. If that's the case, then and you look at the cost of you having a refinance and you look at the savings moved over three years, right? And you find out that you're spending more on it than you're going to be saving in the three years from that reduced payment, then I think it wouldn't make any sense. Fair enough. So you need to look at all those numbers. In some cases, when you get a loan on a residence, uh, a lender's going to say, hey, we'll give you two or three free refinances. So free is a lovely word. Everybody loves free. You just need to really make sure it's free. Maybe free applies to one thing. Maybe free applies to some part of that refinance process. But then you have this fee and that fee and this fee. So break down what free is. And if somebody's selling you that, make sure you get that from me. Is this absolutely 100% free? I mean, I'm not going to experience any kind of money out or money being added to in any way, shape, or form to this refinance thing of which you speak. So put it out there. Definitely important. But you buy real estate for more reasons than an interest rate, and you should. I would ask those people closest to you, hey, why did you buy a house? Why did you think it was necessary? Because that's like the sell, right? That's the the American dream. Get yourself a house, white picket fence, and all that other stuff. And that's great. Also, something else that you might think about, besides the white picket fence and all that, is nesting. That's another one. People buy houses for that. Safety and security, fortification, you know, having what's yours, things that you can change and modify without being hassled by the man. But, you know, if you live in a homeowner's association, you've got lots of men that are hassling you on that. But that's why you need to run that interference and find out what you can, cannot do when it comes to doing any kind of changes. Plus, there's also city codes and ordinances that you might want to think about. If you want to move into a tract area, you want to paint your house like Madonna's house. I don't know if it's still painted that way. That orange and black, remember that back in the day if you're if you're somewhere in my generation, everybody freaked out. If you want to do that here in a tract, HOA's probably gonna say, no, you got to paint it a certain way. You got to have all the colors kind of uh in this, whatever this motif happens to be in the particular neighborhood or tracked. But city codes also prevent certain things, so do your due diligence. Another thing, too, when you're purchasing, there's a mortgage interest rate deduction. That's a real thing, and it's still applicable right now. You just have to see if you qualify. And I don't say that, like throwing it out there like, you know, most people don't. Actually, most people do. So you need to talk to your CPA or whoever does your taxes or, you know, whatever large language model you love. And of course, it's not a professional tax accountant, it's not a doctor, it's not a uh whatever else it tells me all the time, because I ask a lot of questions. It tells me a lot of what it's not. But the answers are pretty good. We do have real estate clients as well that come to me after they've talked to Chat GPT, Claude, Jim, and I, or co-work with Microsoft. And they come to me after, after they've vetted the things that I've asked. They've even taken my emails, they've plugged it into their favorite large language model, and they've said, hey, you know, this is from Connor, the real estate agent I'm interviewing. What do you think about his answer? And, you know, what would you ask him next? And yeah, that's I'm getting a lot of that now, which is a lot different than it was before. And I can kind of tell because I'm working with this stuff every day, doing a lot of other things besides real estate. And when I'm doing it, I know that the responses it gives me, in some cases, the voice is very much indicative of how AI would respond. Yeah, M-dashes, the way that it's formatted, it's got that uh, let me be honest with you stuff, you know, you're not gonna hear this at the kitchen table stuff, you know, a bunch of nonsense that I it doesn't do anything for me, but it's very much it very much identifies that these results or what I'm seeing is definitely from a large language model and the responses that clients give me and even the questions they ask. And that's absolutely valid. So if you have uh PhD level whatever, you know, with you, accessible by you 24 hours a day, seven days a week, most people are going to ask the question, at least balance it. And I think that's gonna be more and more and more. I just hope that that doesn't take away from our muchness in the world, our abilities to be human, our abilities to do things. And I'll give you an example. God, I just totally went off the beaten path on this one. I was gonna say off the reservation, but I don't think we can say that. But what happened is I just went off target, and I'm now going to talk about something that I just completely forgot what I was gonna talk about. And see, that's what happens when you get older. You're gonna forget. But using these large language models, we're gonna see more and more of this. And the answers that they give us, we should verify further. Because if they they're telling you something, I had a client the other day, I talked about this. It was from a buyer coming to my cellar. The buyer was um, I guess she took this report. There was a home inspection report done. She took it to her favorite large language model. It was ChatGPT in this case, and she said, Here's this report. What would you address? So the report identified something that the inspector pointed out, which was a leak. And the leak had a certain, it had some very fancy language around it, but it was a leak. And it said, What would you do? So it said, you know, the leak needs to be repaired. Uh, you should ask the seller for $12,000. And on this particular property for my seller, we had multiple offers. So there were other people waiting. The seller chose this offer, and we sat down. We we talk about all of this with the sellers. Uh, they chose this offer because the financing had 50% down, not 20%. And the uh buyer reduced their contingency time frames for inspections from 17 to 7. So they got it all done lickety split. They also uh said that the appraiser was appraisal was going to be done 10 days, and so it was good, right? They compressed all this stuff, so that looked really attractive to my seller. So they went with it. So this is day four or five. They get this report done, and that's pretty fast in real estate terminology. So looking at this, uh, we made a determination and had uh actual a plumber come out. It was um a $30 seal and fixing a fan, which was like $40 or $50. So that's what the issue was. There wasn't uh excessive water intrusion, it was able to be dried out with a couple fans in place. There was no mold, there was no not excessive moisture, it was a very, very tiny leak that they identified with a uh a water cam or a hydration cam. They were able to see it. So the seller took care of it. Now, the $12,000 request came in from the Chat GPT, and I saw this, and the way that it was written was not from an agent. The way that it was written was like a copy and paste from a large language model. So I called up the agent and I said, $12,000. Oh, yeah, yeah. The buyer, uh, the buyer's got some experts, a lot of family. They said that's what it was. I said, well, it's already been fixed. I have a receipt here. The seller already took care of it. Um, I can give you that that receipt. And he said, Well, how much did it cost? I said, just under 100 bucks. And that was the plumber going out and all this other fancy stuff. It ended up being a seal and a fan. And I said, By chance, did your did your buyer get this from a large language model? Well, while the large language model, I mean, it eloquently wrote the request for repairs, the damage, the intrusion, the problems. It it grandized it, but it wrote it out beautifully. But did they bother to give a consideration as to other things that could have potentially solved it instead of asking for $12,000? Because unless they want to reverse themselves, which I know it's gonna be hard for them to do because I don't know how much you sold them on this and how much you know they're falling in love with the idea of getting a $12,000 discount, but my seller's not gonna do it. In fact, my seller has already told me that if they don't want to proceed, we're gonna contact the other three buyers' agents that had their eye on the property and wanted to write offers when we got it for your client. Uh, okay, okay, uh, can you send that over? I said, sure, sure, I'll send over. So I send over the receipt. A few minutes later, I go, no, no, we we're gonna retract the uh that request for repairs, we're good. If we if we could just maybe put something in a line that the seller took care of it to provide receipts and everything, it's a piece of cake, no problem. That's the fix. But that's also the danger of using some of these. So large language models and AI, they lack the embodiment. They don't know what it looks like from the ground. They don't comprehend it. They see something, they can attach a price to it, but they don't understand those other nuances that we have as humans, at least not yet. I don't know how much longer that has to go. And we can get into general intelligence, super intelligence, how that gap is going to be bridged at some point. But that's just an example of how a buyer can get into trouble. So let's say the agent on another deal, very all same circumstances, but the agent wasn't me, not blowing my own horn. But the agent wasn't me. The agent might not have even given the courtesy to call the other agent, say, oh no, reject it. And then the agent calls and says, Well, you know, I don't know what you're talking about. Your buyer wants too much, and then that's it. We got the item fixed because it was really nothing. It wasn't a big deal. I'm glad we pointed out they found it, and I'm glad my seller was able to get it fixed because let's say they decide, let's say they win the lottery and don't want to sell the house. Well, it's got to be fixed anyway. It's a leak. It's a very small leak, and it was a very new leak, but still a leak. So it needs a seal, it needs the fan, it needs, you know, this stuff. So that being the case, I think it's super important to make sure that you vet what you're about to do because the enforcement mechanism you use, the other side might not be very receptive to it and might change the game. And then, especially if you're representing somebody that's a little tough, a little machismo, and a little not thinking of it from a business perspective, but an emotional perspective, yeah, that's a problem. You well. I'm Connor. We'll see you in the next one. Thanks for watching.