232 Current Mortgage Market Opportunities! | REI Show - Hard Money for Real Estate Investors

Bill Fairman

00:00:02

Welcome everyone. I'm supposed to do a short tease. So already off to that start, we'll be ranked back after this.

 

Bill Fairman

00:00:32

Wow. And they told me there were no new graphics. Thank you. That was pretty interesting. Wasn't it? That was good. Yeah. All right. Well, thank you so much for joining us on the real estate investor show. What is it? Hard money for real estate investors. It's right there. Yeah. We are Carolina capital management, private lenders for real estate professionals in the Southeast. If you are a real estate investor and you would like us to take a look at one of your deals, go to Carolina, hard money.com. Click on applying. Now, if you're an accredited investor, looking for passive returns, click on the accredited investor tab, don't forget to like share subscribe, hit the bell. And definitely don't forget about signing up for Wednesdays with Wendy,

 

Bill Fairman

00:01:28

As you know, Wendy devotes, 30 minutes per person on Wednesday afternoons, not this month, cuz she's on vacation to talk about anything real estate related. She's usually booked out a couple months in advance. So grab a spot. There's a link to her calendar and we will leave it over in the comment section which we have on the left side of the screen or underneath, depending on the platform you're viewing us from. We are excited today. We have Brian Maddox of Ameri first, first mortgage. He is an expert in the conforming and investment mortgage business. And I wanted to bring him in to have some discussions, Jonathan Davis, to my side. And like I said, Wendy is still vacationing. Of course it's not the vacation she was expecting towards the end as she ruined her transmission carrying around that RV. It's so listen, let's get started with some breaking news. All right. So if you see sweat dripping off of us, yes, it is summer. For what? Whatever reason. It's really stuffy in this room today. Hey Sue.

 

Jonathan Davis

00:03:00

Thank you Susan.

 

Bill Fairman

00:03:03

So breaking news yesterday, the fed announced another 75 basins point hike in their rate. That was not unexpected.

 

Jonathan Davis

00:03:13

The good news is it was already priced in to most lenders. Yeah. Right.

 

Bill Fairman

00:03:17

And, and investors liked it because of the language he used after he announced it. They're basically want doing a wait and see kind of an attitude, right?

 

Jonathan Davis

00:03:26

Yeah. They anticipate they're at the top of the interest rate hike.

 

Bill Fairman

00:03:31

They said they're gonna be data sensitive

 

Jonathan Davis

00:03:34

Data

 

Bill Fairman

00:03:35

Sensitive. They're gonna trust the science

 

Jonathan Davis

00:03:36

Trust. The science man. I've heard that somewhere too. Before. I can't

 

Bill Fairman

00:03:39

Remember where the other news we are technically in a recession officially, unless you've changed the language that we've always had today, the GDP was 0.93. What is it? Retraction subtraction. We were below par. Yeah. By 0.9, 3%. Again that wasn't unexpected either. We all know we're essentially in a recession right now. Job. Market's still good. Yes. Right?

 

Jonathan Davis

00:04:18

Yep. And that's that that's leading to the, the kind of wait and see model is the, the jobs are saying strong right now that they feel like, okay, well maybe we can pause adding more. Right. Hikes down the way to see because cuz we do have such a strong job market.

 

Bill Fairman

00:04:36

And in, in a few minutes we're actually gonna let Brian talk. We doesn't have to just sit here and smile. He

 

Jonathan Davis

00:04:41

Will. Well, we're wait. He has the really interesting stuff. I'm just, this is just commentary.

 

Bill Fairman

00:04:47

Now the job market is gonna be a little bit tough in the mortgage business and I'm gonna read off some stuff. I, I typically don't like just reading off a prompter, but I have a lot here to cover. So experts are forecasting, a 35, 50% drop in mortgage originations this year, 2021, there was $4 trillion in mortgages and they're expecting it to go down to 2 trillion in 2022. Most of the drop is due to a decrease in refinancing, which makes sense as rates go up. Meanwhile, mortgage refinance applications are down nearly 80% from a year ago. And that's according to the mortgage bankers association, Brian, isn't that typically what happens when rates start to go up?

 

Bryan Maddex

00:05:35

Yeah. You get a lot of extra applications because I can't not refinance. The rates are so good. Well, everybody probably refinanced in 2020 and 2021. And we came into this year with rates in the threes. But by March they were in the fours and you know, pressing the fives right now. If you don't have great credit, you might be getting a 7% rate. Yeah. So if you've got a 3% mortgage, even if you've got some debt, sometimes it's not worth doing a refinance, but you want to talk to your mortgage person and look at your blended rate. And a lot of people don't look at what the blended rate is, but if you are

 

Bill Fairman

00:06:11

Yeah. Explain the blended

 

Bryan Maddex

00:06:13

Rate. Yeah. So let's, we'll use easy math. Let's say you have $60,000 in a mortgage at 3% and you have $60,000 on credit card debt, which sounds like a lot. But credit card debt just hit an all time high last month. So people are tapping into their, their credit much quicker than they have in the past. And if, if that credit card debt's at 19%, but it's half of your debt and then your mortgage is at 3%. It's half of your debt. If you blend those rates, you take three plus 19 is 22, your blended interest. Rate's 11% sure. Right? And so a 7% mortgage sounds horrible compared to a 3% mortgage, but it sounds great compared to 11% blended debt

 

Bill Fairman

00:06:55

And that 11% is now tax deductible,

 

Bryan Maddex

00:06:58

Possibly

 

Bill Fairman

00:06:59

Mostly

 

Bryan Maddex

00:07:01

Possibly they've changed a lot of those laws in the, in the Trump era.

 

Bill Fairman

00:07:06

So you can't deduct

 

Bryan Maddex

00:07:07

Just equity. You cannot deduct okay. Own equity. You used

 

Bill Fairman

00:07:10

To, you can only deduct the interest from your original purchase. Is that basically what

 

Bryan Maddex

00:07:15

Saying? I believe, yes. And then you may be able to deduct if there was some business expenses or some home improvement, but talk to your CPA

 

Bill Fairman

00:07:23

Or financial planner. And, and we are, none of those

 

Bryan Maddex

00:07:26

Bill is not a financial planner,

 

Bill Fairman

00:07:28

CPA don't

 

Bryan Maddex

00:07:29

Claim to be may maybe tax deductible.

 

Bill Fairman

00:07:31

So the devil's advocate would say, yeah, if I take my credit card stuff and put it into my house, then now if I run into the worst case scenario, right. And I can't afford my payments, you know, they can foreclose on me. If I don't put my credit card debt in there and my payments stay low. Right. I can tell the credit card companies to take a hike. They're not gonna take my house.

 

Bryan Maddex

00:07:59

This is true. And depending on the state, you know, some states offer more protection than others or your primary residents. But if your cash flow is so upside down that your credit card, debt's getting worse every month. Yeah. You're leading towards the inevitable. Right? Right. And so if I can refinance and save you 800 or a thousand dollars per month now, yes, the mortgage is larger and it is putting your, your home possibly at risk. But man, if you can reset your finances and now work within a budget that you're allowing, allowing you to add your savings instead of adding credit card debt every month, it really is. It's not a, for everybody, it just depends on your situation, but it could be appropriate still to do a refinance. I've got one closing today. She's going from a 3.2, five to seven. We're paying off $40,000 in debt. Wow. We're opening up four to $600 a month in her cash flow. She's also on a 40 year mortgage. She's not making headway, right. Her, she's got an equity line that she's been paying interest only on for 10 years. Wow. Right. So she's not G getting better financially. So yes, we're taking her rate up, but we're gonna massively change her situation. Now she's got debt being paid down and has extra money for savings. And, and

 

Jonathan Davis

00:09:10

I just wanted to say, everyone's scared of 7% interest rate. Like we're gonna, I'm gonna beat it like a dead horse, the average rate over the course that we've been tracking this since we've been tracking, it is over 7%. Yeah. Like 7% is not a bad interest rate.

 

Bryan Maddex

00:09:28

I've always used six and a half percent as the average. And so yes, we're on the high side of average, but these are average rates. Yeah. These aren't high. It only seems and feels high because we came from almost free money. Yeah.

 

Jonathan Davis

00:09:40

Yeah. It was free money. 2% free. We

 

Bill Fairman

00:09:42

Definitely have been living on, on free money for

 

Bryan Maddex

00:09:44

A while. Yeah. And we don't want to go back to 2020 that economy sucked. Yeah. Right. So we don't want to see two and a half percent mortgages. That means the, the economy is so broken. It's nice when you're borrowing, if you're buying, but it really it's, it's, we're paying for that.

 

Bill Fairman

00:09:59

So one last thing on that are, are you trying to keep lung values low? Yes. So people still have equity so they can get outta their house if they have

 

Bryan Maddex

01:10:09

To. Yeah. Even FHA changed their guidelines in the last 12 months where you can only go up to 80% of the value of your home. It used to be FHA. You could get up to 95% on a cash out refinance and they've restricted that. So any loan program that I can do 80% is our max cash out. Unless there's like divorce or inheritance or death, there are ways to get above 80% if you're buying out somebody from the house. Right. But for the most part, 80% is the max. You can go, okay. Now equity lines of credit could be an option for some people. Their interest only payments can be bad. Yeah. It could be nice, but they can go higher. Some of them will go it a

 

Bill Fairman

01:10:46

Hundred percent. Well, my concern is, and don't get me wrong. I'm not saying we're going into a 2008, but we have it in the back of our head. And we wanna make sure that there's enough space between what you owe and what your house is worth. Right. So you can liquidate without having to bring money to the table or walk away from the house. And we'd much rather if somebody is getting into trouble, be able to sell that house and get out from under it then to walk away from it. Right. Right. So we, we still need to keep that part of the problem that we had in 2008 was the hundred percent loan. The 1 25 loan.

 

Bryan Maddex

01:11:22

Thank you. Ditech yes.

 

Bill Fairman

01:11:25

The, you can buy this house fully, furnish it and build a pool all in the same loan.

 

Bryan Maddex

01:11:30

You don't have to job a job. Right? You tell us that you make money and won't believe ya. It was, it was a wild times. That's not the underwriting case. No, no. It's, it's so far different from that

 

Bill Fairman

01:11:39

Completely different. You, I think they have to do a blood test to get along anymore. Okay. Let's get to the good news. Wells Fargo laid off at least 114 employees in its mortgage lending team following a 33% drop in first quarter revenue, JP Morgan announced its most recent round of layoffs in its lending department on Wednesday affecting more than a thousand employees. The bank said, some employees will be let go. Others are moved to new teams. We're gonna talk about diversification in your business model. Yep. As an employee, you need to be multi-skilled. So when layoffs do come, if they have openings in other areas that you can move into, it's only gonna protect you. So don't be a one trick pony. So to speak layoffs are much worse at the non-bank lenders where less diversified business makes companies more susceptible to fluctuation and rates. That's what I'm talking about is having other verticals.

 

Jonathan Davis

01:12:43

You're talking about mortgage originators, who, you know, use warehouse line and

 

Bill Fairman

01:12:47

Just that's all they do. They're more likely to serve first time home buyers who are first get pushed out when rates go up as well. I wanna get back to that first time home buyer thing. When we're talking in a moment, the non-bank lenders also rely more heavily on refinance mortgages, which made up 63, 3% of all mortgages last year and obviously are expected to fall. I'm going to cover this real quick. Some of these non-bank lenders, better.com. They laid off 3,900 workers. Wow. And they started this back in December of last year. If you guys will remember the CEO, his name is Gar. I can't pronou. Yeah. Mission. He announced the first round of layoffs of 900 people in a zoom call. You might remember that classy. He said, if you're on this call, you were part of the unlucky group that is being laid off. Oops. Your employment here is terminated effective immediately. Now, in my opinion, this business was gonna go under sooner or later anyway, because better you have somebody. Yes. Because if you have somebody like this, leading your business, the culture, there is crap. Right? And eventually it would eat itself

 

Bryan Maddex

01:14:11

Well. And they wanted to, they wanted to disrupt the market and do a business model where the consumer did everything online. Didn't have to talk to a loan officer and they really thought we're gonna change the world in the mortgage space. Right. They lost money quarter after quarter after quarter, they were trying to buy market share. And you can only lose money for so long. And then rates go up and your business model is completely destroyed.

 

Bill Fairman

01:14:34

So they tried to get into the market as a FinTech, not as a mortgage company. Correct? Exactly. Yeah.

 

Bryan Maddex

01:14:40

They, they took,

 

Jonathan Davis

01:14:40

They took the Amazon model, but yeah. And they're getting break, spikes killed

 

Bill Fairman

01:14:44

That and they're getting rounds and rounds of public money. And that's how they were able to do these mortgages in the first place. Right. So yeah.

 

Jonathan Davis

01:14:53

What reminds me of that old saying, what is it? We, we, it costs us a dollar 25 to, to make these widgets and we sell 'em for, for a dollar. And it's like, how do you make money volume? It's like put, add up. Yeah.

 

Bill Fairman

01:15:09

So they were another 2,500 laid off from about a half a dozen larger lenders. Plus numerous smaller lenders have made cuts as well. Real estate brokerage firms are starting to feel the heat. Redfin compass, both made headlines announcing more than 900 job cuts on June. The CEO of Redfin said we could be facing years and months of fewer home sales, which is,

 

Jonathan Davis

01:15:40

I don't think is I think it's true. Yeah.

 

Bill Fairman

01:15:42

I'm not arguing.

 

Jonathan Davis

01:15:43

I mean, the inventory is just,

 

Bill Fairman

01:15:44

But it's says they're laying off Redfin 780, I'm sorry. 470 employees, about 8% of their workforce because they don't have enough work for their agents and support staff. Now I get the support staff being laid off, but agents aren't, they supposed to be independent.

 

Bryan Maddex

01:16:05

Redfin's another one of those companies that wanted to do things completely different. Yeah. Right. And so they would, they would pay agents. Like you wouldn't work with an agent through your home buying process. You would work with Redfin. And if you wanted to go see this house, they would've assign a agent to show you that house. Okay. That agent got paid a fee to take you and show you that

 

Bill Fairman

01:16:24

House. Okay. So that agent didn't necessarily work for Redfin. They just got a fee from Redfin.

 

Bryan Maddex

01:16:29

They were more of an employee model instead of the 10 99. Oh, okay. They're more salary based and makes sense. Comped based on activity instead of sales. So they just had a, again, it's a completely different business model they wanted to disrupt. And the traditional business model's, what's worked forever.

 

Bill Fairman

01:16:46

Yeah. So if you're a realtor and you're not eating what you kill right. Then you're gonna be subject to this. Right.

 

Bryan Maddex

01:16:53

The market's gonna hurt you a little more.

 

Bill Fairman

01:16:54

Yeah, absolutely. And then Zillow announced 2000 employees layoff 25% of the company in late 2001, a lot of that was due to that wonderful home buying program that they had, that they weren't making any money in

 

Jonathan Davis

01:17:11

Brian. So we talked about, you know, the CEO said that there was years of, you know, slower home sales. Right. Do you see that as well? I mean, cuz we see inventory. Yeah. We see, you know, how what's being put on the market, which everyone's talking about, but also what is even available and new construction, like do

 

Bryan Maddex

01:17:29

You see? Well, that's the thing is what they don't really drill into is there is less inventory. If there's less inventory, you can't have as many sales. Right. And then you've got people who don't have to move right now that are in two and half, 3% mortgages. Yeah. And if they wanna move, they're going into a six or possibly a 7% mortgage. Why, why do I want to make that move if I don't have to, to right. So maybe I'm gonna say as, as the price of houses have gone up and as interest rates have gone up, maybe I, I wanna wait and I wanna sit this season out. So we're seeing inventory increase right now. The media they sell by fear. Yeah. They're gonna say inventory is going up. That proves the market's crashing. Every summer inventory goes up. Every winter inventory goes down, that's a normal cycle for real estate. So we're gonna see that. Yeah. And we need to get a little bit of normalcy in the market. We can't sustain 20% growth of housing pricing year over year, which we are yeah. For the second year, a row, almost a 20%. I think the official number is 19.3% increase. Yeah. I saw 19 something. Yeah. Mm

 

Bill Fairman

01:18:31

It's crazy. It's crazy. The average has been three to three and a half percent since the fifties.

 

Bryan Maddex

01:18:35

Yeah. And you know, mortgage production is down almost 50%. I I've seen a lot of numbers that say 35 to 40%. This will still be about the third best year in the last 15 years for mortgage production. It's just the mortgage production set records

 

Bill Fairman

01:18:50

Had been so high.

 

Bryan Maddex

01:18:51

Right. Right. And so I saw another headline that said, I don't remember who posted it. They said foreclosures are up 440%. Cause they were down a thousand. We had like 16,000 foreclosures and all of 21, which was ridiculous low. And now it's up to a hundred thousand. So yeah,

 

Bill Fairman

01:19:09

It's up a lot. And why was, why was foreclosures down? Not necessarily because people could afford their homes, but they could sell 'em before they got in the foreclosure, they got equity were worth a lot. Right. They could, they weren't walking away from

 

Bryan Maddex

01:19:21

'em and we haven't been doing lending to your point from 2008, we've not been doing a hundred percent financing. People have been committed into the home. Sure. And then equity has just exploded. Right. So yeah, if you're in a bad way sell, you don't have to foreclose right now you can sell 'em and take out some equity.

 

Bill Fairman

01:19:36

So I, I wanna get back to the now to the opportunity that I see. And I wanna see if you have any comment on this. So first time home buyers being pushed out because payments are a little bit high. They have student debt, blah, blah, blah. Even though they're have a moratorium on the payments, they still have to qualify right with the debt and then everything else is going up in price. So it's harder for them to afford a down payment and mortgage payments. I get that. Now we've had empty nesters that have been sitting on the sidelines because they're number one, they're worried if they sell their house, they have no place to go because there's a lack of inventory, smaller homes. Now, if we have these smaller starter homes that are gonna be more available, I see empty nesters, not worried about the higher mortgage rates, because they can sell their home, take plenty of that equity, but it down on the house and get a reverse mortgage. Yeah. And then never have to worry about a mortgage payment, the rest of their life.

 

Bryan Maddex

02:20:34

Right? So the reverse mortgage is a great tool. It got a lot of bad rep in the eighties. Right? Cause there's a lot of people doing some shady things and pushing it to maybe people who didn't need to have that. Well now it's so hard to get a reverse mortgage. You've gotta go through some training and some counseling. Sure. Even to get it, but then they, they have math that they're gonna work out based on your age. You've gotta be at least I think it's 62 and a half or maybe even 65 to get a reverse mortgage. But if you've got assets, right, you sell your house, you could put maybe 50% down. And it depends on your age. Exactly what the requirement is. But you can put, let's say 50% down and then stop making payments.

 

Bill Fairman

02:21:09

Yeah. Done. Yeah. And who cares? What the rate is?

 

Bryan Maddex

02:21:13

Who cares and FHA? What a lot of people think the reverse mortgage, oh, I'm gonna inherit a house. That's upside down FHA caps. How much the debt can be versus the value of the home. It's an insurance policy, right. The FHA puts on that home and they guarantee you're not gonna go upside down and you can't outlive a reverse mortgage. Right. So if you get to a hundred, man, you've been living there maybe 30 years, 35 years, they they're not gonna kick you out.

 

Bill Fairman

02:21:37

Yeah. They they're really upset with my mother-in-law she's 91. She got a reverse mortgage about 25 years ago.

 

Bryan Maddex

02:21:46

Yeah. Living large. Right. That's right. She pays what taxes and insurance. Yep.

 

Bill Fairman

02:21:50

That's it. Yeah. And those are the only things. Well, homeowners dues

 

Bryan Maddex

02:21:53

As well. It's HOA if you've got, so

 

Jonathan Davis

02:21:55

That is an opportunity. I mean, for, you know, the baby boomers that are moving into, into that, in that is the

 

Bill Fairman

02:22:02

Largest. And what else does that do now? It helps with more inventory, more inventory. Now they're gonna be bigger homes. And that may, at some point

 

Jonathan Davis

02:22:13

That has prices have to come down,

 

Bill Fairman

02:22:14

Flatten the, the prices on, I don't wanna say luxury homes, but the probably figure on the mid. And

 

Jonathan Davis

02:22:22

Also when I say prices come down, I mean, not appreciated 19%,

 

Bryan Maddex

02:22:27

You know, like more of a black,

 

Jonathan Davis

02:22:28

More like, you know, like 2%.

 

Bill Fairman

02:22:30

Well, right. I did see some stats where the median home price now is like 4 12, 4 28, 4 28 where it was four 50 something earlier. Yeah. This year, that doesn't mean the prices on these. It doesn't mean the values have gone down. It just means people aren't paying more than the asking price anymore. Right.

 

Bryan Maddex

02:22:51

Yeah. I think in, in may the average home sold for 102% of the list price.

 

Bill Fairman

02:22:58

Yeah. It doesn't surprise

 

Bryan Maddex

02:22:59

Me, which is insane. Right.

 

Bill Fairman

02:23:02

I, I, I bought a lot in Englewood, Florida and the house next to me was pending when I bought the lot and it was listed for 6 99 and it finally went through and I was checking to see what the sales price and they, it was sold for 7 25. So the asking price was 6 99. It sold for 7 25.

 

Jonathan Davis

02:23:24

I mean, I, for example, I've listed a house in Concord in may and it sold for 102% of list price. I listed a house in Charlotte in the end of June and it's probably gonna sell for 98, 98 and a half percent of the list price, right? Yeah.

 

Bryan Maddex

02:23:42

Yeah. The pricing of the homes. And I talked to a lot of my agents that I work with about pricing of right. Three months ago, you couldn't price it wrong. You were gonna get an offer. Right. You were gonna sell that house no matter how you priced it right now, if you price it way too high, it may sit for two or three or four weeks. Oh God forbid. Right. And that's gonna spook the market, like what's wrong with that house. So I've got a agent that I've, I've known for a very long time and he would rather price it a little bit under and get a couple people bidding on that house. He thinks it's gonna do much better if he prices it a little smarter and more conservative, you're not driving away. Some of the traffic from the get go.

 

Jonathan Davis

02:24:19

Yeah. I mean, Don Harris, he's a friend of ours. He listed my house than con Concord. And that was exactly his strategy. Like, Hey, put it here and you know, let the market dictate. And that's what happened.

 

Bryan Maddex

02:24:30

Don is see, as I was talking about

 

Jonathan Davis

02:24:33

Don. Yeah. He's,

 

Bryan Maddex

02:24:34

He's great. He sold lot homes, but he saw quickly that the market is shifting. Sure. Now market shifting the media's gonna say it's crashing.

 

Bill Fairman

02:24:42

Don is not one of the Redfin model.

 

Bryan Maddex

02:24:45

No, he is

 

Bill Fairman

02:24:46

Not. He's an actual professional real estate person.

 

Jonathan Davis

02:24:48

He's

 

Bryan Maddex

02:24:49

Probably the best. But in 2019, 2018, when you listed your house, how long did it take to sell

 

Jonathan Davis

02:24:54

18? 19. Yeah. I mean what it, it would take what? 30 days?

 

Bryan Maddex

02:24:59

Yeah. 44, 6, 8 weeks. Yeah. That's a normal market. Yeah. Right. And so right now people are, oh my gosh. I lifted my house two weeks ago when it's not sold. Yeah. And they think the market's crashing. No, we're normalizing. Yeah.

 

Jonathan Davis

02:25:10

The average day is still 19 days on market. Like we're still that's,

 

Bryan Maddex

02:25:14

That's insanely fast.

 

Jonathan Davis

02:25:15

That's yeah. People, people have been used to you listed on a Friday and you have multiple offers before Sunday evening.

 

Bryan Maddex

02:25:21

Right. They were hoping for 19 hours to get that offer night, 19 days.

 

Bill Fairman

02:25:24

Yeah. So if you're in the mortgage business and you have unfortunately been dedicated to refinancing cash out, that kind of stuff, you're, you're gonna be hurting,

 

Bryan Maddex

02:25:39

Not the best time to be in the business. If that's

 

Bill Fairman

02:25:41

What you do. If, if that is your business model, you know, it's gonna have to change for you. If you're gonna stay in that business. What are your recommendations to, to folks that are doing that?

 

Bryan Maddex

02:25:50

So the, a lot of people, I've got a guy on my team who was in a refinance house and he saw the writing on the wall that rates are starting to go up and he knew I need to get out of this industry of the refi industry because the it's so dependent on the market and rates. And you've seen a lot of people that are used to doing lots of refinances, trying to get into the purchase business. And so you've got a lot of companies, the better dot coms and the ones that are doing the layoffs. Now they tried to keep their staff as long as possible. It's hard to reaff sure. Right. So they hang on and the way they hang on is they try to go very bottom of the profitability of a loan and maybe even take some losses on loan to try to keep volume up.

 

Bryan Maddex

02:26:30

Right? Yeah. We're making up in volume. Yeah. They're trying to protect the jobs. And at some point they just gotta let go and say, we can't manage this anymore. Sure. And we're, we're going to the end of our reserves. So now we need to meet, make profit on loans. We've gotta raise our rates back. That's gonna slow 'em down a little more and they just have to let staff go. So we had the staff up and, and all mortgage companies were insanely short in 20, 20 and 21. Sure. And trying to hire anybody they could. Well, now it's the opposite problem. We have capacity for $4 trillion in production, but we're doing $2 trillion in production. There's a lot of people you don't need. So if you didn't get out already look, but it's hard. If you're a refi guy, it's gonna be hard to get into another mortgage place. And a lot of the people that got in on the refi boom were doing something else before. Right. And we need a healthy pruning of the marketplace. We do. We relocation the workforce. That's

 

Bill Fairman

02:27:19

It for sure. I was gonna say the same thing with the, with the realtors. Yeah. As well. There's a lot of people that are doing it. Part-time

 

Bryan Maddex

02:27:26

I feel like everyone's

 

Bill Fairman

02:27:27

A realtor. These,

 

Bryan Maddex

02:27:28

It has been for the last two years. Yeah. Right. And, and

 

Bill Fairman

02:27:31

Really, if you're only doing a few transactions a year, you're really, unless you have been in the business for 30 years and now you're cutting back. You're really doing a disservice to the public out there because if you're somewhat new to the industry and you're still only doing a few transactions a year, you don't really have the experience that you're gonna be able to help these customers out the best because right. Things of all things change, you see all kind of stuff out there and you really need experience people out there helping you. If you're looking for a home. Yeah. What do you, where, where do you think the opportunities are gonna be for the next year,

 

Bryan Maddex

02:28:10

Man? I I've got some people who think the mortgage, the, the, the real estate market's gonna crash. Right. And they're holding their cash. And I think that they're missing the boat. I, I feel like nationwide. We're about three and a half to 4 million homes, short new construction. You've got about a third of new homes that are built, built directly for rentals. Right. So new, construction's not gonna save the day. It's not a quick fix. The marketplace can absorb some foreclosures, which we're seeing more foreclosures, but that's not crushing our real estate values as of may. We're still increasing crazy speeds. Right? Sure. So I think the opportunity is not sticking your head in the mud and waiting for a year. I think that's, you you've missed the opportunity. I do think we'll see the market open up and get a little bit more normal rates probably will top out in September.

 

Bryan Maddex

02:29:01

Hopefully the way that inflation data, it's a rolling average. They always replace last year's number. And last summer we had inflation numbers that were in the zeros, you know, 0.1 0.4. This year they're being replaced by 2% inflation. So it makes it look like it's much worse than it actually is. September was the last really low number. Come October. We're gonna start replacing higher numbers on that. Rolling average. So inflation should appear to start coming down. That should open up some more opportunity for rates. First time home buyers might be able to come back in into the marketplace a little bit, but if you're an investor, you just gotta run the numbers. And if the numbers work, I'm not sitting on the sideline right now. Right. I, I think that the, the, the boat you're gonna miss is by saying, I'm gonna wait six to 10 months.

 

Bill Fairman

02:29:43

Yeah. Your, your rent are gonna continue to increase over time. Even if your interest rates are a little bit higher than they have been, you know, the issue is you've been typically overpaying for these homes because the values continue to go up. Right. And the way to get around that obviously is to put more money down. Right? So you still keep up with your cash flow, cuz for the most part, we don't see values dropping. We just see the rate of appreciation slowing. Yeah. So those, those properties are still gonna go up in value. You're still paying a payment based on the same dollar figure for 20 years, right. When inflation is going to make that dollar worth less and less and less, right. And while your values and your cash flow continue to go up

 

Bryan Maddex

03:30:32

And people miss that part of your payment is a forced savings account. Right. Part of your payment's going towards principle. Right? So once you calculate in your amateurization growth of the value of your home, right? That's putting equi extra equity into your home every month, every payment, it it's still a good opportunity for most people. Now the numbers might be tighter. Yeah.

 

Jonathan Davis

03:30:53

Right. But it's, it's the whole thing. Like what, what we tell the staff here, when we talk about like, if we don't make loans, we don't make money. Now the market tells us a lot of times not to stop making loans, but how do we change? And in like alter what we do in making those loans, we still have to make them same thing in real estate with you're a real estate investor. You don't stop buying real estate. Maybe you change how you buy it. Change a little bit of what you're doing because of certain market conditions. Right? You don't stop buying because then how do you make money? If you just hold, hold your cash and you do nothing. You're, you're in a 9% inflation period. You're, you're losing a lot of money.

 

Bryan Maddex

03:31:36

You're safely losing money. You're safely

 

Jonathan Davis

03:31:38

Losing money.

 

Bill Fairman

03:31:38

Right. It becomes a contest on how, if I lose less than you do, then I'm winning.

 

Jonathan Davis

03:31:45

And I was, I was the smart one. Yeah.

 

Bill Fairman

03:31:48

So bottom line is as an investor, you make your money on, on the

 

Jonathan Davis

03:31:53

Buy on the purchase.

 

Bill Fairman

03:31:54

Yep. And unfortunately for real estate agents, it's gonna be very difficult to work with investors because you're dealing with houses that are on the market, unless you have a, a line of off market properties. So they're gonna have to buy below market and they're gonna have to put more money down in order to make the numbers work

 

Bryan Maddex

03:32:16

Or look at doing an alternate type of rent. Right. Maybe it's not a long term. Yeah. Purchase season. Maybe it's a short-term rental purchase season. Yeah. Could be right. Your, your margins could be higher. You've gotta run the numbers and you have to have a backup plan. What if that short term, right? What if the, the county puts an ordinance in place and stops short-term rentals? Yeah. North Carolina should be pretty protected from that happening because of the Wilmington case that, that we, we saw Charlotte, I heard had plans to tamp down on short-term rentals. And as soon as that Wilmington case was settled, they stopped that change. But other states, you just gotta watch out what could happen to this short-term rental. Right. But you've just gotta run numbers and it's a business decision, not an emotional

 

Bill Fairman

03:32:57

Decision. And it it's very important point. If you buy for a short term rental, make sure it works for long term because you always have to have an exit there's a, or a backup. Yep. Brian, thanks so much for joining us in person for a change. That's been it. Yeah. Great to

 

Bryan Maddex

03:33:13

Be here.

 

Bill Fairman

03:33:14

Now you get to look at my face. Thank you so much for joining us on the real estate investors show hard money for who? Real estate investors. We are Carolina capital management, private lenders for real estate professionals in the Southeast. If you would like for us to take a look at one of your projects, just go to Carolina, hard money.com and click on the apply. Now tab, if you are an accredited investor, looking for passive returns, go to oh, click on the, in the investor tab. Yeah. Same website. Don't forget to like share, subscribe, hit the bell and sign up for Wednesdays with Wendy. It's been a pleasure. Oops. Can't see that one. See you next week.