022325- HOME SOLUTIONS PODCAST

Episode Transcript

Speaker 1 (00:00):
Good morning, and welcome to the Home Solutions Show. This
is your host Andy Heal with Epic Realty, and I
am joined today with a returning special guest. Jerry is
out this week, but Read Jackson with Cross Country Mortgage
is joining us today.

Speaker 2 (00:19):
Thanks for having me, Andy, It's a pleasure being on
the show.

Speaker 1 (00:22):
So I wanted to chat a little bit today. I
caught an article recently in Yahoo Finance that it kind
of caught my eye and I wanted to talk about it. It
actually kind of set me down a bit of a
rabbit hole. And the article is the headline was Santander
and Barclays cut mortgage rates below four percent. So I

(00:42):
glanced at that and going wait, wait what? And then
I realized, as I'm reading this article, in fact, I'll
read some excerpts of it, Barclays and Santander have launched
mortgage deals with interest rates of less than four percent
as competition picks up in the sector after the Bank
of England and cut interest rates. So the Bank of

(01:03):
England cut rates to four point five percent, its lowest
level in more than eighteen months, offering some relief to
mortgage holders. The average rate for a two year fixed
mortgage stands at five point five to four percent, a
drop from the previous five point six to nine percent. Well,
five year fixed rate deals were averaging five point five
to four percent, So why is this interesting? And I

(01:26):
don't think most of us in this country realize how
good we have it with our thirty year fixed rate product.
I'll get into a little history as we go further here,
but the rest of the world mostly has floating interest
rates and at best they'll have shorter term fixed rate mortgages.

(01:47):
So read being an international person here and having a
lot of knowledge, I thought this would be a great
topic for today. So you have some insight on New
Zealand and Australia and some of the rates and how
things work there, of your input on how the rest
of the world works with mortgage financing.

Speaker 2 (02:05):
Yeah, Andy, I do think we are. This is definitely
the land of opportunity in the US. So as an
investor myself, before I even moved to the US, I
started analyzing the differences. This is twenty years ago. I
moved here in O four. I started analyzing the differences
between what I knew from New Zealand because I grew
up there and Australia where I had property and there,

(02:27):
from my personal experience, there is a lot of exposure
in other countries if you're carrying a large portfolio and
a whole bunch of those notes are only fixed for
a short period of time. It's very typical in New
Zealand that a five year fixed term is the max.
In Australia, there are some seven year products, but not

(02:48):
much more than that. There are downsides to those that
we don't see here In the US as well, beyond
just the short term, they have what's called break fees,
which means, let's say you're going you fix, you think
rates are pretty good. It's a couple of years before
COVID and all of a sudden you're like, I'm going
to take the five year fixed and I'm going to

(03:09):
lock it in at five point ninety nine because that's
the best rate we've seen here in years. Seems like
a great idea at the time, and you don't see
COVID coming two years down the track, all of a sudden,
COVID hits and you oth too, three million bucks and
those rates are now two point ninety nine three percent,
and you're like, hey, I want to REFI. Well, in

(03:31):
the US, that's no problem. There's no early prepay penalties
on these Fanny Freddy loans that we're doing. We cannot
legally have a prepayment penalty for the client. In New
Zealand and Australia, there is a massive penalty. They might
roll twenty twenty five grand on top of your loan
for the interest that you're not going to pay the

(03:52):
bank for the next three years. So there's a massive
risk with locking for a really long period of time
or floating your rate. So they have all sorts of
weird situations over there, where you might have a four
hundred k loan and it's broken up into pieces. One
hundred grand is fixed, they're all sub accounts under your

(04:14):
one mortgage. One hundred grand is fixed for five years,
one hundred grand for three years, one hundred grand for one.
One hundred grand. Floating in Australia is pretty unique. They've
got the offset account where your payroll goes into a
bank account that basically is held by the mortgage company
and it offsets your mortgage by that amount of balance.

(04:34):
So those things are pretty cool, but the risk is
very different to what we see here in the US.
That thirty year fixed is a very unique product and
we are so fortunate to have it.

Speaker 1 (04:47):
Yeah, I pulled a little history on that. I'll get
into it a little bit. But with like the five
year adjustable, and as you pointed out, there's a lot
of risk. Anybody that was locking that five year term
going into COVID suddenly is in a position now where
they have to refinance, if I'm using the proper term.
But it sounds a lot like the commercial market here

(05:08):
in the US.

Speaker 2 (05:09):
It's very similar to the commercial Yes, and you are right.
They call it a New Zealand they call it refixing.
So remember the two thousand and eight meltdown we had
here where everyone was coming off. They're all coming off
adjustable rates, the rates are higher, all that kind of stuff.
Think about an entire country where eighty one percent of

(05:31):
the mortgages that are out there are due to refix
in the same year. That's New Zealand in twenty twenty five,
it's called the Year of the Great refix. Eighty one
percent of those loans. So the people that locked it
in twenty twenty for five years, they're coming off. Some
of those people floated through through the first year and
a half of COVID fixed near the end and locked

(05:52):
for three years. They're coming off and New Zealand that
right now the best two year rate you can get
is four point nine to nine percent, and they have
a one year rate, they have a two year rate,
they have a three year rate, they have a five
year rate, they have a six month rate, and they
have a variable rate. So you know, New Zealanders are

(06:12):
pretty savvy about all of that. And their loan amounts
are significantly higher than what we've typically dealt with in
the US in most years, So you know, there is
so much exposure that we don't have here in the US.

Speaker 1 (06:27):
Yeah, what is a normal if there is such a
thing down payment in like a New Zealand or Austria.
I think that's another thing where particularly it is with
here too.

Speaker 2 (06:37):
Well. Yeah, so the now in New Zealand, you go
to a broker. You don't go to like a mortgage company.
You go to a broker and that broker looks at
you your file and says, I think we should take
this to the Bank of New Zealand and if they
don't want your loan, we're going to take it to
the bank for the A and Z bank and then

(06:57):
if they don't take it, we're going to take it
to one of the lower tier lenders and see what
they think. It's not the same. We can issue a
pre call letter and know that somebody's qualified. I did
it last night between six point thirty and eight pm.
I took an application, got some docks qualified the borrower,
ran it through automated underwriting system and got the loan
approval letter to the borrower. In New Zealand, that takes

(07:19):
twenty one days to get it done. It's very different.
And if you're buying a primary, those banks only have
a very select number of loans that they will do
with a five percent or ten percent down payment. For
a primary, most people have to put twenty percent down.
So in Auckland, where the average purchase price is one

(07:42):
point one million dollars, you have to save two hundred
and twenty thousand. And they do it in a number
of different ways. They have what's called cross collateralization, which
we might see in the commercial world, but you don't
see it in the residential world, where the parents have
a bunch of equity in their house and there's a
being put on the parents' house so that the kids

(08:02):
can get into their first house and have this massive mortgage.
But unfortunately then you have two homes obligated by two
sets of borrowers. So all sorts of weird stuff going
on over there. And it is much harder for investment
properties too. Most of the time it's thirty to forty
percent down payment for an investment property. So again, we

(08:24):
have it so good in the US, and that's exactly
why I moved here.

Speaker 1 (08:29):
Wow, that really is amazing. So it sounds like in
a lot of cases that the parents are a relative
may oftentimes have to help the children with not necessarily
down payment, but cross collateralization.

Speaker 2 (08:41):
Correct so that they have the equity so that the
bank will determine them worthy for lending. It is a
very different environment than what we're doing in the US.
The even though people say it's hard, the housing market
is tougher now than it was. Sure is it tougher.
Definitely when rates are higher, it's harder to qualify for

(09:03):
the house you want, no doubt. But in New Zealand
it is very unusual for somebody under thirty years old
that hasn't already owned a house to go out and
buy a house with one income. Typically you need a
dual income household to be able to make that payment.

Speaker 1 (09:21):
Wow, And it sounds like as a percentage of income,
that's I'm sure like like anything else, it's going to
vary from geographic location to geographic location. But you mentioned
Auckland at one point one million, that seems like a
pretty significant percentage of an average income earner's salary over there.

Speaker 2 (09:43):
Well, yeah, and think about it. You fix now, and
then rates trend up, and you only fix for two years,
and you come off your full point ninety nine and
inflation's grabbed hold of the country and we're back at
six point ninety nine, and you know, your payment goes up,
you know, fifteen hundred bucks a month on the very
first month that you're not fixed anymore, and you're you're

(10:05):
just then hoping that rates come down so that you
can fix again and reduce your exposure for the next one, two, three,
five years, depending on your appetite for risk.

Speaker 1 (10:16):
Yeah, I can see that where that would be really
scary for your average family if you know, they don't
have any way of truly having a fixed payment, and
with that they can't necessarily predict beyond whatever the rate
I'm using the right term. However, long the rate is
locked in, whether it be the you know, one year,
two year, three or five year. Yeah, it sounds like

(10:37):
they're pretty unlikely to go beyond five years.

Speaker 2 (10:40):
Yeah, and they don't. They don't know any better. They
just don't. That's what they're that's their entire market. And
the reason for that, Andy, is they don't have Fanny
and Freddy gobbling up all these thirty year fixed in
the US. Fanny and Freddy are literally taking the inflation risk,
the rate chase risk, out of the hands of the

(11:01):
borrow and assuming it themselves. And it creates a very
stable housing market if those products are used in a
responsible manner.

Speaker 1 (11:11):
Yeah, exactly. And I'm going to get into that a
little bit in the next segment and kind of how
that came about. I'm just I'm a bit of a
history buff and I'm fascinated with how we got to
the thirty year fixed rate product. And I'd love to
talk about that a little bit more when we come
back from the break. In the meantime, read would you

(11:32):
like to share your number for the for the listeners?

Speaker 2 (11:35):
Sure, Yeah, you can get us at the office five
to two zero. Five zero zero five six two six.

Speaker 1 (11:41):
And you can reach me Andy at five two zero
five three nine nine five nine one. And with that,
we are coming up on a break and we will
be back with the Home Solutions Show in just a
few moments. Hi, and welcome back to the Home Solutions Show.
This is your host Andy with Epic Realty and I

(12:02):
am again joined by Reed Jackson with Cross Country Mortgage.

Speaker 2 (12:06):
Thanks Andy, So we were just finishing up talking about
the big down payments needed in other countries for investment properties.
We are super blessed in the US so we can
do investment properties here thirty year fixed with as little
as fifteen percent down. So the gateway into the investment
world here in the US is is much simpler. And again,

(12:28):
as an investor, to fix your eight for thirty years
and know that you know likely during that thirty year
period there's going to be a refinance opportunity that will
likely get you lower than what you are unless it
was a COVID line, that's a different story. We may
never see them that good again. But you know over
in New Zealand, Australia, you know you're putting down thirty
or forty percent to get into a rental property. They

(12:52):
have a term over there called top up and negative
gearing that you know, US investors don't really talk about
because cash flow is king over there. It's very common
to put thirty or forty percent down on your rental
property and still have to top it up with your
own personal income because the rent does not make the

(13:16):
payment on the property. It falls short every single month,
and in that situation, investors are relying on capital appreciation.
Otherwise they're literally losing money every single week. And over there,
it is very typical to pay rent every week. You

(13:36):
don't have a monthly rent. You pay your rent weekly.
Most payrolls are done weekly also, so people are paid
weekly and they pay them rent weekly. So you know,
I think we're I think we're super blessed to firstly
have a thirty year effects for an investment property. Second,
we don't have to spend you know, a decade trying
to save up forty percent for an investment property because

(14:00):
you can't outsave the market at the moment, that's for sure.

Speaker 1 (14:03):
That sounds like a pretty dreadful thing is to save
up thirty to forty percent of a down payment and
then still have negative gearing, as it's called, and that
doesn't sound like investing. To me, that sounds like losing money.

Speaker 2 (14:17):
It is, it totally is, but because you're brought up
in that environment, those terms negative gearing was a term
I knew from probably the age of six or seven.
My mum was a real estate investor and a realtor
in New Zealand, so I grew up in the business.
I think I lived in seventeen houses by the time
I went off to boarding school at age thirteen, because

(14:40):
we would buy one or two houses a year and
do them up. Some of them would get flipped, some
of them get rented out. So you know, it's what
they know. They don't know any different over there. They
don't know how good it is everywhere else, really, and
honestly it's not everywhere else. The US in particular, is
very favorable for a stable house market. If our mortgage

(15:02):
products are given to the right people and they qualify,
you know, it creates stability in our housing market. And
investing when you're losing money every month or every week
in New Zealand, you know, it's kind of like gambling
because you're really just you're focused on what's the housing

(15:23):
market doing. And that is like dinner table talk all
the time over there housing market where we add on appreciation.
We've got to get five percent this year because they're
losing money every week. They've got to see some capital
gain to make them selves feel okay about it. And
you know, other countries don't have a primary mortgage interest

(15:45):
tax deduction. You don't get to deduct the mortgage interest
on your primary residence at all. It's just considered an expense,
you know, get to deduct it against your taxes. And
for the last four years in New Zealand they actually
phased it out on rental property too, So not only
are you not getting any depreciation, you're actually topping up
the mortgage with your own personal income and basically subsidizing

(16:09):
your tenant. And you know, the market's been pretty flat,
so it is pretty miserable compared to what we got here.

Speaker 1 (16:16):
Wow, And that brings up another point that I'm curious
to get your input on, and that's in a perfect world.
What if it's not perfect? I mean, what what does
it take to do an eviction or to get a
bad tenant out of a property.

Speaker 2 (16:31):
It's it's not as easy, it's not as easy as
one would like. I do know that for sure. I've
never had to evict anyone. I did have. Actually that's
not true. I had a property manager take over my
two of my properties in Sydney when I when I
left there in O four and it took them about
three months to take those people to the to the

(16:52):
court and get those tenants out before I could get
it clean to get a new tenant in there. So
it does take a while, and you're getting no rent
during that time either.

Speaker 1 (17:00):
Wow. Yeah, for the listening audience that's not familiar with
what the process looks like, at least in the state
of Arizona, we are actually if we don't get rent
when it's called for, and the way we do our leases,
we don't have a grace period. So technically speaking, if
we don't have rent by the second day of the month,

(17:21):
we can file, or we can do a five day notice.
If that's hand delivered, it's five days. If not, it's
actually ten days because you have to give an extra
five days for the mailing of the notice. But effectively
we can be in court and have an eviction done
and roughly within the month twenty one to twenty eight

(17:42):
days so relatively speaking, that's pretty amazing. And we're Arizona's
still a pretty landlord friendly state in comparison, So it's
kind of good getting some perspective and how good we
really have it when it comes to real estate investing
in this state town. I don't have a whole lot

(18:02):
of times that I choose to use the word never
or the word always. I've tried to do my best
to eliminate those words from my vocabulary unless they are
very intentional. But I will say this, I will never
buy an investment property knowing it would have be cash
flow negative or aka negative gearing in this town. That's

(18:25):
just that's the rule for disaster in the investing world
in my opinion.

Speaker 2 (18:29):
Right, because you know, you're literally subsidizing that property and
you're gambling with capital gains only. And when you're doing that,
I mean that that is an absolute recipe for disaster
because if you have a number of properties running negative
cash flow, that can flip you upside down pretty quickly.

Speaker 1 (18:53):
Yeah, and just the difference between being able to lock
those rates in for thirty years or even fifteen years.
We personally use a variety with our portfolio. Most of
them are thirty year fixed, but we do have a
few that are fifteen year fixed, and in some cases
we'd actually we don't have any ten uere fully amortized,
but in some cases I'd probably prefer that because we'd

(19:14):
like to do on some of the homes, we just
like to rapidly pay them down and get them paid off.
I'm not one to use extreme leverage. I think that's
also a recipe for disaster. But just that one little difference.
If I wasn't able to lock in our portfolio with
thirty year fixed rates, how scary would that be to

(19:35):
even if they were like tiered or laddered over a
couple of years. A number of the loans that we
have were COVID era three and four percent loans. How
scary would that be right now to have to refinance
a number of properties, investment properties at current rates when
you're used to you know, in the threes in the forest.

Speaker 2 (19:57):
Oh, it'd be horrible. Andy, I've got I did I
think ten of my properties during COVID, and you know
they're they're all between you know, two in a quarter
and three in a quarter. Probably I timed all those
pretty well. Those are investment property refis, and you know,
I'm right on that five year term. If it were

(20:19):
in New Zealand, all ten of those would be coming
off and the best possible option over there right now,
and that's after they call it the OCR. The Reserve
Bank of New Zealand has the official cash rate, the OCR.
They cut it by fifty basis points this week, so
the best rate I could get right now is four

(20:40):
point ninety nine on a two year fix. They're trying
to get people to fix for two years because the
bank thinks there's going to be further cuts, which means
the variable rate will likely be lower than four point
nine to nine. So they're trying to entice people to
lock for the four point nine to nine. And remember
you can't just break that and then refinance. You get
these break fees which are thousands and thousands of dollars

(21:03):
and sometimes tens of thousands of dollars if you just
started your turn. So they're trying to entice people into
four point ninety nine. But even going you imagine five
million bucks coming off an average blended rate of three
going to five two points, that is a lot of money.
That's one hundred thousand dollars a year in interest alone,

(21:25):
your payments go up by a little over eight thousand
bucks a month. That could put a pretty big hole
in your pocket pretty fast.

Speaker 1 (21:34):
Yeah, that's pretty darn significant. And again, what's pretty amazing
about how the mortgage debt is structured in this country.
You basically have the the government loan programs taking a
significant portion of the risk with Freddy and Fanny and
the others, where they're basically taking the inflation risk. I mean,

(21:57):
it's so amazing what we do have with these product.

Speaker 2 (22:01):
Oh absolutely, and it's almost you know, it makes no
sense for a bank to do this because you know,
let's say the Bank of New Zealand was doing thirty
year affix over there. You know, they would have been
absolutely killed in the last few years because you know,
they can't borrow the money that cheaply. Yet they've got

(22:21):
all these loans out there at two and a half
three percent that's costing the money essentially they'd like to
relend that money at five or six or seven and
they can't get it back. I think also Fanny and
Freddie they work in their algorithm that the average mortgage
is only going to be in existence for five to
seven years. Although you know, the people with COVID loans,

(22:45):
we're not going anywhere. We're keeping those properties as long
as we can. It's going to be a ripple effect
for a couple of decades. I think I definitely feel
like I'm not letting go of those properties anytime soon. Yeah,
I know.

Speaker 1 (22:59):
I'm not planning on letting go of any of my
nice two, three and even four percent loans for as
long as possible with our program. Of course, if someone
wants to and has the right to exercise the option,
because we do a lease with an option to buy
type of program, of course, that would be the exception.
But what a great hedge against inflation when you have
these beautiful low interest rate loans. So now with that,

(23:22):
we are coming up on a break. This is Andy
Keel with the Home Solutions Show and we will be
right back. Hi, and welcome back to the Home Solutions Show.
This is your host, Andy Keel, powered by Epic Realty,
and I'm again joined by Reed Jackson with Cross Country Mortgage.
Thanks Andy, and the previous segment a couple segments. Actually,

(23:44):
we're talking a little bit about how mortgage rates work
and how mortgages work in the rest of the world,
specifically New Zealand and Australia. Let's circle back here for
this segment. Talk a little bit about what interest rates
are doing this this week.

Speaker 2 (24:03):
Sure, so, Andy, it's been a you know, it's been
a bit of a volatile run, to be honest. We're
coming down one week and we're ticking back up the
next week, and it doesn't really seem to matter what
Jerome Powell does. We're just volatile at the moment. You know,
the market at the moment is is really we Our

(24:24):
thirty year effised tracks It doesn't track the Fed cash rate.
So you know, the Fed's cut the cash rate one
hundred basis points since September, and we are essentially exactly
where we were in July on the ten year treasury yield.
And why that's important is in the US, the thirty
year effixed does not track the Fed cash rate. It

(24:47):
tracks the ten year treasury yield because that is the
long end of the curve. So when we're talking about that,
what really impacts that ten year treasury? And you will
note that you starting to hear on the news that
Trump wants to put some pressure on the ten year
treasury yield he's not going to try bullying Powell into

(25:08):
cutting the cash rate. He's going to work on factors
that affect the ten year treasury yield. And that's because
that ten year treasury yield is what drives long term
interest rates. So when the ten year treasury yield goes up,
mortgage rates stick up. When the ten year comes down,
rates come down. At the moment, even though the Feds

(25:28):
cut one hundred basis points, we are still today basically
exactly where we were in July before they started talking
about the rate cuts. And it's been an interesting time
because we've had a couple of dips. First week of
September best rates we've seen in eighteen months. We had
another slight dip at the very beginning of December. The

(25:51):
December dep lasted for four days. That was it. I
managed to talk to I don't know thirty clients and
got about fifteen Refhi's done for those clients, and then
the rates were gone again. And that's because the ten
year started taking off because there was talk of tariffs,
price increases, inflation, all of that kind of stuff. So

(26:14):
essentially the ten year is basically a derivative of market sentiment.
It's not directly impacted by what the Fed's doing. So unfortunately,
if everybody's talking about inflation going up, mortgage rates go
up even if the Feds are cutting the cash rate.
So right now we're stuck around six point eight seventy
five on a thirty year fixed and that's where we

(26:37):
were back in July.

Speaker 1 (26:40):
And where are we at for the other array of products.
So six point eight seventy five for a thirty year
fixed conventional, I'm assuming that would be like a twenty
or twenty five percent down type of rate.

Speaker 2 (26:50):
So that's based on a twenty percent down And you know,
if you go if you if you put forty percent
down on a thirty year fixed, you get a slightly
better rate. And that's because there are what we call
loan level pricing adjusters, which means it changes the pricing
and the loan and it makes us makes it possible
for a loan officer to give you a better rate

(27:11):
because you're putting more down, there's less risk in the loan.
Therefore it's a better price product. Fifteen year products. To
be honest, twenty five year products always price the same
as a thirty year fixed. There's really no incentive to
do a twenty five other than you're going to pay
it down slightly faster, but there's no better interest rate

(27:32):
for that. A twenty year is quite unpopular because it
is marginally better than a thirty year. Typically you'll find
a fifteen year at the moment with the spread the way,
it is at least a full percent lower on the
fifteen year than the thirty year. And what we really
love about the fifteen year is, let's say you've got

(27:53):
a borrower that has a six to twenty credit score
because somebody forgot to pay the cable bill at the
second home. The fifteen year, if you're doing a rate
and term refire, you're not taking money out that fifteen
year can or a purchase. It completely disregards the credit score.
As long as you've got a qualifying credit score of
six twenty, you get perfect credit pricing. So there's some

(28:15):
pretty cool features with our fifteen year deal.

Speaker 1 (28:19):
Wow, tell me more about that, read I have never
heard that one before.

Speaker 2 (28:22):
Yeah. So, because the loan itself pays down the principle
so quickly, the investors that buy that, ie Fanny Freddy,
they know that's a low risk product. If a borrower
qualifies for the income debt to income ratio piece of
the fifteen year. It means, you know, they're pretty comfortable,

(28:43):
they're able to make a really big payment, and they
still meet our debt to income ratios and they're going
to pay that principle down really quickly. So it completely
disregards credit score with regard to pricing. So if you
do have a derogatory thing because something happened and you
can't get rid of that on your credit, we sometimes

(29:05):
switch out good borrowers in that situation to a fifteen
year because we can get them ultimal terms with that
low credit score. Now, if they're taking cash out, there
is a hit for credit score, But if it's a
purchase with a fifteen year loan, or it's a refi
with a fifteen year loan, it doesn't change the pricing.

(29:26):
If they're putting twenty percent down, forty percent down, bad credit,
good credit, it's all the same.

Speaker 1 (29:33):
Wow, that is actually the first I've heard of that,
So it sounds like that it's a great solution to
a situation where you have a borrower that makes sufficient income,
but as you said, maybe they forgot the cable bill
or forgot to pay a cell phone or have a
little bit of a credit hit that hurt them a
little bit.

Speaker 2 (29:53):
Yeah, they're not disadvantaged at all by doing that option.
And you know, we've done quite a few of those
fifteen years. I will say it's a lot hot or
with rates the way they are, because you've got the
fast amortization on the loan as well as you know
in general higher interest rates. But there are definitely still
some people that fall into that bucket. We're finding a
lot more people in the byside that are coming in

(30:16):
with larger down payments these days. I don't know if
I've seen this many deals getting done with four hundred
grand down on a six point fifty k property. We
are seeing a lot of that going on at the moment.

Speaker 1 (30:30):
That's interesting. Are you seeing a general trend that you
can talk about there? Is it folks that are selling
other properties or that's usually unusual historically to me?

Speaker 2 (30:40):
Yeah, usually it is. It's usually somebody that's selling the
departing residents and wants to dump all of their equity
into the new property. And in the old days, like
even remember coming up to COVID, there were some years
there where we were in the three point five three
point six two five on the thirty year fixed. So

(31:01):
at that point the stock market was doing a little
better than that. So when people were trading up houses,
sometimes they wouldn't put all that money into the down
payment on the new house. They would keep some and
they would invest it because they might be getting five
or six in the market and paying three and a
quarter three and a half three point seventy five on
the mortgage. Right now, they're you know, it feels like

(31:23):
that market, that stock market's pretty bubbly. I don't know
if i'd be putting any of my collateral into that
in a hurry right now. So I think we're finding
people are taking all of their proceeds and dumping it
into the new property. And you know, we've definitely seen
fifty percent house appreciation since twenty twenty to now. So

(31:45):
if you had a four hundred k property then with
a two hundred k mortgage, it's very likely that you've
got a four hundred and twenty k equity stake in
that departing residence right now, and people are literally taking
all of that money and putting it down on the
new property when it sells.

Speaker 1 (32:05):
Okay, that makes sense. We're mentioning the fifteen year mortgage,
and Jerry and I ran across what I thought was
a bit of an anomaly a few months back where
I had an investor and this is where it's a
very different thing when you're going with a owner occupied
fifteen year loan versus an investor fifteen year loan. I

(32:28):
have one investor several that that I work with that
are intent is to buy properties and then pay them
down rapidly. We don't want to take any cash flow out.
We just want to pay them off as quickly as
we can. So it made sense to get fifteen and
we're even twying with the idea of doing a ten
year loan. We actually opted to do a thirty year

(32:49):
fixed rate well because the price break didn't justify it
for the investment property. Is that are you.

Speaker 2 (32:56):
Still sing and Andy? That is definitely nothing new we have.
We have seen that, and that is because there is
no appetite on Wall Street or Fanny and Freddy for
those particular products. The average investor is cash flow driven,
not interested in pounding down on the mortgage. So what
we do we we would typically show them, hey, it's

(33:20):
it's not an incentive to be locked into this high
repayment amount. Take the thirty year investment product, because it's
sometimes it's even priced better than the fifteen year, if
not exactly the same. They're not obligated to make the
fifteen year payment, but we can give them the fifteen
year amortization and say, okay, so whatever the standard payment is,

(33:42):
add four hundred and eighty dollars a month to the
top of it. It'll change each year for taxes and
insurance changing. Just add four hundred and eighty dollars to
the top of it and you'll be on a fifteen
year amortization. But you're not obligated to make the full payment,
just the regular thirty but if you add, you'll get
there in fifteen years. So we do that a lot,

(34:02):
and that's typically because you know, I'm not sure about you,
but I don't I don't see people going out looking
for a fifteen year fast for paying loans, and it's
kind of an anomaly.

Speaker 1 (34:14):
Like you said, yeah, that's most investors are doing exactly that,
looking for the cash flow. So I guess that makes
sense to a certain extent, But I was really surprised
that not only is there no price break, it's it's
in some cases. I think I said even the fifteen
was higher than thirty.

Speaker 2 (34:34):
I had absolutely seen it worse. I have definitely seen
it worse for a fifteen year investment property loan.

Speaker 1 (34:41):
Yeah, well, real quick before the break, where are we
for FHA and VA rates right now?

Speaker 2 (34:46):
Too? So those rates are sitting around the low sixes.
It's moving quite a bit at the moment between you know,
six point zero and six and a quarter today. You know,
we're starting to see some market improvement, and we've been
told the float, the market sentiment is float over the weekend.
We've got some data coming out next week, so we're
hoping to see those at six or better for the

(35:08):
Gouvy leans.

Speaker 1 (35:09):
All right, well, that would certainly be nice if we
could see those, Even if we could see below six,
that would be a welcome relief.

Speaker 2 (35:16):
Here see a five handle, that would be really nice.

Speaker 1 (35:18):
Yeah, I'm not sure, but I'm hoping. So with that,
we are coming up on a break. This is Andy
Keel with the Home Solutions Show, and we will be
right back. Hi, and welcome back to the Home Solutions Show.
This is your host, Andy Keel with Epic Realty and

(35:40):
you can reach me at five two zero five three
nine nine five nine one, and I'm again joined by
Red Jackson with Cross Country Mortgage. And if anyone would
like to reach out, do you read what is your number?

Speaker 2 (35:56):
Thanks? Andy? You can get me at the office on
five to zero five zero zero five six two six.

Speaker 1 (36:02):
All right, And at the beginning I kind of mentioned
I wanted to go into a little bit of some
history here because I just am fascinated by this and
the why behind we where we are today. I just
want to share a little research that I've done with
the audience here and then we can talk about it
a little bit more so if we turn back the
clock before the nineteen thirties, buying a home in America

(36:23):
was completely different. Home loans typically required a big down payment,
like fifty percent or more, and we, much like the
rest of the world now, had terms of like three
to five years, and oftentimes balloon payments were very common.
For those of you that don't know what a balloon is,
it's when the whole balance is due in a few
years into the future that can be a very scary ordeal. So,

(36:48):
you know, for our younger listeners, putting this into perspective.
If you're buying a three hundred thousand dollars home today,
you might put down thirty thousand dollars or ten percent.
Back then you'd have to put down one hundred and
fifty thousand or the equivalent thereof. And instead of having
thirty years to pay, you've got three years to figure
out how to do it because that whole balance is

(37:10):
coming due. Talk about a scary thing. And this was
as recently as back into the nineteen twenties, and back
in that era, only about forty percent of Americans owned
their own home. So as we got into the Great Depression,
by nineteen thirty three, the housing market pretty much had
collapsed in this country. Statistically, I'm looking at some data

(37:35):
here that says nearly half of all mortgage loans were
in default and over a thousand home loans were foreclosed
every day back in that era, which was a pretty
significant amount. And it gets interesting because Fink, President Roosevelt,
and Congress saw this as an opportunity for a big change.

(37:57):
So in nineteen thirty four they created FHA and that's
where really things started to change. So FAHA began ensuring mortgages,
and this is what really changed everything for this country.
So it dropped the payment down payments from fifty percent
down to twenty percent and then eventually even lower. So

(38:19):
the loan terms eventually extended from five years to fifteen
and then eventually to thirty years. The nineteen thirty eight
Congress created fanny MAY, which is short for Federal National
Mortgage Association. That was another big game changer, and that
really allowed banks to go onto the secondary market. And basically,

(38:42):
it's like the money is always in motion, so they
could sell the loan, get replenished back, make another loan,
sell the loan, and it was like a perpetual motion
machine basically, and thirty years as historically as I understand it, it
was actually carefully thought because if you're thirty years old

(39:02):
and buying a home, you should have your home paid
off by the time you hit retirement age at sixty
beck in that era, so that thirty year fixed product
was really thought through. So pretty fascinating stuff is how
we historically got to where we are today. And then
it even evolved more. In nineteen forty four, the GI

(39:23):
Bill created VA loans for veterans, and that added a
whole new aspect to some lending ability there. So that's
a little bit of our history and I'm going to
take a quick walk around the world here, like with UK. Now,
my research basically tells me that very much like Australia

(39:44):
and New Zealand, it's very common for fixed rate products
to be just two to five years and then they'll
switch to a variable rate after that or what was
the term you used, read.

Speaker 2 (39:56):
The oh, you mean the floating rate or.

Speaker 1 (40:01):
When they had to when they have to get get
a new get a new.

Speaker 2 (40:05):
Rate after this, they call it refixing.

Speaker 1 (40:07):
Refixing, Yeah, so they'd have to refix the loans and
then actually working with another one of my clients is
an investor that is actually having a house built in France.
We're talking a little bit about what that looked like
and in this case having an overrun there. But for example,
in France, it's not at all uncommon for them to

(40:31):
do a fixed rate but usually twenty years is about
as long as it is it gets. And French banks
are extremely strict with their lending criteria. From what I
understand that they use what's called a thirty three percent rule,
So your total debt can't exceed thirty three percent of
your income total debt. That's tough in this country. What

(40:51):
I mean when faha loan, what is it? Read like?
Fifty six point nine nine is central back end ratio for.

Speaker 2 (40:58):
Yep, forty six point nine on the front, fifty six
point nine to nine on the back, which is your
total debt ratio. So yeah, you're if you're at thirty
three percent, that is very strict lending. It creates a
very stable market, but it's also a huge barrier to entry.

Speaker 1 (41:15):
Yeah, So I just I really wanted to point out
to the to the audience of frankly, how good we
do have it in this country with with our mortgage
products and with the various programs fha VA, Fanny Freddie
and the you know the alphabet soup of government agencies
that help that keep the wheels churning with our financial markets.

(41:37):
So yeah, any any thoughts on that read?

Speaker 2 (41:41):
Yeah, I think just to reiterate that we, like you say,
we do have it great. We can fix for thirty years,
but if something better comes along, we can immediately refinance.
And especially in Arizona, Arizona is a very cheap REFI state.
Other states not so much. It's thirty forty fifty percent
more in Texas, Florida, California, Nevada, New Mexico. It's been

(42:05):
more expensive everywhere except Arizona. So you know, I think
we're we're very fortunate that not only can we lock
for the thirty years, but we can have our cake
and eat it because if something else pops up, we
could just refinance and get that and then we can
you could choose to reamatize it over the entire life
of the thirty year product again, or you can ramp

(42:26):
up your paintments. There's no early prepays, there's no barrier
to taking advantage of a better offer, whereas in those
other countries you have to pay massive amounts of break
fees to break out of your two or your three
year or your five year fixed if a great opportunity
presents itself. So I feel like I feel like we
do have our cake and we can eat it here too.

Speaker 1 (42:49):
Yeah, we've we've really got some huge advantages compared to
the rest of the world. There's a couple other little
articles and statistics I was glancing at that I thought
we're worth mentioning an article here Weekly Housing Market Update.
This is coming from the National Association of Realtors and
this particular article, it says this week existing home sales

(43:12):
sales ticked up to a six month high pace of
four point one five million, and it's tipping this They're
saying it tips the scale of the housing market back
in favor of the sellers.

Speaker 3 (43:26):
And I'm still not convinced of that. I'm seeing a
lot of mixed signals in the market currently, where I'm
seeing a fair number of price reductions.

Speaker 1 (43:36):
I mean, things are moving, but I'm kind of, you know,
a bit of a wait and see type of mode
myself of where we're going. Is that some of the
data and some of the things I'm seeing show that
the market's getting soft. But I'm also seeing, you know,
the spring market is coming to life. I mean, how
are like mortgage applications the last couple of weeks.

Speaker 2 (44:00):
Yeah, we so so. Typically in the mortgage industry, Super
Bowl Sunday is the start of the pre qualification spring
buying spree. It started two weeks early this year. We've
had We've had a lot of new applications come in,
you know, and I'm not talking a couple I'm just

(44:21):
saying application volume is probably up thirty or forty percent
over early January, and it wasn't it wasn't a terribly
slow January by historic numbers either. Our branch volume was
much higher than January last year. And you know rates
haven't been amazing this year either. That's the interesting part.

(44:43):
So I do think, I do think we're going to
continue to see a fairly stable housing market because there
is a there is somewhat a shortage of inventory. And
if they if they start jacking up the price of
lumber with all the tariff and stuff for Canada, where
all our software comes from, you know, housing permits and

(45:06):
housing starts, those things will slow down immediately as builders think, man,
do we want to start building or start applying for
this new build right now? And that has a two
year lag, So what they're not doing now is going
to affect the supply of properties in a couple of

(45:26):
years time. Multi units are at a very very low
level of permits right now, so there is going to
be likely going to be a shortage of multi units
a couple of years down the track. Yeah.

Speaker 1 (45:41):
And it just so happens that I pulled a chart
from the Federal Reserve Bank of Saint Louis or Fred data,
and this is specifically for Tucson. I was looking at
the new private housing units, basically building permits for new construction,
and as of December of twenty twenty four, it is
I'm looking at this graph that goes all the way

(46:03):
back to January of twenty and we're actually at a
lower number of new units than we were in January
of twenty twenty. So historically speaking, the only January of
twenty twenty three was actually really significantly lower in here.

Speaker 2 (46:20):
And that's rate. That's when the rates started getting high.
So you know, that January twenty twenty number is a
baseline of a normal market. We didn't know about COVID
at that point, really, and it hadn't really hit the
US until March of twenty twenty. So that's a relatively
pre pandemic, non effected baseline right there. And to see

(46:41):
us drop back to that level this year, you know,
interest rates have definitely impacted in January twenty twenty three,
and honestly, I think all the tariff talk and you know,
all that stuff is playing into the minds of the
builders right now.

Speaker 1 (46:56):
Yeah, So until we get our housing starts up, I
don't think we're going to have unless there is some
kind of a much bigger event. I think we're going
to have a pretty stable housing market because we do
have a housing shortage both multifamily and single family. So
with that, we are coming up on the end of
the show, and again this is Andy Keel with Epic

(47:16):
Realty and thanks for joining us. Reed Jackson with Cross
Country Mortgage and we'll hope to hear from you next week.