[Music] welcome to sax Real's Tuesday night podcast where we talk about anything and everything real estate each week we deliver expert information enabling you to make better informed decisions while keeping more money in your pocket if you're interested in real estate this is your [Music] show hey guys Welcome to our Tuesday Night Live and I'm honored tonight we have a guest that flew in John cutme uh John um actually when I was in Puerto Rico last November I met Brent Johnson and uh Brent and I have podcasted several times on the show he has the dollar milkshake Theory uh John actually your co-host of his uh of your YouTube channel you guys do it together uh but it's interesting because um Brent called me a couple of weeks ago and said hey you and John ought to get together and uh and this is what he said I'll tell you um he said it'd be nice to get somebody on the show that doesn't agree with what you have to say so I thought you know what hey that's a great idea uh we've done it before but um John and I are going to agree right off the bat to disagree on some things and uh but you know with what we have spoken off camera I think we actually agree to more than we disagree to fundamentally speaking in the housing market and you serve the housing market so welcome thanks for coming in um I didn't realize that you were living in Australia I thought you were in Hawaii you lived in Hawaii now you're in Australia but anyway John um welcome and uh tell everybody who you are and uh what you do in the housing market business well thank you for having me um you know you you do a phenomenal production here it's it's very well done very well prepared so good in fact I was willing to drive or fly I should say 24 hours to come and join you now I was actually already um coming back this way to for business purposes catch up with family and as you mentioned the opportunity to join you here was presented and you know I leapt at uh jumped at that opportunity um we did have uh a fun introductory phone call to kind of feel each other out it was supposed to be 5 10 minutes turned into 90 and we said we should have put the cameras on so hopefully we can uh reinvent some of that fire because it was definitely an inspiring conversation I think we will I think we will but interestingly enough and I didn't know this about you you lived in Maryland I did yeah yeah I spent a little bit of time in Ocean City Maryland after I graduated from college it was kind of like not wanting to get rid of or let go of the college lifestyle and so Ocean City Maryland is is a crazy party town and so I I did about an 8mon um Hiatus I guess you could say and I really enjoyed it there I love the state of Maryland and it's good to be back yeah well tell everybody what you do because you are in the real estate business and and uh yeah so just kind of fill everybody in on uh what you do yeah so um for the last I'd say 20 years of my life I've been in the mortgage business now I've operated my own company for about 15 of that and uh we are a Direct mortgage lender now there's a lot of complexities to how the mortgage industry works that I think a lot of people don't realize um maybe we could talk about that later after some of our friendly debates but um we recently developed a software product I shouldn't call it a software it's more kind of a website that uses Ai and algorithmic um calculations to help people make the correct mortgage decision a lot of people don't realize that all mortgage rates are more or less cookie cutter it doesn't matter what bank or lender you go to when we're speaking of conforming loans the loans that fit into a very you know generic footprint um all those loans are priced the same and everyone is getting the same interest rate what you end up shopping for ultimately is what One bank or lender is charging you a margin on top of that and so we created a tool called lens.com that basically gives um borrowers and anyone who's looking for a mortgage access to live real-time rates so you don't have to go through all that um hassle of talking to people and asking for a rate quote you can get it all instantly and then the analytic tools are there to to basically solve what exact interest rate you should choose based on your situation in a matter of seconds and none of that requires any email no login no personal information so we're really proud of that so so that's taking the 15 20 years of experience I have and trying to automate and disrupt the mortgage industry that I think has become um very lazy in terms of of prioritizing the customer experience and that was our main focus with building this yeah well you picked a fine time to launch it I know I mean really you know interest rates are cyclical I mean the industry of real estate's very cyclical I think we saw you know the fastest rise in interest rates in a very long time you know 40-year inflation led to bond investors dumping bonds and and mortgage rates Rose because of that I think that short yet volatile credit cycle is now rolling over so I think we will see improvements in both the bond market and therefore lower mortgage rates over the next two years yeah I interview a lot of people I don't I do have a lot of real estate industry guests on our show but it seems you know a lot anymore uh we've been kind of diving into the macroeconomic uh uh Market you know or or U uh topic um there's a lot going on geopolitically you know I mean uh when we're talking about the housing market it's easy to say people can't afford housing right now and um a lot of it is and the more I learn because you know and I'm sure John you've been this way too but when um when you work in an IND industry for a long time you kind of get focused on the actual transaction action of the the client that you're working with right away right now right so and for me that's helping buyers and sellers buy and sell property so um or managing agents and doing that same test so so it's kind of hard to look at sort of like the why things are like they are right now you know why is inventory down why is I mean we can guess we can sit here and speculate all day long a lot of it is inaccurate reporting um you know a lot of it is we're finding lately has been off-market sales being a big part I mean when you when you look at um you know subject to uh transactions that are happening wholesale transactions that are happening uh the homeowner on the Street's best friend's kid buying their house um a lot of these transactions have been happening uh without the you know being in the the MLS so um you know so my eyes have been open to a lot of that uh but also when we're looking at um the unaffordability issue we have to dig deep and look at some of the reasons why you know the investors coming into the market we'll talk a little bit about that tonight because I want your opinion on some things um and um and really now uh which is really interesting that's happening and I'm learning this as as I'm diving more into these uh macroeconomics and geopolitical issues is that a lot of foreign investors are buying up our property and um and the reason why they're doing that or some of the reasons why is because they're not investing in uh treasuries us treasuries so they have the money and they're going okay do I put it in a US Treasury or just buy the US land right and they're feeling like they'd be safer a lot of in a lot of scenarios buying a US land um so you know we're looking at things like kind of through a a a lens that is skewed it's not really exactly like we think it is and we don't see that at least I don't when I'm helping buyers and sellers on an everyday basis but um I want to we're going to dive in and by the way guys i' love to have your comments and questions be nice to Johnny flew in for crying out loud I mean let not um uh let's not be too mean to them tonight you know it's fun I live in Australia I can take it they're look here as long as you don't say date the rate okay that's going to be a big no no for let's just clear the air right now I'm not going to say that I've never said it and I never will yeah I just heard the CEO of red fin say it on a podcast anyway um you guys can drop your comments to that but um let let's dive in because and I'm not look this has nothing to do with your competitor or may I don't know whether you're competitors or not but go banking rates.com published an article here that's basically said that there are 10 areas where home prices are plummeting and um we're going to go over them real quick Portland Oregon San Francisco San Antonio Riley San Jose Denver Kansas City Cincinnati um Oklahoma City and Miami um John what do you think you think uh what do you think is going to happen to the housing market as far as prices I would I would start by saying your introduction to the topic you mentioned um I think use the word kind of things are kind of skewed a certain way one way or the other I would encourage everyone to Google logical fallacies um because I think at the same time that we want to spin and say one narrative is falsely painting a picture it's very easy for us with various logical fallacies based on our own biases or whatnot to to paint the picture the other way CU that's how we want to see the world um I think there's things that for ex you're going to have to give us some examples but go ahead I mean everything you you kind of mentioned I could I could rebuttal and say I don't necessarily think that's the case um the argument now you think that homes aren un I'll start with for example foreigners not buying treasuries so this is so Brent and I have been doing this podcast milkshakes markets Madness for two years now we've done about 120 episodes um we cover almost the same Concepts the topics are different but the concept constantly is is that the narratives are always ignoring what the data is showing you don't think foreigners are buying our land they certainly could be but to say that the foreigners are giving up on us treasuries and therefore all that capital is flooding into the housing market or into buying property and therefore making it affordable I would I'd want to say show me the data because right now the data is showing that foreign purchases of treasuries have haven't been high higher than they are now in decades so so the the data is actually showing the opposite it doesn't mean that they're not buying property I'm just saying when someone presents to me that argument I would say okay well the data I have seen says that treasury numbers are up from foreigners so that would therefore say well show me the data where they're they're scooping up property I will also mention that um Brent and I have another project called the macro Alchemist it's a research paper that we will'll be doing once a month we released our first edition today you can download it for free at macro alchemist. and ironic it's all about the housing markets globally and a lot of the capital flows that have gone out of China especially in the markets like Canada and Australia if there's ever a housing bubble affordability crisis it's in Australia and particularly in Sydney and in those markets I think it's much more clear that you've had this foreign Capital coming from China into those markets particularly because they were encouraging it through visas and other types of uh incentives to to bring in that Capital um you know when it comes to the article you just mentioned I I don't know the article I haven't seen it but plummeting is is meaningless to me so plummeting is 5% 10% 20% is it 20% year-over-year if so 20% from what if those markets were up 80% yeah they they have if uh Joe if you want to pull it up there are percentages that are onsite but no and again and again it's it's like comparing two houses together too right so I mean I get it I'm just saying I before I have an opinion on anything and I think one of the fun things we'll have in this debate is sometimes I'll just be playing Devil's Advocate because I feel like so much at the time you know we might have a a lot of people still have this like PTSD from the GFC from 2009 and they just can't shake it so it's every little data point fits into the bias that this is going to be the end of the world and I'm not saying that that's not possible I think there is a real probability that we could have a serious uh economic crisis in this country during the next 24 months but we got to look at you know look at it objectively and and sometimes these logical fallacies come into place sometimes the story sounds better than what the facts are actually supporting and so I do think there's some real um weak points in in very specific markets but I don't necessarily see that across the country in the data yeah well we'll get into some uh you know a lot of um you know of the houses that are being purchased by I mean Canada is probably one of our largest buyers uh foreign buyers you would think it would be China but Canada is actually number one um and then I think China is right behind that uh but really when we get into um re regardless of the fact um we know that they're buying our property right sure um and we know that housing is unaffordable would you agree with that housing is at the highest unaffordable unaffordable rate in history yes right yeah so um I guess the the question comes back do you think home prices are going to decline I think the future so I'm more in the in the belief of not necessarily belief but I I think the way I approach things is to prepare not to predict um I think there's three things that we all need to be watching one is the employment rate um the other is inventory and I think the third is is interest rates and so I think employment's probably the the biggest factor to all of all of the economy and and certainly to the housing market now if we see an increase in inventory even if you have a healthy economic environment and people are employed because of that competition you're going to see prices come down but at the same time I want people to keep in mind that the Federal Reserve does not control mortgage rates mortgage rates are determined by the bond market and we're already starting to see in the last week of of data from the CPI prints to um the retail sales numbers today to you know the fed's monetary po policy decisions and the FED minutes Everything feels a bit more hawkish it feels like you know recession or a slowing economy is in the in the cards and because think bonds are going to drop I think bond prices are going to go up which means interest rates are going to drop so I think it's important to look at things holistically so do we have some you think bond prices are going to go up and interest rates are going to drop that's how bonds and rates work they're inverse so in this environment where we are potentially sliding into economic uncertainty and inflation is no longer a concern now when I say inflation why would anybody invest in a 30-year fixed rate mortgage if it's paying them less than a bond would it always has there's always been a margin between the bond coupons what they're going to get on a mortgage and what they would get on the treasury bond now usually what you're looking at so if you would look at the difference between a 10-year treasury yield and a 30-year mortgage they've basically mimic each other and there's always been a spread of so when when bonds went up to 5% that's why more why didn't rates drop because the bond price on treasuries the price of the treasuries declined therefore the yields went up and so it's inverse so what you actually had was the interest rate on Treasury bonds go up because investors were selling bonds right so as investors we're like inflation is at a 40-year high I don't want to be stuck in fixed income because inflation erods the principal value of well they have to encourage people to reinvest in them the reason they way they do that is raise the interest rates so they can make more money but the FED has nothing to do with the the treasury yields but you're not investing in treasuries if it if the rates drop what do you mean why would you invest in a in a treasury if you're not getting a decent return interest rates on treasur are dropping because people are buying the bonds so the so the I'm talking about the bond market yeah yeah they're not buying the bonds who's not buying the bonds you just said people aren't buying the bonds no I'm saying the reason why interest rates went up the last two years is because of the in inflation numbers investors don't want to own bonds when inflation is uncertain because it's going to erode the principal value of their investment what I'm saying now is the inflation Outlook is certainly not one where people are thinking at least Bond investors are thinking that inflation is going to keep going up at the 4 to 6 to 9% trajectory it did from 21 to 22 we're seeing year-over-year inflation numbers on CPI at 3% the FED has a target of 2% right so if the bond market agrees with that we don't have to get into whether you believe the government numbers of CPI the market trades on that so if the Market's like okay inflation's not not as scary as it was I could go for you know buying a 5-year treasury bond and getting 45% right the more money that flows into that bond market is going to push the price up and interest rates down eventually investors are making the same decision about mortgage bonds now your question is why would they go and get a 30-year buy a 30-year mortgage Bond and get 6% when they can buy a government treasury bond for Less duration at 5% generally speaking people are assuming that that 30-year mortgage bond is going to pay off somewhere between the 5 to 10 year mark so that's why you see yields on mortgages almost mimic identically the 10-year treasury bond you think interest rates mortgage rates are going to drop I think mortgage rates are going to drop because I think we're already seeing money flow back into the bond market the treasury bond market which is pushing treasury yields lower mortgage bonds are going to follow suit we've we've seen that the last two weeks so we've been on a nice slow steady Improvement mortgage rates when you look at mortgage rates as a national average it's a very ambiguous number but we're we'll use it for argument sake here it's dipped back below 7% um what we call Par in the mortgage industry meaning an interest rate where there's no fees on either side of it that's now 6 and a half% on a on a conforming mortgage so we're we're getting back to an environment where I'm not saying affordability is being solved but again looking at things holistically if you have an uptick inventory okay that that could help on price pressure but at the same time you're seeing interest rates declining that's going to bring buyers in theory back into the market so I think I'm less of the mind that you're going to have some sort of dramatic crash in housing because I think buyers are are in on the sidelines and if we do see this trend in interest rates continue over the next two years or even just 6 to 18 months I think it does put some support under the housing market now there's plenty of markets that got way out of control I think the poster child of all of this is Austin and is Austin going to continue to suffer maybe but everyone knows real estate's Regional and so it's it's it's dangerous to look at articles that are handpicking 10 cities because they're the most hyperbolic and making a point like there's some broad-based uh economic or housing crisis in the US not saying it can't happen I'm just saying I don't see so you think people are in pretty good shape financially um I think from what I'm seeing from credit reports Etc and the stuff that you know working with the clients that we see I think they look about as about the same as I've seen in my 20-y year history which is a lot of people are levered up um they are you know the they're under a lot of credit stress and so the question is does this interest rate situation create an environment where people can refinance that high interest rate debt that they have become so accustomed to doing so they can reduce their their debt obligations that's back to the date that's a nice way of saying date the rate no it's not it's it's it's a way of saying that people that people haven't learned in three decades how to live within their means they're lesson they they've learned to finance that and and yes you know whether you're looking at you know governments coming in and and taking over Fanny May and Freddy Mack in some form or another and conservatorship Etc um however you look at the ious types of bailouts that have happened it's kicking the can down the road I get that but that's that's the economic system we're in it's debt based and if the debt system does not continue to grow it implodes and this is I think where you and I agreed on our first conversation I don't think it's a healthy system I don't think it's sustainable but I also don't think cheerleading the end of that system um will bring the result that people are really prepared for I don't think people are really prepared for a situation where the entire system implodes and I don't think governments Banks and all the the the you know lawmakers and decision makers of the world are going to let that happen so I'm much more of the belief prob probabilistically that they're going to Kick the Can again and so how and when that comes in does it come in before crisis or after yeah we'll see so let's talk about interest rates because we'll talk about the can kicking because uh we had a conversation about the Freddy Mack uh the opinion that was put out there for uh Freddy Mack basically um buying second mortgages um trying to tap into the equity that uh they think America has and and uh so I'll say before we get into that you know um it's interesting because I spent a lot of time driving around and we're probably in one of the most insolated states that there is in the country I mean we're right here at the government we have the federal government we have Washington DC we have you know um military uh installations we have the FBI we got we have it all right NSA we have there's a lot of good jobs here in Maryland right and um but I also see um with that and we're probably in the median income somewhere around $90,000 in uh median income where other parts of the country I mean nationally I think it's 34,000 or so wow um but I say that because I'm out on the street every day driving around we're helping serve people that would love to buy a house and um we're starting to see in the neighborhoods the Decay the the showing up of financial distress right I mean but I don't have to pick the 10 top cities that are that exploded the most we exploded 20 some per year-over-year I mean I think that's pretty bad right but I also see where people have put the brakes on and it's and we're seeing bi remorse like we've never seen yeah I've been in this business for a long time yeah right um serving the housing market um 35 years okay so when I when I talk to people that you know when when they say this will never happen or whatever I I just go okay we'll see I remember the late 80s early 90s right well you know we had people being foreclosed on in big scale um certainly we we've had an amazing run the financial crisis we were the first in Maryland we were the hardest hit and the slowest to come back so we're not just looking at top cities and Publishing in some article but my point is is that let's get back to um I want to just say there laying the foundation um because it's it's one thing to hear even you say it you talk about these you know uh sites that uh you know um oppose what's being out in the public um saying that they're not true or or or not accurately depicting narratives well I could say the same thing as you saying that I see things completely different as you do and then I could really dive in and say well how many loans are you doing is it a big drop off compared to you know 5 years ago right yeah so I mean it's all Everything's Relative right yeah so I this goes back for me at least to the logical fallacies and the idea of how many people can you or I talk to 550 500 I'm not basing again I'm not I'm not applying my bias to this I'm just trying to step back and look at the force for the trees yeah and so it's not about my personal experience because that's how logical fallacy comes in you start painting things into your narrative I'm just say saying so far it has to be personal experience if you're in the industry you're seeing it firsthand yeah but if I'm seeing something firsthand and it's 100 people I can't then extrapolate that how do they come up with CPI how do they come up with their inflation they're polling sampling you know right people how do we know what inflation is well they're taking a sampling I mean if you take a good sampling of a 100 people and you say that 30% of those are XYZ I think it's fair to say that it's you know you could say it's just an isolated thing but then you have to talk to other people that are in the industry across the country right which I do yeah but anyway let's get back to interest rates because yeah I think I'll add one piece to that I'm not in disagreement that there's defin we need to be on our toes here I think it's more of a devil's advocate push back because there is a because of the affordability issue I think there is a hostility about the current situation and I think the natural tendency is if you can't benefit from the current situation you're frustrated with it then you want it you want to burn it to the ground but you said that the fir this is the first time in the history post World War II you didn't say that but I'm saying it this is the first time in history where housing and affordability has been at it's worst yeah I mean it's it just I wouldn't say barely but it only just surpassed 2009 and now it's back it's coming back down and it it hasn't really been affordable since before 2000 so really greens spand post.com that's when we really booted the can and said we're just going to keep the house of cards propped we all know what they did during the GFC and then what the garbage they pulled during the the 2020 night Fiasco is completely unexcusable and and I'd like to add a piece that because I think this is something too that I I try to um Infuse into these conversations is that it's real easy sometimes when you're sitting from a perch to be frustrated or to to say you want certain things to happen because you got a stock not you personally but stockpile of cash you you've already you reached a point in your life where you're getting you know your fixed income Social Security and you're retired or even more so just recently over the last two years you were able to lock in at two and a quarter and you don't really care what's going on you've got $200,000 of equity you got a 30-year fixed rate that that's insane and so it's it's fine to jump on to this Narrative of like the systems all a scam and there's going to be bailouts but you were bailed out you were bailed out in 2009 that's why you still have an economy that functions that's why you have a house with equity and in 2020 the treasury market is the world's Global collateral and it was who was bailed out in 2009 everybody was who the housing market was I mean we had the 6 million people I understand houses I understand that and again I'm not I'm not forgiving any of this I'm just saying like look where we're standing right now so I think Wall Street I mean Banks were bailed out Banks were bailed out I think people were bailed out but the housing market recovered right we didn't have some sort of 10-year depression there weren't breadlines they came so we had a 10-year it was the housing market full out was a decade for some markets yes but it was still there if you bought a house in 2006 you couldn't come out of that house and sell it and break even until 2022 that's not true it is true it's not true and a lot it's true right here a lot of places but again that's your your this is your local market and that's a pain point you felt here and I can empathize with this but that's not the national story and so and again yeah go ahead different price points but yeah yeah there are certain price points where you couldn't get out the point I make more so that I want to make is in in 2020 you had treasuries trading like penny stocks the market had seized up entirely it was in in completely illiquid and behind the scenes if you're having treasuries go no bid mortgage bonds went no bid okay and at the same time you had the government without really talking about what was going on in the financial side of things decide very very quickly that it was forbearance for everybody no one had to make a mortgage payment well the way the mortgage is recently This Is 2020 March 2020 now everyone's sitting around watching their TVs and all the co and it took four Co lasted four years yeah but the point I'm making here is that all of that was going on nobody was paying attention because everyone's watching the drama on TV meanwhile the entire bond market is seizing up right if um if the government is giving Congress is giving forbearance to everybody now that means the service ERS the big servicing companies like the Mr Coopers and the and the quickens and the rocket mortgages and all these companies that collect the payment from the borrower they take a servicing spread and then they pay the rest of that to the bond market the bond markets guaranteed their income no matter what the servicers have to pay that whether the income's coming in or not now all of a sudden you have a national forbearance all these huge mortgage companies no now have no income and they have to continue making those payments so you you had a massive seizure of they got to pay taxes and all of it so you had the entire housing market collapsing behind the scenes and no one was paying attention we all know the FED came in bailed out the treasury market started buying mortgage back Securities a month and a half later we're at all-time record low mortgage rates so that was a $6 trillion doll bailout that anyone who owned a home and refinanced into 25% benefited from so I don't agree with any of it I'm is a fair I don't think this you know it's the can't tell an effect everyone who's close to the faucet you know gets more of the benefits and so I don't think any of that was fair but the point I'm making is that a lot of people enjoy the benefit of that bailout but now at this time when we're getting into talking about Freddy Max seconds and you know people with you know various situations who need a credit Lifeline now all of a sudden it's some sort of you know unfair silly government program that's out to steal the homes of of of all these people with equity and I I think it's complete nonsense those second mortgages are going to allow people who are in credit distress to tap into Equity that right now they don't want to tap into because the government got involved with markets push interest rates down to record low they don't want to touch that mortgage if the government had never did that and let's say the pandemic thing never occurred and we had most of the country sitting at somewhere around a 4 and 1 half 5% mortgage which is more or less where things were well right now all of those mortgages would just be doing a Cash out refinance well you benefit a lot by that we benefit no matter what there's there's loan vimes going on right you're not benefiting now when there's no mortgages being written but if I mean if if if Freddy Mack comes in and allows people to tap into the equity you're going to write those loans yeah but what's the equity going to be 50,000 100,000 afford the payments they're paying $330,000 credit cards they're not paying them they're paying minimum payments you think if they're you think if they're going to tap into their Equity to get take the money out of their house and they're buying down credit cards they're going to shred their credit cards or I don't think they're going to do that right they've never done that that's I'm not again that's not the the point I'm making here but I mean we have to really look at why they have the money on their credit cards in the first place because they can't they can't manage their spending a lot of it is they're putting their gas in their food on their credit cards maybe maybe but again I think that's extrapolating things to this hyperbolic nature that's that hyper that's on that website that you're saying it's fake data what website that whatever you were saying the the you know debunk what's out on the internet you think that people aren't charging their groceries and I don't I don't I don't I don't know what they're charging in in and entirely but I don't again this is how we started the conversation I don't know if if if someone has a $20,000 credit card bill do I don't know should you know that before you write them a home equity loan or a second mortgage what what they're spending their money on yeah not necessarily because I think the the bigger point is the composition of the situation right so if somebody has a $500,000 mortgage right and I'm honestly talking about this the the likelihood that I write any second mortgages is extremely low it's just not in our wheelhouse but I'm looking at this objectively in terms of the type of people who can benefit from this let's say they have a $500,000 mortgage it's at 25% they've racked up $50,000 of credit card bills right it they're suffocating under this I don't know if it's gas or if it's just because they're going out to Buffalo Wild Wings every Sunday to watch football or what the costs are I've seen people put put College tuition for their kids in their Equity I've seen them put it on credit cards I'm not here to judge how they're living their life I think people need to really re that in but that's their lives they have Equity that could be used to consolidate that payment to make their financial monthly burden more comfortable all I'm saying is it's not some sort of gimmick that Freddy Mack is getting into to suddenly trap people into second mortgages so they can foreclose and take over all these properties you have a 2 and a half first you have a second let's say the first is 500,000 and the second's 50 that's a $550,000 loan it'd be no different than if they weren't married to that 2 and a half% rate if they had a four or five people wouldn't be second guessing about going out and getting a 6% combined total 550 loan I think what they're concerned about is not taking the home if they can't pay it I think they're concerned that we have a recession we're only the heels of a massive recession and unless we inject cash in consumer's pocket they're going to stop buying and when they stop buying the [ __ ] hits the fan well retail sales came in today it was revised negative last month and it was slightly under expectations so the the consumer is slowing but I don't think again going back to this Devil's Advocate to an extent I just don't think that's well they're racking up their credit card bills maybe but that's you just said it that's what they're doing they're not anymore so they're either tapped out or they're getting to the point where like I can't keep spending like a junkie because I can't afford the payments so what do you think interest rates are going to drop to what do you think what do you think the realistically what what do you think mortgage rates are going to go to I don't like um predicting I prefer preparing but for the for the thought experiment you know the 35 40-year trend line and in treasury yields suggest that we could see a two handle on the 10year again so mortgage rates in the fours in the fours because the margin between the 10y year and the 30 is usually somewhere around 200 basis points or 2% well then they could just refinance their whole house they don't need to do a two you know a second mortgage agreed you know what's really possible is let's say Freddy Mack comes out with these second mortgages by the time they even get any kind of traction we could be in an environment where someone's looking at it objectively and be like do I take a 9% second mortgage with my 2 and a half or do I just refinance into a four and a quarter I I think I think there's I think it would be lunacy for mortgage rates to go anywhere in the fours at all lunacy historically I think it' be a horrible mistake that's one of the reasons why we're in this mess but we have it's it's not a a switch that somebody flicks so if investors are worried about the economic Outlook they're going to buy bonds it's it's just the reactionary mechanisms that has existed for 40 years in in capital markets you know I don't think I think that well I mean historically mortgage rates have been 7 point something per over a 50-year running average me like 7.7% something like that for a 30-year fixed rate mortgage I mean obviously you've had the extreme of the you know the 80s right from the 70s into the 80s and then you've had the extreme low that we had since the GFC was the first time we went in the fours yeah but Todd I think um I think there's they did that to stimulate but I think there's a disconnect between how the machine works so almost all mortgages now it's not the 80s where Banks were making loan decisions based on you Todd Sachs my local customer who comes in gets his checking account the the FED is charging x amount for overnight lending we're going to tack a margin onto that and give you a mortgage that's not how it works nobody is getting a mortgage interest rate based on fed funds or because the bank knows you it is determined nationally by the mortgage bond market when investors are worried about recession they're going to buy bonds when capital flows into the bond market it's going to push rates uh price up on the bond which push interest rates down so when I'm talking about mortgages being 4% it's not because of anyone's deciding that other than invested investment Capital following the current economic cycle mortgage rates weren't 4% until the FED started buying mortgage back Securities whatever the the reason that we got there is not the point the point is the the machine and the way it works the way mortgage rates are determined is the bond market so if we if we are unable to get lower on the tenure and get lower on mortgages without the FED coming in that's a totally different conversation but right now mortgage back security margins are just above 200 basis points they're right around 220 so if we get and I don't know this is going to happen but if we got back into the twos on a 10e because we hit so let me take a step back and say this so you seem to have a bearish outlook on things you you're feeling the consumer is struggling people are are unable to potentially make their payments or keep up with upkeep something really really negative is going to happen if that is the case when we if we went into a really serious economic crisis interest rates are going to plummet because investors are going to and it won't work just like it didn't work in 2007 hold on though I'm not talking about the FED making a decision to cut rates I'm talking about the capital markets investors deciding to buy bonds because that's what they do during times of risk off when they buy those bonds the price goes up and rates go down so the thing that you're talking about happening because of your experience everyone's allowed to have an opinion on the market this is your opinion if the things you're talking about happen the knock on effect is significantly lower interest rates you're not going to have the crisis you're talking about without got significantly lower rates even before even before the FED responds even before the FED reacts the FED will be a reactionary mechanism the market will have already sniffed it out we're always too late yes they'll be they'll be responding to the I I guess where I'm coming from is not really from an interest rate driven perspective mine is purely from a consumer um consumer struggling consumer sentiments so we're not talking about the top 5% of income earners here we're talking about about Middle America and um firsttime buyers which make up consistently over 30% of their home purchases year-over-year I think actually that's dropped in the last year for the first time in a decade um what what I'm really getting at is and it's an interesting perspective and I don't think we're going to be in the fours I Me Maybe we would be in the fives I wouldn't think fours but I mean you're in the mortgage industry um but regardless of that um I think the FED dropping their overnight trading rate would be catastrophic it to our economy right now I mean we've seen the results of free money and what that has you know netted us as far as I mean we've gotten more you've talk about stimulus we got more stimulus than we ever have uh we've had lowest interest rates that we ever have and we're in the worst shape than we've ever been and that's certainly arguably uh you know uh you know um whether that is true or not um but I can tell you that um go to the grocery store man expensive I mean come on man a $100 bag of groceries is like what what did I buy right you $300 isn't anything at all and I see people that are making very good money yeah that can't afford to do home repairs yeah and they bought a house right all right so what do you think what do you guys think how we are we having some fun yet we really do like each other it's just a good conversation it's good stuff um and I want to I want to add one one thing I'm not it's not a strong prediction I'm just saying the 35-year trend line the support and resistance we I could see us touching a 2% yield it doesn't mean we sit there for 3 months doesn't mean we sit there for a year it could be 3 weeks could be 3 days well I think here's the nice thing John is one day we're going to be able to look back at this and we're going to see what happened right and I mean I think that's the big thing is uh you know um I don't want to be right I don't want to see some major crash in the economy and everybody lose homes and well I don't think in this I think we'll just keep bailing people out I don't know that we will continue um to lose homes I think people will wonder whether they should have paid their payments or not they might be like hey man I paid my payments and I'm actually the one that's penalized I paid my student loans off and I didn't get a refund check in the mail uh you know I did you know so I mean I think it's what's what kind of a message are we sending Todd I'm I'm way more on that wavelength than anything I think the the push back I have overall I think we're getting into granular bits here but the push back I have is the likelihood that we have some sort of Armageddon crisis is a much lower probability than we have a a a sharp pullback and then there's a government response and so to your point it's the people who who take foolish and immense risks blow things up either get a bailout or go bankrupt and then jump back into the market that end up benefiting the person who's just trying to be honest about it yeah you know work their 9 to-5 save so they can you know have a family have a starter home they're the ones who keep getting stomped on because of student loan forgiveness and all these types of things so I I'm not a fan of the system at all it's just I don't I'm not in the camp that we're going to have some sort of 2009 GFC 2.0 yeah I just don't think that's the case well I'm not in the I wouldn't put anything past it because we're in a way bigger bubble uh now than we've ever been uh we've just been kicking the can down the road I think that um you know if we see you said it if we the key is going to be what happens to employment uh because none of this really none of this conversation matters interest rate doesn't matter home prices don't matter none of it matters if people start losing their jobs and we see some outrageous unemployment rate which I'm not Beyond um I don't I don't think it's beyond thinking that that could be a reality when we're looking at I mean just some of the automation that's coming the next round of automation is going to be massive right I mean I remember going to school in the 80s and you know um seeing this introduction uh to data processing and that's what it was called back then and um and and just how that round of automation has probably affected our wage growth I mean if you look at you know housing price growth versus wage growth in America we really haven't Advanced as far as financially yeah right and and you could there's a lot of different reasons for that I mean you could blame offshoring and you know money going into uh you know uh the the of big corporations profiting I mean where you have a CEO making 200 million a year uh you know some kind of crazy you know number but um rolling it back a little bit because I you know my whole premises in what I believe is that a a home price correction is 100% necessary and that means prices have to go down the the only thing that would offset that is wage growth we would have to see median wage earners not be $35,000 a year right and with the way things are going with uh the Amazon effect I'll just say that doesn't look very promising because small businesses who are the the bigger Employers in America are not going to be able to afford to pay and big corporations just won't pay average workers you know double salary just because home prices or cost of living is gone up so I think we have a major disconnect in America um and part of the disconnect is people don't really know what's happening on the street level um the other thing is so we say okay well how will that happen how does home price correction happen if we're not going to see wage growth people can't afford the house either interest rates have to drop way low mhm right for % or below and what will happen to asset prices go through the roof oh go through the roof yeah so that's not really a that's not really going to solve anything here so what doesn't solve the underlying fundamental issue which is number one we've over financialized the economy um number two we have a huge huge wealth Gap and everything that went on during 2020 just made that even more excessive small businesses were forced to shut shut down right meanwhile companies like the Amazon and and whatnot of the world just took on a larger share I think more and more automations coming for more and more jobs does that ultimately lead to Universal based income I don't know but you start to get into this world of surfo that would be China right now right well look I just building a middle class you don't have any control but we're just going to make you a middle class Citizen and you have your Ubi convers yeah Ubi is a whole Rabbit Hole in itself but I I do agree that you have like we said earlier there's these three pieces um wage growth is never going to keep up with inflation it never has um wage earners have been getting scammed for decades and so if you if you aren't buying assets or building a business you're just continually getting left out and that's why you have a rise of populism that's why you have these extreme situations in our political classes this is why you have Democrats and and Republicans fighting fighting for the same thing but they're being I think LED astray about where the real problem is and it's it's these policies that are being in place to more or less um continue a machine of inflation a machine of making the rich richer and I totally agree that that's not fair um so you and I are on the same page there I think there a lot of the problems start in in Congress but I I don't I don't think it changes what's ultimately coming which is I I think we will see a slight pullback in home prices I think things will become more affordable based on price alone but at the same time I think you're going to see interest rates respond to that because of the dynamic of of home prices are coming down it's probably because there's something going on underneath the hood of the economy I'm going to go buy bonds because that's what I do during riskof environments that's going to push interest rates down so I do think you could have this tit fortat situation that's not my 100% case I'm not predicting that I'm just saying I'm more on that side of the camp right now than I am that there's going to be this because look we if if the government can go and print5 trillion dollar they don't actually print but if they can you know click a mouse click a mouse more or less and create Bank Reserves of $5 trillion that lead to all these other types of things like stemies and Loans well what's going to stop them from doing something similar in the next situation to to keep the the music playing and I don't underestimate them from taking things even further yeah for sure um how do you think housing became so unaffordable in the first place I mean when we look at um uh opportunity I mean look I love being an American I mean it's a it's a great country right I'm not I'm proud to be here I think we're you know uh one of the best countries in the world I me where we can have opportunities and make money and but not everybody is geared to be self-employed um and I wouldn't recommend it it's not easy yeah it's not easy um how do you think we got here and um you know what about what about the uh I mean look at homelessness how about the amount of people now that are living in Vans and cars RVs now we're talking about tiny homes sheds in the backyard converted to a home I mean how do you think we got here I think it started with more or less the the first real major bailout which was long-term Capital Management um there's a book called when genius failed which is related to the Asian currency crisis um so all the smartest guys in in finance basically got together and had a hedge fund more or less and they put a one-way bet the wrong way and I think that created the beginning of this pracy this um artificial fed put right that the people at the top know other people at the top and we're all going to get bailed out and if you kind of follow if you pull the the yarn from then it it just gets more and more and more extreme so then you go into the dots then you go into the 2009 then you go into the 2020s I think it just keeps going until something happens where we literally do have this big reset and I think people romanticize that I think it'll be a horrific thing like guns and and butter type of um lives like you're going to really have to fend for yourself um and before that happens I could see them kicking the can two or three more times coming out with even more extreme bailouts and I think it creates more poverty and I think it creates a a larger wealth Gap so unless we want to you know start lighting these things on fire and and start the revolution right here right now um I think that's kind of my devil's advocate that I push back on people is like you you I understand where the frustration is and the disgust for the system but everyone's still partaking in it to some extent and so at some point you either completely go Anarchist and reject it or otherwise you know the blood's on your hand maybe not as much as the next person but we're all kind of participating in this in this broken form of capitalism you know um you you said something earlier uh you said starter home and I think that along the lines of what you're just saying um you know we we don't build affordable housing anymore I mean we we just don't we have them for years um the cost to build I mean you know look that I mean these home builders are publicly traded too right uh they're big industry some of the biggest lobbyists in y the United States home builders so as a builder what do you think the solution is given the Monopoly that they hold to be able to build more affordable housing well you know um you have to redefine what is affordable housing because if you're thinking about affordable housing from a uh government subsidy you know subsidized affordable housing that's not affordable at all okay okay I mean that jacks up the cost to the rest of the community that's being built and developed um the issue is there's a lot of red tape to develop there's a lot of cost soft cost to go in before you can even stick a shovel in the ground um I think that like we did after World War II we cut the red tape that we had back then which is a lot less than what we have now and we encourage developers to build smaller housing to where they could profit to do so I mean and businesses are entitled to a profit don't get me wrong I'm not saying I mean we wouldn't be in business if we didn't make a profit you wouldn't you're in business to make a profit that's okay in fact you want a business to make a profit especially if it's a good business because you don't want them to go away you want them to stay in business but the issue becomes you know if we're not encouraging and we're we're stuck in this mindset teaching our youth that this is a starter house when really it should be just your home it you shouldn't have to worry I mean look many people grew up in a three-bedroom one bath four bedroom one and a half bath four-bedroom two bath home that was 1,200 ft 1400 Square ft they didn't know that that was a starter home the kids are happy they're playing outside they're enjoying life and a lot of those people still live in those houses today a lot of my friends parents they're not planning while moving the average you know person stays in a home for seven years or you know whatever and and you're going to move up and you're going to don't worry you can settle for this now you'll move up one day don't worry about it this isn't a permanent thing I think we should be focusing on laying down roots and being happy and satisfied with where we are and I think that we should encourage more of that development because what will happen is you know when we think about when we think about government subsidized housing as an affordable housing solution nobody wants it in their neighborhood I mean that's what everybody says well that's great but I don't not hear oh we don't want that we don't want to bring values down right so I think we have to rethink what is important in our life you know and and we there are certain things that we should be profiting big time on if we can if successful at it building unaffordable housing in order to make a profit should not be one of them and so what happens is a developer takes a decade to break ground on a major subdivision in a lot of cases they have to go through all this civil engineering they have to do Soul borings put in infrastructure that cost millions of dollars and then what happens is um if they built a smaller house they wouldn't make money it wouldn't be worth it so we've kind of taken this whole housing market and flipped it upside down and now we're at you know and we we're now at a point where it's like okay well now what because all we're doing is building this inventory this overpriced inventory so now we're looking at it is we're selling a payment not an actual asset price so a lot of what's happening is we're in a very vulnerable position because these people are buying houses at the alltime high price with a payment that they can afford or questionable whether they can because that even changes right so now we have a situation where if those asset prices adjust at all they're screwed you know if they come down at all they're screwed you need 10% Equity to come out of a house on average by the time you pay transfer Recreation fees commissions things like that yeah I have um two thoughts on that if you don't mind me jumping in one is I think there needs to be greater um accountability to everyone involved in the process from the loan Originators to the Realtors um and there needs to be more of a fiduciary responsibility to when and how you are encouraging people to enter 100% enter these housing markets there's too much of just straight profiteering yeah 100% but that has nothing to do with the builders because they don't even have Realtors no no so the other thing I would add is I because we kind of talked about this earlier I think the the real point that you're making is the financialization of real estate how people have turned it into a a a game a Fix and Flip to profits instead of just this is your house this is where you're going to raise a family um I kind of have a thought on this I feel like because what I've been seeing the last um 18 months as people have been kind of Tippy toeing back into the market um again the like the data you presented I think you got to take that into consideration if you're an active buyer right now and you're watching certain markets coming down 20% you should be asking yourself is this going to happen in my market and the same type of debate we're having they should be having in their household like what's what what do we believe or feel Could Happen what's the the data suggesting what are the experts saying I think what has been going on at least since um after the GFC is the financialization of real estate was already a thing Rich Dad Poor Dad mentality but I think people have started treating it as a as a straight as a pure inflation hedge so I think people have finally woken up I think Bitcoin has helped people realize this the bailouts of of during 2009 and then 2020 was basically a bucket of cold water to everybody people were suddenly were like wait why do we exist in this monary system if they can just do this and print money and so I think people have realized if I don't put if you ever go to a hyperinflationary country like in Argentina you you you can see firsthand what it's like when your money hyper inflates you second you get it in your hand it's losing 10% 20% and you immediately want to put it something into something we don't have hyperinflation in here in this country not even close but we do have a inflation long-term inflationary Trend problem and I think people are it's now ingrained it's now become cultural people are like I'm going to lose value on my dollar whether or not this house massively appreciates or not or now is the right time or not or interest rates are high or not I can but they don't have money no but before we get into call saying everybody's poor and can't buy a house let's let's let's assume at least there's a section of the population who's who's in a position where they can at least consider buying a home I think the reason that people are doing it with maybe not necessarily without fear but with some level of conviction is because you know if I don't buy this asset when I look back over the last 20 years or if I look at my Gen X parents and what they've experienced in house appreciation like I just need to sink this this deflating or inflating away paper money into something so that even if there's bumps along the way even if my money goes to zero I'll at least hold this house now what a lot of people are waking up and realizing that it costs three times to buy the house when they pay for the mortgage payment well there's that but I think it's more so that owning a home is even if you PID it all cash you never own it because you have taxes and insurance yeah and these are also things that I think and it's also a depreciating asset yeah but I I think one of the reasons I I'm just adding to the fact that you're talking about affordability right right whether things are affordable or not I feel like people are one of the reasons homes aren't affordable is because inventory is low which means buyer demand is high and I think people are just like I understand real estate I can live it in it I can rent it I get the Dynamics of it I don't understand the stock market Nvidia is up 300% what's Bitcoin I don't get it it crashes it's a scam so I just need to put this money which is going to be 10% less than what it is now next year in something and I think that's a big part of the psychology of of the housing market whether that's healthy or not that's just something that I feel like is a possibility yeah no I'm with you um we talked about one reason of unaffordability okay that's in a new housing market um what role and you kind of touched on it with Robert kosaki right great book by the way Rich Dad Poor Dad right um what do you think about the role investors have made uh or have contributed to with the unaffordability crisis in housing I think they're an easy scapegoat um I I don't have enough of long-term data to be making these arguments again I've really push the whole try to stay away from logical fallacy things I would say um I think they they help affordability certain types of investors do um because they're the ones that are going in taking risk taking hard money loans at 15% taking something that's not a livable piece of property um fixing up and and and improving neighborhoods and having inventory to the market that's a little different than you know big investors coming in and buying up um properties for Buy and Hold purposes and and eliminating inventory but that at least on the large scale level the the corporate level the blackstones of the world that's less than 1% of housing Supply so I think investors play a pivotal role in in the housing market overall and I think they will continue to do so because going forward you're going to have a lot lot of baby boomers leaving this planet God bless them um and those properties are going to need to be upgraded and prepared for you know younger buyers to come in and take them over and I think that's we say less than the blackstones of the world are less than 1% of the rental population less than the housing 1% of the housing of the of the housing uh yeah rental market do you know what that number is no I don't not I mean I I I could get that pretty quickly because I have a chart saved but I didn't look at it before we got on the call well I have some numbers here okay um as of 2021 there were 14.3 million single family rentals in the United States that's 33% of all renters one in three renters in single family homes not Apartments what was the 33% part so you said 14 million rentals 14.3 single family I'm not talking about multif family apartment building I understand so 14.3 million single family rentals in the United States okay 30 3% of all renters okay including multif family okay are in single family rentals okay okay that would indicate that there's about 42.9 million households that are renting single family houses I'm I'm sorry that are renters 42.9 million households are renters in America okay that's a pretty big number almost half okay right and according to the United States Census Bureau we have about 127 million households in the US okay all right so that's about 33.8% of the households are renters are renters that's probably a pretty accurate number okay 60 some per of home ownership okay I mean the government's always trying in the past has been trying to push that number up right to get people to contribute more more to GDP they're going to fix it up a lot nicer if they own it than If a landlord owns it property taxes yeah property well they're getting the property taxes anyway from the investors sure right somebody's paying the property taxes so my question is does it really matter who whether it's blackstones that are owning 14.3 million single family rentals somebody's owning them and it's not it's an investor now whether it's a small mom and pop investor that has one or two or whatever the fact of the matter is that we know that a third of the buyers in the single family Market have been investors that's a big number okay we know 30 some per first-time buyers 30 some per are investors buying it for rent yeah and the number of sales that are all cash indicate something similar oh that's the other thing so my question is do you think that that's right that we should allow the profiteering to exist in the single family Market or do you think that Real Estate Investors especially the blackstones should be focused or pre prevented from playing in that market and I know that's kind of a qu you know it's kind of you know because we're capitalists we're you know land of opportunity but what how do you these numbers are pretty staggering and when we're looking at a lack of inventory and people that are renting these houses that would rather buy them they want to be I mean a third of all renters are in single family homes obviously one in three want to be in a home they're in a home yeah so I wouldn't I wouldn't sneak in the word Blackstone because then that becomes the focal point of the conversation we don't know how much we could well you said the black Stones so the black stones of the world black Stones meaning private Equity versus how many of that is Mom and Pop but I think across the board My Philosophy in general is far more libertarian about all of it um I don't think we should be getting involved saying what someone can or cannot own um I think the market will regulate itself the problem is we don't let that happen and the second that there's any kind of issue in the capital markets they get bailed out and especially when it comes to the the consumer mainly because the consumer votes and politicians want to hold their positions of power and so they're going to find a way to win those votes and and save their constituents and I think if you did not have the housing market treated as the Cornerstone of our economy real estate wasn't such a big lobbied industry etc etc then that would balance itself out and and a lot of that Capital would find a home someplace else it would would seek yield elsewhere and for during the period of time that a lot of those blackstones were entering the single family uh rental market it was almost purely because the FED had enacted Zer for 15 years they had kept interest rates at zero so these massive entities with tons of capital couldn't get yield they couldn't go into the normal Capital markets or buy a risk-free treasury bond and and get the necessary yield that they needed Pension funds insurance companies these are who you know the the blackstones and the private equities help manage money for in some some cases so they went into into the rental market because it's the only place you could you could get a cap rate of 4% um so the FED is directly responsible so in a lot of ways it's kind of this you know arsonist and firan in in in one situation and uh so I think for Me overall I don't think we should be going in and saying okay we're going to cap you at three properties or we're going to cap you at this we just need to stay out on markets and stop juicing them and stop bailing them out do you think we ought to charge them more in property taxes do you think there should be some kind of a you know like a more of a discounted rate for uh owner occupants and more of a fee based you know hey you want to buy this house and G gain the appreciation over time uh or you know profit on it on a from it on a monthly basis you think that they should pay any kind of Premium to be honest and this is coming from a real estate investor I'm just asking the question right I'm not to be honest because I'm not a policy maker I haven't thought about you know thought about that deeply enough because um on you know on principle it sounds like a good idea the problem is and I can tell you this is somebody who spent a lot of time a lot of energy and a lot of capital trying to reduce my tax burden as much as possible it's kind of like the the whole um narrative about the Elon and the Jeff Bezos of the world not paying any tax and it's on one hand it's not true but on the other hand that's exactly what happens the tax system is set up in a way so that complex tax system yeah so you you these entities are going to find a way to navigate it so it's it's kind of like wa water always finds a way it always finds the crack it always ends up going to the lowest um lowest spot and I think that's ultimate would be the case and you can see that throughout the history of our government every time they come up with some goofy policy or tax incentive that has some other type of KnockOn effect or you know businesses find a way to work around it that's why people moving to Puerto Rico I mean so it all it does in my opinion is further the wealth Gap because the average person who just has one investment property because they lived in it for six years and then moved to another state is suddenly now getting triple taxed because the blackstones of the world um you know became the Boogeyman and the politicians came out with a policy meanwhile the Blackstone finds a way to loophole the tax policy in the F at the end anyway so I I don't think it it just continues the the the cycle in my opinion yeah let's take some questions let's do it all right all right here we go Charles G with a super chat thanks Charles the people weren't bailed Banks were then private Equity realized how much they could make on home renters now they buy up all of the affordable homes thanks Charles and you know and look um I mean the the the the issue is is that for any business there still has to be a profit right I can remember when I first started selling real estate um you know going from a contractor to a real estate agent and um if you watch my channel uh you probably know that I wanted a real estate license because I didn't like agents very much at least the ones that I was dealing with uh John along with a lot of the same sentiments that you have uh we haven't really we we've been a little Loosey Goosey in this industry right um and to your point I mean I I think that um there has been a lot of contributing uh from the uh a you know a lot of the home value push has been from the in Industry unfortunately um especially when an agent doesn't do but a couple transactions in a year or worse yet maybe one and they don't understand where the market has shifted and they're still pushing their buyer to over you know pay over list price when they may not need to um so certainly that keeps it going right um but um when I first got into the industry I was doing commercial sales and helping investors and there was something called a cap rate and when you the first thing when you spoke with an investor they said said I want a double digit cap rate right um they wanted a real healthy return but was it really healthy I mean it was probably like what it should be for the risk that's involved and the cash outlay and then for them to be able to improve the property and provide a better place for people to live and things like that a lot of it was multif family housing but then there became like this 1% rule so when when it became more into the residential Market the investor said look look if I spend $400,000 all in on the house I want to be able to rent that for $4,000 a month because once that goes upside down you lose money and the way investors lose money isn't necessarily on the cost of The Debt Service and the money that they charge for the the rent you lose the money on the turnover the tenant turnover certainly I've had plenty of rentals where you have to go into the property and spent 10 or $15,000 you replaced appliances and you know because the home was destroyed or whatever or took you seven months to get out a bad tenant that was imp pay I think we're seeing now a lot of landlords are saying that rentals aren't what they're cracked up to be so the question becomes and and and getting into more of what trolls is saying here was a convers I had earlier today with someone where we were talking about these there are a lot of funds that own a lot of single family houses I mean whether it's a 1% figure whatever I mean tens of thousands 50,000 100,000 hundreds of thousands of single family houses well the question becomes what happens when they're unprofitable right when they can't get the people out of the house or they destroy them or they realize gee this is sounded great to be in this business but now that prices we paid a higher price for the asset we're not in 2009 anymore 2010 so now how do we make a profit so I think the question is will These funds start dumping their inventory or will they be bail out by saying hey look you can't dump this inventory because we don't the state doesn't want it what do you mean dump the inventory sell it yeah but they're I mean they're they're not going to dump inventory and and take a haircut Open Door did Zillow did Zillow offers dump properties they lost $770 million right but that's different that's cuz they were exiting a horrific business model so all these people that these funds that have purchased these houses yeah if they're not getting rents or they realize that when a house turns over okay we made $122,000 on the house in a year but it cost us 20 ,000 to rerent it what happens then so I think this is really at the core of my push back with these kind of um you know scenarios you and I could pull up a whiteboard and come up with 10 different wh ifs and I don't think there's anything wrong with those um thought experiments but at some point you got to dig below the interesting nature of the story and start applying real data like how how many of these let's just say the blackstones because we're using them as example how many of the a fund a fund a large fund has I don't know hundred billion dollar or a quarter trillion dollars worth of real estate what how is that performing what do the assets look like how many of them are not performing at all or not paying or not collecting rent we have none of that data in this conversation to extrapolate that because there's such this big whale in 1% sector that they're suddenly going to dump number one and number two that it's going to have some sort of cascading effect all of those things are possible as are 100 other scenarios that we could come up with but I think it's important to dig into them a bit more and I'd like to um address the comment directly uh read it back to me if you could says people weren't bailed out Banks worth okay let me adjust that the picture I was trying to paint I'm very very well aware of who got the checks during the GF the the picture I'm painting is and I understand what you're saying in some markets it took 10 years to recover that is not true for the entire country and most people right now who still own a home in some case or another can look back and say that the reason they still have a job today own a home is because of those bailouts that came in I'm not saying that they were right and I'm not saying who they were directed to was fair I'm just saying there was some element of benefit because they got involved that's the bigger point I'm making because what I was really emphasizing was the fact in 2020 the bailouts were even bigger and almost everybody benefited from it and no one even batted an ey everyone's smiling and patting themselves on the back because they now have a two and and a quarter per interest rate well I think the Silicon Valley Bank was the third largest bank failure in history it's another great example of where I have a problem with all of this because that bank got bailed out because of the people involved in it because it was 1centers because those were big tech companies that had payroll in the bank4 billion doll come out of regional Banks and go into the market funds yeah I I get all that but I'm just there's there's aspects to the um the bailout stories that I am 100% in agreement with and I'm very empathetic to how people get angry about it the point I was making is not that like people got bailouts I'm just saying it the there was a trickle effect where it stopped the entire US economy from imploding not saying it was fair not saying it was right I just wanted to be clear what the point I was making so getting back to the the um the the point about um the investors yeah um so there's two scenarios there's a scenario that uh they realize that the housing market the single family housing market isn't the easiest business to be in which I think is one of the uh scenarios um because of the obvious uh the management of it the you knowless you're buying whole neighborhoods they're buying scattered homes throughout a neighborhood so they've got issues cost issues uh maintaining the home um with repair men things like that turnovers but the opposite scenario is that they're making money that would be the opposite scenario if that's true they're going to be buying more single family homes maybe I would also say that if they're smart and they've had a good run their cap rate is probably less than the treasury yields right now and they would slowly dissolve that portfolio not where it creates any kind of inventory crisis or it crashes their net asset value I would imagine they would say okay this has been a great run we were getting 0% in bonds we were able to scoop up a 4% cap rate by getting into the single family rental business those properties have now appreciated I don't know over those 10e period let's say 40% so they're now exiting after getting cash flow for all that time with a profit that sounds like a great investment to me these these guys are this is what they do they they treated that as a trade that was a great trade and so I think they'll ultimately start to exit that trade if if the picture you're painting is accurate and start moving into something like a 5year or 10 year treasury bond trading with shelter yeah I'm not I shelter inflation again I'm not in a in agreement with it but that's what they did they were they were chasing yield they weren't getting anything in the markets that they would normally invest that capital in so they were first forced out I mean this is why high yield bonds are where they are high yield bonds are term given to to bonds that are very high- risk could be high-risk corporates could be high-risk governments but the high yield the yield or interest rate on high yield bonds is incredibly suppressed or was incredibly suppressed for very long time it still is and the reason was is because people were going further out on the risk curve to get yield because you couldn't get it in a treasury bond um and so I think you're start I wouldn't call it normalization but I I think you're starting to see greater optionality for Capital um and those who do have Capital again this is part of a lot of the things we're talking about here are getting paid to park that Capital right if if you've got a million dollars you know you're going to you're going to pick up 45 Grand over over um a year period right but if you have no Capital the fact that treasury bonds or money market funds are paying you four 4 and half% doesn't do you any good so it it's still one of these situations where you know High rates are supposed to be restrictive but they can actually be inflationary until they become a burden either on the government or corporates that are have are required to pay those higher rates um so part of the sticky or anchored inflation that we're having is the fact that people are now getting paid 5% to to sit around and wait and we haven't had that for um 15 years let's take some more comments we've got a bunch of them starred here Michael church we need a reset starting with all government and corporate leadership then disband the club and let the people decide on laws and policies like our Founders intended I I can say one thing I do believe in when it comes to making it a change I think we need term limits on on Congress I think a lot of people agree with that yeah I think that that's a great start great start all right so Brad Howes should be a constitutional right I don't think they're not or you mean like everyone should be given a home maybe that's you're getting into communism at that point right I'm in Wisconsin people are putting in 10 to 20,000 over asking price just to get a home yeah it's so Regional right now that's I think that's my big push is that um the the the blood and gore of the housing market gets you know blog post open and and gets people going but it's not a national story yet thought people were getting sued over date the rate have you heard that is that way people been getting suot over that I I don't know if you can I mean the idea of date the rate is look I know rates are high but home prices only go up buy the house now at the high rate because you'll be able to refinance in the future I don't know if anyone who who pedal that um would necessarily be liable but this is my point I think there needs to be greater fiduciary accountability um for people involved in the transactions all at all levels I mean the if you look at it in a slightly um reverse way from roughly 2000 to 2020 we could even go from like 2009 to 2020 interest rates had a really consistent decline how many people over that period of time overpaid for an interest rate that 12 months later was no longer relevant because interest rates had dropped below it an even lower cost if you had as an investment adviser told someone to buy a stock that was now dramatically worth less than what you told to buy it at your reputation would be destroyed there is no track record like that um for the mortgage Bros and in in the real estate space and I think well to and to your point I think that there's no education uh that goes along with that uh because people don't realize that it's expensive to refinance and then they reset their whole amorz schedule and they may not even stay in the house that long so I mean you know it may cost them it may not be worth doing it in the first place so bear with me a quick plug here please go to lens zen.com the way we built that it's you don't have to put in any personal information we don't collect emails but you get to see real-time interest rates using the same professional pricing tools that everyone in Industry uses you'll see a full list of interest rates and you'll see that lower rates on any given day below the par rate have a fee most people refer to that as points but we call fee for rate because points can be very ambiguous points could be the entire cost of the transaction we want people to understand that you are paying for your rate or the rate is paying you so you can actually go above the par rate par just means the rate of the day what the market is currently trading at because again mortgage rates are derived from the bond market so if you go above par the Market's going to actually pay you to take that higher rate so you're either incentivizing the market by paying out a pocket of fee to get a lower rate rate or the market is trying to incentivize You by paying you a rebate to take a higher rate now once you see all those interest rates you can pick any one you want and it's going to take you to a summary page the summary page has broken it down really really easy to follow and very simple to use Dynamic touch and play tools that show you exactly what interest rate you should choose based on the the points you're making things like break even depending on how long you're going to be in the loan because the lowest rate doesn't always mean the the best loan if you're only in a property for a couple years because you're military and you're pcsing or because you know just generally it's your starter home or whatever your story is then a higher rate is actually going to benefit you because you're going to have less upfront costs so it's just something to consider lens.com will because I agree with you the education piece is so lacking and we built that site to make it very intuitive awesome all right let's see let's keep going let's do it I have seen my area's price drop by 10 to 15% in the last 6 months while inventory doubling hous is also sitting 60 plus days on the market we are seeing that um if the house is not priced where it should be uh and isn't in very good move and ready Condition it's we're seeing price reductions and we're also seeing days on the market uh rise and in fact um well we have 30% increase in in um price reductions um we have you know in a lot of these markets a big uptick in inventory and just generally speaking we have the lowest transaction volumes we've had in decades so if you are playing games as a seller you're shooting yourself in the foot because even I mean the Wisconsin Market there's definitely markets like that but why are you going to play that Russian Roulette when in general right now you're seeing a trend towards a softer housing market again I'm not in the crash camp but I I do see these these weakening scenarios so I I I don't think you know sellers should should be light-hearted about it but you also said that we've experienced the most bailouts that we've ever had so it's kind of hard to gauge it because if we hadn't had these bailouts we'd be having a different conversation already agreed right so the question is are they going to continue the right to checks yes and I guess that's the question and I think I think they will do that until they can no longer do that yeah unfortunately Saudi Arabia is no longer on the Petro dollar that's complete nonsense no there's no so it it it it they're working on a new agreement there's no such thing as an agreement so Brett and I just did our last podcast covered this whole thing so the best thing to do is just go watch that and that's gospel yeah because you know that back in the 70s the US didn't make a deal with uh with Saudi Arabia there was no official agreement no okay all right yeah so we we talk about it in the that in in the in the podcast okay well we'll see about that but I can tell you one thing um so let's just run it down okay they have been using the dollar for the last 50 years and they still are and they still are right but here's the thing they're also join they also joined the so you know we'll see we'll see how that pans out to I mean it's all important stuff to watch I think very similar to the conversation you and I are having about real estate Brett and I have every weekend about macro which is that all of these things are really legitimate things inevitable is not the same as imminent and so these things could take two decades to play out I think the question is so is it a real agreement or not a real agreement I mean certainly you know it went Wildfire on social media when you know it was announced that hey you know somebody whatever said that um the way I've had it described to me is that they're working on a new agreement um it it's just so happens that we've offered them military protection for all these years they've used we've invested in their exploration and their Refinery and and with a whether it was a handshake or some kind of agreement they have been requiring dollars be used to to purchase their oil around the world and you know and a lot of that uh also whether it was an agreement or not was said to be invested the profits from that invested in us treasuries do you believe that yeah because they couldn't invest it in their domestic economy regardless but we've been providing protection for them too but where are they going to invest the money oh where would anybody invest the money well certainly over the last 50 years is us treasuries were the right thing to do but um again I think this these are interesting topics but going into the Petra dollar is dead but when you say that there was no agreement I would like to see that where that actually is the gospel okay I would go back and say show me the agreement right well I mean maybe we would say that there there's maybe truth to both sides of it but when you say it's complete bunk because because you and Brent had a convers ation about it I have a problem with that okay then then watch that interview and then we can follow up with it because it's that's a 40-minute conversation in itself but what I will say is his comment was the Petra dollar is dead that's true yeah yeah I would agree with you that yeah yeah so so are there are there movements going on geopolitically everywhere right now are we sliding into a multi-polar world absolutely absolutely but this like jump to the conclusion of of the dollar is dead the US Empire is over the bricks are going to rise it it's it's 120 episodes of of our podcast all right so Jeff M I already like this guy he spot on from 1929 on everyone thought a crash was coming and it never came people are stuck in GFC mindset wo someone in my Camp yeah if we had a white board here John finally gets i' put a mark there for you Jeff's a good guy he's been a long time uh follower of our podcast so we appreciate you Jeff all right uh how do you prepare when you're already on the edge of being broke even if I'm not I don't feel that way I feel vulnerable how do you prepare when you're on the edge of being broke yeah I mean that's a heavy question right I mean um I I think just you got to start with small steps control what you can control and don't get overwhelmed by the things that you can't um if you're already really deep in it you're like late you got collections calling you you know you you need to get at least start with counseling if you're that deep in but if you're not and you're just feeling overwhelmed you eat the elephant one bite at a time um and and generally your emotions are are going to make it worse and make you more stressed out so I think just focus on controlling what you can control um consolidating the debt where you can cutting up the cards um as fast as you can and um just taking it one day at a time you'll get there all right here we go question for Todd would you buy a forever home right now if someone can buy cash and wants to stay there 10 to 20 years initial price 1.3 million now at 1 .12 million offer would be 1 million any thoughts or would you wait so I think there's a lot of um you're you're spelling out a lot of uh this scenario uh number one can you afford it uh if you can afford it I mean a lot of a a lot of home buying is a lifestyle I mean let's face it um it's not necessarily profiting or getting a return it's being able to afford to be there and and if it's your forever home and I I found a place to check the boxes I 100% would buy it now I mean I think you know and part of our conversation one of the things that we know is that home prices have always rebounded and and have gone up um and and they typically do adjust for uh inflation I think that what has happened is that we have just we have outpaced it so bad because of so many different factors and that I think that uh uh we're going to see an adjustment in home prices or if not an adjustment a stagflation for quite some period of time it may be 10 years before we start seeing any kind of major appreciation home price appreciation um it just may be that we have to wait I mean if you go back my first job I was making $325 an hour um so I mean let's face it I mean I you know now was bailing hay and straw it was brutal work but my point is um we will you will see wage growth go up and inflation is uh inevitable but I think it's the period of time when I say that we're going to have a a housing correction um everything is temporary I mean it's you know even if we had a catastrophe with a war or something you know high unemployment and things went completely in completely imp loed I think that we would rebuild we're resilient I mean it's not going to be the end of the world I would hope not um so but if I can afford to do something I'm going to make a move based on what's right for me and my family and my and whether I can afford it and at that point I mean you would think uh you know at 1.3 million I mean I don't know where the initial price was I don't know the area I don't know you know you could be in um in Washington state and 1.3 million not be a very big house or certain parts of California but I I think you you basically um you just said it you can pay cash so you're going to save a lot of money right there uh by uh by not paying some jumbo loan and um so yeah Charles G there is no effing way we were going to 4% we're taking your if I had an eraser that just outweighed the like like you said Todd the best part about this is we get to look back we do yeah we do um so so as soon as it hits 4.99 I'm coming back on your show all right fair enough you know it was funny because I had a loan officer on in 202 um at the end of the year in 2022 she's a friend and um I mean it's these conversations are certainly they're look there's probably a little bit of right and wrong in everything that both of us are saying you know um and as I said I'm not trying to be right I think the fact of the matter is we're having a conversation about it because most people are just saying bye date the rate you know do whatever they're they're pushing with commission breath you know a I'm going to steal that you can smell it you know what I mean you can just smell it on them right and so um but anyway so I had this uh uh friend on mortgage uh loan officer and she said oh this is the end of 22 she said we'll be back at 4% by the first quarter of 23 well I mean that didn't happen we don't dislike her because it didn't happen she was optimistic and wrong um but she could have been right if all of a sudden that happened um people tell me all the time at least a broken clock I'm like a broken clock I'll be you know at least at least twice right at least twice a day you'll be you know you keep saying this long enough eventually you're going to get what you and then you can claim that you predicted it Fed rate never reached a real restrictive rate of 10 plus per. that was required to truly stifle inflation in the housing market this is a great question do you think they raise rates enough I think um I don't think I think the issue was what the treasury was doing with reverse repo I think there was too slow of a um reduction of the balance sheet I think the FED funds by itself isn't necessarily the point of blame I think it's more so in combination with the other things basically whatever Drome pow was doing with fed policy the treasury was counteracting it with uh governments more or less by feeding liquidity into the system and so um these are these are kind of the the games that they play right like if if they really went to 10% on the FED funds Janet just whated did did more in in the back alleys to to fund liquidity into into the system um and even if they did that imagine if if you could get 10% % on the overnight lending rate if I if I could get 10% on a three-year treasury bond right now I I think it would massively ignite the economy because you'd be pumping the government would be pumping in so much liquidity into the system now granted it's not sustainable for the US government because the deficit balloons um because now they're paying 10% on the debt the that they're issuing but the real economy is now getting this massive capital in ction so I I think I'm I'm sympathetic to the point that the FED could have could have been more aggressive um Brent and I have talked about this where I think once they got to a certain point they got a little bit of escape veloc velocity with the rate hikes and they got to 4% and nothing blew up I think they started to believe the FED started to believe that they could pull off the soft Landing soft Landing mean that they could raise rates slow the economy without causing a recession or crash and I still think they believe that do you think it's going to happen that they find a soft Landing oh man I have no idea I mean I think they're going to try to cut rates at least once this year um I think just because they've been projecting it on the Dot Plot for so long they want to maintain some credibility that they pull follow through but I think the data doesn't necessarily suggest um that they should although it's economic data is starting to come in softer um I think they could pull it off I think um it depends on what what you classify as a a recession at that point generally recession is two quarters of negative GDP we've already had that and they kind of said oh no no no that wasn't a recession because employment was strong at the same time and they kind of added these other metrics so do do they play this this word game right word gymnastics to say well we didn't really have a recession um and therefore we had a soft Landing so could we have a soft recession and things don't really get really bad and we avoid double digit unemployment I think it's it's possible yeah the rates now are just low enough to have Builders lenders offer buyer buy down programs as a temporary fix until Rate rates impact real unemployment in a substantial way this is very smart comment here the market will resist current Monet AR policy impacts so the part about the developers so there's interest rate buy Downs where and they they really mathematically don't pen out so don't do buy downs but you're paying a fee to have a lower rate for a period of time yes there's some developers doing that but what I I actually think developers are doing is because keep in mind all mortgage rates are Universal they're determined by the mortgage bond market this impacts everyone who's doing uh conforming loans that are going to be sold into Fanny May Freddy Mack or jinny may mortgage back Securities this includes developers the developers are building properties to meet the requirements of a conforming loan because they know that's going to be um the best way for them to sell those properties it's the easiest thing to finance so if you're going to developer and right now the the margins for Developers are 30% higher than the mean so developers most developers have a lot of fat on their profits so let's say they're making $50,000 more on a property than they normally do they can take a portion of those profits without lowering the price so they're not showing a lower price um on in the market they're just cutting into their profit margins because it's well they ear the mortgage companies too yeah but the mortgage companies are just eon to it they're just an originator yeah but they're taking a loss on that side not correct they're taking a loss on the mortgage side they're not taking a loss because they don't want to affect their comps no so they're not reducing the price of the property right but they're taking a portion of their profits and paying the fee for rate like I was describing before they're paying that fee for the buyer so that they can get an interest rate that's significantly lower than what the existing Home Market is generally seeing because if somebody tries to go get a mortgage through through us or anyone in the in the mortgage world they're going at a price that is universally set it's universally set for the developers they just have so much cash that they're willing to to pay the rate down for the buy they have to keep they have to keep their home sales going and they can't piss off the people that put contract in and they're waiting for their houses to be delivered or the ones that just settled 3 months ago they can't all of a sudden drop the price 50 Grand without upsetting the apple cart that too but they have but they have the profit to basically buy down the rate so it's a smart move on their part but eventually that's going to bleed out I think what what what Austin's saying here is that rates are low enough that it makes it practical for them to still be able to do it but the the party said about the the fed's policy being not restrictive enough Etc again there two different Dynamics the the mortgage the mortgage rate world is is driven by the bond market well what he's saying here is that until rates impact real unemployment so but the Fed rate does affect business sure it affects because that is their that's affecting their revolving credit lines that is you that that's so if you're a if you're a business and your credit limit has been shrunken down to where you can no longer buy the inventory to meet a sales demand or you're being your profit margins are being depleted because you're paying these loans that you've already taken that are variable fluu you know rates or variable rates these businesses are going to start letting people go and I think that's what he's getting at here is that you know right now we're not seeing that because the rates weren't taken to a level that would damage that right now whether it's still whether it's still practical we've seen credit tightening at the you know at the same time that we haven't really seen as high interest rates as maybe we should have seen to slow down the rate of inflation but there's that teeter totter of you know um if we Crush these businesses too much we really are going to have a skyrocketing unemployment and uh and then you're going to have a recession and then at that point so keep in mind too so the the mortgage rates started rising in early 2022 the FED at that point was still saying inflation was transitory the bond market called their BS right and they were already starting to sell bonds because they knew inflation wasn't transitory they could see it in the underlying data and they weren't listening to the Fed was 99.1% or something but that's after the fact so this is I'm saying like February right so February 2022 mortgage rates started to rise because Bond investors were selling bonds the FED didn't raise the overnight lending rate for the first time until March and it was only a quar per. by the time we got to the June print which was the 9.1 40-year High mortgage rates had had melted up dramatically because the bond market was they were running out of the building selling bonds so keeping that in mind it can be very much the reverse effect if the situation was that the fed maybe they decided to raise rates another 50 basis points next quarter just to just to be aggressive right at that point does it causes higher unemployment because things are so restrictive you're going I don't think a half point no but whatever whatever H let's just say the FED does something to really accelerate this recession investors are going to buy bonds that's going to push the price up and push rates down mortgage rates I think the best thing I can say is mortgage rates are much more likely to decline well before the FED cuts the FED funds rate so don't wait for the FED to cut rates and thinking and think that that means mortgage rates are lower most likely and don't expect your credit card rates to come down if you if the FED Cuts rates yeah if the FED If the Fed takes the rate to zero their credit card is still going to keep you at 30% still going to be 30% it's crazy and that's that's a whole another conversation about user yeah all right Apple just discontinued buy now PID later everyone was buying and nobody was paying that's not funny I'm not laughing at that I'm laughing at the way they said it everybody was buying and nobody was paying all right here we go Phil simonetta here one of our Florida brokers in our network uh the numbers he quotes are not accurate it's all smoke in mirrors Fiat based the markets are all controlled free market is gone it's going to implode a matter of time these bears like me all right here we go Jeff M again we're going to put we're going to put your point back on a board all a matter of time I love that if you don't have a timeline for your prediction it's it's just it's nonsense right the world will continue to get more and more unaffordable we Prov that during 2020 the planners know that people will bow down and accept whatever that was the same guy that gave you a point by the way I I'm very much in the camp of this um you know this overreaching government control um wef all of it I I I think it's a real issue but um they don't automatically blend together instantly and so I don't think everything's some sort of it's been happening since the 70s right but every little thing isn't causation and correlation um and so I think it's just good sometimes to step back and be like okay there's definitely sociopathic people who are unelected making decisions for the populace that um are clearly out of touch and clearly aren't for the benefit of people but it doesn't necessarily mean that every little thing there after is tied to some sort of you know diabolical scheme walk off the ledge a little bit well within the top D desile of California income but can barely afford medium priced home minimum debt car loan I'm waiting how are regular people doing this I think that's one of the reasons why people have exited California I agree yeah yeah numbers don't work 5% Fed rate is not restrictive 5% is historically average the fact even supposed conservatives act like it is illustrates how socialistic we are all right thank you David appreciate that houses haven't been affordable since 1990s what the hell is this guy talking about I actually said that that's that's what I said racing your point I said the affordable housing still only one point I know but but that's literally what I said I said we haven't had affordable housing since the 9s roll up watch the game tape so the last time housing has been this unaffordable was 2009 got it all right here we go next one appreciation is a form of in appreciation is a form of inflation equals proof spending power of dollar has drastically decreased now that it makes a difference it is what not that it makes a difference thanks Joe it is all Fiat Monopoly money game and rulers are closing down the game so my response to that is this game this system this machine gives them so much power so much wealth so much control why would they destroy it so I think that's this walk off the ledge a little back from the ledge a bit I think the sentiment I agree with that they're greedy that they're creating systems and laws and policies that serve them they're doing insider trading they're doing all of these things CU right now the way the system is set up um people they're not being prosecuted I mean the fact that you know politicians like Nancy Pelosi and Elizabeth Warren and the rest of them have net worths of $300 million when they're making a salary of 250k there's accounts on on Twitter that basically track their trading and it's just a big Insider game so I do I do agree with all that but I think that's going to continue to perpetuate so what I would say is do you want to sit there do we want to sit here in our armchairs and scream at this at the at the at our monitors and say it's all coming to an end because we hate it or do we want to look at it and say this thing is corrupt either one how do we get off our seat and change it I don't have a good solution for that to be honest but I wish we had better politicians we could elect who would change it or do we start playing the game somehow so that we're not left behind unfortunately across the country overall I think everyone's chosen the L which is what we've talked about I think people are getting into Financial assets simply because they don't want to be left behind and I'm I'm not saying it's a good thing but yeah the system's broken but don't sit here and think it's going to implode tomorrow because you know it's broken and you hate it chances are they're going to keep this thing going a lot longer than you ever ever imagined because it's giving them so much power one of the smartest guys ever been on the show I was pessimistic when he came came in when he gave his intro but I was wrong all right two points now we one and a half thank you all right many boomers are becoming homeless due to inflation and living cost they are not loaded I would so one of one of the things I'm really enjoying about this conversation it's presenting a lot of opportunities to suggest or highlight when when people aren't being when they're using generalities don't say many what is many go get a number be specific understand what that number is relative to the entire segment of the population you're talking about it's very very intoxicating to use these empty words like many and everywhere and go get the data really look at it um because right now I understand that you know people are using the adjustments in HOAs and assessment at properties and and other types of insurance is going up as a potential crisis for people in in retirement States like Florida it's a legitimate thing to be watching but but let's look at the data first before we extrapolate that a thousand people are suddenly going to be what tops the entire housing market over let's let's make sure we have the full picture that's that's really the the overarching point I'm trying to make with a lot of this stuff is like let's slow it down and really get crystal clear and objective about the data all right we'll keep rolling along here Austin again with his Super Chat thank you Austin John the upcoming recession will be caused by the following x no delinquent reporting Student Loans bnpl 40-year mortgage FHA Loans being given to 650 scores that are really 550 scores Michael bur sense is is on fire read that again what was it did he give us a list of things that he thinks is going to cause the recession here upcoming recession will be caused by the following no delinquent reporting student loans okay valid okay bnpl okay 40-year mortgage remod I don't see how that would cause a recession but it's definitely something that I I I think will it's another way they'll kick the can yeah I mean when you look at it and this is really uh I guess my whole thing with the million plus remodification that we've seen um where uh just call it forbearance of one way or another my whole point is is that how are they going to keep up their home so me I mean I think we're going to see you talk about HOAs a lot of these houses are in HOAs um I mean they have to maintain them or they can be fined by their HOA they could be foreclosed on these people aren't contributing necessarily to keep the economy going they're struggling all we did was push it push their loans on the back end a lot of them are going to still be in default maybe I mean that the forbearance thing I think is another one that's been um if you're not fixing up your house and your HVAC breaks and it's $35,000 to replace it and you needed a loan modification to a 40-year loan how will they make how will they put heat back in their house if they couldn't keep their mortgage payment now of a sudden they're going to come up with $35,000 I understand your point but I again this is this like let's paint this arbitrary story and then that's a real story but I I I I know people who have these HOAs are ridiculous like I know someone has to pay $5,000 to paint his garage so I I I get it I I just don't think it's it I think it's lazy thinking in a lot of cases to take a really heartfelt story and then paint this really broad stroke across the entire economy these are real situations these are real people in pain There's real struggle there but I don't think it reflects the entire economy or the overall health of the economy but it doesn't mean that we we can't see more of this stuff come up now he I think he mentioned npls um non-performing loans no yeah bmpl yep yeah so um I think one of the things we haven't talked about here that's that's kind of interesting to me that I'm kind of keeping an eye on is the in my opinion based on where inflation has been year overy year it's coming down but it's it's still not near the 2% Target that's if you even believe CPI so CPI is nonsense as soon as it doesn't look pretty they make up another one called core then that doesn't look pretty so they come up with super core but the the thing that I'm kind of paying attention to is because interest rates Rose so quickly and this was bond market driven right this is investors being like inflation's going to be really really bad the FED handed out too much money the government handed out too much money we need to get out of bonds a lot of these Banks most banks had to hold because of things like Basel 3 dodf Frank other types of um banking regulation they had to hold government bonds it's the most pristine collateral they needed that on their balance sheet but they were buying these Bonds in 20 20 when the 10 year was 40 basis points the 10 year now is 420 basis points so that bond that they're holding got annihilated right so the bank balance sheets are massively underwater because of these bonds that they hold but banks are able to do what's called Mark to maturity on those assets so if they had to sell those bonds today they'd have to take a massive haircut they would take a bath but they can instead mark them to maturity meaning as if would never sell those bonds and just hold them for the 45 basis point half% yield until those uh bonds expired so the banks can do that so it doesn't look like they're insolvent but when you look at those Bond Holdings marketto market they are insolvent and the reason why Silicon Valley Bank went bust is someone in the movie theater screamed fire and there was only one exit and that was to take your cash out and so when Silicon Valley tried to raise Capital to pay for the um deposit withdrawals they went and they went bankrupt because the bonds that they were holding were massively undervalued versus what they paid for that's across most Regional Banks and small local banks my opinion is the only reason the FED is even giving this kind of token rate cut later this year at some point is to kind of take some of the pressure off of those Regional Banks and the bond Holdings that they have if that wasn't a crisis right now I mean we can't roll back time it is what it is but if that wasn't a factor if the regional Banks weren't such a in my opinion the real risk to the economy not the consumer but the banking system imploding because these Banks all a sudden have Bank runs nationally if that wasn't a concern I don't think the FED would even be tickling the market with the idea of a rate cut right now I think they would be raising again all right well thank you Austin well continue here we'll try and get these uh stored comments that we have here um and wrap up because this is definitely going over the two-hour Mark what's the big deal on 7% interest back in the 80s rates were 14% I'm going to jump on that comment great comment because one of the things that again people get really worked up about right now is the unaffordability aspect which it is but ironically it was actually worse in the 80s um the peak unaffordability in the 80s was 1981 Peak unaffordability was 2022 in this cycle and when you look at the um payment to income ratio in 1981 they were actually paying 19% more than people are today but the asset prices were no nowhere near the price that and and well wait a minute you had people staying at home raising their kids too A lot of people were on one income no no no no that's not part of the you can ex you can pull that out of the data that's and it's not about the the what I that's why you compare the price to median income because you're taking the same the same Apples to Apples and both times so yes prices are higher but medium incomes are higher right so prices are higher meaning the payment is higher but the payment ratio to the medium income is 19% but you were you were buying I mean you were buying houses at three times the median income four times a median income now you can't buy a house at nine times a median income this this is why these so you can't pay 14% I mean the numbers don't work at 7% I'm telling you they work they don't work Todd I'm telling you what the data is which is in 1981 they were paying 19 I I'm not saying it's it's a a healthy situation and things are really affordable I'm just saying this isn't the worst affordability in his history saying in the 80s they had it worse by 19% you're only gauging it based on interest mortgage interest rates I'm gauging it by payment to medium income uh ratio which is the actual relevant comparison to the 1980s yes yeah they they have to pay eight times income but so they had to do the same in the 80s okay just tell you what the data is yeah well I don't know what data you're looking at but I'm I'll make sure I post it we we'll post it yeah all right actually did post it on my Twitter all right here we go it's not a switch that somebody just flicked says John yet earlier he said the FED bought mortgage back Securities during the he said planemic and mortgage rates dropped into the 2% range so that is open market operations that's very very different than the FED dictating monetary policy by choosing what the FED funds rate is I agree that's that is them more or less flicking a switch in terms of artificially pushing interest rates down by going and buying bonds but that is going way out on the limb and what they should be doing and is is considered open market operations which is slightly different all right still say Petro dollar pulling out is going to sink us we're not ready we produce nothing all right give me a timeline just give me a timeline that's all wage growth does matter you don't make the same amount for 30 years wage growth does not matter you don't make the same amount for 30 years you lock in your payment and make more money they are pumping out new houses like candy Big Supply ain't coming they aren't pumping out new houses like candy Big Supply ainc coming all right we'll see about that too because there are a lot of communities that uh have home builders have a lot of homes that aren't moving the major disconnect in every country though what the major disconnect is in every country though isn't it what country currency isn't based on debt we always pay off old debt while acquiring new debt unless Ponzi coin is pushed on everyone yeah so I I think this is I agree this is a very important thing to keep in mind the entire Global Financial system is debt-based there is not enough collateral to pay back all the liabilities there's not enough money in the system to pay back all the debt if the debt doesn't grow continuously then the system will fail so it's the nature of the Beast we we just have to keep playing why or keep moving while the music's playing all right and then we're going to take these Final Super chats and jump off for the evening thank you Aloha is there any hope for the Youth and housing I don't know you know what it's interesting my um my nephew just purchased a home he's in his mid-20s he just graduated uh law school um really bright Guy and um I think you know looking at what's going on in technology a lot of the stuff although I think cryptocurrencies in general are a bit of a scam um it's a lot of pump and dump but there's also people who are building really cool stuff using that as the springboard um being they're able to finance their creativity because there's so much Capital you know chasing these these memes but uh AI is you know a big boom I think um I think the younger generation is dealing with with technology and tools and um efficiency that we've we can't quite wrap our head around that I I am optimistic for them because I think they're going going to be able to accelerate through different stages of life and their careers much faster than we could and I also think they're going to be able to focus more energy on things that they're passionate about because so much automation is going to be created to eliminate the mundane and I think that could create a really um interesting world where people are are doing things that make them happy versus doing things that they have to do just to make a living all right and we got Austin back here he likes his data in the 1980s less than 25% of new homes built had an HOA attached to them 2023 63% of HOA this is another cost that didn't exist to homeowners I'd love to come on a show Todd thanks Austin we appreciate it nor did they have the property taxes that they have now or the insurance um per ,000,000 ofice yeah I don't know that that that granularity it could be true yep and then we have uh David um with a super chat said that 1980s mortgage income stat reeks a BS so there we have it denial all right we wait to see that and we'll compare our uh real data uh when it when all things are considered the cost of home ownership as to whether it is less affordable now uh N I think uh n data only goes back I think to 2000 with that with the affordability Hai housing affordability index in America but I'm sure we can dig up some chats but nevertheless what a great show dude I appreciate it it was fun John thanks so we're also going to record while John is in town another video that won't publish this week but next week not this Saturday but next Saturday um so look for that and keep your comments coming and thanks so much thanks man all right that was awesome all right buddy apprciate we'll talk to you soon thanks guys for watching our Tuesday night show we love it that you spend your Tuesday nights with us and uh remember we we're also in the business of helping buyers and sellers and tenants and landlords in Maryland and if you're anywhere else guys we have an amazing broker Network all over the country reach out if you uh go to our website saxy.com and you don't find somebody in your city send me an email personally and I will connect you with someone that I trust see you next time [Music]