Dela
Keith explores U-Haul's truck-to-storage marketing strategy before turning to the shifting housing market.
Housing intelligence analyst Rick Sharga joins him to discuss rising mortgage rates, affordability, regional home-price trends, and how inventory is shaping sales.
They also explore builder incentives on new construction and what delinquency and foreclosure data may signal for investors.
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Complete episode transcript:
Keith Weinhold 0:01
Welcome to GRE. I'm your host Keith Weinhold. Fannie Mae creates a housing market assessment of 100 economists and market analysts. We're talking to one of those 100 today. How much are home prices really increasing? Also, supply level, housing demand, and are there threatening cracks in the delinquency numbers and more today on Get Rich Education. For years, I've sent listeners to Mid South home buyers in Memphis, and for years I've heard the same thing back: Keith, there's a wait list. Well, not anymore. Mid South has grown into three markets: Memphis, Little Rock and Dallas with its classic renovations and now brand new construction. For the first time in years, there's enough inventory to buy today, and they've picked now to roll out their best terms in their 25 years. It's called the Triple Five: 5% property management for five full years, half their standard fee, and Mid South buys your mortgage rate down as low as 5% for qualified buyers. If you're paying all cash, ask about the Forever Five. That's 5% management for as long as you own the property plus special cash pricing. With 6200 homes under management. Mid South is the place to turn for turnkey real estate. Book your free investment strategy session@midsouthhomebuyers.com. That's midsouthhomebuyers.com.
Speaker 1 1:36
You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education.
Keith Weinhold 1:53
Welcome to GRE from Lebanon, Pennsylvania, to Lebanon, Oregon, and across 188 nations worldwide. I'm your host Keith Weinhold, and you're listening to Get Rich Education. Before we analyze today's market with our housing intelligence analyst guest, you know there's a new super interesting real estate strategy out there that seems to be getting traction. What makes it fascinating is that it starts out as a customer looking to rent a moving truck, and then they end up renting real estate from a landlord. Now, do you think that this is manipulative, or is it just a crafty and savvy marketing strategy? Here's how it works. U-Haul uses a truck rental as a gateway to a longer-term self-storage customer. It's a natural cross sell. Someone moving belongings. Well, they might also need somewhere to put them. That's part of the reason that really I think this is more about savvy and less about manipulation. Here's how this U-Haul strategy works.
Keith Weinhold 3:05
All right, first you attract someone with an immediate need. Okay, a person that's searching for a moving truck from a place like U-Haul. That's a customer who is already in the middle of a move. When that customer is reserving the moving truck. They're offered a free month of storage with any qualifying one-way truck or trailer rental. Just one, only one free month of storage, and you could probably see where this is going. This is what U-Haul's doing. They're solving a related problem at the right moment, for the person that's moving, their new home might not be ready. That customer might be downsizing, or everything might not fit. Free storage makes saying yes easier when moving expenses are already piling up. Whether the customer wants the free one month of storage near the location they're moving from, or near the location they're moving to. Either way, we know human nature. Come on.
Keith Weinhold 4:09
Once belongings are in that storage unit, customers who still need the storage space are going to continue paying monthly, month after month. In a lot of cases, this might go on for years because moving everything out of that storage space now that would require time, effort, and potentially having to rent another truck from U-Haul too. So, what U-Haul did is that they turned a short one-time transaction of a truck rental into recurring revenue. The business logic is that the truck brings in the customer, and then the one free month that transitions them into storage, and that ongoing need keeps them renting. It starts out with a person saying, "I only need a truck this weekend, and then it becomes, "I'll use the free storage until I get settled, and that need that they thought would be temporary can last for months. And that is the U-Haul storage conversion strategy-pretty savvy stuff. Now, when it comes to charging people rent or being a savvy business person, do you think that Donald Trump has ever slept in a tent? Let's see.
Rick Sharga 5:30
Ever slept in a tent?
Donald Trump 5:31
Yes, I did in camp when I went to camp.
Rick Sharga 5:37
Where did you go to camp?
Donald Trump 5:38
I went to a camp hilltop up in Binghamton, New York, and it was okay. Does anybody know?
Rick Sharga 5:46
I'll be darned! Is that Bill? Great. Yeah. Did you charge the other kids rent?
Donald Trump 5:50
I know. I started looking. I started thinking about it. Started thinking about it.
Keith Weinhold 5:55
Hahaha. That is from the David Letterman show back in 2007. So this is when Trump's show, The Apprentice, was popular, and well before Donald John Trump became president. Thank you. I am grateful for you attending GRE's last live properties webinar recently. I hosted it along with the provider Mid South Homebuyers in Memphis. It was almost like a party. We had 410 registrants. So much involvement from you, and so many questions. People writing in the chat box how this show means so much to them. You know, seeing that, reading that during the event, like that was almost enough to make me cry. I didn't bring this up during the event because I didn't want to put the attention on myself, but I did see that appreciation you have for the show here, and I want to sincerely thank you for that. We crossed the 12-year mark here. Yes, episode one of the Get Rich Education podcast was released on october 10, 2014. This is 12 years of delivering a new show every week, 52 weeks a year, and never replaying an old episode. Always fresh real estate content.
Keith Weinhold 7:01
You definitely know where to find me, and when it comes to reliability, gosh, don't you wish that a mortgage lender first like understood investors? How about if a credible lender were built by an investor for investors with real humans and no call centers ever, and this lender actually taught you the math and even ran it with you. Education first. I just described Ridge Lending Group. That's why it's where I get my own loans. You can do that too for your next investment property. Start at RidgeLendingGroup.com. That's how they operate there at Ridge Lending Group. Now, back in May, you remember that I released an episode, and its title was "Our Most Important Message in Years, and that message sure is coming true. That was episode 606. Back then, you remember how I articulated basically the effects of the Iran War and the wave of inflation that it will bring, and how that's going to change the bond market and supply and the replacement costs of homes and the mortgage rates. Our guest and I will touch on those themes and more about both the good and the bad of today's housing market. We'll also spotlight where some investor opportunities are. I'd like to welcome back to the show a returning guest who I first learned about through a mutual real estate friend three years ago, and he's really become quite a regular here because he is so knowledgeable. He's a longtime housing intelligence analyst, and he's the president and CEO of the C.J. Patrick Company. Oh, it's a warm welcome back to, like me, a native Pennsylvanian, Rick Sharga.
Rick Sharga 9:24
Thanks for having me back, Keith. Always a pleasure to be here and share thoughts of our old home state,
Keith Weinhold 9:30
the Keystone State. And you know, Rick, you look at a lot of the same parts of the housing market that I do, but you also look at some parts that I don't look at very often. For example, delinquencies and foreclosures, which is something that we can get into. Just overall, what are your thoughts about the housing market as it stands today?
Rick Sharga 9:50
Well, as we speak today, the market is sort of in shock because we've seen mortgage rates jump up as high as seven and a half percent. In a year when most forecasts were expecting mortgage rates to go into the low sixes and maybe even the high fives, I think the market is kind of going through a transitional period trying to figure out who can afford what, whether people can actually afford to sell their homes, and how we adjust to a seven handle after we we had just gotten used to sixes not too long ago, so a little bit of frustration in the housing market right now. I think we've seen things slow down a bit, and there are implications for the path forward and for things that you wouldn't think about, like the impact of higher mortgage rates on on foreclosures. So there's all sorts of things going on right now.
Keith Weinhold 10:42
Right before the war in Iran began, Mortgage News Daily tells us that mortgage rates fell to 5.98% They've been up about one and a half percent just since that time, about seven months ago. And yeah, you use the word shock, Rick. I've been thinking the same thing, you know, people are going through an adjustment period with today's normalized interest rates-not historically high, but normalized interest rates amidst the somewhat healthy economy. 30 years ago, the economy was booming amidst the advent of everybody starting to use the internet, and now it's AI. Back then, 30 years ago, the federal funds rate was one and a half percent higher than than it is today, and mortgage rates were 7.8% back then. So I'm talking about 1996. This is four years before the.com bust and five years before a recession occurred, and back at that time, both home prices and rents grew substantially during that period. Even though affordability was better then than it is now, in fact, from 1996 to 2000, cumulatively, home prices grew 21 percent, and rents grew 14%. Now, pretty normal historic clip. So really, my point is that today's economy is fairly healthy. Rates have normalized, and now rather than the internet boom, we've got the AI boom. You use the word shock. Yeah, people need to adjust.
Rick Sharga 12:17
Yeah, and I think it's important when we talk about affordability, which is what you're getting at there right now. If you factor everything in, we're probably in the second least affordable period on record in terms of home prices. If you go back to the the least affordable time, that was probably in 1983, and the culprit there was mortgage rates that were 1819, 20, 21% The people were doing celebratory dances if they got a mortgage rate at 12%.
Keith Weinhold 12:48
Right.
Rick Sharga 12:48
And so you look at things historically, and you've pointed out correctly that you know at even at seven and a half percent mortgage rates, you know we're below the long-term average, which was 7.7, 7.8%
Keith Weinhold 13:01
Yes.
Rick Sharga 13:01
However, home price growth has outpaced wage growth significantly over that period of time, and we're coming off a very unusual set of circumstances in the housing market. Something that's really never happened before. When we got into COVID, and so we can we can blame a lot of this on COVID, and for the conspiracy theorists, we can blame a lot of this on the Federal Reserve. But the Federal Reserve took extreme measures to try and prevent a depression in the economy because nobody knew how bad things were really going to get, and we were in that zero interest rate period for some period of time, which drove mortgage rates down into the twos and threes. That pulled a lot of demand forward. People came out of everywhere to buy houses at historically low mortgage rates, and so home prices went up about 47% in the space of two years. And at the end of that, the Federal Reserve, in order to get inflation back under control, started raising the Fed funds rate, which drove mortgage rates up into the really as high as 8% at one point. So we saw property values go up by 45 to 50% Then we saw mortgage rates double. And if you look at at historical numbers from Freddie Mac, what you'll find is that in the history of the United States, we'd never experienced a period where mortgage rates doubled during a calendar year, and in 2022 they doubled not in a calendar year, but in a matter of a few weeks, and that sort of shock to the ecosystem. That one-two punch, extremely high price appreciation, followed by a doubling of mortgage rates, even though the mortgage rates aren't out of that long-term historical norm, was enough to kind of knock the stilts out of the housing market. So we've had a very different house market crash this time. It's not that prices fell 20, 3040, 50% It's that we went from 6 million sales to. 5 million, and then to 4 million, and we've been stuck in this 4 million range now for the last really three and a half years. There was a lot of hope that we'd start to feel more like a recovery in 2026, until the war in Iran started. Oil prices went up, took bond yields up, and took mortgage rates up with them, and so we're in a very unusual market in terms of housing right now, and it's a difficult scenario, particularly for first-time homebuyers who didn't experience that growth in home equity that people who owned homes back prior to 2022 did.
Keith Weinhold 15:36
I characterize it as we had a supply crash around 2020 or 2021, and that was followed by a transaction volume crash. And you know, it's funny, Rick. Actually, when mortgage rates started their sharp increase in 2022, my early reaction was like, you know, this is not so bad. A return to normalcy. You know what's with all this artificial intervention? There should be a cost to money. I mean, this is good, but you know, after three years of this slow transaction market, I don't really feel that way anymore.
Rick Sharga 16:13
People ask me a lot of times what's going to fix the housing market, and I give them the same answer, which bothers them because it's a boring answer, not something they can impact. It's time, and when 2022 happened and mortgage rates doubled, one of two things was likely to follow: either one, home prices would crater in order to fix affordability, or two, and this has happened before historically, we would go through an extended period of time where things would just slow down to a crawl, where sales volume would slow down, where home price appreciation would slow down, and it would give wage growth a chance to catch up. And during that period of time, what hope was was that mortgage rates would not necessarily go back into the threes and fours, but would come down at least a little bit. And over time, those three legs of the affordability stool, if you will-home price appreciation slowing down, wage growth continuing, and mortgage rates kind of flattening out-would improve affordability enough that people would start to come back into the market, and we started to see that. If we got into numbers last year, you found that there were actually more people who had a mortgage rate above 6% than below 3% and that's the first time that had happened since 2022.
Rick Sharga 17:37
So things were starting to get back to normal. We ended the year with quite a bit of momentum in terms of home sales, the last five months of the year we had higher year-over-year home sales, and price appreciation was slowing down. Everything was in place the way we were hoping, so that 2026 could be sort of an inflection point and lead the way to a recovery. Then Mother Nature weighed in in January and February, we had unusually severe weather in the Northeast and Midwest. I think home sales were down in the Northeast about 8% in those first two months because of bad weather. And as we started to recover in March, the war in Iran broke out and mortgage rates jumped. And surprisingly, with all that bad stuff happening, with inflation getting higher, with gas prices going higher, consumer confidence being at an all-time low, with all of that, if you go through the end of August, home sales are actually up 1.6% year over year. So there is a lot of pent up demand out there. We have a population that's aging rapidly into home buying age, and would like to become home buyers, just waiting for market conditions to allow them to do so. And unfortunately, now with mortgage rates up a full point higher than they were a year ago at this time, it's tough for people to at least get through the psychological barrier, if not the economical barrier.
Keith Weinhold 19:01
Yes, and I think the fastest way to relieve pent-up demand is with a drop in mortgage rates because wages aren't expected to increase as sharply and as quickly as mortgage rates can decline, and home prices continue to stay pretty stable. But Rick's got some slides prepared for us, and Rick, why don't you go ahead with your housing market detail? And for those of you in the audio only, Rick is really good at describing things for those that don't have the visual aid.
Rick Sharga 19:32
Thanks, Keith. Yeah, we'll jump in, and this is kind of a recap of some of the things we've already talked about to start with. Higher mortgage rates, you and I have been talking about quite a bit already, really have contributed to worsening affordability. So the market was starting to feel at least marginally more affordable. So things weren't affordable for everybody, but more homes were more affordable for more people, particularly those, and I'm sure you've talked about. In sort of the upper leg of the K-shaped economic recovery, if you break that K into two parts, the upper half is doing pretty well, and actually is where most homeowners reside. If you look at the lower half of that K, it's predominantly renters, and those renters need whatever breaks they can get to become homeowners, and these higher mortgage rates certainly aren't helping. For your listeners who are wondering about when rates will go down, the short answer is they're unlikely to go down at all until we get oil prices back under control, which means not until the war in Iran comes to a conclusion.
Rick Sharga 20:38
Very likely, because that drove bond yields up, and bond yields drive mortgage rates, but the bond markets are also concerned about the $40 trillion federal deficit, which leads the Treasury to print more bonds and sell more bonds in order to pay down the debt, and so they're now competing, and it also is a little bit concerned about the massive investment in data centers to support the growing AI business. So all of that is kind of in this big competitive scrum, if you will, which is causing the bond sellers to increase yields in order to sell these things off. So even once we get oil prices back under control, the likelihood of a huge drop in mortgage rates isn't great, but anything even back in the sixes right now would probably be appreciated by buyers.
Keith Weinhold 21:29
My audience knows that I personally don't make mortgage rate predictions. I think it's a fantastic way to be wrong, but I recently found it noteworthy, Rick, when Cotality's chief economist Selma Hep, to paraphrase her, she said that mortgage rates are not going to get down to levels where mass buyers want them for at least three years.
Rick Sharga 21:49
I think she's probably spot on. If you look at recent revised forecasts from the Mortgage Bankers Association, from the economics team at Fannie Mae, they've all raised their mortgage forecast for 2027 to be no better than the high sixes, and the likelihood of us being in the low fives or high fours, absent a huge recession or another global pandemic, really isn't particularly strong for the next few years. So I think Selma's probably spot on. We have seen home prices continue to increase, according to the National Association of Realtors. Sales prices increased on a year-over-year basis for the 38 th consecutive month. But it's important to note where these price increases are landing. So, the NAR said the prices went up by about 1.6% year over year. In the same month, the rate of inflation was 3.4%. So, if you look at a home price in adjusted dollars, if it went up 1.6 percent year over year, it's actually cheaper than it was a year ago. And so, home price appreciation is not keeping pace with either the rate of inflation or wage growth, and wage growth hasn't been exciting. But even at 3.1% which was the most recent number, wages are going up faster than home prices. So over time, this does have a little bit of a mitigating effect on affordability, and this is true no matter whose price appreciation numbers you're looking at. NAR had it at 1.6 percent. The FHFA, which is the government body that controls Fannie Mae and Freddie Mac, had it at about 2.3% in their most recent mark. And there's a report that Fannie Mae puts out that's based on the assessments from 100 different market analysts and economists, I'm honored to be one of those 100. But our collective number for the year is probably between 2.1% and 2.2% annual growth. So, for all intensive purposes, home prices have flattened out. And what's important to note for anybody who's looking to invest, anybody who's looking to buy a home, is these national numbers are useful, but in your local market they're useless. If you look at the top 300 metro areas, for example, across the country, what you would find is that about 54 of those markets are seeing home prices actually fall year over year, and a lot of those markets are concentrated in in Florida and Texas, that Gulf Coast region in particular.
Rick Sharga 24:27
There are a handful of markets where prices accelerated rapidly in the post-COVID era. Markets like Austin and Denver, Phoenix, Las Vegas, Seattle, Atlanta, and we're seeing some clawbacks, some some price corrections in those markets because they accelerated too high and too quickly, but if 54 of the top 300 metros are seeing price declines, that means that 246 are seeing prices go up, and a lot of the markets where prices are going up the most rapidly are in the. Northeast and Midwest, because there's a very strong correlation between inventory levels of homes available for sale and price trends. And by the way, those price declines for people who continue to be promoting the coming devastation of home prices in the country. I think this is one of the first things you and I ever talked about on your podcast. The markets with the biggest year-over-year price declines right now were Austin and Myrtle Beach, South Carolina, and in both cases, that enormous year-over-year decline was 4% On the other hand, you have markets like Wausau and Hartford, and and places in the Midwest and Northeast where prices are going up 567, 8% year over year. So really important to know what's going on in your local market or whatever local market you're looking to transact in, because the prices and the price trends vary pretty significantly across the country.
Keith Weinhold 25:58
And Rick, we're talking about home price change. It's interesting. There are so many different ways to divide up the market. A lot of our listeners and viewers buy entry-level homes, oftentimes single-family homes in the 300 something Ks and less. Do you have any sense for how much home price growth there is in entry-level homes versus the national number?
Rick Sharga 26:20
You know, you would expect that entry-level homes would see prices going up at a higher rate than, say, luxury homes. It's actually not the case right now, and one of the reasons I believe is not the case is because there's very little entry-level inventory available anywhere, and a lot of the inventory that is available is in a pretty sad state of disrepair, so really can't capture significant price increases. What we're seeing right now is that a lot of people in entry-level homes locked in at lower mortgage rates and simply can't afford to move up, so they're keeping these homes off the market, and for whatever reason, the again the the limited number of homes that are available and usually supply and demand would work to drive those prices up isn't working as much as you'd expect, at least in the data that I'm seeing. And again, I think it's partly because these the homes that are available tend to be older homes that need a lot of work.
Keith Weinhold 27:24
Yes, and with affordability for everything being difficult, yes, you can see how perhaps some of these people that have lived in these entry level homes for a long time, locked into low mortgage rates, might not have that much discretionary income for renovations and such. And boy, this really makes it valuable for a lot of the providers that we deal with that build new construction single-family homes, often in the three hundreds or less. That's what America really needs.
Rick Sharga 27:52
Yeah, I'm seeing the same thing you are when I look at investor data, Keith. The sweet spot is in the three hundreds, probably. Interestingly, the big institutional investors buy even cheaper when they're still buying, and they they really are focused on less expensive markets and smaller, less expensive properties that do need some work. But a lot of those big investors are actually redeploying their capital now into ground up construction, and partly that's because of the new legislation that was passed recently, the 21st Century Road to housing bill. One of the other interesting things, and this looks like a contradiction to what we just talked about, was while sales prices continue to go up, list prices are actually down for the 10th straight month, and so there's a difference between the final sales price, which is up year over year, and the list price, which is down just a smidge, about 1.3% year over year as well. What that suggests to me is that the sellers are getting a little more rational about their list prices today.
Rick Sharga 28:56
We do still see that a very significant number of properties that are sold are taking a price reduction. Depending on whose numbers you follow, data from Realtor.com that says about 20% of listings are taking a price reduction. They're probably talking about all listings, whereas some other groups are showing 40% list price reduction number. Like 40% of all homes are taking a list price reduction. I believe that refers strictly to properties that have been sold. And again, these aren't huge price reductions, but the fact that we're starting to see people get a little bit more rational with their list prices, the fact that we're seeing a continually high number of list price reductions also tells me that buyers realize they have a little bit more room to negotiate, and are probably negotiating a little harder before they close that transaction.
Keith Weinhold 29:48
You're listening to Get Rich Education. We're talking with housing intelligence analyst Rick Sharga with the C.J. Patrick Company with detail about today's housing market. More when we come back.
Keith Weinhold 29:58
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Todd Drowlette 31:34
This is the star of the A and E show, The Real Estate Commission, Todd Drowlette. Listen to Get Rich Education with my friend Keith Weinhold, and don't quit your daydream.
Keith Weinhold 31:54
Welcome back to Get Rich Education. I'm your host Keith Weinhold. We're going deep on the state of the housing market with housing intelligence analyst Rick Sharga, and Rick, I know you've pointed out a strong correlation between inventory and prices. It's like economics one on one is supply demand, and so much of price change has had to do with supply in today's market.
Rick Sharga 32:17
Yeah, it's really interesting, Keith. When you start to take a look around the country at inventory levels of homes that are available for sale, there's about a 4.6 month overall supply of homes available for sale, and that's a combination of how many homes are listed and how quickly they're going through that sales transaction. So it's not just raw numbers; it's kind of a calculation. But if you look at just the kind of raw numbers of inventory, we've been going up since 2021 at double digit inventory growth every year 15 20% more homes available for sale until late last year, and if we're looking at this year, inventory levels are up probably less than 2% year over year, so we're seeing fewer properties listed for sale. And in fact, the only reason inventory numbers are up is because it's taking a little longer to sell them once they're on the market nationally. The median number of days on market is about 60 days, but that varies wildly. If you're in a market like Denver, it might be taking you 90 days if you're in coastal California. It might be taking you 14. So it really depends on where you are in the country. But if you look at where we are compared to a year ago, almost every state in the union has seen at least a modest increase in inventory.
Rick Sharga 33:40
There are a couple of markets where prices have been falling. Markets like Florida, parts of Colorado, areas like Boise, Idaho, where there's been a retrenchment. So we had too much inventory. Prices started to fall, and so we're seeing inventory pulled back a little bit off the market. And if you go back as far as you know prior to COVID, when we had that buying boom, probably only about 19 or 20 states have more inventory available today than they did prior to Covid, and a lot of those markets are markets that we talked about earlier: southern markets, Gulf Coast states, some markets in the southeast where prices have weakened, whereas you got a state like Illinois, which is 62% less inventory available for sale. Parts of the Northeast similar numbers, and that's again where we're seeing home prices go up the most because people have to compete for the available properties.
Keith Weinhold 34:36
If you, the listener and viewer, remember the last time Rick was here, we had an episode about is there really a housing shortage? The short answer is yes. We continue to heal. We continue to build more and try to provide more available inventory to get ourselves back up to pre-pandemic levels.
Rick Sharga 34:54
Yeah, and two of the metrics that I look at, Keith, in terms of where the market is going. Are something called pending sales, which is a report that's put out that shows contracts that have been entered into, but the transaction hasn't been recorded yet. And the other is the mortgage purchase application index, people applying for a loan to buy a house, and both of those have been doing fairly well year to date until we cross that 7% mortgage threshold, at which point both of them dropped pretty significantly. So the mortgage purchase applications index dropped to about 13% lower number than it was a year ago, and in in September we had about 6000 fewer pending sales than we had the same time in September a year ago, so these two metrics are usually an indicator of what to expect in the months ahead. And what they're suggesting to me is that September and October home sales are probably not going to be terribly exciting as people adjust to these new higher rates. That said, we had been coming out of a period four consecutive months, starting back in April, where we sold more homes than we'd sold the prior year.
Rick Sharga 36:07
August broke that streak. We actually sold fewer homes than we did in July, and fewer homes than we did August a year ago. And we're coming up to a time in the year where 2025 sales actually were pretty strong for the last four months of the year, so I'm afraid that our our sales comps, if you go year versus year, are going to be challenged for the rest of this year. So the good news is, I mentioned a few minutes ago that at the end of August we were still 1.6 percent ahead of where we were a year ago in terms of home sales. The bad news is, in a best case scenario, I think we're probably going to be flat year over year by the time we get to the end of December. New home sales, interestingly, had a really good month of August. They had dipped down to about 607,000 annual sales in July, but zoomed up to about 684,000 in August.
Keith Weinhold 37:02
Okay, we're talking about brand new construction here as brand new resale. Yeah.
Rick Sharga 37:06
While the resale numbers look like they're flatlining at about 4 million a year, if we were to hold this 684,000 number through the end of the year for new home sales, we would actually surpass a lot of the forecasts for 2026. So, in a lot of cases, Keith, I'm seeing investors buying closeout properties from new home sellers and converting them into rental properties. I was recently speaking at an event in Northern California where I saw a builder advertising 2.9% mortgage rates. So the builders are buying down these mortgage rates in order to entice buyers. They're making price concessions. They're making concessions on fixtures and upgrades to the properties. So you know, for people looking not for a fix and flip investment, but for a rental property investment, don't look away from new home builders because they are looking for opportunities to move some of their assets, and the majority of them are making price concessions. In fact, there's a really unusual thing happening right now, Keith, in that the median sales price of a new home nationally is lower than the median price of an existing home.
Keith Weinhold 38:15
Right.
Rick Sharga 38:16
You mentioned building. I don't want to walk away from that. Housing starts are actually a little bit down year over year. That's true for both multifamily and single-family homes. The most recent numbers in August, we had about 1.27 5 million housing starts. Again, down year over year and month over month. On the other hand, though, building permits are actually up year over year. Almost 1.4 million building permits were issued. So, I believe builders have a good, positive long-term view of the housing market. But in the short term, the reality is they're trying to work through a bit of a backlog. There are 483,000 new homes available for sale at current sales rates. That's about an 8.5 month supply.
Keith Weinhold 39:01
That's a lie.
Rick Sharga 39:02
And normally with new homes, you're looking at a six to seven month supply. So right now, I really do believe what builders are doing is being circumspect about starting too many new projects and trying to work through the inventory they have, so they don't get caught in a position like they were right before the housing market crashed back in 2006, 2007, when they were sitting on about a 13 month supply of homes,
Keith Weinhold 39:28
I'm so glad that you spotlighted this, Rick, as new build homes being a potential opportunity for investors. It's the same thing that I've been telling my audience for over a year, because for more than two years now, builders have commonly offered generous concessions. For example, 12 days ago, I hosted a webinar with our provider in Memphis called Mid South Homebuyers, where they are buying down your mortgage rate to about five and three quarters percent on a 30-year fixed-rate loan, and they're also having their. Property management fee from the normal 10% down to 5% as new build incentives.
Rick Sharga 40:06
That's pretty generous, but it's not out of the ordinary for what we're seeing across the country, particularly from builders trying to wrap up a project. Keep in mind, they want to recapitalize so they can move on to the next build, and so it is an opportunity that is a little bit unusual for investors, historically speaking. Just a few words I wanted to share with you, Keith. You mentioned foreclosures. Right now, interestingly, mortgage delinquency rates are relatively low. If you look at all mortgages across the country, about 4.37% of those, just below 4.4% are in some stage of delinquency. That's lower than the long-term average, which is about five and a quarter percent, and lower than the numbers were prior to the pandemic. The outlier here is the FHA. So FHA loans are running at about a 12% delinquency rate.
Keith Weinhold 40:57
Wow!
Rick Sharga 40:58
And if you look at seriously delinquent mortgages, loans that are 90 days past due or foreclosure, about 6% of FHA loans find themselves there. So, over a half of all seriously delinquent mortgages are FHA loans, and that's despite the fact that FHA mortgages only account for about 15% of the market. So, a very disproportionate share. We talked about markets earlier where home prices have been declining, and if you look at where the FHA loans. So for your listeners looking for potentially distressed properties to buy, what I'm suggesting is the bulk of them in the next 12 to 18 months are probably going to be on FHA properties, and if you're looking for where those are, they have a disproportionately high share of market, starting in Denver, going down to Las Vegas and Phoenix, and then across the southern band of the country. 10% of all FHA loans are in Texas. 10% of all FHA loans are in Florida. 20% of all Oklahoma mortgages or FHA loans, so that's where you're going to see a lot of these FHA loans. They're in markets where property values have been declining year over year, not dramatically, but if you took out an FHA loan with a three and a half percent in Austin and property values are down 4% you're effectively underwater a year later, and if you also look at where insurance premiums have gone up the most for homeowners, it's the same markets. And if you were to look at where student loan delinquencies are the highest, it's also the same markets. So it's almost this perfect storm for FHA borrowers in that southern band across the country, and I suspect if I were to predict where we would see the most foreclosure activity in the next couple of years, that's really where I would be looking.
Keith Weinhold 42:53
Okay, so foreclosure activity a little low overall historically, but heavily concentrated with FHA borrowers, and I mean, there are some reasons for that. FHA versus conventional. I mean, with FHA, typically a smaller down payments used. Oftentimes, that borrower has a lower credit score and a higher debt to income ratio. Consequently, that's why more of them have gotten into trouble.
Rick Sharga 43:16
Yeah, they have less wiggle when they do get into trouble too. So, if you're an FHA borrower and you lost your job temporarily. You may never be able to catch up on your mortgage once you've missed a couple payments. It's in the industry we talk about being, you know, one broken water heater away from a pretty nasty delinquency cycle. The VA portfolio is also experiencing slightly higher than usual delinquency rates. Something for your listeners to think about, by the way, in this relatively high mortgage rate environment, is virtually all FHA loans and VA loans are assumable. Meaning, if you bought that property, you could, generally speaking, take over the loan from the original homeowner and get a second loan to make up whatever difference was required to buy that house, and that's one way to get a mortgage with a lower rate than what you would get on the open market today. Need to be working with somebody who can walk you through how assumable loans work. Not always something you might be able to use necessarily for an investment property, but certainly something worth looking into if you're looking for ways to save some money. We were talking about foreclosure activity. The first legal notice you get that you're in default on your loan is called a foreclosure start.
Rick Sharga 44:34
They're up about 10% year over year, and they're up to about 85% of where we were right before the pandemic hit. My suspicion is that we will be back to pre-pandemic levels by the end of this year. So that's the first stage of foreclosure. We're seeing foreclosure sales up about 6% year over year, but they're nowhere near where they were prior to the pandemic. So something is happening between that initial. Notice of foreclosure and a potential foreclosure sale, where either people are getting their loans modified and making payments, or increasingly a lot of these folks, when they get that foreclosure notice, are selling the property on the open market because they do have some equity and they'd rather protect that equity than risk losing it all to a foreclosure sale. So, again, a point for your investors out there: if you're looking at foreclosure activity, look at those early stages of foreclosures and reach out to the homeowner, because this could be a win-win scenario where you get a property below market value that's not in terrible shape, and you actually help that homeowner avoid a foreclosure and walk away with some money in their pocket, and foreclosure inventory not back to where we're seeing it normally. Prior to the pandemic, we were around maybe 350,000 homes in some stage of foreclosure.
Rick Sharga 45:54
Now we're at about 250,000, but it's the highest number we've seen since the government put all those restrictions in place back in 2020. So net net of all of this, Keith is that for the first time, really in the last seven years, we are on pace to see foreclosure activity to finally surpass 2019 levels. And I don't say that gleefully, and I don't say that dismissively. But even in 2019, we were looking at an unusually low number of foreclosures because the economy was strong. There was a lot of equity, and lending standards were so high. So it's been a long slog since then because of COVID, because of the government protocols that were put in place, and again because there was equity and lending standards. But if your buyers are out there looking at foreclosures, we're probably going to be back to those pre-pandemic levels by the end of this year.
Keith Weinhold 46:46
Okay, perhaps some more opportunity there,
Rick Sharga 46:49
And that's really all I had prepared in terms of prepared comments today, Keith. But there's a lot that we've already covered in terms of what to expect in the housing market. Now, what to expect in the distressed market? Foreclosures, distressed properties in general, still going to make up a very small percentage of overall sales. And for anybody expecting to see a boom in bank-owned properties coming to market or a huge number of short sales coming to market, neither of those appears to be in the cards for any time in the near future,
Keith Weinhold 47:23
and it sounds like everybody sure should get used to this normalized interest rate environment. Well, Rick, this has been great. How can our audience engage with you and what you do?
Rick Sharga 47:36
Well, I'm easy enough to find on social media, Rick Sharga at either LinkedIn or on what used to be called Twitter, you can also visit my website cjpatrick.com. But if you reach out to connect with me on either X or LinkedIn, just mention that you saw the podcast with Keith, so that I know you're not some Russian bot coming to Hackney. And you'd be surprised some of the the invitations I get on social media, Keith, or or maybe you wouldn't, but always happy to connect with people who are looking for information on real estate and mortgages.
Keith Weinhold 48:07
That is spelled S H A R G A. Rick, it's been great having you here.
Rick Sharga 48:12
Always a pleasure, Keith.
Keith Weinhold 48:20
Nice assessment from Rick. Both being native Pennsylvanians, he and I have the same favorite football team, and I've since talked to Rick about it. And wow, he really knows how to break down the NFL X's and O's stuff. One of the opportunities Rick brought to light is particularly interesting: new build home supply at eight and a half months, where six to seven is normal. That's part of what provides the motivation for builders to buy down your rate for you. They want to clear some of that supply. One thing that has not changed is that just regular buy and hold real estate still pays five ways simultaneously when you buy right, such that a total rate of return of at least 20 to 25% each year is not out of the ordinary at all. If you're new to this show, that might sound impossible or high flying or like you're taking some big risk, it is none of those things. This is why real estate has made more ordinary people wealthy than anything else. That's exactly why. And if you're uninitiated on that, I provided five videos for free. That is course level instruction. Me teaching you, and at the end of each video, with a typical property, I add up your rate of return, and it culminates in the grand total at the end of the fifth video. I can't recommend the series more. It's free, and it is wide open available. You don't even need to leave your email address. You can access. That course level video series called Real Estate Pays Five Ways at getricheducation.com/fiveways. You can land there and start watching immediately. Again, it's getricheducation.com/fiveways. That's with the number five. Now you know how I've discussed that waiting for lower mortgage rates is a losing strategy, and you just cannot count on that happening. And I haven't just said that for months; I have said it for years. If you've been waiting for mortgage rates to come down before owning investment property, maybe you think that next I'm going to say you'll be waiting a long time. Yes, you would be, but you might be waiting for something that is already available, and here's what I mean: in select markets, home builders are offering substantial incentives to move new inventory, and one of the most valuable incentives is that aforementioned mortgage rate buydown. With the way the numbers work. That is better than an overall price cut. And some of these providers are doing multiple incentives. They're both buying down your mortgage rate and cutting your property management fee in half, or giving you some other incentive. So while you might see these prevailing mortgage rates quoted a lot higher in the mainstream financial media. Some new build investment properties can come with builder-paid financing incentives that bring your rate meaningfully lower, still into the fives. And it's not always new build; sometimes it's resale property as well. That can change the entire deal and help ensure that you're paid up to five ways at the same time. A lower rate, of course, means a lower monthly payment, better cash flow, and a property that makes sense today, not someday if rates happen to fall someday. But you need to know where these opportunities are, which providers are offering them, and whether the property itself still makes sense after you look at rents, expenses, management, and the local market. This is exactly where we can help you with our GRE investment coaching. Our investment coach can help connect you with investor-friendly properties and providers in markets where the numbers make sense, including a lot of new builds with those rate buy downs and when and where they're available, and they sure are now in Florida, Tennessee, Georgia, Arkansas, Alabama, Ohio, Indiana, Kansas, and more. And see, because we deal nationally, and we do this for a lot of buyers. We have the scoop. We know what kind of offer sellers will accept because we've seen what other buyers have tried and what has worked and what hasn't, and it is actually free to meet with a GRE investment coach if you even wanted to buy something from us, you cannot because we don't have anything to sell. So build your wealth.
Keith Weinhold 49:25
This is why real estate has made more ordinary people wealthy than anything else. That's exactly why. And if you're uninitiated on that, I provided five videos for free. That is course level instruction. Me teaching you, and at the end of each video, with a typical property, I add up your rate of return, and it culminates in the grand total at the end of the fifth video. I can't recommend the series more. It's free, and it is wide open available. You don't even need to leave your email address. You can access. That course level video series called Real Estate Pays Five Ways at getricheducation.com/fiveways. You can land there and start watching immediately. Again, it's getricheducation.com/fiveways. That's with the number five. Now you know how I've discussed that waiting for lower mortgage rates is a losing strategy, and you just cannot count on that happening. And I haven't just said that for months; I have said it for years. If you've been waiting for mortgage rates to come down before owning investment property, maybe you think that next I'm going to say you'll be waiting a long time. Yes, you would be, but you might be waiting for something that is already available, and here's what I mean: in select markets, home builders are offering substantial incentives to move new inventory, and one of the most valuable incentives is that aforementioned mortgage rate buydown. With the way the numbers work. That is better than an overall price cut. And some of these providers are doing multiple incentives. They're both buying down your mortgage rate and cutting your property management fee in half, or giving you some other incentive.
Keith Weinhold 51:16
So while you might see these prevailing mortgage rates quoted a lot higher in the mainstream financial media. Some new build investment properties can come with builder-paid financing incentives that bring your rate meaningfully lower, still into the fives. And it's not always new build; sometimes it's resale property as well. That can change the entire deal and help ensure that you're paid up to five ways at the same time. A lower rate, of course, means a lower monthly payment, better cash flow, and a property that makes sense today, not someday if rates happen to fall someday. But you need to know where these opportunities are, which providers are offering them, and whether the property itself still makes sense after you look at rents, expenses, management, and the local market.
Keith Weinhold 52:10
This is exactly where we can help you with our GRE investment coaching. Our investment coach can help connect you with investor-friendly properties and providers in markets where the numbers make sense, including a lot of new builds with those rate buy downs and when and where they're available, and they sure are now in Florida, Tennessee, Georgia, Arkansas, Alabama, Ohio, Indiana, Kansas, and more. And see, because we deal nationally, and we do this for a lot of buyers. We have the scoop. We know what kind of offer sellers will accept because we've seen what other buyers have tried and what has worked and what hasn't, and it is actually free to meet with a GRE investment coach if you even wanted to buy something from us, you cannot because we don't have anything to sell. So build your wealth.
Keith Weinhold 53:10
You can book a time with a GRE investment coach at a time convenient for you to simply get clarity, look at real opportunities, and decide whether any of them fit your goals, you can open a calendar and set that right now at greinvestmentcoach.com. We can help you build your wealth. It's truly free at greinvestmentcoach.com. Next week, here on the show, a new way to build your wealth through real estate, and it's possible that you've never heard about it before. Until then, I'm your host Keith Weinhold. Don't quit your daydream.
Speaker 2 53:51
Nothing on this show should be considered specific, personal, or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education LLC exclusively.
Keith Weinhold 54:19
The preceding program was brought to you by your home for wealth building, getricheduceducation.com
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