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[00:00:00] Hey, so welcome back to the next episode of What's Your 1 More. This is the second part of the conversation I carry [00:00:05] on with my guest, Dan Habib, who was just dropping a tremendous amount of knowledge in that episode. And Dan's one of those [00:00:10] guys, once he gets going, it's hard to stop because you don't wanna stop.
He's got so much great stuff to give. So we put this into [00:00:15] two parts. Here's the second episode of that interview between Dan Habib and myself.
[00:00:20]
Quinton: The [00:00:25] next question here is who is going to be the next Fed chair?
And it's [00:00:30] interesting the way that this has been unfolding, and it's hard to decipher through because listen, we all [00:00:35] know, you know, president Trump has an interesting style and he likes to keep people off balance. [00:00:40] And in the beginning it sounded like he had four candidates, but two really good ones. [00:00:45] He was like, you know what, we have four candidates and.
He really didn't even mention Waller, [00:00:50] but everybody assumed that Waller was one of them. We really didn't know who the fourth was. And then he [00:00:55] said the two Kevins are doing really well. That's Kevin Walsh and Kevin Hassett. [00:01:00] And I really thought Walsh was the front runner. And he may still be, but because I mean, the guy's [00:01:05] brilliant.
He used to be a Fed governor for several years and he mentioned that Kevins are doing [00:01:10] well and I just thought he was near the top with Hassett maybe, and also with Waller. [00:01:15] Butthe administration now has said we're expanding the search. And now the [00:01:20] latest is that there's 11 candidates and Treasury Secretary Scott Besson is gonna [00:01:25] interview all 11.
Then whittle it down and then the president is gonna [00:01:30] choose. So that is gonna take longer than previously expected, which I think [00:01:35] reduces, the likelihood of having like a shadow fed. Sure. Okay. [00:01:40] But I have here the list of the 11 people as [00:01:45] well as the poly market, odds of them being the next Fed chair.
And if you remember the [00:01:50] election and stuff right, they had poly market. Now, to be fair, this is something that they [00:01:55] showed on CNBC, but I looked into it a bit. It's not like there's a ton of volume there, right? It's not like [00:02:00] how it was with the election. So you have to take it with a grain of salt. But this is what some people are thinking.[00:02:05]
Fed Governor Chris Waller is the leading candidate according to this, at 35%. And then [00:02:10] you have Hassett, you have warsh, and then you have former St. Louis Fed [00:02:15] President James Bullard. And boy, I was surprised that they added him into the mix. I mean, listen, the guy had a lot of [00:02:20] experience on the Fed, but when we used to talk about him, when he was a, the actual St.
Louis Fed [00:02:25] President. You know, jokingly a bit, we would call him James Raging [00:02:30] Bullard, because the guy was a little bit out there as far as he loved the [00:02:35] spotlight. You know, he would really kind of put some things out there sometimes that were way out there. [00:02:40] But nonetheless, I mean, I. He had more face time on the media than every [00:02:45] other Fed member combined when he was there.
Yeah. So I don't think personally he'd be a great candidate, [00:02:50] but you could see they've expanded this search. I mean, he got former fed governor, Larry Lindsay, [00:02:55] he got somebody from BlackRock, which boy that would be interesting. Rick Reer from [00:03:00] BlackRock. you know Lori Logan, the former Dallas Fed President, the current Fed vice chair, [00:03:05] Philip Jefferson, we already know about Bowman.
And then you have the economic advisor to the Bush [00:03:10] administration, mark Summer, and he's actually spoke on CNBC today. And of course. He said he was in [00:03:15] favor of a 50 basis point cut in September. You know, it's hard to decipher through because [00:03:20] clearly there's a lot of people now that are lobbying for the job.
And if you wanna lobby for the job, what are you gonna do? You're [00:03:25] gonna appeal to what Trump wants, which is bigger cuts and more frequent cuts. But [00:03:30] nonetheless, I think the Fed should be cut. And the real reason why I think they should be [00:03:35] cutting is the labor market showing weakness. Inflation on the consumer side [00:03:40] has been tame, but even if it goes up, it's temporary.
One time price increases, the [00:03:45] Fed is supposed to look through that. But the other thing is this, [00:03:50] it'd be one thing if the Fed was neutral right now. And what I mean by that is this. [00:03:55] So Quinton, the Fed, they always say they want to get to neutral. So when [00:04:00] you have a crisis happen, when you have COVID, the fed cuts [00:04:05] rates, okay?
And they get very accommodative. They cut rates to zero. They bought a hundred billion a month [00:04:10] in mortgage bonds and treasuries. Why do you want to be accommodative? Because you wanna make lending [00:04:15] as cheap as possible, because when money's cheap, people borrow, the economy expands, and you [00:04:20] want to make all interest rates lower.
So people are paying less interest on cars, on credit cards, you [00:04:25] name it. That clearly sparks the economy. Now you want to be [00:04:30] restrictive when you have inflation running too hot, like 2021, where they [00:04:35] hiked rates to five and a half percent. So five point a quarter, five and a half. So [00:04:40] the Fed wants to get to neutral.
So that means they want to get their Fed funds rate to a [00:04:45] level where they're not being accommodative to the economy and they're not being restrictive. So now that we [00:04:50] understand that, where are they Now they're restrictive and some people's neutral [00:04:55] rate can vary a bit. According to Waller and Bowman, the fed's restricted by one and a quarter to one point half percent.[00:05:00]
I think they're restricted by somewhere between 0.825, let's call it, [00:05:05] between like, you know, seven, eights and 1%. But what does that mean? [00:05:10] That means that they are currently slowing down growth and putting their foot [00:05:15] on the neck of the economy by this much. So it'd be one [00:05:20] thing if the Fed was that neutral, well, you could argue, hey, you don't want to be accommodative [00:05:25] because there's concerns about inflation and blah, blah, blah, but they're restrictive.
So [00:05:30] you could cut three times to four times and still be restrictive. [00:05:35] Why wouldn't you want to do that? To try with the long and variable lags of [00:05:40] monetary policy to get ahead of the labor market, which looks like it's falling off a cliff a [00:05:45] bit. And because you're so restrictive and because there's signs the [00:05:50] economy is slowing.
I mean, I think that just listen, that's logical in my opinion. Oh, this shows up in the job [00:05:55] market. I mean, the restrictiveness is there. Yeah, so we'll see what happens with the [00:06:00] Fed, in my opinion. I think they're gonna cut 25 basis points. Now, here's something that I wanna bring up. [00:06:05] Is it gonna help mortgage rates?
Now, people saw [00:06:10] last year that mortgage rates actually moved a little bit [00:06:15] higher after the Fed cut 1%. So September [00:06:20] 18th, November 7th, December 18th, the Fed cut 50 25 and [00:06:25] 25 for a combined 1%. Now, most people do forget, in anticipation [00:06:30] of the September meeting, we saw mortgage rates drop by about three quarters of a percent.
That did happen. You [00:06:35] see this green line, but once the fed cut, they stayed stable for a little bit. [00:06:40] This was the 50 basis point cut, but then they moved higher. And then they cut 25 and they moved a [00:06:45] little higher, then they cut 25. It moved a little bit higher. So what gives here, you know, if the Fed were to cut [00:06:50] this time around, will we see mortgage rates actually respond well or would it go the other way?
It's important to [00:06:55] note the Fed's not cutting mortgage rates. They're cutting the Fed funds rate. It's not a long-term rate, [00:07:00] it's a short-term rate. It's actually an overnight rate that banks use to lend in one another. Has a direct impact on short [00:07:05] term rates. Your money markets, short term treasuries, credit cards, car loans.
But [00:07:10] it does still have an impact on longer term rates. It's the way my father says it is, like the mother's [00:07:15] milk. It does impact everything. But here is why [00:07:20] we didn't see it help mortgage rates, although in anticipation they came down three quarters a percent. [00:07:25] The reason why is 'cause we had. The jobs market.
The BLS came out in [00:07:30] September after the cut, 254,000 job creations. November cut, [00:07:35] 227,000, December 256,000. We know now those numbers are baloney. That [00:07:40] didn't help. And then also we had the two hottest inflation readings of the year, January and [00:07:45] February, which those didn't help things. So I don't see this happening [00:07:50] again, especially when you look at a long-term correlation.
Now look at this chart. Y [00:07:55] you, there's no arguing that throughout history, the Fed funds rate the [00:08:00] blue line, 30 year mortgage rates, the green line, they trend pretty well together over time. [00:08:05] Now, clearly you could see them break that trend on the last cut at the end of the year, the [00:08:10] last few cuts. I think this time around it's going to help things.
So I'd be rooting for that. [00:08:15] If you want to see mortgage rates come down, so. Wait, I'll pause there for one sec if you wanted [00:08:20] to say something. Yeah, no, I was thinking, I agree with you. I think that was a big, that's the Punisher in the market. You were talking about that [00:08:25] BLS report. Punish, punish, punish.
And you know, unfortunately that's, we discover [00:08:30] later that the data is not de, you know, it's not dependable, but yet the market reacts as you [00:08:35] said. And that's super unfortunate because the dominoes are set up and then all of a sudden you get this windfall, the Punisher comes in and just [00:08:40] wipes the whole board out.
And, uh, every time the Punisher, everything has been set [00:08:45] up for this to work for us, right? Everything has been set up and then there's the epic fail at the end. And that's just [00:08:50] completely unfortunate. But I think that your point is very valid that, you know, those are [00:08:55] framing moments that aren't gonna continue to happen, right?
And as we move into mortgage rates here, and I know you're gonna give your [00:09:00] forecast, I say this about our audience, like Dan is throwing a ton of data at you and he's got one hell [00:09:05] of a presentation put here. All of this is gonna be in our YouTube channel at, what's your, one more with the number one that's at, what's [00:09:10] your, one more with the number one.
Check that out. Put, you know, subscribe to that. But get in here and take a look at these [00:09:15] graphs that he's putting together. There's a lot of time, energy, and effort here, and they're very good and easy to read and I can't stress that enough. So if [00:09:20] you're listening to this on Apple, go ahead and check it out on YouTube.
Some high level stuff on here that you just can't get anywhere [00:09:25] on the internet when you go Google this stuff. Well, thanks Quinton. And, let's talk a little bit about where [00:09:30] mortgage rates are gonna go. Let's do it. So. You know, on my cover slide I mentioned [00:09:35] that the bull market in the mortgage industry is a lot closer than many people [00:09:40] think.
And the reason why is because there's a lot of things that can help rates come down. But not [00:09:45] only that, rates don't have to come down as much as many people believe, [00:09:50] for it to really change our industry from an activity perspective. So remember, [00:09:55] there's been a lot of loans done over the last several years at much, much higher rates.
And do I [00:10:00] think rates are gonna come down a four handle in front of it again, or even a five [00:10:05] handle? I don't. But if rates come down to the low [00:10:10] sixes, heck, if rates get under 6.5%, I'm gonna show you what the impact would be. [00:10:15] So let's talk about some of the driving forces, right? We talked about the fed cutting rates, which I [00:10:20] believe they're gonna begin to do.
That will help. Talked about the labor market. We see weakness, [00:10:25] continued weakness, which boy, we're starting to finally see indicative numbers that will help if the [00:10:30] inflation numbers after some one time price increases maintained, that will help. [00:10:35] But Scott Besson, the treasury Secretary now, I think he's a pretty smart guy.
And [00:10:40] my father, Barry had a personal conversation with him. And this [00:10:45] isn't like public knowledge, but what he told Barry is his target on the 10 year is [00:10:50] 3.9%. Now he has publicly said he wants to unfreeze the housing market. [00:10:55] And you know, let's, good news, right? I mean, we want a treasury secretary that wants to see rates come down [00:11:00] and wants to unfreeze the housing market.
What can he do in order to do that? Does he have [00:11:05] the power to institute some changes and some progress towards that goal? Well, [00:11:10] one of the headwinds causing rates to remain elevated is the [00:11:15] debt. And what I mean by that is, is our debt is like 37 trillion. We [00:11:20] continue to deficit spend, which means we are spending more than we are taking [00:11:25] in tax receipts.
That's how a country earns its money. And when you do that, [00:11:30] how do you come up with the money? We don't have like a literal printing press. We [00:11:35] issue debt. In the form of treasuries that we pay interest on, right? We [00:11:40] have to pay back. And when you are issuing a ton of debt, a [00:11:45] ton of treasuries, they have to be absorbed by the bond market.
Now [00:11:50] you oversee all these auctions that they talk about. You have your two year treasury note auction. You [00:11:55] have your three year, your five year, your seven year, your 10 year, your 20 year, your 30 year auction. [00:12:00] That's us coming up with money. By issuing debt, it has to be absorbed by the bond [00:12:05] market. Now, that's a headwind to rates coming down because if you flood it with [00:12:10] supply, it may get a, it's going to get absorbed eventually at some price.
You go back to [00:12:15] your macroeconomic days, some equilibrium price. But if there's a lot more supply, it'll probably [00:12:20] be at a lower price. And if we're talking about bonds here, that's a higher yield. So that has [00:12:25] hurt us. And just to give you an analogy, let's say you [00:12:30] are looking at your housing market that you're living in right now.
If all of a sudden [00:12:35] there was 10,000 homes that came on the market, what would happen to price? Well, [00:12:40] you'd have demand to probably absorb these homes at some price, but because of all the supply [00:12:45] would push prices lower. And in our case, lower prices on bonds means higher yields. So this [00:12:50] has hurt us. But what hurts us more is the longer term [00:12:55] treasury issuance.
If we're issuing all kinds of 10 year treasuries, 30 year treasuries, [00:13:00] that hurts us more directly with mortgage rates. The short end of stuff, listen, it [00:13:05] can still infl, you know, lock up like liquidity and stuff, right? Because people only have so [00:13:10] many dollars. So if they're buying all short-term treasuries, then maybe they don't have as much liquidity [00:13:15] to spend a longer term, but it has much less of an impact.
So Scott Besser smart, he [00:13:20] understands this. So he says, you know what? I want to issue more shorter term debt term, the debt [00:13:25] shorter, that would help things. It's actually the opposite of what Janet Yellen did. [00:13:30] Janet Yellen made one of the dumbest moves where she inor when weights were [00:13:35] like ridiculously low.
She saved a few basis points and issued short term debt. [00:13:40] Instead of issuing longer term debt, you should have locked in that low rate. Yep. But then rates went up and then [00:13:45] boy, we got crushed on having to pay so much more in interest. It actually makes [00:13:50] sense now because it's believed that rates are gonna come down and if you term the debt shorter, it's not [00:13:55] gonna have as much of an impact on mortgage rates.
Things like the 10 year, and they can certainly help to [00:14:00] unfreeze the housing market. But the big thing that Scott Bessett wants to do, and there [00:14:05] was actually some talks about this, I was speaking with Barry about it today, where, they're making [00:14:10] progress on this. They wanna do bank deregulation. So what's that mean?
Well, [00:14:15] what they make money by taking our deposits in. So you deposit your money at a [00:14:20] bank, they pay you. A very small amount of interest, but then they take that money and then they [00:14:25] lend it out at a higher rate and they make the spread. It's one of the main ways banks make money, [00:14:30] but they can't lend all of it out, right?
They have to have reserves and things like a [00:14:35] supplementary leverage ratio. So right now they don't have a big impetus to [00:14:40] buy treasuries because if they were to do so, it would go against their capital [00:14:45] ratios and they wouldn't be able to lend out as much. But the bank deregulation deal says this, [00:14:50] treasuries are a risk-free asset backed by the full faith and credit of the government, and whether [00:14:55] you agree with this whole deal or not.
If this deal gets passed, which it looks like [00:15:00] it's going to, it would open the door for the largest banks to buy treasuries [00:15:05] because then it wouldn't, they'd be able to buy treasuries, absorb a lot of the supply. You'd have a new source [00:15:10] of demand for all of our debt, and it wouldn't count against their supplementary [00:15:15] leverage ratio.
And there's like 3.7 trillion in reserve. So there's a lot [00:15:20] of money that can then be deployed to absorb treasury. So that could really help rates come [00:15:25] down in the coming months.
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Quinton: Quinton and I [00:16:25] talked about this before. I know crypto is probably like the hottest thing now.
I mean, Bitcoin just said a new all [00:16:30] time high at the time of like recording yesterday at [00:16:35] 124,500 or so, Ethereum's been taken off and I think crypto can help [00:16:40] mortgage rates to come down and we're gonna do a longer show to get back to that point on cryptocurrencies. [00:16:45] Answer a lot of, yeah, this is like a whole nother episode.
But in summation, I love where you're going with [00:16:50] this. it's pretty impress. I think crypto can help mortgage rates come down Quinton, and people are like, well, how the heck's [00:16:55] Bitcoin, Ethereum, how's that gonna help mortgage rates come down? They're not. But there's a lot more than [00:17:00] just those riskier assets that you're thinking about.
There's something called [00:17:05] stable coins. And stable coins are like the hottest game in town. Everybody's trying to [00:17:10] create one. Why is everything? The future is in the blockchain [00:17:15] and everybody's trying to create stable coins because what they do. Is, it's a [00:17:20] cryptocurrency that essentially mimics the dollar.
It's pegged to the dollar, and it gives [00:17:25] you a crypto version of the dollar that you can utilize in blockchains. And there's [00:17:30] so many advantages. You know, imagine making payments cross [00:17:35] borders or you know, even like selling things and having settlement plus one, [00:17:40] it takes time. It's expensive, it's not efficient.
If you have [00:17:45] stable coins running on blockchains, it eliminates all of that. It's faster, it's cheaper, [00:17:50] it has finality, it has instantaneous settlement, and it bridges the gap between traditional [00:17:55] finance and the dollar and cryptocurrencies in the blockchain. So everybody is trying to [00:18:00] create stable coins.
So how you have a stable [00:18:05] coin that is stable and they peg it to the dollar and it's like a crypto version [00:18:10] of the dollar. Guess what? 80% of what Stable coins own is [00:18:15] US Treasuries now. Right now it's a relatively small market cap. [00:18:20] Stable coins, it's up 240 billion and 80% [00:18:25] old and new treasuries on 240 billion. That's like 192 billion.
But [00:18:30] conservatively, the estimates are for this to go to two to 3 trillion over the next like year or two, [00:18:35] especially with all the deregulation. Now, you know, we had the Genius Act, I mean, all [00:18:40] these different things. Okay, clarity Act. So we are going to see [00:18:45] this go to two to 3 trillion over the next year or two, and that means they're gonna have to own 2 trillion or [00:18:50] so in treasuries at least.
So between bank deregulation and between [00:18:55] stable coins, it's gonna have a big source of demand for our treasuries. And by the way, why is it [00:19:00] important that Bessett wants to term the debt shorter? Stable coins. If it's mimicking [00:19:05] the dollar, it's gotta be liquid. They're not buying 10 year treasuries here, so it can't absorb that supply.[00:19:10]
However, it's gonna be short term treasuries. And if we term the debt shorter, this [00:19:15] can absorb a lot of that supply. So where's mortgage rates going? [00:19:20] Well, mortgage rates always have a relative relationship to the tenure. We know [00:19:25] best's target on the 10 is three 90. I think that's actually, pretty realistic.
But [00:19:30] historically, 30 year mortgage rates are about 1.6 to [00:19:35] 2% above the tenure. Okay. So that means if you have the tenure at three [00:19:40] 30 year mortgage rates, they're 4.6 to 5%. Okay? There's a normal spread, [00:19:45] but then there's periods of time, COVID, quantitative easing, hiking [00:19:50] spree where this spread can widen or narrow.
And if you remember back [00:19:55] here, boy, this is where you had five year, 10 year treasury, 5%, 10 year [00:20:00] treasury, and over 8% 30 year fixed mortgage rates. But the [00:20:05] spread has been narrowing. And part of the reason why this happens without getting too deep [00:20:10] is servicing values and prepayment risk here. And as rates come down, there's less and less and less in servicing [00:20:15] premiums reenter.
But the bottom line is this, the spread has been narrowing. It was [00:20:20] 3.12 60, now it's at 2.36. I think this will [00:20:25] continue to narrow on a relative basis. We've actually been seeing mortgage back securities perform a bit better [00:20:30] than the 10 year of late. So how low can mortgage rates go? Well, if we hit best [00:20:35] in target of three 90, which as I said, I think is realistic, and the spread goes from 2 36 to two and a [00:20:40] quarter, where does that put 30 year mortgage rates?
Six and an eighth. [00:20:45] Now six and an eighth. I mean, maybe it's not what some people are hoping for, but that would change [00:20:50] our business team. Okay. First of all, from a refi standpoint, if you get under [00:20:55] six and a half, these are the numbers from ice, which, it used to be [00:21:00] Black Knight, but from ice under six and a half percent, you have 4 [00:21:05] million loans that are in the money for a refi.
And they have like a pretty strict criteria. You have to save [00:21:10] three quarters or percent of rate. You have to maintain,20% equity in the home. But [00:21:15] for perspective, all of 2024, there was 1.3 million refis. So [00:21:20] you get 4 million refis if we get under six point half percent, and if we get [00:21:25] to the low sixes, it's gonna cause all kinds of purchase activity as well.
And [00:21:30] one thing I just want to talk about, Quinton, you know, we saw after the jobs data, we [00:21:35] saw rates come down a bit and. You know, we got mortgage application [00:21:40] data this week and it captured finally that decline from last week in [00:21:45] mortgage rates. 'cause the prior week was on a Friday, wasn't in the previous data.
So last [00:21:50] week rates came down according to the NBA to like six and five eights or so, [00:21:55] and you saw refis pop 23%. Great, but purchases only went up [00:22:00] 1%. Now people looked at that and they said, see if rates come down, it's [00:22:05] not gonna help the purchase market. I think those people just don't understand what's happening here.[00:22:10]
With a refi, it's different. You either have a strike rate with your relationship [00:22:15] or rates come down, people buy this data, you're getting solicited. [00:22:20] Either way, you're getting called for a refi. Hey, do you want a refinance or not? Here's what you could save. It's like [00:22:25] a binary decision with a purchase. It's different if rates come down, [00:22:30] then you hear rates came down and you start the shopping process.
It takes longer. [00:22:35] It's not like all of a sudden the next week you're gonna see a huge pop in mortgage applications to purchase. They [00:22:40] gotta search for a home, they gotta find a home. They gotta fill out an app. And then guess what? Rates all that [00:22:45] time have to remain lower in most cases for it to make sense for them.
So lower rates [00:22:50] will help purchase activity, but it just takes a little bit longer. And let's talk about [00:22:55] real estate, Quentin, because I've been seeing some garbage out there that has gone viral [00:23:00] and you know, we've been pretty accurate on the housing market. Right? And I think [00:23:05] part of the reason is our methodology where.
Last year we won a fourth crystal ball award for the [00:23:10] most accurate real estate forecast in the us. Congrats. We were kind of out on an island there. You know, [00:23:15] everybody was saying home prices were coming down. We said somewhere around 4.5% to 5% appreciation. [00:23:20] We saw 4.7%. I'd say that's a bullseye. Well, if you look at [00:23:25] supply and demand, that has certainly helped.
I mean, in most markets, like we were just talking about with [00:23:30] cryptocurrencies or with housing, it's supply and demand and [00:23:35] demand. Well, formations have been like 1.8 million on average for the last five [00:23:40] years. It's a volatile number, but 1.8 million a year for last five years. Now, we've recently seen that [00:23:45] drop here, and I don't think that is a negative thing.
I think what it's really showing [00:23:50] you is how much pent up demand we have on the sidelines, and [00:23:55] once rates come down, boy, you're going to see an explosion in [00:24:00] activity, especially if we get to the low sixes and on the supply side. [00:24:05] Supply on forward-looking numbers, you have permits starts, and then you have completions [00:24:10] which are being completed.
Now in the new construction front, they've all been dropping significantly, [00:24:15] but starts are around 1.3 million. So compared to the formations we've been seeing, certainly not [00:24:20] keeping up. But then when you look at inventory, what most [00:24:25] people focus on, and we look at active listings, we focus on all these articles in the news [00:24:30] that they see where it's like, well, inventory is up 25% and this is nationwide, right?
So [00:24:35] yes, it is up 25%, 30% of it's in like Florida and Texas and [00:24:40] you know, real estate markets are different, right? Right. So, you know, you have [00:24:45] in the northeast a much different scenario, but you just have to put things in perspective. [00:24:50] 'cause 25% from last year sounds like a lot, but on a relative basis, if you look at pre [00:24:55] COVID nationwide numbers now.
We're down 11% still, so we're still below pre [00:25:00] pandemic levels. And it's not like inventory was going wild there and we have 12 million more people. But as [00:25:05] I mentioned, inventory and home price appreciation even, you know, you have to [00:25:10] look at different markets. Now we don't know who we're talking to on this call here.
I go over nationwide numbers, but [00:25:15] you know in markets that you have a lot more inventory than pre COVID, [00:25:20] like Texas, like Florida, like Washington, dc like there's certain ones out there. There's a couple [00:25:25] states. You probably see either small price declines, there are slower [00:25:30] paces of appreciation and you have a lot more inventory.
But if you go to like the [00:25:35] Northeast, it's like 40 to 50% or so less inventory than pre COVID still. So [00:25:40] it is a bit of a different market depending on where you look. But the bottom line is [00:25:45] we're still not seeing like an insane for the most of the country. Increase in [00:25:50] inventory, it's still tighter than it was pre COVID in most areas, and we're not seeing home [00:25:55] values decline NA nationwide or even significantly.
We're seeing a slower pace [00:26:00] of appreciation, which is different than seeing price declines or significant price [00:26:05] declines In most cases, you're still seeing slower price [00:26:10] appreciation, meaning home values going up, but there's some articles out there that have caught [00:26:15] a lot of attention that are scaring the crap outta consumers.
[00:26:20] Redfin is guilty of this, where I see this thing everywhere. It was picked up by the Wall Street Journal [00:26:25] and they said there's 500,000 more sellers than buyers in the [00:26:30] market. And boy, I mean, if these numbers were much larger in size, then it wouldn't be as [00:26:35] significant, but we're talking about 1.943 million sellers versus [00:26:40] 1.453 million buyers.
So that's a huge difference there. [00:26:45] Cons, relatively speaking to the size of this, 500,000 more sellers than buyers, [00:26:50] you would think we would see home values fall off a cliff. Okay? [00:26:55] However, most people, what do they do? They look at this and they go, well, that's bad. And they stop there. [00:27:00] You need to go deeper.
Okay, so first of all, how do they come up with this number? [00:27:05] The amount of sellers? Well, I just showed you active [00:27:10] listings. You know what the number is? 1.1 million. So, I mean, I [00:27:15] don't know where they're getting 1.9 million. Even if you add the new construction stuff, which by the way, [00:27:20] even if you add the absolute number, you don't get close to this.
But you also have to remember the new construction front, [00:27:25] that the vast majority are either not started or under construction. It's like a hundred and something [00:27:30] thousand new construction units that you could actually move into. Okay. So right. Either [00:27:35] way, you add the highest possible number that you don't get here.
So I don't know where they're getting this, but what was [00:27:40] really egregious was how they stated this with the number of buyers. So Gwen, [00:27:45] I'm gonna ask you. How do you figure out how many buyers are on the market? [00:27:50] Well, I mean, it's a pretty tough number to come up with. I don't know if there's data source I can go to [00:27:55] that pulls, says, oh, there's so many buyers on the market.
I mean, if I did it, I'm guessing this is gonna be the best way. [00:28:00] No way. Well, the answer is there's no, there is no metric. Right? There's no way to know at any given [00:28:05] time how many people are in the market to buy a home. There's just no way to do it. Right. [00:28:10] However, they know this Redfin, and they said it if you look at their [00:28:15] methodology, because there's not a metric measuring how many buyers are in the market.
We developed [00:28:20] one, we took active listings and pending sales from the MLS. We estimated what [00:28:25] fraction of homes on the market will sell within a month, analogously. We estimated what [00:28:30] fraction of buyers on the market will find a home within a given month? How do you know how many buyers are on the market?
They will find a [00:28:35] home in a given month, I don't know. And then they took, oh, from the typical time from first [00:28:40] tour to purchase, we took the ratio and then we applied this to [00:28:45] approximate the ratio of buyers to sell it. So then
they took this stupid ratio and they applied it to the amount [00:28:50] of sellers, which is elevated.
The answer is it's bs. And they were [00:28:55] successful because it got all kinds of attention was picked up by the Wall Street Journal, was on [00:29:00] CNBC. I've seen so many people post it saying, this is terrible, this is bad. But the [00:29:05] truth is, it's baloney. Now, don't get me wrong, I'm not sitting here saying the [00:29:10] housing market's on fire.
We've seen less activity, we've seen more inventory. We have [00:29:15] seen much slower pace of appreciation. There's not 500,000 [00:29:20] more sellers than buyer's team. If there was correct, we would see significant declines in home values. And guess [00:29:25] what? Little inside info. We won the fourth Crystal Ball award from a, [00:29:30] a Fannie Mae, Zillow, and omics home price expectations survey [00:29:35] that we partake in.
It's the top 150 economists in the us. We are honored and blessed to be a [00:29:40] part of it, and we've done very well. Well, guess what, Kenza, she's [00:29:45] the person that's like the head analyst there at Redfin that put this stuff together. [00:29:50] I think she doesn't believe the numbers. How do I know that? 'cause I could see [00:29:55] her responses.
And for this year, she thinks home values are only gonna decline [00:30:00] 1%. If she thought there was 500,000 more sellers than buyers in the market right now, I think she'd think it was [00:30:05] gonna fall more. And guess what? In 20 26, 20 27, 20 28 and [00:30:10] 2029, she has home values going up. So there's no way she buys that baloney.
[00:30:15] I really do think this was click bait, but you have to go deeper and you have to educate your customers on this [00:30:20] stuff because this is the crap that they're seeing. I believe it's [00:30:25] hard to bet against the champ housing market up 77 or the last 83 years [00:30:30] and almost all the down years where the housing bubble.
Very different scenario today. Home values do well during [00:30:35] recessions, but here's what I think. I think we're gonna see 3% appreciation over the next 12 months. [00:30:40] It doesn't sound crazy, it doesn't sound that sexy, but it's meaningful. It means that [00:30:45] if you bought a $500,000 home, you gained $15,000 in appreciation [00:30:50] alone over the next 12 months.
And this is the kind of messaging you have to get out your [00:30:55] customers and sift through and negate a lot of this click bait that's just trying to [00:31:00] strike fear in your customer's eyes and get attention. [00:31:05] So Quinton, we fired through a lot of stuff there, dude. Rapid fire. I'm gonna go back to that [00:31:10] Redfin thing.
I guarantee you at the end of that clickbait, there's a why you should apply for a mortgage Now Link [00:31:15] in there that probably goes right back to a company that may have acquired Redfin. just to get some action [00:31:20] going there. I can guarantee that happens somewhere in that article. Just to say why it's a buyer's market.
You should go [00:31:25] ahead and apply now just to find out when you get out to the market. It might be a opportunity, [00:31:30] but it's not a buyer's market. You have sellers that are cooperating, but you're not going out there under [00:31:35] bidding homes at 20, 30,000 and stealing them like that report would suggest. So I [00:31:40] mean, it's definitely more of a buyer's market than it was for sure.
Sure. And I think there's more inventory, you have less [00:31:45] pricing pressure, you have, you know, more options and such obviously, and I think you have a [00:31:50] bit more negotiating power. I don't think that you're stealing homes like, like that, but on a [00:31:55] relative basis it's, I think it's a good time to be a buyer.
Absolutely. That will be the message I'd be getting out to my customers. [00:32:00] Listen a hundred percent. You might be waiting for rates to come down. When rates come down, it's gonna be a more [00:32:05] competitive market. There's gonna be less choices, there's gonna be more competition, and there's gonna be more upward pricing [00:32:10] pressure.
Yes, rates are higher now than you would like, but if you get in when rates are higher, you [00:32:15] get those advantages and then you also capture the appreciation versus if you were waiting. [00:32:20] And then when rates come down, a wonderful mortgage profession you're working with is gonna refi you into that lower rate.[00:32:25]
And the amount that you would make on the appreciation and potentially the negotiation from [00:32:30] having a bit of a buyer's market now compared to what's gonna happen when rates come down is going to [00:32:35] dwarf the interest savings. If you were to wait for rates to come down by let's say [00:32:40] 1%, that would be the message I would get.
Yeah. And don't forget, 40% of all mortgages in the [00:32:45] United States are free and clear right now. So these sellers, they've got. They've got all the power. They're sitting on things, they [00:32:50] don't have to, even if they're listing it, they don't have to sell it right now. So I think that's another missed, [00:32:55] you know, that doesn't show up in that wonderful report Redfin put together, they left that part out too.
So you've got a lot of sellers that [00:33:00] are just sitting back throwing a number like, ah, if I was gonna sell my house, let's see what I can get for it. You know, it doesn't matter. It doesn't mean [00:33:05] I'm gonna sell it. And,I hate headlines when they're not done appropriately. So it just drives me nuts.
[00:33:10] Quinton, it was such a pleasure being with you, brother. I have to jump. Yep. Gotta know man. Hey, thanks for being on the show [00:33:15] as always, guys. Dan will be back for another round here, guys, if you like what you're hearing. Yeah, bro. I'm looking forward to the next one. We're [00:33:20] gonna talk about something near and dear to my heart, crypto.
Looking forward to it, man. We'll touch on the crypto a little bit more.
Dan Habib: Hey, thanks for being on the [00:33:25] show again, guys, if you like what you're hearing, please share this podcast. Check us out on Apple, Spotify, and YouTube at What's Your 1 More for all the [00:33:30] charts. Thanks again, Dan, for being on the show.
Thanks brother, to see Buddy. Yep. Alright buddy. Bye.
I got one more shot. I'm [00:33:35] gonna make it one more chance. [00:33:40] [00:33:45] [00:33:50] I'm.
