Hey, Dave.

Here we are.

We made it.

We made it live.

Where are we at?

We are getting close to 2023. Oh, man.

Whitefish, Montana.

What do you think of the 2022? How are the rates today, Zach? Rates do not stay a rate on the program.

They are great.


Exactly what you need.

Yes. Well, I’m David Boye, and I’m an owner of Black Diamond Mortgage. I’m here with Zach Falk. He is one of our amazing loan officers and a techie. He knows how to run anything tech going on today. Zach did it. Welcome, Zach.

You know, that’s the best introduction I’ve ever been given, so thanks, Dave. I’m glad to be known as a techie. I’m a millennial. I guess it comes with the territory.

Perfect. Well, we wanted to touch base. We spend every day staring at the market and trying to look over the horizon for clients to see what’s going on. And man, this year there has been a lot to look at when you say Zach. Aha. There’s Zach running the effects techie guy.

There’s been a lot to look at. Yeah. 2022 has been very interesting. Um, we’re going to kind of unpack that for you today and just look at what’s coming because it’s one thing to live in the present, it’s another thing to live in the past, but we all have to plan for the future. It’s just the way life works.

So, Zach, you and I were sitting in January on a program kind of like this with a guy that we were like, This guy knows what we need to know in 2022, and I’m not even going to use the numbers that he used because at this point they’re embarrassing but relevant. But in January, he said, this is what’s going to happen with rates. How did his projection go?

You know, he he was wrong.

He low balled.

He low balled by a lot. Yeah. So a lot of what’s happened this year has been unexpected, even for the experts.

Even for the experts. Yeah. So the Mortgage Bankers Association, the Home Builders Association, the president of the United States, everybody Powell, everybody is on their heels going, okay, so to cut right to the chase, I think everybody knows that there’s been inflation and it’s not something that we’re wondering about. You can see it when you buy gas. People that bought houses recently have seen it. If you tried to buy a car, you know, you couldn’t even get one. So the price is high. So everything’s creeping up. And the government, the Fed is trying to do something about it.

Yeah, you know, it’s funny. Maggie and I, my wife and I keep a pretty close budget. And the way I have a spreadsheet designed is it actually shows kind of in a graphic way how things have either increased or decreased throughout the year. And we were just looking at it the other day and and you can absolutely see inflation in your personal life. If you look at the way your your money is being spent, it’s different than it was nine months ago.

Yeah. So to use layman’s terms, if you’re just kind of not, you just know about that. You don’t know anything else. We some of the comments that the Fed who’s using interest rates as a tool to try to fix the problem, they’re saying that basically they need to break the economy. They’re not saying I want to break the economy, but what they’re doing is saying I want to break the economy because they want everybody to just stop spending money and then they want to allow that to kind of allow prices to kind of come back into some kind of normalcy. And so they’re using the interest rate as the tool that they can control. They also have this other tool that a lot of people don’t understand, where they were printing money and putting it into circulation. They’re pulling all that money back now. So it’s basically in addition to the cost of money being higher, they’re going to try to get it to where there’s less money in the economy by coiling back all these free money things they were doing.

So, yeah, it’s sort of supply and demand related, right? The more expensive things are, the less likely people are to buy them. And so the Fed and what they’re doing with increasing interest rates is intended to cut into how you and I spend our money. And yeah, Chairman Powell, the Federal Reserve chair, basically he said I wish there was a painless way to solve the problem that we’re in, but there’s not. So how does that impact how we look at things?

Well, if you don’t need to do anything in the near future, Chairman Powell is like, good for you. Because one thing that he likes is that a lot of people have equity in their home and they have a good interest rate on their home. And so they’re hoping they can do this damage without hurting too many people. But they, like you said, recognize they need to do it. So what I thought we would do is I’m just going to throw some data, some points, some things that we see out there so that you have something to look at rolling into 2023 and not really try to be a crystal ball, but just to point out some things and go, these are facts. And big picture is we think that everybody just needs to do an assessment of their family, their needs into the future, their capabilities, and then just set some data points, some triggers, and say, okay, well, as far as my family is concerned, when this trigger comes, I’m going to pull the trigger on something and maybe take some action and not be so emotional about it, because it’s just it is what it is. There’s a lot of things happening and we cannot go back to two years ago. That is not what we’re looking at in the future. It’s going to look different. And so we’ll have some points here to discuss. Why don’t I just jump in, Zack, and point out one thing I did want to point out is it’s a global economy. And so unfortunately, the Fed only controls the US piece of it. There is a possibility that everything that is kind of headed in a certain direction could get interrupted by world events, which can be good or bad either direction. So everything that the Fed is doing might change if major world events happen in the next couple of months.

So yeah, I think we’ve seen that right? We to early 2020, we had a pandemic. Uh, nobody expected that that’s had some impact on what has happened in the markets. We had Russia, Ukraine that was unexpected. And so yeah, you make a good point that while we try to do everything we can to understand the facts, there are still the what ifs that exist. So understanding the facts as they are now is really important so that you can plan personally. But then, yeah, you want to make sure that you’re prepared. If the unexpected happens.

I’m going to give you a guy’s name. I love looking at his data. He’s not well known outside of my circle of influence in the mortgage world, but that’s where I’m getting a lot of the information for today. So the guy’s name is Logan, Mo Hashimi. And if you go on a LinkedIn or I think maybe Facebook, you can find him, but he puts out a lot of graphics and data. So I’m going to hit right in 2008 versus now. Are we going to do the same thing? And so a lot of people speculate this type of thing. So here’s some data. In 2008, one of the major catalysts for the cratering housing market was the credit profile of all the people that had taken out mortgages being basically low. And that is not the case right now. So no matter what your opinion is about any of it, the current mortgage holders have the best credit we’ve had in a long time.

And the reason that matters is that your credit score is an indication of how well you handle debt. So if you have low credit like we saw in 2008, it was it was people that probably weren’t great at paying their bills. But what we’re seeing now is the people who are taking mortgages are good at paying their bills, and that’s a good thing when you compare the two.

So so people with mortgages statistically have better credit than in the past. The amount of equity they have in their home now way better than 2008. In 2008, the average person was putting next to nothing into the home to get the home. Currently, the average homeowner has the most equity in decades.

Do you have equity, Dave?

I do.

Yeah. Me too. Crazy.

I mean, I’m not selling my house right now, so. But if I did, yeah, it’s. Oh yeah. When I bought it in 1998.

And the reason that equity is really important is it’s the spread between what the home is worth and what the amount of money is that’s owed. So if things change in the market for whatever reason, there’s a nice buffer there that keeps people from having to be concerned that they’re going to be. Some people have heard the term upside down, right? That’s not as much of a concern at the moment given the equity position.

So good credit, good equity, housing supply. So in the world of going out and buying a house in 2008, that’s kind of the worst point of. Right. Right. When everything began to crater, there was a 16, 16 month supply of housing in the market. So meaning if you went to put your house in the market to sell it, it could take you 16 months to sell it. Currently, it’s run in about two months. So again, totally different than 2008. The supply is still low. I do want to point out that that is going to change quickly. The we have noticed at our mortgage company that some homes are now sitting on the market for a little bit. And so as that progresses, those those months on market is going to move up relatively quick. So at the moment we’re at extremely low months on market that is now increasing fairly fast. Just in the last couple of months we’ve seen instead of one month on the market, it’s two months and now it’s three months. So that is growing. But it was 16 months back in 2008 and then new construction homes. So interestingly enough, in 2008, the amount of homes that were brand new constructed homes was double what currently exists. There’s a few reasons for that. But again, just applying is this 2008. Regardless of what happens, this is not 2008.

Should we be encouraged by that?

I think the one thing you should be encouraged is if you’re if you own a. Home and you’re worried about the value just utterly cratering. It’s less likely strictly on the supply and demand side. There’s less supply and we have more well qualified borrowers. We do have some headwinds that we’re entering into as we enter 2023. So there may be some dropping of values as we roll in. And I’m already seeing some indication of that. We have gone up 2 to 300% in some cases from just a few years ago. Right. So a little bit of reduction probably makes some sense in the home prices. So looking over the horizons, like what’s it mean? Well, if you’re going to buy, you might get some price relief coming in the year 2023. Positive thing if you’re selling. I mean, you need to be aware of the fact that you might have to negotiate with a buyer and there may not be a buyer just standing there ready to buy your house. You might have to market it more aggressively.

What do you think about so some people who are maybe not quite ready to pull the trigger on buying, they’re having to look at rent. What do you think is going to happen in 2023 from a rent perspective? Are we going to see I mean, rents are at a crazy high. Is that going to continue? Is there going to be some relief there? What can we tell our folks?

What what I’ve had reported to me through the data is that rents climbing fast. And so comparing it to buying, when you buy, you cap the increase, you now have a principal interest payment. It’s never going up again. As long as you don’t borrow any more money, rent goes up over time. However, it has gone up so much that there is some indication that if you’re in an extremely high priced rental, there could be some relief into the year 2023. But in general, what we’re hearing is that there’s still an undersupply of overall housing units just on a nationwide basis. So that’s gone up a lot. Unfortunately, it might flatten out, it might not come down that much. So looking at rent as an indicator, the bigger thing would be, you know, how long do you want this to go on? And it could be that it flattens out and for a period of time and you don’t have to worry about rent increases maybe for a period of time. I do hear and I see through some of the hotels reporting some of the Chamber of Commerce making comments that they’re hearing from some of their patrons that the Airbnb is definitely not as in-demand as it was in the peak, which was 2021. That was just crazy. Everything was rented all the time. So if your way of gaining rent is through Airbnb, there’s going to be a little bit of softening going forward in that.

Yeah, I think as we if rent does continue to increase or even if it plateaus at its highest levels, the flip side of that is we are seeing some negotiations take place in purchase contracts, so sales prices are coming down. So as a buyer, that’s a really good thing. You may want to consider doing the analysis of what it really looks like between renting and buying, which is cheaper from a monthly cash flow perspective. We may see some of that come into a to a position where it makes a lot of sense to buy like not only because it caps the increase, but you begin to build equity as a homeowner. So we’ll see what happens there.

And if you’re buying a rental, it’s good to look at some vacancy as part of the calculation. So mortgage companies traditionally have only wanted to recognize 75% of the potential income of a property just to allow for things not going perfectly. I think rolling into the future, if you’re on the owner side, planning for 100% rental or hundred percent occupancy might be too aggressive. So but I think overall the fundamentals support the rent prices being relatively high and not just coming down immediately. There’s just still an inadequate amount of housing. And one of the one of the pieces of data is just. Probably going all the way back to the seventies. The the people desire to buy a house and things like that kind of changed each decade and then in the most recent couple of decades. Just in general. Demographically, families have put off the home purchase up to a decade from where it was in the past. Well, now it’s all on the same. Everybody’s in the same spot now, Blinds. What’s happened is the whole country is almost falling a decade behind in its supply, just due to the fact that people get married, have kids and whatnot, and then they reach that point. We’re like, okay, I’m going to buy. Well, in my generation, I’m about to turn 50. It was reasonable to get that first house in your mid to early twenties, and then it kind of changed to the thirties. That change kind of slowed down everything as far as home construction. And then when COVID happened, it just like flipped a switch and everybody changed their behavior and it just revealed the fact that the supply of homes is way behind.

So, yeah, absolutely. How about builders spec homes? Are we seeing any changes there?

So I think if you’re if you want to take the dark horse of the wild card looking at the next year, watch the builder spec homes because a lot of the builders built the homes with their own money or with maybe the debt position on the house is less than one half of what they’re currently trying to sell it for. And so their ability to drop price is higher than the average homeowner who might be more emotionally attached to the value of the home. And so if I’m a guy that just built like, say, four or five spec homes and I was kind of hoping to make a whole bunch of money and I was going to make say I was going to make like $2 million in profit on making a one $1 million investment. And now I’m rolling into 2023 and the market changes and now I’m just going, you know, I might want to get my money. Well, if I make some money, it’s still worth it to me. So the but I’m not invested in these homes like a homeowner is, Right. So I would say vacant, newly constructed homes in the Flathead or anywhere in Montana really be on the watch for those having more negotiating power. That seller might be willing to negotiate. And also, they’re just paying to hold that empty house. And so if they have to hold it for very long, that’s going to change how they feel about holding it for a long time. So I do believe that unless a demand resurgence comes roaring in in the next couple of months, those are some really good buying opportunities for buying specs in the Flathead in Montana. I do think so. That’s that’s it’s a wild card. It’s dark horse, but there is information to suggest that this is a real thing.

Yeah. So just basically keep your eye out if you’re in the buying market, cause it could be an opportunity there. So we kicked off talking about inflation and kind of what the Fed is doing. We know that the expectation is that they’re going to continue to raise the federal funds rate throughout the rest of this year, which has, of course, impacts into 2023. How does unemployment play into the inflation piece and does it matter with like the data coming out on how what the unemployment rate is? Does that impact the Fed as they decide what to do with interest rates?

Yeah, I’m glad you brought that up. So the Fed is looking for more unemployment, right? So that’s part of the breaking of the economy in order to fix it. So unfortunately, just this last couple of days, the employment data is still strong. Good. If you want to be an employee and you want to find a job and you want to feed your family, if you want a lower interest rate from the Fed, it’s bad news. So one of the indicators to watch is if you’re if one of your indicators is I’m going to watch and see what the Fed is up to. Well, they’re currently not happy with the employment numbers, so they would like them to be worse. And part of that makes sense. I just think about going out to eat or just places where you go and they don’t have enough help. This is a problem. This has to get fixed. And so the Fed is making moves to hopefully impact the entire economy to the point where all of a sudden more people are unemployed for the good of the whole. So unfortunately, unemployment for the long term hole of the economy is good. Yeah, unemployment good. Yeah.

We didn’t get taught that in school, I don’t think.

And if you’re the one unemployed, it’s terrible. Yeah, but as a macro piece of the economy, we’re over employed. Yeah. We need more people to want those jobs more. And it’ll help keep the wages from just going up and up and up. And it helps defer the inflation.

So and if you think about it, it actually improves. If you have the right mindset, it improves your value and your worth as an employee. So one of the call to action, so to speak, that Dave started to mention earlier was to get into a position as a family, look at the budget, try to figure out what’s going to make sense for you, but also consider that you need to be responsible with your bills should the unexpected happen. We talked a little bit about that, too, but unemployment fits into that too. If you did have a job loss, you should be prepared with that. So have some money in the bank. Uh, have some savings because the federal government is intending for that to rise, that unemployment piece. So just be responsible, right?

Yep. So for unemployment, honestly, we need to see if the Fed holds course what they’re doing right now. We need to see more of the unemployment before we get to the other side of what they’re up to. I wanted to share just a couple of details that are interesting regarding just cost to construction. So last year or this year, it was really high. Like every number, the lumber number in February was historical. Huge. Yeah. And you were you were actually looking at building the house yourself.

Let’s not talk about that.

Well, so the good news is, is that is one metric that has has dramatically went down. So both well, we got copper, steel and wood, the major components of home, these are all down lumbers down to like almost 25 to 30% of its high. So if you are in a position to get into construction in the next year, I would say good stuff. You have materials going way down, the possibility of some labor improvement if this unemployment that the Fed is pushing for comes to fruition, 2023 could be the absolute sweet spot for Roland in building the house compared with looking back over a shoulder like six months. There’s a lot suggesting that you’ll be able to get a better deal.

Yeah, I think the most important piece when you re buying or building is to look for value. So this is an important factor with interest rates where they are. I talked to a lot of people who are concerned about building because of what the monthly payments gonna look like to start. But if you’re thinking long term, what you really want to be looking for is value. And so if, if lumber and steel and copper are lower in price, that’s going to improve your value position on a new build. Interest rates are going to move around. If you look at historical numbers, it’s just the way the world works. So seek value whenever you’re buying or building. Make your loan better in the future. But yeah, 2023 could be a sweet spot. And to come back to your point, I hope to have my house done in 2023. I’ve said that for the last three years though, so we’ll see what happens.

Well, and I would just wrap up we’ll talk a little bit mortgage specific. These are not going to be rates offered to consumers. These are just information we’re getting from the Mortgage Bankers Association and stuff like that. But worth noting that 86% of mortgages that are currently in existence are currently under 5%. In the United States, 65% of mortgages are under 4%. Yeah, if you already got one right now. But an important detail is the Mortgage Bankers Association. And a lot of financial analysts will tell you that when a recession is full on, which we can pretty much see that we’re in a recession right now, and a lot of things are slowing down in response to that. Once everybody’s staring at it, a normal historical response is the rates do come back down. And not to get too technical, but PHI, when the Fed is ratcheting up the interest rate in the world that we live in, which is based on mortgage backed securities, our rates go up to as high as they can see them going in the future. So everything that we’re talking about doing right now is what the worst we think it’s going to be. And then the Fed still ratcheting up these rates, but we’re operating from what we think they’re going to do. And the fun part is, is once they decide to change course, then our mortgage backed securities will actually drop before they drop the Fed funds rate.

So 2023, that’s significant. A lot of the forecasters are saying that as soon as the reflection, the recession flag is getting waved and everybody’s like, yep, it’s a recession. We might see rates start coming down right away from where we’re talking about right now. So getting back to triggers, what triggers for your family? Well, right now you need to know what you can do or what you need to do and when you’re going to need to do it. Some triggers on the horizon. Well, we talked about there’s cost of building things. There’s Are you employed? If you’re employed, good. They’re looking to reduce that a little bit. The rates, even if you were taking a rate available now, they’re never permanent and there’s a high propensity for lower rates in the future. So sometimes you grab the low cost of construction or the low cost acquisition and then get the rate to catch up in a year or two, because you can see it and you can look back at data and, you know, we want to help with that kind of thing. Like I can show you that I don’t want to tell you what the answer is, but I want you to know why you’re making a decision and have some basis other than just, you know, don’t watch Squawk Box or MSNBC. They’re trying to get you to do something. And then that’s better to have your own basis for that.

Yeah. And you mentioned history, too. It’s just the way things work. If you look at some serious other inflation periods throughout the United States history and when the Fed has decided to really attack that, we do see interest rates come down. It’s very much so the norm when inflation is realized as a problem. So, yeah, Dave, spot on. Just make sure you’re in a good spot. And that’s really what 2023 is about, is responsible living being a good spot.

Now. Zach At the risk of looking like nobody is paying any attention to us right now, is there any questions typed into your Facebook, anything?

Oh, it looks like we have.

Got a 20 few people hanging out.

And. Yeah, no, no.

Questions, no worries. This is going to be recorded and made available to watch. And you can send Zach a question and we’d like to do more stuff like this. So if you have some content that you’d like us to talk about. Zach What’s one of the things you do every day when you walk in the door as it pertains to knowing the rates and how they’re doing?

I think you’re getting at the fact that I checked the mortgage backed security market right every single morning.

And when we look at that like they don’t just tell us where it is, they give us a lot of data and information, right?

Yeah. Our job is to be the most informed and the experts of our field. So, yeah, when you call, you can expect that we’ll absolutely give you the information you need.

So yeah, if you see a headline and it’s, it’s you want to know what it means, I would love to tell you what we think it means and we have some data to back it up but I hope you found this valuable. And thanks for joining us.

Thanks, guys.

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