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Economic Forecast Seminar September 2023

The Fields Team partnered with Intercap Lending to present an evening seminar on on the forecast for the Utah Housing Market. With Keynote Josh Romney (Owner Intercap Lending), we reviewed data on the current market and anticipated trends moving into the end of 2023 and beyond!

00:00:00:00 – 00:00:20:02

Unknown

It can be confusing. And so I personally am excited to hear what Josh has to say. We put out events like this before for real estate professionals, but never really for the public, kind of the consumer. So we’re really excited to put this on. Emily, do you want to come up and introduce Josh and this is more seats over here.

00:00:20:04 – 00:00:24:03

Unknown

Yeah, yeah, yeah.

00:00:24:05 – 00:00:50:08

Unknown

Oh, okay. Hi, I’m Emily Jensen. I work major captioning. So pretty awesome company and it’s really fantastic. Like jared said, we’ve never done this for the public. Josh was super gracious with his time to come and educate us. I think the biggest thing we’re just trying to get the word out is we’re battling a lot of the media right now with saying don’t buy high interest rates.

00:00:50:08 – 00:01:08:08

Unknown

And it really boils down to particular situation and what the housing market is doing, particularly in Utah, which is going to make it even more difficult to buy in the future. So I know some of you in here we’ve personally talked to, you’ve been on the fence and I think this is going to give you some really good information.

00:01:08:08 – 00:01:22:17

Unknown

I know every time I leave, I’m like, I should have bought more houses like I got to get on it. So now that we all have to go out and do that, but it’s all taking one step at a time to acquire properties and really build your wealth that way. And it’s really the best way to do that.

00:01:22:17 – 00:01:43:08

Unknown

So with that, I will let Josh go. Thank you, Emilie. Yeah, Thanks, Jared. So I’m going to there’s a lot of information that you guys have questions or want to interrupt or go into action. Just feel free to stop me and ask a question. Whatever. But let’s start with the elephant in the room, which is this. I just Googled this like an hour ago.

00:01:43:10 – 00:02:02:18

Unknown

This is I Googled interest our mortgage rate. So the average Utah 30 year fixed 8.1 to 5. So we can do better than that, right Emilie? Yeah, I that we can do a lot better than that. I don’t know how that’s the average, but there’s obviously some people out there paying really higher mortgage rates. But I think it’s more like 7’s and rates right now.

00:02:02:20 – 00:02:19:13

Unknown

But Google said the average rate an hour ago, so the average rate was 8.125% for a 30 year fixed. So pretty expensive. We know it’s just been going up and up and up. So the question is, why are rates so high? Why are they in the eights or mid sevens? And the reality is it’s because of this number.

00:02:19:17 – 00:02:43:23

Unknown

So ten year Treasury is something we follow really closely and the mortgage world. So when investors can buy different assets and buy mortgage backed securities, they can buy treasuries, they can buy all sorts of things. But really everything almost the entire world is based on this. So all investments that people look at, they compare it to the risk free U.S. Treasury ten year rate.

00:02:43:23 – 00:03:01:22

Unknown

So this is, if you want a risk free investment, that there’s no downside, there’s no way lose money. That’s what you invest in. So everything else is kind of based on this. And we know ten year bond going up dramatically. Question is, why is it going up and when will it go down? And those are the questions that I think will really impact housing very dramatically.

00:03:02:00 – 00:03:24:04

Unknown

But one thing to understand is, is the gap between the ten year, 30 year mortgage rate is really steady. So we kind of look in its historically here’s ten year here’s mortgage backed securities. They follow each other really, really closely almost all the time, but not always so. And once in a while this is kind of that trend lines that usually about a one and a half points higher the mortgage backed securities on ten year Treasury.

00:03:24:06 – 00:03:44:16

Unknown

And right now we’re three points higher so that’s so why are rates high? Well, number one, the ten year high. Number two, the gap between a ten year mortgage backed securities really high. So that’s we’re dealing with a double whammy. And the reality is rates will come down when the ten year comes down when that gap gets smaller.

00:03:44:18 – 00:04:03:12

Unknown

So hopefully I can answer actually, I can’t tell you when that’s going to happen, but I can show you the data that the Fed is looking at that they’re going to make his decision. Right. So I’ll I’ll start with this. So why is it why is the gap high? So this is not some of the Fed’s doing. This is something the market does well when there’s a lot of volatility.

00:04:03:14 – 00:04:28:11

Unknown

So when they see things get a little crazy and things get a little wild, everyone flees to safety. They flee to like the safest investment. Ten year treasuries, really safe mortgage backed securities, risky and mortgage backed securities risky for different reasons than you probably think. The odds of getting repaid on mortgage backed security are actually really high because mortgages securitized through Fannie/Freddie.

00:04:28:13 – 00:04:49:10

Unknown

Government owns Fannie and Freddie. So essentially mortgage backed securities are guaranteed by the government just as ten year treasuries are. But the difference is a ten year treasury has a guaranteed ten years of payments and a mortgage backed security has payments guaranteed until rates go down and everyone refinances. And so that’s why people want more money in mortgage backed security, because they’re going to get their money back when rates go low.

00:04:49:12 – 00:05:05:03

Unknown

So so people basically I mean, the gist of it is what the market’s volatile. The gap between ten year mortgage backed securities is really big. So when the market stabilizes a little bit and we know that the Fed’s not going to lower or raise interest rates, they’re going to be steady. That gap is going to get really small.

00:05:05:08 – 00:05:23:18

Unknown

And so that gap with normal right now, we have interest rates about 6%. That’s where we should be kind of normal. The Fed kind of said, hey, we’re not going to lower or raise interest rates for a year. We’re not going do anything. It would probably go back to that. It would have stabilized. But now markets feels like, hey, things are still volatile, things are still crazy.

00:05:23:18 – 00:05:45:06

Unknown

We can have interest going up or down. So they just that gap is pretty big and the same thing. So the big question is, what is this guy thinking? Because he is not has all of our lives in his hands and he’s trying to control a lot of different things. He’s his charge is not to worry about housing or homeowners.

00:05:45:08 – 00:06:05:03

Unknown

His charge is really to manage inflation. So that’s all he’s really worried about is he doesn’t want inflation getting out of control and it doesn’t care that it hurts the banks. He doesn’t care if it hurts homeowners, doesn’t care if it hurts unemployment. In fact, he’s intentionally destroying those things. So he wants higher unemployment. He wants some banks to suffer.

00:06:05:03 – 00:06:21:06

Unknown

He wants housing to suffer. He wants housing to slow down. He wants housing prices coming down. All these things happening because he’s trying to essentially break the economy. The reality is and he has said this, it’s a lot easier to repair that. He has a lot more tools to kind of build the economy back up. He does to break them.

00:06:21:07 – 00:06:47:11

Unknown

So he’s using one tool to kind of hammer the economy, which is raising interest rates. The reality is there are two tools to the lower interest rates, a lower inflation. But one of those involves the federal government spending less money, which they won’t do in fact bypass the Inflation Reduction Act. That includes spending an extra $1.1 trillion. So there’s almost nothing worse they did at a time when deflation was rampant.

00:06:47:13 – 00:07:05:23

Unknown

But reality is they wanted to get some things passed. They did. So what has he done? So Jerome Powell has raised interest rates higher and faster than ever in history, in modern history anyway. So we’ve got a really, really fast. It’s had a huge impact, had impact on it’s had a huge impact on a lot of banks and seen a lot of bank failures.

00:07:06:01 – 00:07:21:23

Unknown

That’s because interest rates went up so fast. So what happens is banks a lot of different assets, they have to be investing money. So a lot of banks bought ten year more, ten year banks, a mortgage backed super sorry, they have treasuries. They bought the ten year treasuries at 3%. And so they’re going to get 3% interest, which is fine.

00:07:21:23 – 00:07:40:05

Unknown

They’re not worried about it. But when rates go to four and a half percent, that 3%, ten year security is not worth as much, which is fine if they don’t have to sell it. But what happened is people started want their deposits back or not depositing and they needed cash. So they had to sell those ten years and they sell that at a huge loss.

00:07:40:06 – 00:08:01:07

Unknown

So al of a sudden banks would have these huge losses because they’re selling not only ten year Treasury, but also mortgage backed securities at a loss. some mortgage backed securities that they had originated at 3% or 4%. And so no one wants something that returns 3% when you can get four and a half percent risk free. So so just cause a lot of bank failures because he raised interest rates so fast.

00:08:01:09 – 00:08:25:19

Unknown

And so that’s kind of what’s happening. But that was his intent. He wants to break the economy because inflation is much more harmful than almost anything else we can do. So he’s really, really scared of inflation. So this graph looks kind of confusing what it’s telling you is where where the market thinks that the Chairman Powell is going to go.

00:08:25:19 – 00:08:42:12

Unknown

What he’s going to do is going to raise interest rates or he’s not gonna raise interest rates. And it’s kind of showing a three day change from August 28 to September 1st. And it’s basically just saying and it’s actually shifting back the other way a little bit right now. Let’s basically say the markets thinking that’s less likely is going to raise interest rates ever again.

00:08:42:14 – 00:08:59:13

Unknown

Maybe there’s like a 50% chance he does it by the end of the year, but that the likelihood is that 30 at March, April and May is a good chance to start lowering interest rates. So that’s when we start to maybe see a quarter point or a half point drop sometime in the spring as the market sets the market.

00:08:59:15 – 00:09:17:14

Unknown

And you can see how much have shifted in three days. So the market is this is constantly moving this graph of where the market is pricing. A ten year Treasury this is really iinfluenced with a ten year Treasury pricing is going based on what they think he’s going to do. There are other factors, obviously, but this is a big factor. You talk about the 3% spread.

00:09:17:16 – 00:09:39:23

Unknown

That’s really high in the Fed start dropping rate. Is that going to shrink very quickly? Probably not super fast. It’s volatility. So a lot of volatility, uncertainty is it creates people wanting to be in secure stuff. So there’s a chance that it starts narrowing a bit, but most likely that the real narrowing won’t happen until everything’s kind of stabilized.

00:09:40:02 – 00:10:02:11

Unknown

We kind of are back to a position of safety and people know we’re going to be so but but it will start lowering interest rates. We’ll see mortgage rates coming down pretty dramatically. And if people are feeling more confident economy and thinking that we won’t have a recession, all those types of things, all that could help as people become more confident in the economy.

00:10:02:11 – 00:10:27:13

Unknown

So we’ll see. We don’t really know. Really quick jobs. Yeah, that last slide are you referring to what market? The US Treasury market or. Okay. Yeah. It’s looking at well, this is actually data that’s looking at that. Are you just kind of like rate This is like the Fed funds overnight rate which it kind of influences. So it essentially becomes the ten year treasuries, the ten year Treasury response so quickly to it.

00:10:27:15 – 00:10:52:06

Unknown

But this is the overnight rate. The banks charge each other to borrow money overnight or the Fed charges banks borrow money overnight. So it’s kind of but essentially that’s the ten year basis saying when does ten year start to come down? So you can kind of infer from one the other day they follow each other very closely. So so the market thinks that the ten year starts coming down aggressively because of Fed policy sometime in the spring.

00:10:52:08 – 00:11:12:04

Unknown

But we don’t know how they guessing on that. When you have Jerome Powell that he’s constantly saying the opposite, because if so, they will always very good question. So here’s here’s what they’re looking to. So they listen to this minutes. They listen to what he’s saying. But also a lot of what he says is trying to manipulate the markets.

00:11:12:06 – 00:11:28:17

Unknown

So he’ll say stuff he doesn’t always believe to try and push the markets. They they listen to what he says with a grain of salt. There are times where he says something and the market moves immediately and massively. But for the most part now they’re kind of taking everything, he says with a grain of salt. We’re looking at data and some of the data we’re looking at.

00:11:28:19 – 00:11:49:07

Unknown

Number one is the CPI or PCE they’re looking at any inflation data they can get and they’re looking in a 12 month period and you have a three month period that more recent data is looking like inflation’s really starting to come down. I guess there’s some really good signs of inflation. A lot of things are coming down, so that data is kind of good.

00:11:49:07 – 00:12:09:12

Unknown

So that’s giving them positive news. The other thing, if you pull out shelter so people are housing, inflation’s actually coming down a lot more dramatic than anything I was looking at. So and the reality is, if you think about how inflation’s calculated, housing is calculated on an annual basis. So they call it it’s kind of a weird thing to do.

00:12:09:15 – 00:12:32:16

Unknown

They’re taking like a monthly housing data. They take a 12 month average housing and use that as a monthly that that 12 month average has what’s happening today. And so so even if you had housing prices coming down dramatically, they look mostly at apartments. So it’s mostly like apartment rents, all that kind of stuff. So even rents came down dramatically this year or this month, but they went up 12 months ago, dramatically.

00:12:32:20 – 00:12:53:10

Unknown

It would it would stay flat to be no change. So this is basically stripping out housing and saying, hey, if housing weren’t in there, what’s going to happen? And so the other question is now have a slide on this. But I’ve seen a lot of data on this is what’s happening in the rental market. Do you guys know what’s happening in the apartment market right now or what people are anticipating happening?

00:12:53:12 – 00:13:19:13

Unknown

There’s just as many people renting as before rent, in fact, more people renting and looking at rental. But what’s happened is a lot of developers have built a ton of apartments, so we have a huge amount of supply coming on. So we have huge amount of supply and demand staying about the same. Typically what happens is prices are going to come down, so people are anticipating that rental rental rates are going to start coming down dramatically and addition.

00:13:19:15 – 00:13:45:19

Unknown

So there’s another and I’ll actually come back I hope I’ll come back to this other there’s another area of supply that’s coming on that’s going to have another huge impact on rental rates. So I think the rental one, I got a massive correction in apartments, but certainly the the amount of power is going to shift from the landlord to the renter, and that’s nationally or nationally and probably even more pronounced in Utah.

00:13:45:21 – 00:14:07:21

Unknown

So Salt Lake City, I can’t read the exact numbers, but downtown Salt Lake City has one of the highest numbers of apartments being built in the entire country. So as in Salt Lake. So there’s already two of those that are defaulted in downtown that have gone back to the bank, the banks on those because developers realized they could make the numbers work.

00:14:08:02 – 00:14:31:15

Unknown

Cost has gone up so much and then the rates are coming down. So the developers hand in the back to the bank. So and you think about downtown Salt Lake ground. What are you going to build with it? You can’t build multifamily. You certainly want to build an office. It just becomes kind of interesting. Dilemma is going to be some downtown properties that are they’re going to struggle housing like starter, like condos or like high rise.

00:14:31:21 – 00:14:55:12

Unknown

Yeah, high rise apartments, high rise apartments, no parking. Okay. So you have apartments, essentially come down. How much does that translate into single thing? Like, I’m thinking of it as from an investor point of view, like I don’t want my rents coming down. My mortgages are rents are probably going to come down or stabilized, but we’re not going to see the continued growth that we’re seeing because there’s gonna be so much inventory coming up.

00:14:55:14 – 00:15:28:18

Unknown

So going to be a lot of apartments coming in. So yeah, I guess more about the timing of this actually that’s like the question is like, okay, well, you know, it was kind of inventory. But one other one other anecdote now. One other data point on apartments is apartments deal with the same thing that Office deals with, which is if you have a huge amount of debt on the apartments and your debts at 3% and you had to refinance this year, your refinance rates are going to be more like seven to 8 to 9%.

00:15:28:19 – 00:15:47:06

Unknown

So so some of the fundamentals for a lot of apartment owners are going to get hit pretty hard. So that makes the overall value of apartments coming down pretty dramatically. So it will rebound, it’ll come back. This is a cycle is what real estate does. If you aren’t ready for prices to come down, a real estate should invest in real estate because it always comes up.

00:15:47:08 – 00:16:12:21

Unknown

People overbuild and it comes down and we’re like, we are overbuilt, period. We’re going to see some correction. But one thing you can guarantee is that prices at some point will be significantly higher than they are today. So as long as you can kind of withhold and not get caught over LVR, which hopefully people don’t do, you know, overdeliver because this is when it is when it hurts and this is when developers go out of business because they overleveraged about as much as they can at low interest rates.

00:16:12:21 – 00:16:34:02

Unknown

And then when it’s time to refinance, they are underwater. If you can hold and so it’s like you look at every period and kind of US history, we’ve had these cycles. If the developer can hold, make it through, you know, it’s like the property values have gone up 10, 15, 20 times. They work. So it’s just a matter of being able to stay and not overleverage and periods where debt is cheap and readily available.

00:16:34:06 – 00:16:55:13

Unknown

So that’s that’s where on the development side you can get greedy and pull out all sorts of money and if they don’t tax you on it. So if you have $1,000,000 building and you pull out and I heard $900,000 in debt that it’s tax free and it’s super exciting, but you might be losing that building. So when you think it’ll get sticky, I think it’s starting to happen right now.

00:16:55:13 – 00:17:24:23

Unknown

I think it’s I think it’s I think it’s being shifted right now. I don’t think it’s calamitous. I think office may be calamitous. I think office might be really, really problematic. And probably going to have an office is not only our on the office side and I’m a little off topic, but I think it’s interesting. So on the office side, not only do you have vacancy weigh ups, if you look at as part of this office complex right here, I’d say three quarters of it is kind of underutilized or empty and it’s 100% leased.

00:17:25:01 – 00:17:47:15

Unknown

So it’s kind of like when leases start rolling and people stop. I mean, there’s a real issue with people working from home or just using smaller spaces or all those types of things are really having an impact when you have the combination of just people needing less space plus the rent or the the borrowing costs that just so you going from like a three or 4% mortgage to 9% mortgage, that really decreases value.

00:17:47:17 – 00:18:04:22

Unknown

Valuations of properties really, really lower. The other thing that happens is banks are having to take those properties back. So banks have it takes, let’s say, this office complex, which did not have to take that, but there’s other office complex have to take back how likely is that bank to lend money again, Much less likely, which kind of creates this vicious cycle.

00:18:05:00 – 00:18:32:00

Unknown

So now they don’t want to lend. They’re taking properties back. You can’t get not only is rates high, rates are getting higher and higher because of fewer fewer banks to lend. And I think it’s something like 75% of of office office loans have been done through regional banks, not through like Wells and Chase. They’ve been really smart and cautious and the regional banks have basically lent like crazy.

00:18:32:02 – 00:18:50:00

Unknown

And so now there’s going to be a real issue there. So combine that with the fact they own all this ten year treasuries that are old and underperforming banks have there’s there is some real issues here. All of it will be solved if interest rates go down dramatically. So which may happen. So it’s like this is kind of this worst case scenario.

00:18:50:00 – 00:19:09:18

Unknown

I do think a lot of the apartments that we’re going to see just because we overbuilt and the office because we overbuilt, I think certain certain categories like single family is going to perform really well. I think industrials going to perform really well. But multifamily is, I think in for a little bit of a challenge. Office is in for a massive challenge.

00:19:09:20 – 00:19:27:18

Unknown

So I think we’re going to focus on single family because that’s exciting. So other data points, you’re asking data points. This is why else we’re looking at. People are still spending more money. I don’t know if you’ve been in Fashion Place mall in the last couple of months still packed It’s like it doesn’t make sense. I’m supposed to be coming back.

00:19:27:18 – 00:19:46:17

Unknown

No one is crazy. People spend money by buying a car. I mean, I always think everything’s still crazy. People are spending more money or above the trend line. We just continue to spend more than we should be. So this kind of tells you that inflation’s not going away. So this is one of data points where they’re like, Ooh, we’re a little nervous because we still spend too much money and there’s a reason for that.

00:19:46:17 – 00:20:09:04

Unknown

So this is why unemployment’s really, really low. So this is probably, if you think about everything and I there’s probably a hundred things on this slide that could go through in terms of what Jerome Powell is looking at to determine. But this is the biggest one is unemployment, because unemployment is driving this because people are fully employed and they have all the power and they’re making more money.

00:20:09:06 – 00:20:33:04

Unknown

They spend more money. So this is a real concern with lots of things about unemployment being skewed because they’re they’re totally miscalculating with separating seasonal workers. They’re not accounting for the fact that a lot of people have cut back on their hours that are taking up second jobs. All that’s true, except if you look at this, which is the number of job openings compared to number of unemployed people.

00:20:33:06 – 00:20:54:07

Unknown

So the number of job openings, we’ve been at like 10 million job openings with like 5 million people unemployed. And that’s a National number. So the fact you have 2 to 1 job openings, unemployed people, is a really, really bad sign. Even like so layoffs in the tech industry, layoffs here last year, all of that is like whatever you have 10 million job openings, 5 million people unemployed.

00:20:54:09 – 00:21:13:23

Unknown

That’s where he gets really nervous. Now, the good news is if you look at the tail end of that unemployment number, sorry. So what I’m looking at right now, those job openings in the blue number and you could see at the very end of that is kind of headed in a different direction. So if you zoom in on that and they’re right there, the job openings total.

00:21:14:01 – 00:21:34:11

Unknown

So we got to as many as 12 million and now we’re closer to 9 million. So that is headed in a really good direction. If you’re Jerome Powell, not so good if you’re an employee. But but that is headed so job openings are really starting to come down. So you are right. So that the signs are kind of pointed towards fewer of your job openings.

00:21:34:13 – 00:21:58:02

Unknown

We still have about we have about 5 million people unemployed. But those numbers need to ship. We need to have fewer job openings. So we have unemployed people in other question. Yeah, job openings are also skewed because work from home jobs can be posted. All 50 states, that’s 50 jobs. It’s really one job opening. So it’s possible. But I mean that I don’t have data on exactly that.

00:21:58:02 – 00:22:23:14

Unknown

But I do know sorry, if you go back to the actual unemployment numbers, we are really, really low. Unemployment is kind of no matter how you look at people are trying to find employment. I guess it’s unemployment numbers are really low. So just there are way more job openings than there are people to fill them. And I mean, I can say that because I took my wife to her favorite restaurant on Saturday.

00:22:23:16 – 00:22:42:02

Unknown

Now, yeah, it was Saturday night, so busy night. Her restaurant was closed, didn’t have enough employees. So that is still happening. I mean, businesses are closed because they don’t have enough employees. You think about the impact as they’re still paying rent, still paying all these hard costs. But they can’t open the doors. They’ll have enough employees. And that’s as long as that’s happening.

00:22:42:02 – 00:23:02:19

Unknown

This Jerome Powell is going to keep interest rates high so that is reality. And until we start seeing hundreds of thousands of jobs lost every month and we’re still seeing job gains, we are seeing job losses every month in the hundreds of thousands. We’re in a period where I don’t think we’re going to see interest rates come down. It will keep them up.

00:23:02:21 – 00:23:28:06

Unknown

So we think that’s going to start happening soon, but we don’t know. And we think it’s going to happen soon because it does look like we’re heading in the right trend line. But who knows? I mean, other things that factor into this, we have a far fewer number of people. Immigration numbers are way down in terms of legal immigration that are allowed to come in and work, legal immigration, illegal immigration is probably still pretty high.

00:23:28:08 – 00:23:48:07

Unknown

It’s hard to get real data on that. But the legal immigration system was essentially shut down through the Trump presidency. So where you had 100,000 people coming in on a monthly basis that were taking seasonal jobs and doing stuff that would essentially shut down. So that had a real negative impact in terms of inflation and the other key companies going and all that kind of stuff.

00:23:48:07 – 00:24:09:22

Unknown

So there’s been somewhat of a trend back to having more legal immigration coming in, but it’s still not back to where it was pre-COVID. So it was another question. Yes. I was just curious on those job openings, do they have data on what kind of jobs those are? Are they like the seasonal type jobs? Are they? Yes. So most of the job openings.

00:24:09:22 – 00:24:29:07

Unknown

Right. The job openings right now are skewed towards services. And so you’re seeing a lot of job openings and that will have an impact. We’ll see how that plays out. You are having an impact on a lot of higher paying jobs that are getting erased and lower paying jobs are paying for it. So that may be one of the things that’s good for inflation.

00:24:29:09 – 00:24:48:18

Unknown

They start seeing jobs converting. And this is why we talk about like I sometimes think, good and bad. It’s like what’s good for us in this room is home buyers and sellers is bad for almost everyone else. We kind of so it’s kind of skewed. So I but what you’ll see is I think that’ll be good for inflation.

00:24:48:22 – 00:25:15:10

Unknown

Bring inflation down as we see jobs moving from more high paying jobs and low paying jobs. So that be beneficial for bringing inflation down over line. Those numbers are dramatic. Ever seen like a big skew and the data on it. But it appears at least anecdotally from what’s looking like we’re gathering lost more have been created. There should be a shift to more downward wages but wages are still increasing.

00:25:15:12 – 00:25:37:01

Unknown

So having said that, wages still going up, but they’re going up less, not as fast as they were a few months ago, but talked about that. We all kind of saw this and this is going to take kind of a big step back and talk about the big issues. But we’re got downgraded as a government. Why do we get downgraded?

00:25:37:02 – 00:25:53:08

Unknown

It’s not I mean, number one, we just say No. One in the rating agencies because they suck, they’re really bad and they’re usually like a year and years later. What’s going on? They were really late on the last mortgage crisis. They didn’t call it all it was going on. But it’s bad news because the government is spending more money.

00:25:53:08 – 00:26:18:16

Unknown

This is our federal debt or that dotted line, and that’s where we’re projected to go. So we’re spending really, really vast amounts of money. Here’s our interest payment level. How much is the federal government spending at interest? You can see it’s exploding. And that red line at the bottom is net interest. Where’s interest expected to go or spend more money on interest than we do on defense or Social Security or Medicare?

00:26:18:16 – 00:26:41:16

Unknown

And those programs just on interest. So we’re about to start spending a huge portion of our federal budget on interest. And that’s twofold. One, because we’re spending so much more, and two, because interest rates are up. So in the long run, the Fed doesn’t like to actually see how the federal government doesn’t like the interest high. So when they’re issuing ten year treasuries at four and a quarter percent, they don’t like it.

00:26:41:16 – 00:27:07:20

Unknown

That’s expensive for them. They’re having to pay a lot of interest. They’d much rather be, 2%. And so that there’s everyone kind of I’ll be back low interest, but we just have to. Their biggest concern is high inflation. So but we should all be worried about this. The federal government has no interest in reining in spending. The reality is Medicare and Medicaid and Social Security take up majority of the budget.

00:27:07:22 – 00:27:25:06

Unknown

We don’t address it. No one talks about it and no loss of touch it. But at some point, Social Security will be out of money and benefits will circuit cut back dramatically if we don’t address it. So someone at some point is going to have to address it. But no one but it’ll have to be bipartisan. Both parties will have to do it.

00:27:25:06 – 00:27:41:14

Unknown

One party can’t do it alone because if they do, they’ll be wiped out in the elections. So if Republicans came out and said, hey, we’re going to if we’re going to make changes in Medicaid, Medicare and Social Security, they would lose all their elections, be voted out of office, and Democrats will never touch it by vice versa. The Democrats said it and I’ll be wiped out.

00:27:41:14 – 00:28:15:14

Unknown

So no one wants to say it, but they have said together at some point. So when Democrats and Republicans can agree on something, the country will be saved until the third quarter. So tomorrow, right? Yeah, it’s not an easy thing. Okay. So that’s that’s kind of the big picture. What’s happening. I mean, that’s really kind of brief, but but that’s like if you want to understand where inflation’s going, when you see job losses dramatically coming down, that’s I think you can say, all right, at some point the Fed can set lower interest rates, but I haven’t seen it yet.

00:28:15:14 – 00:28:39:09

Unknown

But there’s good signs housing, we know the reality is there’s no inventory. Right. So we own all that. We know. That’s not a huge surprise. Inventory is falling. It’s really bad. The start actually happening in 2010/11. So the last election or the last real down through the housing market, people overbuilt and ‘08, ’07 we know that all the homebuilders overbuilt dramatically.

00:28:39:11 – 00:29:02:01

Unknown

They got burned, they lost a lot of money. And they just they didn’t ever build back to the same levels they were building before. And that’s not the only reason why else is housing. And I’ll talk about that in a second. So but just know that so kind of 2010, we haven’t been building enough houses nationwide or about 2 million houses short from where we need to be, the demand that the market can hold.

00:29:02:03 – 00:29:20:03

Unknown

So there’s no easy solution on that. We can talk about some of the solutions are, but it’s not an easy solution. It’s not a silver bullet and it’s not anything. It’s going to fix that quickly. Nancy, real quick, you said of overbuilding, high rise condos more so than under building single family residences to an extreme. Yeah, I think yeah.

00:29:20:03 – 00:29:40:01

Unknown

So and even with the amount of apartments that are being built, it doesn’t satisfy the demand for them. People that want to be in residential, that want to own homes will have enough places to live and people want to move out of apartments into homes. They don’t have the homes. So and I think the fundamentals on that, on the rental market are still really good.

00:29:40:01 – 00:30:14:10

Unknown

I don’t think we’re going to see the floor drop out on rates. I don’t do panic and sell everything. I think it’s going to be fine. I think if you can make your payments through this next cycle. I mean, I think always owning real estate is better than selling real estate. So for those of you who are apartment guys and girls like don’t Panic and sell, I think if you can ride through it, hopefully and to have the refinance in the next year because I think rates get better after this theoretically unless banks just stop lending which is a possibility, not lending entirely, but they get really, really selective.

00:30:14:12 – 00:30:36:20

Unknown

That’s that’s when you have a bloodbath. But that’s that’s, I think, a real risk. So if you could go into I mean, I mean, we’ve built a lot of strategies for if you own single families but hopefully you’re not refinancing in the next year or two. And if you’re not, then you just hang on and go through the ups and downs and make your mortgage payments and the valuation goes to nothing and then it comes right back double what you thought it was.

00:30:36:20 – 00:31:00:05

Unknown

So it’s real estate’s a really good asset. If you can make it through the through the swings. But it does swing. It always does and always will for whatever reason. So with the lack of inventory, you can see here’s the twist. So the 2008 housing crisis, is that a housing housing crash? Is that red line to almost 25% reduction in housing price.

00:31:00:07 – 00:31:26:19

Unknown

The pandemic correction, which is blue, you can see how we were down. I mean, some markets more than that. This market is more like five or six or 7%. But we’re almost as a nation back to where we started. So as a little mini correction and right back all because of this is our so no inventory so lack of inventory has been bad but also kept prices high.

00:31:26:21 – 00:31:50:23

Unknown

So housing price changes. So we saw there was a little blip where housing prices were going down. Now we’re in a period where housing prices almost in every market, not every market is ample markets are still going down. Most markets are recovering and coming back, including this one. So but you can see on this graph, if this is another plug for real estate, real estate is a really good investment class.

00:31:51:01 – 00:32:18:00

Unknown

It almost always goes up in price. It almost always gets more valuable. Selling real estate is almost always a mistake. Buying more is almost always the right thing, and timing almost doesn’t matter because even if you time it wrong and you wait long enough, you’ll be back in the money. So same thing obvious applies for residential. So residential real estate is almost not a period since the 90’s or ever in the U.S. history where you could have bought a home and at least held it.

00:32:18:00 – 00:32:41:08

Unknown

I mean, you can buy it, you can throw money in housing because you buy right and sell wrong. But if you run the hold over a long period of time and hold through a cycle there’s almost no scenario where you can lose money. In housing, Almost, most people . But if you have that staying power, you’re not an ARM, you’re not having to sell, you’re not being forced to sell all those types of things, or you don’t have job losses, forced to sell or whatever.

00:32:41:10 – 00:33:03:20

Unknown

You’re going to make money in housing. So some other interesting. So let’s talk about this. So why is there a downward with all this lack of inventory? Why is a downward housing trend right now? People, home builders are building fewer homes in today’s market. So interest rates is a big part of it. So they have to borrow money to build.

00:33:03:20 – 00:33:30:03

Unknown

They’re pulling back, but sales prices are up. Inventories are zero. Why are they doing. Supply cost is huge, manpower, manpower is probably one of the biggest. So so builders can’t find employees. So we talked about the unemployment numbers. Unemployment is so low, and particularly in and construction, really, really low numbers, construction, immigration, it’s a big source of construction. Labor comes from immigration.

00:33:30:05 – 00:33:55:00

Unknown

We cut immigration back dramatically. We lose a lot of labor force. So that’s impacting us. Yeah, supply costs are way up. Land. Land availability is getting trickier, water supply is more expensive. So and I think overall what happened is a year ago, builders completely panicked and started pulling the rip cord on their parachutes and saying, we’re out of this market.

00:33:55:02 – 00:34:10:18

Unknown

This is horrifying about the markets. Housing prices are going to crash. 20% is a disaster. It’s rates are going to be at 8%. No one can afford anything. So I’ll pull the rip cord. And how long to take a homebuilder to really build a house? It’s never bottom. It’s not quite like the last six months. Like, well, how long until you buy?

00:34:10:19 – 00:34:28:22

Unknown

We’re going under contract on a piece of property. So you actually have a house, maybe two or three years. So it takes a long time for entitlements and underground and asphalt all it takes a long time. So when they pull back, it takes a long time for them to get going back up again. Also, a long time to hire, get back to the subs, all that kind of stuff.

00:34:28:22 – 00:34:48:07

Unknown

So it just is kind of a lagging. I think almost every builder in this market wishes they were building more houses right now, but they’re they kind of slowed things down, and now they’re trying to ramp back up. So we’re seeing a lot of transactions. I actually had part of my one of my other jobs in addition to InterCap is real estate development.

00:34:48:07 – 00:35:06:06

Unknown

I develop a lot of single family, lots. And we had a large public company. I was on a contract for 900 residential units I worked through. We were putting it together. It was a lot of work. They spent a lot of money to get it titled and it finished and final drawings, all kind of stuff in the whole time.

00:35:06:09 – 00:35:23:00

Unknown

I said, Hey, are you guys looking for price negotiation? Because if you are, let’s talk now. I don’t want to talk at the closing table. And they’re like, We’re actually at you for like one or 2%, but we’re fine. We’re fine. And then one week before closing, they called, said, Hey we need a 60% reduction in price. That’s like 60%.

00:35:23:00 – 00:35:45:01

Unknown

I was like, No, I’m good. This is about a year ago. And they’re like, You’re going to see you’re going to come back to us. And we’re like, I see that happening. So now we’re just about to go under contract with another builder for about 20% higher than their original asking. So I think builders now recognize that they need inventory, they need it badly, and there’s just not that much left.

00:35:45:03 – 00:36:10:18

Unknown

So this it’s just it’s an interesting market, but this is kind of a scary trend. So in a time when we need a lot more housing, keep the back of mind where we’re having real issues, I’m gonna skip that. But so part of what we’re seeing so talk about new homebuilders, the new homes make up usually around ten, 5 to 10% of all home sales is new homes.

00:36:10:20 – 00:36:32:12

Unknown

Right now. That number, it’s just the gray lines there. Right now, that number is 30%. So 30% of all homes being sold across the US are brand new homes and it’s not. And we saw the numbers are getting lower. They’re building fewer houses, a larger percent, which basically just says that non new construction housing market is really quiet.

00:36:32:13 – 00:36:57:05

Unknown

And so one out of three houses that are being sold are new brand new builds. So pretty wild. This will cover like everything and everything comes back to normal at some point. The question is when they get back in. Right now we are not normal, but we’re not normal because the government manipulated the housing market with a $5 trillion spend and buying mortgage backed securities.

00:36:57:05 – 00:37:21:13

Unknown

So what the federal governments are buying mortgage backed securities and artificially drove rate the two and a half percent. They did that. That was not the market that did that. The federal government by mortgage backed securities drove rates low its use the economy with five or $6 trillion. Essentially. That’s why we are where we are. That’s it’s having now we’re dealing with the second third term effects of that amount of money and that amount of buying and manipulating interest rates that low.

00:37:21:15 – 00:37:38:08

Unknown

And so I don’t think they thought this would happen or thought through what happen, but they were in a panic because of COVID and they probably did the right thing. And they probably kept and almost every country in the entire world did it. And it probably kept us from going into a major depression. I think for about six months.

00:37:38:08 – 00:37:57:09

Unknown

Nobody worked anywhere. I mean, it’s like that has huge impact. So they probably saved us. But now we’re dealing whatever to deal with it now. So isn’t that economics 101? If you spend $5 trillion, you’re going to weather up inflation. There were a lot of people that thought that it would not happen even when it first happened.

00:37:57:09 – 00:38:11:22

Unknown

Chairman Powell said this is not this is just a very temporary blip. It’s due to the fact we’re not we don’t have a supply. This is this is like they call it transitory. It’s like it’s going to last for a month or two. You don’t worry about it. So there were a lot of smart people that did not think it would lead to that level of inflation, that debt.

00:38:12:00 – 00:38:29:03

Unknown

And the reality is the fact that only led to seven, eight, 9% inflation is pretty remarkable. It could have been a lot worse. And I think when it started to go from 3 to 4 or five really quick, nine, there was concern that was going to go to 50, 60, 70% and that that risk is gone. Like there’s no risk.

00:38:29:03 – 00:38:47:12

Unknown

No one’s worried about that anymore. But that’s where they really started to kind of go look crazy. Examples like this could be we could have we could be Argentina and be running down the street with a wheelbarrow of cash. Fortunately, that didn’t happen or even really come close to happening. But that was the risk. And that’s where that’s why you see the rates go up, the size of it.

00:38:47:13 – 00:39:23:00

Unknown

How much do you think is this tied politically? There’s so many. There’s a lot you’ll see with everything. Politics, everything, politics. The number one indicator for him to be reelected as president is how the economy is doing. By far, almost nothing else really matters. Jerome Powell was appointed by Trump. So theoretically conservative, maybe, who knows? But so I don’t know that he’s totally motivated to elect Biden, but probably more likely, probably more inclined to help Biden be reelected if Biden runs.

00:39:23:00 – 00:39:46:03

Unknown

We’ll see if he actually keeps going. That’s kind of horrifying. But but it’s certainly the federal government is going to see the economy humming. It’s be a lot of pressure put on them. There’s supposed to be an independent agency, the Fed, from the presidency must be completely independent. I don’t think they are entirely independent thinkers. A lot of back channels, a lot of risk of, hey, you’re going to lose your job.

00:39:46:03 – 00:40:08:01

Unknown

We’re going to find someone else. So I think there’s a lot of pressure put on them. So I think I do certainly think there’s going to be a big incentive to have the economy humming by November, next November. So we’ll see. Easier said than done. But I think there’s a big hope that by this time next year, interest rates creep up.

00:40:08:03 – 00:40:35:19

Unknown

So it’s good for us. This one’s actually really interesting. So the green bar is where mortgage rates are today. The blue bar is average mortgage rates, mortgage rates as a nation. So mortgage rates are really high. So there’s a few you’ve seen a few periods early eighties when inflation got to control where this actually happens and when that gap gets really big between where current and current levels are or where the averages are, that’s when you see housing markets get really crazy.

00:40:35:21 – 00:41:00:18

Unknown

When We’re like, something is happening in housing that’s very unhealthy, so high that unhealthy current rates and average rates are so far off. What we’re seeing this time is that it’s led to a lot of crazy things. So one of them so this is again showing us similar things where people’s mortgage rates are about half the country is between a three and 4% mortgage rate as three quarters is less than 4%.

00:41:00:20 – 00:41:20:16

Unknown

So with three quarters and probably if you look at less than 5%, probably close to 90% of the nation is less than 5% mortgage. So that’s that’s kind of what we’re dealing with right now in terms of people selling houses, which leads to this. We’ve switched from one floor homes to listing as a rental property. So what number of people want to rent instead of sell?

00:41:20:16 – 00:41:47:21

Unknown

Why would they do this? If you’re at 3% mortgage, why would you ever sell? Right? You just want to buy another house, rent this one out. So 7% shift. So 7% of the houses that would have been sold right now are being listed for rent. So I talk about other impacts on the rental market. This is another huge impact, 7% and this will have over if this goes on for a long time, you’ll start to see a lot of houses that are being listed for rent rather than sale.

00:41:47:21 – 00:42:03:07

Unknown

And if you can rent the house, make your mortgage payment, even if you’re only making ten bucks a month, that’s a net positive, you’re creating an asset, you have an asset that you’re keeping that will go almost certainly go up in value. So for the most part, this is a better solution for a lot of homeowners than selling.

00:42:03:10 – 00:42:26:03

Unknown

Some can’t afford it, some can’t qualify for mortgage in this scenario. So it doesn’t work for everyone. But 7% is pretty big shift. So housing affordability is getting hammered. So with everything that’s kind of going on right now, housing affordability is getting hammered. What are the components? Income, housing price, and mortgage rates? Those are the three things that are really, really hammering it.

00:42:26:05 – 00:42:54:03

Unknown

So here’s some data. So there’s three ways to get back to pre-pandemic affordability. So either one, any one of these would work. So number one, incomes increased by 69%. So if everyone kind of the likelihood is happening with the feds trying to lower that, we’re likely right. Home prices fall by 41%. We’re probably not going to happen. I mean, we saw that it may they may go down.

00:42:54:03 – 00:43:12:03

Unknown

There may be a double dip. This may start going down again. But it went down five, six, 7%. I don’t see it could do that again. I don’t see it going down 25% like it did in 2008. That’s really not good now, 41%. So not going to happen. Mortgage rates go to 2.96. Emilie, can you do that for us as well?

00:43:12:05 – 00:43:33:11

Unknown

This could happen if the federal government gets involved and buy mortgage backed securities. Yes, they could do this. I think it’s very unlikely, but it could happen. And there’s scenarios where this could happen. There’s another pandemic or if there is a huge war, I mean, those types of things tend to drive it up. So that’s the only one that maybe but highly unlikely average mortgage rates.

00:43:33:13 – 00:43:58:02

Unknown

They were no where they should be. If you look at like a about 5% before the pandemic do you remember where they were four and a half, four and a half felt really low. And all of a sudden like two and a half sounds good. So but yeah, five is probably kind of where they should be. We’re healthy, but that’s probably where it’s kind of go back to hopefully, but not 2.96 less.

00:43:58:02 – 00:44:23:14

Unknown

The federal government gets fault. So having said that, the chance of like going back to real affordable housing is pretty low. The other thing that you can maybe do is have a huge housing boom. So if housing people can build really cheaply, really efficiently, cost came way down, that would do it. I don’t see that happening. So anything we see the opposite happening.

00:44:23:16 – 00:44:48:08

Unknown

And this kind of shows that. So what this is showing, I don’t know why it’s kind of crossed out there, but the the green bar is average sales price of a home like all homes, not just new homes, but all home sale prices. And then the blue bar is the cost of building a new house. So we can see the cost of building a new house are up dramatically, which is why and it really kind of closely follows the trend line of sale prices.

00:44:48:10 – 00:45:04:20

Unknown

So costs are way, way, way up. So with all these builders building hoping that they’re going to build a lot more homes, they want to, other costs are up a lot. So their margins still really tight. It’s not like they’re having a huge windfalls. They’re selling homes, are doing well. One of the things they’re doing is buying down rate.

00:45:04:20 – 00:45:40:12

Unknown

I don’t think I’ve seen that they’re buying down rates to 5%. That’s a very expensive how much on a half million dollar house how much you think it Buy down rate to 5%. Yeah, 20 to 35. $30,000. So I heard this because they bought they they just took out a lot of debt in there that when interest rates were low and that’s how they’re so they’re very few doing that I don’t think anyone has any debt last what they’re doing is basically saying I’m going to keep my housing my house price at $800,000 instead of dropping to $750K, I’m gonna keep it $800 but offer a 5% mortgage or I could drop to 750 and you can get

00:45:40:12 – 00:46:05:23

Unknown

your own mortgage. What’s the better deal for the consumer? $750 is much, much, much better deal. So in fact, when we talk about that. So but the reality is how the prices are up, mortgage payments in 2020 were about $977 on average for a median housing price of 20% down. Now we’re at $2300. So huge, huge jump.

00:46:05:23 – 00:46:35:12

Unknown

So that’s why we’re seeing fewer and fewer people qualify. Just a big jump. And that’s due that is up because of these three things. So income, housing price and mortgage rate. So I’ll be thinking up. So it’s just it’s kind of made housing very, very expensive and there’s not great solutions. So having said that, there’s a lot of people who haven’t sold like we know people aren’t selling, right?

00:46:35:12 – 00:46:52:05

Unknown

People are locked into a low rate. They don’t want to sell, but people at some point have to sell for different reasons, for 100 different reasons people have to sell. And so the number people that have to sell is building and building. The trend lines start to trend up a little bit are people who are considering over the next four years.

00:46:52:06 – 00:47:09:15

Unknown

So that number is going to continue to go up and it will continue to go up the longer this market kind of stays where the type people are selling. So is going to be a lot of pent up demand, a lot of people looking to sell that are kind of waiting for a better buying opportunity. This is a mistake.

00:47:09:17 – 00:47:27:05

Unknown

But because you should be doing now, I’m going to go through some of the Utah stuff and then talk about kind of putting it all together anyway. So in terms of Utah, why is Utah different than the rest of the nation? There’s a few things that really separate Utah. So the problems we have in the nation are almost multiplied times ten in Utah.

00:47:27:10 – 00:47:54:14

Unknown

So Utah, we have one of the fastest growing states in the nation. See where that’s happening? Real population growth, unemployment rates in Utah, 2.4% compared to national numbers, 3.5%. Now, what’s interesting are the national number having low unemployment is really bad. And that’s because you just you stifle you stifle job creation. And people can’t grow their businesses. They can’t open a restaurant on a monday night or sunday night whatever it is.

00:47:54:16 – 00:48:10:11

Unknown

So it’s really kind of bad for the economy on a state level what is the deal? State level, people just move into your state, right? As a low unemployment. I got a job offer, Utah comedy, Utah coming to Utah. So it’s kind of a different thing. Nationwide is really it’s really hard to move into the country, right? We’ve made it really hard.

00:48:10:17 – 00:48:27:06

Unknown

So it’s not like we have a huge influx of people. We have some influx, but it’s just kind of stifles it when it happens on a state level, people are much more willing to move state to state. So when you have one state with the lowest unemployment numbers in nation, you can kind of almost guarantee that population number is going to continue to grow.

00:48:27:08 – 00:48:45:18

Unknown

That will really help the economy. So it’s not good in the short run. It’s actually made it harder to grow business in Utah than elsewhere. But I think it will continue that we’ll start to see will continue to see real population growth changing the share of national GDP. So Utah’s growing. So our share of national GDP is getting bigger and bigger.

00:48:45:20 – 00:49:13:00

Unknown

One of the fastest growing states in terms of how much we’re growing compared to the rest of the country, which is really good. Unemployment getting more unemployment numbers, home starts and Utah down 40%. So this is pretty dramatic over. This is from March to March. So we’re past this now, but we’re seeing homes start to really decline. So the issues we have in Utah, again, border issues, national builders with unemployment, so Utah’s worst unemployment.

00:49:13:00 – 00:49:32:23

Unknown

So it’s even harder in Utah to build a house than it is anywhere else in the country because just on an employment level, residential lot, land availability is lower entitlement and Utah’s gotten harder, harder and harder to get lots and titles. That’s an issue, I will say active listings per month. So that’s kind of showing this is in Provo, Orem area.

00:49:32:23 – 00:49:52:19

Unknown

How many active listings there are. It’s low, but not as bad, I think, as a lot of people think, which is interesting. So we hear a lot of the national numbers that are horrible, horrible, horrible. But the numbers in Utah are not as bad as people think. What we have here is a lot of people moving in, a lot of demand.

00:49:52:19 – 00:50:10:20

Unknown

So it’s actually I think this is kind of interesting that it’s not there are other shows for almost every city in the U.S. and a lot of them look just like this is a big jump kind of in 2021, 2022, where it’s kind of a big jump. Some of them are just horrible some of these markets really do have no inventory.

00:50:10:22 – 00:50:28:02

Unknown

Utah actually has inventory. The problem with it is if you look at a snapshot at any one given point, there’s nothing for sale on the MLS. Why is that? So we’re buying them way too fast. It’s just getting sold and bought really, really fast. So it doesn’t look like there’s a lot of inventory, but there’s actually not. I mean, we’re still way underserved.

00:50:28:03 – 00:50:55:14

Unknown

I think we’re about 50,000 short for way short on inventory or actually are seeing a fair amount of volume. And I will say from an anecdotal perspective, I’ve seen real estate agents have record years, believe or not right now, like record months. We’re actually seeing loan officers at my company have record months. So that is happening. There are people who are selling and doing a ton of business.

00:50:55:16 – 00:51:14:19

Unknown

So if you feel like, hey, this market’s just like so hard, I can’t do it, it’s too hard. That means you’re not in the right area. You’re not working hard enough. You have found the right niche because there are a lot of opportunities out there. It’s just happening really, really fast. So you look at a snapshot, it doesn’t look good, but it’s happening.

00:51:14:21 – 00:51:36:13

Unknown

So I think we had, what, 4800 sales last month, you know, 4000 last month as a quarter of the state and Utah, we have 3230 I thought it was 48 that could be right. So it’s been interesting because it’s like we’re starting to see some trends shift a little bit months of slowly going up, some of it seasonal. We’re going to see a few more like things are starting to shift a little bit.

00:51:36:13 – 00:52:01:05

Unknown

So 3200 says there’s still a fair amount of inventory. That’s a lot of house being sold. So 3000, you should be able to get one day. Again, this is showing how many permits are going out and Utah permits are getting down lower, lower. So we’re kind of if we’re hoping to build our way out of this problem, it’s not going to happen to Utah.

00:52:01:05 – 00:52:17:11

Unknown

We’re not going to build our way out of this problem in Utah. Let’s skip that. I like this graph. This just shows hope you guys see this very well. But everything in white in there is private ground. Everything is not why it is publicly owned. So you can’t know it. So actually, Utah is like the size of West Virginia.

00:52:17:13 – 00:52:42:02

Unknown

You think about how much is privately owned. So Utah is a very publicly owned state between school districts. So between that, the federal government, state government, all that, it’s it’s a very small state. So so the reality is the issues, the housing issues that are happening across the country are magnified in Utah. So we are a small state.

00:52:42:02 – 00:53:02:11

Unknown

We’re growing fast. We have a really strong economy. We’re not going to build our way out of this and interest rates are likely to come down. So what happens with all those things combined, the pricing will not come down. Pricing doesn’t come down in a scenario like that. We have a lack of inventory, people moving in strong economy and know no place to build a house.

00:53:02:13 – 00:53:29:23

Unknown

So so if you think about what’s going to happen, this market, does it get more even though it’s highly unaffordable? Does it get more affordable in the state? Possibly rates come down, but the actual purchase price of the House does not. Now go back to scenario I talked about with Emilie. So like on a homebuilder, if a homebuilder offered you $700,000 and you get your mortgage rate, let’s even say 8%, or they said we’ll buy your rate down and give you 5% mortgage, you’re going to pay $800,000.

00:53:30:01 – 00:53:44:19

Unknown

What does the math look like on that? If you think about it, I don’t have the exact math here, but how long’s it take to pay $50,000 in interest? So we’ve got a short term, but long term rates come down in the next year. You refi, you’re going to be way better off with just the easy way to think about it.

00:53:44:21 – 00:54:05:04

Unknown

How long does it take? An extra $50,000 in interest. And it is a long time. And so you kind of think and so you kind of get under the scenario that if you think about housing today versus where how it is going to go, if we think housing prices are going to go up and let’s say how the prices go up, $50,000 on average, how long to take it?

00:54:05:04 – 00:54:25:11

Unknown

Let’s say you get the bad mortgage today at 8% or cheaper than that, but let’s say 8 percent the bad mortgage. And but you save 50,000 on the purchase price. The house, you think how long does it take to make a $50,000 in mortgage payments and additional interest in mortgage payments is years, years. I mean, I think it’s like 10 to 12 years.

00:54:25:13 – 00:54:45:06

Unknown

So so the question is, is any time the next 10 to 12 years, are you going to have the opportunity to refinance? And the likely scenario is very, very likely. And so if you think about when is a good time to buy, you want to buy when housing prices are a little bit depressed and rates are high because you don’t you don’t get stuck in the interest rate.

00:54:45:06 – 00:55:04:09

Unknown

That’s why no one wants mortgage backed securities, because they all know you’re going to refinance at second rates, come down. And so if you’re as a buyer, this as well as opportunities where it is, is a good time to buy because they get the cheaper house housing prices going up. But we know they’re going up. There’s no scenario I mean, in the short run, maybe 5% down.

00:55:04:10 – 00:55:31:22

Unknown

So who knows? In the long run, we can’t build enough. We don’t have enough land. We have a real strong economy. People want to live here. We’re growing like crazy. Housing prices are going up. That’s just the unfortunate reality of where we are. And if housing prices didn’t drop with an 8% mortgage and mortgage rates doubling or tripling in some scenarios, then I see when rates come down that that housing prices are actually to continue to escalate, escalate pretty fast.

00:55:32:00 – 00:55:56:21

Unknown

So we’re kind of one of those periods where you’re you’re in a sweet spot, Prices are coming up, but you’re better to buy now than wait till they’re up 50,000 or 100,000 or 2000. And so and this is going to happen across the country, but it’s going to happen more in Utah than almost any other state. So so if you do have buyers or you yourself are sitting on the fence, I just I don’t think it gets any better, unfortunately.

00:55:56:21 – 00:56:11:13

Unknown

I wish it did. I just don’t see any real solutions to the housing prices coming down so that. Emilie, you want to add anything? I do need to say one thing about Emilie before I go on. If you guys haven’t used Emilie, she’s amazing.

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