And where do you see
the interest rates going and are you seeing real estate slowdown?
Well, it's really shocked the market.
You know, I think our internal predictions and the industry predictions was kind
of seeing landing kind of where we're at in the sixes, kind of mid-sixties.
And sometimes by the end of the year, not by summertime.
You know, we can't expect it some some ticks up throughout the year.
But it's been the fastest rate increase since the Carter administration.
And so it's really shocked the purchase market.
And, of course, it's decimated the refinance market.
95% of our
of our refinanced business right now is cash out, because when people need money,
they need money.
But it's decimated refinance market.
And then the purchase market has really stutter stepped.
And, you know, there's
there's pocket markets but everything's the same that every state's the same.
But man, it
we're finally seeing a little bit of slowdown from the multiple offers,
multiple hundreds of thousand dollars over listing price.
You know, all that craziness has kind of started about a little bit,
but it's still I'm tell you, like in Orange County, it's a frenzy still.
There's still multiple offers.
There's still $100,000 number asking price.
It's really dramatic.
Well, I keep hearing they're going to have another, you know, 0.75% hike in July.
Are you guys thinking that's not going to happen?
I think that's if it does, I think that's starting to get baked
into mortgage rates earlier than that.
Like we don't when when the Fed moves, we've already baked that it.
And so we don't we don't pop with them.
We've already kind of elevated up before they really go out there.
So we might tick up to the middle mid sixes here.
If they're if they're going to pop.
But you know and in the scheme of things, I think we're kind of settled.
But again, that's one man's opinion.
Can you speak a little bit to, you know, what I call the equity trap?
You know, people are and, you know, you touched on it where these folks
have had incredible runs in the equity in their home.
The fact is, is that whatever their rate was is less than what it is today.
So so do it to do a cash out refi.
You know, there's
there's a consequence because now your payments are going to go up significantly.
Would you agree that a lot of people are in this equity trap?
Yes. And so they're going to it's going to be interesting what they're going to do.
And it's also causing us to have a big problem with inventory.
Inventory is a huge issue right now.
And it's causing the rate,
the pricing to jump significantly because you can't find a house anymore
because people
don't want to sell their house, that they have a 2% rate or a 3% rate.
They have one of the best rates in the history of the of the United States
mortgage world.
And the prices are at super high and they go, where am I going to go?
Because now I sell.
I get I get some cash.
But now I now rates are in the sixes.
Plus I'm buying into a high market.
So they're not selling.
What's going to happen, Ken, is they're going to take out equity lines of credit.
They're going to take out second mortgages,
which are very, very popular in the precrisis in 2008.
And a home equity line of credit is effectively a credit card
against your home,
and it allows you to tap that equity.
And now it's going to be on a variable rate
and has interest only payments and there's lots of features to it,
but you can tap that equity without touching your first.
And so people are going to do the math
on that and say, hey, if I if I want $200,000 on my house.
Now, to your point, and if I do a full refinance, my payment's going to go to 6%.
It can be skyrocketing.
But if I just take $100,000 out on an equity line,
paid out on an interest only payment, what's the difference?
What's the savings? Is this more beneficial to me?
And I think you're gonna see the equity line market explode in the United States
right now.
Do you think that people could get in trouble with that?
You know how we saw in oh eight and, you know,
people falling behind if the equity in their house lowers.
Well, here's my my my biggest fear
having come through the crisis in 2008 and and watching what happened,
you know, and this is a different experience in that crisis.
And we can unpack that to as deep as you want to go, this is radically different.
But if people maxed out their homes, equity and if the home values go down,
we're going to be looking at the same type of thing
that happened in 2008, which was my house is worth less than I owe.
Why would I stay in it?
And and the crazy part about 2008 and the mortgage market back
then was the entire industry was based on credit score
because there was waivers for documentation
and the capital markets group believe, hey, this guy has an 800 FICO score.
We don't need to see his paystubs.
We don't need to see his W-2s.
This person pays their bills.
Well, all of a sudden
now their house is upside down by $200,000 and they start to strategically default.
They just go, I'm not paying anymore.
And they walk away,
let alone the other people that lost their jobs
and had needed to sell and were upside down.
So that does scare me.
And that's that's one of the things that I think
more professional has to be really cautious about and educating people on it.
I don't think we're going to allow HELOCs to go that high,
meaning we're not we're not going to offer stuff that goes up to 100% valuation.
We're not going to offer things that can back somebody out
because the risk we know the risk. We look at what happened last time.
So I don't think going to
repeat those mistakes, but it is a concern.
At the end of the day,
if you got a first on there and you have a big amount of equity in there,
and then you tap into it through this,
you know, cash out, refinance or a second, you know, as the collateral goes down,
the price goes down of the collateral, let's say for how long
goes from 1000000 to 800000.
Now, that second is in jeopardy, right?
Is that what you're talking about?
Yeah.
I mean, somebody could look at that and just go, I'm not going to pay this
anymore. And, you know, we're going to we're going to go down that route.
And it happened that happened a lot in 2008, but it wasn't
the whole market didn't crash because of strategic defaults.
There were some strategic defaults, people that could make their payment and chose
not to.
But the market crashed because there were people that couldn't make their payment.
Right.
So it and it can happen.
It can start with the second.
It can start with the second, but it really can it comes up.
It's with employment comes it comes down to employment.
If somebody loses their job or their job is impacted because of a recession,
then they can't make their payment anymore and they need to sell.
Now, in most cases, if it's a minor recession,
so to speak, then they just sell and they take their cash from from from
their house and they go rent
in a major
situation, the values of the houses are crashing.
At the same time this is happening and they can't sell
because they it's not worth what they owe on it.
And now, you know, we're back and look exactly the 2008.
But the reason I don't think it's going to happen like that again,
the amount of equity that's been built up in the United States
real estate right now is so high that we would have to have something
absolutely dramatic effect employment at a national level and we'd have to see
that pull housing prices down from the highest peak we've had it.
It would be a very intense experience for that to happen.
I agree with you.
I you know, in oh eight, what happened was there were a lot of people that couldn't
afford to pay.
They got houses and and there was an oversupply of houses.
So we had those two things happen at once.
You know, that's you know, and that whole house of cards came tumbling down.
This is very different.
I think that's why everyone's confused about it.
You know, there's so much equity in the in the homes.
The savings rates are at an all time high
and and but rates are ticking up.
So, you know, we've we created these asset bubbles,
whether it's in the stock market, cryptomarket
real estate market doesn't really matter.
They've all been created through a lot of cash.
And and now they're just adjusting.
I don't really see a big, you know, a big overcorrection
of real estate personally.
I mean, I'm seeing issues on the commercial side
because of the the interest rates.
But but for for single family, we need more inventory.
Yeah.
We don't want it to be a seller's market.
You know, this is a these balances are good.
Wouldn't you agree.
Yeah, I actually I'm kind of an eternal optimist
and I try not to be like, so, you know, everything's great all the time.
But to me, this feels a lot more like a normalization.
Yeah, like it's.
We need, like, so.
So think of this just as an example, right?
So the mortgage industry pre-COVID was about a $2.5 trillion industry
through 2020 and 2021.
We had we ballooned to a $4.3 trillion industry.
That's not normal and that's not healthy.
Now, there's there's wealth to be made.
There are lots of things that are there.
But you just look at that and go that that's so we're we're collapsing back now
to about a 2.5 maybe even a $2 trillion market,
which is still in the history of mortgage markets.
$2 trillion mortgage market is really healthy for the United States.
Well, I think you have a lot of people you know, they they missed out in oh eight.
Right, because they lost their house or they sat on the sidelines
and they kind of saw what happened from 2008 and to 2019
and how they kind of missed some good buying opportunities.
So I think now with social media, you have everyone's an expert, right?
And everything's going to just crash down and this is your next
big chance and it's going to be another oh eight all over again.
It's like they've never really like we've never had an online recession before.
Right? That's a normal slowing.
And I was reading some comments today and somebody said
The Phenix market inventory's tripled.
And somebody said, Yeah, instead of a ten day housing supply,
we now have a 30 day housing supply, but we still need a six
month housing supply to get us back to pre-pandemic levels.
So good for you.
You know, it's kind of funny when you look at that kind of stuff.
You're right.
You're so right.
It's the normalization and so so you get the headlines
because they want to sell clicks, whatever they want to sell.
So they're inflaming the reality that you went from one day to 30 days, thank God.
And now we need to get back to 4 to 5 months, six months.
And it's like, okay, stop, stop freaking everyone out.
This is this is healthy.
We need more supply to come back.
We need some people to sell their houses.
And, you know, if that happens through their economic hardships,
that's sad personally, if I knew them, but like it opens up supply.
What do you think about inflation and what what is inflation
doing to your industry?
Well, it crushes affordability because we qualify people on debt to income.
So we look at their overall debt and we look at their income,
and then we use that math to qualify them on what they can afford.
And just because they can afford something doesn't mean they should do that
deal, by the way, just because they can afford it
and the government says we'll buy this loan doesn't mean you should do it.
But that's one of the key indicators of how you get a mortgage.
Well, with inflation and the cost of the world just rising,
even though they qualify, they go.
But all my other life expenses have gone up through the roof now.
And I don't I'm not comfortable no more of this payment. Yeah.
So that's that's what kills
pulls buyers out of the market, which is okay.
We you know, it's
some buyers leaving is probably okay right now but it's it's terrible overall
because it just crushes the ability for people to buy homes.
If you were your younger self looking at this recession coming
and obviously you you qualify thousands of buyers
and your companies growing like crazy and you have lots of loans out there
and you've been looking at people's tax returns and all that stuff.
What advice would you give somebody?
Okay, we're definitely heading into a recession, that's for sure.
It pretty much looks like if we're not there already,
what would you what would you tell them to do,
huh? What would you tell them to do so that they don't get in a position
to where they're going to lose whatever it is they have?
You know, I know you'd agree with me on this.
It's a highly personal decision on whether to make a big financial move.
But the historical reality of homeownership in America
has made generational wealth for families
for decades and owning things long term,
not as an investment necessarily, but as a place to raise
your family and a place to live in a community and invest
has so many benefits to the community, to your own wealth,
to your family that I think it far outweighs the risk.
And so I always land kind of first and foremost on
is this the place you want to live?
And everyone's different, but is this the place you go?
I'll give you a I'll give you a personal example.
So I bought in the peak of the market in 2006
and I always knew I was
a newly married and we bought a house
at the highest part of the market in 2006 in Orange County.
And the market crashed and all of the money that I put in as a down
payment was wiped out and the you know, the equity position was wiped out.
I lived in that house for 14 years.
I raised my kids there, brought him home from the hospital there, you know.
And I just moved in November last year.
But I loved that house and it served.
It was the way when I finally moved, I my equity was back.
I sold it at a great I got a lot of money and did the thing.
So for me it wasn't I'm not trying to flip that house.
I mean, that was the best decision I could have ever made.
I loved living there and for the quality of life and for what it meant for us.
After 14 years of living there, we did great.
So I think that everyone has to kind of go deep on that personal perspective.
But the only thing I would add to it right now, as we
look at a recession coming out, is job stability.
If your job
if you
can see the recession impacting your job, where you're not going to be in a place
where you can afford your mortgage anymore,
putting all your money into that house and risking that it might not come back
because you might.
That is something that you've got to be very thoughtful about.
But if you're in a position where of of of enough confidence to say
I'm my job secure enough, where I can be very comfortable,
I don't think I'm wiped out, then, then I think it's
always a good time to buy and invest in yourself in real estate.