The Perfect Opportunity for First Time Homebuyers with Kenton Brown
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Transcript:
Kenton Brown:
Thanks Kenn. I appreciate you guys coming out here today. My name’s Kenton Brown and I’m executive vice president at Sente Mortgage. One of the things that I’ve done my entire career – and I’m actually in my 26th year, following in the footsteps of my father who was a mortgage banker – is to notice that things are constantly changing and everyone’s situation is different. The thing I like about that is that it keeps things exciting, especially in the last 24 months. You see a lot on TV and read about that. But it’s absolutely fascinating, all of the mythology that exists by people watching television and think that something is real when it’s not. One of the things that I kept hearing over and over again because, in the role of owner of Sente Mortgage, and also I still do loans, as does my partner Dominick who is sitting out there. We’re in the throws of this every day. And I’m listening to people tell me “uhh…I don’t have perfect credit” or “I don’t have 20%, can you give me a loan?” So it’s almost like they’re very vulnerable in that situation, so it’s like, let’s start with education and knowledge and then work with that. Because people are on their own timelines and they work within those and some are more comfortable than others based on certain things. But what we’re here to do tonight is to teach you a little bit about where the things are so that we can give you some real tangibles that are the reality of the situation. So an interesting thing is that since the mortgage industry has consolidated – we had a lot of people that were in the sub prime business and all that sort of thing – we had a lot of people who didn’t do it right. Either they didn’t do it right or they screwed people. People might have gotten with some one at their church, and then there was an article the other day in the Wall Street Journal about how some lady took advantage of people through her church. And I find that horrific when I think about that, but realize that this is a very small segment of the marketplace. And the reality out there is that most people that do loans are good quality people and they do really care about their customers because they can help them in the long term.
I heard a thing on Good Morning America that Dominick played for me and it was like “You go into your bank and you demand that you want 4%. You’re entitled to it.” And I was like, “ugh, that makes me skin crawl.” The reality of the situation, without getting too technical, is that the base rate would have to be about 3% because there’s so many fees built into that thing from the government, which does 99% of the loans right now. Because Fannie Mae and Freddie Mac are government owned entities now, everybody knows that. Now you know who these people are, and FHA is a big segment of the marketplace. The reality is rates have been trading somewhere between – we saw 4.5%, believe it or not, for about 35 minutes on two different days. It got there really quick and then it moved away. There were a few of our customers who we were like “Let’s nail that down in place for them.” You hear about refinance activity, but the biggest thing that I look at – I look out to help our customers long term – but I also say, “Ok, the dream of homeownership is alive and well.” The reality was that they got so lax on the guidelines that it became like ridiculous. When somebody puts no money down and they don’t have a job and they have poor credit, they shouldn’t get a loan. If it was your money, you wouldn’t loan it to them, right? But you know, we got into this weird, crazy place that people did that for a while and so it damaged the industry like a torpedo to a hull. So what happened is we went back to about 1996 or 1997, which is prudence in lending. You have to have a job, or if you’re self-employed, that’s ok to, but you’ve gotta show income. You’ve got to pay your bills on time. You don’t have to have perfect credit, and you have to have a little bit of a down payment. Maybe not, there’s certain programs where you don’t need a down payment and we’re going to talk about that in a little bit. The reality is that rates are at about 4.75% to 4.88% on a 30 year fixed rate. Now, that could change tomorrow and they could be at 4 and five-eights or they could be at 5 and a quarter. Because the mortgage market is so compressed right now that we’re seeing big swings on any given day. People always say “that’s the rate?” And I say no, it’s not. Let’s say you go buy Dell stock. Let’s say it’s $9 per share. Then you say you want that. Then you come back tomorrow and you say “hey, I want that price of $9 per share,” and I go, “oh, that was actually the price of yesterday’s share. Today, it’s $11.” You’d say “but I want it for $9.” It’s like no you can’t do that. That’s not the way the world works. Mortgage backed securities, without getting all technical, are traded the exact same way as stocks. So there’s supply and demand. Right now, we have a really strong rental market and that’s because less and less people have been able to qualify than could before. So we’re at a 95-99% occupancy rate. Then on top of this for first-time homebuyers, there’s an amazing $8000 gift from the government. Last year, it was $7500 and you had to pay it back and this year you don’t. It’s like, here’s $8000. We’ll talk about that in a minute here too. The other factor right now is that we’re in a buyer’s market. That means that when people sitting on the sidelines are scared, there’s a lot of people trying to sell their property. What happens is that they are willing to bargain. Especially in a situation where they are trying to do their move-up and they have to sell their house or they’re trying to move to a different city, people are really willing to bargain right now. These things don’t last long. It looks like a smiley face, kinda, and you could draw a line across it. People always want to be at the bottom of that curve, but it’s absolutely impossible to find the very bottom of that curve. The deal is that today, it came out that the housing starts – new construction – are the lowest rate of new construction since the 40s. Interestingly enough, rates are at 40 or 50 year lows. The reality is that there is less and less new product coming on. So what’s going to happen is when it does turn, and it will because when you have a limited supply of things, the price goes up. So it’s absolutely impossible to time the market. We’re in the best place. You don’t want to be selling real estate today. Maybe, if you had some good equity or good capital gains and you just wanted to take some equity out. But you probably want to be buying it.
Interestingly enough, Kenn and I looked at these stats that I wrote down here, but Gary Keller was at a national conference and he was talking about a 4% appreciation rate in real estate. If you go back to 1950, you can draw a straight line and say if this real estate appreciated at 4% per year, what does it look like in 2009? Well, it was right along that line until about 1999 when it went way above that line. There were people in Florida flipping property, doubling their money over night. Have you heard about this? It was that “let’s get rich with real estate” mentality. So what happened is the marketplace got so out of whack that it had to correct. Those wobbles can’t correct themselves. Any investment that you buy that’s going to double in one day, do you think that model can sustain itself? No. It can’t. Nationally they’re saying that real estate came up so rapidly and that it came down like things do when they go up fast in price and they come down. If you were to draw that 4% line now, the appreciation rate is right on that 4%, which is a historical average of real estate appreciation in this country. So I started looking at a $150,000 house in a 5 year period with an appreciation rate of 4.44%, which was 2007. Now, if you round this back 25 years through the Texas A&M real estate research, it’s about 5.9% or right at 6%. A $150,000 house is worth $198,840 over a 5 year period, which is a pretty good return if you look at your 401Ks and other things that you’re investing in. So this website is really helpful too, it’s OFHEO.gov. They’ll tell you a lot of cool stuff in there. But really, what that means is about a 35% increase over that timeline. Now, I was asking Kenn why Texas is #4. I’m from Texas, I want Texas to be #1. But the #1 state is North Dakota. #2 was Wyoming, would you have thought that? Alaska is #3 and Texas is #4. When you look at Austin, we’re ranked 6th in the nation. When you watch all this national crap, and pardon my French, you should use your filter because they’re talking about this stuff because they neglect to tell you about how California went up 800% and now is down 30%. They don’t tell you that part in the headline, they just say “real estate values down 30%.” And you get scared. The reality is that real estate is a sound investment and we can ground it over a long period of time. I think that’s all I’m going to say right now Kenn if you want to come back up.