Exploring the Bright Side of the Housing Market with Expert Advisor John Burchfield
Welcome back to GoGaddis Real Estate Radio right here on AM 920. Thanks for sticking with us through the break. In this segment, we've got an expert advisor, John Burchfield. You all know and love him. We're going to talk about the positive side of the housing market. And I know you're thinking, well, wait a minute now.
Cleve's just trying to put. Positive spin on a negative thing. No, there are some very positive things about the market. I will acknowledge, and I think John Burchfield will as well, that interest rates, current interest rates are not one of the positives about today's market. But John welcome, sir. Thanks for having me.
So John, I know you, you are so welcome. You're always welcome. Oh, by the way, I want to make sure, you know, we're having our modern traditions, realty holiday extravaganza on Saturday, November the 18th, from 10 AM to 3 PM. Now, John, you can't show up at 10 and expect me to spend time with you all the way until three o'clock.
You'll have to, you know, kind of come in and just kind of shake hands and kiss babies that leave, but you can get. You can get, you can get pictures with Santa. You can pick up a free pie for Thanksgiving. There'll be other fun activities, like maybe a dunking booth with John Burchfield in it. I'm not sure.
So I just wanted to know if you're going to be available to come. Absolutely. I'm going to be there. I'm not myth. This is legendary. You gotta be there. Love it. So if anybody wants to sign up, just go to go get us radio. com and look for holiday extravaganza and sign up. So Mr. Burchfield, uh, I am, I do not know what it's like to be a lender, but I think.
I know a little bit what it's like to be a lender for the last, let's just call it two years at this point. And, uh, now I know you love having conversations with people who can buy people who can't buy. You got the heart of a teacher, meaning you're willing to help anybody regardless of the situation.
But my guess is that you have way more conversations in the last couple of years that lead to. Unfortunately, hey, you don't qualify at this time for, for whatever reason, or also probably fairly common, they can qualify, but they don't want to meaning I don't want to spend that much money. So I'm not going to move forward.
So let's just do a little comparison. If we went back almost to 2000, like 2001, let's compare what was happening then compared to what's happening today to help people who are Are at least real estate market conscious, um, understand why is it so much harder to qualify today than it was back then? Yeah, great question.
And the reason we'd like to look back to 2001 is because that's the last time we experienced interest rates that were at this level. Yeah. Oh, you know, we ran into really 20 years of an accommodating interest rate environment. Um, you know, a good bit lower than what we've, what we've seen the last six to 12 months.
Right. So when we look back to 2001. Um, the reason that it is a little bit more challenging for folks now is just because of the average price of a home, right? I went back to 2000 and one looked okay. Atlanta Metro. What was the average price of a home? You and I were both Both doing a lot of deals back then at an average of 174, 000.
Yeah. Okay. Now we're doing those deals. That same average home is 416, 000. Exactly. Isn't that amazing? Isn't that amazing? It is. And so think about it. There probably has not been nearly as much. Now, if incomes had gone up by the same amount that prices had gone up, we'd have no problems. But I'm guessing the issue is that the incomes have not progressed upward as quickly as home prices have.
That's right. You're exactly right. I think the, uh, the average income was around 42, 000, uh, back in the early two thousands. And now we're, we're up to about 57, 000. So, um, that's not the kind of wage growth that you would expect when you've seen house prices, uh, over double. Uh, in fact, if you do the math on that, the income average income has increased 35%, but the average price of a house increased 139%.
Transcribed by https: otter. ai So, yeah, that's what we're going to call the affordability index. Uh, you know, it's just a little bit more challenging to afford a home today than what we've grown accustomed to over the past 20 years. Yep. My first interest rate, uh, 8. 875%. I'm not trying to justify anything for anybody, because if you think 8 percent today is crazy, think what you want to think.
I totally get that. Do you remember what your first interest rate was on the first loan that somebody was, uh, where somebody was dumb enough? Seven and a half. Somebody was dumb enough to give you money? Seven and a half. Yep, they gave me money to buy a 40, 000 condo in Athens. Oh, yes. Seven and a half percent.
Seven and a half percent. Mine was 8. 875 in 1992. And so I want to think, I want to ask you a question here for just a second. Let's just say that the market rate, and now, so we know that the price over 20 years has gone up by. 2. 4. So it's gone up 140 percent basically. And so, let's just say that you could have had a rate of 4%, but instead you had to have a rate of 8%.
So that's 4% a year for 20 years. That's 80%. Now I know that's not the way it works, but house values appreciated enough to cover all of the additional interest over those 20 years. Absolutely. And so I'm not saying, and for those of you who are listening who just drove off the road or, or you know, slap the dog in the back of the car, whatever it is, 'cause you like, Cleve is crazy.
I'm not saying you need to buy a home. That's not what I'm saying at all. What I'm saying is that sometimes. If you do need to buy a home, it's worth going ahead and doing it at a little bit of a higher interest rate. John, I know you do not have a crystal ball. And, uh, so I'm going to use my own crystal ball, which by the way, does not exist.
John is looking at me on video and he can see that I don't actually have a crystal ball. But I'm going to tell you, I think interest rates are going to go down a little bit next year. And I'm just basing this. You might think I'm crazy. It is an election year and whichever party. Whichever party is in power, they want to stay in power.
And I'm not even saying that I wouldn't think that way if I was in power myself, but people are upset about how much it costs to buy things in the U S today. And my guess is there's going to be some presidential pressure on those things as much as possible. And so when somebody gets, does let's say they get their mortgage at seven and a half percent.
What does the mortgage rate need to be in order to make it really worthwhile from a financing standpoint? Would it be worth looking at it if it drops by a point? Would it be, would you, should you wait? Yes, to refinance. Sorry, I might not have said that, but to refinance. Well, first I'd say everybody's situation is different.
So one thing that we're going to do cost free is do a, do a individual analysis of somebody's needs. And where they're at and where they want to be to see if it's right for them to refinance. But general math, we want to start the conversation at about a point. So we're at seven and a half today and we hit the six and a half to six and a quarter.
We're going to have start having conversations about, okay, is it time? Or maybe we wait and let them keep dropping. Okay. Well, or, or you could, you could do a year and refinance at a point lower. And if, for example, they connect continued to go, you could do another year and do it another point lower, because in many cases, I'm not saying they should, what I'm saying is that in many cases, that one point reduction is more than enough to offset any additional costs that it would, you'd have to pay to refinance the loan and some.
So once they start going down, you can just get locked into the lower and lower rate, but. Now you as the home buyer own the home and you get control of all of the additional equity because one of the things that I, I'll just about bet you, John, is that 20 years from now houses will be worth twice as much as they are today.
I would, I would not take that bet. Yeah, I just, I just think you're absolutely right. So, and here's a couple of things that I don't know if you look at this stuff very closely, john, but it's fascinating to me. I'll bet you do. Um, but I think the main driver for the market, so it's hard to finance a home.
We've discussed that. Uh, we've discussed the, the, the emotional difficulty of having conversations with people who can't qualify or don't want to qualify. And we know that and we know for you as, as home buyers and borrowers, that's a, that's a real problem, but, but why are prices continuing to rise? There are, they've, they have not dropped in the city of Atlanta, not in condos and townhomes or single family detached homes.
Why do you think prices have not dropped? Well, price stability is all about supply and demand, and we simply are not putting enough homes on the market to support the increase in household size, especially in the southeast, where everybody wants to come and live. You know, there might be pockets of the country where you see a little bit of declines, but that's certainly not down here where we are.
Yep. And so, 12 months, this is a rolling 12 month average, there's been 2. 068 million households created. Two million new households. So that's boyfriend and girlfriend deciding to live together. That is people getting a divorce and having two households. That's somebody going off to college and coming back home and living somewhere else.
It's a, it's a, it's a death in the family where somebody has to go live somewhere else. It's anything that causes a new household 2. 068 million in the last 12 months. So, in order to keep up pace, how many housing units would we have needed to, would we have needed to have built? Uh, more than that. Well, or at least 2.
068 million. At least, but you have to feel there's, there's older homes that are not eligible to be lived in. Agreed, 100%. But, we only built 1. 4. million in that same year, a little short there. That's right. 600 and something thousand short. Now, I'm not sure that the, the multifamily properties are included in this.
So the numbers might not be quite as bad as I'm making them out to be, but as long as we have less inventory, standing inventory on the ground today than we need in the United States, it is going to be a. Meaning it's going to be a problem that continues to push prices up. So let's just hope, let's just hope that inventory stays low.
That those dynamics stay the same. And the federal government gets serious about keeping all of its taxpayers happy. And figures out a way to get the end. And I know interest rates are a matter of the bond market. I understand that. But, but honestly, there are ways for the government to manipulate that in order to make it more positive for everybody.
I've done it for the last 20 years. Then I think that you'll see interest rates go down. You'll see home price appreciation at that point. I think you will see it absolutely skyrocket. You know, we saw 15, 17 percent for a couple of years, 2020 and 2021, 2019, 2020, 21. And I think we might very well see that again.
And I saw a chart the other day, and this is for home sellers, John, who, who have a mortgage rate that's, you know, below 4 percent or below 3 percent or below 5 percent that 75 percent of that group with mortgages below 6%. Would at least consider. Now, the answer is I probably wouldn't move, but probably doesn't mean I definitely won't move, which means they would consider it.
And so my suggestion for anybody out there, whether you're financing or trying to buy a home is you need to see things in black and white. So, John, if I sent somebody to you and said, let's look at the cost of ownership of their current home, let's look at the cost of the ownership of the new home. Let's compare what we're doing with the equity.
You can help them understand that, right? Absolutely. And you said the key word they've built up so much equity by having those low rates and the property appreciation we've seen over the last four years when they're able to roll that into a huge down payment on the new one, they may be surprised how little impact the interest rate might have on it's huge.