“History doesn’t repeat itself, but It often rhymes.” – Mark Twain. Although Twain was not a forefather, he knew a thing or two. Our country recently celebrated 247 years since we declared our independence from England by blasting off fireworks, chugging beer and grilling American hamburgers and hot dogs. I’d like to take a moment to analyze what business and sales professionals can learn from this historic time period.
In school, we learned that our Nation was founded in 1776 when a group of men (aka a Congress) who drafted, voted on and signed the Declaration of Independence. We were even taught that it was Thomas Jefferson, our third president, who penned those famous words.
What you might not have comprehended is that this did not happen overnight. Like many great businesses, it took our forefathers much time, many compromises, multiple decisions made that did not go as planned and unwavering grit to build what they built.
We learn from our forefathers that success is a process. Follow along and let me explain:
Our fight to become our own nation started way before 1776. The Boston Tea Party, widely regarded as the colonies’ biggest official revolt against England’s ruling was in 1773.
The lesson learned here is that when pain becomes great enough, change is desired. Take action. Even if that action is just the beginning to something unknown.
The first time the colonies came together to discuss their shared concerns of how they were being ruled by King George III was in 1774. We know of this as the First Continental Congress. What you might not remember is that not all 13 colonies were represented. Georgia could not be bothered. The delegates, most strangers who did not have much in common, met for six weeks. They shared their concerns, negotiated and compromised a solution, and then collectively notified the King of their displeasure. Their plea failed.
The takeaways from this experience for business professionals are many. Understand that not all team members will be on board at first. That is okay. Give them time. Not all ideas succeed. This is normal. Don’t give up. And finally, allow enough time for collaborate meetings. Greatness is not knocked out in an hour or two.
With the results of the decisions made at the First Continental Congress backfiring (literally), a Second Continental Congress convened back in 1775 reminding us today that if at first you don’t succeed, try and try again. It took until June 1776 before a resolution for independence was suggested. On July 2 (yes, the second and not the fourth) the Second Continental Congress voted to adopt the resolution. However, not all members could agree on the actual wording of the document. It took two extra days to make everyone happy. This is why we celebrate July 4 and not July 2. On July 4, 1776 the Declaration of Independence is signed.
By example, our forefathers teach us the power of persistence and the art of compromise.
As they say, “the rest is history”. We go to war with England. The newly formed United States were not favored to win. The war lasts seven long years. Without the help from the French (as well as a couple other nations who don’t get mentioned enough in textbooks), the chance of gaining independence is non-existent. The Constitution is draft. The Bill of Rights are adopted. George Washington is named President. Yet…what about the timeline?
The war ended in 1783. The Constitution was not ratified until 1788. George Washington was elected President in 1789. The Bill of Rights (you know the words that give us things like “freedom of speech” and “right to bear arms”) were ratified in 1791. And lastly, it was not until 1797 that President Washington did what was at the time unthinkable; he peacefully transferred power to another leader without war and without the successor being family. More impressive is when in 1801 John Adams transfers this power to Thomas Jefferson as where Washington and Adams were friends, Adams and Jefferson were not.
What makes our great country what it is today is that it is forever growing and evolving. The same applies to business success. Remember you won’t have all the answers. Not every decision works out as intended. It is a process. Things take time. You will not be able to do it alone. The minute you think you have it all figured out, you’ll realize you still have much left to accomplish.
Afterall, our forefather’s started down their path for success in 1773 by recognizing a desire for change. It was not until 1801 that the majority of the pieces to their masterpiece were in place. It still takes this young nation six decades before slavery is abolished (Amendment 13) and over a century before women can legally vote (Amendment 19).
Be the American Dream. Live the American Dream. Promote the American Dream. Just make sure you understand what that means if you care to learn from those who laid the foundation for our great nation.
Dustin Owen, CMB, is vice president – Eastern Division Sales for Waterstone Mortgage in Florida.
For many entrepreneurs, real estate is the “how” when it comes to building an incredible life. But it’s important not to neglect the “why.” On today’s podcast with author Jim Sheils, we discuss what it takes to deepen relationships with those who matter most. Listen and learn about a simple strategy proven by thousands of parents worldwide. Jim also shares real estate predictions—including why he thinks 2030 could be the next big crash—and offers advice on where investors should buy property right now.
Listen to today’s show and learn:
Living a life by design [4:59]
Learning life’s hardest lessons [6:35]
Asking for help instead of hoping [9:14]
About The Family Board Meeting [11:30]
Rules for running a family meeting [14:50]
Separating the parts to strengthen the whole [17:33]
Jim’s plans for The Family Board Meeting and his brand [21:23]
The 18 summers concept [27:43]
The homeschooling hybrid and what school is really for [33:16]
Jim Sheils’ start in real estate and thoughts on new construction [36:50]
Jim’s real estate predictions and advice [42:02]
The pros to investing in Florida real estate [42:56]
Where to find Jim Sheils [46:10]
Jim Sheils
Jim is a partner at Southern Impression Homes, a company that specializes in building rental portfolios for individual investors and institutional buyers (American Homes for Rent, Haven Realty, Crescent APL, Mynd ) They provide new construction, low density properties (SFH, duplex and quads) in 14 high growth markets in Florida. Property management in place. Also, private fund offerings for accredited investors based around the highly lucrative Build-to-Rent niche. Average returns have been 12-16% Net IRR.
Jim formally owned the private real estate investment company, Jax Wealth Investments. This company focused on bulk foreclosures and then moved into new construction investments in 2017. After doing over $300 Million in joint venture projects with Southern Impression Homes, the two companies merged in 2022 to better serve the growing BTR niche and client base.
Currently have over $637Mil assets under management, $44 mil recurring revenue, over 1,000 active investors,$182 Mil in sales 2021. Jim Sheils is also known as the “Crazy Glue” for entrepreneur families. His popular “Board Meeting” strategy and other simple frameworks are helping thousands of business leaders worldwide reconnect where it counts the most: at home. Check out his Amazon best-selling book, “The Family Board Meeting.”
He is owner/ founder of the family education company, 18 Summers. They specialize in retreats, workshops and private consulting for family focused companies, entrepreneurs and professionals looking to strengthen their family lives while still succeeding in business.
Jim is an avid surfer and enjoys traveling with family and friends, especially his beautiful wife Jamie and their five children, Alden, Leland, Maggie, Sammy and Gloria. Jim’s greatest adventure to date: donating a kidney to the greatest guy on the planet, his father.
Related Links and Resources:
It might go without saying, but I’m going to say it anyway: We really value listeners like you. We’re constantly working to improve the show, so why not leave us a review? If you love the content and can’t stand the thought of missing the nuggets our Rockstar guests share every week, please subscribe; it’ll get you instant access to our latest episodes and is the best way to support your favorite real estate podcast. Have questions? Suggestions? Want to say hi? Shoot me a message via Twitter, Instagram, Facebook, or Email.
In December 2021, when the 30-year fixed mortgage rate still averaged 3.1%, a borrower could get $700,000 mortgage that required monthly payments of principal and interest of just $2,989.
Fast-forward to Wednesday, and a $700,000 mortgage taken out at the current average mortgage rate of 6.90% would equal a $4,610 per month payment, which is $583,000 more over 30 years than that mortgage issued at a 3.1% rate. When adding on insurance and taxes, that monthly payment could easily top $6,000. Not to mention, that calculation doesn’t account for the fact that U.S. home prices in June 2022 were 12% above December 2021 levels and 39% above June 2020 levels.
Mortgage planners like John Downs, a senior vice president at Vellum Mortgage, have the hard job of breaking this new reality to would-be homebuyers. However, unlike last year, Downs says most 2023 buyers aren’t surprised. The sticker shock, the loan officer says, is wearing off.
Just before speaking with Fortune, Downs wrapped up a call with a middle-class couple in the Washington D.C. area, who told him they were expecting a mortgage payment of around $7,000.
“The call I just had was a typical area household. One person makes $150,000, the other makes $120,000. So $270,000 total and they said a payment goal of $7,000. I’m still not used to hearing people say that out loud,” Downs says.
Even before these borrowers speak to Downs—who operates in the greater Baltimore and Washington D.C. markets—they’ve already concluded that these high mortgage payments will be “short-lived,” and they’ll simply refinance to a lower payment once mortgage rates, presumably, come down.
To better understand how homebuyers are reacting to deteriorated housing affordability (and scare inventory levels), Fortune interviewed Downs.
This conversation has been edited and condensed for clarity.
Fortune: Over the past year, mortgage rates have spiked from 3% to over 6%. How are buyers in your market reacting to those increased borrowing costs?
John Downs: I must say, the reaction today is quite different from last year. It’s almost as if we have lived through the “7 stages of grief.” We appear to have entered the “acceptance and hope” phase.
With all the reports pointing to home prices stabilizing, one might think that buyers are comfortable with these rates and corresponding mortgage payments. The reality is quite different. Many would-be homebuyers have been pushed out of the market due to affordability challenges through loan qualifications or personal budget restraints. Move-up buyers also find themselves in the same predicament.
As a result, my market (Baltimore-DC Metro Region) has 73% fewer available homes for sale than pre-pandemic, 57% fewer weekly contracts, and an 8% increase in properties being relisted. (Information per Altos Research) As a result, prices have remained relatively stable due to the balance of buyers outweighing sellers.
I’m seeing buyers today taking the payments in stride for various reasons. Their incomes have risen dramatically, upwards of 25-30% since 2020, and the income tax savings through the mortgage interest deduction is now a meaningful budget item to consider. Many also say, “I can always refinance when rates come down in the future,” which leads to a sense that this high payment will be short-lived.
When I say buyers are comfortable with these payments, I know there are also two to three times more buyers who run payments using online calculators who opt out of having conversations in the first place! To prove this, our pre-approval credit pulls (a measure of top-of-funnel buyer activity) are running about 50% lower than pre-pandemic.
Among the borrowers you’re working with, how high are monthly payments getting? And how do they react when you give them the number?
For the better part of the last decade, most of my clients would enter a pre-approval conversation with a mortgage payment limit of no more than $3,000 for a condo and $4,500 for single-family homes. It was rare to see numbers higher than that, even for my higher-income wage earners. Today, those numbers are $4,000 to $6,500 respectively.
To my earlier comment, active buyers today seem to expect it. It’s as if they are comfortable with this new normal. Surprisingly, the debt-to-income ratios of today (in my market) are very similar to where they were five years ago. Income is ultimately the great equalizer. Yes, the payments are dramatically higher today, but the buyers’ residual income (post-tax income minus debt) is still in a healthy range due to local wages.
Remember, we are still talking about a much smaller pool of buyers in the market today so this conversation is skewed towards those with more fortunate lifestyles.
Tell us a little bit more about what you saw in the second half of 2022 in your local housing market, and how that compares to the first half of 2023?
There are dramatic differences between those two periods. In the second half of 2022, there was nothing but fear. The stock market was under stress, inflation was running wild, and housing began to stall. Across the country, inventory began to rise, days-on-market pushed dramatically higher, and price decreases were rampant. The safest bet then was to do nothing, and that’s just what buyers did. The mindset was, “I will wait until prices fall and rates push lower before I buy.”
The start of 2023 sparked a reversal in many asset classes. The stock market found a footing and pushed higher, mortgage rates rebalanced, property sellers adjusted their prices, and employers began pushing out significant wage increases. As a result, housing stabilized, and in some areas, aggressive contracts with multiple offers, price escalations, and contingency waivers became the norm.
The strength in housing was not as universal as it was in 2021. There were very hot and cold segments, depending on location and price point. The affordable sector (<$750,000 in my market) and higher-end (>$1.25 million) seemed to perform very well with heightened competition. The mid-range segment is where we noticed some struggles. One common theme is that buyers at every price point seem much more sensitive to the property’s condition. When the housing payments are this elevated, it doesn’t take much for the buyers to walk away!
What do you make of the so-called “lock-in effect”— the idea that existing market churn will be constrained as folks refuse to give up those 2-handle and 3-handle mortgage rates?
I believe the “lock-in effect” is very real. My opinion is based on countless conversations I’ve had in the past 6-9 months with homeowners who want to move but can’t. Some cannot afford to buy their current home at today’s value and rate structure. Others just cannot stomach the significant jump in payment to justify the increase in home size or the preferred location.
I believe the reason we are seeing struggles in the mid-range home is that the traditional move-up buyer is stuck. In my market, that would be the person who sells the $700,000 home to purchase at $1 million. They currently have a PITI housing payment of $2,750; the new payment would be $6,000 rolling their equity as a down payment. That jump is too much for most, especially those with a median income. That payment would have been $4,500 a couple of years ago, which was much more manageable.
Based on what you’re seeing now, do you have any predictions on what the second half of 2023 might look like? And any thoughts on the spring of 2024?
Despite high rates, the desire to buy a home is still high for many. Given the lag effects of Fed tightening (raising interest rates) coupled with an overall improvement in inflation, one can assume mortgage rates have topped out and will continue to improve from here. Think of playing with a yo-yo on a down escalator, up-and-down movement but generally pushing lower. As rates improve, affordability and confidence will shift, bringing out more buyers and sellers.
I believe this will be supportive for home values and give buyers more choice as inventory increases. Keep in mind, most sellers become buyers, so the net impact on inventory will be negligible. Knowing that some sellers will keep their current home as a rental, one could argue that inventory will worsen. At least buyers will have more house options each week, a stark difference from today.
When discussing strength in housing, thinking through local dynamics is crucial. The DC Metro area has a diverse, stable job market which I do not see reversing if an economic slowdown occurs. We didn’t have a tremendous push towards short-term rentals as many other areas and the “work-from-home” (WFH) environment had most people stay within commuting distance to the cities.
One thing I expect is an unwinding of WFH in 2024. In fact, I’m already experiencing that. Many clients are being called back to the office, either through employer demands or fear they will be exposed to corporate downsizing efforts. As a result, I expect underperforming assets (D.C. condos and single-family rentals in transitional areas of the city) to catch a bid while single-family rentals in the commuting neighborhoods plateau from their record-setting appreciation over the past few years.
Housing market affordability (or better put the lack thereof) is at levels unseen since the peak of the housing bubble. Do you have any advice on how would-be buyers can ease that burden?
This may be the most complex question because everyone is at a different place in life. For the better part of the last 20 years, my consultation calls were 20 to 30 minutes long, and we could formulate a great plan. Today, that pushes over an hour and usually requires a detailed follow-up call. If I had to sum up all my conversations, I would say it comes down to forecasting life and patience.
Forecasting is a process where you map out life over the next two to three years—discussing job stability, income projections, saving and investment patterns, debts rolling off (or being added), kids, schools, tuition, etc. From there, talking about local market dynamics such as housing supply, population growth, and interest rate cycles and projections. This helps formulate a solid budget to use for a home purchase.
Patience can mean several things. For some, it means renting for a period of time to save more money or ride out periods of uncertainty. For others, it could be looking for the right sale price mix and seller concessions for rate buy-downs, closing costs, etc. Sometimes it means being patient with your desired location. Maybe you just can’t have that specific house in that specific area for a few years and settling for the next best location is good enough for now. Housing used to be a stepping stone for many but the low-rate environment of the past few years allowed everyone to get what they wanted right away. We seem to have lost the art of having patience in life.
This story was originally featured on Fortune.com
More from Fortune: 5 side hustles where you may earn over $20,000 per year—all while working from home Looking to make extra cash? This CD has a 5.15% APY right now Buying a house? Here’s how much to save This is how much money you need to earn annually to comfortably buy a $600,000 home
Angelo Robert Mozilo, the founder of Countrywide Financial, died from natural causes this weekend, his family announced. He was 84 years old.
Mozilo was a pioneer of the mortgage industry, though a deeply controversial figure.
“Independent of how people outside of the industry may perceive this man, insiders know what an incredible force he was,” his son Eric Mozilo wrote in a LinkedIn post. “Over his span of 50 years, he dedicated his life to delivering the American dream of homeownership to millions. He absolutely insisted on ensuring that minorities were represented, first and foremost. No company, not even up until today, has even come close to the size and dominance of Countrywide. Most of today’s mortgage industry leadership, whether it be an employee, an executive, or even a business affiliate, have had a connection or roots with Angelo and Countrywide. Lastly, he was the best Dad a son could ever ask for.”
Originally from New York City and the son of a Bronx butcher, the brash and charismatic Mozilo founded Countrywide in 1969 with his former mentor David Loeb after receiving a Bachelor of Science degree from Fordham University. For most of its history, Countrywide was known for originating low-risk loans. Mozilo was president of the Mortgage Bankers Association (MBA) in 1991-1992.
He gained full control of the company in 2000, after Loeb’s retirement, and put it in growth mode, becoming the largest mortgage provider in America by 2004, surpassing Wells Fargo and Washington Mutual. In 2006, Countrywide made roughly $10 billion in new loans each work week. The company said its five-year total return at the end of 2006 was 340%, close to 10 times higher than that of the S&P 500.
Mozilo avoided working with subprime loans until the late 1990s, when after noticing that his firm was losing business to competitors, Countywide embraced the type of subprime mortgage lending that eventually led to the housing crisis in 2008. And they did it at a massive scale.
Though he publicly defended the company’s lending practices and said he was championing minority homeownership, Mozilo knew about the poor underwriting standards, according to documents disclosed during government settlements.
“On Sunday I met a mortgage broker from a town near Troy, Michigan who told me that he does all of his business with Countrywide. First I was pleased with the news until he told me why. He said that the area he serves is severely economically depressed and the only way he can qualify his borrowers is the via the pay option ARM,” he wrote to a colleague at Countrywide in 2005. “I have heard this story many times over from mortgage brokers who utilize the pay option for very marginal borrowers for the sole purpose of creating volumes and commissions. We simply cannot and will not allow our company to be victimized by this pervasive behavior and since we can’t control the behavior of others it is essential that we control our own actions.”
When home prices started to fall in 2006 and investors abandoned the mortgage-backed securities (MBS) market in 2007, Countywide began running out of money. With Countrywide needing short-term funding and investigations into its mortgage lending business already swirling, Mozilo sold his company to Bank of America for $4 billion. The bank would ultimately lose about $50 billion on the investment.
Mozilo was charged with insider trading and securities fraud by the U.S. Securities and Exchange Commission (SEC) in 2009, tied to stock sales. According to the New York Times, Mozilo sold $406 million since Countrywide was listed on the New York Stock Exchange in 1984, $129 million realized in the 12 months ending August 2007.
Mozilo settled with the SEC in October 2010 for $67.5 million in fines and accepted a lifetime ban from serving as an officer or director of any public company.
Mozilo became the “face of the financial crisis,” the New Yorker reported.
Mozilo and his wife Phyllis were the founders of The Mozilo Family Foundation, providing scholarships for youth. Phyllis died in 2017. In 2019, Mozilo stepped down from the board’s chairmanship and was engaged in consulting initiatives.
Rob Chrisman first reported the news of his death on Monday.
In 2019, speaking at a hedge fund conference in Las Vegas, Mozilo said he didn’t care that he was still held responsible for the financial crisis.
“A lot of years went by, my wife passed away, I turned 80 years old, and now I don’t care,” Mozilo said, according to a New York Post report. “There’s other things more important in life. Somehow, for some unknown reason, I got blamed for it.”
Disclaimer: We are getting con-fi-dent in this creative DIY world. It’s like a semi-addiction- once you successfully conquer one DIY, you can’t stop. We can’t lie, our latest project makes us a little giddy inside- we consider it our most genius DIY yet. Brace yourselves!
Even though the office isn’t quite complete yet, we decided to share one of our favorite makeover projects that we’ve tackled thus far. We’d been searching high and low for a gold-speckled rug for the office ever since we laid eyes on the one in Freda Salvador’s San Francsico boutique. Unfortunately, theirs was from Spain no thanks, shipping costs!. We bookmarked a couple of other options online that were ok, but finding the right color hide with the added gold accents we loved was a challenge and not to mention, they were running close to $800!
Determined to do this on the cheap, we dug a little deeper and found this DIY that inspired us to gold speckle our own rug. We bought a super affordable one under $300! on Amazon and put our skills to the test- woot!
Have no fear, we’re not pulling your leg when we say that this is the easiest DIY you’ll ever tackle- the results are ah-mazing! All you need is your favorite gold spray paint we love Design Master’s in 24kt or 12kt gold! and a cowhide Amazon, Ikea, Overstock all have great, affordable options!.
Step 1: In a well ventilated space, spray paint into side of cap, in a heavy, concentrated stream. You’ll want a small puddle of wet paint in the cap.
Step 2: From about 12 inches from the rug, drip paint quickly. You’ll start seeing a pretty even amount of big and small splatters.
Step 3: To achieve smaller drips and splatters, stand up and “throw” the paint onto the rug. This technique creates nice movement on the piece.
Step 4: Step back and take a look at your handy work! Go into areas that need specific gold spots and drop paint closer to rug, about 4-6 inches above. You should achieve bigger spots with this technique. Remember: the more paint in the cap, the bigger the gold spot.
We found the “drop” technique was our favorite in order to achieve the look we wanted. Take a few minutes prior to starting, practicing all three techniques on a scrap cloth to see which you like best!
And 10 minutes later you move fast when working with wet paint! you have your finished product! We LOVE the way the rug came out, but you’ll have to wait for the full reveal in the office to see it all. Stay tuned!
In the meantime, is there a spot in your house that could use a little update? You have to try this DIY for yourself- for less than $300 you can achieve a look of a high end rug that would have cost three times the price. It looks like we’re slowly leaving the “DI-buy” team for the DIY team!
original photography for apartment 34 by Aubrie Pick
Some of today’s news says mortgage rates are much lower than last week. And here I am telling you they’re higher. Who should you believe? Easy one! Believe me. What I just told you is accurate. The other stuff is stale info. I’m sorry that rates went higher. The end.
For those who want a bit more context, read on.
Today’s rates are noticeably higher than yesterday’s with the average lender back up to 7.0% for a top tier conventional 30yr fixed scenario. When our index is at 7.0%, it means that many lenders are quoting rates in the mid to upper 6’s, but with the addition of upfront costs (origination and/or discount points).
We update our rate index every day, but the industry’s longest-running index from Freddie Mac is updated once a week. It came out today, showing a sharp drop in mortgage rates. Freddie isn’t lying to you. You just have to read the fine print.
First off, Freddie’s index covers the 5 weekdays leading up to last Wednesday. During that time, rates were indeed much higher than the 5 days leading up to yesterday (the time frame for the number reported today).
Also, Freddie doesn’t account for discount points or other upfront costs in its index. That means a quote of 6.625% with 1% discount paid upfront is simply 6.625%, whereas it’s closer to 7.1% without the extra point upfront.
Many market participants view today’s rate spike as a bit overdone relative to the underlying justifications. Chief among those would be economic data this morning that showed the labor market remains much more resilient than expected, but rates were already set to move higher before that data came out.
In December 2021, when the 30-year fixed mortgage rate still averaged 3.1%, a borrower could get $700,000 mortgage that required monthly payments of principal and interest of just $2,989.
Fast-forward to Wednesday, and a $700,000 mortgage taken out at the current average mortgage rate of 6.90% would equal a $4,610 per month payment, which is $583,000 more over 30 years than that mortgage issued at a 3.1% rate. When adding on insurance and taxes, that monthly payment could easily top $6,000. Not to mention, that calculation doesn’t account for the fact that U.S. home prices in June 2022 were 12% above December 2021 levels and 39% above June 2020 levels.
Mortgage planners like John Downs, a senior vice president at Vellum Mortgage, have the hard job of breaking this new reality to would-be homebuyers. However, unlike last year, Downs says most 2023 buyers aren’t surprised. The sticker shock, the loan officer says, is wearing off.
Just before speaking with Fortune, Downs wrapped up a call with a middle-class couple in the Washington D.C. area, who told him they were expecting a mortgage payment of around $7,000.
“The call I just had was a typical area household. One person makes $150,000, the other makes $120,000. So $270,000 total and they said a payment goal of $7,000. I’m still not used to hearing people say that out loud,” Downs says.
Even before these borrowers speak to Downs—who operates in the greater Baltimore and Washington D.C. markets—they’ve already concluded that these high mortgage payments will be “short-lived,” and they’ll simply refinance to a lower payment once mortgage rates, presumably, come down.
To better understand how homebuyers are reacting to deteriorated housing affordability (and scare inventory levels), Fortune interviewed Downs.
This conversation has been edited and condensed for clarity.
Fortune: Over the past year, mortgage rates have spiked from 3% to over 6%. How are buyers in your market reacting to those increased borrowing costs?
John Downs: I must say, the reaction today is quite different from last year. It’s almost as if we have lived through the “7 stages of grief.” We appear to have entered the “acceptance and hope” phase.
With all the reports pointing to home prices stabilizing, one might think that buyers are comfortable with these rates and corresponding mortgage payments. The reality is quite different. Many would-be homebuyers have been pushed out of the market due to affordability challenges through loan qualifications or personal budget restraints. Move-up buyers also find themselves in the same predicament.
As a result, my market (Baltimore-DC Metro Region) has 73% fewer available homes for sale than pre-pandemic, 57% fewer weekly contracts, and an 8% increase in properties being relisted. (Information per Altos Research) As a result, prices have remained relatively stable due to the balance of buyers outweighing sellers.
I’m seeing buyers today taking the payments in stride for various reasons. Their incomes have risen dramatically, upwards of 25-30% since 2020, and the income tax savings through the mortgage interest deduction is now a meaningful budget item to consider. Many also say, “I can always refinance when rates come down in the future,” which leads to a sense that this high payment will be short-lived.
When I say buyers are comfortable with these payments, I know there are also two to three times more buyers who run payments using online calculators who opt out of having conversations in the first place! To prove this, our pre-approval credit pulls (a measure of top-of-funnel buyer activity) are running about 50% lower than pre-pandemic.
Among the borrowers you’re working with, how high are monthly payments getting? And how do they react when you give them the number?
For the better part of the last decade, most of my clients would enter a pre-approval conversation with a mortgage payment limit of no more than $3,000 for a condo and $4,500 for single-family homes. It was rare to see numbers higher than that, even for my higher-income wage earners. Today, those numbers are $4,000 to $6,500 respectively.
To my earlier comment, active buyers today seem to expect it. It’s as if they are comfortable with this new normal. Surprisingly, the debt-to-income ratios of today (in my market) are very similar to where they were five years ago. Income is ultimately the great equalizer. Yes, the payments are dramatically higher today, but the buyers’ residual income (post-tax income minus debt) is still in a healthy range due to local wages.
Remember, we are still talking about a much smaller pool of buyers in the market today so this conversation is skewed towards those with more fortunate lifestyles.
Tell us a little bit more about what you saw in the second half of 2022 in your local housing market, and how that compares to the first half of 2023?
There are dramatic differences between those two periods. In the second half of 2022, there was nothing but fear. The stock market was under stress, inflation was running wild, and housing began to stall. Across the country, inventory began to rise, days-on-market pushed dramatically higher, and price decreases were rampant. The safest bet then was to do nothing, and that’s just what buyers did. The mindset was, “I will wait until prices fall and rates push lower before I buy.”
The start of 2023 sparked a reversal in many asset classes. The stock market found a footing and pushed higher, mortgage rates rebalanced, property sellers adjusted their prices, and employers began pushing out significant wage increases. As a result, housing stabilized, and in some areas, aggressive contracts with multiple offers, price escalations, and contingency waivers became the norm.
The strength in housing was not as universal as it was in 2021. There were very hot and cold segments, depending on location and price point. The affordable sector (<$750,000 in my market) and higher-end (>$1.25 million) seemed to perform very well with heightened competition. The mid-range segment is where we noticed some struggles. One common theme is that buyers at every price point seem much more sensitive to the property’s condition. When the housing payments are this elevated, it doesn’t take much for the buyers to walk away!
What do you make of the so-called “lock-in effect”— the idea that existing market churn will be constrained as folks refuse to give up those 2-handle and 3-handle mortgage rates?
I believe the “lock-in effect” is very real. My opinion is based on countless conversations I’ve had in the past 6-9 months with homeowners who want to move but can’t. Some cannot afford to buy their current home at today’s value and rate structure. Others just cannot stomach the significant jump in payment to justify the increase in home size or the preferred location.
I believe the reason we are seeing struggles in the mid-range home is that the traditional move-up buyer is stuck. In my market, that would be the person who sells the $700,000 home to purchase at $1 million. They currently have a PITI housing payment of $2,750; the new payment would be $6,000 rolling their equity as a down payment. That jump is too much for most, especially those with a median income. That payment would have been $4,500 a couple of years ago, which was much more manageable.
Based on what you’re seeing now, do you have any predictions on what the second half of 2023 might look like? And any thoughts on the spring of 2024?
Despite high rates, the desire to buy a home is still high for many. Given the lag effects of Fed tightening (raising interest rates) coupled with an overall improvement in inflation, one can assume mortgage rates have topped out and will continue to improve from here. Think of playing with a yo-yo on a down escalator, up-and-down movement but generally pushing lower. As rates improve, affordability and confidence will shift, bringing out more buyers and sellers.
I believe this will be supportive for home values and give buyers more choice as inventory increases. Keep in mind, most sellers become buyers, so the net impact on inventory will be negligible. Knowing that some sellers will keep their current home as a rental, one could argue that inventory will worsen. At least buyers will have more house options each week, a stark difference from today.
When discussing strength in housing, thinking through local dynamics is crucial. The DC Metro area has a diverse, stable job market which I do not see reversing if an economic slowdown occurs. We didn’t have a tremendous push towards short-term rentals as many other areas and the “work-from-home” (WFH) environment had most people stay within commuting distance to the cities.
One thing I expect is an unwinding of WFH in 2024. In fact, I’m already experiencing that. Many clients are being called back to the office, either through employer demands or fear they will be exposed to corporate downsizing efforts. As a result, I expect underperforming assets (D.C. condos and single-family homes in transitional areas of the city) to catch a bid while single-family homes in the commuting neighborhoods plateau from their record-setting appreciation over the past few years.
Housing market affordability (or better put the lack thereof) is at levels unseen since the peak of the housing bubble. Do you have any advice on how would-be buyers can ease that burden?
This may be the most complex question because everyone is at a different place in life. For the better part of the last 20 years, my consultation calls were 20 to 30 minutes long, and we could formulate a great plan. Today, that pushes over an hour and usually requires a detailed follow-up call. If I had to sum up all my conversations, I would say it comes down to forecasting life and patience.
Forecasting is a process where you map out life over the next two to three years—discussing job stability, income projections, saving and investment patterns, debts rolling off (or being added), kids, schools, tuition, etc. From there, talking about local market dynamics such as housing supply, population growth, and interest rate cycles and projections. This helps formulate a solid budget to use for a home purchase.
Patience can mean several things. For some, it means renting for a period of time to save more money or ride out periods of uncertainty. For others, it could be looking for the right sale price mix and seller concessions for rate buy-downs, closing costs, etc. Sometimes it means being patient with your desired location. Maybe you just can’t have that specific house in that specific area for a few years and settling for the next best location is good enough for now. Housing used to be a stepping stone for many but the low-rate environment of the past few years allowed everyone to get what they wanted right away. We seem to have lost the art of having patience in life.
This is a guest post from Cathy, who writes about family finances, cooking, and parenting at Chief Family Officer.
I love the philosophy of getting rich slowly by doing the fundamentals: spend less than you earn, pay off debt, and invest wisely. One way that I save money is with what I call The Drugstore Game.
The Drugstore Game involves combining manufacturer and store coupons, and taking advantage of a store’s best deals. When played at the highest level, the Drugstore Game requires only a couple of dollars out of pocket each week to keep you and your family stocked on necessities like toiletries, paper goods and even groceries.
Real-Life Examples
I recently bought an 8-pack of Bounty Basic paper towels, a Venus Embrace razor, and a tube of Aquafresh Extreme Clean toothpaste for $1.81 out of pocket at CVS. If I’d bought the same items at Target (where I used to shop), I would have paid at least $13, even after manufacturer coupons. That doesn’t take into account the $7.99 CVS store coupon I received that I can use on a future purchase.
At Walgreens recently, I bought ten tubes of Crest ProHealth toothpaste, three bottles of Cascade dishwashing gel, a box of two Mr. Clean Magic Erasers, two boxes of 3-oz. Dixie paper cups, two 20-ft boxes of aluminum foil, a small bottle of Dawn dishwashing liquid, a Venus Embrace razor, a tube of Blistex, an Oral B Cross Action toothbrush, four cans of Spaghetti O’s, three cans of Campbells condensed soup, one can of tomato paste, and one box of cereal. I paid only $16.54 for all of these items.
Interested in savings like these? Then read on…
Playing the Game
To play the Drugstore Game well, you’ll need the following fundamentals:
Have an understanding of how store coupons and manufacturer coupons work together. Most people are familiar with coupons that come with the Sunday newspaper. These are generally manufacturer coupons that can be used at any store that takes coupons. Manufacturer coupons can usually be combined with a store coupon. A store coupon is one put out by the store. For example, if you have a $1 off Pampers manufacturer coupon and a $1 off Pampers CVS coupon, you can use both coupons at CVS to get $2 off a package of diapers.
Have an understanding of the various store rewards programs. My personal favorite drugstore is CVS, which has the ExtraCareBucks (ECBs) program. ECBs are coupons that print at the end of a receipt after qualifying purchases. The coupons can then be used like cash on a future purchase. Each week, CVS sells items that are “free after ECBs,” meaning that if a toothbrush is on sale for $2.99, you’ll get a $2.99 ECB coupon at the end of your receipt. Walgreens has a somewhat similar program called Register Rewards, as well as the monthly Easy Saver rebate program. Riteaid has the Single Check Rebate program. For a summary of the CVS and Walgreens programs, check out the “Beginners Start Here” section at Money Saving Mom (over in the sidebar). Be Thrifty Like Us has a primer on the Drugstore Game that includes Riteaid.
Have an understanding of how coupons and rewards programs work together to save you money. This is the tricky part, but it is absolutely worth mastering. In the toothbrush example above, a Drugstore Game pro would never pay the full $2.99. Instead, she would probably have a $1.50 off manufacturer coupon. So she’ll pay $1.49 and receive $2.99 that she can use to buy more items. A typical scenario is the one I described in the introduction, where I paid only $1.81 out of pocket. I used a $7.98 ECB coupon to make the purchase, and received $7.99 in ECBs on my receipt. This process is called “rolling over,” and it is what allows Drugstore Game pros to spend less than $2 out of pocket each week while never running out of necessities.
Have good sources of information. You could sit at home poring over the weekly and monthly drugstore circulars, or you could simply sit down at your computer and visit the sites that do all the math for you. If you visit only one site for your Drugstore Game playbook, it should be Money Saving Mom, which lists all of the weekly and monthly drugstore deals, puts together sample scenarios for free or “money-making” deals, and has a robust community that supplies updates. There are many other sites that provide different scenarios, and I’ve found it helpful to read them and find scenarios that best match what my own needs (and coupons) are. These sites also link to available printable coupons in case you don’t have one from the newspaper. You can find a list of my favorite deal sources at CFO Reviews.
Have an understanding and acceptance of the necessity of buying non-necessities in order to maximize store rewards coupons. This can be a difficult concept if you are frugal and constantly ask yourself if you really need an item before you buy it. However, for maximum savings, it’s essential to overcome the tendency to exercise shopping restraint. Mommy Making Money has a good explanation of how buying things she doesn’t need helps her buy those things that she does. (She also describes what she does with those unnecessary items, since they do pile up!)
In my first two months of playing the Drugstore Game, I calculated that I saved over $50. And that’s despite many “mistakes” because I didn’t really understand how to roll over ECBs by buying non-necessities. Now that I have a much better grasp of this concept, I expect to save my family hundreds of dollars before the year is over.
Getting Started
If you want to start playing The Drugstore Game, figure out which drugstores are most convenient for you. Then check out BeCentsable for links to deals of the week for your particular store (click on the ‘Grocery Gathering’ tab, then on the store name.). If you don’t have the right coupons for that week’s deals, don’t worry! Just buy the Sunday newspaper and start with the next week’s deals. (Be sure to cut out all of the coupons, not just the ones for items that you’re interested in. You never know what will turn out to be a moneymaker!)
Also, when you head to the store, bring a calculator in case you have to re-work some of your deals due to some items being out of stock. And take the circulars with you (or pick them up in the store before you start walking around). The stores don’t always mark the shelves properly, and sometimes the only way to tell which item qualifies for a deal is to check the printed circular.
Good luck! May you become a Drugstore Game champion!
A Medicare Advantage plan, similar to an HMO or PPO, is type of Medicare plan that is available to Medicare enrollees. This option is also referred to as Medicare Part C. These plans are offered by private insurance companies that are approved by Medicare.
By joining a Medicare Advantage Plan, a participant essentially gets all of their Medicare Part A (Hospitalization Coverage) and Medicare Part B (Physicians Coverage). In fact, Medicare Advantage Plans are required to cover all of the services that the Original Medicare covers except for hospice care. This is because Original Medicare covers hospice care, even if the participant is enrolled in Medicare Advantage.
In addition, a Medicare Advantage Plan may offer additional coverages such as vision, dental, and / or health and wellness programs. And, most Medicare Advantage plans also include Medicare prescription drug coverage, too.
When an individual joins a Medicare Advantage Plan, Medicare pays a fixed amount of their care every month to the companies that offer these plans. These companies are required to follow strict rules that are set by Medicare.
However, each of the Medicare Advantage Plans are allowed to charge different out-of-pocket costs, and the plans may also have different rules as to how enrollees can receive their services. For example, some plans may require participants to get a referral before going to a specialist. And, these rules may change every year.
Medicare Advantage Plans also have an annual cap on how much participants will pay for their Medicare Part A and Part B services throughout the year. This annual maximum out-of-pocket amount can differ from plan to plan.
Different Types of Medicare Advantage Plans
Essentially, there are two primary types of Medicare Advantage plans. These are network and non-network. Network plans offer care to enrollees through their network of physicians and hospitals and are identified as HMOs and PPOs.
The non-network Medicare Advantage plans are a type of personal fee-for-service plan that does not require the participant to see a specific doctor or go to a specific hospital. However, the doctor or hospital that is chosen must be willing to accept the plan’s payment structure.
With a Medicare Advantage Plan, a participant may choose to stay in the traditional Medicare program or in their current managed care plan. Or, as an alternate option, the participant may choose to receive their Medicare-covered services through any of the additional following types of health insurance plans:
Health Maintenance Organization (HMO) – These plans consist of a network of approved hospitals, doctors, and other types of health care service professionals who agree to provide their services in return for a set monthly payment from Medicare. These health care providers will receive the same fee each month, regardless of the actual services that they provide.
Preferred Provider Organization (PPO) – These plans are somewhat similar to HMOs, however with a PPO, the beneficiaries do not need to obtain a referral in order to see a specialist who is outside of the network. Also, participants are allowed to see any provider or doctor that accepts Medicare. However, PPOs do limit the amount that their members pay for care outside of the network.
Private Fee-for-Service Plans (PFFS) – These types of plans offer a Medicare-approved private insurance plan. With these plans, Medicare will pay the plan for Medicare approved services while the PFFS determines – up to a certain limit – how much the care participant must pay for their covered services. In these plans, the participant handles the difference in cost between the amount paid by Medicare and the amount that the PFFS charges.
Special Needs Plans (SNP) – These types of plans provide a more focused type of health care for those who have specific health conditions. An individual who joins a SNP plan will receive their health care services as well as more focused care in order to manage their specific condition or disease.
Coordinated Care Plans (CCPs) – These plans are managed care plans that include HMOs (health maintenance organizations), PPOs (preferred provider organizations), and regional PPOs. They provide coverage for health care services either with or without a point-of-service option (the ability to use the plan or out-of-plan health care providers).
Some CCP plans will limit the participant’s choice of health care providers. Other plans may offer benefits in addition to those offered in the traditional Medicare program, such as prescription drug coverage. Still other CCP plans may limit the choice of health care providers and the supplemental benefits that may be received.
Cost Plans (1876 Cost Plans) – Cost plans are a type of HMO plan that gets reimbursed on a cost basis rather than on a capitated, or per head, amount such as with other types of private health care plans. Cost enrollees are allowed to receive care outside of their HMO and have those costs be reimbursed through the traditional fee-for-service system.
Medicare Medical Savings Account Plans (MSAs) – These types of plans will combine a high deductible Medicare Advantage Plan with a medical savings account for medical expenses. These Medical Savings Accounts consist of two parts. These are:
A private Medicare Advantage insurance policy with a high annual deductible
A medical savings account
The health insurance policy does not pay for covered health care costs until the deductible has been met. Then, the medical savings account will come into play when Medicare deposits money into an account for the participant. These funds may then be used for any type of health care expense – including the participant’s deductible.
Participants in these types of plans will typically pay for their medical expenses out-of-pocket for the amounts under the deductible. In addition, there could be tax-related penalties if a participant withdraws funds from the account for any reason other than medical.
Religious and Fraternal Benefit Society Plans – Medicare Advantage plans may even be offered by religious and fraternal organizations. These organizations are able to restrict enrollment in their plans to their members.
In these cases, the plans must meet the Medicare financial solvency requirements. In addition, Medicare may also adjust payment amounts to the plans in order to meet the characteristics of the participants that are enrolled in the plan.
Who is Eligible for a Medicare Advantage Plan?
In order to be eligible to enroll in a Medicare Advantage plan, a participant must meet two conditions. These are:
They are entitled to Medicare Part A, and they are also enrolled in Medicare Part B as of the effective date of enrollment in the Medicare Advantage plan
The participant lives within the service area that is covered by the Medicare Advantage plan
There are a few exceptions, however, to these requirements. One exception is that a Medicare participant will not typically be allowed to enroll in a Medicare Advantage plan if they have end-stage renal disease that requires regular kidney dialysis or a transplant to maintain life.
If, however, a participant is already enrolled with the Medicare Advantage organization when they first develop end-stage renal disease, and they are still enrolled with the Medicare Advantage organization at that time, then they are allowed to stay in the existing plan or join another plan that is offered by this same company.
Should an individual wish to enroll in a Medicare Advantage plan, they can do so by completing a paper application, calling the plan, or by enrolling on the plan’s website. They can also go directly to Medicare’s website at www.medicare.gov.
There are specific times, however, when an individual may enroll in a Medicare Advantage plan. These include:
Initial Election Period (IEP) – This period is also referred to as the initial coverage enrollment period. Therefore, an individual may elect to enroll in a Medicare Advantage plan when they first become entitled to both Medicare Part A and Medicare Part B.This initial election period will begin on the first day of the third month prior to the date on which the individual is entitled to both Part A and Part B and will end on the last day of the third month after the date that the person became eligible for both parts of Medicare. Three months prior, the month of, and three months after, will essentially create a seven-month election period. This is the same election period as for enrolling in Medicare itself.Participants who are within this initial period of time will not need to wait for any other type of enrollment period. Their coverage will begin on the first day of their birth month. For those who are enrolled in disability coverage, there is also a seven-month window for enrollment from the time that the person receives their Medicare disability benefits.
Annual Coordinated Election Period (ACEP) – During this time, a participant may elect to enroll, drop, or change their enrollment in a Medicare Advantage and / or Medicare Part D plan. Starting in the year 2011, this period began running from October 15 through December 7 of each year. This period can also be referred to as the fall open enrollment period or as the annual enrollment period.
Special Election Period (SEP) – These are considered to be special periods of time during which an individual will be allowed to enter into or to discontinue enrollment in a Medicare Advantage plan. They may also change their enrollment to another MA plan or return to the Original Medicare plan at this time if they so choose.In addition, an individual may enroll in a Medicare Advantage plan during this time if they have recently become disabled. And / or, an individual may also begin receiving assistance from Medicaid. In this case, the individual will not need to wait until the October 15 ACEP enrollment period. There are also sometimes whereby a special election period will be allowed. These include:
The Medicare Advantage plan that the participant is enrolled in is terminated. This is referred to as being an involuntary disenrollment. This will result in involuntary loss of creditable coverage for the participant.
The Medicare Advantage company that offers the plan violated a material provision of its contract with the enrollee.
The participant moves out of the area of plan service.
The participant recently experienced a disability.
The participant meets other certain material conditions as CMS may provide. These can include a delayed enrollment due to an employer’s or a spouse’s coverage being terminated, or an involuntary loss of creditable group coverage.
The participant is receiving any assistance from Medicaid that could include the following:
Beneficiaries who reside in long-term care facilities
Full dual eligibles
Partial dual eligibles
The participant meets other qualifications that are related to long-term facilities, low-income subsidy eligibility, Medicare Part D coverage, and other circumstances that give CMS the discretion to create an SEP.
Medicare Advantage Disenrollment Period (MADP) – This is the period of time in which individuals may dis-enroll from a Medicare Advantage plan and / or from a Medicare Advantage with Part D coverage plan and then may subsequently enroll in the Original Medicare plan – either with or without a Part D plan.This period runs from January 1 to February 14. And, the individual’s new coverage will become effective as of the first day of the month following the change in coverage. A participant is allowed to make one change per year from an MAPD to another MAPD or from a Medicare Supplement plan with a stand-alone PD to an MAPD.
Getting Quotes on Medicare Advantage Plans
When obtaining quotes on a Medicare Advantage plan, it is typically best to work with a company or an agency that has access to more than just one insurer. That way, you can obtain a comparison of quotes in order to determine which will work best for you. We can assist you with this. If you are ready to move forward, just fill out the form on this page.
Should you have any additional questions, we can be reached directly by phone by calling, toll-free 888-229-7522. Our experts are happy to walk you through any Medicare Advantage plan information that you may need. So, contact us today – we’re here to help.
Since the Making Home Affordable Program was launched in early March, more than one million borrowers have refinanced and 55,000 loan modification offers have been extended to qualifying borrowers.
Of course, most are simply refinancing due to the low mortgage rates on offer, helped on by Treasury buying of Fannie Mae and Freddie Mac mortgage-backed securities, which was part of the original Homeowner Affordability and Stability Plan.
Additionally, Fannie Mae has more than 233,000 eligible Home Affordable Refinance applications, with 51,000 having loan-to-value ratios between 80 percent and 105 percent.
“In just over two months, the Make Home Affordable program is up and running, helping our economy recover and making a difference in the lives and livelihoods of thousands of American homeowners,” said Treasury Secretary Tim Geithner, in a statement.
“Today we are announcing a new program component to help homeowners obtain modifications in areas suffering from home price declines. If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future.”
In other words, qualifying borrowers unable to complete a MHA modification will be able to pursue a short sale or deed-in-lieu of foreclosure via a streamlined process.
Meanwhile, mortgage lenders will receive so-called “home price decline protection incentives,” compensation payments based on recent home price declines intended to facilitate more modifications in hard-hit areas of the country.
“Together the incentive payments on all modified homes will help cover the incremental collateral loss on those modifications that do not succeed. HPD P payments will be linked to the rate of recent home price decline in a local housing market, as well as the average cost of a home in that market.”
The Home Affordable Refinance program ends in June 2010, while the loan modification program will run from now until December 31, 2012 (loans can only be modified once).
“Fourteen servicers, including the five largest, have now signed contracts and begun modifications under the program. Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, Home Affordable Modification participants now account for more than 75 percent of all loans in the country.”