The Expert Podcast

Now is your chance. People are scared about the real estate market. Home values have zoomed up in the last couple of years. People have been in bidding wars on houses, having 15 or 20 offers. Sellers have been sitting back with arrogance, not selling houses and putting up high prices. Well, now sellers are running scared. Interest rates are up, and there’s a temporary pause in the market. Why is it temporary? Because people still need to buy houses. There’s still a five million house shortage in the marketplace. Right now, you could take advantage of that when sellers are a little bit scared and there’s a pause in the market. In a year or two, people are going to wake up and realize, “Hey, I still need a house even at $600,000 or $700,000. And with my mortgage payment at $3,000, I’m paying that in rent, so I should still buy a house.” Right now, people aren't yet psychologically accepting of that. So, if you're looking for a house and you're on our $200,000 house strategy, there are some really good ones popping up.

It used to be hard to find a $200,000 house. Now it's easy. Let's look at a couple. Here's one in Sherman, Texas, north of Dallas. Sherman is a town that has a huge upside. Texas Instruments just announced building a multi-billion dollar plant in Sherman. The growth of that North Texas corridor going up from Dallas, Plano, Frisco, Prosper, even up into Salina, now up to Sherman, is booming. Here's a 1,300 square foot house on a big lot. Three bedrooms, two baths, $189,000. Is it a new house? No. But look at the inside; it's not the worst house in the world. It's got stainless appliances and an upgraded kitchen. If you're on the plan for a $200,000 house, I could think of worse houses you could buy. Look at the yard. It’s a huge yard. So, here’s one example. Let’s look at another one. This one’s bigger, same area—2,000 square feet plus a big, huge shop to keep your boat, RV, or toys in. It’s also on a one-acre property right next to a marina. If you're into boating or recreation, this is a perfect house for $200,000. Notice on these the time on market: 21 days. The last one was four days.

You want to be in Florida? Okay, here’s one. This is in Lake City, Florida, central Florida, right at the intersection of two major highways. You can get to Orlando, Jacksonville, Tallahassee, even South Georgia. This one is almost 2,000 square feet for $175,000. Look at 39 days; they’re already cutting the price. This house is close to $200,000. It's on a decent-sized lot, but look at the inside. Relatively updated—new floors, paint—not in the worst shape in the world. Florida, same opportunity. How about bigger and more acres? How about the Carolinas? $185,000 for 200 square feet on three acres, relatively close to the coast. This is a big lot, big house, big yard. Look at the time: 41 days, with a $10,000 discount. So, sellers are starting to back off their prices a little bit, and this may be a time to jump in.

But are you scared? Maybe the market’s going to go down? Well, let’s talk about that. Think of all the factors that went into the house prices in 2020 and 2021. The factors were: people wanted to spend more time at home, they didn’t want to be in an apartment, a townhouse, or a condo. They wanted a single-family home. Second, there were more people coming into the housing market: millennials, Gen Z, and fewer houses available. There’s a shortage of homes in the U.S. There are five million fewer houses than there are people who want to buy a house. Everybody needs a roof over their head and four walls. We all need a box to live in. Have any of those factors changed? No, there’s still the same number of people. There are more people coming every day—new households being formed, people coming to this country through immigration, and Gen Z and millennials going into the housing market. That’s all the same. What is different? Well, interest rates are up. Does that help you or hurt you? Well, as a homebuyer, in some ways, it helps you because there are two factors that determine what your mortgage payment is going to be: one is the price of the house, the other is the interest rate. Once you buy a house, the price of the house doesn’t change. Whatever you paid, you paid. That’s going to be a factor for the rest of your life until you sell that house. Your interest rate might change. If interest rates go down, you can refinance. If interest rates are six percent and they go down to five, you can refinance and save that money off your mortgage payment. If they go up, you're locked in. If you have a six percent mortgage and new mortgages are eight percent, your mortgage does not change. You don’t have a variable rate mortgage. So, higher rates will keep housing prices from going up. They might actually make them go down. You saw the three properties we just looked at. Each had a discount, a reduction of price. That’s largely because of interest rates.

Now, it’s reasonable to be concerned that prices are going to go down from what you pay for it. Well, if you take your time to perform due diligence and get a good deal, it’s unlikely that within the time period you will own a house, the prices are going to go down because you’re probably going to own the house for at least three, four, or five years. Even though this year and the beginning of next year, people might be a little cautious about buying houses, there might be a recession, people might lose jobs, might have less income, and there’ll be fewer buyers. The housing market is kind of trapped in a range. Housing prices really can’t go up a lot right now because of interest rates and affordability. But they also can’t go down because there are still the same five million people out there lurking that need to buy a house. They were looking in 2020 and 2021 and were in those bidding wars. If there was a bidding war of 15 people trying to buy a house and only one bought it, those other 14 people are still out there. They still need to buy a house. Are they and you more cautious? Absolutely. Are you maybe looking at the numbers more closely? Certainly. But if you think about it, your mortgage payment on buying a house, even at the higher interest rates, is still less than what it would cost to rent. Even if you bought a $400,000 house and you paid a six percent mortgage, you would only have a mortgage payment of maybe $2,000 to $2,400. Are you going to rent something significant for that? There are some apartments and condos you can rent for maybe $2,000, $1,800, but a lot of the ones that were in the $1,400 or $1,500 range are now boosting up their rents. Look on Craigslist, look on Apartments.com—what are the rents going for? Once people realize that in order to get a box to live in is going to cost you $2,000 or $3,000 no matter what you do, you might as well buy.

$2,000 or $3,000 is not going to get you a $600,000 or $700,000 house, but it will get you a $200,000 house easy. Even at six percent, you’re going to be well under $2,000. You’re probably going to be $1,300, $1,400, maybe, and you have a home that you live in, and your rent can never go up because your mortgage payment is fixed. And after 20 or 30 years of paying that payment, it goes away—poof! Now you have no mortgage. What would that be like at the first of every month, not having a house payment for rent or mortgage?

So, now is a chance. Home prices were going up, going up, going up. Now they’re level. Are they going to go down? Probably not. They might blip down a tiny bit, but once people realize, “Hey, wait a minute, I still need a house,” they’re going to be jumping all over those prices. It’ll keep them from going up more. More importantly, it will pour more houses on the market. There already is more inventory. You’re already seeing more houses. So, now we have more to choose from. Even if the price that you have to pay for a house today is the same as what it was at the beginning of the year, you have two advantages: one is you have 10 houses to choose from instead of one house with 10 people looking at it. The other thing is you probably don’t have to waive inspection or mortgage contingency or other things that protect you. You can probably take your time, put in an offer, get the house inspected, check it out, and get your mortgage squared away. Right? So, you have a much more level playing field between you and that seller.

Now might be a good window of opportunity to buy a house. If you're scared that the prices are going to go down, look, nobody knows what the future holds, but really dig deep and look at what the factors were that kept the prices up in the first place. Have any of those changed? Still five million people looking for houses. Still a decent payment for most people at six percent mortgage. Most people can afford it. Now, if there’s a huge recession or depression and a large population loses their jobs, different story. But one of the numbers in all of the economic numbers—inflation, gas prices, everything else—the only number that’s good is employment. The big number this week that the government is putting out there, that’s a positive spin, is that there were 400,000 new jobs created. The one good thing is employment; everything else is terrible. So, that’s the one thing that could crash the housing market: if nobody had a job, nobody had income to pay for the house. Housing market’s not going to crash just because prices go up; it crashes because people can’t afford it. Still, five million people need houses. People still have jobs. Mortgage interest rates at six are higher than they were before, but they’re not excessively high like they have been in the future. Now might be an opportunity. Tell us what you think.