Ep 78 – Mortgage Applications, Housing Supply, and Biden’s Affordable Housing Plan

With rising interest rates we’ve seen a slowdown in mortgage applications and refinance applications. No big surprise there. But we’ve also seen rising rents that are causing investors returns to rise significantly.

Adam Schroeder looks into the numbers of what’s happening and also peruses Biden’s new Affordable Housing Plan and whether it can realistically solve what they’re trying to solve.


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Hey, rent to retires, it’s Adam Schrader here for another episode, and today I am flying solo. We will have some more interviews with Zack and myself coming up in the near future, but wanted to bring a few things to you today for what’s going on in the housing market. Now, we have obviously seen a significant rise in mortgage rates in the last few weeks last few months, it’s essentially doubled over that timeframe. And we’ve seen investors and homebuyers start to pull off the gas a little bit. But when you look at the overall market,

it is still strong, especially when you’re looking at starter home prices. So let’s go a little bit into depth about what’s happening. Now. I believe we’ve talked about it before, but we’re still seeing rents rising, it dropped a little bit year over year down to 15%. That’s 15% increase year over year. And we’re seeing rents averaging about $1,962 a month for nationwide rent average. So we’re seeing a significant rent records. This is up

from 17 105 last year. And so some of the major markets that saw the fastest rising rents were Austin, Texas, where I am went up 46%, we also had to go up in Portland, Miami, Fort Lauderdale, West Palm Beach, Seattle, New York, Newark, Nassau County, and New Brunswick. So those are the big areas where rents are going up in today’s market. So that’s still the good news is if you’ve got rental properties, currently, you are looking at a situation where you are able to press your rents year over year, and continue gaining your returns. I mean, that’s one of the beautiful things, I believe everybody should track their numbers, the more you track, the more you can understand how your portfolio is really doing.

I am a bit of a nerd, I have spreadsheets coming out of my ears. And you I can see my cash on cash by month to month.

I am constantly constantly tracking my numbers like that. And you’ll see I mean, you look at the numbers on our initial brochures, and you’ll see you know, 8% cash on cash doesn’t look all that sexy to begin with.

But you know what, as the years continue, those numbers keep going up. They just continue up and up and up. I mean, in some, some of my homes, I’m up to, you know, 35 40% cash on cash over the last, you know, four or five years. So we’re seeing a significant rise

in rents, which leads to a much better return for you. I mean, if you listen to the episode that Zach and I did with

Aaron Chapman back, geez, was it September of 2021, you can hear him talk about the benefits of raising rents, since you are the sole beneficiary of rental increases, you don’t have to pass any of that along to your mortgage company. So this 15% Rise year over year, well, that’s leveraged. So suddenly you’re getting, you know, roughly a 75% increase potentially in cash on cash if you’re leveraged to the hilt, or to you know, 20% down.

So keep that in mind was one of the things I always tell people is, you know, you got to take your one with a grain of salt, especially in today’s environment where maybe it’s a little bit lower, but if you factor in, you know, obviously, I’m not going to tell you factor in a 15% year over year. But if you factor in five 6% rental increase year over year, you’re in a very, very good position very, very quickly. So keep that in mind as you’re looking at your potential properties. Don’t just evaluate year one, evaluate year two, year three year four, and increase your rents on those brochures on your pro formas. And you’ll see your return continuing to increase

as we look at what’s going on in the world. And we see

What’s happening with housing prices? Yes, they are continuing to go up. I know a lot of people say, Well, this can’t continue forever. But what I would argue with you is, if you are investing

in cash flowing properties, your return is at least positive. When you look at what’s going on out there in the market, it is not so positive. If you look at the year to date, in the various indices, your Dow Jones is down 10.28%. So far this year,

the NASDAQ is down 23.92% year to date.

And your s&p 500 is down 14.37%. Year to date. I mean, it is not a great time to be investing elsewhere. And so whenever you’re looking around and seeing where should I be putting my money right now? Well,

this is one of the few places that’s actually going up, and it has consistently been positive for investors. For years, as long as you’re getting into the right markets, I don’t want you going out there and buying a million dollar single family rental long term rental,

if you’re going to be up in the millions, most likely a short term rental is going to be the way to go. Because that way you can really, you know, you’re probably in a nice place that allows you to charge you know, it’s a tourist destination allows you to charge a good rent night overnight. So you’re able to get positive returns, it’s really hard to make that cash flow as a long term rental.

So don’t really love that idea for long term. But, you know, we’re not investing in the areas where there are million dollar homes for renters to, to get at least not the ones that we own. So, you know, just think about that, if you’re buying with a positive cash flow day one,page3image66965984page3image66966192page3image66966400page3image66966608page3image66966816page3image66967024page4image66967648

that part puts you in a very good position going forward. So we talked before about Adjustable Rate Mortgages versus fixed rate mortgages, I would just like to say whenever you’re going over and looking into it, you know, just think about the long term view.

As we’ve discussed on a previous podcast, you know, most people were holding these properties four to six years.

If you get a five year locked rate in the low fours, mid fours, then you’re, you know, resetting maybe at the, you know, the first time at the rate you’d be paying today. And so you can refinance at some point along that way. Yes, interest rates have gone up recently. But I find it very hard to believe based on the last, I don’t know, 30 years, that we’re going to be seeing significantly higher rates for the long term.

You know, maybe we stick around 6%,

you know, six and a half percent for the near future, you know, for the next 10 years, maybe even. But if you can get four and a half percent for the first seven of that, five of that, then it seems like a pretty good deal to me. You know, you look at it and say, you know, if that’s the if that’s the rate, then fantastic, I can just refinance, and get the same rate I would have gotten beforehand, maybe, and maybe even pull out some equity, if that’s the position that you’re in to begin with. So

think about that. Like I said, You got to plan this out over the long haul, whenever you’re starting your investing journey, factor that in, you know, see if I have a 4.5% interest rate the first five years, and then it switches to 6.5. How does that impact your return?

Does it still make sense? If you’re getting a three to 4%? rent increase year over year? What does that do to your returns? I mean, these are things we need to run through before you evenpage4image66967856page4image66968272page4image66968064page4image66968480page4image66968688page4image66968896

get started, you know, with these types of loans, so think about these things as you’re going

get started, you know, with these types of loans, so think about these things as you’re going through them. They can be really great choices. But you know, we don’t want you to be in a situation where in the future, you’re in a rough spot. So I want to go into mortgage applications declining.

saw an article out on a Housing Wire saying mortgage applications declined 2.32% to a four year low. This is primarily due to a shrinking refinance market.

It’s no surprise it should come as absolutely no surprise to anybody out there that the refinance market has shrunk. Very few people are going to refinance right now into a five, five and a quarter rate for their primary residence. Anybody who has bought

over the last year

For 10 years,

and locked in a rate has been below the five, five and a quarter, very few people are savvy enough are willing to pull cash out of their property and get a higher interest rate long term. But it can still be a worthwhile venture. I mean, if you’re at four and a half percent now and you can refinance at a five, five and a quarter, then my question to you is, what are you going to do with the money?

How much you’re able to pull out? I mean, you don’t need to make that much money, month to month to cover that gap of payment between, you know, your four and a half to five and a quarter. You know, if you’re at two and a half, then that’s a bigger gap to fill. But run some numbers, see if it still makes sense.

So refinance, in the mortgage activity is now at 31.5% of total applications, which is down from 32.3%. The week before, and purchase applications last week dropped 14% year over year, andpage5image66737856page5image66738064page5image66738480page5image66738272page5image66738688page5image66738896page5image66739104

there was more activity in the larger loan sizes. And I think this is primarily due to the fact that

there was more activity in the larger loan sizes. And I think this is primarily due to the fact that the lower priced homes just don’t exist. And the people in the lower priced homes, you know, your 150 200 $250,000 homes, they don’t have the downpayment saved up to buy the next level of homes. So what are they going to be applying for mortgage for, you know, they can’t scale up right now.

Which is going to cause an even bigger gap between

household formations, and homes available, which is going to create upward pressure on rents, and upward pressure on prices. So just keep that in mind as you’re considering real estate investing in yourself. And the last thing I want to address is President Biden announced his new plan, just recently, the housing supply action plan to help close the housing supply gap and five years. This is an incredibly ambitious plan, that probably has virtually no chance of success. They’re wanting

to get back to normal to get back to even on affordable housing. by rewarding areas that reform their zoning and land use policies. They want to preserve more housing or financing gaps exist right now. They want to increase manufactured housing, which Hey, that would be great. They want to promote accessory dwelling units. They want to promote duplexes to quad flexes, and they want to promote smaller multifamily buildings. Look, there’s a lot of places where that might work. But the neighborhoods that we’re going into are already built out. And two to four units, multifamily buildings, probably not going to be welcomed there.

And so I don’t know where they’re planning to find all of this land where they’re planning to find all these builders where they’re planning to find all these supplies. But, you know, when they talk about ensuring that more government owned supply of homes and other housing goes to owners who will live in them, and not to large institutional investors. I mean, good luck getting that to Fath, good luck getting that to pass. I mean, we are not a country last I checked, that is going to have a checkbox saying, Are you going to live in this home? Or are you not? And if you aren’t, then you’re not going to get a mortgage? I mean, that’s not really what one would call the American way. So yeah, he’s gonna push for it. Yeah, he’s gonna, you know, say all the things he wants to say to try to get it passed. But it’s very, very doubtful this affordable housing plan is going to work. Not really sure what the solution is to get builders to build other than, you know, incentivizing them to do it. But it’s going to be a very difficult process, it’s going to take a very long time. And until then, I’d say we as investors need to go out and

take advantage of the opportunities that are presented to us. So I would just say that, you know, all of the signs, you know, we have seen higher inflation, we have seen higher interest rates. But when you look at the grand scheme of things, life is still looking good for real estate investors. You can check it all out at rent to retirement.com. That’s rent to retirement.com. Really appreciate you listening to today’s episode. If you have any questions, reach out podcast at rent to retirement.com. That’s podcasts at rent to retirement.com. Thank you so much. I really appreciate it. Leave us a review on whatever podcast platform you listen on. And we’ll talk to you on the next episode.

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