Ep 93 – Foreclosures, Housing Affordability, Rent Growth In Today’s World

There’s a bit of data out in the housing market right now that can make you think that the sky is falling. Well, the sky is definitely changing in color, but historically speaking the sky is still pretty clear.

Adam Schroeder takes a look at how we NEED to be comparing housing numbers in today’s world. It definitely is not by simply comparing now to a year ago.

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Hey Rent to Retires, it’s Adam Schroeder here for another episode once again, flying solo. And let’s go over some of the things that are happening in the housing market. Today, as I’m sure you’re aware, rates are up. Big shock, right? Rates are up across the board. You know, we’re still seeing somewhere around the six low sixes for for rates for investors, because even though we’re seeing it’s kind of like the market is seen two things. Number one, the stock market’s going down which Jen tends to push mortgage rates lower because people run into bonds. And as everybody knows, it kind of follows the 10 year bond, but on the other hand, inflation’s up. And so, you know, people don’t want to get into bonds as much. So it creates a nice dichotomy, where rates are kind of staying where they are for right now, they’ve been hovering at this level for a while now, I say a while we act like it’s been so long, a while being the last one to two months, which in a world where interest rates have doubled over the past four or five months. I guess that’s a long time. But I was reading recently that deals in the housing market are falling out at the fastest clip since 2020. And I’ve been seeing a lot of news coming out lately saying, this is the fastest since this, this is the highest census, this is the lowest since this.

And everybody goes back to like, you know, 2020. If you look at what’s happening in the market today, if the pandemic hasn’t happened, if we remove the incredible disruption to the market, if we remove the pandemic, and we were to say, right now, this is the situation we’re in, it wouldn’t really be a problem. You know, everybody would just be like, okay, you know, that’s fine. Interest rates are up. All right. Housing deals in the housing market are falling out at around, you know, just under 15%. Historically, that’s a little bit high, but nothing crazy.

And, you know, oh, look at this, the inventory, is that, you know, it’s the housing inventory. You know, because home sales are slowing inventories going up a little bit. Now, it’s what I don’t know, to two and a half months of inventory. Oh, my goodness, you know, that’s still a crazy seller’s market. But it’s not as crazy as it used to be whenever it was one, one and a half months of inventory. And we’re talking about how home prices are dropping? Well, let’s look at this. Realistically, people were waving appraisals, people were waving every single contingency they could think of. And people were pricing their homes, at levels. They knew well, somebody is likely to pay this. And so now, people are having to work and actually figure out how much their homes are worth. And they can’t just set a ridiculous price and think, Okay, people are gonna pay way over this. So it’s not that the housing market is necessarily correcting all that much. Not like it’s taking a downward trend. But in reality, it’s correcting and that people are actually having to look at the value of their home these days.

And I want to continue telling people, I would not want to be in the market of selling a $2 million, 3 million $4 million property in today’s environment. Not great for that. But when you look at the price point that we are buying investment properties, and these properties are still strong, the market for them is still strong, you can get list price or greater, very easily. So it is a market that is still strong, you have to segment out the housing market by price. A lot of times by market by price, there are a lot of different ways you have to do it. Because it’s all different. You know, a $500,000 home has a different profile than $150,000 home. For example. Let’s talk about what’s going on in the foreclosure market right now. We are seeing an increase in foreclosures around the country is very true. I’m not gonna dispute that in any way, shape, or form. But we are starting to see those increase.

And so you’re gonna see articles out there talking about the rise in foreclosures around the country. And they’re gonna say Oh, compared to a year ago, compared to two years ago. Well, yeah, of course. A year ago, two years ago, guess what we had an eviction moratorium, big shock that now that that’s not there. We’re starting to see evictions and foreclosures rising. That is not a surprise. But let’s look at historical according to Adam data, when you go back and look at what’s happening, their latest report noted that national foreclosure activity was in the second quarter of 2022 was 68% below the pre recession average 68% below the pre recession average. All right. That is incredible. All right, we are seeing foreclosures rise. But compared to how it was, before the pandemic, before the recession, all of that it is still low. As they say, as Adam said, and their mid year 2022 foreclosure report, foreclosure activity across the United States continued at slow steady climb back to pre pandemic levels in the first half of 2022. While overall foreclosure activity is still running significantly, below historic averages, the dramatic increase in foreclosure starts suggest that we may be back to normal levels by sometime in early 2023. So yes, folks, we are seeing a change in the housing market. Things are different things are different now than they were at the beginning of the year are different than they were a year ago.

You got to remember we went through a pandemic. All of the numbers that we’re seeing nowadays, are so skewed by the fact that we are talking about Numbers that relate year over year to something that was untenable, was a fluke, once in history type event. We’ve never seen anything like what we saw the response to with the pandemic, with the moratoriums that kicked in for both rent, and mortgage payment, evictions and foreclosures, all of that. Never seen anything like that before. Very, very unlikely to see something like that again. So we can’t go comparing this year to last year, and thinking, oh my gosh, what is going on? What is wrong with the world? Everything is spiking. Oh, my goodness, well, guess what? Compared to what it was in 2019 and 2018. Still doing pretty dang well. We’re still doing pretty dang well. That’s what’s going on out there in the housing market right now is yes, things are looking bad. But only because we’re looking at them compared to where they were a year ago. Whenever things weren’t normal, in any way, shape, or form. So just wanted to point that one out for everybody as you go looking at these articles talking about the number in the housing market, and what we have going on there. Now one thing we do need to talk about that is semi good news for investors, is housing affordability.

Housing Affordability is getting very, very bad for homebuyers. We are seeing housing affordability reach levels that people around the country are having trouble getting homes, median home prices in 560 out of 575 counties, and the second quarter of 2022 are less affordable than they were in the past. There’s only 15 counties where they are more affordable than they were in the past. And this is exacerbated by the rising interest rate. So when we look at what’s going on out there, we have to remember when we look at what’s going on out there. We have to remember that there’s a lot of people with these interest rate increases, who aren’t able to buy homes and what do people who can’t buy homes do one of two things they stay in place. If they own a home already, or they go to rent or if they’re already renting, they stay in place because what do people not like to do? Nobody, nobody likes to move. If you can provide your tenant with a good home and deal with issues as they arise. They are not going anywhere. They’re going to stay put. People only move when they have a reason to move.

And if you don’t give them one, they’re gonna stay and you know if you’re raising your rent at a comfortable level, especially Tired of the market not not overpricing yourself and making sure they’re getting a fair rent, you’re giving them a solid place to live, they are going to stay, they are going to stay. And your rent renewals will increase your return. It’s a lot cheaper for the property manager to get a rent renewal than a new tenant. So that lowers your costs right there. And so as we’re seeing, right now, we have seen rent growth consistently over the past year and a half. And we’re seeing right now housing starts slow. Because the homebuilders confidence is dropping, because of the interest rate and the, the sales. So we’re seeing, you know, the housing starts slow, which is very, it just continues the problem. As there are a few fewer homes, there’s gonna be more competition prices are gonna go up, affordability is gonna go down. And it just, it’s a self perpetuating thing. And eventually, they’ll realize, oh, look, the economy’s roaring again, sign to start building again. And then things will change again. But right now, we are in a scenario where home builders don’t have as much confidence because their profits, you know, they’re a little concerned about a downturn. And so, it’s a great time to be a landlord. Because your, your tenant doesn’t have anywhere to buy.

They’re not building the homes, they’re not, you know, flipping the homes as much. You know, it’s it’s just a good situation where your tenant has given up looking. And a lot of places they’ve just given up looking, because they see what’s going on around there. And they say now isn’t the time, my interest rate will be too high. Once again, like to remind y’all, interest rates don’t matter. They don’t just look at your total payment, can you afford it? Is it something you want to move forward with? That’s all an interest rate does determine your payment, stop looking at the number, stop looking at the number, just look at your payment, and see if you’re happy with that. So when you look at what’s going on with housing affordability, with foreclosure rates may be getting back to the historical norm. If they continue to rise, and you look at everything that’s going on, we are not in a bad situation. It’s obviously not all roses out there. That’s pretty obvious. But it’s nowhere near as doom and gloom. As way too many people are making it out to be just not the doom and gloom out there. There’s plenty of things that are going wrong in our economy right now. Plenty of things, but here’s a few things to remember. Number one, rents are sticky. Number two, wages are sticky. And we have seen wages increased dramatically. Throughout the pandemic, and especially here in the last year.

I was just listening to something I believe was from the Wall Street Journal talking about how this is one of the few times in history where companies are giving out raises mid year without people even asking for them. Because they’re trying to retain employees. They’re just giving out raises. Now, some companies are trying to avoid that by going in and just giving bonuses during the year. But wages are sticky. Very, very, very, very, very, very, very rarely do wages decrease. We are in a new environment. Rents can go up when wages go up now, rents have been outpacing wage growth, because of the housing demand that we’ve had. So you know, rent growth is not going to continue at the 14 15%, like we’ve seen nationwide. So I don’t think that’s going to happen. But rents are not set to drop, because people’s income is not going to drop.

That doesn’t happen. And when if that does happen, we have way bigger fish to fry, if that happens. So when you look at everything that’s going on out there, you’ll see some doom and gloom numbers. Compare them to pre pandemic numbers, not pandemic numbers, please, please do that. Look at the right data. Look at the right scenario and see if what’s out there is still good for you. And remember, as Zack has mentioned several times that the CEO and founder of renter retirement, don’t just look at your one look at your 2345 1015 and see how this is going to compound. Just do it 3% rental increase a year, you know, and run your numbers and see what they will actually look like. So, I hope this has been helpful for you. Please leave us a review on your podcast platform. Check us out at rent to retirement.com. You can see the inventory we have, you can schedule a call to talk with an investment strategist like myself. We are happy to talk with you there. You can check us out on YouTube at youtube.com/rent to retirement. If you have any questions, send them my way podcasts and rent to retirement.com That’s podcast at rent to retirement.com and I’ll talk to you on the next episode.

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