SOTM 33: Mortgage Rates Falling as Home Prices Continue to Rise

January 17, 2020

Rates on 30-year-fixed mortgages dipped down to the lowest level since October, but home prices are still on the rise. On today’s State of the Market podcast, we take a look at current interest rates and explain why they’re so important for consumers and the industry as a whole. We then give our thoughts on technology taking away agents’ jobs, California politicians supporting squatters, and other news in the real estate sphere.


Listen to today’s show and learn:

  • Paul’s brief bio [3:30]
  • Mortgage rates continue to drop [4:34]
  • Britain’s most expensive home likely to sell for record high [7:31]
  • Ring fires employees for attempting to access customers’ videos [9:37]
  • eXp Realty CEO gives take on real estate going virtual [17:49]
  • Thoughts on agents losing jobs to technology [22:56]
  • Politicians supporting squatters in California [24:42]
  • Final thoughts on America’s squatting problem [30:00]
  • How to break through your goals.
  • Plus so much more.

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Read the Full Interview

Aaron: Welcome back, Real Estate Rockstar is excited to come back to you this week for another state of the market. This is Aaron Amuchastegui and today I’m on here with my good friend, Paul Morris. Paul has been doing a lot of interviews lately. You guys have probably heard him on a few of the great ones that we had come out. Paul, before we jump into the news, tell us a little bit about yourself.

Paul: Well, first of all, I’m so excited to be working with you on Real Estate Rockstars. What a phenomenal venue to bring in some of the top talent and talk to this amazing community. I own a real estate brokerage, we have 3,000 realtors that did 10,000 transactions and almost 9 billion in volume last year. I run that as a CEO of that, then also do some real estate investing, have 600 apartment units. I come at it with that background, definitely an entrepreneur, but have a lot of brokerage experience.

Aaron: That fricking cool. Where do you live?

Paul: I live in Santa Monica, Los Angeles.

Aaron: Out in Santa Monica. That is one of those crazy things. Obviously a Real Estate Rockstar, when he’s talking about quantity and transactions, that’s pretty crazy, but then when you go nine billion in transactions that billion with a B, that jumps out as somebody that knows a thing or two about real estate.

Paul: Yes, thank you.

Aaron: All those agents. Well, as we jump into the news, there’s a bunch of fun stuff that we get to talk about today. One of the very first ones that we looked at was mortgage rates fall further, this is from CNBC markets and it says, mortgage rates fall further as buyers rush into the first open houses of 2020. My wife and I were out looking at open houses this last weekend too, so we were out there that first week of 2020. It says the reason that rates are going down or maybe one of the key points, buyer sentiment in the housing market remained high in December, according to a monthly survey from Fannie Mae.

Average rate on the 30 year fixed mortgage fell the lowest level since October this week at 3.69%. Prices nationally rose 3.7% in November, according to core logic. Paul, what do you think about that? What do you think about mortgage rates, what’s really going on out there?

Paul: First of all, mortgage rates are so important because essentially, that affects the affordability. There are two things that affect affordability of a home, of course, and that is the price and the interest rate. You could afford to pay a much higher price when interest rates are really historically low. My information about rates are basically to the minute. It’s a big part of my business. I know what the rates are today, what they were yesterday and that article was end of the year. Interest rates have remained pretty stable. We’re quoting high threes, low fours, very low historically.

Now, I’ll tell you when we were looking at really scary news from Iran and Iraq, you could have locked in at 3.5, which is crazy deal, but that would have been like catching lightning in a bottle because it was a 24, 36-hour period and then they bumped right back up to where they are now. High threes, low fours.

Aaron: That’s so great. Bad news, all of a sudden, right after the bad news they’re like, “Oh, we better drop rates or everyone’s going to stop buying houses.” Who makes that decision? Who makes it go down to 3.5 for a day?

Paul: Banks look at inventory and they look at how much money they currently have on their books to loan. Obviously, the fed rate is the thing, is the driving factor. NOW, the fed rate doesn’t change day-to-day, but risks and demand and everything, that changes day-to-day. That’s very sophisticated math that banks are running logarithms on and they’re being counters are doing it. It’s above my pay scale.

Aaron: Yes, it is. I think it’s above all of our pay scale, but you’re super right, mortgage rates are so important because, as they go down, your affordability goes up, it usually pushes prices up. If somebody got a pre-call back in October that said, hey, they can spend $2,000 a month for a house, so as a result, they’re going to be able to buy a $250,000 house. Today, they’re going to be able to buy a $260,000 house for the same payment. Because interest rates go down, now, all of a sudden they can pay more. That’s why it’s so important so the buyers can now get a more expensive house.

Usually, sellers are quick and they raised that price just to balance out as we hit there. As we look at that, so that’s that average house. We also have a crazy deal, other news that came out on Forbes, Britain’s most expensive home could be selling for a world-record $275 million. What’s the mortgage look like on one of those? You’re going to buy a house for $275 million. You’re going to get a mortgage on that?

Paul: You’re likely to pay cash or almost cash. I read about that one. If it goes through, well, it’s sold and so it’s a private sale. It’s hard to get the info on that, but a $275 million sale would make it the most expensive house in the world to ever sell. It was a real estate guy from Hong Kong, bought it from the Crown Prince of Saudi Arabia. I’m not sure how that affects all of us, but it’s interesting. People always want to know, “Hey, how much was the most expensive house in America sold for?” The answer to that is, January 2019, there was a penthouse that sold for $238 million. That was the current most expensive one. This would take the crown for that.

Aaron: The $238 million was some billionaire hedge fund manager, Ken Griffin. It was Manhattan, Manhattan was $238 million, now it’s $275 million. You see how many bedrooms, that thing was 45 bedroom home in London.

Paul: Wow, there you go. You can get lost in that.

Aaron: That is crazy. If you’ve ever been to London and seen how busy it was, London and Manhattan are two very similar places. I guess it makes sense that they swapped on values,

Paul: Very dense population, for sure. I do see the top of the top of the market. There’s only a few buyers. People can afford what they want, but on the other hand, I see it. If you need to sell, you’ve got to soften the price.

Aaron: As we jump around to some other– Mortgage rates are awesome. Getting to see what’s selling out there, we do not see the $275 million homes happen very often, but jumping to just some weird news that you and I were laughing about a little bit ago, but I think it probably has some huge implications and maybe what people are thinking all the time. It says, “Ring–” Ring is, I’ve got a ring doorbell downstairs. Somebody comes to my house, they ring the doorbell, it pulls up on my phone. I can see them, I can talk to them, I can let them in my house or whatever. Ring, they also have home videos and things like that.

They fired employees who tried to access customer video data. One of the things I thought was interesting, they didn’t fire a employee, they fired employees. There are multiple people who tried to access customer video data. “Ring, the smart doorbell and home security company acquired by Amazon in 2018, fired several of its employees for attempting to access customer video data.” Did you see that? It said, after the news of several leaks in which hackers broke into family security cameras, a group of senators also were like, “Hey, we’ve got to deal with this.” What do you think about it? Did you read that? Have you seen more news like that out there?

Paul: I have. One of the things that we can laugh about, I certainly want to laugh about it, you read the fine print on that particular story and the hacker was using the voice aspect of it to harass an eight-year-old girl in someone’s house. That’s like, “Wow.” That’s what grabs the senators’ attention. They’re like, “Hey, we’ve got to do something about this.”

Aaron: So creepy.

Paul: I personally, I’ve gotten rid of my security system because I have two dogs. One of them is a pit bull terrier, but I have Nest and I have the cameras. I’m like, “The camera’s going to capture everything. I’ve got the dogs barking.” They really wouldn’t bite anybody, but the dogs barking and that’s it. We’re really looking at security, the security of our home. When we introduce these devices into our home, are we adding convenience, are we adding security, or are we really creating a window for people that are far more sophisticated than me for sure to come in and harass you? That’s scary, man.

Aaron: It’s also like phones and social media and things like that. Right?

Paul: Yes.

Aaron: It comes to the point where you know there’s some sort of a risk in that. Most of the time, I’m like, “Hey, I’m not that important. Nobody’s going to care about my stuff.” Facebook can figure out what restaurant I went to and they’re going to know what I want later. A lot of that, it’s like, to have the luxuries and the technology we live in, we bear some sort of a risk in what people are going to do with that data. I guess it’s just a decision. When you go out there and you know that, for you personally, you go, “Hey. I’m okay with the decision,” or does it make you nervous?

Paul: It makes me nervous. For what little use I ever had of Google Home Assistant or whatever, I try to use it a couple of times and then I just left it plugged in. It’s listening to me the whole time but providing no usefulness. I unplugged it, eventually gave it away. The thing is, we carry around with us our phones. I’m afraid right now I say, “Hey, Siri,” my phone’s going to light up. It’s like we know that it’s listening all the time because how would it know you said, “Hey, Siri,” if it wasn’t listening all the time? Then we’ve all had the experience. I joke with my girlfriend all the time about how much– We’ll have a conversation that we’ve never had before.

She’ll look on her Instagram and she’ll get an ad for that item that we were talking about. She’s like, “Come on. Here you go,” because I want to say they’re not listening, it’s not listening. She’s like, “There you go. There it is.” I’m like, “Okay.” There’s convenience to it. I like your point. That was defense I always used is like, “Oh, really, who cares about me enough to really–?” On the other hand, when you start deploying artificial intelligence, that’s where you have computers running algorithms and they can measure these things across a whole population and then they really are listening. It’s going to have to be something that we really are concerned about. I’m not a conspiracy theorist and I’ve got to tell you, I’m nervous.

Aaron: Then you have the human aspect of it where it’s not just hackers, it’s like, now there’s employees at these companies that have access. What are they going to do? My wife is the most nervous. I drive my Tesla and I let that thing drive itself, man. I love being able to just cruise down the highway and just brag to everybody. I go, “Look. It’s passing cars on its own now. It’s going in.” Her big thing is, “Wait until somebody hacks it. Wait until somebody hacks that data.” That’s where it’s at. I’m like, “Hopefully it doesn’t happen while I’m driving.”

It’s one of those things. You get a little nervous about it, I try to block it out. I have home video cameras, I have home security stuff and, hopefully, they keep cracking it down. I don’t necessarily think the government is going to be the ones that are going to come up with the right system to monitor it either. Hopefully, good people in business figure out the way to balance it and they always do that stuff.

Paul: People that are a little bit smarter than me, or maybe a lot smarter than me, they all have those little things that block their computer camera when they’re not using it. I don’t have one.

Aaron: Yes. As soon as we get done, I should put the blue tape over the top. I don’t do that enough either. [chuckles] You do see that as people go in. Technology is something that’s awesome. The world that we live in, we get to see it, we get to have the risks of it, that kind of segues into another thing that we were going to talk about today. From today and says we’ve got the EXP CEO on there and it says, “We’re just scratching the surface EXP CEO on living in a virtual world.” There is so much that’s changing with real estate, with real estate companies, the virtual experience. What do you know about EXP? What do you know about companies out there that are talking about the virtual experience? What does the article mean when it says, “Hey, he’s talking about the virtual world.”

Paul: To be fair, EXP is a competitor and that’s fine. I love to look at the great things that competitors are doing. I really truly believe that they’re on to something for sure in the sense that a lot of things will go virtual. The thing that saves, this is a great piece for realtors. I look at the wide spectrum. On one end, you have the travel agent that was totally displaced by technology. On the other end, you have the cancer surgeon not displaced by technology. Where’s the realtor on that continuum? Here’s the thing, we’re not cancer surgeons. I get that for sure. I also think we are not travel agents.

The reason why is it’s the single largest purchase for the overwhelming majority of United States citizens. It’s a very personal experience. Real estate is a touch game. It’s a hand-to-hand combat thing. You want to touch the person, they want to talk to you, they want a human being to interact with. Now, do the people come around and they have all the houses that they want to be shown? Yes, but I still go to an expert in that particular area for advice before I buy in a particular place. I think a lot of it can go virtual for sure. I think EXP is on to something.

Where I see it going is a hybrid. Real estate offices are going to shrink. More and more services will become available to more and more people at home. Also, realtors want to be around other realtors. We’re social creatures. We don’t want to hibernate. We get a lot of energy from each other. I think there’s a happy medium. To think that it’s going to go virtual I think is absolutely incorrect. To think that it’s going to stay the way it is, for sure, we know that’s not true, so in the middle.

Aaron: Yes. In the middle. Sometimes I think it’s probably more about price too. There are probably some prices, we talked a lot about over the last couple of months in some of the news. The vision of Zillow and some of these companies is that somebody could log on and make a transaction happen just like they can buy a stock. It used to be to buy a stock, you had to go through all these hoops and now you can go on to TD Ameritrade and buy a stock and you own it a few minutes later. I’m actually of the belief that it can happen with some real estate assets, but would also be risky.

You’re like, “Oh, I’m saving $7,000 in commissions. Maybe I’m going to save seven in the other part.” I feel like there’s going to be different asset levels like, oh, maybe price is up to this, but at the same time, somebody buying a million-dollar house for their dream house, they care as much about that as somebody else buying their $200,000 house as their dream house. It’s still an emotional experience.

Paul: Absolutely.

Aaron: Do you think price is going to make a difference as that hybrid happens? What do you think?

Paul: I don’t think price will make a difference. You give a great example and that’s the stock market. A share of Apple stock is a share of Apple stock, is a share of Apple stock. If I can go on and efficiently buy that, great. I’ve been burned by advice from financial advisors a thousand times. Also, you don’t live inside of that Apple stock. The $200,000 home, somebody wants to make sure that’s the right place for them. I’ll tell you where I think it does, where it can’t get a little bit more homogenous is when the housing stock is very, very, very similar.

When you’re in a neighborhood where there’s 1,000 homes and they’re all nearly identical, then, okay, hey, I’m going to go look at one of them and then it doesn’t matter which one I buy or it matters a lot less. That’s where the housing stock, the product is starting to get homogenous. That’s where it doesn’t matter as much.

Aaron: There are different neighborhoods that we’re actually selling some houses in right now and there’s four of the same floor plan on the market.

Paul: Yes, like that.

Aaron: That is probably something where somebody could save their time by just jumping through the virtual experience and going, “Hey, what’s the difference?” This one is $5,000 less. They look at the pictures, “I can always paint or whatever.” I think that where there’s a lot of stuff in the same neighborhood, same thing when we started flipping too. The safest way to do it was in a new home community where there were a ton of houses that were all around the same size because it’d be very easy to see what it’s going to be worth. Maybe that’s part of that where it happens. If you were going to give a new agent advice that’s worried like, “Hey, am I going to lose my job out there to technology or what’s that?” Do you have any ideas, the best way for them to come into that hybrid?

Paul: I don’t think they’ll lose their job to technology ever. I think it’s definitely smart to understand the technology. One of the things we do on Real Estate Rockstars is ask people, ask these top agents, “Hey, what’s the piece of technology that’s helping you the most?” If these different companies, all brand-neutral, different companies that are offering fabulous technology that you’ll see when people use it. If it’s solving a problem, they’re using it, otherwise, they’re not. My advice is, be abreast of the technology, make sure you know how to use it, it will save time, and be a great realtor. Understand your market, understand your market like the back of your hand. The best way to do it is you got to go out and see all the houses. It’s what I just consider a personal, it’s a personal business.

Aaron: It really is a personal business. I talked again about, we went and looked at some houses last weekend and I texted a buddy of mine who’s our agent and I’m like, “You think you could show some houses tomorrow?” It’s like, “Yes, I can get you in three of those four houses tomorrow.” Because he loves us because it’s there, he’s going to end up getting that commission when we go do it because he’s the hustler. It’s personal, he’s going to take us through there. He knows my kids, it’s a fun experience when we do it and it’s easier to get them in there.

I think, and I’m a guy that buys a lot of houses using technology and I bid at auction, but when it comes to what I’m going to do for me, I’m going to go see the house myself. I’m going to have an agent represent me, even though most of the time I buy without an agent. I’m probably a good example that says the good realtors are going to stay needed. Last thing, interesting news, but I think it’s actually really, really important news I want us to talk about today, it’s an article about, it’s simply theft, Developer Box support surges for squatters living in his empty home since November?

I remember reading this back in November, this is a three-bedroom house in Oakland, California, but I actually think it’s happening in several places right now. There are vacant houses in different places. People buy houses, they list, we have a lot of houses active for rent right now, We’re waiting for a renter to come in and say, we want to rent there, get approved. For all sorts of reasons, people that invest in real estate, a lot of our listeners, our investors are becoming investors. You’ve got a house out there, that’s an investment. What happened out in the Bay Area, two homeless women have been illegally living in a vacant three-bedroom home in Oakland since November?

They decided to move into this house, it was cold outside. They said, “Hey, nobody’s living here, it’s a crisis, we’re just going to go ahead and move right in.” Obviously, that’s a big deal. Somebody said, “Hey, this vacant house is there, I want to move in.” It’s owned by an investment company called Wedgewood. Wedgewood buys houses, fixes them and sells them fixing around, a big, big company. I personally think that doesn’t give someone the right to just move in. The craziest part about the news is, there’s politicians that are actually backing them up.

It says as the collective group, several politicians have spoken out in support of the two. Now, I want to thank Moms 4 Housing for taking that house and for demonstrating that nowhere, nowhere should be there a bacon house in California. To me, this is crazy. I’m just supposed to be sharing the news, but there’s actually politicians out there and people say, no, there shouldn’t be a vacant house, people should be able to move into them whenever they want if there’s homeless people out there. What do you think of that? Did you read this? What comes to mind as a realtor, as a real estate agent, as an investor, and all that stuff?

Paul: What comes to mind is, I wish you hadn’t brought this up because all of my friends that don’t live in California make terrible fun of me for living in a state that has politicians that think that squatters should come in and take over apartment buildings. Look, here’s the deal. We have a very significant homeless problem. There’s no question about that. Our society must address that, our politicians must address that, we as people volunteers need to address that. It’s a real problem. As soon as I’m getting done addressing that, I will tell you for sure, the solution is not allowing people to break the law and occupy a vacant home.

I understand what people are saying. It’s like, “Oh, why should there be empty houses when there’s also homeless?” Well, how many people own a second home? Maybe we should make it illegal to have a second home. Now you’re talking about moving into a socialist economy. There has to be a balance. I really do think we’ve got to help people so that they’re not homeless. No question about it. This is not the help.

Aaron: I saw you recently went to Cuba. I went to Cuba a year ago and I remember when I was there, our guide said, “No, everyone has a home. Everyone is given a home. No one is homeless,” but half the homes don’t have walls and they don’t have doors. It’s like nobody is homeless, but it’s not. Definitely, it becomes, where is the line that you draw for that? I think it’s something like 25% of the homeless people in the US are in California. There are a lot of vacant houses in California that are–

Paul: It’s nice out here.

Aaron: Yes, it’s nice out there. If you’re going to be homeless anywhere, you’re going to go where the weather is better. You’re not going to go where it’s crazy. That’s a really easy decision. I think California may be the ones they can find the solution to it because there probably is a good example of, here’s a bunch of vacant housing that’s not getting used, here’s a bunch of people that need housing, but the whole committing a crime and getting it for free, there’s a solution out there somewhere that smart minds can find and figure out.

Yes, I’m baffled by the idea that as this is going through the court system, but I also think it is important to watch. I think the reason it comes on here is, it’s news that makes us jump and say, “Hey, that’s crazy,” but the reality is that it’s happening and it could end up setting some crazy precedents out there. As real estate agents, as real estate investors, pay attention to this, we’re going to have more news on it over the next few weeks and few months as it goes and we’ll make sure to get some updates. Also, come find us and chat with us about it. I want to know what you guys think.

We’re getting ready to come to a close on today’s news, but I wanted to say if you haven’t yet, you got to go find Real Estate Rockstars on Instagram, go find me on Instagram. It’s Aaron Amuchastegui. It’s A-A-R-O-N A-M-U. As soon as you type that, it’s going to find me because my name is crazy on there. I love re-sharing some of the best stuff we get from the host. Paul, what’s your Instagram handle? I’ve seen you on there.

Paul: Yes, it’s Paul Mark. M-A-R-K Morris, M-O-R-R-I-S. It’s just @Paul Mark Morris on Instagram, it’s the same for Facebook and yes, I’m getting my Instagram and reorienting it toward a lot of this valuable information for realtors. Just one last piece on what you were saying, and that’s just like, as an investor or even a homeowner, when you start allowing people to break the law and essentially injure the investor or injure the homeowner, you’re adding some uncertainty into that puzzle that makes it more difficult for people that want to come into and invest in an area and improve an area. It’s just like businesses move to where there’s certainty and a favorable place to do business. If you’re going to let people squat in empty units, then the Wedgewoods of the world will go, “Hey, you know what, we’re going to go and fix up apartment units somewhere else.” It’s an important thing. It really is.

Aaron: A lot of people look at that and they go, “Hey, Wedgewood’s a really big company,” or “They’re the bad guy,” or whatever. You got to remember back in 2012, 2013 when Blackstone and Wedgewood, and American Homes 4 Rent, all those companies came into California and started buying, man, it pushed our economy big time. It pushed our sales prices big time. It didn’t ruin anything. It really helped a lot of stuff out there. Thank goodness, it’s not somebody’s first investment because people can also laugh about it and look at it because, hey, it’s a big company that has hundreds of houses. It changes the whole game. It changes the whole market. People started getting into business, everything.

Paul: When you want to move from being a realtor into an investor and you want to start building some wealth, which is one of the things that I’ve spent a lot of my career helping people to do. When you want to move in that direction and you add uncertainty like that, it makes it a lot harder to do.

Aaron: It changes everything, man. Well, Paul, it was so fun getting to chat with you. We’ll end up doing it again here in a couple of weeks.

Paul: I love it.

Aaron: Rockstars, you’re out there listening, if you have not subscribed yet, be sure to subscribe. Go check out some of our other stuff. Again, go follow us on Instagram and Facebook as we’re re-sharing some of the best tips and tricks. If you don’t have enough time to listen to all of the podcasts, go find us on there. You’ll see the best tips coming out of the other ones, you can figure out which ones to listen to. If there is news you think we should be talking about or you got comments about today, send me a message. I’d love to chat with you about it. If you disagree with me, tell me, I want to know how would else we should be thinking. Thanks for listening. Thanks for hanging around. Paul, what a fun time. Thanks for coming on.

Paul: Thanks a lot, really appreciate it. To echo that, we would love the feedback. If there’s we can do more of something or less of something, we’d love to do it. Tell us we’re doing a great job. Tell us we’re doing a bad job. As Pat always says, “Feedback, breakfast of the champions.” Bring it on. We’re absolutely committed to bringing the best program that we can to Real Estate Rockstars. Thank you very much. This is a lot of fun. I know we’ll do the news again together.

Aaron: Awesome.


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