Speaker 1 (00:00):
Hi guys, I’m Tim Melvin. And welcome back to a better way to wealth. Now, one of the big topics lately, anytime you turn on the financial news networks or pick up even the wall street journal or Barron’s or one of the lung, shall we say less sophisticated financial publications? One of the big stories is, Hey housing finally seems to be cooling off just a little bit. You know, we had the big housing run-up what’s COVID started. And we got to the point where many of the supplies, including lumber and copper that go in to making a new home rose to just astronomical levels, to highest prices in decades that has begun to slow housing sales down just a little bit, but still as we look out there, housing sales prices rather are up 16% compared to this time in 2020, that’s a pretty healthy increase.
Speaker 1 (00:51):
Considering that 2020 itself also had a pretty big increase. So is it going to go away well, but that kind of depends on where he live. The biggest increases guys have been down here by me in Southwest Florida and parts of California, the Sunbelt, the Rocky mountain west area of think Denver, Colorado. It’s doing much better than your Chicagos and your Baltimores and even your new York’s, you know, sunshine does sell in the brand new world that we all find ourselves living in now COVID has of course played a huge role in recent housing transactions. People wanted to get away from the densely populated bigger cities. And they also to be honest, wanted to get away from what in 2020 was constant civil unrest and many of our major cities that spurred a, let me get out of here and work from home, became work from pretty much anywhere I want.
Speaker 1 (01:48):
And some places are a lot cooler than others. When you think about a young couple got their first child, they’re living in New York city paying $3,500 a month in rent, and they both work in technology. So work from home work from anywhere is actually an option. All right, $3,500 in New York city does not get you much. It doesn’t get you anything great to be certain now $3,500 down here in Southwest Florida in the area that I’m in. I can tell you that we’ll get you a four bedroom house with a pool in a gated community with gyms and nice amenities and all that. And I know that for a fact because when we first moved down here, we in fact rented one for substantially less than that. And I have friends that rent out their homes down here and, you know, 3000 bucks gets you a lot of house to rent down here in parts of Southwest Florida.
Speaker 1 (02:37):
And then, you know, Denver, you had a three bedroom, two bath French Frankston yard got a sunroom landscaping included in the nicest neighborhood in the city of Denver. Now check this out in Raleigh, North Carolina, also a very desirable area for a lot of folks that are working in technology five bedroom, three bath house almost 3000 square feet. It’s in a neighborhood that has two pools, tennis court, gym facilities, and all three schools, elementary, middle, and high school are located within the borders of the neighborhood and pretty much walking distance. You can rent that house and by the way, bank, the $1,200 that you’re not spending out of the 3,500 now, and then not whatever we looked at Phoenix, you can get a a nice three bedroom home up near the Phoenix mountain reserve that has a pool very kind of hard to find property in Phoenix for right at $3,500 a month.
Speaker 1 (03:36):
So you can rent much nicer homes, almost anywhere in the country, outside of these great big cities like San Francisco, New York, and with interest rates extraordinarily low right now. And for the foreseeable future, most likely $3,500 can buy you quite a bit of house in just about any market in America. We have to remember the other big driver on this is not just COVID. We were running short of houses before all of this mess started. What happened was millennials took a long time to form families. Now I know that for a fact, because I have two millennials and a got the one, three and a half year old granddaughter. And the second one, just all the way there, just getting around to this whole, you know, getting married, having babies and buying houses thing that has created tremendous long-term sustained demand for housing prices.
Speaker 1 (04:29):
Are we going to see housing prices continue to go up 20, 25% a year? Like we saw in some markets in 2020 and earlier this year? No, I don’t think we are. I do have everything. We’re going to see steady sustained demand for housing. Now let’s just kind of look at what’s going on in the housing market right now. It’s mortgage origination is insane over 1 trillion a month over the last two quarters, that’s crazy. $1 trillion in new mortgage applications. People are still out there buying homes. Now most of those bonds are being repackaged into securities and the buyer of last resort and first resort and mineral resort for much of the past 18 months has been the federal reserve. At this point, they own one third of a hall, outstanding mortgage bonds. So they’ve provided an enormous amount of liquidity to the housing market through the mortgage lenders.
Speaker 1 (05:25):
So is the fed creating housing bubble by buying all these bonds? No, I really don’t think so. When we look at what’s going on, you can compare this to 2007. Okay. The buyers today are very credit worthy. We’re not seeing a bunch of goofy loans. There’s almost no subprime. The average home buyer right now, that’s taking out a mortgage, has a FICO score of about 740. So they have really good credit compared to what we saw going on back in 2000, 2008, when we legitimately created a housing bubble, people can afford their homes right now, even if we see some backing up in price, it’s not going to cause anybody to get stepped out on their mortgage line. We see a lot more fixed rate mortgages in the system than we did back in 2007, when everybody was trying to play the game and had a floating rate loan.
Speaker 1 (06:16):
So there’s lights rates moved up a little bit. Everybody was in trouble. So it takes some prime and really stupid lending practices to create a bubble. There’s no sign of that, not in the banking system, not in the private mortgage brokers market. I don’t see it anywhere at this moment in time. And just check something here. I’m going to have lots of equity in the houses to folks, you know, built up by people who just rode through 2007 and people who bought homes in 2008, 2009 to 2010 to take advantage of the very low prices. At the time they have an enormous amount of equity in the house. They’re not going to walk away from that. One of the problems that we do have in the housing market is it’s not enough. There is not enough inventory for people, a big part of that problem.
Speaker 1 (07:01):
60% of all homeowners are 65 or over most of them. They’re not going anywhere. The ones that we’re going to move to a second home or retirement home, they’ve done that already. Trust me. I know I live down here. I see the batteries. A lot of folks they’re happy in their home. They’ve see absolutely no need to sell it. Which means there’s a lack of inventory for the first time. And maybe the first and second move up buyer, not building enough new homes. That is of course vanc has tech news. Yeah. If you are in the home building business, if you sell parts and supplies to the home builders, or if you’re doing fine Nancy of new homes, it’s great news. So you need to be looking out there. I mean, you could be looking at the ETFs and funds and specialize in some of these segments, or you can come back tomorrow when I’m going to give you my three best picks to benefit from the massive housing. Boom. That’s going to last at least another decade, in my opinion, I’m Tim, Melvin, this has been a better way to wealth and I’ll see you guys tomorrow.
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