172 Is INFLATION running Rampant? – Real Estate Investor Show- Hard Money for Real Estate Investors!

hi folks is it normal to have a samsung refrigerator go up 800 in less than a year that and more after this hey everyone thanks for joining us on the real estate investor show i am bill fairman this is jonathan davis wendy is still vacationing she may or may not have a signal uh obviously may not is the case because she's not on right now yeah i think she's using the old string and cup routine she's not coming through but thanks for joining us on the real estate investor show hard money for real estate investors we are carolina capital management we are lenders in the southeast real estate investors if you are interested in borrowing money go to carolinaheartmoney.com and click on the apply now tab if you are a passive investor looking for passive returns then click on the accredited investor tab don't forget to like share subscribe hit the bell and lastly don't forget to sign up for wednesday with wendy [Music] wendy gives up 30 minutes per person every wednesday except for when she's on vacation obviously to talk about real estate uh matters i mean you can talk about other things if you want but you're wasting your time if you don't and there's a link to her calendar she's uh actually backed up through september so early october now yeah absolutely so how's it going it's going great it's going great bill how are you doing i'm i'm doing good excellent um i got the sniffles that's okay you know what i like to say yeah i think it's allergies that's how it starts if i go get tested for allergies i'll call it coven they need to they need the extra uh amount of people that no there's yeah they need the numbers up so they can scare more of us i still and i still love you know talking about that you know the cdc releasing numbers on florida where they combined multiple days into one it was like oh florida's highest three-day average ever and then florida department of health is like you combined a bunch of days together so it's it's i'm sure it was a mistake yeah yeah absolutely um we are definitely living in some interesting times um if you're trying to get any work done on your home it's amazing and i know we talked about this before with uh our friend um alistar mcdonald where he lived in zimbabwe and they had to pay their employees in the morning and in the afternoon or they they couldn't pay for dinner well you can't even pay your contractors because they don't even show up well that's true they had that same same issue here recently yeah so um let's talk about a little breaking news that's going on if you don't mind i mean obviously there's a lot of breaking news we've got the southern border we've got afghanistan what's going on in afghanistan yep we've got the infrastructure bill that is apparently doesn't have a whole lot to do with infrastructure still even though this first one has a lot more in it about infrastructure than the next one coming up i wonder what percentage if we could break it out percentages i don't know what that is i just if someone knows you know chat that in i'll use our little our chat box there oh yeah i'll tell you about that yeah chat on the right or underneath depending on who's what that is yeah well scott was just telling us the the bill's 2 400 pages long yeah and you know the senators and the congress people they're they're not reading that whole thing they have staff that reads it for them sure so there's going to be things that are going to be missed i know scott had mentioned that towards the end there's a thing about crypto currency in there that they have to report all transactions to the irs because cryptocurrency although they call it currency isn't considered currency no it's a an asset yeah i mean it's it's it has nothing backing it i mean it's not currency is backed by something right so when you buy and sell crypto it's going to be just like any other stock or a solid asset you're going to pay capital gains on it and so they're they're trying to figure out ways to uh tax everything oh sure keep that in mind if you own any uh crypto stuff so uh unemployment came out today and it was below expectations it was like 300 and i'm sorry yeah 345 000 uh claims they were expecting 365 so it's absolutely below expectations that's good and then continuing claims i mean we're down uh two point uh six or seven million uh so those those content continue to go down but you're still going to have a lot of people that are sitting on the sidelines depending on where they are and then certain industries that didn't really come back from this you may or may not want to come back now if you're employed in that industry yeah i mean that especially how old you are if you're close to retirement anyway right yeah and the people who are the owners of whatever industry you know that is the you know the small business are they too heavily regulated or is it too onerous right now to even come back no i know i i really feel uh sorry for new york california folks that are in small hospitality businesses uh gyms that type of thing that i tell you they're they're really trying to kill the small business guy down there not not only that they're putting on these new mask regulations and mandates and vaccinated and unvaccinated and they're making the business owners police it yeah i mean that the first of all they're not qualified for it yeah and they're having a hard time finding enough employees as it is now you're gonna have to hire somebody else just to be there well just on that note so i read the uh i had nothing else better to do i read the report from the white house of you know the back and forth between it was like dr murphy fauci and then another one i can't remember starts with the w but anyway i just like read the report because i didn't watch it and what was interesting to me what i took away from that again this is my own opinion uh it seemed like they were encouraging [Music] people to basically shame others or to you know to you know basically comply with no question right and you know my my personal belief is you know comply demanded compliance is freedom lost i mean 100 but that's just my opinion um i'm glad we're i'm glad we're no longer dividing each other so interest rates have been uh kind of flat uh this week yeah it hasn't changed much i think 30 years uh two 2.8 something mm-hmm yep 15 is in the what two two two yeah low twos instead it's like two and a quarter so nothing's changed there and mortgage applications are still down uh those people that have refinanced have already refinanced yeah more yeah and inventory still yeah and all down and the applications for purchase are down it's only because of lack of inventory well into lack of them you know we talked about this last time that lack of inventory but also lack of qualified people or qualified applicants to afford those homes like like being priced out of being priced out of a home like i can't remember if i shared this last week or not that i did about you know zillow offering my neighbor over 50 000 more than what they would have listed it for with an agent like people are just getting priced out of homes yeah i think uh um the fh fa has decided to allow rental histories as part of the qualifying for andy freddie loans and the uh automated underwriting which apparently they didn't because it wasn't on the credit it wasn't figured in as part of the yeah now you still had to get a verification of rent to show that you were paying on time but they have an algorithm in a computer when they underwrite you um to get their dti yeah right and now it's going to be included in that which they didn't include before uh that's something to keep an eye on with the [Music] rental history with the people that weren't paying rent during coven and the landlords are saying hey no they didn't pay me squat yeah how's that going to affect them now that might be an incentive to make sure that they get their rent paid on time oil prices are dropping it's down to 63 dollars a barrel and earlier in the week it was still in uh 67 68 a barrel so i think that's a little more of a reflection on how the economy is kind of slowing up a little bit when you look at the consumer numbers uh the january or july sales in august well they haven't got the august sales yet but july sales were down a little bit yeah the good news is uh big business uh industrial sales and capex spending on businesses are still going pretty high so the consumer is holding back a little bit but businesses are spending money anticipating because they're assuming there's going to be some drugs and then we've got you know the obvious supply chain issues that are going to be worked out at some point i mean that that's honest that that came up today when i was uh chatting with a potential equity deal they were doing i mean it was a new construction and that was the whole you know core focus of the conversation was supply chain issues um overruns on costs overruns on time you know what would be the you know potential of capital calls et cetera you know of going on that because that's the number one focus right now is supply chain and costs yeah so uh last week we did a little walk around rock hill and we have a builder that is building a couple of homes here right now one of them is one that we financed and is a spec home yeah and the other one is already sold yep sold for 339.

And he's well i'm talking about the the new construction oh the new one that's okay that's yeah it was pre-sold and we're assuming the borrower got the financing for it so here's the deal if the borrower has gotten the financing for it and i wonder what his contract was like we need to talk to him about that yeah did he leave it kind of open-ended on what the prices are going to be so you know you're giving him a price is it gonna you're gonna be able to hit that target by the time you finish the house if uh it's not pre-sold like the house we're doing he can sell it forever whatever he wants when he finishes sure you know based on what it cost him but if you've made a commitment to somebody is there something in that contract that says you would have to have your materials yeah and how does the bank do that they have to make sure that they have enough money in them well i mean when you own account yeah i mean and what's your contingency budget you know most people don't go over five percent on the contingency and honestly two or three is pretty typical yeah on contingencies uh just extra cash that you keep in the account just for overruns well as we know things are a lot more expensive i know um i know it's like a track home builder was actually in savannah they were you know building new homes and basically they were changing the price by i think it was five or ten thousand dollars every month so if you got in in july you know at x price the next month would be ten thousand dollars more and they have a better control over their material cost because it's it's a like a community of like 200 homes they're all track homes so even they were increasing the prices by five to ten grand well some other things they might start doing too is just giving them a fixed credit for appliances instead of putting them in themselves so here i'm going to give you this is the amount i'm spending on appliances i'll give it to you by your own yeah and then a lot of people would do that because they wanted upgraded appliances anyway but now they're doing it because you know you never know what the appliances are going to cost by the time it's ready to put it yes yeah um okay so that's it for the breaking news thanks for hanging in there with our little long-winded breaking news um let's talk about our ugly question of the day [Music] and so our ugly question is is it normal is inflation running rampant or is it normal to see a 800 increase in a refrigerator in just one year we were talking about that a little bit earlier um no it's not normal and yes inflation is uh hey again we don't know if it's going to be temporary if it's going to be long term i know there's inflation because of supply chain issues but there's also inflation caused by too many dollars chasing too few products and if we have and it depends on government on what they're going to do i will tell you this the fed has decided to start tapering their purchasing of treasury u.s treasuries yes which is going to do a couple of things one of it's going to raise rates because you're actually going to be able to sell bonds at a normal market price instead of having a giant government wouldn't it be interesting if it didn't raise rates wouldn't that be interesting yeah i don't think that's going to happen but it'll be more of a market value jonathan and i were just talking about this yesterday there are banks now selling the risk of their short-term uh loan so when a regular mortgage company makes a loan the way they operate their business is the bank will give them a line of credit that lasts for typically 90 days it's a revolving line of credit so when they make a batch of fannie freddie loans they have 90 days to sell it to somebody else or to fannie freddie yeah and if that loan defaults uh in that 90 days then you know the bank's kind of holding the actually it's the mortgage company kind of holding they have to buy it back correct they do have to fight back but some point if the mortgage company uh can't pay it then the bank is is on the hook for it so they're selling the the risk to people default risk the default risk to people that are chasing yield and you're you're i love that you use the word chase like the phrase chasing yield tell cause don't tell what they're paying um they're they're paying they're getting five percent whoa they are chasing a big whale a well of a well of a yield there now think about this though the risk to a defaulting fannie mae loan remember jonathan was just talking about how hard how much harder it is to get a fannie mae loan the credit scores are higher the debt to income ratios are much lower so it's harder and harder to qualify for one of these loans the chances that you're going to default in the first 90 days are minuscule you would think so don't you think yeah but there was a a bank out of texas i believe it was they sold 275 million dollars worth of these default risks and you know they're getting paid a five percent return for this so i get it again again we were joking that even junk bonds now are returning you know four and five percent yield that's true and when it used to back in the day you know you were getting the weigh in double digits on junk bonds because again there's a reason they call it junk they're really good it's a really really good that's a pretty high risk well randy better sent me this article this morning which i think works out really well with what we're talking about you know in the housing market we're talking about the lack of supply the inflation that we don't know if it's gonna well it will end but we don't know when and how high it will get and then we have this extra that's in the article is entitled bubble talk so this fellow ben winick of the business insider had this article and it was basically three reasons why we're approaching uh housing bubble in the us and when and just so when everyone here watching so when you say a housing bubble what is the occurrence of that because i know everyone's mind goes to 2008 well that's what they constantly compare it to and that'll be in here so yeah reason number one prices are above the bubble letters are levels uh case-shiller index has exceeded the heights of the late 2000s boom now i did go back and read the article to make sure because first thing i thought of was is this inflation adjusted yeah because sure it's going to be higher than the 2000s stuff goes up in price yeah now to me even with inflation adjusted if we're just now a little bit over top of the original bubble numbers that's still well within normal appreciation over time so i kind of discount the prices if you're comparing them to 2006 yeah i mean and the reason for them is a much different factor than if you compare them to that 2006 exactly and we'll get that to that in a minute but we know speculation lack of inventory yeah so houses are selling with bubble intensity bubble intensity wow so beyond the price growth the ferocity of which homes are selling is possibly the wildest on record so beyond price of the ferocity man and then you have to ask why and where yeah more importantly who yeah if we if we break these numbers down uh everything and again they're using national averages sure so we know that in places where people and i showed you that migration chart last week yeah places where people are moving out of aren't going to have the same intensity of places where people are moving to again we go back to inventory issues right and 100 we also have to worry about uh you know a fear of missing out thing going going on because you have really low rates yeah and you have am i going to be able to find a house in the area i want to be in so that's going to help that right yeah and then the third one rents are spanking higher nationwide the price to rent ratio rose just above 1.5 in 2006 and they sat at 1.45 in may of this year i don't know what the hell that means frankly i should have gone back and read the numbers but um why would you think rents are going up uh because they're being controlled by large firms that have mass portfolios of rentals that's one yeah another reason rents are going up is because it costs more for the houses now well so if you're paying more for the house you guys want to use the rent it costs more to buy the house costs more to build the house um it costs more to maintain the home it costs more for sure your property manager well and you better believe that every municipality reassess those uh property taxes that that's right because the values of the homes have gone up yeah all i mean listen i live in union county they voted to raise property taxes there as well um it's almost like that you know like municipality forced gentrification like they're re like i i've seen so many wholesalers with deals and they've got it from people who can't afford their taxes on their homes anymore because the taxes in some cases went up close to a thousand dollars in a year um and people are just selling it because they're like well i can't afford to live here anymore yeah so i guess interesting no they did go uh this article was presented in uh roof stock newsletter so they had their own commentary and this is what was later discussed in the article is that creditworthiness of the mortgage borrower and lending standards are significantly different from 2006 further the pandemic exacerbated supply chain created pinup demand for different housing types meaning most people were moving out of multi-family in the single family because they didn't want to be stuck up against somebody else that had the disease and it also allowed them to move further away from their jobs as well taking a look at mortgage debt as a percentage of disposable income we are at all-time lows so people are saving money they're not going to get into the same financial situation yeah like we said before the reason for the pricing increase is completely different than it was in 2006 so i haven't read this article but i would disagree that there is an imminent bubble coming well i think a lot of times people do these bubble things just so they can get somebody to click on the headline i mean i've been reading about housing bubbles since 2016.

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Yeah so so i mean it's uh and in 2016's nothing like it was or like it is now and then part of the argument against is that the current redfin data points to a cooling of the housing market as a share of homes for sale increasing for the past three months to 4.9 which is good there's more houses coming on the market now more houses being listed um they're staying on the market a little bit longer uh 17 days which is i have to laugh it's that's a long time to be able to market 17 days half a month man i was sweating it for those 17 days if your house didn't sell um and then the percentage of houses in may selling for less than less yeah less of a premium above the listing price has gone starting to go down but listen that's going to happen you're going to have uh when you have supply and demand issues when there's not enough supply people are going to be willing to pay more goes there's going to be a frenzy to uh to purchase as people start saying all right well this is not really the market for me to buy in i'm just going to continue to rent yeah then houses are going to stay on the market a little bit longer those folks start to panic a little bit and they start dropping their prices you have to let market forces uh do their job that's right i'm just i'm just tired of people who are like housing prices are higher than they were in 2006.

We've got to be in a bubble it's like well of course housing price that's why we invest in houses because they go up over time well you need to put you have to have shelter yeah you have to have food and children yeah um now this part of this um and if you're not getting part of these uh roof stock uh newsletters you need to sign up for their their stuff anyway they've got some good information in there whether whether you're buying homes with them or not they do give you some some good information well what do you think do you think that we're heading into the bubble you don't my short answer or no yeah and i was hoping we were going to disagree on it no now let's talk about real quickly because our next show that we have coming up at one o'clock we're gonna have uh jim shields on he does um build to rent and there's a link to our next show he's a great guy he does he has a build to rent operation in jacksonville florida he's got actually he's all over florida now but he is based out of jacksonville and there's also a small landlord updating here and they're getting their teeth kicked in with the these rent moratoriums that's been going on and oh by the way uh supreme court found that it is unconstitutional for the cdc to extend a rent moratorium that they have to have congress do it not the cdc they don't have the authority which who would have thought we already all knew that they would have thought that but of course the administration is appealing and by the time all this gets through the courts that extension date will have expired so it doesn't really matter but the problem is the small landlord more than 50 of the rental the residential rental market is people that own fewer than 10 units yeah and a lot of these people that did it for their retirement very few you can't so you can't live make a living off of 10 units of rental so it's a supplement for your current income or they're doing this for their future retirement it's a retirement strategy for most people yeah and so you've had all these people that are not uh getting their rents and if they have mortgages on it they're either defaulting on their own mortgages for these homes or they're taking the money out of their pocket to make sure that it gets paid and then so what's going to end up happening we're going to end up with more inventory on the market at some point and based on this small landlord update i think we're seeing a lot more people sell there i think every landlord that loses a home through foreclosure because of a tenant not paying for a government incentivized program should collectively get together and sue the government i mean it says here that this is ridiculous as of february 2021 almost a quarter of these mom-and-pop landlords and again these are people that own fewer than 10 properties um where was that yeah um almost a quarter of these mom-and-pop landlords have sold their property since uh yeah february and who's and who bought them well typically it's going to be your big portfolio your big portfolio yeah exactly you know when you start connecting dots it's it gets a little you can go down rabbit trousers and why are these big companies in the housing business because they don't want to make five percent on risk defaults they don't want to make five percent and why are they willing to overpay by fifty thousand dollars because they know that the future is in housing housing yep single family housing to be exact all right folks um thank you so much i hope i hope this information was helpful to you and uh and if it wasn't direct all your emails to bill thanks again for joining us on the real estate investor show hard money for real estate investors we are carolina capital management we are lenders in the southeast for real estate investors if you're interested in borrowing money go to carolinahardmoney.com and click on the apply now tab if you're a passive investor looking for passive returns click on the accredited investor tab and don't forget to like share subscribe where's our bell i gotta have it and don't forget to sign up for wednesday with wendy again we have a link in the in the chat for her calendar she donates one week one week one day a week to help others so get on the get on the schedule all right guys it was a pleasure we shall talk to you soon don't forget about our one o'clock show with jim he's a great guy he's got great information take care [Music]

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