Mortgage insurer Radian Group Inc. announced it will lay off 166 employees, effective Dec. 1 from two of its offices in Pennsylvania. Out of these workers, 66 employees are from Radian’s Delaware County headquarters and 100 are from the Allegheny County office.

The company employed 1,800 people at the end of 2021.

Radian has joined the many mortgage and real estate companies who have laid off employees to cope with a volatile market due to the Federal Reserve’s rate hikes, among other factors.

In response to an email, Radian spokesperson Rashi Iyer cited the slowdown in the U.S. housing market that has affected mortgage-related and real estate companies, as the reason behind the layoffs.

“These changes are deeply difficult, but they are a necessary reflection of current market conditions that will enable us to manage expenses and maintain our strong position over the short and long term. We are thankful for the countless contributions these employees have made to Radian, and we are committed to treating everyone with the utmost respect and dignity as they transition to new opportunities,” the email stated.

Iyer said Radian is offering severance packages, benefits, outplacement services and job training to the employees who were laid off.

Radian recently announced its 3Q earnings, reporting revenue of $296.2 million and profit of $198.3 million.

Private mortgage insurance protect lenders from payment defaults when borrowers’ down payments are less than 20%. According to the Philadelphia Inquirer, Radian reported an 18% rise in defaults on its portfolio of insured mortgages during the third quarter, as compared to 2021.

Nonbank mortgage lender Pennymac Financial Services announced a new round of layoffs in the last week of October ahead of its Q3 earnings report. It is laying off 80 employees effective Dec 20.

Pennymac workers who were laid off are being offered severance packages and the company is setting up a recruiting channel to help them get rehired in the future.

Pennymac laid off 32 employees in July, before its second-quarter earnings report.



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Despite increased competition, wholesale lender Homepoint has rolled out a new home equity line of credit (HELOC) product. The goal is to court more brokers at a time when home equity levels remain high. 

Available on investment properties, single-unit owner-occupied properties and second homes, Homepoint’s HELOC product allows eligible borrowers to access between $20,000 to $400,000 of their home’s equity as a line of credit, the Michigan lender said Monday. 

Provided that borrowers keep at least 15% equity in their home, they can get a HELOC through Homepoint with a five-, 10-, 15- or 30-year term and two- to five-year draw terms.

“This new home equity line of credit is another way we’re aiming to position mortgage brokers at the forefront of consumers’ minds when it comes to home affordability and maximizing the value of their home,” Phil Shoemaker, president of originations at Homepoint, said in a statement. 

A HELOC allows homeowners to access their equity without refinancing their primary mortgage. It works as a revolving line of credit that allows borrowers to withdraw as needed, and it comes with a variable interest rate. Once dominated by depository banks, nonbank lenders have joined the home equity lending space to take advantage of high home equity levels.

While equity among mortgaged homes dropped by about $1.5 trillion from its May peak, equity positions still remain strong, according to Black Knight. Home equity is still $5 trillion, or 46%, above-pre-pandemic levels. In turn, the average mortgage holder is still up by more than $92,000 compared to the start of the pandemic.

Among the nonbanks that have introduced HELOC loan products are Guaranteed Rate, United Wholesale Mortgage and loanDepot. California lender loanDepot most recently launched its HELOC, which allows homeowners to access between $50,000 to $250,000 of equity through a 10-year, interest-only line of credit, which is followed by a 20-year variable repayment term with no prepayment penalty.

Homepoint, which ranked as the 14th largest mortgage lender on Inside Mortgage Finance’s list, originated $25.95 billion in volume as of September 2022, down 65.7% from the same period in 2021.

Soaring interest rates and aggressive pricing from its rival UWM hit Homepoint hard. The wholesale lender reported a $44 million loss in the second quarter and shed about 75% of its workforce in a year to cut costs. 

Home Point Capital CEO Willie Newman acknowledged in its second quarter earnings call with analysts that “competitor actions have added to the challenges of a down origination cycle resulting in historical lows in market level margins.”

Homepoint will be releasing its third quarter earnings on November 10. 



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Interest rates have become a hot topic over the past six months. Back in 2020 and 2021, homeowners were bragging to their friends about their rock-bottom mortgage rates and how they secured financing at three percent or less! But times have changed, and seven percent interest rates are becoming the norm. Now, nobody is bragging—in fact, many investors are too scared to buy, thinking that today’s interest rates are far too high to buy homes with. If you’re following this thought process, you could be making a BIG mistake.

Welcome back with another Seeing Greene episode, where our “high rates, who cares?” host, David Greene, answers questions directly from investors just like you. In today’s show, David coaches a young investor on building his side business, why quitting your job could be a mistake, and how to learn from past deals to build wealth far faster. Then, David pivots into answering questions from investors on how to get over your fear of taking on good debt, how much to have in safety reserves for your property, and why being scared of high interest rates could hurt you in the long run.

Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can hop on a live Q&A and get your question answered on the spot!

David:
This is the BiggerPockets Podcast show 684.

Parker:
The goal is to eventually use our business and then any other source of income that we can to invest in real estate. I’d like to get one to two properties each year for the next five years. Then, long-term goal is eventually to have a portfolio that pays for our lifestyle that we can go full time into.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Greene episode. If you haven’t seen one of these before or heard them, this is a show where we take questions from listeners just like you that want to know what they can do to be a better investor, improve their wealth, overcome obstacles, fears, concerns, questions, ignorance, whatever it may be. They bring the question, I bring the answers. You get to listen and you get to learn. We call it Seeing Greene because in these episodes, I’m explaining what I think they should do based on my perspective, and my last name is Greene and we’ve got this green light behind us. You know that’s what you’re getting into. Today’s show is a lot of fun. We talk about overcoming interest rate ego. If you’ve ever had that tendency to want to brag about the rate you got, that might be costing you more money than you realize, and we talk about that with one of our callers.
We deal with how to deal with the fear of good debt. Fear is real. It is a part of all of our investing journey. Debt can be scary and I tackle how to overcome that as well as different ways that you can look at debt to change your interaction with it and a different way to look at money. Our relationship with money will have a big impact on the success that we have with it or the lack of success that we have with it. Money is not just a thing, it is a concept, and your relationship with that concept is very important. Several times throughout today’s episode, I challenge conventional thinking and ask you guys to wake up, get out of the matrix and see money for what it really is. We also have a great conversation with a guest who has huge goals and we talk about what can be done to help them achieve it.
All that and more on today’s Seeing Greene episode. Before we start the show, today’s quick tip is we’re approaching the end of the year and I want to help everyone get clarity, focus, and attention. I ask, “What can you do to set yourself up for the new year? Do you have goals? Are you planning them? Do you have actionable steps you can take that are the keys to success as they build on each other?” We will commit to helping you in these areas to see the results you want and change your life trajectory if you commit to doing the work and taking the action to get there. Don’t wait until next year before you start planning for it. Start planning right now. Tell me what you want that year to look like in the comments below and what you’re going to do to make sure that happens. All right. We’re going to start today’s episode with a live call with someone who has questions and I’m going to dig into their scenario and see what I can do to help them. Let’s get into it. Mr. Parker?

Parker:
Yes, sir.

David:
Welcome to Seeing Greene. My man, how are you today?

Parker:
I am doing great, man. I’m excited to be here.

David:
We got a lot of green going on. I’m David Greene. I got a green shirt. We got a green light and we are going to dig into what we can do to making you more green. Tell me what’s your first question here?

Parker:
My wife and I got into real estate the beginning of 2022. We wanted to kind of change our lives and change our situation. We set a goal to get involved in real estate beginning of 2022, and then we found our first property and closed on that in May. That’s what we’re living in right now. We’re house hacking that. It’s actually a single family. We’re living in one bedroom and we’re renting out the other two bedrooms. It’s a play on house hack. It’s not a duplex, but…

David:
No. That’s a house hack. Just a variation.

Parker:
Yeah. Yeah. It’s working out. We’ve enjoyed the process. I guess my question is we’re looking at property number two, but we recently became self-employed after we got our first property.

David:
I’m hearing discouragement in your voice. Are you feeling discouraged?

Parker:
Yes.

David:
Okay. All right. Continue.

Parker:
Yes. I’ll get to that. I really underestimated the difficulty of financing compared from a W2 to being self-employed. I’d like to try Airbnb. I’m actually right now working on going under contract on one that I found. I have found private financing, I think. Private lending for the property. The 20% down payment though is where I get stuck and I’m wondering what strategies people have used or what tips people have used to be able to maybe possibly finance the down payment as well because it’s 20% from what I’m hearing pretty much around the board.

David:
All right. Let’s start with a few things here. Then, I’m going to throw it back to you with some more questions. First off, if you’re going to buy an investment property, it’s almost always going to be minimum of 20%. Now, the one brokerage did have some options of 15% down and those do come back sometimes depending on the appetite for lenders. In general, when there’s a lot of confidence in the economy, we get lenders to give us more favorable loan terms because they want to put their money out into play. They’ll give us 15% down. They’ll give you better interest rates. You’ll get fixed rates instead of adjustable. When there’s nervousness about the economy, lenders pull back and then the lending programs that we offer are worse. You should always assume 20%. A lot of it is 25% and sometimes even 30% because obviously, there’s fear about the economy.
Now, that is good for buying homes. There’s going to be less competition, but the terms you’re going to get are bad. The first lesson I want you to learn here is that you never get at all. There’s a give and a take. Okay? When the defense is giving you an opportunity to run, it’s very hard to pass. You’re not going to get both. You got to take what the market is giving you. The next piece I’m going to say has to do with your concerns with financing because you’re not working a W2 job. You’re self-employed. Right?

Parker:
Yeah.

David:
You probably weren’t anticipating how hard it would be to get financing when you’re self-employed. The reason is the lenders say, “Well, if you don’t have a W2 job, we’re not very confident that you’re going to continue to get paid. We’re not confident you’re going to continue to make your payment to us.” That’s where you’re running into that problem. What motivated you to leave the W2 and to get into the self-employed space?

Parker:
Really, really, really long story short, this same year that we decided to get into real estate investing, I also wanted to become a realtor, so I became a full-time realtor. The company that we were working for, my wife and I actually had the opportunity to work together for the same company. When I stepped away, another really, really important individual stepped away as well and the company actually closed up shop. They actually laid my wife off when that happened, and so we decided to then just open up a business doing the same thing we were doing. It’s dog training, so we’re dog trainers. When I left to become full-time into real estate, we were predicting that she would stay, have our W2 and we could get financed that way. When they laid her off, we opened up our own.

David:
Okay. You had the initial plan correct. One of us keep a W2, one of us venture out. You got one foot in security. You got one foot in adventure. That’s ideal. Then, the security foot fell out so your wife jumped in with you and now you guys are doing this thing together. Okay. First question before we get into real estate, we’re going to talk business. Does your wife’s presence in the company at least double the productivity of said company?

Parker:
100, yes.

David:
Okay. If you took either of you out of it, would there be less than a 50% reduction?

Parker:
No.

David:
Okay. Each of you are so valuable to this company that you both need to be in that position?

Parker:
Mm-hmm.

David:
That’s objectively speaking. There isn’t a level of comfort or fun that you like working together and that’s making your business decision here?

Parker:
Objectively speaking, I could leave. She would be swamped.

David:
Now, if you left and she became swamped and you hired an admin or a virtual assistant or somebody to help, could that business still run?

Parker:
Yes, I think so.

David:
Okay. Is this stuff she’d be swamped by revenue producing activity that she’d be losing leads of people that say, “I want you to train my dog?” Or would it be administrative stuff like making sure dog food is ordered and making sure the kennels are cleaned and… I don’t understand your business, so I’m just saying the stuff that could be leveraged out.

Parker:
She’s very much income producing activities. Yeah. That’s what…

David:
Okay. Who’s handling the majority of the operational stuff, like making sure that you can run the business but not necessarily generating revenue?

Parker:
I guess that’s what I’m doing. I’ll help train and then I’ll also help a lot at the accounting and the numbers and the administrative part of it backend.

David:
Can you do that and have another job?

Parker:
Oh, I think so.

David:
My guess would be you’re a smart dude. You got your license in real estate. You’ve taken action to buy a house. You had a W2 job. You jumped into starting this business. You recognize your wife is better at training and sales and you are better at operations. Those type of people are good at being efficient, meaning you get stuff done faster than the average person who’s doing your same type of work would and I’m that way. I’m very efficient. You give me a job to do. I find a way to get it done better and faster than other people because I just enjoy that. Right? You take your average W2 worker and you give them a job and they’re like, “Okay. How do I stretch this into my eight-hour day?” You give it to me and I’m like, “How do I get the whole thing done in two hours, so I have six hours to help other people at their work or do something else?”
If you’re that way, which it sounds like you are, there’s nothing that would say you can’t do both. Now, you might have to be picky about the type of W2 job you get. Okay? You can’t be driving a truck and doing accounting at the same time, but you could be working at a place where you’re not getting a ton of exposure to customers where your job is to keep the books for somebody else. I’m just making something up, so don’t take any of this direct, but something that you like doing that you could do quickly that will give you time to then also work on this stuff in the business. A lot of the stuff in the dog business can probably be done at night. Right? You don’t want to work 20 hours a day, but there’s certain tasks that have to be done the minute they come in.
There’s other tasks like bookkeeping’s a great one that can be done anytime, right? In my business, if I got to talk to a client, if I got to interview somebody, that has to be done at a certain time of the day. But if I’m writing a book, that’s flexible. I can work that around anything I’m doing. I use that to fill in the gaps. I bet you could approach your situation the same way because somebody needs to be the hero in the situation, Parker. I think it’s you. You need to be able to step up and get that W2 job, which will not only allow you to get loans again, you’re going to make more money. I don’t think your revenue’s going to drop from your business of training dogs and you’re going to start bringing in more revenue from a W2. I always look for the synergy. Okay? What one action can I take that gives me benefits in several ways?
That’s how I came up with this solution. It gets you into buying real estate again, which will make you money. It gets you into making more money for the household, which will make you money. It gives you the opportunity to get the down payments saved up quicker. Right? Everything that you’re trying to accomplish… This is a principle, The ONE Thing. If you’ve ever read that book, what one action could I take that would make everything else easier or unnecessary? If you find the right W2 job, I think that there’s a pretty big opportunity for you there. It’s got to be the right one. You don’t want to just jump into the first opportunity you get. You want to have it being paying well in an industry that has flexibility with you being left alone in a cubicle or something where you’re not being micromanaged and uses your skill set. I think that that’s a big win for you. Now, do you have any questions there before we move on to the actual real estate part of your question?

Parker:
No, but I had not thought about that at all. There’s a lot of thinking I have to do on that because when we moved… Yeah, I could elaborate but for the sake of time, no. No more questions on that.

David:
I irritate people with this type of thinking. If you’re my partner, like my partner Christian and the one brokerage has to deal with this, Kyle Rankie with the David Greene team, I am frequently frustrating them because most humans look at a perspective of like this or that. It’s a binary. I can have a W2 or I can be a full-time investor or I can be a full-time entrepreneur. We hire the person for this reason or that and I will frequently look at it and say, “There is not 40 hours of work for this person to do this thing, but we still need it done.” Right? If we hire them to do this thing, they also have to be able to fill their time in doing other things. Do we have stuff for them to do? You see their brain just go on the fritz like, “Poof. What?” But that’s not their job.
We got to think differently. Their job is to work for the company and help the team win. If that means that you’re our offensive lineman, but you’re also on special teams or you also mentor the younger players, we got to get some value out of these people, so we can pay them what we want. I want to encourage everyone to think that way because this is how entrepreneurs think. This is how problem solvers think. You’re a freaking problem solver, Parker. I could tell right off the bat and I would bet you when we get into your real estate question that that binary kind of thinking, that screwed you up and discouraged you and I’m going to give you some solutions here to break out of that. You’re going to feel better. All right?

Parker:
Okay.

David:
The first thing I wrote down is you bought a house hack with three bedrooms. All right? Before I’ve asked you any other question, do you know what the first thing that went through my mind was when I heard that? It’s okay if you don’t. I’m just curious.

Parker:
No. No. I could guess, but I’ll say no.

David:
Yes. No. Take your guess.

Parker:
Well, why only three bedrooms?

David:
Yes, you’re right. You got it. That’s right off the bat. If you’re going to do rent by the room, then the value is in the rooms.

Parker:
Yeah.

David:
Okay? If you didn’t do it in rent by the room, either you didn’t know or weren’t smart enough to tell that’s the right way to go, which I don’t think is true because you’re intelligent, which means you made the decision based on emotion, meaning maybe your wife or you like this house or like this area or it had the yard that would work for the dog training or something about it that you liked other than the specific business purpose of making money. Am I right so far?

Parker:
Yeah. Yeah.

David:
Okay. I know this is true because when I asked you earlier, is there a way that one of you could leave the company? You’re like, “Absolutely not.” Then, I asked, “Was that objectively true or is that emotional?” You’re like, “No.” Okay. I suppose that I could leave. Right? Emotions factor into your decisions and that does not mean you’re weak. That does not mean you’re bad. It just means you’re being honest. That’s why I asked the question. I’m not shaming you for saying you made an emotional decision, but you are doomed to end up in that state of discouragement where you started if you can’t recognize an emotions weighed into my decision. Like I told you, I frustrate the people that work with me, Kyle, Christian, other people. It’s because I am frequently asking them to do things that are in the best interest of the company that push against emotional comfort.
I’m asking them to become uncomfortable, to look at things a different way, to make a sacrifice they don’t want to make and they don’t like that and our brain will fight us and they’re like, “Nope, I see where he’s going. I don’t want to give up this comfort thing.” Then, we start lying to ourselves and it’s not my bad if you start lying to yourself, it’s your bad if you’re doing that. Right? I just want it to get out of the open, so you realize it’s happening. Because the minute you’re honest about that, solutions will start to make themselves known. Sorry for my coughing, I got sick after BPCON from shaking 2,000 hands or whatever it was when we were there. Now, let’s move into your state of discouragement. That is very expensive. That’s a trait that we have as human beings that will hurt if you get discouraged. If you’d have bought a five-bedroom house instead of a three-bedroom house and you were making more money, you’d probably be a lot more excited about house hacking. Is that fair?

Parker:
Yeah. That’s fair.

David:
Outside of how many bedrooms you got, is there anything else about that deal that you think you screwed up on?

Parker:
It’s a little old. It was built in 1990. Depending on who you ask, it is a little older. There’s some pretty big CapEx expenditures that I’m anticipating in the next, however, so many years like the roof and the HVAC.

David:
That’s normal. Every house you buy is going to have that. Don’t beat yourself up about that either. Here’s what probably happened. After you bought this thing, you’re looking back and seeing what you could have done better. Is that fair?

Parker:
Yeah.

David:
Okay. Have you ever taken a DISC profile assessment?

Parker:
I have. Yes.

David:
Are you a high C?

Parker:
No, I’m actually… I think it’s a D.

David:
D. What was your second trait?

Parker:
Oh, I don’t remember what my second one was.

David:
All right. Ds, I’m also a very high D. We tend to value and evaluate ourself based on where we are in the scoreboard. If you’re looking and saying, “I’m not making enough money on this deal, other people did better. I can’t get a loan.” You start feeling like you’re a failure, right?

Parker:
Yeah.

David:
You’re not a failure. On the first deal, you’re supposed to fail. The first time you try to ride a bike, you fall over. The first time you go snowboarding, it’s miserable. Your first anything, you suck. Okay? That’s the first piece I need you to recognize is you did not screw up. You did everything right. You had way too high of expectations for your first deal, which is why we house hack because you could pay three and a half percent down, which is like putting elbow pads on when you’re riding that bike. It cushions the fall because you’re going to fall. Going into your next deal, what are some things you do different if you bought a house next year?

Parker:
I was going to do the same thing if I was going to rent by the room.

David:
You’re going to house hack?

Parker:
Oh, I’m going to house hack.

David:
Well, would you rent by the room?

Parker:
No, probably not. I think I would try to actually find a multi-unit like a real duplex or triplex.

David:
You find a multi-unit, your numbers are probably going to work out better. You’re probably going to have more comfort. It’s probably not going to be as much stress having strangers in your house. Right off the bat, that’s a better investment than the first one you made. Fair?

Parker:
Yeah.

David:
Okay. If you were going to rent by the room, you’d probably look for something with five bedrooms plus a dining room that could be converted, so you get six bedrooms. You’d probably try to find one that has one bedroom separated from all the other ones, so you guys can be there. Maybe you even add a kitchenette into that part of the house, so you and your wife don’t have to share space. There’s things you could do to improve and that should be encouraging to you. You could only get better. You did not screw up. You just didn’t know as much when you got started. We’ve got a couple things you could take away from this. You need to house hack again.
The worst thing you could ever do is just stick with this one house that you’re not super happy with. The next one’s going to be better than the first one, so you got nowhere to go but up. You have an opportunity to go get a W2 job to make this happen. You don’t need 20% down, 25% down. You could do it again with 5% down or three and a half percent down depending which type of loan you use. If you used FHA in your first house, you could refinance an FHA again or my guess is you got a good rate, so keep that rate. Just put 5% down on the next house and get the W2 job. Okay?
Contact us. We could talk about what it would take to get you approved for this thing and the W2 job is also going to provide more money, which could be the difference in one year of work of the 5% you need to put down. All right? Now, you’ve got another house. Maybe you do this for another couple years, just building the dog business and work in the W2. You get more efficient and your systems get better in time. The next thing you know, you got four or five houses. You’ve got a solid foundation. Then, maybe you have enough income coming in. You can quit the W2. You could go back to work for the dog thing and that business now, training dogs has established enough revenue that you can claim that on your taxes to go get a house. You just have to have at least two years of that income. Is that what you’ve been being told?

Parker:
Yeah.

David:
All right. There is a path here to get out of your problem. All you have to do is take what you were hoping would happen in one shot, quit my job, go start this business and just stretch it out over a couple years, stretch it out over a couple properties. Don’t put so much pressure on you to do it all in one move and all of a sudden, you’re going to be in a good spot.

Parker:
Okay. Man, that is very good advice. I have a lot to think about. Thank you so much. Holy cow.

David:
You do and you should be walking out of here very encouraged, dude. There’s nothing about your situation that I think is discouraging at all. This is why I wanted to bring you back on to talk more.

Parker:
Yeah. No. Thank you for saying that. I needed to hear that. Thank you so much.

David:
All right. If you haven’t already done so, please do me a favor and take a minute to like, share and subscribe this video. If you would be so kind, please head over to your favorite podcast listening app and leave us a review there as well. Those help us out a ton and I really appreciate it. Our first YouTube comment comes from Matthew Van Horn. “David, more analogies than Jim Carrey has faces green. Thank you so much for answering my question about better goal setting. I have listened to your response three times and I am so inspired. It’s exactly what I needed to hear and I will put it into action by becoming the quality of person that can handle the reward of pursuing excellence. I love your mindset and appreciate when you zoom out and have these bigger picture sorts of conversations. In my opinion, these conversations are more valuable than any deal deep dive that you might do because I suspect that you are more successful due to your mindset than because of your raw deal finding talent, though you’re amazing at that too. No doubt. I don’t actually know Dave Van Horn, but I should reach out to him because I’ve never actually met a Van Horn that I’m not related to. Plus, he just sounds like an awesome guy. I look forward to reading your future book that you referenced about goal setting.”
Thank you very much, Matthew. That’s some very kind words that you shared there. Dave Van Horn is an amazing guy and I think you’ll love him. In my opinion, I think you’re right. I think mindset has more to do with the success I’ve had than actual raw talent at any one thing. I tend to look at the world from a different lens than other people do. As a result, I’ve been rewarded from that, so I like to share it with you guys here on these Seeing Greene episodes and hope that you can see some of the same success that I’ve been blessed enough to enjoy.
Our next comment comes from Giselle Morales. “David, I’ve been watching your videos for over a year now. I’ve been investing in real estate for the past 15 years, and almost two years ago, I was able to leave my 9:00 to 5:00 and live off my investments while learning more with people like you who share all their experience. Not only have I found you super knowledgeable in real estate, but now I can see your growth as a person wanting and encouraging others to become better human beings. I loved this episode. We are investors looking for wealth and if we add the ingredients to become better people every single day, then we are successful already as we are now. Thanks for all you do. Really appreciate. I’m 100% with you.”
Wow. I appreciate that as well, Giselle. This is a better response than I was expecting to get from that episode. Thank you for that. I really appreciate the support. Next comment comes from Sylvia Barthel, “Excellent show. Would love to see more of these areas David is in, why you pick them, what drove you to these specific properties, et cetera. Thank you for the fantastic show and education.” Well, I am glad to hear that. It sounds like what you’re saying is you’d like to hear more about what I’m seeing when I look at stuff or how I analyze it, and I will make sure that as we go through the rest of today’s show and future shows, that I continue to make sure I share the why behind the what that I’m teaching.”
Our last comment comes from Charles Holder. “I’ve listened to you guys for years at 1.5 to 2x speed. Your last bit of advice was the single greatest thing I’ve heard. Be the greatest person you can be. I’ve ever played it twice on normal speed.” Well, hey, something tells me if we can get Charles to go from 2x speed to normal speed, we’re doing something right. Maybe that needs to become one of the goals that I have in my life in general is how can I get people to go from two time speed to regular speed without just talking too fast to understand it at 2x speed. Thank you for that, Charles. I hope that this helps you with the goals that you’re trying to set and I hope that everybody listening understands wealth and success is not a result of just following a blueprint. It is a result of pursuing excellence.
It’s being the best person you can be, being the best investor you can be, trying to do your best at everything you do. I talk about this a lot because the people that I see struggle with real estate investing have often taken the wrong approach. They don’t like their job. They don’t like their life. They don’t like the results they’re getting in certain areas of their life and so they look at real estate investing like it’s going to be the magic pill that will fix that like, “Well, if I quit working for someone else and I work for myself, everything’s going to get better.” But that’s not necessarily true because if you’re doing poor work for somebody else, you’re going to do poor work for yourself. That is even worse, because you were at least guaranteed a paycheck when you did poor work for someone else. You’re not guaranteed a paycheck when you do poor work for yourself.
Rather than getting frustrated, let the results you get be a form of a mirror that helps you look deeper into yourself and see things about yourself that maybe you weren’t seeing. When we show up to a W2 job and we don’t give our best, we phone it in, we just go through the motions. We’re not trying. It’s easy to be separated from the results of poor effort because your boss is the one paying the price, not you. But when you start working for yourself and you’re not getting results, you end up being the one that pays the price. Remember, you cannot escape the need to pursue excellence, to work hard to give your best, but it’s a whole lot more fun and rewarding to give your best in real estate investing and for yourself than it is for somebody else where you may not have a clear path to a better life.
Thank you guys for those comments. We love and appreciate this engagement. Please continue to like, comment and subscribe to our YouTube channel as well as leave comments on this episode. Did you like the live coaching call that we had with our first caller? Do you like the additional questions that I’m answering? What did you not like? What do you wish I’d gone into more or what do you want to hear more of? Let us know and we’ll do our best to incorporate that into future shows. All right. Our next question comes from Angela Haddorn in Pittsburgh, Pennsylvania.

Angela:
Hey, David. This is Angela from Pittsburgh, Pennsylvania and my question is how to get over the fear of taking on more good debt. I currently have three properties. I have two long-term rentals and one short-term rental in Utah, Tennessee and Texas. That’s right. I do not own a property in Pennsylvania because I’m currently living with my parents trying to get out of that situation. Anyway, I have a lot of equity in all these houses. The minimum amount I have, I think is probably about $40,000 and although I started investing in 2019, I just wish I was further along in my real estate career at this point. I know I have the equity. I’m just a little bit afraid to use it for the fear of potentially putting myself into more debt if I were to refinance or something like that. Any tips or advice would be greatly appreciated.

David:
Hey, Angela. Thank you. We really appreciate your vulnerability in sharing exactly what you’re worried about and it’s super relevant because many people listening have the exact same concerns, fears, struggles holding them back. You stepped up and you shared that. Not many people are going to benefit. First off, pat yourself on the back because we all benefit from you doing the hard thing. Nobody likes to admit what they’re scared of or what’s holding them back. Second off, the amount of equity you have when you just start investing in 2019 is very impressive. You should feel really good about yourself with what you’re doing. You seem to be a good investor, which means you should be doing more of it. Now, let’s get into the practical advice here. What I hear you saying is that taking on more debt is scary to you, but when you say scary, what I think you’re saying is, “I don’t want to lose everything I have because I got too greedy. I don’t want to refinance these properties, get rid of my equity and then invest into something else and lose the whole thing because I took a bite too big to chew.”
I’ll tell you how I overcome that and it’s because I look at debt differently than what you may be thinking. The first piece that I want to say is equity and capital are essentially the same thing. This is something I only recently started teaching about because it clicked in my head maybe like three months ago at a retreat that I put on in Scottsdale, Arizona. When we have energy in a property, we call it equity. When we have energy in a bank account, we call it capital, but it’s really the same thing. We just have a different name for it depending on where it’s being stored. Is it stored in a property? Is it stored in a bank account? Is it stored in money under my mattress? Money is a storage of energy and energy itself is what we’re talking about. Okay?
My personal philosophy is I would rather keep that energy in my bank account where I can access it and it has more flexibility. I can use money in my bank account for many things, then keep it in a property where it is more difficult to access and I can only use it for certain things. If you want to access the equity in your property, the energy in your property, that is called equity, you’ve got two options. The first is a HELOC, which is sort of like a door into that store of energy where you can go in and then take it out. Once you’ve taken it out, it can go in your bank account and then you pay interest on that money.
The other option is a cash out refinance where you go in and it’s not a door that lets you go back in and out. It’s one trip in where you grab it, you pull it out of the property, you then put it in your bank account and the amount of money that you pay per month to be able to get access to it goes up because your mortgage on your houses went up. Now, I know this might sound like I’m painting a very simplistic picture, but it makes it a lot easier to understand how money works if you can see it like this. The second part of how I’d like you to look at debt a little bit differently is to try and not think about it like a fixed number like I have 200,000 in debt. I have 300,000 in debt. That really isn’t important from the perspective of safety.
If what we’re talking about is wanting to keep your properties, the amount of debt you have, it’s insignificant. Now, it becomes significant for a different purpose if you’re tracking your net worth. If you’re trying to see how much energy do I have access to, the amount of debt you have versus the value of your properties, that is very significant. But right now, we’re only discussing how to make sure you don’t lose them. The amount of debt you have isn’t relevant. What’s relevant in this perspective is the monthly payment of that debt. Okay. When I’m going to borrow money… Now, we’re also assuming this is a fixed rate. For instance, a 30-year fixed rate form of debt is different than a three one arm or something. But if we’re talking about a fixed rate for a long period of time, you need to look at, “I have to pay this much to my lender every single month.”
Okay? It’s $2,000. It’s $3,000. “If I were to refi and access my equity, would it go from 3,000 to 3,500? Would it go to 3,700?” Right? Try to look at it in terms of what your payment’s going to be every month. Now, that is useful because you can’t control the equity of your property. It does what it does, but you can, in some form, control the revenue that it generates because you already know that. You know what your rents are. You know approximately how much you can get on these short term rentals. If you have a fixed number that you have a pretty solid understanding that that property’s going to generate for you every month and you can turn the debt into a fixed number of the same type, meaning they’re both monthly amounts, now you can make a decision if refinancing is risky or not. For instance, if your properties are bringing in $10,000 a month and you have a total of $5,000 a month of debt and you’re going to bump that up to $5,500 a month or $6,500 a month, it’s easy to see that’s not a super risky play.
But if you don’t know how much money you’re making every month, it doesn’t benefit you to convert the debt into a monthly amount. That’s one of the ways that I move forward by taking on larger amounts of debt is I don’t look at it like I just borrowed a million dollars. I look at it like, “I am now on the hook for the next 30 years to pay this much per month. Can the properties support that? Can my lifestyle support that? Can my other business endeavor support that? If for some reason the properties can’t pay that, can I get a job? Can my book royalties cover me there?” What can you do to make money in other ways to keep them afloat? My guess would be if you can turn the daunting idea of, “I am $500,000 in debt,” that sounds terrible into, “I owe four grand every single month,” or whatever the number would be, it won’t feel as scary and you can make an educated, confident decision based on empirical data like numbers that will help you understand if this is a good move or a bad move and only make good moves.
Hope that helps you, Angela. I know that I gave you a long winded response because it had to do with changing the way that you’re looking at something, which takes more words to describe. Let me know what you think about that. Send us another video and let us know what you’ve decided. All right. Our next question comes from Steve Doteri in Fresno, California. “Hi, David. I have five single family homes and a commercial medical office building. My question is how do I determine how much I should have in reserves for repairs and capital expenses such as flooring, HVAC, roofs, et cetera? Is there a formula or a range I can use to gauge where I’m at? I want to ensure that I have enough reserves so I don’t get into a pinch, but not too much that I have excess cash not working for me.”
Steve, that is a very good question to be asking. As investors, we are always balancing this. We don’t want idle cash sitting around, but at the same time, we don’t want to overextend ourselves, so we don’t have cash if we need it. I don’t have a way that I budget this specifically because I just make sure I’m always working so there’s always new money flowing in case I do have something go wrong. But it sounds like that’s not the case with you, right? What I would do if I was in your situation is I would look at my commercial medical office building, for example, which is more than likely a triple net. In that case, you’re probably collecting money from the tenants every single month to repair a roof that needs to be done or an HVAC or if something goes out, maybe you go out and you do a cash call and you say, “Hey, everybody asks to pony up.” Look at your lease or talk to your property manager and have them review your lease to see if you are on the hook for repairs for that specific property or if you’re not, you’re probably not.
Now, these five single family homes. Just to simplify this, if I was in your position, I would look at all of them and I would look and see how long before the air conditioner goes out? How long before the roof goes out? Now, you’re in Fresno, California. Okay? If we’re just being honest with ourselves, it doesn’t rain a whole lot there. You’re probably not going to have to put completely new roofs on most of these houses if you don’t want to. Patches, repair work, you could probably get by with the roof you have for a very long time. Unless you had a situation with a roof that was significantly problematic, I wouldn’t worry too much about that. I would just keep a decent amount of money set aside, so that you could make repairs if were needed.
Another thing you could do is you could get a home warranty on these homes. It might cost you somewhere between four or $500 a year, but if the HVAC goes out, make sure it’s covered by the home warranty and boom, they will be replacing that instead of you. It’s another way that you can have less money set aside for capital expenditures. The last piece I’ll say is you need access to money. You don’t necessarily have to keep in your bank account. Like we just had with our last caller, Angela, you got to learn to look at money as a store of energy. If it’s stored in the property, it’s equity. If it’s stored in your bank account, we call it capital. You don’t have to store it in your bank account. You can put a HELOC on one of these properties, so that in a worst case scenario, if something goes terrible, you can pull money out of the HELOC to make the repair and then slowly pay it back down.
That HELOC is like a portal into the energy that’s stored in one of your properties that if you need, you can go walk that portal. Now, of course, it’s going to come with an interest rate. There’s a cost of travel in this instance or this picture that I’m painting here, but that’s okay. It’s better to do that than to keep the money sitting in your bank account not working for you whatsoever. That’s one thing to keep in mind. The other thing to keep in mind is that if you’re buying properties that you’re adding value to, you’re not being a lazy investor. You’re going after something that you can make worth more, that’s going to appreciate more over time. You’re always in a position where worst case scenario comes. You could sell something and have a lot of capital now that was converted from equity that you can use to cover for your portfolio.
I do expect that the market’s going to get tighter and tighter and tighter every month while we continue to increase interest rates, so it’s going to be harder to sell properties in the near future unless you bought them 10 years ago or 12 years ago or something where you’ve got a ton of equity, but I don’t think it’s going to stay that way forever. I think rates are going to come back down. The market’s going to take off again, and we’re going to look back and talk about this time as one of the great opportunities to buy real estate that we had and wish we’d taken advantage of buying more. Thank you very much for your question there, Steve, and good luck to you. All right. Our next question comes from Greg Seavert in Hawaii. Greg started short-term rental house hacking his primary residence with great success, then took out a HELOC down payment for a second vacation rental in Florida where he’s originally from. Now trying to figure out how to keep buying.
Greg says, “I have a successful vacation rental in Florida with $100,000 in equity and a good fixed rate at less than 3%. As interest rates rise, should I cash out, refi a down payment for the next property at the expense of a higher rate? That would hurt my pride, but do I need to shift my mindset to make the next investment?” All right. I love this. First off, Greg, kudos to you for admitting that it’s about your pride because interest rates always are. It’s like I make a joke that interest rates are the thing that everybody at the cocktail party when they’re sitting around swirling their drink is like, “Oh, what rate did you get? 3.2? That’s not bad, but I got a 2.95,” and it’s how they feel good about themselves, but no wealthy person that I know ever talks about the cost of their debt.
It’s just not a metric that they look at. They don’t sit there and say, “I’ve got this many properties, but this is my interest rate on everyone.” Right? We measure cash flow. We measure equity because that has to do with net worth, but no one talks about rate, so I gave that up a long time ago. When you’re going to get the interest rate, you get the best one you can get, but you don’t let it actually factor into whether it’s a good idea to buy. I’ve told this story before. I will tell it again. I had properties in California, I believe four of them that all had rates below 4%. Right? It ranged between three and a half and 3.75 for these four different properties. I refinanced out of them until like a 5.65. This was several months ago, and it did not feel good.
I did not enjoy it, not one bit. I felt the same thing as everybody else. It felt stupid to go out of a lower rate and into a higher rate. Well, what I did was I pulled over seven figures out of those four properties, and then I reinvested that money. Now, here’s the kicker. I went from say a average of a 3.65 to a 5.65, just to simplify this, about 2%. If I can make more than 2% interest on these houses that I bought, I’ve already improved my cash flow. Furthermore, if those properties go up in value or go up in the return I’m getting, so if I just get a 2% and next year it becomes a three, I win even more. If the houses themselves become worth more, I win even more.
As I pay down this new debt that I took out with my tenant’s money, I continue to win. As I build new resources in new markets, new agents, new contractors, new people that will help me with future deals, I continue to win. If I bought these new properties at less than market value, I continue to win. What’s funny is that I went through a 1031 where I sold properties and I bought new ones, and I added over a million dollars in equity just from the difference in value from what I paid versus what they appraised for on that. Now, I didn’t buy those with the money that came from my refinance, but let’s say that I did. In that scenario, I went to a worse rate, got a million bucks, and then added over a million dollars in equity to my portfolio. I pulled the energy out of the four California houses. I had to pay the price of a higher interest rate.
I put that energy into new properties and doubled it in just right off the bat. Okay? That’s not exactly how it worked out in practical terms, but it does highlight the point of why it’s okay to refinance out of a 2.95. It doesn’t matter. It does not matter. In fact, the higher rates that we’re seeing now are what is leading to the better price of the homes. The cool thing with the interest rates is they function like a ratchet. They only go one direction if you have a fixed rate. If you get a 30-year fixed rate and you have to go out of your 2.95 and you have to get into a 7% or something like that, 7% is the worst case scenario of what you will pay until it’s paid off. There is a high likelihood that over the next 30 years, rates are going to go less than that 7%.
What if they got all the way back down to 3.2 or 3.3 or even 2.95 again? Well, now you took out all the equity. You bought a bunch more real estate. You paid the 7% for a couple years, and then it dropped back down and you refinanced into something close to what you had, but you’ve got five times as much real estate. I think that’s the better way to look at it. Now, don’t go buy dumb stuff. Don’t go buy stuff that costs you money. Make sure you’re buying good solid cashing assets in good areas, getting it at the best price you can, and then let the market dictate what you do. If the market has rates drop, refinance. If rates continue to go up, buy more real estate at better prices. If it hovers, buy better real estate. You’ve got so many options and ways you can build wealth if you can get access to that energy that is currently stored as equity at this 2.95 number.
Don’t let your ego get in the way. Make sure you’re making wise, good long term decisions, and don’t worry about your rate, because at a certain point, they come back down and you can get it back again. All right. Thank you as always to those who submitted questions for us all to learn from. We really appreciate it. We couldn’t do a show like this without you, and I genuinely appreciate you sharing your fears, your questions, and your concerns as well as those of you that are listening, I understand attention is expensive and you could be giving yours to other people in other places, and you’re bringing it here, and I really appreciate that. Please continue to do so. If you’d like to follow me, see more about my mindset, more of what I got going on. I’m online on social media, @davidgreene24. I’m on YouTube at David Greene Real Estate, and I have a free text letter that you can sign up for called Behind the Shine shining on my head, which you can go to davidgreene24.com/textletter and sign up there and check out my website. Let me know what you think of it.
I just had it made and now I’m having another one made, so let me know what you guys think should be in that new one. The last thing I want to leave you with is I strongly urge you to reconsider the way you look at money. Okay? Your relationship with money will have so big of an impact on the decisions you make for things surrounding it. You’re going to work every day. You’re probably working a minimum of eight hours, plus a commute. Money already takes up a huge part of your life and you can’t avoid it. We don’t want to become a slave to money. We don’t want to worship money, but we also don’t want to ignore the impact that it has in the quality of our lives. If you’re spending this much time at work, understand what you’re working for and how to make it work for you because if you can improve the situation of your money life, you can improve the situation of the quality of your life.
I’m going to be talking more about how money is a store of energy and how looking at it differently will change the way that we interact with it. Please consider some of the stuff I said on this show and let me know in the comments what you think, or if it doesn’t make sense to you, tell me what questions you have regarding this concept that money is a store of energy and I will do a good job, as good as I can to explain it in more depth. Thanks a lot, everybody. Check out biggerpockets.com. Forums, books, blogs, everything that you need, we’ve got it to help you build your wealth. I’ll see you on the next one.

 

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On Friday, the Bureau of Labor Statistics reported that 261,000 jobs were created and we had 29,000 positive revisions to prior reports. This means the honey badger labor market will keep the Federal Reserve from pivoting anytime soon. 

This has been a theme of mine lately. Since all my six recession red flags are up, the only data lines that I am focusing on regarding the cylce of economic expansion to recession are job openings and jobless claims data. Both these data lines were solid this month, so the jobs data won’t turn damaging enough for the Fed to pivot

The labor market is actually running into a big theme of my economic work over the years. I recently talked about it on this podcast because I wanted to remind people that early in the U.S. recovery cycle, job openings getting toward 10 million was part of my forecast. No country has a Dorian Gray labor market and the labor market deals with different dynamics as the baby boomers leave the workforce each year.  

From BLS: Total nonfarm payroll employment increased by 261,000 in October, and the unemployment rate rose to 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in health care, professional and technical services, and manufacturing.

The unemployment rate did rise from 3.5% to 3.7%; this happened once before this year when we saw the unemployment rate pick up among people who had never finished high school. The following month it reverted back to 3.5%.

Below is a breakdown of the unemployment rate and educational attainment for those 25 years and older.

  • Less than a high school diploma: 6.3%. (previous 5.6%)
  • High school graduate and no college: 3.9%
  • Some college or associate degree: 3.0%
  • Bachelor’s degree and higher: 1.9%

The unemployment rate can rise if the labor force pool grows while still creating jobs. I advise you not to read too much into one month’s data until it becomes a trend. Of course, regarding the Fed’s pivot, jobless claims need to get to 323,000 on a four-week moving average for me to believe that the Fed will take notice of an economy going into recession. 

Since I have all six recession red flags up now, I am keeping an eye on jobless claims data first because once it breaks higher, the job-loss recession has begun, something we’ve seen in every economic expansion-to-recession cycle.

Below is a breakdown of the jobs created this month. As you can see, the construction sector was barely positive; this is one area of the marketplace that should be losing jobs next year. The builders are now holding onto their labor due to the backlog of homes under construction. When that ends, they will join the ranks of others in the housing industry that are laying off people. 

Remember, housing went into recession in June of this year and we haven’t had 12 months of recessionary layoffs in the system yet. 

All six of my recession red flags are up, so these are data lines that people should be tracking:

Job openings

The Fed would love to see this data line go down. Before COVID-19, job openings were over 7 million, and we didn’t have to deal with inflation. The Fed believes higher unemployment means people get paid less, which is why they want to fight inflation. The most recent job openings report showed an increase to  10,717,000.

Jobless claims

This data line is essential for the general economy because the Fed can keep discussing higher rates or keeping rates high until the labor market breaks. Once jobless claims break, the discussion changes. That level is 323,000 on the 4-week moving average. We aren’t there yet, and jobless claims fell this week to 217,000.

At this point, is there any way to prevent a recession? Once all six recession red flags are up, history is not on our side.  However, due to the crazy swings that this COVID-19 recovery has given us with the wild bullwhip effect on data, I have come up with some plausible theories. Here are the two ways we can avoid this recession:

1. Rates fall to get the housing sector back in line.  Mortgage rates falling toward 5%, as we saw earlier in the year, can be a stabilizing factor for housing if they can have duration. Traditionally, mortgage rates below 4% boost housing demand. However, first things first: the bleeding needs to stop. 

2. The inflation growth rate falls, and the Fed stops hiking rates and reverses course, as it did in 2018. Some of the inflation data is already cooling off and will find its way into the data lines. However, rent inflation won’t come down in the data until 2023, even though we already see some coolness in that sector. 

Is there any hope that one of these things happen and we avert this recession? If we don’t have any more supply shocks like we experienced after the Russian invasion of Ukraine or from other variables that aren’t tied to the economy, the growth rate of inflation should be falling next year due to rent inflation falling. I talked about it on CNBC recently. If that happens, if the Fed starts to pivot and then cuts rates as they did in 2018, we might have a shot here.

Of course, it’s very late in the year now, so this is more or less a 2023 storyline, but I outline my best case for mortgage rates to fall next year in this article.

However, history has never been on our side once the six recession red flags are up. There is a first time for everything, but most people are now employed, and household balance sheets look much better now than we saw in 2005-2008. At this point it’s all about timing. However, the longer we go with higher rates, the less chance of a soft landing.



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United Wholesale Mortgage (UWM) is now the biggest mortgage lender in America, thanks in large part to a cut-rate pricing strategy that has put extreme pressure on competitors.

UWM originated $33.5 billion in the third quarter, toppling its arch rival Rocket Mortgage‘s $25.6 billion in production. Purchase loans accounted for 82.7% of UWM’s mix in the third quarter.

“Most recently, we told you our ‘Game On’ strategy would separate us even further from our competitors,” CEO Mat Ishbia told analysts during its earnings call. “Since the start of Game On, we’ve had thousands of loan officers try us for the first time, experiencing our technology, our services and quickly realizing that partnering with UWM can help them win in any market.”

Through the ‘Game On’ pricing initiative, UWM slashed prices across all loans by 50 to 100 basis points starting in June, wreaking havoc on competitors who already were struggling with declining margins. Heavily affected lenders include lenders Homepoint and loanDepot. Following the Game On pricing strategy, pure-play wholesale lender Homepoint reported a $44 million loss and loanDepot exited the wholesale channel after reporting a $224 million loss in the second quarter.

More than 17,000 loan officers joined the mortgage broker channel this year, and about half of them came directly from the retail channel, Ishbia said. 

UWM reported a profit of $325.6 million in the third quarter, up 51% from $215.4 million registered in the second quarter of 2022. Compared to the third quarter of 2021, when refis were abundant, profits declined by 1.29%.

“We averaged about $24 billion in purchase (mortgages) for the last six quarters. We are winning in the purchase market,” Ishbia said. 

Ishbia forecast that UWM takes up closer to 50% of the wholesale market share and remained upbeat about growing the channel. 

“Game On is much more of a strategic play to help the channel grow. If UWM’s market share goes from 40 or 50% down to 25% but the mortgage broker channels 40%, we’re doing more business overall.”

However, it’s come at a cost.

The lender’s gain-on-sale margins dropped to 52 bps points from the previous quarter’s 99 bps. UWM had $799.5 million in cash and cash equivalents in the second quarter, compared to $958.7 million in the prior quarter and $950.9 million one year ago.

Ishbia reiterated its Game On pricing is an investment and did not say how long UWM would continue with its pricing initiative.

“I don’t even count the Game On margins as dropping margins. I consider it as an investment long term.”

While the business is focused on loan originations, UWM said its profit in the third quarter was bolstered by a $236.8 million increase in the fair value of mortgage servicing rights. UWM had $306 billion in the unpaid principal balance of MSRs as of September 30, compared to $308.1 billion 12 months ago.

“To improve liquidity position in Q3 in August, we entered into an unsecured line of credit with our principal shareholder with available borrowing capacity of $500 million,” Andrew Glasser, the company’s principal financial officer, told analysts. “In late September, we entered into a line of credit secured by certain of our MSRs with available borrowing capacity of 1.5 billion.”

Looking ahead, executives forecast fourth quarter production to be in the $19-$26 billion range, with a gain-on-sale margins between 40 to 70 bps. UWM expects gain-on-sale margins to post around 75 to 100 bps in 2022.

“We went up significantly when everyone else went down, so you’re looking at relative to our current number,” Ishbia said, adding the seasonality factor and “softening of the market” will depress purchase volume in the final quarter of 2022.



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By now, you’ve heard about how real estate is a great way to build wealth. I don’t disagree with that. However, before getting started, you should also consider the downsides of owning real estate and the opportunity costs. For most real estate investors, it’s better to be a limited partner or take on roles that don’t involve much of the day-to-day operations, which I’ll discuss in more detail.

Here are some of the downsides of owning your own real estate.

Downsides of Owning Real Estate

Being a landlord

As you already know, being a landlord and doing your own property management is very tough. For one, you’re responsible for the property and everything that goes on. This includes finding and screening tenants, maintaining the property, and dealing with any issues that may arise. 

Additionally, you’re also responsible for collecting rent and ensuring that your tenants are paying on time. If they’re consecutively late, you may have to pursue legal action to get the money you’re owed.

Furthermore, being a landlord also means that you’re responsible for any damages that may occur to the property. This can be a financial burden, as you may have to pay for repairs out of your own pocket. 

Being the asset manager

Let’s say you eliminated these responsibilities by hiring a property manager. This seems like a good idea, but it’s tough to find a great property manager (PM), even for a large apartment building (however, you can find one through BiggerPockets here).

Even with a PM, you ultimately still have to be the asset manager, which has multiple functionalities, including managing the PM and making sure that they’re doing their job.

Here are some responsibilities as an asset manager:

  • Making sure that the property remains in good condition.
  • Controlling your operating expenses.
  • Making sure the rooms are rented at market rate. This sounds simple, but it’s much easier for your PM to rent out the units at 5-10% below market rate, so that’s what they’ll usually do.
  • Making sure your PM is not stealing your money, which can happen through leases or by marking up maintenance requests.
  • Monitoring the pro forma, including rent growth, vacancy rate, concessions, etc.
  • Preparing the asset for sale.
  • Dealing with loans and accounting.
  • Be prepared to take over PM responsibilities at any moment.

Basically, even if you hire a property manager, your investment is still not considered passive income. There are still many tasks to take care of and plenty of issues to deal with, so don’t assume that your real estate investments will be passive income and you can do it on the side. Some can actually become huge headaches. 

Starting small

Another common misconception that beginning real estate investors have is that “it’s better to start small.” The risks are actually higher when owning smaller properties because having a few bad tenants can really hurt your business. Whereas in a 100-unit apartment complex, two or three bad tenants are only a small portion of the overall building.

Additionally, bigger projects can afford you to hire full-time staff, which will make your job much easier. 

House hacking

House hacking is a popular strategy nowadays. Buying a duplex or triplex and renting out the other units to get a healthy cash flow, refinance this property, then repeat, is a great way to build financial wealth step by step, but there are some major downfalls.

The first downfall is that this will only work in a secondary or tertiary market. It’s almost impossible to cash flow well in a gateway market like New York, Los Angeles, or Seattle. If your rental revenue can cover the debt service, you’re doing well already.

The second downfall is your living quality is limited. Depending on the circumstances, you might be living with strangers inside your own unit, which can be bad if they turn out to be terrible roommates. Obviously, if your screening methods aren’t sound, you could be stuck in a bad situation for a long time.

Smarter Ways To Build Wealth

Although what I’ve been saying seems discouraging, I’m not proclaiming that owning your own property is entirely a terrible idea.

What I want to emphasize is the opportunity cost of your money and time. We all have limited time on this Earth, so let’s think about how we can utilize it to our advantage. Here are some tips on how you can invest smarter.

Investing in a syndication

A good operator can make great profits consistently. I’ve seen portfolios with over 30% historical IRR on average. With this type of return, you can basically double your equity every three years.

It’s very important that you do enough upfront work to understand the operator’s strategy. There are many things to consider when choosing an operator, so here’s an article on this topic.

As a limited partner, there isn’t really anything that you need to do besides waiting for payday. Some operators focus on cash flow, while others focus on doubling your money as quickly as possible. The latter is generally riskier. There aren’t many investments that can beat the returns of a good real estate syndication. Why bother spending hours every week on your own deal when you could achieve better results by spending a few hours a year?

Being a general partner

If you want to be part of a syndication as a general partner but don’t want to deal with the day-to-day operations, such as asset management, construction management, sourcing deals, etc., then here are a few responsibilities that you can take on.

Loan Guarantor – If the syndication requires a recourse loan, then a loan guarantor is needed. The guarantor needs to have enough assets and liquidity. 

Capital Raising – This might be the perfect role for you if you have a strong network. It varies from case to case, but usually, you have to raise at least 30% of the required capital.

Diversification

Even among real estate syndications, there are many ways to diversify your portfolio. In terms of property type, you might want to invest in more than one type of property. For example, COVID-19 halted the hospitality industry but boosted the demand for industrial properties, so don’t put all your eggs in the same basket.

You can still diversify even when investing in the same property type. Multifamily, for example, varies significantly from market to market. An important attribute of a market is its location quotient, which is an indicator of the professional specialization in the area. For example, San Francisco has a very high location quotient in technology, so when many people in technology are suddenly allowed to work from anywhere, the multifamily industry in San Francisco collapsed. Even today, the market is still recovering from the pandemic. On the other hand, the multifamily markets in Austin, Phoenix, and New York have been doing extremely well.

What’s Your Passion?

The majority of real estate investors are here to gain financial freedom. Most people aren’t waking up every day excited about going to The Home Depot and doing another house flip. This is why we should think about what exactly we’re giving up by getting into real estate. Would you rather spend all your hours doing real estate? Or would you rather find a profession that you’re truly passionate about? Excel in your passion, make enough money to invest in real estate passively and build wealth.

I’m personally very passionate about real estate and obsessed with how co-living can bring people together and revolutionize the multifamily industry. I believe in building communities where everyone can feel like they belong, which is why I’m an active developer and don’t want to be on the sidelines.

I hope you’re also passionate about real estate in your own way, so I want to hear about what brought you to real estate. Please comment below.

Run Your Numbers Like a Pro!

Deal analysis is one of the first and most critical steps of real estate investing. Maximize your confidence in each deal with this first-ever ultimate guide to deal analysis. Real Estate by the Numbers makes real estate math easy, and makes real estate success inevitable.

real estate by the numbers

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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merges and aquisitions
One mortgage M&A expert believes that of the 130 or so IMBs that did $1 billion to $2 billion for production in 2021, 17% of them will not even be able to do $500 million over the 12 months ending June 30, 2023.

Up to 30% of the 1,000 largest independent mortgage banks are projected to disappear by the end of 2023 via sales, mergers or failures in the wake of the double whammy of still-rising inflation and interest rates.

That’s the projection offered by Brett Ludden, managing director of Sterling Point Advisors, a merger and acquisitions (M&A) advisory firm based in Virginia.

“We have a number of buy-side and sell-side clients and an even larger stable of industry owners and CEOs that we speak to regularly,” Ludden said. “The outlook is not good for large cohorts of the industry.”

That’s particularly true for independent mortgage banks (IMBs) that have been too reliant in recent years on refinancing production. The Mortgage Bankers Association (MBA) projects refinancing volume will be down by 24% next year, compared with 2022, to $513 billion — and that’s after plunging from $2.6 trillion in 2021.

Sterling’s industry consolidation outlook is even more dire than a recent projection offered by Tom Capasse, managing partner and co-founder of New York-based Waterfall Asset Management, a global alternative investment manager with some $11 billion in assets under management. Capasse, working from a much larger base of IMBs, including many more smaller lenders beyond the 1,000 largest, predicts that some 20% of the IMB segment will disappear via sales, mergers or failures over the next 18 months to two years.

“Lenders that turn all their attention to refinancing when that business skyrockets enjoy huge profits,” said Garth Graham, senior partner and manager of M&A activities for the Stratmor Group, a Colorado-based mortgage advisory firm. “But the tide always eventually turns, and when it does, many of those lenders struggle to stay afloat. 

For the smaller lenders that were doing $125 million up to $250 million in 2021 [a 14% slice, or some 140 IMBs], 72% [about 100] will do less than $125 million in the next 12 months [ending June 30, 2023].

Brett Ludden, managing director at Sterling Point advisors

“We’re seeing a lot of that this year, and it will certainly continue in 2023. … Purchase loans are simply harder to market and convert, harder to process, and they generate lower revenues and higher expenses.”

Stratmor predicts that by year’s end, nearly 50 M&A transactions involving IMBs will have been announced or closed. That’s up 50% from 2018, the “next highest year of lender consolidations in the past three decades,” a recent Stratmor report states.

Time to eat the minnows?

The consolidation fervor is being fed by several factors, according to David Hrobon, a principal with Stratmor. Those include the following: IMB performance this year on average is about break-even; origination volume is expected to be down 50% this year from 2021 levels and down even more next year; and “net production income is trending toward its lowest point since 2018.”

“It took us a number of years to get to this point, largely fueled by Federal Reserve policy to maintain zero or near-zero Fed funds rates,” said Bill Shirreffs, senior director and head of MSR services and sales operations at California-based Mortgage Capital Trading (MCT). “The current market conditions were also impacted by the Treasury actively purchasing MBS [mortgage-backed securities] to maintain stability in the capital markets.

“Both of those actions created artificial demand, which when removed results in dramatic market corrections. That’s what we are experiencing right now, a market correction, and as a result, it might take years for things to normalize.”

To better illustrate what is taking place in the mortgage-lending industry, Sterling’s Ludden provided mortgage-origination estimates for the 1,000 largest IMBs broken down by production tranches. 

We are probably in the first few innings of a clean-up exercise on the housing-finance, nonbank-originator [IMB] side.

Leon Wong, a partner at Waterfall asset management

For calendar year 2021, according to Sterling’s estimates, 38% of the 1,000 largest IMBs, or roughly 380, had mortgage production of $250 million or less. For that same group of 1,000 IMBs, over the 12 months ending June 30, 2023, some 54%, or about 540, are projected to have mortgage production of $250 million or less.

“For the smaller lenders that were doing $125 million up to $250 million in 2021 [a 14% slice, or some 140 IMBs], 72% [about 100] will do less than $125 million in the next 12 months [ending June 30, 2023],” Ludden said in breaking down the production shift further. “They’re just not going to have enough scale to be able to break even, and there’s not enough costs to cut and, importantly, these smaller firms they don’t have the cash and equity that the large firms do.”

The same downward production shift holds true on the high end of the loan-production scale. 

For all last year, 33% (roughly 330) of the largest 1,000 IMBs had loan production of $1 billion or greater — with 20% (about 200 of the 330) recording $2 billion in mortgage originations or more, according to Ludden. For the 12 months through June 2023, only 18% of the largest IMBs (or about 180) are expected to have production of $1 billion or more — with 10% of them (or about 100 of the 180) at $2 billion in loan production or greater.

“Of the [13%, or roughly 130] companies that did $1 billion to $2 billion for production in 2021,” Ludden said, “… 17% of them will not even be able to do $500 million [over the 12 months ending June 30, 2023].”

Ludden added that consolidation in the IMB space over the next year is expected to be as high as 30% — meaning nearly one-third of the 1,000 largest IMBs are expected to merge or go away by the end of 2023. “And of the names that will disappear from the corporate registries, about one-third [roughly 100] will go out of business and two-thirds [about 200] will merge.”

The great pivot?

Despite the dire outlook, some will benefit from the period of consolidation, according to several market observers.

This could be the time many long-time, small-to-midsized originators look to sell their loan origination platform outright or joint venture with the right partner that gets them through these most difficult times.

Tom Piercy, managing director of incenter mortgage advisors

Leon Wong, a partner at Waterfall Asset Management, said at this point “we are probably in the first few innings of a clean-up exercise on the housing-finance, nonbank-originator [IMB] side.”

“Our focus is really on the nonbank originators needing to work themselves through their liquidity considerations over the next couple of years,” he added.  “One solution to that could be augmenting two additional asset classes — like HELOCs [home-equity lines of credit] and second-lien loans, or reverse mortgages.”

In fact, some of that is already happening, according to Sterling’s Ludden. 

“Several lenders tell us that they just have no avenue to continue, and some inform us that they’re closing the doors, while others are desperately trying to cut costs even beyond what I think is probably feasible cost-cutting,” Ludden shared. “One small East Coast lender has in the last couple of months picked up their California license and is now almost exclusively focused on doing high-dollar reverse-mortgage transactions in California because that’s the only way they think they can potentially survive without having to essentially go out of business.”

Tom Piercy, managing director of Colorado-based Incenter Mortgage Advisors, said the outlook for the housing industry generally “is bad for the foreseeable future.”

“[However,] it could be very good for companies who are well-positioned on their balance sheets — meaning lower debt ratios and strong cash or liquid assets, and cost-efficient retail originations,” he added. “They will see opportunities expand.”

For others, he said, “This could be the time many long-time, small-to-midsized originators look to sell their loan origination platform outright or joint venture with the right partner that gets them through these most difficult times.”

Andrew Rhodes, senior director and head of trading at MCT, said there is little doubt the mortgage market is going to consolidate, but stressed that is after “coming off of record profits and boom years.”

“Optimistic and well-prepared companies are starting to see opportunities to pick up key staff and to prepare for a [future] refinance boom when rates eventually do fall,” Rhodes said.

The MBA estimates that there will need to be up to a 30% decrease in mortgage industry employment “peak to trough,” given the projected decrease in production volume from the bullish years of 2020 and 2021. Still, the MBA offers some hope that a new normal on the interest-rate front will emerge by the end of 2023.

“Inflation will gradually decline toward the Fed’s 2% target by the middle of 2024,” said the MBA’s chief economist, Mike Fratantoni. 

The Fed-driven interest-rate spike, too, is subject to market gravity.

“After more than doubling so far in 2022 [recently topping 7%], MBA’s baseline forecast is for mortgage rates to end next year at around 5.4%,” MBA’s recent mortgage-market forecast predicts.



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For sale
Record-high mortgage rates have frozen the housing market, forcing loan officers to find business outside their wheelhouses.

Despite new language in the Federal Open Market Committee statement that suggested a potential slowdown in curbing inflation, Federal Reserve Chairman Jerome Powell maintained a hawkish tone on raising the federal funds rates during Wednesday’s press conference.

And with Fed rates expected to rise even further, industry experts and economists don’t expect mortgage rates to stabilize for at least another year.

“Even with the Federal Reserve raising its short-term fed funds rate by another large amount, longer-term interest rates look to move only slightly,” Lawrence Yun, chief economist at National Association of Realtors, said.

Once inflation is contained, mortgage rates will start to drift lower. It may be another year or two before that happens. 

Lawrence Yun, chief economist at the National Association of Realtors

Mortgage rates, which are currently near a 22-year high, declined slightly from last week ahead of the Fed’s sixth rate hike announcement. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 7.06% on Wednesday from last week’s 7.16%, according to the Mortgage Bankers Association

The Fed’s short-term rate does not directly impact long-term mortgage rates, but it does steer market activity to create higher rates and reduce demand. 

“While the mortgage market has already priced in the latest Fed move, mortgage rates are still at 20-year highs that hurt homebuyers. Once inflation is contained, mortgage rates will start to drift lower. It may be another year or two before that happens,” Yun said.

The fresh language in the policy statement noted that the Fed is considering the “cumulative” impact of its hikes so far when determining future rate increases. Still, Powell presented a different tone in his press conference, indicating that thoughts of a potential pause would be premature.

“Bond yields fell after the Fed made their statements about raising rates and then shot back up after Jay Powell talked about higher rates for longer,” said Logan Mohtashami, lead analyst at HousingWire. “Tiny movement in bond yields from the start of the day but wild intraday action. Rates can end up slightly higher today if this slightly higher bond yield sticks.”

An occasional slip in mortgage rates is “inexplicable” on an upward trend that began almost a year ago, said Holden Lewis, home and mortgage expert at NerdWallet.

“The Federal Reserve clearly intends to keep raising short-term interest rates, which will raise the floor for mortgage rates,” Lewis said.

“A housing recession is here”

For home shoppers and sellers, mortgage rates have been quick to adjust higher in response to expected Fed moves, said Danielle Hale, chief economist at Realtor.com.

“In the last 12 weeks alone, mortgage rates have soared more than two percentage points, cutting significantly into homebuyer purchasing power and likely causing shoppers to revisit their budgets,” Hale said.

The question is, when will the Fed pivot and indicate a pause, or at least significantly reduce its pace of increases

Marty Green, Principal at Polunsky Beitel Green

Existing home sales declined for the eight consecutive months in September, dropping to 4.71 million units from 6.18 million in September 2021. As of September, the median home price was $384,800 for existing homes of all types, an 8.4% increase year over year compared to September 2021, when the median home price was $355,100, according to the NAR. 

A housing recession is here, Marty Green, principal at Polunsky Beitel Green, emphasized

The swift jump in interest rates have dampened potential homebuyers’ willingness or ability to enter the market, and potential home sellers who are locked in to super low rates are not willing to reduce sales prices materially enough to motivate buyers, according to Green. 

“The question is, when will the Fed pivot and indicate a pause, or at least significantly reduce its pace of increases,” Green said.

Mohtashami also pointed in his recent commentary to a housing recession, citing falling sales, production, jobs and incomes in the housing sector. What the difference is in this “traditional housing recession” from the housing bubble years, is high household balance sheets and no credit stress. 

“They (Fed) know housing is in recession already, but they don’t care because they don’t see a credit bust or a job loss recession yet,” Mohtashami said. 

Goldman Sachs expects that the FOMC is leaning toward slowing the pace of tightening to 50 bps in December.

The good news is sellers who are more realistic will try to beat the market.

Mitch Burns, a real estate agent with Engel & Völkers

Roger Ferguson, former vice chairman of the board of governors of the U.S. Federal Reserve System, believes the Fed will raise interest rates by 50 bps next month, along with two 25 bps hikes at the start of 2023. 

Tables have turned for some sellers 

With mortgage rates more than doubling this year, and with rates expected to climb further in the coming months, sellers are becoming more realistic. Buyers, on the other hand, are more in tune with higher mortgage rates and have more leverage in the market, loan originators and real estate echoed.

“It is no longer a seller’s market,” said Nick Smith, founder at Rice Park Capital Management. “Days on market for homes that are sold, number of homes receiving multiple offers, mortgage applications, and actual home sales – they have all moved in a negative direction.”

“The good news is, sellers who are more realistic will try to beat the market,” Mitch Burns, license partner at real estate advisor at Engel & Völkers, said. “After 30 days, if the seller had not had an offer after maybe 10 showings, we’ll make an adjustment to drop the price.”

This translates to borrowers’ increased negotiating power, which they did not have when rates were in the low 3% levels at the start of the year.

If a home has been on the market for over a month, borrowers get quite a bit more flexibility, said Todd Davidson, LO at UMortgage.

“Sellers are willing to chip in for a 2-1 buydown or lower price or accept offers contingent on the sale,” Davidson said.

In a higher rate environment, buyers are increasingly opting for 2-1 or 1-0 rate buydowns to reduce their monthly mortgage payment. With the buydown, the borrower pays a lower rate during the first year or two, and after that, the full rate is paid for the remainder of the loan term.

While low housing inventory and sluggish new home construction still remain a challenge in the housing market, buyers are better positioned to negotiate contracts with contingencies, Davidson added.

“Six months ago, if someone would’ve given a contingent offer, they would’ve gotten laughed at,” Davidson said. “But now if a home is sitting on the market for 10 days, people are accustomed to homes selling so quickly (that) realtors and sellers would get a little nervous.”



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Rithm Capital, formerly known as New Residential Investment, delivered a $124.5 million profit from July to September, due primarily to its servicing portfolio performance.

In the third quarter, the company intensified the diversification of its businesses and further downsized its mortgage business amid a challenging macroeconomic landscape. 

​”Our messaging and approach in prior quarters have been not to fight the Federal Reserve, and we remain biased to a higher rate environment with wider credit spreads. We will continue with this view until we feel like the Fed signals they will stop raising rates and or we see the economic data softening,” Rithm’s CEO Michael Nierenberg said in a call with analysts.

Until that happens, Rithm’s goal will be to “protect our balance sheet, maintain book value, maintain higher levels of liquidity and reduce expenses in our operating business lines while we drive consistent earnings and dividends for our shareholders,” Nierenberg said. 

Company’s executives announced on Wednesday an agreement to acquire a 50% interest in Senlac Ridge Partners, an investment management firm focused on commercial real estate, led by founder David Welsh. 

Welsh and his team of approximately 20 employees will bring their “vertically-integrated infrastructure and operations, development, sourcing and fund management capabilities to further Rithm’s ability to raise third-party capital around different strategies,” Nierenberg said.

That acquisition is another way to diversify Rithm’s businesses at a time when the company’s residential mortgage operations, mainly New Rez and Caliber, are being affected by surging mortgage rates. 

Rithm reported a $209.8 million profit in the third quarter for its mortgage businesses, driven primarily by a gain of $267 million in servicing. 

The company delivered a $57 million loss on the origination side. The funded volume declined to $13.8 billion in the third quarter, down by 28% quarter over quarter and 60% year over year. 

Consequently, the company adopted a plan to reduce expenses, which resulted in the payment of $16 million in severance, $14 million in lease termination fees and $12 million in write-offs related to software and contract termination fees in the third quarter. 

The real estate investment trust has shed hundreds of jobs at its mortgage companies throughout 2022, with the most recent round of layoffs occurring in September

“To give you another sense from a headcount perspective, at the time of the closing of Caliber in 2021, there were 13,500 employees in the system. Today, unfortunately, due to the current market environment, that number is down to about 6,000 people,” Nierenberg said.

Regarding Caliber’s operations, Nierenberg said Rithm has for the first time not been “the best at running that clearly.” Rithm acquired Caliber in August 2021.

He said the plan is to grow the company prudently while driving more revenue and cutting out expenses. One possibility is to acquire smaller platforms at a time when some competitors are “throwing the towel,” according to Nierenberg. 

Rithm’s servicing segment generated a net income in the third quarter, mainly due to a positive $131 million mark-to-market changes in mortgage servicing rights.  

The MSR portfolio totaled $615 billion UPB at the end of the quarter, down from $623 billion at the conclusion of the second quarter. Servicer advance balances came in at $2.9 billion as of September 30, 2022, down 3% from the end of the second quarter.

Rithm priced and closed two securitizations in the third quarter, one non-QM and one SFR, representing $633 million UPB of collateral. 

The company had a cash position of $1.8 billion at the end of the quarter.



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One of the most common misconceptions in the broader discussion of America’s housing crisis is that the rapid increase of the single-family rental (SFR) market is preventing prospective homeowners — especially younger homeowners — from attaining the American Dream. That is not the case, in fact, SFR properties serve as a critical housing “safety valve,” providing an intermediate step toward home ownership. SFR is an attractive option for those seeking a better quality of life amid a persistently tight housing market. 

Contrary to popular belief, single-family renters are not typically “renting-in-perpetuity” or locking themselves out of home ownership, but rather are seeking out the best current value amid a challenging and rapidly evolving economic environment over which they have little control. And the numbers back up this counter narrative. According to a recent National Association of Realtors (NAR) survey, 86% of tenants renting single-family homes end up purchasing a home within five years. 

Screen-Shot-2022-10-31-at-1.57.37-PM
Chart of SFR results from NAR

How did we get to this point? It’s impossible to pick out just one factor, but longstanding underinvestment in new housing, coupled with a confluence of certain federal and monetary policies, have all played a role in limiting options for first-time home buyers. 

Housing Shortages and Mortgage Rate Fluctuations 

America had a problem with housing availability even before the pandemic. One recent estimate found that the U.S. requires up to 6.8 million new units to meet current housing demand. So, when interest in buying suburban homes surged during the pandemic, prospects for first-time homeowners suffered. In the last year alone, U.S. home prices have risen 20%. But such volatility in the housing market cannot simply be attributed to a supply shortage. Since 2008, major banks have pumped over $25 trillion into the global economy. Such quantitative easing has pushed prices of the nation’s finite housing supply to record levels. 

30-year fixed rate mortgages were at a historic 2.68% low as recently as December 2020 according to Freddie Mac, but skyrocketing property values pushed many frustrated buyers out of the market and into renting. This trend only intensified in 2022 in the wake of several, successive interest rate increases by the Fed. These higher rates sidelined more potential buyers as mortgage rates hit a 10-year high, now hovering above 7%. Such mortgage rate hikes have become the largest driver of the widening year-over-year gap between first-time buying and renting that we see in many markets across the country.

Unfortunately, the outlook for the U.S. economy remains hazy as inflationary concerns continue to fuel rate increases. Not surprisingly, this level of added uncertainty has created a whole new pool of homebuyers who are watching and waiting for a cool-down from the sidelines. 

Aging in Place

Along with changes to first-time buyer habits, seniors are keeping their homes for longer. Baby boomers, who as a group are healthier and better educated than their parents, have benefited from vast improvements in healthcare and technology that have made aging in place much easier. This trend shows no signs of slowing and adds pressure in markets where the housing supply is unable to keep pace with new population growth. A 2019 study by Freddie Mac found that baby boomers, compared to generations before them, are holding onto 1.6 million more households — roughly equivalent to the same amount of new construction the United States sees in a year. In the context of a finite housing supply, it means that younger generations either need to wait longer or pay more for their first homes relative to older generations. 

Student Loan Debt

There are other factors at play as well. According to a poll commissioned by NAR last year, half of the non-homeowners (51%) said student loan debt is delaying them from purchasing a home. Student loan debt has been growing at an unprecedented rate over the past two decades, far outpacing auto loans, housing debt and credit card debt. Equally concerning, according to the Federal Reserve Bank of New York,  is that two-thirds of student-debt holders had growing or flat balances at the end of 2021, compared with just 48% in 2019. For younger renters — millennials or younger — high levels of student debt have put homeownership beyond their reach. 

A Bridge to Homeownership 

Taking all these factors into account, it’s not surprising that the age gap between renters and homeowners has continued to widen. According to Zillow’s recent Consumer Housing Trends Report, the median age of U.S. renters is 37 years old, while about two-thirds (65%) of renters are under the age of 40. This contrasts sharply with homeowners, where the average age is approximately 56. 

But it would be wrong to suggest the rise of SFR is simply a matter of economic strife and policymaking.  Many are attracted to renting because it provides a greater level of financial freedom and access to a higher quality of living, along with access to better neighborhoods and newer amenities, than would otherwise be attainable through ownership. In addition to providing a more affordable price point, SFR offers spatial flexibility and greater mobility. In fact, mobility is often cited as a paramount selling point for millennials, who spend, on average, only three years in the same job. 

A tight labor market and the shift toward remote working have provided additional incentives for younger workers to seek opportunities in new locations. In this regard, renting is not just a tool of necessity, but one of convenience before purchasing a home. As workers find greater job stability and favorable neighborhoods where they feel their preferences are being met, they are more compelled to set down roots and eventually buy. 

Until the United States addresses the underlying shortage and underproduction of housing, SFR will continue to serve as an important bridge from renting to first-time homeownership. Not only is SFR here to stay, but it plays a critical role in helping younger generations address their housing needs while strengthening neighborhoods that have historically been slow to embrace change.

David Piscatelli is a strategy expert at Avenue One, a proptech service platform that streamlines institutional capital’s access to SFR. Piscatelli earned his MBA from the London School of Business and completed his undergraduate degree at the University of Florida.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story:
David Piscatelli at david@piscatelli.com

To contact the editor responsible for this story:
Sarah Wheeler at swheeler@housingwire.com



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