SOTM 44: Promising Signs and Statistics for Real Estate Amid Coronavirus Pandemic

Aaron Amuchastegui: Rockstar nation, this is Aaron Amuchastegui, ready for State of the Market 44 with Paul Morris. Paul, it’s so good to see you, man.

Paul: Hey, man, good to see you. Now we’re practicing. It’s not social distancing because we’re doing more and more social. It’s now physical distancing.

Aaron: Yes, physical distancing. Social is like– I don’t know how many Zoom calls I was on today, or how many you were on today, but it seems like every day now, I spend more time on video. I see more people than I was before shelter-in-place now.

Paul: It can be a much more effective to use of time for sure. You’re still seeing people. It’s not the same as being in person, but it’s better than a phone call. Anytime you go to a meeting, I dragged myself out of the house, park the car, blah, blah, blah. I’m hitting this one after another.

Aaron: Well, you are still looking good. I’ve seen the memes from people day one of Zoom, and then day 40, people are showing up to the business meeting, drinking a beer, but you still got it. Glad to see the– You rocking out here. We’re on day probably 38 of shelter-in-place in California, and Texas is a few days behind you. Has the mood gotten better, gotten worse about like it was a couple of weeks ago? How are people in LA feeling right now?

Paul: Well, I find that there’s a real lag between what we’re told to do and what’s actually happening to public, the public getting a hold of it. I was one of the few people that were still flying around the country a little bit as I felt like I had to and being super careful about it. Two, three weeks ago, you could fly into some of the big airports, and nobody even had the personal protection on, and now just everybody has it. There’s a real awareness of it.

One of the things, which was a resource that I was looking at all the way along is something called healthdata.org. It’s now gotten so popular that the government is relying on it. We watched as the curves and the expected curves. What that tells us is where we think we’re going to be in the next month in terms of COVID infections and that sort of thing, and resources required to handle them. California has completely flattened out. For whatever reasons, social distancing, all that sort of thing, it has really worked in California in a way that, obviously, it did not in places like New York.

Aaron: California jumped on it ahead of time. They went on shelter-in-place. When it first went on, people were thinking this is a big overreaction. They felt like it was happening too fast. There wasn’t any cases yet, and then now there’s no curve, it is flattened. Now they actually started opening up some beaches out there, right?

Paul: Yes, that’s crazy. I haven’t seen it here in LA. There are still a lot of things that we’re getting used to it, but as recently as a week ago, I would drive around, and be like, “Why? It really does look like the end of times.” Somehow where does Santa Monica come up with the resources? Like the entire beach is fenced off. You had that much fencing laying around? It’s scary. [crosstalk]

Aaron: However they ready. I think either yesterday or a week from yesterday in Texas, they’re going to open up all the parks again. You can go to parks, but you have to get an online reservation through the system. There’s a lot of National Park, public park areas like natural springs and stuff here, so they’re going to make people– Everywhere you go, people are wearing masks.

If you’re about to walk into a store in Travis County, it says you’re not allowed to go into anywhere without a face covering. They don’t call it a mask, so you have to have a face covering. I went into Lowe’s and big old sign on the door, “Don’t come in unless you’ve got a face covering,” but they could be anything. That’ll be a business that starts popping is designer face covers for-

Paul: I knew you’re going to mention that. I would break out my pink camo mask. You’d be very impressed.

Aaron: Yes, that’s going to be the next branding thing people are doing like, “Hey, make sure you’re wearing your Keller Williams mask when you go to show properties.” Well, that is awesome. I’m happy to see you in such good spirits, and you really have your finger on so much of the stuff that’s happening out on the West Coast in real estate. I’ve been watching so much stuff happening in Texas and news all over. There’s a lot of news for us to talk about that I thought would be really cool to get into.

Maybe at the beginning, I just wanted to share. This is with an image that I will share. A friend of mine is an agent out in Sacramento, which is Northern California. He sent over some real estate statistics named Zack Bacon. He said, “The first two weeks of April versus the first two weeks of March.” This was just the Sacramento area.

He said the number of homes for sale, and if you’re comparing the first two weeks of April compared to the first weeks of March, there’s 13% more houses on the market, pending home sales down 27%. The number of homes that were pending, first two weeks of March, there’s 27% less. The number of homes that sold the first two weeks at March, 30% less than the first two weeks. The first two weeks in April less than 30% than the first two weeks in March.

Austin is similar. Then I went to Paul up, and say, “Hey, is that everywhere?” Central Texas realtors said, “Last month.” This is just the March statistics. They don’t have April yet, but the beginning of March and this hit midway through March. It says, “In March, new listings decreased to 12%, active listings dropped to 26%, and pending sales decreased to 20%.” I see two things for that. There are fewer transactions happening, but still a lot of transactions happening. Is it similar out in LA right now? What do you think we take for that?

Paul: Well, first of all, it really is similar, and I find it in a way to be surprising because Los Angeles’ Mayor Garcetti is one of the strictest around. The governor said, “Real estate is an essential part of business, therefore a central transaction.” Mayor Garcetti just came out and said, “No showing homes.” If you can’t show them, you can’t sell them.

Now, that being said, once something opens escrow, when escrow is open, it then becomes an essential financial operation to close escrow. We get some people working around, and the bottom line is, they’re still- housing is still selling. Our numbers are very similar to the ones that you mentioned in Sacramento, and I get a chance to look into the future a little bit. The numbers are very starkly low in terms of May, so a big difference for sure.

Aaron: May is a hot time in California. Home sales in May is the mecca, but there’s going to be different– Part of that because school is about to get out for the time. All that changes now, all the things that were driving May before, people aren’t in school. People are going to be incentivized in different ways.

Paul: One of the things that I think is worthy of, and I’m talking to– It’s part of what I do for a living. I talked to the experts. I talked to the National Association of Realtors. I had economist, California Association of Realtors. I talked to a bunch of different people, looking and listening, trying to get really great information and staying away from the crazy clickbait-type news.

The thing that I come down with is, let’s be proactive for sure, let’s make the best out of this for sure. Also, one of the messages I have to our amazing audience is that’s also a reality check. These are historic times. This is going to be a 9/11, or a Great Recession-type event. There’s no question. We went through 2008, and it was very tough for all of us, but the message that I have for realtors is, what’s different and what’s the same? We can affect our outcomes more than the outside world.

For example, in 2008, we emerged– I didn’t want 2008 to happen. It was very painful, but when we emerge from 2008 is when we really took market share and became number one in Los Angeles. The things that are different this time are that 9 out of the last 10 recessions were led by a big drop in the housing market. That’s not the case this time. This time, we were healthy before. We are still at historically low-interest rates. The high was 1981, we had 18.6. The all-time low is November of 2012, where it was 3.3.

Now when we come out of this with the way interest rates we’re looking, I wouldn’t be surprised– We’re hovering a bit above that, but I wouldn’t be surprised to see a dip even lower than that. I think there’s a lot of things in our control, there’s a lot of things in our favor, definite reality check. Also, we can be proactive and change the fate of what we’re doing outside of this.

Aaron: I was trying to figure out a stat because just a week or two ago when this started happening, we were looking at the numbers of just the amount of people in the US that have equity this time, which that was not in 2008, 2009. Everything that was happening back then, it was because no one had equity. The number right now, and I don’t have the statistic to be able to even come close to, but I was so surprised at the number of people that had at least 30% to 40% equity in their house. It was so much there that even if we start to see changes– That’s why there’s still going to be a real estate market. The business will change a little bit, but transactions will have to happen.

I’ve got fantastic news, my house that I listed for sale two weeks ago in Austin. I had to list it. I had just moved into a new home. We got an offer on it. We’re an escrow. That was one of those things we’re like, “Hey, we did a great virtual tour.” My agent on it did amazing pictures amazing. He did such an epic job at presenting this and he was going and doing live videos and everything there. People do want to transact, but he wasn’t a lazy agent. He worked so hard, so you’re going to see– People have equity, but they need agents to work really, really hard.

That brings one of the other articles that came up. This one is on Inman, and it just brought- made credit to some houses as how curbside closings are keeping the market moving. There’s an Atlanta law firm that has been conducting mobile closings for 14 years. Now, a global pandemic has given their model with emerging technologies much-needed attention. There’s pictures in here of people driving up, signing documents from their car as they’re going.

We have business in Mississippi and I got an email from the governor’s office in Mississippi that said they’re now making notaries are okay over webcam.” For the State of Mississippi, you can get on a webcam with a notary, you can sign the documents that you mail it to them. They’ll stamp it after that, send it in as notarized. What are you thinking about that? The idea of curbside stuff? Have you heard of this happening right now? The transactions you’re seeing, are people transacting from their car, from home? What’s going on?

Paul: We’re definitely– I was on another call with maybe the single top agent in the United States. He was telling me he sold his first giant Malibu home with just a virtual tour. They opened the escrow with just a virtual tour, and then they were able to have people go through. This is one of these things, you’re right, it’s a more discerning market so that if a home is priced right, it’s going to sell.

I grabbed the stat that you were talking about before. In 2011, the aggregate home equity was $7 trillion. In 2011, $7 trillion. Now is $15.5 trillion. More than doubled in 2018. Then, the percentages too are really pretty amazing, so that 86% of homeowners now have 20% home equity and more than 60% have 50% home equity. We’re just not in the same ballpark as we were when we got into trouble in 2008.

Aaron: That is an amazing statistic. In 2008, what happened was people couldn’t make their payments and they needed to sell, and they were underwater. Now, you’re going to have some situations where people can’t make their payments, but they’ve got $100,000 in equity in their house. They can now sell their house, live off that for the next year. There is this big piggy bank.

I think that $15 trillion equity had taken a hit in the last week. I don’t know if it’s $14 trillion or $14.5 or what it is, but there’s still a big piggy bank there for most people. I think real estate is actually going to– Some of those bank accounts is going to maybe lead some of the recovery. People being able to sell their houses, capture that equity, and live off of it when jobs might not be coming back

Aaron: Amazing stats are going down the line and probably some stats that we can add a lot of flavor to. Bloomberg, the article came out yesterday at 3:00 says, “American Homeowners Grab at Mortgage Forbearance During Lockdown.” Now, we’ve talked about this a lot on our foreclosure stuff out in Texas. Foreclosures got postponed. Not as many posted, but it says, “Almost 6% of US mortgage borrowers have stopped making their payments since the passage of the CARES Act.” 6% of people that were paying their mortgage did not.

“Share of home loans and forbearance jumped to 5.95% during the week.” I guess that’s saying 6% of people actually got their bank to delay their payments for a couple of months. Part of me thinks, “6% is a huge number.” Part of me thinks, “Well, I think there were some forecasts out there that said it was going to be 20% or 30% of people weren’t paying their mortgage.” Where do you see in mortgage? We’ve seen some stuff with rents that are surprising.

Paul: That’s a surprisingly low number to me. I think it’s a good indicator. Another thing that’s very interesting about is that– It could well tie nicely to the statistic that you brought up before about home equity is that if you’re sitting on a pile of equity, a lender is going to be more secure in that. One of the things they want to do is they want to make sure that they don’t have to write it down as bad debt.

If you approach them and you say, “Hey, look, I’m having some problems. I’d like a little forbearance.”, “We’re not going to have you pay. We’re not going to forgive the payments, but we’ll tack them onto the back on an interest-only thing.” Which on a 30-year mortgage, it doesn’t cost you a lot if they’re going to do it that way to not pay your mortgage for a few months. That way they can keep the loan on their books as a performing loan. They don’t have to say, “Oh, geez. We have to send a notice of default. They’re 30 days late. They’re 20 days late.”

As soon as they grant that and you sign it, it’s now a performing loan again because it’s performing according to the new agreement and it doesn’t cost the bank very much. Whereas if we were upside down in equity, the banks might be desperate to try and like, “Oh, hey, let’s harvest whatever equity we can now because we kick it to the back of the road, we’re just going to end up with nothing.” Like they did in 2008. It’s different.

Aaron: It was a race back then. I hadn’t even put that together, but as you’re saying, that makes so much sense because those equity numbers are huge. There’s so much equity out there. It does make a lot more sense of the banks are saying, “Look, yes, we’ll give you a few months because there’s still a ton of equity in that house.” They know that they’re not going to run away. In 2009, they needed to force the foreclosure quickly because they knew they weren’t getting anything back and the market was going down every month, so they were like, “We’re going to have to do this.” These banks know that no matter what they’re getting money back even if the houses are going to lose 10% value.

Paul: One of the things that we can do on this program, and it’s not for this particular episode, is make sure that we’re talking to people that are really giving realtors actionable steps because there’s stuff that realtors can do right now that will make all the difference. This state of the markets we’re talking about, what’s the news? This is a good informative piece so that realtors can listen to this and have talking points and know where to go for valuable statistics and information. We’re loading the queue up with people that are going to tell us, “Hey, what is going to go on with realtors, how can we impact the change for us.” See, here’s the thing.

Again, had a conversation with maybe the number one realtor in the United States today and his area is Malibu. He’s number one market share in Malibu, of course. Now, if I’m talking to an agent and that agent is number 18 in market share in Malibu, how do you get from 18 to number five? You better tackle 17 and 16. When the market is good, and everybody’s doing all their stuff, it’s a slog to really jump ahead of the queue. Now there’s a real opportunity, because it gives us a chance to be very active right now, and going out and touching your sphere and doing what I’ve been calling an eyecare message.

Just checking in with people, you don’t have to say, “Are you ready to buy or sell, or give me a referral.” Checking with people, and being a source of information, a source of light in this, at this time will set you apart, and most people are not doing it. Now is the time that some activity, learning the stats, learning your neighborhood, and getting out there on social media, and also pounding the phones and checking in on people make a big difference.

Aaron: We started doing that with all the members of all of our different software and lead data stuff. Just reaching out to people and saying, “No, seriously, this is not a sales call. How are you doing? How are you feeling with all this? Is there anything we could be doing better to help you” People are like, “Whoa, no one has called me from anywhere?” You’re like, “Really?” We legitimately care. Yes, there are people are dying for some of that contact, because even though you and I are on a ton of Zoom calls, and a lot of our listeners out there probably on them, not all your customers are. Some of your customers and your sphere they’re waiting to hear.

I got an interesting stat. I want to share some personal experience that I think goes in line with some of that mortgage stuff. We were really worried about people not paying rent. We have 350 houses in the greater Texas area that are rentals. Of those, we’ve only had 10 or 15 of them that said that they weren’t going to pay rent this month because of COVID. That they were not going to pay and that they were going to pay after when they could.

We were expecting a really big number. That was more really like five to 6% of our pool. Though I do have one neighborhood where we have a bunch of houses next to each other where we have 15 houses. Of those, almost half of them were in that bigger tranche that said, “Hi, we’re not paying.” That case, I think they wouldn’t talk to their neighbors and said, “Hi, I’m not going to pay if you don’t pay, if none of us pay, nothing can happen right now.” Maybe they won’t make us pay it back later, and have an empty neighborhood. The the rent payments been better than I thought.

Then today, I heard a lot of people, some people close to us in business, unemployment started kicking in with that extra $600 a week. Some people that have been on unemployment got an extra $2400 today. Now From now on, they’ll get the extra $600. The rental market not performing as bad as I thought it would now. We’re midway through April. Now a lot of people say May will be a different story. Now by the time May comes unemployment benefits are really kicking in. Have you heard anything with retail rents progress, single-family rents, anything like that?

Paul: I also have a portfolio of residential, which has not multifamily 600 doors, and it has not been hit yet. We’re having a few-we have a few, when times are good, you have a few that don’t pay, and we’re certainly have more that aren’t paying now than before, but it’s not the kind of numbers that we were concerned about. One of the things is that, again real estate led us into the crash in 2008 for sure. Now, with everybody affected, I’m seeing more of a spread where real estate itself is not going to be–they’re not going be the target of it. What happens if a retail space– they just can’t pay their rent.

Mall owner doesn’t collect very much, and they can’t pay their rent. It’s going to get kicked down to the servicers to eventually the insurers, and the government right now is not going to let the system fail. Again in 2008, they were bailing out the banks, not the case, right now banks are flush with money. Very different circumstances. I did have a friend who was an investor. There’s lots of malls, because of the weather or whatever. In LA there’s just strip malls everywhere.

Aaron: Yes, there are malls everywhere in LA.

Paul: A very large one, a friend of mine who’s an investor told me that 15%, not 15% failed to pay, only 15% did pay. I was like, wow, that’s crazy. Like you mentioned before, we were talking before, and I saw the article too, at the minute this thing happened publicly-traded company Cheesecake Factory just said, “You know what? We’re not we’re not paying our rent. Here’s our news, newsflash.” They’re going to preserve that equity.

On the other side of it, they’re going to say, “Hey, you know what we’re still a good tenant. We were a good tenant before this. We couldn’t keep our doors open. We’re not paying you.” I think this whole thing is going to be more like a pause button. Then it is a real hammer in the coffin on that.

Aaron: Yes, I think as long as those retail people work it out with their tenants too, I think there’s going to be a difference between the tenant that operated at half, because some restaurants are doing okay. They’re getting there, but they’re having to change their services laying people off, but they’re still doing deliveries. Their revenue isn’t at zero. Then you have probably tenants in like these enclosed malls, like up in Sacramento, just this enclosed mall, where the door is closed to get in. Even if they wanted to go to work, they’re not going to. That’s also a little different. If the mall closes its doors, what are the tenants obligations if they’re not even allowed to show up?

That 15% number, although that is crazy, astronomically low. It’s shocking, but it’s not shocking. It’s shocking, but it makes sense. There are different parts of the market. So far it feels like commercial has been hit the hardest, but again there is an American dream. There’s so much money behind that later. People are going to be dying to go walk through a mall as soon as they’re allowed to go out there. I’m dying to go to a restaurant just sit without a mask on and eat next to people.

Paul: Yes. That will come in time.

Aaron: Yes, we are almost there. One of those kind of things. Yesterday day before Senate approved 310 billion in new funding for the small business loan program. Last week PPP came out, and a lot of people got that loan right away. Then they said “$350 billion, sorry it’s spent. Now you don’t get it anymore.” Then like a month ago, we were on the podcast telling people go on and if you own a business, you could sign up for this EIDL $10,000 emergency loan, it was supposed to fund in three days, but ended up funding like 40 days later and it was 1,000 per employee instead of 10,000 per company.

Some companies got 10,000, some company’s got 1,000, but it is it still is money that got out there but now there’s new–Now they approved another $310 billion yesterday. What have you heard about that, about people that got the loan aren’t getting the loan? Do you think it’s good? They gave another 310 approved for it?

Paul: Oh yes, I mean well look. I was feeling like the dunce in the crowd for sure, because the people who got on it right away got on it quickly. We’re getting their loans funded. Then I’m talking to so many people about it. There was sort of a yes-no checkbox where it was like no, no, no, but then if you check the last one, you didn’t read it properly. The last one needed to be a yes.

That just kicked like so many different ones out and I had a friend that knew that and reapplied recently and got the money right away. It seems to be a very uneven, doling out of the money and I was talking to people that got it. We applied for EIDL, we applied for PVP, we got nothing. I was talking to friends. Last night at midnight, my CFO was texting me and she’s like, “Oh well. Hi, I found EIDL money in one of the accounts” She went account after account after account. We applied with 15 companies, we applied for all, and we got nine of them just hit the account.

Now, to your point, I have a lot of real estate investments. I have 30 LLCs, that would have been $300,000. I actually know somebody that had 40 LLCs and got $10,000 per LLC. They got $400,000. Now those 30 LLCs, if the ideal deed ideal, sorry, funding comes in, instead of $300,000, I’ll be getting $30,000. I going to tell you, I’m going to be happy with the $30,000.

It’ll be a nice little relief. We’re getting the EIDL money in the 15 companies. We have employees so it’s ranging from I think the high–The high was 10, and then all the way down to like 4,000 for our smallest one. That’s working, and then PPP we have them some approved, but when they ran out of money, no more so now the approvals are coming in. The message for the people out there is if you didn’t even apply it you absolutely still should do that. You totally can. It is getting easier to do, and you can apply right online, and it’ll be a great idea to put the links up with this show for sure.

Aaron: We’ll put the links in the show notes. Right now you search SBA EIDL. It’ll take it economic injury, disaster loan, there’s a link to go to Coronavirus. The first one where you’re requesting up to 10,000 per company. That’s 1,000 per employee that’s out there. That’s a really easy application, it takes four or five minutes. Do you know your bank account number, your tax ID number, what your gross revenue was? Take the time to do it. Even if you only get $1,000, and it’s a month from now, it’ll be 10 minutes of your effort, 15 minutes of your effort, and that $1,000 make a difference. If you have a bunch of employees, you can do even more and then those bigger ones, the PPP and the EIDL just ask your banker. One of the problems a couple weeks ago with some of the bigger banks, Chase Bank, US Bank, they weren’t ready for it yet. What we heard is a lot of smaller ones funded. Now Chase and US Bank is saying, “Hi we’re ready for this next one.” Talk to your banker, they’ll walk you through it, they want to help do these loans.

Paul: Oh, yes. For sure.

Aaron: You have some more money out there available, go apply now for something if you haven’t. It’s like when people got put on unemployment in our company, some of them were like, “I don’t want to get put on unemployment.” I said, “Hey, you’ve paid into this your whole life. Every time you’ve gotten a paycheck, a certain part of that paycheck has gone out there. You are not being too proud, it’s not shameful, this is your money that’s been in that savings account, and you’re entitled to it.”

EIDL I think is treated the same way. We pay into tax money and programs like this so get what you can and I think it’s great that they open it back up too because there was a lot of heartbroken people that said, “Hey, I missed the boat. That doesn’t feel very fair and there’s one way to make it fair.” The news article, not that surprising. Existing home sales slammed with the first major drop in March NAR. As the coronavirus outbreak hits, the US existing home sales fell 8.5% to a seasonally adjusted annual rate of 5.27 million units caused by that.

Again, it’s similar news to what we saw before. There’s less transactions, but transactions are still happening. Anything else that you thought what that article says despite the drop in sales, median home in the US cost $280,000 up 8% from last year, so year over year, price is still up 8% just less sales.

Paul: It lags behind because unlike the stock market which is very fluid or we saw crazy news, a barrel of oil has gone to zero. I’m like, “Wait a minute, how’s that possible?” Well, there’s no demand, it costs money to store it, it costs money to transport it. There’s your answer. Okay, well, I had to read the article because I couldn’t even understand the headline. Now, these things are very fluid. What happens is people are selling homes have an idea of what their house is worth and it doesn’t come into the point where they really need to sell it that they have to sell it at a point where somebody will buy it.

There’s a lag period but again, this is very different than 2008 and we don’t know where this is going and I do believe that real estate because it didn’t lead us into this issue. Even if we’re stuck in a global recession, the stock market already got clobbered. I believe that real estate could be a safe haven, I really do and that’s great talking points for realtors to talk to potential clients about. People still need to buy and sell homes, period. It’s a pretty good place to park money.

Aaron: Yes I think you’re right, especially when you get to look at that. Now, again you will see some corrections it’s a good time to buy. It’s a good time to buy where you could probably go get a deal right now out there because the agents that are working harder are making deals happen. How about this article, Netflix Posts Explosive Growth, but Warns it May Not Last. Is this like, who were the biggest winners of Coronavirus?

Paul: Yes, it’s been a little when we reported I came out with a piece of news is like everybody’s laying everybody off and Amazon was adding 100,000 employees. Of course they are. I will say this, the world as we know it has changed, it really has. I believe that it can really help our businesses. We take the upside of it and work our rear ends off to mitigate the downside. There are going to be winners and losers that emerge.

I hate when I read the news stories that say this is going to be the biggest wealth transfer again because I’m like, “Huh.” Well, I have some money now, but if I’m like everybody else even if you have some money you’re like, “Geez, I wish I had more.” What piece of this wealth transfer am I going to get? Not that much but I think there’s also going to be people who are resilient, and who can go with the times are really going people that know how to use technology or are willing to use technology. Even when you said at the beginning of the podcast, which I didn’t know. I’m like, “Wow.”

You can go to the parks in Austin, Texas, but you have to make an online reservation. Can you imagine? These are things we would never be talking about. Things are going to be done a little differently and I don’t think it’s all for the worse for sure.

Aaron: Yes so many technology plays out there and when you think about every little thing like that. I’ve been thinking Zoom is winning, Netflix is winning. There’s all these companies that are crushing it in this but there’s also the new opportunities that come from this too the one company that they’ve been doing mobile closes forever. Well, now everyone has done mobile close forever, but now it’s a need. There’ll be new technology around that being able to notarize from home.

Last statistic that I think the last piece of news for the day. This was a jam-packed State of the Market, Paul. There was soo much stuff that you and I were able to add into this. This big one I think it affects me it affects you I know it is wealthy mortgage borrowers face cold shoulder from lenders and so the article says is this from Bloomberg? Prashant Gopal is one of the authors for this one says the wealthiest, most reliable mortgage borrowers in the US are hearing an unfamiliar word from lenders, “No.”

The global pandemic has flipped the mortgage market upside down turning the industry’s most valued customers into risky bets. When the rich lose income and stop paying, the loss is magnified. What they’ve said is the loan rates are going up in jumbos. We’ve just bought a house in Austin, and that bank said we were the last one they funded. It was right when everything started to shut down. The market was crashing that day, it was the second shelter-in-place, Texas was on shelter-in-place, and they funded our loan that day but they didn’t find any that week after that. I’m a jumbo loan.

We started to see a lot of stuff this week with lenders raising the required credit scores way up, taking things we’re now 10% conventional was out now it’s 20% conventional. Have you heard much of that yet,? California is a jumbo market, LA is a jumbo market.

Paul: On that one, I’m going to have to call either BS which I wouldn’t usually do with a Bloomberg article, I’ll either call BS or wait and see on that one because I’ll tell you what I have seen and I got off the phone just yesterday with a guy that owns a mortgage brokerage firm. What he was talking to me about is they’re taking a little more time to fund them, but they are funding them. I don’t think you walk up to the bank, and you get the jumbo loan, no problem, because you’ve got a great credit score, you’ve got assets.

These are not unreliable borrowers, they really aren’t and I think what’s happening inside of that article is that they’re taking a little bit more time to do it, but not a ton more time. A few more days to look at a few more things, for example, employment verification, now on a jumbo loan, they’re really digging into that a bit more. Now maybe when you need more service from a bank than you otherwise would so a lot of people got used to rate shopping, and I totally get it.

When I borrow for a property or for a house, hey, I’m going to go for the lower rate period. Full stop. The people that had high service while you’re like, “Well we do all this stuff, we hold your hand and if it’s an extra quarter of a point,” I’m like, “Huh, an extra quarter of a point, I’ve got my own CFO that’s going to run through this stuff, and I’m not handling it let me go for the low service and best price.”

Now is where you need more service because you catch a little hiccup on underwriting and maybe it’s the employment verification which is the number one thing at least out here which is causing things to slow down. You do a little extra legwork on the employment verification, and these things are still going through. What I heard as recently as yesterday was the jumbo loans are going through it’s taking a little more time, they’re looking at them a little longer, and maybe to a Bloomberg reporter or whatever, that’s looking at Wells Fargo in the biggest banks it really looks more like a bottleneck than it is.

Aaron: Yes, it’s a good point because what they say is, the availability of them plunged 37%, and rates went up 30 basis points but what you’re saying there is picking your lender now is more important than ever. We saw that in our investment deals we went to a single-family rental conference two months ago, and on the floor, there was 40 different people saying, “Let us lend you money for your single-family rentals.” Of those 40 that were there, there’s two lendings today but that’s a riskier product. It’s a higher lien stuff. It’s not that nobody’s doing it but there’s only two of them doing it, most of them are now doing it.

I think it’s picking the right lender for those jumbo loans, that’s going to be able to help you get through it. Maybe there is less available, but maybe it’s because before there was like, “Yes, you could go and low rate shopping and jump from place to place.” Now they’re saying, “Hey, you can still get approved but we’re not just going to put a quick stamp on it.”

Paul: You mentioned an important point in there too, that I’ll dig out a little bit and you said in jumbo that the rates topped up 30 basis points and I specifically talked to this broker-owner about that and he said that, “Look, there’s not less money available,” and that they’re building a little bit of the risk into that little bit of higher rate, and that’s what’s- making it, in essence, more fluid. So like, “Okay. Well, we’re a little less certain, but we’re going to bump it up 30 basis points, so there’s more room in the loan.” That’s taking care of it.

Aaron: That’s fair. Supply and demand. That’s just like with everything right now. If we’re going to try to buy an investment property, we’re going to pay a little bit less. When we listed our house on the market, the agent said, “Hey. We can list it up here.” We listed it $25,000 less than that. We said, “No. We need to get this thing sold right now.” It’s the same sort of risk and reward out there for it. I really liked your perspective on that.

Man, Paul, that was so much news today. So much real estate news, so much actionable stuff out there for our Real Estate Rockstars at our Rockstar Nation. Paul, if they want to reach out to you, you’re doing so much stuff right now with webinars, things like that, trying to give advice. We’re doing a bunch of them on Rody, you can find me on Instagram or to our Real Estate Rockstars’ Facebook page. Paul, where can people find you? They can find you on the Rockstar stuff, but where else can they go see what you’re doing?

Paul: @paulmarkmorris is my Instagram handle. It’s also Facebook handle and those are the best two places to get me. While I have everybody’s ear, I can’t help but to say that the biggest things that realtors can do right now, to make a difference, is reach out to people in an I care message.

One of the things that we mentioned today, that we talked about, is a phenomenal way to do it. Do the news that we look at. Pull out the article that talks about the additional funding and call your whole sphere of influence and say, “Hey. I was concerned about you, and I myself know that the PPP money or the EIDL money looked like it was running out and in fact it did, but they just refunded it. I’m wondering, did you put the application in, because if you did, great. You’re in line already. If you didn’t, there’s still time right now. Let me go ahead and send you the link.”

If you’re giving them that call instead of like, “Hey. Can I list or sell?” or whatever, that’s where you’re going to jump, like I said in my example, from number 18 in market share in Malibu– You might not catch Chris Cortazzo who is the number one agent, but you can leap frog by this sort of activity. That is a great message for everybody.

Aaron: That was such good advice. Grab the news. Reach out to them. Make sure that they heard that news. If you’re one of our people that grab some of our courses on Rebus University, we have totally slashed prices on that stuff. They’re like $99 a piece right now. Normal prices for some of them are $1500, $2000. If you’re at home right now and you have time after you make those calls, if you want to do some extra learning and some extra lessons, go check it out. The coronavirus slashed prices. We know, right now, people want content. They want to learn stuff. There’s also a bunch of free webinars that we did the last couple weeks. It’s on our Real Estate Rockstars’ YouTube page. Go check that out if you’re one of our podcast listeners and you’re not on the YouTube page. Until next week. Paul, thanks for coming.

Paul: Thanks a lot. I really appreciate it.

Aaron: All right. Bye, everyone.