Epic Real Estate Investing - Housing Market Update | Forbearance, Foreclosure and Recession | 1245

Episode Date: November 24, 2022

The Mortgage Bankers Association (MBA) reported Monday the forbearance rate increased in October after more than two years of declines. Is It over then? No, it’s not! Forbearance plans are still alive and well. As of October 31, there were 350,000 U.S. homeowners in forbearance plans, up from 345,000 at the end of September. That’s 5,000 new forbearance plans put in place just last month. Why is that, and how will this impact foreclosures hitting the market? Listen to this episode and find out! BUT BEFORE THAT, Matt explains why new home builders are hitting the brakes. Are you ready? Let’s go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Builders slam on the brakes as contracts are being canceled. Inflation is taking its toll on the housing sector like we've never seen, and it's getting hit from both ends. Welcome to the all-new, epic real estate investing show. The longest running real estate investing podcast on the interwebs, your source for housing market updates, creative investing strategies, and everything else you need to retire early. Some audio may be pulled from our weekly videos and may require visual support. To get the full premium experience, check out Epic Real Estate's YouTube channel, EpicR-E-I.TV. If you want to make money in real estate, sit tight and stay tuned. If you want to go far, share this with a friend. If you want to go fast, go to

rei-Ase.com. Here's Matt. Here's what I mean. The simple definition of inflation is too many dollars chasing too few goods. So to get inflation under control, we need fewer dollars and more goods. Dollars down, goods up. That will bring the economy back into balance. So as the Fed works on reducing the dollars in circulation, the supply chain challenges persist. So yes, the dollars are going in the right direction, but the goods are not. And this is causing friction in our economy's recovery. And many of the goods that were lacking, builders need those goods to build the houses, like wood, glass, concrete, copper, stuff like that. In prior expansions, you would see a correlation between builders' housing completion statistics and housing

starts. But for the first time in modern history, housing completions have fallen behind housing starts. That's insane. I guess it kind of fits in with this bizarre old world that we're all living in right now, as we've been seeing a lot of firsts. You know, rent rising faster than sales prices, inflation higher than interest rates, and now housing starts are higher than the completions. And here's why that's so. It has taken too long to build homes from start to finish these past few years. You see, homes that were nearly complete remained incomplete due to a lack of garage doors and windows and appliances, of which puts the number of houses under construction at an all-time high. And I put that in air quotes because there's a lot of houses that are almost done.

Like, they ran out of doorknops and nobody wants to buy a house where the doors won't lock. We need an increase in goods to finish these builds. To make matters worse for builders, they've got a new challenge because they have contracts on homes from when mortgage rates were low. Now they're not. As a result, when those doorknobs finally come in and the builder can finish the house for the buyer, the interest rates have pushed the monthly payment out of the buyer's reach, so the buyers are canceling their purchase.

I mean, it makes sense builders are in no rush to complete construction. This whole mess builders are in was initially just a supply problem, but the skyrocketing mortgage rates have created this money problem too. And to provide some data on the subject, the difference between current completion data and the peak of the housing bubble is over 700,000. We're so far behind in building, like a decade behind. I mean, as you can see here, we experienced a steady uptrend from 2002 to 2000.

But in the time period between 2020 and 2022, the total completion data, it hasn't changed much. And to combat inflation, we need to force these houses onto the market. But there are currently 900,000-ish two-unit homes under construction, which is a record high, and that should help a little bit. But the number of housing starts, it still has some room to decline since there is still just too much inventory in the new housing sector for builders to even consider adding more. Continuing to build would completely go against the grain of the builder business model, as when they oversupply a market,

they sell their houses for less while they're carrying costs rise. That's bad for profits. So when can we hope to see this change? Well, a good rule of thumb for predicting builder behavior is based on a three-month average supply of new homes. Not to be confused with existing home rules of thumb. Because the new home sector, it works differently. It works like this.

Three months of inventory or less, that's typically good for builders. Four to six months, it's decent for builders. Over seven months of inventory. And builders can be expected, pull back. And right now, we have 9.2 months of inventory. So no surprise that they've completely stocked. And we probably won't see any significant

movement until mortgage rates get back to the 5% area. 7% or more, that's problematic. The good news is this week, mortgage rates dropped almost 50 basis points to get us under 7% for the first time since mid-October. But until we're near 5% mortgage rates again, they've put their tools

back on the truck and have headed home to wait out the storm. And this is evident from the builder's confidence data, which has almost completely returned to COVID-19's lows. Now, although multifamily housing permits haven't dropped as dramatically as single-family homes, there's a good chance that they will when rent inflation pulls back. And the real-time rent data is already starting to show that that's happening. So the loss of both single-family and multifamily building at the same time

will result in substantially lower housing permits than we currently have. We want to watch that next year. So is this the end for Builders? Likely not, as they are in a much better position to deal with this housing recession than at the peak of 2005. You see, in 2005, exotic loans had lifted new home sales so high to the point where the subsequent crash was dramatic. I mean, they saw an 82% decrease in sales from 2005 to when the market finally hit the bottom. And right now, the builders aren't dealing with such an elevated level of sales, so they can work on getting rid of their excess supply with much less stress.

And the fact that the builders now have less competition, that's another significant difference. You see, with fewer existing homes for sale on the market, Builders will be under even less pressure than they were in 2007 to compete with the lower prices of older existing homes. Now, we'll be getting updated existing home data really soon, but last reported, there are 1.25 million units in total inventory. That's a little less than half of where we kind of need to be for a somewhat healthy market. Now, the supply chain will eventually get resolved, and when it does, I think it's safe to say that the market will snap back like a rubber band, of which makes it a very opportune time to look for off-market deal before it does, because you're going to want to ride that, wave. Please stand by.

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Neither do I. Let's keep going. Back to the show. The forbearance rate increased last month for the first time in 29 months. What? The Mortgage Bankers Association reported Monday. The forbearance rate increased. increased in October after more than two years of declines.

We're still here? It's over. No, it's not over. And the trade group expects more pressure due to worsening economic conditions. As of October 31st, there were 350,000 U.S. homeowners in forbearance plans. That's up from $345,000 at the end of September. That's 5,000 new forbearance plans put in place just last month. The most significant increase came from Ginnie Mae loans in forbearance,

up eight basis points compared to one month prior. And Fannie Mae and Freddie Mac loans and forbearance also increased in October. Why? Good question. Several factors were behind this increase in forbearance requests, including the effects of Hurricane Inn in the southeast, the diminishing number of loans bought out of Jenny Mae pools, and the fact that new forbearance requests have closely matched forbearance exits for the past three months.

With the COVID-19 federal health emergency, still in effect, borrowers can continue to seek initial COVID-19 hardship forbearance. Homeowners can also get a forbearance plan due to natural disasters or other causes. I didn't know that either. According to the data, the total for loans serviced that were current last month reached 95.7%. Sounds pretty good. But that's an actual decline of 15 basis point compared to September. In total, 44 states reported declines in the share of loans that were current in October.

So nationally, people are falling behind on their mortgage payments. So if you're still looking for your first deal, this could be the time to finally get it done by getting out there and exchanging some equity for peace of mind. Meaning more and more property owners are looking for relief. They're looking for financial relief and they're turning to their houses for that relief. And you could be the person to give it to them and cash a check while you're at it. An uptick and forbearance requests must mean foreclosures are assuredly coming now. This is what we call a leading indicator, right?

Well, according to adamdata.com, an analytics company that tracks these kind of things, U.S. foreclosure starts increased 167% from a year ago. And that sounds like a surge, doesn't it? 167%, that's a lot. And the media loves that word, by the way. There's been a surge in COVID cases or a surge in gun violence or a surge in foreclosures. Surge sounds so serious and it gets clicks. I mean, they've tested it and we fall for it, like every time. Watch out for that, though, because the word surge, and you'll see the word spike used for this too. You see, these two words are almost always referring to an increase statistically, because it's very easy to deceive people using statistics.

In fact, you can get this book on Amazon right now. You see that? You too can learn the art of distortion and manipulation for as little as $7.44. And even he couldn't pass up on an opportunity like that. You see, the statistics you see and hear in the headlines may be factual, But to get the whole story, you've got to look also at what's actual. Here's what I mean. In Q3, lenders started the foreclosure process on 67,249 properties.

That's up 167% from a year ago. That would constitute a surge in my book. But watch this. Being up 167% from a year ago isn't enough to even get us to pre-pandemic levels, of which was already at an all-time low. See what they did there? You see, we surged 167% foreclosures. That's factual.

But what's actual, they got their readers and viewers and perhaps even you all riled up over a number that's lower than the previous all-time low. This is dangerous, and here's why. Did you know a necessary ingredient for a recession to endure is public sentiment? It can't do it without the public's thoughts. Yes, economic shifts intensified because of how you think about them. And your nervous uncertain thoughts dictate your nervous uncertain actions,

and it's your nervous uncertain actions that exacerbate and provoke these economic downturns. And this isn't some law of attraction thing, like what you think about comes about, nothing like that. No, economists have been citing this for decades. In fact, FDR. You heard him? Yeah, he knew this too. He started by changing the public sentiment to that of a positive one. He got them to stop being scared.

The media is constantly manipulating public sentiment, and it's causing the public to panic. Because panic sells. Fear gets clicks. And awareness is the first step to recovery. And now you're aware. Protect your mind. Be selective about what you put into it. question everything, even the stuff you agree with. So, foreclosure starts while rising since they

terminated the foreclosure moratorium four months ago. That's factual. They still lag behind pre-pandemic levels. That's actual. And now watch this. What the media is reporting are foreclosures starts, 67,249 of them. That's factual. Completed foreclosures, that's a very different number, 10,515. That's actual. You see, a whopping 86% of homes that enter foreclosure do not have. get foreclosed. And the ones that do are expected not to complete foreclosure for an average of 885 days. That's like two and a half years. And people are running around with their hair on fire screaming foreclosure, foreclosure, foreclosure. Now, we may eventually see a big increase in mortgage defaults. We might see a bunch of foreclosures. I don't have a crystal ball. But the data right now shows that we're

going to be waiting for a while before the foreclosure tsunami everyone's talking about actually hits. if it does. And if it does, we're at least two and a half years away from it impacting the real estate market. And it'll be even longer if you live in North Dakota, South Dakota, or Vermont, where in Q3, there were less than 100 foreclosure filings in those three states combined. But if you don't want to wait that long for distressed opportunities in the real estate market, you're likely to find them first in New Jersey, Delaware, and Illinois, where one in every 694 homes are currently in foreclosure. That right there is enough opportunity for homeowners and investors to get together and create some mutually beneficial outcomes. And if you'd like to get paid

to partner up with us while we do that and keep 100% of the profit from the deals that we do, you'll probably like what I put together for you over at free course in real estate.com. Go there, take a look. And if you like what you see, it'll be really clear as to what there is for you to do next. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings and success to you. I'm Matt Terrio.

Living the dream. Yeah, yeah, we got the cash flow. You didn't know home for us. We got the cash flow. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com