KGCI: Real Estate on Air - How Different Buyers & Sellers Should Be Approaching This Market

Episode Date: June 21, 2025

I am your host today, Josh Pedersen. Luke is currently still gallivanting around Europe. And I'm here with my fellow nerd and brother AJ. What's going on today? Not too much. I am sitting very high today, so don't mind my hunchback. We are. Yeah, we're working on our chair situation here.

We have producer Haley back today from her two-week trip to Bali. Luke's been running on Scotland and Ireland, so we do apologize for having a little bit of a, you know, reprieve from podcasting. But we're excited to be back with everybody today. I guess from would you rather standpoint age, would you rather go to Bali or would you rather go to Scotland and Ireland? That's a great question.

I did hear somebody ask Luke if he was going to go golfing while he was there and he said no, which was a little bit disappointing because I would have a lot of fun going golfing on some of those golf courses. I don't love golf just like we've talked about. We talked about this. Don't get it.

Very, very scenic golf courses and just a different style of golf there, which is cool. It'd be fun to just walk them to be honest. It's probably beautiful. I'm currently planning. a trip to Europe right now and I'm pushing for Dublin. So there's a part of me that's going to want to pick that. But if I could sit on the beach, you know, I would do that. Yeah. So today we're going to get into some unique things to be thinking about because we've talked about a number of times in this

podcast how we feel that a lot of advice is given very much into a one-size-fits-all capacity. And the reality is that different buyers, different sellers, you know, based on the current environment are going to have different goals. And so we're going to go through a couple different types of buyers and sellers and give an overview of, you know, what type of strategy they should be employing given the current mortgage rate environment that we're at. You know, we have buyer demand at 28 year lows. We have mortgage rates kind of get into 20 year highs. You know, just a very unique market as we've talked about a lot. So I guess let's kick it off. If you're just a straight up buyer today, let's say it's your first time buying, you're not selling a house.

How would you think about your goals and strategy? What things would you be comparing and contrasting as you're making your decision? I think oftentimes I talk, you know, there's a, like you said, there's a lot of bad advice out there today. I even saw somebody post something like, when should you buy a house? Like, now's the time. And I'm like, that doesn't really fit every person's situation. I'm an investor that's looking for a cash flow opportunity.

Is now the time for me? Yeah, exactly, right? So the couple of things that I would talk about is mainly I don't tell my buyers, it's okay. We'll just refinance this when the rates go down because everybody's saying that right now. And yes, rates probably will go down, but we don't really know when or if they're going to go down. It would be interesting if we did a look back like a year and what people's expectations for rates would be. Because I feel like people have been saying rates are going to go down now for.

I mean, everyone said they were going to go up. We kind of all knew they were going to go up. we didn't think they'd go up as much as they did. I think anyone who says they thought rates were going to go where they went is lying to you. But once they went up, everyone's like, oh, don't worry, they'll go down soon. And they have not. No, they have not. And there's two key components to that strategy of being able to refinance.

One is the rates have to go down so that the rate is just better than it is when you buy. And two, if you're a low down payment buyer, the value has to at least stay the same. So I think a lot of folks are saying that. And you've got down payment assistance buyers with 0%. down. And if the, if the value of that property goes down literally one or two percent, you can't refinance your negative equity. Or stays flat. So you could put yourself in a difficult scenario. Even at three, five percent down, that's a possible problem for you. Even at 20, you might have mortgage insurance if your value slips a little bit. And we're not saying the values are going down,

but I have seen scenarios where micro situations and certain houses have lost value after a couple of years, even when the market's up five, six, seven percent. So not every house goes up three percent in real estate just because, right? So that's not my strategy. A big part of what I've been telling buyers lately, especially first timers. I have one closing, I think, in like two weeks, is if we get to a point where you can refinance, great. That would be phenomenal. But you have to be able to and be okay with affording the payment that you're currently staring down right now.

So if $3,000 is the number that you're comfortable with, then you better be okay with $3,000 if that's the payment we end up at. And if we can improve that by doing a refinance in two years with the lender, great. But if we can't, you certainly have to be okay with the payment that you have right now. That being said, in the last four weeks, at least here locally in the Twin Cities, the market has slowed down significantly. I mean, Josh has on here, mortgage rates are at the highest level in 23 years,

buyer demand lowest level in 28 years. So there are homes on the market. There's still 8,000 homes in the Twin Cities for sale. And it's a lot easier to get into a situation where you don't have as much competition and you can negotiate right now. You can have your inspection. You can have a lot of the terms that you want in there. And you can get a better price, maybe seller paid closing costs. In certain situations, there's a lot of that available to you. So, you know, not just that payment, but also that you can probably get into a house in a little bit better situation than maybe six months ago when the rates were pretty much the same and the competition was much higher. Yep. I think of all the groups we'll be talking about today, the one that I think

is in the best position right now to go be a buyer, even though rates are as high as they are, are these first-time home buyers. And I think if you're an agent out there, you should be thinking, and if you're an agent that mostly sells higher-priced home, You should be probably thinking about how you can get some new clients in the first-time home buyer pool because there's just not going to be as many out there. You're probably struggling right now with the higher-priced homes. And first-time homebuyers are still in a position where it makes sense for them to buy in a lot of cases. And then they become very good clients down the road for referrals and second buys, et cetera. Just because I say this, if you're a first-time home buyer, your alternatives are renting versus buying, right?

You don't have to trade an interest rate. And so the interest rates being high is problematic, but you're not giving up a 3% rate to move to a 7.25% rate. And your rent has probably gone up pretty precipitously over the last three years because rents have continued to rise. And so you might look at it and say, well, I could pay $1,300 for rent, or I could pay $1,800, but paying down a mortgage, be getting tax advantages, be getting into a house, had the possibility of future appreciation, et cetera. right so it does open up the possibility that you're spending a little bit more money up front on a monthly payment standpoint but you're getting a lot more for that by being a buyer versus a renter and so that combined with the timing of where we are at least in our Minnesota market as I mentioned buyers start to thin out around this time and they probably only get less competitive um going into about the Christmas time frame until for some reason the first of January everyone freaks out and wants to buy a house again uh So right now, I think a lot of first-time homebuyers are coming to me saying, is it a good time to buy? I'd say, well, to your point, if you feel fine with the payment at today's interest rate, then yes, it would be a good time for you to get out there because there aren't many other people buying. There's less inventory than there's ever been, but if there's a good house, you can still get a good deal on it and negotiate.

And frankly, you don't have to give all your money away to rent. You can own a house now. So, Haley, was that the spot where we throw in the edit and it drops down and says, it's the word, word, word of the. day and Josh says precipitously. That was a fantastic word. I liked that. I may have used it correctly. I may not have. No one will know. All right. So but now if we're a seller today, how does the strategy change, right? Yeah. And it depends on kind of what type of a seller you are. Because we have the seller and buyer we're going to talk about next because I think that's a little bit unique. If I'm a seller today and I don't have to buy my next house or I already

even building my next house or whatever that is, the only thing I would say is because of what I just said about the current buying pool, I do think if you're a seller and you can hold off six months at this point in time and see how things develop, you're probably going to do better. There are always times as a seller when you can, you're just kind of your life demands that you just list your house. And I'm not going to stop you as an agent when you say, I just need to get out of this house. I need to sell it. It's just time for your own life reasons. But from a market timing standpoint, the spring market is to be better than the fall market. The buyer pool is already thinning out because of the higher interest rates. Yes, there's no inventory, so you can still get in the market now and

sell your house effectively. But if you're a month out, two months out, I think you're better off planning to try to push that into the spring time frame. I think I said the other day at one of our team meetings, but I can probably count on one or two hands how many homes I've ever listed in like December. Yeah, it only happens when people are like, I need to do this. But even December is specifically bad because the holidays basically create these weekends where no one's shopping. So you have like the no shopping in the Christmas weekend. You have no shopping happen in the first week of like the January 1st New Year's weekend, right? So I always will try to basically, if anyone says, I won't list my house in December. I just say, give me 30 days and let's sit January

6th. Yeah, I think the, and the expectations too, I think if you are in that bucket where someone comes to you and says, I have to sell my house right now, you just have to have better expectations. Just knowing buyer demand has hit its lowest level in 28 years from a, from a pre-approval perspective, I believe that is. Yep. So just knowing there's a lot less buyers out there, but there also is a lot less homes out there. So if we're priced right, we should still be able to sell this in a reasonable amount of time. But I'm going to talk about the team meeting today is days on market, I think, has doubled in the last two years. Yep. So it is taking longer. Whatever, you know, CNN, Fox News,

CNBC want to say about what's going on in the real estate market, that's clickbait is what it is. but the real stats say supply is up, even though inventory is down, which means there's just a lot less buyers out there and it might take a little bit longer right now to sell your home. And I think that's the reality we've talked about. But at higher interest rates, when buyers look at their payments, they go, I'm paying more than I thought I was going to. They have slightly higher expectations than they did in say 2020, 2020, 2021. When the rates were low and the market was crazy, their thought was, I just got to get a house.

It's got to get a house. So they would give up, they would allow for certain flaws in homes to be acceptable that are not acceptable anymore. There's more expectations in terms of what they'd want. And the herd mentality in human beings is just a really real thing. I mean, if you're going through a house on a showing, I did this back in 2020 and 2021, and there are eight other people there at the same time. You're like, wow, this must be a great house. Everybody else wants it. So I want it.

I want it just because everybody else wants it. So there is that aspect, I think, too. And right now, when you're getting, you know, two showings on the first Saturday and two on the first Sunday and they're not overlapping, then people just aren't feeling as frantic about necessarily making a fast move. Right. And I think, but I think your point about setting expectations is really good. Because being in the loop on what's going on, like these numbers, these things is really important if you're going to be a, I mean, really every agent type that you are, know your clientele, know where their situation is and understand the market so that you can communicate appropriate expectations. to them. If you have sellers today, they're like, I want to sell my house this fall, communicate with them. You're not, you might still sell. If your house is in really good shape,

it will still sell, but it won't sell in seven offers likely, right? You might get one. You might get two. But my ability to take seven offers and push the price way up is way lower now than it it was before. So even if we get the price that you were expecting, it's still possible that if you waited six months, you'll get more money for it. So it's just, it is important to understand all those things. But if you're a seller and buyer, how would you think about it that way? Well, we've talked about this before, but one thing that I would, as an agent, would talk to those people about is whether the home that they currently have is a viable rental property, especially given the rate, right? So I've got a client right now, his girlfriend's going to move in

with him. I sold him that house. Well, the girlfriend owns another home 40 minutes away. And he wants me to run those numbers for him. So I'm going to go out and see that property and whatever. And, you know, I was thinking if the rate is like 3%, then renting is going to be a lot more attractive. Well, I found out that the rate's 4.75. For whatever reason, maybe she didn't refinance it or whatever, it's 4.75. So the spread on selling that property right now, because it's either going to be a rental or it's going to be listed and sold, the spread between the going rate today and the rate that she currently has is not as great as I was expecting.

So then maybe renting doesn't work as well because there's not a ton of profit to be had there there's not that much cash. On a monthly basis, right? So, but the first thing I ask a seller and buyer is, is that question if I think that that home, you know, is in a price point, in a payment that would make that work. In the past, I never did that because most people don't buy their home with the intention of it becoming a rental. And so it just doesn't make a ton of sense.

And they were trading a 4% rate for a 3.5% rate. And most people don't want to be landlords. And they need the cash. Yeah, exactly. So most of those folks, I just ask them kind of what the motive is. is for it. And I've helped a ton of people do this this year, even in this environment where they sold at their 3% rate and they bought a 7% rate and they just needed more space. Yep, they're having another kid. They want to get into a different school district. It's kind of like

the top two things that happens. So I think the advice is kind of what we just wrapped up with if you were a buyer or a seller. If you're a buyer and a seller, all of that advice sort of applies. So the demand is less. So on the buy side, you might do a little bit better. If you're changing markets into a market with lower demand than the market you're selling in, you're going to do well. There's an arbitrage. If it's flip-flopped, there's a negative arbitrage, if you will, where maybe the demand

in the area you're selling is worse than the demand in the area you're buying. And so we really need to think through if this totally makes sense for you. But again, most of those folks come to me, and they already know that it makes sense for them to move and it's usually a bigger home in a different school district that that's the biggest reason that they want to move. Yeah, I think price point two on all the different homes matters. So if you're in a first time home buyer price point that you're selling, you're likely to have more success selling it because of all the reason we talked about with first time home buyers earlier. Because there are enough of them that buying makes sense. The prices still look pretty good

at the bottom of the market. And the pace is pretty good as long as you have one that's in pretty good shape. If you're selling at a higher price point, it's a little bit different right now. It's a tricky. But because of that, if you're a seller in the first-time home buyer market and you need that cash, because those are the most rentable properties. But if you need that cash to get out of it, you may sell pretty well in that range. But then on the buy side, you may even have less competition because you're buying in a higher price rocket that other people aren't trading into. And again, that's like the arbitrage that I always refer to is when you're a seller, you are dealing with the macro market. You're dealing with what demand exists for your price point in your area and

your specific home and style and whatever. When you're a buyer, you do have to be a part of the macro market, but it doesn't impact you necessarily as much because maybe the home that you're really interested is a home that the rest of the market doesn't really like. Right. And that's what I try to look out for. Are you okay being on a busy road? Are you okay with a smaller yard? Are you okay with a split level rather than a two-story? Because we can understand how the negative things about a home and if they don't impact your utility as much as they impact all the other buyers, you can still arbitrage the buy and sell situation, even in an environment where you're selling a much lower rate than you're going to be buying it. Exactly. Exactly. So,

so we're moving to investors, I should probably just put my hands on my chair and just sit on them because if you're an investor today, that would basically be, I mean, we are investors. That's kind of what we're doing. I mean, we made an offer last week against 18 cash buyers that, you know, are going to flip the property. Exactly. That's what's tough right now. I think if you're a single family investor, like we are. The flippers are probably in a better, they're more well positioned to flip a property and make some money, especially if the house is right. If the house is really right. Yeah. In our scenario, you know, where we're dealing with commercial lending and the tightening of those policies, it's making it a lot harder to do like net positive type investments right now.

and the same thing applies on multifamily right now as well. So it's just tricky with those rates. I would say flippers too, though, are like it's a dangerous time to be just jumping into flipping because you don't know where the buyer pool is going to go in the next six months. You don't know where rates are going to go in the next six months. Yeah. If you throw a bunch of cash in a property,

you assume some equity growth, but the market is still kind of stagnating on the equity side. I mean, on a property like the one we offered on, one could say, yeah, if we can flip it and make money, we'll do that. Yeah. But, you know, if that doesn't work out, we'll just rent it out. Yeah. And we could have done.

We could be fine. Yeah. And I think the reality is as investors, they look at their opportunities outside of investing in this. And they say, I mean, you can keep throwing your money at four to five percent money market accounts. But most people that are like that tend to get bored doing that pretty quickly and they're ready for something else at this point. So there's a lot of people I've talked to their investors that are like, I just kind of feel like I'm sitting on money right now because all the money market accounts, it's all I'm doing. Yeah. And there's multiple layers to that too, right?

Like the money market's just giving you five percent. and you're paying income tax on that 5%. Whereas rental property, you know, you can defer so much of the taxes. And there's just multiple ways to make money. You've got buying down the principal, appreciation, and saving on taxes. So there's, and the monthly cash flow. So there's a lot of different ways that you can make that 5%. And it's really still possible for sure.

It's just a matter of if you can get lenders on board with allowing you to do it the way that you were able to do it in the past. Right. And if you're not going to, if you're going to buy it in cash and you're going to turn to a rental, you're probably not getting, So it's something where you have to think about what makes sense for you. But in general, I would say of this bunch of potential people, investors are probably in the least advantage position as interest rates have risen. And as banking has become more squeezed. So. Absolutely.