10/8/26 Crocs, Cash & the K-Shaped Economy

The Moneywise Radio Show and Podcast Thursday, October 8th BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Radio Show & Podcast" call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com https://www.moneywiseguys.com/ facebook: Moneywise_Wealth_Management https://www.facebook.com/moneywiseguys/ LinkedIn: Moneywise_Wealth_Management https://www.linkedin.com/company/moneywise-wealth-management-bakersfield/ Guest: Allyn Medeiros, Loan Specialist at Agape Mortgage website: https://allynmedeiros.com/ The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Allyn Medeiros & Agape Mortgage are not affiliated with nor endorsed by LPL Financial or Moneywise Wealth Management

• 0:00Speaker 00

  Live from the basement inside the historic Woolworths building in downtown Bakersfield. Call or text in at 661-396-1000.

• 0:29Speaker 01

  Securities offered through LPL Financial, member FINRA, SIPC. Investment advisory services offered through LPL Financial. LPL Financial and Money Wise Wealth Management are independently owned and operated.

• 0:37Speaker 00

  Now, let's start the Money Wise Show.

• 0:40Speaker 02

  That's right. Let's start the Money Wise Show. We are live from the basement of the historic Woolworth Building in downtown Bakersfield. For the next hour, you are on News Talk 961, 1230 AM, K E R N, streaming live always at MoneyWiseGuys.com. Well, I guess not always, but for an hour a day, we're streaming live.

• 0:59Speaker 03

  Oh, yeah.

• 0:59Speaker 02

  Not 24 hours a day.

• 1:01Speaker 03

  They want that. That's what they want. The, they're begging. They're like, hey, we need you guys on 24/7, but we just don't have the staff yet.

• 1:08Speaker 00

  Well, there was a way.

• 1:11Speaker 02

  We could take all of our old shows and just have them play directly. Yeah. 20 years of shows.

• 1:17Speaker 00

  Well, we've got at least six years of podcasts loaded up in that library.

• 1:21Speaker 02

  There you go. Well, thank you, guys. You guys are what make the show great. Your questions, your comments, you know, interacting with some of the topics and issues we bring up. We love to try to help make our listeners money wise. Our wonderful clients get to tune in. And even if you're not a client, we want you to do nothing but well financially and with your families and your businesses. And so we're hoping to bring good information to help you do so. So you can call or text the show 24 hours a day, 661-396-1000. I'm your host today, Chris Pelster.

• 1:54Speaker 03

  Seth Perry. Glad to be here, KP.

• 1:55Speaker 02

  And Mr. Seth Perry is joining us. And we are going to be joined in a little bit here with Mr. Alan Maderos. If you listen to the show for a while, you know that he is Mr. Mortgage. Mr. Mortgage is going to come on, talk about rates, talk about what's going on. A lot of people are probably wondering, and so you will get the scoop here in just a little bit. Before we jump into that kind of stuff, though, we always do what we do. We talk a little bit about the markets. We talk a little bit about what's going on. And so, Mr. Perry, what do you, what do you say?

• 2:26Speaker 03

  Well, oil, once again, it's almost, I think we're pretty desensitized with the oil prices and everything that's going on. But I guess there was another attack. It looks like another, another attack. And so oil is, oil is back up. And let's see, yep, oil's, oil's jumped back up 5%. That's what I was thinking around there. And so it's just right when Americans are kind of hoping for relief from inflation, this happens. And the good news is, I know there's new unemployment data and it looks pretty good. They call it a, I'd never heard this, a low hire, low fire economy.

• 3:06Speaker 03

  They're not hiring a ton, but not a bunch of people are getting let go and unemployment's hanging around 4.2%. So that's awesome.

• 3:15Speaker 02

  There you go. So mentioning oil, did you, did you see the article I put in there that was interesting? So.

• 3:23Speaker 03

  Just talk about it.

• 3:24Speaker 02

  Very, very important topic when we talk about oil that everybody wonders.

• 3:27Speaker 03

  Oh, I did. Now, you're not making up a crock, are you?

• 3:33Speaker 02

  So how funny is this? It's funny when we're sitting here talking about oil, we're all thinking about our gas and energy prices, our, our prices at the pump. But sometimes you don't stop and think about, what about that little company, Croc?

• 3:45Speaker 03

  Yeah.

• 3:46Speaker 02

  That makes those magnificent plastic shoes.

• 3:49Speaker 03

  Never owned a pair.

• 3:49Speaker 02

  Lo and behold, Crocs. That's like a statement of, of, you're like, you're holding out.

• 3:56Speaker 03

  That was every high school student at West High when I was there, and at least half just Crocs.

• 4:00Speaker 02

  And the funny history of Crocs, you know where they came from, right?

• 4:02Speaker 03

  I'd have no idea.

• 4:04Speaker 02

  So Idiocracy, the movie Idiocracy, if you've watched it.

• 4:09Speaker 03

  No.

• 4:09Speaker 02

  It's, it's where everybody quits reading books and society slowly falls off to where they don't even know the basic realities of existence. They can't grow crops anymore. They're trying to grow poor powerade, basically a powerade on the crops. And they're, the powerade's the best, right? And they can't understand why when they're putting powerade on the plants, they're not growing. Anyways, it's worth a watch because it's kind of coming true.

• 4:37Speaker 03

  I'm like sitting here, yeah, I'm sick to my stomach because I'm thinking, Chris, this is kind of.

• 4:41Speaker 02

  Now, I don't know. I didn't, I don't, can't remember it all the way through, and maybe it's a little racy. I don't know. So, you know, proceed with caution. But it's called Idiocracy, I believe, and it's, it's all these things. Well, anyways, they're like, hey, we're going to make this futuristic group of people that have all like forgot the basics of how things work and can't even read and can't spell or anything. We need a pair of shoes that make them look dumb.

• 5:04Speaker 03

  Are you serious? And so then they came up with the Crocs and now they're rock.

• 5:08Speaker 02

  Yes.

• 5:09Speaker 03

  Interesting. Okay.

• 5:10Speaker 02

  So in that movie, they're all wearing Crocs.

• 5:12Speaker 03

  I'm going to start telling my family members who wear them. I'm going to say, hey, you realize.

• 5:17Speaker 02

  Anyways, long story short, the funny article was because Crocs, for many years, was very volatile based on the price of oil because of all the rubber, plastic, whatever.

• 5:30Speaker 03

  It's all petroleum based.

• 5:31Speaker 02

  Petro, petrochemical. Basically, it's a petrochemical company, even though they make shoes, right? Because they're so volatile to making these Crocs, you know, it's based on, on what the price of, of all these different oils are. So anyways, they have slowly worked in ways to diversify themselves and materials that are used and this and that, that they're not as sensitive anymore to the price of oil. So anyways, I just thought it was hilarious.

• 5:57Speaker 03

  Love it. It's funny you mention that, though, about society, because on the way to work again today, I'm sitting here thinking about work. And I look over at the bus stop and there were, I'm not exaggerating, eight, nine, 10 teenagers, and they're all just looking at their phone. Had a great dinner with the kiddos last night and we looked over and there's another family just all staring at their phones. I said, I said, don't, don't pass judgment. I said, they could have, because someone told me this one time, they could have been at the hospital all day because their grandmother just died, right? But you do just see that a lot, you know, people just completely plugged in and detached. And my goodness, here we are.

• 6:33Speaker 02

  Yeah. So anyways.

• 6:34Speaker 03

  But the weather's going to cool off, so we got that going for us.

• 6:37Speaker 02

  Yeah, the, the, so the milestone in 2024 was, was Crocs, 25% of their material was bio-circular content, or plant-based waste. And by 2030, they hope to have 50%.

• 6:51Speaker 03

  Plant, I mean, plants deteriorate. What kind of plant-based waste is it?

• 6:55Speaker 02

  Well, how many, how many miles are you running in your Crocs?

• 6:58Speaker 03

  I guess, yeah. Some bark in there or something? I don't know.

• 7:01Speaker 02

  Anyways, long story short, they hope to only have 50% be as volatile. So anyways, you, you, you take 25% of the risk out by having some bio-circular content, they call it. They hope to have 50% by 2030, which is going to make them even less volatile to. So not only is it a good environmental story, but it also helps the bottom line. So even when you think companies are doing good things for the environment, what do they say? They say follow the what?

• 7:29Speaker 03

  Follow the money.

• 7:30Speaker 02

  Follow the money. It's probably not going to become an initiative unless it also makes sense to their bottom line. But anyways, I know that you guys wanted to tune in and hear all about Crocs.

• 7:40Speaker 03

  Right.

• 7:40Speaker 02

  Today, so.

• 7:41Speaker 03

  The good news is S and P, that's the funny thing. You read these articles, S and P hit a, hit a record again on Tuesday, you know? So investors, we've got, we've got rising interest rates and these AI companies are borrowing billions and billions of dollars. And so there, there's like, the question, is this the AI revolution, which I tend to think it's more of that? Or is it the AI bubble in which we're going to see this catastrophic collapse? And if someone truly knew, then they could make some money on that. And I want to clarify something. So yesterday on the air, I think it was that last question there, yesterday.

• 8:21Speaker 03

  I heard the show yesterday and you mentioned you personally use professionals for your, for your investments, experts in other countries. So is that using AI or certain program that helps you with your investments? Figured that could be coming with AI assistance. I made that comment and what I was referring to are the strategists and the teams of investment professionals from literally around the world. It's not that it's a new software that, that has taken over. I am sure and I know that they use AI for crunching their data, but they're the ones that are ultimately making the, the big decisions behind that data. And the whole point of that was, I'm a smart guy, but I have a full-time job and it's in this industry.

• 9:06Speaker 03

  And I would never, ever try to pick stocks on my own. I've actually tried it and had a small fluttering of success, but it's, it's extremely nerve wracking. It's very nerve wracking and I actually got into studying because I thought I, well, I'm, I'm me, I can do this. And so I did a bunch of, a bunch of research, was downloading stuff and I started, I had this binder at home and I started, you know, all these charts, all this different stuff. And I realized, I believe the statistic is the, the, the day traders are successful 56% of the time. It's something like that. So they get up and. You know, and that's just not a direction I wanted to to take my life. And so, yeah,

• 9:49Speaker 03

  but it's not what what we see in portfolios that we that we help to manage or that we're reviewing for clients is they'll have 50 of these hand selected hot stocks, right? And 49 of them, 48 of them go losers, but they hit one homerun, right? Maybe a, I don't know.

• 10:11Speaker 02

  Yeah, it's still hard to it's still hard to even with that to like judge how your annual performance is lined up against the markets. And if all you're doing is doing is good to the market, then you're you're basically spending a bunch of time to, you know, there's a lot that goes into.

• 10:24Speaker 03

  With more risk.

• 10:25Speaker 02

  Yep. And so some people like little portion of your portfolio, you want to mess around? Go for it, you know, but but by and large, I mean, I'm a conservative planner and I love having managed money and focusing more on how much can I put into my accounts and having a balanced budget and I want this much to go here, this much to go here. And then you're not sitting there spending all your time doing that. And a lot of times people think that's what you have to do to win with money. And it's just not the case. By and large, you look at personal wealth, you look at all the clients that we have that are enjoying the fruits of their labor and retirement, retirement income and all those things. Very rarely is it because hot stock picks, those kinds of things. And you may say, well, those people don't come and talk to you. Yes, they do. Because a lot of times then they have

• 11:10Speaker 02

  no way to unwind all their gains.

• 11:12Speaker 03

  Yep.

• 11:13Speaker 02

  They have one highly, highly appreciated stock. And when you finally sell it, if it's not in a retirement account, you're going to pay taxes on it. It's messy. So anyways, but had a had a comment came in and said, I used to make fun of my kids for their Crocs and I got a pair as a gift and they are actually really comfortable. Don't bash it until you try them. I think that was.

• 11:31Speaker 03

  Now, who remembers Cincy's? I was a big, proud Cincy wearer. This is circa early 90s, anyone, but they were the they were the shoes that had the little bubbles on them. So if there's any listeners that have a pair of those, I will buy them off of them size 11.

• 11:47Speaker 02

  Yeah.

• 11:48Speaker 03

  eBay. Yeah, I could. I could go eBay.

• 11:49Speaker 02

  There you go. Hey, let's jump into one question real quick before we'll take a quick break and bring in Mr. Alan Maderos. This is I'm 72. I have government 457. When do I need to start taking out percentages of the funds? And how do I take advantage of my donations being tax exempt? Qualified charitable distributions? Same person. Would your company be able to assist that? And what would the fees be? So, um, yes, our company can assist with that, but we'll go into that in a second. But 457, you know, falls under the guidelines of retirement accounts. And if you're not participating in it anymore and you're 72 years old, the year that you turn 73. So if you turn 73 this year, by the end of the year, you're going to have to take out a percentage of that 457 if you're

• 12:33Speaker 02

  no longer participating in it. And so it usually starts around three and a half percent or so is kind of the IRS table. There's a RMD calculation. They take your December 31st value of your 457. You'll have to also add up any other IRA accounts and stuff like that you have, and you have to take that amount out. If you have that distribution, go directly to a charitable organization.

• 13:01Speaker 03

  Straight from the financial institution, right?

• 13:02Speaker 02

  Don't take it out and then give it. It has to go directly to the institution up to that RMD amount can be what's called a qualified charitable distribution. So you already seem to know what that is. The money just has to go directly from an institution to the place. You can't take it out and then give it to your church or your charity of choice. And up to that RMD amount can be actually above the 100K. Yep. So you can you can actually write that off. But a lot of times what people will do is if they're already giving some money and they have to take an RMD amount out, they'll have their RMD amounts go directly to churches or charities or whatever. And then you don't have to claim that as taxable income.

• 13:42Speaker 03

  And where, you know, maybe you're only giving a smaller amount to church and you think, well, I don't optimize my taxes anyway, but it's more money getting to go to your church instead of getting to go to the government either way, because you're not having to pay taxes on it.

• 13:57Speaker 02

  Yep. And so you mentioned, would our company be able to assist with that? We don't necessarily assist with like qualified charitable distributions unless we're managing our clients' accounts like an IRA or whatever it be. So if we were managing like your 457 funds in an IRA and we were helping you set this up stuff, then we could. Other than that, you would be dealing directly with your 457 provider or the custodian that's holding those funds. And you would be taking those distributions and having them sent directly to your charity of choice.

• 14:27Speaker 03

  Chris, let's say this gentleman, I'll call him Rick. Let's say the 72 year old listener is named Rick and he walks in the office. He said, yeah, I'd like you to take a look. What is your process? When when someone comes in and they want some help? What does that even look like?

• 14:42Speaker 02

  Yeah. So so it would be looking at the the mix of investments that you have in your 457, talking a little bit about how you've made those selections, what your goals are, what your process was on maybe managing your 457 on your own. Maybe you're talking to somebody at the 457 company and they're answering a few questions for you. That is the difference between like having a 457 or 401k and working with an individual advisor. Because they're not necessarily going to call you and say, hey, Mr. Rick, you're turning 73 and, you know, do you have any charitable donations? And this, they're not going to do the planning and those types of thoughtful considerations. And depending on your risk profile and your performance and different things, you may also, you know, want want

• 15:25Speaker 02

  to work with an advisor. So we have an annual fee. That's how we're paid. And then we're helping take care of all these other things.

• 15:31Speaker 03

  As a percentage of your assets.

• 15:33Speaker 02

  Correct. Yep. Yeah. So hopefully that answers your your questions. Very, very good question. A lot of people are reaching that age and having to take care of some of those issues. So yeah, we would love an opportunity to sit down with you 661-847-1000. But really appreciate you sharing that question so we can talk about it with all of our listeners. So we're going to be right back with Mr. Alan Maderos.

• 16:04Speaker 02

  Welcome back. This is the Money Wise Show. I'm your host today, Chris Pelster with Mr. Seth Perry. And we are lucky to have Mr. Alan Maderos.

• 16:13Speaker 04

  Hello, hello.

• 16:15Speaker 02

  How you doing, Alan?

• 16:15Speaker 04

  I'm great. Good to see you both.

• 16:17Speaker 02

  You look great for supposedly somebody in the real estate world. It's been a it's been a roller coaster. It's been.

• 16:23Speaker 04

  Very good makeup.

• 16:24Speaker 02

  Yeah.

• 16:25Speaker 04

  From the black and blues. Yeah. I mean, Rocky actually looks better. Yeah. You know, the end after playing, I mean, fighting Apollo Creed than than I look right now. I'm just kidding.

• 16:34Speaker 02

  Yep. Alan sends sends out some stuff to educate some folks.

• 16:38Speaker 03

  The swelling's gone down.

• 16:39Speaker 02

  Yeah. Got a got a pretty funny picture about if people in the real estate world look like they're beat up, they are. So.

• 16:46Speaker 03

  What would we look like?

• 16:47Speaker 02

  Yeah.

• 16:48Speaker 03

  I think of other industries.

• 16:50Speaker 02

  Yeah.

• 16:51Speaker 03

  Just, yeah, all right. Big gulps, huh?

• 16:56Speaker 02

  All right, Alan. Tell us a little bit.

• 16:57Speaker 00

  You look like the Braves last night.

• 16:59Speaker 02

  Oh, man.

• 17:00Speaker 03

  Dude, I have been so busy. I my brother sent out a text. So is it Dodgers beat the Braves? This is the game series we're talking about. So.

• 17:07Speaker 00

  I thought that's why Alan was so happy and chirpy. No, they I think they won 2-1?

• 17:12Speaker 04

  No, I think it was.

• 17:14Speaker 02

  4-1.

• 17:15Speaker 04

  4-1.

• 17:15Speaker 02

  There's 3-1 and then Max Muncy hit a homerun, a little dinker to give us a little.

• 17:19Speaker 04

  Yep. Some of those guys are just built for October, right? Muncy's one of them. Hernandez is another one. And the other Hernandez, Teoscar.

• 17:27Speaker 02

  Yeah.

• 17:28Speaker 04

  So.

• 17:28Speaker 03

  Wait, their whole team.

• 17:29Speaker 02

  Yeah, and even what's Pajay showed up.

• 17:32Speaker 04

  And Freeman. I mean, these guys.

• 17:34Speaker 03

  Freeman, dude. Freeman is clutch. Okay, if you could pick one Dodger hitter to head up to the plate, who's it? Who are you picking, Steve?

• 17:41Speaker 00

  I'm taking bets. I'm a I'm a Mookie guy, but.

• 17:44Speaker 04

  Yesterday was his birthday, too.

• 17:45Speaker 02

  Yeah.

• 17:46Speaker 04

  Yeah, Mookie's birthday.

• 17:48Speaker 02

  Bam. So Alan, when we're sitting here joking about people in the real estate world getting a little bit beat up, why don't you explain just kind of like the scenarios or like for people that aren't in the industry, like what what? Why is this so tough? And why is this, you know, like, I guess, a fog and?

• 18:05Speaker 04

  Yeah. So very simply put, interest rates rose very rapidly in a very short window of time. And as a result, demand, people wanting to get mortgages just dropped off because they said, well, it's too expensive. I'm just going to wait. The challenge with waiting is you don't know when that wait is over.

• 18:23Speaker 02

  Right.

• 18:23Speaker 04

  And the reality of it is, is that you're going to be pressured time wise, based off of what your needs are. So if you're buying a house, slightly different. But if you're in a situation where your debt continues to mount, you're going to have to take action sooner or later because you're going to run out of resources. So we have seen demand drop pretty significantly over 45%. As far as year over year activity, we're also down in the way of purchases as well as refinances. Now, one thing I do want to just throw out as a disclaimer is that when the time is right financially for you, you should take action. But in the same light, only you know that number and that timing, right? So but

• 19:06Speaker 04

  getting good counsel upfront is a very important piece. Now, everyone in the mortgage industry and real estate sales are seeing the changes and they're feeling the changes. Now, that's why that little meme that I put out was there. Now, if you were thinking about buying real estate, right now, it has flipped pretty convincingly to being a buyer's market.

• 19:28Speaker 02

  Right.

• 19:29Speaker 04

  Okay, so I'll just explain it. A buyer's market is where you have more sellers than you have buyers in the market. That means they have a lot more to look at and they can negotiate with sellers to pay either less for that property or ask the seller to pay concessions, meaning credits towards buyers' closing costs and prepaid items. This is a huge benefit to a consumer because in a highly competitive seller's market, you're just gonna have to get the best offer you can because there's more buyers than sellers.

• 20:00Speaker 02

  Yeah.

• 20:01Speaker 04

  So, right now, the negotiability for homes that need to sell are at its highest peak point than we've seen in the last probably six years. Well, yeah, more than seven because technically, just before COVID, was the last time we saw a little bit more of that imbalance. So, yeah, if people can buy and they can afford in this market, the opportunity is really here, especially because there's more inventory out there.

• 20:24Speaker 02

  Yeah, and I remember, I remember so many times, it's like, uh, there's kind of like, it doesn't seem like there's a lot of middle ground. I can remember people like so nervous that they were never gonna be able to buy a house. A lot of times you end up buying a house you don't even like, or you don't even like get to check all the boxes because it's like, you know, so this is a situation where even when the interest rates aren't great, you can definitely be a lot more thoughtful and picky as far as what house you're wanting and those kinds of things and a little bit more negotiations. Um, is the, the local Crabtree Report, is it kind of highlighting this fact, like days on the market, inventories rising?

• 20:59Speaker 04

  Certainly is, and we can cover a little bit of that in a little bit, but the bottom line is, is that the market activity in Bakersfield is slow. Now, this is a nationwide phenomenon, but we are regionally one of the more affordable markets in the state of California. So it's interesting to have that dynamic and I'd love to kind of go into more detail about that after break.

• 21:19Speaker 02

  Yeah, and you also mentioned, uh, like a K-shaped economy, so I want folks to think about if they've heard of this before, like have you heard it talked about?

• 21:27Speaker 03

  Yeah, let's talk about it.

• 21:28Speaker 02

  Special K, it is a, it is a phenomenon that we're definitely seeing and I think a lot of people will feel once they realize what it is. So you definitely need to stick around, get a little bit more information. We're gonna talk about K-shaped economies and the local Crabtree Report. So thank you, Mr. Maderos. We'll be right back after the break. Stick around.

• 21:54Speaker 02

  Welcome back to the Money Wise Show.

• 21:56Speaker 03

  Such a good song, dude.

• 21:59Speaker 02

  Live from the basement, Chris Pelster and Seth Perry. Very, very lucky to be joined by Mr. Alan Maderos talking mortgage rates, economic realities, and Seth is providing the vocals.

• 22:17Speaker 04

  The color to the show.

• 22:18Speaker 02

  Yeah, there you go.

• 22:19Speaker 04

  He's filling in all those, you know, skeleton parts to make it whole.

• 22:23Speaker 03

  That's what I do.

• 22:24Speaker 04

  Yeah, you're great at it too. You know, I came in, I'm like, you know, he's gonna make this show awesome today.

• 22:30Speaker 03

  That's right.

• 22:33Speaker 02

  So, Mr. Maderos, we mentioned as we were going out a little bit about K-shaped economy and how that plays into some of the realities and, and, uh, you know, how does, how does that fit into kind of what you just mentioned as far as rising interest rates and all those realities?

• 22:48Speaker 04

  So people that have money will continue to have money.

• 22:51Speaker 02

  Yeah.

• 22:52Speaker 04

  Yeah, and they're on the upper end of that K, if you think about it. So imagine the backbone of the left-hand portion of the K, the upper portion being those that have a lot of assets, have wealth and they're doing fine, right? And then as you go down to the V portion of that K, that's everyone else, right? It's that the, the middle, middle America that is struggling, they're having challenges. And then you go down to the bottom portion of the K and those people that have a need and the ability to buy right now, they are purchasing real estate and it's competitive, but they have to purchase, right? So that middle part of the K is really everything that's kind of sitting. That's that, that lull that you're seeing in the marketplace.

• 23:38Speaker 04

  But surprisingly enough, the upper end are buying a lot and they're buying so because they can.

• 23:46Speaker 02

  Right.

• 23:46Speaker 04

  It's almost like, I heard a story of very wealthy people that would literally go to a city. They would go to a hotel and have clothes that they've purchased, brand new, go in, and when they're done wearing those clothes, they would throw them in the trash and just leave the hotel.

• 24:05Speaker 02

  Yeah.

• 24:06Speaker 03

  You guys don't, you guys don't do that?

• 24:07Speaker 04

  No, no, no. So I, I don't have that financial ability, but here's all this to say, the, the K on the upper part of the K is the wealthy, those that have the ability to buy in any market.

• 24:18Speaker 02

  Right.

• 24:18Speaker 04

  Cause interest rate is not a factor, right? But for the rest of us, the emotional side of buying has to do with what is this gonna cost me monthly? How's this going to affect my ability to eat out once in a while, to have some niceties, to buy backpacks for my kids, to be able to get, you know, just life going? And that's what we're seeing in a K-shaped economy. Now, in Bakersfield, believe it or not, we have the same thing happening. And if you talk to a real estate agent about this, they'll give you examples, but the price point between 400,000 and below, okay, it was moving fairly quick. But the price point of a million and above are like hotcakes.

• 25:00Speaker 02

  Really?

• 25:00Speaker 04

  Days on market are significantly lower and those people that have that financial ability are selling these homes very quickly.

• 25:07Speaker 02

  Wow.

• 25:08Speaker 04

  And that's kind of shocking to me because what does a million dollars buy you in Bakersfield versus, say, Santa Clarita?

• 25:14Speaker 02

  Yeah, imagine here.

• 25:15Speaker 04

  Yeah, and then what you're able to get for value is tremendously more, but that market is moving. Hoses are coming on and they're selling pretty quickly.

• 25:25Speaker 02

  Yeah. Can I geek out on Money Wise moment for a split second?

• 25:28Speaker 03

  Let's do it.

• 25:28Speaker 02

  So we, I haven't, I haven't looked at these numbers in a little bit and it was kind of interesting because when you talked about the K-shaped economy, you're talking about the middle and lower class struggling and unfortunately really feeling the pressure. And the, the one that's heading up, you're talking about the folks that have higher income, they own more assets, they own real estate, they own stocks. Those have all been going up and up and up, so they can usually navigate this more and that's that K-shaped economy. So we haven't thrown these numbers out in a while, but it's kind of good food for thought because you may say like, well, what in the world is even middle class? What in the world is even lower class? So, or lower income? Average income right now is 83,730, according to a Pew Research, 83 grand.

• 26:12Speaker 04

  Is that household or individual?

• 26:13Speaker 02

  Household, okay. Yeah, median household income. Lower income is anything below 55,820 a year. Middle income is 55,000 mark up to what, 167? Upper income is 167 and above. To be in the top 10%, you have to be around 251,000 a year. To be in the old top 1%, they call it, 659,000 and above.

• 26:40Speaker 03

  Is this Bakersfield or California?

• 26:41Speaker 02

  This is, uh, national.

• 26:43Speaker 03

  Oh, national, got it.

• 26:44Speaker 02

  National.

• 26:44Speaker 03

  California is probably a lot worse than that.

• 26:47Speaker 02

  Yeah. So anyways, I mean, I can remember, we've been doing this radio show for so long, I can remember, you know, household income was at 60 or 65. And with inflation, um, things have gotten more expensive, but household income has gone up, not taken away from the pressure and inflation and how it impacts some people more than others and some areas more than others. But just kind of wanted to throw those numbers out there because you may say, well, what in the world is middle class or middle income, uh, levels and different things, so.

• 27:16Speaker 03

  Yeah, we're not too far off. Uh, I mean, we're right there, Chris, and, and California, it's, as of 2024 is the latest data. I'm looking at US Census Bureau, 100,000, so not, not a whole lot more. But then you look at how much more it does cost to buy a home outside of Kern County in California, and that's a struggle. What, what's kind of that sweet spot you see in terms of if, if families are, you know, they're on the sidelines and, and they're getting ready to buy and, and they're wondering, man, are we just gonna make it? I know it's a case by case debt, everything else, but.

• 27:47Speaker 04

  Well, here are the stats that I've come up with locally, and this is just through my own, my own sampling. Household income of about 89,000 will get you into the median sales price here of around 400,000 dollars. That's using, you know, first time home buyer programs, um, or just limited out of pocket as far as down payment. In that scenario though, you need to carry very minimal debt, meaning less than 500 dollars if at all possible, which means no crazy car payments or limited credit card obligations. If you do that, then you would fit that, that criteria. But if we're looking at the state level at 100,000 being that number, then I think a real comfortable number is about 110 to 120,000

• 28:28Speaker 04

  as a household income to really have lifestyle and the ability to purchase. Now that's again, are you carrying a lot of debt, right? And all this has to do with what they call debt ratios, basically how much is going out every month versus how much is coming in. And to put yourself in a good situation, you should be below 45%. 41 is the, the gold standard, but it's harder and harder to do because everything's gotten more expensive.

• 28:52Speaker 03

  So you said 90K, if, if you have household income, 90,000, then, you know, you should be, all things held constant, good for about a 400,000 dollar home?

• 29:01Speaker 04

  Correct.

• 29:01Speaker 03

  That's kind of where we're at.

• 29:02Speaker 04

  And that's, that's if you are carrying very little to no debt.

• 29:05Speaker 03

  Yep.

• 29:05Speaker 04

  Yes.

• 29:05Speaker 03

  Gotcha.

• 29:06Speaker 02

  So we did have a question come in, said, do you happen to know if homes are selling these days? A few of our neighbors have, uh, been trying to sell for a while and they're just waiting it out. We are on the east side out of the, uh, by the college, but seeing a lot more homes going up for sale.

• 29:24Speaker 04

  So I'm not a real estate agent, I'm gonna look at stats. So homes are sitting on the market longer for sure. So what it's prompting is price reductions and/or being more realistic on your pricing when you put that house on the market. So if you were coming into the market and you see a house that's been on for sale for over 30 days, you need to be very conscientious of what that price point is and coming in slightly lower would probably better your chances of selling. The reality is this, equity is what drives all of these conversations. The reason why we sell is because we want to take out the money that we've earned, if you will, through home ownership. This is the difference between what you have on a loan, if you have a loan, and what the house value is. But you have expenses. These expenses are selling costs.

• 30:08Speaker 04

  If you use a real estate professional, those costs will range anywhere between 4% to 6% on average, but you're gonna be asked very likely for a buyer to have you pay the closing costs or give a concession, as I started out the show saying. So a real number is really gonna be around 8 to 9% if you want to sell that property. Now, with that being the case, you need to have a lower standard of what your expectations are for cash that you're gonna receive after selling, if you want to move that property. If you're not and you want to just wait it out, the one thing that I can tell you is, is that consumers are paying attention. And as you start doing price reductions, you're gonna be asking yourself, what's wrong with the property?

• 30:50Speaker 02

  Right.

• 30:50Speaker 04

  Right, so.

• 30:52Speaker 02

  That's why pricing it right up front is

• 30:54Speaker 04

  Correct. Now, there is a strategy. You can come in lower than the market and you're going to get multiple offers. Hopefully have qualified buyers coming in there, but then it creates somewhat of a bidding war. And that is a strategy and it can work in some situations, but not every. So can I go over some details from the Crabtree Report? I think this is really telling. So, uh, thank you to Gary Crabtree. He's been putting this report together for well over 25 years. And he's, he's just been a local, uh, expert that he's been called on to the news and other things like that. But more importantly, he's been an appraiser and an appraiser is able to see trends and some of the trends that I want to point out are really telling about the current market.

• 31:34Speaker 04

  So new construction has kind of dominated the sales in the last 18 months to two years. And the reason why is because the builders have inventory, but they also have incentives. The incentives are credits towards buying down your points for rate or paying your closing costs or doing upgrades on the property, whatever the case may be.

• 31:55Speaker 04

  That number dropped in half between July and August. So in the month of August, they closed 70 new construction sales. In the month of July, they closed 140.

• 32:09Speaker 04

  Now, the overall sales in the market, including new construction, went down from 539 sales in July to 387 sales. It's nearly a 30% drop in the overall market.

• 32:26Speaker 03

  Of new construction?

• 32:27Speaker 04

  No, no, no. Overall sales. This includes new construction.

• 32:31Speaker 03

  Yozers.

• 32:31Speaker 04

  So here's the crazy part of that. The biggest mover in that? Interest rates. Right? So if people feel as if it's not a good time to buy, they're not going to buy. And we have seen a falling of landlords having to charge less in order to attract new tenants. Right? So rental rates have been stabilizing and coming down. So these are factors that affect every day, but the one thing that you cannot ever ignore is the fact that why would I buy over rent? Well, it's time. If you buy a property and let's just say that your rent was $2,000, but your mortgage payment is going to be $3,000. This is a pretty significant jump, but you can afford it. Let's just say.

• 33:16Speaker 04

  Your return on 3% of a $400,000 property, okay? Over the course of say, two or three years? That's 12 to $15,000, let's just call it. It did you nothing for. You lived in the property. You raised your family. You've had kids going to school. You've done things, but now you've built an equity position and the balance on your loan, because you've been paying the mortgage down is starting to drop as well. So that spread is what gives people the ability to say later in life, their net worth is tied up in real estate. So as financial advisors, when you look at someone's financial picture, do you take in consideration that they have real estate?

• 33:59Speaker 02

  Sure. Yeah.

• 34:00Speaker 04

  And how does that play into it? Is it a small percentage of their net worth or is it a larger percentage?

• 34:05Speaker 02

  Well, you, yeah, it's, it's, it's a large percentage.

• 34:08Speaker 04

  Yeah. And that's, that's something that you're missing out on when you're renting. That's the, that's the bottom line thing.

• 34:13Speaker 02

  Yeah. Cause I, I think a lot of times I think by and large, you know, we're doing, we're doing income planning for retirement and I know a lot of people have, uh, you know, desires and efforts to, to want to leave money to like, say the kids. Well, depending on how well you did planning and statistics show that most of us aren't doing what we're supposed to be doing, uh, as far as our lifestyle and income and being able to replace it in retirement. The caveat of being able to own real estate over that time is even if you get down to where you're, you're, you're really eating into your nest egg or your principal, your IRA funds, which came from maybe your 401k or whatever. If even if that's trending downwards, because that's paying for your retirement, you're like, man, I'm not going to be able to leave a whole lot. Well, if you own real estate for the 20 years of retirement or the 25 years of retirement,

• 34:58Speaker 02

  you're going to leave a paid off or hopefully close to paid off piece of real estate that's going to be going up in value over time, even if it's just your primary residence. What a great benefit to be able to participate.

• 35:10Speaker 03

  And then you can pivot. We're dealing with this right now. We deal with this a lot lately. And if, if that retirement account looks like, hey, after a couple of years, maybe a loved one has to go into assisted living, their retirement's going to drain out in about a year or two. If they have that property to sell, that's going to buy a lot more time for the family to be comfortable.

• 35:27Speaker 02

  Yeah. So like, uh, I mean, we have been in business for long enough to be able to have walked people into retirement, through retirement, and even to the, to the next phase. And, uh, we call that end of plan.

• 35:38Speaker 03

  I call it finish line.

• 35:39Speaker 02

  Yeah. Finish line.

• 35:40Speaker 03

  It's a starting line.

• 35:41Speaker 02

  And we don't talk about it flippantly. I mean, it's, it's, it's an honor to be able to walk people through all these stages of life, but having real estate at those later stages to, hey, I could, if I do have to go into long-term care. Some people might have a stroke or might have a medical issue and they have to stay in long-term care for a year. Very expensive. You literally could rent out your house for a year while you're in long-term care. It can help pay for it. So you're not, and then when you move back in, put a little bit of money back into the house, fix it back up and move back in, or like you mentioned, liquidate it, sell it. Use those funds to take care of your needs. Nobody wants to do that. And it's not fun to have to go through that transition, but at least you have that option.

• 36:22Speaker 03

  The ability to. Absolutely. We went through this with my grandma and this was in 2018, I believe. And it was a wonderful place, um, very comfortable, decent part of town, but you get what you pay for. And it was about $9,000 a month was the payment. And fortunately we were able to

• 36:41Speaker 03

  love on her and take care of her at home till the bitter end. But, uh, yeah, some people go into facilities like that for, for quite some time.

• 36:47Speaker 02

  There you go.

• 36:48Speaker 03

  What tips do you have?

• 36:49Speaker 04

  Tips for?

• 36:51Speaker 03

  Buying a home.

• 36:52Speaker 04

  Buying a home.

• 36:53Speaker 03

  Getting a low interest rate. 15 year, 20 year?

• 36:57Speaker 04

  The interest rate is a challenge right now. The first thing is, is talk with a qualified loan officer. Somebody that has a vested interest in helping you to make the best financial decisions, not just looking for a transaction.

• 37:07Speaker 03

  Now, what if they're, they're looking, they're looking a year out. They know they've got a year out. A lot of people all say, man, just go meet with someone, you know, because you're, say they come and meet with you, they're going to most likely want to do business with you. And, but a lot of them are embarrassed because they've, well, I haven't quite paid off all the credit cards or this or that. But what, what would you say?

• 37:25Speaker 04

  I would say come anyways, because I, this is the way I say it, you know, it's, it's an analysis based off of where you are now. Like you come as you are. Credit reports are telling of your history, right? But it also tells us where you're really obligated financially. And it's a good opportunity for us to kind of just tell it how it is. No emotion tied to it. This is what the bank sees. I give the example of when you go to an amusement park, you're this tall, you get on the ride and you're this tall, you don't. And banks are like that. They have no emotion. So if we can create a plan that gets you from point A to point B and that house is the end goal, then you got to put the plan behind it. And I'd rather do that upfront and teach people the methods on how to save

• 38:09Speaker 04

  and get themselves in position to be able to make that kind of a payment. So for example, I, I gave the $2,000 rent as an example and a $3,000 mortgage payment. So if we look back in the last three to six months of your bank statements and you've whittled that down to only having maybe $200 to $300 left in the month. You know, left in the bank statements at the end of the month, then you clearly cannot afford to have a thousand dollar increase in your overall obligations. And that's a better way of analyzing it than saying, oh yeah, next month, you're going to go ahead and start making a $3,000 payment. But if we can coach you up and say, here's some things I recommend changing to get you to that point where you have enough spread, enough margin for error.

• 38:53Speaker 04

  And you're able to say $1,200. Well, that $200 is still there, but we can see that you're actually saving that $1,000 and you're not required to do so. At the end of 12 months, you're going to have 12,000 extra dollars that could be put towards the purchase of a house. Or if you have any smaller debts, let's pay them off. Let's get into a house as little debt laden as possible.

• 39:13Speaker 02

  Right. Which right now, when, when you have a economic crunch, you have higher interest rates, you have energy prices going up, you have more pain at the pump. We're seeing credit card usage go way up.

• 39:24Speaker 04

  Yes.

• 39:25Speaker 02

  Right? So when you're talking about folks trying to then also jump into these things and you have these high interest debts and maybe little loans here and there. Um, so, so mounting credit debt is obviously affecting some of these decisions, right?

• 39:38Speaker 04

  Yep.

• 39:39Speaker 02

  And then also you have, uh, I mentioned oil prices. And so how do, I mean, how do those two things, how much are you seeing those play out and really being barriers, uh, for, for potential buyers or them thinking through this process?

• 39:51Speaker 04

  Well, talk to your neighbor. Like, what's the topic of conversation? We're not talking about, you know, religion. We're, we're talking about, hey, can you believe it's $8 a gallon right now for diesel? Right? So you almost feel like you're gut punched every time you drive by and like, man, when can I do it? Can I hold out? Is it going to go down? But you have to put fuel in your vehicle, right? So that's a real day-to-day expense. You go to the store and you start buying food and you look at, why is, why is beef so expensive? You start thinking, well, maybe I should get chicken. Right? These are decisions that previously you may have not even thought about.

• 40:27Speaker 02

  Right.

• 40:28Speaker 04

  And then you start thinking, my goodness, okay, I've got $5,000 in the bank right now, but.

• 40:34Speaker 04

  I'd really like to keep most of that there. So I'm going to go ahead and put this on credit card and I'll pay it down next month. These are things that we hear clients having to go through because day to day, you're gonna pick and choose your battles. And they say, I've got, you know, a $10,000 credit limit. I only owe $6,000. I've got $4,000 left. I can go ahead and put another thousand on that credit card. So the very next month, your minimum payment goes up and you pay a hundred dollars extra. It really doesn't go anywhere.

• 40:57Speaker 03

  Yeah.

• 40:58Speaker 04

  So these are real life decisions, day to day stuff. And it affects your ability to feel confident in making a financial decision. This including obliging yourself to a mortgage.

• 41:09Speaker 03

  Yep. So, so they come in, they meet with you. Um, do they, you, you give them a kind of a financial game plan. Hey, but pay this, do this, whatever. And then they come back and what does the process look like?

• 41:20Speaker 04

  At that point, if they fulfilled their plan and they've been very consistent with it, we're seeing, we're seeing results, right? And at that point, I'd say, your picture looks so different than when we met six months ago. This is where the numbers lie. I think now's a good time.

• 41:35Speaker 03

  They might be chunking down a ton of extra money on a 3% auto loan. That might not be in your best interest.

• 41:40Speaker 04

  Well, depends on if that auto loan payment is $700 a month.

• 41:44Speaker 03

  Yeah.

• 41:44Speaker 04

  Right? I mean, you have to also choose what's going to have the biggest bang for your buck in return. And if you become disciplined to pay $600 extra towards your debt, you're going to continue that if you're focused on your goals. Think about this, you're working out, you're doing it consistently and you start seeing that there's some small results or your friends are like, man, you look pretty good. What have you been doing? It's like, I'm not eating out as much.

• 42:08Speaker 03

  I've never heard that personally, but keep going.

• 42:11Speaker 04

  So the point is, is that results drive more motivation. And this is true of finances as well. And one of the best things you can do is put it on autopilot. Pay yourself first, right? So as we've been taught, if you're going to retire with some money, you have to have a plan and that means a contribution consistently through your payroll. But that money is really something that's so far in the future that you're going to tap, that you should just get used to what you're left over with every month.

• 42:43Speaker 03

  Right.

• 42:43Speaker 04

  What if you allocated some of that money towards another goal? And you set it aside so that you just live off the difference. And that's, that's a good way of doing it. It's a set and forget it mentality.

• 42:53Speaker 02

  Yeah. And a little full, uh, personal disclosure, how I started to get better at this was at a young age when times were tight and there always seemed to be quote unquote emergencies. Uh, I came, I came to realize like, having to replace tires is an emergency, but it's also not an emergency.

• 43:10Speaker 03

  It's an intermittent expense.

• 43:11Speaker 02

  Correct. And so I started using sinking funds. And that's basically where I'm paying 50 bucks a month towards those tires for two years. I don't know when exactly I'm going to have to replace them, but when I'm there, that money is sitting in that sinking fund, that two grand is sitting there. And I will be the first to admit, I, it was not easy. I did not come from money. I didn't have a lot of high income for a long, long time until worked hard for years and, and it started to increase. But I remember what it was like. I would have a sinking fund and sometimes the tire fund would go towards the diaper fund.

• 43:44Speaker 03

  Yeah.

• 43:45Speaker 02

  And, and it is what it is, but you start those behaviors. And then the good news is, is if you do start to increase your income, if you do find yourself in a different situation, or maybe you go from single income to dual income, you're more likely to not turn around and go, hold on, where did all that money go? Because you're telling it where to go. And that's like some of the things that I do love to take away from like a Dave Ramsey where it's like, if you don't tell the money where to go, guess what?

• 44:10Speaker 03

  Tell you where, it told you where it went.

• 44:12Speaker 02

  Tell, it's going to tell you where it went. And that's very true for a lot of us because a lot of people will say, man, I don't know how we made it when we're making X amount of dollars per year because now we're making twice that. And I still feel like we're doing the same month to month. Well, yes, it's because there's not a disciplined automated, for some people, maybe it doesn't have to be automated, but if I have to sit down and transfer the money every single month, guess what? It's not going to happen.

• 44:35Speaker 04

  Yep.

• 44:35Speaker 02

  Automate, automate, automate it. So.

• 44:37Speaker 04

  For sure.

• 44:38Speaker 02

  Yeah. Good, good stuff. Well, thank you very much for all this information. I looked up, uh, some CPI, uh, highlights over the last year that cracked me up. Says it's only up 3.4% over the last 12 months and it definitely doesn't feel like that. Uh, but one of the reasons is because core, core CPI is only 2.4. Why? Cause I think that takes out energy.

• 44:58Speaker 04

  Yep.

• 44:59Speaker 02

  Which is up 16.3% over the last 12 months. Gasoline up 27.

• 45:07Speaker 03

  Gasoline.

• 45:07Speaker 02

  Yeah. So, so, uh, fuel oil up 52. So you take that 27 and that 52, we have energy up 16%. That is definitely a big pain point of maybe already some people were feeling it was high anyways. That just puts fuel in the fire there.

• 45:22Speaker 04

  So don't judge that person.

• 45:24Speaker 03

  I see you.

• 45:25Speaker 04

  Don't judge that person that's riding the e-bike that's trying to speed past you on the right side.

• 45:29Speaker 03

  Oh, I'm gonna judge them. When they're not, when they're wearing all dark clothes and they don't have reflector. I'm literally turned into the old man.

• 45:34Speaker 04

  Adults now that we're going to start seeing doing it. Come on now.

• 45:38Speaker 03

  No helmet. I'm like, yeah. Anyway, goodness gracious. Great discussion.

• 45:43Speaker 02

  Yeah. Well, uh, did you want to, we had one more, uh, Alan can help us out with this that came in. The last, uh, said, I heard the show yesterday. You mentioned you personally use professionals. Oh, we went over that.

• 45:54Speaker 03

  Yep.

• 45:55Speaker 02

  Oh yeah. We touched on the first. So no other comments or anything came in? Other than it's Bruno Mars 41st birthday, Nick Cannon.

• 46:02Speaker 03

  Matt Damon, hello. 54. And then who, who's the other?

• 46:06Speaker 02

  Sigourney Weaver.

• 46:07Speaker 03

  That's the one. Yep.

• 46:08Speaker 02

  77. That's really.

• 46:09Speaker 03

  Alien. Isn't she an alien?

• 46:11Speaker 02

  Something like that.

• 46:12Speaker 04

  I do want to bring up one quick point. As a parting thing, it will get better. We just got to give time and opportunity, but also be conservative. At the, at the end of the day, watch your spending. The reason why they raised the Fed funds rate is to actually, believe it or not, try to get you to stop spending because it's too expensive to use their money. So just be conscientious about where your dollars go. It will go further if you're smart about it.

• 46:37Speaker 02

  Yep. And, and housing is one of the big, big decisions where when we're sitting here talking about trying to save money for the future, if you buy conservatively, a house that fits in your budget, you're going to have a little bit of extra to be able to do all those other things that are just as important, like save for your future, save for emergencies, and even give should be a part of your plan. So, hey, thank you for making what it is today, the, the Money Wise Show. Thank you, Alan. Uh, thank you, listeners. Be smart, be safe, be money wise.

• 47:01Speaker 01

  Securities offered through LPL Financial, member FINRA, SIPC. Investment advisory services offered through LPL Financial. LPL Financial and Money Wise Wealth Management are independently owned and operated.