Pod Insights The Moneywise Guys 6/17/25 Mortgage Myths vs. Facts: Fed Policy, Oil Prices, and California's Exception About this episode The Moneywise Radio Show and Podcast Tuesday, June 17th BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Guys" podcast call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Management Guest: Allyn Medeiros, Agape Mortgage website: https://allynmedeiros.com/
Transcript 0:00 Speaker 00 From the Garo Ellis padded radio room off Stockdale Highway, here is Money Wise.
0:06 Speaker 01 Call or text into the show 24/7 at 396-1000.
0:39 Speaker 00 Here is Money Wise.
0:40 Speaker 01 Money, money, money, money.
0:43 Speaker 00 Welcome to the Money Wise Show. We are live from the Garo Ellis padded radio room off Stockdale Highway on ESPN Bakersfield, 1230 a.m., 101.1 FM, and always streaming at MoneyWiseGuys.com. You can call or text into the show 24 hours a day at 661-396-1000. Today, we're your hosts. I'm Sharad Waite and...
1:06 Speaker 02 I'm Emily Waite.
1:07 Speaker 00 Hey, Em. Great seeing you. Good having you here.
1:11 Speaker 02 Thanks.
1:11 Speaker 00 As always, we like to start the show out with listener questions or comments. We got a few of them yesterday as we're interviewing Congressman Vince Fong, and I thought maybe we could answer them now. Do you have it there?
1:25 Speaker 02 Excellent. Very, very cool. So you didn't get to any of these yesterday?
1:29 Speaker 00 No.
1:30 Speaker 02 Okay, cool.
1:30 Speaker 00 But it's just the one, really, that I'm thinking of, about the 20%?
1:36 Speaker 02 Oh, gotcha.
1:37 Speaker 00 Do you have that?
1:38 Speaker 02 Great. Yes.
1:40 Speaker 00 Okay.
1:40 Speaker 02 How has the 20% deduction for entities under the Tax Cut and Jobs Act benefited local farmers and ranchers, and will this be permanent?
1:49 Speaker 00 All right. So, good question. I want to break down first what it means, or the way that I interpret this question, is that the Tax Cut and Jobs Act, which was set to expire, or is set to expire at the end of this year, part of that piece of legislation... Was to increase the amount of money that business owners or certain business owners can deduct from their income and from their specifically in these cases, it's their either their their corporate income or their individual income, depending on which one is higher.
2:29 Speaker 02 Okay.
2:30 Speaker 00 Or which one's lower. So the way that this works is that especially with small businesses, most small businesses are either LLCs or their S corps.
2:40 Speaker 02 Okay.
2:41 Speaker 00 There's their their the entity that or partnerships, even sole proprietorship is also very common, but essentially what happens in those entities is that whoever the owner of it of that partnership or that sole proprietor is, all of the income that comes into that company, the taxable income that comes into that company minus certain deductions is what goes towards their personal income tax or their personal in taxable income and hence their taxes, which is what determines what percentage of that is owed in taxes. And so part of this legislation, what it did is it increased the amount of money or the percentage
3:25 Speaker 00 that can be deducted from the from the company's income and therefore is not passed on and is a tax savings to that to that owner.
3:35 Speaker 02 Okay.
3:36 Speaker 00 And in this case, a lot of these are farmers and ranchers and this is important for farmers because they buy large equipment.
3:46 Speaker 02 Right.
3:47 Speaker 00 And they buy.
3:48 Speaker 02 Very expensive.
3:48 Speaker 00 It's very expensive. And if, you know, if you're normally you there's a lot of expenses that as a business can be deducted from their income and the IRS allows them to deduct that from their income. And so you don't basically, you don't have to pay tax on that.
4:10 Speaker 02 Right.
4:11 Speaker 00 Income tax on that. And for those.
4:15 Speaker 00 You know, big purchases that can make a big difference. You buy a tractor for $100,000.
4:20 Speaker 02 Yeah.
4:20 Speaker 00 And, you know, you can deduct potentially up to all of that, depending on where, you know, what other income you have. But they, this rule, the, the part of this legislation essentially allows owners to deduct 20% of their, of their qualified business income from their individual income, or 20% of their total ordinary taxable income if it's less than their, than their, their qualified business income. So this is a deduction that is particularly valuable for ag operations because over 98% of farms and ranches operating through these
5:00 Speaker 00 pass-through entities, you know, like LLCs or S Corps. And so, you know, this is, this is an important piece of legislation. I think Congressman Fong yesterday mentioned that the House has already passed this, what they're calling now the big beautiful bill.
5:20 Speaker 02 Right.
5:21 Speaker 00 But part of the big beautiful bill is to keep permanent some of these deductions like this.
5:28 Speaker 02 Okay, so it will be permanent?
5:29 Speaker 00 If it passes.
5:30 Speaker 02 I see.
5:30 Speaker 00 So right now it's in the Senate, and the Senate is going to mull it over and try to reconcile. And then, you know, the House needs to, they need to come to some agreement with the House. And so if that happens, then yes, then it would be permanent.
5:44 Speaker 02 If it's, if it's not, if that doesn't happen and it's not permanent, then how long will this be the case? It won't happen at all?
5:52 Speaker 00 It won't. Yeah. So if it doesn't become permanent, it will just expire.
5:56 Speaker 02 When?
5:57 Speaker 00 If it, end of this year.
5:58 Speaker 02 I see.
5:59 Speaker 00 But if it, it's possible that it will, it will get extended, but with some deadline on it. So this is a, this is a trick that, you know, lawmakers and politicians do is they, they compromise and they say, fine, we're gonna, we're gonna pass this bill, but we don't want it to be forever. We're gonna make it a sunset. We're gonna have it expire at a certain time. That way, the lawmakers at that time are gonna have to figure out how to, how to deal with it.
6:23 Speaker 02 They're kicking it down the road.
6:24 Speaker 00 Kick, kick the Can down the road. That's exactly what it is.
6:26 Speaker 02 All right.
6:27 Speaker 00 So, well, you know, the deduction was never set to be, you know, permanent. The hope is that maybe it will be. And this is a big, this is, you know, pretty important for small businesses and, and could be a significant blow if it is not extended because businesses try to plan and forecast what their, you know, what their expenses and what their income is going to be. And if it changes, then it could be, it could be pretty dramatic.
6:55 Speaker 02 Yeah, they gotta do the numbers.
6:56 Speaker 00 They've got to do it. That's right. That's right. So, great question from our listener. Another very, very smart, detailed and, and somewhat complex question, but we want to thank our listeners for that.
7:08 Speaker 02 Yeah, you had a lot of engagement yesterday, it seems like.
7:11 Speaker 00 Yeah, it did seem like that. It seemed, I mean, it's, we're not a political show.
7:18 Speaker 02 Right.
7:19 Speaker 00 And so I can see how there can be some hesitancy by, by some people, you know, where we have a congressman on our show, but I, I think we did a good job of just talking about, you know, business and economic issues that Kern County is facing.
7:37 Speaker 02 Oh, good.
7:38 Speaker 00 And I also talked to you in just a little bit, I was just real curious what it's like to be a congressman, you know, to move from Sacramento and move on to there. And, and so I thought it was, I thought it was very informative. If you missed yesterday's show, you should be able to find it on our podcast, right?
7:54 Speaker 01 Yes. It was, it was about 15 minutes after the show.
7:58 Speaker 00 Oh, wow. That's great. Compliance is getting quick.
8:01 Speaker 01 Coming from somebody that worked in political radio for many years. I loved the side of it because we talk about the impact to the community with, whether it's small businesses or just the regular, you know, workers that do nine to five or work in multiple jobs. So I liked the spin that we were able to get out of, you know, set congressman because we didn't talk politics. And we talked about things that are hitting us here as business owners or just hard workers.
8:31 Speaker 00 Yeah.
8:31 Speaker 01 So I enjoyed it.
8:32 Speaker 00 Yeah, that's good. I did too. We talked about high-speed rail, which has, you know, has become a political issue. Why? Because it's, you know, taxpayer money. So I get that.
8:41 Speaker 02 Yes.
8:41 Speaker 00 But it's, it's not necessarily, I mean, I'm not, I'm ignorant of politics, but it doesn't seem like a partisan issue. Maybe it's partisan, but it just seems like, well, this is just like a business choice.
8:54 Speaker 02 Sort of like an economic issue?
8:56 Speaker 00 Yeah, an economic issue. And what do the economics say? You know, are we, are we going to be just wasting our money? Or, you know, do we get something back from this? And then if we just end it, if it just, you know, gets canceled, well then, okay, what happens? Is that just, is that just sunk costs? You know, it's just gone and what happens to all of that investment that, that went into what's work has been done so far? So is that, those kind of discussions, which I think are important to have.
9:21 Speaker 02 Whether political or not, it's a polarizing topic, the high speed rail.
9:25 Speaker 00 I guess so. I guess so. And some people
9:28 Speaker 02 I mean, that's anecdotal.
9:29 Speaker 00 Really like trains.
9:32 Speaker 00 I do. I mean, I do. You and I, I've mentioned how our experience in other countries, when we visit abroad, it's like, oh, this is amazing.
9:39 Speaker 02 So easy to get from one place to the next.
9:41 Speaker 00 Yeah. But, you know, we want to, we don't want to waste money on something that either isn't going to ever be financially feasible, or wasn't going to work out, or is just going to cost too much that it doesn't make any sense. Like, I'm all for that too, but maybe there's some other ways that we can get around. It was brought up yesterday that maybe we'll have by then, we'll have the, what do they call them? Like flying robots.
10:04 Speaker 02 Flying robots.
10:04 Speaker 00 Yeah, like the personal, you know, drones. You know, what do they, they're not called drones, but like the, the personal electric flying vehicles that they're, that are right now in development.
10:16 Speaker 02 Cars.
10:17 Speaker 00 Yeah, but they're not cars.
10:19 Speaker 02 But they're like single use purse flying. It's
10:22 Speaker 00 Yeah. You know what I'm talking about, right?
10:24 Speaker 02 No, I don't.
10:25 Speaker 00 It's supposed to be at the, at the Olympics and they're like, they fit two or three people.
10:31 Speaker 02 What would I Google if I wanted to see an image of such a thing?
10:34 Speaker 00 Flying vehicles.
10:35 Speaker 02 Flying vehicles.
10:36 Speaker 00 Electric flying.
10:37 Speaker 01 Personal electric aerial vehicle?
10:38 Speaker 00 There you go.
10:39 Speaker 02 Okay.
10:39 Speaker 00 Personal.
10:40 Speaker 01 Which is the word before that is Jetson.
10:42 Speaker 00 Yes.
10:43 Speaker 02 That's what I was going to say.
10:44 Speaker 00 I think there's a, there's a company called Jetson.
10:47 Speaker 01 Yeah, that's what they're called.
10:48 Speaker 00 There's a bunch of companies. Start, they're all startups, tech startups right now that are You know, trying to push forward to this because I mean, how cool would that be to be able to just, you know, basically use an app and it can pick you up or you go to these certain spots where where they can park. And they're all autonomous.
11:05 Speaker 02 So it's like a human sized drone is what it looks like.
11:08 Speaker 00 There you go.
11:08 Speaker 02 Okay.
11:09 Speaker 00 It looks like a human sized drone.
11:11 Speaker 02 Personal electric aerial vehicles.
11:14 Speaker 00 Yeah.
11:15 Speaker 02 Are you going to get one?
11:16 Speaker 00 Oh, man, I would think they'd be so cool. There's so many of these cool prototypes. That's the problem is they're just all prototypes now and there are like flying cars. I mean, this has been an ongoing bit here on the Money Wise Show is the flying car. The companies that started off with these flying cars, but they just look so ridiculous and, you know.
11:38 Speaker 02 Okay. So it's all about the looks for you.
11:41 Speaker 00 Uh, functionality, the the effectiveness of it.
11:46 Speaker 02 Yeah, sure.
11:47 Speaker 00 That's what it seems like. Maybe down the road. Speaking of down the road, markets have pulled back today and headlines are all pointing towards the conflict between Israel and Iran and the rhetoric that is happening and the potential for this to spread and for the United States to get involved and for oil prices to spike. There's a lot of, I guess, uneasiness that they were seeing major indices down. Oh, the S and P 500 is down 0.8% and the Dow Jones is also down today.
12:27 Speaker 00 Uh, 0.7%. So decent declines in the in the markets again, a lot of uneasiness surrounding what's going on abroad, more geopolitical concerns. The good news or what we hope will be good news is that the Fed is meeting today. Their two day meeting today and tomorrow and tomorrow they will speak in front of the press and give their expectations of what they will do with interest rates.
12:58 Speaker 02 Is this a regularly scheduled meeting?
13:00 Speaker 00 Yeah.
13:00 Speaker 02 And, okay.
13:01 Speaker 00 And so, yeah, it comes up. It comes up, uh, is it quarterly?
13:05 Speaker 02 Okay.
13:06 Speaker 00 I always forget how often they do it, but this is a perfect segue into us taking our first break. And when we come back, we're going to bring back somebody who actually lives and breathes interest rates because
13:19 Speaker 02 In that world.
13:19 Speaker 00 In that world, Alan Maderos. He's with Agapi Mortgage, mortgage lender. It's always great having Alan on. We're going to talk more about interest rates, what's going on in the housing market, and the lending market, and much more. We're Money Wise. We'll be right back.
13:32 Speaker 01 Need to get your financial fix on the go? If so, subscribe to the Money Wise Podcast and catch up on all past shows whenever.
13:44 Speaker 00 Welcome back to Money Wise. Emily Waits here.
13:47 Speaker 03 I'm here.
13:48 Speaker 00 Jared Waits here. We're joined now by our guest, Alan Maderos. Alan is with Agapi Mortgage. He's a longtime expert, I'm going to call you an expert, in mortgage lending and housing and just especially up here in Kern County. You've got a good pulse, a good feel of the pulse of Bakersfield and the housing market. And you brought with you a really interesting report. It almost is a, I guess, national data, but it is specific to Kern County or specific ZIP codes. And it's kind of like a Crabtree report that shows median home prices and historical appreciation, which that's where I want to start. Historical appreciation,
14:30 Speaker 00 again, this is according to this report. Does this come from the MBS Highway? Is that what this is?
14:38 Speaker 03 Correct. Mortgage-backed securities highway. It's basically a data source as well as a commentary site.
14:43 Speaker 00 It sounds like a terrible place to be stuck in traffic.
14:47 Speaker 02 Good one.
14:48 Speaker 00 Yeah, right?
14:49 Speaker 02 Good one.
14:49 Speaker 00 Mortgage-backed securities highway.
14:51 Speaker 03 It's MBS Highway.
14:52 Speaker 00 Wow. Yeah, don't go down that road. But here, according to this historical appreciation, I guess, let me look at just Kern County in general. Five-year historical appreciation, 7.36. 10-year, 7%. 63-year, 5.26%. So, first of all, any idea why they went back 63 years? They went from 63 years, 10 to 5? Maybe that's when data started being collected?
15:25 Speaker 03 I would say that they're just looking at a look-back period of how they started to measure appreciation. If you think about it, 63 years ago.
15:36 Speaker 03 Homeownership in and of itself really took a shift in like 1974. And the reason why is because the Equal Card Opportunity Act came into effect and it tried to broaden the scope of what HUD, Housing Urban Development, was doing to house America. So they started to create more statistical data.
15:53 Speaker 00 Yeah, yeah.
15:53 Speaker 03 So with that, they have data going back greater than 40, 50 years, but you know, it's like almanacs. I mean, they're going to give you data, and I don't know why you use 63, it seems like an odd number, but maybe that was the inception of when they started measuring.
16:08 Speaker 00 Yeah.
16:09 Speaker 03 Historical appreciation. One thing that the listeners cannot see is this, this chart, and it's a forecasting of appreciation based off of current cumulative values. This is not an accurate depiction of really what's happened in the local markets from 2020 to the end of 2024. In Kern County, we saw an appreciation cumulative of a roughly 47%.
16:36 Speaker 00 Between those four years?
16:38 Speaker 03 Correct. And it really peaked at the end of last year, and the reason why is because we are seeing a flattening of the market now. Now, that still is very positive, but it is like five times the amount of normal appreciation for the same timeframe.
16:56 Speaker 00 Right.
16:56 Speaker 03 But this was all because of the bullets that were spent from the Federal Reserve buying mortgage-backed securities. The only reason we had interest rates in the twos and threes is because the government stepped in and started to buy mortgages, right?
17:08 Speaker 00 Right.
17:08 Speaker 03 So the QE process, right, they bought securities in order to increase the activity in the housing market in interest rates, but also to have a place that they could park the money that would have a yield.
17:26 Speaker 03 Now, what we have not seen is a reinvestment of those funds. If they roll it back over into the mortgage-backed securities, it helps, but they've been taking funds off the table. So that's really what's taken some of the energy out of that market.
17:39 Speaker 00 Yeah.
17:40 Speaker 03 So...
17:40 Speaker 00 But it's, I've always looked at the statistics, maybe the statistics I've seen in the appreciation of residential homes nationally has been, you know, three and a half, roughly three and a half percent annualized.
17:55 Speaker 03 Correct.
17:55 Speaker 00 But here in Kern County, or at least in Bakersfield, it's over a 10% annual. Over the last four years, it's been over 10% a year.
18:03 Speaker 03 Last year wasn't 10.
18:05 Speaker 00 No.
18:05 Speaker 03 We were around four and a half percent. But, I mean, again, for example, let's just say somebody owned a home, 2019. Had they not done anything to that house, other than just make their mortgage payments, that house would probably be worth 40% to 50% more than what it's worth.
18:25 Speaker 00 Yeah.
18:25 Speaker 03 In 2019.
18:26 Speaker 02 Hmm.
18:27 Speaker 03 And that's the value of real estate, but in the same light, because of its rapid increase, maintenance of that value can be a challenge.
18:37 Speaker 00 What do you mean?
18:38 Speaker 03 Meaning, as the market stabilizes itself...
18:41 Speaker 00 Oh, I see, yeah.
18:42 Speaker 03 Right? Even if we have a depreciation of 10%, the world is gonna think that the sky is falling.
18:50 Speaker 00 Yeah.
18:50 Speaker 03 But let's be honest, if you owned a home in 2019, now you're at 37% appreciation?
18:58 Speaker 02 Hmm.
18:58 Speaker 00 Yeah.
18:59 Speaker 03 Nothing is wrong.
19:00 Speaker 02 Mm-hmm.
19:00 Speaker 00 Right.
19:01 Speaker 02 Sure.
19:01 Speaker 03 But perceived value is, is that, "Oh, my gosh!" I... Equity is only a number, like your stock portfolio.
19:08 Speaker 00 Right. It's true.
19:10 Speaker 03 You know, it's...
19:10 Speaker 00 It fluctuates.
19:11 Speaker 03 It's time in the market, not timing the market.
19:14 Speaker 00 Yeah.
19:14 Speaker 03 And reality is, is that housing expenses have not gone down, they've only gone up. And what's kinda made it worse is this insurance situation we have going on. There are many people in Kern County that receive notices that says, "We are non-renewing your insurance."
19:33 Speaker 00 Right.
19:33 Speaker 03 So they were forced to go find alternative insurance quick-style.
19:39 Speaker 00 Yeah.
19:39 Speaker 03 And it puts a lot of stress on the homeowner, because insurance is a component that even if you own your home free and clear, you should have.
19:48 Speaker 00 Right.
19:48 Speaker 03 Property taxes, another thing. But when we look at all of these expenses that have gone up, it is not in lockstep with income.
19:59 Speaker 00 Right.
20:00 Speaker 03 So what we have income coming in goes less far because of expenses going up. And that's, that's a form of inflation. But I cannot say that insurance costs is an inflationary item.
20:14 Speaker 00 Right.
20:15 Speaker 03 In this scenario.
20:16 Speaker 00 Right. It's gone up because of mismanagement, it seems like, of our lawmakers and the regulations that have or have not been put on the insurance agent, insurance sector, homeowners insurance specifically. Is there any light at the end of the tunnel in terms of that? Are you seeing anything different that might be changing?
20:36 Speaker 03 No. So the Insurance Commissioner of California, and this is all third-party data that you can research, basically approved a 15% increase to insurance carriers' options for providing premiums because they pulled out of California.
20:50 Speaker 00 Yeah.
20:51 Speaker 03 Principal reason why is because they could not stay solvent with the number of subscribers with what they were collecting in premiums compared to the debts they paid out.
21:00 Speaker 00 Right.
21:00 Speaker 03 But you know, that's one of the downsides to insurance. Let's be perfectly honest, is that for every dollar you collect in premium, right, you should be able to pay out that claim. So you have rated companies that are AAA, which is the highest rating, then you go down and the lower rated companies may offer you lower rates, but the coverage then sacrifices.
21:22 Speaker 00 Yeah.
21:23 Speaker 03 And then when there's a loss and they come after you and you have to pay out that loss, well, you're bankrupt.
21:30 Speaker 00 Yeah.
21:31 Speaker 03 So it's not an easy thing for insurance companies to admit, but the reality is, is that if you don't collect enough in premium to pay out the losses, then you're going to be insolvent at a point where you're going to have to increase in order to continue to insure home.
21:47 Speaker 00 And my understanding is they have not been allowed to increase their premiums.
21:50 Speaker 03 Correct. There was a moratorium on, yeah. So the moratorium actually started prior to the pandemic and it was held through. And finally in 2023, I think it was, or maybe in 24, they finally said, okay. But by that time, State Farm had already gone.
22:04 Speaker 00 Yeah.
22:05 Speaker 03 You know, all these large carriers just left the state, like literally said, up, we're out.
22:10 Speaker 02 Yeah.
22:11 Speaker 00 So another interesting statistic from this report is that in Kern County, there are 32% of the population rents. 57% are homeowners. And then 11% are renters who can afford to purchase. That's about 101,000 people that could buy a home, but they could afford a home, but they're renting. Do you know if these are kind of in line with national averages?
22:42 Speaker 03 I haven't done the national survey for this to get it, but I can certainly do that. I would say that it's probably close. And here's the principal thing, if you look, and again, the listeners don't have the option of looking at this chart. But to the left of that graphic that you're talking about, the pie chart, you look at your demographics by age, right? So if you look at the bulk, it's the age of 27 to 35.
23:08 Speaker 00 Yeah, that's the most, that's the demographic that is the most homeowner, right? Is that the way to look at that?
23:15 Speaker 03 No, those are renters.
23:16 Speaker 00 Oh, these are renters?
23:17 Speaker 03 Take a look at the color, right?
23:19 Speaker 00 Oh, I see.
23:20 Speaker 03 But here's the catch 22. When you start looking at that, the first time homebuyer age bracket is actually somewhere in the range of 38 years old now. Whereas previously was 34. But we lost time when people were out of the market and secondarily lost wages during the pandemic. So it's literally set us back four years. Whether or not they will enter the market is going to be dependent on debt. Let's be perfectly honest, nobody comfortably retires with a ton of debt. They need to have enough income coming in in order to be retiring. Well, the same thing lies true for a buyer. If they're entering the purchase of a home with higher debt load, they themselves will prolong that
24:05 Speaker 03 to the time where they can actually feel comfortable. And just the student loan debt alone.
24:12 Speaker 03 Is actually shackling some people and having them to wait longer. So you're seeing more and more people going back home to live with family.
24:19 Speaker 02 Yeah, it's totally different than when we were.
24:22 Speaker 03 Yeah, and the mobility is just not there compared to what it was in the past, just because let's give you a perfect example. Say by a median sales price home, in this case it was $385,000 in Kern County, and this is a generic report. If you put minimum down, say 3%, 3.5% at a decent rate, which on FHA would be around 6.25% today, you're still looking at a payment in excess of $3,000 a month.
24:49 Speaker 00 Right, right.
24:51 Speaker 03 So.
24:52 Speaker 00 That means you'd have to have income of $9,000 a month.
24:58 Speaker 03 Correct. So look at the median household income on this chart.
25:01 Speaker 00 Yeah, it's 72,000.
25:03 Speaker 03 That's right.
25:04 Speaker 00 So there's, that's not.
25:06 Speaker 03 That's not driving, they're not matching up with what the ideal numbers are. So, what do they do? They say, okay, we've got $74,000 coming in, we're gonna push that ratio from a third, you know, to 45%, but you can have no other debt. So you have one car payment, you're done.
25:25 Speaker 00 Yeah.
25:25 Speaker 03 You have credit cards, car payment, and student loans, you're done.
25:28 Speaker 00 Right.
25:29 Speaker 03 Do you see how that quickly, almost self pushes you out of qualifying? Now, it's not that it's impossible, but not everybody wants to work two or three jobs in order to support just a mortgage payment in their head.
25:42 Speaker 00 So you'd have to make over 100,000 a year, right? About 108,000.
25:47 Speaker 03 An ideal number is 110,000 to be able to afford a house, it's 450,000.
25:52 Speaker 00 Yeah, the median price, basically.
25:55 Speaker 03 Combined household income, remember, but that's, it's hard to do.
25:59 Speaker 00 Yeah, no doubt.
26:00 Speaker 03 It's just difficult. So that's where I think getting yourself out of debt sooner than later is a smart idea. And I talked to a lot of people that I put debt plans together. Like, listen, you are literally dragging this around with you. Until you get out of debt, you should not be putting yourself into higher debt standard. Now, if it's something that you can manage and you can pay down your debt, then that's a fine plan, but it's harder than you know.
26:23 Speaker 00 Well, this is great. Good information. We're going to take a break. When we come back, we're going to talk to Alan Maderos more about home affordability, lending, and all that stuff.
26:34 Speaker 02 Sounds good.
26:34 Speaker 00 Or MoneyWise. We'll be right back.
26:35 Speaker 01 If you're a business owner who provides a retirement plan for your employees, contact MoneyWise Wealth Management to see if you're maximizing your options and minimizing your liabilities. MoneyWise 401(k) plans are customized to you and your company's needs. 661-847-1000.
27:02 Speaker 00 Welcome back to MoneyWise. We're joined by Alan Maderos today, talking about home lending and real estate. And feel free to join us. If you've got any questions or comments, 661-396-1000. That's the number you can text. So Alan, the state of the real estate in Bakersfield seems to be pretty dang good, especially over the last five years. Is, you know, I get this question frequently where they say, why, it's just, you know, interest rates are high, inflation, the number of homes that are available, it's not a good time to buy, is it?
27:45 Speaker 03 Depends.
27:46 Speaker 02 Depends.
27:47 Speaker 00 Yeah.
27:48 Speaker 03 Here's the thing. The opportunity to buy and get your foot in real estate is a good idea, as long as you're going to stay in his own or occupied residence. Right now, cash flow is not there for investors.
27:57 Speaker 00 Yeah. Speak to that, because that's another question that comes up frequently is, I think it's driven by the reality shows of flipping homes, renovating homes in a few days and making $100,000.
28:10 Speaker 02 Of course.
28:11 Speaker 00 It gives this perception that, oh, yeah, you just have to be able to have the money to buy a house and then, you know, put some paint on it and turn around and sell it. Where do you see those opportunities? Because they still happen.
28:23 Speaker 03 They do. And it really has to do with, and this is my perception, there's two basic segments that provide those opportunities. One, the homeowner that has no financial ability to improve the property to a point where it's saleable on their own. So they take a low-ball offer, cash only. And let whoever's the investor buy it, do the improvements.
28:49 Speaker 00 Yeah.
28:49 Speaker 03 So this could be $15,000, which in the grand scheme of things is not that much money. But to a homeowner that has limited funds is like, you know, a huge stone they can't pick up out of their yard.
29:04 Speaker 00 Right.
29:05 Speaker 03 And the reason why that's a problem is because if they could get the house into condition where it passed inspections for an appraiser, they would sell it.
29:12 Speaker 00 Yeah.
29:13 Speaker 03 But they can't. They don't have the financial ability to do it. But they have the equity.
29:17 Speaker 00 Yeah.
29:18 Speaker 03 So that's, that's one of those things that's kind of a difficult thing to talk about, but it's true.
29:23 Speaker 00 Cause they don't have, they have the equity, but they don't have the ability to tap into that equity to be able to pay for that stone to get out of the yard.
29:29 Speaker 03 Yeah. Because here's the thing, your equity is only going to be lent against if the collateral holds up the bank loan. And they're going to look at the house and like, no, I'm sorry, fix these things and then we'll do it.
29:39 Speaker 00 Oh, my gosh.
29:40 Speaker 03 So it's the cart before the horse.
29:42 Speaker 00 Yeah.
29:42 Speaker 03 So that's, that's number one segment. Number two are homes that wind up in probate. And they have a probate appraiser that goes out and evaluates the house. And the people that are going to get the house, whatever recipients, beneficiaries say, we don't want to do anything. Just they accept a cash offer, some of the type of investor that buys the house.
30:06 Speaker 00 Yeah.
30:07 Speaker 03 So those are the two biggest categories I see. Third would be that rundown house that's been abandoned. It's in a bad neighborhood and they want to, you know, and those come up occasionally.
30:15 Speaker 00 Yeah. Where you just happen to like know the person or somebody knows them or you're in the neighborhood and you, you run into them.
30:22 Speaker 02 Few and far between though.
30:23 Speaker 03 Yeah. And those are a smaller number, but the first two categories I was talking about is the most common areas where people are going to be able to find those types of deals. Now, finding them is going to be based off of just keeping your eyes open for a specific area. So the investors that are having some level of success have communication with neighbors and neighborhoods and they're driving the neighborhoods. And when they see something going sideways, like that grass hasn't been cut in five years, right?
30:48 Speaker 00 Yeah.
30:49 Speaker 03 Then they go and try to find the owner.
30:50 Speaker 00 Yeah.
30:51 Speaker 03 Right? So that's dialing for dollars is trying to figure out how to make a way, you know, of, of getting it working.
30:58 Speaker 00 Uh, tomorrow, the Fed is going to announce their decision. I don't think anybody's anticipating any big surprise. Um, are you?
31:07 Speaker 03 No. Um, there's nothing to move the needle to the point where I think the Fed Reserve is going to make a change. But I think the big thing that we're going to be listening for is comments on future, you know.
31:20 Speaker 00 Yeah, what their intentions are.
31:22 Speaker 03 What their intentions are, because that's what moves the markets right now is just commentary.
31:26 Speaker 00 Yeah.
31:27 Speaker 03 It's that commentary after the announcement.
31:29 Speaker 00 Yeah, right.
31:30 Speaker 03 So that moves both stocks and bonds.
31:33 Speaker 00 Yep. And it's going to happen just before the federal holiday on Thursday, which is Juneteenth. Markets are closed and so the investors won't have a whole lot of time to digest that if there is some surprise. Where are interest rates currently at?
31:50 Speaker 03 So your government insured loans includes FHA, VA, and USD are hovering in the low sixes, around six and a quarter, 6.1. If you're buying points, you probably can drop below six by a little bit, but you're paying, you know, two, three points to get like at 5.875, 599.
32:08 Speaker 00 Yeah, yeah.
32:09 Speaker 03 And then your conventional money is hovering in that high six range, 675, 6625, depending on how much money you're putting down. So I had somebody that locked last week at 6.3, but we're putting down 75%.
32:26 Speaker 00 Oh, wow.
32:27 Speaker 03 So, I mean, there's very little risk. I mean, the bank's not going to take, so you're getting the best terms.
32:32 Speaker 00 Yeah.
32:33 Speaker 03 So, again, it's case specific.
32:34 Speaker 00 Well, that's a, there's a psychological difference, a huge psychological difference between 6% and 7%.
32:40 Speaker 03 Of course.
32:41 Speaker 00 Even, you know, I guess money-wise, it's expensive, much more expensive, but are you, is there an uptick in people? Well, I guess people are buying homes when they can afford them, but if interest rates do come down, you'd think that there would be an increase.
32:55 Speaker 03 Yes, I think there will be. So, right now, there's an affordability gap, and if we drop, and this is just my personal opinion, interest rates by three quarters of a point, 0.75 to 1%, I think the market will just take off.
33:12 Speaker 00 Hmm.
33:13 Speaker 03 But that also drives prices too.
33:14 Speaker 00 Right.
33:15 Speaker 03 But it might. Basically absorb some of the additional inventory that's out there.
33:20 Speaker 00 That's, I think that's important to note because a lot of people think, well, I'm just going to wait until interest rates come down, which is great. Maybe interest rate is lower, but that's just also going to potentially drive up the price of the home because now more people can afford it. It's cheaper to borrow.
33:35 Speaker 03 Yes. And the other factor too is that you're going to have a lot of people that are waiting on the fence that purchased property between 2022 and present that want to refinance. You know, they've been sitting in those sixes and possibly low sevens and they like to get their payment down. So at that point they can decide, hey, do I want to sell this house and go buy something else? The rate's going to be about the same. The difference is I can get where I want to get. There's a lot of people out there that are in the golden handcuffs, I call them. That's where they have interest rates sub 4%. They bought the house, sight unseen, paid cash over during this pandemic period. Had to wear PPE to try to even go in the house, doing virtual, you know, walkthroughs with your agent.
34:18 Speaker 00 Yeah.
34:19 Speaker 03 And they weren't entirely happy.
34:22 Speaker 00 Yeah.
34:22 Speaker 03 But they don't want to give up that interest rate, even though they want to be in a different home.
34:26 Speaker 00 Right.
34:26 Speaker 03 So that's the golden handcuffs.
34:29 Speaker 00 Yeah.
34:29 Speaker 02 We've got a listener question. Do you want to do that now?
34:31 Speaker 00 Yeah, yeah.
34:31 Speaker 02 After the break?
34:32 Speaker 00 Yeah, why don't you read it?
34:33 Speaker 02 I received a call last week from a local number asking about buying my home with cash and knew a lot about the home, even recent updates that aren't listed online. Are these real business people or are they scams? They mentioned they were a local company buying properties.
34:48 Speaker 00 Yeah. What do you say, Alan?
34:50 Speaker 03 So there are stats that are available through title companies and other type of public sources. And the only thing I can think of is they're driving neighborhoods, as I mentioned before. And if they see improvements, public record items could be permits. It could be additional information with regards to solar or new HVACs, those types of things. As far as interior stuff, that I don't know, unless they're literally micro watching your property.
35:18 Speaker 00 That's creepy.
35:19 Speaker 03 Yeah, that is. But for the most part, the public data that's out there is if you have a loan, it'll show what liens are open. It will also show access to public records of permits that were filed for specific properties. It'll show the date of inception of that loan and sometimes the term, meaning it could be a 15 or 30 year. And comparable data, like what other homes is sold in the market in that area. So savvy investors trying to buy properties for cash may make an offer based off of some of the data. As far as personal interior improvements that you've done, that I couldn't speak to that. And I don't know that there's any records that show that part.
35:57 Speaker 00 Yeah.
35:58 Speaker 02 Yeah, it said updates, didn't say interior or not.
36:01 Speaker 00 Yeah.
36:01 Speaker 02 It sounds like this could be legitimate, just one of these scenarios where people are looking out for it.
36:05 Speaker 03 Correct, yeah, and in the offer phase, if you have a savvy investor, they're gonna do their due diligence. And if it paper pencils out for what they're looking for, they'll make an offer.
36:16 Speaker 00 And my guess, though, is that those offers would be below market value.
36:20 Speaker 03 Very much so.
36:21 Speaker 00 So if you were, instead of just take them up on their offer, if you were to go through the listing and getting a market you know, offer, generally it would be higher, would be my guess. Because why would an investor come in and pay above market price? They would just wait until the house comes on the market and just buy it from there. So maybe what my suspicion has been that these types of businesses are just looking for people that are maybe on the fence. That maybe will be willing to take a little bit because they could just close out real quick and be done with their property and move on. I don't know.
36:57 Speaker 03 In many ways, they're trying to make sure that you have the easy button. Because there's less stress, so they pay cash, it can be done quickly. So I don't know all the nuances, I'm not an investor like that. But I have heard same stories come across my desk, you know, hey, this person called me, said pay cash for my house. And they knew so much about me, I'm like, well, the internet knows a lot about you.
37:21 Speaker 00 Yes, and a lot of it is sort of the, what's the tricks that supposed mind readers use? Kind of like, what do they call it?
37:34 Speaker 03 Yeah.
37:34 Speaker 00 Like a cold read where you're essentially you're you're you're saying things and you're picking up on their cues as to whether you're in the ballpark or not.
37:43 Speaker 03 A fortune teller.
37:44 Speaker 00 Yeah, a fortune teller. Yeah, and you're using broad enough terms that they they will start divulging information, not realizing that they're giving you information. They're releasing information about their about their, you know, personal life. Enough to that it makes it seem like that person knows more than they really do. The the I mean, clearly, there's legitimate businesses that are out there trying to pay cash for properties. There was a remember the ugly houses? Is that still around? Why buy we buy ugly houses?
38:14 Speaker 03 I'm sure they're out there.
38:15 Speaker 00 There's just like, it seems like it's always there, but it was really there during the last crash, like two thousand
38:22 Speaker 03 Sure.
38:22 Speaker 00 seven and two thousand eight. It was like constantly there were just signs, I'll buy your house, cash for house kind of thing. That makes a lot more sense to me because you just have people who just can't literally they're getting foreclosed on.
38:36 Speaker 03 Yes.
38:37 Speaker 00 But in a healthy market like this, um, it would it would take it would take some a little bit of desperation, I think, for somebody to just want to sell their house for below market.
38:47 Speaker 03 I would agree.
38:48 Speaker 00 Yeah.
38:48 Speaker 03 And in those scenarios, I think it's case specific to the house too, and they might be targeting a specific zip code or area. And that does happen, like I said
38:55 Speaker 00 Yeah.
38:56 Speaker 03 earlier, you know, investors have target markets because they know they'll sell quickly. There's certain square footage room count and the price points within the affordability range for people. So when they flip it, if they make enough money, they can certainly sell it.
39:07 Speaker 00 Yeah, um, I I always like to get an update on the recent changes in how realtors are compensated. This is a nationwide thing. There were some there's some headlines coming out of New York. It's a lot bigger deal in some of these bigger metropolitan areas where the commissions were huge.
39:23 Speaker 03 Sure.
39:23 Speaker 00 And and and always kind of negotiable. And are you seeing any impact with it here?
39:31 Speaker 03 No.
39:32 Speaker 00 Just business as usual, huh?
39:33 Speaker 03 Yes, because here's the reality of it. If you're going to be represented professionally, they're going to be paid.
39:38 Speaker 00 Yeah.
39:38 Speaker 03 So a lot of the real estate agents that speak with you will be very candid and say, listen, in order to get a qualified buyer, we might have representation. And they're being expected to be paid for their services. So as a result, our listing agreement might say three percent to sell your home. However, If a buyer's agent asks for compensation for bringing in qualified buyer that will close, they may ask for up to 3% as well.
40:05 Speaker 00 Mm hmm.
40:05 Speaker 03 And the seller's like, do I have to pay him? No. Well, then let's not do that. Okay, great. And you have nobody come and make an offer in your house because they don't get compensated.
40:16 Speaker 00 However, part of that rule is also that it could be listed on MLS, right? So you can't say, everything has to be listed. So you can't necessar- you have to like, tell them no. No, we're not going to pay you.
40:27 Speaker 03 But in practice, we're seeing that sellers are still crediting the cost of buyer's agent compensation.
40:37 Speaker 00 Yeah.
40:37 Speaker 03 So it's no different. It's just extra forms.
40:40 Speaker 00 Yeah. Well, uh, it's really interesting. I'm always, I'm still fascinated by it. My guess is that eventually the residents, the local residents are gonna maybe, I don't know, competition might bring it down. The anticipation is that it will bring down the cost of, of buying and selling.
40:59 Speaker 03 That, that was the intention of the lawsuit.
41:02 Speaker 00 Do you think so?
41:04 Speaker 03 Of course.
41:04 Speaker 00 For consumers to not pay as much?
41:07 Speaker 03 That, that was exactly what the intention was. But in reality, and what practices, we're not seeing that.
41:13 Speaker 00 What, what, what was hard to swallow as a consumer was the fact that it was just expected. It was always going to be, you know, the 6% or 3% to, to the, to the seller, 3% to the buyer. And it's like, well, why? You know, in some cases that nothing, no work is done and.
41:33 Speaker 03 They have had, since I've gotten into the real estate industry from the lending side, commission structures that were set at the beginning of the contract.
41:44 Speaker 00 Yeah.
41:44 Speaker 03 And it was never always 6%. So you had people listing for three and they would pay one and a half to the buyer's agent, one and a half to the listing agent. So there's always been, and you know, this is the term they use, the discount, help you sells and those types of operations. They've always existed.
42:05 Speaker 00 Yeah.
42:06 Speaker 03 But people sometimes choose not to go that route because of what they're actually getting for value.
42:12 Speaker 00 Yeah.
42:13 Speaker 03 Right? So.
42:15 Speaker 03 I don't know. That is a personal choice.
42:18 Speaker 00 Yeah.
42:18 Speaker 03 And if the pool of your buyers is dropped from the quality of the buyers, then sometimes paying the money makes more sense because your return might be higher.
42:27 Speaker 00 Well, why don't you please just stick around? We're going to take a quick break and we'll be right back.
42:32 Speaker 01 Have you been putting off your finances? Seize the day. Call the Money Wise office at 661-847-1000, or email [email protected] for more information.
42:48 Speaker 00 Sing it, Zakari. We're Money Wise. Thanks for tuning in.
42:53 Speaker 00 If you want to catch myself, Sherrod, on First Look with Scott Cox, I'll be on his program tomorrow morning at 7:30 on KERN Radio, 96.1 FM. And then you can join back here live from 2 to 3 as myself and Dustin are going to be sitting down with Lois Henry of SJV Water, and we're going to talk about all things water with Lois. It's always a heated conversation when Lois comes in, and there's always some water going on. There's always some water issues going on. And of course, you can text or call anytime into the show, 661-396-1000.
43:34 Speaker 00 We'll be off Thursday and Friday for the holiday. Juneteenth is on Thursday, a new federal holiday, which also the markets are closed, but you can still catch any of these episodes wherever you subscribe to your podcasts. Alan, real quick, before we go, I've got a minute here, but there appears to be a conflict between Iran and Israel, which obviously affects gas prices. You've got some connection here between gas prices and home prices, or I guess, interest rates.
44:07 Speaker 03 More so interest rates. So, we have found that the price for barrel, right, as that increases, interest rates have a tendency to follow. So, increasing fuel expenses has a negative impact on mortgage rates. Now, in California, we're in an awkward situation because come July 1, we're also going to have this additional tax per gallon of over 60% uncertain. It's actually just unleaded style fuel.
44:32 Speaker 00 Yeah.
44:32 Speaker 03 But it's still an impact. So costs are not going down, they're going up. And California is the outlier in the sense that we're having a double whammy. So if we have increased fuel prices just naturally due to what's going on in Iran and Israel, then we're also going to see that additional pain coming from the tax that's going to hit.
44:50 Speaker 00 Yeah.
44:51 Speaker 03 Per gallon. So just hold on to your seats.
44:55 Speaker 00 Yeah, I've never really made a correlation between interest rates and gas prices, but it does make sense that gas prices generally go up when we have high economic activity. It's, you know, you have higher demand and you can only increase the supply so much. And in those cases, generally you have a heated economy, which requires higher interest rates to slow it down. And so it's interesting to hear that, that that could have an impact. Obviously, California's got a lot of work to do in the, in the energy sector. We get, we get forgotten out here in California. Well, thanks, everybody, for tuning in. Again, if you missed any of these shows, wherever you stream your podcasts, you can find us. And in the meantime, remember these three things: be smart, be safe, and always be
45:40 Speaker 00 money wise.
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