B2B: Market Update with Mortgage Guru Bill Payne

Stacy: Hello everyone and welcome to another episode of Between Two Brokers. Today, we have Bill Payne with First Home Mortgage. We are going to just talk about what we’re seeing happening in the market and it’s pretty sad. Everyone likes that. And one of the questions was is this something that we want to share, and Erin and I said at the same time. Yes!

Stacy and Erin: It’s real.

Erin: This is real life folks.

Stacy: This is what’s happening.

Erin: So basically, is it a good time to buy?

Stacy: “Did the Fed overcorrect?” was another question you asked?

Erin: Did the Fed overcorrect? And your response was they had to because they waited too long to correct because what we were experiencing was not normal.

Bill: Totally.

Stacy: So, I don’t have enough stats to answer the question about like really what’s happening to prices. We need some time to go by and then I need the people that do all that stuff to tell me in an email.

Erin: But what you did see on the hot sheet yesterday was what?

Stacy: Yes, that’s what I was going to say. So, we currently have 2 ,800 active listings in Charleston which is like somewhere between a third and a half of what a normal inventory would be. So, we’re still in a seller’s market but yesterday when I went on the hot sheet I saw that there were 210 price reductions which means close to you know whatever that percentage is like 8 % of everybody reduced their prices. I have had quite a lot of listings in the last couple of months and I have done significant price reductions, but that is mostly due to the fact that sellers are still stuck on the old price of their home, what they thought it was worth at one point and it’s just not. So again, we’ve talked about this on the podcast a lot, but there was a period of time where you slapped a price on a house, and you sold it. And now you do actually have to look at comparable homes and you have to be somewhere in line. What I’m finding with the exception of one listing that I have is that as long as you’re in line with market value, the property is still selling quickly. Like once I got my listing to the right price, I got a full price offer. And there are still homes that are selling in multiple offer situations. So, when we say that it’s sad, I mean, this is a complete joke, people are moving to Charleston like crazy, the market is still a seller’s market, you can still get a good price for your home, but there’s not as much competition and buyers are cautious or waiting. There’s not as many buyers in the buyer pool because of interest rates. That’s the way it is, but they’re still out there. Do you have a lot of buyers right now?

Erin: I do that are on the sidelines.

Stacy: Okay, but where are they from? Are they local?

Erin: Few, more out of town than local.

Stacy: Exactly.

Erin: Yeah.

Stacy: And I have the same experience, or I have people that have moved here and rented and are waiting to buy. But I think it’s very hard and Bill, we’ve talked about this before, like for local people to afford stuff here because the reason that people have cash that are moving here because people are always like, well, how do they get all this money? And my answer is if you owned real estate in California for 10 years, you have millions of dollars inherently. It’s not, you know, because like it’s, they’re not making tons of money in their jobs. they just owned real estate and

Erin: sold it.

Stacy: sold it and then here it’s cheap or

Erin: er

Stacy: Cheaper yeah so anyway Bill I want to talk to you about what you’re seeing, and you you get a little bit more insight in terms of appraisals I haven’t had a buyer get a loan in a while so I haven’t really looked at any of that so what are you seeing and what are people saying in the appraisal world?

Bill: Yeah, okay first I totally agree that the majority of buyers are transplants so they they are selling and coming in with cash that’s a beautiful thing specifically for appraisals there is a little section that talks about stability of the neighborhood stability of the market right there and then what home values are doing are they stable are they increasing or are they declining and I’m now seeing appraisals return with the box check declining so that tells me that people are now sitting on the sidelines for longer because either a sticker shock of the price, b sellers aren’t being real with what they can or think they should sell the house for and like interest rates are just making everybody put a pause so if buyers are pausing on purchasing a home that should increase inventory which makes it a more competitive market and what happens in a competitive market values or sales prices decline so this is necessary or this is what should be happening to kind of create more balance between buyers and sellers in the real estate market it’s not a fun experience to go through but I think it’s necessary even for beautiful Charleston well with with all the appreciation we’ve had, it’s got to naturally slow down at some point and catch its breath, and then that’ll bring in, and then couple that with interest rates being lower, that’ll bring about more buyers. So things, the supply to man will come in more balance.

Stacy: When do you anticipate that? Because we know you’re really good at predicting the future.

Bill: Well, your comment about looking at reports backwards, looking data to see, hey, our home value’s really declining, well, you can’t get that information until it’s a month or two old. The Federal Reserve’s doing the exact same thing with looking at employment, inflation, things of that nature. So, in my opinion, it has started. The pendulum is starting to shift. Now, what’ll be interesting to see is how quickly it shifts, and if it’s like a wrecking ball going through as far as the economy goes, or if it’s a soft landing. The longer it takes for this shift to occur, the harder the landing’s gonna be. So, I welcome this kind of change. And we’re lucky specifically in Charleston, the demand’s always gonna be high. And as people become more comfortable with what their money is doing, what the economy is doing, those folks will get off the sidelines and start buying. So, we’ll have a whole another slew of buyers coming in that will mop up that inventory. So, the one that gets hurt the most, I guess, if there’s any pain is the seller, but they’re still making a ton of money. It’s just not as much as maybe they had hoped.

Stacy: Right.

Erin: Well, and I’m still seeing multiple offer situations at a certain price point.

Stacy: What price point?

Erin: Under $550, $600.

Bill: Yeah, yeah, totally agree with that.

Erin: Yeah. And actually, interesting enough, a house I won in multiple offers last week, the list price was 505. We escalated up to 525, and we were not the highest offer. There were four offers total. the highest offer was 530 But we won because we were willing to pay an appraisal gap coverage of $10 ,000 Mm.

Bill: hmm,

Erin: and these sellers were concerned about it appraising. So, you know, it’s not always the pride that luckily these sellers have their head on straight and you know can think clearly And it wasn’t just about you know an extra $5 ,000

Bill: From a strategic standpoint, I think that’s going to come into play for both y ‘all having buyers that are willing to fill fulfill that gap between the appraised value and the sales price because if we truly hit a market where stability or decline in values, that’s what the appraisal is going to reflect So it may come in the appraiser is going to have a harder time justifying that that sales price So having that conversation with your your clients your buyers So they understand how that works could be very meaningful and help get the deal here

Stacy: Erin, will you talk about an appraisal gap? We’ve talked about it on the podcast before but explain what it is

Erin: Yes, so we’ll just use this for an example. We’re contracted at 525 If and we kept the appraisal contingency in there So if the appraisal comes back Let’s say as low as 515 the deal is still on because my My buyers agreed to pay out of pocket up to a $10,000 appraisal gap coverage. So, we’ve got a $10,000 gap in the appraised value and the contract price. They’ll come out of pocket for that anything lower than 515 then we have to renegotiate with the seller. But that’s I mean that’s what it you got it you got to have cash to cover it though.

Bill: Right,

Erin: and it’s it’s a safer way than just waving the appraisal completely, which is you know what sellers would love to see but not happening.

Stacy: Have you seen appraisals not come in at value?

Bill: I have but it’s usually your kind of unique property and not unique in that where it’s located but maybe the the age of it like if you look inside it looks like nobody’s touched it since the 70s but it’s in a neighborhood that has really high values so that’s a tough one because your your level of construction doesn’t match the comparable homes in the neighborhood

Stacy: right

Bill: And that’s a terribly difficult thing for an appraiser to reevaluate or adjust values based upon that that’s like throwing darts because what is the cost to redo a home you know renovation far more than what we all guess

Erin: Shit ton.

Bill: Yeah, twice of what you’re expecting.

Erin: An imperial shit ton.

Bill: So it’s in those situations which are happening – those are a lot of the homes that are moving right now I’m seeing and this is a price range usually of $750 to about a million and a half but 30-40% of the appraisals come in less but in that situation at that price point those buyers typically have the cash to even if they weren’t contractually obligated to bridge it they want to.

Stacy: so, when the appraisal hasn’t come back have those buyers followed through with closing.

Bill: yeah

Stacy: all of them or most of them?

Bill: Unless it’s like structural stuff which comes up in the home inspection coupled with a gap in the appraised value, I would say that in that instance we have like two strikes yeah people are bailing but if it’s just a difference in value they still want it they still want to be in that neighborhood because of the schools because the location of downtown whatever it may be.

Stacy: yeah

Bill: That’s the selling point.

Stacy: and I mean that’s the thing is you know we’re long-term owning real estate in Charleston like truly if I had millions and millions of dollars I would just buy as much as I could knowing what I know I mean not just anything but long term. It’s just like we’ve talked about it before supply and demand like people are coming you can’t build up you can’t really go out that far like values are gonna continue to increase here so I think that’s another reason why people are not afraid to move forward.

Bill: I totally agree like Park Circle

Stacy: right

Bill: I can’t create more land

Stacy: right

Bill: so, and as that area still continues to develop thosland,lues are going to increase so being that maybe this has a little to do with being right next to the harbor the ocean you know you can’t build in that direction so if you have limited supply and land you’re it’s gonna help sustain home values versus say a Phoenix Arizona no knock on Phoenix Arizona but I mean you can just you can

Erin: sprawl

Bill: from 360 degrees you can just sprawl out and that’s why you see in my opinion when real estate real estate takes a dip. Areas like that get hit the hardest.

Erin: yeah

Stacy: and y ‘all both live in old village which for our listeners that are not local is just a very very very desirable neighborhood.

Erin: the creme de la creme

Stacy: yeah, they’re very fancy so what have you guys seen in terms of this market like the neighborhood has completely changed since you’ve lived here.

Bill: totally

Stacy: so, tell me what you’ve observed so when did you move into the neighborhood but the the last house.

Bill: that the our current house was we moved in in 2016

Stacy: okay the house before that

Bill: that was 2010

Stacy: so, you’ve really been here for 13 years.

Bill: I have, and I would say at that point in time most homes had not been redone hadn’t been touched.

Stacy: right

Bill: I’d say maybe 50 % or more now and the average age is probably declined I’m just old but but.

Erin: Oh no, definitely.

Erin: There’s an influencer on every street now.

Bill: Yes, there is. And so, the demographics changed. All the homes are redone. It’s a beautiful neighborhood. The architectural board though, is struggle to work with them, has done a good job on maintaining the type of work that’s being done. And again, it kind of folds into, this is a desirable place because it’s close to the water and because of the schools and proximity to downtown. But it’s also, there’s not more land. So, values are sustained because you can’t, where else are you gonna go to get this? There is no other place. You agree with that?

Erin: I do, yeah.

Stacy: When did you move here?

Erin: I moved here in ’11. Spence bought here in ’03. And I was actually surprised this spring and to early summer how quickly the teardowns went because it seemed like those came to a screeching halt and everyone just wanted homes that were done and looked like Pinterest boards. And then all of a sudden, these teardowns were going under contract very quickly and closing for more than asking price. And so, there’s still people probably from California, New York that are coming down and just paying cash and scrapping homes and they wanna build their dream house because some of the houses that are on the market now have been listed for a while and there’s nothing wrong with them. They’re beautiful houses.

Stacy: How much are they paying for the land to tear down?

Erin: Oh, easily a million to a million, $250, 1 .3, yeah.

Stacy: How did the house around the corner from you get built? Do you know?

Bill: Right there on the corner.

Stacy: The one that’s under construction, yeah.

Bill: Oh, okay.

Stacy: ‘Cause that must have been a teardown.

Bill: That was a total teardown. And so, I think to Erin’s point, it’s like somebody would rather buy something that’s cheaper, that’s just in horrible condition and just completely tear it down, than buy something at the mid -range price point and just then try to redo certain things.

Erin: Yeah.

Stacy: But that’s how much money people have.

Erin: It’s, yeah. I mean, the top 2 % are just like getting richer and richer and richer by the year and I don’t think think these are their primary homes.

Stacy: yeah

Bill: not all of them that’s for sure

Erin: you know I mean this this third third fourth this sixth seventh house and it’s it’s there goes the neighborhood.

Stacy: well Erin’s upset about it but if you’re in that top two percent give me a call.

Erin: I’m just kidding.

Stacy: I’ll help you buy a house in Erin’s neighborhood.

Erin: we did the same thing I mean we tore down a house and we rebuilt too but it’s because of the flood zone and

Stacy: whatever

Erin: but a question that produce producer Lindsay said was our sellers having to compensate by lowering their price compensate for the high interest rates and I and I think in many cases yes that’s true because with the lower interest rate people weren’t even like close to maxing out their budget.

Bill: right

Erin: you know and they’re like yeah, we’ll pay a hundred thousand dollars over it doesn’t matter we you know we’re not close to like you know maxing out our monthly budget and and now I mean thank God they’re not handing out mortgages left and right, but people are stretched and I think in no place like Charleston do people live above their means

Bill: now I think you’re a hundred percent correct things were like they were too comfortable man it was too easy and now everybody’s this is why you see a pause things were more uncomfortable because interest rate the cost is so high or cost to renovate cost materials labor is more expensive so that is part of the whole big discussion of what the feds doing in inflation and it will balance out but yeah to your the reason we got here in the first place is everything was so damn easy and comfortable

Stacy: Just to finish up we I think we are down, and Erin correct me if I’m wrong in terms of number of of transactions for the year it’s around 20 % versus last year, right?

Erin: yeah, I think so.

Stacy: 20 to 25%

Erin: yeah

Stacy: I think it was 22% is what I saw but sales prices are still quite high.

Erin: they are and they’re increasing albeit slowly.

Stacy: yeah

Erin: maybe two to four percent depending on the neighborhood but

Stacy: and that that stat is pretty consistent for me like where my numbers will wind up you know I don’t really know how the year is gonna wind up but I’m probably down about 20 % from where I was last year in terms of sales what about you Bill I mean obviously when you were doing like three percent interest rates like you were you probably didn’t sleep for like two years so like how busy are you now?

Bill: the second half of 2022 last year sucked that’s because everybody’s buying with cash that’s what it took to get a get the get the home and then at that point in time interest rates has started to increase and so those that bought with cash always have the capability of refinancing and pulling that cash out but it just didn’t make economic sense with the continuous increase in rates they if they do need or want some of that cash they will eventually pull it out once interest rates are in more reasonable level. This year has definitely been better than last but solely because of first -time home buyers and that is because first -time home buyers have I guess waited around and feel comfortable enough to make the jump at these price points at these interest rates or else and part of that what has promoted that is the cost of rent here in this area so it took a while for the cost of rents to catch up with the cost on the home that has occurred so what would you rather do I’d rather on a home versus rent it sucks because it’s a a big nut that they have to pay, but they have no choice that or live with mom and dad, not in Charleston.

Stacy: Okay. Well, thank you so much, Bill, for joining us and giving us an update on what’s going on and how can people get in touch with you? Besides me giving out your phone number.

Erin: He doesn’t know his number. You know it.

Bill: What’s my handle?

Stacy: I don’t know what your handle is. Anyway,

Erin: Bill Payne mortgage. Just look it up.

Stacy: Bill Payne, 843 -532 -1392. Thanks so much for tuning in. Don’t forget to rate, review, and subscribe and check us out at @BetweenTwoBrokers and @SmithSpencerRealEstate. We’ll see you next time.

Bill: Thank you.

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