The housing market has had an outstanding 2021 year. From record low-interest rates, to the strongest yearly growth in single-family home prices and rentals, and the highest number of home sales in 15 years. It’s made many people wonder, how will 2022 compare?
In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Kim Curtis and Nancy Chu, co-hosts of the LOL Girls Podcast. Kimberly Curtis is the Business Development Director for the Kechian Team at LoanDepot, and Nancy Chu is the owner of Nancy Chu Homes at Keller Williams New Jersey Metro Group. Both women bring expert knowledge of the real estate market to the table, as Marc Bautis asks them everything about interest rate hikes, inventory concerns, and more. If you’re considering buying, selling or just want to know what’s fact and what’s fiction, this episode is for you.
In this episode, you will learn:
- The many variables that led to the real estate inventory issues in the U.S.
- The truth about interest rates: How a quarterly interest rate hike would or wouldn’t affect the Northern New Jersey real estate market.
- Current trends in the mortgage and real estate industries.
- The mortgage process, including estimated credit approval and average closing duration.
- The pros and cons of purchasing turnkey properties.
- And more!
Listen to LOL Girls Podcast | Contact Kim Curtis – Email: [email protected] Phone: (917) 716-5111 | Contact Nancy Chu – Email: [email protected] Phone: (917) 992-3098 Website: nancychuhomes.com | loandepot.com | Bautis Financial: 7 N Mountain Ave Montclair, New Jersey 07042 (862) 205-5000
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to the Agent of Wealth Podcast, this is your host Marc Bautis. On today’s show I brought on two special guests, Nancy Chu, the owner of Nancy Chu Homes at Keller Williams New Jersey Metro Group, and Kimberly Curtis, the business development director for the Kechian Team at LoanDepot. Together, Nancy and Kim host the LOL Girls Podcast. Ladies, welcome to the show.
Kim Curtis: Hi Marc, thanks for having us.
Marc Bautis: I’ve discussed real estate investing quite a bit in this podcast, but I wanted to take today’s episode to talk more holistically about real estate, and dive into a sort of state of the union on the topic, because I think there’s a lot of misinformation about buying and selling right now. From one end of the spectrum, people are saying the market is in trouble. On the other end, people are saying there’s still bidding wars and offers significantly over asking. I’m sure a bit of both is true – or can be true. Starting with Nancy, what are you seeing in the market in Northern New Jersey right now?
Understanding Low Housing Inventory
Nancy Chu: Everybody remembers the Great Recession, where we saw the market fall, in terms of the amount of business that was being generated. Right now, we are pretty much right on par with the amount of business that we should be doing. In other words, we have ramped back up from the Great Recession quickly, and I think the COVID-19 pandemic was a huge part of that momentum.
Although, I would tell you that if COVID had not happened, we would still be in the same boat.
We are facing a severe inventory challenge in this country, and it’s not something that’s going to resolve itself overnight. In fact, we’re probably a decade away from resolving it. Between 2007-2012, inventory was not being created because all the money had dried up for builders. So, we are six million units short of new housing in this country.
During all those years, millennials were busy, I believe, getting their education, getting jobs, getting married and having babies – they’re the biggest generation we’ve seen since the Baby Boomers. They all want houses now, every single one of them. The reality is, we just don’t have the inventory to match.
So regardless of what happens, in terms of where the interest rates are going or whether housing prices skyrocket, we still have people knocking on our doors looking to buy a home and yes, we still have a ridiculous number of offers on any viable housing right now.
Marc Bautis: I keep hearing about this mass exodus from this tri-state area, away from New York and New Jersey. If that was true, wouldn’t that bring up inventory in the local area?
Nancy Chu: Well, it is true. That is happening. People are discovering that they’re no longer bound to their work, so they’re making decisions to head to their retirement locations early because life is too short and they just want to have a good time. Even so, there are so many people to replace them that it doesn’t really matter. Another part of it is that we’re seeing boomers age in place – in their homes. Because they’ve paid for their homes, they’re comfortable there, and there’s really no place for them to go – I hear that facilities have long waiting lists. Unless they have a family member with the space to take them in, they’re not going anywhere.
Plus, the first time home buying inventory is the same inventory that downsizers often move into. So it’s a tangled mess.
“First-time home buyers can’t get into a home if the current homeowner can’t get into a second home.”Nancy Chu
Kim Curtis: It is, it’s a migration mess. To that point, we’ve been refinancing people who, several years ago, would begin the migration toward retirement – downsizing or moving. What I’m seeing on the mortgage side is that they’re refinancing to redo the kitchen, or what have you, to stay in their home. There’s a variety of reasons why: because they’ve paid their mortgage, because they want to live close to their kids or grandkids, etc. So it’s becomes a mess, because to your point Nancy, they’re not moving, they’re staying.
Nancy Chu: Kim, can I ask you a question? I’m assuming you’re going to see a lot of cash out refinancing. Homeowners are going to use that cash to do work, like put on an extension, because they’re giving up on the idea of upgrading to a larger home. Instead, they’re going to cut into their yards and add on a double story extension to fit…
Kim Curtis: Could not have segued better, my friend. Nancy and I have a mutual client who lost a bidding war and long story short, they’re doing a huge addition on the back of their tiny lot here in Essex County. I said to them, “You might never get this amount back because this yard is so tiny.” But, they made their choice because money is so cheap right now – interest rates are still great, even though they’ve gone up, they aren’t skyrocketing like so many people think. Because money is cheap, they’re doing a cash out refinance for the extension.
So we’re absolutely seeing that on our end. But, having said that, the buying market here is just insane. It is not cooling off. The myth is the interest rates are skyrocketing so people are giving up their searches. That is absolutely not true. We just have an inventory problem.
Nancy Chu: There’s too many people who simply need shelter at this time. So we don’t seem to be stopping the flow, Marc, that’s what it boils down to.
Mortgage Interest Rates: Facts, and Myths
Marc Bautis: Have you seen any correlation between interest rates and home prices? We all know interest rates have risen a bit, but what happens if they really spike? Is there a point where it will start affecting home prices?
Nancy Chu: Listen, there is a tipping point. What happens is as interest rates rise – a quarter here, a quarter there – people are being forced out. Many buyers are trying to get into the market while the getting is still good.
For example, people who might be marginal in terms of their financial ability to get into a market area – as in they’re afraid of being priced out – are racing to buy because they’re trying to get in while the interest rates are in their budget.
Traditionally, you’d think that as interest rates rose, home prices would go down. Right now, that inventory delta is so strong that it might overtake that normal behavior pattern.
I actually cannot predict where I think that tipping point is, because the truth is, even if interest rates went up to 5¼% by the end of this three-year bump up, that’s still a relatively reasonable interest rate. I mean, I remember the first house my family bought, the interest rate was 18%. My first house in the area, I was paying 5¼% interest.
Kim Curtis: Ours was close to 6%.
Nancy Chu: Within my Gen X historical view, 5½% is not horrific. So, I don’t know that we’re ever going to hit that tipping point in this next three-year period, and I can’t say anything about after that. But I really do think the inventory challenge is here to stay, and it’s going to keep the prices buoyant even if it slows down the growth.
Marc Bautis: When you say there’s an inventory problem, are you saying that there needs to be new houses built, or more houses that come on the market?
Nancy Chu: More housing. We have a baseline problem of not enough housing in this country. I love Northern New Jersey, but let’s use Basking Ridge as an example. It’s a gorgeous town, but you go out there and every single lot must be half an acre.
Zoning for large acreage lots limits the amount of housing that can be created. Municipalities have to change their zoning laws to accommodate more housing.
How Interest Rates Account for Credit Score
Kim Curtis: I’m going to touch on something before I forget. My company, The Kechian Team at LoanDepot, hosts a lunch-and-learn for our agent clients, and today happened to be our monthly lunch. One of the main topics today was buying power.
Buying power gets challenged when rates go up, or there’s low inventory, or both. Right now, interest rates are good and inventory is horrible. So what I suggest is getting your credit up, so you can get a better rate.
30% of your interest rate is dependent on your credit score, which directly relates to buying power. Today, we actually showed statistics to the agents on just how powerful that is and how it translates to mortgage insurance. If you have to pay PMI because your credit score isn’t great, it could be hundreds of dollars a month. You know what? Instead of paying PMI, use it towards your buying power.
Nancy Chu: Toward your equity! PMI doesn’t buy you any more equity – put it towards your equity.
Marc Bautis: Kim, on that topic, what are the credit ranges? What credit score will get you the best rate?
Kim Curtis: First of all, I’m going to give a quick disclaimer that I am not a licensed loan officer yet. I’ve taken the class, and just have to take the course. Tha said, I work with the loan officers on my team every day.
I don’t quote rates, but I will say that a score of 720+ will get you a much better interest rate. You’ll be shocked to see how your rate can be impacted by your horrible credit.
Is an All-Cash Offer Better?
Marc Bautis: Nancy, in terms of bidding to buy, is there a big benefit of a cash offer versus a loan? Because that’s what I’m hearing.
Nancy Chu: Marc, I think this is going to depend upon the individual seller. I have had sellers who just want to look at the cash ones. Those are people who’ve obviously been burned, or who themselves have biases against financing – maybe they don’t understand the positive intricacies of financing and choose not to themselves. There are people who feel that way.
There are other sellers who, when they’re going through a series of offers, look for the best combined package. My job is to come up with the best combined package – not just the offer number – for the seller I represent. As a matter of fact, I always ask myself, “What part of this offer package could create an objection for my seller, and how do I remove it?”
I just won a sizable house in Montclair that had 25 offers on it. The house price, shall we say, was over a million but under two. I won it with a 10% down, conventional loan, which is pretty hard to do when there’s 25 offers. But if your entire package is good, such as providing a significant appraisal floor, it’s definitely possible. In many ways, that pretty much makes up for cash. The offer can also include a significant remediation waiver, which means the buyer is willing to take on a certain percentage, or number, of remediatory repairs found during the inspection period. Those are just two examples of things that can go really far in mitigating the challenge of not having enough cash.
Kim Curtis: And number three would be: Your lender matters. Around here, the mortgage lender name on the preapproval matters. My boss Barrett has been doing this for 25 years. He takes calls all the time from realtors who say…
Nancy Chu: Save my deal.
Kim Curtis: I’m glad you said that, because it’s true – but I don’t want to sound pompous. But without breaking confidentiality, he can give peace of mind to the listing agent that we’ll close the loan. So I really do believe with the caveats Nancy said, and would add that who the buyer chooses to lend the money is important. Barrett always says, “It doesn’t matter if it’s 5% or 20% if it’s with the right lender.”
Nancy Chu: Kim, you’re right. If it’s my listing, seeing a pre-approval from LoanDepot matters to me, because I’m looking for someone who I know has a large number of loan products. If a company carries significant loan products, then I know they’ll find a product to make the deal work.
Kim Curtis: We have a lot of options, yep.
Nancy Chu: Right, and I also like when there is a local sensibility to the deal. We work in a very boutique market, and in some ways, we choose our lenders in a boutique fashion. The more local their underwriting is, and the more local they’re processing is, the more you feel like the appraiser will be local – which is ideal.
I know I’m in trouble when someone picks up the phone to call the Bank of America hotline… they’re going to end up with some guy in Wisconsin on the other line, who has a license to practice in New Jersey but doesn’t know anything about New Jersey. And then their processor is going to be in Wisconsin, let’s say, and their underwriter in Michigan. They might send me an appraiser from Pennsylvania or Cape May.
This is a boutique market, with very specific, bespoke homes that are in some cases 100+ years old. In those cases, we need an appraiser who is familiar with the area and who doesn’t also have an implicit bias against older homes.
Closing on a Mortgage? Here’s How Long it Can Take
Marc Bautis: Another question for you, Kim. I’m sure some sellers and even realtors have hesitations about an offer with financing because they think closing the loan will take a long time. Is that true? How long does it typically take to close a loan?
Kim Curtis: If the Kechian Team at LoanDepot is working on a loan all day long, it can take up to 30 days. That said, even with the recent purchase volume we’ve experienced, we’ve done it in 27 days or even 21 days… We just did a refinance in 17 days. It really comes down to your team, and ours is a well-oiled machine.
We have our own team of processors. We have our own condo people. We have a whole team that just does 203K loans, like construction loans. I always say, do what you do really well, and we do.
You’re right, it can be a pain point. I feel horrible when people say, “Oh, it took us 90 days to close.” I’m like, why did it take you 90 days to close?
Nancy Chu: I will tell you that the larger real estate team is a huge part of the transaction as well. You need a real estate attorney who gets you through attorney review in a timely fashion. They have to be comfortable with when to order the title and get the title through. You have to have a title company that moves quickly and gets it together. You have to have a realtor that can get you through the inspection process in a timely fashion, and so on. So I agree with Kim, the entire team is so important.
Marc Bautis: Yeah, there’s a lot of moving parts.
The Pros and Cons of Purchasing Turnkey Properties
Another aspect of the current real estate market that I find interesting is the question: Should the seller do work on the home to get it ready to list? And vice versa, how do you coach a buyer through the process of looking at a home that needs repairs?
Nancy Chu: Let’s address sellers first. The best way to maximize your dollar is to create an irresistible cream puff. I’m not going to lie. The better it looks, the people will bite.
I compare bringing a house on the market to a debutante party. I see it as, you have one chance to debut the home, and so it should be perfect.
But it can be hard to find that balance with a seller when they don’t want to spend any money, or do the work.
Kim Curtis: And another thing too is that some sellers think the market is so strong – on their side – that they don’t need to do work. It’s a seller’s market, but guess what? That is not totally true.
Nancy Chu: Most houses will eventually sell… As an example, there was one house in Bloomfield that looked like grandma’s house. Don’t get me wrong, it was a great house, but it was outdated. We couldn’t get anybody to bite. Eventually, when somebody did, they’re getting a really good deal because they’re getting it for an amazing price.
The truth is, because it’s not turnkey, they’re getting about a $200,000 discount when you look at comps. So the buyer was smart.
Now that’s the challenge with your seller. They don’t understand. Because it’s almost like a bet, you’re promising them that they’ll get more money, but there’s no way to empirically prove that. But at the same time, I do know it’s true.
Unfortunately, the vast majority of buyers right now are very risk averse. Now, they’re probably risk averse because they’re our children, and we’ve ruined them – not letting them climb a tree, ride a bike, play in a yard, etc. without us since birth. Point being, they can’t seem to properly evaluate risk.
It’s really frustrating when you have this lovely young couple walking to a house, and they say, “It’s going to take us $500,000 to fix up.” I’m like, “No, it’s going to cost you $60,000 and here’s how…” But because they don’t have a frame of reference, and they don’t have a stomach for risk, they’re usually not interested. So I do have to work my buyers through this process.
In Montclair right now, you’re looking at $600-615 a square foot. That is very high. That is what Jersey city was, like three years ago, before the pandemic. And what’s amazing to me is people are willing to pay 600 bucks a square foot because, “It’s perfect… we don’t have to do a thing.” Buyers are so excited by that.
Meanwhile, you can literally go a few doors down and see a different house, with the same layout, but it has grandma’s kitchen and grandma’s pink bathroom, and they’re not interested. Meanwhile, that house we could get for the median or under – and the renovation is never going to make up for that difference, by the way.
The amount of equity that would be built into that second house is enormous, and the homeowner wouldn’t need to be worried about whether or not they ride out the next market cycle.
I haven’t figured out if it’s just fear, or a lifestyle choice, but I really do think they’re scared of the risk, and of doing the renovation.
Marc Bautis: I’m surprised those numbers wouldn’t hit them in the face.
Nancy Chu: The lack of frame of reference is tough for them to overcome. I will tell you there’s also a significant trust factor there too. Unfortunately, this generation is inclined not to trust the information in front of them – they grew up on the internet, after all. But the internet is full of crap and misinformation.
While it is good to be slightly suspect of information, all I can do is hope that my career experience and reputation will speak for itself. And hopefully I handle those objections well, with kindness.
Kim Curtis: I think one of the biggest things people looking to move to the market here in Northern New Jersey is list price does not matter. It’s essentially irrelevant, right, Nancy? What matters more is what people will pay, or are willing to pay.
Nancy and I talk about this all the time, and we think it should be a crime… but sometimes listing agents will list significantly under the value, and then brag that they got an offer, say, $400,000 over asking. That’s because the list price wasn’t accurate.
So really keep that in mind when you’re coming out here on a search. Don’t get me wrong, I’ve lived in the area for over 20 years, and I love this place. I’m not going anywhere. But don’t be freaked out.
Nancy Chu: Yes, list price is not meaningful because you really need to ask your realtor, “Where this is going to land? Where is this price in relation to the median?” That’s the important part.
The more offers that a property gets is not necessarily a humongous feat by the agent, it is in the wildly underpricing of the home.
Marc Bautis: Makes sense. All right, we’re just about out of time. Ladies, how best can someone reach out to you?
Kim Curtis: You can reach me via email at [email protected] or by cell, which is always on: (917) 716-5111. Also, please subscribe to our podcast, The LOL Girls.
Nancy Chu: Yes, please check out our podcast. My email is [email protected] and you can always reach me at (917) 992-3098.
Marc Bautis: Perfect, we’ll link to that in the show notes. Thanks again for coming on the show, and thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.