Episode Transcript

Scott Barboza:
Welcome to the Building Interest Podcast, presented by Leader Bank, a series of free-flowing conversations on a wide range of banking and money related subjects. We’re here to discuss all the issues that impact your financial future. Want to buy a home started small business, secure your financial future? Or maybe you want to maximize your savings ability, or get your budget in order? We can help. Our talks with experts and influencers across the world of banking, we’ll set you in the right direction. I’m your host, Scott Barboza. Let’s get to it.

Hello everybody. Welcome aboard another edition of the Building Interest Podcast presented by Leader Bank. We’re here in our Seaport Innovation branch, and I have the distinct pleasure of being joined for this episode by Mike McCarthy, one of our esteemed loan officers. Mike, you’ve been with the organization now since 2015. The topic du jour today, “Is it a good time to buy?” I know we were talking offline a little bit as we were getting set up here. It’s a very interesting time, as we’re recording this in the beginning of spring, April. Inventory still … I know everybody’s talking about it, inventory has been so low. It’s definitely, you know, a seller’s market, per se. But again, when we kind of looking at the whole mix of things that are going on in the background with, you know, interest rates, but particularly one thing we want to get into here is the renting situation out there, and how that really comes in and affects the market. But Mike, I want to bring you in. Thanks for doing this. How are you feeling about this is the first time we ever done anything like this?

Mike McCarthy:
Yeah, it’s my first podcast. Thanks for having me. It’s great.

Scott Barboza:
It’s great to have you here. Let’s get right into it. For people that are trying to get into this spring market as a first-time homebuyer can be a little bit of a daunting experience coming in. What are you experiencing on the day to day when you’re interfacing with clients at this point?

Mike McCarthy:
Yeah, it’s it’s definitely tough right now, because it’s so competitive, limited inventory, like you mentioned. So buyers need to be ready to go, they need to be aggressive, and oftentimes go well over asking them to get an offer accepted and make concessions as far as inspections waiving the mortgage contingency. So you need to kind of lay it all out there right now in order to win an offer. So it’s … it’s a tight market.

Scott Barboza:
Yeah. In our last episode, that was Residential Lending focused, we talked to Sean Valiton, and he came in and kind of set the foundation if you will, for first time homebuyers that are trying to get into the market. One of the things that we talked about at that point was interest rates. Obviously, I’m sure people know, at this point through the media, you know, interest rates have been going up — being raised by the Fed, but then also trickling down to the lending institutions themselves. There’s a lot of, I would say, almost a little bit of unease, when he talks about the media tension around the housing market. A lot of people are talking about whether there’s a bubble, we’re not going to get into that, for the purposes of today. What we do want to really get into is, again, making sure you know that people have the information they need as they’re going through the process to make the best decision for them. Take me through that process when somebody comes in. And they’re saying, “Hey, this is my situation, here’s what we’re looking at doing.” How do you step them through that process to make sure that they’re making, you know, the best informed decision that they can, you know, pertinent to the market and their own needs.

Mike McCarthy:
So when getting somebody pre-approved, it’s really just about figuring out their comfort level, right? Because when you … when you get pre-approved, there’s that number that you qualify for, then everybody has their, you know, where they want to be and where they’re comfortable. So just trying to find that middle ground and also setting those expectations as far as the interest rates, because as they are going up. I mean, since it was almost like January 1, it was off to the races. So rates have gone up by 2%, since the first of the year, which is a crazy jump. So for the buyers right now, it’s really just about getting them acclimated to where the rates are kind of setting up the expectations that they could go a little bit higher. And also just figuring out where where they qualify and where they’re comfortable so that they can make the most attractive offer as possible when they do find a home they like.

Scott Barboza:
Part of again, like we mentioned at the jump, one of the things that is impacting that is also the rental market, those things are inextricably linked. If the rental market goes up, more people obviously want to get into buying. And that is very much what we’re experiencing right now. I want to take a moment to earmark … there was something that you said that I think is really important there. We’ve seen again, from January a pretty aggressive rate hike, but also at the same point where rates were, you know, coming through the pandemic was at historic lows. So even though there has been some market increases, it’s still … when we’re talking historically from that perspective, it’s still, we’re still on the more opportune side of that, correct?

Mike McCarthy:
We are, I mean, like the goalposts got moved so far, right? That it’s like expectations were set, almost unrealistic, you know, like being in the twos [percent] for for basically a year and 10 months. So, it just, the norm became just something too ridiculous to have it last. So where we are now with rates is still historically pretty good. You know, so I think it’s, it’s just gonna take some getting used to for people. I think some people have seen the rates go up, and there’s a shock to them. But ultimately, that’s external things that we can’t really control. So I’ve noticed that my buyers have started to kind of come to grips with it and say, “OK, here’s where the payments gonna be now. And here’s how we can approach it from here.” And the beauty with a mortgage too, is if rates do end up coming back down in the future, you can you can, you can refinance, and bring the rates down. Whereas if rents, rent numbers … I was just reading speaking to you about it, nationally increased by 19.3%. So I mean, if your rent keeps going up, you can’t, there’s only so much you can negotiate with your landlord.

But there’s something interesting, there’s actually a pretty good story on “60 Minutes” a couple of weeks back about private equity coming into the rental market buying up, you know, which also impacts the housing market, because you have private equity offers coming in against, you know … Johnny and Susie Q that are trying to buy a home. How much of that … do you keep a pulse on as a loan officer in keeping in mind, as clients come in to talk about you what what people are experiencing in those regards? We were just talking about a story that you had referenced from a Boston perspective where, you know, San Francisco, which has for the longest time I feel like has been, you know, the the quote unquote, known high-rent destination … Boston is definitely creeping up, and if not surpassing, those benchmarks in some places. So how much do you kind of look out from once you get through the, you know, pre-approval process and make sure that everybody has their house in order? Getting people to find the right home and get them in at the right level?

Yeah, I mean, well, with the rental market, the other thing you have to think about is if you’re renting in Boston, right? Let’s say you have a two bedroom that is $4,000. You have to pay up front, the first month, last month, security deposit and broker fee. So you’re looking at 16 grand out of pocket to rent a unit here. On the flip side, I mean, it’s it’s tougher to get an offer accepted with 3% down. But for many buyers, you can do as little as 3% down and you can get downpayment assistance from the City of Boston. So for an individual who has income under $114,000, you can, you can still do a purchase in Boston, the 0% down and get a pretty competitive mortgage. So you can actually buy for cheaper than renting out of pocket and probably on a monthly basis. So the flip side of that coin is because it’s so competitive right now, unfortunately, those people are going to have a little bit harder time getting their offer accepted with with a 3% down. If someone else has a larger down payment, but there is still opportunity where you can buy a home and have a cheaper monthly payment, without too much more out of pocket than you would have renting.

Scott Barboza:
I think that’s one of the great dispelling notions. I don’t want to reference my dad too much, I don’t want to make this a personal thing. But when I was growing up, my dad said, you know, 20% — that’s the downpayment. Like you gotta have that, because they’re coming out of it, you know, PMI, making sure that your house was really in order, before you’re getting to that point of purchasing. But again, taking all that in mind, we’re talking about the rental experience is such an expensive experience at this point. And that’s, I mean, that’s just across the board at this point. What are the other benefits to homeownership versus rental? You know, walk everybody through that from the perspective of, you know, beyond the financial perspective, how that can be beneficial I mean, also when it comes to credit, credit reporting, credit scores, things like that, all coming to bear here.

Mike McCarthy:
Benefits of homeownership are, you know, you own the property, obviously. So you have complete control over it. You don’t have a landlord who’s, you know, could jack your payment up the next year. That’s one of the beauties of the of having your own mortgage payment is that it’s there and it could go down, if rates get better. You also have the appreciation factor. Home values are still expected to increase this year. And for the next, you know, coming couple of years is the forecast. So you buy a home now and your value is probably going to be higher within the next year or two. So and while you’re in during that period, you’re paying your loan balance down as well. So you’re gaining equity in the home. So you can always maybe turn a profit in the future when you own whereas when you’re renting it’s the old saying to people that’s “Have you ever paid a mortgage before?” And for first time homebuyers, they usually answered no. But the answer is yes, you have. You’re just paying somebody else’s mortgage. Right? So I think there’s a lot of value in, in owning. You know, all the all the richest people in the world are huge real estate investors, right? And I think that goes to show that it’s a good investment to buy in real estate.

Scott Barboza:
Tried and true at the end of the day: Gold and real estate, right? Mike, as a veteran of this industry again, you’re just you know, referencing off the jump there, where if you had been told that you would have been, during the pandemic, an unprecedented time of so many different circumstances, but with interest rates being what they were, this is always a very rapidly moving fluid environment. Do you feel sometimes from the external, you know, because I do think that’s really important to consider at this point. I feel like the critical mass not to say that this is a media fabrication or anything like that, but the general tone of media stories tends to be, “Oh, it’s this big, dark, cloud, ominous time we’re moving into. You know, I think a lot of people are still a little shell shocked from 2008, for everybody that you know,who was able to remember that. Do you feel like sometimes, in the course of proceedings as a nation as a society, that things almost get a little overhyped in that sense. And, you know, making sure that the personal goals that people are presenting you with when they’re approaching homeownership are really the most important things [rather] than anything that’s going on outside in a national trend perspective?

Mike McCarthy:
Yeah, I mean, I think the media, I think that the news is the worst. Like, the news is just always the bad news. You know, so it’s, it’s, it’s all about clicks you. So I don’t really read too much news. Because I just don’t, I don’t find too much like that when you’re looking there. And it is always bringing up the negative. So like, Oh, my God, rates are going up home values are going up. We’re on the verge of, of softening. But when you look at the numbers, there’s … I think there’s something like 2.8 million less units for sale, then there were at 2006, when they were, you know, the top of that bubble. And there’s 12 million more households. So the numbers are just totally different that that was a perfect storm of unregulated mortgage lending. So that was before I got into the industry, but I’ve heard some, some ridiculous stories of what people were doing back then. Which you just can’t do now. Which is not the goal. Yeah … mortgage holders are much more qualified now than they were then. There was building that was out of control. They were building homes that had no buyers available to them, wh ere right now we have a housing shortage. So it’s not really a comparable time at all.

Scott Barboza:
We have a housing issue across … when we’re talking about not just ownership rental, the whole kit and caboodle.

Mike McCarthy:
Yeah. And I mean, the other thing about our market is that there’s not really anywhere to build more housing. You know, you go to other parts of the country, and they’re starting to build more where there’s just land. But in Boston, there’s … you can’t go 10 miles outside of the city and find like, six acres to build a development. It’s, it’s few and far between.

Scott Barboza:
It’s a finite resource.

Mike McCarthy:
Exactly.

Scott Barboza:
And that’s why it does ultimately, you know, tie it up a little bit there. It does come back to real estate. Oh, yeah. It’s always gonna… whether you’re talking market averages, or any other kind of investment class, real estate is always going to outperform in the long run.

Mike McCarthy:
Absolutely. Yeah.

Scott Barboza:
Hopefully that is our takeaway from today. Mike, this is a tremendous opportunity to have this conversation. I think this was really enlightening, getting to hear it from a loan officer’s perspective. Before we go, anything else that you would impart to folks out there that are entering the market in this year.

Mike McCarthy:
Actually, circling back to something you mentioned earlier about how like your father made the point of, you know, getting the 20% …

Scott Barboza:
Don’t want to pile on my dad here. He sent me in the right direction, but …

Mike McCarthy:
In the right direction. It’s good advice if you can do it, right? But it’s, it’s difficult to get to 20% down that’s a lot of money, especially where, where the housing prices are going. And, and I’m actually going to circle this back to some media stuff too is PMI, private mortgage insurance, gets a bad rap, in my opinion. You know, like, people try to avoid it like it’s the plague. But it’s an unbelievably useful tool.

Scott Barboza:
I think that might be something that we want to earmark for a future episode to just to really get into the nitty gritty about it. Because I think like you said, you hit it right on the head, it is one of those great kind of misconceptions that’s out there. So that’s part of the reason why we’re doing this. We want to walk everybody through it. So Mike, again, thank you for taking the chance to come over here and have a conversation about that. And I think we might have a little … I think we might have our next episode information and subject to follow up on. So Mike, thanks again. And we’ll see you again soon.

Mike McCarthy:
All right. Thanks for having me.

Scott Barboza:
Thanks, Mike.

For additional information on the credit costs in terms of any of the loan types discussed during this episode, including current annual percentage rates, please contact leader bank at 1-855-294-4488 to speak to a loan officer. Adjustable rate loans is discussed have annual percentage rates that may increase after your loan closes.

Mike McCarthy:
All right.

Scott Barboza:
For more information on today’s subject, visit leader bank.com. In addition to past episodes, you can also find our corresponding blog entries there for more insights. This podcast is a production of leader bank and a equal housing lender. Member FDIC. NMLS number 449250.