Is Inflation Blowing Down our Economic House?

NMLS number 33041 Rick Ripma’s NMLS number 664589 equal housing lender some restrictions apply.

Advisors Mortgage Group is proud to present these real estate gurus hosted by Rick Ripma, the hard working mortgage guy. Please contact Rick for all of your mortgage needs at hardworkingmortgageguy.com. That's hardworkingmortgageguy.com. Now, here's the hard working mortgage guy, Rick Ripma.

Rick Ripma  0:30  

Welcome, this is Rick Ripma, your hard working mortgage guy with Advisors Mortgage Group. If you have any questions or would like to talk to me about a mortgage, probably the easiest way to get a hold of me is to go online at hardworkingmortgageguy.com. That's hardworkingmortgageguy.com. Or you can call at 317-215-7600. That's 317-215-7600. There are so many interesting things going on in the market today, we've had quite a few shows about what's going on. It's amazing how much it changes periodically, even week to week, day to day sometimes. One of the things I want to go back and look at is the January 2022. MIBOR puts out what they call their snapshot, and it's a snapshot of our market, I think this is important to look at. Now, the first thing they have is the median sales price. You'll hear the news media talk about this a lot. And the median sales price in the 16 counties was $246,000. That's actually down 3.5%. So, does that mean we lost three and a half percent of in our appreciation? Or when it goes up? Does it mean that it appreciated at that amount? That’s what the news media would like you to think and that's how they report it. But what it actually means, since it's a median price, is that lower priced homes happen to have sold than the higher priced homes. It's not a reflection of our appreciation, or what our houses have done in value, just understand that, but the median price was $246,000. I think it's important. It's nice to know, but it's not telling us anything about appreciation. In fact, our appreciation, at least in 2021, was 19%. So, I don't know, I haven't seen the number for February 2022 yet, but close sales in January were 2161 homes. Now, that was down 35.8%. That's a huge drop in the amount of home sales. Obviously, the pandemic spike kept people at home, I was one of them. While you have it, you don't go out. And I think that might have had a lot to do with it. In 2021, we set a record on the number of sales, but we had a lower close sales volume in January of 2022. That's actually when you close them in January, you actually sold most of those homes in December, and maybe even mid, you know, from mid-November through December, most homes close in 30 days, some are 45. Some are longer than that. So, it's an i gives you an idea. It's not an exact the real estate that we close 2161 year to date sales and year to date residential listing. So, what were the listings, and this is the thing that is kind of amazing is we only had 2495 listings. We came very close to selling everything, the number of listings on the market. That why our turnover is so, so great. What that means is what the turnover, what's the month's inventory of homes, and the inventory of homes is point eight months, less than less than 30 days you're going to, on the average, sell your houses and that is a huge, huge number. It's very important to know that so if you're listing a home, your house is probably going to sell very quickly. On average, it takes .8th of a month, normally you seeing three and four months, five months, six months, there are times we've seen back in 2007 and 2008, we saw we saw numbers at six , seven, eight months, depending on the price range of the home. And today we're at .8. Part of why we do not have a bubble. If you hear the news media talking about there's a housing bubble. There is not a housing bubble. You don't have a housing bubble when you're selling houses. Your average listing last .8 less than a month. That is ridiculous. The average days on market is 29 days. That's the average days on market, and that is somewhat inflated because of listings from builders who will list their specs from the ground up. And since there's not many houses on the market, that has more effect on our average days on market than what you would normally expect, and it also is affected by how some of the houses are being sold today, because it is so hard to get a home. They're putting it on the market, they're giving it X amount of days for people to see, and then they demand, you have to get your offer in at a certain time. So that could also be pushing those numbers. Our average time on markets 29 days, and our average inventory, the amount of inventory we have, is eight tenths of a month. That why, if you're looking to buy a home, it can be a little tough right now. The mortgages, you know, back in January they'd gone up. They've gone up even more. The market, as we've talked many times, the mortgage-backed security bond market has been getting hammered by inflation, which is a lot of what we're going to talk about today. I want to talk about inflation and what it actually means and what things have done. I think that's really important to talk about. And that's part of what is the major factor in what pushes interest rates up.

So that gives you a real good idea of what's going on in our real estate market, or did go on in our real estate market in January. As soon as I get the February update, I'll update the February. You know, so we'll talk about that. Another thing, and this is part of what our problem with inventory is. I've talked about the birth rates and that the average first time homebuyer is 33 years old, and we had a big influx of births, about 36 years ago, and it ran to about 30 years ago that it dipped a little bit, then it goes back up. So we have a huge group of people coming into our market at the 33 years. You know, in that time frame, again, that's just the average, some are gonna be younger, some are gonna be older, but that's the average first time homebuyer. So, one of the things that has really affected our housing is in 2007, we were at the top of the market and building homes at a very high rate. We were number of sales was about 2.2 million homes were built in the United States. From 1999 to 2008 we built 16.7 million homes in those 10 years and from 2009 to 2018 we built 9.65 million homes. Today, we're looking at building about 2.3 million homes in the US. So, with that number, that's where we've dropped, so we've dropped all that. But in that timeframe, we've gone, from 300 million people in the US to 330 million people. We've increased the amount of people, we’ve increased the number of homebuyers, with the birth rates and all of that yet, we haven't been building the home so we there just aren’t the homes on the market, and this is just the new construction. This doesn't even give us the idea of you know, where did these? We didn't get the houses built, but what about the existing homes that were destroyed, were knocked down. We really have a lack of homes to even have on the market. It's a big problem. And it's part of what is creating the issue right now. Which has its positives and its negatives. The positives are it's really increasing the home values for people who own homes. The negative is that it’s taking those home prices and making it somewhat difficult to purchase for first time homebuyers. Because of the interest rates going up, and the prices of homes going up, we have started to see a few people dropping out of the market, but nowhere near the amount that's going to really slow down our market. Hopefully as spring comes on, the anticipation is we're going to see an increase in listings, and hopefully that'll help ease our market a little bit and help us get to that point where it's not so difficult for a buyer to find a house, in that you have to compete with 1,213 other offers. 

Announcer  11:20  

Licensed by the Indiana Department of Financial Institutions NMLS number 33041 Rick Ripma’s NMLS number 664589 equal housing opportunity programs very. 

Rick Ripma  11:31  

Welcome back. And thank you so much for joining me, I truly appreciate it. If you need to get a hold of me, have any more mortgage questions, you need a mortgage, you want to talk about refinance, you want to talk about a purchase, maybe remodeling or rehabbing a home, or you want to buy an investment property, please give me a call or contact me you can you can call me at 317-215-7600 That's 317-215-7600. Or you can go online at hard workingmortgageguy.com. That's hard workingmortgageguy.com. You can listen to the show if you would like to, under my podcast or radio show podcast tab. Or you know, you can get all my contact information. And you can contact me from there if you prefer that. I want to talk about the inflation. Specifically, I want to talk about inflation because it's really one of those things that is on everybody's mind. It is definitely increasing mortgage rates. And we had a record setting inflation number for March. I mean January, I can't even get my month straight. For January, we had 7.5% inflation, which is the highest number we've had in 40 years. The highest number since the early 80s. And I don't know, maybe a lot of you have, but I can remember back in the 70s when things went crazy. We had crazy inflation. I think it was 18%. I know in mortgage rates were in the 17, 18, 19. I've talked to people who paid 20% on their mortgage. And that that was a very, very difficult time. Gas went way up, there were lines at gas stations, that was rationed. We couldn't just go to the gas station anytime we wanted, like we can today. And we had to, you know, I think there were certain days in certain areas, even in Indiana, which is where I was at the time. But it was it was early in the in the 70s. And I wasn't quite old enough to remember it exactly. But I can tell you it was a it was a major change in what we were used to, and a lot different than we've all been used to. But we're starting to see that inflation come up. And the Feds now are talking about which, if you've listened to the show, you've heard me talk before. And you've heard me talk with John Iacona. You know, they've started their quantitative easing, and that's going to end in the middle of March. And then there we expect them to raise the federal funds rate, there's some expectation that they'll raise it, they could raise it as much as a total of 1% by July. If they do that, there’s only three meetings between then, we either have to have at least 50%- or 50-point increase, half a point increase and the federal fund rate on one of those meetings or they'll do an increase in the middle of their meetings. Normally they just increase it at their meeting. But most people, and the media, is going to tell you is they raised interest rates and how terrible that's going to be. And the reality is that's not what they did, they raise the federal fund rate. The federal fund rate is the rate that member banks pay to borrow money overnight. That's very short term. and it directly affects prime which is three percent over the federal fund. That prime is at 3.25.

That's what it affects. That is the short term of the interest rate curve. And if you take the long term, the 30 year, fix the 15 year, fix the 20 year, fix the long term interest rates, they are not as affected by that short term. In fact, if you look at history, you look back in the late 70s, early 80s, late 90s, early 2000s and in 2015 -2016 you'll notice every time that the feds raise the federal fund rate, mortgage rates came down. History tells us that the mortgage rates come down when the Federal Reserve raises the Federal Fund rate because that tends to lower inflation. And that's if it does start to decrease the inflation, then interest rates should first level out, then they should come down. I am not saying that I think interest rates are necessarily going to fall in the next three or four months. But I think there's a possibility it could be late this year, or it could go into next year. That's a hard thing to tell. But it is something that we think is going to be important. I know most people have felt the inflation. You go to the gas pump, and you can feel the inflation, gas prices are up 51%. If you were paying $1 for gas, we're now paying $1.50. If you were paying $2 for gas, we're now paying $3 for gas. You can see where that's happened. We were what, 2 to 2 and a quarter, now we're in the mid threes. For gasoline, of course every area is a little different. Gas has really gone up. But one of the things I want to talk about, because I want everybody to understand the real effects of inflation because it is very, very bad for our economy. It's very bad for the for the US. And it's really bad for the world. If it's too high, you want some inflation, but you don't want this incredible inflation. The, and this is a little old, but meat had increased. And I think this was three months ago, it increased by 24%. And I know it's higher than that today. But we're just going to use that 24%. Let's say you spent $4.20 on a hamburger. And then it increased by 24%. That 24% means you went from paying $4.20 to $5.81. That has a huge effect on budgets when you're spending that extra money. Now you obviously can cut that out. But if you don't cut it out, that's what you're paying extra. It cuts into people's budget, it cuts into what they can afford in a car, it cuts into what they can afford in a house. It just really makes it harder. Now let's talk about cars. Let's talk use cars. And again, this is a little old information but used cars have gone up 26%. So now we're talking about a much bigger number. If you were looking a year ago at a $10,000 car, it's now $12,600. Personally, I spent five years in the car business. I love cars. I love the old cars. I just love cars. But what that does that mean? I've never seen that before. I have never seen used cars going up in value unless it's an old car. But this is new cars used cars, they can be more expensive than a new car. I had a friend who went to buy his son a car. And it was less expensive to buy a new car. Exactly like the use car he was looking at. And it was less expensive to buy the new car. Now that's crazy. Now the other the problem is you can't get new cars. They're very difficult to get. Drive down the road and you look at these dealerships, and there's no cars in the lot. I have never, ever seen that in my life. That is incredible, but there are no cars. If you're looking to buy a car, you may have to pay more and you buy a used one. If you can find a used one. There's just not that much out there. That's why they’ve increased; its supply and demand. 

I don't know if any of you can believe it. But I am shocked at the at the at the additional cost of the vehicles. I have to travel. And I have to rent a car. Not for very long, just for a couple days. And I was shocked at what it cost me to rent a car. I don't rent many cars; I will tell you that. But I remember not too long ago, I rented a car. I rented a van for an entire week. And it was for $450, $500. I'm renting a small vehicle for two days. And it's almost $250. It just shocked me. They don’t have cars either. There are no rental cars. In fact, I heard somewhere where there's an increase in people stealing the cars they rent, they just are trying to keep them. They can't get cars, which I understand. But that is just, it's just unbelievable. This is causing hotels and motels to increase by 26%. Now these are things that, if you travel, they're going to affect you. But how about laundry equipment? If you had to buy laundry equipment, that's increased by 15%. And that's if you can get it. Natural gas, if you're heating your home with natural gas, that's increased by 28%. Remember, in total, it's increased, the inflation rate is 7.5%. But some of these things have increased significantly higher than that. Bacon is increased by 20%. Furniture and bedding have increased by 11%. But let's talk about furniture and bedding. We, my wife and I, we actually went into a store. They had them sitting in the show room. We wanted those. And they of course didn't have them in stock. It was just two end tables, no big deal. We wanted the tables. So we bought the end tables. And they said Well, they'll probably be in in 8 to 12 weeks, but calling me isn't gonna hurry it up. We waited 18 weeks before I contacted him. And after a big run around and everything else 18 weeks, I was told 10 to 12 weeks, they finally came in about 20 weeks. And then when I went to pick them up, he sold one of them to somebody else. And they had to give me the one off the showroom floor, which I never understood. They could have given me that one the first place but that's not my point. My point is: not only have products gone up, it's also very difficult to get the furniture. Wood’s gone way up, houses have gone way up, all of that, even eggs have increased by 20%. I'm sorry, by 12%. Eggs increase, when this was printed, by 12%; that is huge. All of this information Is by visual capitalist, which is a great website if you want to get detailed information and graphed out information on what's going on. You know, it's funny, I'm looking at the graph for inflation. And you can tell it's starting to increase rapidly.

Rents are way up; it was pretty steady up and down through 2012 to 2021. And now it's gone crazy. In 2022 It's just shot up. And it's really is making it much more difficult for renter. The Year over Year change energy commodities this went up 49.5%. We’re talking about our energy that we all have to use has gone up significantly. Inflation is just becoming a really difficult thing to handle. We already talked about gasoline went up, you know, natural gas went up, used vehicles, meat…… all this has just gone up. So is this going to influence our spending according, to a recent survey.  88% of Americans say they are concerned about the US inflation. Here are the top five areas where consumers plan to cut back on their spending. 

Number one, we're going to quit going out to restaurants and take-out meals.  48% of the respondents to the survey said they were going to cut back on that area, which is already an area that’s hurting because they don't have the employees. And many times, you go to a restaurant you can't get in, yet half the tables are empty because they don't have the waitstaff, they don't have the kitchen staff, they, they just don't have the people

30% of the people say they're going to keep their current technology, their phones, their tablets, and instead of upgrading. So rather than going and spending the money to upgrade, and add that there, 30% of the respondents said, we're not we're not going to upgrade. 

29% they're gonna budget food and cut back on grocery buying. So we're going to cut back, you know, probably cut back on what we buy, cut back on the products, not just the products, but maybe we buy the store brand, rather than the big, big major brand, just to save a little bit of money. That's going to be an interesting thing to see. But of course, we have to do something, because our incomes are not keeping up with that, we’re not keeping up. Purchase less clothes and accessories. 

29% percent of the respondents said they're going to purchase less clothes and accessories, and 23% are going to put off home repairs/ renovation or home upgrades. 23%, which kind of surprises me because the home upgrades and renovations have increased tremendously. But I will tell you, we're looking at doing a little bit to our house, and we're talking to a contractor the other day, and they are slammed, they can't get product, we were talking to him a week ago. And he said the soonest they their people would be available would-be June to July before they could get anybody who could do any work. And they said even then that you still have to get the product and, and they can't price anything, they can price the labor, but they can't price the material because they don't know what the material is going to cost when they can get to you. It's a very, very difficult thing to get through and to go through, because you really don't know what you're going to spend. Because of what the feds are doing, because we believe it will lower inflation, we think that inflation is going to slow down. And maybe it’ll start to level off and then and then actually come down. Part of that is because these inflation numbers are year over year inflation numbers. And when you're looking at year over year inflation, we were looking at topping out. We believe we will top out with a March report because that was the last low reading of inflation, the next level for the APR report that's dropping off a point 6%. If the inflation rate comes in under point six, the year over year number will decrease. We believe that inflation is going to come down, especially if the feds do what they're going to do, and actually start to start to not that they are tapering, but start to raise the federal funds rate. The other piece that we don't know as well, not only with the tapering, but if they start selling off what they've bought, in other words, the first thing they do is they sell off, they stop investing in the new money. They stopped buying new bonds, and using new money to buy those new bonds. The second thing they tend to do is when they get a loan paid off, right now they get loans paid off, they go and they take that money and they buy more bonds. If they stopped buying bonds, that could be bad for interest rates. It's going to be a play on how this actually works out. It's going to be interesting to see how it plays out and see how it actually affects us. We'll just have to see how that plays out

Announcer  30:57  

Rick Ripma, heard every weekend at 3:30pm on Freedom 95 branch NMLS number 33041 Ripms’s NMLS number 664589 equal housing opportunity some restrictions apply