Episode Transcript
[00:00:05] Speaker A: Hey, everybody, you're kicking it with the homeboys and the Homeboys podcast. Today we are talking about the proposed $25,000 down payment assistance program from our government. As always, I'm here with my buddy who needs a lot of assistance in his entire life, Mister Scotty Adams. How are you, buddy?
[00:00:26] Speaker B: I'm great. But only one of us is drinking out of Donald Duck's head, so I'm not sure that I'm the. The one who needs assistance. It's a good looking mug.
[00:00:34] Speaker A: It is. It's a great looking mug. When you got an ugly mug like I have, you've got to support it with a pretty cool coffee mug.
[00:00:42] Speaker B: Was that your Disney trip with the kids? What you got?
[00:00:45] Speaker A: This is we get one item whenever we go on vacation.
[00:00:48] Speaker B: That's smart. Limited.
[00:00:49] Speaker A: This was my one item. Nice. I like it. That's where I'm at. But, yeah, we got kind of a politically driven topic today. But I think it's something that is. That we feel we have some strong opinions about. I think it's very important.
You know, we've got an election coming up, and we're not ones to really, you know, side with any, you know, one aisle of the political situation. But whenever it affects the real estate world, that's something that you and I are very serious about. So I'm excited to talk about it. There's probably going to be a. A lot of. It's a very divisive topic. There's probably going to be a lot of division in what people think about it, but we're going to give you our professional expertise, and I'm going to make you start.
[00:01:38] Speaker B: Well, I don't think it's as divisive as you think, because most people, they're not living and breathing the real estate market, so they hear $25,000 down payment assistance, and that sounds like a good thing.
[00:01:51] Speaker A: Anytime there's free money, it's gonna be somewhat divisive.
[00:01:54] Speaker B: Yeah, I guess a little bit. But this one, you know, on its face, sounds like, oh, what an amazing thing. You know, times have been really difficult, especially for young folks, to buy their first home. And you and I talk, you know, on this show a lot about the affordability index for housing. And in history, there's been a lot of times when it's been difficult to buy a home, and people just have short memories and forget, like we talk about. In the 1980s, interest rates peaked at just at around 19%. Imagine trying to buy your first home with a 19% mortgage. It was very difficult for people like my dad, when he got his first loan, it was 18 and a half percent interest. It made it very difficult to buy your first home because that payment was so high with those kinds of interest rates. And there's been other periods where income to the house price has been high. However, it has finally reached historic highs, meaning it's one of the most difficult times in history to buy a house. It skewed a little bit because of coastal towns. Places like LA and New York have skewed it. It's still fairly affordable in many parts of the country. In Indiana, our average home price is. How much is it? Do you remember?
[00:03:09] Speaker A: It's 275.
[00:03:11] Speaker B: I think that it's still under 300,000. So you can find affordable housing in a lot of states.
[00:03:16] Speaker A: Still, I think it's important to say, you know, prior to our opinions on this, it is hard to buy houses in a lot of areas of the country. And we are very sympathetic to that. We acknowledge it. It's much different than whenever, you know, we were getting our feet underneath of us 20 years ago.
But I think that you really have to look at what could come of some of these programs, um, before it, you know, you think it's a good thing.
[00:03:49] Speaker B: I'm going to jump to the summary first so people know where I stand, and I think you're in the same, uh, area, and I think most people who are really studying real estate markets and understand the economics behind it are with us. That it is a terrible, terrible idea, this $25,000 down payment assistance. And keep in mind, I'm all for whatever it takes to help people get into owning a home. I think it's the american dream. There's study after study that shows that. That it changes people's lives. It changes it for generations, in some cases, to own your family home, it's a very important thing. We want everybody to be able to do it. It's a really neat goal. So we're not just poo poohing on it for no reason. We think it actually is going to, in the long run, hurt people more than it helps them. And it's really easy. It's economics 101. The supply is short for housing. According to Fannie Mae, as many as 8 million houses short.
That does not meet the demand that we have for housing in the United States. Well, $25,000 down payment assistance is going to flood the market with demand. There will suddenly be a lot of buyers and no inventory. And all it's going to do is make this problem worse.
[00:05:05] Speaker A: And I think it's important to note. Yes, I agree 100% that it's going to flood the market with buyers again. But this is on the heels of us seeing 2.53% interest rates, which, what did that do? It flooded the market with buyers. There was bidding wars just a year and a half ago, and inventory was super small. When houses would come on the market, people were fighting over them to be able to take advantage of these interest rates. So there is such little inventory out there. Think about it. All these people that flooded the market to get in at a 2%, 3% percent interest rate, they're no longer going to be selling their house and leveling up because now they're going to have an interest rate that's triple what their current interest rate is. And houses have went up 2030, even 40% in some areas. So it just doesn't make sense. So you're going to see fewer and fewer existing homes come onto the market because people are in at a low interest rate. They're not going to want to mess that up. And then you talked about, you know, they're not building homes, you know, fast enough. So what? Houses come on the market. You're right. It's going to be another bidding war. People are going to be waiving inspections. People are going to have appraisal contingencies.
There's going to be a lot of bad deals, you know, quite honestly. So, you know, in order to get, you know, your $25,000 down payment assistance, you know, prices are going to, are going to run up again. And you're necessarily, you know, you're not really, you're going to be overpaying for the house in a lot of, you know, a lot of situations. So I get it. Yes. I mean, on the surface, it looks like it's going to help a lot of people out. But, you know me personally, and I'm not one to dive in to one side of the political aisle. And you know me, I don't really involve myself in politics that much, but I do believe in what I call legalized vote buying. A, and I think that offering this hits a certain demographic where they'll be looking to cash in those votes.
[00:07:26] Speaker B: Well, of course, this is one of those ding, ding, ding, ding type of statements where, oh, I'm going to get assistance from the government to finally buy a house. This is a problem. I'm glad the government's stepping in to help solve it. But the people who understand the economics behind the real estate market know that this is a solution that's going to cause more pain than it solves the problem. And not only is there very, not enough housing being built, but the housing that is being built. If you look at housing starts and you look at the price points of those houses, almost none of the builders are building starter type of homes. There's a lot of building going on, but it's all kind of higher end because that's where the profit margins are.
You know, the cost of materials and everything else has gone up, and the cost of land in a lot of areas is expensive, and the only way to make those work is to build expensive houses. So we're not going to see a solution to the inventory problem anytime soon, especially for the typical home buyer or a first time home buyer, because like you said, anyone who has a 2% mortgage sure as heck isn't going to sell that thing. Nobody. They can't afford to, because to buy their next house, it's going to cost three, four times as much based on the new interest rate and the price going up. So you have no solution for the supply coming up. And this proposed idea to flood the market with more buyers. And that only leads to one thing, which is the wealthy getting wealthier. And, hey, I'm one of the people that would benefit from this. I own a lot of real estate. Clint, you own a lot of real estate. The truth is, this is a really bad idea that would make people like you and I a ton of money, and it would hurt my kids chances at owning a home. So that's why I'm so vocally against it. It's. It's a bad idea for future generations and for anyone wanting in on that american dream. It's great for people like you and me.
[00:09:23] Speaker A: Well, let me play devil's advocate then, based off of what you just said.
Yeah, it's easy for you to say that you already have a house and you already own, you know, real estate. What the heck am I supposed to, you know, to do?
[00:09:38] Speaker B: I understand it sounds like a great way to get in. It helps more people maybe buy a house. But the only way this actually does benefit, if you pencil it out, is if supply increases at the same time. I'd be all for this. If the government could afford it, which they can't. I mean, we're running a deficit, which is a whole other topic.
If I would be all for this, if supply increased at the same time, if somehow, suddenly there was a supply of housing, this would be a brilliant plan, because then you can help this entire generation get into owning a property. It'd be. It's a. It's a great idea, but that isn't what's on the table. There's no, this is just a get some votes type of proposal where it sounds great on paper and people who don't understand the real estate market in depth or want to think it through much, it just sounds like, hey, this is my way in. So that's my, that's my devil's. That's what I would answer to anyone, including my own kids, who want to own a home at some point.
That's what I would tell them to. That. Sure. This 25,000 down payment assistance sounds great, but let's see, when you're bidding against twelve other people who also have $25,000 of down payment assistance to buy a house, and you're going to pay more than $25,000 more. More than $25,000 more.
[00:10:57] Speaker A: Yeah. I can't speak on a lot of other real estate markets. We are experts in our market, which is here in the Midwest, in Indianapolis, and I'm looking at properties every single day, and I know that there are still opportunities out there. What I. The advice that I would like to give to people that are trying to get into their first home, which is the approach that I took, so everyone's path is going to be different. But I still see a lot of homes out there that are in pretty good shape but need some updating a little, a little dated in areas that are on the up and up that are still affordable. I still see it a lot. We just have got a list of properties yesterday.
Heck, I would have lived in probably 50 of them. There's 50 that just went through yesterday that would make great first time homes for people. But you have to get a little creative, and I understand we've had periods where people didn't have to get this creative, but sometimes being creative really sets you up for some good financial gains in the future. That I am still seeing opportunities here in Indianapolis, and Indianapolis is very similar to other parts of the Midwest that you can get in and have some equity, you know, in. In a home right, where, you know, you don't have to have this $25,000, you know, first time home buyer assistance, you know, there's still FHA loans, you know, 3% that a person's able to get in. And I'm not 100% on what the FHA maximum is here. I'm in Indiana. I used to know, but I know that's went up substantially.
[00:12:44] Speaker B: Oh, it's plenty to buy a house.
[00:12:45] Speaker A: But it's plenty to buy a house here. I don't know that in certain areas that where, let's say, Los Angeles and New York. So it was easy to talk about those two. That if the FHA maximum, if you're able to really afford a lot. But keep in mind, I know we have a lot of listeners from New York and Los Angeles.
A lot of what we say doesn't apply to some of those markets because they are very overpriced and very expensive.
[00:13:14] Speaker B: Well, $25,000 down payment assistance isn't going to do you much good in New York or LA because that's like 1% of your down payment. But for the rest of the nation, and specifically in our market, we see the long term effects as being negative. Maybe the good thing is, is that it will bring, it's bringing attention to the problem. People are at least spitballing ideas for solutions.
As usual. There's a lot of bad ideas that sound good and get votes. But, you know, I'm glad people are waking up to the idea that this needs to be addressed and fixed. In fact, to be honest, I was late to this party. I was late to the party to admit that there was a problem, because in our market where we specialize and focus on, it's still fairly affordable. It just is. I mean, when you can buy a starter home for $250,000 here and get a FHA mortgage with only having to put three and a half percent down, that's a pretty affordable way to get into a house. So I was late to the party to admit it's a problem, but it's spreading and I don't want to see it get, I don't want to see it get worse. And I think that ideas like this will make it get worse. We got to increase supply. You and I are building houses. I like to think when I, when I lay my head down on my pillow at night that we're trying to do our part by adding, adding inventory to the market. We're developing in three cities right now, adding to the housing stock, trying to increase that supply and do what little we can. I know it's a drop in an ocean of a problem, but if I were listening to this and you're in an affordable area, if you're not in LA or one of these big markets that's overpriced, don't be scared to at least look. Don't just believe that, oh, I can't ever afford a house. Go talk to a mortgage broker, find out what you could qualify for. Find out what your payment would be. In many cases, we hear all the time from people that they had no idea that they could make it happen and they could still do it. Because of all the doom and gloom in the news and what everyone tells them, it's still possible for a lot of folks out there, at least find out whether it's true, whether you can or can't. And I think a lot of people will be surprised when they find out, oh, my gosh, I actually can. And then make it come true. Sure. You bought your first house using a pack of bubble gum and two matchsticks. You traded in for it.
You know, there's still other ways to do it.
[00:15:37] Speaker A: And a 40.
[00:15:38] Speaker B: And a 40 ounce and a Colt 45. Heck yeah.
[00:15:41] Speaker A: But no, I think that's great advice. And, you know, I keep hearing, you know, my dad. You know, my dad was always a guy that always had these one liners, you know, these, you know, he could hear him saying, son, if it sounds too good to be true, it probably is. And that's kind of my thoughts on it. But. But anyhow, that is our show for today. And, yes, we are trying to do our part. So make sure you check out the Homeboys podcast on social media, whether it be YouTube, Instagram, TikTok. We are trying to help people achieve the american dream. We want to help you out. Make sure you check out the homeboys. Till next time. Happy investing.
