The 20% Down Payment Myth Costing You a Fortune | Barry Habib
Summary
Net Worth and Homeownership: Homeownership significantly contributes to net worth, with homeowners having a net worth 40 times greater than renters, emphasizing the financial benefits of owning property.
Housing Market Insights: Despite high interest rates, mortgage rates are improving, and home prices are expected to continue appreciating, presenting opportunities for long-term wealth creation.
Misconceptions and Opportunities: Many potential buyers mistakenly believe a 20% down payment is necessary, while options exist for lower down payments, facilitating entry into the housing market.
Investment Properties: Real estate investments are a powerful tool for generating wealth, with opportunities for tax benefits through depreciation and the potential for significant returns.
Supply and Demand Dynamics: The housing market faces a supply shortage due to decreased construction, while demand is expected to rise as interest rates decline, creating potential opportunities for investors.
Interest Rates and Mortgage Rates: The Federal Reserve's actions influence mortgage rates indirectly, with potential rate cuts likely to lower mortgage rates further, benefiting homebuyers and refinancers.
Global Economic Concerns: Global debt issues and potential interest rate changes in countries like Japan and Italy could impact U.S. long-term rates, affecting the housing market dynamics.
Future Challenges: Concerns about AI's impact on jobs and the need for strategic planning to ensure future generations can afford homes and maintain financial security were highlighted.
Transcript
When it comes to net worth, two thirds of all net worth typically come from home ownership. When it comes to comparing net worth, the net worth of a homeowner is 40 4-0, 40 times that of a renter. If you are wondering about the housing market, if now is a good time to buy, if mortgage rates are going to drop, and what's driving rent prices. Today's discussion is for you. I'm Ed D'Agostino, and today we'll hear from my good friend Barry Habib, one of the country's top housing and mortgage experts. Welcome to Global Macro Update, Barry Habib. It's always good to see you, my friend. You are. The definition of a polymath. I don't think I've come up with a, a topic that I've been able to stump you on yet, but you are the expert in housing and mortgages. So let's dive into that and I'm just gonna give you the biggest softball question in the world. 'cause I think what people wanna know is. What the heck is going on with housing right now? Where are we at? And, and mortgages. A lot of people, younger people feel like they're so expensive. What, what can they expect in the years to come, Barry? Well, they're right. It is expensive. Uh, and, and we have seen a very large increase in interest rates from where we were three years ago clearly. But they have been improving. So they have been coming down. I anticipate maybe we get a little bit more of a benefit and they come down a little bit more. Uh, and that will help. Now, I don't expect home prices to come down, but what we really have to understand is how to view home prices. There's a lot of negativity out there. The first thing people should not want is you don't want home prices to come down, really. Uh, and I know people say, well, we need home prices to come down. Those are individuals that didn't live through periods of time when home values came down because, you know, having those periods of time is terrible for the economy. It means people don't want to purchase a home because people don't want to catch a falling knife. It means people are trapped in their home and they can't get out. Now, fortunately, we do not have the makings of that at all. Another thing we have to be careful of is the measuring stick that's used. Oftentimes, people look at what's called the median home price. That's different than appreciation. Median is exactly what it implies. If you take all the homes in an area or nationally that are sold. If you would line 'em up from lowest to highest. The one in the middle is median, meaning half the home sold below that number, half the home sold above it. So it is possible for home prices overall to be increasing or appreciating. However, if there are more homes sold that are lower priced homes, which happens from time to time, well then the median price declines, even though they're appreciating the media often confuses this. People often confuse this as well and say, oh, well, home price is declining, not the case. So. We know real estate's local. We know in every zip code it's going to be different. But if you would look at this nationally, home prices are still appreciating. However, at modest levels now, that presents actually an opportunity and you wanted me to speak to those young individuals that are looking at this, and I, I know that it's challenging, but what I will tell you is this, is that when it comes to net worth, two thirds of all net worth typically come from home ownership when it comes to comparing net worth. The net worth of a homeowner is 44 0, 40 times that of a renter. And when you're gonna compare just on monthly payment, absolutely. I know it's hard because monthly payment will likely be greater and perhaps significantly so on a purchase, but the benefit of that is you lock in that payment. And then over time, rents go up and they eventually eclipse it. Now, that's even more important when you consider the components of the payment of a mortgage because you have principle, which is your own money, like a forced savings account, and then the added tax benefit that you receive as well. So really when you kind of narrow it down, the payment differential might seem initially to be great, but it isn't as much as you think, and then eventually it becomes cheaper than if you were to rent. And then there's the biggest payoff of all is the equity appreciation and the gain. And, and I'm sorry to just go off completely here on this, but I just wanna bring up one more point. I looked at some numbers just recently because they came out from K Schiller and K Schiller is kind of the gold standard on appreciation. You look at the 20 city index, you look at the national index, and again, the caveat here is. You know, your mileage may vary, right, depending on the zip code you're in, because they're different everywhere. But we can't go to every single zip code. So as we take a peek at the more broader indices and the way to look at it more broadly, you know, when you look at the numbers for the past, let's just say let three years or five years, or 10 years, they're enormous. But that's not the whole story. You see, taking a look at, let's just say the averages for the last three years, it's over 10%. However, that's 10% on the price of the home. That means if you paid the home 100% cash, no mortgage, you wound up making 10%. But wait a second, what if you put 20% down? Your return on equity wasn't 10%, it was 50. If you put 10% down, it was a hundred. Now you have to pay for the borrowing of money, but. You also would have to pay if you were renting somewhere, right? So when you're making that comparison, you're paying to live there. That's what makes the return of this different than a stock. So your returns have been incredible and that is why so much wealth is created. And I wanted to start with that 'cause I think it's important to understand the difference. Let's talk a little bit about the ways you can measure or define expensive, right? Because back when I was young, way back when. Newly married, my wife and I were looking for a house. Uh, one of the yardstick that our mortgage, uh, uh, a mortgage broker would say to us is, look, you wanna stay below 30%. You want your housing costs to be, uh, below 30% of your income. And that, that seemed prudent, but that number is, is pretty unattainable in today's market. So. Is it that houses have just gotten way more expensive or is it more that wages just haven't kept up with housing prices? Interestingly enough, because I, I know it's hard to believe, but because incomes of course, have gone up over time, it affords you actually a greater portion of disposable income. 'cause there's disposable dock dollars. You have your fixed cost, and then you have your disposable dollars. Right now it's closer to instead of 30, and you're a hundred percent right, and the advice that you received was dead on. Now it's closer to about 33%, where in some cases it could go a little higher than that. So about a third of your monthly gross income before tax, if you looked at that for a principal, interest, taxes, insurance, and if there's mortgage insurance as well. That's a pretty good level to stay at, and while I understand it can be challenging to get there. It's important, really important to get into the game because if you don't, you fall behind even at muted levels of appreciation. And by the way, I think those levels of appreciation will accelerate a little bit. And even modest, if you think 3%, 4% appreciation, remember, because of the leverage that could amount to 15, 20, 30, 40% on your investment that you're putting in on your down payment. So you wanna make sure that you're in the game to create net worth to create wealth, and also you keep up with the appreciation in home prices because eventually as you want to move into your next home. You're keeping up with the home that you're going to be jumping into, because both of those will be appreciating similarly, but I think the reality for a lot of, and I'm not just talking about homeowners too, I'm also talking about renters, right? That that cost of housing, I think the average is closer to 40% when you factor renters in as well. So. That's a, that's a big part of the housing market. Right? And it also brings up a great point, ed, because if you're spending that much on renting, it's making it difficult to save for a down payment. Now, you know, there was a survey that was done about a year ago, and I just found it very fascinating that 45% a potential first time home buyers, 45% had thought that you needed a 20% down payment to purchase a home. And it is that misconception that potentially has kept them out of the market. In fact, you could buy a home with very little 3.5% down. So while of course that means that your mortgage will be larger, your monthly payment would be larger, but it does potentially get you over that hurdle of, Hey, do I have enough of a down payment to purchase the home? So this could be a real benefit for people that are looking to buy a home. You know, another thing too, ed, is that investments of real estate. Can be wonderful. Uh, nearly one in every six transactions currently is an investment property. And people are finding that that is a great way to create generational wealth because, you know, people who have a lot of investment property, they call 'em doors. You know, oh, I have four doors, I have 20 doors, I, whatever. But these investor properties. Put them in a position where, you know, the rents continue to go up, their fixed costs stay here, the appreciation levels come up. And then you could actually pull money out in buckets, um, because you could refinance, you could pull cash out. So these are terrific. And here's the other thing that very few people know. This was in the one big beautiful bill act as it was codified, but you could use a segregated cost structure on an investment. Now this is a way for you to shelter passive income. So if you're saying, Hey, you know what? I've got a lot of passive income, whatever, I've made a lot of money in the stock market or whatever, and I really wanna shelter that because I'm gonna have all these gains. How can I shelter that? Well, if you purchase an investment property, one of the beautiful things you get is depreciation and then a residential investment property you have to depreciate over 27 and a half years. But in the big beautiful one, big, beautiful bill act, which you can now do. Is you could do something called a segregated cost structure, which does allow you to take the non bricks and mortar typically in the range of 30 to 40% of the value of the home. So let, let's use round numbers at, let's just say it's 40% on a $500,000 investment home that you're buying. That's $200,000. You get a first year. Depreciation. So that's $200,000 of your passive income that you have, that you can eliminate your tax liability. That could be huge. And then of course, that's only on 200,000. Then you do get the other 27 and a half years on the remaining 300,000 to make up the $500,000 home. So that gives you another $5,000 you could write off. So, you know, 4700, 4500. So I'm using round numbers here, right? So, uh, these are things that very few people know about. It's relatively new, but it makes invest. Investment properties a great potential. Remember, you have to have the passive income to offset, okay? It's not gonna offset your ordinary income unless you're actively involved, and please consult with your accountant, but it will get rid of your passive income. So if you have a tax liability, what a great way to do it. But in addition to that, you get appreciation, which you will get over time. You also get the benefit of those rents continuing to go up and cash flowing for you and creating that stream of income. I mean, I see I talked to a lot of these groups that really just focus on this. These people are, are, have become so successful, so wealthy, so financially independent and secure by using real estate in this matter. Is that going to provide an incentive to build more housing? Because my understanding is we're. We're woefully short in the number of apartments and houses being constructed. It's not keeping up with demand. Is that fair? Thank you for asking this question because it's near and dear to my heart because I believe, you know, one of the reasons why we have been able to do a reasonably good job on forecasting real estate is because we focus so carefully on the supply and demand component, and many people do not. So it's just like anything else, just like stocks, it's just like anything. It's supply and demand. So how do we measure demand in the housing market? It's measured by household formations. So an example of a household formation is mom, dad, and a child. They live in a home. Eventually the child grows up and now moves and gets their own place. Well, it's still the same mom, dad, and a child, but instead of one household, they have two. They have formed a household. That's how we kind of measure that. Also, divorce situations, but the household formations in the United States have averaged about 1.8 million a year. But as you correctly pointed out. Because of the affordability, because of the fact that rents have gone up, people have postponed this, and that has dropped to about 1.2 million over the past year. It doesn't mean it's gonna stay at this level. It means that there is now accumulating pent up demand. Look, people still are gonna want to get married. People are still gonna want to have babies. People wanna want the garage, they're gonna want the backyard, they're gonna want the home. So life is going to happen, but people are waiting a little bit longer. It makes sense. Times like this, it slows down. You could see it historically as well, but if rates continue to come down, as incomes gradually go up, you get more equilibrium. And now. Household formations increase that can happen relatively quickly 'cause a quick move down in rates. Formations jump supply, on the other hand, is measured by builders putting up homes. And as you pointed out, ed, that has decreased. Now. Builders were putting up somewhere 1.7, 1.8 million and it was tight, but keeping up maybe 1.6 million. But now that has dropped to about 1.3 million and that's kind of like a big cruise liner. You can't take that and quickly turn around. So what will happen is, is that as the demand perks up, well then builders will start looking for land permits, approvals, and then start construction and then to completions. It's a few years, two years, three years catch up, which is why if we're really smart about this, and if we could see the future before it becomes obvious to others, we look at it and we say, you know what? In this environment where both demand and supply are low demand can perk up rather rapidly and it's being pent up. Especially if freights drop. If you believe that like I do, that they'll drop a little bit. If you believe incomes go up, I believe that too, then the demand side will ramp up a lot faster than the supply can causing an imbalance and creating an opportunity in housing. You're an expert on interest rates and at our last strategic investment conference you were, you were one of the. Proud favorites. And you talked about your predictions for mortgage rates and you were within, I think, a couple hundredth of a percent of, of being dead on accurate as to where rates would be today. So congratulations on that call. And you did it the year before and you did it the year before that as well. So you're, you're, you have a crystal ball when it comes to, uh, to rates. Where are they going? Is there, is there anything that the Federal Reserve can do today that actually. Brings down mortgage rates, not just short-term interest rates, but mortgage rates. I'm so glad you asked this question because there are, there's so much confusion about this and so many people get this aspect wrong. The relationship between the Fed and mortgage rates, and I see it all the time. I see it in the writing. I just saw it from our dear friend this past weekend, by the way, and, and there's confusion there. Okay. Okay. Let's get the record straight on this and let's go with the facts. It is true. That the Fed only controls the Fed funds rate, which is literally an overnight lending rate. Could change overnight. Doesn't happen that way, but it could. The longer term end, like the 10 year treasury or mortgage rates, it is a different animal, but there is a relationship between the two of them. There's some arbitrage between the two of them where the, the Fed funds rates like the mother's milk. And, and everything else is going to be, you know, whatever above that, and it can fluctuate. But if we were to look at what people have been saying of late, what they have been saying is they've been saying, well, the last time the fed cut rates, which is back in the fourth quarter of 2024, and specifically September 18th, then November 7th, and then December 18th, those three instances, mortgage rates went up. Well, what they don't do, the, the measuring point is wrong. Markets, anticipate markets look forward. So if you look at it from September 18th, the day of the cut. Well, it is true that a period after that mortgage rates did go up, but if you would've just go back in anticipation of it when it was telegraphed three weeks, do you know that mortgage rates dropped three quarters of a percent? An enormous move in anticipation of it. So people's measuring stick is wrong. In fact, ed, we see the same thing today. If you look at August 22nd at Jackson Hole, it was clear that J own Powell telegraphed rate cut. Between then and today, mortgage rates have dropped 30 basis points in anticipation of this 25 basis point. So you got it already. Now where do we go from here? It depends. We go back to September 18th, 2024. Why did mortgage rates go up? Was it because the fed cut rates? No, it was because we got blockbuster job numbers that followed it. Which caused the market to say, Hey, inflation's gonna come back. The job market's red hot. But what we discovered and confirmed with all the revisions of late and today with the QCEW numbers was that 52% of the job numbers that we thought we got on average never ever happened. And that's a whole other problem with the birth death model and the faultiness of that. But what we know is that there are reasons for this move. If you look at going back to the sixties. There is a true correlation as the Fed funds rate moves up, mortgage rates do go up, as the Fed funds rate comes down, mortgage rates come down. Do they go in lockstep? It's not exact, but the trend is almost always in the same direction. So as we root for the fed to cut rates, if you're looking to see lower mortgage rates, that's what you can expect. So I think rates a long way to answer your question, ed is. I think mortgage rates can come down a little bit more. I think the spread is something that's important that few people look at. We mentioned it at SIC. At the time the spread was 2.8%. My forecast would, would be dropping to 2.25. It's actually 2.23 today. So what is the spread? If you look at the 10 year treasury and say what are mortgage rates above the two 10 year treasury? That spread historically has been between 1.6 and two. It had soon to over 3% and it has consistently come down. We are now at 2.23%. I think there's a chance it gets lower, so I think my forecast of 2.25 will be proven wrong. I will, I think it will be better than what I had forecast, and that will help mortgage rates come down. I think there's a chance we could dip below 6% at. And I think that spurs a lot of activity. Refinancing is going to, it's already picked up dramatically. It's going to pick up very significantly. However, purchases are different. A refinance ad is you, you know, I see the lower rate. Let me just do it. Right At the time, people look at a purchase and look at that rate and then say, okay, well maybe I should try and figure out a pay wait. Maybe I should talk to a real estate agent. Maybe I should look for, okay, maybe I'll go visit this home in person. Shop around, negotiate. We have to have rates sustain at that lower level for a longer period of time to see the lift in purchase activity. I think this time we should get it. There are speed bumps out there. Inflation numbers could surprise us. These tariffs could potentially provide a little bit more, uh, uh, problematic inflationary numbers. But I do think that the odds are that we could see, uh, interest rates around this 6% level. Be here for a while. And I think that will create a lot of health in the market and a lot of opportunity. So if we look at the other end of the, of the yield curve, right? And longer term treasuries, bonds, long-term bonds, how do those rates impact, how does the pricing of the 30 year, for example, impact the, the, the 10 year or mortgage rates? Um, and the reason I ask is because globally, you know, there, there's now talk among people in the circles that you and I are, are in. Talk of a global debt crisis forming, uh, France, having serious debt, debt problems, uh, not able to get it under control. Government just collapsed. Um, Japan talking about raising rates more, um, which, which is amazing. Italy is always sort of in the background. Uh, and, and so people are wondering, well. What, what happens in the US to longer term rates as well? Does the, does the yield curve steepen, uh, what, what would that do to your narrative if that were to continue? Then we would see longer term rates inclusive of mortgage rates likely rise from those levels. So you have a push pull look. 'cause it's kind of like a Rubik's cube, right? There's, there are so many facets and you are a hundred percent right. And you know, dear friends of ours, like Peter BookBar has pointed this out as well. Uh, so when we, when we look at the global landscape, there is reason to believe that, uh, the longer end of the curve does have some problems because the globe is very interconnected and yields to tend to rise in sympathy. However, that said, there are a lot of things that are happening in the US specifically that could be a benefit. Lemme just point out a couple of them. One stable coin and I'll explain how that works. And two is something called the bank deregulation deal, which is very quietly coming together. About four weeks ago, the FDIC and Federal Reserve put a proposal together to do this bank deregulation deal. What would that do? We all know how banks make money. Banks borrow it from me and you at a very cheap amount that they pay us, and they either invest it or loan it out. Which seems like a great gig, and it seems like, well, let's do this endlessly, but they can't do it endlessly because you have to protect the depositors. So they're limited. They're limited by saying We have to have our own money. We, the banks own money to back it up has to be about five to 6%. Big banks, five smaller banks, 6% of that amount. So they could loan out about 20 times what their capital is, or smaller banks, about 15, 16 times what their capital is. So what that means is their profits are theoretically limited by the amount of capital that they have, because then they can't take in more deposits and invest it. So one of the things that if they invested in is treasuries. Scott Besson says, why do we want to kind of handcuff banks to invest in treasuries? Because it's a risk-free asset. It's, it's backed by the good, uh, full faith and credit of the US government. So if they invest in treasuries, let's not ding their capital ratio. So that supplemental leverage ratio should be allowed to do this without dinging it. That means it will make banks more. Willing to absorb and purchase treasuries. It's brilliant, and if it goes through, it will mean more buying of us treasuries by banks. That would be a big help. The other, as I mentioned, is stablecoin. Now, stablecoin is becoming more and more popular. It certainly is going to be growing exponentially. If you've been watching the growth of it and you look at the trajectory, this will get larger and larger. But why is Stablecoin so important? Stablecoin must be backed by shorter term treasuries, so it has to be backed by something like that. So you're saying, okay, Barry, we've been talking about longer term treasuries, right? Yes. But here's why they're connected, because Treasury Secretary Bessant has the ability to decide which treasuries to sell. As the demand for shorter term treasuries grows, you take our debt and sell more of it to the shorter term treasury where the demand is, you have less longer term maturities that you're selling, which keeps a premium on those, and then as the price of those remains pretty strong, the yield can be helped by that and get reduced. So that's why those two things are important for us to contemplate. Of course, as I said, it's the Rubik's cube, you know, and nobody knows for sure. But these are all the things you gotta kind of take into consideration. Thinking back to Silicon Valley Bank, right, there's the most recent high profile bank failure that we've had in, in, in many, many years, right? Didn't they collapse because they had too many treasuries? Well, what they had was they had a tremendous amount of treasuries that they had, that they were holding onto, and these treasuries were typically with a weighted average coupon of 1.8%. So what happens is, is that if you take the value of, of something that's, you know, let's just say me and you, if we loaned out money, we're getting 1.8%. Then rates everywhere else are up to six or seven or 8%, which it was almost at the time. Then who's gonna wanna purchase our 1.8% measly yield if we were to say, Hey, would you like to buy this? No. Why would I buy that? I'll buy the 8% paper. Now, they will buy it, but they'll buy it at a significant discount. Okay? To compensate for that. So most of the time. You don't have to mark that to market, but what they had to do was because their assets ran very, very low, they had to market to market, and then they had to sell those by selling them. It exacerbated their losses, reduced their capital ratio, and put them in a world of hurt. So are there risks out there? You have those, but those are typically mitigated, uh, by, by the, the bank's trust tests and things of that nature. So is the deregulation pushed to essentially say you don't have to mark to market anymore, you can hold it at what you at book value? It keeps all of the regulations and it keeps all the stress measure. All it is saying is the deregulation deal of banks would allow them to purchase treasuries because they're risk free without having to increase their capital in order to do so. What can be done, in your opinion, what should be done, if anything, to facilitate building of, of more houses? 'cause I, I live in Connecticut. I live in a, in a very blue state and, and, um, it's full of irony Barry. And I'm sure you see this all the time too, right? Everyone is pro housing and, uh, especially in this area, like, great, we, we need more low income housing. And we do, we need, we need, we need places where everyone can afford to live, right? And it's all great until. You find out that one has been zoned or cited down the street from your house, then all of a sudden, oh God, this can't happen. And there's a million reasons why, and nobody ever is honest about it. It's, oh, well the traffic's not gonna, the road's not gonna be able to handle it, and the traffic lights aren't built for this. And all kinds of stupid, silly excuses come up to torpedo these projects. Um, is, is that a big. Part of why we don't have enough houses is just the nimbyism. It certainly is. But then there's also the cost to construct and the profit margins that are needed. And, you know, cost of land's gone up. The, the regulatory costs and the soft costs are extraordinary. Um, the construction costs are extraordinarily high, so it becomes extremely difficult to actually construct a home. That is, would be deemed something that could be an entry level home or, and if you're gonna do so, the profit margin incentives aren't quite there. So there's a few ways you could do it. One is you could certainly subsidize it. So that could be something the government could do is in order to construct some of these. So that's a possibility. But then there is another, and you know, I know that there's not an appetite for quantitative easing certainly, but if you look at what's on the Fed's balance sheet. It is predominantly, you know, let's, let's call it round number six and a half trillion dollars, mostly treasuries, but a significant amount of mortgage-backed securities as well. Probably two to one treasuries to, again, using round simple numbers. Okay, so what's happening now is there's a runoff of treasuries and mortgage-backed securities. And what the Fed has been doing is they just, and this has helped mortgage rates by the way, in treasury rates. Um. 'cause what they're doing is they're reinvesting it so they're not increasing their balance sheet, but with the exception of $5 billion a month of runoff, which is not a lot comparatively speaking, they should have just eliminated it. Uh, they are making investments, so they're actually a buyer of treasuries, no longer mortgage backed securities. I think what they should do is I think they should actually be reinvesting. The mortgage-backed securities that are running off back into mortgage-backed securities. Now, I know they wanna get rid of them, but what that would do is, you know, when you have President Trump potentially calling for an emergency and housing and declaring a situation like that, that would significantly help mortgage rates, maybe get into the mid fives, maybe, who knows, maybe low fives. And that solves a lot of problems for you. That solves a lot of problems for affordability, gets a lot of people out of renting into home ownership gets a lot of people into wealth creation. You know, when you think about what we have to think, what we have to plan for ED is we have to start thinking 10 and 20 years into the future. Because if people aren't buying homes and 10, 20 years from now, 30 years from now, so many people today. Depend on their homes for their retirement, for their security, for their generational wealth that they pass on. And because of the wonderful tool of a reverse mortgage, it can generate income if individuals don't get into the game, not just for today, but for 15, 20 years from now. We could have some major problems with how we're going to do this. And, you know, there's other things we could talk about too. It is like, I'm very, very concerned with ai, job elimination. You know, this is, this is a, this is a big problem that, that people are not thinking about and talking about enough. But all we have to do is open our eyes, take a, take a Waymo ride, go to any fast food restaurant and talk to about, you know, absolutely. I make the mistake. I do a lot with ai, and when I talk to ai, I literally forget. I'm talking to a bot. I'll say like, oh, thank you. That was very helpful. I'm talking to a freaking bot and I'm like, it does at least have good matters, but you forget. So there will be jobs that are going to be. That are going to be eliminated. And this is something that I think needs to be, to be at least thought about by everybody's, how are we going to protect ourselves from a wealth standpoint, from an income standpoint? Couldn't agree with you more. I, I think that the, that AI is starting to have an impact is just starting to show up in the numbers. I can't point to anything specifically and say, ha, here's the proof, but just anecdotally, I, I think it's starting to show up. So you've got, you've got a. Recent graduating class generation, if you will, that is struggling mightily to find entry-level jobs. And that probably continues for the next five years or so. So you've got a, you've got a group of. I call them kids, but you know, 20 something, 22, 23 year olds that are gonna really have a hard time finding entry level jobs. Right. So then fast forward 10 years from now, there's no one to be a middle manager because we never trained them in our industry. Right. And then, and then those kids couldn't buy houses either, like. Everywhere I turn, I find yet another area of concern for the 10 to 20 year out horizon. And you, you've just illuminated yet another one with housing. And you know what, and, and we talked about this together, uh, at SIC when I talked about the fact, you know, here Jerome Powell, job market solid, solid, solid. We showed the increase in continuing claims. And I think this is a real important point because continuing claims. Showing us. I'll give you an example, since January of 2024, continuing claims, meaning those continuing to receive unemployment benefits has increased by 200,000. Now that's a big number, but the amount of people unemployed has increased by 1.1 million. So what does that tell us? There's roughly 900,000 people that were receiving unemployment benefits but have not found a job and that. Their, their unemployment benefits expire. They typically, depending on the state, but let's take a, you know, typical 26 weeks, so they're unemployed for longer than 26 weeks. So if you let go, it is something that, it's harder to find the job, and we're seeing that in all the soft survey data as well. That's a big concern, and this is why it's so foolish for people on the media. Like, like, you know, you're Steve Leeman's and of course Jerome Powell, and it's other Fed members that don't understand this stuff. And they say, well, the break evens the, we have this interesting look at the supply and the demand. We don't need to create as many jobs because continue, because initial jobless claims have been on, have been relatively stable. These are people who play checkers and don't play chess. They don't understand it. Let me explain this to you very, very quickly here. If it is true that you need less jobs to absorb, currently the amount of people that are. Taking unemployment benefits for the first time or being let go. What starts to happen when those that are being let go increases and you don't have the absorption if you're not creating the jobs to absorb them, well then. What's gonna happen when this ramps up quickly and it can turn quickly? You and I have been around long enough to see how fast that could happen. Then you have a real problem, and it could change quick. What we need to be doing, what we should have been doing is cutting rates and probably cutting rates aggressively. Probably by 1%. We're gonna get a quarter, but I think we're 1% above where we should be. And we need to get there quick because you need to get job creations increasing. And if you get that, then you're prepared for as people get let go to reabsorb them and get some of these people off of the ranks of the unemployed and back into the workforce. I hope Jay Powell's listening, Barry. Thank you as always. We'll see if we can get it in front of him. Barry Habib from MBS Highway, it's always amazing speaking with you. I love it when you bring your passion to these discussions. Thank you so much. You've helped a lot of people over the years and I'm sure you just did over the last half hour. Good to see you. It's a privilege to be here. Thank you for, uh, for being a great friend for so long. I appreciate you. If you enjoy hearing from people really in the know, on the most important issues of our day, please take a second to subscribe to our channel. And if you want to learn more about my own thoughts on these topics, subscribe to my free weekly letter. Every Friday, I send out a new global macro update email. Along with a link to any new podcasts, there's no charge, and you'll see a link in the description where you can join me and over 97,000 other readers. Thanks for watching.
The 20% Down Payment Myth Costing You a Fortune | Barry Habib
Summary
Transcript
When it comes to net worth, two thirds of all net worth typically come from home ownership. When it comes to comparing net worth, the net worth of a homeowner is 40 4-0, 40 times that of a renter. If you are wondering about the housing market, if now is a good time to buy, if mortgage rates are going to drop, and what's driving rent prices. Today's discussion is for you. I'm Ed D'Agostino, and today we'll hear from my good friend Barry Habib, one of the country's top housing and mortgage experts. Welcome to Global Macro Update, Barry Habib. It's always good to see you, my friend. You are. The definition of a polymath. I don't think I've come up with a, a topic that I've been able to stump you on yet, but you are the expert in housing and mortgages. So let's dive into that and I'm just gonna give you the biggest softball question in the world. 'cause I think what people wanna know is. What the heck is going on with housing right now? Where are we at? And, and mortgages. A lot of people, younger people feel like they're so expensive. What, what can they expect in the years to come, Barry? Well, they're right. It is expensive. Uh, and, and we have seen a very large increase in interest rates from where we were three years ago clearly. But they have been improving. So they have been coming down. I anticipate maybe we get a little bit more of a benefit and they come down a little bit more. Uh, and that will help. Now, I don't expect home prices to come down, but what we really have to understand is how to view home prices. There's a lot of negativity out there. The first thing people should not want is you don't want home prices to come down, really. Uh, and I know people say, well, we need home prices to come down. Those are individuals that didn't live through periods of time when home values came down because, you know, having those periods of time is terrible for the economy. It means people don't want to purchase a home because people don't want to catch a falling knife. It means people are trapped in their home and they can't get out. Now, fortunately, we do not have the makings of that at all. Another thing we have to be careful of is the measuring stick that's used. Oftentimes, people look at what's called the median home price. That's different than appreciation. Median is exactly what it implies. If you take all the homes in an area or nationally that are sold. If you would line 'em up from lowest to highest. The one in the middle is median, meaning half the home sold below that number, half the home sold above it. So it is possible for home prices overall to be increasing or appreciating. However, if there are more homes sold that are lower priced homes, which happens from time to time, well then the median price declines, even though they're appreciating the media often confuses this. People often confuse this as well and say, oh, well, home price is declining, not the case. So. We know real estate's local. We know in every zip code it's going to be different. But if you would look at this nationally, home prices are still appreciating. However, at modest levels now, that presents actually an opportunity and you wanted me to speak to those young individuals that are looking at this, and I, I know that it's challenging, but what I will tell you is this, is that when it comes to net worth, two thirds of all net worth typically come from home ownership when it comes to comparing net worth. The net worth of a homeowner is 44 0, 40 times that of a renter. And when you're gonna compare just on monthly payment, absolutely. I know it's hard because monthly payment will likely be greater and perhaps significantly so on a purchase, but the benefit of that is you lock in that payment. And then over time, rents go up and they eventually eclipse it. Now, that's even more important when you consider the components of the payment of a mortgage because you have principle, which is your own money, like a forced savings account, and then the added tax benefit that you receive as well. So really when you kind of narrow it down, the payment differential might seem initially to be great, but it isn't as much as you think, and then eventually it becomes cheaper than if you were to rent. And then there's the biggest payoff of all is the equity appreciation and the gain. And, and I'm sorry to just go off completely here on this, but I just wanna bring up one more point. I looked at some numbers just recently because they came out from K Schiller and K Schiller is kind of the gold standard on appreciation. You look at the 20 city index, you look at the national index, and again, the caveat here is. You know, your mileage may vary, right, depending on the zip code you're in, because they're different everywhere. But we can't go to every single zip code. So as we take a peek at the more broader indices and the way to look at it more broadly, you know, when you look at the numbers for the past, let's just say let three years or five years, or 10 years, they're enormous. But that's not the whole story. You see, taking a look at, let's just say the averages for the last three years, it's over 10%. However, that's 10% on the price of the home. That means if you paid the home 100% cash, no mortgage, you wound up making 10%. But wait a second, what if you put 20% down? Your return on equity wasn't 10%, it was 50. If you put 10% down, it was a hundred. Now you have to pay for the borrowing of money, but. You also would have to pay if you were renting somewhere, right? So when you're making that comparison, you're paying to live there. That's what makes the return of this different than a stock. So your returns have been incredible and that is why so much wealth is created. And I wanted to start with that 'cause I think it's important to understand the difference. Let's talk a little bit about the ways you can measure or define expensive, right? Because back when I was young, way back when. Newly married, my wife and I were looking for a house. Uh, one of the yardstick that our mortgage, uh, uh, a mortgage broker would say to us is, look, you wanna stay below 30%. You want your housing costs to be, uh, below 30% of your income. And that, that seemed prudent, but that number is, is pretty unattainable in today's market. So. Is it that houses have just gotten way more expensive or is it more that wages just haven't kept up with housing prices? Interestingly enough, because I, I know it's hard to believe, but because incomes of course, have gone up over time, it affords you actually a greater portion of disposable income. 'cause there's disposable dock dollars. You have your fixed cost, and then you have your disposable dollars. Right now it's closer to instead of 30, and you're a hundred percent right, and the advice that you received was dead on. Now it's closer to about 33%, where in some cases it could go a little higher than that. So about a third of your monthly gross income before tax, if you looked at that for a principal, interest, taxes, insurance, and if there's mortgage insurance as well. That's a pretty good level to stay at, and while I understand it can be challenging to get there. It's important, really important to get into the game because if you don't, you fall behind even at muted levels of appreciation. And by the way, I think those levels of appreciation will accelerate a little bit. And even modest, if you think 3%, 4% appreciation, remember, because of the leverage that could amount to 15, 20, 30, 40% on your investment that you're putting in on your down payment. So you wanna make sure that you're in the game to create net worth to create wealth, and also you keep up with the appreciation in home prices because eventually as you want to move into your next home. You're keeping up with the home that you're going to be jumping into, because both of those will be appreciating similarly, but I think the reality for a lot of, and I'm not just talking about homeowners too, I'm also talking about renters, right? That that cost of housing, I think the average is closer to 40% when you factor renters in as well. So. That's a, that's a big part of the housing market. Right? And it also brings up a great point, ed, because if you're spending that much on renting, it's making it difficult to save for a down payment. Now, you know, there was a survey that was done about a year ago, and I just found it very fascinating that 45% a potential first time home buyers, 45% had thought that you needed a 20% down payment to purchase a home. And it is that misconception that potentially has kept them out of the market. In fact, you could buy a home with very little 3.5% down. So while of course that means that your mortgage will be larger, your monthly payment would be larger, but it does potentially get you over that hurdle of, Hey, do I have enough of a down payment to purchase the home? So this could be a real benefit for people that are looking to buy a home. You know, another thing too, ed, is that investments of real estate. Can be wonderful. Uh, nearly one in every six transactions currently is an investment property. And people are finding that that is a great way to create generational wealth because, you know, people who have a lot of investment property, they call 'em doors. You know, oh, I have four doors, I have 20 doors, I, whatever. But these investor properties. Put them in a position where, you know, the rents continue to go up, their fixed costs stay here, the appreciation levels come up. And then you could actually pull money out in buckets, um, because you could refinance, you could pull cash out. So these are terrific. And here's the other thing that very few people know. This was in the one big beautiful bill act as it was codified, but you could use a segregated cost structure on an investment. Now this is a way for you to shelter passive income. So if you're saying, Hey, you know what? I've got a lot of passive income, whatever, I've made a lot of money in the stock market or whatever, and I really wanna shelter that because I'm gonna have all these gains. How can I shelter that? Well, if you purchase an investment property, one of the beautiful things you get is depreciation and then a residential investment property you have to depreciate over 27 and a half years. But in the big beautiful one, big, beautiful bill act, which you can now do. Is you could do something called a segregated cost structure, which does allow you to take the non bricks and mortar typically in the range of 30 to 40% of the value of the home. So let, let's use round numbers at, let's just say it's 40% on a $500,000 investment home that you're buying. That's $200,000. You get a first year. Depreciation. So that's $200,000 of your passive income that you have, that you can eliminate your tax liability. That could be huge. And then of course, that's only on 200,000. Then you do get the other 27 and a half years on the remaining 300,000 to make up the $500,000 home. So that gives you another $5,000 you could write off. So, you know, 4700, 4500. So I'm using round numbers here, right? So, uh, these are things that very few people know about. It's relatively new, but it makes invest. Investment properties a great potential. Remember, you have to have the passive income to offset, okay? It's not gonna offset your ordinary income unless you're actively involved, and please consult with your accountant, but it will get rid of your passive income. So if you have a tax liability, what a great way to do it. But in addition to that, you get appreciation, which you will get over time. You also get the benefit of those rents continuing to go up and cash flowing for you and creating that stream of income. I mean, I see I talked to a lot of these groups that really just focus on this. These people are, are, have become so successful, so wealthy, so financially independent and secure by using real estate in this matter. Is that going to provide an incentive to build more housing? Because my understanding is we're. We're woefully short in the number of apartments and houses being constructed. It's not keeping up with demand. Is that fair? Thank you for asking this question because it's near and dear to my heart because I believe, you know, one of the reasons why we have been able to do a reasonably good job on forecasting real estate is because we focus so carefully on the supply and demand component, and many people do not. So it's just like anything else, just like stocks, it's just like anything. It's supply and demand. So how do we measure demand in the housing market? It's measured by household formations. So an example of a household formation is mom, dad, and a child. They live in a home. Eventually the child grows up and now moves and gets their own place. Well, it's still the same mom, dad, and a child, but instead of one household, they have two. They have formed a household. That's how we kind of measure that. Also, divorce situations, but the household formations in the United States have averaged about 1.8 million a year. But as you correctly pointed out. Because of the affordability, because of the fact that rents have gone up, people have postponed this, and that has dropped to about 1.2 million over the past year. It doesn't mean it's gonna stay at this level. It means that there is now accumulating pent up demand. Look, people still are gonna want to get married. People are still gonna want to have babies. People wanna want the garage, they're gonna want the backyard, they're gonna want the home. So life is going to happen, but people are waiting a little bit longer. It makes sense. Times like this, it slows down. You could see it historically as well, but if rates continue to come down, as incomes gradually go up, you get more equilibrium. And now. Household formations increase that can happen relatively quickly 'cause a quick move down in rates. Formations jump supply, on the other hand, is measured by builders putting up homes. And as you pointed out, ed, that has decreased. Now. Builders were putting up somewhere 1.7, 1.8 million and it was tight, but keeping up maybe 1.6 million. But now that has dropped to about 1.3 million and that's kind of like a big cruise liner. You can't take that and quickly turn around. So what will happen is, is that as the demand perks up, well then builders will start looking for land permits, approvals, and then start construction and then to completions. It's a few years, two years, three years catch up, which is why if we're really smart about this, and if we could see the future before it becomes obvious to others, we look at it and we say, you know what? In this environment where both demand and supply are low demand can perk up rather rapidly and it's being pent up. Especially if freights drop. If you believe that like I do, that they'll drop a little bit. If you believe incomes go up, I believe that too, then the demand side will ramp up a lot faster than the supply can causing an imbalance and creating an opportunity in housing. You're an expert on interest rates and at our last strategic investment conference you were, you were one of the. Proud favorites. And you talked about your predictions for mortgage rates and you were within, I think, a couple hundredth of a percent of, of being dead on accurate as to where rates would be today. So congratulations on that call. And you did it the year before and you did it the year before that as well. So you're, you're, you have a crystal ball when it comes to, uh, to rates. Where are they going? Is there, is there anything that the Federal Reserve can do today that actually. Brings down mortgage rates, not just short-term interest rates, but mortgage rates. I'm so glad you asked this question because there are, there's so much confusion about this and so many people get this aspect wrong. The relationship between the Fed and mortgage rates, and I see it all the time. I see it in the writing. I just saw it from our dear friend this past weekend, by the way, and, and there's confusion there. Okay. Okay. Let's get the record straight on this and let's go with the facts. It is true. That the Fed only controls the Fed funds rate, which is literally an overnight lending rate. Could change overnight. Doesn't happen that way, but it could. The longer term end, like the 10 year treasury or mortgage rates, it is a different animal, but there is a relationship between the two of them. There's some arbitrage between the two of them where the, the Fed funds rates like the mother's milk. And, and everything else is going to be, you know, whatever above that, and it can fluctuate. But if we were to look at what people have been saying of late, what they have been saying is they've been saying, well, the last time the fed cut rates, which is back in the fourth quarter of 2024, and specifically September 18th, then November 7th, and then December 18th, those three instances, mortgage rates went up. Well, what they don't do, the, the measuring point is wrong. Markets, anticipate markets look forward. So if you look at it from September 18th, the day of the cut. Well, it is true that a period after that mortgage rates did go up, but if you would've just go back in anticipation of it when it was telegraphed three weeks, do you know that mortgage rates dropped three quarters of a percent? An enormous move in anticipation of it. So people's measuring stick is wrong. In fact, ed, we see the same thing today. If you look at August 22nd at Jackson Hole, it was clear that J own Powell telegraphed rate cut. Between then and today, mortgage rates have dropped 30 basis points in anticipation of this 25 basis point. So you got it already. Now where do we go from here? It depends. We go back to September 18th, 2024. Why did mortgage rates go up? Was it because the fed cut rates? No, it was because we got blockbuster job numbers that followed it. Which caused the market to say, Hey, inflation's gonna come back. The job market's red hot. But what we discovered and confirmed with all the revisions of late and today with the QCEW numbers was that 52% of the job numbers that we thought we got on average never ever happened. And that's a whole other problem with the birth death model and the faultiness of that. But what we know is that there are reasons for this move. If you look at going back to the sixties. There is a true correlation as the Fed funds rate moves up, mortgage rates do go up, as the Fed funds rate comes down, mortgage rates come down. Do they go in lockstep? It's not exact, but the trend is almost always in the same direction. So as we root for the fed to cut rates, if you're looking to see lower mortgage rates, that's what you can expect. So I think rates a long way to answer your question, ed is. I think mortgage rates can come down a little bit more. I think the spread is something that's important that few people look at. We mentioned it at SIC. At the time the spread was 2.8%. My forecast would, would be dropping to 2.25. It's actually 2.23 today. So what is the spread? If you look at the 10 year treasury and say what are mortgage rates above the two 10 year treasury? That spread historically has been between 1.6 and two. It had soon to over 3% and it has consistently come down. We are now at 2.23%. I think there's a chance it gets lower, so I think my forecast of 2.25 will be proven wrong. I will, I think it will be better than what I had forecast, and that will help mortgage rates come down. I think there's a chance we could dip below 6% at. And I think that spurs a lot of activity. Refinancing is going to, it's already picked up dramatically. It's going to pick up very significantly. However, purchases are different. A refinance ad is you, you know, I see the lower rate. Let me just do it. Right At the time, people look at a purchase and look at that rate and then say, okay, well maybe I should try and figure out a pay wait. Maybe I should talk to a real estate agent. Maybe I should look for, okay, maybe I'll go visit this home in person. Shop around, negotiate. We have to have rates sustain at that lower level for a longer period of time to see the lift in purchase activity. I think this time we should get it. There are speed bumps out there. Inflation numbers could surprise us. These tariffs could potentially provide a little bit more, uh, uh, problematic inflationary numbers. But I do think that the odds are that we could see, uh, interest rates around this 6% level. Be here for a while. And I think that will create a lot of health in the market and a lot of opportunity. So if we look at the other end of the, of the yield curve, right? And longer term treasuries, bonds, long-term bonds, how do those rates impact, how does the pricing of the 30 year, for example, impact the, the, the 10 year or mortgage rates? Um, and the reason I ask is because globally, you know, there, there's now talk among people in the circles that you and I are, are in. Talk of a global debt crisis forming, uh, France, having serious debt, debt problems, uh, not able to get it under control. Government just collapsed. Um, Japan talking about raising rates more, um, which, which is amazing. Italy is always sort of in the background. Uh, and, and so people are wondering, well. What, what happens in the US to longer term rates as well? Does the, does the yield curve steepen, uh, what, what would that do to your narrative if that were to continue? Then we would see longer term rates inclusive of mortgage rates likely rise from those levels. So you have a push pull look. 'cause it's kind of like a Rubik's cube, right? There's, there are so many facets and you are a hundred percent right. And you know, dear friends of ours, like Peter BookBar has pointed this out as well. Uh, so when we, when we look at the global landscape, there is reason to believe that, uh, the longer end of the curve does have some problems because the globe is very interconnected and yields to tend to rise in sympathy. However, that said, there are a lot of things that are happening in the US specifically that could be a benefit. Lemme just point out a couple of them. One stable coin and I'll explain how that works. And two is something called the bank deregulation deal, which is very quietly coming together. About four weeks ago, the FDIC and Federal Reserve put a proposal together to do this bank deregulation deal. What would that do? We all know how banks make money. Banks borrow it from me and you at a very cheap amount that they pay us, and they either invest it or loan it out. Which seems like a great gig, and it seems like, well, let's do this endlessly, but they can't do it endlessly because you have to protect the depositors. So they're limited. They're limited by saying We have to have our own money. We, the banks own money to back it up has to be about five to 6%. Big banks, five smaller banks, 6% of that amount. So they could loan out about 20 times what their capital is, or smaller banks, about 15, 16 times what their capital is. So what that means is their profits are theoretically limited by the amount of capital that they have, because then they can't take in more deposits and invest it. So one of the things that if they invested in is treasuries. Scott Besson says, why do we want to kind of handcuff banks to invest in treasuries? Because it's a risk-free asset. It's, it's backed by the good, uh, full faith and credit of the US government. So if they invest in treasuries, let's not ding their capital ratio. So that supplemental leverage ratio should be allowed to do this without dinging it. That means it will make banks more. Willing to absorb and purchase treasuries. It's brilliant, and if it goes through, it will mean more buying of us treasuries by banks. That would be a big help. The other, as I mentioned, is stablecoin. Now, stablecoin is becoming more and more popular. It certainly is going to be growing exponentially. If you've been watching the growth of it and you look at the trajectory, this will get larger and larger. But why is Stablecoin so important? Stablecoin must be backed by shorter term treasuries, so it has to be backed by something like that. So you're saying, okay, Barry, we've been talking about longer term treasuries, right? Yes. But here's why they're connected, because Treasury Secretary Bessant has the ability to decide which treasuries to sell. As the demand for shorter term treasuries grows, you take our debt and sell more of it to the shorter term treasury where the demand is, you have less longer term maturities that you're selling, which keeps a premium on those, and then as the price of those remains pretty strong, the yield can be helped by that and get reduced. So that's why those two things are important for us to contemplate. Of course, as I said, it's the Rubik's cube, you know, and nobody knows for sure. But these are all the things you gotta kind of take into consideration. Thinking back to Silicon Valley Bank, right, there's the most recent high profile bank failure that we've had in, in, in many, many years, right? Didn't they collapse because they had too many treasuries? Well, what they had was they had a tremendous amount of treasuries that they had, that they were holding onto, and these treasuries were typically with a weighted average coupon of 1.8%. So what happens is, is that if you take the value of, of something that's, you know, let's just say me and you, if we loaned out money, we're getting 1.8%. Then rates everywhere else are up to six or seven or 8%, which it was almost at the time. Then who's gonna wanna purchase our 1.8% measly yield if we were to say, Hey, would you like to buy this? No. Why would I buy that? I'll buy the 8% paper. Now, they will buy it, but they'll buy it at a significant discount. Okay? To compensate for that. So most of the time. You don't have to mark that to market, but what they had to do was because their assets ran very, very low, they had to market to market, and then they had to sell those by selling them. It exacerbated their losses, reduced their capital ratio, and put them in a world of hurt. So are there risks out there? You have those, but those are typically mitigated, uh, by, by the, the bank's trust tests and things of that nature. So is the deregulation pushed to essentially say you don't have to mark to market anymore, you can hold it at what you at book value? It keeps all of the regulations and it keeps all the stress measure. All it is saying is the deregulation deal of banks would allow them to purchase treasuries because they're risk free without having to increase their capital in order to do so. What can be done, in your opinion, what should be done, if anything, to facilitate building of, of more houses? 'cause I, I live in Connecticut. I live in a, in a very blue state and, and, um, it's full of irony Barry. And I'm sure you see this all the time too, right? Everyone is pro housing and, uh, especially in this area, like, great, we, we need more low income housing. And we do, we need, we need, we need places where everyone can afford to live, right? And it's all great until. You find out that one has been zoned or cited down the street from your house, then all of a sudden, oh God, this can't happen. And there's a million reasons why, and nobody ever is honest about it. It's, oh, well the traffic's not gonna, the road's not gonna be able to handle it, and the traffic lights aren't built for this. And all kinds of stupid, silly excuses come up to torpedo these projects. Um, is, is that a big. Part of why we don't have enough houses is just the nimbyism. It certainly is. But then there's also the cost to construct and the profit margins that are needed. And, you know, cost of land's gone up. The, the regulatory costs and the soft costs are extraordinary. Um, the construction costs are extraordinarily high, so it becomes extremely difficult to actually construct a home. That is, would be deemed something that could be an entry level home or, and if you're gonna do so, the profit margin incentives aren't quite there. So there's a few ways you could do it. One is you could certainly subsidize it. So that could be something the government could do is in order to construct some of these. So that's a possibility. But then there is another, and you know, I know that there's not an appetite for quantitative easing certainly, but if you look at what's on the Fed's balance sheet. It is predominantly, you know, let's, let's call it round number six and a half trillion dollars, mostly treasuries, but a significant amount of mortgage-backed securities as well. Probably two to one treasuries to, again, using round simple numbers. Okay, so what's happening now is there's a runoff of treasuries and mortgage-backed securities. And what the Fed has been doing is they just, and this has helped mortgage rates by the way, in treasury rates. Um. 'cause what they're doing is they're reinvesting it so they're not increasing their balance sheet, but with the exception of $5 billion a month of runoff, which is not a lot comparatively speaking, they should have just eliminated it. Uh, they are making investments, so they're actually a buyer of treasuries, no longer mortgage backed securities. I think what they should do is I think they should actually be reinvesting. The mortgage-backed securities that are running off back into mortgage-backed securities. Now, I know they wanna get rid of them, but what that would do is, you know, when you have President Trump potentially calling for an emergency and housing and declaring a situation like that, that would significantly help mortgage rates, maybe get into the mid fives, maybe, who knows, maybe low fives. And that solves a lot of problems for you. That solves a lot of problems for affordability, gets a lot of people out of renting into home ownership gets a lot of people into wealth creation. You know, when you think about what we have to think, what we have to plan for ED is we have to start thinking 10 and 20 years into the future. Because if people aren't buying homes and 10, 20 years from now, 30 years from now, so many people today. Depend on their homes for their retirement, for their security, for their generational wealth that they pass on. And because of the wonderful tool of a reverse mortgage, it can generate income if individuals don't get into the game, not just for today, but for 15, 20 years from now. We could have some major problems with how we're going to do this. And, you know, there's other things we could talk about too. It is like, I'm very, very concerned with ai, job elimination. You know, this is, this is a, this is a big problem that, that people are not thinking about and talking about enough. But all we have to do is open our eyes, take a, take a Waymo ride, go to any fast food restaurant and talk to about, you know, absolutely. I make the mistake. I do a lot with ai, and when I talk to ai, I literally forget. I'm talking to a bot. I'll say like, oh, thank you. That was very helpful. I'm talking to a freaking bot and I'm like, it does at least have good matters, but you forget. So there will be jobs that are going to be. That are going to be eliminated. And this is something that I think needs to be, to be at least thought about by everybody's, how are we going to protect ourselves from a wealth standpoint, from an income standpoint? Couldn't agree with you more. I, I think that the, that AI is starting to have an impact is just starting to show up in the numbers. I can't point to anything specifically and say, ha, here's the proof, but just anecdotally, I, I think it's starting to show up. So you've got, you've got a. Recent graduating class generation, if you will, that is struggling mightily to find entry-level jobs. And that probably continues for the next five years or so. So you've got a, you've got a group of. I call them kids, but you know, 20 something, 22, 23 year olds that are gonna really have a hard time finding entry level jobs. Right. So then fast forward 10 years from now, there's no one to be a middle manager because we never trained them in our industry. Right. And then, and then those kids couldn't buy houses either, like. Everywhere I turn, I find yet another area of concern for the 10 to 20 year out horizon. And you, you've just illuminated yet another one with housing. And you know what, and, and we talked about this together, uh, at SIC when I talked about the fact, you know, here Jerome Powell, job market solid, solid, solid. We showed the increase in continuing claims. And I think this is a real important point because continuing claims. Showing us. I'll give you an example, since January of 2024, continuing claims, meaning those continuing to receive unemployment benefits has increased by 200,000. Now that's a big number, but the amount of people unemployed has increased by 1.1 million. So what does that tell us? There's roughly 900,000 people that were receiving unemployment benefits but have not found a job and that. Their, their unemployment benefits expire. They typically, depending on the state, but let's take a, you know, typical 26 weeks, so they're unemployed for longer than 26 weeks. So if you let go, it is something that, it's harder to find the job, and we're seeing that in all the soft survey data as well. That's a big concern, and this is why it's so foolish for people on the media. Like, like, you know, you're Steve Leeman's and of course Jerome Powell, and it's other Fed members that don't understand this stuff. And they say, well, the break evens the, we have this interesting look at the supply and the demand. We don't need to create as many jobs because continue, because initial jobless claims have been on, have been relatively stable. These are people who play checkers and don't play chess. They don't understand it. Let me explain this to you very, very quickly here. If it is true that you need less jobs to absorb, currently the amount of people that are. Taking unemployment benefits for the first time or being let go. What starts to happen when those that are being let go increases and you don't have the absorption if you're not creating the jobs to absorb them, well then. What's gonna happen when this ramps up quickly and it can turn quickly? You and I have been around long enough to see how fast that could happen. Then you have a real problem, and it could change quick. What we need to be doing, what we should have been doing is cutting rates and probably cutting rates aggressively. Probably by 1%. We're gonna get a quarter, but I think we're 1% above where we should be. And we need to get there quick because you need to get job creations increasing. And if you get that, then you're prepared for as people get let go to reabsorb them and get some of these people off of the ranks of the unemployed and back into the workforce. I hope Jay Powell's listening, Barry. Thank you as always. We'll see if we can get it in front of him. Barry Habib from MBS Highway, it's always amazing speaking with you. I love it when you bring your passion to these discussions. Thank you so much. You've helped a lot of people over the years and I'm sure you just did over the last half hour. Good to see you. It's a privilege to be here. Thank you for, uh, for being a great friend for so long. I appreciate you. If you enjoy hearing from people really in the know, on the most important issues of our day, please take a second to subscribe to our channel. And if you want to learn more about my own thoughts on these topics, subscribe to my free weekly letter. Every Friday, I send out a new global macro update email. Along with a link to any new podcasts, there's no charge, and you'll see a link in the description where you can join me and over 97,000 other readers. Thanks for watching.