Podcast Interview—The Financial Survival Network with Kerry Lutz
Episode 5637: Don't Let Rates Hold You Back
Episode Summary:
Alejandro Szita comes on the show to give us the latest insight on what’s happening with real estate. He touches on the confusion in the real estate market right now, and stresses that it is better to not focus so much on rates; rather, it’s important to get your mortgage to a point where you can live with the monthly payment. Listen in for more useful insight from Alejandro.
Podcast Transcription:
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Kerry Lutz: And welcome, you are listening to, watching the Financial Survival Network. It's mid-October. Literally what is going on with real estate? Well, we've got Alejandro Szita with us now. Alejandro, you are a mortgage broker for artists, business owners, entrepreneurs, particularly in California and in Florida. So who better, since you've got an upper crust clientele, high income earners, what is going on with real estate now?
Alejandro Szita: Hi, Kerry. There is a lot of confusion in the market right now because you still have people that need to buy homes. You still have people that need a place to live, and you still have sellers that need to sell. And now we're in October of 2022. In more or less November of 2021, I did a loan at about 3.3%, more than one. But this is just a case that I wanted to, to bring in point. The same loan today is closing at about 8% now. Actually, we closed a similar loan two weeks ago at 8.3%. So this is putting a tremendous pressure on the housing market and, and especially on sellers, because a lot of people don't qualify anymore. We are talking about more than doubling the rate, you know, and that has an impact. But this is the interesting thing. When rates are really low, home prices tend to go up. When rates are really high, home prices tend to go down. This is not immediate. You know, it takes a few months. It takes sometimes a year to adjust. But basically the monthly payment for people sort of remains within the same range. Because if your job doesn't change, if you don't make any more money, you cannot afford to pay more. You see what I mean? And the reason I'm saying that is because I get a lot of phone calls that say, oh, the rate, I should wait. People are focusing on the rate and not focusing on their goal and not focusing on the result. It's because we are used to being sold by the rate. And, and I would like to say that putting your attention on the rate should not be the the most important thing. That's what I'm trying to say.
Kerry Lutz: Well, you know, all people care about, I mean, the rate is true, Alejandro, but they also do care about their monthly payment, right? Those are the two numbers. They don't really care what they pay because the cost, the price of the property comes down to a monthly payment, assuming that you're going to finance it and not pay cash. Obviously, if you're a cash buyer, none of this applies. But all you care about is how much down and how much a month. And as far as it fitting into your goals, well, I mean, the goal is to own a home for whatever reason, whether you have to, whether you're raising a family, you got to have some place to live. You don't want to rent. The cost of rentals has gone sky high. So what is a buyer to do here, Alejandro? A long-winded way of saying, what are you supposed to do?
Alejandro Szita: Well, you know, one thing that I would say is this: you have to bid aggressively. You have to take advantage of the market. Most people don't do that. Even though you read about this in real estate courses, you hear about this in real estate seminars, people don't do it. As a matter of fact, Keller Williams has detailed numbers on this. People will only bid on a home when the price is within 5% of its market value. Meaning if you, just to make it really simple, if you have a home that is priced at a hundred thousand dollars, okay, and the real price should be ninety five, people will bid on it. If the house is listed at a hundred and it should be $80,000, people will not bid on it. When you have a difference of over 5%, people don't bid on it. And when you have a difference of greater than 10%, people don't even go to the open house. And this is according to numbers that were researched by Keller Williams. And I think that that is a mistake, especially in a market like right now, now that we are in a transition. If you see a house for a million dollars and you want to bid eight hundred, go and bid eight hundred. Your realtor is not going to like it. The listing agent is not going to like it. But guess what, you do, 10, 15 of these, you're going to get your house for eight fifty.
Kerry Lutz: You know, in the stock market, we call that a stink bid. And they don't really call it that. They just call that an insulting bid. But if you're ever going to insult a seller, a seller with your offer, now's the time, right? Because the market slowed down. Only 35% of the market at its peak in Florida was cash market, maybe 40. What about the institutional buyers? The guys who are buying homes site unseen, Alejandro, are they still out there? Or have they hung it up?
Alejandro Szita: They're still out there. These guys are never going to go away. But they are not paying top premium prices, you know? At one point, Zillow was trying to do that. They had on their website a feature, a quote unquote “feature,” you know. This is always amazing to me, and I want to tell you a little story. I remember years ago, I don't know if you remember, there was an actual commercial on the television saying “buy the car from us.” You only need to pay the sticker price. You don't need to hassle, you don't need to haggle. You go, you come to our lot, you see the sticker price, no hassle. And you pay that. And I thought to myself, who on earth will want to do that and get ripped off? You know, this thing that it is bad to negotiate, that it is bad not to ask for a price reduction. That is bad. Not to be aggressive is absolutely counterproductive, especially in a field like real estate. Value is completely subjective, you know? And the thing is that real estate is a very emotional field. So if you are able to control your emotions to a certain degree, and if you are willing to put a little bit of work, now is the time. Now that the rates are like super, super duper high, and they're insanely high, and they may go even higher, now is the time to negotiate. Don't be afraid, you know—enjoy it. Find a realtor that is on the same frequency, and go for it.
Kerry Lutz: You know what I say, buying a house is buying a box. Who cares, right? It's, does this box work for you? And is it at the right price? Otherwise, it is just a box. All living spaces are boxes, right?
Alejandro Szita: Yeah. Yeah. And if you allow me, let me say one more thing: another worry, in addition to the interest rate, is people are worried about what is going to happen with the economy. What is the outlook? I noticed that on your podcasts, you had a guest, Martin Armstrong. I happen to follow him for many, many years, and I happen to agree with what his computer system says and what he predicts. You know, I'm not going to paraphrase him because he says it a lot better than me. But basically what he predicts is that, as you know, we're going to go into a war. You know, interest rates are going to continue to go up. And when I was seven years old, I lived through a period like that in Chile from 1970 through 1974. You see, we went through a very similar period in which the socialist government basically took us over, from 1970 through 1973. We lived under sort of a socialism.
Kerry Lutz: How'd that workout?
Alejandro Szita: Or a communist regime? It was absolutely horrible on every single level and every single respect. Then what happened is this, after the communist government was overthrown, we had in Chile a very terrible financial scenario. The currency had to be devalued a thousand to one, meaning in 1973 or 1974—one of those two years—1000 units of our earlier or former currency became one of our new currency. Now, people may say, hey, you know, this is Chile. You know, we're in the United States. That has never happened. This is a third world country. But you know, it has happened pretty much in every single country. It has happened in France—a major country. It has happened in Germany more than once. It has happened in England. It has happened everywhere. It has happened in Mexico. This brings me to another story. My, one of my first transactions back in 2006, my broker sent me to talk to this Mexican couple. He said, you speak Spanish, right? I said, yes, I do. I'm from Chile. Why don't you talk to them? Because I cannot communicate with them. They need a loan. You may help them with the real estate. So to make a long story short, I went to see them. And this is what the husband told me. He said in the eighties in Mexico, he bought a house for 50,000 pesos. He said at that time that amount of money was pretty much on the limit of what I could even conceive in my mind. The mortgage payment was like 300 or 400 pesos a month. And to me, that was almost undoable. Then in Mexico, there was a huge inflation; those 50,000 pesos became almost nothing. He said in two months after the devaluation I paid off my house.
Kerry Lutz: And we go back to Germany post World War I, Weimar Republic. And there's a story that a person checked into a hotel. Pre-hyperinflation. Tipped the bellman they all were men back then. A $20 gold piece, that's a US $20 gold piece. And a year later, after the hyperinflation, that bellman bought the hotel. Now, I don't know if it's true, it could very well be apocryphal, but it certainly isn't hard to believe. And there the history is replete with stories like the one you told of people borrowing, what appear to be very high rates, large sums of money, and cashing in on the inflationary wave that follows that borrowing. And look the Federal Reserve's fighting a losing battle here, because you and I both know that inflationary waves can last for one or two decades as what happened in the sixties, seventies and eighties in the United States and the world. We, most of the people alive today, Alejandro, don't even, up until now, they didn't even know what inflation was. They didn't, they couldn't even grasp the concept. But go to the supermarket and you know, I don't say we have stagflation. I say we have steakflation. You go to the supermarket and that bone in ribeye is now selling for double what it's sold for six months ago. That's steakflation.
Alejandro Szita: Yes, yes. So the problem becomes what to do. You know, like many of your guests, Martin Armstrong one of them, have said on your podcast, it's not about what the Fed can do or cannot do, because they cannot do anything, as he said, because the inflation we have right now is for scarcity of goods, because of the quote unquote “pandemic.” And because of everything that is going on in the world, there are not enough things, and that is causing prices to go up. But the question is always, I get asked the question, what can you do about it? And I tell you what I saw. When I was seven or eight, and I saw in Chile this devaluation, and it was a very similar period to where we're living today. I saw that people that owed a lot of money got benefited because that money that they owed became, even though it was a lot of money, when they initially took the debt became less and less and less and less. People that saved in currency. People that had a large, large deposits. They got, they were lost because their large deposits, even though they were still large as a nominal number, the power, you know, the purchasing power became less and less and less. The people that won were the people that hadphysical assets. Those are the people that won.
Kerry Lutz: How about people holding gold? How did they do there?
Alejandro Szita: They did very well. You know, at that time, you know, at least Chile, there were no losses against gold. But holding a physical asset is what can get you through a situation like this.
Kerry Lutz: Even if you buy a car today and you finance it, you know the debt you're going to pay off on that car and that car, theoretically, hey, if you're an Uber driver, you can earn an income off of it. But even if you need the car to drive to work, right? So any physical asset will do it. Some will do better than others. You know, firearms, ammunition, and that type of unstable hyperinflationary environment, you know, a box of ammo can fly to the moon.
Alejandro Szita: Possibly. Yes. I have no experience on that, but possibly, yes.
Kerry Lutz: Trust me, it's just like anything else, anything. Because one thing that happens, as you know, from living through it, is when there is a hyperinflation or, or large inflation, shortages crop up. So if you can anticipate the areas where the shortages will arise, and hopefully invest in those areas prior, you're going to do really well. But eventually though, Alejandro, the hyperinflation ends and the hangover comes. So you could have a deflationary reversal and wind up losing, right?
Alejandro Szita: Yes. And to, to hedge against that, what I always say is get out and know your neighbors. Become known in your local community. You know, you will be amazed how around you, within a mile around you, you basically have everything you need. And if you take some time to know the people that are around you, when things like this hit, you will be a lot better prepared. Because trying to do this all yourself, you know, having your escape bunker, let's call it, full of ammo, full of preserved food and all that, that is not really the way it's going to play out. I can tell you from my experience, the way it's going to play out, you know. That scenario will really not come. Probably if you are in a war zone, like Kiev, Ukraine, maybe. But we are not got to get into that scenario. You know, the scenario that we're going to see most likely is that the supermarket is not got to have enough food. There's going to be a lot of lines just to buy a little bit of bread. If you go and buy a car, you're going to go to a car lot and pretty much there's got to be no cars or a couple of used cars at an exorbitant price. This is more likely the scenario. Power cuts, you know, on and on rolling power cuts, especially if you're in Southern California, not in Florida or any of those other states. That's possibly what you will see. You will see unstable currency. But this is not going to happen right now anyhow. This is going to happen between now and December of 2032. So we have still a long ways to go, and in the middle it's got to be very volatile. So that's what I'm saying, don't focus so much on the rate. If you have the ability to buy your piece of real estate today, even if the rate is horrible, just be aggressive on the negotiation. Get it to a point where you can live with the monthly payment, and don't worry so much about the rate.
Kerry Lutz: Well, there's a lot of truth to what you're saying. And if the scenario that you are portraying, and I put more credence in what you're saying than others, because you've actually lived through this before and have dealt with other people who have, most people alive today don't even know about it. They think hyperinflation is something that happens in Zimbabwe or in Iran, but it's happened throughout history. The history books are full of countries where the currency is hyperinflated. We might not have hyperinflation in the US, but look, right now, we got double digit inflation because by anyone's measure, the government undercounts inflation. So let's just for arguments sake, use John Williams of Shadow Stats, his analytics, which is 15%. So you can borrow at eight. Your real inflation rate is 15. You're, you're making 7% on your money. Sounds like a good deal to me. Hey, Alejandro, we got to pack it in here. But just tell us where do we find you? How do we connect with you on the web, and what you can do for us.
Alejandro Szita: I'll show you, if you have a minute. I went to a coin and currency collectors fair. And I just wanted to show you this because this is very interesting. This is for my country. This note here is for half escudo. That was our currency before the crash. This is a note for half escudo. This one here is a note for one escudo.
Kerry Lutz: Okay.
Alejandro Szita: This one here is a note for 50. That was a lot of money back then. This is prior to 1973. Now look at the progression. This one here, then the currency changed. Oh, this one is for 5,000. So remember we went from half to 5,000, then the currency changed and now became a thousand pesos. That's a new one, but very soon it escalated to 10,000. So when you are saving money, you need to be very careful. Saving in currency never pays out. And we have to go now. I have other currencies. I have another one. Trillion dollar notes.
Kerry Lutz: Oh, I got one of those. A trillion dollars doesn't spend the way it used to, Alejandro.
Alejandro Szita: Right? Right. You can find me, to answer your question, at www.prosperitylending.us, prosperity as in something prosperous and then lending dot us. And the best way is to send me an email at info@prosperitylending.us.
Kerry Lutz: Very cool. Hey, really appreciate your coming on again with us, Alejandro, and giving us a historical and monetary perspective of why sometimes it's really good to be a borrower and other times it's not. This is one of those times I tend to agree with you better to be a borrower because of your income. As long as you got a reliable income, will be going up. Hey, I like to say, Alejandro, inflation, I love it. I'm enjoying it. It's the best I've ever had. I've never made so much money in my life before and I never saved so much money, because I can't afford to go out and do anything anymore. Can't afford to travel, can't afford to buy anything. So this is great. I'm sitting on more money than I ever have before. All right. Anyway, thanks for coming on. The email address, shoot me an email, let me know your thoughts about this, kl@kerrylutz.com and make sure when you're at financialsurvivalnetwork.com, you sign up for your free newsletter. Alejandro, we want to talk to you again soon. Keep us posted.
Alejandro Szita: Thank you, Kerry.
