Priced Out: The Housing Market Struggle

In this episode, we dive into the growing challenges facing today’s homebuyers—especially first-time buyers trying to break into the market. 

From rising interest rates and limited inventory to increasing home prices and affordability concerns, we unpack why owning a home feels more difficult than ever. 

Join us as we discuss what’s driving the market, who’s being impacted the most, and what buyers can do to navigate the struggle. 

Want a free Portfolio review? Feel free to schedule a call with our team today-

https://lifegoalinvestments.com/contact/#get-started

Transcript

SPEAKER_01 0:00

From Wall Street to managing hundreds of millions in client money, Nick and I use our alphabet soup of credentials to discuss the investing and tax strategies that actually work. Oh, and we played Division I college football together, so strap in. This one hits hard. Let's go. All right, US home prices are up 55% since the start of 2020. Not only are home prices up, but so are mortgage rates. Therefore, the typical monthly mortgage on a median price home went from$2,045 in 2021 to$3,270 by 2024, a 60% jump in three years. These are mind-numbing stats. And this episode is gonna be chalked full of mind-numbing stats because we are talking the housing market, baby. So think about this. It kind of feels like going back to 2021 when mortgage rates were at 3%, it was a gift from the gods. Free money. Buy a low-priced home, it's gonna go up in value. And all of a sudden the paradigm has shifted. In 2024, 2025, 2026, six to seven percent mortgages. And it feels like your guts are being ripped out as prices run away. So on this episode, we've brought in the CIO of the firm, Brett Sans, who happens to be my brother and compadre. Not only are we going to discuss some of the investing tactics when it comes to down payments, etc., who he is the best person to speak to, but he's had a little housing saga of his own recently. So on this episode, here are the topics. Where is the housing market today? Where are mortgage rates today, and what drives them? How much house can one really afford? How to save and invest for a down payment, and when to send your extra cash flow to the bank versus the brokerage account. All right, enough of my monologue there. Brett, housing saga at your house with your family. Give it to us real quick.

SPEAKER_00 2:19

Absolutely. It's a long one. So uh I'll just start off with some success and then we can go into the saga of trying to build our uh our family house. But um, so in Saratoga Springs here, which is our our hometown and where we uh headquartered life goal, I bought a condo in 2016. I paid$560,000, and uh we actually just sold it this year, so in 2026, and I sold a cash deal um for$910,000. So that worked out terrific, right? And I actually had one of those 30-year mortgages that had a three-handle on it. So that was a great setup. I did not want to ever sell that condo. That condo was insane. It had 22-foot ceilings, floor-to-ceiling glass, looking over the park. It was amazing. I was forced to sell that dang thing uh because I couldn't really afford to build my house the way I wanted to uh here in 2026. And the saga of building a home uh for me and for many others out there, and this, you know, we know that others aren't having maybe as as uh much success getting the build off the ground or the buy off the ground just because it's so damn hard right now, and that's what we're gonna talk about today. Um, I wanted to start building my family home in 2021, right? By the time we actually got started, it was 2026, and we're making progress now, but again, I took my lumps along the way trying to get a mortgage um that would would qualify given being a business owner, right? And business owners don't like to show their income. The bank wants to see your income, and then also just the cost is running away from you every single day. And um, on that new mortgage, I have a six handle on my mortgage. I'm praying to refi at some point over the coming decades. But um, I was forced to sell uh sell a nice asset in order to be able to bankroll the bigger project. So um I think that that's a perfect example of a five-year struggle. Um, patients, you know, saving like crazy, my wife and I, uh, as we as we pop out kids along the way to finally be able to build the house. But I think that that is what every person in America right now is feeling. It's frustrating. And um, you know, it it's it's an uphill battle to say the least.

SPEAKER_01 4:30

Brett went from downtown city living with a wife and no kids to now having three kids living in a condo downtown to moving outside of town on 50 acres looking at a horse farm. So his life has flipped a little bit from bachelor or wife, whatever you want to call it, to farmer out on the outskirts of town. But uh nonetheless, a ton of fun to watch and see the progression. I'm sure everything's gonna work out great there. So, just some some further state of the housing market today, right? So, currently there are 4.7 million homes fewer in this country than we need. And that's a rough number, right? But just to give you an idea, how much is 4.7 million homes? Our annual run rate of homes sold is roughly 3.98 million. So we're a whole year, year and a little bit short, right? And so a lot of that goes back to 2008 and the great financial crisis, and overbuild led us into that crisis. And then regulatory environments and people's nature, when things happen one way, the pendulum swings too far back in the other direction, and we underbuilt. And now we're facing the mercy of that. Here's a really interesting stat. And what this tells me is that millennials or Gen Z or whomever is in that house buying phase right now, they can't afford it. 26% of home purchases last year were in all cash. That means mom and dad purchased that home, right? And that seemingly is the only thing that can take place right now as you have this affordability crisis play out. And to kind of compound that underlying issue, think about this. The median list price right now is$445,000. The median sale price is$436,000. So what we have is this kind of uneven market. What we're seeing is that the sellers have their houses overpriced. Why? Because they don't want to sell a three or four percent mortgage. So the houses that are on the market, they're like, shoot, I'll overprice this. You know, I don't want to live in this house that's got one bedroom or two bedrooms now that I have three kids, but I'll overprice it in the event that someone's willing to buy it, so I can afford to go into a six or a seven percent mortgage on the other end. The only way I can do that is someone pays up for my home right now. And so you have this market that's just a stalemate out there. So that's an interesting kind of stat right now. Right now, you have basically an even blend of mortgages below 3%, incredibly low, and those above 6%. And anyone that has any recency bias of mortgages in their head thinks that 6% is really, really high. So they certainly don't want to trade that 3% mortgage, sell that home to refresh in a 6%. So therefore, they're putting their money out or their house on the market at a price that's too high and it's just not moving. So, Brett, talk a little bit about, if you would, kind of the pricing story of home values. We touched on the intro, but let me hand it over to you for that.

SPEAKER_00 7:48

Yeah, I actually want to take a step back too, just on what you were saying there. And I know we're gonna try to stay on track with this podcast, but let's just get off track here real quick. Here we go. So you we go back to the stat of 26% of the homes purchased were purchased with cash, right? So it means obviously a bunch of different things, but it goes back to that K-shaped economy, right? In in the top half of the K has the cash. Likely the cash is coming out of the stock market, right? They've they've had a great experience in the stock market, and that that money may be coming from there, which is all fine and everything. And and it just it puts the power in the top of the K, right? Because the top of the K is a cash buyer that actually and that obviously puts you at an advantage too. If there's any real estate broker out there, they're gonna say, Do you take the cash buyer or do you take the person that's got to go get a loan from the bank? Every single time they're gonna recommend you take the cash buyer because it expedites the closing process and I don't take some question marks off the table. But it's just it's it's really intimidating and and and challenging to be a home buyer in this market. I have been fortunate enough to stumble my way through it. And I'll even go as far to say that here at Life Goal, uh, we have a bunch of very young employees, and I can appreciate the headwinds that they face, right? And we think that we compensate them well. And and we have actually gone as far as adjusting our vesting schedule on some of our equity in order to help them in a one-time home purchase opportunity. And that, you know, kind of goes to show that we, given the the, you know, what we've come through and trying to buy our own homes between Taylor and I and the other folks in management here at Life Cool, uh, just how daunting it is. But I would encourage everybody to be very open to supporting the young people that are trying to come through this because it's critical that they can afford a home in order to be able to kind of have that family dream. You know, have a family, do all those things, right? It's important for their psychology, it's important for our country in order for these people to be able to uh get into a home and establish that uh as it as it relates to building a foundation for a home for a family, right? Um so just getting back here on track. So home prices, right, since 2020, according to Zillow, up 45%, right? That's a mind-numbing stat. Some other markets in the country, like Knoxville, Tennessee, up 88%, Idaho, 155, uh, Florida, a buck 30, right? So the home price growth is numbing. And when you have the buyers with their cash in the stock market, and the stock market is going up, SP is going up at 20% a year, makes a lot of sense, right? They're all competing against each other for those properties. So it's um, you know, it's incredibly daunting to be somebody that's trying to take out the mortgage, do it the old-fashioned way, and buy when you're competing against a stacked deck, essentially. So um, just touching a little bit on a few other areas in the country. So uh 11 states actually have inventory levels that are above the pre-pandemic inventory level. So that's pretty interesting. Arizona, Colorado, Florida, you know, some of the more trendy states, if you will, not some of the old school northeast states that we happen to sit in. Um, and then just, you know, here on our local, uh, local area, because of tight supply, you actually have, you know, the the Northeast, right? So New York, Connecticut, Mass, those types of states are actually super tight supply and the uh prices are are still pushing up. Whereas the the the uh states that I mentioned before are actually starting to see the prices are starting to level out, even you know, even sell a little bit below listing. And that's because a lot of supply came on in those states because they don't have quite as much regulation on builders. And then uh also a couple fun facts here in the capital region, uh upstate New York, the Albany area where we live, it's uh it's favorable to be in the seller's position. Uh, and that's kind of what I just got lucky and stumbled into. And then the last um stat here that I'll give that I think is incredibly interesting is that median resale home values now cost more than building a new home. So, you know, that's that could be kind of a list, a misleading stat as well. It may mean that the new homes that are being built are slightly smaller, or it also could mean that because there's not a lot of demand to build homes, because the cost of capital is so high, builders' margins are coming down. And it's likely a combination of the two. So pretty darn interesting. Uh, and then going back to that K-shaped economy, just to put a little bit more meat on the bone statistically there, first-time home buyers represent 21% of the market. Historically, pre pre pre-08, that was over 40% of the market, right? So you think about who should be, you know, kind of following through in that American dream. It's your typical, you know, young person looking to establish a family, or maybe they have their first kid or second kid, right? Coming into that new home. Right now, that's not the case, right? You have the uh average all cash buyer represents 26% of the market. 30% of the buyers are repeat buyers, right? So we're we're really kind of talking about likely that baby boomer generation that's got the cash. And that actually, if you look at the repeat buyer median age, it's 62, right? So these are kind of crazy stats. Um, and it just kind of looks right down the barrel of how challenging it is. Uh, and in that K-shaped economy, you know, anybody who could afford to have their capital in the stock market, they're at an advantage. And uh that absolutely is the people who have extra money sitting around. You can't afford to have your money in the stock market if it's if it's not you know perceived to be extra money. So Taylor, tossing it back to you on mortgage rates.

SPEAKER_01 13:35

Yeah, I think it just shows you know, all your summation there goes back to the fact that like it is just young is tough right now. Young is tough in the home buying market. There's no way around that. Um, and we've we you know we highlighted there the fact that you've had home prices move higher. And and again, so I I always kind of want to hear this. Like what you always have in people in comments is saying, well, you know, home prices aren't going up in my community, etc. Like realize that it's hyper local. Like real estate is hyper, hyper local. So you might be in a hot market, you might be in a soft market, and that's what Brett was kind of referencing there. Broadly speaking, the Northeast and the in the Midwest is a strong seller's market right now, a stronger buyer's market where prices have come down as in the Sunbelt. But we talk a lot about prices, right? But it's not just prices, it's also mortgage rates. So let's just look at kind of what that broadly speaking looks like because it it's it seems that they're incredibly high right now. Well, right now the average 30-year mortgage is is right around six and a quarter. And for recency bias, right? You remember back to 2021 in January when they hit an all-time low, the average 30-year mortgage at that point was 2.65%. So, so, so low. That is free money. That is ZERP, zero interest rate policy. We'll talk about in a minute what sets mortgage rates. But for the 50-year average over the last 50 years, the average mortgage rate is 7.7%. That's the average 30-year mortgage rate. So at six and a quarter, it is it it feels terrible when you've got your friends saying, Yeah, idiot, you should have bought three years ago. I locked in at three and a quarter. I get it. It feels terrible. But in the grand scheme of things, they aren't ridiculously high, although it feels that way. So let's just talk real quick about what drives mortgage rates. Because I think there is a big misnomer, and that big misnomer is it's Jerome Powell's fault. It's the Fed's fault. They raise interest rates, bang, you know, mortgage rates go higher directly in lockstep. What's funny is the last time they cut mortgage rates, or I'm sorry, cut interest rates in the fall of last year, you actually had an increase in mortgage rates. Very counterintuitive there. So instead, what I'll do is I'll reframe. And and and you have to kind of oversimplify things here because there are doctorate degrees that are given out for folks that really understand mortgage rates and interest rates. But broadly speaking, I'll say this if you're looking to point at what drives the 30-year mortgage, point directly at the 10-year treasury rate. The 10-year treasury rate is going to be the base rate for a mortgage, and then they're gonna provide a mortgage spread on top of it. And the mortgage spread, there's an average mortgage spread, and then if you have a low credit rating, your mortgage spread is gonna be higher. If you have a good credit rating, your mortgage spread is gonna be tighter. But broadly speaking, the biggest driver of what mortgages are is that 10-year treasury. And to be clear, what drives the 10-year treasury, for the most part, if you had to boil it down to one thing, it's the future expectations for inflation. So if the future expectations for inflation go higher, the 10-year treasury is gonna go higher, thus, the 30-year mortgage rate is gonna go higher. And if you think back over the past 10, 15, 20 years, what we were was in a zero, 2% really inflationary environment, very, very low and persistently low. And then what happened was COVID hit. We flushed a ton of stimulation into the economies, broadly speaking, both from federal monetary policy and then also fiscal policy out of the, you know, Washington, D.C. and everywhere else in the world. And bang, you inflated asset prices, people started chasing around different things like uh, you know, you remember car prices just going absolutely nuclear. So inflation was going up, that drove interest rates up, that drove mortgage rates up. And that's why you had since then we've gone from a peak in I think it was June of 2022, is probably when we had a peak in mortgage rates and inflation rates. Since then, they've settled in some, but you're still not back to those low watermarks that you had seen before that. So if you're looking for, hey, what's the direction of interest rates and mortgage rates, look at what's the direction of inflation. And by the way, that is a very, very, very hard game to predict. But that's what you're looking at broadly speaking. So coming back to kind of purchasing the home now, now you got a better grasp as to what drives mortgage rates. Let's just make make this full and clear. Everyone talks about, hey, 20% down payment. Nobody pays 20% down these days, at least not first-time home buyers. First-time home buyers, on average, put 9% down in this market. Right? So, first-time homebuyers, they just can't afford to put 20% down down on these expensive homes and then still have enough money left over to pay these expensive mortgage rates because mortgage rates are so darn high. So at the end of the day, I think that's something that I wanted to debunk to begin with here. But Brett, you're the CIO of this firm. You have been through this very recently: a sale of a home, a build out of a new home. What the heck do you do with your money in the period of time between when you get it in your pocket and uh-oh, it's gonna go to this home purchase. Talk us through how do you make those decisions?

SPEAKER_00 19:12

Yeah, absolutely. What you hope you did was you loaded up on crypto about 10 years ago, because that's about the only way to afford anything in this day and age. And this actually just reminds me, and I know Taylor, you were you told me, stay on track, Brett, stay on track, don't take this off. But I just got to take it off one more time. So there's a lot that goes into uh home prices, right? And having an Iran, or pardon me, having a war going on in Iran right now, with one of the key input costs going into homes being oil, isn't gonna help anything, right? So when you think about not just interest rates and how uh the feedback loop on oil works its way into the economy, but you think about all the material and everything that also works its way into the economy, uh, all this stuff is gonna go up in price, at least here in the short term. And last time it turned out to be transitory, uh, but it took a little while to get transitory. And then I'll just bring up one other stupid fun fact that um the builders, okay, the builders that are out there building homes are doing a pretty damn good job protecting their margins. Okay. They got used to the frothy pricing that happened when stimmy checks were going to everybody and and and big businesses were getting gigantic stimmy checks, right? So the the every owner of a business then was building a fancy mansion uh to go along with their business. A lot of money got ejected to the economy, and the builders got used to being able to pass through whatever frigging price they want. And the builders are doing terrific. And I'll just give you a stupid story that may make you laugh. So I go up to meet on my site to meet my builder, who I absolutely love. I think he's an awesome guy, and I think he's a very talented builder. He pulls up in his Porsche SUV. I'm like, all right, you know, he's a guy's doing all right. He's a middle-aged guy, he's built a lot of houses. He ought to be able to have a nice Porsche. I'm like, that's cool. About two weeks later, I'm driving downtown in our in our little town in upstate New York. I see some guy come whipping out in front of me in a Porsche convertible. Kind of pull up next to him at the at the uh at the red light. I'm like, what the heck? It's my damn builder. The guy who's building my house, not only does he show up on the site with the Porsche Porsche SUV, but he also comes whipping out on uh on downtown in our town here in his Porsche Convertible. I'm like, my damn builder has two Porsches? What in the world is going on here? I'm like, why did I go into finance? I should have gone into uh construction management. So sorry to get completely off track there, but there's a lot of things that are adding to the costs. And if you're in the uh in the game of building a home, uh you need to be on your toes on the investment side to be prepared ahead of time. So back on track here. If you're setting aside money to build a home, we kind of think about it in three buckets, all right? If you're gonna build a home or buy a home, right, buy a home is more likely. If you're gonna buy a home and in within the next 18 months, you really more or less wanna be in like a money market, right? Something that's very conservative. Um, because you also you're saying 18 months you're gonna buy. If the cookie crumbles right, you could be buying in six months. And the other bit of it is is you're gonna go to the bank and you're gonna have to have some conversations with them, and they're gonna be happy to hear that your assets are not in crypto or in the NASDAQ, that they're set aside and earmarked so that you have when you say you have 20% there, you got 20% there, or 9% or 15 or whatever the number is. So if you have an 18-month forecast on the purchase, I would say stick to a very conservative asset allocation, something similar to a money market, CDs, um, you know, something that's getting you a yield, you know, three, four percent, something like that. If you're gonna go a little further out, go ahead, Taylor.

SPEAKER_01 22:42

Right, yeah. I it's funny that you say that because what we see a lot of people doing right now is just with this recency bias of the market goes up every day. We kind of have a laughing joke as we walk in the office every day. We're like, is the market up? When someone else asks, is it open? Yes. So therefore the market's open, it's up. Right. And that's tongue in cheek. But don't get me wrong, the last three years have been truly euphoric and been awesome. And you have been much better off sitting there waiting in stocks and just pulling out the electricity cord from the market and selling your stocks right before you need it. So you're saying, like, yeah, okay, Taylor, that may have worked in the rearview mirror, but that is not what the the opportune thing to do is because there's too much downside risk. That's what I'm hearing.

SPEAKER_00 23:26

Yeah, absolutely. And and you know, we could look at any big corporation in America. They all have essentially a you know a balance sheet with a cash reserve on it. They don't sit in the stock market, right? Because their transactions are happening in kind of short-term order. So, like, you know, uh in your MBA textbook, you're gonna you're gonna find a chapter on that. We want to run that same playbook here when we're trying to buy a house. If we're buying a house in 18 months to three years, you got a little bit longer window there. You could be a touch more aggressive. Um, again, I think you ought to have a you know a little bit of it in in a money market or see or something like that. If you're gonna, you know, have any exposure to uh the stock market, I would keep it sub, you know, sub 20% probably. And then the balance maybe is a combination of of bonds, right? And not necessarily individual bonds. I mean, if you were to bring the money here, we'd build you a cocktail using ETFs, uh, also with some floating rate uh corporate debt in there, and that will essentially you know hedge interest rates a little bit. And then if you're going further out than that, looking at hold on there, because I think that's something that people really don't understand.

SPEAKER_01 24:27

So a lot of people think when they think bonds, they think interest rate sensitivity. And that is true. The traditional bond, which is a fixed rate bond, think of a treasury. If you have interest rates go up, effectively what's going to happen is there's an inverse relationship between interest rates going up and bond prices coming down. And I'll I'll talk you through that because it is very logical. So if you're sitting in a treasury bond that is yielding 4%, and interest rates move higher to 5%, and they issue new treasury bonds at 5%, the natural inclination by the market is to sell that 4% bond and go out and buy the 5% bond because it's the same bond, same creditor, better return. And what that does is drive down that 4% bond, right? So the traditional relationship in bonds and the average financial advisor says, listen, interest rates up, bond prices down. The more nuanced and sophisticated financial advisor understands that yes, that is fixed rate bonds, but there's also a complement on the other side that is floating rate bonds or adjustable rate bonds. And so when you're building out a portfolio of bonds that is targeting a purchase in whatever it is, 18, 24, 36 months, you have to balance that interest rate risk because a large portion of that underlying allocation is going to be in bonds because bonds provide less volatility and less downside. So if the market falls out of bed and goes down 30%, your bonds typically don't do that. But the stock market certainly can. So now you have bonds which have that interest rate risk, but you have to diversify that interest rate risk with a portion of them being in fixed rate bonds. That's what I just described, where interest rates go up, bond prices sell off. You also have to have floating rate bonds. And what a floating rate bond will do is as interest rates go higher, the yield or the coupon that the bonds pay will respectively go higher as well. And now you have a portion of your portfolio that effectively has a positive impact when interest rates go up. That's the floating rate debt. And then the other portion of it is going to be negatively impacted. But if interest rates go down, your floating rate does poorly as your other bonds and traditional fixed rate bonds rally. So what you're doing is you're balancing those two risks. And that is what a lot of people messed up in the last few years, holding bonds that were all fixed rate in their nature. And then 2022 came and interest rates backed up and their entire portfolio got wiped out. So I just wanted to be clear on what Brett's talking about there when he talks about blending in some floating rate bonds as well. That's starting to strip out that interest rate risk.

SPEAKER_00 27:07

Yeah, if we wanted to be a little bit more detailed on it, I would consider going a third in equity, and the equity would be a more conservative blend of equity, you know, dividend-oriented stocks. A third in high quality fixed rate debt. Yeah, that kind of what you described there, Taylor, Taylor, whether it's corporates, mortgages, or treasuries, uh intermediate duration, and then maybe a third in floating rate debt. And that can be a cocktail of medium quality, uh, as well as you can buy some stuff that's that's triple A floating rate as well. So a third, a third, a third, and that is for three years and in. And then if you're gonna dollar cost average into this portfolio to build it, like most people are, I would seed the equity position first, and then I would buy the debt thereafter. So if you think you're three years out, spend your first year buying equity, and then the next two years buy debt, right? And then look to essentially, you know, if you keep if you're gonna keep dollar cost averaging, which you probably are up until the day that you buy your home, as you get closer and closer to buy your home, you're gonna you're gonna avoid the equity. You're just gonna buy essentially the high quality bonds. All right. Okay. And then the last window there is if you're three years plus out from buying the home, five years, if you're, you know, a young person just out of school or whatever. Again, I would think about the equity sleeve the same way. I would consider going up to about half equity. I would want the equity to be diversified. I would want to have it cheated towards dividend growers, right? And then the other half of the portfolio, I would do the same exact thing where I'd have a cocktail of high quality and medium quality debt. And I would keep about half of it floating in nature, with the other half of it being fixed rate, intermediate duration. And that should give you a real puncher's chance to not only grow over that, you know, say five-year window, but also have predictability where you can continue to kind of dial in on that down payment amount, whatever it may be for you, between nine and 20%, it sounds like where most people are falling. So it'll give you enough predictability in the portfolio to be able to keep you on schedule, which is really important because you have the psychology of this thing is incredibly, incredibly important. So you have to be able to always see the light at the end of the tunnel so that you can keep marching towards it and not get, you know, uh stray. So the other thing that that is very helpful is it it would make sense for you to isolate this account from your other accounts. So set up its own brokerage account and do this in its own brokerage account. And we do the same exact thing for our clients that are buying homes or buying, you know, whatever beach house, whatever it may be. We'll isolate the account so that everybody can keep a very close eye on the goals of the account, not commingle it with longer, you know, duration assets. So I think that is a pretty solid setup for folks. Taylor, you know, just kind of coming back to you as it relates to thinking about how people are are facing an uphill battle.

SPEAKER_01 29:57

Yeah, let me let me make a comment on something that you talked about before because I think it was an interesting point. You talked about having dividend growers as where your equity allocation was. You didn't say have high dividend payers. There's a really nuanced kind of thing there that's really important for folks to understand. So you said dividend growth. High dividend payers actually oftentimes present a fairly significant level of risk. Yes, they're gonna pay a dividend that might be seven or eight percent. But what happens is when folks or companies, I should say, start paying that high level of dividend, something called your dividend payout ratio as a company starts to get really, really high. And when you're paying out so much of the incoming cash flow to the shareholders, if there's any disruption in your business or broader economy, all of a sudden you're not gonna be able to make that dividend payment. You're gonna have to cut it. And when companies cut their dividend, their prices get absolutely eviscerated. And that's not what you can have with a home down payment type equity portfolio. So on the other side, Brett, you mentioned dividend growers. So think about dividend growers as like a chicken little way to have equity exposure in the market. Because if you think about a company that's able to grow their dividend every year for five years, seven years, 10 years, whatever structure you're looking at there, that takes them through COVID. That takes them through nasty inflationary pressures of 2022. And their balance sheet was strong enough to continue to pay out more every single year. So that's that kind of low volatility, low downside type equity exposure that really makes sense for this type of portfolio. So, Brett, now let's transition real quick into one quick topic. So we talked about okay, here's how you save your money, but how about after you've actually made that purchase? How do you decide whether to pay more towards the home and the mortgage to pay down your principal or invest? Because the last 15 years, you've been a fool to pay down your mortgage because mortgage rates were lower and the stock market has been nothing but going up for the past 15 years. So give us some criteria, some structure as to who should pay it down and who should invest.

SPEAKER_00 32:12

Okay, so now that you have your family's personal balance sheet back intact and you've got your emergency fund back flush, or you've got three to six months in your emergency fund, and you're able to say, hey, like I need to now make an active decision. I feel good about where I'm at financially. Now I'm looking at, okay, what is my mortgage rate? And should I be taking additional money that's coming through to my family and putting it towards the mortgage because the mortgage is high, or should I be putting those extra dollars into my brokerage account? So generally speaking, if your mortgage is below 4%, which there's still a tremendous amount of people out there with very low mortgages, and it may not just be on their home they're living in now, it could be on another house. We avoid that, we recommend that they continue to push money towards your brokerage account there, right? With mortgages below 4%. If it's in the 4% to 6% range, your mortgage, we want to sit down and have a calculated conversation, right? It's not necessarily a layup decision. If it's over six, if it's your mortgage is six, six and a half, seven percent, that extra money that you have coming in every single month after you've re-established your emergency fund, we recommend pushing that extra money towards the mortgage. And the reason why is essentially that's a guaranteed six and a half percent return or seven percent return, whatever your mortgage ends up being. That it's tough to get that in the market, right? The guaranteed aspect of it. Sure, the SP has gone up much more than that over the last several years, but there sure as heck is nothing guaranteed about it. So that's where we make a calculated decision and we say take the fat pitch. The mortgage is the fat pitch. If it's 7%, you're on the hook to pay that. That's where you may end up deciding to push an extra$1,000 or double your mortgage payment, whatever it ends up being. So those are the windows or ranges, if you will. Below 4%, keep stuffing money into the brokerage account. Four to six, sit down and have a calculated decision on what the numbers are, whether or not to you know slide a little towards the mortgage or slide it back into the brokerage account. And then over six and a half, if you're six and a half, seven percent, that's where we recommend just you know, take the fat pitch. The fat pitch is pushing your incremental dollars towards the mortgage and just try to get that uh you know pushed down as much as you can. And then if you get the opportunity to re-fi at a later date, hallelujah, right? Refi down to five, five and a half or something, and then revisit this conversation. So, Taylor, I think, you know, given the headwinds in the housing market, I'd like to think that that little roadmap should give people a pretty solid opportunity to uh, you know, get money set aside, have a balanced posture, how they're gonna think about it, and get themselves set up for success because it's you definitely need to have a plan going in. This is not easy. We feel for everybody that's out there, and uh this should set you up in pretty good shape to be able to transact when you're good and ready.

SPEAKER_01 35:01

Yeah, and the only thing that I would add to your last commentary there on you know, when you're thinking about, hey, what is my mortgage rate and what should I be investing, what should I be paying down the mortgage is it's not just okay, you need to have a 7% return or better in the market. It's a 7% return or better in the market if you have a 7% mortgage, that is, after tax. You need to get that return after tax, right? So that's really, really important. That's something that no one thinks about. They're like, hey, any fool can go out there and get 7%, which again in the rearview mirror, there's definitely recency bias that anyone can, but it's 7% after tax. And you have to know you can do that because that is the guaranteed rate of return from paying down that mortgage. So it there's there's no way around it, Brett. Man, it's a it's a difficult housing market out there, especially for the younger folks. Um, the K-shaped economy is affecting it in a big way. Housing prices are going higher because we've had inflation over the past five years, mortgage rates are high. So just keep on stuffing money away, keep saving, keep being diligent, keep spending beneath your needs. And at some point, the opportunity will present itself if you continue to work your butt off and uh and buy that home. So thanks so much for for sitting and listening with this guys. We'll be back next week on Wednesday to do it all over again. Thanks so much. Thank you. Take care. Quick ask: if you're enjoying the show, hit the follow and drop a rating. It helps more folks find our podcast. Thanks so much. The information discussed in this video is for educational purposes only and should not be considered investment in taxes or financial advice. Investing involves risk, including possible loss of principal. Always consult a qualified financial professional before making any investment decisions. Past performance is not indicative of future results.