What’s the real cost of not knowing the 2025 housing market trends?
For physicians, buying a home isn’t just about picking a place to live—it’s about making a financial move that could either set you up for long-term wealth or sink you with unnecessary costs. Too many doctors are walking into home purchases blind, and it’s costing them big time.
In this podcast with The White Coat Investor, Josh Mettle and Jim Dahle cut through the noise and show you exactly what you need to know about the 2025 housing market and real estate trends. They provide current and proven homebuying advice that can save you time, money, and headaches during your next home purchase.
Start with the right information. Listen to their full conversation below and take control of your doctor mortgage journey this year.
Click here to learn more about your options for buying a home with a physician home loan.
Dr. Jim Dahle:
Welcome back to a White Coat Investor webinar on home buying, on physician loans, on mortgages, et cetera. I want to welcome our guest and presenter today, Josh Mettle. Josh, welcome to this webinar.
Josh Mettle:
Pleasure to be here. Thanks so much for having me, Jim, and it’s great to be with the White Coat Investor Community.
Dr. Jim Dahle:
Now, for those who are not aware, Josh is the director of Physician Home Loans at Home Loans, okay? And you can get to that really easily if you can’t remember anything else, white coat investor.com/neo and I’ve known him for a long time. Josh and I have been working together for, shoot, what are we talking about? 14 years? Probably 14 years. We’ve had a business relationship that he’s been advertising at the White Coat Investor, but what you may not realize is that he is the only physician or any mortgage lender that we work with, a white coat investor with whom I’ve actually had a mortgage. So we’ve done a couple of refinances together in the past when we had a mortgage, obviously we paid ours off about seven years ago, but did a couple of refinances through. Josh had great experience and so obviously I think the world of him and super excited that he’s been partnering with us for many years and has had a lot of success answering questions and helping people in our physician Facebook group or the White Coat Investor Facebook group really, I suppose it’s not physician only.
And so we’re excited to have him here presenting. We’re going to be talking about all kinds of interesting subjects because in a lot of ways the world has changed since I bought a home in 2010. The world has changed since I last had a mortgage in 2017. And so we’re not just going to talk about the changes we’ve seen over the last decade plus, we’re also going to talk about changes in the last year, maybe what you can expect going forward. We’re going to try to rub the cloudiness out of our crystal balls and talk a little bit about that and get you just as much information as you can. So Josh, why don’t we start with turning the time over to you. I’ll let you do your presentation and then we’ll move into the q and a session afterward.
Josh Mettle:
Thanks again for having me. Before I jump in, I wanted to share a really quick story. The first conversation, if you remember, that we ever had together, you were calling me, we had started Utah Physician Home Loans and you’d called me to do a get get Heart expose on how we were frauds going to be taking advantage of physicians. We ended up in this and I thought you were going to interview me for your to spotlight me. Well, we ended up having this 45 minute conversation at the end, you admitted to me that you thought we were frauds and you were going to expose us to the world, and at the end of that you said, but now I believe you and trust you. Would you like to do my mortgage? I’ll never forget that phone call and my entire life I hug up and I thought to myself, what the hell just happened? But it has been really a fun journey to watch the rollercoaster of the White Coat Investor. I remember going to a White Coat Investor conference a few years ago and getting to see the community that’s there and what you’ve built truly tremendous. So thank you for allowing us to ride along on this journey with you.
Dr. Jim Dahle:
You’re very welcome. It’s, it’s been a fun time and obviously it’s not just me here. I mean there’s 18 people now working at WCI directly and we have dozens, hundreds of partners and the community of course is literally hundreds of thousands of doctors and other high income professionals. So it’s hardly do I deserve anywhere near all the credit, but I appreciate your kind words.
Josh Mettle:
Well, as you do in the White Coat Investor community, let’s jump in and just add a tremendous amount of value today. Alright, so the 2025 housing market forecast, that’s really what we’re going to talk about today. We’re going to do a deep dive, we’re going to get pretty analytical here and I’m sure Jim’s going to have questions for us. So feel free to jump in where you would like. We posed a question in the White Coat Investor Facebook group and the question that we asked was, what do you think will have the biggest impact on the housing market in 2025? We posted this at the end of 2024. We had 180 responses, which I thought was tremendous and I thought the answers were really interesting and I think you’re going to find insight in what we talk about today as it relates to these responses.
So 51% said that the biggest impact on the housing market in 2025 is going to be elevated interest rates, keeping affordability challenging. 31% said limited supply keeping competition. High 13% said high income professionals and corporations playing landlord and keeping housing affordable. So that’s the mega corporations buying up the housing stock. Only 3% thought that younger generations, millennials and Gen Z entering the housing market in large numbers would impact the housing market in 2025 and only 2% thought that falling mortgage rates would drive more demand for the housing market. So this is really interesting and we’re going to spend a lot of time talking about demographics and we’re going to talk a lot about mortgage rates and what drives mortgage rates. So get on board with me. We’re going to go on a monetary magic carpet ride. We’re going to get deep into some analysis on where mortgage rates are going and where the housing market’s going in the year ahead.
Alright, before we look ahead, look back, this was a recent post from the, I believe you pronounce it, the COI letter. Anyways, the COI letter, and they just summarized 2024. I think really interestingly and well, US existing home sales are set to close at 4 million units in 2024, marking the worst year since 1995, meaning that there’s less sales, not lower purchasing prices, but less sales since 1995. And what’s really interesting was in 1995, the US population was only 266 million. Today we have about 342 million people living in the United States. So not only have we seen less sales transactions on existing homes than we did in the great recession, but we now have 28% greater population in the United States. So that just shows you this was a horrific year in terms of the number of existing family home sales. Sales are set to be even lower than during the 2008 financial crisis.
The lack of demand for existing homes comes as home prices have jumped over 50% since 2020. Over the same period mortgage rates have tripled and the average rate on a 30 year mortgage is up a hundred basis points. Just think 1% since September when the Fed, despite the Fed cutting their Fed funds rates by a hundred basis points, the US housing market is frozen. Boy, if this doesn’t trigger your amygdala and make you think of crashing housing market, I don’t know what else will, except perhaps my friend Diana Olic, who is the chief real estate correspondent for CNBC and her headline coming out this week was The housing market is heading into 2025 with a worrying supply trend. Active listings are up 12.1% the highest since 2020 and more than half of those homes sat on the market for more than 60 days. So I would just offer that the consensus or the general thinking about the housing market is very negative going into 2025, I’d like to show you what else might be true as well.
And with much of these stories, they talk about the market going into 2025 with a worrying supply trend, but that’s partly true, but you don’t get the full story there. So lemme just give you an example. If we zoom out and go back to 2012, so that’s after the great recession, the housing market is starting to get back to normal a little bit. We had about an inventory active listings of about 3 million, and you can see that that trend has cyclical year. In the summer, the inventory tends to go up because everybody tries to sell their home and the winter inventory goes. But if you draw a line, that inventory level is going down. Now it is true over the last year we see that the number of listings has gone up 12%, the market slowed, mortgage rates are up. But what they don’t tell you is that if you look back to pre pandemic levels, inventory’s 32% less than the pre pandemic levels.
So be careful about how you read news stories because oftentimes it gives you a glimpse of truth but not the whole truth. And the question that I think we all need to be asking ourselves is if mortgage rates tripled and if we’ve seen the lowest number of sales since 1995, why haven’t home prices absolutely crashed? Now this is national numbers. This is all Redfin numbers across the entire United States. This is looking at the black line is 2022, the blue line is 2023, the gold line is 2024, and these are home prices starting in January. So let’s just go back to the black line. 2022, median home prices across all of America started about 340,000 peaks in the summer, had a pretty strong pullback from 380,000 down to about 350,000. Alright, now we go into 2023, blue Line starts here in January. Home prices peak come down a little bit.
Here’s 2024, gold line starts at 360, goes up to almost 400 ends the year just over 380,000. If we look at it as a year over year basis in terms of percentages, the median sales price of homes in the United States is up 5.96%. How can that be? How can we have the lowest number of sales going back to 1995? How can we have mortgage rates triple and yet we have a year over year increase in price. And you can see we ended the year in 2022, right? About 350,000 median sales price across the United States, 2023, about 360,000. And in 2024, about 380,000. How is this possible that home prices have gone up? That is the question that we should be asking ourselves despite all of this negative news around the housing market. So let’s get into the forecast and we’re going to start with inflation.
Inflation drives mortgage rates. Mortgage rates are predicated or based upon the future expectation of inflation because if you put yourself in the position of a bond investor, someone who’s buying mortgage backed securities or buying a 10 year treasury, and if inflation is going up, that means the future value of your dollar is going to be less. You are going to want a higher rate of return. You’re not going to take 5% if inflation is 5% because you’d have zero return, you want 8% if inflation is at 5%. But if inflation isn’t only at 2%, you may take 5% on that bond that you’re investing in. So we need to know where inflation is going. If we want to know where mortgage rates are going, I’m going to get a little into the weeds, but I’m going to try to do it quickly and succinctly for you.
So core PCE is the Federal Reserve’s favorite measure of inflation. So that’s what we watch and we believe that it may be significantly overstated because of a lag effect. So as of November, the core PCE, which is just a measurement, it’s a personal consumption expenditure, it’s just a measurement of inflation and there’s multiples, but we’re going to go with this one because that’s what the Fed looks at. 2.8% year over year. Now shelter, the cost of living is 18% of that core reading. So the weighting of shelter is 18% and your shelter costs were up 4.8% year over year because of the lag effects of when rents lease agreements get signed a year, a year in the background. Then the way that inflation is measured on a month over month basis, this has a tremendous lag effect. It could be 18 months. If we look at the cost of rents on the CoreLogic rent index for the same month of November, they’re only showing a 1.7% year over year increase in the cost of rents.
You could say then that if you have 4.8% shelter year over year, and we think that’s overstated based on what CoreLogic is reporting, that’s a 3.1% overstatement of the shelter year over year costs. So if we then adjust the inflation rate based on this 3.1% overstatement, we can see that the inflation rate of 2.8% is roughly overstated by about 0.5%, meaning that core PCE should currently be at 2.3% without the shelter lag. So this overstatement of the shelter costs and its significant weighting is causing inflation to be measured at a higher rate than we believe it really is. And there’s some more good news help is on the way. The way that inflation is measured is a monthly month over month measurement. So they’re looking at in February when we get the PCE inflation number, that will replace the January number from the previous year.
So over the next, if you look over the next 1, 2, 3, 4 months, you have shelter inside of the PCE 0.5%, 0.4%, 0.4%, 0.4%. We just showed you that the CoreLogic rent increases are only 0.17%. So we’re going to be replacing these higher numbers from January, February, March and April of 2024 with lower numbers from 2025. And if we focus into the entire core PCE, not just shelter again, we’re going to be replacing a pretty high number in January of 2024, the monthly, over the previous year, inflation was almost half a percent. We believe that in February we’ll start to see lower replacement amounts, which will drive down inflation and that’s going to be a tailwind for mortgage rates driving them lower. Alright, let’s go into the other big elephant in the room, which is the labor market. The narrative in the economy has been strong and resilient.
That doesn’t have anything to do with the fact that this is an election year. I’m a hundred percent sure of that, but let’s dig into this strong and resilient economy. Alright, unemployment rate bottomed at 3.4%. Now up to 4.2% going to be interesting to see this Friday when the next unemployment rate comes out if this trend continues higher. But we can definitely see that unemployment is moving up. That is a harbinger for a slowing economy. That means if you have a slowing economy, you’re going to have less inflation. The duration of people on unemployment, the number of weeks they’re on unemployment is up 21% in the past seven months. That means it’s harder for people to find jobs once they’re without jobs and it’s closing time. Closings are up 70% in 2024 versus 2023 in some really big businesses and their stores. Look at this party city closed 850 stores, Walgreens closed 1200 stores on and on.
How about bankruptcies? Bankruptcies are back on the rise. We’ve just seen the highest number of corporate bankruptcies. These are corporate, not personal bankruptcies. Wouldn’t it be great if only 700 people in the entire United States filed bankruptcy? No, these are corporate bankruptcies. This is the highest bankruptcy rate going back all the way to 2010. So we see a slow economy, we see unemployment rate going up, we see stores closing, we see bankruptcies going up, and we see the number of jobs that is. Job openings that is reported by the Jolts report clearly declining over 12 million job openings in 2022 down to about 7.7, right about 8 million in 2024. And so you’re seeing less job openings and when people lose their jobs, it takes more time. And here is the big elephant in the room. This narrative around this strong and resilient economy has been from the strong job numbers and there’s now information out there that the jobs numbers have been drastically overstated.
So when we get our jobs numbers, they typically come from what’s called the non-farm payrolls report that comes from the Bureau of Labor Statistics and the non-farm payrolls is a survey. They survey 670,000 businesses and they say that there were 2.5 million jobs created from Q2 2023 to Q2 2024. And this is as recent data that it’s out. We’ll get the next reading of the, actually the QCEW reading comes out in February, so 2.5 million jobs in a year. That means we’re adding about 200,000 plus jobs per month. Not bad, strong and resilient economy. Oh, the QCEW is where the rubber meets the road. This is actual data from 12 million businesses, 95% of the labor market. And the initial numbers that came out of the QCEW, I think the initial report came out in November. I know the final numbers come out in February of 2025, says there was only 1.246 million jobs created.
So there is an overstatement of roughly 100,000 jobs per month or 1.25 million overstatement over that year long period. So this is just another reason that we believe early in 2025, some of this reality is going to come to the forefront around this strong and resilient economy. And we’re going to see lower rates because when you have a slowdown in the economy, you then will have lower inflation and that will bring down mortgage rates. So let’s get into mortgage rates and I’ll give you a forecast. Mortgage rates have a historical relationship with the 10 year treasury and we believe because of all the things that I just mentioned, that the 10 year treasury will decline down to this 3.6% yield. So this is our target. This is where we think we’re going to see the 10 year treasury in 2025. And right now we’re actually at about 4.7%.
So we think we’re going to see about a 1.1% decline in the 10 year treasury yield and that has a direct relationship to mortgage rates. So typically there’s a spread between the 10 year treasury and a 30 year fixed mortgage rates. They have a relationship, they don’t move in lockstep. But there’s a typical spread and if we go back to the 2000, we’ll see that this is the delta or the difference between the 10 year treasury and mortgage rates. You can see in the great recession it peaked at about 3%, which means if the 10 year treasury was at five, mortgage rates were at eight and after we hit this peak, you kind of see this crash. But if we kind of just draw a median here, we see that roughly the relationship between the 10 year treasury and a mortgage rate is somewhere between 2% and 1.6%.
Well, this absolutely blew out to an all time high in October of 2023 to a 3.1% spread, which means your mortgage rate was 3.1% higher than the 10 year treasury. We’ve seen that number come down. It’s right now at about 2.5%, but we think that number’s going to continue come down in 2025. It’s going to come down to about this 2.25 or maybe even improve all the way down to 2%. So if we take those two things together, we see that we believe that the 10 year treasury will drop to 3.6. We believe that the spread between the 10 year treasury and mortgage rates narrows to 2.25% and that brings our forecast of 30 year fixed rates down to 5.85%. Now, I think it’s pretty interesting in the survey almost nobody believed that lower mortgage rates would impact the housing market. I believe that it will. Let me pause there for just a second to bring Jim in and then I’ll jump into the real estate forecast.
Dr. Jim Dahle:
It’s interesting on rates. Rates are notoriously difficult to predict going forward, and I think what surprised a lot of people is they read this news about the fed cutting rates, right? The fed’s cutting rates, oh, all right, of my interest rates are getting better. What people didn’t stop to think about was that we had an inverted yield curve
For a couple of years where short-term interest rates are higher than long-term interest rates. And the truth is the Fed has some control over medium and long-term rates. They have a lot of control over short-term rates and mortgage rates are not short-term rates. Most of them aren’t medium term rates. Sometimes some investment properties or people get a really short mortgage for some reason. Most of time we’re talking about 15, 20, 30 year mortgages. Those aren’t short term. And so I think a lot of people were surprised this year to see the fed cutting rates and mortgage rates going up literally the opposite
Josh Mettle:
Direction about the same amount, right? Right. Yeah.
Dr. Jim Dahle:
Now the good news is that inverted yield curves are supposed to predict recessions. So maybe that means we’re still coming into a recession, but this is probably good economically to see things back to normal where it costs more to borrow money than it does short term. But it does have an impact on what you’re going to be able to do for mortgages a
Josh Mettle:
Hundred percent. And if you think about it, the Fed funds rate, which is what they’re talking about when they say the Fed has dropped rates, that’s the Fed funds rate. Well, the Fed funds rate is literally a 24 hour interest rate. It is the rate that one bank will lend to another bank overnight. And so it makes sense then that the Fed dropping a 24 hour interest rate doesn’t have a direct correlation to a 30 year loan, right? And so the Fed controls short term, the bond market and inflation control those longer term mortgage rates. Alright, thank you for that. Let’s jump right back in and let’s go from mortgage forecast into real estate forecast. Okay, first of all, I want to take stock of the US housing market and I want people to understand the difference between the housing market in 2025 as we enter 2025 and 2008, 2010, great recession.
I hear people say all the time, man, this feels like the great recession. And I say, okay, tell me more about that. What do you mean? Well, house prices are so high. Okay, cool, we got to get beyond that. Let’s look at the real numbers behind the scenes. So let’s break it down. There’s 136 million households. Those are families, family households in the United States, 45 million of them rent 91 million of them own. Of the 91 million owners, there’s $37.3 trillion in equity. That’s astounding. I mean that’s more wealth than the US national debt, and that’s really hard to do. That is a huge number, which means the average owner has $407,000 in equity. Now let’s break it down further of this 91 million homes that are owned, 35 million are free and clear. That’s a shocking number to me. That means 38% of all homes in the United States, almost four out of 10 are owned free and clear.
$20 trillion here by these 35 million free and clear homes, $571,000 in equity is the average equity for these 35 million homes that are owned free and clear. 56 million homes or 62% of the US housing stock has a mortgage on it. And the equity in those 56 million mortgaged homes is 17.3 trillion. Add these up and you get the 37.3 trillion in total equity, and the average equity on a mortgaged home is 311,000. What led to the Great recession? Well, there were a couple of factors. Number one, mortgage underwriting guidelines went out the window. No longer did underwriters care about credit, your ability to put a down payment or your ability to repay, that was a terrible mistake that the mortgage industry and Wall Street made. But the other thing that really caused the problem was they had all these exotic loan programs. You could do 125% home equity line of credit, you could do a negative amortizing loan.
So each month, if your interest was 3000, you could make a $1,300 payment and your balance would go up 1700 bucks. So there was massive numbers of households in the United States that had negative equity and the negative equity number was huge. Fast forward and compare that to year end 2024, you only have a million households that have negative equity and the total amount of negative equity between those million homes is 300 billion, which it’s still a lot. But if you compare that to 37 trillion in equity, there is so much equity that you could effectively cut this equity down 20% and you would still have these people, even with people with mortgages, would still have a massive amount of equity in their homes. That’s the first thing that I think everybody really needs to understand is how much equity is in the US housing market today. The next thing I think people need to understand, and again what we’re trying to ask the question is if we saw the least amount of sales since 1995, and if mortgage rates tripled, how in the world did home prices go up 5.9% last year?
If you would’ve asked me what’s going to happen if those things happen, Josh, I would’ve said, I don’t know. We see a 10% correction in housing market’s going to go way down. So why didn’t housing go down? Alright, demographics are destiny. Okay, so this is a chart of the Boomer generation, gen X millennials and Gen Z. This is their current age. They’re between 60 and 78, right? The leading edge boomers are 78, the lagging edge boomers are 60, there’s 71 million boomers, gen Xs, 44 to 59, 60 5 million. You see a large demographic drop off here by the way, gen X, if you back up and say, well, why did that happen? This is when Roe versus Wade was passed, this is when contraceptives became mainstream. So you saw a drop off in births in this cohort, the Gen Xs. Alright, millennials, 28 to 43, huge cohort, 73 million bigger than the Boomers followed directly by Gen Z.
They’re 12 to 27 years old, 69 million. If you add these two together, this is two cohorts back to back that are larger than the boomers, which is pretty or about the same size, which is pretty incredible. Okay? Now we’ve tracked their home ownership rates. This is where it gets really interesting. We see with boomers that as they get older, when they were 30, they had a 48% home ownership rate. When they were 40, they had a 65% home ownership rate and their current home ownership rate’s 74%. So let’s apply some of this logic to the millennials and Gen Z cohorts and see what happens. Alright, millennials, 73 million, median age is 35, so the median between 28 and 43 35, their current home ownership rate is 45%. Millennials that currently have a median age of 30. So these are the millennials that are more on the lagging edge, this younger generation, this younger part of this generation, I should say the age of 30, there’s 40 million of them and their home ownership rate is 33%.
So we can kind ascertain here, well wait a minute. The leading edge millennials that are closer to age 40, they have a 55% ownership rate. The year olds have a 33%, the 35 year olds have a 45%. So we can see as they get older, their home ownership rate goes up. And if we apply the number of people in this cohort, we can then deduct what the future demand for housing is going to be. So over the next 10 years, the homeownership rate should increase from 33% to 55% or about 8.5 million homeowners coming into the market. Let’s do the same thing for Gen Z. The median age is 20 because they’re between 12 and 27. The homeownership rate is 8% because the median age is only 20, right? It’s probably just these older Gen Zers that are entering the housing market. But look at the future buying opportunity.
The next 10 years, the homeownership rate should increase from 8% to 33%, 25% or 17 million more potential homeowners coming from Gen Z. So if you add these up, you have the potential for 25 million buyers coming into the market over the next 10 years. Here’s another way to look at this. This is birth rates by year. We know that the median age of today’s first time home buyer is age 38. They were born in nineteen eighty seven, thirty eight years ago, and in 1987 the US birth rate was about 3.8 million, ballpark, little over 3.8 million per year. Well look what happened in 1988. Boom, 3.9 million up here to 1990, all the way to 4.2 million. And then you see a little bit of a back off, but you stick around 4 million bursts per year. Well, these people are all becoming the age of the first time home buyers. So over the next four years, you’re likely to see very, very strong demand.
And I believe over the next 10 years, because of these huge cohorts of millennials and Gen Zers becoming the age of the first time home buyer maturing into their higher percentage of homeowner rates, you’re going to see a lot of demand. Alright, let’s talk a little bit about supply. Alright? Another way to look at demand by the way is household formations. And currently there are 1.9 million household formation. What the heck is a household formation? Alright, I’m married and I have two children. We live in one household. When my son leaves my household, that’ll create another household formation. When my daughter leaves our household, that’ll create another household formation. When my wife leaves me shortly thereafter, that’ll be another household formation. So we’ll go from one household formation to four household, no, hopefully not just three is all we need. Three household formation, but that’s how they measure household formations.
And when someone moves out of my house, they need somewhere to live. They got three options rent by under the bridge so we can kind of assume that these 1.9 million or hopefully most of ’em are going to rent and buy and they’re not going to live under the bridge. Now let’s look at this potential demand of 1.9 million. And this is kind of the average. If we go back to 2020, it got a little higher household formations here, a little lower here. Like everybody was living with their parents in the basement here. But on average, and currently we’re right about 1.9 million household formations. Well, let’s look at the number of housing starts, okay? Because housing starts lead to housing units and these are total housing units. These aren’t just single family. So this would include apartment units, right? Because I said you got to buy a house, rent a house or live under a bridge.
But if you look at the number of housing starts going back to 2020 here, really 2019, you can see that they’ve kind of averaged between 1.3 and 1.6 million has kind of been that range. Alright, well it doesn’t take a rocket science right? Demand 1.9 million household formations, they got to rent, they got to buy or they got to live under a bridge. 1.3 is where we are currently of supply, that’s apartments and houses coming on the market. So it doesn’t take a rocket scientist to figure out the reason that prices continue to rise amidst higher rates is you’ve got 1.3 in supply and you’ve got 1.9 in demand. Now granted, some are going into apartments, some are going into houses, but my point is there’s more demand for housing rentals or buying a home. Then there is supply and that’s what’s pushing housing prices higher despite the fact that there’s not a lot of transactions despite the fact that because of elevated rates and affordability is down and despite the fact that we’ve seen seven and 8% mortgage rates.
Alright, well let’s get into the forecast. Here we go. Home price depreciation, we believe we’ll see four to four and a 5% year over year appreciation for 2025. And that’s still a considerable amount of equity, right? If you buy a $500,000 home, you use a physician home loan, you put no money down and you see a 4% appreciation rate, that’s $20,000 in equity that you’ve created. If we see those appreciation rates, if you put a 5% down payment on that property, you just saw a 400% return. Not bad, not bad at all. Alright? We believe that inflation will continue to come down to the 2.1 to 2.2 and from current 2.8%, and that’s because of the lag of that shelter cost that we talked about. It’s also because of the slowing economy, the increasing unemployment rate, those things we talked about. We think the unemployment rate will hit four point a half to 4.6 up from 4.2% where it is currently in 2025.
The fed funds rate we think goes down to three and a quarter to 3.5 from 4.33. Now this is important if you have a home equity line of credit, if you have some sort of a line of credit out there, that is a revolving line that moves when the Federal Reserve is moving the Fed funds rate. This is important for you to know that cost of borrowing on those home equity lines of credits. Hopefully you don’t have a lot of credit card debt, but any adjustable rates, we think those will continue to go down about another a hundred basis points or 1% throughout 2025. And mortgage rates decline to 5.7 to 6% from 7% in 2025. Last slide. Here we go. In 2017, I believe you had the White Coat Investor conference in Park City and I might’ve got the year wrong, but it was somewhere around that period of time and I met a doctor in the audience and he came up to me, he recognized me from writing and being involved in your community and he said, Josh, I’ve read a couple of your articles.
When do you think the housing market is going to crash? This was in 2017. And I said, well, I wouldn’t hold my breath. And he says, well, it just feels like the great recession again. And I said, how long are you going to be in this home? And he is like, oh, this is like my third home. This is going to be the home I’m in for the next 15 years. And I’m like, dude, who cares if the market crashes tomorrow then because if you’re in your own for 15 years, it’s going to be in the rear view mirror. It doesn’t matter. Just get the home you like. Don’t try to time the market. And I share that with you because if you look at appreciation in US housing, and this is averages nationally. If you live in San Francisco, high cost of living, if you live in Miami, if you live in New York, those are high cost of living areas.
They have larger swings up and down. But if you average it across the United States, this gives you some insightful information. In the 1940s, homes appreciated 129%. Now these are nominal numbers, not real numbers adjusted for inflation. But they appreciated 129% in the forties, 36% in the 1950s, 23% in the sixties, 130% in the seventies, 77% in the eighties. In the nineties we finally saw two down years where the national home prices went down rather than up. These represent up years. The red represents down years, still saw 30% appreciation. The two thousands which had a horrendous crash, 2007, 2008, 2009. But if you held through the decade home prices still up 66%, 2010 down 20 10, 20 11 down 8% ended the decade up 45%. And in just the first three years, we haven’t finished this, we should add this in, but in just the first four years, we’re at 39%. We now have the numbers for 2024, which is up another 5.9%. So you’re talking 45% appreciation in just the first four years. What’s the moral of the story? Since 1942, home prices have gone up 73 years, they’ve gone down seven years and they’ve gone sideways one year. Trying to time the market can be a really challenging when you’ve got 90% of the time that home prices go up.
Dr. Jim Dahle:
Thanks so much, Josh for that presentation. Now it’s time to grill you.
Josh Mettle:
Let’s go.
Dr. Jim Dahle:
The first thing I want to talk about is demand, right? You talk about demand going up because of increased household formation, but there’s another factor isn’t there? Especially as people become more wealthy, they have all this home equity now, and of course the US stock market in 2024 went up 25% about the same in 2023 people are wealthier, many of them are spending that wealth on a second home or a third home. There’s also the trend that I know you’ve noticed because you live in Park City. In Park City, something like 45%, I can’t remember the exact number, 43, 48, whatever it is of the homes. There are short-term rentals. How much is that affecting demand for housing? Even when we get a little bit of supply, is it all be sucked up by rich people buying a second home and people building their short-term rental empires?
Josh Mettle:
Yeah, they call this the everything bubble right now, right? You’ve got cryptocurrency at or near an all time high. You’ve got the stock market at or near an all time high. You’ve got real estate at or near an all time high if you’re a collector of art or wine or cars. There’s so many dollars sloshing around this economy that I believe it’s one of the reasons why we haven’t seen a larger crash is because there’s so much liquidity that people are trying to get it out of the dollars into investments. And I think it’s covering up or hiding the softness of the economy underneath that. I think we’re going to continue to realize in 2025. So what you’re saying is exactly true, and we also have the leading edge of those baby boomers. Who are they all going to die in place? What happens to them?
I’m trying to look at my slide to remember exactly what their age is. They’re 60 to 78, so what’s the average lifespan? 84 years. So they’re getting to the point where you’re going to start to see some of those people start to naturally die off and that will bring some supply back. So I do agree with you that we’re going to see some people who potentially have to sell those second homes because everything bubble might deflate a little bit so they don’t feel as rich. So they start to sell those second homes, the leading edge of those baby boomers or getting to the age where they move into retirement homes. They start to pass away, unfortunately. But here’s what I go back to. You still have 25 million Gen Xers, or excuse me, millennials and Gen Zs who are coming into the housing market, your Gen Xers, they’re going to continue to buy homes, right? They’re going to continue the current, I’m just looking at my slide here. The current home ownership rate in Gen Xers is only 65%. The current home ownership rate of boomers is 74%. So yes, I think you’re going to see that slide down that you mentioned from people selling second homes. And yes, I think the boomers will relinquish some of those homes, but I think that the demand from Gen X millennials and Gen Z will still be considerably more, and household formations are still drastically exceeding the number of housing supply that’s coming online.
Dr. Jim Dahle:
Now, we’ve talked a lot about averages. You and I live in Utah and supply is clearly the story in Utah. People are moving to Utah like crazy throughout the pandemic. People are like, oh, I can work from home. I’d rather work from home in Utah and go skiing every afternoon. Smart people, but not every part of the country is exactly the same. There’s not lots of people moving to Indianapolis, India in Pittsburgh, much less small towns across middle America. How should you discount that based on where you live?
Josh Mettle:
Great question. The oldest adage in real estate is location, location, location. If you want to know if you’re going to have a good investment or a bad investment, it’s location, location, location. And everything I talked about is averages because our viewers are all across the United States. But you really need to kind of look at these numbers, not only from a macro standpoint, but from a micro standpoint. There’s a report that we’ve created. We actually contract with a very sophisticated software company who aggregates a bunch of data for us and we call it the real estate report card. And we can dial down into the zip code even into the city, and then we can fine tune based on your purchase price and we can show you how many potential renters are there, how many building permits in that city were issued over the last 12 months.
So what’s your demand? What’s your supply? Median wages, the number of jobs created, the number of jobs lost. If we’re seeing unemployment rates go up or down, if we’re seeing incomes go up or down, it’s really an inclusive report. And I would just suggest to everybody, you either need to do that research on your own, which you can all these government agencies create this type of economic data. We just aggregate it in a report and make it customizable to a specific zip code or a specific city. But you either need to research that information or reach out to us. You can find us on Facebook, you can email us and we’ll create a neighborhood report card for you because we already pay for the data integration. It’s free for us to do it. It takes us five minutes. We’ll be happy to present that information to you in your micro area.
Dr. Jim Dahle:
Very cool, very helpful. A great service for those who are just tuning into this now we’re talking with Josh Mettle, the director of physician, home loans at home loans. We’ve been through a ton of data today, right? I’m sure lots of people in the audience are feeling some data overload.
Josh Mettle:
Yeah.
Dr. Jim Dahle:
Let’s stop back for a minute and step back for a minute and talk about what you do about it, right? I mean, you’re coming out of training or you’ve just realized, okay, this is the job I like. My employer likes me, I like the job. Is the answer still buy when it’s right for you? Even though interest rates now are six or 7% or whatever they are, and we know somebody in our family that has a 2.75% mortgage rate. Is that still the answer or is there a role for gaming the timing of moving into your home?
Josh Mettle:
Yeah, it’s a great question. I think that most people lose at timing the market. It’s why we dollar cast average automatically into our index funds. Because I may think I know where Microsoft and Apple and Nvidia are going, but I’m wrong more than I’m right? But if I dollar cost average, I can take the ups and the downs and the median is better than my guess my emotion. So I think the same thing holds true for real estate. And the way that you can do that is you can buy now and you can refinance later. Just think about this for a minute. If you are on the sidelines saying there is no way on God’s green earth that I’m taking a 7% mortgage or a 6.5% mortgage or wherever they are,
Dr. Jim Dahle:
Which is really funny. Josh, what was your first mortgage rate?
Josh Mettle:
7.7%. 7.75.
Dr. Jim Dahle:
Yeah, mine was 8% was my first one. My second one at 6.25 I thought was a screaming deal, right? Yeah. So a little bit of this is people just not having any historical context for what normal mortgages are. A
Josh Mettle:
Hundred percent. And mortgage rates are cyclical. Business cycles are cyclical, inflation is cyclical. You’re going to see spikes, you’re going to see drawdowns. But go back to that. If you are listening to this and you’re thinking, I am not taking a 7% rate, I’m not taking a six and half percent rate, I’m going to wait for rates to go down. You are not the only person. There’s a million other people who are sitting on the sidelines saying when rates get to 5%, when rates get below six, I’m going in. So you have to realize that if you’re going to try to time the market and wait for rates to go down, you are now competing against all of those different people. Do you want to buy when there’s a ton of demand or do you want to buy when there’s less demand? I think you’re going to get a better price. I think you’re going to be able to negotiate concessions. I think you’re going to be able to negotiate an interest rate buydown, negotiate the price down when there’s less buyers in the market. And then as the economy slows, as inflation goes down, you refinance that indebtedness to the lower rate, but you’ve locked in the lower payment and then you bring the rate down later.
Dr. Jim Dahle:
Yeah, marry the home date, the rate.
Josh Mettle:
Yeah. And I know people have gotten sick of that saying, but if you would’ve just over the last year, national home prices are up 5.9%. So if you would have tried to wait for rates to come down, great. I think you’re going to get a 5.85% rate in 2025. The problem is your $500,000 home now costs you 530,000.
Dr. Jim Dahle:
Now a lot of times we’re talking with people and they’re deciding on the buy versus rent question. And I’ve told ’em, if you look at the historical data, you basically need the home to appreciate while you’re in it long enough to make up for the transaction costs more or less, right? There’s more expenses that go into owning a home and so on and so forth. And for a typical resident in a three year residency, I figure owning a home for three years, you’re probably going to make money about a third of the time historically. And at five years, about half the time beyond five years, you’ve definitely got the wind at your back. What do you think? Is that still reasonable? I mean, because lately the last few years you owned a home for a year, year and a half, you made money on it. Should we still be given that kind of historical average suggestions to people three year residency, maybe not five year, maybe beyond that for sure, buy a home or do you think that’s changed?
Josh Mettle:
No, I think that advice is still sound, but here’s the outliers that I would put out there. Sometimes you don’t have the opportunity to rent because you have a spouse and you have three kids and you have two dogs,
Dr. Jim Dahle:
Especially the dogs, right? Nobody wants to rent a place to a dog, especially if you want a backyard with a fence.
Josh Mettle:
It’s so hard. It’s so hard to have a place for the kids to play and have some animals. So sometimes I talk to a lot of residents that will say, I do not want to buy a house. I’m only here for three years, and then who knows what’s going to happen, but I don’t know where to put my family. So the offset to that is, okay, what’s going to happen to your income at the end of three years? Is it going to jump up? Well, yeah, of course it’s going to jump up unless I go into some other study program, but you just need to look at your worst case scenario if you have to buy because of your family situation. And in three years if the price went down 10% went down 15%, what are your contingency plans? Could you rent it out if you had to subsidize it? I know you, I believe the first condo you bought, you were underwater for what? A decade. Tell story.
Dr. Jim Dahle:
No, it’s this home I bought coming out of residency, right? We couldn’t sell it in 2010 when we bought our place here and ended up renting it out. And we owned it for nine years before selling it at a loss. So five years is no guarantee by any means. Sometimes even five years is not long enough.
Josh Mettle:
Yeah, I do not think we’re going to see the next five years, the same appreciation rates that we saw the last five years. In fact, I hope we don’t because it will price that younger generation out of the market if we continue to see five, 15%. I mean, Utah, we had a 21% appreciation year. I think it was 21, might’ve been 22. Those are great for people who own homes. It’s terrible for the housing market because the younger generations get priced out. I think we’re going to see that 4, 5, 6, maybe 3% appreciation rates, but I wouldn’t be surprised. There could be a correction. And the question is, can you live with waiting it out and having a rental for a while until the appreciation catches back up? And if you can’t, that’s beyond your rental, your risk tolerance, excuse me. You should just rent and try to make that work.
Dr. Jim Dahle:
And the other thing a lot of people don’t realize is this does not work out well financially for lots of docs. But when your income quadruple is coming out of training, you can afford some screw ups.
And the truth of the matter is, a lot of people, and I can’t talk graduating medical students out of buying houses. I stopped trying to do that a decade ago. You just can’t talk ’em out of it. They’re going to do it no matter what you tell them. And for lots of ’em, it does not work out well, but that’s okay because their income quadrupled. They can afford for it not to work out well. And so you don’t hear a lot of horror stories from it. But if you ask ’em five years later, should you have bought a rented? They’ll say, I should have rented. And it’s true that in many, many communities you can rent homes. A lot of people get this idea in their mind, oh, renting that means an apartment. It doesn’t mean an apartment, right? There’s lots of rental homes out there, single family homes, duplexes, whatever. You can rent a place. You can find a place in many communities with a backyard that’ll take your dogs, so on and so forth. It’s not impossible. But in some communities it can be hard to find that place. And you may end up even knowing you’re going to lose money over the long run. Just being okay with that. That’s it. And maybe it works out for you, fine. You
Josh Mettle:
Just don’t know. For every story of somebody who bought in residency and it didn’t work out, they took a loss. They were 500 bucks a month negative for three or four years until they can get out of it. There’s another story. The greatest stories that I ever get is somebody that I helped finance a property in residency. I remember this particular young man who was moving to Utah, going to the University of Utah, going into his residency program, bought a house in 2019, sold that house in 2023. When he sold that house, he moved to Idaho. He called me up, we helped him with his loan in Idaho, and he said, I’m selling my home in Utah. I’m paying off all of my student loans with the equity that I gained, and I want to do another a hundred percent mortgage in Idaho. And I was just so overjoyed that I got to be a part of that journey. But you have to be okay with, you’re going to hear those stories, and then you have to be okay with the opposite, which is if you’re in it for three to five years, you could have a negative liability of 500 bucks or 600 bucks for another three or four years. So you have to be okay with both outcomes, I’d say.
Dr. Jim Dahle:
Yeah, for sure, for sure. Alright, one more question about the timing of buying. You put a slide up during your presentation with Redfin data showing that home prices kind of Nader in the winter. They’re higher in the spring and summer when people are buying homes, and they’re a little bit lower in November, December, January.
Josh Mettle:
Yes.
Dr. Jim Dahle:
Should you buy your home in the winter?
Josh Mettle:
Yes. If you look at Utah data, I know this like the back of my hand. If you go back to 1984, so when I was doing this analysis, it was a 40 year analysis, and you look at that. In fact, I’m just going to show it again one more time. This is actually really insightful. So here’s what Jim’s talking about. These are percentages, these bottom three lines. So just don’t worry about these, exclude these for a moment. What Jim’s talking about here is in 2022, January 1st, median home price, 340,000 in America, 380,000 in, well, this is the midpoint. So let’s just call this July, because usually home prices peak in July and you see a similar trend. So this was 2022. Here’s 2023, here’s two, 20,000, 24. I mean, look at the difference. 360 to 390,300 and let’s call it 345,000 to 380,000. So there is a peak in prices.
And if you look at Utah, going back 40 years, there is a six and a half percent increase on average between January and July. And then you have a pullback of a couple of percent from July through the end of the year. So why is that? Well, that’s because January and February, it’s cold, it’s miserable. People just got through the holidays. They have less liquidity. They’re paying off their credit card bills. Nobody wants to move their families in the middle of the winter. When there’s less buyers, then you have less demand. Sellers are more amenable to negotiate. If I’m going through a divorce. If I have a job transfer and I have to move in January or February and there’s no buyers and a buyer comes through my house, I’m like, Jim, I’ll sell you a house for whatever you offer me. I’ll take whatever you because I got to go. Right. There’s those life events, so your ability to negotiate interest rates, the seller paying your realtor’s commission, the seller paying your closing costs, the seller contributing vast sums of money to buy down your interest rates, which I’m a huge proponent of, not long-term interest rate buy downs, short-term interest rate, buy downs, one, two or three year short-term interest rate buy downs. The ability or the likeliness of a seller contributing towards those things is vastly higher in January and February than it is in June and July.
Dr. Jim Dahle:
Yeah. Now it also introduces another strategy one I’ve talked to people about a lot, and that is to make sure you like the job and the job likes you before you buy. So you actually move someplace and rent for a little bit, six months, a year, whatever, and make sure of those things. And that does a couple of things. One, it makes sure you’re not going to have to move again in a year or two, which is where you really lose money.
And two, it allows you to be a very patient buyer. You can go ride your bike through the neighborhoods. You’re not swooping in the week off you got from fellowship and trying to buy a home. And so when I got out of the military, moved to Utah, it was in June, beginning of June, I moved and we rented till the end of October about, it was almost Halloween I think when we closed on the house and moved into it. And that sure helped us find the deals and know exactly where we wanted to be and really know the neighborhoods and that sort of thing. Obviously that means you got to move twice in a year, which a lot of people think is a big pain. That’s the real downside there. The other tricky part is it’s hard to find somebody to w rent you a place for six months, a year’s a lot easier. Six months can be tough, but they’re out there. They exist out there. What do you think of that strategy?
Josh Mettle:
So let’s just gamify this and take convenience completely out of it and let’s just try to gamify what’s the best solution to have the least amount of risk and the most amount of upside? I think exactly what you said. You move in, you find somebody who will do a six month rent. If they say, no, I won’t do a six month rent. Say, well, if I paid you another 10%, you’re asking $2,000 a month. If I paid you 2250, would you give me a six month rent? You can negotiate based on maybe paying a little extra to get a six month lease that’s going to take out the, and in that time you can do your market research, you can study the micro data, what’s going on with the economy, are jobs coming? Are they leaving? Do I like this place? Do I want to be closer to this school?
What’s the actual drive time to the hospital? I know it’s only five miles, but how long does it take to get to the hospital? You can normalize for all of those factors and acclimate to the community over that six months. Then you buy in the winter, just as you mentioned, because prices come down in the winter and then they go up over the summer, so you buy in the winter. And then I’ll just add one more piece to that. If I was just going to gamify this, just financial gamification, not convenience, throw it out the window, I would then buy with a physician loan with little or money down and I would try to house hack. I would try to buy something that had a basement that had a lockout where I could do kind of like a mother-in-law rental. I would buy something with an accessory dwelling unit. I would maybe buy a duplex or a triplex. So I’m getting the benefit of the low money down physician loan. I’m buying in the winner when I can negotiate at my peak, I’ve insulated myself from risk. I’ve got to know the market and then I have somebody else help pay my mortgage by creating some rental income. So if I was going to gamify it, that’s the best way I could possibly imagine.
Dr. Jim Dahle:
Yeah. Well, we didn’t mention when introducing you in the beginning is you also run a substantial real estate investing empire, and obviously if people are interested in doing that, there’s a lot of ways you can tie that together with your home purchase. But that’s a good segue into my next question for you. Your title these days is Director of Physician home loans, and when we’re talking about a physician home loan, we’re usually talking about a loan that doesn’t have private mortgage insurance. Despite you only putting down 0% or 5% or 10% of its value, it’ll only take into account you required payments on your student loans. Correct.
And it generally doesn’t require you to already be working in your job. The contract’s good enough, you don’t have to show up with pay stubs in order to get a physician home loan. Those are kind of the three major parts of it. And doctors buying a home have this decision to make, do I get a physician loan or do I use the cash I have or that I’m about to scrape up or whatever to use for a down payment, or should I be using it to pay off student loans or save up an emergency fund or max out my retirement accounts or start a real estate empire or whatever thoughts on that decision. If somebody has a down payment, should they use it or should they just get a physician home loan and use that for some other good Cause
Josh Mettle:
Everybody’s situation is different and there’s the numbers side of the equation and there’s the emotional side of the equation. Some people just don’t feel like they can take a breath until they pay off their student loans. But if I was to look at it just from a numbers, what strategy is going to create the most amount of wealth over the longest period of time, whatever strategy is going to enable you to start investing for retirement, the soonest is likely going to make you the most wealthy. And that’s simply because of the rule of 72. We know that if we take 72 and we divide it by our rate of return on our investments, we can deduct how many years it’s going to take for us to double our nest egg or our investments. And the mistake that I see physicians making all too often is they say, I’m going to spend the first 10 years out of residency or fellowship or five years or whatever it is, and I am going to pay down my student loans and then I’m going to start investing.
And what I offer to them is, okay, well let’s just think about that strategy for a moment. If it takes you 10 years, let’s just say it takes you 10 years, and let’s say the rate of return you could have got on those investments is 7.2%. Just make math easy. That means that you’re doubling your retirement or your nest egg every 10 years. Right? 72 divided by 7.2% means you’re doubling that over every 10 years. So if it took you 10 years to pay off your student loans, what you’ve effectively done at the end of your retirement journey is you cut off the last doubling of those assets because you delayed investing for 10 years. So the mortgage should be part of the overall investment strategy. It should be part of the overall strategy to create the most amount of wealth. Oftentimes what I find is people would be more wealthy if they put zero down on their home. They kept some liquidity, so they had a nest egg in case of an emergency and they started investing. They may be a lot more wealthy than if they saved a long time for a down payment and then saved a long time to pay off their student loans and then started investing for retirement
Dr. Jim Dahle:
For sure. It’s a little bit of extra leverage, so it’s a little bit of extra risk, but most of the time in the long run, that’s relatively safe debt and the leverage typically does pay off. Not always, there’s no guarantees, but it typically does pay off in that way for sure. Although I hope very few white coat investors are deliberately taking 10 years to pay off their student loans. I mean, most of you, by the time you come out of training after 4, 5, 6, 7 years, you could have gotten PSLF in five years just by taking a job at the local university or whatever. So I hope nobody’s dragging ’em out 10 years either Get your public service loan forgiveness or save it up, live like a resident, pay it off, do all this stuff at once. If you’re living like a resident, right? You can save up a down payment and you can max out your retirement accounts and you can pay off your student loans all at once if you’re keeping your lifestyle down.
But that’s a little harder for people to do. I get it. Alright, let’s talk for a minute about PMI. Private mortgage insurance. This is the mortgage insurance you pay to protect your lender from you defaulting on your loan. Now, I hope very few doctors ever pay for this. You can avoid it by putting down 20% and getting a conventional mortgage. You can avoid it by getting a physician loan, but let’s say you have it or you end up for whatever reason, taking a loan that has it. How big of a deal is it to get rid of PMI these days?
Josh Mettle:
So there’s two ways to get rid of it. The easy way is to refinance and of course assuming that your home value’s gone up and your amortization of your debt has gone down, once you have that 20% equity you can refinance and get rid of it. Now that only makes sense if interest rates have gone sideways or more than likely gone down. If the interest rates have gone up, then it’s not going to make sense to refinance to a higher rate to get rid of your PMI. But that’s the easiest way. If rates have gone down, you refinance, you have 20% equity, your new loan has that equity threshold, so there’s no PMI, the harder route is to reach back out to that servicer. That’s the person who’s servicing that mortgage indebtedness. But keep in mind they have absolutely no benefit for removing that insurance because the insurance covers the lender, right?
It’s the lender who’s getting the benefit. So there’s literally zero benefit for them making that process easy and it protects them. It’s part of what makes their pool of loans have a very low default rate. So that is hard. It’s onerous. I’ve had more clients than not say, I’m going to start with my servicer. I’m going to try to get an appraisal. I’ll show ’em what I owe on the loan. I’ll try to get the mortgage insurance. Four months later they come back to me and say, screw that. Let’s just refinance. I’m done With that process, I just wasted $10,000 in my hourly wage trying to get off mortgage insurance to save $147 a month. So the reality is it’s not easy. The good news is, is that most physicians, most doctors are going to qualify for a loan that has no PMI, no mortgage insurance. Not everybody because everybody has a little bit of a different financial situation, but most physician loans, most doctors are going to qualify for a hundred percent financing up to a million dollars, no money down up to two and a half million dollars loans with as little as 10% down no mortgage insurance.
Dr. Jim Dahle:
Yeah. Now, Josh, I occasionally email you or rather cc you on an email response to a white coat investor that’s got a problem. And frequently the problem is that they are in a 10 99 job. They don’t have pay stubs, they don’t have a definitive contract, and they haven’t been out of training long enough to have two years of tax returns showing an income adequate to buy this house. What are their options when they want to buy a house? And all they’ve got is this 10 99 income.
Josh Mettle:
And this is so frustrating to physicians and self-employed doctors because they are acutely aware of their financial situation. They know they’ve made good decision after good decision, and they’re more qualified than ever for that loan. They just happen to have taken a 10 99 position, or they just started a new practice and they don’t have that security in the lender’s eyes of a guaranteed paycheck. But in their eyes, they know the future and the path and they’re more lendable in their eyes than ever. So it is incredibly frustrating to doctors that find themselves in this position. The reason that there’s so much challenge around this is in the wake of the great recession, there was some legislation called the DOD Frank Act, and Dodd-Frank Act said it’s actually illegal for a mortgage lender to lend to somebody without proving their ability to repay. What the heck does proving mean?
Right? They didn’t get that detail oriented when they wrote the DOD Frank Act. So lenders took this very conservative approach and said, well, if you’re 10 99 or I need two years tax returns, which means you could have been self-employed or 10 99 for three years by the time you have two years tax returns, and we’re going to average that income over that two year period. Well, everybody knows if you’re starting a new practice from scratch, you probably have six to nine months before you break into the profits and you start actually showing a lot of profit in your p and l. So it can be very hard to prove your ability to repay to a bank. So thank you for sending me those folks in those situations because I say my favorite words in the English language is, I was just declined by another bank because of A, B, C, whatever their issue is, I’m like, perfect.
I want to help you. That’s very exciting. So we have gone around the country to find investors that will take a more liberal approach to the approve your ability to repay. And these investors do not require two years of 10 99 history, do not require two years of self-employed income. If in fact, if you have a letter from an employer, a contract that says you’re going to make a minimum of X, but we’re going to pay you as a 10 99 contractor, no problem. We don’t even have paycheck stuff. So we have those abilities to help people that are newly 10 99 newly self-employed. You may have to put more than zero down. You may have to show some assets. There may be some other strings attached to that loan, but you certainly don’t need to wait two years. If one physician lender has declined you, reach out. We’d love to help you.
Dr. Jim Dahle:
Yeah, alright. There are a lot of people out there, lots of real estate investors, they love debt, they love leverage, right? They’re like, look what I can buy using debt, but others are a little more debt averse like me. When I got my mortgage, I got a 15 because I knew I didn’t want to have it longer than 15 years, ended up paying it off in seven. But sometimes people that want to do that sort of a thing are trying to decide whether to get a 15 year mortgage or whether to take a 30 year and pay it like a 15 with knowing that if something happens, they can be a little more flexible. Which one of those would you advise somebody to do if they’re debating between those two options?
Josh Mettle:
So I think there’s a financials decision and I think there’s an emotional decision. If I just run the numbers, I believe you’re going to be more wealthy. Let’s just take the historical average of 30 year fixed mortgage money. It’s averaged about 6% going back over the last 40 or 50 years. So let’s just take 6%. Okay? If I can borrow at a mortgage indebtedness at 6% and I can invest my money in the s and p 500, maybe you do an 80 20 and maybe you get seven, 8%. Well, if I can borrow at six and I can make a lower payment on a 30 year, take those extra dollars and have the discipline and I make 7, 8, 9, 10% in my investment account, you’re going to be more wealthy over 30 years. But do you sleep well at night with that mortgage? Does it bother you to make that monthly payment? I imagine for you, Jim, you were just like, this thing just bugs me and I just want to get rid of this thing. So from an emotional standpoint, let’s just get rid of it, then I have no mortgage payment, then I can put all those dollars into my investment account. You’re still going to end up wealthy. But I think if just strictly by the numbers, you would end up more wealthy with a 30 year loan and funneling all those additional dollars that would’ve went towards paying down a 15 year loan into your investment account.
Dr. Jim Dahle:
Yeah, I mean, that’s the 15 versus 30 year decision, right? I mean, what I found is that my behavior wasn’t this ideal homo economy economicus, right? I wasn’t investing it. I was spending it and why? I think that’s the case with a lot of people, people, and that’s why I went for a shorter mortgage. But my question is not that.
Josh Mettle:
The
Dr. Jim Dahle:
Question is, this is somebody that wants to be done in 15 years. Do you get a 15 and get a little bit lower rate or do you get a 30 and just pay it like it’s a 15, make an extra payment on it every month as though it were a 15 year mortgage, but maintaining that optionality, that flexibility in case you lose your job or something. Well, then you can go back for a few months to paying it like it’s a 30,
Josh Mettle:
I get a 30 and I take the extra cashflow and I invest it. I could just tell you that that’s what I have done and will do. I’ll always do 30 year mortgages, even if I only do a seven or a 10 year arm, which I’ve done on my last six homes, because I don’t tend to be in that home for longer than five to seven to 10 years. So I do seven and 10 year fix gets me not in the inverted yield curve environment, but in most environments, that’s going to save me about a half a percent on my rate. I’m going to do a 30 year amortization, and I’m pretty dang good at moving money out of my account into my investment account every single month when those paychecks come in. And the reason why I feel that safer is because if I put it towards my mortgage and then I lose my job, which kind of sounds preposterous for most physicians, but let’s just say that you were stuck on the side of a mountain and you didn’t have views of either of your hands, right?
You could lose your job, hypothetically, hypothetically, hypothetically, right? Yeah, it could happen. So if that happened, that farfetched thing happened to you and you lost your income and you’ve put all your money into paying down your mortgage, you’re thinking, oh, great, I’ll just refinance my mortgage. Sorry. You have no ability to repay if you don’t have income to pay those student loans to pay the car payments, to pay the mortgage payments. Even if you have only 10% debt on that property, you can’t get a mortgage on it. So then you have to sell the home to have access to it. Personally, I would rather have the discipline to take that 30 year payment, take the extra cashflow, invest it outside of my mortgage so that if there is some sort of catastrophe, I can slowly wind down those assets to get me through that catastrophe and I don’t have to sell my home and move.
Dr. Jim Dahle:
So your choice is neither of the above, but you would neither take a 15 nor take a 30 and pay it like a 15. You’d take a 30 and pay it like a 30.
Josh Mettle:
I would take a 30 year amortization with a seven to 10 year fixed, because typically that’s going to save me another 50 basis points or half a percent, and I would refinance that seven to 10 years debt or move, which has been the case with me every seven to 10 years, and I take out another 30 year amortization. Now I’m taking the slow approach to getting rid of my mortgage indebtedness. I’m taking the fast approach in having capital outside of my home to either invest in index funds, cryptocurrency, gold, other real estate investments. I’ve got a lot more cashflow to push out into those other investments.
Dr. Jim Dahle:
What if there was a 50 year mortgage? Would you take it?
Josh Mettle:
I would take it in a heartbeat. And here’s why. Inflation destroys debt, okay? If we go back to 1913, when the Federal Reserve was instituted, the buying power of the US dollar has been eroded by 98.3%. That means out of a dollar, you have 2 cents of buying power left. So if over time, inflation erodes the value of the dollar, the purchasing power of a dollar over a long enough time horizon, that means if I’ve borrowed in dollars, what’s happened to the value of the debt, the value of the debt erodes. It is destroyed by that inflation. And over time, I’m going to make more money. Inflation is going to cause my income to go up my rental properties. I have an eight plex that I bought in 2022. It is beautiful overlooking great Salt Lake right off of Capitol Hill. We rented their two bedrooms, 850 square feet.
We rented those for $300 a month, and when we bought it in 2002, we now get $1,700 a month for those units. So the inflation has pushed the rent up from $200 a unit to $1,700 a unit. But guess what? Stayed the same. The mortgage payment stayed the same. So inflation, because of the increase in earning capacity, has in effect destroyed the debt over that period of time. So if you gave me a hundred year mortgage, I would take it because I know the value of those dollars in a hundred years is probably only going to be 2 cents on the dollar.
Dr. Jim Dahle:
Yeah, fixed rate debt, especially low interest rate, fixed rate debt is a great inflation hedge works just the opposite in less common situation, deflation. But it certainly certainly is a great inflation hedge. There’s no doubt about that.
Josh Mettle:
Go ahead. Just last thing on that, and to your point, you also have to know yourself, right? If you know that lower payment for you just means more expensive clothes or just means a more expensive vacation, then do yourself a favor and put it towards your mortgage.
Dr. Jim Dahle:
Yeah, for sure. It’s almost more of a behavioral question than a math question. A hundred percent. Yeah. Alright, well, Josh, our time has come to an end. We sure appreciate all of the support you’ve given to the White Coat Investor community over the years, and particularly in the Facebook group these days. Anything else we haven’t talked about today that you feel like people ought to know before we sign off?
Josh Mettle:
I would just say it’s been a pleasure to be a part of this group now for going on 13, 14 years. And if there’s anything we can do to be of service to you, look, we’re not trying to sell anybody anything. We get paid by doing mortgages, but we really get our fulfillment, and the only reason we’ve been around this group for 13 years is because we love to give. So if you want a neighborhood report card, if you want an opinion on a loan estimate that you’re getting from someone, if we can do anything to bring you value, it’s just part of our dues to be a part of this community, and it’s truly our pleasure. So don’t hesitate to reach out.
Dr. Jim Dahle:
All right. This has been a webinar with Josh Mettle, the Director of Physician Home Loans at Neo Home Loans. You can get more information about that at whitecoatinvestor.com/neo. Thanks so much for your time today. Hope you enjoyed the webinar. Thanks everybody.
Disclaimer:
The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.
