Denmark’s housing policy – specifically how they handle the ‘lock-in’ rate effect with low interest rates – is something American policy makers should take note on. If the US takes a page out of Denmark’s book, the US housing market could propel itself to better days!
hello everyone welcome happy Monday hope everybody’s having a good day hope you’re having a uh good start to the month of June busy month graduation month hope everybody had a great weekend um I want to talk today about something a little different uh it’s uh an article that I came across that actually brought to my attention uh that uh Denmark is doing some some some things that we sometimes hear the the old saying something stinks in Denmark but no it’s not the case in this particular situation um apparently they’ve got some different things going on over there in their mortgage Market that uh would to be honest be very beneficial to the uh US market um Denmark and and America and the US are very similar in how their 30-year mortgages work and so forth so um but what’s interesting is that um their system prevents uh the lockin effect where homeowners are not selling because the fact that they don’t want to lose their rate so um I wanted to just talk talk about it you know is it a probability H maybe not is it a possibility yes uh and uh it’s just very interesting so um I’m going to I’m going to dive into it but first I wanted to bring a bring a friend of mine uh into the fold so we can get him uh his his viewpoint on things and uh coming all the way from uh he and he he just told me where he was from nor Southern California I think it was he’s from California this is you know my short-term memory uh it’s tough getting old so in any event come on Joe how you doing there hey Jen I’m good how are you today so is in southern did you say Southern California you said Southern California yeah so I’m I’m in Claremont California it’s a suburb of Los Angeles I’m about 35 or 40 miles dead east of downtown LA okay well so hey I had the right State at least right yeah no you hit that yeah you’re correct on that put a pin in it and at least we get the right location so um this article was super interesting right I sent it to you and uh I mean this is the first time I’ve heard of this and and and I did some research on it you know the last you know a few days and um found a couple you know not a ton you know but found a couple articles about it um you know and and you could tinfoil hat that and say well the reason why I didn’t find in a lot of Articles is because the the media is being told to report and and the and and there’s a lot of reasons for that which we’re going to dig into and why um it’s improbable that the US would actually make this happen uh it would be great if we could follow Denmark’s lead but um it’s quite interesting right like I mean so I mean you you you saw it you we’re going to get into it in a second but um have you heard of this did you see this article or anything about it before now or I I was not I was not aware um you know first and foremost for the people out there the way that America does mortgages is is pretty different than a very large majority of the rest of the world so the the entire world yeah it’s pretty it’s it’s interesting to learn that not only did Denmark um adopt a very similar mortgage and Loan setup as as we did here in the United States but there there one spin on it uh which is kind of going to be the the I think the bulk of the what we talk about today is very interesting I was not aware of it um but I think it’s a great idea to kind of wrap up some of these mortgages into more of a sort of a a sellable asset if you will that the owners can leverage and you know it like you said it reduces that locking effect which is what we’re feeling so heavy right now in the United States 100% 100 perc well you know what let’s uh let’s let’s bring it up uh that’s what everybody’s uh that’s what you’re logged in people are watching this for they want to want to know what the heck we’re talking about so um this article uh from Business Insider reputable you know media uh provider uh Denmark’s genius housing fix one simple change to mortgage rules could supercharge home buying in America um so uh this article goes on to say uh it says the typical Home Loan in America is a gift and it’s also a trap most us home loans have loans that actually I’m going to stop right there for a sec I’m just going to uh make this a little easier for uh those watching at home can see it there we go um and for me most us home loans have loans that guarantee that they’ll pay the same amount each month for decades regardless of inflation or the shifting Winds of economy these are called the 30-year fixed rate mortgages which we’re aware of and they offer bare rare bright spots of uncertainty of certainty in the housing Market’s endless cycle of booms and busts get you 30-year locked in mortgage AG conventional 30-year fixed that rate is 30 years forever 30 years for 30 excuse me locked in that rate for 30 years learn how to talk Jen um lock in a favor rate and you’re on a steady track to Prosperity but these sweetheart deals can cause big problems when mortgage rates shoot up as they did over the last two years many would be sellers decide they don’t want to move after all sure a new home would be nice but trading up would mean parting ways with a cheap mortgage rate what would have been a welcome change suddenly sounds like a painful expensive divorce ouch so they sit tight I’ve never I’ve never heard it uh described that way and that’s very true um a gummed up housing market is good for nobody first-time home buyers can’t find enough homes to sell for for sale Wann toe sellers remain trapped in places that are either too big or too small this is called the lock in effect and it could linger for decades yep uh unfortunately we’ve known about the lock in possibility for many years John Campbell a Harvard Economist told me he says uh but we but we didn’t fix the roof while the Sun was shining and now it’s raining isn’t that like the name of the game Joe you know what I’m saying it’s like turn turn the cheek when you have the opportunity because you’re dancing in the streets and then like but never prepare for that rainy day yeah and we all know that it’s so much harder to be reactive than proactive right that oh absolutely well and you know and the reality of it is is like nobody wants to be like you know yes I know that things are good but like let’s think about the bad stuff let’s think about the bad stuff uh of course not and that’s the way that we’ve been like societally I think societally Society whatever um are you know that Society message is like that’s what you do you focus on the positive and and just kind of which is can be uh as we’ll see very detrimental um Economist and housing wonks I love that they use the word wonks are obsessed with this uniquely American problem one estimate suggests the lock in effect prevented more than 1 million people from selling their homes in the span of just a year and a half a steep toll considering about five million homes exchanged hands during in a typical year so that’s interesting to know because that’s one fth homes right were that were taken off the market market and held up and locked up and you know people might think oh well you know there’s 3 350 million people in the United States and you know they all got to live at homes oh 1 million homes can’t make that big of a difference but when it’s 20% of your entire inventory you know people wonder how did how did prices accelerate the way they did this is a huge contributing factor which is why the lock and effect is so detrimental not just to firsttime home buyers not to home buyers in general home sellers everyone everybody it’s tough to everyone yeah and we’re going to get into that as far as like the what the Ripple effects are a little bit more deep and you know in a in a little bit but um uh it’s uh he goes on to say I used to think of these golden handcuffs uh as an inevitable side effect of the magical 30-year fixed mortgage but it doesn’t have to be this way the answer to our problems May lie thousands of miles away in Denmark all right here comes the meat many homeowners in Denmark like their American counterpart counterparts enjoy a 30-year fixed rate mortgage but thanks to a quirk of their Housing Finance system Danish sellers are able to earn a profit profit when they trade in their low mortgages mortgage rates for a more expensive one making it easier to move even when rates rise as a result the Danes Dodge the lockin effect entirely and we’re going to go into excuse me we’re going to go into that how that works in in a bit um it says implementing a similar system in the US would require uh an overhaul of our mortgage market and would most and would almost surely be met with lots of foot dragging from regulators and investors um politicians all the like uh but the alternative and this is the this is the The Clincher Joe the alternative is twiddling our thumbs until the next housing Ice Age is far worse y like it’s like the the the what is the lesser of two evils it says uh T evils not evil evils um I just learned how to talk yesterday just to make you probably fig figure that out by now uh maybe it’s time we take a page out of our Scandinavian Playbook instead I’m just going to keep going and then we’re going to we’re going to dive in because it’s going to answer a lot of questions that you know that uh you know people are probably think well how does that work um this section just you know buyers remember the pandemic era housing market for its worst qualities bidding wars late night Doom scrolling on Zillow etc etc um this is the 30-year uh rate plummeted to a record low 20 late 2020 um and you know existing homeowners pounced on the opportunity uh as the Federal Reserve uh see began pushing up the borrowing rates 2022 hoping to feel hoping to reel in Rising inflation mortgages went vertical rates doubled so on so forth rates have fallen a little since but they’re still hovering around 7% uh buyers who bought home in the early 80s may recall rates close to 18% but for buyers and homeowners who got used us to Rock Bottom rates in the decade after the financial crisis the reverse was chilling it says a recent working paper from the federal Housing Finance um agency fhfa estimated the lockin prevented 3 1.3 million home sales between mid 22 and end of 2023 uh the vastor majority of us has uh mortgages have fixed rates about 96% okay the agency estimated that with that 7% these homeowners would pay roughly $500 more each month on their mortgage if if they got the the new rate on the same house okay uh if you do little uh if you do a little convoluted math and this is where the the rubber kind of meets the road um as I put on my thumbnail 60,000 that wasn’t just a number pulled out of the out of the air this is where it came from if you do a little convoluted math to figure out what all those extra payments would be worth in today’s dollars it’d be like taking 60 ,000 and this I’m sure is based on what the median home price is right now and lighting it on fire that doesn’t sound like a good time Joe no it doesn’t lighting 60 Grand on fire no not notable so it say you know even if rates were were to fall this is interesting if even if rates were to fall six to five and a half percent uh you’re still going to have people who are not going to move which is very true uh who just are not going to give up their house basically forever because they’re just not going to be able to give up that rate um so it says okay so maybe you’re not shedding any tears on behalf of these homeowners sitting on piles of equity and their sweet sweet mortgage rates which I of course I mean how do you first-time home buyers not like a lot of a lot of home buyers out there now are just you know they a little bit of like you know little bit of little bit of angst a little bit of anger a little bit of for sure I feel like know frustration with homeowners cuz they’re like at least I have the the equity but says but the lockin effect and and I’m I’m I’m going to let you talk in a second Joe uh says with lock in effect warps the entire housing market fewer sellers means buyers compete for a smaller pool of available homes driving up prices locking in out at many firsttime home home and lowincome buyers it means many people who want to move to find a better job this is important I’m gonna I got another article I want to show you in a second um when when we get done talking about this to find a better job start a family upgrade downsize don’t have that option A once theoretical hangup has turned into a massive headache um it it it’s it it this I think this hits this article I think is hits home on many many many levels so now it’s like okay so now what like what what do we do now um it does say you know golden shackles are only a problem in America you know um then there’s Denmark the only country in which similar 30-year fixed rate mortgages are widely available more than half of Danish borrowers have them and just in the just as they have in the US rates for those mortgages have risen sharply over the course of 2022 the typical rate for 30-year mortgage in Denmark climbed by roughly 4 percentage points the largest jump in 40 years here’s the big catch but Denmark’s Housing Finance system is almost perfectly designed to Shield it from the lock in effect and it’s all because of a bit of financial magic known as covered bonds now I am not you know I don’t know about you Joe but I am I’m going to tell you right now if you know for those watching like I am not um I never went to the school of Economics I am not this is a little bit out of outside my wheelhouse when you talk when you start getting into um bonds and mortgage you know back Securities and things like that you know what I’m saying Joe like this not I’m I’m a f I’m a real estate person I’m a real estate expert I am not a mortgage person so this is or or even economics but I think for those watching like the the that are not either this really broke it down to like really basic so here’s the meat when a bank it says and it says here’s how it works when a bank gives a mortgage is what they do in Denmark when a bank gives a mortgage to a home buyer it creates matching bonds that it sells to investors the bank gets cash to extend more loans and the owners of these covered bonds get a steady stream of payments from the people paying back the mortgage so the people give money to the bank the bank lends the money to the borrower the borrower makes the payment the B to the bank the bank then makes payments back to the investor the person the the initial um person that cover that that invested into the bank okay right does that make sense Joe sense okay so it says the value of the bonds and therefore the value of the underlying mortgages Rises and Falls like any other asset traded in the financial Market when borrowing rates for new mortgages go up the value of those bonds tied to older cheaper mortgages goes down in the eyes of investors hungry for higher returns a loan that pays 7% interest is worth more than one that pays only 3% this does not mean however that the value of the actual house is dropped even if Bond investors H aren’t as Keen at the underlying loan there are plenty of regular buyers who still want a house I I wanted this is super important this is super important because this kind of leads into like what actually um how how Denmark utilizes this system the the the value of that loan not the dollar value right $500,000 loan it’s it’s not we’re not talking about the $500,000 loan we’re talking about like how is how much is that loan actually worth in the eyes of the investor who’s making money on the interest rate right so so now it says when us homeowners pay off their mortgages they have only one option right Pony up the money to Pony up the amount left on the loan right you have a $500,000 loan if you’re going to buy another house you got toay pay off the $500,000 loan right we have no other choice you have to settle up but when Danish homeowners pay off their mortgages this blew my mind this blew my mind when Danish homeowners pay off their mortgages they have two choices pay back the balance on the home loan same as Americans or pay the market value which is the amount that’s covered that which is the amount their covered bonds would trade for On the Open Market not the housing market but the bond market if interest rates go up and the value of those bonds fall below the amount remaining on the loan it becomes cheaper for the Danes to pay off their mortgages so what does that look like and I think there was here’s here’s an example right so it says uh you know let’s say the face value of the mortgage um or the amount of the homeowner would be would have to pay to get rid of it excuse me is 500,000 right us 500,000 you’re going to have to pay off $500,000 period you sell the house you get it that that they have no other option and it says but then interest rates uh you have a low rate but say interest rates rise Say by uh four percentage points in the US this turn of events would trap many home homeowners in their house which is what’s happened they would not they would have to pay to to not only pay back the 500,000 but they’d have to get a new mortgage with a higher interest rate in the Danish model the same situation could work out for the homeowners favor that’s because as general interest rates rise the mortgage value of the covered bonds and therefore the underlying mortgage drops so instead of paying back the entire mortgage that 500,000 the Danish homeowners could go out and B and buy back matching bonds for say 400,000 so essentially what that means means is if that mortgage okay if it was at 500,000 at 3% and now the rates are at 6% well the 3% loan isn’t worth as much as a 6% loan so a 6% loan it would be worth for 500 but maybe a 3% loan it’s worth less because the investors are making less money so at 3% the 500 loan is actually only worth to the investor 400 and instead of in America it’s the same thing but but in America the investors they they just like they they keep the money right the Danes give it back to the homeowners so you sell a house it says if you sell their home for 700,000 you get to pocket the money instead of they get to pocket 300 instead of 200 Joe yeah this is huge yeah this is mind-blowing that means that every homeowner in America if if this hypothetically could happen here if they if the if the US I’m not going to say what I’m thinking because it wouldn’t be appropriate but if they if they if they like open their eyes and and and and were able to seize you know this opportunity to revamp the the the the mortgage Finance Market a homeowner would sell a house and they would be basically compensated for giving up their rate because if you have a house for 700 you have a a $500,000 mortgage but you’re going to get an extra hundred grand yep the reason they do that is so you can take that 100 Grand now you have $100,000 extra to put on the next house which essentially buys down the value of that house which makes the swap even yeah so now you’re not getting into a high mortgage rate it’s not one you’re not your your your move is not this way if you’re buying the same house Apples to Apples the rate’s the same even though on paper it’s a higher rate yeah and you can use that money you know of course we don’t have all of the fine Nitty Nitty Gritty details of of what they’re able to do but just based on the example that’s outlined here you know uh if you went to anybody whether they were a potential home buyer or a potential home seller and said hey if you could have an extra $100,000 in your real estate transaction would that benefit you I don’t know anybody who would say no and furthermore it’s really nice that you could use that potential different uh uh in in funds that that profit um like you said you could throw 100,000 at the down payment and therefore reduce your monthly payments you could spend 40,000 to buy down the interest rate from Seven down to 5% or whatever you know what have you obviously you have to speak with a loan person to find that out but the point the fact of the matters is it gives people a little bit more power to control their Destiny a little bit and it incentivizes them to much more seriously consider making the move even though the interest rate’s not quite as agreeable and that’s that’s the entire point of the the the Danish model so so that by essentially the the Danish government and the Danish people are looking at mortgages as sort of a standalone product that the owner also owns the owner owns the house and the owner also has a mortgage and they’re decoupling those things because here in America they’re basically one and the same you have a house you have a mortgage when you sell the house you pay off the mortgage it is what it is and that’s it there’s really no ways to go about it so they the Danish model of sort of making the mortgage another asset uh another tool that yeah I didn’t think about it that way yeah right right right and and you know and the thing is is and we’re going to I I have some more information on this as well but you know because of this like there is no lock and effect over there right there is no lock and effect you have people that are moving freely when financially it makes sense for them to do so yeah um and and yes they have inventory challenges and all the things you know I mean you know there are some things that transcend you know countries but they’re not dealing with this because you know the the reality of it is is that this lock and effect that we’ve been talking about there’s no answer Joe no I mean people are going to have to either they eventually um suck it up yep because rates will never go down to the where they were no they will never they should have been down there in the first place if you ask they should not have they should not have but and and and that’s one of the reasons I mean that you know the the rates this you know there’s all kinds of speculation why the the the um you know why values are what they are but the question I would say is If This Were If This Were hypothetically possible in the US our inventory would increase right of course without doubt the inventory increases y then then I would I think it’s safe to assume that buyer demand would be more satisfied now we have a ton like the the number of Millennials coming into the market now right bigger that I mean there are more Millennials than the Boomers and the Gen xers combined that are coming in coming in as first time home buyers and and and when a gen xer sells well you in my generation when they sell it’s a it’s a it’s a neutral effect on the on the um on on the housing market right where you know you’re selling and you’re buying it’s one for one I’m I’m giving to the market I’m taking from the market the Boomers a lot of because they’re not going into retirement homes they’re not they’re not retirement like assisted living like they’re living longer and and all the things they much longer than ever before much longer so so they may give up the family home they rais their kids in but they’re still buying another house so it’s a neutral the Millennials are coming in a lot of the the newer Millennials and the older side Millennials they may have they may be in the position you know they’ve already they bought a bit ago and now they’re maybe looking to move up but I’m talking the newer Millennials they’re just they’re just taken from the market so there’s there’s always going to be as those Millennials come in there’s going to be continued Demand right I don’t I don’t see a situation where demand completely swings 100% but if you all of a sudden have more inventory more available inventory it’s going to soften and when demand softens prices will reflect that you won’t you won’t have these crazy ridiculous escalated prices because you won’t have 10 buyers competing for one house exactly and that’s what people you know they they talk about well to your first point it absolutely will free up inventory because as we know based on a Harvard Economist who no offense Jen probably knows more than you and I combined times 10 on this subject absolutely absolutely if he goes if he goes there’s you know there a million homes that that we have identified a million owners that are suffering quote unquote from this lock in effect yep out of the 500 that five million that should be transferred 20% I mean imagine Jen if if overnight your Market had a 20% increase in inventory would that make a difference a little bit yeah a little bit absolutely it would right even even the the little bit that we’ve had you know even the little bit that we’ve had I mean we’re still it dramatic I mean to give it some perspective you know Plymouth Plymouth is town man is is pretty is is huge it’s 102 square miles and you know largest town in Massachusetts uh by far lots of open space but still our in ventory and a a general inventory just for our town is about 350 homes is is healthy it’s a healthy market right yeah between 300 350 um pandemic I mean at one point in the low time there there were like 20 homes um last year we went up to 50 I think now we’re sitting at about 75 so significant difference right but still like even Ian 20% we would have to be like you know 100% in in Improvement like to get any kind of traction at this point um to make a mark difference I mean you know 15 10% 20% you’re talking in additional 14 homes like it’s not going to it’s not going to make a it make a huge difference like we’ve seen it go you know instead of 20 offers is 10 offers you know what I mean but but but no joke like this is this stuff is is crazy and and and and there’s more to it right there’s there’s absolutely more to it um in the sense that um you know there’s there it’s not all you know super easy straightforward all the stuff yeah um you know it’s not like oh well why don’t we just do it well you know there there there are ways that they do it and and and whatnot um it says um Al it went on to say like this lucky Danish homeowner may have may have to turn around and buy another home at a higher rate sure but the profit from paying back their loan at its market rate gives them a buffer to do so Danes don’t even have to sell their house to unlock the SA savings um they can choose to refinance you know I don’t know why you know maybe you bought it at a higher rate and you want to re you know rates go down in the future uh in that case they would have to borrow only 400 instead of 500 pay off the original loan um which is very interesting which is really interesting um I mean that’s a huge consumer I mean for the consumer that’s huge I mean it’s just to think about all of a sudden oh rates went up my loan is less desirable to investors therefore it has less monetary value because it’s less desirable and now I only have to pay off that new lower value value because it’s less desirable I mean that that that’s not the way that we work here in the United States which that’s what you agreed to pay back you got to pay it back regardless well and and and because and I’ll tell you why it’s not going to work it’s because those the the um mortgage back Securities in the Bog Market okay Wall Street they’ll never give up that money no that’s why they never give up that money they will never they will never you know even though it will benefit the housing market which will in in benefit the entire US economy correct because housing is 25% of the US GDP I mean just real estate alone so yes when the real estate market does good the American economy does good and here’s the thing you know people lose I think you know it it it’s it’s much big bigger than than people realize in the sense that when somebody buys a house right M they have repairs so they go on a Home Depot they got to do the lawn stuff so they go on a Home Depot Lowe’s oh there’s a plumbing repair plumbing contractor oh they’re going to do updates general contractor oh there’s an electrical issue electrical contractor like yeah a homeowner PE keeps all of this St all funnels money into the economy yep just by owning the home so it’s like all of these offshoots that people don’t realize that you know everybody suffers when the housing market suffers everybody right and and and it’s it it’s you know so if the Wall Street would get their head out of there you know what like it it it’s it’s a a big picture you know what I’m saying but that would be up to the federal Regulators to make those changes um yeah no you’re exactly right you’re 100% correct um um uh it goes on to say like uh that these another difference would be that they’re assumable I talked about that last week about assumable mortgages and assumable mortgages been around since gosh a long time long long long time 70s you know so but they’re limited to FHA VA USDA whereas in Denmark they’re all assumable which is crazy yeah an just make loan by default assumable is is interesting now obviously that does usually require that that new buyer that borrower to have the difference in money between the value at least here it does which is why which is why assumable loans here in the United States while we have them they’re not super realistic because housing is so expensive you now as a as a as a as a home buyer you have to come in with hundreds of thousand dollar hundreds of thousand or take a second mortgage or take a sec take a take a gap mortgage you know then which exists right so you do assumable loan but you take a gap mortgage for the difference the difference right y right I mean that’s what you’d have to do to see in in in the Danish world that they’re just like yeah they’re all assumable and and you know that bet it’s just about giving the consumer whether that’s the seller or the buyer in this situation because most sellers flip around and become buyers but it’s but in the Danish model clearly they have valued the consumer and they’re doing a much better job of protecting the consumer by offering different ways to mitigate uh mortgage rate increases that we just don’t have here yeah and but they’re still making money which we’re gonna you know we’re gonna see in in a second like you know I won’t get to too in detail about it but it’s not like oh they’re doing it out of the good nobody it’s this is a business yep no government does things out of the good of their heart you know what I mean like it’s all about the it’s about it’s about money and protection and make sure that it it’s more fair yeah um it you know the article goes on to say that um while the Danish system seems May system may seem complex it’s not uh totally absurd to think about we could to think we could adopt something similar here however it would take a lot of work overhauls for Fanny May and Freddy Mack a massive education consumer uh campaign for consumers and maybe even an act of con Congress it’s not as if you can just wave a a wand and Grant homeowners permission to start paying back their mortgage is at market value the existing contracts explicitly lay out the repayment terms and the mortgage bonds are bundled together in a way that makes it impossible to pluck one out of the pool as they do in Denmark I mean they would have to in order to roll that out here in the US it would have to be like any mortgages uh written after a certain date like they would they wouldn’t be able to do it it wouldn’t apply to earlier mortgages because the payment return the repayment terms everything about them would be would be would have to be Rewritten right yep but not impossible I mean you know during um during the financial crisis right they they did the US did um roll out some major uh adjustments they major programs they rolled out the Home Affordable plan right and they they um completely revamped um the trid which is you the whole disclosure process at a closing um it’s it it it is possible it is possible for them to do it but it just it it’s just it would it would have to you’d have to take you have to get a lot you’d have to get a lot of politicians on the same page and and you know we see where our country is at right now but that’s another story for another day um it says anything that gives consumers protection from rising rates interest rates would come at a cost Banks would demand borrowers to pay higher interest rates from the start of their loans the former director of the Danish Financial super um supervisory Authority if I can say that word supervisory Authority told me Danish mortgage rules are stricter in other ways that favor the lender so this is the it’s not a catch to it it’s just like okay well if you’re going to give me this then what is going to balance the scales it’s a pro and con like it’s a double sword there’s always an up there’s always down and you’re about to read what the major downfall well not downfall but the major it’s just different yeah the major different in what we have to do and it says borrowers are required to put 20% down on the homes price and foreclosures are Speedy imagine that thanks to a more creditor friendly legal system I will tell you Joe I worked with banks okay for several years this is going back prec covid I worked with uh representing Banks so the foreclosure process happens um the auction MH and then nobody buys at the auction so the bank be takes over the property as the owner and then they call me right to pick up you know to basically manage the property babysit the property um eventually get it on the market and and and sell it and I’m telling you some of these properties that I would be handed um they was sitting in somebody’s desk drawer for 6 months I mean I’d walk into some of these houses and they’re full of mold and gross because they’ve been vacant yep for months and months and months because the foreclosure process is so stinking slow I mean I’m sure you’ve heard of the sto of the stories on year and people being like Oh yeah they started the foreclosure process but that was like a year ago Y and they haven’t paid they haven’t paid their mortgage in a year it’s routine it’s routinely 9 12 months before there’s any type of yeah you know I got I I I was in notice of default you know they first off they told me that I missed a payment then I just got noticed that I’m in default now they’re starting the forclosure process okay now the foreclosure process is about to formally begin but before it begins they’re giving me an opportunity to settle you know it it’s always something then finally it’s like you know wow it actually got to foreclosure like that’s almost prity because it takes so long to get there um and and it’s interesting you know imagine now home buyers if if in our climate in the United States real estate climate as it is all a sudden we change we said hey good news we’re are we’re going to implement these effects let’s just say hypothetically yeah the enough politicians are on board Fanny and Freddy are on board they say okay we’re gonna rewrite some stuff we’re gonna we are going to enact some change to help mitigate the Locking effect because the US housing market is still too Frozen it’s just it’s just broken it it’s officially broken I really firmly believe Joe that our there’s a lot of things that are broken but I think that this is proof positive that you know the Housing Industry you know I mean it you know it started with um you know real estate agents and I W I don’t want to get into that conversation but but but the reality of it is the there’s changes needed to needed to be made because things have been trotting along the way they were in the real estate agent field in relation to Consumers and commissions for 100 years changed right so change need to happen you know but it’s just like how how long did it take for that to change and it’s like but it’s and it’s still not right it’s still not right in terms of where they’re at with that but that that system is is not it’s it’s broken and the mortgage this is very clear the fact that we’re in this situation with no the only way if they don’t do this is the only thing that I’ve seen aside for aside from building more in you know creating more inventory building the hardest that’s the hardest thing that’s that’s the hardest thing absolutely because there’s only so much land yeah the longest time it takes the most money it’s a lot it’s a lot you can’t force people to sell their houses right so and and and if somebody’s sitting at a 2.75% I mean somebody came along and asked me Jen you know I want to buy your house well I’m telling you if if they’re going to buy my it’s going to be a ridiculously high number because I’m not giving up my rate I’m not I’m I’m I’m it’s affordable it’s comfortable all you know I can make the you know whatever like and I’m of one of millions of people that are in that boat so it’s like you you’re not going to force people to sell you’re not going to be able to incentivize anybody by A A reduced commission no to the real estate agent that’s not going to incen incentivize somebody to give up their low rate so so it’s like two choices you know it’s it’s you got to create housing and the only way to create housing is to build it this is the only thing that I’ve seen that’s not creating housing that could potentially get us out of this ho um there was um something I want to pull up here actually that I wanted to show you because you know the significance of why um why it’s important that we get people to move and and open up here it is I’m going to just going to show this to you real quick because I just saw this I found another uh article that was super interesting you know there’s not a lot this is a just a an article that um who is this person that wrote it uh he’s a strategist and a consultant real estate and macroeconomics real estate I get macroeconomics not so much uh why 10m Mark’s housing market works better than ours and he repeats a lot of stuff that that we’ve already talked about but um down here he says uh mortgage lock in also has less op obvious but more harmful widespread and longlived effects and this is what I I’m I’m talking about and concerned about it says not least it exuberates and this is an macroeconomics guy talking so it’s a lot of a lot of $10 words right exuberates who uses exuberates but anyways I I digress not not at least exuberates declining levels of geographic Mobility Americans are staying in their homes longer in their homes longer they are invinc a declining will to move neighborhoods cities or states in order to find work that better matches their skills by giving Americans a powerful and I’m going to this is I mean this is so important I’m just G to uh I’m just going to get this up here here we go it says by giving Americans a powerful incentive not to move mortgage locking contributes to a handful of modernday macroeconomic problems s including anemic productivity growth and Neo feudal levels of income inequality I will tell you I had to look that up on chat GPT because I’m like what the heck is Neo so for for the benefit of um for the benefit of everybody watching I pulled it up and I have a copy of of that I know I did some homework so all right Neo feudal levels of income inequality what the heck does that mean it refers to a modern-day economic situation where the disparity between the wealthy and the poor is so extreme that it resembles the feudal system of the Middle Ages in a feudal society think about it you think about that for a second Joe the people that are moving now are upper class the people with cash yep the people that are the gap between the PE the has and the has not the people that have the money and and the people that don’t Yep this is creating a huge gap know huge gap it’s interesting that it’s kind of been brought back this sort of this this feudalism concept because back in the days of feudalism in the Middle Ages it was your land owners ver and everyone else like that that was that was how you were classified you know and and there were some other classifications in there nobility and surfs and all those things but more story at the end of the day if you own land you had more privileges you had more power you certainly had more economic advances in gain and it’s interesting that it’s kind of going back to that where you know there’s so many people that feel like man I’m not gonna be able to own a house it’s very difficult to own a house and I don’t I feel like I’m I’m not GNA have the same opportunity I mean we all know that people that own real estate are 40 times more wealthy than those who do not and that’s that that’s not that’s it is what it is and and this this it’s not a good thing you know that the we we know that for a while the the income inequality in the nation the middle classes continues to just get squeezed and it continues to be divided further into the upper and the lower and the middle is going away so it’s just kind of interesting that this is brought up because it’s it’s it’s really starting to resemble that difference between the land owners and the non-land owners and and and um it’s almost like it’s coming full circle unfortunately it’s very it’s bizar bizarre it’s bizarre um the rest of the the uh what does it say it says in feudal society there was a stark like you were just talking about there’s a stark division between the wealthy nobility and the the poor surfs or peasants with little opportunity of upward Mobility uh aka the unaffordable housing market um in contemporary terms non Neo feudal implies that a small wealthy Elite holds a disproportionate amount of power and wealth while the majority of the population has limited economic opportuni and struggles with lwi income and poor living conditions this term is often used uh to criticize modern economic systems where wealth and resources are heavily concentrated among a small segment of population leading to a significant social and economic in equalities that’s this this article I mean I mean that’s it’s it’s it’s like scarily relevant and true like oh no like this is not good this doesn’t feel good this doesn’t feel good if you own a home now and especially if you own that home prior to the pandemic um your ability to afford another home regardless of interest rates like just table that for a moment is so much higher because you can you have the ability of of of earning equity in the property and so you can take that equity and if the market goes up % well you’ve got equity in a house that’s gone up 20% that’s going to Aid you in buying the next house and although that home is more expensive the home you’re selling is more valuable and if you don’t have a home to sell at all and you don’t get that Equity increase well then that means the home you’re trying to buy has just gone up in 20% in value and you have nothing helping you out um so it certainly is becoming a case where if you have a home it’s easier to buy one and if you don’t have a home harder to buy one yeah I mean you got to remember like you know it’s like you know you have you know the the the huge jump that a typical homeowner has to make to buy the same home I mean I think a couple weeks back um i’ I’ve done live streams about that about the fact that most there it was like this this disproportionate large percentage of of of us homeowners could never afford to buy their own home I couldn’t couldn’t afford it at the new interest rates I am sitting in right now if I had to buy it today at its market value at the current interest rate there’d be no way I probably wouldn’t be able to afford my home if I purchased it today at the same price as I did when I bought it a few years ago at the even at the same interest rate so so even if the price has that okay my home is worth more today than it was three years ago even if I had the same interest rate I still probably wouldn’t be able to afford to buy it today because maybe because if you have if we had if if the US had the Danish model say your house is worth and I know you’re in Southern California so these numbers are kind of laughable but we just just humor me say it’s 500,000 sure Southern California the median the median price is what like 60 million or something like that so in La they just came out that the median home price in Los Angeles is now $900,000 oh that’s gross that’s gross that’s all where that’s all where the Hollywood types live anyways just ridiculous over here at the East Coast well uh East Upper Northeast it’s a you know we’re okay but like you know give me a break but anyways um it’s kind of laughable but just say for hypothetical like your house is worth 500,000 right and you’re like I’m gonna have I don’t want to adopt 12 kids I need a bigger house yep um God help you if you do that but that’s beside the point so it’s like you have that 500,000 you want to jump up to 800 well under the Danish model you know you have a interest rate you have now say the rate is at 3% and you want to jump to 6% right now you’re going to get the benefit of the the mortgage Market pay not only giving you um that Equity back but then give additional money so yes the interest rate on the new house is going to be lower but you’ve got a buffer and it brings it down does it bring it down does it help with the mortgage I mean here’s the thing is is the prices are high but when you’re when you’re selling you sell High you buy high right like it’s just it’s it’s a more like if you sell low you buy low like it’s it’s it’s one for one if you’re in a home what you buy next it kind of is irrelevant because the market go it runs in sync you know what I mean um but if for some really the ones coming in the market that aren’t buying aren’t selling anything those are the ones that are just they’re they’re in and an impossible situation but um it just it would it would just open so many um it would just open so many doors it just softens the blow like I said it allows you to allocate that money to buy down the rate and maybe it does negate some of that higher interest rate it allows you to put down a bigger down payment or maybe you say screw it so in the in the model that we use the D model in that example the difference is $100,000 so instead of making2 200,000 you get to make 300,000 two on the house and 100 on the loan yep so you might say hey screw it you know what I’m fine with paying a higher price and a higher rate I’m going to but now I have a hundred extra, on as a buffer as a as a cushion and maybe I don’t need to buy the rate down and I am okay with just paying the higher mortgage rate because maybe my income has gotten better or what have you um but either way you know now you have a hundred extra thousand dollars in the bank to at least fall back on in case of emergency so either way you know what that danger system does is it just provides a lot of different options to the home buyer and seller to alleviate some of the pain of that lock and attack 100% 110% absolutely um this article kind of goes on to say like um uh let’s see they but this didn’t need to be an inter intractable problem the only other country in the world that finances mortgages with bonds Denmark is a model uh yada yada it says oh in the US Banks originate mortgages then sell them onward to gsse um which I looked that up that was um oh um gunver SP governed government sponsored Enterprise it’s another way of saying that it’s you know FHA uh Fanny May Freddy Mack um for bundling their mortgages Danish mortgage Finance operates on a balance principle Banks lending the bank lending is funded by the issuing bonds which is precisely matched the the cash flow of the underlying mortgages Bish DS retain ownership of the mortgages which here they do not including their credit risk so here’s that’s the other thing it’s like they assume the mortgages but they also assume the credit risk so they’re going to be more picky on who they come in who they bring in because they’re gonna have to hold that note they’re gonna have to why this model requires 20% down because risky so there’s you know again one thing that maybe is one of the mark between r model and the Danish model is we you here you can buy a house with well if you do a VA 0% down but FHA three and a half you know 5% 10% 15 20 whatever yeah no money down 20% us no money down make it or loans are starting to make a comeback as well yeah kind of scary I don’t like those um that’s you know then now you have no buffer the market goes down 2% you’re underwater yeah it’s just it it’s just too scary um I want to bring this up just because it has to do with the inventory situation it says with the buyback option available uh the Danes have no reason not to sell their homes amidst Rising interest rates uh this is clear from the supply data the number of homes listed for sale in Denmark has declined but by less than it has in the United States so there is a dip right there is a dip I mean you got good old covid right here so of course it’s going to it’s going to it’s going to dip because there’s there’s you know that shot that was heard around the world but what a difference right what a huge difference um it says um and because Banks retain a skin in the game to your point underwriting standards are Tighter and banks are incentivized to act in ways that enhance the credit of the borrower for example by suggesting they refinance can you imagine can you imagine um opportunistically M falling rates or by buying back their bond trading below par when rates rise I mean could you imagine a bank calling you up and saying you know we’re really urging you to refinance because it’s going to you’re gonna have to pay Git You It’s Gonna benefit you you know like yeah no that’s never gonna happen um so why hasn’t happened this is the part that I wanted to know I’m like why and a lot of this stuff again above my macroeconomics uh um depth of knowledge but the bottom line is it’s like even before the 2008 financial crisis academics and this is what’s interesting Joe even before 2008 financial crisis academics in the US have been pointing out the merits of the Danish mortgage system and the benefits the US would reap by adopting some of their design principles this is not new NOP they know about it they know about it okay says the current suboptimal American setup seems to be due to a path dependency in vested interests but also leg say vested interests huh you don’t say yep and also legitimate technical challenges former fed chairman bernacki um outlined four challenges um first the FH uh lbs which is the fanny ma the Freddy Max and so forth um can tap Capital rates at very Capital markets at low rates and Advance These funds to original Bank originating Banks covered bonds non-economical I.E they can make more money second there has been a degree of crowd crowding I don’t quite under this is again over my pay grade but the the gsc’s implicit government backing in their scale of uh securitization operations have made it difficult for banks to use covered bonds to finance their own Prime Mortgage because there’s no weight to it there’s no one is not not weighted necessarily over the other as much as it is in the Danish system um third American regulation is not yet sufficiently protective of covered Bond holders uh and fourth banks have deinen diviz to issue covered bonds which are the the bonds that that you know uh provide the capital to the banks because Capital requirements for these are higher compared to securitization via VIA the the gses the fanny the Freddy Max um none none of these changes are insurmountable Joe 7% mortgage rates represent an opportunity to rethink the way we Finance in America a small Scandinavian country is showing us a path forward and and the US will never pay attention it’s interesting because a lot of times like you know obviously this is a completely different topic that we’re not going to get into but you know when people talk about like oh the Health Care system and health care in in the Scandinavian countries and in European countries like why can’t we do that in the United States and you know oh Scandinavian countries and European countries do it this way why can’t we do it and a lot of times you know the argument is well you know we’re just a much larger Nation with much more people and and that is a valid excuse you know we can’t run it’s like running the small you can’t run a small business of for employees the same way as a bus 400 but here is a great example of something that a small country is doing that really isn’t dependent upon upon the size or the ability of that of that Nation I mean this is basically we’re talking about policy changes and that’s all we’re talking and at the bottom of that last article all of those reasons on why it’s difficult are just well because it would be hard it is a lot but it’s not like the article said it’s not insurmountable we’ve known this for a long time and like the first article we read we chose to not fix the roof on a sunny day and now raining and that’s the position we’re in we knew about this before the great economic uh crisis and we the United States has basically sat on their hands um and now it’s at a point where it’s like man you know what would be nice is if we had this Danish system and here we are you know regretting anything it’s very sad and and I know that this gets o you know overused with you know people like uh you know you know this darn government system [Music] pitchforks it’s not that way at all it’s just it it is it is sad that we have so much potential we have so much I sound like a one of those Health gurus you know um so much untapped potential the US has so much untapped potential yeah and our policy makers that we have um voted in um are not utilizing that whatsoever ever it’s all about you know trying to make somebody happy and you know the smaller like that’s I feel like it’s like the the lwh hanging fruit on a lot of this stuff and what’s going to make people happy and sometimes you need to do the the path Less Traveled for the benefit of the many and it’s like are people if if you had to I mean you know let’s be honest something like this if all of a sudden you said okay we’re going to do this system and oh yeah by the way 3% mortgages 3% down payments 5% down payments 10% down payments are gone yep those Millennials are gonna they’re they’re it it it I don’t know how that would work that’s a great point I don’t know how that would work because you now you have escalated prices with an even bigger barrier yeah in front of them so I don’t I don’t know like it’s easy to say on paper oh yeah we’ll just Institute the system but like H how how do you do that I don’t know how that happens you know what I’m saying where you don’t have you don’t alienate an entire uh generation of home buyers yeah and that’s a good point because most Millennials can’t even fathom putting 20% down for a home and I don’t blame them especially when you’re the median us prices now approaching $500,000 I believe last time I checked it high four something 460 something or something is the median price or something like that so so I mean most people can’t fathom having to drum up almost $90,000 and and I don’t I know money it is it’s a ton of money and and and I feel like you know something like this it’s like um it’s it’s breaking your leg on a bad you’re you break your leg it heals incorrectly so you have to break you know rough idea but break your leg again right so it can heal properly and that’s what would need to happen yeah which would mean that a a a lot of people would hit the pause button and it would hurt for for a while but when the market caught up because the buyers that can buy those repeat those people that maybe do have the down payment because there are a lot of buyers that are coming in that do have the cash for a while ESP being here in Los Angeles I mean and it yeah firsttime home buyers firsttime home buyers are 20% down there are a lot of working with one right now I’m working with one right now yeah so it’s like they do exist so it’s like those buyers would need to get in and and the market would open up which would mean more inventory would come on the market and then slowly prices would settle because the you know more more buyers would come in more and the more prices settle down more buyers will come in more buyers come in and then eventually it’ll get a point where the income levels enough time would have to go by would would those income levels would rise enough to make it so that now first time home buyers can get their foot in the door but how long is that going to take and and and and you’ve got so many other moving Parts with you know rentals and Rental you know uh um just you know the the the the um you know investors you know these big investment corporations that are just breaking people over the coals for rents and all those things that are happening in the background um it’s a mess yeah it is have you seen that video game Fallout you seen I’m familiar with it but I have it I have it I hav’t seen so I’m not a I’m not a video game player I don’t play a lot of video games but I I like sci-fi type stuff and I hit and I W they uh Amazon Prime came out with the Fallout series a for those who love sci-fi it’s a great absolutely phenomenal show but the whole premises is that buom nuclear bomb which was spoiler alert actually set off by the US government to basically you know and they have all these Fallout shelters everywhere but the people that can afford to be in the fall of shelters and then and then kill everybody else and start over yeah and it’s like okay we don’t want to necessarily do that but it’s almost like how will you know you need to start we need to start over somehow yeah yeah I’m not suggesting that was a bad analogy and I apologize I’m not suggesting I know what you mean I I don’t know where my brain was going I was looking for an analogy and that popped in and sometimes the stream of Consciousness so I apologize if I if I turned anybody sideways on that but you know what I’m saying like I don’t know how how you fix something like this without completely upsetting the the apple cart yeah you know what I mean yeah well and that’s why I tell people that is you know I tell a lot of clients it’s a really complex complicated problem and you know a lot of people are like oh well if the FED would just lower interest rates the fed and Jerome and and oh Jerome pal and the fed and you’re like well you have to understand like this guy is trying to walk a tight rope um because you also consumers also don’t want High inflation they don’t want their money to not go as far and if interest rates go down that’s more likely to happen so it’s just it’s this it’s this teetering tight RPP walk that’s very difficult and it’s a very complex difficult problem and a lot of people don’t truly understand the all of the different ingredients that go into making that problem and therefore how they can be solved so it is it’s very very difficult which kind of makes your point make sense where it’s like at some point we just kind of have to like start with a fresh slate and just wipe the system come back and say okay H how do we pick back up so that this is actually sustainable um and obviously does it that’s not there’s not a possibility of that happening um well because you know zombie apocalypse would make that happen too that’s true you know what I’m saying that’s true that would happen watching The Walking Dead now so there you go for the second time and that that talk about resetting an entire government but that that’s a whole another situation that didn’t end up well so we we won’t we don’t want that we don’t want that um so uh I got some housekeeping items here um the first thing I just was so anyone watching the stream um if you have any questions you know if you have if you want to send me a private message if you want you know to to question about you know curious about any of this stuff or if you um need to talk to somebody in your local area you know about the value of your home to kind of see where you’re at um check out on my website Jens sylvester.com just click one this qu this referral link right here request an agent referral fill that out I’ll get right back to you and uh and then get you connected to a good Agent I’ve been in this biz for 28 years so uh I kind of know a few people kind of know a few people and I know the good people like in other words the people that uh know what they’re talking about um and one of those people is s is I’m gonna say he’s sitting right in front of me because really he’s on the other side of the country for sure is this guy so uh down in South South uh SoCal is that what they call SoCal down down in uh California what’s the temperature there today today it’s nice actually today it’s 74 and it’s mostly sunny little bit of marine layer uh but it’s it’s it’s beautiful and we’re GNA probably be in the mid 80s this week between mid-70s and mid 80s what does that mean Marine layer what does that mean so that’s basically like it’s it’s it’s high fog it’s high level fog so we get a typically in May and June we have may gray and junee Gloom so in May and June we’ll have some some fog that rolls in from the coast and then it will kind of hang around because it’s not quite hot enough to burn off real quick so like right now like in the afternoon like it kind of looks like there’s fog high in the sky but there it’s still pretty sunny and it’s usually like you know 75 to 80 degrees so Marine layer is that sort of like high level fog that it’s not quite beautiful blue sky sunny but it’s still warm oh must be nice it is nice must be nice it is nice it’s it’s you one of the joys of living in this in this wonderful place the well you know what weather if you’re gonna pay those crazy West Coast prices then at least you get that to show for it right yeah exactly one of the Beautiful Things um and then I have a just a Shameless plug um which I gotta do with do for my uh my compadre Jackie baka um so if uh if anyone watching this live stream is interested in a few Chuckles uh Jackie and I do a podcast every uh every week um and we film it throw it up on the tubes uh if you’re if you like that type of content or you can catch it on all the um podcast channels and uh basically she researches all the craziest ridiculous uh stories that you can’t even fathom um and then she reads them to me and then we discuss and we have some laughs and we it but it’s some good content we have some you know try educational component in there to try to teach people about these you know uh what what may happen but uh check it out if that’s your thing you know a great series it’s very entertaining you listen to it yeah i’ listen to some yeah cool cool cool cool it’s fun that’s like the highlight of my week that that podcast legitimately we started it’s pure just fun for Jackie and I we have no expectations of um like there’s no there’s no um expected outcome of like yeah it is what it is like we do it for us and uh yeah and and you know what people get getting some good feedback on people enjoy it and all that kind of stuff and and quite honestly you know what if I get a couple people to smile chuckle whatever get something out of it then that’s great there you go so is what it is but um you got anything else to add there Joe I think we covered it I think we covered it I think we did and this a very I just you know is this something that necessarily is going to help somebody buy a house tomorrow no but I just feel like it was too um it was too interesting of a topic to pass up like you know what I mean like it was it’s good information very interesting it’s good for people to know and be educated and um you know this is this is this is how change is enacted by people talking about it so 100% 100% because I mean it’s like you know think about the you know why things are the way they are you get your world a little bit bigger and you real you know to know that the US is is is different like you know a lot of the countries out there they’ll have locked rate Mor like our friends to the north right in Canada yeah you have locked rate mortgage for maybe 10 years maybe yeah and then it floats with the mortgage market so you get that 3% interest rate well if you’re not moving within 10 years guess what now your rat’s going to go up with the with the market and that’s normal for a lot of for many countries around the world that’s the way it just that’s the way it works and we’re kind of spoiled here you know y agree and then I guess that’s the message and that’s the the takeaway like the glass half full I think you know to say you know what yeah it’s hard right now uh you know for for from for you know the home sellers out there it’s hard and not anything but ideal um but to live in this country to have that opportunity to lock in for 30 years years if you have that rate is is you know we’re fortunate that way yep you know we’re very fortunate so anyhow thanks Joe for for joining us join joining us joining me on this uh conversation and uh let’s see what we got got going on here so we get little little dance music sign off music all right everybody thanks for watching thanks for tuning in hope you have a great week uh enjoy this of your week be kind to your neighbors be kind for to everyone that you come across with do something unexpected extra and have a great Happy week no matter where you are in the country get some sun and we’ll see you next week ciao Hi D Dance it up Joe yeeha