Nathan writes: Is what you are seeing taking place like buyers backing out of contracts, less buyers overall and tons of price reductions a sign that I should back off?
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Welcome back to real investing. I’m Tim Herriage, thank you so much for your time today. We’ve got another question today from Nathan. Nathan writes is what you are seeing taking place like buyers backing out of contracts, less buyers overall, and tons of price reductions, a sign I should back off. Hmm. Well, Nathan, the answer to that is no, it is not a sign you should back off as long as you understand the risk. And as long as you understand the math, ultimately what I’m seeing nationwide and in my market and every market I’ve looked at is as of this month, houses are selling for more than they did in August of last year. And I said this yesterday or the day before, can’t remember, and I’ll say it again, and I’ll say it on blue in the face real estate is seasonal, right? Many times the highest sales of the year are in the spring and early summer.
When you add in interest rate hikes and compressed demand. So what we saw kind of like in February, March, April, was everyone finally was afraid of interest rates going up. So they rushed to get their low interest loans. They did it at, uh, on, at RCN capital on the refinance side for investment properties. So we’re seeing some elasticity, right? The market stretching a little days on the market are up. Price. Reductions are up. Inventory is up, but it’s not above normal. It’s actually still way below normal. So what I’m seeing is people are backing outta contracts on houses. They way overpaid for on today’s math in today’s math is what we call skill and discipline. Today’s math is based off of the averages of the sold listings versus the one high comp in the neighborhood. We have been living in crazy town for the last couple years.
We have been living in no houses for sale way too many buyers, almost free money. I’ve said it from the stage a couple times in the last couple weeks, it was like there was free crack out there and now people have to pay for their cocaine. And I know that sounds a little, you know, caver, but that’s just the way it is. I mean, really, and truly as I record this today, the 30 year purchase interest rate is 4.9%. That’s a great rate at RCN capital. We’re loaning money to real estate investors on 30 year fixed loans in the 6% range. That’s a great rate. So I’m assuming you’re in investing. That’s why you’re asking me if you should back off. Absolutely not. I think it’s a great time to flip the right house. I recommend you stay at or below the median home price.
I recommend you use the average of the last three sold comps, not the three highest you could find to make the deal work. I think we all have to go back from crazy town and just get into realistic, disciplined, real estate investing. So when you’re valuing the house, you look at the last three comps and you use the average and that’s the value of the home period. You don’t justify it and say, oh, you know, maybe I could, you know, do this or that. Like you just, it it’s gonna come down to discipline. It’s gonna come down to skill. It’s going to come down to focusing on core principles and being consistent. That’s what it is. That’s all, that’s all we gotta do here. So buyers are backing out cuz they rush to overpay. There’s not less buyers overall. There’s just not. And tons of price reductions.
Those price reductions are the most misleading thing. And like I just recommend you stop looking at percentages or uh, the media in general because those price reductions have nothing to do with anything other than people are overpricing their house and having to lower it. And what you’ve seen in the last, I’d say 60 to 90 days is a lot of people have put their homes up for sale because they’re afraid they missed the boom. And so they’re sticking ’em out at stupid numbers, then they’re reducing ’em but ultimately price reductions are only 6% of listings. As of my research yesterday, have price re reductions. That’s nothing. What you’re seeing though is the number of reductions is going quote unquote, way up, cuz it’s going from two to 10 or you know, not two to 10, actually that would be bad math. It’s going from two to four, right?
It’s doubled. It went from 3% of listings to 6% of listings. That sounds like a lot, but it’s not because before we were in crazy town. So no, I don’t think you should back off. I just think you should be smart. I think you should focus on properties at or below the median home price. Um, in your subject market. I think rent growth has a way to go still. It’s not done. So that’s my advice, Nathan, thank you for writing in. If this helps, please let me know if you have questions out there, hop over to, IHaveLunchMoney.com. I’ll see you tomorrow.
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