‘People are really getting sticker shock,’ housing expert says

DLB Financial Services CEO Debbie Boyd joins Yahoo Finance Live to discuss rising mortgage rates, the costs homebuilders and lenders are taking on, investors taking their money out of the real estate market,

Video Transcript

DAVE BRIGGS: Despite surging mortgage rates at their highest level in more than a decade, the housing market remains hot. However, those rates are leaving many buyers stuck between a rock and a very hard place at the moment. Debbie Boyd is the CEO of DLB Financial Services. Debbie, nice to see you. If you could describe the situation facing Americans who signed contracts last year under construction, in particular, and now their circumstances have changed dramatically.

DEBBIE BOYD: Hi, well, thanks so much for having me. Yes, not all families get the best financing options when they did that new home purchase. There’s a lot of home– national home companies and lenders that let you lock in advance of when you close. But a lot of those companies have just started that because of the rate hikes. And they can lock a year out in some instances, but that wasn’t available last year. So people are really getting sticker shock, and some are happy to leave that house that they wanted so bad because they just can’t afford the payments now.

DAVE BRIGGS: So they signed at, say, 3% a year ago. And again, it was under construction, so it was going to take a while. And as we know, things are taking longer now as well. How much have overall mortgage payments increased over that time?

DEBBIE BOYD: Oh, I’d say at least 30% for some people. So if you could afford an $800,000 house before, you may be down to a $550,000 or $600,000 house. A lot’s changed in people’s finances. And so if you’re paying more on credit card bills, if your car payments have gone up, if you bought a new car since you’ve qualified, a lot of people are finding themselves kind of stuck in the middle.

DAVE BRIGGS: Indeed, they are. So the risk they’re taking is now walking away from that home and losing the deposit. What kind of a deposit are we talking about walking away from?

DEBBIE BOYD: Well, some new construction does 1% of the home price. Others have 20% down. So it’s all in what area of the country that you’re in, and did you go with a local builder or if you’re with a national builder. Some of the builders are giving the money back as an earnest money. They’re refunding their earnest money check. And they’re selling that house then for 30% to 40% more to somebody else if the people can’t qualify. So you’ve got to be qualifying all through the process. You just can’t wait to the end when you’re supposed to buy it. This is something that lenders should have been doing all along.

DAVE BRIGGS: Yeah, I’m sure they’re happy to give up that spot for some of those builders that have others waiting to pay more, which is the case in several markets across the country. At the risk of sounding insensitive, is this failure to plan for the future?

DEBBIE BOYD: It is for the people buying the houses, and it is for the home builders. But nobody saw a lot of this stuff coming. So when we say, did you plan? Well, nobody planned for COVID and everything that happened. No one plan to shut down all these plants and change everything. And then no one planned to see the economy do what it did. So we just have to keep money in reserves. This is why it’s so important that you don’t spend everything that you earn, that you have money in reserves.

You’re hearing people say cash is king right now. That’s because a lot of people are taking money out of the market, and they’re putting it in cash reserves. And then they’re deciding to invest it in real estate or some other things. They’re not leaving in the stock market. So money is moving around. It’s not so much that it’s gone. It’s just moving to other places now.

DAVE BRIGGS: Yeah, people living within their means is not exactly in style at the moment. So what’s your advice for people making similar types of purchases right now?

DEBBIE BOYD: Well, I bought a new house myself, and I started it in October. And I’m buying it here now in June. And it was supposed to be ready a couple of months ago. So I’m just like everybody else. You’ve got to keep your cash reserves, though. You don’t spend money that you don’t need to. You don’t waste money. So I think a lot of people kind of say, well, if I have to stay home and I have to work from home or whatever, then I’m going to splurge. You know, Amazon is up. Consumer spending is up.

It’s just not up in savings, which is what we need for times like this. You can’t have too much cash on the side. So you really have to look at that going forward. Interest rates are going to keep moving up this year. So if you don’t buy now and you think it’s going to be a bubble, you can wait until the fall, it’s going to be worse in the fall. And the home prices are going to be higher. And you’re still going to not have a great selection, because we can’t ramp up production all that fast.

DAVE BRIGGS: So factor that away when you’re making the most important purchase of your life. How are the mortgage rates overall impacting the housing market from what you’re seeing right now? And how high do you think they’ll go?

DEBBIE BOYD: I think they’re going to be up to the 7s. But people act shocked by this. But 10 years ago, I bought a house at 5 and 1/2%. So this is not unheard of, guys. It’s just that nobody’s heard about it for the last 10 years. Rates used to be at 17% when I was younger. So things happen. You got to be prepared. The rates at 2% were kind of a fluke. No one ever, ever expected those. So rates are going to go up. Housing prices are going to continue to skyrocket as people move. It’s supply and demand is simply what it is. So I don’t want to sound harsh, but if a lot of people want a house and you’re bidding against 10 people, that price is going to go up, just simply basic economics. So you’ve got to plan for that.

DAVE BRIGGS: People need that honesty, Debbie Boyd. Thank you, DLB Financial Services CEO. Appreciate your time. Thanks.