Doug Duncan: 00:00:01

It is true that every human being on the planet puts

Doug Duncan: 00:00:05

their head down every night on a piece of real estate somewhere.

Doug Duncan: 00:00:11

It's part of the human condition.

Doug Duncan: 00:00:12

So now, you know, depending on population, wealth, income, risks, there's a whole

Doug Duncan: 00:00:19

bunch of ways that can play out, but it will always be part of the story.

Doug Duncan: 00:00:24

And so it is to me,

Voice Over: 00:00:33

you're listening to batting 1000 with Dale Vermilion,

Voice Over: 00:00:36

where heavy hitters from mortgage, real estate, and business share their

Voice Over: 00:00:40

secrets for lasting success with your host award winning sales strategist

Voice Over: 00:00:44

and industry icon, Dale Vermilion.

Dale Vermillion: 00:00:48

All right.

Dale Vermillion: 00:00:48

Welcome to this month's batting a thousand.

Dale Vermillion: 00:00:50

Uh, I am so excited to have you guys with us this month.

Dale Vermillion: 00:00:54

And I've got an absolutely incredible guest, uh, good friend, uh, a man that

Dale Vermillion: 00:00:59

I have admired for a lot of years.

Dale Vermillion: 00:01:01

I've, I've watched him, uh, on the stage so many times over the last 15 years, uh,

Dale Vermillion: 00:01:06

speaking to the mortgage industry, um, probably longer than 15 years, actually.

Dale Vermillion: 00:01:10

Uh, Uh, Doug Duncan is with us today.

Dale Vermillion: 00:01:13

If you don't know who Doug is, uh, I'm sure you do cause he needs no

Dale Vermillion: 00:01:15

introduction, but let me just give you a rundown on Doug's credentials.

Dale Vermillion: 00:01:19

By the way, Doug, I could spend this entire time just talking about your

Dale Vermillion: 00:01:22

credentials, but I'm going to give them the one that the ones that I've, I've

Dale Vermillion: 00:01:26

written down that they want to know.

Dale Vermillion: 00:01:27

Uh, Doug is a senior vice president and chief economist for Fannie Mae.

Dale Vermillion: 00:01:30

Uh, he was previously with the MBA before that.

Dale Vermillion: 00:01:33

He's responsible for the forecast analysis of the economy and the

Dale Vermillion: 00:01:36

housing and mortgage markets.

Dale Vermillion: 00:01:38

There is nobody that knows this industry better than Doug does.

Dale Vermillion: 00:01:41

Uh, he oversees in his position, strategic research regarding potential impact of

Dale Vermillion: 00:01:45

external factors on the housing industry, and just a couple of cool things.

Dale Vermillion: 00:01:50

Uh, Doug is a Bloomberg business week, 50 most powerful people.

Dale Vermillion: 00:01:53

People in real estate.

Dale Vermillion: 00:01:55

That's a huge accolade.

Dale Vermillion: 00:01:57

He's also in the News's 100 most influential people in real estate.

Dale Vermillion: 00:02:01

And underneath his leadership, uh, Fannie Mae's Economic and Strat Strategic

Dale Vermillion: 00:02:05

Research Group earned the 2022 Lawrence R.

Dale Vermillion: 00:02:08

Klein Award for blue chip.

Dale Vermillion: 00:02:09

Forecast accuracy.

Dale Vermillion: 00:02:11

Uh, they also won the NABE Outlook Award.

Dale Vermillion: 00:02:15

Uh, that's, you guys are the first recipient of that, um, that did it back to

Dale Vermillion: 00:02:19

back years, which is a really cool thing.

Dale Vermillion: 00:02:21

That's the first time in history.

Dale Vermillion: 00:02:22

And he is a trustee of North Dakota State University, PhD in agriculture

Dale Vermillion: 00:02:27

economics from Texas A& M, which means I need to call you Dr.

Dale Vermillion: 00:02:29

Duncan, and he has a BS and MS in agricultural economics

Dale Vermillion: 00:02:33

from North Dakota State.

Dale Vermillion: 00:02:34

So Doug, great to have you.

Dale Vermillion: 00:02:36

So honored to have you here.

Doug Duncan: 00:02:37

Great to be with you.

Doug Duncan: 00:02:38

It's.

Doug Duncan: 00:02:39

It's a, it's a pleasure.

Doug Duncan: 00:02:40

And, um, just to be clear, all those awards are because I have a great staff.

Doug Duncan: 00:02:44

I try not to screw it up.

Dale Vermillion: 00:02:48

I love it.

Dale Vermillion: 00:02:50

Well, look, we want, we want to talk, uh, obviously everybody wants to know

Dale Vermillion: 00:02:54

what's happening with the marketplace and you and I chatted a little bit.

Dale Vermillion: 00:02:58

And I want to talk about, you know, the recent trends and why the rates have

Dale Vermillion: 00:03:02

not responded the way they normally do in the market and some of the things

Dale Vermillion: 00:03:06

that have been factors that have driven that and kept rates up a little bit.

Dale Vermillion: 00:03:08

The forecast for what you see and mortgage and real estate and housing and all that.

Dale Vermillion: 00:03:13

We'd love to hear that.

Dale Vermillion: 00:03:13

But you and I were having a little conversation backstage and

Dale Vermillion: 00:03:16

you'd mentioned something that I really would like to start with.

Dale Vermillion: 00:03:19

And you were talking about what the biggest problem is that chief

Dale Vermillion: 00:03:21

executives have in the mortgage world.

Dale Vermillion: 00:03:24

So share with me your thoughts on what we were talking about,

Dale Vermillion: 00:03:27

because I thought that was a great way to start this conversation.

Doug Duncan: 00:03:30

Yeah, sure.

Doug Duncan: 00:03:30

I was trying to understand when I was finishing my, my degree, what, what's

Doug Duncan: 00:03:38

the value that economists can provide in the executive office and in my

Doug Duncan: 00:03:42

first couple of years at NBA, as I was talking to some of the leaders, uh,

Doug Duncan: 00:03:47

became clear that really their challenge is to understand trend and momentum.

Doug Duncan: 00:03:53

Where is activity in their business and the environment in which

Doug Duncan: 00:03:58

their business gets executed?

Doug Duncan: 00:03:59

Where is that activity going?

Doug Duncan: 00:04:02

And then at what speed?

Doug Duncan: 00:04:05

So you may, you may choose to say, well, we don't necessarily agree with the trends

Doug Duncan: 00:04:10

today, but you should know what they are.

Doug Duncan: 00:04:13

And have a good reason for why you are relative to that trend where you are.

Doug Duncan: 00:04:18

And like, likewise, um, whether you are at speed with the trend or behind or

Doug Duncan: 00:04:25

ahead, those things that seem to me are important because it, it determines where

Doug Duncan: 00:04:31

you're gonna allocate your resources.

Doug Duncan: 00:04:33

Uh, and there's always risk to manage.

Doug Duncan: 00:04:36

Uh, and understanding those things will give you some insight into

Doug Duncan: 00:04:39

the, the risks to the, to the, uh, objectives that you're trying to pursue.

Dale Vermillion: 00:04:45

Now, if you would share the, analogy that you gave me, uh, when

Dale Vermillion: 00:04:48

we talked earlier about that, uh, from back in your, your naval days, talk

Dale Vermillion: 00:04:52

about that for just a minute, because I thought that was a great analogy.

Doug Duncan: 00:04:54

Yeah, it was, uh, it's always one, one thing that my father

Doug Duncan: 00:04:58

taught me when I was growing up was just pay attention to everything that you do.

Doug Duncan: 00:05:02

You may not be what you always wanted to do, but you're going to

Doug Duncan: 00:05:04

learn something if you're paying attention, no matter where you are.

Doug Duncan: 00:05:07

So I was in the Navy, I was an enlisted, uh, petty officer, uh,

Doug Duncan: 00:05:11

and from time to time I would stand watch and keep the log on the bridge.

Doug Duncan: 00:05:15

Uh, and as I watched the, the captain give orders in, uh, in directing the

Doug Duncan: 00:05:22

ship, it was clear that whether you were in a fog bank, Or you were in

Doug Duncan: 00:05:26

bright, clear skies, you were going to keep the ship going, no matter what.

Doug Duncan: 00:05:31

And if you're in a fog, you don't necessarily know what's out there, but

Doug Duncan: 00:05:34

you can't just stop the ship, right?

Doug Duncan: 00:05:36

And that's a lot like running a company.

Doug Duncan: 00:05:38

And maybe today there's, there's a lot of uncertainty about where

Doug Duncan: 00:05:43

the housing sector is going to go.

Doug Duncan: 00:05:45

You can't not go, and you have to make some decisions, uh, and, uh, actually,

Doug Duncan: 00:05:51

there was Early in my days at mortgage bankers, uh, Leo Knight, who many

Doug Duncan: 00:05:55

of you probably knew, uh, called me and he asked me, he said, dog, I've

Doug Duncan: 00:06:01

got a board meeting at five o'clock.

Doug Duncan: 00:06:02

He said, I have to make a decision on this issue.

Doug Duncan: 00:06:04

I understand you're a new economist at MBA.

Doug Duncan: 00:06:06

Maybe you could help me with this.

Doug Duncan: 00:06:08

And so he told me, I don't even remember what the issue is.

Doug Duncan: 00:06:11

He said, just call me back at three o'clock and tell me what you think.

Doug Duncan: 00:06:14

So I looked at a bunch of things.

Doug Duncan: 00:06:15

I'll call them at three.

Doug Duncan: 00:06:17

And I said, well, if I look at this, it says, uh, this might be a good idea,

Doug Duncan: 00:06:22

but the data is kind of iffy and I look at it with a different set, uh, gives

Doug Duncan: 00:06:27

a little bit different indication and the data is not perfect there either.

Doug Duncan: 00:06:30

And he stopped and he said, Doug, the data won't be better by 5 o'clock.

Doug Duncan: 00:06:34

He said, I'm just asking your opinion based on your professional expertise.

Doug Duncan: 00:06:39

How would you make this decision?

Doug Duncan: 00:06:41

That was a really important lesson.

Doug Duncan: 00:06:43

I've always been grateful for him doing that for me because it, it brings it

Doug Duncan: 00:06:49

clear, you have to make a decision, even though the data aren't better

Doug Duncan: 00:06:53

when you have to make that decision.

Dale Vermillion: 00:06:55

That's really, that's, that's rich information.

Dale Vermillion: 00:06:57

Well, speaking of the fog bank, I think a lot of lenders today feel like they'd been

Dale Vermillion: 00:07:02

in that fog for about a year, you know, year and a half now, since about early

Dale Vermillion: 00:07:06

2022 and, uh, particularly recently, it seems like, you know, rates have just not.

Dale Vermillion: 00:07:13

Followed and tracked and responded and the bond market has the way it normally

Dale Vermillion: 00:07:17

does to inflation factors and those kind of things And I know there's a whole

Dale Vermillion: 00:07:20

lot of reasons for that between the debt ceiling problem that we had and bank

Dale Vermillion: 00:07:24

crisis But i'd love to hear I mean nobody knows these things better than you do.

Dale Vermillion: 00:07:27

I'd love to hear a little bit from you on Where we're at today why where

Dale Vermillion: 00:07:32

we're at today why rates are acting kind of Fickle and where you see things

Dale Vermillion: 00:07:37

going in the future with rates and with housing and with the market, just kind

Dale Vermillion: 00:07:42

of give us a, an overview of what you're thinking from an economist standpoint,

Dale Vermillion: 00:07:46

um, with all the data you look at,

Doug Duncan: 00:07:48

um, sure.

Doug Duncan: 00:07:50

Um, well, as everybody knows, the fed met yesterday and decided not

Doug Duncan: 00:07:56

to raise the fed fund started.

Doug Duncan: 00:07:58

Yeah, but then they muddied the water a little bit by,

Doug Duncan: 00:08:01

uh, their summary of economic projections, suggesting they would.

Doug Duncan: 00:08:06

Uh, at some point raise to 50 basis points, they may do it in two quarter

Doug Duncan: 00:08:11

point increments or something.

Doug Duncan: 00:08:13

Um, which suggests that they think that inflation is not yet under control.

Doug Duncan: 00:08:19

Um, and we would agree from a core, uh, inflation perspective.

Doug Duncan: 00:08:24

Well, typically when you get as big a rate shock as was in the mortgage industry

Doug Duncan: 00:08:30

where rates doubled within a year.

Doug Duncan: 00:08:33

You would see a lot more slowdown in housing than you saw.

Doug Duncan: 00:08:37

There was an initial slowdown, but then the reality of the pent up demand

Doug Duncan: 00:08:43

from the millennials who are still a couple of years away from peak first

Doug Duncan: 00:08:48

time home buying age and the lack of supply exacerbated by two things.

Doug Duncan: 00:08:55

One is the boomers aging in place.

Doug Duncan: 00:08:58

And the second one is the Gen Xers who don't get any airtime.

Doug Duncan: 00:09:01

So I'm giving them some airtime.

Doug Duncan: 00:09:02

Now they're the ones that locked in 3 percent mortgages.

Doug Duncan: 00:09:05

So it's not going anywhere.

Doug Duncan: 00:09:07

So that's a huge chunk of the existing homes out there that are

Doug Duncan: 00:09:11

really in a way taken off the market.

Doug Duncan: 00:09:14

And so it doesn't take a lot of financial power on the demand side.

Doug Duncan: 00:09:20

For that, uh, in this instance, stabilized prices.

Doug Duncan: 00:09:24

First of all, I think our view, if you went back six months was over

Doug Duncan: 00:09:29

a two year time period, we probably see a 10 percent decline in prices.

Doug Duncan: 00:09:32

Now we've chopped that probably in half.

Doug Duncan: 00:09:35

And we've only seen a couple of percentage points nationally, though regionally,

Doug Duncan: 00:09:39

there are significant differences.

Dale Vermillion: 00:09:41

Right?

Doug Duncan: 00:09:42

But so, so rates that rise in rates actually hasn't caused the problem

Doug Duncan: 00:09:48

that, uh, that a lot of folks thought it, of course, chopped off refinances.

Doug Duncan: 00:09:53

There's, there's just only a teeny portion of households that

Doug Duncan: 00:09:58

it makes sense to refinance.

Doug Duncan: 00:09:59

So those numbers have dropped way off.

Doug Duncan: 00:10:03

So the market is trying to assess, um, how far the Fed is going to have to go

Doug Duncan: 00:10:10

in order to get inflation under control.

Doug Duncan: 00:10:12

And while headline inflation has come down, um, that is

Doug Duncan: 00:10:17

not true about core inflation.

Doug Duncan: 00:10:19

It's been very stubborn.

Doug Duncan: 00:10:21

Now, part of that's housing.

Doug Duncan: 00:10:23

Uh, and in the CPI, that's a pretty good chunk.

Doug Duncan: 00:10:25

Like a third, uh, comes from housing that, that will flatten out.

Doug Duncan: 00:10:30

We'll start to see some.

Doug Duncan: 00:10:32

Reduction in the contribution of housing to inflate underlying or

Doug Duncan: 00:10:36

core inflation, but, uh, the rest of it is still stubbornly sticky.

Doug Duncan: 00:10:42

So, um, 1 of the issues with mortgage rates, they ran over 7

Doug Duncan: 00:10:47

percent and things sort of stopped.

Doug Duncan: 00:10:50

And then what you saw is people offering 2, 1 buy downs and some other issues.

Doug Duncan: 00:10:56

That was because nobody believed that when the Fed reversed policy, any MBS backed

Doug Duncan: 00:11:03

by 7 percent mortgages was going to be there for more than a very brief time.

Doug Duncan: 00:11:08

So prepay risk.

Doug Duncan: 00:11:11

Led to that 2 1 buydown situation where people could get the, uh, the rates

Doug Duncan: 00:11:17

on an MBS back to where they thought it would last for a little while.

Doug Duncan: 00:11:21

Yep.

Doug Duncan: 00:11:21

The second thing that's going on in spreads, which are historically wide,

Doug Duncan: 00:11:25

particularly the secondary spread is, uh, in addition to the prepay issue,

Doug Duncan: 00:11:32

if there were going to be a recession, which we have a mild recession,

Doug Duncan: 00:11:35

our forecast that raises risks, so there's a change in the risk premium.

Doug Duncan: 00:11:38

So you have to add that in there.

Doug Duncan: 00:11:41

I think there's also a search in the market and capital markets for

Doug Duncan: 00:11:46

who is going to replace the Fed.

Doug Duncan: 00:11:48

So the Fed holds 21 percent of mortgage backed securities outstanding, the

Doug Duncan: 00:11:54

single biggest holder in the world.

Doug Duncan: 00:11:56

Um, the combined depository institutions, banks, uh, and credit

Doug Duncan: 00:12:01

unions hold about 29 percent as a group.

Doug Duncan: 00:12:06

But as a single holder, the Fed is the biggest and they have

Doug Duncan: 00:12:09

said, we don't want any of this.

Doug Duncan: 00:12:10

We would like it to go away.

Doug Duncan: 00:12:12

That's a, that's a formal policy statement that they would like to

Doug Duncan: 00:12:15

exit, uh, have MBS exit the portfolio.

Doug Duncan: 00:12:19

So the question is, who replaces them?

Doug Duncan: 00:12:22

So the thrift industry is gone.

Doug Duncan: 00:12:25

The depository institutions have, Over a very long time period, he held those

Doug Duncan: 00:12:32

in a, in a band, which they, they never exceed a maximum share of the assets held.

Doug Duncan: 00:12:38

And they never, they're never lower than a certain share.

Doug Duncan: 00:12:41

They're pretty close to the top of that band at the present time.

Doug Duncan: 00:12:45

So who steps in and replaces them?

Doug Duncan: 00:12:46

And I think there's a significant uncertainty in the market about that.

Doug Duncan: 00:12:51

And that widespread is in part, a search for who's going to replace that.

Dale Vermillion: 00:12:57

Interesting.

Doug Duncan: 00:12:57

We're doing some research on that.

Doug Duncan: 00:12:59

People will say different things.

Doug Duncan: 00:13:01

They'll say, well, private investors.

Doug Duncan: 00:13:03

Okay.

Doug Duncan: 00:13:03

Uh, maybe so, uh, at what yield will they be willing to hold that volume?

Doug Duncan: 00:13:10

Uh, and how will they behave over the business cycle?

Doug Duncan: 00:13:15

Will that, will there be a more volatile holder, a less volatile holder?

Doug Duncan: 00:13:21

You know, the fed was not an economic buyer.

Doug Duncan: 00:13:24

They were a policy buyer.

Doug Duncan: 00:13:26

So they weren't buying for risk return metrics.

Doug Duncan: 00:13:29

They were buying to impact the fundamentals in that, in that business.

Doug Duncan: 00:13:35

That's not why private investors invest.

Doug Duncan: 00:13:37

They're looking at, uh, yield risk adjusted returns.

Doug Duncan: 00:13:42

So that's a kind of a big unknown.

Doug Duncan: 00:13:45

And I think that part of what you see in those spreads is the search

Doug Duncan: 00:13:49

for what's going to happen next.

Dale Vermillion: 00:13:52

And that concern the Fed has about the mortgage backed

Dale Vermillion: 00:13:55

securities is it just because they're concerned about the stability of those

Dale Vermillion: 00:13:59

funds is really what it comes down to?

Doug Duncan: 00:14:01

Well, I don't, I don't think they're worried about,

Doug Duncan: 00:14:03

um, the value of the MBS or the health of the MBS themselves.

Doug Duncan: 00:14:08

In fact, that's one of the things that's different in this current

Doug Duncan: 00:14:11

banking, uh, issue that we've had that's different from 07 to 09.

Doug Duncan: 00:14:16

You know, seven Oh nine, it was really an asset quality.

Doug Duncan: 00:14:19

Yeah, that's exactly right.

Doug Duncan: 00:14:20

Case today, treasuries are solid.

Doug Duncan: 00:14:22

The MBS are solid.

Doug Duncan: 00:14:24

They just don't want to be intervening in the market, uh, by being a buyer in

Doug Duncan: 00:14:29

a specific sector, they've taken some criticism for, for that in the past.

Doug Duncan: 00:14:34

And that's why they traditionally hold only treasuries.

Doug Duncan: 00:14:37

Uh, so they would like to get back out of that space and, and, uh, have the

Doug Duncan: 00:14:41

market perform more on fundamentals.

Dale Vermillion: 00:14:44

So you said a couple of things there that

Dale Vermillion: 00:14:45

I thought were really key.

Dale Vermillion: 00:14:47

Um, first off, you said just a minute ago that this is not two 7,

Dale Vermillion: 00:14:52

008, uh, 2007, eight, nine, and 10.

Dale Vermillion: 00:14:54

And a lot of people ask that.

Dale Vermillion: 00:14:55

I hear that all the time from people.

Dale Vermillion: 00:14:56

Are we going back to 2007, eight, nine, 10?

Dale Vermillion: 00:14:59

My answer is always like, no, that's a totally different problem.

Dale Vermillion: 00:15:02

Totally different issue.

Dale Vermillion: 00:15:03

It was, it was more asset based credit, quality based those kinds of

Dale Vermillion: 00:15:07

things where this is just economic.

Dale Vermillion: 00:15:09

It's just based on rates and what's happening, which is more cyclical.

Dale Vermillion: 00:15:12

Okay.

Dale Vermillion: 00:15:12

And it's going to change.

Dale Vermillion: 00:15:13

And I loved when you said earlier, Doug, and I think this is a good

Dale Vermillion: 00:15:16

reminder for the industry that, you know, we're so quick to say, Oh my gosh,

Dale Vermillion: 00:15:21

rates went up so much, that's so bad.

Dale Vermillion: 00:15:23

And we forget it actually landed much better than it could have.

Dale Vermillion: 00:15:27

And it probably should have, we actually did way better through that process.

Dale Vermillion: 00:15:31

We're still seeing.

Dale Vermillion: 00:15:32

Pretty good production out there.

Dale Vermillion: 00:15:33

I know for my clients, many of them are doing very, very well.

Dale Vermillion: 00:15:36

I've got clients who actually are doing better in 2023 than they did in 2022.

Dale Vermillion: 00:15:43

And that was better than 2021, believe it or not, when it was a record

Dale Vermillion: 00:15:46

year, but they understand the market.

Dale Vermillion: 00:15:48

They, they understand what's happening around them and they're making changes

Dale Vermillion: 00:15:52

to separate themselves in that market.

Dale Vermillion: 00:15:54

So I love the fact that you talked about that to remind us, we should be grateful.

Dale Vermillion: 00:15:58

We're in the industry that we're in and it's responded as well as it has.

Dale Vermillion: 00:16:02

And this is just another phase we're going through that we've got to deal with.

Dale Vermillion: 00:16:06

Let's talk about housing for a minute.

Dale Vermillion: 00:16:08

Tell me what you see as a long term prognosis for housing down the road.

Dale Vermillion: 00:16:13

Um, I know you just said that you're thinking, you know, at one

Dale Vermillion: 00:16:16

point it was a 10 percent drop.

Dale Vermillion: 00:16:17

Now you're cutting that a half to a 5 percent drop.

Dale Vermillion: 00:16:20

What do you see in the next, let's just talk the next three years.

Dale Vermillion: 00:16:22

What do you think real estate's going to do from a value standpoint?

Dale Vermillion: 00:16:26

What do you think inventory is going to do?

Dale Vermillion: 00:16:27

That's the biggest concern and heartburn for lenders today.

Dale Vermillion: 00:16:31

Cause we.

Dale Vermillion: 00:16:31

We do, we have the biggest demand we've ever seen.

Dale Vermillion: 00:16:34

We've got population numbers on our side for Gen Y, Gen Z.

Dale Vermillion: 00:16:38

When you look at that was 168 million people in those two generations.

Dale Vermillion: 00:16:43

That's a huge population that ultimately will own home someday.

Dale Vermillion: 00:16:46

Um, tell us a little bit more about that, if you would.

Doug Duncan: 00:16:49

Yeah, the, um, uh, from the very big picture, people

Doug Duncan: 00:16:54

ask me why I've stayed in the real estate space all my career.

Dale Vermillion: 00:16:58

I can't wait to hear this.

Doug Duncan: 00:17:01

It's a real simple, you'll find I'm actually a pretty simple guy.

Doug Duncan: 00:17:05

Um, the, it is true that every human being on the planet puts their head

Doug Duncan: 00:17:12

down every night on a piece of real estate somewhere, it's part of the human

Doug Duncan: 00:17:18

condition, so, you know, depending on.

Doug Duncan: 00:17:22

Population, wealth, income, risks.

Doug Duncan: 00:17:25

There's a whole bunch of ways that can play out, but it will

Doug Duncan: 00:17:29

always be part of this story.

Doug Duncan: 00:17:31

And so it is to me endlessly interesting from that perspective.

Dale Vermillion: 00:17:35

Yep.

Doug Duncan: 00:17:35

The, the, um, uh, there's a variety of things that are going on.

Doug Duncan: 00:17:41

You, you, um, uh, mentioned the demographic side, the demand drivers.

Doug Duncan: 00:17:49

So, coming out of the 07 09 time period, there was this theory that, uh, the

Doug Duncan: 00:17:54

millennials had learned from their parents experience in the foreclosures, and they

Doug Duncan: 00:17:59

were going to want to rent 300 square foot apartments with, uh, amenities.

Doug Duncan: 00:18:05

And so, there were all these stories ran.

Doug Duncan: 00:18:08

So, we started a survey of 1, 000 households a month in June of 2010,

Doug Duncan: 00:18:12

and we continue it to this day.

Doug Duncan: 00:18:14

It's been very useful.

Doug Duncan: 00:18:16

In that first month survey, June of 2010, 92 percent of millennials said

Doug Duncan: 00:18:21

they eventually want to own a home.

Doug Duncan: 00:18:23

They were like, so how do you explain the news stories who are

Doug Duncan: 00:18:29

not talking to the millennials?

Doug Duncan: 00:18:30

And so what the, what the reporters were seeing was that the jobs, which,

Doug Duncan: 00:18:38

uh, which the millennials were taking when they were coming out of school

Doug Duncan: 00:18:41

and whatever, Led them downtown because this was the most urban centric

Doug Duncan: 00:18:48

economic expansion since World War II.

Doug Duncan: 00:18:52

So if you were going to have a job, you had to have an apartment downtown

Doug Duncan: 00:18:57

because that's where the jobs were.

Doug Duncan: 00:18:59

So it wasn't that you wanted the apartment, you wanted the job.

Doug Duncan: 00:19:02

That's right.

Doug Duncan: 00:19:02

So what they were, what they were telling us was when our

Doug Duncan: 00:19:06

economic position improves.

Doug Duncan: 00:19:08

We eventually intend to buy a house, but we're going to this

Doug Duncan: 00:19:11

job has to grow an income.

Doug Duncan: 00:19:12

We have to get our credit in shape.

Doug Duncan: 00:19:14

We'll probably get married.

Doug Duncan: 00:19:16

Uh, and and that's that point.

Doug Duncan: 00:19:18

We'll look into moving to a place where we can afford and buy a house.

Doug Duncan: 00:19:22

So, no generation is any different from the other as far as we can tell.

Doug Duncan: 00:19:29

In terms of the demographics.

Doug Duncan: 00:19:30

So then it's a question of how many people there are, how many households

Doug Duncan: 00:19:34

they form and the millennials are the biggest generation we've ever

Doug Duncan: 00:19:37

had, even bigger than the boomers.

Doug Duncan: 00:19:40

So, but then the boomers play a role too, because they have something on the

Doug Duncan: 00:19:45

order of an 80 percent home ownership rate and they're going to age in place.

Doug Duncan: 00:19:50

And so that, those properties don't come, uh, come back into

Doug Duncan: 00:19:56

the market They, the boomers start to pass on in a couple of years.

Doug Duncan: 00:20:01

The leading edge of the boomers turns 80.

Doug Duncan: 00:20:04

So that life expectancy is, uh, shortly after that.

Doug Duncan: 00:20:09

So over time, you'll see some of that come back, but of course then the gen

Doug Duncan: 00:20:13

Z's are coming in, however, that's supplemented by immigration that will

Doug Duncan: 00:20:18

continue the demand curve on that side.

Doug Duncan: 00:20:21

So a lot of it is left, uh, in the, in the, uh, In the field of the builders.

Doug Duncan: 00:20:30

And um, when we said in 2014 we off of our survey combined with some

Doug Duncan: 00:20:37

demographics, we said actually the problem going forward is going to be supply.

Doug Duncan: 00:20:43

And people thought we were crazy 'cause we'd just come off this, uh, this

Doug Duncan: 00:20:47

crazy times foreclosure and stuff.

Doug Duncan: 00:20:50

And they're like, you guys, you're kidding.

Doug Duncan: 00:20:51

You really think that, well now everybody's in that camp.

Doug Duncan: 00:20:55

But what had happened was we went from building about 1.

Doug Duncan: 00:21:00

6 million single family detached houses at the peak in 07 to 400, 000.

Doug Duncan: 00:21:08

In other words, we destroyed three fourths of the supply chain, and then we

Doug Duncan: 00:21:12

stayed there for three and a half years before construction started to pick up.

Doug Duncan: 00:21:16

All that three and a half years, the millennials were aging, and they

Doug Duncan: 00:21:20

were moving closer and closer toward The point when they would start,

Doug Duncan: 00:21:24

uh, driving the demand curve and that happened in probably late 2015.

Doug Duncan: 00:21:30

Uh, and since then they've really been the driver, uh, as they've moved

Doug Duncan: 00:21:35

toward peak home buying age, which is still a couple of years from now.

Doug Duncan: 00:21:39

So, but the, the builders by and large, historically had

Doug Duncan: 00:21:44

built to the move up buyer.

Doug Duncan: 00:21:46

And so when you went into a builder showcase, they were showing you options.

Doug Duncan: 00:21:51

Like, you know, you could have granite countertops or finished basements or, you

Doug Duncan: 00:21:56

know, other attributes that represented the equity you were taking from your first

Doug Duncan: 00:22:00

home and making your next home nicer.

Doug Duncan: 00:22:04

Well, entry level people need bedrooms, bathrooms and a garage

Doug Duncan: 00:22:09

and not much more than that because affordability is their biggest challenge.

Dale Vermillion: 00:22:13

Right.

Doug Duncan: 00:22:13

That's not really what the builders were targeted toward.

Doug Duncan: 00:22:16

And so it took the builders a little while.

Doug Duncan: 00:22:19

To learn how to position themselves to meet entry level demand as opposed

Doug Duncan: 00:22:24

to move up demand, which there was still move up demand, but there,

Doug Duncan: 00:22:28

there was more entry level demand that they had faced in the past.

Doug Duncan: 00:22:32

So they're getting better at that, but it's still today with

Doug Duncan: 00:22:36

the boomers, aging in place.

Doug Duncan: 00:22:38

And when the, with the Gen X folks locked in with those 3 percent mortgages, It's on

Doug Duncan: 00:22:44

the back of the builders to build supply.

Doug Duncan: 00:22:46

Uh, and so builds are doing very well.

Doug Duncan: 00:22:49

Um, uh, because demand, uh, uh, as you said, demand is strong, even though

Doug Duncan: 00:22:56

mortgage rates have risen to over 6%.

Doug Duncan: 00:23:00

A little history here.

Doug Duncan: 00:23:01

If you go back to World War II and you track the 30 or fixed rate

Doug Duncan: 00:23:04

mortgage rate, About 6% is the average over that whole time period.

Doug Duncan: 00:23:09

So it's not, it's only a shock because we went from 3% Right, which

Doug Duncan: 00:23:13

no one should have ever expected.

Doug Duncan: 00:23:15

That's right.

Doug Duncan: 00:23:16

to back to normal.

Doug Duncan: 00:23:17

But it felt like a, a real problem because the shift was so big, but it

Doug Duncan: 00:23:22

just got us back to the historical norm.

Dale Vermillion: 00:23:24

Yep.

Dale Vermillion: 00:23:26

You sound like you're, you sound like me now.

Dale Vermillion: 00:23:27

I keep talking to everybody and saying these, this is not an abnormal rate.

Dale Vermillion: 00:23:31

This is the normal mortgage industry.

Dale Vermillion: 00:23:33

It just feels like it because we're so close to those low rates that we had.

Dale Vermillion: 00:23:37

So let me ask

Doug Duncan: 00:23:37

you,

Dale Vermillion: 00:23:39

yeah,

Doug Duncan: 00:23:40

refinance down to eight and then refinance down to six.

Dale Vermillion: 00:23:43

Well, I started in 1983 and rates were 17 and a half on a mortgage

Dale Vermillion: 00:23:48

when I was selling them in that day.

Dale Vermillion: 00:23:50

So, you know, These rates don't seem too bad to me.

Dale Vermillion: 00:23:53

Um, yeah,

Doug Duncan: 00:23:54

I'm going to pretend like I read that in the history book.

Doug Duncan: 00:23:56

And I wasn't there.

Dale Vermillion: 00:23:59

I love it.

Dale Vermillion: 00:24:00

Um, so, you know, you hear talk about the quote unquote, silver tsunami, uh,

Dale Vermillion: 00:24:05

this thought that, you know, the baby boomers will die off at a point where

Dale Vermillion: 00:24:09

we'll have a lot of real estate available.

Dale Vermillion: 00:24:11

Is there any, is there any truth to that?

Dale Vermillion: 00:24:14

If so, what, what is that going to happen?

Dale Vermillion: 00:24:16

When do you see that and envision that happening?

Doug Duncan: 00:24:20

Well, actually, I have a 2 or 3 longer term research projects

Doug Duncan: 00:24:25

that I've got staff working on.

Doug Duncan: 00:24:27

One of them is that question.

Dale Vermillion: 00:24:29

Okay,

Doug Duncan: 00:24:30

but so what did what did the boomers do with the

Doug Duncan: 00:24:33

equity in their home in late life?

Doug Duncan: 00:24:37

Because, as I mentioned, they have about 80 percent of ownership rate

Doug Duncan: 00:24:41

and not all of them have the savings.

Doug Duncan: 00:24:44

To maintain the lifestyle that they want, or to support later life difficulties.

Doug Duncan: 00:24:49

And so there is a question of how does the housing, uh, equity play out into that.

Doug Duncan: 00:24:56

Um, I don't have a solid answer for that yet.

Doug Duncan: 00:24:58

People, a lot of people, uh, we'll talk about reverse mortgages.

Doug Duncan: 00:25:02

We've done some, uh, focus groups with, uh, older households.

Doug Duncan: 00:25:08

They're like, you know what, we've paid the house off.

Doug Duncan: 00:25:11

This is, we're going to stay here in this house.

Doug Duncan: 00:25:13

We don't like reverse mortgages because they're, they're not efficient and they're

Doug Duncan: 00:25:19

not really part of our financial plan.

Doug Duncan: 00:25:21

So, you know, conditions change and force people to make.

Doug Duncan: 00:25:27

To make changes.

Doug Duncan: 00:25:28

Um, so we'll see how that plays out.

Doug Duncan: 00:25:30

And there, that number of people is growing very rapidly.

Doug Duncan: 00:25:34

I've seen, I haven't done the calculation myself, but I've seen estimates of 10, 000

Doug Duncan: 00:25:40

people a day, um, passing the age of 65.

Doug Duncan: 00:25:45

Uh, that's a lot of people.

Doug Duncan: 00:25:47

Uh, and when you think about 80 percent ownership rate in that population,

Doug Duncan: 00:25:51

you get, that's a lot of houses.

Doug Duncan: 00:25:54

As well.

Doug Duncan: 00:25:54

So I think that's a kind of an open question, uh, which we're trying to see.

Doug Duncan: 00:25:59

Is there anything we should be doing as a company and thinking about enabling

Doug Duncan: 00:26:03

them to, to continue in that space?

Doug Duncan: 00:26:06

Um, or thinking about transitions, some way to help them liquefy equity.

Doug Duncan: 00:26:12

If that's a, an issue that they would like to pursue, we're just trying to understand

Doug Duncan: 00:26:17

what they want, what they will need.

Doug Duncan: 00:26:19

mismatch between there and is there something we should be

Doug Duncan: 00:26:21

thinking about doing to help?

Dale Vermillion: 00:26:23

Yeah, well, that's really interesting because, you know,

Dale Vermillion: 00:26:25

reverse mortgages have, have really had a pretty difficult time for the last 10,

Dale Vermillion: 00:26:30

20 years, um, in creating any traction.

Dale Vermillion: 00:26:34

Uh, I think part of that's just because people don't understand them.

Dale Vermillion: 00:26:37

I think part of that is because, uh, they've seen some cases where they

Dale Vermillion: 00:26:40

felt like, you know, they, they maybe people lost out because of that.

Dale Vermillion: 00:26:44

But a lot of that is just because the demographic wasn't there.

Dale Vermillion: 00:26:48

So, For lenders today, that's probably a good additional product to have in your

Dale Vermillion: 00:26:53

portfolio going forward, because there will be a time I think when that's going

Dale Vermillion: 00:26:57

to become very viable, especially if we see some changes in the way reverse

Dale Vermillion: 00:27:02

mortgages are set up and they make them a little easier for consumers and a little

Dale Vermillion: 00:27:05

bit more protection in those things.

Dale Vermillion: 00:27:07

I think it'd be really great.

Dale Vermillion: 00:27:08

Um, talk about, talk about the.

Dale Vermillion: 00:27:10

The new construction, because we're starting to see more building again.

Dale Vermillion: 00:27:14

I know that, you know, as I travel around, I see it more and more than I did for a

Dale Vermillion: 00:27:17

while, there was nothing happening and you know, 2008, nine, 10, 11, 12, 15.

Dale Vermillion: 00:27:22

We're starting to see it again.

Dale Vermillion: 00:27:23

How fast do you think we can expect?

Dale Vermillion: 00:27:26

To see housing start to catch up through new construction and through building,

Dale Vermillion: 00:27:31

especially because like you talked about, you know, the biggest challenge

Dale Vermillion: 00:27:34

we've got is getting affordable housing for these, uh, gen Y, gen Z that we're

Dale Vermillion: 00:27:40

dealing with right now that they just can't afford the 450, 500, 550, 000

Dale Vermillion: 00:27:45

homes that are so common out there.

Doug Duncan: 00:27:47

Yeah.

Doug Duncan: 00:27:48

Um, so we are, uh, we are seeing a strong.

Doug Duncan: 00:27:55

Stronger than expected, let me say that stronger than expected construction.

Doug Duncan: 00:28:00

Good, simply because there is a shortage relative to demographics.

Doug Duncan: 00:28:08

It depends on who's estimates and what kind of properties are including

Doug Duncan: 00:28:11

somewhere between 2 and 4M units.

Doug Duncan: 00:28:14

Of single family homes and apartments.

Doug Duncan: 00:28:18

Are needed to catch up to the demographic demand and that takes a while.

Doug Duncan: 00:28:24

So, uh, uh, you know, there's, there's ongoing growth.

Doug Duncan: 00:28:29

That's the catch up part plus the ongoing growth.

Doug Duncan: 00:28:32

So thinking that this is going to happen in the next two or three

Doug Duncan: 00:28:35

years is probably really optimistic.

Doug Duncan: 00:28:38

There's, but, but it does mean there will be strength,

Doug Duncan: 00:28:41

particularly on the purchase side.

Doug Duncan: 00:28:43

And that's, that is one thing that those companies who

Doug Duncan: 00:28:47

looked ahead beyond the refly.

Doug Duncan: 00:28:50

The business in the pandemic and said, well, there's stability and strength

Doug Duncan: 00:28:55

in the purchase side of business.

Doug Duncan: 00:28:57

So I'm going to make sure I'm in the business to help people

Doug Duncan: 00:29:01

buy homes, to live in them, not refinance their existing home.

Doug Duncan: 00:29:04

Those firms are doing fine.

Doug Duncan: 00:29:05

Uh, that, that's a solid business and will be for the foreseeable future.

Doug Duncan: 00:29:10

Um, so the builder is going to do what they can to get there.

Doug Duncan: 00:29:15

One of the things that is happening In some locations is a recognition

Doug Duncan: 00:29:20

by local jurisdictions that they need to ease development

Doug Duncan: 00:29:24

concerns and zoning situations.

Doug Duncan: 00:29:27

To allow the construction of affordable housing.

Doug Duncan: 00:29:30

Good.

Doug Duncan: 00:29:31

There's not it's it's a local issue, right?

Doug Duncan: 00:29:34

It's not something you can pass a law in Congress and make it happen.

Doug Duncan: 00:29:37

It's got to be jurisdiction by jurisdiction.

Doug Duncan: 00:29:39

So.

Doug Duncan: 00:29:40

You're seeing signs of that recognition.

Doug Duncan: 00:29:44

I wouldn't say it's a big thing yet, but it is growing.

Doug Duncan: 00:29:49

You've seen things like the.

Doug Duncan: 00:29:51

Accessory dwelling units discussions and.

Doug Duncan: 00:29:54

Uh, so, uh, some infill, uh, permissions, uh, being offered, some things like

Doug Duncan: 00:30:00

that, that needs to continue, uh, in, in order to, to, uh, improve

Doug Duncan: 00:30:07

supply, especially affordable supply.

Doug Duncan: 00:30:10

Uh, my, um, sense of where the financing piece is going to be, particularly

Doug Duncan: 00:30:17

interest rates, I don't think you'll see a whole lot of change in credit

Doug Duncan: 00:30:22

criteria from where we are today.

Doug Duncan: 00:30:25

They're pretty stable.

Doug Duncan: 00:30:27

The loans that are out there are pretty good loans.

Doug Duncan: 00:30:30

A little bit of an uptick in FHA.

Doug Duncan: 00:30:33

Part of that is that when rates were at 3%, people were refinancing.

Doug Duncan: 00:30:38

The higher quality borrowers that were already in the FHA portfolio were

Doug Duncan: 00:30:42

refinancing out, getting rid of the MI and getting a conventional loan.

Doug Duncan: 00:30:47

Which on average raised the delinquency rate in the FHA portfolio as

Doug Duncan: 00:30:52

those better credits financed out.

Doug Duncan: 00:30:54

But that's kind of the only thing that you're seeing on the quality side.

Doug Duncan: 00:30:57

The, uh, a question is, um, uh, the condition on the Fed

Doug Duncan: 00:31:06

getting control of inflation.

Doug Duncan: 00:31:08

So if we assume the Fed gets inflation back to their target,

Doug Duncan: 00:31:11

then what would you think rates would be in a normal housing cycle?

Doug Duncan: 00:31:17

What I'm telling people is if the Congressional Budget Office, which

Doug Duncan: 00:31:21

makes the official estimate of potential GDP is correct, they're thinking right

Doug Duncan: 00:31:26

now, uh, real growth of around one and three quarters percent might be normal.

Doug Duncan: 00:31:32

Then that 6 percent mortgage might be at the high end.

Doug Duncan: 00:31:37

And so, uh, when, uh, the, when, um, The 6 percent was the average 30 year

Doug Duncan: 00:31:44

fixed rate for a very long time period.

Doug Duncan: 00:31:46

The U.

Doug Duncan: 00:31:46

S.

Doug Duncan: 00:31:46

was growing at about 3 percent annually.

Doug Duncan: 00:31:48

And so, or two and three quarters.

Doug Duncan: 00:31:51

So if you drop that a full percentage point, you would think that the

Doug Duncan: 00:31:54

run rate of real interest rates would be at a lower pace as well.

Doug Duncan: 00:32:00

So I'm, what I'm saying is if that logic holds, then you might expect

Doug Duncan: 00:32:05

over the, the, the business cycle.

Doug Duncan: 00:32:08

Mortgage rates to run from four and a half to 6 percent with maybe

Doug Duncan: 00:32:12

a central target of five and a quarter or something like that.

Doug Duncan: 00:32:16

I don't, I don't know.

Doug Duncan: 00:32:17

That's not solid science.

Doug Duncan: 00:32:20

None of us know

Dale Vermillion: 00:32:21

that's right.

Doug Duncan: 00:32:23

But I think that's a logical, you can make a logical construct that will

Doug Duncan: 00:32:27

get you to that, which is pretty good.

Dale Vermillion: 00:32:29

And that's within what timeframe?

Doug Duncan: 00:32:32

I would say over the typical expansion recession is maybe

Doug Duncan: 00:32:38

6 years or something like that.

Doug Duncan: 00:32:41

So there'll be a little bit of a refi opportunity if, if the deployment

Doug Duncan: 00:32:46

of technology does ultimately improve efficiency for lenders.

Doug Duncan: 00:32:51

That, uh, the, uh, and in the market that the, uh, the margin by which borrowers

Doug Duncan: 00:32:57

need to see rates falls, maybe goes back to something like 50 or 75 basis points.

Doug Duncan: 00:33:03

There'll be some minor refinance waves, uh, in opportunities in there,

Doug Duncan: 00:33:07

but really if you're in the mortgage lending business, being in the business

Doug Duncan: 00:33:11

to lend to people to buy a house, that's the sustainable long run.

Dale Vermillion: 00:33:18

You know, one more question I want to

Dale Vermillion: 00:33:19

ask you about the builders.

Dale Vermillion: 00:33:20

How much is the supply chain issues still a factor in that growth that we're seeing?

Dale Vermillion: 00:33:26

And the other thing is just the workforce challenges that are out there today.

Dale Vermillion: 00:33:29

You know, it seems like everybody talks about it that nobody wants to work.

Dale Vermillion: 00:33:32

You know, we know that that's not true, that nobody wants to work.

Dale Vermillion: 00:33:35

But we are seeing an awful lot of challenges in The workplace with

Dale Vermillion: 00:33:40

people being able to hire employees and maintain them and keep them.

Dale Vermillion: 00:33:45

I know the construction business really struggles with that.

Dale Vermillion: 00:33:48

How much of a factor those two play in this growth and the speed of the growth?

Doug Duncan: 00:33:52

Um, well, if you watch the surveys of builders, skilled

Doug Duncan: 00:33:57

labor is always sort of the top of the things that they need.

Doug Duncan: 00:34:01

Uh, that goes back to the crisis where we went from building 1.

Doug Duncan: 00:34:06

6 million units to 400, 000.

Doug Duncan: 00:34:09

That meant three quarters of that labor that was in there was

Doug Duncan: 00:34:13

unnecessary at that 400, 000.

Doug Duncan: 00:34:16

And it was there for three years, three and a half years.

Doug Duncan: 00:34:18

So that labor went somewhere else and found a home.

Doug Duncan: 00:34:22

So it takes time to build skills that general labor is not so hard to find, but

Doug Duncan: 00:34:29

skilled labor is what, uh, what they've been saying consistently for years.

Doug Duncan: 00:34:38

Um, so that, that's a challenge and will continue to be, uh, to be a challenge.

Doug Duncan: 00:34:43

And I know there's some places that are turning to building some, uh, skilled,

Doug Duncan: 00:34:49

uh, trades, uh, some of the trades are, are running schools and training

Doug Duncan: 00:34:54

programs to try to help, uh, bring some of that labor in other materials.

Doug Duncan: 00:35:00

Um, At the outset of the pandemic, they shot through the roof, um,

Doug Duncan: 00:35:06

Lumber has come back, it's still sensitive to pickups, sudden pickups

Doug Duncan: 00:35:13

in demand, and so it's probably not as stable as it was for a long period.

Doug Duncan: 00:35:18

There's volatility.

Doug Duncan: 00:35:19

There are still some components, which are maybe more complex to produce.

Doug Duncan: 00:35:24

That were the, they're still, uh, higher cost than what they were

Doug Duncan: 00:35:30

prior to the pandemic, but the, the supply is just for the pandemic had.

Doug Duncan: 00:35:38

Uh, emerged from a couple of things.

Doug Duncan: 00:35:40

1 was when we lost 20M jobs, the builders are like.

Doug Duncan: 00:35:44

Who's going to buy a house in that environment?

Doug Duncan: 00:35:46

And so they immediately.

Doug Duncan: 00:35:49

Pulled back on their construction plans.

Doug Duncan: 00:35:52

And that was exacerbated by the need for them, if they retained the labor,

Doug Duncan: 00:35:57

to protect it from a health perspective.

Doug Duncan: 00:36:00

So they had to figure out how we're going to do this in a way, if there

Doug Duncan: 00:36:03

is going to be demand for houses, how are we going to do it in a way that

Doug Duncan: 00:36:06

we protect our labor forces health.

Doug Duncan: 00:36:09

That took a while.

Doug Duncan: 00:36:11

It was maybe four or five months before you started to see the

Doug Duncan: 00:36:14

resumption of construction.

Doug Duncan: 00:36:18

That four or five months, The millennials were receiving, some of

Doug Duncan: 00:36:22

them receiving paychecks, even though they weren't going to work through the

Doug Duncan: 00:36:26

paycheck, paycheck protection program.

Doug Duncan: 00:36:30

So the demand side kept going and we were already behind the curve on supply and we

Doug Duncan: 00:36:36

got another four months behind the curve.

Doug Duncan: 00:36:39

So those things kind of compiled.

Doug Duncan: 00:36:42

Uh, like I say, some of the supply things have been, uh, have been,

Doug Duncan: 00:36:47

uh, Improved, I wouldn't say solved necessarily, but have been improved,

Doug Duncan: 00:36:53

but they're still, uh, costs are still accelerated beyond what they were.

Doug Duncan: 00:36:58

And you can see that in the margins, the public builders, they've been

Doug Duncan: 00:37:01

doing very well in this time period from a profitability perspective

Doug Duncan: 00:37:06

because demand has been very strong.

Doug Duncan: 00:37:08

Um, even though affordability was constrained, those, uh, The, uh,

Doug Duncan: 00:37:16

financially stronger millennial households were absolutely making the move.

Doug Duncan: 00:37:22

And one of the things that, you know, if interest rates six and a

Doug Duncan: 00:37:25

half percent today, some of them are, you hear this phrase, uh,

Doug Duncan: 00:37:29

date the rate and marry the house.

Doug Duncan: 00:37:36

I didn't see a cartoon the other day that showed a realtor You can see the door was

Doug Duncan: 00:37:41

open and there was some patches on the walls and there's a couple standing there.

Doug Duncan: 00:37:45

And she says, well, this is a real fixer upper.

Doug Duncan: 00:37:47

How's your marriage?

Doug Duncan: 00:37:53

I love the builders.

Doug Duncan: 00:37:55

You can look at the public builders, earnings reports, and you can

Doug Duncan: 00:37:59

see they've been doing very well.

Doug Duncan: 00:38:00

Demand is very strong, even though we've seen that range

Dale Vermillion: 00:38:04

shot.

Dale Vermillion: 00:38:04

Yeah.

Dale Vermillion: 00:38:05

Well, you know, I'm wearing a back to the future t shirt because that's been

Dale Vermillion: 00:38:08

our theme this year, Doug, uh, mortgage champions with our clients all year

Dale Vermillion: 00:38:11

long is to succeed in this market.

Dale Vermillion: 00:38:13

You got to go back to the basics to succeed in the future.

Dale Vermillion: 00:38:16

We're, we're back to a traditional market, six to 7 percent rates.

Dale Vermillion: 00:38:20

We're, we're fighting that battle of, you know, the consumer mindset

Dale Vermillion: 00:38:24

is I'm still looking for three and trying to convince them.

Dale Vermillion: 00:38:27

That's not coming back anytime soon.

Dale Vermillion: 00:38:29

So here's the deal.

Dale Vermillion: 00:38:30

You got, you got to determine what can you afford in this kind of environment

Dale Vermillion: 00:38:34

today, because it is the new norm.

Dale Vermillion: 00:38:36

There's no question about it.

Dale Vermillion: 00:38:37

I think the last year and a half has been difficult for everybody because

Dale Vermillion: 00:38:41

consumers and lenders alike, I think we're both sitting, holding their

Dale Vermillion: 00:38:45

breath saying, okay, is this going to change and go back to what it was?

Dale Vermillion: 00:38:49

And, you know, guys like you and I were saying, Nope, it's not, it's headed

Dale Vermillion: 00:38:54

north and it's going to stay north for a while because we, we needed a

Dale Vermillion: 00:38:58

correction for all intents and purposes.

Dale Vermillion: 00:39:00

Didn't really want to see one quite this dramatic.

Dale Vermillion: 00:39:03

Uh, but nonetheless, this is a more normal marketplace.

Dale Vermillion: 00:39:07

So, you know, it's, it's always amazed me, Doug.

Dale Vermillion: 00:39:10

One of the things that I, that I love the most about you is that you're an economist

Dale Vermillion: 00:39:15

who knows, you know, So many things about so many parts of the economy, yet you

Dale Vermillion: 00:39:19

understand the mortgage side and what lenders are dealing with and how they work

Dale Vermillion: 00:39:25

because you're so involved and you speak at so many conferences in the industry.

Dale Vermillion: 00:39:29

So if I could ask you this last question, um, from your perspective, first off,

Dale Vermillion: 00:39:35

what do you think lenders Need to know the most today about the market.

Dale Vermillion: 00:39:41

And then what would be your recommendations on what they can do?

Dale Vermillion: 00:39:45

Lenders, loan officers, people in the business to just do

Dale Vermillion: 00:39:49

well within this marketplace.

Dale Vermillion: 00:39:50

What are some of the blind spots that you can help them uncover?

Doug Duncan: 00:39:56

Um, well, I think that they, they need to be realistic to borrowers

Doug Duncan: 00:40:03

about where the numbers are going to be.

Doug Duncan: 00:40:05

Um, I think.

Doug Duncan: 00:40:09

Even if it's tough news, you're better off being seen as an honest player, telling

Doug Duncan: 00:40:15

them the truth, what they're getting to.

Doug Duncan: 00:40:17

Uh, people ask me on the consumer side is now a good time to buy a house.

Doug Duncan: 00:40:21

And my first statement is if you have a family budget and I'm, that's

Doug Duncan: 00:40:26

actually what I'm trying to get at is you should have a family budget.

Doug Duncan: 00:40:30

And then you take that information from that, then you're

Doug Duncan: 00:40:33

sitting across from a lender.

Doug Duncan: 00:40:34

Who knows you're educated on your own financial characteristics.

Doug Duncan: 00:40:39

And there's not, there's not uncertainty about what you're

Doug Duncan: 00:40:42

going to be able to call it.

Doug Duncan: 00:40:42

Great

Dale Vermillion: 00:40:43

advice.

Dale Vermillion: 00:40:44

So,

Doug Duncan: 00:40:44

so you haven't just for both the lender it's a much better

Doug Duncan: 00:40:48

situation, uh, to, to get there.

Doug Duncan: 00:40:51

So there's that, uh, if you're, um, Investing in technology, I would spend

Doug Duncan: 00:40:58

a little time thinking about whether there are implications for your business.

Doug Duncan: 00:41:04

From the fact that the reason Silicon Valley bank was taken into bankruptcy

Doug Duncan: 00:41:11

on a Thursday in the middle of the day was because 42 billion of deposits

Doug Duncan: 00:41:17

flowed out of that bank in six hours.

Doug Duncan: 00:41:21

Traditionally, the FDIC closes, the bank closes on Friday.

Doug Duncan: 00:41:25

It's taken over over the weekend.

Doug Duncan: 00:41:27

It's restructured and Monday it opens.

Doug Duncan: 00:41:30

They went on a Thursday afternoon because of that massive outflow

Doug Duncan: 00:41:35

that was enabled by technology.

Doug Duncan: 00:41:38

So I don't, there's not a direct application to mortgage companies,

Doug Duncan: 00:41:43

but you need to think about what's the role of technology, both

Doug Duncan: 00:41:46

from the consumer's perspective.

Doug Duncan: 00:41:49

And from your perspective, in terms of economic efficiency, and are there

Doug Duncan: 00:41:53

things that you might not have considered in your operations, where the, that

Doug Duncan: 00:41:59

speed issue and mortgage banks has always been a speed issue, right?

Doug Duncan: 00:42:04

It's a closing.

Doug Duncan: 00:42:05

It's always been, there were a couple of people that left Fannie Mae a couple of

Doug Duncan: 00:42:08

years ago, went to a mortgage company.

Doug Duncan: 00:42:10

They thought they sort of knew everything, uh, uh, that they were going to need.

Doug Duncan: 00:42:14

And I said, Because I'd worked at NBA, which was a great experience.

Doug Duncan: 00:42:19

I loved that.

Doug Duncan: 00:42:20

Still do.

Doug Duncan: 00:42:21

Uh, I learned so much.

Doug Duncan: 00:42:23

I told him, I said, you haven't heard this at Fannie, but it's a speed business.

Doug Duncan: 00:42:29

Two years later, I saw them at an event and they were like, it's a speed business.

Doug Duncan: 00:42:36

So, so I would give a little thought, a little thought to that.

Doug Duncan: 00:42:41

Uh, and then I, as always.

Doug Duncan: 00:42:45

I'm making loans to people who are buying houses to live in them and doing

Doug Duncan: 00:42:49

in such a way that when such time as an opportunity comes for them to improve

Doug Duncan: 00:42:54

their loan or buy another house, you're in position because you're a trusted party.

Doug Duncan: 00:42:59

I think there's their trust is always valuable.

Doug Duncan: 00:43:04

So whatever you can do to build trust.

Doug Duncan: 00:43:05

You

Dale Vermillion: 00:43:07

know, you just said three of my favorite things there.

Dale Vermillion: 00:43:10

You talked about budgets.

Dale Vermillion: 00:43:11

I have never been a fan since it started over two decades ago of using DTIs as

Dale Vermillion: 00:43:17

a calculation for approving a borrower.

Dale Vermillion: 00:43:19

We used to do a budget on a borrower back in the eighties

Dale Vermillion: 00:43:22

when I started, and you literally weren't making a loan to somebody

Dale Vermillion: 00:43:25

unless they truly could afford it.

Dale Vermillion: 00:43:27

We didn't use a calculation of gross income.

Dale Vermillion: 00:43:29

We went to net income and really looked at what they're doing.

Dale Vermillion: 00:43:31

And one of the things I advise lenders all the time is.

Dale Vermillion: 00:43:34

Have a good budgeting tool that you can have your customers use.

Dale Vermillion: 00:43:38

So you separate yourself from your competition and you give them something

Dale Vermillion: 00:43:42

where they can go into that home feeling good about what they're doing.

Dale Vermillion: 00:43:45

Um, you know, I do, I do, I do radio programs all over the country and

Dale Vermillion: 00:43:48

that's the first thing I say every time people say, well, what should I do?

Dale Vermillion: 00:43:50

When I get a mortgage first, do your budget before you do anything.

Dale Vermillion: 00:43:53

Don't go in closed eyed to that.

Dale Vermillion: 00:43:55

And I loved when you talked about the technology piece, because the mistake

Dale Vermillion: 00:44:00

that I keep seeing in the industry with technology is we don't use it for what

Dale Vermillion: 00:44:04

it's intended for, which is, uh, creating efficiency in your process and having

Dale Vermillion: 00:44:09

a good process of understanding, you know, following your customer through

Dale Vermillion: 00:44:14

the process, what we do instead is we try to use this as a relationship tool.

Dale Vermillion: 00:44:18

We try to use it as the way that we have people apply.

Dale Vermillion: 00:44:22

And because of that, you don't have trust and loyalty because all you're

Dale Vermillion: 00:44:26

doing is you're doing everything through a technological mindset.

Dale Vermillion: 00:44:30

Here, let me send you a link, fill out an application.

Dale Vermillion: 00:44:32

We'll give you a quote.

Dale Vermillion: 00:44:33

Okay.

Dale Vermillion: 00:44:33

Well, your quote can be beat by anybody.

Dale Vermillion: 00:44:36

We already know that.

Dale Vermillion: 00:44:37

And if you don't, if that borrower doesn't really know who they're working with,

Dale Vermillion: 00:44:42

trust them and have loyalty to them, there's no reason for them to go with any

Dale Vermillion: 00:44:47

higher rate than the lowest out there.

Dale Vermillion: 00:44:49

At that point, the only way you can really do well is by using that

Dale Vermillion: 00:44:52

technology alongside relationship and, and do both together.

Dale Vermillion: 00:44:57

So I love those closing comments.

Dale Vermillion: 00:44:59

Um, so let me ask you the, the, the last question.

Dale Vermillion: 00:45:01

I saw my, guests and you and I talked about this a couple weeks ago.

Dale Vermillion: 00:45:06

I love to hear about mentors and who's been mentors in your life.

Dale Vermillion: 00:45:10

You mentioned one earlier, um, from the MBA that you had, um,

Dale Vermillion: 00:45:14

Louis Knight, I believe you said was one of your, uh, mentors.

Dale Vermillion: 00:45:18

Uh, but I know you've had several in your life.

Dale Vermillion: 00:45:20

Tell me about those and how much you think mentors matter, uh,

Dale Vermillion: 00:45:24

in the business world to people.

Doug Duncan: 00:45:28

Um, When I was appointed, uh, chief economist at

Doug Duncan: 00:45:31

MBA, I got a call from Felix Beck.

Doug Duncan: 00:45:36

Uh, this will be a, I'll butcher his voice.

Doug Duncan: 00:45:40

Your forecast is all wrong.

Doug Duncan: 00:45:42

I'm like, Oh my gosh, this is one of the Godfathers.

Doug Duncan: 00:45:49

Well, turns out, I don't know why he chose, but he chose.

Doug Duncan: 00:45:55

To, to do that and did it consistently for a long period of time to help me

Doug Duncan: 00:46:01

understand how I can help lenders, uh, understand how a forecast should play out

Doug Duncan: 00:46:08

in their, their planning for the company.

Doug Duncan: 00:46:10

So Felix, uh, he, you know, good Lord, he, he's was involved in a

Doug Duncan: 00:46:15

hundred things, but he took the time for this rookie forecaster to, to

Doug Duncan: 00:46:21

lean over and tell me, look, here's.

Doug Duncan: 00:46:23

Here's some things to learn.

Doug Duncan: 00:46:26

Uh, and one of the great privileges of my life when he retired from the chase

Doug Duncan: 00:46:30

board, he was, uh, uh, offered to, uh, they, they asked him to bring a guest

Doug Duncan: 00:46:36

and he invited me to come as his guest, one of the great honors of my career.

Doug Duncan: 00:46:42

Um, Andy Woodward, uh, is another one.

Doug Duncan: 00:46:46

Uh, And the MBA was going through some turmoil.

Doug Duncan: 00:46:50

There was some frustrations.

Doug Duncan: 00:46:51

He received that.

Doug Duncan: 00:46:53

He said, you know, I need you to come down to South Carolina to, uh, will end

Doug Duncan: 00:46:59

in my place, spend a weekend with me.

Doug Duncan: 00:47:01

I want to talk to you about how, how the whole industry works over the long run.

Doug Duncan: 00:47:05

See if I can help you get a little perspective on today's problem versus.

Doug Duncan: 00:47:10

Uh, things that have happened before.

Doug Duncan: 00:47:11

I, I don't know why he chose to invest in me, uh, but another great privilege,

Doug Duncan: 00:47:17

another person of, of immense respect.

Doug Duncan: 00:47:21

Um, so it, it does matter.

Doug Duncan: 00:47:24

Uh, it takes two things.

Doug Duncan: 00:47:26

One is you have to be open to it as a person to someone mentoring you.

Doug Duncan: 00:47:31

And the second is if you are a person of experience, you also

Doug Duncan: 00:47:35

have to be open to finding someone that has potential that can be.

Doug Duncan: 00:47:40

Develop and offer to them the opportunity of your experience, uh,

Doug Duncan: 00:47:46

and with no expectations of anything.

Doug Duncan: 00:47:49

I've had a couple of chances to pass that on to other people and it's really

Doug Duncan: 00:47:53

rewarding to see that happen, uh, uh, in, in someone's life that, that, that

Doug Duncan: 00:48:01

there's another level that they get to, uh, It's not, it's rarely financial in

Doug Duncan: 00:48:09

nature, at least that's my experience.

Doug Duncan: 00:48:10

It is maybe different for some other people, but it's satisfaction.

Doug Duncan: 00:48:14

It's the, the pleasure of, uh, the relationship, but also the

Doug Duncan: 00:48:19

benefits of that relationship and your ability to contribute to

Doug Duncan: 00:48:23

other things that you're doing.

Doug Duncan: 00:48:24

So I'm, I'm a believer in it.

Doug Duncan: 00:48:26

I don't know that it, some people try to structure it in my experience.

Doug Duncan: 00:48:31

The structure is kind of emerged.

Doug Duncan: 00:48:33

No, that's right.

Doug Duncan: 00:48:34

Uh, whatever makes sense emerged.

Doug Duncan: 00:48:37

Uh, so I don't, try not to overthink it, but, um, we don't, uh, we have a,

Doug Duncan: 00:48:43

a development process in my, that's not specifically mentoring in my group, uh,

Doug Duncan: 00:48:50

but we have a development process of four people across the course of their career,

Doug Duncan: 00:48:56

uh, which we focus on specifically.

Doug Duncan: 00:48:59

Um.

Doug Duncan: 00:49:00

To help them go to the next step and sometimes the next step for them is

Doug Duncan: 00:49:04

outside the company, not because we don't want them, but as you know,

Doug Duncan: 00:49:08

every company is kind of a pyramid and there's only so far some people can

Doug Duncan: 00:49:12

go within that pyramid, but we want them to go out as an advocate for us.

Doug Duncan: 00:49:19

Having grown in the time that they were with us.

Doug Duncan: 00:49:22

Uh, and that makes it easier for us to recruit you can

Doug Duncan: 00:49:25

go there and work for free.

Doug Duncan: 00:49:27

Five or six years, you really make progress on your career and

Doug Duncan: 00:49:29

then move on to something else.

Doug Duncan: 00:49:32

And then they tell someone else, I went there first.

Doug Duncan: 00:49:34

That's a good thing to work with.

Doug Duncan: 00:49:36

Yeah, it becomes a recruiting tool.

Dale Vermillion: 00:49:39

Great message, not only for individuals to find a wise mentor and

Dale Vermillion: 00:49:42

be open to them, but for lenders, that's a great message to help people understand,

Dale Vermillion: 00:49:47

help lenders understand out there.

Dale Vermillion: 00:49:49

If you build a mentorship program within your organization, if

Dale Vermillion: 00:49:52

you build a program where people can move up through the ranks.

Dale Vermillion: 00:49:56

You're going to really have great employees who are very

Dale Vermillion: 00:49:59

loyal to your company and will stay around for a long time.

Dale Vermillion: 00:50:01

I've seen that my whole career.

Dale Vermillion: 00:50:02

I mean, I've, I've worked with over 700 lenders in my career and the ones that

Dale Vermillion: 00:50:06

stand out in my mind are the ones who really took that to heart and really

Dale Vermillion: 00:50:10

built a culture around that where their, their whole focus was personal

Dale Vermillion: 00:50:14

growth and professional growth for their people and all that they did.

Dale Vermillion: 00:50:17

So I appreciate you saying that.

Dale Vermillion: 00:50:20

Well, Doug, this has been so much fun and it's no coincidence you're wearing

Dale Vermillion: 00:50:24

a white shirt because you're just one of the good guys in the business.

Dale Vermillion: 00:50:26

I, I appreciate you so much.

Dale Vermillion: 00:50:29

I admire you.

Dale Vermillion: 00:50:30

I respect you immensely.

Dale Vermillion: 00:50:32

I'm super honored that you took the time out of your busy schedule to spend with

Dale Vermillion: 00:50:35

me today, uh, on betting a thousand.

Dale Vermillion: 00:50:37

And I want to thank you so much for that opportunity.

Dale Vermillion: 00:50:41

Oh, my gosh.

Doug Duncan: 00:50:42

You're widely respected within the industry.

Doug Duncan: 00:50:45

So it's a privilege.

Doug Duncan: 00:50:46

I

Doug Duncan: 00:50:46

Dale Vermillion: appreciate that, my friend.

Doug Duncan: 00:50:48

Thanks for being with us and, uh, thanks for all the great advice.

Doug Duncan: 00:50:51

And we'll look forward to seeing you guys on the next batting a thousand.

Doug Duncan: 00:50:55

Thanks guys.

Doug Duncan: 00:50:57

Batting a thousand is a production of Mortgage Champions, a company

Doug Duncan: 00:51:00

that's been transforming the people who transform companies since 1995.

Doug Duncan: 00:51:05

Have a suggested topic or guest?

Doug Duncan: 00:51:07

Contact my team on Twitter.

Doug Duncan: 00:51:08

That's @dalevermillion or tweet us using the hashtag Batting 1,000.

Doug Duncan: 00:51:14

That's #batting1000.