WEBVTT - Cashing in on the Home Equity Explosion #506 0:00:00.080 --> 0:00:02.920 Welcome to How the Money. I'm Joel and I am Matt, 0:00:03.000 --> 0:00:27.760 and today we're discussing cashing in on the home equity explosion. Yeah. Actually, 0:00:27.800 --> 0:00:30.880 anybody who owns a home and who has the app 0:00:31.240 --> 0:00:34.720 redfin or Zello on their phone knows that they've seen 0:00:35.000 --> 0:00:38.199 some dramatic increases on on their home value. We've seen 0:00:38.240 --> 0:00:40.040 it for a while now. But the question we're asking 0:00:40.120 --> 0:00:42.040 today is what should you be doing about that. I'm 0:00:42.040 --> 0:00:44.440 looking forward to this episode. We're gonna tell you what 0:00:44.560 --> 0:00:46.879 to do. But but Joel, you've got you've got like 0:00:46.920 --> 0:00:48.960 some looks like you've got some junk boss. You always 0:00:48.960 --> 0:00:50.479 telling people what to do. This is what we're gonna do. 0:00:50.560 --> 0:00:52.280 You know, this is what you're gonna do. Dang it, 0:00:52.320 --> 0:00:54.640 and you better like it. Uh way. We will tell 0:00:54.640 --> 0:00:56.160 you what we think you should do with your home 0:00:56.160 --> 0:00:58.800 equity after you know, just a little bit. But before 0:00:58.840 --> 0:01:01.840 we get to talk about using using your return envelope mailers, 0:01:02.600 --> 0:01:04.320 I've already done that. We've already mentioned that on the show. 0:01:04.360 --> 0:01:06.679 I do occasionally do that. But no, I want to 0:01:06.680 --> 0:01:08.399 talk about something I did get in the mail, and 0:01:08.440 --> 0:01:11.640 this was from a loan servicer. They wanted to notify me. 0:01:11.720 --> 0:01:14.959 I guess maybe I had either applied for a mortgage 0:01:15.000 --> 0:01:17.800 with this company in the past, and they reached out 0:01:17.959 --> 0:01:20.400 via snail mail to tell me that there's been some 0:01:20.440 --> 0:01:23.800 sort of breach. Some of my information has been compromised 0:01:23.920 --> 0:01:27.720 by an unauthorized person. And what information, you might ask, Well, 0:01:27.959 --> 0:01:30.720 my name, my address, my loan number and so security 0:01:30.800 --> 0:01:33.480 number were in these files. That's the one that matters 0:01:34.200 --> 0:01:36.560 social that's the one you really Yeah. Unfortunately didn't say 0:01:36.560 --> 0:01:39.240 anything about mother's name, but yeah, you know that could 0:01:39.240 --> 0:01:41.840 have been in there too, So to me, like, the 0:01:42.080 --> 0:01:47.000 interesting thing was, they offered me free credit monitoring, and uh, 0:01:47.120 --> 0:01:48.520 you know, you and I we've talked on the show 0:01:48.600 --> 0:01:51.640 about kind of how we feel about credit monitoring. It's 0:01:52.160 --> 0:01:54.760 it's kind of overrated. It's kind of like I was 0:01:54.760 --> 0:01:56.640 gonna let anybody know that it was your favorite thing. 0:01:57.240 --> 0:01:59.480 Yeah right, well, no, craft beer is my favorite thing ever. 0:01:59.720 --> 0:02:02.760 But uh, yes, so credit monitoring. I'm not going to 0:02:02.800 --> 0:02:04.440 take them up on this offering. I'm not going to 0:02:04.480 --> 0:02:06.080 sign up for this. It's like, even though it's free, 0:02:06.320 --> 0:02:09.280 you're offering me, offering me monitoring, but you're the one 0:02:09.280 --> 0:02:12.679 who actually compromise my information in the first place. It's 0:02:12.680 --> 0:02:14.680 like your dog coming to you and being like, hey, 0:02:14.840 --> 0:02:17.239 youn need guard that slice of pizza because the last 0:02:17.240 --> 0:02:19.760 one got eaten by me. I'll make sure it doesn't 0:02:19.760 --> 0:02:23.000 happen again, right right, Well. And the problem though, with 0:02:23.000 --> 0:02:25.680 credit monitoring, the thing we've talked about forever, This is 0:02:25.760 --> 0:02:28.480 classic in every breach scenario now which I think we 0:02:28.560 --> 0:02:31.600 have all experienced breach fatigue, we kind of believe and 0:02:31.840 --> 0:02:34.240 truthfully believe that all of our information is kind of 0:02:34.280 --> 0:02:38.280 already out there. Thanks Equifax back in for that, but 0:02:38.360 --> 0:02:41.120 we're not gonna let that one go never. We will 0:02:41.160 --> 0:02:43.760 never let that one go. And and so you know this, 0:02:43.760 --> 0:02:47.000 this just doesn't matter. This credit monitoring is kind of 0:02:47.160 --> 0:02:51.000 sort of worthless. The problem isn't this free offer. The 0:02:51.040 --> 0:02:54.200 problem is that people often pay for credit monitoring when 0:02:54.240 --> 0:02:56.400 it is an inferior product. And so I just want 0:02:56.400 --> 0:02:57.840 to remind people I saw this in the mail and 0:02:57.840 --> 0:02:59.800 I kind of chuckled a little bit, ha ha, not 0:03:00.040 --> 0:03:02.880 ending up for that because credit freeze are the best, 0:03:02.880 --> 0:03:06.040 and credit freezes are free. Yeah, you guys are barking 0:03:06.120 --> 0:03:07.959 up the wrong tree. That's that's sort of like if 0:03:08.360 --> 0:03:10.000 if I got a coupon in the mail for like 0:03:10.040 --> 0:03:12.520 Whole Foods. It's like, you guys know I don't go 0:03:12.560 --> 0:03:16.120 to Whole Foods. You know that I love Aldi in 0:03:16.120 --> 0:03:19.160 the Circular fil and I actually have a great article 0:03:19.320 --> 0:03:21.639 on credit freezes, how you do it for free, how 0:03:21.919 --> 0:03:25.000 how easy it is. By the way, federal law mandates 0:03:25.000 --> 0:03:27.520 that you get acts have access to freezing your credit 0:03:27.560 --> 0:03:29.560 for free, but there are a lot of pitfalls along 0:03:29.560 --> 0:03:31.880 the way ways that you could get taking advantage of 0:03:31.919 --> 0:03:34.640 by the credit bureaus, of course. And we'll put a 0:03:34.639 --> 0:03:37.480 link to that article in the show notes for today's episode. Done, 0:03:37.560 --> 0:03:39.040 But Matt, let's mention the be that we're having on 0:03:39.080 --> 0:03:41.360 this episode. This one is called Let's do It Above 0:03:41.400 --> 0:03:45.720 the Threshold of Hell by Burial Brewing. There's so melodramatic 0:03:45.760 --> 0:03:48.040 with their beer names. For anybody who has heard us 0:03:48.320 --> 0:03:51.360 mentioned the name of other Burial beers on this show, 0:03:51.480 --> 0:03:53.600 all of the names are something like this. They're ridiculous. 0:03:53.800 --> 0:03:55.680 But I am looking forward to enjoying this one, and 0:03:55.720 --> 0:03:58.440 we will share our thoughts on the specific Asheville, North 0:03:58.440 --> 0:04:00.760 Carolina Brewery at the end of the Yes. Well, but 0:04:00.840 --> 0:04:03.240 let's get onto the subject at hand. Cashing in on 0:04:03.320 --> 0:04:07.200 the home equity explosion. And I know this might be 0:04:07.240 --> 0:04:08.480 hard for you to believe. It's not hard for you 0:04:08.520 --> 0:04:10.280 to believe for my best friend, you know, you know everything, 0:04:10.320 --> 0:04:13.080 But for everyone else out there, I was not popular 0:04:13.160 --> 0:04:16.480 in school. Like they're shocked right now, their minds are blown. 0:04:17.000 --> 0:04:19.760 I was at wasast not the popular kid, and randomly 0:04:19.800 --> 0:04:22.640 actually in sixth grade, for just about a week and 0:04:22.640 --> 0:04:25.120 a half, I was randomly popular at the beginning of 0:04:25.160 --> 0:04:27.240 sixth grade. Why it was it was kind of a 0:04:27.240 --> 0:04:29.040 week and a half. I don't know why. But before 0:04:29.040 --> 0:04:31.040 they had you figured it out. They're like, I think 0:04:31.040 --> 0:04:33.080 they were like, maybe that guy's cool, we'll include him. 0:04:34.160 --> 0:04:37.200 Were wrong, he's pretty tall. Maybe he's just amazing on 0:04:37.360 --> 0:04:39.560 the basketball court. Was that it had you like shot 0:04:39.640 --> 0:04:41.840 up like a foot. Maybe that's it. Maybe maybe they 0:04:41.839 --> 0:04:44.400 assumed I had can this guy dunk athletic talent? But 0:04:44.720 --> 0:04:46.279 a last I did not. Then they watched you play, 0:04:46.320 --> 0:04:49.000 they're like, oh, but in the end it didn't even 0:04:49.000 --> 0:04:50.800 have the Scott It was. It was this mirrage, right. 0:04:50.839 --> 0:04:52.719 It lasted for a short period of time and then 0:04:53.320 --> 0:04:54.760 they figured me out and they were like, no, wait, 0:04:54.920 --> 0:04:57.840 he's nerd material. No longer in the cool club, and 0:04:57.880 --> 0:05:00.680 so it just it didn't last long. And uh, just 0:05:00.720 --> 0:05:03.640 like middle school, Joel, something similar has actually kind of 0:05:03.640 --> 0:05:05.760 happened to millions of Americans when it comes to their 0:05:05.800 --> 0:05:09.120 home equity. They bought a house, they are thinking the foundation, 0:05:09.200 --> 0:05:12.440 the walls, and the acreage that they purchased for shelter 0:05:13.080 --> 0:05:16.600 that and and then for community too. Well, now that 0:05:16.880 --> 0:05:19.159 starts to look more like a piggy bank thanks to 0:05:19.160 --> 0:05:21.520 the rapid growth in home prices. I don't know if 0:05:21.560 --> 0:05:23.280 that's a really good correlation. I think I just wanted 0:05:23.279 --> 0:05:26.080 to tell everyone I was I'm a loser. But except 0:05:26.120 --> 0:05:29.280 that in this case, we don't think that we're gonna 0:05:29.279 --> 0:05:31.000 see values come back down. We'll actually talk a little 0:05:31.000 --> 0:05:33.360 bit more about that later on in the show. It's right, yeah, 0:05:33.480 --> 0:05:36.120 but the the average homeowner actually saw their homes value 0:05:36.200 --> 0:05:40.160 jump dollars last year alone, like when one single year, 0:05:40.520 --> 0:05:44.479 And uh so, yeah, what should you do with this information? 0:05:44.520 --> 0:05:47.920 What should you do with this newfound riches with more money, 0:05:48.040 --> 0:05:50.320 with their home being worth so much more. We're gonna 0:05:50.320 --> 0:05:52.880 get to the bottom of that in this episode. Yes 0:05:53.120 --> 0:05:56.320 we will. Yeah, home equity it normally moves that more 0:05:56.360 --> 0:05:59.080 of a glacial pace, but you don't really need us 0:05:59.080 --> 0:06:01.280 here to the point out that it's become more cheatah like, 0:06:01.400 --> 0:06:04.040 over the past couple of years, there is over twenty 0:06:04.120 --> 0:06:09.000 five trillion dollars in equity hanging out doing not much 0:06:09.000 --> 0:06:12.000 of anything except for making recent home buyers feel like 0:06:12.120 --> 0:06:14.719 they are real estate moguls. Like I'm of course brilliant 0:06:14.839 --> 0:06:16.839 because I bought at the exact right time. I'm a genius. 0:06:17.000 --> 0:06:19.240 I know exactly what I'm doing. But there's a problem here. 0:06:19.440 --> 0:06:22.159 As you've seen your equity balloon, you might be tempted 0:06:22.200 --> 0:06:25.040 to do something with those newly found funds. You might 0:06:25.080 --> 0:06:27.360 starting to to get the itch to finally maybe buy 0:06:27.360 --> 0:06:30.200 that boat or to go on a lavish vacation or something. 0:06:30.520 --> 0:06:32.120 Or maybe you're just more of a money nerd right 0:06:32.160 --> 0:06:34.880 and you just hate to see that equity sitting there 0:06:35.040 --> 0:06:37.839 under utilized. Either way, though, you might be facing a 0:06:37.880 --> 0:06:41.000 money decision with a number of zeros after it, and 0:06:41.000 --> 0:06:42.760 we want to help you to think about it well. 0:06:42.800 --> 0:06:44.840 We want you to make the right decision that's right. 0:06:44.880 --> 0:06:47.680 And essentially, everyone who purchased a home in the last 0:06:47.680 --> 0:06:49.880 ten to twelve years has done really well for himself. 0:06:49.920 --> 0:06:51.520 It's not just the last two years. It's like the 0:06:51.600 --> 0:06:54.960 last decade, but in particular the last you know, twelve 0:06:55.040 --> 0:06:57.919 to fifteen months have been outside. We've seen outside gains. 0:06:58.120 --> 0:06:59.760 But really, if you've owned a home for the last 0:06:59.800 --> 0:07:02.320 dey gate, you're doing great. And and then anyone who 0:07:02.360 --> 0:07:04.239 hasn't bought a home, then Matt on the flip side 0:07:04.400 --> 0:07:06.400 but wanted to buy a home, they're just bumped. They're 0:07:06.400 --> 0:07:08.880 sitting on the sidelines and they're probably fuming. They're a 0:07:08.880 --> 0:07:11.200 little piss that they've missed out on some of these games, 0:07:11.240 --> 0:07:14.520 which I understand because they're on the outside looking in 0:07:14.720 --> 0:07:18.400 at an abundance of what we call tappable home equity, 0:07:18.520 --> 0:07:20.720 which you mentioned the overall amount of home equity, but 0:07:20.880 --> 0:07:23.600 the tappable amount is just hit a record of nine 0:07:23.600 --> 0:07:26.640 point nine billion dollars last year. And what do we 0:07:26.680 --> 0:07:29.400 mean when we say tappable, Well, that means the amount 0:07:29.400 --> 0:07:32.880 that you can snag while still keeping equity in your home. 0:07:33.160 --> 0:07:35.760 And that means that the average homeowner has access to 0:07:35.800 --> 0:07:38.440 something like a hundred and eighty five thousand dollars in 0:07:38.480 --> 0:07:41.440 home equity, which is astounding. That's a lot of money 0:07:41.480 --> 0:07:43.960 that you have access to. So um and you wonder 0:07:44.120 --> 0:07:47.000 our homes for most Americans are the number one asset 0:07:47.000 --> 0:07:50.040 where they have most of their net worth stocked away. Yeah, 0:07:50.080 --> 0:07:51.400 and that's not what we want to see for folks. 0:07:51.440 --> 0:07:53.040 We want to see folks have more money in their 0:07:53.040 --> 0:07:54.960 retirement accounts than they have in a home equity. But 0:07:54.960 --> 0:07:57.360 you're right, most people, that's why, are in a situation 0:07:57.360 --> 0:07:59.200 where they've got more money in home equity than they 0:07:59.240 --> 0:08:01.720 have in their former one case in i RAS. And 0:08:02.000 --> 0:08:04.800 how much you you have access to obviously depends on 0:08:04.840 --> 0:08:07.360 your specific situation, how long you've owned your home, and 0:08:07.600 --> 0:08:10.320 what's been happening in your specific market. For instance, if 0:08:10.360 --> 0:08:13.000 you live in Denver or Miami, two of the hottest 0:08:13.040 --> 0:08:15.160 real estate markets of the past couple of years, uh, 0:08:15.200 --> 0:08:17.840 the average home equity increase you saw was in the 0:08:17.840 --> 0:08:21.280 neighborhood of dollars in just one year. If you live 0:08:21.280 --> 0:08:24.160 in l A or San Francisco, it's closer to ten 0:08:24.280 --> 0:08:28.120 thousand dollars. So, um, yeah, where you live. If you 0:08:28.160 --> 0:08:31.960 live in let's say Huntsville, Alabama, you've probably seen decent 0:08:32.000 --> 0:08:34.959 appreciation to but but nowhere in that ballpark. And this 0:08:35.120 --> 0:08:37.280 this abundance of equity has led to I think some 0:08:37.320 --> 0:08:40.040 of our friends and neighbors talking about selling their homes 0:08:40.040 --> 0:08:42.800 as well, you know, like cashing out, Why not sell 0:08:42.840 --> 0:08:44.920 when the market is near the top, right, Well, the 0:08:44.960 --> 0:08:47.880 thing is this strategy is going to create some problems, namely, 0:08:48.080 --> 0:08:50.160 where are you gonna live If you end up selling 0:08:50.160 --> 0:08:52.360 your house, chances are that you've locked in a pretty 0:08:52.400 --> 0:08:54.720 low mortgage rate, and if you want to buy another 0:08:54.760 --> 0:08:58.000 property with a mortgage, you'll be doing so at today's rates, 0:08:58.120 --> 0:09:00.679 which have arisen quite a bit, and that could be 0:09:00.720 --> 0:09:03.600 a tough pill to swallow. So it's it's obviously okay 0:09:03.640 --> 0:09:05.640 to downsize, to move to a new city or you know, 0:09:05.720 --> 0:09:07.240 or if you have other good reasons to do so, 0:09:07.679 --> 0:09:11.200 but it is not necessarily a smart idea to move 0:09:11.360 --> 0:09:13.840 with the main purpose of grabbing some of that home equity. 0:09:14.080 --> 0:09:16.680 There are other just so many more important factors to consider. 0:09:16.920 --> 0:09:20.640 For instance, what will selling your house due to relationship 0:09:20.720 --> 0:09:22.880 with your partner or to your family, you know, like 0:09:22.920 --> 0:09:25.280 what kind of opportunities are going to be available for 0:09:25.320 --> 0:09:27.760 your kids, what kind of lifestyle do you want to live, 0:09:27.840 --> 0:09:30.960 or like, if you are someone who is more religious, 0:09:31.120 --> 0:09:33.120 there are factors of faith that you probably also want 0:09:33.120 --> 0:09:35.000 to consider as well. There are. I don't know, it's 0:09:35.280 --> 0:09:37.280 what you do. Want to consider the numbers and see 0:09:37.320 --> 0:09:39.200 how things actually end up shaking up, But there are 0:09:39.240 --> 0:09:41.720 so many other important considerations that you want to keep 0:09:41.760 --> 0:09:43.560 in mind as well. Yeah, the numbers are one thing, 0:09:43.600 --> 0:09:46.200 but then yeah, loving where you live and being attached 0:09:46.200 --> 0:09:47.840 to a place. There's a great article in The Atlantic 0:09:47.880 --> 0:09:51.280 recently about that how homeownership can provide a deep attachment 0:09:51.280 --> 0:09:53.880 to a place that's hard to come by in other ways, 0:09:54.040 --> 0:09:56.040 and I was like, Yeah, that's exactly what I feel, 0:09:56.440 --> 0:09:59.400 because we've been in the same neighborhood for thirteen years 0:09:59.400 --> 0:10:03.120 now and we feel deeply rooted here and that means 0:10:03.160 --> 0:10:06.800 something well. And similarly, you might decide to sell and 0:10:06.840 --> 0:10:09.480 then rent in order to snag those dollars for other purposes. 0:10:09.480 --> 0:10:11.240 So let's say you're like, listen, I want to cash 0:10:11.240 --> 0:10:14.200 out take advantage of this home equity by selling my house, 0:10:14.480 --> 0:10:16.120 and I'm just gonna go down the street. I'm gonna say, 0:10:16.120 --> 0:10:18.320 in the same neighborhood, but I'm gonna rent something instead, 0:10:18.559 --> 0:10:21.360 wait for the market to maybe correct, and then maybe 0:10:21.360 --> 0:10:23.480 swoop in and grab a deal. That's definitely in the 0:10:23.480 --> 0:10:27.599 mind what some folks have in mind and that sounds reasonable, 0:10:28.040 --> 0:10:30.640 but we all know that rents have sword in the 0:10:30.640 --> 0:10:32.960 past year across the country too. If you have a 0:10:33.000 --> 0:10:36.560 fixed rate mortgage, that's not gonna budge except for those 0:10:36.600 --> 0:10:40.160 annual changes to your property tax rate and homeowners insurance 0:10:40.240 --> 0:10:43.920 rate hikes. But your rent is of course far less predictable. 0:10:44.160 --> 0:10:47.120 And again, if this is a lifestyle decision, then it 0:10:47.160 --> 0:10:49.480 can be a reasonable choice if you're just tired of 0:10:49.480 --> 0:10:52.240 the maintenance and you'd prefer to live in a home 0:10:52.280 --> 0:10:55.880 that requires less effort, or you're downsizing because the kids 0:10:55.880 --> 0:10:58.040 are getting older and they're going off to college. I 0:10:58.080 --> 0:11:00.640 get it, But doing it in order to take equity 0:11:00.640 --> 0:11:04.280 dollars off the table, uh, Thinking that you're gonna save 0:11:04.360 --> 0:11:07.680 money in the long haul by becoming a renter instead 0:11:07.720 --> 0:11:11.839 of an owner, that doesn't necessarily make the most sense. Um, 0:11:12.440 --> 0:11:14.800 it's so much of it depends on your particular market 0:11:15.160 --> 0:11:17.360 as well, and how much cheaper maybe it is to 0:11:17.480 --> 0:11:20.200 rent them to own or vice versa. But those are 0:11:20.200 --> 0:11:21.520 the kind of things you're gonna want to take into 0:11:21.520 --> 0:11:24.200 consideration before you just say I'm gonna, you know, all 0:11:24.240 --> 0:11:26.160 my home equity back and I'm gonna start becoming a renter, 0:11:26.240 --> 0:11:29.360 because that's going to be the better financial decision. Exactly. Yeah, 0:11:29.360 --> 0:11:32.360 it's It's also important to mention that the housing market overall, 0:11:32.440 --> 0:11:35.160 that it's a pretty healthy place at the moment. Like 0:11:35.240 --> 0:11:37.520 we think that it's a good thing that rising rates 0:11:37.520 --> 0:11:40.320 are mellowing out the different bidding wars that we've heard 0:11:40.320 --> 0:11:44.080 of this pass spring, creating a less frothy environment, But 0:11:44.160 --> 0:11:47.400 that doesn't mean that there's gonna be a meaningful downward 0:11:47.520 --> 0:11:50.840 home price correction in store for us. We still just 0:11:50.880 --> 0:11:53.120 don't have enough supply of homes for all other folks 0:11:53.160 --> 0:11:55.480 who want to buy one, and that problem it is 0:11:55.520 --> 0:11:57.560 not going to get fixed overnight. There's just no way 0:11:57.559 --> 0:12:00.280 of knowing what will happen in the future, and the 0:12:00.400 --> 0:12:03.080 housing market it might continue to cool a little bit, 0:12:03.400 --> 0:12:05.280 uh compared to what we've seen over the past year. 0:12:05.720 --> 0:12:08.840 A massive supply increase combined with a massive decrease in 0:12:08.880 --> 0:12:12.120 demand leading to significant decline and prices. This isn't something 0:12:12.160 --> 0:12:14.840 that we expect to happen. I feel like, just generally speaking, dude, 0:12:14.840 --> 0:12:17.640 this is one of the most common conversations I have 0:12:17.720 --> 0:12:19.800 with my neighbors. It is like, it's like, when this 0:12:19.840 --> 0:12:22.040 bubble gonna burst, yeah exactly. It's like, is this actually 0:12:22.040 --> 0:12:24.040 gonna happen? I'm like, no, I don't think it is. 0:12:24.080 --> 0:12:27.200 And I start talking through just the demographics of our country, right, 0:12:27.240 --> 0:12:30.280 like the millennials are coming into home buying age or 0:12:30.360 --> 0:12:32.360 they're looking to upgrade their homes, right, And so you 0:12:32.360 --> 0:12:34.480 have this entire generation looking to buy homes, by the way, 0:12:34.520 --> 0:12:37.160 a generation that's larger than Gen X, it's the generation 0:12:37.240 --> 0:12:39.920 that's larger than the Baby Boomers. Uh. And they all 0:12:40.160 --> 0:12:42.800 want homes and so that demand is there. They've got 0:12:42.920 --> 0:12:45.280 high paying jobs. Uh. And then you can look at 0:12:45.320 --> 0:12:48.640 the different stats that the FED provides and they're showing 0:12:48.760 --> 0:12:51.640 that just the quality that the credit quality of new 0:12:51.720 --> 0:12:54.760 mortgage borrowers, it's sky high. This this is nothing like 0:12:54.800 --> 0:12:57.320 the Great Recession back in you know oh six or 0:12:57.320 --> 0:13:00.000 seven oh eight, when you look at the credit score 0:13:00.320 --> 0:13:03.200 from back then and they were in the dumps compared 0:13:03.240 --> 0:13:05.440 to what we're seeing today. And combined with just the 0:13:05.480 --> 0:13:08.160 overall shortage of homes we have in the country and 0:13:08.520 --> 0:13:10.880 a larger supply of people who want to buy them, 0:13:10.920 --> 0:13:13.040 and and this is something that doesn't get corrected overnight 0:13:13.040 --> 0:13:16.280 because homes take time to build, especially in an era 0:13:16.400 --> 0:13:20.240 of supply shortages and increased lumber costs. This is not 0:13:20.800 --> 0:13:22.920 something that's going to get corrected overnight, and so this 0:13:23.000 --> 0:13:25.480 is not something that we see. You and I aren't 0:13:25.600 --> 0:13:28.120 fortune tellers, although I don't even think those people are 0:13:28.120 --> 0:13:30.360 accurate most of the time. You've got imagine Gate Bob 0:13:30.360 --> 0:13:32.000 and New Crystal Ball, and there's certainly a chance that 0:13:32.080 --> 0:13:35.200 rates escalate so quickly that it does actually start to 0:13:35.200 --> 0:13:39.160 bring home prices down, not just moderating them. But yeah, 0:13:39.320 --> 0:13:41.920 all of all the signs point to the fact that 0:13:41.960 --> 0:13:43.679 this is not some sort of bubble that we're in. 0:13:43.920 --> 0:13:47.400 We might continue to see sustained prices over the near 0:13:47.480 --> 0:13:50.520 term future. So what should your reaction be, though, If 0:13:50.559 --> 0:13:52.960 you're the recipient of some of this new found wealth, 0:13:53.520 --> 0:13:55.360 if you've got more home equity than you know what 0:13:55.400 --> 0:13:57.240 to do with, well we're gonna talk about how to 0:13:57.320 --> 0:14:00.000 use it wisely in just a bit, but we gotta 0:14:00.000 --> 0:14:03.640 get to the downsides actually of this this extra money 0:14:03.840 --> 0:14:06.840 that that you've got on hand. And that might sound surprising, 0:14:06.840 --> 0:14:08.800 but no, there are some real downsides to having more 0:14:08.920 --> 0:14:11.400 it's home equity, and we'll get to the reasons why 0:14:11.440 --> 0:14:22.920 that's the case, right after this break. Alright, we're back 0:14:22.960 --> 0:14:24.920 from the break and we're gonna continue our conversation about 0:14:24.920 --> 0:14:27.360 home equity. Uh. So you're listening to us right now. 0:14:27.560 --> 0:14:29.760 You own a home. You purchased it in order to 0:14:29.800 --> 0:14:31.600 have a place to live, to write a family. That's great, 0:14:31.760 --> 0:14:33.640 But now you're in this position where you've got that 0:14:33.680 --> 0:14:36.480 home equity that you didn't bank on having. Well, I 0:14:36.480 --> 0:14:38.280 hate to break it to you, but there are actually 0:14:38.320 --> 0:14:41.200 some downsides to your home increasing in value. And you 0:14:41.240 --> 0:14:43.320 might be you maybe saying to yourself, like, sure, Matt, 0:14:43.520 --> 0:14:45.720 I just made fifty dollars just for owning this home 0:14:45.800 --> 0:14:49.240 last year. I see no downside. You're an idiot, dude. 0:14:49.520 --> 0:14:51.600 Uh And I promised like, like, we're not trying to 0:14:51.600 --> 0:14:53.840 take the wind out of your sales here. I actually 0:14:53.960 --> 0:14:55.960 might be an idiot, but we should still talk about 0:14:56.000 --> 0:15:00.360 the potential pitfalls of owning a more valuable home. That's right, Okay, 0:15:00.360 --> 0:15:02.160 So let's dig in and talk about some of the 0:15:02.200 --> 0:15:06.120 downsides now that come along with that home price Inflation 0:15:06.280 --> 0:15:09.240 and property taxes are at the top of the list, 0:15:09.280 --> 0:15:11.200 because that's one of the main things you need to 0:15:11.200 --> 0:15:13.600 watch out for as your home is increased in value. 0:15:13.720 --> 0:15:16.320 And and from from everything I've read, Matt, actually, it 0:15:16.360 --> 0:15:19.520 seems like most counties around the country they haven't actually 0:15:19.600 --> 0:15:23.160 raised tax rates commensurate with your current home value. And 0:15:23.200 --> 0:15:25.560 so your home might have gone up value, but your 0:15:25.600 --> 0:15:27.840 taxes might have only gone up six or seven percent, 0:15:28.120 --> 0:15:32.160 which is fortunate for you. They're they're lagging behind, but 0:15:32.680 --> 0:15:35.680 trust us, uh, they're gonna catch up quickly because the 0:15:35.720 --> 0:15:39.560 tax man cometh he or she always cometh. And so yeah, 0:15:39.600 --> 0:15:42.240 depending on where you live and how in tune your 0:15:42.240 --> 0:15:44.960 county has been to value changes, you might see a 0:15:45.040 --> 0:15:48.400 rapid increase in the amount of tax you're paying every 0:15:48.400 --> 0:15:51.720 single year for on your home. And and here's the thing. 0:15:51.760 --> 0:15:54.560 If you feel like your local municipality has given your 0:15:54.560 --> 0:15:57.200 home too higher value, maybe maybe they haven't been lagging 0:15:57.200 --> 0:15:59.440 in You're like, wait a second, that's more than it's 0:15:59.440 --> 0:16:02.400 actually worth. It makes sense to challenge that tax bill. 0:16:02.640 --> 0:16:05.440 The process. It's not the exact same everywhere, but there 0:16:05.480 --> 0:16:07.280 are ways to fight a bill if you believe that 0:16:07.360 --> 0:16:10.280 it's inaccurate, and and sometimes winning that case can actually 0:16:10.320 --> 0:16:12.520 lock in a lower tax rate for future years too, 0:16:12.520 --> 0:16:15.360 which can save you a ton in taxes. I I 0:16:15.440 --> 0:16:17.920 just recently did this on a couple of rental properties, 0:16:18.120 --> 0:16:19.720 Matt and I could. You could do it yourself. You 0:16:19.720 --> 0:16:21.680 can hire someone else to do it on your behalf. 0:16:22.000 --> 0:16:24.560 But either way you you swing it. Typically there can 0:16:24.560 --> 0:16:27.480 be substantial tax savings if you feel like the assessor 0:16:27.600 --> 0:16:30.360 has has it wrong and they're overvaluing your home. But 0:16:30.400 --> 0:16:32.520 that is definitely one downside is that you might be 0:16:32.560 --> 0:16:36.920 paying a thousand dollars extra a year um in taxes 0:16:37.120 --> 0:16:39.600 because your home just went up in value. That's right. 0:16:39.600 --> 0:16:41.480 And the thing is this, I mean, not all taxes 0:16:41.520 --> 0:16:43.240 are bad, right, Like, we're not the ones out here 0:16:43.280 --> 0:16:45.480 saying that you should not pay any of your taxes. 0:16:45.520 --> 0:16:49.520 They're necessary in order to make society functions, specifically property 0:16:49.560 --> 0:16:51.840 tax that they're used to fund schools, public schools in 0:16:51.840 --> 0:16:53.920 your city. And so we don't want you to think 0:16:53.960 --> 0:16:56.920 that we're completely against taxes. But that's definitely something to 0:16:56.960 --> 0:16:58.840 keep in mind, Joel. Something else we touched on this 0:16:58.920 --> 0:17:02.240 briefly earlier, but a legit downside of home equity that's 0:17:02.280 --> 0:17:04.800 just off the charts is that you might find this 0:17:04.920 --> 0:17:07.359 money burning a hole in your pocket. This is when 0:17:07.400 --> 0:17:09.160 you feel like that you have to do something with it. 0:17:09.520 --> 0:17:12.240 But of course you don't. Luckily, pulling that equity out 0:17:12.240 --> 0:17:14.080 of your house isn't as easy as like, you know, 0:17:14.119 --> 0:17:16.320 like just transferring funds around using an app on your 0:17:16.320 --> 0:17:19.520 phone something like that. But there's also something called the 0:17:19.560 --> 0:17:23.040 wealth effect, which basically means that as your assets go 0:17:23.119 --> 0:17:26.159 up in value, you start to feel much wealthier. You 0:17:26.200 --> 0:17:28.359 feel like a baller who has way more cash on 0:17:28.400 --> 0:17:30.000 hand than you can actually spend. I always feel like 0:17:30.040 --> 0:17:33.359 a ball that It's just it's a it's that mentality, 0:17:33.480 --> 0:17:35.919 you know, like if you believe it, it'll spend like one. 0:17:35.960 --> 0:17:37.960 But I always feel like one. But even though that 0:17:38.000 --> 0:17:40.439 money isn't super liquid, it's there in theory. And so 0:17:40.520 --> 0:17:43.639 you start spending you know, your your actual liquid cash, 0:17:43.680 --> 0:17:45.959 as though your home equity dollars we're currently in your 0:17:46.000 --> 0:17:48.960 savings account. It's kind of like counting your chickens before 0:17:48.960 --> 0:17:51.400 they've hatched. Um. And so we mentioned that because it's 0:17:51.400 --> 0:17:53.640 great that your home is now worth more. But don't 0:17:53.720 --> 0:17:57.159 start spending like a maniac, because you just feel like 0:17:57.200 --> 0:18:01.000 your newfound home equity has made you like warm buffet wealth. 0:18:01.119 --> 0:18:03.600 It's like, oh man, I've got like hundreds of thousands 0:18:03.600 --> 0:18:07.160 of dollars more now I can afford take out every 0:18:07.200 --> 0:18:09.840 night of the week. Whatever. Whatever it is that you 0:18:09.880 --> 0:18:13.560 might mindlessly spend grow hub in perpetuity just because you 0:18:13.680 --> 0:18:15.440 feel like that you've got more wealth on hand. Yeah, 0:18:15.440 --> 0:18:17.200 you know, that wealth effect is real. It's almost kind 0:18:17.200 --> 0:18:19.680 of like I liken it to just having made a 0:18:19.720 --> 0:18:21.520 Costco run. And you know, I've talked about this before. 0:18:21.640 --> 0:18:23.080 What if you load up on top, do you do 0:18:23.119 --> 0:18:25.520 you over eat or over consumed just because yes, you 0:18:25.520 --> 0:18:27.760 get that fresh bounty. And you know, we've had so 0:18:27.800 --> 0:18:29.920 many groceries on and I found that to be true 0:18:29.920 --> 0:18:32.040