Real Estate Prices Are Going to Crash in 2023?

SUMMARY KEYWORDS

airbnb, people, real estate prices, rent, data, real estate, house, prices, short term rental, market, buy, home, starting, year, rentals, properties, justin, interest rates, patrick, investor

 

00:00

Hey, welcome to quiver financial news and our second edition of our real estate prices going to crash in 2023. It's January of 2023. And it's hard to believe, but it's been a whole six months since our first edition discussing whether real estate prices are going to crash within the next year. And since that video in the summer, we certainly have witnessed some of the some structural changes that have slowed the upward progress that we've been seeing in real estate prices of the last few years. rising interest rates have apparently pushed affordability to record extremes. At the same time, large industries, like the tech sector had been announcing layoffs accumulating to hundreds of 1000s of lost jobs. I'm Colby McFadden and I'm joined by Justin Singletary and Patrick Moorhead Gentlemen, welcome, mayor, he January and let's jump right in and start talking about residential real estate prices. And let's do it with the intention of helping the listeners know what really matters whether they're looking to be an investor, a buyer or seller, in this year of 2023 of residential real estate prices. So let's, let's get started by recapping what we had discussed back in June and July because Justin and Patrick, our timing was pretty damn good back then. If you look at the data, and we're gonna get into some of the data, folks, if you look at the data, really peak real estate prices were at that summer time and you know that between the third and fourth quarter of 2022. And since then we've definitely seen some softness. So before we jump into what we discussed six months ago, as a recap, and frame what we're going to talk about next. Justin Patrick, anything you guys want to touch upon? Or should I just share my screen and jump right in their

 

02:01

video cover that. So jump in.

 

02:04

All right, well, let's get in

 

02:06

very February, not January. Ah,

 

02:09

yeah, call him out on that.

 

02:12

I lost I lost that my January to you know, travel of funerals and COVID is, you know, he

 

02:18

turned 50. So the dementia is kicking in. It will

 

02:21

definitely, you know, like I they said a risk factor of COVID now was being over 50. And I'm starting to after having it for 10 days, I am starting to feel like I might have a little dementia. So bear with me because I've my face is pale and I had a piss poor attitude, that's

 

02:36

for sure. Well, your hair is turning gray or two. Oh,

 

02:39

geez. I was looking at I was looking at our video from two years ago. And I realized, oh, boy, my aging fast. I need to you know, get some vitamins in me or something. She's the gray hairs enough. Maybe I should get some of that. Gray for men. What is that that the stuff you can put in there and it just suddenly, just for man. Thank you, Justin. I see you've been using.

 

03:03

It's pretty sad that you know the name.

 

03:08

All right. So I'd love to make fun of Colby in his hair. Alright, so last last June, July, we we really had this conversation because we were getting a lot of questions from people about what do you think's going to happen in real estate and most of the year, we shied away from the conversation of real estate because the fundamentals behind real estate are essentially employment and interest rates. And when you have low unemployment, I mean, when everybody's fully employed and interest rates are low, there's really no reason to expect real estate prices to go down. However, since that timeframe, a lot has changed in both of those arenas. So we asked back in June and July have the fundamentals around real estate pricing change because we know that real estate pricing is focused around real interest rates and employment. But we did raise the question Is there another factor called Wall Street money, the i buyers, the short term rentals, the build to rent that really started to happen post pandemic does have an influence in certain markets. And we're going to talk about that a little bit later. Because we have a lot more data now than we did back in June and July about how those things have affected the market. We talked about had real estate prices reached max affordability because of where interest rates were headed. It does appear that since June July of last year, that that may be the case because we see a slowdown in housing prices. We see a slowdown in new listings when we get into the data, you're going to see that so it was a really timely time. It was a really timely time to ask that particular question because it does look like we have reached that Max affordability. And then does price volatility become regional. That was one of the concerns we talked about back in June and July is are we going to see a national decline, or will the national decline Be so kind of moderate. And then we get really bad declines and certain hot areas like Phoenix and Boise, Idaho and places like that that got real hot with both speculator money and Wall Street money. And then what we talked about also is what should you consider? What should you consider if you're a buyer or a seller, or an investor in residential real estate, we're going to update that now with a lot of data and give you some guidance. If you're a young person like Justin and Patrick, looking to buy a house to start a family. If you're an investor, who's older in life, let's say you're in your 70s, and you bought multiple pieces of real estate, and now you're trying to decide do I keep it? Do I sell it? Do I pass it down to my family? We'll talk about that. And if you're a new investor, if you want to continue to invest in real estate is 2023, the year to make a purchase, our real estate prices going to stabilize and go higher, or are they going to continue to crash? Those are all the things that we're going to talk about today. So Justin, Patrick, a lots happened since July. And so here's here's the numbers, right. So the typical home has definitely taking longer to sell since April the 2020. Now this is data that a lot of this data that we're going to go through came from articles that I grabbed from Redfin. Case Shiller different, different points of data. So definitely typical houses taking longer sales since April of 2020. Patrick, you threw this in here, this is a chart from the Federal Reserve, what's it showing us there?

 

06:35

So that's kind of the historical average of days on the market. So to look, we've been kind of overall trendline, declining to shorter and shorter days on the market. And it's very cyclical of going longer, you know, we just went through a wintertime period, which is going to have an effect on days on market. But we are now just at the historical average, do we shoot up to 100 days, 200 days on the market? I don't think so. But we could, since we overshot so much to the bottom. But if you look, you gotta look at the data for over the period, the history of the period to see that it's not that abnormal to where we're sitting for days on the market.

 

07:16

Yeah, it looks like it's a reversion to the mean. And that's probably going to be more of today's conversation is how markets do revert back to the mean. I think I've heard a lot of real estate people say that I think that 60 Day marker is kind of like the line between buyer and seller market. Is that what you've heard? Or is that what you understand as well.

 

07:38

I just think it's a you know, that's typical contracts that people have with, you know, an agent. So after 60 days, if the House hasn't sold, you know, a lot of sellers maybe get annoyed and they'll pull from that listing agent and and sit on the sidelines and relist potentially or reevaluate, pull it off the market reevaluate.

 

07:57

Yeah, I've read a few articles that that's you know, they the this, are you in a seller's market? Or are you in a buyer's market, there's really kind of determined by days on the market. And it's like, if, if houses are staying on the market, less than, let's say 60 days, then the sellers are in control. And as you start to get to 90 days, 100 days, 120 days for houses sitting on the market, then it becomes more of a seller's I mean, more of a buyers controlled market.

 

08:24

This is national average as well, too. I mean, go back to our original topic, this is drastically going to change to different areas in the US economy to what how long a property is on the market?

 

08:37

Sure, sure. All right. So so definitely the the evidence and the data since our last video is showing that houses are staying on the market longer. Pending Home Sales are at record lows down 31%. Year over year, I thought that was a pretty telling, you know, little tale there. And you threw this chart in here, Patrick, which I think is just a visual of the same thing. Is that correct?

 

09:03

For the most part, but it's showing that still 25% of the properties are going over asking. So I mean, it's not, you know, to list a property and then still get multiple offers to be able to sell over asking is still a 25% chance that that's going to happen. I think that's kind of telling in itself that we're not getting offers under asking or properties. You know, some are some aren't. But I mean, it's again, reverting back to the historical average,

 

09:29

average. Yeah, yeah, so softness, but definitely I don't think it would fall in the category of crash or panic by any means whatsoever. It's just definitely soft. new listings down 22% year over year. And then Patrick, you got something in here for us. Legally, another squiggly line

 

09:52

kind of talking about housing starts so new properties coming online. So new listings, new properties being listed that type of stuff. Have this is mainly for new product development coming out. But again, showing that it's reverting back to the mean, you know, we had a pretty good rise up from the bottom of COVID. And now it's just coming back and we're historical average we're right on par for what we've been doing. So all the articles out there about homebuilders, you know, giving drastic discounts and all that type of stuff. Home Builders are greedy, they over anticipated they overshot So sure, they're gonna have some properties that they're gonna have to reduce the price on because they over anticipated demand that was potentially out there.

 

10:34

Yeah, yeah, I'm reading articles of, of homebuilders, encouraging new sales by buying down mortgages. So that's interesting, where, you know, now if your mortgage is six and a half percent, they'll try and buy it down to three, and get your payment lower. So that's, that's encouraging. And so it's definitely an interesting time to be a home shopper, especially in the new home markets. Because it's not often that you see these guys actually give deals, housing supply is at 3.8 months versus 1.7 months in the summer. So that's that's telling right there that, obviously that houses are sitting on the market longer. More people have put some listings out there and they're sitting around, and prices need to find the right buyer is what it sounds like. So interesting. I definitely think all this data is more soft than Crash, that's for sure. So let's dig into it a little bit more Yahoo Finance, add an article out that I saved for us that really went over the Case Shiller home index from June to October showed a 2.7 decline today I saw an article come out that said that from July to November, it was a little bit over 3%. So it does seem that as the year has progressed, that some of the softness in data in real estate data has increased. The OSI register had kind of one of those clickbait type of headlines that said homebuying froze in LA in Orange County. In November, man oh, my God, it froze. Well, you know, what they were talking about is the Orange County Register said that plunging sales 44% to a record low. What they're talking about is in the month of December, which is typically a pretty bad month anyway, for home sales, because people are busy doing other things. You did see a plunge in sales. Not unexpected, but definitely was bigger than what we've seen in the records in the past. So definitely tells you that people lost interest in speculating around real estate and probably the only people out there buying houses and November and December were the ones that actually absolutely have to have a house. OC register also said it was the slowest November dating back to 1988. Well, yeah, that's when probably when the Rams were a good team to

 

13:04

to do things on all this data. One. This is all OSI. So it's regional. That is true, that 2.7 to 3% decline, I think has a direct correlation to the 3% increase that we had in interest rates. You know, if we didn't have that, I would like to know if we really had a three would have had a 3% decline if interest rates hadn't gone up. 3%?

 

13:27

I don't I don't think you would have I think interest rates are I think interest rates are the number one factor right now that have slow real estate down. I don't think the employment than the the new announcements of of layoffs over the last three months has really come through and affected the real estate market yet. And I think the Fed yesterday when the Fed raised rates 25 pips in and Jay Powell did their their, their their press conference afterwards. I think it was really telling that that the Fed is saying to us, we haven't gotten there yet. You know, we that we have it, they want to see the economy slow down, they'd love to do it without seeing the labor market break. But they're willing to allow the labor market to break, you know, they they need to bring inflation down, they need to get it sustainable. They need to get you guys I mean that there's a huge demographic issue going on. That's not solved. We're under housed. I mean, the but the bottom line is, is the US is under housed and the baby boomers are living longer, and they're not getting rid of their houses, you know, they're sitting on those things, and they're either giving them to their kids or they're dying with them. If they are getting rid of them. They're getting rid of them to pay for long term care. Right? But that's that money's still in sticky hands and then you've got this millennial generation. And you know, guys like Justin that are getting married and you know, you get married, you're gonna have kids, you're gonna have a house, the dogs all that stuff comes along. And so you have this ginormous, ginormous population of millennials coming into their 30s and 40s. And they're going to drive more demand in housing, and they're going to drive more demand and speculation and investing, because they're going to need houses, and they're going to need to make money and they're gonna want to invest in they're gonna want to make life like every other generation did. So,

 

15:23

I was just gonna think that all of that's correct. However, you know, there's not enough supply. You know, we there's definitely a demand for homes. But, you know, we're not making as much to be able to afford the home speaking about our kind of local areas versus other areas. So you know, being able to afford a home and not having the wage that you were once getting, or we that you would need to afford to home like that, you know, I think is pretty important that we're not seeing that, excuse me not seeing that either.

 

15:58

Yeah, well, to your point, Justin, like here, affordably the average cost is up 31%, over the past year, that and there was already high. You know, a couple of weeks ago, I was in Indiana, and I got I'm sitting in Indianapolis at a bar, and I'm looking around realizing everybody's young, everybody's in their 30s. Right. And, and I'm talking to everybody, you know, what do you do for a living? What do you and I'm trying to get to understand the local community. And I thought, Wow, what a great place to be a real estate owner, you got all these young people who can rent from you, I thought, boy, do I want to be a landlord around here. There's jobs, there's the salt of the earth, people, they seem to, you know, have their shit together. So, you know, I go to Zillow and start looking around. And I mean, even in Indianapolis, the cheapest house I could find was 550 600,000. And at today's mortgage rates, that means that those people in that bar I was sitting around with their mortgages, were going to be three grand a month, you know that, that means you got to be making nine or 10 grand a month gross in order to really qualify for a $3,000 a month mortgage. Right? Because Because your mortgage, your cost, your housing costs should be about a third of your income. So I to your point, Justin, that it makes it hard for me to believe that you guys and your generation, even in places like Indiana, that you think would be a $250,000 house is now 600. I saw $750,000 condos in Indianapolis. That which was shocking to me. It's got it just surprised me.

 

17:35

But I had I had that conversation with a client today that you look at the buyer pool. You know, granted, there's how many people in the country, but probably only 10% of the country can even afford the real estate that's out there because most are living paycheck to paycheck, so they don't have the savings to be able to even buy $100,000 home.

 

17:54

Yeah, yeah, you definitely I definitely think that. And we will get to in a couple of minutes when we get into the conversation about Wall Street money and speculation. I definitely think we're setting ourselves up for a 1999 type of situation, which was at the end of 1999 when Barney Frank was running the Senate, and the Democrats had control of things. Every constituent out there was calling up their senator talking about the wealth gap and not being able to afford homes. And that's when they changed a lot of the lending standards. Everything that set up to the oh eight bubble, you know, everything that set up that housing bubble from, oh, 3207 really got teed up in 1999, on the back of people not being able to afford. So I do think we're going to see that again. But it's going to be more more Gestapo style where I think governments are going to have to start to come in and regulate certain areas of real estate get speculator money out in order to bring prices down. Because when you look at here, here's what's happened in prices regionally since we had our last conversation back in the summertime, the year over year, national average has not gone down all that much. I haven't gone down at all really according to this. And I've seen numbers that have ranged from the national average being down 2% to being up 1%. So obviously on a national level, prices have softened or at least plateaued but they haven't dropped off a cliff. San Francisco has seen the biggest decline make sense, considering that most of the layoffs that we're seeing are from the tech sector. So it's down 11.4% But Patrick, you made a note here Yeah, but who cares? It's still up 31% from 2020.

 

19:49

Well, that was to the peak. Yeah. From from 2020 to the peak, it was up 31%. So we've only pulled back a little less than half

 

19:55

so Okay, so so it's helpful but not great. Los Angeles down 3% San Diego down to Vegas down two. I will say some of the data I'm seeing in Vegas recently seems like things are speeding up. They're Austin down for, again, an area with a little more tech presence. Boise down 3%, Phoenix Down 1.4. At all these numbers, the one that actually surprises me is Phoenix. I thought Phoenix would be down more. You know, I thought when we did this video back in June and July, knowing that we'd follow up to it, I really was thinking that Phoenix would be down double digits by now. But for whatever reason they've been able to hold hold the ground.

 

20:37

I thought that Vegas, you know, and again, I didn't put all the data and all of these to what they're up at. But I thought Vegas would have been down a lot more because they're, you know, booming with development and expansion and all that type of stuff. So I thought all the new home builders would have hit that area hot a lot harder. I know the Phoenix data there. They're short supply in houses big time. So that might be part of the reason for Phoenix.

 

21:02

Yeah, Phoenix, I think it's a lot of retirees moving in there. You got colleges. You got? Yeah, you got you got a lot of young California people going, you know, I think it just it just becomes one of those places that if you're a young person or a retiree, and you don't want to go to Palm Springs or Vegas, I think he ended up going to Phoenix. Yeah. We should have put Houston Texas up here. For sure. Justin, it would be interesting, I'll do some homework on that. So pending home sales. So you know, one leads into the other right where where you know, before prices really come down, you start to see the numbers and other areas pending home sales is tends to be one of those, you need to see pending home sales, you know, these numbers get really fat before prices start to decline. We're starting to see that the national average and pending home sales down 31% San Francisco, you've seen a big drop off and people pisted listing their homes down 44%. Same with Los Angeles and San Diego, Vegas, 61, Austin 55, Boise and Phoenix in their mid 50s. So you can definitely see that these areas that we've talked about the Boise is the Austin's the Phoenix is from a pending home sales, you've seen a drop off a cliff, I mean, when you're when you're dropping 40 50%, that's pretty significant. Granted, they're coming off of elevated numbers. But nonetheless, it's a good example of what we call reversion to the mean, where markets just don't go in one direction.

 

22:35

And some of that I think is headlines, you know, people selling that are selling their homes, because they want to take advantage of top dollar are now thinking that okay, prices are going to drop, I'm gonna wait, I'm just gonna write it out. I don't need to sell. Yeah, that has a little bit of effect.

 

22:50

Yeah, I'd imagine if you were somebody who wanted to sell five months ago, and you're not forced to sell that now you just say, Okay, I'll wait and see what happens later. I mean, because if you don't need to sell, why would you? Unless you're just doing unless you're trading up for another property, which when interest rates rise, like they have the trade up gets killed, right? Because nobody, nobody who I just talked to somebody yesterday and they go, Yeah, my mortgage is three and a half percent. Well, now if they want to get a new house, they got to get rid of a three and a half percent and go get a six and a half percent at chances. They're not going to do that. Because now they're going to have to get a smaller house or a cheaper house to offset the difference in rates. And I don't know anybody who makes moves that way, unless you're doing it in your retirement years. Most most people are making a trade up, not a trade down. So this is the thing that that I know, Patrick, you were saying earlier, when we talked and prepared for this that you're like, Yeah, I don't know if this is a great subject matter, you know, the short term rentals and the Airbnbs. Because, you know, how much do they affect the market? And I was thinking that way back in June and July as well, like I was thinking how, you know, we didn't have a lot of data. But now I'm starting to see a lot more about this. And I think this is what gets society moving and forcing, like I talked about what happened in 99 when people started reaching out to their senators and congresspeople, saying, hey, this wealth gap is killing me. My kids can't afford to live in the neighborhood that we grew up in. I can't even afford to live in it anymore. And a good example is between Christmas and New Year's. I rented a house down in Oceanside right on the beach. And for a mile stretch South Oceanside. I would tell you 50 60% of the houses are short term rentals. I was amazed as I walked that walk down the street, how many permits were on every single house and the place I rented was five units all five units were Airbnb or short term rentals which you know, five or six years ago that was five units was you know, a guy and his girlfriend renting a place to roommates maybe a couple that was newly married and they were on your leases or whatever it may be. Now that all that's been replaced with people who are just coming in for the weekend having a good time. Where did those people go? You know what now? Do they have to go move to VISTA to Fallbrook? Do they you know, where do those people go? So I've been paying real close attention to what's going on in this Airbnb and short term rental space and, and big pockets rental. I don't know who the hell they are. But they came up in my research, but they had something that just talked about vaako rentals, which is the one of the largest short term rental companies they just laid off a bunch of people, but vaako rentals are no longer generating the revenue investors expect. Basically, their margins have gotten tight and I keep reading that you know, the nights of stays that Airbnb is have really dropped off. You can you can go to a thing called Air DNA, which has all the stats around Airbnb and VRBO goes again from big pocket rentals. They should they gave an example of a lady by the name of Sabrina who wants rented her condo in Encinitas for $1,000 a night on a on a holiday. Now she's having to ask $275 at night so they're just basically stating that there's been softness in the short term rental market that probably is due to people's expenses right? Everything's more expensive. Maybe people are picking less vacations. I'm not sure what it is right but err DNA said Airbnb occupancy rates exhibited year over year declines. And again, from air DNA supply of Airbnb listings has served 23.3% year over year. So when I put all this together is you got a decline in demand. And you have an increase in supply because I will tell you, I have come across a lot of people the last two years, who've told me some silly shit like oh, yeah, you know what? I had a house in Midtown, I had a house in downtown Ventura that I was in the Airbnb zone. So I mortgaged myself up bought a house and midtown moved over there rented out my Airbnb place. And the price I've been getting from my Airbnb is enough to pay both mortgages. So like, That guy, I think is at risk. Right? Like I think it's that if you leveraged up your home to go speculate on an Airbnb, then yeah, maybe that person is at risk that if the market turns on him and their air b&b can't produce the income that they're going to have to get rid of it. I just don't know how many people are in that position. I think most of the people with Airbnbs at bottom with cash or they're in pretty good financial stability, but we'll see you know, like Warren Buffett said you never know who's swimming naked until the tide goes out. And so if the economy does slow down enough and people stopped going to Airbnb is like receiving this data and this continues for a longer period of time then you might start to see some of these people who speculated you know the starting to get nervous and starting to on load.

 

28:22

So do go back versus yeah

 

28:28

sorry sorry sorry.

 

28:29

The The reason why I say that I don't think overall for the real estate market this is gonna have effect is Do I think that Airbnb rentals and like you said the people that invested in are speculating things they're gonna get hammered? Yes. The your last point there of supply has surged. So of course if you have more supply it's going to be harder for somebody who was had it for a while to get it if somebody opens up an Airbnb down the street and offers a cheaper price. So that has impact on the price but Airbnb, if you think about it, it's mainly the smile states or the big cities, which is such a small percentage of the overall real estate you're in Indiana how many Airbnb E's do you think are in Indiana? You know, who wants to go there to for vacation or to rent or to think to do an Airbnb I'm sure there's some but not near as many as there in the OSI so I just don't think it's going to have even if they crash and people liquidate those properties. Is it going to have an effect? Yes. Is it going to cause a snowball I just I personally don't see that being a factor when it's such a small portion of people are people gonna get hammered for buying a property to Airbnb it? Yes, definitely.

 

29:41

Yeah, it definitely does not seem like the time to speculate like like it doesn't seem like the time to be a new Airbnb buyer and try new and what people were doing the last few years, but I'm not sure if it is the tipping point that causes the market to crash. I think all I think you need all these things to happen at once, which I don't think is is the reality at this stage?

 

30:03

I think you're, I think you're right, Patrick, in that sense. And I would just say that with Airbnbs, you know, you've got, you know, there for and to your point to Kobe, I think there is a decent number, we won't know until something actually shows, you know, shows itself or the tide goes out. But I think there's a lot of people that are highly leveraged for these things, I think they're going to be in big trouble, because I've noticed that, at least in the States, where they are pretty predominant, most of the housing complexes that have HOAs are shutting them down. Number one, I just read an article today that insurance is now charging double, if not triple to the people who own Airbnb is because now they have realized that their liabilities are a lot more. So somebody that was paying, you know, $1,000, for insurance, or whatever, you know, was paying double, triple that now. So it doesn't, I think all of the things that everybody you know, three, four years ago, you know, thought was a great investment is starting to slowly slip away, in some sense, it's going to become harder and harder. And I mean, all over here, at least in Orange County, I've noticed that the Airbnb market is drying up because of the HOAs. They're shutting them down completely. Yeah, the only in areas where they don't have any HOAs, that they're still able to do it.

 

31:24

Yeah, and I've seen two articles that go to the site of, you know, people bitching and moaning about things getting too expensive. And one of them so focused around New York, that there's, I don't, I don't know if they've passed this or if it's proposed. So so you'll have to do your own homework on this. But the idea was, if you wanted to offer an Airbnb, a short term rental, that you had to live on premise, which I could see that starting to be a trend in, and I saw something in New Orleans proposing the same thing. And so the attitude there is, hey, if you are living in your home, and you have a room you want to rent out, by all means you have every right to, but what they're trying to eliminate as the people buying a house or an apartment in New York, which is already, you know, under house, and just turning it into a rental purely just for that fact. So they're making these rules of, hey, if you're going to be do short term rentals, you got to live on premise. So I could see where that's going to be kind of become a bigger trend in certain metropolitan areas that that, you know, want to control this a little bit more. So I think that'd be a really interesting thing to watch as time progresses.

 

32:40

And that would be a huge hit to own, you know, because people that rent an Airbnb, they don't want to be sharing, you know, so that's gonna be a huge, huge hit to the people renting. So

 

32:49

yeah, it's a very clever way from a regulation standpoint, to really snuff something out, right? Because it's like, you don't kill it, you know, you don't you don't ban it. But you just now make it totally different than it was. It's like now. Now, if you want to run an Airbnb, you almost have to like run a bed and breakfast, because you gotta be there, check him and check him out, that kind of stuff. So very interesting, definitely shifts and changes. None of these things, support more speculation. I think that's really the point that people should get is that, that rising interest rates, the softness and employment that seems to be happening, and the changes around regulations, and Wall Street money kind of moving away from speculating in real estate, definitely does not support real estate prices climbing at 20% clips per year, like they were before, right? So so i det, you can definitely see these are all things as a result of the Fed trying to slow down the economy. It's starting to slow. So what do you do? Right? Like, what do you do if you're, if you're a guy like Justin, who's, you know, approaching a time in life where marriage and buying houses and things like that are part of it? Or even a guy like me, who would like to add another house into his portfolio as an investment property? What do you do? And I think back to what we talked about in June, and July still works, we talked about a recipe of hey, go look at what prices were at 2019 pre pandemic, and use that as your baseline? Because I think Patrick, you said earlier that, you know, even where we are now we're still what, like 30% Above these 2019 prices. Now

 

34:35

we'd have to we would have to drop 15 to 18% in order to just get back to our regional average of growing 6% a year.

 

34:44

Okay. So you could see, so the market would need to come down another 20% for us to really, you know, use, let's say 2019 as a baseline plus five 6% growth per year beyond that, and I think that's a good read. recipe like if I'm if I'm going to put an offer on a house, that's probably where I'm gonna go is I'm gonna say, hey, you know what, I'm just going to erase the last two or three years, pretend it never happened, throw my offer there, see what happens. So I think if you're if you're a person who needs a house, like, you know, you're gonna be renting anyway. And you're going to be renting for many years and you need a house, then yeah, you gotta be out there shopping. But I think you put your lowball your offers here, right? And you don't let your realtor scare you into chasing things.

 

35:34

If we I tell buyers, if you're buying a primary residence, think of it as a liability, not an asset, your primary residence is a liability until you go to sell it, then it becomes an asset. So you have to go in with that mentality, like you said at the beginning that you know, you're going to be in it for 1015 years. That's the liability aspect of it. It's when you go out the asset.

 

35:59

Yeah, every house I've ever bought, I bought with the attitude of, hey, if I needed to sit on this thing for 1015 years, could I if I needed to sit on it, could I rent it for what my costs are? And I've never, I just was never one that was a believer that you buy and sell and speculate. I know a lot of people do. And I'm God bless them. But I'm just not that guy. You know, so and and I also think, though, too, if you're a younger person, that this does become one of those times, you know, Justin, you had mentioned about affordability and things. You know, I tell the story all the time about you know, my kid, my parents were California kids, you know, they went to Wilson High School in Long Beach, that's where they met. And I was born in Kentucky, my brother was born in Pennsylvania. And then we grew up in California. How did that happen? Well, you know, as my parents were squeezing out babies, and my dad had to find jobs. And so he went to where the jobs were. And so the first job that paid him well was Pennsylvania, I had my brother, you know, then he got a job transferred to Kentucky because it paid more at me, then he got another job transfer back to California, because the job paid more, you know, he just went to where the money was. And I think that's no different for this generation. The problem with this generation now is they're so used to being able to do everything electronically, like everybody's gotten into this attitude of, hey, I'll just work from home, I don't need to move anywhere. But I don't think that's going to work in the next 10 years, I think people are going to have to do what other generations have done. And if they really want to own a home, they're going to have to move to make it happen. If you're an investor, so let's say let's take this from the other angle, let's say you're, let's say you're in your 70s. And you have a handful of houses that you rent out. And now you're getting to the point where you're tired of being the landlord, you're tired of getting the phone call for the for the leaky toilet or the the broken water heater, or whatever it may be. Well, this is probably the time then now where you step back, and you start to say, what what do I unload? What, what underperforming properties do I get rid of to make my life easier. And you do that while prices are pretty stable at this stage, because even if you're a seller, now you're still getting a good price relative to history. And if you're an investor that is, you know, on the other side, where you're saying, hey, I want to add more houses to my portfolio, or I want to start a portfolio of investment properties, I would say you got to keep your powder dry, because the data that's coming in seems to be getting worse. And after I watched yesterday's press conference with Jay Powell, it's obvious that the Fed is not done here. They, they, they they've slowed the economy enough, but they haven't gotten it to where they need to. So I don't believe that we're done with interest rates going higher. We might be there for a couple months. But I if this economy doesn't go into recession, and doesn't slow down significantly by the summertime, I think by fall, you could see the Fed kind of repositioning to continue to raise rates. And if that happens, then I think that next leg would really now start to kind of break the back of real estate and maybe people have a better opportunity. But my big concern is I always thought, you know, if interest rates rise, that real estate prices were really gonna go down. But you know, when I look at charts of real estate prices in the 70s, which was a period of time, the whole 10 years of the 70s, you had relentless rising rates. But if you notice, you know, the prices of real estate never crashed in the 70s. It just had this gradual increase every year. So going off of the thesis that interest rates will kill the real estate market. That doesn't seem to be the case when you look at the 70s I don't know if that's a good thing. parison

 

40:00

know when when, because when you look at the difference between the 70s. And now, I mean, when they were raising rates in the 70s, jet to debt to GDP was 30%. When you look at debt to GDP now we're 130%. So we're in a new all time, you know, never before experienced situation. And one of the other aspects of that you should always consider when buying a home is date, the rate, marry the mortgage, you know, the the rates are going to change, you can refinance all that type of stuff. You're stuck with that 30 year mortgage. So you're you got to be be with it for the long haul. So

 

40:39

data rate, yeah, got it. Yeah, sure. Sure. Makes sense. Yeah, yeah, you bring up a good point is is is our debt levels as a country are different? So how does that factor in and that's something that we should probably think through and use as a follow up for later in the year when we get more data on this? Anything else you guys want to cover? Before we wrap it up for everybody?

 

41:01

I mean, I'm good. I would just say buyers be patient sellers, like you said, COVID, now's the time, you're probably not gonna get a better price. And you would, you know, I mean, we're still 15 18% above where we were a few years ago. investor, I think people that are investing in multifamily. Those are good investments. Still, people are still renting storage units, I think it's still a good place. I would be wary of the Airbnb type of investment at this point, personally. And like you said, the dry powder. I think that's important right now of being patient to buy, because, you know, I think all the data is giving us the clues that, you know, better opportunities could be on the horizon.

 

41:44

Yeah. And you brought up a good point of people are still renting, I mean, rental rates haven't really, you know, they've started to kind of peter out and not increase anymore. But if you look at again, the historical data, even through 2008, rental prices did not waver, and they just kept going up. So I mean, people are still renting. It's because we're under supply. That's still gonna be a target.

 

42:08

Yeah, no, I think we didn't really touch on was that, you know, is that kind of that new thing that's popping up I've seen lately is that these homeowner, home construction companies are building these housing complexes that are built to rent. Which is kind of interesting, because I'm like, if you build them the rent, that's great, everybody, you know, the the people that own those homes, when assuming they can rent them all out? And I guess to me, on the flip side, if they can't rent them out, they could just turn around and sell them, right? Wouldn't that be the?

 

42:40

Yeah, yeah, that's the attitude of the Wall Street money. Because what's happened there is you have a lot of family office money, a lot of private equity money that has now gone in to this area of of build to rent, you build a community. And you're, you're you're there basically lease options to buy. So each person that comes in, they're renting with the option to buy the house, most of what I've read, and I haven't gone into this detail, but like in most things in life, it's kind of like leasing a car, it's not all that great. It's like, it's like, it's convenient and easy. But you know, if you think about if some guys from Wall Street are going to set it up, they're definitely going to set the contract and everything in their favor. So I think if you're somebody who's young, and that's the only way that you can get started is to do a lease to buy option through one of those, then you just got to pay attention to the contract and pay attention to the terms of the deal, and be a good consumer. I'm afraid on these build to rent communities. What I'm afraid of is is are there? Are there practices that are taking advantage of of people that don't know any better, you know, isn't a bad deal, you know, which I'm sure is going to happen. It always does. But that that I really where you see a lot of that has been in Phoenix and Idaho and places like that. It's just, it hasn't become a really big part of the market yet. But I do think it becomes more popular as time progresses and people need an alternative to finding a lower cost house. For sure. Well, I think he's you know, we can wrap it up. And I'll tell you what, you know, if you've got a 401 K or retirement account, one of the things people don't know about is one of the ways you can optimize your 401 K and your retirement account is if you have the right type of 401 K or retirement account, you sometimes can put alternative investments like real estate inside your IRA. Now there's all kinds of rules and all kinds of ways to do it right and wrong. But if you're curious to know how you can optimize your retirement portfolio include real estate within it, then reach out to us because we're offering a free portfolio analysis for the first five people who reach out to us as a $1,200 value because we dig deep into the portfolio and give you the best ideas of how to optimize your retirement so you can retire a little bit earlier. So gentlemen, let's wrap it up and like you said, it's not January it's February now and I appreciate your guidance time and we want to wish everybody a happy February and good Valentine's Day coming up you guys

 

45:35

Oh, yeah.

 

45:38

I guess that's how we're gonna end that myth.

 

45:42

The creepy man with the blue screen Yeah.