BiggerNews: The Market Bets on Mortgage Rates Falling, More Homes for Sale

Henry:
Is there more good news on mortgage rates coming? What does the housing market data mean for buyers these days? Today we get to ask a seasoned economist about the housing market’s. Biggest questions. What’s going on everybody? I’m Henry Washington, and welcome to Bigger News. Dave Meyer is out on vacation still, so I’m bringing in my great friend Kathy Tke from the BiggerPockets on the Market podcast to hang out with me. Kathy, what’s up? I’m

Kathy:
So happy to be here, and I’m excited for today’s show. I’m sad that Dave can’t be here to help us break down this real estate news, but we have got such a great guest now, probably my favorite economist, who’s going to just help us understand what’s going on out there.

Henry:
Yeah, we get to get a little nerdy without Dave. It seems a little wrong, but we’re gonna, we’re gonna give it our best shot. We are talking with Ralph McLaughlin, he’s a senior [email protected]. Ralph is gonna walk us through the latest data on the housing market, including the state of mortgage rates and what we should expect of them in the future. We’ll talk inventory trends and how they relate to prices, and we’ll talk about what markets we’re seeing more inventory in, or what markets we’re seeing a little less inventory in, and what he expects for the housing market for the rest of 2024.

Kathy:
Well, my goodness, let’s dive in.

Henry:
Mr. Ralph McLaughlin, welcome to the show.

Ralph:
Thanks for having me on. I’m an avid listener of the podcast, so it’s a real pleasure to be here.

Henry:
Oh, man. Thank you very much, and thank you for supporting the show. So, before we jump in, can you tell us a little bit about what type of economics reporting do you specialize in?

Ralph:
Yeah, well, I mean, any and everything with, with respect to, um, housing, uh, realtor.com um, focuses on both, uh, owner occupied housing, uh, listings and, and rents, um, and, and rental units. So, uh, you know, we kinda have both sides of the market there. Me as an economist, uh, I’ve been an economist in housing for, uh, about two decades now. So there really is very little that I haven’t, uh, dove into. But my, uh, my expertise over the years that I’ve gravitated towards has been, uh, new, new supply. And, uh, on the side, I’m also a mom and pop investor. So it’s, uh, you know, it’s great to be here and talk about the investment side of things for a change.

Henry:
Cool. So, look, there’s a lot of things that we could talk about given your experience, and, uh, but let’s be real. Everybody wants to know what’s going on with mortgage rates right now.

Ralph:
Uh, well, it’s a good, very, very good question. Uh, especially in, in this sort of climate, um, we are seeing mortgage rates starting to come down a little bit. Uh, there are signs that they may continue to come down by the end of the year and early into next year, and that’s because it appears the Fed is getting a handle on inflation. Uh, we, the most recent report, PCE shows we’re down again to 2.5%. The target’s 2%. So we’re inching our way there. So that’s, that’s the great news, right? It’s the great news that everyone’s waiting for rates are gonna come down. Uh, the lukewarm news is the Fed has been very clear that they’re gonna take the stairs down. They’re not gonna take the elevator, so we shouldn’t expect things to drop like right away, right? If, if you’re expecting, you know, 5% mortgage rate land, like we’re not gonna be there, you know, probably anytime soon it’s gonna take a while. But the, the, the glide slope is good for a soft landing, and I think that’s, um, you know, it’s a good spot to be in. Well, we

Henry:
Took a rocket ship up, so the stairs down <laugh>. Yeah, go ahead,

Kathy:
Kathy. I was just wondering, some people have said that, um, that the markets have already priced in those rate cuts in terms of with mortgage rates. Is that true, or do you think that they’ll continue to go down, down that staircase <laugh>?

Ralph:
Uh, it’s a, it’s a very, I mean, the market certainly is, um, priced in almost a hundred percent a rate cut in September. Um, and that, that’s a big change. I mean, even, even earlier this spring, uh, you know, the market was not expecting a rate cut till even December. So we are seeing some, some short term, uh, accounting of that in, in, in markets. I think what markets are gonna be unsure of is how quickly the Fed is gonna come down those stairs. We know they’re gonna take the stairs, but is it gonna be September? Is it gonna be December? And then, you know, uh, cuts at every meeting after that, or are, are there gonna be, uh, more space cuts, right? So even though it’s the stairs, we know it’s gonna be slower. We don’t know if they’re gonna be, you know, sort of running down the stairs or just really going one, you know, one step at a time, like an old, uh, like an old dog. So

Kathy:
Many people are confused about what the Fed is doing in cutting rates and how mortgage rates kind of operate separately more tied to the bond market. So have bond investors already done their thing knowing that these rate cuts are coming, and as a result, are we kind of where we’re gonna be with mortgage rates for a while? Or do you see mortgage rates coming down as the Fed cuts, the, uh, short term rates?

Ralph:
So certainly we’ve seen, uh, the tenure treasury start to come down and start to price that in already, at least for a September cut. Um, I don’t think the market has really priced in, uh, the cuts for next year. So, um, certainly I think a hundred percent, uh, capitalization of, um, of, of rate cuts for September. Uh, not fully, a hundred percent for December. And I, I think very few for, uh, ear early next year. So there’s still room for rates to come down as the Fed signals, but there’s another source, uh, for rates to come down. And that is the actual spread. So that is the spread between the 10, 10 year treasury, uh, and existing mortgage rates. And that spread is at, you know, close to, it’s not all time highs, but it, it’s, you know, it’s, it’s high, right? And so, you know, we could get some squeezing of that spread, which would be welcome news for, certainly for, um, home buyers and, and investors. Uh, so even though the market may have priced in, uh, you know, a lot, you know, of, of the cuts that we may have this year, uh, you know, that spread, I think has room to, uh, to, to, to tighten a little bit.

Kathy:
Well, that’s, that is what our listeners wanna hear is bottom line, are we gonna see lower mortgage rates or not <laugh>? Um, so I think fingers crossed a little bit, at least a little bit better rates coming soon,

Ralph:
Better time, better times ahead, uh, but, you know, it’s not going to come all at once, and it’s not, uh, you know, but investors and buyers are gonna have to be patient.

Henry:
So in my market, what I’m starting to see is that things are slowing down a little bit, meaning that houses are staying on the market a little longer, and inventory is going up. Now, my market’s a little different than most other markets, but we’re still seeing a little bit of a bump in inventory, and we’re seeing things sit on the market a little longer. Can you tell us what are you seeing, uh, in terms of housing market, uh, inventory across the country? Yeah,

Ralph:
I mean, I couldn’t have said a better myself about the national market <laugh>, the national markets in the exact same thing. In fact, maybe heightened a little bit more. Uh, we are seeing, uh, pretty impressive growth in inventory on a year over year basis. Uh, inventory has grown by about 35 to 40, uh, percent. Uh, that that’s amazing. Even just, uh, six months ago, you know, we were, we were worried that inventory is still tight and that’s gonna, you know, keep a high, a high floor for, um, any potential movement in prices. That’s, that’s changed almost, almost 180. Uh, and I think, uh, we are gonna be approaching, um, you know, the highest inventory level in a post pandemic environment very soon, if we’re not already past that now, you know, real estate indicators are often lagged, so it takes a little while to, to figure out where we’re at.

Ralph:
But, um, if we’re not there now, we will be there very, very soon. Um, and what we’re seeing as a result of that are two different things. One, you mentioned that homes are moving slower, and that’s certainly the case. Uh, the average home now spends about 45 days, um, on the market, and that’s up about four days, uh, from last year. And it’s up a couple days from last month. So homes are not being taken off the shelf at the rate that they were even just six months ago. So it’s gonna be welcome news for those that are looking, uh, you know, to acquire, acquire properties. And the second thing that we’re seeing is that sellers are cutting prices at a higher rate than they were a year ago. Uh, a year ago, they were cutting prices about 14% of the time, 15% of the time.

Ralph:
Now it’s inching up close to 20% of homes are having, uh, are having price cuts on them. So again, this is the market, I would say, um, normalizing and, and cooling slightly. But really, you know, if you look at where we are today relative to the pandemic, it’s still a, a, a very, um, tight market for folks. Uh, but it’s loosening and it’s normalizing. And I think for those on, uh, again, on the, on the side of, uh, acquisition, you know, things are gonna feel a little different out there when you’re participating in the market than they have at any time post pandemic. But if you’ve been in the game for a long time, you’re still, you know, it’s gonna be all right. We’re, we’re, we’re tighter than we were before the pandemic, but things are looking a little, a little easier than they were in the last five years.

Henry:
Alright, so between these inventory updates and the mortgage rate trends, I’m feeling cautiously optimistic after the break, we’ll dig into how these conditions relate to housing prices and affordability, and where Ralph sees the opportunities for deals as an investor himself. Stick around. Hey, investors, welcome back to bigger news. We are here with economist Ralph McLaughlin.

Kathy:
One of the things we try to do here at BiggerPockets is explain the difference between some of the scary headlines that really are just meant to freak people out versus the reality. And yes, inventory is increasing, uh, but the way we’ve been looking at it, especially on our other podcasts on the market, is that this is a good thing. Inventory was way too low. Uh, with so little supply on the market that was driving prices up, now that inventory is rising, don’t freak out. Like that’s the message we’re trying to give people. Don’t listen to the headlines. Don’t freak out. This is a positive thing. Would, would you agree or would you say that with all this new inventory, it’s something we should be concerned about

Ralph:
Right now, there’s no reason to think we should be concerned. It appears that the Fed is gonna grease this landing and not put the economy into a recession. If the economy were to go into a recession and we were, you know, to see, uh, lots of job losses, uh, then sellers might be forced to sell. Uh, right now they can just take their home off the market if things aren’t going well for them. Uh, right. So, um, I use the term normalize very, very explicitly because the market is normalizing. It’s, it’s not collapsing <laugh>. It’s getting back to actually a very healthy market. We’ve had a very unhealthy market, uh, for the last three or four years. And, um, it’s better to have a market like this that’s normalizing, that’s healing than it is, uh, one that continues to be out of whack. Because the longer a market’s out of whack, the higher the chances are that we get, you know, an overcorrection or we get a correction, uh, that, uh, you know, may cause severe economic pain, at least on, on the housing real estate side. But, uh, there’s no, no, no signs that I can see, um, that we’re in that kind of market.

Henry:
I couldn’t agree more. Like, I think what you’re saying is it’s, it’s essentially what we need, right? We need a healthy housing market. And we’re, so, I think people have normalized an unhealthy housing market. We’ve been in this pinball machine for the past two to three years, and, and people have gotten used to it. And so now when we say things like, Hey, days on market is slowing down, it’s gonna take a little longer to sell a house, right? It sounds like bad news, but it’s not bad news. This is what the housing market, this is what people need, especially if you’re a home buyer who’s looking to buy, maybe not as an investment, right? You want to be able to have some predictability in what you’re in, what you’re going and doing and shopping for. You want to be able to take some time and do the proper due diligence. You want to be able to buy something. If a flipper has done it, you wanna make sure that that flipper did a good job. And in this kind of environment, flippers who do a bad job are gonna have a problem selling property. So this is, I think this is what the housing market needs.

Ralph:
Yeah. Uh, that’s, you know, I think that’s a great, uh, a great way to look at it. Um, you know, as, as a side note, I’d like to use a lot of analogies with aviation. ’cause I’m, I’m, I’m a pilot, uh, on, on the side. So, um, you know, slow is smooth and smooth is safe. So, you know, you can relate that to this housing market when you’re moving very, very quickly, uh, you can make mistakes and, you know, and that’s in anything in life, right? Um, you know, whether you’re flying an airplane or whether you’re investing in real estate, um, you know, you, you, you wanna move, uh, at the pace that allows you to make the, the safest decisions. And, uh, you know, you could argue over the last few years that people have had to move so quick that they haven’t been making the perfect decisions on anything.

Ralph:
And they’ve been probably, uh, normalized or becoming accustomed to, uh, suboptimal decision making in the investment process. Uh, so this, this, this slowdown, and by the way, we’re still faster. We’re still about a week faster than homes were moving before the pandemic, right? So like, that’s still a faster market by historical standards. Um, but we’re really just, um, slow slowing down to a le a less hectic market is the better way, um, to put it. So being able to do your due diligence, uh, you know, over, over two or three weeks rather than, you know, four or five days, six days, is a, is a healthy, good thing, especially if this is an investment property, right? Where you have no real use value of it, you know, it’s even more important. So, um, yeah, so I’d say it’s a very accurate,

Kathy:
I would even argue, uh, for the first time buyer is, is these are the people who had to make decisions in a day, um, over the past few years. And they, and I know at least in San Francisco, you weren’t even allowed to <laugh> to have contingencies for inspections or appraisals. It was just like, take it or leave it. There’s a hundred people in line waiting for this property. You get what you get. That is not healthy. I, I couldn’t agree more. You know, one of the thing that kind of bugs me about housing news and is confusing to so many people when they see these headlines is, you know, that housing inventory is increasing, and yet there’s so many markets in the us. Like, is that true for all markets or just certain markets? Are there some markets that have more inventory than others? Um, if we kind of like dial, you know, just like drill in onto the markets, which are the ones that maybe are oversupplied at this point, maybe too much inventory and other markets where it’s still hot, hot?

Ralph:
Yeah, it’s a great question. From a regional perspective, it’s the south and west that are really booming with supply, and it’s the Midwest and northeast, the bargain belt, if you will, that, uh, really has been slow to slow to catch up. And there’s, you know, a variety of reasons for that. One in the south and west, they build a lot of homes. And so new home building actually is that pressure relief valve, uh, for demand. And it’s pressure relief on the existing stock. So you build a lot of new homes, it’s less pressure off the existing stock, which means those homes don’t move as fast, uh, as, um, you know, say markets where you don’t have a lot of new construction. Uh, and, you know, the pressure is really on that existing side. So you know that that’s what we’re, um, you know, that’s what we’re seeing when it comes to, um, uh, to new supply and, and new inventory.

Ralph:
In fact, the south, uh, is just about to, the level of inventory that they were before the pan pandemic. They’re, they’re, they’re getting there. They’re, they’re the closest, um, they’re about 10 to 15% away from being back to pre pandemic levels. Uh, but in other areas, uh, like the, the Midwest and the Northeast, you know, they’re still about 40 to 45% below, uh, pre, pre pandemic levels. So that’s gonna take a while for, um, yeah. Uh, for, for, for them to, uh, to, to recover. And we see that correlation with, with price growth as well. Price growth is starting to, to wane as a result in the southwest. And, uh, you know, still pretty, uh, pretty robust in the, in the northeast.

Henry:
Yeah, we just did a show where we talked about some of the hottest markets and all of the hottest markets in terms of, uh, things selling for the, the best price. We’re all up in the north, in the northeast, and you’re right here, here, I’m like, if you ask any, I live in Arkansas, so if you ask anybody from Arkansas, they’ll tell you they’re from the south, but our real estate dynamics kind of don’t follow the south to a T. So we’re a little bit, uh, insulated from some of that, but we are starting to see that slow down as well. We’ve talked a lot about inventory, uh, but we haven’t talked about like, how that relates to price. So if we’re seeing inventory slow down, one would think that maybe pricing will come down, but we’re not really seeing price come down in a lot of areas of the country. Is that true from what you’re seeing in the data? That’s

Ralph:
True. I mean, I mean, yes and no. So we are seeing price cuts come down. Uh, so we’re seeing more sellers cutting prices, uh, than last year. In fact, there’s, um, you know, about, uh, 25% more sellers that are cutting their price this year than, than last year. So sellers are getting more realistic about what they can expect for their home. Uh, again, that’s, that’s good news, but we are not seeing prices themselves turn negative. Um, you know, they’re still anywhere between three and 5% growth, depending on, uh, where you are. Like, well, how can that be the case? Well, sellers who are selling, you know, usually will only take a hit if they have to. And we’re in a market where sellers still have a little bit of the upper hand. Um, they may not have to sell, they’re not going through economic, uh, distress.

Ralph:
They’re not, you know, potentially gonna be foreclosed upon. They’re, they’re not, you know, being laid off or losing their jobs. So, you know, because the economy still remains healthy. GDP is still, you know, we had a stellar GDP number, uh, recently that, that was better than expected. At, at the same time, while inflation’s coming down means that buyers can, you know, pretty much pony up what sellers, um, are asking for, or even a, a little, uh, you know, a little bit of a price cut. Um, but, uh, it, it’s not enough to, uh, cause prices to fall for the reasons that I just just

Kathy:
Mentioned. I would love to ask a personal question because you said earlier that you are also an investor, and that’s kind of rare. We, we often have economists who know a lot, but don’t necessarily, you know, do the work. So I, I love hearing that, given that there are certain areas where there’s rising inventory and that could lead to more choices, possibly better negotiations, possibly more of a buyer’s market so you can get better deals. I mean, is that, are those the markets you would be looking at, the ones that other people are kind of scared of? ’cause there’s more inventory? Or do you prefer the hot markets where you, you know, you still gotta compete?

Ralph:
Well, you know, I, I am certainly, uh, a proponent of investing in the path of progress. So there are places that, um, are, are growing from a population standpoint. Uh, many of those places now are actually seeing normalization, uh, in, in, in particular Texas, Florida, and Arizona. Those are places that are seeing normalizations. Um, but the good news is that they build a lot of homes in those areas. There’s a lot of land, especially Texas and Arizona. There’s a lot of land for growth. Uh, but we are seeing price cuts in those, uh, in those areas. Uh, we are seeing, uh, you know, the market slow down and we’re seeing inventory rise. So those were hot places for investors several years ago. Um, I, I don’t necessarily, uh, think that there would be a lot of deals that really pencil out as far as cash flow, if that’s what you’re after, but there are a lot of benefits to investing that have, you know, very little to do with cash flow over the long run.

Ralph:
Right? Um, so there may be, um, opportunities to get deals, uh, in, in some of those markets. Prices are still rising very strongly, uh, in, in the northeast, you know, Providence, um, uh, Buffalo, uh, New York, uh, you know, those could be tight. There hasn’t been a lot of inventory, uh, increase in those markets. Uh, so, uh, you know, again, I don’t, uh, not a financial advisor, but, uh, <laugh>, you know, there are, there are, there are markets that are starting to look a little more, uh, you know, a little more normal, a little easier to get their foot in the door. I mean, just even a few years ago, I would not want to even, you know, try to acquire a property in Phoenix or, or Dallas or, or Las Vegas. Uh, but that, that’s starting to turn a little bit. So if you’re already in those markets and you’re trying to maybe look for some, you know, economies of scale with properties that you have for management, you know, might be a good opportunity while the market’s slowing, slowing down.

Ralph:
Now, one thing that’s also important to, uh, uh, to think about from the investment standpoint is that as rates come down again there, they’re gonna take the stairs down. Like we, we talked about, not the elevator, um, but there is a delay usually from when rates come down and when the rate decreases are capitalized back into prices. Um, so there, there really wasn’t much of that in say, uh, at the start of the pandemic rates came down. Um, you know, there was maybe like a three to six month window before prices started to, to catch up. Uh, you know, we may see a microcosm of that. We may see a, a, a, you know, more pronounced window as rates come down here over the next six months to a year well, where they haven’t fully capitalized in, in, into prices. Uh, but you still get the benefits of, say, having a a a lower rate.

Henry:
I wanna do, given all this information is get just a little bit nerdier. So I want to dive, I wanna dive a little deeper into, uh, maybe just like a layer deeper into when we’ve been talking about that the market is stabilizing, homes are sitting on the market a little longer, but houses are still selling. So are you seeing any types of correlations amongst what types of houses are selling? Is it smaller homes? Is it the, you know, that first time three bed, two bath, first time home buyer home? Is it luxury homes? Like, can we break it down a little bit? What do we, what homes are doing great and what homes are maybe sitting a little?

Ralph:
Yeah, I mean, the, the mid, uh, the mid and lower tier markets, um, certainly continue to be, as we’ve seen prices, uh, really, really grow over the last three or four years. Uh, and as we’ve seen rates rise, it makes buying a house an expensive endeavor. So in any sort of market where you have a variety of priced goods, if things start to get very, very expensive, demand for the middle and lower tiers go up, just by the very nature of, of prices going up, uh, you know, a a starter home, for example, you know, in most markets probably not going to have, uh, you know, a tough time selling it, but a luxury home that’s, you know, multimillion dollars, you know, doesn’t have a lot of buyers to begin with. Uh, especially in this environment where we have high prices and, and, and high rates.

Ralph:
So, you know, definitely the, the middle and lower tier, uh, there’s gonna be more demand and activity for those, uh, types of homes than, than the upper tier. But across all tiers, there are still buyers. People buy homes. I know this is a, an investment, uh, podcast, uh, but the majority of especially single family homes are owner, owner occupiers, and people buy homes to live in them for a variety of different reasons that have nothing to do with interest rates. You know, you, you get married, you get divorced, you have kids, you, um, you know, need to care for an aging, um, parent. Uh, you just want more space. Uh, so, and that’s, that’s, that’s as long as the economy is doing relatively well, which it is, there’s gonna be that evergreen demand. So

Kathy:
As soon Henry wants to get nerdy and Dave’s not here to help us with that <laugh>, <laugh>, I’m going there too. Um, lately there were some headlines about the, um, median list price being pretty steady, but the price per square foot going up. What does this mean? Does this mean that smaller, uh, yeah, what does it mean? Yeah.

Ralph:
Oh, this is awesome. Okay. We really are getting nerdier. This is, this is fantastic actually. So, uh, <laugh>, so this is important for those who maybe are a little more savvy in, in housing, in, in real estate, and important to pay attention to. So the median list price, or the median sales price for that matter, um, is a nice central measure, but it’s a central measure, and it can be affected by the mix of things that sell that you’re trying to measure. So say for example, we’re looking at homes, you can have the median price go up, not because homes are more expensive, not because they’re becoming more valuable, but because you have a lot more expensive homes that just came onto the market. And same with the downside. You can have movements in the median list price downward, not because homes are worth any less, but just because there’s a bunch of smaller, cheaper homes that came onto the market.

Ralph:
So while we like to use medians, um, from an analytical standpoint, it’s not necessarily the best metric if we’re trying to understand whether or not homes, you know, largely are becoming more valuable or less valuable than they were say last month or a year ago. Now, medians are nice because they, they, they do represent what’s on the market at a given time. So in this instance, uh, Kathy, if you have a scenario where, um, you know, median prices are, uh, not, uh, not growing, but say, um, a quality control measure like price per square foot or a price index, like, um, you know, the FHFA home price index is going up, it means that there are cheaper homes that are coming onto the market. That’s the only way it could happen. If homes are more valuable than last year, but the median price is flat, it’s because there are cheaper homes on the market.

Ralph:
And, and that’s exactly what we’re, we’re seeing, especially in, in areas in the south. Uh, you know, we’ve seen, uh, year over year growth in the 200 to 350 K range, uh, of, of almost 50%, you know, it’s way outpacing growth of other, other, other homes. So, uh, yeah, so I, I, I appreciate the wonky, uh, you know, con conversation, the nerdy conversation. It’s something I’ve studied for, um, you know, a long time. So it’s nice to be able to, uh, try to make the, that concept a little more accessible, uh, you know, to, to, to consumers of, of real estate and housing news.

Kathy:
Yeah, I mean, and again, that’s why we do these shows here, is to just help people interpret these crazy headlines that, you know, just even the reporters who write the stories on them don’t have, you know, the experience that you do and maybe don’t know how to interpret the news. So that’s, that’s really helpful. Okay, we have to take one last break, but stay with us. When we come back, Ralph is gonna tell us how investors should interpret this market and how to take action. And if you wanna get nerdy too, head over to the market news thread at biggerpockets.com/forums and join the conversation there. We’ll be right back. Welcome back investors. Let’s get back into this conversation.

Henry:
So given everything that we’ve covered, given all the data we’ve talked about, it sounds like sometimes it’s bad news, but sounds like maybe it’s actually good news. What do you see is the overall picture for investors? So if you’ve got an investor who’s like, alright, what do I do with all this information? Is a good time for me to go buy something? Is it a bad time to go buy something? Like how should they be digesting all of this information and using it to make a decision?

Ralph:
Oh, goodness. Uh, I mean that’s, that’s a very, very good question. It requires a very eloquent answer that I’m gonna, you know, give a, give a mediocre, you know, attempt at, but, uh, oh,

Kathy:
No, I believe in you. I believe in you. You’re gonna do it. <laugh>.

Ralph:
<laugh>, yeah. Uh, so it, it’s, it’s looking like the investment, uh, environment is going to improve, the climate is going to improve. Um, and really, I mean, just like buying as an owner occupier, the, the real question is what is, what is the timeline? You know? So, you know, over a long period you could make, make an investment in, you know, a relatively poor time, but that investment could actually end up being a decent investment over the long run, right? You, you know, you’re gonna look back, you know, just say you bought a property here in, uh, you know, 20 22, 20 23 at the height of the market, whether it was investment or for you to live in 30 years from now, if you are still holding onto that, you, you’re probably, you, you know, it’s, it’s gonna be a rounding error as far as the long-term trajectory of, of the housing market.

Ralph:
So if you are a long-term, you know, acquire and hold, you know, it’s, things are gonna get better. But I, I wouldn’t necessarily, uh, be so concerned about timing the market perfectly. I think timing the market perfectly is going to be, um, or not perfectly, but at least trying to time the market, it’s gonna be more important for the short term investors. So the fix and flippers, uh, right, that’s gonna be, um, you know, something that you’re gonna have to sharpen your, your, your pencil on and, and, you know, really make sure you’ve done your, your due diligence, not just because of, you know, the effects of seasonality that are, that are, that are coming up, you know, um, but also, uh, you know, how borrowing costs, um, how holding costs, especially holding costs are huge in the fix and flip. And, you know, if you can’t dispose of a property, uh, at the time that you’re expecting to, uh, dispose of it, man, those curing costs can be huge, especially if you’re using a bridge loan or other, some, you know, high, high cost of debt.

Ralph:
So for the long term, you know, acquire and hold, you know, okay, it’s gonna be a little bit, you know, a little bit better, but, you know, I, I wouldn’t worry too much, um, about it. The fix and flippers are gonna have to, um, really be, uh, on, on their game here coming up, especially with the changing, um, rate environment. But that said, there’s always gonna be properties that are in need of care. They’re in need of updating. So it doesn’t mean that you won’t be able to, uh, do a fix and, but you’re just gonna have to be more prudent in in doing so.

Henry:
I agree it it early, if you started investing or you got into real estate investing, maybe like right before the pandemic or right after the pandemic, people always said, Hey, real estate is a long-term game, but you were able to make good money in a very short period of time in that small window. And so I think people got super spoiled ’cause they’re like, I can buy something and I can make money next year on it. Now that the market has changed and the dynamics are a little different, we’re really starting to see that, hey, this is truly a long-term game and you have to have a long-term plan if you want to truly be able to succeed in, in, in real estate investing. And if you’re going to be a short-term investor, boy, you better be conservative in your underwriting. And this market is really exposing people who have not been able to be conservative in their underwriting.

Ralph:
Yeah, I mean, it’s a great point, especially on the short term side. Uh, I mean, you, you have to add value what’s not a safe game. Uh, and you know, I I I think largely, you know, the market’s not, um, terribly affected this by now, but what’s not a safe game is, is speculation. Um, and, you know, I know when times are really good, uh, <laugh>, you know, it can make even speculators look like geniuses. Uh, but, you know, speculation is, is a big, is a big gamble. And, uh, if you, if you don’t play the spec game, right, uh, you can get burned very, very quickly. So, um, you know, I’d I’d say we’re sort of at a a, an inflection point in the market now where, you know, uninformed, the uninformed spec game is not a good one to be playing right now. But, you know, if you go back to your fundamentals of, of investment, of, of either value add on the short run, um, or long term, um, you know, acquire and hold, uh, you know, there’s still plenty of, of, of room, um, for investments to, to be made. And, you know, it’s, it’s a good solid asset class, uh, you know, housing and real estate.

Kathy:
Love it. Love it. I, I just so appreciate what you’ll both just said is you’ve gotta really know what your strategy is first, because there is just no blanket, you know, statement for any kind of real estate. If you’re flipping, you’ve gotta understand the short term market a little bit better. If you’re buy and hold. You’ve gotta understand the, the long term market, you know, who the job growth and the infrastructure growth, like you said, and, um, really understand your strategy and knowing the data and having people like Ralph available here on BiggerPockets is really helpful with that. Thank you. Oh, thank

Ralph:
You. I love it. Uh, it was really great to be talking with you too. And

Henry:
Perfect. Well, thank you so much, Ralph, for coming on and sharing your wisdom. You are, we’re, we’re down to get nerdy with us and we appreciated it, but I think there was a lot of great information for people. So thank you everyone for joining us. Thank you, Kathy, for being here, and we’ll see everybody next time on another episode of Bigger News.