Interest Rates are Higher, It’s Been Longer. Time to Lean In.

Welcome to A Skeptical Dude’s Take on Real Estate: a frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

Coming at you live from Nashville. Today’s fuel is just caffeine and a cold shower. No AI generated content here folks. Nie!….Oh and some Offspring.

Today We’re Talkin:

• -The Weekly 3 - News and Data.
• -Time to Lean into Interest Rates.
• -What makes up a Home’s Costs?
• -Tradesmen, Thank you for Your Service.
• -The Skeptics Take.

The Weekly 3: News and Data to Keep You Informed

1. -Median Home Price is now $397k, up 4.7%. Heavily skewed by the West, which is $613k (NAR).
2. 
   
3. -Using Sleep to Improve Learning (Huberman).
4. 
   
5. -Oracle Moving Global HQ to Nashville! Suck it Austin :) (CNBC).

   
   

Today’s Interest Rate: 7.39%

(👇 .11% from this time last week, 30-yr mortgage)

Interest Rates are Higher, It’s Been Longer

I hear constantly on the news (@CNBC @CNN @FOXNEWS etc…..) “interest rates could be higher for longer.” Well, I’ve got news for you Mr. Blitzer, they already are. It’s been more than 2 years since the Federal Reserve started to raise rates. It’s a damn rate mesa at this point. Rates are higher, it’s been longer.

But while rates went up the ski lift on the incline, they will likely come down the bunny slopes on the backside. Absent a recession.

So, perhaps it’s time to lean into interest rates?

Interest rates are fluctuating in the 7-7.5% range, so let’s start operating under the assumption that 5-5.5% is not around the corner. I do think we will land there, but we sure ain’t there today.

Let’s recognize where we are and the effects. There are some good aspects of 7% interest rates, as I laid out Last Week. One is upward pressure on available home inventory levels. We have been in a housing recession (arg, 2022) with regard to inventory and we do require inventory to increase to the mean, to return to a more normal market.

Housing Inventory is Rising

Unsold inventory sits at a 3.2-month supply, up from 2.9 months in February and 2.7 months in March 2023, or This is a product of fewer real estate transactions. Total existing-home sales were down 4.3% from February to a seasonally adjusted annual rate of 4.19 million in March. YoY sales waned 3.7%, down from 4.35 million in March 2023. Juxtapose this with 2007 where we were at 4,000,000. In my home market of Nashville, we are at 3.8 months supply, above Pre-COVID March 2019 levels of 3.2.

Good.

This is Not 2007

Interest rates are unlikely to crash housing prices, the labor market, consumer spending and economy are too strong. Good. Plus (*mini Tangent Alert*) is the Federal Reserve even capable of steering the economy with interest rates? We are still plowing forward despite their best efforts. Hell, the Fed employs 100+ researchers and 400 PHD economists.They are usually wrong about both: where inflation will be, and what their own interest rates (Fed Funds rate) will be. They literally use a “” to predict/estimate future interest rates. Let’s call it what it is, a damn dart board.

IMO, it’s important to recognize that despite the high costs of real estate / interest rates, and depressed demand as a result, this does NOT seem to be the 2007 housing crisis all over again. Something to keep a Skeptical eye on however as inventory ticks up.

Home Prices are Higher, Forever

Inflation higher? One area of concern is construction costs, and the resulting increase in home prices. A new single-family home in 2022 cost $392,241* to build. The pie chart below breaks out those costs for the “average” home (ResiClub).

*Unless you are living in California, where impact fees are often $100,000 of the cost of building a new home. Ease off the gas pedal local governments, holy sh!t.

And an important note, labor / services costs are a majority part of each of these costs. More than the raw material, in my experience.

So what to do?

Gen Z to the Rescue?

Gen Z may be leading a revival in the trades. 1) In an aging population, the median age of electricians, mechanics, and plumbers is falling. 2) Vocational school enrollment is growing faster than at 4-year colleges.

More young folks are considering the trades as a career.

Tradesmen. I have one thing to say to you.

THANK YOU FOR YOUR SERVICE.

And before you start talking sh%t, the trades are a tremendously under-appreciated job. Have you ever fixed a 110 kilovolt power line hanging from a helicopter?

This past week was lineman appreciation day (April 18th). So I’ll say it again:

THANK YOU FOR YOUR SERVICE.

To all the trades. Badass.

The Skeptics Take:

It’s spring and I think I speak for everyone when I say, time to double click on those sunny clothes and put the sweatpants in the lower drawer. And this means people activity picks up, especially in real estate. Fun fact, typically 40% of all annual home sales take place March-June. Prices are / will continue to rise (especially in the hot season), so I’m gettin out there now!

We desperately need more tradesmen. Construction costs are a large part of the home price appreciation. And this is an area where all levels of government can be helpful in providing the right incentives and programs. Are you are listening, city / county officials? (I know you read this, I see you open my emails :).

Also, parents! Do you have a burgeoning young adult that is thinking of being an “influencer?” Maybe they should consider one of the trades? The money is just as good as technical fields and you can actually do / build / contribute something to the world.

Speaking of which, time to get outside! Gonna go fix a tenant’s dryer, see a few properties and hit the gym.

That’s it for this week. If you are interested in talking real estate investing and digging deeper into any of these ideas don’t hesitate to reach out! Drop me a note right here on BP. I always like a rigorous discussion and helping fellow real estate investors.

Looking for a realtor in the Nashville area? Shoot me a note, we work with the best here who specialize in helping investors find great properties.

Until next time. Stay curious. Stay skeptical.

Herzliche Grüße,

-Andreas

* The preceding has been my opinion only, the views are my own, and are intended for educational and entertainment purposes only and does not constitute financial advice.