Don't Try to Time the Market
Today’s Read Time: 11 minutes.
Today We’re Talkin:
- -The Weekly 3 - News, Data and Education
- - Interest Rate Update
- - Arnold Schwarzenegger the Real Estate Investor
- - How to do more in 2025
- - My Skeptical Take
The Weekly 3: News, Data and Education to Keep You Informed
- - New unemployment numbers were again low, confirming a strong US economy.
- - Jobless claims were 211,000, 6% below the 4-week moving average ().
- Looking for a little live music? Nashville’s got 200+ live venues! Check out upcoming shows across Music City (Nashville). 🎸
- - Apartment demand for 2024 came in far above expectations, ~600k net new apartment households were created in 2024 ().
Today’s Interest Rate: 7.17%
(☝️.10%, from this time last week, 30-yr mortgage)Last week, we made 25 bold predictions for 2025. If you didn’t get a chance, you can read that article . There are some real gems I think you will appreciate.
This week, I’m in Canada - Vancouver to be exact - and it’s pleasantly brisk, the exchange rate is favorable, they call the bathroom the washroom (which I have adopted), everyone is extremely nice (that I don’t trust em!), and the country’s Prime Minister just resigned 😬. Any recommendations? Send them my way. So far the Asian community here is turning out some of the best food I’ve ever had. Bravo.
Today we’re talkin’ interest rates, Fed Chair Powell wades into real estate concerns, how to do more in 2025 and we get some real estate advice from Arnold Schwarzenegger.
Let’s get into it.
Quick Interest Rate Update
Interest rates are back to near all-time highs, with the 10-yr treasury at 4.693% today. But it is the 2-yr Treasury that has me concerned, for two reasons:
- The 2-yr is usually a good indication of where the Fed Funds rate will be in one year, at 4.285% today, so we are still very much in a “higher for longer” rate environment.
- This is doing immense damage to our long-term debt obligations, today sitting at $36.3 Trillion. The problem with short-term paper in this rate environment (aka 2-yr and younger treasuries) is in the name, it turns over every few years, not 10 or 20 years. We are now reissuing these bonds at much higher rates of interest paid than just 2 years ago, this despite the Fed cutting rates by 1% since September. A vast amount of of debt is maturing in 2025; this situation is precarious. Getting out of this crisis will mean getting our spending under control, while boosting economic productivity.
I expect this to be front and center for the new Administration in their fight against government spending, aka the DOGE committee headed by Vivek and Musk. Some austerity may be in the making, which while positive long term, would likely hit GDP in the short term.
Fed Chair Powell on Real Estate
However, Fed Chair Powell does not see this risk, even going as far to say in the last Fed meeting, “ I think it’s pretty clear we’ve avoided a recession.”
True, US GDP is strong and the economy has remained astonishingly resilient in the face of first, high inflation, and now, high interest rates. But this does not mean we have avoided anything. And if you are watching what is happening in the bond market, far from it. The bond market are fighting the Fed. They believe the Fed is easing monetary policy in an economy that doesn’t need easing, risking re-inflation.
Sidebar: here is one stat that may surprise: government and healthcare sectors accounted for more than half of the recent job gains. Half. Hell, government alone is averaging +41,000 per month, for the last 12 months.
Wow.
Back to real estate. For Powell, housing is not in his statutory mandate and it historically hasn’t seemed to interest him much (unlike the stock market, which has caused him to take action, like during the Taper Tantrum of 2018).
However, in 2025 I think that may end. I believe he does get interested in the sector and is more mindful of interest rates as they affect the housing market, which is 16% of GDP. And it’s the last sector he has yet to help. But, and this is a big but, only once he believes inflation is squashed. Does he think that moment is here? I don’t believe so. But if inflation stays low I think he will want to help return normalcy to mortgage rates by the end of 2025. If so, he may push for lower rates and we could get to sub-6% mortgages by year’s end. Again, if inflation remains low/flat. Case in point, during his last meeting he made an interesting comment on his frustration with housing services prices, saying inflation is moderating, like “housing services inflation which is one we were really worried about.”
And while wage growth has outpaced rent growth over the last two years, folks are not going to be satisfied until interest rates drop. There will be immense pressure on the new Administration to do something. That could even mean forcing out Fed Chair Powell if he fails to act.
Do I think that happens? No, but it could.
And if you haven't realized already, my default posture, and the basis for this newsletter, is all about staying invested, remaining bullish, but always, always protecting our downside. Remaining vigilant about what could happen.
These are some of the risks and opportunities I see in 2025.
Real Estate Advice from Arnold Schwarzenegger
Speaking of getting fit, I want to share a real estate lesson I learned from…. Arnold Schwarzenegger.
Not a real estate guru or big-time developer trying to get you to invest in their fund. The experience of Mr. Olympia in the real estate arena.
Fun fact, the first $1M Arnold made was from real estate and small construction jobs, not bodybuilding or acting.
How?
He didn’t buy a fancy house, he bought little multifamily buildings and rented them out. Repeat.
As Arnold says it “we were from Europe, we weren’t one of those lazy fucks…” we were bricklayers and bodybuilders.
I love this mentality.
How exactly did he get into real estate? Watch the clip below (min 19:08 to 24:55).
No crazy financialization, just some elbow grease, a little austerity, working with great friends/partners and plowing your hard-earned dollars back into real estate investments.
This can still very much be replicated today.
My Skeptical Take:
If you haven’t had any problems, you probably aren’t very successful. Because if you haven’t had to fight through adversity, you’ve probably not done very much.
So in 2025, my message to you (or anyone) is: do more.
High interest rates and elevated prices are not a barrier to investing, but it may seem like it, especially to younger folks. Investors, my age know this is no big deal. We are acutely aware of what the worst case looks like, we were traumatized by the Great Financial Crisis. And that even after that apocalypse, the market recovered and so did our portfolio. But only because we didn’t panic.
It’s now been 17 years since 2008, and I don’t know anyone, literally anyone, who regrets buying real estate back then.
Not that I’m saying this will happen I’m just making a point on risk in real estate.
But a new generation, who is starting to invest their hard-earned coins, does not have that muscle memory, and clients I’m talking to are feeling skittish about investing today.
Hell, I just doom-scrolled Twitter and saw 10 articles on why it’s better to rent than buy.
False, bad advice. You can read my piece on that here.
The truth is high interest rates coupled with 3 years of accelerated prices will bring copious opportunities for buyers of real estate in 2025, as many folks are priced out of the market.
And while buying your first (or even 10th) investment property can be nerve-wracking; fortunately, real estate is a very forgiving asset. I don’t know many investments that you can buy, make mistakes and time will mend the wound.
Don’t listen to naysayers and doomers online. Now will be a great time to purchase real estate. Don’t wait or try to time the market. Timing the market is 1) impossible (even Warren Buffett can’t do it) and 2) doesn’t matter.
Not one bit.
Worst case, the market crashes 10%, maybe 20%. For certain, that will be short-term painful, which is why using too much leverage, especially bridge loans or hard money can bankrupt you. But if you don't overlever you can make great returns in any market environment.
Even if you bought at the height of the market in 2021 or 2006 you still made amazing returns, if you held firm. This is why I always caution new investors who try to get into real estate with high leverage and/or “low or no money down” strategies (with a single exception of house, hacking your primary residence).
In my experience, most folks who fail at real estate do so because they do one of three things:
- - over-leveraging,
- - reaching for alluring cash flow in bad neighborhoods or cheap markets,
- - or being ignorant of renovation/construction operations.
These pitfalls are easy to avoid if you know what to look for and have experienced folks on your side. For example: In general, cheaper properties in tertiary areas bring higher cash flow. Don’t reach for these in today’s market. Now is the time to pick up Blue Chip properties for a discount.
First and foremost: make sure you get a great real estate agent, who is also an investor. They will help educate you, be boots on the ground and watch your six.
Being a Skeptical Investor means recognizing that economic downturns are cyclical and inevitable, we do not attempt to be definitive in forecasting. Investing rule number 1 is preserving capital by avoiding calamity, not maximizing your return.
I’m bullish on 2025, but I do think in the next 100 days, we take a little breather. We have been on such a tear, that it’s appropriate that we see a bit of a pullback, likely starting with the the stock market and filtering down into the real estate market. For investors, this makes this Winter and Spring a great time to pick up your next deal.
Get after it.
Until next time. Stay Curious. Stay Skeptical.
Herzliche Grüße,
Andreas Mueller
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