All Forum Posts by: Andreas Mueller

Welcome! Plenty of good chaps on here. We are on the ground in nashville, I live here, and we only work with investors. Give me a DM offline if you need anything. Agents, contractors, PM, specialty folks like surveyors etc....We got you. 

Steadily is fantastic, and only helps landlords. When the larger guys fail they usually quote quite well. 

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, TN.

Fuel for the day: A little Sumatra. Copper Moon makes some good coffee.

Today We’re Talkin:

• - The Weekly 3 - News, Data and Education.
• - Real Estate Peaked for the Year?
• - Interest Rates: Your Margin is My Opportunity.
• - There is Pain Coming to Real Estate…
• - The Skeptics Take.

The Weekly 3: News, Data and Education to Keep You Informed

1. - Oklahoma City Council approves rezoning to allow building of largest skyscraper in US. (KOCO).
2. - The U.S. Federal Reserve will cut its key interest rate in September and once more this year, according to a majority of forecasters (Reuters).
3. - Book Recommendation: The Book on Rental Property Investing. Real estate rookie? This book is the bedrock.

Today’s Interest Rate: 7.07%

(👇 .21%, from this time last week, 30-yr mortgage)

Real Estate Peaked for the Year?

It’s official. It’s June!

It’s time for sun dresses and shorts! My favorite season. And it also means Real Estate has peaked for the year.

Wait, what?

Well, ostensibly, like a bear emerging from hibernation, March-May is (typically) the height of home buying (and renters moving, although that continues to July, in my experience), as folks emerge from their frigid winter slumber.

Unfortunately, this spring season was not as active as expected.

What’s at play behind the scenes?

Much like the groggy bear, our economy is looking a little sluggish. It grew far slower in Q1 than previously estimated after downward revisions to consumer spending and a mixed bag on inflation numbers, as we talked about last week.

GDP rose a paltry 1.3% January through March, down from the previous measure of 1.6% the Commerce Department reported last month. Of note, GDP was double that (3.4%) at the end of 2023. Removing seasonality, that still is a big dip and a big miss. Notably, last quarter consumers hesitated on purchasing big-ticket items / durable goods, like a new car, at the slowest pace since 2021.

Why do we care?

Many reasons, but for now let’s focus on interest rates. The Federal Reserve is in a highly restrictive policy posture, and is monitoring the economy closely for weakness. If GDP, labor numbers, inflation start to correct in a way they view as weak enough, that will be the Bat Signal to start cutting interest rates (wiki provided for you GenZ folks who have no idea what that is :).

However, I am still of the opinion that the Fed will cut rates in 2024, most likely twice, by .25% each. Inflation is not yet trending down to the Fed’s 2% target, this is true. Labor market is still tight. True too. But these two shall pass.

Housing Market was Slow this Spring

Ok, back to Housing.

The slowdown in the economy may also be attributed to a slower than expected/hoped housing market (or vice versa? Dirty secret: nobody really knows).

This slowdown was illustrated by the National Association of Realtors, which released recent home sales numbers. Contract signings last quarter for home purchases fell by the most in three years and overall activity was the lowest since 2020. Pending home sales also fell 7.7% the largest since Feb. 2021.

Inventory has been creeping higher. True. Unsold inventory of existing homes climbed 9% from one month ago to 1.21 million at the end of April, or the equivalent of 3.5 months' supply at the current monthly sales pace. But, even with more inventory on the market, interest rates are suppressing the capability of potential homebuyers. “Remember that it's not inventory holding sales back; it's demand. We had higher sale levels with less active listings (Mohtashami).”

So home prices must be dropping right?

No.

Supply is too low still. Home prices grew YoY by 5.7% to $407,600 – the tenth consecutive month of year-over-year price gains and the highest price ever for the month of April (NAR).

Opportunity: Higher Interest Rates = Price Reductions

If you are one of the (unfortunately too few) who can stomach a likely temporary higher interest rate, there are deals to be had. Prices are not decreasing, to be clear. But sellers who were hoping to get a few extra bucks, and agents who capitulated, are having to reduce their list price.

In fact, price reductions from list price are happening at a rate 2x that of 2022, and 3x that of 2021.

And in my hot home market of Nashville, median price reduction is 10% off sticker. Not too shabby. Anecdote: I just picked up a triplex for $425k, reduced from $500k a list price. And no it wasn’t sitting too long, just a few weeks.

There is Pain Coming in Real Estate

The pain is not coming to residential (single family and 1-4 unit homes). Residential real estate is doing just fine, all things considered. We have the 30 year fixed mortgage (more later), and most homeowners who have a mortgage are locked in at under 4%. The pain is coming to commercial (duh), office (duh, see last 2 years), and the new pain is coming to…. Multifamily.

We are in the middle of the country’s largest multifamily construction boom in 40 years. Tons of supply is hitting the market, which will put downward pressure on apartment rents. And 2024 will see even more supply come online. Just look at these markets:

However, the supply cliff is coming. And it’s a BIG CLIFF. Multifamily developments are completing far faster than new starts, and is at the widest levels since 1975. This gap will likely widen further. Rates go down (2020-2021): start building! Rates go up (2022-now): stop starting building!

Thus, the supply glut in apartments and downward rent pressure is temporary.

“Completions are at multi-decade highs while starts continue to rapidly plunge due to several headwinds: high rates, flat-to-falling rents for lease-ups (depending on the market), and construction costs often coming in above replacement value.”

“Simply put: It's very difficult to start new unsubsidized apartment projects right now. Folks on this app often don't realize that developers do not self-fund their own projects. They have to raise equity and debt, and that is very challenging right now for reasons mentioned above.”

“So while supply will continue to exceed demand in 2024, keeping downward pressure on rents, you can see how (assuming the job market stays healthy) demand could exceed supply again by 2025, which would in turn put upward pressure on rents. Cheap debt helped fuel the multifamily construction boom, which in turn tamed rental inflation; and expensive debt is helping tame the multifamily construction boom, which could fuel renewed rent inflation (Jay Parsons).”

I totally agree, couldn’t have written it better myself.

And said another way, permits (aka the early part of the process to build new) for apartment buildings are at 2020 lows. And dropping.

Residential real estate (again, single family and 1-4 unit buildings) are still holding up, in fact, they aren’t high enough. We still do NOT have nearly enough housing.

The U.S. housing market is short at least:

• 760,000 for-sale housing units
• 760,000 for-rent housing units

Thus, not enough supply = home prices go up.

But while this is not ideal. It coudln’t be worse. Way worse.

Globally, we are actually in the lower rung of rent and price to income growth. Take a look at Canada! Wow, no wonder they have a strategic Maple Syrup Reserve. Need some of that Liquid gold in case it gets froggish.

Oh, and they also still have a massive % of adjustable rate mortgages in these countries. Not a coincidence.

The US is highly insulated from these issues, relatively of course, because we have the 30-year fixed mortgage and the qualified mortgage law. Kudos to policymakers on this one. For once government is not on a permanent intellectual vacation.

Merica!

The Skeptics Take:

“Your Margin is My Opportunity.” - Jeff Bezos

Higher rates are an opportunity, and can actually be better, for real estate investors. On the buy side you want less competition, and that is exactly what high interest rates do. It separates the investor from the HGTV poser who was buying real estate on margin with a hard money loan that would make the Gambino family pause, and financing the renovations on a credit card to flip it for a quick buck. Yes this was normal a few years ago.

No more.

Higher interest rates can also put pressure on sellers of existing homes, who see their property sit on the market and get nervous. If you make your money when you buy real estate, as the old adage goes, then this type of environment breeds deals. Again, as we say above, price reductions are at a historic high for Spring.

So when I hear on TV, or from the real estate “experts,” that it’s a “seller’s market” because housing supply/Days on market is low… I call BS.

Buyers have the upper hand in negotiations, it’s their market now.

So, I’m declaring this a Buyer’s Market. You heard it here first! (or at least reiterated).

Grab yourself a superstar real estate agent and go get some! (Check out my Bigger Pockets Bio for how!)

Until next time. Stay curious. Stay skeptical.

Herzliche Grüße,

-Andreas

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Contact Us

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 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.

* 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.

Quote from @Stephen Keighery:

Interesting post. thanks for sharing. 

 Stephen, you got it!

Jonathan, I couldn't agree more. We absolutely do. Repairing the blight in many cities is actually just as important. 

Quote from @Jonathan Klemm:

Great share @Andreas Mueller!

I am from Chicago and I am more frustrated here with the exorbitant amount of vacant and run down homes in our city.  I have a huge passion for fixing up properties in distressed neighborhoods to help the exact problem you are preaching about.

In my opinion, we need more incentives to fix up these properties rather than build new ones.

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, TN.

Fuel for the day: A bold dark roast coffee from Bulletproof and some protein from Pilgrims Jerky. Looks like a marbled pancetta. Amaze-ballz.

Today We’re Talkin:

• - The Weekly 3 - News and Data.
• - New Mortgage Program will Exacerbate Inflation.
• - Hot Tip to Save BIG on your Next Renovation.
• - The Skeptics Take.

The Weekly 3: News and Data to Keep You Informed

1. - Apartment renters are signing longer leases than ever - incentivized by high supply in multifamily apartments coming online. (JayParsons).
2. - The cost of two kids in child care exceeds rent payments, by at least 25% nationwide and is more than double that in 9 states (CCAA).
3. - Book Recommendation: Long Distance Real Estate Investing. Highly recommend, a must for new investors looking to develop systems and invest long distance.

Today’s Interest Rate: 7.28%

(☝️ .21%, from this time last week, 30-yr mortgage)

Mortgage rates are up significantly this week, following a move in the spread between 10-yr Treasury and 30-yr mortgage rates. Nearly 1/4%. We need inflation to trend down, but so far signals are “mixed. ”

Counterintuitively, it seems wage growth has begun to outpace inflation growth, for much of the last 12 months (or has inflation merely seeped into wages?). Although if you ask anyone they certainly do NOT believe this to be the case. The last 2 years of hot inflation is still burned into all our minds.

Count on mortgage and bond markets to remain volatile, yet range-bound, circling the 6.7-7.5% range. Hot tip: If you are an active homebuyer and have locked in a mortgage rate, don’t hesitate to ask your lender if you can re-lock that rate. Ask them to monitor rates for you (they should be but don’t always). Take advantage of this volatility to minimize your future monthly mortgage payment. There can be a small fee for this so have them run numbers for you.

Fresh inflation numbers come out Friday, we will see what they portend for next week.

New Gov. Mortgage Program will Exacerbate Inflation

U.S. federal government spending "is the biggest threat to disinflation and lower interest rates" (Piper Sandler). I agree, at least in most part, and especially when the Gov spends money it doesn’t have (deficit spending). It’s a short term juicing that can be helpful to stave off an economic slowdown but is not and should not be used long term. Without wading into politics, that is unfortunately, what our government leaders continue to do. For years. The result? Inflation continues.

Deficit spending is a snake eating its tail.

I don’t need to tell you this, but one may only look at housing prices. News flash, they are higher. In fact, for the first time in 2 years, there’s no major American metro where home prices are falling (RedFin). Home prices are up up 4.8%, and monthly housing payments are up 15%, YoY.

Now, the Feds are proposing another program that will directly inject billions into the economy.

Why?

And this is on top of the Government’s announced plans earlier this year to boost spending and demand for homes.

Why?

Problematic Housing Plan #2 for 2024

In short, the Government is proposing to incentivize folks to take out second mortgages on their home, access that equity, so they can spend it. While it is true this would help folks “unlock” some of the equity in their home since home prices/values have appreciated greatly in the last 3-4 years, it also means they will spend it somewhere into the economy and that means more pressure on inflation. Not to mention the second mortgage payment / higher debt they now have (ie higher risk for homeowners).

Why?

Some more detail: How will the government do this? Freddie Mac, which is still under government conservatorship since the Great Financial Crisis, is proposing to buy these second mortgages on the secondary mortgage debt markets as a mortgage-backed security. Makes my spine shiver a la 2008. Importantly, some in Congress have signaled their opposition. Although unfortunately it has now become a partisan issue.

The proposal will simply amount to a stimulus program, inciting inflation growth.

Again, I do not dismiss that folks are feeling inflation so getting access to $ may seem like a good idea. I can understand the inclination, albeit misguided.

Case in point, home repair and reno costs are up since 2019. Way Up. Nationally, costs for home repair and remodeling rose +39.9% between April 2019 and April 2024. That outpaced overall inflation, which rose +22.7% during the same period.

But the solution cannot always be to throw more money at a problem.

Again, the government is focusing on the easy-button solution when it comes to higher housing related costs.

We need more Houses.

We need more houses. That’s it. Bottom line.

And the government does have a role here. We don’t need housing programs that give folks $, incentivizes spending or stokes demand (there is plenty of that). That is counterproductive. Must we forget the other federal agency, the Federal Reserve, is in a highly restricting posture right now, holding interest rates at historic levels to slow inflation. Boosting consumer spending is literally rowing in the opposite direction.

STOP deficit spending. The young / less well off populations are shouldering this inflation and we now see the consequences. The Congress and Administration need to get our fiscal house in order. It’s been too long since ideological opposites Bill Clinton and Newt Gingrich were able to strike a budget deal.

Why can’t we do that again?

This really grinds my gears!

Ok, whew, let’s focus on something positive. How about a hot tip!

Hot tip alert! Buy your Own Materials

The hot tip for the week is: Buy your materials / supplies, especially for high-priced /large / single items.

Case in point, I recently had a water heater go out, one of these pricier tankless systems that was on its last leg after about 10 years.

I called Plumber #1. I saw them at the neighbors house and I always like trying new subcontractors that seem busy.

The quote I got was $5500 (which is insane). But it got me curious, so I asked them what make/model they were going to install, and how many man-hours it would take?

Answer: State Proline XE 199k BTU and 6 hours (although they were very fuzzy on the latter).

I looked it up and saw I could get it for $1500. Taking into account some necessary supplies for installing the new unit (let’s say generously $800), that means their / hr rate was $533. And they probably are tacking on some margin for the unit too.

Yuck.

So I searched around for a deal and bought the next model up online for $1600.

I called Plumber #2, who I have used in the past, but who I also found by calling a random van doing work at a neighbors.

I told him I need a water heater replaced, and that I already had the new unit.

Quote to install it: $1500.

A savings of $2500.

Boom.

I take this tact on many high priced or specialty or design items, like countertops, light fixtures, appliances, large glass or window replacements, mechanical anything, etc….Contractors have their preferred suppliers who they know and are reliable, but are not always the best deal. They won’t normally look, or look as hard as you will, for a deal / sale since they will just pass on that cost to you. They are busy folks so I don’t (usually) blame them, I get it. So if you can take a little of the workload off them and buy the supplies/materials, do it. Hot tip #2, if you get a wildly high quote, it’s probably because they don’t really want to do the job or are too busy. Don’t take offense, just get a few more quotes.

In other words, they just aren’t that into your job.

Also, I’m never using Plumber #1 ever again. That neighbor of mine got hosed.

The Skeptics Take:

Government needs to get their you know what together. People need homes. This issue is not going away. It’s not acute, housing supply is now a chronic issue. We need fewer regulations (or at least the correct ones) to incentivize housing construction and more up-zoning in appropriate areas to add density to existing lots. This should focus on supply of new homes, adding density to existing lots/homes and bringing down inflation costs.

We can do this, let’s F&%ing Go!

Bonus hot tip!

Homes getting too expensive where you live? Invest remotely, I did before I moved to Nashville. Where should you invest?

My advice: skate to where the puck is moving, which cities are growing and where the young folks are going.

Where are young folks moving? Let’s see:

• Booming: Provo, Austin, San Antonio, Charlotte, Nashville, Orlando, Dallas/Fort Worth, Denver, Greenville, Raleigh, Tampa, Phoenix, Seattle, Houston, Atlanta
• Strong Growth: Indianapolis, Las Vegas, Riverside, Detroit (!!), Boston.
• Contraction: San Francisco, New Orleans, Los Angeles, Chicago, New York.

Focus on growth and young demographics. My 2 cents.

Until next time. Stay curious. Stay skeptical.

* 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.

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. -Using Sleep to Improve Learning (Huberman).
3. -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, all 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.

Quote from @Bruce Woodruff:

@Andreas Mueller I got it. I am not a 'waiting for rates' kinda guy. The first house I ever bought came with a 18% loan, gulp....

I agree that if rates drop even slightly, the market will go crazy.....there has been a year or more of a 'slow market' and scared buyers and sellers. Most people are rate driven and don't get the long-term math.

 Bruce, that's right. Folks usually look at their payment (even more than home price). I think there will be tiers of demand that flood back to the market as we step down in rates over the next 12-18 months. 

Quote from @James De Stefano:

This newsletter is better than 80% of the junk that hits my email! nice write up!

Nobody know what's going to happen, but man o man there's just so much freaking money out there.   I don't think $100,000 will ever buy a "nice starter home" again. At least not one with any decent schools or economy nearby. 

The biggest ripple effect in the coming years will probably be from something we do NOT see coming. or at least 99.9% of us.  

 James, you are so kind! And if you want my last few articles may be helpful too. Check out my twitter, I post them there. Its in my profile her on BP.