All Forum Posts by: Andreas Mueller

Quote from @Ryan Kelly:

I can attest to the pent-up demand here in Austin. We have a boatload of clients in our database just waiting for rates to change so the affordability of the mortgage payment can get a bit easier. We've had lots of inventory build-up since mid-2022 and prices have cooled off considerably with weak buyer demand the past 18 months. This has allowed home prices to come back into striking range, and if rates ease, the homes will start moving quickly again. The phones are starting to ring off the hook with buyers prepping for 2024.

 Ryan, really good to know the facts on the ground! Thank you for the insight. I agree its starting to get busy here in Nashville as well, one of the businesses in winter actually that I can remember. 

-AM

I BP Community! My weekly brief, hopefully insightful, dive into real estate and/or financial markets is below!

Today we’re talkin:

• - Jobs / Inflation Report
• - New Housing Market Outlook 2024
• - Housing Affordability
• - Hot Housing Markets to Watch

Today’s Interest Rate: 7.09%

(☝️ .01% from this time last week, 30-yr mortgage)

Not much to report this week, as interest rates remain relatively unchanged, as did its corollary, the 10-year Treasury bond. The sustained lower rate of 7%, from 8% just 45 days ago, did bring a tick up in mortgage applications, which increased 7.4% on a seasonally adjusted basis from one week earlier.

For their part, the Federal Reserve meets today and is widely expected to keep their Federal Funds Rate unchanged at 5.25%-5.5%. We will see if the bond market reacts to that, and this week’s CPI / Jobs date (keep reading…).

Jobs Report / Inflation:

The Bureau of Labor Statistics released its November numbers and the results were widely viewed as positive, with a few yellow flags.

• Nonfarm payrolls rose by a seasonally adjusted 199,000, slightly better than the 190,000 average estimate and 150,000 in October.
• Unemployment rate declined to 3.7%, compared with the forecast for 3.9%.
• Average hourly earnings, a key inflation indicator, increased by 0.4% for the month and 4% from a year ago, close to expectations.
• Health care was the biggest growth industry, adding 77,000. Other big gainers included government (49,000), manufacturing (28,000), and leisure and hospitality (40,000).
• Wage growth remained strong, as did labor participation.

My skeptical eye saw a slightly less rosy report. The jobs number included 47,000 workers returning from strikes, a large one time-increase. Further, government jobs expanded again, this month by 49,000. Last month government jobs expanded by 51,000. In September government jobs rose by 73,000. Will this continue? I am dubious. I bet the presidential candidates are going to jump on that.

However, the good news is that we are actually above the government’s pre-pandemic projections for employment, by 2 million jobs.

Unusually, the payroll processing company ADP, which also puts out jobs numbers, varied greatly from the government’s jobs numbers. The largest discrepancy seems to be in manufacturing and hospitality. Specifically, manufacturing jobs rose by 28,000 according to the BLS but fell by 15,000 according to ADP. For hospitality, The BLS reported a massive gain with this comment: “+40,000 almost entirely in food services and drinking places. Leisure and hospitality had added an average of 51,000 jobs per month over the prior 12 months.” However, ADP reported a loss of 7,000 jobs, saying, “Restaurants and hotels were the biggest job creators during the post-pandemic recovery. But that boost is behind us, and the return to trend in leisure and hospitality suggests the economy as a whole will see more moderate hiring and wage growth in 2024.”

What is going on here??? Using ADP’s numbers the job’s numbers would have been abysmal.

Inflation

Let’s move on the inflation, which came in at 3.1% in November, an increase of .1% MoM. High, but a bit below expectations. Excluding volatile food and energy prices, the core CPI increased 0.3% on the month and 4% from a year ago. A 2.3% decrease in energy prices helped keep inflation lower. Gas fell 6%. Food prices increased 0.2%. In other words, so far inflation seems to be moderating-ish.

Could white-hot inflation reignite? Yes. What are the chances that it does? Roughly 25%, according to Jason Furman (former chair Council of Economic Advisors, you can read his analysis in a twitter thread here).

The good news: So far, Inflation is easing without tremendous rising unemployment. Credit where credit is due, the Fed hasn’t tanked us, yet. Time will tell, I am concerned our extreme government debt / Treasury bond issuance and the Fed Funds rate being held high for so long will begin to take a serious (and rapid all at once) toll on the economy sometime in 2024. But for now, can’t do anything but give props to the Fed.

New Housing / Economic 2024 Market Outlook: Goldman

Investment bank Goldman Sachs believes that home sales will remain low in 2024. The culprit? Interest rates will remain higher for longer, affecting housing affordability. However, prices will continue to rise, but not much in 2024.

Goldman economists now expect the Fed to cut interest rates a month earlier, in Q3 2024. Of note, this is still 6 months later than many other investment banks have predicted. Most all, including Goldman, predict a global slowdown to begin in 2024, lasting for a couple years. However, in a tremendously positive note, they do NOT believe the US will dip into recession, with economic growth remaining positive.

This early-er cutting of interest rates; however, will not translate into sharp declines in mortgage interest rates. In fact, Goldman expects the 10-year Treasury (which mortgage rates track) to remain higher for longer, around 4.5%, into 2027. This would translate to a range of between 7.3% - 6.2% mortgage rates for the next couple years.

My take: Something is going to break if the Fed keeps rates that high for that long, necessitating Fed rate cuts. The strain from the high cost of capital for businesses and consumers alike will be too much. IMO, we are at 6% mortgage rates by the end of 2024 and 5.5% somewhere in the beginning of 2025. 5% is where we will likely bottom out after that.

Although, if you are in the market for a new home, Lennar is offering fixed rates at 4.750% for homes in Nashville today, prices are in the mid $400k range. Check out the offer I received today in the mail.

Hot Housing Markets

Speaking of Nashville, my home market, there are several markets that are poised to take off in 2024 and will buck the above trend of slower appreciation/population growth. Let’s take a quick look.

According to the NAR the markets with the most pend up demand, i.e. waiting for interest rates to decrease so they can uncoil like a tensioned spring are:…

1. Austin-Round Rock-Georgetown, TX
2. Dallas-Fort Worth-Arlington, TX
3. Dayton-Kettering, OH
4. Durham-Chapel Hill, NC
5. Harrisburg-Carlisle, PA
6. Houston-The Woodlands-Sugar Land, TX
7. Nashville-Davidson–Murfreesboro–Franklin, TN
8. Philadelphia-Camden-Wilmington, PA-NJ-DE-MD
9. Portland-South Portland, ME
10. Washington-Arlington-Alexandria, DC-VA-MD-WV

Why? A slew of reasons:

1. Stronger job growth than the national level
2. Faster income growth than the national level
3. More renters who can afford to buy the median-priced home than the national level
4. More potential sellers than the national level
5. A larger decrease in remote workers than at the national level
6. More affordable listings for first-time buyers than at the national level
7. Lower violent crime rate than the national level

My Take: Follow the growth. Where population is growing (and has been long-term, not just in the last 3 years) so will your investment. That is where you want to be.

Bottom Line

Housing affordability is at record lows. This year the housing market froze for most prospective homebuyers. And that turkey is still hard as a rock. Anticipation is high for a rebound in 2024, but according to many economists (including those above) it may be another 6+ months before we even begin to see lower interest rates and yet another 6-12 months until relative affordability resumes. But prices aren’t moderating - and nobody I know in the industry is actually calling for lower home prices, just lower rates of increases. The truth is it’s never a perfect time to jump in.

IMO: Once you can afford it, do it. If you are trying to time the “right moment,” well, it’s gonna be a long wait.

Most Interesting Tweet of the Week

Hahaha, this made me spit up my coffee.

That’s it for this week. If you are interested in digging deeper into these ideas or talkin’ real estate investing - which I always love doing - don’t hesitate to reach out. You can message me right here! Send me a DM.

Until next time, 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.

Hello BP Compatriots! The last few posts were decently popular soooo.... I thought I would give it a go again. Here is my brief, hopefully insightful, dive into real estate and/or financial markets for Dec 7th, 2023.

Today I'm talkin: 2024 housing market predictions!!!, how many federal reserve employees does it take to screw in a lightbulb and…hold my beer, Blackstone, your balance sheet is soft.

Today’s Interest Rate: 7.08%

(👇 .22% from this time last week, 30-yr mortgage)

Interest rates? Copy and paste from last week: “Mortgage interest rates continue a slow stair-step lower, as the bond market senses inflation easing and anticipates (tries to) the Federal Reserve’s next move. The market continues to price in a higher chance the Fed is done raising rates and will begin to cut rates halfway through 2024. This, as the Fed continues shrinking the amount of bonds on its balance sheet. Their pincer movement is starting to have an effect.”

We are now virtually 1% off the 8.03% peak mortgage interest rates for the conventional 30-yr mortgage (i.e. 15% less interest paid by homebuyers) ~a month ago. Mortgage purchase applications haven’t reacted too sharply yet, but are showing signs of movement. Prospective homebuyer-owners (not investors) are likely waiting for 3-tiers of interest rate decreases, I predict a strong wave of mortgage applications near 6.5%, stronger at 6% and then stronger yet at 5.5%. 5% is probably where we will settle longterm. IMO.

Redfin: 2024 will be “a season of hope for aspiring homebuyers”🔥

According to Redfin, 2024 will begin a significant turnaround in the housing market, led by a mortgage interest rates and resulting in movement - a la 2021 - around the country as inventory loosens up. Let’s dig in to their predictions.

1. Prediction 1: Home prices will fall 1%

   Come summer time, home prices (YoY) will decrease nominally 1% (not inflation adjusted?) Interestingly, Redfin claims that home prices haven’t fallen since 2012, which is incorrect, I guess they missed 2022? See chart:

   

   My take: home prices bottomed in January of this year and are up from here. There is just too much pent up demand, which will gobble up any and all increased supply resulting from interest rates dropping. This will be a theme of this article. Redfin’s chart:

   
2. Prediction 2: New listings will tick up

According to Redfin, home prices will fall because supply will rise more than demand (the point at which we disagree). That would be a favorable shift for buyers: 2023 Prices are up around 3% YoY and the typical monthly payment is just $150 below an all-time high. I am dubious. Redfin points to a double-digit increase in homeowners contacting Redfin for help selling their home, alongside a drop in requests from prospective buyers. Mortgage rates are projected by major institutions (more on that below) to decline to 6% by the end of 2024, which will start to ease the lock-in effect, but not entirely by any means. 80% of homeowners have a rate below 5%.

My Take: I think Redfin is severely underestimating buyer demand. One variable that bears mention: wealth transfer from boomers to their kids/grandkids is happening now. We are in the beginning of the largest wealth transfer in history, upwards of $129 TRILLION, according to BofA. How many homes does that buy? 🔥🔥🔥🔥 many.

Hold my beer, Blackstone, your balance sheet is soft.

1. Prediction 3: Home sales will increase and end the year up 5%

According to Redfin data analytics, in Q1 2024, existing home sales will be on pace for 4.1 million total, up from 3.85 million in Q4 2023. Sales will continue rising throughout the year; they’ll be on pace for a total of 4.5 million by the fourth quarter. Home sales will speed up throughout 2024 as affordability improves and more homes hit the market. Overall, Redfin expects 4.3 million sales in 2024, up 5% YoY. A crucial difference between 2024 and 2023 will be sales gaining momentum throughout the year instead of losing momentum.

My Take: I don’t disagree with any of this per-say, just that the balance toward demand, again, is being underestimated. Too many people and gobs of money and credit (don’t underestimate a rejuvenated credit market) on the sidelines. Anecdote: of all the investors in interact with regularly, ALL of them are raising money to increase buying next year. One told me that he is concerned about there not being enough supply in his local market of Nashville; asking for a friend of course 😆.

And where are folks looking to buy? Here are the top places prospective Redfin buyers are searching for (and where they are leaving). Bye bye LA, hello Vegas and NashVegas!

1. Prediction 4: Mortgage rates will steadily decline–but remain above 6%

Redfin predicts the average 30-year mortgage rate will linger at 7% in the first quarter, then decline throughout the year. Mortgage rates will fall to about 6.6% by the end of 2024. The gradual decline in rates combined with the small dip in prices will bring homebuyers some much-needed relief.

Mortgage rates are likely to remain well above pandemic-era record lows because financial markets increasingly believe the country will avoid a recession in 2024. The Fed will likely keep interest rates at their current level at the start of the year even though inflation is largely under control. But then they’re likely to cut rates two or three times starting in the summer, which is why mortgage rates will decline as the year goes on, according to Redfin.

My Take: I think they are actually being too conservative here. IMO mortgage rates should be more closer to 6% than 6.5% in Q4 2024. Many financial institutions agree, and those that don’t have yet to put out a revised estimate this month, now that rates are close to 7% today. But Redfin is remaining steadfast in their prediction, which is closer to the government’s number (Fannie Mae). See 2 charts.

AND…

* TANGENT *

Speaking of interest rates, and the Federal Reserve who basically controls the mechanism. How many people work at the central banks? 22 THOUSAND?! Holy hell, what do they all do?! How much does this cost? I’m envisioning a large room with typewriters and people pulling levers. I guess we know how many economists it takes to screw in a lightbulb.

I Digress….

1. Prediction 5: Change will come to the real estate industry

Redfin predicts the traditional commission structure will change, as newspapers and real estate portals publish more information about commissions. Homebuyers/sellers will become more aware of how much an agent costs, and less apologetic about negotiating commissions.

My Take: This position is convenient, given that Redfin is a “discount brokerage” their agents charge 1% not the traditional 3% per side. But I don’t disagree, and I honestly hope that it changes in favor of homeowners. There are frankly too many real estate agents, heck New York City alone has 80k! Weeding out the casual agent and underperforming broker will allow some needed consolidation in favor of excellent service/expertise who can do higher volume and reduce margins (ie commissions paid by homeowners/buyers). I also agree that rather than hiring their own agent, many homebuyers will work directly with the listing agent and not “pay” a buyer’s agent OR hire a buyer’s agent and go direct to a homeowner when the property isn’t listed on the market. This is common for new development sales and finding great off-market deals. Both strategies, when just 1 agent is involved, is only for savvy sellers/buyers/investors but I can tell you I, and my investor friends, do both all the time. Why pay 2 agents when I have access to Redfin/Zillow/Facebook/Old School Doorknocking etc… and can source deals?

There is also the possibility of legal action to force / accelerate this trend. The DOJ continues to look into whether listing agents should be involved in setting the fee paid to a buyer’s agent. The National Association of Realtors (and many brokerages) recently lost a civil suit totaling $1.8 billion. Changes are just getting started.

1. Prediction 6: Renting will lose its stigma

This is the age old adage. Rent or buy? Well it depends, and there is an emotional aspect (that cozy feeling of homeownership). Do you like working your home? If you are handy you can add tremendous value, at a discount to having to hire a contractor. That’s equity in your pocket. But if not, renting can be much less stressful. Have the landlord handle those pesky maintenance, repairs, deluge of water coming from the washing machine on the 3rd floor that just exploded (Happened to me in my home. Ah the humanity!)

How “expensive” is it to rent vs buy? According to John Burns research, interest rates have made it just too “expensive” in general to own, vs rent.

Further, according to Redfin, demand for large rental apartments and houses will climb, one in five millennials who responded to a 2023 housing survey believe they’ll never own a home. Nearly half said homes are too expensive or they can’t afford to the down payment. But others just prefer renting: 12% said they aren’t interested in homeownership and 7% said they don’t want to put in the effort to maintain their own home. As a result, Redfin expects prices of large rental units to climb next year as supply fails to meet demand, but smaller rentals may drift slightly lower because there are more of them and a backlog waiting to hit the market.

There is a 3rd option however…: Rent where you live, and rent-out what you buy. Why? Well, tax incentives for one, which you don’t get when living in your primary residence. Real estate mogul Grant Cardone agrees. If you can stomach his brash and boisterous attitude, he preaches in his books that owning your primary residence is a “trap” and that money is better put to use in buying investment properties and renting where you physically live. And if renting in your area is “cheaper” than owning, more reason to pay rent and have your tenants pay your mortgage. Plus, there are 4 other ways you make money real estate investing that likely make it financially a better choice of where to put your money.

1. Prediction 7: Biden has a housing problem, which could hurt his re-election bid

Ooo now we are getting political! Essentially Redfin believes the government will be “forced” to act because “Even though the overall economy is strong, high housing costs are making many Americans feel poor.” I agree. And both/all candidates are going to offer “plans” to “fix” the housing shortage/high costs. Specifically, Redfin believes the Democrats will focus on subsidizing down payments, rental housing vouchers and first-time homebuyers. They believe Republicans are more likely to focus on reducing regulations that limit development. My take. All of the above. In fact, one need only look at news articles from 2009. All those policies are going to be recycled.

Bottom Line

We are approaching a change in policy by the federal government in 2024. Interest rates will decrease, as inflation is tamed. In all likelihood this will happen, the question is how fast?

Homebuyers may be faced with a conundrum: If mortgage rates fall, demand will increase. Bidding wars may follow. Maybe not as insane as 2021, where we had work from home (still do), Millennial buying (still do, and Gen Z), constrained supply (more now), increased costs (still increasing, just slower), aging (about the same), worker shortage (still do, and more if border policy/immigration is tightened) etc….

But, I assert, demand will be strong in 2024, like...sourdough bread, sopping up all the goodness on the plate (housing supply) to the last drop. It likely won’t matter if supply is strong. Hopefully it is!

What do you think about Redfin’s predictions, and my comments? Leave a note in the comments or email me directly. I love taking questions!

Most Interesting Tweet of the Week

Strong case for renting here from the Economist, or option 3, be a landlord.

That’s it for this week. If you are interested in digging deeper into these ideas or talkin’ real estate investing - which I always love doing - don’t hesitate to reach out. You can message me directly!

Until next time, 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.

Gosh that is a shame, hate to see that. I actually had (2 years ago) a good friend and his wife move to Boise and just had their first kid! They love it there. (they moved from San Francisco, probably the only republicans that were left in the city :)

Come visit nashville sometime! Our market is fantastic, beers on me, welcome anytime.

Quote from @Jordan Ray:

Quote from @Michele Jones:

Thanks @Bret M. I have never been to Memphis but I have been to Nashville, Franklin and surrounding burbs however, I thought Memphis would be a great place to start. Would love to hear where your rentals are OOS. 

Thanks ! 

 Memphis is great! The . Best . Market. Hands down! In one Zip code you might have MASSIVE cash flow & then the next you will have appreciation!

 Im Biased, but if you are considering Nashville, look me up! Always happy to chat real estate investing and comparing numbers on deals. PS Im also a recovering Californian :) Have one place still in the Bay Area where I grew up. It's a tough rental/tenant market. Send me a DM!

Hi again BP Community! I thought I would post my weekly thoughts on all things Real Estate. A brief, hopefully insightful, dive into real estate and/or financial markets.

Today we’re talkin: Homebuilder profits and challenges, consumer health, federal reserve fun, and I add a new (short) segment. We are posturing toward 2024🔥!

Today’s Interest Rate: 7.30%

(👇 .02% from this time last week, 30-yr mortgage)

Mortgage interest rates continue a slow stair-step lower, as the bond market senses inflation easing and anticipates (tries to) the Federal Reserve’s next move. The market continues to price in a higher chance the Fed is done raising rates and will begin to cut rates halfway through 2024. This, as the Fed continues shrinking the amount of bonds on its balance sheet. Their pincer movement is starting to have an effect.

What’s more, most foreign federal reserve banks are cutting rates, more than tightening, now for 2 months straight. However the US Fed is claiming it will tighten again at least once more. I am dubious. The Fed is selling woof tickets.

As an aside, these two policy actions are losing the Fed money, starting in September 2022. As of Nov. 22 that loss is now at $120.4 billion. Fed losses are virtually without precedent in its history. The Fed funds its work through services it provides to the financial sector and from interest income generated by the Treasury and mortgage bonds it owns. Whatever the Fed earns beyond its operating expenses is then returned to the Treasury Department. Admittedly, the Fed stresses that losing money will not impact its ability to operate. My opinion: I am skeptical when something new happens, especially new ways the ‘government’ is losing/spending money.

The chart is super scary.

Homebuilders

Let’s check in on the folks who actually go through the pain of plotting, financing, building and selling the homes we live in. Homebuilders. (Unless you are like my dad and can build your own house, sehr kool). Homebuilder confidence dropped for the 4th month in a row in November. This measurement is forward looking, and looks at current sales, buyer traffic and the outlook for sales of new construction homes over the next six months. So where are we? We’ve regressed back to 2022 levels, when the Fed was ramping up interest rates.

Large Homebuilders are going On Offense

Their Strategy: Take share. Large homebuilders are actively trying to take small builders’ lunch money, by offering cash incentives, interest rate buy-downs and permanent low interest rates in the 5% range. Speaking on their Q3 earnings call, PulteGroup CEO Ryan Marshall said: “I think it’s also a great opportunity for us to take market share. With our mortgage company, the size of our balance sheet, the ability to be active in the capital markets, I think it gives us an opportunity to do things [incentives] that smaller local builders and maybe private builders can’t, so I think there is certainly a market share opportunity there as well. We’ve made build-to-rent a small piece of our business [too].” Not to be outdone, Homebuilder Lennar is offering a 4.75% ARM, or 5.75% fixed mortgage product when you buy one of their homes.

When asked recently on CNBC if incentives will cut into margins, Marshall responded, [“we build that into our gross margins, which are an industry leading 29.5%.”] Those kind of margins are also historically high.

Not a bad business.

So how are they able to keep margins up? 2 Main reasons:

1. It’s a supply story. There is just not enough homes. Plus, and this is my experience, they are building smaller homes on smaller lots. I have also heard heightened complaints of lesser build quality, but I can’t point to any specifics, but that’s the scuttlebutt in the industry.
2. Homebuilding is typically a 3-4 year operation. So say they bought the land 4 years ago, when they were going to sell the home for $500k, now it's worth $700k. So they have more margin than normal built up in the property, since they acquired the land for cheaper and home values have inflated. So they're really just giving some of it back to the homebuyer. The interesting thing will be what happens 2-3 years from now with their margins? I know some folks buying long term puts on homebuilder stocks, expecting margin compression.

Consumer Corner: Credit Cycle shifting?

How is the consumer doing? Well, if you look at credit card delinquencies, the trend is not your friend.

*Tangent… Isn’t the label “consumer” a funny one? What am I a humanoid version of Hungry Hungry Hippos? Compelled to keep buying stuff, which will likely insulate the attic one day. It’s a funny picture.

I digress…

A potential default cycle within the credit cycle has started, according to Apollo.

High yield and leveraged loans are experiencing growing default rates, which will likely get worse if the Fed continues to hold interest rates high. Businesses/consumers at risk of defaulting gotta have lower rates - like we gotta have Will Ferrell on that sexy Cow Bell - so they can refinance. If defaults continue, unemployment and layoffs may be occur.

To better understand the mechanisms of our economy’s credit cycle, including how default cycles like this happen, I HIGHLY recommend this animated video from legendary investor Ray Dalio. Simple yet edifying. Must watch TV.

How was it? Did you watch? I know you didn’t, just copy and paste the link in your calendar for later. Go ahead, I’ll wait…😊

Historic monthly housing cost is another pressure point on the consumer. Not only are housing costs outpacing income growth (duh), the ratio of income/mortgage payment has broken through the dreaded 2006 level. This will continue higher as rates remain high in 2024. The effect? Defaults, unemployment, then recession. That may need to happen and frankly it may be the quickest and “best” way to get back to a normal economy. Or at least back to monetary policy where the government (the Fed, and yes I know hey are quasi-governmental) is not jerking on the marionette controller constantly.

Moreover, how are homebuyers (mostly young folks) paying for the down payment on the home? Mom and Dad. For 40% of homebuyers under age 30. And this is now a very large segment of the population, just surpassing Boomers.

Bottom Line

So what to make of all this? Well if you watch CNBC its coming up roses. For the first time in a year, a majority of economists do not believe we will have a recession (WSJ). This kind of dramatic shift sets off my skeptical spider sense (say that 3x fast) in a major way. My Opinion: those who have money are feeling rich and reporting that feeling as positive for the future, likely because household wealth of the upper-middle class is riding a 2023 stock market recovery. But that feeling would be fleeting and shift right back if the Fed holds rates high like this into 2024. I am girding for something to break. Again, in my opinion.

So when IS it a good time to buy real estate? In short: Always and Never.

There is always a tendency to overly weigh macroeconomic concerns when making an investment. Perhaps one shouldn’t get hung up too much. Over the last few years, the excuses were plentiful and perhaps warranted. In 2020 it was "There is too much economic uncertainty, I will when we know more about the economy." In 2021, "prices are too high, I will when prices come down." In 2022, "interest rates are too high, ill wait till they come down." In 2023, "I'll buy when prices and rates go down." In 2024, we will likely be back to “there is too much economic uncertainty, I’ll wait to see if we have a recession.”

My posture. Tune out the noise and keep going. Get doing. There is always opportunity.

Could home prices reverse and go down in 2024? Potentially, Morgan Stanley thinks so now. But just -3%. This is the bear case. So does it really matter?

And what does a recession mean for home prices, historically? Well it’s mixed. Recessions aren’t the end of the world. Except for 2008, which was caused by a housing / financial crisis / Wall Street. Much different beast today. (Core Logic)

Stay Skeptical all. But not sidelined.

Most Interesting Tweet of the Week

What the [heck] is happening to juice?!

That’s it for this week. If you are interested in digging deeper into these ideas or talkin’ real estate investing - which I always love doing - don’t hesitate to reach out. Send me a direct message! I'm a realtor and investor in Nashville. 

Until next time, stay Aware, 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 @John Morgan:

@Andreas Mueller

Very good points on getting a better return on your equity, even if you have a 3% interest rate and your property seems to cash flow well. I've got several like this. But there comes a point where you're content with your cashflow even though you have a ton of equity tied up doing nothing for you. I've scaled up with buying 12 SFR from cash out refis by harvesting the equity just sitting there doing absolutely nothing for me in rentals. You can really maximize your returns if you sell or refi that trapped equity. But I'm at the point where less work and hassle is more for me. I'd rather kick back and enjoy the mailbox $ without doing anything, vs hustling to generate more monthly RE cashflow at my age (52). But you brought up a great point most people over look about getting a better return on your equity for people that would like to double or triple their cashflow with a little effort to put that equity to use. Numbers don't lie, and you can get very wealthy off RE if you play your cards right.

John! Thanks for the comment. Totally, depends on where you are in life and what your goals are. You could also 1031 out when you sell or do subject to or simply BRRR out. (I had already BRRR out a few years ago in my example property so it was time to hightail it out of the there). Hope you had a lovely holiday!

Quote from @Nicholas L.:

@Andreas Mueller

Interesting post, I will need to re-read it.  I think people should invest where they can be successful.  And "sell purple" would take a ton of the US off the map.  I guess I agree that dark purple should be approached with caution.  But I'd never say never.

Random example - investing in LA county is going to be exceptionally challenging, for example, but there are lots of successful investors there.  If someone asked me, "should I invest in LA"?  my initial response would be, I have no idea.  I don't know anything about you.  But if we followed your rule, that would mean: No one should invest in the most populous county in the entire US.  That doesn't really make sense.  But again, should the average investor, or a new investor, invest in LA?  No, of course not.

Nicolas, thanks for the comment! Yes you can make money anywhere at anytime, every deal should be deal dependent. If I bought a sweet deal off market it may not matter where it is. at least for a few years. And that's my point. At a fundamental level, population growth is to real estate as water is to a human in a desert. Eventually it will catch up to you as a long term investor. So my advice, before all the other numbers and overcomplicated analysis: Make sure the population trend is growth. 

Hi Carlos I would caution that this kind of snapshot in time data is not how I’d recommend investing. Beware. It’s like confusing the weather and the climate.

I do enjoy these kind of discussions, but it’s hard to do it texting back-and-forth like this really opportunity to chat if you’re around this coming week. Again, have a nice holiday. I must get back to making the turkey now.
 

Enjoy the holiday Carlos. Much luck.

Quote from @Carlos Ptriawan:

Quote from @Andreas Mueller:

No worries Carlos I just fundamentally disagree with that, especially as a long-term investor. For me and of course, it’s my opinion, population growth is number one as the building block for any other data input. I’m not flipping houses and needing to sell. My article just made the point about return on equity, which is a different conversation altogether.

In any case, have a wonderful holiday, enjoy. 

when it comes to investment, my agreement or your disagreement doesn't really matter because data is there LOL

you just need to open zillow for more data accuracy to prove my point.

I am buy and hold as well and my IRR is like 35% EM 5x in 14 years in market where population declines, just saying.

I would invest in Detroit rather than place where there highest population growth LOL, why ? there's better demand and lack of inventory in that market LOL this is mathematical issue.