Quote from @Kyser Montalvo:
@John Carbone I like your breakdown. I just have one question. Why would rates go higher if rents go higher? I feel like that's a self-defeating situation for the fed.
If rates go higher more people are gonna be priced out of the housing market and forced to rent. Therefore pushing rents higher. Thus rent inflation increasing. Tell me if I'm missing something, but with real estate being ultra rate-sensitive I don't see how the fed can stop this self-eating snake if they are looking to stop shelter inflation.
Yeah it’s not an easy thing to accomplish from the fed since they left interest rates too low for too long to finance the covid giveaway money for sitting at home.
Higher rates will slowly lead to more job loses/higher unemployment. Just Friday we finally saw the number tick up from 3.5 to 3.8 percent. It’s a slow process, but each month that passes with elevated interest rates like we have the economy gets squeezed harder. With higher unemployment, you get the pullback in rents due to demand softening. Humans are adaptable if need be, it’s not their choice to live with parents or roomates but it happens when economic conditions require it. This happened during 2008-2012 the college graduates then were the butt of jokes for still living with their parents. We have a housing shortage based on convenience and it’s essentially a first world problem.
also, there are many developments going on across the country to bring more rentals onto the market. Vacant high rise office buildings are being converted to apartments at a very cheap entry point for developers and many people are living in RVs right now across the country and that number is constantly going up. all of this puts downward pressure on housing rentals at the entry level point.
home builders are also building at record levels right now to meet the demand that’s out there with 2 year teaser rates to keep the payments low. They are building these as cheap as possible to keep costs low to get sales.
on the single family home front, investors are pulling back drastically on home purchases to rent out.
https://www.redfin.com/news/investor-home-purchases-drop-q2-...
we essentially have a “have” and the “have nots” economy now. Those who bought with sub 4 percent mortgages are in the “have” camp and those who do not have those favorable terms are the “have nots” life isn’t fair sometimes but it is what it is. Essentially if you listened to Dave Ramseys advice you have shot yourself in the foot twice and you are probably set back a decade or more in wealth.
Trying to fight the math won’t change the outcome. Either wages need to rise astronomically, which data suggests it’s falling ….or asset prices need to fall….or the fed needs to go back to rate cuts and risk inflation spiraling out of control to keep asset prices elevated long term.
https://fortune.com/2023/08/29/salaries-raises-new-hires-dec...
I’m not selling my holdings because my interest rates average mid 3s.
