\n<\/p>\n
Mortgage rates<\/strong><\/a> were about the only thing stopping the almost unbelievable home price run-up of 2020 through 2022. With higher mortgage rates, homebuyers were forced to bid on smaller houses or stick to renting while waiting for the good old days of 3% rates to return. But it doesn\u2019t look like we\u2019ll be heading back to sub-4% rates anytime soon, and homebuyers are starting to take the hint<\/strong>. So as mortgage demand begins to rebound<\/strong>, could we be closing in on another boom in the housing market?<\/p>\n We\u2019re back with another correspondents show as we touch on the latest housing market news <\/strong>from around the nation. First, we talk about how tech markets and unaffordable housing have taken a tumble<\/strong> while affordable markets<\/a> kept afloat even during steep price drops. Next, we challenge a 2008-like crash prediction<\/strong> and explain why institutional investors are suddenly sending in rock-bottom bids<\/strong> in growing housing markets. Then, we hit on the revival of homebuyers<\/strong>, as mortgage applications shoot up and how we could dodge a recession<\/strong><\/a> with our slowing but growing economic climate.<\/p>\n We\u2019ll also play a game of \u201cHot or Not<\/strong>,\u201d where we touch on which <\/strong>real estate investing strategies<\/strong><\/a> are worth trying in 2023<\/strong>. From buy and hold real estate to risky flipping, the fall of short-term rentals, and more, our expert guests will tell you EXACTLY which tactics they\u2019re using in 2023 and which ones to avoid at all costs! So stick around for the housing market news you NEED to hear to build wealth in 2023!<\/p>\n Dave Meyer: Jamil: Kathy: Dave Meyer: Jamil: Dave Meyer: Jamil: Henry: Dave Meyer: Jamil: Henry: Dave Meyer: Jamil: Henry: Dave Meyer: Jamil: Dave Meyer: Jamil: Henry: Dave Meyer: Henry: Dave Meyer: Henry: Jamil: Henry: Jamil: Dave Meyer: Kathy: Dave Meyer: Kathy: Dave Meyer: Kathy: Henry: Kathy: Dave Meyer: Henry: Kathy: Henry: Kathy: Dave Meyer: Jamil: James: Kathy: Dave Meyer: Kathy: Jamil: James: Dave Meyer: James: Dave Meyer: James: Dave Meyer: James: Kathy: Jamil: Dave Meyer: Jamil: Dave Meyer: Henry: Dave Meyer: James: Jamil: Henry: James: Dave Meyer: James: Dave Meyer: Kathy: Jamil: Dave Meyer: Henry: Dave Meyer: Henry: James: Henry: Kathy: Dave Meyer: James: Dave Meyer: James: Dave Meyer: James: Dave Meyer: Jamil: Kathy: Dave Meyer: Kathy: Dave Meyer: Kathy: Dave Meyer: Kathy: Dave Meyer: Kathy: Dave Meyer: Jamil: Henry: Jamil: Henry: Dave Meyer: Henry: Dave Meyer: Henry: Dave Meyer: Jamil: James: Dave Meyer: Henry: Dave Meyer: Henry: Dave Meyer: Henry: Jamil: Henry: Jamil: Henry: Jamil: Henry: Dave Meyer: Kathy: Dave Meyer: Kathy: James: Dave Meyer: James: Dave Meyer: James: Dave Meyer: James: Dave Meyer: James: Dave Meyer: \u00a0<\/p>\n<\/div>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our <\/i>sponsor page<\/a><\/i>!<\/i><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
Everyone, welcome to On the Market. I\u2019m your host, Dave Meyer, joined by Henry, Jamil, James, and Kathy. How is everyone?<\/p>\n
Great. Fabulouso.<\/p>\n
Doing well.<\/p>\n
Good. Well, it\u2019s good to have you all here. Jamil, we missed you while you were gone. It\u2019s great to have you back.<\/p>\n
Thank you.<\/p>\n
For everyone listening, we\u2019re going to have two parts to this show today. We\u2019re going to play a game called, Hot or Not, where our panelists are going to tell us whether they like certain strategies for this type of market, and then we\u2019re going to go into what we call our correspondent show, where we\u2019re going to be talking about some of the more important, and relevant news stories for real estate investors that are going on right now in February of 2023. Hey guys, ready to play Hot or Not? I feel like this could get mean. I feel like it\u2019s like a middle school game. I have some repressed feelings about a game called Hot or Not.<\/p>\n
A past trauma?<\/p>\n
Flashbacks of rejection.<\/p>\n
Yeah, just being notted a lot.<\/p>\n
But is that website still up? Should we all put our pictures up on it?<\/p>\n
Absolutely not.<\/p>\n
I am on my work computer, and I\u2019m not going to type in hotornot.com on my work computer.<\/p>\n
Do they track keystrokes there on your work computer? Like what\u2019s Dave typing today?<\/p>\n
Scott Trenches just watching you type all day.<\/p>\n
Yeah, sorry [inaudible 00:01:26] .<\/p>\n
Although just to say I think if Dave was looking at Hot or Not, in my world, all that would appear would be sexy, or not sexy numbers.<\/p>\n
Oh yeah. Yeah.<\/p>\n
It\u2019d be like pie charts, versus line graphs.<\/p>\n
Look at that IRR. Mmm.<\/p>\n
It\u2019s true. It\u2019s just data visualizations, and people talking dirty about them. All right, well, enough of that. Let\u2019s get on to our show, where we\u2019re going to be talking about different strategies. I want to hear from each of you, is this strategy right now hot or not? And I guess it\u2019s not like hot, like are people doing it? Is it, would you do it? So let\u2019s start with short term rentals. Henry, hot or not?<\/p>\n
I\u2019m going with nyet.<\/p>\n
Nyet? Okay.<\/p>\n
Not, not hot. I say that with a caveat. I\u2019m doing it with a couple of deals, but I think what you\u2019re starting to see with the Airbnb kind of slow down, both seasonality obviously is playing a role, but also the increased inventory of Airbnbs is causing demand to go down, which is causing pricing, nightly rates to come down.
And I think you saw a lot of people who had gotten into the Airbnb space because they were just like, \u201cOh, I can make five times what I\u2019d get long-term rent. I just got to throw some furniture in there, and stick it up on Airbnb? Heck yeah.\u201d Right? So, you\u2019ve got a lot of people in this space who are truly running a business, who are truly looking at the metrics, and setting their properties apart, providing the amenities necessary in their particular regions.
They didn\u2019t do that kind of market research. They\u2019re not true operators. And so I think that if you look at Airbnb from that perspective, in 2023, you\u2019re going to see a lot of those people who just kind of came in hoping to capture a bunch of cash, they\u2019re going to fall to the wayside.
I still think buying properties at deep enough discounts that you can afford to pivot, and you can put those on Airbnb, I still think there\u2019s some benefit there and you can make decent money with Airbnb. But, you have to operate it properly. Do the proper market research, offer the right amenities, have the right business practices in place, be able to do the proper marketing.
You didn\u2019t have to market before, you just had to have it out there, and now you have to market, and set yourself apart. And so, it\u2019s a more\u2026 I don\u2019t even want to call it a more difficult strategy now. It\u2019s what it should have been in the first place, is it\u2019s a business, and you should treat it that way.<\/p>\n
Hospitality.<\/p>\n
Yeah.<\/p>\n
It\u2019s hospitality. We got to get back to hospitality, right Henry? I mean let\u2019s\u2026 There\u2019s a Airbnb here in Phoenix, Arizona, it\u2019s always booked because they have llamas.<\/p>\n
There. Everyone go out and get a llama, just go get a llama.<\/p>\n
Llama. I never thought about it.<\/p>\n
Put a llama on it.<\/p>\n
There\u2019s one here that has a giraffe, so yeah.<\/p>\n
What? That seems illegal.<\/p>\n
It\u2019s a famous giraffe. It\u2019s the one from\u2026<\/p>\n
It\u2019s the Toys \u201cR\u201d Us giraffe?<\/p>\n
No.<\/p>\n
It\u2019s Geoffrey? It\u2019s Geoffrey.<\/p>\n
He retired from Toys \u201cR\u201d Us?<\/p>\n
It\u2019s the one from the Bachelor one, the Vegas one. What am I trying to say? The movie.<\/p>\n
The Hangover?<\/p>\n
The Hangover. Yes, yeah, it\u2019s the one from The Hangover. It\u2019s that one. Yep. It\u2019s a rescued giraffe from Hollywood.<\/p>\n
Honestly, you know what? I would stay there. I\u2019m curious now. All right, so everyone, it\u2019s short term rentals are hot if you have an obscure farm animal, but if you don\u2019t, be very careful about it, is apparently the lesson. Does anyone else disagree? Anyone else want to give me hot or not for this? Jamil, it sounds like not? Kathy or James?<\/p>\n
Yeah, not.<\/p>\n
Not.<\/p>\n
Not. Not right now. I keep reading stories that actually it\u2019s increasing now, and that vacation properties are kind of back in style, but I could tell you in our own case, we\u2019re down 50% from last year, if not more.<\/p>\n
Same. Yeah, mine mine\u2019s down a bit too, and I don\u2019t know, I feel like it was a gold rush, and now it\u2019s back to just grinding it out, like any other business. It\u2019s not like the easy money any more like it once was. But maybe it\u2019ll rise again. We\u2019ll see. All right, let\u2019s move on to buy and hold. Kathy, I\u2019m just going to give you a layup right now.<\/p>\n
Hot. So hot. So, so hot.<\/p>\n
I mean, can anyone disagree with that?<\/p>\n
Yeah, I\u2019m a, I\u2019m going to disagree with that.<\/p>\n
You are?<\/p>\n
I\u2019m a not on buy and hold.<\/p>\n
Really?<\/p>\n
But it depends on what you want to buy. Like the BRRRR properties I think are really hot. That\u2019s a hard to buy. But for us, at least in our market, the lower income stable ones where you\u2019re just putting 20% down, like a traditional rental property, and that\u2019s kind of how I\u2019m defining that the, you\u2019re still competing against first time home buyers, and that market is competitive. Yes, the market\u2019s down, but we\u2019re moving stuff, and so it\u2019s hard to get a good, stable, just buy and hold. And again, I\u2019m classifying this as single family rentals. I think there\u2019s a lot of multi family, a lot of BRRRR opportunities, but if you just want that straight base hit, single-family rental deal, not a good yield right now, I would get something else.<\/p>\n
Yeah, that\u2019s interesting. So you\u2019re saying basically you like rental properties, but it needs to have some sort of value add component.<\/p>\n
Yeah. It needs to have value add. I just don\u2019t think the opportunities are there. If you want your base hit rental deal, 20% down, carpet, paint, release, the margins are not good. Not with the rates right now. And you have to put more money down, and I think you can get into buy and hold, but you got to get the ones that no one wants, or the ones that are a little bit hard, and then those deals are substantially better than they were 12 months ago. So there\u2019s opportunities, and holdings, but just not for your straight base hit deals. This is thought\u2026 I think for me, you can get 3x your return in the other spaces.<\/p>\n
It\u2019s funny, I would\u2019ve thought that, but I just had a conversation with our Indianapolis team at Real Wealth, and they said the cash flows today are the same that they were before, because rents have gone up so much in those areas, and now there\u2019s more inventory.
Last year you couldn\u2019t even get anything, and if you did you\u2019d have to outbid other people. You\u2019re not having to do that now, but the rents have gone up, and they\u2019re holding. So he said it\u2019s no different, and in so many cases the sellers are actually paying points to bring your rate down, and so you\u2019re probably getting the same, if not better rate than you could get last year. So, I thought that was really interesting, and we had looked at the proforma, and tore it apart, and he was right. It\u2019s similar.<\/p>\n
Right now. I like buy and hold as a short term strategy. I know that kind of sounds crazy, but I think that if\u2026 Because I\u2019m allergic to holding stuff, and I\u2019m going to continue to be that way, because of past trauma, 2008, and getting my hand burnt when I was trying to buy a multi-family.
But what I\u2019m going to say is, I am still seeing opportunities to buy really, really deeply discounted property out there, and if I can hold it just this period of time of pain where I think things start to stabilize, and once we come around the bend, if I can at least break even between my purchase, until my exit, which I think will be 18 to 24 months from now, I am looking for substantial returns on that. So, I just want to buy, hold. I don\u2019t even care if I cash flow, just break even until I can take my exit, and cash in my chips at the casino.<\/p>\n
All right, so that\u2019s like lukewarm, lukewarm, not hot or hot. It\u2019s like-<\/p>\n
Yeah. Yeah.<\/p>\n
Yeah. Okay.<\/p>\n
I mean, I agree. I think James and Kathy are both right, honestly. It\u2019s similar to the Airbnb conversation. There was a gold rush when the market was super hot, and you could get 2% interest rates, and things were going up in value so quickly. So, you could buy something at a slight discount, and all of a sudden you\u2019re renting it out, rents were going up, so you can make the cash flow work.
You\u2019re not going to find those easy opportunities as much, the ones James was talking about. You\u2019re not going to be able to make those pencil. But if you can, and are good at looking, and finding undermarket value deals, I mean, the discounts that we\u2019re able to get, and then the rents that we\u2019re able to get from, after we renovate those properties, man, we\u2019re cash flowing just as much as we were before.
And a lot of the times it\u2019s making more sense, because typically in my business, we keep the multis, and we sell the singles, but right now, the way we\u2019re deeply getting the discounts on these singles, it makes more sense sometimes for me to just keep them as rentals, even if I do it in that short term timeframe, like Jamil is talking about, when I can sell them at more of a discount.
So even if it\u2019s not something I want to keep in my portfolio forever and ever, the cash flow makes sense right now, because if I do turn those deals, like for example, I have a deal right now, I\u2019m closing today, I\u2019m going to make a $17,000 profit. It would\u2019ve made more sense for me to just renovate it a little bit, stick a tenent in, and cash flow it every month until the market changed. So, the numbers are just making more sense as rentals on single families, depending on the type of discount you\u2019re able to get, and how much you got to spend on that reno.<\/p>\n
For sure. All right, well let\u2019s do one last one. Let\u2019s talk about flipping here. James, hot or not?<\/p>\n
I think it\u2019s hot. If you find the right opportunities, but it has to be ones that\u2026 Where we\u2019re having success in flips right now is going in the spaces that everyone\u2019s freaked out by. There is a lot of opportunities in there. When we\u2019re buying an average price of seven to 950,000, the discounts are about 15% cheaper than the flips that we\u2019re looking that are 300 to 500 on the acquisition.
And so, it can be hot if you get into the right space. I think the overall investor demand is that the not right now. No one\u2019s really looking for flips, which is another good thing for us. We can go find those opportunities that are there. I mean, I just bought a house, we contracted it yesterday. I would\u2019ve paid 600 for this at the beginning of the year, or at the beginning of 2022. We just contracted over 435.<\/p>\n
[inaudible 00:12:08].<\/p>\n
Wow.<\/p>\n
And not only can I flip it, I can also build a daddy with a backyard.<\/p>\n
Oh, nice.<\/p>\n
But because it was a full permit job and it\u2019s going to be a 12 month project, everyone\u2019s like, \u201cNah, I don\u2019t want to deal with this right now.\u201d So, the margins have\u2026 Starting to really increase on the ones that are tougher. So if you can hang in there, and actually go after\u2026 Go where no one else is going, and you can absolutely crush it right now.<\/p>\n
Anyone else have thoughts, hot or not, on flipping?<\/p>\n
I would\u2019ve said not hot, but James is so hot that it\u2019s making flipping sound hotter. But he makes a really good point that, I mean really, I wasn\u2019t flipping when it was super hot for everybody, because I\u2019m just not good at it, but maybe it\u2019s time to start. But there\u2019s a lot of belief that rates are going to go down in May, because the inflation numbers are going to look so much better year over year, and the average is year over year, and that may is really the month that that\u2019s going to happen. And so, if you were to get something now and try to sell it in May, that could be really good timing, now that you mention it. It makes a lot of sense if you get it now with the discount, and then resell when mortgage rates are better.<\/p>\n
Personally, of course I flip houses on TV, and so A, I have to for a part of my life, but secondly, the price point really matters. And for me, I\u2019m staying away from the luxury, or, I\u2019m not super luxury, but that between 750 and 1.5 million kind of price point, I\u2019m staying away from flipping anything in that range. I\u2019m really liking manufactured homes. I\u2019m really liking really, really, really, really entry level fix and flips with minimal repairs, that that product is still moving. It\u2019s profitable, and as long as you can acquire at a good price, it\u2019s safe.<\/p>\n
All right. Hot. Enough said. Flipping is hot.<\/p>\n
Yep. I got two deals. I got two deals I\u2019m going to net six figures on at flips right now, in this crazy market.<\/p>\n
Nice.<\/p>\n
And we\u2019re talking six figures in Arkansas, so the margin is\u2026 That\u2019s huge for here.<\/p>\n
Yeah. What kind of cash on cash return is that? Is that like two, 5000%?<\/p>\n
Yeah, well, I literally have no money in either one of the deals, so it\u2019s infinite for me.<\/p>\n
Smoking hot.<\/p>\n
James, those are the type of numbers I look at on hotornot.com, just those types of IRRs. All right, well we\u2019re going to take a quick break, but then we will come back with our correspondence show.
Okay. Serious time everyone. All right, that was fun. Now, let\u2019s talk about the news. James, you have a story for us about how the housing market is performing. Can you share something with us?<\/p>\n
Yeah, so this article is from Fortune Magazine, and it says, \u201cWell, we are in a bifurcated housing market correction. Just look at these four charts,\u201d was the title, and what it references a lot. It talks about how John Burns, which is a great data source in general, was predicting at the beginning of the year, a big decline, versus what they were saying at Zillow, where Zillow was actually predicting a 24% increase this year, year over year.
And John Burns came out pretty negative at the beginning of the year, thinking that there was going to be a fairly big decline, and it turns out he was not wrong in a lot of the major cities, and what it looked like was, in the top 150 major housing markets, 100 of them declined pretty drastically. San Francisco was down 10.5%, Austin\u2019s down 9.5%, Reno\u2019s down 9.3%, et cetera. And then there was 50 that were really just flat.
And what it comes down to, we\u2019ve all been talking about it for the last couple months, is just the affordability in the market, and the markets that have been the biggest decline also had the furthest appreciation, but they were already at the top of the market going into this last\u2026 Like in 2018, things were at the top, and people were hitting their affordability. Once rates dropped so low, it spiked everything up again. But once those rates started increasing, it just had to get back down to the affordability.
And so, it really talks about how they believe that rates are going to continue to increase for next year, and that you need to watch, in these\u2026 As you\u2019re investing, or how I read it is how you\u2019re investing, you can look at the markets, and where their affordability ranges are, and that has a huge, huge impact on whether that market\u2019s actually going to decline.
It\u2019s not about that fad of a market anymore, or like\u2026 Some of the novelty in the markets have worn off, and it\u2019s really just comes down to straight affordable. Can the buyer pay this with what income that they\u2019re making? And so, as a flipper, or an investor, how I kind of read that is we think rates are going to go up, then yes, we could see further decline, like in Seattle. Seattle was a big drop.
I know in Jamil\u2019s market too, in Phoenix, we saw a big drop, and it all had to come in with that top end of the market. And so, if you think rates and affordability are going to continue to climb, that those could actually deflate even further. But, it is talking about how it really just made two different markets. You have your affordable markets, and your expensive markets, and the affordable markets have seen very, very little, to zero decline. Like in Charleston, they were saying, has saw zero, and the expensive markets are deflating down.
And I did think that was the interesting point. Yeah, it comes down to affordability, got two markets, and I actually think there is going to be a third market though. It\u2019s not just going to be two. I think you\u2019re going to have your affordable markets, like tech, and that\u2019s what we\u2019re seeing right now. Seattle, San Francisco, Austin, the markets have deflated about 10% from last year, and I\u2019m seeing it about 25% down from peak pricing.
But now we\u2019ve kind of hit this affordable market, and we\u2019ve sold a ton of houses in the last 10 days. I was running about 35 to 40% pending on all of our\u2026 At any given time we have about 60 to 70 listings. We were running about 35 to 40% pending for the last six months, and now we are up to 55 to 65% pending, and I\u2019m getting offers regularly on all product, not just affordable.
We listed our farmhouse flip for $3.25 million. We were anticipating to be on at 60 days. We got an offer in 10 days. And so, things are moving again. So, as a flipper, I\u2019m going, \u201cOkay, well if the rates are going to spike up, I just need to undercut my values a little bit.\u201d But there is this sweet spot where things are trading, and it also leads to big opportunities in these deflated markets.
Because what this is saying, is it\u2019s all based on affordability, if we all think rates are\u2026 I think rates are going to drop in the late quarter, that means I\u2019m going to see some appreciation there, too. And that\u2019s what you can check for to get those massive equity pops, and really change your whole trajectory in real estate, for me. So I\u2019m looking for those opportunities that I\u2019m going to see those equity pops, because it makes it kind of more of an equation. Like, \u201cAll right, if we know where it\u2019s going to sell on the affordability factor, then we just got to watch rates, and we can run with the rates, and kind of watch those equity positions rise or shrink.\u201d<\/p>\n
Are you saying, James, that you think it\u2019s picking up in Seattle because prices have fallen so far that they\u2019re now affordable again?<\/p>\n
Yeah, it just got out of reach for people, because there\u2019s still a ton of buyers in our market. We listed a couple homes last week, or we have a listing coming up right now in Mount Lake Terrace. Mount Lake Terrace is\u2026 So it\u2019s north of Seattle, good commuter city. We saw massive appreciation in this neighborhood the last two years. I\u2019m talking about 50, 60% appreciation. Huge, because just location, development, and the city also being improved.
And it definitely shrunk about 10% from where it was in the peak, but I pulled up, or [inaudible 00:20:34] get into list, there isn\u2019t one home for sale in the entire city of Mount Lake Terrace that I saw that would be\u2026 So I\u2019m going to be the only house for sale.<\/p>\n
Whoa.<\/p>\n
And what happened is, there was a lot more inventory in the wintertime, which I do think the seasonal slowdowns are coming back. Seasonal slowdowns were always a real thing, until COVID hit. Wintertime, you\u2019re always going to sell your\u2026 It is going to take longer to sell, it\u2019s going to sell for a little bit less. And then with rates increasing, it got the inventory increased more. But I mean, we\u2019re talking about, their inventory increased like 35, 40% in these areas, if not up to 80%, and it got absorbed in the last two weeks, very, very quickly.
And we\u2019re actually starting to see some multiple offers again too, where things are getting actually bid up, as well. So, I feel like it had this sudden drop, we\u2019re on the shelf, and now the consumers are\u2026 They have to buy it. There is so many buyers in our market, they just can\u2019t get in reach with what\u2019s coming to market. And now, with the pricing getting down to that sweet spot, things are getting consumed again. I mean, there is a substantial amount of buyers in our market, even with the high rates, and no inventory.<\/p>\n
Wow. Super interesting. Yeah, I\u2019ve heard a lot of that. I was just talking to my real estate agent in Denver who was saying something similar, and I guess Seattle and Denver are probably those types of tech markets. What you were talking about, that tier of tech markets that are high priced, and have seen some of the furthest drops, peak to current, so far. Jamil, given you\u2019re in a pretty pricey market there, what\u2019s going on with you in Phoenix?<\/p>\n
Well, we had a very seismic type report by the New York Post, where Goldman Sachs predicted a 2008 style crash in Phoenix, Austin, San Diego and San Jose, and they\u2019re predicting 27% or greater price decline for 2023. So, this obviously created just a massive ripple effect of conversations amongst the investor community, and real estate agents, and whatnot. So, my phone was blowing up, and so of course I start doing some digging, and looking at how true is this prediction.
And looking at the corrections, of course, each of these markets have seen declines, and what I\u2019ve seen so far, from peak to present, we\u2019re looking at about a 9.9% peak to present drop in Phoenix, Arizona, San Jose. And again, data is varying between different sources, but it\u2019s all relatively close, from in San Jose I\u2019m seeing about 8.9% peak to present, San Diego, 6.7% peak to peak to present decline, and in Austin, 14% peak to present decline, which is\u2026 I mean that, to me, if I\u2019m looking at a possible market that could have that type of depression, or that type of crash, it could potentially be Austin.
But again, the fundamentals in each of these markets are really strong, and you still have very, very strong lending criteria. Days on market on average is like 30 days, or less in each of these markets. You\u2019re also seeing these surges in first time landlords, which is an increasing thing, which is an interesting thing to think about, because people who have cheap debt in these markets, rather than just go and throw their house on the market, and sell it at a steep discount, they\u2019re deciding to turn into landlords, and they\u2019re going to hold that house, and keep that cheap debt, and possibly remove that from creating inventory increases.
The other interesting piece, because I have KeyGlee in my world, we\u2019re in one of the nation\u2019s largest wholesale operations, and I\u2019m looking at buying, and what the institutional buyers are doing, and it\u2019s just interesting timing that we see a report like that come out, and the institutions that we\u2019re working with are all turning up, they\u2019re buying in those markets.
And then when I say turning up, I mean they\u2019re reaching back out to us. They\u2019re emailing saying, \u201cHey, send us everything,\u201d but our buy boxes have changed dramatically. So now, they are decreasing substantially where their offer number would\u2019ve been. And so, it\u2019s like they\u2019re looking at a report like that as their justification for coming in, and trying to purchase that 25% below where they would\u2019ve been purchasing, say, three or four months ago.
So it\u2019s like this, is report creating movement which will actually fulfill the prophecy that this situation could potentially occur? So, that\u2019s interesting. But, on the other side of that, after the holiday season, we looked at our pendings, just here in Phoenix, Arizona, and I mean, it\u2019s spiked, just like James was reporting, in the last little while his flips, he\u2019s at what, 50 or 60% pending, where normally he\u2019d be at like 35, 40% pending.
We\u2019re seeing something very similar here in Phoenix, Arizona as well. So, how does that happen? How is a 30% decline supposed to occur, when we still have low inventory, when building has screeched to a halt, when we\u2019ve got home locked buyers, because interest rates were low for all that time, and they do not want to let go of that asset?
I mean, I don\u2019t know. I don\u2019t see it. I don\u2019t see it. I don\u2019t see it naturally happening. But again, everything that we\u2019re looking at, and working with right now, are not natural real estate cycle phenomenon. This is all manipulation. It\u2019s all so many different factors, and agencies, and institutions, and doing things. I\u2019m not a conspiracy theorist, I\u2019m just looking at the writing on the wall and I\u2019m like, \u201cWho\u2019s controlling? Who is the puppet master here, and how do I become friends with that person?\u201d<\/p>\n
I could tell you one of the puppet masters is the one we\u2019ve been talking about for a year now, and it\u2019s the Fed, and what they\u2019ve been doing. And this isn\u2019t my article, but it\u2019s an article that\u2019s really good, and I\u2019ll just share it really quickly. It\u2019s from National Association of Home Builders, and I think you guys also saw this, how many households were priced out by higher mortgage rates in 2022.
And it shows these graphs of when interest rates went from 3.25%, to percent to 7% in a matter of months. I mean, what a shock to the system. This is doubling the payment in just a matter of months. And in that process, it went from 44 million people who could afford to buy a home, down to 26 million in a matter of months. We\u2019re talking 15 million people priced out, boom, just like that, in a matter of months. I\u2019ve never seen anything like it.
Now, recently, we went from that 7% rate down to about 6.4%. So this article is basically saying in the last few months that brought 2.6 million people back into the market. Now, as over the next few months, most people are assuming, and seeing that with inflation going down, so will mortgage rates, mortgage rates follow inflation, and that we will probably get into the high fives. And that brings in a whopping almost 8 million more people who can afford to buy.
So, a lot of what, again, James was saying earlier, and what you are saying now, Jamil, of like there\u2019s this change, it\u2019s because now there\u2019s more people who can come back in, and they\u2019re learning, and they\u2019re being educated by their mortgage broker that, \u201cHey, you\u2019re going to pay a little bit more to get your rate down maybe to the fives, maybe a point or two.\u201d
I just talked to a mortgage lender yesterday who said, \u201cIt\u2019s just like a point or so to get you into the fives.\u201d And again, that\u2019s bringing in 8 million more people, and paying that one point is a lot less than the higher prices that they were paying before. And you have a lot of people who are sitting on cash, ready to buy, and suddenly couldn\u2019t, but had the down payment. So, it\u2019ll be a lower down payment, but the difference goes towards paying down the rate. So, that may be one of the reasons you\u2019re seeing more people coming back in, and sales picking up.<\/p>\n
And people are coming in with FOMO. They missed the opportunity.<\/p>\n
Yeah.<\/p>\n
Because rates spiked, and now they\u2019re back in it, and they are moving right now. They are really jumping on stuff. They don\u2019t want to get priced back out again.<\/p>\n
Yeah.<\/p>\n
When you put it that way, Kathy, it\u2019s pretty amazing. The housing market has been as resilient as it is.<\/p>\n
Yeah.<\/p>\n
The fact that we\u2019re seeing, I think the Kay Schiller came out the other day, in a seasonally adjusted manner. It\u2019s just 2.5%, peak to trough, to peak to current is 2.5% declines, and that\u2019s with what, 30% of buyers being priced out? It is pretty remarkable, and I think why, to your point, Jamil, 30% declines. Maybe in a few markets, who knows, but it just seems unlikely, especially with what\u2019s happened in the last couple weeks with there\u2019s a lot of activity going on.<\/p>\n
Yeah. And it\u2019s important to note that with sales down, sales down 30%, you\u2019re getting a smaller pool of properties to even look at, and averages to even look at. It was kind of like in 2009, when everything was a foreclosure that was on the market, then prices seemed really low, but it wasn\u2019t a real price, it was just foreclosure prices, because that was the main what was on the market, and that\u2019s what we\u2019re seeing. What\u2019s on the market is maybe being discount, but that doesn\u2019t really state the whole, it\u2019s sales are down so low, it\u2019s just a small percentage of what\u2019s out there.<\/p>\n
Yeah, absolutely. Well it\u2019s interesting what you said Jamil. I\u2019m curious to hear how it evolves with these institutional buyers, because you\u2019re sort of at the forefront of it in Phoenix. I think it would be interesting to know, in some of those other markets that you mentioned, you said like San Jose, I don\u2019t think that\u2019s a big institutional buyer area, or San Diego, it\u2019s so expensive.<\/p>\n
Not a huge institutional buyer area, but they do buy there, and it\u2019s some of the\u2026 Also those smaller portfolio buyers, which are still\u2026 It\u2019s still in the hundreds of millions of dollars when we\u2019re talking about access to capital, and their ability to purchase. So, I mean, they\u2019re still buying, they\u2019re turning on the taps.<\/p>\n
I am with you Jamil. I get it. I also, not a conspiracy theorist, but I mean, you can put pieces together of a puzzle, and if it makes a picture, it makes a picture. But what you\u2019re saying is echoed in my market, it\u2019s also right in line with the article that I brought to share, which is that mortgage demand has jumped 28% in one week, as interest rates are now at their lowest point in months.
And so, the highlights of the article are just saying that the average interest rate for a 30 year fixed is around between 6.2 To 6.4, and more people are applying for mortgages. It\u2019s up 25% week over week. Now, putting that into perspective, that\u2019s still down 35% from 12 months ago at this same time. But when you look at rates being at their lowest point since September, that\u2019s significant.
And I think what you\u2019re starting to see is that people are realizing that the two and 3% interest rates, that ship has sailed. I think people are finally starting to get it. We\u2019re not going back there. We\u2019re not going to get that low again. I mean frankly, a lot of people don\u2019t want to get that low again, because what does that mean for what\u2019s happening in the economy, if we have to get there again?
And so, people are just starting to realize that this is what you pay for an interest rate now. Life happens, and things move on. Yes, people are\u2026 There is a subset of people who are priced out of the market, but that\u2019s going to happen, no matter what interest rate you\u2019re at. So, there are some people that can afford to buy, some people that can\u2019t. I think people are starting to\u2026 I think the sticker shock is wearing off, and it\u2019s just now this is what rates are, and life continues to move on.
People need to move for different reasons. People want to move for different reasons. And when you have two income households who have stable jobs, and are making a decent salary, it\u2019s easier for them to afford homes. And what I\u2019m seeing in my market is echoing that. It\u2019s echoing what you\u2019re saying as well. We listed a flip, which would be considered for a luxury flip in my market, and that\u2019s a \u201crisky\u201d strategy right now unless you\u2019re James Dainard. So, those luxury flips, we put it on the market, we had it on the market for 24 hours, had 10 to 12 showings, and got four offers, all over asking price.<\/p>\n
Over asking.<\/p>\n
Over asking. One of them\u2026 We listed it at 550, and we are under contract at 570.<\/p>\n
And what\u2019s the median home price in your area, Henry?<\/p>\n
The median home price in my area is like 300.<\/p>\n
Oh, so this is really upscale.<\/p>\n
275 to 300. Yeah.<\/p>\n
Okay.<\/p>\n
I think I want to move to northwest Arkansas, man.<\/p>\n
Yeah, I think we all should move there.<\/p>\n
We keep saying that, but I don\u2019t even know if they have an airport. How do you even get there?<\/p>\n
We have an international airport. You have to remember-<\/p>\n
Sure.<\/p>\n
That the Waltons funded this place. Do you think the Waltons aren\u2019t going to have an international airport built here, where they can get in and out?<\/p>\n
I think they have an airport that they use. I don\u2019t know if we\u2019re allowed to use it.<\/p>\n
Private.<\/p>\n
Henry, was that 20% spike in mortgage applications national, or just in the-<\/p>\n
National.<\/p>\n
Region\u2026 That\u2019s nationally?<\/p>\n
Yes.<\/p>\n
Guys.<\/p>\n
Mortgage applications are up. More people are entering the market because I think they feel a little more comfortable that these are what the rates are going to be, and people are applying for home loans. And also, to echo what Jamil was talking about, the money is starting to be in demand again.
I\u2019ve had two conversations in the last seven days. One with an institutional buyer, just like Jamil was talking about, called me and said, \u201cHey, send me anything. Send me what you have, we want to buy.\u201d And one a bank, yesterday, a banker, small local bank literally reached out to me and said, \u201cHey, we need your business. I can still do loans with a six in front of them,\u201d which is, when you\u2019re talking about commercial lending, we\u2019re usually paying a higher rate, so that\u2019s solid. So he\u2019s like, \u201cBring me what you got. I can do loans with a six in front of them. I\u2019m willing to be flexible with the rates and terms.\u201d So, they\u2019re wanting to lend, more people are buying, and so I kind of see what you\u2019re saying, Jamil. I see what you\u2019re saying.<\/p>\n
I like it. All right. Well, that\u2019s super interesting. I mean, I think that we\u2019re in this really odd spot with mortgage rates, where people don\u2019t know if they\u2019re going to go up or down. And so, anytime there\u2019s this\u2026 Like over the next year or so, where if there\u2019s these short term fluctuations where they go down, people are jumping in.
And I think this just goes to show something that people overlook from a housing market perspective, is just demographics. There are just a lot of people who want to buy homes, and they are willing to wait for a little bit for a mortgage rate, but most people aren\u2019t like us, where they\u2019re sitting around looking at the interest rates, and forecasting what they\u2019re going to be in May, and then October, and thinking about their strategy. They\u2019re like, \u201cI want a house. It went down half a point, and I\u2019m going to jump in now.\u201d It just goes to show, that\u2019s how homeowners who make up 70% of the housing market make their decisions. It\u2019s not what we\u2019re talking about. All right, Kathy, let\u2019s round it out. What do you got for us?<\/p>\n
Well, this is actually a blog from the JP Morgan website. It\u2019s JP Morgan Chase. The Economic Outlook for 2023, Trends to Watch. This was actually written in December, but I really think they\u2019re pretty spot on so far. They said, \u201cThe US economy likely will slow this year, but the economy will grow.\u201d So, it\u2019s like half a percent to 1%. So, super slow growth, but that\u2019s not a recession. That\u2019s important, I think, for a lot of people who are hearing\u2026 I mean, all you have to do is type in recession on Google and you might want to get a handkerchief, and just cry a little bit.
But yes, the economy is slowing, but it doesn\u2019t really look like a recession is coming quite yet, and they kind of predict it would be maybe towards the end of the year, or 2024, but mild. So, we shall see. It depends a lot on what the Fed does. Now the Fed just raised rates another 0.25%, and it looks like they\u2019re going to do it again probably in their next meeting, another 0.25%.
And they\u2019ve been saying for a long time they\u2019re shooting for about a 5% fund rate, Fed fund rate, and they\u2019re almost there. So, it could just be one more. A lot of people are in agreement that it would just be one more quarter percent rate hike, and then it just holds there for a bit.
And based on what we\u2019re seeing, where we keep seeing job growth, and we keep seeing jobless claims declining, in spite of everything that\u2019s happened this year, that could be true. That could be true that it\u2019s a very mild recession at the end of the year. So those thinking that it\u2019s going to be a 2008, it\u2019s different. It\u2019s different. Totally different dynamics this time around.
And then, as far as the housing market, you guys all said it all, I think we know it may be better than JP Morgan. I don\u2019t know their lenders. They might probably need to know what to expect too. They\u2019re expecting residential investment could be down 10 to 12% in 2023.
So again, that\u2019s not a 2008 housing market crash, and that\u2019s an average, meaning that some areas would do worse, and some areas would do better. And that\u2019s what we were talking about, these different markets. I\u2019ve been following John Burns Real Estate for many, many, many years, and that was always his message is that every single market is different. And there, again, no national housing market, and some are going to be more affordable, some are going to be less affordable, some are overpriced, some are underpriced. You\u2019ve got to know your market in the end, when it comes to housing, but the overall economy really doesn\u2019t look as bad as some people want to tell you it will be.<\/p>\n
I\u2019m so glad you brought this up, Kathy, because I think that there is this overwhelming media narrative that there\u2019s going to be a recession, and I think that is very unclear still. Economists, I just saw this poll by Bloomberg that said, I think it\u2019s like 65% of economists think there\u2019s going to be recession. So two out of three, that\u2019s not a sure thing.
Goldman Sachs is the first bank that just upwardly revised their forecast. So, now they\u2019re feeling more optimistic. They just said there\u2019s going to be no recession in 2023. So, there\u2019s some really interesting stuff here. The labor market is holding up surprisingly well. We just saw that GDP grew almost 3% in the fourth quarter. There\u2019s interesting stuff here.
But I do want to say, that for the housing market in terms of appreciation and prices, narrowly avoiding a recession could be the thing that pushes housing prices down further, because that\u2019s probably the only scenario I see where mortgage rates actually go up from where they are right now. Right?
Because if there\u2019s a recession, that pushes down mortgage rates, and the only way I think mortgage rates go up is if the economy, if the yield curve kind of normalizes, and bond yields go up, and then we start to see mortgage rates closer to seven again. So, I don\u2019t think they\u2019re going to be crazy, but it\u2019s just interesting that the overall economy doing well might be the thing that makes the housing market do worse.<\/p>\n
Well, it wasn\u2019t saying that the economy\u2019s going to be robust, or again, growing. Normally you\u2019d want to see a two or 3%, or 4% growth, and they\u2019re saying maybe a 0.5% to 1%. So, I\u2019m kind of still in the camp that mortgage rates are going to decline this year, based on the fact that the economy is slowing.
But this is, again, these are the headlines people see is, \u201cOh, the economy is down,\u201d but oftentimes what they\u2019re not seeing is, it\u2019s the rate of growth that\u2019s slowing. And that\u2019s the same with housing prices. Like, \u201cOh, it\u2019s down.\u201d Yeah, the rate of growth is down, and that\u2019s good compared to last year. So, again, read articles fully, because the headlines are meant to scare you, and unfortunately, too many people only read the headline.<\/p>\n
Does anyone else think that this is more of a slow squeeze, rather than a\u2026 It kind of had its jolt, now it\u2019s like this slow squeeze that we\u2019re going to be in for the next 12 to 24 months, but also, this slow squeeze could actually make rents go through the roof. As housing is just kind of out of reach, because if the economy\u2019s not growing rapidly, that\u2019s what we also saw. It wasn\u2019t just rates, of why the housing market exploded. That was a huge portion of it, but it was also stock growth, investment growth, where access to liquidity was through the roof for people.
People were just printing money, and they could put money down. It\u2019s like, \u201cOh, the house is up at 200 grand. Well, I\u2019ll just put that down as by down payment.\u201d And so the liquidity\u2019s been squeezed, and so, right now, the cost of housing and the rent, it\u2019s still a way out of whack. And so, I\u2019m actually really starting to dig into some of these rental markets like, \u201cHey, I still see\u2026 Whereas I thought it was going to be stagnant, I\u2019m actually starting to think that there could be some growth in some certain neighborhoods for sure.\u201d Because the cost to own is just so out of whack still, and the slow squeeze is just going to make it harder to absorb that. Things will sell for pricing, but it\u2019s going to be slower. So, in my opinion, rents are going to climb at that point.<\/p>\n
Interesting. Just because in markets, especially like in Seattle, just does not make sense financially to buy a house.<\/p>\n
No. Or like in Newport Beach. I mean, my rent payment\u2019s a third of what my mortgage payment would be.<\/p>\n
Wow.<\/p>\n
No, it\u2019s My rent payment is 50% less than my mortgage payment, if I put 50% down.<\/p>\n
What? That\u2019s crazy.<\/p>\n
Oh, it\u2019s crazy.<\/p>\n
Wow.<\/p>\n
I\u2019m like, \u201cIt doesn\u2019t make any sense to me. I\u2019ll go buy an apartment building instead.\u201d I don\u2019t know. It just doesn\u2019t\u2026 But yeah, so I could see some growth in that sector. The slow squeeze will actually, I think, get runway on the rents.<\/p>\n
All right. Well, I think that\u2019s great advice. Don\u2019t assume, just because people are saying that there\u2019s a recession, and it\u2019s a foregone conclusion that that is true. It\u2019s actually a much more complicated, and nuanced economic situation, and that\u2019s why there\u2019s not really a real definition of recession. We\u2019re just in this gray area.
I think Mark Sandy, the guy at Moody\u2019s called it like a slow session. It\u2019s like, it\u2019s just going to be slow, and the economy\u2019s going to be lame, but it\u2019s not actually going to go backwards. So, there\u2019s some nuance to it, and listen to shows like this, so you can understand it.
All right. Well, thank you all for being here. This was a lot of fun to have everyone back together. If you guys enjoyed this show, we would really appreciate some reviews. We get tens of thousands of people listening every week, but we only get like one review a week. All it takes is what? Five seconds. Go, give us a five star review on Spotify, or Apple. We really appreciate it. If you enjoy this type of show, and this type of content, it would mean a whole lot to us. Thank you all for listening. We\u2019ll see you next time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza, and Onyx Media, researched by Pooja Jindal, and a big thanks to the entire Bigger Pockets team. The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.<\/p>\n