\n<\/p>\n
The 2023 recession<\/strong><\/a> is off to a strange start. Homebuyer activity has rallied<\/strong>, consumer spending is up, and unemployment is low<\/strong>. Is a recession really on the way<\/strong>, and if so, has anyone told the Fed what\u2019s happening in today\u2019s economy? With a good chunk of economists still betting on a recession in 2023, who\u2019s right and who\u2019s wrong? And if there isn\u2019t a recession incoming, can real estate investors take advantage of this artificial instability<\/strong> to get even better deals done?<\/p>\n We\u2019re back with our panel of experts, Henry Washington<\/strong>, Jamil Damji<\/strong>, and Kathy Fettke<\/strong>, to get their take on whether or not this period of economic uncertainty<\/strong> is over. Back in 2022, with mortgage rates<\/strong><\/a> picking up, inflation hitting decade-long highs, and the housing market starting to stutter, most Americans were right to believe that we were on the cusp of a recession. And real estate investors were doing deals left and right, trying to get as many homes under contract for the lowest price.<\/p>\n And only a few months later, things have started to change, but investors are still getting incredible deals done<\/strong>, and if you tune into this episode, you can too! We talk about how this \u201cwhite-collar recession<\/strong>\u201d is causing more profit than panic <\/strong>for investors and why many Americans don\u2019t \u201cfeel\u201d we\u2019re in an economic downturn. Our expert guests even give their best predictions <\/strong>on what could happen this year and into the next. So if you want to take home some SERIOUS profits like our guests did in the last crash, listen up!<\/p>\n Dave: Henry: Kathy: Dave: Jamil: Dave: Kathy: Dave: Kathy: Dave: Jamil: Dave: Kathy: Dave: Henry: Dave: Jamil: Kathy: Dave: Jamil: Dave: Jamil: Dave: Jamil: Henry: Dave: Jamil: Henry: Kathy: Dave: Kathy: Dave: Kathy: Dave: Kathy: Dave: Jamil: Dave: Jamil: Dave: Henry: Dave: Henry: Dave: Kathy: Jamil: Kathy: Jamil: Kathy: Dave: Jamil: Henry: Kathy: Henry: Jamil: Henry: Dave: Henry: Dave: Jamil: Dave: Jamil: Dave: Jamil: Dave: Kathy: Jamil: Dave: Jamil: Dave: Jamil: Dave: Jamil: Dave: Henry: Dave: Jamil: Dave: Jamil: Dave: Jamil: Dave: Henry: Dave: Henry: Kathy: Dave: Jamil: Dave: Henry: Jamil: Henry: Dave: Henry: Jamil: Dave: Henry: Dave: Kathy: Dave: Jamil: Dave: Henry: Dave: Jamil: Dave: Kathy: Dave: Jamil: Henry: Jamil: Dave: Henry: Dave: Kathy: Dave: Kathy: Henry: Kathy: Jamil: Henry: Dave: Henry: Dave: Kathy: Dave: Jamil: Dave: Henry: Dave: Henry: Jamil: Henry: Dave: Jamil: Dave: Henry: Dave: Kathy: Henry: Dave: \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
Hey everyone. Welcome to On The Market. I\u2019m your host, Dave Meyer. Joined today by Jamil Damji, Kathy Fettke, Henry Washington. What\u2019s going on everyone?<\/p>\n
Yo! What\u2019s up?<\/p>\n
Ooh, excited for a debate today.<\/p>\n
Yeah. This one\u2019s going to be fun.<\/p>\n
I like debates because the last time we did one, I won.<\/p>\n
You did. We don\u2019t have point, or maybe I\u2019ll sign some points here. I don\u2019t know. Last time was at BP Con and Jamil famously destroyed everyone else and won the right to plan episode of On The Market.
I don\u2019t think we have stakes for this one, but I am still looking forward to a spirited debate, because we have a topic that is definitely controversial right now.
And we\u2019re going to be talking about whether or not we are in a recession right now. If we are going into a recession. We\u2019re also going to talk about whether or not we were in a recession last year. And I am looking forward to this conversation. I have no idea how any of you feel about this, so I think it\u2019s going to be fun to talk about this.<\/p>\n
What happens if we all agree?<\/p>\n
I will pretend I disagree with you to make some drama.<\/p>\n
Perfect.<\/p>\n
Well, unless, maybe I will naturally disagree.<\/p>\n
He\u2019ll play devil\u2019s advocate.<\/p>\n
Yeah, exactly. So that is what we got on tap for you guys. Just so you know, that the reason that this is a debate in the first place is because the way a recession is defined in the United States is by a government entity called the National Bureau of Economic Research, and they do it retroactively. So they basically wait until well after the economic turmoil has happened, and then they say, like, \u201cOkay, this is when the recession started. This is when it ended.\u201d But it could be years after it started.
In the Great Recession, things started falling apart in 2007, 2008. It wasn\u2019t until 2009 that they said the recession started back in 2007, for example. And I know some people believe that this has changed over time and that the government has changed the way that recessions are defined. That is not true. This is the way it\u2019s been defined since 2000 and or back into the 1970s.
But I will just say that, because the way that we define recession is sort of confusing and retroactive. Most people use the definition of two consecutive quarters of GDP declines. That is what most people talk about. And so we\u2019re going to talk about today, whether we think that is an appropriate definition of a recession, and if so, are we in one? Are we not in one? And get into all that.
So this will be a really fun conversation. I think we\u2019ll learn about lot. We\u2019re going to talk about what indicators everyone follows to track if we\u2019re in a recession or not. So we\u2019re going to get into that in just a second, but first we\u2019re going to take a quick break.
Okay, let\u2019s jump into this topic. Before we get into talking about today, let\u2019s talk about last year, because as I said at the top of the show, the traditional sort of commonly used definition of recession, two consecutive quarters of GDP declines, which we saw in 2022. First and second quarter, we saw real GDP declines, but to date we have not heard from the National Bureau of Economic Research that we were in a recession. They still could do that retroactively. Haven\u2019t said it yet.
So Kathy, let\u2019s start with you. What do you think? Were we in a recession last year?<\/p>\n
We might look back and say that, that was the recession that everybody was panicking about. We really don\u2019t know, and I think we will look back and it\u2019ll be crystal clear at some point.
But I would say that there were certainly industries in recession. Real estate, one of them. Real estate sales, definitely in a recession, but not everything else. I mean, job growth still strong and we had two consecutive positive GDPs right afterwards.<\/p>\n
Yeah. It\u2019s very, very strange. Last year was a very weird time because some markets were, I guess we\u2019re going to say that a lot probably over the course of this episode, but we did see those two consecutive quarters of GDP growth. And I should probably say, if you don\u2019t know, GDP stands for gross domestic product. It is basically a measurement of the total economic output of the entire country.
And so we saw in the first two quarters of 2022 that GDP fell on a real basis, which means that it\u2019s actually growing. But when you accounted for inflation, it was actually declining due to the inflation. So that\u2019s what happened last year, but curious to hear from Henry. What do you think? Was that considered a recession?<\/p>\n
Yeah. So first, let me caveat this. I am no economist. So everything that I think is based on what I see and how I feel. Well, that\u2019s pretty much how I run my life anyway. But when I look back at 2022, I think, so how I judge a recession in my mind is like, \u201cHow are people responding to the negative impacts that are happening because of this, quote, unquote, \u201crecession?\u201d\u201d
And when I think about 2022, the thing I think about is like, \u201cWell, consumer spending would definitely go down in a recession.\u201d Because people are holding onto their dollars a little tighter, inflation was starting to rise, and so that money means more to people. And it\u2019s more about spending money on the things that you have to spend money on, to feed your family and provide shelter.
So consumer spending typically goes down, but when I looked at consumer spending in 2022, it was up. It was up 5.9% year over year. We went from 141 billion to 142 billion in consumer spending. So if that tells me that if we were in a recession because we had the two negative quarters of GDP, that the news didn\u2019t get to people yet or that people weren\u2019t as impacted yet, or the impact was to come in the future. And if you look at consumer spending now, it\u2019s down just a little bit, but it doesn\u2019t feel like a recession. So I would say no.<\/p>\n
All right. I think we should all caveat that we are not economists. We\u2019re just playing one on this podcast, but we do, I think, follow it closely enough that our opinions are at least well-informed, I hope. Jamil, what about you? What do you think?<\/p>\n
Well, it\u2019s interesting that Henry is using indicators that I think actually matter. How do things feel? What does it look like and what does it feel like? Because I\u2019m 45 years old, just turned 45, and I\u2019ve been through a few recessions. And I can tell you that the ones that I can remember, I actually felt them.
I felt them, regardless of whether I was an entrepreneur or I was in a W2 situation, I felt the recession. I understood that, \u201cOh, things are different right now.\u201d We\u2019re tightening up. We\u2019re not spending. Life has adjusted and we are making adjustments through it. And so I really do think that we have to look at these types of conversations and take into consideration how the broader country or how we\u2019re feeling as a nation with respect to our economics.
And so the fact that we had two declining GDP quarters consecutively, which is the definition of recession, and yet we have a failure to call it. It\u2019s an interesting thing. Why not just call it? So if this is the indicator, call it. You saw it. It happened. Call it. It\u2019s okay. It\u2019s okay to say the things, right? So the reason I bring this up is because I want to propose new indicators, because if we\u2019re not going to say that two declining GDP quarters are consecutively declining, GDP quarters are a recession, then I propose new indicators.
I propose that you go to a major metropolitan city, you get 10 miles away from the airport, and then you look at the number of UberXs and the number of Uber Blacks that are available at 8:00 AM in the morning. If the number of UberXs is less than the number of Uber Blacks, then we are in a recession.<\/p>\n
Yeah. And you could add to that, if you can get a reservation at the restaurant you want to go to.<\/p>\n
Oh, I see, okay.<\/p>\n
Yes. Because it\u2019s about feelings, right? If I can get an Uber Black a lot easier than I can get an UberX, then I know that people are spending money because we got the black cars out there. So how can it be a recession?<\/p>\n
There\u2019s this very funny recession indicator, I don\u2019t know, it\u2019s historical performance, but it\u2019s men\u2019s underwear, that you could predict recession by men\u2019s underwear. Because men just don\u2019t want to buy new underwear ever, and they, well basically only do it during really good economic times when they\u2019re feeling flushed, unlike every other time, they\u2019re just like, \u201cWear the same men\u2019s underwear.\u201d<\/p>\n
So wait, are we in a recession if you go commando? Is that what it is? \u201cAll the men are commando. We are in a recession.\u201d<\/p>\n
Yes. Basically, yes.<\/p>\n
I think you\u2019re on the summer hols with the number of holes in your underwear are the reflection of whether-<\/p>\n
I think you\u2019re onto something. I only buy my undies when I\u2019m in a good mood, typically financially, because them Duluth Trading underwear ain\u2019t cheap, man. You got to go, you spend $25 on a pair of underwear, you got to be feeling good about life.<\/p>\n
Whoa.<\/p>\n
Damn. Those are some expensive chuddies you got.<\/p>\n
Yeah, man. Only the best.<\/p>\n
And with women, it\u2019s just when Victoria\u2019s Secret is having a sale, that\u2019s when you buy your undies.<\/p>\n
Yes. Women are more like civilized people who will continue to buy the clothes they need despite the economic situation. Men are like, \u201cYou know what? I can cut back on underwear.\u201d<\/p>\n
Well, some people, I don\u2019t know if you guys have heard this, but some people are calling this the white-collar recession or the Patagonia Vest recession. Have you heard that?<\/p>\n
No, but I\u2019m wearing a Patagonia sweatshirt right now, so doesn\u2019t bother.<\/p>\n
Obviously people that got hurt or a lot of people have been affected by the rising interest rates and the attempt to create a recession by the Federal Reserve. And so a lot of people have lost, or their net worth has gone down in the stock market, certainly in crypto and short-term rentals, income has gone down. And so they\u2019re saying it\u2019s really affecting those who, the net worth of those who had a higher net worth last year.<\/p>\n
It kind of makes sense if you just look at the high profile layoffs that have been coming through the economy over the last couple months, they\u2019re tend to be really high paying jobs in sectors like finance and tech are sort of leading the way.
And if you look at the recent jobs report, which we\u2019ll get into in a little bit, there\u2019s actually a pretty strong job growth across the board, but particularly robust in things like hospitality and service sectors that are not traditionally as high paying.<\/p>\n
Yeah. So I think the bottom line is you\u2019re feeling a recession. If you lost your job, that\u2019s going to feel recessionary. And we probably know a lot of people who have, who are in the tech space, and certainly again in industries where higher interest rates are affected, and that would be real estate. Anyone in real estate sales is affected.
I have a close friend who just someone we know just lost their job. And that is why we love real estate. The more income producing assets you have, the less you worry about losing your job.<\/p>\n
That\u2019s for sure. The one thing I do want to say about last year before we get into current stuff is, I\u2019m more current. I keep thinking about this fact that the first half of 2022 is when we saw GDP declines, which a lot of people believe, would say that, \u201cThat is a recession. That\u2019s how a lot of people define it.\u201d But economic optimism was still pretty high then, and then it sort of switched.
GDP started growing again in Q3, in Q4 of 2022, but everyone got really pessimistic and really upset about it. So I\u2019m just curious. It\u2019s just this weird thing where it doesn\u2019t seem like people\u2019s sentiment and the data about the economy are actually lined up right now. I\u2019m just curious if any of you have any thoughts about that?<\/p>\n
I think, honestly, that\u2019s one of the most perplexing things that we have about this, and probably why we haven\u2019t called it anyways, is that sentiment, optimism has been strong and we\u2019ve all felt that. Even though typically real estate feels a recession first, so it\u2019s first in first out, we feel it, we\u2019re the industry that feels it immediately, and we typically feel it when we\u2019re coming out faster because of mortgage rates declining in an uptick in housing activity.
And so it\u2019s one of these interesting dichotomies is that, again, back to what Henry is talking about, sentiment, the overall feeling. Even though we were losing money in the same quarters that GDP was declining, and I can tell you that and looking back at our P&Ls like, \u201cOh wow, we lost money on this flip. We lost money on this flip.\u201d Meanwhile, the sentiment out there was still very strong and there were more Uber Blacks available than there were UberXs.<\/p>\n
All right. Well, along those lines I\u2019m curious, now, it seems to me that sentiment is very low. I think, I feel it, I feel my sentiment has really declined over the last year just about the economy in general.
What do you think, Jamil, are you feeling the economy today is in a recession or are we heading towards a recession, or what are you thinking about the future?<\/p>\n
Interestingly enough, I\u2019m again going to defer back to our beautiful friend Henry here and say, I\u2019m starting to feel optimism again. I had the pessimism, I felt this, I felt that, oh my god, especially going into the holidays and two months prior to that from Thanksgiving to Christmas, it\u2019s been miserable in the housing market.
And again, if you\u2019re got flips on the market or you\u2019re selling, you felt that, you felt a lot of pressure. You felt just, \u201cWhere is everybody? How come there\u2019s just not a lot of activity?\u201d And maybe I\u2019m just myopic because I\u2019m talking about a market like Phoenix where we really felt that more than say, how Henry felt in northwest Arkansas.
However, after the Christmas holiday, I have not seen as much or felt as much strong investor activity, strong buying optimism. I mean, pendings are spiking. We can\u2019t keep inventory. We just can\u2019t keep inventory on our books. We pick up a house, we sell a house, we pick up a house, we sell a house, and it\u2019s like, \u201cOh, wow, okay.\u201d I thought we were going to kind of loosen our tighten things up around here, but it looks like we\u2019re putting out more money and taking in more opportunities.
And it\u2019s also interesting that I have friends in the vehicle industry. And so they had situations where their car lots were just swollen full of inventory because they had overbought, because there was a shortage of vehicles for a time, and so dealers were overpaying and buying. And anyone who bought a car last year understands what I\u2019m talking about right now. We very likely overpaid for our vehicle if you bought last year.
Well, I am talking to my friends that are in the car industry and they\u2019re also saying, \u201cRight now, Jamil, we can\u2019t keep inventory on our lots. We just can\u2019t.\u201d And right before the holidays from Thanksgiving to Christmas, we were all tremendously worried and we had no idea what was going to happen if we were going to go bankrupt, if we were needed to get more credit. We were all worried. And after the holiday, things have just exploded.
So right now I\u2019m like, Henry said, I\u2019m optimistic. My sentiment right now, it\u2019s pretty good. I feel things are picking up and housing should be, we were first in, I felt it. We\u2019re first out, I feel it.<\/p>\n
All right. Well, yeah, by those two indicators, housing and the car market, there\u2019s definitely a pickup in activity over the last couple of months.
Henry, what about you? Are there any indicators or data points that you look at to try and assess the current economic condition?<\/p>\n
Well, yeah. So there\u2019s the general indicators that everybody looks at. GDP, 2.9%, right? That\u2019s up. Unemployment 3.4%, right? That\u2019s good.<\/p>\n
Historic lows.<\/p>\n
Yeah, historic lows, right? January, you got job claims at 183,000, so that\u2019s a nine-month low. So those indicators are telling us, \u201cNo, we\u2019re not in a recession.\u201d There are some indicators that may be telling us, \u201cYes, we are.\u201d But those are the key indicators people look at.
But again, feelings. So not only how I feel, because I feel exactly how Jamil feels. But if you look at how other people feel, if you look at consumer confidence, consumer confidence is super high right now. And part of the reason that that\u2019s super high is if you\u2019ve been paying attention to the stock market over the past few weeks, these earnings reports have been coming out and a lot of companies are reporting beating earnings. You have somewhat, 69% of the companies that have actually reported earnings above their targets.
So that is going to make not only people feel more confident in the economy, but it\u2019s going to make companies feel more confident in the economy. And if companies are feeling confident, then they\u2019re going to go out and continue to spend money. They\u2019re going to invest in new projects and new technologies. They\u2019re going to go out and invest in new jobs in hiring people that are going to help them hit their goals for the next quarter.
So if they\u2019re feeling confident, people feel confident. People feel confident, people spend money. If people spend money, it\u2019s a benefit for us in the real estate space.<\/p>\n
Well said. Kathy, what do you think?<\/p>\n
We are an opposite land. It\u2019s such a strange time to look at the data that we get and be concerned about it. And that data, by that data, I mean 517,000 new jobs created. This beat expectations by double, even triple by some economists. And this is after almost a full year of the Fed trying to slow things down and raising interest rates in an unprecedented way.
So no, you can\u2019t be in a recession when you\u2019re creating that many new jobs when businesses are hiring that many new people and not laying off people. And then retail sales up to 3% in January. So people, they\u2019re spending money and you see it, at least for me, when I go out, and again, I was serious trying to get a reservation, and at certain restaurants you can\u2019t get in, you can\u2019t get in.
So this would normally be great news, but people are panicked by news like this, by good economic news because that means that the Fed may continue to raise rates. But what I want to say about that, is they already said they were going to do that, so don\u2019t panic. The Fed has been pretty clear about what their plans are, which is to get the overnight, the Fed fund rate, the overnight lending rate above 5%. It\u2019s not there yet. We\u2019re four and a half to four and three quarters percent.
They already told us that they\u2019re going to keep raising, so don\u2019t be shocked, they are planning to continue to raise rates and to hold them there. I\u2019ve heard lots of people say, \u201cOh, as soon as they get to 2023, they\u2019re going to start reversing and lowering rates because it\u2019s going to slow things down.\u201d And that\u2019s not what they\u2019re saying.
They\u2019ve been pretty accurate about what they forecast. They tell people what they\u2019re going to do. And generally, investors certainly stock market investors, listen, and we have a ways to go. They\u2019re going to raise rates a few more times and most likely hold it there for the rest of the year, and especially after these massive, massive economic numbers that have come in, showing that the economy is strong.
So no, I don\u2019t see, we couldn\u2019t possibly be in a recession if the Feds raising rates and we\u2019re having job growth and people are spending money.<\/p>\n
Kathy, do you think that there may be just some possibility that we, people are starting to listen to what the Fed\u2019s saying and trust them at their word? And so do you think that there may be just this increase in activity because people are just trying to beat lending costs getting even more expensive, or is this activity real and not just artificially motivated?<\/p>\n
Well, rates, if we\u2019re talking about housing and what you\u2019re feeling in your industry and our industry, is rates did go down over December and January, and I think that\u2019s what we felt. At our business at Real Wealth we\u2019re booming again. People flocking. We do one webinar and everything sells, so it\u2019s like, \u201cYeah, we\u2019re back.\u201d But that was because rates went down and numbers started to make sense again.
Now, they\u2019re going back up again because the feedback we\u2019re getting on the economy is, it\u2019s booming. And generally people get out, investors start to invest back in this stock market and out of bonds. And if they\u2019re buying bonds, rates come down. If they\u2019re not buying bonds, rates go up, and that\u2019s where we\u2019re at.
So we could feel that and we could be having a different conversation next month in terms of real estate going, \u201cOh, things slowed again because rates went up a bit.\u201d But that\u2019s just our industry, that\u2019s not America.<\/p>\n
That\u2019s not the economy overall.<\/p>\n
Yeah.<\/p>\n
I think, Kathy, you made a good point that we\u2019re in this weird situation where good economic news is felt like bad economic news, because it means that the Fed is going to continue to raise rates, and then there\u2019s this pending economic downturn that\u2019s just always sort of six to 12 months ahead of us. At least that\u2019s what it\u2019s felt like for the last\u2026<\/p>\n
Do you all feel like we\u2019re being gaslighted a little bit?<\/p>\n
Man. Yes.<\/p>\n
I just think everybody\u2019s panicking. Everybody\u2019s afraid of losing everything. Nobody wants another 2008, no one wants to start over again and lose everything. So there\u2019s been people predicting recessions and housing crashes for the past 10 years. It\u2019s nothing new.<\/p>\n
Look, I\u2019m with conspiracy theory Jamil on this one. You create the fear, people start panicking, they start panic selling, and then the wealthy take advantage, man. They go out and scoop stuff up, but it just-<\/p>\n
We\u2019re just gaslighting everybody playing games to come in and gain.<\/p>\n
Yeah. Yeah.<\/p>\n
Well, I think there is truth to that because\u2026 Well, I don\u2019t know if it\u2019s conspiracy theory, I have no idea. But I think there is some element that the Fed and the government wants people to stop spending money.
They want you to be afraid, not necessarily because it benefits rich people, maybe it does. But they definitely want that because that will help inflation. If people are afraid and stop spending as much money, then that would help curb inflation and the Fed would be delighted with that to happen.<\/p>\n
Sorry, I have to go. There\u2019s people with black suits at my door.<\/p>\n
But I also want to get back to something you said Jamil was like, I do think there is, they call it the dead cat bounce. I do think there is a pretty good chance that Q1 of this year for the housing market looks pretty good and then it slows down again because inflation data came out this week. It was down a little bit, but it was not a very good inflation report generally speaking, and it\u2019s that combined with what Kathy was talking about with the jobs report. It\u2019s just basically giving the Fed a green light to keep raising rates aggressively.
And so we were seeing mortgage rates start to slide on these recessionary fears. But now, I think there\u2019s a good chance the terminal rate, what the Fed goes up to is going to be higher than five and what could be five and a half, and I think there\u2019s a good chance that we see mortgage rates now go up to somewhere near seven, seven and a half over the course of this year, or we go into recession, it goes the other way.
It\u2019s just super hard to tell. And my read on this is when it\u2019s all said and done, if we\u2019re looking back at this five years from now, they\u2019re going to call this whole thing, I don\u2019t know if they\u2019re going to call it recession, but from 2022 to through 2024 is just going to be this weird half recession, half not recession, where some parts of the economy are doing really well and some parts are doing really poorly.
And we\u2019re not going to ever have this, quote, unquote, \u201crecession\u201d where you feel it, like you were talking about Jamil, where everything goes down. It\u2019s going to be this sort of whack-a-mole situation where jobs are up, housing\u2019s down, housing\u2019s down, cars are good. Where we just have this weird thing.<\/p>\n
Yeah. It\u2019s a recession mullet, from the front party in the back.<\/p>\n
I don\u2019t even know what to say, but I like that idea. Do you think that makes sense? Am I off base?<\/p>\n
Not at all.<\/p>\n
It just feels like-<\/p>\n
I don\u2019t think you\u2019re off base at all.<\/p>\n
\u2026 we\u2019re all trying to call it a, \u201crecession,\u201d quote, unquote, but the economic situation we\u2019re in defies normal words for it. No one\u2019s calling it a recession because it\u2019s just different than any other economic situation we\u2019ve ever been in.
That doesn\u2019t mean it\u2019s not bad, it doesn\u2019t mean it\u2019s not painful. It is bad and painful. It doesn\u2019t, but there are also good parts of it, so it\u2019s just really hard to fit this situation into our conventional definitions of economic cycles.<\/p>\n
I mean, if you boil it all down to what is so different and weird this time around, besides the fact that we had a global pandemic that none of us have experienced before, is that the Fed created over $3 trillion in a matter of eight, what, 13 months? And that is a huge shock to the system, I suppose in a good way, where money went to the people.
And a lot, we talk about the stimulus checks, but those PPP loans, those loans that went to businesses sometimes were in the millions, and it was sometimes to businesses that maybe didn\u2019t need that money, but they got that money and that\u2019s extra and that, where did that go? Usually when there\u2019s profits, it goes to the owners or the shareholders, and then that goes out into the economy.
Generally, people spend it or they invest it, so we\u2019re still in the hangover of that. That was a lot of money that perhaps was spent on buying all cash properties or buying things that without debt. We know that homeowners are in a really, really good position right now because many of them have high, lot of equity still. They have high equity and super low payments.
So that\u2019s just another example of so much money that was easy to get, and if you were borrowing it, it was low debt that people are just not, and when I say people, I don\u2019t want to say all people, but a lot of people still have money. Whether it\u2019s in savings or they have the things that they wanted and bought with cash at the time.
So it\u2019s going to take a while, I think, for that amount of stimulus to trickle down and to trickle out of the economy. And the Fed doesn\u2019t want to talk about that part of it. Nobody seems to want to talk about that part of it, the over stimulus.<\/p>\n
Well, I think what\u2019s interesting, Kathy, is that in 10 years they\u2019re going to have a report and it\u2019s going to be all of the things that were bought with PPP loans.<\/p>\n
Oh, did you see that one recently?<\/p>\n
No, I didn\u2019t even know this existed yet.<\/p>\n
There are some. The government is starting to go after people for fraud, and one of them was an influencer. This woman who was an influencer got plastic surgery with a PPP loan because her business was her\u2026<\/p>\n
Is she a stripper or something?<\/p>\n
I don\u2019t know. I didn\u2019t look into it that much but it was kind of like her business is her appearance. So she basically got a-<\/p>\n
Like Henry.<\/p>\n
Yeah. Yeah. But he doesn\u2019t need money for it. That\u2019s all natural.<\/p>\n
So you did no market research on that, right? That\u2019s what we\u2019re\u2026<\/p>\n
Not that I\u2019m willing to talk about on the show. I\u2019m not going to tell you how I know about this story Henry.<\/p>\n
Were there Lamborghinis, were there luxury mansions? What got bought with the PPP? You know what I mean?<\/p>\n
Yes. Yeah. There\u2019s definitely going to be a reckoning for that and a few rap songs, I bet.<\/p>\n
Yeah. Yes, probably.<\/p>\n
Well, so I\u2019m curious how, given, are we all in agreement that I don\u2019t know, I guess my feeling is I don\u2019t know if they\u2019re ever going to call it a recession or not, that\u2019s out of my hands, but I do think this economic uncertainty that we\u2019re all experiencing is at least all of 2023 and probably into next year. I don\u2019t know. Do you guys feel differently about that?<\/p>\n
I hope I don\u2019t. I mean, again, as I mentioned earlier, it could be the dead cat bounce or it could just be a return to normality in housing, but I\u2019m optimistic. I truly believe that 2023 isn\u2019t going to be as bad as we had expected it to be.
If I\u2019m looking back at the last two quarters of 2022, I had some definite anxiety about what 2023 was going to look like, and that anxiety is beginning to soften.<\/p>\n
Well that\u2019s good. I like your optimism. I mean, just by the fact that how wrong economic projections tend to be. The fact that most economists believe that there will be a recession probably just by default piece, that there probably won\u2019t be.
Except I am a believer in the yield curve. I don\u2019t know how much you guys follow this, but that is the most reliable predictor of recessions that we have pretty much, and that does point to a recession. So that one, every time I start to feel some optimism about the economy, I look back at that. I\u2019m like, \u201cOh, no, we\u2019re screwed.\u201d<\/p>\n
I think the big caveat there is exactly what Kathy mentioned. I mean, the indicators that we\u2019re using are the indicators we\u2019ve used historically, but historically we haven\u2019t had this pandemic, which created its own problems.
And then yes, we created, the Fed created money, and in order to help people. I don\u2019t want to say that the stimulus was bad or PPP was bad. It was created for a reason. There were people who absolutely needed those stimulus, right?<\/p>\n
Absolutely. Yes.<\/p>\n
We\u2019re very fortunate here that we didn\u2019t need those things. But when the pandemic first hit, I remember seeing people at the grocery store, I paid for a lady\u2019s gas who was in tears because she didn\u2019t know how she was going to be able to keep gas at her car. And so the money was created, I think, for the right reasons. And there were tons and tons of people, tons and tons of small businesses who needed PPP funds.
Does that mean people didn\u2019t take advantage of it? Of course, people did. But I think it was created for the right reasons. But that\u2019s this big caveat, I think that\u2019s causing a lot of these, what you call it, whack-a-mole of the economy, industries up and down. We\u2019ve had this huge outlier of a recession.
So yeah, I don\u2019t think we\u2019re going to be in a recession. I don\u2019t think it\u2019s as bad as people think it\u2019s going to be. And who knows, maybe I\u2019m terribly wrong, but I don\u2019t know, it\u2019s hard to believe or follow the indicators when this historically hasn\u2019t happened before.<\/p>\n
And here\u2019s where the debate part will come in. I do think that, well, first of all, it\u2019s nearly impossible to predict anything anymore, because we don\u2019t really know what the Fed is going to do or how quickly they\u2019re going to move given the very, very strong economic data.
If they do what they\u2019ve said they\u2019re going to do, they would raise rates throughout 2023 gradually, at quarter percent hikes, which is a lot better than three-quarter percent hikes, until they get to five or five and a quarter percent. So that would be several more quarter percent hikes this year and then holding it.
What we don\u2019t know is how that\u2019s going to impact what appears to be a pretty strong economy from all that money. I\u2019m going to say the economy strong because if you or I took out a $3 trillion credit line, we\u2019d probably be looking pretty good too. And that\u2019s where we\u2019re at. It\u2019s just a still a lot of money circulating out there because of all that stimulus.
So will being at 5% Fed fund rate stabilize things or send us into recession? It doesn\u2019t look like. And most people, most economists are now not predicting it for 2023. That it will be just flat, just a GDP of just kind of maybe half a percent or something like that over 2023, which is great. If we just hold, that would be wonderful.
The question is, what will 2024 be like and is that something that we should worry about? And that\u2019s what we\u2019re going to see in the headlines is, \u201cOkay, this year\u2019s going to be okay, but just wait till 2024.\u201d And that\u2019s the unknown.
So we\u2019re not out of it yet. The recession headlines are going to be with us. How do you deal with it? That\u2019s really the question, is how do you deal with it? How\u2019s it going to affect you? It\u2019s probably not going to be a 2008 type of collapse, although there\u2019s people out there saying it will be, but there\u2019s always people out there saying it will be. So that question mark will always be there, says, \u201cHow do you operate and live with that hanging over your head for another year too?\u201d<\/p>\n
Totally. Yeah. I don\u2019t wish for a recession or want anyone to lose their job, but it almost in some ways would be better if it just got over with, because it\u2019s just dragging this out for a long time. This economic uncertainty and fear that everyone, myself included has, and I just want to say the scenario you\u2019re describing, Kathy, which I think is a reasonable scenario, is probably the worst case scenario for housing prices.
If interest rates go up, but we do not go into a recession, in my mind, is the most likely scenario that could actually lead to a housing crash, because then interest rates are going up that puts upward pressure on mortgage rates. But without the recession to help, just so everyone knows, a recession usually pulls down mortgage rates.
So if interest rates go up, but there\u2019s no recession, that puts the most of all the scenarios I can see happening, that\u2019s probably the one that has the most upward pressure to mortgage rates, which would probably send the housing market down further than I have been expecting over the last couple of six months.
So just everyone knows, that scenario is good for the economy, but could be pretty bad for home values. I know some people are hoping for home values to go down so they can buy cheaper, but that\u2019s just something I wanted to call out.
And then the last thing, the second thing I wanted to say is that what Kathy\u2019s describing, what we\u2019re all describing, what we\u2019re trying to do here is just talking about different scenarios that can happen. I just want to reiterate that none of us know, and we\u2019re just trying to play out and sort of game what different things could happen so that you can think through some of how you would react to these things.
So generally speaking, Jamil, given the uncertainty and these different scenarios that we\u2019re all positing that could happen, how do you react with your own investing, your own money? How are you operating in this uncertainty?<\/p>\n
Great question, Dave. I\u2019m operating the way that I would normally operate when I\u2019m, as I\u2019d said on previous shows, I am still very, very bullish on the fact that our inventory numbers that real estate in general is not, whatever we\u2019re experiencing right now is engineered. This isn\u2019t normal market cycles, and we are lacking inventory across the country. So I am going to continue to buy, I\u2019m going to do what I would normally do. I\u2019m just buying everything deeper. I\u2019m doing what I would normally do, but more aggressively right now.
And actually, funny enough, I\u2019m historically known as somebody who doesn\u2019t hold a lot. I\u2019m a wholesaler, so I like to flip paper and generate cash that way. But this last six months, I\u2019ve been buying and holding property because I\u2019m getting stuff at such steep discounts right now and I\u2019m watching inventory and I can see what\u2019s coming around the corner, at least maybe not next year, maybe not two years from now, but 3, 4, 5 years from now. The inventory that I buy today, I\u2019m going to be able to take massive, massive gains on, and I did this back in 2010.
I bought $800,000 worth of property in 2010 that I exited in 2019 for 8 million bucks. I mean, and that was one of the things that tipped the scales of my life, was being able to have that situation occur for me. So I\u2019m trying to bet on that happening again. I\u2019m holding, I\u2019m buying, I\u2019m buying aggressively. I\u2019m going to hold really, really, really, really great assets at great prices, and I\u2019m going to wait five years and see what happens with it.<\/p>\n
All right. Well, great. That\u2019s very good advice. Henry, I\u2019m sure you\u2019re doing something radically different than what you normally do.<\/p>\n
Absitively, posilutely not. We are doing exactly what we\u2019ve been doing. I couldn\u2019t mirror Jamil anymore. We talked about it before on another show, but when we talk about investing in real estate, people obviously want to buy low, so that they can either hold and build wealth and get wealth through appreciation and equity.
Cash flow is great, but the real wealth is built through appreciation and equity or they\u2019re looking to buy low and then add value to it and then sell high. And so if this is what you\u2019re in the real estate space for, this is the time that\u2019s for you, because you can buy deep discounts right now.
If you\u2019re in the real estate space because you want to be able to buy and sell, maybe the timeframe that you\u2019re going to look to maximize your sell is longer, like Jamil saying, he\u2019s buying some, he\u2019s holding them for the short-term, but his plan is to sell them when their value is at it\u2019s, quote, unquote, \u201cpeak.\u201d When their value starts to go up tremendously.
Also, if you\u2019re in a place where you\u2019re saying, \u201cHey, I don\u2019t know where to start, but I know I want to get into large scale multifamily, I want to get into a space that takes a lot of capital to get into.\u201d Well, phenomenally you could do exactly what Jamil\u2019s doing. You could buy at discounts right now. You can hold them, which increases your net worth. You\u2019re going to get the appreciation and the debt pay down over the next five years, but then you can leverage that.
Increase your buying power to buy larger assets, then still sell those properties that you bought five years ago at a profit. So it\u2019s one way for you to get in now, where you\u2019re going to get in deep and use that leverage to start to scale.
And then also for us, man, that we are getting such great discounts that we are able to do both. We are able to buy and hold and cash flow very well because we\u2019re buying at a deep discount. Even though the interest rates are higher, we\u2019re still cash flowing because of the depth of which we can buy, but also it\u2019s still profitable doing flips. I\u2019m going to do my first two flips that we\u2019re going to sell here in 2023, are going to be triple digit flips, no pun intended there.<\/p>\n
Yeah. Ding, ding, ding, ding, ding, ding, ding, ding. Let\u2019s go.<\/p>\n
But put to caveat that, these are six-figure net profit flip.<\/p>\n
So, you\u2019re going to make a hundred dollars, triple-<\/p>\n
Yes. Yes.<\/p>\n
You know how many messages I get on the internet, just game laughing at us for that title. But no, he means hundreds of thousands of dollars.<\/p>\n
I had never thought about that. Someone else said it to me. I might have read it in one of your comments or something, I was like, \u201cYeah, okay. I guess there\u2019s a point.\u201d But I knew what you meant.<\/p>\n
So when you talk about a triple digit flip, we\u2019re talking about a market in Arkansas where the spreads aren\u2019t as big as in a market like Phoenix. And so that\u2019s a big deal in this mid-tier market, especially with interest rates where they are, and with home prices starting to come down across the country, we\u2019re still getting very, very high returns.
I\u2019m turning down projects, that it would typically net like 30K because my time is better spent on the deals that are going to net me 50, 60, 70, 80, and they\u2019re still widely available. I just turned one down yesterday and the wholesaler was shocked that I didn\u2019t want to take the deal because I was going to only make a $30,000 profit. So there are plenty of opportunities still out there, and so our strategy hasn\u2019t changed, but our underwriting is different.<\/p>\n
That\u2019s awesome. Thank you. I mean, that\u2019s super good advice. And Henry, you\u2019re always just smooth and steady, always doing the same thing. I like that.
Kathy, what about you? Is there anything you\u2019re doing differently or thinking about just in terms of managing your investments right now?<\/p>\n
No. I mean, I will speak from the perspective of somebody who doesn\u2019t do business where I live. I live in California, the regulations are ridiculous. The cash flow doesn\u2019t exist. Prices are still extremely high. I know some people invest here, but I don\u2019t.
So I speak from the perspective of me and our members who have to invest somewhere else to make the numbers work. And looking at where that is today, they\u2019re over the last couple of years, it was really hard for us because you\u2019re trying to compete, but you\u2019re not in the market and you need somebody local there, but they\u2019ve got 50 other clients, and how do you get that deal when you don\u2019t live there and you\u2019re kind of relying on somebody else?
And for many of us who invest out of state and not in the area where we live, we like to, I\u2019ll speak again for myself and for people I represent, is something a little newer because you\u2019re not there and so something newer or at least completely renovated is feels safer. You kind of know what you\u2019re getting and you can rely on, this is everything\u2019s already been fixed. I\u2019m not going to have a lot of repairs, most likely on this property.
And that type of property, sort of A, B class property was almost impossible to get, over the last couple of years. And new builders, I started investing with new builds and new builders didn\u2019t want anything to do with investors. So why would I sell to an investor when I can sell to the retail market for more and not have a bunch of rentals in my subdivision?
Well, all of that has changed. So from a perspective of somebody investing not where I live and helping other people build a portfolio, not where they live, this is an incredible time. This is so much better than what we\u2019ve been dealing with over the last couple of years. Now, builders want to work with us and they\u2019re giving us discounts and they\u2019re paying down our mortgage.
So it\u2019s like we\u2019re in the money. This is why we\u2019re so busy right now, because finally, investors like me, out-of-state investors who already have jobs and already are working and they can\u2019t be as awesome as Henry and Jamil. We can\u2019t do what you guys are doing because we\u2019re not there.
So the opportunities for us are so much better, and so I\u2019m optimistic from that perspective that this is the time that I can now get back in and build my portfolio and still get pretty good rates because like I said, you could negotiate, you could negotiate for the seller to help pay down your pay points, to pay down your mortgage.<\/p>\n
Awesome. That is also great advice, and I think that\u2019s reflected across a lot of other experiences that we\u2019ve been hearing about. People we\u2019ve been interviewing on this show all seem to be, think that there\u2019s great opportunities out there. There\u2019s also a lot of crap out there, I will say. So it really is about finding good stuff.
I will say that for me, I am actually doing a few things differently. I am starting to get into lending because interest rates are really high right now and it\u2019s a good market to be in lending. And the second thing I\u2019m doing, just generally speaking is looking for to put some money into short-term opportunities right now because as if you listen to the show, no, I mostly invest passively in commercial real estate, and I do think commercial real estate is going to be taking a hit in terms of valuations and there\u2019s going to be really good opportunities.
I know, I always say don\u2019t try and time the market, but I\u2019m not listening to my own advice. I\u2019m going to try and time the market a little bit with commercial real estate, but I\u2019m still investing my money for now looking into shorter term opportunities that I can still earn a really good yield for six months, 12 months, and then trying to see what happens.
Just as we\u2019ve been talking about this whole episode, no one knows what\u2019s going to happen, so I\u2019m trying to buy some flexibility with my money so it can take advantage of even better opportunities if they come over the course of the year.<\/p>\n
I just want to say that I want to be the first to call Dave the hardest, hard moneylender on the market.<\/p>\n
Thank you. I don\u2019t really know what that means.<\/p>\n
The amount of people that are going to DM you asking for money.<\/p>\n
I should have, that\u2019s a good point, Henry. Sorry. Now, people are going to ask me for money for sure. I don\u2019t have a lot of it, so don\u2019t ask me for that much. You\u2019re better off asking someone else or ask James. He lends out a lot of money.
All right. Well, thank you all for being here. This was a lot of fun. I hope you all enjoyed this debate. As you can see, everyone\u2019s just trying to figure out what\u2019s going on. Hopefully, this helps you understand some of the indicators to look at, some of the sentiment that is occurring in the market right now and how you can prepare yourself for the weird, whatever you want to call it.
You want to call it recession, go for it. You want to call it something else. Whatever it is. It\u2019s weird, the weird economy that we are in right now.<\/p>\n
The mullet. Yeah, the mullet economy.<\/p>\n
The mullet. Exactly. The mullet economy.<\/p>\n
The mullet economy. I hope that too soft.<\/p>\n
I feel like we [inaudible 00:49:02] a graphic for that. All right. The mullet economy. All right. Well, let\u2019s just do a little round of where to find you guys. If you want to learn more about the mullet economy and Jamil, where should people contact you?<\/p>\n
You can follow me on Instagram @jdamji. Also, I have a pretty fun and entertaining YouTube channel where I teach people how to wholesale real estate and can crack you up a couple of times, so you can find me on youtube.com\/jamildamji.<\/p>\n
It is funny because you can find a video of Jamil and I in pajamas doing interviews about real estate on that channel.<\/p>\n
It was a great interview. People loved our jammy jams.<\/p>\n
That sounds awesome. I haven\u2019t seen that. I haven\u2019t seen that. Well, Henry, what about you? Where can people find more about you and your pajamas?<\/p>\n
Yeah. Instagram, best place for me. I\u2019m @thehenrywashington on Instagram or check me out of my website, henrywashington.com.<\/p>\n
All right, great. And Kathy?<\/p>\n
I was going to say Instagram too @kathyfettke, but make sure it\u2019s two Ts because there\u2019s somebody trying to be me and don\u2019t listen to them with one T. It\u2019s two Ts, Fettke. And then probably a safer way is realwealth.com where nobody\u2019s trying to impersonate me there. I don\u2019t think. I don\u2019t think.<\/p>\n
Kathy impersonators are unbearable on Instagram. It\u2019s ridiculous.<\/p>\n
It\u2019s ridiculous. And they\u2019re asking for money, so that\u2019s not me. I\u2019m not asking anybody for money.<\/p>\n
Kathy, I heard you mentioned a couple of times that you were having trouble getting a reservation for dinner. Did you tell them that you were Kathy Fettke of Real Wealth?<\/p>\n
Oh, no. I didn\u2019t use that.<\/p>\n
No. Because they thought it was Kathy Fettke with one T.<\/p>\n
They thought you were\u2026 [inaudible 00:50:46]<\/p>\n
It was the fifth Kathy Fettke that had contacted the restaurant that day.<\/p>\n
You cannot have a reservation and you cannot pay with Bitcoin.<\/p>\n
Yeah, they asked, Kathy called the restaurant and asked how their crypto trading was going.<\/p>\n
And I\u2019ll help you. If you just give me five grand, I\u2019ll invest it for you.<\/p>\n
Seriously though, if you are listening to it\u2019s just public service announcement, if someone, any personal finance person, if the four of us, anyone else contacts you and asks you to trade with them, particularly Bitcoin or Forex, read very carefully the username of the person who is asking you, because it is very likely to be a scam. Please report them.
I know, I think I speak for all of us, that we report all the people who impersonate us, but Instagram and Meta is very, very slow to remove them. So-<\/p>\n
I wonder why.<\/p>\n
\u2026 just be careful. If you ever see that.<\/p>\n
Be careful.<\/p>\n
Oh, I know why. Because there\u2019s stock prices down 70% and they don\u2019t want to reduce engagement even more.<\/p>\n
Oh, now the people with black suits are at Dave\u2019s store.<\/p>\n
Now I\u2019m the conspiracy theorist, right, Henry?<\/p>\n
Yeah.<\/p>\n
I mean, I don\u2019t know about that, man. It would be so easy to write an algorithm to stop them for doing that, and they just don\u2019t do it.<\/p>\n
A hundred percent.<\/p>\n
But it\u2019s the same thing, right? Isn\u2019t that what Elon Musk sued Twitter about, right? Was that so much of the engagement is bots.<\/p>\n
Yep.<\/p>\n
But they\u2019re just like, \u201cWe don\u2019t know what\u2019s going on.\u201d Because then they don\u2019t have to report it to their investors. Anyway, don\u2019t shadow-ban me Instagram.<\/p>\n
It\u2019s a love-hate relationship.<\/p>\n
So good.<\/p>\n
All right. We\u2019re going to get out of here. See you all next week. Thank you all for listening. We\u2019ll see you for the next episode of 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 BiggerPockets 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