BiggerPockets Money Podcast - 343: Is Now the Time to Buy as The Housing Market Starts to Dip?

Episode Date: October 10, 2022

The 2022 housing market doesn’t make a whole lot of sense. At the start of the year, competition was fierce, with bidding wars on every home and lines out the door just to view an open house. Now, in quarter three of this year, interest rates have hit decade-long highs, buyers are more in control, and days on market are starting to creep back up. As a homeowner, investor, or renter, you need to know what's on the horizon so you can build wealth while others run for the hills. Joining us today are James Dainard, Jamil Damji, and Kathy Fettke, a gaggle of real estate veterans and the expert guests on BiggerPockets’ On the Market podcast. They’ve seen up markets, down markets, and confusing markets like today. As investors who touch almost all corners of the United States, with different areas of expertise, they bring the facts on what’s happening in today’s housing market. We talk about interest rate updates, when the “inventory crisis” will end, why demand has taken a nosedive, and whether or not it’s still a good time to buy real estate. We also talk about the state of the economy, inflation, and how the Federal Reserve may be working to put us into another recession. This up-to-date episode will give you everything you need to make smart buying or selling decisions in today’s housing market. In This Episode We Cover Why interest rates are up and what it means for the housing market Whether or not the Federal Reserve is trying to cause a real estate correction When and where you can expect price drops and how long they’ll last Is now still a good time to buy real estate (investments AND primary residences) Adjustable-rate mortgages (ARMs) and why they’re worthwhile in times like today The housing inventory crisis and how Millennial demand drove up prices And So Much More! Links from the Show BiggerPockets Money Facebook Group BiggerPockets Forums Finance Review Guest Onboarding Mindy's Twitter Scott's Instagram Listen to All Your Favorite BiggerPockets Podcasts in One Place Apply to Be a Guest on The Money Show Podcast Talent Search! Subscribe to The “On The Market” YouTube Channel Listen to The “On The Market” Podcast: Spotify, Apple Podcasts, BiggerPockets Check Out Mindy’s 2022 Live Spending Tracker and Budget On the Market Podcast RealWealth Website Jamil's Instagram James Instagram Interested in learning more about today's sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page! Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, hello, hello, and welcome to the Bigger Pockets Money podcast, where I sit down with James Dainard, Jamil Damjee, and Kathy Fetke, three of the panelists from the On the Market podcast, which is a sister podcast to this show. And we talk about this flip-flopping real estate market we find ourselves in. I am here to make financial independence less scary, less just for somebody else, to introduce you to every money story because I truly believe financial freedom is attainable for everyone. No matter where. or where you're starting. Whether you want to retire early and travel the world, start your own business, go on to make big time investments in assets like real estate or even just get a handle

on what is going on in this market right now. We'll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings

your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code Pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money

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Hey, Mindy. So I'm a full-time investor. I've been an investor in the Pacific Northwest for the past 19 years now. I started when I was a senior in college. I'm a heavy value ad investor where we do a lot of heavy lifting on properties of increasing day one margins. So whether it's fix and flip properties, development sites, building homes, or large and small multifamily where we're stabilizing them and increasing the value.

I'm also a broker up in the Pacific Northwest where we do about 150. million a year with investors of just helping investors through the process, sourcing on and off market deals, and then handling the disposition as well. But just full-time deal junkie, Pacific Northwest, that is, that's where I hang. Full-time deal junkie. I love that. Jamil, welcome to the Bigger Pockets Money podcast. Let's let everybody know why you're so great. Thank you, Mindy. I appreciate being here. And I am Jamil Damjee. I am a national wholesaler. So what I do is I hold wholesale properties all across the country. I founded the largest franchise for wholesale in the United States called Kigley. Not only that, I also fix and flip property. And I'm on a television show on

A&E where I flip properties with my best friend and big sister. And like James, do a lot of value add, a lot of heavy construction type projects. And so this is very interesting to me. Nice to meet you. Well, it's nice to meet you, too. Thank you for joining us today. And Kathy, last but not least, she is alphabetically last. Kathy Becky, welcome to the Bigger Pockets Money podcast. Thank you. Please let our listeners know why you are so fantastic. Oh, thank you. I have, I'm the co-founder of real wealth. We've been helping investors in high-priced markets find properties in cash flow markets. So that means understanding what it takes to own a rental property out of state. We do a ton of education at Real Wealth. And I have a broker-to-broker relationship with agents across the country who

really know investment property and know what the rents are and many of them own property management companies so that you're not kind of stuck with an agent that just wants the commission is going to take you to the wrong neighborhood. We also provide the resources that come along with that. Like, the insurance companies and, you know, the lenders that can can do loans in those states. So we've been doing that for, oh my gosh, almost 20 years now. And then I also started syndicating in 2010 in the downturn when we were buying land for like 10 cents on the dollar. So that's been an interesting ride as well for the past 12 years. So, well, I'm so excited that the three of you are here today. I'd like to say I assembled this

amazing mastermind team of panelists to come in and talk about the real estate market. But I actually had some help. They are the panelists that regularly appear on our sister podcast called On the Market, where they talk about the state of the market in general. And that's what we're going to do today. We're going to talk about the state of the market in general. If you haven't been paying attention, the Fed raise interest rates, what, three times in a row and they didn't just give them a little bump.

I believe all three times was 0.75 basis points, which is a huge amount. They haven't done that. Well, they used to say they haven't done that since, what was it, like 2010 or something? And now it's like every month they're doing this. So it's been a lot. I think I read it was 94 since it was that large of a raise. That, yes. They haven't had this much of a raise since 1994.

You are correct. And now they've done it three times in a row. Why does the Fed keep raising these rates? Because inflation. They're trying to fight inflation. Let's talk about inflation. Well, it's interesting last year that same Fed said it was transitory. And a lot of us were looking at each other like, are you sure about that? Because we're seeing something different out here. We're seeing bidding wars and lines out the door and 90 people wanting one house paying way too much for it. So it's kind of shocking that the Federal Reserve, which is really the banking system, it's not a government entity and people get confused about that. But they are tasked with controlling

inflation. So they really got it wrong. They have admitted that. But to me, the bigger picture is the amount, you know, again, well, you said, what is inflation? It's simply prices going up. And like you said, before the show, supply and demand usually controls that. But we're in a very different world today. The economy is not the economy of our parents. Economics is not what people learned in school. It's extremely manipulated by the Fed, by the banking system. Again, not a federal, not a government agency. The banking system is what it is. And they have been able to create an enormous amount of money, which was not okay when I was young. They would print a little bit of money and it made headline, headline news. But to just give an example of how much, I've talked about

this on our on the market podcast, in my parents' time, it was like $2 trillion circulating or less. And if they printed even a few billion dollars, it was a big no-no. Today, they've created $7 trillion in the last two years. Like, how could that not create inflation when there's that much more money circulating? What I find very interesting is that it's usually supposed to be. It's usually and demand, when supply goes up, rates fall or prices fall. When supply goes down, prices increase. And it doesn't really matter what you're doing. If there's no supply, prices are going to go up, unless nobody wants it, you know, like typewriters. You could make those $1,000 a pop. Nobody's buying those. You can make them a dollar a pop. Nobody's buying those. But right now, we don't have supply.

We have supply chain issues that stem from this little thing called COVID. And raising interest, interest rates, in my opinion, I'm not an economist, but raising interest rates when we already don't have supply doesn't seem like the right move here. Because yes, you are dampening demand for housing in some markets, not in all markets, but in some markets. I'm in the Denver market and our demand, with the June rate increase, our demand was like, oh, no more. We don't want any houses at all. And that was very difficult as I got my first listing in a very long time. And now it's still on the market, which is kind of shocking to me that it's still on the market three months later. But in other markets, it doesn't matter.

It doesn't matter how high the rates are going to go. People are still buying. And we still have record low inventory. So how does increasing interest rates help with inflation? I don't, all I see is this hurting the people who have to move, who have to buy, who have to, you know, and it's not just houses, it's cars and, you know, other things as well. But this just seems like the wrong direction that we're going in. What we've seen is we've seen inflation come down a little bit off peak of June. I think it was at 9.1 and now we're down to 8.3. But a lot of these rates, they've been adjusted because it's not just a supply and demand thing that is part of the problem. But we are seeing the supply start to, increase even the other day you know we do a lot of construction and we've heard that there's actually warehousing with over supply of flooring in different types of material because they bought up bought up

and now they're kind of stuck with inventory we're actually seeing that also like in the used car market i've been seeing that too lots are starting to fill up but part of the reason they're also increasing the rates is they're trying to slow the money down in our economy it is going way too fast or it's been going way too fast and it's been consuming everything which was a lot of the reason there was also no supply. In addition to the, it's not just a supply and demand thing, it's a labor issue. It's a lot of like the inflationary cost that I'm seeing as a labor issue, not just a material cost. And that is just because unemployment is basically at zero, it is causing labor costs to skyrocket. And they're trying to get that back down, which is unfortunately, it means slow the

money down, slowing the money down leads to a recession, and then you have to kind of transitionally push through. But I know personally, as an investor does a lot of construction, managed a lot of employees, the labor market is a mess. And it does need to be fixed because it is really hard to get your job sites done. And until they make these corrections, it's also going to push that down, which there's going to be a lot of relief for investors on that side. You're going to be able to get guys to show up to your work. You're going to be able to actually pay them at an affordable rate. But it has to be slowed down. and that's half the reason they're also increasing rates. It's not just a supply and demand thing.

I agree, James. I think we've got such a complicated situation right now that we're dealing with. And the variables that are creating the inflation crisis, I think it's not just the simple math of, okay, let's raise rates and everything will fix itself. And I think that that is just indicative of the very surface level problem solving we have right now from the Fed. I truly don't believe that they're looking at the problem. deep enough. And, you know, again, I'm not an economist, and so I don't have better solutions to say, but there was an interesting article that I read. Steve Forbes said, we need to be looking

at this situation from the level of the currency. We need to be shoring up and strengthening our currencies, not just raising rates to weaken the economy. In fact, all that we're doing right now was we're beating up the people that are the working class people, folks that are really need help in markets like this. When things get tough, we find a way to continue to beat up people who are in most need of the help. And so I, again, I think that the way that we're approaching this right now is totally backwards, but it's interesting. Yeah, I see it as a silent tax if politicians, and their constituents want more things and want, you know, again, student loan debt canceled. Not that, you know, I look at Europe and they have free university, right?

So, and health care. But here in the U.S., if politicians want something, it is much easier to just print more money for that thing versus taxing people. Because at this point, you'd have to tax people 150% of their income in order to pay. for all the debt. So it's a silent tax and it does hurt the people that, you know, that are already struggling. Because when prices go up, you know, you're paying more at the pump. Well, I have an electric car. It doesn't affect me. Or if, you know, people I know who they still bought their RVs and they're still driving around paying all this money for gas, they're not as affected, obviously, or else they wouldn't be doing that. But it's the people trying to just get to work.

that they were already struggling. So it is, it's an interesting time and hopefully more and more people will awaken to, you know, some of the manipulation of the market. Do you think that rates are going to continue to go up? I mean, the Fed has indicated that they are not real concerned with keeping everybody happy. They want to keep inflation down. And they are, they're going to do it. They're, they're the boss.

But where do you think rates are going to go in 2023? Well, I think they've said that they're going to keep increasing the rates. And, you know, what, what, you know, what's too bad is they're being so reactionary now. And so they've had to go on this aggressive hike because they kind of ignored the issue for nine months. But what, you know, because at the beginning of the year, what he was saying was that the Fed rate was going to land around two and a half to three points by the end of the year. Or, you know, up into 2023. And that should fix the issue. And then it changed from two and a half to three.

to three to three and a half was their prediction. Now they're saying four and a half percent from the Fed rate. And you typically rates are three points higher. So it's going to be a seven and a half, eight percent loan for most investors, buyers, anybody getting any kind of bank financing, which is a huge increase that it was 12 months ago because we were at two and a half percent. Now it's going to be eight. And there's going to be shockwaves by that. Do you think that's going to affect pricing? we're still really low with inventory. I mean, you look back to 2008, 2009. We stopped building essentially in 2008.

So 2008, 9, 10, 11, 12. I don't know when they started building by you. I don't remember seeing building like big subdivisions going back up until 14, maybe even into 15. That was a long stretch of time with no building. And that wasn't just my neighborhood. That was everywhere. Builders went out of business.

business, tradespeople left the market and didn't come back, left the industry, didn't come back. So now we're short all this housing. I hear people say, oh, this is just going to be like 2008. And I don't really feel that that's going to be, that this market is the same. That has different causes. But do you think prices are going to fall like they did in 2008 or anywhere close to like they did in 2008? That's already happening.

We're banking in around a 10% correction for pricing moving forward. in most of the markets that we're in. And we're seeing a lot of opportunity for people to actually position themselves temporarily right now to benefit from what's happening in the market. Right. So you've got cash heavy investors who are actually pulling the trigger, but really, really, really getting significant discounts on their purchases right now. But I don't think that lasts.

I think it's a temporary situation where there's going to be some, those who are have to sell will sell, right? And that's the thing that we're finding is that the individual who's in the situation where they're like, they're moving, they're relocating or there's, you know, they've inherited a property or they have to, a sale is a necessity. They will make the decision to sell. And are they going to absolutely get creamed because of this? Yes, they will. They're going to feel that. But I don't think that we, we can ignore the fact that you said, Mindy, we are at record low inventory and we have and because of what's happening right now builders are pausing building right so we were already short we were already short on supply on on inventory and now you've got rates going to where they

are builders pulling back even further what does this create at the at the end of the wave what what is this create for inventory and pricing i think what you're going to find is you're going to have a temporary a momentary opportunity where people investors or whoever can get in and buy this is why i went you know i was on a flight yesterday and it's and it's really interesting when you sit with people who who really aren't even in housing they don't they're not in real estate they they don't trade in it but the sentiment right it was like when i when i told them that i was in real estate immediately they were like consoling me you know it was like the way so the sentiment that they had about what's going on in the housing market they were like oh i'm so sorry

And you know, you think, okay, this is the sentiment out there, right? For the average person who's not investing in real estate, but just watching and reading the headlines, then I think what ends up happening is we will absolutely get a small depression because people, they believe that the value of housing is going down. So sellers are more open to a steep discount. But I think what shakes out at the end of the wave is going to be an even bigger inventory crisis. and this is going to create even more appreciation and another correction going back up with, you know, with pressure moving prices up.

That's what I'm predicting two years down the road. I just said at the beginning of the year when I do my predictions that you got to pay attention to the Fed. And the Fed, because they, you know, we're just puppets. They're the puppeteers. They control things. We need to listen and follow. And really experienced investors do that.

especially stock market investors. Early this year, Jerome Powell said, we're going to raise rates seven times. I actually didn't believe it. I was like, why would the Fed, you know, the Federal Reserve? When you say the Fed, it sounds again like a government agency. It's the banking system, the central bank decided, you know, we're going to raise rates seven times.

And I thought, why would they want to crush our economy? Why would they do that? First of all, overstimulate it and then decide, no, you know, we over-stimulated, now we've got to crush it. So I just thought, why would you do that if you're representing this country? But they have come out loud and clear just last week that, no, we're going to crush it. And there's going to be job losses. And we're going to bring asset values back to where they think they should be, which is affordable.

So depending on who you are, it's either good or bad. You know, news, headline news has a different interpretation depending on what you're doing and where you are. For a buyer, that's going to be a good thing. You know, in the meantime, it's a terrible thing for people who own the asset class that the Federal Reserve is trying to kill, basically, right? So you have certain areas that went up as much as 40% just in one year. So it's, there's a good chance that those areas are going to, that, you know, are going to correct. And that's the way Jerome Powell said it, you know, we're going to correct the housing market. And I only see that as one thing.

They're the ones who blew it up. And one of the ways they blew up this bubble is buying mortgage-backed securities to keep interest rates low. When you have the central banks buying these mortgage-back securities and then you pull back, which is what they're doing, they're tapering. Now you don't have a buyer for those. So then rates have to go up. So, you know, again, why would they have done that all the way up until March of this year

when prices already gone so high? They were still stimulating an overly stimulated market. And now they're like, oops, okay, we're going to pull all that back and stop buying, or at least, you know, again, taper the buying. So I listen. I really, a month ago, I would have said something different. But based on what Powell said last week, he's like, no, we're going to destroy it. So you got to pay attention.

Now, that doesn't mean, you know, some of the things that we're doing, I would change because, you know, we're still buying homes in the 150, even $80,000 range in parts of Texas where there's job growth. So there's always ways to work through an economy like this. But at the end of the day, people who are in short-term loans, pay attention, people who are, you know, have overpaid for properties, hopefully you're locked into a rate that will still make it okay over time, but the value might go down. That doesn't mean your cash flow will go down, you know, so maybe just if you're locked into a low rate for 30, years, don't worry so much. Even when you see, you might have lost some money. Just keep holding

because eventually it comes back. But there's going to be some bubbles that get popped. Yeah, I think you can't increase the cost of money by 40 to 50 percent and not expect for things to deflate down. Stock market, crypto, housing is also coming down and deflating down. It's just too expensive on the monthly payment. And the quicker they get down to a more stable market, I'm a pro rip the rates up. Let's get to where we need to get to to start working off. Even what Jamil just said was 100% right. There's an overreaction right now and there's more deals in the market.

And then once they get to where they need to get to, we can actually level the playing field back out and just buy like we normally buy, which is here's the math on the deal, execute the right plan, stabilize it out, whether you keep it or dispo it out. But they do need to get the market everyone should expect, or at least I'm expecting a retraction and values because you just cannot increase the money by that much in a short amount of time and not have an overreaction. You know, with every action is a reaction. We pumped in too much money. It went flying through the roof. Now we're pulling the money back the

other way. It's going to come down the other way. And that is okay. It's just leveling it out. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop.

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Only on Disney Plus. What sort of retraction do you foresee in prices? We've seen about, in the Pacific Northwest, we've seen about a 25 to 28% drop off peak pricing. And what we saw in February, March, and April is we saw an appreciation rate that was absurd. It was hitting 19 to 24%, which is just nuts. And so we're seeing it back down this other way, but we're still sitting 4 to 5% over the median home price growth from last year. It's just off that peak peak number. If you bought a short-term deal doing February, March,

April, May, it's going to hurt a little bit and sting because those are the flight that have just been deflated down. I don't really see this as like a crash. I just see that we're deflating things. And so it's totally different than 2008, which was like a brick wall market free fall down. This is like a slow, we're just letting the air out. And you just, as the air kind of gets, you know, loosened up, everything will kind of level out. But we've seen about 25 to 30% off peak pretty quickly. Okay, that's interesting, and that kind of aligns with something that I was speaking to a local agent in the front range area in Colorado, and she said, yes, we are seeing prices going down, but if you look at the trajectory from 2021 up in December, if you drew a straight line and skipped

the huge bump from the spring, you'd see kind of the same steady green. You'd see kind of the same steady growth up into the right. But if you look at with the spring, you've got this like huge hump here and then it's continuing to go. So it's like you said, it's off the top of the peak. But it isn't prices falling. It definitely is not 2008 level crisis sort of thing. I'm wondering Jamil and Kathy if those are the same, if that's the kind of the same price

decrease. I'm doing that in air quotes that you're seeing. kind of a deflation as opposed to a free-for-all drop? Absolutely. It's a, from what we're seeing, especially from our investor activity, because I primarily wholesale. And I'm, and that means that I'm, I'm betting on people betting on the market, right? The, the people that I'm transacting with on a day-to-day basis, these folks are, are looking at making projections as to what their value or what the property that they're buying right now after

they fix it is going to be worth in three or four months. And so we're all putting on our little fortune teller hat when we're when we're trying to make these decisions. And what I've been seeing right now in our primary markets, right? So we're talking Phoenix, Tampa, Orlando. These are these are spots where we heavily transact. We're seeing about a 10 to 15 percent drop right now. But again, I don't feel like it's bottomed yet. So that's what we're experiencing right now.

some markets faring better than others, but I've also heard in some markets as well that the 25, 30% drops have been seen. Yeah, and there is no, as you know, housing market. Every single market is behaving differently. And some markets were just really popular. There was job growth or there was big money moving to those areas. So they saw gains that they, you know, hadn't ever seen. You know, again, Boise, Austin, Nashville. Nashville and Nashville was not, when I started investing, was never a growth market, you know. Austin kind of was once the tech industry moved there. Seattle, of course, same thing when the tech industry, you know, blossomed there, became a growth market. But these are areas where there has been tremendous job growth, tremendous migration,

and the people, you know, the people there were priced out for sure. people moving in, it's still cheap, it still is. For people moving into those areas, it's a deal, it's a bargain, but how much longer is that going to be the case? So there, you know, there are definitely the markets that went up unsustainably are going to feel it the most because no market, no matter how much growth you have, can sustain a 40% growth in rents or in home prices. One of the things that does, that is concerning is that shelter and, inflation, you know, is one of the big metrics that the Fed, or that the government looks at when looking at inflation numbers, energy and food, certainly in housing. And it's a lot, the rental costs.

And, you know, will those rents drop? That is kind of a bigger issue, right? We're seeing home prices drop, which is, again, good for buyers, not so good for people who own that asset. But in rents, Will we see that same correction? And if we don't, then the Fed's just going to keep going at it. You know, because if rents are staying high and that keeps inflation high, and they think the only way to solve that is to kill landlords, you know what I mean? Like what are they going to do to get where they want? And at this point, it looks like Jerome Powell is in battle, you know,

a battle against inflation that, again, happened because of too much stimulus of the economy, the way you undo that mistake is you pull that money back out. And the way you pull money back out of an economy is through bankruptcy. It's through job losses. It's your stock market crashes. That's how you get it back out. And that's just a horrible way to run an economy. But it's what they're doing and it's what they plan to do.

And he's making no qualms about it. Like this is where we're going. And he referenced that at the end of his speech. He said inflation around housing, would take some time to work its way through, but it will get there. And that's, you know, when you hear that line, that means, yes, I think Kathy's 100% right. They're going to try to deflate rents, deflate values, and create affordable housing. And that is something all investors should be paying attention to right now as you're doing your projections.

And on top of that, make it an opportunity. Like, the world doesn't really know this yet. So if you're in a property, that's maybe not your best property, maybe just put it on the market. you might take a loss, but maybe it's less of a loss than later. I just don't see how we're going to get to a spot where rents come down. Because even if, like, just say for instance, you're sitting on the sidelines right now, and you're like, well, the rates are too high. I don't want to buy, so you rent.

There's a lot of pressure right now for the rental market. I don't know if it's the same everywhere, but just what you can see here in Phoenix, where you put a house up for rent, and there's multiple people trying to get that property, and the rents are stupid high. And so I still don't understand where that money is coming from. You know, it's it all of the pressure, all of the things that are happening. But there is there are lineups right now for people to, to rent houses because they don't want to make the decision to buy.

Yeah, buyers have to go somewhere. I've got several questions. Is now a good time to buy real estate? Jamil said a few minutes ago, there's a small window to come where rate prices are going to drop, even though rates are high. Cash investors. Investors are heavy with cash. They're coming in to snap up these properties at lower prices.

Do you see rates coming back down in the future so that buyers who don't have cash can eventually refinance out of these crazy high rates? And I say crazy high rates, I think we should acknowledge that 7%, traditionally, historically, is not a crazy high rate. That's a historical average for a mortgage. The problem is prices have gone up so much. much that now 7% makes that mortgage payment just like 99% of your income. I mean, it just comes down to what your intention is.

If you are on the hunt for cash flow, there's opportunity out there. Even though rates are still high, and it's interesting because the non-conventional loans are actually lower than conventional right now. You can go to a private lender. It's amazing kind of how things have flip-flopped. But if you're able to find a property right now that cash flows, so you're able to get a good price at it, and you're paying maybe a little bit more for that debt,

but it's still cash flows. You know, great. Granted, some areas might possibly see rents go down, but that's questionable. It depends on supply, right? That is definitely a supply issue. If there's lots of jobs and people need a place to live, they might not buy, but they're going to rent.

So if you're buying your own primary residence and it's cheaper than rent or there's not a lot of other options, you're still getting all the benefits of real estate. You're locked in to a payment. You're paying down your loan over time. You're getting tax benefits. So there's still, there's always good reasons to buy real estate. Same with investing. If you're buying for cash flow and you're able to lock in a rate and you have somebody else paying that loan down for you and you're getting tax benefits and asset protection. and overtime, generally, if inflation is an issue, then debt is a good thing. Debt becomes less big in an inflationary economy. So all of the fundamentals are still there. If your strategy from five years ago or 10 years ago is a strategy that's worked for you, keep using it, you know, but just know that some of the things have changed where you're maybe buying it cheaper, but in trade, you're getting a higher interest. interest rate, but maybe the cash flow is the same.

I say it's a different type of burr property now or process. Like, you know, 24 months ago, how you buy a burr property is you're buying something with a heavy value at. You're buying it under discount or at a discount. You're putting in a rehab. Sometimes you're stabilizing that, at least in our expensive market for 12 to 18 months. We're not getting any cash flow at that point. And we're having to do all this work.

And the reason we're doing that is to get an equity position and a high cash flow position at the end of the day because we bought it cheaper. Now, it's actually a different type of burr is how I'm looking at everything. I'm running my metrics on a deal and looking at their current rate if it's at 8%. If I'm getting a 4 to 5% cash on cash return right now, I do am projecting that rates will be around 5% in about 24 months. And so now I'm actually just looking at a deal as what is this going to look like in 24 months?

In 24 months, my 4% return, I can buy something that's actually in a lot better condition now. I don't have to do all the hard work. I just have to hang on to it at a 4% return. Once the rates fall down to 5, it actually goes to like a 12 to 14% cash on cash return. And in addition to, because everyone's a little bit nervous right now, I can get that massive equity position right now. So it's a different burr process. It's the same type of process. You're buying something.

You're waiting on the cash flow to get the big upside at the end. It's actually an easier way to do it now. I don't have to go tear a building to shreds to get the margin. I just have to hang in there and stomach some okay cash flow for two years. And so as long as you kind of look at things and just run the math, you can position change your process and it's the same end result. I just want to point out because James is he, the thing I was saying is happening, these cash investors coming in getting just literally coming in and taking huge, huge discounts on

properties is exactly what he's said. He just said he's doing. guys this is the if you're sitting there listening right now and you're like I don't know if now's the time follow the leader of the pack follow follow the people who are who are making the market exactly he he has the market timed out for the next 24 months he knows how this plays out so you should not be sitting on the sidelines and and and letting yourself miss a massive opportunity to come in and get a property at a significant discount. Look, I'm not a fan of an adjustable rate mortgage and please don't make this sound like

I'm saying that. But if there was ever a moment that I thought that it would be a less of a risky situation to get into an adjustable rate mortgage, it would be right now. Go in, get a property significantly discounted, lock in a rate that's, you know, get an adjustable rate mortgage, lock in at a lower rate for the next five years if they give them to you like that way. And then refy out of that thing and five. years when the rates come back down, but you will get a huge benefit by taking advantage of the market situation right now. Do you like froth? I like froth in my coffee. Go get the froth. Now's the time. Yeah, and arms, people shouldn't be so afraid of arms today because it,

the lenders have learned there's much tighter regulation and you actually have to qualify for that adjustment if rates go up. So they're really qualifying arm borrowers. You know, so, they want to make sure you can handle an increase in payment in five years. That was not the case 10 years ago. In fact, they were giving out arms we were. I was in the mortgage industry at that time. And we were literally not my idea. Someone else is in the big offices in New York was saying,

no, let's just qualify people on a teaser rate. So just a fourth of what their actual payment will be and see how that works out, which didn't work out. But today it's the opposite. No, we're going to qualify you on that. the adjustable rate of what it could be. So I'm not worried about arms. I think they're a wonderful, wonderful solution for today. And that is exactly why we're doing a single family rental fund right now, which some people might think is crazy, but it's like people can put in a $50,000

investment in that, and we're going in and paying cash. And again, that's why I said, we're buying stuff in one of the fastest growing parts of Dallas where all these chip manufacturers are moving because of the Biden administration is subsidizing that, $52 billion, and they're moving to this North Texas area. And yet we're able to negotiate with all cash offers that, like I said, $60,000, $80,000 for a property, put about $50,000 into it to make it really nice for those tech employees. I don't see how a huge recession would affect that. So there's still opportunity.

There's tons of opportunity out there. Take notes, guys. I'm really glad you mentioned arms because that's, one of my questions up here. Traditionally, the arm is not a good product, in air quotes, because it's going to go up. It always goes up. And in the past few years, nobody was getting an arm because rates were so ridiculously low. And now, even now, arms are higher than they, you know, than regular rates were. But they're still lower than the fixed rate loan. I just want to point out that, you know, if you're considering getting a loan at all, talk to your lender,

ask questions. Your lender cannot read your mind. They don't know what you're thinking. Talk to them about arms. Arms are not just three-year loans. They are, it's the arm, the adjustable rate, it's a fixed rate for a certain period of time, and then it can adjust. It can adjust, what, once every year, once every two years? It can start adjusting, but there's a fixed period of time. So a three-year arm means for the first three years, it can't go up. There's five-year arms, seven-year arms, ten-year arms. Do you think rates are going to stay like this for the next ten years? I don't. I don't have a crystal ball. Past performance is not indicative of future gains, but I think a ten-year arm is still better than a 30-year mortgage. And people move

on average every five to seven years. So if you're going to be buying your primary residence and your options are, and I don't have quotes on arm rates, but I think a 30-year fixed right now is 6.5% for an owner occupants. So let's go with, you know, a 10-year arm is 5.75 or even 6%. That's less. So that means you're paying less. So that's better. The thing is capital is just a cost of the deal. And I think investors fall into this, and I can do it too. You get, you fall into this rate trap. We're like, well, the deal doesn't make sense with this rate. But each capital has a purpose. You know, when I'm borrowing money at 10 to 12% on hard money for a one to two year period, I'm not just fixated on this. Like, that's just the product that I had to factor as a cost of the deal.

And right now, you know, when you're looking at buying a rental and you're using an arm product, it's just that's what you're doing to get you by if you do think that rates will fall in two years. I do believe that rates will be back in the fives in about 24 months. Having an armed product can be risky, but not if I already, if I'm getting it for the intention of bridging me to where I can get my high cash flow. So it's just whatever the loan product is, talk to your lenders, like you said, and then just factor into how you structure your deal and the cost of the deal. And then at that point, it's just absorbed in the math. And I do want to point out that Kathy, James, and Jamil are more investment-minded than owner-occupant-minded. And they're in it for the long haul.

Their holding period is forever, to quote Warren Buffett, my favorite. So if you are thinking about buying a house that you're going to live in for a couple of years, this is going to be advice that may not apply to you. If the rates are still going to be really high in two years and you're not going to have an opportunity to pull your money out or to refinance and then you're going to sell, and maybe it's still a down market in two years. Maybe it's not. This is going to be different advice.

This is more for people who are investing. A few minutes ago, James said run the math. And I think that now, even more than ever before, when it was already really important, knowing how to run your numbers is so important. And really running them carefully is key. But we're still, like James said, in historically low inventory market. And that is not going to change anytime soon. You can't just build four million houses overnight.

You can't just get, I mean, have you ever? ever tried to get anything approved through the permit office? Even the most generous of permit offices take forever. What does it take? Like, I've never built a whole neighborhood from scratch, but it's like a three or four year process. It's not just like, hey, I want to build houses in that vacant land over there and then tomorrow you're pouring cement. It's a really long process. So we're going to have historically low inventory probably for a decade to come. So when this little blip that we're going through right now changes. If you're looking to buy a house that you're going to hold on to for a really long time, we could be in a situation where now's an awesome time to buy. And if you

want to buy in Longmont, I have a house for sale. Well, what happens in 24 months, guys, when we've got depressed building now, we're already short 4 million houses. What happens when rates stabilize? Where does the market go then? When we've, so many builders are pausing right now. And inventory is already short. What's the effect? The building fairy is going to wave her magic wand and say, poof, there's four million houses. I think I actually have changed my mind about this. I have changed my mind about inventory just recently because at a time when the government's

basically, or the Fed is pulling the plug on economy and people are losing money in the stock market, they don't have that extra money. When you have extra money, you buy things you don't need, right? when you don't have it, you don't. So there are people who, you know, got short-term rentals that maybe they're like, oh, this isn't going to work, or they got rental properties, and it's not working out the way they thought. You also have baby boomers getting a lot older and dying, you know, the oldest ones. And then you've also got the millennial population that over the next three years or so is a really large generation. But then after them, you know, the next.

it starts to wane. So I don't know that I'm in the camp anymore that this inventory problem is going to last forever. I actually think it's going to normalize in a year or two, if not sooner. So that's something to pay attention to as the population, as the demographic shift a little bit.

Interesting. I'd like to talk to you about that further and sort of expand on that a little bit because it's a very contrary perspective and I at the same time I'm curious as to like what data we're like I know and I know you make decisions very thoughtfully so I'm I'm I'm I'm interested as to what made you make the shift oh I can't I just interviewed John Burns on the real well show and he sent me all his slides and he studies demographics and he's just got an enormous amount of data we've known for a long

time that the largest part of the millennial generation is now from from from 2020 to 2024, this was going to be the biggest buying pool, and we weren't prepared for them. But after that, the Gen Z population is smaller. So when you look at the population growth, you'll see this bump. But then it's a bump. So what's behind them is less people, less buyers, at a time when you've got baby boomers aging. So it is a blip in time for sure where we weren't prepared. And we didn't have the inventory. We shut down the economy. we stopped producing, and yet we had all these families forming. So, you know, if we had just planned things a little better and not stimulated the economy

at a time when there wasn't enough supply and the huge demand, then we wouldn't be in the situation. And when I say we, I'm not talking about me, I'm talking about the Fed. I know that's depressing you guys, but I'm a firm believer that no matter where, you know, there's always opportunity in any city. I think inventory is honestly going to go into overcorrection mode for a minute. Because that's a real estate, when it goes up, it comes down, right? It just, and then it levels out.

And the thing about the American public in the American consumers is they're very reactionary. We're seeing it now. We are getting really good buys right now because people dump and they're just reactionary in general. And so as you see those things, people get FOMO, they want to maximize that equity. They're seeing other things like they're. stock accounts getting shrunk down to people feel like they're losing wealth right now and when they feel like they're losing wealth they make very bad decisions and very quick decisions and so we may see this surge of housing come to market but then it will work its way through and it's all

okay you just don't want to be the reactionary person giving away your asset or selling off your asset too quick or you know or just trying to buy too quick as well but it's to be expected when rates increase when we go into recession things will slow down, inventory will increase, and will work its way through the system. I think that's interesting your comment about the surge of inventory. During the spring, I'm a real estate agent who primarily represents buyers, and I would look in my MLS, my local MLS, and houses came on the market on Thursday. Showings were Friday, Saturday, Sunday, offers were due Sunday or Monday, and they were

under contract on Tuesday. So on Wednesday, there was nothing on the market. I'm talking like maybe 10 properties in my city of 90,000 people, there were 10 houses available up to like $700,000. And this was every single week for about three or four months. And now I can go in and search and there's 75 or 80 houses, which is a whole lot more, but still historically low. There should be 100 or 200 houses on the market to give you a really good.

a mix of houses to buy and to look at. And they're still low inventory. It's just, I think there's so many people who are not in real estate who don't pay attention to this. Not everybody's as big a geek as we are about real estate guys. So they don't know that 70 houses is low. They think, wow, there's seven times more houses now than there were in the spring. So we're back to normal.

like we're not even close. So I just think that this is very interesting that we're having this inventory conversation. I think that Kathy is incredibly intelligent and she just spoke with somebody who is far smarter than I am, but I just hate to argue with you. I don't see a change in the inventory and I hope I'm wrong. I think of the boom is going to go for a while. Like I said, it was 2020 to 2024 that before all of this, I mean, that was, was predicted that this millennial population would be at home buying age and household formation age.

So I don't think it's going to change like today. But just, you know, the kind of 10-year outlook in the future, maybe we'll see some shifting then. Unless, you know, again, we depend on government policy, unless there's a change to immigration, because the birth rate's slowing down, too. So if we become more open to immigration, that could change it. Okay. I think this has been been a fantastic discussion. I really thank you all so much for your time today. Let's remind everybody where you guys are normally found every single week. I'm at realwealth.com and I've got the real wealth show. And then my syndication company is growdevelopments.com. You can find me on my YouTube at Jamil Damgey, also on Instagram at J. Damge. Check me out Saturdays at 10 a.m.

on A&E and watch us flip houses, make mistakes and try to make some money. and foremost, check us out on the On the Market podcast. This is where we all get a hang out. It's by far one of the highlights of my week. I mean, just an amazing people on the show. And then for more like construction tips, investor tips, check me out on Instagram, J. Dane Flips and on YouTube at Project RE. Okay, James, Jamil, Kathy, thank you so much for your time today. This has been a lot of fun. Don't miss checking out James Kathy and Jamil, along with Henry Washington. and Dave Meyer on the on the market podcast, which is available every place you get your podcast. Holy cats.

That was one of my favorite episodes. I love talking about real estate. And Kathy Jamil and James are so informed and so smart. Some of my key takeaways from this episode are, number one, investing can be scary. And there is always risk involved in investing. and the best way to mitigate that risk is to be informed. So look at what's going on in the market. Interest rates are the big story.

Listen to what the Fed is saying. Like Kathy said, she listens to what the Fed is saying. She listens, she watches the videos. She reads the articles. All three of our guests today, listen to the videos and read the articles, and they're really doing their research. It isn't just, hey, I bought a house. Now I'm an investor.

You really need to stay informed if you want to continue to grow as an investor. But there is, like James said, there is success down the horizon. There is a light at the end of the tunnel. And he's predicting about 24 months we're going to see a difference in rates. We're going to see prices starting to go up again. So now is a really great time to be buying a house so long as you can afford the payments currently. Like Jamil said, the market, he's seeing a price correct.

in his market. I'm seeing price corrections in my market. And that's not super awesome when you're the seller. It's a good time to be a buyer right now. It might become an even better time to be a buyer in the next few months. The market is going to be down for a short period of time. So there is opportunity to buy even with these current higher interest rates. Inventory is going to continue to be down for years. We're not going to be able to correct our low inventory, historically low inventory situation in just a few months, in just a few years. I don't see us getting back to correct inventory levels for a decade. And even with Kathy's very well-reasoned comments about, you know, the baby boomers was the largest

generation that we've had and they are getting older. They are starting to pass on. even with them passing on, we're still 4 million housing units short. That's the number that I keep hearing from all of my people in the data analysis department of Bigger Pockets, Dave Meyer, who happens to be the host of On the Market, which is where all of my panelists came from today. I keep hearing that we're 4 million housing units short. And even if we're 3 million housing units short or 5 million housing units short,

that's not overcomeable in just a few months. That is years, even decades down the road that we will finally be able to figure that out if we start taking steps now. But like they said, builders are even starting to pull back. So I really do think that inventory is going to be a factor for a while. And there are outside factors affecting our current inflationary period that are outside of our housing market control that I think will come into line. very shortly. I think we're looking at an interesting window right now of opportunity for those

who can afford to buy. And one last takeaway, my biggest takeaway, if you are at all interested in investing in real estate, you need to add on the market to your podcast rotation. It's hosted every week by Dave Meyer, who I think walks on water. He is incredibly smart data analyst guy who's been with Bigger Pockets for, I think, like six years. He has this amazing ability, just like Kathy Jamil and James. He has this amazing ability to take complex real estate and economic ideas and theories and translate them into understandable English. So that is an excellent podcast to check out every week, wherever you get your podcasts. From the Bigger Pockets Money podcast, This is Mindy Jensen, signing up.