BiggerPockets Real Estate Podcast - 760: BiggerNews: Buyers Jump Back In as Real Estate Competition Heats Up

Starting point is 00:00:00 This is the Bigger Pockets Podcast Show 760. People are eager to buy into the housing market right now. Affordability is low, but as soon as, you know, affordability improves, even a little bit, people are sort of jumping back in and are buying, like Denver, where I mostly invest, which was up until a couple weeks ago, one of the markets facing the biggest corrections. Activity there has just exploded over the last couple of weeks. So I think it's way too early to say like the correction is over. but I am surprised by how brief that correction so far was.

Starting point is 00:00:34 What's going on, everyone? This is David Green, your host of the Bigger Pockets Real Estate podcast here today with a bigger news episode co-hosted by my buddy, Dave Meyer, and we've got a great one for you today. Dave, how are you? I'm great. It's good to be back.

Starting point is 00:00:48 I feel like we haven't done this in a while, and I love doing these shows. Yeah, these are some of my favorites, and a lot has gone on in the world of real estate since the last time we did this. So we have quite a bit to talk about. What were some of your favorite parts at today's show? I am just sort of fascinated about what's going on the housing market, as I always am.

Starting point is 00:01:05 But I think people will be kind of surprised to hear the state of the real estate market because the headlines and reality are not exactly aligned right now. And I also really liked what you shared at the end because not everyone in the real estate investing education space shares the challenges that they have. But I think you shared some of the challenges in today's market that even, really experienced investors like you experience. Dave, I think you also made a great point. If you listen to an episode a month ago or you watch the news three weeks ago, our market is shifting more quickly and with more volatility than it ever has in my lifetime. And these shows

Starting point is 00:01:46 become that much more important, which is why we keep bringing them to you. But you may be surprised when you listen to today's show to hear about some of the changes in the housing market. Yeah, I mean, people always say, like, oh, real estate is not the stock market. That's not. Like, it doesn't change that quickly. But it's a lot. But it's, It's definitely becoming a little more volatile and, I guess, newsworthy. Like, things are really changing at a much faster pace than at least I've experienced in my career, which makes for really interesting things to talk about and discuss like we do in this episode. And we are going to get into that soon before we do.

Starting point is 00:02:20 Today's quick tip is brought to you by Dave Meyer himself. Dave, what do you have for us? Yeah. So I wrote a report trying to summarize what has been going on in the housing. market and macroeconomics through 2023 thus far. And you should go download it. It is completely free. Just go to biggerpockets.com slash Q2 update, Q2 like quarter two. So it's biggerpockets.com slash Q2 update. And I gave you all of my thoughts, all the data I can find about the housing market to help you make sense of this weird and confusing market and give you the ability to

Starting point is 00:02:55 make informed and smart investing decisions nonetheless. All right, so make sure you go check that out. It'll be good for you, much like your vegetables, but it tastes good because it's written by Dave. Let's get to our first headline. Most investors spend all their time talking about their high level returns. But that's not the number that actually matters. What actually matters is what you keep after taxes, and that's where multifamily real estate quietly stands out.

Starting point is 00:03:20 With built-in advantages like depreciation, the right deals can generate steady cash flow while reducing the tax drag. Bam Capital structures its multifamily investments around those fundamentals, pairing tax efficiency with disciplined operators and a long-term approach. This isn't about chasing hype or guessing market timing. It's about building durable, tax-aware wealth over time. Learn more at biggerpockets.com slash bam. Do you ever notice how every passive investment somehow turns into a very active lifestyle,

Starting point is 00:03:51 active spreadsheets, active phone calls, active stress? Here's a better question. What if you could buy brand-new construction homes? 10% below market value in the best markets across the country without making real estate your second job. That's exactly what rent to retirement does. They're a full service, turnkey investment company handling everything for you. In some cases, investors get 50 to 75% of their down payment back at closing, plus interest rates as low as 3.75%. They've partnered with Bigger Pockets for over a decade, helping thousands invest smarter. If you want to do the same, visit BiggerPockets.com slash retirement to learn more.

Starting point is 00:04:27 For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now, you can invest in a $1.1 billion portfolio of real estate, starting with as little as $10. The portfolio features 4,700 single-family rental homes spread across the booming sunbelt. They also have 3.3 million square feet of highly sought-after industrial facilities, thanks to the

Starting point is 00:05:03 e-commerce wave. The flagship fund is one of the largest of its kind. It's well diversified, and it's managed by a team of professionals. And it's now available to you. Visit fundrise.com slash BP Market to explore the fund's full portfolio, check out historical returns, and start investing in just minutes. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise flagship fund before investing. This and other information can be found in the fund's prospectus at

Starting point is 00:05:26 Fundrise.com slash flagship. This is a paid advertisement. Our first headline for today is obviously about inflation. We got new data that showed that inflation year over year has dropped to its lowest level in two years, but is still pretty high by pretty much any standard. The headline CBI, which takes into account the broadest set of goods and services, came in at 5%. We also saw that monthly, it went up just 0.1%, which was encouraging. And it did come down from 6% in February. So the headline data, at least to me, Dave, I'm curious your opinion, was somewhat encouraging. On the other side, though, we did see core prices, which for anyone who's not familiar, excludes a lot of volatile things like food and energy costs. Those seem to be a lot stickier. And they actually

Starting point is 00:06:16 went up just a little bit. It's now higher than the headline CPI. It's not higher. It's a lot of is now at 5.6% and it grew 0.4% in just a month. So what do you make of this new inflation data? It's, man, I mean, it's going up even as we're taking such drastic efforts to keep it from going up. That's the part that ruffles my feathers a little bit. If it was like just happening on its own naturally, but with the Fed and the government locked in on how can we stop inflation, it feels like it's their number one priority and it's still creeping up like that. It makes you, wonder what it would be doing if we weren't making these great efforts. That's a good question.

Starting point is 00:06:57 I haven't really thought about that. That'd be like 40%. We'd be like Turkey, Turkey has like 100% inflation or like Argentina. Yeah, I have this analogy, shocking, that I used to describe like what I see happening with inflation where we've printed a lot of money. We have more supply. But imagine that we just 10x the amount of diamonds that were in circulation. It's not like the population, the common population would know that there's 10 times.

Starting point is 00:07:22 the amount of diamonds. They would probably still be selling at the same price of what diamonds cost. And then one day you'd go in there and you're haggling over the price of a diamond and, you know, the 20-year-old working at the at the diamond shop is like, all right, man, fine, that's cool. I'll do it. Yeah. And you're like, oh, that's kind of easy. And you'd tell your friend. And they're like, really? I was actually thinking about getting diamonds for my girlfriend for Christmas. And so they go in there and they're like, you know, you think I could get that for 30% off. And the person's like, yeah, you know, it's the 30th of the month. I got to hit my, quote, all right, and I'll throw in this too.

Starting point is 00:07:54 Like, holy cow. And then someone posts on Facebook and everybody starts to realize you could get diamonds cheaper. At that point, the price of diamonds would start to go down. And then it would just become a free-for-all. Like, how much can we get these things for? You'd be seeing people pushing the limit of everywhere they can. Because diamonds are inherently less valuable when there's more of them.

Starting point is 00:08:11 I look at the situation with our economy in a similar way. We've made more dollars, but we didn't go tell everybody. Not everyone knew that there was a lot more dollars floating around. So stores, ownership, people that are producing the goods, they're raising the turkeys, they're having eggs, they're growing the food. They're not just going to jack the price up. They're going to test to see like, well, how much can I charge? How much can I raise it? And then as people keep paying it, they just say, oh, shoot, we can do this more.

Starting point is 00:08:39 And this ripple effect is sort of moving all throughout the population, both from things measured in the CPI and things not measured in the CPI, including the real estate market. So I think we're sort of in this era now where. people that charge for their services or goods are testing to see how much can I get away with because we've increased the money supply. And even though we're doing everything we can to slow that down, I feel like it's inevitably going to continue. Do you think that there's a, do you think my analogy falls apart with your understanding of like macroeconomics that the diamond analogy isn't the best way to look at it? No, I think you're right in that as there is a huge increase of supply in in money and how that ripples through the economy is,

Starting point is 00:09:20 obviously still being felt. And to your point, no one, you know, a year or two ago was like, oh, they printed trillions of dollars. I'm going to raise 20 prices 20 percent, right? I mean, even as a property manager, as a landlord, like people weren't doing that with rent. They were probably raising it a little bit and reacting to both their increased costs and people's willingness to pay. And it does seem like that has continued. But I am encouraged that it's slowing down at least. At least the headline is slowing down. And this is a little wonky, but there is a good indication that the core prices will start coming down in the next couple of months. But it's just going way slower than anyone had hoped. But I do think like it is probably

Starting point is 00:10:09 peaked and it is going to keep going down. It's just going to be a bit slower and more painful than we expected it to be. I hope so. I feel like inflation is one of the most dangerous things. that happens to your finances because you don't see it coming. It's a carbon monoxide. When taxes are increased, when tariffs are increased, when there's something that's just out there in the open that you can see, you can prepare for it. You can make wise decisions. But with inflation, you never know. You just go to the gas station and it's more expensive or you go to the grocery store and all of a sudden the steak that used to cost $11 is now, is now $24, especially the people trying to eat healthy, right?

Starting point is 00:10:45 Have you seen this in the sandwich market? Our deli is just crushing you right now? It's insane. My friend said me a $29 sandwich he saw the other day. He did eat it. But like, that's crazy. But I think your point about it being slow is so true.

Starting point is 00:10:59 Because also the way it works is that it's not always the same thing that's been going up a lot. Like, for example, like used cars went crazy. Now they're actually backed down to below where they were pre-pandemic. But like food prices are still up really high, for example, and have shown really not a lot of signs of slowing down. So I think that's what it's like you see a little bit of an abatement or it gets better for you in one area. And then it's like a whackamol situation where like every once in a while it's going. I think to your point, it just takes time for that to ripple out. And one of the bent, one of the good things about, uh, it's not good, but like one of the things that is hopeful, I should

Starting point is 00:11:40 say is that the way that we know and track rent in the CPI is like it's still showing that rent is going up a lot right now, like 8, 9%. But that is one category that we know from private sector data, like has been going down or at least flatline for almost a year now. And so the way the CPI tracks this rent is really slow. And so even though that's like the mole that's popping up right now and is pushing core CPI high is rent, we know that it's actually down. It just takes a while for the CPI's poor methodology.

Starting point is 00:12:18 to show that. And so that is why personally, I'm hopeful that it will start to go down the core CPI, but it's going to be a while. I don't realistically think it's going to be, you know, we're going to get the 2% target this year. But I do think we'll get significantly closer to that by the end of 2023. Yeah, I definitely hope so. Because inflation, if we all got job cuts at work, we'd be furious. If they came in and said, you're getting a 10% decrease in pay or a 5% decrease in pay. But if food goes up by 5 or 10 percent or the things you have to buy, it's the same thing in practical terms. It is. And so it's hurting, especially the people that are not listening to podcasts like this that

Starting point is 00:12:57 are not financially savvy. They're not really aware how things work. They're just a good old fashion. I show up. I put my boots on. I trade time for money. I use that money to go by the things that I need. They don't realize that this is happening.

Starting point is 00:13:10 And if you're not buying assets, if you're not buying things that appreciate with inflation, you're getting hammered. So, congrats everybody who's listening to this. you're already in a stronger position. Totally. And the other thing about inflation that I think is so damaging is that just destroys economic confidence, which is really important for an economy. Like people need to believe that things are going in a good direction for the economy to grow.

Starting point is 00:13:35 And we've seen this over the last couple of years because there have been some parts of the economy that have done well over the last year. But since inflation is so bad, It has just been overshadowing all of the economic, you know, bright spots that there have been. And that leads to a downturn, you know, like economic sentiment really matters. And I think we really just need to get inflation under control, as painful as it is. We need to get it under control so that people start, you know, feeling confident about their own financial positions again. And that, like, the decisions they make about their spending are sound because, like,

Starting point is 00:14:13 prices aren't going to go up and they can, you know, plan for their future appropriately. It's a very good point. And it's not just with the financial system. That's kind of with our country as a whole, with the world as a whole. We saw what happened when you get a bank run. What happened to Silicon Valley Bank and other banks. In fact, the Fed had to come out and say all deposits will be protected just to stop that from happening because when everybody panics, it doesn't take much to take down an entire system that we all rely on. So when people lose faith in the strength of the dollar or the economic system can create panic. Like that movie, The Purge kind of highlights. how we just live on this like fringe line of safety that we all have this unspoken societal agreement that we're not going to kill people we're not going to just take things that we want there's there's a consequence for that but when that breaks down it can lead to just like crazy bad times and we've seen that throughout history at times and that's one of the reasons we're talking about this is we definitely don't want that going down i like using the perch as an example it's a good movie In some more housing news, we have a housing market recovery that seems to be taking place.

Starting point is 00:15:20 So a couple points to note here. In March, mortgage rates ended the month over a 30 basis points lower than where they started and more buyers have returned to the market. Home prices fell a year over year in February. The median existing home sale price decreased by 2% in February compared to a year ago. And housing starts, which I wish we paid more attention to, increase to 9.8%, nearly 10%, with building permit applications rising almost 14% from January to February, while mortgage rates decreased 6.32% in the last week of March. Now, housing starts mean that while there is, that's obviously that there is a lack of supply.

Starting point is 00:15:58 It means that builders have confidence that if they build these houses, people will buy them, just like you talked about with people needing to have confidence in the financial system. Many decisions are made based on the psychology of the market. Like, what will people do if we do this? So the housing market seems to be heading in a good direction. What do you think about this so far? I am surprised. Let me just say that. I personally, if you listen to on the market, I've said on this show, have never to date

Starting point is 00:16:27 been convinced or even thought that a quote unquote crash was probable. Like I didn't think that over the last year or two when people were saying interest rates are rising, they've gone up quickly. They're going to price they're going down 20%. I've never really believed that. I've said repeatedly that I think houses prices will go down this year is the most probable case, but probably under 10%, you know, somewhere like 3 to 8% declines. That said, and so like I still believe that. But that said, I did not think that we would start to see this much like activity in the market in Q1.

Starting point is 00:16:58 Like I kind of thought it would take until the Fed paused raising interest rates, maybe we'd get some more stability in mortgage rates, that we would start to see people, jump back in. But what it feels like, and I've talked to a few agents and lenders, so I'm curious your opinion on this, David, is like, they've said that like anytime rates go below six and a half percent, people are just like calling them, like instantly. That seems like some magic number. And it just shows that people are eager to buy into the housing market right now. Affordability is low, but as soon as, you know, affordability improves even a little bit, not even as much as I would expect. People are sort of jumping back in and are buying. And this is happening, obviously, in certain markets more than others, but like Denver, where I mostly invest, like, which was,

Starting point is 00:17:48 you know, up until a couple weeks ago, one of the markets facing the biggest corrections, like activity there has just exploded over the last couple of weeks. So I think this is fascinating. I think it's way too early to say, like, the correction is over, but I am surprised by how brief that corrections so far was. We're seeing the same thing in California. When rates went down, three or four weeks ago, our escrows on the David Green team jumped by almost 50% in that period of time. It's immediate, right?

Starting point is 00:18:21 So oftentimes we look at lagging indicators, like, well, houses aren't selling right now, or they're not selling for as much, or they're selling for less. And we don't look at the fundamentals of why. We just look at, oh, the CPI's up or the CPI's down. houses are selling or houses are not selling. Well, my theory was there's all this money sitting on the sidelines that's waiting. And the minute you get the smallest chink in the armor, interest rates come down a little bit, boom, everybody comes flooding in.

Starting point is 00:18:47 And it's like every house is getting five or six offers. They're back to non-contingent. They're back to all cash sometimes. I mean, it's been wild to see how quickly that, like, that spark causes this huge fire. And so my theory is that there is a lot of money sitting on the sidelines. and frankly, real estate feels safer than any other investment options still. There may be money that's waiting to jump back into the stock market. I'm not a stock market expert, so I can't comment on that.

Starting point is 00:19:15 There may be a big crypto community that's waiting to see that they're going to rush back in. I don't know how other asset classes work. My theory is everyone's worried about every asset class that isn't real estate. And even though it is not easy to get cash flow, that's because there's so many people that are competing for these assets and we're not making more of them, frankly. So I think it's positive if you own real estate and you want to see the value of it increasing. And it's positive if you're trying to feel good about is should I be buying or a price is going to crash. It's not so great if you're the investor who wants to get that great deal and you've been hoping that prices would continue to decrease and competition would continue

Starting point is 00:19:56 to go away. With the spring buying season ahead of us, Dave, what do you think homebuyers should anticipate in regards to prices and inventory levels? It's, why do we have to make these predictions? It's so hard. I will say this. I think that prices are going to follow a normal seasonal pattern. And this is going to be nerdy. But basically, David, you're probably aware of this, that prices go up in the spring and the summer.

Starting point is 00:20:24 Then they peak somewhere around like, you know, July. And then they slowly go down until December, January. That happens every single year, basically. And I think that pattern. is going to happen just slightly lower than it was last year. Like, that's basically what we're seeing. Prices are down 2% year over year, but they are going up. Like prices are up from January to February, they went up. From February to March, they went up. But March of 2023 is lower than March of 2022. And so I think that is sort of the pattern that we're going to see that. Prices are going to stay

Starting point is 00:20:57 mildly below where they were in 2022. But I think, you know, right now, you know, things are changing rapidly. But the way, where we're sitting right now in the middle of April when we record this, I think the spring and summer seasons are going to be pretty busy. What do you think? So it's looking right now. Great news if you're somebody who owns property. Not great news if you're someone who is looking to get a great deal. But I agree with you. And you made me think of someone you were talking, Dave, if I brought you a deal, great neighborhood, like B plus, A minus neighborhood in California with a 20% cash on cash return, the minute that you buy it, would you jump on that deal. Yes, absolutely. Right? You're like, I would, I would move heaven and earth to get to that deal,

Starting point is 00:21:40 right? Why do you, do you have one of those? I wish. Can I have it? There was a time in 2010, 2011, 2012 where we turn those down because the 20% ROI was not sexy enough to get us interested. We were looking for 25, 30% on a deal before you can make it work, right? And now, if you just have a 2% return, we're like, hey, that sounded pretty good, right? I can make that work. It has to do with expectations and those expectations are based off of what we see when we're looking at deals. Like your brain looks like that. It looks at all your options and it wants to find the best ones. Just keep this in mind that so many people are willing to pay what they're willing to pay for real estate. They're willing to get the smaller cash on cash return because they're comparing

Starting point is 00:22:22 that to other asset classes where it is either way riskier or there is no cash on cash return, whereas real estate still makes money in a lot of different ways. People get tax advantages from it. people can shelter their W-2 income buying short-term rentals. People can get out of the job that they don't like and replace that with real estate. Even if it's not a huge cash on cash return, if it's getting them their time back, they're more likely to do it. They know that they're going to have rent increases over time. They know the property is going to increase. There's lots of ways real estate make money outside of just that ROI that you get from the cash flow right off the bat.

Starting point is 00:22:55 And as people are trying to find safe places to put their money because of that I word we talked about earlier, inflation, real estate is continuing to be the most attractive-looking vehicle. And then we haven't even talked about the fact that most of these buyers are not investors. They just want somewhere to live. Yeah, totally. I mean, everyone makes a big deal out of investors. And the share of properties that go to investors has gone up. But 70% of properties are sold to owner occupants. So it's like, that is who is driving this majority. And we talk about it's boring. But good old-fashioned demographics. People are having, you know, there's a lot of millennials who want houses right now, and that doesn't go away that much. That's right. Your competition's not listening to bigger

Starting point is 00:23:37 pockets and running ROI. They're just looking at their rent going up and saying, I want my own mortgage. Yeah, exactly. Here's the truth about passive investing. If the strategy isn't right on day one, the returns won't save it. Multi-family real estate offers structural advantages. Many investors are overlooking, including depreciation that can help offset taxable income while cash flow continues. Bam Capital builds its investment with that reality in mind. They are focused on solid operators, tax efficiency, and long-term performance. For investors who want real estate exposure without being landlords and who care about consistency over hype, this is a smarter way to allocate capital. Learn more at biggerpockets.com slash bam. People love to call real estate

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Starting point is 00:24:56 want to learn more, visit BiggerPockets.com, for decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now you can invest in a $1.1 billion portfolio of real estate, starting with as little as $10. The portfolio features 4,700 single-family rental homes spread across the booming sunbelt.

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Starting point is 00:26:56 All right. Our third headline is about de-dollarization. Have you heard about this recently? No. Basically, the U.S. is the dominant currency reserve in the world. And that is a bit complicated, but in short, basically, in order to make international trade easier and to stabilize exchange rates, central banks like the Federal Reserve across the world, hold other country's currencies, quote unquote, in reserve. The U.S. is by far the most. It's 60% of the world right now, of all reserve currencies, is U.S. dollars. The next biggest is the euro and it's 20%. So it's really dominant.

Starting point is 00:27:37 But of late, there are some signs that that dominance is cracking. So the examples are the BRICS nations, which BRICS stands for Brazil, Russia, India, China, and South Africa, a lot of large emerging. economies announced that they are going to introduce a new alternative currency to be used as reserve. China and Brazil have agreed to settle trades in one another's currency. Russia and India said that they want to move away from U.S.Ds, the finance minister of Saudi Arabia, said they were open to moving away from using dollars for oil and gas trades, which hasn't been done since the 1970s since the U.S. went off the gold standard. So there's a lot of signs.

Starting point is 00:28:22 that this might be happening. And I am curious what you make of all this. Well, now that you mentioned what it is, I have heard of it. I didn't heard of it called de-dollarization before. But it is, I think this is kind of significant. It's one of those things that you wonder why more people aren't more concerned about it. Maybe it's just we don't want panic to happen in the country. But one of the reasons, if you don't understand macroeconomics,

Starting point is 00:28:47 that we've been able to print so much money is that there is a demand for it across the world, is a short way to put it. Other people trade in our currency. So, oh, we made too many diamonds. We can ship a bunch of them off somewhere else. We can keep our own supply levels low. So the price of diamonds stays expensive, right? Yeah. Well, if other countries start saying, you know what, we actually don't need to pay your diamond price anymore. We are going to use rubies for our engagement means or for our means of jewelry. And the demand for diamonds goes down. Those diamonds all have to flood back into our country, which causes inflation. Much like you hear us, talk about we need to reduce our dependence on other countries for oil because if they're the

Starting point is 00:29:25 ones that produce the oil, they set the price we have to pay what they want us to pay. We want to have our own oil so we don't have to do that. Well, that hurts them economically. They're doing the same thing back to us. And so what I see is that at a global level, it's becoming more competitive economically. And if that ends up happening, that is a scenario that could lead to more inflation, which is what we started off today's show. It seems like everything always comes back to that, doesn't it, Dave? Yeah, it does indeed. I mean, I think that this is an issue. I have done a lot of research into this.

Starting point is 00:29:58 We did an on the market episode that came out on April 21st. If you want to hear more about like the history of how the U.S. became the reserve currency, all that sort of stuff. And you can check that out on the market. But what seems to be happening is one, like you said, David, other countries just don't want to be entirely dependent on the United States. for a few reasons that, like, if you're coming out of from their perspective, sort of makes sense. One is that, like, problems in the U.S.

Starting point is 00:30:29 ripple through the rest of the economy. Like, we saw that in 2008. That crisis financially started in the United States and then spread throughout the world, largely because there's a lot to do with the U.S. economy and they're well intertwined. The other thing is, like, as you said, the U.S. has flexed a little bit being the currency reserve country on the geopolitical stage. And when Russia invaded Ukraine, they seized, the U.S. government seized $300 billion in Russian reserves. And so, like, other countries are looking at that.

Starting point is 00:31:05 And they're like, we don't want to let that happen. What I don't think is happening is, like, I haven't heard any country say, like, we're not going to use dollars. I think what they're saying is, like, they want to get more parity because if the U.S. is 60%, the euro is 20. percent. Everyone else is like 20 percent. They want to create a system where they're not too reliant on any one country. The thing is, there isn't really another contender to the U.S. dollar right now. And so I do think like because all these countries have stated that they want to do this, that it will probably reduce the U.S.'s share over time. But until like another currency comes along that actually makes sense, I think it's not going to be.

Starting point is 00:31:50 be a pressing issue, but this is obviously not my area of expertise. But from the research I've done, that's sort of what I've gleaned. I think that's wise, but it does show the intention, right? Yeah. So I don't think this is something that in the next two months we're going to see it changing anything. This is one of those things that you need to pay attention to this because five years down the line, 10 years down the line, significantly big changes could have happened. That's a terrible way to phrase that. But significant changes could happen to a big magnitude that started at this point right now. And a lot of people, like, they just want to know what, what's going on right now?

Starting point is 00:32:24 Like, what do I need to know? Where's the deal at? How do I get an opportunity? I just want me, give me, give me, give me right now. I just want my 15-minute reel that tells me where I'm supposed to buy. It's not wise to look at it that way. It is wise to look about what's happening at the big picture and then make your individual decisions based on the current market, but your overall portfolio should be based on

Starting point is 00:32:42 what you see happening at a national level. Yep, absolutely. Well, again, if you want to learn more, talk about some surprising benefits that could happen if the U.S. is not used as much. Some of the other risks, there definitely are risks and benefits. So check out that episode of On the Market if you want to do that. But David, what's our last headline here? Our last headline has to do with vacation home demand, which is a trend that has been sweeping the country. It's been all the rage for the last several years now. Demand for

Starting point is 00:33:13 vacation homes is down by more than 50% to pre-pendemic or from pre-pendemic levels. The number of people locking in second-home mortgages drop to its lowest level since 2016. So curious, Dave, do you think that the high interest rates are scaring off buyers looking for a second home? Or do you think it has more to do with saturation in the vacation home, like short-term rental market? Oh, man. I like this question. It's something I really like talking about, but I think it's a combination of things. So interest rates definitely, right? Like people might be willing to bear higher interest rates for primary residence because that's important to them for reasons that go beyond finances. Second home, it's like, all right, I don't need a second home.

Starting point is 00:34:00 So I'm probably not going to pay a six and a half percent interest rate on that. I think that is one of the major things. The second thing is the work from home craze is stabilizing. Now, If you look at the data, it shows that work from home seems to have peaked. It's come back down a little bit. Less days are being worked from home. But it's flatlined now. Like, it's pretty stable. And so I think the idea, like what happened during COVID where people were like, oh,

Starting point is 00:34:27 I just want to get the hell out of this city in this like little shoebox that I live in. And I'm going to try and get somewhere with some more space or somewhere that I can spend time with my family and maybe not be in close proximity to other people. that rage seems to be over. And then I think the third thing that's really important here is other asset classes. Like people, the crypto markets and the stock markets went absolutely insane for two years. And people were taking money from the stock market. They were taking money from crypto.

Starting point is 00:34:57 And they were putting into real estate. They were flush. And they were like, I'm going to go buy a house in the Smoky Mountains or in Joshua Tree or wherever. And now that is also not true. So it seems to me there's like this confluence of. different things that are going on that are dissuading normal people from buying it. And then I think with investors, when you look at the oversaturation of the market, like they're probably scaling back. And it just seems like demand in these markets might be down for a little while. I think that's a

Starting point is 00:35:28 wise assessment. I think you're spot on there. The vacation rental home really did disrupt the balance of the housing market in general. Before you had Airbnb, VRBO, everything was different about real estate. Like there was no 30% cash on cash returns that you could get getting a home unless you bought in 2010, right? You had a way for market distress. You couldn't just buy in a healthy market get a return like that. Well, vacation rentals changed it so people flooded into those markets. People like me got involved, not just for the cash on cash return, but I'm like, I can own a house in Malibu that isn't going to bleed money every month.

Starting point is 00:36:02 I can make money on a beach house in Malibu. I can buy in Scottsdale, Arizona. I could buy in like these wonderful markets at grade A location, location, location. This is what you want to own real estate. And I could turn it over to a property manager and I can make money off of this thing. Do nothing. Exactly. Now I'm soaking up inventory that used to go to people that just were wealthy people that

Starting point is 00:36:25 wanted to live on the beach in Malibu or wanted to live in South Florida. They wanted to live in Scottsdale. I'm also driving the prices higher because I'm willing to pay way more for that house and someone who's just going to live in it because it's going to make me money. In a sense, it's not that we don't care about the price. It just isn't a significant factor. If I could pay 200 grand over all the other homes, but that property is going to make me 60 grand a year and I'm going to do nothing.

Starting point is 00:36:48 It's worth that to me. So what we started to see was inventory that used to just go onto the open market for regular people to buy a home, sucked up by these short-term rental investors. We also saw people getting into rental property investing that were not involved because they could make it work with short-term rental investing. We also see now tax benefits going to people that are making good money outside of real estate that short-term rentals open up doors. So all these people fled in and they're buying short-term rentals and it's like the new gold rush. Everybody's going to California to strike it rich and then you get there and you realize, oh, this isn't, it's not like I thought.

Starting point is 00:37:22 This is a bloodbath. I'm competing with all the other people. I could actually lose money here because so much money came into this. The neighbors are making my life hell. The cities are now trying to respond to this new trend and they're over, they're overreacting. they're shutting people down that are trying to run a normal business. It's sort of in flex and it's in chaos right now. So it does not just surprise me that we're seeing vacation home demand go down.

Starting point is 00:37:45 It was ridiculously too high. People were buying vacation homes that were never intended to be vacation homes. They're just using that loan in order to get in for 10% down and still buy short-term rentals. Yeah, I totally agree. That's a great point about the regulation too. That's another thing that is still shaking out. And I think, you know, if you combine that way, with all the other risk factors right now.

Starting point is 00:38:06 The risk is just pretty high in my mind. There's a lot of risk. Oh, yeah. I got in. This is just an anecdote for my life. I'm sure it's not a statistic that would work across the country. But I got into several vacation rental markets, bought properties that were already licensed by somebody else.

Starting point is 00:38:26 And as soon as the neighbors saw the for sale sign on the property, they knew it was going to change hands. This happened to me over six. different short-term rentals that I bought. The neighbors in every one of these properties joined together, formed a coalition, went to the city government and called the city planning department and have done like a coordinated effort to stop me from getting licensing on this property. Yep. People really don't like it. But I'm saying this because I don't want other people to get in the same boat. Yeah. I bought the property having no idea this was going to happen. And that

Starting point is 00:38:58 has happened to be over six different properties across the country, all from neighborhood coalitions that are like, we don't want short-term rentals. And this is not like house parties being thrown. This is literally just this hatred for real estate investors that has made its way known. And I know that as people are listening to me talk, they're thinking the same thing. Yep, I'm going through that. I'm going through that. It definitely has put a damper on the demand for that asset class. Yeah, for sure. I mean, you probably just scared like 50,000 people away from wanting to buy a short-term rental. So demand's going to be down even further. Yeah. That's only, that's the tip of the iceberg. for what problems that I'm having in those with those properties.

Starting point is 00:39:36 But that's one of the things that can happen when you need to go through a municipality or a government, it's very easy to get caught up in these weeds that you can't necessarily get out of. Whereas if you buy a property that neighbors don't care about, you could do your work without permits. You can not have a license at all. Nobody even sees anything about it. So short-term rentals are complicated.

Starting point is 00:39:58 They are. They are a situation. They are not a relationship. try to avoid getting in those sticky situations of possible. Okay. We have a new report for you. It is 100% free for anyone listening to this. It is something that I wrote.

Starting point is 00:40:12 It's called the State of Real Estate Investing. And it basically just summarizes all of the macroeconomic and housing market conditions that are really influencing the decisions that we all as investors are making right now. It's really easy to use. It's 100% free. You could just find that on BiggerPockets.com. just go to biggerpockets.com slash Q2 update like quarter two. That's biggerpockets.com slash Q2 update.

Starting point is 00:40:39 And hopefully it will help you make informed decisions as an investor. And of course, if you have any questions about it, you can always hit me up. So go check it out. Yes, you should go check that out. And Dave, it's been so nice to see you again. There you have it, folks. We have inflation, the housing market recovery, de-dollarization, and vacation home drama.

Starting point is 00:40:59 All brought to you by the good people here. at Bigger Pockets. This is David Green for Dave, the $29 sandwich man, Meyer. Signing off. Just to be clear, I did not eat it, but I want to. I would. If I'm being honest, I would. Thank you all for listening to the Bigger Pockets Real Estate podcast.

Starting point is 00:41:36 Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by YouTube. E&K. Copywriting is by Calicoe Content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in

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BiggerPockets Real Estate Podcast - 760: BiggerNews: Buyers Jump Back In as Real Estate Competition Heats Up

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