Ep 320 | The 5 Biggest Drivers of Today's Housing Market

Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off podcast, where we believe that every single day brings a new opportunity to get better. Today we are going to get smarter around the housing market. Many of you listening are in the real estate industry, or you're a real estate investor, at the very least, you own a home or multiple homes, and you've gotta be smarter, you've gotta be wiser around the things that drive, the things that impact the housing market. You can deploy this knowledge to run a better sales business if you're in the real estate industry sales side of things. You could be a smarter investor, or again, if you're just, if you're a homeowner, which most of us listening probably are, Maybe this helps you better understand when the right time to either buy or sell might be. Now, real quick, 'cause I don't wanna forget to mention this, I very much encourage you to take what I talk around today, better understand it, deepen your knowledge around these various drivers, and then teach it. Teach it to your sales team, teach it to your peers, teach it to other investors, teach it. Why? Because the number one way to deepen your knowledge around something is to actually teach it to others. So let's talk around the 5 drivers that affect— or the drivers of the housing market. Number 1, inflation. Okay, we normally love inflation as investors or as homeowners because inflation means rents go up. Inflation's mean typically means that cost of a house goes up from an appreciation standpoint. Inflation drives values, drives rent. Now, the problem right now is that inflation up until just recently has really been outpacing wage growth. So people are losing money. This means higher rents can't be paid. This means that if people are not making more money, they can't afford to buy houses that are of higher value. And so it's a problem, right? So number one, we've got to understand inflation and how it impacts the housing market. Number two, real estate, as I mentioned, usually tracks inflation. Right now we have really high real estate values and there's a significant gap between housing values and inflation. Values are greatly outpacing inflation right now. And when, when this occurs, one of two things typically happens. Either a market market crashes back to the trend line, which is what we saw in, in '07, '08, '09. If you, if you live through that time period or you're working in the industry during that time, what you saw were values greatly outpacing inflation. So what happened? The market crashed and it reset. So either number one, the market crashes, or number two, values have to slow down in terms of their growth or even flatline so that inflation catches up. So again, the drivers of the housing market, number one is inflation. Number two, high real estate values. We've gotta have values more in line with inflation. Right now there's a very, very big delta between the two. Okay. Number three, interest rates. Goes without saying, interest rates drive the housing market. We will not spend too much time on interest rates. I think most of us have an understanding as to how interest rates are impacting things. But I would encourage you to really understand how interest rates drive things and also maybe understand historical interest rates and how they've impacted different markets in different times. Interest rates are a driver for, for the housing market. They impact, they affect the housing market. So number 1, inflation. Number 2, high real estate values. Number 3, interest rates. Now, it, it's important to mention, especially if you're an investor, that when there's high rates, there's a slowdown in transactions, in real estate sales. And when there's a slowdown in transactions, it actually means there's fewer at-bats or opportunities for you to consider for investment opportunity. In other words, more transactions usually means more deals, off-market deals, distressed deals, whatever it may be. So the opposite would be true Lower rates— I'm sorry, higher rates slow down transactions. So you have fewer transactions, which means fewer, fewer deals, harder to find deals. Just a reality of what's going on. Now, there's always an investor out there that's going to tell you, well, there's— it's always a great market. And they're right, absolutely right. But you do have to work a little bit harder to find deals that will in fact, in fact, make sense. Interest rates, high interest rates really make it difficult to get a deal to pencil. They just really do, okay? Number 4 impact, a thing that impacts the housing market, today's housing market, a slowing economy. A slowing economy. Recognize that the Federal Reserve's goal right now is to slow the economy. That's why they've raised interest rates and kept them where they're at. Its efforts have not exactly worked though as intended. The economy's gotta be slowed and it hasn't occurred to the extent desired. Now, there was an inflation report that just came out recently. Inflation is, is, it does appear to be going down. Will it be sustained? I guess that's to be determined. But remember, at the end of last year, at the end of 2023, we thought there'd be 6 or 7 interest rate cuts in 2024, and now we're projecting maybe 1. So the Fed's goal of slowing the economy clearly has not been achieved just yet. Now, if the economy slows as, as intended, remember, real estate values could be negatively impacted if people lose jobs and things of that nature. So I'm sharing this because while I am optimistic, I think it's important to always be black-hatting, to always be underwriting things more conservatively. So number 1, remember, is inflation. Number 2, high real estate values. Number 3, interest rates. Number 4, slowing economy. Number 5, and the final thing we're gonna talk about as far as drivers of the housing market, the yield curve, the bond yield curve, and specifically yield curve inversion. You're gonna have to look that one up. That would be a whole separate episode for us. But recognize that banks borrow at low rates in the short term, and they typically lend out at higher rates. So they borrow low, lend out high, and that spread between what they borrow at and what they lend out at is in fact where they make their money. Well, the challenge right now is that rates— short-term loan rates, short-term rates on debt— are basically at the same rate as long-term debt, meaning that what banks are borrowing at is essentially what they're lending at. That absolutely impacts banks' profitability, which means banks have to be more conservative and there is less lending. If you've gone to go get a— if you've gone out to get a loan recently, um, it's not super easy to get a, to get a loan product that makes a hell of a lot of sense for you. It's a challenging time. So this yield curve matters. So we've gone through 5. Remember, yield curve inversion being 5. Slowing economy being 4, interest rates being 3. The number 2 thing that we talked about was real estate, high real estate values, and then number 1 being inflation. There are other things that are driving the housing market. Of course, supply and demand is always right there. Of course, local economics and, and a variety of other things are driving it. But these are the 5 things that I'm watching very, very closely right now as a person who operates in the real estate industry. And a person that invests pretty heavily in the real estate game, we've gotta be looking at these things, and that's today's world, right? We're always looking at 'em, but maybe not emphasizing to the extent that we are today. Like, I'm always looking at these 5 in addition to other things, but maybe not to the extent, again, today, like I am today with a more conservative lens. There are deals to be had. There are always opportunities in every market. The point in sharing all of this with you today, I want you to make sure you're studying these things. I want to make sure you understand interest rates and, and yield curve inversion. I want to make sure that you're understanding, you know, present, present housing values and, and inflation and how this is all dry. These are the things we've got to be studying if you're going to be a professional in the sales game, if you're going to be a professional investor, or if you're just going to be smart around the bucket that is real estate in terms of your wealth plan. I strongly encourage you to take what we're talking about here in 7, 8, 9 minutes and do a deeper dive. Where are you deficient in your knowledge with respect to the areas I talked about today? And how can you go take a step? Remember, no days off means take a minute, 2 minutes, 5 minutes, 10 minutes to go learn something, get better at something today. So which of these 5, if not all of them, are you gonna go study today? And get a little bit smarter. That's all I have for you today, the No Days Off podcast. Thank you so much for listening, and remember, every single day brings a new opportunity to get better, so let's get after it.