How Does The Housing Crisis Affect Investor Returns?

You know, recently my state legislature wrapped up their session, and like many other areas of the country, we have a serious housing crisis in Utah. We're now the 8th most expensive place to buy housing. You know, we're not on either coast, and we're the eighth most expensive state. And so there are political changes that are being implemented in various state governments and federal governments, et cetera, to try to solve this housing crisis. How do you view those as affecting investor returns?

Wow, Those are almost. I view two. One is like a social issue, one is an investing issue. I will say this, that what the Fed is doing today with interest rates is a policy that generally works in a more normal environment. The challenge we have today is that we have a distorted environment, and the Fed really hasn't impacted the velocity of money that's going into housing. We have the largest demographic that's moving through the economy right now. The, the. The millennials who are all coming of age 32, 33, 34. And the housing shortage is actually a result of what happened back in 2008, 9, 10, where banks stopped lending to. And a lot of people just left the market altogether. But we didn't have enough speculative housing. So we find ourselves in sort of this conundrum today where the Fed is using tools from the past to try to control an issue today. But you have this weird demographic that just can't. The Fed can't. The same tools don't work today because people are finding a way to buy these homes. And I would have told you two years ago if you would have told me the Fed was gonna raise interest rates to five, five and a quarter, five and a half percent. The long end was going to be four and a quarter. I would have said, yeah, there's going to be a huge housing recession. We just haven't seen it. Housing prices have sort of flattened. It's definitely impacted. I think the multifamily side for owners, not renters, owners, have really borne the brunt of this because we are the ones who own the asset itself. And the higher rates and cap rates and interest rates are really impacting us as owners and the investors and funds. And this is a true real estate recession right now. This won't last forever. I think we'll be out of this soon. And it's good to have real estate in your portfolio because S&P 500 is having its day, but eventually this will reverse. So I don't have the exact answer you're looking for, Jim. I think the housing shortage and the affordability is an issue. There are choices, right? In today's world, people can find a way to buy if they can afford it. If they can't, they can rent, they can't rent, they can choose to stay at home, they can double up, they can do some things. But I just think from a social perspective, it's. This is the most unaffordable time to own a house in the history of this country. And in fact, I was reading an article the other day that said, this was by Zillow, so take it for what it's worth. But it was before the pandemic. In order to own a home in this country, your earnings had to be around $60,000. Today, for you to be able to afford a typical home, you have to make over $100,000, right around $105,000. So you can think about that gap and how many people have been priced out of home ownership. It's definitely an issue that needs to be solved. I don't think interest rates are the job, but certainly we need to build more.

Yeah, yeah. I've been talking to lots of docs, young doctors coming out of residency and fellowship making $300,000 in relatively high cost of living areas that literally cannot afford to buy the average home in that market, despite an income that's. That's well above average. It's pretty impressive. And if it's affecting doctors that way, you've got to imagine how it's affecting households with more median income than that.

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