2083: Why the Housing Market Is Far From a Bubble Burst! Exposing the LIE with Eli Beracha

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You'Ve got the best podcast going. Jason, I love your show, man. It's good stuff.

Thank you. I really appreciate it.

What I wanted to share was I, my wife and I, for the first time ever, paid effectively no income tax in 2022 through doing a cost segregation study and generating about a $200,000 paper loss on our real estate. I'm a real estate professional and it really works. It's magic.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Greetings, empowered investors. We have a great show for you today. We are talking with a professor about the state of the housing market and the economy overall. There are some good things you'll want to hear here, so stay tuned for that. Before we get to it though, it is that time of year when the experts are out with their predictions on where the market is going to go. So let's take a look at that. All of them are positive except one, which is negative. Let's see what they say. So first of all, we've got Wells Fargo and they say that the housing prices will appreciate by 2 1/2% next year. 2.5% increase in prices next year, according to the economist at Wells Fargo. The Mortgage Bankers association, otherwise known as the mba, is a little less optimistic, but they do say things will be up. And they say things will be up by 1.1%. Fannie Mae. They are optimistic, but it's not great. But it's a positive and it's better than the NBA and even higher than Wells Fargo at 2.8%. Their prediction that prices will increase next year by 2.8%. Zillow says they will increase by 3.3%. Now they are one of the more optimistic, but there's one more coming up that's even more optimistic than that. But first let's go to the downside and let's look at the scumbags at Goldman sucks. You can tell I don't like that company too much. So Goldman sucks. They are positive, they are bullish on the market, but only a little bit. They say there will be a small increase of 0.6% next year. Now remember, these are all markets, all geographies, all price ranges. This is the nationwide stuff. Includes linear, cyclical and hybrid markets. And that that's why these predictions have to be sliced and diced, which we do for you and we've done for you on many prior episodes. But again, these are just the overall national numbers. Now the only bearish prediction in here comes from the group who was found to be wrongly stating the mortgage backed securities values. They had a whole big scandal during the Great Recession. But that is Moody's analytics and we covered that story many years ago for you. They say that prices will decline next year by 4.4%. Certainly not a crash, but nonetheless a negative overall appreciation. Now remember, even when prices decline, that doesn't necessarily matter because we get our return in so many ways. Income, cash flow, inflation, induced debt destruction, mortgage pay down by our tenants, tax benefits, et cetera, et cetera. Right? Leverage. But again, these are just one of many of the multiple dimensions of an income property investment. And Moody's says the prices will decline slightly by 4.4. Now, the most optimistic prediction comes from the folks we've had on the show several times. We've had Zillow economists, Fannie Mae economists, mba, all on the show before. We've had Wells Fargo people on the show and Moody's. By the way, a long time ago we had some Moody's people on the show, but the aei, the American Enterprise Institute, their housing center, says that prices will increase by 7%. Now that's more than the historical average, which, you know, it depends who you ask and what time period you look at. And there are different ways of calculating all this stuff. But you know, generally speaking, people say that housing prices increase by about 6% annually, right? A little better than the CPI. But again, you can analyze and agonize over that number too. But suffice it to say that the AEI, the American Enterprise Institute, says that prices will be up 7% next year. Now I just want you to think about that for a moment and I'm going to use a simplistic example. You know, most people, if they're investing and buying a rental Property, they're putting 20% down. And remember, with leverage, right? Let's just take a 10% example first because it's simpler. All you do is move the decimal point or add a zero, right? So if you consider nothing else, say the property is a break even property, it produces no positive cash flow and there's no mortgage pay down. Say you had an interest only loan on the property, which is very unlikely, but say you do and you just break even. No positive cash flow at all. Not even, you know, 20 bucks a month, positive cash flow, nothing, zero. It's just a complete break even. Say you had no tax benefits, say you had no inflation induced debt destruction, right? None of these multidimensional characteristics of an income property. But you simply had appreciation, right? And you had 10% equity in the property. Now that could be as a result of the first year you put 10% down, or it could be that somehow you just had 10% equity in the property at the time this happened. Let's go with the AI prediction of 7% increase with 90% leverage. That 7% becomes 70% with no other aspects, with no positive cash flow, no inflation induced debt destruction, no tax benefits, no mortgage pay down of your principal on the mortgage, right? Just on leverage and appreciation alone, only one dimension, you have a 70% return on investment. Simplistically now if you put 20% down, you have to cut that in half because you have less leverage. So now you have a 35% half of 70, 35%, a 35% return on investment.

Wow.

This is why income property is the most historically proven asset class in the entire world. It is absolutely unmatched because it has special multi dimensional characteristics that other assets that are don't have. So think about that, right? Even if some of the lesser predictions are accurate or even if the only, only one, the only one bearish prediction, Moody's analytics, if their prediction is right and prices actually decline slightly, you have all those other dimensions from which you earn your return on investment. See the myopic people that don't get it, that don't know how to do math, that don't take the time to understand the incredible power of this ass class. They miss the boat constantly because they don't understand the multi dimensional aspect. They also don't understand supply and demand, which we've been going over again and again. We know that there's a massive inventory shortage. We know that there's massive demand. We know that millennials and now gen zers moving right into their prime household formation years, increasing demand for housing so there are your predictions from the experts for the upcoming year. We will see what happens and we will continue to monitor it. Black Friday was a big deal this year, folks. We just had Black Friday. And shoppers spent a record $9.8 billion billion dollars online. That was only online. That is up 7.5% year over year. Now you keep hearing the news that the consumer is tapped out, that credit card debt is increasing. And while those stats may be true, there is a whole other segment of the population that has loads of money, right, that has very cheap mortgages and a lot of extra income. In fact, some of the historically highest amount of extra income, disposable income, as we like to call it. And I've shown you the charts on that. We just released one of our email newsletters that had those charts in them. We have about 135 million people in this situation in this country that got those super cheap mortgages. They're locked in. They've got 28 years left on those mortgages and they're super comfortable. They've got lots of spending money and they are spending and the consumer is out there buying, buying, buying. And by popular request, we have a Black Friday and Cyber Monday promotion. It expires tomorrow. So act on this quickly. And all you have to do. We have two things on a big sale. Number one is our lease options. Live coaching. That's six weeks of live coaching and training and six months of ongoing email support. After this coaching is done, we do it all via Zoom. And you can go to FireYourManagers.com, use the promo code or coupon code Friday. And all you have to do is type in Friday. You'll get 20% off of that. And this is a phenomenal way to get huge deposits to basically eliminate management hassles and to fire your property managers and save all that money that you would spend on a property manager and eliminate repair hassles. Get the tenant to take care of the maintenance for you. Get giant, giant deposits on these properties, okay? Much bigger than you're used to. You know, first and last month's rent, right? And one month security deposit. Much bigger deposits than that. This is an absolutely fantastic thing. We've got our empowered investor guides teaching that course. But I'm there with you. And we're all happy to answer questions in our small group Zoom Sessions. Go to FireYourManagers.com, use the promo code Friday, and get a 20% discount. By the way, managers is plural, because we want you to fire all of them. Fireyourmanagers.com now, the second promotion is our cruise. And let me put on my captain's hat here. Okay, so we have our upcoming Empowered Investor cruise. And we've got a promotion on that as well where you can get 20% off. You need to go to empoweredinvestorlive.com and request your invitation for the cruise. It's in April. It's on the beautiful new celebrity Apex. These ships are phenomenal. When I was in Europe, I was on the sister ship to this, the Celebrity Edge. Wow, what a cruise ship. I've been on about 20 cruises and that was the most gorgeous cruise ship I've ever been on. I absolutely stunning. I love celebrity cruises. So join us for this one. It's five nights, six days. Go to empoweredinvestorlive.com, request your invitation and you will then if you're invited to the Cruise, get the 20% off. If you do that right away. Okay, let's get to our guest and let's talk to the professor about our predictions on the market for next year.

It is my pleasure to welcome Elie Baraha to the show. He is the director of real estate at Florida International University and he's got some great insights on the real estate market. He also counsels wealthy investors and I believe, family offices. So it's great to have him here so we can look at some forecasting for what might be coming our way. Ellie, welcome. How are you?

I'm doing well. Thank you, Jason, for having me.

It's good to have you. So everybody seems like they've been predicting a crash for the past couple of years. Well, really, they were predicting a crash in 2012 and in 2015 and in 16, 17, 18, 19 and, and certainly at the beginning of COVID And the opposite has happened all the way along. Now, we certainly have talked extensively about the lock in effect with 65% of the country having mortgages at or below 4%, about 90% of the country has mortgages, I believe, below 5%. So these people are pretty comfortable. Are they ever going to sell their houses and solve the inventory shortage problem?

Okay, so, so let's, let's go back before we talking about whether, you know, the current homeowners are about to sell or not. So the whole idea of, you know, a correction is predicted for a long time and it hasn't happened. And the reason for that is because over the last, basically following the peak of 2007. So we know the housing market peak 2007, and at that time we had surplus of about 3 million house United States. Basically we built too much. People had second homes, third homes, they bought a home just because, etc. And because of that, of course, and many other factors, but that was the main reason we have oversupply of housing. And we saw the crash, the crash all the way until 2009, 2010. And basically the music stopped, Builders stopped building all together, almost all together. And even when they start building, let's say in 2011, 2012, they build a lot less they needed. And when I say a lot less than needed, just talk about, you know, the housing formation. I states how many houses you need versus how much they they build. They build about 300 to 400,000 houses less every year. And that was 2011, 12, 13, 14. I can continue basically until 2000. And then of course, 2020, 2021, no building because people did not work. E.

We see almost over a decade of under construction that brought this oversupply of about 3 million houses to actually an undersupply of about 4 million houses. So right now we're sitting at an undersupply of about 4 million houses in the United States. We are building about as many houses as we need right now. Even though high interest rates do not help the situation, because it's more difficult to build when the cost of financing is just more expensive to, you know, to have funds for your construction. And that is basically the foundation because you have under supply of an asset that everybody needs that put kind of a floor below real estate prices. Now, in addition to that, of course, now looking at today, then you have people that have very low interest rates, you know, 3%, 3 and a half percent, 4%, even less than 3%. So many people like that. And for them, if they want to upgrade their home, number one, because housing become more expensive, upgrading the home become expensive because another 50 or 100,000 doesn't really make a difference in many cases. You know, if you're in Florida and you have a house that now is worth, let's say 800,000, you're probably to put at least another 3, 4, 500,000 to see a difference in terms of the quality of living. So that is significant amount of money. That's number one, because housing is so expensive. And then not only that, you'd have to give away your mortgage at 3, 3 and a half, 4% and take a new one at around 7% right now, maybe even a little bit more. And that is making it so undesirable for so many people. And they just stay put.

Then Basically on the current inventory levels and again, keep housing prices robust.

So I want to ask you about the housing shortage and why some are skeptical. They say that's not really true, there isn't a housing shortage. But before I do that, just an earlier part of the conversation. The under building that happened following the Great Recession, why did that happen? Was it just the developers were too skittish and scared or were they unable to obtain financing? Was it just too expensive to build and they couldn't make the profit margins work? Was it a combination of all three of these things and maybe more things? Why did we have that under building? I mean, it's sort of easy to look at demographics and know what the demand side will be. I mean, you know, you can pretty much calculate housing formation. But why did we have that under building for really well over 10 years, maybe 14 years of under building.

Okay, so we need to understand that the, the construction industry, unlike for example the automotive. Okay, so let's, let's talk about cars, right? I mean, how many players do you have? 20 manufacturers of cars between Tesla and Mercedes and BMW. And for 20, maybe 30. They are the players that based on, you know, they, they have the models, they're predicting how much demand, how many cars basically become obsolete, how many cars we need, etc, and they build according to demand. And you know, sometimes they're overshooting, undershooting, but basically they're getting it right. On average, the housing industry is very different. You have some of the large builders, KB home, Dear Hortons and the likes, but then the vast majority is a lot of tiny builders. Anywhere from the builder that build, you know, a townhouse here, another townhouse there, a few single family home, a spec home here, etc. All the way to maybe slightly bigger, that maybe build, you know, 20, 30 units a year, things like that, they do not work together. They do not have these models that are basically telling them how much houses are needed. And because of that there is no basically collective effort to address housing. They just kind of build opportunistically. And during the recent housing collapse of 2007-2009, 10 basically all of those developers disappeared, they went bankrupt. And a lot of people say never really said again. And because they say never really said again and because it went bankrupt and they're unable basically to create supply. And a lot of that, even those that says okay, maybe I'll get into real estate, just become very, very fearful, very cautious, maybe overly cautious, which is a common psychological reaction to what happened after a severe correction, a Crash. And this over cautiousness after the correction is why we have such underdevelopment over such extended period of time. It's only until basically last year that we build as many houses as we need, but we still have a shortage of about 4 million. Think about that. If we build 400,000 more houses than needed every year from now on, it will still take us about 10 years to get to equilibrium. And making things even worse, the housing under supply is actually worse because of the choice of where people want to live during and after the pandemic. So we know that before the pandemic, there was, okay, people moving into the downtown, the standard of the cities, et cetera, et cetera, et cetera. And then during the pandemic, and still until today, people actually choose to move into the suburbs. And they say, you know what? I don't have to be in the office every day. Many people working maybe three, four days a week, sometimes two days a week. So it's okay if I'm somewhere else. I'm doing a lot of my meetings via Zoom, so I don't have to be in the center of everything. I rather have a slightly bigger house somewhere else. And because unlike iPhones, whatever it is, when you can just move them from one place to another, where you have oversupply somewhere and over and under supply somewhere else, you can just move them with housing. You cannot do that. So if you have too many houses, one location less than somewhere else, you basically stuck with this imbalance for a very long period of time.

Yeah. So that is pretty staggering what you said. You said if we were to build 400,000 houses each year for 10 years, we would still be undersupplied.

400,000 housing more than we need. So we need to build as many as we need, plus 400,000 houses each year. That will take us till 10 years in order to become. To get back to equilibrium.

Right. So how many are we building now? Like, what's the number on new houses every year?

You know, I think it's somewhere like, you know, one point to 1 million or something like that. Don't quote me that exactly.

But so we basically have to increase that by 25% or 33%. Yeah. And it's.

And it's difficult to do now because land prices are high, construction prices are very high, labor is difficult to get.

Yep.

And you have high cost of financing. So all those things together actually force us to build less houses than needed. You have so many builders that are basically sitting on the sidelines because they don't want to borrow too expensive because it's very difficult for them to get workers, et cetera. It used to be that you can take the number of starts, you know, housing starts. The data that is published, you know, weekly or I think monthly, you can see how many housing starts and then you go about two years forward and you see how many housing were completed and it's you know, started here on average, tours later, those house being completed. Now this gap actually is becoming larger. So there's a lot of those housing permits, okay, we permit you to start building a home or multifamily, whatever it is, and then you don't see the completion sometimes over two, two and a half, three years on average. That means that a lot of those builders getting the permit to build and they say you know what, I'm waiting or simply take them longer because of all these obstacles. I just, I just mentioned cost, labor, etc.

Ellie, here's the thing you didn't say, which I think is maybe more sensational than everything you did say, which was really pretty shocking. You know, if you, if you folks, if you don't think this housing shortage is a very significant thing, think again. Okay? That's the first thing. But here's what you didn't say. You talked about a house as though it's a sort of singular entity. Like it's just a widget, right? It's the number of housing units. But what you didn't say is that the price segment of houses being built has gotten much, much higher and more expensive. I mean the train has left the station for entry level housing. You know, nobody can afford to build it. The houses builders are building are the houses they can make a decent profit margin on and those tend to be more expensive. I mean, have we just totally lost forever in America the concept of like 150, $200,000, $250,000 house? I mean, you know, yeah, it's certainly, it's not going to be a new construction.

You're going to see one hundred and fifty two hundred thousand dollar homes, brand new homes probably, you know, ever is a strong word. But just, just think about inflation and right. You know, price of everything. Those prices are probably not here now. It doesn't mean that builders will forever continue to build luxury homes. Right now because construction is so expensive, land is so expensive, it doesn't make sense to buy land for so much and then build a cheap or inexpensive home. Appealing to people with, you know, less means just the math does not work. Now governments in certain areas are Making effort to give subsidies and incentives in order to address this issue. It works well in some areas, but still a little bit too little. So yes, I mean, affordability is clear an issue, which is why you saw rent prices climb together with housing prices. And that is also very important because people do not pay attention to say, okay, you know, housing price went up fast. It is a bubble. People, they confuse high prices with bubble.

Right.

Without getting too technical, bubble is basically when you have prices are not supported by fundamentals. Let's say from 2000 to 2007, you have very significant increase in housing prices and rents were basically stagnant. That means rent, which are the support or the fundamentals of housing prices, did not support those housing prices. Today we have a very different scenario. We have housing price that skyrocketed. They went up very high. But at the same time, you have rent prices, which is the ability and willingness people to actually pay for homes on a month by month basis. Not a speculation. It's not like I'm going to buy, I'm going to pay for this house. 500,000, I don't care, it was worth 200,000 because next year is going to be worth 700. Rent is a real payment that people actually consciously willing and able to spend monthly. And those rent prices went up almost hand in hand with home prices and they providing a lot of support for home prices. So that is another reason why I do not believe that a correction is around the corner. And when I say correction, I mean it is possible. You may see, you know, 5, 10%, I don't think so, but it's possible to see that, but nothing to the magnitude of what we saw in 2007.

So what do you say to the folks out there? You know, there's so much clickbait and doomerism. I surf around YouTube and I just see it all the time. I mean, it's really ridiculous how these people play on people's emotions. They know that we as humans focus in on negativity because it's a survival mechanism. Right. You know, we, we needed to do throughout our history on this earth, if we didn't focus on negativity, we would not have survived. Right. But now we live in this abundant culture and you know, negativity that, that focus doesn't really work very well anymore. But the fact is it's still in our primal programming. You know, they say the inventory shortage is false. You know, it's not really true. There's all these people are going to be selling their Airbnb Properties, you know, this, that and the other thing. There's all these new homes that are coming on the market now. Now I disagree with that. I think the inventory shortage is extremely real because my real estate company lives it every day. We know how investors struggle to buy properties.

You know, it is, it is simply a fact. I mean there's, there's really, you cannot argue with the number of household formation United States and the unit being built every year. And when you add them both together, you see basically have too few of those. And then, and then you see other things like for example, the percentage of young adults talking about people between age 18 to 35 that actually live with their parents. I don't remember the exact percentage, but.

They represent shadow demand.

Yes. So those people say, okay, so what do you mean? What do you mean short of housing people on the streets? Well, I mean we have homeless problem, but that's already not a housing problem. You know, that most homeless problem is. It's a different issue. It's not because short housing, it's mental issues that we address differently. People do live somewhere, but how do they leave? So first of all, many of them stay at home for longer. So you see the share of young adults living at home is significantly higher than it was, you know, five or 10 years ago because they can afford to deliver themselves. So they postponing that and people living with roommates for longer. So it used to be like, okay, I'm in college, I live with roommates and I'm getting out and then I'm not living roommates today. Especially if you live in a place that is more expensive, leaving a roommate is basically inevitable. And then also you need to look at housing units and the choices people make. So for example, if you lived here in, in Brickell, I'm in Brickell in Miami. And a lot of people say, okay, you know, I'm gonna get myself a two bedroom. You know, it's me and let's say my wife or my girlfriend and I'm gonna get myself a two bedroom. It's one bedroom for us and another bedroom as an office. That was when prices were X. Now when prices are 2x, they can say, you know what, maybe I donate a two bedroom. Maybe I'm okay with a one bedroom and I just have a corner in the living room and put a little desk and that become my, my office. So again, those choices, first of all, you cannot forever go from a two bedroom to one bedroom. That's fine. But where are you going to go after that? Are you going to go to a studio, are you going to go lower than that? So those trends that you can make them one time you can delay moving away from your mom's basement, but again, you delayed for, you know, a year, two years, five years, 10 years, eventually you're going to move out. So all these, we're going to call it either shadow demand or pent up demand or whatever it is, it is real. So when you're looking really at the numbers of housing being constructed and household formation in the United States, it is clear that there is housing shortage. This is not an argument.

I, I could, I couldn't agree more. It's just not an argument. But all the clickbait fear porn purveyors, you know, they, they try to make it like it's, it's a debate, it's just not.

I have, look, the Airbnb argument of people selling the Airbnb, that'll add a.

Little bit of supply, but mostly those houses are higher end homes. I mean, you know, they're not entry level houses for Airbnb.

Yeah. And, and, and you know, at some point maybe you have a little bit too RVs. So what, all of them gonna get sold? No, I mean, basically there's a reason why it is Airbnb. Maybe it's going to be formulated in a different way. But also, you know, I have a friend, for example, send me this link. Oh, what do you think about this? And I'm looking at the numbers and it's like, wow, it's so wrong. So whoever created that particular link that I received, the numbers were so wrong, like a thousand to one. It wasn't like, oh, they say it's two and it was really, you know, two and a half. It was, they say it's two and the number was, you know, 200 or 2,000 or something like that. And people buy into those trying to find a story for whatever it is they're trying to justify. We do have a housing issue in the United States. Sorry. Even you look at multifamily and right now you have multifamily construction at all time high. And people say, well, you know, they're building a lot. True. Number one, because it's the easiest product to build quick.

Right.

And we need a lot of housing in it. Number two, you need to realize that multifamily and condos, it's only about 17 of the whole housing stock in the U.S. now we live, if you live in southeast Florida, you think that this is all that there is, right? Condos and multifamily but, you know, move away a little bit from the center of the city, even in southeast Florida.

But definitely single family homes. Yeah.

Yes, it's single family home. And yes, you build a lot more of those condos and multifamily because you can build them quick and because the land price actually justify the deal. But building faster on the 70% does not mean that you are over supplying the market.

Right. So here's the question though. Is there anything that could disrupt the housing shortage? I mean, what I've been saying on the show, Ellie, is that we could have a reduction in population, I. E. Reduction in demand. That would be terrible. Right. Obviously, you know where my head is going there. Or we could have a disruptive technology that could create a lot of new supply inexpensively. It's certainly not going to be 3D printed homes. I've done extensive research on that, hired a consultant, thought of opening a construction company myself to do 3D printed homes. That's a myth. Okay. That 3D printed thing there just doesn't seem like there's any real disruptive technology. But I also say it's not just a disruptive technology that would make housing cheaper. It would also have to be a disruptive technology in transportation to allow people and really an energy as well. Three disruptive technologies are needed to allow them to build on cheaper, farther away parcels. You'd have to have really three disruptive technologies. A cheaper construction technology that's disruptive, a cheap transportation technology, and a cheap energy technology. Because transportation takes energy. Is there anything on the horizon that could solve the supply shortage problem?

I think what you say is very, very true. I mean, and those things are coming, but they're coming slow. So, for example, you know, I would live farther if I have a driverless car because I can sit in the back, do my work on the laptop, and I don't care that I'm commuting to the office for an hour and a half. Disruptive technology. You know, Zoom did a lot. You know, basically it cut our commute by 40%. If you're working, let's say three out of five days a week, if you work from home, you basically cut a commute by 40% and even more so because the days that you are travel, there's people, less people on the road on average. So those things are happening, but you need something major to happen until those things really take effect. So, for example, you know, technology like Zoom, it was here for a while.

Yeah. And nobody learned how to use it before the pandemic.

Using it extensively until we had to covet came and then everybody became okay, we're using Zoom. So the same thing, driverless cars, you know, they're here, they're being perfect and all that, nobody's really using them, they're not really approved, etc. It's going to be a long road, cheaper ways of construction here yet. But a lot of those things need to have an event that basically force you that you have to use them in order to accelerate that. I mean, I, I heard things like for example in Germany, for example, manufacturing during the beginning of COVID and when the war with Frash and Ukraine started, they needed energy and things like that. They did things that people projected that will take them maybe five years. They did six months. Well, why? Because they had to. And if not, it would take them five years and maybe even more. They'll be maybe behind schedule, etc, etc. Etc. So I don't say never. So of course things can happen that will create, can be a war, it can be big conflict, it can be a sharp economic decline, can be a lot of things can happen that of course we slow the housing market, but at the end of the day, the fact that you have shortage of a commodity that everybody needs is prevailing. Basically it's here to stay for some time.

Yeah, yeah, I agree. What are your thoughts or forecasts on interest rates? I mean, you know, just recently they came down a little bit, but they're still. The cost of money is more than triple since the low point. Are we going to see a real Fed pivot anytime soon? Or do you think they're just sort of going to stay the course of doing nothing for a little while or I mean, you know, that all ties in with employment and inflation, of course.

So if you, if you've been watching my Instagram, by the way, if you want to subscribe to my Instagram, it's rja, if you're watching my Instagram, if you took any of my classes, I teach seminars, et cetera. I've been projecting the fourth quarter of 2023, which is right now interest rate to begin coming down. And actually I'm happy to say that I begin to be right. So we saw the first drop in interest rates basically about a week, a week and a half ago that for the first time they ticked down significantly. I mean, it's true they went up much higher than people expected before, but it ticked down significantly. And then today we're speaking now what is that November 14th? Today there's another tick down basically because we Saw lower, read on inflation, 3.2%. And that gives the market more confidence that the Fed is basically stuck, stop increasing. And when they stop increasing, whether they're going to tell you that or not, the data is telling you that. The data is telling that most likely they're done increasing kind of. Treasury came down significantly today and mortgage rates should follow. And I think that will be a trend that will slowly continue over the next few months. I mean, don't expect rates to start coming significantly gradually, you know, very quickly. It's not going to be 3% or anything like that. But I think just looking at where interest rates are now, the fact that they're starting to on the downside, the spread between the 10 year treasury and the mortgages, which right now is much higher than it used to be, it's about 1% higher than it should be. That by itself gives me some confidence. We can see mortgages in the high fives before too long. But it's before too long. Maybe, maybe next year.

I'm with you on that. I've kind of predicted we'd see mortgages settle somewhere in the fives, but what does that do to the market? I mean, and it's sort of this impossible problem to solve. If rates come down in a low inventory market, that's just going to light prices on fire more than they're, you know, they haven't really gone down now, they've been going up. So that's going to make the price problem even worse. Right. Because housing will become slightly more affordable. You know, then you also have the people that won't sell because the delta between the current mortgage rate and the mortgage rate they have on their existing mortgage with, with 28 years left is so big that would lower that delta a little bit. So if they really wanted to move, it might peel off a small amount of people. Right. You know, if you have a two and a half percent mortgage and you got to pay five and three quarters, you're still probably not anxious to sell, you know.

But every year, every month or every day you have still more people that they want to move and they're like, well, I'm not going to do it because interest rates are too high. Whatever it is the new reference point and psychologically we call it anchoring the new reference point. Now when interest rate is going to go down to five, it's not like, oh, they used to be three, now the five, so it's too expensive. The new anchor point is it used to be eight, now it's five. Wow. It looks cheap again. So people have very short memories and at the end of the day, they need to move. So first of all, there is people that need to move because of changes in family circumstances, whether it is divorces, marriages, more kids, move because of jobs, many, many things like that basically forced them to move. And they can resist it for a while, but not forever. So they're gonna pounds on the opportunity when interest rates are a little bit more reasonable and then those that are by choice, that they did not make the choice when interest rates are 8, but they would make the choice when interest rates are 5. So that would relieve some of the inventory. People will be moving a little bit more in terms of prices. I think the reason that prices held so well even though interest rates went up so quickly, is because it's anticipation of they're going to come back again. So a lot of the sellers kind of holding and buyers say, you know what, I'm, I'm waiting a little bit when, when interest will come down. I don't expect a spike in prices. I maybe expect, you know, maybe a little bump in the beginning and then going back to normality of, you know, 2 to 3% on average. Because housing are very expensive. Basically it's going to bring housing prices or affordability, housing to something that's a little bit more attainable. Right now with 7 or 8%, people have to pay. It's unattainable for most people. It's not like they don't want to buy, they just can't. They're not being approved based on their, you know, debt to income or so.

So that actually leads to another good question. You know, in, in, in many, many cities around the country, it's literally 52% less expensive to rent than to buy right now. So to me, that says that puts a lot of upward pressure on rents. What do you think about rents again?

That's the equilibrium. So rents took a breather a little bit recently. They came down a bit. They probably stay stagnant and, and start climbing up. And then the cost of ownership, because interest rates come down, will go down again. So this 52% or whatever number, I have a different number in that I look at something that about 20 to 25% that will probably reverse over the next, I don't know, a year and a half or so as interests come down and rent climb a little bit higher. And think about also all these people that are renting and say, you know what, I'm renting, I don't want to buy a home. Because it is cheaper to rent and all that when you get this new notice and your rent is the same or even higher year after year after year after year. And it's already difficult for you and you feel like you do nothing to yourself by renting, whether. Whether it's true or not, at least that is the feeling. You say, you know what, I'm just gonna take the hit and go buy a home.

Right.

So that. That increased demand.

Yeah, it's a fascinating market we're in. I have not seen this type of situation before where we have this sort of stagnant market with low sales volume but prices still appreciating because there's just no inventory. So very interesting to talk to you and kind of think about where it's going. Please give out a web link or social link again or whatever you want where people can find you.

Okay, so My name is Dr. Eliguaja and I guess my Instagram is.

B.

E R A C H A Dr. Eliwaha. Please follow me. Thank you so much.

Ellie. Thank you so much for joining us. We appreciate having you.

Goodbye.

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