2134: Housing Affordability Crisis and the Impact of the NAR Lawsuit on Real Estate with Rick Sharga Part 1

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Greetings from Tampa, Florida, and welcome to episode 2134. Isn't this a beautiful view from my hotel room? It's just a perfect day outside. Perfect Florida weather. You know, we get this great weather most of the year. Those summers are tough here, though. All right, so a couple things before we start on the main portion of our show today. Number one, sharing this piece from the Wall Street Journal, 9.5%. That is how much existing home sales surged in February from the previous month, making the first time in more than two years that sales increased for two consecutive months. Now, what does that really mean? That's existing home sales. See, the problem we have had with existing homes, not to be confused with new home sales, is of course, we have suffered from an extreme lack of inventory due to the lock in effect and all these people with these cheap mortgages that just won't let go of those houses. We wish they would let go, but inventory has increased ever so slightly. We're still hovering around half a million homes for sale in the United States. We need about 1.2 million homes to be at the quote, unquote, normal level. And that is what we need. And if we get to six or seven hundred thousand homes, I would absolutely welcome that kind of market. We need more inventory because then we can have a more robust market where there's more activity and more existing home sales, not just new home sales. Whereas new home sales are making up some of the largest share of the market ever, as we've reported on before. So this is good news. 9.5% increase in existing home sales. And let's go on to the next piece. Now you hear me talk about some of this stuff a lot, but I want you to hear it from other people too. And that's why I want to share this short clip from FOX Business with you. And let's just dive into this for just a few moments and then we'll start the main part of the show today.

Keeping an eye on interest rates. If you are looking to buy a home, you're still under 7% on a 30 year fix. It's backing up a tad. But so far the drill is if you could stay under seven, you'll, you'll still keep interest. Jared Guy Randolph is the real estate business and financial experts.

And that's Neil Cavuto Partners.

He's the CEO. Jared, that tends to be kind of like a quasi rule of thumb. Keep it under seven things good goes over seven things not so good. What do you think?

Here's what everyone needs to realize. The sky is not falling. If you were to pay 7% today, there's three things that can happen for you as a purchaser in three years from now. The interest rates, 10% you won because you're at 7%. They stay at 7%, you're locked in, they go down to 4% you refi. The key is is if you can afford the home, get into the market today. The affordability crisis and the amount of stock that we have in the marketplace is not going to get better at any point in time. Find something you can afford and get into the market today. But being under seven, yeah, that's the key right now. And that's a good number to come in at.

What about being under a different number, 6% when it comes to the realtors cut of the price on a home, finally agreed it could work a day down less. But, but what about that as a factor for potential buyers and sellers?

Realtor commissions are not going to have any pack any impact on home values. That's because we have a supply demand issue. There is more demand than there is for supply. And what they realize with this ruling around the real estate brokerage commissions, it is actually a negative and it is not going to benefit buyers and sellers because you need a professional to help.

Okay. So a couple comments on this number and I really like the way he outlines the different things that you can do, the different options you have if you take a mortgage at today's what we consider to be higher rates. Historically they're not that high, but we think they're high because compared to what we're all comparing it to just a few years ago, during the COVID era, of course. Right. And so they seem very high. He outlined that very well. And then he talks about how the supply demand dynamics and the housing affordability problem. There is really, and this is me saying this, but there is really just no data to suggest these two problems are going to be resolved anytime soon. Or anything that says, oh, suddenly there's going to be a whole bunch of new supply or anything that says housing affordability is going to get a heck of a lot better in terms of price. Right. I think he meant that, although he didn't say it exactly. But in terms of price there is just no data to support this whole crash thesis that we've been hearing about for years and it still hasn't come. And all the crash Bros, they look like complete idiots right now. Granted someday there will be a correction, there will always be an adjustment, there will always be cycles in the market. But right now with the dynamics we have, there is just no data to support this idea in anywhere near the near term. But then he talks about overall affordability. Right. And so the affordability could increase dramatically if mortgage rates go down. And remember, 1% in mortgage equals about 10% in price or 10% in price equals about 1% in mortgage rate. Typically, you know, that's a very rough rule of thumb. But if that happens, if we see mortgage rates come down a whole bunch or even a little bit into this very low inventory market, it's like kindling, it's like tinder for the brush fire of housing prices. Right. If you look at it from that comparison, that's what would happen. We would see housing prices rise very, very quickly. They've been rising in this last two year period as we've had increasing interest rates. Just imagine how much they'll increase if housing affordability goes up a whole bunch due to lower rates. We will see really big increases in housing prices. Not the very respectable price increases we have seen already during these very high rate times. So that's really interesting how he says that. Now he's talking about the Realtor commission lawsuit which we've reported on a lot of on the show, this NAR lawsuit. I mean so many things are going to happen here and I've discussed it already, but One of the things that is definitely going to happen is that it is going to become much more difficult to shop for a house and to buy a house. Why is that? Well, because all of the data is about to become much less perfect than it has been. Imagine if you're in the stock market and you want to go buy stock in Exxon, okay? And suddenly you can't just go to one broker and have access to the stock exchange where all these shares are traded, right? What if you had to go to several different stock exchanges, kind of the way you do in cryptocurrency, really, if you think about it, although those prices are a fairly perfect market, the price is not exactly the same on every exchange, of course, but the Exxon stock price is the same exact price no matter which brokerage house you go to, because you're buying it from one exchange. And that's kind of similar to the way it, it works with the Multiple Listing Service. But now that all is about to become very fragmented and very siloed. And again, this is my prediction as to how it's all going to turn out. I mean, there's a lot more to it than this, but this is just part of it. So it is going to become increasingly difficult to shop for a home. It's already hard enough because affordability is so difficult. But imagine now, it's not like you can just go to any Realtor anymore. You have to go to this Realtor for the properties they have, and then you're going to have to go to another real estate company for the properties they have and the properties they have. Absolute chaos is coming to the real estate market, folks. And what this is going to mean is it's another barrier to buying a house. And that's going to mean that we're going to see upward pressure on rental rates because a lot of people are just going to be lazy about it. It's hard enough to buy a house with a multiple listing service, even if you can afford a house, because just shopping for a house is a big giant task, it is about to get a lot more difficult. And unless the lenders make a huge adjustment to pay the buyer agent commissions as part of their loan process, which I predict that they will. Okay, that's one of my predictions. I predict the way mortgage financing is going to be done even in the agency loans, the Fannie Mae, Freddie Mac loans, that's about to change, where they're going to make some kind of accommodation to be able to pay a buyer's agent because of this Giant NAR lawsuit and the subsequent settlement. So things are going to get really weird here, folks. I mean, it's going to get difficult to shop for a house. It's going to be very difficult for several years. There are just massive changes coming to the way real estate is sold in this country. It's going to make for a much less perfect market. And what do I mean by perfect? I mean the price being set by an exchange. There's a spectrum, right, of very fragmented markets where everything's just totally imperfect. You know, nobody knows what the price of anything is. There's no data transparency, there's no mls, there's no Zillow. There's just nobody knows, okay? There's that. And then on the other end of the spectrum, I'd say one of the most perfect markets is the stock market. Now, I don't think the stock market is good. I think it's a complete scam. But in terms of perfect, if the stock is selling at a hundred dollars a share, it's a hundred dollars a share, period. End of discussion. That's the price. And Tomorrow, if it's $90 or 110 of that's the price, then that's a perfect market. Right? And there's very little room for opportunity in a very perfect market because the price is the price. There's no discussing it. Okay? And real estate has always been this kind of middle of the spectrum asset class because every house is different. It's not exactly perfect. But you did have this exchange, the multiple listing service, which almost everybody participated in, and that really helped you get pretty good data. But now it's going to become just chaos. That's what's coming, folks. I'll keep reporting on it as time goes on. There's a lot more to it than that, but that's some of it. Let's keep listening.

There is more demand than there is for supply. And what they realize with this ruling around the real estate brokerage commissions, it is actually a negative and it is not going to benefit buyers and sellers because you need a professional to help you navigate the circus.

Yeah, but you don't need them. You don't need them at 6%, right. Isn't that the best? There's going to be more wheeling and dealing. Right?

They don't take 6% home. And that's one of the key things to remember, that split between two sides.

I think everyone knows that. I'm just wondering, why would that make you say, not make a difference? If I'm a seller, I've Been thinking twice about putting my home on the market now. I know, and you're right. I mean, these things are negotiated. They've been negotiated for years. A lot of people haven't paid the 6%, whether it's split or not. But having said that, you don't think in the end this makes a difference? Actually, it could be very helpful. It could ignite demand. People think, hey, I can, I could score a better deal here.

Well, demand is still at an all time high and we're still on an all time low for inventory. So at this point in time, that is not have a negligible impact on the actual transactions that are happening in the market today. No, it is not going to have a major impact the way in which they think it is going to.

All right, so if you're looking to see a big difference in how Realtors will work, do you think Realtors who heretofore might have been used to getting 6%, whether they split it with someone else and it's 3 and 3, I get all of that might not work as hard if it's 5%, 4% there.

They'Re going to have to work. They're going to have to work harder and what you're going to see happen in the Marketplace. I spent 20 years in brokerage before I became a developer over the last five years. So I understand this game. There's going to be a lot of brokers who have come into the marketplace thinking it was going to be easy money who are going to get out. There's some of the agents who have been in the industry for years who are going to leave because of the competition around the commissions. But it's going to force these good brokers to actually step up their game and provide a better service. So they do command top dollar.

Got it. Well said. Thank you very much. Very good seeing it.

You know, it's just interesting to hear Neil Cavuto and the media in general talk about it like, oh, they've eliminated the 6% commission. No, they haven't. They eliminated what they perceive to be price fixing. And listen, you've heard me say it many times. I think the commissions are too high, okay, on higher end properties. I mean, on these big expensive properties, like, does a realtor really deserve $90,000, you know, for selling a multimillion dollar house? It's, it's pretty crazy, okay? So I'm not arguing that point. I think those commissions are too high. Okay. But I also think that's because the agents have to focus so much resources on marketing that, you know, they won't have to do that because there's just way too many agents. Right. So, you know, this problem is complex, but the media is so misreporting on this. They just don't understand the way it works, which I guess is true in every industry and everything. You know, the media, it's not their full time job. They're not in the industry. They don't get it or they just intentionally are misleading the public because even like Neil Cavuto's comments there, they're just so sophomoric. Right. And I don't mean anything against him. I think he's a great journalist, but, you know, he just doesn't understand. Okay, so that's that. All right. Foreign to welcome a returning guest back to the show, and that is none other than someone you've heard from many times on the show over the years, rick Sharga with CJ Patrick Co. He is a real estate analyst and he always brings fantastic insights for us. And so let's go ahead and dive in. Rick, welcome back.

Thanks, Jason. Always great to spend some time with you and your viewers.

Yeah. And it's great to have you. So, you know, the last few times you've been on the show, we have pretty much agreed that the Crash Bros. Are wrong and there's not going to be a real estate crash. And so far, Rick, knock on wood, we've been right and they've been and they're looking like idiots. But is it changing? Is anything changing? Are we just kind of in for the status quo or is the market going to turn at some point? What are your sort of macro thoughts? And then we've got a lot of charts and graphs to get into as well.

Yeah, I, I think there were two possible scenarios. One was what the Crash Bros were selling you on YouTube, trying to get a lot of clicks and sell you stuff you didn't really need. And the other is, is the more likely reality, which is that we're probably in for a two to three year period where home sales are sluggish, prices are going up modestly, and the market has a chance to reset. The fallacy was that since prices went up, they had to come down in order for people to be able to afford to buy houses. And the notion of prices have to come down because they went up really doesn't have any basis in historical fact. What we have seen in the past when there's been a sudden increase either in prices or in mortgage rates is that it basically slows the housing market down for a period of two, three, maybe four years while everything kind of resets and you get back to the new normal. And I think, I think that's probably the more likely scenario. We're looking probably for existing home sales to bounce off last year's bottom. Last year we sold just under 4 million existing homes, lowest number in 25 years. But prices went up about 6%. And I think, I think we'll see a bounce off that bottom this year in terms of home sales volume, maybe to 4.4, 4.5 million homes. So it won't be a huge year, but it'll be better than last year in prices.

And that's for volume you're talking about.

Now, but just volume number, number of proper. Wanted to say we had a housing crash in 23. Based on volume, you could make a pretty good argument. We had about 6 million sales in, in 21, 5 million sales in 22 and about 4 million last year.

Right.

So the, the number of properties sold was down, but the, the people that were talking about 20, 30, 40, 50% price crashes couldn't have been more wrong. And I think we'll continue to be wrong into the future.

Yeah, I think you're right. People always have to distinguish between sales volume and sales prices. Those are not the same thing. Some cases it depends on the market dynamic. A lower sales volume leads intentionally to higher prices because there's fewer transactions, less inventory in the marketplace. And when you have less inventory, you're naturally, as a result of less inventory, going to have lower volume. So this is something that the Crash Bros. Got very, very wrong, much to the dismay of millions and millions of people who missed out on opportunities because of their clickbait, fear mongering, publishing, whether it be in the form of newsletters or YouTube videos or podcasts or whatever. And you know, look, we all know that if you want to get attention and if you want to hack the human mind, bad news sells. I mean, the old saying in the news media business is if it bleeds, it leads. And so these people are really very manipulative and unethical. You know, they're not going by data. They're taking some little tidbit of data and extrapolating all sorts of ridiculousness from it that just simply doesn't exist. Rick, one of your comments I thought was really interesting a moment ago, and that is that just because prices were lower before doesn't mean they have to come back down to that prior level. You know, and that is so true of every asset class. Things do not have to revert to the mean. Why do people think and expect that? And, and why is that wrong, Jason?

I, I wonder that myself. I think, I think maybe it's just wishful thinking. If you look back and I've actually done this, if you look back at the last hundred years of home prices, we've had exactly one period where home prices have fallen by 20% and that was during the Great Recession back in the, back around 2008. Now, that doesn't mean the prices went up significantly or that they went up in a straight line. We've had a lot of sawtooth increases where they go up a little bit and down a little bit, up a little bit more. But the overwhelming direction over that 100 year period been up and to the right. So prices have continued to go up. I think we have a lot of people who look at that last scenario and maybe, maybe the, the issue, Jason, is the mistake that generals make when they, they always try and fight the last war when they go into battle.

Right.

But people saw prices rise artificially back during that housing bubble in 0506 07. We saw prices crash after that. But all of the dynamics that were in place that, that really precipitated that crash were very unique to that period of time and none of them exist. The, the basic one you just referenced is right before the crash there was a 13 months of homes available for sale, 13 months supply. That's more than twice what we would see in a normal market. Today we're looking at about a three month supply, so about half of what we would see in a normal market. And we have 35 million young adults between the ages of 25 and 34, most of whom would like to become homeowners. So we have a completely different supply and demand dynamic than we had back then. There's virtually nothing in place that precipitated the kind of crash we had back in 08.

Yeah, Rick, I couldn't agree more. And you know, one more thing you didn't mention there is that a lot of those young adults that want to become homeowners, you know, many of them are living at home.

Yeah.

So that represents a massive shadow demand for housing inventory that just cannot be created quickly or easily. It's very hard to create new housing and that is likely to stay that way for quite a long time.

But let's go ahead and I know we're going to talk a little bit about the Federal Reserve, Jason, but just, just to kind of put a point here, the Fed, among other things, did Want to get the, the home price appreciation to slow down significantly, as is often the case. I think they probably overcorrected a little bit.

Yep.

And, and mortgage rates have gotten so high that people literally can't afford to sell their house. It's not because they're being picky or it's a psychological barrier. It's math. If you're sitting on a 3% mortgage and you sell your house and buy another one at exactly the same price and you're, you're getting a mortgage at today's rate, you just dou monthly payment and most people simply can't afford that. So that's kept a lot of inventory off the market that normally would have come onto the market. And you're absolutely right. We have a huge tailwind in terms of the housing market. That's young adults. About 30% of young adults are still living at home with their folks and they're socking away money and getting ready for when the time is right.

Yeah, yeah. No question about it. Well, Rick, let's go ahead and dig into some of your analysis and your data. You always bring great charts and graphs, folks. If you're listening on audio only, go ahead and listen to this interview. But if you have a chance, jump over to one of the video platforms like YouTube or the others I'm on and check out the charts too. Go ahead, Rick.

Just some high level thoughts on, on what's going on in the economy. Jason. The gross domestic product, which is the basic metric most economists look at to determine how healthy the economy is, continues to confound the economists. The last quarter of last year, which is the, the most recent data we have, the growth of the GDP was at 3.3%. That was significantly higher than most forecasters. And keep in mind that about two thirds of the GDP is made up of consumer spending. So when we see strong GDP numbers, it typically means consumers are spending a lot of money. That was certainly the case in the fourth quarter. We are starting to see a little bit of a slowdown. We'll talk in a few minutes about whether or not we're likely to still see a recession. But the talk of a slowdown, the talk of a recession in 2023 was certainly premature. And we continue to see the economy kind of chug along a pretty good rate. One of the reasons for that is that unemployment is still near historically low levels. I think the most recent number that came out was about a 3.9% rate of unemployment. That was a little higher than it had been the previous report. Which was 3.8. But to keep this in context, historically speaking, if you're anywhere at 5% unemployment or lower, that's considered to be full employment.

Right?

We're really kind of used to this. Almost spoiled by these low levels. The Federal Reserve has said because of what they've been doing with the fed funds rate, trying to slow the economy down a little bit, they expect we'll end this year somewhere between 4.5 and 4.7% unemployment. So we will see those numbers tick up a little bit over the course of a year. But again, not to the point where we would be looking at a huge, unusually severe rate of unemployment. And one of the reasons for that, and this is no surprise to most of your listeners probably, is that there are still more jobs available than there are people looking for work. That ratio has compressed a little bit. But we still have about eight and a half million open jobs and we have about six million people looking for work. And the last two jobs reports that have come out have been big surprises to the upside. So again, the Fed's a little concerned that the job market is still as strong as it is. But the January numbers came in at about 350,000 jobs filled. February numbers came in at about 250,000. Those numbers always get adjusted a little bit. But again, strong job growth and a lot of jobs still available. And by the way, these are not before somebody says that these are not all service level jobs. This is not Starbucks and McDonald's hiring. These are government jobs or manufacturing jobs. They're construction jobs. A lot of trade jobs that are open, a lot of technology jobs that are open. So a lot of these are good paying jobs.

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And this, this is another indication of that, Jason, for the people that are looking at the charts, because there are, there are fewer people available and there are jobs open, we're seeing wages go up. So the average hourly wage across the country today is over $29 an hour, and those wages are going up between 4 and 5% a year, which means for the first time in several years, we can actually say that wages are growing at a faster rate than inflation. And I think some of the negativity that you're hearing is we're seeing the rate of inflation come down, but it's not reducing prices. So prices are going up more slowly. But we had that huge bump a couple years ago that's made it really difficult for a lot of households to be able to afford, you know, the common necessities. That said consumers are still spending a ton of money. We saw a drop off in consumer spending and consumer confidence when Covid hit. Consumer spending started to come back as soon as the government lockdown was over. But consumer confidence has been a little weak. We saw Covid 2 and Covid 3, and then we ran out of Greek letters because there were so many more waves of COVID And then there was a war in Ukraine and there was potential for a government shutdown in D.C. and now there's war in Gaza. And consumer confidence really hasn't bounced back to the level we saw prior to the pandemic. That's a concern because historically speaking, consumer confidence led consumer spending. And as I mentioned earlier, consumer spending accounts for about two thirds of the gross domestic product. So if we don't see consumer confidence start to get a little bit better, we could theoretically worry ourselves into a recession as consumers pull back. And we're starting again to see a little bit of a slowdown in this first quarter as we look at some of the retail numbers coming through and some other consumer spending metrics. But by and large, consumers are continuing to spend. And one of the things that's concerned, Jason, is, is the kind of money that's being spent. So if, if you look at, at what's been going on with credit card usage in the, the third quarter of last year, for the first time in history, credit card debt surpassed a trillion dollars. And it went up a little bit more than that in the fourth quarter. And this happened at a time when interest rates on credit cards was the highest it's probably ever been. New cards being issued over the last couple quarters had an average interest rate of somewhere between 25 and 30%.

Right. So, so what's interesting about this, and I see all these things about, you know, has increased and credit card debt has increased and auto debt has increased. I get it. Right. But the first thing is most of these surveys are not adjusted for inflation, okay? So that's part of the problem. Okay? And then of course, if they are adjusted for inflation, inflation is understated. So that adjustment is now off too. But that also goes to what you just mentioned about incomes and inflation too. So you know, to be fair, it's on balance, right? But it also really sadly speaks to the wealth gap. Gap, because people who are doing well, they're not carrying any credit card debt, okay? They're not paying those high interest rates. It doesn't apply to them. And the people who are in the, you know, lower middle class and even middle class and the poor who are carrying that debt, they're basically put in the position of essentially renting money. They never get out of the debt trap most of the time because the interest rates are, are just usurious. They're so high that they just can't get out of the trap. Right. Without bankruptcy. So really what this is speaking to is not a measure of the housing market. It's speaking to a measure of wealth inequality. And remember, these people carrying this debt, they're not buying houses, okay? They're not the market of home buyers. So now granted, they could potentially be, but you know, another topic is developers don't build entry level houses anymore. So, so what are they going to buy anyway? Because there's a huge shortage of those. But that's another.

Yeah. For your listeners, your viewers who are investors and looking at rental properties, this is your rental market. And so you have to watch the financial well being of those folks. It's funny, you mentioned usurious. That's a term I use a lot when I'm Talking about this too. 25, 30% interest on a loan used to get you arrested for usury. Now apparently it's the new normal and it's okay.

Well yeah, Rick, the saying because the banksters get away with everything, they've got the army of lobbyists to get the laws they want. You know, it's that great old saying, if you have a gun, you can rob a bank. If you have a bank, you can rob the entire world. So you know, that's, that's the deal. Unfortunately.

Speaking of banks, the other thing on this chart is, is the rate of personal savings and it hit all time highs when the government was sending us stimulus checks during COVID hit an all time low in, in 2022, has recovered a little bit but, but we're still seeing lower than normal personal savings rates. And in fact on average, according to some research I've seen households have more credit card deb have savings. So it's not a great ratio. And one of my concerns looking at this is how many of these households, and you mentioned middle class and lower middle class and then people be beneath that line in terms of income. How many of these folks are using their credit cards to make ends meet. How many of them are tapping into personal savings to make ends meet. And it really does show why it's so important to get the cost of living down on a national basis. Or we could see a bad ending to this movie which none of us would be happy about. At Inflation does look like it's peaked. I wanted to show people this chart. The shaded area is what the Federal Reserve is doing with the fed funds rate. And the line that's going across the chart is the rate of inflation. And if you go back to way back in history, maybe four or five years ago, you can see a more typical process by the Federal Reserve. They'd raise the fed funds rate a quarter point. They'd wait to see what happened, they'd maybe raise it another quarter point. But very gradual, very methodical, very thoughtful process to try and make sure inflation didn't get out of hand and then was under control. They whiffed this time and I'm not picking on the Federal Reserve. They've acknowledged this themselves in their meetings. They didn't expect inflation to get as high as it did. They didn't expect it to go up as quickly as it did. They didn't expect it to be so difficult to lower once it got there. And as a result of that, they've had an unprecedented series of fed funds rate increases both in terms of the size of the increases and the rapidity of the increases, it has basically roiled the financial markets and had a huge impact on housing. But it's, we've never seen anything like this before, with the possible exception of the 1980s. In terms of the amount of rate increases and the speed, for what it's worth, it does look like it's had the, the desired effect. It's gotten inflation under control. We're bouncing around somewhere in the threes right now in terms of the rate of inflation with the target being in the twos. Some of the more recent reports have showed inflation a little higher than what they'd expected. So I think we're in a sit where we're not going to see the Federal Reserve reduce the rate of the Fed Funds rate probably at least until the second half of this year.

Okay, so in other words, no mortgage rate relief until the second half.

Personally, I don't believe we're going to see a significant decrease in mortgage rates until after we get that first Fed Funds rate cut. And if that happens in maybe June, which I think could be probably the earliest, then we could start to see mortgage rates come down. You know this because you follow it, it's probably a bit little, a little inside baseball for some people, but the, the 30 year fixed rate mortgage is tied loosely to the yields on the 10 year U.S. treasury bond and they tend to go in correlation over, over time. And usually there's about a point and a half to a two point spread between those yields and mortgage rates. So if the yields on a ten year US treasury are four, usually your mortgage rate's somewhere between five and a half and six. And for the last couple of years since the Fed started raising rates, that spread's been more like 3% points. So if, if people were comfortable that the Fed really was going to settle down and start to reduce the Fed funds rates, we could see some compression in, in that, in that gap and we could see mortgage rates start to come down. But, but if I'm looking at most likely scenario from my perspective, the Fed doesn't cut rates until June at the earliest. Between now and then we see mortgage rates kind of bouncing up and down in a of ton tight band between about 6.75% and 7.2%. You know, some months a little higher, some months a little lower, but not really starting a steady decline until we, until we get to that June rate cut.

Yeah, okay. All right, let's keep going.

In terms of the economy in general, very often when the Federal Reserve has done what they're doing right now with the fed funds rate, they overcorrect and steer us into a recession. If you go all the way back to World War II prior to this cycle, they raised the fed funds rate to get inflation under control. Eleven times, eight of those times they've overcorrected and it's led to a recession. The three times it didn't happen all had something in common. They were acting proactively and raised the fed funds rate early to help keep inflation from getting out of control. And they've already admitted that they missed that window this time. So they could pull off a miracle and we could execute a soft landing this time. What I think a lot of people forget is that when the Fed raises the fed funds rate, the impact isn't immediate, it's usually a lagging impact. That impact can take place anywhere from 12 to 24 months after the rates have gone up. So if, if history is a precedent here, it seems more likely than not that we still have a recession in our future. It's likely to be a very short and very mild one because the only reason we'd have a recession is because of what the Fed's done. But, but the, the probability is, is that we see that short, mild recession and if we don't, we're definitely going to see an economic slowdown.

Yeah, so, so a couple comments on that. Number one, the yield curve has quite a while and you know, that's always been an indicator of a recession for like the last five decades. And that recession never came this time. So you know, that's another prediction the Crash Bros. Got wrong. But number two is just because there's a recession, if there is one, doesn't mean real estate prices will fall. Okay. You have to have high inventory levels and distressed sellers. That's what will cause the market to change in terms of real estate. So recession and real estate do not necessarily go together. They certainly might, but not necessarily. Any comments on that?

If you go back historically and I need a better hobby, I've actually done this too. And you look, you look at home sales and prices, you know, during recessions, what you find is from the beginning to the end of the recession, typically home sales and home prices go up. And in fact in most cases the housing market helps bring the economy out of a recession. The one exception to that and the one that everybody looks at right now is what happened during the Great Recession Recession. And, and that was the one back in 08 where the housing and mortgage industries actually are what dragged us into a recession. But, but again, historically speaking, you're absolutely right, Jason. The, the most of the time you, you, you, you don't see home prices come down or if they do, they come down a little bit and then tick right back up. You pointed out the inverted yield curve. So people understand an inverted yield curve doesn't cause a recession. It's an indication that the market believes that that something is, is wrong economically speaking. And inversion is, is that it means that yields on a short term investment like a two year treasury are now higher than the yields on a longer term investment like a 10 year treasury, which is the opposite of how they should go. The longer your, your investment, the more your yield should should be. And, and the last eight times we've had a yield curve inversion, it's been followed within 12 to 15 months by a recession. This is the longest and deepest yield curve inversion we've had since the 80s. And, and again, I still think think more likely than not it it eventually points to a recession, but you know, hopefully one that, that isn't all that severe. The, the economists I've talked to, by the way, the ones that I respect who aren't trying to sell you something on YouTube basically have, have said it it, you know, right now it's about a 5050 whether we get a recession or not. But, but even if we do, they don't expect to see unemployment go much above 5%. From my research, my personal research research, 6% unemployment is where you start to see an impact on housing. So if you go from below 6% to over 6%, it does have an impact on home sales, on home prices. But if we stay below that, to your point, even if we are in a recession, I don't think it's a huge, huge headwind for the housing market.

And we'll be back with a lot more on this topic with this guest on our next episode. Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that and be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.