367: Rising Rates Impact on the Housing Market

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Adam, welcome. How you doing?

I am doing really well today, thank you. How are you?

Doing well, doing well. Glad to see everybody. We've already got some questions and comments, so thanks for joining us even before we started. We love it. We love it. So I got to tell you all a story and this is a reflection of what is going on in the marketplace and you may know about this, we've reported on it for many, many months now. The cost of lumber, the cost of all these packaged commodities. In fact, let me change the screen for a moment. The cost of all these packaged commodities that are the ingredients of a house or an apartment building. These construction materials, they are increasing at a rapid pace, especially lumber. It has been in the news a lot saying that lumber cost increases are now adding about $24,000 to the price of a typical new home. So this increase is quite exorbitant. And this morning when I was half awake, I was walking the dog, doing the early morning dog walk, and I saw a guy delivering some lumber to a house that's under construction in my area and he had a truck full of lumber. I stopped and talked to him and I said, how much is that cargo worth? And I thought, you know, maybe he should have armed guards.

Yeah, I was gonna say, did he have security guards with them?

Yeah, you know, maybe he should have security guards with him because that is valuable. You know, UPS trucks have been robbed. FedEx trucks have been robbed. Now it might be a lumber delivery truck.

It's like, how much is that truck of lumber? Oh, if you have to ask, you can't afford it.

Yeah. Oh, that's funny. I love it. And Adam, you probably saw this. One of our investment counselors, Sarah, she posted in one of our chat groups internally a really cool picture, by the way. I'll find that and maybe I'll show it later. It's just an amazing picture that's going to sum up the concept of lumber prices. But anyway, the guy said that this truck was about $15,000. He said that one sheet of that plywood was $43. Now this is the delivery guy. I don't know if I can take that as the gospel. Maybe he does or doesn't know, but he seemed to be pretty confident with his answer.

A sheet of plywood is about $40. I priced one out the other day because I'm going to build something. A sheet of plywood, about $40.

Could, could you even buy a sheet of plywood?

I'm assuming Home Depot has them still.

Yeah, maybe not. Maybe, maybe they're not even available. Who knows? But anyway, so he said that that truck full of lumber today is about $15,000. I said how much was your truck with the same load on it a year ago? He said $5,000. So it basically triple in cost. But here's what I want you a couple things, couple comments on this. Number one, many builders all around the country, all around the world, I'm sure too, but you know, I've only heard about it in the US have escalation clauses in their contract saying that they are allowed to increase the price of the home if it's a new home under construction based on the construction materials cost. And they'll usually tie it to some sort of index or something. But even if they don't, this data is widely available. You can just look it up online. And they are using those escalation clauses to increase the prices because they simply cannot deliver the homes at the price originally agreed to. There's no way they can deliver it. And we saw this happen before, for example, during the great run up in the early 2000s when we saw many builders simply stop construction and say, look, sorry, I know I agreed to sell you the house at $200,000, but my cost has gone up so much I can't deliver it anymore. So they would literally just leave the job, they would quit and they would leave people with a half finished home. But now the builders have become a little bit smarter and they put these escalation clauses in their contract and they are escalating prices and, and they have the right to do it. Now not all of them put those in their contract and not all of them have the right to do it. But here's the rub. If they don't have the right to do it, they may well quit and leave you with a half finished home. Now that's likely a breach of the contract and you can sue them and so on and so forth, but that usually isn't a cost effective solution.

Litigation, that'll cost more than the escalation price.

Yeah, you know, litigation doesn't really work very well in this country because it's so dysfunctional, it's so expensive.

So, so this is, this is all very interesting. Now.

What else did I want to tell you about that? So here's the other thing. I want you to keep in mind. The reason we have these escalations in these construction materials, cost or not the reason, but how to think about it, let's make sure we're thinking about this properly. As I have said for the last 17 or so, is that I want you to invest in things and I want you to own and control things that are not tied to any one currency. They should be tied to something that has intrinsic value. Currency does not have intrinsic value. The dollar does not have intrinsic value. And certainly these things, these Zimbabwe dollars, do not have intrinsic value, right? Because they are just paper. They are not something that people universally need. They are something that has value due to fiat. And fiat simply the definition means by decree or by authority of a governmental body, right? And so this is fiat money, and so is the US Dollar, and so is every other currency on earth. But money, something that is real money, is something that really does have universal need. And guess what has intrinsic value. Universal need. It is what you're looking at behind me. It is these walls, this roof over my head. All of this stuff has intrinsic value because every human on earth needs food, clothing and shelter. And I say let them rent that shelter from you and that will make you very, very wealthy. So understand, let's all understand that we're only grousing and complaining about the construction cost increases because we are using one measuring stick, and that measuring stick is the US Dollar. What if we measured the price of these construction materials in gold or Bitcoin or silver or ethereum or some other measuring stick, right? What if we measured them in oil or labor cost indexes or the, the CPI in general, right? We're only measuring it in dollars. So we think the price has increased so much, but measured in other things, it's not the same, right? So let's make sure our head is on straight, right? And we are understanding that the dollar is only one measuring stick of relative value. What if we measured the price of lumber based on the price of copper, for example? I don't have a chart to share with you on this, but I'm just asking the question, right? If you look up a graph, a chart of the price of copper over the last year and compare it with the price of lumber over the last year, right? If you were dealing in copper as your curr, that would look very different than dealing in dollars as your currency. So just understand it's all about the measuring stick, and the dollar is only one measuring stick. Adam, any thoughts on that? And I'm sure, by the way, we'll get a lot of comments on that stuff, because it's an idea that few people really consider. Sophisticated people that get it, they consider this. They understand this. If you were, you know, a currency trader in international currency trader, you would think this way, Right? And this is the way everybody should always be thinking. It's always something to consider. What measuring stick are you using? Adam, thoughts?

I would agree. I mean, it really does depend, and especially whenever. I mean, it'd be one thing if it was going up only because lumber was going up, but there are so many other conditions in the market that are lending it there. Like you said, copper has gone up. You know, pretty much every commodity that homes are made out of has gone up due to, you know, just the lack of them. I mean, on the podcast today, you're talking with a guy that's going to come out a little bit later. A guy's talking about it. There's just commodities. There's not enough. So when there's not enough, the price is going to go up. And so that's the situation we find ourselves in. And thankfully, when it comes to rental properties, when the price goes up, rents go up, too, right?

Absolutely. But I will say rents tend to lag prices. So it takes a little while to kind of work that through the system because those rents only adjust, typically on an annual basis when people renew leases. But prices, especially now, are just escalating so quickly. It's absolutely crazy how much they're escalating. Oh, we got. We got a mad face instead of a like, hey, it's not our fault. Okay, so we're just talking about how.

To play the game.

Yeah, we're simply. Don't kill the messenger. We're simply reporting on this. But we want to help everybody watching and listening from around the world, which, by the way, please comment below and tell us where you're watching or listening from. You know, this is syndicated on many platforms. So, you know, of course, we've got our audience on YouTube. We've got our audience on several different Facebook pages and different places. So you don't necessarily see all the comments, but we see them all. And we'll bring them together time permitting and put them all on the screen. So tell us where you're located. We always love to have a sense of geography and really appreciate that and just understand, make sure you view things in multiple measuring sticks. And by the way, of course we have a free book@pandemicinvesting.com go get your free mini book there. No strings attached, no shipping costs, nothing like that. It's just a digital download, pandemicinvesting.com that'll tell you how to invest during a pandemic. But also another site I want to recommend for this measuring stick concept is priced in gold.com pricedngold.com really interesting website. I want to get the founder of that site on my show. I have not done that yet, get him on the podcast. But he's obviously a gold bug and started that site a long time ago because it looks pretty old. But it's interesting because he does these comparisons of these different measuring sticks. So that's a really good resource to get you thinking about the concept of which measuring stick are you using. Right. What if you priced construction materials in, in, in the cost of corn or wheat or pork bellies or soybeans. Right. I don't know what the answer would be. I'm just saying you need to look at other measuring sticks besides the one that you commonly think of which if you're in the US you think of as the dollar or even around the world because that's the reserve currency of the world. So let's dive right in. Adam, do you want to dive into your presentation today and tell us what we're talking about?

Yeah. So we're going to talk about interest rates, market conditions, some of which is the lumber and new forbearance news. So first off, as always, welcome. If you have any questions, comments or need anything, reach out to us from Jason hartman.com or if you're in the US we have a toll free number one, 800, Hartman. Go ahead and give us a call. We're happy to talk. Doesn't cost anything to talk to us. So give us a call if you want. So we're going to start off today with interest rates. You see here. This is a one month chart that I pulled from Market Watch. I believe it shows the US 10 year note which is most commonly tied to 30 year fixed rates. You can see it's gone up a bit in the past month. Now I, I sent this out to my, to my people and said, you know what, interest rates are going up. And I'm kicking myself personally because I could have locked in a 3.75 rate at 20% down about three weeks ago, and I can't do that anymore. So it's cost me some cash flow. But then I started thinking, there's always good news and bad news to things, right?

Jason, you started thinking, compared to what?

Not just compared to what, but I started thinking, okay, my interest rate's gone up. What could possibly be good about that? Yes, I'm losing cash flow, but what could possibly be good? And so I started thinking, all right, let's look at it as a whole. If I look at it as a whole, let's say I have a $200,000 home, I'm putting 25% down because all of our pro formas are based on 25% down. Who knows, with the way things are going, you may not be able to get a home for 20% down in the near future, investment wise, right?

Means to say is that the money for investors is tightening up. Now, this is good and bad, right? On the bad side, if you're building your portfolio right now and you're buying investment property right now, Fannie Mae recently came out with new guidelines. And just the general vibe of the market, if you will, is that they are making it more challenging for investors. But on the good side, the long term picture, that means there will be fewer investors enticed into the market, which means less competition for the pool of tenants out there. So there's always an equalizing factor. And look, I've been doing this a long, long time. And what you realize is that the market does always equalize it. Remember when you were taking maybe biology class in school and you heard that term homeostasis, right? This equalization, this balancing that your body does homeostasis. And you find that all throughout nature. And that happens in markets, too. The problem is it takes time for that equalization to occur. And that's what kills people. They don't plan properly, they don't buy property properly, they don't structure things properly, and they don't adjust their thinking properly and they don't have proper reserves. So when they go through that time of adjustment, they get thrown out, they lose money, they get discouraged, they let their emotions take over. And this is what ruins it for so many investors is that adjustment period. Typically, in kind of any market, that adjustment period is one to two years. So that's the time where this discouragement comes in, this fear comes in, and people want to give up. And many of them do. But what separates the winners from the losers are the people who are willing to stick with things and understand that it's a time where Homeostasis is being found and the market is trying to find its balance and its equilibrium. And this weeds a lot of people out of the market. The other thing I want to say that Adam is addressing is that we talked about measuring sticks a few minutes ago. Understand that one measuring stick is another commodity that Adam is talking about right now. What is that commodity? It's money. Money itself is a commodity or currency. And the cost of borrowing that money expressed in an interest rate is the cost of the bet on the future. Right. So the time value of money question, is that money worth more to the lender today or is it worth more to the borrower today? And what should be the cost projecting that into the future in terms of an interest rate? And in the United States, thanks to Fannie Mae and Freddie Mac and the government in general and these pseudo governmental entities.

You have got a dysfunctional market in a good way. It's beneficial to us as investors because money in terms of a mortgage has been subsidized by these entities, these pseudo governmental entities since we came out of the Great Depression, around the World War II time. And so the money has always been artificially cheap. And that's how you can get your government welfare program as a real estate investor in US Real estate. So it's a great thing. Take advantage of it.

Absolutely, yeah. So in this example, we're going to ignore the total monthly payment they have down there because that's just them estimating in general property taxes. And you know, they have an HOA fee included in there. But we're, we're looking mostly at the monthly principal and interest payment here. So $632.41 for a 3% rate, which you could have gotten one to two months ago. Nowadays we're looking closer to 3.5%. So at three and a half percent, you're paying $673 a month for your payment. So that's a difference of $41. So your cash flow has been hit. So that's the downside. Your cash flow has dropped $41. What's the good side? The good side is real estate is not a one dimensional asset class. Real estate is a multi dimensional asset class. When your interest rate goes up, guess what you pay more of? You pay more interest. So looking at this amortization schedule, this is in one year.

That means you get more tax deduction.

Exactly.

We should remember, depending on your tax bracket, the government is your partner.

And you might be paying $41 extra. But say your combined state and federal tax Bracket. I hope it's not. You know, this would mean you live in like the Socialist Republic of California or the Socialist Republic of New York. You know, it could easily be 50%. So about half of that, you know, or close to half of it is paid by the government. So you're really only paying about $21 or so. Right. Go ahead.

So you've got, this is at the 3% mark you're paying the first year, you're going to pay $4,457 that year in interest. At 3.5%, you're paying $5,204 for the first year. So your cash flow difference is just under $500. Your mortgage interest difference is $750. That will offset your cash flow from this property and others. And a lot of times you can carry, if it brings you into a negative cash flow for the year with this mortgage interest write off, you can carry those losses forward. So you're actually, yes, you're making less in actual money in your pocket, but the flip side is you're getting to write more off on your taxes from your mortgage interest.

And Adam, I do want to reiterate the disclaimer we made.

We're not tax professors.

Yeah. That we are not tax advisors. We are not legal advisors. So, you know, check with your, your cpa, your accountant on this kind of stuff because it does get pretty murky and complicated. But, you know, we're giving you ideas for discussion points.

Yeah. So in general, this is true for the most part. So, you know, we're not, we can't tell you exactly what your taxes will do, but you are taking a hit on cash flow. But they're gifting you more in interest. And the properties, you still have to make sure the properties you're buying make sense the day you're buying them. But even with a higher interest rate, there are trade offs that are helping you in today's environment of rising interest rates. So this is one of the things that you need to look at whenever you're starting to see a property and you think, oh man, I don't know, three and a half percent rate, which is still incredibly low. You know, that's, you know, with the rising prices, my returns getting squeezed. Yes, it is for at least the first year, but you're getting helped in other ways. And then I wanted to say, you know, what, compared to what compared to historical averages historically, you know, you look at interest rates, you know, interest. These are some of the homes that I've purchased and their interest rates, you know, 20% down, five and a quarter, 20% down. Four and seven eighths, 20% down. Five and three eighths. At 25% down, I could only get 6.125. At 25% down, then I could get 4.75, 20% down, I could get four and a half percent. So historically, you know, in today's rate, $150,000 purchase price, which all of these were around 100,000, you know, now you can get 4.125 with 20% down and 3.625 with 20% down or lower. So, I mean, it's. Historically speaking, interest rates are not high. The only reason they're really impacting us right now is prices are going up, as we've discussed.

And if you follow my Creating wealth podcast and other YouTube videos. And by the way, our videos are on many platforms. So if you want to hear our more controversial stuff that would be censored on the main platforms, which is absolutely pathetic that they are censoring us, but it is what it is. Then you can find us on the other platforms like Odyssey and Bitchute and Rumble and all of those. Okay, but. But yeah. So if you follow some of our other content, you'll know that I have done presentations and episodes all about how adjusted for inflation and interest rates and current prices, which so many of the uninformed people think are so high, but they're so wrong because they don't adjust for interest rate and inflation. They only think about the price of the home. And they say really dumb things on television and they say, well, prices are higher than they were at the prior peak. And right after that last peak, 15, 16 years ago, there was a great recession 13 years ago. It kind of depends how you count it. So don't quote me on the years. It depends when you think the peak was and when you think the start of the recession was and so on and so forth. But you get the idea. And it shouldn't be judged by price only because most people don't buy based on the price of the home. They buy based on the monthly payment.

Yeah, you want to take some of the questions over on the side here before we move to our next bit.

Do you want to start at the top, Adam?

Yeah. So Nemo Deals hopped on before we even started and said, I have 11 rentals, six of which are in Washington state because of their moratorium. Five of them have lapsed into month to month Tennessee due to restriction on rent raises. The sixth rental is not far behind. You want to scroll to the next one, he continues, in effect, I am losing money due to expenses, maintenance, tax and insurance increasing, but rental income is stagnant. Thumbs down Washington State. My other rentals in Oklahoma and Florida. Thumbs up this, this is a perfect example of why you have to buy in markets that are kind to landlords.

Yes, we always say that, you know, thou part of my ten commandments is thou shalt be area agnostic. And we want to always be buying in landlord friendly markets. Washington State, you know, the socialist republics of Oregon and California and New York and many others are tenant friendly. You know, if we're going to do business somewhere, we want a climate that is friendly to our cause as investors, as landlords. So yeah, good stuff.

Yeah. So how we're, what we're experiencing is our, we haven't really heard any complaints from our investors that we've worked with in regards to having issues with payments or evictions. I mean that's just not something that we're experiencing. It's been surprising. We've talked about it as a group. It's been very surprising. We were worried about it. But you know, a lot of our markets are still, you know, you need to evict somebody. You know, you can, you can evict them assuming there's no, you know, Covid hardship that they're experiencing that they can claim. You know, then you're, you're pretty set.

Absolutely. Yep. No, it's, it's looking pretty good. Okay. Adam.

Yeah. So rated that I got two duplexes last year for 2.75. I'm assuming that's his interest rate which. Fantastic. Just signed contract for another today. Congratulations. And the rate is 3 and 38 now only three months later, I only invest in Texas. The same duplex went from 225 to 245 now. And Texas is a booming, booming market. But yeah, the, the interest rate jumped up. But you know what, in five, ten years that three and three eighths you're going to be very happy that you're, you know, at that rate it's going.

To look super cheap. And you know, look at, I have owned many properties in Texas. I still have a couple there. But as I've said for about two years now, Florida is the new Texas. The action has kind of moved. Texas is still, you know, good, but not as good as it used to be because the prices have inflated quite a bit. The property taxes are very high there and you know, it's become a little bit expensive. So this is always kind of a Moving target. I would really encourage you to look at some of our other markets, not just Florida, but you know, North Carolina, Tennessee, Arkansas. We've got very good properties in, in many markets around the country. So good stuff.

Yeah. So Nunya business said, first time home buyer. What I'm experiencing is over leveraging. This is a sign of a near top. How long until people like yourself cut bait and pull equity. Now this is a very good example here I believe of what market you're in and what price points you're buying. I will say I'm, I am concerned about the high end markets, you know, as we move forward as price appreciates and you know, especially the coasts, you know those, those cyclical markets right now, they could be in for trouble, you know, but the homes that we're looking at, the under $300,000 homes, they're not building them much. There's not enough of them and there's a high demand for them. So people who are buying these price these ones, the ones that are 200, $250,000, they are not over leveraging themselves. The people buying the million two million dollar homes that you know are 1500 square feet, they may be over leveraging themselves but they're not in the markets that we're looking at that we recommend. You know, you have to, you really have to segment out where the real estate crashes could happen.

Yep, that's very good. The, the linear markets are the markets we really, really like. And if you want to know more about linear, cyclical and hybrid markets, be sure to check out our podcast, the Creating wealth Show and you'll learn a lot more about that.

Nemo deals that I would have agreed with this except certain states I no longer control my real estate. Yeah, this is the one, you know, Washington state where you have your, your properties. Yeah, they're not, they're kind of yours. You know, you, you co own them with your tenant in a lot of ways.

Co own them with the government.

You've got two partners, you got the government and your tenant. Your tenant kind of gets to decide when they move out and the government tells you, yeah, you can't touch them.

And we don't like that at all because we want landlord friendly markets.

Raj says great stuff. 900 doors in Texas and growing with the 10 year.

That's you're doing all right that one. Raj, we have to give you a hand.

900 doors. Wow. Fantastic. That is, that is awesome. Awesome, awesome.

With the tenure going up, will this impact cap rates in multifamily and hot Markets like Dallas.

Yeah, I think, you know, we're, we're, we're seeing cap rate compression pretty much everywhere. And, and that's because the cap rate is a function of the income the property produces versus the price of the property. Right. And so when prices escalate, they escalate faster than rents. So rents always lag the prices, at least historically. And. Yeah. So cap rate compression, definitely, definitely a thing. And Ian is in Melbourne, Florida. Good stuff. Not too far from me here in Palm Beach.

And Raj likes your homeostasis analogy.

There you go. You're a doctor. Okay, good. Did I get it right, Raj?

Close enough. Close enough for government work.

Close enough for government work. Good stuff. Lost my place here. Adam, you want to move on for a few minutes and then we'll get back to some more comments and questions. Keep them coming, folks. We love them.

Yeah. So now let's talk about market conditions. So I'm going to touch on what you touched on before, and that's lumber prices. You know, as we've discussed many times. But I, I learned something new about why lumber prices are high. And that's why I wanted, what I wanted to share is you can see the skyrocketing lumber costs going on the dip was, I'm assuming it looks like it's right around the time that the lockdown started. But then it, you know, even the dip was to the previous high and now it's, you know, back up over a thousand dollars. So the U.S. wood shortage, this is what I learned recently, can be traced to a decades old beetle infestation in Canada. You can see all of that along the way.

Here, all of this kind of pinkish stuff. Well, the shortfall in supply is part of an older saga involving the mountain pine beetle. It's been in the Canadian forest for decades, but it's been kept in check by cold winters. And due to rising temperatures in the area, the beetles haven't been killed off as well. And so they're, they're eating at these, at the pine. And they've attacked more than 44 million acres of forest. So an area four times the size of Switzerland. And they said you can go up in an airplane above British Columbia and see the damage. The dead pines have a red tinge to them, so you could fly an hour and just see this red kill. So all of that red stuff you see is lumber that is just dead, that could have been harvested before. And so what they did at first is they just said, you know what, this is starting to kill these trees. Just go in and harvest them. And so they just went crazy harvesting this wood and now they don't have any more to harvest because it's all died off. And so we're seeing a shortage in supply. Then you factor in the COVID pullback and then you factor in the 20% tariff that we recently had on Canadian lumber. They dropped it down to 9% recently, but there's still a decent tariff on the lumber coming in. And all of these are conditions that lead to higher prices. So this is the. His. This man is Kevin Mason, the managing director of er, of ERA Forest Products Research, said, I think prices will be volatile, but they'll continue to be high. And for the next three to four or five years. You can't start up new sawmills overnight. And if you go to the equipment makers, there's a waiting list for some pieces of equipment of two to three years. So some people have said, you know, why don't they just start up more mills and mill in other places? Well, three years out from building, from starting your new mill. So these are some of the things that are happening that the lumber shortage can't just be solved overnight by opening up new mills and getting people back to work from COVID It's just a market condition that's there that we're going to have to deal with.

Yeah, right, right. Very, very good points. Very good points. It's not easy to deal with. And you also have a lot of regulations that you have to deal with. You know, they won't just. They won't just let them open up a mill and start cutting down trees. You know, this is. This is something that environmentalists will rally against and there'll be all sorts of issues. By the way, you know, one of the solutions that, I mean, there are many, many entrepreneurs out there who are trying to solve these problems, which is one of the great things about capitalism, is that it really incentivizes people to try and solve these problems that society incurs. And, you know, we've all heard a lot about the manufactured housing 3D printing. I'm interviewing really, I think one of the big thought leaders on 3D printing today, and that'll be on the podcast and on the YouTube channel with a lot of visual aids. And we hired him as a consultant. We had a consulting meeting with him yesterday, Ashley and I did, and it was really enlightening. But, you know, these are not the panaceas people think they might be. You know, you go surf around, watch a couple videos and you think, oh, you know, they're just going to 3D print all the houses and this will all be just solved. Or there's these kit homes I can buy on Amazon for, you know, 30 to $50,000 and I'll just have a house. No, there's much more to it than that, folks. We have done a ton of research on this for a couple of years now and I've been following the 3D printed home revolution that I hope comes, but it's not here yet for probably 10 years and it's just not quite here yet. I met with online, met with a company last week to talk to them about buying a 3D home printing rig. I was going to start a construction company, buy it myself. I might still do that, but there's just a lot more to this than meets the eye. These are not problems that will be solved quickly. It's just a long. These supply shortages are going to be with us for a while, folks.

Yep. So Robert Dietz is the chief economist for the national association of Home Builders and he had a tweet a couple weeks ago said solid new home sales for January with sales up more than 19 year over year at a $923,000, a 923, 000 annual pace. Inventory remains low at four months. Supply prices up on a median basis by 5%. Affordability concerns loom in terms of building material costs and higher interest rates. The interesting thing he said next was there is a rising count of new homes offered for sale that have not started construction. Total of 81, 000. Now that's a 45 gain from a year ago. So this is just leading to, you know, inventory shortage after inventory shortage to the point where they're, you know, our investors have been buying homes, you know, before they're permitted for, you know, a while now. But you see, it's just gaining in popularity because they just can't keep up with the demand and they're not sure about pricing. So, and that is in 2020, we saw about 1.45 million permits for new construction. 81,000 is 5.5% of the total permits for the year. So about 1 in 20 homes sold in any in this coming year are likely to be offered and sold but not even started in construction. So that was just an incredible number I saw. And it shows just how, how much demand is out there.

Yeah, it really does. It's absolutely staggering. I got into the real estate business when I was 19 years old in my first year of college. And I have to say I've been through A lot of cycles by now. And I have seen some absolutely crazy markets where properties sell before coming on the market with multiple, multiple offers. Literally it's a foot race to try and buy the property. People camping out at new home construction sites. I've just seen crazy stuff. I remember in Newport beach once, years ago, I was in line to buy a new home in this one area and there was literally a riot, a riot of rich yuppies with Starbucks cups in their hand. They, they rush this. I was there, I saw this myself. I, you know, this was before the time when everybody had a smartphone and a video camera with them. I wish I had a video of this because I remember it now and I've seen crazy stuff, but I don't know that I've ever seen the market this crazy. And this time around, yes, there is definitely some frothiness. I'll be the first to agree with that. But there's a lot of fundamentals supporting this this time around where I just don't see the oversupply problem for a long time. And we have a situation and maybe you've heard my prediction, if you listen to the podcast or watch the other YouTube videos on the channel, that people are going to cling to these ultra cheap, artificially cheap mortgages. They're not going to let These properties go 3 years, 5 years, 7, 10 years from now. There's going to be a huge incentive to keep these unduplicatable, irreplaceable mortgages and that's going to further constrain housing supply into the future.

Yeah, that's one thing I actually thought about whenever my interest rate for the properties that we're going to be closing on soon happened is I thought, you know, if I close at, you know, even at 5%, if it goes up that high, which I don't expect it to, but who knows, you know, even if I, if I get it at 5%, I'm actually mentally more likely to refinance that loan and do a cash out refi. It'll be easier for me to do than if I got it at that 3.75. It was just, you know, the mental hurdle that you're going to have to get over to do a refi and, you know, increase your interest rate, even if it makes sense, is a lot easier whenever it's at 5% rather than three and a half percent.

Yeah, it sure is. And remember, you can't move the mortgage with the property. The mortgage is attached to that property. So people are not going to let these properties go, they're likely to improve them. So, you know, if there's maybe a. Listen, I'm not a stock market guy much. I think Wall street is the modern version of organized crime, as I always say. But you know, maybe there's a little stock tip in here. Buy Home Depot and Lowe's and home improvement companies. Not now, because they're already run up quite a bit. But in the future you're going to see people doing home improvement projects. You're seeing it now, certainly, but in the future you're going to see them do it because they don't want to move. They don't want to give up those cheap mortgages that they have. And so they're going to be incentivized to stay in the property.

So, as I've said before, and I'll continue to say, when conditions change, strategies must change. But right now, conditions have not fundamentally changed. Interest rates have gone up, but they haven't gone up to the point where they have fundamentally changed the market that we're looking at now. I want to reiterate, I am not talking about $500,000 homes, a million dollar homes. I am talking about the investment properties that we're looking at. You know, the under $300,000 properties. The fundamentals for that market are the same as they were when the interest rates were 3%. It's all pointed up. So when will the crash come? How bad will it be? The fundamentals just aren't there for these markets to plummet, to drop. If the fundamentals haven't changed, your strategy should not change.

Yep, absolutely. Good point.

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