2026 Debt Wave Is Coming… Will Your Business Survive It

Hey, everyone, it's Mike Andes here on the Home Service Millionaire podcast. And today we're going deep on exactly what interest rates are going to do to you and to your business in 2026. Home services are very correlated in terms of our boom and bust cycles to interest rates, mostly because when a customer of ours feels flush with cash, most of the time it comes down to the equity in their home. So if the real estate market is doing good, usually home service industries do really well. Mostly because if people feel like they have equity, they get home equity lines of credit. If interest rates are also low, those home equity lines of credit are very low. Interest rates. Think of it like them being able to finance their home improvement plans knowing that them improving their house by $5,000 project is increasing the value of their house by $8,000. It's a good deal and considered an investment to them. Also, if they need to go in the debt for that $5,000 job that they're having you do, a regular loan is getting six, seven, even just a few years ago, people were getting home loans for 2 and 3% interest, which by the way, almost halves their monthly mortgage payment. And so what you're going to see over the next couple of years, and really what you're seeing already is a lot of the lock in effect when it comes to the real estate market. And the reason that real estate market is so important is because again, if, if homeowners feel rich, they will spend more on improving their house, maintaining it, and they looked as like an. And you'll treat an investment a lot differently than you would think about an expense. And so if a bunch of your wealth is tied up as a homeowner in the value and the equity that you have in your house and you feel like improving it and maintaining it and protecting it and ensuring it is valuable, home service industries usually do well. And so over the past few years, we've had an increase in a lot of markets in the real estate values. But because interest rates have remained very, very high, or I should say high in comparison to 2018, 20 and 2021, because interest rates have stayed higher, the number of transactions in the real estate market is much lower. So there's been a lot less houses that actually are selling. And this is again the lock in effect, people that are like, hey, I got a 2.5% mortgage, there's no way I'm moving. I got 3% mortgage, there's no way I'm moving. Because if I do move, not only the values have gone up, I'M also going to be paying twice as much in interest. So people are locked into these massive mortgages that are going to tie them in a place for 10, 20 years instead of potentially moving because they want to upgrade their house. They like the mortgage. And so you're seeing a slow trickle up in the now of 5, 6, 7% mortgages as new homeowners have to buy, they're forced to, but their mortgages are extremely expensive. And so this lock in effect is going to have a dampening effect in terms of number of transactions in the market. Unless we had in 2026 and interest rates continue to get cut. If that happens, look out for the values of homes to rise, the number of transactions to increase, and the people that have been staying put for the past few years because of a really good interest rate, now all of a sudden, if they're going from like a 3% to a 4% loan, maybe they move. And so today I want to talk about the effect of having lower interest rates if that happens in 2026 and what that could potentially do to our businesses. Number one, rates drop next year. Should I actually take on more debt or is this just another trap that will choke my cash flow when they go back up? I don't think the decision to take on more debt should ever be hinging on interest rates unless you're taking fixed debt. So if you're taking a, a, a line of credit, almost every line of credit is going to be revolving, which means you can use it, you can pay it off, you can use it, but it's also going to be dependent on usually the 10 year treasury and interest rates. And so if interest rates, interest rates go up, the interest rates on your line of credit go up. And if they go down, same thing is true. And so what I like to, to do is get a line of credit and if I am in a low interest rate environment, realize okay, I can use this, but I'm not going to be planning to use it for next like five years. Back in 2020, I did use my home, my lines of credit, both on my home and, and the business to be able to immediately create liquidity just during that shutdown area for a time when we weren't a lot of work, as well as then go buy real estate at that time. And so I like having the ability to get liquidity. Just in my opinion, I would not go buy a truck on a line of credit for my business and pay that truck over the course of the next five years just because interest rates went down, you're like, well my interest rates went down on my line of credit down to 6%, I'm going to go buy a truck, great. But what if it goes back up to 9 or 10% and now your payments have gone up by 60, 70% per month. So I'm trying to really use the liquidity that's cheaper, use the cash that I can get access to cheaper. But you got to be very careful about trying to extend that term of that line of credit so far because it's usually variable interest rates and if interest rates go back up, you could be in a very, very bad spot. So I'm never taking on more debt simply because of interest rates being low, but I might try to grow faster using that line of credit or using debt if I have access to build either lock in long term debt for cheaper or get a line of credit for six to 12 months, usually being able to spend that money on marketing, growth, customer acquisition, etc. And so I would use this time though, if we do go into lower interest rates to lock in some longer term options in terms of trucks, equipment, you will see interest rates specifically for them in a longer term, lock it in sense be really good. So it's the same thing I have with mortgages back in 2020, 2021, where people got really low interest rates for the next 30 years, which doesn't happen with equipment. But if you can get over next year, if you're doing an expansion and you buy more trucks, get more equipment, you might save 1 or 2% per month on interest when it comes to just your debt payments on that piece of equipment. And lock it in, lock it in for a four or five or six year term on a piece of equipment. You might be saving an extra couple hundred dollars per month if you lock it in and then interest rates might come back up in the future. Just keep in mind if we go into a, I've always said this before and when it comes to interest rates, I see time and time again like interest rates, when we start going into a really bad economy, they tend to come down. So seeing the interest rates come going down, you know, it's not like, you know, we have a, you know, we have huge debt problem with our, with our country. We have a lot of problems in the commercial real estate market. I think stock market is extremely high. There's a lot of leverage, like there's a lot of problems that people see even in the banking industry right now. And so I think that necessarily just because interest rates are coming down you have to remember that the reason for that is because the federal, the Fed is trying to make sure that we don't have unemployment and that we don't have too much inflation. That's like their dual mandate, it's called, and that is to maximize the amount of employment and make sure everyone has a job and then also make sure that we don't have too much rampant inflation. Now that's the thing that they're going to be battling if they continue to cut rates, is that as you cut rates and people start spending more, if inflation starts ticking back up, they could be in a real world of hurt. And that's the thing that we were really fighting and why interest rates went up during 2022, 2023, 2024 is we were trying to tamper down 8, 9% inflation and we've been able to get it down to 2 or 3%. But it'll be very interesting to see if they cut interest rates and people start to spend more money if inflation starts picking back up, what they will do. Number two on the docket, do you really think that the average homeowner is ready to spend again in 2026 or, or are they still too stretched from inflation, credit card debt and fake optimism? I think some of this will probably be political. When you look at surveys in terms of whether or not people feel like the economy is doing good and they can spend more money, a lot of times it's somewhat along party lines. I also think it's very regional in terms of the real estate market. Homeowners will feel like they're wealthy if in their market, real estate prices have continued to go up. So if someone has bought a house in the past three to four years, the real estate values as an entire country has been about the same. But in some markets, the prices have gone up 10, 15% in the past few years. In other markets, specifically the ones that got really, really crazy hot in terms of real estate market during COVID those ones have come down. And so you look at places like Austin, you know, Phoenix, other areas that have spiked by 50, 60, 70% in real estate values since 2020. In the past 12 months, they've come down a little bit. And that's mostly because of interest rates being high. They're not being a lot of sell through in terms of number of transactions happening. And so you see a little bit of a normalization in those markets. And so the reason I say that is because if you in your market you have had a decreasing the value of homes have been going down by 2 or 3% the past couple of years or maybe even 5 or 10% in some of the hottest markets. There's a good chance that people are a little tighter, that they will feel like they can't spend as much. I think it'll be very interesting if interest rates do come down significantly, the amount of people that will want to refinance and all of a sudden, if they refinance because their mortgage was at 6 and a half or 7% and interest rate come down and now they're able to refinance up say 4%, that is a huge reduction to their monthly mortgage. And you're going to see that consumer feel much more wealthy. So even though the value of their home didn't go up, if they're able to cut their mortgage by a thousand bucks a month, you're going to see people with more discretionary income being willing to spend on that house. Hey, real quick, I want to invite you to a private event that I'm hosting on Black Friday online. You can sign up at Mike andy.com/Black Friday. I'm going to be doing hours worth of training that I've been working on for the entire year. Also, there's three massive announcements that I haven't even told my team about. It's at the very end of the live stream. I can't wait to share it with you. Go to mikeandys.com Black Friday and register. Quick number three. With homeowners tapping HELOCs again, will demand for services surge or are we setting up for another short term bubble that crashes when the borrowed money runs out again? I think this is very regional in areas like, like where I live in Washington. We didn't have a boom during COVID but we have had consistent growth. Even the past year, real estate prices have continued to go up. I sold one of my properties and in the tiny house earlier this year and for a good gain like it was significantly more, the value has gone up and it's gone up even the past 12 months. And so in certain markets where there wasn't as big of a boom, people actually trying to move away from our area during COVID.

Now people are coming back and so it's really very regional. I think in terms of HELOCs, I think a lot of it's going to be refinancing. People that bought have bought a house in the past 24 to 36 months during 6, 7, 8% interest rates. They're going to be trying to refinance, they're going to get a chunk of money if their value of the value of their house has gone down or gone up, and if the value of the price of their house is about the same, they're probably just going to enjoy the fact that they save 500 to $1,000 every month on their mortgage. And if they do that, that's where I see real value. And so reducing interest rates is going to affect really business owners in two ways. One, you have access to capital cheaper, you're able to get debt cheaper, you're able to grow and expand with less interest. And it allows homeowners to be able to use their home to feel more wealthy. And, and they start looking at their home as an investment. And when they do that, they're more likely to spend on it. So I think HELOCs are going to be a thing. But because the equity of homes haven't gone up in the past few years, I think it's the bigger impact is going to be refinanced mortgages that go from 6%, 7% down to 4 or 5% and people feeling like they have more discretionary income. I don't think necessarily HELOCs will be as important because the past three years, we haven't seen values of homes go up as dramatically. Again. I know in every market so different. In some markets in the past three years, still prices have gone up 15, 20%, but other market has gone down 15 or 20%. And I know that because the average value for the home in the U.S. for example, has basically stayed around flat modestly over the past few years compared to like 2020 and 2021 was going up like 5, 10% every single year. All right, fourth on the docket. When debt gets cheap again.

Should I use it to buy more trucks and equipment or finally invest in leadership and systems that don't rely on me? Typically, when rates get really cheap, when debt is really cheap, people are spending a lot of money. Now, I say this is very broad because that's not always the case. Sometimes the economy gets very weak. Interest rates are always also low. Debt is cheap to spur the economy back into order. But what we saw, like in say 2020 is when interest rates were really low, people started spending money like crazy. And it actually caused like, for example, trucks got more expensive because the COVID is a tough one because they were shutting down plants and shutting down inventory was dramatically dried up. However, if everyone starts buying a bunch of trucks, the truck value, the truck values are going to go up, the prices are going to go up, or at least you're not going to get as good of terms and you'll get bigger discounts if every single truck that hits a lot is leaving. I don't think that'll happen again because I do see that the economy is a lot weaker and I don't think the government's going to be stepping in with tons of money. It's not the amount of quantitative easing will be a lot less compared to 2020 and 2026. And so I would just say this. When you have a bunch of people wanting to buy our services, you have a huge amount of demand. Well, usually when you have a lot of demand, the hardest part to grow your business is not getting more leads. It's the supply side, it's the labor side. And if you've made it this far into the podcast, this is actually the crux of the matter you is during 2020 and 2021, everyone had so many leads coming in, but we could not figure out how to get good team members and we could not figure out how to keep them long enough because they were just wanting to go on unemployment. They could get more other jobs for a lot more because Amazon was so understaffed. They just like started throwing money or Walmart and these other companies. And so it was difficult to keep your team. That was, that's the supply, the labor supply. So you have demand and you have supply. And if demand is really high, usually the person is able to retain talent, is the one that is able to take advantage of all the demand. And then over the past little bit, it's changed where now it's pretty easy to find team members. You put an application up and you get 20, 30, 40 applications in a matter of a weekend. That did not happen just a few years ago. What's happened now is demand is lower, but supply is higher. It's easier to get the supply and get the employee, but getting the leads is more difficult. People are more tight with their money. And so I do expect that again to swap over the next 12 to 24 months. If interest rates come down, the economy starts to get really hot. People are spending money. They feel like they have a lot of wealth wrapped up in their home. They're willing to get HELOCs or get refinances, they're going to be willing to spend and that's going to increase demand dramatically. So what I believe is, is you actually take the counter approach on this. And as you invest in your team, you make sure you have paper performance, you have great leadership, great managers, because they're the people that will be able to retain the team. So when demand is high, you'll have the team in place and you'll have retained a great team. Because otherwise, if you don't have great management, you don't have great systems. You don't have great systems around P4P, open book management, profit sharing. You don't have a good comp model if you don't have those things. When demand goes through the roof because interest rates are low and because everyone's spending money, you will not be able to take advantage of it. Not because you can't go buy trucks and get debt, you won't need it because you won't have any employees to fill the trucks with. And so this is why I always try to go counter and I've now seen like a few of these waves. When, when there's huge amounts of demand, the person that wins is the one who can maintain supply. And when supply is going through the roof, I. E. You can get employees, no problem. The person that's able to figure out demand, I.e. ads and how to advertise, how to get more leads, how to generate lead gen. Lead gen is lead generation. The person that's able to do that, they win. And so it's always the opposite of what's easy. The person that can figure that out is the one who wins. And so if we're going into it in economy where we believe that leads are going to get easier because now the consumer's wallet will get a little bit more free to spend money if they have a whole bunch of equity in their house or they refinance and get a way less payment per month. If we believe that's going to happen and demand is going to go through the roof, lock in supply, which is I got to make sure I have systems in place to make sure I retain my team. I have great managers, I have great communication systems to retain those managers and the technicians like working for the managers. All right, number five, last and final on the docket today. If every competitor suddenly had access to capital, how do I keep my best people from getting poached in the next wage war? This is a great question. So first off, you want to make sure your wages are strong. So comparable to the competitive competition, you want to make sure they're strong using pay for performance, profit sharing, making sure there's incentives and bonuses around upsells, reviews, etc. That's the first thing. It would then create systems that actually advertise that to everyone that is looking for jobs. What I mean by that is if it's not on your website showing how much your team is making, showing how you're different than everyone else. If you haven't made it clear, like over the past six months we have completely changed like our careers page, we've created stages of success for technicians, stages of success for general managers. And the reason is because I anticipate the leads to start becoming an easier thing. And if that's going to become less of a constraint, it will switch to the constraint being who can find the greatest people. And it will come down to can I pay them well and can I retain them and, and paying them well comes down to pay for performance, profit sharing, etc. But then the retention of great people comes down to the culture, the management that's in place and making sure that when it comes to culture, they feel like this is a place that they can get the next stage of their career, not just make an extra dollar or two per hour, but also be able to gain skills. This comes down to is there training, is there extracurricular ways for them to be able to learn and grow? Optional meetings explaining the pnl. Do they gain skills outside of just the work that you do? These are things that you can add that will retain great people even if someone else is charging extra dollar or two down the per hour down the street. Now why will they not leave? Because they will now know that staying at your place of business allows their career to grow, allows their long term potential earning potential to increase, allows them to gain more skills that they will not get anywhere else. So I would recommend doing now is creating this moat around your culture, creating this culture of you can't get what we have here anywhere else. And once you do that, if you enter an environment where leads are really easy to find, what you're going to end up doing is you're going to spend all that money now going to try and find good people. But if you do not have a culture that retains them and there's no moat, they will just leave someone else that can pay them more. And is what we saw in 2020 and 2021 consistently people turning off their leads, they can't get any more leads because they can't get any workers. So what we want to do now is create systems in place, a culture in place, a compensation model in place that not only attracts but retains great people. And to do that, we're going to make sure on our social media, on our careers page, on our website, inside of our offices, that we're, we're making it very clear to applicants and to our existing team that this is a very different place to work because they. I cannot have them compare me against Amazon or someone else in home services that is going to massively inflate how much they have to pay people, get them in the door because they don't have a good culture. And I want to be able to be competitive on price, but I will not be able to be competitive with a desperate business owner or a desperate Fortune 500 company that's trying to grow and expand. Crazy. I will not be able to compete with them on price. And so I've gone to. I've got to create a culture right now. And this is why we've spent so much time this year creating the 21 stages of success inside of Augusta. Because I do not want team members to leave during this next wave of lead gen being easy and tons of leads pouring in. And when that happens, I'm not going to be able to compete with a Fortune 500 company that can spend billions of dollars just buying up all of the labor supply. I don't want that. And so I've got to create this moat. I've got to put people on track, put them on a place where they know in the long term they'll be able to get more money. In the long term, they'll get more skills. In the long term, they'll be able to get to the next stage of their career if they stay inside the organization. If you have a question, go to mikeandys.com/submit a question via video and I'll answer it on the next podcast.