Mike Andes discusses recent CPI data (year‑over‑year inflation easing from 8.5% to 8.3%) and interprets its implications for rents and the real estate market. He explains how rapidly rising mortgage interest rates (from ~3% to ~6%) reduce buyer affordability, predicts a 20–25% real estate correction (not 2008‑scale), and expects a technical recession if upcoming GDP prints are negative. He advises pausing home/investment purchases now and anticipates better buying opportunities later in the year as rates and prices adjust; he also notes recessionary pain will disproportionately affect lower‑income workers.
Chapters
Good morning Augusta Nation. Hope you're doing all very well. There were no questions submitted on the form today. However, I wanted to bop on here, see if anyone had any live questions from YouTube or Facebook. Also wanted to go over a couple things. This morning CPI data came out again, that's consumer Price Index. Kind of tracks year over year inflation. It did start inflecting down, but it was still higher than expected. So we came down from 8.5 last month, year over year inflation down to 8.3.
Several things that are somewhat anticipated that we've been talking about for a long time, one of which was rents are now going up according to the government very quickly. But it's usually a very lagging indicator. So typically your real estate prices will go up and between 6 and 12 months later your rent will follow that. It's, there's several reasons. One of them is which of which is if someone's in a year long lease, it takes them totally leave that lease in order to get a rent increase. And so what we saw last year with prices going through the roof for real estate has made it difficult to get in the market. But more importantly now, in the past two months, three months I should say, as interest rates have almost doubled on mortgages, you have to realize that this is the worst time to buy real estate, the worst time to buy real estate. Because what you have is you have the top of the market is right now in terms of price. And what's also happening right now though is your interest rate literally has gone from 3% to almost 6%. That's about, that's going to increase your mortgage by about 25 to 30% a month just because the interest rate is going from 3% to 6%. And so you have to realize that that is going to make the mortgage obviously 25, 30% more. That means people can afford 25 to 30% less, which I really do believe. We're going to have some serious correction here. Not like 2008 where everything went down 50, 60%. Like, not like that. We're going to have a good 20, 25% correction. I feel like in the real estate market it's going to affect us in our industry obviously.
But I think we're going into recession also like I talked about at conference. So we've had one quarter of negative GDP growth. We have another GDP print coming up here. If that is negative, we are in a technical recession. So I feel like this just, just kind of, just as a side note because there was no questions if someone's thinking if you're thinking about buying a house right now, if you're thinking about buying an investment property, I would put the brakes on that. Just my personal opinion. This is not financial advice. Whatever. The last thing you want me doing right now is buying real estate because you're at the peak price. And then what's going to happen is over the next three to six months, as the interest rates are really high, the affordability of those homes is so much lower. And so you're going to get people putting. There's not. People are not going to be able to buy. And so that's why you're going to see rents even go further. And I talked about this last October in terms of why on my second channel about why I was moving out of the stock market into real estate is because rents are going to keep going up because the affordability of buying a house is continuing to go get out of hand. Even with the prices as they come down a bit, the actual price of the mortgage, the cost of the mortgage is going to still go up because interest rates are so much higher. So for everyone that got refinanced or bought real estate in the past two years, good for you. But this is not the year to do that. I think there's going to be some really good opportunities late into the year because what's going to happen is the Fed is eventually going to stop raising rates so much, they're going to actually come down a bit, in my opinion. And.
At that time the prices would have been lower. Right. So there's two big variables when you're buying a house or any sort of real estate is if you're trying to cash flow on the deal, yes, the price is important, but if the interest rate is off and way much so much higher, you can't afford to pay more because you can't cash flow on the deal because the mortgage is so high. And so what you want ideally is market corrects at the same time that interest rates are dropping in order to try to get them to come back up. But there's a gap there. Same thing that we're having right now, there's a gap, there's a lag between interest rates moving and then price adjustments. So this is why in I I really heavy in the real estate in June, like March, April, May and June of 2020, because interest rates tanked. But the market didn't really react like real estate prices didn't jump right away after Covid, it was several months later. So there's always a lag. So Anyways, hope that was clear. There's absolutely no questions today. So I know it's the middle of the week, everyone's very busy and so I will go ahead and call it a day. But that was a little update on CPI data, inflation, real estate, and I think it's gonna be really interesting over the next six to 12 months what happens. And I actually, I'm very optimistic. In the long run though, what's going to come about as all of this. As we see a slowdown in the economy, we are going to have a better labor market 100%.
So I think that will be a good thing. I really feel like recession is going to hit the lower class the most, unfortunately.
Because all of this inflation basically helps anyone with debt and debt and investments. If you have fixed debt, long term debt, inflation is the best thing in the world because the cost of everything is going up while you have a fixed amount that you're paying for years into the future. But this is going to hit the lower class very, very hard with inflation going the way it is. And if we go into recession and unemployment starts ticking back up, it's going to be very bad. But it's also going to give us the opportunity to hire those folks that currently are being sucked up into jobs that are Amazon delivery and all this other stuff that's going to get hit during a recession pretty hard. My bank was telling me that the prime interest rates have historically been around 7%. So we just gotten used to this almost free money. Yeah, right. So if you think about it, if you lower interest rates to 0%, which is what the Fed did, and then, you know, with prime thing, you're looking at maybe 2%, it's basically free money. And if you can, if you have that environment where basically it's free money for everybody, why wouldn't you take risks? Because if you're in an environment where inflation is high, the cost of the cash value is going lower, value of what you can buy with cash is going lower. Why would you not go buy risky things? Why would you not want to put it in real estate where historically you can get a return when the interest rates are zero at the bank. So. But yeah, when interest rates go back up, you know, now we're now in a place where the Fed rate is over 3%, the 10 year Treasury. And so people, yeah, they, it's going to be, it's gonna be a bloodbath, honestly, later this year. So it'd be really, really interesting to see how this works out. But we talked about this. Like, since last October, we expected in real estate to happen with the labor market. We expected that six to eight week window of kind of like where we could hire people during December, January, February.
And so I really do believe we're going to go into a technical recession. Real estate's going to have a correction.
The Fed is going to have to actually start lowering rates again because we're going to go into an absolute recession where unemployment starts to go up. And when that happens, politically, it's in a bad place. So they're going to get all over it. So anyways, that's all I got. Hope you all have a great day. Take care.
