We Are Finally In A Buyers Market! | Is It The Right Time To Buy?

Well, it is official. We are officially in a buyer's market. Hooray. Right. That means prices are coming down and we have less bidding wars going on. But should we actually be buying right now? That's what I want to talk about this week. Stay tuned. Welcome to Short Term Rental Riches. We'll discuss investing in real estate, but with a specific focus on short term rentals. Quick actionable items to acquire, manage and scale your portfolio. I'm your host, Tim Hubbard.

So welcome back to the Short Term Rental Riches podcast. Really excited you're here today. The economy is just kind of going crazy, isn't it? As interest rates have gone up, it is impacting more than just our local economy, but our international economy as well. It's also affecting the amount of renters we have in the market, the amount of people that can buy properties. It really, really has a lot of impacts. But the reality is prices are coming down now. A buyer's market, which it hasn't been for, gosh, I'm going to say eight years or so, we've been bidding against others. We've been getting denied on requests to have things fixed from the seller. So the tides have turned and I want to talk about that this week as well as whether or not we should actually be buying, though those are two totally different points. So we're going to get into that. We're going to get into a little bit of the opportunities. We're going to just discuss again that every market is different. So of course there's not like a one size fits all answer to cover everything. We're going to talk about what you might want to do if you're underwater. Yeah. If you unfortunately didn't lock in a loan and you're not cash flowing on your property, I realize that is a stressful situation. So a couple little inputs there and then, yeah, we're going to dig in and what this means for just the general economy. So what does it mean to be in a buyer's market? Well, quite simply, it means that the buyers have the advantage. Right. The sellers no longer have the advantage. They don't have people lining up to buy their properties and multiple offers. You remember when people are getting like 30, 40 offers in some of these hot markets. Gosh, those days are gone. So it's now our turn to get a few more of our requests fulfilled when we're buying a property and to get some better prices. So just because prices are going down, which they are going down, according to Bloomberg, home prices are decelerating at the fastest rate in over a decade across major U.S. markets, a record 16% since July of this year. So prices are going down. Now, there's an interesting thing going on here, right? Our properties can actually be losing value, but the price staying relatively the same. So what do I mean by that? We're still in a very inflationary environment, and that's why rates are going up still. And I believe they're going to continue going up. So let's just say we had a property that was worth $100,000. I know that hardly exists anywhere anymore, but let's just say it did. And the price didn't change at all. But inflation was at 15%. Well, if that property stayed the same price for a whole year, that means it lost 15% of real value. So there's a difference between real value, which accounts for inflation, and nominal value, which is just a number. Right. And we've got to account for inflation. So it's very possible that some of these markets might not see huge price decreases, but the actual value, the real value of the property, is going down at the same time because of inflation. And so every market's different. Right. Traditionally, when we look back at real estate cycles, we see that some markets went up much faster than others. And very often those are the same markets that go down much faster than others. So I like to invest in markets that are a little more stable. Right. It means that, yes, we might miss out on some of that giant appreciation that a lot of those really bubble markets we can say, had. But at the same time, we see less impact on the downside. So keep that in mind. Some of these markets that really shot up, they're probably gonna be the ones ones to go down and to go down faster. Prices are dropping, properties are staying longer on the market. People are backing out of deals. So should we actually be buying? Well, it depends. It's actually an easy question to answer. We should only be buying, first of all, if it's a pure investment. So if we have no personal investment into it, if this is a property we're buying just 100% investment, then it just comes down to the numbers. Right? We talk about that all the time. So if you can find a property these days in this market that's cash flowing and you're using a loan at today's higher interest rates. Well, if you're comfortable with that property, if you're excited with that property, I would pull the trigger and get into it. Because if it's cash flowing now, there are pressures on the rental pool and the rental Demand that are going to keep going up. We're going to talk about that here in a second. The other side to this is if you bought that property today and it cash flowed at today's interest rates, and then you refinance in the future at a lower interest rate, not to say that they're going down anytime soon, but if you do refinance in the future, that means you're going to cash flow even better, right? So my opinion, if it's a good deal to you and it makes sense on the numbers and you're excited about it, then pull the trigger. But on the other side of that, I do believe prices are going down and they're going to continue to keep going down, of course, in some markets more than others. So there's some opportunity here for us to get properties at a discount, at least at a discount. If we look past over the last years. Now, people are getting squeezed, right? As inflation goes up, the purchasing power goes down, right? So anyone that's on a fixed income, they're getting squeezed right? Now we also have a really large baby boomer generation in the US and they're retiring or they're at that stage or they're wanting to retire soon. Now, at the same time that prices are dropping in the real estate markets, they're also dropping in the stock market. I'm sure you've seen that it's dropped like almost, you know, 25 to 30% really, really quickly. And a lot of these baby boomers that were going to rely on that income that they had in their stock market, well, imagine they potentially just lost like 30%. And so what are they going to do, right, if, unless they find another job, they're going to need a little more money. Now, the good side for a lot of these baby boomers is they actually own their properties and they have a ton of equity in them still. So if push comes to shove and things continue tightening and inflation continues going up, and this segment of our demographic needs more money, well, better believe that they're gonna be forced to sell a lot of those properties and they're gonna be selling them at a discount, unfortunately. So one other thing that we're seeing in the rental market, specifically the short term rental market, is that the reservations are getting longer, right? 50% or more of Airbnb's reservations are for a week or long. 20% of them are for a month or longer. Now, we gotta think if less people can buy a home, there's gotta be a lot of people that are gonna sit there on the sidelines waiting to buy a home for when interest rates come down. But at the same time, they're very likely not going to want to sign a year long lease. Right. So I really believe that that is going to put more demand on a medium term stay on Airbnb or wherever you have your short term rentals listed. I also think we have more demand coming to medium term stays just because of the way society has changed. Right. People can work remotely much easier than they ever could. So I think those two pieces are definitely going to put more demand on medium term stays. I'm just going to throw out a forecast here and say that right Now Airbnb has 20% or more of all their bookings are a month or longer. I would say in another two or so years we might see that number at 30 or even up to 40% for month long stays. So I think there is a lot of opportunity there as well. Keep that in mind. There's a lot of other pressures going on here to get to the renter side. So if you are underwater, if you didn't lock in a loan, I'm really sorry, you just got to kind of hang on right now. I wish you would have heard my episode I did a year ago in November of last year, a whole year ago. And the title of that episode was why you need to refinance now. And I actually put now in capital letters. So if you didn't listen to that one, you can go back and check it out. But unfortunately it's a little too late now. So if you're underwater, the good news, the flip side of this is if it's an investment property, rents are very likely going to keep going up because as an interest rates go up, the amount of people that can actually purchase a home goes down. And that means that there are more renters. Right? And so we've effectively entered a renters nation. There are more people that rent than there are that own. A couple interesting stats here and not to pick on California. A lot of, you know, I'm from there originally, but numbers are really high there, right? Real estate prices are really high. From the national association of Realtors, they said that in Q2 of this year, only 16% of Californians could afford to buy a home at the medium home price. That's a lot, right? And that's actually down from 5% the year before. So if we look at California is having, gosh, almost what, 40 million people in the population. If it dropped 5%, that just means that 2 million people, 2 million people 1 year over the next cannot buy homes that they could have maybe a year ago. And that's because of interest rates. So if interest rates keep going up, the ability to purchase a home goes down for a lot of people. I looked up Sacramento, where I'm from originally, just for fun facts. The average home price there is lower than it is a lot of other places in California. But the average payment right now is over $3,000. For someone to be able to qualify to buy a medium home price in Sacramento, they've got to make well into six figures, like $128,000 a year. And as we know, most people are not making that kind of income. So it's sad. A lot of people are getting squee. They really are. Rents are going up and their purchasing power is going down if they're on a fixed income. Now, to add even more pressure to the rental demand, construction permits are down. People are not pulling construction permits right now because costs are going up and the sales prices are going down. So that's a bad combination for a developer. Right. That means if less supply goes out into the market, we're already in a shortage situation. The US Means there's going to be even more pressure on rents. So sadly for a lot of people, they're getting squeezed right now with inflation going up and rents going up at the same time. The other side of this is that we're now in a buyer's market. So for those of you that have some cash laying around, we've got some really good opportunities coming up. I believe for those of you that don't have the cash lying around, well, good news. 30 to 40% of the homes in the US are owned outright. There's no loan on them. So that creates a lot of opportunity for sellers. Financing. You can work out a deal directly with an owner that wants to sell their property or maybe needs to sell their property, sadly, if they need some more money just for general living expenses. So that is the flip side. I know there's a lot going on here. It's a pretty complex situation. The macro economy is complex. There's a lot of things that affect it. Right. But I think the reality is, and the thing that we need to understand is that if interest rates continue going up, things are not going to get easier. And we are still in a very high inflationary environment. So I don't think that interest rates are going down anytime soon. So what opportunities do we have? Well, if we're underwater and we have a property where it's not Quite cash flowing. If we can hang on, if we can borrow some money from a family member or work with someone just to get by, maybe your rents will go up a little higher. If you can get out of that property right now, it might not be a bad idea. I know that's not a fun situation, but this is kind of the reality right now. Now, on the other side of this, if are in a position to purchase properties, well, I think there's going to be a lot of good deals, especially for those properties that did not have fixed loans and are underwater. Those people are going to be forced to sell. A lot of our demographic baby boomers segment might be forced to sell. If the stock market and a lot of the retirement savings continues to go down, credit card spending is going up, savings are going down. This is just, this is not a good combination for the economy as a whole. Right. As investor, we just want to make sure that we're prudent with whatever deal we get into. That doesn't mean there's no deals to be found right now. There's always deals to be found. Again, that varies by market. But if you're getting ready to pull the trigger on a property, just make sure you're comfortable with the numbers today and you have fixed long term financing if you're using financing. And one last thing, there's a big impact to the U.S. raising our interest rates, right. A lot of countries outside of the US owe debt in US dollars. So if US dollars get more expensive, that means that their debts are going up and this is all driving the price of the dollar up, among other things too. Quite a complicated subject there when we get into exchange rates. But you know, having lived outside the US for over there is a lot of international opportunity. So I want to talk about that in a coming episode. I just really excited, just signed for a nice lot here in Medellin where a partner of mine and I are going to be doing a development. So we will get into that in the near future. But until then, yes, we're in a buyer's market. Doesn't necessarily mean you should be buying. I think if you find a good deal, well go ahead and pull the trigger. But I also think there are some more deals coming up. I hope that gave you a little insight. I hope it didn't freak you out and I hope you've been listening to the podcast for a while and you've gotten yourself into some conservative investment. So until next time, I hope you have a wonderful week and I will talk to you soon.

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