I tend to agree with Dave on the shift in affordability. I think we are at the new normal due to some fundamental changes in the market, primarily the introduction of real estate as a mainstream investment vehicle, in a way it has never been before. I believe this will alter the long term average affordability vs historic average. Maybe I will be proven wrong, and a lot of people are asking for a correction, but I just dont see it coming given the fundamentals. It would take some black swan event.
Look at a 50 yr chart of 10 yr treasury interest rates...use log scale. The falling rate trend that's been in place since 1981 has been broken. We are in a rising interest rate environment. No way is that bullish for real estate prices.
I look at it all the time. On the same chart, if you look for levels, you will see strong resistance at ~5.2% and support at ~3.2%. I believe we will be in this channel for a while. But, I also see the spread between US10Y and 30-yr (look at its chart too) decreasing over the term of this administration. I think that will keep rates in the 5s to low 7s for years to come. That is good enough to keep us in the reversion-to-the-mean-over-time scenario (i.e. prices stay flat) and not the reversion-to-the-mean-over-price (i.e., correction) scenario.
Switching from technicals to fundamentals are we? :) Wages and employment are actually the only headwinds I could see in the future. These are the tailwinds I see: * Lock-in won't ease as quickly as people hope with rates in 5s and above. * Zoning Constraints and high construction expenses will drop new supply over time. * Demand will return in the mid-low 6s like it did in Sept. * Per my mortgage guy, investor activity is higher than ever before. Plenty of cashflowing deals especially if rates are in 6s. I know, I did one. I also expect more institutional interest if stocks correct. Are you a home buyer or an investor of RE btw?
@@poonekar Scott here - I agree with everything you said with one caveat - Investor activity is VERY depressed (It's down 50% from 2021, not higher than ever before). Investor activity **AS A PERCENTAGE OF HOME PURCHASES** is higher than ever (you may have meant this) but this is not a spike in the last two years, more of the continuation of a long-term trend. I also do not believe that institutions will be interested in Single Family Homes, maybe ever, at levels leading up to 2021. No institution will negatively arbitrage cap rates vs borrowing costs with variable rate debt. Institutions have been net sellers, and despite headlines, are essentially a non-factor in the Single Family Rental Space - they own less than 3% of Single Family RENTAL properties, and less than .5% of all Single Family Homes. They are a non-factor outside of select zip codes in select markets, like Atlanta, GA. And, I think that many of them will underperform other alternatives, but with lower risks of wipeout like their peers in multifamily.
BiggerPockets is dying. The real estate market is awful so they’re writing headlines grasping for clicks taking advantage of people and trying to keep the company alive in tough times
There is clearly a divergence between real estate and the stock market in the last 2 years. An astute observation that very few are making, so kudos for that. But, I have also learned that the divergences could be because one asset class has better fundamentals than the other. I think small multis, which is what I buy too, have very good fundamentals, but so do most of the top 20 mega-cap stocks. I would look into moving more of the index funds money into multis but also the top 20 mega-caps. Using this strategy, I have been handily beating the S&P for over 2 decades now.
Probably best episode, very few guest at BP that are this quality.
I tend to agree with Dave on the shift in affordability. I think we are at the new normal due to some fundamental changes in the market, primarily the introduction of real estate as a mainstream investment vehicle, in a way it has never been before. I believe this will alter the long term average affordability vs historic average. Maybe I will be proven wrong, and a lot of people are asking for a correction, but I just dont see it coming given the fundamentals. It would take some black swan event.
Look at a 50 yr chart of 10 yr treasury interest rates...use log scale. The falling rate trend that's been in place since 1981 has been broken. We are in a rising interest rate environment. No way is that bullish for real estate prices.
I look at it all the time. On the same chart, if you look for levels, you will see strong resistance at ~5.2% and support at ~3.2%. I believe we will be in this channel for a while. But, I also see the spread between US10Y and 30-yr (look at its chart too) decreasing over the term of this administration. I think that will keep rates in the 5s to low 7s for years to come. That is good enough to keep us in the reversion-to-the-mean-over-time scenario (i.e. prices stay flat) and not the reversion-to-the-mean-over-price (i.e., correction) scenario.
So incomes catch up. Is your base case?
Switching from technicals to fundamentals are we? :)
Wages and employment are actually the only headwinds I could see in the future. These are the tailwinds I see:
* Lock-in won't ease as quickly as people hope with rates in 5s and above.
* Zoning Constraints and high construction expenses will drop new supply over time.
* Demand will return in the mid-low 6s like it did in Sept.
* Per my mortgage guy, investor activity is higher than ever before. Plenty of cashflowing deals especially if rates are in 6s. I know, I did one. I also expect more institutional interest if stocks correct.
Are you a home buyer or an investor of RE btw?
@@poonekar Scott here - I agree with everything you said with one caveat - Investor activity is VERY depressed (It's down 50% from 2021, not higher than ever before). Investor activity **AS A PERCENTAGE OF HOME PURCHASES** is higher than ever (you may have meant this) but this is not a spike in the last two years, more of the continuation of a long-term trend.
I also do not believe that institutions will be interested in Single Family Homes, maybe ever, at levels leading up to 2021. No institution will negatively arbitrage cap rates vs borrowing costs with variable rate debt. Institutions have been net sellers, and despite headlines, are essentially a non-factor in the Single Family Rental Space - they own less than 3% of Single Family RENTAL properties, and less than .5% of all Single Family Homes. They are a non-factor outside of select zip codes in select markets, like Atlanta, GA. And, I think that many of them will underperform other alternatives, but with lower risks of wipeout like their peers in multifamily.
I dont get why disposable income would go up with actual inflation on everyday goods so high. CPI is not an accurate measurement.
With the standard of living. I am not sure how you got that it is up. The inflation is up 50 percent.
A lot of Wall Street journal level cope here . The average American consumer has to be doing good for the good faith predictions here
The bigger pocket views are really down. Seems the real estate bubble has burst. People are back to reality.
BiggerPockets is dying. The real estate market is awful so they’re writing headlines grasping for clicks taking advantage of people and trying to keep the company alive in tough times
He’s taking those economic numbers too seriously on face value. He needs to learn multi variable assessments of the markets
Taxes and fires,gas prices, and regulations in general in California. Are a highly motivating reason to stay out.
Stocks are thousands of companies. Real estate is only one market.
It’s actually many markets based on various regions
What ? 😂😂
There is clearly a divergence between real estate and the stock market in the last 2 years. An astute observation that very few are making, so kudos for that. But, I have also learned that the divergences could be because one asset class has better fundamentals than the other. I think small multis, which is what I buy too, have very good fundamentals, but so do most of the top 20 mega-cap stocks. I would look into moving more of the index funds money into multis but also the top 20 mega-caps. Using this strategy, I have been handily beating the S&P for over 2 decades now.