If you’re currently invested or thinking about investing in real estate, understanding the market is key to making successful and profitable investment decisions. Than Merrill interviews David Childers of Keeping Current Matters to discover what recent data is saying about the state of the real estate market and where it may go from here.
Listen to the Podcast Here:
The Current State of the Real Estate Market
Welcome everyone. Paul Shively here as your host of the FortuneBuilders Real Estate Investing Show we have an absolute special treat for you today. Recently, fan Merrill interviewed the economist David Childers, president of Keeping Current Matters. And if you don’t know David, he is an absolute rockstar when it comes to helping all of us investors know how to predict the future. What’s going on in the economy? How does it affect real estate? We’re seeing a lot of headlines right now about inflation, real estate, and the Fed adjusting the interest rate. There’s a lot going on right now. So we thought it was incredibly timely to get one of the people we look to when it comes to helping us look at the economy and help make more educated investment decisions right now and what’s going to happen in the economy.
Term of the Week
The term of the week is economic future. David Childers, the rockstar economist is going to be teaching us and then we do a wonderful job interviewing him to help us gain insight into what’s going to happen to the future of our economy. The term of the week is economic futures. How does that affect your economic future as well? How are you going to take the education you’re about to receive from Than and Mr. Childers, and if implemented into your business to help impact your economic future? So you’re in for an absolute treat today. I’ve got my cup of coffee ready as well, too. I’ve got my notepad. Hopefully, you do too. Enjoy.
Contributing Market Factors
David, let’s take a step back before we talk about today’s market. Let’s better understand the past couple of years. We went through this crazy COVID period and have never experienced it before. Everybody in early 2020 was unsure, afraid, and fearful. And then the housing prices have just been astronomical the last couple of years. Why has that happened, in your opinion?
Well, it’s a great question. And I think more and more information is continuing to come out about that. I firmly believe we’ll look back on it as such an anomaly in the business, the biggest challenge we have right now is we got used to the last couple of years, the gains, and what was happening, and I want to talk about that. But here’s sort of the breakdown of that.
The meaning of “home” changed during the pandemic. We started off in March 2020. We’re all gonna go home for two weeks, and this is gonna be over, and then thankfully we didn’t know all that was gonna go on. Everybody would have freaked out or something. But after that sort of initial panic of the pandemic, we saw the Fed act and drive down interest rates to call it two and three-quarter percent on a 30-year fixed. You saw the savings of the consumer grow by not going on vacation. Maybe I got some stimulus money, whatever that is. And it caused this fury in the market where people said we’ve been thinking about doing something and we can buy a home right now we’re doing it, and we’re jumping in. By the way, with the pandemic in the rearview mirror or in our mindset, we need something different for our family. We need a backyard. Our kids are going to school at home. We’re spending more time there and we’re willing to pay for it.
That’s very clear. People said we’re willing to pay for it. I think there are a number of things that sort of converged on the housing market. A remnant of 2008 is people had equity in their homes. They said we’re gonna do it differently this time. And so they said, look, we can take that little bit of equity we have, we can move up, we can buy an investment property, we can buy a second home, we sell the second home market surge in this country. And I think we’ll look back on this being a contributor of the amount of money that’s in the account. The autonomy and low-interest rates fuel this unsustainable growth and housing.
To sum up: low-interest rates, high homeowner liquidity, and low supply. If my figures are correct, I don’t have the exact math, but in 2020, home prices across the country were up, I believe over 9% and in 2021 it was 16% or something. Obviously, that rate is unsustainable from an affordability standpoint.
Today’s Real Estate Market
Here we are, today. A lot of our clients are real estate investors, and some of them are also real estate investors and agents. They may be buying for their own inventory and representing clients, but most are investors who are looking at buying rental properties and looking at buying homes that they fix and flip. Where do you think housing prices are gonna go this year? And next year? Nobody knows, but there’s a lot of fear right now that home prices could fall or they’re going to be flat. Where do you think based on the information you’re assessing right now that housing prices are going?
Let me talk about that for a minute. I think there are a lot of questions about that. That’s probably the number one question that we’re getting right now. And just to give you a little bit of a snippet of what we do at Keeping Current Matters, not in a self-serving way, but more in a defining way, we have a team of researchers that scan everything coming out, as far as reports in the real estate business. So anything that’s published on prices, days on market, inventory, we scan all of that and say, here’s what’s happening in the market. The reason that’s important, is we don’t get that in the media. Let’s be clear about that. We get sensationalism, and we get fear. We get all the things that we know about that. We get these headlines that say the housing boom is over and the housing bust is here and all those things which I don’t think do a good job of accurately portraying what’s happening in housing right now. Let me kind of break it down for you.
I think that’s really important. Because what happens is an uneducated homeowner or investor or consumer sees these things and this is what they’re talking about in their social circles, and the media is there to sell papers and get clicks. The job media and the news is to get you to watch more news. What you’re talking about is really important, because you aggregate economic data, you look at and try to make sense of what’s really happening. So you want to pause there because depending on what you read, and what your news outlet is, your viewpoint can be different.
That’s true in the world we live in. That’s not just housing. That’s everything that we do. I want to say one other thing. I am not an economist. I am somebody that grew up in the real estate business. My dad, actually lost his job when I was in high school, and he turned to real estate, He got a little bit of a profit-sharing nest egg from the company that he worked for and he went and turned that into a rental property and has sustained my parents through retirement a
That’s been my life and got me into real estate. What I tried to do is take that and say, okay, what does that mean to folks that are out there like us that are buying and selling real estate to the agent that’s out there maybe working with somebody buying and selling? What does it mean? And so there are a couple of things that I would break down for you right now.
One is home price appreciation this year is forecasted to be around 11%. We saw 10% back in 2020, around 20% last year, and about 11% average home price appreciation this year. 3.8% mean in this country. Remember, we started off I said the biggest danger we have right now as we got used to the last two years. That’s the biggest danger because we’re heading back into a market that is very, very normal.
“That’s going to require us to get back to grinding it out and working and making it happen.”
That’s the picture for this year. Most of that appreciation was in the front end of this year before interest rates now knocking on the door at 7% and in some cases over that. It has had this seizing effect on the market.
I’ve just gotten the 2023 forecast demand. What I think is important right now is that people understand the dynamics at play. This year’s price forecast for 2023 comes from all the major forecasters. There are young people on YouTube saying that the real estate market is going to crash and we’re all gonna die and we better get out. The good news is they have a book or something to sell you to help you get through it. So that’s what their game is. But if you look at people that are reputable, they’re forecasting home prices, one is calling for depreciation, and the rest are calling for appreciation.
I think the best case scenario, we’re looking at what I’m going to call anemic growth next year of 2%. In residential real estate, that’s kind of the best scenario right now. Why is this important? It’s important because what is going to get the press is the forecaster that says we’re about to lose money. It’s not going to be any of the ones that say this is what’s going to happen in the predominance of forecasters are saying, do we see appreciation going into next year? But there’s even a bigger question at play.
Here’s the question. It’s why are they calling for appreciation. I can tell you this, we follow the home price expectation survey, which goes out five years, and they’re calling for appreciation for the next five years in a much more normal fashion of 3% to 4% in residential real estate. It has to do with supply and demand. I’ll show you a couple of graphics just to give a visual representation of this. So first one, the reason they’re calling for appreciation in this country is because of this graphic right here. This is a single-family housing unit completed going all the way back to the 70s. Post-2008, we’ve been below the 50-year average of builds in this country.
The builders got crushed in 2008 had to get out of the market. This will be the first year in 14 years that we build over a million units in this country. Builders understand there’s an opportunity. They understand they need to bring units to market. But if you read articles, they’ll generally say we are undersupplied in this country by about three to 4 million units. Okay, so that’s your supply side, you have less available inventory, and you have more people that want to buy it. It’s simple economics.
Hopefully you enjoyed that as much as I did. I know I took a whole bunch of notes, I actually went and got a second cup of coffee to make sure I stayed riveted to what Mr. Childers was saying. That was absolutely phenomenal information. That’s what we love to do on the FortuneBuilders Real Estate Investing Show – bring that type of information that’s timely and current to you, so that you can take that information and education but also implement it into your business. And as always, if you want more information about FortuneBuilders, if you’re looking for a bit more of a one-on-one relationship to help you take that education and implement it into your business, you can always go to FortuneBuildersShow.com to see all of our previous episodes, but also figure out how to implement this education into your specific business. Wow, what a great episode. Tons of great information there. Hopefully, you enjoyed it as much as I did. I’m going to sign off this way like I always do. Take care of yourself and in today’s world if you can take care of someone else too. Cheers.