EP200: The Great Housing Market Reset Started!

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Hi there!

Lots of people are asking the saaaame exact question these days… 

👉 What is *really* going on in the housing market??

We know there’s been talk of a housing market crash, which can sound scary, but listen. 

The reality is that the current changes in the housing market can be very, very lucrative – IF you can learn to leverage the supply shortage to your own advantage! 💸🙌

And of course, we’re sharing just how to do that here!

There’s no doubt about it, the economic landscape is shifting. 

We can’t stop it, but we can learn to shift with it.

Here’s to learning to shift so your income can grow. 🥂

So, they say the housing market is crashing and it may very well be, but it’s not crashing in the way you expect.

This can of soda has more in common with the housing market than you think and in this episode, we are going to show you how we got into the current housing market mess in the first place, realistically what will happen going forward, and what you can do to profit from it.

To do this, we first need to investigate the 🍪 cookie conundrum.

Once upon a time in a small town, there was a bakery famous for its delicious cookies.

The baker, Mr. Dough, made exactly 100 cookies every day. The townsfolk loved these cookies, and there was always a line outside the bakery each morning.

One day, a group of tourists came to town. They had heard about Mr. Dough’s famous cookies and wanted to try them.

To everyone’s surprise, the cookies sold out in just an hour! The next day, even more tourists showed up, and the cookies sold out in 30 minutes! 😆😆

Seeing this, Mr. Dough thought, how do I keep up with the demand, he’s then stuck with a conundrum.

He has three choices:

1️⃣ Do nothing and just keep selling out, but the growing demand has been extremely taxing to himself and his staff handling a larger amount of customers in a short period of time

2️⃣ He can add more staff and equipment, but this will cost money and thus, he’ll need to raise prices

3️⃣ He can do nothing. Which choice makes the most sense?

As kids, we used to love playing outside in the rain. ☔

We lived on a hill, watching the water flow down the side of the street, next to the curb for some reason just fascinated us.

We saw it as a baby river.

So what we sometimes did was we’d try to stop the flow of water, thinking that if we added a small rock or a stick that should stop the flow of rainwater going down. We’d add a few rocks, this worked for about a split second, but then the water just lifted our rocks and continued to flow as it was naturally supposed to do.

Well, this was exactly what Fed chairman Jerome Powell and his Merryman have been trying to do with the US housing market.

If you may recall, back in June 2023, he was quoted as saying “If you’re a homebuyer or a young person looking to buy a home you need a bit of a reset,” well we’re now finally starting to see that reset in 2023”

So, the Fed has been trying to use pebbles to block the flow of water, in this case, interest rates to curb the furious housing demands.

It’s like physics turned into a romantic quip that goes something like this, what happens when an immovable object collides with an unstoppable force?

The force wins (at least for the housing market).

So, what’s caused this massive demand in the first place?

Back in 2008, the housing market came crashing down because of the massive amount of default due to subprime mortgages, as you know there was a lot of shenanigan happening on that front, and the fact that only one person went to jail as a consequence of that crash speaks to a board problem,
but we digress.

Since then, the US housing demand has been red hot. In 2023, home prices haven’t fallen in most markets. It’s defying gravity and is still rising, homes are being purchased over the asking price, and it’s quite amazing.

You can see this from headlines such as:

Dallas-Fort Worth housing market remains stable, Experts say no housing bubble on the horizon

Charlotte, North Carolina Is 2023’s Hottest Housing Market, Analysis Finds

The hottest housing markets continue to include MSAs in Colorado, North Carolina, Florida and Texas that were also popular during the pandemic.

Ok, so if the Federal Reserve raised interest rates to curb the hot housing market, yet their actions which have hurt many other sectors along the way, still haven’t achieved the goal they set out with, what gives?

The flurry in demand was attributed to a few key things:

One. We haven’t seen inventory this low in ten years.

Sellers are reluctant to sell their property though they’ve accumulated a nice amount of equity because they are sitting pretty with a 3 to 4% fixed rate mortgage and should they go out to buy a new home now, not only will the price have risen significantly, but they’d be paying 6-7% interest, which for a $500,000 home, the interest they pay for the property would have gone from $1,250 per month to $2,500.

Two. Net migration.

The US demographic shift is a real thing. We are seeing a decade-long trend of migration to the Sun Belt.

The Sun Belt is a region in the United States that stretches across the southern and southwestern portions of the country.

This region is known for its warm weather and includes states like Florida, Georgia, Texas, Arizona, and California.

The Sun Belt has seen significant population growth and economic development since the mid-20th century, partly due to its favorable weather, lower cost of living, and burgeoning industries, particularly in areas like technology, aerospace, and energy. This growth has made the Sun Belt an influential region in American politics, culture, and economy.

For these reasons, we too love buying large multifamily complexes in this region.

The Sun Belt now holds about 50% of the national population, which is expected to rise to about 55% by 2030. Over the past decade, the region accounted for 75% of the total U.S. population growth (15 out of the total 21 million).

In the next ten years, the population in the Sun Belt region is projected to surge by an additional 19 million people, a growth rate of approximately 13%. In contrast, states outside the Sun Belt are only anticipated to experience a modest increase of around 3 million people, equivalent to a 2% growth.

Three. Construction. 🚧🦺

Imagine a popular restaurant famous for its delicious meals.

This restaurant is always packed with customers due to its high-quality food and reasonable prices. The demand for its dishes is so high that people are willing to wait in long lines just to dine there.

In response to this demand, the restaurant decided to expand its menu, offering even more exquisite dishes. This is similar to the increasing demand in the housing market, where more homes are needed due to affordability issues and high mortgage rates.

However, there’s a twist. Despite planning an expanded menu, the restaurant struggles to find enough skilled chefs and kitchen staff to prepare these new dishes.

They also face challenges with complicated kitchen regulations and obtaining the right cooking equipment.

As a result, the new dishes are delayed, and the kitchen struggles to keep up with the existing demand.

This is akin to the construction challenges in the housing market, where despite the clear need for more houses, bureaucratic hurdles and labor shortages hinder the completion of new housing projects.

Just as the restaurant cannot serve more customers without more staff and better kitchen efficiency, the housing market can’t meet the rising demand without overcoming these construction challenges.

The bottleneck in the kitchen mirrors the bottleneck in housing construction, leading to a backlog of potential homes that could stabilize the market if only they could be built.

This issue is summarized by a headline from the Washington Post 📰: The US Needs More Housing. Americans Don’t Want to Build It.

Despite affordability reaching historically low levels and mortgage rates being the highest since 2000, home prices are still on the rise. Additionally, the duration homes remain on the market before selling has decreased by one-third compared to the period before the pandemic.

These factors collectively indicate a robust and persistent demand in the housing market.

It’s widely recognized that the central issue in housing is insufficient supply.

However, the reason for this ongoing shortage in both the sale and rental markets is not as clear. Normally, in a market-driven economy, high prices should stimulate an increase in supply.

Yet, the real challenge isn’t the initiation of these projects; it’s their completion.

A mix of bureaucratic obstacles and a lack of labor is hindering these potential supplies from entering the market, which in theory, would help stabilize prices and rents. Consequently, this creates a massive backlog of available homes.

How can you profit from this supply crunch?

The simplest answer is to get on the right side of the supply and demand equation.

This means owning the assets that are in tight supply. The beautiful thing and somewhat ironic for the Federal Reserve is that as soon as they start dropping interest rates, guess what? The housing demand will shoot sky-high.

Even higher than it has been during the time that they’ve tried to artificially put a cap on it with their interest rate hikes. Those who own assets now before the rates start dropping are poised to make huge profits.

And you may say, well, Palm, Nan – the Kitti Sisters, it’s not easy to find these properties.

Well, that’s why it’s important to partner up with people who can find these properties. You see, through investments in apartment syndications, you don’t need to find the property, purchase it, or manage it yourself.

Nope, all you have to do is invest with an experienced team that handles all the hard parts and you sit back and enjoy the rewards aka ROI, return on investment.

Now you’ve uncovered the truth about what is truly crashing in the housing market, tune into this episode to see how the Kitti Sisters are turning dirt into millions.

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