EP216: URGENT: Rate Hikes, Real Estate Market Faces Pivot

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Hello there… 

As usual, we’re here to cut through the noise about the ever-shifting housing market. 

Because those headlines you see? They don’t always give the full picture. 🙄

So, you might be nervous about things like interest rate hikes, high inflation, or housing costs, but we want to assure you that there’s muuuuch more going on here…

And the market shifts we’re facing will actually BENEFIT multifamily investors in the long run! 🤩

We’re breaking it allllll down, because there are big opportunities ahead.

You deserve to know exactly what’s going on in the real estate market, and how it affects your investment decisions, don’t you think? 

Well, friend, right now we’re on the cusp of a big real estate pivot.

And the right moves this year (specifically multifamily investment moves) can lead to BIG rewards in just 3-5 years. 👏

We are sooo excited for what’s ahead. 

Knowledge will be your greatest tool for growing wealth in real estate.

Your future will thank you for the learning you do today. 

Here’s to an epic year of making multifamily moves. 🥂

The 🇺🇸 US real estate market is about to pivot in a major way but not in the way you’re thinking.

In today’s episode we’ll break it down – what’s really going on here?

How this hits your wallet and what 2024 real estate holds for you.

Trust us, it’s not what you’re expecting!  😎😎

But first, have you ever tried Thai green curry? 

Yes, we are Thai, but as an unbias opinion, probably the best curry in the world. 

⭐ Our Phanaeng Curry ranked as the number one curry in the world in 2023, but for us, it’s always the green curry.

If you’ve never tried, you’ve got to give it a shot. 

This dish’s flavor comes from a mix of fresh ground curry paste with roasted garlic, Thai chilies, kefir lime leaves, shallots, and more.

Add fish sauce and palm sugar for another flavor layer, and throw in your favorite protein – we’re all about homemade fish balls. The coconut milk on top? Just divine.  😝😝

If only we had smell-o-vision for this! 

This is our family favorite, especially when Grandpa cooks it – always a hit. 

Now, what’s this got to do with real estate?

Like the layers of a great green curry, the real estate market is shaped by a multitude of factors. 😘😘

Chef, Nan…shall we break it down?  ❤️

Yes… indeed. 

To begin, let’s take a look at the fundamentals.  👈

Like anything else in the free market economy, the real estate market is governed by supply and demand, when there’s an imbalance one way or another property prices will either increase or decrease. 

But real estate obviously is more nuisance than that.

There are many “ingredients” that will cause the supply or demand to lean one way or another. 

To start, let’s take a look at inflation.  👀

The Fed’s inflation goal has always been 2%.

You remember we hit a peak of 9.1% in June 2022, right?

Well, now the CPI is hovering just above 3%.

When inflation was acting like a runaway freight train, the Federal Reserve stepped in and used their one major tool, they increased the Open Funds Rate which banks use to borrow money from each other.

This consequently impacts the interest rate banks then charge their borrowers – AKA businesses and ordinary people. 

In fact, they did so 11 times from March 2022 onward, this was the fastest and highest rate hike in US history. 😖😖

Friends, it’s important to note that the Consumer Price Index (CPI) is a measure that examines the weighted average of prices of consumer goods and services, such as transportation, food, and medical care.

The major components of the CPI housing.

Housing Costs: This is often the largest component and includes rent, homeowner’s equivalent rent, utilities, and furnishings. 

Thus you’ll notice an interesting relationship between housing demand and inflation.  And the uniqueness of what’s happened in 2022 to 2023.

You see because housing cost is a major component of the CPI, and since the Federal Reserve is trying to reduce inflation to a 2% level, you’ll expect that as interest rate increases, home prices will drop as fewer families will be able to afford homes at an interest rate hovering around 7-8%.

But that didn’t happen.  On a national level, US home prices actually increased. 

CNN just dropped some crazy news.

US home prices?

Skyrocketing in October, breaking records for the ninth month straight. “Prices rose 0.6% from the month before, according to seasonally adjusted data from the S&P CoreLogic Case-Shiller US National Home Price Index.

So, why were home prices rising even though it was costing homeowners more?

Well, we can turn to our friend supply and demand for this.  You see it turns out, because over 80% of home mortgages have interest rates below 5% most homeowners have hesitated to sell their homes and move.

Thus, we now come to the crux of the matter.  It’s not inflation, it’s not interest rate that has been the root cause of the housing crisis, but it’s the lack of actual homes available throughout the country that has been the main culprit.

According to UpForGrowth.org, “Not since the beginning of suburbanization in the early 20th century have household formation patterns shifted as dramatically as they have since March 2020. Although the United States produced more housing units in 2020 than in 2019, it was insufficient to meet demand, and production was misaligned with quickly shifting preferences for where people wanted to live.”

➡️ Nationally, underproduction increased by nearly 3% to 3.9 million missing homes.  

Ladies and Gentlemen, until we can resolve the housing shortage issue, the interest rate can be higher, and we’ll continue to see an increase in property value. 

In fact, as interest rate drops which we predict will happen much faster than anyone expects, we’ll see an even higher home purchasing velocity.  

In fact with the drop in the 10-year treasure, we are already seeing a dramatically higher volume of mortgage applications.

So for us the Kitti Sisters, here’s where we see the real estate market in 2024 ⏬

NO. 1  Interest rates will drop and this will spur more transactions in both single-family as well as multifamily properties.

NO. 2  Multifamily properties that have performed despite the interest rate hike will be sought after and you should see their sell volume increase dramatically. 

NO. 3  We are entering a new real estate market cycle, 2023 is the bottom of this cycle and for the next 3 to 5 years you’ll see multifamily apartment owners reaping the benefit big time.

So, let’s combine all the ingredients and give you the bottom line for how you as real estate investors can benefit from this new real estate market reality.

Per Forbes:

So, by choice or not, real estate investors, especially us 🏢 multifamily apartment owners will continue to see strong demand for our apartments. 

Per the Globest article rental demands are heading up and up. 

“It continues to grow every day,” said Cushman & Wakefield’s Head of Multifamily Insights, Sam Tenenbaum, during a recent Cushman & Wakefield news video.

“It’s cheaper to rent,” Tenenbaum said. “And that doesn’t even count the other costs of buying a home such as taxes, insurance, and upkeep.”

“While the disconnect of the two won’t necessarily encourage homeowners to sell their homes and become renters, it does create sizable incentives for new homeowners to consider renting over buying,” he said.

Furthermore, this will support longer-term rental demand and will help apartment assets preserve more of their value even as we enter challenging economic times. 🤓🤓

These words are music to our ears.  🎵

You are probably now as excited as we are for this year’s real estate market.

Hop into this next episode so you can learn why debt isn’t such a scary thing after all.

By 2025, gross rental yields across most major Commercial Real Estate (CRE) sectors are anticipated to increase compared to 10-year Treasuries, yet they are still expected to fall short of the 20-year average.

The office sector stands out, as its projections for 2025 suggest it will surpass the 20-year average by that time.

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