NO MORE Recessions! The US Will Print, Pivot, Cut To Avoid

0:28Hello, everyone. We've got a lot to discuss today. Every single person seemed to think that we were headed towards a depression. They were saying that the stock market was going to crash, the shelves would be empty, and the world was going to end. But take a look around now. All of a sudden, stocks at all-time highs. Bitcoin near all-time highs. Gold near all-time highs. And the odds of a U.S. recession, they have fallen off a cliff. They now sit at 19 % according to prediction market cowsheet. That's the lowest level since the start of the year. So all of the craziness, all of the fear-mongering, all of the doomsday predictions, that all didn't matter.

1:01It was all noise. The signal was actually the fact that if you were an optimist, if you understood that the US economy is incredibly resilient and incredibly strong, and then also realized that the Federal Reserve, the Treasury, and the administration, whoever's in charge, they are never going to allow us to enter into a long-term bear market ever again during our lifetime. That's because we have now the monetary policy tools at our disposal. We can cut interest rates. We can print money. We can do all sorts of things that will actually stimulate the economy. We created the playbook in 2008. We perfected it in 2020.

1:37And if we enter into another market downturn, don't worry. They're going to go right into that toolbox and they're going to use whatever they need to, to get stocks back up and to get the economy cranking again. Yesterday, I sat down with Charles Payne, one of my favorite people in the entire world on his show, Making Money. And we talked about a new professional sport for Bitcoiners. why everyone wants to buy as much Bitcoin as possible, and what the heck is going on with OTC desks and exchanges seeing such lower levels of Bitcoin. Here's what I had to tell Charles. And the question is, right, there's not a lot of Bitcoin left.

2:12I mean, it sounds like the wild west right now. Where do you find this Bitcoin? Yeah, so we own now 4 ,950 Bitcoin. Our goal is to buy as much Bitcoin as we possibly can. I like to think of now there's a new professional sport for Bitcoiners, which is who can acquire the most Bitcoin. And as much as we want to buy as much Bitcoin as possible, there's a lot of other companies that want to do this as well. And so to your point, what you're starting to see is you are starting to see OTC desks or maybe Bitcoin on exchanges. Those numbers are going down. And so naturally, price will have to readjust upwards because people don't want to sell their Bitcoin at$107 ,000,$108 ,000.

2:47This has been the story of Bitcoin for 15 years now. As Bitcoin's price has got to go up to convince some people to sell to the new people who want to buy the Bitcoin. That's pretty much it. Not a lot of Bitcoin left. There's a lot of people who want to buy Bitcoin. There's only one thing that can clear that market, and that's the price going up. I don't know when it'll start, but I do know that the second half of this year is probably going to be pretty exciting for Bitcoiners. The Bitcoin invasion of Wall Street has just begun. We've seen the Bitcoin ETFs. They're the most successful ETF launched in history.

3:15The Bitcoin treasury companies, some of them have been the best performing stocks in recent years. And now we even see real estate funds. They're trying to marry Bitcoin with one of the largest asset classes in the world. And this is all happening at warp speed. But it's happening at warp speed because Wall Street doesn't feel like they're under attack. Instead, the traditional financial players, they're racing to embrace Bitcoin. They realize that this new asset brings them new clients, new assets under management, and also new revenue. The asset also comes with lots of volatility, which some people think is bad.

3:43But these firms think that that brings potential profits for those who can position themselves correctly. The legacy players, they aren't fighting off the attack. They're encouraging it. They've opened the doors to the largest pools of capital and Bitcoin is now being invited in. It's at home on Wall Street. This may not sit well with the hardcore Bitcoiners who were originally attracted to the asset because it was outside the system. But those libertarian ethos, they still exist to a degree. For example, nothing about Bitcoin's system has actually changed. But it is important that everyone participates in Bitcoin if you want true mass adoption, including Wall Street.

4:16As I continue to say, Bitcoin is the only asset that I'm aware of where it becomes less risky as it grows in size. There were a few sophisticated capital allocators who could actually gain exposure to Bitcoin when it was at$100 or$200 billion market cap. But now that the asset is measured in trillions of dollars, almost every single capital allocator on the planet can put the exposure on. And this is where the Wall Street invasion becomes important. Wall Street's exceptional at creating wrappers for different assets. The ETFs are a wrapper around spot Bitcoin. The Bitcoin treasury companies are wrappers around Bitcoin accumulation machines.

4:46The real estate funds are wrappers around tax-advantaged income-producing Bitcoin exposure, and there will be many more wrappers in the future. These wrappers will appeal to different investors for different purposes. Some want as much asymmetric upside exposure as possible. Others want downside protection. Some may want yield, while another group could be attracted to the long-term compounding of Bitcoin. Regardless of why an investor is drawn to Bitcoin, the increase in demand is impossible to ignore. I continue to personally believe that Bitcoin has become the new hurdle rate for the younger generation.

5:18These young people will ascend to positions of power and influence inside of most of the most important financial institutions over time. That means Bitcoin will eventually become the hurdle rate for the entire world. It's the young generation, eventually it's the whole world. And if Bitcoin is beta exposure, you won't be able to look in any corner of the financial system without seeing Bitcoin there. And again, the Bitcoin invasion has just begun. But this multi-decade trend will be much bigger and more important than majority of people realize today. Today, we've got a special treat, Lance Lampert, who is the founder and editor-in-chief of ResiClub.

5:52He is one of the best residential real estate reporters in the country. And in my opinion, he understands what's going on in the U.S. economy because what happens in the U.S. economy really shows up in the housing market. Here's my conversation with Lance Lampert. So Lance, maybe where we could start is the inventory levels seem to be rising. I see tons of people talking about this online. What exactly does that mean? And is that a good thing or a bad thing for people in the market? Yeah. So when assessing market momentum, my view and ResiClub's view has always been to closely monitor active listings for sale in months of supply.

6:27If active listings for sale start to rapidly increase and homes are staying on the market longer, it suggests pricing softness, pricing weakness. Conversely, if there's a rapid decline in active listings like we saw during the pandemic housing boom, it's just a market that's heating up. And since the national pandemic housing boom fizzled out in 2022 when mortgage rates shot up and some of that domestic migration boom kind of started to pull back, the national power dynamic on an aggregated basis has been shifting from sellers to buyers. Now, that doesn't mean that buyers everywhere in the country have a ton of power, but it does mean over the past few years they've gained some leverage.

7:13And across the country, that shift has varied significantly. You go into pockets of Connecticut, some of these areas in the Northeast, areas in Illinois, Wisconsin, some of the pockets of the Midwest. And those pockets have seen active inventory rise relative to where it was at the height of the pandemic housing boom. But it's still kind of tightish. It's still like in Ohio. There's 33 % less active inventory for sale today than in 2019. In New York, that's 42 % less. In Pennsylvania, it's 44 % less. Yeah, that's not as big of an inventory deficit as 2022 in the spring when those markets were down like 60%, right?

8:01But they still are tightish. Then if you go into some of the pockets of the Mountain West, some of the West Coast markets, some of these areas in the Sunbelt, in particular around the Gulf, Florida has 28 % more active inventory for sale today than the same month in 2019. Texas has 33 % more active inventory for sale than 2019. And it's not even, even though they're only 28, 33 % higher than 2019, we're in a much more affordability strained environment than we were in 2019. And so the fact that a place like Florida built up to 28 % more active inventory, given that just a few years ago, they were down really far below pre-pandemic levels.

8:47That shift that occurred, to be able to do that, there was so much demand destruction that occurred, and that supply-demand equilibrium has shifted enough in the direction of buyers that on the ground, in a lot of these markets in Florida, buyers have gained significant power. Now, single-family stayed a little bit tighter in some of the areas of Florida relative to condos where condos have really taken a really big hit because of the Surfside condominium collapse that then caused a regulation shift. And that has caused a lot of deferred maintenance to have to be addressed and a lot of the HOAs to go up and special assessments where some of these buildings, it's like a$100 ,000 special assessment that's hit the condominium market harder.

9:36And then also in areas of Florida, some of the areas up further in the state have stayed relatively a little bit more resilient-ish, whereas some of the markets in Southwest Florida, like Cape Coral and Puna Gorda, Sarasota, Northport, they've taken a much bigger hit and have seen prices even for single family come down much more. And so active of inventory. It's not just what it's not just supply. It's kind of this equilibrium between supply and demand. And it's kind of like a car dealership lot. If you're driving by that car dealership lot and you're seeing more and more cars start to build up, and it might not even be because that car dealership had a lot of deliveries.

10:20It's just that they're taking longer to sell. And so the lot's getting more packed. If you drive by that car dealership and there's very little there, you're probably going to be able to walk in and get very few deals, right? But if you go into that car dealership lot and it's jam-packed with cars and they're having a hard time selling, you're going to get some pretty interesting incentives, right? And maybe some bigger price cuts. It's the exact same thing with housing, with active inventory. It's that supply-demand equilibrium. And right now it's shifting directionally towards buyers. Now, speaking of these incentives, obviously builders in particular have all kinds of things.

10:59They're buying down mortgages and giving lots of other incentives. KB Homes, you were recently telling me that they had some maybe unique thoughts as to why the buyer should be aware of, yes, the incentives are attractive, but there could be some longer term negative impacts if you're not careful. Yeah. So right now, the amount of unsold, completed spec inventory in the U.S. is at the highest level since July 2009. And the reason being, and a lot of this is in some of these markets in Florida, some of these markets in Texas, Arizona, Colorado, where the market equilibrium's shifted a lot more towards buyers and they've slipped into outright home price corrections.

11:42And so in those markets, builders are doing a lot of bigger incentives to get this inventory sold on this uncompleted spec inventory. And so one builder in particular, Lenar, the second largest home builder in the country, they currently are spending 13.3 % of their average final sales price on incentives like mortgage rate buy downs. And so at the height of the pandemic housing boom, they were spending 1.5 % of sales price on incentives. And normal for them is 5 % to 6%. So 13.3 % is a lot on incentives. So on a$450 ,000 house, that's the equivalent of$60 ,000 in incentives. And so recently, the COO of KB Homes on an earnings report gave a little bit of a warning to homebuyers.

12:38And he had said that for buyers that are overpaying on price to get these bigger incentives right now. And so overpaying could mean that, you know, instead of taking a price cut or prices of the homes reflecting the actual comps, they're paying more because they're getting the big buy downs. Right. And so KB Home CEO warned that buyers overpaying for incentives risk putting themselves underwater when they try to sell that house in a couple of years. Now, if they're holding on long term, that might not be an issue. But KB Home CEO COO just warned, you know, buyer beware, because in some of these markets where they're doing these really big incentives, these buyers might not have bought the bottom of prices and they might be overpaying.

13:28And that does risk potentially putting them underwater if they have to sell in the short term. And so the big question here is, how long does this oversupply of spec homes last in some of these markets? Toll Brothers CEO, in a private meeting among 150 institutional players that I was at in New York City earlier last month in June, he had stated that there is this temporary oversupply of spec overhang in some of these markets. But he thinks that over time it will play itself out. And one of the reasons is, is that he thinks builders are going to be building less in these markets and they're already pulling back on their starts in these places.

14:16Now, you mentioned 2009 and people underwater on their homes, which I think one of the things I keep seeing online is everyone is predicting some huge housing crash, blah, blah, whatever. The percentage of people who are underwater in 2009 was very high. I don't think we're anywhere near those levels now, right? That's correct. So in September 2009, after you've seen the really big blow off in prices late 2007, all of 2008, and then into 2009, by September 2009, there were 23 % of outstanding U.S. homeowner mortgages that were underwater. So underwater means that your mortgage is more than the actual value of the home.

15:07And so one in four, one in four. Yes. And then another 20 something percent were borderline underwater. And then if you went to some of the markets around Las Vegas, around Phoenix and in Florida, it was 60 to 40 percent. that were already underwater and another big chunk that were borderline underwater. And so in today's housing market, despite the fact that around half of housing markets in the country right now have seen prices come down at least a little bit from the 2022 peak, only 1 % of outstanding homeowner mortgages today are underwater. And so 1 % today versus 23 % in 2009 underwater.

15:56Now, if you do go into some of the pockets, like let's take Cape Coral, Florida, that area does have around 7 % to 8 % underwater. And if you look at just their 23 or 24 vintages, so that means people who took out mortgages in those years, it's around 23 % in those markets. but you know other than a few markets like austin that's up to four percent or some of the pockets of florida nationally there's just not very many people underwater and in some markets it's almost zero and so the reason that not that many people are underwater is a few different reasons one while prices in some of these markets have fallen nationally aggregated prices are still pretty close to the peak, right?

16:45Still pretty close to all-time highs. And even the ones that have fallen, many of them haven't fallen that much, right? Because keep in mind, the typical person has like 11 % down payment. So they have a bit of an equity buffer when they come in, most people. Yes, there are some of the VA loans or USDA where people come in with 0 % down, but most people have some type of down payment. And then the other factor is the markets that have seen a greater give up in prices, like let's take Austin, Texas, where the typical home value in that metro area, according to the Zillow Home Value Index, is down 23 % from the May 2022 peak.

17:28Even in Austin, only 4 % of mortgages are underwater. And the reason being is that Austin area home prices went up like 70 % during the pandemic. And the last few months, they were still ripping. So coming down 23 % only took Austin back, let's say, 11 months of appreciation. And so in those 11 months, there was only a smaller group of vintage mortgages that were actually issued. So it wasn't that big of a group. Whereas if you go back to the 07 to 11 correction that happened for housing, we hit the peak around 2005 nationally, and we sat there most of 06 and then a part of 07 in some of these markets.

18:18And so during that period, there was a lot of existing home sales and a lot of people took out very low down payment mortgages at the peak. Whereas in this instance, so far, the places that have rolled over, they kind of penciled up and then kind of penciled down from their peak. And it was really fast and not as many mortgages were issued. And there is a third factor here. And that is that a lot of people during the pandemic got two and three percent mortgage rates. And so when you have a two-handle or a three-handle or even a four-handle, you are spending, you're paying down a greater proportion of principal right out of the gate, right?

19:00And so a lot of these people that have these low mortgage rates, they've been paying down principal faster than mortgages of the past history, right? And so that gives them a greater equity buffer. But as of today, 1 % of mortgages are underwater in the US. I do expect that to tick up over the next 12 to 18 months, in particular in some of these Sunbelt markets in Florida and Texas. Last thing I want to talk about is the big, beautiful bill. Looks like that is going to bring some relief for some people. There is this salt cap deduction, I believe is what it's called. I don't know anything about this.

19:41So can you help explain what exactly is the salt cap in this deduction and then who is going to benefit from this? Yeah. So back in before 2017, there was not a hard set dollar cap on the SALT deduction. And so the SALT deduction is state and local taxes that you can deduct. So this is for people who itemize. People who take the standard deduction, it doesn't really matter for them SALT. But if they itemize, they can deduct their state and local taxes. And so my understanding is people can either do state and local income taxes plus property taxes or sales taxes plus property taxes. But most people who take the SALT deduction, they're doing state and local taxes plus property taxes.

20:29And so the SALT deduction is now going from the$10 ,000 limit up to$40 ,000 for the next four years. Now, if there isn't another reconciliation bill done to address it after 2009, I believe around 2030, it would revert back to the$10 ,000 limit. And so for markets that have high property taxes and high state and local taxes, this is kind of a bigger deal, right, for some of these homeowners that are in these higher tax places. And so Resi Club, we did the research on this. We went around the country and got calculated the effective property tax rates. So we looked at home values and we looked at median property tax bills.

21:20And then we also looked at the highest state tax rate in every state. And so what we found essentially is that places like New York and New Jersey, a lot of those counties are going to benefit from this, this higher salt deduction going from$10 ,000 to$40 ,000. Some of the places in California could benefit some because their top marginal state income tax is 13%. But property taxes in California are kind of on the lower end. So that state of benefits some, but not as much as New York and New Jersey. And then if you take Texas, Texas does have very high property taxes, but Texas doesn't have state income taxes.

22:07So Texas doesn't necessarily benefit as much as you would think it would. And so the biggest beneficiaries here will be a big chunk of homeowners in Connecticut, New Jersey, and New York. And it makes sense. This was negotiated and pushed by some of the Republican congressional members in states like New York, New Jersey, where some of their constituents would benefit the most. Lance, it's always a pleasure to talk with you. Where can we send people to find you and then also a Resi Club? Maybe you can plug Resi Club Pro in terms of the great work that you guys are doing there. Yeah, so people can find us at resiclubanalytics.com or just Google Resi Club.

22:52We have a premium research subscription that we do where people get three additional research articles per week, plus access to a lot of our data and analysis. And you can also find me on Twitter at News Lambert. You continue to be data-driven, which I appreciate in an industry where it looks like if I go listen to other people, it's either everything is going to the sky or everything is going to be doomsday. Having the data-driven approach is always refreshing. So I appreciate it very much. Resiclubanalytics.com for anyone who wants to check out more of the work. And we will definitely do this again in the future.

23:26Chat soon. All right. I hope you guys enjoyed the show today. Lance is always a big fan favorite. He did not disappoint, as you can see. We will see you guys tomorrow, live from the desk of Anthony Pompliano.