The Housing Market Freezes as Americans Brace for War

0:05housing feels like a tug of war right now between supply and demand prices and payments optimism, and fear. Which side is winning can change quickly? That was happening already, and now we have a new conflict in the Middle East that could upset everything we thought we knew about the housing market. I'm Dave Meyer, joined today by Kathy Fecky and Henry Washington, and we're here to unpack what's driving the push and pull and what it means for your next move. This is On the Market. Let's get into it. Henry, Kathy, good to see you today. Kathy, how are you? I am so good. I am here in Vegas, baby.

0:44Can you tell by my background? I can, yes. It looks definitely like a Vegas hotel room. Can you remind everyone what you're doing there? Because it's very fun. Well, I am here for my daughter's trashy Vegas Elvis wedding at the, I think it's the White Chapel. Is that it? Because she's actually doing a fancy wedding, but it's going to be in France and you can't actually legally get married there. So the legal wedding, her fiance said, well, I'm going to be in charge of that one. And it is in Vegas. She gets to control the French fancy wedding and he gets Vegas. Sounds like a fair trade to me. Henry, how are you doing, man?

1:20Oh, I'm doing great, man. Good to be here. I'm glad to have you. Unfortunately, James can't be here today. But if you're watching on YouTube, you can see that my cat is filling in. He will not leave me alone right now. So we do have a lot of good stuff to talk about. We're going to go through three top headlines today. Let's get into our first one, which I am bringing, which comes from Redfin. The headline reads that house hunters stayed on the sidelines as rates dip below 6%. Iran war adds to market uncertainty. So I think we got to talk about this, right? I've been seeing a ton of stuff on social media about the Iran war.

1:58It seems to me half the people are saying, this means the housing market is going to crash. I've seen a couple of people say, this means that housing is going to go up. Kathy, what's your read on the situation? Oh, my read with my crystal ball is that my crystal ball is super foggy right now, and I don't know how to clean it. I don't know how to use it. The bottom line is we really have no idea. We don't know where this war is going. We don't know how long it's going to last. The concern is if it disrupts energy, oil prices could go up and then we would see inflation and that could affect the Fed and overnight lending, which then eventually sort of affects treasury bonds and mortgage rates.

2:39So bottom line, there's fear that if the war goes on and it affects oil, that we would see rates go up. And that would be tough on housing because prices just keep going up too. We had a moment, a blip where things got just a little bit more affordable when And prices were down and rates were down and now they might go up. So the answer is nobody knows. Henry, is your crystal ball any clearer? Absolutely not. It's completely fogged over, as is my brain from time to time. But I think the only thing that we can probably count on, and I probably with air quotes, is that the uncertainty is going to create at least a short term stall.

3:21People are just probably going to hang back for a minute to see what happens. And if they don't feel any major impacts, then I think business will continue as usual. And then if they do, then who knows what could happen. But I think in the short term, we're just going to feel a little bit of a lag. I agree. I feel like that is probably the only high probability thing is that we're going to see the market slow down even more, I think. And I don't mean in terms of prices. I just think in terms of transaction volume. We're already at one of the slowest housing markets we've seen in decades. You know, we were at pace for$3.9 million.

3:55And I think most people were predicting a little bit of improvement this year, but we might actually be going in the other direction with this kind of stuff. I just think people don't make decisions when they're uncertain. And I think everything Kathy said is absolutely true. You look at oil prices, they've gone up almost 50 % in the last couple of weeks. They went from like$65 a barrel to$90 a barrel. Some people think it's going to go up even higher. And although that's just one category, gasoline and energy is a big part of the basket when they calculate inflation. And so that could go up. So like this morning, I was preparing for the show, thinking about what I think about the war in Iran.

4:37I'm like, you know, inflation is going to go up. The Fed's not going to cut. And then a terrible jobs report came out this morning. And so this goes the opposite direction. You're like, all right, now maybe the Fed is going to cut. But my guess is pause. Like, I think the Fed is still going to pause and wait and see. And homeowners are going to wait and see, just like Henry said. Like, we just don't know. It's not a satisfying answer. But I'd rather be honest with the audience here and say that it's just more uncertainty than a lot of the people who are going out there making bold claims that they know what the war means for the housing market.

5:10I just want to say that these headlines are often not meant for certain investors. And what I mean by that is if you're in a short-term business when it comes to real estate, these short-term incidences affect you more. And when the headlines are talking about the housing market, they're really talking about home sales. Are home sales picking up? Are home sales slowing down? You were just saying it's under$4 million in sales every year. It was up to$6 million in 2022. So that's a dramatic difference for people in the real estate industry. It's very difficult. If you're a real estate agent, if you're a mortgage broker, you feel the effects.

5:47If you're a flipper, for sure. If you're like Dave and me, where we rent properties, and of course, Henry too, then you feel it less because is it affecting your tenant? Is somehow this affecting your tenant who is in a year-long lease? So when we see these headlines, it's very common to get fearful. but when you are a long-term buy and hold investor, you've got to really ask, how is this going to affect you? People still do prefer to live indoors, whether there's a war or not. Yeah, I totally agree. And what the headline here with Redfin showed that not only are buyers getting cautious, but sellers are getting cautious too.

6:24We actually see inventory across the whole country is down year over year. Like all these people say, oh, there's going to be a crash. Like actually it's going in the other direction. Inventory is going down. Prices are up 1 % over last year. And so it just has a total effect. I think to Kathy's point, like you also probably will see people moving less. People might not wanna change apartments. They might not wanna go out and buy a home. And so maybe that leads to stability. We just don't know. So I just wanna make sure people aren't overly fearful or overly excited about what's going on here because we kind of have to wait and see all these secondary effects to the economy.

7:05And that could take weeks or months to sort itself out before we really know if this is going to have an impact at all. I also think right, wrong or indifferent. A lot of Americans have, I don't know, let's call it shock fatigue. There's just a lot of shocking news that happens all the time. Me! And every time it happens, people scream about these crazy year percussions from it. And then the next week, either something else shocking comes out, or we just don't feel much of an impact from the last shocking thing. And I think people are just kind of getting tired, which I think will just play into life continuing on as normal.

7:38I think, and like I said, in the short term, I think we'll get a little bit of a stall. But as things progress, as long as they're not progressing in some crazy aggressive way, I just feel like Americans are just going to keep on trucking. Well, my recommendation just for everyone to when you see headlines like this is just to remember that the headline here is homebuyers are staying out of the market. That is true. But so are sellers. And like if you ever hear people talking about a housing market crash, what's going to happen to the market and they're only talking about buyers and they're not talking about what's happening with the other side of the market.

8:10They are probably either trying to deceive you or they have no idea what they're talking about. So just remember that there is two sides to the equation. And what we're seeing is both sides of the market pull back. And that means that prices can stay stable. The consequence is just that transaction volume is going to go down. This is not welcome news for real estate agents or loan officers or anyone who works in this industry. It's not good for the housing market. I'm not happy about this, but that is what is happening right now. That's the only thing that we have evidence of. Everything else is just speculation.

8:42All right. Glad that we talked about that because we needed to get that one out of the way. We're going to take a quick break, but when we come back, we're going to have two more headlines about AI and talking about regional housing markets and which ones are performing the best. We'll be right back. For decades, real estate has been a cornerstone of the world's largest portfolios, but it's also historically been sort of complex, time consuming and expensive. But imagine if real estate investing was suddenly easy. All the benefits of owning real, tangible assets without the complexity and expense.

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11:28welcome back to on the market i'm dave meyer here with henry washington and kathy fecky sharing the most recent headlines going on in the housing market and the economy before the break we talked about the war in iran and how it might spill over into the housing market but we just don't know now henry give us some concrete news about the housing market so the article is from the new york post and it's titled the top five states leading the two speed housing markets. And this analytics comes from Coality and it's revealing there are high cost coastal markets and Sunbelt regions that are undergoing what we would call price corrections.

12:05And there are Midwest and Northeastern markets that have shown to be very resilient and are moving in the opposite direction. So the data from Coality is saying that the Midwest market is seeing price growth of about 3.56 % year over year. And does anybody want to take a guess at the three states that have the highest price growth percentage. It's in the title of the link I sent you. Don't cheat. Okay. I think I can guess though. It's got to be Connecticut. It's got to be one of the top three. Is that in there? Connecticut is mentioned, but it's not in the top three. Massachusetts. No. Oh, dang.

12:39Wisconsin. Yes, Wisconsin. Wisconsin's number two. Jersey. Nope. Oh, Michigan. Michigan. Nope. Close. Illinois, Wisconsin, and Nebraska. Wow. We suck at this. You did. You did. But we talk about Chicago all the time. I know. I've been underwriting deals in Chicago for the last like two months and I just didn't even think about it. Illinois with price growth of 4.91%, almost 5 % price growth, Wisconsin at 4.78 and Nebraska at 4.75. If you compare that to the national housing market where price growth is slowed to just about 0.7, And that's pretty impressive for those markets, right? There's lots of opportunity in those markets.

13:19And on the flip side, which three or four markets are going in the opposite direction in terms of price growth? Austin. Yes. I mean, it's got to be Florida, Texas. Yep. Florida, number one. Texas, number four. Louisiana. Nope. Not Louisiana. Oh, God. Florida at minus 2.36%. Colorado at minus 1.3%. Utah coming in at minus 1.1 % and Texas at 1.09%. What they're saying is partly playing into this is the markets that are trending down are markets that people move to during COVID in droves. And now the markets that are heating up are the markets that people in the Midwest are moving to from these markets.

14:08So a lot of the Midwest markets are seeing lots of migration because the home pricing is much more affordable. Illinois' median home price is around$280 ,000, or in comparison to some of the coastal markets, the median home price is around$700 ,000. So people can work remotely, move to a more affordable place, afford much more home on the salaries that they have in higher price markets, and it's making a lot of sense for them to migrate. Also, what plays into this in the Midwest is there's lots of stable employment in the Midwest. A lot of employers are moving from these coastal markets into some of these more Midwestern and Northeastern places where it's much more affordable for them to operate.

14:48Plus there's issues that we've talked about in other episodes where they're having to pay higher taxes and it's more costly for these companies in some of these coastal markets. So they're relocating. So employment is stable and also inventory is still relatively low in these Midwest markets. So it creates a lot of demand. Crazy low. Crazy low. So I just thought this was an interesting perspective because we definitely are seeing two different types of market trends in two different parts of the country. But us as investors, we thrive on being able to identify opportunities and then capitalize on those opportunities.

15:21And so if you are investing or want to invest in the Midwest, this is a time when you should be evaluating some of these markets. It's got great market dynamics because typically what was hurting the Midwest was population growth and employment opportunities because there weren't a lot of employers that wanted to be located there. But that is all starting to shift. And now you're starting to see some of these great market dynamics and some of these lesser known markets. And it's creating great opportunities in the housing market. 100%. This is so cyclical. People want to live in the sexy markets.

15:52They want to be there. Businesses want to be there in the sand states. So when that happens, and it certainly happened in COVID, it happened in 2006, right before that big boom or during that boom. And then as prices rise, because all of that attention and all the prices started to rise, then builders go, oh, that's where I want to build. And they bring in too much supply because they think they're going to just ride that wave forever. And then it gets too out of reach, unaffordable, something shifts. And then those affordable markets become real sexy. It's like, okay, I don't need sunshine and beaches.

16:26I need to just be able to afford to feed my family. And because the builders didn't find it sexy, there wasn't the kind of demand over the boom years. They didn't go build there. So there is the lack of supply, oversupply in the hot markets where prices went up too much, undersupply in the solid markets, and it's just reversing. Now, as wages go up and as prices go down in the sexy markets, it's all going to come around again. But right now, we're in the cycle where the linear markets are the sexy ones. We've been saying it for years. The affordability drives the housing market. So much of it.

17:00You know, there are outliers, San Francisco, New York, Boston. Like there are definitely outliers to that. But a lot of what happens is the places where people can buy, they keep buying and that puts prices up. Right. Like I actually saw this for years. We had no affordability across the country. Right now, 15 markets have like actually got back to their historical levels of affordability, which is awesome. Not just better, historical levels. And guess where they are? It's Chicago. It's Cleveland. It's places across the Midwest. And businesses notice affordability, too. It is not just people. Like, businesses go where commercial real estate is cheaper or where salaries, they're not going to have to pay as high salaries as if you're in San Francisco.

17:43You know, people can still live on a lower salary, probably at a higher quality of life in the Midwest than a lot of these other markets. And if you look at inventory numbers, it's honestly crazy. Google just like inventory compared to 2019. In these markets in the Midwest, they're like 50, 60, 70 % below 2019 levels. And in the Sunbelt, they're like 100 % above 2019 levels. It's just like totally different places. Now, there's different demand dynamics in those places, but I think it's going to continue. But we'll also say that I expect appreciation rates in most places to come down a little bit this year.

18:22Like even if even the hottest markets are probably going to slow down a little bit. And that's OK. Like these numbers you threw out, Henry, that are the highest are still above the pace of inflation. They're a little bit above normal. And if they come down to the two, three, four percent, that's a normal appreciation rate. And that's fine. So like I think that as an investor is good enough for me. And so I still think these markets are going to perform pretty well. And as Kathy said, they're probably not going to boom when the economy changes or the housing market changes, but they'll probably still keep going up 2%, 3%, 4%.

18:55And personally, I like those kind of markets. I just like the predictability. Yeah. A lot of investors have been high on the Midwest for a long time because of these factors that we're talking about. But the Northeast is really what kind of caught people off guard with how well the Northeast is doing. And I do want to give Dave, I'll give Dave his concession prize because you did mention New Jersey and Connecticut on your list and they weren't in the top four, but they are the next two because they are both hovering right around 5 % in there both in this article. Dave, you just got your credibility back.

19:25Thank you. It's relative affordability though. Even though they're expensive, they're cheaper than Boston and New York City. And so people live, if they want to live in the Northeast or in New England, people move to Connecticut because it's cheaper than Boston, it's cheaper than New York. So that's why those markets are doing well. So it's just relative affordability. Even if you are sitting there in the Midwest saying New Jersey's not affordable or Connecticut's not affordable, That's true for compared to the Midwest, but compared to New York or Boston, it is affordable. So that's what's driving those markets.

19:58All right. Great story. And again, just a reason to pay attention to the show and to look at your own market dynamics continuously because they are super different right now and they're changing quickly. I'll say like, I personally think markets that were down last year, like San Francisco, probably going to start growing again this year. Like things are changing rapidly in a lot of these markets. So just keep a close eye on those things. We got to take one more quick break, but we'll be back with Kathy's headline right after this. For decades, real estate has been a cornerstone of the world's largest portfolios, but it's also historically been sort of complex, time-consuming, and expensive.

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