In short
Jay Scott and host Dave Meyer discuss how post-2008 changes (Fed policy, debt/“money printing,” tariffs, inflation, and labor-market shifts) could drive a bifurcated economy and affect housing and investing strategy. They argue the economy is uncertain but cyclical, with jobs/unemployment as the likely recession catalyst, and that single-family real estate is relatively insulated except in major 1930s/2008-style downturns. They recommend conservative underwriting (stress-test rents, vacancy, and mortgage rates).
Guest backgrounds
Jay Scott is an economy and data-focused analyst and recurring guest on “On The Market.”
Key claims
Debt has surged (about $19T of ~$37–38T in last 5–6 years). Top 20% wage earners drive demand; bottom 80% buy necessities only. Business debt refinances from ~2–3% (COVID era) to ~7–8%, pressuring layoffs. Tariffs are rolling out slowly; inflation may tick up (e.g., ~2.4% to ~2.9% CPI) as inventory clears. Rates are driven by bond-market inflation expectations, not just the Fed.
Notable examples
Corporate bankruptcies in first 8 months of 2025 exceed any year since 2010; layoffs in tech, transportation/freight/warehousing after tariffs, and agriculture after immigration changes.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOUnderstanding the Economic Landscape
1:01 to 3:18
Discussion on the complexities of the current economy and historical data challenges.
“Jay, Scott, welcome back to On The Market.”
Political and Economic Uncertainty
3:18 to 4:21
Exploration of how political factors influence economic predictions and uncertainty.
“What are the things that we should all be keeping an eye on over the next few months so that we can continuously updating our strategy, adjusting portfolio, adjusting resource allocations appropriately?”
Interest Rates and Debt Impact
4:21 to 6:39
Examining how interest rate policies and debt accumulation affect the economy.
“When you're talking about the way that the economy and the housing market have changed since 2008, is that mostly talking about interest rate policy or what else are you getting at there?”
Bifurcated Economy and Disparities
6:39 to 9:47
Analysis of the economic divide and its implications for spending behavior.
“I'm glad you brought up the concept of debt because this, to me, has probably the biggest implications for the long-term trajectory of the housing market and just commercial real estate too.”
Debt Cycles and Economic Predictions
9:47 to 11:11
Discussion on how debt cycles lead to economic downturns and potential recessions.
“Well, remember, the economy works in cycles.”
Debt Cycles and Economic Predictions
11:48 to 12:24
Discussion on how debt cycles lead to economic downturns and potential recessions.
“All right, we've got to take a quick break, but more with Jay Scott right after this.”
Debt Cycles and Economic Predictions
12:28 to 13:00
Discussion on how debt cycles lead to economic downturns and potential recessions.
“What's the smartest move an investor can make right now?”
Understanding Economic Cycles
14:00 to 14:58
Learn about the cyclical nature of the economy and potential catalysts for recession.
“People are always, you know, get up in arms, whoever's in power at that point.”
Impact of Business Debt on Economy
14:58 to 16:46
Explore how business debt is affecting financial stability and employment.
“I think it's going to be the employment sector.”
Labor Market Trends and Revisions
16:46 to 19:36
Discuss the implications of labor market data revisions on economic forecasts.
“Do you see the labor market data that we've been seeing recently as evidence of that?”
Show all 22 chapters
Federal Reserve's Rate Decisions
19:36 to 21:44
Analyze the Fed's interest rate decisions in the context of inflation and employment.
“It's just a question of, again, can the government spend their way out of it?”
AI's Role in the Labor Market
21:44 to 24:00
Consider how AI is changing employment dynamics and businesses' hiring practices.
“little bit more faith that the Fed isn't just trying to push back against the administration, that they are willing to cut when the data indicates that they should.”
Inflation Trends and Economic Impacts
24:00 to 28:00
Examine current inflation trends and their implications for businesses and consumers.
“And another thing that the Fed, I think, is going to have to think about.”
Inflation Impact on Consumers and Businesses
28:00 to 30:09
Explore how inflation affects consumers differently than businesses and the implications for corporate profits.
“that businesses and consumers in the US are eating about 80 % of it.”
Inflation Impact on Consumers and Businesses
30:16 to 31:24
Explore how inflation affects consumers differently than businesses and the implications for corporate profits.
“If I had to hire someone to join the BiggerPockets team, I wouldn't just be looking for someone who checks a few boxes on a resume.”
Inflation Impact on Consumers and Businesses
31:32 to 32:33
Explore how inflation affects consumers differently than businesses and the implications for corporate profits.
“And this is a job for Indeed sponsored jobs.”
Economic Predictions and Real Estate Insights
33:17 to 42:00
Jay Scott discusses potential economic scenarios and their implications for real estate investing.
“Well, you've painted a very intriguing picture of the economy here, Jay.”
Understanding Current Market Conditions
42:00 to 44:25
Learn about the shift in real estate market dynamics and expectations.
“It's hard to generate cash flow and it just feels very different than it has for the last decade or so.”
The Impact of National Debt and Inflation on Interest Rates
44:25 to 46:31
Discover how national debt and inflation influence long-term interest rates.
“The one thing that keeps me up at night, Jay, I will just be honest, is long-term interest rates.”
Concerns Over Future Economic Shifts
46:31 to 48:55
Explore contrasting fears regarding interest rates and deflation due to AI.
“And that is going to end up being in a snowball type cycle that's really going to bankrupt this country.”
Investment Strategies in Uncertain Times
48:55 to 50:09
Learn how to navigate investments and the importance of action in real estate.
“And so for me, my biggest concern over 10 or 20 years is just the opposite of yours.”
Investment Strategies in Uncertain Times
50:16 to 50:40
Learn how to navigate investments and the importance of action in real estate.
“Over 4 million businesses have skipped the line with Stamps.com.”
Transcript
Automatic transcript. May contain errors.0:00J Scott:These days, with so much going on in the headlines and in the news, it is hard to keep track of what is going on. And that's even for someone like me who spends all day obsessively updating the news and tracking these things. And sometimes I just need someone else who loves the economy and looking at data as much to bounce some things off of and to learn from myself. And today we are bringing on the one and only Jay Scott to help us unpack what is going on with the economy, the housing market, and most importantly, what we're all supposed to do with our investing portfolios based on all of the information we're receiving each and every day.
0:41J Scott:In this episode, we're going to cover inflation, we'll cover tariffs, we'll cover the Federal Reserve, and we'll cover how the residential and the commercial real estate markets may react to everything going on right now. If you are nervous, if you are wondering what to do next, this is an episode you're definitely going to want to listen to. Let's bring on Jay.
1:07J Scott:Jay, Scott, welcome back to On The Market. Thanks for coming back once more. Hey, appreciate you having me. How are you doing, Dave? Honestly, confused about the economy. Just trying to figure out what's going on around here. So I'm happy you're here.
1:21Dave Meyer:I'm not sure I can help, but I'll do my best.
1:23J Scott:It at least helps to have someone to bounce some ideas off of, you know, to have a conversation about, because the reality is, as Jay said, no one really knows, but it is helpful to talk to someone else who I think follows this stuff as obsessively, if not more obsessively than I do.
1:40Dave Meyer:And I think it's not just that nobody knows. I mean, I think it's safe to say, like, no matter when we're having this discussion, whether it's now a year ago, five years ago, 20 years ago, nobody really knows for certain. But there's just so much that's happened over the last, we can say the last couple years, but the reality is since 2008, that has kind of caused the economy to work in ways that aren't necessarily historically accurate. The government has done a lot. The Federal Reserve has done a lot. Private industry has done a lot that has basically foundationally changed the way the economy works in some ways.
2:17Dave Meyer:I mean, in a lot of ways, the economy is the economy. But there are just things that have happened over the last 20 years, and especially the last five or six since COVID, that have changed the way we can expect the economy to react. And because we don't have any more than four or five years of data on this kind of new normal, it's hard to say what's going to happen because we don't have much precedent. Yeah.
2:42J Scott:As an analyst, it's frustrating because our whole job is to look at historical data. And of course, no two periods are the same. But you look at history to try and give you some idea of the direction that things are heading or say, when conditions are like this in the past, it's kind of gone this way. But we really haven't seen a scenario like the one we're in today. And so it really raises a lot of questions. And the best that we could do on this show is, I think, help people understand what are the main variables that are going to sort of dictate what happens next. What are the things that we should all be keeping an eye on over the next few months so that we can continuously updating our strategy, adjusting portfolio, adjusting resource allocations appropriately?
3:31J Scott:Because we all kind of just have to follow this in real time. I don't really know a better way to do it. Do you?
3:37Dave Meyer:No, I don't. And again, not only has the economy and kind of the inputs changed over the last bunch of years, but without getting political, I think it's safe to say, and I think everybody would agree, that we're kind of in uncharted territory in terms of what's going on politically, both domestically and on a global stage. So lots of moving parts when it comes to things like tariffs, things like immigration, things like spending and tax bills. And we're not really sure what a month or two or six from now is going to look like. And so it's pretty hard to predict where the economy is heading when we don't know where kind of the political and budgetary powers that be are headed.
4:20J Scott:So maybe let's just do a brief recap here, Jay. When you're talking about the way that the economy and the housing market have changed since 2008, is that mostly talking about interest rate policy or what else are you getting at there?
4:36Dave Meyer:Yeah, a couple of things. So interest rate policy is certainly one of them. Historically, we've had higher interest rates. And people, they were just used to the fact that interest rates were 6%, 7%, 8%, 9 % historically speaking on a typical year. and prices for everything from cars to houses to everything in between just kind of normalized around those higher interest rates. Today, obviously, interest rates are lower ever since 2008. When we faced the Great Recession, interest rates dropped to zero. They went up a little bit and then COVID came and they went back to zero. Then they went up a good bit, what we consider to be a huge jump, the fastest jump in history from 0 % to about 5.5%, 5.25 % federal funds.
5:22Dave Meyer:rate. But the reality is, as crazy as it seemed to raise rates 5 % over about 18 months, the reality is rates were still lower than the historic average. And so the American public consumers have not quite adjusted to this new normal of, hey, rates are going to be a little bit higher than they've been for the last 20 years. But again, they're still lower than they have been historically. Then there's all the money printing. I mean, we all know that since 2008, the government's just been a runaway train when it comes to printing debt. Over the last six years alone, and again, not political, this crosses the current administration, the last administration, the end of the first Trump administration, we've printed half the debt that we currently have in this country.
6:09Dave Meyer:So 250 years of this country in half the debt that we have, about 19 trillion out of 37, 38 trillion has come in the last five or six years, which is just absolutely astounding. What's more astounding is that it doesn't look like either party has the will to kind of do what's necessary to change that. And we're likely to be running huge deficits, which means we're likely to be increasing the debt and the money supply considerably more over the next several years. And with more money flowing through the system with higher debt, we have a whole bunch of different considerations when it comes to how the economy works, how the Fed handles rates, and how we deal with things like inflation than we did before all of this crazy money printing.
6:55J Scott:Totally. Yeah. I'm glad you brought up the concept of debt because this, to me, has probably the biggest implications for the long-term trajectory of the housing market and just commercial real estate too. Just like generally the real estate market and in a way And that I don't think a lot of people are thinking about. I don't know about you, but everyone I talk to is like very focused on mortgage rates in the next year or two. And I don't know where mortgage rates are going in the next two years. I have my idea. But I personally have a lot of fear about long-term interest rates, which I think brings up a lot of questions and is like pretty critical to figuring out your strategy for how you're going to invest right now.
7:33J Scott:So given all of that, how would you summarize sort of like the state of the economy where it stands today? You know, some people say we're on the precipice of a recession. Some people say we're about to see explosive growth. Where do you fall on that spectrum?
7:50Dave Meyer:Yeah. I mean, the funny thing is if we had this conversation a year ago, I think we did have this conversation a year ago. Yeah, we probably did. Some people were saying we were on the verge of recession and some people were saying we're on the verge of explosive growth. They would have said that two years ago. They would have said that four or five years ago. And the crazy thing is both sides have been right every time because what we really have these days is kind of a bifurcated economy. That's right. We see certain people, the top 5%, 10%, even 20 % of Americans in terms of wealth and socioeconomic status who are actually faring very, very well because a lot of their assets are in hard assets.
8:32Dave Meyer:They're in the stock market. They're in crypto. They're in gold. They own real estate. And hard assets have been going crazy the last few years. And so the folks that have invested in hard assets have made a lot of money over the last few years. The other 80%, 90 % of people who don't have much money in hard assets, they might have a retirement plan or a 401k. But other than that, they don't own stocks. They don't own real estate. They don't own gold or crypto. They're living paycheck to paycheck because for the most part, inflation has outpaced wage growth. And so they have not seen wages on an inflation adjusted basis go up for the last five or six years.
9:08Dave Meyer:And so they're struggling. And there's been a lot of data that's come out over the last few months that basically says the entire economy right now is being driven by the top 20 % of wage earners. The bottom 80 % are basically only buying the things they absolutely need to buy to continue to live. They're buying clothes, they're buying food, they're paying their rent, but not much more, very little discretionary spending. And so as the top 20 % rack up more debt and start to slow down, that's going to have a tremendous impact on the economy. It's really scary that 20 % of the Americans right now are controlling the economy for the most part.
9:46J Scott:So you said when they slow down, do you think that's imminent that there's going to be a slow down in spending among the top 20 %?
9:53Dave Meyer:Well, remember, the economy works in cycles. We have expansions, we have recessions, and those cycles are driven by debt. As consumers and businesses build up more debt, we basically start to see more inflation because everybody's spending more money. And we get to kind of this peak where it's not sustainable. All this debt, people can't pay it, businesses can't pay it. There's more debt than there is the ability to pay that debt. And that's when we start to see defaults. We start to see businesses go into bankruptcy. We start to see houses go into foreclosure. We see cars get repossessed. We see credit cards defaulted on.
10:28Dave Meyer:And that's what leads us kind of down into the recession, this deleveraging, this shedding of debt. And so at some point, I know we've put it off now for 17 years since the Great Recession. But at some point, all of this debt is going to get to some critical point where it simply can't be serviced any longer by consumers and businesses. And we're going to start to see massive defaults. We're going to start to see bankruptcies. We're going to start to see foreclosures. We've actually already started to see it to some degree. If you look at the data for the first eight months of 2025, we've had more corporate bankruptcies in the first eight months of this year than in any year since 2010.
11:08J Scott:Really?
11:09Dave Meyer:I didn't realize that. And so businesses are already starting to struggle and consumers are already starting to struggle. So I suspect that it's going to happen at some point soon. But here's the crazy thing. I mean, if you've been paying attention since 2008, you know that the government doesn't like recession. They don't like foreclosures and bankruptcies and credit card defaults. And they'll spend as much money as it takes to try and keep us out of a recession. And so I suspect as we get closer and closer, the government's going to do what they've done the last two or three times that this has happened, and they're just going to start spending a ridiculous amount of money.
11:47Dave Meyer:And the question is, will that work and for how long?
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13:53J Scott:Welcome back to On the Market. I'm Dave Meyer here with Jay Scott. Let's jump back in. I know whenever you talk about a recession these days, it becomes political. People are always, you know, get up in arms, whoever's in power at that point. But as you said, like so much of it is just cyclical. Like these are long term things that have been going on and sort of transcend individual presidencies or political power. And there's just an inevitable point where things need to reset, at least in the current iteration of our economy. This is just sort of how it works. But like you said, whoever is in power at that point obviously doesn't want that to happen.
14:34J Scott:And so they're going to try and figure that out. I guess my question is, like, what is the catalyst? because it's, you know, people have been saying there's going to be a recession for years, but like, what is the tipping point? Is it consumer spending goes down? Is it unemployment rate goes up? Like, do you have any sense of like, what can actually go from this feeling like it's going to happen at some point to actually manifesting?
14:57Dave Meyer:Yeah, I think it's going to be jobs. I think it's going to be the employment sector. Consumers are still spending. That's the crazy thing. Oh, yeah. Despite all of these hardships that a lot of people around us are experiencing and that we're hearing about and that the data is indicating is out there, despite all of that, consumer spending has been tremendously resilient. Americans are still spending a lot of money. And as long as they continue to spend money, I think we can kind of buoy the economy to a degree. But at some point, businesses are going to run into issues. So one thing to keep in mind is that just like Americans live off of debt, businesses, for the most part, live off of debt as well.
15:38Dave Meyer:And a lot of business debt is short term, three to five years. And during COVID, a lot of businesses took out debt at very, very low rates. I remember federal funds rate was at zero. So businesses were taking out loans at 2%, 3 % interest. A lot of those loans are coming due. They've been pushed out as far as they can. and businesses now need to refinance that debt. And they now need to refinance that debt at rates that are closer to 7 % or 8%. Big difference between 2 % and 3%, 7 % and 8 % in terms of interest payments. Even large companies, companies like Walmart, companies like Target, they generate a lot of their debt through issuing bonds.
16:18Dave Meyer:And they were able to issue bonds at 3%, 4%, 5 % a few years ago. Well, now they need to issue those same bonds at 7, 8, 9%. And again, paying 9 % versus 5 % is going to impact the profitability of those businesses. And at the end of the day, businesses are going to have to run leaner, which means they're going to have to start laying people off. And as I think we see unemployment rise, that's going to be the catalyst that kind of pushes the economy down once and for all into the next recession.
16:47J Scott:Do you see the labor market data that we've been seeing recently as evidence of that? Because I've done a couple of shows on this recently. There is no perfect way to measure the labor market. I agree with that. But in my opinion, when you look at the total universe of labor market data that we have access to, it all shows like a weakening labor market in my opinion. And so do you see that as evidence of this move towards a new phase of the cycle starting?
17:18Dave Meyer:I think the labor market data is very well aligned with what I think a lot of us are seeing with our own eyes. Let me start with the labor market, the way the Bureau of Labor Statistics collects labor data is outdated. It's not a very good mechanism. we've seen the issues with revisions, like really big revisions. Last year, we saw 900 ,000 job revision downwards. This year, we saw 800 ,000 job revisions downward. We've seen big monthly revisions downward. A lot of people think that that's evidence of manipulation or fake data. I personally don't believe that. We tend to see certain types of revisions during certain periods of the economic cycle.
18:03Dave Meyer:So typically as the economy is softening, we tend to see revisions downward because revisions are basically data that's coming in later. And if the economy is softening, then the data that comes in later is data that's coming in further down the softening pipeline. And so it's not surprising that we're seeing downward revisions. So do I trust the data? I trust that the data is as good as they can make it. I trust that the data is not being faked or manipulated. But I don't necessarily think that it's accurate without future revisions. That said, there's clearly a softening trend. We're clearly seeing unemployment rise.
18:42Dave Meyer:We're clearly seeing layoffs increase. And that comports with the headlines. We're seeing a lot of layoffs in the tech space. We're seeing a lot of layoffs in the transportation space. So ever since tariffs, we've seen a big downsizing in freight and transportation and warehousing. We've seen a lot of layoffs in the agriculture industry just with immigration. And we could have a whole separate debate on whether illegal immigration is good for the labor market or bad for the labor market, good for the economy, bad for the economy. But the reality is that we've seen a lot of people who were employed, whether legal or illegal, in the agriculture industry that are no longer employed in that industry.
19:23Dave Meyer:And so with all of these layoffs, with the changing landscape with respect to immigration and tariffs, there's no way around the fact that we're going to see a softening labor market over the next six to 12 months. It's just a question of, again, can the government spend their way out of it?
19:41J Scott:Yeah. So does that mean that you think the Fed is already too late on lowering rates to impact the labor market? I mean, I know there's the whole inflation side of this that they have to balance. But do you think, you know, Fed just cut rates 25 basis points, they are projecting another two? Is that enough to offset the declining trends in the labor market?
Read the full transcript
20:05Dave Meyer:So if the, you mentioned inflation, if labor market were the only consideration, the Fed is way behind. I do think we're behind the curve on cutting rates to deal with the economic softening. That said, the reason the Fed has been hesitant to cut rates and they haven't cut rates more steeply than they have is because there's the other side of the coin, which is inflation. And it's the Fed's job not just to control the economy from an employment standpoint, but to control the economy from a pricing and inflation standpoint. And typically when you cut rates, that leads to more inflation. We've already seen inflation tick up over the last four months.
20:41Dave Meyer:And the Fed, I think, is very concerned that any rate cuts could lead to a larger spike in inflation. And so they need to kind of play both sides right now. In a perfect world, they could cut rates just to help the labor market and raise rates just to push down inflation. But you can't do both of those at the same time. And so I think the Fed has more been in a wait and see mode as opposed to being behind the curve. They want to see what's the bigger risk to our economy right now. Is it inflation or is it jobs? And once they see what that bigger risk is, they'll do with rates whatever it takes to address that particular risk.
21:19J Scott:Yeah, I agree with you. I don't think a 25 basis point cut is going to do anything for the labor market, to be perfectly honest.
21:26Dave Meyer:I personally think that was political. I think that was to appease the president. I think that was to appease corporations that have been demanding a cut. Do I think it's a bad thing? I don't think it's a bad thing. I think a 25 basis point cut, it wasn't going to impact things one way or the other tremendously. And I think it gives people a little bit more faith that the Fed isn't just trying to push back against the administration, that they are willing to cut when the data indicates that they should. And we have seen some softening in the labor market over the last couple months. And so I don't think it was a bad time to cut, but I also think not cutting a couple of weeks ago would have been just as reasonable.
22:08J Scott:Yeah, I guess my feeling is like I don't think a 25 basis point cut is going to change behavior very much either for businesses like they're not going to all of a sudden start hiring way more. And I also don't really think 25 basis point is necessarily going to impact inflation, especially when there's like all these other inflationary pressures that we need to be thinking about. Like this is probably not the biggest risk. Now, if we cut it another, you know, 75, like that could change things a little bit. So we'll have to wait and see. To your point, we have two things going on with the labor market.
22:44J Scott:One is it's just that part of the cycle. Like this is just how this works. The other thing that we haven't even talked about that I think is going to complicate this. Another thing that falls under the bucket of like, we just don't know is like how AI is impacting the labor market too. And I don't know if I've seen to the point where people are like, okay, we're going to fire all these people and then just use robots. But I do think if someone leaves a company these days, people are saying, do we need to replace them? Or can we empower existing employees with AI to augment their skill sets and maybe we don't hire as many people?
23:24J Scott:And I just think that question is probably not getting resolved very soon. And I think we're going to see that ripple through the labor market, because my guess is that at this point in the cycle, businesses are going to err on the side of trying to automate things, even if they don't have a good reason to do it. Even if they don't know if it's going to work, I think they're going to overcorrect on automation and be slow to hire right now, just because they think AI can do everything. And maybe one day it can. Right now, it certainly can't. And so I think that's just like another thing that we're contending with.
24:00J Scott:And another thing that the Fed, I think, is going to have to think about. So, Jay, like we talked about the labor market in isolation, which obviously doesn't make sense because we need to talk about inflation, too. You know, we've talked a little bit about the potential for rate cuts contributing to that. But study after study, basically what I'm seeing is that economists are generally surprised that inflation hasn't gone up more just yet because of the tariffs, but that it's still coming and that it's trickling through the economy a little bit slower, partially because of the way the sort of like the gradual rollout nature of the tariffs and how that sort of like they were implemented over the course of four months.
24:42J Scott:and because there was just like this flurry of trade before tariffs went into place, and sort of we have this backlog of goods at lower prices that are still working its way through the economy. Do you buy that read on inflation, and do you think we're going to see it continue to tick up? And just for everyone's reference, it's gone up a little bit over the last couple of months. I think we've gone from about 2.6 to 2.9, but that reverses a trend that had been in place for a couple years of gradual declines. now are gradually climbing.
25:12Dave Meyer:Yeah. And the tick-up's been a little bit more than that. I think it's 2.4 to 2.9. Okay. Thanks. But I mean, depending on, you can read that a couple ways. It's a 25 % increase, 2.4 to 2.9. But 2.9, relative to where it was a couple years ago when we were over 9%, is actually not too bad. And here's the other thing. The Fed targets a 2 % inflation rate, Realistically, historically speaking, over the last 100 or so years, inflation in the U.S. has been closer to 3.1%. So my barometer is if we're in the 3 % range, it's actually not too bad. Okay.
25:48J Scott:That's a good way to look at it.
25:50Dave Meyer:But just like the labor market trend has been in a certain direction, it's been down, the inflation trend has been in a certain direction. That's been up. And I think I'm not overly concerned with that 2.9 % CPI inflation number. I am more concerned that it's going up month after month, four out of the last six months, and it's heading in the wrong direction. Like you said, there are a couple of things at play. One is that tariffs were actually rolled out a lot more slowly than it may have seemed. There's so much news flying around on a daily basis that it's often easy to overlook the fact that we did have a 90-day pause in tariffs, and we basically just restarted them a month or two ago.
26:29Dave Meyer:The other point that you brought up was that we warehoused a lot of inventory earlier in the year when there was the expectation for tariffs. And so these companies had a ridiculous amount of inventory sitting on shelves that they were able to purchase at lower prices six, eight months ago that they're just finally working through now. And then there's a third thing that we have to consider, and that's that not all price increases are going to be passed along to the consumer. So generally, there are three places that price increases can be absorbed. Number one, the manufacturer. So if we're buying stuff from overseas, if we're buying a widget from China that last year cost$1 and now costs$1.50 because of tariffs, the manufacturer might say, well, I'm going to eat 20 % of that.
27:15Dave Meyer:And so I'll sell you that$1.50 widget for$1.20. So now the manufacturer is losing$0.30. cents. Then it comes over to the US and the retailer here in the US who would be selling it instead of for$1, now$1.20. Well, they say, well, I'm going to eat 10 % of that cost. So now they're taking another 12 cents off of that. And then the consumer is eating the last eight cents. And so basically tariffs are being absorbed in three places in the economy. And it's unclear at this point, the breakdown of how much is being absorbed by the manufacturer overseas, the domestic wholesaler, and how much is being eaten by the consumer in terms of actual end product inflation.
27:58Dave Meyer:And so if you look at some studies that Goldman Sachs has done, they say that businesses and consumers in the US are eating about 80 % of it. Foreign manufacturers are eating about 20 % of it. The administration is saying that's not true. The foreign manufacturers are eating more of it. We don't really know. But the reality is that businesses and consumers are eating some of it, but it's not all being passed on to consumers. And so when we say that we're not seeing that much inflation, I think what we're saying is that consumers aren't necessarily seeing that much inflation, but there are other places in the supply chain where other businesses are getting hurt.
28:35Dave Meyer:And we have to consider that as well.
28:37J Scott:And do you think that will maybe then leak into corporate profits essentially?
28:41Dave Meyer:Yeah. And I think that that's where we're going to get a much truer picture as we move into Q3 earnings reports next month and then Q4 earnings reports at the beginning of next year. We're going to see the real impact of tariffs, not just on consumers, but on American businesses as well. And that'll give us a much bigger picture of how much prices have gone up and how much is being eaten by businesses before they pass it on to consumers.
29:06J Scott:One thing I keep thinking about is, if you're a business, you're an importer, your immediate thought is, I'm going to pass this on to my consumer. But as you said, 80 % of US consumers are struggling. So like they can't absorb it. So maybe the businesses just do have to absorb it, at least for certain products and services. It's just something we're going to have to see. We'll be right back. But when we return more insights from Jay Scott and what he recommends investors do in the market heading into 2026. Tax season reminder for all the real estate investors listening. If you own rental properties, short-term rentals, commercial buildings, basically anything that's not your primary residence, you need to know about cost segregation.
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33:17J Scott:Thanks for sticking with us. We're back with Jay Scott. Well, you've painted a very intriguing picture of the economy here, Jay. Very accurate look at what's going on. What do you do about this? This is like such a confusing thing as an investor, not just a real estate investor, like big picture resource allocation, risk mitigation, opportunity pursuing, like what are you doing?
33:42Dave Meyer:Yeah. So a couple of things to keep in mind, and we talk about this every time I'm on, but it's worth it to reiterate. We've had 36 recessions in this country over the last 160 years. Two of them have had a significant impact on real estate. The Great Depression back in the 1930s and the Great Recession back in 2008, 9, 10, those were really the only two economic events that had a significant downward impact on real estate.
34:11J Scott:Residential, right?
34:12Dave Meyer:Residential. Thank you. Yes, absolutely. We can talk about commercial separately. Yeah, yeah. I'm talking about single family residential at this point. So it's reasonable to assume that single family residential real estate is pretty well insulated from most bumps in the economy, a standard recession. And if you look at the data a little bit more closely, what you find is that pricing or values in single family residential is most closely tied to inflation. When we have high inflation, values tend to go up. When we have low inflation, values tend to go up more slowly. And so if you want a good idea in a normal market, a normal economy, where housing values are headed, you're going to look at inflation.
34:53Dave Meyer:And the higher the inflation, most likely the higher you're going to see values continue to go up. The two examples I gave, though, of where we didn't see housing values go up were when we saw big recessions. So again, 1930s, 2008, those two really big negative economic events. So the question I want to ask myself now is, are we likely to see a 1930s or a 2008 type event, which could have a significant impact on real estate? Or are we likely to see a standard recession, if we see any recession, which likely wouldn't have a big impact on real estate? So my general thesis is that real estate is pretty well insulated.
35:34Dave Meyer:It's unlikely we're going to have a big drop in prices unless we see a significant recession or a significant economic event like we did in, again, the 30s or 2008.
35:46J Scott:I agree with you. I was actually working on my BP Con presentation and just talking about different scenarios. And I see three scenarios that are that could really play out in the housing market. One of them is a crash. But I think the probability of that I probably put that as my third most likely outcome out of the things that could happen in the next couple of years. It's obviously possible. You know, we've seen it before. but do you think that's the most likely scenario?
36:17Dave Meyer:I actually think that's the least likely scenario.
36:19J Scott:Okay. We're on the same on that. Yeah. Yeah.
36:21Dave Meyer:I'm not going to say it's a 0 % chance. Yeah. I think we're in an economic place right now. Again, it's been 17 years of debt building up. And at some point that debt's going to have to go away. And it could be some major economic downturn that leads to it or causes it. But I think more likely we're going to see one of two things. We're either going to see a continued softening in the economy and the government starts to spend lots of money like they've done in 2020 and like they did after 2008. And that's going to cause one of two things to happen. Either they're going to be successful at kind of staving off the recession for a couple of years longer, in which case we're going to continue to see what we've seen for the last few years.
37:02Dave Meyer:We're going to continue to see housing prices kind of either flat or go up a small amount. We're going to continue to see this wealth gap build. We're going to see people in the higher end of the socioeconomic spectrum do very well, make a lot of money in hard assets. People lower on the socioeconomic spectrum suffer probably even more, but the economy will keep moving along or the government will spend a lot of money to try and keep us out of that recession. And they won't be as successful as they have been the last couple of times, simply because we've built up too much debt. In which case, I think there's a reasonable chance that we do see a downturn.
37:37Dave Meyer:Again, I don't think it's going to be a 2008 style downturn. But we do see a downturn where we see jobs go away, where we see inflation start to come down like we normally see in a recession, where we see businesses, got a business and foreclosures go up and bankruptcies go up. And it won't be a fun time. But again, real estate tends to be pretty insulated under those scenarios. It's only the scenario where we see a major, major downturn, that single family residential tends to get hit. And again, I'm not discounting the possibility for that, but I put that at like my third most likely.
38:17J Scott:Okay. Well, I see things fairly similarly. I'll tell everyone else my exact predictions there at BPCon, but I think, Jay, you and I are on somewhat of the same page. But I guess the question is, given three reasonably likely scenarios, you know, in normal times, my third most likely scenario is probably like a 5 % chance or less. I don't, you know, I think they all have somewhat decent chances. So like, how do you invest given this very confusing, uncertain economic landscape?
38:51Dave Meyer:Yeah. So let's, let's say I, I, if I had to assign probabilities, I think there's a 40 % chance that things just keep bumping along the way they have been for the last few years. And there's a 40 % chance that we do see a standard type recession. And I'll reserve the last 20 % for we see a significant recession, or maybe we even see like the economy boom again. Yeah. I don't think that's likely, but I'm not going to, you can't say never these days. So let's say 80 % chance that we see continued bumping along or we see just a mild recession. In either of those cases, it's a great time to buy real estate.
39:33J Scott:Yeah, that's right.
39:33Dave Meyer:Because remember, real estate only goes up over time. There's been no 10-year period in this country where single-family real estate hasn't gone up in value. So if you're buying right, and when I say buy right, I mean you're buying properties that can cover the bills, that are generating a little bit of income or at least breaking even when you consider all expenses that go into them. If you're being conservative on things like your rent growth, even maybe assuming rents might go down a little bit because while we don't necessarily see housing values go down during recessions, we do see rents go down sometimes.
40:05Dave Meyer:So factor in a 10 % rent decrease just in case. Factor in 10 % higher vacancy just in case. Factor in mortgage rates maybe going up a little bit from here. So we're currently in the low sixes. I don't think we're going to go much higher than that, but who knows? Things are crazy these days. We could see rates go back up to 7%. So factor that in. Factor in all of these conservative assumptions into your underwriting. And if the deal still makes sense, if you can break even, make a little bit of money, you're going to be happy you made that purchase in 10 years.
40:36J Scott:Jay, there's a reason we wrote a book together. I completely agree with everything you just said. I totally agree. It's just like, be conservative. This is like real estate investing 101. In the broader investing world, like if you talk to someone who's a stock investor, private equity, hedge fund investor, they have this concept of like risk on, risk off, right? I think we're in a risk off era of real estate investing, which means like, not that you shouldn't invest. It just means that you got to be super patient and super diligent about your underwriting. Three years ago, five years ago, you could have messed up and been fine.
41:11J Scott:That might still be true, but it's not definitely true like it was in 2021. It was like you could be kind of loose with your underwriting in 2021 and have a fairly high degree of confidence. You'd be fine for residential. Now, I just think it's the complete opposite. I think you need to just be really diligent. and if you're wrong and things are fine or go well, even better. This is just a mentality of not taking on too much risk because that way you know you're going to be okay and maybe you do great. And either way, you benefit, but you're not going to be putting yourself in a situation where you're taking on a lot of risk in an uncertain time because to me that's just never really worth it.
41:53Dave Meyer:Yeah, and the other thing you have to remember is that everybody thinks that we're heading into uncharted territory with real estate with higher interest rates. It's hard to generate cash flow and it just feels very different than it has for the last decade or so. It is different. But the thing is, it's back to where it was for the 30 years before 2010, 11, 12. It's back to the normal state of the market. Everybody seems to think that low interest rates, high cash flow, fast appreciation, get rich quick is the normal in real estate. It's not the normal. It was an aberration that we were lucky enough to experience if we were investing from 2014 to 2021, but it's not the normal.
42:39Dave Meyer:The normal is higher interest rates, lower cash flow, slow and steady wins the race. You build equity over time, you get the tax benefits and you leverage the tax benefits. You get the principal pay down, you let your tenants pay down your mortgage. And in five or 10 or 20 or 30 years, you get wealthy.
42:56J Scott:I completely agree. I called it on the other show, the Goldilocks era from 2013 to 2022, just because everything was perfect. It was just this very unique, unusual time. And just sort of coincidentally, that time aligned with the explosion of social media. And so like people got really used to and expecting unusual results. But real estate investing was good in the 70s, even though there was inflation and there was high mortgage rates, real estate was good in the 80s, it was good in the 90s, you don't need perfect conditions, you need to adjust your strategy and your tactics to a more normal era, but that's fine.
43:41J Scott:You can absolutely do that. And it's not all negative. There are positives to these types of things too, maybe not in terms of cash flow, as Jay said, or appreciation, but lower competition. You're not going to have all these people jumping in on the bandwagon in this next era as you did in the previous one, because the benefits of real estate are going to be a little less obvious than they were during 2019 and 2020 when everyone just looked at how their neighbor was getting rich and wanted to jump in on this as well. So it's really just, to me, a matter of, like you said, being conservative, having appropriate expectations of what you can achieve, and then just having the confidence that you know how to underwrite and that you can actually buy good deals.
44:24J Scott:That's how I say it. Absolutely. The one thing that keeps me up at night, Jay, I will just be honest, is long-term interest rates. I am curious about this because I look at the national debt. And again, as Jay pointed out, this has been a problem that both parties contribute to. You can Google this and look at it. You can just see the debt has been exploding for a long time. It just seems like the most likely way that we deal with that debt is by printing money. I don't know if you agree with that, but that just seems like the way, the direction that we're heading. And if that is true, Aren't interest rates going to go up in the long run?
45:02Dave Meyer:Interest rates will absolutely have to go up. A lot of people think that the Federal Reserve is the one that decides where interest rates head. If the Federal Reserve wants lower mortgage rates, they can lower the interest rate and we get lower mortgage rates. But the reality is the Federal Reserve controls one very specific interest rate, and that's the rate at which banks lend to each other. All the other interest rates, your car loan interest rate, your business loan interest rate, your mortgage rate, your insurance rates, all of those are controlled by this other thing called the U.S. bond market.
45:34Dave Meyer:And the U.S. bond market is driven by not the Fed, but by investor sentiment. When investors think certain things are going to happen, it drives rates up and down. And specifically, the thing that drives rates up is investors' concern about inflation. When investors think there's going to be inflation, that forces the bond yields up and bond yields higher means that interest rates are higher. And without going into any more detail there, it's as simple as inflation equals higher rates. And unfortunately, there's not much the Fed can do about that. So if we want to lower rates, keep rates from going up, what we need to do is we need to keep inflation under control.
46:17Dave Meyer:And inflation isn't only coming from tariffs or supply chain issues or anything else. Inflation comes from money printing. And the more money we print, the more inflation we're going to have long term, the more inflation we have long term, the higher rates are going to be. And that is going to end up being in a snowball type cycle that's really going to bankrupt this country.
46:37J Scott:Yeah, that is my number one fear. And I wonder how you incorporate that into your investing then, Jay, because to me, the way I'm reacting to that is fixed rate debt. How do I get stuff, primarily residential real estate, if I can buy commercial with fixed rate, I would consider doing that. But like, I want to lock in my mortgage rates, even at 6%. I would rather lock them in now. Because I don't know if I got an arm or a variable rate mortgage now, in five years, maybe it won't happen in five years. I don't know. That's the thing. It's like, you don't know the timeline for this. It could be five years from now, it could be 20 years from now.
47:12Dave Meyer:Well, here's the thing. A lot of people listen to me and they say, so what? You think rates are never going to come down again? And the reality is rates will probably come down at some point, but they're not going to come down for good reasons. They're not going to come down because everything is moving along happily and the markets are doing well. Rates are going to come down when we have a big recession and investors are no longer concerned about inflation. When you have a recession, you tend not to be concerned about inflation and that drives rates down. And so typically low rates means a bad economy.
47:46Dave Meyer:We saw this in 2008. We saw this in 2020. We've seen this in every recession going back 160 years. Recession means lower rates because we tend to see lower inflation. And so, yeah, we may see lower rates again. But if we do or when we do, it's going to be because there's a lot of bad stuff going on in the economy.
48:06J Scott:Right, yeah, because that's kind of how I think. It's like maybe we're going to see sometime in the next two or three years a little bit lower rates because of the labor market. But I'm worried about 10 years from now, where are rates going to be?
48:16Dave Meyer:And there's so many unknowns. So yeah, so there's definitely the debt issue that could drive rates up. We also have AI. You mentioned AI earlier. If AI makes things much more efficient, if it makes businesses much more efficient and productivity much more efficient, we could see deflation and that could actually drive rates down.
48:36J Scott:That's a good point.
48:37Dave Meyer:And so to be honest, your biggest concern over the long term, and when I say long term, I'm talking 10 to 20 years, your biggest concern is high interest rates. My biggest concern is just the opposite. Deflation. My biggest concern is deflation due to economic efficiencies from automation and AI. And I think the biggest risk to real estate is if AI is as successful as it could be, well, wages could get cut in half because businesses don't need as many employees. And when wages go down, what goes down? Housing prices go down, rents go down. And so for me, my biggest concern over 10 or 20 years is just the opposite of yours.
49:16J Scott:Yeah. Okay. Well, now you just unlocked a new fear for me. Thanks, Joe. Hopefully neither of us are right. Now I could lose more sleep over what to do about things. But I think that just proves we don't know. You buy deals that work today and you hope for the best and you adjust as you go along. Anything else you want to add before we get out of here, Jay?
49:36Dave Meyer:No, I just want to remind everybody, look, historically, there's never been a bad time to buy real estate. We don't know what's going to happen six months from now, a year from now, three years from now. But we have a pretty good idea of what's going to happen five, seven, ten years from now and that housing is going to go up in value. So don't let anything we're talking about today stop you from going out and looking at deals and buying them when you find them, because you will regret not getting started today a whole lot more than you would ever regret getting started today.
50:08J Scott:Well said. Well, Jay, thank you so much for being here.
50:11Dave Meyer:Absolutely. Thanks, Dave.
50:12J Scott:And thank you all so much for listening to this episode of On The Market. We'll see you next time.
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50:18J Scott:Again?
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From the publisher
Is a recession really coming, or is this the new normal for the housing market? Dave Meyer and J Scott unpack how post-2008 shifts, record debt and money printing, tariffs, and AI are changing the rules, then connect inflation and the labor market to mortgage rates and interest rates so you can gauge what moves them next. You will get a risk-off playbook for today’s deals, including conservative underwriting, assuming flatter rents and higher vacancy, buying at today’s rates, and favoring fixed-rate debt, plus why single-family housing prices are usually resilient outside of severe shocks. Their housing market prediction and forecast: expect mostly stable home prices with modest moves while mortgage rates hover near current levels, with bigger swings only if jobs crack hard or inflation reaccelerates.
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