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Speaker 1: Welcome to another edition of the Chicks on the Right

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podcast where we talk to our friend and sponsor of

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the show, Zach Abraham from Bulwert Capital Management, And today

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we're going to talk about home ownership because apparently there

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was a recent article that said that buying a home

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now in twenty twenty five is harder than it's ever

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ever been. And in fact, when it used to be

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just five years ago, you needed to have an income

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of about seventy eight thousand dollars in order to be

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able to afford a typical first time home. Now it's

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jumped fifty percent, where you need to be making upwards

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of one hundred and twenty thousand dollars, while wages have

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only climbed around twenty seven percent. So you combine all

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of the high mortgage rates, the high prices, all the

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insurance premiums, the inventory that's out there right now, and

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it's starting to feel I worry for like my kid

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and for other twenty somethings that home ownership is like

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pure fantasy at this point. So what do you think

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about that is buying a home just going to be

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totally out of reach for like my kid, who's going

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to graduate from college in three years.

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Speaker 2: No, So, I mean these things occur, right. First of all,

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you got to look at it on timelines. I mean, one

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of the things that you have to think about is

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there's going to be a lot of the baby boomer

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generation is getting older every day, right, and more and

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more of them are becoming retired. I think something like

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eleven thousand of them retire every single day. Now is

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the pace that you're on or something? Yeah, it's pretty crazy,

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But then you think about it, You're like, you know,

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the baby boom regeneration I believe is like eighty million people,

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So you know, it's a big chunk of people. But anyway,

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as they age and as they downsize, as they pass

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away or whatever, or move into assisted living and you

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all that kind of stuff, that's going to free up

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a lot of inventory. But what I do think though,

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is that if you're a if you're younger, or you're

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trying to purchase the first home, the first thing I

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would say is be be very mindful of where you're

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doing them.

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Speaker 3: Right. For instance, if I was looking at if I

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had kids that were of that.

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Speaker 2: Age now, I wouldn't want them to I want them

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to live right right across the street from us, right,

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if I had my way, But I would tell them, a,

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I don't have a problem with you paying up for

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a home, but where are you going to do it?

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Speaker 3: Right?

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Speaker 2: Are you trying to do it in California? Well, I

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think that's really dumb for a whole host of reasons,

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not even just speaking politically, right, just economically, I think

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that's dumb. If you were trying to do that around

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where I live in the Seattle Washington area, I think

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that's dumb. I think there are a lot of places,

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specifically a lot of places in the Midwest where I

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think it makes a lot of sense. You know, go

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look at home prices in Detroit and the surrounding areas.

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People are like, oh, it's Detroit, And I'm like, you

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know what, Well, just like everybody forgets that things cycle, right.

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So if we went back to the seventies and we

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said Detroit's going to turn into a ghost town after

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two thousand and eight, like get out of here, right, right.

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Speaker 3: If we'd have gone back ten years.

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Speaker 2: Ago and said Detroit's probably a great place to buy land,

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people are like, Detroit, it's a black hole, right, Oh.

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Speaker 3: Look how much land values have bounced up.

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Speaker 2: Detroit is there for all this. You know, Detroit is

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a was a big deal because of where it was

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right located on the Great Legs shipping lanes. All of

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those reasons still exist today and one of our biggest

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macro calls macroeconomic halls is Look, I think you're going

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to see a reverse of what we saw for the

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previous twenty five years, where you saw a migration toward

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the coast.

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Speaker 3: Right. I think COVID snapped into that.

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Speaker 2: People, Yeah, there you go, right, cod I think COVID

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snapped that, And you're going to continue seeing people pushing

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or if no other reason. And everything feeds into it, right, So,

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like I said, baby boomers retiring, that feeds into it too.

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Speaker 3: Why cost a living?

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Speaker 2: You can sell your place, you know in the Seattle area,

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move to somewhere in the Midwest and pay cash for

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your new place and stick another foreign brand in your pocket.

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Speaker 3: Right, that's right.

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Speaker 2: It's tax free by the way, right, So that's a

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big deal. You know, Now you've got a paid off

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house and four hundred thousand sitting there. That's throwing you know,

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at four percent, infrast rates is kicking you at twelve

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hundred bucks a month. Right, So I mean think of

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the think of that swing. Same with young people. Right,

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technology has made work from home so much is so

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much easier. Well, if you're a tech company, or or

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you're any kind of company that isn't you know that

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you don't need somebody geographically there? Think of how much

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more competitive is if you want to hire somebody to

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come work for you in San Francisco, you've got to

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pay them one hundred and eighty two hundred grand just

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get in the door.

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Speaker 3: They won't be able to.

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Speaker 2: Feed themselves, right right, Well, that tech company can say, hey,

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you can do this job from Omaha, Nebraska, and we'll

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pay you one hundred and forty grand. Well, that guy's

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living like a king in Omaha. The tech company is

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sending saving sixty grand. So my So, getting back to

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your original question, I don't think it's a blanket yes

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or no. What I would say to young people, though,

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is if you look at the experience your parents, For instance,

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if they were looking at what my real estate performance

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has been since my wife and I first bought a

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house in this area, I would look at them and say,

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don't count on a repeat of that for you. And

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part of that is just you're buying houses and a

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record in affordability, right, So it's just.

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Speaker 3: Yeah, it's not a good time in the long run.

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Speaker 2: So I would say, don't don't press it. Don't feel

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like it's something you have to do. Here's another thing

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that rents have now pulled back down to where they're

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less than mortgages. So are they?

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Speaker 1: Because I wonder like and what, so what made that happen?

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Because when we were leaving Indianapolis and there's all these

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new apartment buildings going up, and we were just like,

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what is going on? But then we would look at

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the rent rates and they were insane, insane.

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Speaker 2: So again, it's gonna be it's gonna be location dependent,

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right because if you've got a small city and a

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bunch of people that are moving there for a specific reason,

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rents are gonna go up. But generally speaking, rents will

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go down, and they have started receding in most parts

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of the country. And what is driving it is actually

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something that isn't a very positive thing, meaning it's kind

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of something we're keeping an eye on, we're getting a

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little bit worried about, which is there's just been an

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overbuilding of multifamily homes, okay, And the best way to

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describe it, it's different.

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Speaker 3: It's not the same thing. But people are like really,

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and I'm like, yes. So a lot of the people

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that got killed.

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Speaker 2: In the last downturn in real estate and No Way

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to nine, a lot of that, A lot of those

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folks decided they were going to play it safe and

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not speculated in individual homes anymore.

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Speaker 3: But they're gonna do multifamily okay.

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Speaker 2: And then as markets went up and more and more

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money started pouring into private equity and things like this,

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you've gotten to the point where we think that there's

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a lot of places where you've overbuilt multi family homes.

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And if you look at what's scheduled to be delivered

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in the next year to two as far as a

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multi family homes, it's going up a lot. So there

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is a backlog. So I think you're going to see

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continued downward pressures on rents generally speaking, and I think

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over time that will be beneficial on the housing market.

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And what I would tell young people right now is

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I would say, look, find the best rent scenario you

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possibly can, and say sack away money and invest money

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and buy a home. When there's a good opportunity. People like, oh,

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you know, well, rent's throwing money away. Anybody that said

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that hasn't owned a home, Okay, because right the reason

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homes are good investments, they're really not when you look

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at the rate of return.

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Speaker 3: The reason they're a good.

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Speaker 2: Investment is because you lever them, right, So, meaning if

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you just put traditional money into it, it's not a

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very good investment.

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Speaker 3: I mean you've got to.

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Speaker 2: Pay out, you know, repairs, fixes, property taxes, all these

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other things.

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Speaker 3: The leverage is what makes it good.

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Speaker 2: So what I tell people is there's a lot of

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economic but you know, for instance, I just moved into

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a new house. It's not new but new to us,

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but moved a new house in February month and a

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half ago. I had to replace a furnace. I was

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twenty grand Yeah, right, Like just that's the part of

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it that nobody talks to you about, you know. So

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there are advantages to renting. And if if my thing

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would be this, if you feel like it is a

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big stretch, if it feels intimidating to pay that mortgage amount,

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if it feels over don't do it.

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Speaker 3: Don't do it. That's your answer.

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Speaker 2: Right, stay out of that because if the mortgage is oppressive,

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when the repair bill hits, it's it's going to be crippling,

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and you're much better off investing the money, saving and

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waiting for an opportune time because it will come.

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Speaker 1: Okay, that's interesting because I wondered if if the rent

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versus home ownership thing was analogous to you know, leasing

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or buying a car. But it sounds like this in

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this situation, because isn't it always better to sort of

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buy the car versus leasing it? Or is it because leases?

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When you lease it, you always have a new car,

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but like you never have any ownership. You're basically renting

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a car forever. Is it the same or are they

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totally different?

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Speaker 3: No, there's definitely some similarities there.

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Speaker 2: So whenever we're talking about houses and cars, one of

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the things that we have to step back and say is, Okay, Look,

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It's why I hate it when people are like, the

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home's best investment you're ever going to make, and I'm like, well,

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it might be your best investment, but it's because you

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haven't invested well, right, Like you don't, I'd say, like,

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it shouldn't be right if you're going to be at a

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really good spot financially. That should not be the case, right,

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Your four to one case should have done better. But

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the one thing that we have to look at is

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housing and transportation. We have to pay a cost for that,

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no matter what, right, it's a baked in cost. So

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the good thing.

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Speaker 3: Is is the house does appreciate in value over time. Right?

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So is it better to own a house than to not?

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Speaker 2: Yes?

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Speaker 3: Okay? Is it?

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Speaker 2: Is it so much better? Are you killing yourself if

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you don't do it? So you're going to put yourself

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in a situation where you know and even if you

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can get financed.

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Speaker 3: I don't even know what the financing standards are.

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Speaker 2: But is it so important you should put yourself in

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a scenario where fifty five to sixty percent of your

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take home pay is going to pay your mortgage?

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Speaker 1: No?

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Speaker 3: Okay, like that?

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Speaker 2: That's not a good decision, right, So it's not yes,

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own a house at all costs. The benefit of a

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house is when you get to a point where you're like, Okay,

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that's a reasonable mortgage payment. I could pay that, no problem.

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And should I rent or should I buy? Well, you

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should buy because it's going to add up over time,

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and you're gonna get part of the money back, and

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there's tax advantages and things like that.

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Speaker 3: But when you're tight, you know, it's you just you'd

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be much.

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Speaker 2: Better off fixing yourself financially, saving money, saving for a

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bigger down payment. That's another thing too, save build that

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down payment. When people are people are worried about rates.

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If you're worried about rates, put more money down, save

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more money. They're like, well, we got to do a net.

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Well wait a year, you know, to wait two years.

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Whatever money you put down, you're not going to be

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paying that interest rate on.

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Speaker 1: So well, I would think that the fights that Donald

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Trump is having at this point with Jerome, I would

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think we're going to see some rate decreases by the

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end of this year, don't you.

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Speaker 3: Yeah. I think you're going to see at least one,

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if not two cuts.

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Speaker 2: My guess is is that you're going to see probably

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fifty to seventy five basis points of cuts. Put a

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gun to my head to probably say fifty. Here's the

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problem that only affects the very front end of the curve.

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Speaker 3: Right.

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Speaker 2: The Fed does not set interest rates on the tenure treasury.

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Speaker 3: That's set by the market. Right.

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Speaker 2: So one of the things that I think you have

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to be careful on is if you cut rates and

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inflation picks up, it is entirely possible that even though

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you cut rates, mortgages could go the other way. Really, yes, yes,

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And it's something that they need to be very careful about.

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And this is one of the things that I was

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like that if if you put me in a room

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with Trump and I got to tell them something, I'd

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be like, hey, I understand your frustration, and I don't

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think that you're entirely wrong a part of FED policy

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when they cut how they've cut it does smell a

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little bit fishy.

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Speaker 3: To be fair to them, though, here are the reasons.

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Speaker 2: Why why you can defend what they're doing.

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Speaker 3: And he's calling for one hundred to two hundred basis

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points of cuts in an environment where unemployment unemployments at

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four percent. The S and P five hundred is an

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all time high, trading at thirty times earnings, and you

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have record in affordability and housing, right, And the chief

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reason you have record in affordability, guys six and a

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half percent. Mortgages are not historically you know, like usury.

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Speaker 2: Right, that is still historically a very low mortgage rate.

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So the reason that houses are i mean, rents rates

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are not helping. But let's also look at what housing

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prices have done, right, They've gone nuts. I mean, you

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had the even including the financial crisis, we never saw

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housing up fifty percent in like an eighteen month period

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of time, right, So you've got to be really careful

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about juicing this thing too much.

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Speaker 3: You still have on them.

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Speaker 2: You still have inflation at two point seven, right, and

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you got inflation at two point seven with sixty dollars oil, right,

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So you start getting you know, you start cutting rates

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and pushing houses pricings back up, and you get a

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pop and oil all of a sudden, you're looking at

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four or five percent inflation again, and you got to

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raise rates. So I like, I don't completely disagree with

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what Trump's saying. I think there are many things that

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would be aided by lower interest rates. At the same time,

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you usher in some real threats. And if you get

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a scenario where you cut, inflation goes back up and

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the yield on the thirty year goes heads north of five,

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you're in a really really nasty tight spot.

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Speaker 1: Well, then to see Trump should be taking advice from you,

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and so should everybody that's listening to this podcast. And

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how can they do that? Zach?

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Speaker 3: Yes, I appreciate that. Uh yeah.

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Speaker 2: The best way to do it is go to Bullwartcapitolmanagement

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dot com and look for the Know.

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Speaker 3: Your Risk Podcast.

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Speaker 2: We do a daily show covering everything important that's gone

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00:14:05,759 --> 00:14:08,799
on the markets and economics and politics if it impacts

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markets and economics, and goal is to make it twenty

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five to thirty five minutes and you know every single

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thing that you need to know from that day it

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relates to finance and economics.

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Speaker 3: So not tough to find is.

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Speaker 2: Google Know Your Risk podcast, Lowercapitalmanagement dot Com.

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Speaker 1: Always great. I always learn something.

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Speaker 3: Thank you, Zach, Thank you so much. Investment advisory services

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offered through Trek Financial loc and SEC Registered Investment Advisor.

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The opinions expressed in this programmer for general informational purposes

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only and are not intended to provide specific advice or

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00:14:35,440 --> 00:14:38,159
recommendations for any individual or on any specific security. Any

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references to performance of security so it thought to be

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materially accurate and actual performance may different. Investments involved risk

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and are not guaranteed.

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Speaker 1: Past performance doesn't guarantee future results Trek twenty four three

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Zer earlier