Speaker 1: Welcome to another edition of the Chicks on the Right
Speaker 1: podcast where we talk to our friend and sponsor of
Speaker 1: the show, Zach Abraham from Bulwert Capital Management, And today
Speaker 1: we're going to talk about home ownership because apparently there
Speaker 1: was a recent article that said that buying a home
Speaker 1: now in twenty twenty five is harder than it's ever
Speaker 1: ever been. And in fact, when it used to be
Speaker 1: just five years ago, you needed to have an income
Speaker 1: of about seventy eight thousand dollars in order to be
Speaker 1: able to afford a typical first time home. Now it's
Speaker 1: jumped fifty percent, where you need to be making upwards
Speaker 1: of one hundred and twenty thousand dollars, while wages have
Speaker 1: only climbed around twenty seven percent. So you combine all
Speaker 1: of the high mortgage rates, the high prices, all the
Speaker 1: insurance premiums, the inventory that's out there right now, and
Speaker 1: it's starting to feel I worry for like my kid
Speaker 1: and for other twenty somethings that home ownership is like
Speaker 1: pure fantasy at this point. So what do you think
Speaker 1: about that is buying a home just going to be
Speaker 1: totally out of reach for like my kid, who's going
Speaker 1: to graduate from college in three years.
Speaker 2: No, So, I mean these things occur, right. First of all,
Speaker 2: you got to look at it on timelines. I mean, one
Speaker 2: of the things that you have to think about is
Speaker 2: there's going to be a lot of the baby boomer
Speaker 2: generation is getting older every day, right, and more and
Speaker 2: more of them are becoming retired. I think something like
Speaker 2: eleven thousand of them retire every single day. Now is
Speaker 2: the pace that you're on or something? Yeah, it's pretty crazy,
Speaker 2: But then you think about it, You're like, you know,
Speaker 2: the baby boom regeneration I believe is like eighty million people,
Speaker 2: So you know, it's a big chunk of people. But anyway,
Speaker 2: as they age and as they downsize, as they pass
Speaker 2: away or whatever, or move into assisted living and you
Speaker 2: all that kind of stuff, that's going to free up
Speaker 2: a lot of inventory. But what I do think though,
Speaker 2: is that if you're a if you're younger, or you're
Speaker 2: trying to purchase the first home, the first thing I
Speaker 2: would say is be be very mindful of where you're
Speaker 2: doing them.
Speaker 3: Right. For instance, if I was looking at if I
Speaker 3: had kids that were of that.
Speaker 2: Age now, I wouldn't want them to I want them
Speaker 2: to live right right across the street from us, right,
Speaker 2: if I had my way, But I would tell them, a,
Speaker 2: I don't have a problem with you paying up for
Speaker 2: a home, but where are you going to do it?
Speaker 3: Right?
Speaker 2: Are you trying to do it in California? Well, I
Speaker 2: think that's really dumb for a whole host of reasons,
Speaker 2: not even just speaking politically, right, just economically, I think
Speaker 2: that's dumb. If you were trying to do that around
Speaker 2: where I live in the Seattle Washington area, I think
Speaker 2: that's dumb. I think there are a lot of places,
Speaker 2: specifically a lot of places in the Midwest where I
Speaker 2: think it makes a lot of sense. You know, go
Speaker 2: look at home prices in Detroit and the surrounding areas.
Speaker 2: People are like, oh, it's Detroit, And I'm like, you
Speaker 2: know what, Well, just like everybody forgets that things cycle, right.
Speaker 2: So if we went back to the seventies and we
Speaker 2: said Detroit's going to turn into a ghost town after
Speaker 2: two thousand and eight, like get out of here, right, right.
Speaker 3: If we'd have gone back ten years.
Speaker 2: Ago and said Detroit's probably a great place to buy land,
Speaker 2: people are like, Detroit, it's a black hole, right, Oh.
Speaker 3: Look how much land values have bounced up.
Speaker 2: Detroit is there for all this. You know, Detroit is
Speaker 2: a was a big deal because of where it was
Speaker 2: right located on the Great Legs shipping lanes. All of
Speaker 2: those reasons still exist today and one of our biggest
Speaker 2: macro calls macroeconomic halls is Look, I think you're going
Speaker 2: to see a reverse of what we saw for the
Speaker 2: previous twenty five years, where you saw a migration toward
Speaker 2: the coast.
Speaker 3: Right. I think COVID snapped into that.
Speaker 2: People, Yeah, there you go, right, cod I think COVID
Speaker 2: snapped that, And you're going to continue seeing people pushing
Speaker 2: or if no other reason. And everything feeds into it, right, So,
Speaker 2: like I said, baby boomers retiring, that feeds into it too.
Speaker 3: Why cost a living?
Speaker 2: You can sell your place, you know in the Seattle area,
Speaker 2: move to somewhere in the Midwest and pay cash for
Speaker 2: your new place and stick another foreign brand in your pocket.
Speaker 3: Right, that's right.
Speaker 2: It's tax free by the way, right, So that's a
Speaker 2: big deal. You know, Now you've got a paid off
Speaker 2: house and four hundred thousand sitting there. That's throwing you know,
Speaker 2: at four percent, infrast rates is kicking you at twelve
Speaker 2: hundred bucks a month. Right, So I mean think of
Speaker 2: the think of that swing. Same with young people. Right,
Speaker 2: technology has made work from home so much is so
Speaker 2: much easier. Well, if you're a tech company, or or
Speaker 2: you're any kind of company that isn't you know that
Speaker 2: you don't need somebody geographically there? Think of how much
Speaker 2: more competitive is if you want to hire somebody to
Speaker 2: come work for you in San Francisco, you've got to
Speaker 2: pay them one hundred and eighty two hundred grand just
Speaker 2: get in the door.
Speaker 3: They won't be able to.
Speaker 2: Feed themselves, right right, Well, that tech company can say, hey,
Speaker 2: you can do this job from Omaha, Nebraska, and we'll
Speaker 2: pay you one hundred and forty grand. Well, that guy's
Speaker 2: living like a king in Omaha. The tech company is
Speaker 2: sending saving sixty grand. So my So, getting back to
Speaker 2: your original question, I don't think it's a blanket yes
Speaker 2: or no. What I would say to young people, though,
Speaker 2: is if you look at the experience your parents, For instance,
Speaker 2: if they were looking at what my real estate performance
Speaker 2: has been since my wife and I first bought a
Speaker 2: house in this area, I would look at them and say,
Speaker 2: don't count on a repeat of that for you. And
Speaker 2: part of that is just you're buying houses and a
Speaker 2: record in affordability, right, So it's just.
Speaker 3: Yeah, it's not a good time in the long run.
Speaker 2: So I would say, don't don't press it. Don't feel
Speaker 2: like it's something you have to do. Here's another thing
Speaker 2: that rents have now pulled back down to where they're
Speaker 2: less than mortgages. So are they?
Speaker 1: Because I wonder like and what, so what made that happen?
Speaker 1: Because when we were leaving Indianapolis and there's all these
Speaker 1: new apartment buildings going up, and we were just like,
Speaker 1: what is going on? But then we would look at
Speaker 1: the rent rates and they were insane, insane.
Speaker 2: So again, it's gonna be it's gonna be location dependent,
Speaker 2: right because if you've got a small city and a
Speaker 2: bunch of people that are moving there for a specific reason,
Speaker 2: rents are gonna go up. But generally speaking, rents will
Speaker 2: go down, and they have started receding in most parts
Speaker 2: of the country. And what is driving it is actually
Speaker 2: something that isn't a very positive thing, meaning it's kind
Speaker 2: of something we're keeping an eye on, we're getting a
Speaker 2: little bit worried about, which is there's just been an
Speaker 2: overbuilding of multifamily homes, okay, And the best way to
Speaker 2: describe it, it's different.
Speaker 3: It's not the same thing. But people are like really,
Speaker 3: and I'm like, yes. So a lot of the people
Speaker 3: that got killed.
Speaker 2: In the last downturn in real estate and No Way
Speaker 2: to nine, a lot of that, A lot of those
Speaker 2: folks decided they were going to play it safe and
Speaker 2: not speculated in individual homes anymore.
Speaker 3: But they're gonna do multifamily okay.
Speaker 2: And then as markets went up and more and more
Speaker 2: money started pouring into private equity and things like this,
Speaker 2: you've gotten to the point where we think that there's
Speaker 2: a lot of places where you've overbuilt multi family homes.
Speaker 2: And if you look at what's scheduled to be delivered
Speaker 2: in the next year to two as far as a
Speaker 2: multi family homes, it's going up a lot. So there
Speaker 2: is a backlog. So I think you're going to see
Speaker 2: continued downward pressures on rents generally speaking, and I think
Speaker 2: over time that will be beneficial on the housing market.
Speaker 2: And what I would tell young people right now is
Speaker 2: I would say, look, find the best rent scenario you
Speaker 2: possibly can, and say sack away money and invest money
Speaker 2: and buy a home. When there's a good opportunity. People like, oh,
Speaker 2: you know, well, rent's throwing money away. Anybody that said
Speaker 2: that hasn't owned a home, Okay, because right the reason
Speaker 2: homes are good investments, they're really not when you look
Speaker 2: at the rate of return.
Speaker 3: The reason they're a good.
Speaker 2: Investment is because you lever them, right, So, meaning if
Speaker 2: you just put traditional money into it, it's not a
Speaker 2: very good investment.
Speaker 3: I mean you've got to.
Speaker 2: Pay out, you know, repairs, fixes, property taxes, all these
Speaker 2: other things.
Speaker 3: The leverage is what makes it good.
Speaker 2: So what I tell people is there's a lot of
Speaker 2: economic but you know, for instance, I just moved into
Speaker 2: a new house. It's not new but new to us,
Speaker 2: but moved a new house in February month and a
Speaker 2: half ago. I had to replace a furnace. I was
Speaker 2: twenty grand Yeah, right, Like just that's the part of
Speaker 2: it that nobody talks to you about, you know. So
Speaker 2: there are advantages to renting. And if if my thing
Speaker 2: would be this, if you feel like it is a
Speaker 2: big stretch, if it feels intimidating to pay that mortgage amount,
Speaker 2: if it feels over don't do it.
Speaker 3: Don't do it. That's your answer.
Speaker 2: Right, stay out of that because if the mortgage is oppressive,
Speaker 2: when the repair bill hits, it's it's going to be crippling,
Speaker 2: and you're much better off investing the money, saving and
Speaker 2: waiting for an opportune time because it will come.
Speaker 1: Okay, that's interesting because I wondered if if the rent
Speaker 1: versus home ownership thing was analogous to you know, leasing
Speaker 1: or buying a car. But it sounds like this in
Speaker 1: this situation, because isn't it always better to sort of
Speaker 1: buy the car versus leasing it? Or is it because leases?
Speaker 1: When you lease it, you always have a new car,
Speaker 1: but like you never have any ownership. You're basically renting
Speaker 1: a car forever. Is it the same or are they
Speaker 1: totally different?
Speaker 3: No, there's definitely some similarities there.
Speaker 2: So whenever we're talking about houses and cars, one of
Speaker 2: the things that we have to step back and say is, Okay, Look,
Speaker 2: It's why I hate it when people are like, the
Speaker 2: home's best investment you're ever going to make, and I'm like, well,
Speaker 2: it might be your best investment, but it's because you
Speaker 2: haven't invested well, right, Like you don't, I'd say, like,
Speaker 2: it shouldn't be right if you're going to be at a
Speaker 2: really good spot financially. That should not be the case, right,
Speaker 2: Your four to one case should have done better. But
Speaker 2: the one thing that we have to look at is
Speaker 2: housing and transportation. We have to pay a cost for that,
Speaker 2: no matter what, right, it's a baked in cost. So
Speaker 2: the good thing.
Speaker 3: Is is the house does appreciate in value over time. Right?
Speaker 3: So is it better to own a house than to not?
Speaker 2: Yes?
Speaker 3: Okay? Is it?
Speaker 2: Is it so much better? Are you killing yourself if
Speaker 2: you don't do it? So you're going to put yourself
Speaker 2: in a situation where you know and even if you
Speaker 2: can get financed.
Speaker 3: I don't even know what the financing standards are.
Speaker 2: But is it so important you should put yourself in
Speaker 2: a scenario where fifty five to sixty percent of your
Speaker 2: take home pay is going to pay your mortgage?
Speaker 1: No?
Speaker 3: Okay, like that?
Speaker 2: That's not a good decision, right, So it's not yes,
Speaker 2: own a house at all costs. The benefit of a
Speaker 2: house is when you get to a point where you're like, Okay,
Speaker 2: that's a reasonable mortgage payment. I could pay that, no problem.
Speaker 2: And should I rent or should I buy? Well, you
Speaker 2: should buy because it's going to add up over time,
Speaker 2: and you're gonna get part of the money back, and
Speaker 2: there's tax advantages and things like that.
Speaker 3: But when you're tight, you know, it's you just you'd
Speaker 3: be much.
Speaker 2: Better off fixing yourself financially, saving money, saving for a
Speaker 2: bigger down payment. That's another thing too, save build that
Speaker 2: down payment. When people are people are worried about rates.
Speaker 2: If you're worried about rates, put more money down, save
Speaker 2: more money. They're like, well, we got to do a net.
Speaker 2: Well wait a year, you know, to wait two years.
Speaker 2: Whatever money you put down, you're not going to be
Speaker 2: paying that interest rate on.
Speaker 1: So well, I would think that the fights that Donald
Speaker 1: Trump is having at this point with Jerome, I would
Speaker 1: think we're going to see some rate decreases by the
Speaker 1: end of this year, don't you.
Speaker 3: Yeah. I think you're going to see at least one,
Speaker 3: if not two cuts.
Speaker 2: My guess is is that you're going to see probably
Speaker 2: fifty to seventy five basis points of cuts. Put a
Speaker 2: gun to my head to probably say fifty. Here's the
Speaker 2: problem that only affects the very front end of the curve.
Speaker 3: Right.
Speaker 2: The Fed does not set interest rates on the tenure treasury.
Speaker 3: That's set by the market. Right.
Speaker 2: So one of the things that I think you have
Speaker 2: to be careful on is if you cut rates and
Speaker 2: inflation picks up, it is entirely possible that even though
Speaker 2: you cut rates, mortgages could go the other way. Really, yes, yes,
Speaker 2: And it's something that they need to be very careful about.
Speaker 2: And this is one of the things that I was
Speaker 2: like that if if you put me in a room
Speaker 2: with Trump and I got to tell them something, I'd
Speaker 2: be like, hey, I understand your frustration, and I don't
Speaker 2: think that you're entirely wrong a part of FED policy
Speaker 2: when they cut how they've cut it does smell a
Speaker 2: little bit fishy.
Speaker 3: To be fair to them, though, here are the reasons.
Speaker 2: Why why you can defend what they're doing.
Speaker 3: And he's calling for one hundred to two hundred basis
Speaker 3: points of cuts in an environment where unemployment unemployments at
Speaker 3: four percent. The S and P five hundred is an
Speaker 3: all time high, trading at thirty times earnings, and you
Speaker 3: have record in affordability and housing, right, And the chief
Speaker 3: reason you have record in affordability, guys six and a
Speaker 3: half percent. Mortgages are not historically you know, like usury.
Speaker 2: Right, that is still historically a very low mortgage rate.
Speaker 2: So the reason that houses are i mean, rents rates
Speaker 2: are not helping. But let's also look at what housing
Speaker 2: prices have done, right, They've gone nuts. I mean, you
Speaker 2: had the even including the financial crisis, we never saw
Speaker 2: housing up fifty percent in like an eighteen month period
Speaker 2: of time, right, So you've got to be really careful
Speaker 2: about juicing this thing too much.
Speaker 3: You still have on them.
Speaker 2: You still have inflation at two point seven, right, and
Speaker 2: you got inflation at two point seven with sixty dollars oil, right,
Speaker 2: So you start getting you know, you start cutting rates
Speaker 2: and pushing houses pricings back up, and you get a
Speaker 2: pop and oil all of a sudden, you're looking at
Speaker 2: four or five percent inflation again, and you got to
Speaker 2: raise rates. So I like, I don't completely disagree with
Speaker 2: what Trump's saying. I think there are many things that
Speaker 2: would be aided by lower interest rates. At the same time,
Speaker 2: you usher in some real threats. And if you get
Speaker 2: a scenario where you cut, inflation goes back up and
Speaker 2: the yield on the thirty year goes heads north of five,
Speaker 2: you're in a really really nasty tight spot.
Speaker 1: Well, then to see Trump should be taking advice from you,
Speaker 1: and so should everybody that's listening to this podcast. And
Speaker 1: how can they do that? Zach?
Speaker 3: Yes, I appreciate that. Uh yeah.
Speaker 2: The best way to do it is go to Bullwartcapitolmanagement
Speaker 2: dot com and look for the Know.
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Speaker 2: relates to finance and economics.
Speaker 3: So not tough to find is.
Speaker 2: Google Know Your Risk podcast, Lowercapitalmanagement dot Com.
Speaker 1: Always great. I always learn something.
Speaker 3: Thank you, Zach, Thank you so much. Investment advisory services
Speaker 3: offered through Trek Financial loc and SEC Registered Investment Advisor.
Speaker 3: The opinions expressed in this programmer for general informational purposes
Speaker 3: only and are not intended to provide specific advice or
Speaker 3: recommendations for any individual or on any specific security. Any
Speaker 3: references to performance of security so it thought to be
Speaker 3: materially accurate and actual performance may different. Investments involved risk
Speaker 3: and are not guaranteed.
Speaker 1: Past performance doesn't guarantee future results Trek twenty four three
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