481: Is US Residential Real Estate Underpriced or Overpriced?
Get Rich Education
Maintaining Good Landlord-Tenant Relationships
The chapter discusses the significance of landlords explaining financial obligations to tenants and stresses the need for open communication and honesty. It also looks at agencies' forecasts on home prices and dispels misconceptions about mortgage rates affecting housing prices.
Is real estate cheap, adequately valued, or overpriced? I explore.
Everything considered includes: inflation-adjusted price, affordability, quality, and other nations’ prices.
Stadium trends are affecting urban real estate. More plan to move outside of downtowns.
I divide society into four groups of people. Then I discuss who is harmed by inflation and who benefits most:
1: The poor—lose
2: Paid-off homeowners—hedge
3: Mortgaged homeowners—hedge and profit
4: Mortgaged income property owners—hedge, profit, and increase income
Learn how to talk to your tenant so that they never think “How the Rent Stole Christmas”. It’ll help ensure timely rent payments. Many tenants don’t understand that you have a mortgage to pay.
Finally, I reveal the exact percentage number that indicates GRE’s 2024 National Home Price Appreciation Forecast.
Timestamps:
Real Estate Valuation and Gold Ratio (00:02:53)
Explains the concept of using the home price to gold ratio as a measure of real estate value and compares it to the long-term average.
Global House Prices (00:05:28)
Discusses how US home prices are comparatively cheaper than those in other developed nations, such as Australia and Canada.
Impact of Quality on Real Estate Value (00:06:40)
Highlights the increase in home size, amenities, and safety features over time, suggesting that today's homes offer more value at a potentially lower inflation-adjusted price compared to the past.
The trend of sports complexes with casinos (00:12:15)
The speaker discusses the trend of building sports complexes with casinos, mentioning examples such as Mark Cuban's plan for a new Mavs arena and the proposed entertainment complex and casino next to Citi Field.
The necessity of a second job due to inflation (00:13:36)
The speaker explains why inflation makes a second job necessary, emphasizing the importance of investing money at a rate higher than inflation to maintain prosperity and quality of life.
The four groups and their relationship with inflation (00:14:46)
The speaker categorizes four groups of people based on their ownership of property and how they are affected by inflation, highlighting the benefits and disadvantages each group experiences.
The Landlord-Tenant Relationship (00:24:22)
Discussion on maintaining open lines of communication with tenants and addressing misconceptions about landlords being greedy.
Explaining Property Expenses (00:25:37)
Informing tenants about the various expenses that landlords have to cover, such as mortgage, insurance, taxes, and maintenance.
Forecasting Home Price Appreciation (00:29:04)
Discussing past predictions and forecasts for future home price appreciation, including insights from various agencies and factors influencing prices such as housing supply and interest rates.
Home price appreciation forecast (00:35:22)
Keith Weinhold discusses his forecast for home price appreciation for the next year, which he predicts to be 4%.
Investment decisions based on forecast (00:36:51)
Keith Weinhold mentions that people are increasingly making investment decisions based on forecasts, but reminds listeners that forecasts are not guarantees.
Resources mentioned:
Show Notes:
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Complete episode transcript:
Speaker 1 (00:00:01) - Welcome to GRE! I'm your host, Keith Weinhold. Today is real estate underpriced, adequately priced or overpriced? All outline a hierarchy of winners and losers with inflation in real estate. How the rent stole Christmas. Then the verdict is in as I reveal GRE’s 2024 home price appreciation forecast all today on Get Rich education. When you want the best real estate and finance info. The modern internet experience limits your free articles access, and it's replete with paywalls. And you've got pop ups and push notifications and cookies. Disclaimers are. At no other time in history has it been more vital to place nice, clean, free content into your hands that actually adds no hype value to your life? See, this is the golden age of quality newsletters, and I write every word of hours myself. It's got a dash of humor and it's to the point to get the letter. It couldn't be more simple. Text grey to 66866. And when you start the free newsletter, you'll also get my one hour fast real estate course completely free.
Speaker 1 (00:01:18) - It's called the Don't Quit Your Day dream letter and it wires your mind for wealth. Make sure you read it. Text grey to 66866. Text grey 266866.
Speaker 2 (00:01:35) - You're listening to the show that has created more financial freedom than nearly any show in the world. This is get rich education.
Speaker 1 (00:01:51) - Welcome to GRE! From North Pole, New York, to North Pole, Alaska, and across 188 nations worldwide. I'm Keith Weinhold, and you're listening to Get Rich Education on Christmas. Happy holidays. Today is real estate cheap? Adequately valued or overpriced? Well, to many it doesn't feel like a relative bargain today, when you see how much housing prices and payments have escalated these past three years. There are a lot of ways to approach the question about whether today's U.S. real estate is cheap, adequately priced, or overpriced, so let's approach them. But when you ponder that question, didn't dollars quickly come to mind? Well, the median home price is $431,000 today, depending on how you slice it. Let's not be quick to forget that when you're looking for a measuring stick to determine the value of real estate or anything, dollars are an exceedingly poor way to track value.
Speaker 1 (00:02:53) - Because also, starting about three years ago, their slow, steady debasement turned into a rapid debasement and dilution of purchasing power. Dollars keep getting so relentlessly debased that, well, of course, it would take substantially more of those dollars to buy most anything today than it did three years ago. Property included. And this is precisely why the car that you own today costs more dollars than your grandparents first home did. Okay, so let's cancel out dollars. For 5000 years, gold has had enduring value. It's been a loose barometer for inflation all that time. As the dollar goes down, it takes more of them to buy the same amount of gold. So rather than pricing the home in dollars, wouldn't it make more sense to use the home price to gold ratio? Yeah, that is just what it sounds like. Instead of comparing home prices to dollars, compare it to how many ounces of gold it takes to buy a home and track that over time. Well, we find out that today it only takes about half as many ounces of gold to buy a home today as the long term average.
Speaker 1 (00:04:12) - And that's dating all the way back to the year 1889, yet just half as many. Yeah, that is a data set in the past 130 plus years, when you take the long term average of how many ounces of gold it takes to buy a median single family home, realize how special this comparison is. You now see the value of two of the most popular real assets relative to each other. All right, so home prices now appear low since it takes just 50% as much gold to buy a home today. But isn't that measure right there in itself enough evidence to say that real estate is under priced? No, that's certainly not. But it is one powerful touch point. We need more than that. Consider global house prices. So much of the world is a renter nation compared to the US, because home prices are substantially higher in other developed nations, from Australia to Canada, Canadian home prices are still nearly double the price of the same US home. This is a second powerful measure that US home prices are cheap here in the middle of the 2020s decade.
Speaker 1 (00:05:28) - Well, let's add some more. Consider affordability. Can people afford homes? Well, there is wage growth, which often lags home price growth in, you know, your wage growth. It often lags inflation until the latter part of an inflationary cycle like where we could be now. But let's look at what really happens. Most people don't buy property based on its price as much as its monthly payment. It's the affordability of that payment that most people are looking at. Today's mortgage rates, though, they don't feel low because of where we were a few years ago. Like I mentioned here on the show before, mortgage rates are still below their long run average of 7.7%. This is another important measure of how real estate prices in America today are not overpriced. But what I'm going to do now is turn the prism in another direction here so that the sunlight strikes it differently. Let's shine the light somewhere else, because we still have not adjusted for something extremely important. When you're valuing real estate or anything for that matter.
Speaker 1 (00:06:40) - Let's look at the attribute of quality. Yes, we need to adjust for quality since 1889. And. An ounce of gold is just still that same ounce of gold. Its physical properties have not changed one bit since the year 1889, which is one reason why it's a good measuring stick and why I brought it up earlier. But in 1889, let's look at real estate. It has changed to an astounding degree. A new Victorian style home back then had sparse amenities and perhaps 950ft². And yet that was a normal sized home back in that era. In 2023, a home average 2415ft² in today's home has features that would be considered unthinkable luxuries yesteryear like air conditioning, multiple bathrooms, quartz kitchen countertops and closets vast enough that you could play pickleball inside them so you're getting more, more home today. Between today's home size, lot size, amenities, and safety features, you can make the case that you're getting five x more, or perhaps even ten x more home than you were in 1889. And you're getting that perhaps even at a lower inflation adjusted price.
Speaker 1 (00:08:13) - And the more you realize all of this, you can increasingly validate asking the question, why are homes still so cheap in America today? And there are some other factors too. But all things considered, one can surely make the case that today's US residential real estate is not overpriced. It's cheap. As we're talking about the relative valuation of homes today. Here's a hint this plays into when I'll reveal Gary's 2024 home price depreciation forecast at the end of the show today, where I will pin the projected appreciation number down to the nearest whole percent for you. That's how exact we're going to get before we talk about residential real estate again. When we discuss how the Reds stole Christmas, let's discuss a niche of the commercial real estate market here that we've never discussed that Gary, before. And it's so interesting whether you are a sports fan like me or you're not. And that is stadiums. Yes, sports stadiums have a lot to do with urban real estate dynamics, and they're even more important amidst this struggling office sector that's already hollowing out parts of some downtowns.
Speaker 1 (00:09:30) - Well, the reason that I'm telling you about this with stadiums is that it looks like a new trend now. About 30 years ago, there was a trend toward having urban stadiums beginning to use these great city skylines or old historic buildings as backdrops. Everyone points to Camden Yards in Baltimore in the 1990s as kicking off the urban real estate ballpark trend. All right, we'll fast forward 30 years to today. Earlier this month, Ted Leonsis, the owner of the NBA's Wizards basketball team and the NHL's capitals hockey team, both in Washington, DC. They announced the deal to move both teams from downtown D.C. across state lines to Alexandria, Virginia, although at last check no official documents had been signed. So, yes, moving them out of the central city, the move looks like a huge win for Virginia. By the way, it's the most populous state without any big league sports teams. That's where the two teams could play. At the heart of a new proposed $2 billion, 12 acre entertainment complex as soon as 2028.
Speaker 1 (00:10:46) - But it is a huge bummer for the nation's capital. Yes, Washington, D.C. it has one of the highest rates of people working remotely in the US, so that hollows out the urban core. DC's once buzzing downtown is still struggling to recover post-Covid. Now, DC Mayor Muriel Bowser, who has made a last minute offer to Leonsis to keep the teams right there in the city, faces the potential loss of two major fan bases and a sports hub. It's right there in the city's Chinatown area. Yeah, this could be a new trend in stadiums in shaping the complexion of urban real estate. Now Leonsis is playing for Virginia. That really places him, among other billionaire franchise owners that want to build these massive entertainment complexes near their teams in order to capitalize on this growing synergy between sporting events and other nightlife and entertainment, and part of what's really going on here. Is the legalization and the spreading of sports gambling. That's the big prize that some other franchise owners are chasing a casino as part of this complex next to the stadium, and oftentimes you're going to have to move the team out of the city center to build these big multi acre complexes that will surround the sports stadium.
Speaker 1 (00:12:15) - Earlier this month, Dallas Mavericks owner Mark Cuban he came one step closer to his dream of building a new Mavs arena in the middle of a resort and casino after he struck a deal to sell his majority stake of the team to a casino mogul named Miriam Adelson. In November, New York Mets owner Steve Cohen, along with hard Rock international, they proposed an $8 billion entertainment complex and casino to be built next to Citi Field. These are major urban projects, so this trend of sports complexes with casinos is really picking up in the nation, but not absolutely everywhere in Oklahoma City. There is an exception there. In OKC, voters approved a good old fashioned 1% sales tax for the next six years to fund the construction of a new downtown arena for the OKC Thunder, and with that agreement, the Thunder could stay in OKC through 2050. We're talking about how a trend worth tracking in urban real estate is stadiums leaving downtowns. Now, one reason that I often talk about the power of inflation ravaging most people's lives here on gray is because it's so bad that it means you need a second job.
Speaker 1 (00:13:36) - Yes, you do not in the traditional sense. But look, if you are, say, during the day, a corporate attorney or you're a financial systems analyst or you're a crab fisherman, why can't you just do a really good job at your day job in that position and then go home and at the end of the week, call it good enough? Why can't you just do that? Well, you cannot do that because if you're being paid in dollars, your second job is learning how to invest those dollars at a rate higher than inflation. Otherwise, your prosperity gets diminished in your one quality of life and one set of opportunities are going to suffer. That's why inflation makes a second job a necessity. So your second job is investing. The other reason that I often discuss this topic is because, as we know, real estate helps you profit from inflation three ways at the same time. Two weeks ago I told you that if you want to learn more about how that works with the Inflation Triple Crown, that you can go to get rich education.
Speaker 1 (00:14:46) - Com slash Triple Crown to watch my free three part video series, I did that because I've described the inflation Triple Crown here on the show before, and I don't want to be too repetitive, but seeing that it is an enduring great principle. I've got a new way to explain this to you. Whether you're a long time listener or a newer one, then you're going to get some perspective out of this. I think you're really going to like it. What we're going to do is let's look here at four groups of people and see how much they benefit from or lose to inflation. We're going to view this through a real estate lens. Let's go from the worst off group to the best off group. And then what you can do is see which one of these four groups you belong to. The first group are the poor. They don't own any property and therefore they don't benefit from inflation one bit. This first group, the poor, their grocery and energy expenses are exacerbated by inflation, but yet they have no assets to benefit from it if they have a job.
Speaker 1 (00:15:54) - But the poor tend to have the job type wage that lags inflation, so the poor lose to inflation. The second group. So getting a little better off as we move through here. They are the primary residence homeowner with a paid off mortgage. So they benefit from one crown of the inflation triple Crown, yet they are better off. Two of every five homeowners have a paid off mortgage, just like this second group does here. And if there's 10% inflation over, oh, a couple years, well then there are 500 K home price floats up to 550 K and now they got 10% more dollars. But each one's worth 10% less. So at least they didn't lose purchasing power. But they are right back where they started. So this homeowner with the paid off mortgage does not profit from inflation. They are merely hedged. Then we have the third group out of four. This third group is homeowners. Again, just primary residence owners with a mortgage. Yep. They're actually better off than Group two with the paid off mortgage.
Speaker 1 (00:17:04) - Just in terms of who benefits from inflation. So like the second group, 10% inflation makes this third group's 500 K home rise to 550 K. But this mortgaged homeowner has another benefit. There are 400 K mortgage on this property, gets water down to just 360 K of inflation adjusted debt. And that is because inflation makes salaries and wages and prices and rents float higher, making the debt easier to pay back over time. Banks and lenders don't ask you to repay them with inflation adjusted debt, they will accept your diluted future dollars. It's like they got you locked in to a contract that was good for you years earlier. That effect is called debt debasement. And this is why this third group now benefits from two crowns as primary residence homeowner with the mortgage. And then come on, you know who this fourth group is? The coup de gras landing, the deathblow to inflation because they really make out in profit, benefiting from all three crowns. This fourth group owns income property with a mortgage. If you listen to this show, you're constantly trying to add more income property with a mortgage.
Speaker 1 (00:18:30) - And that's precisely what we hope you do here in gray. And this fourth group has both asset inflation like the second group and the debt debasement benefit like the third group. And additionally the rent income will outpace inflation enriching them. Now listen to this part closely for just a minute or two because the math is simple. But there are a few numbers here. Say you begin with $2,000 of monthly rent income on your rental property, minus your $1,200 mortgage, -$600 of expenses. That's $200 a monthly positive cash flow left over. All right. We're going to add 10% inflation on all that. And this inflation could happen in one year or over a number of years like magic. Now you've got $2,200 of rent income up from 2000 minus that same $1,200 mortgage balance because it stays fixed, -$660 of expenses, up from 600. All right. You're now left with $340 of cash flow. That's up from 200 bucks before the inflation. Do you understand the significance of this? Do you see how you're really on the superhighway to financial freedom? This is big because the mortgage principal and interest payment stays fixed with just 10% inflation.
Speaker 1 (00:19:58) - You just saw the money you feel in your pocket each month skyrocket from $200 to $340. In that example, that's 70% more income, 70% more. Extrapolate that effect across your entire rental portfolio. Wow. That is called cash flow enhancement. The third and final crown of the inflation Triple Crown. You just won all three with a loan on an income property. And hey, congratulations. If you caught that and you would have had to skip back to listen again, you are really on your way to understanding a path for creating wealth in your life. Now. I sure kept that example general in order to simplify things. And also some people span multiple groups. For example, poor people in terms of income could still be homeowners. Let's review what you just learned there. With inflation in real estate, the poor lose paid off, homeowners hedge, mortgaged homeowners hedge in profit mortgages income property owners hedge profit and increase income. So look and this is kind of weird. Once you've got income property, you might notice that the price for a pound of salmon rises from 1599 up to 1899, or that a Ford F-150 truck price spikes from 50 K up to 55 K over time, these could actually be strangely positive signs.
Speaker 1 (00:21:40) - It's a soft indicator that your real estate wealth is growing, though people would think you're nuts. I mean, you might secretly start. Rooting for inflation as avidly as an NFL Philadelphia Eagles Tailgater. Now, I'm not really sure if you'll pump your fist after the first time that you pay 12 bucks for a gallon of gas. We'll see about that. Well, hey, now that you've done the hard learning coming up straight ahead, a little more entertaining here how the rent stole Christmas and the anticipated 2024 Jerry housing price appreciation forecast. I'm Keith Weiner. You're listening to episode 481 of get Rich education. Role under the specific expert with income property, you need Ridge lending Group and MLS for 256. In gray history, from beginners to veterans, they provided our listeners with more mortgages than anyone. It's where I get my own loans for single family rentals up to four Plex's. Start your pre-qualification and chat with President Charlie Ridge personally. They'll even customize a plan tailored to you for growing your portfolio. Start at Ridge Lending group.com Ridge lending group.com.
Speaker 1 (00:23:00) - You know, I'll just tell you, for the most passive part of my real estate investing, personally, I put my own dollars with Freedom Family Investments because their funds pay me a stream of regular cash flow in returns are better than a bank savings account up to 12%. Their minimums are as low as 25 K. You don't even need to be accredited for some of them. It's all backed by real estate and that kind of love. How the tax benefit of doing this can offset capital gains in your W-2 jobs income. And they've always given me exactly their stated return paid on time. So it's steady income, no surprises while I'm sleeping or just doing the things I love. For a little insider tip, I've invested in their power fund to get going on that text family to 66866. Oh, and this isn't a solicitation. If you want to invest where I do, just go ahead and text family to six, 686, six.
Speaker 3 (00:24:04) - This is Ridge Lending Group's president, Shale Ridge. Listen to get Rich education with Keith Wine.
Speaker 3 (00:24:10) - Hold and remember don't quit your daydream.
Speaker 1 (00:24:22) - Welcome back to get Rich education. I'm your host, Keith Reinhold. Be friendly, not friends. Those four words are the best concise guidance for how a landlord should keep their relationship with tenants. But there's a persistent school of thought out there among some in the general public. And it is that landlords are greedy. Landlords like you even want rent on January 1st. Who do you think you are, the Grinch that stole Christmas? Well, as a landlord, of course, you should maintain open lines of communication with your tenants if you're also managing them. When it comes to things like those top priorities, I mean repair and maintenance issues. But when I've had conversations with tenants and by the way, I don't anymore, my property managers do. Let me share with you some pieces that I have gently inserted into my conversations with tenants in regard to rent collection. This has done a lot to ensure timely payments, and they've always known then that my intent is not to steal Christmas.
Speaker 1 (00:25:37) - I see a lot of tenants. They're smart people, but they just don't understand your situation as an income property owner, often with a mortgage on your rental property, many tenants think that you just take their rent payment of, say, $1,800 and that that money is all yours for, say, a big Hawaiian vacation. You and I both know that most of that rent income is spoken for and already passed along for your expenses. One thing that you can tell tenants is, I have a big mortgage on this property to pay every month. That's what you tell them. Younger tenants are less likely to know this at all. Another thing that you can say is 90 to 95% of the rent goes toward all the property expenses, which are always going up. Yeah. I mean, these are your mortgage, insurance, property tax, maintenance, repairs, turnover, utilities and more. That's what I've called mortgage plus vim. Tom expenses, vim Thomas vacancy insurance, maintenance, taxes, utilities and management. Yeah.
Speaker 1 (00:26:47) - Even with the decently cash flowing mortgage rental, this statement is true. 90 to 95% of that rent is gone. It's not yours. Another thing you can tell tenants is I'll be in debt all my life. That's another thing you can mention. And of course, you and I both know that that's good debt. Another thing that you can say to tenants, and really, this is just something else that could be said to broader society that thinks that landlords are greedy. And you can say this, I build up my credit score, made a big down payment and put my money at risk. That's what you say? Yep. Ian, you did all this to provide good housing to strangers. How is that greedy? You can also just simply say I don't have a 401 K, and the more you listen to this show, the more you would ask yourself, why would you want one? And I'll leave you with this last one. I must constantly maintain this property. That's what you say, and you should constantly maintain that property.
Speaker 1 (00:27:52) - Now, you probably only need to bring up 1 or 2 of those sentences with tenants. The best time for you to do it is actually. Just before they're officially attendants. Say those things right at the beginning of the relationship. When you're just reviewing the lease, when you're going over that with them and they're about to sign that initial lease. Or you could also mention this months later when they pay the ongoing rent. So this is about your ongoing tenant relations. So they understand your situation. They're going to know that you're a human and you have your own set of issues in financial obligations and you have to take care of. And it's always about telling the truth. Only a Grinch would lie during the holidays. So it's always about being honest and informative. And, you know, with all of that said, it is somewhat of a paradox that all of this can be true. And yet at the same time, strategically bought property is so profitable on your side and see with your tenants, this is not the optimum time to wax poetic about how financially free beats debt free.
Speaker 1 (00:29:04) - Yes, it's really remarkable that all these statements can be true, even if 90 to 95% of your written income goes toward your mortgage and operating expenses, all while real estate pays five ways at the same time. And now they'll know that the rent they pay is not the rent. It's still Christmas, and you sure are not the Grinch. Let me prepare you for Gary's National Home Price Appreciation Forecast for 2024. First things first how well have past predictions performed? Well, let's take a look at this using the Nars number of median existing single family home prices. Understand that the forecast that I make here is always made near the end of the year, prior to the year forecast. It's all done ahead of time and unlike a lot of agencies, we don't revise our forecast later. It's all set in stone before the forecast year begins in late 2021. Recall that we had just come off a year there, 2021, when national home prices were up 20%, and some people predicted that prices would fall in 2022.
Speaker 1 (00:30:12) - Oh no. I let you know in late 2021 that home prices were going to rise a healthy 9 to 10% for 2022. That was the forecasts made at the time, and the result was 10%. Then late last year, you had more agencies predict that prices would fall. I let you know. I did not see how with such low housing supply and some of the other reasons. So I forecast 0% for this year. Yeah. Forecast, no gain, no loss. And as far as the result there it is too early to know yet. The year isn't done. All right. We'll build some context here as I make the reveal the forecast for next year. How about other agencies. What are they forecasting for next year. At last check, the NBA mortgage Bankers Association says home prices will rise 4%. Fannie Mae 3%, Freddie Mac 3%. The HP's. That is the home price expectation survey. They forecast 2% appreciation. Goldman Sachs also 2%. The Na 1%. Zillow 0%. Realtor.com -2%.
Speaker 1 (00:31:23) - If you take all of those and average them, you get a forecast of about 1.5% appreciation for next year. I'll tell you as we lead up to our forecast here, I'll let you know that it is not that close to the 1.5% average from those agencies. And none of those figures understand, including mine, are inflation adjusted. So nominal prices. All right. Well let's look at what we use to determine the trajectory of home prices. How is housing supply looking. We know demand is strong. Well with the fed active listing count data that I usually use where the normal supply is 1.5 million units or more will. The current amount is about 750,000. So it has rebounded somewhat, but it's still less than half of what's needed. And this dearth of supply supports more upward prices. Let's look at interest rates. Recent developments from the last fed meeting show us that Jerome Powell does not plan to put a rate hike lump of coal in your Christmas stocking now or anytime soon. Everyone wants to talk about how far rates are going to fall next year.
Speaker 1 (00:32:40) - But here's the thing to remember. Like I've discussed before, mortgage rates hardly matter when it comes to prices. They don't have much to do with housing prices at all, and I've discussed why a few times before. In short, that is because when rates rise, yes, it hurts affordability, but rates also rise when the fed is trying to cool a hot economy in that hot economy is what helps prices. Conversely, when rates fall, it helps affordability. But unemployment is higher and we might be in a recession when rates are falling and that constrains upward prices. You know something even real estate agents in the certification course, they have to take in those ongoing agent continuing education classes. They're taught that higher mortgage rates mean falling prices, but yet in reality, they almost never do. Just look at history. She she don't have to look any further than the last few years. Rates tripled and prices rose anyway. So when an agent prepares a CMA, a comparative market analysis for a client, agents are taught to consider mortgage rates with CMAs because higher rates put downward pressure on house prices.
Speaker 1 (00:33:58) - Yeah. Agents are taught that mortgage rates determine buying power, but they aren't taught the entire economic picture like I just briefly explained. So the point is that the direction of mortgage rates are not completely, but they're actually largely irrelevant in forecasting prices. Four out of every ten homeowners in this nation are free and clear with no mortgage. And among those that do have a mortgage 62. None of them still have a rate under 4%. All right. So if mortgage rates do drop next year from 7% to 6%, it still doesn't become that attractive for those homeowners locked in at that really low rate to sell. And yet if rates do fall to 6%, you're going to have a larger buyer pool because more people can now qualify to buy a home. Looking at the broader economy. Jobs are still being added, but many are part time jobs and GDP growth is strong. Unemployment is under 4%, CPI inflation, that's near 3%. So I'm not going to be full speed ahead with a huge number for next year's appreciation rate, because the economy, it still has a pretty substantial chance of slowing down because all these pass rate increases, lag effects could show, but that won't totally break the economy.
Speaker 1 (00:35:22) - And note something Fannie, Freddie, and FHA, they all announced higher conforming loan limits for 2024, and that's because they expect that more home price appreciation is coming. And I do too. We're a show about rental income. So what do I forecast? Prices rather than rents anyway? Well, there's a few reasons rents are more stable, so there's not as much to talk about that 15% year over year rent increase from last year that is seriously atypical. Also, as you are leveraged, you're going to get more overall gain from price appreciation than you do rents. As everything that I discussed and more has been weighed and analyzed in sprinkling in the spice of my personal experience as a direct real estate investor, I am happy to report to you here on the last show of the year that my expected home price appreciation rate for next year is 4%. Yes, a pretty historically normal 4% for next year. As the forecasts for the previous couple years, they saw more anomalous numbers, of course. What's that mean to you, the savvy leveraged investor? If you make a 25% down payment on a property, meaning you're leveraged 4 to 1 as best I can see it, you will then have a 16% return on your invested capital.
Speaker 1 (00:36:51) - Just as one of up to five ways that you're simultaneously paid. Increasingly, people make investment decisions based on the forecast any reasonable person should know. But I then be remiss not to remind you that this is a forecast, not a guarantee. Is this is the last show of the year. I trust that you've got even more to be grateful for than the expected 4% home price appreciation. I am sincerely grateful to have you as a listener this week, every week, and for another year here, as I'm sure you'll understand that I recorded this episode a few days before Christmas so that I could have a free and clear holiday. Best wishes on the remainder of your holiday season. I'll be back next week. Right on cue to talk about investing in a new way that you've never thought about before. May all of your New Year's resolutions be as successful as the home price forecast. Uh, until then, happy holidays to you and yours. I'm Keith Reinhold. Don't quit your daydream.
Speaker 4 (00:37:56) - Nothing on this show should be considered specific, personal or professional advice.
Speaker 4 (00:38:00) - Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of get Rich education LLC exclusively.
Speaker 1 (00:38:24) - The preceding program was brought to you by your home for wealth building. Get rich education.com.
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