The Reality Behind High Home Prices, with BiggerPockets CEO Scott Trench
Aug 25, 2023
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Scott Trench, CEO of BiggerPockets, shares insights on real estate investing. Topics include economic trends, demographic shifts, interest rates, remote work's impact on housing market, and factors to consider when choosing a city to invest in. They also discuss the differences between commercial and residential real estate and the current state of single-family and multi-family real estate investments.
The lock-in effect, where homeowners with low mortgage rates are hesitant to move, and the lack of new supply and inventory contribute to high home prices.
Regional market dynamics and migration trends influence the real estate market, with factors like insurance issues, political climate, and affordability varying across regions.
Rising interest rates affect new construction and inventory, making it more expensive for builders but also creating opportunities for thriving builders in some regions, with a prediction of a potential correction in housing prices in the Sun Belt.
Deep dives
The Impact of Interest Rates on Home Prices
The podcast explores the phenomenon of high interest rates and rising home prices. Despite interest rates doubling, home prices have remained high. This is attributed to the lock-in effect where homeowners with low mortgage rates are reluctant to move and give up their favorable rates. Additionally, the lack of new supply and inventory further contributes to the high prices. In some regions, builders are thriving due to the lock-in effect and are able to set their own terms when selling properties.
Regional Market Dynamics and Migration Trends
The podcast discusses how regional market dynamics and migration trends influence the real estate market. Different areas, such as the Sun Belt, Northeast, and Midwest, experience unique factors that impact demand and prices. Factors such as insurance issues, political climate, and affordability can vary across regions. The podcast mentions the influx of millennials into certain regions as a driving force behind demand for housing.
Impact of Interest Rates on New Construction
The podcast explores how rising interest rates affect new construction and inventory in the real estate market. It is mentioned that higher interest rates make it more expensive for builders, which contributes to a lack of new supply. Surprisingly, builders in some regions, like the South and West, are thriving due to the lock-in effect. However, there is a prediction that the increased supply coming online in the next few years might lead to a correction in housing prices, specifically in the Sun Belt.
Syndications and Market Predictions
The podcast mentions syndications and discusses potential risks associated with this form of investment. It emphasizes the importance of being educated and understanding pricing, asset classes, demand dynamics, and exit strategies. The market for syndications is considered to be in a turbulent state, and investors are advised to approach it cautiously and thoroughly evaluate the risks involved.
The Impact of Rising Interest Rates on Real Estate Investments
The podcast episode discusses how the current rising interest rate environment is impacting real estate investments. In a low interest rate environment, investors were able to make significant returns and financial models exploded. However, with interest rates increasing, investors can no longer buy properties at low cap rates and expect high returns. This has led to challenges in the real estate market, with many investors losing money or facing long-term lock-ups. The dynamics of cap rates and NOI improvement are explained, highlighting the multiplier effect and the potential risks associated with high leverage.
The Importance of Housing Supply and Increased Density
The podcast emphasizes the significance of housing supply and the need for increased density, particularly in the face of the NIMBY (Not In My Backyard) effect. The discussion highlights the imbalance between demand and supply, with low inventory and limited new construction contributing to high housing prices. The challenges of increasing housing supply are explored, including zoning restrictions, labor supply, and fluctuations in the construction cycle. The importance of retrofitting existing properties and adding density, as well as investing in residential real estate, is emphasized as a way to address the housing affordability issue.
#458: Today we chat with Scott Trench, the CEO and President of BiggerPockets, a real estate investing education company with more than 2 million members.
He joins us to share cutting-edge insights on today’s real estate market. We discuss economic trends, demographic shifts, and talk about how interest rates impact home buyers.
Whether you're a potential homebuyer, an investor, or simply curious about the housing market, this conversation will shield light on what’s REALLY happening in today’s confusing real estate market.
