Latest / Real Investor Radio Podcast / Ep26 | End of Year Wrap Up - Fed Rate Annoucement & Powell's Comments

Transcript

Ep26 | End of Year Wrap Up - Fed Rate Annoucement & Powell's Comments · Real Investor Radio Podcast

• craig fuhr (00:09.498) Hey, welcome to real investor radio. I'm Craig Fuhr back again with Jack BeVier. Thanks for joining us today. Jack, how are you? Jack BeVier (00:17.89) Doing good, doing good, great to see you. craig fuhr (00:20.29) We were just talking about Christmas prior to Jack's feeling slightly under the weather. He's going to go get himself a sweet IV today. You are. Jack BeVier (00:29.774) I've done the IV after Vegas, you know, just to like keep it going. Cause you know, three, four days in Vegas is just too much. So halfway through, you got to call a timeout and like, go get that IV to keep it going to head to the pool party later. So I've done that before and it was super helpful. I've never considered it an actually healthy context to make myself like, you know, from a restorative point of view, to get me back to normal from being actually sick. So, uh, but you know, it's worth, I'm intrigued. I'm going to give it a shot. craig fuhr (00:38.932) Right. craig fuhr (00:57.57) Well, as you know, Jack, I'm an old man, 56 years old, and I still sing in a rock and roll band. And tonight we have a big gig. And I never know what voice is going to show up at this age, Jack, never know. So yesterday I went and had my second IV of the week, and I'm feeling like I could take down a lion right now because I got packed with vitamins yesterday. So got a lot to talk about today, man. And as a backdrop to what we wanna talk about in terms of the... sort of the five year going down just fed lowering rates and sort of an outlook for the next few months and maybe 24. I thought we could start off talking about what we're seeing over the last month or so in housing. So I've got a few reports here from Wolf Street, Wolf Richter, Jack and First one here was done on December 19, 2023. You guys can go to wolfstreet.com, I believe it is. And residential construction gains, steam ahead, single family starts jump to the highest since spring of 22. Multi-family rises from the ashes. This guy has a way with words. He is, I wouldn't call him as a bullish on the market as others, but. confronted by mortgage rates that make it tough to sell houses at May of 2022 prices. You're gonna love this one, Jack. Home builders have adjusted and their quality reports have spelled out how they're going to do it. Building smaller houses, Jack. Consumption. They're de-amendatizing houses with cheaper appliances, countertops, etc. And most of all, they're buying down the mortgage rate. Jack BeVier (02:32.448) There you go. craig fuhr (02:43.81) Jack, I've seen some of these builders going down to like 2.9% for a teaser one year, and then the rate starts creeping up over the next, I think, three or four. Have you heard that? And if so, speak about that. Jack BeVier (02:49.218) Mm-hmm. Jack BeVier (02:56.018) Yeah, yeah, that's become a very popular incentive that builders are putting in place to get folks to qualify, right? It kind of exploiting the idea that the consumer believes that rates are going to come down over the course of the next couple of years. So, you know, the whole, the whole Mary, the house, state, the rate thing, um, and builders in order to prevent values, you know, in order to avoid price drops, right? Which then you have to, once you set a comp within your subdivision, you know, you're married to that comp for the rest of the subdivision. So rather than do that, they've been finishing basements, giving away free decks and offering rate buy downs to keep that V number, um, where they want it so that they don't cannibalize their appraisals throughout the rest of the subdivision. Um, we've actually even, we, I, I just, I, you know, rip, rip that idea off. Basically we happen to own a mortgage company. And we also happen to own a flipping company that We'll probably sell about 80 houses over the course of the next 12 months. So, and we can do consumer residential mortgages. We don't do very much of them. We don't do very much of them at all, but we can. We're licensed to. And so I actually put in a builder incentive program in place for our flips that we're selling so that we can offer rate buy downs just like the larger builders are, which, you know, my thought was, hey, that's an interesting competitive advantage that most flippers can't offer. craig fuhr (04:03.04) Mm-hmm. Jack BeVier (04:22.146) and in a, you know, in a little bit softer market, you know, why not pull that tool out of the bag? So I think it's a great idea. And we, you know, it'll be interesting to see with the new, because mortgage rates have come down a little bit over the past month or so, what effect that has, and which the which of the incentives, the builders drop, if any, you know, first. Is it the deck? Is it the finished basement? Is it the rate buy down? craig fuhr (04:57.578) Hey, let me ask you this. I saw some builders the other day that are offering like that one year teaser, 2.9%, 3%. As a guy who writes millions of dollars of mortgages a month, what in the heck must that cost, even at their cost of capital these days, Jack, what must that cost them to buy down that rate to 2.9% for a year for the builder? I mean, what are they giving up in their overall profit on that? Jack BeVier (05:21.708) Well, it's- Jack BeVier (05:26.762) Yeah, it's pretty much a one to one buy down, right? So like, if mortgage rates today are, let's call it today, 6.9% and you want to buy it down to 2.9%, that's just four points. So it's essentially the it's, it's actually less than four points of seller help. So if you were going to say, you know, hey, I got to give 4% of seller help that you're giving four points on the full purchase price. Whereas if you're working with somebody buying a million dollar house and putting 25% down, you're offering four points on 75% of that purchase price. So it's, it's a little bit cheaper than, than seller help, but the math's pretty easy. It's like a straight buy down. Now where the math gets a little bit more complicated is when a builder offers a, a 30 year buy down, not just a one year buy down or a two year buy down or three year buy down, but a 30 year buy down. That's when you actually have to, uh, talk to the loan buyer and say, craig fuhr (06:06.391) Okay. Jack BeVier (06:25.186) or look at what the loan buyer rate sheet looks like. And right now, for example, in DSCR, the buy down, and I think it's pretty similar in resident consumer mortgage right now, as well as four or five to one. So if you wanted to buy the rate down by a full point for the 30 years, it'll cost you a. craig fuhr (06:28.983) Mm-hmm. Jack BeVier (06:48.63) at least five points of that mortgage, you know, to 5% times the mortgage amount to buy that rate down permanently. craig fuhr (06:57.226) Okay, so goes on here to say that the contract prices of new houses have dropped by about 18% from a year ago while sales volume was held up. So I thought it was interesting. The next story here was here come new listings of existing homes price drops further demand remains at collapse levels. This guy loves the word collapsed levels. It's very much very much bearish here but The national median price of existing single family houses, condos and co ops whose sales closed in November of this year dropped to about $387,000 down 6.3% from the peak in June of 2022. 2023 is the first year since the housing burst when seasonal high in June was below the all time high a year earlier. In other words, June 23 was the first lower high since the housing bust. craig fuhr (07:55.011) and in 2008. So Jack BeVier (07:57.866) Yeah, so something about that math, it's going to get muddy here. Like looking at the median price or the average price year over year is fine when we're comparing the same housing stock year over year. But as you just pointed out in the previous, you know, article that if builders are building smaller houses and that's what's available, well, then the median price is going to go down. Even if the cost per square foot stays the same, even if the same store, right. It's like same store sales versus. craig fuhr (08:01.328) Mm-hmm. Jack BeVier (08:27.17) versus gross sales. Even if the same house price is flat or goes up, you may still see a median price decrease. Now, economists know that, right? And so there's indices like the K. Schiller Index, which is a same store index, right? It compares the average sale of what it attempts to find the same house prices and compare those over time. So you can actually get an more of an apples to apples comparison of what your house is going is your house going up or going down as opposed to like the whole market, which is, you know, less, less interesting. You know, that's what consumers care less about. Yeah. craig fuhr (09:10.03) agreed. And I don't know if those there's always a slowdown in the fall and winter too. And I don't know if those numbers are seasonally adjusted or not. So wolf street.com wolf Richter and he's got some great stories on there. I'd advise everybody to go check it out. Jack, you reached out to me after I am in Scottsdale. Check out our last episode on our I am and wrap up. You reached out to me regarding the rate drops that we've been seeing lately. And we thought we would do a riff on that today. And I have some things I'd like to throw in, but yeah, why don't you start us out with what you're thinking. Jack BeVier (09:47.818) Yeah, so the big news was last Wednesday's Fed meeting, the Fed as anticipated did not move their target fund fed funds rate up or down. But what was of great surprise was the commentary from Powell was remarkably dovish given, you know, he talked about He talked about that the Fed anticipates that they may have three rate cuts during 2024. Of course, he didn't speak to the timing of those rate cuts, which is an important factor. But you saw the market, some kind of bears in the market in Wall Street pricing as many as five or six rate cuts during 2024, which is really kind of like that was really the bear case for a hard recession. I guess surprisingly Fed Powell came out and said that, or indicated that there may be, they expect three rate cuts. Now given how hawkish Powell has been for the past two years now, right? He's been banging the drums that there's going to be pain. We're going to need higher rates. We need to get inflation under control. That's the, you know, the main priority. And he's been banging that drum. Even when, you know, no one wanted to hear it. and he just kept banging that drum and then he just kept doing it right and we all just you know you know he really you know rose rates in the very restrictive territory um what so to hear him come out with some actually dovish comments and talk about rate increases rates sorry rate decreases this year right before he was just saying like it's going to be higher for longer higher for longer higher for longer and then he put a time frame around not just a rate decrease but three craig fuhr (11:22.935) Mm-hmm. Jack BeVier (11:44.006) Um, the market just went nuts. Like the stock market took off, uh, mortgage rates tightened up significantly. Uh, the five year came down, the 10 year came down the, all the bulls, uh, for housing are like, you know, you know, yeah, jumping up on their desks and like dancing and doing the, you know, I told you so, nanny, boo boo, like, you know, like, you know, the sky is not falling. And so like, it was a real. Like. craig fuhr (11:48.488) Mm-hmm. craig fuhr (12:00.95) Back to the races. Jack BeVier (12:13.362) real excitement like, hey, the worst is over. It's behind us. The war is over, right? The war against the American economy is over. We're going to put the worst of it behind us and it's going to be all blue skies going forward. It may take a little while, but you know what? It's going to get better and we should all be happy about that. So, and we've seen over the course of the past month, even before this meeting, mortgage rates were starting to drop and then they dropped more. craig fuhr (12:31.915) Mm-hmm. Jack BeVier (12:42.346) in the wake of this, these comments, the feds comments, and we've seen a, you know, a hundred, you know, between a 75 and 150 basis point decrease in mortgage rates, depending on the product that you're looking at, which is a huge, you know, that's a huge decrease. Now we've, yeah, yeah. Now I'm sure we've still seen a, we're still, you know, there's still craig fuhr (13:02.126) Phones are ringing off the hook. Jack BeVier (13:09.514) high, very high relative to the past five years. But, um, but some relief, right? Um, and we, we've definitely seen it, as you just mentioned in the, uh, in our borrowers who are borrowing DSCR loans, um, because they're, that product is directly tied to the five year. And so the five year came down below 4% for the first time in a year, it feels like year and a half. craig fuhr (13:32.398) I think it stands at about 3.86 right now, Jack. Jack BeVier (13:35.178) Yeah, which is much better for mortgage rates. But I think we can, I think we can print like, I think we're printing like sevens, like low, like low sevens, if it's a lower LTV deal, like high sixes right now, which, you know, kind of start. craig fuhr (13:46.946) Haven't seen any high sixes yet, but I'm anxious to get a few of those. It's mostly seven and eight, you know, for lower LTV. Jack BeVier (13:50.732) Yeah. Yeah, yeah, okay. So if we, you know, that starts to work, it kind of starts to work again, you know, like that's not so it's not so brutal anymore. craig fuhr (14:02.871) I think what it does, Jack, is it gets people sort of more optimistic, a little exuberant, you know, they're feeling a little relief. Yeah, so, mm-hmm. Jack BeVier (14:10.294) Mm hmm. And so there's, I think we're seeing, we're seeing already a release of some pent up demand, um, for the investors who were like, I'm not doing it eight and a half, not doing it, not doing it. Um, you know, we saw some, you know, some stuff getting into the nines, right? If it was like a weird product or a low ratio, like low DSCR, like those rates were getting up into the nines and 10 range, which was crazy, right? Like who's, why, you know, you only taking that if you need the money, right? Uh, cause it's cheaper than hard money. Um, But so we're seeing a, we're seeing definitely a release of pent up demand. And I've got some thoughts on whether people who are still on the sidelines should continue to wait or not. Um, because they're headed down, right? But like, what, but what are they going to do next week and where are they going to be 30 days from now? Uh, that's a different question, right? So, um, anyway, so that was the, That was the big news last week. It was the Fed commentary and a lot of like exuberance from folks who were like, hey, you know, we should see an increase in transaction volumes. These rates actually work a little bit better if we're trying to build our rental portfolio. And if you're a flipper, it could be you know, there's hope now, which is a word we haven't used in a while, or it's been a four letter one for a while. That's it could be a strong spring. So That's kind of the vein of stuff that I wanted to chat about a little bit. That's kind of the backdrop there. craig fuhr (15:38.305) Mm-hmm. Jack BeVier (15:40.054) Um, so I think that, so here's, here's my, I, I prepped you for, I haven't told you about this, but I prepped you that I had a conspiracy theory that, um, I can't help myself. I gotta like, yeah, yeah. And I'm not generally a conspiracy theorist, but most, I'm sure most conspiracy theorists preface their conspiracy theories with that statement though. So yeah. Yeah. Um, so something that really. craig fuhr (15:46.679) hell. craig fuhr (15:51.318) You know I love a good conspiracy theory, Jack. craig fuhr (16:01.97) always with all due respect. Jack BeVier (16:08.714) just like I'm scratching my head about it's is that Powell's comments were he was higher for longer, higher for longer, higher for longer, there's going to be pain. And out of out of seemingly left field, from my perspective, out of seemingly left field, he goes pretty dovish and even starts to talk about three rate drops. That is to me a remarkable reversal, of course. And for If your job is to be the guy at the tiller of the American economy, keeping inflation down and unemployment down, surprise, yanking the tiller is the worst thing that you can possibly do. Right? Like it scares everybody, a whole crew doesn't know what's going on. And though they're happy, you know, everyone was happy with this news. And so everyone's kind of like, oh, like, oh, really? Like, we're going to get three rate hikes this year? Like, well, that's That's great. Like certainly the housing market is very happy to hear this positive news. I'm skeptical that, uh, that he, that he came to these conclusions, that they came to these conclusions on a purely quantitative basis because why wasn't he saying anything along these lines at the last meeting and how did you go from higher for longer, like, right? Like just screw you higher for longer to. craig fuhr (17:26.986) Mmm. Jack BeVier (17:36.526) three rate cuts in the next 12 months. And I hate I hate to hear myself say this, but I feel like there's like some politics going on here. And we started this, like we've started to see inflation come down, it was down again, PC was down another like 10th of a point. But it's not in the 2% range, which was what he was banging the desk about two years ago. And, and we've craig fuhr (17:47.554) DFA. Jack BeVier (18:04.434) and jobs have continued to be strong, but the consumer continues to weaken. And so now we had a really nice like headline GDP number for 2023, but the forecasts for 2024 and 2025 are much lower, right? There there's still conversation of as to whether we're we might go into a technical recession. And so I just feel like it was almost a little if he believes that then he, it was a little, I think irresponsible to be, to give comments that were going to be received with such exuberance by the market. Like better to let the market come to that conclusion. And then, and then, you know, in June, right? Like he's not saying at the next meeting, we're doing rate cuts. He was probably very, he was pretty clear actually to say, to not say that. So why are you talking about something that's going to happen six months from now? Six months ago, you didn't know like, craig fuhr (18:47.99) Mm-hmm. Jack BeVier (19:02.806) You know that the six months is an eternity right now. So why the hell are you talking about 12 months from now? It just seems other than. If. craig fuhr (19:11.938) Did you want me to answer the question or are you gonna answer it for us? Jack BeVier (19:14.614) I'm gonna get there. I want to I'm building up to my I'm building up to my like, you know. Yeah. Other than if, if there is a recession in America in the third quarter of 2024, the incumbent is going to lose. I don't care if he is red, blue, purple, yellow or green, he is going that individual man or woman who is in office is going to lose if the comp if the country is in the midst of a recession. Come November. craig fuhr (19:18.132) love it crescendo Jack BeVier (19:43.906) come electing time. It's the economy. So it's always the economy stupid. And so, frankly, and Biden has been getting his butt kicked from a polls point of view. And, you know, just more concerns about his ability as a president, and I'm not trying to make this a political thing. But I don't frankly, it doesn't matter who's in office, like this timing just raises my freaking eyebrow. And now I don't bring that up because of the political aspect of it. craig fuhr (19:44.139) It's the economy, stupid. craig fuhr (20:01.262) Of course not. craig fuhr (20:08.77) Agreed. Jack BeVier (20:13.086) I bring it up because running my business, the question that I need to answer that the hard look in the mirror that I need to take is do I believe it? Like, do I believe that the economy is ready for three rate cuts? Do I believe that mortgage, that mortgage rates should have come down 100 basis points in the past month? And because of my political, you know, because of my skepticism on the political side of things, and my concern that this is not purely a data driven decision by the Fed, I have some reservations that rates are going to stay at these lower levels. I could see us if we already saw the stock market take off on this, if the consumer starts to feel a little bit better and start spending again and businesses start to feel a little bit better and start increasing prices because they think consumers are willing to spend it, we could have inflation. slide back up. And when that happens, if and when that happens, the Fed will be forced to say, Hey, yeah, never mind. You know, like we looked, we're gonna follow the data, right? Like all of a sudden, they're gonna be like, Oh, wait, never mind. You know, we're following the data. And the data indicates that we can't decrease price or we can't decrease rates this year. And then mortgage rates come back up because everyone's like, Ah, yeah, you know what, we're not out of the woods yet. Let's get past this election. And certainly an election year is, you know, a time of like considerable, considerable risk, right? Because you don't know what's going to happen. So like, why would we be seeing tightening going into an election year, other than it being a bit manufactured? And so I'm, I'm refinancing some houses. That's what I'm doing is because I don't really believe that we should have seen 100 basis point decrease in mortgage rates. And, and so That's that that's why I'm bringing this up is the business implication for me leads me to be skeptical of these rates. And I think that it may be a little bit mispriced, particularly given in, going into the risk environment of the next 12 months. And so I think it's probably some good debt to add on balance sheet right now. Um, you know, obviously I'm talking to my book a bit can free do loans, but yeah, go ahead. craig fuhr (22:23.714) So before we get to this sort of. craig fuhr (22:29.238) Sorry, man, I want to come back to the, well, how does it affect real estate investors and maybe how we should prepare for it now, 30 days from now, 100 days from now. But a couple of things that I thought were interesting with what you were saying there is, is the decision based on data or is it based on giving us some sugar in an election year where the incumbent is really, really compromised and is losing in almost every poll, including those that tend to skew more towards the incumbent side. And again, I think we should be very, very clear here. Let's be adults here. This is not a political discussion. It is purely factual. Let's face it, Biden is really taking some wind in office right now, one of the historically lowest approvals of any president. And I think they're doing all they can do to keep him in office. including, you know, lawfare against the other side. So election year tactic, it's not hard to take that leap, Jack. So I can't disagree with you there. I wonder though, Jack, about like some of the lagging indicators that we might not be seeing yet that could rear their ugly head and maybe not have the soft landing that I think the Fed is kind of signaling that they want to engineer here. You know, I think I think we've seen some layoffs. I wonder if more are coming. I think that food prices are still very high, which I don't believe are considered in P.C.E. Housing is still ridiculously unaffordable, which is not considered in P.C.E.. I just don't see how the consumer jack is feeling any relief from. Jack BeVier (23:57.678) What are you thinking about? craig fuhr (24:25.622) you know, from the Fed move or frankly, over the last several months, I don't see how the consumer is feeling this great economy that the White House and others tell us that we're experiencing right now. Jack BeVier (24:39.71) Yeah, I completely agree with that. And then particularly on the housing side, okay, great mortgage rates are down a little bit, but so you're going to, we're going to release some pent up demand, right? And by the way, for everyone who's flipping, flipping a house, or even maybe even considering buying a house right now, that doesn't happen like the next week, right? Like mortgage rates have been dropping. There was some very positive data last week for, you know, coming out of the feds comments, the market is down, you know, the mortgage rates are down even more. And so, You go home, you know, getting ready for the holidays. You have conversations with the wife and the family about, hey, do you want to get back out there? You know, we can now, you know, I called the mortgage guy and we can qualify for that house that we want in that school district that we want now. And maybe we should get back out there. And then in January, you start looking at houses. You get your pre-approval letter. You start, you know, you find your real estate agent, call them up, start looking at houses. look at stuff and you put something under contract in the middle, in the end of January. So we're not going to see a spike in activity from a housing contracts point of view for a month. We're not going to see transactions happen as a result of this decrease in mortgage rates for two months. Maybe you see a little baby spike in refis 30 days from now, but there's still not a whole lot. The refi volume is anemic still, even at these, even with a drop, like we're still, there's a huge spread, right? Between what most people's mortgage rate is and where they're at today, even with this drop. So there's going to be a lag. It's going to take a little while for us to really discover what the actual impact on consumer behavior is now in the same con in the, in the same vein, there's no new supply happening here, right? So like even if these mortgage rates come down enough, to make someone who has a 3.5% mortgage move to the other location that they really wanna be in and they can, and you know, and at 6.5, yeah, screw it, we'll do it. You know, we're not happy about it, but we'll do it. And they make that decision. That's one purchase, one sale, right? But it's neutral from a supply point of view. Whereas the demand that this is going to release, the pent up demand that these lower mortgage rates is gonna release is for the first time home buyer. And... craig fuhr (26:38.281) Mm-hmm. Jack BeVier (27:00.086) The first time homebuyer doesn't add any new inventory to the market. And so we're going to see supply. I think we're going to see inventory go down. And as a result, probably prices go up. craig fuhr (27:13.477) So I was on, did you catch that webinar the other day with Altos update? Jack BeVier (27:19.294) I didn't know I love that though I love out this but no I didn't see it. craig fuhr (27:25.642) I didn't catch it. But I'm sorry, I caught I caught the webinar, but you're breaking up on me here. So I did catch the webinar and they're predicting sort of a sideways market next year, maybe a rise of like six, 8%, but nothing sort of a sideways slog up down. Yeah, in prices. But definitely no, no massive increase in inventory. They're not you know, Jack BeVier (27:25.723) What were they saying? Jack BeVier (27:40.662) in prices. craig fuhr (27:53.698) defaults foreclosures. There has been an increase in foreclosure starts, which tend to manifest itself 30 to 45 days later, which they're watching, but it's still relatively low. So the feeling I got was, hey, this is the market we're in. Consumers are starting to get used to these rates. And so they're saying to themselves, this is what the new thing is, so I guess we got to get used to it. many have sort of lost hope that we'll ever be back down in that 3% again. There are other feeling was, you know, all of this is predicated on a recession. So they're still, uh, sort of wish washing on whether or not that would happen. I do have a friend that works pretty high up at visa Jack and he was, uh, he was talking about, um, sort of the analysis that's come out of their department there and they're predicting no recession next year. you know, sort of a very, very easy soft landing. And when I say this guy's pretty high up, he's pretty high up. So he gets pretty good analysis and data. So I thought that was interesting. Jack BeVier (29:04.318) Hey, let's talk about the so to just take here, right? I mean, that's their core business. So like, as let's talk about that, that extra extrapolation, what you just said about, about home buyers coming back into the market, right? So they get their, you know, these new mortgage rates, they're like, Hey, I like that house. And then, you know, those houses that are out there on Zillow. And so they start to look at stuff, we may, I think that it's very possible that we find ourselves in a very, as a flipper, this, I think this matters to flippers. craig fuhr (29:05.503) and Visa would know. craig fuhr (29:11.409) right. Jack BeVier (29:35.09) in an early spring market because with the new pre-approval that you just got like yesterday, the sooner you get a house under contract, the more you've actually got, you actually capitalize on your increased purchasing power based off of that lower rate. If you wait until March, April to start looking at stuff, when everybody starts doing that, you're just going to give it all back in paying more. I think we're going to see another... low supply, multiple offer spring. And as a result, another five plus percent increase in housing prices. And so if you're the guy putting a contract, a property under contract in May, you didn't make up any, you didn't take advantage of the lower interest rates. Whereas if you do it in January, February, while the sellers are still, you know, you know, while the sellers are still like, you know, not used to getting full price in a week and actually like really psyched about that right now. craig fuhr (30:24.075) Mm. Jack BeVier (30:32.634) I think those folks may actually capitalize on the increase in purchasing power of the lower rate. But by May, those consumers will have given it all back in housing prices. Now that's good if you're a flipper. It's good if you're a flipper because you either get full price a month from now or full price plus 5% three months from now. So that's still probably working. I think it's going to be a good spring as flippers go. But as home buyers go, I think that, you know, I think that they're on the clock to take advantage of seller sentiment, today's seller sentiment before showing activity starts to spike up 30 days from now. craig fuhr (31:15.434) Yeah, I think the big talk here that I'm, you know, the sort of the sentiment around the interwebs that I'm getting is lower rates, even at the rates that we're seeing now is going to unleash, you know, all of this pent up demand. And it's going to happen quickly, thus increasing home prices even further on a very supply constrained market. I don't, you know, it's still a very, let's speak. directly to the guys who listen to our show that you know, not the not the home buyer, but the investor. It's still a really difficult time to be an operator jack, right? I mean, it's still I mean, the cost of a deal these days, insane. The cost of a lead. Tell talk about quickly, you know, maybe a slight pivot here, obviously, but let's talk to those guys. And, you know, with regards to sort of how they're operating over the next, you know, few months. Jack BeVier (32:16.334) I think that landscape has remained difficult because we haven't seen this spring happen yet. And so frankly, I'm optimistic. As a flipper, I'm optimistic about the spring, much more optimistic than I was a month ago. Flippers have been operating in a high interest rate environment where their cost of capital is high. craig fuhr (32:26.478) Mm-hmm. Jack BeVier (32:44.01) Materials costs have come down some but not a ton labor hasn't been broken, right? so labor is still elevated and so you're still you got and getting a little bit of Leverage back on your contractor because he doesn't have quite so many jobs But but he's far from like cutting you a deal to keep working to keep guys busy and And then deal volume is still the really, you know, the deal volume is still like the big driver there. We're like the cost of acquisition of a deal and the energy that you have to spend as the owner or the, you know, the, the acquisitions person to find deals is still, it's still very, very difficult. I think it's softened over the past 90 days a little bit, but now I think it's going to, it's going to get harder again. That I think that aspect is going to get harder again because Powell has introduced some hope through these, you know, through his comments, which led to lower, lower mortgage rates. And so folks who may have been thinking about going and getting a day job, maybe they hang on, you know, maybe they're like, Hey, you know what, honey, we're going to, we're going to make it through this. We just, you know, three more months and it's going to be a great spring and we're staying full time. Right now that's. craig fuhr (33:51.358) I know a guy that got a day job, Jack. Jack BeVier (33:53.87) Hey, and it's and it's what you got to do, you know, like, it's freaking hard. So, and the day jobs are hard. So anyway, I think that I think that I think that certain things are getting easier, certain things are staying harder or getting hard earth and certain things are going to get harder. So I don't think that it's going to be like, I, you know, selfishly, I was hoping that this didn't happen yet because I was selfishly right? Like just hoping that some more competition was going to disappear from the market to increase flipper margins. Because you know, as competition drops out, there's fewer bids and on average, you're able to make a little bit more on the deals that you do find. So I'm a little like, ah, like, you know, I think margins are gonna be tighter, but I also think it's a less risky environment as a flipper going into the spring. craig fuhr (34:29.122) Hmm. craig fuhr (34:40.354) Mm-hmm. craig fuhr (34:48.846) So I'm making my Christmas list for Jack. And it is all I want for Christmas is more distress inventory and less competition. Jack BeVier (34:57.034) Yeah, I hate to be I hate to be that. Yeah, I hate to I hate to be that you know, but hey, that's the market, right? Like it's a it's a competitive in market. I like to compete. So I do love a bit of shouting for it. Right? When my competition is struggling a little bit. I don't mind it. You know, I don't mind it. craig fuhr (35:13.442) So back to pal and we'll finish up here. So one of the things that I always, I guess I find very interesting in the macro side, Jack, is how does a country, a post-industrial country, survive when you've got rising debt? We added a trillion dollars of debt in one month, Jack. So by the end of this month, we'll be up to $34 trillion of national debt. And back in November, I'm sorry, March of 23, you had the collapse of Silicon Bank and Signature Bank on that was March 10 and March 12. On March 13. The Fed introduced what was called BTFP, the bank term funding program. And I think Jack that part of the feds move. not only has to do with, it might have a sort of political side to it, but I think banks are really, really hurting right now and no one knows about it. If we pulled 99% of investors, and I think even some of the better investors out there, Jack, I bet that none of them would have heard of BTFP and the fact that banks have borrowed over $400 billion. since March of this year to backstop their long-term debt with, I guess, shorter term debt from the Fed. So that balance now, they are paying the balances back, which I guess is some good news. But it still sits today at around $120 billion. It floats up between $114 billion and $130 billion at any given time that banks are borrowing from the Fed to backstop their losses. So That's part of what I see with Pal. He's like, oh, wait a minute here. I mean, these high rates are killing these banks with this very low short-term debt, or I'm sorry, long-term debt. What are your thoughts there? Jack BeVier (37:14.558) I think that the banks, I mean, as a real estate investor, we've seen the banks just receding, right? Over the past eight months now, nine months now, and just pulling back and pulling back, I think largely the largely the commercial real estate concerns that have are still unrecognized to a great extent. And so that's the, that's also this next shoe that we all this, you know, that hasn't gotten as many headlines recently, right? That it was a big deal the past year to talk about commercial real estate, but then it got kind of quiet about commercial real estate the past 60, 90 days. And it didn't get better, right? Like it hasn't gotten any better. So and it's still largely unquantified. And so I think a lot of the banks were borrowing that money to backstop their balance sheets so that they could set up specific loss reserves to be able to shed some of this commercial real estate loss exposure that they have. And you haven't seen, you know, with this, this kind of like, we may still be going into a recession or at least a lower growth and lower growth environment. You know, back to your comments on the consumer, right? Like the banks live or die based off of the strength of the consumer. If the consumer has got a bunch of cash, they put it in the bank. The bank is able to use that money cheaply to go make loans at higher rates. And that's how they make money. But right now you've got sustained high deposit rates. I don't know if deposits are shrinking or flat right now, but they're not up. And still an unquantified CRE exposure. So I agree. I think bank still, you know, I wouldn't, you know, owning bank stock right now is not great. And I don't think that it's going to get better in the short term about that. And that's like, I agree with your point about that's a better connection to what's really going on in the economy than the stock market, for example. craig fuhr (38:45.954) Mm-hmm. craig fuhr (39:09.43) Yeah, I mean, it's the oil that greases the skids. It's very consumer based. If consumers continue to hear about banks failing, and I think there's just a really, really negative outlook and sentiment that there's a pall against a people's sentiment in an election year as well. And I think, so, you know, I just, I think that banks are hurting way more than people are letting on. And as they, begin to fail, the Fed's not going to be buying these things. They're going to be selling for pennies and dollar JP Morgan. And so I think we'll continue to see more consolidation in banking over 2024 without it hitting the news. Jack BeVier (39:56.006) I hear that. I hear that. I think that's probable. craig fuhr (39:59.166) I just don't know if, and I think the ramifications of that are long-term bad for the consumer and for the country. When you've got essentially four or five banks that own all of the banks, right? And they're buying up assets at pennies on the dollar, which is great for us as investors buying things for pennies on the dollar, but not necessarily for banks. So yeah. Jack BeVier (40:23.446) Yeah, haven't seen as much like, you know, I still feel we're early on the whole commercial real estate side of things. Like, either those deals are, I mean, the feedback that I've gotten when I've gone to conferences and asked this question directly of those banks is that a lot of, you know, deals are getting punted. If someone's paying, you know, the deal is getting restructured, restructured. It's a blend and extend, you know, mentality. No one wants to take the loss. It makes the business to see it makes economic sense for the bank not to take the loss. It makes economic sense for the general partner of the fund not to have to tell his LPs that they have to take a loss like no one really wants to restruct to foreclose on the asset and resell it at and be you know, and have to go do price discovery and figure out where market is for office building in Wichita, right? Like no one wants to know the answer to that question. So craig fuhr (41:19.152) Mm-hmm. Jack BeVier (41:20.886) You just clip the coupon that you can. And if the operator is continuing to do the best that they can given the market environment, that's the economically rational thing for the bank to do. Now, does that mean that the bank is going to, but that means that the bank is going to have an under, not a non-performing, but an underperforming asset on its balance sheet for an extended period of time. which is going to prevent that bank from being more active in the market because it doesn't have the cash. It's got this underperforming loan, right? Like it's, it's borrowing money from the fed at 5% and it's only clipping a coupon from this investor at four when it should be clipping a coupon at eight from that investor. But it's rather than take a loss, rather than write off half the equity, you know, right, right off, half the principle rather of that loan. Um, it'll just clip the four, right? Like it makes sense for it to just like clip the four and craig fuhr (42:04.022) Mm-hmm. craig fuhr (42:16.919) but let's. Jack BeVier (42:17.218) We'll just do less business, play more golf, clip the four and play more golf for the next three, four years until we work ourselves out. craig fuhr (42:23.646) let the fed backstop the rest. Jack BeVier (42:25.663) Yeah, right. craig fuhr (42:28.174) All right, man. Well, great episode today. Just as a heads up to those who listens, man. And frankly, Jack, I'm kind of surprised. I've met several people lately via email who have reached out to me as well as at IMN who have said they're loving the show. So that's great to know. We've got some really cool episodes coming up. Jack sat down, I guess maybe over a bourbon or two and sat down and wrote out like some really great guests that we can get on over the next several months, maybe for the entire year. So we're really excited to bring on a whole bunch of guests from all different walks of life from attorneys to great investors and multifamily to realtors that we know, just really top notch people that we're going to bring on to the show. So look for that in the new year. This will be the probably our last episode. No, I think we're going to do one next week. Did we mention that? Yeah. So not our last episode of the year, but want to wish everybody a Merry Christmas. Merry Christmas, Jack. Thanks, brother. Jack BeVier (43:24.002) You too, man, you too. craig fuhr (43:26.41) Alright we'll talk to everybody soon. This is Real Investor Radio. I'm Craig Fuhr. We'll see you soon. Merry Christmas.