Latest / Real Investor Radio Podcast / Mini Breakdown | The Market Hangover From 2023 and 2024
Transcript
- Craig (00:00) Hey, welcome back to Real Investor Radio. It's Craig Fearn, Jack Bevere. Jack, I was checking the news and you know, it's not it shouldn't come as any surprise to folks that you know the market right now is a little bit of a mixed bag and but strangely enough, it kind of kind of depends on where you are in the country. So I was just reading a story that National Association of Realtors published. Report that confirmed that. you know what they've been telegraphing for months that the US housing market is sort of fractured into two distinct realities. know sales hit their weakest in March for some markets in the country which we'll get into. have prices in the Northeast and Midwest Jack you know have surged double digits. So love to go through that story with you get your thoughts Jack on on what we're seeing and maybe maybe the silver lining. So I think that for folks that haven't ridden out a cycle jack, which we've, which we talk to guys every day that might be doing great, but they never lived through 2015 as a real estate, I'm sorry, 2008 as a real estate investor, they never lived through maybe COVID as a real estate investor. And they don't quite get that, that when there's a downturn in certain. that could create opportunities. So no shocker, Jack, that the epicenter of the correction is Florida. Cape Coral, Fort Myers price changes are down 9 to 10 % year over year. Miami supply is nine and a half months right now of inventory. Tampa, there's a four and a half percent annual decline in prices. 13 months of Case-Shiller price declines and the vacancy rate is... 8.9%, which is the highest amongst all Florida metros. Austin, Texas also feeling a Jack, state inventory is up statewide inventory is up 27 % Austin price declined down four and a half percent. That's sort of the backdrop of the declining markets. Jack, what are your thoughts as a lender? Do Do you get concerned? Do we start to take a look at those markets a little bit differently? What are you thinking? Jack BeVier (02:15) I think that it's been happening, right? Like, like this is the, especially the, year over year data. It's always like, yeah. Like when I read year over year data, I'm like, dude, that's what I was feeling like six months ago. Like that's not not, you know, do not tell me anything. The case Schiller month over month data, I think is super interesting, but the, there's always this lag to the, to the year over year data that I make, that it makes me think that like a lot of real estate investors read the year over year data and it doesn't feel like what they're Craig (02:30) Yeah. Jack BeVier (02:44) feeling in their business at that moment in time. And then there, so they're a little dismissive of it. They're like, well, I don't know. Like, yeah, I hear you. Like stuff was tough a couple of months ago, but now prices have reset and we're working through it or yeah, my throat already got slit. That was, you know, thanks for telling me my throat got slit six months ago. And, so I, I, I always like, you know, look at the year over year data with that grain of salt. And I wish that there was better regional data on a month over month basis. So the only stuff I've ever really seen is like the national association of realtors data or the case Schiller national data. The national association of realtors data though is like, I feel like they're always like, they're always, talking their own book. You know, they want to tell you that it's a good time to buy and it's a good time to sell. And somehow they're trying to like walk that line. They're never telling you that like it's fucked. even when sometimes it is. Craig (03:30) Mm-hmm. Jack BeVier (03:33) And anyway, but so, you know, I think that we've seen we've seen pain in a lot of the markets that you're talking about. But we saw that pain a little while ago. And the problems that were happening in those areas are, you know, have already started to work themselves through the market to a significant extent. So I'm I'm more interested today, though, in the relative strength. I think that it's been pressure for everybody. Even even people up in the Northeast, like just because you got home price appreciation doesn't mean that it's all like, you know, sunshine and roses because they've had other issues like the dealing with the dealing with eviction moratoriums and and and delays in the court system that just have like slowed the market down on that side of things. So like just because it's been upward home price appreciation doesn't mean it's been easy to make money. And, you know, we shouldn't conflate those two. So anyway, just a couple of thoughts at the top off the top of my head there. I'm much more interested in like what's going on on the like the micro level with investors right now. Like what's going on in your business? Which deal do you regret doing that's that you're just working your way through? We have more than our fair share of just crap that we're like still cleaning up. And I feel like it's more tactical on a micro basis. Craig (04:46) Well, talk about that, Jack. So like. So talk about that as, you know, as Dominion Properties owner, not Dominion Financial Services owner. When you say you've had your share, does that mean, hey, we maybe, you know, we were we we bought this house when the market was better, maybe paid a little too much for it. You know, are you talking about that? Forget about it. Forget about sort of the landlord moratorium issues sort of work in their way through. I'm talking about like. as Jack the Flipper, where, when you say you're working through the pain, what do mean on that? Jack BeVier (05:24) Yeah, like my day to day right now is not a function of the decisions that I made this year or even in the third and fourth quarter of 2025. the pain that I am living today was because of the mistakes that I made in late 2023, all of 2024, early 2025. That's where all my pain comes from is like that vintage, right? And I think that's the case for most investors. Craig (05:49) So bullet point those out, like what was different back then that's given you the pain now? Jack BeVier (05:58) Yes, I think that in 2023 and the early part of 2024, we were still in somewhat of a rising interest rate environment. 2024 stabilized some, but actually there was optimism that was going to come back down. And so people started to get a little bit aggressive and started to make some investments because they're like, oh, I'm going to ride the interest rate roller coaster back down. And that's going to increase asset prices. And it just didn't happen. So it was the you know, as prices were decreasing, particularly in some of these markets, you saw like, there's been a correction. there's been a 5 % correction, a 10 % correction. And we've been seeing home price appreciation for the past 15 years. So a correction made it make, made things look cheap, made thing. And, know, I thought we thought we were smart, right? Because we're like, we're getting in on the dip, not realizing it's just like a steady glide down perhaps of like liquidity tightening. It's still dipping. Yeah. Craig (06:45) Mmm. Yeah, yeah, it's still dipping. Right, right. Jack BeVier (06:57) And so like and and and did deals with folks and made loans to people who you know, there was a story at that period of time, but there was like they thought they were going to get through it. And hey, it just as soon as we ride out this like, you know, as soon as the Fed chills out and Powell like chills out and mortgage rates come back down, everything will be better again. And believe, you know, believing some version of that story or just doing business with somebody who believed some version of that story. Yeah, the thing we learned, a big thing we learned after the Great Recession was even if we made perfect decisions, right, even if we always even if we always made a good loan, we made we did business with people who were doing business with other people. And if those deals went sour, then it fell. Then there was bleed over. You know, there was this like bleed over effect where they were there just now. All of sudden, this other guy's distress. bled over and now all of sudden my life is impacted because the guy I'm doing business with is affected. And I feel like that was the that was kind of the 2023 2024. It wasn't as severe as the Great Recession, but it rhymed. You know, it definitely felt like felt like the there were some bad decisions made in that vintage, you know, the multifamily multifamily lending in 2023, right? Like Everyone saw an increase in cap rates said, hey, we've hit the reset. This is awesome. Let's go. And, you know, multifamily lenders got crushed by their 20, 23, 20, 24 vintage deals. I think that we're going to look back five, 10 years from now and the number one, two, three and four predictor of was it a good deal or was it not was what year did it happen? All the shit deals are going to be 23 and 24 vintage deals. Craig (08:42) Really? Jack BeVier (08:47) I mean, we don't have a, we have, we barely have a default rate right now. I have a default rate, but it's, but, if you, but if you track it by vintage, it's 2023, 2024. And so it's like, how much did you do at that period of time during that vintage defines how much pain you're dealing with, how much of your balance sheet is stuck, how much were your, were your reserving for losses. Hell, like all the guys who lent Eli gold, those were. Those deals happened in 23 and 24, a little bit of 25, but that's what really went up blew up. But those were, you know, those were 23 and 24 decisions that now in 2026, those lenders are less aggressive than they would be otherwise because they know that they've got losses left to take. They they're dealing with REO that they haven't had to deal with in the past 15 years. That's all because of that. That's all because of shit that happened two, three years ago. And we're still in the hangover phase. So Craig (09:44) But Jack BeVier (09:45) That's where we're at. Craig (09:46) most of that we can assume is if it's 2023 and 2024, we're not talking about guys that are flipping. Well, you might have purchased a small multifamily or something like that with the intent of putting some value add into it and flipping it. And I'm thinking more of like, Jack, like the guys that are doing single family, new construction, like, you know, like. Did you get in? Did you get into a land deal in 2023 or 2024? Permitting took you a little long. And now like you're in this market, getting ready to like start selling finished product and you're like, oh shit, I wasn't, I wasn't thinking it was going to look like this two years later. Like that's gotta be a factor of what we're, of what a lot of people are dealing with right now. Jack BeVier (10:29) Yeah, I completely agree with that. I think, man, I think we all just should have went and played golf for those two years. it was, you know, whether we the people, you know, the flips that you bought in 24 didn't do as well as you thought they were going to, by the way, all the rental properties that you added to your portfolio. Craig (10:35) I heard you say that many times. Jack BeVier (10:49) You borrowed money at seven and a half seven seven five and you didn't buy nine caps in those years. You bought frickin six six and a half caps. You're losing money right? Like go look at your go look at your portfolio. Look at the vent. know sort sort that Excel spreadsheet by year bought. Look at the 23 and 24 and run a PNL on those two years. That's where everyone's drag is right now. That's the ankle around everyone's you know that the weight around everyone's ankle right now is those two vintages. And as lenders, that's where my defaults are as investors. That's where the bad deals were. We thought the world was getting better and it just didn't get better fast enough. And so we were all too soon. We were all a little too soon on calling a rebound. anyway, yeah, that's where that's where the that's where the weights are around our ankles. Craig (11:36) Let me give you a couple more numbers that were a little startling for me. Median days on market in Florida, 80 versus a 50 day national average. Average homeowners insurance is up to $7,100 a year versus $2,100 for a national average. In Texas, their inventory is up 27 % year over year. 67 % in Dallas alone. if you're Jack, if you're an investor in those areas, Phoenix, Denver, Oakland, California, Washington, DC, Austin, any of those areas, what's the silver lining that like what's what's the, hey, I can be excited about this. Jack BeVier (12:23) Yeah, I think this silver lining is that if it doesn't kill you in the meantime, that there will be opportunity on the back end of it if you have capital to, if you have a capital, you have dry powder, right? If you have dry powder available to take advantage of it. The problem was all of us got too excited, right? It was like we saw the rate heightening cycle happening. said, here we go. Opportunities are coming. Interest rates are going to go up. That's going to create defaults. We're going to see opportunities out of that. You know what? I'm going to get some dry powder. We all raised a bunch of money and dry powder. And you could do it still because we still had money. We still have liquidity in the system from 21 and 20, 22. And so it was easy to raise money in 23 and 24 because there was still money in the system. But the problem was prices came down a little bit. And if you deployed into that environment, if you deployed the capital, you rose, you raised into that environment, you actually didn't call bottom not by a long shot. You actually got a bunch of shit deals that you're that you're now like not that excited of. But nobody, nobody, no humans have the self-control to to hang and really wait, you know, like and really, really wait until the so the blood's truly in the street. And so we all got back out there and talked ourselves into doing some deals a little too early. And, know, and there were some Craig (13:19) Right. Yeah, like. Jack BeVier (13:45) There were some theories at the time that like, interest rates are coming back down. That was like that was the sentiment at the time. So like we all thought that we'd called bottom. We were all just wrong. But but anyway, so if you if you still and then the thing is, though, that like so who who was whom was, you know, active in twenty twenty one could operate but chose to be so conservative in their deployment of capital. that they still have dry powder. Three years later, they still have dry powder that now, and I don't even know if now is the right time, right? It may be 2027, it may be 2028. We still may be in the middle of this, but I don't know. We've seen some capitulation on the seller side. We've seen some margin normalization. We've seen cap rates widen, multifamily. I think it's a more fundamental kind of boring nice kind of nice boring market right now. It's not juicy, but you can make a living if you got some capital. But that's only a function of the fact that not that many people have dry powder to deploy. so prices have kind of come back down to earth a bit. Craig (14:54) And for those who are listening, when you say dry powder, it's the guys who have the equity. I've got, you know, I've got cash that I can deploy with, with, with, with that. I'm sorry, Jack, you broke up there for a minute. So when you say dry powder, it's the guys who have equity. Jack BeVier (14:58) So anyway, that's what I'm thinking on the deployment of capital side of things. Yeah, am I bad? think I just like bad internet connection. Craig (15:10) guys who have equity that they can match with a decent. Yeah. So, one, one last thing, you told me last week that you're actually starting to find deals on the MLS. Is that a result of this seller capitulation, maybe a little bit of a tough market? Nobody really is interested. Like if I'm a homeowner and it's kind of a tough, why am I going out and buying something that I'm going to have to fix up and put sweat, sweat equity into like, Jack BeVier (15:12) Yeah, yeah, have equity, Craig (15:37) I just want to bring my toothbrush. And so you told me last week that you're actually finding deals on the MLS, Jack BeVier (15:44) Yeah. And it's all I think that ties that ties together. Right. And then and then what happens to be like we were I thought we were going to have a really hot spring and then we went to war with Iran. And so mortgage rates went up. Consumers are more nervous. So it's become an altogether weaker sellers. You know, as a seller, it's become a weaker market. And, you know, the silver lining to that is that you can pick up a decent address on the MLS again that actually makes sense from a rental economics perspective, at least in our backyard. And I mean, that's the first time in eight years, nine years that that's been the case. So it's not like they're like falling off the trees, but, you got to go hunting for it. Craig (16:16) Are you seeing an... Yeah. Are you seeing an uptick in short sales at all? I mean, I know that most people have a lot of equity in their homes right now, but like anything like that, Jack? Jack BeVier (16:29) That's a great question. mean, I know we had Becca Rivera on here some months back and her business seemed like it was increasing and we've certainly seen an increase in foreclosure activity. I haven't been keeping track of that. The honest answer is I haven't been keeping track of that as its own stat. That's a really interesting idea to look into. Maybe Becca, maybe we haven't heard from Becca because she's murdering it right now. Yeah. Craig (16:36) Yeah. We should get her back on. Yeah, get her back on the show. Yeah, we need to get her back on the show. That was a great show. Yeah, man. Well, I just think it's an interesting time. lot of people getting squeezed right now with gas prices the way they are, food prices the way they are. Doesn't appear to be any easy end in sight for the war. It's going to be just a weird spring, just a weird time right now, man. Just tough politically. think that. country is very separated. It's just a tough time. Weird. So give me give me one. One good thing to think about Jack. Give me give me one. Let's let's leave it on. Let's let's go out on a bright note. If you're out there right now, you do have dry powder. You're you've got your operations tight. Like are you just hunting for the needle in the haystack and then just staying super patient? Or what are you doing? Jack BeVier (17:42) Yeah, I think the needle, I think the silver lining here is that the business is back to fundamentals, right? Like you can find deals, you can build, you can find rental properties where the, where the rental, the net rental income after all the expenses and the reserves does pay the mortgage and you can build wealth boring and slow. Like real estate always should, you know, has been and should be, and you can go find a flip and. Craig (18:08) Yeah. Jack BeVier (18:10) add value and do hard work and make a modest and price it correctly and make a reasonable profit. And you can find a multifamily deal where it's a creative, where you can buy a seven cap multifamily property and borrow money at six and a quarter. It ain't sexy. It's hard work, but it is long-term wealth building. And it is a return to fundamentals. So for everybody who just likes real estate, and is in this business for the long term because they enjoy being in the industry, think most of the knuckleheads are at least headed to the door. And it's all just back to normal business again. And for me at least, I think that's a good thing. Craig (18:45) Yeah. You know what? You know what I wanted to ask you? We talked to guys every, you know, we've talked to so many Jack on the podcast and have big operations. mean, big marketing operations where they're spending tens of thousands of dollars a month. They've got acquisitions people and, you know, VAs like. I don't know how those guys survive in a market like this, where they're spending $100,000 a month just on keeping the machine rolling. It's, you know, it's got to be very, very difficult. Jack BeVier (19:17) I agree. I mean, it is what they specialize in, right? Like that is not what I wake up in the morning and go to bed at night thinking about. And so perhaps the stuff they're like, no, no, this is the golden age. And they'd have a lot of stuff, a lot to say about that. But I do agree that like the like having to feed a machine, having had to feed a machine for the past three years has not been a luxury. That has been a that has been a source of stress and risk that like Craig (19:25) Mm-hmm. Mm. Jack BeVier (19:47) You would have liked to just go play golf for a couple of years. But instead, you had to feed the machine. so, hey, and perhaps on the back end of this, though, the folks that make it through and those whose organizations, whose businesses make it through, will be able to reap outsized returns. But I think we're still in the normalization phase. Things are steadily settling down. Craig (20:00) Yeah. Jack BeVier (20:12) but we're not quite there to like harvest time yet. Craig (20:15) Yeah. All right, friends. Well, we're keeping an eye on the market as we always do. Hope you enjoyed this brief episode. And as always, we'd love to hear your comments and we'll see you on the next one.