Latest / Real Investor Radio Podcast / Ep. 102 | Clear the Jam: Why 2025 Feels Like 2008 Again
Transcript
- Craig (00:13) Hey, welcome back to Real Investor Radio. It's Craig Fuhr and Jack Bevier. We're coming at you today. No guest schedule today, Jack, and I'm in my undisclosed bunker. coming at you with some shorts for today just based on some topics that Jack and I wanted to discuss. Jack, let's talk about, you know, so many of the investors that we deal with, Jack, and that you and I know from around the country. A lot of those investors have not lived through a cycle. They haven't really lived through a down cycle, Jack. And I remember as well as I, as you do still have the PTSD from it, from like 2008, nine 10, where deals, deal flow was actually plentiful Jack. Like you could find a deal, you make 50 offers on REOs on, on the MLS, you get to accepted and you're off to the races and finding great deals. The question was, what were you going to sell those deals for? Right? It was one thing to buy them properly and to know what you'd be putting in rehab wise, but what were you going to sell them for? Because frankly, you know, people weren't, the market wasn't convinced yet that the knife had stopped dropping like in 2008, right Jack? And so there was this notion of, well, am I setting comps? Am I going to go in and do a really great rehab and set the comp? Jack BeVier (01:23) Hm. Craig (01:31) Or am I going to price the house sort of like grandmom's house next door and let it fly? So like you were just talking like the catching a falling knife theory, Jack, that like, you know, that's sort of a place that we might be entering into right now with not only multifamily, but other single family assets around the country in certain regions. So yeah, talk about that. Jack BeVier (01:54) Yeah, so like great intro. Thanks. Appreciate that. So I started in the business in March of 2007, which was kind of like the beginning, like the top, right? Like the beginning of the fall was, so I never, yeah, I never saw any of the run-up, right? Like I never had any of the fun of the run-up and the exuberance and the money flowing around. So like, that's not a phase of the cycle that I ever saw. Craig (02:06) best time ever. Jack BeVier (02:20) But then I saw the kind of the stall at the top and the beginning of the fall, and then for the next four five years, just down, down, down, down, down, and learned a couple interesting things. One is that during 2007, you could still get sales off. It's not as if everyone got the memo that the market was crashing. That was how we've... Condensed that period of time in our brains, you know 20 years later, but in 2007 comps were being still being you know, top comps were still being set There were fewer buyers. The market was thinner but prices weren't even really falling yet it was the market was starting to thin and then in 2008 the mood changed and Prices started to fall but people were still buying houses certain segments you know, became stronger than others. You know, the market became more segmented. You know, people, places became safer or weaker. Ironically, some of the low end of the market was the most resilient in terms of you didn't see price fall in the lower end of the market for that period of time, I would argue. And then, but more people started to break because things were sitting out longer and liquidity was harder to come by and generally, The economy wasn't doing as well. know, we'd entered the recession formally at that point. Wasn't, and then 2009 was just kind of a bit of a depressive era. know, 2009, 2010 was like stuff doesn't work. People don't want to lend. You know, there's not much to do here. People are just getting their backs broken because there's just not much happening. And that results in the crisis continuing. Craig (03:59) Yeah. And if it weren't for, right. And if it weren't for, sorry, the incentives, the government incentives for folks to be first time home buyers, I don't know how much of a market there would have been. And frankly, in the region that we're in Jack, in the DC metro area, the DC, Maryland, Virginia area, I'm sorry, was I think stabilized largely because of those incentives, you know, the FHA incentives for down payments. There was different grants available, like a lot of Obama administrative incentives that really kept that 190 to 215 market, like highly liquid. I was selling houses still in less than 30 days for full price, but getting to the way we had to price those houses, Jack. Jack BeVier (04:52) Yeah. So the well, and just one more point, it wasn't until 2011, 12, that you really saw a bottoming of prices where things had gotten so bad. And that was when the best deals happened, you know, because liquidity had been sucked up out of the market for so long. And that just, we just got to a bottom there. Right. And it was so like, but my argument is that it was the aggregation of time. Right? Like time needed to happen to wear on people, to wear on the market before you saw real capitulation. And there were, and there were many rounds of capitulation. There was, you it was not a, you know, it wasn't a down, you know, straight downward correction, nor was it a linear fall. Like it was, you know, things got worse and then people got a little bit more optimistic and a program came out and then things got worse still. And then you just found yourself like in this generally negative trajectory until the best deals happen in 2011 and 2012. And so the thing that we learned about that is that one is that it can, it can take a long time for, sometimes requires time for, for issues to surface, you know? so someone can be not making money for quite a while before they give up. You know, you'll you can lose money for three, four years in a row before your bank account goes to zero. And as long as you have hope, you keep getting up in the middle, you know, keep getting up in the morning and getting back out there. And, you know, it's a race against, you know, you're just racing against the market and sometimes in some some cases to look for the upside. So my point being that we've been we've been in this rate tightening cycle since twenty twenty three. Craig (06:16) Yeah. Jack BeVier (06:38) Right? Like that's when that's when rates started to go up. And at the moment, in that moment, everyone was like, oh my God, the market's going to fall. And we were like, well, yeah, but probably not yet. Because in 2007, everyone freaked out, but nothing happened in 2007 or not much happened in terms of prices. Things got a little thinner. And then 2008, things got a little weaker and prices started to crack a little bit. In 2009, stuff was starting to fall. In 2010, stuff continued to fall in 2011 and then everyone's hands were up in the air in 2011. You know, that's where you really got the best of deals. So, and you see that if you look at like the KShiller home price index for that period of time, it was, it was a, it was, it was, you know, a jaunty decline was not a steady decline. So anyway, my point being that the people that got killed in that period of time, from our experiences, both Flippers and as lenders to Flippers, were the ones who held out and didn't just take their medicine because there were better buying opportunities every year. Every year you could buy that same house for less, put the same work into it, and you were selling into a declining number, but it's not as if that number was declining 30 % a year. That number was declining five to 10 % a year. And that was called the Great Recession. That was the worst thing ever, right? Like since the Depression. Craig (08:05) And then. And there was a buyer at a particular number, right? Like there was going to be a buyer if you priced it right. Jack BeVier (08:17) Yeah, exactly. So I guess kind of the, we learned out of that was like, take your medicine and move on, just take your medicine and move on. And like we saw people who had money, who were good for it, who were talented flippers go bankrupt because like literally go bankrupt. It was, you know, not easy to see because they held on to, they held onto the hope that the market was about to recover and the spring was going to be better. And So they just carried it and they just bled themselves a little drier and bled themselves a little drier because they were so loss averse, right? Like that's a human characteristic that we're more loss of, know, we losses hurt more than gains feel good. The profits feel good. And man, never did we see it more clearly than in that period of time. And I'm just feeling that way right now. Like I'm just, I'm just feeling, I'm getting 2000. You know, I feel like 2024 was 2007 and 2025 is 2008 and I'm getting 2008 vibes out here. Craig (09:14) Let me stop you. Let me stop you because I feel like I've had those vibes now for a couple years with you. Like I feel like I've had this vibe that like, man, the market just feels like, like the home home prices are way too frothy. Asset prices in general are way too frothy. Whether you're talking about real estate or, you know, the stock market S and P, like everything's frothy right now. Right? Like it feels like very top, you know, like there's just so, Why do you feel this way now? Why? Because we had a call, company call last week where you sort of threw this thesis out there. Like why do you feel now that like we're kind of in that feeling of like that 2008-ish feeling? Jack BeVier (09:59) because more time has passed, you know, just because enough time has passed. Like we were in 2023, we were like, oh, like this is gonna, you know, break some things because it was such a quick movement in interest rates. And then, but the market keeps moving. And that's what we learned in 2007. The market kept moving in 2007. The market kept moving in 2008, just with an albeit little bit weaker profile. And the question is how long and the housing opportunities that the that the wake of the great recession gave us happened in the wake of the great recession, right? Like we weren't even in recession anymore when stuff was super cheap because of this issue of, because real estate is so driven by liquidity and so driven by liquidity. so liquidity drying up creates the, it makes the asset values go down. Liquidity being injected makes the asset values go up, but there is a time delay. for that dynamic to occur. so if liquidity continues and the great, so the buying opportunity of the wake of great recession was four years of tightening liquidity caused that. Now, are we going to have four years of tightening liquidity? I don't think so. Like, I don't think that this was such a, you know, that there's been such a mess created that we're going to have four years of tightening liquidity. But given the exuberance of liquidity in 2021 and the government's, you know, insistence on bringing inflation back down to this 2 % target, it's not going to be one year. it hasn't been one year. It hasn't been two years. We're now entering the third year of them trying to defeat inflation and avoid a recession at the same time. And I guess my argument is I think the shape of this one is going to be a third. We're going to go into a third year of a lack of liquidity. And in the third year, we're going to have a consumer recession. We're going to have a, economy in recession, which happened faster last time. We were entering the recession in 2008. This time, we got two years of runway down before the economy is going to enter a recession. during that recession, liquidity is not going to pick back up. So anyway, think that for that reason, I don't think that we've seen the buying opportunities at all in the past two years. like for real estate investors. it hasn't been nothing's been a deal in the past two years. It's just the first year we got away with everything because supply was so low, right? In 2024 supply was so low that we didn't even notice, right? We barely noticed, you know, our short-term cost of capital went up, but that was about it. More, know, mortgage rates went up for our, for the consumers, the market got thinner, but supply was so low that like, didn't matter. Crisis did not move. They went up in 2024. 2025, we're now at the end of 2025. And so this past year has been the first time that we really felt the belt tightening in the real estate investment market. And it's been, now, you so it's been a year for us, right? It's been two years for the economy, a year for the real estate investor. And after a year, we're starting to see some changes in behavior. And I just don't see it. I don't understand what's gonna get better over the course of the next 12 months. Like I just. I would love to debate somebody or like have a conversation with somebody who's very optimistic about 2026 in the real estate market. I don't get it. So I just think we're going to enter another year of tightened liquidity in the real estate market, which is going to make things worse for real estate investors. Craig (13:27) Well, two things and we'll tie up this lightning episode here. So yeah, what happens if in next year, 2026, May, PAL is expected to, his tenure is coming to an end and let's say we get a new Fed chairman in who is a little bit more inclined to lower the Fed rate. Do you think that would have a commensurate effect on the bond market enough that the 10-year would then, the 10-year yields would go down and maybe that would spark a lower rates in the 30-year mortgages that would, you know, create some sort of buying frenzy? I think there might be Jack, would you agree first quickly that There might be some pent up to penned up demand in the market in terms of buyers just waiting for the rates to come down to, you know, I don't think we're going to see historic lows again, but like come down like maybe into the low to high fives low sixes to high fives for a 30 year. Jack BeVier (14:29) Yeah, I think that there definitely is pent up demand, but I think that there's also a consumer recession coming. And I think that those things could hit at the same time. I agree with your point of, rates are coming down because the markets, because the economy is slowing. So the fed drops rates, and because of, because of a fear of an upcoming recession, and they're trying to keep the economy moving along, you know, get everything back out there, get everybody out there and buying stuff. But the tenure is much more driven by people's faith in the US economy and long-term view of inflation. And I don't think there's much anything about the past three years that's given long-term investors confidence that the American system is particularly good at being an adult about keeping inflation low. We're pretty. petty, petulant children as it relates to the party politics that we play when it comes to managing our economy. like, explain to me why the 10 year is supposed to be a point lower. Like, you know, there should be, should be a hundred, 200 basis points lower. I'm not sure that we deserve it, quite frankly. And so with that in mind, I don't see, you know, why are mortgage rates going to come down? So I think that, You know, maybe you have a stock market crash and that freaks out investors and they go to bonds and that in the short term drives the 10 year down and mortgages will not give the market the same credit though. They won't come down basis point for basis point. If the 10 year crashes because the 10 year comes down because of because of concerns about the overall economy because yes, the index is lower, but the risk profile is higher. right? Because what you're saying then is the consumer is weaker and defaults may happen. And so if I'm an investor, yeah, I get that the index is lower, but I need to get paid more for me to deploy my capital right now. you know, maybe more, you know, the, the, the tenure comes down to a hundred basis points, mortgage rates come down 30, you know, it'll be that kind of thing. So I don't think it's going to be enough to unleash some, you know, some groundswell of pent up demand. Because also, by the way, the backdrop there is an economic recession. So you're going to have consumers who are not feeling strong. If those things happen to create a great mortgage rate environment, they're happening against the backdrop of a weak consumer. And I don't think that that drives a ground swell of demand and pushes housing prices up. think we stay, you know, maybe we stay along, but people will be hoarding cash more. There will be banks will be more concerned about the faults. There will be more conservative lending. Capital will continue to be constrained, right? Like they'll still be choking the capital that is feeding the real estate investor market. so top line prices may stay the same. Best case scenario, I think, or, know, in my opinion, it's the top line prices flat, but bottom, but as is prices fall because Craig (17:27) Yeah, there's always... Jack BeVier (17:28) There's fewer investors going after those things. There's less money flowing around. Craig (17:33) Yeah, I always I always refer to it as wholesale pricing versus retail, right? Like what is it? What are our investors buying houses at? That would be the wholesale price and then obviously what they're selling them at. And so your thesis, if I hear you correctly, is we might see better wholesale buying opportunities. Over the next 12 months, however. But but we might, but we but simultaneously we might see a. Jack BeVier (17:53) I do believe it. Craig (18:00) you know, the retail prices may stay the same. If not, could be, could be retracting some. And so what would you say then to the average flipper out there, the guy who's going to buy, renovate and sell, or perhaps a guy doing like a new construction on a spec house, what would you tell those guys, Jack? Like you might be buying it right and you might be rehabbing it perfectly. but how are you pricing it on the back end? What would you tell those guys? Jack BeVier (18:28) Yes, so I've still been like going for top comp, but then dropping price aggressively. Like if the market is not giving me many showings in a two week period, know, five plus showings in a two week period, I'm dropping price. I'm dropping price again. I'm just just unemotionally don't even look at your cost basis. Just drop the just listen to the market and drop the price and just just, you know, and meet the market where it is and reload the gun. because the hunting is gonna be so much better over the course of the next 12 months that I need to clear that jam, man. I got a jam, just clear the jam and get back out there. I just think it's time for everyone to just reload the gun because... Craig (19:04) I'll put that- That would be the for producer Kyle. That's the show title right there clear the jam Jack BeVier (19:14) I thought you were going say reload the So anyway, yeah, that's my perspective. think we need to unemotionally keep cash on hand because everybody else is getting drier and drier. so everyone else is getting less and less liquid. So those who are able to be buying over the course of the next 12 months, I think you're going to see some really interesting opportunities. But if you're still carrying those three albatrosses around your neck, Craig (19:18) Let me ask you. Jack BeVier (19:37) because you're trailing the market down and you wouldn't just take your lumps and take your loss, well, you're missing all that liquidity, you're missing all that capacity with your lenders. Craig (19:46) There's a thing that happens to Jack. So there's pricing tactics right for when you put your product back out on the market to sell it. The pricing tactic that you just said was yeah I'm still shooting for top comp top comp but I'm really monitoring the showings and if we have five or six showings but no offers that's just an indicator to me that that you know I've got a great product. I believe in my product but I've got soft buying you know just a soft buying market right now. So. I think there's a tactic that we haven't seen in quite some time where it takes kind of big balls. So like, let's say you think the top comp in for your house is $250,000 and you and the houses that have sold for 250 are similarly rehabbed as the one that you're about ready to put on the market. The question is, do you put it out there at 239.9 and hopefully Spark more showings and perhaps even multiple offers because your house that is rehab to the nines is Now priced below comps that is a tactic jack that I used to employ all the time with great success back in the you know the mid-2000s and so I'm wondering if we're and and the reason is is because I've got a house that's been on the market for two weeks and you buyers are going on to Zillow every day and seeing that house and they're like, oh, wait a minute, it's a beautiful house. It's two weeks. And now it's a month. And they're thinking, now they start to think like, well, it's priced too high. But now they're thinking like, well, what the wrong with this place? Because now he's taking a $20,000 pay, you know, decrease, or I'm sorry, a price decrease. So what do you think of that thesis right now for investors who are listening? Jack BeVier (21:21) Yeah. Yes. I think it's fair. think the concern right now that I have is that at that number right now, you're like, you're not making any money. Like I think, I think people have been buying deals that were relatively skinny. So like they can't yet afford to take that approach. I think next round it's going to be an approach, right? I think that is a spring. I think that is a spring 2026 tactic that people will use with success. So Craig (21:43) Yeah. Interesting. Jack BeVier (21:59) And maybe, and maybe we'll use it too, you know, and maybe, maybe we'll use it too. I have not yet gotten good enough deals on my as is pricing to be able to go in there and say, Hey, you know what? Nope. I'm just going to take the solid single and move on. for me right now, putting it below that comp right now is going to just, you know, book my book, small loss to break even. And I'm like, now I'm just recycling money. At least let me give you, give me a shot at making some money, you know? But I think in the spring, yeah. Booking the solid single and moving into the next one. maybe a winning strategy, will be a winning strategy. Craig (22:31) Anything else to add on this one? Jack BeVier (22:33) Nah, just some stuff on my mind. Wanted to get it off my chest and throw it out there. Would love to get people's thoughts in the comments, especially if you don't agree with me. That's my favorite. So let's hash this thing out and try to let everyone look in their crystal balls as to what's going to happen over the course of the next 12 months and hopefully position ourselves to make the most money possible. Craig (22:53) Yes, those who want to argue with us, Jack, go to the front of the line. We love that comment. All right, that's Real Investor Radio, sort of a quickie on market outlook and sort of what to look out for in the next 12 months as you purchase and price your deals for sale. We'll talk to you on the next one.