Summary

The housing market should never experience a scenario where homes lose significant value in a short period, as it destabilizes the economy and harms homeowners.

Highlights

• Rapid home price declines can lead to widespread foreclosures and financial instability for families.
• A housing market crash often triggers broader economic downturns, affecting jobs and consumer confidence.
• Easy credit and speculative buying can inflate housing bubbles, setting the stage for a painful correction.
• Government policies and lending standards play a crucial role in maintaining housing market stability.
• Preventing such crises requires vigilance from both regulators and consumers to avoid unsustainable practices.

you are one of the biggest real estate investors in the country so you’re the perfect person to ask this question to i just saw this chart this morning that was showing that the price of a home in the US versus the in the average income is kind of at an all-time high um when I spoke to you 6 months ago you said you were looking for buying opportunities so I’m curious what you’re seeing now and kind of where we’re at i love that chart and I’ll tell you why because you know it depends on what side of the equation if you’re on if you’re
on the single family side you’re not cash flowing you’re not buying any of those for cash flow right because the price of homes are high and the price of the mortgage is high and the rent just doesn’t pay for all of that so so what that’s really doing is it’s pushing people over to the apartments and the multifamily side so we have an affordability issue right cuz most most people that are investing in single family homes are trying to get my renters right to rent them right same thing with a home builder home builders
trying to get them to buy a house so when when the single family market is frothy let’s say um that’s actually bodess well for a rental side of the house and so um you know we we’ve seen uh a little bit of softness on single family but it’s still so far off you know the average rents let’s say 2,000 the average mortgage plus all the expenses are in the fours right there’s a big gap still so we’re still pretty good so we’re buying multif family you are buying multif family yeah a lot of it and so are you are you buying now
because you just want to make sure you lock in those properties and somebody else doesn’t get them or are you buying them because you think this is the bottom and I don’t know if it’s quite the bottom it could slide a little bit more but but here’s what happens when big money Wall Street comes in they start pushing prices up you know when when there’s a lot of money chasing you know few deals so I’m trying to you know be like the speedboat they’re they’re the cruise ship you know they move slow um but really strategically where I see
it all coming but they don’t they never are the first to the dance ever right so they need guys like us to go do stuff and kind of prove the market out and then they come in and then it’s going to be really hard to compete against them right so we’ve done uh four recaps so far we’ll do two more recapitalizations of our own deal with a big big equity group we’ve bought 250 million so far of existing and we’re breaking ground on on another 200 million on multif family that will open in 2027 so we have a bunch of strategies going we’re real
real busy well so obviously interest rates play a huge deal in real estate right and you know more about real estate than I ever will but I follow interest rates pretty closely i’m going to tell you what I think of interest rates but I’d love to get your take because you know again I think it influences everything but I’ve kind of I’m not the reason I’m not quite comfortable with real estate and I’m not saying I’m bearish but I also just not not sure I’m bullish and the reason I struggle with it is my view on interest
rates is that they’re probably staying here or going higher unless they crash lower in some kind of a you know deflationary scenario um and in that deflationary scenario then I would imagine that real estate prices get a little bit softer as well if that doesn’t happen and interest rates stay here go higher then it doesn’t necessarily mean that uh we’re going to have a a fall in real estate prices so you know Yep so okay so I don’t know where real estate uh interest rates are going like or but I will tell you what
we’ve just been doing so on our last deal we did a rate buy down agency so Fanny and Freddy uh at uh 5.18 at that rate we’re in the money like we’re cash flowing okay and we bought So every deal we bought this year we like to buy fixed if we can doesn’t always work but that’s what we like to do you can’t do that on construction but So we’re we’re we’re seeing rates in the low to mid5s and if it cash flows today and we’re buying under replacement cost we think that’s a good deal for a few reasons one again I
don’t know if rates are going to go down below that or not but the cash flow today for me and I’m buying below replacement costs and I see the affordability issue still coming and I I think we’re moving toward a renter nation personally I don’t think there’s a lot of people that can afford houses so that’s going to continue to pour people over into my sector that will push things up the other thing is the when the big money comes in the institutions they that’ll create a little bit of a bubble and so what I’m
anticipating is if nothing changes I’m good i just got to keep the things at 90 92% occupied and I can clip away at a a very fine coupon if things change if rates go up I’m still good yep cuz I’m fixed if they go down then I can refinance as the inflation starts to kick in from the tariffs somebody’s got to pay for those tariffs i don’t we don’t know how much or anything like that um I do believe that real estate prices will go up as a result of that replacement cost and so I got but um it will really affect the supply that would
typically hit like there’s no supply like people pulled back when rates went up so what what I’m anticipating is the frothiness of the real estate market the rental market is going to kind of be over by the end of 26 and then 27 it’ll start to settle out and we’ll start to see gradual rent growth and then we should see really exponential rent growth so 27 28 29 all the tenants are going to be up in arms all the politicians rent control all that stuff will start kick to kick in so I’m really thinking of four 3 4 years out and so
that’s why I’m buying today these below replacement costs at fixed make sure they cash flow and then to your point whatever happens happens um I’m hedged on the up and I’ll take advantage on the down i would imagine that you know someone who invests in multif family home or single family home you as a rental property you’re competing with the home builders who are trying to sell them right yeah so what are some of the tricks that each side tries to do to lure the customer to that side versus the other so the home builder LAR just
came out with their with their filings last week and it’s not good like you know their net call it their net which means uh their price of their home plus all the sales costs so they’ve been putting inside of their marketing and sales costs the rate buy downs so let’s say you want to buy a home from Lenar um and you you know you put a huge chunk of money in because really what’s going to make you not buy a home the monthly payment right and so the you call it the 6 7% you know money that’s out there for single family they’ve got to buy that
down so that they can compete so it’s you know it’s showing up in their filings so it’s very interesting to see um you know home prices haven’t really jacked down too much so if you own a home next to a LAR community you’re at a huge disadvantage if you try to sell yours right around the same price because they’ve got you know the big marketing dollars to buy down rates now you can do that too but it’s um that’s what’s happening so there is a bit of an adjustment going on and I think there’s not enough buyers for the amount of
sellers and so we’re starting to see that now which is actually good Brent like this actually is what the market needs i mean most people think I want everything to go like this or home that’s not good it’s not healthy it doesn’t it doesn’t provide that entry level house for that person like my kids your kids you know uh when your son is is gets out of school he’s going to want to buy something and you know frustrates me that the price point is $400 $500,000 at 7% so um not like us I mean you know so so I think that now does that disrupt
my business it does right that because now it’s starting to be you can have a choice and and so I but that’s not where we are today you know the home of the price of a home has to come way down the interest rate also has to come down don’t know if it will uh but meanwhile rents are way below mortgage plus costs so I think right now we have this little window uh for a while uh under this administration and Trump’s a real estate guy whether you like him or you don’t like him right that’s he’s cut his teeth on that the whole time so you you know
we’re going to see bonus appreciation come back it looks like and he’s going to preserve all the carried interest and and the the depreciation stuff that you know real estate investors get so I would imagine plus he’s doing stuff with opportunity zones and he’s talking about opening up some of that federal land that all has lag right so all that stuff’s lag so let’s say he does open up some of that federal land and people start to build on it you’re not going to see that for years right right so whatever I’m doing today I’m exiting you
know as it starts to get you know so it’s just like anything else but I’m playing a probably a 3 to 5 year window on this stuff right now and that’s that’s essentially what I’m trying to do is get into the game now before the institutions and then who knows what’s going to happen with all this other stuff gold is near all-time highs but appreciation isn’t the only way to benefit monetary Metals you could potentially earn a yield on your gold paid in physical gold without selling it here’s how it works when you lease your
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com/ken to learn more leasing gold involves risk and returns are not guaranteed this is not an offer to buy or sell securities please review all risk disclosures at monetary-metals.com visit monetary-medals.comken to learn more so I’ve got one other question this is the one I’m really interested in so when we were speaking one time I can’t remember if it was 6 months ago a year ago you mentioned to me that your international buyers will typically come in and and and invest with you when the dollar is weaker because they their their currency is
stronger right well so now we have the dollar’s gotten weaker this year but it’s part of the reason that it’s gotten weaker is because the theory is that people are pulling capital away from the United States so I’m curious if you are seeing any international buyers coming in or or what’s your view on that it’s very different today so you’re right so in ‘ 07 2007 I was raising money out of Canada and the dollar was almost equal i think it was September of 2007 the US dollar and the Canadian dollar were almost pair you know equal which is you
know doesn’t happen very often right and that’s because of our weak dollar not necessarily because our strong dollar as you know so today it’s very different where they’re like we don’t trust the US dollar right and they’re like you know with all the stuff happening here so there’s a pullback so we’re not seeing the the international inflow um like we uh like we were certainly back in ‘ 07 08 09 um and that’s I got a tremendous amount of money that came from out of the country during that time trying to chase goods and services and
hard assets and stuff because also cuz they were um not happy with their you know with their situation right so there’s a obviously a lot that goes into this but this is a very different time we we’re seeing a flight of like gold and bitcoin and stuff like that instead of US real estate right so uh yeah so not not like before it’ll be interesting to see how it goes from here there there’s just so many variables up in the air right now it’s probably the most uncertain time that I’ve seen in doing this for 25 years and so we’ll see where
it goes from here it’s wild yeah it’s fun too well I I I’ve used 2022 as my analog for 2025 when we came into 2022 it was a wholesale regime change based on interest rates you know people had been in business for 40 years and had never seen interest rates uh you know go up significantly i mean they were going down right and so it took 6 to9 months for the market to kind of come to grips with interest rates ratcheting higher rather than lower and during that first 6 to9 months it was very volatile and so I thought 2025 would be similar and so
far it has been um because I feel like we’re having a regime change now but now it’s based on how the US does business with the rest of the world and it’s based on tariffs rather than interest rates the fundamentally interesting thing to me is that both interest rate hikes and tariffs kind of have the same effect on the economy it’s costing more right and so we had the big selloff in April we’ve seen a big rebound it’s rebound i thought it would rebound i didn’t think it would quite rebound quite this high but I would expect in Q3
we have more volatility similar to what we saw at the end of Q1 i I think what you’re going to see is the second half of this year is going to see the single family market you know come down prices come down you know what you’re going to have is you’re it’s kind of nor it’s really about normal and by the way my whole career was built on what interest rates are today yeah like my whole career yeah right right you know I just had this little window that everyone kind of came in at that they thought “Oh this is the way it’s
supposed to be.” That was a gift for a while now it could go back there but if you can’t make a real estate deal at 5% to 6% you know it’s probably historically they’re really not that high right right that that’s the thing that a lot of people you know and so everybody’s like hanging on these quarter point or half point adjustments and and they’re important don’t get me wrong but the real issue we have in the single family market is we have I think over 60% of the people are sitting on trapped equity with low interest rates
and they’re you know if they even move laterally it’s it’s it’s a bad decision right they can’t even move to their neighbor next door at the same price because their payments is going to be a couple thousand more per month well that’s what’s kind of interesting to me is like I feel like the prices are kind of back to where they were you know pre- global financial crisis right but then it was because people were buying multiple homes and there was tons of liquidity now it’s kind of the same thing but people are trapped in their
one home and they have tons of equity but they’re kind of trapped because they can’t move and they can’t refinance right i would suspect that you’re going to start to see financial products that says “Okay Brent you got three or 4 hundred grand in your home you can keep your mortgage and we’re going to give you this opportunity to pull that out and be a second or a third or whatever it might be.
” That would because everybody’s looking at that that’s trillions of dollars and and when that actually needs to open up and flow the problem is that’s all sitting in 4% or less right like my wife Denille has a condo that she wants to sell and it’s it’s actually doing fine but she wants to move it into a single family home it’s at 2.
85% interest rate and she’s like she’s got hundreds of thousands of dollars in equity in it and she wants to turn it but she’s like I just can’t leave the loan and I think a lot of people are in that scenario where their payments are low she cash flows because the the rents are you know actually rents aren’t really going up a lot but her rate is so low that she cash flows quite a bit every month on that property so she can’t move it because of the rate you know so the rate today is really an asset right if you have a loan in the 2 three 4% it’s an asset uh and
you you don’t just don’t want to move off of that and so there’s a lot of that happening and so if rates do come down it’ll unleash all that equity and you know it’ll and that actually would be good it will create another bubble but uh if they stay the same you know you won’t what you’ll see is a lot of people will stay put for a long time and what’ll happen is this happened before i’ve seen this if let’s say you live in a house and you’ve been there now eight or nine years and now all a sudden you go to Home Depot you go to Lowe’s and
you start to see their stocks go up because you they’re like we need a new refrigerator we need and they we need cabinets and so they start to do these home equity helock stuff you know kind of harvesting the money inside of the equity but they don’t move because they have such a good low mortgage yeah and so really that that kind of renovation platform starts to really really make sense for a lot of folks so it’ll be interesting to see how long they stay do you have an opinion on Fandy and Freddy about the government potentially
bringing them out yeah I know not a strong one you know uh they’ve been fantastic for us um I don’t I don’t know the inner workings um but um you know for us it’s really really good debt it’s however under 60% loan to value today but we’ve we’ve had a phenomenal history with both Fanny and Freddy um so for me it’s not broken you know what I mean don’t touch it yeah but uh doesn’t mean that they