B (4:24)

First of all, we're recording this in August 2023. Can you give us a snapshot of where are we at this moment in real estate?

C (4:34)

Interesting. You know, I'll break that into a tale of different parts and we'll focus on the residential real estate market. Right. So there's places in the commercial and multifamily space. Different world. In the residential space. We're at this kind of point where I think a lot of people are surprised that prices aren't lower. Right. When interest rates have doubled, why haven't housing prices come down? The lack of affordability has skyrocketed in the last year. Mortgage payments are 40, 50, 60% more expensive for the same level of house, but prices haven't come down. What gives? That's I think the big question right now and the big part of that story is what we call the lock. In effect, homeowners around the country locked in 3, 4% rate mortgages in the Last couple of years have a lot of equity. Many homes in this country are paid off and they're stuck. They can't move. Because if you move, if you have a $700,000 house and you want to upgrade to an $800,000 house, maybe you could have afforded that a year or two ago. Maybe you want more square footage, maybe you want to move to a different place. You can't do that now because you're giving up this low locked in mortgage rate and you're going to have a skyrocketing home payment. So all but the best opportunities, the most dire situations, are eliminated from the transaction market. And so that's leading a lack of new supply and new inventory coming on, which is keeping prices high.

B (5:47)

Right? Well, in addition to that, higher interest rates also mean that it's more expensive for builders to build, which then also contributes to lack of new inventory.

C (5:56)

Absolutely. And you know, I would have thought that builders were going to get crushed this year. That was, I think, where the smart money was at. Boy, is that wrong.

A (6:02)

Right?

C (6:03)

Home builders have been, have been thriving in this environment because of that lock. In effect. One of my buddies doubled down on building more homes earlier this year and I was like, oh my gosh, I wouldn't want to be on that side of that bed. And again, boy, was I wrong. This guy is thriving right now. He's got, he's putting a bunch of properties on the market. They're not competing with existing property listings.

B (6:22)

Right.

C (6:23)

And so they're able to kind of set their terms. Sure, they're not selling for as much as they were a year ago, but they're selling for a lot more than they feared they would be at this point in time. They're still very profitable.

B (6:33)

And are we also seeing, you know, that the stock prices of Home Depot, of publicly traded companies that benefit when a lot of people are renovating their homes, those stock prices have done very well. Has the trend followed? There's been a lot more renovation because of that lock, in effect.

C (6:49)

You know, that's a really good question, and I actually don't know the answer to that. Before this call, I would have wondered if Home Depot was actually struggling a little bit this year. And what we found in the real estate community is that a lot of flippers, for example, are reporting that prices for dilapidated properties that need a lot of work have fallen a lot more than properties that don't need a lot of work. Perhaps ironically, because a lot of households don't want to spend the cash to fix up the property. They'd rather just pay more for the property. So there might be something to that effect, but who knows? Those are some different data points there.

B (7:21)

Right, right. Well, I mean, it stands to reason that the interest you would Pay on a 203k loan would also be, you know, substantially higher. And that would probably also have an adverse impact on the number of people who renovate.

C (7:32)

Yeah. There might just be fear of the unknown in rehabbing the properties, not knowing what to do, not knowing how much it's going to cost, all that kind of stuff.

B (7:38)

Right. And, and I mean, that is always present. But I suppose in 2023, when inflation is so out of control, the question is always, why now? Right. Fear of the unknown is omnipresent and universal. It's evergreen. But in an inflationary environment, there's added uncertainty.

C (7:57)

Absolutely.

B (7:58)

Speaking of an inflationary environment, what is happening with home prices?

C (8:02)

That's a pretty interesting phenomena. Our VP of data analytics, Dave Meyer, did a pretty extensive study on 295 housing markets around the country. And what's the story with home prices? It's really hard to make one right now. What is that story? Well, on average, home prices, and this is a month or two out of date, so this is end of May report, but prices are down 2% nationwide. But that doesn't really tell the story. 200 out of 295 markets are seeing home price appreciation. But the magnitude of the fall in many of the markets where you're seeing home price depreciation is counterbalancing that to get to that negative 2% growth rate. So markets like Boise, Idaho, for example, have fallen like 20% year over year. But markets like Rochester, New York have seen pretty smooth and steady growth. Like they almost haven't noticed the interest rate rising environment at all. So it's a pretty wild situation and it's kind of really hard for I think investors and homeowners alike to kind of make make out what to do in that context.

B (9:00)

That's interesting. So year to date, the Case Shiller index is up, you know, from where we were January 1st. Overall, nationwide, the Case Shiller index has risen. How can both be possible? How can the Case Shiller be high while. While nationwide you've got negative two.

C (9:14)

Yeah. So in 2022, prices came down towards the end of the year. Right. They came up at the beginning of the year in Q1 period before rate interest rates rose, and then prices began falling. So year over year, starting in May.

B (9:27)

Got it.

C (9:27)

That's when you're starting to see some of that price decline.

B (9:29)

Got it, got it, got it. Now Boise is a particularly interesting example because Boise had the shortest number of average days on market of any major Metro area in 2022. I actually was just looking this up for an article that I was writing for our newsletter. Boise in 2022 had as little as an average of eight days on market, which is just phenomenally quick sales. Why have prices fallen? Was it simply that people over speculated in Boise and so you're having a hyperlocal effect there?

C (10:02)

You know, I think it's going to be really hard. Real estate, so regional. Why is Boise doing this? Why is a market in Austin, Texas doing this? What's going on with Charlotte? Right. You can make up a different set of answers for each one of those. I might speculate that Florida, for example, some of the markets there are seeing negative rent growth and negative year over year home price appreciation because of the insurance things you've seen. It's almost impossible to get insurance in some places in Florida as a result of that. For Boise, I'm not sure specifically, it seems like a lot of out of towners moved there over the last five, six, seven years and it was one of the hottest markets in the country. And maybe in the last year or two, the appeal of that or the relative spread, One of the benefits of moving to Boise from Southern California, for example, might have been the much lower cost. If that's no longer there, maybe folks are moving back. Maybe there's other dynamics at play in a market like Boise. But I'm not an expert on Boise in particular, so I'm only speculating here.

B (10:54)

Right, right.

A (10:54)

Yeah.

B (10:55)

At least anecdotally, a lot of the interest in Boise seemed to be coming from well compensated knowledge workers migrating from coastal cities. Right. Migrating from California. And it created some frothiness in the Boise market for a while.

A (11:10)

But it goes to highlight how all.

B (11:12)

Real estate is local. How whenever people talk about the national real estate market, it's.

C (11:17)

Yeah, your headlines, 2% down year over year. Again, depending on how you want to look at it, we'll see how it plays out over the course of 2023 versus 2022.

A (11:24)

Right.

C (11:25)

End of year, end of year comparison. But it's local. And that story, that 2% national headline has nothing to do with your reality. Right. You ask people around the country at random, some people are going to say the market's up, some people say it's flat, some people are going to say it's down. And they're all right because it's so.

B (11:39)

Local, because it's so hyperlocal. To what do you attribute the 2023 year to date rise? Like why is it that we reversed out of the decline that was happening towards the end of 2022?

C (11:51)

Sorry. That the current housing market is slightly negative to last year.

A (11:54)

Yeah. Year over year.

B (11:55)

Yes. But I'm thinking year to date, January 1st through August. Right. Overall, nationwide, we've seen some, some growth. Right. So to what do you attribute that? Why has the aggregate market picked up this calendar year?

C (12:12)

One dynamic is with interest rates high right now and typically tending to rise when they fall. Briefly, like let's say it's interest rates are seven and a half and they come down to seven or 6.9.

B (12:23)

Right.

C (12:24)

A flood of people go in to get people pre qualified for mortgages. That creates a ton of competition in the weeks after that, after they get pre approved or lock in those rates.

B (12:33)

Right.

C (12:33)

When the rates go back up, that comes out. And so I wonder if you're seeing pulses of pricing around the country in markets that are being impacted by that kind of macro dynamic that's creating pockets of competition and depending on when you look at the data, you're going to see these increases or decreases. So that's one speculation I've had because over the course of the year you've been like, wow, there's nobody buying. And then there's like, oh, I just had a bidding war.

B (12:54)

Right.

C (12:54)

I think that's a dynamic that's going to happen as interest rates are volatile but climbing in those little pockets of downturns there. I also think there's just a lot of demand for housing right now. You know, millennials are trying to move in and get houses.

B (13:08)

Right.

C (13:08)

A lot of them are moving back to where they grew up and trying to buy those houses. Denver, for example, had net outbound migration the last two years. I would never have predicted that a couple years ago.

B (13:17)

Right.

C (13:17)

But I understand exactly right. I'm 32 years old and a lot of my friends are moving back to Ohio, Maryland, Northeast, because that's where they grew up and that's where they're starting to settle down again.

B (13:29)

We've got a couple of trends happening at the same time. We've got millennials. The population of millennials is significantly larger than the population of Gen X or of Gen Z. Right. Millennials as the children of baby boomers. Millennials are a particularly large demographic relative to Gen X and Gen Z. And millennials are exactly at that age where many become first time home buyers. So you've got this Trend where you. And we've also known for more than a decade that housing supply is short. Why is it in most markets or in most spaces when there is low supply and high demand, the market takes care of that. Why is that not happening in housing? Why do we consistently and predictably have demand that exceeds supply, but we just can't get the supply up there?

C (14:21)

Another great question. Obviously there's supply or there's labor supply constraints, there's materials supply constraints. But I Wonder if in 2023 and 2024, the exact opposite of what you're talking about is going to happen. We have the most new housing units under construction in history, at least where we've been tracking it, we have, I think, 1.6 million units under construction. Now, 900,000 of those are multifamily units. So the multifamily market is going to have a lot of stuff coming on. And that's all happening in the south and the West. But there's another. So is that 6, 700,000, whatever the balance is, right? Single family homes that are under construction currently? And why is that happening? Well, it's a two or three year lag. This is not a overnight project. You didn't start that last month. You started three, four, five years ago, maybe a decade ago. Same thing with multifamily construction. So I wonder if in the next year or two we're going to see. We're going to continue to see the, the pressure of both interest rates and massive supply coming online. But again, to our point earlier, it'll be hyperlocal. The south and the west are going to see the brunt of that new supply coming online in the Northeast. And the midw are not going to see as much supply coming online. So if you're in the Northeast, you might not see prices come down or rents stabilize. They may continue to grow. But if you're in the Sun Belt, you might see housing prices become much more affordable in the next couple of years. Next two years, specifically, we'll see.

B (15:43)

So your theory then is that supply will catch up with demand.

A (15:46)

It's just taking some time, essentially, yeah.

C (15:48)

And there's a large body of thought around this. Who knows the real fundamental answers. A couple of other key points around why supply is constrained. We have what's called the national local problem, which is a kind of an ironic phrase about how most parts of most cities are zoned for single family only.

B (16:03)

Right.

C (16:03)

So everyone wants more housing supply, but nobody wants it in their backyard.

B (16:07)

Right.

C (16:07)

No one wants their single family development to be the one that allows duplexes, triplexes or complexes, much less a 15 story apartment building that blocks their view. Boston, for example, this came up in a forum post in BiggerPockets. 85% of the land in Boston is zone single family. So in order to even have the opportunity to build, you have to have the right zoning. So that's one factor. Again, we have, we talked about labor supply, we talked about material supply. Another factor is the labor itself. Not just how do we encourage more people to do this, but housing booms and busts. So I would predict, and this happened in the Great Recession. So I had to predict a similar type of story here where tons of new construction happening in 2004-2006-2005-2006, 2007, no construction starting 2008, 2009, 2010.

B (16:53)

Right.

C (16:54)

So you have this pool of labor that's highly skilled in construction and then they exit because they're all getting laid off because there's no more building activity.

B (17:01)

Right.

C (17:02)

So now you don't have skilled laborers to do these big projects. Right. Couldn't even hire them if you wanted to.

B (17:08)

Right.

C (17:08)

And so I think that's a dynamic that's impacting housing construction costs as well, is the lack of this skilled labor to do it. And so, you know, to really get skilled construction supervisors and leaders need to be in business for 10, 15, 20 years. And if the boom and bust cycle of real estate is so cyclical, your floor of labor is not high enough. So those are some theories, for example, that people have around why there's not enough housing.

B (17:32)

Right. You've mentioned how most of the development is happening in the Sun Belt, in the south and in the West. Right. That is public knowledge. It's public information. To what extent is that being factored into new developments in the Northeast and in the Midwest. Right. Which is another way of saying, are we going to see that shift flip as developers recognize more opportunities in overlooked parts of the country.

C (17:59)

Interesting. I think that the folks who are doing this like to think that they're really smart investors and they're basing it on migration patterns. So part of that is, hey, why are we building so much in Denver and Phoenix? Is because we're expecting more people here. We believe there's going to be a lot of demand there.

B (18:14)

Right.

C (18:15)

I don't know if people have got it right or got it wrong, but if the demand doesn't turn up, you're at more risk in these places where a ton of supply is coming in.

B (18:24)

Right.

C (18:24)

So I think like I'LL pick on Florida and Texas here. Right. Florida has got this insurance problem. Lots of natural disasters. They're very business friendly and a lot of people want to move to Florida for the climate. But they've also got offsets around politics. Right. That's a draw for some people and it's a not a draw for other people. Same same with Texas. And I think that there's a risk in those states that you're overemphasizing the benefits and not really factoring in the risks specifically with, you know, I think insurance is the big one in Florida. I think property taxes are going to be a big one in Texas.

B (18:57)

Right.

C (18:57)

So.

B (18:58)

And you said there was net outflow from Denver for the last couple of years.

C (19:02)

Minor, but a little bit minor.

A (19:04)

Yeah.

B (19:04)

And that's not something that I would have expected from a place like Denver.

C (19:08)

Kind of scares you as a real estate investor in Denver because you see, you go look outside and there's 40 cranes, you know, or 15 cranes or whatever it is all building multifamily.

B (19:16)

Right. The thing about population dynamics is that they change very rapidly because people have mobility and can move quite quickly. You know, especially inside of the United States. I mean, there are no restrictions against interstate movement. So it's very easy to move from Texas to Maine or from Florida to Kansas. You don't need a passport, you don't need a visa, you don't need currency exchange. Right. You don't need special work papers for one state over another. So given that migration can happen so quickly and yet there is such a lag time when it comes to real estate development, does that entrench the population patterns that we've seen five years ago? I guess that's kind of a complicated way of saying are developers building based on outdated data because of the necessary lag time?

C (20:06)

You're asking great questions that again, I can only speculate on. So these are, you know, this is a fun, fun discussion here. But no, I don't think anyone really knows the answer to these things. If I'm going to speculate, I would say that in the COVID pandemic, it was a big reshuffling. There's a lot of fuzzy data. Right. So for example, household formation spiked during COVID Really? Like, do we really have a lot more household households form or did people, you know, break up? When a divorced couple breaks up, there's a two net household formation. When roommates separate, there's net new household formation. When someone in New York City is renting an apartment and they don't want to be in New York City during COVID and they move out to, you know, a house with some land where they can actually get outside and breathe. During the pandemic, maybe there's some sort of data manipulation. There's two households or something, two rents that are being paid, two leases. So there's a big shuffling there. And so that's the big question is, are there going to be enough household formations nationwide? Where are they going to take place? And everybody's placing their bets when they're developing. That's part of the bet behind it. I also think that with COVID you had a great reshuffling of labor. Right. Instead of having to work in Denver at this job, you now had access to every job that you were qualified for in the entire country. So wages skyrocketed for that cohort of workers, white collar workers that could do their work remotely. Right. Because you just, why wouldn't you arbitrage that and take the highest check? Now what's going to happen next? I think, you know, folks have largely probably optimized for that environment. There's always going to be people changing jobs to optimize for that. But that burst of activity, that burst of optimization for a lot of white collar workers, I think is over. And a lot of companies are starting to require you to come back into the office. Requiring someone to come back in the office. You know, if you're the CEO, that there's probably going to be some people who are going to leave and there's going to be a different set of talent in there. I don't know how big of a thing that's going to be. I don't know where that's going to lead, but I can see that forcing people into bad situations. Right. I got a remote job in New York from Denver. CEO now says, I want everybody in here. I have two options. I can look for another job, which is harder now, or I can move to New York and Give up my 3% interest rate mortgage and get a more expensive housing environment. So I think those are going to be challenges that people are going to face in the next couple of years. Years. And I don't really know. I haven't thought through it enough to think of how that will play out.

B (22:22)

Yeah. In terms of markets, we interviewed a researcher who's been studying work from home or remote work since the late 90s, back when it was referred to as telecommuting. And one of the comments that he made in our interview was that he was starting to see a trend that he predicted would continue of the outer rings of major metro cities becoming very attractive because a lot of offices will require workers to come in maybe two days a week. Right. They have a hybrid work environment. And so people need to live close enough to their job that they could commute in every Monday and Friday, you know, or every Tuesday and Thursday. But they don't necessarily need to be right in the city center anymore.

C (23:04)

I think that's a great theory that makes all sense in the world to me. That's exactly what I did. I live 30 minutes outside of Denver in the pocket of the mountains and go in once a week to the main office.

B (23:12)

Right.

C (23:12)

It's 30 Minute Drive. But I would not do that every day if things were different. But that's exactly what I'm doing.

B (23:18)

So yeah, all right, excellent. But this is all speculation. I mean, so for the average person who's listening to this, who lives in some, we'll say mid sized city, maybe they live in Kansas City, right. And they're thinking about their knowledge worker. They're thinking about buying their first rental property or their second rental property. They're nervous about home prices, but they're also a little bit overwhelmed by all of this talk about home building and interest rates and all these macro factors. To what extent do they really need to think about this?

C (23:51)

I think all investing decisions start with a macro look and then boil down into a very tactical one. So if we zoom way out to the macro, as a middle class American worker trying to get get started in investing, I have a couple of broad options available to me. I can invest in the stock market, I can invest in the bond market or debt, I can invest in real estate and I can try my hand at some alternatives perhaps like Bitcoin or private businesses, whatever in there. If we're agreeing with that premise, that that's kind of the broad opportunity set here, you know, how do things rate in relation to one another in terms of opportunities or diversification or whatever? I'm looking for the stock market. We just talked about how the real estate market is down a little bit year over year from a price point trending up year to date, confusingly. But the stock market is up like what, 15, 17%, something like that year to date. If you exclude the fangs, it's down 2%. So you know, if you exclude like five tech companies, essentially the US stock market is down 2% year to date.

B (24:50)

That makes sense because Microsoft, Nvidia, basically any, any company that would profit from AI has led the charge.

C (24:57)

Google, Apple, Microsoft. Yeah, Tesla is Tesla. Yeah, I think Tesla is having a good year, but in the context of a bad two or three years, something like that.

B (25:05)

Yeah, I haven't checked.

C (25:06)

Maybe I'm, maybe I'm off on that one. Exclude these like five select tech companies that are pretty big markets down. The rest of the market. How do you play into that? Interest rates? Interest rates are rising. There's a lot, not a lot of reason to believe that the Fed is going to bring them down in the near term. There's a lot of reason to believe they're going to stop raising them.

B (25:22)

Right.

C (25:22)

But that's not good news. The yield curve is inverted and so if the Fed doesn't reduce rates, the interest rates on longer term debt are going to keep marching up, which is bad news for the bond market. You got real estate, which, you know, hey, what's going on here? Why haven't prices come down more with the interest rate environment? We talked about the intricacies of supply. What's holding back inventory is this lock in effect. There is a lot of new constructions that is a risk. And then you have, you know, small businesses which are a lot of work and maybe inaccessible to a lot of folks.

A (25:49)

Right.

C (25:49)

So in that context, you know, obviously, you know, I'm a real estate investor and like real estate, I like the, the fact that I can lock in debt, amortize it over a long time horizon. I'm going to make money through amortization of my debt, some appreciation, I'm going to produce some cash flow once I've made that determination. Now I pick those markets. Kansas City, I like Kansas City. I think that's a great example of a place where there's potential opportunity in this country. I don't know the supply and demand dynamics. You need to dive into that. Is some of that supply that's cutting in the south, in the Sun Belt, hitting Kansas City, or is that, are you pretty insulated from that? But if so, that might be a great place to hold real estate for a number of years and you can probably get a pretty good cash on cash return in a market like that in the Midwest.

A (26:29)

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On my first team member, a woman by the name of Erin, who ended up working with us for six years. That was when I got on Gusto and I'm still there today. Try gusto today@gusto.com Paula and get three months free when you run your first payroll. That's three months of free payroll@gusto.com Paula One more time. Gusto.com Paula G-U-S-T O.com Paula so imagine it's midnight. You're on the couch, you're scrolling through this new website, hitting the add to cart button and. And you decide to check out. But you remember that your wallet or your credit card is in the other room and you don't want to get off the couch. That's okay, you don't need to, because there's that big iconic purple shop button. You know the one with that shop button? That's Shopify. And there's a reason that so many businesses sell with it, because it makes everything easier from checkout to creating your own storefront. 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First of all, at the time, the dominant conversation was around something that on the surface appeared counterintuitive, which was that interest rates had doubled but housing prices were remaining strong. You know, many people had speculated that housing prices would crash when interest rates spike because unaffordability would just reach an apex. But what we saw in August 2023, and which is still the case today, even in the context of higher interest rates, home prices hold because sellers don't want to lose their equity, they don't want to lose their gains, and so they would rather hold onto their properties than sell at a steep discount. Scott explained this through the lock in effect, meaning that homeowners with mortgages at 3% or 4% rates weren't selling because they didn't want to give up those rates. It strikes me how little has changed between August of 2023 and October of 2025. We still have the lock in effect in full force. According to realtor.com as of September 2025, more than 80% of mortgages have an interest rate that is below 6%. And of these, about 10% have a rate that's in the 5 to 6% range, meaning the bulk of these are actually sub 5% loans. According to the Federal Housing Finance Agency, the average rate for outstanding mortgages in the first quarter was 4.3%. Which is another way of saying among existing homeowners who have mortgages, those existing homeowners on average have a mortgage rate of 4.3%. Which means that that lock in effect that Scott described it was certainly much stronger in August of 2023 when interest rates were in the high 7%, almost 8% range. That lock in effect is weaker. Now the average 30 year fixed rate mortgage, the weekly national average, according to Bankrate, is 6.31% for the week of October 19th. So there's still a difference of about 2 percentage points between the average mortgage holder's interest rate versus what the market is currently offering. And that has a huge impact on home sales and buyer activity. So currently Fannie Mae's forecasting that total home sales in 2025 will be at 4.72 million. That would be below home sales in 2024, meaning fewer people in 2025 are expected to buy homes as compared to last year. That projection was made by Fannie Mae. Realtor.com projected that 2025 is going to be the lowest annual transaction pace since 1995. So the major story in 2025 is no one's buying homes. It is an amazing buyer's market right now. If you are in a position to be a buyer, this is the time to buy. And if you're in a position to be a seller, I'm very sorry, because this is a terrible time to sell. Obviously, your local market may vary. All markets are local, but this is at the broad national level. This is how the national story is playing out. What we've seen as compared to what Scott and I discussed is that housing prices over the last two years have, relatively speaking, remained stable. Home prices have kept pace with inflation, no better, no worse. There hasn't been a collapse in home prices, nor has there been a wild spike in the face of depressed buyer activity. Home prices overall have more or less held their ground. Slight softening in major metro markets, but not by any significant degree. The Case Shiller index as of August 26th shows annual home price growth increased by 1.9% in June. The 10 city index was up 2.6% for the year. The 20 city index was up 2.1% as compared to a year ago after seasonal adjustment. All three readings had a slight decrease. So just to pause and zoom out and summarize that a little bit, June's results show a 1.9% year over year increase with seasonal adjustment. We have a slight decrease of what that shows. Net net. The housing cycle basically is settling right around inflation parity growth, growth at the level of inflation rather than growth at the level of anything beyond inflation, which is to say it's holding steady. We are seeing, of course, interest rates have come down a bit. We talked about that at the time. We were worried about further increases in the Fed's rates. We are now two years later at the point where we are finally starting to cut rates. And of course, we are expecting two more rate cuts this year, the next one of which will likely be announced on October 29th. So all in all, the picture right now is actually remarkably similar to the picture in August of 2023. Listening to it, I was surprised at how little has changed. The lock in effect is still there. Home prices are stable. Interest rates are down a bit, but not a lot and are just starting to come down. New construction helped ease some of the supply crunch, but there's still a big supply crunch. I did think it was interesting how Scott predicted that builders would thrive in spite of the high interest rate environment. So he talked about his friend who doubled down on building and was doing well. From today's vantage point, what we can see is that the building with regard to the home maintaining value, solid, absolutely solid building with regard to finding a buyer, that's tougher because homes are sitting on the market longer. Average days on market is high. Transaction volume is low. That said, new construction generally moves faster than existing home sales. And the major advantage builders have, assuming they're capitalized enough, is that they can offer interest rate incentives to buyers. And that provides a huge advantage over the sellers of existing homes. So we've seen the market in 2025 actually shift toward new construction builders as of 2025. This is a report from the Structural Building Components Association. They put out their new construction quarterly report. So as of Q2 of 2025, the price premium of new construction over existing homes hit 7.8%, which is a record low. So that is good news for buyers. It sounds like not good news for builders because of that shrinking price premium. But in spite of that, according to a quote from realtor.com's builders continue to deliver new homes to the market at a healthy pace. The report goes on to say that there's been a recent slowdown in starts and permits, largely amid tariff concerns and the threats of a combination of lower demand and higher material costs. And so tariffs and their impact on the cost of materials. That is a piece of the puzzle in 2025 that we were not discussing two years prior. Overall, though, I am in general quite taken by how little has changed between 2023 and 2025. You know, listening to our conversation back then, with the benefit of two years of hindsight, many of the broad macro concerns remain steady. All right, with that said, we will climb back into our time machine and listen to another snippet from that Conversation.

B (38:24)

How do you go about or how would you recommend a person go about trying to figure out which city they.

A (38:31)

Should be investing in?

B (38:32)

Right. As we discussed at the beginning, at the top of the show, all real estate is local. All real estate is hyperlocal. So there is no such thing as a national market. There's only a bajillion mini markets, but. Or a bajillion local markets. Right. But for a person who lives in Manhattan who is definitely not going to invest in Manhattan, they're trying to figure out if they're going to invest in Kansas City or Omaha or Cincinnati, how do they get started?

C (38:57)

Yeah. I think I'll again quote our VP of data analytics, Dave Meyer. I think he has a good handle on this. But you know, I think there's three ways to think about what you want to go for. Do you want cash flow, do you want appreciation, or are you looking for a hybrid? There's nothing that offers everything all at once, but you can get a blend of, you know, if you're to plot out the appreciation and cash flow of the markets, this is a distinct trend line. Where there's a trade off, there are bubbles. You know, this is over the last five to 10 years, there are bubbles in a couple of markets that have done well with both. But you're really going to have to make a trade off decision there. Many investors choose cash flow. I think that's great. But I personally think that unless you are needing the cash flow in the near term, appreciation is going to net you off in a better place in five to 10 years. You look at those net migration patterns, you look at where the supply is coming online and where it isn't. You look at places that you know that you like to be a part of your life so you can actually physically go there, visit, meet the people that are going to be renting, they're going to be managing your property and helping you find deals. I think those are going to give you distinct advantages. And it's a bet what's going to happen over the next 10, 15, 20 years. Right. Dave Meyer has some projections he's got. Here are the best 10 cash flowing markets currently in the country. Here are 10 that might have great appreciation prospects next year or here are some hybrid markets. So you have to read that and determine if you agree with those, his calls on those ones.

B (40:18)

All right, well we'll link to that in the show notes. So what you just outlined, determining if you're going to pursue an appreciation strategy versus a cash flow strategy makes me Think of the analog to that would be essentially growth stocks versus dividend stocks.

A (40:33)

You got it right.

B (40:34)

And the trade off, you know, if you're going for a high dividend portfolio. Yeah. The trade off of a stock spits out high dividends because it's not reinvesting in growth.

C (40:44)

Absolutely. Now I'll also answer from a context of what I'm doing personally. I invest in Denver, Colorado. I am not bullish on Denver, Colorado real estate in the next two or three years, but I'm not doing anything with my portfolio. I'm logged in to that 3%, 4% interest rate mortgages. Right. As a landlord, I'm holding those properties. I'm expecting relatively low appreciation compared to the rest of the country. So if the country's negative, I expect Denver to be more negative. If the country's positive, I expect it to be less positive over the next couple of years because of the supply dynamics that I was telling you about. But I also believe that over the next 10 to 15 years, holding onto this great low interest rate debt in my backyard, operating well, I'm going to harvest cash flow and I'm going to amortize my debt. And over 10 to 15 years, I think Denver's as good a bet as any other market in the country because of the fundamental reasons people want to be in Denver. It's like fairyland in the summer, in particular in the Front Range. Obviously I don't know what we do in the winter besides skiing and snowboarding. So I'm just bullish on that. And that's what it really comes down to at some point for a lot of investors is, okay, well, call me up in 15 years. See how Denver has appreciated from 2023 to 2038.

B (41:52)

Now at that point, are you an advocate? So what you've also outlined is you're in just one metro market. What do you see as the pros and cons between consolidating all of your rental properties into one metro market versus diversifying across two, three, four markets?

C (42:09)

I believe the advantages are in control. Yes, you're taking more concentrated geographic risk in the market. But I think that the I know the market. I know that this area of town is likely to appreciate rapidly over the next couple of years and this area isn't going to change much. Or I can make those bets with relative confidence because I live here, I know the contractors in my network, I've met the agents that I work with, the lenders. All that stuff I think gives you an advantage over time when things get particularly Painful. I can go to the property, see what's going on and make a call on. Okay, this is how I want to handle this negative rehab situation. Right. A basement flooded one of properties recently. Okay, here's the plan. No, that's not going to release. That's going to patchwork it. I need to fundamentally solve this problem by doing this, this, this and this. I can see that in Denver in a way that would be much more painful for me to get on a flight and go out of town for. So I always think that despite the differences, you know, regionally, if you're going to look for an outtown market, pick the best one. Pick the one that you think is going to be most conducive to your goals. But I also heavily bias you. If you're looking to real estate, invest in real estate for the next 20 years. Doing in your backyard might just be the, the best way to, to win.

B (43:16)

Or at least somewhere that's maybe within driving distance rather than flying distance.

C (43:20)

Yeah.

B (43:20)

So if you live in New York City, for example, maybe someplace maybe Albany or Rochester.

C (43:25)

And you know, I'm hearing success stories from New Jersey and pocket pockets there. So again, I'm, I'm fairly bullish on the northeast and I won't be surprised if New York isn't a particularly good place for the next couple of years as well. So I know it's really expensive, but I'm not a bear on New York real estate here.

B (43:41)

Interesting. Yeah, it's hard to squeeze a good cap rate out of, out of New York or at least out of Manhattan.

C (43:46)

But you're going to have lots of rent growth too. So there's lots of good reason to believe in rent growth and lots of cash flow growth right now.

B (43:53)

How do you make projections around rent growth? So this is a topic that's seems to have come on people's radar fairly recently because for the last decade we've seen rent growth be, you know, 2%, 3% per year. And in the last couple of years, rent growth has exploded nationwide. But property taxes, you know, a lot of that gets offset by higher property taxes because of higher home values. So net to the landlord, you know, it's kind of a wash. How do you price in rent growth when you are forecasting for a rental property?

C (44:25)

I think rent growth predictions are all over the place nationwide. I think that there's this really complicated supply and demand dynamic. But then there's also the simple fact that mortgage rates, which is your, which is effectively competition to renting, have skyrocketed so much that makes housing so much more expensive and should be significant upward pressure on rents. Here we are in 2023 with I think negative rent growth by 1% for the first time in a couple of years. That was a headline recently, year over year again from this month to the same month last year, July compared to July 2022. So I think it's anybody's guess. I think you're going to have a lot of downward pressure on rents though, in my opinion, because of the supply dynamic I just told you about. Again, your competition for multi family. You got the single family stuff coming online, but that's typically owner occupied. All of the multi family units are rentals. Right. So I think that in some markets you're going to see significant downward pressure on rents and in some markets you're going to see rent going up.

B (45:19)

The major thing that I'm hearing from you, I think my key takeaway from what we've spoken about so far is that if you're thinking about investing in a market, look at how many new multifamily starts are happening in that market and that's going to be a key indicator on price pressure within that market. Would that be accurate to say?

C (45:38)

I think that's right. And I think kind of listening to myself talk here about the rents and stuff, I'm like, you know, I think the higher level pieces have a long term outlook. Buy an asset that you're going to hold on to for a long period of time because this is anybody's guess and there's going to be volatility in a lot of these regions. It's super complicated. You have to guess at what the Fed's going to do with interest rates. You have to guess at what's going to happen with migration patterns and demand dynamics in your market. You can get a pulse on supply. So that's one thing that you can actually look at and you have to use that information to make a calculated guess. If you want to do like a three year old investment thesis, if you're doing a 20 year investment thesis, you buy a good property in a good part of town that cash flows from day one, run your numbers really carefully, add value, put it to its highest and best use and hold on and let the tenants pay off the mortgage and produce a little bit of cash flow and things are going to be good there. Buy a good deal at a reasonable price, running your numbers. So I think that's the big message. Then again, of course have spent the last 30 minutes diving into great detail, trying to Guess the outcomes of these very specific markets and understand the nuances of what happened last year and to break what's going to happen last year. So again, what I'm doing in Denver, I'm holding on my properties for the next 10 years. That was the decision. I might sell them earlier, but I'm mentally prepared to hold on for the next 10 years. I expect them not to appreciate a ton. They may come down in the next, in the near term, but at the end of 10 years, I'm going to have amortized the debt to a significant degree, produce some cash flow. And I'm also really liking the blending market right now because I'm less bullish on things like stocks or real estate. I like the fact that interest rates have risen and I can get a 7, 10, 12% yield on a hard money loan, for example, or corporate bond debt, for example.

B (47:16)

So you're a big fan of private lending right now?

C (47:18)

Yes.

B (47:19)

Interesting. Can you elaborate a little bit on why you are bullish on the Northeast? The one major factor that I've heard is there's not a lot of new construction happening in the Northeast, which is a reason for bullishness because supply will remain low, which puts upward pressure on prices. Beyond that, are there any other reasons that you're bullish on this region?

C (47:37)

I guess I'm less bearish. I think I'm more neutral, positive. I think the real estate market's going to be fine. It's not going to explode in the next couple years. I think it's going to be. There's a risk of it negatively impacting the south and the Sun Belt. I think that there will be business as usual in pockets of the Northeast and the Midwest. And I just think that's because nothing's happened in there. The changes are not, they didn't explode in price. A lot of these markets. Again, it's very regional. Northeast. It's a broad category.

A (48:05)

Right.

C (48:05)

Tons of places in Northeast. But like you take a town like Rochester, New York, Right. Nothing exploded, nothing came down with a high interest rate environment. 2022, 2023, the patterns for home price appreciation look almost remarkably similar the preceding 10 years. Right. So there's a very pretty chart of no change that's comforting in an environment like now compared to a Boise, which is coming down 20%, you're like, what's going to happen there? What's the issue? It's still really expensive out there.

B (48:33)

Yeah.

C (48:33)

So that's more of my, my mentality on that. And if I'm looking for a safe haven where you can operate consistently and have good odds at a predictable pattern. I think that there's a lot of markets outside of like the really big cities. New York is its own beast where you can, you can do pretty well and with a consistent approach.

B (48:50)

Right, Exactly.

C (48:51)

Does that make sense?

B (48:52)

Yeah, absolutely. Absolutely. Given how much multifamily inventory is about to come online in the next coming years, new construction necessarily is Class A, Right? Everything is Class A when it's first built. So what type of pressure could that put on any multifamily unit, including residential, multifamily, duplex, triplex, fourplex, that is Class B or Class C?

C (49:18)

The conventional wisdom is that Class C and Class B get crushed in that environment.

B (49:23)

Right.

C (49:24)

Again, third time today. I'm quoting Dave. Dave just did a really good, brilliant piece of analysis here and found that class A apartment units existing are down 13% year over year on a price per unit basis in terms of sale price and class B and C down very moderately. So it's really interesting to see that the class existing Class A inventory is getting hit first and hardest in this kind of first or second, maybe third inning that we're in here of the multifamily game where a lot of these this debt is coming due.

A (49:58)

So how well did that portion of the conversation age? Well, we're going to take one final break to hear from the sponsors who make the show possible. And when we come back, let's unpack it.

D (50:13)

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A (52:25)

Welcome back. In this portion of the conversation, we really dug deep into regional variation in real estate and so with the benefit of hindsight all right, let's take a look at the Sun Belt, the Midwest, the Northeast. How did all of these different regions fare? The south overall is continuing to lead the nation in housing supply. According to the New Construction Quarterly Report, the South accounts for more than 50% of both new and existing home listings, despite the fact that it accounts for only 39.4% of U.S. households, so it disproportionately accounts for homes that are on the market. It is also the only region in which the share of new builds exceeds its share of existing homes for sale, so it has the highest level of builder activity. That is total contrast to the Northeast, which is the most inventory constrained region with a significant shortage of both existing and new construction homes. The northeast also represents 17.1% of U.S. households, according to this report. So in the Northeast and in the Midwest, tighter inventories and higher demand have pushed prices higher, meaning homes have appreciated faster in the Northeast and the Midwest. Two years ago, Scott and I also discussed migration patterns because making predictions about migration patterns is a big part of choosing a place to invest. What we have seen now with the benefit of hindsight, is that the pace of migration slowed considerably in 2024, largely due to a combination of high mortgage rates and return to office policies. Overall, the Sun Belt states and the Mountain states remained migration winners. Nevada, Montana, Florida were very popular destinations. The two biggest winners were South Carolina and Idaho. South Carolina is up 3.6% net relative to its population, and Idaho gained 3.4% net gain relative to population. States that are losing the most residents are California at negative 2.2%, New York at negative 2.1%, and Illinois at negative 1.9%. Those three states suffered the greatest losses, largely due to high living costs, but overall, we just saw the pace of change slow. So net outflows from California, New York and Illinois slowed significantly. So we're still seeing net outflows from those three states, but not as fast. Meanwhile, the big gainers, Florida, Texas, Georgia, they saw inflows flatten towards zero. And interestingly, Ohio, Michigan and Pennsylvania flipped from negative migration rates to slightly positive migration rates. So we might be seeing the Midwest become a net migration growth destination. Everything I'm citing right now comes from a report from the CRE Daily which delivers news on commercial real estate. Okay, there's one final segment that I want to share, so let's climb back into our time machine for one last time. Travel to August 2023 and listen to this conversation about practical investment strategy within.

B (56:01)

Real estate asset classes. Are you relatively more bearish on large multifamily?

C (56:06)

Oh, yeah, I don't think, I don't think single family's going there, like going anywhere. What's going to be the shock?

B (56:10)

Right.

C (56:10)

Like everyone's locked into their long term debt, everyone's got good credit, nobody's got crazy mortgages.

B (56:15)

Right, right. There's a higher percentage of people who own single family free and clear now than there are has been in decades. Yeah, largely baby boomers.

C (56:23)

You know, maybe it'll come down, maybe it'll flatline, but like, I think there's a reasonable chance it stays pretty flat, maybe even continues appreciating a few points. I think multifamily is going to have a correction, a pretty big one.

B (56:33)

What about residential, multi, duplex, triplex, fourplex? Do you think that it's going to trend more like single family?

C (56:39)

Yeah, I think it's going to mirror more, more of the single family space. I think, I think it trades on a comp basis for the most part, but it'll be in between. But more leaning towards the single family space.

B (56:47)

Right.

C (56:48)

I hope because that's what I own.

B (56:50)

How many units do you.

C (56:52)

I have 13 units.

B (56:53)

Oh, nice.

C (56:53)

So plus a small piece of couple hundred units in one of those syndications.

B (56:57)

Oh, cool. Very cool. I've got seven. Yeah, well, so this is actually quite validating because what I'm hearing. I've always specialized only in buying residential and what I'm hearing is residential is the place to be residential, either single family or small multifamily. As long as it's classified residential. There seems to be, at least in your opinion, more stability in anything that's classified residential and perhaps some more risk in anything that would be classified as commercial.

C (57:27)

That's right. I waffle between thinking that Small, multifamily and single family rental real estate is either the best asset to invest in or the least bad asset to invest in. So I waffle between those with a long time horizon. My personal view, of course, that, you know, that's like the fox counting the chickens in terms of promoting real estate. And I work at Biggerpockets.

B (57:53)

Right. Yeah, exactly. But it's refreshing to hear that when you are bearish on some component of real estate, you are unafraid to express that.

C (58:03)

Yeah, I mean, I'm not trying to pump up the real estate market here. I'm trying to get to the most realistic assessment I can get to. And you know, that sometimes angers some of the syndicators in our platform. And I think there's really good smart people who disagree with me. So, like, don't just take my analysis here. I could be completely wrong, right, on all this stuff. This is just what I'm seeing and how I'm, how I'm feeling about it right now. But yeah, I think that that's, that's the deal. And in two years there's a good chance that if any of this comes remotely true, I'm gonna be saying now is the time to buy a lot of multifamily. Because as soon as that construction glut is done with, by, you know, middle to end of 2024, there's not gonna be any new multifamily coming on the market. Nobody's starting a new project at that point in time. New supply is going to be much, much lower. It's going to be that boom and bust cycle. So yeah, I'll be back in two years telling you how it's time.

A (58:52)

The more things stay the same. Right back in August 2023, Scott was talking about how the big tech companies were driving the bulk of the market growth at the time. They were driving all of the market growth. That is still the case. The market growth is overwhelmingly driven by a small handful of major tech companies. And while of course the specifics of the numbers change directionally, broadly, in a macro sense, that trend has remained the same. Scott talks about how he is holding on to properties in which he has locked in lower interest rates. That continues to appear to be a wise decision. And when he closed out talking about multifamily, I pulled a report. So the national association of Home Builders released a survey called the Multifamily Market Survey in which they surveyed multifamily developers in the second quarter of 2025 and found that as of Q2, 2025. Confidence in the multifamily market actually increased year over year. So the multifamily production index was up 2 points year over year and the multifamily Occupancy index was up 1 point year over year, multifamily developer confidence actually increased as compared to last year. Quote this is due in part to optimism surrounding the expansion of federal affordable housing resources flowing from the recent congressional reconciliation bill. However, high interest rates, rising construction costs, limited land availability and restrictive local regulations are still significant issues in certain parts of the country. End quote. The report goes on to talk about how multifamily starts are becoming less constrained. And the national association of Home Builders is forecasting that new starts will be higher in 2025 than they were in 2024, although both years are going to be below 2023 levels. This same survey asks multifamily property owners to rate the current conditions for occupancy of existing rental properties so people can choose a rating of good, fair or poor. And what they found was that as of the second quarter of 2025, they saw year over year increases, meaning a more positive assessment among multifamily owners who owned garden or low rise apartments and among owners who have subsidized units. They did see a decrease by 3 points among people who held mid rise to high rise units. However, in absolute terms, all three segments, which are calculated as a weighted average, all three remained well into the higher sphere of the weighted average, meaning well above the break even point. So there we have it. We just did something that you rarely see in financial media, which is we went back, we played the tape and we asked ourselves with the benefit of hindsight, what have we learned? And the thing about this type of exercise, and I believe that every serious investor should be doing this regularly because every person who is trying to make sense of the markets, everyone is operating with incomplete information. And so when your information becomes more complete, which is what the passage of time does, it becomes a very educational exercise to look back on what we previously thought and reassess our thinking in light of new information. So I think if the financial media was truly dedicated to financial education and not just financial showmanship, they should do.

B (62:58)

Exercises like this more.

A (62:59)

I think this type of retrospective, this type of play the tape is an incredibly valuable learning tool. In fact, inside of my course, your first rental property, if you're a student, you can look back at our previous office hours and we have office hours dating back to 2019, 2020, very, very detailed sessions of frank Q and A discussions. So you can roll the tape, look back on some of the conversations that we are having pre pandemic, and then watch the trajectory of thinking over the last six years. This course your first rental property we are open for enrollment now and we're open for enrollment only until October 30th. We are closing our doors on October 30th, so this is your chance to join us for our fall 2025 cohort. This is an incredibly valuable course for anyone who is a beginner rental property investor. Regardless of whether you are intentionally seeking to buy your first rental or you are an accidental landlord holding on to a low interest mortgage. Regardless of whether you're local versus out of state, you're house hacking, or you're buying something that is purely meant as an investment and an investment alone. Regardless of that situation, if you're a beginner rental property investor, this course is for you. Again, our doors are open right now and our doors will stay open until October 30th. At that point, we shut our doors, focus on our students, and we all experience the fall 2025 cohort together as a peer group. So you have peer accountability and camaraderie. We have worksheets and checklists and spreadsheets, video lessons, live office hours with me Study halls. I strongly encourage you to come to our study halls. They're incredible. If you want to learn more, go to affordanything.com enroll. That's affordanything.com enroll. And remember, the deadline is October 30th. Affordanything.com enroll. Thank you so much for tuning in. I'm Paula Pant. This is the Afford Anything podcast. I hope you enjoyed today's episode. If you did, please share it with the people in your life. Friends, family, neighbors, colleagues. Anyone who has ever indicated any interest in the real estate space, please share this episode with them. It is the single most important way that you can spread great financial knowledge. Thanks again for tuning in. I'm Paula Pant. This is the Afford Anything podcast and I'll meet you in the next episode.