BiggerPockets Money Podcast Summary
Episode: The Macro Analysis is Clear: Why We Are Reallocating (Away From Stocks) to Real Estate in 2025
Release Date: January 17, 2025
Host: BiggerPockets
Guests: Scott Trench and Dave Meyer

1. Real Estate vs. Stock Market: Shifting Asset Allocation

In this episode, Scott Trench and Dave Meyer delve into the compelling reasons why investors are increasingly reallocating their portfolios from stocks to real estate in 2025. Highlighting the stark differences in performance and valuation between these two asset classes, the hosts argue that real estate presents a more attractive and stable investment opportunity amidst current economic conditions.

Notable Quote:
Scott Trench [00:36]:
"I think real estate in 2014 through 2019 was such a no-brainer in a lot of ways because you could lock in low interest rate debt and get cash flow. It was just an obvious way to build wealth that has gone away."

2. Transaction Volume & Inventory Trends in Real Estate

Scott and Dave discuss the recent trends in real estate transaction volumes and inventory levels. They note that while the transaction volume has remained historically low, there are signs of incremental improvement. This slow uptick is attributed to rising median household incomes, which enhance affordability despite stagnant housing prices.

Notable Quote:
Scott Trench [03:38]:
"We're talking about going from a historical low to 5% more than a historical low in terms of transaction volume. So, if you're in the real estate industry as an agent, you'll continue to feel a lot of pain because the business of transacting real estate will be severely depressed."

3. Rent Growth Projections and Multifamily Outlook

The conversation turns to rent growth, with both hosts agreeing that rent increases have been muted due to oversupply, particularly in the multifamily sector. However, projections indicate that rent growth will pick up in the latter half of 2025 and into 2026 as supply moderates and affordability improves.

Notable Quote:
Dave Meyer [06:05]:
"I personally don't think we're going to see huge, at least national level price corrections. I don't think we're going to see huge drops in mortgage rates. But I think wage growth will continue to outpace inflation, slowly chipping away at affordability challenges."

4. Regional Market Opportunities: Austin, Denver, Baltimore

Scott emphasizes the importance of regional differences in the real estate market. Cities like Austin, Texas, and Denver, Colorado, are highlighted as areas with strong long-term demand despite current oversupply. Scott advises investors to focus on markets with limited new construction and robust demand fundamentals for sustained rent growth.

Notable Quote:
Scott Trench [08:28]:
"If you buy in Austin, Texas today, I think in 10 to 15 years you'll be well rewarded. ... I don't have the data to prove that, but I'd bet on it all the same."

5. Mortgage Rates Forecast and Implications

A significant portion of the discussion centers around mortgage rates and their future trajectory. Scott presents an analysis of the yield curve, predicting that the 10-year Treasury will remain higher than the federal funds rate, keeping mortgage rates relatively stable. This stability is crucial for real estate investment, as fluctuating rates can impact both borrowing costs and property valuations.

Notable Quote:
Scott Trench [18:42]:
"I expect that spread to increase to 100 to 150 basis points and I expect the Fed to lower rates maybe one or two more times at most in 2025. That means very little change in the way of mortgage rates."

6. Multifamily and Office Real Estate Insights

Scott shares his cautious optimism regarding the multifamily and office real estate sectors. While he acknowledges the current distress in the multifamily market, he anticipates that deep buying opportunities may not materialize until 2026. Regarding office spaces, Scott identifies potential bargains in urban core areas but warns of the long-term commitment and risks associated with this asset class.

Notable Quote:
Scott Trench [44:17]:
"I've been a really big bear on the multifamily commercial real estate market for the last couple of years, and I think that has been generally accurate. ... The forced selling and foreclosure has not occurred in mass, which has not created the really good buying opportunities."

7. Diversification and Investment Strategies

Highlighting the importance of diversification, Scott advocates for reallocating a portion of investment portfolios away from overvalued stock markets into tangible real estate assets. He discusses his personal strategy of reducing stock holdings due to high price-to-earnings ratios and increasing real estate investments to achieve more stable and predictable returns.

Notable Quote:
Scott Trench [30:45]:
"In the 10 years following a time when the trailing 12-month price-to-earnings ratio of the S&P 500 is north of 25, there has not been a positive return from the S&P 500 that will start concerning folks."

8. Bitcoin and Alternative Investments

Scott expresses concerns about the volatility and speculative nature of Bitcoin, suggesting that its rapid price increases may signal an impending bubble. He cautions investors about the risks associated with such high-risk assets, emphasizing the importance of focusing on more stable investment opportunities like real estate.

Notable Quote:
Scott Trench [49:20]:
"I think bitcoin has a compounding chance of really ruining a lot of people's lives. That the price going up is not a good thing. It is a really major risk to a lot of people's lives."

9. Concluding Remarks: Macro Trends and Future Outlook

In wrapping up, Scott and Dave affirm that 2025 represents a pivotal year for real estate investment. With rising incomes, stabilized rent growth, and favorable mortgage rate forecasts, real estate stands out as a resilient and lucrative asset class compared to the overvalued stock market. They encourage investors to consider real estate for long-term wealth building and financial independence.

Notable Quote:
Scott Trench [52:28]:
"Discretionary spending is going to go up. So they're going to go towards discretionary items like vacation and exercise and entertainment. That's the core thesis here... not the underlying growth of America and the American consumer in 2025."

Key Takeaways:

• Reallocation from Stocks to Real Estate: High PE ratios in the stock market make real estate a more attractive and stable investment option.

• Incremental Improvement in Transaction Volumes: Real estate transaction volumes are slowly recovering from historically low levels, driven by rising incomes.

• Rent Growth on the Horizon: While rent growth has been stagnant due to oversupply, projections indicate an uptick in 2025-2026 as supply moderates.

• Regional Opportunities: Investing in markets with limited new construction and strong demand fundamentals (e.g., Austin, Denver) can yield significant long-term rewards.

• Stable Mortgage Rates Forecast: Predicting that mortgage rates will remain relatively stable, enhancing real estate investment attractiveness.

• Cautious Optimism in Multifamily and Office Sectors: Potential for deep buying opportunities in multifamily real estate may arise in 2026, whereas the office sector presents long-term investment challenges.

• Diversification Strategy: Emphasizing the importance of diversifying investment portfolios by increasing exposure to real estate to achieve more predictable returns.

• Warning Against Speculative Assets: Advising caution regarding highly volatile and speculative investments like Bitcoin.

This episode provides a comprehensive macro analysis, advocating for a strategic shift towards real estate to harness its potential for financial growth and stability in 2025 and beyond.