2025’s Massive Opportunity for Real Estate Investing (Before It’s Too Late)

Summary

BiggerPockets Real Estate Podcast Summary
Episode: 2025’s Massive Opportunity for Real Estate Investing (Before It’s Too Late)
Release Date: December 20, 2024
Host: Dave Meyer
Guest: Ben Miller

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Introduction

In the December 20, 2024 episode of the BiggerPockets Real Estate Podcast, host Dave Meyer engages in a compelling conversation with seasoned real estate and finance expert Ben Miller. With over two decades of experience, Ben presents a strategic case for why real estate remains a robust investment class as we approach 2025. The discussion is structured around four key principles that Ben believes underscore the enduring value and future potential of real estate investing.

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1. Buy Low, Sell High

Timestamp: [02:57] – [08:42]

Ben Miller opens the discussion with the classic investment mantra: "Buy low, sell high." He contrasts the current valuations of the stock market with real estate, highlighting that institutional real estate sectors—such as commercial real estate, apartment buildings, and industrial properties—have experienced a significant downturn over the past two years.

Ben explains, “The stock market is more expensive than it has been in history” ([03:09]). He references a recent Bank of America report showing that the market value to book ratio of stocks is at nearly five and a half, compared to a historical average of around three. This suggests that stocks are potentially overvalued.

In contrast, real estate prices have declined, with some sectors dropping by 30-40% since 2021. "Purely on a value point of view, real estate doesn't look so bad comparatively," Ben asserts ([05:19]). This presents an opportunity for value investors to enter the real estate market at more attractive prices before the sector potentially rebounds.

However, Ben cautions that while real estate is undervalued compared to stocks, the timing of the upswing remains uncertain. "It may take longer to recover than most people would want," he notes ([06:34]).

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2. Inverse Correlation with the Stock Market

Timestamp: [11:26] – [13:51]

Ben introduces his second principle: the inverse correlation between real estate and the stock market. Historically, real estate and stocks moved in tandem over the past decade, but starting in 2023, their trajectories have diverged. Real estate continued to decline while the stock market surged.

Ben explains, “What's driving them in different directions is that high interest rates drove real estate down, but high interest rates didn't seem to affect the stock market” ([13:20]). He elaborates that real estate, particularly rental properties, remains resilient because housing is a necessity—people need places to live regardless of economic conditions.

This divergence positions real estate as a hedge against stock market volatility. In scenarios where a recession impacts the stock market, real estate is likely to hold its value or even appreciate, thereby balancing potential losses in an investor’s portfolio. "Real estate is emerging as a hedge against the stock market," Ben summarizes ([13:44]).

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3. Housing Moving from Oversupply to Undersupply

Timestamp: [17:44] – [21:52]

The third principle focuses on the shifting dynamics of the housing supply. Ben outlines how the early 2020s saw a surge in construction driven by low interest rates and high rent growth. By 2024 and beyond, this led to an oversupply in the multifamily housing market, particularly in cities like Austin, resulting in stagnant or declining rent growth.

"In 2021 and most of 2022, interest rates were zero, there was a lot of hot money, rents were growing almost 20% a year. So a lot of developers started new construction," Ben explains ([17:54]). However, with rising interest rates making new construction less financially viable, the rate of new housing supply has significantly slowed down. "New multifamily starts have plummeted, I think 65%. I think they're going to fall 80%," he predicts ([18:50]).

This reduction in new construction projects will transition the market from an oversupply to an undersupply by around 2026. An undersupplied market will naturally drive up rents and property values, benefiting real estate investors. Ben likens the current situation to a drought following a flood, emphasizing that despite a temporary oversupply, the long-term trend points towards heightened demand and scarcity in housing units.

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4. Interest Rates and Construction Costs Impact

Timestamp: [25:44] – [32:48]

Ben’s fourth principle delves into the interplay between interest rates, construction costs, and real estate values. High interest rates have been a significant drag on real estate, primarily by increasing the cost of financing new developments. Additionally, Ben discusses the potential impact of tariffs and regulatory changes on construction costs.

"If interest rates stay high, that means construction stays low. And so it leaves you this question of, well, are interest rates going to keep coming down?" Ben questions ([25:44]). He acknowledges the unpredictability surrounding future interest rates but remains optimistic. Ben argues that the primary driver of current inflation—stimulated by pandemic-related money printing and disrupted supply chains—is now diminishing.

He states, “99% of the source of inflation is over.” ([26:17]) and suggests that as inflation cools, the Federal Reserve will have room to lower interest rates, which would be beneficial for real estate. Additionally, Ben posits that tariffs, often viewed negatively, can actually bolster existing real estate values by making new construction more expensive and less attractive, thereby increasing the value of existing properties.

"I believe tariffs are going to be great for real estate. People are worried about tariffs being inflationary. And I think that people have forgotten that inflation actually can be good for real estate," Ben explains ([28:21]).

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Discussion and Insights

Throughout the episode, Dave Meyer and Ben Miller explore various nuances of the current real estate market. They discuss the divergence between single-family and multifamily housing markets, noting that single-family homes remain robust due to low fixed-rate mortgages and enduring consumer demand. Ben adds historical context by comparing the current market to past decades, emphasizing that each era has its unique challenges and opportunities.

Ben also touches on the importance of regulatory environments, noting skepticism towards predictions that deregulation alone will spur new construction given the high costs associated with building in today’s economic climate.

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Conclusion and Final Thoughts

As the conversation wraps up, Dave summarizes Ben’s optimistic outlook on real estate investing:

"You are optimistic about real estate because it is relatively valuable, especially compared to the stock market. It is a hedge against a very hot stock market. And if there are these situations where there are tariffs or increase in construction costs and interest rates stay a bit higher, then that could only bolster values for real estate in general," Dave concludes ([30:04]).

Ben concurs, reiterating that despite the unpredictability of interest rates and potential economic catalysts, the fundamental drivers of supply and demand in real estate position it as a strong long-term investment. "I think it seems realistic," he affirms ([32:48]).

Dave expresses agreement, emphasizing the importance of a long-term perspective in real estate investing. "I do think when you look and zoom out, a lot of what you're saying makes a lot of sense," he remarks ([34:12]).

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Key Takeaways

• Real estate is currently undervalued compared to the stock market, presenting a buying opportunity for value investors.
• Real estate is becoming an inverse hedge against the stock market, offering potential stability during economic downturns.
• The housing market is shifting from oversupply to undersupply, which will likely drive up rents and property values in the coming years.
• High interest rates and increased construction costs are limiting new developments, supporting the value of existing properties.
• Long-term trends and fundamental economic drivers are crucial in assessing real estate investment opportunities, despite short-term market fluctuations.

Ben Miller’s thorough analysis provides a strategic roadmap for investors considering real estate as a path to financial freedom, reinforcing the sector’s resilience and potential for growth in the evolving economic landscape of 2025.

Transcript

[Ben Miller]

Foreign.

[Dave Meyer]

Welcome Back to the BiggerPockets podcast.

[Host]

Today we are making the case for real estate as an investing class. Now, I like to think that this show makes the case for real estate pretty much every week, three times a week. But my guest today is Ben Miller and he has a compelling case to share as well. Ben has more than two decades of experience in real estate and finance, so I always enjoy speaking to him and hearing about his insights on where the markets are going.

[Dave Meyer]

And today he's going to share his.

[Host]

Theory for why real estate investing remains.

[Dave Meyer]

A great asset class for people to.

[Host]

Invest in heading into 2025. Ben has four bullet points, which we're going to discuss and debate. But I think you'll probably be like me and agree with a lot of his reasoning. And what I like so much about this is that it's a really zoomed out sort of long term case for.

[Dave Meyer]

Why it's worthwhile to build a career.

[Host]

Around real estate or build a portfolio, even if you're working full time. So let's welcome Ben to the show. Ben Miller, welcome back to the Bigger Pockets podcast. Thanks for being here.

[Ben Miller]

Thanks for having me.

[Host]

So Ben, I know you have a.

[Dave Meyer]

Four part case for real estate.

[Host]

What's point number one?

[Ben Miller]

Well, to put it in context, real estate, and that's institutional real estate, commercial real estate, private real estate has been hit hard. The last 24 months have been a recession for the business of real estate. So that doesn't mean single family homes, but it means like apartment buildings and industrial and if you're a broker, mortgage business, like it's, it's a recession in real estate. And I think that's been confusing to our investors because it's not been recession for most other markets. Stock market all time high. And you have the business, real estate, institutional real estate in a recession bottoming. I've seen investors actually they really do chase the most recent return. So crypto's been hot. That's where they go. If real estate's been hot, they go there. So they've, they have a lot of recency bias. And so the stock market's looking really hot, people are really optimistic and real estate's looking not as attractive. And so I wanted to make the case for real estate because a lot of times what's recently been hot, it doesn't mean that's it's going to continue.

[Host]

Yeah, sometimes you've already, you've already missed it. If it's already hot, then you probably weren't in position to take advantage of it. And now Getting in now is probably not as good an opportunity.

[Ben Miller]

Yeah. But nevertheless, people find it really hard. Like they were, if they weren't in the stock market in the last two years went up like 40, 50%. They're really feeling the kicking themselves and they just like they can't help but like, maybe I have to get in now. So, so, okay, so I, I have this sort of make the case of real estate. I have like four major points I want to make.

[Host]

You're doing my job for me. I love this. You're just, you organized the whole interview into four points. I want to hear them.

[Ben Miller]

Okay, so here, the first one, which is pretty simple, which I'm calling buy low, sell high.

[Host]

This is a new concept for me. I've never heard of this one before.

[Ben Miller]

Yeah, yeah, well, because if you look at the stock market, right. There's lots of measures. I was looking at this. Bank of America put out this chart last week that the market value to book ratio. So like they're saying like, okay, how much is company worth in the stock market? How much is it worth according to their accounting, their balance sheet, is it the highest it's been ever. So just recently went higher than 2000. Stock bubble.

[Host]

Yikes.

[Ben Miller]

It's higher than it was in 2021 then. So we, by some measures, the stock market is more expensive than it has been in history.

[Host]

Yeah. And just for our listeners, if you're not familiar with the stock market a lot of times the way we'll measure this in a sort of macro aggregate sense is something called like a price to earnings ratio is one way to look at this. Basically how much is the stock worth? Comp to how much revenue or profit in a business creates. And to Ben's point, that ratio is extremely high. So stocks are very expensive right now and I guess somewhat alarmingly might be more expensive than they were prior to previous corrections or crashes.

[Ben Miller]

So yeah. So the price to book according to B of A, it's at almost five and a half. And historically it's maybe like three price to earnings, depends on which ones you want to use. I like to use a Shiller, which is like a 10 year average rather than using a snapshot in time that's at 38, which is higher than 2021, but not as high as 2000. So there's different measures. The funny thing about bubbles is that bubbles typically go a lot bigger and longer than you expect. So it doesn't mean that the stock market is going to correct anytime soon. It may never correct. I'm just Saying that if you are a value investor, it's expensive, the price is high. Warren Buffett, most famous value investor, right, he's gone all cash. He has more cash in history, 300 billion in cash. So there are some people, but not many, who are still concerned with the stock market at this point. Most people are in the pool. And so the stock market is high at the moment. And on the other hand, real estate is low. Real estate prices have fallen since 2021, probably 2030, in some cases more than 30%, 40%.

[Host]

That's commercial, right?

[Ben Miller]

Well, yeah, yeah. I mean, anything that's priced by an investor.

[Host]

So yeah, that's not like one single family homes or two to four unit residential properties.

[Ben Miller]

So the single family housing market is different than the investor market. The investor market is priced based on like discounted cash flows or expectations of returns, interest rates. It's more mathematical. In that world, housing prices fall depending on your different assets, you know, say 20, 20 to 30%. So real estate's down, let's say 20%. The stock market's up 50%. And so purely on a value point of view, real estate doesn't look so bad comparatively, if you're thinking about in terms of price, not in terms of momentum. Momentum investors buy whatever's going up. Value investors buy with sheep. And so this is more of a value investment case, which is number one.

[Host]

All right, I buy, buy low, sell high. I think, you know, this decline in values in commercial real estate has been around for a year or two now, and it's felt a little risky, at least to me, to, to get back in. But are you saying that right now the market is stable enough to start buying back into it?

[Ben Miller]

This is the hard part, because it's easy to imagine the stock market goes, continues to tear for another year. And so you could be in it for a year and feel really smart, and then all of a sudden it could blow up. You can easily imagine that it stops this tear. It's really impossible to have a sense of where that is going. All you can say is where it is today and where to stay is price is expensive. Real estate, it's a little easier to actually get your arms around because it's less complicated and there's less drivers. And the big drivers of real estate are supply, supply of new housing, supply of new rental housing. And interest rates. And interest rates, they hit the peak 5.5% over the summer. They've come down 75 bips. And so it feels like interest rates are the biggest driver of real estate. And we've already at the bottom. We've already seen some recovery. So it doesn't seem like real estate gets much worse. Yeah, but it may take longer to recover than most people would want. And so it may be that it's just people aren't patient enough. I wouldn't be surprised if the next year looks like the last year. And so you'd say, oh, it's smart to buy the momentum. I also wouldn't be surprised for everything. Trump in particular is a catalyst. Just where everything changes and how it changes, God knows, we don't know yet. Yeah.

[Host]

So it sounds like what you're saying is you don't think commercial real estate will get worse, but is it the best investment next year? Unknown, because other things like the stock market could be doing well. And even though we may be somewhere close to a bottom on multifamily assets, we don't know when the upswing actually starts. Like it could be a long bottom.

[Ben Miller]

Yeah, I'll try to flesh out that in some of my other points. But I think just sort of the fundamental first point is that you can just look at the price. And usually over the long term, price matters.

[Host]

I think so, yeah.

[Ben Miller]

Well, in the short term it doesn't. I mean, it doesn't. So I think that for some people who are not long term investors, it's not the very persuasive point yet.

[Dave Meyer]

So that's Ben's first reason.

[Host]

He believes real estate is still a great investing class.

[Dave Meyer]

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[Host]

Thanks for sticking with us.

[Dave Meyer]

Let's jump back into my conversation with Ben.

[Host]

All right, so that's point number one is basically there's good value in real estate, potential to buy low, sell high. What's the second point?

[Ben Miller]

The next point I call inverse correlation.

[Host]

Okay.

[Ben Miller]

And so in my career actually usually real estate and stocks move together. I started fundrise in 2012, 2012, 2022. So that's what says 10 years. I mean sometimes stock market is a little higher, sometimes real estate was a little higher. But they moved more or less together for 10 years. And then in 2022, September Fed started raising interest rates. They both fell, but starting in 2023 they diverged. Real estate kept going down and stock market went on a tear up. And so they the correlation broke in 23. What's interesting about that is sort of like if you think about it as like, well what are the possibilities? Like sort of they continue to move in different directions or they start to move in the same direction again. So the interesting thing is what's driving them in different directions is that high interest rates drove real estate down, but high interest rates didn't seem to affect the stock market. And that's because what matters more to the stock market is how hot the economy is. So a hot economy drives stocks more than interest rates does. But actually real estate, especially rental real estate, not very affected by the economy. I mean, people have to have a place to live, have to rent. So. So the real estate is a little bit more resilient in a downturn. So if there is a recession and the economy slows, that would likely hurt the stock market. Stock market would fall and with it interest rates, because the Fed would want to intervene to lower interest rates to stop a recession and that would cause real estate prices to go up. And so what's happened now with the break in correlation between real estate and stocks is real estate have become a hedge.

[Host]

Interesting.

[Ben Miller]

It started to act like a hedge on stocks where there's a version where real estate does well and stocks do well with normal economy. But if in a world where stocks are falling, real estate should actually do really well, like really see a big pop and balance out some of the losses from the stock. So it's not normally real estate isn't normally a hedge on stocks. But in this case I think it's become pretty clearly.

[Host]

Huh. I never thought about it that way. It's true though.

[Ben Miller]

Yeah. So where it moves inversely for the moment, I think is going to move inversely with the stock market.

[Host]

Interesting. Yeah, that's that. So they are inversely correlated. That was your second point. I'm curious. You know, we're talking mostly about like you said, commercial grade assets that are valued by investors. But in 2023 or 2022, it does seem like the correlation between the residential housing market and the multifamily housing market sort of broke. You know, we still see single family home prices going up counter to what's happening in the multifamily space. What do you make of that divergence there?

[Ben Miller]

Yeah, I mean, I think at this point it's pretty clear to people in the industry because most people, I'm Talking about almost 80% of people have a fixed rate mortgage below, I think it was below 5%, but I think 65% people have a mortgage below 3%.

[Host]

Even something crazy number.

[Ben Miller]

Yeah, nobody has to sell their house and nobody wants to sell their house. And get an 8% mortgage or 7% mortgage.

[Host]

No way.

[Ben Miller]

And so the supply of new housing, supply of existing housing coming to market has dwindled to the lowest it's been. And so that lack of supply has meant that the demand has not had choice. Like, if you take a market where maybe there's a thousand buyers in a market, there may only be 800 homes. And so it's kept prices up. And so what's driving pricing is not interest rates, but actually supply and demand. And that phenomenon, I think is pretty stable. Yeah, like those fixed rate interests are not going to go away. And so I think the single family housing market is being priced more by consumer demand than by, like, the investment profile. Like, it doesn't seem like a great investment to buy a new home and pay a 7% mortgage. Like, I don't think that's like, as attractive as renting, where you can rent at a much lower total cost per month.

[Host]

Yeah, not from a mathematical standpoint, for sure.

[Ben Miller]

Funny enough, the history of single family housing going back like 100 years is more like what we're seeing today. It used to be that single family housing was considered the safest asset in America. It had never gone down. The reason why the 2008 financial crisis happened is that all the fancy analysts assume that you could never have a housing collapse.

[Host]

Right. Yeah.

[Ben Miller]

And so we're going back to normal. And so housing have become really safe again.

[Host]

I'm so glad you said that because I wrote my own. Yours sounds more organized than mine at this point. I just wrote a rant that, like, the. The residential real estate market is just returning to normal. Like, and it was still a good time to be a real estate investor in the 90s. That was a pretty normal time for real estate in the 70s. You know, like, there were still strong ways to make profits as real estate investor. But I think a lot of people, you know, in this podcast, in our community included, sort of got anchored to this idea that you could have these massive profits that were driven in the 2010s. But that's the anomaly, not what's going on right now.

[Ben Miller]

Yeah, I'll agree with you with like a caveat that like, every decade had something weird happening.

[Host]

Sure.

[Ben Miller]

You know, the 70s had like, the oil shocks, inflation, the 80s had the SNL debacle, then it all blew up in the 90s. Every decade seems to have its own flavor of special opportunities and challenges. Then the housing bubble in 2010s, where the housing bubble collapsed and interest rates going to zero. And so we're in this new one. We don't really know what it is yet. I think it's going to be everything in the 2020s will look back as an aftershock, politically, socially, economically, to the pandemic.

[Host]

All right, so we've talked about your two principles so far. First one was that buy low, sell high. The second one is an inverse correlation between commercial real estate assets in the stock market and how real estate is emerging as a hedge against the stock market. What's the third principle?

[Ben Miller]

So the third point in my case for real estate is that housing is moving from an oversupply to an undersupply.

[Host]

Yes. Like the pendulum is swinging back.

[Ben Miller]

Right. So just to sort of summarize that in 2021 and most 2022 interest rates were zero, there was like a lot of hot money. Rents were growing almost 20% a year. And so a lot of developers started new construction, everything. I mean, if they start new construction multifamily, you probably don't see it. They started it with industrial. There's just a lot of new supply that started in that boom. And it started delivering 18 to 24 months later when construction was complete. So it takes 24 months to build a big building. So they started delivering all these new buildings in 2024, mostly, and some in 2025. And it just oversupplied the market with new construction, mostly apartments. And in some markets like Austin, it just flooded the market. And that oversupply crushed rent growth. Rent growth, right. Nationally, I think, went close to zero in some markets, went negative 10%, maybe even worse. And so at the same time in 2023, when interest rates had skyrocketed, supply had also skyrocketed. And it was kind of a perfect storm for real estate. That's why real estate value fell so much. There was like poor rent growth at really expensive interest. And so that's where we were, if you look forward, because start a new building, interest rate probably is 8, 9%, maybe 10%, you're having to put up way more equity. So most people can't start a new building. They can't afford to. Doesn't pencil. And so this new multifamily starts have plummeted, have fallen, I think 65%. I think they're going to fall 80%. And so what's going to happen is by 2026, so about a year from now, there'll be no new construction, there'll be no supply to the market, and we're going to go into a undersupplied. Market. And that's going to be great for real estate rents, great for real estate owners. And it's essentially the opposite of where we've been.

[Host]

Yeah, it makes so much sense to me. Multifamily construction patterns is one of the easiest things to forecast. It's actually really nice because like you said, we know when people file for permits and we know that it takes 24, 36 months in some certain cases. So you could actually look like in costar, if you have a COSTAR subscription or one of these other data providers, you can just see the pattern is remarkable. Here it is showing, if you're not watching this on YouTube, he's holding up to the camera the chart that I'm trying to describe. But it's basically just, you see all these deliveries and then they just fall off a cliff and it's going to totally change the dynamics. And it. It's sort of somewhat inevitable because you've probably heard this said before that, you know, the total supply of housing units in the United States is undersupplied. Some people say it's 1 million, some people say it's 3, some people say it's 7. But there's a general consensus that we need more housing units. But it can be confusing when we hear that there's an over supply of multifamily right now amidst that backdrop of a larger housing shortage. And Ben actually said there was a flood of supply. And I think it helps people understand. I actually had someone else on the show explain it literally as a flood. Like you can be in a drought. Just imagine like a lack of water. You can be in a drought and you can have all of this water come down and completely inundate a landscape with water and that will be really intense. And you can't even absorb all the water for a while. And then a couple of weeks later, you're still back in a drought. And that's sort of how I've been thinking about it. It's like we have this huge glut of supply, but project out a year, project out two, three, four years from now, we're still going to be in the drought. There's still going to be a excess demand for housing units in the less that's going to push up rents and valuations. We got to take one more break.

[Dave Meyer]

But on the other side, we'll hear.

[Host]

Ben's remaining points on why he still believes in real estate.

[Dave Meyer]

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[Host]

Here's more of me and Ben Miller.

[Ben Miller]

When we move to the fourth point. The last one's the hardest one, so we'll see. But if interest rates stay high, that means construction stays low. That's one of the reasons why I think housing or real estate has bottomed is that two things that were hurting it were interest rates and oversupply. Oversupply is going away and if interest rates stay high, it's definitely not coming back. And then that leaves you this question of, well, are interest rates going to keep coming down? I think that's the hardest one to call. I'm going to make an argument around it, but I think it's the most unpredictable.

[Host]

Yeah, I agree, and I think it is the most unpredictable. And you hear people making predictions all across the spectrum. Some people are saying we'll get to 5% next year for a 4:30 or fixed. I don't personally see that coming. I do think that they're going to stay a Bit higher for longer. And to your point, I think that that will impact construction. We also are hearing from President Elect Trump that he's going to implement tariffs which could make materials or construction more expensive. If we have a reduction in our migrant workforce, that can make labor more expensive for construction. We did a show recently, we were sort of reviewing some of the predictions for the housing market and Redfin said that they are expecting a boost in construction due to deregulation. And I'm not sold on that.

[Ben Miller]

Like, have they ever built anything?

[Host]

Yeah, right. It's like, I get that there might be less regulation, but it's just going to be too expensive to build. So I don't know if I buy that.

[Ben Miller]

I don't know what I'm talking about. I've developed a lot of real estate. I'm going to say millions of square feet, but a lot, a lot. And all regulations at the state and local level, permits or counties and cities, there's no federal regulation building anything. So I don't understand what they're talking about. But I mean, going back to your main point, and actually it was on my. Is on my caveat. My P.S. i'll just do that before interest rates, tariffs. So I have an argument. I believe tariffs going to be great for real estate. People are worried about tariffs being inflationary. And I think that people have forgotten that inflation actually can be good for real estate. Because let's just say that, that Trump passed, let's say 20% tariffs round numbers. That means that every single import is 20% more expensive. And let's say that it costs 20% more to build a building because steel and maybe labor is more expensive because we've deported people. Well, that's great.

[Host]

It makes the existing supply more valuable. Yeah.

[Ben Miller]

We own 20,000 real estate apartment units. Like, if it cost, let's say, $200,000 to build a unit, now it costs $240,000 to build a unit because it's 20% more expensive. That just means our, our apartment buildings are probably worth about 20% more.

[Host]

Yeah.

[Ben Miller]

So, okay, fabulous. And actually, like, I think to some extent tariffs are recessionary. Like, they are tax on consumers. And that's great too because that means that it slows the economy down, then they can lower interest rates.

[Host]

Right.

[Ben Miller]

And so like real estate acts as a hedge. Right. Because it's not good for stocks. Tariffs, not good for stocks. But they, I think they are good for real estate.

[Host]

Yeah, that's an interesting point. Yeah, that, that is the, the logic that I was going with when I was sort of reviewing these predictions. I was like, it's just going to make everything more expensive. Expensive. People are not going to start building into that environment, but people who hold existing homes or existing assets are going to benefit from that. So I, I, I agree with you. I, I like your letter. Is this going to be made public?

[Ben Miller]

We'll see. We'll see. I, I, I, I write stuff and then I circulate it internally and then it gets torn apart. Yeah.

[Host]

Okay. Well, I think the broad picture, I, I generally agree with. So it seems like you're, you're optimistic. If I can summarize, tell me if I'm wrong. You're optimistic about real estate because it is relatively valuable, especially compared to the stock market. It is a hedge against a very hot stock market. And if there are these situations where there are tariffs or increase in construction costs and interest rates stay a bit higher, then that could only be bolster values for real estate in general.

[Ben Miller]

Well, the last one is whether interest rates come down or not. Okay, we didn't get to that, but.

[Host]

It'S, well, let's go, let's, let me ask you say more about what you, what you're thinking there.

[Ben Miller]

Okay. Well, I mean, as I said, this is caveat about being the one that has the most amount of drivers in the world. So my argument is that one, that the main reason we had huge amount of inflation in 2021 was the pandemic and all the money they printed to stimulate the economy during the pandemic and the shutdown, all of that basically messed up supply and demand and that caused prices to go through the roof. That's in the past. That's gone. And so 99% of the source of inflation is over. That's a fact. The question is, I think too is will deficits drive inflation? And historically there's actually very little relationship between deficits and inflation because you saw it in 2010s. There were huge deficits all through the 2010s and we didn't see any inflation. Inflation was about 2% in the first Trump administration and interest rates were at 2%. We're going into 2025 and inflation is 2.5%, 2.8% and interest rates are 4.6%. So they're a lot higher. So I think there's a lot of room there for them to come down. And the last thing, which is going back to our bread and butter, real estate, the main reason that inflation is high today, the main driver of inflation, according to the Bureau of Labor Statistics, Is real estate. Is real estate rent? Yeah, it's called owner equivalent rents. And according to the BLS and essentially how they calculate consumer price index CPI is that rent growth is at 5% a year and you and I know it's at zero.

[Host]

Exactly.

[Ben Miller]

So I think it's lagging by a lot, that government statistics are lagging in the private sources of data and that when it comes in line, eventually you would actually be able to see that inflation is pretty much dead. It's gone. And that'll allow the Fed to lower interest rates. And so I think that yes, there could be something surprising that could cause interest rates to go back up because of war or we have another pandemic, God knows avian flu. But putting those aside, I think the general direction of real estate is down. Trump wants it down. The Fed thinks worried about unemployment. And so it seems like it's a good bet. It's just like will it get down to 3.5% for fed funds rate or will it get to lower? But it's not going to. I think it seems realistic. The betting money in the capital markets is that it's going to come down a decent amount and that's going to be good for real estate.

[Host]

Okay, well, I'm glad to hear you're optimistic. I, I do think the path is down. Personally. I think it's just going to take a while. I don't know if it's going to be as quick as a lot of people in the industry think. I just wonder if bond yields will stay high because the fear of inflation. Right. Like if, if we start to implement tariffs or you know, lower interest rates, like there is, I guess some concern that inflation will reignite.

[Ben Miller]

Yeah. The financial markets always fight the last war.

[Host]

Yeah.

[Ben Miller]

So they were obsessed with the great financial crisis. I was. Now everybody's obsessed with inflation. It usually protects you from it happening. And so it's probably something else. If you go back and just sort of say, like it's always the stuff that people forget because it's been too long ago. And so like the thing that's been too long has been bank deregulation. Interesting. The 1980s, Reagan deregulated the banks and they just, they blew up the entire economy. So every time somebody said deregulation, I always ask, do you mean the banks? Because I hope you don't mean the banks.

[Host]

Yeah, interesting. Yeah, that's a good point. Because it feels like that happened with inflation. Right. It was too long since we had inflation. And so people took their eye off it.

[Ben Miller]

The 1970s was inflation, 1980s was bank deregulation. So I'm like, okay, that's what I expect.

[Host]

All right. Well, Ben, this has been awesome. Thank you so much. I love that you organized your thoughts about real estate so neatly. Really, in my opinion, compelling case for the long term of real estate. I agree with you. Like, I don't know exactly when these things start. Is it six months from now? Is it a year? But I do think when you look and zoom out, a lot of what you're saying makes a lot of sense. So thanks so much for sharing it with us today.

[Ben Miller]

Yeah, appreciate it. Thanks for having me.

[Host]

Thank you all so much for listening. We'll be back with another episode of Bigger Pockets Real Estate in just a couple of days. See you then.

[Dave Meyer]

Thank you all for listening to the BiggerPockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico, Content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. the content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford afford to lose, and remember past performance is not indicative of future results. BiggerPockets, LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.