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

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.

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]).

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]).

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.

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]).

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.

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]).

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.