BiggerPockets Real Estate 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
Hosts: Dave Meyer and Scott Trench

Introduction

In this episode of the BiggerPockets Real Estate Podcast, host Dave Meyer engages in a comprehensive discussion with Scott Trench, CEO of BiggerPockets and co-host of the BiggerPockets Money podcast. The focus centers on Dave's "Upside Era" theory, which posits a strategic shift from stock investments to real estate in 2025 to achieve financial freedom. The conversation delves into macroeconomic trends, real estate market dynamics, and investment strategies, offering listeners valuable insights into navigating the evolving investment landscape.

Real Estate Market Outlook for 2025

Dave Meyer introduces his "Upside Era" theory, suggesting that the real estate market is poised for growth after a period of stagnation. He believes that despite not being a period of unbridled ease, real estate remains the premier asset class for achieving financial independence.

Scott Trench concurs with Dave's conclusion but highlights nuances in the analysis. He notes that while the period from 2014 to 2019 saw real estate as an obvious wealth-building avenue due to low-interest rates and high leverage, recent years have not reflected similar performance. However, Scott observes that real estate is emerging as an attractive option compared to other asset classes that have seen significant price increases.

“Real estate has kind of stayed static for the last two or three years. I think we're seeing real estate emerge as a really attractive option compared to the other asset classes.”
— Scott Trench [03:02]

Transaction Volume Trends

Dave posits that the real estate market has bottomed out in terms of sales volume, anticipating a gradual increase in transactions as the year progresses. He expects inventory levels to recover, leading to a healthier housing market without expecting a massive rebound.

Scott Trench agrees, emphasizing that transaction volumes are expected to inch up from historically low levels. He attributes this to a combination of rising median household incomes and a diminishing "lock-in effect," where homeowners are less constrained by high fixed-interest rates, allowing more flexibility to enter the market.

“Median household income… are rising pretty substantially from 2023 to 2024. And that will incrementally slowly but surely begin to break this logjam of the lock-in effect.”
— Scott Trench [05:05]

Rent Growth Projections

Dave and Scott discuss the outlook for rental growth, with Dave asserting that wage growth will outpace inflation, thereby improving housing affordability over time. He forecasts sustained demand for rental units, particularly in single-family and residential rentals, which could drive rent growth in the long term.

Scott Trench supports this view, predicting muted rent growth in 2025 but anticipating significant increases beginning in 2026 as supply moderates and interest rates remain high. He expects single-family rents to align closely with inflation rates and multifamily rents to remain relatively flat in the near term.

“I would expect high single digit rent growth nationally in 2026 and for that to gradually regress to the pace of inflation over our years.”
— Scott Trench [15:01]

Multifamily Sector Insights

Dave expresses surprise at the lack of significant discounts in the multifamily sector, contrary to his expectations of increased distress and motivated selling due to high interest rates. He anticipates that 2025 may present improved buying opportunities as the market begins to stabilize.

Scott Trench concurs, acknowledging that although multifamily has not performed well for investors in recent years, the anticipated distress might be delayed until 2026. He advises caution, noting that while opportunities may arise, timing the market bottom is challenging.

“I think multifamily is a little early. The best deals on like true Apartments I'm on there, but I’m seeing cap rates creep up.”
— Scott Trench [31:50]

Mortgage Rates Forecast

The discussion shifts to mortgage rates, where Scott shares his perspective on their trajectory. He references the 10-year Treasury yield as a critical indicator, suggesting that rates will remain relatively high with minor fluctuations. Scott anticipates that the Federal Reserve may lower rates once or twice in 2025 but does not expect significant decreases.

“I expect the 10 year will probably stay right where it is, maybe bump up a little bit, maybe approach 5 at most over the course of this year.”
— Scott Trench [19:46]

Dave adds that while predicting exact rates is challenging, the consensus leans towards stability rather than significant drops, aligning with Scott's outlook.

Commercial Real Estate: Office Space

Transitioning to commercial real estate, Dave inquires about the office sector, which has been struggling post-pandemic. Scott Trench discusses the glut of office space for lease and sale, particularly in Denver, priced attractively with high cap rates. He sees potential long-term opportunities in urban core offices, although he acknowledges the challenges of high tenant turnover and prolonged periods of vacancy.

“I believe there's a play to be made around buying urban core office at pennies on the dollar, knowing that the property will be unoccupied for several years.”
— Scott Trench [45:14]

Scott advises that while opportunities exist, they require a bold, long-term investment horizon and the willingness to manage properties without immediate cash flow.

Bitcoin Concerns

Scott voices his apprehension regarding Bitcoin, cautioning against its volatile nature and the potential risks it poses to investors. He warns that the significant price increases could indicate an unsustainable bubble, which may result in substantial losses for individuals heavily invested in the cryptocurrency.

“I'm really worried about that and think that that's going to be a real problem brewing in that space and that the price going up is not a good thing.”
— Scott Trench [48:58]

Conclusions

Both Dave Meyer and Scott Trench agree on the strategic shift towards real estate as a more stable and promising investment compared to overvalued stock markets and volatile assets like Bitcoin. They emphasize the importance of understanding supply dynamics, being cautious with demand forecasts, and acknowledging regional market variations. The conversation underscores real estate's potential resilience and attractiveness in 2025, positioning it as a viable avenue for achieving financial independence amidst uncertain economic conditions.

“I'm not going to put it in bonds and earn simple interest and pay taxes on simple interest right now… I'm going to buy something that offers a little bit better yield here. And I think it's the safe play for me right now.”
— Scott Trench [33:35]

Key Takeaways

• Upside Era Theory: Real estate is poised for gradual growth in 2025, offering better opportunities compared to stagnant stock markets.
• Transaction Volumes: Incremental increases in real estate transactions are expected as income levels rise and the lock-in effect diminishes.
• Rent Growth: Long-term rent growth is anticipated, driven by wage increases outpacing inflation, with significant gains expected post-2025.
• Multifamily Sector: Potential buying opportunities may arise in 2025-2026, though timing remains uncertain.
• Mortgage Rates: Rates are expected to remain high with minor fluctuations, influencing borrowing costs and investment strategies.
• Commercial Real Estate: Office spaces present high-yield opportunities but require long-term commitment and risk tolerance.
• Bitcoin Risks: The cryptocurrency market poses significant risks due to its volatility and potential bubble conditions.

This summary encapsulates the core discussions and insights from the episode, providing a comprehensive overview for listeners and those interested in real estate investment strategies as 2025 approaches.