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back to the Paul Morris Podcast. I'm Paul Mark Morris, real estate brokerage, owner, attorney, investor, and this is your state of the market and what an amazing week to record this. A war that's been raging since February, maybe days from ending. SpaceX just pulled off the largest IPO in the history of the stock market and we have a brand new Fed chairman walking into his first meeting this coming week with inflation at 4.2%. Gas is over $4 a gallon, but falling. And in the middle of all that chaos, American home sales just hit a five month high. Nobody predicted that. Almost nobody is talking about it. Will the housing market crash in 2026? Short answer, no. The data says the opposite and this week proved it. The national association of Realtors reported on June 9th existing home sales rose 3.2% in May. That's month over month and also 3.2% year over year to an annual pace of 4.17 million homes. That's the highest level since December. And think about the backdrop. We've been at war since February. Inflation is running hot, mortgage rates are in the mid sixes and Americans bought more homes, not fewer. The median existing home price came in at $429,000 and that's up 1.3% from a year ago. That's the 35th consecutive month of year over year price increases as 35 straight months that prices have gone up. In order for there to be a crash you have to have forced sellers and a flood of supply. Right now we have neither. Inventory sits at 1.55 million homes and that doesn't mean much to us right but here's the thing that matters. There is 4.5 months of supply. And a quick definition is months of supply. We look at, is this a seller's market or is it a buyer's market? We look at months of supply. So if every single home sold that was on the market right now, it would take four months for the market to get through those houses. So 4.5 means we're roughly balanced. It's still a little tight on inventory because somewhere between four and six is what's considered really a balanced market. So we're a little tight on inventory closer to the lower mark and nowhere near the flood you'd need for a crash. And here's the stat that tells you who's driving this first time buyers were 35% of May sales and NARS. Affordability index is at 105.6. That's up from 97.5 a year ago. And you probably don't know exactly what that means because all the years in real estate I've been in, I have to look that up myself sometimes. And 100 in the affordability index means that basically the average home buyer can afford the average down payment for the average home. So that's what 100 means. It measures essentially, again, to say it a different way, whether a typical family earns enough to buy a typical home. So 100 is a break even. Exactly enough income to qualify above 100, the family has more than enough. And below 100 there's. They're slightly priced out or much below 100. They're totally priced out. So going from 97.5 to, to 105.6 means the average family went from just short of being able to afford the average home to now having a bit more money than they need in order to do that. Affordability, that means is actually improving because incomes are growing and rates are lower than they were last year. And that's what's causing it. Zillow's forecast for 2026, they say that home values will go up nationally just over a half a percent. Realtor.com sees price dips in 22 overheated metros, most of the west and southeast Sunbelt. And that's normalization in pockets, not a big crash. There's a huge difference. And so this is one of the things I've been talking about time and time again, and that is you look at these national markets and you don't see what you need to see in order to figure out your market. So 22 markets, they're measuring are, you know, slightly out of whack. So affordability is actually improving because incomes are growing and rates are lower than they were last year. That combines to make the average home more affordable for the average family. If you look at Zillow's forecast for 2026, they're saying that home prices nationally will be up about 1%. But as I always talk about, national really doesn't mean a lot to your particular market. And just to give you an idea, I'm going to talk about how some markets are so different in the same time frame. We're looking at roughly 22 markets which are overheated, meaning the price is accelerating and the, the inventory of homes is dropping. Supply is going down in those accelerating markets. I'll just give you the top five for 2025 with Hartford, Connecticut leading the pack. Buffalo, Metro New York, Providence and San Jose are really at the, at the high end of price acceleration. And about, you know, there's a, there's a good solid amount in the middle, which is mainly really the middle of the country. And, and what that means is they're, they're operating at a rate that's what's considered to be really normal. So that's somewhere again between your four and six month inventory. And what that means mainly, you know, in real terms is, you know, for every house that's getting sold, a new listing is coming on the market. So that's what's keeping it really centered and in the middle. And the five markets that took the hit the most in 2026 so far are Tampa, Austin, Austin leading the pack, Tampa, Miami, Orlando and Dallas. Those are the five markets that have decelerated the most, that prices have gone down the most. And I'll give you, I'll give you a striking statistic just to, just to show you how different these markets are leaving from a 2022 peak, if you bought a house in Hartford, Connecticut, you're up almost 20%. Conversely, you look at Austin, Texas, and from the peak in 2022, if you bought the average home in Austin, Texas in 2022, you are down 28%. That is a massive shift. So this really shows you again that the, the market that you're in is a lot more important than the national markets. And so many folks are focused on the national markets. And it is important, it's important as an overlay. That's why we do the state. We want to know what's going on in the world, how is it affecting real estate, what are the outlooks? And then when you Drill down. As an investor or as a buyer, you realize that these markets have, these, have these huge swings. And when I talk about a huge swing between Hartford and Austin, am I saying to people, hey, you know, you want to invest money? Go run to, go run to Hartford, get out of Austin. That even inside of these markets, there's such a great variation that I, I am certain you could go to Austin, Texas, if you knew the area like the back of your hand, you could find a value add somewhere in Austin, Texas, and you could still make money in Austin, Texas. So I don't generally recommend running to the hot markets because that those hot markets will become overheated and, or conversely, you know, you could run to a market that's gone totally south. So, for example, maybe, maybe right now Austin's great time to buy because it's down 28%. It's just not the way I recommend investing in real estate. And that is understand deeply what's going on on the national markets. We're going to talk more about that right now and how the news affects real estate investing for sure. But really, at the end of the day, you've got your national market. Take a look at it, understand it. Then you've got the city. Where does the city fall in range? And if I'm buying in a market that's super hot, like Hartford, Connecticut, I'm being a bit more careful than I am really. Frankly, it's probably some great buys in Austin, Texas right now. So, you know, I'm being more careful with that, armed with that knowledge. And then inside of those markets, there are the micro markets. And you know, I live in Los Angeles and right up here on Mulholland Drive, you know, this market right here, right now is different than down the road on Mulholland Drive. You go two or three miles down the road, you get to a, to an area called Outpost. It's still Mulholland. It's a very, very desirable area, the Outpost area. And Outpost, the houses are sitting like nowhere else in the L. A market. So just goes to show you, you know, it's not exactly right down the street, but mile and a half down the street makes a lot of difference even inside of a market. So you really have got to learn the markets. So now let me get to the second most asked question in America right now about real estate. And that is the one that I hear more often than any other. And that is, is now a good time to buy a house or an investment property? And my answer, as you probably know from listening to this podcast is. It's a good time to buy the right property. It is a terrible time to buy a mediocre one. That happens in most markets. You know, right now, when I'm exercising a bit more care, even more so. So let me explain what the data means for buyers specifically. Four and a half months of supply means you finally, in practice we talked about what does that mean. But now in practice, what that means is you finally now have selection and negotiating room in most markets, something buyers haven't had since before the pandemic. Right now, sellers are negotiating credits, meaning you can ask for money back once you're in escrow. Credits are back contingencies. That's the same thing you're, you're asking for more time to do more diligence. That's now back. And this is part but, and this is the part that Most people miss. 35 straight months of rising prices means that waiting has a cost. Every year you wait, even at a 1% appreciation rate on the average median home, which is about $430,000, you're giving up $4,000 in equity plus a year of principal pay down. The crash that you're waiting for, you're sitting on the sidelines and waiting for that right time. It's eating into your down payment, it's taking equity away from you. And, and it's also taking time away that you could have been cutting into that 30 year mortgage now. And you've heard me say this so many times before, the national numbers are not your market. NAR's own regional data sort of went through this before. The Midwest and the south are rising while the Northeast fell. Realtor.com has 22 metro areas softening while the rest of the markets grind higher. I went through some of these markets just to give you an idea. So your edge as an investor is local. No matter what market you're in, you know which neighborhoods have the jobs, the schools, the zoning, the ADU potential. The ADU is an accessory dwelling unit. That's the ability to add square footage and add a unit to, to an existing house, which ne. Which never existed in America before. The new rules have come out. All, all states that I know of have adopted them. It's not a national law, but it started in a couple of states and it's now permeated through all of the United States. And that's allowing homeowners to add another unit because they want, they want to increase housing stock. And this is one way to do it. Add a unit to your current home and Allowing zoning changes to allow for that. That's the ADU potential you can find. Also the value add deal in your own backyard. You could manage the renovation yourself and move faster than any out of state buyer. National headlines, local decisions, that is the whole game. And it's also where you can actually build. Beat the professional investors. So we've talked before about the REITs that, you know, own 100,000 homes and they're professional investors. And this is the one area that an individual can really outdo the professional. And I don't see that in the stock market. I do not see that in commodities trading. You know, the smarter you are, the more advanced you are. You're going to do better in these, in these, in these various investments. Whereas in real estate you can, you can learn a market very quickly. You can learn a lot about a particular home. It's another way that I, I like to say it, it's the, it's the one area where, you know, insider trading, and I don't mean hiding it from the public, but this is the one area that insider trading is legal. And what I mean by that is you have the ability to go in and learn more than the market knows about a particular property. Big question number three. Will mortgage rates go down in 2026? And let's first look at where we are. The 30 year fixed average, just above 6.5%. That's up from just under 6.5% the week before and just below it's high for the year. But here's the context that everybody forgets. A year ago, the 30 year rate was 6.84%. So rates are fairly significantly lower than last June. And this is in the middle of a war. This is in some ways astounding. And Freddie Mac's own chief economist noted this week that buyers are looking past the short term fluctuations and entering the market anyway. That's the five month high in sales. So will they drop further? To answer that, you need to understand the chain. And this is the single most important mental model that I can give you this year. The war sets the oil price. The oil price sets the gas price. The gas price drives inflation. And inflation handcuffs the Fed, stops them from acting. The Fed and inflation drive the 10 year Treasury. That's the government bond whose interest rate mortgage rates track most closely. And the 10 year treasury sets your mortgage rate. Your mortgage payment as you know it is downstream from the Strait of Hormuz. Once you see that chain, this whole confusing year starts to make sense. That's why the peace deal that we're talking about right now, which I'll get into in a minute, matters more for housing than anything the Fed says in the upcoming meetings. If oil keeps falling, inflation will cool, the 10 year treasury will ease and mortgage rates will go down. If the deal for peace collapses and the Strait of Hormuz stays hot, rates are going to stay stuck somewhere in the mid sixes or possibly get even higher. My honest read, and this is just one person's opinion, plan your deals at today's six and a half percent. Now that is really what I do all the time. I never look far ahead and say, you know, I think interest rates are going to go down. So you know, I can buy now and build into my pro forma a rate change that's predictable. It's never really predictable. So the deal's got to make sense at today's rate. Now, if peace holds and we drift toward 6% or below later this year, that's definitely a refinance opportunity. That's a bonus, not a plan. So marry the house, date the rate. But what I mean by that really is underwrite the house or the investment purchase. That's the marriage, not the rate. Don't underwrite a rate change. Underwrite the property as it is today. Which brings us to the Fed. Will the Fed cut rates this year? And who is the new chairman? Kevin Warsh. What's this guy about? So there's definitely big changes at the Federal Reserve. Jerome Powell, the former Fed chair, stepped down in mid May. Kevin Warsh, a former Fed governor, meaning sits on the board that Jerome Powell led, is now the chairman. He's a guy who's known for fighting inflation and he's now taking the spot at the, at the, at the head of the table. And what that means, a guy who's known for fighting inflation, is that this is somebody that there's sort of two sides of the way the Fed, a Fed governor, views things. And one is do we stimulate growth or we generally lean towards stimulating growth, which is lowering rates, but that risks inflation, or do we really want to stand in the way of inflation, make sure that our dollars continue to buy more for us, not less? And that's some. And that's someone that would, that would try and fight off inflation and would be a person that more generally would raise rates. Now, Kevin Warsh, I'm not sure how he's going to be as chairman, but he certainly has been known as one of those guys that fights inflation. The Fed rate sits at 3.5% to 3.75 unchanged since the cuts stopped in late 2025. And markets put the odds of no change next week at roughly 99%. So the markets are saying, you know, we are nearly certain that the Fed is not going to raise the rate, it's not going to lower the rate. Why? Because the Fed's target for normal or what's considered to be healthy inflation is 2%. And May inflation printed at 4.2%. That's more than double. And that's driven almost entirely by the war and the energy price increase from the war. And here's the part that should get your attention. The May meeting minutes revealed that the majority of Fed officials now see the possibility of raising rates if the war continues and if inflation persists as a result of it. Goldman Sachs just pushed its forecast for the next cut all the way out from 2026 to 2027. So if your investment plan requires the Fed to rescue you with cheap money this year, you don't have a plan, you have a hope. That's not the way to invest or buy. So underwrite a purchase, underwrite an investment at today's rates, and if you get a decrease, that's icing on the cake. Now the story driving everything else. Is the war with Iran actually ending? And when will gas prices come down? The war began February 28th. It was supposed to be a short war. This week, the ceasefire effectively collapsed. Both sides resumed strikes. And very recently the US Shot down two Iranian drones targeting ships in the Strait of hormones moves. And that's as told to us by CNN and a Defense Department official. And yet at the same time, Pakistan's Prime Minister says a final agreed upon text of a peace deal has been reached. Iran says it's in final deliberations. President Trump says the war is basically settled and a signing could happen within within days. NBC and ABC are both reporting that the US is already planning the signing Cere. So the war is off, the war is on, sometimes even in the same news cycle. But markets vote with money and the money says peace is coming. It all fell into place recently. And I'll give you an example. Crude oil is probably one of the biggest indicators and it's in the mid-80s per barrel, depending on what which benchmark you look at. And remember, oil was about $70 a barrel before the war and spiked over $100. Analysts at Fitch say that the Strait of Hormuz opens if it opens around the end of July. Their base case, we could see crude oil headed toward the $70 mark by year end. So how does that translate to the pump, the gas pump? And Triple A has stated the national average is at $4.11 per gallon today. That's down from a peak of $4.56 on May 21st. That's the third straight week of declines. But just for context, it's hard to remember. Certainly in California, gas was at $2.81 per gallon in January before the war. So we're still paying a war tax on gasoline at about a dollar per gallon, but it has been shrinking every week. And I will say that gas prices have, you know, they do play a large part of what consumers pay for. It does end up being a large piece of. Of expenses for people that drive to work every day. And, and that is definitely true. But I believe that gas prices have a psychological effect on buyers and sellers, more so even than its weighted average in the Consumer Price Index. And that's because people know. Do I know the price of a dozen eggs? Somebody knows that. People listening know that. I have no idea if they through 20 cents on extra or a dollar extra, maybe even on, you know, a dozen eggs, I wouldn't know the difference. But people just watch those gas prices. They're like billboards all across the city. You don't. You don't need eggs. You're not buying eggs. You're not getting the price of eggs. You don't need gas. You're driving by the gas stations. You are seeing the price of gas. It is a billboard in our face saying, this is where. This is where inflation is right now. And when you see gas prices go through the roof, it's just every corner is advertising the gas prices. So I believe that the gas prices have an outsized effect. And that's why this particular global disturbance, this particular war affecting gas prices more than other things is going to have an outsized effect. Okay, One more recent story you can't miss, and that is the SpaceX IPO. And that absolutely connects to real estate. So what does the SpaceX IPO mean for investors? SpaceX recently went public on the NASDAQ with the ticker SPCX in the largest IPO in the history of the stock market. It was the IPO was priced at $1.35, but the markets opened at $1.50 and closed at just over A$60. That's almost 20% rise in one day. That values the company at $2.2 trillion. It raised $75 billion, and it made Elon Musk the world's first trillionaire. So I'm not here to tell you whether you should buy the stock. You know, that's what, that's what other podcasts are for Morningstar, for what it's worth, called the valuation extremely speculative. And just to give you an idea, SpaceX lost over $4 billion last quarter. I'm not, definitely not a stock advisor, but, you know, this is why I invest in real estate. You know, a company that's losing $4 billion last quarter gets that the hugest IPO in history. You know, it makes me want to stick to apartment buildings. And I will, I will say it does impact real estate investors really. And there's, there's three things you've got to look at and one is the wealth effect. The stock market is at record highs and that's trillions of dollars in paper wealth just got created or marked up. So the stock market wealth becomes down payments initially ways that people can use, they either view this wealth or they could sell stock to afford a down payment they couldn't before. And this is more so, not for the first time, homebuyers, but especially in move up and luxury housing. And that supports demand. The second thing, the AI build out is a real estate story. And SpaceX is raising this money partly to build AI data centers and infrastructure. OpenAI and Anthropic have both filed to go public next. These are going to be the next huge IPOs. Data centers mean land, power, construction and housing demand in the metros that win those contracts for those builds follow the capital expenditure. It's going to tell you where jobs and renters for your apartment buildings are going to show up next. And the third thing is it's a signal about liquidity. A $75 billion raise in that IPO getting about $100 billion in retail orders. I'm talking about the SpaceX IPO during a war, while there's 4% inflation tells you that there is an enormous amount of money that's seeking assets and hard assets, especially assets that produce income like real estate, are exactly what the money rotates into when it gets nervous about paper valuation. So when, when people have made all this money on paper, it makes sense that they're going to say, you know, that's diversify and that's buy something that's going to be income producing. This is what drives real estate pricing up. It's why when we talk about cap rates in real estate and a cap rate, as a reminder in real estate is what is the, what is the rate of return on cash when you buy, when you buy an apartment building or you buy a house that you're renting out. So if you, if you buy a $1 million asset, if that, if that brings you a net profit of $100,000, that's going to be a 10% cap rate. $50,000 on a million dollar asset, that's going to be 5% cap rate. So you know, this is the reason why returns on investment on real estate get, get pushed lower and lower because people have made, you know, a bunch of money on paper and like, you know, well, let's take it out and let's grab some hard assets that, that really produce income. And as more people jump out of the stock market with this paper wealth and invest in hard assets like real estate, it's going to drive prices up. So that million dollar Property is now $1.1 million and that same $50,000 net profit is going to take it below a 5 cap. So that's how that happens and that's how that impact of that of the stock market and all this paper wealth really does have a downstream effect on real estate. Here are three moves for the next 90 days. Move number one, get pre positioned before the peace dividend. I've talked about the war tax, now we're talking about the war taxes. Is this increase in oil prices that have increased inflation and now we're talking about a peace dividend. And that is as inflation cools and rates, interest rates drift down over the following months, there is a chance that lots of the buyers who were sitting on the sidelines waiting it out, they come back all at once. And the window where you have four and a half months supply right now gives you a little bit of negotiating leverage and there's still some motivated sellers. That time is right now, while the headlines are still scary. So my advice is get pre approved. Build your target list of potential buys. You're going to look around, you want, you want value add? Am I buying duplexes? Am I buying a six plex? What, what am I, what am I looking at? You want to be up and ready so that you can be closing escrow when the crowd is just waking up. Move number two, underwrite these deals at 6.5%. What that means is don't structure a deal for a refi. Don't structure a deal for rates to come down. Run every deal at today's Freddie Mac rate and if it works at 6.5%, you're going to be safe. Then negotiate the purchase and the seller credits very hard while we have that opportunity right now, buyers still have some leverage and treat any future refinance as a possible upside. Do not pay a price. That only works if rates fall. Price is permanent and the rate is temporary. Move number three, hunt in your own backyard. Something I always talk about. The national median hides everything. It hides more than it tells you. With realtor.com saying 22 metro areas are softening while the Midwest and South are accelerating. That doesn't mean anything for you. Your job this month is to know your market and your submarket. Know your submarket cold. What's the month supply on your street? So in my case, what is it right here as opposed to, you know, it's the month's supply just a mile and a half down the road is totally different. So which sellers have been sitting around for 90 days and they're really getting more motivated? You can find that online very easily. And where are the axlary dwelling unit, the ADU opportunities and value add opportunities? Where do those exist? The investor who knows the neighborhood beats the investor who knows the headlines every single time. And state of the market is absolutely, you know, it's, it's headline driven. People love the state of the market. I get a lot of positive feedback on it because people want to know like, you know, how is the war? How does that impact real estate? What is, you know, how do oil prices affect the, the, the Fed and interest rates? And how's all this stuff tied together? And this is the stuff that, that, that makes headlines. I, I look and see what, what are people searching on Google, what are people asking, chat GPT and you find all these, all these things are, they're really national norms and national benchmarks. And so we really, it's important for us to understand them. That's why I talk about them. But I always drive and I will always drive back the same thing. And that's know your local market. I gave that, that, you know, crazy example before. I'm going to get the exact numbers for you this time. I think I butchered it a little bit before because I knew Hartford had gone up since 2022, had gone up about 20%. I just checked my math. Hartford, Connecticut is up 22% since 2022. You take the exact same time frame and Austin, Texas is down 28%. That is proof positive that you know what's going on in your submarket. What's going on your street is going to matter a lot more than whether the Feds are going to raise rates or not. So have that discipline. Know what's going on in the world, understand the headlines, how it impacts real estate, and most importantly, become an expert in your submarket and you can win in real estate no matter what the market is. As a quick disclaimer, nothing in this episode is financial, legal, tax or investment advice. I'm sharing my personal opinions and analysis as of today, not recommendations to be relied on. Markets change. Before you make any investment, consult your own professionals, your cpa, your attorney, your financial advisor, your Realtor, and do your own due diligence. Here's the bottom line for this week. The war is ending. Probably. We'll check back next week, see what happened. Money is flooding into the markets, definitely. The Fed is frozen and housing quietly just put up its best month since December. The people who win in markets like this are not the ones who time the headlines. They're the ones who know their numbers, know their neighborhood, and act while everyone else is still scared. If this helped you see the market more clearly, subscribe to the Paul Morris Podcast. We do this every week with source data, no hype. Drop your questions in the comments below and also let us know what markets you're in. I read the comments and we build future episodes around them. Thank you so much for tuning in and we'll see you next week.