Get Rich Education 436: Home Prices are Falling. Will it Continue?
I get political today. But first, I discuss jobs. How far will home prices fall?
Innovation creates jobs. It does not destroy jobs.
American innovation is one reason that we added over a half million new jobs just last month.
All this new job growth and a robust GDP reading will keep us out of a recession for the next few months, maybe much longer.
Both the US median home price (Case-Shiller) and inflation peaked last June.
The US median home price fell 2.5% from its peak.
Where are they falling? Where are the rising? We explore experts' outlook for home prices.
Five expert opinions all range from 2023 home prices rising 5% to falling 4%.
Volatile, coastal markets are correcting down a little. Many stable markets in the Midwest and South are stable or rising a little.
Beware of those that say, "It's never been a better time to buy real estate." That's wrong. 2012 was better.
2021 was the worst time to buy real estate recently.
Even these past few years, and today, it's hard to find a better place to put your investment dollar than carefully-bought income property.
This won't last long. At GREmarketplace.com now, providers are often giving buyers 2% of the purchase price as cash at the closing table and free Property Management for two years.
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Welcome to GRE! From ANNapolis, MD to Santa ANA, CA and across 188 nations worldwide. I'm Keith Weinhold, Forbes REC member and founder of this very platform here… and this is Episode 436 of the Get Rich Education audio podcast.
If you'd like to watch me on video, check out the Get Rich Education YouTube Channel.
But our audio show, right here, is our most popular platform.
Is the world trying to tell me that my voice is better than my face, then? That's what I'm starting to think. Ha!
ARE American home prices are falling. How bad is it? When did it start? And when will it stop? I'm going to answer all of that in just a bit.
Last week, I mentioned that a strong GDP report has told so many permabears and gloomer-and-doomers that they were wrong about being in a recession by now.
And gosh… the latest Jobs Report came in after that and it just added insult to injury for all these permabears - meaning those that are permanently bearish - permanently making dire predictions about the economy & housing.
And, even if you're listening to this show years from now, this is how you know that a recession is NOT at all imminent.
The whopping 517,000 new jobs added last month nearly tripled expectations.
Still... I wonder if constant rumors about a coming recession will drag on longer than the fake meat fad.
These recession rumors keep getting stirred up.
Now, when it comes to jobs. You care about that a lot as a REI. You need your tenant to have a job in order to pay you the rent.
The number of American jobs saw their recent low in 2020. In fact, they fell into a deep trough - a BIG dip back then.
That was the pandemic shutdown. People had to stay home. The government paid workers to stay home. Maybe you were paid to say home then - about three years ago.
Well, that means that a lot of goods weren't being produced in 2020. Many services weren't being produced either.
Well, when MORE stimulus-fueled dollars began chasing FEWER goods, that's exactly what began stoking the inflation fire for the next few years, right up to & including now.
That's where the monetary inflation came from.
That's why I've regularly been paying $8 for a bottle of good quality salad dressing.
Aren't you doing some of these things?
Yeah! Hey, what's wrong with you? In today's polite society, you aren't adding a 25% tip for your $6 bottle water?
No, I hope you're not. I'm not doing THAT yet. Ha!
Well, that was when jobs cratered, in 2020. By today, with all of these American jobs roaring back, total jobs are now 2.7 million above pre-pandemic levels. There's now just a 3.4% unemployment rate.
That is just really hard for the doom-and-gloomers to deal with.
That's the GOOD news.
Though more jobs are good news, it's not all good.
The bad news here is that strong employment means more inflationary pressure.
To that point, Jerome Powell recently said that Americans should expect a couple more interest rate hikes to keep combating inflation.
Not everything is all good in the good ol' USA. I mentioned some of the economy's other problems last week.
But what's the reason for all this job creation? Why is this happening in America?
In a word, it is American innovation.
Innovation creates jobs.
Now, there might have been one point in your life when you thought that innovation DESTROYS jobs - like, for example, with the fact that today's bank tellers and grocery store cashiers are disappearing.
Innovation does not destroy jobs. Innovation creates jobs. We'll like at why shortly.
But first, the Global Innovation Index was released and it shows that America is the 2nd-most innovative nation in the entire world.
Yep, of 193 UN-recognized world nations, the US is only second to Switzerland.
People have falsely believed that innovation destroys jobs since before the tractor replaced horses and mules.
Yep, last century, one new tractor replaced five horses or five mules and that meant that it soon took fewer farmers to feed the animals, because fewer animals were needed.
For the ultimate result & outcome, look no further than where you are today. We are more technologically advanced than at any time in human history.
The result is that we have 11 million more jobs than available workers. It's kind of the opposite of unemployment.
Innovation is what got us here.
Twenty years ago, no one could have foreseen ALL of today's new job opportunities as a: drone operator, quantum machine learning analyst, YouTube creator, a podcaster, social media director, app developer, information security analyst.
New jobs that didn't exist before, like a digital marketer, TikToker, metaverse wearables developer, and on and on.
Well, that right there is evidence that in twenty years, it's hard to foresee what new jobs WILL exist that don't exist today. But they WILL be created.
Even eBay, which some regard as a "digital yard sale" company - though they're more than that. But eBay just announced new hires for Web3 and NFTs—those fields barely existed two years ago.
In a few years, when self-driving cars replace Uber drivers, those driver jobs will simply migrate to better-and-higher uses, just like it did for jobs of a bygone era like telephone switch operators & travel agents & bowling pin boys & and elevator lift attendants.
But people will still fear for the "loss of jobs". Don't fear for a loss of jobs. Fear for a loss in innovation.
American innovation drives all this job growth.
So the fact that we aren't having a recession anytime soon is really frustrating for all the permabears.
I wouldn't totally count it out that we could have a mild recession LATER this year. But not soon.
Politics is another sad reason that people create gloom & doom-type of media.
Some people wanted to WISH a recession into existence since last year, especially leading up to last year's mid-term elections because they wanted to sow seeds of fear because they didn't like the political party in power.
People think that if they can just convince enough people that there's a recession, then they can topple the current administration.
Then if that incumbent administration gets toppled and THEIR people are now in power, even if it doesn't change anything in the economy, that same recession-promoter will stop promoting a recession because they got their political wish. It's politically-driven.
I don't do that here. I don't do left-right politics. Instead, I do up-down. Up is integrity. Let's go up.
I first heard that up-down framework from Dr. Chris Martenson - someone I really respect. We had him on the show a couple times here.
How do you do up-down instead of left-right? Follow people that you disagree with on social media for some new perspectives.
Trying watching some YT channels that you don't agree with. Even delete your YT history & start over if that does the trick.
Today's suggested video and social feeds can often keep people in one narrow "think" silo.
So two big reasons that crash bros have been wrong are discounting American innovation and being blinded by politics.
OK. Well... so what? I mean… really… like… who cares?
What if gloomer-and-doomers plow ahead with more fear-mongering headlines like: "giant crash ahead", "total market collapse" or "massive depression coming"?
How does that really hurt anyone?
Like I briefly mentioned last week, it matters because it keeps us living in fear.
Your brain's amygdala is wired to be stimulated by danger, alerting your nervous system.
Has all that dreary material from some other sources talking about crashes and depressions and collapses even made you want to... quit your daydream?
You'll never get that lost time back.
Permabears rarely admit that their dire predictions were wrong. They'll just go on making more intransigent apocalyptic forecasts in order to get clicks.
People have been predicting the end of the world exactly since... the beginning of the world.
Let's bring some balance here. Let's talk about both the bad news and the good news.
If you & I believed all the bad news, a meteor would have plummeted from the sky and struck us both dead by now.
That's why some people with their constantly dire predictions want you to think.
It's the old school media notion of "If it bleeds, it leads."
Don't believe for one second that I think that America's powers that be are all 100% responsible & looking out for your best interest.
Janet Yellen recently said: "You don't have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years."
Yes, that's what Treasury Secretary Janet Yellen said, who, as longtime listeners know, I have called "Grandma Yellen" because she looks like my late Grandma Weinhold.
C'mon - she just looks like a Grandma. Nothing wrong with that - she looks like a sweet ol' grandma.
I've definitely disagreed with her in the past. That is, I've disagreed with Yellen, not my Grandma. Ha!
But Yellen is right on this one.
And yes, Yellen works for the president. But she's not the only one who's starting to see the possibility of a recession becoming less likely.
Economists at Goldman Sachs lowered their estimate on the possibility of a recession in the next year from 35% down to 25%, and that is thanks to the strong labor market.
A 25% chance of a recession this year, though some forecast it higher than that.
Speaking of the President, I was hoping that one Joseph Robinette Biden, Jr. would have talked about housing more in last week's SOTU address that he delivered.
In any case, the strong labor market is keeping us out of a recession. And MY take is that job strength is underscored by a legacy of continued American innovation.
But we won't play the Star-Spangled Banner again this week like we did last week… emmm because some of those jobs are part-time jobs.
Coming up straight ahead - some bad real estate news - what about those falling American home prices?
Learn more about GRE and how our mission helps you achieve financial freedom - not debt freedom - but something more important - financial freedom - at our educational website, GetRichEducation.com
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Might I first suggest our YouTube Channel.
That's where you'll get some great, free in-depth learning, including where we're about to release a video of me shopping in grocery stores in various US states - yes pushing a shopping cart through the aisles - for evidence of inflation and what that means to you. Look out for that on our Get Rich Education YouTube Channel.
More straight ahead. I'm KW. This is GRE.
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Last week, I told you why I don't expect our core markets to see much price movement in the near term.
By our core market, that's residential properties that are lower-middle class up the median in the US Midwest & South - which I call the stable markets - as opposed to the volatile, coastal markets.
As a real estate investor, you may very well care about the state of rent growth and occupancy rates so prices might not be the #1 thing, but they still matter to you.
Well, both US home prices and inflation BOTH peaked in June of last year.
The fact that last June was the peak of US home prices is per the widely-cited Case Shiller National Home Price Index.
And since then, national home prices have corrected back… 2.5%. Yes, down two-and-a-half percent from their price zenith, eight months ago.
Yes, a rare period where home prices have NOT appreciated.
Redfin recently told us that of the 50 most populous cities in the nation, the 10-11 that have fallen the most over the past year (so this is annualized here) - and I'm just rounding to the nearest whole percent here are:
San Francisco - home values are down 10% YOY
Sacramento, California: down 6%
San Jose, California: down 6%
Los Angeles, California: -5%
Oakland, California: -4%
Seattle, Washington: -4%
Pittsburgh, Pennsylvania: -4%. I'm a little surprised at Pittsburgh. I just visited Pittsburgh a few months back and I don't know why they're down 4%. I might research this.
Austin, Texas: down 3%. Not a coastal market, but a market that overheated in the pandemic runup.
New York City -3%.
Phoenix, Arizona: -2%
Let's get an 11th city in there with Boston, Massachusetts: -2%
Alright, so, it's chiefly volatile coastal markets that have experienced the price correction to this point. Most of those are mild. The only one down more than 6% is SF at 10%.
But how far do they fall… in those high-priced, volatile, mostly coastal markets.
And, hey. You can go back to this show from its beginnings in 2014 and 2015 and this is why I told you that we avoid the high-priced, volatile markets here - most of them coastal. They don't cash flow.
Their values aren't stable, and their LL-Tenant laws don't favor REIs at all. This is just what I've been talking about for over 8 years now - all on record - right here on this show.
Alright, well that's backward-looking. For some forward guidance, I told you about MY price forecast last week.
Here's what some OTHER influential figures have to say about the future direction of the national median home price for this year:
CoreLogic expects a 2.8% increase.
Deputy Chief Economist at Redfin, Taylor Marr is forecasting a 4% drop in the median home price compared to 2022.
Chief Economist at Zillow, Skylar Olsen expects a more modest 0.5% decline.
NAR Chief Economist Lawrence Yun thinks prices will stay even, with no appreciable gain or loss.
And finally, Danielle Hale, Chief Economist at Realtor.com expects a 5% INcrease in home prices.
So, right there, with that panel of five economists, there's a national HPA expected range for this year of -4% to +5%.
Now, I talked about the worst appreciating major markets & the national numbers.
How about the big-city real estate markets that have continued to appreciate & expect to continue to this year?
The Top 10 are just about all in the eastern half of the United States, expected to appreciate anywhere from 2% to 8%. In no particular order, they are:
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Charlotte
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Cleveland
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Tampa
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Dallas
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Nashville
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Jacksonville
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Kansas City
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Miami
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Atlanta
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Philadelphia
Though mortgage rates have hit a five month low, now near 6%, you know, I think that MORTGAGE RATE direction is more difficult to forecast than home prices are.
But I'll tell you, at this point, I will advise you that mortgage rates have more upward pressure on them than downward pressure since there's high job growth.
High job growth can keep inflation buoyant so that makes the Fed want to keep hiking rates.
So, in summary. Home prices expect to stay stable or perhaps rise just a touch in many stable Midwest & South markets, and they probably have further to fall in high-priced markets, many of which are coastal markets.
Jacksonville, FL is one notable exception. That is one major coastal market that usually behaves like a stable market and has good cash flow.
Jacksonville is one coastal place that I like for investors.
Real estate has been more attractive to buyers this year, compared to last year as evidenced by the increase in purchase applications.
But for anyone that says that it's never been a better time to buy real estate. I don't believe that for a moment.
NEVER been a better time?
2012 was a pretty awesome time to buy real estate. That was about when prices hit some sweet lows. But those prices are never coming back.
I'll tell ya, when do I think was the WORST time to buy real estate in the recent past? It was 2021.
That's when the housing inventory was so low and everyone was competing for houses and you had to drop so many contingencies that sometimes you had to feel like you better waive your home inspection (which is not something that I recommend).
2021 is when you often had to pay all-cash to compete against a horde of bidders. That's bad. That means you've got no leverage.
And 2021 is when you often had to offer over asking price. 2021 had choppy seas for buyers. But it was a good year for sellers.
And you know, even in 2021, with it's challenges, you would be hard-pressed to find a better investment than real estate when it's carefully-bought income property.
That's still where you would have a strong risk-adjusted return, buying in the stable, cash-flowing markets where we do.
We're talking about "Real Estate Pays 5 Ways" type of properties - yeah.
A San Francisco row house in 2021 that you had to pay all-cash & $100K over offer price for? No, not a good strict financial investment.
But today's market - now you've got more inventory and you have these incentives that more & more income property providers are offering you like I mentioned last week.
I want to mention them again because they are so special, they don't often exist in the marketplace.
There are three ways you can save thousands of dollars in today's real estate market.
These three incentives - you can't get them from every provider at GRE Marketplace. But this is now common. Ask about them.
1 - Many sellers are crediting buyers like you 2% of the purchase price at the closing table. You can use this to buy down your interest rate if you want to.
So on a $250K income property purchase, that's $5,000 cash to you at the closing table.
I don't know how long this incentive will last. Because though mortgage rates have fallen a full 1% from their peak, you're still getting cash at the closing table to buy your rate down.
The second incentive is free property management for up to 2 years.
If you don't have to pay a PM fee, that can increase your cash flow by about $150 each month - or more - on every one of your properties.
I don't know how long that one will last.
3 - Rent guarantee. This means that if your property is vacant, the seller pays rent to you until the property is occupied.
That third one - the rent guarantee is the only one that I would expect will last long-term.
On your next income property purchase at GRE Marketplace, be sure to ask about these incentives.
If you're listening to this episode in the distant future, they're probably not going to be there anymore… then just, take this as a point of historical context.
Understand that GRE Marketplace is not like a big box store. It's more like an organic farmer's market where we help match you with experienced property providers.
And much like an organic farmer's market, check back regularly for new offerings. It's a vibrant market. And you see all those markets in the Midwest & South there. Check back every few weeks.
To help you out, we actually video-interview the PMs in most markets on that page.
Yes, with today's incentives, your PM could be like your unpaid servant for two years - ha! We interview them right there on Marketplace to give you a good feel for them.
Wealthy people's money either starts out in RE - or ends up in RE. And I really wish that a resource like GRE Marketplace existed when I began investing in RE. I had to figure out so much by myself then.
It is still free. There is still zero subscription fee. GREmarketplace.com is still a completely free service to you. Create one login and get access to all providers at GREmarketplace.com.
Next week, a show unlike any we've ever had before. I'm Keith Weinhold. DQYD!