During their latest episode of the VALUE: After Hours Podcast, Porter, Vinny, Taylor, and Carlisle discuss more Real Estate Predictions 2023. Here’s an excerpt from the episode:
Porter: Let’s stick to what we’re good at. You think about interest rates, mortgages, autos, all this stuff, and with where rates are, there’s just not going to be a lot of activity in big ticket items. Houses, there’s nothing going on. We can touch on this. Auto prices are up, the volumes still aren’t there, and it’s just more expensive to do all this stuff. So, I think if you take the housing as a massive pillar of the economy, there’s just not a lot of growth or decline, I think. I think the prices haven’t come down enough to see the velocity.
Again, there’s still not a lot of inventory out there. I think there’s the whole foreclosure issue, which we never really fixed post-COVID. So, that’s one of the reasons the inventory is still so low. I don’t think we’re going to go anywhere until this is resolved. Either price or a lot of time or rates come down, and I don’t see any of that changing right now.
Vincent: Yeah. To me, I’m speaking to friends who are looking in the real estate market. So, let’s extend the housing market to just overall real estate in general, including office, as well as multifamily, and the malls, and the strip malls. Nothing’s moving. Very little, if anything, is moving, there’s just no velocity. What I think occurred for the housing market specifically, let’s call it from October up until, say, February, is let’s keep it simple.
The 10-year rate dropped 100 basis points, which created incremental activity relative to what was happening in October. And then, if you add this little complexity layer that on a seasonally adjusted factor, two or three homes, and I’m speaking in hyperbole, selling in December, just nationally, that’s it. And maybe went to four or five homes because a few additional homes sold because rates went down 100 basis points. Of course, we seasonally adjust that, annualize that, and all of a sudden, it looks like the housing market is back. The reality is that the majority of homes are sold between March and August.
And this gets back, Tobias, your leading indicators, but I view these as all leading indicators of activity and I think it’s going to come in absent changes in rates and softer than expected over the next few months. Exactly when? I can’t time it, but I think you’re going to start to see it more and more come through the data, I would think.
Jake: Well, unless you’re just totally over the barrel and have to move, why would you change your 3% interest rate for a 7% now? It’s kind of unthinkable.
Vincent: But on the commercial real estate side, your issue is you’re probably underwater. If you have a 10-year fixed mortgage, same thing applies. Even if you’re underwater, you’re probably going to sweat it out. But heaven forbid, if you have some form of bullet maturity coming your way or your principals do, that’s a problem. It’s a problem for the banks and it’s a problem for the people who own the property.
Porter: It’s a much bigger issue if you’re in places with variable mortgages like Canada, or UK, or Australia.
Porter: It’s a real problem. So, I would assume that those central banks cannot be as aggressive as what the Fed is doing. If you look at some of these house prices to income, and debt to real estate property values, it’s just so far off the charts in those places that I think that the risk of total calamity is much, much higher than it is in the US. And so, we’re going to be in a really tough period here.
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