Ageing, Home Buying, Home Mortgage, Mortgage Rates, Stock Market
April 11, 2021
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On this podcast, we go to Suze School for the latest on what is happening in the real estate market. Learn why birth rates factor into supply and demand and what you should think about doing now.
Know what date it is, KT? Today's April 11, Suze that's my going is in the air baby. April 11, 2021 to be exact. So, guess what we're doing today school? We're going to school, Suze Sunday school. Now. you've recently told me that a lot of people are writing in about what, real estate. So, you have a lot of real estate questions, what kind of saving them? I have so many. I'm going to do a real estate show. You are, are you about what people are asking you? Yeah, we're going to do a dedicated real estate show probably towards the end of April. Guess what we're doing today? Real Estate School, very different from KT Show, KT Show is where you ask questions far more entertaining. This is going to be entertaining. That is not nice. School’s hard with you. Well, this one, this one is going to be hard. I have to listen everybody and really get it. All right. So, this Suze school is going to be in depth as to are we or are we not in a real estate bubble? Should you be buying or should you not? So, it's really important you understand what goes into truthfully moving the price of real estate, what has happened and what's projected to happen over the next few years? I will be the very first to tell you that I got real estate 100% wrong last year when it came to the pandemic. There was no way for me obviously to see that the government was going to allow people to continue to not collect, not only rents, but mortgages and things like that. So, I really thought that when people weren't going to be able to pay their rent, when people weren't going to be able to pay their mortgages, that it would have an effect on real estate, I was wrong and it's all right, it was my opinion, but it's always good to know. So, then I had to figure out why was I really wrong, what's happening with real estate and what are some real experts when it comes to real estate? What are they saying? Because a lot of you, almost all of you are writing in about real estate and you are rushing in to the real estate market right now. Now there are two people who probably are the experts in the United States when it comes to real estate and they happen to be Barry and Dan Habib, and Barry is an old friend of mine, they’re from a company called MBS Highway where really it advises advisors um the outlook of real estate. Barry and I go so far back to the CNBC days. It's not even funny. So, when he says something, I really listened to him because he is somebody who really knows. And this weekend I was reading a newsletter that I get called Thoughts from the Front Line by John Mauldin and John is quoting Barry Habib and everything in here. And I just want to summarize what they said for all of you, because what they said in my opinion is absolutely brilliant. So first of all, let's start with real estate. What makes the price of real estate go up? How am I doing so far, KT, you're doing pretty good. I just was remembering about Barry Habib when we do go back a long time. 20 some odd years. Yeah. You talked about with him all the time on the show, TV show, he's so brilliant. Right? I don't really know his brother Dan, but all right. I was just making sure KT was still with us here. You with us? Yeah, I'm listening. I'm learning. I'm a good student. All right. So, what makes the price of real estate go up? It's really very simple supply and demand. So why did the demand go up over the past year or so? All right, that's easy to know. First, it was because of the pandemic. You had all these wealthy city dwellers that wanted to get out of the city. They wanted to go where there was fresh air, where they would have room to walk around. So, they all absolutely wanted to get up and go and get away. Next, what happened, is that companies were letting all of you work from home. So, you all started to realize that you could live far away from the office. There's an entire influx of people buying homes that were really far away from where they were, right? That was the demand. The supply, however, was even more important in this equation. Now the supply is the number of houses for sale, right? The number of houses that are out there that are currently for sale, and you just have to know that when that number is low, relative to the number of prospective buyers, prices absolutely rise. Now, what year do you think inventory for real estate actually peaked? I think like the early 2000s, like 2007 after the last big financial bust, where'd you read that? I didn't I just remember that. See everybody, my girl knows she's right. I can't believe it. But that's besides playing nice. But let's see. I know I got my numbers, right? All right. So now inventory, KT, peaked in 2007. Alright, listen to me, everybody now, but since then inventory has been dropping and dropping and dropping. And currently, right here and right now we have the lowest inventory that we have ever had. So, our supply is the lowest it has ever been. Demand is really high too, demand is high, supply is seriously low. Bidding war. Here she goes again. Why is the supply so low? Why is inventory so low? Because it's important not just to know KT that you have high demand, low supply. You need to know why these things are happening. All right. So, we know why demand is up, we already said that. Now we have to learn why is supply down? Why is this supply down? All right. So, listen everybody in 2020 last year, the world literally went upside down. Everything, right? Everything stopped. And that included KT, home construction and not just because contractors and everybody couldn't work. It was that people couldn't deliver the material. There were no laborers. So, everything, you know, materials became very much in demand and there was a shortage of them. So, for six months production was absolutely lost. Now, ready for this one, KT, you know, wait, I have to interrupt you, that happened just the other day. One of our contractors, Mark, was here and he told us, he said that he closed the shop. You just reminded me of that, we're getting new kitchen cabinets here in Florida. And Mark said um Suze I shut my shop down for three months in the middle of the pandemic. Besides shutting his shop down, he couldn't get materials. But here's the thing, KT, do you remember when we were building the house on the island? Do you remember we needed a lot of plywood for the roof? Do you remember how much plywood was for a sheet back then? $10? That's my girl. About $10. Do you know what it is today? I don't know, but I'm sure that it's a lot more than you know that lumber itself has gone up almost 1000%. It's insane. So, you can lumber can now be for sheet of plywood what could go from $50 to $90. Just depends where you buy it. But it is really expensive. Now, what's important about that is number one, good luck possibly getting it. But that pushes the price of construction up, when the price of construction goes up, that reduces supply. All right? So, what you need to know, all right, is just listen to me closely now. Prices should rise if supply contracts, as long as demand remains at least steady. That is a rule of real estate, I'll say it again. Prices should rise, if supply contracts, as long as there's a decent demand for real estate and it remains steady. But here's the thing, KT demand hasn't remained steady. It has actually boomed through the roof. It's not just the pandemic that made everything go up. It's really that the demand is booming. But there is another reason why the demand is booming, which is going to be new to everybody if they listen closely. So, you got to listen closely, want me to guess. Yeah. Home offices? No, I gave it my best shot right. And so, this is what you have to understand the key and housing demand is household formation, meaning the age of people that are living in your house. How old are they? Are they maturing? Are they not in terms of age? What's happening out there? So, listen again, when you're single and you're single, KT, you know this and I know this. You usually rent, very few people when they're single by a home. When do they start to buy a home? Marriage? Children? Bingo. Alright, so they need more space than they start to do that. What is the average age, that you think that happens in the United States of America, when somebody looks for that? I'm going to guess 28-30. 33 now, why does that matter to all of you again, listen closely. The number of 33-year-olds are key to housing demand, particularly in the less expensive like starter home purchases. So, in other words, here's what we all have to understand to gauge housing demand in any given year. You need to look at birth rates 33 years earlier. Now that is a first, because normally what happens is you look at supply demand, all these other things. The absolute key is to look at birth rates 33 years earlier and there are records that easily you can find them now. So why do you need to look at the birth rate of 33 years earlier? Because if the birth rates approximately 33 years earlier are going down, you know that probably real estate prices are not going to go up if you are going to buy them right now, let me give you an example. Birth rates in the United States, KT, started to fall really dramatically, starting in 1973. That means that there were fewer 33-year-olds first time homebuyers in what year? 2006, 2006 is when the housing market ran into trouble. Sure, it ran into trouble because of no interest rate loans and things like that. But it also ran into trouble because in 1973 it was a low birth rate that year, which means 33 years later, there would be less people buying starter homes. Which means there would not be demand for them, which means real estate prices would start to fall. So, 1973 Vietnam War birth rates were way down, because everyone that was young or married were people. We didn't have anyone to make babies with here in America. Right, okay. But regardless of why birth rates are down, birth rates are predictable of the future price of real estate. So, let's continue on this. So, what are the birth rates now? All right. So those who are 33 right now, they were born in 1987 and 1988 and KT, that's when birth rates started to rise since the lows of the 1970s and they would continue to accelerate for the next few years. So that is why the last few years, even before the pandemic and everything happened, saw really heavy demand for first time homebuyers and why it should continue a while longer. Does that make sense? Yeah, that makes good sense. So, what we should see now is three or four more years of rising prices and then what might happen is a very slow decline, or just level off or decline, no a slow decline. Now you have to add that what I just said to also what's happening with baby boomers. So now we have all of these baby boomers which we are part of and what do I tell everybody in the Ultimate Retirement Guide for 50+? Have you all read that book? You should, if you haven't Right, what do I say in there? This is the time to downsize as you get older, you should want to sell. Why are you keeping a big house? So, when you add the phenomenon of 33-year-olds right now entering that market for first time starter homes and the 76 million baby boomers out there that are downsizing into smaller homes which are considered starter homes. In the same way, that is exactly why you have sharply higher demands was sharply lower supply now, does that make sense? Yeah, and they should make states, they, the 33-year-old should start buying homes they can accommodate grandma and grandpa or mommy and daddy, they should. But now here's what's important, what can upset this, what could change this phenomenon that people should seem relatively okay to buy homes for the next year, two or three. If mortgage rates keep rising, then we may have a problem. Okay, we just may. Do you think they will? No, because whether people know it or not that the policies that normally bailout our government, also are serving to keep mortgage rates at these historically low levels. Just that simple, KT. For how long? Probably it could be a long time. I have to tell you, like a decade. I don't know, KT that I don't know. I don't think we're going to upset the apple cart because mortgage rates start to really go up high. I think what happens is that if these theories are true and given that Barry Habib has studied these going all the way back, I would believe him bar none. So can I ask a simple question if you were 33 and you're just expecting your first child and you know, you're married, you have your spouse, you're expecting our first child. Would you wait to buy a home or would you buy the home now? I would buy a home now, but I would not rush into it because one of the biggest mistakes that people are making is that they are buying their first home. They don't realize what it takes when you really buy a home and how people have a dresser in front of a leaky window, and all these things that go on that you and I have experienced over all the homes we've purchased. And so, what's happening is that many first-time homebuyers that are rushing into buying a home? Because there's such, you know, there's 122 bids the first day on a home, right? They are also being saddled with repairs. They thought they bought a home, they thought everything was great and all of a sudden, they realized, oh my god, this window leaks. Oh, the hot water. Really, it doesn't get hot very much. Oh, there's this, there's that. They're also possibly realizing a lot of people are buying homes right now KT, sight unseen. It's very possible that the place that they wanted to buy seemed nice, but it really lacks the true amenities and the services that they wanted and it's not really where they wanted to live. So, at the bottom line, is it a good time? It's hard to know there are other trains of thoughts that say we could have what's called a negative wealth effect and on and on. That it's very possible right, that we could have a 20% decline in prices from here now, but you don't know when we'll of course you don't. Nobody ever knows when. However, if you were going to look at it, you have more of a chance that they will rise for the next two or three years, maybe not as fast as they have, right? And then probably may start making a slow decline, but you do not buy a home KT, just to make money on it. A home yes, it's an investment over the long run, but a home is your home. It's where you live. So, you really shouldn't look at it like a stock where you're going to buy and sell and it's going to appreciate, no matter what. You look at it in terms of what it gives you. Do you feel comfortable there? Do you feel secure there? Can you afford it, whether it goes up in value or not? May not come into play for years from now. Right, when you do want to sell it. So right now, based on Barry’s insights and what Maldon wrote and all these friends of yours, do you think it's a seller's market? Of course, it's a seller's if you then all these old baby boomers should really be selling and downsizing now. All right, there you go. So, I just wanted to do a real estate Suze school with you to give you a little bit different perspective as to what is happening really happening in the real estate market. What are the new factors like the birth rates of 33-year-olds that you should consider, and understanding true supply and demand and why we have had such a seriously booming real estate market, totally to my amazement, I just have to say that. You didn't think it was going to go this way. I actually thought it was going to go totally the opposite way. But you know what I mean obviously you admitted that you're wrong. However, there's that big unknown, there's always an unknown. Jobs aren't affecting this, believe it. That's really strange. Which is why I'm a little, which is why I'm like, what is this? You know? And essentially, I'll tell you what it is that somebody is selling a house, that there was a house on the market for sale little while ago for $300,000. The day it went on the market, KT they had 122 offers going as high as $500,000, bidding war. Now you have a seller that all of a sudden has $200,000 more than they thought they were going to have, at the same time, you have a buyer who spent $200,000 more. All right, but that comes out in terms of a mortgage payment to them. So, you have all of this wealth now, unexpected wealth for all of these sellers that have 100 or 200 or $300,000 more than they expected to have. And what are they doing with that money? Are they putting it in the stock market? Are they putting it in the economy? Are they renovating their home? So, there's this like wealth effect happening from the sellers versus the buyers versus everything else that's going on. The stimulus checks all of that. So, these times are just, I don't even know what to say about. I think also, I don't know if they talked about this, but I personally think the whole model of lifestyle and living has been affected dramatically because of this pandemic. I'm not sure, KT, it's totally confusing to me. I'll be the first to tell you the stock market's confusing to me. However, I am sticking by I think sometime in April, you know, maybe beginning of May, we could start to trend down. Stocks are going up there going down. You see that the Dow Jones Industrial Average is making a high, but are you really making more money on your money? I can tell you one thing. I hope you listen to me when it came to bonds, bonds are down considerably, bond exchange traded funds, and mutual funds with bonds down considerably everybody. So at least we got that one right. But here's the thing, it's about education, it's about sometimes you get it right. Sometimes you get it wrong but it's important to understand now, at this point in time, really what is probably going to continue to happen? The last year, it was impossible. Absolutely impossible to call because whoever knew if we're going to come out of the house again or what. But now everything is settling down. We see where it's going, we see the prices of things, we now know what's causing demand. We now know about supply. So that Miss Travis is the Suze School for April 11th, 2021. That was good. Suze. Thanks, darlin, see you Thursday. Alright everybody have a great day, bye bye.
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