Kestrel Country Podcast
Kestrel Country Podcast
Stagnation, Triggers, And The Next Housing Cycle
Mike unpacks why the market has felt stuck, then lays out what could spark a real estate upswing: falling mortgage rates, stock market resilience, wage growth outpacing inflation, and a historic wealth transfer. Be sure to find out what his practical savings strategy for renters is!
If you have any ideas for guests, ideas for podcast episodes, definitely send them in as we’re jumping back into this Kestrel Country podcast.
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This is the Testal Country Podcast where we discuss the people, the places, and events all around Tesco Country. So given that it's been a while since we've recorded a podcast, I want to talk a little bit about what's been happening in real estate and a little bit of some predictions for the future for coming into next year. As it is as of today, we're getting to be late October. So beautiful fall here on the Palouse, and it really has been a beautiful fall. We've had amazing weather and it's been great. But let's talk a little bit about what's been going on in the real estate market. So last two years, I would say the uh way to classify it here, and I'm talking about locally, but it's really been true nationally too, is a bit of stagnation. It's been slow and weird. Um what do I mean by weird? Well, it's been uh the market's not been totally dead, but there's just been a low number of transactions overall and a little bit of a stalemate with both buyers and sellers being a little bit more on the fence. With sellers, a lot of that is coming from the super low, kind of artificially low interest rates that we saw post-COVID. So there are a lot of people who either bought or refinanced at in that time where interest rates got super, super really artificially low in the twos and threes, and then obviously shot back up, got almost to 8%, and have been kind of hovering relatively high in the sixes and sevens the last year or two. What that's done is had this lock-in effect where basically it's it's hard for people to want to trade up or trade out of that really low mortgage rate that they've got fixed for 30 years and buy at this higher rate, especially when prices haven't come down. And part of why prices haven't come down is because of that low inventory. So it's a little bit of a trap cycle there. And then that's on the seller side why inventory is low, which then again keeps prices relatively high. Then we've also seen on the buyer side, obviously, that difficulty of high interest rates and stubborn prices creating a little bit of again, this stalemate. So you know, homes that are priced right are still selling quickly. We've even seen some recently with multiple offers when they're priced right. But anything overpriced at all is just sitting on the market. So that's generally what we've been seeing. Um, but some promising signs going into this later fall as interest rates have started to drop. Although what often happens this time of year is that when people see those interest rates start to tick down, they think, all right, they're dropping. Let's not jump in too soon, let's wait till they drop further, uh, wait till spring, and maybe there's more inventory and lower rates, right? So um that's kind of what we've been seeing in the market. It's been a weird couple years, but very grateful for um continued, you know, strong business for us, for our team here. And um, and uh I want to get into a little bit next about why I'm optimistic for where the market is headed. I'm gonna base some of this on an article um is actually it was an opinion piece from a guy named Gene Marks at the Hill publication. Um and I talked through this uh with my sales team a couple days ago at our meeting, but just wanted to bring up some of his points and then talk about why um I really think that he's on to something and that we will see um a boom or at least a real uptick in the market coming into next year. So his the headline he had here was a real estate boom is coming. Are you ready? Um and what the author outlines, uh first of all, he acknowledges a lot of what I was just saying that we've had kind of a tough spot in markets the last couple years, both commercial and residential markets. Higher prices, low activity, high borrowing costs, um, this kind of just slow, weird market. But he predicts it will change, and and his prediction is for a really significant boom. Um so a lot of then what follows is him kind of going through what are the ingredients, um, and then he believes those ingredients will happen, but kind of what are the triggers in the market that would uh create that boom? The first one is mortgage rates having to fall, and his trigger that he gives is probably below five and a half percent. Obviously, that one's pretty obvious, right? So uh as I was mentioning before, higher interest rates is part of what's really creating this issue. And I say high, but really it's higher than they were at those artificial lows. Historically, the rates we're at now, you know, around six percent are pretty pretty good rates, really. Um, but he does predict they would need to drop and probably in that five and a half range. Um indications seem to be that that is what's happening. Um, the Fed, which again, the Fed rate and mortgage rates are two completely different things, although they do have some relationship um in the market forces. But the Fed has indicated that they predict that they'll continue to lower rates. Um, we do expect that the mortgage rates will drop. Um, and one of the things that that's gonna do is not only help those buyers out and get off the fence, um, but also help free up some of that inventory. So a couple of interesting statistics from that article. Um he says 14.3% of outstanding mortgages have rates at or above six percent. So those are people who are definitely gonna benefit, right? I mean, if all of a sudden your rate goes down to five and a half, then there's a real motivation to make that move or refi, right? It could be refi, um, but it's gonna at least free you up to be more attractive to moving. Um, and then two-thirds have a almost two-thirds of mortgage holders are between three and six percent. So those are the ones where let's say they're at four and a half, let's say they're at five percent, let's say they're in that range, it's still lower than what the rates will be. That gap closing is gonna help free them up and maybe allow some of the other motivations that they would have to move to um to win out over just rate. So I think that he's right on there. And the trend is heading in the right direction. If inflation expectations are curtailed, uh bond market yields, which that's really what drives mortgage rates, is the bond market. Uh, if they decline a bit more, we could see um getting into those rates here in the next year, five and a half or less. And I think that really will free up um free up some things in the market a lot. And then the other side of that is commercial. Um, we don't maybe talk quite as much about that, but there has been quite a bit of talk about a potential crisis in the commercial real estate world and uh particularly these ARM, these adjustable rate mortgages that uh are on generally five-year terms, um, coming due, uh not necessarily due, but adjusting the rate. Well, that adjustment seemed super dramatic when rates were really high. Um, but the Fed's rate cut um were kind of uh affecting prime um and that will can and that continuing to come down really could save that from happening and even increase some buying uh on the side of commercial. So I think that that really could help kind of preserve the commercial uh market and even even help grow it, particularly if the economy continues to grow, right? One of President Trump's initiatives with tariffs and other things he's doing is really to grow U.S. industry, U.S. manufacturing, U.S. commercial sector. If those things start to happen and the rates are a little bit more attractive, really could see um some growth there in the commercial sector. So rates are kind of that first trigger, right, that he talks about. Second um is the stock market. Uh, this is something that's been obviously in the news a lot and um and is high. I mean, as of today, I just saw a headline this morning saying that the stock market hit another all-time high. So despite a lot of the fear around what are Trump's tariffs gonna do, he's gonna tank the economy, all these things, we're actually seeing that um the stock market's been performing very well. Now, the author's point in the article that we're talking about is that the market will need to hold or grow, right? So if we saw a crash in the stock market, that would obviously um affect the housing market. So um that is a that is an ingredient to watch. Um a lot of people might think that, yeah, we're at this all-time high of more of uh the stock market, it's ready to crash, maybe that's gonna happen. That's something that's totally outside of my area of expertise. I don't know, but just something to watch because of course all these other forces um could be very strong. But if we saw a huge downturn in the stock market, that's gonna affect everybody, including the housing market. People's confidence goes down, all of that kind of thing. So something to watch. Um, but again, I think that uh my opinion, uh some of what Trump's doing, some of what's happening in the market um should keep that relatively strong for a while. That's my opinion. Um so we've talked about rates, talked about the market. Third thing is income. And this is where they're you know, the job market has been a little weaker. That's obviously why interest rates have come down. Um, but the while unemployment has a little bit been a little bit higher, again, prompting the Fed to drop rates, um the uh the growth in um in wages has actually been pretty strong. So ADP, they're a um you know payroll processing company, um they reported that over the last month wage gains among job stayers was 4.5% and among job leavers 6.6%. So people moving on to a new job or staying in their job. Again, 4.5, 6.6. So in the middle there, somewhere around 5%, right? Um job uh wage gains. And that's real kind of real-time accurate data from a payment processor. Um inflation, however, is currently running around 2.9%. I think there was a headline today, 3%. So um again, a little ticking up a little bit, which could be concerning, but that wage growth is definitely outpacing by a fair bit that inflation, which again is good news. And um this is gonna allow, particularly maybe first-time home buyers, the ability to save more, the ability to um not just save more, but maybe then afford more of a monthly payment as their wage growth outpaces inflation and get off the fence and move in to the market. Um, another headline that uh that got a lot of attention is how the first-time home buyer average age has gone all the way up to 39. Um, that's a topic that I'd love to talk about more, probably uh another podcast we need to do. But um this may be something that can help some of those younger home buyers as wage growth does uh does occur and inflation temps down a little bit, might get some of that. And more buyers is obviously going to help the market. Um, so maybe moving from renters to ownership in the next few years, really uh another good headwind for the market. Now, number four, so he had four points again. We have interest rates, um, uh stock market, um, income growth, and then the last one is interesting. This is more of a demographic change of the wealth transfer from baby boomers to the next generation. So this was kind of an astounding number. Um, he talks about a generational transfer of nearly$124 trillion in assets over 25-year period. Now, again, I know 25-year period is a long period, uh, but we're entering into that, and that's a huge number. So um, wealth transfer um from that generation to the next generation, basically older Americans to you know their heirs, um, to their spouses, to charities, um, they're they're predicting a huge amount of wealth transfer coming in the next few years, um, which will generate activity again. I mean, uh some people will maybe just pass down their their real estate uh and have it still held, but some of that will come available, and more importantly, a lot of that wealth moving to the next generation is going to allow them to invest in real estate, to move up into bigger houses, all those kind of things. And so that that shift that we're gonna see here with that wealth transfer is pretty significant and should again provide some big headwinds uh to that. So um in conclusion, um, this gentleman says everything is a cycle for the last few years. Real estate industry has been moving downward. Um, we just talked about that kind of in Moscow, it's been more like stagnation rather than moving downward. But as all these things are cycles, um, it will change, it will be a boom. Um, we don't know exactly when that'll happen, but again, it is coming. It will, those things will change. Um, and I think that we need to be ready. And uh obviously for us in real estate, that's an important thing, but for home buyers as well, uh, whether you're an investor, first-time home buyer, getting all of your ducks in a row and being ready for that shift is is gonna be really important. Because one of the things that some people often say is like, well, I'm just gonna wait till interest rates come down and there's more inventory, maybe prices will drop, it'll be that may be true, but generally speaking, as those rates drop, as more buyers enter the market, again, markets are supply and demand, you're gonna increase the demand side as well, and it's gonna be tough. There's gonna be competition. And so getting your house in order now, getting your ducks in a row, getting ready for those things, um, is I think really what behooves you to speak to maybe especially those younger first-time home buyers or people who are renting, getting ready to buy. Um, I thought I'd share this kind of interesting strategy that some one of my buyers um had that I thought was super smart. Uh, I don't know if it was their idea or if it was given to them by somebody else, but what they're doing is uh, I guess one of the reasons why we're seeing um those home buyers, especially first-time home buyers, delaying so much and maybe holding out is because right now it is on a monthly basis definitely a lot cheaper to rent than it is to buy. That's just the reality. Um and so, you know, I'll use some real round numbers. Uh, let's say it costs you fifteen hundred dollars a month in rent right now, and you're looking at a mortgage to buy a house, you know, you want to uh you want to get a decent house, whatever, you're looking at$3,000 a month. Again, just throwing out round numbers. So twice as much in mortgage payment than you're paying in rent. Well, a lot of people just can't stomach that. And sure, there there are times where you just can't afford it, right? And of course, go talk to a lender, get pre-qualified, figure out what you actually can't afford. But if it's just that strength, uh that that preparation for like, man, how are we gonna go to paying twice as much a month for our housing costs than we are now? What this um what this young uh couple is doing is actually basically already budgeting for and um quote unquote, I guess, paying out that higher amount, again, using fictitious numbers, but say it's$3,000 a month. So they've got$1,500 a month in rent, and then that other$1,500, they're putting away into a savings account that's kind of hidden, right? It's like almost out of touch that they're putting away every month. So what that does is not only um prepares them for it, but really also builds up that nest egg, builds up that cash for either reserves for repairs and things in the future once they're homeowners or for that down payment. But I think more importantly, again, it's just creating your monthly budget around it so that it's not this big scary leap. You're already used to it and you know, man, we know we can afford 3,000 a month because that's what we're putting away now. Um, so I think it's a it's a cool idea, um, something that could really be a big benefit and would encourage other young uh home buyers to be doing something similar. So um, yeah, that's about all I have today. Shorter podcast, you just get me, um, but wanted to jump back into it. And uh, we've got some some fun episodes um planned now with some guests and and working to have more. So if you have any ideas for guests, ideas for podcast episodes, definitely send them in as we're jumping back into this Kestrel Country podcast. So hope you have a great day and uh enjoy this beautiful fall. Thanks for joining us. Like, share, subscribe. We'll see you next week.
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