YFP REI 90: Three (Likely Wrong) Predictions for 2023 Real Estate

Nate Hedrick, PharmD, and David Bright, PharmD, MBA, BCACP, FAPhA, FCCP, share their predictions for the real estate market in 2023, including interest and mortgage rates, rent rates, and house pricing.

Episode Summary

Tackling the last podcast episode of 2022, Nate Hedrick, PharmD, and David Bright, PharmD, MBA, BCACP, FAPhA, FCCP, sit down together to set their (likely wrong) predictions for 2023 real estate. Nate and David look at the big picture, accounting for global trends, and focusing on applying that information to their local real estate markets. Taking information and data from 2022 on trends related to interest rates, rent rates, housing supply and demand, and house prices, they formulate their predictions for 2023 mortgage rates, rent rates, and house prices. With a shift in buyer demand in the recent real estate market, Nate and David have differing opinions and predictions for the future mortgage and interest rates, but share similar views for future rent rates and house pricing. Given their (likely wrong) predictions about the coming year, listeners will hear some sound advice for real estate investors regardless of the market outcomes in 2023. Nate shares what investors can do to mitigate risk and continue to invest as we monitor the variables in the market in 2023. Lastly, Nate and David welcome all listeners to continue the conversation by sharing your market predictions for 2023 in the YFP Real Estate Investing Facebook group or by connecting and interacting with Nate on LinkedIn.

Links Mentioned in Today’s Episode

• Planet Money
• Join the YFP Real Estate Investing Facebook Group
• Connect with Nate Hedrick on LinkedIn
• FRED Economic Data: 30-Year Fixed Rate Mortgage Average in the United States
• Mortgage News Daily
• FRED Economic Data: Median Sales Price of Houses Sold for the United States
• YFP Real Estate Investing
• Your Financial Pharmacist Disclaimer and Disclosures

Episode Transcript

[INTRODUCTION]

[00:00:08] NH: Hello and welcome to the Your Financial Pharmacist Real Estate Investing podcast, a show all about empowering pharmacists to achieve financial freedom through real estate investing. I’m Nate Hedrick. And each week, my cohost, David Bright, and I explore stories from pharmacists all over the country who are achieving their real estate goals while maintaining a meaningful career in pharmacy. Whether you’re a first-time investor or a seasoned pro, we’re here to provide education and inspiration about the world of real estate. 

Please note, this podcast is intended for educational purposes only, and should not be considered financial or investment advice. 

[EPISODE] 

[00:00:43] NH: Hey, David. Happy New Year, my friend. 

[00:00:44] DB: Hey, happy New Year. How you doing, man? 

[00:00:47] NH: Good. Good. We’re obviously wrapping up the year. And as we get to the end of any year, it’s an easy time to look back at what happened in 2022 and start getting excited for what’s going to happen in 2023. 

[00:00:59] DB: Yeah, there’s been a ton of changes over the last year if we look back on where we started 2022 to where we ended in December. It’s been a quite a shift in the real estate market, whether for owner occupants or investors, particularly knowing there’s a lot of crossover there. Those aren’t two completely independent markets by any means. But there’s a lot to reflect on. Also, a ton of variables floating around. There’s a lot of difficulty in making predictions for 2023 now. 

[00:01:25] NH: Yeah. I know you and I have spent a lot of time talking about where things are headed. I mean, we’ve been doing this all year round. Because obviously as the factors in the market change, you’re investing has to change with it. And so, I think we’ve been adapting to that this whole year. 

And again, as I sit here and reflect, start thinking about the next couple of months, you really start are to piece together, “Okay. What’s going to be happening down the road? And how do I start to plan for that?” 

[00:01:47] DB: Yeah, and it’s been it’s been helpful, I think, to talk with different investors throughout the podcast over the last year and kind of start to pick their brain on what they’re seeing in their niche knowing that short-term rentals may be different from long-term rentals, that California may be different from St. Louis. Thinking about how different areas may see very different things. 

And so, I think it’s been helpful to kind of get that sampling of what people are thinking. Because to some extent, the trajectory of the last several months I think is going to hopefully leave clues about where we’re going in the next several months. And then those different perspectives and trying to think through the thought process that different people are sharing and the variables that they find important help me to hone in on the variables that I need to be thinking about in my market for where the next few months are going to go. 

[00:02:34] NH: Yeah, I think especially when you talk about some of the bigger factors, the sort of global or the national level factors like interest rate, maybe rent rate, housing supply, housing prices. If you can look at those globally and watch the shifts there, then you can start to figure out locally what might be going on for you. And I think that’s kind of where I’m at right now, is looking at globally what this trajectory looked like? And then how do I apply that to my own market? 

[00:02:56] NH: And a few months back, I was listening to episode of Planet Money podcast, which shout out to Planet Money. Love that podcast. And they did this great thing where they brought on some economists, experts in their field, and they asked them to predict things. They said, “Make some wild predictions about where we’re going to be in six months.” 

And then six months later they checked in with them and they saw if they were right, if they were wrong. And I thought, as David and I were talking, and we were kind of coming up with a concept for what are we going to look at for 2023? We thought we’d do kind of a similar approach to get our own hot takes on what we think might happen in 2023. 

[00:03:30] DB: Yeah. And we’ll say up front that these are essentially guesses. We’re not providing investing advice. So, we’re probably wrong. But hopefully, as we put together some of the variables in that thought process, we can, well, one, see how wrong we are at the end of the year. But hopefully, that thought process means that this isn’t a complete waste of time. But the variables I think behind the predictions are hopefully helpful. As you talk, too, the variables in the national scale may have some impact at the local scale. And so, as people are trying to piece together their market for what they think with the type of investing that they do. How some of these pieces may fit into their specific puzzle? 

[00:04:11] NH: Yeah. And we’d love for you listeners to get in the mix as well. There’s nothing better than throwing out wild predictions than having someone come back and encounter those and say, “Hey, I think this is what’s going to go on. And here’s why. Here’s the resources I’m using. Here’s the data that I’m referencing that I’m coming with my own prediction.” 

We’ll be posting polls on Facebook all this week. If you’re not already a part of the YFPREI Facebook group, go and join so you don’t miss out on those. I’ll try to also throw them on my LinkedIn as well. So, if you’re not on Facebook, you can check it out there. But I want to have an open discussion about these, right? Here’s our predictions. What are your thoughts? And then we can get a real good discussion going on this. 

[00:04:49] DB: Yeah. And we want to talk through specifically some of those key concepts that I think real estate investors, no matter what flavor of investing you’re into, mortgage rates, rent rates and home prices I think are key variables that play into just about any type of investing. 

As we talk about this and we talk about the variables and the thought process, we’ll hit on those areas specifically. And then let’s look back at the last 12 months. Because like we talked about a minute ago, the trajectory of where we’ve come from is one thing that can help to point towards where we might be headed next. 

Let’s dig into mortgage rates first. Interest rates and mortgage rates right now. And if we start there, there’s a couple different sources that are easy to find to see what’s going on with mortgage rates. And I think knowing how to get at that data quickly is really helpful. 

Just quick disclaimer, we’re talking about mortgage rates, we’re talking about 30-year owner-occupied mortgages. That seems to be just an industry standard that a lot of people reference when they talk about just mortgage rates in general. And there’s lots of different sources you can look at what mortgage rates are. You don’t necessarily need to call up a local mortgage broker and say, “Hey, what are rates today?” just to figure this out. 

The government keeps – like the St. Louis Fed has some pretty clear charts. We can link to that. The Mortgage News Daily. There’re other groups out there that share some of those, which we’ll put that on the show notes. And they show things like, over the last year, we’ve gone from near 3% in January to roughly 6.5% in December 2022. And even a little bit higher in there in November, around 7%. So, we’re seeing a very slight decline right now. But compared to January, we are way up on the year. 

[00:06:30] NH: Yeah. And I think it’s important to emphasize something that you mentioned that these are 30-year owner-occupant rates, right? You’re not going to go to your bank and get that exact rate depending on how your credit is and how your type of investing is going. And if it’s a single family versus multi-family? It can vary dramatically between different investors in different situations. 

But even those investment loans are, again, generally more expensive. Meaning that fees might be higher, or the rates might be higher, or both. But even so, it’s still linked, like you mentioned, David. 

When we’re talking about consumer behavior in loans and how those behaviors are tied to mortgage rates, I think, for example, if you flip houses, it’s important to think about that. Even if you are not an investor yourself or even if you’re not just looking at the investor rates, the people buying your homes that you’re flipping, they’re going to be using owner-occupied rates, right? It’s not something you can ignore even if you’re in a space where you’re not necessarily accessing those funds in that way. So, keep that in mind. 

[00:07:25] DB: Yeah. And I think, too, when you’re thinking about the rental side of things, if someone is trying to decide, “Do they move out of a rental and buy their own place?” Well, that decision may get really difficult if interest rates have spiked, too. I think there’s a ripple effect that goes into rental pricing and whether or not tenants stay or move. Yeah, it makes sense that the owner-occupant mortgage rate is kind of a key foundational variable for a lot of things. 

And so, if we look at that, just that change from – let’s just round numbers, call it three and a quarter to six and a half start of year to end a year. And if we look at a 30-year mortgage of a $100,000 at that rate, we’re talking about $200 a month payment increase. 

And so, $200 a month may not seem super enormous, but the Fed is also reporting that median home prices right now, if we just do some very round numbers here, we’re in the neighborhood of like 450 grand. 450 rand is more like a $900 a month payment spread. Same house. Same price. Beginning of 2022 to end of 2022. Not including any kind of home appreciation or anything like that. But simply the interest rate driving nearly a thousand dollars a month in mortgage payment increase. That’s a substantial shift. 

[00:08:39] NH: That’s huge. I mean, especially when you consider that as those payments go up, now your affordability is going down, right? You could sell a house at $450,000, and the monthly payment you were making would be the same as if you bought a house significantly less than that. And so, your affordability factor, what you can buy and what you can afford, changes dramatically when those interest rates go up. 

[00:08:59] DB: Yeah. I think there’s several things that could play out from that. And we’ll have to see kind of how this goes. But there are people that may have at one point said, “Hey, I think $450,000 might be affordable.” If we just keep using that example, maybe they’re now saying, “Well, hey, I now think $300,000 is affordable.” Or they just get sticker shock at the rates because we’ve been so accustomed to lower rates lately that they’re like, “Well, I don’t want to buy that. I’m going to sit on the sidelines for a little bit. Or I’m going to buy a starter house, or a lesser house, or something, and then I’ll buy that $450,000 house someday once the rates come back down.” There are all kinds of not just math, but emotion, that goes into that as well. 

[00:09:39] NH: Yeah, and we’re seeing that – at least I’m seeing that in my market and other places as well, that shifting demand, where the interest rates coming down or cooling – Or the interest is coming in, that the higher rate is cooling down buyers, right? They have more options. They’re not buying as fast. They’re not overpaying for properties. They’re not trying to get in before the rates increase. Because we’re already there, right? 

I think owner-occupant homeowners don’t always have to make that logical decision-making process, right? You don’t have to think, “Oh, the rates are high. I’m not going to buy right now.” But investors, that rate becomes every part of the calculation, right? It affects your cash flow. It affects your expenses. It affects, again, the affordability of that property. It can really start to make an impact quite quickly.

[00:10:22] DB: Yeah. And I think that there’s a real importance there about as an investor trying to do that math and trying to separate yourself from the emotional attachment that, Nate, I’m sure as a realtor, you’ve watched people walk into a house and you’re like, “Oh, this is beautiful. I love the layout. I love the paint colors. I love the kitchen.” Right? And people just fall in love with the house and they may be tempted to overpay for it because it’s where they’re going to live. And that may be fine, because it’s their house. They’re going to live there. But that’s a lot tougher of a decision when you are buying an investment property. That that emotional attachment can really hurt you when it comes to the numbers. 

So, yes, the numbers on the interest rate there, that ripple effect playing into so many of these other variables. And I think that that particularly playing into housing prices is going to be a big story for 2023 as well. 

[00:11:13] NH: Yeah. All right. Let’s put our money where our mouth is, David, and make a prediction. Let’s do the first one. Knowing how much volatility we saw with interest rates this past last year. What do you think? What do you think interest rates will be December 2023? A year from today. 

[00:11:29] DB: Okay. Predictions that are almost guaranteed to be wrong, right? 

[00:11:33] NH: You still have to do it.

[00:11:34] DB: Yeah, yeah. We’re recording this in mid-December, right after the Fed announced the rate hike that they were expected to announce. And they hinted then that they may not pull back on rates until 2024. If the Fed is looking to continue increasing rates and not pull back. I know the Fed doesn’t directly set mortgage rates, right? There’re several steps in between. There’re all kinds of other ripple effects there. But the Fed rate does play into that. 

All that to say, based on where those rates are headed, I’m not confident that interest rates will be any lower than they are today at the end of the year. I’d love it if I’m pleasantly surprised and somehow we back down sooner and we get rates to increase affordability. But at this point, I’m not expecting anything lower by the end of the year. What about you? 

[00:12:21] NH: I’ll be a little more optimistic. I think if you look at some of the spread that is occurring right now between the Fed rate and then the mortgage rates that we’re seeing, I think a lot of lenders are pricing in a pretty big spread, bigger than they’ve ever been pricing it before. Because they’re worried about what’s going to happen next year. And I think they over-inflated that a little bit. Probably going to be wildly wrong. But I’ll put it on record. At least I’ll give it a try. I think 6%. I think 6%is the normal. I think, truthfully, 5.5% to 6%. But I think where we’re going to end up in December of next year is around 6% as that sort of normal rate for housing mortgage. And I don’t think you’re going to see that change dramatically over the next several years. I think it’ll be between that 5% and 6% number for quite a while. That’s my number, 6% December 2023. 

[00:13:12] DB: Okay. As a reminder, we’ll put this on the YFP Real Estate Investing Facebook group. We’d love to hear your thoughts. You can tell us exactly how wrong we are, and where you think you’re going to go, and what your predictions are and kind of then what you’re basing you’re investing off as well. Yes, we’ll steer towards the Facebook group. Please keep the conversation going there, because I’d love to hear more opinions than just our two opinions here. 

[00:13:38] NH: Absolutely. 

[00:13:39] DB: Related to interest rates, and we touched on this very briefly a second ago, but interest rates drive so many other consumer behaviors and tenant behaviors as well. So, we look at interest rates and how that affects tenants. 

Nate, can you connect those dots a little bit more about tenant decisions and how even rent rates may then change? 

[00:14:00] NH: Yeah, I think one of the things we’ve been seeing over the last year especially is really rapidly rising rent rates. And some of that is because, over the last two years, truthfully, ever since April, May maybe of 2020, it’s been harder and harder to buy a house, right? Limited inventory. Houses are flying off the shelves. People are overpaying. And now we’re getting higher interest rates, which is making it more difficult for people who were right at the cusp of affordability to be able to go in and afford that home. And stack that up with rising inflation, and now your dollars that you’ve been saving up for your down payment isn’t going nearly as far. And all of those factors, I think, are leading to more people having to rent, right? 

And so, now when you’ve got more renters in a pool. Basic supply and demand that price is going to go up as that demand goes up. We’re seeing it already. Rent prices have been rising in some areas dramatically year over year. But again, I think that is the major consequence of all those factors starting to add up. And people are getting maybe stuck when they were ready to buy a home before and now they have to rent for another year or whatever because they’re just not ready to do it.

[00:15:09] DB: Yeah. And there’s is all kinds of news stories out there that describe that huge increase in rent rates over the past year or two. And that enormous rate of growth also seems to be slowing a little bit, which also doesn’t seem unreasonable. Some of this enormous price increase and enormous rent rate increase, that’s not sustainable in the long term. That’s got to calm down eventually. The fact that that’s calming down and getting less wild and more sustainable is probably a healthy thing as well. 

I don’t know that we should necessarily be betting on – as investors, that we should be betting on rents to drastically increase year over year continually. But maybe a little bit of a calming is what we’re seeing most recently. 

[00:15:54] NH: But I think, too, if you look at that calming, I think some of it is because people are changing their behavior, right? They’re reacting to the rent rate increase and making changes, right? They’re living with more roommates. Or they’re living with their parents. 

I saw a stat just the other day, a news article, that 50% of people aged 18 to 29 are now living with their parents, right? All of a sudden, you’ve taken them out of the renter pool. I don’t know about you. But pretty much every year, from 18 to 29, I was renting somewhere, or I owned a house at that point. That’s a big change. 

And we’re seeing places like California introducing legislation trying to give people more options for places to rent out. Give them more accessibility to what they call additional dwelling units. Very popular in California. I know a little bit about Senate Bill 9, which was produced out there in 2022 that basically give slack in some of the restrictions at building ADUs so they could have more people in smaller areas, right? Not allowing HOAs to restrict the construction of additional dwelling units. Streamlining the approval process that you can get those up and running much faster. We’re seeing more people, I think, crowding into to less space just out of necessity at some point. 

[00:17:06] DB: Yeah, I think that that may shift so some of the supply issue. I think we’re also seeing some kind of wild things on the demand side. Because if people are saying like, “I don’t know what’s going with housing prices.” If housing prices may drop is, this a great time to buy. If interest rates are really high, is this a great time to buy? Maybe I should just stay in this rental for a little bit longer. Or maybe I should go rent for two or three years intentionally and then go buy a house. 

I’m hearing more discussion about that, too. I’m also wondering if we’re seeing increased demand for rental properties. And it’ll be interesting to see if kind of the new construction, the ADUs, people living with roommates, if all those factors mitigate that demand. Or if the demand just overruns all of that. 

[00:17:53] NH: Yeah, I truly think it’ll probably overrun that. But it’s interesting to see some of the ways that people are trying to combat that increased demand in areas where you can’t find a place to rent that you can afford. It’s getting to be too much.

[00:18:05] DB: Yeah, absolutely. If we’re going to turn this into predictions, I think that this is one where my prediction is that this will be highly market-dependent. And there will be areas that have either recently enacted rent control legislation or areas where the ADUs and the new construction are just going like wildfire. And other areas where there’s a lot of restriction around that and the the supply of rental properties is just really slim. 

And so, I think this is going to be drastically different in different places. And some of the higher rent areas where this has been really under the microscope lately, I think that’s where we’ll see the greater softening than other areas. 

[00:18:48] NH: I agree, David. I think I’ll take it a step further and I’ll say that the markets that are going to do – they’re going to see rising rents are going to be those that are already what I would call reasonable rates, right? Where they’re below the national average. I think those places are going to become the more affordable locations. And so, you’re going to see people moving to those locales. And the places that are higher rent rate, they’re going to get hit hard. One, because the rates have gone up and up and up. 

And again, when you look at the percentage increases across those higher costs of living areas, they’re just becoming unsustainable. And you’re going to couple that with probably the reactivation next year of student loan payments. And so, people that had any disposable income yeah it was being kind of salvaged with those freeze on student loan payments for last two years. Now all of a sudden, they’re going to be popping up. And now a $2500 a month apartment does not look nearly as good as a $1500 a month apartment when I’ve got the student loan payments coming in. 

Again, my gut is that, by the end of next year, you’re going to see a drop in rent rate for the higher cost of living of A and B neighborhoods and more of a flattening to maybe even a slight rise in the the B, C kind of neighborhoods.

[00:19:57] DB: Yeah, I think there’s a lot of parallels to what you’re saying there to where I think we may see some changes in house pricing. Not to tip the cards too much on some of our predictions, right? But I think there’s a lot of parallel between rent rates and house pricing, too. 

Let’s unpack that is kind of the third thing we want to talk about then, is the house pricing. This is definitely something that has been a lot in the national news as we’ve seen. I’ve heard numbers in the like 20% type of annual growth in housing prices during the pandemic. And that’s, I mean, just wild and unsustainable, and certainly outpacing inflation, right? 

When we talk about inflation being high, we’re still talking numbers in like the 7, 8, 9 range. Not the 20% range. And so, certainly, if we look back. I know you’d post some numbers before we hit the record button here. But looking back over the last 50 years, we’re seeing somewhere in the double range for what home prices have done compared to what inflation in general in the market has done, right? 

[00:21:03] NH: Yeah. And I think it was interesting, I pulled the stat that if home prices had been growing at the same rate that inflation was. And again, going back to 1970. Then if you’ve been following the home price and if it matched inflation, the average – The median home price today should be about $177,000 dollars. And like you mentioned earlier, we’re sitting at $450,000. We’re really outpacing inflation. I mean, we’re really outpacing wages as well. But we’re drastically outpacing inflation when it comes to the actual price of homes. 

[00:21:35] DB: Yeah. And I think we’ve all anecdotally seen that, this kind of crazy increase in price in the last couple years. I know homeowners may look at their property tax statement and see that that’s going up. Or they may look at appraisals if you’ve done a refinance to capitalize in the lower rates. You’ve seen that appraisal come back way higher. You may have seen your neighbors sell and thinking, “How in the world did you get that much for this house that I bought for much less years ago?” 

Some of those predictions that talk about slight declines to kind of recover from that chaos, I don’t know that that’s necessarily real far off. Some of those predictions have been slight. Some of those predictions have been kind of crushing declines with everything in between. With house prices, Nate, I’m curious where you think we’re going to be at the end of next year? 

[00:22:20] NH: Yeah, I think next year will be – And again, I hate to pull a Tim Baker and say it depends. But I think it’s going to be market specific, again, where the areas of the country that are higher cost of living like we mentioned that have really shut up in price. The places where you were talking about people paying a hundred thousand, two hundred thousand, over-asking. Those are absolutely going to pull back. 

We are going to see 20 to 30 percent declines in those market. I truly think that, because I think just the affordability game is not going to be there. You’re not going to be able to sustain that. And if people need to sell in any of those locations because they can’t come up with housing payment anymore because, again, student loans become due, or now their car loan is – I saw yesterday, the average car loan is 9.5% as the interest rate for your average car loans. All that consumer Debt is going to catch up eventually. And if people have to sell those homes, now the prices are going to have to come down. I think higher cost of living, we’re going to see a 20% drop. I truly think that. 

The lower cost living areas or the areas that didn’t see that level of crazy inflation or crazy jump in prices, I think those are going to stay pretty flat. I think demand is still high for housing. There’s still a huge demand for housing in the country. And so, I think those are going to actually stay pretty flat by the end of the year. 

[00:23:32] DB: I would think that the different price points reacting differently makes a lot of sense, particularly when there’s a lot of first-time home buyers out there that are looking to buy that house. They want to eventually move out of their parents’ house. They want to eventually move to a new city with a new job and they may not want to rent. There may be others that are downsizing. Trying to find something more affordable. I think some of those lower price point houses sometimes referred to as the starter homes, right? Like, those starter homes, there may be more demand there. 

And also, when we talk about supply and demand, not a lot of new construction in that space compared with some of the more medium price point or higher price point homes. From that, just pure supply and demand standpoint. 

I do really wonder if the neighborhoods in a market that are below average price or below medium price, like that may be where we see increased demand and people pulling away from those higher priced areas. 

So, I agree. Market-dependent is going to be a huge factor. I say price point dependent I think will be another huge factor. Particularly like we talked about just a minute ago with mortgage rates. If the person looking at the $450,000 house isn’t looking at a $450,000 house anymore because that payment is drastically higher, then they may be saying, “Let’s go with a lower price house.” And so, there may be a big push there. 

I think another factor that may push into that is the people that bought those kind of lower price point starter homes three, four, five years ago that may be ready to move up. I know, as a realtor, you can probably quote those stats of like how quickly people move, right? They move all the time, right? Five years, seven years. I’ve heard all kinds of different numbers, right? But they may not be quite as ready to move if they’re thinking, “Well, this small increase in home value is going to be an enormous monthly payment increase because I’m going to lose this 3% mortgage and a jump to a 7% mortgage. I’m going to wait this out. This may be a starter home, but I’m good to stay here for a few more years.” There may maybe not a lot of people selling and more people looking to buy in those kind of price points.

[00:25:37] NH: I completely agree. I think especially if you’re trying to move within your same town, let’s say, right? You’re already in the school district you want to be in but you thought about upgrading. Maybe you had one or two more kids than you were planning when you bought the house the first time around and you’re like, “Oh, we got to make sure we upgrade. Get a couple more bedrooms. A little more space.” I think those people are going to wait. It’s not worth it to upgrade and double your mortgage payment because you’ve got a slightly bigger home, a slightly more expensive home and your interest rate has gone up two-fold, right? I think you’re going to see those people hold off.

[00:26:06] DB: Yeah. I think that being said, again, we’re probably super wrong in our precise predictions, right? Because I think when we look back a year ago what people were saying that 2022 was going to be like, I’m not hearing a lot of that that ended up coming true. 

Predictions aside, I think there’s probably more value in talking about kind of what investors could do as we continue to monitor these variables into 2023. So, just with your investor hat on now, Nate, I’m curious what you’re thinking from planning for 2023. Once you’ve got your eyes on what variables you think are front and center and how that’s changing your investing strategy? 

[00:26:47] NH: Yeah, I’d love to do a whole episode of this I think, David, just because I think that a lot of investors are in the same boat, right? Like, trying to plan out 2023 not having a crystal ball, right? We are just guessing. And I think, ultimately, the best strategy you can employ for 2023 is not counting on the market to save you, right? 

With a 20% plus appreciation in the last couple of years, it was possible to buy a house, fix it up a little, buy it wrong, right? You bought it for the wrong price, but you still saw gains. Everybody looks like a genius, right? Because you would buy a place and the market would just pump it up without even doing anything. 

And so, I think that going away is going to make it more difficult. And you’ve got to be ahead of that, right? You can’t just anticipate the market to save you if everything doesn’t go right. So, I think running numbers is going to become absolutely critical. And running them in the right way rather than just the, “I saw this on TikTok and I think it’ll work.” 

I think, again, my suggestion is to really bank on the market going down. And if it does anything else, you’re in good shape, right? And it’s a bonus at that point. But don’t bank on it having to go up for you to be successful. 

[00:28:02] DB: Yeah. No. I agree completely. And that’s what we’re trying to do right now. I know, for me, I’m trying to buy it very cautiously. And I’m doing exactly what you’re saying. I’m penciling in what if over the next six months in my price point, in my market, in this specific neighborhood. In the next six months we see a 10% dip in house price, am I still okay? What if 20%? 

I know we’ve talked on prior episodes this year about stress testing a portfolio. If I’m going to do this as a rental and I’m giong to, six months from now, get a cash out, refinance mortgage, can I stress test that? What if that rate is eight? What if that rate is nine? What if that rate is ten? At what point is it not going to work? And then how comfortable am I that we’re probably not going there? Or I can deal with the consequences if we go there? And how does all that work? I think the math is really critical right now. Because I agree completely, if you are depending on one more year of 20% market appreciation for your investing to work, I’m nervous for you. 

[00:29:06] NH: Yeah. But what I like and I think is important to keep in mind is that both of us are not looking at this like, “Well, we’re just going to take 2023 off. It’s not a good time to invest.” It’s always a good time to invest. You just have to do it the right way. 

And I think trying to do it the way that we’ve been doing it for the last two years simply is not going to work. You’re not going to be successful. You’d have to get very lucky. And I don’t like luck. I’d much rather do it based on math and numbers and risk mitigation. And I think there’s easily a way to do that. You just have to anticipate it and have to plan ahead.

[00:29:35] DB: Yeah. And I think that that can be done. Because one of the things that I’m seeing in my market, Nate, I’m curious if you’re seeing it as well. But I’m starting to see sellers doing price reductions that I wasn’t seeing even six months ago. And so with those price reductions, I’m sensing some motivation in sellers that never became visible before. Because six months ago, you could put it for sale sign in front of anything and have 10 offers in the first 10 minutes, right? 

But right now, it’s a much slower process. It’s a much more reflective of the seller’s motivation. And so, I think there are many more deals to be had out there. If you are patient, and methodical, and doing your math and waiting for that deal, I think that there are still great investment possibilities out there even in a declining market if you’re very careful with what you’re buying. And those seem to be the stories as we look back at people that were buying in ’08, 2009, 2010 and then rode that out and saw that come back up the other side. Those kind of people now in the rear-view mirror look like absolute geniuses even though they were buying in a wobbly market. 

[00:30:44] NH: Yeah, I love it. Well, hopefully those three probably wrong predictions for 2023 are helpful to you guys. Again, we would love for you to chime in, comment, tell us where you think we’re wrong, where you think we’re right. Give us data. Give us articles. We want to have an open discussion about these pieces because it’s going to affect all of us in all of our investing in the coming years. Hop on the YFPREI Facebook group. Track me down on LinkedIn. Again, we just love to hear from you guys and get some conversations started. 

Hopefully that’s helpful. Thank you, guys, for listening. And have a Happy New Year.

[OUTRO] 

[00:31:17] ANNOUNCER: Thanks for listening to the YFP Real Estate Investing podcast. If you like what you heard on today’s show, please leave us a review and subscribe to the show so you never miss an episode. If you have a question, know someone that would make a good guest, or want to connect with Nate or David, head on over to yfprealestate.com and join the growing YFP Real Estate Investing Facebook group.

As we conclude this week’s episode of the YFP Real Estate Investing podcast, an important reminder that the content in this podcast is provided to you for your informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with their financial advisor with respect to any investment. 

Furthermore, the information contained in our archived newsletters, blog posts and podcasts is not updated and may not be accurate at the time you listen to it on this podcast. Opinions and analyzes expressed herein are solely those of your financial pharmacist and must otherwise noted and constitute judgments as of the dates published. 

Such information may contain forward-looking statements which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer. 

Thank you for your support of the YFP Real Estate Investing podcast. Have a great rest of your week.

[END]

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