Welcome to another edition of the Chicks on the Right podcast where we talk to our friend and sponsor of the show, Zach Abraham from Bulwert Capital Management, And today we're going to talk about home ownership because apparently there was a recent article that said that buying a home now in twenty twenty five is harder than it's ever ever been. And in fact, when it used to be just five years ago, you needed to have an income of about seventy eight thousand dollars in order to be
able to afford a typical first time home. Now it's jumped fifty percent, where you need to be making upwards of one hundred and twenty thousand dollars, while wages have only climbed around twenty seven percent. So you combine all of the high mortgage rates, the high prices, all the insurance premiums, the inventory that's out there right now, and it's starting to feel I worry for like my kid and for other twenty somethings that home ownership is like
pure fantasy at this point. So what do you think about that is buying a home just going to be totally out of reach for like my kid, who's going to graduate from college in three years.
No, So, I mean these things occur, right. First of all, you got to look at it on timelines. I mean, one of the things that you have to think about is there's going to be a lot of the baby boomer generation is getting older every day, right, and more and more of them are becoming retired. I think something like eleven thousand of them retire every single day. Now is
the pace that you're on or something? Yeah, it's pretty crazy, But then you think about it, You're like, you know, the baby boom regeneration I believe is like eighty million people, So you know, it's a big chunk of people. But anyway, as they age and as they downsize, as they pass away or whatever, or move into assisted living and you all that kind of stuff, that's going to free up
a lot of inventory. But what I do think though, is that if you're a if you're younger, or you're trying to purchase the first home, the first thing I would say is be be very mindful of where you're doing them.
Right. For instance, if I was looking at if I had kids that were of that.
Age now, I wouldn't want them to I want them to live right right across the street from us, right, if I had my way, But I would tell them, a, I don't have a problem with you paying up for a home, but where are you going to do it?
Right?
Are you trying to do it in California? Well, I think that's really dumb for a whole host of reasons, not even just speaking politically, right, just economically, I think that's dumb. If you were trying to do that around where I live in the Seattle Washington area, I think that's dumb. I think there are a lot of places, specifically a lot of places in the Midwest where I think it makes a lot of sense. You know, go look at home prices in Detroit and the surrounding areas.
People are like, oh, it's Detroit, And I'm like, you know what, Well, just like everybody forgets that things cycle, right. So if we went back to the seventies and we said Detroit's going to turn into a ghost town after two thousand and eight, like get out of here, right, right.
If we'd have gone back ten years.
Ago and said Detroit's probably a great place to buy land, people are like, Detroit, it's a black hole, right, Oh.
Look how much land values have bounced up.
Detroit is there for all this. You know, Detroit is a was a big deal because of where it was right located on the Great Legs shipping lanes. All of those reasons still exist today and one of our biggest macro calls macroeconomic halls is Look, I think you're going to see a reverse of what we saw for the previous twenty five years, where you saw a migration toward the coast.
Right. I think COVID snapped into that.
People, Yeah, there you go, right, cod I think COVID snapped that, And you're going to continue seeing people pushing or if no other reason. And everything feeds into it, right, So, like I said, baby boomers retiring, that feeds into it too.
Why cost a living?
You can sell your place, you know in the Seattle area, move to somewhere in the Midwest and pay cash for your new place and stick another foreign brand in your pocket.
Right, that's right.
It's tax free by the way, right, So that's a big deal. You know, Now you've got a paid off house and four hundred thousand sitting there. That's throwing you know, at four percent, infrast rates is kicking you at twelve hundred bucks a month. Right, So I mean think of the think of that swing. Same with young people. Right, technology has made work from home so much is so much easier. Well, if you're a tech company, or or you're any kind of company that isn't you know that
you don't need somebody geographically there? Think of how much more competitive is if you want to hire somebody to come work for you in San Francisco, you've got to pay them one hundred and eighty two hundred grand just get in the door.
They won't be able to.
Feed themselves, right right, Well, that tech company can say, hey, you can do this job from Omaha, Nebraska, and we'll pay you one hundred and forty grand. Well, that guy's living like a king in Omaha. The tech company is
sending saving sixty grand. So my So, getting back to your original question, I don't think it's a blanket yes or no. What I would say to young people, though, is if you look at the experience your parents, For instance, if they were looking at what my real estate performance has been since my wife and I first bought a house in this area, I would look at them and say,
don't count on a repeat of that for you. And part of that is just you're buying houses and a record in affordability, right, So it's just.
Yeah, it's not a good time in the long run.
So I would say, don't don't press it. Don't feel like it's something you have to do. Here's another thing that rents have now pulled back down to where they're less than mortgages. So are they?
Because I wonder like and what, so what made that happen? Because when we were leaving Indianapolis and there's all these new apartment buildings going up, and we were just like, what is going on? But then we would look at the rent rates and they were insane, insane.
So again, it's gonna be it's gonna be location dependent, right because if you've got a small city and a bunch of people that are moving there for a specific reason, rents are gonna go up. But generally speaking, rents will go down, and they have started receding in most parts
of the country. And what is driving it is actually something that isn't a very positive thing, meaning it's kind of something we're keeping an eye on, we're getting a little bit worried about, which is there's just been an overbuilding of multifamily homes, okay, And the best way to describe it, it's different.
It's not the same thing. But people are like really, and I'm like, yes. So a lot of the people that got killed.
In the last downturn in real estate and No Way to nine, a lot of that, A lot of those folks decided they were going to play it safe and not speculated in individual homes anymore.
But they're gonna do multifamily okay.
And then as markets went up and more and more money started pouring into private equity and things like this, you've gotten to the point where we think that there's a lot of places where you've overbuilt multi family homes. And if you look at what's scheduled to be delivered in the next year to two as far as a multi family homes, it's going up a lot. So there
is a backlog. So I think you're going to see continued downward pressures on rents generally speaking, and I think over time that will be beneficial on the housing market. And what I would tell young people right now is I would say, look, find the best rent scenario you possibly can, and say sack away money and invest money and buy a home. When there's a good opportunity. People like, oh,
you know, well, rent's throwing money away. Anybody that said that hasn't owned a home, Okay, because right the reason homes are good investments, they're really not when you look at the rate of return.
The reason they're a good.
Investment is because you lever them, right, So, meaning if you just put traditional money into it, it's not a very good investment.
I mean you've got to.
Pay out, you know, repairs, fixes, property taxes, all these other things.
The leverage is what makes it good.
So what I tell people is there's a lot of economic but you know, for instance, I just moved into a new house. It's not new but new to us, but moved a new house in February month and a half ago. I had to replace a furnace. I was twenty grand Yeah, right, Like just that's the part of it that nobody talks to you about, you know. So
there are advantages to renting. And if if my thing would be this, if you feel like it is a big stretch, if it feels intimidating to pay that mortgage amount, if it feels over don't do it.
Don't do it. That's your answer.
Right, stay out of that because if the mortgage is oppressive, when the repair bill hits, it's it's going to be crippling, and you're much better off investing the money, saving and waiting for an opportune time because it will come.
Okay, that's interesting because I wondered if if the rent versus home ownership thing was analogous to you know, leasing or buying a car. But it sounds like this in this situation, because isn't it always better to sort of buy the car versus leasing it? Or is it because leases? When you lease it, you always have a new car, but like you never have any ownership. You're basically renting a car forever. Is it the same or are they totally different?
No, there's definitely some similarities there.
So whenever we're talking about houses and cars, one of the things that we have to step back and say is, Okay, Look, It's why I hate it when people are like, the home's best investment you're ever going to make, and I'm like, well, it might be your best investment, but it's because you haven't invested well, right, Like you don't, I'd say, like, it shouldn't be right if you're going to be at a really good spot financially. That should not be the case, right,
Your four to one case should have done better. But the one thing that we have to look at is housing and transportation. We have to pay a cost for that, no matter what, right, it's a baked in cost. So the good thing.
Is is the house does appreciate in value over time. Right? So is it better to own a house than to not?
Yes?
Okay? Is it?
Is it so much better? Are you killing yourself if you don't do it? So you're going to put yourself in a situation where you know and even if you can get financed.
I don't even know what the financing standards are.
But is it so important you should put yourself in a scenario where fifty five to sixty percent of your take home pay is going to pay your mortgage?
No?
Okay, like that?
That's not a good decision, right, So it's not yes, own a house at all costs. The benefit of a house is when you get to a point where you're like, Okay, that's a reasonable mortgage payment. I could pay that, no problem. And should I rent or should I buy? Well, you should buy because it's going to add up over time, and you're gonna get part of the money back, and there's tax advantages and things like that.
But when you're tight, you know, it's you just you'd be much.
Better off fixing yourself financially, saving money, saving for a bigger down payment. That's another thing too, save build that down payment. When people are people are worried about rates. If you're worried about rates, put more money down, save more money. They're like, well, we got to do a net. Well wait a year, you know, to wait two years. Whatever money you put down, you're not going to be paying that interest rate on.
So well, I would think that the fights that Donald Trump is having at this point with Jerome, I would think we're going to see some rate decreases by the end of this year, don't you.
Yeah. I think you're going to see at least one, if not two cuts.
My guess is is that you're going to see probably fifty to seventy five basis points of cuts. Put a gun to my head to probably say fifty. Here's the problem that only affects the very front end of the curve.
Right.
The Fed does not set interest rates on the tenure treasury.
That's set by the market. Right.
So one of the things that I think you have to be careful on is if you cut rates and inflation picks up, it is entirely possible that even though you cut rates, mortgages could go the other way. Really, yes, yes, And it's something that they need to be very careful about.
And this is one of the things that I was like that if if you put me in a room with Trump and I got to tell them something, I'd be like, hey, I understand your frustration, and I don't think that you're entirely wrong a part of FED policy when they cut how they've cut it does smell a little bit fishy.
To be fair to them, though, here are the reasons.
Why why you can defend what they're doing.
And he's calling for one hundred to two hundred basis points of cuts in an environment where unemployment unemployments at four percent. The S and P five hundred is an all time high, trading at thirty times earnings, and you have record in affordability and housing, right, And the chief reason you have record in affordability, guys six and a half percent. Mortgages are not historically you know, like usury.
Right, that is still historically a very low mortgage rate. So the reason that houses are i mean, rents rates are not helping. But let's also look at what housing prices have done, right, They've gone nuts. I mean, you had the even including the financial crisis, we never saw housing up fifty percent in like an eighteen month period of time, right, So you've got to be really careful about juicing this thing too much.
You still have on them.
You still have inflation at two point seven, right, and you got inflation at two point seven with sixty dollars oil, right, So you start getting you know, you start cutting rates and pushing houses pricings back up, and you get a pop and oil all of a sudden, you're looking at four or five percent inflation again, and you got to raise rates. So I like, I don't completely disagree with what Trump's saying. I think there are many things that would be aided by lower interest rates. At the same time,
you usher in some real threats. And if you get a scenario where you cut, inflation goes back up and the yield on the thirty year goes heads north of five, you're in a really really nasty tight spot.
Well, then to see Trump should be taking advice from you, and so should everybody that's listening to this podcast. And how can they do that? Zach?
Yes, I appreciate that. Uh yeah.
The best way to do it is go to Bullwartcapitolmanagement dot com and look for the Know.
Your Risk Podcast.
We do a daily show covering everything important that's gone on the markets and economics and politics if it impacts markets and economics, and goal is to make it twenty five to thirty five minutes and you know every single thing that you need to know from that day it relates to finance and economics.
So not tough to find is.
Google Know Your Risk podcast, Lowercapitalmanagement dot Com.
Always great. I always learn something.
Thank you, Zach, Thank you so much. Investment advisory services offered through Trek Financial loc and SEC Registered Investment Advisor. The opinions expressed in this programmer for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. Any references to performance of security so it thought to be
materially accurate and actual performance may different. Investments involved risk and are not guaranteed.
Past performance doesn't guarantee future results Trek twenty four three Zer earlier