Are We In The “Worst Economy in US History”?

Dave:Hello everybody. Welcome to On the Market. I’m your host, Dave Meyer. Joined at the moment by Henry Washington, Kathy Fecky and James Daynerd. It’s good to see you all. First time we’re all again collectively after the brand new yr. Hope you all had an exquisite break. Kathy, did you do something enjoyable?

Kathy:Oh, nicely, I hosted 20 individuals for 4 days, so.

Dave:Wow.

Kathy:Positive. It was enjoyable.

Dave:That sounds very bold. Effectively, James, I do know you’re in Australia. You’re wanting very tan. Glad to see you.

James:I’m not joyful to be again. I may have stayed over there in Australia, however I’m joyful to get on with 2024.

Dave:And Henry Washington. Henry, did you do something enjoyable over the break?

Henry:I did. We really took the children to Pensacola, Florida. Yearly my dad goes on the market and rents a spot after which my sisters and her children fly in and we carry our household and so all of us frolicked for the brand new yr and had fun. My sister has 4 boys and she or he’s pregnant together with her fifth little one and I’ve two women and I discovered that women and boys are completely different.

Kathy:Sure, they’re.

Henry:That power is spectacular.

Dave:So possibly you’re joyful to be again.

Henry:Sure, it was chaotic in one of the best ways, however it was enjoyable to look at.

Kathy:You bought to look at your breakables for certain.

Dave:I’m glad you all obtained to spend a while along with your households. And now we’re again to kick off the yr with one among our headline exhibits to type of cowl a number of the information that has gone on during the last couple of weeks whereas individuals had been off for New Yr’s. Right now we’re speaking about 4 essential and fascinating information tales. We’re going to speak about current labor market information. We’ll speak concerning the adverse sentiment that appears to be pervasive throughout the American financial system, firms constructing cities for his or her staff and the professionals and cons of shopping for a home in 2024. So let’s get this kicked off with our dialogue of labor progress. In the event you haven’t heard, the US financial system added 216,000 jobs in December and the unemployment fee held regular at 3.7%. Only for the report, 3.7% could be very low. And thru 2023, the USA recorded a internet acquire of almost 2.7 million jobs.Now these good points got here from completely different elements of the financial system, however largely got here from authorities, which was 52,000 jobs, healthcare, which is 38,000, social help, 31,000, and I used to be really stunned to see development up 17,000 and all of this with a backdrop of wage progress, which is definitely a little bit of a change. We’ve seen wage progress now up 4.1%, which is now greater than the speed of inflation, just a bit bit, however that’s a change from the way it’s been during the last couple of years. So Kathy, let’s begin with you. What do you make of this labor market report?

Kathy:It’s extra of the identical. We’ve had sturdy job progress all yr that has simply shocked so many economists and there’s plenty of causes for that. I feel one idea, and I agree with this idea, is that we’re simply nonetheless recovering from COVID. So a variety of the sturdy job progress was a recapture of the roles that had been misplaced, response to the reopening and as we transfer ahead, we’re going to be, I feel, coming simply again to regular. In order that’s the way in which I learn this. There’s different components after all, however wage progress being one, that while you’ve obtained individuals making more cash, they have an inclination to spend and shoppers have been spending and that fuels the financial system and that creates extra jobs, proper?

Dave:One of many theories I’ve heard about this surprisingly sturdy labor market is this idea of labor hoarding, which is mainly that firms are extra hesitant to put individuals off throughout this financial cycle than they’ve in earlier due to the actually tight labor market that occurred in 2021, 2022 when nobody may rent. Henry, I do know you’ve individuals in your crew, you’re employed with a variety of contractors, do you type of see this occurring within the financial system?

Henry:I’m seeing the alternative. I’m getting calls from individuals in search of work. I’m getting hit up on a regular basis by contractors and subcontractors. They need extra work, extra quantity. I used to be simply actually driving down the freeway yesterday going to breakfast, this was Sunday morning and I handed 4 completely different development firm vehicles out of their work autos, so I assume they’re going to job websites on a Sunday. So I used to be simply pondering there’s a lot work on the market for individuals. Those who need the work and are good at advertising and marketing are getting the work and those who aren’t good at advertising and marketing are having to name and attempt to discover individuals to ship them jobs. So I’m sort of seeing the alternative and anytime that I publish for a place or a gap or one thing, we’re inundated with candidates and folks desirous to do work proper now. And so I’m seeing that it’s like individuals are hungry for work and there’s work available.

Dave:Effectively, that’s most likely an indication of a very good financial system. I hope that’s good. Individuals are hiring individuals taking that job. That’s fairly good. I do know the labor market is vital for the macroeconomic scenario, however for actual property traders, they may not be tremendous acquainted about how this may impression them. James, do you comply with this intently and the way does it impression the way in which you make your investments?

James:Yeah, no, I imply the labor market and pricing behind that, it has all the pieces to do with actual property investing on the whole. I imply a lot of what we do is predicated on the price of what it’s good to do to enhance that asset, whether or not it’s a repair and flip rental property or it may even be a big multifamily, it’s concerning the prices that go in. These core prices will have an effect on your numbers a lot. And to sort of contact on that labor hoarding, I do really feel like that is occurring in a variety of the development firms proper now as a result of what we’re seeing is we’re seeing, identical to Henry mentioned, that individuals are really requesting extra bid work proper now and it has fallen, their workload has fallen. However that’s what the bigger firms which have staffed up closely during the last twenty-four months to maintain up with the demand that was going.Our smaller contractors who don’t want as a lot work and quantity, they’re really are being much more cussed on their pricing. They haven’t budged as a lot and so they’re nonetheless sort of growing it as a result of they don’t want the work and simply because there’s a low quantity of labor on the market, they’re nonetheless in a position to get these jobs. However our larger firms have been wheeling and dealing far more. These are our large siting firms, our clearing and grading firms, they’ve much more our bodies on workers. These individuals receives a commission higher too and so they wish to preserve all people working to allow them to get by this little blip available in the market is what they’re seeing.And we’ve seen pricing, particularly on a brand new development, we had one among our clearing and grading contractors, he referred to as us and mentioned, “Hey look, I’ll do that final portion of this job free of charge,” as a result of he had a lot revenue in there, “in the event you get me lined up with one other job straight away.” As a result of he simply needs to maintain it going as a result of none of them wish to lay these individuals off as a result of onerous to search out when the market heats again up. And so I do suppose that labor hoarding is occurring, however it’s working to our profit in a variety of various things with the larger trades that we have now to rent.

Kathy:To Henry’s level about candidates, our Director of Finance is retiring after 20 years and we simply thought, boy, how are we going to interchange her? She’s been so superior. So we put out the job description and we obtained 350 job candidates for this place and we had been actually stunned and we had been a little bit bit underneath, I might say what could be the going fee. And several other of these individuals mentioned we had been keen to take much less cash as a result of we love that you just’re a distant firm. In order that was fascinating. I feel individuals actually obtained used to with the ability to reside wherever they need and so they’re in search of firms who can present that.

Henry:Individuals obtained snug working with no pants, I imply.

Dave:Are you carrying pants proper now, Henry?

Henry:I imply let’s simply not scroll down, guys.

Dave:Let’s preserve the cameras the place they’re everybody. All proper, nicely tremendous fascinating. I feel one other factor only for traders to recollect is that whereas the labor market doesn’t instantly contact housing costs or issues like that, it’s a good signal for rents, lease growths, emptiness, occupancy charges, these sorts of issues. When individuals stay employed, that could be a good signal for earnings for actual property traders. So we simply lined our first story, which is all concerning the labor market and the way surprisingly sturdy it’s and the way that impacts traders. We’re going to take a fast break, however after that we’re going to listen to about why Individuals, regardless of some sturdy information, are simply so sad concerning the financial system.Welcome again everybody. Our subsequent story is about Individuals being displeased with the financial system. Now there are a variety of macroeconomic indicators that we speak about on a regular basis on the present which are going nicely. GDP is up. We simply talked a couple of sturdy labor market, however Individuals have low sentiment and so they’re sort of dissatisfied on account of excessive costs. Inflation during the last couple of years has actually eroded spending energy, housing tremendous costly, all that sort of stuff is occurring. And so I’m curious, what are a few of your theories about why the headline numbers look good however individuals aren’t feeling it? Henry, let’s begin with you.

Henry:I feel you actually sort of mentioned it. I feel we’re in an age of data overload. I feel we’re shifting away from print information now and it’s all on demand information and all people’s combating for the eyeballs, the eye and the clicks and the way in which to get that’s it’s important to have an consideration grabbing headline or story. And so a variety of the tales that you just’re seeing are actually click on baiting and round like, “Hey, the financial system’s horrible, housing costs are by the roof and affordability goes loopy and nobody can afford to purchase a home.” And that’s going to play a job when you’ve the media portray photos, typically that issues are extraordinarily adverse.And I’m not saying that affordability isn’t an issue, and I’m not saying that individuals aren’t struggling on this financial system, there are, however there are individuals struggling in each financial system. And I feel in the event you simply wish to put a headline out about, “Hey, the financial system’s doing fairly all proper and let me present you why it’s not as dangerous as individuals suppose it’s.” That story’s not going to do as nicely. And so I feel individuals simply actually have to coach themselves totally on the problems and dive a little bit deeper than the headlines. And I feel individuals will begin to see that issues aren’t as doom and gloom as possibly a information headline may lead you to imagine.

Dave:I examine this Tik Tok pattern the place individuals are calling it the silent melancholy and we will get into that, however the headline was the individuals had been saying that that is the worst financial system in US historical past and I feel that is what you get when youthful people who find themselves not educated on this maybe and even take a look at historical past, make financial projections. So I wouldn’t comply with that individual one, however I feel is there one thing to this? As a result of the GDP, you take a look at labor market that type of appears to be like on the complete pie, proper? The pie is rising, however I feel there is likely to be one thing to the truth that not everybody feels the way in which that that pie is rising equally. Kathy, do you’ve any ideas on that and the way that is likely to be taking part in into this?

Kathy:Yeah, completely. My first thought after I simply noticed the headline and hadn’t even learn the article was that it’s social media. That’s the massive distinction is that everyone has a voice now and earlier than, how may you be heard in the event you had complaints? Who would you go complain to? Your employer? So all people has a voice and all people, not all people, however yeah, all people’s an professional now and so they suppose they know all the pieces with out a diploma in that subject. So not that you just want a level, however possibly some expertise could be useful too, or data or historical past. However I might say one of many greatest issues is that in 1949 there was the equity doctrine and that was mainly a legislation that required, I’ll learn it, that broadcasters cowl controversial problems with public significance, that they current contrasting viewpoints and that there’s equal time for each viewpoints, ample airtime, and that’s how, after I had my diploma in broadcasting and I labored at Fox, I labored at CNBC and CNN and ABC 7, and after I labored at Fox, there was no slant.Actually, the general public I labored with had been fairly liberal as a result of it was in California and if we didn’t present each side and clearly, boy you’d get chastised and possibly fired. Now within the eighties, the equity doctrine was abolished, 1987 by the FCC, and in 2011 it was simply fully faraway from all the pieces. So add to it social media and different shops, different methods for individuals to get information the place it might be actually onerous to implement this factor anyway, proper? It might be tremendous onerous to say you didn’t tweet each side, so it’s simply outdated, however that’s the massive distinction. There’s all the time been sad individuals. Now although these sad individuals can see what all people else has and so they get jealous and annoyed. And so it’s simply, once more, social media, know-how I imagine is actually what it comes right down to.

Dave:That’s a terrific level about this, you possibly can see how different individuals are residing, and we must also point out that most individuals on Instagram overinflate their way of life and make it seem like they’re doing all these glamorous issues on a regular basis that possibly they don’t seem to be. However I additionally, I’m simply curious what you guys suppose, we’re actual property traders, we personal belongings, we have now largely benefited from a variety of the financial progress during the last couple of years, however I can see how younger individuals who don’t personal belongings, in a variety of methods did miss out on a variety of the wealth creation during the last couple of years. And I feel there’s one thing that’s one thing to be annoyed about.

Kathy:Yeah, however in the event you actually return and take a look at historical past, residence costs doubled nearly each decade. It’s not new. And within the eighties it was really costlier. It was more durable to purchase than at the moment, much less reasonably priced. So it’s not new, it’s simply that individuals may see extra and are annoyed. However even again within the eighties, there have been methods to get into the business in the event you actually wish to examine it and discover out and speak to, hearken to BiggerPockets episodes and see how individuals with nothing out of the blue have one thing. It simply takes effort, data, and schooling, proper?

Henry:Yeah, I must say I positively don’t agree with that, Dave, as a result of if you consider I really like seeing the memes that’s like, “Man, I ought to have purchased a home in 2008, however I used to be too busy taking part in within the playground.”

Dave:Precisely.

Henry:However when you consider that, sure, the younger individuals may’ve missed the chance to purchase in 2009 when all the pieces was down, however they didn’t miss 2020 when the entire inventory market was down and had a chance to purchase, and so they’re not lacking proper now when it’s a terrific alternative to purchase actual property and there’s extra entry to data to coach them on tips on how to make these sensible investments. In 2008, you couldn’t simply hop on the web and discover an professional in one thing you needed to study and take motion on that data. It wasn’t that simple. You needed to go to the library and know the Dewey Decimal system to be able to get data.

Dave:Nope.

Henry:And so I might argue that it’s simpler now for them to take motion and there’s nonetheless loads of alternative.

Dave:That’s a terrific level. I perceive a number of the frustration with the financial system, however I hope individuals don’t get fully tune it out. To your level, that’s what’s actually harmful in the event you simply write it off as hopeless, then it actually shall be unlucky and you may get left behind. Effectively, in the event you’re all questioning the place James is, he, as ordinary is having technical issues, so we’re going to hold on.

Kathy:Poor James.

Dave:Henry, Kathy and I for these questions that we’re going to maneuver on to our third headline, which is that firms within the US are bringing again firm cities. This text from the Future Occasion talks about how Google, Meta, Disney, NBC and several other of Elon Musk’s firms are creating “firm cities” the place individuals can reside and play only a stone’s throw from the place they work. These initiatives are designed to alleviate the excessive costs and lack of stock within the housing market. What do you guys suppose this implies? Do you suppose it is a pattern? Do you suppose that is sensible? Henry, what do you suppose?

Henry:Is it a pattern? I suppose you possibly can name it a pattern. Is it going to place a dent within the housing issues that the nation is going through? No, it’s not, however it’s taking place as a result of I’m actually seeing it occur in my yard. Walmart is constructing a brand new residence workplace campus facility that’s going to accommodate all of their buildings. It’s going to have housing and inns and residences, and so that is taking place in additional firms than simply those which are talked about there.These firms are combating for expertise, they’re combating for younger expertise as a result of if you consider all of those firms, embrace Walmart in that checklist, it doesn’t matter what these firms promote. They’re all know-how firms. They’re combating for younger know-how expertise and younger know-how expertise, in the event you go take a look at what Google gives at the moment by way of workplace amenities and YouTube, they’ve lovely, all-inclusive amenities, state-of-the-art know-how. And so I feel a variety of it’s these firms are all competing for that very same younger expertise, and so if one is offering this factor, they’re all going to begin offering those self same facilities. So I feel it’s much less to do with housing and extra to do with expertise retention.

Kathy:Yeah, I simply wish to say Elon, in the event you’re listening and I do know you might be, I might like to companion with you on this venture. I feel it’s extremely cool. Hear, I’ve a 24-year-old. She’s residing in Denver now in a constructing that’s largely younger individuals. She loves it. Once you get out of faculty and also you’ve been residing with younger individuals for 4 years and it’s so enjoyable and hastily you go and also you’re not, you’re in a suburb someplace. I imply, it’s sensible to construct communities the place individuals can reside close to work, have a group, social life and never should commute up to now. I adore it.Now, California has been attempting to do, that is referred to as the California Perpetually Challenge, and it’s in Solana County simply north of San Francisco, and so they’re attempting to create this, however California ain’t the place you’re going to get it by. There’s a lot resistance in a spot the place housing is so costly and also you want extra provide, they may cease you each step of the way in which. I do know this as a result of we’ve developed property in California and it’s so onerous. The resistance is unbelievable from the very individuals who really need cheaper housing. So will it occur in California? I don’t know. However possibly a few of these different areas which are extra open to growth, it may occur and I feel it’s fabulous. I adore it.

Dave:All proper. Effectively, I’m simply going to disagree, Kathy. I’ve two issues to say right here. To begin with, if we’re attempting to create reasonably priced housing within the US, I don’t suppose Meta staff and Google staff are the people who find themselves struggling to purchase homes proper now. They’re most likely probably the most highest paid individuals in all the nation. And the opposite factor is I simply suppose it is a clear strategy to try to cease do business from home. They’re like, “You’ll be able to’t do business from home, however if you wish to hang around along with your boss after work, you are able to do that as nicely.” I don’t find out about you, however for me, I really like my colleagues at BiggerPockets, however I like a little bit work-life separation and I don’t know if I wish to go to work, go away after which simply see everybody I simply noticed on the bar and on the college and on the restaurant and on the grocery retailer. So it’s not for me, however possibly individuals will prefer it.

Henry:For the report, Amsterdam is greater than a little bit work-life separation. You went all of the separate.

Dave:Yeah, I did a six-hour time distinction in an ocean. That’s how I took benefit of myself.I agree with you, Kathy. The overall sentiment, after I was out of faculty, I lived in, it was a small constructing in Denver, however it occurred to be simply all younger individuals and it was tremendous enjoyable. I completely agree with that, that concept of constructing group and having that group. I simply don’t know if I might personally transfer to a spot the place that group was targeted round my job.

Kathy:Yeah, that’s a very good level.

Dave:James is again. He’s wanting like a deer in headlights, so we’re going to shock him with the fourth headline and see what he has to say.All proper, James is again. We’ve given him an opportunity to catch his breath. The fourth headline and our final of at the moment’s present is the housing market, professionals and cons of shopping for in 2024. This comes from GOBankingRates, and the important thing factors listed below are that proper now, a minimum of, I don’t know if this is applicable to all of 2024, however let’s simply say proper now at this level in 2024, this text factors to much less competitors, there’s barely extra properties available on the market, child boomers are beginning to promote their properties. These are the great elements. And the cons are that costs are nonetheless at report excessive and competitors continues to be moderately excessive, and folks usually, as we talked about, have some financial considerations. So James, what do you make of that checklist of professionals and cons? Is there the rest you’d add to that?

James:Effectively, I feel the professionals are that proper now, as you’re in search of a house you can nearly sort of financial institution that your mortgage price goes to get decrease within the subsequent 12 to 24 months in the event you purchase now, and that’s with the Fed’s signaling that they’re going to chop charges all through 2024 and possibly into 2025. So long as you can also make it funds at the moment, which means you simply have upside in a home. And that I feel is the foremost professional.The con proper now could be simply the funds are costly while you’re taking a look at a home. It doesn’t matter what, it prices much more. I imply, I simply closed on a brand new home for myself, what, three, 4 months in the past, and the month-to-month cost is surprising, however I do know when charges come down possibly 2%, my cost’s going to fall almost 15% on what I’m going to be paying proper now. And so so long as you possibly can afford it at the moment, then you possibly can really forecast down the street for the funds simpler.The profit is there’s alternatives in sure areas. If you should buy one thing that’s a little bit bit dated, the pricing is considerably much less. And I can say that as a result of I simply purchased a house in Southern California, which I might by no means have the ability to purchase 24 months in the past with out a number of affords. Now, this property did have a number of affords, however it had a number of low affords and it bought about 10, 15% off checklist. Many of the affords had been about 20% off checklist. So there’s alternatives so long as you possibly can wait it out and you’ll undergo that gradual transition by life of shopping for a property under market, renovating, growing it, after which getting that cost down when the charges begin to fall.

Dave:That’s a very good level. Henry, what do you suppose?

Henry:Boy, oh boy. James is completely proper. The professionals right here, all proper, and the extra professional is sure, in the event you purchase now, 45 days in the past, individuals had been shopping for and so they had been hoping that charges come down in some unspecified time in the future within the subsequent yr or two, however now it’s extra, you don’t wish to say assured till it occurs, however now there’s extra certainty round the truth that that’s most likely going to occur. And so that if you will get in now and afford it that you just’re going to have the ability construct wealth, you’re going to have the ability to financial institution some appreciation, proper? It’s nearly pressured by the federal government. And so you’ve this very, very distinctive alternative.What I might argue on this checklist is it says the cons and that the cons are that housing costs are excessive and that con that housing costs are excessive, is a con based mostly on historical past. But when we take a look at the long run, housing costs are low as a result of if and when these charges come down and the demand available in the market for properties will increase, then the values of these properties go up. And if the values go up, then the costs are greater than they’re now. So I might argue that now you will get in and you should buy the place you will get a house at a cheaper price level and with much less competitors and seize some fairness when the charges drop.

Dave:That’s a terrific level, Henry. And I’d additionally say that report, properties aren’t report excessive in each market. There are positively markets the place they’re under all time highs. And that simply provides to what Henry and James had been simply saying, is that in some markets, you really can get a reduction. Now we’re all speaking about this stuff, taking part in satan’s advocate, it’s going to be onerous for any of the 4 of us to disagree that it’s most likely a very good time to purchase. So Kathy, I’ll ask you this, do you suppose the, let’s say the primary quarter of 2024, do you suppose that’s going to be one of the best time to purchase this yr? Like proper now?

Kathy:Wow, I don’t know.

Dave:Henry’s nodding vigorously whereas Kathy’s talking, simply so everybody is aware of.

Kathy:I don’t care. I take a look at the numbers, proper? I take a look at the numbers, it both works or it doesn’t work. However right here’s the query I might ask you in the event you’re renting and trying to purchase and feeling annoyed is how irritating is it to pay lease on daily basis to any person else who’s taking that cash and paying off their mortgage? So which one do you wish to be? Do you wish to be the one that is paying in your residing and in 30 years now you don’t have any cost? As a result of all of that cash has gone into your residing. You’ve paid off your mortgage. And the identical in the event you purchase a property and a tenant is paying off your debt for you. So that you simply should ask your self that query, what’s higher? In 30 years, do I wish to nonetheless be renting? And what do you suppose rents are going to be in 10 years, 20 years? What do you suppose residence costs shall be in 10 or 20 years?Now, it’s important to maintain, keep in mind, in the event you’re trying to purchase a house and also you suppose you’re going to be there a yr or two, possibly not. However in the event you’re going to purchase it and reside there for some time and lift a household, or in the event you’re going to possibly reside in it for a short time after which go away it, however lease it out, doesn’t matter. It doesn’t matter. As a result of I ask you to only go on FRED, simply kind in FRED, that’s the Federal Reserve of St. Louis, and kind in present residence gross sales numbers and look what residence gross sales or costs, I’m sorry, costs, not gross sales, present residence costs and see how they’ve gone up each decade, normally doubling.And I’m speaking about, I’ve been round a when you guys, a long time, and I can let you know that the home that I grew up in was $50,000 within the San Francisco Bay space. The following yr it was 100, the subsequent decade was 200, it doubles. So why would that out of the blue cease? Inform me why. I don’t know. I don’t have a very good cause. I feel the federal government isn’t going to cease printing cash. So you can also make the selection, preserve paying lease or pay it to your self and repay your mortgage.

Dave:All proper. Effectively, thanks all a lot. This can be a very considerate and fascinating dialog. Hopefully everybody discovered one thing invaluable that they’ll apply to their investing scenario themselves. And in the event you did, please make certain earlier than you go to go away us a 5 star overview. It’s the start of the yr. We wish extra critiques. I’m going to be trustworthy about it, and we actually recognize it in the event you took a minute and went on both Spotify or Apple to provide us an trustworthy and hopefully good overview in the event you like this present. On behalf of Kathy, Henry and the ghost of James who simply disappeared from our recording studio once more, we recognize you listening and we’ll see you subsequent time.

Speaker 5:On The Market was created by me, Dave Meyer and Kalen Bennett. The present is produced by Kalen Bennett, with enhancing by Exodus Media. Copywriting is by Calico content material, and we wish to prolong a giant thanks to everybody at BiggerPockets for making this present attainable.