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

Dave:
Hello everybody. Welcome to On the Market. I’m your host, Dave Meyer. Joined immediately 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 12 months. Hope you all had an exquisite break. Kathy, did you do something enjoyable?

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

Dave:
Wow.

Kathy:
Certain. It was enjoyable.

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

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

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

Henry:
I did. We truly took the children to Pensacola, Florida. Yearly my dad goes on the market and rents a spot after which my sisters and her youngsters fly in and we carry our household and so all of us frolicked for the brand new 12 months and had fun. My sister has 4 boys and he or she’s pregnant together with her fifth baby and I’ve two women and I discovered that women and boys are totally different.

Kathy:
Sure, they’re.

Henry:
That vitality is spectacular.

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

Henry:
Sure, it was chaotic in one of the simplest ways, but it surely was enjoyable to look at.

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

Dave:
I’m glad you all received to spend a while along with your households. And now we’re again to kick off the 12 months with one among our headline reveals to type of cowl a few of the information that has gone on during the last couple of weeks whereas folks have been off for New 12 months’s. Right this moment we’re speaking about 4 essential and fascinating information tales. We’re going to speak about current labor market information. We’ll discuss concerning the unfavorable sentiment that appears to be pervasive throughout the American economic 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 development. In case you haven’t heard, the US economic system added 216,000 jobs in December and the unemployment charge held regular at 3.7%. Only for the file, 3.7% may be very low. And thru 2023, the US recorded a internet acquire of practically 2.7 million jobs.
Now these features got here from totally different elements of the economic system, however principally got here from authorities, which was 52,000 jobs, healthcare, which is 38,000, social help, 31,000, and I used to be truly stunned to see development up 17,000 and all of this with a backdrop of wage development, which is definitely a little bit of a change. We’ve seen wage development 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 development all 12 months that has simply shocked so many economists and there’s a number of causes for that. I feel one concept, and I agree with this concept, is that we’re simply nonetheless recovering from COVID. So a number of the sturdy job development was a recapture of the roles that have 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 elements in fact, however wage development being one, that once you’ve received folks making extra money, they have an inclination to spend and customers have been spending and that fuels the economic 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 folks 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 gotten folks in your crew, you’re employed with a number of contractors, do you type of see this occurring within the economic system?

Henry:
I’m seeing the alternative. I’m getting calls from folks on the lookout for 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 totally 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 considering there’s a lot work on the market for folks. 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 folks to ship them jobs. So I’m type of seeing the alternative and anytime that I publish for a place or a gap or one thing, we’re inundated with candidates and other people desirous to do work proper now. And so I’m seeing that it’s like persons are hungry for work and there’s work available.

Dave:
Nicely, that’s in all probability an indication of an excellent economic system. I hope that’s good. Individuals are hiring folks 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 won’t be tremendous acquainted about how this would possibly 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 basically. I imply a lot of what we do is predicated on the price of what it’s essential 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 type of contact on that labor hoarding, I do really feel like that is happening in a number of the development firms proper now as a result of what we’re seeing is we’re seeing, similar to Henry stated, that persons are truly 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 truly are being much more cussed on their pricing. They haven’t budged as a lot they usually’re nonetheless type of rising 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 capable of get these jobs. However our larger firms have been wheeling and dealing way more. These are our large siting firms, our clearing and grading firms, they’ve much more our bodies on workers. These folks receives a commission higher too they usually wish to maintain all people working to allow them to get by means of 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 known as us and stated, “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, “for those who 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 folks off as a result of laborious to search out when the market heats again up. And so I do suppose that labor hoarding is occurring, but it surely’s working to our profit in a number of various things with the larger trades that we’ve 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 received 350 job candidates for this place and we have been actually stunned and we have been a bit bit below, I’d say what can be the going charge. And a number of other of these folks stated we have 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 folks actually received used to with the ability to stay wherever they need they usually’re on the lookout for firms who can present that.

Henry:
Individuals received comfy working with no pants, I imply.

Dave:
Are you sporting pants proper now, Henry?

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

Dave:
Let’s maintain 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 folks stay employed, that could be a good signal for revenue for actual property traders. So we simply coated 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 People, regardless of some sturdy information, are simply so sad concerning the economic system.
Welcome again everybody. Our subsequent story is about People being displeased with the economic system. Now there are a number of macroeconomic indicators that we speak about on a regular basis on the present which might be going nicely. GDP is up. We simply talked a few sturdy labor market, however People have low sentiment they usually’re type of dissatisfied on account of excessive costs. Inflation during the last couple of years has actually eroded spending energy, housing tremendous costly, all that type of stuff is happening. And so I’m curious, what are a few of your theories about why the headline numbers look good however folks aren’t feeling it? Henry, let’s begin with you.

Henry:
I feel you actually type of stated it. I feel we’re in an age of data overload. I feel we’re transferring away from print information now and it’s all on demand information and all people’s preventing 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 number of the tales that you just’re seeing are actually click on baiting and round like, “Hey, the economic system’s horrible, housing costs are by means of the roof and affordability goes loopy and nobody can afford to purchase a home.” And that’s going to play a task when you’ve gotten the media portray footage, generally that issues are extraordinarily unfavorable.
And I’m not saying that affordability isn’t an issue, and I’m not saying that individuals aren’t struggling on this economic system, there are, however there are folks struggling in each economic system. And I feel for those who simply wish to put a headline out about, “Hey, the economic system’s doing fairly all proper and let me present you why it’s not as unhealthy as folks suppose it’s.” That story’s not going to do as nicely. And so I feel folks simply actually have to teach themselves absolutely on the problems and dive a bit deeper than the headlines. And I feel folks will begin to see that issues aren’t as doom and gloom as possibly a information headline would possibly lead you to consider.

Dave:
I examine this Tik Tok pattern the place persons are calling it the silent despair and we are able to get into that, however the headline was the folks have been saying that that is the worst economic system in US historical past and I feel that is what you get when youthful people who find themselves not skilled on this maybe and even have 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 have a look at labor market that type of appears on the complete pie, proper? The pie is rising, however I feel there is perhaps one thing to the truth that not everybody feels the way in which that that pie is rising equally. Kathy, do you’ve gotten any ideas on that and the way that is perhaps taking part in into this?

Kathy:
Yeah, completely. My first thought once I simply noticed the headline and hadn’t even learn the article was that it’s social media. That’s the large distinction is that everyone has a voice now and earlier than, how may you be heard for those who 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 skilled now they usually 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 can be useful too, or information or historical past. However I’d say one of many largest 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, sufficient airtime, and that’s how, once I had my diploma in broadcasting and I labored at Fox, I labored at CNBC and CNN and ABC 7, and once I labored at Fox, there was no slant.
Actually, most people I labored with have been fairly liberal as a result of it was in California and if we didn’t present either side and clearly, boy you’d get chastised and doubtless 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 folks to get information the place it might be actually laborious to implement this factor anyway, proper? It might be tremendous laborious to say you didn’t tweet either side, so it’s simply outdated, however that’s the large distinction. There’s at all times been sad folks. Now although these sad folks can see what all people else has they usually get jealous and annoyed. And so it’s simply, once more, social media, expertise I consider is actually what it comes all the way down to.

Dave:
That’s an amazing level about this, you may see how different persons are residing, and we also needs to point out that most individuals on Instagram overinflate their life-style 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 property, we’ve largely benefited from a number of the financial development during the last couple of years, however I can see how younger individuals who don’t personal property, in a number of methods did miss out on a number 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 for those who actually return and have a look at historical past, dwelling costs doubled virtually each decade. It’s not new. And within the eighties it was truly dearer. It was tougher to purchase than immediately, 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 trade for those who actually wish to examine it and discover out and discuss to, hearken to BiggerPockets episodes and see how folks with nothing out of the blue have one thing. It simply takes effort, information, and training, proper?

Henry:
Yeah, I must say I undoubtedly don’t agree with that, Dave, as a result of if you concentrate on I 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 concentrate on that, sure, the younger folks would possibly’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 possibility to purchase, they usually’re not lacking proper now when it’s an amazing alternative to purchase actual property and there’s extra entry to data to teach them on find out how to make these good investments. In 2008, you couldn’t simply hop on the web and discover an skilled in one thing you needed to find out about and take motion on that data. It wasn’t that straightforward. You needed to go to the library and know the Dewey Decimal system with the intention to get data.

Dave:
Nope.

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

Dave:
That’s an amazing level. I perceive a few of the frustration with the economic system, however I hope folks don’t get fully tune it out. To your level, that’s what’s actually harmful for those who simply write it off as hopeless, then it actually shall be unlucky and you may get left behind. Nicely, for those who’re all questioning the place James is, he, as common 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 Celebration talks about how Google, Meta, Disney, NBC and a number of other of Elon Musk’s firms are creating “firm cities” the place folks can stay and play only a stone’s throw from the place they work. These tasks 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 this can be a pattern? Do you suppose that is good? Henry, what do you suppose?

Henry:
Is it a pattern? I assume you may name it a pattern. Is it going to place a dent within the housing issues that the nation is dealing with? No, it’s not, but it surely’s taking place as a result of I’m actually seeing it occur in my yard. Walmart is constructing a brand new dwelling workplace campus facility that’s going to accommodate all of their buildings. It’s going to have housing and accommodations and residences, and so that is taking place in additional firms than simply those which might be talked about there.
These firms are preventing for expertise, they’re preventing for younger expertise as a result of if you concentrate on all of those firms, embrace Walmart in that record, it doesn’t matter what these firms promote. They’re all expertise firms. They’re preventing for younger expertise expertise and younger expertise expertise, for those who go have a look at what Google supplies at the moment by way of workplace services and YouTube, they’ve lovely, all-inclusive services, state-of-the-art expertise. And so I feel a number 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 start out 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, for those who’re listening and I do know you might be, I’d like to associate with you on this challenge. I feel it’s extremely cool. Pay attention, I’ve a 24-year-old. She’s residing in Denver now in a constructing that’s principally younger folks. She loves it. Whenever you get out of school and also you’ve been residing with younger folks for 4 years and it’s so enjoyable and unexpectedly you go and also you’re not, you’re in a suburb someplace. I imply, it’s sensible to construct communities the place folks can stay close to work, have a neighborhood, social life and never should commute thus far. I find it irresistible.
Now, California has been making an attempt to do, that is known as the California Without end Challenge, and it’s in Solana County simply north of San Francisco, they usually’re making an attempt to create this, however California ain’t the place you’re going to get it by means of. There may be 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 laborious. The resistance is unbelievable from the very individuals who truly need cheaper housing. So will it occur in California? I don’t know. However possibly a few of these different areas which might be extra open to improvement, it may occur and I feel it’s fabulous. I find it irresistible.

Dave:
All proper. Nicely, I’m simply going to disagree, Kathy. I’ve two issues to say right here. To begin with, if we’re making an attempt 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 in all probability essentially the most highest paid folks in your complete nation. And the opposite factor is I simply suppose this can be a clear method to try to cease work at home. They’re like, “You may’t work at 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 like my colleagues at BiggerPockets, however I like a 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 faculty and on the restaurant and on the grocery retailer. So it’s not for me, however possibly folks will prefer it.

Henry:
For the file, Amsterdam is greater than a 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, once I was out of school, I lived in, it was a small constructing in Denver, but it surely occurred to be simply all younger folks and it was tremendous enjoyable. I completely agree with that, that concept of constructing neighborhood and having that neighborhood. I simply don’t know if I’d personally transfer to a spot the place that neighborhood was centered round my job.

Kathy:
Yeah, that’s an excellent level.

Dave:
James is again. He’s trying 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 immediately’s present is the housing market, execs and cons of shopping for in 2024. This comes from GOBankingRates, and the important thing factors listed here are that proper now, no less than, 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 in the marketplace, child boomers are beginning to promote their properties. These are the great elements. And the cons are that costs are nonetheless at file excessive and competitors remains to be moderately excessive, and other people usually, as we talked about, have some financial considerations. So James, what do you make of that record of execs and cons? Is there the rest you’ll add to that?

James:
Nicely, I feel the professionals are that proper now, as you’re on the lookout for a house which you can virtually type of financial institution that your mortgage price goes to get decrease within the subsequent 12 to 24 months for those who 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 may make it price range immediately, meaning you simply have upside in a home. And that I feel is the main professional.
The con proper now could be simply the funds are costly once you’re 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 fee is stunning, however I do know when charges come down possibly 2%, my fee’s going to fall practically 15% on what I’m going to be paying proper now. And so so long as you may afford it immediately, then you may truly forecast down the highway for the price range simpler.
The profit is there’s alternatives in sure areas. If you should buy one thing that’s a 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’d by no means be capable to purchase 24 months in the past with out a number of affords. Now, this property did have a number of affords, but it surely had a number of low affords and it bought about 10, 15% off record. Many of the affords have been about 20% off record. So there may be alternatives so long as you may wait it out and you’ll undergo that sluggish transition by means of life of shopping for a property beneath market, renovating, rising it, after which getting that fee down when the charges begin to fall.

Dave:
That’s an excellent 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, for those who purchase now, 45 days in the past, folks have been shopping for they usually have been hoping that charges come down sooner or later within the subsequent 12 months 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 in all probability going to occur. And so you realize that if you will get in now and afford it that you just’re going to have the opportunity construct wealth, you’re going to have the ability to financial institution some appreciation, proper? It’s virtually pressured by the federal government. And so you’ve gotten this very, very distinctive alternative.
What I’d argue on this record 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 primarily based on historical past. But when we have 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’d argue that now you will get in and you should buy the place you will get a house at a lower cost level and with much less competitors and seize some fairness when the charges drop.

Dave:
That’s an amazing level, Henry. And I’d additionally say that file, properties aren’t file excessive in each market. There are undoubtedly markets the place they’re beneath all time highs. And that simply provides to what Henry and James have been simply saying, is that in some markets, you truly can get a reduction. Now we’re all speaking about this stuff, taking part in satan’s advocate, it’s going to be laborious for any of the 4 of us to disagree that it’s in all probability an excellent 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 the very best time to purchase this 12 months? 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 have a look at the numbers, proper? I have a look at the numbers, it both works or it doesn’t work. However right here’s the query I’d ask you for those who’re renting and seeking to purchase and feeling annoyed is how irritating is it to pay lease daily to any individual 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 who is paying in your residing and in 30 years now you haven’t any fee? As a result of all of that cash has gone into your residing. You’ve paid off your mortgage. And the identical for those who 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 dwelling costs shall be in 10 or 20 years?
Now, it’s important to maintain, bear in mind, for those who’re seeking to purchase a house and also you suppose you’re going to be there a 12 months or two, possibly not. However for those who’re going to purchase it and stay there for some time and lift a household, or for those who’re going to possibly stay in it for a short while 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 sort in present dwelling gross sales numbers and look what dwelling gross sales or costs, I’m sorry, costs, not gross sales, present dwelling costs and see how they’ve gone up each decade, often doubling.
And I’m speaking about, I’ve been round a whilst you guys, many years, 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 12 months 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 an excellent motive. I feel the federal government isn’t going to cease printing cash. So you may make the selection, maintain paying lease or pay it to your self and repay your mortgage.

Dave:
All proper. Nicely, thanks all a lot. This can be a very considerate and fascinating dialog. Hopefully everybody discovered one thing precious that they will apply to their investing scenario themselves. And for those who did, please make certain earlier than you go to depart us a 5 star assessment. It’s the start of the 12 months. We would like extra evaluations. I’m going to be sincere about it, and we actually recognize it for those who took a minute and went on both Spotify or Apple to present us an sincere and hopefully good assessment for those who 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 modifying 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 potential.