80% of Home Price Growth Was FAKE Demand

John Wake has this amazing article where he wrote that up to 80% of price appreciation of real estate is due to falling interest rates. John, explain that to us. Why is this happening and where do we go from here? Yeah, just looking at a rough estimate compared to 1990 and today.

So, here's a chart which shows you the monthly principal and interest payment per dollar of mortgage amount borrowed. So if you go down to when prices were skyrocketing, you could borrow basically $2 twice as much money for if you paid a dollar in your mortgage payment, you could borrow twice as much money in 2021 and than you could in 1990. And that explains, I think, most of or all of the increase in home prices, the real inflation adjusted increase in home prices since 1990 is interest rates going down. There's no way around that.

Now the prices we have today are based on those interest rates because it's like hey they'll give me twice as the interest rates went down so I can borrow with the same monthly payment more money so I'm fine at the paying this price for a house because they're people are judging the price their mortgage payment price of the house not the actual price of the house it's the mortgage payment price that's why they skyrocketed so quickly and particularly investors they can uh really take advantage it more than you can. They can you can buy one home, they can buy five. So when interest rates fall, that really changes things. They're more sensitive to interest rates.

Actually, investors are than us people who live in their homes. >> Yeah. So Goldman Sachs did a similar study and they found that up to 50% or even more of price appreciation is due to these falling interest rates. Obviously, we've had falling interest rates, mortgage interest rates for the last 40 years.

John, what happens when this trend reverses like we're seeing right now? What happens to the real estate market? >> Um, wow. Well, we've seen in past years, there's been a lot of corrections.

I got a great history chart here. Okay, here's the history of the United States looking at the K Schiller. You can see there was a a boom. This is the savings and loan boom and then the bust and it slowly came back and then slowly built up and then there was the 2000s.

Oh my gosh, that's sink. And then, well, you can see the last one. So, we're just in the edge here. So the thing that's the D there's a ton more downside potential than upside potential right now for prices.

If we go into a recession, wow, that could really be the the trigger. But uh I think one thing that could happen is that the government is different now than 20 years ago that they were so involved in the and the pandemic and all that that they they did so many things that I think they'd be a lot more active than they were back then, which is bad in some degree because if we don't get a price correction, we could end up like Canada where they didn't have a price correction in 2000s and now prices are crazy high there and they're going through a huge crash in Canada right now. So, what do you think's going to happen from here? Right?

Because we have real estate that's priced at like three and a half% mortgage rates. Now, we're all the way up 6.5%. But does that gap change overnight? Because I feel like a lot of people are saying, "Well, oh, now it's more difficult.

Now is the time to buy." Is now the time to buy or does real estate take time to correct? What is the time frame for this correction to happen? >> Oh, that's big thing. I've been thinking I've been worried about it.

When you saw the prices were tanking here, I thought, "Oh, it's going to keep going." But then they bounced and came back down and came back down again. I I don't know what's going to happen to a crush. I've been saying if we ever go into a recession, wow, that is really bad news, but the number of sales is incredibly low, but prices aren't falling. Partly because if I'm moving up, I have a home and I'm buying another home.

I don't care what I make on one house, what I lose on one house, I make on the other, whatever. So price, I'm selling house for a crazy amount even though I'm paying a crazy amount for my next house. So that's a lot of it. It's the first time home buyers are really getting hurt at this point.

So that's how does it play out? I don't know. I think the best case scenario would be prices would be flat for a long time and then slowly over a period of years as incomes increase they become. But what do you do for first-time home buyers between now and then?

And what do you do about the first- time home buyers that bought in the last few years and now the prices are down in their town? Oh my gosh. >> Yeah, we feel that specifically for the first-time home buyers that bought from 2022 to 2024. They're now underwater.

Or they bought new construction communities and they maybe experienced their first job loss or they have to relocate because they're having a kid and going closer to family. What do you say to these people who are already underwater looking at this chart seeing the fact that prices could be flat and negative for a substantial period of time until wages keep up? >> What do I say? I say it's not your fault.

You had nothing to do with it. You just bought at the wrong time. You got your first good job at the wrong year. And that's the same thing that happened with the Gen X in 2004, five, six, seven.

Oh my gosh, they did nothing wrong, >> right? >> And they were set back. Some of them financially, I don't know, decades. Some of them would be looking at houses to sell in say the year 2020.

You could still see homes that were selling for the same price that they had paid 15 years earlier. Oh my gosh, that and they've been making mortgage payments all those years. So that that was really tough. A lot of people walked away, of course, back then.

And that that one of the risks we don't have now this is different than then is there was a lot of people that had those mortgages where you had no money down mortgages in 2005 and so a lot of those people this was surprising there was a famous economist looked at it and said they were surprised how many people made two or three months payments and then stopped making payments. Well that's because they had no money down. The only money they had going into the house was the monthly payment and they realized prices were going down and they walked away. So we don't have that now.

So that put a lot of pressure at the top of the market when those first investor types pulled out and it put some pressure and then we had some one of the big problems we had back then too is the foreclosure system is set up that the the servicesers they don't make any money when you're not making payments and the way they make money is after the foreclosure is complete then they get caught up on all the servicing fees. So basically it incentivizes this is wasn't the intention but it incentivizes foreclosing fast. So in places like Arizona where you can foreclose fast, they forclosed very fast. For Florida is a really slow place to foreclose.

But nevertheless, that put a lot of downward pressure is just the mechanics were that way. In the savings and loan crisis in the late 90s, uh late ' 80s, early 90s, that was savings and loans. And savings and loans, sometimes we would say, "Hey, we've got so many foreclosures, let's just rent this house out after they forclosed." They would just rent it out for a year or two until prices. So they didn't get as much and they and since they were the ones taking the loss, not the government, the Fanny or Freddy or whatever, they wanted to sell it for the maximum amount.

So anyway, that was one of the reasons. Now we don't have those kind of terrible loans, so we're not seeing such quick foreclosures. But if we did, let's say if prices, something I saw from that time in the 2020s is when after prices fell about 20%, it kind of changed everything. Is people started walking away.

Remember those people that they could afford the payment but they didn't want to own it. They would just walk away because strategic defaults because after and that started about after values fell about 20%. >> Wow. Or you were 20 or you were 20% underwater.

>> Then people were just walking away and they could afford the payment. But why? >> You know, we're seeing that, John, in the FHA and the VA markets here in Florida and specifically in the areas where there's just massive amount of multif family and single family construction. We we aren't seeing people walk away yet, but we're seeing that they have the negative equity.

So, it's kind of like we're in the phase one of what you're describing of what the previous cycle happened. It's just instead of it being the zero down speculators, it's the FHA and VA buyers, which they don't have any skin in the game and they have life happening. So, if you're hearing all this, obviously it's market dependent. Real estate's very micro, but if you're a firsttime home buyer in the sunb belt and you're looking at this chart, you're seeing what's going on with oil in Iran and in rates and you have that narrative of real estate always goes up, right?

Historical 4% every single year. Would you challenge that belief with this data that you have on this chart? What would you tell to the first-time home buyer? Is it better for them to wait now?

Is it better for them to buy right now? >> Yeah, what I'm thinking right now is it's better to wait just rent for a couple years and see what happens and see. I would uh definitely there's a lot more downside potential on prices and upside for sure. >> Absolutely.

Okay. Sometimes you get to the point in your life where it's like, okay, we just had our second kid and then and if maybe money isn't as tight, maybe you could just for the stability of your family might want to do it. But I would if all other things we need to go out and just rent. >> Absolutely.

All right. That's great to know. And so are we actually dealing with a housing shortage? Because this narrative has been completely has been going on and it's still going on, right?

There's still narratives that are being put out there by Housing Wire where there's this massive shortage. Can you talk to us about your thoughts on the shortage? >> Oh yeah. Would you like to see a chart?

>> Yes. Charts. Yes. Bring us the charts.

That's what the audience loves. >> Okay. Let me see. Um, >> and by the way, guys, this is where you can follow John Wake right here.

John Wakeake on X. Highly recommend. I follow his stuff every single day. He's got great charts that he's putting out there.

>> Okay. So, this shows you the homes per person. We have so we have more homes per person than ever. Like for example, there's just so there we don't have a shortage.

Just looking at basically what the people who say shortages, they do crazy math where they say, "Oh, we have to look at the vacancy rate and this and that and it shows there's a shortage of this million." Like don't have to do all that shenanigans. You can just look at the amount of homes we have compared to the amount of population and we have more than ever. And another way to look at it and one of the problems we have with real estate and why prices are so so crazy is the fact that here's like looking the total supply of homes. This is not the most it increased was like in 2005 it went up 1.6% in one year.

So homes don't increase. I mean the the supply of homes go grows more slowly than the supply of gold internationally. And with gold, at least if there's a shortage over here, you can ship the gold there. With homes, you can't ship the house over there.

So, it's even more inelastic supply than gold. And the blue line is just showing you the change in the mortgage. So, the amount of money chasing homes, >> right? >> And so, the amount of money chasing homes can go up 14% a year for a few years.

No wonder prices skyrocketed then. You can see here blue more recently the amount of money can increase phenomenally faster than the actual total supply of homes that exist. >> So there's just more money chasing a very similar number of homes on the market every single year. >> Yeah.

So stuff that really jacks the demand tends to end up with super high prices because supply can't it just can't increase that fast. Like it like I said here we go. This is the most it increase is 1.6% 6% in a year and that was at the top of the market in 2005. >> So this is a great chart.

This is a really really helpful way to look at it. Now what happened in 2020 here in Florida because in 2019 by the way we were about to feel like we're going into a recession in Florida and we did not have a shortage. We had 9 to 12 month supply in a lot of price points. Things were taking 120 days to sell already.

And this is why I said there's no shortage because we didn't have a shortage before 2020. What we had was a demand shock caused by short-term interest rates and you know the the what happened in 2020 time period with people getting sick and wanting to be in the sunshine and all this other stuff. Maybe some politics played and we just had tons of people relocate all within the same two to three years and they gobbled up with the investors all the inventory. It wasn't ever because we had a shortage of supply because we didn't have a shortage of supply before.

>> No, it's I'm I'm a demand bro. This demand is what's causing it. All the supply bros is like everything you whatever you say oh supply because they don't want to you to cut demand. Let me show you what you just said but give that example for Phoenix.

>> Yes, please do. >> It is okay. This is looking and when you register when you buy a house you have to sign a thing called intended use. Are you going to use it as a rental, use it as a second home or use it as your primary residence.

So this is an official number with the counties and this shows you and the prices skyrocket in 2021. But look what happened in 2021. The number of homes that primary home buyers, the people who live in their homes, actually bought fewer homes. They bought 2,900 fewer homes than in 2019.

But the number of investor purchases more than doubled from 2019. So that was what caused it wasn't a supply shortage. It was a demand surplus. And it was mainly was well was all here was all investors.

Was is actually the number of uh live-in home owners went down. So that was what caused it. They're just the investors is why I say they're more sensitive to the lower interest rates than uh people who live in the home because like they can buy more than one home. They can buy a few homes and if if you're a first-time home buyer, you're just going to buy, oh, I'll buy now.

Interest rates are down instead of next year. >> Absolutely. So you saw this is exactly what we saw in Florida. More than 30% of the home purchases were from cash investors.

These institutional investors, American Homes for Rent Progress Homes, you know, these these big players, First Key. Did you see them gobbling up in the Phoenix area, a ton of real estate as well? >> Oh, yeah. There was a ton.

Yeah, they were a big thing. There was also a lot of um well, I buyers. We have a lot of eye buyers. They resell right away, but nevertheless, that was a part of it as well.

>> Now, are these companies there still today buying and doing their flips? >> There's a lot less, but nevertheless, the percentage is still high. Is oh I have a graph of that someplace but there's a this percentage like in say the year 2000 investors would buy like four or five percent of homes >> and then by we got to 2019 it was like 16 or percent or something it was like quadruple >> and uh then it went up to like 25 during the boom in the and now it's back down to like >> I don't know 15 16 something like that. So, nevertheless, it's far more than it was in the 1990s, for example.

>> Is that just because the interest rates have been falling and it's just made more sense for them to buy it up? Is it because of economies of scale? What explains that jump? >> Oh, that's a great question, John.

Why is it? I'm part of it, I think, is is just in the 1990s, home buying a home, a single family home as a rental was like a mom and pop thing to do, right? Real big businessmen don't do that. And so then it became after say 2010 then they started getting these big institutional investors coming in and also as time went on laws changed that made it more attractive.

Uh we had the bonus depreciation and >> that was a holy m you don't have to you're making money and putting it in your pocket but you don't have to pay any taxes for several years after you buy a rental. So it's like that. Another thing that happened in Arizona we LLC's were invented in like 1992. So, this made it a lot more attractive.

It's like, oh, I have no I have all this money. If I buy this home with an LLC, I'm protected from any downside risk if whatever somebody slips and falls. So, there's a lot of things that made it more attractive. Plus, I think the internet had an impact, too, because it just the word got out.

Like in the 1990s, they would people have these these sessions, come to this hotel on Saturday and we'll have a session on how you can invest in real estate. Yeah. >> And that was like in the 1980s, you had to go there and pay something. They would do it.

But as the internet came along, there's a bazillion YouTube channels talking about how to invest in real estate. It just the word got out. And also the main thing they talk about in those YouTube channels is just uh tax breaks. That's their main selling point.

>> Yes. >> Is the tax breaks compared to >> they love to pitch to doctors. It's like the bigger pockets trying to to pitch to doctors. Hey, your W2.

The government's taking too much your money. Buy this overpriced real estate in Phoenix, Arizona, and have a rental and have your wife get a real estate license and manage it or uh you whatever vice versa, right, with the the husband doing it, but someone to get their license to offset the but the reality is that just defers the taxes and if they ever sell, they're going to recapture unless they hold till they die or they have to 1031 exchange it, which is hard to harder to do with a with a single family house. So, it's an interesting >> concept, right? >> I got a a story about 1031 exchanges.

They got in the 2017 tax bill, they got rid of 10 1031 exchanges for everything except real estate. And they said there was people in the industry were saying that was because of NAR the no national association of realtors lobbying is what kept the 1031 exchange for residential real estate or real estate in general. So anyway, that's another break that makes it a better investment for some people. For some people.

Yeah. It makes it more attractive because they don't cash flow like we're seeing right now. I don't know about you where you're at, but unless you're buying for, you know, 40 cents on the dollar of what you know the market price is, we don't see the properties cash flowing at today's mortgage interest rates. >> Oh, wow.

I got I I bet they aren't. Wow. >> It's it's tough. And a lot of people what they do is they they're trying to sell their house, they can't sell it, they turn it into a rental, right?

Because they become an accidental landlord. Now we have tons of inventory flooding from the single family standpoint. They're still building. The builders are still building and we have multif family on every single corner.

Luxury multif family being built. And the demand has dropped 73% from the peak for domestic migration. Birth rates are down in Florida. International immigration is down in Florida.

And we just have like this perfect demand. The basically we had 10 years of demand pull forward in three years. And now we have seven years of the lowest. Like that's how I view it is we're just going to have seven years of extremely low demand because the people who are naturally going to move here already did.

>> Yeah. But I didn't expect what would happen. There could be some emergency like the pandemic, you know, which caused interest rates to come down. But then again, prices are already based on 3% interest rates.

So >> that's right. >> That could keep the sales up or I think lowering interest rates now more prevents prices from falling or lowers the pressure on downward pressure on prices. So, is there any scenario, John, where you see prices that could actually go up from here over the next 5 years? >> Oh, wow.

Yeah. My best guess is it would have to be something where the government gets totally involved like during the pandemic and have all sorts of programs to get money to what's the because they were phenomenally more involved. I can't believe how involved they were. Remember the they're sending you checks to everybody like those three checks and then they had the PPP program.

There's so much fraud involved they just throw it out just take the money. So there could be something along that line, but my guess is or the kind of the best case scenario is prices fall like 10% and then over the years and the incoming per capita income increases to the point where it's affordable again. But they that's years from now, >> right? And are you bullish on the income side because what we see with AI, with technology, with globalization, you know, do you think that incomes will truly rise to match real estate down the line?

I think let me see if I got Yeah, here it is. This shows you um blue line is personal income per capita. >> Yeah. And the price of homes.

There's when you look at different countries all over there's a huge relationship between income and what people will pay for a home. But rent is really pretty stable. But when you get into homes because homes have a invest they're not just a consumption good. It's an investment good.

So you get into these crazy bubbles, but they tend to come back down towards the a relationship to income. So I totally expect that that will come back down to um similar to income. Now what happened you see when we had a recession here it was like capital income was flat two years later and recession here it was flat for a year. So if we don't get a recession, keeps growing and the prices level off in 3 years, 2 and a half, we could be back to reasonable prices.

That's the best case scenario. Prices are flat for three for two, three years, but we go into a recession, forget it. Then that will delay things a year or two. >> Do you think that we're already in a housing recession or is that narrative still early?

>> Well, you look at home sales, holy mackerel, definitely. And but prices haven't been prices have been slowly falling real after inflation slowly falling but uh this is a huge recession as far as home sales go. I'm just it's shocking that prices have held up so well but I think it's partly because it's people who have already own a home are buying. They're the ones who are buying.

They're selling a home at a crazy price and buying a home at a crazy price. >> Yeah. You know it takes time for the distress to show up. So, how long do you think until Distress really shows up in the marketplace?

Because, you know, I was talking with another friend of ours, Melody, Wright, and been fantastic. Another great person to to meet on X and connect with and follow and been seeing distress for quite some time. I started talking about it in mid 2025 saying, "Hey, this is what we're seeing. We're starting to see the short sales." But it just takes such a long time for real estate to to play out just because people they try to find solutions.

They get loans elsewhere. They don't want to lose their house. But over time, all of this comes through and does eventually come to the market over years, you know, do you have like a time frame? You know, I keep asking you time because I think it's important for the audience to understand because there's buyers right now who are watching this who are like, I got to buy right now because, you know, the supply is going up and it's blood in the streets.

Like, are we at a blood in the streets moment right now or is this like not even the beginning of this? Well, Millie has been talking about that there was so few foreclosures because FHA and they had all these programs, these special workout programs, and now they stopped those last fall, but it takes a while. So, we're going to start seeing a lot more foreclosures >> this quarter >> and then >> and that's going to start putting downward pressure on prices with those foreclosures. That could change a lot of things.

And that's something that was very different than 20 years ago during that there was no they were so slow to react they they forclosed quick and there was no government programs delaying it and not until later on. They did have a first-time home buyer program but that didn't come until like or something like that. >> Makes sense. So if you're a first-time home buyer now is the time to stay on the sidelines, wait, rent, watch, right?

Create some lease optionality. Do you have any other advice for, you know, young people who don't or who are who are terrified of of buying in at the peak of the market and see maybe what happened to their parents, you know, during ' 08 because they could lose a whole decade or two. And, you know, I know a lot of people and uh saying, well, you know, you can hold on to the real estate forever for 30 years. Well, the majority of people don't hold on to their real estate for 30 years.

And in the first 10 years, the majority of the payments that they make go to interest, not to principal. So in 10 years when they go to sell, you know, obviously the buy sell costs are up to 10%. Right? To get in and out of real estate, it's very expensive to transact.

So people are underwater. Usually if they put down that less than 10%, they're usually underwater, you know, immediately. Uh and so they're terrified to get in and buy their house and be stuck. You know what, you know, do you have any other input for for those folks who might be watching?

>> Yeah, I'm really cautious right now. That tends to be my temperament. I'm always looking for what can go wrong and I think there's a lot more that can go wrong particularly if these foreclosures start hitting we go into a recession hopefully it's a mild recession but it could be 3 years to 5 years before it's really things get good again but if we start falling fast um I kind of don't think prices will fall fast and the government's so involved in the economy now they won't let it fall fast >> but that's really tough you want a crazy idea what I think a solution is >> yes, give us the solution. >> Yeah, back to 20-year mortgages.

Cuz the way the baby boomers, we made money is the prices, interest rates went down and the value of the homes went up. We made a ton. Who expected that? That's great luck.

That's not going to happen to first-time home buyers today. But if they have a government program which says, "Okay, I've given you this first-time home buyer down payment thing. We'll pay to make your mortgage 20-year mortgage." Because 20-year mortgages have like the foreclosure rate of a 30-year because you're building equity so fast. You're building equity about twice as fast.

So if you lose your job after five years, you you can sell it and make money instead of maybe losing money if prices have gone down. So that would just and in fact my health my big hobby horse about 20-year mortgages is when uh the biggest increase in US home ownership happened not after World War II but during World War II when interest rates I mean uh the MO was 20 years long. So that's and there's like lots of countries that have there's actually there's a one study by the OECD or something that showed more countries have 20-year mortgage as standard than have 30-year mortgages standard. So basically we've been promoting debt instead of home ownership.

>> Yes. >> Because our home ownership is not is not our free and clear home ownership rate is not high compared to a lot of other countries because we're promoting debt ownership instead of home ownership. >> Oh, what a Yeah, what a insight. Um, and what we're seeing is, you know, the administration wants to go the other way, right?

They're pushing debt ownership, 50-year mortgages. Do do you like any of the administration's ideas that they've kind of thrown at the wall where the 50-year mortgage, the assumable mortgage, the portable mortgage, all this stuff to kind of extend the the market run that we've had here? Do what do you think of these ideas? >> Uh, they're all nothing that has an effect that would have a good effect.

I have a whole list on my website. 49 things you could do to increase the home ownership period. So, you can check that out. But the uh do you think if we did have something like I just a 20-year mortgage there's >> 20 year Yeah.

>> that's taking the government's like giving you that would need to be portable so you could take it to your second home. What the remaining of it to your second home. So, I do agree that portable mortgages are a big thing. But the mortgage probably would hate that because then you wouldn't be.

But the way it works in Canada is there's like so many, you know, five big banks in Canada and when you buy a new home, you end up usually going back to the company you have the first mortgage with and instead of getting a second mortgage on top of that, they'll just give you a new mortgage that doesn't combine and that makes it simpler so you just have one. >> Those are those are some really good ideas. I don't know if the investors would like it though. What they want is paid back, you know, and then have you pay it off in 10 years because that's how they make the most money and then originate a new one.

Um, >> yeah, I'm if it depends on what your what your goal is. If your goal is stable families, oh my gosh, how many divorces and stuff are >> came out of the the last bus and how many come out of this? That's what Well, I could >> I could show you. >> Yeah, show us what's the 49 ways to increase.

Let's let's see the ideas of, you know, because there's we need more people thinking about solutions rather than ways to load up the next generation with even more debt, right? Because they're loaded up with credit card loans. They're ready loaded up with car loans, student loans. I mean, the next generation of home buyers are just drowning.

That's why we're seeing the median age of the first-time home buyer increase from, you know, 28 years up to 40 years. And it's a real problem. So, you know, not everyone's going to agree with anything on this, but like we we need ideas and we need to find paths that aren't going to lead to just loading up the next generation with more debt. >> Yeah, there's a ton of ideas and it's funny that some of them are like so simple.

The one that's like this is so common sense and obvious like you remove the tax breaks that investors get on single family homes. >> Yeah. Why ban from buying? Why not just make the math be equal to what a buyer would get, you know?

So, so the if you're an investor, you get the same tax breaks as the guy next door on the home you live in with no tax on the homes, the investment homes, and it would just have us that would just change things and it would be really simple. One of the problems with if you get into you could have a new mortgage system and things like that like I mentioned to, but that's really and then you kind of depend on the bureaucrats making the right decision like even the Fed sometimes makes the wrong decision. It's like but get rid of the government incentives for investors in single family homes and condos that would stabilize the market. Now the prices may not go down a ton but it would reduce the booms would be a lot smaller and the bus be a lot smaller.

Maybe no boom bust because the way that I'm seeing it is the speculators in the sunb belt are the ones that are driving these prices really really high and pricing out you know a lot of people. I mean, it's not just the institutional investors. It's the mom and pops. >> Totally.

Oh, it's mainly the It's mainly the small. >> It's mostly the mom and pops, right? Like, they're 90% of this investor market and they just push as hard as they can. And in Florida, you know, a lot of people for the retirement plan is they buy 10 rentals.

Drives up the prices. Yeah. It's it's very widespread here in Florida. You know, people buy these little portfolios and they they manage them and that is their retirement plan.

>> It was a great plan in the past, but uh it was Well, there's so much luck involved in that because interest rates falling. Who knew that? Who knew the timing? Yeah.

>> Like, yeah. Sad that so many people I think are going to Well, they're negative. You bought at the You could have bought four years ago. You owned a home four years and it's worth you paid after four years.

You've lost your down payment and oh my >> Yeah, it's it's really sad. So, this is so stop investor tax breaks. That'd be very easy to just, you know, wipe that. Congress could could do that and that instead of the investors which is anti- capitalist this changes the tax which which makes no sense from a Republican that I don't understand what's going on with the Republican party right now but obviously their policies are not representative of of their core tenants and beliefs but I mean they could change the tax code and it would change dynamic of investing in single family you know properties that the next generation badly needs.

>> Yeah. I think what if you can figure out why the way politics work I have the economics I got it pretty well figured out. I don't understand the politics all but my kind of is that politicians get elected by giving away tax breaks. >> Yeah.

>> They're into giving out tax breaks. Giving away money so to speak, not reducing tax breaks. That's just not in their It doesn't >> They'll never get elected if they propose this because every real estate investor on the planet will never vote for them. The only person who'll vote for them is maybe the next generation who's fed up with the current system, but they have to get involved with in politics and they don't.

>> Yeah. Sometimes they get somebody who's not into real estate saying, "Hey, that's obvious. Just remove the tax." But it has to >> too many people benefit and it's the voting class that benefits >> like the and I'm thinking the families particularly >> and oh remember after the boom I bust last time we ended up with Occupy Wall Street and the Tea Party these huge mega political movements and if if we didn't have I don't think we would have had those if prices we didn't have that real estate boom and bust. In fact, we didn't in the previous the recession before that it was much smaller.

We did prices didn't go up and down. We didn't have these huge political movements. >> Yeah. And it's traumatic >> because people are just Yeah.

People just mad at the world and they want change. >> But then they go to They should really be going to Congress and voting like that. That's the issue because I I used to work at um the vampire, you know, squid and some Wall Street firms and there were like giant rats outside building and they would chase you into the building and it, you know, they'd be chanting all day long and I was just like, "Oh yeah, yeah, oh yeah." We was just like on 60. We're just like, why are they here?

They're not at the right place. Like, we didn't make the rules. We were incentivized to do this stuff by the government. The government set up this incentive in system system.

And like Charlie Mer says, like, show me the incentive. I'll show you the behavior. Like, what do you think's going to happen? We're going to find the fastest way to make money.

That's our job. And it and it creates distortions. And we get what we have right now is basically a a bubble. It's not it's the government's fault because they should just if the market was just left alone and was free, we would not have these incentives and then we wouldn't have these outcomes.

And so I think it's really um unfortunate about this this mortgages. So this is what you talked about before you have a 20-year mortal. >> Well, I'm glad you mentioned that about investors and those are not the problem. The problem are the tax breaks the government gives incentivize.

They're paying them to buy these homes. Yes. It's not the investor's problem. And if you do if you were to get rid of these tax breaks, you'd want to phase it in over a long time.

Like said, okay, if you have a house now, keep it the same way, but all homes bought after this date getting and slowly over years you stabilize the market. >> Yeah. You don't want to have like a rip cord that just like because you know expected those. So now you can't just rip them all apart right away.

Like they you don't also want to hurt some of those people that do have. >> Yeah, totally. You don't want to hurt them, right? >> Also, if it makes it palatable, give them bigger tax breaks for those who currently own as long as you get rid of the ones in the future.

So as time goes on, we stabilize. >> I actually think that's a great idea. Yeah. >> Um anyway, there's lots of different kinds of there.

Like I said, 20-year mortgages, um portable the that's really complex and hard to do. One of my favorite I'll just throw out another crazy idea. I've read this a couple different places is a uh what I call a lower only adjustable rate mortgage that was uh been proposed I read it in two different places over like 20 years. And this idea uh it would be very expensive very expensive be more expensive than a 30-year fixed rate mortgage but when interest rates go down your mortgage goes down.

When interest rates go up they your interest rate does not go up. It's just lower only. So, that would be a way if the government subsidized that somehow or encouraged that or the Fed just only bought those kind of mortgages and 20-year mortgages that are lower only, that would really stabilize home ownership because then when there's a recession, one of the problems we saw, gosh, we saw this 20 years ago when interest rates came down, people would refinance back into a 30-year mortgage. So, they added years on to their mortgage every time they refinanced.

And shoot. >> Yeah. It's a huge problem. You got to restart the clock basically.

>> Yeah. And if you did get to 20, save like $100,000 or more in interest rate over the life of the mortgage if you with a 20 year versus a 30. So anyway, that's um then there's anyway. Oh, interesting idea.

The Fed has a mandate. One of the problems is the Fed manipulates the mortgage market for their own views because their mandate is is uh stable prices but not home prices. Home prices are not part of their mandate. They actually got rid of that.

It used to be home prices were part of the inflation measure and it was making inflation so high in the early 19 82 or something like that. They got rid of home prices as part of inflation which is a good way to reduce inflation removed that and made them seem like they were doing but anyway so they if somehow home prices part of the Fed's mandate that would change a lot if you just have that one line it's not just u maximum employment is stable prices including stable home prices that would make things a lot more difficult then but but right now you can see what like during the pandemic they destabilized home prices other goals >> and you would think would want to have stable prices both the upside and the downside because it's so traumatic to the marketplace in that you know when people buy a house they use all these services they buy all this stuff like they should want it to just be a continual thing not a boom bust period like we have now because of the Fed stepping in and out you know at random points it's really hard I mean I can tell you uh in February 2022 nobody really thought the Fed was going step in the next month and start jacking rates that you know people thought this stuff was going to continue forever. And obviously looking backwards it was obvious but like we're at right now you know at the time it was in uh you know March 2020 when this all went down you know the pandemic nobody thought the Fed was going to drop rates to zero and we'd have this massive you know housing people were freaking out. People thought housing and then we saw it sweat.

So, you know, all these they think the smartest person in the room, they can't even speculate what's going to happen the next month because we don't know what the Fed's going to decide and the Fed how how in control of the housing market is the Fed at this point because we're, you know, we watch the interest rates every single day. There's not I know you said the investors are extremely sensitive, but are so sensitive. We saw rates dip below. We had a massive spike of demand that came in and now we're seeing pipelines completely dry up as we go, you know, around 6.5%.

If we stay there, I think it could be really painful because these marginal buyers just the demand just collapses. >> Yeah, we saw Phoenix uh doing the the number of homes for sale really went up between 20 24 and 2025, but they weren't going up much now, >> right? >> Until interest rates increased. Then it's starting now it's starting to see some change that just in the last couple of weeks because interest rates went up it's slowing things down.

So uh it looks like in inventory might it looks like it was going to be lower than last year. Now it looks like it might be like last year. So that's the way I like to explain it is the Fed is willing to sacrifice Oak Street. Oak Street just means residential areas is willing to sacrifice Oak Street for Wall Street and Main Street.

They don't care about Oak Street. They're just willing to whatever. That's their priorities. >> Yeah.

They're not looking out for the little guy. They're trying to make sure the big the big players don't get hurt. If you're a seller today and you're in one of these sunb belt markets and you're starting to see prices soften, you're seeing all these for sale signs. You're thinking about selling in the next year or two.

Is it better for these folks to just cut and run? Or do you think it makes sense? Hey, let me wait another year or two to see if things get better and sell then we call this rage quitting where we we list the the property, this the seller doesn't get the price that they want in the six months. So, they get upset, they fire their agent, they they blame their agent because it's never the market.

And then they were like, well, I'm going to wait for springtime. I'm going to wait for next year and things will get better. Will things get is this the right approach or are they completely backwards on this? I would definitely encourage people to sell sooner rather than later for sure particularly they haven't even they're not living there it's an investment but uh I would even if they are living there sooner rather than later it sounds my evaluation at this point I remember vividly in like 2008 or something like that I had a client and she wanted it at 520 and I said I think it would sell at like 490 4.95 look at me I kept I asked her a couple of times and she wouldn't bring it down there was a mental block I think at 500.

So, let's slow it forward. Anyway, she wouldn't do that because she had anchored on another home that had sold in the neighborhood. Well, that house and my house is better than that house. I'm not going to sell it for less than that.

So, what? So, I didn't sell it. She gets another real estate sell. Gets another real estate agent.

It sold for 420. So, I kept thinking, should I have pushed her harder to bring the price down because it I'm pretty sure it could have sold for 490 at least$4.95. Ah, but uh that's that's the problem is I think sometimes when it gets to on pricing people confuse the value of the house with their own self-worth. It's like if I sell it below that other house somehow they're bad or something.

It's some weird psychological thing going on there that that I but anyway I would say sell it as much then again there's so much emotion involved in that >> right >> give them their your advice and hope for the >> absolutely okay so go ahead and sell it so first-time homes wait sellers sell now because it's not looking good in the next couple of years what do you say to investors is that the same thing hey you know might make sense to take some chips >> oh yeah totally who knows what could happen you we get another pandemic or something could change or whatever. But right now, that's my best case scenario is to uh cash. >> Yeah. One of the things, you know, because they're saying, well, the Trump economy will save us.

AI will save us. And I I have not seen anything that the Trump administration has done to help housing at this point other than the $200 billion of purchases. I think AI, you know, those gains are going to go to the companies, not the employees. The employees will get fired and replaced with them, and then there's going to have to be a transition period.

So, a lot of these bullish arguments. And then another factor is seeing rents drop and we have the silver tsunami as the backdrop. Do you have any ideas? You know, in in Florida specifically, we're seeing rents already be down 10 to 20% based on the area and the math has completely changed.

And so, you know, if you're a buyer, you're comparing whether you can buy it and here's the payment or you can rent a similar house and here's the payment and the rents keep going down when the prices. So, now we're like chasing this down. Um so does you know in that case as an investor would you say go ahead and sell sell now? >> Oh yeah that >> okay >> I I'm just feeling really negative about the market future there there's so much more downside potential than upside that to to pull out and rents are going down a little bit here too.

So that kind of changes things because there was a huge like you mentioned there's a huge number of apartments that were built tended to be higherend but there's a huge amount of supply. There was like Phoenix was third or fourth in the country for the number of new last year that were completed. So that's um that's going to be a while. That's going to which is great if you're a renter but it slows down your uh your need to uh to get out.

One of the things that happened when prices are going up fast, it's like that's the remember FOMO. It was like I got to buy. Well, one hand it was like fear of missing out if you're in I want to get in now while prices are going up. But also if you oh I need to buy a a house because I just had a second kid.

It was just fear. If I don't buy now I won't be able to buy if prices go up any higher. So those were the kind of the two different statuses. >> Okay.

Got it. So buyers wait, go ahead and rent, renegotiate your rent. Sellers, investors right away. You know, rents are dropping.

Any other advice or charts that you want to be able to share with people that they may not have thought of at this point that might change the way that they view the real estate market today? >> Okay, let's see what I got here. >> And by the way, this is great great information, guys. Go follow and his data.

>> Okay, this is the craziest thing ever. >> Okay, >> this is looking at Metro Phoenix. And you can see here the prices went up $125,000 the median home price of new homes. This is just looking at new homes.

>> Yeah. >> And this is what happened to new home production. Nothing. >> They just keep building.

>> They just kept this. Even though prices went up 120,000, they didn't build more homes. I don't know what the heck is going on. So that's the whole supply whole supply thing is saying, "Oh, if prices go up, they'll build more." Well, that didn't happen.

At least here in Phoenix. Do you have a lot of domestic migration there >> generally? Yeah. We a lot of Californians um particularly California but also >> is it holding up because our market has gone the other way where the majority of our demand in Florida is the international and the domestic migration.

It's not from the local. So we have a very small middle class. You're usually either workingass or you're you know extremely wealthy from another state for retirement. So we don't have a healthy middle class.

We completely rely upon relocation and they're down dramatically and so we're seeing you know the builders are keep building even at these crazy prices starting to slow now but you know these these con these they take 2 3 4 years to finish out and once they break ground they have the financing they have the contracts in place they have to finish and so that's what's happening we're seeing even though demand is like low we're seeing supply just stack and it's like mindboggling and we're just like oh my gosh all these people who put this money into this uh they're either going to be losing money, but you know, if you're looking at it from a buyer renter, this is awesome. Now I have like tons of options. I have all the negotiating power. Are you this similar in your market or maybe not playing out as as diverse?

>> I don't I don't think it's as bad. I don't know. I've seen I've seen it. I've seen graphs on that, but I think Florida was particularly hard hit those like and um so we're still getting in migration, but it's not as big.

So there was some of the migration was actually international. That's way down, but But that would have been more working class, I think. >> Makes Okay. Anything else, John, that you want charts that you want to share with the with the group here while we have you?

>> Oh, let's see. What can I um Oh, here's one. If if you're just want to check out the real estate market in general, I have a web page where I took a bunch of Fred charts. This is a real estate.com.

And you just go down. It just has, if you're in numbers, gets a nice way to just get a view of what's going on in the real estate market in the US with without having to without a filter, just the data, just looking at the charts. >> Oh, this is great. So, guys, go to real estate uh decoded right here.

So, you can see the median sale prices. Scroll down a little bit. We had this massive run up. Now, it's starting to correct.

>> Residential prices are starting to correct across the board. And you know house to this this chart is fantastic because this kind of shows you where we are in this cycle you know uh price to rent ratio it's just >> yeah yeah anyway there's lots of lot of the numbers people great I anyway that's I'm really I wish we could do something about it I wish somehow I don't know what the secret is that to me there's like so many economic solutions to this there's a zillion I what I have 49 or something things that could be done But that's a political problem. It's not an economic problem. Somehow pol politicians or the people just need to say, "Okay, everybody, well, the e we want to have 20-year mortgages.

Let's figure out how to do it. We can phase in over 10 years or whatever." Just or whatever. Or let's get rid of the the tax breaks for investors of single family homes. And we can have we can make them bigger for the people who currently have homes.

We get phase them out over time. And then think of how much stability that would bring. We saw that one graph showing how these remember the the graph for 1990s the the boom in the 1990s versus yeah this look at this is the one they're just getting bigger how sharp that increase is >> right >> another thing this is really okay last thing uh minor point thought during this boom oh if we had more data people would see this these prices are crazy we wouldn't have a boom so that what happens we have like 100 times more data whatever times at least and the boom was even bigger. >> Yeah.

>> Because it turned out that people have the data the irrational exuberance of like price they could see prices are going up. So and the investor it's going up where back then it was kind of hard to see when prices were going up. You didn't the data wasn't as available as it is now. So it made the the market in a way more irrational.

It made it more speculative like the more information out there people keep saying well maybe I should buy a few houses and sit on it buy the Airbnb. I also think there's a lot of po there's a lot of people who make money off of pitching that narrative and they sell education they bigger pockets housing wire these people say prices go up forever but obviously from this chart prices don't go up forever it's a there are boom bust cycles where they go up for you know extreme periods of times there's times where they go down in period of time but you know people keep pushing this narrative that you know just buy by by buy no matter where you are in the market cycle and I'm not sure that's great advice do you >> oh yeah the narrative of you talk about this has been going on. You can see when they make big changes like in the 50s there'd be a recession. Seems like whenever there's a a recession, there's a lot more likely that they change it from 20-year mortgage rate years to 30 years.

That was in 1954 during a recession. Things like that that and they or it's to promote home ownership and the American dream. And they're they're doing it their businesses. They want to make more.

Could see this change and make them more money, but they always sell it as home ownership, American dream, good for lower income people. The sales pitch is um be skeptical. >> Is the American dream just owning a mortgage at this point? >> Yes, that's what >> that's what they're selling.

They're not they're not selling home ownership, selling mortgage ownership. Yes. >> As the American dream. And this is totally backwards from a political standpoint.

>> Yeah. The goal shouldn't be mortgage owners. Should be free, clear home ownership. Think of how more stable.

Let's say we had more people that own their homes free and clear. That would really stabilize the economy in recessions. And if more people that it'd be great and families, not just the economy, even >> not the investors in the wealthy, but like the middle class actually owning their homes so they don't feel the financial stress. >> Yeah.

When things go to hell, they lose a job, whatever, they're a lot better off. >> I love it. I love it. Well, John, give us some uh parting wisdom from you and and then tell us where we can find you and connect with you more.

>> Thanks so much. I really appreciate it, John. This has been a lot of fun. So, uh yeah, I'm on a real estate decoded, which I've shown some stuff here.

I also have one if you're in Arizona called Arizona Real Estate Notebook. And then I have Substacks related to those as well. So, but they tend to be I put the graphs on the website and the the weekly updates are on Substacks. >> Yeah.

And John, are you selling real estate? Are you selling? >> I'm not selling anymore. I'm tired now.

Yeah, I was a an agriculture. Hey, I went to University of Florida. I got a master's degree in agricultural economics from Gainesville. >> Oh yeah, that's awesome.

>> From Gainesville. So then um then I worked for USDA in Washington DC and then I worked for the American Embassy in Paris as So anyway, my economics my my numbers nerd stuff comes out. I was never I never had the personality to be in sales, but I had a website which I published real estate data and an email and so this is like four, five years before Zillow came out, right? And I was doing that and then eventually I was not making any money but people were saying could you show me a home?

So eventually, you know, it's not my my personality. I started doing real estate sales and then that that did well for a few years. >> Awesome. Well, you sharing all this information, what you're contributing to the real estate community, the fact that you're coming from uh, you know, a data approach that can provide actual solutions to this type of economic disruption in the boom bust periods, the housing cycle is refreshing.

I think a lot of people get into this, you know, how do I just enrich myself versus how do I make the system better for everybody? And so, I appreciate what you're putting out there. I appreciate the content, you being willing to come on here and and share with the group your thoughts of what's going on. So guys, if you're listening to this, uh, you know, give us a like and a comment and then follow John Wake on his channels on real estate um, and on X at John Wake.

And so, thank you again for coming on today. >> So much. I really appreciate it, John. >> All right.

Thanks so much.