The Real Estate Espresso Podcast

Latest Episodes:

The Lock In Effect Jun 26, 2023

Show notes

On today show we’re taking a look at a major shift in the rental housing market. This change is a direct result of the rapid increase in interest rates. A lot has been written in recent months about the so-called lock in effect. I recently attended a talk by Dr. Doug Duncan, chief economist at Fannie Mae. He was speaking at a real estate meet up in Silicon Valley last week, where he shared a tremendous amount of data that the chamber Fannie Mae uses to understand what’s happening in the housing market. And I talked, Dr. Duncan shared that 90% of existing residential mortgages in the United States are more than 100 basis points below current interest rates. Furthermore, 70% of residential mortgages are 200 basis points low current mortgage interest rates. These people sell their homes and buy a replacement home, their housing cost will go up dramatically just due to interest rates. Financially, these people cannot afford to sell. They are locked in to their current low interest rate mortgage. This is going to put a tremendous amount of pressure on new supply entering the market.

This is exactly what we’re saying in the current market. There are very few homes for sale. Prices have stabilized after falling in the fourth quarter of last year. In many markets, we are seeing prices rising again due to the shortage and supply combined with an excess of demand. of course it makes no sense to look at the averages because the averages obscure what is happening in the real economy. We see that homes at the affordable end of the spectrum are continuing to fly off the shelf. Homes at the luxury end of the spectrum are taking longer to sell.

Buyers last year were cancelling contracts with new home builders over rising interest rates. Today builders are seeing an increase in demand for new homes. However, the demand for new homes is overwhelmingly at the affordable end of the spectrum.

Let’s go back and ask the question why do people sell their homes? People sell their homes when they want to move or they feel that the need to move. Older adults are sometimes ageing out of their homes. Sometimes people move for employment reasons. Sometimes they move for lifestyle choices, so what happens if someone needs to move but does not want to sell their house? They are locked in. I expect a large percentage of these homes to show up in the rental market. This is likely to translate into a supply surge of rental properties in the market. The forecast surge in demand for rental properties due to higher borrowing costs is likely to be satisfied by the unexpected supply of rental properties.

The rental market vacancy statistics that are maintained by the large national brokerages tend to focus on the larger scale commercial rental properties. Individual single-family homes in the rental market tend to fall below the radar.

This could result in market vacancy metrics that are inaccurate over the coming months.

Navigating Current Market Conditions with Ken McElroy Jun 25, 2023

Show notes

Ken McElroy is based in Scottsdale Arizona. I caught up with Ken and his sons in Belize this month where we were speaking at the Investor Summit on Sand. On today's show we are talking about the key constraints in the current environment. To connect with Ken, visit KenMcElroy.com where he shares tons of content and a very widely followed podcast and Youtube Channel.

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Host: Victor Menasce

email: podcast@victorjm.com

Improvements Through Design with Alan Stewart Jun 24, 2023

Show notes

Alan Stewart is based in Grapevine Texas where he has built a sizeable portfolio of rental apartments. On today's show we are talking about making improvements that don't necessarily have to cost extra. To learn more or to connect with Alan, visit his website at sapientcg.com

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Host: Victor Menasce

email: podcast@victorjm.com

Short Term Rental - The Morning After Jun 23, 2023

Show notes

Investing is not easy. It is an active business that requires continuous improvement of systems and processes. It also comes with risks that you need to understand and quantify

On today’s show we are talking about one of the biggest risks to a short term rental property. Last week Dallas City Council voted to outlaw short term rentals in residential zones. You wake up the next morning and realize that you are potentially out of business. Naturally, there is a lineup of lawsuits arrayed against the city.

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Host: Victor Menasce

email: podcast@victorjm.com

The Future of Lumber Jun 22, 2023

Show notes

On today's show we are taking a look at what is happening in the world of softwood lumber and lumber futures. The entire construction industry for new homes and for many multifamily apartment developments is heavily influenced by lumber futures pricing.

There's a fundamental change taking place in the way that lumber futures are sold. But first we need to look at the two different types of futures contracts. The first type of futures contract is to purchase a single railcar worth of softwood lumber. That futures contract is an obligation to take delivery of a railcar worth of lumber. The second type of contract is an option contract which gives the buyer the option but not the obligation to purchase a railcar worth of softwood lumber. This distinction is important since it would intuitively makes sense that you would pay a different price for the option versus the price you would pay to fulfill an order.

Futures contracts are being cut in size by 75%. Builders have been struggling with gaining control over their cost structure over the past couple of years with the wild price swings we have experienced. By accessing the futures market, builders will be able to control their cost structure in ways that had been previously impossible.

For those who are developing multi family apartments, this can be a game changer. The smaller options contract also means that the cost of hedging for a single project is much lower. ------------

Host: Victor Menasce

email: podcast@victorjm.com

Crypto On Ice Jun 21, 2023

Show notes

On today’s show we are looking at crypto currencies. It should come as no surprise that governments the world over are not enthusiastic about having a grass roots competitor to official currency of the nation.

Since most of the world exists in the realm of fiat currencies, the most practical way into the world of crypto currencies is through a crypto exchange.

Is it a coincidence that the SEC is targeting crypto exchanges? We don’t know for sure, but today’s show is going to zero in on that question and postulate why there seems to be a war on crypto from regulators.

The SEC has targeted two of the largest crypto exchanges Binance and coinbase. Binance has 62.5% market share and coinbase has 5.4% market share.

The government doesn’t want to call crypto a currency. Legal tender is the legal tender of the United States or the European Union or whatever jurisdiction. If crypto currencies are not money, then what are they?

Now I’m not a lawyer, nor am I a securities lawyer. So I’m not qualified to comment on the merits of the case on either side. But it is clear that the SEC is arguing that securities laws apply to both Binance and Coinbase. If these are indeed securities, then securities laws would indeed apply.

So why is all of this happening, and why is it happening now?

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Host: Victor Menasce

email: podcast@victorjm.com

Fertility and Migration Jun 20, 2023

Show notes

On today’s show we are talking about demographics and how this affects real estate on a global basis.

Most western economies have declining birth rates. The population of the world is growing.

On today's show we are looking at whether investing strategy is influenced by fertility rates and migration patterns.

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Host: Victor Menasce

email: podcast@vjctorjm.com

The Fed's Last and Final Rate Increase Jun 19, 2023

Show notes

Oh today’s show we are talking about the current macro economic climate and provide a forecast for interest rates for the second half of this year.

The fact is that we live in an interconnected world and the attempts by central bankers to look at the economic conditions within a nation as a closed system is extremely naive.

We have Germany in recession having experienced two consecutive quarters of economic decline. New Zealand is now officially in recession.

The biggest news in the past week is that China announced a drop in interest rates and is launching a massive public infrastructure spending program aimed at stimulating its flagging economy. As the largest manufacturing economy in the world, China’s manufacturing is a bellwether for global consumption. The promised economic jolt from China reopening from the COVID pandemic lockdowns failed to materialize. It was an economic whimper.

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Host: Victor Menasce

email: podcast@victorjm.com

Russell Gray Jun 18, 2023

Show notes

Russell Gray is the co-host of the Real Estate Guys Radio show, now in its 26th year. On today's show we are talking about the current monetary environment and the risks inherent in today's FIAT currency based system. To connect with Russ or to learn more about the upcoming 22nd annual Investor Summit at Sea, send an email to summit@realestateguysradio.com, or visit realestateguysradio.com

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Host: Victor Menasce

email: podcast@victorjm.com

Property Management Changes with Chad Zdenek Jun 17, 2023

Show notes

On today's show we are talking with Chad Zdenek who is based in Los Angeles. Chad has a side hustle as the host of at documentary TV series called "Inside Mighty Machines". By day, he owns and operates a portfolio of multi family apartments. On today's show we are talking about making changes to property management and the challenges inherent in making such a change. To learn more or to connect with Chad, visit csqproperties.com

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Host: Victor Menasce

email: podcast@victorjm.com

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