Log In Sign Up
The Economic “Power Shift” Happening in 2022

The Economic “Power Shift” Happening in 2022

39 min read
On The Market Podcast Presented by Fundrise
Level up your real estate investing with a weekly dose of entertaining takes and expert analysis on the trends, dat View profile

As a Guest you have free article(s) left

Join BiggerPockets (for free!) and get access to real estate investing tips, market updates, and exclusive email content.

Sign in Already a member?

Gas prices, unemployment rates, and home sales have been headlining topics for the past two years. Every other day we’re hearing about a record surge in a certain type of asset, leaving many investors wondering when this market madness will come to an end. To help us understand a bit more about the economic indicators affecting our daily lives, we invited Planet Money and The Indicator’s Stacey Vanek Smith on the show.

Stacey has an enormous presence in the economic podcasting world and has helped pioneer some of the most-listened-to content about what drives and divides our economy. Today, she talks to Dave Meyer and Kathy Fettke about the most important economic indicators that investors should watch out for. Thankfully, she brings news not just about interest rates and inflation—Stacey has some genuinely positive news about the post-pandemic economic recovery.

One of the key topics of this show is how work-from-home and remote lifestyles have prompted a “real estate reset” that may potentially even out the United States housing market. If you’re a real estate investor, homeowner, or renter, this information will be crucial for decisions that will affect not only your current life but your future potential to build wealth.

If you enjoyed our interview with Stacey, we highly recommend getting her new book Machiavelli for Women: Defend Your Worth, Grow Your Ambition, and Win the Workplace!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Dave:
This is On the Mark, a BiggerPockets Podcast presented by Fundrise. Welcome back my friends to this episode of On the Market. I am joined today by the one and only Kathy Fettke. Kathy, how are you?

Kathy:
Oh, I’m so excited for this interview. It’s just amazing. She’s so impressive.

Dave:
She is. Stacey Vanek Smith, who is going to be our guest today is a podcasting legend, particularly in the economics and finance space. And Kathy and I wanted to bring her on today because she is not an economist, but is so knowledgeable about macroeconomics and is someone who we all can learn a lot from in terms of how to look at the market, how to examine data and information about the housing market. Kathy, you are also extremely knowledgeable about economics, but are not an economist. How did you first get interested and learn about macroeconomics?

Kathy:
I watched my dad make mistakes honestly, and because he would get blindsided and he was that typical dentist who made a lot of money, but didn’t quite know where to put the extra money and invest it. So as just a young girl, I was interested. And then when through my lifetime, kind of seeing people in 2008 get blindsided, like really intelligent people, I just got obsessed. And honestly, I interviewed Robert Kiyosaki in 2005 and he could see things. So I thought, well, gosh, like really good investors, they got to know this stuff and they do and it’s often what’s not in the headlines.

Dave:
That’s so interesting. I think that’s part of what has driven me to learn about investing and economics as well is some of the financial struggles my family went through when I was growing up as well and wanting to learn more and be a bit more informed and have a hopefully, none of us have real control, but at least the idea of control over my financial future. So we record these intros before the show, so what are some things that our listeners should listen for in this amazing interview with Stacey that they’re about to hear?

Kathy:
Well, people might just be focused on their thing and not realize that there’s other things that will affect what you’re doing that may seem totally unrelated and that’s how people get blindsided. And so in today’s interview, we’re going to talk about energy. How often do we talk about that when we talk about housing? Not enough. And rates, we talk about that all the time, but what’s causing it? So it’ll just expand what people maybe focus on and help you really at least be educated on things that you might not have thought of before.

Dave:
That’s extremely good point. I think part of the reason we wanted to start this show in the first place is to help our audience and investors understand how these things that are tangentially related to real estate, like the jobs reports that you hear coming out all the time, or what’s going on in the stock market. They seem, if you’re just focused on the deal right in front of you to have nothing to do with real estate or house hacking or whatever, but the macroeconomic trends are so important. You can have a great deal and if you don’t understand what’s happening on this global, national, macroeconomic level, you could be missing something really important.
So with that, let’s get to our interview with Stacey Vanek Smith from NPRs Planet Money and The Indicator. It is my great pleasure to welcome Stacey Vanek Smith, host and correspondent for Planet Money and Planet Money’s Indicator Podcast to On the Market. Stacey, thank you so much for joining us.

Stacey:
Thank you. I’m so excited to be here. Thanks for having me.

Dave:
Before we get started, I have to get some fanboying out of the way, and I promised [inaudible 00:04:14], our producer, I wouldn’t take up the whole show just telling you how much I am a fan of you and your podcast, but in many ways Planet Money and The Indicator have been inspirations for this show. So thank you for trailblazing so much of the economics and finance podcasting world.

Stacey:
Oh, well that is very kind of you to say. I think covering the economy in ways that are understandable and interesting for people is just really, really important. So I’m very excited that you’re branching out from real estate into other areas of the economy and yeah, any way I can help, I’m a big fan of all things economic.

Dave:
Let’s get into how you even started in economics, because from my understanding, you are not an economist, you are a journalist by trade. So how did you become such an expert in the economic world?

Stacey:
By accident honestly. So I did want to become a reporter. I wanted to be an arts reporter. This was my goal. But I really loved radio and so I was just applying to any and every job in radio when I was starting out and I got a job on the overnight shift as a production assistant for Marketplace. And I really liked the show. I thought it was very fun. And so I just took the job, but I really didn’t know anything about economics at all. And I had no interest in it. To me, the economy was just like Wall Street. It was just like CNBC. That was sort of economics. It was just money and it was very uninteresting. I was above all of these things, of course, at the time. And so I started on the overnight shift.
I came in, it was like 12:30 at night and it was just me and Kai Ryssdal was the host of the morning show. Kai, super brilliant guy, it was me and Kai and then one engineer. And so at one point during the first night, Kai was like, “Hey, can you write up a little-” some company had IPOed. And he was like, “Hey, can you just write up a little paragraph about this for me?” And I was like, “What is an IPO?” And he said, “Well, it’s an initial public offering.” And I said, “Oh.” And I was so tired that I couldn’t even Google it. I was so tired because when he first said IPOed, I typed in like I-E-Y-E, like I didn’t even understand the words. And then I was so tired I just was like, “What is an initial public offering?”
And I could see the panic beginning to grow in his face. And he was like, “It’s when a company goes public.” And he was like, “It is when a company sells stock.” And I was like, “Got it. Okay. It’s when a company sells stock. I will write it up.” I’m very grateful he did not fire me on the spot. But I really… So I had no interest in any of this going in, but I really, really, really fell in love with it right shortly after I started the housing crisis happened.
And I think as the economy seemed to be falling apart around me and all this stuff happened and it felt so confusing and so frightening. I remember one day the stock market dropped in half. It just dropped in half and I saw how powerful the economy was, how it was such an integral part of all of our lives, our homes, our families, our jobs, our livelihoods, our ability to travel, the food we eat, where we live, how we live. And I think I really was just hooked. I don’t know. So, yeah, that was more than 15 years ago. And I can’t imagine covering anything else honestly.

Kathy:
See, you’re an example of why I have just mad respect for millennials. You just…

Stacey:
Well, thank you.

Dave:
I think you’re the only person who’s not a millennial who’s ever said that Kathy.

Kathy:
Well then they just aren’t paying attention. We’ll just see if the Gen Zers can become as smart and amazing as you guys. So we’ll make it a competition.

Stacey:
That is very kind. That is very kind. Thank you.

Kathy:
So what would you say is the big story today? Because I’m with you, I’m not an economist, but I’m obsessed with it. What should investors be aware of today that maybe they’re not seeing in the headlines?

Stacey:
I think what I think is so interesting to me right now, and by interesting I mean potentially alarming, it’s just how divided the economy is. It’s so strange. On the one hand, unemployment is really, really low. Job wise and that’s one of the key economic indicators is the ability to get a job. And right now there are almost two job openings for every person looking for a job. We had I think four and a half million people quit in March. In four weeks, four and a half million people quit. And that shows an enormous amount of confidence in the economy, an enormous amount of dynamism. So on the one hand, that’s incredibly positive.
On the other hand, we’ve got inflation, rising prices, and that is of huge concern because the integrity of the US dollar of our currency is so fundamental to our economy. If inflation gets out of control, it can really destroy an economy. Obviously we’re very, very, very far away from that situation, but it’s concerning. It is getting addressed. I think the government, the Federal Reserve, they are addressing it and I don’t think there’s any cause for panic at all. But it is a strange moment in the economy there. On the one hand, really, really positive things happening and on the other hand, really, really worrisome things happening. So I think it’s a strange time in the economy.

Kathy:
Yeah. Panic doesn’t usually help, but having this information can help anyone prepare, not panic, but prepare. One of my biggest concerns, and sorry to step over you, Dave, is when change happens slowly, people can adapt. When it’s quick, it does cause major things to happen. If you’re driving down the road and you break slowly, not so bad. If you’re driving down the road and you break quickly, it can be dangerous and it could kill people. So some of these indicators are unprecedented in the speed.

Stacey:
We just had such a shock with COVID. It was a shock in every conceivable way. Who would’ve imagined a force that would shut down much of the economy, just shut it down for weeks and months and years parts of it? And just what that did to small businesses and then the stimulus. I think you’re right, it was the effect of just such an abrupt change, such an abrupt shock, the response to that shock, which I think the government was very fast. I think the stimulus bills that were passed, they tried really, really hard to kind of handle the situation, which was like you said, I know this word is massively overused, but it was unprecedented. It was scary. We were completely in the dark for a long time as far as what this was going to mean. It changed our lives in almost every way.

Dave:
And from what you’ve seen Stacey, do you think that the unprecedented, I’m going to use the word again, the economy that we’re seeing, that feels very frightening and uncertain to many is strictly a result of COVID and the policy response, or do you think there are underlying problems with the economy that existed before the pandemic that are being or brought to the forefront now?

Stacey:
Both I would say. I think one of the things that we’re really seeing is just this level of inequality, in economic inequality in the US got I think exacerbated by the pandemic. Because for people who have a lot of money or a fair amount of money who can own property, own a house, the price of your house has gone up by like 15% nationally on average, or way more in some areas. If you own stocks, the stock market has I think dropped a lot or 10% in the last six months or something like that. But over the course of the pandemic was really kind of against all odds and logic really thriving. And a lot of us, I was privileged enough to be able to work from home, could adjust and do our jobs from home.
For people who were in less privileged positions, maybe aren’t able to own property, don’t have a job they’re able to work from home. A lot of people got laid off. A lot of people could not do their jobs or had to expose themselves to health risks to do their jobs. And now prices are rising. Now if you own a house or if you have stock, then you know that can be a good counter to that. If you don’t, then you’re seeing the underside to it.
So I think the way that the shock hit and certainly the stimulus did go out to a lot of Americans. I think it helped enormously. But I do think just the inequality in the US has been exacerbated in a lot of ways, just the economic divide has gotten worse. And I think some of the underlying issues, a lot of the working from home issues I think highlighted some difficulties that were already in the workplace about people trying to juggle parenting and family care and other things and I think forced a lot of situations into a crisis.

Dave:
Yeah. It seems to me like the great resignation has to be a product of more than just what is going on from the pandemic, or maybe the pandemic just made people see things more clearly or reprioritize their lives, but there’s just, I just see it across every single business, people are just leaving, they’re trying new things. And I’m just curious if it means that there’s something fundamentally wrong with the economy or the way that Americans are going to work right now, or we are on a podcast where people are fundamentally trying to create financial freedom because they don’t necessarily trust their employers to provide a safe and secure retirement for them. It’s interesting to hear your opinion about that and I’m wondering if you think this is somewhat temporary with the great resignation, or do you think this turmoil in the labor market is here to stay?

Stacey:
I think it is both. I feel like I keep answering questions with like, “Yes, and.” This is just a weird moment for our economy.

Dave:
Well, you started by saying that the economy was divided, so consistent with that.

Stacey:
That’s true. That’s true. I think there are a couple things or many things going on with the workforce. One thing I think is maybe a little harder to measure but I think COVID and quarantine and all of that, I think there was an emotional component to it where people started to question the role of work in American life. I think before that, almost without question, it was like, well you move to where you can get the best job. And so much of our lives revolved around work, so much of the way we define ourselves revolved around work. I think a lot of that changed. So I think there’s a cultural shift going on. I think that’s part of it. But other things I think are quite interesting too. The rigidity of the workplace I think is maybe forever altered.
There’s no reason why… I mean, we don’t work in a factory, so there’s no reason why we need to start work at the same time every day and go to a particular place and make a particular thing and leave at a particular time. There’s no reason for that in many jobs. There are reasons for it, but some of them get a little squishier. It’s things like synergy, the dreaded synergy. For some jobs, it is very necessary to show up at a place to do a thing. But I think because we were all forced to find new workarounds and to do our jobs or live our lives honestly, I think it’s thrown into question a lot of workplaces or sort of trying to open back up and like, “Okay, everybody back to the office.”
And I don’t think business as usual is possible because I think for a lot of workers it’s like, “Well, why do I have to go into the office?” People have moved to other places. I think there’s been a huge reprioritization on space rather than proximity to the office. And I don’t know, so I think there’s sort of a questioning there and the power dynamic has just shifted. I don’t think in my whole career I’ve ever seen a moment where workers have more power than they do right now. And you’ve seen this with some unionization activity, all the open positions, all the great resignation, workers have a lot of power and wages haven’t gone up much in decades.
The power has been in the hands of business for a long time in the US and it is shifted now. And I think the combination of the openness we were all forced to jump into like, how are we going to do this job? Is there a way to do this job from home and remotely? And with all of that, that kind of openness coupled with all these open positions, two open positions for every unemployed person is insane. I think that combination of those two things, I just think right now there’s just a power shift. It’s a power shift and I think companies are going to have to adapt.

Kathy:
You made such a great point because the millennials are the largest generation today and like every generation, the younger generations transform things and you are the largest, just like the baby boomers were the largest in their time and they transformed things and it’s usually new and innovative. So to me, it’s extremely exciting that people got to pause. And like you said, those workers lost their jobs, but many of them made more at home with unemployment checks that were higher than normal and could just take that pause and be creative and think for a moment of what they really wanted.
So I just see it as so incredibly exciting what, again, your generation is going to create, I’m looking forward to it. And I think it is going to be different and new and exciting. And yet at the same time, there are things we need to be paying attention to just like always listen. We had many decades ago, we weren’t sure if two crazy people, two world leaders were going to blow up our world. So there’s always been-

Stacey:
And we’re right back there.

Kathy:
Here we are.

Dave:
It all comes full circle.

Kathy:
Here we are. But yeah, what are the things that we should really be paying attention to right now?

Stacey:
Well, one of the things that what you’re saying makes me think about a lot, and I think this is a really bright spot is the number of businesses that were started during the pandemic, which really blew my mind at first, because I thought all these small businesses are closing. I live in New York, I live in Brooklyn and it was really, really bad because a lot of them didn’t have much of a cushion. It was small businesses, a lot of them just closed because they couldn’t adapt fast enough. They just didn’t have the cushion that maybe bigger companies had. And I was like, “This is not an environment that seems inspiring for people to start businesses.” But a record number of businesses were started and a lot of businesses by women, by people of color, other marginalized groups, like just entrepreneurship exploded in this country, which I think is a really interesting thing.
And I think like you said, people had a moment. They were at home, they didn’t have to go to work, financially they were okay because of stimulus checks and other things. And I think it was just a minute to think. And also I think people’s relationships to their jobs, I think a lot of layoffs, people started to feel like not that happy or discontent. And I think that combination of things did cause a lot of businesses to start. So I think that’s a real point of optimism.
The indicators that I’m looking at now, well, one of them is JOLTS. It’s called JOLTS. It is a very wonky indicator, but I love the name so much that I always say JOLTS. It’s essentially the quits rate, the share of people quitting their job. And it lags behind a little bit like a couple of months but it’s been hitting record highs month after month after month to millions of people every month quitting their jobs. To me, that is just an incredibly powerful economic indicator because it shows the level of confidence in the economy and confidence sounds squishy, and it honestly is, but it is such a powerful force.
Emotions kind of run the economy in a lot of ways. I feel like it’s a little confusing to talk about, but it’s just true. An inflationary spiral, which is when inflation gets out of control, that doesn’t really happen unless people think it’s going to happen. That is an essential ingredient. If people lose faith in the currency, if people lose faith in the economy and stop buying things, that shrinks the economy. So the fact that there’s all this confidence is powerful and a powerfully positive sign.
Inflation is worrisome. That’s the other thing, obviously we’re all looking at and prices of things going up, and this is something that we just see all around us. I did a double take at the grocery store the other day. And I actually took the receipt out on the sidewalk outside of the grocery store to just check. I was too embarrassed to do it in the moment. But I was like, “I think this can’t be right.” And I went through all the charges and it was right. It was just like 30% higher than I was expecting it to be. Or a lot of people at the gas station, like people are posting, I don’t drive when I’m in New York, but my parents live in Idaho and they drive everywhere. And normally Idaho gas is very cheap, but it’s gotten super expensive. I hear about this all the time from my parents who have to drive places in Idaho. There’s not really public transit.
So I don’t know. I think those are the two things that I’m really looking at. And then of course home prices is a big one. Those are, especially since I started my career like at the sort of peak at the housing bubble, I’m looking at the prices and all of the sort of the frenzied activity around construction. And of course this gets worse because of supply chain things, materials can’t get places, there was a labor shortage, which means it’s hard to find people to build the houses and everything. My parents ordered a dishwasher because the dishwasher broke and it took six months for the dishwasher to arrive. And I heard a lot about this every time I called them.
I think it’s like those indicators big and small. It’s funny when I’m talking to my parents about the dishwasher, but if you blow that up, it affects the whole economy. Or if I like my grocery bill, it’s kind of funny. I was fine, but it’s not fine if you’re on a really tight budget, when you’ve got a bunch of mouths to feed or dependents counting on you. All these things, they’re little individual moments, but they do add up into big economic forces.

Kathy:
Well, Dave, you know my thoughts on inflation and why that happened and how do bring in 50% more money into the economy and not get inflation. To me, this could have been totally avoided, but we’ve talked about that. What we haven’t talked about is energy and Americans have taken for granted what we get so easily that’s just brought to us for decades. We’re in that housing construction business, why would you ever have trouble getting lumber or a garage door, or like you said, a washer and dryer so you can close on the house. That wasn’t in our thinking. And we may be, we are currently in a place of somewhat more scarcity than we’re used to, and that could increase potentially if there’s more problems with energy.
I would love to hear your thoughts on, we’re hearing that the US is tapping into our oil reserves. What does that mean, and how will that affect businesses and again, the supply chain?

Stacey:
That has been a very, very interesting part of the story. And like you were saying about all of the supply chain issues that we’re seeing, we just got so used to the supply chain became so efficient. Everything became global and it was like, “Where is the cheapest, most efficient place to produce every part of one thing?” And all of a sudden clogs have been thrown into all of that. And that pushes prices up too because supply can’t meet demand so prices go up. So then the demand drops. This is just all across the economy.
The oil thing is so interesting because in the middle of the pandemic, remember the demand for oil just vanished. There was a moment that I reported when oil prices were, for a particular kind of oil, negative $35 a barrel, which I didn’t even understand how that was possible. Like how can something that has undeniable value be negative price? But it’s because oil is difficult to store. You have to be careful about how you store it, there are all these rules about how you store it and nobody wanted to buy it at that moment.
So basically it was like here’s this really expensive thing to store that you won’t be able to sell. And we didn’t know how long the pandemic was going to last and we didn’t know when demand was going to come back and prices for oil just went through the floor. And then all of a sudden prices went up. And what surprised me was I had done a lot of reporting on fracking and sort of how, I mean, obviously fracking had a lot of issues with it, but one of the good things was like, “Okay, our dependence on foreign oil is gone. We will have as much oil as we need forever.”
And all of a sudden it was like, wait a minute, how is it possible that we have an oil shortage? I thought we were having all these fracking rigs that we built. And apparently what happens is if an oil well sits idle for six months, there’s like a 50% chance that you can’t get it going again, which I did not know. And I don’t think anyone would’ve expected that. Obviously oil has its ups and downs, it’s always been cyclical as is everything in the economy, but I don’t think anyone expected demand to vanish like it did with COVID. It was such a shock, like you were saying about the car and the brakes. It’s like the brakes slammed on the economy, demand for oil just went away. It didn’t decrease gradually like it does with a economic downturn. It went away.
So now it’s back and now the oil companies are very hesitant to invest. If you’re an oil company and you just went through this moment where you had to pay people to take your oil, $35 a barrel, and all of a sudden it’s like, “No, no, no. Now we need oil. Now drill, drill.” Now you need to invest in drilling. Plus I think there’s sort of this acknowledgement that demand for oil over the long term is going down because there’s this new push for electric vehicles and things like that, battery power things.
So I think the oil companies are loath to invest. It takes a really long time even if they were gung ho to our like exploration and drilling and setting up a well, these things you can’t do this overnight. So the energy situation, I was completely floored when they started talking about shortages again and prices started going up so much again, because I thought this was something we would never see again with fracking. I was like, “Well, there will be no more dependence on foreign oil for the US. And there will never be another oil shortage again.” But here we are.

Kathy:
Oh Stacey, you and me both. Our audience knows I’ve got some land in North Dakota, the value might return, but there’s supposedly an ocean of oil up there in North Dakota that was being pumped and billionaires invested, and then they lost everything and not really in a big hurry to go back.

Stacey:
Well, yes, exactly. And I think a lot of companies invested a lot up in Williston and I went up there in the beginning of the, well, in the middle of the housing crisis, but it was a boom for Williston. It was the only place in the country that was adding jobs. And I remember just being so shocked when I went there. The growth was incredible. People were sleeping in their cars in the Walmart parking lot because there was no housing. They couldn’t build things fast enough. There were these man camps that went up, they just needed workers.
I went to McDonald’s for lunch or something and waited for like an hour to get help and there were these big signs like “If you refer a McDonald’s employee and they end up working for four weeks, we’ll give you a flat screen TV.” It was just insanity. And I talked to a couple of people who’d been there and they were like, “Well, there was a boom and a bust here before.” And it seemed so impossible that that boom would go away. But it did, it did go away and there was a big exodus out of Williston. But now of course oil prices are coming up and eventually that will push oil investment. It has to.

Dave:
What do you see Stacey as the short term implications to the economy? Of course, this is hitting the average American at the gas station, but are there other broader implications for how these high energy prices may impact the US economy for the next few years?

Stacey:
That’s a good question. It will slow things down. Higher prices slow things down and oil affects every part of the economy. I think it will be especially hard on lower income Americans because on small businesses, on people who have less of a financial cushion, because it’s often an unavoidable expense. It’s in everything from packaging to shipping, to everything, to your ability to drive to work. I think it’s one of those things that will hit people a lot. I think in the long run, it’s probably, I noticed sort of an accelerated interest in battery power electric cars, I think of naturally. You see the volatility of oil and you want to get away from being dependent on this volatile commodity, this volatile substance, sorry, commodity just means a thing that’s bought and sold.
So this valuable substance that can lose value and gain value and just you kind of want off that train a little bit. But yeah, I think it’ll just make a recovery slower. I think it’ll make inflation worse because if gas is more expensive, it’s going to push up the price of everything else because it’s more expensive to ship apples across the country because the truck has to pay more for gas, then the people have to charge more for apples and on and on up the chain. So yeah, I think it’s going to make it hard for inflation to come down.

Kathy:
Yeah, and then my concern is the tapping into oil reserves and not being able to get up and running in time to replace it. Where do we get it from and what happens? We’ve never, again, we’ve just never thought about it. You go to Texas and people drive the big trucks because they’re like, “Oh, we got so much oil. Don’t worry about it.” That’s where we’ve been for so long. We can’t even conceive of the idea that we might have a shortage of it and what do we do and how do businesses function. So we’ll see.

Stacey:
Yeah. It’s been a long time since we’ve had an oil shortage. My mom actually said one of the things she did for my dad early in their marriage was she got, filled up his… This was like during the gas crisis, they were living in LA and my mom filled up his car and she said, this was a major gesture of love because it took like two hours, I don’t know, waiting in line to fill up her car. And I don’t know. She told me the story because we’re definitely very, very far away from that. But we’re sort of coming back into a moment where there’s potentially an oil shortage, it’s pushing up prices where the supply of oils in question.

Kathy:
So a good indicator to track.

Stacey:
Oil always. Always oil prices, yes.

Dave:
Stacey, you mentioned earlier that housing prices are one of the major indicators that you are watching and for our audience that is of course of particular interest. We’ve talked about a lot of things so far and some of them are pointing to positive parts of the economy, some of them are pointing to more negative. How do you unify all of these indicators and think about where at least the housing market is going over the next couple of years? Do you have any thoughts on that?

Stacey:
The housing market’s very interesting because I feel like it’s changed in this interesting way. I feel like working from home kind of changed the housing market in this interesting way. There were always the, I think economists called them super cities, where everybody was moving, industry was really concentrated. I think that started to change. I talked to this guy who lived in Bozeman, Montana, and he was trying to buy a house and he lived there for years and years and everybody was moving to Bozeman because they were working from home and Bozeman, Montana is absolutely beautiful. And so he kept putting offers in on houses and kept getting outbid by, as he put it, people from California who had a lot of cash. And the same thing’s happening in Idaho too. All these people from cities where things are much more expensive can come in and like, “Wow, I can get a, whatever, a three bedroom house for $2 million. That’s amazing.”
But if you’re in the local economy making local economy money, it’s not necessarily doable. I think, I don’t know, the housing market’s just been so interesting. And then I think the labor, all the labor issues, the tight labor market we’ve been seeing and the supply chain issues have made the ability to create more supply of housing really hard and just the demand for people who are now prioritizing housing more. They want more space. They want to spend more time in their home. They want acreage, or at least a yard. I think that’s really interesting. And so what does this mean? I think for people who own homes, this is kind of awesome because the value of their home is appreciating, this investment that they made, it’s the biggest investment most people will ever make. Their major investment is just this was a good move.
For people who don’t have homes, I feel like this could ice them out a little bit because interest rates are going up. If you don’t have a ton of money to throw around, it can be hard to get into the housing market. I’m afraid that it’s kind of making the dream of owning a home more difficult, even if you’re willing to kind of move away because that was always the trick. It’s like, “Well, if you move outside of the city, you can get space, homes are affordable.” I don’t think that’s so true anymore because I think there’s so much more flexibility about location. So yeah, is that answering your question?

Dave:
It does. Yeah. You brought up two points I think are really important. One is, and I’m curious about Kathy’s opinion about this, is we’ve seen since the great recession and the financial crisis that home building declined a lot and it only recently started to recover and we’re starting, if construction remained at the rate it is today, we might build ourselves out of the housing shortage in five years or maybe 10 years. But I’m curious if Kathy you think that Stacey makes a great point. We have labor shortages, permits are super hard to get, construction prices are going up, material prices are going up and interest rates are going up. I’m not sure if builders are going to be able to pass along prices to buyers at the same rates. Do you think even though construction really has ticked up over the last few years, do you think it’s sustainable or are we going to start to see construction start to decline?

Kathy:
Well, construction builders are facing the same thing that the oil investors were facing a few years ago. Builders were wiped out. They were wiped out in 2008. They just walked away. And fortunately I was able to come in and pick up what they left at very cheap prices, but that’s not the case today. Everything’s expensive. But builders just weren’t going to take risks and build subdivisions and be speculative. They built to order basically.
And it’s really interesting Stacey that you mentioned Bozeman because my partner and a 40 year veteran builder, his daughter went to college in Bozeman. He went up to see her and he said, “Wow, this is an amazing place.” But they have a terrible shortage of housing. He couldn’t find her anything affordable. And he is a builder, so he decided to build some housing and our intention, this was three years ago, our intention was to make it affordable. And our pricing was around three to 400,000. And we were excited about that to be able to provide that for students.
Our costs have gone up so much that our prices have doubled and our profits haven’t because costs have gone up. We can’t even get labor. We have to fly labor in. We have to hire, you know, get trucks to just go to another state to get the things we need because we can’t get them. And no, builders aren’t being greedy, they’re just trying to cover their costs. And in some cases not, not. Builders across the country are going back to their buyers and saying, “We can’t finish this house unless we increase prices.” And there’s a caveat in the contract saying that you can do that.
If there’s a force majeure, if there’s an act of God that builders can’t control, we can change the contracts because we can’t finish the house. So it’s very sad because the whole idea of being able to bring on new supply, and in our case, bring affordable housing, we can’t do it. We can’t do it. LA tried to bring on affordable housing. We talked about this before for the homeless here and it would cost $800,000 per tiny little unit. I’m sure that was not the most efficient way is to have the government try to do it, but it is very concerning. I will say though, being the person with more years behind me and with lots of experience, it was never easy to buy a house. Never easy. It’s never been easy. And I really want, well, let me take that back. In the 2000s, it was very easy.

Stacey:
It was easy for a little while there, but that was a problem.

Kathy:
It was very easy.
Let me take that back. You could walk in, this is when I got into real estate, you could come to me and I could give you a loan with no money down. In fact, I could give you money back for buying a house and that money could go to furnish it. So it was super easy. Oh, and by the way, I didn’t have to check your credit or know anything about you. So yes, obviously that didn’t work out well. So I don’t think we’re going back to that. But when my parents bought their first house in Atherton, California, the most expensive part of California when I was a teenager, it was $90,000. And my dad was a dentist. He was well to do. And he had a very difficult time buying that house. It’s always been a challenge because maybe at that time, the interest rates were higher or you had to put more money down and it was always something where like, if you really want this, you can do it, but it’s going to take some effort. You can’t just walk in to a mortgage broker and get it.
You’re going to have to save money or you’re going to have to be creative with the ways that people do it on BiggerPockets, or you’re going to have to bring people together. You can still get 3% down loans with FHA. It’s still not bad. You don’t have to have perfect credit today. You just have to be willing to be a little bit uncomfortable. And I think maybe some people don’t want to do that, but in BiggerPockets, we learned it all the time. It’s you maybe have to house hack, or in my case, we got into our first property and this was when things were much cheaper and interest rates were low, but we didn’t have the down payment. So we bought a house and turned it into a fourplex and had people living with us and that’s how we did it. So it’s still very possible today. You just have to be maybe willing to be a little bit uncomfortable or work a little bit harder. But I just want to make that super clear. It’s never been easy except for the 2000s. And that we’re not going back to that.

Stacey:
Yeah, I do think the supply issue could change it from not easy or a financial stretch into just not being a possibility because if you’re in a hot market and people are, no matter how much or, it could just be out of reach I think for some people. And I think the supply issues you’re talking about in Bozeman are so interesting because those are hard economic truths you’re hitting up against. It’s like, suddenly you have to push prices up. It’s not just a decision. You just end up in a situation where things are just getting out of reach for some people because of just the logistics of how much stuff costs. And that is I think, I mean, ideally you’re in a situation where even if you crimp and save, it is possible to buy a house because that can be such an important asset that can propel people into a… I mean, that’s sort of part of the American dream. Housing was always so tied into that. And there can be other ways to achieve that that had nothing to do with a house. And maybe we’ve been too dependent on that.
But I do hope that housing prices settle a little so that it’s not so out of reach, especially in these really hot markets where things just become astronomical.

Kathy:
And I apologize on behalf of my fellow Californians for driving those prices up. We’ve been doing it for decades.

Stacey:
No, it’s just the natural evolution. I think that’s one of the such interesting thing from working from home. It was always like, well, all these lucrative jobs were created in California. Silicon Valley was there. That’s been the economic engine for the country and the world honestly for years now. And the idea that now that you can do those jobs from a Bozeman, Montana, that just changes the equation and the whole housing market I think in a way that is pretty new. I don’t think we’ve ever seen a situation where housing was potentially totally disconnected from industry in an area. This is interesting.

Dave:
Yeah, it feels like there’s almost this rebalancing going on in the housing market where the proximity to jobs, as you said Stacey, used to be one of the prime drivers of housing value. If you could find a place in Silicon Valley close to a great job, that was really important. And now we’re seeing these huge migration patterns where people are leaving those cities and that lowers demand in those cities. And so that could lead to probably not negative, but maybe slower growth in the traditionally popular cities.
And we’re seeing a lot of areas, particularly in the Southeast or in the south where they’re much less expensive areas and people I think are going there because they get more value for their money. And like you said Stacey, are likely trying to chase either that acreage that they’re looking for, the square footage that they’re looking for, or their piece of the American dream and they just want that home ownership. And I think it’s unclear if that’s going to continue, but the trends right now are strongly suggesting that migration and population is in a great reshuffling and it’s going to be really important for housing investors and Americans in general just to keep track of what’s happening there because it has the potential to greatly shift the economic epicenters of the US, at least in my opinion.

Stacey:
Oh totally. Because the way it always was was there’d be a local economy, let’s say San Jose or something. And salaries in San Jose are really high so housing gets really expensive so the prices of everything around there go up, food and clothes. So then the local restaurants, they have to pay people a little more to work there to be able to afford to live around there. And that was always the little ecosystem, the little economic ecosystem that would build up in a local community. But if that’s different, it’s interesting. I wonder how cities are going to adjust because if you have a lot of people who have a ton of money but who are being paid by a company who is in a different place, that could push prices up too. There’s a willingness to pay a little more from people who have a little bit more money.
And this is time immemorial. I don’t know, I grew up in Idaho, this was always this big thing. It’s like out of towners pushing up prices, ruining traffic and ruining the culture. This was always a big thing. But it is interesting. I think you’re right, Dave, I think there’s this economic reshuffling. It’ll just be so interesting to see how things settle because we’re just sort of in this very new world. It’s interesting. And we can also buy things online, which is also in the mix too, where you’re not necessarily like, “Well I have to buy this from the local hardware store because there’s nowhere else.” It’s like, well now you can order it on Amazon. So there’s a lot happening.

Dave:
That’s okay, that’s going to be my indicator to watch is the, if I can steal your show’s concept for a minute, it’s-

Stacey:
Do it.

Dave:
… is the migration patterns. I think that’s something I’ve been looking at a lot. And I think for anyone listening to this, if you want to understand where housing prices might be increasing or decreasing or economies are growing or slowing, the migration patterns have been slowing down. The migration has been slowing a bit since COVID, but they’re still well above pre-pandemic levels and something I think that you should keep a close eye on

Stacey:
And it could also bring a lot of money into areas that have been, I mean, that’s another potentially quite positive aspect, is there been a lot of parts of the country that’s just been drained, drained, drained, because they didn’t have a lot of industry, potentially this could be a lot of money coming into those areas too. So I don’t know, good and bad always.

Kathy:
Oh Dave. Yeah, I can’t agree more that we’ve been following demographics for 20 years and this has been happening and projected to happen. We knew that the Southeast was going to be a huge growth area and it is so generationally driven. You have two of the largest demographics, the largest generations. The baby boomers retiring, they have a ton of money, a record amounts. They’re the ones who own houses and who own stocks. They’ve been around. They’ve been investing for 40 years. They have money and they are ready to retire. And they’re probably retiring earlier than they thought. They can live anywhere and they don’t need a job.
And then you’ve got millennials who, again, a larger generation who are brilliant, the most educated of any generation, have information in the palm of their hands and they can live anywhere. So these two massive generations, and you know what, the baby boomers really love their kids. They love their kids. So where are they going to retire? Probably near their kids.

Dave:
This will definitely be something that we’ll keep an eye on here On the Market. Before we go Stacey, and I still have a list of like 30 questions to ask you but I know we do have to go.

Stacey:
Fire away.

Dave:
Are there any other indicators or sources of data or information that you would recommend to our audience of real estate investors, aspiring investors who want to make sense of this confusing economic situation we find ourselves in?

Stacey:
I think the two big ones to watch are prices, the inflation rate, and employment, the unemployment rate. Those are kind of the two key, I feel like those are always two of the key components in the economy. The fact that they are in quite extraordinary moments, both of them, I think warrants another look. And I think a long as, I mean, if you want to get super nerdy, if you want to look at the quits rate every month, it’s called JOLTS. It’s like job openings and labor turnover. I think that’s what it stands for. Comes out, it’s like a month behind, but I think that is a very powerful indicator of the labor market, but also so is the unemployment rate and so is job creation. And those are very easy to find data points.
They get talked about a lot and they’re really, really important. Also, prices, the inflation rate and to that I would add, so they have the core inflation rate, but then they have, which excludes food and gasoline because food and gasoline tend to be a little more volatile, but just maybe add those things in because obviously food and gasoline are two things that are super important to us. I think those are the two economic indicators to watch. Obviously there’s the stock market. People have very mixed feelings about that. I know the stock market isn’t the economy, but I do think that’s also a powerful indicator of how comfortable companies are going to be continuing to hire and things like that. So I would watch for that, especially the tech companies. They’ve been such a driver of growth and prosperity and wealth for so many years, if there is a readjustment of tech companies and investment in tech companies that could I think have strong implications for sure.

Dave:
That’s a really good point. I was listening to a podcast the other day that’s saying Amazon’s down 30% off its highs, Netflix is down off 70% off its highs. And on the surface it’s like, “Okay, they’ve gone up, tripled in the last couple years” or whatever. But they are the source of many high paying jobs in many communities and are expanding and growing their workforce and if these lower valuations are going to prevent them from investing in that way that they have, that could have implications for the economy as well. Stacey, if people want to learn more from you, how can they do that?

Stacey:
Oh, well, I wrote a book. They could read the book. It’s called Machiavelli for Women.

Dave:
Tell us about it.

Stacey:
It’s called Machiavelli for Women. It’s about women in the workforce. It’s about the pay gap, the promotion gap, some of the difficulties of juggling motherhood and family care with work and some of the discrimination that happens around that. I think that’s particularly pertinent to now. It’s just out in paperback. You can get it wherever you get your books. It is in fact on Amazon and bookshop.org and all those sites. So that and then also just Planet Money and The Indicator, I’m doing a series now for Planet Money for the summer on macroeconomics. There’s a little summer school series we’re doing all about general macroeconomics. And we’re looking obviously at a lot of the stuff we just talked about – supply, demand, energy prices, employment, all of it.

Dave:
That’s great. So if you want to learn more about macroeconomics, that could be a great place for you to do that on the NPRs Planet Money Summer School, and definitely check out Stacey’s new book, Machiavelli for Women. Stacey, thank you so much. You are one of my podcasting heroes. It was so great to have this conversation with you. We really appreciate you coming on the show.

Stacey:
Thank you. It was such a pleasure.

Dave:
Wow. That was an incredible interview. I have been anxiously awaiting this interview for weeks because as we all know by now, I am a big fan. Kathy, what did you think of the interview? What did you take away from that conversation?

Kathy:
I’m going to focus on the positive because there’s a lot to be afraid of and that’s not going to get us anywhere. The really the big takeaway I had was that there was so much creativity, so many businesses opened, that we’re going to do things differently. There are going to be energy issues, but we’ve known this. We’ve known that we have to get off oil. So maybe your generation is going to show us how to do that. I’m going to stay optimistic and say, yeah, these are shocks, but maybe they were needed so that we could do something different and be more innovative.

Dave:
I love that because right now it is really easy to focus on things like inflation or all the geopolitical turmoil that we’re seeing. But there are really strong indicators that are positive right now. If you want a new job, if you want raise, if you want a better title, there has almost never been a better time in history for you to go pursue a new career, to go find a job, to get a raise. And I think that shouldn’t be overlooked.
I know you’ve said on the show previously that you don’t think people should be retiring early. And so if you are looking for a career or to earn more money with which you can invest in real estate, there are some really positive things that you can be looking at right now. And that’s not to overlook the challenges. There are definitely challenges in the economy right now. But I think it’s important as Stacey said, to look at both sides of the economy, not just focus in on any one particular indicator, but look broader at all the different things that are happening.

Kathy:
Absolutely. Very exciting times. Stay positive.

Dave:
Thank you, Kathy. You’re always a calming voice on the show and we really appreciate that.

Kathy:
Thank you. I believe in the younger generation. I have to, but I do.

Dave:
Okay. Well, thank you. As a representative, I don’t know if I any longer represent the younger generation, but as a representative, I’m going to anoint myself a representative. We appreciate that. Before we get out of here, I do have one announcement for our audience and that is that on BiggerPockets, we have a new on the market specific forum.
So if you are a member of our crowd and you want to interact with us or interact with each other, talk economics, talk data, this is the best place to do it. There is a link in the show notes, or you could just Google BiggerPockets on the market forum, or just go to the website and find it on the forums. I’m confident you’ll be able to navigate there. But it’s a great place. I started a couple conversations over the last couple weeks, having some really good and interesting debates with people, and we encourage you to be a part of our On the Market community on the BiggerPockets website. Kathy, thank you so much as always for joining me today. I will see you very soon.

Kathy:
Thank you so much.

Dave:
On the Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett. Editing by Joel Esparza and Onyx Media. Copywriting by Nate Weintraub. And a very special thanks to the entire BiggerPockets team. The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

 

Watch the Podcast Here

In This Episode We Cover

  • How to recover from the “divided economy” we find ourselves in today
  • Is the great resignation here to stay, and if so, what does it mean for home prices?
  • Unemployment “JOLTS” that affect labor prices and worker supply
  • Why and how energy prices have skyrocketed and the effects that come with it
  • The two most important economic indicators real estate investors should pay attention to
  • The positive economic effects of a worldwide pandemic and global lockdown
  • And So Much More!

Links from the Show

Book Mentioned in the Show

Connect with Dave and Our Panel of Guests

Connect with Stacey