All Forum Posts by: Andreas Mueller

Ha, you didnt see the other dozen...

Let's hope Mayor Freddie (not my favorite) is not successful in pushing through his 35%+ property tax increase, on top of the property value reassessments on top of the 25% increase they did just 3 years ago. INSANE. How are they already out of our money? 

Another Potential property tax increase in Nashville:

https://nashvillebanner.com/2025/05/02/mayor-pitches-optimis...

Welcome to my weekly Skeptical Investor blog, right here on BP! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

Today’s Read Time: 9 minutes

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Today, we’re talkin’ the downgrade of the US credit worthiness. What the heck does it all mean? How will it affect the real estate market? How should investors posture?

Let’s get into it.

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The Weekly 3 in News:

1. - Fannie Mae and Freddie Mac credit worthiness was downgraded Monday, as well as all eleven regional Federal Home Loan Banks. But it’s not their fault. Why? It’s the US Government Debt explosion ().
2. - Looking for a job? So is AI. Businesses are seeing more fake job seekers flooding the market. One in four job seekers could be fake by 2028 ().
3. - JPMorgan has dropped its recession prediction, declaring the U.S. economy will likely grow in 2025 (Fortune).

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The US is acting like drunken sailors being served by blacked-out bartenders. It's time to get back to baseline.

So what is all the Hullabaloo with this whole US debt downgrade stuff??

It's a doozy.

US Debt Gets a Downgrade, Again

Credit rating agency Moody’s announced Friday evening that it was stripping the US government of its top credit rating and dropping the country to “Aa1” (the second highest possible rating) from its triple-A “Aaa” rating (the highest possible).

This has already happened before. Twice actually.

You see, there are three big credit rating agencies: Moody's Investors Service, Standard & Poor's (S&P), and Fitch Ratings. And Moody’s is late to the party. Fitch Ratings downgraded US debt in 2023 and S&P did so way back in 2011. All three now rate US debt at their second-highest notch. Historically, US Treasuries have been rated at the top tier (e.g., Aaa or AAA), reflecting their reputation as one of the safest investments globally due to the US's economic power and the dollar’s status.

Pop quiz! How many rating notches does Moody’s have? Answer: 21. Oddly specific number... Maybe they’re a blackjack fan, like me :).

The Why.

This happened, not because investors are afraid of potential inflation or economic slowdown, which is usually where our discussion on Treasuries leads. No, this is entirely different.

The credit rating agencies evaluate the likelihood that the government will default on its debt obligations. This is serious ****.

In their announcement, Moody’s said that the downgrade “reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.”

And,

"We expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation."

9%!? Holy Scheiße. That is no bueno, for those keeping score at home (I had to use 3 languages to emphasize).

Add to this that Congress likes to play with fire every year and threaten not to increase the debt limit, and that risk of default just got a little more likely.

Moody’s, to its credit, blamed successive administrations and Congresses for the ballooning budget deficit. And the current budget being debated, the in Congress would widen deficits even more (see below).

Side bar and Background: These three entities are not government agencies, so why do we call them agenciesanyway? They are for-profit companies that sell data.

These folks get the agency title because the SEC designates them as Nationally Recognized Statistical Rating Organizations (NRSROs), and that is a mouthful. NRSRO is a quasi-official status in the financial system. There are actually 10 SEC-designated NRSROs, including the three financial experts normally cited, but also smaller firms like A.M. Best and DBRS. Since a 2006 law was passed (some good that did, keep reading), NRSROs must meet SEC standards for methodology, conflict-of-interest management, and operational integrity, though they remain private, for-profit entities. Their ratings significantly influence financial markets, impacting borrowing costs and investment decisions. Being an “agency,” aka a coveted NRSRO designation, allows them to gain clients. Their business model typically involves charging corporate, financial and municipal entities a fee in exchange for debt ratings. Their agencymembership also gives them prestige, allowing them to sell perceived higher-quality data to investors. It’s like your beef being labeled USDA Prime, instead of Choice or Select.

But that hasn’t meant these agencies are good at their job, far from it. In fact, they have been asleep at the wheel before, and frankly, have bordered on abetting bad (or even illegal) behavior. We saw this during the Great Financial Crisis. Don’t excuse me for saying this, Moody’s, you and the rest of the credit rating agencies have been pretty shady in the past. We must remember their part in the Great Financial Crisis (cue scene from the movie The Big Short):

This was a formative time in my government life as a young man working on Capitol Hill. As a result, I am extremely skeptical of the credit rating agency cabal. And you should be too. Hell, Standard & Poor's downgraded US debt,,,,checks notes,,,,14 years ago!

I would argue that these rating agencies should have been stripped of their NRSRO designation for their role in the GFC. If I’m being blunt. They were definitely Select beef.

US Debt is Out of Control.

We have to stop the out-of-control deficit spending.

Yes I’ve written about it many times before, but that doesn’t make it untrue.

And now, it’s starting to affect the mortgage market directly.

Case in point, on Monday, an errant bullet hit the home loan giants Fannie Mae, Freddie Mac, as well as all eleven regional Federal Home Loan Banks. All of their credit ratings were just downgraded. But it’s not their fault. These re-ratings are a direct result of growing debt. Speaking on the subject, Moody’s specifically said this, “The rating actions reflect the weaker capacity of the US Government to support [Fannie and Freddie]…”

And to be more specific…

We are now spending close to $2 trillion a year more than we collect in taxes, $1.1 trillion in total spending just goes to pay the damn interest on our $36 trillion debt and the budget for the United States being debated in Congress would add an additional $2.5 trillion, on top of all this. Federal interest payments are set to equal ~30% of revenue by 2035, up from ~18% in 2024 and ~9% in 2021. And again, Moody’s said it expects “federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation.”

I have to highlight this again. The potential for 9% deficit-to-GDP is a big ****ing deal.

Look at that acceleration in 2020. Not good!

And as expressed as a % of our total economy (GDP), we are now at levels not seen since we really really had to, during WW2.

The US government’s fiscal house is in such disorder Marie Condo would rather perform seppuku than clean up this mess. (Joke! Don’t send me any hate mail, just admit that was a good one 😂).

To hammer in this point, this eloquent rant on drunken government spending by David Friedberg on the All in Pod this week was just awesome. A Chef’s kiss.

From David: “It’s fiscal emergency o’clock in America. There are only so many opportunities to do the hard things that need to be done. In this moment, it shouldn’t be a partisan consideration that the deficit needs to be radically reduced.”

I agree. The DOGE government efficiency effort can and should only do so much. At the end of the day, it’s Congress that really needs to define the path to fiscal sustainability.

In fact, at the current rate, the total debt-to-GDP burden will likely rise to ~134% by 2030-2035. Compared to 98% last year.

BUT wait! There is a simple solution.

Really?

Yes.

What is it?

Just take spending back to 2019 levels.

Yep, that’s it….Chart on:

We lost our fiscal minds during COVID, like a drunken sailor being served by a blacked-out bartender (zing! I’m punchy today, 3 coffees down).

Federal spending jumped ~34%, from $4.447 trillion in 2019 to $6.752 trillion in FY24 (). We spent so much damn money (which, again, I have written about many times before), during COVID that returning to more normal levels would mean 99% of the budget battle won. Doing so would get us back to ~3% deficit-to-GDP by 2029, which is sustainable over time, as we concurrently grow the economy at a modest, realistic 2%.

In other words, to borrow Secretary Scott Bessent’s recent media line, “we don’t have a revenue problem, we have a spending problem.”

It is now existential. And this is why Moody’s is gettin’ Moody.

I think Congress could get there by explaining to the American people that we just need to get back to normal. Back to 2019, back to 3% deficit-to-GDP (which is still slowly increasing spending over time, may I remind the reader). We should fix the current budget reconciliation bill and message it as a “return to normalcy,” and it would help if the opposition does not frame it as a “cut” in spending, to score political points. It’s not. It’s just returning to normal spending levels since diverging in 2019.

It’s time to get fit!

But the current spending bill does none of this. I’m disheartened to say."We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration," Moody’salso pointed out.

Sigh.

Why This Matters for Real Estate.

Not reigning in the debt will hit mortgage rates, via the 10 yr Treasury bond. This will be a significant short-term effect; yet, there is a range of severity depending on how the market reacts.

Markets shook off the Moody’s news Monday when the market opened, with the 10-yr traveling up past 4.5%, but by midday had settled back to below last week’s number. Chart on:

Tuesday, as I was writing, the 10-yr was down slightly, sitting at 4.481%, and the 30-yr mortgage at 6.99%. But the day has been volatile.

Wednesday, as I am finishing up, the 10-yr is back to roughly where it opened Monday, above 4.5%. Mortgage rates flat day-on-day.

In the short term, it’s going to be a bumpy interest rate ride.

All This Being said…Meh, For Now

In the medium term, I don’t think the 10-yr will rise above 5%, keeping mortgage rates in the 7s for now. But we are certain to get some serious volatility as a result of this Moody’s rating, both on Treasuries and on Fannie and Freddie. Remember, mortgage rates closely track Treasury bonds, specifically the 10-yr Treasury. So when interest rates on the 10-yr go up, so do mortgae rates. The Fannie and Freddie ratings could drive up mortgage-backed securities, which will also likely drive up mortgage rates. Again, in the short/medium-term.

But, if the 10-yr hits 5%, everything in the economy tends to slow way down. That would be no bueno and is a recession indicator. That high of a rate makes borrowing untenably expensive for most. A not-so-fun fact: the last time we hit 5% on the 10-yr was just before the Great Recession.

The Market Already Knew This. For the most part.

Moody’s being the last of the big three to more accurately categorize the existing debt crisis is not new information. We already knew our debt was at crisis levels (especially if you are an avid reader of this newsletter :). And, ticking down the credit rating from perfect to near perfect is not the end of the world. On this, Moody’s also said, "The U.S. retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the U.S. dollar as global reserve currency."

Wall Street seems to agree.

• “A Treasury downgrade is unsurprising amid unrelenting unfunded fiscal largesse that’s only set to accelerate,” Max Gokhman, Franklin Templeton Investment Solutions.
• Michael Schumacher and Angelo Manolatos - (Wells Fargo) - told clients in a report that they expect “10 year and 30 year Treasury yields to rise another 5-10 basis points (.05% to .10%) in response to the Moody’s downgrade.”
• “Moody’s downgrade of the US isn’t a game changer for American assets. It doesn’t completely undermine US Treasuries given the depth and breadth of the market, but the underlying theme supporting diversification away from America remains intact.” - Mary Nicola, Macro Strategist

Strategically (long-term) Bullish, Tactically (short term) Cynical.

Does this change my investment thesis to buy more real estate?

On the contrary, it strengthens it.

The more short-term fear brings better investing opportunities. But I will make tactical adjustments, like any decent investor.

These predictions should not force folks to make strategic changes, especially for the long-term game of real estate investing. Moody’s move was very much anticipated by the markets, albeit a bit late. One would have thought this should have come after the spending spree of the last 5 years.

In January, the Congressional Budget Office warned that the budget deficit was running near $2 trillion a year, or more than 6% of gross domestic product. The US government is also on track to surpass record debt levels set after World War II, reaching 107% of GDP by 2029.

Treasury Secretary Bessent thinks so, and downplayed the agency’s downgrade, saying “Moody’s is a lagging indicator — that’s what everyone thinks of credit agencies.”

My Skeptical Take:

It’s not just homebuyers who benefit from lower mortgage rates. Normalizing spending and getting to fiscal sustainability means lower inflation (which is a regressive tax) and lower interest rates on credit cards, car payments and small business loans.

Inflation is getting under control. It’s time to move to the next step.

So, Jerome Powell. I know you totally read my newsletter, don’t lie.

It’s time to cut rates! Got it? Ok good.

And now…

…Let us pause for a moment of sober reflection.

The economic trajectory of our nation troubles me deeply, and it should trouble us all.

We stand at a crossroads, where our inability to restrain the individual political nature of federal spending, now threatens us as together as a Nation. Not just our prosperity, but our very capacity to respond to the crises that have defined our history.

Time and again, in moments of genuine peril—be it the Civil War, the Great Depression, World War II, the Great Financial Crisis, or the COVID pandemic—it has been the United States Treasury that has served as our bulwark. Our creditworthiness provides a borrowing ability unmatched in human history. This unique superpower has preserved the Union and steadied the world. Our fiscal recklessness imperils this sacred role.

Today, with the current state of our finances, we would be hard pressed to do the same.

Until next time. Stay Curious. Stay Skeptical.

Herzliche Grüße,

-The Skeptical Investor

Hmm... dont know what this all means and how it relates to real estate but thanks for reading!

Welcome to the Skeptical Investor blog right here on BP! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

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Today, we’re talkin’ US-China tariff war pause, de-escalation of foreign conflicts x3, new inflation data, new labor data, new housing data, and an interesting divergence in consumer sentiment and home purchase confidence. You won’t want to miss.

Let’s get into it.

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Today’s Read Time: 8 minutes

Today’s Interest Rate: 6.92%

(☝️.04% from this time last week, 30-yr mortgage)

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The Weekly 3 in News:

1. - Homebuying remains strong in 2025. Home purchase application just hit 13 consecutive weeks of YoY growth (HousingWire).
2. - Real estate investment is poised to benefit as Congress begins debating the
3. - President’s tax proposals. Realtors call the draft plan “very positive” ().
4. The food scene in Nashville is just starting to pick up steam. And with the New Michelin Guide is coming to the Southern US, Nashville is likely to make some notable entries (SB).

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Where We Are.

The stock market is on fire this week; investors are feeling decidedly less bearish. This after:

• -Consumer Price inflation came in lower than expected: 2.3%,
• -India and Pakistan agree to a temporary ceasefire,
• -Putin (Russia) signals willingness to sit down with Zelensky (Ukraine),
• -Houthi (Yemen) - US ceasefire is positive for global trade through the Red Sea,
• -Presidential Executive order to lower drug prices (details really important here, could be a nothing-burger or a juicy rib-eye),
• -Congress is out with a draft legislation to cut taxes (some very positive real estate-related items in there, like bonus depreciation, mortgage deduction and opportunity zones),
• -and Secretary Bessent gave a news conference from Geneva announcing an outline for an agreement to escalate with China has been reached.

Questions remain on how all of these will manifest, but these events are extremely positive. The stock market is back to pre-tariff announcement levels.

Investors are feeling, well,,,, kinda like this today (classic flick).

Potential Pitfalls!

But it’s a tale of two cities on sentiment. Investors are feeling froggish, and consumers, skittish. Chart on:

Consumer sentiment is in the pits (UMich). Uncertainty and politics are flashing on the tele all day and night. Hell, the news is the best scary movie we have today (more later, keep reading).

Potential pitfalls abound, much like the classic video game. Watch out for the crocs!

Timeless, you don’t even know kids.

Another Tariff Pause?

Ok, I don’t want to get into tariffs too much, but we have to track the progress of these negotiations.

Want to know what’s happened so far with the US-China tariff fight? Here is a visual. Almost back to where we started. For now, that is.

The President also said he will speak with China's President Xi "[maybe at the end of the week].”

In summary, I still do think tariffs are for negotiation purposes only and not permanent economic policy. And that’s all the time I want to spend on that (you can read my recent reflections on tariffs here).

Plastic Still Swipin’

People may feel terrible about the economy’s prospects, but they’re still spending.

Consumer spending growth is holding steady.

Labor Market Still Strong

One reason for plastic being swiped everywhere: everyone has a job.

In April, the US economy added 177k jobs, and the unemployment rate remained unchanged at 4.2% (BLS). Of note, the unemployment has slowly levitated up for the last year and a half, albeit from a low base. I am keeping a sharp, Skeptical eye on it.

We are still at “full employment” (normally defined as sub-5% unemployment). Health care, transportation/warehousing, social assistance and finance sectors are leading the pack, with the sole major decliner being Federal Government employment, although that sector has been on a tear since 2015. Just look at the chart.

No that’s not Nvidia stock, that is government employee growth.

Not to be outdone, state and local government hiring has also been straight up and to the right (it was up again last month). Chart on:

Holy toledo.

Future Economic Vibes vs Economic Data of the Past

But all this being said, the feels about the future economy are still pessimistic.

Just look at the recent CNBC headline reporting on sentiment numbers.👇

Scary!

But this is soft survey data, as opposed to hard economic data.

What’s the difference?

Hard economic data objectively measure what happened in the past, ie “Inflation in Apirl was XX%….” They tell us the way we were. By contrast, surveys attempt to inform us more about what we think and expect. Surveys can also measure more directly and quickly the repercussions of recent developments on the consumer attitudes that affect their decisions and actions, since we don’t have to wait a month to get the data. As such, consumer surveys might improve forecasts of consumer spending, business investment, labor costs, inflation, bond yields, and monetary policy.

The problem, they don’t. Survey data is a good indicator of what others are feeling, which is helpful, but they are not a good measure of what is actually happening or, as they purport, could happen.

Fed Chair Jay Powell himself has said this about survey/sentiment data:

“Sentiment readings have not been a good predictor of consumption growth in recent years.”

Fed Chair Jerome Powell

Remember, consumer spending is ~70% of GDP.

Using Sentiment/Survey Data

That being said, survey data can be quite useful, when we want to act contrarian, to which most successful investors endeavor.

Let’s take two recent surveys to highlight something interesting I noticed this week: the Fannie Mae survey of home purchase sentiment and the University of Michigan general consumer sentiment survey.

These two surveys historically track each other. But starting in 2020, large gaps can be seen in their correlation. First in the second half of 2021, then again in the middle of 2024, and now (starting in December of 2024). What do all these have in common? Tremendous uncertainty driven by inflation, interest rate expectations, and political news, the latter being the most determinative, in this author’s opinion.

Why are we looking at this? Well, we should be hyper-aware when others are acting on negative feelings/sentiments/vibes. Case in point, when interest rates were near 0% in 2021 and you could get a mortgage for ~2.7%, sentiment dropped like a rock.

The problem? This was the precise time to buy (see chart above).

So, what does this chart say about today? I see the two diverging rapidly, consumer sentiment is once again falling like a Wile E Coyote anvil, while housing sentiment is far more robust.

In my opinion, this is red-hot rodeo bullish.

Zillow Heat Map

Speaking of a hot market, Zillow is out with an update to their Market Heat Index and a nice interactive heat map tool showing the strongest buyer and seller’s markets. A higher score indicates a hotter metro-level housing market where sellers have more power. A lower score indicates a colder metro-level housing market where buyers have more ( the index measures Zillow user engagement on active home listings, the share of listings with a price cut, and the share of for-sale listings going pending in 21 days). power.

The strongest sellers’ markets are in the Northeast and strongest buyers’ markets are almost wholly contained to Florida. Almost the whole state. Why? High insurance, inventory, recent rapid growth…a variety of reasons.

My home market of Nashville is in a neutral posture, like much of the South. Why? Still lots of large apartment inventory coming on-market that started construction 3-4 years ago when rates were low, but our growth is simultaneously providing strong absorption of that inventory.

Now this is NOT to say one market is “better” than another. I find myself often telling fellow investors and clients that we should be deal-dependent. Inter or intra-city. For example, a great deal in a C+ class area in a buyer’s market is likely a better deal than a good deal in a B+ area in a seller’s market.

What’s a great deal? For buyers, it’s getting the property below market value, below comparable median sales (for sellers, it’s the opposite).

*** Tangent Alert! ***

Guess what also happens when we turn the heat up on real estate?

We all love it when our home appreciates.

Yay!

And hate when property tax rates go up.

Boooo!

But, property taxes are more than just the rate.

Anecdote: I received a lovely present in the mail recently, reassessment on property taxes for a few properties in my portfolio (but not all, oddly enough). Remember, as home prices go up, so does the tax.

Well, ****.

But I digress….

A one-time property tax? Florida says Yes!

Why don’t we pay taxes on our property once at the time we buy/sell it, like everything else? Why is this a recurring, forever tax? Yes, yes, I know that it is the source of funds for state and local government, but I, for one, would like to see that source shifted to the consumption of goods and services. When I choose to buy something or sell something, I pay tax at the point of sale.

Property taxes are like subscriptions I don’t want (don’t get me started on subscriptions, hell, they even have subscriptions for sleeping now and “it’s less than a cup of coffee a day.” No! Can’t I own it instead of being owned? Arg! I’m gonna lose it!

What happens if you don’t pay your property tax? The government takes your home. In other words, do we really ownour home? Or are we leasing it from the Government?

Hmmm… Food for thought.

Are there any answers? Well, actually Florida is tackling this problem! (don’t say that every day).

They are exploring ending permanent property taxes. Their idea: pay the tax once when you buy/sell a home. Done. No tax subscription. That’s it.

I say, hell yes!

An argument I found very intriguing by Gov DeSantis: “If I go to Best Buy and buy a TV, I pay a sales tax—but I don’t keep paying taxes on it year after year.”

This would be a game changer for homeowners, developers, builders, renters aspiring to own, and particularly, those on fixed income (like my mom), whose property taxes are about to eclipse her social security check.

End it, I say! Shift this source of funds for the government to a small slice of consumption. After all, that’s most of the economy anyway.

My Skeptical Take:

So are we out of the danger zone for a recession? After all, the stock market is back to pre-tariff announcement / “Liberation Day!” levels!

We should be good to go, right?

Not quite.

And we have to be careful here to get overly confident. We should always remain skeptical of the current vibes flying around the economy.

But then again, my favorite indicator of a subsection of the consumer is on fire.

So, to be a little crass, which I like to do, I give you RICK! It’s stock’s is up ~20% in the last 30 days.

What is RICK’s business?

Stip clubs. The ultimate in discretionary spending.

Ok, I changed my mind, we are so back baby! 😁

The Fed’s Posture

Will the Fed cut rates soon? It’s difficult to say.

The Fed is stuck between both sides of its dual mandate: full employment and 2% inflation target. If they lower interest rates to help the job market, they risk prices spiraling out of control (and Powell ruining his legacy, missing inflation twice). If they increase interest rates (or keep tight for an extended period, like all of 2025) to nip any potential inflation in the bud, and they risk toppling the economy into mass unemployment.

So in response, the Fed is doing nothing. But I don’t think they keep doing nothing for 2025. I see rate cuts in our future, led by a more confident 10-yr Treasury in the second half of the year. I still think by year end we are sub-6% on the 30-yr mortgage.

But don’t count your chickens before they hatch.

Personally, I’m strategically optimistic. Tactically cynical.

I’m enjoying the renewed bull stock market, while it lasts.

And buying real estate to hedge, capture the upside if and when the market turns. Or, as it will likely be, some outside exogenous event occurs. These things are impossible to time.

So if the economy turns - or even just flashes recession for a month, a quarter, a year - I’m well-positioned for all seasons. If this happens, the Fed accelerates rate cuts, bond rates drop and I refinance the properties I have been slowly accumulating these last 3 years, holding my nose during the high-interest rate environment, allowing me to buy more at lower rates.

Owning real estate is the best hedge you can buy, my Skeptical friends. This new bull market will not last forever.

Think of owning real estate as a portfolio cushion. Or mafia boss protection.

Get some.

Until next time. Stay Curious. Stay Skeptical.

Herzliche Grüße,

-The Skeptical Investor

P.S. Want to talk real estate (especially in Nashville)? Reach out! I always chatting and who knows what serendipity may ensue.

“What you learn from history is the market goes down…and it goes down a lot…”

-Famed investor Peter Lynch

Hello BP! Welcome to my weekly Skeptical Investor article, right here on BP! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

Today’s Read Time: 7 minutes

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Today’s Interest Rate: 6.81%

(👇.17% from this time last week, 30-yr mortgage) --------------- The Weekly 3 in News:

1. - Tennessee ranks 2nd in future economic outlook and competitiveness, driven by low/pro-business policies ().
2. - New Titans stadium is on track for 2027 in Nashville, bringing not only a first class NFL experience but also a one of the country’s largest and newest advanced event spaces (Gov Lee).
3. - Looking to save some cashola? Tennessee is #1 in ease of saving money: low tax burden, relatively affordable living costs, and robust employment growth. With high interest rates and uncertainty, it may be time to take advantage of staying in cash and earn 4% ().

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Today, we’re talkin’ confusion in the market, a little trade war fun (I couldn’t resist), and how the real estate market is enduring the tumult…and, if you don’t give up after that, I do a little Tennessee corner. Some great local data for you local folks and investors interested in Nashville, TN.

Let’s get into it.

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First, Keep Perspective

Before I get started on a bit of a rant here, I want to be crystal: I am an optimistic and bullish investor in 2025, as I sit here at my desk in my office, sipping a coffee, looking out the window at my dog eat grass like a little cow in the backyard. Well, he’s really a land manatee but tomato, tomaato.

Not just a little bullish, big time bullish. Sentiment is down, yet the fundamentals of the economy are strong. Housing inventory has risen but housing supply just started falling off a cliff (keep reading). There is panic in the streets, but politics and emotions are driving it. Inflation is trending down. We are at full employment.

And even if we do have a dreaded “R-word…” oh hell, I’ll say it, Recession! That is just an opportunity to take advantage of undoubtedly low interest rates and even more fear in the streets. Also, recessions are normal, don’t freak out. If you can’t stomach the heat and volatility in the economy/market, get out of the kitchen.

Here is famed investor Peter Lynch explaining this point: 👇

“What you learn from history is the market goes down…and it goes down a lot…”

If everything was coming up roses, my skeptical spider sense would be on full blast nuclear attack red alert.

The fact is, I love this pessimistic setup for deploying some of my hard-earned capital.

Ok, and now….on a more tactical level…it’s rant time.

Dazed and Confused!?

I see more confusion in all markets today than since the last economic calamity: the 2008 Great Financial Crisis.

Granted, the rough economic barometer - the stock market - has recovered ~11% from the early April lows, sure. But today is Tuesday at 10 am. How about tomorrow? Later today? Hell, 20 minutes from now? Who knows. Why?

A very confusing federal policy message from up top:

• -“Fire Jerome Powell!”…“No, we aren’t even considering that.”
• -“We are close to a trade deal with China!” China: “We aren’t talking to the US.”
• Saturday: “We are exempting auto manufacturers from tariffs!”…“Sunday: ‘No we’re not.”
• -‘Tariffs are about trade fairness for US business…” “No, they are revenue raising, you won’t have to pay any more income taxes!”

One can see how this may be a little, well, strenuous…

Tariff Party Fouls with Forever Earthlings

These are economic party fouls concerning policy process and execution, which make the market environment, in which we as investors operate, clear as mud. The overt “strategy” from the Administration is and importance, but is that an appropriate tack in global trade where we have to work with these folks forever. That is a long time. I don’t think we are getting to Mars anytime soon (but I am so down to go!).

IMO, there will likely be unintended consequences and third-order effects.

Note: Again, I am not passing judgment on tariffs as a negotiation tool (it could be a very effective policy tact). I’m criticizing the process here, which is leading to unnecessary confusion. This could have been done better. It’s an economic party foul.

Hell, one probably shouldn’t impose a one-size-fits-all tariff policy AND do it on every country simultaneously AND talk **** AND…. well that’s enough for now. You need to assess the volume and types of imports and exports, identify key products, determine what changes are feasible, and, importantly, what are the national security concerns. That demands individual conversations, not a blanket approach.

Realistically, can you negotiate with 100 countries at once? No. The ongoing tariff debates, coupled with exemptions like those for chips, autos, rare earths are spurring widespread unpredictability. This unease is impacting not just the US but global markets as well. Even the Federal Reserve is affected, with Fed Chair Jerome Powell navigating a challenging landscape. Imagine Powell's perspective: dealing with a an Administration oscillating between praising and threatening to fire him. This push-pull only deepens the uncertainty. It is unnecessary.

Counterpoint: But it could work… Only time will tell…

We don’t know, and we can’t affect policy (even if I were back in Congress). So we need to take action to operate in this environment for us and ours. That’s investing, remaining patient, navigating uncertainty and being ready to strike when we see opportunity. That’s it. And that is why we generate alpha, if we are any good at it.

Ok, phew, rant done. That was cathartic. Thanks for listening.

Now let’s talk about the economy and then real estate.

Economic Backdrop

Remember, these process offenses are against a backdrop of existing macroeconomic concerns:

• - Inflation: Currently at 2.5% (PCE), trending down but still above the target. Will tariffs reverse this trend?
• - Growth and Employment: Risks of slower growth and a weakening labor market. Are businesses pulling back hiring and/or starting to lay workers off?
• - Large public companies are pulling their earnings guidance for the year, uncertain about the year’s outlook.
• - Credit risk: stock market unrealized losses will mean wealthy individuals feel less wealthy and have less borrowing power to invest in their own real estate projects (they get favorable loans against their stock market portfolio), and they are less likely to deploy capital, which is a primary source of funds for new large housing projects. This could have downstream effects on the construction labor force and construction material supply chain, which is also roiling from trade policy uncertainty.

Hot Take - The Fed should be cutting rates now. But they don't want to be political. Which is ironically political.

Real Estate Anecdote: Materials not largely affected

Fortunately, most builders are not seeing large price increases in building supplies (NAHB). And they won’t. Remember ~93% of building supplies are produced domestically, and for non-residential construction (ie concrete) that number is close to ~97%. For example: large apartment developers expect tariffs to increase prices just 1%-3% (Parsons).

Further Reading: Full Picture on Tariffs

For a more complete picture tariffs, and the uncertainty they are spewing into the economic ether, I recommend the latest episode of BG2Pod with two great investors Brad Gerstner and Bill Gurley. Can’t recommend it highly enough for your next car ride/hike/dog park bench sitting pretending not to look at the pretty girl to your left.

A major source of acute economic uncertainty is in the real estate market, and it is not getting a lot of play in the press…

Housing Units Are About to Fall Off a Cliff

It’s housing construction/new starts/new units coming on market, which, after being at historically high levels, just peaked. The cliff edge is here.

And economic uncertainty will amplify the effect by slowing deal flow and access to capital. Further slowing new construction and new available housing units.

This is a BIG deal for anyone who owns residential/multifamily real estate.

I’ll explain.

Construction 👇= Prices ☝️

Think rents are high now? Just wait till 2026.

Last year, and continuing into 2025, a record number of apartment units came on the market.

This is still suppressing rent growth (I know it doesn’t feel like that renters but it has been true for the last 6+ months, rent growth is way down. I recommend you lock in a 24 month lease today if your landlord will do it (we do 🙂 ).

Here is a nice chart from @JBREC showing that more than 50% of apartments (built to rent) came on the market in just the last two years.

But, after 2025, we have a major problem.

After several years of astonishingly high supply coming on market, new apartment unit deliveries have now officially peaked (Parsons).

Completions are also slowly trending down for new residential/single family homes as well, albeit not nearly as sharply. Although this trend is much more pronounced in real life, adjusting for population growth and household formation.

And this is just the beginning, new housing units are about to take the elevator down faster than a Die Hard movie.

Future apartment unit growth in major cities is already way way down. In places like San Antonio, Orlando and my hometown of Nashville, apartment starts are down 50%-70%+.

Why is this happening? Well, it takes around 4 years to build an apartment building (including all the regulatory fun), and 4 years ago we had near zero % interest rates. That was a catalyst for developers to raise cheap money and build!

No longer, with rates today these projects just don’t pencil.

Moreover - again I need to make the point - market uncertainty will make raising money far more difficult. It’s hard to raise a ton of money to build a building, let alone while we have high interest rates and a dubious economic outlook.

Credit to @jayparsons

Housing Shortage Widens

Why is all this supply talk such a big deal? We have a significant housing shortage in America. How many housing units are we short in the US?

We are currently short than we need in the US. This is crisis-level stuff. And why young folks are so frustrated with home affordably.

But in these 15 markets, where populations are growing fastest, it’s about to get even tighter.

What does this mean? Simple, absent more supply (which takes years to come online), home prices ☝️ and rents ☝️.

When exactly will apartment supplies drop below Pre-COVID levels?

Depends on the city. (chart)

In my home market of Nashville, for example, in the second half of 2025 apartment supply will be back down below 2019 levels, and falling from there. If you are in a growth market like us where newly hired labor is hot, I bet your city is on the chart above (and perhaps the rental chart below too).

Wage growth no longer outpacing shelter growth

Until now, the story has been..”well at least wage growth is outpacing shelter costs…”

No longer.

Shelter inflation is finally below 4%, to 3.99%. Good!! This means we are normalizing. We are getting closer to pre-pandemic rent inflation numbers. (But not if we don’t build more housing units, see above).

But now wage growth has dropped below that, 3.83% Ahrgg!!

**And before you email me, yes, I know there is lots of data out there that differs. I’m using all BLS gov data. (CPI shelter in urban cities and average private sector hourly earnings for my calculations).

Rental property investors should take note.

Ok, phew, that was a lot. Now I’m changing gears for a quick local update.

Stay with me, if you are interested in Nashville, it’s worth it!

Tennessee Corner

Let’s talk about my home market of Nashville. The city is extremely young and underdeveloped, except for a few large institutional apartment towers. No river development, very few green spaces or city walks. Yes a few parks, but we can do better. And smaller developers/investors (like me) are just getting started, plenty of neighborhoods with cool/unique vibes that are up and coming. Plus, the city government is also just getting started designing/planning for the future and taking action on those plans.

Nashville is really starting to punch above its weight, and has yet to fill-out its lanky body. Case in point, in 2024 alone, 16.8 million visitors came to Nashville. That’s on a population of 700k.

It's morning in Nashville.

What to know what else? It’s great for business here too.

Tennessee now ranks 2nd in future economic outlook, moving up from 6th place, in a recent ALEC report. (Fun fact, TN is now the 15th most populous state (7.2 million), just in front of Massachusetts (7.1M) and behind Arizona (7.5M)).

Nashville is one city where we are going to need a LOT more homes/housing units. Doing some quick math, Nashville is home to a wild number of young people: 40.4% of the city is under 30 years of age, the prime age of household formation.

So come to Nashville, and drop me a line when you do!

My Skeptical Take:

Uncertainty is abound; this will feed into the housing picture.

But remember, sentiment can turn on a dime.

All we need is 1 rate cut and 2-3 trade deals with a top 20 country. Negotiations and in this case, trade, there is almost always a first mover advantage. He moves first gets the best deal. I expect a few agreements to start rolling out in ~30 days.

If this happens, Wall Street will suddenly contract amnesia...

***Want to read the rest of my article? Just DM and and I'll send it to ya! After all, isn't person-person interaction what BP is all about? :) Let's chat!

-The Skeptical Investor

what specifically do you want help with? There’s 1000 things to talk about when we’re talking development. 

happy to chat again if you would like to talk off-line. Hard to get into it writing back and forth


Quote from @Randy Davis:

Quote from @Andreas Mueller:

Dont know what you need here but looks like a fun/lucrative endeavor. 

Is there a question you may have?

And STRs are still fantastic here in Nashville on the high end. You just can't be average. Its a professional business, you need to come correct. But those that do kill it. We had 16.8 million (yes million) on a population of 700k in 2024. 

Happy to chat anytime, DM me. I always love talking real estate.

Thanks Andreas - I'm excited about it too. And Vastland is the one building it. You're probably familiar with them. They generally do top notch work. 

I was really just mainly looking to see if anybody had pointers on this type of investment that I hadn't already considered. Also, since this is a bit unique to Nashville, wondering if anyone had thoughts about that type of a venture in the Nashville market. 

I don't think it's going to make a killing in the short term, but once the brand is established I think it could be quite lucrative. The key for me is to be able to cash flow in the short term, and then to get out before property becomes dated, HOA fees skyrocket, etc.

Dont know what you need here but looks like a fun/lucrative endeavor. 

Is there a question you may have?

And STRs are still fantastic here in Nashville on the high end. You just can't be average. Its a professional business, you need to come correct. But those that do kill it. We had 16.8 million (yes million) on a population of 700k in 2024. 

Happy to chat anytime, DM me. I always love talking real estate.

Welcome to my Skeptical Investor Article, right here on BP! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

Today’s Interest Rate: 6.98%

(👇.01% from this time last week, 30-yr mortgage) The Weekly 3 in News: 

1. - Zillow turns bear, projects that U.S. home prices will fall -1.7% between March - 2025 and March 2026. Last month, Zillow said home prices would rise this year. Uncertainty is pervasive and self-fulfilling (Zillow). 
2. - Stocks turning Bear, down close to 20% from the January highs (AP). 
3. - Surprising demand resilience for housing: Despite high rates, housing demand is up, with existing-home sales 4.2% higher MoM, driven by increased inventory and steady buyer interest. April 24th is the next existing home reading, and will be telling (NAR). 

Today, we’re talkin’ total market update, sans trade/tariffs (I think we are all a little tired of that subject). Pessimistic news and tumbling stock market got you down? Stop hitting refresh on your Robin Hood account for a moment and tune in. You can’t do anything about it anyway. 

As the old Hank Williams song goes: “The interest is up and the stock market’s down and you only get mugged if you go downtown…” and when you panic about the economy and do something stupid you will regret. 

Instead, fellow Skeptic, you can protect yourself. 

Let’s get into it.

The Pulse of Our Shared Prosperity

The economy, in a capitalist society, is a fragile dance of opportunity, aspiration and execution. And when someone or something rudely cuts in, that delicate balance is disrupted. 

This may or may not be the case today. 

Unfortunately, we often identify economic problems - including the dreaded R-word - in hindsight. Data is lagging, and it takes time to collect and analyze. Many economic indicators are untrustworthy, often showing conflicting or mixed signals that are difficult to filter. Plus, for some reason, human psychology resists acknowledging downturns until they’re unmistakable. 

In an era of fractured certainties, let me offer this with precision: I do not think we are in a recession, nor do I think we are headed for one… 

…Yet. (I’ll let you know, if I can resist my biology). 

We are far more likely, even if uncertainty persists, passing through a fleeting moment of adversity, fraught with: gross political turbulence, pessimistic sentiment and - perhaps - slower economic growth. But growth nonetheless. 

What does exist is heightened risk, because the state of affairs could completely change tomorrow, to the up- or downside. The unique attribute about this political environment is: execution happens rapidly, no matter how you judge it. It’s an interesting time to be alive on this cosmic molten stone, that’s for sure.

Are we headed for or entering a recession? I’m quite skeptical. Up until now, the worry has been the opposite of recession, an overheating economy and inflation. 

And it bears mentioning, recessions happen all the time (again, not saying we are headed toward one). It is not the end of the world and is healthy for a thriving long-term economy, much like small fires are beneficial for a thriving forest.

Markets run in cycles. And the thing about both bull and bear markets is, they are self-fulfilling flywheels. Negativity can rapidly set in, even if it’s not warranted. Remember, 2/3 of GDP is consumer spending. If the consumer starts to get too pessimistic, that eventually starts to really matter. After all, one household’s spending is another household’s income.

We have been in quite the bull market for quite a while. Now we have a correction in the stock market. Will this proliferate to the economy? 

Here is the stock market with stock markets, recessions are marked. 

And home prices, again with recessions marked. 

Recessions and economic slowdowns happen. And the world keeps spinning, especially here in the US. Just keep everything in perspective. 

Ok, let’s look at some numbers.

Positive Economic Indicators

Coming off the all-time highs in January, the stock market is close to hitting a true Bear Market (-20%) today, after last bottoming April 7-8. (the tech-heavy Nasdaq has entered a Bear Market). 

Was this the bottom of the market correction? Could be. Or maybe we retest those lows but IMO we have seen the worst reaction from markets, barring a new surprise of course. 

Labor Markets Holding up Well

Unemployment doesn’t look bad at all, labor is still scarce, and job quitting has normalized to historic levels. Last week, jobless claims came in at 215,000, a decrease of 9,000 from the previous week. The 4-week moving average was 220,750, a decrease of 2,500 from the previous week's average. 

Job openings remained robust and largely unchanged at 7.6 million from the previous month, with some increased separations seen in government employees. Job openings are still above pre-pandemic levels.

Perhaps the rate of hiring could slow from here, but again, so far so good on the labor front. 

Consumers are spending at a higher clip than last year. Retail sales were up again last month. 

Inflation is still trending down, both core and headline. 

Total industrial production is still holding up, positive YoY. 

Wage growth is still at historic levels, and is more than 1% higher than inflation. This is very positive, in my view. The trend looks down, but I view this as normalizing, not concerning. We are way above pre-COVID levels. 

Lots of positive data out there as you can see. 

Negative and Mixed Economic Indicators

Consumer confidence in March was down again, for the fourth consecutive month the lowest level in 12 years and well below the threshold of 80 that usually signals a recession ahead (Conference Board). “Consumers’ expectations were especially gloomy, with pessimism about future business conditions deepening and confidence about future employment prospects.” Now, confidence surveys are historically not great indicators, but this is definitely at yellow alert levels. When consumers stop spending, that pessimism can be a self-fulfilling prophecy of recession. More than 60% of our economy is attributed to consumer spending. 

Durable goods orders are positive YoY and in total dollar amount, but could be trending down after pulling through so much during COVID. 

Housing starts eked out an ever so slightly positive number, but this is likely attributable to high interest rates. 

Luxury brands like LVMH have begun 2025 on a poor note, with sales falling 2% in the first three months. Could be nothing, as the company says. Could be a trend/signal. 

Business investment remains positive, but could be in a downtrend. Capital expenditure may remain strong in certain sectors (e.g., tech) while others contract, creating uneven signals.

Purchase Manager’s Index (PMI) was 49% in March, 1.3% lower compared to February (PMI above 42.3% generally indicates economic expansion. PMI is a composite index that measures the performance of the manufacturing and service sectors of an economy). Of note: the New Orders Index contracted for the second month in a row following a three-month period of expansion. A PMI near 50 can also indicate a mixed sentiment in the market, rather than clear expansion or contraction.

Where does all this put us, real estate investors?

The indicators overlaying the political environment make me slightly worried re: interest rates. Fed Chair Powell may be reluctant to cut rates, as folks are arguing he perhaps should, so as not to appear political. I fear that avoiding the perception of acting politically in the face of the President calling him names for not cutting rates, ironically, makes the decision not to cut in May, June or even July, a political decision. 

Last week (April 16th), Powell signaled patience amidst uncertainty, saying, “For the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance.”

I still think the Fed will not in May, and markets agree, and renewed political pressure on the Fed by the President could backfire, resulting in fewer cuts in 2025 (2 or fewer).

As of now, markets are pricing in a razor-thin 50.9% chance of 4 rate cuts in 2025. Tough call. I think we get 3 x .25% cuts, given the above data. 

My Skeptical Take:

More these days, I’m hearing fellow investors and prospective homebuyers utter the phrase “that’s too risky… I don’t want to take a risk.”

But, sometimes taking a risk is the safest thing to do...

Cont....

Want to read the rest? Send me a DM! After all, conversing with your fellow BP compatriot is the point of being in the BP community!

-Andreas

Welcome to the Skeptical Investor post on Bigger Pockets, A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

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What a wild ride!

Today, we’re talkin’ stock market chaos, trade, tariffs, lower prices and what real estate investors should be doing to come out ahead. I go deep here, you don’t want to skip this week’s newsletter!

Let’s get into it.

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Today’s Interest Rate: 6.75%

(flat % from this time last week, 30-yr mortgage)

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The Weekly 3 in News:

1. - Markets now predicting 4 interest rate cuts in 2025 ().
2. - Nashville News - Nashville unemployment is 3.1%, 1.3% lower than the national average. Nashville is cookin’! (BLS).
3. - Housing Input prices are plummeting. First interest rates, now lumber.

Investor Pep Talk

I’m not happy with what is happening in the market. If you own stocks, this is not fun.

I do. It doesn’t feel great.

But let’s be honest. Most folks in the market are wealthy, relative to others.

Sorry, it’s true.

An anecdote: in the summer of 2024 “[a record number of Americans both vacationed in Europe and were forced to get meals at food banks] (Bessant).”

Remember, the top 10% of Americans own 88% of stocks, the next 40% owns just 12% of the stock market. The bottom 50% does not own much if any stocks, or any other asset for that matter. They have debt: car loans, student loans, credit card loans.

Fellow investors, these are your tenants.

So while the stock market is down, so are interest rates, which is more impactful for most Americans who are unfortunate debtors.

It’s also particularly impactful for real estate investors.

For the wealthy, it’s not actually about money. It’s the mood. The wealth effect for them is quite pronounced. They will pull back aggressively with their spending/buying/ investing.

When the stock market plummets it makes them feel poor.

So for you fellow investors, real estate owners, and landlords I say to you:

This too shall pass.

(It might be like passing a kidney stone, but it will pass).

You only lose money when you sell. Remind yourself of this.

I’m not changing my investment thesis. Real estate is the survivor asset, when times get tough, it gets better.

And guess what else is way down? Prices.

Eggs, gas/energy, bacon, milk….all down.

This is great for your tenants.

Ok, had to get that out of my head. Now buckle up, I have a TON of great information for you today.

Let’s Get Some Perspective

We (the news, people online, nervous investors…) are talking mainly about the stock market reaction over the last 7 days.

Again, remember stockholders, you only lose money when you panic and sell.

The truth is, this is not a historic moment.

There have been 6 bear markets (down 20%) in my lifetime. This is likely the 7th.

A-Political Politics

I try not to get political here, and I’m not starting now.

But because the market reaction is fomenting so many of my readers and investors, I’m going to draw on my time on Capitol Hill to address what is happening with tariffs, trade, negotiations, and how all this affects the housing market, ie us real estate investors. Importantly, I am going to pass judgment. I’m sticking to the facts I see from the data while providing predictions on the results.

My first thought is: nobody, including should be surprised that the President (POTUS) followed through with implementing tariffs on imported goods, even if they were more robust than a bunch of pencil pushers on Wall Street were expecting.

He talked about it constantly. Hell, here he is decades ago talking about it on Oprah:

What is Happening Anyway???

A brief summary of the week: “[POTUS announced sweeping new import tariffs, including a baseline 10% duty on virtually all imports with higher rates for certain countries. In response, China immediately implemented 34% tariffs on all U.S. goods while tightening export controls on critical minerals, the EU announced counter-tariffs up to 25% on select U.S. products, and Canada imposed 25% tariffs on select U.S. products. In addition to China, the EU, and Canada, numerous other countries, including U.S. trading partners across Asia and Latin America, have signaled readiness to impose retaliatory tariffs or trade restrictions. These measures triggered a severe market response, with the S&P 500 declining 10.5% over two days, erasing around $5 trillion of market value (chamath).]”

Why is this Happening?

First and foremost, I still view tariffs not as an end state, but as a means. A high ceiling has been set. This is where negotiations start.

And, dare I say, this POTUS very much enjoys a good negotiation.

What the Administration is doing is turning their world upside down, rewriting the financially-stimulated global economy. Case in point: We spent $10 trillion to try to avoid a recession during COVID, only to cause extreme inflation and indebtedness to the tune of $36 trillion that we must now refinance. As a result, we now spend $1.1 trillion / year just on the national debt’s interest payments. Again, not passing judgment, that is what happened.

The aim of these actions is “less financialization, less Wall Street and more “Main Street,” boost manufacturing in America and reduce global integration, with a focus on China and its subsidized economy and, yes, slave labor.

It’s a big gamble.

And we will eventually have to figure out how we trade and interact with the global economy. America First maybe, but it can’t be America Only.

The Administration has implemented a Dual Mandate.

Their North Star is: reduce interest rates so that:

1. 1 - The non-wealthy / “main-street” / “tenant-class” must pay less for consumer goods & energy (Bessant) and get out from under their tremendous debt load, and
2. 2 - The country’s $36 trillion debt can be refinanced at lower rates without bankrupting the country.

And I do have to say the method to this madness has been a bit, shall we say, brash. The execution is reckless. Perhaps that is the intent? Will they be right? I don’t know. But so far…

It’s working…

Oil prices:

10-Yr Treasury:

30-yr Mortgage:

Prices are cratering and the 10-yr treasury / 30-yr mortgage is cooking.

The Negotiation to Critical Mass Begins

The negotiations and concessions have begun. The next few weeks will be frantic, with negotiation lines being drawn and redrawn very quickly. In a month or two, we could be looking at an entirely different geopolitical trade order.

Already we are seeing reports from Argentina, Taiwan, Japan, Israel, Vietnam and… just a moment ago, the European Union said it wants to negotiate a zero-for-zero tariff trade deal.

It’s been just a few days…

If this persists, and individual countries (and large corporations) make deals with the US , at some point, we will reach a critical mass. Once perhaps 3, 5, maybe 10 larger-er countries make deals, the political calculus for negotiations will 180, from “screw this impose our own retaliatory tariffs/we don’t have to play this game”

to…

“Oh ****, countries are making new agreements, we need to cut a deal NOW.”

And this just in…

Over the weekend, more than 50 countries reached out to negotiate.

I this true or political posturing?

No idea.

But one fact does remain: you do NOT want to be last to negotiate. It’s a bit of a prisoner’s dilemma.

Once the market (stock/bond) sees Critical Mass on the horizon (I need a better phrase for what is about to happen) the stock market is going to go into launch mode. If you own stocks, you won’t want to miss that.

What am I doing with my stock portfolio? Nothing. Patience, not panic.

This is actually normal. This has happened many times before, it’s just a new kind of surprise.

What am I doing with my real estate portfolio? I’m rasing funds and refinancing (soon) to go bigger than ever before (keep reading).

The economy is fine and real estate investors will win

Last week we saw that breakfast is getting cheaper: eggs, milk, orange juice and bacon.

Inflation is trending down. So far.

Again, energy prices are cratering. I have to look at an energy chart again:

Holy hell!

Tariffs haven’t even taken effect yet

Importantly, tariffs don’t actually take effect until April 10th. So far it’s mostly the stock market that is having a tantrum.

Are we headed to a recession? Let’s look at some future/signal data.

Construction is gaining steam: “Today, residential building construction hit a new cycle high. Residential building construction is usually in contraction well before most traditional recessions start (Lambert).”

Props to @NewsLambert for Chart!

So far, we do not have a recession signal from the housing market. In fact…

We also have positive, forward-looking housing data

Even amidst all this trade-war posturing. Here are some fast facts from housing analysis Logan Mohtashami:

• -Purchase applications for homes are positive
• -Weekly pending contracts are positive
• -Total pending contracts are positive
• -New listings data positive

And because of the wild appreciation in home prices, homeowners are in a much better financial position than ever before, adding robustness to the economy.

The average loan-to-value for all outstanding mortgages is only 46.9%, and only 0.3% of borrowers are underwater on their homes. True, the total number of borrowers in delinquency is creeping higher, but still very very low (Simonsen).

The Bond market is not freaking out.

Another positive indicator, the bond market, the big brother of the stock market (1.5x the size), is remaining relatively calm. The all-important 10-yr Treasury is continuing to tick down, passing 4% yield for a moment last Friday but there is no crash to safety. It’s actually acting quite sensible.

Free trade might be ideal, but we don’t live in an ideal world.

Our national debt, and the interest we are paying on it, is an existential risk lurking below the surface of the economy. In a perfect world, we should not be for any tariffs, but we are in a fiscally unsustainable economy. Getting our debt under control is imperative. If tariffs make interest rates crash, and even cause a recession the long-term outcome will be better for the US.

Yes, that is a big IF.

Short term, this will suck for stocks and we must be particularly mindful of job losses, recession or not. So far, the labor market is remaining strong, but then again, tariffs haven’t even hit yet. We are still in the stock market tantrum phase.

On Friday, we got positive labor and unemployment numbers:

Here is famed investor Stanley Druckenmiller to explain what I’m talking about:

Mortgage Relief is In Sight

Home affordability has become wildly difficult in just the last few years.

BUT..

Home prices may be permanent, but your monthly mortgage is not.

Why?

Most of your new mortgage is interest, not principle, and thus as interest rates tick down the monthly cost of home ownership will depreciate. And it will be meaningful.

Interest rates are close to 7%. As rates tick down to say 5.5% (where I think we will land) that could mean a ~25% reduction in interest payments. And if the trade war continues 5% is very much within reach.

So while home prices are stuck where they are, and will continue to appreciate over time, 2025 will likely bring mortgage relief.

And let’s be honest, most folks care about/ budget for their monthly costs more than prices.

A Quick Example - Mortgages are 👇!

January - If you bought a $400,000 home here in Nashville, my home market, at a then 7.26% 30-yr mortgage and 20% down you would have a $2535 mortgage payment.

This week, at 6.75%, that same home would be $2425. (4% less)

If rates keep falling to 5%, as they very well could with this wild trade war, you would have a $2067. mortgage payment.

That’s a 22.6% reduction.

And you probably could negotiate the price down (I am), taking advantage of stock owners’ panic and pull back from making large investments.

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My Skeptical Take:

In my opinion, tariffs....

Want the rest of this article? Send me a DM. After all, isn't investor discussion what BP is all about?

Dont be a stranger. :)

Herzliche Grüße,

-The Skeptical Investor

Average STRs yes are "overpopulated," (ie for a given place you are getting lesss rent than get 3+ years ago).

But the stand-out STRs are soaking up all the business.  My clients buying STRs who make them stand out/amazing/unique rentals in Nashville are absolutely killing it. 

You can't be average and expect above-average cash flow just because it's an STR.

Real estate is professionalized. This isn't 2014 anymore.