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:
- - Homebuying remains strong in 2025. Home purchase application just hit 13 consecutive weeks of YoY growth (HousingWire).
- - Real estate investment is poised to benefit as Congress begins debating the
- - President’s tax proposals. Realtors call the draft plan “very positive” ().
- 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.
