Tuesday, December 5, 2023

The State of Our Economy with Andrew Davis, Wes Reinhardt, and Chris Youngblood

Meetup Recap
podcastEconomyStatemeetup

From the AVLmeetup event on December 5, 2023

The State of OUR Economy - 2023

Event details, podcast, and full transcript ›

https://youtu.be/3nomTcmZbQY

Timestamps

  • (00:01) - Real Estate Networking and Education
  • (09:50) - Interpreting Graphs, Supply, Demand, and Pricing
  • (14:23) - Risks, Rising Debt, and Housing Affordability
  • (26:32) - Preparing for Economic Challenges in Real Estate
  • (41:11) - Navigating Current Economic Conditions
  • (49:36) - Future Economy Predictions and Outlook
  • (59:18) - Adapting to Market Change and Opportunities

Key Takeaways

  • The average Buncombe County sale price in November 2023 was $701,000, with a median of $485,000, and closed prices were still trending up even with rates at their highest level in about 23 years.
  • The federal funds rate rose five percentage points in 14 months. Chris Youngblood called that pace unprecedented, and said commercial loans written at 3% to 4% now balloon into a math problem for the borrower and the bank.
  • The golden handcuffs are arithmetic. Most outstanding mortgage debt carries a rate between 3% and 4%, and at 7.5% the same monthly payment supports about $174,000 of house instead of $240,000. A seller's next home has to be roughly 28% cheaper to keep the payment flat.
  • Consumers are carrying more risk into that math: credit card balances were up about 22% year over year, balances at least 30 days delinquent were up about 72%, and real median household income has fallen since before the pandemic.
  • DLP Capital paused acquisitions in its multifamily housing fund for 14 months and pivoted to ground up development, where Andrew Davis said they can deliver between $175,000 and $275,000 a door against $300,000 to $400,000 a door for existing product.

Summary

Join us for a down an dirty Economics lesson from Zac Ruiz of the Ruiz Report to set the stage for our panel discussion with Andrew Davis of DLP Capital, Wes Reinhardt of Altamus, and Chris Youngblood of First Bank.

First we'll guide you through the complexities of the federal funds rate, mortgage rates, and various types of debt before our very candid panel discussion on the impacts of rising debts and the decreasing affordability of housing.

After that, we gaze into our fuzzy crystal ball to share our predictions and outlook for the future of the economy on both a national and local (WNC/Asheville) level.

In this episode we discuss the effects of inflation, regional real estate trends, and the current political climate. We'll also reveal how changes in the real estate market can lead to new opportunities, sharing personal anecdotes to demonstrate the evolution of our investment strategies.

Whether you're a seasoned professional or a newcomer to the real estate world, tune in to this episode packed with valuable insights and actionable advice.

Questions From the Room

  • At what point did the bump in the road become the new road? Chris Youngblood said it landed for him when spreadsheet margin compression turned into lunch conversations: a business owner trying to find childcare for a daughter, another at 65 planning to work another ten years. Wes Reinhardt, who spent a decade as a commodity futures trader, said adversity creates opportunity and he learned to change his mind twenty times a day. Andrew Davis called it a progressive revelation. He expected deals when COVID hit, expected them again when the Fed moved, and slowly accepted that this cycle has fundamentally different factors at play.

  • What price point counts as workforce housing? Andrew Davis gave the formula DLP Capital uses everywhere it operates: take the median household income in that market and guarantee that rent in their community never exceeds 30% of it. Across their portfolio, the average rent works out to about $1,200. He said the rule protects tenants and also keeps their underwriting honest, because it stops the team from speculating on rent growth.

  • What has to happen for the money on the sidelines to come back in? Wes Reinhardt said the textbook answer is capitulation, but he does not expect to see it, and looks for sideways action until the election. Keep your powder dry. Andrew Davis pointed out that institutional dry powder has different targets than an individual investor, and is thrilled with a conservative 9%. Chris Youngblood put it as household math: if an acquisition returns 6% or 7% with tenant and economic risk, and treasuries pay 4.5% to 5% with none, many people are choosing the treasuries.

  • How should people navigate this environment right now? Chris advised being deliberate about any spending, watching customer concentration, and protecting liquidity so you are not dependent on a bank. Andrew said single family is still a real wealth builder, but the cash flow does not pencil today, so go in expecting appreciation and equity rather than monthly income. Wes told owners to get in front of their banker well before a loan matures, and to sharpen the expense side, because a shopping center running $5 a square foot in operating expenses beats a comparable one that does not.

  • If we are sitting here a year from now, what are we talking about? Andrew was the least optimistic. He expects falling rates to pull another rush into single family and push prices up again, with corrections that are regional and asset specific rather than a broad wave of distress, because there is too much dry powder waiting. Wes is bullish on Asheville and North Carolina on in-migration from New York, California, and Florida, and expects sideways national action into the election. Chris is also bullish locally, and noted that inventory stays locked up while owners hold 2.9% and 3.1% mortgages, though some analysts expected as much as 135 basis points of rate cuts the following year.

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