Is Now the BEST Time to Invest?

Dave:
Hey everyone. Welcome to On The Market. I’m your host, Dave Meyer. Joined today by Jamil Damji, Kathy Fettke, Henry Washington. What’s going on everyone?

Henry:
Yo! What’s up?

Kathy:
Ooh, excited for a debate today.

Dave:
Yeah. This one’s going to be fun.

Jamil:
I like debates because the last time we did one, I won.

Dave:
You did. We don’t have point, or maybe I’ll sign some points here. I don’t know. Last time was at BP Con and Jamil famously destroyed everyone else and won the right to plan episode of On The Market.
I don’t think we have stakes for this one, but I am still looking forward to a spirited debate, because we have a topic that is definitely controversial right now.
And we’re going to be talking about whether or not we are in a recession right now. If we are going into a recession. We’re also going to talk about whether or not we were in a recession last year. And I am looking forward to this conversation. I have no idea how any of you feel about this, so I think it’s going to be fun to talk about this.

Kathy:
What happens if we all agree?

Dave:
I will pretend I disagree with you to make some drama.

Kathy:
Perfect.

Dave:
Well, unless, maybe I will naturally disagree.

Jamil:
He’ll play devil’s advocate.

Dave:
Yeah, exactly. So that is what we got on tap for you guys. Just so you know, that the reason that this is a debate in the first place is because the way a recession is defined in the United States is by a government entity called the National Bureau of Economic Research, and they do it retroactively. So they basically wait until well after the economic turmoil has happened, and then they say, like, “Okay, this is when the recession started. This is when it ended.” But it could be years after it started.
In the Great Recession, things started falling apart in 2007, 2008. It wasn’t until 2009 that they said the recession started back in 2007, for example. And I know some people believe that this has changed over time and that the government has changed the way that recessions are defined. That is not true. This is the way it’s been defined since 2000 and or back into the 1970s.
But I will just say that, because the way that we define recession is sort of confusing and retroactive. Most people use the definition of two consecutive quarters of GDP declines. That is what most people talk about. And so we’re going to talk about today, whether we think that is an appropriate definition of a recession, and if so, are we in one? Are we not in one? And get into all that.
So this will be a really fun conversation. I think we’ll learn about lot. We’re going to talk about what indicators everyone follows to track if we’re in a recession or not. So we’re going to get into that in just a second, but first we’re going to take a quick break.
Okay, let’s jump into this topic. Before we get into talking about today, let’s talk about last year, because as I said at the top of the show, the traditional sort of commonly used definition of recession, two consecutive quarters of GDP declines, which we saw in 2022. First and second quarter, we saw real GDP declines, but to date we have not heard from the National Bureau of Economic Research that we were in a recession. They still could do that retroactively. Haven’t said it yet.
So Kathy, let’s start with you. What do you think? Were we in a recession last year?

Kathy:
We might look back and say that, that was the recession that everybody was panicking about. We really don’t know, and I think we will look back and it’ll be crystal clear at some point.
But I would say that there were certainly industries in recession. Real estate, one of them. Real estate sales, definitely in a recession, but not everything else. I mean, job growth still strong and we had two consecutive positive GDPs right afterwards.

Dave:
Yeah. It’s very, very strange. Last year was a very weird time because some markets were, I guess we’re going to say that a lot probably over the course of this episode, but we did see those two consecutive quarters of GDP growth. And I should probably say, if you don’t know, GDP stands for gross domestic product. It is basically a measurement of the total economic output of the entire country.
And so we saw in the first two quarters of 2022 that GDP fell on a real basis, which means that it’s actually growing. But when you accounted for inflation, it was actually declining due to the inflation. So that’s what happened last year, but curious to hear from Henry. What do you think? Was that considered a recession?

Henry:
Yeah. So first, let me caveat this. I am no economist. So everything that I think is based on what I see and how I feel. Well, that’s pretty much how I run my life anyway. But when I look back at 2022, I think, so how I judge a recession in my mind is like, “How are people responding to the negative impacts that are happening because of this, quote, unquote, “recession?””
And when I think about 2022, the thing I think about is like, “Well, consumer spending would definitely go down in a recession.” Because people are holding onto their dollars a little tighter, inflation was starting to rise, and so that money means more to people. And it’s more about spending money on the things that you have to spend money on, to feed your family and provide shelter.
So consumer spending typically goes down, but when I looked at consumer spending in 2022, it was up. It was up 5.9{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} year over year. We went from 141 billion to 142 billion in consumer spending. So if that tells me that if we were in a recession because we had the two negative quarters of GDP, that the news didn’t get to people yet or that people weren’t as impacted yet, or the impact was to come in the future. And if you look at consumer spending now, it’s down just a little bit, but it doesn’t feel like a recession. So I would say no.

Dave:
All right. I think we should all caveat that we are not economists. We’re just playing one on this podcast, but we do, I think, follow it closely enough that our opinions are at least well-informed, I hope. Jamil, what about you? What do you think?

Jamil:
Well, it’s interesting that Henry is using indicators that I think actually matter. How do things feel? What does it look like and what does it feel like? Because I’m 45 years old, just turned 45, and I’ve been through a few recessions. And I can tell you that the ones that I can remember, I actually felt them.
I felt them, regardless of whether I was an entrepreneur or I was in a W2 situation, I felt the recession. I understood that, “Oh, things are different right now.” We’re tightening up. We’re not spending. Life has adjusted and we are making adjustments through it. And so I really do think that we have to look at these types of conversations and take into consideration how the broader country or how we’re feeling as a nation with respect to our economics.
And so the fact that we had two declining GDP quarters consecutively, which is the definition of recession, and yet we have a failure to call it. It’s an interesting thing. Why not just call it? So if this is the indicator, call it. You saw it. It happened. Call it. It’s okay. It’s okay to say the things, right? So the reason I bring this up is because I want to propose new indicators, because if we’re not going to say that two declining GDP quarters are consecutively declining, GDP quarters are a recession, then I propose new indicators.
I propose that you go to a major metropolitan city, you get 10 miles away from the airport, and then you look at the number of UberXs and the number of Uber Blacks that are available at 8:00 AM in the morning. If the number of UberXs is less than the number of Uber Blacks, then we are in a recession.

Kathy:
Yeah. And you could add to that, if you can get a reservation at the restaurant you want to go to.

Dave:
Oh, I see, okay.

Jamil:
Yes. Because it’s about feelings, right? If I can get an Uber Black a lot easier than I can get an UberX, then I know that people are spending money because we got the black cars out there. So how can it be a recession?

Dave:
There’s this very funny recession indicator, I don’t know, it’s historical performance, but it’s men’s underwear, that you could predict recession by men’s underwear. Because men just don’t want to buy new underwear ever, and they, well basically only do it during really good economic times when they’re feeling flushed, unlike every other time, they’re just like, “Wear the same men’s underwear.”

Jamil:
So wait, are we in a recession if you go commando? Is that what it is? “All the men are commando. We are in a recession.”

Dave:
Yes. Basically, yes.

Jamil:
I think you’re on the summer hols with the number of holes in your underwear are the reflection of whether-

Henry:
I think you’re onto something. I only buy my undies when I’m in a good mood, typically financially, because them Duluth Trading underwear ain’t cheap, man. You got to go, you spend $25 on a pair of underwear, you got to be feeling good about life.

Dave:
Whoa.

Jamil:
Damn. Those are some expensive chuddies you got.

Henry:
Yeah, man. Only the best.

Kathy:
And with women, it’s just when Victoria’s Secret is having a sale, that’s when you buy your undies.

Dave:
Yes. Women are more like civilized people who will continue to buy the clothes they need despite the economic situation. Men are like, “You know what? I can cut back on underwear.”

Kathy:
Well, some people, I don’t know if you guys have heard this, but some people are calling this the white-collar recession or the Patagonia Vest recession. Have you heard that?

Dave:
No, but I’m wearing a Patagonia sweatshirt right now, so doesn’t bother.

Kathy:
Obviously people that got hurt or a lot of people have been affected by the rising interest rates and the attempt to create a recession by the Federal Reserve. And so a lot of people have lost, or their net worth has gone down in the stock market, certainly in crypto and short-term rentals, income has gone down. And so they’re saying it’s really affecting those who, the net worth of those who had a higher net worth last year.

Dave:
It kind of makes sense if you just look at the high profile layoffs that have been coming through the economy over the last couple months, they’re tend to be really high paying jobs in sectors like finance and tech are sort of leading the way.
And if you look at the recent jobs report, which we’ll get into in a little bit, there’s actually a pretty strong job growth across the board, but particularly robust in things like hospitality and service sectors that are not traditionally as high paying.

Kathy:
Yeah. So I think the bottom line is you’re feeling a recession. If you lost your job, that’s going to feel recessionary. And we probably know a lot of people who have, who are in the tech space, and certainly again in industries where higher interest rates are affected, and that would be real estate. Anyone in real estate sales is affected.
I have a close friend who just someone we know just lost their job. And that is why we love real estate. The more income producing assets you have, the less you worry about losing your job.

Dave:
That’s for sure. The one thing I do want to say about last year before we get into current stuff is, I’m more current. I keep thinking about this fact that the first half of 2022 is when we saw GDP declines, which a lot of people believe, would say that, “That is a recession. That’s how a lot of people define it.” But economic optimism was still pretty high then, and then it sort of switched.
GDP started growing again in Q3, in Q4 of 2022, but everyone got really pessimistic and really upset about it. So I’m just curious. It’s just this weird thing where it doesn’t seem like people’s sentiment and the data about the economy are actually lined up right now. I’m just curious if any of you have any thoughts about that?

Jamil:
I think, honestly, that’s one of the most perplexing things that we have about this, and probably why we haven’t called it anyways, is that sentiment, optimism has been strong and we’ve all felt that. Even though typically real estate feels a recession first, so it’s first in first out, we feel it, we’re the industry that feels it immediately, and we typically feel it when we’re coming out faster because of mortgage rates declining in an uptick in housing activity.
And so it’s one of these interesting dichotomies is that, again, back to what Henry is talking about, sentiment, the overall feeling. Even though we were losing money in the same quarters that GDP was declining, and I can tell you that and looking back at our P&Ls like, “Oh wow, we lost money on this flip. We lost money on this flip.” Meanwhile, the sentiment out there was still very strong and there were more Uber Blacks available than there were UberXs.

Dave:
All right. Well, along those lines I’m curious, now, it seems to me that sentiment is very low. I think, I feel it, I feel my sentiment has really declined over the last year just about the economy in general.
What do you think, Jamil, are you feeling the economy today is in a recession or are we heading towards a recession, or what are you thinking about the future?

Jamil:
Interestingly enough, I’m again going to defer back to our beautiful friend Henry here and say, I’m starting to feel optimism again. I had the pessimism, I felt this, I felt that, oh my god, especially going into the holidays and two months prior to that from Thanksgiving to Christmas, it’s been miserable in the housing market.
And again, if you’re got flips on the market or you’re selling, you felt that, you felt a lot of pressure. You felt just, “Where is everybody? How come there’s just not a lot of activity?” And maybe I’m just myopic because I’m talking about a market like Phoenix where we really felt that more than say, how Henry felt in northwest Arkansas.
However, after the Christmas holiday, I have not seen as much or felt as much strong investor activity, strong buying optimism. I mean, pendings are spiking. We can’t keep inventory. We just can’t keep inventory on our books. We pick up a house, we sell a house, we pick up a house, we sell a house, and it’s like, “Oh, wow, okay.” I thought we were going to kind of loosen our tighten things up around here, but it looks like we’re putting out more money and taking in more opportunities.
And it’s also interesting that I have friends in the vehicle industry. And so they had situations where their car lots were just swollen full of inventory because they had overbought, because there was a shortage of vehicles for a time, and so dealers were overpaying and buying. And anyone who bought a car last year understands what I’m talking about right now. We very likely overpaid for our vehicle if you bought last year.
Well, I am talking to my friends that are in the car industry and they’re also saying, “Right now, Jamil, we can’t keep inventory on our lots. We just can’t.” And right before the holidays from Thanksgiving to Christmas, we were all tremendously worried and we had no idea what was going to happen if we were going to go bankrupt, if we were needed to get more credit. We were all worried. And after the holiday, things have just exploded.
So right now I’m like, Henry said, I’m optimistic. My sentiment right now, it’s pretty good. I feel things are picking up and housing should be, we were first in, I felt it. We’re first out, I feel it.

Dave:
All right. Well, yeah, by those two indicators, housing and the car market, there’s definitely a pickup in activity over the last couple of months.
Henry, what about you? Are there any indicators or data points that you look at to try and assess the current economic condition?

Henry:
Well, yeah. So there’s the general indicators that everybody looks at. GDP, 2.9{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56}, right? That’s up. Unemployment 3.4{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56}, right? That’s good.

Dave:
Historic lows.

Henry:
Yeah, historic lows, right? January, you got job claims at 183,000, so that’s a nine-month low. So those indicators are telling us, “No, we’re not in a recession.” There are some indicators that may be telling us, “Yes, we are.” But those are the key indicators people look at.
But again, feelings. So not only how I feel, because I feel exactly how Jamil feels. But if you look at how other people feel, if you look at consumer confidence, consumer confidence is super high right now. And part of the reason that that’s super high is if you’ve been paying attention to the stock market over the past few weeks, these earnings reports have been coming out and a lot of companies are reporting beating earnings. You have somewhat, 69{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of the companies that have actually reported earnings above their targets.
So that is going to make not only people feel more confident in the economy, but it’s going to make companies feel more confident in the economy. And if companies are feeling confident, then they’re going to go out and continue to spend money. They’re going to invest in new projects and new technologies. They’re going to go out and invest in new jobs in hiring people that are going to help them hit their goals for the next quarter.
So if they’re feeling confident, people feel confident. People feel confident, people spend money. If people spend money, it’s a benefit for us in the real estate space.

Dave:
Well said. Kathy, what do you think?

Kathy:
We are an opposite land. It’s such a strange time to look at the data that we get and be concerned about it. And that data, by that data, I mean 517,000 new jobs created. This beat expectations by double, even triple by some economists. And this is after almost a full year of the Fed trying to slow things down and raising interest rates in an unprecedented way.
So no, you can’t be in a recession when you’re creating that many new jobs when businesses are hiring that many new people and not laying off people. And then retail sales up to 3{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} in January. So people, they’re spending money and you see it, at least for me, when I go out, and again, I was serious trying to get a reservation, and at certain restaurants you can’t get in, you can’t get in.
So this would normally be great news, but people are panicked by news like this, by good economic news because that means that the Fed may continue to raise rates. But what I want to say about that, is they already said they were going to do that, so don’t panic. The Fed has been pretty clear about what their plans are, which is to get the overnight, the Fed fund rate, the overnight lending rate above 5{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56}. It’s not there yet. We’re four and a half to four and three quarters percent.
They already told us that they’re going to keep raising, so don’t be shocked, they are planning to continue to raise rates and to hold them there. I’ve heard lots of people say, “Oh, as soon as they get to 2023, they’re going to start reversing and lowering rates because it’s going to slow things down.” And that’s not what they’re saying.
They’ve been pretty accurate about what they forecast. They tell people what they’re going to do. And generally, investors certainly stock market investors, listen, and we have a ways to go. They’re going to raise rates a few more times and most likely hold it there for the rest of the year, and especially after these massive, massive economic numbers that have come in, showing that the economy is strong.
So no, I don’t see, we couldn’t possibly be in a recession if the Feds raising rates and we’re having job growth and people are spending money.

Jamil:
Kathy, do you think that there may be just some possibility that we, people are starting to listen to what the Fed’s saying and trust them at their word? And so do you think that there may be just this increase in activity because people are just trying to beat lending costs getting even more expensive, or is this activity real and not just artificially motivated?

Kathy:
Well, rates, if we’re talking about housing and what you’re feeling in your industry and our industry, is rates did go down over December and January, and I think that’s what we felt. At our business at Real Wealth we’re booming again. People flocking. We do one webinar and everything sells, so it’s like, “Yeah, we’re back.” But that was because rates went down and numbers started to make sense again.
Now, they’re going back up again because the feedback we’re getting on the economy is, it’s booming. And generally people get out, investors start to invest back in this stock market and out of bonds. And if they’re buying bonds, rates come down. If they’re not buying bonds, rates go up, and that’s where we’re at.
So we could feel that and we could be having a different conversation next month in terms of real estate going, “Oh, things slowed again because rates went up a bit.” But that’s just our industry, that’s not America.

Jamil:
That’s not the economy overall.

Kathy:
Yeah.

Dave:
I think, Kathy, you made a good point that we’re in this weird situation where good economic news is felt like bad economic news, because it means that the Fed is going to continue to raise rates, and then there’s this pending economic downturn that’s just always sort of six to 12 months ahead of us. At least that’s what it’s felt like for the last…

Jamil:
Do you all feel like we’re being gaslighted a little bit?

Henry:
Man. Yes.

Kathy:
I just think everybody’s panicking. Everybody’s afraid of losing everything. Nobody wants another 2008, no one wants to start over again and lose everything. So there’s been people predicting recessions and housing crashes for the past 10 years. It’s nothing new.

Henry:
Look, I’m with conspiracy theory Jamil on this one. You create the fear, people start panicking, they start panic selling, and then the wealthy take advantage, man. They go out and scoop stuff up, but it just-

Jamil:
We’re just gaslighting everybody playing games to come in and gain.

Henry:
Yeah. Yeah.

Dave:
Well, I think there is truth to that because… Well, I don’t know if it’s conspiracy theory, I have no idea. But I think there is some element that the Fed and the government wants people to stop spending money.
They want you to be afraid, not necessarily because it benefits rich people, maybe it does. But they definitely want that because that will help inflation. If people are afraid and stop spending as much money, then that would help curb inflation and the Fed would be delighted with that to happen.

Henry:
Sorry, I have to go. There’s people with black suits at my door.

Dave:
But I also want to get back to something you said Jamil was like, I do think there is, they call it the dead cat bounce. I do think there is a pretty good chance that Q1 of this year for the housing market looks pretty good and then it slows down again because inflation data came out this week. It was down a little bit, but it was not a very good inflation report generally speaking, and it’s that combined with what Kathy was talking about with the jobs report. It’s just basically giving the Fed a green light to keep raising rates aggressively.
And so we were seeing mortgage rates start to slide on these recessionary fears. But now, I think there’s a good chance the terminal rate, what the Fed goes up to is going to be higher than five and what could be five and a half, and I think there’s a good chance that we see mortgage rates now go up to somewhere near seven, seven and a half over the course of this year, or we go into recession, it goes the other way.
It’s just super hard to tell. And my read on this is when it’s all said and done, if we’re looking back at this five years from now, they’re going to call this whole thing, I don’t know if they’re going to call it recession, but from 2022 to through 2024 is just going to be this weird half recession, half not recession, where some parts of the economy are doing really well and some parts are doing really poorly.
And we’re not going to ever have this, quote, unquote, “recession” where you feel it, like you were talking about Jamil, where everything goes down. It’s going to be this sort of whack-a-mole situation where jobs are up, housing’s down, housing’s down, cars are good. Where we just have this weird thing.

Jamil:
Yeah. It’s a recession mullet, from the front party in the back.

Dave:
I don’t even know what to say, but I like that idea. Do you think that makes sense? Am I off base?

Jamil:
Not at all.

Dave:
It just feels like-

Jamil:
I don’t think you’re off base at all.

Dave:
… we’re all trying to call it a, “recession,” quote, unquote, but the economic situation we’re in defies normal words for it. No one’s calling it a recession because it’s just different than any other economic situation we’ve ever been in.
That doesn’t mean it’s not bad, it doesn’t mean it’s not painful. It is bad and painful. It doesn’t, but there are also good parts of it, so it’s just really hard to fit this situation into our conventional definitions of economic cycles.

Kathy:
I mean, if you boil it all down to what is so different and weird this time around, besides the fact that we had a global pandemic that none of us have experienced before, is that the Fed created over $3 trillion in a matter of eight, what, 13 months? And that is a huge shock to the system, I suppose in a good way, where money went to the people.
And a lot, we talk about the stimulus checks, but those PPP loans, those loans that went to businesses sometimes were in the millions, and it was sometimes to businesses that maybe didn’t need that money, but they got that money and that’s extra and that, where did that go? Usually when there’s profits, it goes to the owners or the shareholders, and then that goes out into the economy.
Generally, people spend it or they invest it, so we’re still in the hangover of that. That was a lot of money that perhaps was spent on buying all cash properties or buying things that without debt. We know that homeowners are in a really, really good position right now because many of them have high, lot of equity still. They have high equity and super low payments.
So that’s just another example of so much money that was easy to get, and if you were borrowing it, it was low debt that people are just not, and when I say people, I don’t want to say all people, but a lot of people still have money. Whether it’s in savings or they have the things that they wanted and bought with cash at the time.
So it’s going to take a while, I think, for that amount of stimulus to trickle down and to trickle out of the economy. And the Fed doesn’t want to talk about that part of it. Nobody seems to want to talk about that part of it, the over stimulus.

Jamil:
Well, I think what’s interesting, Kathy, is that in 10 years they’re going to have a report and it’s going to be all of the things that were bought with PPP loans.

Dave:
Oh, did you see that one recently?

Jamil:
No, I didn’t even know this existed yet.

Dave:
There are some. The government is starting to go after people for fraud, and one of them was an influencer. This woman who was an influencer got plastic surgery with a PPP loan because her business was her…

Jamil:
Is she a stripper or something?

Dave:
I don’t know. I didn’t look into it that much but it was kind of like her business is her appearance. So she basically got a-

Jamil:
Like Henry.

Dave:
Yeah. Yeah. But he doesn’t need money for it. That’s all natural.

Henry:
So you did no market research on that, right? That’s what we’re…

Dave:
Not that I’m willing to talk about on the show. I’m not going to tell you how I know about this story Henry.

Jamil:
Were there Lamborghinis, were there luxury mansions? What got bought with the PPP? You know what I mean?

Dave:
Yes. Yeah. There’s definitely going to be a reckoning for that and a few rap songs, I bet.

Jamil:
Yeah. Yes, probably.

Dave:
Well, so I’m curious how, given, are we all in agreement that I don’t know, I guess my feeling is I don’t know if they’re ever going to call it a recession or not, that’s out of my hands, but I do think this economic uncertainty that we’re all experiencing is at least all of 2023 and probably into next year. I don’t know. Do you guys feel differently about that?

Jamil:
I hope I don’t. I mean, again, as I mentioned earlier, it could be the dead cat bounce or it could just be a return to normality in housing, but I’m optimistic. I truly believe that 2023 isn’t going to be as bad as we had expected it to be.
If I’m looking back at the last two quarters of 2022, I had some definite anxiety about what 2023 was going to look like, and that anxiety is beginning to soften.

Dave:
Well that’s good. I like your optimism. I mean, just by the fact that how wrong economic projections tend to be. The fact that most economists believe that there will be a recession probably just by default piece, that there probably won’t be.
Except I am a believer in the yield curve. I don’t know how much you guys follow this, but that is the most reliable predictor of recessions that we have pretty much, and that does point to a recession. So that one, every time I start to feel some optimism about the economy, I look back at that. I’m like, “Oh, no, we’re screwed.”

Henry:
I think the big caveat there is exactly what Kathy mentioned. I mean, the indicators that we’re using are the indicators we’ve used historically, but historically we haven’t had this pandemic, which created its own problems.
And then yes, we created, the Fed created money, and in order to help people. I don’t want to say that the stimulus was bad or PPP was bad. It was created for a reason. There were people who absolutely needed those stimulus, right?

Dave:
Absolutely. Yes.

Henry:
We’re very fortunate here that we didn’t need those things. But when the pandemic first hit, I remember seeing people at the grocery store, I paid for a lady’s gas who was in tears because she didn’t know how she was going to be able to keep gas at her car. And so the money was created, I think, for the right reasons. And there were tons and tons of people, tons and tons of small businesses who needed PPP funds.
Does that mean people didn’t take advantage of it? Of course, people did. But I think it was created for the right reasons. But that’s this big caveat, I think that’s causing a lot of these, what you call it, whack-a-mole of the economy, industries up and down. We’ve had this huge outlier of a recession.
So yeah, I don’t think we’re going to be in a recession. I don’t think it’s as bad as people think it’s going to be. And who knows, maybe I’m terribly wrong, but I don’t know, it’s hard to believe or follow the indicators when this historically hasn’t happened before.

Kathy:
And here’s where the debate part will come in. I do think that, well, first of all, it’s nearly impossible to predict anything anymore, because we don’t really know what the Fed is going to do or how quickly they’re going to move given the very, very strong economic data.
If they do what they’ve said they’re going to do, they would raise rates throughout 2023 gradually, at quarter percent hikes, which is a lot better than three-quarter percent hikes, until they get to five or five and a quarter percent. So that would be several more quarter percent hikes this year and then holding it.
What we don’t know is how that’s going to impact what appears to be a pretty strong economy from all that money. I’m going to say the economy strong because if you or I took out a $3 trillion credit line, we’d probably be looking pretty good too. And that’s where we’re at. It’s just a still a lot of money circulating out there because of all that stimulus.
So will being at 5{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} Fed fund rate stabilize things or send us into recession? It doesn’t look like. And most people, most economists are now not predicting it for 2023. That it will be just flat, just a GDP of just kind of maybe half a percent or something like that over 2023, which is great. If we just hold, that would be wonderful.
The question is, what will 2024 be like and is that something that we should worry about? And that’s what we’re going to see in the headlines is, “Okay, this year’s going to be okay, but just wait till 2024.” And that’s the unknown.
So we’re not out of it yet. The recession headlines are going to be with us. How do you deal with it? That’s really the question, is how do you deal with it? How’s it going to affect you? It’s probably not going to be a 2008 type of collapse, although there’s people out there saying it will be, but there’s always people out there saying it will be. So that question mark will always be there, says, “How do you operate and live with that hanging over your head for another year too?”

Dave:
Totally. Yeah. I don’t wish for a recession or want anyone to lose their job, but it almost in some ways would be better if it just got over with, because it’s just dragging this out for a long time. This economic uncertainty and fear that everyone, myself included has, and I just want to say the scenario you’re describing, Kathy, which I think is a reasonable scenario, is probably the worst case scenario for housing prices.
If interest rates go up, but we do not go into a recession, in my mind, is the most likely scenario that could actually lead to a housing crash, because then interest rates are going up that puts upward pressure on mortgage rates. But without the recession to help, just so everyone knows, a recession usually pulls down mortgage rates.
So if interest rates go up, but there’s no recession, that puts the most of all the scenarios I can see happening, that’s probably the one that has the most upward pressure to mortgage rates, which would probably send the housing market down further than I have been expecting over the last couple of six months.
So just everyone knows, that scenario is good for the economy, but could be pretty bad for home values. I know some people are hoping for home values to go down so they can buy cheaper, but that’s just something I wanted to call out.
And then the last thing, the second thing I wanted to say is that what Kathy’s describing, what we’re all describing, what we’re trying to do here is just talking about different scenarios that can happen. I just want to reiterate that none of us know, and we’re just trying to play out and sort of game what different things could happen so that you can think through some of how you would react to these things.
So generally speaking, Jamil, given the uncertainty and these different scenarios that we’re all positing that could happen, how do you react with your own investing, your own money? How are you operating in this uncertainty?

Jamil:
Great question, Dave. I’m operating the way that I would normally operate when I’m, as I’d said on previous shows, I am still very, very bullish on the fact that our inventory numbers that real estate in general is not, whatever we’re experiencing right now is engineered. This isn’t normal market cycles, and we are lacking inventory across the country. So I am going to continue to buy, I’m going to do what I would normally do. I’m just buying everything deeper. I’m doing what I would normally do, but more aggressively right now.
And actually, funny enough, I’m historically known as somebody who doesn’t hold a lot. I’m a wholesaler, so I like to flip paper and generate cash that way. But this last six months, I’ve been buying and holding property because I’m getting stuff at such steep discounts right now and I’m watching inventory and I can see what’s coming around the corner, at least maybe not next year, maybe not two years from now, but 3, 4, 5 years from now. The inventory that I buy today, I’m going to be able to take massive, massive gains on, and I did this back in 2010.
I bought $800,000 worth of property in 2010 that I exited in 2019 for 8 million bucks. I mean, and that was one of the things that tipped the scales of my life, was being able to have that situation occur for me. So I’m trying to bet on that happening again. I’m holding, I’m buying, I’m buying aggressively. I’m going to hold really, really, really, really great assets at great prices, and I’m going to wait five years and see what happens with it.

Dave:
All right. Well, great. That’s very good advice. Henry, I’m sure you’re doing something radically different than what you normally do.

Henry:
Absitively, posilutely not. We are doing exactly what we’ve been doing. I couldn’t mirror Jamil anymore. We talked about it before on another show, but when we talk about investing in real estate, people obviously want to buy low, so that they can either hold and build wealth and get wealth through appreciation and equity.
Cash flow is great, but the real wealth is built through appreciation and equity or they’re looking to buy low and then add value to it and then sell high. And so if this is what you’re in the real estate space for, this is the time that’s for you, because you can buy deep discounts right now.
If you’re in the real estate space because you want to be able to buy and sell, maybe the timeframe that you’re going to look to maximize your sell is longer, like Jamil saying, he’s buying some, he’s holding them for the short-term, but his plan is to sell them when their value is at it’s, quote, unquote, “peak.” When their value starts to go up tremendously.
Also, if you’re in a place where you’re saying, “Hey, I don’t know where to start, but I know I want to get into large scale multifamily, I want to get into a space that takes a lot of capital to get into.” Well, phenomenally you could do exactly what Jamil’s doing. You could buy at discounts right now. You can hold them, which increases your net worth. You’re going to get the appreciation and the debt pay down over the next five years, but then you can leverage that.
Increase your buying power to buy larger assets, then still sell those properties that you bought five years ago at a profit. So it’s one way for you to get in now, where you’re going to get in deep and use that leverage to start to scale.
And then also for us, man, that we are getting such great discounts that we are able to do both. We are able to buy and hold and cash flow very well because we’re buying at a deep discount. Even though the interest rates are higher, we’re still cash flowing because of the depth of which we can buy, but also it’s still profitable doing flips. I’m going to do my first two flips that we’re going to sell here in 2023, are going to be triple digit flips, no pun intended there.

Jamil:
Yeah. Ding, ding, ding, ding, ding, ding, ding, ding. Let’s go.

Henry:
But put to caveat that, these are six-figure net profit flip.

Dave:
So, you’re going to make a hundred dollars, triple-

Henry:
Yes. Yes.

Jamil:
You know how many messages I get on the internet, just game laughing at us for that title. But no, he means hundreds of thousands of dollars.

Dave:
I had never thought about that. Someone else said it to me. I might have read it in one of your comments or something, I was like, “Yeah, okay. I guess there’s a point.” But I knew what you meant.

Henry:
So when you talk about a triple digit flip, we’re talking about a market in Arkansas where the spreads aren’t as big as in a market like Phoenix. And so that’s a big deal in this mid-tier market, especially with interest rates where they are, and with home prices starting to come down across the country, we’re still getting very, very high returns.
I’m turning down projects, that it would typically net like 30K because my time is better spent on the deals that are going to net me 50, 60, 70, 80, and they’re still widely available. I just turned one down yesterday and the wholesaler was shocked that I didn’t want to take the deal because I was going to only make a $30,000 profit. So there are plenty of opportunities still out there, and so our strategy hasn’t changed, but our underwriting is different.

Dave:
That’s awesome. Thank you. I mean, that’s super good advice. And Henry, you’re always just smooth and steady, always doing the same thing. I like that.
Kathy, what about you? Is there anything you’re doing differently or thinking about just in terms of managing your investments right now?

Kathy:
No. I mean, I will speak from the perspective of somebody who doesn’t do business where I live. I live in California, the regulations are ridiculous. The cash flow doesn’t exist. Prices are still extremely high. I know some people invest here, but I don’t.
So I speak from the perspective of me and our members who have to invest somewhere else to make the numbers work. And looking at where that is today, they’re over the last couple of years, it was really hard for us because you’re trying to compete, but you’re not in the market and you need somebody local there, but they’ve got 50 other clients, and how do you get that deal when you don’t live there and you’re kind of relying on somebody else?
And for many of us who invest out of state and not in the area where we live, we like to, I’ll speak again for myself and for people I represent, is something a little newer because you’re not there and so something newer or at least completely renovated is feels safer. You kind of know what you’re getting and you can rely on, this is everything’s already been fixed. I’m not going to have a lot of repairs, most likely on this property.
And that type of property, sort of A, B class property was almost impossible to get, over the last couple of years. And new builders, I started investing with new builds and new builders didn’t want anything to do with investors. So why would I sell to an investor when I can sell to the retail market for more and not have a bunch of rentals in my subdivision?
Well, all of that has changed. So from a perspective of somebody investing not where I live and helping other people build a portfolio, not where they live, this is an incredible time. This is so much better than what we’ve been dealing with over the last couple of years. Now, builders want to work with us and they’re giving us discounts and they’re paying down our mortgage.
So it’s like we’re in the money. This is why we’re so busy right now, because finally, investors like me, out-of-state investors who already have jobs and already are working and they can’t be as awesome as Henry and Jamil. We can’t do what you guys are doing because we’re not there.
So the opportunities for us are so much better, and so I’m optimistic from that perspective that this is the time that I can now get back in and build my portfolio and still get pretty good rates because like I said, you could negotiate, you could negotiate for the seller to help pay down your pay points, to pay down your mortgage.

Dave:
Awesome. That is also great advice, and I think that’s reflected across a lot of other experiences that we’ve been hearing about. People we’ve been interviewing on this show all seem to be, think that there’s great opportunities out there. There’s also a lot of crap out there, I will say. So it really is about finding good stuff.
I will say that for me, I am actually doing a few things differently. I am starting to get into lending because interest rates are really high right now and it’s a good market to be in lending. And the second thing I’m doing, just generally speaking is looking for to put some money into short-term opportunities right now because as if you listen to the show, no, I mostly invest passively in commercial real estate, and I do think commercial real estate is going to be taking a hit in terms of valuations and there’s going to be really good opportunities.
I know, I always say don’t try and time the market, but I’m not listening to my own advice. I’m going to try and time the market a little bit with commercial real estate, but I’m still investing my money for now looking into shorter term opportunities that I can still earn a really good yield for six months, 12 months, and then trying to see what happens.
Just as we’ve been talking about this whole episode, no one knows what’s going to happen, so I’m trying to buy some flexibility with my money so it can take advantage of even better opportunities if they come over the course of the year.

Jamil:
I just want to say that I want to be the first to call Dave the hardest, hard moneylender on the market.

Dave:
Thank you. I don’t really know what that means.

Henry:
The amount of people that are going to DM you asking for money.

Dave:
I should have, that’s a good point, Henry. Sorry. Now, people are going to ask me for money for sure. I don’t have a lot of it, so don’t ask me for that much. You’re better off asking someone else or ask James. He lends out a lot of money.
All right. Well, thank you all for being here. This was a lot of fun. I hope you all enjoyed this debate. As you can see, everyone’s just trying to figure out what’s going on. Hopefully, this helps you understand some of the indicators to look at, some of the sentiment that is occurring in the market right now and how you can prepare yourself for the weird, whatever you want to call it.
You want to call it recession, go for it. You want to call it something else. Whatever it is. It’s weird, the weird economy that we are in right now.

Jamil:
The mullet. Yeah, the mullet economy.

Dave:
The mullet. Exactly. The mullet economy.

Kathy:
The mullet economy. I hope that too soft.

Dave:
I feel like we [inaudible 00:49:02] a graphic for that. All right. The mullet economy. All right. Well, let’s just do a little round of where to find you guys. If you want to learn more about the mullet economy and Jamil, where should people contact you?

Jamil:
You can follow me on Instagram @jdamji. Also, I have a pretty fun and entertaining YouTube channel where I teach people how to wholesale real estate and can crack you up a couple of times, so you can find me on youtube.com/jamildamji.

Henry:
It is funny because you can find a video of Jamil and I in pajamas doing interviews about real estate on that channel.

Jamil:
It was a great interview. People loved our jammy jams.

Dave:
That sounds awesome. I haven’t seen that. I haven’t seen that. Well, Henry, what about you? Where can people find more about you and your pajamas?

Henry:
Yeah. Instagram, best place for me. I’m @thehenrywashington on Instagram or check me out of my website, henrywashington.com.

Dave:
All right, great. And Kathy?

Kathy:
I was going to say Instagram too @kathyfettke, but make sure it’s two Ts because there’s somebody trying to be me and don’t listen to them with one T. It’s two Ts, Fettke. And then probably a safer way is realwealth.com where nobody’s trying to impersonate me there. I don’t think. I don’t think.

Dave:
Kathy impersonators are unbearable on Instagram. It’s ridiculous.

Kathy:
It’s ridiculous. And they’re asking for money, so that’s not me. I’m not asking anybody for money.

Henry:
Kathy, I heard you mentioned a couple of times that you were having trouble getting a reservation for dinner. Did you tell them that you were Kathy Fettke of Real Wealth?

Kathy:
Oh, no. I didn’t use that.

Jamil:
No. Because they thought it was Kathy Fettke with one T.

Henry:
They thought you were… [inaudible 00:50:46]

Dave:
It was the fifth Kathy Fettke that had contacted the restaurant that day.

Henry:
You cannot have a reservation and you cannot pay with Bitcoin.

Dave:
Yeah, they asked, Kathy called the restaurant and asked how their crypto trading was going.

Kathy:
And I’ll help you. If you just give me five grand, I’ll invest it for you.

Dave:
Seriously though, if you are listening to it’s just public service announcement, if someone, any personal finance person, if the four of us, anyone else contacts you and asks you to trade with them, particularly Bitcoin or Forex, read very carefully the username of the person who is asking you, because it is very likely to be a scam. Please report them.
I know, I think I speak for all of us, that we report all the people who impersonate us, but Instagram and Meta is very, very slow to remove them. So-

Jamil:
I wonder why.

Dave:
… just be careful. If you ever see that.

Henry:
Be careful.

Dave:
Oh, I know why. Because there’s stock prices down 70{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} and they don’t want to reduce engagement even more.

Henry:
Oh, now the people with black suits are at Dave’s store.

Jamil:
Now I’m the conspiracy theorist, right, Henry?

Henry:
Yeah.

Dave:
I mean, I don’t know about that, man. It would be so easy to write an algorithm to stop them for doing that, and they just don’t do it.

Jamil:
A hundred percent.

Dave:
But it’s the same thing, right? Isn’t that what Elon Musk sued Twitter about, right? Was that so much of the engagement is bots.

Henry:
Yep.

Dave:
But they’re just like, “We don’t know what’s going on.” Because then they don’t have to report it to their investors. Anyway, don’t shadow-ban me Instagram.

Kathy:
It’s a love-hate relationship.

Henry:
So good.

Dave:
All right. We’re going to get out of here. See you all next week. Thank you all for listening. We’ll see you for the next episode of On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, researched by Pooja Jindal, and a big 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.