Dave:

Which markets in the US are surprisingly oversupplied and what market was just ranked number one by the Wall Street Journal is the US at risk for stagflation and what the heck is going on with Red Lobster? Find out on this headline show. What’s up everyone? This is Dave Meyer today joined by our full panel of Kathy Fettke, Henry Washington and James Dainard. And as a reminder on these headlines show, what we do is we pull four articles from the recent news cycle and talk about what is going on and how it relates to real estate investors, the broader economy and each and every one of you. Today we’re going to break each of these four stories down and hopefully help you make informed investing decisions

For first headline Today it reads Home Prices stagnate in Florida and Texas as supply soars. This headline comes from Redfin and the main points here are that inventory rose a lot in some key areas of Florida. Cape Coral North Port, we saw huge increases of 50% year over year and we also saw places in Texas specifically Macallan Supply jump 25%. So these are pretty big numbers in year over year terms and the reason, or at least the thinking here is that housing supply is soaring because both states have really been in a building boom, a lot of it in multifamily, but also single family homes as well. And demand has pulled back a little bit over the last year or so and we’re going to talk a bit mostly about Florida and Texas, but this also is happening across most of the country. Just so everyone knows Nationwide inventory is up 11, I think 12% year over year, and a lot of the same dynamics are happening. So Kathy, you are our Texas and Florida resident expert. What is happening in these states?

Kathy:

I think it’s a combination at least in Florida, of prices going up so high in Sarasota and then add the insurance issue where insurance has gone up dramatically and it’s just not affordable for a lot of people and perhaps some overbuilding as well. Now other parts of Florida are doing really well, but this particular area may have been overbuilt and just very expensive. A lot of Californians chose Sarasota. Sorry, again, taking responsibility here, but a lot of people I know moved to Sarasota specifically and I think also from New York, so a lot of that big money came in. Prices are higher, it’s not as affordable, so it’s kind of like I’ve said before, there’s a bit of a boomerang effect where people might be looking at Florida and then they kind of boomerang back up the coast to North Carolina. So a lot of growth. The people who are leaving these high priced parts of Florida are moving to the Carolinas or to just other parts of Florida that are more affordable.

Henry:

Okay, Dave, here’s my expert opinion. People in California and New York migrated to Texas and Florida during the pandemic, and then those people felt what humidity is like and they said, you know what?

Dave:

I’m out.

Henry:

They stuck them homes on the market and they’re getting the heck up out of there because humidity ain’t like that. California heat, my friend, it is a whole nother ballgame. They got more than they signed up for and now they’re headed back up the coast. A

Dave:

Friend of mine who’s from Atlanta, describe the summer there as walking into someone else’s mouth, which I thought was the most disgusting, but perhaps most accurate way to describe it.

Kathy:

I mean both states are still growing rapidly, so it’s not like that’s going to change and I do think a lot of the inventory will be absorbed to me. It’s an opportunity in the more affordable areas nearby because whether you’re going in someone’s hot mouth or not, it’s still more affordable.

Dave:

This podcast is already going off the rails. I like you. We’re only on the first headline and things are falling apart.

Well, actually getting back on track here, I do want to say I think that kind of the most amazing thing here is that home prices are only stagnating. Even though inventory went up 50% during a normal time, if inventory went up 50%, we’d see huge drops, perhaps even crash level drops in prices, but inventory first of all was so low that it’s probably even with a 50% jump, it’s still below pre pandemic levels and there’s still sufficient demand that prices are staying steady. So while this is interesting and definitely something to watch, it’s not like the sky is falling. This actually kind of shows the strength of the housing market relatively,

Kathy:

And Dave, I’ll just say one more thing. We do have, I think I’ve told you guys about our development. We bought 4,200 lots in 2012 for 10 cents on the dollar. That was back when land was cheap and we’re still selling homes. This is about an hour north of Tampa and that area is growing dramatically and those homes are selling very consistently and picking up. So again, it’s just these little pockets where maybe it was overbuilt or just became too expensive, but it doesn’t mean that certainly the whole area has slowed down.

James:

The stats are kind of bogus when you have a very small sample, they skew rapidly, right? Listen to these stats on Cape Coral, the average median home price is 70. That’s a little high, but that’s substantially below what a normal market sells for. And healthy supply usually average market times are. It used to take 90 days to sell a house 10 years ago and 70 days is healthy. The number of homes, they were up almost percent year over year on home selling, so there’s still more people buying there. There’s just a healthier amount of inventory that’s coming in, and then if you look at the median home price, it’s down 2%. That is not a big deal and it swings so dramatically. I was talking to someone the other day and they were looking at a market in Washington, it’s called Leavenworth. It’s a very secondary home, really cool area, a lot of short-term rentals. Isn’t that

Dave:

The German town?

James:

Yeah. It’s like you can get bratwurst, you can wear weird outfits and drink beer and people love it. It’s like October Fest there, but if you look at the meeting home price jump per square foot went from three 50 a square foot to 1,250 square foot, and it’s because there’s so little data going on, it just jumps everywhere. And so you have to really watch the spikes right now if you really look set back. Yeah, it seems like a lot, but it’s not a lot because there’s just snow inventory and so this continues to trend that way. Then maybe yes, start to watch it, but I mean it’s a very, very healthy market and they just got to really watch the lack of data makes this market really risky and you really got to pay attention to what is the data, how many sales are, what’s the population and is it a good thing to look at?

Dave:

Yeah, well said. I mean it makes sense. You need to just read the actual article and see what the change is. The same thing that’s going on with foreclosure data. When you’re growing from a minuscule baseline, it’s just going to look like large growth. That doesn’t mean it’s incorrect, but you just sort of have to look beyond just the percent change and look at the absolute numbers to fully understand what’s going on. You’ve heard our first headline about housing oversupply in Texas and Florida, but we have three more juicy headlines for you when we get back, so stick with us.

Welcome back to On The Market Podcast. Moving on to our second headline today, it reads Rockford, Illinois is now America’s top housing market after an improbable turnaround. This comes to us from the Wall Street Journal and they actually put out their own real estate rankings. This came in at number one and it’s saying that Rockford attracts home buyers who are drawn to you guessed it, affordable housing stock and it’s growing, healthcare, aerospace and logistics industries. The median list price of a home in the Rockford metro area soared to 2 35 in March, which is up a huge amount, 52% year over a year ago, which is the largest gain of any metro area, but it’s still just above half the national median home price. So even with all that really kind of insane level of growth, still relatively affordable, at least on a national scale. So Henry, I know you’ve been touting these types of markets as have I, but what do you think about Rockford?

Henry:

There is huge affordability in this Midwestern area of the country. I have looked into many smaller cities in and around Chicago and Milwaukee, Wisconsin area. The dynamics are different where a more suburban town and maybe Texas or Florida, you’re going to see single family neighborhoods and then maybe some multifamily neighborhoods. But in these older towns, you get single families and multifamilies all mixed in. They’re more densely populated. The homes are closer together and you can get really, really affordable. And if you’re a multifamily owner, that’s where I want to own. Multifamilies is mixed in with other single families, so you’re not just in this island of multifamily mania and people have more pride of ownership in those neighborhoods and it’s a great dynamic and you can get in affordably and rent at a great price because a lot of companies have realized that a lot of their workforce is living in these smaller towns and migrating to the bigger cities. And so you’ve got companies like Microsoft and Amazon who are expanding their operations into these smaller towns, which brings more workforce and provides the people there with more jobs, which is great for investors. One

Dave:

Of the things I’ll just mention just recently having started to invest in a Midwest town, not so dissimilar from this, it also as an investor is kind of nice, just like being a big fish in a small pond so to speak. There’s just not as many investors operating in these places, and as Henry was saying, multifamilies, most people who want to buy those are investors. Most homeowners don’t want to house hack, and so that means that there’s often less competition for these types of properties that are sort of at least the sweet spot for a lot of small to medium sized real estate investors.

James:

We talk a lot when we’re looking at buying on path of progress, where to buy, where you see zoning upside, where you see infrastructure coming that way. And I think a thing that’s really coming into path of progress now is the affordability crisis of people. Inflation things are expensive and people just want a cheaper place to live, and I do like these markets where you get the overflow, like Chicago is one of the main feeders of this city for migration. Chicago’s a lot more expensive to live in and the quality of life has gone down a little bit in certain neighborhoods, and so they’re inbound. They had almost 750 people, which is a huge amount just from Chicago move into this, which is giving it a little bit of a pop. But one thing that I do think is pretty funny is we’re talking about Cape Coral and how the inventory is spiking is starting to cool down.

The second city that Rockford population is moving to is Cape Coral, and so tells this story, and so as an investor I like that what it’s like, oh, Cape Coral’s inventory is spiking, but the number two place that people are leaving is to Cape Coral from the city. And so again, you got to really dig into these stats because when you have more affordable markets, they’re going to pop a lot more 10 grand on an average median home price of one 50. That’s going to make a big percentage change in the market, and I think it’s a great market to buy long-term hold. You’re going to get some overflow from Chicago. Chicago rents are a lot higher too, so you could get some bumps in your rents, and I do think these surrounding cities are going to be good to buy in, but do I think it’s going to appreciate and make you millions of dollars on appreciation? No, I don’t because the cheaper the house 10% in Seattle is going to be 80 to a hundred thousand right here, 10% is five to 10 grand. And so as an investor, if you’re looking for that steady cashflow with population growth upside, I think it’s a great place to buy. If you’re trying to hit a swo on equity, just because you see go up by 20% doesn’t mean it really goes into your pocket.

Kathy:

So I have two reasons why I would invest in this market and two, why I would not. One is I love infrastructure growth and this area Rockford is 90 minutes from Chicago and Milwaukee and there’s a new train that will go direct, so that’s huge. That is a very good reason to want to invest and that could help with one of the reasons I wouldn’t want to invest there is that the population is pretty low. It’s like 146,000 people. The metro area is 338,000. I like to be in metros with at least a million because that gives me a larger tenant pool. So population small, but it could be growing when that direct train comes in. One of the things I liked, it was actually really pretty. I looked at the photos and I was pleasantly surprised with the river running through it, and I thought, okay, this seems livable. Maybe one of the reasons I wouldn’t want to invest is Illinois taxes are insane, so I don’t know how bad they are in Rockford, but if they’re as bad as they are in Chicago, then I would just look into that. And finally, I don’t know if you guys know this, but it used to be called Screw City, so that could be a reason not to invest there. They’ve changed, they’ve rebranded to City of Gardens, but anybody know why that was the former name?

Dave:

Kathy, keep this pg.

James:

I have a guess, but I’m going to keep it to myself.

Kathy:

I will. Okay. I will just say they made screws, bolts and fasteners for most manufacturers, so it was screw city. I don’t know. I don’t think they liked the name. They changed it.

Dave:

I’m glad they did a rebranding. I think with the modern connotation, probably better.

Kathy:

City of Gardens I think works better. Yeah,

Dave:

Yeah, that sounds downright lovely.

James:

I will say if you’re looking to just buy, get in right now with inflation going up getting into an asset, you can buy cheap housing like I’m looking at right now. It’s like 89,000 for a three bed, one bath, 1,124 square foot house with a good roof, vinyl windows, and it’s been dusted, and so there is no excuses to not buy real estate. You utilize a low down payment that’s five six grand to get you into that deal.

Dave:

Yeah, that’s a good one. The only thing I would say is now that the Wall Street Journal has said it’s the best market in the country, things are just going to go crazy there. All right, let’s move on to our third headline, which reads, markets fall as Investors worry about low economic growth and stubborn inflation rates, and the markets we’re talking about here are stock markets. So this comes from CNN, and this story was published on April 25th, so things might have changed, but basically what happened on the 25th was the Dow fell 375 points or 1% s and p was down half a percent. Nasdaq was down a similar amount, and this was all based on the fact that investors are basically backing off their idea that the Fed is going to cut rates as many times as they had previously said. There is a bunch of data that’s come out recently that basically just shows inflation has been more stubborn than initially anticipated, and this is probably going to give the Fed pause before cutting rates.

We saw losses all over the place, but a lot of tech companies were down. Meta was down 10.5%, Microsoft down two point a half percent, so there was a lot of that going on. So I think the important thing here is that a lot of investors are seeing this as signs of potential stagflation, and if you’ve never heard that term, it’s just a mashup of the work, stagnation and inflation, and it’s basically this very, very bad economic situation where we get inflation and modest or negative economic growth because normally during inflation, inflation comes because the economy is too hot, and so you get inflation, which is obviously bad, but it comes with economic growth. Stagflation is sort of this really bad thing where you have both economic declines and inflation at the same time. James, do you think that’s a realistic possibility right

James:

Now? I mean, it definitely could be. We keep printing money, time will tell. It’s funny, they’re like at beginning of the year it’s like, oh, the GDP p’s up. Everything’s going well, the economy’s growing, and then once one thing happens, they switch it and go, oh, we’re going into stagflation. I definitely don’t want that. That’s what Japan’s been battling since the 1990s. This is not something that you just get through in a short amount of time. Nobody wants to pay more with no investment growth. What that’s going to do as real estate investors, you’re really going to have to go after those high growth assets that you can get big returns or you’re just going to be really just steadily building your portfolio out. I think at the end of the day, you can’t get spooked by all these articles. You got to look at what the long-term trend is.

Now this tells me to watch it for the next 90 days, and as a real estate investor that invests in tech areas, I do pay attention to this because I am less worried about stagflation, I’m more worried about the emotional pullback because what happens every time these tech stocks go up and down, the buyers go rush in, rush out. And for us, that impacts me. Not really. I’m not looking at this more as far as the economy right now, but I’m looking at that emotional as I go into dispo for our fix and flip our development, if the stocks go down, buyers do go on the sidelines really quickly in our market. And so it’s something that you do need to pay attention to if you’re in San Francisco, if you’re in parts of Texas, if you’re in Seattle, because it’s that whole emotional, when their stocks go down, they feel like they have less money and they want it to grow back up so then they can use it for their down payment and it can really affect the equity gains when these stocks go down.

Dave:

Kathy, what’s your read on this macro economic situation? Do you think we’re in trouble here?

Kathy:

I just think the stock market is so reactive and is looking at news headlines rather than fundamentals a lot of times. So they got many, many companies and Wall Street in general got so excited in December as we know about potential rate cuts, and even though the Fed said there would be three people were pricing in eight, James was kind of saying, so now the reality is set in. I don’t think any of us here ever thought that was going to happen. There’d be eight rate cuts this year, but I think Wall Street just kind of seeing the reality that they just got too optimistic. Optimism can be a negative thing when it comes to investing. I believe me, I see it all the time. I’ve done it, get really excited about something and kind of forget the fundamentals. And I think that’s what happened. We’re not maybe going to see rate cuts at all. And so I just think that it’s coming back to where things would’ve been had there not been that enthusiasm and optimism of December. But I’m no stock expert. That’s why I don’t have invest.

Dave:

No, I know, but it’s not just stock. I’m just more curious about the worry about stagflation because that would be pretty scary. Henry, does it worry you?

Henry:

No, not this article on its surface doesn’t worry me. I don’t know that this is something that’s just going to hit out of nowhere and then we’re in this terrible situation. I think jumps is right this trigger, you watch it over the next 90 days. What this triggered me to look into was, okay, if we’re having these jumps, what’s going on with the actual companies? And if you have looked in the past couple of months, these tech companies like Tesla, apple, and Amazon have laid off nearly 75,000 workers in 2024. And so that to me is more of an indicator on what’s happening with these tech companies. Are they growing or are they starting to cut back in order to make sure that they hit their numbers or get the profits or returns that they’re looking for? To me, that’s more of an indicator of what the tech economy is doing than an article like this.

Dave:

For me, my concern would be more about a re-acceleration of inflation more than stagflation because one of the main reasons the Fed has raised interest rates and keep it high is because they want a tool to use in case the economy starts to falter. And their tool for doing that would be lowering rates again. So if we have a situation where the economy starts to falter and we’re in this unfortunate situation, they will just lower rates that could re-accelerate inflation again. But I think that’s one reason it’s unlikely that we’re going to see stagflation that really damaging duo of economic circumstances.

James:

And if for some reason we do head towards stagflation and it happens, which I think it could happen, I really do. The beautiful thing about real estate is you can beat it because it can give you return. This is where people are going to really want. I know sometimes people are like, oh, you should keep every property. I’m a flipper, right? I keep a lot, but we sell a lot. The reason we sell it is those returns are dramatically higher and we can beat any type of return most likely, or I’ve yet to find an engine that’s going to grow as fast as this. And as investors, if I think that there’s stack placing coming, that’s why we’ve been doing so many high yield investments right now. If cashflow is not growing that well on certain types of product, we’re going to go after equity, we’re going to go after big returns because those big returns, that’s how we offset these other slower returns in our rental portfolio, or it gives us more capital to go buy property and buy down our loan balances. And so as investors, you just have to pivot your plan too. And right now, inventory is super low. Even if the economy slows down, there’s still way too many buyers for inventory and just look forward in 12 months. We plan on owing a lot of properties over the next 12 to 24 months to give us that capital to buy rentals and to pay down those balances to then get our cashflow that we need to beat the inflation rate and everything else, other costs that are going up.

Dave:

All right. Yeah, that’s a good point. I think a lot of times this is exactly what a lot of people why they buy real estate is it’s an excellent inflation hedge. And I do want to just call out something that I think a lot of investors say like, oh, inflation’s good for real estate investors. Inflation’s not usually good for anyone because it eats away everyone’s spending power, but people who own tangible assets are usually best positioned to earn returns above and beyond the rate of inflation. And so it’s not like you’re immune, but it handles inflation better than a lot of other asset classes. We have one final headline for you about Red Lobster, so make sure to stay tuned after this quick break. You won’t want to miss this one. Welcome back to the show. Let’s get back into it. Let’s move on to our last and let’s be honest, most important headline here today, which reads Red Lobster Eyes Bankruptcy Option After $11 million in losses from Endless Shrimp, I did it, y’all, Henry, I did it. Y all was single handedly responsible for 10.5 million of those losses.

Henry:

They said endless shrimp. I said, hold my beer.

Dave:

That’s roughly 8.25 million shrimp. They estimated off just to break even and hopefully they were probably trying to turn a profit here. I don’t know if you guys, did you guys ever watch The Simpsons Ever in the nineties? Oh,

Kathy:

The Simpsons, of course. Of

Dave:

Course. There’s an episode of The Simpsons, it’s called the Frying Dutchman. I looked this up, but it’s basically this exact plot where Hobert puts a seafood restaurant out of business because they do it all. You can eat seafood thing, and he sues them for false advertising. He doesn’t get full. And this is basically what happened to Red Lobster and we’re laughing, I don’t have no ill against Red Lobster and I hope that they come out of this and no one loses their job or anything like that. But this almost, it just seems like a parody, right? Like a fake headline.

Kathy:

It’s just kind of funny to me why they couldn’t stop it or was the bookkeeping off? How did it get to this point? So I don’t know. I have no idea, no way to answer that, but I would think, I know I’ve done some promos in the past. You guys had gave away a house many years ago. I mean, it was a $50,000 house and I was seller financing it, but sometimes you do things to get marketing and then it backfires, and that’s what they did. But they’re getting lots of publicity. So

James:

I don’t know if this was all the shrimp’s fault. One thing I would say though, and I’ve been seeing this a lot and I’ve been trying to watch for it, is these companies went through a lot of growth and not just the shrimp business. This is not what I’m actually referencing, but we saw a lot of companies like appliance stores, window companies, building supply companies grow substantially and make pretty high gains when there was a tight inventory. What I’ve been seeing now is some of these companies are going bk out of nowhere. There was a company Perch, which was in SoCal throughout Arizona, very high end appliance store. Everybody knew it. Everybody shopped there, they were getting lots of orders and that they shut their doors and they’re now going through a bankruptcy and people can’t get their money back. And what’s happening is it’s almost like these companies were just, they got lazy.

It’s just like all of us, even when we were flipping houses and the market was going up, we all kind of got lazy operators, you were just making money a lot easier. It’s like this wave of, as the orders slow down, the cash flow is not keeping up. And I am seeing companies starting to come into trouble. I’m seeing window companies buy window companies right now, and that’s something you want to pay attention to as you’re doing any type of construction project or you’re looking at ordering from a specific type of vendor. I was talking to a window supplier the other day. He’s like, we can give you a 35% discount for your builder rate, but hey, just we can probably go down to 43%. That’s what this guy told me. And I’m like, huh. And then he goes, and we could probably install your windows for free.

And as excited as I am for a good deal, that’s also kind of a red flag. I’m like, why are you giving away so much stuff to get this business? Are you just trying to get the check in? So if you are doing that, guys, put it on your AM X card so you can dispute the charge later. You don’t want to be caught holding the bag. That’s a real thing. If you go buy those appliances and they don’t show up and they go be, you’re toast, you’re out of your money. And so we have been working that into our processes for construction, making sure they’re healthy, making sure that we’re not going to get caught holding the bag with somewhere. It is happening a lot more than what people think.

Henry:

I have some concerns because I’m wondering how they went bankrupt because I’ve tried to eat in the shrimp and it’s like as soon as you order it, the waiter disappears. Oh yeah, you can’t get refills on your shrimp. And I think it’s a marketing ploy. I couldn’t get the refills that I wanted, but my real concerns are twofold. One, what happens to cheddar biscuits if they go under? Like are we going to get the recipe? Is somebody going to take those over?

Dave:

James is, he’s trying to buy these businesses at a discount. Who’s going to be selling cheddar biscuits?

James:

Hey, whatever makes Cheddar

Henry:

Two, their parent company owns Olive Garden too, right? And so does that mean I can’t get soup salad and breadsticks unlimited either? What’s, I’ve got some real concerns that we need to do some research and figure out what’s going on here. I need cheddar biscuits and soup sale than breadsticks and someone needs to fix

Dave:

It. My guess here is that Red Lobster is going to be fine. Maybe they’ll go into bankruptcy restructure. But I know someone like me, some data analyst has gotten very fired for this because that’s basically what happened is someone got a pricing exercise and they’re like, how much do we charge for unlimited shrimp? And they got it very, very wrong because they missed big time. So hopefully that person lands on their feet.

Kathy:

And Henry, I want you to be able to sleep well at night. So a restructuring means that some shrimp companies probably not going to get paid, but they will keep their doors open. That’s true. You’ll get your cheddar biscuits. That’s okay.

Dave:

A shrimp supplier is going to get screwed out of this deal. Alright, well that’s all the headlines that we have for you today. Kathy Henry, James. Thank you guys so much for joining us today. And thank you all for listening. And if you want endless episodes of On the Market Podcast, make sure to hit that follow button. Thanks again for listening. We’ll see you Allall soon. On The Market was created by me, Dave Meyer and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.