Are We In The “Worst Economy in US History”?

Key Takeaways:

– Many Americans believe that the current economy is the worst in US history
– The show will discuss the good and bad aspects of the economy, including new job numbers, negative economic sentiment, corporate landlords, and buying a house in 2024
– Recent labor market data shows that the US added 216,000 jobs in December and the unemployment rate remained at 3.7%
– Job growth has been strong throughout the year, with gains in government, healthcare, social assistance, and construction
– Wage growth is up at 4.1%, higher than the rate of inflation
– One theory for the strong labor market is labor hoarding, where companies are hesitant to lay off employees due to the tight labor market
– However, some experience the opposite, with an abundance of contractors and subcontractors looking for work
– The labor market is important for real estate investors, as labor costs impact investment decisions
– The show will explore the impact of the labor market on real estate investing and discuss the costs associated with improving assets
– Smaller contractors are less likely to budge on pricing due to lower demand, while larger companies may be more willing to negotiate.

BiggerPockets:

Americans are convinced that today’s economy is bad…really bad. In fact, many of them think that this is the worst economic period in US history. Are they right, or are they just historically challenged? In today’s show, we’re going to touch on the good and the bad happening in the economy, from new job numbers to negative economic sentiment, corporate landlords who want you to live at work, and whether or not buying a house in 2024 is a smart move to make.

With so many economists only a few short months ago predicting a recession in 2024, a surprising new jobs report has been released showing something nobody would have expected. Is this good for employees, or does this bring more power to the employer? Speaking of employers, how would you like Elon Musk to be your landlord? Well, if you work for Tesla, SpaceX, or The Boring Company, this could be your reality.

And, if you’ve been on the fence about buying a home, our investing experts go through the pros and cons of purchasing in 2024. With less competition and rates forecasted to drop, now could be the final time to get a steal on your next real estate deal. But is locking in your price now your best bet? Stick around to find out!

Dave:
Hi everyone. Welcome to On the Market. I’m your host, Dave Meyer. Joined today by Henry Washington, Kathy Fecky and James Daynerd. It’s good to see you all. First time we’re all back together after the new year. Hope you all had a wonderful break. Kathy, did you do anything fun?

Kathy:
Oh, well, I hosted 20 people for four days, so.

Dave:
Wow.

Kathy:
Sure. It was fun.

Dave:
That sounds very ambitious. Well, James, I know you’re in Australia. You’re looking very tan. Glad to see you.

James:
I am not happy to be back. I could have stayed over there in Australia, but I am happy to get on with 2024.

Dave:
And Henry Washington. Henry, did you do anything fun over the break?

Henry:
I did. We actually took the kids to Pensacola, Florida. Every year my dad goes out there and rents a place and then my sisters and her kids fly in and we bring our family and so we all hung out for the new year and had a good time. My sister has four boys and she’s pregnant with her fifth child and I have two girls and I learned that girls and boys are different.

Kathy:
Yes, they are.

Henry:
That energy is impressive.

Dave:
So maybe you’re happy to be back.

Henry:
Yes, it was chaotic in the best way, but it was fun to watch.

Kathy:
You got to watch your breakables for sure.

Dave:
I’m glad you all got to spend some time with your families. And now we’re back to kick off the year with one of our headline shows to sort of cover some of the news that has gone on over the last couple of weeks while people were off for New Year’s. Today we’re talking about four very important and interesting news stories. We’re going to talk about recent labor market data. We’ll talk about the negative sentiment that seems to be pervasive across the American economy, corporations building towns for their employees and the pros and cons of buying a house in 2024. So let’s get this kicked off with our discussion of labor growth. If you haven’t heard, the US economy added 216,000 jobs in December and the unemployment rate held steady at 3.7%. Just for the record, 3.7% is very low. And through 2023, the United States recorded a net gain of nearly 2.7 million jobs.
Now those gains came from different parts of the economy, but mostly came from government, which was 52,000 jobs, healthcare, which is 38,000, social assistance, 31,000, and I was actually surprised to see construction up 17,000 and all of this with a backdrop of wage growth, which is actually a bit of a change. We’ve seen wage growth now up 4.1%, which is now higher than the rate of inflation, just a little bit, but that’s a change from how it’s been over the last couple of years. So Kathy, let’s start with you. What do you make of this labor market report?

Kathy:
It’s more of the same. We’ve had robust job growth all year that has just shocked so many economists and there’s lots of reasons for that. I think one theory, and I agree with this theory, is that we’re just still recovering from COVID. So a lot of the robust job growth was a recapture of the jobs that were lost, reaction to the reopening and as we move forward, we’re going to be, I think, coming just back to normal. So that’s the way I read this. There’s other factors of course, but wage growth being one, that when you’ve got people making more money, they tend to spend and consumers have been spending and that fuels the economy and that creates more jobs, right?

Dave:
One of the theories I’ve heard about this surprisingly strong labor market is this concept of labor hoarding, which is basically that companies are more hesitant to lay people off during this economic cycle than they have in previous because of the really tight labor market that happened in 2021, 2022 when no one could hire. Henry, I know you have people on your team, you work with a lot of contractors, do you sort of see this going on in the economy?

Henry:
I’m seeing the opposite. I’m getting calls from people looking for work. I’m getting hit up all the time by contractors and subcontractors. They want more work, more volume. I was just literally driving down the freeway yesterday going to breakfast, this was Sunday morning and I passed four different construction company trucks out in their work vehicles, so I assume they’re going to job sites on a Sunday. So I was just thinking there’s so much work out there for people. The ones who want the work and are good at marketing are getting the work and the ones who aren’t good at marketing are having to call and try to find people to send them jobs. So I’m kind of seeing the opposite and anytime that I post for a position or an opening or something, we’re inundated with applicants and people wanting to do work right now. And so I’m seeing that it’s like people are hungry for work and there’s work to be had.

Dave:
Well, that’s probably a sign of a good economy. I hope that’s good. People are hiring people taking that job. That’s pretty good. I know the labor market is important for the macroeconomic situation, but for real estate investors, they might not be super familiar about how this might impact them. James, do you follow this closely and how does it impact the way you make your investments?

James:
Yeah, no, I mean the labor market and pricing behind that, it has everything to do with real estate investing in general. I mean so much of what we do is based on the cost of what you need to do to improve that asset, whether it’s a fix and flip rental property or it could even be a large multifamily, it’s about the costs that go in. Those core costs will affect your numbers so much. And to kind of touch on that labor hoarding, I do feel like that is going on in a lot of the construction companies right now because what we’re seeing is we’re seeing, just like Henry said, that people are actually requesting more bid work right now and it has fallen, their workload has fallen. But that’s what the larger companies that have staffed up heavily over the last twenty-four months to keep up with the demand that was going.
Our smaller contractors who don’t need as much work and volume, they are actually are being a lot more stubborn on their pricing. They have not budged as much and they’re still kind of increasing it because they don’t need the work and just because there’s a low amount of work out there, they’re still able to get those jobs. But our bigger companies have been wheeling and dealing much more. Those are our big siting companies, our clearing and grading companies, they have a lot more bodies on staff. These people get paid better too and they want to keep everybody working so they can get through this little blip in the market is what they’re seeing.
And we’ve seen pricing, especially on a new construction, we had one of our clearing and grading contractors, he called us and said, “Hey look, I will do this last portion of this job for free,” because he had so much profit in there, “if you get me lined up with another job right away.” Because he just wants to keep it going because none of them want to lay those people off because hard to find when the market heats back up. And so I do think that labor hoarding is happening, but it’s working to our benefit in a lot of different things with the bigger trades that we have to hire.

Kathy:
To Henry’s point about applicants, our Director of Finance is retiring after 20 years and we just thought, boy, how are we going to replace her? She’s been so awesome. So we put out the job description and we got 350 job applicants for this position and we were really surprised and we were a little bit under, I would say what would be the going rate. And several of those people said we were willing to take less money because we love that you’re a remote company. So that was interesting. I think people really got used to being able to live wherever they want and they’re looking for companies who can provide that.

Henry:
People got comfortable working with no pants, I mean.

Dave:
Are you wearing pants right now, Henry?

Henry:
I mean let’s just not scroll down, guys.

Dave:
Let’s keep the cameras where they are everyone. All right, well super interesting. I think another thing just for investors to remember is that while the labor market doesn’t directly touch housing prices or things like that, it is a good sign for rents, rent growths, vacancy, occupancy rates, those kinds of things. When people remain employed, that is a good sign for income for real estate investors. So we just covered our first story, which is all about the labor market and how surprisingly strong it is and how that impacts investors. We’re going to take a quick break, but after that we’re going to hear about why Americans, despite some robust data, are just so unhappy about the economy.
Welcome back everyone. Our next story is about Americans being displeased with the economy. Now there are a lot of macroeconomic indicators that we talk about all the time on the show that are going well. GDP is up. We just talked about a strong labor market, but Americans have low sentiment and they’re kind of dissatisfied due to high prices. Inflation over the last couple of years has really eroded spending power, housing super expensive, all that kind of stuff is going on. And so I’m curious, what are some of your theories about why the headline numbers look good but people aren’t feeling it? Henry, let’s start with you.

Henry:
I think you really kind of said it. I think we’re in an age of information overload. I think we’re moving away from print news now and it’s all on demand news and everybody’s fighting for the eyeballs, the attention and the clicks and the way to get that is you have to have an attention grabbing headline or story. And so a lot of the stories that you’re seeing are really click baiting and around like, “Hey, the economy’s terrible, housing prices are through the roof and affordability is going crazy and no one can afford to buy a house.” And that’s going to play a role when you have the media painting pictures, sometimes that things are extremely negative.
And I’m not saying that affordability isn’t a problem, and I’m not saying that people aren’t struggling in this economy, there are, but there are people struggling in every economy. And I think if you just want to put a headline out about, “Hey, the economy’s doing pretty all right and let me show you why it’s not as bad as people think it is.” That story’s not going to do as well. And so I think people just really have to educate themselves fully on the issues and dive a little deeper than the headlines. And I think people will start to see that things aren’t as doom and gloom as maybe a news headline might lead you to believe.

Dave:
I read about this Tik Tok trend where people are calling it the silent depression and we can get into that, but the headline was the people were saying that this is the worst economy in US history and I think this is what you get when younger people who are not trained in this perhaps or even look at history, make economic projections. So I wouldn’t follow that particular one, but I think is there something to this? Because the GDP, you look at labor market that sort of looks at the whole pie, right? The pie is growing, but I think there might be something to the fact that not everyone feels the way that that pie is growing equally. Kathy, do you have any thoughts on that and how that might be playing into this?

Kathy:
Yeah, absolutely. My first thought when I just saw the headline and hadn’t even read the article was that it’s social media. That’s the big difference is that everybody has a voice now and before, how could you be heard if you had complaints? Who would you go complain to? Your employer? So everybody has a voice and everybody, not everybody, but yeah, everybody’s an expert now and they think they know everything without a degree in that topic. So not that you need a degree, but maybe some experience would be helpful too, or knowledge or history. But I would say one of the biggest things is that in 1949 there was the fairness doctrine and that was basically a law that required, I’ll read it, that broadcasters cover controversial issues of public importance, that they present contrasting viewpoints and that there’s equal time for both viewpoints, adequate airtime, and that is how, when I had my degree in broadcasting and I worked at Fox, I worked at CNBC and CNN and ABC 7, and when I worked at Fox, there was no slant.
In fact, most of the people I worked with were pretty liberal because it was in California and if we did not show both sides and clearly, boy you’d get chastised and probably fired. Now in the eighties, the fairness doctrine was abolished, 1987 by the FCC, and in 2011 it was just completely removed from everything. So add to it social media and other outlets, other ways for people to get news where it would be really hard to enforce this thing anyway, right? It would be super hard to say you didn’t tweet both sides, so it’s just outdated, but that’s the big difference. There’s always been unhappy people. Now though those unhappy people can see what everybody else has and they get jealous and frustrated. And so it’s just, again, social media, technology I believe is really what it comes down to.

Dave:
That’s a great point about this, you can see how other people are living, and we should also mention that most people on Instagram overinflate their lifestyle and make it look like they’re doing all these glamorous things all the time that maybe they are not. But I also, I’m just curious what you guys think, we are real estate investors, we own assets, we have largely benefited from a lot of the economic growth over the last couple of years, but I can see how young people who don’t own assets, in a lot of ways did miss out on a lot of the wealth creation over the last couple of years. And I think there’s something that is something to be frustrated about.

Kathy:
Yeah, but if you really go back and look at history, home prices doubled almost every decade. It’s not new. And in the eighties it was actually more expensive. It was harder to buy than today, less affordable. So it’s not new, it’s just that people could see more and are frustrated. But even back in the eighties, there were ways to get into the industry if you really want to study it and find out and talk to, listen to BiggerPockets episodes and see how people with nothing suddenly have something. It just takes effort, knowledge, and education, right?

Henry:
Yeah, I would have to say I definitely don’t agree with that, Dave, because if you think about I love seeing the memes that’s like, “Man, I should have bought a house in 2008, but I was too busy playing in the playground.”

Dave:
Exactly.

Henry:
But when you think about that, yes, the young people might’ve missed the opportunity to buy in 2009 when everything was down, but they didn’t miss 2020 when the whole stock market was down and had an opportunity to buy, and they’re not missing right now when it’s a great opportunity to buy real estate and there’s more access to information to educate them on how to make these smart investments. In 2008, you couldn’t just hop on the internet and find an expert in something you wanted to learn about and take action on that information. It wasn’t that easy. You had to go to the library and know the Dewey Decimal system in order to get information.

Dave:
Nope.

Henry:
And so I would argue that it’s easier now for them to take action and there is still plenty of opportunity.

Dave:
That’s a great point. I understand some of the frustration with the economy, but I hope people don’t get completely tune it out. To your point, that’s what’s really dangerous if you just write it off as hopeless, then it really will be unfortunate and you could get left behind. Well, if you’re all wondering where James is, he, as usual is having technical problems, so we’re going to carry on.

Kathy:
Poor James.

Dave:
Henry, Kathy and I for these questions that we’re going to move on to our third headline, which is that corporations in the US are bringing back company towns. This article from the Future Party talks about how Google, Meta, Disney, NBC and several of Elon Musk’s companies are developing “company towns” where people can live and play just a stone’s throw from where they work. These projects are designed to alleviate the high prices and lack of inventory in the housing market. What do you guys think this means? Do you think this is a trend? Do you think this is smart? Henry, what do you think?

Henry:
Is it a trend? I guess you can call it a trend. Is it going to put a dent in the housing problems that the country is facing? No, it’s not, but it’s happening because I am literally seeing it happen in my backyard. Walmart is building a new home office campus facility that’s going to house all of their buildings. It’s going to have housing and hotels and apartments, and so this is happening in more companies than just the ones that are mentioned there.
These companies are fighting for talent, they’re fighting for young talent because if you think about all of these companies, include Walmart in that list, it doesn’t matter what these companies sell. They’re all technology companies. They’re fighting for young technology talent and young technology talent, if you go look at what Google provides currently in terms of office facilities and YouTube, they have beautiful, all-inclusive facilities, state-of-the-art technology. And so I think a lot of it is these companies are all competing for that same young talent, and so if one is providing this thing, they’re all going to start providing those same amenities. So I think it’s less to do with housing and more to do with talent retention.

Kathy:
Yeah, I just want to say Elon, if you’re listening and I know you are, I would love to partner with you on this project. I think it’s incredibly cool. Listen, I have a 24-year-old. She’s living in Denver now in a building that is mostly young people. She loves it. When you get out of college and you’ve been living with young people for four years and it’s so fun and all of a sudden you go and you’re not, you’re in a suburb somewhere. I mean, it’s brilliant to build communities where people can live near work, have a community, social life and not have to commute so far. I love it.
Now, California has been trying to do, this is called the California Forever Project, and it’s in Solana County just north of San Francisco, and they’re trying to create this, but California ain’t the place you’re going to get it through. There is so much resistance in a place where housing is so expensive and you need more supply, they will stop you every step of the way. I know this because we’ve developed property in California and it’s so hard. The resistance is incredible from the very people who actually want cheaper housing. So will it happen in California? I don’t know. But maybe some of these other areas that are more open to development, it could happen and I think it is fabulous. I love it.

Dave:
All right. Well, I’m just going to disagree, Kathy. I have two things to say here. First of all, if we’re trying to create affordable housing in the US, I don’t think Meta employees and Google employees are the people who are struggling to buy houses right now. They’re probably the most highest paid people in the entire country. And the other thing is I just think this is a clear way to try and stop work from home. They’re like, “You can’t work from home, but if you want to hang out with your boss after work, you can do that as well.” I don’t know about you, but for me, I love my colleagues at BiggerPockets, but I like a little work-life separation and I don’t know if I want to go to work, leave and then just see everyone I just saw at the bar and at the school and at the restaurant and at the grocery store. So it’s not for me, but maybe people will like it.

Henry:
For the record, Amsterdam is more than a little work-life separation. You went all the separate.

Dave:
Yeah, I did a six-hour time difference in an ocean. That’s how I took advantage of myself.
I agree with you, Kathy. The general sentiment, when I was out of college, I lived in, it was a small building in Denver, but it happened to be just all young people and it was super fun. I totally agree with that, that idea of building community and having that community. I just don’t know if I would personally move to a place where that community was focused around my job.

Kathy:
Yeah, that’s a good point.

Dave:
James is back. He’s looking like a deer in headlights, so we are going to surprise him with the fourth headline and see what he has to say when we come back from this break.
All right, James is back. We’ve given him a chance to catch his breath. The fourth headline and our last of today’s show is the housing market, pros and cons of buying in 2024. This comes from GOBankingRates, and the key points here are that right now, at least, I don’t know if this applies to all of 2024, but let’s just say right now at this point in 2024, this article points to less competition, there’s slightly more homes on the market, baby boomers are starting to sell their homes. Those are the good parts. And the cons are that prices are still at record high and competition is still reasonably high, and people generally, as we talked about, have some economic concerns. So James, what do you make of that list of pros and cons? Is there anything else you would add to that?

James:
Well, I think the pros are that right now, as you’re looking for a home that you can almost kind of bank that your mortgage cost is going to get lower in the next 12 to 24 months if you buy now, and that is with the Fed’s signaling that they’re going to cut rates throughout 2024 and maybe into 2025. As long as you can make it budget today, that means you just have upside in a house. And that I think is the major pro.
The con right now is just the payments are expensive when you’re looking at a house. No matter what, it costs a lot more. I mean, I just closed on a new house for myself, what, three, four months ago, and the monthly payment is shocking, but I know when rates come down maybe 2%, my payment’s going to fall nearly 15% on what I’m going to be paying right now. And so as long as you can afford it today, then you can actually forecast down the road for the budget easier.
The benefit is there’s opportunities in certain areas. If you can buy something that’s a little bit dated, the pricing is substantially less. And I can say that because I just bought a home in Southern California, which I would never be able to buy 24 months ago without multiple offers. Now, this property did have multiple offers, but it had multiple low offers and it sold about 10, 15% off list. Most of the offers were about 20% off list. So there is opportunities as long as you can wait it out and you can go through that slow transition through life of buying a property below market, renovating, increasing it, and then getting that payment down when the rates start to fall.

Dave:
That’s a good point. Henry, what do you think?

Henry:
Boy, oh boy. James is absolutely right. The pros here, all right, and the additional pro is yes, if you buy now, 45 days ago, people were buying and they were hoping that rates come down at some point in the next year or two, but now it’s more, you don’t want to say guaranteed until it happens, but now there’s more certainty around the fact that that’s probably going to happen. And so you know that if you can get in now and afford it that you’re going to be able build wealth, you’re going to be able to bank some appreciation, right? It’s almost forced by the government. And so you have this very, very unique opportunity.
What I would argue on this list is it says the cons and that the cons are that housing prices are high and that con that housing prices are high, is a con based on history. But if we look at the future, housing prices are low because if and when those rates come down and the demand in the market for homes increases, then the values of those homes go up. And if the values go up, then the prices are higher than they are now. So I would argue that now you can get in and you can buy where you can get a home at a lower price point and with less competition and capture some equity when the rates drop.

Dave:
That’s a great point, Henry. And I’d also say that record, homes aren’t record high in every market. There are definitely markets where they are below all time highs. And that just adds to what Henry and James were just saying, is that in some markets, you actually can get a discount. Now we’re all talking about these things, playing devil’s advocate, it’s going to be hard for any of the four of us to disagree that it’s probably a good time to buy. So Kathy, I’ll ask you this, do you think the, let’s say the first quarter of 2024, do you think that’s going to be the best time to buy this year? Like right now?

Kathy:
Wow, I don’t know.

Dave:
Henry’s nodding vigorously while Kathy’s speaking, just so everyone knows.

Kathy:
I don’t care. I look at the numbers, right? I look at the numbers, it either works or it doesn’t work. But here’s the question I would ask you if you’re renting and looking to buy and feeling frustrated is how frustrating is it to pay rent every day to somebody else who is taking that money and paying off their mortgage? So which one do you want to be? Do you want to be the person who is paying for your living and in 30 years now you have no payment? Because all of that money has gone into your living. You’ve paid off your loan. And the same if you buy a property and a tenant is paying off your debt for you. So you just have to ask yourself that question, what’s better? In 30 years, do I want to still be renting? And what do you think rents are going to be in 10 years, 20 years? What do you think home prices will be in 10 or 20 years?
Now, you have to hold, remember, if you’re looking to buy a home and you think you’re going to be there a year or two, maybe not. But if you’re going to buy it and live there for a while and raise a family, or if you’re going to maybe live in it for a little while and then leave it, but rent it out, doesn’t matter. It doesn’t matter. Because I ask you to just go on FRED, just type in FRED, that’s the Federal Reserve of St. Louis, and type in existing home sales numbers and look what home sales or prices, I’m sorry, prices, not sales, existing home prices and see how they’ve gone up every decade, usually doubling.
And I’m talking about, I’ve been around a while you guys, decades, and I can tell you that the house that I grew up in was $50,000 in the San Francisco Bay area. The next year it was 100, the next decade was 200, it doubles. So why would that suddenly stop? Tell me why. I don’t know. I don’t have a good reason. I think the government isn’t going to stop printing money. So you can make the choice, keep paying rent or pay it to yourself and pay off your mortgage.

Dave:
All right. Well, thank you all so much. This is a very thoughtful and interesting conversation. Hopefully everyone learned something valuable that they can apply to their investing situation themselves. And if you did, please make sure before you go to leave us a five star review. It’s the beginning of the year. We want more reviews. I’m going to be honest about it, and we really appreciate it if you took a minute and went on either Spotify or Apple to give us an honest and hopefully good review if you like this show. On behalf of Kathy, Henry and the ghost of James who just disappeared from our recording studio again, we appreciate you listening and we’ll see you next time.

Speaker 5:
On The Market was created by me, Dave Meyer and Kalen Bennett. The show is produced by Kalen 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.

 

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