Real Estate 2024 Predictions, Interest Rates + 2023 Roundup: Insights for investors on interest rates, the housing market, and real estate in 2024. Discover the unexpected rebound of Memphis real estate in 2023, defying predictions. As the year closes, delve into the city’s unique market dynamics, where housing thrives against national trends. Uncover the secrets behind the success, fueled by a booming rental sector and a robust job market. The podcast hosts reflect on their miscalculations, emphasizing the city’s resilience and steady growth. Get a sneak peek into 2024 predictions, with discussions on interest rates, investment shifts, and the potential for a thrilling real estate surge in Memphis.
Brett
0:00:41 – All right, welcome to the end of 2023. This is a 5 o’clock summer real estate podcast sponsored by Title Assurance and escrow. And also, we are going to have a new sponsor coming in January, Touched by an Angel Charity. I did some work with them over the Christmas holidays and we’re going to try to help him as much as we can just by putting his name out there, adding him to our website. He does a lot of great stuff in the city of Memphis and a lot of the neighborhoods we work in, believe it or not. So it’s, anyway, thanks for joining us today. This is going to be our end of year wrap up. I want to basically talk about what did we get right, what did we get wrong? Now I know I can’t repeat verbatim what I said at the beginning of this year, but I predicted that we were going to have a rough year. That it was going to be a little slower in the market and we weren’t going to see investment sales as hot as they’ve been in the last several years. But again I was wrong and I failed to see the one thing that I preach all the time on the podcast and that this is the Memphis market. And we’ve said many times why the Memphis market does so well, and that’s because we have 340,000 renters in Memphis. And I think our population is what, 760 inside the city limits, 780?
Richard
0:01:51 – Well, I tend to know it by percentages. Every percentage that I’ve checked over the years, it’s about 49% rentals.
Brett
0:01:58 – Right, exactly. So renters in Memphis, so obviously people always need a place to live. So regardless of what’s going on in the economy, I know in California, Florida, and all these places the market has dried up and slowed down. But when you have a market that is saturated with so many people that rent, it keeps the market moving. And I’ve had a very good year this year. I haven’t had my best year. My best year was 2022. I think that was for anybody in real estate. But this year was surprisingly good compared to what I thought it was going to be. And I go back to the renters. When you have a distribution city, let’s talk about this. Memphis has FedEx, we have Nike, Amazon. You name a worldwide company or manufacturer, they’ve got a distribution center here. We are a distribution city. And when you have that kind of a business climate, you end up with a lot of people that work in the service industry or the distribution industry. They make 18 bucks an hour, 22 bucks an hour, middle management, drive a truck, drive a forklift and when you have that many people working in that sector, unfortunately they don’t buy, they rent. And a lot of them rent until they leave this planet. I would say our numbers have been 49 to 51 percent rentals for the last seven or eight years. And with that kind of number, I was wrong. I really was dead wrong on this, thinking that this year was going to be slow. So for those of you listening, we talk about the Memphis market a lot. Obviously we are an investment group in Memphis, so we want people to invest in Memphis, but we’re not pitching you a sales pitch. This isn’t, hey, call Brett, call Jeff, call one of our guys and come invest with us. We just want you to know Memphis is here and Memphis is a hot market to put your money. It’s a safe place to park your money. You’re not gonna see a 50% jump in values next year, but you’re also not gonna see a 50% tank every time our government blows wind the wrong direction and everything goes south, like it has all over the country. So it’s a safe place to park your money. 901-692-7401 is how you can contact us if you’re interested in talking about it. You can call and pick our brains. You do not have to use us. If you don’t like us, that’s fine. We are one of the most viable investment teams in Memphis. We do nothing but investment, and we deal with investors around the world. Jeff, let’s talk about this year as it comes to a close, and then let’s talk about our predictions for next year, because obviously I’m batting zero in the last two years for predictions.
Jeff
0:04:19 – We read a lot of doom and gloom in the news about high interest rates, inflation. That does require an investor to make some changes in the decisions that he makes. But overall, we still had a 6.5% growth over the year before, despite the high interest rates, despite the inflation. And, you know, that’s not always a bad thing for an investor. Inflation rises consumer prices on everything, including rents. So if you’re renting a house for $1,000 two years ago, and now you’re renting it for $1,300, that’s not a bad thing to me. Interest rates don’t bother me. I mean, you are never, I don’t think, in our lifetime going to see 3% or lower interest rates again.
Brett
0:04:59 – No, but in 2008, when everything crashed, the hottest rate you could get as an investor was like 10.5. And people thought that was just, oh my God, that’s a gold mine.
Jeff
0:05:10 – And the going rate for a mortgage in 2007 with a 780 credit score was 6.5%, 7%.
Brett
0:05:18 – Which was a fantastic rate. So I agree with you that rates aren’t a big factor. One thing I have noticed is that while investors are still buying, that they were getting more investors pulling away from the buy and rehab type rentals and going with some of the stuff we carry a good inventory on is all the new construction and the turnkey. Houses that are rented, completely remodeled, or new construction producing 1% or better because they can borrow the money, buy the home, it starts cash flowing, they don’t have to invest any cash out of pocket other than their down payment in the reserve fund. So because of the cost of money, I have seen that shift in our market that people are pulling away from that rehab type work.
Jeff
0:05:57 – Well, don’t discount the rehab flippers though. There’s still a housing shortage in this country. The supply chain issues are getting a little bit better, labor’s starting to correct itself a little bit, but don’t discount the rehabbers. I mean, they’re filling a huge gap in the housing market because of the shortage, and they’re putting people in affordable housing that couldn’t otherwise qualify for a loan, which is what all our investors are scooping up right now as quick as they can get their hands on.
Richard
0:06:24 – Yeah, and I think one of the things that you’ve noticed with the people that you’ve been working with as well, there are projects now that you’ve been involved with where new builds are providing some of that much-needed housing for low-income families and it’s a fantastic opportunity for the investors.
Brett
0:06:37 – Yeah, and we say the term low-income, that’s such a wide-range term. People normally think low-income, you’re thinking of downtown Brooklyn projects, you know, sheets hanging out of the windows, stuff like that. That’s not what we’re talking about. We’re talking about Memphis Housing Authority, which is a Section 8 program, which does a phenomenal job, actually, of providing good housing, good tenants, good rents, actually over-market rents. So because of our makeup of our city and distribution, people just don’t make enough money to keep up with the cost. So a lot of them do apply for MHA. A lot of them have jobs. Single moms with two kids get subsidies from MHA for rent. And a lot of these new construction homes are providing nice new homes in decent areas for these families. Because for years, the last 10 years, Section 8 tenants were living in the worst part of the city because that’s the only investors that would allow their stuff to be rented Section 8. The MHA program is doing a phenomenal job in Memphis and they’re paying over market rent. I mean, you can get a brand new construction home with a one-year builder warranty that is producing 1% or better starting out which a lot of people said 1% is dead you can’t get that anywhere well you still can in Memphis so Jeff let’s talk about this year at the beginning this year I predicted that interest rates were gonna go up which they did so I was right on that and that that was going to not kill but dramatically slow down the investors buying properties. I was partially right because what happened was they stopped buying in these other markets they were typically buying and supplementing their portfolio with Memphis properties and they moved a lot of their money from other markets, California, Arizona, Florida. I have a lot of guys out of the Midwest that have moved money from there into Memphis. Why? What do you think their reasoning for, let’s say Michael Gibson liquidating his properties out in California, moving every dime into the Memphis market.
Jeff
0:08:29 – It’s just what you alluded to earlier. It’s just a safe place to park your money. It’s one of the most stable markets in the country, based on all the information you gave out earlier.
Brett
0:08:39 – Yeah, and you get the 1% starting out. I was partially right with my prediction. I knew things would slow down, and they did, all over the country. But it didn’t in Memphis. I still did $10 million this year in total sales.
Jeff
0:08:52 – I never get an opportunity to correct you when you’re wrong, but again, you know, all the reports and experts that I’ve read and talked to, the Mid-South area in general took a 6.5% growth in investment properties.
Brett
0:09:08 – We’ve actually seen the Memphis market grow year in and year out, regardless of the economy, regardless. And I go back to the fact that we’re a distribution city and people have to go to work. During COVID, guess what? FedEx had to keep running, St. Jude had to keep running, Amazon, Nike, they all had to keep operating. So those people still went to work every single day versus in the rest of the country, people are sitting at home for six months collecting government checks and that didn’t happen here.
Jeff
0:09:32 – Well, you know, and it’s not all low income either. These are good paying jobs, you know, factored in that there’s a lot of less than credit worthy citizens that live in Memphis just creates a perfect storm for a rental boom in the city. Let’s talk about the new year. I think it’s going to be a slow growth, but I think we’re going to continue to see growth.
Brett
0:09:51 – Well, I can say, judging from what’s happening with the holidays, normally this time of year, I’m in the yard working, just getting ready for Christmas. This holiday season I have been slammed because so many people are buying. And I’m trying to understand why. I ask them all why and they all tell me the same thing. Because of the recent rate drop and predicted rate drops in early 2024, they’re expecting the real estate market to rocket and take off. Now, not all over the country, but I think in Memphis in particular, we’re going to see a fast upward trajectory. And I think these guys are buying currently in preparation of gaining that equity run that’s going to hit us sometime this summer. That’s what they’re telling me. Now, I haven’t heard any experts talk about that. Of course, the experts all live in California. I haven’t talked to any experts in the Memphis market, but everybody I’m talking to, everybody I’m doing business with, all the other brokers and agents in this market that I’m dealing with, all have the same mindset that because the rate drop predictions coming in January, people are buying today in hopes that next year as those rates drop further, it drives up values, it drives up rents, and gets the economy moving again.
Jeff
0:11:08 – A lot of your growth that I see coming in 2024 is going to be a lot of investors have kind of been sitting on the fence. They’re waiting for some drastic reduction in rates, and I think they’re starting to realize that this is not going to happen.
Brett
0:11:20 – Well, a lot of them were waiting on drastic reductions in value and planning on scooping up properties at 60% of what they were this time last year. But that didn’t happen in Memphis.
Jeff
0:11:30 – No.
Brett
0:11:31 – But yeah, they’re sitting on the fence waiting on interest rates to drop. Well, they’ve dropped, but I’m predicting a big year next year, at least in the Memphis market. I can’t speak for California, I can’t speak for Florida. There are local state politics that have a lot to do with the recovery of a state and a market. My investors in California that own here in Memphis, they don’t have any dreams of California bouncing back next year and the market beginning to make sense. So you couple California along with the rent restrictions and all of that, it just, California’s a horrible place to invest in. Unless you just can buy a warehouse for a hundred grand that you can flip out for a million tomorrow, it just doesn’t make sense. So Memphis is the place, I think, to put your money.
Jeff
0:12:12 – Yeah, but just keep in mind, it’s not going to be an overnight improvement. This is going to be a slow growth, a slow process. The Fed’s set a goal for 2% inflation, which is a little ambitious to me, but I think you’re going to see more improvement in the second half of 2024. I mean, I think you just said we had a rate drop. It is an election year, and there will probably be two or three more rate drops.
Brett
0:12:36 – Well, I think if they drop the rates in January as predicted, and then they do a secondary drop shortly after that, and inflation doesn’t begin to move back the other direction, it still stays stable or maybe even comes down some, then they may produce a third and a fourth and maybe a fifth, who knows. What I found interesting this year, which is why I’m pretty optimistic for next year, is that interest rates, at least in my business and in Memphis, did not really affect the overall market here as far as buying and selling. I would say that I probably did as much business this year as I did in 2021. 2022 is a banner year for anybody because people were buying properties as if Joe Biden put out a bill and signed a bill into law that says, you will never cut down another tree, you will never build another house. They were buying it like you were never gonna be able to buy a house again. Next year, my prediction is simply because I’ve watched it happen this year. I’ve watched people continue to buy in volume, even though interest rates were at the highest point they’ve been in 15 years. So if you can take a percent of that interest away in 2024, I think that’s going to bring back in the fold all of these investors you just mentioned, Jeff, that are sitting on the fence. And that’s going to add to what we already have going currently. So next year actually could be the biggest year that we’ve seen in Memphis in quite a while. That’s my prediction.
Jeff
0:14:01 – That’s a good prediction.
Brett
0:14:02 – I probably should predict it’s going to tank and it’s going to be crap because every time I predict something, it goes the other direction.
Jeff
0:14:09 – A little optimistic in your prediction, but I see the same trend you see. I just think it’s going to a little, yes, put the brakes on a little bit, Brett, but it’s coming, buddy. Don’t worry.
Brett
0:14:20 – We’ll see. All right. So we’ll come back and visit this in April, right before the summer kickoff. And my prediction is this year’s gonna be booming. Your prediction is it’s gonna kinda slowly taper up and take its time. Bet a beer? Oh, you know what, we’re gonna bet a bottle of Johnny Walker Blue.
Jeff
0:14:37 – Blue? Man!
Brett
0:14:39 – That’s our bet. So you be the bet keeper.
Richard
0:14:43 – Be the adjudicator.
Brett
0:14:44 – You be the adjudicator. So our first episode in April, we will make a note and we will see whose prediction started coming on. I guess maybe we need to do it in May because April is still the summer just now ramping up so you may win by default and I don’t want to give you that win.
Richard
0:14:59 – If you were to make a prediction as to where you imagine mortgage rates will be come summer, let’s say end of May, do you want to put a hard figure out?
Brett
0:15:08 – The only reason why I would think they’re gonna come down significantly is only because it’s an election year. If this was an election year, I don’t think the Fed would budge. I don’t think they want to because I don’t think they’re really truly concerned about the average American. They’re more concerned about corporate America. They’re more concerned about profits and all the growth on that sector. I don’t think they really care about the guy that’s going to work at FedEx everything. Being that it’s an election year, I expect them to hit, I’m going to say, let’s say a mortgage rate to get as low as 5.5. It’s my prediction.
Richard
0:15:40 – Wow, you think it will go that low?
Brett
0:15:42 – I don’t see if the Fed or anybody in our current government expects Joe Biden to win re-election, if he has any chance of it at all. They’re going to have to do something drastic with interest rates and get the economy moving and make people feel like the American dream is still attainable. Right now, most people, average income people, don’t even think the American Dream’s attainable because they can’t afford to buy that house. Now, there’s a flip side to that, and I had this conversation with one of my guys a couple days ago. Before 2008, people bought a three bedroom, two bath home, a couple hundred thousand dollars, and they could afford it. Obama got in office, took interest rates to zero, now all of a sudden that same guy could go buy his McMansion in Collierville for 400,000, same payment he was gonna have on that $200,000 house. And that created this false sense of wealth with these homebuyers, and where they always, now they’re just all, you know, four years later selling and upgrading to a bigger house, and a bigger house, and a bigger house, and slowly moving into that, look at me, I’m on the street with the Smiths. I’m the big guy. When he can’t really afford, he couldn’t afford that house under normal circumstances. Now that that’s reversed, the positive thing is it brings people back into a reality check. It makes people actually stop just throwing money out of the window because they’ve got it. It’s making people budget, it’s making people think more clearly about their goals, but the negative side of that is it’s hurting whoever’s in office, period. It’s hurting whoever is president, whoever’s in Congress, whoever is handling the Fed. It’s hurting them politically because all of a sudden these guys that used to be able to afford a half-million dollar house can’t afford anything more than 200, 250 simply because of interest rates and the economy. I think it’s a double-edged sword. I think there’s a good side and a bad side. I hope for a 5.5% interest rate or maybe a 6% interest rate because I think that’s a good stable area to allow people to buy what they can afford. It makes the American dream obtainable again of buying a home.
Jeff
0:17:36 – There’s some experts out there that are predicting a 1.75% drop by the end of 2024. That would be fantastic.
Brett
0:17:44 – That would be fantastic. I don’t ever want to see interest rates go to zero or one or two because, yes, while that allows the two kids who just graduated Ole Miss to move to Memphis to buy their mini McMansion and feel like they’re important to the world, because unfortunately, let’s face it, a lot of people look at their home and that is their status symbol. They put themselves out there based on the kind of home they have and how expensive the car is they drive. I don’t want to see it go back that way. I think that’s detrimental to America because eventually those chickens come home to roost and those same people now feel like the American dream is unattainable, even though it really is. You just have to be smarter about it. You have to budget your money. You can’t just go out and eat out every night, door dash every day, go buy $500 worth of clothes at your favorite department store, you’ve got a budget, you’ve got to plan out your life. Like I did growing up. My mom and my dad sat at the table once a month with a pen and a pad and wrote down the bills and wrote out the income and budgeted everything. Like my mom knew exactly what to spend on groceries, knew what to spend on my school clothes, which wasn’t a lot, I had to wear dickies and turtlenecks and goofy crap like that. But if we get back to that point, I think our economy will flourish and do a lot better. There’ll be a lot more disposable income that people can put away for retirement and put into the economy. So anyway, prediction for 2024, I think we’re gonna have a good year. I think interest rates are gonna be solid. I think home ownership and the American dream is gonna come back into the eyesights of the younger people that are just now getting their careers going. But they’ve gotta do it within reason. You can’t get out of college, you get your first job at the law firm, or wherever you’re going to go to work, and then all of a sudden start looking for this 5,000 square foot house in Collierville. That is dead. And you don’t want to do that. You don’t want to be house poor. My wife and I just had this conversation in the truck yesterday. And Jeff, I’ll ask you this question. You and I both live in nice homes. We don’t live in McMansions. We don’t live in, you know, these humongous houses with circle driveways and brick walls around it. We live in nice homes. Richard, you live in a nice home.
Richard
0:19:41 – I do.
Brett
0:19:42 – Right? If tomorrow I gave you both lottery tickets for Christmas and both of you won $10 million, what would you do, Jeff? First thing you would do?
Jeff
0:19:51 – Hire an investment broker. The last thing I would do is sell my house and buy a bigger one.
Brett
0:19:59 – Yeah. Richard, what would you do?
Richard
0:20:00 – Well, number one, I wouldn’t pay off my current house because my interest rate is so low. I would invest in rental properties.
Brett
0:20:06 – No? good answer.
Richard
0:20:07 – That’s the first thing I would do and I would also diversify my investments. So, I wouldn’t just do rental property. I’d do other things too.
Brett
0:20:15 – Well, like both of you, I would not sell my house and buy a bigger McMansion for me and my wife. To me, that’s just a waste of space. However, I would, and Jeff knows this about me, I would have the biggest, baddest yacht on the Tennessee River, and then I’d invest the rest.
Jeff
0:20:34 – Then I’d have to buy a bigger boat.
Brett
0:20:36 – Yeah, I would have a mini love boat going down the Tennessee River. We talked about this yesterday, and because we were passing all these huge homes, we have friends of ours that have just purchased $800,000 homes, and they don’t make any more money than I do. If you think about that, a house note is $4,500 a month. Would you rather be house poor and spend $4,500 a month on a house note for a house with five rooms that you’re probably not going to see until 2027, you’ll probably never walk into, or would you rather invest the money, buy some rental properties, buy a bigger boat, travel, do something that means something? That’s what I would do. I would do something to live my life and have fun with.
Jeff
0:21:14 – That’s a hard sell to a young guy making a lot of money. I mean, I’ve got tons of clients, FedEx pilots, they’re low to mid-40s, $800,000 house, beautiful wife, four perfect kids, two Range Rovers in the garage. My workers look at me and envy that lifestyle. I said, don’t envy that guy. He’s stressed, he’s in debt up to his eyeballs, he’s going to wake up one morning at 55 years old, he’s not going to have a pot to piss in because he hasn’t saved or invested any of his money. I feel sorry for that person. I don’t envy that person.
Brett
0:21:47 – I do too. Well, fortunately, a lot of our investors are very similar to us. I’ve got one investor who owns 60 properties out of Utah. He built him a nice house on a mountain. It’s not lavish, but it’s beautiful. All he does is real estate. He doesn’t do anything else. That’s his life. He started at 22 years old and he’s 48 and that’s what he does, real estate. He works from home. He’s at home all the time with his kids. His oldest son and him just partnered up in LLC and just bought their first two properties. He’s getting him started doing it at 24 years old, 25 years old. This investor to me is the epitome of what every young investor should be striving to do. That is get your first property, get it going, start learning the business, and when you’re 48 years old and you’re tired of working and the rat race, you can just say I’m done. And you’ve got enough assets, you’ve got enough income and equity to live the kind of life that this guy’s living. He’s living a fantastic life. They travel all the time. He’s got a beautiful house on a mountain in Utah. But him and his wife are always traveling. He’s living his dream now. He’s living the dream that every young guy just getting out of college would love to be living next year, and a lot of them try to live that life without building up for the future. He did it the other way and he’s very successful at it. So my recommendation to you young guys is to take a page out of an old guy’s book. Stop pissing away your money, because Jeff and I both did that. We both had that conversation. We were both at one time in our lives making a ridiculous amount of money buying big ass houses and boats and cars and you name it, we had it.
Jeff
0:23:13 – A few other things we can’t mention on air.
Brett
0:23:16 – A few other things we can’t mention on air.
Richard
0:23:19 – Well, you’re down on Lamar?
Brett
0:23:20 – No. More like Miami. We both, through events in our lives and Katrina and whatever happened, lost pretty much everything and had to start over. And that was an eye-opener because if I added up the money that I made and if I had just saved half of it, I wouldn’t have worked another day of my life. But I left Louisiana with a moving truck, a few pieces of furniture, and my clothes, and that was it.
Jeff
0:23:41 – And then to add back the fact that if I could buy back half the mistakes that I made, you know, I’d probably be a multi-millionaire now, and I wouldn’t even be sitting here. But I’m glad I’m sitting here. It all worked out.
Brett
0:23:53 – We’re glad you, we’re glad, we’re glad your life fell apart too, Jeff.
Jeff
0:23:56 – We’ve been learning. It all worked out.
Richard
0:23:59 – Those lives that fall apart, you mean nothing real estate.
Brett
0:24:02 – If your life hadn’t fell apart, you wouldn’t be sitting here with me.
Jeff
0:24:04 – I know, right?
Brett
0:24:05 – I don’t know if that’s a punishment or if that’s a… I don’t know what that is. Anyway, our predictions for 2023 were partially right, partially wrong. 2024, we’ve got a bet running on Johnny Walker Blue that I predict it’s going to be a good year. You predict it’s going to be a slow start, slowly taking its time.
Jeff
0:24:22 – It’s going to be a good year. We’re going to see some steady growth. I’m not going to hold my breath. I’m going to be like you tell your investors, be patient, be patient.
Brett
0:24:31 – That’s right. All right. Thank you for listening to us. 2023, check us out in 2024. Our first episode in 2024, we’re going to have an attorney on discuss LLCs versus corporations for rental properties and investors. Quite frankly, he’s been very clear that he doesn’t think LLC is the best move for young investors to put properties in, but he’s going to answer all of our questions and talk to us about that. We really appreciate it. Check us out, 901-692-7401, mymemphisinvestmentproperties.com. And don’t forget to subscribe to our podcast. It’s 5 O’Clock Somewhere Real Estate Podcast. We’d love to hear from you, thanks.