Financial Freedom Fighters
Step into the world of real estate investing with your hosts, Jacob and Mike. Join Jacob, a W-2 tech employee trying to escape the rat race, and Mike Magno, a top 1% Cleveland realtor, as they share real stories and valuable insights from their journey towards financial freedom.
Financial Freedom Fighters
EP #30 - 2025 Real Estate Predictions: What Every Investor Should Know
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In this episode of the Financial Freedom Fighters podcast, hosts Jacob Sandoval and Mike reflect on the 2024 real estate market and share predictions for 2025. They discuss high mortgage rates, modest home price increases, and the potential impact of the upcoming Trump administration. The episode emphasizes the importance of staying active as an investor and provides insights into economic indicators like the 10-year Treasury yield and the rental market, urging listeners to take informed action in 2025.
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Connect with Mike:
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investors, they need to understand that these rates aren't going anywhere anytime soon, and if they do, it's because the economy is tanking.
@cashflowsagathe housing market is not going to crash in 2025. And I'm willing to plant my flag on that,
NancyThis is the Financial Freedom Fighters Podcast
@cashflowsagaWelcome everybody to the financial freedom fighters podcast. I'm your host, Jacob Sandoval, AKA cash flow saga. I have with me my co host again. He is the best realtor in Cleveland. Mike, it's been a long time. We're sitting here at the end of the year. It's been a crazy year, but how are you doing?
@realtormichaelmagnoI'm doing good. Um, yeah, as you said, it's been kind of a crazy weird year and I know we're going to kind of recap it and talk about the future, but, but yeah, I mean, things are, things are fine. It's, It's, a lot colder than it normally is this time of year in Cleveland. So it, it hasn't, it hasn't been a fun few weeks. Um, I'm wearing like long sleeves and stuff already. So, but, uh, yeah, we're heading, you know, we'll be heading to Florida at the end of next week, um, for our annual Christmas pilgrimage to, to our, to Florida, so. Looking, looking forward to getting in my swim trunks
@cashflowsagait's been unseasonably cold in California as well. And obviously it gets colder, but I've noticed that it's felt colder, um, even here in the San Francisco Bay area. So that's kind of an interesting thing as well. but yeah, Mike, it's been a crazy year. Um, before we kind of dive into the episode today, By the time this one publishes, this is going to be episode 30, uh, for the financial freedom fighters podcast. Um, so another little milestone there, but also just, you know, we, we launched this podcast in 2023. Uh, so this is our first full year, um, as the financial freedom fighters. And we are still here, still kicking, um, and, and already brainstorming ways that we're going to grow the podcast in 2025. Um, so if you are an avid listener of the podcast, you know, a heartfelt thank you to, um, from Mike and I. Uh, thank you for listening. Um, thank you for, you know, following us and, and hopefully we've provided value. Um, if you have gotten value out of any of these episodes, you know, Would really appreciate, you know, giving us a five star rating, um, wherever you listen to podcasts, you know, give us a review and also just share it with somebody that you think, um, would get value from this episode as well. Obviously Mike and I are in the pursuit of financial freedom ourselves, but, uh, we, we started this so that we can reach as many people as possible and spread, you know, the mission of helping others achieve financial freedom as well. So. That's a little bit before we kind of dive into the episode today, by the time this episode publishes, Mike, it's going to be probably the beginning of next year. Right? So happy new year to you. If you are listening, um, I hope that. You have a fresh set of real estate goals, um, and investing goals to chase down in 2025. But Mike, it is prediction season. I'm seeing it everywhere. Podcasts, YouTube videos, um, all the pundits are making predictions about what's going to happen in the real estate market, um, in 2025. But I think before we dive into that, it's probably prudent. To talk a little bit about what happened in 2024, right? We had a podcast that we released at the beginning of this year, talking about what's going on in the real estate market. We had a, we had a really weird real estate market in 2024, Mike. So I'll hand it over to you, Mike, maybe we can talk specifically about Cleveland, but what was 2024 like in the Cleveland real estate market?
@realtormichaelmagnoIt was still a very strong year. Um, inventories are still very low. Um, you know, demand is still very high even with the higher interest rates. Um, as, as, 2024 has wound down, the, the activity level has also gone down. So, um, I'm not sure what that means for 2025. I think. A lot of it has to do with people or I think people are just tired. I think people are tired. Um, you know, for a lot of people, uh, that are looking to buy or, you know, um, you know, these higher interest rates, you know, a lot of them feel priced out of the market. Um, and then you've got that whole. Really strange dynamic of the lock in effect, and we've talked about it. You know, I had nauseam on previous shows. Um, but with that, with that large delta between the average mortgage in, you know, the, the bulk of the mortgages in the U. S. And what the mortgage rates are today, you just have a lot of sellers. You're not, they're not willing to trade. I mean, you're almost trading down to get the same, the same mortgage payment in a lot of instances. So you're just, you know, it's just a really, really weird time. Um, You know, I think in as we go forward, um, you know, we'll see how the beginning of the year goes, but the activity here has been a lot slower. Um, and it just kind of. All of a sudden stopped, you know, and I, and I noticed it. You know, before the election, before the election. and I've had people ask me like, Hey, you know, what, what's been previous election cycles. And unfortunately, you know, I I've been, I've been an agent now for eight years. So I've, I got licensed right before the 2016 election and I wasn't paying attention to anything back then because, uh, I was a new agent and I just was trying to find my way, uh, in 2020, I obviously I was, Doing very, very well at that point. And, um, but that election had, it didn't stop anything right? Like that COVID train, it was, it was unstoppable. You know, with all the covid money and all the just craziness of that market, the scarcity mindsets and everyone moving from the remote work right? Moving from high cost of living areas to low cost of living areas. And so that the election in 2020 didn't have any effect on on the real estate market. So I don't know if if the election is what. Um, has kind of tempered this. I think a lot of it too is, and I don't want to pick on the general public, but the general public, I think is duped a little bit by the media about interest rates you and I are in, are in this business and we follow this very closely, but you know, the average consumer doesn't understand, I think oftentimes how mortgage rates are actually derived. And they're, they're a by product of the bond markets. And the other problem is, you know, and I know you and I follow this closely and some of our listeners will too. The market was already pricing in the interest rate cuts that we've seen from the fed, the two, you know, the 50 babes basis 0. 1. And what was that July or September? Um, that was already priced into the stock market. As a matter of fact, I think the day they, they announced those cuts, you know, Didn't didn't
@cashflowsagaStock market went down.
@realtormichaelmagnostark bunker went down and the bonds, the bond yields went up, therefore driving the mortgage rates up. Right? So that's where, you know, unfortunately, we just, we were pricing that into the market to begin with. And it was, it was just an expectation that the, the, the, the, you know, the federal funds rate that was going to go down, which is what kind of, you know. Makes up the car rates and the credit card rates and everything like that, but it doesn't have as much it's a, it's a, it's a laggard to the, to the mortgage rates. So, um, we're gonna have to see some more. We're gonna have to see a few more cuts, I think before it's going to start really. Affecting now the issue the other issue you be that, you know that you come into is that the economy You know is still pretty strong, you know, these job reports come out and the job reports are strong The stock market is obviously still going gangbusters Um bitcoin and if you're into that stuff, you know, that's all gone bananas um, so with all that with all that flush all that money flush into the markets like You You just can't continue to move the, you know, can't continue to move the rates down because then that's just going to make a spike in the, in the inflation numbers again.
@cashflowsagaYeah, a hundred percent, a hundred percent. Uh, you touched on a lot there and we'll unpack kind of all of these different elements, because I think it is really important to understand as much as possible, right? If you're an investor or a hopeful investor in this space, you know, the real estate market operates in tandem with the overall economy, right? And. You cannot separate what's happening in the real estate market with what's happening in the economy. And, you know, being that it's an election year as well, um, you have to kind of understand what are the potential ramifications of, you know, the new administration stepping into office, if any, on what's going to happen to the real estate market. So we'll dive into that as well. Um, but I'll start with some stats here. Mike, home prices, you know, of course, according to housing wire, Increased 5 percent nationally in 2024. Um, I think the median price home right now is, you know, just over 400, 000. Um, but a 5 percent year over year increase from 2024 to 2023. The first thing that I think needs to be said is. Everyone that was expecting a housing market crash from a price perspective, it's just flat out wrong. Right? And I think we need to, if you are part of the crash, you know, theorists, then you need to get a grip, right? You need, you need to step back into reality here because if you're the person that is on the sidelines, because you're waiting for home prices to drop, you're going to miss out. You're going to be waiting for a very long time. The interest rates were incredibly high this year. The interest rates were incredibly high this year, right? Home affordability is the lowest it's at the lowest point it's ever been, right? It's never been more expensive to own a home yet. Prices, Mike still increased by 5 percent year over year. Now, what does that mean? That means that the demand. Despite the affordability issue is still there. We have a shortage of homes. We still have a shortage of homes. I have another stat here, Mike, and you probably feel this as an agent, but we only sold in total in the U S we only sold about 4 million homes. This year. So when we're talking about a crash, it would be most accurate to say we had a crash from a volume perspective, from a transactions perspective, we had a crash, right? There was just fewer transactions being done. And you alluded to this, Mike, um, in your, what you were speaking about earlier. Fewer deals were just getting done. And I think if we're to kind of a pine on why this was, I mean, there's obviously a lot of obvious reasons. One interest rates remain very, very high. And a lot of people just weren't really sure what was going to happen. Interest rates. We said at the beginning of the year, we thought interest rates were going to stay higher for longer, which they did. Right. Little pat on the back for ourselves. Um, we thought they were gonna say hire for longer. And that's why we said, if you're waiting for interest rates to drop, and there was like a slight drop, I think in August, right. Anticipation of the fed rate cut interest rates did drop. If you locked your rate at that point. Great for you. But then they just spiked right back up. Right. But the interest rates stayed in the high sixes to sevens, pretty much the entire year, right? So, and then you have on top of that. The crazy COVID refinance boom, people locked in two to 3 percent interest rates. Um, so people were just the lock in effect, right? People were not going to sell their great interest rates, um, to enter a market where they're going to have to pay 7 percent interest on their new mortgage. You're just not going to do that. And then on top of that, I heard a stat the other day. I'm not sure if it's 40 or 50%, but basically 40 or 50 percent of the homes in the United States are owned free and clear. Okay. Their own free and clear, and then on top of that, you have the 2024 election, right? And so there was a lot of uncertainty on. What the, the election was going to do. Um, and people just don't like uncertainty, right? So Mike, you kind of talked about it earlier, but everything just felt like it was kind of frozen, The real estate market just kind of felt like it was frozen. People were unsure. And unless you were an investor with high conviction, You know, that, that, that is not letting the noise kind of dictate the moves that you're making. Most people were just kind of frozen, right? Most people kind of frozen Mike. And that is kind of what you were speaking to is that it was just kind of a weird year. inventory was increasing, but still compared to 2000 pre COVID levels. Like we still don't have the homes that we have normally on the market pre COVID. Um, and as a result. Home prices still went up, right? So that is kind of the market that we had. Anything else to add there, Mike, in terms of, uh, observations for 2024
@realtormichaelmagnothe biggest thing that drives these prices is supply and demand. Right. It's a very simple equation and the demand still outpaces the supply. and I've talked about it on many of platforms prior, but the, you know, the home builders today are not building entry level starter homes. we need the smaller homes, right? We need that entry level of stuff, especially in our market, right? Like the, the housing inventory here is aging. with a ton of inventory here that was built late 1800s, early 1900s. So you've got, um, you know, you've got that dynamic as well. So it's just, it's made it really, really tough. And then, um, to piggyback what you were saying about the free and clear homes, I think it's like 41%. I think I saw that statistic as well. Um, and then to compound that problem, um, 54 percent of all mortgages in the U S are at 5 percent or lower. that's a big number of homes that have these minuscule interest rates.
@cashflowsagaSo I want to take a minute, Mike, and you kind of glazed over this a little bit and, um, not, you know, at the risk of getting too technical and potentially boring listeners, I, I think it, it is important to talk a little bit more about, you know, what actually drives. The mortgage rates, right? Cause you talked about it, right? People think about the fed, when the fed cuts rates, they're cutting the federal funds rate, right? Which sets all the borrowing rates for all types of lending products, credit cards, car loans, mortgages, et cetera. But the federal funds rate, which I think right now is hovering in, you know, throughout the year, it hovered at, um, five. 0. 5, and now we're kind of cutting, it's at that 5. 25 percent range that doesn't directly, or it's not the thing that's most correlated to the interest rates, right? Or the, the mortgage rates that we're used to seeing the thing that is most correlated to the interest rates is the 10 year treasury, The 10 year bond for the U S. And so what, what is this? And, you know, my, you and I can go back and forth on this, but the government, to pay for the things, the government needs to pay for, he needs to borrow money. And who does it borrow money from? It borrows money from investors, right? And so they're selling bonds, And the yield on those bonds, that is the interest rate that the government is paying to its investors, right? The 10 year yield. So that yield is actually the thing that is most. Perfectly correlated to the interest rates, right? So that is actually the thing. That's why, when you hear people talk about what's happening with the 10 year treasury yield, that's why, because that is the thing that actually Signifies or correlates to the movement in mortgage rates. Now the 10 year treasury yield is hovering around 4. 2 percent right now. And that moves constantly. but as you can see, the mortgage rates are high, hovering in the high sixes and sevens. So there's also a spread. Between the, the 10 year treasury and the mortgage rates. And those are the two important things to understand about what drives the interest, the mortgage rates is it's a 10 year treasury, And then it's the spread. And those two things are not constant, right? So you have to be monitoring both of those things right now. The spread is the largest it's ever been. And the 10 year treasuries hovering at that 4. I'm not an economist. Mike is not an economist and forgive me for attempting to try to explain this a little bit more, if you think about bonds, the government is selling bonds, The yield on the bond, The interest rate that the government is paying for that bond is inversely Correlated with the demand for that bond, if the interest rate or the yield on the 10 year treasury is higher. It's because people don't want those bonds, They actually think that it's much better to have the money in the stock market. Right? So the yields float up to try to attract more demand to those bonds, right? So if, the 10 year treasury is high, the economy is doing well because people don't want those bonds. They want riskier assets. They want to invest in the stock market. And that's why the yield is high when the yield on the treasury is low. That means people really want those bonds, right? That means the market's not doing that well. And people actually want to get into safer assets. And people think that the 10 year treasury or government treasuries in general are the safest assets to own. So the more people want those bonds, the lower the yield has to be. Cause the demand for those bonds is so high, So that is a little bit of an explanation as to what moves. The yields up and down, right? So if the yield stays high, people feel pretty good about the economy, right? They'd rather invest in stocks. They don't need to invest in the treasury. So the yield stays kind of high. And that's, what's been happening right now is that people generally feel pretty bullish about the economy. And that is why. The yields have remained high, like Mike said, right? I know unemployment is ticking up, but the economy from a GDP perspective, all signs are pointing to a very resilient economy. You know, a lot at the beginning of this year, we talked about, are we going to enter a recession? And now we're talking about, you know, no, no recession at all. And so when you have a strong economy, you're going to have the 10 year treasury yield and subsequently mortgage rates that are going to continue to stay high. So if you're waiting for the mortgage rates to drop effectively, what you're waiting for is for the economy to take a very sharp turn for the worst. So anyway, Mike, I tried to do my best there, but any, any kind of other thoughts here on the, I think it's important for the listeners to try to understand what moves the mortgage rates.
@realtormichaelmagnoYou did a better job than I would have. investors, they need to understand that these rates aren't going anywhere anytime soon, and if they do, it's because the economy is tanking. and then on top of it, once, you know, once we, what's the tipping point of the mortgage rates too, that's going to spike the demand, uh, depending on who you talk to, once they cross back into a number that begins with five. the economists that we, we listen to that are a part of NAR and, um, you know, some of the other publications that I, I keep up on think that we're going to see a pretty, pretty big spike in demand once they cross back into fives. Because the people that are locked into these lower interest rates will be a little, they'll be a little bit more appetizing to them so that could be a problem too.
@cashflowsagaYeah, absolutely. So hopefully. Folks, that explanation was helpful, mortgage rates are tied to the 10 year treasury, the 10 year treasury moves in relation to consumer sentiment about the economy, The higher, the 10 year treasury, the stronger people feel about the economy, The lower the 10 year treasury yields, The worst people feel about the economy and they want to rush to safer assets like these government bonds, which drives the yield lower, It confuses me still every other day, but hopefully that explanation helps a little bit, but it drives the mortgage rates. That's why it's important. It drives the mortgage rates. So we'll get into predictions specifically on what we think, but, you know, spoiler, we don't really think 2025 is going to be very different in terms of the interest rates. to talk a little bit about the rental market right now. Mike in 2024. we saw rents You know, increase again in 2024. And like we saw in, um, kind of COVID, right. We had very, very rapid rent increases, very unsustainable rent increases, you know, double digit rent growth, for multiple years. And I think what we're seeing now is, you know, there was modest growth in 2024, um, from 2023. And I, I see them in my own rental properties, right. That there's still growth, but a lot of people are saying that, you know, Stepping into 2025, rent growth is going to, you know, be very, very modest if at all. Mike, before we get into the predictions is it's a weird year, but it really does feel like people are accepting this as the new normal, People are accepting. This is the new normal real estate market. And that is why I think 2025 is going to be slightly different because people lived through 2024 and they're like, okay, this It's probably not going to change. people are still going to need to move. People are still going to need to buy investment properties. I think fewer people are going to stay on the sidelines in 2025 because people have accepted this as the new normal. So we are going to get into our predictions of what is going to happen in 2025. So starting with home prices, Mike. Right. So we saw some modest growth in home prices in 2024. What do you think home prices are going to do this year in 2025?
@realtormichaelmagnoYeah. I think, I think the prices will, they're going to stay flat. They're going to grow a little bit. I don't think we're going to see anything real dynamic in terms of a big appreciation. Um, a lot of markets around the country, like where you are, where you're at in, you know, Northern California, uh, where I own property in Florida. Um, there's, there's. Huge decreases in the market in 2024. Um, you know, where I'm at in Cleveland, we still saw five to 10 percent growth, um, year over year on average. Um, are we going to continue to see that? Uh, it's very hard to say, but I'm, I'm thinking, you know, somewhere. You know, three to 5 percent probably.
@cashflowsagaYeah, absolutely. So kind of looking at different articles and sources and forecasts of CNBC, Redfin business insider, everyone is forecasting what is effectively a modest increase. And I think you and I share that kind of same perspective as well. So we don't think anything crazy is going to happen in the housing market in 2025. I think the main takeaway for me, Mike, is that. Housing prices are not going to crash, right? Housing prices are just not going to crash. There's no inventory to support the idea that the housing market is going to crash. So if you are on the sidelines, if you are a part of the crash bros or the crash conspiracy theorists, you need to get a grip. Because the housing market is not going to crash in 2025. And I'm willing to plant my flag on that, Mike. I just do not think that the housing prices are going to crash. And if you're just waiting for that to happen, I think you're going to be waiting for a very long time. And, and that's what, you know, Mike and I would urge you, um, the listener here is don't wait for prices to crash. Cause you're not living in reality at that point. Right. And if you just wait another year, then housing prices are just going to get a little bit more expensive. And like we said, we don't think it's going to increase. That much, but we do think that they're going to increase a little bit. And we certainly, certainly don't think that there's going to be a crash. So Mike, do you want to speak to people that think that there's going to be some housing market crash in the near future?
@realtormichaelmagnoYeah. It's, it's really simply a supply and demand issue. Right. And I have this conversation with people all the time. I wasn't in the business in 2009, but you know, I've been in this business now for nine years and I've studied it and looked at the numbers. The amount of inventory that hit the market in 2008, 2009, 2010, 2011. Was astronomical compared to, to what's on the market today. We're talking millions of units available, uh, because the banks had never faced what they faced in 2000, you know, in the, in that recession. And they just flooded the market with properties with no buyers. And today. The inventory levels are just not where they were back then. And it's just like I said, it's a very simple supply and demand problem. Everyone has equity in their homes. And they're not, they don't really have to sell because you've got that lock in effect that we've talked about numerous times. You know what, what is the statistic that I've thrown out before? I think 70 something percent of all mortgages in the US are under 5%, and it's like 50% or under 4%. So you have a lot of people sitting on the sidelines when it comes to selling that they're just not willing to come back into the market and trade into such a higher mortgage payment.
@cashflowsagamoving on from housing prices, we think that there's going to be a modest increase in 2025, but we certainly don't think that there's going to be a crash moving on to more of the kind of volume side of things, Mike, and you experienced this as an agent, housing transactions definitely dropped off a cliff in 2024. We had spoken about that. Um, and so what is your prediction for housing transactions in 2025?
@realtormichaelmagnoYeah, I, I think again, it's gonna stay pretty flat compared to the last, last year, um, around 4 million units will sell, which is still a very stark. Contrast from 2021 when we sold almost 6 million units in the United States. So, uh, once again, where, where are these houses going to come from? Right. If people aren't willing to sell them, then we can't transact. Right. So the there's less than inventory, which. That's where this whole struggle comes with the, it doesn't make, I know it doesn't make sense that the interest rates are higher and that the prices should come down. Unfortunately, there's just not as much properties to sell. Therefore that lever is not getting pulled to pull the prices down. You have people still fighting and competing for what's available and that's just keeping the prices, you know, they're keeping them high.
@cashflowsagaAbsolutely. Um, so NAR. Uh, national association of realtors is forecasting about 4. 2 million home sales in 2025, which is a significant increase. Uh, most publications are forecasting an increase in home sales. So an increase in activity or activity. What does that mean for you? The investor, that means more deals are going to get done 20 percent increase. Um, some are saying, you know, 10 percent increase, things like that. But 2024. Was One of the lowest volume years in recent times. Right, Mike, I think, you know, in, in a healthy market, what are we selling in what you would consider to be a healthy market, Mike?
@realtormichaelmagnoYeah, I mean it's somewhere, somewhere above four and a half million, you know, four and a half to five million number. You know, as what we've, as, as what we've seen in the past.
@cashflowsagaokay. So, and we only did 4 million, um, in 2024 around that. So a pretty big drop and we're looking to get to 4. 2 million in 2025. So, uh, What does this mean? It means that more deals are going to get done. It means that we're returning back to normalcy. It means that people are going to get off of the sideline. So again, we really want to encourage you for 2025 to be the year that you take action for 2025 to be the year that you finally pulled the trigger. Um, because more and more people are accepting this as the new normal. And a lot of these publications, Redfin, Realtor Magazine, and Housing Bar and NAR are all forecasting that. We're going to see an uptick in transactions because we had such low transaction volume in 2024. So that is our expectation. That is our prediction. so Mike, this is the big one. I think a lot of people have questions on this one, but the mortgage rates, obviously we had mortgage rates pretty high in 2024. And if you go back to our outlook of 2024 at the beginning of 2024, um, we said that rates were going to be higher for longer. A lot of people didn't really believe that they thought rates were going to drop. The financial freedom fighters ended up being right. So Mike, what is your prediction for 2025?
@realtormichaelmagnopeople aren't going to like what I have to say, but I think they're going to stay high. I think they're going to stay high. Um, the economy has been, you know, just chugging along, you know, the S and P is up what, 25 percent this year, uh, Nasdaq's up, Dow Jones is up, uh, everything's up. Um, you know, there's, um, there's just too much going on in the economy and with bond yields where they're at. You know, we're just not seeing, we're just not seeing the movement in the mortgage markets and, you know, all these rate cuts that we've seen so far from the fed, you know, the market was pricing that stuff in. So, you know, every time they've, they've met, if every time the fed made a cut in, uh, 2024, the bond yields actually went up and therefore the mortgage rates went up. So I, I, I think, uh, you know, you want a bold prediction here. I'll give a bold prediction. I think we'll be closer to 8 percent than we will be 6 percent at the end of the year.
@cashflowsagaWow. Wow. Um, do you know what the rates are hovering at today as we speak at the beginning of the year here, Mike?
@realtormichaelmagnoConvent conventional 30 year fixed rates are just above 7%.
@cashflowsagaOkay. Just above 7%. So Mike actually thinks that we are going to be, you know, maybe ticking up closer to 8 percent throughout the year. Um, I, I hold the same view, Mike. I think that rates are going to stay high. And the reason I think rates are going to stay high. Is that rates are a reflection of the economy, right? If, or if the mortgage rates are high, that means the economy is doing pretty well. And for all intents and purposes, I know that unemployment is ticking up. And I know that things are starting to, you know, soften up in the economy a little bit, but by all accounts and measures, um, you know, GDP is still growing. We still have a very strong economy. And so there is no reason for the fed to continue to cut rates aggressively. When the economy is still. Doing well. And if the economy continues to still do well, then mortgage rates will continue to stay high. I want to bring it back to like what this really means, At the end of the day, if mortgage rates stay high, that doesn't mean you can't do deals, right? You just have to find the deals. Reorient your buy box, reorient your numbers to say, what is a good deal in this market with these interest rates and do deals accordingly. And I always say this, and oftentimes it seems basic to me. It seems basic to you, Mike, but in a lower interest rate environment, most people are overpaying for that property. So the net impact to your monthly payment, Mike, Is effectively the same as buying it in a higher interest rate environment, where the prices might not be moving as much. You can get deals done, at better purchase prices than in, in higher interest rate environment. And actually I would much rather be doing deals in that manner because you can always refinance. You can always refinance, but you can't go back and change the purchase price at which you purchased that property yet, but you can refinance into a much lower rate. So lock in a good purchase price and then refi into a better rate at a different point. It's very basic, but a lot of people don't think about investing in this way, Mike. And so don't be afraid of a higher interest rate environment. Actually good investors like a higher interest rate environment. So don't be afraid of that. But again, yeah. We're making another bold prediction here at the financial freedom fighters podcast. We think there's rates are going to continue to say, hi, Mike's thinks they're going to be in the high sevens floating closer to eight, which would mean that they're actually ticking up from where they are today. And I don't think that that's that crazy of a prediction, especially with the uncertainty of what a Trump economy is going to look like, that could potentially keep the rates higher for longer as well. And we'll, we'll dive into what we think a potential kind of Trump administration could look like and what that impact could have on the economy. Um, and the real estate market. But again, I agree with you, Mike, I think it's going to stay higher for longer. last kind of round of predictions here with respect to the rent market. Right. So what do we think the rental market is going to do? Mike, um, in 2025.
@realtormichaelmagnoUh, I think it's going to be, it's going to flatten out. Um, it may even go down. Um, I saw an article recently that was talking about the, um, HUD rates in California. Um, they actually went down, or they're going to go down in 2025. Um, so I haven't seen that yet in my market yet and what, what those numbers are going to look like for 2025. But if it's, if we're seeing that in, you know, being broadcast in California, uh, it's possible it's going to be, You know, make its way all the way across the country.
@cashflowsagayeah, I, I agree with this a hundred percent. rent is important to us as real estate investors. Obviously that is our income for our rental properties. That is, what really drives a lot of the return and part of what makes real estate such a strong investment is the fact that rents increase over time. Um, and when we buy a rental property, we're making some assumptions on what that rent growth looks like in the future. This is important because you can't be overly optimistic with how much you expect rent to grow. You know, and I think that this is where a lot of people get in trouble. If you think rent's going to grow five, six, seven, 10 percent year over year, it's not sustainable. Mike, and you might be buying a deal that is not that good of a deal because you think you're just overly optimistic on the rents. And so I think rent is a function of the supply growth as well, right? Just like prices, rent growth is a function of the supply as well. And we have seen in certain markets, we have seen an increase in the supply, which is causing flattening or decreasing of the rent. Um, but another important. Point here, Mike, is that all of these metrics, prices, rent, um, inventory, all of this stuff, we're reporting out on it at the national level, but there really is no national real estate market. Real estate is hyper, hyper localized. And so all of the stuff that we're talking about, you have to take that extrapolated and bring it down to your market, Maybe that's Cleveland, Ohio. Maybe that is Austin, Texas. Maybe that's a different market. Whatever your market is for you. You have to figure out what that data looks like. We know that in the Sunbelt markets, they're seeing a lot more rent drops. They're seeing a lot more price declines because they had a lot of increased inventory, whether that is increased houses being delivered or increased rental units. Um, but you're not necessarily seeing that as much in some Midwest markets like Chicago, Indianapolis, Cleveland, um, where rent is still. You know, flattening out, but not decreasing it like you are seeing it in the Austin, Texas is of the world. So the last thing that I kind of want to bring the conversation, uh, back to Mike, obviously we have a new president that is incoming. Um, president Trump is, is going to be serving his second term. And while we don't really want to make this a political podcast whatsoever, we do have to understand the impact that politics has on One, the economy and real estate because real estate is intertwined with our economy. It's a very, very large reason or very large part of the economy. It impacts everyday people. And so we have to understand what a Trump presidency can look like on the real estate market at large. Right. So I want to talk about the first piece, Mike, and we can kind of go back and forth on this, but one is terrorists, you know, and inflation. Trump has talked about. Tariffs, You know, us dominance reasserting us dominance. Tariffs is one of the mechanisms by which he can't, he wants to do that. And, you know, whether you believe in the efficacy of terrorists or not, Tariffs are basically attacks on foreign goods that is inflationary, or you could argue that that is inflationary because if companies have to pay tariffs, they're going to pass that increased costs onto the consumer. Which will increase prices, which will be inflationary and inflation is part of the reason why people are so upset. Nowadays, People were very, very unhappy with the inflation that happened during the Biden administration. Um, and he, and we can go all day about what actually happened. I think, you know, personally, my view is that the fed really just dropped the ball and kept rates at 0 percent for way, way, way too long and didn't understand, inflation was not transitory. But all that aside, we have to acknowledge the fact that large tariffs, on Chinese imports can be inflationary.
@realtormichaelmagnoyeah, I mean, the biggest way, you know, for, for us, the real estate investors and the homeowners, uh, the way that those tariffs are really going to affect us is, you know, In material costs, right? Because, you know, that's, that's where, you know, that's where our work and to spend money, we're gonna spend money in materials. We're gonna spend money in labor. Obviously, there's not gonna be the, it's not gonna be as big of an issue on the labor, but it could be with not the tariff piece of, um, You know, Trump's plans, but a lot of the, a lot of the, um, uh, potential, um, deportations, things like that, that could affect the workforce as well. Um, that could affect it and raise and raise prices in that regard. Uh, but yeah, I think the biggest area that it would affect would be the cost of goods, right? Those toilets are now going to be. You know, instead of 129 or 149, maybe they, maybe they're 199. Right. Um, or, you know, what, you know, insert whatever building material you want to put in there, um, that comes from overseas.
@cashflowsagaAbsolutely. Absolutely. That's a great point. Um, another thing that obviously Trump is famous for is tax cuts, right? He, he really, really wants to expand cutting taxes but the other side of that token is tax cuts again, is something else that can expand inflation. And on the other hand too, I don't know what the latest number is, Mike. I think it's like 38 trillion, 39 trillion, but the federal deficit just continues to grow. So how can you justify more and more tax cuts? Less revenue for the government when the deficit continues to grow. So these are the questions that I have. These are the questions that economists have as well. So how do tax cuts fit into that? and last thing I'll kind of say is like, we are still very unsure. And for me personally, um, what I listened to from both sides, right. The democratic side and the Republican side is what are we really doing to, to fix the housing epidemic here? We are four to 5 million housing units, shorts, short in the U S and too oftentimes things get sensationalized in the media. Like, Oh, Airbnb is the problem or private equity. Buying up all the homes is the problem. When all of these things represent such small, tiny fractions of the actual problem here in the United States, we need to build more Mike. We need to build more. So what is a Trump presidency? This is a question I have. What is a Trump president presidency going to do to incentivize the building of more single family homes? Because even in my market, in my state of California, it's impossible to build anything. Why, why is that right? Why is there so much bureaucratic red tape to build housing in a market that is the most housing constrained in the country, right? California is incredibly housing constrained. That's why the prices are so high here. There's just not enough homes for people to live in, for people to buy, and it's making it unaffordable to live in California at the same time, too. is the most difficult to build in California, just like riddle me this, answer me that question. So we didn't talk about this much, but I would love to see what the new administration is going to do to address the housing problem. And I want you, the listener, um, and, and, and anybody listening to this, anybody watching this don't get. Pulled into the media and think that Airbnb is the problem or private equity is the problem. We need to build more Mike. And I know that you have a lot of thoughts on this as well, but for me, it's very simple. We need to build more and we need to make it easier to build more. Um, and we're just not doing that, you know, especially on the kind of like policy side of the government to incentivize building more. Okay. Okay.
@realtormichaelmagnoSo the, you're, you know, the first time home buyers, the more affordable housing options there, that, that housing stock is aging, you know, every, every day, every year, it's getting older. The, the codes are changing, you know, and it's just more and more difficult. And then, you know, rising costs. You know, rising interest rates, it makes it more difficult for guys like me who want to go and fix these houses up for people. It makes it less and less attractive for me to go do so because, you know, the, um, the pro, the, you know, the profits just aren't there. And, you know, we can argue about what's a good profit, what's not, but, you know, as an investor, I'm taking all the risk. Um, you know, therefore. You know, I should make a decent profit and if the profits aren't there as a, you know, home rehabber, I'm just not going to do it. You know, I'll just put my money somewhere else. That'll make me more money. Um, you know, so that's, that's an unfortunate piece of it as well. So
@cashflowsagaAbsolutely. Absolutely. So Mike, let's land the plane here on 2025. Let's recap, We think that it's pretty much going to be the same folks. If you live through 2024 and you're monitoring the housing market in 2024, um, we think it's largely going to be the same, right? Modest price growth. A little bit of increase in activity, interest rates are going to continue to stay high, higher for longer, right? We think for 2025. Um, so what does this mean? You know, how are we, the financial freedom fighters approaching 2025? Um, you know, I personally, Mike, I'm not approaching 2025 any differently. I'm still Analyzing deals in my market. I'm still sticking to my numbers. I'm still actively looking for deals and I'm going to transact. If the deals make sense for me, for the returns that I'm looking for, for the strategies that I'm pursuing, you cannot let the market and outside factors dictate whether or not you are being active, You have to stay active. You have to stay vigilant and in any market, high interest rate environment, low interest rate environment, whether or not people think it's good to invest in real estate or not, You have to be, that's the work of the investor. That is the skill of being an investor. So if you're listening to this, you know, I'm still staying active. I know Mike is still staying active and we encourage you to be active in 2025 and to get off of the sidelines because we don't think it's going to be very different. don't be fooled by the headlines. Um, don't wait for the crash, keep upskilling yourself, be prepared to do deals. Um, learn how to analyze them. Pick your market, get in touch with an investor friendly agent, and then just get after it. So Mike, any kind of closing thoughts on 2025, any advice for the listeners, um, if they're gearing up for, 2025,
@realtormichaelmagnoyeah, this is what I'll tell you. I mean, there, there are still deals out there, you know, we're still transacting every day. You're just going to have to be a little bit more diligent on your deal. Um, you know, you're going to have to get a little bit more creative with it, perhaps. And then. You know, just, you know, getting into the market, right? Because we all feel like the rates will come down eventually, right? Eventually they will. What causes that to come down, you know, what causes them to come down would likely be some type of recessionary environment. However, when the rates come down, what's going to happen? More people are going to get off the sidelines, more people are going to get back into it, and what's going to happen, it's the supply and demand curve again, you know, just very basic economic principles, more buyers means higher prices. So, um, you know, that's the one cool thing about the, you know, within the U. S. with the way our mortgages are set up. I mean, you can, you can refinance. Almost whenever you want and get 30 year debt. Right. So, you know, for sure you, you know, you can get something today at 7%, 7.5%, and probably in 20 26, 20 27, the rates will be much more attractive and, um, you know, you'll be able to refinance and, you know, uh, spread that back out and then increase cash flow, things like that. So that's what I'm, that's the way I'm, I'm looking at it.
@cashflowsagaabsolutely. That that's such a good point, Mike, if, if you're just moving the way that everyone else is moving, you're too late. too late. If you're looking for a rental property, when everyone's looking for a rental property, you're going to overpay. this is why we're urging everyone to take action because right now there's still kind of this window, very, very small window where the masses are still afraid to jump in because of the high interest rates, but the investors can still snag good deals. Deals. So that's all we have for today, folks. I hope you got a lot of value out of our 2025 predictions episode. If you want to get in touch with Mike, um, do some deals in Cleveland. You can find him on all socials at realtor, Michael Magno. If you want to connect with me, you can find me at all socials at cashflow saga. We are the financial freedom fighters. We will see you in the next episode. Peace.
@realtormichaelmagnoSee ya.
NancyGoodbye
