\n<\/p>\n
A 2024 <\/strong>recession<\/strong><\/a> looks a lot more likely<\/strong> than it did just a few months ago. While many Americans were hoping for a \u201csoft landing<\/strong><\/a>,\u201d that might not be what we get as the economy hits a breaking point<\/strong>. With the government <\/strong>only temporarily saved from a shutdown<\/strong>, auto workers<\/strong> going on strike <\/strong>for cost of living adjustments, student loans resuming<\/strong>, and oil prices <\/strong>skyrocketing as production slows down, we may be forced to enter into a recession.<\/p>\n On the flipside, GDP remains strong, Americans are still spending<\/strong>, and unemployment<\/a> is historically low. While this could quickly change, it begs the question: is the American consumer stronger than high <\/strong>interest rates<\/strong><\/a>, rising prices<\/strong>, and the threat of an unknown future economy? We brought on the full On the Market<\/em> panel to give us their take on where we\u2019re heading<\/strong> and which economic threats could bring down the economy.<\/strong><\/p>\n We\u2019ll get into the nitty-gritty of the recent UAW strike<\/strong> that is putting a bottleneck on transportation, the government shutdown<\/strong> that risks millions going unpaid, student loan<\/strong><\/a> resumption<\/strong> that could force Americans to forgo optional spending, and an exacerbated oil price increase <\/strong>that is hurting the everyday American (and especially Californians).<\/p>\n Dave: James: Dave: James: Kathy: James: Dave: Kathy: Dave: James: Dave: James: Dave: Kathy: Dave: Kathy: Dave: Henry: Dave: Henry: Dave: Kathy: Dave: James: Dave: James: Dave: James: Kathy: Dave: Kathy: Dave: Kathy: Dave: Henry: Dave: Kathy: Dave: Henry: Dave: James: Henry: Kathy: James: Kathy: James: Dave: James: Kathy: James: Kathy: James: Dave: Kathy: James: Dave: James: Dave: James: Dave: James: Dave: James: Dave: James: Dave: Kathy: James: Dave: James: Dave: James: Dave: Kathy: Dave: Henry: Dave: Henry: Kathy: Dave: James: Kathy: James: Dave: James: Dave: James: Dave: Kathy: Henry: James: Henry: James: Henry: Kathy: Dave: James: Dave: Kathy: Dave: Henry: James: Dave: Henry: James: Dave: James: Dave: Kathy: James: Kathy: Dave: James: Dave: Kathy: Dave: Henry: Dave: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
Hey everyone, and welcome to On The Market. I\u2019m your host, Dave Meyer, joined by James, Henry and Kathy. Hey everyone, thank you all for joining us. We have an excellent show for you all today. We\u2019re going to be talking about big elements that might be impacting the US economy in Q4. If you\u2019ve been paying attention to this show or pretty much any financial news, you know that a lot of economists have been forecasting a recession that hasn\u2019t yet come, at least officially. But today, me, James, Henry, and Kathy are each going to be going into one element of the US economy that could provide a potential drag on the US economy and send us into potentially a recession or could just impact the economy negatively.
We\u2019re going to be talking about student loan repayments, the auto workers strike a potential government shutdown and higher oil prices. So if you are wondering if a recession\u2019s going to come and what might actually be the catalyst for that to actually happen, this show is going to be a great one for you. But before we get into that, guys, have you seen the big news today about NAR, the National Association of Realtors?<\/p>\n
People are jumping ship.<\/p>\n
Yeah.<\/p>\n
They\u2019re trying to get away from the NAR Gestapo.<\/p>\n
Well, and there\u2019s been some pretty bad press with sexual harassment and the top dog basically being let go for that, and now they want all the upper management to leave. So yeah, NAR\u2019s been in the headlines for sure and not in a positive way.<\/p>\n
And now Redfin is leaving.<\/p>\n
Yes, yes they are.<\/p>\n
I didn\u2019t even think you could do that.<\/p>\n
I didn\u2019t know that it was even possible. Yeah. Just so everyone knows, basically what happened, NAR, the National Association of Realtors, which is a big trade organization for real estate agents, has something like one and a half million members, one of the biggest lobbying groups in the entire country has been rocked by some scandals that Kathy just named for us over the course of the summer, the president resigned after I think multiple sexual harassment allegations and there\u2019s been some follow on there and there\u2019s been a lot of pressure for the brass to resign. And then what happened today was that Redfin, obviously we\u2019ve had a lot of guests from Redfin on one of the big websites, one of the biggest brokerages or a big brokerage has left NAR. Again, I don\u2019t even know what that essentially means, but it feels like a big thing because NAR is sort of this giant monolith that basically everyone has to pay their dues to and anyone who\u2019s in the industry is sort of at the will and the whim of NAR and this feels like something significant. I don\u2019t know what yet though.<\/p>\n
Well, yeah, and it comes down to what they came out with was they cited the sexual harassment and the policies by NAR, but then also I guess they had paid over $13 million in dues. So they think the fees are just too high.<\/p>\n
Wow.<\/p>\n
I think the world of the old is starting to change and people are starting to do business differently. I mean, in my opinion, Redfin\u2019s always been its kind of own thing in itself, but now I think they figured out that NAR\u2019s not as important as it was with the amount of technology and information out there that they can break ties and save themselves 13 million bucks in fees.<\/p>\n
And Redfin obviously is a big national presence because of their website. They produce great data by the way. But they are removing 1800 brokers, which is a big brokerage, but in the grand scheme of their 1.5 million members is not going to exactly break NAR\u2019s bank by any means. But I think it\u2019s more just a sign of the times. As James just said, it seems like years ago no one would\u2019ve broken from NAR given their sort of stranglehold on power in the real estate industry.<\/p>\n
Well, and the big question will be the MLS. How is that going to work? And I think that\u2019s what Redfin\u2019s figuring out, but they\u2019ve been a tech company and they\u2019ll probably figure it out. So it has been interesting to watch how the world changes and I\u2019m actually surprised it\u2019s taken this long. It\u2019s like if you have to join a union because you have a certain job, but you don\u2019t necessarily agree with the decisions the union is making, but you don\u2019t have a choice and that\u2019s what this has felt like. You just have to go along with NAR regardless if you agree. But in many ways they have fought hard for the real estate market. So without them, I don\u2019t know, there could be a big effect on real estate. But I don\u2019t think they\u2019re going to disappear anytime soon. They\u2019re still very, very strong.<\/p>\n
Definitely not, but it\u2019s an interesting time because they are facing a bunch of other lawsuits that we\u2019ve talked about on this show as part of some of those antitrust lawsuits and I mean they\u2019re always getting sued, but it is definitely an interesting time for them. All right, well just wanted to get your opinions on that and we will certainly follow up when we know more about this. This story just broke, we\u2019re recording this on October 2nd and it broke today. So as we learn more about this in any potential fallout, we\u2019ll bring it up on another show, but just wanted to get your takes With that, we\u2019re going to take a quick break and then come back with four potential drags on the US economy for Q4 of 2023.
All right guys, let\u2019s talk about what\u2019s going on in Q4. I actually saw something, we had a guest on the other day who told us that GDPNow, which is this tool that the Atlanta Fed puts out that tracks GDP in real time is at 5.9% for Q3, which is huge, which shows that as of right now at least the US economy, at least for Q3 of 2023 is not looking like any traditional definition of a recession. But with high interest rates slowly starting to take their tolls across different parts of the economy we wanted to look at what potential things could actually bring a recession or an economic slowdown to fruition. And so we each researched and brought one of those topics. And Kathy, we are going to start with you. What is the thing you think could start bringing down GDP at least a little bit, not necessarily into a recession, but could create a drag on the economy?<\/p>\n
Well, it\u2019s one that\u2019s near and dear to my heart. My daughter had a bunch of her college friends over and they just graduated a couple of years ago and they\u2019ve been enjoying life without paying those student loans and they were sitting around our dinner table just a couple nights ago saying, \u201cOh man, we have to start paying those loans.\u201d And they were freaking out. So looking into it further, while there are 43 other million people in the same situation and $1.6 trillion in student loan debt, that\u2019s now coming out of this forbearance situation of COVID basically saying you don\u2019t have to make these payments now, people will, and there has been a lot of talk about how is that going to affect the economy.
My personal opinion, and this is just a high level, is we\u2019ve been hearing from the Fed, just like you just said, GDP is so strong, the Fed is trying so hard to slow down the economy, hasn\u2019t succeeded yet. So I see it as maybe this is what we\u2019ve been talking about for a year and a half now, \u201cHey, let\u2019s all stop spending maybe then we can get things under control.\u201d This will help with that as more money goes to paying off debt, less money goes to restaurants and going to see Swifty concerts and so forth and just paying debt and that could potentially slow down the economy in a way that avoids further rate hikes. So we\u2019ll see. I\u2019m personally not too concerned about it, but I know that a lot of people are.<\/p>\n
Well, I heard that the average payment is something like $400 a month. I haven\u2019t done the math, I should have before the show, but I\u2019m curious what number of potential home buyers that would disqualify for the median home price in their area right now. Affordability is already at the lowest point. It\u2019s been since 1985. If people are now getting $400 less that they could put towards a mortgage, I\u2019m curious if Henry, James, you guys think that might erode demand even further than it has?<\/p>\n
I don\u2019t.<\/p>\n
That\u2019s all he\u2019s got.<\/p>\n
I mean, but here\u2019s why. It\u2019s not like student loans just became a thing. They were a thing before and then there was a pause and then now there\u2019ll be a thing again. So people were figuring out how to live and pay their student loan payments and get by just fine. Yes, the economy wasn\u2019t a little better position then when it paused, but it wasn\u2019t like a night and day difference. I think people are going to figure out how to continue to maintain their student loan payments. Now I think the average is 400, but for people with a higher education like doctors, it is like my sister\u2019s a doctor and her student loan payment, it\u2019s like a luxury house payment.<\/p>\n
The interest rates on especially graduate school loans are really high. It\u2019s not easy to pay them off. Yeah.<\/p>\n
Those poor doctors, I know, it\u2019s in the hundreds of thousands in some cases of the debt that they owe.<\/p>\n
And honestly everyone\u2019s like, \u201cOh, boohoo doctors, they do make a lot of money,\u201d but it does take quite a long time for them to start earning the salary that they can pay that off. They do 10 years where they\u2019re not making a huge amount of money and they\u2019re paying those things. So yeah, it\u2019s definitely a tough thing for people across and people who really get hurt by this are people who don\u2019t finish. They take out loans to get a degree and then they don\u2019t wind up actually finishing school and then they have debt without the increased potential, which is obviously a huge problem.<\/p>\n
Or they just Van Wilder it and just hang out for eight, 10 years.<\/p>\n
I could see you as doing that, James.<\/p>\n
I was in and out of college as fast as I could get so I could start making money. But that\u2019s just another reason why you should buy your first house. We actually paid off all my wife\u2019s student loan debt by buying a right deal value add and then refinancing it at a 4.75% rate, pulling the cash-out and wiping out all of our student debt. So one thing as you start racking up your student debt, also get your assets going because those assets can actually pay for those and you can substantially knock your interest rate down by consolidating it into your housing.<\/p>\n
That\u2019s true. That\u2019s a good point.<\/p>\n
It made a big difference. But one thing I did want to point out that was in one of the articles was it says each time a student loans debt income increases by 1%, the consumption declines 3.7%. So it could have an impact on people\u2019s free flowing money, which we\u2019ve been seeing for the last three years, where people are just buying whatever they want whenever they want, making Dave Ramsey sad. And so these are good things, right? They\u2019re kind of putting us back in order. You have bills, you got to budget around those bills and spend money when you have the extra. And if you don\u2019t have it, then you just got to either work harder or just wait until next month.<\/p>\n
And like I said, who\u2019s really going to get hurt by this is the festivals because I see my daughter going to these festivals, they\u2019re like $800 for the weekend and they\u2019re packed.<\/p>\n
What?<\/p>\n
Oh yeah, festivals man. And then all the stuff that goes with it costs money.<\/p>\n
What kind of stuff, Kathy?<\/p>\n
I won\u2019t discuss here, but I imagine its things that I shouldn\u2019t know about as a mother, but it\u2019s time to pay your bills and maybe it\u2019s a time to re-Look at the whole college process. Krista just told me my 24-year-old, she goes, man, I really wish I had waited to go to college when I knew what I wanted to study. She studied business but now she actually owns a business and wishes she was going and actually paid attention in those business classes. So I\u2019ve never been a big fan of spending a couple of hundred thousand dollars on a country club for kids where most of the time they\u2019re showing up half asleep or don\u2019t show up at all and have this huge student debt. So if it was really about just the learning, the cost would be much, much lower. It\u2019s the amount of money that\u2019s gone into universities to attract students and make it so fancy. Any of us would love to go to college for four years just for the parties. You can get an education without spending that much money.<\/p>\n
I should say. There is a great episode of a BiggerPockets money podcast that I co-hosted and we had, I think his name was Preston Cooper on and he did this incredible analysis, he\u2019s an economist, of both undergraduate and graduate school programs and which ones actually have a positive ROI because I think people get into this conversation with college is worth it, college is not worth it, but it really depends where you go, what you study, what you do with your degree, and he does this incredible quantitative analysis. If you\u2019re interested, curious about going either undergraduate or graduate school, highly recommend you check it out to make sure that you are picking a school and a program that does return a positive ROI. Because for some programs, even if you do have to take on debt, it\u2019s worth it. For other programs, it\u2019s absolutely not worth it and so do your research and try and figure that out.<\/p>\n
I think to reiterate the point, a lot of us have been paying student loan debt for years. It\u2019s not new to everybody. I think when we think of student loan debt, we think new graduates who are now paying student loan debt, but I\u2019ve been paying student loan debt since I got out of college in 2006, so I figured out how to budget my life around having that debt and so not having it for a few months is not that much of an impact when it comes back. I think things that have more of an impact are the increased interest rates. So when these people are going out and buying cars, they cost way more now than it cost even a couple of years ago. Or people, the mortgage interest in the\u2026 What it costs to own a home is way more I think detrimental to the economy than your student loans coming back when people have been paying those forever.<\/p>\n
All right, well Kathy and James, as you were saying, maybe this will slow down consumer spending a little bit. I was thinking the same thing and then I opened the Wall Street Journal this morning and the headline was, Americans Still Spend Like There\u2019s No Tomorrow: Concerts, trips and designer handbags are taking priority over saving for a home or rainy day. So I guess the YOLO economy lives on.<\/p>\n
Yeah. Pay your bills, people<\/p>\n
Well. All right, Kathy, thank you for sharing that with us. Henry, you\u2019re up next. What do you got?<\/p>\n
So my article is about the current auto worker strike. So the UAW or the United Auto Workers Union have gone on strike against the big three automakers, so that\u2019s General Motors, Ford and Chrysler. And this is the first time they have striked this huge since 1936, so 87 years ago, and they\u2019re hoping for similar results that they got all those years ago because that strike led to lots of labor organization and reform that they were looking for. And so within this strike, the UAW, they\u2019re looking for a 40% salary increase for its members. They want cost of living adjustments, they\u2019re looking for their pensions to return, they want pensions to come back and they want to get rid of this two-tiered wage system that they have in place of the pensions, I believe. So as of Friday, they have expanded the strike against General Motors and Ford and they basically said they\u2019re not making enough progress even though General Motors and Ford said they were making significant progress.
And so I think part of the impact here is going to be obviously unemployment. There\u2019s a ton of people who are not working, but when you also think about the broader impact that this will have, there are tons of other companies that are going to be impacted because you think of all the parts that are associated with the cars that are being made that we have to get from other companies. If production goes down, then sales will go down for them. It could lead to layoffs for the parts manufacturers or it could mean that we\u2019ve got to go overseas to source parts and then we\u2019re going to have to rely on foreign parts makers and foreign car companies sometime maybe even having to get more foreign cars inbound directly from overseas. So it could have a huge impact on the economy for not just the cars, but everybody that makes products or services that are tied to the vehicles depending on how long this actually goes on.
And if you also think about transportation companies and things that we rely on to transport our goods and services to us from all these other places, if we aren\u2019t getting new vehicles on the road, these transportation companies could also be impacted, which could directly impact getting products to the stores that we buy from or directly to us. So I find it hard to believe they\u2019re going to get everything that they\u2019re asking for. 40% increase is a lot. You\u2019re not going to get pensions back. I think it\u2019s only, what, 13% of companies still have a pension program. I don\u2019t see those coming back. And so I\u2019m sure there\u2019ll be some sort of settlement, but I don\u2019t know that it will be, I guess you could say satisfactory for the UAW. So I think we could see some long-term impacts.<\/p>\n
Yeah, I\u2019m interested to see what happens here because obviously a short-term strike is probably not going to be hugely impactful. I saw a estimate from Mark Zandi from Moody\u2019s Analytics who was previously on the show. He said that if all 150 members of the UAW were to strike for six weeks, it would probably shave off an estimated 0.2% off GDP, which is actually pretty considerable when you consider that GDP is probably somewhere between 3 and 6% in the coming year. So 0.2% is actually a reasonable thing. We don\u2019t know if that\u2019s going to happen and maybe if it lasts longer than six weeks, but obviously the auto industry is a huge part of the American economy and it could have lasting impacts here.<\/p>\n
Yeah, I wonder if this is just the domino effect for all these\u2026 I mean to live in America now is a lot more expensive than it was before the pandemic and then we saw this with the UPS drivers, they got a massive increase when they held out. And now it seems like the auto unions are doing the same thing. They\u2019re asking for a big number. I wonder if this is just going to be a constant domino effect going forward of going from auto to UPS and then what\u2019s next. And we could just be seeing a giant reset, which isn\u2019t a bad thing for the blue collared workers because they got to keep up with affordable\u2026 To live right now is much more expensive and you can\u2019t do it on old wages. And so the rate growth, oh, the wage growth isn\u2019t keeping up with the costs and so they got to solve it one way, shape or form.<\/p>\n
I kind of agree with you, James. I think you\u2019re going to start to see more of this in other industries, but I think it seems to me like this is more like the UAW hedging their bets and trying to get paid because they see the EV trend coming and that\u2019s going to\u2026 Both with technology, AI and EVs coming down the line it could mean less jobs because more technology replacing those jobs and it seems like they\u2019re trying to kind of hedge their bets, get that 40% increase now, start getting more money now before the jobs start going away. Innovation is always going to rule and win and people are going to lose jobs. It\u2019s happened. It happened with when we went from horses to cars. It happened when we went from radio to TV. It happened when we went from TV to internet, and now it\u2019s happening from internet to AI. Jobs will change, but that always means new jobs open up. There will be more opportunities because of the technology. It\u2019s just times change. This is what happens.<\/p>\n
Absolutely. Automation is coming and then there\u2019s the mandate to get to electric cars by what is it?What year? That they\u2019re going to have to completely change the way that the auto industry works. I\u2019ve heard rumors that a lot of these factories will just put their hands up and move to Mexico and then nobody has a job. So I know what it\u2019s like to march the picket lines. It\u2019s really hard on those workers. My heart goes out to those families who are marching and not getting paid and not really sure how it\u2019s going to go. But I would have to agree with Henry that that whole industry is changing and a lot of it is federally mandated with the shift to electric.<\/p>\n
But what I don\u2019t understand is it seems like most of these major automakers that are making electric cars are losing their shirts on these electric cars.<\/p>\n
They are.<\/p>\n
So they\u2019re hemorrhaging money and now they\u2019re going to have to pay the employees more wages for a business that\u2019s hemorrhaging money. And that typically doesn\u2019t work out in the long run unless I guess they get their production cost under. So that\u2019s what I\u2019m more curious about, what happens? Do EV cars just become really, really expensive and then it\u2019s going to offset all the other savings that you\u2019re making or what happens to the union workers? I mean, I guess maybe they\u2019re also hedging that robots are going to take their jobs at some point, but it will be interesting to see, put more bad debt into these cars.<\/p>\n
Yeah, I mean, I agree with you both that totally understand people wanting to get paid for their work and hope that they reach a good and fair outcome here. But one of the interesting consequences here, I was reading an article saying that from a business, not an individual worker perspective, but on a corporate level, this strike is just playing right into Tesla\u2019s hands. They actually are profitable in making EVs, and so if the workers are successful, they obviously need the money to pay for their expenses and to live their lives, but it would potentially put their employers in a worse position longer term to compete with other companies like Tesla or EVs that are coming out of Japan or China or something like that. So it\u2019s really interesting. Hopefully there\u2019s a good outcome for both sides in the near future.
Let\u2019s move on though to James. What is your issue that you think could potentially be a drag on the economy in the fourth quarter?<\/p>\n
So we have another one of these government shutdowns looming around. The news media loves the government shutdowns, because that\u2019s all you hear about.<\/p>\n
And it\u2019s nothing new, it\u2019s been going on for decades.<\/p>\n
No, it\u2019s this ticking time bomb every time that we\u2019re coming down the crunch wire. And what has happened is for the last three weeks, all we heard about was this government shutdown and now they have passed a 45-day extension to get to some sort of budget between all the politicians to get our spending under control. I guess there\u2019s a couple of things that are kind of\u2026 With these government shutdowns there\u2019s two things I\u2019m always looking at is A first, is America ever going to get their spending under control? Because right now, I think for 2023, we\u2019re running a $2 trillion deficit right now, and then our national debt is up to 33 trillion and we\u2019re just spending too much money compared to everyone else and they need to address this. So what could happen is we have 45 days as a buffer right now for everyone to work out the details for the new budget that tells whether we need to increase it or we\u2019re going to keep running these massive deficits or how do we cut costs and spending as well to reduce our deficit.
But we\u2019re at this point where we\u2019re spending so much there could be a longer shutdown. The last time this happened was in 2018 and the government was shut down for 35 days, which is the longest that\u2019s ever happened. It\u2019s only happened six times since 1990. So it does happen more than we think it does happen, but the last time was even longer. And I think it\u2019s because the spending is so out of control that it\u2019s harder for them to come to an agreement. Now what that can do is you hear government shut down. I know when I first would hear about it in the media, I thought the whole world was shut down and everything was going to blow up. But that\u2019s typically everything still kind of works, right? But a lot of essential businesses start\u2026 People technically have to work for free or they got to show up for work at their necessity, but parks, recreations, all these things start kind of cooling off.
But what we have seen for investors according to CNN, is that the S&P typically falls about 0.7% every 30 days or after 90 days, it can be up to 2.8% of a drop. So there is impact with it being shut down. So if there is a government shutdown, we want it done quickly because it won\u2019t have that last long impact. But if it drags out for 45 days, we could see some compression across investments. We could see some people losing some value on their stocks. It doesn\u2019t hit real estate quite as hard from everything I\u2019ve ever seen. But one thing that was brought to my attention too is what if it got strung out for longer than 45 days, could that affect Section 8 rent applications and new people coming into your properties? But I don\u2019t know, for me the government shutdown\u2019s always this doomsday loom and doom, I\u2019d rather just have them figure out a good budget than threaten this shut down all the time. But-<\/p>\n
Wishful thinking.<\/p>\n
\u2026 I do think it\u2019s going to get shut down for a week or two because they can\u2019t seem to figure stuff out and I don\u2019t think it\u2019s going to have that much impact.<\/p>\n
Well, yeah, in the aggregate it\u2019s always kind of strange when you read about it always says stuff like the national parks are going to shut down, which I love a national park, but in the grant scheme of things, it\u2019s not probably the most impactful thing, but it does obviously greatly impact the government workers who don\u2019t get paid. There\u2019s active duty service members who don\u2019t get paid. I think people like TSA and all sorts of different government organizations aren\u2019t getting paid. So that would be a really difficult situation for these people. Honestly, to no fault of their own. It\u2019s because there\u2019s all this gridlock in Washington. So that could obviously impact the personal finances of anyone who\u2019s not getting paid, but could have this aggregate effect on demand in the economy. If people aren\u2019t getting a paycheck, they\u2019re probably not going to be spending as much as they normally would.<\/p>\n
Yeah, I mean I was on the board of an HOA and it was, I don\u2019t know, eight people and we couldn\u2019t agree on anything. So how do you get 330 million people to agree on where money goes? If people really sat down and saw where the money\u2019s going I think there would be a lot of shock and maybe there\u2019d be more agreement in cutting spending, but nobody wants to have their budget cut. So it is a tough thing that\u2019s been around for decades, but what\u2019s really putting it in people\u2019s faces is these higher interest rates because now most of the money is just going to pay the interest on the debt and doesn\u2019t leave a lot leftover for all the other programs, and that\u2019s just going to keep continuing if we can\u2019t figure out how to cut the budget.
But again, how do you cut when our system is based on politicians getting elected and they don\u2019t want to cut anything that would keep them from being elected. So I don\u2019t know how to change it, but all I know is it\u2019s been going in the wrong direction for a long time and every time we try to fix it, then boy, it\u2019s just gridlock.<\/p>\n
If it gets stretched out, that last 45 day one was a lot more damaging, I believe, because it does affect\u2026 A big chunk of people aren\u2019t going to get a paycheck for a month so if there\u2019s a shutdown, it can affect 1.3 active duty service members and then 800,000 people that work with the Pentagon or that are Pentagon civilians and over 200,000 would be required to work without pay. So out of the 800,000, 200,000 still need to work anyways because they are deemed essential.<\/p>\n
Yeah, that would be the worst.<\/p>\n
Having to work for free?<\/p>\n
Yeah, I would be furious.<\/p>\n
I feel like that\u2019s life of a real estate broker right now though. We\u2019re just chasing a bunch of houses and not getting deals done.<\/p>\n
But it\u2019s like these people are keeping the country safe. If you want them amotivated and pissed off about their employment situation-<\/p>\n
Exactly.<\/p>\n
\u2026 it\u2019s not a good thing for anyone.<\/p>\n
No, pay your military, that\u2019s for sure.<\/p>\n
Yeah, exactly.<\/p>\n
So it can definitely have some effect on some jobs. It could affect rentals as far as income goes, but it really I think comes down to how long is it going to be going on for? If they do 45 days, again, that\u2019s going to be not great, but typically it lasts what on average, four to five days, maybe 10 so they can kind of get through it without too much damage. All right.<\/p>\n
Well we\u2019re going to have to check back in on this in I guess 43 days because we just found out about this extension that we heard about and hopefully they\u2019ll spend all 43 of those days negotiating in good faith. But something tells me that in 43 days we\u2019re going to see something in the headline about another government shutdown, but we shall see.
All right, well for the last story, I am going to talk about higher oil prices. Oil prices, if you don\u2019t pay attention to this or haven\u2019t noticed at your local gas station, have been really volatile over the last couple of years. It was one of the major drivers of inflation from the middle of 2021. Then the Russian invasion of Ukraine sent it even higher and it really sort of helped inflation grow and peak at 9.1% and it\u2019s come down a lot over the last year or so, and that\u2019s helped inflation retreat, but now we\u2019re seeing oil prices head in the other direction.
After Saudi Arabia made a decision to cut production of oil by 1 million barrels per day and after Russia also announced plan to cut its daily oil exports by 300,000 barrels, which basically just throws a wrench into the international energy market, which has already been sort of hectic over the last couple of years. And so oil prices, this is just another high expense I think particularly for businesses. Obviously this impacts everyday Americans at the gas pump and that hurts after years of inflation. But when you look at businesses that are choosing and looking to expand or build infrastructure or in our industry construction costs, this sort of thing, when you add now high oil prices to high cost of borrowing, the cost of building new things and innovating is really just going up across the board and it makes me sort of wonder how much investment we\u2019ll see in infrastructures, new facilities, new factories from major businesses over the coming months if prices stay this high. Do you guys have any thoughts about how this might impact the economy?<\/p>\n
The economy is totally dependent on energy and we\u2019re still dependent on oil whether we like it or not. And that\u2019s transportation. I mean, flights, everything costs\u2026 It takes energy to get it to you to create it, to make it. Even to make clean energy you need the dirty stuff. So we\u2019ve been manipulated by the oil market. It is the gold of today. It gets manipulated. We have very little control over it. I know there was a big push to have more control of it over it and produce more oil here in the US and that got shut down. So I don\u2019t know, maybe this will be a wake-up call that we do still rely on oil and we have it and perhaps should be producing it, but in the meantime, we\u2019re very dependent on what OPEC does and right now that means higher prices.<\/p>\n
Gas is high on the West Coast. It\u2019s like six bucks a gallon in California, 5.50 in Seattle. It\u2019s expensive. And as far as an investor goes for flippers, you pay more right now because your trades people have to drive further to sites. People are spending more. It is really beating up our labor market. The cost of energy is probably keeping our costs up a good 10 to 15% across construction right now because guys, they don\u2019t want to do the distance. Part of what we do on value add construction is stretching out and going to wherever the deal is not just one confined space, but the further people have to go out, the more expensive it is and then the further you go out, typically it\u2019s worth less too. So it\u2019s making it where you have to buy so much cheaper in those areas because it\u2019s just expensive. I mean, it\u2019s a real cost, like when your energy bill or a painter, if they\u2019re paying double in transport, they\u2019re going to charge it. And then the thing is, when gas comes down, we\u2019re still going to be paying the same rates. So-<\/p>\n
Yeah, they\u2019re not going down.<\/p>\n
It\u2019s locking in the rates. That\u2019s what I\u2019m more worried about is we\u2019re not going to see\u2026 It\u2019s permanently setting our labor market high now.<\/p>\n
Yeah, they\u2019re billing you 10 bucks per gallon, James.<\/p>\n
Yeah. And 30% too much on the rate.<\/p>\n
Well, it\u2019ll be interesting to see. Obviously this will have impacts on investment and decisions, but it also makes me wonder if we\u2019re going to start to see inflation start to tick back up, at least the non-core inflation, which does include energy prices. The Fed knows that this is a volatile metric and they tend to follow either the PCE or the core CPI. So this will probably not impact their decision-making all that much, but obviously inflation is really impacted by people\u2019s expectations of inflation. And so when you start to see that headline number start to tick back up, it is not a good thing for the economy, even if it\u2019s temporary and even if it\u2019s just one of the more volatile elements of the bigger inflation basket,<\/p>\n
Maybe it\u2019ll allow people to work at home more. So it\u2019s going to be harder to get people to commute into the office if it\u2019s costing them so much. So maybe the work from home will come back.<\/p>\n
I\u2019m doing my part.<\/p>\n
This show\u2019s a bummer, guys. I mean, if you\u2019re somebody and you\u2019re like, man, I need a new car so that I can go to work, but I can\u2019t get a new car because there\u2019s a strike and I need a more fuel efficient car because gas is so expensive, I just couldn\u2019t.<\/p>\n
I was going to take my new car to a national park.<\/p>\n
Yeah. But I can\u2019t go to the national park because they\u2019re [inaudible 00:34:48]. Bummer.<\/p>\n
There are people who want us to be more negative. So here we are.<\/p>\n
Well, I think we\u2019re trying to just do a show where we talk about some shock or some risks in the economy right now. But you\u2019re right, Henry, this is a bummer. Maybe next week we\u2019ll just do a blind optimism show and we\u2019ll just talk about things that we\u2019re super excited about.<\/p>\n
But if you look at all these topics, they all point to America needs to spend less money. You got to spend less money on fuel to be smarter. The transportation, you got to spend less money in disposable income because your student loan debts are coming to fruition. You\u2019re going to have to spend less money on other things. You\u2019re going to have spend more money on EV cars since they got to pay the labor workers even more. It\u2019s just like you\u2019re going to have to tighten your budget or $33 trillion needs to be tightened up. America needs to get on the Dave Ramsey program. I\u2019m sorry.<\/p>\n
Dave Ramsey for president. No debt. No debt.<\/p>\n
I don\u2019t agree with him all the time, but I\u2019m starting to agree with him more and more.<\/p>\n
All right. Well, what do you guys think? I mean of all this stuff combined as you said, James, what is your outlook for Q4? Do you think we\u2019ll see a slowing of the economy or business as usual?<\/p>\n
I\u2019ve been feeling it getting slower the last 30 to 60 days, and it is definitely. You can feel the capital getting locked up and eroded right now. It\u2019s a real thing. People are looking for money more now. They\u2019re not deploying it as much right now. The Fed is accomplishing their job and I think Q4 is not going to be good. It is going to be a bad cold winter for all of us as real estate investors.<\/p>\n
All right.<\/p>\n
There you go, Henry. More positivity your way.<\/p>\n
Henry\u2019s just going to leave the show.<\/p>\n
Henry\u2019s like, I don\u2019t even want to be here. I\u2019m out.<\/p>\n
But I agree with you. I mean, I am feeling it here as well. Product is sitting on the market longer, and sure, some of it is a little bit of seasonality, but it really does feel like people are holding onto their dollars right now.<\/p>\n
Wait, Arkansas is finally cracking?<\/p>\n
Yeah. It\u2019s finally, man, I\u2019ve got nine houses on the market right now.<\/p>\n
Whoa. Oh, really?<\/p>\n
Yeah.<\/p>\n
So I\u2019ll bring some good news into our bad news show, and that is if all this bad news happens and we happen to go into recession and people are spending less, well then maybe rates will come down and you\u2019ll be able to sell your homes.<\/p>\n
It\u2019s true. It is this sort of perverse thing where you want the recession to happen, so we can just start a new economic cycle already.<\/p>\n
But then your equity savings account is gone.<\/p>\n
But I tend to agree, I don\u2019t know if we\u2019ll necessarily see GDP go negative in Q4 because as we said at the top of the show, if we\u2019re starting from a place where Q3 is going to be in five handle, it takes a lot to erase 5% GDP growth, a lot. But I do think we might see it start to come down. Just today, I mean, the yield on a 10-year bond hit 4.7 today, which means it\u2019s come back down a little bit, but it\u2019s near there, which means rates are going to be in the upper sevens for mortgages, and it\u2019s that mental thing. People were starting, in my opinion, to get used to the mid sixes, high sixes. But when you just see it\u2019s marching up and up and up, it\u2019s really hard to pull the trigger on something. So yeah, I think we\u2019re finally going to start to see this decline that people have been forecasting. And I don\u2019t think we\u2019re going to bottom out in Q4, but it\u2019s probably the beginning of the down slide.<\/p>\n
Yeah, I think, like you said, it\u2019s going to take a while, just like the stories that, oh my gosh, everybody\u2019s going to sell their Airbnbs all at once. It\u2019s scary headlines, but if anything, it would be good for the market. And same with this, the fed\u2019s been trying to get job growth down and some of these things might help with that, and we might just be able to sit for a bit with no fear of the Fed raising rates. These high tenure treasury notes of 4.7 is that\u2019s not a recession, that\u2019s not recessionary. That\u2019s a booming economy.<\/p>\n
Absolutely. Yeah. Well, is everyone depressed? Are you guys okay? Can we leave all on a good note now?<\/p>\n
I don\u2019t know. Does somebody want to make an offer on a house in Arkansas?<\/p>\n
I\u2019m feeling good. We might finally lock down our next Live-In Flip house, so even with the high rates.<\/p>\n
Nice.<\/p>\n
Does your wife know it\u2019s a Live-In Flip, or does she just think it\u2019s a house?<\/p>\n
It\u2019s always a house that turns into a Live-In Flip, Henry. Yeah.<\/p>\n
Have you ever lived in a house you haven\u2019t flipped?<\/p>\n
No. No, not at all. Every one has been sold.<\/p>\n
Wow. All right. Well, good for you.<\/p>\n
I hope you enjoy it while you\u2019re in it. I can\u2019t wait for the party.<\/p>\n
Well, we\u2019ll see. We have to get it first. The rates they are brutal when you put in the mortgage [inaudible 00:39:44].<\/p>\n
I can\u2019t even imagine.<\/p>\n
Yeah, it\u2019s a lot. All right, well, thank you all. James, Kathy, Henry, appreciate you being here for sharing your research and your knowledge. We hope you all appreciated this episode. We strayed a little bit from real estate, but wanted to give you some thoughts on what\u2019s going to happen throughout the rest of 2024. If you have any feedback for us on the show, you can always do that on YouTube or you can hit up any of us on Instagram where I am @thedatadeli. James, where are you?<\/p>\n
I\u2019m @jdainflips on Instagram.<\/p>\n
Kathy?<\/p>\n
@kathyfettke on Instagram and realwealth.com.<\/p>\n
And Henry?<\/p>\n
I\u2019m @thehenrywashington on Instagram and seeyouattheclosingtable.com.<\/p>\n
All right, well thank you all so much for listening. We\u2019ll see you next time. On The Market was created by me, Dave Meyer and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico Content. And we want to extend a big thank you to everyone at BiggerPockets for making this show possible.<\/p>\n