Compass Settles for $57.5 Million and Inventory Jumps

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Compass is the latest brokerage to settle after the recent NAR lawsuit made sweeping changes to agent commission payments. With NAR, Keller Williams, Compass, and more associations and brokerages paying out massive settlement fees and rewriting their agent agreements, could we be on the cusp of even more lawsuits to come? We’re breaking it all down in this week’s On the Market headlines episodes!

First, we’ll discuss what happened in the Fed meeting last week and whether interest rate cuts could still be coming down the line in 2024. Unsurprisingly, the Fed has forecasted even stronger economic growth than expected, but will this hold rates where they are? Next, Compass pays $57.5 million to settle their antitrust lawsuit, but even with this week’s news and last week’s NAR settlement, many top agents aren’t seeing much of a change in demand.

Redfin reports on a sizable bump in housing inventory, with the “biggest increase in nearly a year,” as more homes for sale begin hitting the market. This is great news for the housing market, but will it start to slow down sales? Finally, we discuss how much you have to make to afford a $500K home and how affordability struggles could keep many Americans renting for much longer than they anticipated.

Dave:

Hey everyone. Welcome to On The Market. Today we’re going to be running through some of the most important newsworthy stories impacting the world of real estate investing. We’re going to be talking about the recent Federal Reserve meeting and some nuggets of information that they’ve been sprinkling out there for us to interpret. We’ll have an update on the antitrust lawsuits impacting major brokerages and the National Association of Realtors, and we’ll talk about an increase in housing market supply. To help me with this, we have James, Henry and Kathy as usual, so let’s get into it. Alright, our first headline today is their five main takeaways from the Federal Reserve meeting. You’re probably aware with this, but the Federal Reserve Board meets every couple of weeks and afterward investors who, people who invest in the stock market, and more recently, people who invest in real estate all try and figure out what the heck the Fed is going to do based on their press conferences and any information they give out. So we’re going to take our turn at that and try and speculate about what the Fed means. So Kathy, let’s start with you. What did the Fed say and didn’t say and what do you take from all of it?

Kathy:

Well, the Fed did not raise rates, so that was expected and they did say that they probably will cut rates two to three times this year, as they said before. So that’s still on track, but probably towards the end of the year and that this is not too surprising because the job market has been still so strong. What was interesting for all of those people out there really been hoping for a recession and predicting one for, I don’t know, 10 years or so, they are now forecasting economic growth from it’s been increased the forecast from 1.4 to 2.1%. So in spite of the fact that the economy is still really strong, the good news for the markets and for real estate and for anyone hoping that rates will come down is that they are saying that they will still plan to cut rates even though the economy is looking strong and we’re not headed into a recession at this time.

Dave:

That’s really important to note that the Fed is projecting economic growth this year and 2.1% is a little bit lower than average, so it’s not like they’re projecting some economic boom right now. But it is important to note that the people who are watching this and who are making monetary policy decisions, do you think that the economy is going to keep growing? So Henry, lemme just ask you quick and dirty. Do you pay attention to each and every one of these meetings?

Henry :

I pay attention to the bullet points as it comes out. For me, it’s more about trying to understand how this might impact my real estate portfolio in the term, because I’m accumulating right now. I can get such great deals and what I want to be able to do with that portfolio is if and when rates start to come and prices potentially hopefully rise with those rates coming down, then I’ll be able to better evaluate my portfolio, sell off some properties, take advantage of some forced depreciation, and then put that forced depreciation to work.

Dave:

Yeah, that makes total sense. I’m curious if you think though that the Fed has credibility. I don’t know the right way to say it. I know a lot of people have a lot of conspiracy theories about the Fed. I don’t really believe in a lot of those things. I just think they’ve been wrong a lot over the last couple of years. So I’m just wondering, do you take it everything at their word or are you just try and understand generally what they’re thinking and get the gist of their intention even if they don’t actually follow through on everything they say? I

Henry :

Don’t take any news source at its word in general

Dave:

Except this podcast, of course,

Henry :

Except this one, right?

Dave:

Yeah.

Henry :

And so I’m not taking it at its word and kind of the, I guess what you call the hedge for. My strategy is I’m only buying good deals that are going to have a financial benefit to me right now in this economy. And so even if the market doesn’t do what the Fed says it’s going to do, I still bought really good deals that benefit me in the current environment and then I’m taking what could come if things go the way the Fed says it’s going to go, I’ll take that as icing on the cake or a big bonus.

Dave:

How do you see this, James? Are you going to be altering your approach at all based on recent announcements or is this something you just take note of and sort of file it away as one data point that’s impacting your strategy?

James:

I tend to pay attention when they’re talking. I try not to overthink it right now though because one issue I was having is I would actually listen to all the minutes and read through ’em all and then I’d start overthinking every little point that they would make. And one of the key takeaways was their economic growth for the year went from 1.4 to 2.1 and like you said, Dave, two point one’s a little bit below average, but it’s showing that there’s indicators that the economy’s doing better and better. Being a 2008 investor, I had a lot of doom and gloom coming in the last two years because I have that whiplash of going, okay, if something suddenly changes, it can have mass impact across your portfolio and how you invest. And so I’ve been very cautious, but as we see this progress, we are seeing more and more of a soft landing, which I did not expect when I saw rates shoot up, I thought we were going to see a lot more issues across the board and we’re not really seeing it as much.

James:

I think the consumers are feeling it based on inflation and just cost of goods now and cost of services are just higher and they’re going to remain higher. But we’re starting to get into this normal feeling of this is just the way our economy’s going to go, and as if I feel like there’s normality in the market, it means that we have actually shrunk down our expectations for deal flow too. So we went from having a lot wider margins to now we’re bringing it back to normal because this is more of a normal market for us. Things are buying, we can renovate, we can rent ’em, we can sell ’em, and because there’s normality in it, we can kind of reduce our expected returns. And I think that is important to do as an investor because as the market or the economy is kind of staying stable, there’s a lot more investors in the market and if you don’t adjust your expected returns, you’re not going to be able to get in the game.

James:

And so for us, it’s about really listening to this, what adjustments do we need to do on our expected returns and then how can we keep buying? Because if you don’t stay in the market, you’re going to be further down the road in 12 months. And so just based on these meetings, we’re just adjusting our risk tolerance and I think it’s important for everybody to listen to. Rates could be going down, inflation’s going to slow down, they’re projecting a higher GDP. Those are good things, even though we’re not getting that doom and gloom crash where we thought we were going to have the buying opportunity of all time.

Dave:

Nice. Thank you for sharing that. I think that makes a lot of sense. Just adjusting your risk tolerance. It’s not like you’re changing operations or everything that you’re doing, but you’re just trying to understand what risks, what deals are worth it in this current climate. I do want to give my periodic public service announcement here that I always give about the fed and mortgage rates, which is that the Fed does not control mortgage rates. I just want to reiterate that what I sort of took away from this is that they’re doing what they said that they were going to do at the previous meeting. And to me that’s what’s important because the market, the bond market, which is what actually does control mortgage rates, is forward looking and they basically, they price in what the Fed says that they’re going to do. So as long as the Fed stays on this track of three cuts this year, we are probably not going to see a lot of movement in bond yields and therefore in mortgage rates.

Dave:

So I know people are still expecting rates to come down. I do think they’re going to come down a bit throughout the course of this year, but don’t expect if the Fed says at the next meeting, Hey, we’re cutting by 25 basis points and we’re still on track for three this year to see huge movement because everyone’s already expecting that and what happens and what creates movement is differentiation from what the Fed has previously said that they’re going to do. So just keep that in mind as you pay attention to these announcements. We’ve hit our first headline now about the fed meeting, but we do have several more headlines coming up, including an update on the antitrust lawsuits that NAR and many brokerages are facing. We’ll get to that right after the break.

Dave:

Welcome back to On the Market. So we’re going to jump over to the big antitrust lawsuits that have been rocking the real estate world, really some of the biggest and most real estate news in the last several years. And if you haven’t heard already, we did release an episode talking all about sort of the facts and basically just getting everyone up to speed on what happened in the main settlement, which was with the National Association of Realtors. But the headline that we’re going to be talking about today is that real estate brokerage compass is a big brokerage throughout the country. They have agreed to also settle antitrust claims to the tune of $57.5 million. So James, as a real estate agent, I’m curious to get your opinion about this. Do you think this is sort of winding down the number of lawsuits that we’re going to see or is this just kind of the beginning

James:

Right now? I think all the big brokerages are kind of just looking to settle it and get it off their plate. I think we could see some more coming through, but every time there’s a settlement it’s like there’s less. I don’t know. From my opinion, it was like that first initial one with Keller Williams NAR, and now it’s like, oh, everyone else is just starting to come to the table with it. I was kind of curious about some of these publicly traded brokerages that were backed by VCs and what that’s going to do to their stock and their company all the way around because a lot of these companies, they gave out equity shares and profit share as the way to recruit brokers, so I do feel like this could have some impact in some of these big brokerages that could go away eventually just because the upside for brokers aren’t there.

James:

I don’t think this is the end of it. I’m not really worried about the lawsuits getting paid right now. I’m more worried about what is this going to do over the next 24 months to the broker’s fees services and how brokers work in today’s market and how they’re going to be working with buyers and sellers and how they’re going to be compensated and what that’s going to do to the real estate market as far as services that you need to provide. And so for us as a broker, we’re trying to forecast that out and go, oh, how do we add extra services? How do we take care of our consumers better so we can keep our commissions up? Because as a pipeline business, I forecast my commissions out 1224 months and if those could be reduced in one way, shape, or form, we have to figure out a how to cover that with cash flow or how do we make adjustments to where we can still get paid our normal commissions that we were used to getting paid by the services and additional services that we’re offering.

Dave:

How are the different agents in your brokerage reacting to this, James, as an experience head of the brokerage? I know you have different high level concerns here about your whole business, but just for individual agents who are looking at a very different compensation model and perhaps big changes to their livelihood, what would you say the sentiment is?

James:

I think at our office in the space that we hang out in, we’re not too concerned because a design, we are a specialty brokerage shop, we’re boutique. We offer a lot of additional services that many brokers don’t and that keeps us apart and we feel like our commissions are going to be protected the way around. And the reason being is because if you hire a design builder, they’re going to charge you more than a spec builder. If you hire a luxury travel broker, they’re going to charge you more than the basic, right? Like Expedia, that’s a cheap way to do it. And so we’re not overly worried about it right now. And the brokers I’m talking to, it’s funny, no one’s really, I think they’re just assuming that they’re going to still get paid the same and they’re not really freaking out too much. But what I am hearing now is from investors, I get a lot of phone calls going, Hey, what are we going to be doing in the future? Because they’re looking at ways, how can they increase their net profit, how can they increase their margins? And they’re now looking at do we start looking at reducing commissions and having the buyers take care of that to increase their net? And so I’m getting more phone calls from investors and discussions from investors than I am brokers right now.

Dave:

That’s super interesting. I’ve heard similar things. People are wondering, should I buy deals now because in the future real estate I might have to pay for a broker’s agent and right now in the next three or four months before this law goes into effect, might be a good time to buy Henry, are you noticing any of that pickup in activity or change in investor behavior?

Henry :

No, I really haven’t seen much change in investor behavior nor change with the real estate agents that I work closely with. Now, I happen to work very closely with an agent whose brokerage is exceptional, and I don’t believe that exceptional performing real estate brokerages are going to be as impacted as other people if their focus is on customer service at a high level, I think those people are going to be able to survive in this new climate. I think all this is is there’s just a lot of uncertainty about how those agents are going to get paid. It’s not that they’re not going to get paid, we just don’t know what that all looks like yet. It’s not standardized, it’s still brand new. It’s probably going to be the wild west for a little while until people figure out kind of what the consumer is comfortable with paying and what type of service that rate would then garner from that service provider.

Henry :

But I think once there’s some precedent set, I think all this will calm down and it’ll start to go back to business as usual, but right now people freak out when there’s things that are unknown and there’s just a lot of this that’s going to be unknown, but it’s also going to create a lot of opportunity. There’s going to be opportunity for the brokerages who are super creative about the services that they provide and what fees they provide it for maybe tier levels of services for different costs, but whoever’s willing and ready and prepared to be creative in how they service that consumer is probably going to be the first person to find their way into making a decent amount of money at servicing the customer who still really does need agent representation. Some of those people absolutely need agent representation, some don’t, but the ones that do, if you can find the way to service them in a way that doesn’t put you out of business, I think that company stands to make a lot of money. It also offers some creativity. What if things like me when I go and list a house on the market as a flipper, what if I put in the comments that if you want to make a bid on this house, I’ll pay for your buying agent. I’ll give you the credit for that, right? There’s all kinds of opportunities for being creative.

Dave:

I like that idea. I hadn’t heard something like that. Thinking about how you can as an investor, maybe incentivize people to look at your properties is a good idea. Kathy, you obviously work with a very large network of real estate service professionals across the country. What are you hearing from them?

Kathy:

Well, and we own a brokerage too, so we are right in the thick of it and like James said, I love how he said it. We’re a specialty brokerage and we’ve never really considered ourselves real estate agents. That’s why you probably didn’t even know we were a brokerage because we specialize in investor properties and helping investors find properties nationwide that cash flow. So that again, is a specialty and no one’s, very rarely does anyone even bring up commission because they want the deal, right? They just want a good deal and they want to buy it through the network. Oftentimes we’re negotiating with builders who don’t negotiate generally it is very low anyway. The commission that they offer to brokers is just not very high anyway, so there’s usually not very much room there to negotiate. So again, depending on what you do, it will affect you or it won’t.

Kathy:

I can tell you with all certainty that I have absolutely no idea how it’s going to fall out in the future, and I think that’s where the world’s at. But anyone what concerns me, and I said this last time we talked about this, what concerns me is that buyers won’t get representation because they won’t want to pay for it and they don’t maybe realize how much they need it. Anyone who’s worked with a bad real estate agent will complain all day long and say that they don’t do anything, and that is true. There are some that really don’t do anything. So never get an agent who isn’t familiar with your area or who doesn’t have a long list of happy clients. Don’t just hire your friend who’s starting out, get someone who’s really good and anyone who’s worked with a really good real estate agent will pay them happily because they are worth it.

Kathy:

They are worth it. So people have said the agents who don’t do much will probably not get the business. A lot of agents will be working really hard to be the listing broker because then at least they could set their own commission, but nobody really knows. But again, my biggest concern for buyers is that they think they don’t need one, and I can tell you I always, I’m a licensed agent, husband’s a broker, and I still hire an agent in areas that I am new to that I don’t know the rules or the laws or the issues say in Texas where you’ve really got to be more aware of foundation issues than say, Florida, where you really need to be aware of flood zones and so forth. So having just make sure you’re well represented as a buyer.

Henry :

Kathy, I agree with you. I think there are going to be some people who probably need representation who won’t get it, but to me that just sounds like a marketing issue for the companies that are offering that service. I equate it similarly to property management companies. It’s their job to market to investors like me to tell me why I need a professional property manager and I shouldn’t go out there and manage my properties on my own, right? It’s up to them to have good business marketing plans, and I think it really just all ties back into, I think what we’ve all said is that if you’re a good operator, you’re going to be just fine. Well,

Dave:

I totally agree with you Henry, and what Kathy and James said earlier that people who do specialize and provide tremendous amount of value that you are likely to be okay. I just believe in that across the economy, if you just pursue giving value to people that the profits come from that, but also recognize for real estate agents and anyone who works with them or family members, that this is a really uncertain time and even though we all expect the dust to settle and for the industry to find a new footing, that it is a difficult time. And so we are going to continue to provide opinions and updates on this topic as frequently as it makes sense, so make sure to stay tuned for that. Let’s move on to our third headline today, which comes from Redfin. They say that supply real estate supply climbs 5% the biggest increase in nearly a year. This is music to my ears, Henry, are you noticing this? Are you excited about it? Are you jumping for joy? What do you think?

Henry :

Yes, I am noticing it. There are more new homes coming on the market and I think that has a lot to do with kind of what the rest of this article is signaling is that people are just becoming more comfortable with the economy and with the real estate market and with where interest rates are, and that is picking up volume in terms of buyers and sellers, and to me it’s just signaling a healthy market. We are seeing an increase, and even though we’re seeing an increase, we’re still seeing the good product air quotes here. For those of you who are listening and not watching, we’re seeing the good product go quickly. I just listed a house, I had probably 15 showings in 48 hours and I had two full price offers within that timeframe. Even though we had an increase in inventory this month compared to last month, and that shows that the good product is going fast, the not so good product, you can still see a ton of it on the market. I was looking at a property the other day that had been on the market for over a year and it’s what you want. You want good product to be desirable and people to be out there bidding on it, and you want the less desirable product to sit there and that less desirable product creates opportunities for people like James and I.

Dave:

Well, that is good news. James, are you seeing the same thing?

James:

I’m not seeing it in our market. I mean, we’re seeing stuff hit, but the key kind of stats I took away from this was pending sales were down 4.4 inventory was up, and then pricing was up around 5% over year over year as far as listed prices. We’re seeing some things come to market, but our market has gotten tighter and tighter and tighter, and there is not a whole lot to buy, and I can tell you there’s 10 x more buyers in the market right now on the west coast, at least where I’m feeling it and it’s becoming very, very competitive and I think that might have to do with historically, typically when markets go through cycles, the more expensive ones typically adjust first and then it kind of rolls through. What we’re seeing is I think some of the Midwest and the south is slowing down a little bit from what I hear.

James:

There’s more inventories taking a little bit more time to transact, but not much longer. And we’re seeing the West Coast, in my opinion, heat up again, especially in Seattle. I know down in Newport it’s hot, things are moving and they’re moving for higher pricing, and so what we could see is the west coast takes a jump ahead and then as maybe the south, some of these markets that are cooling down a little bit, it might stall and level out, but they could also pop right back up following the west coast. I’m not seeing a ton more inventory. I am seeing less inventory. I just bought a house literally 30 minutes before we got on this podcast, and I mean I had to move quick. I did a virtual walkthrough. I said, I’ll take it right now. There was 16 people lined up right behind me to come in, and so basically sight unseen and those are the buying conditions that we’re in right now, and that’s because there isn’t a whole lot of inventory, at least in the Seattle market, it’s getting absorbed.

James:

One thing that I am seeing inventory increase a little bit is we have a lot of new construction product hit and market all at the same time, and builders do that for timing. They’re trying to hit that spring market because spring market always produces more inventory, so it’s nothing major to where I think it’s a big shift. I think it’s just kind of a seasonal market change. And it’s funny, they’re like, oh, inventory’s up. Well, it’s supposed to be up springtime. That’s when people move. So, but we are seeing more new construction, but it is being absorbed a lot quicker than it was five months ago.

Dave:

Well, I’m glad to hear that if you guys didn’t listen to a recent episode, James and Henry are betting on who can generate better profit for a flip, and I bet on James as my horse. And so I like hearing these conditions. It is ripe for property appreciation, but obviously not great for investors or home buyers who are trying or hoping for greater inventory. Kathy, do you see this as just a blip or do you agree that this is the start of a new trend and perhaps even somewhere down the road, a healthier housing market, even though it’s not happening in Seattle, that maybe this trend might pick up at least on a national basis?

Kathy:

Well, we know that we need more inventory, so it’s just funny with the headlines try to make it sound scary and bad, but it’s really actually good news. We need more inventory. When they say that sales have climbed 5% or soared might be some of the headlines, 5% is, or the number of, I should say the number of US homes for sale has gone up 5%. This is from a very, very low level, so it doesn’t mean a lot. We’re still way under the amount of inventory that we should have on the market, especially this time of year, this we’re going into spring home selling season. This is the time when people do put their homes on the market generally historically speaking. So great news, it should be headlines saying great news. There’s more to choose from, but they don’t like good news. Generally it’s the bad news that gets people’s attention.

Kathy:

So just again, be careful and know that it is buyers versus sellers, right? There’s buyer’s market, there’s seller’s market. I mention this every time because it just depends on what you’re trying to do. If you’re trying to buy more inventory is good. If you’re trying to sell well, you got more competition. So just depending on your market, it’s either good or bad for you. When you’re a flipper, you’re kind of doing both, right? You’re trying to buy and sell in a very short amount of time, so you’re going to have to be especially good at beating the competition in times when there’s more competition. So bottom line, we’re not anywhere near the inventory levels that we should be at for a healthy market. So don’t worry when you see these headlines, it just means that we’re moving towards healthier.

James:

If you want to talk about tight inventory and how this isn’t affecting our Seattle’s market, this flip for Kent, I just point out 2.1 miles from the location of this house, there are zero homes for sale. What everything is sold,

Dave:

And it’s like suburban, right?

James:

Suburban. This is a highly dense, these are 9,000 square foot suburban life

Kathy:

And that is just not healthy. Again, that you guys need inventory and considering the prices are up and mortgage rates are up, I mean it’s probably good that there’s a limited amount because who can buy it at that, but the people who can are jumping in and

James:

Even more exciting. Dave, they’re selling for a lot of money too. I’m looking at right now, there’s

Dave:

Nothing. Don’t tell me that yet. I don’t want to know. We got to wait until this thing actually sell.

James:

We just did a live not spot check on the value. All

Dave:

Right, I like hearing that.

Kathy:

Henry, how are we doing on our bet here

Henry :

We are. Golden. Don’t you worry about them. Everybody makes mistakes. I won’t hold it against eggs.

Kathy:

Mistakes steaks. Remember, where are we going to have those steaks? Steaks are steaks

Henry :

Wonderful. Does Nobu have steak? That sounds delicious. They

Kathy:

Do. I think it should be a Nobu dinner.

Dave:

Okay, I like it. Either way I get to go to Nova. That sounds fine. We have one final headline, so stick with us because hitting that right after this quick break.

Dave:

Alright, well let’s move on to our last headline today, which is real estate 2024. Here’s the income you need to afford a 500 K home in every state. So 500 k, that sounds like an expensive home and it is, but it’s only about 15% higher than the national average right now. The national median home price is about 410, 400 $15,000, so it is above average, but this is what a lot of people are trading on and aspire to buy right now. So I think it’s a relative amount. So what this article does is look at, of course the home price, which we’re telling you is 500,000 rates, which is going to be very similar from state to state, but in each state it might vary taxes. For example, like in Texas, property taxes are double the national average or insurance. We’ve all heard about California and Florida and how that impacts home prices. And so basically this article looks at every state and what they found was that no matter what state you’re in, you need a salary of over a hundred thousand dollars to afford this $500,000 home. Kathy, what do you think this means for the state of the housing market, not for investors. We’re talking about home buyers here, but what do you make for this and what it means for the national home buying climate?

Kathy:

It means you better get married. You need two people. In a lot of areas the median income is around 50, 60,000 for the first time home buyer age. And so if there’s two of you, well, you can maybe make it happen, might be harder for singles, you got to be making a hundred grand to be able to buy a house, but maybe you buy a cheaper one. In that case, maybe you don’t need all three bedrooms. But yeah, bottom line is it’s getting more expensive, it’s getting more expensive, and you got to make more money somehow to make it work.

Dave:

I guess that’s why I saw a recent headline about groups of friends joining together to buy houses. It does make a good headline. I doubt that’s really happening in any really significant amounts of numbers, but it just does show some of the trends that people are trying to do to get into the housing market. James, I’d ask you about this question, but are there even $500,000 homes in Seattle?

James:

There definitely is like Pierce County, our surrounding counties. That’s kind of the price point that plays Well, the thing that kind of blew me away when I was reading this article is I was talking to a buddy of mine, and this is probably last year, and he does really well in tech sales and we were talking about that mindset when you leave college and if someone would’ve told me my senior college that I could sign a contract right now to make a hundred thousand dollars for the rest of my life and just lock in on a job, I would’ve highly considered it and I would’ve thought I was rich.

Dave:

Totally.

James:

And now a hundred thousand dollars isn’t the same thing, which is crazy. It’s like this massive impact and thank God that opportunity didn’t come my way, but it does. I mean that’s a scary thing because a lot of people are not making that kind of money and 500 grand is in a lot of markets as this median home price national starts creeping up and up and up. That’s kind of the average price, whereas the average salaries, like what Kathy said, is around 60. And so this could really transform how people are looking at housing and whether it’s the co-living, it also can make these hedge funds look like geniuses, right? Because if people can’t afford ’em, they have to rent. It is something we definitely want to be paying attention to as you’re an investor because even if their margins are a little tight right now, it could really increase the rent demand for the population because a lot of people aren’t going to be able to afford to buy, which is kind of sad.

James:

And I think it does need to be kind of solved, and I think a lot of cities are trying to do that by passing more density, like allowing these ADUs provide more cheaper housing. But then the thing that we’re seeing in Seattle is a aren’t any cheaper. They’re selling for record pricing and they are selling for high price for square foot, so this affordable housing issue that’s going on, the solutions they’re coming up with aren’t really working that well and it is something that you want to pay attention to as an investor. Right now, I like to buy more single family housing because I just think people are going to have to rent. And so going into those more affordable markets, especially, you can really target areas. If we go down to Pierce County, Tacoma area, that’s about 45 minutes out of Seattle, the median home price down there is going to be in that high fours.

James:

And if you can buy stuff in that 2 80, 2 50, which you can and improve it and keep as a rental, there’s not that many people that are going to be able to afford that down there. So they’re going to have to be renters, and that’s going to kind of naturally pull up the rent income. And so you can definitely put a strategy behind this. Affordability is a big deal, and as you’re looking to expand your portfolio, you really want to be thinking about it. It’s not just, Hey, what can I buy this for? What can I rent it for? It’s what is this going to look like in five years and if it’ll look a lot better your way

Dave:

And Henry 500,000 for your market, it’s sort of towards the high end of the range. Is that right?

Henry :

Yeah, absolutely. That’s going to be a higher end home typically in my market. So

Dave:

You’re not probably seeing that much competition at that level. Where would you say the real sweet spot where there’s just a ton of competition in your market?

Henry :

Yeah, 250 to 350.

Dave:

Yeah, I mean, this is a really interesting headline and I’m glad I read the article, but I think that is really sort of what I think is most important here, is trying to figure out what is the range of affordability in your particular market and how competitive that’s going to be and whether people can afford, or let’s just say if there’s inventory, enough inventory for prices that people in the local area can actually afford. Because I think in James’s market, people would be clamoring to get a $500,000 home, whereas Henry’s market, it’s not as relevant because what people can afford is more in that 2 50, 300 range, and that’s why there’s so much competition there.

Henry :

What this article did for me was it really did kind of shine a light on what does affordability really mean. I mean, if you’re looking through each one of these states, the average salary people have to make, I don’t think I barely saw any that were under $110,000 a year, and I would bet that the average salary in most of those states isn’t above that a hundred thousand dollars a year mark. And now I understand that every one of these markets calls a $500,000 home like a starter home or a beginner home. But when you think about it from that perspective, like what the average person needs to make to afford that kind of a down payment versus what the average salary is in that market, it shows you, it puts a bright light on what is affordability, what does that really mean to the everyday consumer.

Dave:

Absolutely. Well, thank you all so much for going through these headlines with me today. I appreciate it and think that we had a really good discussion. If you all appreciated this discussion, don’t forget to leave us a review either on Apple or Spotify. I’m Dave Meyer for James Dard, Kathy Ficke and Henry Washington. We’ll see you for the next episode of On The Market. 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.

 

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