War on the Horizon: Why the Housing Market’s Sudden Freeze Could Be Your Biggest Opportunity Yet

Dave:
Housing feels like a tug of war right now between supply and demand, prices and payments, optimism and fear. Which edges winning can change quickly. That was happening already, and now we have a new conflict in the Middle East that could upset everything we thought we knew about the housing market. I’m Dave Meyer, joined today by Kathy Fettke and Henry Washington, and we’re here to unpack what’s driving the push and pull and what it means for your next move. This is On The Market. Let’s get into it. Henry, Kathy, good to see you today. Kathy, how are you?

Kathy:
I am so good. I am here in Vegas, baby. Can you tell by my background?

Dave:
<laugh> I can, yes. It’s, uh, it looks definitely like a Vegas hotel room. Can you remind everyone what you’re doing there because it’s very fun?

Kathy:
Well, I am here for my daughter’s trashy Vegas Elvis wedding- <laugh> … At the, I think it’s the White Chapel. Is that it? <laugh> Because she’s actually doing a fancy wedding, but it’s gonna be in France and you can’t actually legally get married there. So the legal wedding, uh, her fiance said, “Well, I’m going to be in charge of that one and it is in Vegas.” <laugh> She gets to control the French fancy wedding and he gets Vegas.

Dave:
Sounds like a fair trade to me. <laugh> Henry, how are you doing, man?

Henry:
Oh, I’m doing great, man. Good to be here.

Dave:
I’m glad to have you. Unfortunately, James can’t be here today, but, uh, if you’re watching on YouTube, you can see that my cat is filling in. <laugh> Uh, who will not leave me alone right now. So we do have a lot of good stuff to talk about. We’re gonna go through three top headlines today. Let’s get into our first one, which I am bringing, which comes from Redfin. The headline reads that house hunters stayed on the sidelines as rates dip below 6%. Iran war ads to market uncertainty. So I think we gotta talk about this, right? I’ve been seeing a ton of stuff on social media about the Iran war. It seems to me half the people are saying, “This means the housing market is going to crash.” I’ve seen a couple of people say, “This means that housing is going to go up.” Kathy, what’s your read on the situation?

Kathy:
Oh, my read with my crystal ball is that my crystal ball is super foggy right now and I, I don’t know how to clean it. I don’t know how to use it. Uh, it’s, it, the bottom line is we, we really have no idea. We don’t know where this war is going. We don’t know how long it’s going to last. The concern is if it disrupts energy, oil prices could go up and then we would see inflation and that could affect the Fed and overnight lending, which then eventually sort of affects treasury bonds and mortgage rates. So bottom line, um, there’s fear that if the war goes on and it affects oil, that we would see rates go up and that would be tough on housing because prices just keep going up too. You know, we had a moment, a blip where things got just a little bit more affordable when- I know.
… prices were down and rates were down and now they might go up. So the answer is nobody knows.

Dave:
Henry, is your, is your crystal ball any clearer? <laugh>

Henry:
No, absolutely not. It’s, it’s com- completely fogged over, as is my brain from time to time. But <laugh> I think the only thing that we can probably count on, and I probably with air quotes, is that the uncertainty is going to create at least a short-term stall. Yeah. People are just probably gonna hang back for a minute to see what happens. And if they don’t feel any major impacts, then I think business will continue as usual, and then if they do, then who knows what could happen. But I think in the short term, we’re just gonna feel a little bit of a lag.

Dave:
I agree. I feel like that is probably the only high probability thing is that we’re gonna see the markets slow down even more, I think. And I don’t mean in terms of prices, I just think in terms of transaction volume, we’re already at one of the slowest housing markets we’ve seen in decades.

Henry:
Yeah.

Dave:
They, you know, we’re at pace for 3.9 million, and I, and I think most people were predicting a little bit of improvement this year, but we might actually be going in the other direction with this kind of stuff. I just think people don’t make decisions when they’re uncertain. And, uh, I think everything Kathy said is absolutely true. You look at oil prices, they’ve gone up almost 50% in the last couple of weeks. They went from, like, $65 a barrel to $90 a barrel. Some people think it’s gonna go up even higher. And although that’s just one category, gasoline and energy is a big part of the basket when they calculate inflation. And so that could go up. So, like, this morning, I was preparing for the show thinking about what I think about the war in Iran. I’m like, you know, inflation’s gonna go up, the Fed’s not going to cut.
And then a terrible jobs report came out this morning, and so this goes the opposite direction. <laugh> You’re like, “All right, now maybe, now maybe the Fed is going to cut.” But my guess is pause. Like, I think the Fed is still gonna pause and wait and see, and homeowners are gonna wait and see, just like Henry said, like, we just don’t know. It’s not a satisfying answer, but I’d rather be honest with the audience here and say that they, it’s just more uncertainty than a lot of the people who are going out there making bold claims that they know what the war means for the housing market.

Kathy:
I just wanna say that these headlines are often not meant for certain investors. And what I mean by that is if you’re in a short-term business when it comes to real estate, these short-term incidences affect you more. And when the headlines are talking about the housing market, they’re really talking about home sales. Are home sales picking up? Are home sales slowing down? You were just saying it’s under four million in sales every year. Uh, it was up to six million in 2022, so that’s a dramatic difference. For people, uh, in the real estate industry, it’s very difficult. If you’re a real estate agent, if you’re a mortgage broker, you’re, you feel the effects. If you’re a flipper, for sure. Um, if you’re like Dave and me where we rent properties, and of course, Henry too, then you feel it less because is it affecting your tenant?
Is somehow this affecting your tenant who is in a year long lease? So when we see these headlines, it is, it’s very common to get fearful, but when you are a long-term buy and hold investor, you’ve got to really ask, how is this going to affect you? People still do prefer to live indoors whether there’s a war or not.

Dave:
Yeah. I, I totally agree. And what the headline here with Redfin showed that not only are buyers getting cautious, but sellers are getting cautious too. We actually see inventory across the whole country is down year over year. Like all these people say, “Oh, there’s gonna be a crash.” Like actually <laugh> it’s going in the other direction. Inventory is going down, prices are up 1% over last year. And so it, it just has a total effect. I think to Kathy’s point, like, you also probably will see people moving less. People might not wanna change apartments. They might not wanna go out and buy a home. Mm-hmm. And so maybe that leads to stability. We just don’t know. So I just wanna make sure people aren’t overly fearful or overly excited about what’s going on here because we kinda have to wait and see all these secondary effects to the economy.
And that could take weeks or months to short itself out before we really know if this is gonna have an impact at all.

Henry:
I also think right, wrong or indifferent, a lot of Americans have, I don’t know, let’s call it shock fatigue. Yeah. There’s just a lot of shocking news that happens all the time. Me. <laugh> Yeah. And every time it happens, people scream about- Yeah. … these crazy repercussions from it. And then the next week either something else shocking comes out or we just don’t feel much of an impact from the last shocking thing. And I think people are just kinda getting tired, which I think will just play into life continuing on as normal. I think- mm-hmm. … like I said, in the short term, I think we’ll get a little bit of a stall, but as things progress, as long as they’re not progressing in some crazy aggressive way, I just feel like Americans are just gonna keep on trucking.

Dave:
Well, my recommendation just for everyone too, when you see headlines like this is just to remember that the headline here was home buyers are staying out of the market and that is, that is true, but so are sellers. And like, if you ever hear people talking about a housing market crash or what’s gonna happen to the market and they’re only talking about buyers and they’re not talking about what’s happening with the other side of the market, they are probably either trying to deceive you or they have no idea what they’re talking about. So just remember that there is two sides to the equation and what we’re seeing is both sides of the market pull back, and that means that prices can stay stable. The consequence is just that transaction volume’s gonna go down. This is not welcome news for real estate agents or loan officers or anyone who works in this industry.
It’s not good for the housing market. Like, I’m not happy about this, but that is what is happening right now. That’s the only thing that we have evidence of. Everything else is just speculation. All right. Glad that we talked about that because we needed to get that one out of the way. We’re gonna take a quick break, but when we come back, we’re gonna have two more headlines about AI and talking about regional housing markets and which ones are performing the best, we’ll be right back.
Welcome back to On The Market. I’m Dave Meyer here with Henry Washington and Kathy Fettke, sharing the most recent headlines going on in the housing market and the economy. Before the break, we talked about the war in Iran and how it might spill over into the housing market, but we just don’t know. <laugh> Now, Henry, give us some concrete news about the housing market. So the article

Henry:
Is from the New York Post, and it’s titled The Top Five States Leading the Two Speed Housing Markets. And this analytics comes from Coality, and it’s revealing there are high cost coastal markets and Sunbelt regions that are undergoing what we would call price corrections, and there are Midwest and Northeastern markets that have shown to be very resilient and are moving in the opposite direction. So the data from quality is saying that the Midwest market is seeing price growth of about 3.56% year over year. And does anybody wanna take a guess at the three states that have the highest price growth percentage? It’s in the, it’s in the title of the link I sent you don’t cheat.

Dave:
Okay. I think I can guess though. It’s gotta be Connecticut. It’s gotta be one of the top three. Is that in there?

Henry:
Connecticut is mentioned, but it’s not in the top three.

Kathy:
Massachusetts.

Henry:
Nope. Oh,

Kathy:
Dang.

Dave:
Wisconsin. Yes,

Henry:
Wisconsin. Wisconsin’s number two.

Dave:
Jersey?

Henry:
Nope. Oh,

Kathy:
Michigan.

Dave:
Michigan?

Henry:
Nope, close. Illinois, Wisconsin,

Dave:
And Nebraska. Wow, we suck at this. <laugh>

Henry:
You did. You did. But we talk about Chicago all the time.

Dave:
I know. I’ve been underwriting deals in Chicago for the last, like, two months, and I just didn’t even think about it. <laugh> Illinois with

Henry:
Price growth of 4.91%, almost 5% price growth, Wisconsin at 4.78, and Nebraska at 4.75. If you compare that to the national housing market where price growth is slow to just about 0.7, that’s pretty impressive for those markets, right? There’s lots of opportunity in those markets. And on the flip side, which three or four markets are going in the opposite direction in terms of- Oh. … price growth.

Dave:
Austin.

Henry:
Yes.

Dave:
I mean, it’s gotta be Florida, Texas.

Henry:
Yep. Florida number one, Texas number four.

Dave:
Louisiana.

Henry:
Nope.

Dave:
Not Louisiana? Oh, God.

Henry:
Florida at minus 2.36%, Colorado at minus 1.4- Of Colorado. … 3%. Okay. Yeah. Utah coming in at minus 1.1% and Texas- Yep. … at 1.09%. What they’re saying is partly playing into this is the markets that are trending down are markets that people move to during COVID in droves. And now the markets that are heating up are the markets that people in the Midwest are moving to from these markets. So a lot of the Midwest markets are seeing lots of migration because the home pricing is much more affordable. Illinois’ median home price is around $280,000 where in comparison- Wow. … to some of the coastal markets. The median home price is around $700,000. So people can work remotely, move to a more affordable place, afford much more home on the salaries that they have in, in higher price markets, and it’s making a lot of sense for them to migrate.
Also, what plays into this in the Midwest is there’s lots of stable employment in the Midwest. A lot of employers are moving from these coastal markets into some of these more Midwestern and northeastern places where it’s much more affordable for them to operate. Plus there’s issues that we’ve talked about on other episodes where they’re having to pay higher taxes and it’s more costly for these companies in some of these coastal markets, so they’re relocating. So employment is stable and also inventory is still relatively low in these Midwest markets, so it creates a lot of demand. Crazy

Dave:
Low.

Henry:
Yeah. Crazy low. So I just thought this was an interesting perspective because we definitely are seeing two different types of market trends in two different parts of the country, but us as investors, we thrive on being able to identify opportunities and then capitalize on those opportunities. Yeah. And so if you are investing or want to invest in the Midwest, this is a time when you should be evaluating some of these markets. It’s got great market dynamics when you … ‘Cause, because typically what was hurting the Midwest was population growth and employment opportunities, because there weren’t a lot of employers that wanted to be located there, but that is all starting to shift. Yeah. And now you’re starting to see some of these great market dynamics in some of these lesser known markets, and it’s creating great opportunities in the housing market.

Kathy:
100%. This is so cyclical. You know, like people wanna live in the sexy markets. They wanna be there.

Henry:
Yeah.

Kathy:
Businesses wanna be there in the sand state, so they call, you know … So when that happens, and it certainly happened in COVID, it happened in 2006, right before that, you know, big boom or during that boom. And then as prices rise, because all of that attention and all the, uh, the, the prices started to rise, then builders go, ” Oh, that’s where I wanna build. “And they bring in too much supply- Yeah. … because they think they’re gonna just ride that wave forever. And then it gets too out of reach, unaffordable, something shifts, and then those, those, uh, affordable markets become real sexy. It’s like, ” Okay, I don’t need sunshine and beaches. I need to just be able to afford to feed my family. “Yeah. Totally. And, and because the builders didn’t find it sexy, there wasn’t the kind of demand over the boom years.
They didn’t go build there. So there is the lack of supply oversupply in the hot markets where prices went up too much under supply in the solid markets, and it’s just reversing. Now, as, as wages go up and as prices go down in the sexy markets, it’s gonna, you know, it’s all gonna come around again, but right now, we’re in the cycle where the linear markets are the sexy ones.

Dave:
We’ve been saying it for years. The affordability drives the housing market. So much of it. You know, there are outliers. San Francisco, New York, Boston, like, there are definitely outliers to that, but a lot of what happens is the places where people can buy, they keep buying and that puts prices up, right? Like, I actually saw this for years. We had no affordability across the country. Right now, 15 markets have, like, actually got back to their historical levels of affordability, which is awesome. Not just down- Yeah. Yeah. … better historical levels. And guess where they are? It’s Chicago. It’s, it’s Cleveland, it’s places across the Midwest. And businesses notice affordability too. It is not just people. Like, businesses go where commercial real estate is cheaper or where salaries, they’re not gonna have to pay as high salaries as if you’re in San Francisco, you know, people can still live on a lower salary, probably at a higher quality of life in the Midwest than a lot of these other markets.
And if you look at inventory numbers, it’s honestly crazy. Like Google, just like inventory compared to 2019, in these markets in the Midwest, they’re like 50, 60, 70% below 2019 levels.

Henry:
Yeah.

Dave:
And in the Sunbelt, they’re like 100% above 2019 levels. It’s just like totally different places. Now, there’s different demand dynamics in those places, but I think it’s going to continue, but we’ll also say that I expect appreciation rates, like, in most places to come down a little bit this year. No slow down. Like even if the, even the hottest markets are probably gonna slow down a little bit. And that’s okay. Like these numbers you throw out, Henry, that are the highest are still above the pace of inflation. They’re a little bit above normal. And if they come down to the two, three, 4%, that, that’s a normal appreciation rate and that’s fine. So like, I think that as an investor is good enough for me. And so I still think these markets are gonna perform pretty well. And as Kathy said, they’re probably not gonna boom when the economy changes or the housing market changes, but they’ll probably still keep going up two, three, 4%.
And personally, I like those kind of markets. I just like the predictability. Yeah.

Henry:
A lot of investors have been high on the Midwest for a long time because of these, these factors that we’re talking about, but the Northeast is really what kind of caught people off guard, uh, with how well- mm-hmm. … the Northeast is doing. And I do wanna give Da- I’ll give Dave his concession prize because you did mention New Jersey and Connecticut on your list- Yeah. <laugh> … And they weren’t in the top four, but they are the next two because they are both hovering right around 5% and they’re both in this article.

Kathy:
Dave, you just got your credibility back.

Dave:
Thank you. <laugh>
It’s relative affordability though. Even though they’re expensive, they’re cheaper than Boston and New York City. And so people live, if they wanna live in, in the Northeast or in New England, people move to Connecticut because it’s cheaper than Boston and it’s cheaper than New York. So that’s why those markets are doing well. So it’s just relative affordability. Even if you are sitting there in the Midwest saying New Jersey’s not affordable or Connecticut’s not affordable, that’s true for, compared to the Midwest, but compared to New York or Boston, it is affordable. So that’s what’s driving those markets. All right, great story. And again, just the reason to pay attention to the show and to look at your own market dynamics continuously because they’re super different right now and they’re changing quickly. I’ll say, like, I personally think markets that were down last year, like San Francisco, probably gonna start growing again this year, like things are changing rapidly in a lot of these markets.
So just keep a close eye on those things. We gotta take one more quick break, but we’ll be back with Kathy’s headline right after this. Welcome back to On the Market here with Henry and Kathy. Kathy, you’re up. What’s your headline?

Kathy:
My headline is from the Scotsman Guide. It is a mortgage journal and, uh, the, the headline is Michigan Mortgage Lender Faces class action lawsuit over artificial voice technology. This is a little bit different than some things we’ve been talking about, but basically a Pennsylvania homeowner alleges he was solicited illegally despite his number being on the national do not call registry. This loan officer in Michigan was like, “Hey, I got this AI thing figured out. I can just call like a thousand people all at once with my AI robot voice.” And a- apparently that violates the Telephone Consumer Protection Act. So I wanted to bring this up because I know so many people are excited about AI, myself included, and the way that it can reach so many people so quickly. I just was on a panel literally yesterday with a company who has cut 1.2 million dollars of expenses because now they can just use this AI technology and contact people much faster all at once.
Um, however, there’s rules about it, and there will probably be more rules as more and more people get offended that they’re getting bombarded. And you know, we’re, we’re the people who are getting get bombarded. I already get so many robocalls- Oh my God. … for all the properties I, oh, oh, it just drives me crazy. But if you’re on the do not call list and someone does it, you can literally sue them and this is sh- this is showing how serious this is if you don’t follow the rules, if you could be tracked. Like some of these people that call me, I’m not sure how we’ll ever get them. They’re in some other country. But, um, it’s just important if you’re using AI, make sure you use it carefully and, uh, securely. <laugh>

Dave:
This is something I have noticed personally. I don’t know. I’m getting so many more spam calls and it drives me absolutely insane.

Kathy:
Oh,

Dave:
Yeah. And I’m just curious, Henry, like, have you noticed a change in your marketing, you know, efficacy? Not that you’re doing something illegal, but, like, I imagine now if you’re doing off-market deal finding, you’re competing with this junk too, even if people are doing it illegally, like, you don’t have, you don’t have a lot of control over that.

Henry:
Yeah. I don’t use any AI dialers or tools, uh, in my real estate business. I have been talking to a couple of companies and evaluating some of the products or services that they offer that have some of this technology involved in it, but we don’t actually use it. But yes, I am absolutely competing against it. And I haven’t truly seen much of an impact yet. I’m actually seeing the opposite. Our response rates on our old-fashioned direct mail, you know, very non-AI <laugh> mail in your mailbox has gone up over the last, uh, I would say three months, our response rate has almost doubled on our mail.

Dave:
Wow,

Henry:
Wow. Uh, and much more motivated sellers. We’re getting some of the best deals and the best spreads we’ve seen in a long time, uh, from some of our direct mail. So I’m definitely not seeing an impact on this yet, but I do anticipate that there will be a lot more of it soon, and it will be a lot harder to compete with somebody who can reach people a whole lot faster, and that’s just part of business. We’ll have to figure out a way to, to pivot and to compete. But as of right now, we’re not seeing much of an impact.

Dave:
I wonder if maybe just doing mail, like, it’s more digestible for people because the digital-

Henry:
Yeah. …

Dave:
Experience is just becoming so terrible.

Henry:
They’re like, “Oh, look, mail, this is nice.”

Dave:
Yeah, exactly. <laugh> Someone wanted to talk to me. Um, I read this article, uh, the other day, I just pulled it up. It said that the headline reads, X, you know, former Twitter, X product head warns AI spam can make iMessage and Gmail unusable. Basically, this guy, Nikita Beer, who’s the product head at X, he basically did this, like, keynote the other day, and his prediction is that tools such as iMessages, phone calls, and Gmail could be, quote, “functionally unusable due to a surge in AI-driven outreach.” That is my worst fucking nightmare. Like the i- <laugh> I just, I already- I’m already

Kathy:
Experiencing it.

Dave:
Yeah. Right? It’s so bad that I get- It’s so bad. I don’t know. iMessage, if my texts start getting AI, I’m gonna just lose it. I’m just gonna throw out my phone. It’s coming. Start … Yeah. I’m sure it is. Yeah. It’s just so bad. My hope, you know, have you heard the dead internet theory?

Henry:
No. Mm-mm. Uh,

Dave:
I hope it comes true. <laugh> And I- The

Kathy:
Death

Dave:
Of the internet. … I talk for a living on the internet and I still hope this comes true. <laugh> It’s like the idea is that, like, AI slop is just gonna be so bad that people just can’t use the internet in the same way anymore. Yeah. And you’re just gonna have to go back to talking to people in person. Like, you’re gonna have to go- <laugh> … Back to meeting people in person, to regular phone calls, to conferences, instead of, like, webinars. And, like, I don’t think it’s truly gonna be dead, but I kinda hope that it, it leads people back to, like, face-to-face interaction in some way. Like, that would be nice.

Henry:
That’s already happening, especially in the information space online. Uh, it used to be that community was created online, and that’s where you found your tribe, and now it’s very much gone back to communities created in person, because everybody online is a community, and you don’t know who’s real or not.

Kathy:
Well, I think that also gives you the opportunity to be a brand, because, um, let’s just take on the market for, for a second, people might be like, “That’s the only one I’m gonna tune into, um, or that’s the only channel I’m gonna follow because I just don’t know who else to trust.” Uh, you know, there’s just so many fakes out there. I mean- That’s true. … I can’t even go on Instagram anymore. I don’t know what’s real anymore. So I might follow a few people like, of course, Dave Meyer and Henry Washington, but that’s it. <laugh> <laugh>

Dave:
It’s so true. It’s, it’s crazy. I just noticed it in my own consumer behavior. I just buy less stuff on the internet now and just go to a store and, like, talk to the people who actually know something-

Kathy:
So worse. … about the

Dave:
Product. I know. It’s insane, but it’s nice. You just go and talk to knowledgeable people and have a pleasant interaction instead of just buying everything on Amazon, uh, or just, like, taking random product advice off Instagram, which I don’t do that much, but I definitely have in the

Henry:
Past. <laugh> Oh, a good Instagram ad will get me every time. I’m such a sucker. Oh, me too. Oh, me too. Yeah, such a sucker.

Dave:
Oh. <laugh> They got us down. They know everything about us. Oh, thank you. It’s like, oh. I was talking to my friend, my friend was like, “Do you have a gravy boat?” And I was like, “Of course I don’t own a gravy boat.” <laugh> And then the next day, of course, there’s getting gravy boat. What the, who the hell buys gravy boats? It was like a thing, yeah, it’s insane. Anyway. Yes. I think for real estate investors, this has, like, serious implications, like you said, Kathy, about a brand. Like, Henry has a reputable brand for buying houses. Yeah. And, like, that’s gonna be, I think, more and more important because the number of people who are just gonna be bombarded with slop to buy their houses is just gonna be- Yeah. … unbearable. And if you’re a person like Henry who’s, like, has a good brand and will meet you face to face, you’re gonna stand out.
Same thing if you’re an agent or a lender, like, that face-to-face branding is gonna be more and more important.

Kathy:
I do have a gravy boat for the record, just, uh- You do. <laugh> Just-

Dave:
Do you use it once a year?

Kathy:
Uh, once a year, yes. But you gotta have it once a year. <laugh>

Dave:
All right. Well, we’ve digressed, but I think it’s time for us to get out of here <laugh> Andre and Kathy. Thank you both for being here. Kathy, congratulations on your daughter’s official wedding. Have a great time in Vegas.

Kathy:
Thank you.

Dave:
All right. And thank you all so much for listening to this episode of On The Market. We’ll see y’all next time.