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The State Of Real Estate Today - Get Your Money Up

Sourced from the BBC
I believe we are effectively going into a recession. I think this because people are speculating that the Fed will cut interest rates due to lower than forecasted nonfarm payroll results in May of this year. This is going in the other direction of where we were headed just a few months ago in a rate-hiking environment. Part of this may have to do with Trump's war on tariffs, causing problems with domestic markets such as retail. When the war on china first started, Dollar Tree's ($DLTR) shares plunged, and then when we had some progress with China, $DLTR went back up again.

Here are some facts: mortgage rates are starting to decrease rapidly and as a result mortgage refinances are going up.

According to CNBC, rental rates increased over the last year with concessions lowered by 30% for all rentals below luxury sector. The median national rent was $1,530 which increased 3.1% over the last year-the highest since August of 2017. Also, a key thing to note is that multifamily development has increased over the last 5 years; but affordable housing has decreased due to higher costs for land, labor and material. The last sentence is critical because high costs and skewed supply might be a sign that costs have to stabilize for the markets to be more efficient.

Inventory rates in the housing market is starting to go up with decreasing interest rates. In Real Estate, this means housing is going to become more affordable for people in other income brackets.

Is a rate cut good for our economy? Hard to say. The purpose of a rate cut is to encourage more spending. The purpose of a rate hike is to stymie spending which is conservative in nature. The fact is, Trump is purposefully appointing people in the Fed to encourage more spending, which will create more risk of default in an economy, especially one where we have $1.5 Trillion in student loan debts. 

In my opinion, the trade war has caused experienced investors to be wary of investing in anything, and the lower interest rate cuts, speculatively, is an inducement to invest more.

It's hard to say if cutting rates is the right move. We were just in a rate hiking environment only a few months ago, and due to a few new Fed Reserve appointments, rates are going back down to artificially induce more spending. This might mean student loan rates are going to go down as well, but could also mean more of a student loan default risk moving forward if kids decide to go to school during a market such as this.

Here is how this might affect you:

If you are a student:

  • Loan rates will be around 4 to 5% near term for undergrads and 7 to 8% for grads.
  • If you are pursuing to be a doctor, make sure that is exactly what you want. Low interest rates are what you need so take advantage and go to school asap to the school with the best rankings and lowest tuition for your budget. 
  • If you are pursuing business, you need to decide if you want to work for someone or go into business for yourself. If the latter, you should take advantage of interest rates in the market or find something you want to do; chances are you will hate working for somebody. If the former, you have to really know that you want to work for somebody else and decide which field you want to go into. 
  • Don't look at average salaries per field at face value. Conservatively look at the lower end of the spectrum and see if it is worth the risk to reward. For example if Marketing majors or entry level marketing associates from your college make $40,000 on average, the lower end of the spectrum is $0 to $39,999. If your debt is $40,000 you might break even after 2.5 years (50% of living costs), 4 years, or never ($0). 
  • If your student loan debt is 4%, your opportunity cost could be the time value of money were you to invest $40,000 of your debts into the markets at a conservative 5 to 6%. You could be earning more money vested as opposed to working and paying off your debts simultaneously post graduation. You have to decide if trading off time is worth the higher median salary and if it will pay off over the 10 years you could have been investing. 
If you are an investor or home buyer:

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