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Predicting the Real Estate Market in 2024

Podcast #1 with James and Jessi
James and Jessi delve into predictions regarding real estate trends, the impact of inflation, market dynamics, and the importance of understanding yield bond rates and interest rates. They also share insights on how future trends could affect investment decisions. Every household experiences the economy differently, so you need to invest intelligently and strategically for optimal long-term benefits for your situation.

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Show Notes

  • 00:00 Introduction and Podcast Background
  • 00:32 Welcome to the Furlo Capital Podcast
  • 01:12 Reminiscing the Early Days of Business
  • 02:11 The Journey of the Podcast
  • 02:29 Looking Forward: Real Estate in 2024
  • 06:22 The Impact of Inflation on Real Estate
  • 09:53 The Future of Real Estate Prices
  • 13:13 The Role of Interest Rates in Real Estate
  • 15:47 Understanding Bonds and Investments
  • 18:34 Understanding the Inverse Relationship of Bonds and Interest Rates
  • 19:00 Applying the Concept to Real Estate Investments
  • 20:20 Using a Poker Game Analogy to Explain Bonds and Interest Rates
  • 23:42 Explaining the Yield Curve and Its Indications
  • 24:28 Predicting Economic Trends Using the Yield Curve
  • 24:57 Analyzing the Current State of the Economy
  • 32:40 Discussing the Potential Impact of Inflation and Interest Rates
  • 35:39 Wrapping Up: The Importance of a Trusted Advisor in Navigating the Economy

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Read the Transcript

James: So you ready? Ready. All right. I used to do a podcast with my brother, as you know, for like a bunch of years, we were doing tech podcast stuff and we would start every single episode. Or he would start with saying, Hey, are we are we live now? Are we live? And I'm like, we are! That was like pretty much every single thing.

And he knew we were live because he'd see the recording button and then we'd do it. And I think we kept that for, for a long time. So anyways, there's always that like, so are we, are we live? Are we live? Yeah. Are we live now? Are we on? Yeah. And with that, I want to say welcome to the Furlo Capital Podcast.

where we're talking about investing in real estate. And our mission is to help people to invest wisely in both property and residence so that together we can build wealth while helping communities And in this conversation our goal is to help make those concrete And so I've got my lovely bride and wife here, Jessi, welcome.

Thank you. Yeah. And it is good to be here. It's fun because it feels like in some way you are back in the business. It's kind of true. A little bit. Yeah. Because we started together in 2009 and we were, we did like, we did everything together. Yeah, it was great. Like

Jessi: the late night to our properties. Fixed stuff.

Yeah. Look at

James: numbers. Screen tenants. Oh, oh, screen tenant. Yeah. Yeah. And since then, as the business has grown, captains, oh dude. Heck yes.

Jessi: That's another podcast.

James: Deficit episode . Oh, dude. I have, yeah, I have the scar. I end up going to DR on that one. That was, and then you finished the project story. Well, I was on the couch just zoned out.

Yep. I think. If I remember correctly, I had just turned 30 and for me that was the moment of I am no longer invincible. I get it. And I felt my own. Finiteness in that particular project, which in some ways was very depressing, but that's okay. You know, they got done. We have since sold that property and it turned out pretty well, so it's all good.

But yeah, so we're here and I'm excited to be having these conversations with you. Depending on the order of things, this podcast that gets published. Maybe not. It's hard to sell because the last one we talked about was something that was. Like happening in real time and we said, I don't know if that's the best thing to publish right away.

So we might flip flop them, but that's all good. We're getting it started. Yes, and we are not only getting the podcast started, but we are starting a new year, 2024. And I don't know about you, but that's a time when a lot of people start thinking about, well, what's going to happen next year. And I've followed the real estate space fairly carefully, mostly because I just thoroughly enjoy it.

I have a hunch you don't as much,

Jessi: I do vicariously

James: through you. Yeah. Yeah. And which is what we're going to do right here. Give me all the updates. Yeah. So I want to talk about. A few things, like forward looking things in the economy, just from a market standpoint. And I think that's helpful to anyone who is looking to passively invest or invest in general, just to have an idea of where things are

Jessi: going.

This is like specifically

James: related to real estate? Yes. Yeah. Not just, like, I mean, I don't know. Options do we potentially

Jessi: have? Economics in general. Oh, okay. Like other investment, like real, like stock market investment.

James: Yeah, okay. I don't know. Yeah, when I did the podcast with my brother, we would always talk about what do we think different tech companies will come out with from a product standpoint.

Sure. And we'd always talk about like, here's what I think the new iPhone feature will be, or here's at least what I want it to be. Yeah. Yeah, it was super fun. The New Year episode. Yeah, yeah, yeah. This will be real estate focused. Real estate related. Yeah. Yeah.

Jessi: Commercial, residential, all of

James: it. All of it, I guess.

But probably mostly focused on commercial because multifamily properties land in that commercial space from a market standpoint. And so, that's right. And so yeah, that's what I want to talk about today. And just kind of give you some of my thoughts on where I think things are headed. And I'll be honest, like, Nobody knows at the end of the day.

It's, it's a, it's been a weird few years. No. Yeah. Really? Yeah. It felt like, it felt like in 2019 things were going okay, but it also felt like there was this looming. Like, things had been going really well for a long time. Like, so 2009 happened. Yes. And real estate prices continued to decline all the way through 2012.

And then they kind of slingshotted into the other direction. And were super high, walking into 2019. And I know that there were a few people who were like, Man, this doesn't seem sustainable. Are we in a bubble? I don't know. We're just looking for some sort of catalyst to take the economy off, off its off its path.

And March 2020 came along and there was a, a massive dip and everyone's question was from an economic and real estate standpoint, is that, is the shape of it a V? Is it going to go down really hard and then just yo yo back up? Is it going to be more like a U where it goes down, stays down for a while and then comes naturally back up?

Or is it going to be more like An L, where it's gone down, and it just, and now it goes back to the old trajectory, but at that lower level. And it's like a level reset, essentially. Okay. Turned out to be a V, at the end of the day. And I think most people were Well, and is it like an

Jessi: uneven V? Like, values were here, and it went down, and

James: now they're like Ah, yes.

Yeah, values shot up crazy amounts. Oh, it's ridiculous. And when you think about it from a supply and demand standpoint, that, that makes a ton of sense. So Everyone thinks shuts down and so good stop getting made, stop getting shipped, stop getting on the stores. And so supply just goes way down at the same time because people weren't working, our government handed out checks.

And so now suddenly everyone had a few thousand dollars extra to spend. And so the demand goes way up. And so you've got this crazy combination of supplies down, which usually means prices rise and demand is up, which usually means. Prices rise. And so when you combine those two, it's like prices really rise.

And we saw that with 9 percent inflation. I think it was last year, the year before. And, and so like, it's just, yeah. And which is highly predictable given those two dynamics that happened. But see,

Jessi: but it took a little

James: bit. Yeah, there's, there's always a lag with that kind of stuff. Yeah. Yeah, there definitely is.

Jessi: Cause if people, if people like we're not working in 2020, maybe even through 2021 and now it's. Two, almost three years later, yeah, it's still kind of,

James: well, inflation is no longer at that crazy high level anymore, but it's still high relative to what it has been historically the last decade or so. And so,

Jessi: so it's not, it's not doing this anymore, like continuing to go up.

Well, okay. It's

James: just resetting. The rate is lower. Inflation is still happening. Oh. So like historically, inflation was happening at like two ish percent a year. And so every year prices were going up two percent. And then there was a point in time where inflation was at nine percent. And so everything was going up at nine percent.

That's that new level. And so now it has gone down to like four, three and a half percent. So it's still like more than what we want it to be, but it's not nearly as bad. But you gotta remember, it's like, if you look at inflation from an absolute standpoint, it was, prices were always rising, a little bit.

They rose a lot, and a very rapid amount, and now they're still rising. So, so like,

Jessi: So the price is not gonna come down. The price does not come down. But the rate has slowed down. Correct. It won't go up as

James: fast. Yes. Correct. Now it's also interesting. That's not great. Well, you know, this is why we don't talk about economics.

I, inflation is a potential wealth killer. It's, it's pretty bad. Unless you are highly leveraged and you have a lot of mortgages, then it makes all those mortgages worth less. Mm. So let's say, okay, so let's say you've got a loan for a hundred thousand dollars. Yeah. And in today's dollars I don't know that a hundred thousand dollars you could buy.

100, 000 McDonald's hamburgers. I'm trying to make my math easy here. But, in the future, McDonald's raises their prices, and let's just say they like, it's no longer in dollars, it's about 50 now. It's a lot more. Now you can only buy 75, 000 hamburgers with it. And so so the value of that money is now a lot less.

And so, that 100, 000 mortgage, is now, quote, cheaper relative to the dollars that it would normally take to buy a cheeseburger. Alright. Or whatever. Yeah. Yeah, I did not explain that one very well. Kind of a weird way to think about it. Yeah, essentially it makes your, if it requires more money to buy everything, and this thing that you owe money on stays flat, that's good for you in the long run.

Another way to think about it is, we bought this house. A few years ago and we had a mortgage on it and it's 1, 300 a month PITI, which at the time we're like, Oh my gosh, it's so much. And now there's people who are renting from us across the street who are paying almost double what our mortgage is for their rent.

It's crazy. And well, and that just shows you gets because inflation has happened, values have gone up, but our debt has stayed flat. And so, relative to them, now ours is a steal of a deal. And that's happening with all of our rental portfolios. So, inflation is bad, unless you're highly leveraged, then it's not the worst thing ever.

Yeah, assuming you can still pay all your bills. Okay, cool. Yeah, so so yeah, so the question, really, like, that everyone always wants to know is, so what's going to happen with prices? Are they going to go up, or are they going to go down next year? Getting back to our actual original topic here. And Honestly, like no one knows because like I said, things happen in 2020 and then since it has kind of been this roller coaster ride, prices shot up so much at the end of 2020 and in 21.

And people were, and the beginning part of 22 mm-Hmm. . People were just like, oh my gosh. Like, I don't know. Like, this is insane. Yeah. And the affordability index is this measurement that they do. It's a ratio of the, the average home of the average price of a home. Mm-Hmm. . And the average income. Mm-Hmm. . And as a general rule like that, affordability likes to hover around two.

So the price of a home is two x what your income is. As a general rule. So,

Jessi: like the, the house that you would be able to

James: afford? No, just the houses that are available on the market. So it's average home price, average home sale price, huh. Divided by average wages. Okay. So, it would say like if it's normally at two, if the average wage is 100, 000, that means the average home is 200, 000.

Okay. That's kind of the idea. Well, it is currently sitting at like, like five or six. Yeah, so home prices are like way more than So if

Jessi: the average income or wages are 100, 000, the average home price is 500, 000 currently?

James: Yeah, 500, 000 to 600, 000. Okay. Yikes. Which honestly feels right in Yeah. I know you haven't been following it much, but like, when you look at home prices, what people are paying, like, oh my gosh, yeah.

Like, just, small example, we bought this place seven years ago, and we paid 250, 000. for our home. And we know that our parents bought a place like across the street. It's not as big. It's not as good. It's, it was a massive fixer upper. Yep. And they paid over 400, 000 for that one. And that was like two years later?

Six yeah. What was that? I guess that would be five years after we bought ours. Okay. Right, so like, that's just an example of where prices, and, and that was like, and I know they've gone up since then, like the average homeowners area have literally doubled on us. And so that's where you can start to do that math, where you go, yeah, that was, we were at the 2x, because that was kind of the right ratio for us, and now it's a lot closer to that 4x time period, just in this neighborhood alone.

So you can already see that. So, which like,

Jessi: moving, well yeah, and moving forward, I mean you know the market has to shift because, People can't afford that based on their income. So they're going to stop buying. So demand is going to go

James: down. Potentially, but here's something that has frustrated everyone.

Cause typically, yes, that's what would happen. You actually wouldn't see prices go down. You would see them stay flat until inflation caught up. That's typically what you see happen. Or they fall a little bit. They never crash back down. They just kind of level out until that demand gets back to that two ish range.

So, incomes would go up? Yeah, yeah, typically over time. Here's the other problem. But they don't go

Jessi: up that fast. It doesn't seem like they do. Well,

James: you know, because there's affordable home stuff, they might. Potentially. And yeah, these things do take time. Or you do see a crash, which is like what we saw in 2009.

Because people can't pay their mortgage. But here's the problem, the thing that is really throwing everything off, is interest rates are significantly higher today than they were just a few years ago. Because interest rates are higher now, relatively to how they have been the last few years, people don't want to sell their house.

Because they're like, I don't want to get rid of this great interest rate. I mean, you and I, we're not looking to sell, but We would definitely have that conversation. We'd be like, dude, our interest rate's like two and change. Like, it's amazing. Oh, yeah. It would take a lot for us to move and refinance. Yes.

And we're not alone. All sorts of people are doing that. And so as a result, the supply on the market is really, really low. So even though the demand is now much lower because homes are not as affordable, the supply is also lower because they have these awesome interest rates. Yeah. And so will we see prices drop relative to affordability?

I don't know. Probably not. Honestly. That's my guess. So it just is like a standstill in the market. I think so. Yeah. Yeah. It's a very weird dynamic that we haven't seen. And there's another one that is going on. And this is probably to me one of the most interesting measures that we have in our economy.

Because the other thing that economists keep arguing about is Whether or not we will have, quote, a soft landing, a hard landing, a crash, that kind of stuff. So, again, the Fed drastically raised rates last year, which led to interest rates also rising over time. And part of it saying inflation's a killer, we need to kill inflation, and the only way that they can kill inflation is by increasing the interest rate.

It makes people want to stop investing, and so you stop investing, you stop hiring people, you stop buying stuff. Therefore, you cut off the demand side of the equation, and in theory, prices go back down. The Fed has never successfully done a soft landing where they get that timing just right. Yeah, that seems really challenging.

Oh, it's super hard, and part of it is Because it's not like a static Oh, it's not static. There's a lag. There's all sorts of stuff that make it incredibly hard. People are irrational. And so as of right now, I kid you not, I have listened to two podcasts today only. Where they have been like, oh, maybe they pulled it off.

I don't know. Or like, whereas like the week prior they're like, no way, they didn't do it. It's going down in flames. Like what? So, for the record. Nobody knows, but there is one metric that so far has been the most predictive at figuring out if we're going to go into a recession or not. And it's a super interesting measure.

It is essentially when you look at the, the spread between two different interest rate or yield curves. So investors can buy bonds. For example, and you can buy one that's a long term, pays out over the long time, or you can buy one that pays out over the short term. And, you know, there's different risk involved in both the long and the short term.

And what you can do is you can measure the spread between those two, and that gives you an idea how confident are investors of the future. So, if we think things are going to be great going forward, that 10 year bond yield, is nice and high, because things are going to be great. So, they're willing to, like, the, the rate for it goes up.

If they are concerned about the future, and it's not going to be going well, it goes down. And, it can actually go down below the short term yield rate. And who's setting that? Investors. It's all based on supply and demand. So, the, so essentially, So the way a bond works this is gonna hurt your head, I'm sorry.

So essentially, you have, let's say I have, I have a bond, and I say, or a piece of paper, an investment, right? And I go, hey, this thing pays out 10 percent interest, right? And let's just say that there's a ton of people who go, oh man, 10%, right? 10 percent sounds great. You're like, I'm in, yeah, yeah. And I go, oh my gosh, there's like, there's a lot of demand for this.

Yeah, that's awesome. So then that means I can charge you more for my investment. It always pays out at 10%. But that investment that I make you pay for it goes, like, I can change the amount that you have to pay for it based on the demand. And so, if it's high demand, that means you have to pay a lot for it.

Which means, you know, if you have to pay 100 for getting 10 back, you're like, Eh, that's, like, that's, that's, yeah, like, like Yeah, so that 10 percent is a derivative of, like, okay, I'm not gonna explain it well. Let me back up a second. So I've got an investment here, and I go, this piece of paper, if you buy it from me, will pay you 10.

How much are you willing to pay for this piece of paper that will eventually give you 10, let's say, over the next 10, you know, 10 every year for the next 10 years. You might say, hey, I'm willing to pay you a hundred bucks for it, right? And you go, okay, cool. That's Whatever, that's a, that is a 10 percent return on the investment.

I think, yeah. And, but maybe if there's a ton of people, I go, oh man, this thing's super valuable. It's now 20. Which drops that rate down to 5%, right? And so, that's essentially how bonds are priced. It's all based on supply and demand. There are all these fixed outputs that they're paying for. I think I get it.

Yeah, so it's, it's inverse of what you think of you want it to be. Here's the important part, is you can measure these things. Okay, you can measure, here's what the rates are for 10 year bonds. Here's what the rates are for, say, 2 year bonds. And then you can compare the two. And that's the important part.

And I wanted to print this off to make sure that I got this right. And so, that is, like I said, it's called the yield spread. And what

Jessi: You can do that same thing with real estate investments? Is that what you're talking about?

James: No, I am literally talking about, like, bonds right now. Like the bond market. But that's an indicator for For the economy in general, and I'm gonna get there.

Okay. So it says here Let me see if I can get this right. Usually that yield curve that I'm talking about, comparing the two, like, you can take the 10 year and you can minus the 2 year, and that spread Tells you how things are gonna be. Sure. So it says, usually the yield curve slopes upward reflecting the fact that holders of long-term debt have taken on more risk.

Okay. So it's slightly different than what I'm saying. So it's saying that if it, when it slopes up, it's saying good times, like in the short term times are going to be good. Mm-Hmm. . And so you get and so it's so saying, if you're gonna wait until the longer, it's riskier to wait because we know times are gonna be good Now.

But if you think times are going to be bad now, then that means, oh, in the future, I think, like, future might be bad, but I don't think it's going to be as bad as it is today. Okay. It's a way of seeing when things will go bad. Hmm. Does that make sense? I'm going to pause and make sure you Not really.

Jessi: I have visual, though, so maybe it would help if I looked at the,

James: at the picture.

Yeah. I've, I've got something I want to show you, but I want to make sure you understand what you're looking at first before I, before I show it to you. Can you use a different analogy? Yeah, alright Let me think here. I'm trying to think through, like, what would Let's say we're playing a game.

Okay? A card game. Let's say we're, it's poker. I don't know. And you've got a certain amount of money that you're willing to bet. Mm hmm. Okay? And you can do your current hand. Or you can do a future hand. Alright? Yeah. We're good? Yeah. So, if you think you've got a good current hand, would you bet a lot or a little?

A lot. Alright, awesome. If you've got a bad hand, would you bet a lot now or maybe wait until a future hand? I'd wait.

Jessi: Just see

James: if I can get something better. So that's the exact same thing. So what this spread is looking at is saying there are long term bets being made and there are short term bets.

Current hands bets being made. And so if the current hand is going way up that means That means that you're willing to pay more for it because you think you have a good hand now. But if you think things are going to be bad currently because you have a bad hand, you're not going to pay very much at all and you're going to put, you've got to put your money somewhere so you say, I'm going to bet on a future deal.

Okay? Alright. Now let's go all the way back to that initial discussion where I've got these things that are paying out money. Right? And so the more you pay for something, in general, does your return on investment go down or up? Up. The more you, so the return, like the amount of money it pays out is always exactly the same.

So, if you pay more for it, does your return go up or down? Down. Okay.

Jessi: Because you, yeah, okay. Yeah. Because it's the

James: same. Yeah, yeah, yeah. So that's what, so we're not betting on hands, or maybe let's say we are betting on poker hands, but these are like, each of these cards are going to pay you a dollar, right?

They all have a fixed output. And so, if you say, I think I have a good hand, I'm willing to pay more for it, Does your return go up or down? And it's the inverse of what you, up. No, it's the inverse. If you pay more for something the return goes down. I'm sorry, I don't understand. All right, your, your output is always the same.

I will always pay you 100. Always. Okay, we are playing a poker hand. I will always pay you 100. Does that make sense? That part makes sense. So if you, if you pay more to play the game, will your return be more or less? No, it's less.

Jessi: Okay, alright. Because the difference between what I paid you

James: is smaller. And what you get back is a slower interest rate.

Yeah. Bonds work exactly the same way. They always pay a fixed output. And so if you pay more for that fixed output You're going to get less back. Correct. And if you pay less for it. It's, and that is measured by the interest rate. Okay. Okay. Okay. That make sense? Yeah. So, if something has a high interest rate, it means it's cheap because not a lot of people are willing to pay for it.

Mm hmm. And if it has a low interest rate, it means it's really expensive and therefore high in demand. Hmm. Okay? Which is I know, it's opposite? It's inverse of how you would think about it, but it's all because the payment It's fixed. It's the same. So that number is always the same, so therefore, these two things are It's kind of weird, but I know, it totally hurts my head to think about it.

Okay. So, if in the short term you think you have a good hand, that means you're willing to pay a lot for it. Which means that interest rate is going to be really low. Right? Because people are willing to pay more for it. Which means conversely, on the far end, that, again, same output That means that that interest rate is going to be relatively high because not a lot of people are paying for it.

So what you normally see is it's a positive delta where the 10 year is higher than the 2 year. Which means people think in the short term things will be good today. And we don't know about the long term, but maybe they're not going to be as good as they are today. And if they're relatively flat that means they're going to be about the same.

Now here's where things get interesting. Sometimes they invert where it goes, what they call, it's a incurred inverted yield curve where people think right now is a bad hand. Mm-Hmm . It's not gonna be good in the short term. And so we're gonna put all of our investment and money in the long term, which means the short term rate goes up and the rate goes down.

Which means that if it's this one minus this one, you now have a negative number. Hmm. Okay. Mm-Hmm. . We are currently negative. Right now. I'm going to show you this chart, and I want you to describe it to me. Okay? So that people who aren't looking at it can see it. So this is that math over time. Okay, so it starts back in 1980, and it goes all the way past 2020.

Jessi: Negative. Correct.

James: Then it went back up the positive, it was negative again around, yep, and then negative again. So every

Jessi: 10 years. Ish. Ish.

James: It goes negative. Yeah. Yeah. And so this is that measurement that shows like, when it goes negative, when people think when investors who study this, this stuff, who think about all the time say, you know what, things are going to be worse in the short term than they are in the long term.

Okay, now, scoot all the way over to here. What's something you notice about It's negative right now. Yeah, and like, by a lot. Yeah. Right, if you compare it to, now the 1980s, it looks like it was crazy time. It's what it looks like. Also an era of massive high inflation. Interesting. And interest rates I think went up to like, they were over 12%, 18 percent in some cases.

It was nuts. Oil embargo, all that stuff went down during the 80s. Okay, there's one more feature of this chart here. Do you see these gray bars? Every single one of those are official recessions. Now, do you notice something about what happens when do those gray bars happen? After it's negative. Yeah, so it goes, so the curves invert, they go negative and then when within reason, when they go positive again, that is when a recession hits.

So, today, we are negative, which means if history repeats itself, which so far in the last few years it's done it 1, 2, 3, 4, 5 times, the last, oh 6, sorry, the last 6 times it is inverted, it has triggered a recession. That to me I go, I know it's a pretty high probability, worth looking at. So now the question is, when is that going to stop inverting?


Jessi: I mean, if you look at history, it looks like maybe one to two years, maybe three. And so this has been one, two,

James: three. Yeah. It's already been longer than normal. Yeah. A lot of people, including myself, thought that it was going to un invert the second half of this year of 2023.

Jessi: Well, it looks like it. It was going up, but then it dropped again, so, which, which some of these other patterns do that same thing.

It looks like it goes up, then it goes down, then it goes up, yeah, there's a little, it looks like a W almost in most of them.

James: Yeah. Or a squished W. This one's got a few, yeah. So I don't know, and you could obviously look at each individual curve and try to predict Those individually and then do the subtraction and that might tell you.


Jessi: so let me, let me make sure I'm wrapping my head around what this actually means. If, if this percent yield goes positive again. Huh. That means people are going to want to buy or bet now because it's going to be good.

James: Usually, yes. And that's usually what that trigger is, is right now everyone's being cautious and careful.

Yeah, we're waiting. Yeah, and it's the second people stop being cautious and careful, that's when you get hit. You get a, there's a problem. Yeah.

Jessi: Interesting. And that's what

James: triggers the recession. Huh, yeah. Yeah, it doesn't last forever. But, definitely. So, this is what's so interesting about where we're at in this economy.

You've got this measure here, which is crazy predictable. Yeah. On predicting next recessions. Now, in here, it doesn't say how bad they are. And you can even see in the 2020, like, that was a month, maybe two, where it was that V, right? And it popped right back up. Well, and the interest rate

Jessi: didn't go negative.

James: Correct. It touched the line. Just barely, maybe. Which is what got everyone like, oh my gosh. I mean, it was just barely negative. And it still did it, just barely. Yeah. And so that's part of our like okay. Does the depth of it indicate how big of a deal it is right here? It doesn't seem to, because this one's really deep, but nothing lasts that long.

And maybe it's all about how long. that it's negative for matters because back in the 80s it was like negative for a while and like had a really brief up and then had a really long, relatively speaking, long time. That's again what happened in the 2009 2010 era. So, I don't know. It's a really, so, and again I had kind of a score at the beginning.

Okay, but also

Jessi: like in 2009 2008. 2009 is when we started investing in buying places, so we're, which is just before the recession.

James: Well, we did it just as it started. Just as it started. Because we, yeah.

Jessi: Okay, yeah, here's 2010. Okay, so 2009. So, like, when this goes back up and it's a recession, that is good for buyers.


James: And that is why I have moved out of maintenance mode. into getting investors in buying mode because I think and what I have said is they're going to be some good deals in 2023. I think there's going to be some fantastic deals in 2024 and probably 2025 as well. There's multiple reasons for it, but this is one of those reasons.

Interesting. That you look at and go, oh, we are potentially sitting on the precipice. Now, having said that. Sure. Interest rates are very different relative to how they've been for a long time. Mm hmm. Supply and demand just in general is very different than it has been for. A long time. There's an election cycle coming up, which throws things like crazy.

Yeah, that

Jessi: would be interesting to layer over this. Like, other world events and other

James: There are currently two wars going on across the world. That I don't, you know, I, so there are a lot of pieces here that make it really hard to predict what I do know is for us, the focus is let's find assets that need some sort of work that you can force the value into it by putting in the work.

And the hope is that the economy is wind in the sales instead of a headwind. And, and that's part of the look of saying, look, if we buy a place and we're going to take. Five years to turn it around. I am pretty certain the economy will be turned around in five years. And so if I can buy it, when things look all turmoil, we, we go heads down, we do our thing, do our work during that time.

And then when, when it becomes a tailwind, we sell awesome. Cool. That's what I'm looking to do. And yeah, so that's. I, again, it's just kind of an interesting way of looking at the economy. They're all like, there's no certainties, it's all kind of probabilities. If I were a betting person, I would say this yield, this curve is probably going to un invert next year.

I think there's going to be a lot of people who have to start to move. Just cause life happens, you don't have a choice. And you start to get used to the fact that like, yep, interest rate's 6%. It's expensive. It is what it is. Yeah. And you think about all these people who are graduating college and getting into the market, they don't know what it was like to have a 3%.

That's not a thing for them. Yeah. And so they just go, this is it. This is what I can afford. And they just go for it. And so I think the demand will continue to be, demand and will continue to kind of move and shift. And there are governments trying to do all sorts of stuff, like making it easier to build accessory, accessory dwelling units, just trying to increase the density, trying to make it easier, trying to make things more affordable.

So there's, there's a lot of, there's a lot of moving pieces. There's one more fascinating thing, what we call it for what was supposed to be a 10 to 15 minute talk is, traditionally, what you've seen with inflation, and this is like what happened in the 1980s, is it starts to go up, and so the Fed does step in.

And they increase rates. Now, the Fed this time around, they've increased rates faster than it has ever happened before. It's kind of incredible. Increased rates of what? The, the federal funds rate, which is, which plays a factor into what the overall interest rates are that you can get on loans and mortgages.

It's not directly that, but it's close to it. It's complicated. Don't worry about it. But they've, they increased rates in an attempt to try to slow down inflation. And they've done it faster than has ever been done in history. In the 1980s, they also raised it. Inflation looked like it was starting to taper off and in an attempt to do the soft landing, they backed off the raises, even lowered rates some, which everyone got all excited.

Yay! Rates are lowered. I've been sitting on the sidelines, but now I'm ready to get back in. So imagine. Rates lower a little bit. You've got all these people who couldn't buy because the interest rate put them out. Now they jump back in. Demand increases. What happens to prices when demand increases? They go up.

Yeah. And so that's what happened in the 80s. Inflation skyrocketed. It was like a, a bullwhip crack effect. It went up a little bit. It went up a significant amount. Went down a little bit. And then it skyrocketed up, and that was when interest rates had to get double digits, like really high, in order to tamp it back down, and things were a problem.

Our Fed has already stopped raising rates, and they have already signaled that they plan to lower them a couple of times next year. So, there is a not so small probability that that same bullwhip effect happens again. Skyrocket. Demand skyrockets. And we all go, everything's fine! It's great! Inflation takes off like a rocket, they have to react, interest rates go back up, and that is what craters the economy.

And we see it in the second half of next year. We go, oh, here's that recession that all the doomsayers have been telling us about. It's finally here. And everyone's also going to go, yeah, the broken clock's like, right twice a day. It was about time. Like, it was going to happen. And so they don't get credit for it.

And so it's, it's an interesting, it's just interesting. And so again, for us, I think the strategy stays the same. Let's find good, valuable assets cause we're in it for the semi long haul. And I think there's going to be some interesting opportunities to pop up in the next year as a result of this. And so, yeah, that's a, that's what I'm seeing.

Get your economy fixed for the year. You're good to go. Yep, I'm good. I

Jessi: would not call myself an economist.

James: At all. I appreciate you slogging through. iNterest rates are genuinely, and like yield bond rates are genuinely confusing. Oh, it's absolutely confusing. I mean, even myself. Like, I think there was one time I went, okay, I have to dial back.

Yeah, what am I talking about right now? I got backwards on it. Yeah, it's so confusing. It's super confusing. Which, I mean, that's why it's important to have a trusted advisor to help you out. Ha ha ha, like us. And to help you navigate these kind of things.

Jessi: It's honestly why I made, made you make me that spreadsheet when we were starting.

Where I was like, can you just color code this? And if the box is green, it's a good deal. And if it's red, it's a bad deal. Like, that's, that's just what we need for the economy. Yeah, well. Like, are we green or are we red? I

James: wish it was that easy. It's, I mean, that's hard work too. Like, for some people it is absolutely green.

It's awesome. It's amazing. And for others, oh, it's red, it's horrible. That's the end. And so, that's the other one that makes it so hard. It's not, there isn't one economy, there are millions of economies, and it honestly gets broken up by household. And, like, if you imagine, like, if you're someone who's in the tech industry who recently got let go, like, it's bad.

The economy's horrible. But, there's other people who are like, oh man, this is great, like, I love it, things are fine. You know? So, yeah, it just makes it complicated. And hopefully you found that valuable as well, and if you did, we would love it if you would like and review. Our show on however you listen to your podcast.

And so just thanks so much, and have a great day.

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Furlo Capital Podcast

Furlo Capital
Real Estate Podcast

A conversational podcast between James and Jessi Furlo that dives into the intricacies of passive real estate investing. Our mission is to equip people to invest wisely in both property and residents so that, together, we can build wealth and improve housing.

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Let's build your wealth and improve housing, together

Passive Income

Tenants pay monthly rent, which covers expenses and generates a profit for investors. Plus, multifamilies appreciate and usually sell for a significant profit.

Consistent Above-Average Returns

Real estate is less volatile and historically outperformed the S&P 500 by routinely generating average annual returns of at least 10% after fees, inflation, and taxes.

Revitalize Local Communities

We give people a great, safe place to call home. This doesn’t hit the spreadsheet, but every property is managed and maintained with the residents as a top priority.

Extraordinary Tax Benefits

Your income is taxed much lower because of depreciation and because it’s taxed at a lower capital gains rate.

Below-Average Risk

More units mean less vacancy sensitivity. Plus, costs are distributed across a larger number of units, which also allows us to hire a professional property manager.


Unlike stocks, lenders like to finance multifamilies and the loans are tied to the property, not the person. This accelerates wealth building.