559: Barry Habib: Where the Economy Is Headed—and What Investors Need to Know

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The stock market is sitting at or near all-time highs again.

And what happens? People rush in. It’s called FEAR OF MISSING OUT.

Now compare that to what’s happening in real estate.

In many markets—especially multifamily—we’ve seen 30–40% price corrections from just 3–4 years ago.

Our investor club has been buying, but most investors are sitting on the sidelines. Why?

Because investments are the only things people don’t naturally gravitate toward when they’re on sale.

When TVs go on sale, people line up. When stocks or real estate go on sale, people get nervous.

I’ve quoted him a million times, but I’ll do it again. Warren Buffett said it best: “Be fearful when others are greedy, and greedy when others are fearful.”

Simple in theory. Very hard in practice. Now, to be clear—this doesn’t mean there’s no risk. Rates may stay a bit elevated in the near term.

Geopolitical issues, including the situation with Iran, can keep pressure on yields. But when you zoom out, there is a growing body of data suggesting that over the next 2–3 years, we are likely moving into a declining rate environment.

And that’s what matters. Because you don’t invest today for tomorrow. You invest today for where the market is going.

When rates come down:

financing improves

capital comes back into the market

and asset values tend to reprice—often quickly

So the real question is: Are you positioning now… or waiting until it feels safe again? The problem with waiting is that the sales always disappear.

What I am saying to you now is not new. I’ve been repeating this narrative over and over again over the last year or two.

But I felt like I had to repeat it because this week’s guest on Wealth Formula Podcast is saying the same thing.

He’s a guy who is nationally recognized for consistently being ahead of the curve on rates, housing, and the broader economy, while many others have been wrong.

Barry Habib.

He’s the founder of MBS Highway, a multiple-time Crystal Ball Award winner, and the author of Money in the Streets—a book all about understanding cycles and building wealth by acting before the crowd.

In this conversation, we break down:

where interest rates may be headed

why inflation data may be misleading

and what this all means for real estate investors—especially in multifamily.

If you want to understand where this cycle is going—and where the opportunity may be—this is a conversation you don’t want to miss.

Listen on Spotify:

Transcript

Disclaimer: This transcript was generated by AI and may not be 100% accurate. If you notice any errors or corrections, please email us at [email protected].

What Jerome Powell did was, it, it was kind of a surprise. Nobody expected it. Was said, “Hey, we’re gonna do some QE operation, quantitative easing, and we’re gonna purchase $40 billion a month of short-term treasuries.” People said, “Okay. Well, uh, the, that’s not too bad. That’s, could be a good thing. Could help short-term treasuries come down, could help interest rates.”

But it was too much of a good thing. It was not well thought out because it was too much demand and not enough supply, and it flooded the markets with additional capital.

Welcome everybody. This is Buck Joffrey with The Wealth Formula podcast. Today we’re gonna talk about something, uh, well, I’ve been talking about for some time, but, um, I think, uh, today’s guest is gonna put it into, um, something a lot more eloquent than I’ve been saying. But, you know, the theme is the same that I’ve been saying before.

You know, we, we’re sitting here looking at the stock markets at all-time highs, people rushing in, massive fear of missing out, FOMO, FOMO, FOMO, right? And I’m not saying… Listen, I’m, I’m, I believe this AI thing is real and all that, but, you know, these markets moving like this, um, with all of the, you know, all the uncertainty in the world is a little bit concerning, and it smells of froth, you know?

But to contrast that, there’s the real estate market. We’ve been looking at this 30% to 40% price corrections from just three to four years ago. I mean, this market has been completely obliterated. And our investor club, by the way, if you’re interested in, uh, you know, that, go to wealthformula.com and sign up for, um, investor club and get onboarded.

But our investor club’s been buying for the last year or two because everything’s on sale, right? Everything’s on sale. Um, there’s not a ton of things that come up because no one wants to sell. But when they do come up, it’s, you know, it’s because people have to sell. And when they have to sell, things are sold cheaply, right?

What’s interesting to me is that, um, you know, even though our, our group is still buying and you look around, a lot of people are very fearful and are sitting, um, with capital because oddly enough, investments are the only thing in the world that people don’t naturally gravitate to when they’re on sale.

Think about that, right? I mean, if you wanted a TV, you wanted a watch, and it was 30% to 40% off, wouldn’t you just… You’d just go buy, right? You’d just be like, “Hell yeah, I’m doing it.” You wouldn’t wait to see, “Well, maybe it’s gonna be more on sale when it’s already 30%, 40% off You would think about that as a great opportunity.

But in the meantime, when you have a similar situation with stocks and real estate, people get nervous. And I’ve quoted him a million times before, and I’ll do it again, good old Warren Buffett, you know, “Be fearful when others are greedy and greedy when others are fearful.” That’s exactly what I’m talking about.

But again, think about it, like right now, real estate is massively on sale, right? Why aren’t people flocking over there, right? Well, I guess that’s why it’s, in part it’s on sale, right? The whole concept I’m talking about, simple in theory, hard to practice. And, and the reality is that there’s, you know, there’s no crystal ball.

There– It doesn’t mean there’s no risk. Rates may stay elevated, uh, a little bit for the near term, and we’ve got these geopolitical issues, like this Iran, this Iran thing, that could keep pressure on yields. But when you zoom out, there’s a growing body of data suggesting that over the next two or three years, we’re moving into a declining rate environment.

We were, we were, um… Every month before this Iranian thing happened, inflation was ticking down. Every month, if you looked at in, uh, Trueflation or any of these real-time metrics. So eventually this thing is gonna end, and when it does, we, we anticipate that things would start going back down. And that’s what matters, because you don’t invest today for what happens tomorrow afternoon.

You’re investing for the markets going in a few years, right? And when rates come down, financing improves, capital comes back to the market, and asset values tend to reprice, and often quickly. So the real question is, are you positioning now or waiting until it feels safe again? You know, the problem with waiting is that, as you can see whenever you go to the store, no sale lasts forever, right?

They disappear eventually, and you’re gonna end up paying a premium later on. So what I’m saying to you is not new. I’ve been repeating this narrative over and over again over the last year or two, but I felt like I had to repeat it again today because of our guest on the show today, Barry Habib. Now, he’s a guy who’s nationally recognized for consistently being ahead of the curve on rates, housing, and the broader economy while, you know, others have been wrong.

Um, he’s, uh, um, he’s the founder of MBS Highway. He’s a multiple Crystal Ball Award winner, meaning he has a crystal ball right? And the author of Money in the Streets. Anyway, we’re gonna talk about a lot of stuff, including where interest rates may be headed, why inflation data may be misleading, and what this all means for real estate investors, especially multifamily And you’re gonna enjoy it.

He is a fantastic, uh, fantastic speaker, and he, um, he really breaks it down, makes it very clear. Hopefully you enjoy it. We’ll have that interview right after these messages. Hey, everyone. If you haven’t done so, make sure you sign up for Investor Club. Investor Club is Wealth Formula’s private investment community.

All you need to do is to go to wealthformula.com and sign up for free. And if you are an accredited investor, you’ll get an opportunity to quickly do some paperwork and meet one-on-one with me and get onboarded. And once you do that, you get access to all sorts of potential private deal flow that you can only see if you’re part of the club.

So join now. Join Investor Club at wealthformula.com. You make a lot of money but are still worried about retirement. Maybe you didn’t start earning until your 30s, now you’re trying to catch up. Meanwhile, you’ve got a mortgage, private school to pay for, and you feel like you’re getting further and further behind.

Now, good news. If you need to catch up on retirement, check out a program put out by some of the oldest and most prestigious life insurance companies in the world. It’s called Wealth Accelerator, and it can help you amplify your returns quickly, protect your money from creditors, and provide financial protection to your family if something happens to you.

The concepts here are used by some of the wealthiest families in the world, and there’s no reason why they can’t be used by you. Check it out for yourself by going to wealthformulabanking.com. Welcome back to the show, everyone. Today, my guest on Wealth Formula Podcast is Barry Habib. He’s one of the most respected voices in housing, mortgage finance, and interest rate forecasting in the country.

He’s the founder of MBS Highway, which is a highly sought after market educator and analyst, and a frequent media contributor known for accurately calling major shifts in rates, housing, and the broader economy before much of the mainstream consensus has caught on. He’s also the author of the bestselling book “Money in the Streets,” which focuses on, on how investors can build wealth by understanding demographic trends, interest rate cycles, and the timing of real estate opportunities.

Barry’s won multiple Crystal Ball Awards for the accuracy of his market forecasts, and is widely regarded as one of the experts in mortgage-backed securities and housing-related macroeconomics. Barry, welcome to the show.

So nice to be with

you. So Barry, I wanna start out with this. Um, you were ahead of consensus on a number of major calls over the last several years, especially around rates and housing.

What do you think, um, you were seeing that other economists and commenters were missing?

Well, goodness, there’s, there’s so many things that, uh, you have to kinda get into the weeds on. Like, well, just for example, as we’re recording this, we just got the release of the consumer price index. Now we thought that would come out a lot hotter than expectations and that the bond market would not respond correctly, so we advised everybody of this well in advance.

And one of the things that we had discovered was that during the government shutdown that happened a couple of months back, the way that the Bureau of Labor Statistics aggregated data was that they could not do the surveys that would account for how much rents and owners’ equivalent rent would’ve risen on a monthly basis.

Well, in their infinite wisdom, what they decided to do is say instead of putting a value in that would be an average of past results or this and that, they just put zero in there, which meant that they’d have to recapture that this month, which was released today, or w- I should say for the previous month, for the month of April, released today, and that housing sector now had double the impact.

And that’s so important because it’s 36% of CPI. It’s a very heavy weighting. 44% of the core, which is what the market really focuses on. So we knew that the number would come out much hotter than expected, and we actually came up with, with our forecast of 3.8% and 0.6% on CPI, which was the correct number that came out today.

But if you search n- and that… I haven’t seen anyone else at that, uh, that was at that level, but I think it’s because they did not look deep enough into the numbers. But that’s just one example, just because it happened today. But this is what we do consistently is we are looking at, I am looking at, um, much deeper ways to put the pieces of the puzzle together.

I wish our Fed did this because we would not have as much of this boom and bust cycle, although I do feel we’ve got a great Fed chair now in Kevin Warsh. But the- these are the types of things that allow us to hopefully see the future before it becomes obvious.

You know, it’s interesting because one of the things that Warsh has talked about is trying to get more real-time data.

Is that kind of one of the things that you like about what, what he’s gonna do? Uh,

there’s a lot I like about Warsh. So there’s a couple of key points there. Uh, Jerome Powell, which, uh, in my humble opinion, uh, maybe a lot of people agree, uh, was not a very good Fed chair. I mean, remember, he’s not a trained economist.

He’s an attorney. Um, so I’m not sure why we’d have an attorney as Fed chair, but so be it. Um, also his predecessor, Janet Yellen, was not a very good Fed chair. I thought we had a very good Fed chair in like Alan Greenspan and even Ben Bernanke, um, after Greenspan and before Yellen. But Jerome Powell had a terrible habit of…

The analogy would be like driving down the freeway, but not looking at the windshield, looking in the rearview mirror So you oftentimes can have, can have issues with that. And what he would do is he would be so late to respond and then overreact. So you had these boom and bust cycles, um, because he would be looking at data and the data was old.

Now, Kevin Warsh wants to see through this. There are a lot of other Fed members that have talked about this. Christopher Waller, who’s a Fed governor, Michelle Bowman. But you can’t be so data-dependent. You probably heard that terminology, we’re data-dependent. Yes, you have to look at the data, but you also have to be smart enough to kinda see forward and understand that data looks backwards.

Now, when it comes to the Bureau of Labor Statistics and their data, well, the methodologies, and get ready for this one, Buck, they date back to 1985. There has been no improvement in them. Yet today, there are so many tools that we have that give us more data in real time that get aggregated. Of c- you know, we’ve made so many technological advances in 1985.

Why wouldn’t the BLS adopt these? It’s why you have these terrible reports that come out from the department of, uh, the BLS on labor. Now, we get a very influential report the f- first Friday typically of every month on how many jobs were created in the previous month. Well, the problem that you get there is that I don’t blame the folks at the BLS.

It’s a Herculean effort. There’s 170 million people in the labor force. It’s very hard to just a few days after the month ends to tell you accurately how many jobs were created or how many jobs were lost. But the methodologies that they are using need to be improved. I will give you a quick example.

Last year, the BLS said, “Hey, we got 1.7 million jobs that were created.” That sounds pretty good, right? And then later on they said, “Oops, we made a mistake,” ’cause they revised their numbers, and they said 1.3 million. Now, they use a survey methodology for this, but the actual re- reconciliation of this is done by the Quarterly Census of Employment and Wages, the QCEW.

Now remember, they first said 1.7, then they revised it to 1.3. You know how much it was? Just 123,000. From 1.7 to 123,000. That’s 93% of the jobs they told us were there were never there, and yet the stock market, the bond market, the Fed, they’re looking at this data. So to answer your question in a long way, obviously, Kevin Warsh is smarter than this, and he wants to be able to look through it.

Now, one of the examples he pointed to is instead of looking at CPI or PC as a whole, he looks at something that comes out of the Dallas Fed, which is called their trimmed mean. So what is trimmed mean? Well, trimmed means you’re trimming it, and mean means the average. So he takes the average of a lot of these inflationary indicators.

And you remember in, in the Olympics, you watch the Olympics, all the judges, they would put up their scorecards- Yeah … and you throw out the highest and lowest? Well- In this trimmed mean, 31% of the highs, 24% of the lows get removed, and you’re left with a level of, of inflation that he feels is a lot better of a gauge for the Fed so they don’t get whipsawed and the one-time shock events that occur don’t cause the Fed to react.

What was

the

trimmed mean for this most recent? 2.4%. Got it. That’s the most recent data. And if you look at… So I’ll tell you how it aligns with us and how it aligns with a company called Truflation. Now Truflation uses modern technology, and they look at 10 million data points. Truflation is almost identical to what the Dallas trimmed mean is.

And the way that we also look at it is we say, okay, we know what the CPI is or we know what the PCE is, but the shelter component, which is so important, we talked about that earlier, but it still is on a year-over-year basis overstating what rents are going for. We know that in the rental market, renewals where a tenant’s in there, you’re renewing their rent, you got a little pricing power.

Look, Buck, it’s a pain in the neck to move, right? And it’s expensive to move. So the landlord could, could bump you a bit and you’ll tolerate it rather than move, right? But those are going up at about 3%, which is what they’re saying in the report. But 47% of the market is new rents. So I have a vacant property, come on in.

Those are actually going down by 1.7% a year. So if you weighted by the 47% that are new rents and the 53% that are renewals, well, the real number that rents are going up at is just 1% a year, not 3. So it’s overstating inflation. And then if you looked at tariffs is another thing that’s misunderstood. See, inflation…

Picture a staircase in your mind. So you have inflation that goes up every single year, which is why people complain so much because, Buck, you can tell somebody, “Oh, look, the rate of inflation is going down.” That doesn’t do them any good in the supermarket because those years of 9% inflation- Yeah … are still there.

Yeah. It’s baked into the price. It’s just the level of the amount of increase added to that is decreasing. You’re still paying more and more and more, and if that exceeds the amount that you’re earning, well, then you get misery, right? So what is occurring here is that it’s very difficult, but that’s inflation.

Tariffs is a different story. Tariffs is like a staircase, but it’s just one step. So you take one step up, and then it levels off. Yeah. Now, the thing that’s important to note there is that many of the tariffs were imposed last summer. So as this summer rolls around, you will be able to see that inflationary pressure resolve.

Now, Buck, the thing there is that what you’re going to have happen is if you deduct the- inflationary pulse that we got from the tariffs and the overstatement in the, uh, in the housing component because the, the, not con- contemplating the, uh, new rent portion. Well, it comes out to about, our forecast is, like, 2.5% of where it should be.

Now, there’s a very big unknown, and I don’t know if you wanna discuss this now, but center stage right now is what’s going on with the situation in Iran and what is it doing to the oil market and what people are paying at the gas pump. Also highly misunderstood, but if we have the time, I’d like to break that down-

Yeah

because

very few people understand

it. Yeah, I think that’s an important thing. One of the things that I’ve been talking about, Barry, on the show is that, um, you know, we, we’ve talked about truflation and some of these better metrics in the past, and we’ve been following the fact that those numbers were coming down on a regular basis before this Iran, you know, this big mess.

And so I’d love to hear your take on, you know, I guess contemplating that this is not a long-term conflict, but even if it ends in the ne- next few weeks or months, what the long-term implications are.

Okay, so, uh, look, uh, I, I, I don’t know if it’s going to end quickly. I wish it would. But my, my expectation is that it probably will last longer than we would like it to be.

Um, and that is because Iran has showed a high level of pain tolerance. And, um, you know, they have certainly been decimated by this situation. And the big problem that Iran is going to face in the next week or two is that they have this blockade. And, you know, first they said they were gonna block the strait.

Now, the US, which I think was an enormously wise chess move, said, “We’re going to block it.” So why is this an enormously wise chess move? It’s because there is no place for the oil to go. And if you know anything about how oil pumps work and this and that, Iran is virtually full on on-land and almost off-land storage space.

So the, they’ve got tankers in, in the ocean, and they’ve got on-land storage. But those pumps, it’s not like a switch. You can’t say, “Okay, well, let’s shut it down now.” So not only are they losing approximately $4 billion a week, but $3.5 billion in oil revenue and another half, uh, a half a billion in other resources that they would’ve been receiving, and that’s very painful monetarily.

But if they have no place to store the oil, they would have to stop the pumps, and it costs millions of dollars and time to ramp them back up, and there can be almost irreparable damage to the wells where they now n- will no longer perform at the same Levels of production. So it’s going to be, like, a very big decision for them, and will they be able to decide to withstand this amount of pain?

I’m not sure, ’cause you never know. But, um, it sure is inflicting a lot of pain, more pain than they wanna admit. Now, the question that I get asked from so many people, and you probably do as well, is like, “Okay, Barry, we know that the United States is the number one producer of oil by a mile, right?” Right. “We also know that the US is exporting a tremendous amount of oil.

So why the heck am I paying so much for gasoline?” What, what, w- I mean, this is… Everybody wants to know, right? Yeah. And it doesn’t seem that anyone has a very clear answer, but let me break it down for you clearly as to exactly what is going on. So let’s take a, a current event that just occurred.

California, yesterday morning, just received their last oil tanker shipment of crude oil that came from the Middle East through the Persian Gulf. Now, you might be saying, “Why the heck would we be having 33% of California’s crude oil being shipped from the Middle East?” Isn’t that crazy? Isn’t Texas a lot closer, right?

I mean, uh, than getting it- Yeah … from the Middle East? Couple of things. One, there’s a natural impediment. The Rocky Mountains precludes us from having a pipeline that can be successfully sent from Texas to California. Okay. So can’t we do it by, by land somehow and transport it? Here’s the problem. Much of the United States and California, if they get crude oil, you can’t put crude oil in your gas tank.

It’s gotta be refined into gasoline, and that means that there has to be a refinery that is properly set up and tooled to take a specific type of oil. And there’s two types. There’s something called light sweet crude and heavy sour crude. Now, the refineries in the US are predominantly set up for heavy sour crude because that’s much of the oil that we used to produce.

But now with fracking and shale and modern technology, we have excelled in oil production, but this oil that we’re producing is light sweet crude. It’s actually a better grade. Mm-hmm. But the refineries are not set up for it. So you might say, “Okay, well what about this deal with Venezuela?” Yes, it’s coming from Venezuela, so will we physically get it?

We will physically get it, so why is it costing more? It’s because oil is a global commodity. These companies that produce it and manufacture it, they’ve got it in the open market, and that means not only California or any place in the US is bidding for it, all of Europe is and other areas of the world that need it.

So- Taking 20% of the oil that was on the market, which come, came through the Strait of Hormuz off the market, it’s supply and demand. It causes prices to rise globally, and that’s why we’re paying more. We’re paying more because the price is being bid up because everybody needs it. So we’re fortunate we could get it.

That’s great. Right. But because everybody’s demanding it, it causes the price to go up. So that’s kind of where we are on that.

When you look at this conflict, how in the world can you make any predictions on inflation when we have no idea what’s gonna happen? Because obviously there’s a, a big… It’s, it, you know, there’s a core inflation which takes out energy, but the reality is there’s a big spillover, uh, of, you know, it’s not just energy, it’s all the things that energy results-

Transportation, manufacturing, and others things, too.

So, so how do you… I mean, how does somebody in your position who tries to predict these things and, and, you know, make some calls on what, what’s going to happen here, how, how, how do you even look at that right now?

So in the beginning of the year, we had, you know, we, we didn’t have the war in Iran on our bingo card, and we had forecasted that interest rates would come down.

We said that the, the 10-year Treasury would get to a level that would be very attractive, under 4%. We said that mortgage rates would get under six. And we were quite honestly on an island, the only ones that had forecasted that. And you know what? We were the only ones that got it right because in mid-February we hit all those targets.

Yeah. The problem was we got to the end of February and things changed. Now, when we look at trying to look forward and say, “How can we call this?” Even if this were to end tomorrow, there are a lot of really good reports. There’s a, there’s a Dutch company, Saxo, that do a lot of good work on this, and, and, and others.

And we agree is that we don’t think oil gets back into the mid-60s level that it was in January and February. We think if it comes back down, it probably settles more in the 80-ish range, which is definitely gonna have an inflationary pulse. Um, we will… Y- you kind of outgrow the inflationary pulse because if it settles around 80, you have a higher inflationary level for a year ’cause the year over year numbers.

But then if it stays there, in year two you don’t get that pulse in the second year, so you can get things to settle down a little bit more. But in addition to that, it’s the Fed. And again, under Jerome Powell, and there might have been good intentions, kinda quietly in December of 2025. So, you know, just, just not too long ago.

You’re going back five months here. What Jerome Powell did was, it, it was kind of a surprise. Nobody expected it. Was said, “Hey, we’re gonna do some QE operation,” quantitative easing- And we’re gonna purchase $40 billion a month of short-term treasuries. People said, “Okay, well, uh, the– that’s not too bad.

That’s– could be a good thing. Could help short-term treasuries come down, could help interest rates.” But it was too much of a good thing. It was not well thought out because it was too much demand and not enough supply, and it flooded the markets with additional capital. M2, and an even better indicator than money supply than M2, is ODL, other deposits and liabilities.

You probably know this, but it, it takes M2 and takes away currency and money markets. So it gives you a real, a real read on this. Well, that’s risen by 9%. So if money goes up by 9%, output has to kinda match that to not have inflation. I think everybody remembers the lesson we learned in school. What’s the definition of inflation?

Too many dollars chasing too few goods, that’s inflationary. Too many goods chasing too few dollars, that’s deflationary, right? So the goods portion output, right, and, uh, the, the dollars, money supply or M- or, or, uh, ODL, you had a 9% rise in m- in, in ODL, and yet a one and a half percent rise in output. It’s causing an inflationary impulse.

So as we look to say, “Okay, what will this likely do?” It’s likely to pressure interest rates, a-and it has. It pressured them higher, but I think that interest rates may remain stubbornly high. There’s a lot of good factors that could keep rates lower, but this is going to be an obstacle that we’re going to have to, to overcome or face, at least for a period of time.

Yeah. So that’s the thing that people really wanna know, I think, in this space, is what do you see happening in that whole, um, uh, in mortgage markets? What can we expect in terms of interest rates over the course of the next year or two? Um, there’s a lot of people here who, you know, own or are looking to get into multifamily, uh, real estate, for example, because there are tremendous opportunities if you look at like,

you know- pricing So it’s a great question, Buck.

And, you know, uh, being a bit of a contrarian, it’s a good time to buy when it– when interest rates are higher. I know that might sound crazy, okay? But when, when you are in a market where there’s less competition, uh, sellers are definitely much more amenable to some price reductions. And if you do buy in a market where you can, you know…

Let me give you an example. Uh, and let’s use a, a simple residential home. Like, let, let’s just take a, a $700,000 home. If over time you can get appreciation of 3%, right, uh, then, then that’s pretty big. But if you take out a higher rate today and you pay, you know, over a course of a year or two, a couple of hundred thousand dollars, and then you…

I’m sorry, a couple of thousand dollars and the, uh, cost to refinance as well, you might be out of pocket, you know, six or $7,000. But you gain about $21,000 from the appreciation. So that’s the part people don’t realize is it’s better to pay a little higher rate and get a cheaper price, and then when rates cycle back down, which they typically tend to do over time, and I think they will here, then you gain the appreciation instead of waiting and pay the appreciation.

So, um, I think that the, the outcome short term is a little bit, um, more pessimistic. However, as things settle, things will get rosier for the interest rate environment and, uh, I think as we go out, you know, two years from now. Now, look, the, the further you go out, the, the foggier your crystal ball gets, right?

I mean, you know, the- Yeah. Yeah … well, like I said, in January, we were feeling pretty good about rates coming down, and here we come, you know, February 28th, not too far afterwards, and everything changes. So we have to be aware that there will be events that surprise us. Um, so given that that’s a, a variable and a risk, it does appear to us that real estate will definitely continue to appreciate and appreciate at an accelerated pace because we do feel that interest rates will improve over the next couple of years.

Just to put in, uh, double-click on that, I think it’s one of the things I’ve been talking about is, you know, when you look at what’s going on, it, it’s, it’s tricky because people are somewhat fearful of what’s happened to, for example, multifamily real estate over the last few years because rates skyrocketed, right, uh, very quickly.

But now you’ve got these opportunities that are 30, 40% discounted compared to three or four years ago, but they work at the current rates. And I’ve been talking about investing in a descending rate environment. I think that’s what you’re getting at here, right? Historically, that is one of the places we’re gonna get some of the best opportunities.

There’s a lot of people that, that like the contrarian mindset. You know, certainly, uh, you know, Sir John Templeton- Warren Buffett, you know? Yeah. The, uh, buy when others are fearful. You know, you wanna be a buyer on the most pessimistic day. All th- all those things, you know, J- all, all those, uh, um, wise, um, strategies that have worked over time.

And I think that, uh, this is analogous to that, that if you, uh, if you, if you view this as, uh, “Okay, let me get in and, uh, you know, maybe hold my nose a little bit with the rate and, uh, and deal with it,” uh, the rental payments and the, and cashflow will catch up regardless. And then if rates do come down, which we think they will, no guarantee, but we think they will, well, then you really benefit because then you can refinance, gain more cashflow, but also gain a lot more appreciation.

What do you think varies in keeping people al- or not just people, but, like, institutions and a lot of money out of the real estate markets, given the fact that this is a potentially really opportunistic moment?

I, I, I don’t think that it’s wise to try and have government intervention. Uh, it’s never really worked out very well.

Um, and in addition to that, if you look at the percentage that the institutions, uh, participate in the housing market, it is minuscule. So it’s not gonna move the needle, and it oftentimes leads to disruptions which are unforeseen. You know, you, you get unintended consequences. I mean, look, look at what the Fed did with this, with this $40 billion in QE.

I’m sure they’ve had good intentions, but it’s now caused a massive issue. And, and, uh, uh, this is what you see constantly. So the less government intervention, the better. The natural market reactions are usually the best way to go over time.

The natural market reaction sometimes, um, best way to look at those is the bond markets.

Um, can you talk for, you know, people who maybe are not experts in bond markets on how to look at, um, what the bond markets, how they’re behaving, and what that might tell us?

So the bond market has been surprisingly resilient to me. Um, it is true that, you know, interest rates are up, let’s call it, I don’t know, 40 basis points, you know, maybe 50 basis points from their lowest levels that we have seen of late.

But that’s a multi-year low, and we’re only up 50 basis points. Uh, you know, you, you’ve had a lot more inflation. You’ve had, uh, turmoil at the Fed. You’ve had this oil shock, and we’re only up 50 basis points. That s- tells you that there’s a lot of buying that’s there that is underneath the surface. So there’s a lot of strength that I’m seeing in the bond market.

In addition to that, I believe that, um, when, when the, when the environment for inflation- settles a little bit, you will see a lot more buying. You also have to be cognizant that the stock market, let’s hope it keeps going in a good direction, but it is at frothy levels, and it has, it has done exceptionally well.

And I’m not here to say, you know, oh, run for, for cover here, but more often than not, if the stock market takes a breather, the bond market is a place that people park their money. Mm-hmm. So it, it’s, it’s, it’s not a bad place to be. You get a yield, you’ll probably do okay, and it’s a great hedge against the stock market for a portion of your portfolio.

One of the things that you’ve talked about in terms of real estate, again, coming back to that, so this is a very int- uh, important topic to this group, is, uh, demographic demand. Um, talk a little bit about demographics and, um, you know, the housing cycle versus just interest rates and liquidity where we are right now.

Well, well, you know, you, you’ve got, um, just like anything else, supply and demand, right? And, and now this is gonna break down obviously very local, even to your zip code, okay? So I’m, I’m gonna talk about in the United States, which is very broad and it, you know… So, so please understand that this is on the United States front, not in your specific marketplace, which you need to look at this and drill really local.

But for the United States, if you look at demand, demand is, is household formations. A household formation is imagine, you know, mom, dad, and a child all live in a home, uh, and that’s their household. But then the child grows up and says, “Hey, I wanna get my own place.” So it’s the same family, it’s mom, dad, and a child, but now instead of one household they have two, so they’ve formed a household.

So that’s a formation. And we have for the past several years, five or six years, we’ve been averaging about 1.8 million households formed, but of late with the sudden rise in interest rates that we have seen and, um, as you can expect, the formations of households have slowed down. You know, uh, somebody who was gonna move out and buy their home maybe is taking a little breather here because at a very short period of time, the cost to move has gone up quite a bit.

Now, over time things catch up. As long as it slows down on the accelerated cost, their incomes will catch up and, you know, it takes a bit of time for that to- Mm-hmm … level out. But we have seen household formations drop from about 1.8 million down to currently 1.4 million. That’s important to note because builders who are very smart and wise with their money, they don’t wanna build excess amount of homes, and that’s where supply comes from, by the way.

It doesn’t come from somebody selling their home. That’s not supply, ’cause that person will need a place to live. So they’re… That, that’s just transient. But the real supply, and this could be some anomalies there, but the real supply comes from builders putting homes and bringing them to market. So that’s what added supply comes from.

They’ve gone from about 1.6 or 1.7 million units a year down to 1.3. So they’ve tried to kind of- correctly balance the amount that they’re producing with what the uptake will be. So because of that, if you were to kinda try and think about this and, and, and look forward at what the opportunity would be, is if you believe that over the next couple years interest rates will be lower, I think so, then if you see that as well, then you know the demand will return to higher levels.

And even if interest rates don’t come down, the income for those household formations starts to catch up, and now maybe what might not be affordable this year could be next year or the year after for them to get up and go. So if that’s the case, then what starts to happen is demand accelerates more rapidly than a builder- builders can’t, like, blink- Right

their eyes and put up a home. So there’s a window of opportunity for a year or two years that you will gain more rapid appreciation and take advantage of that. So, so I’m bullish on the housing market.

Yeah. So you’d be thinking, um, just in terms of people thinking about allocating capital, um, you know, the housing market specifically, like, you know, like if you look at people needing to live somewhere and, uh, rent places, multifamily real estate, for example, um, what do you think about multifamily real estate versus other asset classes right now?

Like, what’s your, you know, what’s your take on that?

So, so there’s a lot of thoughts there. So, so one thought, by the way, is first of all, I know that we’re talking to your investor here, but just let me just quick, quick point to make is that if it’s an individual looking to purchase a home, um, somebody might say, “Hey, I’m getting 10% in the stock market.

I know there’s no guarantee, but I, I like 10% in the stock market. If you’re saying that home values are only gonna go up around 3%, why would I give up 10% to go to 3%?” What they don’t understand is that there’s leverage there. Yep.

Yep.

So if you would take a… Let’s say there’s a $600,000 home, and that would mean I’d have to take 10% or $60,000 out of my stock account.

Well, that was making me a nice 10% or $6,000 a year. If you put it in the home, even though it’s 3%, it’s 3% on the $600,000. Why? Because of leverage. Now somebody’s gonna say, “Okay, but that leverage costs money. I could put leverage on the stock, and I could, I could, you know, r- lever up my gains that way.”

Here’s the one difference and the one reason why housing is different than any other investment. It’s the only investment that allows you to do this. Think about this. Yeah. You can’t live in a stock, but you live in a home that you buy if it’s an owner-occupied home. So therefore, if you didn’t live in the home, you’d have a rental payment.

So yes, you’re levering it and paying for the leverage, but you’re getting an offset In the rent. And even if you said, “Hey, the, the mortgage payment’s more expensive,” well, did you deduct the, the, the, um, the, uh, principal portion? Which the principal portion’s not a real cost. And are you contemplating the tax benefit, and are you contemplating that rent going up over time?

When you put it all together, you could say, well, renting and homeownership cashflow and, and benefits- Mm-hmm … the payment might be similar, but now you’re levering up those returns rather significantly. So that’s good. Now, you said about multifamily is a good investment. It is. There’s… The, you know, we try and help people and talk with them, uh, from a tax perspective as well as to why real estate.

Well, you know, those rents over time will definitely go up, and that will improve cashflow, so that really works to your advantage. And the likelihood of appreciation is there. Of course, you have to buy wisely. You have to understand the demographics. You have to understand what the demand is. But we still have population growth in, in, in many areas that will require housing.

So I feel that it’s a very good investment. But then from a tax standpoint, you know, you, you can obviously get regular depreciation. If you do cost segregation, you get, you can, you know, accelerate, and you could also do bonus depreciation. So, uh, all of these things can be a real benefit with real estate.

Now, you know, you have to understand that, you know, cost segregation, depreciation can only go against passive income. Right. Right. And, and that passive income, um, is something that not everyone has the ability to use that passive income. But what you… Unless you’re an active participant in, in, in real estate, that’s 750 hours a year that you have to actively- Right

participate. Um, or, um, you can at least shelter from depreciation the income that you receive- Right … from the unit. So it does have that, you know? And it, it’s something that we’ll… Yeah, I, I, offline I mentioned to you that, you know, aircrafts, um, are, are an extremely beneficial investment where you can actually make a lot of money, but it’s an incredible tax mitigation strategy as well.

So, you know, th- these are things people should look at. And the active participation, uh, requirement is much less. It’s 500 hours per year. And, uh, you get the same depreciation. If you buy an aircraft, you can, you know, a $5 million aircraft, 20% down is a million-dollar investment. Uh, you can actively manage it, and then you get a $5 million write-off.

That’s, you know, it’s $2 million less tax that you’d have to pay, uh, for a million dollars out of pocket. Uh, the, these are, these are wonderful tools. And a lot of the investments that people can look at for an aircraft lease, and we specialize in these types of things, you get a guaranteed From a publicly traded entity that we would find a 18% rate of return guaranteed- Mm-hmm

uh, on your, on your down payment. And then, uh, the other benefit is that it’s, it’s tax-free because you shelter it to the degree of the amount of depreciation. So depends on where your tax bracket is, but it could be, you know, in excess of 30% per year guaranteed tax equivalent yield. These are great options for people today.

Yeah, absolutely. So just to wrap it up, I guess, you’ve hit a lot of, um, things here, and you’ve been right when others have been wrong or when you look back in the rear view mirror. When you look out five years from now, what do you think investors will realize they completely misunderstood about this period?

Well, that’s, that’s a very interesting question. And, um, I, I think that we sometimes move far away from events that occur that, um, it becomes a blur. You know, if you look back in, like… Let’s go back for a minute here to 1984, 1985, 1986. I know that was a while back, okay? I still do remember it. Um, but, um, the markets were rip-roaring.

And let’s talk about the equity markets, were rip-roaring. Even the housing market was rip-roaring. Well then, you know, ’87 things started to… And then ’88 we, we, we hit like a, a terrible period of time where the stock market really tumbled and, and crashed. And what happened is that it was fresh in people’s minds until it wasn’t.

And then you had time pass and time pass, and we got into the ’90s and, like, like you know this, uh, the financial market’s a very young person’s sport. Very young person’s sport.

Mm-hmm.

You know, people in their 20s or 30s are, are really running the show. But that means people in their 20s or 30s don’t really have any recollection.

Maybe they read about it, but it’s one thing to read about, it’s another thing to feel the pain of losing 50% of your savings. Okay? Yeah. Yeah. So those people that were calling the shots in the late ’90s had no recollection or no pain that they felt from 1986. Mm-hmm. So they felt overconfident, and in 2001 we all know what happened, right?

And the markets crashed again. And now you get to where we are here, time has passed, right? Yeah. And everybody’s expecting these outsized returns and this to just keep going forever at these levels. Um, I worry that there might be a bit of, uh, overconfidence that nothing can go wrong. And if I were to say what would people look back on, is that, um, why w- did I not see that coming or why did I not do something to protect myself-

Yeah

a little bit better? So again, I’m not doom and glooming here. I’m just saying, look, uh, as someone who has made mistakes, as someone who has gone through the pain, a little diversity and a little caution is probably a good idea, even if it means sacrificing a bit of upside to have a little safety. Um, five years from now you may feel better that you did that.

Yeah. You know, it’s, uh, again, it makes me think about what’s going on with the markets right now. I mean, there’s so much froth in the equity markets, and that’s where everybody’s focused on. And meanwhile, again, I’m, you know, I’m real estate focused so I’m biased, but our market, our, our, you know, asset class has been completely destroy- I mean, we got killed.

And of course it’s not a darling when it’s getting killed. But that’s where people should be thinking because that’s, that’s what’s on sale.

That’s where the opportunity is. It’s so funny, but, um, investments tend to be the only thing that people don’t run to when they go on sale. You know? You, you go, you go to the department store or you go to a clothing store, “Oh, let me wait for a sale to happen and I’ll jump on it.”

When an investment goes on sale, you probably should have the same mentality. You know, there’s an old, there’s an old saying, I don’t remember who said it, but, um, when you feel like you should be buying a lot more, that’s when you should probably lighten up on your positions. And it really feels like you should be selling, that’s a signal that you should probably buy some more.

Yeah. Interesting. Well, Barry, tell us a little bit more about your firm and, um, you know, what you’re up to and where people can learn more.

Um, so a- at Highway, um, we, we really help people understand real estate and interest rates, environments, and, yeah, we, we do this as a subscription service. Um, mostly mortgage professionals, real estate people, and people that are, you know, either, either active agents or people that are really serious real estate investors.

We have data on every ZIP Code, demographics, what the forecasts are for appreciation, tools that help, you know, if somebody’s very active and they’re trying to sell properties or buy properties. A lot of analytics as to what you should be able to do. Now, this is geared mostly towards the one to four family type of units, but there is enough overall economic breakdown in a very concise way.

So a lot of what I talked about today, we do every morning. There’s a 10 minute video that takes everything that’s out there, breaks it down and gives our take on it and which way you should be looking and what you should be thinking of. So there’s a lot of value in that. And that’s a highway.ai. You know, if somebody is interested, they could certainly DM me.

It’s I am Barry Habib and Instagram on

Instagram. I am Barry Habib. Fantastic. Thanks so much for being on the show. This has been great. Thanks, brother. Wealth formula banking is an ingenious concept powered by whole life insurance. But instead of acting just as a safety net, the strategy supercharges your investments.

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Welcome back to the show, everyone. Hope you enjoyed it. Again, uh, Barry, it’s kind of funny. You know, you just hear somebody say some of the things that you’ve been saying over and over and you’re like, boy, that guy’s smart. Well, that’s how I feel. Barry, obviously he is smart and he’s recognized as being smart, but, uh, it makes, uh, makes me feel, uh, even more certain about my own, you know, convictions that I believe, uh, that, you know, this market in real estate, multifamily real estate market is on sale.

People look, it’s on sale. What do you do when things are on sale? You buy, right? Anyway, uh, hope you enjoyed it. Hope you got something out of it. That’s it for me this week on Wealth Formula Podcast. This is Buck Joffrey signing off. If you want to learn more, you can now get free access to our in-depth personal finance course featuring industry leaders like Tom Wheelwright and Ken McElroy.

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