March/April RIA Roundup: Are Home Prices Headed Up Again?
The RIA Roundup is a monthly real estate newsletter with the latest stories, data, and insights curated especially for rental property investors.
In this issue:
Lead Story: Are Home Prices Headed Up Again?
Portfolio Updates
In Other News…
Final Thoughts: Consequences
Lead Story: Are Home Prices Headed Up Again?
If you keep up reasonably well with real estate news, you may have a current picture of the housing market that goes something like this: the pandemic boom has ended, the highest mortgage rates in over a decade are suppressing demand, and home prices have come off their peaks and are actually headed down. In other words, the market has cooled off.
This view is basically correct, but it may miss the most recent data that (may) point to higher home prices in the months to come.
A picture is a worth a thousand words (or so our kindergarten teachers told us), so let me hit you right away with two graphs. I’ve intentionally left them unlabeled, so see if you can figure out what they depict:
When home prices are reported in the media, increases or decreases are almost always expressed in year-over-year terms — in other words, we’re told that home prices are some percentage higher or lower than they were at the same time last year. This is sensible in a couple of ways: first, it eliminates the random choppiness that average home prices may experience month-to-month; and second, it solves for the natural seasonality of home prices (and rent prices, too), wherein they go up a bit in the spring and summer, and down a bit in the fall and winter, rising and falling alongside buyer demand. (People tend not to like to shop for homes and move when it’s cold outside, apparently.)
But in other ways, the year-over-year numbers can deceive us. For example, recent media reports have indicated that year-over-year home prices have just recently entered negative territory nationally, leading us to believe that home prices have just started to fall, and may fall further. But that’s not quite right: just because year-over-year prices have just turned negative, does not actually mean that prices are falling NOW.
And in fact, they aren’t. Looking at month-over-month numbers paints a different picture — and that’s what both the charts above do.
The first chart shows March month-over-month home prices in numerous major U.S. markets, according to CoreLogic’s Home Price Index. Two conclusions are clear: first, home prices are rising in most markets; and two, there is a strong split between Mountain and Western markets, where home prices are still falling month-over-month, and everything east of that, where home prices have bottomed out and are rising again. The Wall Street Journal recently reported the same east vs. west divergence in home prices. (You might counter by saying that home prices this time of year naturally rise due to seasonality, which is true enough, and is certainly at least part of this story.) By the way, this mirrors an observation I made about rent prices last November: the “high-flying” markets (which are predominantly in the West) that saw the biggest increases in rent and home prices during the pandemic also had the farthest to fall, so I predicted that they would be more impacted by sagging demand than lower-priced markets. It seems we’re seeing something like that pattern begin to emerge.
The second chart is more personal. As part of my monthly financial tracking, I record the Zillow Zestimate for each of my Memphis rental properties. This chart shows the Zestimate for each of my first 19 properties from October 2019 to May 2023. (While this home value estimate might be quite inaccurate for any one property in any given month, when we look at a number of properties together, and the trend-line across time, the picture is quite useful.) The steep run-up in prices is clearly evident over the past two years, as is a peak around late summer/early fall of 2022. Since then, prices have fallen ~5-8%, but in the last few months, they have leveled off and even started to tick back up. This reinforces the data from CoreLogic, and provides more evidence that in many markets, prices have already bottomed out.
So what does this mean for investors? Not that much, particularly if you’re an investor focused on cash flow, who is still going to run your numbers and focus on rates of cash returns. Still, it could mean that now is a good time to buy before prices rise again — but then, it’s always a good time to buy in my book, since rental property investing is a long-term strategy. Once more, for those in the back: Time in Market > Timing the Market.
Portfolio Updates
Since the last Roundup, I published my portfolio reports for both February 2023 and March 2023. February was a very solid month, while March was impacted by an expensive turn. Overall, I’m about where I should be after the first three months of the year:
I mentioned two vacancies in my last newsletter. I happy to say that those have now been filled, but there still may be dark clouds on the horizon: as of the time of writing, I have two separate tenants who have yet to pay April rent, and for whom my PM has initiated eviction proceedings. I’ve never had two serious nonpayment issues occur simultaneously, but such things are statistically inevitable as my portfolio grows and I hold it for longer periods. One or both of the tenants may yet pay, but they have not been responsive so far. If they both need to be evicted, it typically takes 3-6 months before a new tenant is in place, so this will certainly be a drag on my portfolio over that time.
Separately, I published the first of what will eventually be a series of articles called RIA Coaching Case Studies. Each RIA Coaching Case Study features one my “coaching graduates” and allows them to tell the story of their rental property investing journey — in their own words, and in their own voice. This first one features Daniel, an investor who worked with me to build a rental portfolio in the Birmingham market. If you want to learn what it’s like to build a remote rental portfolio, and to work with me as a coach, there’s no better way than to hear it directly from someone who has done it.
In Other News…
It’s been two months since the last Roundup, so a lot has happened — so much that we need categories!
Domestic News, Business, & Real Estate
Inflation continues to slow. The most recently released data shows inflation slowing sharply so far this year, with March’s year-over-year figure coming in at 5%, the lowest it has been in a few years. This decline was all but guaranteed by the monthly figures, in an interesting parallel to the above discussion on home prices. Specifically, once we began “anniversarying” the big monthly increases that occurred in late 2021 and early 2022, the annual rate of inflation — which is the only one we really hear about in the media — was destined to fall. That’s why it was clear to many commentators (including, ahem, me) as early as October of last year that inflation had already peaked.
Another crypto company implodes. Silvergate Capital shut down operations – the latest crypto firm to go belly up in the wake of the FTX bankruptcy and the crypto meltdown that followed.
Crypto founder charged with fraud. In more entirely unsurprising crypto news, another crypto bro was charged and arrested. This time it was Do Kwon, founder of Terraform Labs, who was finally arrested in Montenegro after being on the run for several months from both U.S. and South Korean authorities. He is charged with running a multi-year cryptocurrency fraud that wiped out over $40 billion in investor funds. Cool guy!
Bed, Bath & Beyond enters the great beyond. The iconic retailer finally succumbed, filing for bankruptcy with plans to liquidate its entire inventory (unless a buyer can be found, which seems unlikely). A series of management missteps, including taking on too much debt and failing to make investments in e-commerce, ultimately doomed the company. Even the “meme stock” traders couldn’t save it, apparently.
The White House released its 2024 budget proposal. Among many other things, and of particular interest to real estate investors, the administration proposed eliminating the popular 1031 exchange, which allows investors to “exchange” one property for another without triggering capital gains taxes. (I recently used this trick in order to sell one of my NYC condos and purchase several more cash flow properties in Memphis.) While I would personally support ending this policy, it’s dead on arrival in the Republican-controlled House of Representatives — so if you’re eyeing a 1031 exchange, no need to fret.
Biden officially launches his re-election campaign. Anyone who thought the President would voluntarily choose to not be the President, after trying his entire life to be the President — well, think again. He’s running, and he announced this with a 3-minute campaign-style video. In a fascinating twist, the GOP responded with a completely AI-generated video of its own, using the technology to generate imaginary dystopic images depicting how awful they think a second Biden term would be. (I guess they didn’t want to use the ACTUAL dystopic images of an angry mob attacking the Capitol because — *checks notes* — that happened under President Trump.)
Residential HOA’s get the “Last Week Tonight” treatment. If you’ve ever felt like your HOA is screwing you, trust your instincts. John Oliver shone his notoriously unflattering spotlight on HOAs recently, and…it’s not great. (I have one rental property in a neighborhood HOA, and they’ve been a total pain, mostly because they completely fail to communicate or send a bill, and then send their lawyers after me when I don’t pay the bill they never sent. And then ask me to pay the lawyer fees as well. Sigh — at least I’ll never make the mistake of purchasing in an HOA again.)
International News, Science & Technology
Israel pushes back hard on Netanyahu. After the Prime Minister and his far-right coalition proposed a radical overhaul to the country’s judiciary that nearly all experts feared would weaken the functioning of its democracy, Israeli citizens launched massive protests and labor strikes, business leaders sounded the alarm, and even parts of the nation’s well-regarded military threatened to stand down. All this, in combination with intense international pressure, forced Netanyahu to back away from his plans — for now.
IPCC publishes climate report. The data continues to be very very bad, and the international group is becoming increasingly pointed in its messaging, saying things like “the climate time bomb is ticking”, and that we’re running out of time to avert “catastrophe”. When a group of (historically overly cautious) climate scientists starts talking about ticking time bombs, it can’t be good.
Finland joins NATO. The Scandinavian country became the 31st member of the military defense alliance, shifting the security landscape in Europe and dealing a major strategic blow to Russia, with whom Finland shares an 830-mile land border. The move was a direct response to Russian’s invasion of Ukraine, and is one more example of how the war has weakened Russia domestically and internationally.
Progress on cancer vaccine continues. Moderna continues its push into this new frontier, with promising results in mid-stage trials of a melanoma vaccine.
SpaceX Starship rocket explodes; Musk declares it a huge success. SpaceX attempted the first orbital flights with Starship, which has (by a lot) the largest payload capacity of any space vehicle ever flown. Alas, it didn’t fly very far this time — it wobbled and then exploded four minutes after launch, which (judging by the cheers of the SpaceX team) was a great result. (?) While failures during rocket testings are assuredly part of the process, the next test may be delayed due to investigation into the physical and environmental damage that the launch caused, which far exceeded the company’s estimates.
European Space Agency launches Jupiter mission. The ESA successfully launched the Jupiter Icy Moons Explorer, which is outstanding news until you realize it’s taking the scenic route to get there, so it won’t arrive until 2031. (Also, their acronym JUICE — for JUpiter ICy moons Explorer — is tortured to the point of satire.). But there’s good news: the rocket used for the launch did NOT explode.
Miscellany
We did the clock thing…again. We “sprang forward” and changed our clocks again. Why? Literally nobody knows. The Senate approved a bill a while back to make Daylight Savings time permanent — which is a great idea — but so far it has not become law. While we’re waiting, please enjoy this hilarious Philomena Cunk video about time.
It turns out money does buy happiness. Previous studies on this topic have found that happiness doesn’t increase with income past a surprisingly low baseline level — about what you’d to provide your basic needs. This never sounded quite right to me, and a new study provides contrary evidence showing that the correlation continues well into the upper income ranges. This makes more intuitive sense: the more money you have, the more choices you have to pursue things that make you happy. Still, the study shows there are things that matter even more to happiness, including close relationships and free time.
There’s a new top dog. The squishy-faced French Bulldog is now the most popular dog breed, overtaking the lovable Labrador Retriever.
The Oscars happened. The red carpet turned silver, and nobody got slapped.
Iconic Broadway show closes its doors. After 35 years on Broadway, Phantom of the Opera has closed. Remarkably, over that span only 16 actors played the lead role, which is notorious demanding both physically and vocally.
Final Thoughts: Consequences
My favorite recent story in the news involved Mike Lindell, the MyPillow CEO and right-wing conspiracy theorist and election denier. He was deeply involved in the efforts to sow doubt about the results of 2020 election, happily echoing lies about voting machines, China tampering with the election, and more. As part of this crusade, he sponsored a “prove Mike wrong” contest in which he published a set of data that alleged to show evidence of fraud in the election, and offered $5 million to anyone who could definitely prove him wrong. It’s the kind of thing that sounds pretty tough, until you remember that A) nearly all the people paying attention to him agree with him already, and aren’t much inclined to prove him wrong, and B) doing so would require a significant effort that the average person just isn’t willing or able to put forth.
Except for exactly ONE guy, who did. His name is Robert Zeidman, and he submitted a detailed 15-page analysis that “proved Mike wrong” — and in fact proved that the data he released had nothing whatsoever to do with the 2020 election. When Lindell’s company refused to declare him a contest winner, Zeidman filed for arbitration, which under the contest rules was the one and only remedy to any disputes. A panel of contest judges would make a final decision, which could not be appealed.
The arbitrators ruled that Zeidman’s conclusions were unassailable, and that Lindell had to pay him the $5M or would be in breach of contract. In this small instance, at least, Lindell’s fantastical stories had real-world implications. He created the ridiculous contest, along with its rules, he got beat, and now he has to pay up. Seems fair. (In a completely unsurprising turn, Lindell was unchastened, said he had no intention of paying, and claimed it would land in court — this despite that fact that his own rules explicitly prohibit contest disputes going to court. He also said he intends to release NEW data in the coming weeks that will — for real this time, he swears! — show evidence of Chinese interference and validate the data he put out earlier. This has a comical Lucy-and-the-football quality to it, and I suspect Mr. Zeidman will get his well-deserved money in the end.)
This story shared a common thread with many others in the news recently, in which we see cause and effect; action and reaction; push and pushback. Or in a single word, consequences.
The idea that events precipitate other events isn’t new or revelatory — Isaac Newton has an early bite at that apple way back in 1686 when he published his three laws of motion, the last of which states (more or less) that every action has an equal and opposite reaction. Of course Newton wasn’t describing the complex human systems of politics, law, or government, but judging by current events, he might as well have been.
Jack Teixeira, a 21-year-old Massachusetts Air National Guardsman, had some juicy gossip and he wanted to impress his friends with it. So he shared some classified documents on a Discord server where some of his online gaming buddies could see it. But the documents ended up circulating much more widely when they ended up on the extremist site 4chan. The leaked documents unveiled key intelligence around the Russia/Ukraine war, spotlighting both American strategies and impacts on Russia that had not previously been public, and the leak itself spooked our allies. So it’s possible for an approval-hungry 21-year old in Massachusetts to impact geopolitical events on the world stage, just by showing off a bit for his buddies. (Talk about actions and consequences!) Teixeira is likely to face harsh consequences of his own — it didn’t take long for the FBI to track him down, and he is almost certainly looking at a long prison sentence.
The collapse of SVB bank, and the fallout that followed, has also been a big story the last few months. The cause of the failure was a classic bank run — too may people trying to make too many withdrawals too fast, and the bank not having sufficient cash because it was tied up in investments that couldn’t be liquidated fast enough. (Interestingly, the first of FDR’s famous “fireside chats” was about the banking crisis of 1933, which had precisely the same cause. You can even listen to it — it’s only 13 minutes long, and it’s both a fascinating historical object and a simple explanation of banking and bank runs that is still wholly relevant and correct 90 years later.) What makes this recent bank run somewhat different from those in the past is that it seems to have been precipitated to an unusual degree by the online statements of a few people on Twitter, who lit the match of fear and doubt that grew into an inferno. There’s a similar “butterfly effect” here as in the Jack Teixeira story, both facilitated by the power, speed and reach of modern communication tools. (Our failure to regulate those tools is having broad negative consequences in all sorts of other ways, as the incomparable Scott Galloway argued persuasively in a recent newsletter.) The ripples of the SVB collapse are still being felt globally, from the fall of Credit Suisse in Europe to the ongoing concerns about other domestic banks, such as First Republic, who are teetering and may fall next.
Elsewhere, the 14-week trial of five members of the “Proud Boys” para-military group on charges of seditious conspiracy concluded, and the jury has been sent off to deliberate. A similar trial for members of the Oathkeepers previously resulted in convictions, and federal prosecutors are hoping for the same result here. It has certainly taken a while, but those involved in the events of January 6th have faced consequences for their actions. These seditious conspiracy charges are the most serious, but more than 1,000 other people have faced federal charges, and of verdicts rendered so far, more than 600 have been convicted compared to only 1 acquitted of all charges. (Many are still pending.)
Unless you only watch FOX News, you certainly saw the recent headlines that Fox News reached an eleventh-hour, $787-million settlement with Dominion Voting Systems, who was suing them for defamation related to false on-air statements made about Dominion’s voting machines in the 2020 election. It’s one of the largest such settlements in history, but to FOX it was apparently preferable to the humiliation of a public trial in which the internal statements of executives and anchors would be dissected. (Many of those communications had already been made public during discovery, and they were pretty damning, showing that everyone at the network knew the election claims were false but peddled them anyway in a bid for ratings — and also that Tucker Carlson, the network’s biggest star, hated Donald Trump “passionately”, which no doubt came as a surprise to his three million nightly viewers.) Carlson was fired quite unexpectedly a few days after the settlement was reached, joining the list of those facing consequences for their action and words. This story isn’t done, either — FOX faces several other separate defamation lawsuits along similar lines that are not yet resolved.
And there are more stories like this, some still in progress with consequences as yet unclear:
Supreme Court Justices Clarence Thomas and Neil Gorsuch are facing heat for relationships and financial transactions that positively reek of corruption, and failing to disclose those or recuse themselves from related business before the court. This is an enormous scandal, and seems likely to result in governmental reforms that allow outside enforcement of ethics codes and statutes on sitting justices.
A federal judge in Texas attempted to retroactively de-certify a drug used for medical abortion that has been proven safe and effective for over two decades, even in states where abortion is still legal. That ruling is currently on hold pending a review by the Supreme Court (who are not at all corrupt and we can definitely trust them!) The Supreme Court ruling last year overturning Roe v. Wade clearly galvanized the solid majority of Americans who support abortion rights. This has already had electoral consequences (i.e. the Democrats’ surprising strong performance in the midterms), and this ruling out of Texas serves to keep this fight front and center for voters.
Meanwhile, several state legislatures have taken radical actions that may have national consequences as well. The Tennessee legislature attempted to expel three legislators for taking part in a demonstration on the House floor calling for action on gun violence in the wake of a mass shooting at a Tennessee school. It’s a pretty bad look to get righteous about “decorum” when three 9-year-olds have just been mowed down in their school by a guy with an assault rifle, but amazingly the optics got even worse: of the three lawmakers they voted on to expel, the lone white woman narrowly survived, while the two Black men were axed. The two expelled lawmakers were immediately re-seated by their local governments, so the entire episode had no practical impact at all, except that it made the GOP look cruel, inept, racist, and politically naive on the national stage. Seems like there might be some downstream effects to that, too. (Fun coda to this story: one of the GOP leaders of that legislature who voted to expel these members resigned in disgrace not too long after, when he was found guilty by an ethics subcommittee of sexually harassing two interns. Consequences!)
The biggest name facing consequences recently is of course former President Donald Trump. He was arrested in Manhattan this month for charges related to the hush money payments he made prior to the 2016 election in order to conceal damaging information about an affair. If you think this is small potatoes compared to some other stuff he did, you’re not alone — his supporters brushed off these charges, of course, but even many of his critics were publicly disappointed that this case preceded others that are still pending and perhaps more serious, including one in Georgia related to election interference, special counsel Jack Smith’s investigation of Trump’s role in January 6th, and the federal investigation into his retention of classified documents at his Florida home.
Remember John Edwards, though? (Smooth talker, great hair, seriously defective moral compass?) Quick refresher: he was a North Carolina senator and a rising Democratic star who became John Kerry’s running mate in the 2004 presidential campaign. He ran again in the Democratic primary in 2008, which is when he decided to funnel nearly $1M in campaign funds to his pregnant mistress to cover up his affair — all while his wife was dying of cancer. (Great guy!) Several years later, he was arrested and charged with federal crimes around the use of those campaign funds.
While Edwards was ultimately acquitted at trial, the reminder about his story (and countless other elected officials who have been prosecuted for their crimes) puts the lie to the idea that we somehow can’t hold a former president to account without breaking the country. We certainly can. In fact, though a former president has never been charged in this country, it’s quite common for leaders to face criminal charges in other countries — and not just in countries with weak corrupt governments, but also in places like France, Japan, South Korea, Italy, and Norway. (Here’s a helpful list of them if you’re curious.)
Like so many others, Trump is facing consequences, and that is as it should be. Remarkably, the other charges he potentially faces are adjacent to/resonant with numerous other stories discussed here — with the Proud Boys’ actions on January 6th, with the classified documents case against Jack Teixeira, with Fox News’ defamation suits, and with Mike Lindell’s election lies.
None of this is any kind of miscarriage of justice; on the contrary, this is exactly what justice looks like.
Happy investing,
Eric
About the Author
Hi, I’m Eric! I used cash-flowing rental properties to leave my corporate career at age 39. I started Rental Income Advisors in 2020 to help other people achieve their own goals through real estate investing.
My blog focuses on learning & education for new investors, and I make numerous tools & resources available for free, including my industry-leading Rental Property Analyzer.
I also now serve as a coach to dozens of private clients starting their own journeys investing in rental properties, and have helped my clients buy millions of dollars (and counting) in real estate. To chat with me about coaching, schedule a free initial consultation.
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