Grant Cardone says “People will own nothing and be happy about it”
VanNote says otherwise.
Grant Cardone recently made a few statements in his interview with Fox that were on point and others, not so much. I want to take a few minutes to tell you what he said, where I agree and also where I disagree, as the consumer and the marketplace need to know the truth.
First, he says that the feds killed the housing market. This is entirely not true. If the feds killed anything, it was the mortgage market and the mortgage business, simply by killing the demand and opportunity for refinancing real estate. However, there is always a way, and while mortgage demand hit a 20+ year low, home equity line of credit loans were up a very large percentage, as people with low locked in sub 4% mortgage rates tapped a cost efficient HELOC (home equity line of credit) to pay off debt, access equity tax free and make other investments. It should be also noted that the fed solely made the housing market, the housing boom, and the refinance boom, by manipulating interest rates to as low as 2% on a 30 year fixed just a few years ago. The main reason real estate “struggles” right now is due to limited inventory, not interest rates. Higher interest rates simply stopped everyone and their mother from paying 5%,10% or sometimes 30% over ask price on a new listing. Now, homes are trading for what they are actually worth and there are still bidding wars in most market places where primary residence living is desired. Where home sales have slowed are in air bnb markets (over inflated) and second home markets. Which leads me to my next commentary.
Cardone says “Most people will own nothing and be happy about it” which if you know his holdings, owns large multi-family rental buildings. He doesn’t want or need people to own anything, he wants and needs people to rent. He argues that his average rental rate is $1,800 per month and if the person owned that “unit” it would cost them nearly $3,600 per month for their mortgage, which is speculative because at that sub $500,000 price point, many people buy cash. We live in a world of home ownership, investment, and assets, not the opposite. People want to own everything and be happy they own everything, or even just something, even if it is that piece of land or small single family starter home. He is dead wrong in people not wanting to own.
Cardone next argues “America is going to make more renters in the next 2 years than ever before” and that is specifically due to all of the younger generations living at home. Some mainly due to covid. Of course in some markets, renting is desired. The trend that I have seen for a few years now, which I even did myself when I moved back to New Jersey, was rent for 2.5 years, and then jump on a great deal. Many are doing the same, specifically those moving out of state, Florida (Brickell) Texas (Houston) and other major markets seeing an influx of new people from different places. The main issue is not the fed, or interest rates, but inventory.
“If rates drop people will begin selling…” Cardone goes on to say, and again, I don’t believe this to be the case at all. If rates drop, more people hanging onto 30% credit card debt and other bills will cash out refinance, and go from a 3% rate to a 5% rate. Where as right now it is hard to justify going from a 3% rate to a 7% rate, as your payment would more than double. The worst thing that can happen for residential real estate is to have rates drop under 5.5%, as even if more homes do get listed for sale, it will create a newly fueled buyer frenzy and chaos will once again be back with the housing bubble or housing in-affordability bubble continue to grow to never before seen levels.
Where I do see eye-to-eye with Cardone is his belief we will see generational opportunities to acquire commercial real estate, office, and other assets outside of 1 family homes for insanely good deals, but we are years away from that. The blood bath in commercial real estate should pick up steam in 2024, get noisy in 2025 and really get messy by 2027, for numerous reasons. I also fully agree with Cardone saying single family homes are not including in the down turn or real estate correction, because people want to own and not rent!
Lastly, Cardone touches on 45% of realtors can’t pay their office rent. And that number is going to probably double. The reality is, the real estate brokerage business is never profitable, unless third party vendors are paying desk fees or market service agreements to add to the bottom line, and for over a decade agents have been paid the lions share of a commission check while using all of the brokerages resources and office space, and since there are limited transactions there is a rapidly declining revenue stream and eventually most brokerages will consolidate, go to EXP, or other like models, or even better, go virtual, because you really do not need a big fancy office today any longer while the majority of buyers are online, digitally, and will meet you at the property or a coffee shop to get to know you.
The reality is, the chaos is just in the beginning stages. If rates stay here, major commercial real estate chaos, if rates go down, more residential chaos.
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