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Flipping America 532, Rising Interest Rates

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When a government declares war on an industry, guess who wins?  It doesn’t matter how big the industry is, the government has more guns and will always win. Coming up today we are going to talk about rising interest rates, why it’s happening, why it NEEDS to happen and we are going to connect some dots between government policies and the situation in which we find ourselves. Today, on Flipping America.

Hello America! It’s an honor to speak with you again. Today we are talking about rising interest rates and the impact on the economy, real estate in general and on real estate investors in particular. 

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The impact of Interest Rate Hikes

Last week the feds raised the interest rates three quarters of one percent and it’s very likely another rate hike is coming as early as next month. Before we get all panicky, let’s talk for just a few minutes about the reasons for this and the implications, both for the economy as a whole, real estate in general, and real estate investing in particular. 

On the economy, It’s an attempt to slow down inflation

Too much demand, not enough supply

Covid-related shortages

Dumb policy decision shortages

  • Shut down a baby formula factory that produces 20% of all formula consumed in the country? You should anticipate and prepare for shortages. 
  • Announce you plan to kill fossil fuels in 10-15 years. Then shut down the Keystone pipeline, kill all leases, stop all drilling on federal land. Then act surprised with fossil fuel production drops?
  • Ban unvaccinated truck drivers from your state? Watch billions of dollars of inventory in dozens of cargo containers sit just offshore for months.  

Demand created in part by over-abundance of cash. 

  • Let’s throw cash at the American people. 
  • But there is nothing to buy. 
  • Simple supply and demand mechanics at work.

Will it work?

  • Eventually.
  • Probably will cause a recession. (I predict 1st qtr 2023).
  • Will tighten the money supply, which will move things the other way. 

On real estate

  • Mortgage rates will rise – be at 6-7% by the end of the year. Still low by comparison with history
  • With higher rates, people can afford less, so more demand for lower priced homes. 
  • Combined with foreclosures coming back in the 3rd quarter, we will finally see supply catching up with demand, which will begin to slow the rate of price increases. 
  • Prices will be lower, but rates will be higher, so if you are a borrower, your buying power won’t change much. 

On real estate investing

  • It’s been 6 years since we’ve seen a balanced market. That will happen by the end of this year.
  • Rising rates will slow down the buying frenzy, which will decrease demand, increase supply and force price competition among sellers. 
  • Adjustable rate mortgages will take some borrowers out of the ability to pay for their home. Pre-foreclosure opportunities will arise. 
  • Available inventory will increase. With slowing sales everywhere, investors will start to back away from smaller cities and towns. 

What this means for you

  • More inventory, better deals.
  • Faster progress, higher profits
  • A few more challenges on the selling side. Buy aggressively so you can sell aggressively. Why? You need to keep the money moving. 

What’s ahead

  • Recession, 1st quarter of 23.
  • Higher interest rates.
  • No relief from inflation in 22.

Questions: 

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Expected Air Date: Friday 6/24/2022

Transcript

[0:00] When a government declares war on an industry guess who wins?

Coming up today we’re going to talk about rising interest rates why it’s happening why it needs to happen and we are going to connect some dots between government policies and the situation in which we find ourselves today.

[0:23] Music.

[0:54] Back on the economy.

Be here with you visiting a little bit today about what’s going on with the economy. First of all,

On YouTube we are now producing a weekly video on YouTube and it’s YouTube. Com forward slash flipping America there is a follow up video or an additional video on this topic.

That is being posted at the same time so you’ve got released today.

[1:30] You can also find us on Facebook Facebook. Com forward slash flipping America media Twitter and Instagram.

Flipping America we’re we’re also doing it

Have a renewed commitment to put some stuff on Instagram. So, check us out there. You can always call our national comment line, 877 55 Roger (877) 557-6437 press extension one,

And leave your message or question.

[2:01] Our sponsor today is flipping America funding. Get the money you need for your business, for your training, for infrastructure, for your projects,

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All of your business funding needs flipping America funding. Com it’s real easy flipping America funding. Com,

Alright because we’ve got a little bit of an an in-depth discussion coming up I’m going to skip over any announcements and news and resources we’ll get back to those on the next episode but,

Right now I want to start talking about the impact of interest rates that’s timely because last week the feds raised the interest rates 75 basis points that’s three quarters of one%.

Very likely,

That’s just a few weeks away. Now, before you get all panicky, let’s talk for few minutes about the reason for this. I wanna share with you the applications both for the economy as a whole.

[3:10] In order to understand this, we need to go back in time a little bit to try to figure out how we got here and you know, we could pick any point in the past and start connecting the dots but.

The any point that we pick in the past is gonna be connected to the points in its past and I’ve given you some thought and I don’t really know how far back to go because.

Where you begin this conversation,

Is going to impact who you blame.

[3:46] Yeah.

[3:53] You know the second George Bush that was president and many of you it’s hard for me to believe many of you don’t even barely remember when George Bush was president.

A wicked blame the economic policies of the,

Clinton administration that led to the problems,

Got

Turned around in a positive direction under Trump’s leadership but,

Pumping cash into the economy

Maybe it didn’t need to be. It’s hard to say that people didn’t need money during the pandemic. That just seems cold. I know I didn’t get any but I guess I didn’t need any.

But the government did flood the market with cash during,

The pandemic and why don’t we start there because we had a lot of years when we had many years of mediocre leadership at the at the top of the federal government and as you know I tried to stay

Non-political on this show

I I see enough fault with what’s going on in both sides that I could criticize both and but rather than do that I just wanna focus on what we actually can do,

To make.

[5:19] So, we talk about supply and demand.

If you have an equal balance between supply and demand you’re going to have an equilibrium in prices and they’re not gonna vary that much but if you get to a situation where.

The demand for a product exceeds the supply that’s going to create upward price pressure and prices are going to increase,

And they will continue to rise until it bounces back out again we’ve seen this over the past 6 hours nearly 7 years now in the real estate market

We just haven’t had enough supply. We’ve had continuing demand.

That’s why I would make fun of the people who were saying that the market was gonna crash in 2018. It was gonna crash in 2019.

The same idiots get on YouTube every year and get millions of clicks with their skies to falling,

Even when the pandemic hit a lot of them said see I told you but you see it didn’t happen,

Because some of us pay attention to the actual facts of the matter and we turn out to be correct.

One of them was just the exorbitant ridiculous.

[6:46] New construction. The beer kratic mess that you have to overcome. A lot of builders that got out during the 2008 crash never got back in a shortage of builders.

Then Trump Smith guided my opinion Trump’s misguided tariffs on Canadian lumber drove the lumber prices through the roof,

And so you have high prices and you have.

Not enough high prices of construction not enough new construction happening.

A historic low foreclosures so that there’s just not enough product to go around.

Then you have low interest rates which were a product of governmental policy from mister Obama

And these low interest rates gave people a lot of buying power and so that increased

The demand. So, you have decreasing supply, increasing demand. What does that mean? And overheated housing mark.

But a long comes president Biden who sadly seems to have made the wrong decision,

Just about every time he’s had to make a decision during his presidency.

[8:00] We bring in a whole new layer of warfare against.

All of our energy producers he says during his campaign and shortly after he’s elected that he is he wants to.

Rid America of carbon-based fuels and that means put up

All of the major energy players out of business while if you have the president of the United States telling you that he wants to put you out of business,

You know, working for your long-term future in the business.

Come up with a 20 or 30 year plan if they’re supposed to be out of business in 10 years

You see what I mean? And then you have the government further for years and that’s not just under Biden. This goes back all the way to Obama

We haven’t had any new refineries oil refineries opening up in this country in many many years it’s just two much of a bureaucratic

Headache and there’s a refinery for sale in New Jersey right now that is not gonna be sold so it’s just gonna be shut down in a few months

We’re not refining the crude that we have.

[9:17] Crude oil to supply all of our own needs but we had to send it offshore to be refined and then bring it back. How crazy is that?

[9:27] Then President Biden gets elected and he shuts down the keystone pipeline and he announces no new leases on federal lands for drilling and exploration and one thing after another to attack the oil companies,

And then express some display and surprise that gasoline prices go up,

First it’s the blame game blaming everybody blaming Putin blaming the war but the prices were going up well before that war started and then blaming the oil companies themselves.

This is really not how to solve that crisis but that it it doesn’t stop there.

Over regular zellets shutting down a baby formula factory even though although they found the presence of some bacteria or something they could,

They never showed that it was into the baby food and there were never any problems but they shut down a baby food factory or that you know the infant formula factory,

That produce 20% of the formula sold in this country you’d think that somebody would say hey we’ve gotta we’re gonna have a shortage we’ve gotta do something about that but no.

No one thought that they needed to plan ahead and deal with that until it became a crisis so you have a crisis created by the government.

And then when the government takes steps to fix it they wanna take credit for fixing it but they created the crisis.

[10:51] And it’s one dumb thing after another like that.

[10:55] Music.

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[13:02] I said I was gonna stop the blaming but I guess I was kidding cuz I got a little bit more blaming to do the government decided to and this is California State government decided to ban unvaccinated truck drivers from coming into the state of California,

During the pandemic. So, guess what happens? There becomes a backlog of ships in the i’ve seen pictures online of,

Dozens of ships sitting for 3 months out in the bay waiting to come in and get unloaded because they can’t because there’s no where to put it and then.

We we have a president who has the the audacity to go on television and tell the American public that they don’t understand supply chain well.

[13:47] It’s not that complicated, sir. Just let people do their job

Think costumes for Halloween that they got

After Christmas and Christmas decorations that they got at Valentine’s Day and you know, everything, everything’s mess up. The chip shortage cars. The used car market, all of it is going crazy.

All of it can be tracked back to some.

[14:17] Policy decision.

[14:24] That has the combined effect of creating hyper demand for what products there are.

And then let’s exacerbate that by giving the American people a bunch of cash. Let’s just mail them a check. Now, we already have the lenders and we have forced the landlords to not collect

The payments, the mortgage payments, or rent payments, and.

Landlords and lenders can’t collect what’s owed them but were throwing cash at the American people,

Well, they don’t have to pay their rent. They don’t have to pay their mortgage so what they’re gonna do? Well, that flat screen TV looks nice but you can’t get one. So,

A lot of people are clamoring to buy that flat screen or this stereo system or whatever and they’re already in short supply due to other bad decisions and so the prices go up.

There are certain automobiles you know in my entire lifetime you go into an auto dealer and you have the manufacturer suggested retail price and you know you’re gonna be able to get it for something less than that.

And I know it’s a game and they’re still making money they know it’s a game too but the game change over the last couple of years now you go in and yes how much over sticker price are you gonna have to pay to get this car

Because that’s what it’s gonna take because of the shortages.

[15:51] Crazy. We haven’t seen stuff like this since the late 1970’s and i know i’m old.

I was working on my basketball game and trying to get girls go out with me in the late 1970’s but anyway.

It’s been a long time since things have looked this bleak,

Near oh interest rates charged by the federal government it just seemed to be created in a problem now raising interest rates is really the only weapon the feds have to slow down inflation,

Do these people actually have a brain in their head how could it be that there are any positions of you know I’ve spent a good part of my life thinking these these were smart people but this is you know putting two and two together and coming up with three,

Or six.

[17:05] An

The underlying factors and i know that we are not set up to have a transitor quick passing inflation so,

Too late they began to do really the only thing they can that’s raised interest rates interest rates that’s where we got to and I am going to suggest to you that it needs to happen we don’t need oh% interest rates we don’t need three% mortgage rates,

I personally believe that the ideal mortgage rates are somewhere around the six to eight% range and that’s where it’s been for most of regular human history,

And it’s okay things can work just fine and in case you’re getting really a concern about this,

There are some people out there listening to the show who remember when the regular home mortgage rate was 18% yes

It was.

[18:10] What if bonds paid in the last 8 to 10 years?

Not even two. So,

That that cyclical nature of,

The government making dumb decisions is never going to change. Now, is this gonna work? Well, yeah, it always does work but but what happens is it it doesn’t work fast enough because there’s a natural.

Cause and.

Consequence to this it takes a little while for the effects of the government decisions to be felt but impatience.

At first they will try half measures and then impatience will kick in and they will do full measures and they’ll overshoot it and so.

I am predicting that when they overshoot the cooling off of the economy they’re actually going to create a recession and I believe that they will do that by the first quarter of 2023.

[19:10] Now after I wrote this script for this and the YouTube video.

I read in the paper just yesterday that fed chairman Jerome Powell has already hinted that a recession is possible.

This is my friends is not a hint this is a declaration it’s gonna happen but I’m telling you now that it could be possible because I wanna break the news to you easy and I wanna be able to look,

It’s gonna happen.

[19:46] And you know, nobody sits around and nobody that I know, sits around, rooting for recession, a rooting for economic difficulty, but something that you need to understand and hear me clearly when I say this.

There is no such thing as bad economy news.

It’s only economy news or economic news.

[20:15] And if you understand how the economy works and if you understand how money works and what to do with it,

You will be flexible and be okay no matter what happens,

You know, this is show number 532. I’ve said probably at least 500 out of those 532 times that i don’t believe that flipping houses is for everyone.

I do believe that everyone should have real estate as a part of a balanced investment portfolio.

You should have money in other things for sure. Talk to your investment adviser. But I believe that you should have some money tied up into real estate. And even in the worst real estate situation that is ever happened.

And that would be the period between 2008 and 2012.

[21:10] So

It’s it’s interesting because there there rising interest rates are going to decrease the buying power of the borrowers that are looking for houses and so you would think that it’s gonna hurt them but.

As

There will be a I don’t think a lowering of prices but a

Tailing off in the.

Because of.

[22:02] People are going to have increased buying power so decrease buying power because of rising rates increase buying power because of lowering prices and more price competition among sellers

Buying public.

For real estate investors we’re gonna see a balanced market and I’m predicting that you know within the next 6 to 12 months we will be able to buy bank owned properties off of the MLS,

Like we used to although if if you’ve been investing if you’ve been a real estate investor for less than 7 years you don’t remember ever being able to do that however it used to be a normal thing for us to,

Make offers to banks right through the MLS.

That day is coming back it also means that with the balanced markets there will be more opportunities in the big cities,

And the markets that are have been overheated for the last few years which means that many of us who have turned our attention to smaller towns and even very small.

We’re going to get back to the big cities.

[23:13] Things are basically gonna get back to normal. It’s been so long since it’s been normal. I’m not sure that people will.

You have a 3 month supply of houses normal means that in the city.

[23:35] Normal means that if you decide 1 day you wanna buy a rental property you can go out and have to look around for a few days you’ll find one and buy it.

[23:45] Yeah.

Normal. Normal normal also means mortgage rates around six to eight%. That’s still relatively low by comparison if it’s around six eights round. I just probably closer to the normal historical rate.

[24:02] I think that what it’s going to mean is more opportunities for investors and here is the.

[24:14] We’re seeing now notices of default being filed across the country.

Foreclosures are going to start up again in this country in mass and we’re going to see a bump not a spike a bump in foreclosure activity,

Beginning in the third quarter of 2022.

Plenty more inventory for investors to buy,

Stack up some cash if you can because the deals are coming. Opportunities are going to be there. It’s gonna be a little tougher to sell the houses because of everything else that I’ve just said. But you’re gonna be able to find deals and get things moving.

Alright.

[25:07] You’ve been listening to flipping America real estate investing for everyone. Listen three times a week on stations across the country or on the flipping America app free in the app store,

Be sure to like us on Facebook find and follow us on Twitter and Instagram and keep your eyes.

[25:23] Music.