4 Economic Triggers That Could Send Us Into a Recession

Dave:
Hey everyone, and welcome to On The Market. I’m your host, Dave Meyer, joined by James, Henry and Kathy. Hey everyone, thank you all for joining us. We have an excellent show for you all today. We’re going to be talking about big elements that might be impacting the US economy in Q4. If you’ve been paying attention to this show or pretty much any financial news, you know that a lot of economists have been forecasting a recession that hasn’t yet come, at least officially. But today, me, James, Henry, and Kathy are each going to be going into one element of the US economy that could provide a potential drag on the US economy and send us into potentially a recession or could just impact the economy negatively.
We’re going to be talking about student loan repayments, the auto workers strike a potential government shutdown and higher oil prices. So if you are wondering if a recession’s going to come and what might actually be the catalyst for that to actually happen, this show is going to be a great one for you. But before we get into that, guys, have you seen the big news today about NAR, the National Association of Realtors?

James:
People are jumping ship.

Dave:
Yeah.

James:
They’re trying to get away from the NAR Gestapo.

Kathy:
Well, and there’s been some pretty bad press with sexual harassment and the top dog basically being let go for that, and now they want all the upper management to leave. So yeah, NAR’s been in the headlines for sure and not in a positive way.

James:
And now Redfin is leaving.

Dave:
Yes, yes they are.

Kathy:
I didn’t even think you could do that.

Dave:
I didn’t know that it was even possible. Yeah. Just so everyone knows, basically what happened, NAR, the National Association of Realtors, which is a big trade organization for real estate agents, has something like one and a half million members, one of the biggest lobbying groups in the entire country has been rocked by some scandals that Kathy just named for us over the course of the summer, the president resigned after I think multiple sexual harassment allegations and there’s been some follow on there and there’s been a lot of pressure for the brass to resign. And then what happened today was that Redfin, obviously we’ve had a lot of guests from Redfin on one of the big websites, one of the biggest brokerages or a big brokerage has left NAR. Again, I don’t even know what that essentially means, but it feels like a big thing because NAR is sort of this giant monolith that basically everyone has to pay their dues to and anyone who’s in the industry is sort of at the will and the whim of NAR and this feels like something significant. I don’t know what yet though.

James:
Well, yeah, and it comes down to what they came out with was they cited the sexual harassment and the policies by NAR, but then also I guess they had paid over $13 million in dues. So they think the fees are just too high.

Dave:
Wow.

James:
I think the world of the old is starting to change and people are starting to do business differently. I mean, in my opinion, Redfin’s always been its kind of own thing in itself, but now I think they figured out that NAR’s not as important as it was with the amount of technology and information out there that they can break ties and save themselves 13 million bucks in fees.

Dave:
And Redfin obviously is a big national presence because of their website. They produce great data by the way. But they are removing 1800 brokers, which is a big brokerage, but in the grand scheme of their 1.5 million members is not going to exactly break NAR’s bank by any means. But I think it’s more just a sign of the times. As James just said, it seems like years ago no one would’ve broken from NAR given their sort of stranglehold on power in the real estate industry.

Kathy:
Well, and the big question will be the MLS. How is that going to work? And I think that’s what Redfin’s figuring out, but they’ve been a tech company and they’ll probably figure it out. So it has been interesting to watch how the world changes and I’m actually surprised it’s taken this long. It’s like if you have to join a union because you have a certain job, but you don’t necessarily agree with the decisions the union is making, but you don’t have a choice and that’s what this has felt like. You just have to go along with NAR regardless if you agree. But in many ways they have fought hard for the real estate market. So without them, I don’t know, there could be a big effect on real estate. But I don’t think they’re going to disappear anytime soon. They’re still very, very strong.

Dave:
Definitely not, but it’s an interesting time because they are facing a bunch of other lawsuits that we’ve talked about on this show as part of some of those antitrust lawsuits and I mean they’re always getting sued, but it is definitely an interesting time for them. All right, well just wanted to get your opinions on that and we will certainly follow up when we know more about this. This story just broke, we’re recording this on October 2nd and it broke today. So as we learn more about this in any potential fallout, we’ll bring it up on another show, but just wanted to get your takes With that, we’re going to take a quick break and then come back with four potential drags on the US economy for Q4 of 2023.
All right guys, let’s talk about what’s going on in Q4. I actually saw something, we had a guest on the other day who told us that GDPNow, which is this tool that the Atlanta Fed puts out that tracks GDP in real time is at 5.9% for Q3, which is huge, which shows that as of right now at least the US economy, at least for Q3 of 2023 is not looking like any traditional definition of a recession. But with high interest rates slowly starting to take their tolls across different parts of the economy we wanted to look at what potential things could actually bring a recession or an economic slowdown to fruition. And so we each researched and brought one of those topics. And Kathy, we are going to start with you. What is the thing you think could start bringing down GDP at least a little bit, not necessarily into a recession, but could create a drag on the economy?

Kathy:
Well, it’s one that’s near and dear to my heart. My daughter had a bunch of her college friends over and they just graduated a couple of years ago and they’ve been enjoying life without paying those student loans and they were sitting around our dinner table just a couple nights ago saying, “Oh man, we have to start paying those loans.” And they were freaking out. So looking into it further, while there are 43 other million people in the same situation and $1.6 trillion in student loan debt, that’s now coming out of this forbearance situation of COVID basically saying you don’t have to make these payments now, people will, and there has been a lot of talk about how is that going to affect the economy.
My personal opinion, and this is just a high level, is we’ve been hearing from the Fed, just like you just said, GDP is so strong, the Fed is trying so hard to slow down the economy, hasn’t succeeded yet. So I see it as maybe this is what we’ve been talking about for a year and a half now, “Hey, let’s all stop spending maybe then we can get things under control.” This will help with that as more money goes to paying off debt, less money goes to restaurants and going to see Swifty concerts and so forth and just paying debt and that could potentially slow down the economy in a way that avoids further rate hikes. So we’ll see. I’m personally not too concerned about it, but I know that a lot of people are.

Dave:
Well, I heard that the average payment is something like $400 a month. I haven’t done the math, I should have before the show, but I’m curious what number of potential home buyers that would disqualify for the median home price in their area right now. Affordability is already at the lowest point. It’s been since 1985. If people are now getting $400 less that they could put towards a mortgage, I’m curious if Henry, James, you guys think that might erode demand even further than it has?

Henry:
I don’t.

Dave:
That’s all he’s got.

Henry:
I mean, but here’s why. It’s not like student loans just became a thing. They were a thing before and then there was a pause and then now there’ll be a thing again. So people were figuring out how to live and pay their student loan payments and get by just fine. Yes, the economy wasn’t a little better position then when it paused, but it wasn’t like a night and day difference. I think people are going to figure out how to continue to maintain their student loan payments. Now I think the average is 400, but for people with a higher education like doctors, it is like my sister’s a doctor and her student loan payment, it’s like a luxury house payment.

Dave:
The interest rates on especially graduate school loans are really high. It’s not easy to pay them off. Yeah.

Kathy:
Those poor doctors, I know, it’s in the hundreds of thousands in some cases of the debt that they owe.

Dave:
And honestly everyone’s like, “Oh, boohoo doctors, they do make a lot of money,” but it does take quite a long time for them to start earning the salary that they can pay that off. They do 10 years where they’re not making a huge amount of money and they’re paying those things. So yeah, it’s definitely a tough thing for people across and people who really get hurt by this are people who don’t finish. They take out loans to get a degree and then they don’t wind up actually finishing school and then they have debt without the increased potential, which is obviously a huge problem.

James:
Or they just Van Wilder it and just hang out for eight, 10 years.

Dave:
I could see you as doing that, James.

James:
I was in and out of college as fast as I could get so I could start making money. But that’s just another reason why you should buy your first house. We actually paid off all my wife’s student loan debt by buying a right deal value add and then refinancing it at a 4.75% rate, pulling the cash-out and wiping out all of our student debt. So one thing as you start racking up your student debt, also get your assets going because those assets can actually pay for those and you can substantially knock your interest rate down by consolidating it into your housing.

Dave:
That’s true. That’s a good point.

James:
It made a big difference. But one thing I did want to point out that was in one of the articles was it says each time a student loans debt income increases by 1%, the consumption declines 3.7%. So it could have an impact on people’s free flowing money, which we’ve been seeing for the last three years, where people are just buying whatever they want whenever they want, making Dave Ramsey sad. And so these are good things, right? They’re kind of putting us back in order. You have bills, you got to budget around those bills and spend money when you have the extra. And if you don’t have it, then you just got to either work harder or just wait until next month.

Kathy:
And like I said, who’s really going to get hurt by this is the festivals because I see my daughter going to these festivals, they’re like $800 for the weekend and they’re packed.

Dave:
What?

Kathy:
Oh yeah, festivals man. And then all the stuff that goes with it costs money.

Dave:
What kind of stuff, Kathy?

Kathy:
I won’t discuss here, but I imagine its things that I shouldn’t know about as a mother, but it’s time to pay your bills and maybe it’s a time to re-Look at the whole college process. Krista just told me my 24-year-old, she goes, man, I really wish I had waited to go to college when I knew what I wanted to study. She studied business but now she actually owns a business and wishes she was going and actually paid attention in those business classes. So I’ve never been a big fan of spending a couple of hundred thousand dollars on a country club for kids where most of the time they’re showing up half asleep or don’t show up at all and have this huge student debt. So if it was really about just the learning, the cost would be much, much lower. It’s the amount of money that’s gone into universities to attract students and make it so fancy. Any of us would love to go to college for four years just for the parties. You can get an education without spending that much money.

Dave:
I should say. There is a great episode of a BiggerPockets money podcast that I co-hosted and we had, I think his name was Preston Cooper on and he did this incredible analysis, he’s an economist, of both undergraduate and graduate school programs and which ones actually have a positive ROI because I think people get into this conversation with college is worth it, college is not worth it, but it really depends where you go, what you study, what you do with your degree, and he does this incredible quantitative analysis. If you’re interested, curious about going either undergraduate or graduate school, highly recommend you check it out to make sure that you are picking a school and a program that does return a positive ROI. Because for some programs, even if you do have to take on debt, it’s worth it. For other programs, it’s absolutely not worth it and so do your research and try and figure that out.

Henry:
I think to reiterate the point, a lot of us have been paying student loan debt for years. It’s not new to everybody. I think when we think of student loan debt, we think new graduates who are now paying student loan debt, but I’ve been paying student loan debt since I got out of college in 2006, so I figured out how to budget my life around having that debt and so not having it for a few months is not that much of an impact when it comes back. I think things that have more of an impact are the increased interest rates. So when these people are going out and buying cars, they cost way more now than it cost even a couple of years ago. Or people, the mortgage interest in the… What it costs to own a home is way more I think detrimental to the economy than your student loans coming back when people have been paying those forever.

Dave:
All right, well Kathy and James, as you were saying, maybe this will slow down consumer spending a little bit. I was thinking the same thing and then I opened the Wall Street Journal this morning and the headline was, Americans Still Spend Like There’s No Tomorrow: Concerts, trips and designer handbags are taking priority over saving for a home or rainy day. So I guess the YOLO economy lives on.

Kathy:
Yeah. Pay your bills, people

Dave:
Well. All right, Kathy, thank you for sharing that with us. Henry, you’re up next. What do you got?

Henry:
So my article is about the current auto worker strike. So the UAW or the United Auto Workers Union have gone on strike against the big three automakers, so that’s General Motors, Ford and Chrysler. And this is the first time they have striked this huge since 1936, so 87 years ago, and they’re hoping for similar results that they got all those years ago because that strike led to lots of labor organization and reform that they were looking for. And so within this strike, the UAW, they’re looking for a 40% salary increase for its members. They want cost of living adjustments, they’re looking for their pensions to return, they want pensions to come back and they want to get rid of this two-tiered wage system that they have in place of the pensions, I believe. So as of Friday, they have expanded the strike against General Motors and Ford and they basically said they’re not making enough progress even though General Motors and Ford said they were making significant progress.
And so I think part of the impact here is going to be obviously unemployment. There’s a ton of people who are not working, but when you also think about the broader impact that this will have, there are tons of other companies that are going to be impacted because you think of all the parts that are associated with the cars that are being made that we have to get from other companies. If production goes down, then sales will go down for them. It could lead to layoffs for the parts manufacturers or it could mean that we’ve got to go overseas to source parts and then we’re going to have to rely on foreign parts makers and foreign car companies sometime maybe even having to get more foreign cars inbound directly from overseas. So it could have a huge impact on the economy for not just the cars, but everybody that makes products or services that are tied to the vehicles depending on how long this actually goes on.
And if you also think about transportation companies and things that we rely on to transport our goods and services to us from all these other places, if we aren’t getting new vehicles on the road, these transportation companies could also be impacted, which could directly impact getting products to the stores that we buy from or directly to us. So I find it hard to believe they’re going to get everything that they’re asking for. 40% increase is a lot. You’re not going to get pensions back. I think it’s only, what, 13% of companies still have a pension program. I don’t see those coming back. And so I’m sure there’ll be some sort of settlement, but I don’t know that it will be, I guess you could say satisfactory for the UAW. So I think we could see some long-term impacts.

Dave:
Yeah, I’m interested to see what happens here because obviously a short-term strike is probably not going to be hugely impactful. I saw a estimate from Mark Zandi from Moody’s Analytics who was previously on the show. He said that if all 150 members of the UAW were to strike for six weeks, it would probably shave off an estimated 0.2% off GDP, which is actually pretty considerable when you consider that GDP is probably somewhere between 3 and 6% in the coming year. So 0.2% is actually a reasonable thing. We don’t know if that’s going to happen and maybe if it lasts longer than six weeks, but obviously the auto industry is a huge part of the American economy and it could have lasting impacts here.

James:
Yeah, I wonder if this is just the domino effect for all these… I mean to live in America now is a lot more expensive than it was before the pandemic and then we saw this with the UPS drivers, they got a massive increase when they held out. And now it seems like the auto unions are doing the same thing. They’re asking for a big number. I wonder if this is just going to be a constant domino effect going forward of going from auto to UPS and then what’s next. And we could just be seeing a giant reset, which isn’t a bad thing for the blue collared workers because they got to keep up with affordable… To live right now is much more expensive and you can’t do it on old wages. And so the rate growth, oh, the wage growth isn’t keeping up with the costs and so they got to solve it one way, shape or form.

Henry:
I kind of agree with you, James. I think you’re going to start to see more of this in other industries, but I think it seems to me like this is more like the UAW hedging their bets and trying to get paid because they see the EV trend coming and that’s going to… Both with technology, AI and EVs coming down the line it could mean less jobs because more technology replacing those jobs and it seems like they’re trying to kind of hedge their bets, get that 40% increase now, start getting more money now before the jobs start going away. Innovation is always going to rule and win and people are going to lose jobs. It’s happened. It happened with when we went from horses to cars. It happened when we went from radio to TV. It happened when we went from TV to internet, and now it’s happening from internet to AI. Jobs will change, but that always means new jobs open up. There will be more opportunities because of the technology. It’s just times change. This is what happens.

Kathy:
Absolutely. Automation is coming and then there’s the mandate to get to electric cars by what is it?What year? That they’re going to have to completely change the way that the auto industry works. I’ve heard rumors that a lot of these factories will just put their hands up and move to Mexico and then nobody has a job. So I know what it’s like to march the picket lines. It’s really hard on those workers. My heart goes out to those families who are marching and not getting paid and not really sure how it’s going to go. But I would have to agree with Henry that that whole industry is changing and a lot of it is federally mandated with the shift to electric.

James:
But what I don’t understand is it seems like most of these major automakers that are making electric cars are losing their shirts on these electric cars.

Kathy:
They are.

James:
So they’re hemorrhaging money and now they’re going to have to pay the employees more wages for a business that’s hemorrhaging money. And that typically doesn’t work out in the long run unless I guess they get their production cost under. So that’s what I’m more curious about, what happens? Do EV cars just become really, really expensive and then it’s going to offset all the other savings that you’re making or what happens to the union workers? I mean, I guess maybe they’re also hedging that robots are going to take their jobs at some point, but it will be interesting to see, put more bad debt into these cars.

Dave:
Yeah, I mean, I agree with you both that totally understand people wanting to get paid for their work and hope that they reach a good and fair outcome here. But one of the interesting consequences here, I was reading an article saying that from a business, not an individual worker perspective, but on a corporate level, this strike is just playing right into Tesla’s hands. They actually are profitable in making EVs, and so if the workers are successful, they obviously need the money to pay for their expenses and to live their lives, but it would potentially put their employers in a worse position longer term to compete with other companies like Tesla or EVs that are coming out of Japan or China or something like that. So it’s really interesting. Hopefully there’s a good outcome for both sides in the near future.
Let’s move on though to James. What is your issue that you think could potentially be a drag on the economy in the fourth quarter?

James:
So we have another one of these government shutdowns looming around. The news media loves the government shutdowns, because that’s all you hear about.

Kathy:
And it’s nothing new, it’s been going on for decades.

James:
No, it’s this ticking time bomb every time that we’re coming down the crunch wire. And what has happened is for the last three weeks, all we heard about was this government shutdown and now they have passed a 45-day extension to get to some sort of budget between all the politicians to get our spending under control. I guess there’s a couple of things that are kind of… With these government shutdowns there’s two things I’m always looking at is A first, is America ever going to get their spending under control? Because right now, I think for 2023, we’re running a $2 trillion deficit right now, and then our national debt is up to 33 trillion and we’re just spending too much money compared to everyone else and they need to address this. So what could happen is we have 45 days as a buffer right now for everyone to work out the details for the new budget that tells whether we need to increase it or we’re going to keep running these massive deficits or how do we cut costs and spending as well to reduce our deficit.
But we’re at this point where we’re spending so much there could be a longer shutdown. The last time this happened was in 2018 and the government was shut down for 35 days, which is the longest that’s ever happened. It’s only happened six times since 1990. So it does happen more than we think it does happen, but the last time was even longer. And I think it’s because the spending is so out of control that it’s harder for them to come to an agreement. Now what that can do is you hear government shut down. I know when I first would hear about it in the media, I thought the whole world was shut down and everything was going to blow up. But that’s typically everything still kind of works, right? But a lot of essential businesses start… People technically have to work for free or they got to show up for work at their necessity, but parks, recreations, all these things start kind of cooling off.
But what we have seen for investors according to CNN, is that the S&P typically falls about 0.7% every 30 days or after 90 days, it can be up to 2.8% of a drop. So there is impact with it being shut down. So if there is a government shutdown, we want it done quickly because it won’t have that last long impact. But if it drags out for 45 days, we could see some compression across investments. We could see some people losing some value on their stocks. It doesn’t hit real estate quite as hard from everything I’ve ever seen. But one thing that was brought to my attention too is what if it got strung out for longer than 45 days, could that affect Section 8 rent applications and new people coming into your properties? But I don’t know, for me the government shutdown’s always this doomsday loom and doom, I’d rather just have them figure out a good budget than threaten this shut down all the time. But-

Kathy:
Wishful thinking.

James:
… I do think it’s going to get shut down for a week or two because they can’t seem to figure stuff out and I don’t think it’s going to have that much impact.

Dave:
Well, yeah, in the aggregate it’s always kind of strange when you read about it always says stuff like the national parks are going to shut down, which I love a national park, but in the grant scheme of things, it’s not probably the most impactful thing, but it does obviously greatly impact the government workers who don’t get paid. There’s active duty service members who don’t get paid. I think people like TSA and all sorts of different government organizations aren’t getting paid. So that would be a really difficult situation for these people. Honestly, to no fault of their own. It’s because there’s all this gridlock in Washington. So that could obviously impact the personal finances of anyone who’s not getting paid, but could have this aggregate effect on demand in the economy. If people aren’t getting a paycheck, they’re probably not going to be spending as much as they normally would.

Kathy:
Yeah, I mean I was on the board of an HOA and it was, I don’t know, eight people and we couldn’t agree on anything. So how do you get 330 million people to agree on where money goes? If people really sat down and saw where the money’s going I think there would be a lot of shock and maybe there’d be more agreement in cutting spending, but nobody wants to have their budget cut. So it is a tough thing that’s been around for decades, but what’s really putting it in people’s faces is these higher interest rates because now most of the money is just going to pay the interest on the debt and doesn’t leave a lot leftover for all the other programs, and that’s just going to keep continuing if we can’t figure out how to cut the budget.
But again, how do you cut when our system is based on politicians getting elected and they don’t want to cut anything that would keep them from being elected. So I don’t know how to change it, but all I know is it’s been going in the wrong direction for a long time and every time we try to fix it, then boy, it’s just gridlock.

James:
If it gets stretched out, that last 45 day one was a lot more damaging, I believe, because it does affect… A big chunk of people aren’t going to get a paycheck for a month so if there’s a shutdown, it can affect 1.3 active duty service members and then 800,000 people that work with the Pentagon or that are Pentagon civilians and over 200,000 would be required to work without pay. So out of the 800,000, 200,000 still need to work anyways because they are deemed essential.

Dave:
Yeah, that would be the worst.

James:
Having to work for free?

Dave:
Yeah, I would be furious.

James:
I feel like that’s life of a real estate broker right now though. We’re just chasing a bunch of houses and not getting deals done.

Dave:
But it’s like these people are keeping the country safe. If you want them amotivated and pissed off about their employment situation-

James:
Exactly.

Dave:
… it’s not a good thing for anyone.

James:
No, pay your military, that’s for sure.

Dave:
Yeah, exactly.

James:
So it can definitely have some effect on some jobs. It could affect rentals as far as income goes, but it really I think comes down to how long is it going to be going on for? If they do 45 days, again, that’s going to be not great, but typically it lasts what on average, four to five days, maybe 10 so they can kind of get through it without too much damage. All right.

Dave:
Well we’re going to have to check back in on this in I guess 43 days because we just found out about this extension that we heard about and hopefully they’ll spend all 43 of those days negotiating in good faith. But something tells me that in 43 days we’re going to see something in the headline about another government shutdown, but we shall see.
All right, well for the last story, I am going to talk about higher oil prices. Oil prices, if you don’t pay attention to this or haven’t noticed at your local gas station, have been really volatile over the last couple of years. It was one of the major drivers of inflation from the middle of 2021. Then the Russian invasion of Ukraine sent it even higher and it really sort of helped inflation grow and peak at 9.1% and it’s come down a lot over the last year or so, and that’s helped inflation retreat, but now we’re seeing oil prices head in the other direction.
After Saudi Arabia made a decision to cut production of oil by 1 million barrels per day and after Russia also announced plan to cut its daily oil exports by 300,000 barrels, which basically just throws a wrench into the international energy market, which has already been sort of hectic over the last couple of years. And so oil prices, this is just another high expense I think particularly for businesses. Obviously this impacts everyday Americans at the gas pump and that hurts after years of inflation. But when you look at businesses that are choosing and looking to expand or build infrastructure or in our industry construction costs, this sort of thing, when you add now high oil prices to high cost of borrowing, the cost of building new things and innovating is really just going up across the board and it makes me sort of wonder how much investment we’ll see in infrastructures, new facilities, new factories from major businesses over the coming months if prices stay this high. Do you guys have any thoughts about how this might impact the economy?

Kathy:
The economy is totally dependent on energy and we’re still dependent on oil whether we like it or not. And that’s transportation. I mean, flights, everything costs… It takes energy to get it to you to create it, to make it. Even to make clean energy you need the dirty stuff. So we’ve been manipulated by the oil market. It is the gold of today. It gets manipulated. We have very little control over it. I know there was a big push to have more control of it over it and produce more oil here in the US and that got shut down. So I don’t know, maybe this will be a wake-up call that we do still rely on oil and we have it and perhaps should be producing it, but in the meantime, we’re very dependent on what OPEC does and right now that means higher prices.

James:
Gas is high on the West Coast. It’s like six bucks a gallon in California, 5.50 in Seattle. It’s expensive. And as far as an investor goes for flippers, you pay more right now because your trades people have to drive further to sites. People are spending more. It is really beating up our labor market. The cost of energy is probably keeping our costs up a good 10 to 15% across construction right now because guys, they don’t want to do the distance. Part of what we do on value add construction is stretching out and going to wherever the deal is not just one confined space, but the further people have to go out, the more expensive it is and then the further you go out, typically it’s worth less too. So it’s making it where you have to buy so much cheaper in those areas because it’s just expensive. I mean, it’s a real cost, like when your energy bill or a painter, if they’re paying double in transport, they’re going to charge it. And then the thing is, when gas comes down, we’re still going to be paying the same rates. So-

Dave:
Yeah, they’re not going down.

James:
It’s locking in the rates. That’s what I’m more worried about is we’re not going to see… It’s permanently setting our labor market high now.

Dave:
Yeah, they’re billing you 10 bucks per gallon, James.

James:
Yeah. And 30% too much on the rate.

Dave:
Well, it’ll be interesting to see. Obviously this will have impacts on investment and decisions, but it also makes me wonder if we’re going to start to see inflation start to tick back up, at least the non-core inflation, which does include energy prices. The Fed knows that this is a volatile metric and they tend to follow either the PCE or the core CPI. So this will probably not impact their decision-making all that much, but obviously inflation is really impacted by people’s expectations of inflation. And so when you start to see that headline number start to tick back up, it is not a good thing for the economy, even if it’s temporary and even if it’s just one of the more volatile elements of the bigger inflation basket,

Kathy:
Maybe it’ll allow people to work at home more. So it’s going to be harder to get people to commute into the office if it’s costing them so much. So maybe the work from home will come back.

Dave:
I’m doing my part.

Henry:
This show’s a bummer, guys. I mean, if you’re somebody and you’re like, man, I need a new car so that I can go to work, but I can’t get a new car because there’s a strike and I need a more fuel efficient car because gas is so expensive, I just couldn’t.

Dave:
I was going to take my new car to a national park.

Henry:
Yeah. But I can’t go to the national park because they’re [inaudible 00:34:48]. Bummer.

Kathy:
There are people who want us to be more negative. So here we are.

Dave:
Well, I think we’re trying to just do a show where we talk about some shock or some risks in the economy right now. But you’re right, Henry, this is a bummer. Maybe next week we’ll just do a blind optimism show and we’ll just talk about things that we’re super excited about.

James:
But if you look at all these topics, they all point to America needs to spend less money. You got to spend less money on fuel to be smarter. The transportation, you got to spend less money in disposable income because your student loan debts are coming to fruition. You’re going to have to spend less money on other things. You’re going to have spend more money on EV cars since they got to pay the labor workers even more. It’s just like you’re going to have to tighten your budget or $33 trillion needs to be tightened up. America needs to get on the Dave Ramsey program. I’m sorry.

Kathy:
Dave Ramsey for president. No debt. No debt.

James:
I don’t agree with him all the time, but I’m starting to agree with him more and more.

Dave:
All right. Well, what do you guys think? I mean of all this stuff combined as you said, James, what is your outlook for Q4? Do you think we’ll see a slowing of the economy or business as usual?

James:
I’ve been feeling it getting slower the last 30 to 60 days, and it is definitely. You can feel the capital getting locked up and eroded right now. It’s a real thing. People are looking for money more now. They’re not deploying it as much right now. The Fed is accomplishing their job and I think Q4 is not going to be good. It is going to be a bad cold winter for all of us as real estate investors.

Dave:
All right.

James:
There you go, Henry. More positivity your way.

Dave:
Henry’s just going to leave the show.

Kathy:
Henry’s like, I don’t even want to be here. I’m out.

Henry:
But I agree with you. I mean, I am feeling it here as well. Product is sitting on the market longer, and sure, some of it is a little bit of seasonality, but it really does feel like people are holding onto their dollars right now.

James:
Wait, Arkansas is finally cracking?

Henry:
Yeah. It’s finally, man, I’ve got nine houses on the market right now.

James:
Whoa. Oh, really?

Henry:
Yeah.

Kathy:
So I’ll bring some good news into our bad news show, and that is if all this bad news happens and we happen to go into recession and people are spending less, well then maybe rates will come down and you’ll be able to sell your homes.

Dave:
It’s true. It is this sort of perverse thing where you want the recession to happen, so we can just start a new economic cycle already.

James:
But then your equity savings account is gone.

Dave:
But I tend to agree, I don’t know if we’ll necessarily see GDP go negative in Q4 because as we said at the top of the show, if we’re starting from a place where Q3 is going to be in five handle, it takes a lot to erase 5% GDP growth, a lot. But I do think we might see it start to come down. Just today, I mean, the yield on a 10-year bond hit 4.7 today, which means it’s come back down a little bit, but it’s near there, which means rates are going to be in the upper sevens for mortgages, and it’s that mental thing. People were starting, in my opinion, to get used to the mid sixes, high sixes. But when you just see it’s marching up and up and up, it’s really hard to pull the trigger on something. So yeah, I think we’re finally going to start to see this decline that people have been forecasting. And I don’t think we’re going to bottom out in Q4, but it’s probably the beginning of the down slide.

Kathy:
Yeah, I think, like you said, it’s going to take a while, just like the stories that, oh my gosh, everybody’s going to sell their Airbnbs all at once. It’s scary headlines, but if anything, it would be good for the market. And same with this, the fed’s been trying to get job growth down and some of these things might help with that, and we might just be able to sit for a bit with no fear of the Fed raising rates. These high tenure treasury notes of 4.7 is that’s not a recession, that’s not recessionary. That’s a booming economy.

Dave:
Absolutely. Yeah. Well, is everyone depressed? Are you guys okay? Can we leave all on a good note now?

Henry:
I don’t know. Does somebody want to make an offer on a house in Arkansas?

James:
I’m feeling good. We might finally lock down our next Live-In Flip house, so even with the high rates.

Dave:
Nice.

Henry:
Does your wife know it’s a Live-In Flip, or does she just think it’s a house?

James:
It’s always a house that turns into a Live-In Flip, Henry. Yeah.

Dave:
Have you ever lived in a house you haven’t flipped?

James:
No. No, not at all. Every one has been sold.

Dave:
Wow. All right. Well, good for you.

Kathy:
I hope you enjoy it while you’re in it. I can’t wait for the party.

James:
Well, we’ll see. We have to get it first. The rates they are brutal when you put in the mortgage [inaudible 00:39:44].

Kathy:
I can’t even imagine.

Dave:
Yeah, it’s a lot. All right, well, thank you all. James, Kathy, Henry, appreciate you being here for sharing your research and your knowledge. We hope you all appreciated this episode. We strayed a little bit from real estate, but wanted to give you some thoughts on what’s going to happen throughout the rest of 2024. If you have any feedback for us on the show, you can always do that on YouTube or you can hit up any of us on Instagram where I am @thedatadeli. James, where are you?

James:
I’m @jdainflips on Instagram.

Dave:
Kathy?

Kathy:
@kathyfettke on Instagram and realwealth.com.

Dave:
And Henry?

Henry:
I’m @thehenrywashington on Instagram and seeyouattheclosingtable.com.

Dave:
All right, well thank you all so much for listening. We’ll see you next time. On The Market was created by me, Dave Meyer and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico Content. And we want to extend a big thank you to everyone at BiggerPockets for making this show possible.