A short market take from November 2022, recorded as FTX was collapsing, interest rates kept climbing, and the big iBuyers were retreating from the housing market. Andrew connects those threads and asks the question everyone was asking at the time: was a broader crash coming?
A quick read of a chaotic month, and a snapshot of how the cycle looked from the operator's seat heading into 2023.
Transcript
what to say in the real estate markets November 16 2022 my name is Andrew Dunn and I'm here to help you navigate it nobody knows what's going on if they tell you they do they're lying to you you got crypto collapsing there's fraud everywhere interest rates Rising there's so much to talk about let's dive in interest rates are our main driver for values of real estate the current federal funds rate is at four percent and the FED has shown a tapering process but they're going to continue to increase rates thus is going to put upward expansion pressure on cap rates which is then gonna put downward pressure on Commercial Real Estate valuations which means prices are going to continue to drop the next topic of discussion is the eye buyers open tour just laid off 18 of their Workforce Redfin laid off 13 and just a year after shutting down their eye buyer division zil laid off 25 of their Workforce news flash flipping with an algorithm just doesn't work let's talk commercial real estate over the past couple of years people have been buying assets at Peak valuations opening for higher rent growth and higher yield they've been buying assets with high leverage debt at higher interest rates and short-term Horizon periods now that valuations are decreasing and they aren't going to achieve their exit positions this is what's going to happen one you refinance which is unlikely with the higher interest rates and lower leverage debt too you sell the asset for maybe covering your debt and you're going to lose your Equity or three you do a capital call and completely restructure the deal my opinion it's time to cut your loss and get the hell out of Dodge now for the story on everybody's news feed FTX and the CEO Sam bankman freed what was he doing what's going on in short he took consumer funds on his FTX Exchange took them into his Alameda research hedge fund that was conducting Arbitrage trading of course and this is called misappropriation of funds and he was committing fraud to his consumers on the exchange now he just filed for chapter 11 bankruptcy in the United States for FTX U.S what's going to happen there he has over 1 million expected creditors are trying to get paid back most companies that have invested with him like coinbase who invested 15 million has currently written off that investment on their balance sheet people will not get get their money back for years to come it's a fraud situation maybe bigger than Enron maybe bigger than Bernie Madoff and there's going to be need for regulation in the crypto space to create any Rebound in that market so to conclude we're in Uncharted Territory the real estate market is in a falling knife depending on your asset class you have to stick to your Market fundamentals you have to understand what your Market is doing because every Market's different I don't necessarily know what's going on I read research every day I talk to people in my industry every day I try to get all the perspectives possible to help make my decisions the best they can possibly be by utilizing my network and the research Tools around me so let me know what you guys think in the comments please like follow And subscribe I want to engage with you guys and help us navigate this Market together