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So, many people on YouTube mention that the prices are , in their opinion, too high for their income level. And I tend to agree now that the stakes are so high, but you have to understand that the Trump administration , as well as both parties in Congress, Democrats and Republicans, want to make it easier for people to buy a home.
And we talked last week about all the different things they're trying to do to make it easier. You know, they offer a 40-year mortgage. They are considering assistance with down payments. They offer a lower, you know, less than 5% down payment for housing. So if rates go down, you know, people will address the monthly payment issue.
But the initial investment is also a big problem. So if they reduce the down payment and lower interest rates, it will greatly help people buy a home. And when more people buy homes, prices rise. Yes. Well, that's never going to change, guys. You know what you really need to pay attention to is why the big players are buying these companies, right?
This is the most important thing. Do you know why this happens? Do you know why Buffett is taking a large stake in Lennar? Why is he taking a large stake in D.R. Horton? Why is Apollo Group buying Bridge Investment Group? You know why Blackstone...Blackstone is already in the game, right? But now they just bought a huge real estate rental company.
And do you know why this is so? Because in the market where I work, there's real "blood in the streets" right now, you know? We...I can't even tell you. Yesterday we had a huge investment committee meeting at my company. And there are a lot of people there who are now "under water." In other words, loans exceed the value of the real estate itself everywhere.
And developers make money when they sell houses. And this is a significant drop. So when you start seeing things like that, um, the value goes down. When the value drops, that's when these big players come in and make these, well, you know, they come in and make these huge, huge investments . The last thing that is unwise is to buy assets at the peak of the market, which is exactly what many people think should be done.
In fact, it is worth buying them and then simply waiting for the market correction, which will definitely and inevitably happen. Everything that rises must fall. It has already fallen, and now, in my opinion, it will go up again. So, how long? Who knows? But again, if you're counting on the long haul, which Danielle mentioned earlier , then Buffett is counting on that.
This is not a short-term game. This is a long-term strategy based on the housing shortage in the US. Yeah, and let's talk about the recession, shall we? Because everyone keeps talking about recession. Some say we are already in a recession. I don't necessarily disagree with that . But Buffett sees it this way: recessions are just normal cycles.
It just happens, right? The market goes up, the market goes down. He doesn't try to guess the market moment, because that's practically impossible. No one knows whether 6 months after all these rate cuts, prices will skyrocket, or whether people will lose their jobs, demand will disappear, and prices will stay the same or even go down a bit.
But the truth is, if they grow and you can't afford them, it will be harder for you to get back into the market. We saw this from 2020 to 2025. So Buffett doesn't care whether we're in a recession or a cycle, and that's very important to understand. Yes, and I think Trump was clear about the fact that you, of course, removed, I think I said, Lisa Cook.
He tried. Well, he tries, yes. Well, he tries, yes. He constantly puts pressure on Powell. He has publicly stated that he believes rates should be cut to 3%. Three points—that's what he said. And I think everyone agrees with that. We could be wrong, but we think rates will fall this month when the Fed meets again.
Although, of course, who knows . But eventually, something has to change. For someone to be able to afford a purchase, the interest rate or the value of money must decrease, or the price of the good itself must fall. The price of the house should go down. Something of the two. This is the only way to solve this problem for the consumer.
So, I expect that the only factor that will influence the price decrease will be the increase in the number of offers on the market. This can happen thanks to MLS, multiple listing services, or due to the constant growth of the overall supply. This could also happen thanks to new facilities, which is what Buffett is actually betting on.
He's counting on the fact that there 's a problem right now, and let me tell you, it's a brilliant move on his part, because we have an affordability problem and there's an acute housing shortage in the US. And don't forget, if he can secure sufficient supply and get rates lower, then marketing costs will return to the levels of a few years ago when there was no need for interest rate buybacks.
This is a huge amount. I'm trying to remember the exact number. It seems like it was somewhere between $10k and $20k per house for this bid buyout. Maybe even more. So please check me out , because I'm relying on my own memory. But the reality is: once that goes away, the margin will go directly back into what he's buying.
So when the rates go down, he will get what he bets on. My guess, given who he is and what he's done, is that he's very well-informed about the situation with what's going to happen with interest rates. Yes, Buffett is actually saying that there will be no recession . Or it simply doesn't matter whether it will be there.
And I think that's hard for people to understand, even those who are listening to us right now. Of course it matters, people can't afford this or that. But the truth is that there is huge pent-up demand. There are so many people who want to buy a home. There are so many investors who want to buy. It all comes down to prices and rates, right?
And if rates start to fall, prices will become more affordable, that's how it works, right? So you just need to think in terms of the long term in these matters. Real estate, making money from real estate, is a long-term investment. This is not a short-term game in the spirit of "will it increase in price in the next 2 years?" But I also think, you know, often people get hung up on the word "recession," and I mean, that's fair.
But what is it , and does it really affect you? You know, that's two, two, two quarters of negative GDP. Like, what does that actually mean? Like, you know, so now you have to cling to that word ? So I think we still have an accessibility problem. The real problem , in my opinion, will be wage stagnation .
Um, actually I think that's one of the biggest problems. This will be instead of , you know, people, we don't see mass layoffs. But I can tell you specifically, I know a number of companies, large companies... they, when someone leaves, say, "Do I need to replace this person?" Or can I, can I compensate for that with AI?
In other words, can my employee base shrink naturally over time, you know, without layoffs, right? So from an image perspective, everything is fine for these companies . And so, this is happening right now. So I think that's one of the biggest problems. Will these people be able to afford it, you know, and of course we still don't know the results of some of these duties.
I just don't see any other way out except that some of these prices have to get into the system. If they are recognized, you know, as legal. Yes. It seems like this is now also in question. Which is completely reasonable and normal. So, do you think that so many things are in question right now? This is honestly one of the most uncertain times for the economy and real estate because duties are in question; Fed rate cuts in question; you know, all employment figures are in question; AI is coming into play.
There's just so much going on right now . I can't imagine rates not going up or going down under a Trump administration. You know, whether it's this year, or next year, or, you know, in two or three years. So, you know, he made it very clear. And don't forget, he's been president before, so we have a plan of action for this case.
So, this should not surprise anyone. So if you're sitting there two years from now, the rates will be much lower and you'll say, "Oh, I didn't expect that." Well, shame on you. Well, you know, if it brings in cash flow today at current rates, then what's the difference? What, is it hard to find cash flow?
I know, but by the way, it doesn't have to be like this. Oh my God, that's enough for you. You're all like that , you're all just weaklings. Well, that's enough. Things are getting closer because I was looking at deals yesterday and found one that was $200 a month short of breaking even. You guys are so lucky.
I've been in this business for so long . I'm telling you, we've seen this, I've bought properties where the rates were 7, 8, 9 and even 10%. When capitalization rates were very low or very high, and interest rates were very high. And that's just a reflection of the fact that cash flow depends on price, interest rate, and a bunch of other costs.
But ultimately , we just went through a period that relaxed everyone. So everyone's like, "Oh, I can't believe I can't find anything that makes a profit." So what ? Welcome to the reality where real estate is supposed to be complicated. You just got lucky. You know, if you were there during that period, you should understand that it was a gift.
This must be difficult. You have to meet with banks, solve their problems, and look for profitable properties, because real estate is not a stock that always grows. It was through such a period of time that we just went through. So these higher rates, I think, are a kind of gift, because now I can see...as Buffett would say.
One of his best quotes: You really see who's swimming naked when the tide is out. And now there is an outflow in many areas: commercial offices, apartment buildings, from those who overpaid. Hmm, certainly we see problems in the housing sector due to interest rates and costs. And the consumer cannot afford such things now.
So, you know, when all this is happening, guys, right now is the time to act. Do you know what could get worse? Of course. Of course, the situation could well get worse, but he's playing the long game here. And at some point you're going to look back at this video and say, " See, rates went down, and we bought today because it's generating cash flow right now." And if the rates go down—great.
Then, of course, we will refinance, as I did in '11, '12, '13 , '14. You know, I've been through this before , and if an asset is generating cash flow right now, and you have a good history—buy it, because you're not going to succeed in this economy just by holding cash . That's right. But I also want to add because you brought up a good topic about refinancing.
Now, the people who are in trouble, the ones I see who are lowering rates—these are the ones who have been in trouble over the last couple of years because they have very high interest rates. So if rates go down, all these people will be able to refinance at a lower interest rate, and then they won't have any more problems, right?
They will be able to handle their payments. Because right now, a whole segment of the economy with rates below 4% is mostly doing well. Their housing payments are far less than any rent they could receive. This only applies to those who have purchased a home in the last few years. So this will really help stabilize the housing market, and I think it will make it even harder to find a good deal.
Yeah, and you know, guys, we shouldn't get too deep into predictions, because sometimes we get too worried about whether the Fed will raise rates by a quarter point or a half point. It doesn't matter. The word " recession" means nothing to most people listening to us, right? It's just...I understand that it reflects the state of the economy, but it doesn't exactly determine whether you should buy something or not.
Do you know why Bitcoin is growing? Why is gold rising? And why silver? Silver is insanely expensive right now. I think it's over 40.
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