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Current homeowners and those actively searching to purchase a new home are stuck with limited options. This is due to both high home prices and high mortgage rates. Even renters are facing low supply in markets all over the nation.

Brad Case, Chief Economist at Middleburg Communities and former Fed economist, joins Eric Chemi to share his insights on the economy and the complex dynamics of the housing market. Case will discuss why home prices are so high, his concerns with inventory and affordability, why renting may be a more feasible option compared to homeownership and more!


Brad Case 0:00
The people who are buying houses right now are unfortunately in some cases, they’re people who are being encouraged to buy. They’re being told, Oh, it’s a great investment. I’ll tell you the truth. It’s not homeownership is not a better investment than putting your money in the stock market.

Eric Chemi 0:21
Welcome to Wealthion, I’m Eric Chemi. Today I am very excited because we are talking all about housing, the macro economic picture, what does inflation look like? And is there a stock market bubble today my guest is Brad Case. And I’ve got notes about Brad but what everything you’ve done and who you are, so I’m just going to break it down a little bit so our audience knows what a stellar guest we have today.

Brad Case PhD, CFA CA is chief economist for middleburgh communities, providing analytical support for sea level buying, selling, developing and market focused tactical decisions. Dr. case has researched residential and non residential real estate markets, domestically and globally. For more than 30 years. You’ve worked at Fannie Mae, NARA, at the Federal Reserve Board, your research encompasses investment return characteristics, including returns, volatilities and correlations with other assets. You’ve got a bachelor’s from Williams, a Master’s at Berkeley and a PhD at Yale, where your dissertation advisor was the famous Bob Shiller and you’ve been worked at HUD, you’ve worked with Alan Greenspan and Ben Bernanke, and you were part of the team trying to design risk based capital standards to head off the sort of real estate bubble collapse that we saw in 2008. So that’s just some of your amazing bio. Brad, thank you so much for joining me today.

Brad Case 1:38
Oh, it’s a pleasure to be with you, Eric.

Eric Chemi 1:40
So first off, I know that your greatest concern right now is this continued stock market bubble. Tell me about that.

Brad Case 1:47
Yeah, I mean, I think we have to be careful about using a word like bubble, but it does concern me a lot. Companies have traded at a very high multiple to earnings, especially a fairly narrow part of the stock market. But the but it reminds me a lot of where the market was in about 2000. Before bubble burst. There is a lot of optimism about certain technologies as there was a lot of optimism back there. And and so if the stock market, if people start to get concerned that stocks are overvalued, which I think they are, and they start to sell their stocks so that they get ahead of a stock market downturn, then that could get scary fairly quickly. So it’s nice to be in in assets that aren’t subject to that kind of have a snap movement. But if the stock market does decline substantially, even if I don’t want to use or like or like crash, even if a stock market does decline substantially, it will affect the entire economy.

Eric Chemi 2:58
Your advice to your colleagues in Middleburg since late 2020 wants to going back a couple of years now, the US was most likely not going to enter a recession. But they you should prepare for rapidly increasing interest rates because of the strength of this economy. That seems to be what’s happened. Although there’s debate on whether or not we’ve already had a recession, and we didn’t realize it or or a recession is still covered. We’re still waiting for it. Why? Why have you been in this camp of there’s not going to be a recession? What are the data points are looking at?

Brad Case 3:27
Yeah, it’s not that I think a recession will never happen. It will. There are no data that tells us that we’re going to recession and if in fact, the data that we have tell us that the economy is still strong enough that we have to be more concerned about inflation than about recession.

Eric Chemi 3:43
What data are you looking at? What are the data you’re looking at? Because Because I see a lot of people saying looking at unemployment picking up look at people’s credit card delinquencies, people eating out of their 401k because they need cash a job layoffs done it like I see people just going all on the bear side that we’re dealing with a recession because all these bad things, what are you looking at? That doesn’t look so bad?

Brad Case 4:02
So so first of all, the job market, that’s the most important piece of the entire economy. And employment growth has continued to be strong. For example, the latest numbers on on new claims for unemployment lower than expected. So so when you look at the unemployment rate, the unemployment rate is based on a survey, it does have a tendency to tick up and down somewhat randomly just because it’s a survey. But what you can’t get get away from is the fact that it’s still extraordinarily low. And every every uptick over the last couple of years has been matched by a downtick so so unemployment is honestly not a concern. employment growth is still strong. What that what if what we need to look for is balance in the various parts of the economy. And there’s still I would say, too much demand relative to the supply of labor. And so what’s what’s good about that? is that people who have not been in the job market because they didn’t think they would be able to get a job. They’re entering the job market. And that will give us better, better balance between demand and supply. But it’s still very strong. Now, one of the things that you mentioned, what was people’s credit card balances, and we have seen an uptick there. But what people don’t don’t pay attention to is the fact that generally speaking, credit card balances are low, historically speaking, the fact that there’s been an uptick, you know, it just just means that they were even lower before. So So actually, one of the things that’s really driving the strength of the economy is the continued consumption by people who have the money to spend, whether it’s come from strong wage increases wage growth, or whether it’s come from strong, you know, personal balance sheets, the ability to take on purchases on their credit cards, those are still quite strong.

Eric Chemi 5:59
What would be the data point you would look at? When you might throw in the towel and say, okay, a recession is coming, a recession is here, what’s the most important thing that would would change your opinion?

Brad Case 6:09
Yeah well, job growth, but I would like to see sustained Well, I don’t want to see it. But if I saw sustained weakness in job growth, so Job and Job Creation, not happening as strongly as it has been for the last few years, then I then that would start signaling recession, you know, I have a recession forecasting model. And, and the forecast, you know, the last job report was a little bit weaker than everybody expected. And that did, in fact, tick up the probability of recession, but only something like from 33% to 34%. And, you know, one thing that people should should be aware of is sometimes people throw around a, an idea, like technical recession. There’s no such thing as a technical recession, or recession.

Eric Chemi 7:00
What do they mean by technical recession? And then what do we mean by a real recession explain the difference.

Brad Case 7:05
So there’s a shorthand that says if you’ve had two quarters of negative growth in real GDP, so GDP measures the entire economy, real GDP says, correcting for inflation, it that. So people will often say if there are two quarters of negative real GDP growth, then that’s a recession. That’s, that’s a good shorthand, but it’s not a recession, a recession is a broad based, severe downturn in the economy that lasts for some time. Now, you don’t have to have all three of those necessarily, but generally, that’s the three things you’re looking for. So for example, the last recession happened because of COVID. It was, it was not a situation that lasted for a long time, but it was so severe. And it was throughout the economy, that it was a recession, even though it was very brief. But what but in 2021, early 2021, we did have two quarters of negative real GDP growth and people and several people said, well, that’s a recession. It’s not, we had negative real GDP growth, because of a couple of numbers in the GDP that fluctuate quite a bit. One of them is inventory growth, and the other is foreign trade. So in fact, sometimes economists like me and like the FOMC, the federal, the Federal Reserve, will look more deeply, deeply at not the overall GDP because it can be thrown off by things like that. And when you look at that they’re sort of the real economic performance. Number one, it’s strong, not weak. Number two, it’s strong throughout the economy. That doesn’t mean for everybody, but it means generally speaking throughout the economy, and it and any weakness that we’ve seen over the last two years has been very brief. So nothing like a recession.

Eric Chemi 8:58
So how do we know what the Fed is looking at? And what they’re ignoring is I think a lot of times people look at the Fed and say, Oh, they’re making a mistake, but then you’re almost explaining well, they’re, they’re thinking about it differently than the way a normal person is thinking about it.

Brad Case 9:10
Well, they’re they’re saying what they look for. Unfortunately, there are a lot of people who don’t pay attention to what the fat actually says. So I’ll tell you what they look for, you know, we all know that they want to get inflation down. That has been done. Even though the the numbers that are reported for the CPI are not yet down to 2%. The biggest reason for that is that a year or a year and a half ago, housing costs were going up dramatically. That has stopped but that’s not reflected yet in the inflation numbers. So inflation is actually lower than the overall number says it is okay. They understand that. So in a sense, the inflation battle has been has been won.

Eric Chemi 9:53
Can we pause? The first thing you said inflation is lower than what the number is so then why can’t they Use a number. That’s correct, or why can’t they have a number that accelerates these these trends? Why do we have the wrong number?

Brad Case 10:05
It’s a matter of what you’re trying to measure. They’re saying they’re saying what is everybody, generally speaking, paying for things right now. But when you’re looking at housing, let’s say you rent an apartment, you’re still paying the rent on the lease that you signed a up to a year ago. So what they’re measuring is true, it’s just not a picture of the leases that are being signed right now. Now, most of your expenses aren’t like that. You don’t most of the time, when you’re buying things you don’t you’re not buying things according to a price that you agreed to up to a year ago. But about rent is the one thing that really throws the numbers off. Now, as I said, the the Federal Reserve, they understand that so they’re actually paying attention to what we call marginal rent, what are people paying right now. And when you look at that inflation has come down to the 2% level, if not even a little bit lower. But the battle is not just can we get current inflation down? The battle is can we prevent it from coming back? And that’s very much a concern. And so what they what they look for? To answer that question is, do we have balance in the labor markets? And we really don’t yet? Do we have balance in terms of overall demand and supply? And we really don’t yet, do we have you know, is, is the inflation that we see very narrow? Or is it across all goods? It’s across a lot of goods. So even though it’s not high, all goods are affected by it. And and this is very important. What do people think inflation is going to be over the next year or two or three? Because if if I’m if I’m coming in for a wage wage negotiation, and I think inflation is going to be high, I’m going to ask for a high inflation, high wage now, to help me out later when I think inflation is going to be high. And we know that inflation expectations are still high. In fact, they’re higher now than they were last month.

Eric Chemi 12:03
So do you think the Fed has the right policy in place right now?

Brad Case 12:06
Yes, yes, I do. I really do. And I think I think people would be well served to actually listen to what the Fed says, they don’t want to be secretive. There are two reasons for that. If they’re secretive, then that means that there’s a there’s a lot of money, you know, it’s worth a lot of money to get illegal insider information. They don’t want anyone trying to get illegal insider information. So they don’t want insider information to be worth anything. But the other reason is, they don’t want to surprise people. Because occasionally they will want to surprise people. And if you surprising people all the time, then you lose the ability to surprise them when when it’s really important. So the Fed tells us what they’re going to do. And in fact, in fact, can I actually share a a graph that the Fed produces.

Eric Chemi 12:55
Yeah, please do?

Brad Case 12:56
So the Fed, the event produces what’s called a dot plot? Are you seeing the star plot?

Eric Chemi 13:06
I think we might need to give you the sharing permissions here. But that’ll happen in in a second. In the meantime, while they’re doing that, I My question for you is when? When do they want to surprise people? What is an example for? Okay, we normally don’t want to surprise people. But sometimes we do. What’s an example of that? Well, we get to that sharing question.

Brad Case 13:24
So let me give you a very current example. Let’s say that suddenly the economy starts to weaken, and they become concerned. So maybe it’s early, you know, maybe it’s in January or February or something like that. They don’t have to wait for another meeting of the Federal Open Market Committee to change interest rates, they can change interest rates and just make an announcement suddenly. So if they think that people are losing confidence that the that the economy will keep going, then they want may want to put out a surprise rate cut to tell everyone we are really on top of this, we’re not going to let the economy fall into a recession.

Eric Chemi 14:02
Okay, okay, let’s, let’s get that screenshare going. Let me see this dot plot. Okay,

Brad Case 14:06
so the upper right, and on the upper right here is what is called the dot plot. People often think that this is their prediction about what interest rates will be. And that’s not correct. What they’re doing is saying, This is what we think will be the appropriate interest rate at sometime in the future. And the important thing to note here is that this is from the last last meeting, the meeting and so

Eric Chemi 14:29
how is that different, though? Explain the difference. It’s not a prediction, but this what they think it’s going to be the future. Isn’t that what a prediction is?

Brad Case 14:35
They are predicting what the economic conditions are going to be and saying in those economic conditions. Here’s the appropriate appropriate policy interest rate. So it’s not a big difference, but it is, but it’s an it’s a difference. It’s very important to them. And so so they thought back in September that we would need another increase or even more than other increasing interest rates in order to make sure that inflation doesn’t come back. But so this is an example of where they’re trying to be transparent to everybody. But if things soften more quickly than they expect, then they will not hesitate to to make a surprise rate cut to head off a recession. And they’ve they’ve made both surprise rate cuts and surprise rate hikes in the past, but it’s been a while. So when we so when we look at what we expect the Fed to do, you know, I kept this, this this chart, even though we’re past the November meeting, because the Fed has been saying very clearly, that there’s a strong, strong probability that rates will have to go up again, to respond and to hit to have the, you know, a recurrence of inflation. But people in the market don’t believe that they’re not really listening to the Fed. And I think they should listen to the Fed.

Eric Chemi 16:02
I’m curious what other charts do you have in this in this PowerPoint that you have open? What else can we see?

Brad Case 16:07
Well, I’ll there’s a lot I can show you. So for example, I mentioned the, my my recession probability model. So here’s a forecast of the probability that we will go into a recession 12 months from now in October. This uses data through October of this year. So it shows the probability of recession through October of next year, and a few months ago, it went up fairly sharply. That was because there was a big decline in housing construction. And that often happens before a recession. I did not believe that that actually was going to lead to a recession. Even though my model said there was a 77% chance of recession. But we’re now back down to 33%. But there’s a lot more in this in this presentation. I’ll I was mentioning to you that that one of the problems is that we have imbalance in labor markets. And we talked about unemployment. The unemployment rate, even though it has ticked up is still well below its normal level, its natural level. And one of the things that we look at is, as

Eric Chemi 17:12
you’re saying, unemployment is too low employments too high, you’re seeing too many people have the job right now,

Brad Case 17:18
I don’t want to say that. What I’m saying is, there aren’t enough people looking for the jobs that are available,

Eric Chemi 17:24
there are not enough people looking for. Okay

Brad Case 17:28
So let me go to a different chart and tell you what I mean. In the lower right, I’m showing the employment to population ratios for various groups of people who are more vulnerable in the sense that when the economy starts to weaken, they tend to be the first to lose their jobs. And when the economy starts to strengthen again, they tend to be the last to get their jobs, right. So what So if these numbers were starting to go down, then that might be an early warning sign of a coming recession? They are not, whether we’re talking about Hispanics, and it’s and and I would say Hispanic or Latino workers, but it’s all it’s all people because it’s it’s, it’s, it’s showing whether they decide to look for a job, whether we’re talking about Hispanic people, or black people or youth, or adults who do not have a high school diploma, their their participation, their employment level is almost higher than it’s ever been. So that tells us that the economy is very strong. And even the people who typically have the most difficulty finding jobs have been able to look for and find jobs.

Eric Chemi 18:39
What else you got, what else? I feel like you have a few more slideshows a few more, and then we can get

Speaker 2 18:43
chatting again. So here is one of the things we’re looking at aggregate balance, what does that mean?

Brad Case 18:49
So this is looking at, I’m looking in the lower right where it says household debt service coverage. Okay, so households have debts for a lot of households, that’s mortgage debt. And then they also have credit card debt, car loans, other forms of debt. And this is saying, what are what is that debt relative to their income? How much can they cover their required payments on their debt, and it’s actually there that it’s very positive. The mortgage payments are low relative to people’s income. Total debt service payments are low relative to people’s income. And there’s another piece of source of data with Anonymous chart because it’s a much shorter time period, but it’s looking not just at debt payments, but other financial obligations, like I have to pay my rent, I have to pay my property taxes. I have to pay my utilities. And again, those financial obligations are low relative to people’s income. So again, even though even though we may see people’s credit card balances go up, that doesn’t mean they’re high relative to their ability to pay them off.

Eric Chemi 20:04
What about the idea that there’s haves and have nots? The average can look like one thing. But there are people who are doing great and amazing and their incomes are going up and their debts are going down. And then there’s people in the middle, where it’s Oh, my income is not going up, but my debts are going up, but on average, it looks okay. But but you’re really it’s almost like the stock market. Right? The Magnificent Seven is dragging up the other 100 493. But the average looks okay.

Brad Case 20:29
Yeah, no, that’s, that’s always a concern. And, and we will see that increases in default rates, or delinquency rates. But we’re starting from a fairly fairly a position in which there aren’t that many people in trouble. If you think and think for example, of back in 2005 2006, there were a lot of people who became homeowners, for whom homeownership was a real stretch. And when house prices declined, and interest rates went and mortgage interest rates went up, they got in big trouble really quickly. So that was a real shame. But when you look at growth in median wage by wage quartile, we have seen some decline in the pace of wage growth among the people who have who get the highest wages. But we haven’t yet seen any meaningful decline in wage growth among people who get lower than medium median wage.

Eric Chemi 21:32
So that’s that top chart here. This top right chart.

Brad Case 21:34
That top right chart here. And so this is this is data that, you know, the Atlanta Fed pays attention to, all the time and updates their data. So so so the one thing that really worries me, I’m gonna put aside from the possibility that the stock market may go down is affordability for people who would like to buy houses. And so I’m looking here in the lower right, this is the housing affordability index. And it has not been this low since the 1980s. And that’s a that’s a function of two things. Number one, interest rate, how home home mortgage interest rates are extraordinarily high. By recent standards. There, they’ve been around, you know, close to 8%, more like seven and a half percent if you don’t count the people with the really big houses, the jumbo mortgages. But on top of that house prices have been so dramatically high, it really makes it not affordable for people to buy houses who don’t already have houses. So that’s, you know, so that’s where plenty of people are hurt. It’s not the overall economy, it’s the fact that housing is too expensive. Now, I think that this situation is likely to be a little bit become a little bit easier, partly because interest rates are not likely to stay as high as they are right now. But also, because I think there is a real problem, a real possibility that house prices may go down and they may go down sharply. If you look at the lower left of the median house price, you see how much of a decline there was from 2006 to 2011. A lot of people lost a lot of money, because their house prices declined so dramatically. And that may happen again, that does worry me.

Eric Chemi 23:27
The interesting thing is, if you even bought at the top of 2006, at that median home price, you’re still way ahead of the game. So you’ve almost doubled if you can hang on, you’re still ahead even if you buy at the top,

Brad Case 23:38
Well, that’s the key if Eric Right. If you can hang on, then it’s not a stretch. But a lot of people who buy houses, they’re not the people who have spent their career building up their bank accounts and their investment accounts. So they’re not the people who can withstand a dramatic decline in their more in their home values. That people who are buying houses right now are unfortunately, in some cases, they’re people who are being encouraged to buy, they’re being told, Oh, it’s a great investment. I’ll tell you the truth. It’s not homeownership is not a better investment than putting your money in the stock market. And right now, as I’ve mentioned, stocks, stock prices are elevated solar home prices. So I don’t know why either of those would like look like an appealing investment. But on a long term basis. Homeownership is not a good investment.

Eric Chemi 24:30
We have so much to discuss there. Right. So are you saying that people should be renting that they get them they never own a house they they never catch up, right? That that median home price keeps moving further and further up and away from them.

Brad Case 24:42
It doesn’t always move up. It doesn’t always move up just like the stock market doesn’t always move up. A lot of people lost a lot of money in cryptocurrency because they thought it was they saw it always moving up and so they jumped in and suddenly it started moving down. It’s the same with all investments. The thing you have to remember about about housing is, you should buy a house for exactly one reason. And the reason is that that’s the house you want to live in, and you can’t live in it unless you buy it. But a lot of people, and this is increasingly true, they want to be able to move to where the better jobs are. And if you buy a house, then as soon as you start to move, you’re going to be looking at a 5% commission to sell the house, and it’s going to take months and months to sell that house before you can actually move out of it. If you rent a place, it’s much easier to move and it’s much cheaper to move to where the better better jobs are. Are we?

Eric Chemi 25:41
Are we walking into a generation where no one’s going to be able to afford a house and we’re all going to be renters? Because I see big companies and there’s by house after house after house so they can rent it out, or apartments that the we’re gonna have this nation of renter’s, I’m sure you’ve seen these stories, right? Are you afraid of that for the future for kids and grandkids going forward?

Brad Case 25:59
I’m not afraid of it for two reasons. Number one, you know, the idea that there are these, you know, hedge funds who are buying up all the houses, it’s, it’s just not really true in the real world. Yes, you can find examples of where a house has been bought by a hedge fund. But most rental housing is is owned by you know, people whose job is rental housing, and it’s not units that are appropriate for home buying anyway. But the other reason that I’m not worried about it is that I think that going forward, renting a home is going to be more and more appealing. And what I mean by that is it used to be that you had two choices. If you wanted to rent you had to be in a multifamily in an apartment building. If you wanted four walls of your own, you had to buy it. Okay, now going forward, we’re seeing more and more development of single family rental communities. They’re professionally managed, they have the amenities like the pool and the clubhouse and, and this and the storage, they have the amenities that you associate with a high quality rental apartment building. But you have your own four walls and your own lawn

Eric Chemi 27:13
Is that when Middleburg focuses on that kind of rental housing community,

Brad Case 27:17
it is not our focus, we do both rental housing, both single family rental and, and traditional apartment buildings. But when I say single family, single family rental, I am talking about these professionally managed rental housing communities with four walls, I’m not talking about buying a house in the middle of a residential neighborhood,

Eric Chemi 27:38
I do wonder about even just owning this house that I did, how much we pay every month, property taxes, maintenance, landscaping, the gutter cleaner, the electrician, the plumber, all of a sudden, you’re effectively re renting it all over again. And you’re stuck if you can just walk away.

Brad Case 27:54
And I have done that analysis. And I actually hope to be debt publishing a paper before the end of this year. But a lot of people all they’re looking at it, all they’re comparing is the mortgage payment with the rent payment. And that’s misleading, because your mortgage payment doesn’t include all of the maintenance and repair, it doesn’t include all of the lawn lawn care. So you can actually come up with numbers to make to make up to draw that comparison. And if you take everything into account, you know, your your your your mortgage payment, or your housing payment, if you’re a homeowner is much higher than you then you realize, and your rent payment covers a lot of amenities that you would have to get separately if you own a home, the neighborhood pool is a separate payment. But if you are in a rental housing community, whether it’s a multifamily or single family, then the pool is right there, and it’s included in the rent.

Eric Chemi 28:49
So what are your main concerns right now, regarding the housing market, whether it’s the bike or the rentals, when you look at housing in general, what worries you.

Brad Case 28:57
So so the main thing that that that worries me is, you know, we need to make sure that people have the ability to move to where the jobs are. And my company’s focus is on the southeastern part of the part of the country, basically, from Virginia to Texas. And there are a lot of people who are moving into that part of the country. And and then there’s so much in so much demand for housing, that we need to make sure that we have enough housing being developed to meet the demand from people who are moving from other parts of the country. But if you don’t have enough housing being built, then it prevents people from moving from those parts of the country where they just don’t have the job. So you end up being stuck in a job stuck in a bad job or stuck in a location where there aren’t any good jobs because there isn’t enough housing in the part of the country where you would like to move to because you know there are good jobs available. We know that job mobility we need a lot of job mobility in this country.

Eric Chemi 29:56
So explain that again. So you mentioned Virginia to text size to that includes the Carolina It is as well, because I feel like everybody since COVID has been moving to the Carolinas and Texas and Tennessee and the classic right, I’m going to Nashville are going to Austin, Texas. I’m going to Cary, North Carolina, all of these kinds of cities, everyone’s going down there. But I want to, is it they’re going to move there and then find a job or their jobs there, then people move like it is a little bit of a chicken and egg thing. How does that all play out here? Especially because so many people move? I don’t think all these jobs are there. These are all remote workers.

Brad Case 30:29
Yeah. Well, no, you see there, there’s where you’re wrong. It’s not since COVID. It’s over the last 30 years? Because and

Eric Chemi 30:39
accelerated the height accelerated since COVID.

Brad Case 30:42
Yeah, yeah, there was there was a there was a very short term boom, in movement to the southeast. But that’s not why my company is, is developing housing there, my company is developing housing there, because for decades, companies have been moving there. So you have companies moving to places where, you know, they just didn’t used to be interested in moving to like Orlando, Orlando is more than more than just Disney. Orlando is a lot of new employers who are moving there. And a lot of employees are moving down there to work for those companies. So you mentioned, you know, Cary, North Carolina, you know, another good example, or, or Charlotte or Richmond, Virginia, these are places where companies from, say, San Francisco, or New York or Boston, those companies are saying to themselves, number one, we’re paying a lot of money for the office space that we have. Number two, we’re paying a lot of money so that our employers, employees can afford to pay rent in these very expensive markets. And it used to be that we didn’t want to move to a place like Charlotte because it didn’t have the cultural amenities are the quality education that we and our employees are looking for. That’s no longer true. And so the companies are happy to move to a place to company to cities like that, because they know that a lot of their employees will want to move with them. And there’ll be other people who want to who want to move, who already lived there, or who want to move there who will apply for jobs with them.

Eric Chemi 32:13
What about the idea that if you rent, and rent and rent and rent, you’re you’re, you’re unable to know that you can still live in this house, you might get kicked out because they can jack up rent to lease if you buy a house? Well, you can let the roof leak you can you can cut costs and survive and stay there. But in a rental, if you don’t pay, you’re getting kicked out, and they’ll keep changing the rents on you every year. So it might be cheaper today, but all of a sudden, two or three years from now you’re caught in a bind, what do you

Brad Case 32:40
what you’re saying is, is perfectly true. But mostly in theory. In practice, the landlord wants a dependable tenant. And so if you start if you lose your job, the first thing you should do is go talk to your landlord and say I just lost my job. But you know that I’m a dependable person, you know that I’m a responsible person, I’m going to be looking for a new job right away, can you can you work with me so that I don’t get myself you know, behind on the rent, and still stress out that I had trouble finding a new job. The landlord wants to keep the same renters in those apartments every month. Now, if you’re not a responsible person, then they’re not likely to likely to to want to work with you. But But generally speaking the landlord’s it’s you know, every time you move out, the landlord has to spend money to fix up the apartment and then wait for somebody else to want to rent it. So they would prefer to have you stay in the apartment and they will work with you to get that accomplished.

Eric Chemi 33:47
What are the the other data points are looking at in terms of renting versus housing? I liked seeing that affordability ratio, that right now. Renting is a better deal than housing. But it doesn’t feel to me like that’s because renting is a good deal. It feels to me because buying a house is such a bad deal. It’s yeah, it feels like it’s worth it’s more of a problem on the buying side than it is a benefit on the renting side.

Brad Case 34:09
Yeah, the problem is that most people have a very, very short term sense of what’s happened historically. If you look at at house prices over a very long period, you know, I You mentioned at the beginning that I did my PhD dissertation work with Bob Shiller Bob, aside from from earning the Nobel Prize in Economics, he has also looked at long term stock price movements and long term house price movements. And if you look at the long term, house prices don’t typically increase at the rate they have since COVID Over the last few years. And so it’s a very poor idea for people to think that suddenly we’re in a situation where house prices, you know, are gonna go up dramatically forever. And so all I need to do is push my way in.

Eric Chemi 34:58
Do you see a house price collapsed? hoping that in the near future.

Brad Case 35:01
That is even more concerning to me, then a stock market collapse. And the Texas Federal Reserve Bank, for example, has it produces what they call an exuberance index of house prices. And, and that flashes yellow or red. And so they think that for the last several quarters, in fact, you know, the housing market in this country has flashed either yellow or red. And that means that there is a very high probability of A sharp downturn and house prices. And as I said, you know, the problem is, when your house price declines, you can’t move into a different city, you’re stuck in that house until you come up with 5% of the value to pay a broker,

Eric Chemi 35:49
and you got to live somewhere else. So then you downpayment to pay for something else, or different interest rates. But why does it matter? Like, why does the house price matter that someone needs to move as long as they still have their job, they don’t need to move just because the house price went down.

Brad Case 36:04
That’s correct. You know, so So most people don’t move unless two things are true. Number one, there’s a disruption in their life that may be a divorce or a job loss or something like that. And number two, their house price has gone down. So if there’s a disruption, then they look at their financial situation, and they think, to themselves, the house price has gone down, I’ll be better off. If I default on this mortgage. That’s, that’s generally speaking, what causes people to default. But it’s not just a matter of whether you’re going to default on your mortgage, it’s, my child is going to college, they chose a college more expensive, they got into a college that was more expensive than I was expecting. I knew that I had equity in my house that I could borrow against, oops, it’s gone, I can no longer borrow against the equity in my house, because the value of that house has gone down and wiped out my excess equity. That’s the kind of thing that, you know, people, people just just don’t have enough of a sense that when things go bad, they can go bad, especially if you’re stuck as a homeowner with an with a house that you bought when when house prices are very high.

Eric Chemi 37:12
So it feels like your concerns are, you know, no particular house prices could collapse, that we might see a stock market collapse because the bubble is high. But also you’re afraid of runaway inflation, it feels like we can’t have both sides of that, right? If we have runaway inflation, then are we going to see collapses in things that go up nominally with inflation.

Brad Case 37:33
So I mean, you know, the problem with runaway inflation is that the Fed needs note that the Fed needs to stop it, they know, they know they need to stop it, they if inflation does restart, which is a real risk, then they will continue to raise interest rates, and that will continue to drive mortgage interest rates out. So yeah, that could spark a collapse in the house market housing market or the stock market. I want to emphasize, I am not predicting any of these events. These are just the things that I worry about.

Eric Chemi 38:05
Okay, what’s your most likely prediction?

Brad Case 38:08
My most likely prediction is that next year, it’d be it’s possible that there will be one more rate increase in the interest rate, because the economy is so strong. But following that, I think that next year inflation, it will become more clear that inflation has been conquered, even for the long run. And the Federal Reserve will will allow interest rates to come down again, not to where they were before, but to the three and a half to four and a half percent level, let’s say. And, and that will, that will enable the economy to continue growing not as strongly as it has been growing. But the important thing about not letting inflation rate interest rates go too low, is that when interest rates are too low, people make stupid decisions. And that’s true in my business in real estate. If interest rates are too low, then people feel as though they can do whatever they want. It’s free money. It’s not free money, it shouldn’t be free money. So when interest rates are, are relatively high, as I said, and the three and a half to four and a half percent range, then people tend to be careful about whether they’re making good decisions with their money. Now, when when policy interest rates are three and a half to four and a half percent, that still puts puts mortgage interest rates around 6%. So so it’s not going to make it much more appealing for people to buy houses. But I think it’ll probably my my most likely scenario is a pretty comfortable economy going forward.

Eric Chemi 39:50
What else am I not asking? What should I be asking you this conversation?

Brad Case 39:54
Let’s see. So, so one of the things that that really does worry me, and it actually worries To me at the state level, is that pension funds have made very poor investments over the last 30 years. And a lot of those investments have been in venture capital in private equity. They have not

Eric Chemi 40:17
chasing returns alternative assets,

Brad Case 40:21
that the pension funds have been careful not to measure accurately whether they have performed well in choosing their investments. But as a result, taxpayers in those states are going to have to come up with extra money, extra tax money to to help make the obligor the, you know, the pension obligations that the states have taken on. And that will do two things. Number one, it’ll hurt the economy’s in those states. The other one is bad for people in those states, but not for it bad for companies like mine, which is that it’ll encourage people to get out of those states that have their very high pension obligations, and move into states that didn’t get in that kind of trouble over the last 30 years, that worries me,

Eric Chemi 41:15
will that create a bad spiral, a bad cycle for those states? Well, we got to raise taxes, people leave. So we raise taxes on the people that are left, and then eventually everyone’s gone, and we can’t tax people. 100%

Brad Case 41:26
Well, unfortunately, I think that the response eventually will be we simply cannot cover new workers with that kind of pension plan. And so

Eric Chemi 41:35
I thought that was obvious. That should be obvious. Now. We can’t cover new workers on those pension plans. I don’t know what we’re waiting to find out here.

Brad Case 41:43
I’ll tell you, Eric, when I was in high school, when I first learned what a pension was, I thought to myself, that doesn’t sound like a very good idea. Because there’s such an incentive to do a bad job of investing the money and, and putting the money into the system. So, you know, I don’t think that current retirees are going to be hurt by it. But I think taxpayers are going to be hurt by it. And future employees are not going to be helped.

Eric Chemi 42:12
Yep, yep. So how is Brad case investing his money right now? So would you not be buying any kind of real estate? I said, not buying a house right now? Where would you put your money? Is it not stocks? I assume? Is it is it bonds, then like where would you put your money gold?

Brad Case 42:26
So I typically invest 100% in stocks, okay. And, and that’s because I have a very high tolerance for risk in my portfolio. I’m not bothered on any day that the stock market goes down. Because I know that over the long term, it’ll go back up. However, over the last six months, when a new plug of money comes in, I have not put it into stocks, I put it into bonds, or or seat certificates of deposit, or I bonds from the US Treasury that will not last forever. And it’s not normal for me. But the other thing that I’ve done is I’ve taken money out of the US stock market and put it into other countries, especially emerging markets, where I think their stocks are no not overvalued the way they are in this country.

Eric Chemi 43:15
Okay, and I’m sure people are gonna ask because you mentioned Schiller and I know, it’s not the case, when they see the Case Shiller indices. I know that’s not you, but explain. Maybe you know, the Case that it is or the coincidence. What’s the story though?

Brad Case 43:26
So the Case Shiller the Case of the Case Shiller indexes was Carl Case, isn’t it, who was called Chip, he was a professor at Wellesley College in Massachusetts. And he was a friend he died several years ago. Interestingly, it fooled my father too where he knew that I was doing some similar work. And in fact, there’s a different index called the Case Quigley index, but it’s not a commercial product, and that’s why you’ve never heard of it. The case Quigley index is me. And the case quickly index in the Case Shiller Index, we’re kind of going head to head and academically speaking, my side one commercially speaking, we weren’t in the game. So the Case Shiller Index became famous. But as I said, it pulled even my dad, we i

Eric Chemi 44:12
Your I’ve never heard of this other one. What did you win? And what does it mean to be a commercial endeavor? Are people paying for the index? And yes, it’s there’s not as good as the one that you did explain some of this.

Brad Case 44:22
You can actually trade options and future you can trade derivative products on the Case Shiller Index, okay. You cannot trade products on other on the case. Quigley index. We’ve never tried to do that. The difference between the two indices is that the Case Shiller Index, requires very little data as long as you’re willing to make a very strong assumption, which is that housing quality hasn’t changed between the times that a house transacts that case Quigley index says wait a minute. A lot of houses do too. gains in quality between sales, we need to take that into account for sure. That’s what makes the case quickly index a more accurate index. But it is harder to harder to come to compute.

Eric Chemi 45:10
Yes, people do renovations or they do nothing in the house deteriorates the house is never identical from buying to selling. If

Brad Case 45:18
it’s just a matter of normal deterioration, you can just you know, you can, you can make an a fairly, fairly easy assumption to get around that. It’s when people fix up their houses, that it’s a real problem. And as many people do, the other thing that happens is that if you move into a house and you realize it’s a lemon, you know, there are leaks in the walls that you didn’t that weren’t obvious when you bought it, then you sell it again. And guess what, because you sold it again, it shows up in the Case Shiller Index, in the case Quigley index, it would be counted accurately.

Eric Chemi 45:49
I see. That’s always my fear anytime I think maybe we should move. My fear is that we would walk into something and it would be just a complete debacle. And I’ve spent five years you’re fixing any possible leak or hole or something that I don’t want it to start that process all over again, somewhere else if I don’t have Yeah. And

Brad Case 46:06
in fact, I published a paper in an academic journal many years ago, just looking at how often did a house transact. And it turns out that the houses that transacted most frequently, were the ones where the values weren’t going up much. And guess why? Because everyone was finding out they were lemons.

Eric Chemi 46:23
Yeah, you see that in some of the property histories, right? When you see like, oh, this house sells every three years. That means nobody wants this house there. They’re in and out. Very cheap rent. super fascinating. Thank you so much for the conversation. So where can people find you more? If they want to maybe read some of your public work? Are you on Twitter? Is there a newsletter on YouTube? How do they find you if they want more? So

Brad Case 46:46
I am I am on LinkedIn, Brad Case, comma, PhD, comma CFA, comma, CIA. I also publish articles at And I publish other things. Occasionally, my company has a research page. It’s, it’s But most of the research that’s on that page is for is for people who work for big institutions who invest in real in big, big real estate projects. So that research page isn’t going to be of interest to a lot of individual investors. But some of the things I put in on put on LinkedIn and probably will.

Eric Chemi 47:31
Right, thank you so much. Thanks, again, for all the time you spend walking us through your analysis on the macro environment, the housing industry as well. Thanks. Thanks again to Brad Case.

Brad Case 47:40
I am very pleased to begin with you.

Eric Chemi 47:43
And for those of you watching, again, thank you for staying through all of this and getting these insights. If you’re hearing this and wondering, maybe I need some financial help, maybe I need to think through this with an expert, you can go to There’s a very short form there. We can connect you with investment advisors that we endorse, it’s a free service, you don’t have to work with them. You can just have the consultation if you like them great if you don’t, no worries, it’s just something that we provide. If again, you’re listening and thinking maybe I need someone professional to help me before I go do something crazy with my money. And if you liked this episode with Brad case, and I share it forward like it subscribe. These are all ways that we can get the word out there so more people can listen and watch. So thank you again for joining and we’ll see you next time.


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