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WHILE YOU POUR THE JOE… ☕️
Divine Justice

I heard on a podcast recently that the taxes you pay in your country are like a subscription to get access to that country’s services and products.

Well, that makes sense, but.

Don’t you feel like the tax system needs to change a bit? I mean, people and capital are leaving the United States for places like Asia and the UAE, where everything is cheaper and healthier, and taxes are a joke. 👀 

It’s happened throughout history. The Dutch, the British, and now America.

I don’t know, maybe Trump will end up pulling the trigger on that 15% flat tax, I know damn sure I’d be happy about that one.

Speaking of change, let’s get on with today’s email 📧…

DO NOT BUY A HOME (YET)
Mi Casa No Es Su Casa

This is the level of housing inventory across the United States, and as you can see, it is pretty much 50% higher than last year. 📈 

That’s not good.

Especially as another demographic wave of housing inventory is going to hit us across the face with a baseball glove.

I’m talking about both boomers and deportations, both of whom are going to leave vacant homes behind when they part ways. It doesn’t look like there are many buyers lined up to pick them up, but more on that later.

For now, let me give you some stats:

• According to Fannie Mae, starting this year, 13 to 14 million boomers are expected to leave their homes behind over the next decade.

• This data might be a lot more than it seems, but just over one million immigrants are expected to be deported in 2025 alone, according to Reuters.

I know I know, immigrants didn’t really own homes anyway, but what do you think happens when rental properties suddenly see occupancy rates fall?

Their value plummets, good old Cap Rate math. 📉 

Alright, so do the math here; if Reuters is right, the housing inventory would more than double from where it is today.

This begs the question, why keep building anything in this case? 🤷‍♂️ 

Well, the answer is pretty clear, builders are pulling back hard. Housing starts contracted by as much as 8.9% over the past month, the biggest scare since July of 2020 (when we all thought the flu would kill us).

That being said, I bet you’re glad you watched our latest YouTube video where we spelled out why there is an inherent weakness in the homebuilders right now.

Back to housing.

That’s the mortgage market index, which sits at a 1996 low right now to show you just how bad things are amongst potential homebuyers. 📉 

When you combine how hard everyone is dealing with the 2021-2024 inflation today, and you throw 7% mortgage rates on top of that, who in their right mind would want to buy a home?

But that’s not all.

Homes are still 30% more expensive than they were in 2019, the last time prices rose this much in such a short period of time, there was a massive pullback to follow shortly after.

We’re talking about a potential 20-30% decline on home prices across the board DESPITE if the Fed ends up cutting rates based on pressure.

Remember, if they do cut, then our recession thesis would also be proven right, tying the knot with this real estate view. 🫰 

TRADE OF THE WEEK
Still Worth It

We wouldn’t be of much use to you if we didn’t tell you where money can still be made despite this potential downturn in real estate.

So, apart from the 30% run you’ve had in Rocket Companies stock from our last mortgages pitch, here’s a REIT that’s worth looking into. 🔥 

Name is Realty Income, and we like it for one single reason.

It’s 5.7% dividend, which can be a proxy for its property portfolio’s cap rate, also high.

Look, boring cash flowing companies have taken the backseat during the past five years of excess and exuberance coming from EVs, crypto, AI stocks, and semiconductors.

In the same manner, defensive real estate has become cheap while still generating more income than ever due to inflation rates. 💵 

That’s where Realty Income comes into play.

This could explain the $2.1 billion of institutional capital that made its way into the stock over the past quarter, a sign of confidence and willing buyers backing the story of defensive real estate making a potential comeback.

That being said, this isn’t the typical double-digit upside idea, I think Ternium and Rocket already took that spot. 🎯 

This name is more about locking in a dividend for yourself in the coming quarters, create some liquidity (they pay monthly) and then reinvest when you know what hits the fan.

Target for us is closer to $62, so that’s just under 15% upside from today still. 🤝 

GO AND MAKE IT HAPPEN
Party’s Over

Next time, your realtor friends tell you that this is all wrong, that you should still buy despite the high prices, and bla bla bla.

Refer to today’s book recommendation 📖, where it will become clear to you that today’s behavior is only a repeat of what always happens at the top of the cycle.

People are sitting on a lot more cash through stocks and property and think they own the world and can never be wrong, and that’s when you sell.

To your success,

G. 🥃