If I had a crystal ball… That was the general sentiment shared at our 1st Monday meeting of August in which the always insightful Scott Abernathy, President/Owner of PMI Professionals and previous President of the National Association of Residential Property Managers, guided us through the macro and micro of real estate cycles.  We’ve hosted this same discussion 3 times in the 5 years I’ve been in leadership, and each time is always different.  When it seems we might be tipping into one stage or the other, as it currently feels to me personally, the room has always been able to ask questions that leave us rather uncertain.  The analytical person in me wants desperately to control the narrative “we’re clearly in xyz part of the cycle, and you should do this, that, or the other.”  Thankfully this time I was not in control and Scott, a long time investor, teacher, and leader of many real estate organizations, wasn’t going to give away the answers so quickly to the room.

So where are we in the cycle?  Well, the best I can give you is my own opinion, and that’s purely from what I see as an Agent, Investor, and Co-Director of one of the largest Real Estate Associations in Middle Tennessee.  From my seat, it’s a mixed bag.  I know, cue the “why have you wasted 2 paragraphs to get to nothing?”  But trust me, hold on, it's worth the read.  We’re in a moment of sideways movement.  For those of you who track the stock market, you can call this an uncertain trend line.  We're all waiting, waiting to see what the Fed does, what the President does, what the Mayor does, what our Insurer does, and all of that can help us read the leaves of if we’ll break out in one direction or the other.  The stubbornly high interest rate story is part of it, sure, but it’s also a pricing issue.  

Single family housing prices skyrocketed over the last 5 years and while we were all on the unbelievable ride upward in property values, now that that rocket has fizzled a bit, we’re feeling uncertain, uneasy, and perhaps even unfairly treated.  That’s not to say it wasn’t fun getting here, but somehow we all forgot that what goes up must come down.  Policy makers, from the President on down are trying to keep this ball rolling, keep the values moving upward, and continue the good times, and I never put it past the government to kick as many cans as they can down the road.  Heck, it’s been 15 years since we exited the Great Recession, and through money printing and government spending, minus the brief drop during the early months of Covid, we still haven’t had a true recession.  All that to say, we have definitely had a rolling one.

For example, office space is literally in the tank, though improving.  We as a people, aren’t using our offices the same way anymore, and with the right money, connections, and experience, you can still go out and buy troubled skyscraper assets in downtown locations (particularly those older buildings that were purchased recently, and leveraged to the hilt on low interest loans, in expectation of BRRRing) for 15 to 20 cents on the dollar.  That’s a crash folks. 

Conversely, in the superhuman growth phase right now is retail, with near full occupancy.  Just try opening a new restaurant with decent road frontage and not paying through the nose for it.  

On the other hand, Multifamily is showing shaky signs, though its saving grace continues to be the high cost of single family homes.  Apples to apples, monthly mortgage payments are now higher than rents, and that was not the case prior to Spring of 2022.  I remember having a tough time leasing houses in 2017, because if a potential tenant had any kind of decent credit, they would just go buy a house for 20% off monthly rent.

What multifamily is waiting for is lower interest rates and a soaking up of excess inventory.  Many parts of the country (Los Angeles, Chicago, Austin, Seattle, Nashville) are still offering 2 and 3 months of free rent and this year that continued into the normally hot spring and summer months.  

AirBnBs are in a weird place too.  Are people not traveling as much for vacation, work, or simply to get away?  Well yes and no.  More importantly, the supply of rentals is outpacing demand.  I’m hearing many stories of hosts who were once seeing the amazing benefits and income from running a portfolio of short terms, now losing money monthly on their STRs and the MLS appears littered with overpriced single family houses that come “fully furnished” and with “extra bedrooms.”  But as I said above, the mythologized single family home is still out of reach for many, and many more continue to want their own, which keeps prices hovering and in some areas growing at a slower pace.  

So you see, there is indeed something going on, and perhaps it’s the clarity of knowing what YOU want from the market that makes a difference in whether you make a boat load or a thimble full of money in the next year.  Just know we’re here to help you Every Step Of The Way.

Wyatt Wallace
Co-Director, TNREIA