November 28, 2023

As real estate valuations skyrocketed over the past two years, the power of negotiation favored one camp: sellers.
Home sellers have had the clear advantage since spring 2020, as rocketing investor demand and dwindling housing inventories brewed the perfect storm to drive housing prices out of the stratosphere. But like all booms and busts, not all cities are favored equally. According to a study from Florida Atlantic University and Florida International University using data from April, the top three most expensive cities in the US at the time were Boise, ID; Austin, TX; and Ogden, UT at a respective 72.64%, 67%, and 64.73% overvaluation.
But the tides have started to shift, said husband-and-wife real estate experts Kenny Simpson and Krystle Moore.
“It’s shifted from a seller’s market to a buyer’s market,” Moore told Insider in a recent interview. “If you are in the market to buy, this could be a very opportune time for you to not only buy a property, but to negotiate on your terms.”
Based in San Diego, CA; Simpson and Moore collectively have 35 years of experience in real estate between them. While Moore heads Pacific Shore Capital, a firm focused on commercial real estate financing, Simpson leads residential financing at his firm, The Simpson Team. According to their websites, both firms have each funded over $1 billion in loans.
Before selling their property management company in 2017, Simpson and Moore also managed over 1,000 real estate units. According to Moore, the two are also real estate investors and personally own approximately 50 units themselves, while having a small percentage of ownership in about 175 other units, she estimated.
According to Simpson and Moore, the biggest takeaway right now for investors is the urgency to read through the current fears of the “sky falling” in real estate. While rising interest rates have pushed up mortgage rates and made home buying less affordable, Simpson emphasized that investors must act now or risk engaging in ruthlessly cutthroat bidding wars if they choose to wait to invest.
“Be scared when everyone else is greedy and be greedy when everyone else is scared,” said Moore, referencing the classic Warren Buffett quote. “Everyone’s kind of scared right now.”
Fears of a looming recession, market volatility, and a potential housing crash have also chased investors to the sidelines, but the end of the bear market and this current “wait and see” period will trigger a tidal wave of investors flooding the market, said Simpson.
“You’re going to have another frenzy. Hopefully you’re not buying then because you might be overpaying for a house because interest rates are low, demand is high, and people feel very confident that this is now the ultimate time to buy,” he added. And even after a recession or potential real estate pullback, he believes that housing deals will never again be as cheap for investors as they were ten years ago.
But while an impending recession may drive fear in investors, real estate is considered a traditional safe haven asset during times of economic decline, said Moore, who explained it’s because even the most cyclical real estate markets can generally weather the volatile market swings found in equities and cryptocurrencies.
Additionally, Simpson and Moore believe that due to rising job migration, home values will continue to appreciate. That’s especially true in areas like San Diego where land is scarce, versus states with more room to build like Florida, Texas, and Arizona, they explained.
“In places like California, you just cannot build fast enough. So we are always going to have a supply problem, and then we’re going to have a demand problem,” said Simpson.
As red-hot markets like Austin and Phoenix hit their peak, it may be difficult to understand which markets present the best opportunities for investment. But Simpson and Moore say that opportunities lay in every market, even the vastly overvalued.
Simpson and Moore also emphasized the importance of investors to understand which areas are more cyclical, citing Phoenix and Las Vegas as examples of these “boom-and-bust” markets. Part of the reason they’re classified as such is because of their vast swaths of untouched land, said Moore, which means that they always have the potential to build more housing supply.
Besides job migration and demand, another factor that comes into play is a state’s political climate. For instance, California isn’t a particularly landlord-friendly state due to its lengthy eviction process, while states like Texas, Florida, and Arizona are known for their more business-focused environments. But with investors flocking out of states like California, that creates much less competition for the investors who choose to remain, added Simpson.
And even though cities like Phoenix may be currently facing a pullback, Simpson emphasized that market demand always eventually comes back.
“There’s a price point where people will enter again and they’ll feel comfortable to go,” he explained. “Overall, yeah, there is a pullback and a correction, but if you look out five years, I don’t think that’s going to last.”
While every market has its opportunities, Simpson and Moore recommended that real estate investors start out in a market they’re familiar with to avoid being confused.
“Where you live, you know it better than any place probably on the planet,” said Simpson. And even if prices crater in markets like Phoenix, Moore still emphasized investors practice caution before choosing to chase deals outside of the areas they’re familiar with.
“There’s plenty of deals here in my backyard that I can just buy, so I don’t have to worry about flying to Phoenix and getting to know the brokers and building the relationships, because this is also a relationship business,” she explained.
It’s also important to be fluid and adaptable, especially since investors don’t always get the properties they have in mind right off the bat, Moore added. Investors should also start small, like with a single-family home or a four-unit multifamily property, so they understand their deals and what they can qualify for.
But after gaining some experience, Moore recommended that investors transition to multifamily properties with more units due to the economies of scale principle, which she called a “huge benefit” in residential real estate. That’s because as investors scale to larger buildings, vacancies and tenant turnover will decreasingly begin to negatively impact their cash flows.
According to Simpson, buyers should be in a good spot for the next six months, especially as general Wall Street consensus is for inflation to settle at a lower rate by the year’s end, despite a record-high June reading. But even though interest rates have soared, Simpson said that investors have the option to refinance their mortgages to better terms once interest rates recede again.
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