HOW BAD WILL IT BE? 2027 Real Estate Outlook

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Michael Zuber (0:57)

All righty, folks, we have the man, myth, the legend, the chief investment officer himself from Bigger Pockets, Mr. Dave Meyer. And today we are going to talk about real estate 2027 But before we get into that, let's welcome to the show. How are you doing, buddy?

Dave Meyer (1:12)

Good. Thanks for having me. I'm excited to be here.

Michael Zuber (1:15)

Absolutely. Thank you for the opportunity. We are going to get two recordings today. We are extra lucky, so thank you for that. But let's start with number one. I want to talk about Real Estate 2027, and I've collected about eight or nine headlines. I'm going to rattle off, and then you and I are going to riff on what we see coming. So according to MBA, Mortgage Business Association, interest rates will be above 7% throughout 2027 So we have that to look forward to. Loan originations in total, which obviously will include refi, not only purchase and refi, will be down 30% according to MBA total.

5% for single-family homes, but in total, 30%. Pending home sales appear to be collapsing. Builders are blowing out inventory, taking it on the chin with margin. Foreclosures are up 42%.

The unemployment rate is now rising. We have record debt levels. Car loans, student loan delinquencies are at records. Turnover in the housing space is at a record low. Active inventory is, of course, building. Everyone is scared.

What say you? 2027 is all good news.

Dave Meyer (2:26)

It's all good news. Everything is rosy right now.

Michael Zuber (2:31)

Well, there are plenty of negative headlines to pick from. Does any of those particularly scare you the most, or you want to poke out a little bit?

Dave Meyer (2:38)

Oh, man.

Nothing scares me that much. I'll just say that I don't think a massive disaster is brewing just yet.

I think we're in a correction, and it's going to get steeper. And so everything you just said, in my mind, supports the thesis I've already been going on. We're in a bad market. It's slow. Well, bad. You know, there's good pros and cons to every kind of market. But we're in a slow market, I would say, and an unhealthy market because affordability is so low. But I just don't see it getting better. I think it's going to get worse before it gets better. And I, you know, mortgage rates above 7% kind of clocks with me. I, you know, it's hard to predict these things, but that certainly looks like it. The pending sales collapsing is kind of what worries me the most out of all the things you said. I will say that foreclosure thing doesn't really bother me. I think that stat is a little misrepresented a lot. But yeah, I think we're in for a bad year next year for industry people, you know, like for people who rely on transaction volume, it's going to be a bad year. And I know a lot of people have wrongfully been promising, next year's the year it turns around, next year's the year it turns around. Well, next year's not the year it turns around, in my opinion.

Michael Zuber (3:57)

Yeah. Yeah, this is important because, you know, I've heard you say worse, you know, bad, all of that. And it seems to be you are leaning into transactions. This is not going to be some epic collapse in price, because everybody gets it twisted.

When a lot of people hear a bad market, a lot of people lean to price. And I don't hear you saying that.

Dave Meyer (4:19)

No, I do think prices will probably come down on a national basis. But in my own forecasting, I do. I think it will be low single digit on a national level decline. You just we have all of the ingredients, in my opinion, for prices to go down. But the key ingredient that you need for double digit price declines in residential, at least, is distress. And distress is not that bad right now. In fact, by most measures, whether you look at delinquencies or early state foreclosures, it's below 2019 levels. At which point, no one was worried about a foreclosure crisis in 2019 So could it change if the unemployment rate goes to six? Sure. But right now, there is not evidence of that. And so I think that the distress piece is really dramatic. People are pointing to that and saying there's going to be a collapse. I think when rates started going up, I said the things, the mechanics of the market that I think are going to happen is demand is going to go down because people are tired of this. We're seeing that in pending sales.