S5 E4 - Iran and Mortgage Rates, Inventory Issues and Buyer Tips

We connect global conflict and oil price shocks to mortgage rates, then bring it home to what those swings mean for buying and selling in Chicago right now. We lay out why inventory stays painfully low, why renters are flooding into the purchase market, and how to spot opportunity when everyone else hesitates. 
• how the Iran conflict and oil prices feed inflation and mortgage interest rates 
• why uncertainty can pause buyers and briefly reduce competition 
• what Chicago’s credit downgrade signals for lending and new construction 
• why rent growth pushes long-term renters into buying condos and homes 
• the inventory math behind rising prices and constant multiple offers 
• buyer strategy for a tight market including buying for 10 years and choosing space over finishes 
• why “ugly” listings and bad photos can be the best deals 
• seller strategy focused on online presentation, pricing, and avoiding underpricing traps 
Don’t forget to subscribe. And any questions, always feel free to DM or reach out to us. And you can look us up at Klopus Stratton Real Estate on all our social medias and the Jason Theory on the podcast. 

Transcript

Ugly Listings And Hidden Deals

SPEAKER_00 0:00

I know that these photos stink. I know it doesn't present well, but we still need to go there because the stuff that doesn't present well, that's the opportunities that buyers are going to get. You have to put boots on the ground and you have to get to those places and see them because the fact that that's not marketed properly, that is a benefit to the buyer. The same on the sell side. If you're hiring an agent and the agent says to you, don't worry about this, don't worry about this, everything's great, worry. Those buyers are coming mostly from rental situations and everything is perfect when they look online. It's all done like it's a model. So that's what they're attracted to. So on the sell side, if you're not presenting that online, that is gonna be a problem because 98% of everyone searches online before they start. So if the product doesn't show well, you're gonna have issues. There you go. It doesn't matter how much money we get, if we don't close, it's no money, right? So no close is no money. I'm everything that I am because of my dad's death. And I wouldn't be as successful without his death. Welcome to the Jason Theory season five, episode four. And on this episode, I actually have notes, and I've always done things by the hip. So I'm gonna get into it right away. These are the things that we're gonna be covering if you're listening. We're gonna talk about the Iran conflict and what that has to do with housing. We're also gonna talk about Chicago's main issues, which leads into the inventory issues and what we can do as buyers. So let's get into it. First and foremost, the Iran conflict. Okay, what does this mean for housing? First off, we want to break down a couple things. Iran is 4% of the oil in the country in the world. Only 4%. Most people don't know that the U.S. is the number one distributor of oil. We actually make up 22% of the oil in the world. We are number one ahead of most of the Middle East. We actually export more than we use. Most people don't know that. The reason this is an issue with the blockade in Iran is that it has taken oil from$50 a barrel to the high was$110 a barrel. What that does is double energy costs. When you double energy costs, you are starting to add to the cost of doing everything, which in turn leads to inflation and also higher energy costs will be eaten for a while by the producer, but at some point it is passed on to the consumer. I think this is gonna be a little bit different than we saw during COVID when the world shut down and we basically shut off all the oil and energy went to 116 a barrel, because this energy is being this energy spike, this oil spike is basically from the blockade on the straight, which is constricting 20% of the oil outflows to the world, which is causing basically the spike. Normally, when we have conflict, you will see rates actually drop, right? Because the government will want to ensure that in a time of fear or in a time of uncertainty that people continue to spend. How you get people to continue to spend is you lower rates, which has outflows and people lend more money and it keeps things going. I mean, that's what happened in the COVID situation. That's what happened in the mortgage meltdown. That's what happened on September 11th. You know, if you want to get on your Chat GPT and look at conflict and rates and what happened, you will notice that that always happens. This is a little bit different though. Because we're not really in a war and it's more of a centralized conflict, we're not getting that downward pressure on rates. We're actually getting an upward pressure, right? So we were before we put boots on the ground, we were right around 5.75. On a 30 year, we shot up to about six and a half. So 0.75% of a point, which is a lot on a hundred thousand. Let's say on a million dollar loan, you're adding, you know,$7,000 to your mortgage payments throughout the year. So, you know, that's not chump chain, six, five hundred to six hundred bucks a month that you're adding, right? So that is a decent amount of money. What does this mean for people? Okay, so we did have a little bit of a ceasefire a couple of days ago. Rates dropped almost a quarter point. The Dow went up for 1,500 points, and oil dropped 20% just on that. So we still have things going on. The strait is still blocked. So there is still issues happening. But what I want to talk to people about is is this a buying opportunity? And what I mean by that is are, you know, like just ask yourself, are you concerned about what's going on? Do you not care? Do you care? Are you into geopolitics? Does this cause you to pause? Well, I know from people that I've talked to and my customers that, yeah, everyone is like, man, what's going on? Well, that pause may pull people out of the market, right? I think you're still gonna have the people that want to sell and get do what they want to do, but you may have less buyers. This may lead to not lowering prices because we're way, we're way far away from that in the city of Chicago because of inventory reasons, which we'll get into. But this may cause maybe less amount of multiple offers instead of things trading 10% over asking, maybe they're trading for asking. And maybe you start to see a little bit of a balanced market in terms of this, not totality, not the whole year, but maybe you get a little bit of a blip for the next couple weeks where you can go in and not have as much competition. This is a huge thing. Now, most people don't have the, you know, the singular mindset of, you know, being a contrarian and saying, okay, there is an issue that's happening overseas, it may cause some issues here. You know, is it gonna escalate? What's gonna happen? All of a sudden we have this mental unrest. These are where opportunities came in. If you look at the market after September 11th, look at the market after 2011, look at the market after COVID, look at the market when Bush Sr. went into Kuwait, all of these things, if you look at them, they created buying opportunities and you have massive amounts of upside in real estate after these conflicts. One of the main reasons is because they cut rates because you're going into the conflict. We may not see that rate cut. I don't think we will, because energy is being affected, which is going to be opposite of what you want to do on this, but you will, I have a feeling for the next couple of weeks, have a little bit of a pause in terms of people going out and really trying to hit the marketplace. So we have this conflict, which is causing a little bit of issues in terms of people maybe taking a pause on their search and their buying, maybe saying, hey, let's let's tighten the straps. We don't know what's going to happen the next couple months in terms of this conflict and in terms of energy, you know, you obviously see it at the pumps, which I find very interesting when the US makes 22% of the oil that the minute there's a conflict and that that oil, that the gas stations jack up prices, you know, almost 100%. I find that rather disgusting because we have enough oil in the US that that shouldn't really be affecting us, but they're taking advantage of those situations. Also, traders are taking advantage. This is this traders are also taking advantage of the situation and there's speculation, right? So people are always trying to make money around the world. If they feel oil is gonna go higher, people start buying oil. Oil was really on a downward trend, like really on a downward trend. So if people are short oil, which means they're selling oil futures, they got caught. So there's a massive push to the upside. I think you're gonna see a pull on oil prices and you'll see gas prices come back down. However, that being said, we need that straight opened. So then all of a sudden the traders start to sell their futures on oil and you'll see oil prices come down, which I which will happen, which will put downward pressure the 10 year, which then will lower rates. So if you're nervous and you're like, oh, we were gonna buy, but rates went from 5.75 to 6.5, I see this as an opportunity. And I'm not saying this because, oh, buy, buy, buy. No, I'm saying it because people that bought during COVID when rates were 8.5% and 9%, they all are up 30 to 40 percent on their purchase, right? They all killed it. People that bought from 2020 to 2022, I'm telling you right now, are up 30 to 40 percent on their purchases. I had a client that bought a house for 1.28 million in Logan Square during COVID when no one wanted to buy, right? I just sold that property for 1.82, right? We're talking about a$500,000 increase in a matter of four years. That is happening. So look at this opportunity and figure out how you can make the most of this opportunity before the conflict ends and rates fall down, and then all of a sudden we start having 17 offers again on everything. This kind of leads me to the inventory issues we're having. And I will get into the inventory issues that we're having, but I kind of want to talk about Chicago's main issues, and that is the inventory issue. And Chicago just got downgraded in its rating by Moody's to BBB plus rating. So this rating is basically like one rating above, if I could kind of bring it into a military sense or into a geopolitical definition, into like a no-fly zone. So we are that close to basically saying, hey, Chicago in terms of lending money in Chicago is a step away from like, hey, I don't think you want to go to the Middle East right now in a conflict area and have an American flag wrapped around your body. I mean, that's kind of like that's what banks are starting to look at when they look at Chicago. So, you know, what does that produce? Well, people that are wondering why we don't have inventory, we really can't get the big banks to fund big buildings. And we've talked about this at nauseum, so I won't spend a ton of time on it. What I really want to talk about is that we look, we're looking at only 2,100 units. So 2,100 places being built from 2025 last year to 2027. Now, with the permit process and the way it is, you're not going to automatically get five or six or seven thousand units. It's not gonna happen. And people say with everybody fleeing Chicago, I don't understand how we have such inventory problems. Well, the amount of people fleeing Chicago does not overstep the lack of supply that we have from people coming in because there are a ton of people in rental units. Over 50% of Chicago rents. Over 50. At this time, studies say that there are nine renters for every unit that's on the market. If you're in the rental market, I'm sure you've experienced it. People re people put stuff on the rental market for 2,500, 3,000, whatever it is, and multiple offers all the way up to 4,000. Chicago over the last four years has gone from about$3 a foot to now five and a half dollars a foot. Okay? That's almost a hundred percent increase in the rental market. So what's that doing? That is pushing these renters at some point, it makes more sense to buy. Chicago historically, historically, has been the worst place to rent versus buy. Worse than California, worse than New York, worse than Florida, worse than everywhere else. I'm not saying we have the highest rent prices, but the rent versus buy, Chicago has historically been the worst place to rent. It has only gotten worse. However, those renters are now flooding into the buy market. So you're seeing incredible increases and some certain inventory. And that I'm sure you guys have experienced. Two bedroom, two baths in Lincoln Park, Bucktown, Wicker Park, Southport Corridor, townhomes, all of that inventory is crazy. You're talking about pricing that was, let's say,$475 for a 2-2, which is now$700,000. And people say, who are buying these things? Well, listen, when you're paying$5,500 for a thousand square feet, that equates to about$700,000,$600,000 on a condo. But the condo is going to be$1,350 square feet plus parking. What people don't seem to realize is that$5.50 a square foot on a rental, that doesn't include your parking. And it also doesn't include this tech fee. This tech fee is basically like, hey, if you want electric internet, that's another couple hundred. So you're talking about$6,000 for a 1,000 square foot two-bedroom apartment. Well, of course, if you're paying$6,000 and having no tax write-offs and you're not making any money, you're not paying down anything, you don't have the tax implications or any of that, you're going to go over into the purchase market and you don't really care what you pay. I mean, you do, but not what they used to, right? Because when I buy a two-bedroom, two-bath in Lincoln Park for$700,000, I'm still under what I'm paying in the rental market. And these renters over the last three years, the increases they've seen, they're done with it. They don't want to feel like at any point the rug's going to be pulled underneath them, right? So you have this massive run to these units. And then all of a sudden, you have people that are selling a condo that they thought they were going to sell for$500. They're now selling them for$700,$750. Well, they can turn around now and they got an extra$200,000 they didn't know they have. And that's what's forcing the single family home market. Now, the worst part about that is that there's no one building single family homes, right? There is a complete lack of inventory on that end. So this is all bubbled up, and it's bubbling up from the simple fact that we can't build units in Chicago because the banks won't build units because we've been redlined, right? So the only people that are lending are private equity. And there's just not enough out there and the margins aren't big enough. And people say to me, Well, I don't understand why we can't get financing in the city of Chicago, the third biggest city. The main reason is that they don't understand where the taxes are going to be. And when you underwrite a when you underwrite a project, you got to know what your your costs are. Well, when we run a$1.5 billion deficit, billion dollar deficit every year, and we have a$70 billion deficit, how do we make that up? So the banks look at it and say, well, we don't know where taxes are gonna go. At the same time, you have an outflow from the city of Chicago with close to$10 billion in cash that's moving south. So as this taxable, this is what New York, California, and Chicago are experiencing right now. As all this money leaves the state, I think it's$12 billion in last year,$12 billion in California, 10 billion in New York, and I think it's$8 to$10 in Chicago. You get the point. Those numbers are pretty close. As those outflows occur, where is the tax revenue going to come from? Well, if they don't have tax revenue from receipts, which means people spending money doing what they do in the city, right? When you buy stuff, you get taxed. That tax, that tax at 11%, then goes to the city to fund the city. As those receipts go down and businesses leave, they have to turn to the residents. Well, that's why banks are like, we don't know if we're gonna fund a$500 million project, we just don't know what how much money or what's gonna happen to the taxes on this project in two years, right? Because they're not looking to buy, they're not looking to build something this year. It takes years to build it. So that's why that's happening. So from that happening, what's going on with the inventory? Okay. In 2026, February of 26, year over year, inventory is down another 25%. So last year we were at about two and a half to 2.3 months of inventory, which is still incredibly low. Six is a balanced market. Some people say four, but it's more six is a balanced market. We're down to 1.6 months of inventory. So that is crazy low, like crazy low. And let me even give you some other stats that are nuts. That inventory means that we have only 4,500 homes on the market. 4,500 homes. Now you may say that's a lot of homes, right? There are 1.3 million homes in the city of Chicago. They believe, and stats, you know, who knows who makes them up, but they say that 18% of Chicago would like to sell their home and buy a bigger house. 18%. However, only 0.003%, 0.003% of the homes in the city of Chicago are on the market, which means we have to make up 17.7%. It's incredible. That's why the inventory is where it's at. And what has that done to pricing? In 2026 already, we're looking at a 6% increase in pricing. 6% because we have 18% of 1.3 million homes that want to trade up and only have 45 homes, 4,500 homes to choose from. That is insane. That is a really, really tight market. I mean, if you take a look at what people have done in 2010, the average price of a house was about 150,000 in the Chicago land in Chicago, you know, all over from north to south. It is now five hundred and seventeen thousand. That's the interior of the city, not Chicago land area. They were like go out to Naperville. That's not Chicago. 517,000. If you put 20% down in 2011, you made tenfold on your money. Tenfold. You put basically 35 grand down, and you've made$350,000, right? That's crazy. Inventory down, like I said, 25%, but sales are only down eight percent. So think about that. Sales are down eight percent, but inventory down twenty-three percent, which means that every month, more and more of that inventory is being sopped up to sopped up to sopped up. And that's what's pushing prices up six percent. So, what do we do as buyers? I mean, that's the main thing when you're looking at this. What do we do as buyers? Well, buyers, what they need to be doing number one, is not buying for now. You need to be buying for the next 10 years. And the reason I say this is that you have no idea where inventory is going, and you have no idea of what's gonna happen in the city of Chicago, or in your life, or in the world. You always want to own more real estate than you need at that time. And the reason being is that the transaction costs are extremely heavy, about six percent to get in and out of real estate. And when the market turns, it's a long term time to get out. In other words, I think about the fact when I bought a duplex down and I was a single person and I had 2100 square feet, I bought That I believe in 03. We ended up having a couple kids. The downturn happens in 2008 to 2010. Everyone else that was my age was starting to have kids and they were busting out of their space because they didn't think that they needed that much space. Now they could afford to get that much space, which is a big thing I want to talk about. Make sure you can afford that space. You do not want to be house poor, but I could survive in that space during the downturn and make sure that I got out in 11, 12, 13 when things started to rocket up again. You have to be able to do that. You have to be able to say, okay, where I'm going to be, what am I going to do? How much real estate do I need for the next 10 years? I'm not saying that you're going to be there for 10 years, but a lot of my buyers say to me, Oh, we're only going to be here for two or three years. Yes, but that may not be the case. That may not be the case. And you have no idea where rates are going to go. So basically, if you're buying enough space for the next 10 years, no matter what happens to rates, you're always capped at that rate you have because you can always refi down, but you're capped on the upside, which is going to cap your expenses. So if things get sideways here or there, you always know, hey, this is my budget where I need to be. So what does that do for you too? Well, what you need to make sure you do is how are you picking your place? What are the things that you want to do? As a buyer, there's three things you want to make sure. In a market like this, where it's really intense, you want to make sure you kind of stay away from the shiny and newer stuff. And listen, if you can afford the newer stuff, power to you. But if you're a buyer and you're looking for newer stuff that's shiny at$700,000, but it's only 1,200 square feet, or I can get 2,000 square feet in the same location, but it's not shiny at the same price, go with the more square footage. You can always add the finishes, and the square footage is going to give you the time that you need in that space so that you don't have to get out. So the first thing you want to make sure is, hey, am I getting enough square footage? The second thing you want to make sure is I want to be in an area and a location that I know is solid. I'm not going to go to an outskirt area because I want to make sure I have the ball or house. I want to make sure that I stay within my confines in a location that I know, no matter what happens to the marketplace, is going to kind of hold their uh its value. The thing with the shiny stuff is as these renters are getting priced out of those rental units and coming over, they're used to shiny stuff. So that's why you're seeing this massive spike and turnkey stuff, and you are still able to get some deals on the stuff that needs to be rehabbed. So that's kind of where you want to focus in on is make sure you get into that rehab stuff because that's where you're going to find deals. As a seller in this market, man, you're in an amazing, amazing situation because of the fact that there is no inventory and you are in charge. This is every year I do this podcast, so it's been year five. Every year it's been a buyer's market, a seller's market, and you always say, well, then this is the best seller's market we've ever been. We are every year getting into the best seller's market. I've never seen anything like this over the first quarter to have 6% raise in prices, to have the inventory go from 2.5 months to 1.6 months. It's continuing on that sell side. As a seller, what do you need to be doing? You still need to be presenting your project, your product the right way, because that is how you're going to take advantage of those renters entering that market. The biggest amount of money you're going to get are from those people that are not looking for value, but are looking to not be bothered and a turnkey. And pricing is key. The two ways people are pricing stuff right now is fair market, where the value is. We don't really know, but close to it, and underpricing. So the whole school thought of underpricing is to push as many people as possible to you it and get as many of almost like a almost of an auction style of selling. The only reason I don't like this style, and everyone has their own, you know, their own points on this, is that the human body and the human mind can only go so far up. And I've seen this situation backfire on people in terms of I saw where they listed so low, my clients would only go up to a certain point because at some point they're like, man, I just can't stomach paying that much over asking, even though they're not because of where fair value is. And I've seen places trade, you know, five to six percent under where they should have traded. Now, most people that are doing this are doing this on properties where people don't live in the state or it was canceled or there's issues, right? So people really don't know where the market's at, and they take it, and agents are taking advantage of that and just getting a quick sale or depricing it, pricing it low. But most agents now are what we're doing is taking where the comps were at the end of 25 and adding 5%. And we're still getting a 5% bump from that. However, everything needs to be presented the right way to make sure that that happens. So that's where the opportunity lays on the sell side, is you don't still want to sit back and go, the market's so great, I don't have to do anything. That isn't the case. You st unless you don't want fair value or to see the money that you're gonna get, you still have to put that time and that effort into that space to get that money that you want. So you really have to be looking that as a buyer and a and a seller, know each other's path, know each other what you're doing. As a buyer, when you go in, if you see everything done to the nines, know what kind of battle you're gonna be in. As a buyer going into a place that doesn't look great, you're probably gonna have an opportunity. What I tell my buyers is when they're looking at places, they'll mark not interested, interested. You know, they're they're going through the inventory. I go through my inventory and I'm like, hey, you mark this not interested. I know the street, it's amazing. I know the construction of this building. This is an opportunity, right? I know that these photos stink. I know it doesn't present well, but we still need to go there because the stuff that doesn't present well, that's the opportunities that buyers are gonna get. You have to put boots on the ground and you have to get to those places and see them because the fact that that's not marketed properly, that is a benefit to the buyer. The same on the sell side. If you're hiring an agent and the agent says to you, don't worry about this, don't worry about this, everything's great, worry. Those buyers are coming mostly from rental situations and everything is perfect when they look online. It's all done like it's a model. So that's what they're attracted to. So on the sell side, if you're not presenting that online, that is gonna be a problem because 98% of everyone searches online before they start. So if the product doesn't show well, you're gonna have issues. You know, I'm gonna do a shorter one today. So we're gonna kind of wrap it up just because it's myself. But I really want you guys to understand that keep your eyes on what's going on overseas in terms of how that's gonna affect your interest rate. It makes a huge, it's a huge uh part of how people are gonna react to the market and if they're gonna be buying or if they're gonna be selling. And number two, as a buyer or seller, look for those opportunities. They're there. As a seller, your opportunity is to make your place look as good as possible because that's gonna get your highest price. As a buyer, you wanna be looking for places that don't look fantastic because that is your opportunity in terms of getting a deal on a place. So that's kind of where it lays out right now. I think looking at the future and what's going on, you're not gonna see much price depreciation. Sophia and I in December had thought that we'd see 10% price appreciation this year. We're already at six. Chicago always has a little bit of a lull in going into June and July, and we're heading into that area. But then I'm telling you, July, August, September, October, November, you're gonna see another push. If you see something you love in the next couple months, don't worry about those rates. As that conflict comes down, you're gonna get back down into the fives. In fact, you'll probably be oversold because people will panic that they bought oil too high or they bought rates too high. And as they get oversold, you're gonna see that five and a half to five and a quarter. And I think that's gonna come in June and July. And you're gonna see that with energy prices also hitting below$50. Because we hit those lows on the interest rates several times last year at 3.9 on the 10-year, and we will break through that. So in closing, I have one last thing to say. And my final word and my final thought is people, as I drive home every morning, dropping my kids off from school, if you have a 10-year-old to a 13-year-old, walk them to school. I know some parents don't want to be bothered, don't want to walk their kid to school, they're have their mornings, their coffee, and oh, my kid can walk, we're only four blocks away. Not a lot of people want to think of things that happen, but don't forget that 300,000 kids go missing every year. And when you're sending a 10-year-old or nine-year-old on a four-block walk, it's still the city of Chicago. It's still a dangerous place, like every place. And take the time to walk your kids to school. I know sometimes it's an inconvenience, but the minute you have kids, you have said to yourself, I will be inconvenienced for the next 20 years. Please, I drive home on these streets and I see kids that are way too small to be walking to school on their own in these days and these times. So if you don't want to be inconvenienced and you don't have kids yet, don't have kids because you will be inconvenienced. But man, that inconvenience is what's amazing about having kids. You want to be inconvenienced, just like your parents were inconvenienced from you. That's it in closing. We'll see you guys in a month. Thanks so much. Don't forget to subscribe. And any questions, always feel free to DM or reach out to us. And you can look us up at Klopus Stratton Real Estate on all our social medias and the Jason Theory on the podcast. Thanks so much.