A "Hurricane" is Coming for the Real Estate Market - Billionaire Real Estate Investor

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Published 2023-08-08
One of the world’s most successful and respected real estate investors is sounding alarm bells of the hurricane brewing in the real estate market. Barry Sternlicht is a billionaire and the co-founder, Chairman, and CEO of Starwood Capital Group, an investment fund with over $120 billion in assets under management. Starwood is one of the largest real estate firms in the world and Sternlicht’s position as CEO gives him an inside look into what’s happening in the real estate market. That is why it got my attention when in a recent interview he talked about a quote “category five” hurricane that’s months away from hitting the real estate market.

To truly understand what is going on in the real estate market, you first need to understand the relationship between real estate values and interest rates. Real estate is an asset that has what is referred to as a fixed income stream. A fixed income stream is a relatively predictable amount of cash year in and year out. If you are an owner of an office building and your tenant has a 10 year lease, you know what you should be getting paid in rent over the next 10 years. These locked in cash flows are the fixed income stream real estate produces. Here is what Sternlicht meant when he said any asset with a fixed income stream decreases in value as interest rates rise.

Real estate is what economists refer to as a commodity. The price of any commodity is dependent on the supply and demand dynamics at that given time. We know from earlier that the value of the building is dependent on the cash it generates. However, what determines what rent you as the owner can charge for each of those units? It’s the supply and demand of apartments within that particular real estate market.

For owners of the apartment building, so-called “strong fundamentals” is when demand outstrips supply. Over the past few years, the economy has been extremely strong. Unemployment was low and government stimulus programs were high. Add to that the fact that home prices skyrocketed, forcing many would be home buyers to stay renters. These factors caused demand for apartment units to increase, pushing our demand line here out to the right. Notice how the supply and demand line now cross at a much higher price. The higher rents increased the cash apartment buildings generated, making them even more valuable.

*Disclaimer: Neither this video, not any content produced on this channel should ever be considered investing advice or official financial advice. All content is made for entertainment and educational purposes.

All Comments (21)
  • @MegatPage
    Because so many people overpaid for homes even while loan rates were low, I believe there will be a housing catastrophe because these people are in debt. If housing costs continue to drop and, for whatever reason, they can no longer afford the property and it goes into foreclosure, they have no equity since, even if they try to sell, they will not make any money. I believe that many individuals will experience this, especially given the impending mass layoffs and rapidly rising living expenses.
  • @regulaueli6216
    Thanks. Good video. I'm never 100% sure I can make money. Never place 100% of your savings in just one type or type of investment
  • @hankmarks69
    I remember in 2007 when I was working in real estate seeing people buy homes new from builders with the intention of selling before close of escrow to a new buyer for profit. The crash was so brutal and fast that I remember seeing a lot of these units foreclosed on with the builder plastic still on the carpet.
  • @nicolasbenson009
    Asking a real estate agent whether you should buy a home right now is like to asking an alcoholic whether they think you should have a drink lol. Homes in my neighborhood that cost around $450k in sales in 2019 are now going for $800 to $950k. Every seller in my neighborhood is currently making a $350k profit. Simply unreal. In all honesty, deflation is what we require. The only other option is for many people to go bankrupt, which would also be bad for the economy. That is the only way to return to normal.
  • @dylanmoris6211
    Isn’t it crazy how mortgage rates continue to rise with higher imports and declining exports? meanwhile the FED is yet to lessen cost. Something will eventually break if they keep raising interest rates and quantitative tightening
  • What are the best strategies to protect my portfolio from a crash? I've heard that the market crash will devastate the financial market, so I'm concerned about my $200k portfolio.
  • @RusuSilva
    I anticipate a housing market downturn due to the numerous individuals who purchased homes above the asking price, even with favorable interest rates. Despite the low rates, many are now at risk because they lack equity. If housing prices continue to decline, they may face difficulties selling or even risk foreclosure if they can no longer afford the property. This scenario is likely to impact a substantial number of people, particularly with the anticipated surge in layoffs and the rapid increase in the cost of living.
  • @user-ny5xe2hx7t
    Watching how the real estate market is being manipulated in favor of some persons, I’ll advise we venture into other marketing options and look for other ways to invest that will be favorable to us
  • @EdwinBoettcher
    Newbies need to learn the ropes, know how much risk they can handle and diversify their portfolio. Some folks get help from money experts or do their homework before making investment moves. It's all about being smart with your funds.
  • @aarondaniels5525
    I used to think every investor went broke during recessions, meanwhile some make millions. I also thought everybody went out of business during the Great Depression, but some went into business. Bottom line, there's always depression for some, and profit for others, it all starts from having the right mindset. That said, I've set asides $150k to invest for future, unfortunately l'm a complete noob.
  • Creating wealth and financial freedom isn't as tough as many people believe. Building wealth and remaining financially stable indefinitely is a lot easier with the appropriate information. Participating in financial programs and products is the only true approach to make a high income and remain affluent indefinitely...
  • I believe that the common people need to do the opposite of what these billionaire investors complain about. Everything works in their favor, not ours.
  • @AnnaKrueger809
    I just sold a property in Portland and I'm thinking to put the cash in stocks, I know everyone is saying its ripe enough, but Is this a good time to buy stocks? How long until a full recovery? How are other people in the same market raking in over $200k gains with months, I'm really just confused at this point.
  • @gabriellat.6735
    This video is beyond amazing. You’ll achieve a lot doing this.
  • @harrisonkyunghee
    I buy small houses on large lots in towns where new houses are being built on small lots. Eventually the large lot will either be split or someone will want to build a mansion there. It’s always a “good deal/good idea” if it’s a good company/property etc. market fluctuations are just gravy.
  • I don't look at my house as an investment, it's paid in full, all I care is I have a roof over my head, could really care less about what the market does.
  • @volcomman1408
    He owns 3,200 single family houses. Corporate America purchasing a lot of homes. This, in part, is why home prices have gone up. This, in part, is why the average American can’t purchase.
  • @Kevrow88
    What this dude is not telling you is that this happens by design and he will make more money off it. Take what he is saying with a grain of salt. Education on the housing market since the Great Depression and bank crashes in 2008 are all by design
  • He’s part of the problem. Real estate groups buy up neighborhoods and then either rent them out, not allowing for purchase or they sell them at exorbitant amounts