Markets, Homeownership, and Championships – Ep. 302

Welcome to the Accumulating Wealth podcast. I’m Judson Crawford. And I’m Hunter Satterfield. We are CPAs, wealth advisors, and partners at CWA, a financial services firm here to help you navigate the decisions you face every day. And today is another scattershooting episode. We’ll cover a little bit of all the things that are moving the economy and the markets right now, and maybe a little college football. Ooh, my favorite. Yeah, we’ll do a little market talk, a little bit about the future of homeownership, and also why America wins. It’ll be a good one. Let’s get into it. 

 Okay, listeners. We are recording on August 20th, about two weeks away from the kickoff of the greatest season of sports, which is the college football fall season. Not even two weeks. Yeah, it’s coming. I mean, it’s like a week from two days from now. It’s coming. Yeah. It’s going to be a blast this year. 

And we have to do some predictions as usual. We always do that, and we’re always right, always. Always right. It’s amazing. We don’t pick our teams to win the national championship every year and they don’t. Haven’t yet, in my case. Okay. Yes, there is that. 

So we’ll do… Let’s do this. We’re going to do our team’s record. Okay. We have to pick two teams that are going to make the semis, and then we have to pick the champion as well. Okay. Is that good? I like it. Okay. Are we going to start with our records? Yeah, let’s do records. Go. Tech. What is the season going to look like for old Tech? 

Well, I’m optimistic even though most of you that have any pulse on college football know that there’s been a little bit of controversy around Texas Tech football and their quarterback specifically. But we’re hoping to get last year’s young buck that tore his ACL back early in the season. 

 I don’t want to over-project. Our schedule is very favorable. I’m going to say 10 and 2 just because we can’t have really nice things. So, I’m going to say 10 and 2. All right. Even though I’d be hard-pressed to pick the two. Yeah. 

I’m going to go… we have a brutal schedule. Seven preseason top 25. It’s not going to go well. Have to go to Death Valley, have to go to Tennessee, have to go to Kyle Field, play the Aggies, the Ohio State at home. It is just brutal. I’m going to go 10 and 2. I think we lose one of those big games, and then we lose another one we probably shouldn’t. So, 10 and 2, but we’ll get into the playoffs, and that goes to two of our semifinal teams. 

I very clearly am going to pick the University of Texas to be one of those. Give me your first one, and then I’ll pick my second. Well, I’m going to change my second because UT was my second, so we’ll change that because that’s kind of already been done. And I’m picking my Red Raiders again to be playoff team. Homers. Total homers. We’re so homers. 

My second team is going to be the University of Oregon and all their highlighter uniforms. How about you? Yeah, I mean, now you’re talking about that means that they’re not going to get the first-round bye, or are you saying of all 16? Just have to make the semis. Yeah, just have to make the semis. I think Oregon and Texas are two of the four. 

Okay. Two of the four. I’m going to say Miami again. Oh, wow. Ohio State’s not making it, folks. That’s right. You heard it. It is Miami, Tech, Oregon, and the University of Texas, and of course, the champions will be the Texas Longhorns. 

I don’t want to play Oregon again. I’m just saying we didn’t fare well. I’m so homer right here. Texas Longhorns, let’s go. Hook ’em. Went all the way? I think Miami’s going to be back again and win the whole thing. All right. I really do. Well, Fernando’s not there, so. They were fairly impressive. Yeah, and Fernando’s not there to save the day. That’s right. 

Well, there it is, folks. Mark it down in stone. Go put your bets in. It’s going to pretty much happen at this point. So, let’s do a little, let’s do a little market talk, and then we had a listener question from one of the greatest listeners of all time, so we’re going to cover his question as well as sort of at some interesting stats on America and how we win. 

But a couple things that are super interesting, folks. So about seven years ago, Meb Faber is somebody I follow online and does some really interesting studies, and about seven years ago he did a historical stock averages for 100 years of all the presidents, and this is what he came up with. 

So, year one of a president, historical stock averages market’s up 6%, year two 5%, year three 22%, year four 11%. Now, Judson, you might ask, why am I saying this? And it’s because we’re about to enter year three of this presidential administration. So based on history, it should be the best of the years. 

Now, are there outliers in that? Of course. Yeah, yeah. What are… Can you tell what they are? No, I can’t tell what they are. Okay. I didn’t know. Why do you ask questions like that? Well, just because you have a lot of information in front of you. Yeah. 

So historically, what we’re about to do is enter one of the best periods. What’s really interesting, too, is that typically in year three, small caps perform the best of any sector. Well, that’s, I mean- they’re not doing too shabby right now. Indeed. If we’re in the mood for betting, this is a pretty good bet.  

And I think Judson, the second study I want to share – We’re calling it predicting – maybe talk a little bit more – there’s no guarantees here, folks. And maybe talk a little bit more about this is so here we are, right? We’re theoretically based on these stats, it tends to be that markets perform very well in year three, maybe small caps do a little bit better. Who knows, y’all? So many things could happen. 

But the next one that I thought was interesting is something that just came out from Creative Planning. They have a good research arm, and since 1989, money invested when the market is at all-time highs actually outperforms money invested on any given day. 

Interesting. Pretty staggering. I mean, again, this is now – Counterintuitive to a degree. Exactly, 30 years. And I think it coincides a little bit with this because I think at parts, we might say, could we really see another market increase next year when we’ve already seen three in a row? Fascinating question. 

But again, it tends to be over the last 30 years when you invest at all-time highs, it continues to do even better long term. So, you can see the stat, Judson, I’d love your opinion on sort of this theory, but basically in the short term, it’s like, hey, it doesn’t really matter, but when you really get out three and five years, money invested at all-time highs does better than money invested at all other time periods. By a decent margin. Yeah. What do you think about that?  

I think that what that means is that none of us actually have a crystal ball. Yeah. I think that – I totally agree, by the way. And who really knows? I think the other piece here is that when the market tends to be doing very well, it continues to do very well, right? 

I mean, I think that’s sort of intuitive and at first glance you might say, “That sounds so stupid, Hunter. Why would you even say that?” But it’s true. It’s like, if we are entering this next sort of AI phase, and AI really does impact things very positively, and we see robotics and all these other types of things, it’s intuitive that we would continue to see the markets grow. And there are outliers for sure, but I think again, it coincides a little bit with what we see in that presidential study as well, so. 

Well, and again, I think that everything is timing, right? We are currently in a period where we have gone, like you just said, multiple years in a row of market growth. And so, statistics look different if we were in a trough at the moment, right? Especially on short-term. But I think that ultimately going back to it, all of these things really just go back to the fundamentals that we always repeat on here time after time is, which is keep putting in your dang money, keep doing the things that you know are going to get you where you need to be, and don’t second-guess it too much. 

Yeah. Don’t go partisan. Don’t overthink it. Just keep buying. I mean, that’s what we say over and over again, and those, I think those two studies at least give us some direction that things might perform positively. Of course, maybe that means they go down. Let me ask you a question. Tech winning the national title or a 10% market down year next year, which one are you going with? 

Those are my two options? Well, you have to have one of them is my point. Oh, I have to have… I should say. No, I get they have to go together. Correct. They have to go together. This is really hard because I love my clients and America a lot, I’m going to go with Tech. I mean, because it’s going to bounce back and really what it is, is that this will be a good opportunity for me to teach my clients to keep investing. It’s just been so easy for them with the markets going up … that’s what it is. I want it for my clients, not for me, bottom line. Yeah. 

So the question becomes, I, by the way, listeners, I painted him into a corner there. He had to answer that, I think pretty much. But I think the question becomes, if the market’s down 10%, how are you going to pay for your national championship tickets? That’s right. And I will take a bus to wherever it is. And just $20 handshake to get in. That’s right. All right, whatever. I’ll start a crowdsourcing. It’s going to go great. Yeah. 

Okay, so speaking of America and how much you love America. A cool little study came out that basically says U.S. businesses last longer, okay? So, what this study did is it’s the survival rate for U.S. businesses, corporations, over one, three, and five years, and it compares us to all of the EU, the UK specifically, and Germany. 

So, let’s just explain what this looks like, folks, since you’re not looking at it. So over a one-year run, historically, about 78% of U.S. businesses make it, 82% of the EU, 93% of the UK, and then 73% of Germany. So, on a one-year basis, it tends to show that the U.S. Doesn’t perform as well. But when you go out five years, we’re smoking everybody. 

51% of U.S. businesses make it versus 46%, 38%, and 37%. So I think that’s interesting for a couple reasons, Judson. Obviously, the U.S. economy is one that is hyper-focused on capitalism, whereas some of those others are not as much. We also create a ton of businesses, and a lot of those businesses fail in comparison to those other countries. But then the ones that make it make it for a long, long time, right? It shows as an economy, generally speaking, the U.S., we don’t hesitate to go out and take risks and take big risks, and we know that some of those things are going to fail, but man, we win long term. 

Yeah, and I’d be really interested to know the numbers behind this, what I mean by that is how many businesses, like when we’re talking about that one year, how many businesses are started in the United States compared to Great Britain, for instance? 

Probably more. I mean, I would think lots more. I bet more are started in California than the entire EU. Well, that’s true. Right, exactly. So, it’s an interesting stat but yeah, the numbers behind it would be really interesting to see just how many more we’re talking about here because I think it would be staggering. 

No, this is scattershooting. You’re not supposed to ask for specifics. I know, but I keep doing that. You’re asking for too many specifics today. I keep doing that. Well, and what this reminds me, like, there’s… Sorry to go all history on everybody, but you know what? Deal with it. You’re used to it at this point. 

But it does remind me of something I read a few years ago. There’s this economist, Joseph… Look at this guy. Look at this guy. Joseph Schumpeter. I think that’s Schumpeter. It might be Schumpeter. So, he was an Austrian economist, y’all, and- So it’s Schumpeter. Yeah. Got it. It’s exactly right because you’re from Austria, pretty much. 

And he’s very well known for talking about this concept that basically capitalism can only be understood with two pieces. And that’s what we are here as an economy, and I think that many of our listeners as business owners are the exact same way. 

It’s continuous innovation and creative destruction, and they have to go together. So, creative destruction is a concept that basically, new businesses are going to put old ones out of business, right? At the same time, as an economy, the U.S. doesn’t stop. Like, we just keep innovating over and over again, and that ultimately is what creates the capitalism that we have here. 

And I think, Judson, especially as we start deep diving data centers here over the coming episodes, I think that’s one of the best things that we see in an economy like ours, that we don’t stop innovating. And we recognize that innovation is going to tear down old things, but ultimately that innovation is going to drive everything going forward. 

It’s very interesting. What do you think, if you had one guess, what do you think his friends called him? Okay, we’re not going to do that, Judson. We’re going to stay on topic. 

Double-clicking even further into sort of the theory here, listeners, and I think a lot of this is going to be for those that are listening, but it’s basically if you really look at this process, which is why I think America continues to win, it combines three elements: innovation, entrepreneurship, and credit, right? 

So, we all know that you as business owners have to go out and get debt to finance for many of the things that you want to do, but you have an entrepreneurship attitude, and you’re constantly innovating, whether it’s processes or buying new equipment or whatever else it is. 

And if we think about that, that is why we win. That’s why the whole world looks at us constantly as a part of this process. But I think we have to use that as a framing for the next 5, 10, 15 years because this next cycle is going to be scary at times about old businesses going out of business, but it’s all a part of the process. So anyway, super interesting study, and it kind of led me down this Schumpeter path. Mm-hmm. As it did you. Yes. Different paths. 

You’re sitting – I’m still sitting here, I’m listening. I turn around, I finish talking, and I look it over at you, and you’re staring kind of at your computer, and I know what you’re thinking. You’re just thinking, “How can I weave in Peter some more here?” No, I was… No, it’s not. Okay, I appreciate that.  

Can we talk about our next question? This is one of my favorite questions we’ve ever received from an Accumulating Wealth podcast listener. Okay. I got an email, not sort of out of the blue because I was told it was coming, or I encouraged a person to have this person send it. 

But one of our planners here who you and I completely love, Holly Grube, her son is an avid listener. Blake, if you’re listening, you are the man. What’s up? Might be 13 now, but something… It’s 12 or 13, something like that, and this email that he sent us is unbelievable. And we’re going to go through all these questions because he sent us some questions, listeners, and they’re all fantastic, and we’re going to go through them, but the one that we want to do first, Blake, thank you for bringing it up, is something that actually hit home in my client meeting today, and that’s why, “oh, it’s time.” 

So, Blake asked us if we could cover the future of homeownership in America and I’m reading this word for word. “The future of homeownership in America and how that may be affected with Kevin Warsh as the new Federal Reserve chairman and Trump pushing for lower interest rates.” Mic drop, dude. You thinking about things like that, Judson? At his age? 

Well, it’s timely based on our podcast schedule. Boy, is it. So, let’s do it, because my client today, he’s got a, 22, 19, and 17-year-old kid, and he asked me this very question. He’s like, “How are my kids going to be able to buy houses?” And I love that because Ronnie’s going to be the same way, and Ethan’s going to be the same way, and so will be for Luke and your kids. Because things are just more expensive, rates are higher, inflation continues to rise so we thought we’d spend a little bit of time on it. Where do you want to go, Judson? 

Well again, if you happened to listen to last week’s episode we talked about Kevin Warsh. We talked about, where we think he is going as a Fed chairman and where we think rates are going. And ultimately, in the short term even though, Blake, back in May and June, a lot of people thought that rates may be going down. Well, times have changed in these few months, and it looks like rates are going the opposite direction. And on the podcast last week, we talked about the sort of hand-in-hand of fighting inflation and interest rates, and because inflation is rising, interest rates are going to be going up is what it looks like. 

Over the past few years, I mean, heck, over the past 20 years, all we’ve seen is low rates and housing costs go up, and people keep getting to afford those houses because rates have been low. And now here we sit, and we’ve kind of got this opposite thing where housing prices, maybe they’ve stagnated a little bit in some areas, but rates have gone up. 

I think the answer to the question is we may not know exactly how it works out, but thank goodness we live in a free market, right? Because there is a point in time where people have to sell houses. And there’s a point in time where people want to buy houses. Whatever that means, those buyers and sellers can’t dictate rates. All they can dictate is price. 

And so, at some point, there will be a meeting of those. Does that mean that, Blake, you get to buy the house exactly the size you want in the area you want? Well, maybe not. But there has to be a meeting of those prices because we can’t just go to an economy where houses just don’t sell at all. I think that’s part of it in a bigger, broader sense. 

Yeah, no, absolutely. And I think to put some numbers behind this, exactly what Judson’s talking about, folks, AI, I said, “Hey, what was the median home price in DFW prior to 2022?” And it came back at about $340,000. 

Okay. What is it now? It’s about $399,000, $400,000. So, it’s up $60,000 or 20% in the last three years. But rates have doubled, or for some tripled, depending upon what fixed mortgage rates were back then. And so, then I just said, “Hey, run the monthly mortgage payment.” So, you’re looking at a monthly mortgage payment that is $900 more per month just in P&I to buy the exact same house, and we haven’t talked about taxes. 

Well, and insurance. And we haven’t talked about insurance. Insurance is a problem. So, we’re well over $1,000 more a month, $12,000 to $15,000 more per year, and we haven’t even covered property taxes and insurance. 

And so, what my client was asking me today was like, “How is this going to work?” Because it also now means that you have to have more for a down payment to get into it, and you have to have more on a monthly basis, and it’s going to get worse, and it’s going to get worse. 

And I think there’s a confluence to your point, like a free market really helps, but there’s a confluence of other ideas we’ve been touching on this summer, like demographics is a great one. And if you remember going back to listen to that one, listeners, he talked about like the next 10 years as many of these kids that have just graduated from high school or college, which is the highest ever, start to get into housing formation years, there are actually going to be more buyers looking for homes. 

So, if we can continue to build homes, we’re going to be fine. But at the same time, there’s going to come a time where this cliff does happen and the question’s like, “Okay, well, how is that going to work?” The other thing to think about is as these folks go in to buy homes, what does a world look like where we have drone delivery, where we have maybe robots that are delivering stuff, robotic cars or autonomous cars or whatever else it is? 

I believe, hot take, I believe that the current 17 through 23-year-olds will be more open to living well outside of cities, in smaller towns and regional towns, because they get a better quality of life, a lower cost of living, and they can still have many of the services, nice food or whatever delivered to them, and they can do so at a better price point. 

And so, it might create a little bit of downward pressure on housing prices inside of urban areas. So, there’s a lot to think about, Blake, and I think that you’ve asked a really great question that I don’t know that we necessarily have the answer to, other than saying a free market will help take care of this for many of the listeners. 

Well, the other thing is that, and again, going back to that demographics episode, if you didn’t listen to that one, it’s super interesting. But one of the things he talked about was, he’s sitting in New York City, and as they’re looking at it, the age of household formation, I think he said, was somewhere between like 34 and 43, right? 

 That’s who they’re looking at as their buyers. Well, as Blake sits there at 13, and we also said this to each other, is, probably because home prices were lower than national averages, you and I got into our first homes in our early 20s, right? That’s abnormal for many areas that were more expensive or for bigger cities, the Bostons, the New Yorks, the LAs. 

 People couldn’t buy homes at that age, and so maybe again, maybe in other areas, that age of household formation really does look like more in your 30s and it’s really, really hard when you’re in your 20s. Again, I just don’t think it means that you’re just not going to own a house one day. Yeah. 

The final thing I would probably touch on here is we will have a lot of those homes are going to be going from baby boomers, Gen Xers, down to those new generations, and a question becomes, as baby boomers maybe move into assisted living or pass away, are they going to be willing to maybe just gift some of those homes to their grandchildren? 

I think Gen X, we are seeing now, both Gen X and millennials, a lot of this craziness going on as kids go to college and these parents are paying $20,000 for interior designers for dorms, which is just bananas, by the way. Or like $6,000 for a sorority consultant. I mean, this generation of parents is different, and so will they come alongside and help their children? Again, it’s a fascinating question. 

Now, that does push home prices higher because people will have the down payments, they will have the monthly mortgage payments and so I think that’s also a competing factor to what we’re talking about. Ultimately, there are so many both demographics things, parental support things, where are rates going, that I think that the best thing that we could probably answer for folks is the free market’s going to do what the free market’s going to do. 

I love that you made that comment, Judson, because it will be there for folks if it’s like, “Hey, it’s really expensive to build a house or buy property right now. I can’t afford to move outside of the city.” I think the market will work itself out to where folks can be able to get themselves into homes. 

 Yeah, I think a piece of advice to wrap it up to Blake is, don’t forget to make friends with old people in your neighborhood. Do nice things for them. You never know when their house is going to become available. Especially Schumpeter. Yeah. If you meet Jacob Schump- I think it was Joseph. If you meet- Jacob’s his son. More likely to be alive. 

Well, as always, folks, the best way to keep up with us is to subscribe to this podcast. That way you will never have to miss an episode, and you can go back and listen to all the others. Enjoying us so far? Leave us a review. Hey, you know what? If you have a question like Blake, thanks Blake, you rock, comment or suggestion for a future episode, drop us a line at cainwaters.com/wealth. 

We really do answer these. If you want to learn more about what we do when we are not recording these episodes, visit cainwaters.com to see how we are helping almost 4,000 clients reach their long-term financial goals. Hook ’em.