‘Coastal markets are going to start declining,’ Fundrise CEO says

Fundrise Co-Founder and CEO Ben Miller assesses the outlook of U.S. housing markets, investing in private real estate, and housing prices amid cooling demand.

Video Transcript

SEANA SMITH: After a hot couple of years, the housing market finally cooling off, but that doesn’t mean that there aren’t opportunities to invest in this space. Ben Miller, the co-founder and CEO of Fundrise, joins us now. Ben, since the last time you were on the show, certainly, a different housing market. We have seen report after report showing that the housing market is cooling down and cooling down quickly. So where are the most attractive opportunities in the space right now?

BEN MILLER: Yeah, I mean, the most interesting opportunity for us these days have been lending. So what’s happened is all this disruption in the market has made a lot of the banks and normal lenders afraid of going in the market. There’s been a huge pullback on overall credits. So we have been looking at lending, single family homes, lending departments, activity in the credit markets. Basically, when things are disrupted, you really want to be the capital available when everybody needs it.

DAVE BRIGGS: We are, though, seeing prices come down, cooling, essentially, across the country. What are the markets that are bucking that trend, and why?

BEN MILLER: Yeah, I mean, the top markets, Austin, Tampa. It’s really the high growth markets have just such long-term demand that they’ve been bucking it. It’s the fringe markets that maybe before had demand, but weren’t as deep, and also the coastal market. I mean, coastal markets are going to start declining as well, as the sort of demographic shift of people moving to the Sunbelt really impacts those cities.

RACHELLE AKUFFO: So, as we’ve seen relative to then, the broader stock market, you’ve noted that in your investor letter, the Fundrise portfolio actually achieved its best relative performance ever. What do you attribute that to?

BEN MILLER: Yeah, so Fundrise real estate beat the stock market by 25% in the first half of this year. And so, really, that’s because real estate is a hedge against inflation. When stocks and bonds are falling because inflation has been rising, real estate basically captures that in retro. So as a result, basically, we’ve had ongoing high returns while the rest of the market has really been in decline.

SEANA SMITH: Ben, an interesting dynamic that we’ve been closely watching here at Yahoo Finance in the housing market has been institutional investors coming in and buying in single family homes or even multi-family homes here. How big of a disrupter, in your view, has this been to housing? And what does this mean here for the future, at least over the next couple of years?

BEN MILLER: I think it is a big disruption. Basically, in some of the neighborhoods institutional buyers have bought 20% to 30% of all the housing that’s gone for sale. So I think this is actually a trend that’s here to stay. We understand it because it’s actually a great investment. And the way we’ve been trying to do it is by building new homes, not trying to buy homes that are already basically in the market that individuals are trying to buy. But it’s a huge change to the market, and it’s here to stay.

DAVE BRIGGS: Yeah, it’s remarkable. In the state of Texas, which leads the way, 28% of buyers institutional investors. But as we mentioned, with prices cooling a bit and rates surging, why is this a good time to invest in real estate with your firm?

BEN MILLER: Yeah, I mean, what’s great about us is, we basically are very agile. So we’re buying single family homes at great prices. And now we’re transitioning to credit, the lending, because there’s been this huge withdrawal from the capital markets. A lot of the normal lenders have left the market. So we can come in and get twice the interest rates we were getting a year ago. The interest rates have doubled, and they’re going to continue to rise. So all the action, all the rate returns, I think, are going to be in the credit markets for the next 12 months.

RACHELLE AKUFFO: And Ben, I want to ask you about this trend that we’ve seen in investors essentially buying real estate in other states that they actually don’t live in and what that’s doing for sort of the local market. How complicated, then, does that make the picture when you’re trying to figure out the best places to invest in real estate?

BEN MILLER: Well, I mean, there’s a lot of things happening in the real estate market. I mean, for at one point, actually, a Chinese investor, one of the biggest investors in the West Coast. So there’s always external factors affecting any neighborhood. Really, the underlying question is local jobs, basically local unemployment and other kinds of things that drive the reason why someone might move there. It could be a Whole Foods. It could be a new school. So when you’re looking at investing, you really want to look local. Local is what drives returns. And so if you have good local insights, that’s a really great edge for an investor.

DAVE BRIGGS: We talked a lot about the single family market, but of course, rates have been surging across the country. What’s the action in the multifamily housing market?

BEN MILLER: Yeah, I mean, the commercial real estate market is starting to freeze. Basically, where, before, you were borrowing at 3%, now you’re talking about borrowing at 5%, almost 6%, and rising. So I really think that most commercial and multifamily transactions are going to grind to a halt.

You’re going to see the freezes on the Fed basically raising rates, and they’re going to freeze the general economy in order to bring down inflation. So the real question is, when things are frozen, what do you want to be doing when you’re waiting on the sidelines until there’s an opportunity to buy distressed assets. Basically, this is a time when a lot of money can be made by being sort of opportunistic.

DAVE BRIGGS: 10 bucks will get you an investment in Fundrise. Co-founder and CEO, Ben Miller, appreciate you being on with us.