Dave:
We are heading into the heart of the spring selling season. Normally a time where things start to pick up, people start to come out of the woodwork and the market gets a little bit of life back into it. But with everything going on here in 2026, is that going to happen this year? I’m Dave Meyer here today with Kathy Fettke, Henry Washington, and James Dainard. And today we’re going over the latest headlines, the most recent data and news to help you make sense of what’s actually going to happen this spring selling season. You’re listening to On the Market. Let’s get into it. James, Kathy, Henry, good to have you all here. Henry, how you doing, man?

Henry:
I’m fantastic, man. Great to be here as usual.

Dave:
James, how are you?

James:
I’m good. Just got landed back in California. Go check on the flip. See how we’re doing.

Dave:
Is this the $10 million flip?

James:
It is. And I just want to get it done.

Henry:
I bet. I would too with that holding cost.

Dave:
That holding cost and hopefully that check at the end of the day.

James:
You know what? We’re going to do a case study cash on cash return. Henry, I want you to bring in a deal and I’m going to bring in that deal and we’re going to show how much more money Henry’s making than on a bigger flip.

Dave:
Henry might be making more cash on cash return, but I’m sure you won’t trade checks with him, James.

James:
I guess we will see.

Henry:
For the record, if you want to trade checks, I do.

Dave:
And Kathy, how are you doing?

Kathy:
Well, I’m almost recovered from my daughter’s Trashy Vegas wedding, which was so fun, Elvis and all. But yeah, almost recovered. My voice is almost back. It was awesome.

Dave:
You sound good. You look good. It’s all good. And congratulations again.

Kathy:
Thank you.

Dave:
Well, we got great stories for you to talk about what’s going on in the housing market. I’m actually going to start today because I signed on to the news this morning and saw that mortgage rates hit a sixth month high. We’re actually at about 6.4%. 10 year is going up today. So next week, the week the show actually airs. We’re probably going to be up around six and a half again. I’m just going to say, it just sucks. It made me really mad. I’m not happy about it. But I just wanted to ask you guys, how do you think this is going to play out? Because I was sitting here literally three weeks ago seeing rates touching fives for a second, thinking maybe we would see a breadth of life back into the market this spring, but I kind of feel like this is going to send us maybe even in the opposite direction.
Even though we’re seeing home sales at some of the lowest points we’ve seen in a decade, I feel like it could get worse. I’m curious what you guys are thinking.

Kathy:
I mean, we’ve definitely learned that real estate is extremely sensitive to rate changes and things really picked up. We saw inventory levels drop when rates came down, now they’re going back up. So that probably means we’re going to see increased inventory. Those few hundred thousand people that were able to finally afford to buy now can’t, they may be waited thinking, “Oh, rates are going to go down further.” I remember on the show we’re like, “Don’t think that way. You have no idea.” And here we are.

James:
I think it’s definitely going to slow things further down for this summer. This summer could be a rough summer for sales, but right now there’s a lot of activity still. I mean, we just sold three homes in the first couple days and buyers, they’re still a little waffly. First one hooked, kicked off. Then we had two more offers come in right after that. So it’s definitely moving right now. I think anything that you do on a disposition for the next 12 to 24 months, you really got to do it based on market timing. You got to hit that early spring market because whatever’s going on with rates, the demand is way higher than the rate’s affecting.

Dave:
Just so everyone knows, we just saw a print the other day that it was the lowest new home sales for new construction that we’ve seen since 2022. It’s not crazy. It’s back to normal levels that it was in 2017, 2018, but we have a lot more inventory and building right now. So we’re just going to be sitting on a lot of more inventory there. We also, existing home sales were below four million in January. I think they’re going back below that. To me, it’s just a dramatization of what we’ve been talking about, which is that it’s going to be tough, but there’s going to be more options for buyers. I think for anyone who’s flipping selling is going to get a little bit scary right now. But for buyers, I think that the amount of distressed sellers where people are just going to get frustrated in the spring and the summer is just going to go up.
So as a long-term buy and hold investor, it is frustrating, but I’ll take deal quality over a half a point on mortgage rates all day. And I think that’s kind of where we’re heading.

James:
No, I think that’s important for people to think about though. Like what Dave just said is deal quality matters more than a half point. If you can pick up a five, 10% discount, in two years, you are way ahead of everything. And so just what are you buying? What’s the long-term performance? Not just what does it feel like today?

Henry:
I also think it’s important that buyers have good representation because yes, rates might have gone up, but because of the lull it might create in the market, it gives you the opportunity to negotiate more. And so yes, you can ask for these concessions. You can ask for rate buydowns or you can ask for the seller to compensate somewhere else. So knowing what’s happening in the market and understanding supply and demand in your market will help you get better deals even when rates start to go up. It’s just, you just have to be smarter now than you did previously when you buy a home. If you truly want to get into a home at a reasonable price or be able to afford the home after you close on it.

Dave:
100%. I think patience is the name of the game. It is so frustrating. Every time it feels like we’re getting some momentum in the market back, even just a little bit, a pendulum swings back in another direction and it’s just uncertain. We don’t know. They could go higher. It’s just super hard. So I think just sticking to the fundamentals is the name of the game right now.

Kathy:
I mean, you got it. Yeah. We don’t know. No one’s going to be able to predict this one.

Henry:
And I know, Dave, you say you’re frustrated and it makes you a little mad, but you also did tell everyone several times that you think rates are probably going to go up. You’re just right.

Dave:
Yes. I don’t like being right on this one. But yeah, I think it’s just going to continue this way though. There’s just too much uncertainty and bond markets and mortgage rates don’t like uncertainty. So we’re going to continue to see these swings. But I take Solace, I think as a long-term investor that we’re going to be able to see some good deals and that will be good in the long run, even though I was … Weren’t y’all hoping 2025 was just the year we had and then 2026 was going to get better, but that might not be the case. All right. Well, that’s our first story today. Henry, you got something a little more uplifting for us, please? I

Henry:
Mean, a little bit. A little bit. It’s not bad.

Dave:
We’re giving the audience the real stuff today, not the feel good stuff.

Kathy:
Yeah, it’s getting real.

Henry:
Well, I’m bringing an article from the New York Times. So Duracell’s former global headquarters in Bethel, Connecticut, it once housed about a thousand workers. It’s on 43 acres, and it’s now down to about 20 researchers that are living and working in the area. And what that’s caused is the city to suggest that this current corporate headquarters be converted to housing. And it’s sparked interest among this trend of, is there an opportunity to turn corporate buildings into affordable housing? And I said this maybe a year or so ago, I started saying this. I said, whoever figures out how to take commercial office space and turn it into housing is going to make a fortune because we have a surplus of commercial office space and we have a shortage of housing in most markets. And what piqued my interest about this article, there’s no developer that has picked this up and decided they want to do the project, but it’s the city that’s proposing it.
So they’re basically saying, “We will help a developer by removing some of the roadblocks it takes to do this if they want to take on this project and turn it into housing.” And I think that this could be the start of something that catches on nationally if a developer picks it up and it actually works out.

James:
Doesn’t this feel like the unicorn that we’ve been talking about now for two years? Yes. We got all these things. We just don’t know how to execute on it because they’re not wrong. Cutting into concrete and moving utilities around and the permitting, it’s expensive. But I keep coming back to like, are they just thinking about this wrong? They have all these modular homes, right? You can buy modular homes offset, they bring them on, they screw them together, they’re wired, they’re plumbed. Why do they have to tear these buildings apart? Why can’t they just insert housing in where things are elevated to where they don’t have to trench up the slabs? I’m like, why are they worrying about all these things when there’s a workaround every time? You got tall ceilings, you got the plumbing, why can’t you just bring the house in, slap it together, put it in, screw it in, make a hallway?
It just doesn’t make any sense. So I think once people start looking at it in an efficient way or there’s some serious tax credits, which a lot of these cities can’t even afford, but it could be done. Everyone’s just looking at it the wrong way. It’s like you’re going to the most expensive plan, come up with a more thriftier plan and then this could really get some legs on it.

Dave:
I’m kind of with James though. I feel like there has to be a way to do it efficiently. Not every building, of course, but I saw some study that said it was like 10% of commercial buildings would be eligible for something like this. I just have to believe it’s higher if you just get creative, if you get engineers on it, if you get architects on it, you could figure this out. But to me, I think the big story here is that the government is supporting this. And I think that’s the way the only way it’s going to make sense because it’s too expensive for developers to go and do this on its own. Meanwhile, if you were to go and develop something from scratch, like the time for an environmental review, it’s going to take five, six years. But if a government can fast track this or create tax benefits or incentives for this, I think that’s better than tax incentives than for new development in terms of just speed to market.
You’d have to believe this can happen faster than new development, at least in most municipalities.

Henry:
Yeah, I agree with you. I think what’s exciting about this is we could have a potential case study here that once done and if done successfully, other cities may get on board and say, “Oh, well, we’ve got this complex over here that’s just been sitting there.” Because what’s happening and what’s really affecting the cities is when these companies move out of these office buildings, they’re losing tax dollars, right? I think it said in this article that they get about a million dollars in tax dollars from this building. And so it’s a benefit to them to go ahead and make it easier for somebody to come in and maintain this building than for Duracell to just leave and there be nothing there. And it’s just sitting as this vacant property. So the cities do have a monetary incentive because if office isn’t happening and people are leaving these buildings or giving these buildings back, it does not benefit the cities from a dollar and cents perspective.
So getting out of the developer’s way or paving a path for developers to come in and then provide something that their community needs is both beneficial to the people who need housing, but also beneficial to the city and local government because now they keep tax revenue coming in.

Kathy:
Yeah. Unfortunately, this also says 10 to 30% office buildings are realistically convertible due to … There’s a lot of reasons, but yeah.

James:
They need some Jimmy construction on this thing. Just float the plumbing. Just do it. Run your sewer lines outside the building, box it in, make it look nice, throw an accent on it. Then put everything should be elevated like a basement back in the 50s.That’s why they built them up so you don’t have to repent. I think we should come up with a box we can build ourselves and we should sell these.

Kathy:
There you go.

Dave:
Should we be talking about the fact that Duracell only has 20 employees? Right.

Henry:
There’s a whole nother article we need to discuss here, but yes, Amazon batteries are killing Duracell.

Dave:
All right. Well, those are our first two stories. Henry, that is uplifting. I mean, not for Duracell, but maybe this is a template. So I do think you are bringing some good news today. We do have to take a quick break, but we have two more news stories right after this. Welcome back to On the Market. I’m here with James, Kathy, and Henry sharing the latest news from the housing market and the economy. Henry and I have shared our stories. Kathy, what do you got for us?

Kathy:
Well, I’d really love to be positive, make this a positive show, but we’re not just not what it’s going to be today, you guys. Nope. Sorry. This is from our buddy, Ken McElroy. He’s the big multifamily guy. Been around for a long time. Kyosaki invests with him. You probably know his name. He came out with a blog called The Liquidity Problem. No one is talking about. Very interesting article. So what we do know is that after COVID, there was so much money creation that was quantitative easing, they call it. And then the Fed announced, okay, we got to pull that back. And they did quantitative tightening to the tune of about 2.3 trillion pulled out of the financial system. That’s a tiny bit from what was put into it, but it’s super important to understand the manipulation of money in today’s system. When you’re flooding the market with money like during COVID, that generally drives prices up because there’s more money chasing deals.
When you pull that money back out, there’s just less money and less access to it. And that is kind of the cycle that we’ve been in. So this kind of led to Blackstone saw a record redemption request of $3.8 billion from its fund, investors basically trying to get their money back from these funds that they’re in that basically lend money to commercial real estate investors. So bottom line, what this article is saying is there’s less cash available, money being pulled out of the system and investors looking to get their money back, not so bullish on lending, right at a time when you have so many multifamily investors needing to refinance. They need the money, they need the lenders to come and bail them out, and that money won’t be as abundant as it has been. So he sees this as more struggle for those multifamily operators who are in trouble needing to refinance now those loans coming due.
He says it’s approximately 875 billion in commercial and multifamily mortgage debt to mature in 2026 and even larger waves in 27 and 28. So we’ll see with the new Fed president how it’s going to go. Are we going to have quantitative easing? Are we going to have quantitative tightening? But in this moment, it could get even more difficult for those in trouble trying to refi, and at the same time, opportunity for those looking for deals and multifamily. I

Dave:
Just want to sort of give a little bit of background here, but basically what Kathy’s talking about is a problem, not just in commercial real estate. This is kind of a concern spreading throughout the economy that there is trouble in the private credit market. So if you look back at 2008, a lot of the trouble came from banks and there was Dodd-Frank, a lot of legislation that made it harder and made more rules about who could lend to commercial real estate operators, but also just to businesses or anyone who needed money. Because banks couldn’t make those loans, a lot of the money that is needed for these deals and for these businesses now comes from private investors. So this is what they mean by private credit. It’s someone like me, I do private lending, but this is on a much bigger scale. So Blackstone does this, BlackRock does this.
It’s become a booming industry. Recently, a company called Blue Owl, which is a private credit company, was the first domino to fall. And there’s a lot of fear that that shows problems in the entire system. So a lot of people are like, “Oh, if Blue Owl falls, I’m going to pull my money out of BlackRock.” Merrill Lynch pulled money out of it. Jamie Diamond, the CEO of Chase, came out and said, “When there’s one cockroach,” referring to Blue Owl, there are probably more saying that there’s probably trouble in the system. And so that doesn’t even necessarily mean there’s bad loans in commercial real estate. There probably are, but it just means that the people who provide this money and this liquidity to the system might no longer want to provide money to the system. And as Kathy pointed out, that comes at a really bad time.
It’s nowhere near the size of the residential mortgage industry where even if there was a run on this money, it would not be like 2008 in terms of size. But with everything else going on in the economy right now, it does kind of just feel like it’s one more thing that could tilt us towards a recession or create some problems in the stock market or in commercial real estate, as Kathy said. So I mean, if you want to know what my late night can’t sleep thinking about, it’s private credit right now. This worries me a lot.

Kathy:
Oh my gosh, I didn’t know that. Wow. Well, yeah, that’s why he says over the next 12 to 18 months, there’s going to be some great deals in commercial real estate, specifically multifamily. And it’s interesting that you said that. Yeah, there’s so much regulation with banks, but not private credit. Exactly. So I don’t know if that get regulated or if investors are just getting smarter.

Dave:
That’s what people are saying, Kathy, though. It’s like it’s totally unregulated. So no one has any idea the quality of these loans. They could all be garbage and no one knows. So that’s the challenge. And I think it’s not just commercial. You could also see this in DSCR loans. Most of the money that DSCR lenders lend out come from private money. Yeah, you’re right. The other thing that you should know is that a lot of this private credit, they’re actually money that they borrow from banks. So it could spread into banks. The whole thing is so convoluted. It’s not that I’m looking at it and saying, “Oh my God, it’s so bad.” It’s that no one knows. And just based on history, when no one knows what’s going on in the financial system, it doesn’t usually end well. So it’s just a little concerning.

Kathy:
But it makes sense because some of the loans that were being made in multifamily, it’s just like you scratch your head and say, “Would you do that? ” It was really coming down to 0% financing or even more where you’d be able to borrow all the money to acquire the deal plus the renovation costs. I was a lender back in 2006 and I saw the crazy that was going on and a lot of that was private credit. It was banks too. It was everybody getting greedy. The only reason the banks didn’t do it this time is they couldn’t.

Dave:
Exactly. They can a little bit by investing in private credit.

Kathy:
It’s

Dave:
Crazy.

James:
So when these redemptions come in, where does the money go? They’re shifting it somewhere, right? They’re taking it from one bucket, putting it in another typically, unless they’re burning through cash at a rapid rate. Sometimes when I think about these deal, I’m like, well, where are they shifting it to? Are they chasing a higher yield? Because I mean, one thing I will say is that the hard money space is at all time highs for … There’s a lot of money available and hard money. It’s like, are they shifting into a different type of loan or are they just getting out of the business all the way?

Dave:
I’ll just tell you what I did because I pulled my money out of a private credit fund last week. I’m going on the bank run right now. I’m just going to sit on cash and wait till the deals get better. But it’s different in real estate because I think it’s like hard money is backed by a hard asset. A lot of these other private credit things, the blue owl, you look at these things that are sort of more part of the main financial system, they’re lending to software companies which don’t have any assets. And so I think that’s why a lot of people are worried about that. So I don’t know, James, I think it could go back into the stock market. I think people are going to be holding onto cash if I had to guess.

James:
Mattress money. Mattress money’s back.

Dave:
I think it is.

Kathy:
This article does go on to say that BlackRock had to cap withdrawals from its $26 billion lending fund after investors tried to withdraw 9.3% of the net asset value. And Blue Owl permanently ended quarterly liquidity payments in one of its that, like you said, that’s the one that probably caused all the dominoes to fall. So yeah, I think they just say, “Yeah, you don’t get your money back. You don’t get to withdraw anymore.”

Dave:
Yeah, that’s why I took my money out of one. It’s not because that fund was doing bad. I was just like, it’s like a bank run. It’s like if everyone else spooks, I’m going to be the first to spook. I don’t know if that’s a good way to think about it, but that’s what I’m thinking. But I do think that means more deals, Kathy. But the thing that worries me about multifamily is when liquidity titans, like you’re saying, it’s like the plumbing and the financial system, there might be good deals, but no one’s going to lend on them.That’s going to be the challenge, I think. This is like what was going on in 2010. Pricing was great, but it was hard to get money. I think banks and private lenders have learned their lesson and it won’t be as tight. And again, the private credit market is much, much smaller than the mortgage or the MBS market or the CMBS market.
So it’s not the same scale, but there are trade-offs with these kinds of things.

Kathy:
Makes sense.

Dave:
All right. More uplifting news for everyone. Thank you. We got one more quick break, but we’re back with James’s headline right after this. Welcome back to On the Market here with Kathy, Henry. And James, going through the latest headlines, James, you’re

James:
Up. Well, we got more taxes in Washington

Kathy:
State.This is our sad news show.

Dave:
Yeah. Next week we’re just going to have to do a happy show next week. Yeah.

James:
The article that came out on homes.com, it says, as Washington’s millionaire tax heads to governors, some agency homeowners list. What happened in Washington, and this has been happening across a few different states. There’s a lot of tax changes going on. Washington approved a 9.9% income tax on earnings over a million dollars. This is going to affect about half a percent of residents and they’re reporting that luxury homeowners are starting to list properties. And I’m calling bogus on this.

Dave:
Me too.

James:
Because I just checked and we’ve had no more inventory increase since this thing passed. Yeah.

Dave:
They always say this stuff.

James:
And that was why I wanted to bring this in. A, I’m going to talk about this tax a little bit. I think it’s bogus, but it’s all hype. We’re in this economy right now where we got wars now clicking off. Rates are going on. There’s a lot of different variables. We got to go with logic. And I know a lot of people are starting to freak out and I’m like, why are you freaking out? We don’t see a data shift. Nothing tells us that it makes some big dramatic change in the next 12 to 24 months because this goes through. And what I do think though is this is making some states, Washington I’ve always thought was a really attractive state to invest in because of this no income tax that we had, but this is going to have an impact because the reason our tech companies have grown so rapidly over the last five to 10 years is because of our tax incentive and the no income tax.
And people may say that, hey, 10%’s only for a million dollars and above, but typically, usually this is the first step and then that number starts shifting down and then it shifts down. And so this tax could have some really, really big impacts on real estate investors. If you’re in a high tax flipping hard money, you might want to start shifting to the strategy. I mean, that is the first thing I’m doing is meeting with a tax planner and going, “Okay, how do I do this different now?” Because a lot of those things that make you a high return are also the riskiest asset classes and it’s taking the juice out of the deal and it’s not making it worth it. It’s like, if I’m going to put out this much risk, why am I going to only make this much? That starts to really affect how you look at things or do you start flipping and doing high income in other states and that’s what I’m going to start looking at.
Part of the reason I’m in California right now and the deal’s got some juice on it, but after I looked at all my taxes that come out, I’m like, why did I even do this? I should have just stayed flipping in Washington and now I’m like, wait, no, Washington’s not much better once this tax rolls through. So I’m really strongly considering now going out of state and doing high earning. I still think there’s growth in Seattle, so the rentals I will still look at buying, but this is going to have some serious impact on what I think people are going to look at on the strategy because Washington already is one of the highest taxed states for flippers and adding this on top can come very, very expensive.

Henry:
Wouldn’t this not continue to be a problem in most of the states that are going to give you a similar return?

James:
Well, I mean, your top tax states are going to be California, New York, Hawaii, New Jersey, but it’s the blended average. And that’s what you really have to look at. When you look at Washington’s taxes right now, sales tax, we pay seven to 10.5% on materials and labor, property tax 0.8 to 1.2, excise tax. Every time we sell a property, we’re paying two to 3% when we’re selling that property. And so it’s not just the income, it’s the squeeze across the board. And I could say as a flipper, I’m going, I don’t know if the risk is worth it because when you flip and you hit the wrong market, it sucks and there has to be upside and this really takes the upside off the table.

Dave:
Yeah. I mean, that makes sense from your perspective. I think the idea that it’s going to slow down the housing market in that segment, it’s not that many people and I just don’t, I think it will add to what is already slow market in Seattle. I think tech layoffs are probably a bigger concern for the Seattle market than this specific tax, but I get what you’re saying about a flipper. It adds just more risk and it’s also limiting some of the upside. So I do think that that totally makes sense from your business’s perspective that this would make things a lot harder. I think generally speaking though, people hate taxes, which I totally understand, but I think that the thing that’s dragging on the housing market is overall affordability. So if taxes are going up and just making affordability that much worse, then it is going to impact the housing market for those people.
But I think that is on top of already big affordability strains like insurance and repairs and labor and just the cost of living is super high. And so the ability for people to absorb any additional expenses right now I think is really limited and that’s going to put downward pressure on pricing, whether it’s from an increase in income tax in Washington or an increase in sales tax somewhere else or an increased insurance costs anywhere else. I think we’re just at that point where people can’t take on more. And so if what all of these things are probably going to negatively impact the pricing in the market for the next, I think, few years.

Henry:
So from a real estate perspective, James, I guess the point I was trying to make is it seems like a lot of the states that have the biggest margins also are probably blue states or states where taxes are higher. So where or what markets would make sense for you to do the same type of margins on deals where it wouldn’t have as much of a taxable impact?

James:
I mean, actually Scottsdale, Arizona, there’s spread there, right? Or Florida, there’s no income tax there. I mean, you have to go, when you’re looking for bigger deals, you got to go to that higher end luxury. And that’s like even if I’m looking at this flip at Newport Beach, we’re trying to sell this thing for $10 million, that’s a very small segment, but it’s a very healthy segment of the market. And so for me as a flipper, if I’m looking at that, if I’m going for lower income housing or housing that’s targeting people that make 500 grand a year, not much impact for now. But if you’re doing something bigger where you are going for that three to $4 million price or more, it doesn’t make any sense to do it in these states because those are those big profit deals. And then that’s where you shift to Arizona, Florida.
There’s other spots because the extra 10 to 13%, it makes the deals not worth it. When I looked at my California potential profit and then I factored in, I didn’t factor in the income tax. I was like, oh no, I got to pay this California tax on it. I would’ve never done the deal in the first place. I just overlooked that. It wasn’t in my performa when I was looking at it. Deal goals. Dang, dang deal goals. But it requires a strategy shift for people that are active investors. Okay, well, how do I be active and not hit the tax? Well, maybe I chase Burr properties and value add and stabilize that and 1031 that around Washington so you don’t get hit with that tax and then you open up a different … I might do more passive flips in other markets that don’t have that tax.
Again, Florida, Arizona, these are high spread areas that don’t have the taxes with it.

Dave:
All right. Well, we’ll have to see how this plays out because it hasn’t actually officially been passed, but I think it sounds like it’s going to. So I think we’ll actually just, James, to your point, let’s keep an eye on the data and see what actually happens in the real estate market and keep us posted. If you actually do make decisions based on your own business based on this, this would be really valuable for everyone here to know. If you actually left the Seattle market, that would be quite a news story. That would be a headline for the show next time. All right. Well, sorry for all the negative stories, but our goal here is just to share with you what It’s actually going on, not try and make people feel good about things when they are challenging. But I think the thing to remember as we always talk about is that there are pros and cons to every kind of market.
Things get harder, prices go down, that means there’s more deals. It means there’s more inventory. It means you have more options to invest it. So the whole key here is to take what the market is giving you, and hopefully the information we’re sharing with you in this episode can help you do just that. Thank you all so much for listening to this episode of On the Market for James Dainard, Kathy Fettke, and Henry Washington. We’ll see you next time.