\n<\/p>\n
It\u2019s a <\/strong>housing market crash<\/strong><\/a>! It\u2019s a housing market bubble!<\/strong> It\u2019s a relatively normal and stable housing market! Two of these statements might make you excited, anxious, or hopeful, while one simply makes you yawn. For years, we\u2019ve heard numerous news outlets<\/strong>, forecasters<\/strong>, and housing authorities tell us that the next housing crash is right around the corner<\/strong>, only for home prices<\/a> to skyrocket, interest rates to rise, and demand to stay red-hot.<\/p>\n If you want to know if a housing market crash is coming, Rick Sharga<\/strong>, Executive Vice President at ATTOM, a leading provider of nationwide property data, is the person to talk to. His entire job is based on finding and figuring out the data behind housing market movements<\/strong>, which he then presents to field leaders who are trying to make better buying, selling, and lending decisions.<\/p>\n Rick is an industry vet and was around during the mid-2000s housing market crash<\/strong>, the great recession, the foreclosure crisis<\/a>, and everything that followed. Rick has seen the runup in housing prices<\/strong> over the past two years and has some interesting theories as to where we\u2019re headed next<\/strong>. Whether you think we\u2019re in for smooth sailing or on the cusp of another crash, Rick\u2019s predictions may surprise you.<\/p>\n David Greene: Rick Shargra: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: Dave Meyer: David Greene: Rick Shargra: Dave Meyer: Rick Shargra: Dave Meyer: Rick Shargra: Rick Shargra: David Greene: David Greene: Rick Shargra: Rick Shargra: Dave Meyer: Rick Shargra: Rick Shargra: Rick Shargra: Rick Shargra: Rick Shargra: David Greene: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: David Greene: David Greene: David Greene: David Greene: Rick Shargra: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: David Greene: Rick Shargra: Rick Shargra: Dave Meyer: Rick Shargra: Rick Shargra: Rick Shargra: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Dave Meyer: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: Dave Meyer: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Dave Meyer: Rick Shargra: Rick Shargra: Rick Shargra: Rick Shargra: David Greene: Rick Shargra: David Greene: David Greene: Rick Shargra: David Greene: Rick Shargra: David Greene: Dave Meyer: Rick Shargra: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: David Greene: Dave Meyer: David Greene: Dave Meyer: David Greene: Dave Meyer: Dave Meyer: David Greene: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n
This is the BiggerPockets podcast show, 604.<\/p>\n
There\u2019s really no indicator that we\u2019re sitting in a bubble, although it\u2019s understandable people think that because we\u2019ve had, I believe, 122 consecutive months now where home prices were higher than they were the prior year, which ism I believe the longest run in history. So I do think market corrections could happen across the country in certain markets and certain price tiers. Do I think we\u2019re going to have a bubble bursting? No, but the truth of the matter is nobody really knows we\u2019re in a bubble until it bursts.<\/p>\n
What\u2019s going on, everyone? I am David Greene, your host of the BiggerPockets Real Estate podcast, the best real estate podcast in the world. Here at BiggerPockets, we are committed to helping you find financial freedom through real estate. We do that in a number of ways, one of which is on this podcast, bringing in people who have found that freedom, people who have made mistakes as well as industry experts that can help you on that journey. Today\u2019s guest is fantastic. We have Rick Shargra. Rick is the executive vice president of market intelligence for ATTOM, a market leading provider of real estate and property data, including tax, mortgage, deed, foreclosure, natural hazard, environmental risk and neighborhood data. Rick has over to 20 years of experience in the real estate and mortgage industries, and is one of the country\u2019s most frequently quoted sources on real estate, mortgage and foreclosure trends. He joins us today to talk about what the heck is going on in this crazy market. I am joined today by my counterpart, the always fun, always intelligent, and always aware, Mr. Dave Meyer. Dave, how are you today?<\/p>\n
I\u2019m doing great. Congratulations on 600, man. It\u2019s the first-time I\u2019ve been here since you hit the milestone.<\/p>\n
Yeah, we stepped up production quite a bit. 600 happened pretty quickly after 500.<\/p>\n
Seriously, it felt like it went really quickly, but the shows have still been amazing. Even with the increased production, amazing how you and Rob and everyone else just bringing value to the listeners every single week or several times a week.<\/p>\n
Well, thank you. We\u2019re trying to. Speaking of additional shows that we\u2019re making, BiggerPockets is creating a ton of new content and that leads us to today\u2019s quick tip. Dave, what do you have for us for today\u2019s quick tip?<\/p>\n
Well, my quick tip to check out BiggerPockets newest podcast called On The Market, which is hosted by yours truly. We\u2019ve been doing this show for, what is it, six or eight months now? BiggerNews, trying to bring you all of the recent trends and data and news that really impacts the lives and strategies of real estate investors, and we want to scale that. So once a week, now you can find it on Spotify or Apple, or we have a whole YouTube channel as well. You can get the information that helps you formulate your strategy for 2022, helps you get an advantage in any type of market, and we keep it fun. We keep it light. It\u2019s not this dense news show, so definitely come check it out if you want to stay on top of everything that impacts the real estate investing world. I think you\u2019re really going to like it.<\/p>\n
Yeah. At BiggerPockets, we are creating an entire family full of smart people to help you build your wealth, so do check out that show and make sure you check out more of these shows. Every time you finish a video, hopefully, you have time to watch another one, because we\u2019re putting out more and more content. A quick public service announcement from us at BiggerPockets. There\u2019s a lot of scamming going on. We will never, any of us on this platform, will never message you and try to sell you on cryptocurrency on Forex. We don\u2019t have a WhatsApp.<\/p>\n
We are not asking for you to give us your money via social media or online portals, so please, if anyone reaches out, they\u2019ve copied our pictures, they\u2019ve made a screen name that looks like us, but it\u2019s not us. Don\u2019t send them any money. The same goes for any of us individually at BiggerPockets, as well as the company, BiggerPockets as a whole. Before you consider sending anybody money, make sure that you\u2019ve absolutely verified who you\u2019re talking to is the right person. All right. Without wasting any more time, we are going to get into today\u2019s show. It should start off a little fun and then we\u2019ll be bringing in the guest. Dave, anything else you want to add before we get into it?<\/p>\n
No. I\u2019m really looking forward to this show. Rick has been someone I\u2019ve followed for actually quite a long time, because as he\u2019s a leading voice on real estate data, and I think you\u2019re going to learn a lot from the show.<\/p>\n
All right. Let\u2019s do it.<\/p>\n
All right, David. As we just mentioned, we are going to play a quick game. It\u2019s just called \u201cquick takes\u201d and I want to get your quick reactions to three different headlines I am going to read you.<\/p>\n
Did you say quick three times in a row, because I am known for being long-winded.<\/p>\n
No, but maybe I subliminally was trying to get you to go quicker, because I know Eric will come on and tell us we\u2019re being too slow if we don\u2019t do this block in five to 10 minutes, but quickly give me your reaction to this. According to Redfin, the amount of market competition actually went down from February to March, and anyone who\u2019s listening to this, a lot of this market data comes a month in arrears, so we\u2019re talking about March data, even though we\u2019re just ended April. It went down from 67% of all homes facing stiff competition. Multiple offers in February dropped just slightly to 65% in March. Do you think this is the beginning of a trend, or is this something you think is just a blip or an anomaly?<\/p>\n
Not the beginning of a trend, it is a blip, not an anomaly. I will quickly explain this happens all the time, and that\u2019s because of what I call \u201cflock of bird syndrome.\u201d Most people when they\u2019re investing in anything, when they\u2019re doing something scary, they like to move with the crowd. So what we find is the psychology of buyers in real estate and have often said, \u201cBuyers drive markets. \u201cThe psychology of buyers plays a very big role in how things work out. So when people see a lot of other people making money somewhere, they tend to think, \u201cOh, I should go do that too. It feels safer.\u201d It\u2019s like crossing the river with all the other gazelles so the crocodile doesn\u2019t get you. The problem is often by the time you see other people making money, sometimes the money\u2019s already made. So the way it works is, well, there\u2019s been Gazelle\u2019s in the rivers for a long time. All the crocodile\u2019s are now there waiting for you, so that\u2019s the worst time, time to go in.<\/p>\n
I\u2019ve seen this phenomena happen several times in the past, every time there is a significant change in the norm. So in 2017, 2018, I can\u2019t remember where it was, but we saw rates go up three quarters of a percent, 1%, out of nowhere, and Tara Yarbrough was telling me a lot of flippers lost money during that time because buyers froze. They were just like, \u201cI don\u2019t know what\u2019s going on. I don\u2019t want to move,\u201d and then a couple of months go by, everybody, \u201cOh, I guess that\u2019s the new normal.\u201d They all start buying at the same time the flock of birds goes that way. We saw this happen with the shelter in place. Everyone froze, \u201cNot going to buy real estate. I don\u2019t know what\u2019s going to happen.\u201d At a certain point, they\u2019re like, \u201cWell, I still need a house. Nothing\u2019s changing. I better jump in.\u201d This is too totally expected. I told everyone on my team expect to slow down for a month or two as buyers are like, \u201cWow, rates went up. This is a shock. Let\u2019s freeze and think.\u201d When people are like, \u201cWell I guess that\u2019s what rates are,\u201d they\u2019re all going to start buying again.<\/p>\n
All right. We need some gazelles to cross the river. I don\u2019t know how I feel about this. I personally get it. I think it is interesting to see what\u2019s going to happen with rates and what\u2019s going to see, so I\u2019m not surprised to hear you think that people are just freezing. I have to say, man, I hope you\u2019re wrong though, I would love to see the market get a little less competitive.<\/p>\n
Oh, me too. [crosstalk 00:07:31]<\/p>\n
I think it\u2019s really-<\/p>\n
Yes.<\/p>\n
\u2026 unhealthy where we\u2019re at. I totally respect your opinion, but I hope you are incorrect about this.<\/p>\n
I hope I\u2019m incorrect too. I would love to see the market slow down. When you\u2019re listing a house, the way it used to work is you look at the comparable sales. You find the highest you could possibly get and you find an average one and you would try to convince your client to sell somewhere between the maximum they could possibly receive, the highest comparable and an average one. Well, now you take the highest comparable there is, you throw tens and tens of thousands of dollars on top of it. You throw another couple 10,000 as a cherry on top, and that\u2019s what the seller wants for their house. So everything getting listed is always the new neighborhood record. What I think may happen is instead of us listing for way more than what the comps show, maybe we get back to listing at what the comps actually show and have some reason to come back into the way home prices are valued.<\/p>\n
All right, great, and we\u2019re on time. Second question for you. We all know that housing inventory is extremely low. We\u2019re going to talk about this with Rick in the next section as well. One of the main things you constantly hear about as a potential solution is upzoning, allowing people to build an ADU or to build a duplex or second home on their property. Zillow actually did a recent survey to see if home buyers were actually interested in this, because there\u2019s this whole, \u201cNot in my backyard,\u201d NIMBY syndrome where people say they want it, but they don\u2019t actually want it. But a clear majority of homeowners surveyed, 73% voice support for at least one or more modest densification options, so almost or three quarters of Americans believe in this, you can\u2019t get three quarters of Americans to believe in and agree on anything. Do you think this will actually make a difference, and do you think we will start to see more upzoning in the next few years?<\/p>\n
I think yes, if this continues, you\u2019ll start to see it happening more often, but I think the pendulum will swing back the other way when that\u2019s over. So you\u2019ll start to see that more people do this and then more investors make money, and then the NIMBYs get jealous that they\u2019re not the ones making money, and then that some new tax will be created, the ADU tax, or if you have something on your home, like a house hacking tax, that\u2019s what I\u2019m afraid of that may come. But in the short term, yes, I do think more local municipalities will create zoning, less restrictions and more easing of use so that people can start putting more ways for people to live in their own property.<\/p>\n
Excellent. That was very quick. Well done. Okay. For our last story, Fannie Mae just released a big economic survey and there was all this information in there about mortgage rates, borrowers\u2019 appetite. You should check it out if you\u2019re interested in this kind of stuff, but the thing that really stood out to me is that they are now forecasting a recession in 2023. Do you think we\u2019re heading for a recession?<\/p>\n
No. I think it\u2019s more likely that we could be in a recession and we won\u2019t feel it because prices of everything keep going up, so I think the economy in general is functioning like carbon monoxide. You don\u2019t know you\u2019re getting sick until it hits very, very hard. So I\u2019ve said this before wages are not increasing as fast as the price of food and gasoline and things that we need to get by. So in that sense, it will function like a recession, even though the price of assets keeps going up. Even if you\u2019re getting three, four, 5% raises at work, you think you\u2019re getting a raise. You\u2019re not, if inflation\u2019s at eight, nine, 10%. Even at 7%, you\u2019re still losing money, so I think what we have to accept with creating all the extra currency that\u2019s circulating throughout our economy is you can be in a recession and not feel it\u2019s much more like carbon monoxide, which is why you have to be listening to podcasts like this one where you\u2019re getting this information, because it\u2019s not like smoke that you can\u2019t miss when there\u2019s a fire. It\u2019s much more silent scary.<\/p>\n
Yeah. I hope we\u2019re not heading for a recession, but I\u2019ve read and talked to a few people recently that talk about the Fed\u2019s interest raising interest rates and they\u2019re going to do it aggressively. Two people, both the chief economics correspondent for The Wall Street Journal, who I interviewed on On The Market and Janet Yellen, both used the words, \u201cGetting lucky for the fed, being able to successfully engineer this soft landing that they\u2019re hoping to do.\u201d So I hope we get lucky, but the world\u2019s not feeling very lucky these days to me, so I\u2019m not feeling optimistic.<\/p>\n
But I just want to caution people that when you do read these things as well, like when we hear recession, the most recent real recession was the biggest recession in U.S. history. It was the biggest economic downturn since the depression, really. So even if there is a recession just to be out there, it doesn\u2019t necessarily mean it\u2019s going to be years long. It doesn\u2019t necessarily going to have to be really bad. It could be two quarters of half-a-percent GDP drop. We just don\u2019t know, but I think it\u2019s really interesting that a lot of economists are starting to see that. Those are all the questions I got for you. I think we made it under the allotted time.<\/p>\n
Yeah? It\u2019s a new year, a new me. Right? All right. Well thank you for that, Dave. Let\u2019s grab Rick, bring him in here and see what he thinks about the real estate market and economy as a whole. Rick, Shargra welcome to the BiggerPockets podcast.<\/p>\n
Great to be here. Thanks for having me.<\/p>\n
Rick, thanks for joining us, really appreciate it. Could we start by having you just explain to our listeners what your position is? It sounds really cool. I really like your job title, and what you do on a day-to-day basis.<\/p>\n
Yeah. I\u2019m the Executive Vice President of Market Intelligence for ATTOM, a data solutions company. It\u2019s the first-time in my career that my name and the word intelligence have been linked together, so I\u2019m very happy about that. But my job is mostly to be out talking about these real estate market housing market trends, leveraging our data to do that. I get to go out and speak at industry events, do these kind of podcasts, meet with the press. Also, I talk to some of our customers and prospects about their data needs, their use cases, how they\u2019re leveraging this to run their businesses, so it\u2019s a little bit business development, but a whole lot of applied data analytics in housing and commercial real estate trends. It\u2019s the culmination of a 20-year accidental voyage into the real estate and mortgage industries that I never set out to do, but have been fortunate and blessed to have been able to experience.<\/p>\n
I\u2019m sure no one ever asked you this in all of your media appearances, but could you just tell us what is going on in the housing market and what your read is of all of the information and data that you are privileged to take a look at every single day?<\/p>\n
Yeah. Yeah. It\u2019s a really different conversation than we might have had a few months ago. I\u2019m of the opinion at this point that while we still have strong demand, we are beginning to see a bit of a softening in the housing market. Prices continue to go up, but we\u2019ve now had nine consecutive months of existing home sales that are lower than they were the prior year. We\u2019ve had a similar number of months where pending home sales, another metric we track, are down on a year-over-year basis purchase loan applications that the Mortgage Bankers Association tracks our lagging behind both 2020 and 2021, and we\u2019re seeing consumer confidence at the lowest level it\u2019s been in decades. Now that\u2019s been affected partly by COVID and every time there\u2019s the rumor of a new wave, we see a hit to consumer confidence, but it\u2019s also being affected by an inflation.<\/p>\n
It\u2019s being affected by the war in Ukraine, so consumers need to feel confident about entering into a long term financial commitment. They need to buy a house. Oh, by the way, with home prices going up 17% year-over-year and interest rates now being double what they were a year ago, the average monthly payment for somebody buying a house is about 26, 27% more than it was for the same property a year ago. So all of that stuff is conspiring, we believe, to start slowing demand down a little bit. Realtors I talk to joke about it somewhat. They say, \u201cNow we\u2019re not getting 30 bids on a house we\u2019re only getting 20,\u201d but you can see inventory levels starting to tick up a little bit from historic lows. You can see days on market starting to extend a little bit, so it really does look like the market is going to normalize a little bit as we move throughout the rest of 2022.<\/p>\n
Yeah. I want to ask you your opinion on something. This is the stance I\u2019ve always taken, because I\u2019m a real estate broker myself and we sell houses. In certain markets when there\u2019s not a ton of demand, I do think rising interest rates and other economic factors could have an impact on prices as well as availability, but in others like where I am in the California, San Francisco Bay Area, other hot markets, it\u2019s not unusual for us to see 10 to 12 offers on a decent house, not even the very best house, even the stuff priced at the high end.<\/p>\n
So if something happened that affected interest rates to where half of the buyers got knocked out of the market, we might see just half of those offers, like five to six instead of 10 to 12, which is still plenty of competition to bid way over asking price and force someone to come in really heavy to get that house, and you to have 80% of the people looking are losers every time they write an offer. Is that the perspective that you\u2019re taking on this as well? Do people need to understand that the lack of inventory and the amount of demand is so hot that something as small as interest rate hike isn\u2019t going to lead to the drop in prices they\u2019re expecting?<\/p>\n
Yeah. Great point, and there\u2019s a couple of things to talk about here. One is that you\u2019re absolutely right, real estate is ultimately a local game. So what you see in the Bay Area is different than what you\u2019re going to see in Des Moines, Iowa. It\u2019s different than what you\u2019re going to see in Richmond, Virginia. The second thing to point out is that the market you are talking about is not the market or the tier of pricing within that market where those interest rates are going to be particularly material. If you\u2019re looking at the Bay Area where the median price of a home is, I don\u2019t know, 1.2, 1.3 million, excuse me, at the high end of that market, you\u2019re typically not dealing with somebody who\u2019s going to be all that worked up over a point or two on a mortgage, so local conditions will dictate this. You\u2019re also right in that five or six people bidding instead of 10 or 12 still pretty much guarantees you a good price at the end of the day as a seller, so that\u2019s the dichotomy we\u2019re seeing.<\/p>\n
We are seeing signs that demand is slowing down, but there\u2019s still enough demand that prices continue to go up, and that\u2019ll be the case until we start to see enough inventory coming back to the market where you don\u2019t have to be one of those five or six or 10 or 12 bidders on an individual property. So I believe we\u2019re not in a housing bubble, I believe we\u2019re not likely to see a market crash, not at all likely to see a market crash, but I wouldn\u2019t be surprised if over the course of the year, we might not see some individual market corrections and your area, particularly at the high end of the market could be one. Pacific Northwest could be one. Markets like Austin, Boise, which had price increases that were unprecedented last year, we could see a little bit of a price correction in some of those markets. But everybody has to look at this in terms of what\u2019s happening in their local market, as opposed to the kind of national numbers that we often talk about.<\/p>\n
Rick, I\u2019m not much of a crash guy either. I haven\u2019t believed that, but could you share with our audience some of the reasons and some of the fundamentals that support your opinion about the fact that you don\u2019t see a crash coming?<\/p>\n
Yeah. A lot of people really try and equate what\u2019s going on today in terms of prices and demand to what we saw, the mid-2000s, 2006, \u201907 leading up to the crash in 2008, market conditions could not be any more different if you wrote them up on purpose. In 2008, we had an oversupply of homes available for sale. We had a 12-month supply of homes On The Market. The builders never got the memo, they just kept building after the market condition changed. That was followed by a flood of foreclosures entering the market, which added even more inventory, and now the builders were competing against their own properties from a year prior that were twice as big and half as expensive. It was a nightmare, really hard to get a loan back then because the lenders had basically shut down.<\/p>\n
The people who were going into foreclosure we people that were not only buying overpriced houses, but they were doing it on speculation. A very high percentage of them had adjustable rate mortgages. The only way they could afford the house was with a teaser rate. As soon as that rate adjusted their interest payments doubled and suddenly they couldn\u2019t afford those properties anymore. It was a real nightmare. There was a story in our local paper here in Orange County, California about a cleaning lady who was making about $40,000 a year and had eight properties in Santa Ana, and all eight of them, amazingly enough, were in foreclosure. You wondered what the loan officer on the seventh or eighth loan must have been thinking before they approved that loan. Anyway, market conditions, fast forward to where we are today, we have a about a one-and-a-half to two-month supply of properties available for sale. That\u2019s about a third of what we would normally have in a healthy market.<\/p>\n
The builders have not been building for a decade, so they\u2019re trying to catch up. They\u2019re having trouble building new inventory because of supply chain disruption. They can\u2019t get appliances, roofing materials, windows, and so it\u2019s taking them longer to bring properties to market. We have demand that\u2019s demographically based, so this is not false demand. The biggest cohort of millennials who are the biggest generation in U.S. history are between the ages of 29 and 32. The average age of a first-time home buyer is 33. Even with interest rates being at 5%, they\u2019re still lower than the six, seven and 8% loans that we saw back in 2008. The other thing to keep in mind is that first-time home buyer percentage is actually fairly low this time, and that\u2019s your riskiest loan. During the build up to The Great Recession, first-time home buyer rates were in the high 40s, 45, 46, 47%. The most recent numbers I\u2019ve seen on first-time home buyers in today\u2019s market is about 26%.<\/p>\n
That means most of the sales are in the move up market, and people are tapping into the huge amount of equity they\u2019ve built up to make fairly large down payments on their next property, which is keeping their monthly mortgage payments lower. That\u2019s one of the metrics you look at to determine bubble is, what\u2019s going on with mortgage payments as people are buying new homes? Another is the spread between rental prices and mortgage payments and rental prices have been going up as fast as home prices have. Again, none of the predictors that we would\u2019ve looked at leading up to 2008 seem to be in place. Market dynamics are all different. The quality of the borrowers is extraordinary. In fact, the delinquency rates are the lowest they\u2019ve been since the mortgage banker started tracking those numbers in the 1970s, and the economy is supporting it too.<\/p>\n
We\u2019re creating jobs. Unemployment rates are very low, and usually that\u2019s what I would look at as a trigger. If we see unemployment rates go up, typically, your delinquency rates go up. If your delinquency rates go up, your foreclosure rates go up. We\u2019re still dealing with historically low rates of foreclosure, so there\u2019s really no indicator that we\u2019re sitting in a bubble, although it\u2019s understandable people think that because we\u2019ve had, I believe, 122 consecutive months now where home prices were higher than they were the prior year, which is I believe the longest run in history. So I do think market corrections could happen across the country in certain markets at certain price tiers. Do I think we\u2019re going to have a bubble bursting? No, but the truth of the matter is, nobody really knows we\u2019re in a bubble until it bursts.<\/p>\n
Yeah. I love the point you made that this looks like how it looked in 2009, 2010, or maybe actually say the run up to that, so 2000 through 2005 or \u201906, but the fundamentals are vastly different. For those on the outside looking in who just see the symptoms, you\u2019re like, \u201cOh, that looks like the same symptoms as when I had a cold.\u201d But for those of us that live in this world where we\u2019re doctors, we\u2019re like, \u201cThis is not the same virus. This is not the same kind of cold, even though the symptoms are the same,\u201d and I get a lot of almost anger when we say, \u201cYeah, the market is still fundamentally strong.<\/p>\n
People are getting 30-year fixed rate loans that they can afford. Their job is very secure. Rents are going up. There\u2019s a lot of money flowing into real estate that makes it a desirable asset,\u201d and they just don\u2019t want to hear that. What they want to hear is there\u2019s a crash. So I\u2019m always trying to figure out how do you connect with those people who want to believe we\u2019re going to have a crash, while at the same time recognizing, who knows? It could be. One thing that I\u2019ve not heard spoken of wanting, oh, go ahead. I\u2019ll let you say that. I\u2019ll ask you my question next.<\/p>\n
No, just, I couldn\u2019t agree with you more. I actually get really frustrated and my encouragement to anybody who\u2019s watching or listening to this conversation is, anybody who\u2019s selling you a guarantee of a crash is doing that because they\u2019re trying to sell you something. I spent 24 minutes of my life that I will never get back watching a video that a colleague sent me as proof that there was a crash coming, and I wanted reach into the computer and ring the guy\u2019s neck because he was-<\/p>\n
I know feeling.<\/p>\n
He was misrepresenting the data. He was coming to false conclusions. Every forecast he was making, I could have refuted very, very easily, but there\u2019s a lot of this misinformation out there, and people really have to be careful what they sign up for. There was a guy who was predicting millions and millions of foreclosures a year ago, and I had people sending me that because yeah, since the beginning of the pandemic, I\u2019ve been out saying we\u2019re not going to see another tsunami of foreclosures. People just knit together really lose math, and it ought to be criminal because they\u2019re charging thousands of dollars for courseware and training programs that are really going to just suck people drive of their money without returning any potential benefits. So it\u2019s a pet peeve of mine and the press gets caught up in it to predicting millions of foreclosures, tens of millions of evictions, and now we\u2019re going to have a housing crash-<\/p>\n
Mm-hmm (affirmative).<\/p>\n
I guess you never go broke with a negative headline, but I\u2019m sorry, it\u2019s a pet peeve.<\/p>\n
That\u2019s my point. That\u2019s what I want everyone listening to this to understand. Think about the last time you got angry at someone that said, \u201cDon\u2019t buy, a crash is coming.\u201d The people that said that four years ago, five years ago, are you mad at them now that you lost out on five years of \u2026 ? No, it never happens. But if one person says you should buy and the market drops, you hate them with the fury of a thousand suns. It\u2019s always the safe bet to go for the person who says, \u201cThere\u2019s a crash that\u2019s coming, you should wait,\u201d and so that\u2019s why so many of them do that, and they play into the fear. You said it, the media, every article, \u201cInterest rates rise, is a recession looming? Tons of inventory will be flooding in the market.\u201d Everyone likes to see that, and so that\u2019s why media prints it. They\u2019re not printing it because they believe it, they\u2019re printing it because you will click on that, because that\u2019s what people want to hear.<\/p>\n
So we have to think about where we\u2019re getting our information from that\u2019s, and Rick, what I love is you\u2019re giving data to support your opinion. It\u2019s not, \u201cWell, I\u2019m just angry the housing prices would go up, so I\u2019m going to find some way to vent that anger and say that they\u2019re going to be going down.\u201d Your theory on foreclosures is the same thing that I\u2019ve been telling people for so long. To be honest with you, I\u2019m going to let you share it. But when I would share it with someone and they would act surprised, I often thought, \u201cHow did you not see this?\u201d It\u2019s not hidden, it\u2019s that they wanted to believe foreclosures were coming. So the obvious answer that\u2019s right in front of them that no one\u2019s going into foreclosure got tons of equity in their home, when market\u2019s this hot, you\u2019re getting equity while you\u2019re in escrow. Even if you couldn\u2019t make your payment, you\u2019re going to make a whole bunch of money selling your house, because how fast it\u2019s rising. Like \u201cHow did you not recognize that?\u201d<\/p>\n
But it\u2019s this blinders that we put on where we want to believe there\u2019s a crash coming, because it is hard to get a deal. It is frustrating. There is a ton of in the real estate space right now. Before we get into the foreclosure thing, I wanted to get your opinion on a question I haven\u2019t heard asked very often. I remember in the last bubble, much of the wealth being created that was flooding into the real estate market was from the real estate market. It was home flippers. It was real estate agents that were crushed it, it was loan officers that were making ridiculous amounts of money, giving away all these loans. It was people that worked in the real estate space, making a ton of money and then they would invest it back into real estate, or they would go buy a boat, an RV. There were all these HELOCs where you could pull money out of stuff.<\/p>\n
So it was this house of cards that the minute you couldn\u2019t make money, when homes lost their value, the people making money by selling homes lost their money and the whole thing imploded on itself. But now what I see is more money coming out of tech, more money coming out of entrepreneur ventures like crypto investing and the NFT craze that we\u2019re seeing. There\u2019s people that are literally being millionaires because they bought the right cryptocurrency, and it\u2019s a silly way to be making money. It\u2019s not sustainable, but it is happening. Then you see money flowing from the overall wealth of the economy, the stimulus that we\u2019ve created, where it\u2019s just made so many people wealthy without them having to earn it the old fashioned way.<\/p>\n
You got to find a place to park that money that feels safe, and smart people recognize real estate is a better long-term bet than buying some NFT that you\u2019re hoping goes somewhere, or investing in a cryptocurrency that you hope becomes something better. What I\u2019m getting at is it seems like where the money is coming from that\u2019s going into real estate is coming from more sustainable places. You\u2019ve got institutional capital, you\u2019ve got hedge funds, you\u2019ve got smart people parking their money into these areas where people are migrating to. Do you think that is another sign that the fundamentals are stronger, or do you think there\u2019s something I\u2019m missing there?<\/p>\n
No, I think that\u2019s very well said. There was a lot of internal momentum, if you will, during, during that build up to the housing bust and the flippers then were not the flippers today. Actually, those flippers were more similar to what we saw with Zillow offers in the last year where it was an arbitrage model, \u201cI\u2019m going to pay full value or even too much for a property and count on increasing market prices to be able to make my margins.\u201d Our data shows that the average gross margin on a flip was right around $60,000 nationally.<\/p>\n
Obviously, it\u2019s going to vary market to market. We saw a heightened amount of flipping activity, but these flippers are making their money by going in and repairing a property and then being able to sell at a higher price because they\u2019ve added value. If you\u2019re flipping in an arbitrage model, your risk is much, much higher. Zillow lost $300 million in a quarter by mispricing houses and having to sell them for less than they paid. That was what we saw in the 2005 to 2008 flipping model, so when those profits started to derive, you saw the whole house of cards start to crumble. You\u2019re absolutely right.<\/p>\n
Yeah.<\/p>\n
A lot more institutional money coming in today. A lot more, I would say, cautious and thoughtful money coming in from individual investors. A lot more focus on longer term investments from people buying these properties. We published the RealtyTrac website, which has foreclosure data on it. Mostly individual investors use it and we surveyed them. Over the last year, we\u2019ve seen the percentage of people doing single family rental investments continue to grow and actually begin to outpace the fix and flip percentages. So something like 60% of the investors we surveyed last time we\u2019re claiming to be rental property owners, as opposed to flippers. To me, that\u2019s a more long-term, conservative approach to investing, and I think we\u2019re seeing a little bit more of that. So again, very different model and there\u2019s a lot more capital being generated in other parts of the economy beyond real estate that had been supporting the real estate growth that we\u2019ve seen.<\/p>\n
The last point I want to make before I turn it over to Dave is I think in that 2000 through 2006 crazy, ridiculous rush we had, what people were banking on was speculation. They were speculating that the home would continue to increase in price. They had one extra strategy, which was, \u201cI will buy low and sell high.\u201d They did not understand cash flow. They did not understand the fundamentals of owning, managing, investing in real estate. Like you said, they weren\u2019t improving the property. It was buy a brand new home from a home builder, wait six months and sell it to make $100,000.<\/p>\n
Yep.<\/p>\n
That concept of speculation got somehow married synonymously to appreciation. So now when people hear the word \u201cappreciation,\u201d they assume that means speculation, right? Like one exit strategy, all your eggs in one basket, if one thing goes wrong, you lose the whole deal, but I\u2019ve never seen it like that. I think appreciation applies to both rents and the value of the home, and you make money in real estate from it appreciating, but that doesn\u2019t mean you do it foolishly. It still needs the cash flow. You still have to have enough money to hold it long term. I just noticed that a lot of the same people they get angry about, \u201cThere is a crash coming!\u201d they get angry at the word appreciation. The minute they hear it clicks like, \u201cOh, that\u2019s speculation. That\u2019s bad.\u201d<\/p>\n
I got warned about that a long time ago. Have you seen that as well? At one point, HELOCs were synonymous with bad investment decision. Like a HELOC means you\u2019re losing your house. We\u2019ve finally gotten far enough away from it that people don\u2019t automatically think HELOC means a death sentence to your family\u2019s finances, but it feels like that same idea of buying a house and waiting long term for it to go up in value is getting labeled the same way that speculation was when people were trying to day trade real estate.<\/p>\n
Well, actually the last thing you said is probably the most accurate metaphor for what we saw. These were people that were literally trying to day trade real estate and that\u2019s the wrong asset class to do day trading on. You\u2019re just not going to see your values appreciate. Again, a company as big as Zillow, a multi-billion dollar company with multi-billion dollar valuation that\u2019s been in the real estate market, that made its bones with a product called the Zestimate that\u2019s supposed to give you at least an approximation of home value, and they managed to lose 300 million in a quarter by doing that kind of arbitrage, so it\u2019s not a good play. I know a lot of flippers. They\u2019re still very successful at what they do. We\u2019ve seen actually an uptick in flipping activity in our data, but it\u2019s people that know what they\u2019re doing. It\u2019s people that know how to price property. They\u2019re going in and they are buying low and they\u2019re fixing things up and they\u2019re selling high, but again, a lot of the value that they generate is because they\u2019re going in and making huge physical improvements in a property.<\/p>\n
They can just do it cost effectively and in a way that pencils out at the end of the day. Again, I think the investors in today\u2019s market are a lot more thoughtful. They\u2019re a lot more educated, I hope, and we\u2019re not seeing lenders take on the reckless risk that we saw lenders take on 10, 15 years ago. That\u2019s been the other big part of the difference is lenders have always been expected to provide the adult supervision at the party, and during that housing boom it was like they went away and left the kids home for the weekend and tossed them the keys to the liquor cabinet right before they left, and then we were all surprised at the outcome, so very different lending market. The CFPBs had a lot to do with that, putting restrictions in place, but even the commercial lenders, the people who specialize in bridge loans and investor loans have really tightened things up. So a lot of the risk that was inherent in those old models just doesn\u2019t exist in today\u2019s lending market.<\/p>\n
Rick, I want to get back to something you mentioned earlier. We\u2019ve talked a lot about why the fundamentals are very different from the two thousands and why you don\u2019t believe if there is a crash. You have said, though, that you think there could be market corrections in individual markets. Just for the record, based on our diatribe about people calling crashes a correction and a crash are not the same thing. A correction is a modest decline in prices that is usually part of a norm economic cycle. So can you just tell us a little bit about why you think, counter to what you just said that you don\u2019t think there\u2019s going to be a crash, what are you seeing that suggests that there could be some market corrections out there, and if you\u2019re an investor, what to look out for in those markets, you think there might be corrections in?<\/p>\n
The latter question is harder to answer than the former. I\u2019ll be honest with you, this is an arbitrary definition on my part, but I look at a correction as something in the neighborhood of a five to 10% price drop, and it will then recover. You mentioned normal economic cycles. There\u2019s a lot of people involved, or wanting to get involved in real estate today who candidly haven\u2019t been around long enough to see what looks like a normal housing cycle, and those cycles follow a predictable pattern. You see demand increase, as demand increases, you see more sales; as sales increase, you see prices go up, and then at some point prices get to a certain level where people look at it and go, \u201cNo, that\u2019s too much money,\u201d and then demand slows down and prices come back down with it, and you have those normal cycles. I believe we\u2019re starting to see a little bit of in certain markets across the country, as we hit, what I call an \u201caffordability wall; the combination of home prices going up, of interest rates going up, there\u2019s a certain borrower.<\/p>\n
Who\u2019s going to look up and say either, \u201cI no longer qualify.\u201d \u201cI can\u2019t afford that property,\u201d or, \u201cThat\u2019s just too much for me to be comfortable with right now. I\u2019m going to take a step back and see what happens, or I\u2019m going to look farther away from that property. I\u2019m going to look at a smaller property and scale back.\u201d Ultimately, that has an impact on demand. Lower demand ultimately has an impact on pricing. If you look back, and I did this, I don\u2019t know I was doing this, but about a week ago, I happened to be looking back at 100 years of home prices. It\u2019s funny when the 30-year fixed rate loan became legal in 1954 for existing homes, most people probably don\u2019t know that before that you couldn\u2019t get a 30-year fixed rate loan, is when we started to see prices take off, because now you could amortize your costs over a much longer period of time. If you look at that, we\u2019ve only ever had one cycle where prices fell significantly in 100 years, and that was during the crash leading up to The Great Recession.<\/p>\n
If you remove the drop and the significant increase we had during that period of time, we\u2019re right about where the historic trends say we should be in terms of home prices, but even though prices historically have always gone up, it doesn\u2019t mean they go up consistently. There are going to be times in markets where prices up for a while and then market conditions change and they come back up. Would I be surprised to see parts of the Bay Area where home prices have been off the charts, or parts of the Pacific Northwest, where we\u2019ve had incredible competition for housing over the last few years, or markets like Austin, or some markets in Florida see a little bit of a price decline, particularly at the higher ends where there\u2019s not as much competition? No, I wouldn\u2019t be at all surprised to see that. Do I think it\u2019s the foreboding of a huge crash to follow? Not at all, really, but local investors need to become experts on their local markets.<\/p>\n
You want to look for things like population growth or decline. You want to look for things like job growth or decline. You want to look for things like wage increases. Are they keeping pace with, with local prices, with inflation? Inflation is the wild card, by the way. That\u2019s really the X factor here. I believe that persistently high rates of inflation will hit people harder on the margins, so your low end of the market, particularly your FHA borrower is going to have a hard time affording to buy a house because they\u2019re having a hard time affording to buy gas and food. That will have an impact going up the food chain to a certain extent where people are going to have to take a step back and see when they can get their finances in order, because everything is costing them eight, 10, 20% more than it did a year ago. Again, normal cycles, don\u2019t see a crash, but local conditions will vary, but you really have to become the local market expert, much more than I can be a local market expert on 3,140 counties across the country all at once.<\/p>\n
I\u2019m so glad you mentioned what you just did, because rates going up will affect the FHA buyers significantly. They probably we\u2019re barely able to afford houses in their area, rates jump a point or two, they can\u2019t buy a house at all.<\/p>\n
Yeah.<\/p>\n
Rates do not affect a person in my position.<\/p>\n
Right.<\/p>\n
Right? So the house becomes a little less affordable. The cash flow is a little bit less. Maybe I have to put more money down, it is still vastly superior to anything else that I can invest in-<\/p>\n
Yeah.<\/p>\n
\u2026 so I\u2019m going to keep buying. That\u2019s what I want to come across is that while this may make it harder for the average blue collar, mom-and-pop investor trying to claw their way out of their W2 position, which is our audience, that\u2019s who we\u2019re trying to help, this does not make things harder for Blackstone that can go borrow money at one-and-a-half percent, and has a 10, 20, 30 year horizon. It doesn\u2019t matter to them if they make a little bit less money in years, one or two, and that\u2019s who your competition is now, these iBuyer programs with tons of money flooding into them. I wish that this rate hike would cause a decrease in prices. As an investor, I would welcome that. It\u2019s really hard to find property, but it\u2019s not going to. They can go up a lot. For someone doing a 1031 exchange, they made $800,000 and they got to put it somewhere, okay. So they make less of a return, is that you, Dave, you got 800 grand you\u2019re trying to figure out where to park?<\/p>\n
Yeah. Yeah. I am trying to park some 1031 money right now.<\/p>\n
That\u2019s been fueling a lot of the run up in prices is, it\u2019s this self-sustaining ecosystem where, we have a city in where I live called Modesto, California, and it\u2019s not the nicest area. It\u2019s like maybe an hour-and-a-half away from the Bay Area. But if someone sold their house in San Jose for $800,000 and they got to park that money, and if they can\u2019t, they\u2019re going to pay 300 grand in taxes, they will gladly pay 50 to a 100,000 more than market value for that fourplex in Modesto. You have all these Modesto investors that are like, \u201cMan, I can\u2019t get a return. What kind of an idiot\u2019s paying that much money?\u201d They don\u2019t see the big picture. They don\u2019t see that idiot is saving $300,000 by buying that property or buying in the nicer areas because they know in five years it\u2019s going to get ahead. I like that you\u2019re mentioning this macroeconomic understanding and inflation-<\/p>\n
Yeah, and-<\/p>\n
\u2026 it\u2019s ripped. Go ahead.<\/p>\n
\u2026 and cash is king. So I think for investors who do have cash, market can conditions are absolutely tilting in your favor right now. We know that somewhere between 16 and 70% of investor purchases are funded with cash, because you don\u2019t really care if mortgage rates go up a point or two, because you\u2019re not financing.<\/p>\n
Yeah.<\/p>\n
Even if you\u2019re doing a bridge loan and rates are ticking up a little bit on those, it\u2019s a very short term phenomenon. You can usually built that into your prices and pencil it out. But what you\u2019re also talking about is interesting to me, because it\u2019s one of the reasons home prices have risen as rapidly as they have, because we are seeing people not just invest in properties in Modesto, but we\u2019re seeing people move from high-price markets to low-price markets. I call it the Boise factor.<\/p>\n
Mm-hmm (affirmative).<\/p>\n
Boise, Idaho had property values on sales go up 45% last year. Now I will guarantee you there\u2019s nothing happening in the Boise economy to organically drive prices up 45%, but somebody sold-<\/p>\n
Unless you call Californians moving there organic-<\/p>\n
That\u2019s organic, and that\u2019s exactly what\u2019s happening, driving the locals crazy because they\u2019re they can\u2019t afford to buy a house now. I\u2019m scared to death what\u2019s going to happen when the tax assessor gets around to adjusting prices.<\/p>\n
Oh, man.<\/p>\n
You don\u2019t even think about this.<\/p>\n
That\u2019s true [crosstalk 00:46:28].<\/p>\n
But what\u2019s driven partly by this work-from-home phenomena that COVID led to. Sorry, David, go ahead.<\/p>\n
No, I was going to say actually on our other show, On The Market, we were just talking about this, that Idaho just became the least affordable state in the entire country, surpassing Washington and California for this exact phenomenon. People are going there. It\u2019s not actually leading to an improvement in the local economy to the point where wages are going up for people, but the cost of living is absolutely exploding there.<\/p>\n
You sold a house in Silicon Valley, you walked away with $800,000 and you bought a house twice as big and Boise for 400,000, and you really don\u2019t care that you paid 40% over list because you have the money, right? It\u2019s a phenomenon that doesn\u2019t have a long life expectancy. I do think in some of those markets, that\u2019s one, St. George\u2019s Utah of all places. Phoenix, we saw similar patterns in markets like that and they\u2019re due to settle down. We probably could see some price adjustments in those kind of markets, but people ask me, \u201cWhat are the next hot markets?\u201d I always ask for a show of hands, \u201cWho had Boise and St. George\u2019s Utah on your bingo cards last year, because you\u2019re the person I want to ask about what the next hot market is.\u201d I had neither of them.<\/p>\n
Well, this is why this is a good conversation to have, because if you\u2019re buying a property that will support itself through cash flow, it\u2019s not risky speculation to try to determine, \u201cWhere do I think demand is going to go?\u201d So I do think about this. We just bought a property, my co-host of the regular podcast, Rob and I, in Scottsdale, Arizona, and I was very big on that because so many people in California are constantly talking about not liking it here, wanting to go to a place with different demographics, different political bend and different home prices. If you\u2019re wealthy in California, that\u2019s where you want to go. You want to go to Scottsdale. So I can see how like when Boise is too much, well you\u2019re in the desert, so you have to understand that\u2019s a completely different scenario. But in general, the people, like New Yorkers, they don\u2019t want to be in New York right now.<\/p>\n
No.<\/p>\n
They\u2019re all going to South Beach.<\/p>\n
Yep.<\/p>\n
Right? There\u2019s probably going to be a trend. The people in New York moving into Florida, that will be their version of Boise because the taxes are better and they can still work from wherever they are. If you\u2019re trying to figure out, \u201cWhere\u2019s a market I can get to before everyone else does?\u201d I do think that\u2019s the game you got to play, because if you just want to say, \u201cOh, let me just go to a city and find a house on Zillow and buy it,\u201d good luck. It\u2019s very, very difficult. So you have to understand the psychology of the people that are moving, figure out where they would want to be and then get there before everyone else does, and hen get a very strong, fundamentally sound deal that you could afford to keep for the long term. It\u2019s definitely made investing a lot more complicated than it was in the good old days-<\/p>\n
Oh, yeah.<\/p>\n
\u2026 when we were like, \u201cSend out some letters. Someone will reply offer to buy their house.\u201d We were all getting hung up on, \u201cOh, but the roof needs $4,000 of repairs. I don\u2019t want to have to deal with that,\u201d and now we\u2019re looking at it like, \u201cMan, why are we stuck on those details when we see what it\u2019s turned into now?\u201d<\/p>\n
You\u2019re happy to find a house you can buy.<\/p>\n
Yeah, that\u2019s right. There\u2019s 12 other people that want it. It\u2019s the Hunger Games. You got to hope you\u2019re the one left at the end,<\/p>\n
Rick, before we go, I want to come back to something, you, David and I were actually chatting about before the show, but you had some really interesting insights into the foreclosure market and how investors should navigate that. Could you tell us a bit about that?<\/p>\n
Yeah. Unfortunately, my foreclosure background goes all the way to my beginnings of my career in the real estate and mortgage industries. I spent 10 years with RealtyTrac, during the foreclosure crisis and we were publishing the largest database of foreclosure information at the time. I can tell you that during that cycle, there were a couple of very unique things going on. One was that 33% of all homeowners across the country had negative equity in their properties, not just foreclosure borrowers, all homeowners, so that\u2019s how far home prices had fallen. Virtually everybody in foreclosure was upside down. Because of that, they couldn\u2019t sell their home unless they got a short sale approved, which was an incredible hassle for people.<\/p>\n
Although we did see short sales go up a bit during that cycle, very little was selling at the auctions, because the lenders were trying to get the full amount of debt back on a purchase, and investors simply weren\u2019t biting because prices were too high, so a huge percentage, much, much higher percentage than normal of properties going into foreclosure ultimately, went back to the banks, or went back to the lenders and they became REO assets. So people that were successfully buying and flipping or buying and renting foreclosure properties during that cycle waited for the repossession. They knew the bank was going to be hanging onto these properties for a while. A little known fact is, a lender doesn\u2019t have to take the law loss on a property they foreclosed on until they resell it. So in a lot of cases, the banks were simply hanging onto these properties to defer their losses, because they were under such incredible financial duress during that period, and the best deals were typically found in those REO assets. This market, again, could not possibly be any more different than that market.<\/p>\n
There\u2019s a record amount of homeowner equity across the country, $27 trillion of homeowner equity, just a ridiculously high number. To David\u2019s earlier point, I think we\u2019re going to start to see a return of cash out REFIS, and even some HELOCs as people start to tap into that equity, largely for home improvement, because they\u2019re not going to move because they don\u2019t want to buy a more expensive house with a more expensive mortgage. Anyway, this cycle, according to our numbers at ATTOM, about 90% of borrowers in foreclosure have positive equity in their homes. There is no reason for those borrowers to lose a home and lose more of that money to a foreclosure auction when they can sell it in a huge seller\u2019s market. So for any investor who\u2019s looking to participate in the foreclosure market this time, you need to find those borrowers, those homeowners, in the earliest stage of foreclosure possible and reach out directly to them, or work with a realtor who specializes in working with distressed homeowners, and have the realtor reach out to that homeowner and try and execute a deal before that foreclosure auction.<\/p>\n
The other thing I will tell you, and I spent five years working for auction.com back in the day is that the auction companies are reporting record sell through rates at the foreclosure auctions. Normally, 30 to 35% of property sells in an auction. Today, that number is between 65 and 70%. So if you think about the fact that most homeowners in distress should be able to sell a house before the auction, 70% of the properties getting to auction or selling at the auction, that doesn\u2019t leave very many properties going back to the lenders. So your strategy as an investor, this cycle has to strike way, way earlier in the food chain in before that REO takes place, before that repossession takes place and there will still be deals out there, but you\u2019re going to have to get to them much, much earlier.<\/p>\n
That\u2019s a great point. I\u2019m glad that you shared it. It\u2019s very easy to look at it at a shallow level and say, \u201cOh, foreclosures are coming. I\u2019m just going to wait.\u201d But in a market like this, it doesn\u2019t go to foreclosure, they sell it, unless they just are ignorant and they don\u2019t understand. Then it goes to the courthouse steps and then a non-ignorant person buys it. You\u2019re not seeing inventory sneak all the way to the very end like before. I looked at it like back then the market was saturated with homes. You said it perfectly, there was too much supply. It was like, imagine soil that is just completely saturated with water. You pour a bucket of water on that, and there\u2019s nowhere for it to go. It just floods over and there\u2019s too much of it. Well now it\u2019s like pouring a bucket of water onto the sand at the beach.<\/p>\n
Yeah.<\/p>\n
It doesn\u2019t matter what type of water it is. It\u2019s so thirsty. We have such a demand for inventory that it just sucks up right off the bat, and so waiting for that overflow to run to you to get a great deal isn\u2019t the same strategy. Really, the only answer I can see is we need to build more houses. We need to make it easier for builders and developers to create more inventory in the places that people are moving to. Outside of that, it\u2019s difficult to see how real estate is going to stumble for a very, very long time, so we just have to be creative.<\/p>\n
As people listening to shows like this that are getting the inside scoop on what they can do to be successful, Rick, I really appreciate you being here to share some of this information with us because it\u2019s the facts that matter. It doesn\u2019t matter how angry you are or you want to believe there\u2019s a recession coming, or somebody on YouTube is ranting about the next time, and if you don\u2019t know what you\u2019re listening to, you hear that you\u2019re like, \u201cYeah, I\u2019m going to wait,\u201d and four years go by and prices are twice what they are right now. It just seems incredible, and you\u2019ve lost a lot of money. Like we said, nobody gets angry at that person.<\/p>\n
That\u2019s the person they should be the angriest at. Now the numbers are the numbers, and there\u2019s an old cliche in real estate, which you\u2019ve probably heard before, which is that the best time to buy a house was 15 years ago, and the second best time is today.<\/p>\n
Mm-hmm (affirmative).<\/p>\n
If you have a long enough outlook on this, or if you\u2019re not looking to do that arbitrage model and buy today and sell tomorrow and hope for the best, typically, for most people real estate\u2019s a pretty good investment, if you know what you\u2019re doing.<\/p>\n
There you go. Dave, any last words?<\/p>\n
No. Thank you so much, Rick. We\u2019re definitely going to have to have you back either on BiggerNews once a month or on our other show, On The Market. You\u2019re a wealth of knowledge and appreciate your really analytical and data-focused approach to helping everyone understand the housing market.<\/p>\n
I appreciate it. I enjoyed the conversation and yeah, let\u2019s do it again soon.<\/p>\n
Thank you very much, Rick. This was awesome. All right, and that was our show with Rick. Man, that guy is just a gem. What a wealth of knowledge and insight. What did you think, Dave?<\/p>\n
I loved it. I think he provides a really well-reasoned, sober analysis of the housing market, because there\u2019s so much going on, and it\u2019s understandable, really to who be confused about what\u2019s going on, but that\u2019s why we do these shows, to bring on people who are experts and who have the data and the experience to help us interpret it. I learned a lot from Rick. I think he has a very good read, similar to how I see the housing market personally. I hope everyone got a lot out of it. What do you think?<\/p>\n
Yeah. I feel like it\u2019s so hard to know who to believe, especially, so you\u2019ve got the increase in social media, the increase in content being made on platforms like YouTube and TikTok. You\u2019ve got a lot of thirsty gurus that are out there trying to get attention and they\u2019ll say whatever it is, it grabs your attention. It is very common to hear some people say, \u201cBuy other rails that you can,\u201d and others to say, \u201cDon\u2019t touch it. You\u2019re headed to a crash.\u201d It\u2019s in absolute polar opposites, and you don\u2019t know what\u2019s to believe. So in an environment where you have all of this confusion, my advice is you ground yourself in facts. numbers can\u2019t lie to you. Numbers are not sensational. They don\u2019t scream and say, \u201cWatch me, click me, follow me.\u201d They don\u2019t ask for your money, and so that\u2019s what I trust. When you find a person like Rick, who based their information off of numbers, I feel much more comfortable, and that\u2019s why we wanted to bring him in front of the audience today.<\/p>\n
Absolutely, and that is exactly what On The Market our new podcast is all about. It\u2019s about presenting you this information in an unbiased, logical way so you can understand what is going on without all of the sensationalism out there. I like that you called them thirsty gurus. I think that is a very funny way to refer to gurus because they\u2019re a thirsty bunch.<\/p>\n
I just made it up right now, actually, so sometimes my own-<\/p>\n
I like it.<\/p>\n
\u2026 genius only comes out in a spontaneous creative moment. This happens when they make sure the green M&Ms are not in my bowl.<\/p>\n
This is why, the green M&Ms slow you down?<\/p>\n
Well, there\u2019s an old theory about it, there was a group like Van Halen or something where they were considered divas because they didn\u2019t want green M&Ms in their bowl. I was pretending like I was a diva there.<\/p>\n
Oh, oh no, not a diva. You\u2019re a man of the people.<\/p>\n
Thank you for that. So are you, and if the people want to fall more of you, the man, where can they find you?<\/p>\n
I am most active on Instagram where I am @thedatadeli. I know it\u2019s an absurd handle, but I really like data and I like sandwiches, so I\u2019m sticking with it.<\/p>\n
You\u2019ve married two beautiful things together, and you threw alliteration in there. It\u2019s incredibly profound how you\u2019re able to do that.<\/p>\n
Yeah. Well, do you know Kaylee who works on the publishing team at BiggerPockets?<\/p>\n
Mm-hmm (affirmative).<\/p>\n
She came up with it. She came up with it in two seconds. She was like, \u201cYou love data, and you love sandwiches, datadeli, obviously.\u201d<\/p>\n
Man, at BiggerPockets we got a bench deeper than the Golden State Warriors. The talent just oozes from everywhere. If anybody wants to follow me, hear more about what I\u2019m thinking, maybe you\u2019re like, \u201cMan, I really wish David Greene could have talked more, but Dave Meyer forced him to give very short answers and I wish he could expand,\u201d well one-<\/p>\n
Yeah, blame it on me. It was always my fault.<\/p>\n
It\u2019s our producer trying to make sure you guys have a good show because you complain when we go too long, so it makes sense. But if you wanted to hear more, go to the comments on YouTube and say, \u201cI wish you guys would\u2019ve expanded on this point,\u201d or, \u201cI wish I could have heard more of this,\u201d or, \u201cI wish you would\u2019ve asked this question,\u201d and I will do my very best to get you the information that you\u2019re looking for. You could follow me online everywhere on social media at DavidGreene24, there E at the end of Greene. You can also message me on BiggerPockets, or you can find me on YouTube at David Greene Real Estate.<\/p>\n
The point is we want to give you all the information we possibly can at BiggerPockets. We want to flood you with value, and if we can\u2019t do it on this hour to hour-and-a-half podcast, there\u2019s other mediums where we can still get you what you need. So give us a follow, let us know what you thought and make sure you\u2019re also BiggerPockets. Please share this podcast with anybody that you love. Subscribe to it when you hear when a new episode comes out and keep following us because we just get better with age. All right, I\u2019ll get us out of here. This is David Greene, for Dave, not the thirsty guru, Meyer signing off.<\/p>\n
I need to get something that attaches to my chest so when I move, the mic moves with me-<\/p>\n
Oh, yeah. Like a gimbal for yourself.<\/p>\n
Yeah. I move around a lot. [crosstalk 01:01:10]<\/p>\n
You\u2019re like Axle Rose from Guns \u2018N Roses doing this snake when you\u2019re recording.<\/p>\n
Yeah.<\/p>\n
(singing)<\/p>\n
Yeah. That\u2019s really good, actually.<\/p>\n