WEBVTT - Jonathan Miller on Urban Real Estate 0:00:00.080 --> 0:00:05.880 M HM. This is Mesters in Business with Very Renaults 0:00:05.880 --> 0:00:11.400 on Bloomberg Radio. This week on the podcast, I have 0:00:11.440 --> 0:00:14.840 an extra special guest, Jonathan Miller. I've been reading his 0:00:14.920 --> 0:00:19.200 research and writing about real estate and appraisals and home 0:00:19.320 --> 0:00:22.959 price trends and anything related to residential real estate for 0:00:23.200 --> 0:00:25.160 I don't know, it's got to be close to twenty years. 0:00:25.600 --> 0:00:29.200 He is the co founder of Miller Samuel. His data, 0:00:29.240 --> 0:00:32.760 analytics and research powers the back end of some of 0:00:32.800 --> 0:00:37.120 the biggest real estate agencies in the country. He always 0:00:37.159 --> 0:00:40.320 has a tremendous amount of insight as to the current 0:00:40.320 --> 0:00:43.680 state of the market and the best way to contextualize 0:00:43.720 --> 0:00:46.880 what's going on in real estate. And we really talked 0:00:46.920 --> 0:00:53.519 about everything from aspirational UH pricing to our markets at 0:00:53.520 --> 0:00:57.200 a peak, and how when markets do peak and roll over. 0:00:57.240 --> 0:01:00.680 In real estate, why it takes so long for prices 0:01:00.720 --> 0:01:06.679 to adjust UH newsflash, sellers are anchored via the endowment 0:01:06.680 --> 0:01:10.200 effect to their own value of their home prices, which 0:01:10.440 --> 0:01:13.959 lagged the actual market UH for a long time. We 0:01:13.959 --> 0:01:18.039 we talked about the death of cities being greatly overstated 0:01:18.200 --> 0:01:21.959 and and why it's so challenging to convert all that 0:01:22.120 --> 0:01:26.560 excess office space into residential properties. If you are at 0:01:26.600 --> 0:01:31.160 all interested in real estate, buying a house, selling a house, 0:01:31.280 --> 0:01:35.200 renting an apartment, owning a condo, or cooper just want 0:01:35.240 --> 0:01:37.760 to know what the heck is going on with real 0:01:37.880 --> 0:01:41.160 estate today. Uh, you will find this conversation to be 0:01:41.280 --> 0:01:46.800 absolutely fascinating. So, with no further ado, my conversation with 0:01:46.920 --> 0:01:53.040 Jonathan Miller. You're listening to Masters in Business with Very 0:01:53.160 --> 0:01:57.640 rid Holts on Bloomberg Radio. I'm Barry rid Holts. You're 0:01:57.720 --> 0:02:01.960 listening to Masters in Business on Bloomberg Radio. My extra 0:02:02.040 --> 0:02:05.560 special guest this week is Jonathan Miller. He is the 0:02:05.720 --> 0:02:09.480 CEO and co founder of Miller Samuel, a real estate 0:02:09.520 --> 0:02:14.200 appraisal and consulting firm he first founded in six His 0:02:14.480 --> 0:02:19.200 data and analytics powers many of the largest brokerage firms 0:02:19.720 --> 0:02:24.959 um reporting and information about the state of the housing market. Uh. 0:02:25.000 --> 0:02:28.160 He is our returning champion. I think you and Scott 0:02:28.160 --> 0:02:33.080 Galloway are tied for the most Masters in Business appearances. 0:02:33.400 --> 0:02:39.120 Jonathan Miller, Welcome back to Bloomberg. Great to be here, Barry. Thanks. So, 0:02:39.120 --> 0:02:41.440 so let's just talk a little bit about your background. 0:02:41.960 --> 0:02:45.880 You co found Miller Samuel in in six what what 0:02:46.000 --> 0:02:49.880 led you to the appraisal, real estate and consulting business 0:02:49.880 --> 0:02:54.600 way back then. Well, UH, initially I worked for a 0:02:54.680 --> 0:02:59.240 management company that was bought by Marriott back in the 0:02:59.240 --> 0:03:02.160 mid eighties, and I said, well, what am I gonna 0:03:02.200 --> 0:03:04.760 do with myself? And I got my real estate license 0:03:04.800 --> 0:03:08.200 and I became a real estate agent in Chicago, and 0:03:08.400 --> 0:03:11.760 UH was more on the analytics side, you know, sort 0:03:11.800 --> 0:03:15.360 of the bean counter type. And then I moved to 0:03:15.400 --> 0:03:19.840 New York and UH was eventually became a sales director 0:03:19.840 --> 0:03:23.000 on a new condominium building and saw these appraisers coming 0:03:23.040 --> 0:03:26.239 in without really data. There was no multiple listening system 0:03:26.280 --> 0:03:31.400 in Manhattan. And I eventually got together with my family 0:03:31.480 --> 0:03:34.519 and we started our firm, Miller Samuel in the eighties 0:03:34.560 --> 0:03:37.320 six and it covers the New York City metro area. 0:03:37.560 --> 0:03:42.800 And then UH, starting in n I started offering UM 0:03:42.800 --> 0:03:47.760 market studies UH for the real estate company UH Douglas 0:03:47.800 --> 0:03:51.960 Solomon and basically follow their footprints. I'm covering about forty 0:03:51.960 --> 0:03:55.280 different housing markets in the US right now, and that's 0:03:55.400 --> 0:03:57.720 really fun. And then it sort of marked in. I 0:03:57.800 --> 0:04:02.360 teach market analysis at Columbia for grad students UM, and 0:04:02.440 --> 0:04:05.440 so you know, it's just been this sort of progression 0:04:05.520 --> 0:04:11.360 of but everything related to housing in real estate trends. Well, 0:04:11.400 --> 0:04:13.720 I love that you are are one of the number 0:04:13.800 --> 0:04:17.359 crunchers who dive into the data and come up with 0:04:17.400 --> 0:04:21.279 analytics to really teach us about what's going on in 0:04:21.400 --> 0:04:24.680 the marketplace. And so I have to start with that question, 0:04:25.240 --> 0:04:27.480 what are you seeing these days in the real estate 0:04:27.520 --> 0:04:31.560 markets you cover? Are prices and volumes still going up? 0:04:32.320 --> 0:04:35.800 As of this recording, mortgage rates have just about doubled 0:04:35.880 --> 0:04:39.040 to six from you know, the low threes or even 0:04:39.120 --> 0:04:42.760 high twos um. What's going on in real estate? Well, 0:04:43.720 --> 0:04:45.599 I think of it as you know, you know, with 0:04:45.720 --> 0:04:49.880 affordability dropping literally by half since the end of December, 0:04:51.080 --> 0:04:55.120 the market is going through a pause where there is 0:04:55.160 --> 0:05:00.680 a tremendous pullback in demand and you know, this is 0:05:00.720 --> 0:05:05.720 a significant jump in rates. So you have this pullback, 0:05:05.800 --> 0:05:09.320 and what that's done initially is you know, new sign 0:05:09.400 --> 0:05:14.640 contract volume is down across all the markets we cover. Uh, 0:05:14.880 --> 0:05:17.719 And actually that's been occurring for the last couple of months. 0:05:17.720 --> 0:05:21.600 This is you know, the slowdown now is has accelerated, 0:05:21.640 --> 0:05:25.360 but really we started to see contract activity slowed down 0:05:25.400 --> 0:05:28.880 at the end of March, beginning of April. Initially it 0:05:29.000 --> 0:05:34.240 was because inventory had collapsed, uh and was keeping sales 0:05:35.120 --> 0:05:37.559 from occurring because there was no product. But it's really 0:05:37.960 --> 0:05:44.000 completely morphed into an affordability issue because nationally, you know, 0:05:44.080 --> 0:05:48.120 depending on the metrics you follow, we're looking at increase 0:05:48.160 --> 0:05:52.200 in housing prices plus rates doubling. What else could happen 0:05:52.680 --> 0:05:56.600 to slowdown? I think you told me this, or you 0:05:56.800 --> 0:06:00.120 got this from the internet somewhere somewhere you said, one 0:06:00.120 --> 0:06:02.520 of the best things for high housing prices or high 0:06:02.520 --> 0:06:06.600 housing prices. Well, that's that's the that's the old commodity 0:06:06.640 --> 0:06:10.040 trader's joke. The cure for high poses are high prices. 0:06:10.080 --> 0:06:13.120 At a certain point, either the demand cools or the 0:06:13.200 --> 0:06:16.839 supply rushes to meet it. Yeah, And I think what 0:06:16.960 --> 0:06:21.880 people generally have wrong with with the market cool down is, 0:06:22.560 --> 0:06:24.760 you know, initially, when you have an external event like 0:06:24.839 --> 0:06:30.279 great Spiky, you have sales activities slow immediately, and you 0:06:30.360 --> 0:06:35.000 have inventory rise immediately, albeit from an unusually low place. 0:06:35.040 --> 0:06:37.680 And I'll expand on that. But but the part, the 0:06:37.800 --> 0:06:40.240 third step that I think most people get wrong is 0:06:40.279 --> 0:06:44.680 they expect crisis to immediately fall and there's really a 0:06:44.720 --> 0:06:47.960 one or two year period that it takes sellers to 0:06:48.040 --> 0:06:51.960 capitulate to market conditions, although I do think that they'll 0:06:51.960 --> 0:06:55.920 capitulate faster in this condition, uh than in the past. 0:06:56.080 --> 0:06:59.640 But I you know, buyers are in already, you know, 0:07:00.040 --> 0:07:03.040 that's their hesitation. And then you throw in a war, 0:07:04.080 --> 0:07:07.800 you know, record or you know, high inflation. Um, you 0:07:07.880 --> 0:07:10.840 have all these uncertainties, and everybody just I mean, it's 0:07:10.840 --> 0:07:14.560 one of the biggest enemies of the housing market is uncertainty. 0:07:14.560 --> 0:07:17.080 And we certainly have a basketfull of that right now. 0:07:17.360 --> 0:07:20.640 You know, I have a very vivid recollection at like 0:07:20.720 --> 0:07:26.360 cocktail parties and barbecues in two thousand and nine, even 0:07:26.480 --> 0:07:29.720 people saying, why can't I get X from my house? 0:07:29.800 --> 0:07:32.800 The same house down the street sold for X and 0:07:32.840 --> 0:07:35.600 it's not as nice as mine, and that was sold 0:07:35.640 --> 0:07:38.360 in two thousand six. And my answer is always, well, 0:07:38.720 --> 0:07:41.120 you could get that money first. You need a time 0:07:41.160 --> 0:07:44.120 machine go back to two thousand six and you could 0:07:44.120 --> 0:07:48.000 get That's what the market was. And I watched what's amazing, 0:07:48.200 --> 0:07:52.880 especially about all the online services today. I watched these 0:07:52.880 --> 0:07:56.840 home sellers chase the price down. They were always lagging 0:07:57.320 --> 0:08:01.400 behind the market. Is that really a two year process 0:08:01.440 --> 0:08:04.760 for people? Before people you know, find religion and say 0:08:04.960 --> 0:08:07.200 here's where the market is. If I want to sell this, 0:08:07.720 --> 0:08:10.320 I have to get that. So yeah, So in my 0:08:10.400 --> 0:08:13.760 own you know, thirty eight years of experience, you know, 0:08:13.880 --> 0:08:19.040 it's a sort of anecdotal experience that has telling me 0:08:19.120 --> 0:08:24.120 that it takes an average nationally about fifteen sixteen months. 0:08:24.120 --> 0:08:27.640 But call it you know, year, two year and a half, 0:08:27.840 --> 0:08:31.720 two years, sort of, it's not a couple of months. Um. 0:08:31.840 --> 0:08:34.959 And to clarify, what I'm really saying is that it 0:08:35.000 --> 0:08:39.600 takes a long time for the seller to capitulate to 0:08:39.679 --> 0:08:42.959 the market so that they feel like closing, like they 0:08:43.000 --> 0:08:46.360 didn't leave money on the table, right, So so it's 0:08:46.400 --> 0:08:49.079 where they didn't like walk away from a sure thing, 0:08:49.559 --> 0:08:52.440 and that takes a lot of time. Um. I think 0:08:52.480 --> 0:08:55.240 what's a little different in this cycle is there's been 0:08:55.280 --> 0:08:58.079 so much equity build up because of the rapid run 0:08:58.120 --> 0:09:05.080 up at prices that maybe it's less painful, uh, because 0:09:05.080 --> 0:09:08.160 it's money on paper too many um, you know in 0:09:08.200 --> 0:09:12.440 that in the sense of um, you know, people uh, 0:09:12.760 --> 0:09:16.160 you know, worried about walking away from something that they 0:09:16.160 --> 0:09:19.280 had in their in their hands. So if you're a contrarian, 0:09:19.679 --> 0:09:24.040 you become a buyer in the summer of Yes, yeah, 0:09:24.240 --> 0:09:27.280 I think so, and and and what what I find, 0:09:28.080 --> 0:09:34.320 uh interesting, is that, um, you know, when people look 0:09:34.360 --> 0:09:39.240 at pivoting conditions, pivoting markets, you append the word forever, 0:09:39.559 --> 0:09:44.960 like prices are falling forever, prices are rising forever. It's 0:09:45.000 --> 0:09:49.079 like this linear view. And if you look at some 0:09:49.240 --> 0:09:54.520 serious downturn periods in the housing market, like the housing bubble, um, 0:09:54.800 --> 0:09:59.920 you know, fifteen or so years ago, thirteen fifteen years ago. Uh, really, 0:10:00.880 --> 0:10:05.760 prices really didn't recover, took about six years, but activity 0:10:05.840 --> 0:10:11.000 actually returned pretty quickly by two thousand, late two thousand nine, 0:10:11.080 --> 0:10:14.360 early two thousand and ten. So this isn't like a 0:10:14.480 --> 0:10:20.640 decade or a you know, a generational thing. Um, it's 0:10:20.840 --> 0:10:24.839 you know, it's a shorter window than that. And um, honestly, 0:10:25.400 --> 0:10:29.600 I felt, you know, rap should have been raised specifically 0:10:29.600 --> 0:10:33.480 through housing market optics about a year ago. Uh. It 0:10:33.480 --> 0:10:36.120 feels like the fed plate to the party, because you 0:10:36.120 --> 0:10:42.200 could just see the obliteration nationwide of inventory. Like one 0:10:42.200 --> 0:10:45.600 of the ways I think about housing supply, I think 0:10:45.679 --> 0:10:49.640 we have a tremendous amount of over reliance on when 0:10:49.640 --> 0:10:51.240 you look at the state of the housing market of 0:10:51.280 --> 0:10:55.720 looking at new construction, new development, which in most local 0:10:55.840 --> 0:11:00.120 and national we're really talking you know, ten percent, and 0:11:00.640 --> 0:11:04.320 you know ebbs and flows of total inventory, Well what 0:11:04.400 --> 0:11:10.319 about the other eighty five or of supply? Um? That 0:11:10.559 --> 0:11:14.120 is the think of that supply as sort of the 0:11:14.200 --> 0:11:17.240 life cycle of occupants of the real estate. You know, 0:11:17.360 --> 0:11:20.040 they're they're you know, they're they're trading up to a 0:11:20.120 --> 0:11:23.480 larger home because they have an expanding family. They're trading down, 0:11:23.520 --> 0:11:26.400 they're downsizing. Um. You know, there's all these sort of 0:11:26.440 --> 0:11:30.640 life changes. And when you come at them with a 0:11:30.760 --> 0:11:33.360 two point six you know that market with a two 0:11:33.400 --> 0:11:38.839 point six thirty year fixed uh, you create this sensatiable 0:11:38.920 --> 0:11:44.160 demand this and you obliterate supply. And so this became 0:11:45.040 --> 0:11:49.120 a housing market of bidding wars. Most of the forty 0:11:49.120 --> 0:11:53.480 plus markets I covered for Douglas Sellman are seeing bidding 0:11:53.600 --> 0:11:57.160 like in southern California two thirds to three quarters depending 0:11:57.200 --> 0:12:00.840 on the segment of closings. In the early part of 0:12:00.880 --> 0:12:03.600 this year, we're above the asking price. You know, Uh, 0:12:04.160 --> 0:12:08.480 that would be our proxy forbidding wars. In Fairfield County, Westchester, 0:12:08.679 --> 0:12:12.040 Long Island, you know that ring New York City, we 0:12:12.040 --> 0:12:16.880 were looking at forty five. How is that sustainable? How 0:12:17.000 --> 0:12:21.480 is that a good thing? So I'm quite relieved at 0:12:21.559 --> 0:12:25.680 least thinking long term that we're moving out of this 0:12:26.559 --> 0:12:29.920 untenable frenzy. And you know, you and I have spoken 0:12:29.960 --> 0:12:34.760 about another aspect of UM, not the demand side, but 0:12:34.880 --> 0:12:38.880 the supply side. You know, there's normally that chain of 0:12:39.120 --> 0:12:42.520 purchases that takes place. Someone moves into a starter home, 0:12:42.600 --> 0:12:46.240 there's a move up, there's a move to a larger home, 0:12:46.280 --> 0:12:49.640 to a nicer neighborhood, eventually to waterfront, and that last 0:12:49.640 --> 0:12:54.480 person is downsizing. During the pandemic, especially when people were 0:12:54.520 --> 0:12:58.280 locked down in apartments, there were a lot of purchases 0:12:58.400 --> 0:13:01.400 with no correlating out. People just went out and bought 0:13:01.800 --> 0:13:04.640 a second or third house. That had to have a 0:13:04.679 --> 0:13:08.800 massive impact on the supply out there. Yeah, there's two 0:13:08.880 --> 0:13:13.640 things that happened. One was, uh so specifically with a 0:13:13.760 --> 0:13:22.360 Manhattan example, after the lockdown, the pandemic lockdown, rental prices 0:13:22.440 --> 0:13:28.120 fell a lot. They fell, um, you know, but there 0:13:28.200 --> 0:13:31.439 was no vaccine, there was you know that the city 0:13:31.559 --> 0:13:35.960 was the global hotspot, and so the rental demand weakened 0:13:36.040 --> 0:13:41.480 because would be tenants with the collapse and mortgage rates 0:13:42.040 --> 0:13:45.400 fled to the you know that sort of in air quotes, 0:13:45.480 --> 0:13:48.840 the narrative was fleeing the city or another air quote 0:13:48.920 --> 0:13:52.360 sort of a headline was exodus. UM. And so it 0:13:52.440 --> 0:13:56.560 was all outbound migration and no inbound And you had 0:13:56.600 --> 0:14:01.000 these these renters buying, and then you had people weren't 0:14:01.000 --> 0:14:04.160 selling during the pandemic. They in the city, they were 0:14:04.600 --> 0:14:08.439 buying a second home, something that I dubbed co primary, 0:14:08.480 --> 0:14:10.760 which should be you know, they're looking at a second 0:14:10.840 --> 0:14:13.640 primary residence that they can sort of toggle back and 0:14:13.679 --> 0:14:17.200 forth between the city and the suburbs and um. And 0:14:17.280 --> 0:14:21.520 it there was no seasonality you had. You had maybe 0:14:21.640 --> 0:14:25.680 five years of you know, the typical you know, young 0:14:25.760 --> 0:14:28.840 couple moves to the suburbs to have kids. You know 0:14:28.880 --> 0:14:33.040 that compressed into like three months, UM. And they had 0:14:33.040 --> 0:14:37.520 this whole distortion of sort of migration patterns UM. And 0:14:37.560 --> 0:14:41.000 then on top of it all you have remote, which 0:14:41.040 --> 0:14:44.800 became you know, zoom became ubiquitous in twenty four hours, 0:14:45.120 --> 0:14:48.080 and all of a sudden, you have a rethinking of 0:14:48.120 --> 0:14:52.160 what remote meant, and it became a powerful force. What 0:14:52.280 --> 0:14:56.040 I was saying during the lockdown was the tether between 0:14:56.080 --> 0:15:00.960 work and home became infinitely longer because you have a 0:15:00.960 --> 0:15:04.160 lot more flexibility. And on top of it, you have 0:15:05.120 --> 0:15:09.640 this skewed towards higher end meeting that you know, because 0:15:09.640 --> 0:15:14.400 of the economic damage from the lockdown was heavily weighted 0:15:14.400 --> 0:15:18.560 towards lower wage earners. The upper half of the market 0:15:18.760 --> 0:15:22.160 was where what woke up or saw this boom first. 0:15:22.920 --> 0:15:25.920 And part of it is because you know, just as 0:15:26.080 --> 0:15:29.960 sort of a generalized statement is that the higher the wage, 0:15:30.320 --> 0:15:34.440 the higher the mobility or you know, the ability to 0:15:34.480 --> 0:15:39.280 work remote and it just dovetailed together really well, quite 0:15:39.360 --> 0:15:42.920 quite interesting. So a couple of we're recording this UM 0:15:43.000 --> 0:15:47.400 in the middle of this week on the June one UM, 0:15:47.440 --> 0:15:51.600 some really interesting data points came out this week. Existing 0:15:51.640 --> 0:15:54.520 home sale prices hit a record of four hundred and 0:15:54.600 --> 0:15:57.640 seven thousand, six hundred dollars in May, and at the 0:15:57.680 --> 0:16:01.960 same time, home sales decline three point four in the 0:16:02.000 --> 0:16:06.840 face of rising interest rates. Is it sort of contradictory 0:16:06.880 --> 0:16:09.800 that prices are going up even as sales decline or 0:16:09.840 --> 0:16:13.480 is that more about the mix of of hiring homes 0:16:13.480 --> 0:16:17.840 and lauren homes. So I think it's more about the 0:16:17.960 --> 0:16:26.720 lag in UH closing information versus actual onmographic contract activity. Uh, 0:16:26.760 --> 0:16:31.480 it is UM. You know, if you can think of 0:16:32.120 --> 0:16:34.680 home price trends at the caboose on the end of 0:16:34.720 --> 0:16:37.720 the train. I always use this analogy, even though there's 0:16:37.760 --> 0:16:41.440 no cabooses on ends of trains anymore. UM. But really 0:16:41.480 --> 0:16:45.960 the initial impact you should really for trends, you should 0:16:45.960 --> 0:16:52.000 be looking at sales like petting, home sales, contract activity 0:16:52.000 --> 0:16:55.640 in general, and then new inventory entering the market that's 0:16:55.760 --> 0:17:01.080 much more fluid and in front of the prices occur 0:17:01.320 --> 0:17:05.720 after the dust settles. So, for example, UM we published 0:17:06.040 --> 0:17:10.119 monthly research in four different regions of the country, and 0:17:10.440 --> 0:17:15.960 new stign contracts were already beginning to cool back in March, 0:17:16.840 --> 0:17:19.840 and uh, you know, eventually that leads to an uptick 0:17:20.080 --> 0:17:25.919 in UM listing activity, which then eventually, uh you know, 0:17:26.480 --> 0:17:30.880 you know, levels off are cool sales. So I don't 0:17:30.920 --> 0:17:36.040 think the pricing, the prices rising is a result of 0:17:36.080 --> 0:17:38.720 a shift in the mix towards higher property. I think 0:17:38.760 --> 0:17:42.679 it's really just a lag in the actual data itself. 0:17:43.400 --> 0:17:46.639 So so where are we in this housing cycle? I 0:17:46.760 --> 0:17:50.119 noticed that more supply is coming online. There was a 0:17:50.160 --> 0:17:53.520 great chart the other day at at Calculated Risk showing 0:17:53.640 --> 0:17:58.399 the most single family home completion. Since I think, oh, seven, 0:17:58.440 --> 0:18:01.440 it is like a well over dead kid. Are we 0:18:01.520 --> 0:18:07.520 seeing that many more um new homes and existing homes 0:18:07.600 --> 0:18:11.879 come on the market as supply or is it really 0:18:12.000 --> 0:18:14.480 just been down so long it looks like up To me, 0:18:16.280 --> 0:18:18.960 I think the latter. So the way to think of it. Uh. 0:18:19.000 --> 0:18:22.320 And this is my analogy just using my my hometown 0:18:22.320 --> 0:18:28.520 in Connecticut. Uh, my town saw two hundred listings pre 0:18:28.640 --> 0:18:31.879 pandemic for the prior four or five years plus or 0:18:31.880 --> 0:18:34.800 minus twenty listings, but it was, you know, straddling the 0:18:34.840 --> 0:18:38.119 two D threshold. A year after the pandemic there were 0:18:38.240 --> 0:18:41.320 fifty and so you look at and go, wow, that's 0:18:41.320 --> 0:18:44.119 a real drop. Uh. And then the beginning of the 0:18:44.200 --> 0:18:48.800 year before the rate increases, there were twelve. Wow. And 0:18:48.880 --> 0:18:51.000 so that's where I would call it a clap. So 0:18:51.080 --> 0:18:59.200 now inventory has quadrupled, there's fifty. It's still s below 0:18:59.240 --> 0:19:02.480 pre pandemical bubbles. So when I look at I look 0:19:02.560 --> 0:19:06.480 at that and say, yeah, inventories rising, and that's a 0:19:06.520 --> 0:19:12.840 good thing. Um. But I don't know if people realize 0:19:13.600 --> 0:19:19.760 how insanely low inventory became began. Um. And and you know, 0:19:19.960 --> 0:19:23.639 one of the things, um, you know that I think 0:19:23.960 --> 0:19:26.320 is going to be apparent in the coming year or 0:19:26.320 --> 0:19:31.760 two is that we have probably built too much multi 0:19:31.840 --> 0:19:37.280 family rental product um right now. You know that it's 0:19:37.320 --> 0:19:40.800 all sort of responding to this surge in you know, 0:19:40.840 --> 0:19:43.280 the in rental prices. But part of that search in 0:19:43.320 --> 0:19:48.479 rental prices is because, uh, the surge or the rising 0:19:48.600 --> 0:19:52.560 rates are just the fact that lenders are not fast 0:19:52.640 --> 0:19:55.240 and loose that they are. You know, we're not going 0:19:55.280 --> 0:19:57.480 to have a banking crisis on the other side of this, 0:19:58.040 --> 0:20:02.359 because lenders are ti or than they were in the 0:20:02.440 --> 0:20:06.520 decades prior to the housing bubble um, and so people 0:20:06.560 --> 0:20:09.840 that don't qualify they tipped into the rental market, right, 0:20:09.840 --> 0:20:12.840 I mean, they're not. Um, you know, we don't have 0:20:13.400 --> 0:20:17.000 we don't have financial engineering like we did. You know 0:20:17.119 --> 0:20:21.359 in the mortgage world circa two thousand and five. Six, 0:20:21.480 --> 0:20:25.000 What a what a funny coincidence that mortgage lenders were 0:20:25.080 --> 0:20:28.919 much looser before the housing crisis. I mean, you know, 0:20:29.000 --> 0:20:33.600 sometimes these coincidences are just just amazing and sing And 0:20:33.680 --> 0:20:38.560 since the financial crisis, it's become much harder to get 0:20:38.600 --> 0:20:42.399 a mortgage. Um. And I'm not talking about you know, 0:20:42.840 --> 0:20:46.560 all day or sub prime I mean prime borrowers really 0:20:46.680 --> 0:20:49.879 had to jump through some hoops in the years after 0:20:50.000 --> 0:20:53.280 o ee oh nine. Is it's still that tight or 0:20:53.280 --> 0:20:57.240 has things you know normalized a little bit. So the 0:20:57.280 --> 0:21:02.240 way to look at it is uh uh underwriting standards, 0:21:02.320 --> 0:21:07.359 mortgage underwriting standards. You know, during the the housing bubble, 0:21:07.600 --> 0:21:10.639 you just had to have a pulse or bogramere. In 0:21:10.720 --> 0:21:16.960 the years subsequent it has the restrictions have deteriorated, but 0:21:17.119 --> 0:21:19.840 we're still not on par with sort of pre housing 0:21:19.880 --> 0:21:25.800 bubble era lending standards. That that lending is generally more 0:21:25.880 --> 0:21:29.639 conservative and there's less sort of maybe on the margin, 0:21:29.720 --> 0:21:34.360 but there's really less sort of alternative workarounds for financing. 0:21:34.440 --> 0:21:37.719 I think it's much more sophisticated. I think some of 0:21:37.720 --> 0:21:42.879 the restraints with Dodd Frank uh you know, have have 0:21:43.080 --> 0:21:46.159 helped to a certain degree which makes us in a 0:21:46.240 --> 0:21:52.800 much less vulnerable, vulnerable position. But that has helped create 0:21:53.200 --> 0:21:56.560 much more tightness in the rental market in general. And 0:21:56.640 --> 0:22:00.800 I think we have this, you know, law large response 0:22:00.880 --> 0:22:06.520 in multi family rental development being created, and I suspect 0:22:06.600 --> 0:22:09.320 in over the next year or two that that's going 0:22:09.359 --> 0:22:12.640 to be a um where it's gonna be apparent because 0:22:13.600 --> 0:22:16.920 people when they look at the rental development being created, 0:22:16.920 --> 0:22:20.720 there's assumption of well more units lower rent. But just 0:22:20.800 --> 0:22:25.840 like new home construction, new rental constructions used to the 0:22:25.880 --> 0:22:29.439 upper half of the market. It doesn't address the entire market. 0:22:29.560 --> 0:22:33.720 So you're creating a lot more rental units, but you're 0:22:33.840 --> 0:22:39.119 creating not necessarily the right distribution of rental units. And 0:22:39.200 --> 0:22:42.639 I think that's the challenge for the rental market going forward. 0:22:43.560 --> 0:22:47.400 Just for I was just gonna say, just in New York, um, 0:22:47.440 --> 0:22:50.719 you know, we we report every month the rental um 0:22:51.000 --> 0:22:54.480 you know, the rental market, and in Manhattan, the median 0:22:54.680 --> 0:22:57.920 rent was four thousand dollars, cracking the four thousand threshold 0:22:58.320 --> 0:23:02.280 for the first time in history. Average rents are just 0:23:02.440 --> 0:23:07.640 shy of five thousand a month. It's still an all 0:23:07.680 --> 0:23:11.600 time record. And we're not even to peek leasing season, 0:23:11.640 --> 0:23:14.720 which is in August. The rental market sort of peaks 0:23:14.720 --> 0:23:17.000 at the end of the summer, and so there's still 0:23:17.040 --> 0:23:20.240 a lot of pressure in the rental market going forward 0:23:20.280 --> 0:23:22.960 over the you know, whether or not we um you know, 0:23:22.960 --> 0:23:26.679 we have rising inflation. It's it's very tenuous and this 0:23:26.800 --> 0:23:30.680 is not unique to much of the US so so 0:23:30.760 --> 0:23:35.399 let's let's address that because during the pandemic, I read 0:23:35.680 --> 0:23:38.480 at least in the New York Post, new York City 0:23:38.560 --> 0:23:40.760 is dead. It's never coming back, No one's ever going 0:23:40.840 --> 0:23:43.680 to move here. It's all over for cities, and not 0:23:43.760 --> 0:23:47.640 just New York, but San Francisco and Chicago and Austin 0:23:47.680 --> 0:23:51.439 and Philadelphia and Boston. And go down the list. What 0:23:51.640 --> 0:23:55.680 is the state of real estate in in the big 0:23:55.720 --> 0:23:59.360 cities and and where are you seeing more of the 0:23:59.440 --> 0:24:02.280 explosive of growth. Is that more the sun belt or 0:24:02.320 --> 0:24:06.480 is that the coast? What's the state of well well, well, 0:24:06.560 --> 0:24:10.520 so in terms of um urban markets, just starting with 0:24:10.600 --> 0:24:13.879 New York first, since some base there, uh here we 0:24:13.960 --> 0:24:16.080 have and this sort of speaks for what we're seeing 0:24:16.080 --> 0:24:20.239 across the US. You're looking at a city like New 0:24:20.320 --> 0:24:24.920 York and the office towers are two thirds empty right now. 0:24:25.880 --> 0:24:32.360 Yet Ino we've had some of the highest sales volumes 0:24:32.400 --> 0:24:36.600 in history. We've had record pricing in the rental market. 0:24:36.680 --> 0:24:40.720 We've had some of the highest new leasing activity in history, 0:24:41.040 --> 0:24:45.040 and we're having record rents. So people being in the 0:24:45.080 --> 0:24:48.280 city again to this sort of tether between work at home, 0:24:49.000 --> 0:24:52.800 it's you know, you have empty office because of remote 0:24:52.840 --> 0:24:55.080 but people are in the still in the city or 0:24:55.119 --> 0:24:59.760 want to be in the city, So it is um. 0:25:00.480 --> 0:25:03.119 This is uh. There is a white paper in the 0:25:03.160 --> 0:25:11.440 source escapes me from NBR talking about price growth is 0:25:11.640 --> 0:25:16.560 related during the pandemic era, is related to remote work 0:25:16.640 --> 0:25:20.920 in the churn that it has created. UM. And there's 0:25:20.920 --> 0:25:23.760 a bigness nomer. You know, there has to be another 0:25:23.800 --> 0:25:26.399 reason why people are in these urban coming back to 0:25:26.480 --> 0:25:29.240 these urban markets. And I think part of it is 0:25:29.320 --> 0:25:31.880 just what the cities have to offer and what um, 0:25:31.920 --> 0:25:34.679 you know, the cultural activity. I'm not working for the 0:25:34.720 --> 0:25:38.000 trade that the tourism bureau, but you know, there's other 0:25:38.080 --> 0:25:41.040 reasons people are in the city, you know, lifestyle or 0:25:41.040 --> 0:25:44.560 whatever broker term you want to call it. UM. And 0:25:44.760 --> 0:25:47.040 this is being borne out in the fact that office 0:25:47.040 --> 0:25:50.719 towers and two thirds empty still That almost sounds like 0:25:52.280 --> 0:25:55.919 a problem that solves itself. And my frame of reference 0:25:56.640 --> 0:26:01.440 was after September eleven, two and one, many of the 0:26:01.520 --> 0:26:07.200 office towers in Lower Manhattan either were converted to residential 0:26:07.359 --> 0:26:12.680 or partially converted to hotels and residential. How realistic is it? 0:26:12.800 --> 0:26:15.840 And and you know, I'm glad I wasn't an investor 0:26:16.400 --> 0:26:19.840 in Hudson Yards that came online just as demand for 0:26:19.920 --> 0:26:24.639 office space went through the floor. But how realistic is 0:26:24.720 --> 0:26:29.960 it to convert offices to to residential real estate? And 0:26:29.960 --> 0:26:32.200 and let me point out when I was in grad 0:26:32.280 --> 0:26:34.720 school and for about a decade afterwards, I lived at 0:26:34.840 --> 0:26:38.840 ninety Lexington Avenue that originally was a Blue Cross Blue 0:26:38.840 --> 0:26:43.080 Shield building that was converted to residential like a few 0:26:43.080 --> 0:26:46.080 decades before I got there, and a decade after I 0:26:46.160 --> 0:26:49.920 left it it went condo. So I know it's doable. 0:26:50.280 --> 0:26:54.520 How realistic is it? Uh, It's not very realistic at 0:26:54.520 --> 0:26:57.840 all in terms of scale. Uh. And the reason there's 0:26:57.840 --> 0:27:01.440 a couple of reasons for it. One the financial districts 0:27:02.320 --> 0:27:06.640 Uh conversion frenzy that was mostly Class B office older 0:27:08.160 --> 0:27:12.080