WEBVTT - Inventory Vanishing and Bidding Wars Exploding in Crazy U.S. Housing Market 0:00:10.680 --> 0:00:14.640 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:14.680 --> 0:00:19.280 I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, it's 0:00:19.320 --> 0:00:21.880 a new year. Well already I've been into the year. 0:00:21.920 --> 0:00:24.160 But it's a new year, and yet many of the 0:00:24.600 --> 0:00:27.880 big stories from last year remained the same, if not, 0:00:28.280 --> 0:00:30.480 if not even more so, if if I feel like 0:00:30.520 --> 0:00:31.960 many of them things you don't know about last year've 0:00:31.960 --> 0:00:35.080 allly gotten more intent. Yeah, I think you're right. I mean, 0:00:35.680 --> 0:00:37.960 we spent a lot of last year talking about supply 0:00:38.080 --> 0:00:42.360 chain issues, the possibility of shortages, the idea of the 0:00:42.400 --> 0:00:45.600 bullwhip effect, where you sort of get a small disruption 0:00:45.760 --> 0:00:50.200 in one supply chain that then ends up cascading through 0:00:50.520 --> 0:00:54.280 the entire chain and also causing very very big swings 0:00:54.320 --> 0:00:58.680 in supply and demand. And that feels like it's definitely 0:00:58.800 --> 0:01:02.880 getting more attention. And of course the secondary effects from 0:01:02.920 --> 0:01:06.639 all of that is this question of inflation and price 0:01:06.720 --> 0:01:10.360 increases and how is that feeding through to the broader economy. 0:01:10.440 --> 0:01:12.840 So well, we you know, we talked about it last year, 0:01:13.240 --> 0:01:17.560 but we're talking about it even more in right, And 0:01:17.600 --> 0:01:22.559 of course, one way that people experience inflation or fuel inflation, 0:01:23.560 --> 0:01:27.840 whether it's captured and official statistics accurately or regardless of 0:01:27.840 --> 0:01:31.560 how it's captured and statistics is everything related to housing 0:01:31.720 --> 0:01:35.480 and shelter, And by all accounts, it appears that everything 0:01:35.520 --> 0:01:38.200 that you just mentioned is getting more extreme with housing 0:01:38.319 --> 0:01:40.880 US A one survey that said like a hundred percent 0:01:41.400 --> 0:01:45.000 of home builders are experiencing supply disruptions, which is up 0:01:45.040 --> 0:01:49.800 from in December. Apparently it takes three weeks at a 0:01:49.840 --> 0:01:52.200 minimum to get a garage door. I think we might 0:01:52.240 --> 0:01:54.680 have an episode coming up on garage doors. By the way, 0:01:55.080 --> 0:01:56.960 how is it just seems to be completely nuts this 0:01:57.040 --> 0:02:00.920 year already and we're just a couple of weeks in. Yeah. So, 0:02:01.000 --> 0:02:03.760 I remember we did do an episode last year with 0:02:03.800 --> 0:02:06.520 Ali Wolf, and when we did that, I sort of 0:02:07.200 --> 0:02:10.760 declared my complete lack of knowledge when it comes to 0:02:10.880 --> 0:02:13.760 US housing because I'm based in Hong Kong and I've 0:02:13.840 --> 0:02:17.200 never bought a house in the States. But now I 0:02:17.280 --> 0:02:20.440 have to declare, I guess like the opposite personal interest. 0:02:20.639 --> 0:02:24.240 I'm trying to close on a house right now in 0:02:24.280 --> 0:02:28.160 the US, and let me tell you, going through the 0:02:28.200 --> 0:02:31.359 market for the past three months has been absolutely insane, 0:02:31.960 --> 0:02:35.480 and we've had like three instances where we've made an 0:02:35.480 --> 0:02:39.720 offer and gotten gazumped by other buyers, and not by 0:02:39.840 --> 0:02:44.960 like a small margin, but by an absolute massive margin 0:02:45.040 --> 0:02:47.720 compared to the listing price. It's just been really difficult 0:02:47.760 --> 0:02:50.200 to get anything at the moment. I just looked up 0:02:50.240 --> 0:02:54.119 the word, which is is British English, which is why 0:02:54.200 --> 0:02:58.000 I'm not that familiar with that. Sorry. According to dictionary 0:02:58.040 --> 0:03:01.080 dot com, raised the contract the price of a property 0:03:01.120 --> 0:03:03.960 after having formally accepted a lower offer. So you have 0:03:04.080 --> 0:03:07.720 indeed been gazumped. And in fact, it's perfect because we 0:03:07.720 --> 0:03:10.600 are going to speak with someone who has been tracking 0:03:10.919 --> 0:03:15.000 the gazumping phenomenon that is widespread of the US housing market, 0:03:15.080 --> 0:03:18.880 or more specifically, bidding wars have it breaking out across 0:03:18.919 --> 0:03:21.440 the market. So, Tracy, I think this episode is going 0:03:21.520 --> 0:03:23.520 to be very good for you. Maybe you'll give it, 0:03:23.560 --> 0:03:25.560 get like a little like a home buying strategy out 0:03:25.560 --> 0:03:28.640 of it. Yeah, I need answers why none of these 0:03:28.680 --> 0:03:31.760 offers are attractive to people, even though it seems like 0:03:31.800 --> 0:03:34.720 a lot of money to me obviously, Um, yes, I 0:03:34.760 --> 0:03:37.400 want to know what? All right, I can't wait, let's 0:03:37.400 --> 0:03:40.440 do it. We are going to be speaking with Mike Simonson. 0:03:40.880 --> 0:03:43.560 He has the CEO of Altos Research, which puts out 0:03:43.600 --> 0:03:46.640 and gathers tons of data on the housing market. He's 0:03:46.640 --> 0:03:49.480 been putting out lots of videos and exactly this phenomenon, 0:03:49.800 --> 0:03:53.280 the boom and bidding wars, rising prices, declining inventory of 0:03:53.320 --> 0:03:56.200 homes available in the United States. What's going on? Mike, 0:03:56.320 --> 0:03:59.440 thank you so much for coming on odd lots, Joe 0:03:59.520 --> 0:04:02.720 and Tracy, It's nice to be here. So Tracy's experience 0:04:02.760 --> 0:04:05.680 of getting Zoe left and left and right on, like 0:04:05.720 --> 0:04:10.520 everyone's experiencing that these days. Huh, everyone across all price points, 0:04:10.520 --> 0:04:14.040 basically the whole all geographies, across the country's it's a 0:04:14.160 --> 0:04:17.320 it's been a pretty consistent phenomenon. So remind us what 0:04:17.440 --> 0:04:20.640 exactly is going on, Like, what is driving this? Because 0:04:20.680 --> 0:04:24.640 obviously you have some of the pandemic trends where people 0:04:24.720 --> 0:04:26.640 want to move out of cities and they want more 0:04:26.680 --> 0:04:29.640 space and things like that. But you would have thought 0:04:29.880 --> 0:04:33.839 that almost two years on in the pandemic that some 0:04:34.000 --> 0:04:37.279 of that trend would be fading away, and yet it 0:04:37.360 --> 0:04:41.839 seems like demand for housing is still incredibly strong. Yes, 0:04:42.040 --> 0:04:46.320 So the biggest theme of the last few years he 0:04:46.400 --> 0:04:50.480 has been record low inventory, tight inventory. A few homes 0:04:50.520 --> 0:04:54.400 for sale. That's partly a pandemic phenomenon. But but the 0:04:55.080 --> 0:04:59.280 interesting thing about that is that we have been losing 0:04:59.480 --> 0:05:04.520 available inventory of resale homes for a decade. So as 0:05:04.520 --> 0:05:08.680 we came out of the housing bubble crisis, rates started 0:05:08.680 --> 0:05:12.760 falling and we have had each year, basically each year 0:05:12.800 --> 0:05:15.919 for the last decade, we have gone from a million 0:05:15.920 --> 0:05:19.840 two homes available a million homes in January too. Right 0:05:19.880 --> 0:05:23.360 now we have two hundred eight four thousand single family 0:05:23.400 --> 0:05:26.520 homes on the market. And it's been a it's been 0:05:26.560 --> 0:05:30.080 a decade long phenomenon for a few reasons, and then 0:05:30.120 --> 0:05:32.320 we threw the pandemic on top of it. The top 0:05:32.360 --> 0:05:35.760 team was was record loss supply. We have high demand 0:05:35.839 --> 0:05:39.240 driven to so we have booming economy, we have cheap money, 0:05:39.320 --> 0:05:42.599 we have a lot of these other factors driving it. 0:05:42.640 --> 0:05:46.440 And then we have demographics where we have the millennials 0:05:46.480 --> 0:05:50.480 are now in their mid to late thirties their peak 0:05:50.520 --> 0:05:53.560 home buying years and so and they're the biggest chunk 0:05:53.560 --> 0:05:56.359 of people ever. So now we have tight supply on 0:05:56.480 --> 0:06:00.960 top of surging demographic demand, and that is a recipe 0:06:01.160 --> 0:06:05.040 for you know, your bidding war problem. So this is 0:06:05.160 --> 0:06:07.359 very interesting and if we could back up to the 0:06:07.520 --> 0:06:11.480 pre pandemic level, what is what were the trends that 0:06:11.760 --> 0:06:16.159 drove the decline, the persistent decline in inventory, Like where 0:06:16.160 --> 0:06:18.200 did it all? Where did they all go? Basically, I 0:06:18.240 --> 0:06:21.400 guess where it all go. As interest rates have been 0:06:22.240 --> 0:06:26.440 essentially four percent or lower for a decade, money has 0:06:26.480 --> 0:06:29.440 been super cheap. It's been a really good time to 0:06:30.200 --> 0:06:35.040 own real estate. It's been a good time to own 0:06:35.240 --> 0:06:39.760 investment property rentals. Uh So, two big phenomenons happening. One 0:06:39.800 --> 0:06:44.200 of them is it's like a doubling up. The homeowner 0:06:44.200 --> 0:06:46.040 goes to buy the next time, move up and move down. 0:06:46.440 --> 0:06:49.279 And because mortgages are so cheap, it's a really good 0:06:49.279 --> 0:06:54.440 time to keep the first one. And so each year 0:06:54.680 --> 0:06:56.120 I go to buy the next one, and I keep 0:06:56.160 --> 0:06:59.680 my first one. And so that's one big phenomenon. And 0:06:59.760 --> 0:07:02.640 all of a sudden, I'm a real estate investor. And 0:07:02.960 --> 0:07:05.320 at the same time money has been institutional money has 0:07:05.360 --> 0:07:08.719 been cheap, and so we have there's a lot of 0:07:08.760 --> 0:07:13.800 news about the big private equity funds buying up homes, 0:07:13.840 --> 0:07:17.440 but it's it's actually the individuals who are driving most 0:07:17.440 --> 0:07:21.960 of it. So in the last decade, We've taken eight 0:07:22.000 --> 0:07:27.000 million homes out of the resale cycle and moved them 0:07:27.040 --> 0:07:30.480 into the investment rental part of the pool. And that's 0:07:30.760 --> 0:07:33.760 you know, eight nine ten percent of all of our 0:07:33.800 --> 0:07:36.520 homes ten percent, but you know, nine percent of all 0:07:36.560 --> 0:07:39.440 of our of all the single family homes. So this 0:07:39.520 --> 0:07:42.040 is something that I wanted to ask, But um, how 0:07:42.040 --> 0:07:47.360 do you actually differentiate between different types of demand? So 0:07:47.440 --> 0:07:49.720 obviously you have people who buy a house because they 0:07:49.720 --> 0:07:53.160 want to live in it. Then you have individuals who 0:07:53.320 --> 0:07:56.200 you know, maybe buy a second property or do something 0:07:56.200 --> 0:07:59.400 with their first property and turn it into an Airbnb 0:07:59.520 --> 0:08:01.680 or something like that and rent it out. And then 0:08:01.720 --> 0:08:05.880 you have the big institutional buyers like private equity. How 0:08:05.920 --> 0:08:09.480 do you how can you actually track who's buying what 0:08:09.640 --> 0:08:13.880 and why? The way they tracked that when you read 0:08:13.920 --> 0:08:20.080 the numbers of like of purchases are investment properties. The 0:08:20.120 --> 0:08:23.680 way that that that is estimated is by looking at 0:08:23.720 --> 0:08:29.040 the title. When the title on the property, the address 0:08:29.120 --> 0:08:33.880 that that title gets sent to is a different address them. Uh, 0:08:34.200 --> 0:08:39.880 that's that's that there's an investor owning that property. So 0:08:40.640 --> 0:08:44.280 but it can be institutional or individual. What's the split 0:08:44.360 --> 0:08:46.920 like right now? Like do you know the numbers offhand, 0:08:47.120 --> 0:08:52.800 it's something like in the low twenties that are investor properties. 0:08:53.120 --> 0:08:54.760 So I want to talk a little bit more about 0:08:54.760 --> 0:08:59.400 this phenomenon of the individual homeowner, not the institutions and 0:08:59.720 --> 0:09:02.679 core that's obviously plays a role, but the individual homeowner 0:09:03.080 --> 0:09:07.280 essentially all getting into the game of de facto real 0:09:07.400 --> 0:09:11.920 estate speculation. Maybe they become a small time landlord by 0:09:11.960 --> 0:09:15.160 having their old home that they then rent out or 0:09:15.200 --> 0:09:18.160 something like that. But talk about the emergence of this 0:09:18.200 --> 0:09:22.400 phenomenon of Okay, maybe I moved down to Austin because 0:09:22.400 --> 0:09:24.440 it's warm, et cetera, up, but I keep my house 0:09:24.480 --> 0:09:27.600 here and rent it out or vice versa, and how 0:09:27.760 --> 0:09:30.960 this trend emerged and how big that's gotten and how 0:09:31.080 --> 0:09:35.120 unusual that is compared to I don't know, the old 0:09:35.160 --> 0:09:38.960 days whenever that was. So it's always been, you know, 0:09:39.000 --> 0:09:41.440 in many markets, has been a pretty good deal to 0:09:41.760 --> 0:09:44.080 own some rental real estate. You know, some of the 0:09:44.520 --> 0:09:47.240 you look at the blue collar folks in San Jose. 0:09:47.360 --> 0:09:50.360 I live in San Francisco, in Silicon Valley, Santose. If 0:09:50.400 --> 0:09:53.120 you're an electrician in nineteen eighty and you happen to 0:09:53.280 --> 0:09:58.240 buy an investment property, you made millions of dollars over 0:09:58.920 --> 0:10:01.400 the time, when you know, vastly more than when you're 0:10:01.600 --> 0:10:05.160 you're making from your your salary, Like it was a 0:10:05.320 --> 0:10:09.120 really good opportunity. And even that was even when interest 0:10:09.200 --> 0:10:11.880 rates were super hot. So over the time you you 0:10:11.920 --> 0:10:16.680 finance a lower and so in the last decade we've 0:10:16.679 --> 0:10:20.720 had thirty year fixed rates four percent or lower. So 0:10:20.760 --> 0:10:24.880 these are not like the two thousand five bubble investors 0:10:24.960 --> 0:10:29.160 where I'm I'm buying a house with a mortgage rates 0:10:29.200 --> 0:10:31.360 that's going to explode in two months, and you know, 0:10:31.480 --> 0:10:33.480 in after month three, I'm not going to make my 0:10:33.520 --> 0:10:36.600 payment anymore. These are people who have thirty year rates 0:10:37.600 --> 0:10:42.280 locked at two point seven percent that in a six 0:10:42.360 --> 0:10:46.040 percent inflation environment, like it's a really good deal to 0:10:46.160 --> 0:10:50.040 be owning these houses. As a result, people have therefore 0:10:50.080 --> 0:10:52.920 they do it right right. This is something that I've 0:10:52.960 --> 0:10:56.280 been wondering about because it just feels like there's so 0:10:56.400 --> 0:11:00.600 much money available for housing at the moment that even 0:11:00.640 --> 0:11:03.400 if you put in you know, I've heard stories about 0:11:03.640 --> 0:11:07.200 people putting in all cash offers, and even with the 0:11:07.360 --> 0:11:12.160 cash in hand, they will get outbid by someone else 0:11:12.320 --> 0:11:16.560 who has taken on like a very very large mortgage, 0:11:16.840 --> 0:11:19.120 but because interest rates are so low, it doesn't really 0:11:19.160 --> 0:11:22.440 matter that much to them. So yes, exactly, there is 0:11:22.640 --> 0:11:24.720 a lot of money available to housing, but you know, 0:11:24.760 --> 0:11:27.000 it's really it's a lot of money available in the economy. 0:11:27.840 --> 0:11:30.520 The the and one way you know that it's not 0:11:31.000 --> 0:11:36.120 over over supplied to housing relative to the rest of 0:11:36.120 --> 0:11:39.520 the economy is that the quality of the mortgages and 0:11:39.960 --> 0:11:42.200 the quality of the borrowers, the credit scores of the 0:11:42.200 --> 0:11:47.439 borrowers is increasing. It's actually at record high levels. So 0:11:47.679 --> 0:11:52.760 relative to to the bubble time, those credit scores were 0:11:52.800 --> 0:11:56.520 declining and the loan to value was increasing, so the 0:11:56.559 --> 0:11:59.440 loans were obviously a lot worse at that point, and 0:11:59.480 --> 0:12:01.960 the loans are now are really good. It's not just 0:12:02.040 --> 0:12:04.320 over lending to borrow or is the way it was 0:12:04.720 --> 0:12:25.319 fifteen years ago. So this is really fascinating to me 0:12:25.400 --> 0:12:29.319 that like credit scores and the quality of the mortgage 0:12:29.360 --> 0:12:32.400 like we're never We're definitely like not talking ninja loans 0:12:32.480 --> 0:12:34.800 or any of the stuff. In the mid two thousands, 0:12:35.120 --> 0:12:39.839 credit scores, high quality paperwork, lending standards all very high. 0:12:40.320 --> 0:12:42.240 One thing I'm curious about, and I don't know if 0:12:42.240 --> 0:12:45.240 this requires a more macro assessment. But obviously you have 0:12:45.400 --> 0:12:47.440 to like have a certain amount of wealth to be 0:12:47.480 --> 0:12:50.280 able to carry multiple homes. Like it's still not the 0:12:50.400 --> 0:12:52.600 norm level you know, to have to be able to 0:12:52.640 --> 0:12:55.520 keep your old house is a rental property. The emergence 0:12:55.720 --> 0:12:58.719 of people with very strong balance sheets, how much you 0:12:58.679 --> 0:13:01.960 have a lot of this is some level. I don't 0:13:02.040 --> 0:13:05.360 maybe inequality isn't is part of the word, but the 0:13:05.400 --> 0:13:09.000 existence of a certain class of people who just have 0:13:09.240 --> 0:13:13.280 a lot of cash and capital really having this sort 0:13:13.320 --> 0:13:16.800 of like a very big structural advantage in the housing 0:13:16.840 --> 0:13:20.160 market right now. You might say that that certain class 0:13:20.160 --> 0:13:24.000 of people are the boomers, so and there's more of 0:13:24.000 --> 0:13:26.560 them that's staying put in their homes longer. They're owning 0:13:26.559 --> 0:13:30.360 their homes longer. All the laws are really designed to 0:13:30.440 --> 0:13:34.480 allow people to stay, keep people in their homes, you know, 0:13:34.520 --> 0:13:37.079 the tax laws and the mortgage interest laws, all of 0:13:37.080 --> 0:13:40.960 those things are are designed for the existing homeowner. In California, 0:13:41.000 --> 0:13:44.080 we have Prop thirteen, which which basically means your your 0:13:44.120 --> 0:13:47.560 property taxes never go up. So if I bought a 0:13:47.679 --> 0:13:51.160 house for a hundred thousand dollars or two or fifty 0:13:51.440 --> 0:13:56.280 dollars in and the housing recession in California, and now 0:13:56.360 --> 0:14:00.520 it's worth two and a half million. I'm still basically 0:14:00.559 --> 0:14:04.640 paying taxes on two a little more than net, but 0:14:04.640 --> 0:14:08.040 but paying essentially no taxes in California. And so I 0:14:08.040 --> 0:14:12.520 am never selling at home. I've got a tiny mortgage 0:14:12.600 --> 0:14:16.280 at no taxes. And so those things are all designed 0:14:16.280 --> 0:14:18.880 to keep people in their homes. And and it is 0:14:18.920 --> 0:14:21.880 to the detriment of the first time HomeBuyer at the 0:14:21.880 --> 0:14:25.600 people who can't get in the mortgage payments. As mortgage 0:14:25.640 --> 0:14:29.080 rates are low, the payment is super low, So that helps. 0:14:29.280 --> 0:14:33.720 And it actually, as home prices increase, as long as 0:14:34.000 --> 0:14:36.440 the rates stay low or ratchet a little bit lower 0:14:36.760 --> 0:14:40.600 than than there's the mortgage rate has more impact on 0:14:40.640 --> 0:14:44.040 my monthly payment than does the total purchase price. And actually, 0:14:44.040 --> 0:14:47.760 Tracy this this is a partly why a function partly 0:14:47.760 --> 0:14:51.800 a function of why it's easier to overbid in a 0:14:52.120 --> 0:14:56.800 in a low rate environment. Because if if my the 0:14:56.840 --> 0:15:01.200 home prices are accelerating by ten percent this year and 0:15:01.280 --> 0:15:04.120 I overbid a little bit, what I'm doing is I'm 0:15:04.200 --> 0:15:08.560 eating away six months of equity and putting that of 0:15:08.600 --> 0:15:11.400 equity growth, you know, at home price growth that I'm 0:15:11.440 --> 0:15:15.720 putting into a payment that's super barely noticeable difference, and 0:15:15.800 --> 0:15:19.320 so that's why people that's why, that why the overbidding 0:15:19.320 --> 0:15:22.280 tends to accelerate in this kind of environment. So I 0:15:22.320 --> 0:15:25.840 guess that begs the question what actually happens to house 0:15:25.880 --> 0:15:29.360 prices and demand when interest rates start to go up, 0:15:29.400 --> 0:15:32.600 Because on the one hand, we can argue that low 0:15:32.640 --> 0:15:35.600 interest rates are causing some of the higher prices and 0:15:35.680 --> 0:15:39.920 people overbidding and some of the tight inventory. But on 0:15:39.960 --> 0:15:44.240 the other hand, I guess it's not like the pre 0:15:44.480 --> 0:15:48.640 two thousand eight situation where everyone had adjustable rate mortgages 0:15:48.880 --> 0:15:51.520 and when interest rates started to go up, you know, 0:15:51.600 --> 0:15:55.920 suddenly they can't afford their home loans anymore. Yeah, it 0:15:56.120 --> 0:15:59.040 is very different from that time. And you know, we 0:15:59.160 --> 0:16:05.280 looked during the pandemic, especially that March April we started 0:16:05.280 --> 0:16:08.560 publicized why I started publishing this weekly videos. We've been 0:16:08.560 --> 0:16:10.640 doing our data for fifteen years, but but we started 0:16:10.640 --> 0:16:13.240 publishing these weekly videos because we wanted to say, help 0:16:13.320 --> 0:16:16.720 observe what's happening to all these people as we locked 0:16:16.720 --> 0:16:19.120 down on the pandemic and people lost their jobs and 0:16:19.160 --> 0:16:22.080 we started the mortgage Forbearance program. What we're trying to 0:16:22.080 --> 0:16:25.600 find out is is there a big wave of homes 0:16:25.800 --> 0:16:27.680 that are going to have to be sold or go 0:16:27.760 --> 0:16:30.160 into some kind of foreclosure. And it turned out that 0:16:30.200 --> 0:16:34.760 wave never came, and it never came because it's a 0:16:34.840 --> 0:16:38.240 really good time to own. The laws allowed me to 0:16:38.520 --> 0:16:41.320 stay in my home if I didn't pay my mortgage 0:16:41.360 --> 0:16:45.000 for a year and then I could start again. All 0:16:45.040 --> 0:16:49.600 of my home actually gained the value. I ended that 0:16:49.680 --> 0:16:53.880 year with more equity than when I started, so I 0:16:54.000 --> 0:16:57.680 like I was in a better place after that year. 0:16:58.120 --> 0:17:01.440 So there was no there's there's no wave of you 0:17:01.600 --> 0:17:04.439 foreclosures or anything coming to market. So so that was 0:17:04.800 --> 0:17:08.280 we were we were watching, you know, is it gonna 0:17:08.400 --> 0:17:10.440 Is it gonna happen? But ultimately it never happened because 0:17:10.480 --> 0:17:13.439 it was a really good time to keep owning and 0:17:13.800 --> 0:17:16.160 the money was super cheap, and the laws were there 0:17:16.200 --> 0:17:19.240 so that I could renegotiate and put at tech my 0:17:19.240 --> 0:17:20.840 my missed payments side at the end of my loan 0:17:21.119 --> 0:17:24.920 and essentially stayed in my home, So that one off 0:17:24.960 --> 0:17:27.920 the table. No new inventory. But what we can see 0:17:28.080 --> 0:17:31.480 is that the low rates effect demand, but they also 0:17:31.520 --> 0:17:34.280 affect supply, and they effect supply in that phenomen phenomenon 0:17:34.359 --> 0:17:36.560 I was talking about in that when I go to 0:17:37.160 --> 0:17:39.680 buy my next one, it's really cheap to buy to 0:17:39.800 --> 0:17:42.240 hold my first one, to hold two mortgages at at 0:17:42.359 --> 0:17:47.440 three rather than rather than one at six. So in 0:17:47.640 --> 0:17:52.600 any rising rate environment, will see fewer of those double 0:17:52.720 --> 0:17:57.159 up transactions, some inventory will come onto the market. The 0:17:57.280 --> 0:18:01.280 last time we saw rising rates was twenty eighteen. The 0:18:01.840 --> 0:18:04.280 three quarters of eighteen started in the first quarter, peaked 0:18:04.320 --> 0:18:07.680 at about the first week in December eighteen, so rates 0:18:07.760 --> 0:18:11.040 rose pretty much all year long, and we could measure 0:18:11.840 --> 0:18:15.000 the cooling of demand and increasing a supply in a 0:18:15.119 --> 0:18:17.720 few of our metrics. So we track inventory. We tracked 0:18:17.720 --> 0:18:19.639 every home for sale in the country every week, and 0:18:20.240 --> 0:18:23.679 each year we we have a year over year fewer 0:18:23.800 --> 0:18:26.440 homes available on the market as more of them turned 0:18:26.480 --> 0:18:33.720 into investment properties. We have in eighteen. January twenty nineteen, 0:18:33.760 --> 0:18:37.520 for example, was one year in the last ten years 0:18:38.160 --> 0:18:42.600 that the January started. January twenty nineteen started with about 0:18:43.040 --> 0:18:44.080 I don't know off the top of my head, but 0:18:44.080 --> 0:18:46.680 it's like about eight percent ten percent more than the 0:18:46.800 --> 0:18:51.840 year before, So increased inventory by a fractional amount ten percent, 0:18:52.320 --> 0:18:54.840 not hundreds of percent. It's not not hundreds of thousands 0:18:54.880 --> 0:18:57.000 of homes, but tens of thousands of homes, and so 0:18:57.400 --> 0:18:59.280 and that was the one year it did. So rates 0:18:59.359 --> 0:19:02.240 rose all atween and we could see it in that 0:19:02.400 --> 0:19:04.320 inventory rate. We could also see it, and we teck 0:19:04.359 --> 0:19:07.159 a bunch of metrics like the percentage of homes on 0:19:07.240 --> 0:19:10.119 the market that have taken price reductions, which is a 0:19:10.320 --> 0:19:14.680 really interesting indicator of of demand. So the about a 0:19:14.760 --> 0:19:17.880 third of homes when they get listed rule of thumb. 0:19:17.960 --> 0:19:20.040 Third of homes when they get listed are going to 0:19:20.119 --> 0:19:23.159 take a price cut before they sell. Sometimes that's strategic, 0:19:23.400 --> 0:19:26.119 sometimes it's accidental, but about a third. And when the 0:19:26.280 --> 0:19:30.640 market is hot, then a third of them are trying 0:19:30.720 --> 0:19:34.520 to overprice, but onlycent need to. Some of them get 0:19:34.600 --> 0:19:37.920 the bid and they and they only take a price cut, 0:19:38.520 --> 0:19:42.119 or it gets hotter, maybe it's and last May, in 0:19:42.200 --> 0:19:45.320 the peak of the frenzy last year nationally we were 0:19:45.359 --> 0:19:49.160 at like fifteen percent thirty percent think they're over priced, 0:19:49.160 --> 0:19:51.360 and only fifteen percent have to take a price cut 0:19:52.119 --> 0:19:54.680 because they were getting their offers. That and so you 0:19:54.760 --> 0:20:00.680 can trek that price decreases. And so in nineteen we 0:20:00.760 --> 0:20:04.240 could watch the price decreases go from the low thirties 0:20:04.640 --> 0:20:09.160 hot market to thirty six percent during the bubble burst, 0:20:09.240 --> 0:20:13.320 we could watch that go forty of the stock had 0:20:13.359 --> 0:20:15.320 to take a price cut. So that's a function that 0:20:15.400 --> 0:20:16.880 you can see, so you can measure it in things 0:20:16.960 --> 0:20:19.359 like price production. So that means that there are fewer 0:20:19.440 --> 0:20:22.720 buyers out there. And so you know Tracy and your 0:20:22.760 --> 0:20:25.400 buying situation, you know, it's all of a sudden, there 0:20:25.440 --> 0:20:28.760 are some of these folks who are listing and saying, well, 0:20:28.840 --> 0:20:31.359 let's see if we get a better All of a sudden, 0:20:31.400 --> 0:20:33.679 they say, we didn't get a bitter and now their 0:20:33.760 --> 0:20:36.119 house sits on the market for a little while. Now 0:20:36.280 --> 0:20:38.320 you have the opportunity you have who don't have the 0:20:38.359 --> 0:20:44.080 bidding wars because there's as rates rise, then there's more 0:20:44.400 --> 0:20:47.920 purchase opportunity, more inventory opportunities for you. There's there's a 0:20:48.080 --> 0:20:52.400 less competition of the people who are using the mortgage 0:20:52.440 --> 0:20:55.560 to overbid are less likely to do that because now 0:20:55.640 --> 0:20:58.560 the payment is more impacted. So all of those those 0:20:58.640 --> 0:21:01.520 factors coming to play. And the way I look at it, 0:21:01.920 --> 0:21:05.960 you know, if you look at we had you know, 0:21:06.119 --> 0:21:09.720 increase of of inventory in that year, So you could 0:21:09.720 --> 0:21:14.160 imagine that we would need several years of rising rates 0:21:14.280 --> 0:21:19.280 from three thirty year fixed to four to five. You know, 0:21:19.400 --> 0:21:21.560 we haven't been over five in a long time, so 0:21:22.119 --> 0:21:24.520 how that impacts things. But you can imagine its several 0:21:24.680 --> 0:21:28.040 years before we have this enough of a cycle to 0:21:28.880 --> 0:21:32.720 put many of these rental properties back into the purchase 0:21:32.960 --> 0:21:36.440 market and I sell my next one, I sell mine, 0:21:36.480 --> 0:21:39.560 and I don't keep it because two mortgages at six 0:21:39.640 --> 0:21:42.760 percent is very different than two mortgages at three. So 0:21:43.040 --> 0:21:46.560 so several years to build back to the old normal. 0:21:47.359 --> 0:21:51.440 So it's really about that that cost of carry literally 0:21:52.160 --> 0:21:55.520 as that goes up in theory or in practice, as 0:21:55.560 --> 0:21:59.520 we saw in that's what at least creates the new 0:21:59.560 --> 0:22:03.119 supply from at least existing home sales. What is the 0:22:03.280 --> 0:22:07.080 state of price increases and bidding wars that we've already 0:22:07.119 --> 0:22:09.840 seen at the start of the year, and how does 0:22:09.920 --> 0:22:13.680 that compare to us a slightly more normal year like 0:22:14.760 --> 0:22:20.119 like pre pre pre crisis. The biggest, the biggest phenomenon 0:22:20.280 --> 0:22:25.320 of things like bidding wars during the pandemic period is 0:22:25.720 --> 0:22:30.359 a sort of lost the seasonality to the housing market 0:22:31.080 --> 0:22:35.919 ian normal season the inventory comes on, starts to come 0:22:35.960 --> 0:22:39.680 on for the spring in February, really accelerates March, April, 0:22:40.800 --> 0:22:46.440 peak May June, and then June's inventory starts declining for 0:22:46.520 --> 0:22:49.040 the fall. If your house is on the market in 0:22:49.200 --> 0:22:52.239 August and and you haven't gotten an offer yet, now 0:22:52.320 --> 0:22:55.159 you start taking a price cut because schools starting and 0:22:56.040 --> 0:22:58.440 and so we have all of these seasonal factors. And 0:22:58.520 --> 0:23:02.280 then the holidays and you have fewer listings, you have 0:23:02.800 --> 0:23:05.440 fewer people like you know, you have some people like 0:23:05.520 --> 0:23:09.560 Tracy who are needing to buy, but but cools way 0:23:09.680 --> 0:23:13.359 way down in the holiday seasons. Over the pandemics of 0:23:13.720 --> 0:23:18.920 the the holidays of January one, we all of a 0:23:18.920 --> 0:23:21.800 sudden we have all the zoom town phenomena. We have 0:23:21.880 --> 0:23:24.600 all the remote work, we have kids out of school, 0:23:24.680 --> 0:23:28.520 so we have all kinds of options to move uh 0:23:28.720 --> 0:23:32.879 in in the winter, and so we we lost a 0:23:32.920 --> 0:23:34.920 lot of seasonality. If you look at, in fact, a 0:23:35.000 --> 0:23:38.320 lot of the seasonally adjusted home price numbers that you 0:23:38.440 --> 0:23:42.520 might see, you'll see that they swing really big in 0:23:42.720 --> 0:23:46.240 the November December January time last year and and also 0:23:46.320 --> 0:23:49.760 this year because things demand has been unseasonably high, like 0:23:49.840 --> 0:23:52.360 it didn't cool down nearly as much. We can see 0:23:52.400 --> 0:23:54.720 that in in a number we track, which is the 0:23:54.760 --> 0:23:56.680 percentage of homes on the market that I've had price 0:23:56.840 --> 0:24:01.200 increases lately. And so price ins is a function of 0:24:01.320 --> 0:24:05.200 things like investor fix and flips. Like I buy a home, 0:24:05.280 --> 0:24:07.439 I put a little bit of money in. Ninety days later, 0:24:07.480 --> 0:24:09.520 it's back on the market at a higher price. And 0:24:10.119 --> 0:24:12.760