Chit Chat Stocks - The State of the Housing Market With ResiClub's Lance Lambert

Episode Date: November 22, 2023

The old rules of thumb don't work for this housing market. Lance walks us through why he believes this and what he is seeing in the housing data across the United States. Listen as Brett and Ryan ask questions about the industry. Enjoy the show! ***************************** Chit Chat Money is presented by Interactive Brokers. Switch to the best brokerage in investing today: ⁠⁠⁠ibkr.com/info⁠⁠⁠ ****************************** Want updates on future shows and projects? Follow us on Twitter: ⁠⁠https://twitter.com/chitchatmoney ⁠⁠ Subscribe to our Substack to receive free show notes and charts for our Tuesday episodes: ⁠⁠https://chitchatmoney.substack.com/⁠⁠ Interested in Resi Club? ⁠⁠⁠⁠Check their website here: https://www.resiclubanalytics.com/ Contact us: [e-mail] Timestamps Lance Lambert | (2:02) Regional Data | (11:55) Affordability | (22:52) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. This is our Thursday deep dive episode where we interview an analyst, investor, or even just industry expert on a singular topic, stock, or industry. And today, it's a unique one. Typically, for our regular listeners, you're familiar with us breaking down an individual stock. But today we have on the show, Lance Lambert, who really is an expert on all things, really real estate across the board. And he has a wonderful newsletter called Resi Club. We're talking mostly residential and breaking down basically what's happened since COVID and where we're at today, affordability, talking about supply and basically all the moving parts within the real estate market right now, and breaking down specific geographies, such as,

I think we talked about Austin, Seattle, really covered pretty much the whole US. So I'm going to leave it there because Lance does a wonderful job. But I guess without further ado, here's our interview with Lance Lambert. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Anything discussed on Chit Chat Money by Ryan, Brett, or any other podcast guest is not formal

advice or recommendation. Now please enjoy this episode. Hey, welcome in. Today we are joined by first-time guest, Lance Lambert. He is the co-founder and editor of Residential Club. So we're going to be talking about housing today. Not a typical kind of show, but something I'm sure listeners and pretty much everyone has interest in. So let's start with you, kind of your background, and maybe a little bit about

Residential Club. What is it and what are your kind of plans for it? Yeah. So I've worked for publications in the kind of financial business news for about 10 years. Used to be a data journalist at Bloomberg. Had worked for Realtor.com for a while as a housing analyst and data journalist there. And then previously, my last four years at Fortune magazine, so had worked as you know, a data editor there, and then also kind of build a small business for them called Fortune Education, where I was an editorial director, and then most recently real estate editor. And I think one current one theme across my work is while I haven't always been focused on housing. It's something where having spent that time at realtor.com, I really understood the regional data

and it just kept pulling me back to it. And so during like the pan, when the pandemic hit and housing took off and rates went so low, um, I just started writing about housing, even though that wasn't like the focus that fortune had brought me in for is because residential real estate, I just understand so much of the data. And then also, you know, it's part of, you know, my life growing up. My dad is in the construction, uh, housing space. And so I just know that space well. Um, and so it just kept pulling me to it. And finally I've given in now and created Resi Club, uh, which, you know, every day I have an, a new article go out looking at the housing market. And then I have three exclusive articles that go for the Resi Club pro members who upgrade

to premium. Plus I have the Lance Lambert housing tracker, which is Metro County and zip code data. And then the Lance Lambert house price tracker, which is pricing data down to Metro County zip code. And really starting to create some robust things there because I've noticed that one of the things that's wrong is that so many people are sticking to past rules of thumbs. And we are in a very unconventional environment where inventory has went so low, pricing has overheated for so long, and then rates have went up so quickly that affordability has become so restrained that typical rules of thumbs don't make sense for housing data right now. And what do I mean by that? Historically speaking, a market with six months of inventory or less is considered a seller's

market, right? And you would be hard-pressed to go across anywhere in this country and find anyone like up to six or above six for like a market as a whole. But you have a market like Austin where months of inventory is like at 3.8 months as of August. I forget what the newest number is, but 3.8 months as of August and prices there are down about 13 to 17% from peak. So by definition on months of inventory, it has been a seller's market, even as prices have essentially went through a material correction. And so that's just nonsense. It's not been a seller's market. Prices started falling there when months of inventory was at like 1.9 months, two months of supply. And so to understand why Austin is falling and has fallen, you would have to have

a deeper understanding of the housing data, which is one of the things I'm trying to do with the housing tracker. And you would really need to understand the absorption rates that are occurring in the market and why and how fast that demand has pulled back in Austin that's created that drop in price. So very optimistic of the value that Resi Club is going to create at a reasonable price for people relative to going out to some of these bigger firms and getting analytics that are going to cost you upwards of 10 grand a year. I think I can do things at a relatively affordable price, especially for people who play in the single family rental game or some of these adjacent areas that don't want to go to some of these bigger firms and pay a huge price.

Yeah. We're big fans of the people that have tried to decentralize the stock analyst and research market. We've had plenty of those people on the show before. And then the model works well because there's just such a great... A lot of those things are just priced at such a premium and just having access for more and more people would be great. And one thing I will say is you have the best data out there, or at least the most prolific data. The amount of it is just fantastic. But one thing I want to talk about,

and maybe this is a great starter question. I think maybe we could talk about this for a full hour, but however long you want to answer, you can. You've been posting, I think you've done a couple posts about how October 2023 was the least affordable month for housing this century. You gave a little bit of context already, but how did we get here? Yeah. So when accounting for incomes, prices, and rates, the three big kahunas in housing affordability, housing affordability these past few months has deteriorated to levels that are

were since like the mid to late 80s. The early 80s do have it beat when we had those 18% mortgage rates. But these rates, while it's 7% or 8%, sting a lot harder than the last time we had 7% or 8% mortgage rates. And the reason being is that we just went through a historic overheating on prices. So if you go back to 2020, and this isn't something that people like to hear, But it is an objective fact that 2020, like that 2012, 2011 to 2020, was on a historical basis, the most affordable housing market we've ever had when accounting for prices, rates and incomes, not just prices and incomes, but the whole the whole the big three. And during the pandemic, things actually got a little more affordable than they were even in 2019 because rates went down to 2%. And what had occurred, though, also is the fact that we had an elevated demand for housing.

There was more people working from home. That's one. And then two, the people who even stayed in some of the markets like New York, San Francisco and L.A., they wanted more space. So even the markets where there was a net migration out there in COVID because of work from home and people work from home arbitrage, you could go to a more affordable place, get more space at a lower price. You also had the markets where that net migration occurred, having housing demand elevate and

make up for all of the lost demand plus more because people just wanted more space. There was a decoupling of roommates. There was an acceleration in household formation. All of this, of course, was aided by record stimulus and quantitative easing, of course, no doubt about it. And so the Fed estimates that during the pandemic, housing supply would have needed to increase 300 percent to match the elevation in housing demand. That's impossible. Supply cannot move that quickly. And so what happens when you have so much more demand than demand can actually be met in the marketplace? Prices overheat. And that's what occurred during the pandemic. And actually,

prices overheated at a level that is a record. 2021 has gone down as the biggest one year jump in house appreciation. It's like 21%. And from March 2020 to June 2022, house prices went up almost 45% as measured by the Case-Shiller National House Price Index. And so the overheating was the first part that moves the deterioration of affordability. And then the second part is on the back end, we've had a rate shock. And so the average 30-year fixed mortgage rate from December 2021 has went from 3.1% to as of today, 7.51%. So going from 3, 4, 5, 6, 7, 8, as of a couple weeks ago, percent mortgage rates, that shock is just enormous. So to have the price shock and then to have the rate shock has caused a deterioration in housing affordability

that is at the fastest pace ever and for total housing affordability, taking into account incomes, rates, and prices. We're now at the most unaffordable housing market since around like the mid 80s. And it actually does surpass 06, 07 on the affordability measurements. Chitchat Money is brought to you by Interactive Brokers, but we'd like to call them by their ticker symbol IBKR. Designed for active traders and sophisticated investors, Interactive Brokers offers trading assets in 150 markets with 27 different currencies, charges USD margin loan rates from 5.83% to 6.83%, rated the lowest among margin fees, the ability to trade stocks, bonds, options, futures, commodities, and more with high interest rates paid on instantly available cash

balances, and the ability to lend your eligible stock shares to earn passive income all on one a single unified platform restrictions may apply for more information visit ibkr.com member sipc open an account with ibkr today how have the different regions been affected over the years because it sounds like you you mentioned there's been a bit of a migration out of some of the cities it has do you see this trend kind of staying the same or do you expect it to change? So what we saw during the pandemic is that on prices, everywhere boomed, even the places that lost population, everywhere boomed. It was essentially an everything housing boom for prices during the pandemic with that elevated demand for

space. But since the rate shock has occurred, we've seen a lot more bifurcation in the market. And this has happened regionally. This has happened on price tier. This has happened on product type, all of these things. And what's happened is that some of the places in the country, prices ran up so fast, so long. And this even goes before the pandemic boom. Think about like the West Coast with the Zerp era, low interest rates, the tech booms. Prices had moved up on the Western part of the country at a faster rate than the rest of the country. And so in those markets where in the West in particular and some of these boom towns, prices got so high above rents and that these, you know, on a price to rent ratio that when mortgage rates spiked, the affordability shock there was so strong because so many people were already priced out that some of those markets then gave in some on price. So San Francisco, Seattle, they gave in some on price. Austin and Boise, which really was a function of like the Zoom town pandemic error housing boom effect where local prices just went so high so quickly above local fundamentals, then those markets gave up some. Right now, we did see a bit of a stabilization in the prices entering 2023, whereas in the second half of the year, some of these boom towns and Western markets had given up on price. That kind of fizzled out a bit, with the exception being Austin that continued to really stay in correction mode through the first half of the year. But now as we're in the second half of the year, we are seeing some pockets that had stabilized start to see some prices work down a bit.

Maybe it's just kind of giving up the spring gains from this year. We'll kind of have to see. But I will say the biggest area of weakness is regionally in the country right now is less West Coast, which was the second half of last year. And now it's more pockets throughout Texas and then Louisiana, New Orleans in particular. So Austin and New Orleans being the two that are very much in correction mode. But if you flip it and you look at the whole country, the Northeast and the Midwest has many markets where prices continue to go up this year. Hartford, Connecticut's up 8%. And so what's going on there?

Well, some of it is like a donut effect that's happening in some of these metropolitan areas where people are kind of realizing, oh, work from home isn't going to be like I can work anywhere. It's kind of getting reined in a bit, but hybrid is still a thing. And I don't necessarily need to live all the way close enough to commute five days a week, but maybe close enough to where I commute two days a week. And so you're seeing a lot of pockets of like New Jersey and parts of Connecticut and these donut areas around these bigger metros get an increase in housing demand despite the elevated mortgage rates. That's one. Two, you're also seeing that while some of these markets out West in these boom towns, price to rent ratios got so distorted that investors

couldn't really cashflow properties. They couldn't go buy a home. And then at that monthly mortgage rate, charge a rent that was above it to make up and have a cashflow, right? So a lot of what was out West and even parts of the South didn't cashflow anymore. So where could you find cashflow still? Well, some pockets of the Midwest and Northeast, in particular, at the bottom third of the market, some of those single family homes could still cash flow. That's another part that helped to aid the Northeast and Midwest this year. Another factor is, and this is really nationwide, but it just felt more acutely in the Midwest because of the cash flow bit in the Northeast. but as mortgage rates went up you know as mortgage rates go up and the monthly payment

moves up it's not like then prices have to fall enough to equal that out that's just not how it works but what does occur is there's a shifting of expectations and so a lot of people who would have bought a home at like 2,300 square feet maybe you're now looking at 2,100 square feet looking at 1,700 square feet. You got three kids, hey, maybe we still do three bedrooms and two of the kids share, something like that. And so what that's done to the marketplace is it's pulled some of the demand from the top down to the bottom. And so despite some people getting priced out altogether, that bottom of the market is staying warmer because some demand has shifted down to it. But it also means the top has gotten cooler. And so when you look at luxury prices

versus the entry level prices, entry level prices nationally have continued to rise on a year over year basis. Luxury prices, the top third of the market or the real luxury, which is usually considered the top 10th of the market, prices are down nationally. They're down a few percentage points. And in some markets like San Francisco and San Jose, where that affordability shock is more acute, they're down like 15% plus on the luxury end. And so that has helped to keep some of that bottom of the market more warmer. And of course, all of that has felt more acutely in the Midwest too. And there's another factor here at play, which is when mortgage rates move up, the trade cost to sell your home and go buy a new home. So giving up your monthly mortgage

payment, to take on a new monthly mortgage payment, the trading cost gets a lot higher, right? So it could be $1,000 more to go get a new mortgage, a new home at today's price, right? And so a lot of people are just saying, they're like, F that, this is too unaffordable. I'm not going to do it. So what occurs is you have less supply of the churn coming into the market. And it's more so at the bottom, because the people who would sell their home and go buy something new would have been like move up buyers, like people who were like, okay, I have two kids. Now I have a third time to get a bigger house. They're not doing it. And so that takes off more supply from the bottom. And since they're not going out to then buy something that takes off

more demand from the top. So where are these demand, you know, the mortgage rate shock has had an effect in a pullback on supply and demand, but in some segments, in some parts of the country, one has moved back faster than the other. And that's the gist that's creating this bifurcation where you have some markets that are in correction mode and then some that are not only moving up still, but are actually moving up at a pace that I would almost consider overheating. I mean, Hartford and some of these pockets like Knoxville, Tennessee, they're up 8%, 10% year of date. Yeah. And that's wild considering where mortgage rates have gone. Now, one big thing that, and you mentioned last there with the people staying put, is there's a lot of differing

opinions on supply, whether it's a giant housing shortage for single family homes. And there's a lot of, I'd say, takes out there and opinions that if housing prices come down significantly, builders will have no incentive to build anymore. And therefore, supply is going to stay tight if home prices come down, and then prices are going to stay relatively high. Do you believe does the data back this up? Do you believe this is the case? What are the thoughts maybe on that and the builders in general? I think, here's my view. If you believed that there was a housing shortage in 2019, then you definitely believe that housing shortage has gotten bigger. Because what occurred is there was an acceleration in household formation and an acceleration in

housing demand. So if you thought the housing shortage was here, after those first two years of the pandemic, you'd have to say it was here, right? Bigger. Now, if you were somebody who was kind of like the John Burns real estate consulting, where you're like, you know what? 2019 was kind of about a market equilibrium. You then would say, now we have something of a housing shortage. And that is the stance of John Burns real estate consulting, where they now think, you know, we were kind of closer in 2019 to that equilibrium, not oversupplied, not undersupplied, But now we're undersupplied, is their view. They don't have the number that's a bit huge, like some of the four or five million or six million numbers that are out there, like Freddie Mac and Realtor.com. But they do have like the 1.7 number-ish, I think. And Moody's Analytics and Zonda, some of them are kind of like the 1.5, 1.4.

um so so i think less of the debate among these firms is do we have a housing shortage and it's more of do we have a really big shortage or is it kind of like a little closer to equilibrium than some of the really big housing bulls would think um and so i i don't have as much of an opinion there uh i'm trying to be the one who kind of goes out and collects and find out finds out the views of some of these other firms and kind of creates this uh place where people aren't afraid to debate it because I do think there should be good debates on things like this because consensus can be wrong at times. And then also you have the fact of, do we have a huge structural shortage for all of housing? Or is it really just like the entry

level single family housing that didn't get built after the regulation changes that occurred after the bust and given that the bust was so deep. So is it more of like, okay, markets like Seattle and San Francisco and New York and Boston. Yeah. Obviously those places always have a housing shortage. Everybody wants to live there and they have great jobs and they haven't, you know, the zoning's been tight and they just haven't built. So yeah, of course they're probably underbuilt for everything. But then it's like, what about the nation as a whole? Are we really underbuilt on everything? Are we underbuilt on luxury? Are we underbuilt on multifamily too? Or is it really just that single-family housing that got sucked out of the market following the bust error and the changes in mortgage lending standards that really kept out a lot of people who would have otherwise bought some of that entry-level single-family housing?

Okay. So earlier you mentioned we're at basically lowest affordability level since you said, I think, late 80s, mid 80s. the what would in what scenario do you see prices like why would prices stay high or even rise for average home prices as a maybe you can take it category by category but how could you see them continuing to rise given the affordability levels where we're at well one thing i'd like to say is that I try to avoid making too many calls on like, here's Lance Lambert's call for house prices or where I think prices are going to go in the next 12, 24 months, 48. Because I try to be like this medium that shares all the forecast

and tries to be a little more neutral with it. But I think if you talk to the people who think that house prices will continue to rise, they're really saying it's because the technicals. That's what Sean Dobson, the CEO of Amherst, and he owns 44,000 single family homes. he recently told me, and that story was published for Resi Club Pro, my premium level. But what he said is the technicals in the market are great, are phenomenal, is what he said. But the fundamentals are terrible. And so what he meant by fundamentals is the rent to price ratios, the affordability

metrics. Affordability is just terrible. So it's unhealthy on the fundamentals of affordability. But the technicals, he said, are great. And what are the technicals? The technicals are the fact that there's just very few new listings coming on the market. There's not much inventory in the market. And so the technicals are pushing prices up despite the affordability being in the dumpster. And the other technical there too, that he mentioned is the fact that we're kind of constrained on the new home side and on some of their pricing relative to the existing market. They can't come in and dump a bunch of homes at a super cheap price that'll then bring down the existing market a ton. But builders have cut prices. While we keep talking

about national prices hitting records and stuff, if you look at the new home prices, especially on a net effective basis, there was a correction in the second half of 2022, and we aren't back on a net effective basis back to the peak on the new home side. So builders have the margins and they cut prices and they offer the mortgage rate buy downs. And I'm talking on an aggregated level. Of course, there's some markets probably in the Northeast or the Midwest that new construction didn't move down much, but on an aggregated level, new home prices did come down a bit. And we did have more of a correction, probably double digits is what I've read from like John real estate, 10% to 12% net effective basis when you account for everything, mortgage rate buydowns,

money at close, additional incentives, that type of stuff. Okay. So those are the arguments people have that you're talking to about why prices may rise. I'm sure you've talked to people that think that prices are going to struggle. What are their arguments? Yeah. So while prices kind of bottomed at the early part of 2023 and we started to see some growth on existing home prices. At that time, a lot of the models pretty much gave up on their calls for falling home prices after so many had went negative. But one of the people that's held out this whole cycle and into now, and he still stands there, is Moody's Analytics Chief Economist, Mark Sandig. And Mark and I talk every few weeks And Mark's view is that affordability is so unhealthy that at some point it will revert to more normal levels.

And some of that will come through nominal house prices declines on the existing side of the market. Of course, we've already seen on the new home side, he says, and that's why transactions have moved up. But the existing side, we haven't. And Mark's view is that at some point, people are going to be like, you know what? I got to move on with my life. I'm going to go buy a new home. And as churn comes back in the market, people selling to buy something new, people just can't afford to do it at today's prices and today's rates. And so he thinks as new listings move up and churn comes back in the market, prices will give up a little bit.

He's not calling for a huge crash, but he's calling for a mid-single-digit number off of where we are today. his model had shown it would be like 8.8 percent last year peaked the trough for the cycle and we did get down off of that top from last year by five percent but we since regained most of it on the existing side uh but now i think he's around like the six uh number uh now another thing about mark's model is if we had a recession mark's model thinks uh the price declines would be bigger than what he's already expecting. So what he thinks to get to more of the declines, he thinks it's just going to take time. That kind of leads into my next question here. I believe Michael Burry was the one that first called this, but he referred to

the market as the real estate market generally as sort of a slow plane crash. Do you think that's kind of a decent analogy for what the situation Mark has in his model is? So actually, Mark's model is one that the real estate agents would probably prefer, because as prices move down a bit more, he has transaction volumes improving. So Mark's view has been if prices didn't give, transactions would remain very, very low, which actually, to give Mark some credit, that is what we have seen today. As existing prices haven't given, we've actually ticked up a little higher this year from the drops in last year at the end of that year. And, uh, and existing volume is super, super suppressed. Um, this is very low. I mean,

we could be talking about what a 3.7%, 3.8% million, uh, existing home sales, seasonally adjusted print. So very low there. Um, in terms of like this, uh, you know, this plane crash type scenario. In real estate at large, we are in an interesting part of the cycle where the office sector has further to fall. And crash is a word that you should absolutely be talking about with offices. Multifamily is a sector where there's pain and there's probably going to continue to be more pain, right? Single family is a little bit of a different story. And so I don't know what Michael's views are down to the T because he's, you know, he's kind of omnibus, if that's a real word, something, something like that is a real word. And, you know, you never know for sure

where his views are. But I think one thing that is true is that every single housing cycle is very unique. Everyone is unique. And this one, even more so maybe because you had the pandemic effects with the lockdowns and the just unleash of this housing demand work from home arbitrage, which had not been in the market. And then you had record low rates and, you know, all of that stimulus that's also, you know, who knows if that's also what's keeping the labor market at large still kind of humming right now, which has been resilient given the interest rate hikes. So I think, you know, I'm kind of in the boat of like, let's kind of wait and see how all this shakes out. I don't know if that's necessarily, you know, I'm not saying that's like a super

bearish or super bullish view. But I do think there's going to be things that happen in housing in the next 24 months that will be unexpected. Yeah, it seems like there's so many variables at play and so many new things out there. And one maybe new, maybe not so new, but something that a lot of people have talked about is the, quote, Airbnb bust, or I think it might be Airbnb bust, whatever. I think you understand what I mean by that. Maybe what is that? Does the data support this thesis? What are the arguments there? And could it have a big impact on the market? Right out of the gate during the pandemic. And really, the interesting thing about housing here is so much of it goes right back to March 2020. So much of the housing, everything kind of pulls

back to there. That was the event. And then everything that's followed it has been this echo of that initial bang. And what we saw out of the gate during the pandemic is that during the lockdowns, people could pretty much work from wherever, so many people. And you had all of the stimulus pumped in and people who were kind of stuck at home just wanted more space. And so that elevation in space that boomed housing because a lot of it couldn't be fulfilled. And so to fulfill some of it, people were booking more short-term rental stays, right? And so there was a big uptick in the Airbnb demand. The demand for short-term rentals went up a lot. And not only because elevated demand for space, but you also had cruises turned off, you had international travel

turned off. So where were people going? Well, if you wanted to avoid a lot of people, short-term rentals were a great option. And so we saw an elevated demand there. So elevated demand and their bookings went up a lot, which was aided by the easy money effect in my personal opinion. And at the same time, house prices were starting to rip. There were super low rates. So properties pretty much cash flowed in a great way for investors. And so a frenzy was created. And you can see this with like the bigger pockets, audience gains, which they just boomed during the pandemic, especially 2021. And there was a huge rush of people to buy short term rentals. And so what happens when you have a big elevation in demand? Well, the Airbnb bookings went up.

But now, as we flipped forward to 2022, and the economy was starting to kind of normalize in ways, cruises were back, international travel was back. And you also had, you know, the fact that more of the officers were kind of bringing people back in. So you had less of that huge work from home boom that we had had, and that demand for space. And so as that demand kind of leveled off a bit in some pockets of the country, and as some of the supply of all these people who are kind of into the frenzy, as that moved into the market, well, elevated supply, decreased demand, correction. And so I think what's going on is I think we are in a short-term rental correction. I think some of the bigger trade groups like to ignore it and like to obfuscate it. I don't know if that's how you pronounce the word, but try to hide it a little bit and keep it a little on the DL because they don't want to scare people. But then I also think there's a crowd that overhypes it, that acts like everywhere Airbnbs are this huge bust and inventory spilling all over into the market, which isn't exactly true.

But I do think what we're seeing is that some of the rates on short-term rentals got too high during the pandemic because they could charge whatever they wanted. And now that supply has moved into the market and the economy is kind of normalized. And so they've had to come down on price. And we have seen bookings in many markets come down on price. And I've talked to people who are now actually charging levels that are back to 2019 levels for Airbnbs. And, you know, they're still cash flowing. They were cash flowing in 2019 and they're still cash flowing now. Is it possible that some of the people who are buying at the end of the boom

and as rates started to move up, are now in a bit of trouble. Yeah, probably. And I've talked to some agents who, you know, they are getting very little business other than like death and divorces and estate sales. But one of the areas they are still getting business is people selling some of their Airbnbs or who got into Airbnbs during the pandemic and are like, you know what, this is harder than I thought. It's not the cash cow that I thought and kind of getting out. So you are seen some of that. But the more likely scenario there is that instead of them just listing homes and putting a lot of inventory in the market, which is unlikely for them to move the US macro level. But I think on a micro level, they could do some work in some pockets of the country,

particularly like Austin, New Orleans, where we've kind of already seen it, maybe parts of Phoenix. But I think what's more likely than a lot of them just selling is them moving from the Airbnb be to the long-term rental. Instead of doing an Airbnb, move it as a long-term rental, put it up for rent. And depending on the product and if they bought the home in the right area, and depending on what their interest rate is and their monthly mortgage payment, they could probably still cash flow it as a long-term rental. So I do believe that there is some type of short-term rental correction occurring in the US, one. Two, I think the chances of it creating a national bust, very unlikely. But I do think it's a story. And then three, and I mean, as the story is the first

part, it being a correction. And then the other part is the fact that I think it's really hard to get great data on it. And I think some of the national firms try to obfuscate the truth and try to, you know, keep it a little on the DL. But at the end of the day, in economics, it's all about supply and demand. And there are going to be corrections at times. And, you know, I think we're living in one right now for short-term rentals.

All right. So you mentioned supply. You also mentioned long-term rentals there. I think some interesting charts I've seen is the, you know, developments in the supply and works in progress for multifamily long-term rentals, big apartment buildings stuff like that what happened there and how do you think that can affect you know the other parts of the market rental price or rental rates you know housing

prices how can that affect anything because it seems like it's a very big supply glut maybe i don't know yeah well so what we've seen is that during the past decade during the zerp era low interest rates a lot of uh apartment building occurred and a lot of apartment building uh was planned. And during the pandemic, that accelerated because rates even went lower. And what had also occurred is that we had been in a segment of time where two things were occurring. One, millennials were at the period of their life where more than were renters, which was the past decade. And then two, the fact that some of the mortgage lending changes occurred in the past decade really hurt the entry-level side of single-family home building. So that pushed in more demand in the

multi. The demographic part of it from the millennials, and then also the fact that there wasn't the single-family homes available for them for purchase at that entry-level price. Now we have a record level of multifamily units under construction, and that supply is already coming into the market, and it has softened rents in some parts of the country. Rents are usually historically fairly sticky, but in some of these pockets of the country, there's been enough multifamily supply to actually see rents fall in some parts of the country. Now, I think it is important to note, there is a very big difference between single-family home rents and multifamily rents. And CoreLogic data shows that single-family rents are still continuing to rise a bit,

but it's multifamily where we've seen more of the softening occurring. And I think one of the reasons that prices for single family homes in the existing market haven't given more is that now we are at the end of that period where millennials are at the biggest part of their renting years and moving into where millennials are in the bigger years of their purchasing years. And so the five biggest birth years for millennials are 1989 through 1993. And well, what's 30 plus 1989, which 30 is the number when is one of the biggest years for first time home buying, 31, 32, 33 now. When did those people in 1989 hit 30? Well, it was 2019. And so that five-year period of them all hitting 30 coincided with today, which is 2019 through 2023. And

these were big years for millennials wanting to get into the housing market and to buy single family homes. And so I think there's going to be a bit of a different story here going on from the multifamily side of the market and the single family, especially rent versus purchasing. Okay. Shifting gears here a little bit, there was kind of major news this week about a court ruling, i believe in missouri around the national association of realtors and the uh damages awarded to the other party i'm blanking on it but the basically big news around uh collusion among nar national association of realtors can you maybe give some context on what happened here because it for anyone that owns anything in the real estate uh any stocks in the real estate universe they

may not know what's going on. Can you explain what happened and then maybe if you think it has any impact on real estate prices generally? Yeah. So on Tuesday, a Missouri jury awarded the plaintiffs in that, what was it? The Sitzer, Burnett, Buyer, Broker, Commission, Class Action lawsuit, like $1.78 billion in damages. And the lawsuit was against Keller Williams, the National Association of Realtors and Home Services of America. And the plaintiffs had accused them of violating the law by conspiring to inflate commissions. And the jury concurred with the claim. And so essentially, what was happening is that some of the plaintiffs, like Holly Ellis, who was a former high school English teacher, she said that she had to sell a home recently.

and she paid a total of a 6% percentage point commission on the total sale price. Half of that was to her agent and then half of it was to the buyer's agent. And she was kind of forced to have to pay for both. And to her, she said that took up 40% of her total equity going to that commission fee. And there was other plaintiffs that were in a similar spot to her. And she said it was a hard pill to swallow to walk away with so little of the equity. And in her opinion, the buyer should have had to pay for their own agent. And, you know, the jury concurred.

They believed that, you know, these groups were conspiring to force these sellers to have to pay for both. And, you know, before the case was announced, the chief legal officer at the National Association of Realtors said, you know, the outcome, no matter which way it goes, could have major consequences for the real estate industry and profession for years to come. I think that's right. I think Tuesday when this was announced, which as soon as the jury decision was announced, Zillow stock fell 7%, Opendoor fell 9%, Redfin fell 6%, and Compass fell 6%. I think what it was, it was an earthquake. And the outstanding question here is, was it a small quake? Or was this the first tremor in something much, much bigger? we already know that groups like National Association of Realtors are going to challenge this. There's going to be a legal challenge to this case. But as soon as this case was announced, there was more lawsuits announced against other groups. There was one filed against Douglas Ellman, XP World Holdings, Redfin, United Real Estate, Howard Hanna. So really a lot of these

brokers are going to get pulled into lawsuits all across the country. And the biggest winner here is going to be lawyers. They're going to make a ton because this isn't going to be a six month thing. This isn't going to be a 12 month thing. This is going to be years of lawsuits. And we're going to have to figure out how this is going to change the transact transactional environment for real estate. So this we can't we this was a big deal. This was actually something that was a big deal. And there's a lot of times where news happens and it's like, OK, this is kind of small, but this does feel like something big. And we just got to figure out how big it is. Do you have any particular stance on it? I know you've been, you don't want to have any.

I try to stay pretty neutral on things like this, especially with the legal side, but I will give you a prediction, which is if this were to happen, there would be unintended consequences. And we don't exactly know how all of this would play out. Would this help the consumer a ton? I don't know exactly because we could have it to where we have situations where dual representation, where the agent is kind of representing the buyer and the seller now. So we're going to have to see how it all plays out. But I do think there will be unintended consequences here. Okay. I think we've got one more question unless Brett has any others. He's giving me the thumbs up there. So last question,

for anyone that's looking to follow the housing sector, what metrics or KPIs do you recommend following? Obviously there's a lot of variables. And then just what, I guess, what are the most important things that really drive the sector? Yeah. One of the number one things that I would follow is I would try to figure out what has happened to prices the past 12 months in your market. I think that's important from like some of the indices to go and maybe look at multiple. And then second, find out what active listings in your market have looked like over time. And take the number today of active listings this month, divide it by the number of active listings in the same month in 2019. So now's November 2019, or November 2023. So take November

2023 divided by November 2019 subtracted by one, the percent change. If you know how much your inventory in your market has moved since pre-pandemic levels, that can help to give you a gauge of your weakness or strength in your market. Places like Hartford, where prices are still going up close to double digits, well, inventory there is down 78% from pre-pandemic levels. So for every four homes that were listed for sale in Hartford, Connecticut in November 2019. There's now one for sale. So four to one, like that's crazy. And that you can kind of understand why the market is so warm. Austin is up from pre-pandemic levels. And they're the market that among the biggest markets is the weakest and has given up the most on prices. So tracking active listings is a great

way to do it. Where can you track active listings? Well, you could go to this website called Resi Club Analytics, which I run, and subscribe to the free newsletter. And I'll put out a lot of data there that you could see some of this. But then if you are upgraded to premium, which is 150 a year, you'll have access to my spreadsheets, which I track this in real time. So you could see how active listings are moving in your market, metro level, county, and zip code. okay yeah i was gonna say that uh i was gonna say where's the best place to find all this stuff you know obviously besides the residency club so yeah what it is is you could go to realtor you could go google realtor.com data and find you know the data page at realtor.com to download a lot of

this data which i used to work at realtor.com for a couple years uh but the problem is it's not you You know, you download the data and it's not cleaned and it needs to be concatenated and flipped in a way to where it's readable. And so, you know, one of the things I'm doing with Resi Club Analytics is bringing that data in, cleaning it and making it very readable and doing as soon as the data drops. And then also on top of it, adding some of my calculations to it to make it more useful. Like the realtor.com doesn't have the percent change from now versus pre-pandemic, which I think that one metric is super, super important. And that's one of the metrics that's in the data. So, yeah. Yeah.

So there is great data out there in a lot of places. But I think for the consumer, it's not been put in a place where it's very easily accessible and readable. And that's what I'm trying to do with Resi Club Analytics. Plus, you know, the reporting and all of that stuff, too. Okay. Aside from ResiClub, what are some other places or where are some other places that listeners might be able to find you? On Twitter, at NewsLambrook. I pretty much live there all the time. So if you ever have something for housing, feel free to DM me there, feel free to tag me into it if you'd like me to look into it. But always looking into housing,

mortgage rates, all that stuff on Twitter, pretty much constantly throughout the day. You're my update day when I want to know where mortgage rates are. I'm like, oh, okay, I'll see what he tweeted today because you do daily update, right? I do it daily, yeah. Mortgage News Daily updates it every day and I grab it every day and I'm very quick to grab it every day, constantly checking their site to make sure I get it. And I tweet it out. I try to also do the spread, which is the difference between the 30-year mortgage rate

and the 10-year yield. historically, that spread's been around 1.75 percentage points, 175 basis points. But now we're around like 300 basis points. So if the spread was just normalized to historic levels, mortgage rates today would be closer to like 6.2 versus like 7.5 if you just had normalization of the spread. Of course, that hasn't happened. And people like Mark Sandy don't really think it'll start to occur until the Fed is actually cutting rates. Not just holding rates, not just hitting the terminal rate, but actually cutting the rates. So it'll be interesting to see how that plays out. But I track all that stuff daily. Plus, I tweet out a lot of regional

price data and a lot of the price and inventory stuff too. All right. Well, that is all the questions we have. Thank you, Lance, for coming on the show. We got to put a reminder on this before we sign off that Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice or recommendation. Nothing our guest says is formal advice or recommendation. Thank you all for tuning in and listening. And thank you, Lance, for joining the show. We'll see you all next time.