Moody's Talks - Inside Economics - Cooling Inflation and Confounding Housing Riddles

Episode Date: August 12, 2022

Mark, Ryan, and Cris kick off this episode by discussing inflation and the latest CPI Report. For the second part, they welcome John Burns, CEO of John Burns Real Estate Consulting, to give a detailed U.S. housing market outlook, that includes the topics of mortgage rates, the potential threat of a housing crash, and the affordable housing shortage.Follow Mark Zandi @MarkZandi, Ryan Sweet @RealTime_Econ and Cris deRitis @MiddleWayEcon for additional insight. Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I am joined by my two colleagues and co-hosts, Chris DeReedies. Chris, good to see you. Good to see you, Mark. You're the Deputy Chief Economist. Nothing's changed there. Good to hear. Oh, good. Good. Good. I was just asking. Not that I heard any rumors or anything. Yeah, but just asking. And Ryan, Ryan, sweet. Ryan is the director of real-time economics. and good to see you, Ryan.

Good seeing you, Mark. And I learned something interesting this week about Ryan. You know, he does these forecasts for the economic statistics as they come out every day. And he's really good at it. You know, he spends a lot of energy looking at the DNA of these releases, understanding them and coming up with forecasts. and you're the number one most accurate when it comes to forecasting CPI. At least that's been the case for a while here. Is that right, right?

That's correct. Yeah. So he knows what he's doing. In fact, he's in high demand. I probably shouldn't let anyone know that because some hedge fund might knock on our door or something. No, no one's knocking on her door. Oh, oh, geez. Wow.

I did not know that. Oh, really? They're knocking. No, I said they're not. No. Oh, they're not knocking? You're stuck with me. Oh, well, that's because they didn't know.

You're hidden gem. So, but we're going to talk about inflation. So this, this podcast has two parts to it. Part one is inflation because a lot of inflation statistics came out this week, CPI, PPI, lots of stuff. And then we're going to part two, part two, we're going to talk about the housing market. A lot of housing statistics coming out this coming week. And, of course, housing's on the front lines of the impact of the higher mortgage rates,

no more rate sensitive sector of the economy. We've got a great guest to talk about that. John Burns. John started his own firm a number of years ago. It's grown into a powerhouse now. It's eponymously named. What is it? Chris, what's the name of the firm? John Burns. Real estate consulting. Real estate consulting. Very good. And we're going to have John on in just a few minutes. But we go there. Let's talk about the inflation statistics. And I think, correct me if I'm wrong, Ryan, but we should start with the CPI. What do you think? Is that the number of... They got all of the attention. That got all the attention. Yeah, but there was other good news on like producer prices fell, import prices fell,

but what really matters for monetary policy is their consumer price index. Yeah. And so just what did it say? I mean, give us the rundown on the CPI for the month of July. Yeah, so for the first time in the long time, consumers got a little bit of relief on the inflation front. So consumer prices month over a month were unchanged. You know, they had been rising pretty, pretty quickly over the last several months. on a year-over-year basis, they're still up eight and a half percent, but that's weaker than a

9.1 percent gain that we got in June. So the consumer price data was for the month of July. A lot of the weakness in inflation last month was energy. So gasoline prices were down more than 7 percent. And that really, I think it shaved four tenths of a percentage point off month of a month growth in the CPI. So lower gasoline prices really helped bring it down. I think one thing that, you know, we were going back and forth, like what a surprise was, was food prices. So, you know, we had anticipated that, you know, the dropping diesel prices would help reduce some of the inflationary pressures coming from food, particularly grocery stores. But that was up more than 1% again. So several months in a row, we've been seeing food prices rise pretty

quickly. The good news is that relief is coming. So diesel prices usually, it takes a couple months before they start to feed into the CPI for food. So relief at the pump. is here. Relief at the grocery store is coming. But other things that, you know, we're paying close attention to, some of the stickier components of inflation, so rents, tenants, rents, owners equivalent rent, that still remains pretty strong. And year over year, it's accelerating and we'll continue. And I know, you know, John's going to probably talk about this at length. But so there are some areas where, you know, we're seeing some acceleration in services. And that's why we need a lot more goods, disinflation to offset that services inflation that we're going to see

over the next few months. But one month isn't a trend, but it's a small step in the right direction that we should see inflation continue to roll over as long as energy prices don't resume rising. Right, right. Going back to those food prices, I noticed ice cream prices are an awful lot. Yeah, that's going to make my vacation very expensive. Right. Anybody with children, that's going to be pretty pretty pricey down at the Jersey Shore with

ice cream prices. I think over double digits. It's like 10 or 11%. Yeah, it's double-digit growth year over year. Yeah, I looked careful. It was a little softer in the month of July, but. It was a little pun intended. A little, yeah, I was going to say.

Let me ask you something about food prices, though. I have in my mind that the cost of transportation diesel is a big chunk of that. Do you have any kind of rule of thumb as to what percent of the acceleration and food costs over the past year? has been energy, the higher cost of diesel and transportation? Yeah, I don't have the rule of thumb, but I did look at it. And if you look at growth in the CPI for food at home, so basically your grocery stores and diesel prices, they're not perfect. They don't track identical.

They're not on top of each other, but they generally move in the same direction. But there's a two to three month lead. So diesel prices come down. It takes a couple of months before it starts to feed into food prices. So that's why we should start to see some relief at the grocery store in the next, maybe not August, probably by September. Well, it feels like we're going to get some really good additional inflation news here, right, for the month of August going into September.

I mean gasoline, diesel, jet fuel prices continue to fall into August. It's going to bleed through, as you say, or flow through, as you say, into food prices. We get some relief there. Feels like vehicle prices, use vehicle prices decline or declining now. And it feels like when you may start to roll over as we get, you know, the supply chains ironed out, more chips, more. more vehicle production, more inventory. We got the retailers out there saying,

I got too much stuff in inventory. You know, the apparel prices fell, I think, in the past month. We might see more discounting. So it feels like for the next couple three months, I mean, I hesitate to look much beyond that, but it feels like we can say, we're going to get some pretty good inflation news here in the next couple three months.

Is that? I wouldn't be surprised if the CPI fell in August. I mean, gasoline prices are already. down six, seven percent so far. And if they follow where wholesale prices, and that leads retail gasoline prices by two weeks, they should be down 10 percent month over month. And that's going to shave a lot off the CPI. Airfares, they're still going to drop lodging away from home, because now that we're on the other side of the summer travel season, those prices are really coming in. Rental car prices dropped a ton in July. They're going to continue to drop. And then new

and used vehicle prices, they should start to really start to moderate. So I agree with you. We're going to see some, you know, pretty good. July was a small step in the right direction, but August is going to be very, very helpful. Christine, did that all tell all that? It all sounds good for August. I worry about after August, September. Now getting post-labor day, China opening up, perhaps. We got all the sanctions kicking in. So I'm hurricane season. Hurricane season. So I'm a little bit more cautious when it comes to energy prices and whether this decline, which is definitely something we need is going to stick. We may actually see a reversal here from one of these factors kicks in.

Yeah. I want to play statistics game before we bring John on, but there's one other thing I want to tackle on inflation before we move forward on the game. And that is, okay, we're going to see this moderate, it feels like a pretty significant moderation in inflation between now and hopefully the next couple, three months, unless something goes off the rails like a hurricane knocking out of refinery or something like that.

But then inflation may very well settle in, say, is eight and a half percent, July, year over year. CPI, it settles in maybe half that, you know, four or five percent. And as you point out, all the sticky parts of inflation and stay sticky, like the rent and some of the service side inflation. And we're kind of stuck there. And that's where the real risk to the economy is now starting to manifest. because if it does stick there, that's when the Fed says, oh, I got to press on the brakes even harder,

raise interest rates and weigh on the economy to get that inflation, that sticky inflation actually down. Correct. Does that sound right? Is that something, is that how you're thinking about this as well, Ryan? Yeah, I would agree. I mean, yeah, the sticky thing, the sticky components, the CPI worry me, but they won't be sticky for long because eventually the Fed's going to kill it. You know, they'll push the economy into a recession if they think, you know, inflation is

you know, sticking around four, four and a half percent. I mean, even after the CPI, the Fed officials, like all the Fed speak is still saying, we're going to avoid what we did in the 1970s. We're going to keep raising interest rates until inflation gets back down to 2%. Yeah. Chris, anything on that question about sticking inflation down the road here? Yeah, I think Ryan characterized it correctly. But that sticky component is really hard to unstuck. Unstick with the Onstick on the supply side, right? We can get the

Perhaps we can get the oil resolve. We can get the food result, but then the rents, right? We're not going to get a whole lot and more supply anytime soon, so that's not going to really. Yeah. Well, I guess in the baseline scenario where we don't have a recession,

the Fed doesn't need to step on the brakes. We have the Fed raising rates a few more times here. The terminal funds rate, the high point in the subject. is three and a half percent. We're at two and a half percent now. Assumes that inflation does continue more or less to moderate, that it doesn't stick at four or five percent. It continues to moderate. And that's based on the expectation that the economy's growth is going to slow, that job growth is going to slow, almost to a standstill. We may even see some increase in unemployment from the

very low three and a half percent. That takes the steam out of wage growth, which is the key source of inflation on the service side of the economy, and that's enough to keep inflation moving lower. And then as you move towards the end of next year, going into 2024, at that point, you'll see rent growth starting and shelter cost inflation starting to moderate, because you're already seeing market rent growth kind of roll over. It's still extraordinary double-digit, but it's just not quite as extraordinary as it wasn't earlier in the year. So that's kind of the baseline. Do you, does that still fit in your thinking, or would you take umbers with that? And that's what the bond market's saying, too.

So if you look at five year, five year forwards, like measures of inflation expectations, inflation swaps, they all, you know, indicate that the Fed is going to get inflation back down to target over the next couple of years. So the bond market isn't saying that inflation is going to be stuck at four. Of course, they seem to be saying we're going to get there with a recession, right, because the yield curve is deeply inverted now, two-year, 10 years. So it doesn't feel like they're kind of on the same page we are. Yeah.

Yeah. Okay. Well, we get to the same destination. but it's just different ways. Well, you know, that's a big difference, guys. Yeah. For my perspective, for sure. Big, big difference.

But I don't want to talk about the Yoke Krivenab because we don't have enough time. We're going to talk about that maybe next week. A lot to talk about there. You know, and we're going to come back to that in part two. I think I brought that up in part two. We'll bring it up in part two. We'll have done in the housing market. But let's play the game, the statistics game.

We should put forward a statistic. The rest of us try to figure out what that is through clues and, questions and deductive reasoning. We want a statistic that's not too hard, not too easy, kind of related to the topic at hand. So, okay, let's go, Chris. You go first. I always go to Ryan first on this thing,

but let's go this week to you first. All right, 62.8. Is this from the CPI report? Nope. Ooh. Is it inflation related? No. Is it a statistic that came out this week?

Yes. This is from the NFIB. No. National Federation of Independent Business Small Business Survey. Is it from the Michigan University of Michigan survey? It is not. We're running out of things here. Wow.

It is housing related. How about that? Oh, housing related. Stick into the theme. Oh, is this something around from the housing vacancy survey? No. Because that came out the week before. It came out this week, he said.

Yes. Oh, okay. Well, sorry, Ryan. And maybe I've got my week's messed up. go. It wouldn't be the first time. You're such a data snob. You lauded over the rest of us.

I know the data so well. Here we go. This is definitely, is this one of your surveys that no one? Yes. Okay. So this is a survey. Oh,

like a Fannie Mae survey. Of course the Fannie Mae home price sentiment survey. Oh, that's home purchase. Who pays attention to that survey except Chris? Chris. Yeah. Okay. What's 62.8?

That is the, that is the index value for July. It is the lowest since 2011, right? So it got down to 63 in April of 2020 during the pandemic. Right. So this is people's feelings of whether the housing market is a good time to buy, good time to sell, whatnot. So ask a bunch of different questions about housing.

So sentiment around housing is quite low. One thing I found particularly interesting is that both questions around whether this is a good time to buy and whether this is a good time to sell fell a lot over the last year. So there's pessimism on both sides of the equation right now. That sums it up. And really good statistic to lead us into part two on housing. I thought so. Yeah, no, that's a good one. That is a good one. And I'm going to put that way in my memory banks because I know it's going to come up five times the next five years, this survey. All right, Ryan, what's your All right. I got a trifecta. So 0.3, 0.4, 0.5. Point three is core. CPI. Correct. Very good.

Point four is that median CPI? Oh my God. This is unbelievable. Yes, that's correct. It is 0.5 trimmed. Oh, how did you do this? Oh, this is baby. That's a cowbell. All right. Now, I'm really impressed. Because I got yours, that is definitely not collusion. There is. No, there's no collusion there. I don't know. Flawless the way I said that. When I was looking at this, I'm like, oh, Mark's going to give me grief because, you know, it's median and trims.

Wow, that was impressive. Suspicious. Very suspicious. What are you talking about? There's no way. Explain yourself, right? What are these numbers now? Now that everyone knows that I know that you know that I know whatever.

There's just different ways of measuring inflation. Hold on. Is that all you're going to tell us different ways of measuring inflation? Are you not depressed? No, the Bloomberg term is talking to me, so I got distracted. Oh, you got distracted. Yeah, it's different ways. So the core inflation, that excludes food and energy.

And then the Atlanta Fed puts out different ways of measuring inflation as well, like the median, so like the middle of all the price changes. And then the trimmed, I like the trim for them because it kind of takes the extremes out. So big price movements, you know, big increases and big decreases. Cut those out and take out. some of the noise and just look at the signal. But overall, the general takeaways, looking at median and trimmed at, you know, these price pressures, they're starting to broaden out.

And that's what you can really see in the CPI data. Got it. And is, how do you feel about 0.3, 0.4 and 0.5 in the grand scheme of things? It's a lot better than it was a few months ago. Yeah, exactly. Point three core, I'll take that all, it feels like I'll take that whole day long. Give me that one. Hey, I read something you wrote, which is important, that if you, based on the CPI and the

PPI reports, the producer price report, that we can now have a pretty good forecast for the core personal consumption deflator, which is a measure that the Fed uses. What is that saying? What do you think? What's your forecast for that? It's going to be up 0.1%, which puts year-over-year growth at 4.7%. That's core. That's excluding for that. Okay. So 0.1, that's pretty good. That that would take all day long. Yeah. Yeah. Because that means we're back, well, that would be back to the old days when inflation is too low, right? Exactly. Yeah, but that, of course, it's not happening here.

Okay, you ready for mine? Yep. I actually think this is a good one, and I'm not sure you're going to get it, but it's a really good one. Ready? 3.64%. And I'll give you a hint. It has nothing to do with inflation.

3.64%. Is it at interest rate? It is not. That you would think it might be, but it is not. It's a housing-related? It's mortgage-related. Yeah, that's a big hit, by the way. Delinquency?

Yeah, the mortgage delinquency rate. Yeah, yeah. They came from the mortgage banker's decision. Chris, did you know this? This is Q2. FF. It hit an all-time love in the data, 3.64%, which is just incredible, right?

I mean, and he saw a big, now I thought maybe what was going on is because of the end of these very forbearance programs, you know, you might see, because as you know during the pandemic, people could go, if you had a Fannie Mae, Freddie Mac or FHA loan, you could get forbearance from paying your loan. And that program is expired. And so you have people that are rolling off the forbearance program. And I thought maybe they'd be going in. And you did in fact see a big decline in 90 day plus delinquency. And you have seen a bit of a pickup in foreclosure. Yeah.

And that's part of the story. But even if you add the delinquency rate plus the foreclosure rate, it's an all-time record low. It's an old-time record low, which is amazing. Now, it still probably overstates the case because there's about a half a million people that are still in the forbearance programs. Let me ask you this. An interesting question. How many people households do you think got forbearance during the pandemic on their mortgage at one point or another during the pandemic? And I know this because the Philly Fed puts this great report together on the forbearance programs every month. Take a guess.

I was watching it closely for a while, but yeah, not anymore. Just to give you a hit, there's about 50 million people out there with mortgages. How many of them do you think actually were on the forbearance at some point? At some point? Yeah, nine million. Yeah, I was going to say 10%. Yeah, I mean, that's pretty significant, right? Yeah, nine million.

And we're down to 500,000 as the month of, I think, July or early August. And they're coming off quickly. So we might see some increase in delinquency. But my point is, well, first of all, the borrowers, the mortgage borrowers since the financial crisis are really good borrowers, you know, very high credit scores and, you know, getting 30-year, 15-year fixed-rate loans, kind of plain vanilla, nothing exotic, no negam, no two-year subprime. And, of course, with the house price growth that we've seen, they've got a ton of equity built up. And because unemployment is 3.5%, people still have their job. and they're making their payment on their mortgage. So that's through the month of,

that's through the second quarter of this year. That, you know, gives you, in my view, you know, a sense that the American family household, certainly the homeowners in pretty good shape, you know. Homeowners, homeowners, yeah. Homeowners. But that's two-thirds of the population, right? Yeah.

And that's where the bulk of the spending is. I mean, most of the spending. Yes. So I thought that was pretty interesting. Anyway, no one got a cowball. on that? No? Yeah. But I'll have to say I was very impressed with my response to Ryan's. Surprise, surprise. All right. Well, now here, you know, we talked about inflation. That was the

past week. Now we're going to think about the coming week in housing. And no better person to have on to talk about housing, as I said earlier, is John Burns. So, John, welcome. I'm ready to roll whenever you are. I can roll. Well, it's good to have you on. You're not on video because your Wi-Fi isn't all that great. Where are you? Are you going to backwoods of Alberta or something? Where are you?

Oh, God. If you saw my view, you would kill you. I'm at a resort called Taranea in L.A. I'm looking at the Pacific Ocean. But the Wi-Fi here is horrible, which is a way of them saying you should not be working when you were here. It should be listening out the ocean. It sounds like it's intentional.

Yeah. Well, it's so good to have you, John. I don't think you've been on the podcast. Have you? This is the first time you? I think it's the first time you've been on. It's good to have you on. And just as a way of introduction,

you have a highly successful consulting firm that you founded, eponymously named John Burns real estate consulting. And you're actually headquartered in Southern California. right? Yeah, I named that when it was just me, so we need to rename that. Okay. Yeah. And you, but you now have, as I recall, you have in previous conversations, we've discussed

that you have offices and folks all over the country because you closely monitor what's going on in all these new housing developments across the country. Is that right? Yeah, we've got more than 100 people spread out across the country. And we're so good at this work from home thing, two of our employees, but one moved to New Zealand and one moved to England more than a year ago, and they're still with us. Wow. You could say we're international, but that's really misleading. Yeah.

Well, you were kind of leading edge on the whole remote work thing, weren't you? I mean, because you had folks over? Oh, big time. Yeah. I mean, if I had to recruit only people that live near me, we would not have nearly the talent. that we currently do. So we leaned hard into that. And we were on, we've been on Zoom for years.

And when everyone else got on Zoom, we couldn't have been out here. Oh, that's interesting. You were on, you were on Zoom long before the pandemic. Oh, way, oh yeah. Oh, really? I didn't even know it existed before the pandemic. Oh, that's interesting.

Yep. Oh, wow. So your productivity has been enhanced by everyone getting on Zoom. You have no idea. No idea. We can, we can have so many clients. meetings per day now. I mean, it's just, it's phenomenal. And people say, you know, you don't really have

those connections. We actually have a whole training deck. I actually gave a presentation on it to a bunch of CEOs on how to be connected remotely. And nobody believes me except my staff we've hired who said, I feel more connected to this company than I did the people I saw in the office every day. I used to go into the office every day. So it can't be done. I feel the same way. I totally. feel the same way. I feel more connected than I ever have because of Zoom. I mean, because I, you know, it facilitates so many meetings and, you know, points of contact with people that you just wouldn't have had before. I just find it amazing. But, but they're glad to hear that's working for you. I know so much more about

your home decor, Mark. I feel real connection. Oh, there. That's a good point, right? Yeah. I'm looking at your, your background there. You can't see. because even though you're a Zoom maven, you're not on Zoom, but I'm in my night elsewhere classified room. So anything that I don't know where to put, it comes in this room. Mark, last time we zoomed, you were on your patio, and I got a good look at your yard and the whole thing. It was awesome.

Oh, no, that's, I wish I was out there right now, John, I'll tell you, but let's get down to business and talk about the housing market. So how bad is it, John? It just feels bad. But tell me, how bad is it? How would you characterize the housing market at this point? It's declining pretty darn rapidly. This is going to sound a little horrible, but it's not that bad.

Because if your home price went up 36% in two years, and then you had to give 5% of it back, not that bad. I'll take that to them. Yeah, I take that. And all my home builder clients, all of them, and the strongest balance sheets they've ever had. And, you know, they're kind of saying, well, I knew this one last. And I've been preparing for it not to last. It actually lasted longer than I thought it was going to.

And so if I have to give some back right now to keep moving forward, that's fine. In fact, I'll tell you, most of them are continuing to hire people. right now rather than let people go. Oh, now that's... But we'll see. I mean, we'll talk about this later. You know, if you start talking about a serious recession or, you know, double-digit mortgage or something, that's another story.

But right now, that's where they're heads at. Right. I mean, and I guess most of your work is focused on the home builders and the whole complex of home building. Do you also focus on the demand side in terms of home sales and realtoracted? that kind of thing. So when you say it's not that bad. Well, yeah, you have to, you know, for the mortgage, I know, right? Yeah.

This is tough for people in the mortgage industry. Yeah. People, you know, resale, there's more resale agents than ever before, too. So it's very competitive for them. I don't, I don't want to, you know, polly in it for everybody. And we also have a very large, it's become almost almost half our business now, the rental side. and rents are going gangbusters. From a business standpoint, they're doing great.

I know tenants don't like it. Right. This is a single-family rental. The single-family rental is what you're talking about. Yeah, and apartments too. Oh, and apartments. So, yeah, sure, absolutely. Rents are rising very rapidly.

Right. Okay. So you're saying, interesting, you're saying, you're saying you can't paint with a broad brush here. It's not all darkness that there are shades of gray and even some blue sky. here for some parts of the housing complex yeah i mean the the dark stuff is what you read in the press and i don't want to polly i mean some of my client stocks are down 90% plus right so uh we we had tremendous

price appreciate in 2019 the market was getting a little frothy and then we had the spring of 2020 which was horrible and then we had seven quarters in a row of four to five percent price appreciation It seems to me just about everybody was thinking this is going to end at some point. This is going to end at some point. And it has. But they were prepared. I think most business people were prepared for that. And I even think the mortgage guys, I mean, they all knew that that's how this business works.

It booms and it bust. Yeah. So they're buckled in and prepared. Sounds like what you're saying. Yeah. Hey, did you know, Chris? Chris is a great housing mortgage guy as well. He came to us from Fannie Mae many years ago now,

but obviously pays very close attention to housing and housing finance. Chris, how would you characterize the housing market at this point? I'm just curious how your thinking lines up with Johns. Yeah, I would agree with him, right? I think things have gone on longer than expected, and folks in the business have been anticipating that they couldn't go on forever, just, we've been through this before, right? So, you know, you want to be a little cautious or have some safety in the background. So I think that's why you didn't see mortgage lenders going

crazy with lending standards and, you know, really stretching. They didn't need to. And I think there was, so there was been, there's been that discipline on that. And I think even on the construction side, the builders also didn't go as crazy as they potentially could have in the face of all the, all the demand and took a more disciplined approach having been burned in the past. And I also think that perspective is important, right? Things are down now, but relative to where they were in 2019, we're still looking pretty good. So as those sales have collapsed just yet, right? So it's not a calamity or catastrophe that we're looking at here.

It's more of an adjustment, anticipated a period of transition or adjustment. We knew this was coming, right? Correction, not a crash. Yeah. Right. Okay. But a lot depends on a couple of variables, right? One is mortgage rates.

The other is the economy, jobs. Yep. And, John, when you think about where housing is headed, do you have like a perspective on, you know, where mortgage rates, should be where they're going to I mean right now the 30 year fixed mortgage rate is it's down a little bit from where it was just a few weeks ago I think we're five and a quarter percent last time I looked we got us I think we were as high as almost six percent a couple months ago and of course if you go back a little over a year ago before the we really got going here and the pandemic started to fade I think the third year fix was about 2.6 2.7 I think that was the historical low. Do you have a, in your mind, a sense of where mortgage rates will settle and where they're headed? So when you got, you had this kind of sang when, well, relatively sanguine perspective feels like, are you also relatively sanguine about mortgage rates? Or do you, how do you think about that? Well, mortgage rates, as you know, basically trade is a

premium over the 10-year treasury. And you can go into your Bloomberg terminal and see what the futures are in the 10-year treasury. So I'm not going to be smarter than the bond market. So I just look at what the bond market is saying. By the way, Ryan tries every day to be smarter than the bond market. So he's right half the time and wrong the other half. Exactly. I look at it. Yeah. Yeah. So I just, you know, and that's why I tell my clients. And they're not smarter either. So let's look at where the tenure treasury is and where it's projected to go. that's the most likely scenario. Mortgage rates traded 100, and that's because a pool of

mortgages usually pays off after 10 years because somebody refinances after six months and somebody holds it for 30. The premium over that is usually 170 basis points. So we do forecast what we think the premium's going to be because that will move up or down. It's up right now because it goes up when people are afraid of a recession because, and I think there may be less liquidity. in the mortgage market during a recession too. So people ask for a premium on that. But, you know, this is the first cycle any of us have been through where the Fed actually buys and sells mortgage securities by the trillions.

So Powell is manipulating the mortgage market in my view. So you have to put that into your calculation. And so we're forecasting the rates should be relatively flat because that's what the 10-year Treasury is saying and maybe even come down a little bit once we get through a recession if we are having one. So that's the scenario we're running with, and that's what our clients are running with too. Got it. So you think a prudent planner here would, home buyer, home seller, home builder, realtor would be a 30-year fix that's kind of sort of where it is now, somewhere between 5 and 5.5%.

That's kind of what you think the prudent planner would count on. Yeah, that's what the bond market is signaling. Yeah, right. Okay. Ryan, it's very similar to our perspective, right? Yeah, very similar. Yeah. We have mortgage rates moving sideways and, you know,

that's going to put a little bit of a floor in the housing market going forward. And the other thing to keep in mind is that once we get through some of these ups and downs in the economy, there's 40 million millennials that are moving into their prime first-time home buyer age. So that's going to be an enormous tailwind for housing going forward. I have this feeling I've got to be the downer here. You guys are like all positive. That's going to be really hard for you to do. I know.

Usually I'm on the other side of this thing. Now you're forcing me to take the other side. Interesting. I'll be a downer on that millennial statement. Okay. Go for it. It's pretty much in the rear view mirror. I mean, the bulk of births.

was in the early 90s, those people are turning 30 right now. And so there's like an 89 to 94 window there. But the births are tailing off after that. So basically one way I explain it to my clients, they kind of get it. Like, you know that apartment boom we had 10 years ago? Well, that's a for sale boom now. But that only lasts for a little bit. And actually, when you run the math, I think that 40 million number is right.

but it's not that much more than the decade before. And so it's not some huge, like I'm going to hang a very positive hat on the housing market because of this millennial thing. I think it's a slight boom that basically were almost the way through. Interesting. And Ryan, you should know John wrote a really good book. It's probably now three, four years ago, right, John? Or maybe two, three. Six years ago now.

Oh, goodness. Okay, I didn't realize. On demographics in its role broadly, but in terms of the housing market in particular. And I'll be a, can I be a bear on this again? We said who we needed about 1.37 million housing units built per year over the next decade. We said that in 2016. And people are like, that's ridiculous. We need way more than that. We did 1.35 for the first five years of that. people just need to run the math. And when you run the math, now we were oversupplied at the time. Now we're undersupplied.

So now we're more in the 1.55 total camp we need, including manufactured homes, by the way. And we're pulling more permits than that right now. So we still have this pent up undersupply issue from the last few years. But there's some negative people out there who are right. They're saying, well, this 1.7, 1.8 is not, sustainable. And probably the most important thing that people don't think about there is the building products companies are only going to add new plants and new capacity if they think, hey,

two million a year is the new norm. They're not doing it because they can see the demographics in this country and they say, we've already got enough capacity. Now, we're having a supply chain issue right now. But that's been a pain point for the home builders during all this because the supply is that. The people that build the materials don't believe some of the bullish statements, and I agree with them. Chris, look at Mark's face. Yeah, this is crunching these numbers. He's realizing his housing starts forecast is completely off. No, no. Oh, we made a big change this month.

Wait, wait, wait, wait, wait, wait. This is very interesting because, John, you're right in the middle of an ongoing debate or having in our own forecast. I wanted to go here a little later in the conversation, but maybe we're here, we should do it. We'll come back to, you know, the near-term outlook for housing, because I did also want to talk to you a little bit about where you think the economy's headed, because that's in jobs, because that's also, in addition to mortgage rates, that's critical to determining, you know, where things are going in the near-term, but let's stick with this conversation around supply. So just so I understand, abstracting from the business cycle,

over the next, let's say, five years, maybe over the next 10, you picked the horizon, how many single-family, multifamily and manufactured homes do we need to put up, do you think, given the demographics? 15.5 million over the next 10 years.

So that would be 1.5 million per annums. And it'll be, you know, some years will be a lot more, some will be a lot less because of the economic cycle, but that's what we need demographically. Okay. So, Chris, are we that different? We're not that different from that, are we? We're pretty close to that. Now we're not. No, we're not. Okay. No, no. Now, this month, as of where we're, change. Yeah. We're not. We're quite close to that. Right. Well, prior to this month, we were on the high end, but yeah, okay. We made a change. Okay. So, okay, but we, at some point here in the not too distant future, in the next five years, it feels like it's got to be, again,

abstracting from the business cycle. We've got to have much more construction than that, don't we, John? Because, and here's how my thinking around this works, the vacancy rate across the housing stock for rent, for home, for ownership, is pretty close to a record low, about as low as it's ever been. And we got data all the way back into the 50s, I think. 60s. 60s, right.

I think the homeownership vacancy. rate actually is at a record low, the rental vacancy rate is not quite. And that is, that is manifested in high house price growth, strong house price growth and very, as you pointed out earlier, strong rent growth. That's not sustainable. So we need to see rent growth, house price growth, come in to something that's more consistent with incomes and construction costs. So that requires a higher vacancy rate. So at some point in the not too distant future, we need construction that's going to be above $1.5, $1.6 million to get that vacancy rate back up to something what I would call, in a commerce would call the natural vacancy rate. Is that kind of how you think about it,

or you're landing in a similar place? How do you think about that? That is how I'm thinking about it. But the low vacancy, the undersupply you're talking about, our estimate of that is 1.7 million units, that's in my 15.5. So if we didn't have that, we would, we would be, you know, forecasting 13 and some change, which is what we were doing in 2016, because we believed at that time we were oversupplied because the vacancy was the exact opposite of what you were just talking about in 2016. It was actually quite high. Right. Okay. Well, you said, you read the math. You think the inner supply is 1.7 million. Is that what you just said? Yeah, we think if you look at the demographic demand for shelter, we should have 1.7 million more housing units.

Okay. Okay. We're like, we're like twins. I mean, aren't we, Chris, intellectual twins here? I mean, that's exactly what we're saying. Well, not exactly. We're saying 1.6 million. A lot depends on what your assumptions are for hospital formations and headship rates.

But we're in that ballpark certainly, right? There are other estimates out there of three, five million, seven million. shortage, and that just seems way overstated. Yeah. Okay. But so can I, can I bash those? Feel free. So they're all, they're all very simplistic analysis. Yeah. Nobody ever says exactly what Mark just said about the vacancy rate. And people point to, well, you know, 2000s, we built this. Well, 2000s, we overbuilt the market. Yeah. Right. Right. And so they're very simplistic analysis that's very easy to fall in the trap of thinking we're underbuilt by

five or six million. And most people who I think have heard the argument from me and Mark and others now and are dropping their numbers back down closer to us. Oh, is that right? I didn't notice that. Is that people are coming in? Yeah, I've seen a lot of people. I won't name names, but there was one who was one of the first ones out there who was saying, we're undersupplied by $5 million, and they're now down around two. Okay. Okay, interesting. So, but that does mean or imply that at some point, you know, not this year, not next year because of the, what the higher mortgage rates and the adjustment and the weaker economy and so forth and so on. But at some point in the not too distant future, kind of mid-decade, it feels like we should be seeing

years of 1.7, 1.8, kind of million kind of housing starts, John? Yeah. Yes. I think we're going to see that this year. Yeah. Oh, this year. Oh, okay. Really? Well, what are we, What are we running at right now when you throw in? We're at 1-5-5-5 last month. We were at 1-8 in April, and we've come way down because builders seem to be freezing up here, you know, a bit if you believe the data, the census data. Yeah, now, the last months have come down, but I think we were on pace to do above 1.55 this year, and there's so much already under construction that's going to get

finished. I don't know our exact numbers, but I think we're going to exceed that. And then after that, it's going to come down because, and this is where I think we really have a competitive advantage, is our home builder clients are telling us, here's so much we're going to build. Here's our business. It's all about, they build it only if it's the right financial decision for them. And it's going to be an interesting conundrum next year because they've already bought the land to have more open communities. So they have more actively selling communities next year than they do right now. but the sales pace per community, which has been running close to three,

is probably going to get down around two. So it'll probably be less construction next year at the end of the day. Right. Okay. Okay. Interesting. So the numbers we've been banding about have been really housing starts, not housing completions.

And it feels like we could get a lot more completions than starts, right? Because it got this boatload of homes that are in the pipeline going towards completion, kind of muffed up because of the supply chain issues. And you're saying those completions are going to get across the finish line here over the next maybe year or so. Oh, yeah. Yeah. Right. Okay.

Okay. Interesting. So, Chris, it feels like our forecasts are now, we have marked down. You're right. We have marked down our forecast a bit. But it feels like our forecasts now are very consistent with Johns. Would you say it feels like it? Yeah.

It's certainly much more consistent now. Okay. All right. Where do things really get interesting? I don't know if you want to go here, but if you look out beyond 2030, right? Well, let's do it. Yeah. Go ahead.

Yeah. So what do the numbers look like? You've actually noodled it out 10 years, 15 years from now. And it looks, what is like what do the numbers look like way out there? Yeah, there's a continuous decline because our household formations keep shrinking. Right? We're getting past this bubble in terms of the millennials, as John mentioned. The subsequent generations are smaller.

And at the same time, you're going to have the baby boomers who are hanging on to their properties today, even with second homes, third homes, moving on. So that's going to free up some more supply. So based on our projections, right, that construction industries continuing to decline over time in terms of total output per year. The only wildcar there might be climate change or losses of properties if we're hit by more storms or something along those lines. Or immigration policy. Or immigration. Well, yeah. Where is a where?

Yeah, you're totally right. That, I mean, you just hit the one thing everybody misses is the oldest baby boomers, what, 76 right now? Mm-hmm. That birth surge we saw in the late 40s and early 50s is going to start providing some reset. supply to the market for the first time ever. Right. We've been having these demographics where we had like four people, four million people graduating from college or high school every year and two million people passing away

to going to like 4.3 million people graduating from high school or college and four million people passing away. That's not a lot of growth. Let's see, yeah. Chris, to remind me, like, if you look 10, 15 years out, what are we saying the underlying a pace of housing construction should be starts. Are we down to a million or less per am? I think it's less.

It's less by that point, yeah. Right. Okay. Yeah. John, you're coming to the same place, right? When you look out, given the demographics that you so carefully look at, it feels like unless immigration changes to a dramatic degree, we're going to be looking at much lower levels of housing construction out there 10, 15 years from now.

I think you're right. I have not done the math past 20, 30. Below a million sounds really low, but maybe you're right. I need to go run that math. Yeah, okay. We can share that with you. We've got a very elaborate spreadsheet now, which is actually pretty cool. It's been very informative.

I know Chris is writing a paper on this right now. Okay, very good. Oh, one other thing on the affordable housing, well, the shortage, the $1.7 million. Do you think there's any way? role here for policy? Should policymakers be doing anything? If you're a king for a day or a week, would you change anything with a housing policy to incent more construction or not? You just leave it up to the market to figure this out? Well, we're definitely not a policy shop, and I'm not a policy guy. But I'll tell you what seems to be working is some of the job creation outside

metro areas. I don't know what federal policy can do to stop Nimbiasm. Maybe you can figure that one out. Right. But if you look like just in the last few months, like Mazda and Tyot are going outside of Huntsville and Key and Hyundai are going down to southeast Georgia, Volkswagen's going to Chattanooga, to areas where there's not a lot going on and they're going to create jobs and they're going to create housing. And, you know, the government, and I made, maybe it sounded like there was some stimulus for EV cars and other things in this latest policy that would support these companies doing this. This is going to provide areas where there's no resistance to development to allow economic growth and affordable housing. Right. You know, in Asia, in Asia, they build new cities.

They go to the middle of nowhere and they, you know, put up a city with. half a million homes. It feels a little bit similar here. Right. Oh, that's interesting. So you're saying the market forces may actually iron this out reasonably gracefully, just because of the move towards suburb, sort of ex-urban rural areas. It's ongoing.

I guess remote work might, and maybe this is what you're saying, facilitate that as well, that people can move to place. It could. Yeah. You know, those areas need infrastructure. and other things. I mean, policies that would provide

those sorts of things would certainly help. Right, right. Yeah, absolutely. Okay. All right. Let's, Chris, Ryan, anything else on this

that we should bring up with John in terms of the affordable housing shortage and housing activity, anything else you want to bring up here? Do we cover it? Chris?

Yeah, no. We got it. Okay. Okay. All right. Agreement with John. Okay, let's double back. Now, because we went from the short term to the long term, I want to go complete the conversation around the short term.

We talked about mortgage rates, and we kind of said settled on five to five and a half percent for a third year fixed. John, how do you, when you talk to your clients, they must be asking you about the economy, about jobs, right? Because that's the other big component here in terms of housing demand and housing activity. What do you say? How are you thinking about that in your, in your? your look forward on prospects or the housing market. First of all, I'll say we devour all the Moody's information on that. Okay, very good.

I like that. I actually think you are the best ones out there at doing that. So thank you for that. Oh, you're really? You're not sucking up. You can, you want me to dish a little bit? The competition is not very good. I mean, you got, well, you, you,

You've always looked at it by sector and then rolled it down to the metro area. At least that's what we see. Yeah. And I think that's the right way to look at it. And, you know, the tech sector with all those companies that hire, you know, grew 400% in five years, they're getting hammered right now. And the mortgage industry is getting hammered right now. But I'm starting to come to the conclusion. and anybody who's made a lot of growth bets, any company and hired a lot of people and taken on a lot of debt,

that's what I'm concerned about because of last recession aside, 11 of the prior 12 recessions were all fueled by excessive debt somewhere in them. And so that's where I try to focus on, okay, who's over levered? And I see a ton of companies now whose debt is up, but they've hit the bond market and it's not due for five. years and by the way it's at four and a half percent it might be trading at nine right now but their coupons only four and a half so they're fine and uh but then what concerns me is what i don't know and the CEOs of the three biggest investment banks jp morgan golden and sex and morgan stanley have all come out with huge bearish comments about there's a hurricane on the way and even overriding their economists there's greater than a 50 percent chance of a recession those guys are

seeing something that I'm not seeing, and that's what scares me. So we're telling everyone, be really, be really cautious here because of what, you know, David Solomon at Goldman Sachs is saying and Jamie Diamond and James Gorman, there are smart people. Yeah, absolutely. It is interesting, though, and I follow the economic shops of all those Wall Street firms. None of them have a recession in their forecast. None of them. I don't think.

I'm sure J.P. Morgan doesn't. Goldman doesn't. Well, ask them if they're looking at their own loan book, which they're probably not even allowed to. Oh, the economists, you mean? Yeah. Oh, okay. What are the levered loans that they've been selling to insurance companies? Yeah. Yeah, interesting. So this has been bugging me, John, that we're going to talk ourselves into a recession.

that, you know, when folks like, you know, Jamie Diamond, I'm not sure if people pay attention to Elon Musk and what he says, but he's saying roughly the same thing. You know, the hurricane is coming. It just makes people nervous and, you know, it becomes self-fulfilling almost. Why would he say that when he's trying to convince you to buy his shares? Well, I don't want to speculate. I've got my, I've got thoughts on that, but I don't think I should speculate. Not in the podcast. Okay.

Yeah. But that's a good, it's a good question. It's a good question. But so it makes you nervous. So you're saying recession, you, you, recession risks are high because these people who clearly have information on what's going on deep in the financial system and economy are speaking very darkly and therefore have to be cautious about what's part in here.

I worry about what I don't know. Yeah. In the last cycle, I got lucky and had John Paulson and Steve Eisman, his clients, and they were telling me what's going on in the Morgan's securitization world. I had no idea. Thank God they clued me in. Oh, well, I keep asking people if there's something like that out there, and I haven't heard of anything. Yeah.

We're not forecasting a huge negative recession. I'm just telling you risk on because of what these other guys are saying. Got it. One other thing I'll tell you, I did see in my business, we've seen, We had years of really low interest rates. And so the thirst for yield by bond funds was insane. I mean, how do you get some seven or eight percent, you know, interest? I mean, pension funds need, what, seven or eight percent per year?

How do you do that? You have to take a lot of risk. You have to buy the, you know, first lost piece in some trunch of high yield debt that probably wasn't even rated by Moody's. That's what keeps me up at night is that stuff. Right, right, right. The unknown unknowns, I guess that you would call them. Interesting. Hey, Ryan, you're listening to that.

What's your, what is your sense of that? I mean, what do you think when you hear John say that about these dark comments coming from, you know, senior leaders in the financial system? I agree with them. I think that's the one thing that makes me nervous as well is that, you know, there's, you know, the economic data saying that we're not headed toward, barreling towards a recession, but when you have these bank CEOs coming out, and to his point about the corporate bond market, I mean, it's the, it's the junk of the junk that really could cause some problems down the road.

Right. Okay. You mean, you follow the corporate debt market closely, but you're not seeing anything, right? No. You follow it very closely. You're following it for issuance and by rating Trump. spreads, yep. You're not seeing it. In aggregate, everything looks fine, but you don't know if there's something bubbling beneath the service that we may not have data on in that maybe this is what the bank CEOs

are getting worried about because John's, his point is a lot on. I'm not worried about good companies. Right. I mean, good companies have good debt. Actually, I mean, good companies in solid balance, their debt is trading in a 10% yield right now. There's a pretty good yield. Yeah, there's nothing to worry about the investment. I'm more worried about the other stuff. I have, I have. have a client who is lending against people's crypto balances, okay, as a small percentage of their portfolio to get some yield. That's the stuff out there that I worry about.

That would make me worried. What's that? That makes me worried. Right. That makes you worry. How many companies are lending to hedge funds whose portfolios or whose assets are down 30%? Where's that that doesn't trade? It's where you and I can look at it.

Right. I don't want to be super bearish here, but I'm just, I'm focused on what keeps me up at night. Yeah. I'm not saying this is what's going to happen. Yeah. Okay. That makes sense. So you're saying, okay, you know, Mark, I buy into your baseline, no recession.

You know, it's going to be uncomfortable, kind of an economy, tricky, slow growth on the border of recession, but no recession. But having said that, the risks are definitively on the downside. And I'm really, if something is keeping up and out, it's night, it's all these things. things that could be going off the rails in the financial system that are very opaque, we don't know. And that makes me worried. That's what you're saying. Yeah. Yeah, that makes sense. Yeah. Right. Okay. Fair enough. I'm not going to try to cheer you up. I think that's very reasonable. Let me ask you, let's go back to the housing market. And one other thing that we talked a little bit about, but I just want to talk about it a little bit more

is about rank growth. And as you pointed out, rank growth is extraordinarily, has been extraordinarily strong, double digit year over year now for more than a year, pretty much everywhere coast to coast, strongest in the south and the west as you would expect given all the remote work and people moving in. But, you know, it's everywhere. Here in Philly, if you go look at the data, we're seeing, we never see double digit rent growth in Philly. And we're seeing. double-digit rent growth in Philly. So it's everywhere. So how does that get resolved? I mean, is it that builders do continue? This is one reason why they're not going to really pull back on their building during this week period and that we are going to see a lot more construction

going forward. We're going to get that supply and get that rent growth down. How's that going to, how's that going to play out? Well, it's the same thirst for yield that also is an inflation hedge has caused a ton of capital to come into apartment construction and single-family rental home construction for rent. There's a huge desire for that. If we have a lot of inflation, then the tenant's income is going to go up so I can raise rents. If the cost of the building is going to go up, you know, there's some inflation hedge there too. You know, rising mortgage rates creates more rental demand because it takes it away from homeownership. You know, and the, you know, Inflation statistics here where we have a guy Eric Finnegan who monitors all the inflation stuff for us.

The rental component of that is super lagging. So you know that the next year, the rental component of inflation is going to be higher than it is right now because those rent increases have already occurred. It's fascinating. And I'll just say with some humility here, we got that totally wrong. I mean, we did not see double-digit rent growth coming in any way. shape or form. What we missed, I learned, was a decoupling of households in COVID, which was people went from having one or two or three roommates down to living by themselves because they can move somewhere more affordable and they didn't want to be hanging out with

people getting sick and they needed better bandwidth on their Wi-Fi. Avalon Bay had a great statistic on this. The public companies have more economic data than the federal government. Avalon Bay disclosed that they went from having a huge apartment rate, went from having 1.8 tenants, 1.8 people per apartment, to 1.6 people per apartment in a one-year period. That's massive household formation.

Yeah. That's fascinating. So you're saying because of COVID and some fears of being in close quarters and as you also pointed out bandwidth because people needed to work remotely, we saw this breaking apart of households and more households formed and it was all rental. Most of it was rental. And therefore, that increase in demand was key to juicing the rent growth that we're observing now.

I'll quote some real page data on this. It was amazing. For 20 years, we, we know. never saw more than 300,000 increase in the number of apartments being leased. This is in an institutional quality apartments. In 2021, it hit almost 700,000. And they have this data, apartment by apartment. So it's super, it does not the entire country. It's a subset. But that's that's what happened. Right. So, so, you know, when that happens, rents go through the roof. Right. Right. So how does this get resolved going forward? I mean, double-dial rent growth is not sustainable, right? I mean, because people can't afford double-digit rent growth. So you're going to see some demand destruction. Pousels now can't form because they just literally can't afford the rent, I assume. And are you saying that plus this increase in supply that we were talking about earlier will ultimately quell the very strong rent growth? Is that kind of your thinking?

It's not sustainable for sure, but the other piece of the data that they had, which was fascinating. And our consulting team has seen it too, is rents were up 13% year over a year, but the incomes of people that were applying for those apartments. So it's not necessarily the same people as a year before, were up 13% too. And you can look at every single public company who discloses their rents. to income ratios, they haven't moved. So the narrative would normally be exactly what you said, Mark. People's wages didn't go up 13%. People got to be stretching.

What happened was people, I believe, people relocated. And they took their $100,000 income with them to an area where most people make $80,000 and rented a nice apartment there. It was a fascinating pivot. I never saw in a million years. But our consulting team did 900 feasibility studies last year, half of them on rental. And that's what they're seeing too. It's like these rents are up dramatically, but these people are qualifying just as easily

as they did the year before and the year before that. It's crazy. Oh, that's fascinating. So it is to some degrees also played out in the homeownership market too, right? So people left big urban centers, New York, L.A., moved to cheaper areas and that juiced up house prices and now you're saying in those areas they move to in the same kind of dynamic as playing out in the rental market? The poster child for that is Austin, Texas.

Right. Where, I mean, I think it was like 40% price appreciation or something last year. It was just insane. But one group did an analysis that actually matched people that moved and found that they sold their home in the Bay Area. and bought a home that was 30% larger on a larger lot for 30% less than the home they sold. And there's a company that dominates the mortgage rate lock business who calculates the debt-to-income ratio and all the people that get mortgage-rate locks.

And despite that price appreciation, Austin, Texas had one of the lowest debt-to-income ratios in the country. I was stunned. Now, I think what's happening right now is that migration is stopped and you're going to be stuck selling homes to school teachers in Austin. I think it's going to be really bad in Austin. But that's what happened for those two years. Oh, fascinating. Chris, what do you think of that narrative, that perspective?

That's interesting. I'm trying to figure out, well, those people come from somewhere. So those markets must be negatively. impact, but we don't really see that. Yeah, there was some softening in San Francisco, but... Softer. Softer. You know, the rank grows in San Francisco is lower than anywhere else, but it's still high single

digit. Yeah, so trying to square the circle. Or the other thought I have is this a one-time move, right? Yeah. So going forward, we won't get a repeat of this. That's what John's saying, actually. Yeah. Yeah. Yeah, and I'll square it for you.

Yeah, so if San Francisco renters hadn't gone from, I'll just pick the national average, 1.8 to 1.6 per apartment, rents would have fallen. But there was some household formation in San Francisco too, because people were definitely decoupling in San Francisco. Oh, I see. That's all setting. Okay. That is fascinating. That's really interesting. But you are thinking that that's a kind of a one-time shift related to the pandemic and remote work

and all these movements. And as that abates, then this should come out of rent. Rent growth should moderate. Right. Yeah. I mean, this trend can't go on forever. Yeah. Oh, that's fascinating.

That's very interesting. All right. Well, let me. Okay. One other question then. Because there's so many riddles in the housing market and you're answering all of them in a very interesting way. Investors. there is this

I mean the data show that big investors institutional investors have really stepped it up in the single family market kind of the buy to rent kind of model some build to rent but a lot of buy to rent particularly in the south and in the

west the mountain west you've seen a lot of this activity I guess two questions or I've got a bunch of questions but first two questions up front. One, did I characterize that correctly? Do you think that the way I just stated things is the way you would state it?

And second, how do you think about that? I mean, is this a good thing, a bad thing? Are those, is that even appropriate to ask? How do you think about all the investor demand in the marketplace? Yeah, I mean, it's probably a mix of some good and it's bad. Okay. So, yeah, we've actually gone through the pain of geocoding every single house these guys own.

And we've matched to their public numbers, so we know. So the companies that own a thousand or more homes nationally, so let's call those big companies, still own less than 3% of the homes in America. But they've gone from, 10 years ago, they were buying. like 0%. Now they're buying, so 6% of all the homes in America recently have been purchased by them. So they're, you're right. They've gone from zero to two to four to six. It's gone up dramatically. It's very concentrated in certain areas. And so I think that's what causes all the headlines, because there's some zip clothes where they're 40%. And I would put those in two buckets. So they started

growing like crazy in 2012 in the mortgage crisis. So they started buying homes wherever there was distress. So it was that they have heavy concentrations of home of ownership in zip codes where there was a lot of subprime lending. And then what they're doing now though, since that game is over, is they have something that all of them refer to is called a buy box where I'm looking for a home basically around the median price in an area. that has a decent rent to that home price ratio. And they're all kind of looking in the same zip codes because everybody's in the same buy box.

So there's a lot of activity in those areas. And it does not add up to a huge percentage of the, well, I said it's 6% nationally. But in some, in those buy box areas, which Charlotte, North Carolina is the poster child for that. And you've seen that featured in some of the newspapers. It is an issue if you're a if you're somebody who's trying to buy a home for your family. It's tough.

The flip side of that is, and these guys get no credit for this, but I'll talk about the apartment market as a parallel here. So 40 years ago, 50 years ago, there was no big institutional apartment market with garden apartments and professional reasons. There was all mom and pop landlords. Nobody's bashing those companies. because what they did over time is they created really nice communities. They charge a lot of money for it. So it's a discretionary choice to live in one of those nice communities. But they're also, they really take care of things.

Things break and they fix it. The same thing is going on in single family rental housing. So, yeah, you can, you know, in fact, you should do this mark on your speeches. I do this a lot lately. I ask the room to raise your hand if you've ever rented a home before. ever and almost always like half of the people raise their hand. Oh, is that right? So there's this notion, yeah, at some point.

I mean, have any of you rented a home before? I've never rented a home. A single family home? No, an apartment, but no single home. Yeah, yeah. Chris, have you, right? Have you guys? I have.

I've been on both sides, all sides. I've been a renter, landlord. Okay, so, well, okay, then we'll pick on you for a minute for being one of the landlord. And he's the crypto king now. Yeah, he owns a lot of cryptoccur. Joe, John. All right. So good example, two out of the four of us.

I rented a home after I graduated from college and four roommates. It was two of the best years I ever had in my life. There is a stage in life where a lot of people rent a home. Yeah, okay, good point. Their fear is if you have kids, your number one fear is that my landlord is going to sell the house and I'm going to have to move. But if you know your landlord is a reed, first of all, there's a tax person. if they sell the house, so they're not going to sell the house. So that fear is gone. I'll pick Hurricane Katrina, for example, when that hit Houston. I mean, if I was your landlord

in Houston, you know, you were done. Nobody was there to help you. American homes for rent, the next day had trucks coming in from Alabama and all these other places to help clean up the house and get the tenants back in. And they didn't wait for the insurance money to fix the place because they had the capital and they did it. There's some positives to being a, tenant with these people. So it gets like no press. So that's why I mean, there's some positives and, you know, negatives to this, just like most policies seem to have positives and negatives.

Well, that's fascinating. So you think many people have at some point in their life rented a single family home. It's a, that's interesting. Start start asking people. Yeah, yeah, yeah, I will. Yeah. People get relocated to it. Atlanta. And so, you know what, let's rent for a year to see if we like it. See if I like my new job. Check out. Yeah, people get divorced. And okay, well, in the meantime, we're selling our house and I need to build back up. And we're going to split custody with the kids. I need a house. Yeah, I guess the thing that there's a lot of good, but there's the one bad that I think it's bad. Curious. And I know we're running out of time. So maybe one here is homeownership, right? Because, you know, obviously if the institution owns the home, it's going to be.

for an American family to own the home. So homeownership, which has gone up and down and all around, but really gone nowhere in two generations, feels like this isn't going to help out here that's going to hurt homeownership. Do you think I have that right? And should I be worried about that at all? Well, as I mentioned, they're not doing this in like every neighborhood in America. Okay. And, you know, so sure, if they outpid somebody who wants to buy a homeowner in a certain zip code. That doesn't seem to help. But homeownership hasn't plunged because of it, at least according to my math.

And when we wrote this book, we went back and studied it for years, and there was this notion that the millennials were never going to become homeowners. I mean, they're all buying homes like crazy, like you were saying earlier right now. Every generation seems to get to an 80% homeownership rate by the age of 60. Oh, that's interesting. And I believe that's what's going to happen. And you may have to buy a smaller home. You may have to go five miles further from work.

You may have to relocate to a different area, which now work from home. A lot of people can. Even like lower paid telemarketing jobs can go from anywhere. I think people are going to figure it out. I don't disagree with you, but I don't think it's the end of homeownership in America. It's very refreshing. One other thing I want to mention, though. Well, 70% of those tenants, because we've surveyed them,

want to become homeowners at some point, just not right now. Right. Good point. Right. You know, John, I have to say, it's refreshing talking to you. You're the first person I've talked to in a long time where I'm having to talk to you down. You feel so good. And I will say, you definitely have fought it for another book.

If it's been six years, you've got to write another book. I mean, I got the title for you. Oh, my God. That was so much work. Mark. I'm not sure I'm not for got to do that. Let's write it together, John. I got a good one for you. Here's the title. Riddle me this in the housing market. And we just do one of these things. Each chapter is one of these riddles. We write about it. What do you think? No. You know what? Here's your problem, John. Let me tell you your problem. I'm going to tell you your problem, John.

The problem is you're looking out at the Pacific Ocean right now and having way too good a time. That's the problem. You got to come live in the Northeast a little bit, a little bit of hardship, and then you'll start writing a book. I'm just saying. No reaction. You don't visit me in February. John, it's so good to have you on. It was a real pleasure. And go back to the fun and sun, you know.

I really want to thank you for the time you spent with us. And I hope to have you back on again. So please take care. We'll do. I enjoyed it a lot. And as always, I learned quite a bit. So thanks, Mark. Oh, you're kind to say.

And with that, dear listener, we're going to call this a podcast. Until next week, take care now. Bye, bye.