2153: Behind the Numbers: Decoding Real Estate Trends with Mike Simonsen, Altos Research Part 2

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Hey Jason. So I thought I would share a hybrid management update. I just had five back to back closings with five different investors in the same market. Three of them are self managing or hybrid managing and they all have tenants already and the two that are using property managers do not. You are so right on all of that and I just wanted to share the progress and how boldly our clients are starting to take management into their own hands.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create create more wealth and freedom than you ever thought possible. Jason is a genuine self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman, the complete solution for real estate investors.

Welcome to episode 2153 and this is Jason Hartman. I'm in Dallas again and headed to Arizona later today. I just got off stage presenting to a big investor group here and we talked all about so many things that we've covered on the show, but not the least of which is understanding that war between inflation and technology with the Fed trying to get inflation under control and doing a pretty bad job at it because they kept the money supply so loose for so long. Jerome Powell was certainly right in the idea that inflation was transitory because of supply chain issues coming out of COVID He was right for a while, but he just kept saying the same thing and probably thinking the same thing for way too long. But he should have taken away the punch bowl at the party and raised interest rates much more slowly. But you know, we are where we are and it's interesting that just five months ago Fannie Mae predicted interest rates at the end of this year at 5.6%. And that is extremely unlikely at this point. But we might see that by the first or second quarter of next year. Who knows, you know, we just don't know. That's the problem with the centrally planned economy. It's just up to the central planners and we, we just don't know what's going to happen. But we will see. But the point is that inventory is still very low. At the time of this recording, we have about 556,000 homes for sale in the U.S. normal being 1.2 million. And so that means that our inventory is only about 50, 47% of where it should be. One of the things I said in my speech just a moment ago was I gave that kitchen sink example that I've shared with you. If you look at the kitchen sink, right, the faucet represents the new inventory coming on the market, the new listings, new properties for sale. And the sink of the basin of the sink represents the existing inventory, and the drain represents the buyer demand, the absorption rate of the properties. And basically what we have now is we have a sink that in a normal market would be full to the brim. In a bad market or a buyer's market, the sink would be overflowing, right? Normal would be full. The sink is only about 47% full right now. It is still much higher than the COVID lows, that era during the COVID lows. So we'll see what happens. We have a long way to go to where we get to a market that is in danger of a crash. We are quite far away from that still. But we will see how it goes. And to talk about that today, we have Mike Simonson with us again today to talk more about the condition of the market, where we've been and where we're going. So let's go ahead and get to that, I guess first I'll mention thank you to all of you who joined our empowered investor Pro Zoom meeting yesterday. I look forward to seeing all the rest of you, hopefully on Zoom today. Jason hartman.com Wednesday is where you can always register for our monthly Zoom meetings. And these are not webinars, they are Zoom meetings. So you have the chance to interact and ask questions as we're talking about cost segregation. If you miss that today, reach out to one of our investment counselors and they can fill you in on how to save taxes with really low cost cost segregation studies and learn about what that is and so forth. So go ahead and do that. Without further ado, let's get to Mike and talk about the condition of the market.

Really the lesson here is how quickly we reset our comparison. So, you know, rates have been at seven for a few months. We're comparing to seven and it's only a few months, right? We're not comparing to five and a half. We're not comparing to three from two years. Ago, we're comparing to seven. And so if homebuyers are. Have been shopping this spring and they're looking around, they're setting their expectations about what kind of home they can buy based on 7% mortgage rates.

Yep.

And so it's, it's only a few months of stability that then they go, okay, but if rates jump to seven and a half, now they're frustrated.

Yeah.

Right. And, and, and suddenly six and a half looks like a bargain.

And by the way, I just want to say one thing about that, because a long time ago, I learned that when there's a little spike and when rates are volatile, it actually makes people fear loss. And they do move right away. Like, they. Oh, you think, okay, quick, there's a small number, there's like a window. Like a window overall, no question. Okay. But like, just when there's that slight bump, when they go to seven and a quarter, they get scared and they make a decision because they're fearful of loss. But then when it goes up too much, they just give up and resign themselves. So.

Yeah, yeah, And I think you could see that like a, like an, it's an accelerant for a little bit of time. Yeah, we could see that in the end of the first, like March, April, May, March and April of 22, everybody knew rates were climbing. Yeah, that was the moment when the most people were buying. They were scrambling to get the last of the deals in, and it was an accelerant. And then July 4th weekend of 22, everything went off a cliff. Seller stopped, buyers stopped. If you didn't have your house listed by June, you knew you missed the window. You, like, all of it hit the brakes in the, in like. And it was July 4th weekend and we're done. And so it was like an accelerant at first, but then it settles in. Yeah. You know, we've been talking about overall inventory, unsold homes on the market. The other way to think about supply is how many sellers each week, new listings each week are happening. And what we do, we tracked here is each line here is a year. And it's the squiggly lines. Like, some weeks more, some weeks fewer new listings. And the dark red line is this year we're recording this. Like the last weeks of data had had Easter in it. And you could see there's a dip in the new listings there. 55,000 new listings this week. But each week, all year long, the dark red lines higher than the. The light red, you can see growth in sellers all week long. And you can see it's starting to expand, which means, and I think this is also, like, we were just been talking about where now sellers understand the world we live in. Last year they were that just dramatic changes in mortgage rates. And, and it's hard to make a decision. And now I'm more likely to be locked in. But, but now, once I've settled in, okay, we're two years into higher rates, I can start to make decisions. And so, okay, I'm going to sell my house. So we can see new listings starting to climb every week. About 10, 15% more sellers each week than a year prior. The other takeaway, when we look at the new listings, volume is for the bearish argument. And the bearish argument is, you know, things are unaffordable, and, you know, those investors or the Airbnb, you know, folks are going to start unloading their properties and we'd see a flood of, of new listings.

And what, What?

Yeah, it hasn't happened.

Always wrong.

Right, but that's the fear. And what we can do is if, if that's your hypothesis, you can watch the new listings each week. And what we can see right now is, so there are 55,000, 60,000, 65,000 new listings in a given week. But normally this time of year, there might be 80,000. So you can see the gray lines here. Those are past years. So there might be 80, 90, 100,000 new listings in a given week, in the second quarter. And if you think about that, if there's 100,000 new listings in a week and a hundred thousand sales, that leads to 5.2 million for the year. Like, you could see how that it comes out. And so we have, we still have a very restrictive seller world, but it's starting to ease up.

You know, one of the things that I think you might have to start doing, and it's going to be a pain, is depending on how far you go back, adjust your data for inflation, essentially, and I don't mean money inflation, but the population is larger, there are more homes in existence in the housing stock. So to do this completely right, you would have to take it on like a per capita type of concept, right? Because if there were a hundred thousand new listings a week seven years ago, that is not equivalent to 100,000 listings per week today. And of course, there's much less than that today. There's only 55,000. 55,000. That's not that huge of a factor yet, but it's there. Right?

You know, and in fact, the per capita adjustment is something We've done. And it's actually, rather than doing it time wise, it's a really interesting way to look at it. Compare markets. So when the bubble burst in 2008 and 2009, basically what happens is you have fewer homes per capita, more people competing for available inventory, prices are higher. Right. And if there's more inventory, per capita, prices are lower and there's a nice linear relationship. So the tighter the market, the more expensive the homes it was. It's really clear. And then you'd get an outlier market in like 2008, you'd get like Vegas. They had way more homes per capita. And those were the markets that were poised to crash. And so you could use inventory per capita or people competing per home as a, as an indicator for likelihood of price adjustment. So right now you can look, for example, San Francisco or Boston, which have 7,8 million people in each metro, and there's like 1800 homes for sale in either of those markets. Like for 8 million people. Right?

Nothing.

Yeah, nothing. You go to Sarasota, Florida and it's like, I don't know, 2 million people and there's 5,000 homes for sale. And so you have a real clear picture of which markets are more likely to have price declines in the coming year. And that per capita inventory is a really useful way to look at it.

Good point. I agree.

Yeah. So let's look at the sales rate. So I mentioned that sales are expanding this year. There's about 7% more homes in contract than a year ago. So homes that are in contract now in April, they take taking about 38 days in contract right now. So that means they're going to close in April and May. There were 65,000 new contracts pending this week. So these are the homes that are on the market. They take offers and they go into contract. And so they're in that contract escrow phase for, you know, 30 or 40 days. 65,000 new those this week, including Easter weekend. So that'll jump next weekend and it'll bounce back up. And I'd love to see we might have over 70, 75,000 go into contract in the next, the week that we're recording right now, which would be a nice growth both week over week and versus last year. And what that tells us is that each week we're getting, we have more sellers and we have more sales taking place. And so this is just counting the new ones each week. And we're looking at single family homes here. So, you know, you can see a few things that happen the Bulk of the sales happen April, May, June second quarter. The sales rate starts dropping off in the in July and dips big on the July 4th holiday. And you can see then in the fourth quarter is the fewest home sales that we have. And what we're interested in here is I'm interested in watching the the new pendings climb. The single family homes climb towards 80,000 is you get another 20,000 condos and 100,000 per week is that's over 5 million home sales there. Like that's a starting to get healthier home sales market. We can see the growth here. Interestingly, there are other measures of home sales. For example, the Mortgage Bankers association has their index of applications for purchase mortgages and that one hasn't started really showing growth yet over last year. If your listeners pay attention to the MBA number may say well there's no home sales growth over last year yet and it's still record few. But what we are probably seeing is a shift to cash buyers. And N for example reported that there are more cash buyers than any time since 2014 when there was still a lot of like investors buying out distressed properties from the bubble burst. So a shift to cash buyers means the transactions are happening but it doesn't show up in the mortgage data yet because they're not doing mortgages. Yeah, that makes sense. Some of the Southern California markets are actually seeing significantly hotter right now. Right, I know, because they're more cash dominated.

Yeah, right.

And so you could see that happening.

First of all, I want to just rewind a little bit here to what you were talking about which is the number of sales and the number of pending sales. So closed versus pending and then the number of new listings. It's totally okay if a lot of new inventory comes on the market as long as the buyer demand keeps up with that level of inventory. So Mike, you do a good job of speaking to that. I've seen you talk about it many times in the past. Can you just speak to it now?

So we had 55,000 new listings this week and we have 65,000 new contracts pending.

Okay, so the inventory is in a deficit.

It dropped this week. Yeah. So inventory dropped this week. The available inventory drop. We had more buyers than than sellers this week. So yes, you like we can absolutely see that happening. We should expect that. You know, inventory, we want inventory to rise in the spring. We want more sellers to happen. You know, last year we had such a supply constrained market in March of last year. If there's only 50,000 new listings in a week it's hard to get 60 or 70,000 sales because the houses aren't there. And so we want that new listings volume to pick up a little bit. But again, like, we also want to make sure that the sales rate is picking up and because if it's going the other direction, that's a signal, you know, that we're getting supply and not demand. That has implications on thinking about prices in the future. And, you know, price is going to head up or down. Those are absolutely trends that we want to keep our eyes on.

You know, one thing to remember is from your good old accounting class in college, right, which is FIFO and lifo, right? First in, last out, last in, first out, you know, all of that stuff. And the point being that some of this housing inventory will never sell. There is a certain, you know, probably fairly small amount of the inventory, maybe less than 20% that is just. People like experimenting. They're just fooling around. They're overpriced, their houses are in such terrible condition, they're never going to sell. You know, there's always that element in every market because even during the COVID era, when inventory was insanely constricted, there were still 240,000 homes for sale. Right. And so there were just, you know, there wasn't 1.2 million. Like we need to be normal, but there's always, you know, some. And we're not tracking the last in, first out, first in, last out concept here. We're just talking overall aggregate, you know.

Yeah. And, and you know, in the hot markets, some of those junkier properties, they get bought, right?

Yeah, I know they do.

Yeah. Right. Like that's what if you've got one of those, that's the time to sell it, right? You know, one of those weird houses. Like it's time to sell it when it's hot. That's why inventory kept falling during the, during the pandemic, because we were buying everything in sight. So we were even buying the ones that weren't expecting to buy. And it's also why we could the average days on market and watch that thing. You know, normally it might be 70 or 80 days on the market and suddenly it's, you know, 20 days during the pandemic because even the houses that have been sitting around for 200 days are now sold. And so, yeah, those absolutely were, were trends to, to keep our eye on. And, and right now the, the, the junkier ones, you know, add to inventory. And so we are getting inventory growth when, when the market's significantly less hot yeah, absolutely.

Okay. What else do you want us to know, Mike?

So home prices, median price of the homes that are going into contract right now, this is the homes that people are buying is $395,000. It's actually 5.7% higher than last year. But what's interesting is only 2% higher than two years ago. And so it looks like we're going to get to just past the all time high, the May peak from two years ago in pricing this spring.

This is not adjusted for inflation, right?

These are nothing. This is not adjusted, it's not seasonally adjusted. We're just tracking like these are the homes. Those 65,000 homes were priced at $395,000. There are signals in the data that are less strong about future sales prices than we had a year ago. So looking at the asking prices are up 0% year over year. We track price reduction. So the percentage of homes on the market that have taken price cuts, there are more of those now than a year ago. So you could. So 32% of the homes on the market right now have had price cuts. Last year it was like 29 right now. So it's not catastrophic. It's normal to have about 30% of homes take a price cut before they sell. But it is notable that it's climbing now. It's notable that the April now is really the highest April we've seen in like a decade. So those are soft ish signals for future home sales. So houses on the market now, it doesn't get its offer, it cuts its price, you know, in April and maybe gets an offer in May, it closes in June. But you can see right now by tracking those, the price cuts data is not, not skyrocketing. Two years ago in, in April it was starting to skyrocket. We could see exactly what was happening.

So just a word here. Remember, we're talking about the entire country. We are talking about a giant geographically diverse country and we're talking about all price segments. So multimillion dollar homes to the cheapest starter home or shack, right?

Yeah. But you can use as a rule of thumb about a third take a price cut. Some markets, you know, like Phoenix are typically more like 40% take a price cut. It's more common, there's more inventory, there's more investors. Things like that happen. Some of the, that chronic shortage California markets is more like 20% take a price cut, but, but about a third. And so when more than that are taking a price cut, like that's an indicator of weak demand. And Fewer. It's because there's hotter demand. And so right now we can see starting to climb and there are more on the market now with price cuts than any time in the last decade. So that's. It's soft. It's not super strong soft data.

Because, because, you know, this is a psychology of the seller that is the issue here. Right. If the seller's expectations are up in the clouds, it depends where you are in that cycle. Like, are. Is the general mentality of sellers in a more realistic frame at certain times? Or is the general mentality like, oh, my neighbor's house sold, so mine's worth a hundred grand more. And you know, it's.

Yeah, well, you know, of those, that 30%, sometimes it's. It's a crazy seller. Sometimes it's strategic. Sometimes, like there are different reasons that a house might be overpriced and do a price cut, but about a third of them take a cut before they sell. In a hot market, it's fewer than that. The other thing we can see when we're looking at the sales prices here, the price of those contracts is in June and October, September of 22, we could see big steps down in prices. And those were the moments when interest rates jumped and consumers stepped back. And we could see the immediate impact on sales prices. And it didn't make it into the headlines until six months later. So if rates were to jump right now, the price growth here can, you can see, could drop in a couple of weeks very quickly.

All right, interesting. Okay, Mike, give out your website. You cater mostly to the real estate community of agents out there that need data for their clients and their sellers. It's always great to have you on. You're just a wealth of information. Go ahead and give out your website if you would.

Yeah, we're altos research. Altos research.com and you know, if you need to understand the market and you need to communicate with buyers and sellers about what's happening in the housing market, go to Altos Research. You can book a free consult with our team and we can show you how to talk about the housing market with homebuyers and sellers right now with authority. With authority, with expertise.

Thanks always for joining us.

All right, Jason, thanks. The following is a blog post found.

On jason hartman.com blog and assessments on how infrastructure construction affects estate costs. The integral analysis. In the increasingly complicated urban development scene, the relation between infra projects and property values is a considerable factor deliberated upon by many investors and scholars. Infrastructure like transportation networks and utilities as well as public spaces areas it also comprises. Services such as water pumps and drainage are all essential factors that influence land value in their immediate vicinity. This article aims to shed light on the complex outcomes of infrastructural enhancement on a residential and furthermore commercial property's value with reference to both positive and negative consequences impending on the real estate market. Understanding infrastructure development 1. Defining infrastructure the term infrastructure is defined as an extensive network of buildings and facilities which are of vital importance for the proper functioning of a society as its advantages including roads, bridges, public transportation, utilities, water, electricity, gas and communication networks. 2. Types of infrastructure Projects Infrastructure building can be regarded as either transportation projects, e.g. transportation by a taxi, power system expansion, e.g. water and sewage networks or social infrastructure development, e.g. schools, clinics, parks. 3. Economic implications Infrastructure projects launch usually requires big investments entailing raising output and employment, fueling economic development and improving community connectivity across the regions. Impact on property values 1. Appreciation in property values Nearness to personal transport, easy access to services and attraction of the area have boosted the property values and people tend to spend on better property even if the initial amount is higher.

2. Transportation infrastructure the instances of the possessions which are not too far from the major roads or transport systems the residents can now sell for good due to the fact that they offer easy commute and interconnection with other places. 3. Utility Expansion Utility infrastructure should also be upgraded to include water and sewage systems which will be useful in this regard by providing reliable services and environmental sustainability.

4. Social infrastructure Social infrastructure like schools, healthcare facilities and recreational amenities all add to the value of surrounding properties and their presence often enhances the desirability of these areas. Factors influencing impact.

1. Location specificity the influence of infrastructure development on property values differs from area to area because various factors such as urban versus rural settings, population density and the state of the existing property market always play a role. 2. Timing and completion Property values may experience increased fluctuations at different stages of infrastructure development with the highest accumulation of changes being observed during the anticipation and completion stages. 3. Quality of infrastructure the effectiveness of the projects including maintenance standards are also relevant factors that can contribute to the impact of infrastructure projects on the long term value of real estate.

4. Externalities Infrastructure projects may also incur negative externalities such as noise pollution, visual obstructions and increased traffic congestion and which can render their effects on properties secondary. Case Studies and examples 1. The High Line New York City the changing of a previous rail into a park skyline marked a tremendous growth in property prices in surrounding districts which proved that such as urban infrastructures brought about a great difference. 2. Crossrail London the Crossrail development, a major transportation project in London, has shown a strong correlation with a rise in real estate values along its route, an indication of the effect of infrastructure on the real estate market. Challenges and Considerations 1. Gentrification and displacement Increase in property values following infrastructure development may aggravate gentrification and eviction and thus problems of socioeconomic inequalities and community outlooks could lead to such conditions. 2. Affordability concerns rise of land prices may render some people and enterprises unaffordable and thus lead to elimination of social and economic diversity of the rest of community. 3. Equity and access it is core of the sustainable growth of communities and reduction of social gaps that allow the socially marginal groups to participate in the social economic development which is an outcome of infrastructure improvements. Conclusion in the long run, the constitutional impact of the infrastructure improvement remains the same. The dynamics of real estate markets will fluctuate either positive or negative way. However, they are not the answer to all the problems. Properties may become too unaffordable for many people, thus creating other matters such as equity, affordability and community development. Urban authorities, urban planners and other stakeholders can then strike the balance and offer an inclusive and stable growth that benefits the society as a whole by understanding how infrastructure and property values interrelate.

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