428: The Coming Perfect Housing Storm, The Dark Side of Airbnb and Short-Term Rentals with Melody Wright

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It is my pleasure to welcome Melody Wright to the show. She is a housing analyst and strategist and involved in real estate technology as well. She has some really interesting insights onto the market and I want to get those from her today. Melody, welcome. How are you?

Thank you so much. Thank you for having me. It's a pleasure to be here.

It's good to have you. So it sounds like you are really looking at some different data than a lot of the others out there and we want to get into that. But first tell us about your background. You have extensive experience in the mortgage world. Just give us an overview of your background.

Sure. So I fell into mortgage by accident in 2006. For lack of a better idea, I fell into a company called Rescap, which was a top originator and servicer back in the day as a project analyst. This was right as Cerberus Private Equity had purchased us and they needed kind of a Girl Friday to help them understand the business. So I was kind of in the FP and a group so really got my feet wet understanding mortgage both from an origination and servicing side in corporate finance. And then kind of once we got into a lot of trouble, I helped with our consent orders and AG settlement. And those for people that don't know, are kind of the slap on the hand that we got from, you know, all the regulators for administrative errors in mortgage servicing. So once I kind of did that I went on to help with our bankruptcy. GMAC Rest Cap filed bankruptcy in 2012 and after that my servicing president came to me and asked to help manage the default crisis. So I did that for a while. After that I went out to a whole bunch of non bank servicers and originators trying to help sort of, you know, with process efficiency, et cetera. And all of this compliance came down on our heads after the crisis. But while I was doing that, I realized technology was kind of the only way we were going to get out. So started building a lot of different wraparound solutions for mortgage technology and then kind of left and Went out on my own last year, created my own company and have been involved in kind of still overseeing some mortgage books, but building technology for the space.

Okay, great. So you're still in the mortgage business, it sounds like. And mortgage. Is that really your main, like, is that your main income source mortgage?

I would not really the technology component. I'm working on a. Actually a short term rental technology right now, so.

Okay.

Yeah.

Okay, great. Okay. So tech is your main thing, it sounds like.

Right, Yeah, I kind of don't have a main thing. I'm a 25. 25. 25.

25.

Kind of girl.

Got it. Yeah. A lot of us are that way nowadays. I get it. And by the way, I love how you said girl Friday. I haven't heard that expression since I was a kid and my mom had a girl Friday. I love it. I love it.

Yeah.

Nowadays you might get in trouble for saying something like that.

I know I can say it, right? You can, you can say it.

I can't. Yeah, exactly. Melody, I was reading some of your stuff and watching one of your videos. You're rather pessimistic about the housing market. So we might debate that a little bit, but tell us why or if that's actually true or make the, you know, there's obviously always a lot of layers to this stuff. Right. So I'll let you explain.

Yeah, housing is, you know, housing is very hard to understand. It's like the Titanic and it's, it's very local until it's not. And so I also believe in the business cycle, you know, and that. But I have to be honest with you, one of the reasons that I am a little pessimistic, I'm not a crash bro. I, you know, I'm not. People call me a doomer, but in reality I'm just talking about the path. I'm not as interested in prediction and I think the headwinds that we have right now. We've heard a lot about a sort, sort of inventory being short. And I think that that is because a lot of people don't understand what structurally happened after, you know, how we got out of 2008, which is Wall street came in, you know, sort of aided with Fannie Mae and Freddie Mac or the gscs to sort of, you know, take these properties off the hands of the banks. And I happen to be one of those. I was at those auctions, you know, watching this happen. And so what Wall street did at that point was kind of, you know, that was the long term rental play. Everybody started getting involved with fixing and flipping e and the short term rental play kind of entered the scene. And you know, there's nothing wrong with that in terms, I think there's always going to be a short term rental market. But as with everything, when people get really excited, they get overexcited and so they start making, you know, with some of these DSCR lenders, for instance, people that would have purchased just one property instead purchased 10. And so they became really overly leveraged. And what a lot of people miss is that 30% of the market in the COVID boom were all cash sales. And so a lot of people are looking to mortgage as where the trouble is going to start. And now it's actually starting faster than I anticipated there. But that's not my main focus. I think these all cash sales weren't all cash sales. They were levered either through kind of, you know, loans on equity loans on crypto, these personal money money loans that wealth management does, et cetera. And then you have people.

So I want to, I want to make that a name Melody so people can understand that. So normal only. And I've done extensive analysis of the mortgage market and so have you, of course. And you know, it looks like people are extremely comfortable. Right. But what you're talking about is like what I'll call shadow leverage. Okay. So the leverage is not actually tied. Now, I don't know if I agree, but I just want to give this a name concept. Yeah, so. So what you're saying is the leverage is out there, it's just not tied to the property. So it doesn't show up in the statistics. Right?

Not in the same way. And, and quite honestly, if you're not looking at county records. So a lot of people will quote mortgage data. Well, that's mortgage data. The county records are more going to tell you how many sales there actually were. And so I'm talking about the sales that aren't tied to a traditional mortgage that were conceivably all cash. And a lot of what was happening is people would cash out refi of a larger property and, and then they would use that cash to buy another one. Because people, real estate is, you know, I think a good investment. It's a hard asset. Right. So people were sort of saying, what can I do with this cash? And so we had a lot of investors come into the market. And so I can't, I can't tell you an absolute number on this. I'm talking, you know, my anecdote, what I experience, I work with DSCR, lenders I talk to people, etc. And you know, I see the, the advertisements from PNC and other big banks for wealth management units that were trying to help people compete in the market with these personal loans. So you can dig into balance sheets, but it's very difficult to understand exactly how much of this shadow leverage is out there. So my thesis is multifaceted. That's one component.

Okay, so. So before you move on to the next component, that shadow leverage, though, doesn't show up in the real estate statistics necessarily. However, it does show up in general because we have all sorts of stats on how much credit is in the market, whether it be student loans, auto lo, you know, or just personal loans. We know what the government debt is, the corporate debt, the personal debt, the household debt. Like, it does show up. It's just not direct.

Directly tied to real estate. That's correct.

Okay, go ahead.

Yep. So, you know, that's one component. The other component, I'll have to say is the inventory. So one thing that I understood or kind of was putting this together last year and just seeing that the housing dynamics, how quickly homes were appreciating. Listening to Ivy Zellman, who has in this space for a very long time, you know, understanding.

But she has been very wrong too. I just want to point that out.

Well, I'm, I'm not here to debate Ivy, so I. But what I will say is that she has a proprietary builder survey. So there was a lot that she understood that others didn't. But I also think she gets some things wrong as well that I'll talk about. But what I do know about sort of my industry, the title companies, so this, the title companies are involved, whether there's a mortgage or not, is that they have terrible technology, terrible reporting systems. And so it is very difficult for anyone to understand how many transactions happened until much later down the road.

And so that's much later is what, two or three months later, you mean, right?

No.

What do you mean?

No? I think that because of these, you're pulling county records. We have over 3,000 counties in this country, some of which are not even having. Have any kind of electronic records. And so I believe we probably won't know exactly how many sales happened for probably another year or so. It takes a long time because there is no technology. And you have 3,000 independent little counties that, by the way, weren't staffed during COVID Nobody was there. It would take almost, in some counties, it takes already a year to record a mortgage and to record these documents. But in Covid it was even longer. So that's okay.

So let's just unpack that for a second. So I agree with you that some counties are very primitive, but those tend to be really small counties that sort of like they wouldn't impact the stats that much.

Los Angeles was on a year delay in Covid for recording.

Wow. But is that delay still true?

Oh, so we, you know, I can get you the stat after this, but I can tell you that there are counties till today that six to eight months delay in Los Angeles I, I can almost guarantee has not caught up. They're probably at a six months delay right now.

Okay. But you know, then I guess it depends what data you're using. Are you using MLS data? Are you using county recorder data? You know, I mean, with a combination of like MLS data and Zillow, it seems like, and you know, and Redfin does some great stats. I mean, it seems like you pretty much got the market covered.

No. So here's the problem. So, so I'm a believer in triangulation of data. So I don't look at one data source. So you've got county records, you've got over 600 MLS in this country. 600. And literally no one has connection to all of them. The, the site, the listing site that has that much connection is realtor.com and they are connected to 99.6, but not all those MLS's syndicate in the actuality Zillow has some of the like the lowest number of listings on its site. You're better off going somewhere like realtor.com and so a lot of people don't understand this whole syndication with mls, which is if you're a local mls, some people can choo choose not to send those listings to those bigger sites. That's one component. And then there's something that a lot of people want to say doesn't happen. But that's the pocket listings that essentially you can look at. There's a recent article in Inman about Austin where almost 50% in these certain neighborhoods in Austin during the boom were being transacted outside of the mls. And so people argue this isn't a big component, but it was big enough that NAR in 2015 was very worried. And I can tell you, I know.

There'S been litigation over the pocket listing thing. First of all, a pocket listing is a listing that doesn't go into the mls. A Realtor sells it, but they don't put it in the MLS to sell it. But usually I'd say almost always that Realtor is going to enter it in the MLS just as a comp after they sell it. So it's still going to be in the MLS ultimately, even if it didn't start that way, because they want to get credit for it. The other comment you made about syndication and some MLS is not syndicating. Well, every real estate agent wants as much exposure for their property as possible and so does the owner. So why would they not want to syndicate?

Because they want. They don't. That's not exactly true. They want to keep that to themselves. And so like, one of the workarounds people are using to sit for syndication is you can put a listing on for 21 days, is coming soon and market it. And this is an end run around the NAR requirements. And so what they'll do is they'll actually do all this marketing, sell that home behind the scenes, and as soon as it kind of hits, people start reaching out like it's through that coming soon period. And they'll be told, no, it's already gone. And it then creates even more of this fomo. And so there's, there's a lot of different ways and I think we make a lot of assumptions.

Okay, so let's just unpack that one. Melody, you're. You're really bringing up some great points here. I love it. So let's unpack that one for a second too. Okay. Why would an agent want to keep the listing to themselves? Right. They want to do that because they're greedy and they want to double end it or they want to. Or that broker wants it to double end within the company. So either the agent themselves wants to double end the listing and that means they get more commission, or the brokerage itself wants to double end it within the office. So maybe different. You know, some of These offices have 200 agents, right? My traditional company that Coldwell Banker bought had 65. Okay, so you know, they want to double end it within the company, right? Maybe. But the only time in which they can kind of like get away with that is in a strong seller's market. They usually can't get away with that in a buyer's market or a market that's not that strong. And you know the owner, the seller is not going to allow that if they can, because they want the most exposure they can get to get the biggest price. Right? So tell us about that dynamic.

In a frozen market, they, they don't want to list. They're scared because the seller. The seller, because everyone understands there was this great sort of Meme on Twitter last week of, you know, you have to stay strong, don't sell your house. But everyone understands if they list their house and they don't get that price and their neighbors are watching. Right. They could be the ones that sort of start the waterfall. And in this Inman article, I really recommend it to everyone really spoke to precisely is that they're holding it back because they don't. They, they believe it's worth something and they're being told that if, if they list it that likely they're not going to get that and they, and they're being told to wait. And so a lot of times these conversations are happening behind the scenes of. Because the seller is under the impression they're going to get more for that than they're. Than what they would get in this frozen housing market right now.

Yeah, you know, I'm sure all of this happens. I just can't imagine it's a very big impact. I mean conversations with agents like many times a day, you know, that are out there doing the traditional real estate thing. A lot of my friends do that. You know, I look at all the stuff they post in realtor groups on Facebook. I know that everything you say does happen, but it's just a little drop of water in the pond probably. I don't know, you seem to think.

It'S a big, I mean 50 in certain neighborhoods in Austin is not a drop. And I would say.

Right, 50, 50 is people that are not going in the MLS, you're saying, right.

Okay, so Austin. But it's so. It's all over the place again, I recommend everyone kind of check because that's really to your point, Jason, I think what's so prob. What people have problem understanding is it's not just one thing, it is several strings. And that's my thesis. And so that's just one. Fair enough.

Yeah. It's always many factors and that's why this stuff is not simple. But it's, it's many factors on the negative side and many factors on the positive side.

So those, you know, that's right.

Anyway, go ahead, go ahead. Take us to your next point. Point. This is great.

So, so kind of the next point I, I believe you know, really is on these short term rentals as a big part of it and just the over saturation. So something that Airbnb does, when you search a property in Austin, it's going to come back with only 300 listings. That's it. That's all you can see. And in the top it's going to say a thousand plus listings in this city. In reality, there's 14,387 listings in Austin, for instance, Sense for Airbnb and. Yep. And so then some people are going to say, well, that could include apartments now, etc, you know, a room. Yes. But on average, 85% of those are actually whole homes. And there's been a great study by Inside Air on Dallas specifically, who recently just enacted that legislation. So the short term rental market is over saturated by design. That is Airbnbs only. You, you can see the CEO going out this week talking about, you know, how they've, they're broken, they need to be fix because their only business model was oversaturation. The more listings they got that that was their growth plan. They talked a little bit about experiences, but that was it. And so they really weren't taking into consideration what happens to their host when a market becomes oversaturated.

Right. And typical Airbnb, Airbnb is such a sellout company. They're just a greedy big tech company like all the others. You know, they, they want to get so many hosts on their platform because it's not their expense. Right. Go get someone else to take all the risk. Right. And I'll tell you, Melody here, I'm going to agree with you 100. Because I have been saying for 12 years, Airbnb, I mean, go back and listen to my old episodes. I can't wait till the AI gets good enough to like search every little word in all my episodes. Because I'm going to use that like crazy. Because I was just right about everything except interest rates. I've been wrong about that many times. But, but anyway, I've been saying that Airbnb has never been through a real recession. Covid doesn't count. That wasn't a real recession. Airbnb is way overbuilt. And if you look at all of the massive increase in non primary beds in the world, that's what I call them. It's just insane. And the first thing people stop doing when you get into a recession is they stop going on vacation. I completely understand that. Airbnb is not just for vacation. Okay, but that's the big part of it, right? Yeah. And one of the proxies for that that I always talk about, I don't know if you've ever heard me say this is, look at the rise of all these new mattress companies. I mean, where did they come from? Where did Tuft and Needle, Casper Purple, all these other, all these mattress companies that came out of the blue was to satisfy largely a big part of their market was the Airbnb market. Too many non primary beds. At the same time that Airbnb had its rise over the last 12 years or so, I mean it started before that, but we didn't really notice it. So I'm going to call it a 12 year run. New hotel rooms have been built. Okay. It's not like hotels are going out of business. There's lots of hotels in the world and they're built. Right. And then you've got this massive expansion in Airbnb beds. So it just doesn't make any sense.

No. And you call it a technology company. It's some of the worst technology I've ever seen. Like, and I think this is, I call it, you know, fintech fantasies where people come in, you know, do a slightly build this really basic platform.

Right.

And then try to act like that. But every time you ask Airbnb about like their technology advancements, I mean there's just no answer. So I, I totally agree with you and that. And so that's one component. This. I. So I actually something I've been doing, I track 70 cities myself and you know, I list the listings for sale listings for rent as well as the short term rental listings. Because a lot of people, if you haven't been in this space, they're going to say, well, it says a thousand. I mean there's not that many Airbnbs. How they, how could this possibly be true? But it is. There's 7,000 of these things in Vegas. I mean like, it's actually unbelievable. And so many people actually built for Airbnb. So something else I was going to talk to you about, like that short term rental. I've done some spaces with some people that got out early and they were involved in groups like especially in Appalachia, kind of where I am now, where they would build specific homes just for short term rental and then they'd sell them on Facebook and they'd go in like an hour. I mean, and these Facebook groups are just out of control. And so everybody. And another thing I saw on the road and that takes me to build to rent. So let's leave short term rentals. So Bill street rent also worked.

But short term rentals, what give us a number on that. I mean the surveys I could find that there's like about 700000 short term rentals in the country. I say there's about a million. Okay. But that doesn't solve the inventory problem. Well, you don't think the inventory is a problem, but I'm calling it a problem.

We'll go there. What's available is a problem, but there's about 1.5 million out there in the US and so that's the legit number, theoretically.

Okay, so let's go with your number. So there's just over 500,000 homes for sale in the U.S. my idea.

600 now, but.

Yeah, well, 534,000. Okay, that's the number, right? That's the latest from Altos, at least.

Oh, no, no, no. We can't use Altos, and I can tell you why.

All right, all right.

Let's use the Fed's number. Okay, all right, all right.

But don't use NAR's number because it include the pendings and the contingents, and I don't like their number, but it's fine. If you compare it with the past, you know, then it's reasonable. It's the same comparison. But the thing about the Airbnb thing is some of those homes aren't really meant to be Airbnb homes necessarily. There were a lot of people in the world before Airbnb even existed. I mean, I've been in this business a very long time that had second and third homes, you know, people with. With some means. Right. And they didn't even rent the them. Now, Airbnb just gave them an opportunity to make use of them and get some income.

Million second homes in this country right now.

Okay, got. So not all of the Airbnbs. My point being that I agree that there's Airbnb shadow inventory. No question. I'm just saying. And in some markets, it's profound. Okay. Like, there's a lot of it in places like Arizona, in Phoenix, Metro, in Austin and Nashville and Vegas. Yeah, those markets are oversaturated with Airbnb properties. Okay, totally. But not all of those properties will ever end up hitting the market.

Totally.

Okay. Yeah.

And so that's just one component. Right. So then we go to the build to rent. And so what this was is, you know, first the Institutionals got involved and they sort of hired these builders to build these spec homes for rent, like American Homes for rent, Starwood, Blackstone, etc. And so there'd be whole subdivisions of these things built. And when I went on the road, it would be really kind of interesting. You would go to a subdivision that wasn't completed, there'd be one home completed, just one out of like 200. And it would have a little for rent sign. Right? In the yard. And so and these were typically in your excerpts like you know, the idea was supposed to be rental, theoretically affordable rental. But then, you know, the Institutional started pulling back American Homes for rent. They've become net sellers except for one all in the family deal recently between Starwood and Blackstone. But they have stopped this and American Homes for Rent has actually sold some of these subdivisions that they were building for rent as single family homes. And so what happened is the Institutionals got in. Then every, you know, Tom, Dick and Harry wanted to get in as well and they started this almost like a multi level marketing thing where but you would contact a broker and say, hey, I want one of these long term rentals. You know, and what that broker would do would go out and find and you'd read a pamphlet and sight unseen you would kind of build this for spec. And so that's a lot of what was happening. And now out on the road, what I've seen are tons of these empty subdivisions of this build for rent that is, you know, going to put pressure because then we move to the multifamily which you know, construction at this point is the highest since the 70s. And you and I might disagree on this, but we don't have the demographics to support it. And so what you're seeing in a lot of the same cities that have that over saturation of the short term rental and the bill for rent because they're the sun built happening cities, they also are getting a ton of delivery of multifamily. And I've got a great schedule and I'll share it with you later if you'd like to see it for a visual of what those deliveries look like in these cities which are already sitting at apartment complexes. That's correct. Multifamily apartment complex complexes. And so they're already sitting at a pretty significant above average vacancy even before kind of this multifamily is going to hit at the same time the built for rent and at the same time you're going to have some of this short term rental. And a lot of people, what they did is they pivoted from long term rental to short term rentals, especially if they were trying to get financing because you could use certain technologies in this space, like air, DNA, look up a property and it would say to you your average daily rent is actually X and your average occupancy is Y. But the SO one in one of my substacks, I do a great example of a property in Kyle, Texas which happened to be a property one of my mortgage clients has where it was a second home and likely built for either short term or long term rental. But the technology I was using said that they would get $600 a day in Kyle, Texas, which is 22 miles south. I can't imagine that that's not going to happen. And so a lot of people were led to believe that they would make a lot of money. And the DSCR lenders, I know, I know lenders in this space, but they relied on that technology as well and really kind of said, okay, what can you make? And so people pivoted from long term rental to short term rental because you can make $10,000 a month theoretically versus, you know, that 2K you might have made with a long term rental. And so that's another component. And then, you know, I talk about the demographics.

Okay, well wait, wait, wait a sec. You went back into short term rentals. So I thought we were talking about build for rent.

We were, I was just kind of, I just kind of gave an example that okay, that's these spaces bleed over. And so as people realize they could get more for a short term rental, they pivoted to that. And so, you know, that took a lot of the long term rental off the market actually. And so that bill for rent made a lot of sense as rents were skyrocketing during COVID because people thought that we had a posity of long term rental as well. But what had actually happened is people pivoted more to short term rental. So.

Yeah. So on the long term versus short term rental, most of those short term rental properties are more expensive properties that don't make sense as long term rentals. Okay. You know, some of them. Yeah, yeah. I mean some aren't, but most of them are higher priced. And the rent evaluations aren't good on long term rentals. And that's why these people are in trouble. Okay. Because they can't get the properties to pencil. Had they purchased a bunch of entry level houses, you know, they could just turn them into long term rentals and it wouldn't be a problem. Problem. But you know, when you own a $700,000 or 1.5 million dollar Airbnb property, you can't convert that and make it make sense. Not even close. Okay. So those tiers of the market are going to suffer more because they're going to dump a little more inventory into that market. But on the build for rent though, Melody, that's what I wanted to ask you about is who owns those build for rent properties? I Mean, I mean those are institutional owners with big money. And are they the ones you're saying are or will be in distress or ferret that out for us a little bit?

Well, they've already become net sellers. So these, they got out early 22. But it was your smaller mom and pops that kind of got involved was when I was down in Florida, was there recently talking to someone in this field for rent space. And it became local groups, like groups of smaller investors that wanted to do this. So just that's how it always goes, the institutional start. And then everybody thinks it's a great idea, they start piling in and, and things were starting to not pencil. And so this gentleman I was speaking to told me he's the lone voice still in the room telling people you gotta stop. Like, you know, and one of the big builders, he was working for an institutional, they were putting like 200 homes in the ground like every month. Like this was, it was a huge factory, but it all kind of died down in 22. And those institutions became net sellers, sellers. And then you had sort of more of your smaller investors kind of get involved. And those are the ones that I think, just like I was kind of explaining to you, I'm Joe Schmo, I want to buy a long term rental. You know, help me find one. Where can I find one? And I got to tell you, these people contact me on Twitter all the time, you know, looking to invest in a space, looking for that one property that's going to be, you know, their passive income. And so we have a lot of smaller mom and pops that took on leverage in this space. And this is where, you know, I wasn't going to talk about demographics, but I can move to mortgage now if you want to because it, it kind of plays here.

Well, you know, I'm kind of wondering on the build to rent space, I mean, I guess your point is that those portfolios that the institutional owners purchased are going to not perform very well in terms of appreciation. That's right. But like I always say, people only have three choices, buy, rent or be homeless. So if they stay in the renter pool, that'll ultimately put upward pressure on rents. I mean, rents have decelerated a bit, but they've decelerated from like a crazy fever pitch, so.

Well, I think that's because people misunderstand the inventory picture and how much of this is out there. And I, I did a great substack called down and Dirty that goes over the permit rents. How much are slated for build for rent out there. And so when you have the build for rent and the multi family together, they're going to be competing. And so a lot of the bill.

For rent, when the build for rent you're saying is single family homes. That, when you say that.

Single family homes. Yep. And the multi family.

So what you're saying, big apartment complexes.

Apartment complexes, is that in the excerpt you have a lot of this built for rent kind of farther out, but in, in nor more close to the cities you have these beautiful luxury multi family buildings that have, that are just popping everywhere and there's too many of them. And so these people are going to be competing. So your, your multifamily and your bill for rent as well as any of your short term rental people that want to stay in the game and maybe are going to list for long term rental, which we see that, and that's one of the reason I track all three is kind of how the listings move from listings for sale to listings for rent to short term rental. And so that's what I think a lot of people are missing is that the inventory is, is exploding in many, many cities. And again it's, you know, real estate's local, but then it becomes ultimately a national narrative. Go ahead.

Inventory of. Just be specific.

Oh, so I. Housing inventory. So I'm talking about all housing stock. And a lot of people I think miss this because they talk about one component. They talk about listed for sale vs what's listed for rent vs what's the short term rental. And so they missed that all of this housing stock that's out there because it seemed like it all disappeared because Wall street bought a lot of it up in 2012, 13, 14. It didn't disappear. It just went into the long term rental market. And then ultimately because those homes for sale were off the market, then our builders started getting involved and that's, we haven't even started talking about that, which is, you know, and they're building not just for, but the institutional.

The institutional owners own like somewhere around 3 million homes.

It's a lot. Yeah, yeah.

I mean that's, that's. I mean compared to mom and pop investors who are renting properties they own about. Well, there's a total of about 18 million or so, maybe 20 million out of the housing stock of 140 million units.

So those numbers are from when. Right.

Like so, yeah, they're, they're a little hard to get a handle on these numbers.

Right. Because they're census numbers and we don't get updates on housing stock Every year, like we do population, totally good, get it.

But I'm just saying like we're going with what we can get. Okay, so, but my point is that the institutional build for rent owners of single family homes are, that's a bigger number than ever. But compared to the broader market, that's still not that big a number.

So again, this is why this is multi layered and so all these numbers add up and so we, so I'll move quickly just us the demographic piece because here I, I very much. There was a Harvard study in January about how we pull forward household formation during COVID And so to me, and it gives some really nice charts and graphs and. Sorry, I, I would have brought it for you, but it shows basically what we can expect in the next, you know, five to 10 years. And it is less than what most people are thinking by just looking at pure numbers. And I think I heard on a show you talking about household formation as well. So that, that's a great, great study out there as well as let's take affordability. I think at this point now, of course, when homes become affordable, we'll have a lot of demand, don't get me wrong. But because of the unaffordability right now, everybody is going to be looking for the cheapest cost of living. And that's going to be a battle between, you know, homes for sale and homes for rent and the multi family for rent, rent. And so then we get to kind of the new build. So everybody talks about the fact that we weren't building because of 2008, et cetera, et cetera, and they look backward. And so to me, I'm looking forward at our demographics. We're not having babies the way that we used to. We have boomers retiring who by the way are primarily the owners of those second homes, third homes, fourth homes, and what they're experiencing right now and as they go into retirement is that the cost to carry that home is increasing exponentially. Especially in Florida where insurance is four times the national average. Your taxes are going up because they go off that assessed value in many states.

Right, but if that goes down, then your argument is, I mean the taxes.

You know, if it goes down, absolutely, but I'm talking about the next, yeah, three to five years. Right. So ultimately these boomers also realize if they were doing, and a bunch of them have contacted me, if they were doing long term rental, they're starting to get, hey, I could go invest in short term treasuries, I could go invest in money market funds. I can make my 5%. Why am I dealing with headaches of pipes breaking, toilets need fixing, etc.

You know, there's a great X account that everybody should follow. It's called. The guy's so pessimistic, but he might be right. It's called triple net Investor or something like that.

Oh, I see that.

Yeah. And, and he compares like here everybody wants these like passive income triple net lease deals. Right. And the one he had the other day was a Chick Fil, a land lease. You probably saw it and it yielded only 3.5%. You can make more money in treasuries.

Exactly.

But you know, to be fair, that's not really the full picture because of course there's. The land could appreciate the treasuries. You know, you can't get that for 30 years. Right, yeah.

Listen, long term, like, that's not my, you know, argument, but we've got 10,000 boomers retiring.

He did have a point, though.

Yeah, yeah. It's like, you know, know we've got those 15 million vacant homes. Those are money for some of these seniors, you know, and they're going to start kind of trying to catch that cash and this is a good moment because they could make it elsewhere because they're not going to be around for the next upcycle. And their kids, unfortunately, at this moment, again, they can't afford the upkeep. I mean, they, they literally can't afford it. So, you know, I think that, that, that is a big part of these seniors kind of coming out and unloading some of those homes. So the years, I think everybody was looking backward and, and very strong on the narrative that we hadn't built enough, not really realizing that all of those houses kind of got bought up by the institutional investors as well for long term rental. And we've become more of a rental country, which never thought that would happen in my lifetime. I remember being, you know, yelled at for not buying a house. And, and now, you know, according to certain sources, like Redfin, there's only four cities left in the country that, that it's, it's cheaper to own than rent. And so, you know, these are the choices that a lot of people are being faced with. And so the builders kind of went in gangbusters. And it's not just the nationals. So that's what I think a lot of people don't understand. People like Zelman, people like Zonda, they have a lot of the builders on their platforms and they have a lot of that inventory, but they miss that as soon as the nationals get involved. The locals also kind of just like you have a cv, CVS right next to a Walgreens, they come onto these sites, these mega sites and start building as well. And so it is, it's unbelievable when you go out on the road and go to one of the mega sites and you've got Lennar, dh, Horton Pulte, John Cannon, all these different. And then all the local builders. And so there's a real misunderstanding about how much of this new build inventory is out there. And because of the survey of construction is number one, a survey. This is how we get our permit data. There's been some misunderstanding of that as well. But I think you can even see the amount of homes yet to be delivered this year is a bit staggering. And what's interest, let's take Lennar for instance, in the last hubbub, you know, they basically delivered, I think around 38,000. And there was this big article how they said they went crazy, they tried to build too much. This was after they're kind of tax.

Probably saw Logan Matashami's article, right. He's been on the show before and he said new built, new home builders, only 76,000 homes. Right. And that's just not enough. Like is his point.

Well, no, so that. And that's. So I haven't seen that article, but I would quibble with this. Yeah. So Lennar itself is on record 70,000 this year, which is so that two like two times what they did in the, in this article where they're tell saying we went crazy. Etc. So one thing that the Fed doesn't capture is cancellations. And so, you know, cancellations are if I say, hey builder, I want you to build me a new home, we sign a contract, etc.

And then there would be tons of cancellations when rates went up because the people could no longer afford the house. That's right. What nobody talked about except yours truly is that those people that canceled would then go and buy a cheaper house as soon as their psychology got in line with reality. Okay.

A lot of them are building up, right? Like at least in what I've seen out there, they were building up. They were hoping to go from their starter home.

So they were hoping to go from an apartment and buy a first home. Right?

Sure.

You know, but they overshot, you know, when the, when the cost of money tripled, they could no longer afford that house. So, you know, I mean, one of the points that nobody catches Melody, and it drives me crazy is that people simply. And it takes A little time for them to capitulate, but they will just ultimately accept less. Because humans have to do something right? Like, yeah, maybe they're not going to get as nice a home as they expected. They're going to have to adjust their expectations ultimately. And that's exactly what happens. That's what happened with all these builder cancellations that happened when rates went up. I predicted that. I spoke about that publicly. I remember being on stage in Las Vegas with 1100 people in the room saying that was going to happen before it. Months, like six months before it happened. And then it did happen. And the news, I said, you're going to hear this in the news. I had slides about it. And the point is people then recalibrated and they bought a cheaper, lesser house.

House.

Tough luck. That's the way it goes. You have to, you know, grow up. You have to just accept less. Okay.

Right. And, but unfortunately what's happened is everybody, the builders kind of went crazy. And again, I'm not just talking about the nationals and they didn't see kind of the whole picture. And so a lot of these cities that I've been to, where I've traveled and there's a lot of video in my sub stack etc of these developments, people weren't talking to city planners. They weren't really understanding. Like in Round Rock, Texas for instance, mile after mile of new builds because they thought of Amazon, you know, warehouse was coming, which it never is. And so we have, and I'm saying this and people are going to freak out, but we have overbuilt and now we have a structural issue like a lot of what's being built out there is way too expensive for your regular home buyer. Everything I've seen on the road is up north of 400k except of about 3 to 4 of the hundreds of new build sites that I've been on. And so we built for luxury just like we built multifamily for luxury. So are there affordable homes out there right now? Absolutely not. Not. But what I think will ultimately happen when people understand how much inventory like this city I went to, Lakewood Ranch in Florida. You almost have two, two houses for every person there now. You know, when this gets real realized, similar to the way Lennar got its tax bailout last time, I think that the government will probably or likely come in and subsidize write downs as long as the builders sort of pivot to affordable homes. And they're already doing that. There's a lot of government subsidies out there for these for Affordable home programs. And it's going to become a very political issue in my opinion in 24. And so you're going to see a lot of the builders pivot to affordable housing. So that that's one another component that.

But can they like what, what does affordable mean? That's such a moving target because the cost of construction is so ridiculously high.

That's a hundred. That's exactly the point. And so so again likely the government will probably have to subsidize those write downs because there will be significant write downs. When you look out there today at all of the inventory that's north of 400,000 and you realize that, you know, less than $25,000, $400,000. Right. The you know, and less than 25% of our U.S. population can afford that. Like there is going to have to be write downs and so you know, it's a matter of time. But I do believe the government will likely intervene but it's not going to save some of the builders. And you know, I think think a lot of the smaller ones we'll start to see. There was a great, great tweet just this week from what he's an anonymous account at a top 10 builder and they had a Sunday phone call that where they were told that they were starting to, they're going to give the lots back to some of the developers. Now it's probably lots that were scheduled for 24 or later. But I think that with the 10 year, with 10 year treasury yield where it is in my industry that's we watch that thing with that happening, I, I think that you're going to see some builders sort of have to mea culpa here as we get to year end.

The question probably everybody is asking after this interview is so what do I do right? And the thing I always say is compared to what? Right. Okay. Your view of real estate is not so rosy, at least in the short term. But what else can you do do like what are you going to do if you have capital and you want to grow your capital? Do you have a recommendation? Well, you know, or is your recommendation real estate even with everything you said? I don't know.

So I think that if you can make deals. Pencil. Right. I think this is the time for negotiation. I think, you know, there are distressed sellers out there. We're seeing inventory increasing, you know, what some may call a non seasonal time. I think the distress is kind of starting and you can actually negotiate. But honestly when you can get a 5% return with not doing much of anything. It might just be a good time to kind of wait and breathe. But again, this is not investment advice.

The only problem with that 5% treasury return is it doesn't last very long. In five months, six months, you got to go do something else if you're not leveraged.

I'm a big believer in hard assets, but when people take on too much leverage, that's what really concerns me.

Yeah. Melody, we could obviously talk about this for three days, which I would love to do sometime. But just go ahead and wrap it up for us if you would, and give out your website.

Sure. So, you know, kind of just last words, I would just say that I'm looking at all housing stock and sort of layered on top of demographics. So, you know, what I would encourage everybody to do is something we talked about at the beginning of the show is not rely on one data metric. Right. Kind of triangulate late. But, you know, would love for people to check me out if they have questions about some of the things I've talked about here today. You can reach me on Twitter @m3melody M e l o d y my substack, m3melody. Substack my YouTube. M3melody, YouTube and of course on LinkedIn. Elodylody Wright. But I just want to say thank you so much and thank you for having me on the show.

Melody Wright, thank you for joining us. Appreciate having you.

Yeah, thank you so much. Thanks for having me.

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