AIPIS 169 - President Donald Trump & The Future for Real Estate Investors with Daren Blomquist

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It's my pleasure to welcome a returning guest back to the show and that is Darren Bloomquest.

He is senior Vice president at Attom.

Data Solutions and that's Attom and executive editor of their housing news report. And Adam Data Solutions is the parent company for Realty Track. Last time he was on the show he was probably introduced as a Realty Track person. Darren, welcome back. How are you?

I'm doing great. Thank you so much for having us back. Despite the name change, I'm still getting used to it myself, to be honest.

No problem at all. You know, that actually segues right into another big name change we have going on in the world and that is the new President elect, Donald Trump. What is that going to happen, going to mean to real estate investors? What's it going to mean to the market, the economy? Let's just take it broadly from there because I know you've been getting some calls from different media outlets on that and just let's get your initial thoughts.

Yeah, I think generally, you know, it's, it's probably going to be a positive thing for real estate investors and we can dig more into that going forward, but in a little bit. But you know, certainly when it comes to, when we think of monetary policy.

I do see him being more slanted toward.

And for a few things, he hasn't given a lot of hints, but not necessarily wanting to keep interest rates low as they have been. In fact, he's been quoted as saying something along the lines of.

This has kind of been artificially keeping interest rates low, which.

Could be creating another bubble.

And so I would expect, and the Fed was already moving in that direction, of course, but.

I would expect to see interest rates start to go up. Actually, we've been expecting this for several years now and the prognosticators have been saying it for several years. But on that front I would expect to see interest rates, interest rates rising going forward in 2017.

Okay, so maybe some real urgency for real estate investors to get off the dime and buy up some properties because the interesting thing there is, I'm not saying that Trump is going to be some great bullish factor in the real estate market, maybe he will be, but I'd rather hear it from you. But all I will say is that in comparison to Hillary, certainly Trump is the choice of investors of, you know, economists. Well, except for Paul Krugman, probably, but he's the business guy. He's on the conservative side. I mean, you know, you saw what the stock market did when it got the news. Trump administration is generally pretty bullish, I think, for the economy and for markets, you know, certainly in comparison to a Clinton administration.

But, yeah, but I would agree with that.

If we see.

Go ahead, go ahead and argue with that. But I want to just give you one more piece of fodder if I can.

So if we see rates go up.

And at the same time we see a strengthening economy, new trade deals potentially that are at least his claim, better for the US if we see jobs come back, if we see the very controversial wall built, I think that's going to push wages up. I mean, there are some real, very significant things. All of these things are so complex, the way they interplay together. But. Yeah. What are your thoughts?

Yeah, I mean, just, I would say, you know, it cuts both ways. You do have a free market guy coming in and that generally is, I think most entrepreneurs, real estate investors, thinkers are going to be in favor of that. That's the playing field they want to operate on is one where it's free market and you make your own opportunity. Philosophically, yes, I do think. But the point is it cuts both ways. These low interest rates have been really nice for real estate investors, just like they have been for many others. They've helped prop up this housing recovery, I would say, undoubtedly.

Part of the free market of letting those interest rates not be artificially held down, but rise. To the extent that he has the, the power to do that or the influence to do that, then that could be, you know, could be uncomfortable for those who have gotten used to those super low interest rates. And I think that you could say that probably on some other fronts as well. Certainly, though the, if the wage, if the wage problem could be unlocked because we've seen this recovery really has been largely a wageless recovery, and that is causing affordability issues, which is starting to raise concerns that we're seeing in other bubbles. If he could fix that problem and get wage growth going, that would be huge because it would allow the housing market to continue to grow. We've seen our affordability report shows since 2012, when home prices bottomed out, home prices nationwide have gone up 60%, which is crazy.

Wow, that is truly shocking. Yeah, that's amazing.

It's even more. In some markets.

Average weekly wages during the same time period have gone up 10%. They've actually gone up, which is a good thing. But they've been anemic in comparison to home prices. That means in order to support continued growth in home prices and sales, you are going to need to see wage growth start to play catch up. So that could be a huge influence if he's able to do some of the things that he's promised on that front.

Yeah. So here's the combination that's interesting. If you get an environment where usually that's a trade. Right. If you see higher interest rates, you see softening real estate prices. And the rule of thumb There is every 1% in interest rate is equal in either direction, is equal to about 10% in purchase price. You know, it being a wash. Right. So if rates go up by 1%, which, depending on what rate you're looking at, is really maybe a 20% increase or so. Depends what rate you're looking at, obviously, and what base you're coming from. But if they go up 1%, then you need to see prices come down by 10% to make that be a wash, that equation. But if you see rates come up and you see the borrowing costs get a little more expensive, as it should be. I mean, like you said, and Trump has said, it's artificial, we all know this. But then you see it at the same time where you see wages strengthen, you could see just an overall boom in the market. Interestingly, in a rising rate environment.

Yeah, yeah. If those levers go, they go the right way.

Certainly that could happen.

I think it is a very interest rate sensitive market, though, without the wage piece.

You more likely are going to see the first scenario where home prices soften or even go down.

Until you see that wage growth. I was looking back just yesterday.

Not even at sales prices, but at sales volume. The year over year change in sales volume. We were seeing from the end of 2011 through.

Early 2013, consistent year over year growth in sales volume. When we saw interest rates, I don't know if you probably remember this, back in late 2013, early 2014, we did see interest rates, they had been going down and then they had gone below.

Well below 4%. And then they spiked back up at the end of 2013 above 4%, which is of course still very low, but we saw almost an immediate impact sales and sales volume and demand. Through basically end of 2013 through most, most of 2014, we saw sales volume down on a year over year basis. And when interest rates finally got back below that 4% in.

Late 2014, early 2015, we have now since then seen consistent rises in sales volume. And that tells me, and that's just nationwide, I think if you looked at some high priced markets, you would see interest rates having a big impact on demand for property. So that is a big deal. But I'm of the opinion that it is better to.

Let those interest rates float up because at this point I do see early signs of a bubble, not that we're in a bubble forming and they're somewhat artificially supported by those rock bottom interest rates.

Okay, so just explain that a little bit. In other words, low rates create a bubble because they're artificial. Everybody rushes in to borrow the cheap money, of course, and basically the market becomes, if you will, over subscribed. Right.

And then rates start to float up to where they should be in reality when they're not artificially suppressed. And then you see that demand taper off. Now, of course, we're only talking about prices. We haven't discussed the other side of the equation, which is rents. So yes, you know, these, these are always, this is, you know, the great thing about income properties, a multi dimensional asset class. And we're not, hopefully we're not investing based on appreciation because everybody that does that eventually loses, you know. So, you know, we're, we're doing the combination of the outlook for prices and, and cash flow, of course. But what are your thoughts about that?

Yeah, that's, that's a good point. And it's, you know, it's. Artificial is such a loaded word. But you know, I mean, the interest rates have been supporting rises in home prices that are unsustainable. And so there's only so much interest rates can do to continue growth. Really the key is.

The key is wages here, and we've talked about that. But keeping interest rates low is really, there's no, there's not a lot more that that can do for the housing market I think.

Going forward. And then I think you strike on an interesting topic there that I guess doesn't necessarily have to do with Trump, but.

His attitude toward home ownership is going to be interesting because homeownership rates, despite these low interest rates.

Have not moved the needle on homeownership rates.

They're pretty much at 50 year lows still.

That's actually good for investors. The Interest rates are good for maybe if you're a flipper and looking to sell to someone who wants to get into a home at a low interest rate. But for the income properties, you kind of are getting it good on both sides. You're getting the low interest rates on the acquisition side, but you're also getting.

A lot of demand for rentals. And there just seems to be a paradigm shift in the country where.

The younger buyers are not moving into homeownership as quickly. And so that is going to be good. Now, whether he tries to address that, that's not something I think he's talked too much about, other than criticizing the fact that we're at a 50 year low in home ownership rates. But that could.

That could be an impact on investors. But right now, it's a good time to be a landlord.

Yeah. By the way, I don't know what you meant by that statement, Darren, but I say it could be a very positive impact because that just means more rental demand. I'm the total maverick in this statement I'm about to share. Everybody in my industry wants to hate me for this one, but I think the homeownership rate should be around 55%. It should be lower.

I don't think it should be high. I don't think high homeownership, I haven't subscribed to that idea that it's just good for everything. I don't think it's that great. I think this younger generation, the millennial generation, they want to be able to move to where the jobs are. Mobility is key for them. That's the best thing you can have on a resume, as I always say, is mobility. Homeownership in the concept of the sharing economy. And you know, people that have massive student loan debt, they have a, they have a home without a mortgage or they have a mortgage without a home attached to it. Right. Basically with their college loans. And you know that mobility can be a good thing. So, you know, I don't know, I just kind of don't buy into that theory. Maybe you don't either, but most people disagree with me.

Yeah, no, I don't necessarily either. I don't think that there should. I don't think we should try to push homeownership rates higher. Let the market decide is my opinion on that. And, you know, investors are in a great position if it continue to stay low because that's going to just continue to put upward pressure on demand for rents. And I think also single family rentals especially.

Be given that these Millennials still will, I think will eventually hit points where they're hitting milestones, where they'll want more of the house as opposed to the apartment situation, even if they're not buying that property.

Yeah, very interesting. Well, what else would you like to say? I mean, what haven't I asked you or what didn't we dive into? And, you know, if this interview was a few days earlier, before the election, what else would we have talked about?

Yeah, I think, you know, one huge piece here that.

That is, you know, a big difference between the two candidates is regulatory in terms of, toward the, toward the banks, the consumer. And it all centers around the Consumer Financial Protection Bureau, which I just read last night. He that's one of the few cabinet posts I've seen that's been floated out. There is.

Well, actually for the Treasury Department. Sorry. But for the Consumer Financial Protection Bureau.

I bring that up because Jeb hints gnarling that the representative from Texas who has been very anti CFPB and also anti Dodd Frank, which created the cfpb.

Which, by the way, I'm so glad I was going to ask you about Dodd Frank. I think besides repealing Obamacare, I think one of the best things Trump could do is repeal Dodd Frank.

And that's the talk. And so that's something that's very concrete. And I think will.

Could have a very big impact on the real estate market, huge lenders and servers. And I actually think.

One piece of that we could see happening is a temporary.

At least I think temporary uptick in foreclosure activity as the servicers are in an environment that's more favorable to them and where they feel like, okay, I can foreclose. I don't, you know, I mean, I.

The whole, you know, federal government is not against me foreclosing on somebody. And so I can move forward with that. And there's not going to be as much scrutiny on that. And we still believe, not in every state, but there are a good number of states where there's quite a big backlog of foreclosures from the last housing crisis that haven't even come through the pipeline. And I think we could see related to that CFPB thing.

That impact increase in foreclosures. But of course, on the flip side, lending on the origination side, as opposed to the servicing side, that could certainly have an impact as well and loosen up some of the very tight lending standards there.

Yeah. So in other words, I mean, I believe that the banks have, well, not the banks even, but the government has Overcorrected. I think the lenders are still being far too conservative. Of course they were way too liberal before the crash and that part of that caused the Great Recession, obviously. But the pendulum needs to swing back a little bit. But at the same time, as you were saying, Darren, we need to give lenders speedy smooth foreclosures so that if they have defaults they can clear those properties, they can get them off the books, they can get their money out and there can be price discovery that just makes for a much better marketplace, a much better economy overall. You got to have those two things at the same time. But if Dodd Frank is repealed, the lending standards will get a lot looser. I mean that would be my prediction at least. Maybe even in a higher interest rate environment. The ease of qualifying will be dramatically changed and the limit on the number of single family homes an investor can finance will be increased. I mean that'll just have major, major impact on the market as you mentioned.

Yeah, I think so. And one interesting thing in our last just to plug our housing news report a little bit, our newsletter.

In the October issue we talked, we used our data to look at really the big banks are getting out of the mortgage business because of all these regulations. We looked at the title of the article written by Octavio Nouri, one of our writers here is Big Banks Cede market share to the non Banks. What we're seeing is just an amazing. If you look at the market share of Wells Fargo Compared to five years ago, it's down 64%. Bank of America is down 67%. Jchase is down 9%, not as much. But then you look at someone like Quicken Loans, their market share is up 491% over the same time period. One of the new players, calibre home loans, I don't know if you've heard of them, is up 3,000% over the last five years. It's really interesting. I think that's a lot of a result of Dodd Frank.

It's decreased competition in the marketplace these big banks have been getting out. That could draw them back in if there's, there's less.

Regulation there.

Very, very interesting. Now you did a recent report about foreclosure activity saying that it had increased pretty significantly. Tell us about that and what do you attribute that to?

Yes, we saw a 27% month over month increase in October and we just released this this week.

In foreclosure activity and it stood out to us because we usually don't see that much volatility month to month in the foreclosure numbers. And it was the biggest month over month increase we've seen since August of 2007. So I think somewhat coincidentally that ties back to right about when the last housing bubble was in the process of bursting. I'm not saying that we're in another one, but that stood out. And when we dug a little deeper, some of the other pieces of that were that it wasn't just these judicial foreclosure states that we've known have a big backlog of foreclosures tied up that saw increases in foreclosure activity. It was some surprising states, places like Arizona, Colorado, Georgia, where we haven't seen that they've mostly cleared out the backlog. And so what we're dealing with is more new loans, loans that have been originated since 2009 that are, are defaulting in greater numbers now. They're not anywhere near the peak of the crisis. But that was a little bit of an eye opener that there is still risk in this marketplace even with all the tight lending standards and all that there is risk. And we're seeing some of that come out in October. Whether that continues will be interesting. I do think that we'll see an increase in the coming months in part because of a decreased scrutiny on banks. In part, there is a specific issue in Florida where the Supreme Court ruled just at the beginning of November in favor of lenders and we expect to see more foreclosures there as a result. That kind of will loosen up the logjam in Florida.

Right, Right. So it's good that you bring this up because I think a lot of people have this faulty perception about this. And whenever you hear statistics or you read them.

You'Ve got to really think about the dynamics of all of the interplays here. And this doesn't mean necessarily that, hey, this is a sign of a downtrend in the market. This is old inventory that, I mean, probably should have been foreclosed on a long time ago, but it was just harder for the lenders to do it back then. And now that it's easier because of some new legislation, it's just clearing old inventory out of the pipeline, right?

Yeah, that's right in most cases. And that's what we've been seeing. We've been seeing this kind of very long tail of foreclosure, distressed properties left over from the last housing crash that have just taken forever to move their way through the pipeline. And that's not good for the marketplace overall. Like you mentioned earlier, oh, it's terrible.

You got a price discovery. Yeah, Right.

So. And actually policymakers, I think.

Who are now realizing some of the unintended consequences of cracking down on foreclosures. And there was good reasons for that, but that has resulted in this somewhat dysfunctional foreclosure process in many states across the country. I think we're starting to see that shift back and policymakers are realizing, hey, we do need actually an efficient foreclosure process to keep the marketplace fluid.

Yep, Absolutely. Absolutely do. What are your thoughts on any predictions on what we can expect over the next year into 2017? I mean, we've got a new president. We've got a. This is going to be the most interesting presidency ever. Love him or hate him, it's just going to be interesting as hell. I mean, like, I posted on my Facebook when I found out, I said, I'm never going to be at a loss for podcast content anymore.

Right. Yeah. One thing I'd like to just add that I think is kind of an interesting piece.

Trump mentioned this in his acceptance speech about rebuilding inner cities and rebuilding infrastructure. And he won largely because of the Rust Belt states up there. Pennsylvania, Ohio, it looks like Michigan, Wisconsin. What's really interesting to me is that we're seeing a lot of real estate investors from blue states invest in those red states, buy rental properties in those red states. I think this is going to be even. That's been good business for them already.

But if he's going to be, I'm guessing he's going to be investing. When he's talking about rebuilding inner cities, he's talking about rebuilding those Rust Belt cities and investing in those places. And that's going to be good for real estate investors who are already there or who are going there and buying property there. That's only going to, I think it's going to help them going forward.

Sure is very interesting. Give out your websites and tell people where they can find out more and get some of your great reports and so forth.

Yeah, definitely. RealtyTrack.com is where you can go and subscribe to get full access to our nationwide property data for 150 million properties nationwide. And of course, the foreclosure data is a piece of that that most people know about, finding the foreclosure properties out there, but also researching any property that you would want to nationwide. So realtytrack.com that's with a C at the end. We, you know, for folks who are interested in creating marketing lists using our data of homeowners to reach out to. We have a great tool for that@marketinglists.realtytrack.com marketing list. You can go in as a self service tool, find homeowners who may be good opportunities for reaching out to for purchase.

With there's 20 different filters there. And then if you're interested in getting our I didn't tell you this in advance Jason, but I did want to offer to your listeners anybody who's interested in getting our Housing News Report, which is our award winning newsletter that goes out every month to subscribers across the country. It's usually $99 a year, but we're be happy to give your listeners one free year to try it out and see if they like it. If they want to send an email to Marketing.

That'S marketing T T O M D A T a dot com.

We'Re happy to set them up with a free one year subscription.

Fantastic. Darren Bloomquist, thank you so much for joining us again. And it's going to be an interesting year, that is for sure. I think things are pretty bullish for real estate investors. I think the Trump election, even if you can't stand all Trump, if you're a real estate investor, it's probably going to be pretty good for you. Thanks for coming on and sharing the first report since the election with us.

Yes, happy to do it. Thank you Jason so much for having me.

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