CW 574 - Daren Blomquist of RealtyTrac Analyzes Geographical Housing Data

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Welcome to the Creating wealth show. This is your host, Jason hartman. Episode number 574. 574. Today our guest will be Darren Bloomquist, RealtyTracks Housing News Report. We're gonna get into some great stuff. You're gonna learn some topical stuff about the real estate market and what's going on out there. So I think you'll enjoy that. And on Wednesday, our, our episode will be more on financing. I know that's a question all of you are asking about constantly, where we will talk about understanding closing costs, good faith estimates or GFEs as they're known, loan points, title insurance, things like that. On Friday, Flashback Friday, we'll talk about securitized rentals and the potential loss decade for the American middle class. Maybe it's really a lost two or three decades and one of our clients is here with me and maybe we'll get into that in the intro portion of the show. We've got some other great shows coming up for you, so stay tuned for that. But I am here in Providence, Rhode island, and we've had a great Venture alliance weekend and one of our clients and our very first Venture alliance member is here with me, and that is Mr. Neil Robinson. Neil, welcome. How are you?

I'm doing great, Jason. Thank you very much for having me.

You're finally on the podcast.

It's been a while. I guess I don't talk enough.

You weren't on before. You've never been on?

No, never.

And you've been a client for many years. You're a great client. So we appreciate your business. And just to give the listeners a little background, how long ago did you discover. I guess you discovered the podcast probably right?

I Discovered the podcast through a friend of mine, referred it probably about four years ago now or something like that. And we did our first properties through you, I want to say, in the summer of 2020.

Okay. The summer of 2012. Like Bryan Adams. The summer of 69.

He's another Canadian. What can you say?

Yeah, Neil is a Canadian, by the way. And you live in Seattle.

I do. Bellevue, Washington actually.

With Bellevue. Okay. With your wife Elizabeth. And you guys have been to many of our events over the years. Neil, which ones have you been to?

I've been to six, now that I think about it. I've been to three of the Meet the Masters, obviously the two Venture alliance ones, right?

Yeah, all two of them.

And also one of the introductory ones you had in the summer.

Summer, like the creating.

Well, a Creating wealth one. Yes.

Yeah. Oh, I remember when you attended that. That was last year. Yeah, that's correct. Yeah. In Irvine, California. Yeah. Good. And so you live in Seattle and you are in the tech business. You work for one of the big tech companies. Feel free to say who that is if you want, but I'm not going to say it.

Yes, I run some. I work for Microsoft and their Dynamics AX team working on tax and budget planning. So it is definitely financial related, software development.

Good stuff. And then your wife works for, if you want to say her company, another big giant company.

Yes, yes. She'll probably have Elizabeth talk about it, but she works for T Mobile at the moment. She tends to jump around. Have done great work in a lot of tech companies.

Yeah, good, good stuff. And so you have a lot of great experience. You're obviously sophisticated people and very educated. It's always really interesting talking to you and it's been great hanging out with you this weekend where we started in and we met at the airport in Boston on Friday morning and then we flew over to Martha's Vineyard and that was kind of fun. Your first time there too, right?

Definitely my first time there. It was a really neat to hear. I want to say that our tour driver did a lot of names dropping.

Oh yeah, yeah. You know, whether it be Carly Simon or gosh, every celebrity boy, he knew him all, you know, the Clintons. He met Bill Clinton. He talked about that quite a bit. Yeah, yeah. So name dropping, huh?

Definitely. A really beautiful spot and a really nice piece of real estate that was surprisingly inexpensive for some parts of it. You could spend a lot. But there's also place properties that were cheaper than say our property in Bellevue, Washington.

Yeah, that's true. And so Martha's Vineyard. It's interesting because we, of course, everywhere we go, we. We look at the real estate market and. And think about it. And on Martha's Vineyard, basically, it looks like you can buy a house Starting at about $450,000 on up to about $29 million, I think was the one he showed us. That was that. That one on Starbuck Lane. Yeah, Not Starbucks, plural, singular. Starbuck Lane. Right. We just had a great tour. Saw some lighthouses, you know, had a nice lunch, little day trip over there, and that was a side trip, so we didn't do any real masterminding that day.

No.

But then we came back and we met everybody else in the group, and of course, it was you and Elizabeth. And then Fernando came over and met us on Martha's Vineyard, too. He met up with us and.

And Brandon.

Oh, Brandon was on Martha's Vineyard, too. Yeah, of course. Sorry, Brandon forgot for a second. It's been a busy weekend. But then we met everybody for dinner at the Dorrance. And wasn't that gorgeous? That was a beautiful, beautiful building, a beautiful restaurant. I mean, this old building. And apparently, as we were walking in, we saw a sign that said Federal Reserve. So that must have been some kind of Federal Reserve office or something there. I don't know.

Or maybe they're upstairs watching you.

Yeah, yeah, yeah. Well, they're always watching us, right? Because they're in cahoots with the NSA. I mean, there's a Federal Reserve branch in, what, St. Louis? Dallas, I believe. I haven't really kept track of, like, where they are, but there's like, what, nine branches or something? I don't know that there's one in Providence, is there? I mean, I don't know. Who knows?

I don't know.

It is the better. Check Wikipedia for that.

It's a small estate, but that's big for its size.

Yeah, yeah.

Other tour guide told us.

Oh, boy.

This.

This tour guide. Okay, so let's just go in chronological order for. So Saturday morning we got up, we met for breakfast, had this beautiful boardroom here at the Hilton that was really a gorgeous boardroom. And we masterminded and had breakfast for about three hours. Then our tour guide picked us up, and we had a private tour over to Newport, where we saw some pretty swanky mansions. What do you think of those mansions, huh?

It was like, you know, I traveled quite a bit, fortunately, to France and to Germany, and you see those big old cathedral, big manners, and this is exactly like that.

It's the era of American opulence. And I learned a lot touring those. You know, Mark Twain coined that term, I guess the Gilded Age. But it was not meant to be flattering. He thought that these people, I mean, Mark Twain's pretty populist guy, probably. He said that these people were just, you know, way too extravagant, and it was kind of obscene level of wealth. And, Neil, what was so interesting on that, the tour of those mansions is that they were going to bulldoze these things. They were.

They did bulldoze some.

Wow, that is sad. I mean, and remember when we saw breakers, probably the most famous of all the mansions, I think they said in 1972, that was sold to the Newport Historical Society for three, like, 397,000.

Yeah, something like that.

I mean, that's the real estate deal of the century. None of our deals are anywhere near that good, huh? No, they work. No, they're definitely not.

But then again, we don't have the same property taxes.

They.

They would have. Well, fair enough. Or the upkeep, but, gosh, I would have done that deal in a New York minute, you know? But, yeah, those. Those mansions were just amazing. I mean, that was incredible how those people lived. I mean, what they have in that house, they had, like, 40 servants.

40 servants. There were like, 36 or 38 rooms at the very top two levels that were all the servants bedrooms.

Yeah. And then they had, you know, multiple, like, a cold kitchen and a hot kitchen. And that was amazing. What the other thing that was amazing to me about these, you know, incredibly rich Vanderbilts and Rockefellers and all of these people that inhabited, you know, these Newport mansions as their summer cottages, they call them. These are hardly cottages, folks. These are mansions, okay? They are little palaces, really. And is that they were there only, what, six or eight weeks a year? Yeah.

That was incredible. Some of them stayed a little longer, some of the wives. But in general. And even then during that time, the husbands had only come back during the weekends.

Crazy. Because they were in New York, you know, doing the business stuff. What was also interesting, and I think you actually commented on this, is how they were basically their whole lives of these aristocrats, were that they had all these servants and they would have people that just managed their wardrobes. And it was like a play where they were basically always changing clothes all day long. Sometimes the women would wear seven outfits in a day because they would, you know, their servants would get ready to dress them for high tea in the afternoon, and then they'd have different clothing for dinner and different clothing for, you know, whatever. I mean, Amazing, huh?

Yeah. They say you think about the rich having a lot of freedom, but they didn't seem to have freedom at all.

In a way.

Yeah.

It was very much all they could. They were there, they had a big schedule to have to do. Swim at a certain time. It was just, I don't know, I don't think I would want that much.

It was a lot of work, in a way. Yeah, yeah, yeah. The nobility obligates, you know, noblesse oblige, as they say. And then Sunday morning, this morning, it's Sunday evening now, and we're about to see the blood red moon. The blood moon. It's coming out here soon. So we got together and we did some masterminding this morning. And then yesterday. Do you want to talk about a couple of speakers we had and, you know, some of the hot seat exercises and things? Sure, sure.

There were a couple of speakers. One of the speakers was a hard money lender, that was Mike. And he, he talked about a number of things on ways to invest other ways, from short term lending to the longer term lending. One of the things I thought was really interesting was one of the. When we do mastermind, we kind of go through things. He was giving feedback on someone on, you know, amount of money and what your, what is it your credit score was. And he said, well, you know, the impact of, you know, do you lease a car? And I said, sure.

Right.

And he said, well, you know, maybe there are issues with that.

Yeah, yeah. Well, that was interesting because I'd never really thought of this before and I think you could actually do that as a game plan. Now, you know me, I kind of like debt and I think that it's a powerful tool. It can certainly be misused. Obviously, you know, I don't have to, I don't have to even give that disclaimer or explain that. But if you're going to pay cash for a car, what he was saying, and this was interesting, I hadn't really thought about this, but it does make sense. If you're going to pay cash for a car and so say you're going to, you know, spend 40, 50,000 bucks for a car. Right. You know, nice car, not an incredible car, but a nice car for sure. Instead of paying cash for the car, lease the car, but get the lease and then just pay it off quickly because that would actually improve your credit score. Your credit score is largely.

And your debt. I want to be your debt to income ratio.

Yeah, yeah, yeah. Your credit score is largely based off the concept of borrowing money and the score showing how well you handle borrowed money. So if you borrow more, but you pay it back and you pay it back quickly, I mean, that's what I took from that, that, that would improve your score quite a bit.

Yeah, I took that. And also, just in general, there's a large impact of having that, that car loan because it's something that is, it's about the same as a small mortgage almost in terms of your monthly payment. And because it's, and they don't really track that it's over as much as short term. So it has a much larger impact on your, on your credit score. That's kind of how I read it. And your debt to income ratio.

Right, right. And, but the, the funny thing was, and when we were talking at lunch about this is that you wouldn't want to buy the car with financing and then quickly pay it off. You want to lease it. Right. Because if you lease it on a three, basically the way a car lease is structured is instead of paying the down payment at the beginning, when you get the financing and get the car, you pay it at the end. It's called a residual. Right. And so you might finance half of the car up front and then pay the other half by returning the car at the end of the lease or exercising the buyout option and giving them cash and buying the car. But the difference is when you buy it, you pay the full amount for the car versus with a lease, you use it for three years, for example, or four, whatever your lease term is. And then you, if you were to pay the lease off up front right after you get it, you get the use of the car for three years and then you turn it in at the end of that time and that's the down payment you never had to pay. I don't know if that makes sense to the listeners completely or you're looking at me like it kind of doesn't make sense either. But I don't know.

I don't know. It's one way, it's one way to think about it. I've never leased a car, but interestingly enough, my wife and I were talking about, about replacing one of our vehicles and we considered leasing just to be able to free up some more cash for an investment deal. So this is kind of neat. That topic came up for us.

Yeah, yeah. And I've leased a lot of them and I've only bought a couple of them. I usually lease and now I just have a car I own outright cash. But yeah, that was kind of an Interesting point. What about some of the other stuff, you know, we went around and did hot seats and I know that's something you particularly like and you're always very participatory on that. And our members calls you always chime in and have something to add, which I love it that you do that. Anything on that that you want to share?

I think that one of the biggest strengths of the mastermind group is the hot seats. And if you're going to ask me the biggest thing I get out of these events, to me it's that because what you're really doing is you're not just trying. People talk about issues or goals and they're very candid. You know, they're actually. I'll say that they'll be closer and tell you more than maybe you tell a family member in certain cases and you get great support from the rest of the mastermind team is basically all this mind power helps you solve or troubleshoot or think about an issue that maybe you're not sure about. But to others it might be more obvious and they give you other directions and hints on ways to follow. And then as they do that, as I've got my computer open, I take a lot of notes as we go. And a lot of these things I get out of it are things that I can apply myself really directly, even if the question isn't about me. And this example was the leasing one. I hardly got a gem that I could apply right away.

Yeah, yeah, good stuff. And I think that's super valuable. But you know, I think one of the other things that's really valuable like this afternoon after our mastermind today and one of the things that you and Elizabeth suggested is that we have a little more sort of business time we'll call it, versus recreational time. And I kind of agree with you. I think that we ought to, we ought to make a little more time for business. But you gotta do some fun things. What we did yesterday, of course we saw the mansions and today we went to a winery, we went to a maple syrup place, we took a hayride. You know, we always have all these meals together and I think a lot comes out. But maybe it's hard to quantify these just informal conversations where you're just having like friendly chit chats with people.

I think it's more than just chit bats chats in the example of the hard money lender Mike. After he did his presentation later on I was sitting beside him as we were touring the mansions and we were able to talk about Things and go from there, get some other ideas that kind of I could apply directly to Mike's mine as opposed to a more general question.

But.

Being able to sit, there's three or four of us talking about ideas about what else the master iron can do for us. To me, that's a lot of fun. In addition to getting to see all the sights and enjoy the wine. I didn't know there was much of a wine industry in Rhode Island.

Me neither. That was news to me. But we learned a lot about wine from that guy. He was a college biology professor, I guess, and he knew all about nature. I remembered a lot of stuff that I hadn't thought about since, you know, eighth grade and then college.

I never took biology in high school, so.

Yeah, yeah, absolutely. The other thing that's interesting about it is that one of the things I've really tried to design with this is have the speakers, of course, they're speaking to a very small, intimate group, but have all the speakers hang out with us throughout the weekend. And so we had a syndication guy come and speak, and then we had a hard money lender speak. And then, of course, Fernando talked about, you know, that his portfolio and compared it to if he had left his money in the Apple stock versus real estate investing. And that was certainly neat. But it's having, like, the access to all these speakers. And they came out here. I mean, Mike came from New York City. Okay. So he drove four hours to get here. Dave came from Pennsylvania, so he drove about, I think, four and a half hours to get here. You know, they just kind of hung out with us for the weekend, and I thought that was just super valuable.

Yeah. And I think that these. They talk about presentations. It's more of a discussion than if you had a larger group, you would have to be just a presentation, meet the masters or something where you've got a hundred pieces, people that are. That are trying to chime in, and it's. It's much harder to get the level of detail you want.

Yeah, absolutely. Absolutely. Well, good stuff. Well, hey, thank you so much for joining me on the show and for joining us this weekend. You're the first. You and Elizabeth are the first Venture alliance members. So I'm. I'm glad you finally came on the podcast. Thanks for doing that. And gosh, the other thing we were going to talk about, but of course we're running long as usual, is what Jeff brought up, another Venture alliance person here, here this weekend. What he brought up on Friday evening at dinner. And we'll Just mention that we need to have you back for a whole episode and talk about this. But the age old inflation deflation debate, right?

Oh, yeah, that was hilarious. Someone who speaks with so much passion.

He is slightly. Jeff, you're probably going to be listening to this. So you are slightly passionate. That's of course a total. You're very passionate guy. Yeah, yeah. So that was interesting. And Jeff's a CP in Newport Beach. We should definitely do a whole show on that.

Yeah, it's an interesting topic because in a lot of ways he's got so many wonderful valid things about his viewpoints on inflation.

And also on Saturday when we went to the mansions, it was sort of interesting, like we were trying to do the hedonic indexing. That's one of the measures of inflation and one of the ways they manipulate the inflation index of comparing the life of people that lived in these mansions, these gilded age aristocrats. Right. Versus life now. And a lot of us would argue that even though they had all this money, all this power, these beautiful mansions, in a lot of ways the life of just the typical middle class person.

Is better today in a lot of ways. It definitely is.

Yeah. Yeah. So very interesting. Good stuff. Okay, well, hey, let's get to our guest. Neil, thanks for joining me. And we got to have you back for a full show. Thanks. It's my pleasure to welcome Darren Blomquist to the show. He is vice president at Realty Track and executive editor of RealtyTrack's housing news report. Darren, welcome. How are you?

I'm doing great. Thanks for having me.

You're coming to us from my old hometown, Irvine, California.

Yes, that's right. Beautiful Irvine, California. It's extremely hot here right now, but usually we're doing really well in terms of the weather here.

Good stuff, good stuff. Well, hey, what is going on in the housing market? You know, the US is so unique. It's such a large real estate market consisting of about 400 distinct metro areas and I just can't stand it. Darren, I'm sure this drives you crazy too, when these talking heads come on television or the radio or whatever and they talk about the housing market as though it's one big entity. I mean, that's. They don't, they don't understand the concept of geographical segmentation, much less price segmentation and demographic segmentation. And there's so many ways to slice it and dice it. Right?

That's true. And there's certainly some things you can see, some very high level trends you can see with the national numbers. But ultimately it is. Each market is different, has a different set of circumstances. But, you know, that doesn't sound very good. And getting that nuanced about the data doesn't get the sound very. It doesn't work very well for the sound bites. But yeah, certainly we love to talk about. Our data is ultimately down to the address level. So we're extremely local. We're not, you know, the data we put out on the housing market is not a survey of realtors. It's not a projection. It's based on publicly recorded documents, sales documents, mortgage documents, foreclosure documents that tell us what's happening. And every single number that we have in our reports comes back to a document that was recorded for an individual property. So we love that we can, you know, we can roll the numbers up to that high level, but then we can get very granular, too, and see what's happening at the metro level. Those 400 metro areas you talked about at the county level, we have data for. On most of this data, we have it for well over 2,500 counties nationwide, and then even down to the, of course, city and zip code level and then address level.

So is that really what your company does? I mean, you're a data company, right? How did RealtyTrack start? I don't think I ever knew the answer to that question. I've had you guys on the show a couple times.

Sure. Yeah. Yeah. We've grown into really a data company. And really our roots are in data, too. In 1996, Gentleman in Southern California, it was foreclosure data. He realized that it was somewhat archaic, the way that realtors specifically learned about foreclosures. They would get printed list mailed to them. There were services that provided that. That was about the time where the Internet was really starting to come on. And so we thought, why not make this more efficient by posting this data on the Internet bulletin boards for people to find for realtors. And it was really specifically targeted at realtors in Southern California. But then we acquired nationwide foreclosure data around 2000 and started providing this nationwide. And consumers as well expressed very much interest in this data, not just for realtors or even the real estate investors who would have the connections to get this information, but for any real estate investor and any consumer. And the business really took off, what we call it, democratizing the foreclosure data. And then just in the past year and a half, we've expanded the data set even more to include not just the foreclosure records that we license and provide, but exponentially broaden it to include sales data, all the sales that are recorded on properties, as well as mortgages and property assessor information. So that wides the scope from Data on about 20 million properties historically that have had some type of foreclosure notice on them, to now 130 million properties that pretty much all properties that exist in the United States.

Right. So you've got, and I want to ask you about some of the trends, but just one more quick question about the industry, like your industry and your competitors, if you will. So you've got these different data companies out there and, and you know, many of them admittedly are more than data companies, but you've got CoreLogic, which I believe is no longer affiliated with First American, if I'm not mistaken. But I, I don't know, you know, CoreLogic, fidelity title has a data company of some sort. There's Zillow, Trulia, which is now one. You see, Redfin is sort of, I think, wanting to play in that space a bit. Little, little bit. You know, what's the distinction between those. Just quickly, I mean, the listeners want to know about the real estate market.

But yeah, very quickly, we would really consider ourselves in this data licensing space as one of three competitors. CoreLogic is the other one and Black Knight is the third one. And Black Knight, formerly lps, we're the only three companies that have the ability to license this data, to resell it. So actually companies like Zillow and Redfin would be customers of ours. Now they get the data and can play with it, but they are licensing it, they ultimately don't own it and they have restrictions on their use for it. Whereas we have the ability to license the states to other people, they are licensing it from us. So that is really the, the bottom of the pyramid is are these three companies that have the data, at least nationwide. There's other smaller companies that would have this locally, but those would be the three nationwide who have the ability to, who are collecting that public record data and then also have the ability to relicense it, resell it to other folks.

Yeah. Okay, good, good stuff. So you said at the beginning, we talked, we bemoaned the, the fact that, you know, the sound bites and the big media don't understand the old saying all real estate is local, which we fortunately do and our listeners do mostly at least. So what are the big high level trends that you could say are happening to the quote, housing market, unquote. And then let's drill down and talk about some specific markets.

Yeah, I think one that holds true, it's very broad based, that shows up in the national numbers is the number of sales being very strong this year. We're showing home sales through the first six months of this year are at an eight year high. The highest level they've been at this time of the year going all the way back to 2007. And that's not just nationwide, but that we looked at the market level and now for this, we analyzed 190 markets. So not quite all 400 of those markets you talked about, but the big ones, the larger markets, out of 190 markets across the country, 65% of them did have similarly an eight year high in home sales like we saw at the national level. So that's a big trend that's happening in many markets that home sales really, this especially in the second quarter quarter have really taken off. And this is, when I say home, I'm talking about single family and condo and townhome sales of properties that have taken off. That is one big trend. And we can talk about this further, but I think that's driven, there's a few things that are driving that. But it's really good news that this recovery is spreading. Not is broad based, it's not just an investor driven recovery, which is real estate investors really helped set the floor back in 2012 and helped this recovery kick this recovery off. But now we're seeing first time home buyers, other traditional buyers participate and that's why we're seeing those home sales numbers at eight year highs in many markets.

So the home ownership rate has been declining, which I oddly, no one will agree with me on this too much, but I think that's really a healthy thing. I think it was too high. I think that the real homeownership rate, if we didn't incentivize and subsidize and do all this stuff that we I don't think should be doing. I think the real homeownership rate should be about 50%, you know, about half.

Wow.

And I know, I, believe me, I get extreme, I get a lot of flack from you.

See.

Do you hate me for saying that?

No, I don't. You know, we are, I would say we're not completely agnostic, but we're fairly agnostic about the data. I mean we don't have, Honestly, at the end of the day it doesn't matter to us if homeownership rate is at 50% or at 70% like it was during the Height of the market. We don't have a membership that is depending on homeownership rate to be high. The people who are buying the data from us, they're just trying to determine how to react to how the market is behaving. I think 50%, I do have more of a personal rather than a company opinion, is that home ownership is good for many people and it does help them build wealth. But I also agree that we were, we were. The data proves that we were at a too high a level of homeownership. We were. Home ownership is not for everybody. And there was a segment of people who were buying homes who had really no business being homeowners during the last bubble.

No question about it. And you know homeownership in many ways, surprisingly, I know it's contrary to popular belief, but it's bad for people because it lessens their mobility and increases unemployment, doesn't let them go over the job, are when they need to move for jobs. So it's not all it seems to be. I used to completely believe that also. I changed my view on that a few years back but. But that's sort of another discussion, maybe for another day. So first of all, what do you see in some of the, the markets? I mean, you're gauging price trends. Are you also monitoring rent versus own population in various markets? You monitoring anything that might relate to cash flow or what might interest an investor in investing in a certain market?

I think pretty much all of what you said, you know, the rent versus own is one thing that stuck out to me. We do, we can tell from the tax assessor information if the property is a rental or. Well, I can't say for sure it's a rental. We can tell if it's owner occupied or non owner occupied. And certainly we're showing that. And I'm sorry, I don't have the numbers right in front of me, so I'm pausing here, but it is. There's about 16 million homes and I'm sorry, I don't remember the exact percentage nationwide. I can figure it out, out of about 80 million. So we can do the math there that we show as, as non owner occupied. And so those would be rental properties and vacation homes. And it's interesting to look at that from market to market. That's one of the things we track. And certainly as home ownership rates have gone down, that market has become bigger. It's been a market that Wall street has been attracted to, of course, as well, that kind of single family rental market. But yeah, that's certainly one thing we track. We look at home prices, which, that's another, I would say, fairly consistent trend across many markets, although this is where I think we start seeing more variation. But when we look at median home prices in July, our data shows us that they're at the highest level since September 2008 nationwide. But the rate of appreciation is slowing down pretty dramatically. We're up 2% year over year. Whereas even earlier this year and last year we were seeing double digit appreciation in home prices. And then when you start looking at markets, you start to see markets consistently, many of them slowing down to single digit appreciation and even a few going negative for a month or two this year. So there's definitely some softness in home prices that I don't necessarily. Just like you don't consider homeownership rates being bad thing. I don't think home price appreciation slowing down is necessarily a bad thing for the market, but we're definitely seeing that happening.

Yeah, there's this funny belief in just sort of everybody's psyche. And I think it's just silly, Darren, that a good market is when prices are going up like crazy. In a bad market is when prices are either flat or declining. But you know, it depends who you are. That should be a relative thing for everybody. But it's just strange how those beliefs become adopted.

Yes, I completely agree with that. And there's this feeling like if things are not continuing to go up at least very dramatically, then somehow the market is struggling. And this is to me, an expected cooling off that's necessary because of the affordability issue that many markets are facing. And so it's expected in many ways and it's actually a sign that the market is behaving rationally.

But I'm kind of curious. We sort of went down this road. That actually surprises me a little bit because it seems like every market that my real estate company is in is just booming. I mean, businesses, you know, it's, it's hard to find you like in other words, the deals, the deals ain't as good as they used to be. You know, to use a little slang here, it's getting just harder to get a good deal and to get that rent to value ratio that investors really like, that's becoming more challenging. Where are you say you're saying it's cooling off in some areas. Where, where, where do you see that by the way?

Oh, yeah. And so when I say cooling off too, I think the mental image is, oh, those markets are doing poorly, the prices are still Going higher, but at a much slower rate. I mean, I think certainly Phoenix is always a good market to look at. I consider it a bellwether market. And we've seen over six months now, close to nine months, I believe, that have been single digit appreciation. Home prices are still going up. And the other thing that makes some of these markets not feel like they're cooling off as much is there still not a ton of inventory available for sale. And so buying homes is very competitive. But even in the Bay Area of California, we're seeing home prices slip down to about 10% appreciation, where it was 20, 30% appreciation in the last few years.

Oh, where is my violin? Yes, I'm telling you, where is, where's the violin?

Yeah, and so it's, you know, the cooling is in the prices and that's a rational behavior. It doesn't mean that it's easy to find a deal because inventory is low. And particularly one of the hallmarks of this market that we're seeing now is very low foreclosures. In fact, we're now seeing foreclosure starts. What we consider foreclosure starts are properties that received their first public notice of foreclosure and those are at a 10 year low as of July. And in fact, they are lower than they were prior to the. If we compare the number of foreclosure starts we're seeing now, this year, on average, they're averaging less than they were in 2005 and 2006 before the bubble burst. So that tells me not only is there less inventory overall, but particularly for real estate investors who are looking for that bargain that could be represented by a foreclosure, it's really hard to find that because of these extremely low foreclosure rates.

Okay, so where is the market going? What does your crystal ball say? This is what everybody wants to know. If you divide the nation up into three market types, and by the way, I'd love to know, feel free to poke a hole in this, but this is the way I view it. The linear markets that just chug along, they're kind of boring, but they're good, solid investment markets. And then the cyclical markets, the high flyers, they're always making the news. They're very sexy and terrible, depending on which end of the cycle you're on. And then the hybrid markets. And Phoenix is a hybrid market that's kind of in between the two. By the way, do you agree with that assessment of the three market types? Is that a fair way to look at it?

Yeah, I hadn't thought of it quite in that context before, but I think I buy that. I mean, the hybrid one, I think it's harder to define probably, at least in my mind. And you probably have a great definition. But yes, there's definitely. And I've experienced this personally. I used to be, I grew up in the Midwest and, and now I'm in California and seeing the difference in those markets and then seeing the data is, is really interesting to look at. So yeah, I would, I would in general agree with that classification.

If we look at it that way, you know, where do you think? Like, what does the crystal ball say for? I mean, they all act in almost lockstep, you know, it's not like they're extremely different if you divide them up those three ways, you know, like if one of the talking heads that got on tv, you know, you see them on cnbc, if they would say that way, not the housing market is doing this or that. If they would say, well, the cyclical markets are doing this, the linear markets are doing this and the hybrid markets are doing in between the two, you know, so what, what would your outlook be for some of these different market types?

Yeah, I think there's actually more upside with the boring markets. I'm sorry, I forgot what you called the linear markets. The linear market, sorry, yes, boring.

We do not take offense to boring as long as it gives good roi.

Oh yeah, I love boring. Boring is predictable. Right. Those markets actually at this point I think have more upside. What we're seeing there is some of those boring markets. One of the things that stood out to me on this whole price piece is that among major markets of I believe that the threshold was 500,000 or more in July. There were 10 markets where we saw a new all time high in home prices. Not home sales, but median home price. And the first two of those markets, okay, those would probably, I think you define as the first one is hybrid. It's maybe Denver, Colorado. Then the second one is San Jose, which is the cyclical. But then most of the rest, I think would fall under your definition of linear. We have Columbus, Ohio, Nashville, Raleigh, Omaha, Colorado Springs, Madison, Boulder, Burlington, Vermont.

Boulder would not be linear. Boulder would be cyclical too, or at least hybrid or hybrid. Hybrid probably. Yeah. Because Boulder is an expensive market, you know, very constrained and yeah, I can.

Definitely see that there. So, but what I see is those, because those markets, the ones that are experiencing of course, solid underlying fundamentals, that's a key component here, those have more upside because, yeah, we're just seeing in the numbers, I think that maybe because people are willing to move there for jobs and they see the affordable housing is icing on the cake. And so we're seeing prices recover. And of course in many of those markets, prices did not go down as dramatically during the downturn. So that's the linear markets, the cyclical markets are also doing very well and seeing home prices and many of them getting close to their all time highs. And that's, you know, when I think of the cyclical markets, I think of mostly a lot of the coasts, California coast, also places like Seattle and South Florida and New York and those sorts of markets, they're doing very well. But the challenge I see in those markets is affordability. And that's not necessarily bad for the real estate investor, although it definitely can be. But for the traditional buyer, those markets are just extremely unaffordable. And I think at some point that becomes a risk factor for those markets. And the hybrid markets are probably in a very good position as well. Without typically the affordability is not as much of an issue in those, at least the ones I'm thinking of in the way you described it.

Interesting stuff, interesting stuff. So if you were investing right now, what would you be doing? Or maybe you are investing right now buying properties, you know, what advice would you give to investors now?

Sure. And yeah, I definitely dabble in investing. It's great to have this data at my fingertips and a couple rental properties and now we own in Southern California, which is not the best place to own a rental property. But you know, I think places, some of the places that I mentioned there that have that combination of jobs and a lot of them are university towns that I just mentioned that have these new home price peaks. Markets with that combination of jobs but are still affordable are attracting the younger potential buyers and or renters. So places like Columbus, Ohio, even though it's at a new home price peak, the median home price there is $155,000. So you can make a rental property work there very, very easily. But you also have, I would be looking at places like that to invest.

We like Memphis and Atlanta and Columbus, we do business there too, a little bit. Not that much in Columbus. Indianapolis has been great for many years. And just these linear markets, I mean Orlando, you know, those kinds of places, they just work, you know, you can make the cash flow work. And that's the key to having a sustainable real estate portfolio. What's going on with foreclosures? I know we got to wrap up here, but you know what's happening in the foreclosure world. It's interesting to me. I just did a show, well, two today, actually. Talking to someone from our Chicago market, which we do a little business in the outer Chicagoland area, where it makes sense. Also talking to someone from Orlando and you know, with these judicial foreclosures, I mean, they've still got a foreclosure market, you know, it's, it's just crazy. Versus the other markets where there's been price discovery and market clearing already that are, you know, long past that cycle. And I know which way I'd rather see it happen. Discover price quickly and move on. That's the way it should be, right?

Yeah. Rip the band aid off.

It hurts more when you take it off slowly. Very good metaphor. Yeah.

So yeah, we are seeing the consequences of that kicking the can down the road. We're seeing it fairly widespread, but it's definitely most dramatic in the states that have that judicial foreclosure process. That's more extend the philosophy of extend and pretend. And those are the markets where we're seeing this kind of resurgence.

Extend and pretend. I love that. Extend and pretend. That's good. In other words, the people get to pretend they're not going into foreclosure because they get extended forever. Go ahead.

Exactly. I've also heard it because called delay and pray.

There's also delay and pray.

Yeah. And that, you know, that strategy, I'm giving it too much credit to call it a strategy, but that playing out of the way the market worked in some of these, is definitely turning out to hurt these markets and cause them to lag more than other places. So looking at, specifically at bank repossessions, this final stage of foreclosure I mentioned earlier, foreclosure starts at a 10 year low. So there's not a lot of new people going into foreclosure. But this backlog, or shadow inventory, whatever you want to call it, of people who have been in foreclosure for years and just have never completed the process, we're seeing more of that get flushed out, starting with the nationwide trade. And then I'll drill down to some of these markets. In July, we saw a 30 month high in these REOs, these bank repossessions nationwide. And these REOs were up in 44 states, so it was pretty widespread. But if you look at the judicial states, that's really where we see the problem.

I just want to point something out there though. You call it a problem and I agree with you. It's a overall problem, but that means opportunity for investors too. You know, it's like, it's kind of like in those markets you're operating in 2011 or 12, it's sort of like you get to rewind by maybe three, even four years, you know, versus the other markets they had mostly cleared by say 2012. Would you agree with that, by the way?

Yeah, I think that's a perfect way of saying it. This is, you know, from a perspective of an investor, if you feel like you missed out on, you know, the buying frenzy in some of those other markets, there's still this last gasp, it looks like, of opportunities to buy these bank owned properties in some of these markets. So Florida I think you mentioned, REOs are up 78% year over year in July. Ohio up 69%. New Jersey is one of the highest. I mean it's almost unbelievable at 344% in terms of these REOs. And not surprisingly, well, New Jersey is a state with the absolute longest foreclosure timeline in the country. Based on our data. We're showing on average it takes 1200 days to complete a foreclosure there. And that's average. I mean, we hear the horror stories of it taking three years, five, seven, eight years.

Oh my God, that long? I was saying three, but yeah, three is.

Well, at 1200 days we're talking about definitely about four years. And that's New Jersey and New York's also in that category of very long in Florida. And that's where we're seeing some of the biggest increases in these bank repossessions. And that's just really in the past three to six months that we've been seeing that in most markets. So I would suspect what that means is in the next three, six months going forward, we'll start to see more of those bank repossessions, bank REOs turn into actually being listed for sale, the banks putting them up and making them available to purchase.

Yeah, very interesting. So those markets are more slow to recover. That's the upshot of this and that's what we're seeing. You know, we're just seeing it play out that way. So, so it's very interesting. Are there any things going on, you know, in just as we wrap up here in the political environment or you know, with Fannie Mae or FHA or you know, Freddie Mac or, you know, anything there that you see on the horizon that is going to influence the market one way or another? I mean, you know, a few years ago it was they're going to let Fannie Mae go. It's just, you know, they're going to let it go out of business like a regular company, like they should. And that would have, see, I'm another weirdo in real estate and I say let Fannie Mae die. You know, prices will go down, rents will go up, everything will adjust. In a couple of years it'll be back to normal. Maybe.

Yeah, I think I would actually tend to agree with that. It's maybe I'm willing to say that because I know there's very little possibility of that actually happening given the political environment. But yeah, we don't, you know, in terms of that specific question, we don't see that happening anytime soon. What we do see is that we've reached the tipping point where the reaction to the housing bubble burst was to reduce risk in the market. But now we're seeing the balances tilt back toward introducing more risk in the market. Fannie just introduced a program, I don't know if you've heard of this, where for loans that one of the loan programs that they're proposing would be one where income from non household borrowers could be included in the income to qualify the buyer. So in other words, they're billing it as something that would be good for multi generational households or someone like you can include income from a basement tenant. They even say in there. And so that's one example of okay, they're realizing affordability is an issue. In a lot of these markets, people are not making enough income to afford the home prices. So they're introducing what I would consider is a more risky loan product. FHA has at the beginning of this year introduced lowered their insurance premiums, which introduces more risk into the market. And that's one of the big themes I'm seeing going forward is it's been a very risk averse market from a policy perspective. And now that seems to be, the pendulum seems to be swinging back. And also on the foreclosure side, the pendulum is swinging. You know, it had been give people more time, more time, more time to make sure that they can avoid foreclosure. But I think as evidenced with this recent surge in REOs, we've also reached a tipping point there where it's okay, we've given people enough time. These lingering foreclosures are only hurting the market at this point, the best course of action is to resolve these and get them into the hands of a new homeowner.

Yeah, yeah, very good point. So your website realtytrack.com are there any other specific resources you want to refer people to?

Darren sure. RealtyTrack.com has a lot of this information at the local level. If you go to the stats and trends section, you can type in a zip code even or a county or state to see some of these trends I've been talking about. And that's completely free. Our subscription product allows you to research at a property level@realtytrack.com and neighborhood level. And then we also if you're looking for custom reports to say, okay, what's happening in Indianapolis or Memphis, should we be getting into that market or should we be pulling back out of that market? Our Data Solutions team can help prepare customized reports for you and you can contact them through data.realtytrack.com Excellent.

Darren Bloomquist thank you so much for joining us.

Thank you Jason.

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