What's Next for the US Real Estate Market? with Lance Lambert

You're listening to Crazy Shit in Real Estate. You'll be amazed at all these wild but true situations that others have found themselves in, because on this show you'll hear uncensored, unbelievable stories from the world of real estate.

I'm Leigh Brown.

Let's dive right in. I'm Leigh Thomas Brown. This is Crazy Shit in Real Estate. Now I'm just going to go ahead and give you a fair warning. The next 30 minutes is a complete nerd fest about real estate forecasting and data and supply and demand, new construction, unintended consequences. If that's your jam, buckle up because I've got Lance Lambert on here and he is an amazing resource when it comes to real estate data and insights. So enjoy this conversation. I'll see you on the other side. And frankly, I expect to see some comments on this one. We'll see you on the other side.

Hey, good morning.

How are you?

I'm good.

All right. Well, I'd love to hear a little more about you and what you're doing related to real estate and give my listeners and viewers a little bit of background.

Yeah, so my name's Lance Lambert. I had worked at Fortune Magazine as their real estate editor up until October of last year, and then I left to create ResiClub, which ResiClub is a media and research company that's focused on the US housing sector. So we cover homebuilders, institutional homebuyers, we cover the prop tech startups, and then really one of the key things that we do is cover regional housing markets. So cover the data in a way that helps people to understand a bit about like what's happening across the country and maybe how their market fits into that. And our audience is everyone from real estate agents to single-family landlords, loan officers, homebuilders, people on the institutional SFR side. Really, it's just across the spectrum. And then you even have some buyers and sellers that fall into it as well. And for us, the key is to just be able to report on what's happening in the market. So people can like digest it and have the charts to take away from it. If they come to us and then they read us, we hope they understand what's going on in the housing market and are able to explain it.

So I'm guessing you're trying to be more relevant geographically and more timely than say Case-Shiller, which people seem to use as a benchmark even though it's wildly inaccurate market to market.

Well, so we don't want to reinvent the wheel, so to speak, in terms of like creating our own price index. We have ways of reporting prices that are definitely a bit ahead of Case-Shiller, and we like what we're doing in terms of the pricing side. But I definitely wouldn't want to reinvent the Case-Shiller index, which to me, I actually like the Case-Shiller index. Definitely lagging for sure. But one thing that's nice about those repeat sales indices that are done over time is to be able to look through the history of it, right? I like that bit of it.

So I'm looking at this like from Charlotte standpoint, 'cause Concord's in the MSA for Charlotte, and we've got a very interesting relationship with indices like Case-Shiller because they have a hard time understanding what I would call a slow burn market. We've always had a very strong blue chip style market. It doesn't wildly accelerate or decelerate even during the recession. And even during COVID we've gone up like a lot of markets have, but we haven't done unsustainable numbers, which is why the indices never seem to be able to capture, which I find to be fascinating. But you said that when you break it down regionally, what are you seeing for the Southeast? So obviously we're considered Southeast. What is your trend line? Obviously we're the number 3 state when it comes to growth and business by any calculations, or right after Florida and Texas. But I want to know what your research is showing.

Yeah, so the Southeast, and you know this better than I do, has really been a magnet of growth through the country for not just a few years, but really decades. And that growth is still occurring. And the big hubs in the South, Atlanta, Tampa, and I'm speaking about the Southeast, Charlotte, Raleigh, all of these places like that, and Jacksonville as well. Those are markets that we can look at the numbers and understand that in 10 years and in 20 years, those markets are going to be much bigger. And so we've seen a lot of capital rush into those markets. During the pandemic housing boom, a period of ultra-low rates, easy access to capital, we saw an immense amount of institutional capital move into those markets. Charlotte, Atlanta, Tampa in particular. And then it's Winston— is it Winston-Salem?

Winston-Salem. Yeah.

Yeah. That's another one that comes up in the data. And the reason being there is just they had nerdy people like me run the numbers and then saw that those are great markets for growth. And there was a lot of capital to be deployed and they deployed to those markets. And so those markets really were intense in terms of the overheating during the pandemic housing boom. And coming out of that, they've weathered it fairly resiliently given how much rates have went up, 3% to 4% to 5% to 6% to 7%. I mean, that's really a historic deterioration in affordability. And while this isn't the worst affordability ever, the worst affordability ever is like 1981 when mortgage rates went to 18%. This is the fastest ever deterioration in affordability. So the market had to stomach a very big hit, but the Southeast has been fairly resilient through it. Some of the markets that got a lot of that institutional capital out west, like the Phoenixes, the Austins, uh, they didn't fare as well. And the reason being is their migration slowed down once rates went up. Some of that pandemic migration slowed down to them, whereas a lot of the Southeast has had more sustainable levels of migration. Like, that's going to continue for a long time. Now, there are exceptions throughout the Southeast. One exception is if you look at the few counties in Southwest Florida, Naples, north of Naples to Tampa, that area. So Cape Coral, Sarasota, Punta Gorda, that area was hit by a hurricane in September 2022. And coming out of that, there were some damaged properties and stuff like that. Nothing too crazy. But the thing about it is with affordability being so strained, the market is a little more vulnerable to those types of things. And so those markets have seen inventory move up fairly fast. If you look at the numbers, it's continuing to move up fairly quickly and even like breaking seasonality. So Punta Gorda now is about 34% above pre-pandemic levels. Definitely a weaker market, but across the Southeast, most markets are still below pre-pandemic active listing levels for inventory. And in terms of my work, I think that that is a really key number. Take your market, take your county, or even maybe your zip code and neighborhood, and look at active listings now to the same month in 2019. So if you're doing March 2024 compared to March 2019, and if you're still down 30, 40, 50%, that tells you a lot. Now, if your market's kind of gotten back to those levels, those have been the markets that have kind of softened a bit more. But when I say the word soften, the markets that have softened, we're not talking about huge price declines or anything like that. Maybe a little bit of give up in some of those markets. But if I had to give you one word for the Southeast, it would be resiliency relative to everything it's had to stomach in terms of rates moving up.

It is interesting that regardless of what the data points show us and regardless of the year-over-year comparisons or the year-over-5-year comparison that you're referencing here, the public still seems to be waiting for a crash. It's kind of bloodthirsty, actually, especially when you see people in the real estate space that are almost hungry for a price correction, forgetting what that does to the economy, what it does to the tax base, what it does to individuals and their personal savings and all those pieces. So what are you seeing when we talk about some softening that could come with the economic climate that we're in? Because I'm going to guess that you are a rational human who can see that our economy is held up right now by toothpicks. And this is not a sustainable space that we're in with unfettered spending, which is going to continue to drive inflationary numbers up. So when we're in an odd economic space where we do expect softening, but there's still not enough inventory and we still have demand that has been very sticky just because of the sheer volume of that demand. When we talk about softening, what do you say to those bloodthirsty market crash people when they're looking for something to adjust? Would you call softening 1 to 2%? Would you call it 2 to 4% if you had a crystal ball, knowing that none of us expected any of the conditions we're in right now?

I think in terms of downside risk, and we're talking about risk, not a prediction, but in terms of downside risk, I think it's more in the single-digit space because to get cascading declines, you need a lot of supply to move into the market and sit on the market, right? And if you look at the stress side of the market, you are seeing credit card stress. Start to rise as rates have went up, but you're not seeing it as much on the mortgage side, right? We've had different lending standards over the past 10 years. And then if you look at like the 60-day delinquencies, the 90-day delinquencies, and then even the 180 days, it takes a while to get to foreclosure. And right now we're not seeing those spike. And then on the foreclosures, we're not even at pre-pandemic levels. And the reason that that foreclosure type of supply matters is that when somebody forecloses, they are not going out to buy again. They are maybe living with a relative, they're renting, they're not net new demand, right? So that supply hits the market harder. Whereas right now we have a bit of a lock-in effect where rates have went up 3%, 4%, 5%, 6%, 7%. And so what I call churn, somebody who would sell their home to go buy something new, they're economically disincentivized right now. Right, because they'd be giving up their low monthly payment for something higher. But over time, some of those people will give in, right? Lifestyle things will happen. They'll have more kids. Maybe they get a better job, make a little more money. So I think the number of new listings, which has been very suppressed, will rise. There will be more listings that come into the market over time as that lock-in effect eases. But as those homes come on, it's not the same as a rise in foreclosure supply because when somebody sells their home to go buy something new, they are supply and they are demand. Where somebody forecloses, they're just supply, right? They're living with a relative, they're renting after that.

So I think it's a different kind of demand, though, because we still have pressure on the rental market, too, from a demand standpoint. So somebody who comes out of any living situation is still putting demand in because with housing, I think we have to always look at the pressure on both sides of renting and buying, but we also gotta mention one piece there. So when you talk about somebody coming out of a foreclosure and that puts that supply into the market, they come out of a standard house, that puts supply and demand in. Of course we have the divorces, which we call three baggers because that's one seller and then two buyers or two renters or two something. And so the numbers, I'd say very fluid when it comes to people's personal situations. How do you see the number of illegal aliens impacting what's happening on the demand side and the proposed possibility of softening in the market? Because I think that's an unspoken demand situation that nobody seems willing to talk about because it's a political football.

So John Burns Real Estate and Consulting put out numbers last month and their numbers found that last year was the greatest increase ever in U.S. population. Well, the number of births last year was not that big. So we know where that source was. And at the end of the day, it's housing and supply for the housing. Or it's a data point.

Like, I can't figure out why people are so afraid to talk about data.

So when you have more people come in, it is an increase in net total housing demand. And I think that has been one of the things that has helped to support the total market in terms of the housing market and the probably even the economy. In terms of slowing down the impacts of the Fed rate, rate hiking cycle. And another thing that's worth noting is that normally when the Fed jacks up interest rates, historically what has happened is that the economy has softened. And one of the areas that it's occurred is usually in home building and residential construction. Well, right now residential construction employment is at the cycle high. It has not come down at all. And one thing that's occurred is that with this very big move up in rates, builders didn't see a lot of competition from the resale supply, right? Because it was tight. So what builders were able to do this time is they— some of them cut prices a bit, some of them built some smaller homes, but a lot of them did these mortgage rate buydowns. Right. And so they did an affordability adjustment that allowed them to continue to sell continue to move that volume, they didn't take as big of a hit as you would've historically expected. Now, if rates stay really high and this economy softens and maybe finally resale supply moves up, then maybe home building weakens more and it helps to push downward momentum on the economy. But right now, the real estate industry is very pinched, and by the economy, which has been resilient, and by the Fed, with its actions it's taken in this Fed rate hiking cycle, and the economy hasn't given up much. And so the Fed hasn't backed off, and it's just keeping affordability max pressure right now on the housing market. And so the housing market isn't busting in terms of cascading price declines, and homebuilding has remained resilient. But what has been hurt is resale transactions are low on a historical basis relative to the size of the population. Of the country. And a lot of that goes back to the lock-in effect, which is just people who have a 3%, 2% mortgage rate. If they have an extra kid or they might have liked to get another house, right now they're thinking twice about it because they can't afford that monthly payment of going up to close to 7%.

And there's nowhere to go. So it's the two sides of that problem of I get something smaller and less than, so I'll just stay here. And so there's lots of reasons that people are staying put, but it does make us wonder what's going to happen next. And so the forecasting, I think, has gotten even trickier with all the different players in the market now. And you've already mentioned the institutional investors. It's estimated that here in the Charlotte MSA, that around 30% of our housing stock is already owned by some form of hedge fund or institutional investor. We've been a target for a long time.

I'll get to your question real quick, but on that number, that estimate would be for percent of single-family rentals. Not in terms of total single-family stock for Charlotte. It's 30% of the stock is not owned institutionally. Now closer to 30% of the SFR stock is, but not the total single-family housing stock. And the reason that matters is because the total stock, if it's 30% of SFR, then it's more like we're talking like under 5% of the total housing stock.

It's, uh, which is still way too much.

Well, I don't want to weigh in in terms of like what's too much, what is, but I think those numbers, they get tossed around so much, but you're You're absolutely right that Atlanta, Charlotte, Tampa, Dallas, Houston, Phoenix, those markets have had a lot of institutional capital roll in.

If you are remotely awake, then you know that we are heading into some really tricky economic times. We have home buyers that have put the kibosh on buying. We have sellers who have found out suddenly their houses aren't dipped in 14-karat gold. And as a REALTOR®, you are still trying to keep up with the business you have and trying to answer questions in the meantime while also managing sky-high fuel cost at the pump. Never fear, because my new video course is coming out right now and it's called How to Dominate During a Recession. I've been a REALTOR® for 22 years. My business went up every year during the Great Recession, and it's all because of education. This course is 4 modules. There might even be some bonus content for you. The price is $199. I am delighted to bring this out as quickly as possible because friends, there's no time like the present to make sure our neighbors are stronger and we protect the American dream. Click on this link, www.dominatethisrecession.com, and I'll see you there. Now back to this amazing content. I can see we disagree on this, but I would say zero of our housing stock should be owned by Wall Street hedge funds and institutional investors, because that's where this whole "you will own nothing and be happy" mentality is coming from, from the powers that be. But that being said, my concern has always been that any specific group that owns that much of the housing stock has too much power to lever the market because at any given time they could dump it all into the market and create a problem. Now, it's not to say that they would because they're going to operate off of balance sheets, and so they're going to look at the values and their numbers and the returns. And I know that it's all a very specific calculation to them, whereas for the people who live here, housing is more than a spreadsheet and a calculation. It is where you do have that next kid and where life happens and where people really build up that, I'd say, an accidental nest egg because they forget that the housing is a forced savings model. And frankly, I'm okay with that. But the hedge funds love that when they take up so much housing stock and they have inordinate amount of power over the market. So my opinion is there should be some kind of restriction on the number of properties in the single-family space that can be owned by hedge funds. Would you disagree with that from a data standpoint?

One thing I would say is one thing that occurred during the housing bust is that there was not just a tightening of lending standards to get rid of some of the bad things, but they really overtightened. And so a lot of people who— families who could have bought in the '80s and '70s and '90s, in the 2010s with the Dodd-Frank measures, they couldn't. They still can't. It's changed. It's a different market. And so what occurred during that period of the 2010s is that because you took a group that used to be able to buy in the market and you took them out, it created a deeper correction for housing. The housing bust, in my opinion, was deeper than it should have been. And why that matters is because on the single-family construction, when you had the threat and the bust, and then you have a deeper bust, you go from a period where home building gets suppressed for a couple years, Toward suppressed 6+ years. And if you look at a chart of single-family home building, it just nosedived in '08, right? And even—

But there was no capital.

And then when you had the Dodd-Frank measures and stuff, when the recovery should have already been happening, it suppressed it even further because that group was no longer back in the market. And when you suppress single-family construction like that, what you did is you killed the supply chain because all of the people that worked in the space, they're like, I'm out of this. This is not good. You killed off their living and you took a lot of the contractors out of space. You took out the timber supply chain and all these different supply chains. So when the housing market slowly started to come back more into '13 to '14 to '15, single-family construction could only move up so quickly. And so we've gotten really behind. And one of the things that the institutional side has done is they've kind of filled in that void of who has been knocked out of the market by these tightened lending standards. And the other thing that's happened is now you're going to see less scatter buying, which scatter buying is like you go into Charlotte, you go into Atlanta, you go into Tampa, and you're buying an individual home on the market, right? And you did see quite a bit of that two times. One at the bottom of the bust when they're buying up the bottom. And then the second was during COVID when there was so much capital in the economy because the Fed created a liquidity bubble essentially. And so scatter is now not going to be as much, but what you're seeing more is the build for rent. So there's a question of what is the view on scatter and then what is the view on build for rent? Because on the latter, it's a net increase to supply to the economy and you're filling in that void that was tightened out of the market by tightened lending standards. So it's a tough question on the institutional side, and I don't necessarily have an opinion there, but I think what is objectively true is that affordability in the US for housing is strained. Historically speaking, this is a very stressed affordability. And so the most important thing is how do we get to a place where affordability is better?

Let me pause you there for a second. For my viewers and listeners that do not know or have not seen in your market what the build-to-rent model is, we call them BTRs in the space a lot of times. Imagine a single-family subdivision that looks like any other production neighborhood, vinyl, little bit of stone, little bit of brick, little backyard, little pocket park, looks like any other neighborhood, but it is built from the very beginning as all rental property. So nothing in there was ever for sale. Nobody went to the design center and made it their own. And so in your community, they look like a regular neighborhood, and you may have a client who calls and says, hey, I want to live over here in Elm Grove, and then You think I've never seen something for sale on Elm Grove. Well, you don't because the whole neighborhood is owned as part of an investment strategy. And that looks probably good when they first come out of the ground. But I would just posit that there are some issues with the BTR side that we have not seen yet because it's a new phenomenon. Part of that being that the renters who go into BTRs don't feel like renters. There's not a built-in incentive that says I want to go get something that's my own, my own space, because they feel like they are property owners. We also don't know long-term what's going to happen with deferred maintenance upgrades. And of course, the inevitable problem with landscaping upkeep, which tenants just don't have a vested interest in, and a lot of out-of-market investors don't keep as part of their primary strategy. So I just wanted to make sure we had a definition for what that product is as we consider how it does impact our markets, because I do think there's a psychological impact that goes along with the impact in the market. That being said, it has helped with the supply side because we don't have enough rentals, just as we don't have enough houses for sale. And back to that institutional investor and that money in the markets where we had a lack of capital for our builders at the beginning and through the mid-cycle— well, on through the whole Great Recession— that ran off a lot of our small local builders, our custom builders, anybody that didn't have the financial ability to withstand the Great Recession. A lot of them got rolled up into our big national builders. And you want to look at where supply is now. Part of our problem is you've got very consolidated power in some— a select number of hands, which I don't think has ever worked out well over time. And it's one of those unintended consequences of the complete drying up of capital was consolidation on the builder side, which leads to low supply today. Just like the bad legal rules for requiring banks to invest in bad mortgages in the '90s led us to the Great Recession where you had unsustainable mortgages. These consequences often are many years past the decision makers, which I think probably makes your job that much harder when you're trying to do forecasts because you also need to look at what are the terrible legislative ideas being put forward and what unintended consequences are they going to have later.

You get to a great point, and that's what— That's why I'm a little hesitant in terms of like, what is the right thing for housing? What is the wrong thing for housing? Because we've been through so many of these periods where housing has been messed with in a way when the truth about housing is if you have the right type of lending, right, you have access to capital, people can buy.

We say reasonable capital, friends. We're not talking about loose or too tight, reasonable access to capital.

And you just leave the market alone. Alone and have a long expansion, things work out in housing. What's happened is the bust and those changes before the bust, some of those products, right? And then the tightening that occurred after it, and then the fact the economy was so down in the dumps for so long and it overcorrected housing then. And then now when you fast forward to COVID where you had the lockdowns, and so those lockdowns created an abrupt hit to the economy. And the Fed has one area of the economy they can accelerate, and that's housing. So what they did is they did max acceleration to housing during the pandemic to keep the economy rolling. And when you do that, the unintended consequences of having rates go so low and then having them go so high is this lock-in effect and very low levels of resale transactions. Luckily, the builders have kind of made it through this to where they've done the affordability adjustments and been able to keep selling because there isn't a ton of resale supply out there. If you want something, a lot of times you have to go to the builders.

But again, there's an advantage if they can use a piece of their dollars to assist with the buydowns. You're absolutely right, because we don't have that option very frequently on the resale side. So that has been a boon. So we will absolutely give credit for that choice.

And so what I'm getting back to with this is just the unintended consequences. And there's been a good amount of that that's occurred in housing over the past 20 years, more than most 20-year periods for housing. It's been a—

one thing that the Fed does control besides housing, they control quantitative easing, and they've got to stop— that's what I mean, this printing is crazy.

Yeah. So the quantitative easing, when you buy up all those mortgage-backed securities, what you do is you drive up the price of bonds but drive down the yield, so drive down mortgage rates very, very low. And so during the pandemic, we had a 100-year-plus low for interest rates and mortgage rates.

And don't we all wish we had bought more property at that time than we did? Yeah, but you know, the human nature of the fear that was brought on us by the mainstream media during the COVID era kept a lot of people from making decisions then that today they wish they had made. So I guess the lesson becomes, if the unintended consequence is that you will never feel fear, well, you're going to feel fear, so you may as well suck it up and do something. Because out of everything we talked about, we're still better off today owning real estate than if we had not purchased it 20 years ago.

Exactly. So even if prices come down, right, those monthly low payments that if you got it at 2%, 3% mortgage rate, you won't get that chance again. So even if we came out of this and prices came down some, which is very debatable because right now there's just not resale supply. And a lot of markets have still moved up a bit in prices despite rates going up. But yeah, those low rates, that was a once in a lifetime type opportunity.

Okay, so we've just totally nerded out for the last 30 minutes. So if anybody hung with us to the end of this episode, then you're obviously our people. So high five. And we didn't even go down half of the questions that I had written down for Lance. So I'm going to have to let you come back for another episode at some point after we get some more questions from this. But in the meantime, What is the best way for my audience to follow you, to follow up with you, to learn from you and gather information on their own as they try to make good business decisions when it comes to real estate?

Yeah, if you want to reach me, you can reach me at Lance@ResiClubAnalytics.com. That's my email, my site, and you can sign up for my daily newsletter is ResiClubAnalytics.com. And then my Twitter is @NewsLambert, and that's where I'm all the time. And so if you actually— if you haven't—

don't forget it's X now.

It is X. Yeah, that's right. Yeah.

Everybody still calls it Twitter, but yeah, we send tweets on X, but that's beside the point. Yeah.

If you type in X.com, it reverts to Twitter.com. But yeah. And you know, the housing discussion is actually pretty interesting on Twitter/X.

I enjoy it. I think that's where you get more perspectives that allow you to think about all these topics in a very multifaceted way. Whereas if you're getting your news just from I mean, God help you if you're getting your real estate news from any of the mainstream media. They are not speaking to this in any way that makes sense. And even your local news just generally spotlights a local realtor who talks about something. But if you follow Inman News, they're going to give you their version. The National Association of Realtors gives you their version. I think the real conversations do happen over on X for people who are really paying attention to the data and having uncomfortable conversations about how things came to be and what's coming next and frankly, how we preserve what makes America great, which at its core is Private Property Rights in Real Estate. Lance, thank you so much for coming on the show. I'm super excited to continue the conversation and I hope you're going to wind up on Substack and talk about your really spicy things at some point.

Yeah, thank you for having me.

All right, friends, all of his contact information is in the show notes for this episode. Ask a question down here in the comments and we'll definitely have you back for round 2, Lance, and we'll talk about what's happening in real estate. And friends, thank you for tuning in. We'll see you next time. As always, I am so super thrilled that you joined in for more crazy shit. And if you're a realtor, investor, inspector, lender, or just a regular human being who happens to have an unbelievable story that you need to tell the world about, or frankly, you just need to one-up the story you just heard, then make sure to DM me on Instagram @leithomasbrown or tweet me @leighbrown, or frankly, any social network where you hang out. I'm there. And if you had some fun, then you totally want to subscribe so you don't miss out on any future episodes.