We are going to be having a presentation done by Mr. John Burns from John Burns real estate consulting.com. John gave a great presentation to a mastermind that I’m personally in collective genius, and I thought it really, great for a lot of us viewers to go to the same presentation, but tailor it a little bit for our group.
individual investors, vacation investors, and some of us with still some single family calls and portfolio. We’re trying to get into that, but, thanks for joining us, John, and, appreciate taking us through. There’s going to be a lot of insights to do this deck. Yeah. We collect a lot of data that’s for sure.
You guys like my, monthly reports, you guys can get access to that. It’s full passive cashflow.com/investor letter. But from time to time, I’ll take a thing from John Burns like there you haul report that always comes from them. a little bit on my business then to start, we’ve got 70 people all over the country, nobody in Hawaii. but we do a little bit of work there and we focus on big companies, who believe it or not. Even the biggest companies in the industry, don’t have big research departments to figure out what’s going on in the housing market.
A lot of them. So they outsource that to us. So we’ve got 70 people trying to figure out what’s going on in the housing market. I subscription research product, and then also individual consulting. And one of the things I’m trying to get closer to and you guys can help me with the fair trade here is I’ll share all this information with you, but, I want to really understand what’s going on at the individual investor level.
And since they’re not clients of ours and you’re not, we do a survey of investors. And a couple of questions once a quarter, just got to email me or, Devin Bachman. And I will, we’ll send you the content plus some of your local market, research that you’ll find interesting. And her email is D Bachman, B a C H M a firstname.lastname@example.org.
So we’ll put this all in the YouTube channel, show notes, and then the webpage for this. but yeah, this, and this is what makes this data so great is John actually goes and gets this from folks like ourselves instead of, and they bring it to the institutions out there. So this is great data, but he needs some help here, from the foot soldiers like us that see what’s actually happening out there.
Yeah. data includes just comments. like John, you’re totally wrong. I’m seeing this, I’m seeing that. I learned more from my clients’ stuff. They’re seeing in the field than actual from data. so I’m gonna bring back a couple slides from a presentation I did in April, just to compare and contrast with where we are today.
And then, I think this has been totally underplayed, even though everybody knows it. the government stimulus was just massive and it, if it was $500 billion, it would’ve helped. It was a couple of trillion dollars at more than helped. And it really was a government induced housing boom that we’re in the middle of.
And, then we do one of the surveys we do is we survey people that own single family rental home. So you can participate in that. We serve at the landlords that own 175,000 homes. I’ll share you with you. What’s going on. There. It is one of the reasons that so much capital is pivoting into single family rental homes right now is our thesis was, it was a pretty stable recession-proof is too strong, but, Doesn’t cycle as hard as real estate normally does in a recession.
And man, is that definitely playing out right now? So we call it the safe and stable investment. If you will, single-family rentals. I know it’s getting a little more challenging because prices are going up faster than rents though. Then, I’ll talk, I’ll share with you some of the public data on how the new public companies are doing.
Just, I’ll give you some metrics with that. Do a quick regional overview and then a little wrap up of some risks and rewards. So back in April, we actually started this in March. We started weekly webinars for our clients. We do them monthly. Now that there’s day in fact tomorrow, we started calling it a global reset in March and here are the slides that, it was more than a reset.
It was a complete rocket taking off. So one of our clients is Oak tree capital. They manage 130 billion assets under management. Howard marks is one of the most brilliant people out there. If you could pick up some of his investing books, I would highly recommend it, but here’s what he was saying in April.
just back up, this is one of the greatest pandemics in history, the greatest economic contraction in 90 years, the greatest oil price declined practically ever. But this was the key that the greatest central bank and government intervention of all times. So if you study the economics and demand and supply, what the government does is not in response to demand and supply, it’s just massive stimulus.
And he called this one, And he was on the sidelines for a while. and this has been the big boost to housing. So as far as the vaccine was concerned, We turned to bill Gates. Who’d been studying this heavily. He said 10 weeks of extreme lockdown. And then we’ll open up in may or June. You got that, You said probably 18 months to vaccine, which seemed optimistic at the time. But actually there, it looks like we’re beating his forecast, so that’s pretty good. And he got this one wrong and he really just mentioned quickly. He didn’t think it’d be a while until housing recovered, but he wasn’t focused on what Howard marks was focused on, which is what the government was going to do to intervene.
And the intervention, even though it’s been much more significant than the early two thousands, if you study housing cycles, it reminds me of the early two thousands. When housing was 10 to 12 years after the great SNL crisis that had wiped out all the capital to housing, this felt very much the same.
And then we have a recession and Greenspan at the time drop the fed funds rate 550 basis points, 5.5%. And housing was in great shape and housing led the recovery and in a bit of a different way, I think the exact same thing is going on right now. So the other slide that we showed was that. There were really three arms of the federal government coming to the rescue.
All of our elected officials, all of the appointed officials overseeing the mortgage industry, which you remember at the time was in a complete upheaval and the fed. So let’s talk about what they did, the government induced housing built. So this is a timeline, and I’m going to show you about where we are right now that we’re getting a little bit toward the end of Q4 here, but.
670 billion dollars in PPP loans. they throw around these billions of dollars of numbers. And if it was a hundred billion or 670 billion, most people don’t know the difference, but this was all of the payroll and all of the rent for two months for all small businesses in America.
Now that wasn’t enough for retail or a restaurant in New York. But it was a hell of a lot for a lot of other businesses that were struggling a bit, but they were covering almost all of their expenses. And I’m in a CEO group where more than two thirds of the CEOs, we just pulled them. Their balance sheets are stronger today than they were back in February, JP Morgan, chase and others have released some data that consumer’s checking account balances.
Now, not everybody, but on average are higher than they were in February. This is just a lot of cash. This is the $290 billion stimulus check. They’re talking about doing another one. you got 26 weeks of unemployment that got extended the 39. Hey, we’re going to put $600 more per week. Into everybody’s unemployment check that is more than enough to pay the rent.
And then when that expired, through executive order, there was another $300, and that’s getting ready to expire. So the government has been paying for people’s expenses here, Stu loans, Hey, don’t worry about them. You don’t have to pay it mortgage. you don’t even have to prove that you’re in distress.
Just, you can stop paying if you want to 15%, 16% of FHA mortgages, which are the mortgage is to the people that are putting the least amount down and have the lowest credit scores, are delinquent right now. some of those people have their job. They’re just not paying it. And the government has said, we’re not going to foreclose on you.
We’re going to restructure your loan. So if you miss those payments and you’ve got a job and you can start paying again, where it’s going to tack all the missed payments onto the end. I’m sure there will be foreclosures that come out of this. but it won’t be anything like the last time.
And then I don’t know where the center for disease control thinks that they’ve got the power to tell people to stop paying rent, but they did interestingly though, at least among my clientele and some of whom have pulled their clients who are definitely out of work, they’re still making their rent payments.
because they know what it’s like to have to rent a new place. When you got kicked out of the last place for not paying rent, it’s pretty hard to rent a new place. So people are still paying their rent. So this has been like the U S government, took a helicopter and flew all over all of America and just spread cash all over it.
That could the consumer financial obligation ratio, which is people’s debt in relation to income is down. The actual, balances of consumer debt. Now mortgages are trending up because mortgages are doing great, but everything else is 10. People are paying down their debt. the rent collections, as I mentioned, have been pretty darn high in December.
They were pretty bad, but this is through the sixth of the month and the fifth and sixth for the weekends, I’m expecting it to get a little bit better. But if I told you that, Hey, we were going to. Have 30% of America lose their job in March and everybody would still pay their mat. you’d said that was crazy, but that is what’s going on because they were given the money to do And this has been what people call a K shaped recovery, which I like to distinguish it, sadly between the haves who are at the top of the K and the have nots who are at the bottom of the K. and if you’re at the top of the K, if you had some assets going into this, your stock is up, your home prices are up, your retirement savings are up.
If you’re employed in an industry that’s doing okay, you’re fine. they have nots where people that were really, in an industry that was paying people, minimum wage or close to minimum wage that, also involved group gathering so that all the headlines have been there. There has been a lot of distress there, but.
What we’ve seen for housing is that’s not the majority of America. It’s part of America and it hurts, but a good chunk of America is doing fine. Yes, John, like you said, it in the last presentation that I jotted down as a note here. not to be tone deaf or anything like that. If you go back to your last slide, but I think a lot of the people that are listening to this podcast and investing, they have very stable, white collar jobs.
And it’s the people that are more in the travel entertainment industry, food service industries, which were typically the ones struggling out of work, but there’s a lot of people, I don’t know what percentage of people out there that are doing just fine. And , they’re paying down debt.
They have quite a bit of money on the sidelines. And if you noticed that the things that we can’t do, like we can’t go to sporting events. We can’t travel. there’s a lot of white collar professionals out there. Just itching to spend the buck. yeah. when people are wildly vaccinated here, I think in fact, I was just telling my wife , we’re going to book a hotel in New York for the month of October now.
Cause it’s really cheap. I think things are going to get really busy. People are dying to get out. And the other part of this I didn’t really talk about is that, the government took away your ability to spend a lot of your money. You can’t go on vacation, you can’t go out to restaurants.
So people have been saving. So on top of the here’s some cash, you forced people to save more. I think there’s a lot of potential at the end of this year for the economy to be on rocket fuel. If all these vaccines happen, like it, it seems. I think so myself, I think it’s going to be a big party coming late next year, especially for those who have money.
just for scale, like the 2008, a lot of money got dumped into the system. Is it more or less, or what kind of order of magnitude are we talking? yeah, it’s I think I have a slide coming in the neck coming up and it’s a, it’s $3 trillion and 2008 through 2014, it took per Nikki. Six years to spend that three term dollars.
Jay Powell did at this time at five months, same amount in five months. I mean we borrowed the playbook. I said, why let it play out over time? And we may get some more here too. I think I have a slide on that, but the other thing he’s doing this time, which Bernanki did start doing last time, that the fed controls the short end of the curve, how much the bank borrowing rate is overnight.
But he said, I’m going to control the long end of the curve, but I’m going to actually be the purchaser of 10 year treasuries and be the purchaser of mortgage backed securities. And that extra demand from me is going to drive mortgage rates down. So that mortgage rates are below 3%. It’s not because of the free market.
Although the part of that is that the fed is interviewing. and it said we’re going to be intervening for the foreseeable future. Even if we see some above normal inflation here we want to see that. So here’s the chart you were alluding to where the fed back in 2008 had an $800 billion balance sheet.
Then it started buying mortgages and tenure treasuries grew to $4 trillion. And then in just this year has grown to $7 trillion. it’s just. Treasury is printing money and the fed is buying it. And, I’m not smart enough to predict interest rates. but you can go into the bond market and see what the bond market is forecasting and they’re forecasting that the 10 year treasury rate stays relatively flat over the next four years.
Mortgage rates usually trade as a premium over that cause a typical pool of a thousand mortgages. Pays off over 10 years. Cause somebody replies after two, but somebody else takes 30. So they trade off the 10 year and the bond market is saying, rates should be flat. So I’m saying I’m not smarter than the bond market.
And assuming rates are going to be flat. if the bond market is wrong, then I can change the game here dramatically. So just wrapping this section up, the government lifelines have just been unbelievable. They’ve helped businesses. Keep people employed. they’ve helped consumers pay down debt, pay their rent, pay their mortgage, avoid paying student debt.
A lot of my builder clients are saying to their clients have got the down payment now because it only requires 5% through FHA due to somebody’s savings. And then the artificially low rates of boosted home prices and sales volume. So housing is just booming, if you turn to housing investment, being a landlord.
So here’s our survey where we got 192 people to fill this out who oversee 175,000 properties. We got it at the local level two and 55 Metro areas. I didn’t just go to the big boys and say, give me your numbers. On the average, we have this by market. and we do share I’m only sharing part of it here, but we do share all the detail with people that participate.
it’s a 50 page report for a couple of questions. I am putting here on the slide, the email again, D Bachman, B a C H M a N, every real estate consulting.com. So here’s what they said. So 32% of new tenants are coming from apartments. it’s a different demographic as your clients know.
I find that the wall street types who all own their home, Or a young smart kid in New York who grew up in an owned home, doesn’t understand single family rentals. And I’m trying to educate. And it’s those of you that are raising capital, probably understand those two people. why aren’t people buying homes?
There’s just, there’s a lot of people who are just, I live in a single family rental home, cause that’s what I want to garage laundry. I want yard. It’s those folks. and then 59% of their tenants are coming from an urban location. Now we weren’t able to say, okay, was that downtown Los Angeles or the San Fernando Valley?
So I think, urban areas is the right way to look at it. Median rent is , $1,753 per month. That’s within a dollar of what the big professional landlords are saying. and rent growth, which was still growing, but at a lower rate during the first and second quarter is climbing back up. And what we’re learning, I think I show this later is that landlords by and large, not raising the rents very much on tenants that are renewing, but the demand is so strong that when your unit goes vacant, you’re able to release it at a lot higher rates.
So there’s a tale of two stories in here. There’s also people wanting to avoid headline risks, particularly the institutional companies of being known for Jack rents during a pandemic. They don’t want that. And 60% of them are now telling us that leasing activity is strong or very strong. So here we are at the end of the fourth quarter saying leasing activity is great and going forward, I expect it to be great too.
So that gives me a good eye on what the demand is like out there. only 11% say they’ve got lower occupancy than a year ago. They’re 97% occupied. So if you own a hundred units and 97% of them are full you’re in pretty damn good shape. And, that’s the recipe for a business that needs some more supply.
And we are seeing more supply come on the market, actually with newly built rental homes. Really in a mass way for the first time ever. So let’s look at the cycle of, okay. I could make a few comments. I think you hit it right on the head there, John, like I’m coming from the apartment world. And, you had that slide there where you had people moving out of apartments into homes.
definitely saw that in one of our apartments, that’s more on the B plus a minus fringe where it’s a clientele that is very good with their money. Let’s call it that. And they, when they saw race drop under 3%, we had a lot of people move out because they were buying houses to live in that has come and gone over a few months.
We had to get through that struggle where, went from 90 something percent down into like the eighties, which that was an interesting phenomenon and you hit it right on the head. and then, demand is definitely coming back overall. but we are still doing concessions cause it’s weird.
we don’t know. What’s a really thing with this. The CDC. But I do think that data is definitely skewed, right? if it clumps in there, all the Bay area, blue markets difficult non Lord laws areas. And then there are some areas that are undesirable that suffer because of this.
Yeah. and, if you’re a tenant basis, people who can work from home, , we’ve actually seen people move further out to get cheaper rent. and then there also is, they happen to have a neighbor who’s a bit noisy and interrupting their zoom calls. They’re gone. I think that’ll all come back if you will, but we have some pretty good data and a lot of confidence because I’m allowing my employees to do it.
More of them to continue working from home in perpetuity, some privacy and some quiet is more important in an apartment situation than ever before. So it can come down to the building and even who’s in the building. so here’s some data from our big single family rental report that we publish regularly.
So we do have a dashboard or where we can slice and dice all the data on rents and job growth and home prices. And one thing I wanted to point out here is actually during this pandemic, we’ve seen the gross yield and in places like Atlanta actually tick up, where rents have been. Growing. So 8.1% gross yield versus 7.9 a few months ago.
but that’s hair today to a year ago and just call a massive shift here. So a year ago, incomes are growing, say two and a half, 3% on prices. We’re growing four. So they’re growing a little bit faster, but rates were falling. payments weren’t growing faster than incomes. Single family rants were growing a little bit better, than incomes and apartment rents were going a little better than incomes, but basically you had a stable environment where three to 4%, payment or rent growth.
That’s a re that’s a market where demand is exceeding supply, but just a little bit. And there’s a lot of people running around saying, we need millions of more homes built or under supplied to the extent I think they’re overstating that, but to the extent it’s true, rents and prices have already adjusted.
And I think it’s important to remember that the look of what we’ve got going on right now. Home prices are up 10% year over year. We think they’re going to end the year up 11% single family rats, pretty much the same, about 4% single-family rent growth. And on average, apartment rents down because of some of the concessions you’re talking about.
But you want to pick the San Francisco Bay area? It’s down 30% plus in San Francisco, it’s up in Sacramento. So that’s a good example of people moving somewhere else to pay a heck of a lot less in rent. And here’s a good example of what you were illustrating. There’s a publicly traded company out of Toronto that owns a lot of rentals in the United States.
They own 22,000 single-family rental homes in 8,000 apartments. They’re called Tricon. they just reported their quarter. It was a phenomenal quarter where net income was up 74%. But since it was the exact same company, I thought I could compare and contrast their single family rental portfolio with their apartment portfolio.
So their apartment portfolio, the occupancy was down 2.4% to 92.8. the bad debt was up, to two and a half percent and rents were down to their single family. Rental portfolio. Occupancy was up to 97 and a half bad debt. And in a pandemic, a bad debt was down and a rent growth was a very strong 5.2%.
And when you drill down to that 5.2%. It was 2.4% of renewals and 12 of 0.6% on new leases, they were able to increase the rent. and this is the reason why, this is some census Bureau data. It’s the best data out there. It’s not perfect, but, they’re showing 95% occupancy, which is the highest occupancy in 25 years.
And so that’s where we sit right now is very high occupancy on single-family rental. One of the other big differences between apartments though, is we’ve been we’re at a 40 year high of apartment construction. So when demand slows and you dump in all these brand new, beautiful, vacant homes, that creates a lot of incentive where we have not been building rental houses like that.
So rental housing is not having to deal with all these brand new, beautiful rental. It was coming onto the market. There’s no competition. And that’s historically why this has been a more stable investment. And to compare in the apartment tenant versus the single family rental tenant. They’re the real amenities they want.
I get this question with our developer clients a lot. What amenities do they want? single family ranch just wants things I can’t have in an apartment complex, like laundry in my unit, more privacy, I garage, more square footage place for my pet, a tiny yard for a barbecue and the pet. those are the amenities.
Skip over this. And we have this in 63 markets around the country and probably the easiest way to say it is that the rent growth is the least along the California coast and in the Northeast. And it’s the most in the South. and the Southwest were these. Population growth we were seeing to those areas has just accelerated even more right now.
there’s been a lot of headlines of, big companies leaving California just in the last month. So the big guys, here’s how they’re doing. So there’s 80,000 homes, invitation homes. They’ve got the most expensive rents too, because they focused on what they call supply constraints.
Sub-markets places where you’d never see a lot of construction because there’s homes everywhere. So that they’re in it. From there in the eight locations, if you will, American homes for rent right behind him at 50,000 homes with slightly lower rents around 1750, both of them are clients of mine. And both of them say the average income on their tenant is as a dual income household.
That makes more than a hundred thousand dollars a year. And there’s a privately held company called progress that just bought a public company called front yard. And they’re going to be the same size as American homes for rent, but with an older, Less of a great location. Property, if you will, and these guys all need to grow.
So this is one of the reasons why I want to pull you and your, clients is, I think, an under reported factor. I think your listeners probably get it, but most people don’t is all the investment activity that we’re seeing in the housing market and investors competing from home. It’s not, we’re talking about mortgage rates and consumers, but.
That’s not helping invitation homes who needs to grow. That’s not helping American homes or needs to grow. American homes is building, I think about 1500 homes a year for their own account, brand new homes, plus buying off the MLS and same with Tricon. So I think there’s an investor frenzy. If you will.
everybody’s got what they call quote unquote, their buy box, their locations and price ranges. And as soon as one of those homes hits the market, there’s three or four beds on it. That could disappear. It did in 2007. so that’s why I want to pay attention to this. Then let’s talk about the rentals in America.
So there’s almost 46 million people who rent something 14.79 of them, or any large garden, a pump apartment complex, or a high rise. So that’s less than a third. Another 10 million or in a small rental building, like three to nine units, another 3 million in duplexes, another 13 million in old homes and another 3 million in condo.
So you probably hear people quote 13, nine or 16, nine or 19 nine. It depends whether they’re including condos or duplexes in their definition, if you will, but why are we building 400,000 new homes a year? Just for this segment up here that is garden apartment complexes. And we’ve been building nothing for the rest forever.
So this is the real opportunity where we’re seeing a lot of money come in and say, okay, if these guys can manage thousands of units all over Atlanta, if I put 200 units right next to each other, I’m confident they can manage that and do a great job. And there’s so much real estate capital out there right now.
th that’s the only safe place to go. You’re not going into apartments. They’re not going into hotels. You’re not going into office. You’re not going into retail until those things really become distressed. Then maybe we’ll see some capital pivots. They’re not. So I don’t skip over that. whereas, Oh, the greatest names of the apartment world than all of this.
So these are the biggest apartment companies out there, and they have not been participating in this at all. But I think this is going to change. We’re talking to quite a few of them. They’re not going to be building another garden, apartment complex when they’re giving away two months of free rent and the one they just opened, they’re pivoting over to what I think is going to be a brand new asset class, where we have more than a hundred thousand, brand new single family rental homes built every year.
the data right now says that we’re at about 55,000. And the big home builders know how to build these homes more efficiently than apartment developers and get the cost down. So you’re seeing Dr. Horton, Lennart told Taylor Morrison LGI the new Hong company. All play in this space in one way or another.
Some are building subdivisions and selling them. Others are, most of them actually are selling three homes here, four homes there, to people. Some of them are now in partnership with some of these companies to just basically feed, build the home for them since they know how to build. so here’s what we’re seeing nationally.
So in four years, the rent, has gone from 1400 bucks to 1,753. That’s a pretty substantial spike. The net operating margins have gone from the high fifties all the way up to 64%. These companies are becoming very efficient and, a percent now is a lot to add, but they’re adding a 10th of a 0.2 to 20 basis points, all the time getting more efficient on expenses and growing revenue.
And then, rent growth on new leases as a six and a half. And on renewals is three. So again, that’s the disparity I w I was talking about. I think one of the more interesting opportunities on acquisitions here, if you’re looking at acquiring a property, that’s leased, whether or not the current tenant is fully a market and whether or not you can take them to fully a market once you purchase them.
And the turnover has, people are locked down in their house in COVID right now it’s down to 29% turnover rate, which is just extremely low 97% occupancy. So getting to what’s going on around the country. this has not been an equal recession as we talked about earlier with the K recovery, but this has also hit various markets very differently.
So some of the markets that we’re already growing, like gangbusters are the ones that have had less job losses this cycle too, because people are moving to these places. Boston salt Lake Dallas, Phoenix. They’ve got 2% fewer jobs than they did a year ago, but the country has seven in places like New York and Las Vegas have 12% less.
So you got to pick your geography very wisely. And then if you’re targeted to do something new or class a or B plus you’re focused on high-income tenants. Austin actually has 4% more high-income jobs than it did a year ago. Dallas is higher. And that was before Tesla and Oracle and all these other companies announced that they’re leaving California officially and move into Austin.
So Austin is just absolutely on fire with people that make big bucks. what we’re seeing on the, if I transitioned over to the home price side of things, the number of homes in escrow pending sales is up 41% year over year. It’s up in every major market in the country, even Houston, where wild prices, I thought Houston was going to get killed.
We’ve got three people in Houston. they’ve been busy all year long. And one of the things you mentioned that you haul analysis, we price out, renting a U haul truck from one city to the other. And, if it’s the exact same price to take it to one city as to take it back, there’s an equal number of people leaving and coming and going.
But even during all of this where you think Houston would be in a big oil related recession, people are still moving to Houston because it’s cheap. And I can work from home. I can work from anywhere. It’s a better way of saying it. this is some data we got from a company that, analyzes mortgage data.
And you think of investors is paying all cash, but we’re now. So I talked about a hot Austin is with real people moving in. 15% of all the houses sold in Austin with a mortgage are going to investors right now, including some second homes. So this is a big part of the market and its cycle is pretty good.
Darn hard. Very interestingly to me that the investor percentages have been similar over the years, but who the investors are changes, dramatically. And that’s why I want to stay close to your listeners. Supply with that high demand supply is extremely low. We’re down to 285,000, homes for sale in the entire country.
That’s next to nothing. and, it’s down in every market except the two where the media is located and they’re pounding on San Francisco in New York. So yeah, San Francisco, New York housing markets are not the same as the rest of the country. They’ve seen more flight there and it’s more expensive and all the fun things to do have been shut down.
That’s why they’re struggling. lots of suppliers got really low. And so what happens when that happens is prices go through the roof. So we’re seeing even some of the markets that weren’t doing very well. Like the Chicagos of the world, our prices are up 7% per year. I do think that is driven by the fed with the low mortgage rates.
Then you go to some of the boom markets like Nashville and Portland up nine to 10%. A Phoenix home prices are up 15%. And that’s very interesting. I think for investors. Phoenix is one of the hottest rental investment markets in the country. but home prices are up 15% and rents are not up 15%. And so the yields have gotta be falling there.
And now we’ve got some markets where, homes are 20% of the homes, almost one in five and Seattle and Portland are selling within two weeks. And this has been such a big change from the old days when you had to go get a broker and you wouldn’t even get your open house, done it in two weeks. Technology has really accelerating the industry here.
this is probably too much detail, but I want, I wanted to point out there’s been a big shift in price in activity in the high-end lately. The a lot of the homes under $200,000 have now appreciated. And that used to be 50% of the market. It’s only 25% of the market, but this year really starting around.
June a little bit in may, but more in June, you started to see, people sell their home and buy a bigger, nicer home. We’re seeing a significant increase in activity about $550,000. And this is, that goes in with the K shape, recovery. It’s either the haves and have nots. I know here in Hawaii, The condo sales are staying where they’re at. those are you could say they’re the have nots, at the bottom half. And then the million dollar homes. Multi-million dollar homes here in Hawaii. It’s a lot of people coming in, moving in, trying to get away from the big cities or they just have money to spend on this stuff.
It’s the great chef, right? Not the great chef. No, I think, you’re talking about the high rise condo, so I assume, there’s that’s not something people are seeking during COVID, but I think that’s going to change. yeah. And then just wrapping it up today. So we did, I showed them a graphic here of a video we did 12 years ago.
but it smells a lot to me like, We had a little mini recession here, just like we did in when NASDAQ crashed in 2000. And then there was nine 11 in 2001, but we’ve got all this fed stimulus, just like we did back then, in, on the housing industry, which was in phenomenal shape. going into this recession and I just, I think we’re in the midst of a boom, how long it goes.
I don’t know, but I do advise all of my clients keep your eyes wide open as we go through this, because you can make a lot of money, but the last thing you want to do is give it all back. so managing your balance sheet and being careful and diversifying and all those things, I, and I’m sure that’s what you advise people to do.
It is the right way to play this and watch your debt levels as well. So there’s two charts here. They’re really compare and contrast what I’m talking about. Some of those, the home price to income ratio, we call it the home value to income ratio, which is actually creep it’s up at 2004 levels already.
It’s if you just looked at prices in relation to income, which is what investors are paying you say, this is absolutely insane. and we think it’s going to get more insane that’s how the. Tea leaves or how we’re reading them right now. but with payments so damn low, I’m not getting a lot of color from our clients that sell homes that they’re having a tough time getting people to qualify.
In fact, they’re getting three, we have offers on every house. so you’d say, Hey, this is sustainable. But the important thing to point out here is it’s sustainable because rates are so damn well. And, We think rates are going to be low for a long time. That someday if they’re not, or when they’re not, that will be a challenge.
they’ve been low in Japan now for 20 plus years. So it’s impossible to say this is going to change anytime soon. So just wrapping this up, that the payment matters more to the consumer, but the price matters more to the investor. So just pay close attention to that. Okay. I hit all these other things in here.
so let me just get to why we’re so bullish on the short-term resale homes are now sitting on the market for 21 days. That’s it? 71% of homes are selling less than a month compared to 49% a year ago. And we were talking about how ridiculously quick that was a year ago. Builders are selling far more homes than faster than they can build.
D R Horton, which builds 50,000 homes per year. So 81% more our homes last quarter than they did a year ago and a year ago was a good quarter. so they’re just struggling trying to get these things built, which by the way is great for the economy that all that construction is going on. And there’s a shortage of lots.
For the home builders to build on because all of the demand and job growth is in the urban areas, this cycle, and all the land is really far away and people hate to commute. And so there wasn’t a lot of demand far away, but I do think this work from home shift has change that permanently. and we have some survey data on that if you want to get into it.
I mentioned the bidding Wars, Bob Shiller want to know about prize and I’ll just. No wonder for a lot of things. But one of the main things he did was looking at investor sentiment and how that can drive prices too high. So that’s why I want to get an appetite on sentiment. And one of our signs of a housing bubble is a, when my cab driver, I guess now it’s an Uber driver or the lady who was cutting my hair is flipping homes are we’re back at an all time high number of realtors, which by the way, we are that’s, that can be a sign that things are getting too frothy.
So just keep. Keep those factors in mind. So I’m assuming continued economic growth continued though mortgage rates and increase in closures, but pretty modest, thanks to government controlling the process this time. And this may not happen, but a reduction in home price euphoria. it actually could go the other way.
So I’m being a little bit conservative here. But if that happens, we think rents are going to grow three to 4% a year, but home prices could grow 8% next year and then six and then five, if I don’t see that reduction in home price euphoria, I think we could see a couple of years in a row of an eight or higher.
We just are. We’re coming off in 11. that would create a housing bubble, that you. Want to be prepared for, with your debt structures. And if anybody wants to see the slides, just send me an email to Jay burns it real estate consulting.com. Or if you sent that email to Devin Bachman to, she, she can share the slides with you as well.
Yeah. And if you guys want to help us out and, do the survey for us, you don’t have this, shoot me an email plain and simple passive cashflow.com. I can connect you with the folks and get you set up with that. I think. If you guys do the survey, you guys give them the survey results right after the data’s all compiled.
So that’s you guys want to see this for yourself. That’s the way of getting that data logging at all. But if you go back to the last site, John, the way I’m reading this, you’re calling there’s a big STEM of less what, five to 10 trillion who knows there might even be another stimulus early next year, but you’re seeing this push through in the next year.
Two or three years like the, the benefits or I’m seeing a push through now. And, there’s this year, there’s probably been an overemphasis on where you live because you’re, there’s more people in the house all day long. I do think some of that will cool next year, people are going to take vacations instead of remodeled their house.
But, I see a sea change now to people who wanted to become homeowners someday becoming homeowners, settling down, being far less worried about mobility issues, because, Hey, I’m a great computer programmer. And, even if I switched jobs, I don’t have to move. there’s a really good chance here that we’re going to see home ownership skyrocket because of technology.
And I have, always been a big fan of these presentations you guys put together. And I think the reason why as you guys get right down to the weeds level, where we are simple, passive cashflow nation is not mainstream by any stretch of the imagination. And I think it’s, that’s a great place to get some data from.
like you said, when the text, when the Uber car driver is flipping houses or buying turnkey rentals, that’s the way I really have to all worry that ain’t happening yet. Oh, one thing that I did want to mention, when I was at CG, one trend that is coming up and I think you had it in a few of your slides, but you didn’t really mention it, a lot of.
there’s turnkey buyers that buy, rehab properties that are a few decades old, but you’re starting to see a lot more of the build to sell to landlords, new builds because people want newer properties, more workforce housing types, but they want new stuff. So you’re having a lot of these home builders are smaller guys like in CG built these brand new rental properties, turnkey rental properties.
But with which at a local level can create an oversupply issue. So there are parts of Phoenix where we’re starting to get concerned about that. So it is something to look at for the first time. yeah. Let me ask you a question. I’m sure your listeners would be interested in this too. What is your sense of, the number of people that are interested in passive investing like this?
how much is it up versus a year ago? like in March and April, we were doing, we were actually buying the Rockefeller, building in Cleveland, Ohio. And it was like, Oh crap. Like the Dallas, when the world was going upside down. And investor segment kinda got cut in half. Normally we can bring in like $10 million and that just got cut in half, just from a pure numbers perspective.
People were afraid. I didn’t know what to expect. It’s a multi-family residential, it was just, I don’t know if it really matters what it was. It’s just, I think it was just general, uncertainty, but it’s been slowly on the rise. Coming back. I feel like the L I thought it was the election was going to be a big part of this, getting back to normal.
But I don’t think it was, I think it was just a distraction, if anything, but I think people are, that’s presentations like yours, that really shines the light that, yeah, this is big government stimulus. The wave is coming these next few years better get on it, or you’re going to be missing out on one of the best bull runs ever.
I didn’t know how much stimulus money was coming through the pipeline. Now that I thought it was less than the 2008, 2009 stimulus times. no, it was more it’s R what’s already out there. and actually, I should mention too, a lot of the stimulus last time was on bank balance sheets and just sat there.
Now it’s on business owner, balance sheets and consumer balance sheets. And so it could be spent pretty quickly. And that’s the fear of some people is that if there’s some big resurgence in spending here and everybody’s competing for stuff, we could see a lot of inflation and we’re seeing a lot of inflation and home price, just not in everything else.
I’m more of a moderate, I don’t really get too excited. this is very exciting. Data that you’re showing. I try not to get too excited about these types of things and just stay in my range of the welfare cash flows. We have the good debt service coverage ratio. We’ll have God, can it be?
but I think what confuses a lot of investors, there’s a lot of, PERMA bears, right? If you’re Peter shifts, your guys are always saying that the world is going to collapse every other month and it doesn’t. Yeah. And I don’t think anybody listens to them. I’m far more interested in how many permeables out there, particularly under the age of 32 that can’t afford to buy a home where they’re currently live, but are buying homes, sight unseen in Memphis.
So that’s what makes me nervous. and so you’re telling me you’re not seeing a huge boom in that I’ve been speaking to the number of events I’m smelling one. it’s, it seems to me like, Hey, I’m not going to the stock market. I’m not going in the bond market. That all feels really frothy the housing market.
That’s what to do. Yeah. I think I, my, I’m speaking on behalf of my investor club, which I feel like are still, we’re not huge family office. We’re not institutional money. I like to think we’re sophisticated mom and Paul money, we’re not buying some random, crappy turnkey rental.
That’s overpriced. Like we’re a little bit better than that. Oh, you’re way better than that. But I would be very interested in learning if you’re starting to lose out to some of those non-professionals who are overpaying for things, because definitely like the guys that have joined in my group maybe a few years ago.
They’re starting to realize, yeah, I can’t be buying turnkey rentals anymore. I can’t be using all the same techniques, the, these lease option, things that used to, because yeah. Now the new guy is eating my shorts on that. I’m like, yeah. wake up. You’re 30 years old. There’s another 22 year old kid doing the same thing or somebody who started up a few years ago was doing this.
You know what you’re doing Fabi better or are willing to take more risk. I think I see a lot of kids that they’re doing that burst strategy where they’re. Right throwing over 30, 50 grand wiring cash at him and see the property. it works in theory, but I’m not a big fan of that stuff.
Especially for high net worth investors. It’s not worth the risk. That’s what happened last time when they started borrowing a lot of mine to do those things. And so I do not think that’s going on right now, but that’s why we want to do this survey because if it does start going on, I want to identify.
there’s a couple of companies Roofstock and another one, I just talked to you where you can now buy part of a home online. And in fact, the one I talked to yesterday, you can start at a hundred bucks. So they’ve, they just got started. They’ve sold six homes this way. I don’t know how many people have been involved, but I bought pieces of these houses.
And as does it’s designed for people to build an ETF in housing, I’ll take, 5% of that home in Vegas and 10% of that home in Houston, wait until somebody starts loaning them the money to do that. And I don’t think it’s a huge issue right now, but I’m starting to see it coming. and I think they’re lowering that barrier to entry, to investors, which I think is a great thing.
I’m all for people getting out of the stock market and that retail investments. But when you look, when you lower the barrier to entry too much to, that’d be bastardized the, get anybody can get in and anybody can run up and buy a hundred bucks here. It’s like the Robin hood thing.
No it’s Robinhood for housing. And what happens to home prices when that happens? They go right through the roof. Same thing happened to the stock market. So you don’t get in now or get a little more sophisticated and do something else that the normal guys don’t do mean. One premise I always do is do things that the average guy can’t do that can’t compete and always try to stay a half step of the game.
But well, John, yeah, again, help me out guys. want to have John back on here, so let’s try and help them up on those surveys. It doesn’t take too much time. jayBurns@realestateconsulting.com or just shoot me an email. I’ll connect you guys with the right folks. And I appreciate it, John.