Welcome to How to Money. I'm Joel and I am Matt, and today we're talking traversing a broken housing market with Lance Lambert.
Yeah. So, anyone who has spent any time in their Zillow and their Redfinn apps over the past few years knows that something is broken when it comes to home affordability. Or maybe they don't know it, maybe they don't have the data or the facts, but they feel it right as they're looking at homes. They might be overwhelmed to given the current state of the housing market. They might be saying, how can home prices continue to skyrocket like
they have? And even if prices taper off some how am I supposed to save up a down payment in order to actually make a competitive offer. There are a lot of just big unknowns when it comes to the largest financial decision that many of us will make. But luckily we're joined by Lance Lambert. Lance is the nation's foremost data journalist and beat reporter in the residential real estate space. He's been the real estate editor over at Fortune Magazine, and he's recently launched Rezi Club to help
folks to stay informed on the US housing market. Lance, thank you so much. For joining us today on the podcast.
Yeah, thank you so much for having me on. And you hit the nail on the head right there, which is that housing affordability has deteriorated at the fastest pace ever over the past two years, only three years. And so what happened there is we had an overheating on
prices during the pandemic. And what was going on is that there was an elevation in the demand for housing space, and so people, because they were working from home, could work in other you know, go live in other markets, go buy a home in let's say, you know, Lexington, can if they were working in New York City, and so they were able to depart their job market for a more affordable place. So that's work from home arbitrage.
And then the second part is the people who stayed in those markets, even the places that had net out migration, think San Francisco, Los Angeles, New York City. The people who remained wanted more space because they wanted to work, they were working from home, they needed more room in their apartments. And so there was this elevation in demand for housing space and the work from home arbitrage that occurred.
And at the same time, you had rates go to the lowest ever this century, really over the past one hundred plus years, and you had a lot of easy money rolling through the economy.
And so appreciates any money.
Yes, appreciation for housing. For home prices on a national basis went up about forty five percent from March twenty twenty to June twenty twenty twowenty twenty one alone, we were up like twenty one percent, which is the biggest year ever, one year jump ever in home prices.
Yeah, Studio apartments basically became persona non grata who wants them because you need a space of orger Like I distinctly remember the beginning of the pandemic, my little sister and her husband working out, both of them trying to work from home in a studio apartment and it was not working very well. But listen, sorry, we have to ask you. One of the first questions we ask anybody who comes on the show is what's your craft beer equivalent?
Because like, we want to get into all this housing data. And I love that you're like chopping at the bit to get started.
Yeah, but you know, I'm always ready to just like take off the place. And so you want to know where I splurge on money, right exactly?
Sure.
Yeah, So I am a long I grew up in the Cincinnati area. I lived in New York before the pandemic hit. But when the pandemic hit, we had this guy named Joe Burrow that the Cincinnati Bengals drafted. Oh yeah, and I was already ready to move home, but that even made me wanted to get home more. And I kind of just had a feeling because I also watched college football that we were going to turn it around with Joe Burrow. It just kind of felt like it.
And so my area that I splurge on is anything Bengals. I like to go to some road games, you know, I like to go to the home games. You know, I probably have bought like six or seven jerseys over the past, and I'm not you know, I'm a tightwad, so you know, and you know, like somebody have a big interception, I'll just go by their jersey. So I'm feeling splurging more on Cincinnati Bengals just because it feels like this is, you know, a rare moment for us
where we might be all right. Although you know, by the time this publishes, we could have lost several games and lost. You know it hasn't been off to the best start.
No, that is perfect. I love in particular your tight wad, but you are willing to splurge in this way. And by the way you said like six or seven jerseys. Those jerseys are not like that alone could have been on top of it. You at the away games.
A few of them are official, and then a few were like the fifteen dollars from China.
Nice. So you got to get you get the knockoffs where the color is not quite right. It's a I've done that before. Matt might have made fun of me. I got one from our local soccer team in Atlanta, and like the red was definitely a lot more abrasive. It was a little pink had a pick here than the red. Atlanta United was rocking. But Lance, I feel like you caught us up to speed when it came to the reaction of housing prices.
Like I got to the first half, which is house prices. Sure, yeah, Really, the thing that a deteriorated affordability wasn't just the house price jump. Really, if you break down the math, the biggest part is just the historic move up in interest rates right, going from two three percent mortgage rates to four to five to six percent to seven percent, and then you know, this fall to hit that eight handle.
And when you do the math with the house price move and then also the move up in rates and the fact that income, the third variable, just hasn't kept up over the past three years, what you'll see is that we were in the fastest deterioration ever for housing affordability. This is the fastest move up in a three year period ever. And we also have reached the most expensive
period for housing this century since two thousand. But really, if you go back, this is the most expensive housing has been for new home buyers since nineteen eighty four and really only beat by eighty one eighty two, when mortgage rates were kind of pushing sixteen seventeen eighteen percent at the you know, at the peak of Paul Volker's
interest rate hikes. And so the affordability has really deteriorated quickly, not just for housing, but also autos, which saw the same overheating for prices and the same rate shock as housing did. And the results there are interesting. You know, it's not just one you know, it's not all that you know, housing is in a bad spot, or housing it's in a good spot when you kind of break it down. There's a lot going on based on this
deterioration and affordability for starters. The existing home sales now are lower than they were at the bottom of the eight ten, nine, ten, twenty eleven crash. And what's happened is that affordability has deteriorated so quickly that people with two three four percent mortgage rates and their lower monthly payments are like, well, why would I sell my home and go buy something new?
Even if you had triplets, You're staying in the two two because you don't want to give up the three percent rate.
Yeah, yeah, And so you know, my my wife's pregnant. You know, not all our family knows, but hopefully by the time publishes we will have told everybody. But we have a three bedroom house and this would be our third kid, and it just doesn't make sense for us to go buy some they knew right now, we'd rather just bunk at it because the math doesn't make sense.
And so you've taken out what I call churn in the market, somebody selling to go buy something new, And so the existing resale market is just very constrained right now because there's not much coming up for sale. So
that's the first part. The second part is if you look at the home construction side, the new side of the market, not the existing the new side where the home builders play, what they have done is unlike the existing side of the market, which has been very sticky on prices, the homebuilders have given up some on prices, and in particular on a net effective basis for mortgage rate buydowns, in particular in markets where there's a lot
of new construction. Think Austin, Think Boise, think Phoenix, think a lot of these places in the South that build a lot of homes, and including Dallas. The builders have given up some on prices, but they've also done these mortgage rate buydowns, and they'll buy people down into the five handle and sometimes even into the four handle high fours to get people interested or getting them to pull
the trigger. And so a lot of the people who would have normally looked at the existing resale market are now looking at the builders and looking there because affordability is so deteriorated, and they're the one player in town that has made some affordability adjustments, and so new home sales have actually rebounded after last year's big or in twenty twenty two is big cratering. There was a big plummet down in new home sales and a huge spike
in cancelation rates among builders. But by early twenty twenty three, the builders had kind of figured out the right mix of incentives, buydowns, and price cuts to bring the buyers into the existing market. So new home construction on the single family side has been fairly resiling, and we haven't seen many layoffs in new and residential construction employment. One reason being that, you know, single family sales have rebounded
in new construction. And then also the fact that there is this huge pipeline a multifamily still under construction and it was kind of planned back when rates were lower, so that's still in the pipeline. And why that matters is from an economic perspective, housing is one of the areas where the fed's rate policy has normally transmitted into
the rest of the economy. And so how it's normally worked is the FED jack's up rates, affordability deteriorates, new home sales fall way down, builders pull back on construction. You know, there's some there's a lot of layoffs and residential construction employment. Those people spend less than the rest of the economy, and that kind of trickles through. We're
not seeing that right now. We've seen the deterioration and affordability, but builders have made the cycle rolled over on affordability because they made some affordability adjustments and they were able to keep volume transactions and employment moving.
So that's okay, So quick question, then I think I saw so according to data from the Census Bureau, like recent permits and starts, they seemed to be down from a couple years ago. So it does seem like construction has maintained, but as far as new construction, as far as new permits, those seemed to be declining compared to what we saw a couple of years ago.
Yeah, there's been some there, but on the single family side, the completions have held steady. One of the things that was happening during the pandemic is that starts and also sales were outstripping the capacity to build, and the time to completion for these new homes got really high. And so what you've seen is you've seen the sales come down from the frothy pandemic tops and the permits come down from the frothy pandemic tops. But you have seen
completions hold steady. And what had to happen there is that the time to completion is starting to normalize. Builders who are able to build the homes faster, And so you know, the hit there hasn't been that big when adjusting for how high it got during the pandemic. If you compare it to twenty nineteen levels on the starts and the permits, you start to get a bit of a different story.
Is part of that that they're building smaller houses? I've read more about it seems like new home builds are for the first time in a long time, for the first time in like fifty sixty years, becoming like smaller homes are being built. And that seems to be given kind of how things have gotten locked up and affordability has become a problem. Maybe that's at least one part of a solution.
Yeah, So what we've seen since really about twenty eighteen is that gradually builders have been building smaller homes. We've kind of seen a rolling over on the square footage for the average home and it's been moving down, not just you know, on a national aggregate, but really almost every market is getting smaller and that is probably going to continue to accelerate now that affordability has just deteriorated
to the levels it has gotten to. But this has been a steady move down, and we're not talking like drastic moves. We're talking like two three percent contraction per year in square footage. So it adds up, you know, if you look at it from now versus twenty eighteen. But it's a very gradual move down.
We're kind of talking about that. I guess overall the supply of housing and how that's impacted housing affordability. How have investors been impacting what's happening in the in the housing market. Do you think the different Wall Street firms out there investing in single family homes have they had a big effect on the lack of inventory for uner occupants.
So on a national basis, institutional home buyers those with you at least one thousand homes in their inventory. They own about zero point seven three percent of the national single family housing stock according to Parcel Labs data. So they're not a huge amount of the total housing.
Stock except for where we live here in Atlanta.
Right, That's what I'm getting to is that in Atlanta they own four point four percent of the single family housing stock, and if you look at it based on a zip code level, there are around eleven zip codes in the Atlanta area where they own about half of
the single family rental stock. And so my view on institutional home buyers is that I believe on a nationally aggregated basis, they're probably not moving the needle a ton, but on a regional basis in a certain specific pockets, it's they are probably the marginal home buyer in some of these areas where they've kind of all piled into and I think with Alanta in particular, they're probably you know, running their numbers and they're like, oh, Atlanta has good
population growth, Oh, Alana has good rental growth. Oh Alana has good home appreciation growth.
Oh.
And by the way, affordability in Atlanta relative to where some of these buyers are coming from is kind of in a good spot, and the rent yields just work out great. And so a lot of them have probably just piled into the market because they're all seeing the same aggregate data. That's the view of kind of parcel labs, and I think they're probably right, and so I think
they have an outsized impact in some markets. And I think those markets are probably Charlotte, Alana, Tampa, Dallas, Phoenix, and I'm missing one more, might you like Houston, but really you would probably think Raley and Jacksonville are right
there too. But those, you know, the states in you know, the sun Belt that are kind of like high growth states that have good long term outlooks and reasonable state laws for you know, for landlords is probably you know what they're after, and really at the end of the day, it's about those yields. Can they get the returns on
the capitol they want? And those have been some of the markets over the past several years that they've been able to And if you zoom out, what occurred during the pandemic is we saw a huge rush of investors everybody from you know, the mom and pops, the people who want to do you know, amateur airbnb folks. And then you also saw it on the institutional side. And what occurred is there was a very easy access to capital during that you know, low rate, high stimulus period.
There was the low rates, soaring rents and high home appreciation, and when you add all those factors in the yields were just amazing. And so, you know, a lot of the biggest buyers American homes for rent, invitation homes, Amherst Tricon, you know, they were out there buying. And now what we've seen is we've seen rates move very high, home
prices have stayed high. Rents relative to home prices are very strained, and there's not a lot of inventory on the market, and so there's not a lot out there available for sale and not a lot of it that is out there pencils. And remember these people often spend a lot of money on renovations too, and realizations and repairs are very expensive. Given the inflationary run and the move up and capital cost on that side, we're seeing less institutional home buying right now.
Yeah, you mentioned you mentioned rents, and that is something that Yeah, during the really heart of the pandemic, rents were skyrocketing, and we had certainly a lot of listeners reaching out like what do I do? How do I push back against these crazy rent increases? But now rents are softening and in fact like falling year over year, which is good for what we're talking about the affordability for folks who are looking to rent, but that doesn't
necessarily help home buyers. But I'm curious like to hear your thoughts on we have this massive spread now between the average cost monthly cost of a mortgage versus the monthly cost of rent, especially in places like California. So is renting a superior option for so many people who are like I want to own a home. Is patients the best way to proceed given kind of how much cheaper rents are relative to the home.
Yeah, So I want to be careful here. You know. One of the things I try to do in the space is be a little bit more of a journalist, a little less of an analyst, and try to not make too many big predictions. That way, I can, you know, kind of spread other people's views and be a good place for people to get exposed to a lot of different viewpoints. But I will say, in terms of the data, we have seen a softening of rents and rent growth.
That is true. We've seen some falling rents on the multifamily side in very big boom towns think Austin, think Boise, Phoenix, some of those places with a lot of multifamily inventory coming into the market, but we have continued to see rising prices for single family rents and you know, invitation homes which they own almost ninety thousand single family rentals. If you look at their earnings report year over year single family rents and there's on average we're up six percent.
And so I think it's important to remember that there is a bifurcation happening throughout all of housing right now, and on one of those fault lines is multi versus single family and single family it appears, and at least among a lot of the investors I also talk to, they think there is upward momentum on single family rents.
And you know, so the last time that the cost to buy versus rent got this strained, which right now a new monthly mortgage is substantially more expensive than renting the same home in most of the country right now. The last time that happened was six seven eight, and the gap there closed very quickly because house prices crashed
and rents continued to rise. Now, maybe they're looking through rose collared glasses, but a lot of them think that there isn't going to be the downward momentum on house prices because this time we don't have the toxic mortgages, think the ninja loons, we don't have that this time like we did in the lead up to THEA crash and also in the lead up to the OA crash.
Active listings inventory had been building for several years and there were substantially more on the market, and then when you had the foreclosure crisis that occurred in the job loss recession, it created this perfect storm to pull house prices down. Industry experts now think that's less likely for you know, a material correction in house prices, and they're talking on a national basis, but they think it's more likely that rents will do the work to help to
narrow the gap. And again, maybe that's rose colored glasses, but at least that's the of you that shared a lot among the industry. And again i'm talking single family here. Multi is a very different story, and there's a tremendous amount of supply on the multi family side that's still making its way into the market over not just the next you know, the last six months, but really twelve eighteen months out.
Still sure that being said, there are still some markets that have seen some declines and will actually ask you about that as well as some other wisdom hopefully that we can give to our listeners on how it is that they can go about purchasing a home, especially for those first time home buyers. And we'll get to all of that right after this.
Are we're back from the break, we're still talking about traversing a broken housing market with expert Lance Lambert. And Lance, let's talk about kind of the You've mentioned the term bifurcation. And one of the interesting things all real estate is local, right, and that can be hyper local in for instance, in Atlanta where we live, like certain parts of Atlanta have seen outside growth, other parts have seen not nearly as much. Or that can be kind of town to town. Some
towns were boomtowns during COVID. You mentioned Boise and Austin being a couple of those. There's a bifurcation there, right, some of those. I think you equated Austin to being like a meme stock the way kind of it shot up in value all around Austin. I saw all these investors talking about how they were buying up all this stuff in Austin. Well, now Austin is seeing a decline when other parts of the country are not.
Is that correct? Can you talk about kind of the local realities of real estate?
Yeah, that's right. So on a national basis, houseprices since you know, the twenty twenty two peak, you know, they started to correct a bit in the second half of twenty twenty two, down let's say four or five percent according to Key Schiller and Freddie Mack. But they then rebounded in the first half of twenty and twenty three this year and kind of made up for the gains that fell off. So on a national basis, houseprices have kind of been frozen essentially since you know, Summer A
twenty twenty two. They gave up some, then they rebounded. But really, if you look at these different indices, we might be up one two percent a half a percent since the twenty twenty two peak based on the end of cy you look at. But on a regional basis,
the bifurcation has been really historic. So we've had some markets like Hartford, Connecticut, where house prices are up about eight percent nine percent since the twenty twenty two peak, and then you have markets like Austin, Texas that, at least according to the latest Zillow data is down eighteen percent from the peak. Now slimendoses have them down closer to fourteen or thirteen percent. But Austin has seen a material correction in house prices. Now they're still up a lot.
Austin's still up like forty two forty percent since March twenty twenty. But what happened is in the first twenty four months of the pandemic, say, they were up about sixty eight seventy percent for prices, and so Austin just got ahead of its you know, it got ahead of its skis. Prices went up too much. There was a lot of investors pouring in, a lot of people moving in from California during the pandemic remote work period, the lockdowns that just did you know, Austin seemed cheap to them.
So they were driving up prices just really fast and too far beyond local fundamentals. And by the time mortgage rates started to move up, Austin on a historical basis was overvalued, according to Moody's analytics, by about sixty percent from historical fundamentals, and so that strained fundamentals and the fact that locals just could no longer really afford a home, and then you had fewer the people from the outside pouring in, and you know, and investors kind of also
got over their ski. So we're going through that correction in Austin, and it really started summer in twenty twenty two, and it's carried over to now and we're in the seasonal saw period for twenty twenty three. I would expect these next few months to still be fairly soft for Austin.
Isn't Isn't that the sign, at least to a certain extent, lance of a healthy market that some a market can get out over at keys and then maybe the speculators, the people who go in and buy top dollar banking on like continued ridiculous growth, they're the ones who get burned, right, That is what happens.
Oftentimes.
I feel like I'm, like I said, I'm seeing some investors being like a year ago, Austin, Austin, Austin, and now some of those folks who bought at the peak, they're having a tough time. And not that I wish that on them, but I feel like there is a reality as an investor that you have to be thoughtful about, like the long term approach, and if you're buying hoping to make a quick buck, you might lose out.
Yeah, And I think you hit the nail on the head, which is that housing is not a meme stock. And what we have seen in the first two years of the pandemic, that level of house price growth that was unhealthy. We do not want to see that. That is that is not good. Now, maybe if you're an investor, maybe you kind of liked to have seen that, but you
know it's not sustainable long term to have that. And I think one of the telltale signs of trouble in a real estate market is when you start talking to investors and you start finding out that they are buying homes that will cash flow. That means the revenue they will make on a monthly basis is less than what they can charge in rent. And so that's what you know, people like Michael Zuber over at one rent a lot a time call an alligator property, meaning it's costing the
investor money every month. And if an investor has two, three, four of those, that that that's a lot of money going out a month. Now, an investor might be doing that because they're saying to themselves Wow, look at how fast home prices are going up. I'm going to make a fortune if I just hold these, even if I'm burning money every month. But what happens is into a housing correction once the fundamentals have gone too far and there's too many of that, you know, the investors who
bought their speculating like that. It can put downward momentum on a market. And I think that's what's happening in Austin.
And I had been talking to investors in real estate agents who had told me they were seeing alligator properties occurring where Austin had not just went up sixty eight percent over the past in the first two years of the pandemic, but if you zoom out, Austin was one of the few markets that did not bust following eight They only fell like eight percent during the eight crash error, and they had climbed up like two hundred and twenty percent over the past ten years. So investors who were
in that market made a fortune. Then there was a big run up occurring during the pandemic, and there was just that fomo that occurred where it's like, oh, you can't miss in Austin. This city, is you know, taking off and even if I can't make the money up in rent, you know, throwing one hundred bucks a month or two hundred a month on these homes isn't going to hurt me because I'm making it up on the appreciation.
And once the music stops, that's when you have trouble, and that's what's occurred in US.
Sure sure, Well, forget the speculators and like even forget the investors. What about just the honest, good folks that are trying to buy a home. What would you say to our listeners out there? They want to buy their first place, and they've been saving up, but they're nervous that they might make their purchase and then we might see a meaningful correction or even years without any price growth.
Do you think that that's a legit worry for those folks who are buying for more personal reasons, or is that something that they probably shouldn't be too concerned about.
I want to start off with one thing, which is I cover mortgage rate forecast and house price forecast, and I do it religiously, and in my opinion, I don't think anybody in the country tracks down more housing and mortgage rate forecast than I do, and I will tell you we have been through a three year period where they are missing less and right in every direction. And I think the experts have really gotten house prices and
mortgage rates wrong over the past couple of years. I think it's a lot of it's because of the unpreceded you know, things that occurred during the pandemic, with the lockdowns, the amount of stimulus money, how low rates went, you know, the inflationary shock. All of that plus work from home has made it really hard to predict. So the first thing I want to say is I'm not sure anybody really quite knows where house prices and mortgage rates are going to go in the next six months, twelve months,
let alone three four years. So that's the first part is I think the forecast have really struggled here, and I don't want to make a prediction on the house prices and rates. The second thing is I try to not get into this game of is it a good time to buy? Is it a bad time to buy. My view is that there's always somebody that it is a good time to buy, and there was always somebody that it's a bad time to buy, and it really
comes down to personal financial circumstances. And I think the number one thing to do if you want to become a homeowner is to really work on your personal wealth, your personal income, job prospects, entrepreneurial prospects, and then also your relationships. You know, the number one thing that drives people to have to sell is they have a divorce
or a job relocation. And so I think it really, you know, housing is a little bit less on trying to gain mortgage rates and house prices and more on trying to work on yourself, on your personal financial circumstances and also, you know, your relationship.
I one hundred percent agree with you. I think the one the one caveat I would throw in there is just you might want to have a longer timeline of ownership for the house that you buy. Typically maybe five to seven years is good enough. Like I think I'm gonna stay here for that long, but now maybe the upper end of that timeline is important, baby saying, I will I'm okay being in this house seven to ten
years if there's a correction that I'm not expecting. Can you talk about talk about mortgage rates for just a second, land so you talked about how difficult it is to
predict where they're going. But I guess one thing that we can see in the data is the difference between rates on like thirty year fixed rate mortgages and adjustable rate mortgages and adjustable rate mortgages for a lot of years we're just kind of like silly to really even think about, because like, well, if I can lock in a thirty year mortgage at three and a quarter, why am I going to look at the adjustable rate mortgage
and even chance it? But now as rates have ticked up and the gap has grown, do they look more attractive in your opinion?
You know, there's nothing wrong with getting a fixed rate and then if rates come down refinancing, and you know, I'm not sure how enticing the variable rates have been to people. If you look at like the Freddie Mac data, it hasn't really taken off that much since the rates have kind of moved up. But I do think a lot of people buying over the past twelve months have really thought, you know what, at some point rates will probably come down and I'll be able to refine. You know.
The only thing I would say is what I've been saying for a while now, which is take people's mortgage rate forecast with a grain of sault. You know, I think there was a lot of people last year who were telling people, Hey, rates are going to come right back down into the forest really quick. Just go ahead and buy this home. And so what occurred is a lot of people who bought in twenty twenty two thought that rates would come down this year and they'd be
able to refi. Well, what actually occurred is that rates went even higher. So on one hand, they didn't get to refi. But on the other hand, had they waited another year, they would have had to get even a higher rate if they bought, and maybe higher house prices depending on their market, or maybe lower depending on the market.
And so I would say take some things with a grain of salt, and then, you know, be financially prepared to pay whatever you're agreed upon monthly principal and interest payment is, if your monthly payment principal and interest is twenty eight hundred a month, be prepared financially to pay that for a prolonged period or even longer than maybe
you will actually have to. But I would say mentally, prepare yourself to just continue to make that payment and then if rates come down and you're able to REFI, you know, treat it as like a financial blessing instead of a guarantee.
No, I think that's great advice.
I think too many people are being told, also by real estate professionals, whether it's a realtor or a mortgage broker, Hey, no, you're totally gonna be able to refinance. The next year is not gonna be prob You're gonna save two points and this is gonna save you this much on your monthly payment. And people are buying the home saying, all right, I can slog through it.
For a year.
But then maybe that's that's not the case, Like you said, maybe rates keep going up. Where do they go from here? Who knows? That's anybody's guest. But Lance, we've got a couple more questions. When we get to Grant and I mentioned realtors, We specifically want to talk about that recent ruling and how that might the ruling a court, about how that might impact realtor fees and maybe saving consumers a lot of money. We'll talk a little bit more with Lance right after this.
We are back again. We're talking with Lance Lambert formally with Fortune now has launched Rezi Club and Lance, let's talk about realtors specifically. We wanted to mention like that recent legal ruling against the National Association of Realtors, Like it seems like the fallout from this could be pretty massive, not only for real estate agents and what it is that they earn, but also for buyers and sellers. The amounts that consumers could save would be a significant amount
of money. Do you have some thoughts.
There, Yeah, So, a couple of weeks ago, a Missouri jury, a federal case, they awarded the plaintiffs in the sits Or Burnett Buyer Broker Commission Action lawsuit around like I think it was one point seven eight billion in damages, and that was against Keller Williams Home Services of America and the National Association of Realtors, and they accused them of conspiring to inflate commission rates, and the jury agreed.
And so essentially how real estate has worked for a really long time is that there's a three percent fee for the buyer's agent and then a three percent fee for the seller's agent, so six percent of the total sale price, and usually that has always been paid by the seller and the seller's kind of been stuck paying the buyer's agent. And I think, you know, it's caused a lot of frustration every years, and there have been
ways to get around it. But the accusation that the you know, the plaintiffs made in this case is that, you know, the agents and National Association of Realtors was essentially acting as like a cartel, forcing people into this type of agreement. And I think what comes out of this and my opinion is I think that ruling was an earthquake felt by the industry, and I think now we're just going to figure out was it a small quake or was it the first tremor and something much
much bigger. And so what's going to occur from here is years of lawsuits. There's going to be lawsuits against numerous organizations, and we're gonna have to kind of figure out how this does or doesn't change the real estate industry. I think for the immediate Byron Byron seller, it probably isn't having necessarily a huge impact because we you know, I mean, the judge still kind of has to rule on the case, and it's already going to be appealed.
But I think it's just uncertainty has really been brought into the market, and I think it's really been felt mostly by the industry, unless so by the buyers and sellers, and the industry just kind of wants to figure out how, you know, how how will this change the rules?
Well, and let's be honest, the transaction costs for buyers and sellers kind of also insulate activity in the housing market. And because it is expensive to buy or to sell, that's just one other reason maybe to stay put a little bit longer. And when you look at worldwide, kind of what realtors, the percentage of the transaction that a realtor makes like they're they're higher in the United States and pretty much anywhere else. So it not that Matt
and I are against realtors. We love realtors. We've had great realtor experiences. But that is I'm curious to see the shakeout as well. You actually you talk to the CEO of redfinn kind of not too long after that ruling came out. What was that like and what's his perspective because redfinn Is has kind of been at the forefront of trying to reduce broker fees and make home buying kind of more consumer friendly.
Yeah, so before the rolling, you know, they had pulled out from the National Association of Realtors. And when I say they, I mean Redfin and it was really you know, on many fronts, but you know, the sexual harassment allegations against the National Association of Realtors, just some complaints about how the industry has done things. You know, Glenn over
at Redfin hasn't felt great about that. But in terms of, you know, where things kind of go from here, I think Glenn is kind of in the same boat of what I said is there's just a lot of uncertainty. I think Redfin feels like they are prepared with whatever direction it goes. You know, this has obviously been one of the things that they've been pushing against the industry, and they've kind of tried to be a discount a
discount player in the space. And then you know Glenn's view, I asked him if he thought the National Association of Realtors was a cartel. He didn't say it was a cartel. Well, but what he did say is there is a cartel in housing in his view, and it's homeowners, he says, who have fought against you know, zoning, and they fought against new developments for many decades, and you know, in his view, that's hurt the housing supply of the market
and helped to you know, deteriorate affordability. And of course that deterioration and affordability is really the thing, you know now that people are really up in arms about. So I thought it was an interesting conversation with Glenn.
Yeah, I don't think he's wrong on that, by the way. I mean, when you think about there's a lot of nimbiism. There's a lot of aversion to changing zoning laws or to making it easier to build things. Even fortunately, we've seen a lot of uptick in cities municipalities being okay with accessory dwelling units, and that is adding some supply,
but that is a huge problem. Even where Matt and I live, there's a proposal to build like one hundred and twenty unit apartment building and it's being fought tooth and nail by the folks who live in the general vicinity. No, we don't this density, we don't want that here. But the reality is like while you're insulating and your increasing your own property values, you're dooming the next generation to exorbit in house prices.
Yeah, it was interesting to see Glenn call homeowners the actual cartel in housing. But yeah, so I think where we are in housing is that affordability is very deteriorated. People are very upset, and the real estate agents are probably going to take some punches from the crowd because people are just so upset with where housing affordability is. And really, I want to also say that this is kind of kicking the industry when they're down right now,
Existing in resale transactions are super low right now. Mortgage purchase applications at the end of October early November were at the lowest level since nineteen ninety six. So there's just not a lot of churn happening in the market
and there's not a lot of the transaction occurring. So I think that's why the industry is also kind of frustrated because this is just occurring at a very you know, interesting time for them, kind of a low point for them, you know, it kind of feels like they're getting kicked while they're down.
Yeah, Okay, so Lancey said, you were really willing to make housing price predictions or even rate predictions where you know, given where things might be going. What have you been hearing from other folks out there who do make predictions, right.
We will make a little bit of one prediction, which is I do believe that the US housing market, which since summer twenty twenty two has been very bifurcated regionally, I expect that to continue. I think as long as there's not a substantial shift in the market, whether that's a breaking in labor or a swift moving down in rates.
So it's like, let's say, all else being equal, like we're just kind of where we are today, but for a prolonged period, like let's say another twelve months, I would expect some markets to see prices fallsom and I would expect some other markets to continue to see prices raise rise. And I think what would occur is the markets that are going to give up some they probably will be fairly stale in the spring, and then in the seasonally weaker fall periods, that's when they'll kind of
give up on the prices. And then I think the markets that are going to continue to see prices increase, like I think Hartford, Connecticut's going higher. I think what will happen there is that they'll be pretty stale at the end of the years in the falls, and then in the springs they'll be kind of bustling and a lot of bittingmores because there's just not enough inventory. So the thing that I would say to watch three things.
One the bond market and mortgage rates, because if that were to move dramatically in one direct direction or the other, that would shift the environment. Two, watch the jobs market, watch unemployment. If that were to break one way or the other, that could move things as well. And then
the third thing is watch local inventory levels. Austin, which is the market that's giving up on prices, they have seen inventory go back to pre pandemic inventory levels, while Hertford, Connecticut is down seventy eighty percent for inventory from now versus pre pandemic. And so what that means in Hertford, Connecticut, for every one home currently on the market in Hertford, Connecticut, there were four homes for sale in twenty nineteen, so
just three homes disappearing from active listings essentially. And so how can you track this down to a regional level. Well, there's this guy called Lance Lambert that's this newsletter called RESI Club and I published this stuff continuously and I look at it very much on a regional level, and my view is I've been able to catch every single price correction that has occurred in the US down to a county level over the past eighteen months based on
how I kind of watch active listing data. And so if you would really like the metro and county level and even some of the zip code data that I'm still kind of working on because I just launched this four weeks ago, But if you would like that, subscribe to Resie Club and then the premium membership is where I really give a lot of this robust data. And that's one hundred and fifty dollars a year to get access to my Lance Labert House Price Tracker and Lance Lambert Inventory Tracker.
Lance.
It's great information, man, Like I as a like an armchair quarterback on this stuff, like I like to nerd out on it. I want to hear it, like aggregate expert information. And you do such a great job of compiling that and sending it out. Like in a world that is newsletter heavy, yours is one that I read with regularity. So thank you for what you do and what is there anything else. You want our listeners to know about you and what you're up to before we say goodbye.
The other thing I would say about Resie Club is so I have that pro offering, which is for people who really want to get the regional data, for people who don't want to pay for pro and they just kind of want to read my work. I still do five articles a week, and a lot of this is looking at some of it does have some of the regional data. I kind of sprinkle that in. But you know, I cover US home builders. I cover institutional home buyers
better than anybody in the country. I'm really tapped in there to what's happening on the institutional side down to regional level. And then I also, you know, I cover the prop texts, real estate startups. Really, if you kind of are really hungry for housing information and what's going on with the biggest players in it, I'd say subscribe to Rezi Club. You know, I have a lot of good content there for free.
That's right, and you do sprinkle a little bit in there to give everyone a little taste of what they could be receiving where they'd upgrade. But Lance, thank you so much for talking to us. We appreciate you coming on. Thank you all right, man Lance Lambert. We were off to the races when it came to talking about housing. It was like, listen, Lancer's this thing called the craft beer equivalent. We have to talk about before we keep talking about housing. He's like, we don't have time for
personal personal banter. We got to talk about the goods. No, I really do appreciate man Lance's depth of knowledge and his passion for housing real estate here in the US. But yeah, did you have a big takeaway from our conversation mister Lambert.
No, he definitely, I mean, he definitely knows a lot right. It's it's pretty pretty clear that he studies, eats breeze, and sleeps the data about what's going on in the housing market, what's going on with interest rates, predictions, prognostications, and on that front. My big takeaway was that the experts aren't always right, and.
So sometimes they're wrong.
What I love about Lance is he's kind of synthesizing the data. He's looking at what all the experts are saying, and he's kind of saying he's putting his finger to the wind.
Does that seem right? Or when? When I aggregate all of these things. Is that true?
And he basically said, the experts have been badly wrong. Understandable too, right, because we've been in like this, a really weird economy over the past three years. COVID throw a wrench in everybody's predictions about something everything.
Something that we've never experienced before. Right, So understandable.
So not not trying to throw shade on some of those some of those experts, but it is also important to note to not make a decision based on what the experts are saying. And I think a lot of people have been prone to do that, saying, oh, this is the hot market, oh this is oh interest rates are definitely going to go down, Well, then I should buy and and you have to be careful. And one of the things that Lance Lance said is it's all about your own personal personal finance situation.
Hey, you can have multiple big takeaways during this episode and I'll let you finish.
But well, even the thing and I'm going to say one more thing, even the thing he's said, Okay, free takeaway. Even the thing he said at the end, the three things to watch about where the housing market's going. I think he spot on. I don't think there are three better metrics then mortgage rates, jobs and unemployment, and local inventory.
If you're trying to figure out what's going to happen in your local housing market, not that you can predict it, but if you're kind of like looking for an inkling of where things are headed, those are the three metrics really look at.
Absolutely. Yeah, My big singular take big takeaway for this episode was going to be the fact that I think it can be an overwhelming task to think through is now the right time for us to move? Is now the time that we're going to buy a house? And I love what Lane said, And now I was actually a little surprised because he is so knee deep into the data, but he was able to back out and say no, it comes down to your personal circumstances, personal finance.
That's what we're talking about here. That is at the core of what it is that we talk about. And I love that he was able to back out and say, well, ultimately, at the end of the day, it comes down to an individual's ability to make the payments on a property that they're looking to purchase. It comes down to so many additional things other than whether or not the market's hot, where exactly rates are. It comes down to whether or not you're going to have a kid, how many kids
you're going to have in the coming years. It comes down to a job relocation, It comes down to wanting to be closer to family, because those remaining years perhaps to be close to your parents are more important than your ability to maybe save a little bit more and to achieve, say fire a little more aggressively. A lot of intangibles and yeah, there are so many of those personal factors that we all have to weigh and there is no perfect scale or measure that says, well, if
it's kids, then that trump's this. No, it comes down to the individual. It comes down to each family to decide whether it's going to work.
If you look on YouTube and see anybody talking about the housing market, it's always like the grimmest face and like the crash.
The crash is always the word this use.
The housing market crash, the looming and pending crash. And like I think, based on what Lance is saying, like unless there are sudden movements upward in interest rates or something like that, like don't I don't see a crash coming because we're still lack inventory, So those are often just clickbaity sort of things, just no focus on your fundamentals.
And it's important to kind of understand what's going on in the housing market and what's led us to this point, and I think that can shed some light on where things are potentially going to go in the future, but also don't bank on exactly well people are telling me about what the future.
Like it like, folks will start speculating and they're making decisions outside of their own personal factories, and that's when I think it can really end up coming back to bite you.
And I do think some of that speculation is actually going to lead to some of the corrections that are going to help the.
Previous speculation that we've seen up up until this point.
It's going to help some of the folks who have been on the sidelines maybe be able to afford a home that they're currently unable to afford.
All right, man. The beer that you and I enjoyed during this episode was by Other Half. This one was Juice Lovers Big thanks to Jason Joel. What your thoughts on this one?
So this beer has one of my favorite all time hops in it. Nelson and I love.
That hop it's what's a Nelson hot taste Like, it's.
Just great, good, delicious, Like, man, I am no super taster, so I don't necessarily have a wonderful explanation for it. It definitely has like some pineapple vibes for sure, though.
There's certainly it's called juice lovers. Juice lovers, it's got so many of those citrus like citrus pineapple. Actually on the side here it also says white wine. I can get behind that. Yeah, that sounds awesome, which.
Is funny because I don't ever drink white wine, but white wine in beer, I'm like down with that. So yeah, yeah, but no, I love this one. And this one was actually kind of more approachable than some of the other half beers, but still like luxurious in the way it tastes.
Yeah, super juicy, this one was delicious. Normally we kind of recommend IPAs for those who have tried a bunch of different craft beers before, But this is the type of IPA that I think someone who is new or two ips can get into because it doesn't have that super sharp hot bite, it does have so many of those juicy notes. It's not abrasive in like any way. Yeah,
it's so good, but that's gonna be it, buddy. For this episode, We'll make sure to link to Lance's site any of the different resources he may have mentioned up on the show notes for this episode at howamoney dot com And that's gonna be it for this one, buddy. So until next time, best friends Out, Best Friends Out,