Inventory Vanishing and Bidding Wars Exploding in Crazy U.S. Housing Market

allly gotten more intent. Yeah, I think you're right. I mean, we spent a lot of last year talking about supply chain issues, the possibility of shortages, the idea of the bullwhip effect, where you sort of get a small disruption in one supply chain that then ends up cascading through the entire chain and also causing very very big swings in supply and demand. And that feels like it's definitely

getting more attention. And of course the secondary effects from all of that is this question of inflation and price increases and how is that feeding through to the broader economy.

So well, we you know, we talked about it last year, but we're talking about it even more in right, And of course, one way that people experience inflation or fuel inflation, whether it's captured and official statistics accurately or regardless of how it's captured and statistics is everything related to housing and shelter, And by all accounts, it appears that everything that you just mentioned is getting more extreme with housing US A one survey that said like a hundred percent

of home builders are experiencing supply disruptions, which is up from in December. Apparently it takes three weeks at a minimum to get a garage door. I think we might have an episode coming up on garage doors. By the way, how is it just seems to be completely nuts this

year already and we're just a couple of weeks in. Yeah. So, I remember we did do an episode last year with Ali Wolf, and when we did that, I sort of declared my complete lack of knowledge when it comes to US housing because I'm based in Hong Kong and I've never bought a house in the States. But now I have to declare, I guess like the opposite personal interest.

I'm trying to close on a house right now in the US, and let me tell you, going through the market for the past three months has been absolutely insane, and we've had like three instances where we've made an offer and gotten gazumped by other buyers, and not by like a small margin, but by an absolute massive margin compared to the listing price. It's just been really difficult to get anything at the moment. I just looked up the word, which is is British English, which is why

I'm not that familiar with that. Sorry. According to dictionary dot com, raised the contract the price of a property after having formally accepted a lower offer. So you have indeed been gazumped. And in fact, it's perfect because we are going to speak with someone who has been tracking the gazumping phenomenon that is widespread of the US housing market, or more specifically, bidding wars have it breaking out across the market. So, Tracy, I think this episode is going

to be very good for you. Maybe you'll give it, get like a little like a home buying strategy out of it. Yeah, I need answers why none of these offers are attractive to people, even though it seems like a lot of money to me obviously, Um, yes, I want to know what? All right, I can't wait, let's do it. We are going to be speaking with Mike Simonson. He has the CEO of Altos Research, which puts out

and gathers tons of data on the housing market. He's been putting out lots of videos and exactly this phenomenon, the boom and bidding wars, rising prices, declining inventory of homes available in the United States. What's going on? Mike, thank you so much for coming on odd lots, Joe and Tracy, It's nice to be here. So Tracy's experience of getting Zoe left and left and right on, like

everyone's experiencing that these days. Huh, everyone across all price points, basically the whole all geographies, across the country's it's a it's been a pretty consistent phenomenon. So remind us what exactly is going on, Like, what is driving this? Because obviously you have some of the pandemic trends where people want to move out of cities and they want more

space and things like that. But you would have thought that almost two years on in the pandemic that some of that trend would be fading away, and yet it seems like demand for housing is still incredibly strong. Yes, So the biggest theme of the last few years he has been record low inventory, tight inventory. A few homes for sale. That's partly a pandemic phenomenon. But but the interesting thing about that is that we have been losing

available inventory of resale homes for a decade. So as we came out of the housing bubble crisis, rates started falling and we have had each year, basically each year for the last decade, we have gone from a million two homes available a million homes in January too. Right now we have two hundred eight four thousand single family homes on the market. And it's been a it's been a decade long phenomenon for a few reasons, and then we threw the pandemic on top of it. The top

team was was record loss supply. We have high demand driven to so we have booming economy, we have cheap money, we have a lot of these other factors driving it. And then we have demographics where we have the millennials are now in their mid to late thirties their peak home buying years and so and they're the biggest chunk of people ever. So now we have tight supply on top of surging demographic demand, and that is a recipe

for you know, your bidding war problem. So this is very interesting and if we could back up to the pre pandemic level, what is what were the trends that drove the decline, the persistent decline in inventory, Like where did it all? Where did they all go? Basically, I guess where it all go. As interest rates have been essentially four percent or lower for a decade, money has been super cheap. It's been a really good time to own real estate. It's been a good time to own

investment property rentals. Uh So, two big phenomenons happening. One of them is it's like a doubling up. The homeowner goes to buy the next time, move up and move down. And because mortgages are so cheap, it's a really good time to keep the first one. And so each year I go to buy the next one, and I keep my first one. And so that's one big phenomenon. And

all of a sudden, I'm a real estate investor. And at the same time money has been institutional money has been cheap, and so we have there's a lot of news about the big private equity funds buying up homes, but it's it's actually the individuals who are driving most of it. So in the last decade, We've taken eight million homes out of the resale cycle and moved them

into the investment rental part of the pool. And that's you know, eight nine ten percent of all of our homes ten percent, but you know, nine percent of all of our of all the single family homes. So this is something that I wanted to ask, But um, how do you actually differentiate between different types of demand? So obviously you have people who buy a house because they

want to live in it. Then you have individuals who you know, maybe buy a second property or do something with their first property and turn it into an Airbnb or something like that and rent it out. And then you have the big institutional buyers like private equity. How do you how can you actually track who's buying what and why? The way they tracked that when you read the numbers of like of purchases are investment properties. The way that that that is estimated is by looking at

the title. When the title on the property, the address that that title gets sent to is a different address them. Uh, that's that's that there's an investor owning that property. So but it can be institutional or individual. What's the split like right now? Like do you know the numbers offhand, it's something like in the low twenties that are investor properties.

So I want to talk a little bit more about this phenomenon of the individual homeowner, not the institutions and core that's obviously plays a role, but the individual homeowner essentially all getting into the game of de facto real estate speculation. Maybe they become a small time landlord by having their old home that they then rent out or

something like that. But talk about the emergence of this phenomenon of Okay, maybe I moved down to Austin because it's warm, et cetera, up, but I keep my house here and rent it out or vice versa, and how this trend emerged and how big that's gotten and how unusual that is compared to I don't know, the old days whenever that was. So it's always been, you know, in many markets, has been a pretty good deal to

own some rental real estate. You know, some of the you look at the blue collar folks in San Jose. I live in San Francisco, in Silicon Valley, Santose. If you're an electrician in nineteen eighty and you happen to buy an investment property, you made millions of dollars over the time, when you know, vastly more than when you're you're making from your your salary, Like it was a really good opportunity. And even that was even when interest

rates were super hot. So over the time you you finance a lower and so in the last decade we've had thirty year fixed rates four percent or lower. So these are not like the two thousand five bubble investors where I'm I'm buying a house with a mortgage rates that's going to explode in two months, and you know, in after month three, I'm not going to make my

payment anymore. These are people who have thirty year rates locked at two point seven percent that in a six percent inflation environment, like it's a really good deal to be owning these houses. As a result, people have therefore

they do it right right. This is something that I've been wondering about because it just feels like there's so much money available for housing at the moment that even if you put in you know, I've heard stories about people putting in all cash offers, and even with the cash in hand, they will get outbid by someone else who has taken on like a very very large mortgage, but because interest rates are so low, it doesn't really

matter that much to them. So yes, exactly, there is a lot of money available to housing, but you know, it's really it's a lot of money available in the economy. The the and one way you know that it's not over over supplied to housing relative to the rest of the economy is that the quality of the mortgages and the quality of the borrowers, the credit scores of the

borrowers is increasing. It's actually at record high levels. So relative to to the bubble time, those credit scores were declining and the loan to value was increasing, so the loans were obviously a lot worse at that point, and the loans are now are really good. It's not just over lending to borrow or is the way it was fifteen years ago. So this is really fascinating to me that like credit scores and the quality of the mortgage like we're never We're definitely like not talking ninja loans

or any of the stuff. In the mid two thousands, credit scores, high quality paperwork, lending standards all very high. One thing I'm curious about, and I don't know if this requires a more macro assessment. But obviously you have to like have a certain amount of wealth to be able to carry multiple homes. Like it's still not the norm level you know, to have to be able to keep your old house is a rental property. The emergence of people with very strong balance sheets, how much you

have a lot of this is some level. I don't maybe inequality isn't is part of the word, but the existence of a certain class of people who just have a lot of cash and capital really having this sort of like a very big structural advantage in the housing market right now. You might say that that certain class of people are the boomers, so and there's more of them that's staying put in their homes longer. They're owning

their homes longer. All the laws are really designed to allow people to stay, keep people in their homes, you know, the tax laws and the mortgage interest laws, all of those things are are designed for the existing homeowner. In California, we have Prop thirteen, which which basically means your your property taxes never go up. So if I bought a house for a hundred thousand dollars or two or fifty dollars in and the housing recession in California, and now

it's worth two and a half million. I'm still basically paying taxes on two a little more than net, but but paying essentially no taxes in California. And so I am never selling at home. I've got a tiny mortgage at no taxes. And so those things are all designed to keep people in their homes. And and it is to the detriment of the first time HomeBuyer at the people who can't get in the mortgage payments. As mortgage rates are low, the payment is super low, So that helps.

And it actually, as home prices increase, as long as the rates stay low or ratchet a little bit lower than than there's the mortgage rate has more impact on my monthly payment than does the total purchase price. And actually, Tracy this this is a partly why a function partly a function of why it's easier to overbid in a

in a low rate environment. Because if if my the home prices are accelerating by ten percent this year and I overbid a little bit, what I'm doing is I'm eating away six months of equity and putting that of equity growth, you know, at home price growth that I'm putting into a payment that's super barely noticeable difference, and so that's why people that's why, that why the overbidding

tends to accelerate in this kind of environment. So I guess that begs the question what actually happens to house prices and demand when interest rates start to go up, Because on the one hand, we can argue that low interest rates are causing some of the higher prices and

people overbidding and some of the tight inventory. But on the other hand, I guess it's not like the pre two thousand eight situation where everyone had adjustable rate mortgages and when interest rates started to go up, you know, suddenly they can't afford their home loans anymore. Yeah, it is very different from that time. And you know, we looked during the pandemic, especially that March April we started

publicized why I started publishing this weekly videos. We've been doing our data for fifteen years, but but we started publishing these weekly videos because we wanted to say, help observe what's happening to all these people as we locked down on the pandemic and people lost their jobs and we started the mortgage Forbearance program. What we're trying to find out is is there a big wave of homes that are going to have to be sold or go

into some kind of foreclosure. And it turned out that wave never came, and it never came because it's a really good time to own. The laws allowed me to stay in my home if I didn't pay my mortgage for a year and then I could start again. All of my home actually gained the value. I ended that year with more equity than when I started, so I like I was in a better place after that year. So there was no there's there's no wave of you

foreclosures or anything coming to market. So so that was we were we were watching, you know, is it gonna Is it gonna happen? But ultimately it never happened because it was a really good time to keep owning and the money was super cheap, and the laws were there so that I could renegotiate and put at tech my my missed payments side at the end of my loan and essentially stayed in my home, So that one off

the table. No new inventory. But what we can see is that the low rates effect demand, but they also affect supply, and they effect supply in that phenomen phenomenon I was talking about in that when I go to buy my next one, it's really cheap to buy to hold my first one, to hold two mortgages at at three rather than rather than one at six. So in any rising rate environment, will see fewer of those double up transactions, some inventory will come onto the market. The

last time we saw rising rates was twenty eighteen. The three quarters of eighteen started in the first quarter, peaked at about the first week in December eighteen, so rates rose pretty much all year long, and we could measure the cooling of demand and increasing a supply in a few of our metrics. So we track inventory. We tracked every home for sale in the country every week, and each year we we have a year over year fewer homes available on the market as more of them turned

into investment properties. We have in eighteen. January twenty nineteen, for example, was one year in the last ten years that the January started. January twenty nineteen started with about I don't know off the top of my head, but it's like about eight percent ten percent more than the year before, So increased inventory by a fractional amount ten percent, not hundreds of percent. It's not not hundreds of thousands of homes, but tens of thousands of homes, and so

and that was the one year it did. So rates rose all atween and we could see it in that inventory rate. We could also see it, and we teck a bunch of metrics like the percentage of homes on the market that have taken price reductions, which is a really interesting indicator of of demand. So the about a third of homes when they get listed rule of thumb. Third of homes when they get listed are going to take a price cut before they sell. Sometimes that's strategic,

sometimes it's accidental, but about a third. And when the market is hot, then a third of them are trying to overprice, but onlycent need to. Some of them get the bid and they and they only take a price cut, or it gets hotter, maybe it's and last May, in the peak of the frenzy last year nationally we were at like fifteen percent thirty percent think they're over priced, and only fifteen percent have to take a price cut because they were getting their offers. That and so you

can trek that price decreases. And so in nineteen we could watch the price decreases go from the low thirties hot market to thirty six percent during the bubble burst, we could watch that go forty of the stock had to take a price cut. So that's a function that you can see, so you can measure it in things like price production. So that means that there are fewer

buyers out there. And so you know Tracy and your buying situation, you know, it's all of a sudden, there are some of these folks who are listing and saying, well, let's see if we get a better All of a sudden, they say, we didn't get a bitter and now their house sits on the market for a little while. Now you have the opportunity you have who don't have the bidding wars because there's as rates rise, then there's more

purchase opportunity, more inventory opportunities for you. There's there's a less competition of the people who are using the mortgage to overbid are less likely to do that because now the payment is more impacted. So all of those those factors coming to play. And the way I look at it, you know, if you look at we had you know, increase of of inventory in that year, So you could imagine that we would need several years of rising rates

from three thirty year fixed to four to five. You know, we haven't been over five in a long time, so how that impacts things. But you can imagine its several years before we have this enough of a cycle to put many of these rental properties back into the purchase market and I sell my next one, I sell mine, and I don't keep it because two mortgages at six percent is very different than two mortgages at three. So so several years to build back to the old normal.

So it's really about that that cost of carry literally as that goes up in theory or in practice, as we saw in that's what at least creates the new supply from at least existing home sales. What is the state of price increases and bidding wars that we've already seen at the start of the year, and how does that compare to us a slightly more normal year like

like pre pre pre crisis. The biggest, the biggest phenomenon of things like bidding wars during the pandemic period is a sort of lost the seasonality to the housing market ian normal season the inventory comes on, starts to come on for the spring in February, really accelerates March, April, peak May June, and then June's inventory starts declining for

the fall. If your house is on the market in August and and you haven't gotten an offer yet, now you start taking a price cut because schools starting and and so we have all of these seasonal factors. And then the holidays and you have fewer listings, you have fewer people like you know, you have some people like Tracy who are needing to buy, but but cools way way down in the holiday seasons. Over the pandemics of the the holidays of January one, we all of a

sudden we have all the zoom town phenomena. We have all the remote work, we have kids out of school, so we have all kinds of options to move uh in in the winter, and so we we lost a lot of seasonality. If you look at, in fact, a lot of the seasonally adjusted home price numbers that you might see, you'll see that they swing really big in the November December January time last year and and also this year because things demand has been unseasonably high, like

it didn't cool down nearly as much. We can see that in in a number we track, which is the percentage of homes on the market that I've had price increases lately. And so price ins is a function of things like investor fix and flips. Like I buy a home, I put a little bit of money in. Ninety days later,

it's back on the market at a higher price. And that phenomenon happens more in a lot of the Southern investment investment market, the sun Belt investment markets, but nationally you might see in quote normal times, maybe two and a half percent of the market is in some state like that of price increased two couple percent. Uh, it picks up a little bit after the beginning of the year, so it's maybe two and a half percent because the market's cool in the fall. If it didn't sell, I

might pull it off the market. I might do a few things to it and put it back on the market in January at a slightly higher price because now I'm leaning into the spring market. So there's some pricing strategy happening there and what's happening now. So normal might be two and a half percent after that rising rate year, it was closer to two percent. It was lower that year because they were we could see less demand, you had less investment at investor activity happening. Uh, and now

we're at six percent. So we're spiking right now. We spiked big last year to peek in the in the second quarter. Uh. Last year was about six point three in this week, So we're last year was slightly more frenzied. But it's spiking very quickly right now. And what that what that's a phenomenon is this fall it seemed like things were backing off a little bit with the peak of our frenzy last year was was May. We finally started increasing inventory for the year April. After April thirtieth

last year. Normally inventory starts climbing in the end of January early February, but it didn't kept declining week over week till April um and and that's because we were people were just yeah, we're at our record low rates. We were all of the things we're colliding at the same time. But it cooled off a little bit in the second half a year last year. It's accelerating again right now. So setting aside the houses have been locked up by baby boomers um who seemed to ruin everything.

If we focus on new house sorry if we focus on new house housing supply for a second, Like when prices go up and interest rates are extremely low, someone should be coming in and trying to respond to that increased in demand by actually building new houses. And of course Joe already mentioned this in the intro, and we've been covering it for a year now. There are these supply issues that are obviously impacting their ability to build

new homes. But you would have thought there would be some new supply coming onto the market, or at least some new supply planned in the future. What are we seeing on that front, so the answers, We are seeing it. There are a lot of new homes in construction. And the last decade, the decade post bubble burst, we underbuilt

for a bunch of you. So the twenty year average about a million and a half homes new home construction per year pre bubble, post bubble is half a million, uh, and so we built a lot fewer, right, little, the homeowners had to ditch, the home builders had to ditch their land. They there's all kinds of restructuring that happened, and and so it took them a decade to recover, and now they are back to building uh, at least starting plenty of homes are you know, they're responding to

the demand. So you get a lag time between because of permitting and constraction and land you said, you know, construction time, you get you get a you get a lag time between the demand and the new construction in housing. But we've got it now. We've had demand for a long time and so the builders know exactly like there's a lot of home demand there. There's there's demographic the millennials, like, there is a lot of it's obvious demand, and so

the building is happening. So the shortage right now is a function of historical construction. So if you had bought, if if we had new construction seven eight years ago, now you're in move up time that is in resale inventory now. But because it was constricted that at that time, there's few of those in resale inventory right now. And so now we have this weird phenomenon, supply chain phenomenon where we have all these homes in construction but they're

not finished yet. Ultimately they're going to come to market and that's going to relieve some of our inventory challenges. I want to talk a little bit more about the bidding more phenomenon, specifically that the tracy has personally experience a what is is there a actual definition of a bidding war and be in a bidding war, what is the mix? Is it people just raising their bid because look at you know, three percent mortgage raid, it really

doesn't add that much. Or is it people with tons of cash coming into with all cash offers and if they have ten million dollars in the bank because they've done really well, whether they've been a million dollars for the house or a million two and try and get it right away, it's just not that big of a cost for them. Like what are these bidding war dynamics? So the bidding wars are primarily a function of of

the low supply problems. So we have we have uh, you know, generational big bulge of homebuyers millennials and generation and so there are more people competing for available homes. We could actually measure inventory per capita and we could actually see that or our home is available flipping around people per home available and we can measure that in as the bubble was bursting, you could see that that was a function of how likely a housing market was

to create or down. So if you had we had more homes available per capita, then it was a more risky it's a higher beta market, it was more likely to adjust down. And so everywhere in the country is ultra low right now and an ultra low per per population, and so so bidding war ends up being, well, there's one house for sale and they're forty people that want to buy it. What's interesting is you could look at like a lot of the hot California markets. Because of

California's prop their team, we have chronically low inventory. It's like rent control for the whole state, so so that these houses don't come back on the market. So you get a you get like a Silicon Valley market like Palo Alto, and it's it's fifty thousand or seventy thousand people and there's sixty homes for sale. You take a similar demographic outside of Dallas and normally there's seven hundred

homes for sale in the same sized town. As a result, really one of the results of property tax laws, because your property taxes are high in Texas and they're you know, they're low in California, and so you know, in a in the normal times, you'd have the same population. In Palo Alto, you only have to be available to four, you know, forty people because there's only forty homes is available. And in Dallas it has to be available to essentially

the media income because there's seven hundred available. That's the that's the normal time. What's going on right now is that that Dallas town is down to you a hundred and forty uh instead of seven hundred and or whatever that that that you know threshold is. And so all of a sudden that now you don't have to be available affordable to the median income. You just have to be affordable to us a much smaller chuck of population.

So on that note, if I could just ask um a question completely out of um personal interest, but you know, what should you do if you find yourself in a situation where you put in an offer for a house and suddenly people are putting in much higher offers, Like is there anything you can do? Or are you just automatically doomed because you don't have as much money as

the next person. Well, I will preface this but saying I am not a realtor, and it's one of the reasons that you work with a really good realtor, you know, they they know how to structure the deal, when to make that offer. What are the the other opportunities for financing. There's a lot of interesting alternative financing products that have come to the market in the last decade. For for

home buying. This as a function of having a lot of capital that there are ways to make cash offers even when you don't have the cash, And so working with a really good realtor is really how ultimately you make that success. You know, the guidance I give in what people ask me that you know, the challenges of the bubble came when you bought a house either that you couldn't afford or one that you didn't like but

you felt you had to buy. Then you've gotten stuck into a house that you didn't want to be in when the mark market was creating. And so the way I look at it now is if you find a house that you like and you can't afford, then you buy the house. And if you're you're looking at the payment, you go, well, you know it's more than they're asking, but we can afford that payment, and this is the house we want like, then then that is that's the

time to buy the house. If you can't afford it, or if you don't like it, don't buy the house. Don't buy it because you think you need to know. So that's the way I framework guidance when people ask me. So it really sounds like, I mean, you mentioned obviously, uh, the rates issue, and lower rates make the cost of carrying an old home more attractive. And then you've called California specifically a couple of times because of how the

taxes don't go up, contrasting that with Texas. It seems like and I don't know that there's like a policy silver bullet, but the issue is it's when it's really cheap to carry a house for for taxes and or rates or whatever reason, that is a real detriment to supply. It's it's a real detriment to supply. It's like, it's the everything we do in this country makes it really good deal to own your house, and therefore people own it. Uh, And that is that to a detriment to the buyers

who don't own yet. So so one of the things the conversations that I recall taking place again very pre pandemic, when the market was probably a warm or hot but not crazy like this. You know, you mentioned the boomers housing, and there was all the simes like, oh, boomer homes aren't what millennials want and maybe they're like too far away from the city or you know, two big lawns, or maybe they don't have like a YouTube studio involved or whatever, like millennials are like into for homes, they

just don't look like the homes that millennials want. Whatever, and that it was gonna be all the supply and also that either boomers would downsize or moved to a condo in Florida or eventually die as they get older. Like what happened to that? Because I thought there was all this stuff about like boomer inventory that was going to have a really hard time hitting the market. Yeah, so we've been looking, you know, you keep looking for the boomer inventory. Uh, and it has and it hasn't.

It hasn't shown up, right, Uh. You know, the boomers are finally getting to the age where maybe it really has to show up soon. They're as they're getting their seventies eighties like that, like, maybe we finally get to see that come to market. And so you know, when we we measure are the you know, the entire US market every week, and there's some leading indicators in that data. You can see where the supply is going to go. You can see where you know, three, six, twelve months.

But when you look at five years, that's there's some real macro things that aren't you know, there aren't in the data yet. So you know, like, are there are big shocks of the economy. They're like those kinds of things that you that that aren't yet visible in in the data that we measure. So things like when the boomers finally go, do we have a generational transfer for of those properties? You know, we could see the zoom town phenomenon that your Bloomberg colleague kind ofcend quote of

the label bloom zoom towns during during the pandemic. You know, people moved to you know, the remote load with the work remote locations. And in New York it was that Hudson Valley exploded. In California, it was the mountains like truck Ee or places like Bend, Oregon, and so these zoom towns happened. The phenomenon though was it turns out that most of those are a great majority of those were second home is like people moved from San Francisco

to the mountains. They didn't sell the San Francisco home, right, they just they just had another one. So those kinds of that millennial purchase turned to be that way. There was there were, you know, some of those some of that migration, especially out of places like New York and San Francisco. At the time, we were younger people who didn't already own, they were renters, and so it was it was a pressure on the rental market much more than it was a pressure on on the resale inventory.

So let me ask, I guess the big question, but bringing everything that we just discussed altogether, when would you expect the housing market to actually start to normalize? And what does a normal housing market actually look like now? So if we if we look at the last decade, we could say, quote normal being a million homes on the market around the country at this time in January. We're at two d eighty four thousand this week, so that's single family homes. Getting back to that level of

normal is a long way. Multiple years, multiple years of higher rates of systemic changes. Uh, you know, we have one of the big phenomenons has been the institutional investors buying building and buying homes for two intended force as

single family rental units. And so if there's structural change such that that's no longer a good business and those start to be sold, like there there that's been a big phenomenon, and therefore there is some you can imagine some risk in there if that falls out of fashion or out of financing as a as a business, that those then start to become actual resale inventory. There's a number of those phenomenons that have to happen in order

for us to get back to an old normal. You know, we we are at rates rates have climbed a little bit in the last month there in the three point something percent. Now do like I'm I am unable to predict interest rates? Like where do they go? I M so? So if they go up from here? The first thing that happens actually is as a rise is there's a there's an accelerating phenomenon where people are like I gotta

get in before while it's still good. That actually accelerates demand first, and then it probably pulls demand for it. And so before it takes you know, eight months or a year before people start to really impact it, like aen. It took all year, and so then it's a multiple year process to get us back to some level of inventory, uh, some level of lower demand because rates are money is more expensive that combination of things. Because everyone in the

country has a thirty your rate locked it basically everybody. Uh, in a six percent inflation environment, there's no there's almost no impetus to sell those homes ever because and they also have lots of equity, so there's no there's nobody who is underwater in their home, essentially no one in the house. In a few weeks, we will have record few homes anywhere in the foreclosure property and then foreclosure pipeline.

So uh, there are always some of you know, deal went bad or divorce or whatever the thing the thing is that that triggered that, but will have record few properties in that because the market is so good. Everybody has strong credit, lots of equity, and cheap money. UM, so all of those those Americans are in really good position, and so there's no big catalyst for a lot of homes to come to market. So it's a multi year

inching more homes on back into the market. And then at some point it could be that that it is the boomer transition that those finally start to unlock from from the boomer population and transfer to the to the millennials, you know, before we go, and that was that summation

was extremely helpful. The one the one thing in my mind that I'm still very curious on and if you have more stats about you know, there's obviously tons of talk these days about the big institutional buyers um who buy tons of homes and rent them out, and there's all kinds of anxiety about them. But as you've pointed out, there is there's other phenomenon which I have seen extremely little discussion, but it continues to come up about the person buying a home, the family buying a home and

not feeling the need to sell the first home. How big is that essentially the rise of the small landlord or the small real estate speculator, And how does that compare in terms of what moves the needle relative to the institutional investor which gets tons of coverage all the time. The numbers I've seen on that are individual investors who

own one to four units. Yeah, is it about the market? Wow? Wait, So when you say of what market of those of those investment properties that are on our own by individuals. Just to be clear, the investment market and single family home is overwhelmingly dominated by individuals. That's correct. And you can see in some markets the big institutions are you know, trying to build market share, but but it is in the in the across the US is overwhelmingly individual investors.

That's really interesting, Yeah, because it seems like the coverage and you know, the coverage is totally scued. I mean, there's tons of talk about the big asset managers buying homes, but it sounds like in terms of like who's owning a house for investment and therefore rental, it's actually probably much smaller the one, uh, the impression one would get

from the media and the just the general discords. Right, there are a few fewer easier villain targets than a landlord private equity right A right, guess it makes a very good bad guy. It's super interesting, Mike, that was phenomenal. I genuinely learned a lot from that conversation. I recommend everyone go check your videos and tweets always updated with the data. Mike Simons and CEO of Altos Research, thank you so much. For coming on outline, Tracy, is my pleasure.

I really enjoy listening to the program, so it's it's great. Thank you, it's really fun. Thank you so much, Thanks so much. Yeah, take care of Mike, Tracy. Do you feel any better about having been repeatedly gazumped in your quest to buy a home in the United States? Um? I guess. I guess it's comforting to know that I

am not alone in this extremely frustrating experience. And I guess um now that I am a homeowner, or hopefully will be very soon, I guess I can take some comfort from Mike's prediction that it will take a very long time for housing to actually normalize. But on the other hand, I can't shake off a suspicion. I guess everyone probably feels it after a major purchase, but I always feel like I'm probably buying at the top of

the market. Yeah, I think that's like a phenomenon. This is kind of news, right, Oh, oh, like this is a little bit hashtag personal news, right yeah. Yeah. Um, I'm going back to New York, which means Joe and I will finally be able to record these podcast episodes in the same room, which will be a lot of fun. I figured we I figured like the announcement would be a little bit bigger. But I like how we sort of backed into it a little bit by you talking

about the frustration of being, you know, it's a home buyer. Yeah, for clarity, I'm not buying a US house for investment purposes. You're okay, I'm not one of those people, but you might. You know what, when you buy when when when mortgage rates in ten years or twenty years right down to point five percent and you're ready to move, and you're like, good, pretty cheap to refinance the old home and keep carrying it. Uh,

it might become an investment property. But anyway, I will join the ranks of like baby boomer mini landlords that milk everything for money. But I did find that to be extremely I did not realize a quite how skewed that is, because there is a you know, tons of attention to as a managers buying homes and how small they still are and be the long term structural issues that you know what, It makes sense when you're younger and you think about buying a home, it's like, oh,

you're going to move to a new town. But it's really complicated because you gotta sell the old home and you gotta get the timing just right to free up the money. And you heard all, you know, people just all these stories of like I gotta like sell to get my down payment. But in this in this market, where there's a robust rental market, low cost of care, you just buy the second home and don't even so many people don't even have to worry about what they

do with their first home totally. Um. The other thing, well, I guess the one question that we didn't actually ask Mike, which would have been good, um, is at what point do prices get so high that they start actually impacting demand? Because that feels like it's the only thing on a near term basis that might you know, take some of

the heat out of this market. But otherwise, Yeah, the sort of long term structural trends that he outlined were really interesting and definitely suggest tightness for years to come. And also, you know, just his point about like in rates this low, you know, you could you could lob in a bid way higher than the market, and it just does not move that much in terms of where you if if you could make the down payment, it

doesn't Uh, changed that much the monthly payment potential. Right, well, housing just looks like a really good investment in the current climate with low interest rates, and now as inflation ticks higher. I mean, Mike made that point that you know, if inflation is at six percent or something and your mortgage is basically at zero percent, that looks like a pretty good trade. Yeah. Absolutely, Well, it's a fascinating episode. I did learn a lot and Tracy, I wish you luck. Yeah,

thank you. I will probably need it. Okay, shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Jill Wisenthal. You can follow me on Twitter at the Stalwart. Follow our guest on Twitter, He's Mike Simonson at Mike Simonson. Follow our producer Laura Carlson. She's at

Laura M. Carlson. Follow the Bloomberg head of podcast for Incesca Levi at Francesca Today, and check out all of our podcast at Bloomberg under the handle at podcasts. Thanks for listening.