Description:
WORRIED ABOUT THE MARKET? SCHEDULE YOUR FREE PORTFOLIO REVIEW with Thoughtful Money's endorsed financial ...
Transcript:
As we think about pricing for 2026, we're actually expecting nationally prices to be down 08%. And that's going to be weighted by those southeastern southwestern markets that have gotten way too much inventory again predominantly from new construction that need to be moved. So there are the motivated sellers that are pushing price lower. So it's really a buyer market. If you're in a highly uh concentrated um home building market, [Music] welcome to thoughtful money. I'm its founder and your host, Adam Tagert. The real estate market remains a tangled mess. Commercial real estate has crashed hard under higher interest rates and tighter lending standards. However, higher mortgage rates have not brought down residential home prices, at least not on a national average yet. That said, transactions remain frozen up, languishing at the lowest level in decades. So, where's this all headed? Are things likely to get better or worse from here? For answers, we're fortunate to speak with Ivy Zelman today. Ivy is the executive vice president and co-founder of Zelman and Associates, one of the most respected research firms advising investors and corporate executives on the real estate market over the past 30 years. Ivy, thanks so much for joining us today. Thanks for having me. Nice to be back. Thanks. It's a pleasure to have you back, Ivy. Uh happy summer. Um we chat a little bit before the um uh we turn the camera on here. Um it's nice to hear you're finally getting good weather where you are. Um and uh you know maybe there's a parable here in sort of the the uh kind of the rough summer that you've had so far with the housing market. Um housing market still kind of remains an enigma at least to the average uh person here. Um uh we've had higher mortgage rates for longer than I think anybody has wanted in in in the real estate market. Um obviously as I mentioned commercial real estate's already kind of gone through its big correction. um it's trying to pick itself off the floor. Uh the retail housing market, um I believe we're still at sort of all-time record levels of unaffordability. So, there's a ton of aspiring buyers who can't get in. You've got a bunch of people who um sort of feel trapped in their homes um by the low mortgage rates that they're sitting on that they'd have to give up if they've had to move. So this kind of where we were when you and I talked last year, but we're a year longer into this story and we have seen more parts of the country sort of start to buckle again on the retail side of things. States like Florida, Texas. Um we're now seeing some weakness even in places like Tennessee and California start to spread. So, a very bifurcated housing market where we still have a lot of strength and low inventory in some areas, but we're seeing some clear weakness and some, you know, real increases in inventory in other areas. But, as I said in the intro, like the averages, the average price nationally hasn't really started coming down materially yet. Now, maybe this is the year it starts to do so. You would know better than I. Where are we right now? Like, what is your current assessment of the state of the housing market in the US right now? Well, I think you characterized it well. The market has been, you know, kind of trending on on the bottom and we been calling it slow grind, I think, and continue to expect that it will we'll have more of the same over the next 12 months and dependent upon what mortgage rates do. I mean, if mortgage rates come down considerably, helping to improve affordability, that might give us more of a, you know, pop in growth rates. But generally speaking, home prices, there's a divergence between markets that are now finally seeing inventories rising at higher levels to higher levels than where we were pre- pandemic. And those markets are where we're seeing pricing decelerating, even pricing turn negative for a few. And then you have the markets where inventories are not increasing um and are still well below where they were in 19 that are still seeing pretty good price appreciation. And a lot of that, you know, could be explained by production home builders in markets that are seeing inventory rise. That's where they're most concentrated. So you mentioned Florida and Texas, for example. those uh states are seeing the most pressure and part of which again is because there's a significant amount of supply that the production homebuilders have brought to the market. Okay. And I think that that's maybe um what's new since you and I talked a year ago is we have started to see inventory um increase and and again it's not not across the board in the country. It's it's very dependent upon what state you're in, but there are just a couple charts I'd love to get your thoughts on here. Uh Ivy, so I'm going to I'm going to share my screen here real quick. Um let me start with this one. Um so housing inventory nationally now appears to be sort of back to where it was at pre- pandemic levels, right? So um uh you know during the pandemic we saw uh you know a ton of people especially given work from home and everything else you know you had a scramble of people uh you know trying to trying to get into the housing market if they weren't already in there because they didn't want to get priced out. You had people um you know moving outside of cities. You had people buying second homes you know whatnot. You had the whole um Airbnb craze. I mean, just a lot of things going on there that that have now kind of equilibrated. So, the craziness that brought a lot of tightness into the housing market, uh, you know, on average nationally seems to be sort of bleeding out at this point in time and we're getting back to a more normalized market. Um I want to I want to compare this chart with this one here. Um which basically is a chart that sort of tries to show whether we've got an overage of buyers or an overage of sellers in the market. And um as you can see here during the co years there were a lot more buyers than sellers. Uh but now that has flipped uh and you know reports now suggest that there are about a half million more sellers out there uh than buyers. Now of course this is you know nationally it's it's not uh true for every market or whatnot but we we seem to actually for the first time in a good long while um we we don't seem to be in a as nearly as tight a market on average as we saw in the past. So, I is this trajectory with with inventory um is it a normalization or is this something that you expect to continue to grow? Like will we will we basically you know slingshot through the equilibrium level which which sort of tends to happen when you get to an extreme extreme when the pendulum swings back it usually just doesn't stop at the mean it it continues through. Mhm. Well, I do think that it looks as if the liberation day was the turning point for the luxury market and you know back in March uh we saw you know stock market plunging, fear of tariffs and inflation keeping the the long end of the curve higher for longer. So that rhetoric has did uh take many buyers uh to the sidelines andly the media has not been the housing market's friend. there's negative articles in local markets really creating a lot of fear in the markets where inventories have risen. Since um we're now in an environment where the stock market's hitting new records every day and there's what 25 30% rally off the bottom, we've seen luxury buyers stepping back into the market and I think there's better deals out there. So, I think in some markets it it's tough to say, but it looks like inventories might have peaked and now we might just be working through the inventory that's still sitting there for longer. Builders have really pulled back only modestly. Starts are only down about 7%. So, spec inventory is still at pretty high record levels. So, builders are, you know, taking a strategy as their motivated sellers to do everything they can to move that inventory. So, it's really a buyer market. If you're in a highly uh concentrated um home building market, let's say like I look at a Raleigh for example, where 30% of transactions are new construction, maybe 35%. And that compares to nationally new construction only 15%. You know, if you're in Raleigh, it's a hell of an opportunity to get great deals because the builders have got to move that inventory. Whereas if you're in Ohio in Cleveland, there's really no, you know, pro motivated sellers from a production home builder perspective and there's not a lot of spec on the ground. So you're in the same stuck position here because there's even if I wanted to sell and I might get a good price, where am I going? And so that remains a problem in many markets, but that is really the the trade-off. you get a higher ASP, but you're not seeing the transactions um accelerating like you might in the markets that have the inventory. But what you said about demand, you know, pull forward, normalization, I do think a lot of the COVID um surge was the benefit of people that were buying that had not previously been expecting to buy at that time. whether it was married couples that didn't start a family yet like my colleague Ryan Mckvy living in an apartment in in Chicago decided to buy prematurely relative to what they originally thought which they'd wait to start a family and there were many like that so I do think that the pull forward is now sort of normalized back the question is how much further can we see the market fall volume-wise I think we're kind of scraping along the bottom it doesn't feel like it's going to get much worse especially given again the improvement in the stock market and rates modestly coming down but I don't think the market's going to take off by any means. Okay. And when you say you don't expect to get much worse, does that mean you don't expect to see prices come down much more materially or do you think you're saying you don't expect to see inventory spike more than it has? I think inventories if they're going to, you know, move higher, it's probably modestly higher. But I think there are markets that are already saying inventories have peaked like in South Florida for example. But keep in mind as we think about pricing for 2026, we're actually expecting nationally prices to be down8%. Mhm. And that's going to be weighted by those southeastern southwestern markets that have gotten way too much inventory again predominantly from new construction that need to be moved. So there are the motivated sellers that are pushing price lower and those markets are offset by those markets that don't have the same pressures. So, it's a bit of a tale of two markets, right? All right. So, yes, very bifurcated market. Um, as your example of Cleveland and I can't remember the other place, whether it was South Florida or whatever. Um, but um, uh, okay. So, um, uh, on a you mentioned that that, uh, 2026 you expect the national average price to go down a little bit. 08% I think I heard you say. Am I correct in in saying that that would that be the first national year-over-year price decline or is 2025 projected to be a national decrease in price as well by the end of the year? No, we still see home prices up in 25 and that's really a function of you know when you have as much momentum as we did in really early 25 we were still getting price the inventories have become more problematic as the year continued. So I think that it it's going to decelerate into the back half of the year where you could see negative pricing, but as of 123125 will still be positive. This to be positive on a year-over-year basis. Okay. Um so even though the price is going to go down in 2026, you expect it to you you at the same time you sort of see us firming up the bottom as we're grinding here. And so you you don't expect to see like you know again continued forward material price declines uh going forward from here unless something big changes right if we start to see you know the economy weaken job losses accelerating the things confidence getting negatively impacted that can change you know the outlook pretty materially so somewhat on things remaining rel relatively status quo okay let me throw a couple of things that might change at you and see what you think would happen and I guess let's Start with the big one. Let's start with lower mortgage rates. Let's let's say that they're able to start to march mortgage rates down the way that almost everybody hopes that that mortgage rates come down. Um there are some that are, you know, there's a lot of people thinking, "Okay, great. That's going to save the housing market, right? That's going to get things flowing again. It's also going to support prices. Um it's just going to add kind of grease to the gears." Um, there are others who are going to say, "No, that's going to unlock a lot of transactions that have just haven't been able to happen yet, especially sellers." And we might see the unexpected event of mortgage rates come down, but prices come down because sellers start in mass trying to unload their properties. Do you have a strong opinion one way or the other? You know, I think that the movement in mortgage rates will have a bigger impact on the existing home market, the 85% of transactions because, you know, builders are already buying mortgage rates down to as low as 3.99% for 30 years. So, you know, seeing a mortgage rate go down 20 basis points from its highs right now, I don't think will have any impact really on the new home market. Maybe sentiment for the marginal person who wasn't looking that now saying, "Oh, well, maybe it's more affordable." But the in the existing market, I think that it can help. There's no question on the margin. But the question is the sellers are more likely to list thinking, "Oh, this is now a good time to sell. I'll have more demand." I don't know with anything more material than a 25 basis point move. Would that really help? We have may have more inventory, which means more likelihood we'll see pricing pressure. I think I'd be in the latter part of that view. The latter part of that. Okay. And so how do we just help me square this? So, I talked earlier about um the fact that we're at record levels of of price unaffordability. And in a second, I'll try to bring up a chart that shows that we are, I think, the furthest we've pretty much ever been on um the average median income, sorry, the the median income versus the median cost of of of owning a home. Um, so if if it truly is a really um uh you know uh unaffordable market for for the most people it's ever been before. Um are lower mortgage rates enough to unfreeze that or is really price going to be what's going to have to come down? Well, you know, I think part of it is when you look at affordability, think about, you know, the way the consumer thinks about it. What in my from my income, how much has to go towards my mortgage? Yep. Assuming they're going to buy the median priced home and it's the median income for a single household, that person would have to spend 60% of their income today for a non-supervisory employee to not only make a mortgage payment, which includes their interest payment, but also homeowners insurance and property taxes. And back since the early 70s and really the only time we saw it higher than 60% was back in 8182 when we had mortgage rates north of 16%. So when you think about affordability, the challenge is is not only can't they afford the actual payment, but they have to save money for a down payment. And although there are programs out there with 100% financing or FHA at 3 and a half%, it's very difficult for people to save. And when you look at discretionary spending, you know, a lot of the wallet is being consumed by non-discretionary expenses, whether it be your utilities, your health care, your rent, child care. Yeah. Yeah. Whatever it may be. And there's not a lot left over. And I think one of the challenges I see in the market is that many are thinking the solution for the lack of affordability is provide more rental homes. And what I'm seeing in the market today is build for rent is a good distribution for builders to sell to single family rental operators because the demand for you know from consumers is obviously uh depressed. Yet, when we put renters in new homes, the question is, are they ever going to catch up and have any wealth creation? Because they're not going to get equity in homes that otherwise, if you own a home, at least you'd have some wealth creation. And typically, renters don't invest anywhere near what owners invest in the stock market. So, I think the inequality gap is only going to get uh more challenged if we don't solve the affordability problem to purchase homes. But that's some of the solution being thrown out out there. We just need to put more people in in homes where they rent. And right now, we can do some sensitivities. But about 25% of renters could afford to buy a home at today's prices. Now, if mortgage rates go down 50 basis points, maybe more renters will be able to afford it. But I I think that it's a very very challenged renter um let's say household to save. And now we have the student loan issue that might also plague prospective buyers or even those that already own. So um concerned a little bit about that headwind which I'm happy to elaborate if you'd like. I I would love to. I had that question teed up for you. So first off I just want to show this chart just just to show folks that um but this is showing sort of you know the extreme level we we're at right now in terms of unaffordability. Um I also have a chart that I'll try to pull up as I'm talking here. Ivy um about um the uh the delinquencies that we're talking about uh or or sorry the the student loan repayments, but but really um the delinquencies that we're seeing in student loan repayments now that they've only recently gone into repayment and the potential contagion knock-on effect that might have on other forms of debt. So, let me pull this up here. Um so, this is um relatively new data. I think it's from uh the New York Fed. Uh the the red line here is showing you the delinquency rates in student loans. Um and you'll see here that they basically just went vertical uh in Q1, which is pretty much the first quarter in the past several years that they've been back in repayment. So, no big surprise that they went from nothing to something, but they've they've really rocketed up here. Uh what's interesting is we're also over the past couple years seeing rises in delinquencies of other types of loans, autos, credit cards, and and now even mortgages and and helocks. Um, and the concern that's been raised by a number of people I've interviewed recently, uh, Ivy, um, most notably, um, Anna Wong, chief economist at Bloomberg Economics, um, is that, uh, because student loans are sort of the last major loan category to go into repayment. And it was a it was a type of of loan that a lot of the the borrowers had kind of gotten accustomed to thinking they might not ever have to repay, right? So, as the cost of living shot up, they basically just allocated what they would have been paying in loans towards their new expenses and and sort of trusted the the old administration's promises that these loans were going to get forgiven and whatnot, right? Well, now they're back in repayment and these are the only kind of loans that you can't discharge in bankruptcy and the government can garnish your wages. So, the government's going to get its pound of flesh one way or the other. So, you have to pay that loan pretty much first and then you have to figure out how to pay your other loans. So, I think we're clearly seeing that amongst I think it's something like 10 million or so of those borrowers are already pretty seriously delinquent on those loans. Um, they're starting to say, "Look, I I got to skimp on my credit card payments or I got to skimp on my car payment or I got to skimp on my rent or or mortgage payment this month because I I I don't have as much left over after having paid that credit card bill." So, how concerned are you about this contagion? because I think it's something like in total like 60 million borrowers with student loans and not all of them are going to have trouble but like I said we're already seeing 10 plus million start to be pretty delinquent and I'm sure this the stack probably goes a little bit higher than that over time. Yeah, we're analyzing the data because of the concern we have of the impact not only on prospective buyers or already existing homeowners and you know looking at September as a key incremental uh data point to recognize that garnishing wages starts in September. Okay, exact date. But what we've seen now with respect to the delinquencies on student loans, a lot of consumers that went delinquent didn't even know their credit scores were negatively impacted. So, the credit bureau agencies didn't get notified until 25. It's the first year to know that someone wasn't making their payment. So, people are pretty surprised to find out that they, you know, they saw their credit score go down 100 points. I was on with a broker mortgage originator in South Florida and he said, you know, within a weekend they lost like 15 deals because they had lower credit scores than initially thought. And then talking to manufactured housing lender was saying that they lost five out of 40 deals over the course of June because of student loan credit scores that had been negatively impacted. Got it. And sorry to interrupt, but it's kind of a double whammy for the the the potential borrower. One is you have less funds to to to at your discretion because you're having to pay back these loans, but also it's harder for you to get credit going forward because your credit card your credit score has been dinged, right? And that what you were saying earlier like you think about it you can't distinguish this debt through bankruptcy and now it's September and your paycheck is going to be garnished. So if you're going to think about allocating your income, you're going to pay that student loan first and you know probably cut back on either future spending or maybe have less to pay credit card debt or your car payment and maybe make partial payments. People are people are scraping to keep it together. We know that and you know it's the halves and have nots right now in this economy and the inequality gap is only gotten wider. So I think this is going to be a bigger stress than unfortunately we want to see. Question is what is it going to mean for more broadly consumer credit. Yeah. Okay. Um, so one thing you should know, Adam, in case you didn't see this data, I found it fascinating, is that 70% of the student loans that are delinquent are from people that have not finished their higher education. You know, I I did know it was in that territory, which is really sad. That's it's like a a triple whammy, not the double whammy I mentioned earlier because you don't even have the degree to be able to to show for the the baggage that you've taken on now. There's no skin in the game. You have no return on your investment potential. So, it's definitely a much more um concerning, you know, perspective because if you owned a home and you had equity, you're more than likely not to hand the keys back. But if you have in the case of a student loan debt, hey, I didn't, you know, this this didn't do anything for me and I didn't even finish, so screw them. That's some of the attitude we see. So, there's a there's another chart that I I want to pull up. Um, I'm going to wait to pull it up, though, because I've got a few other things I want to ask you about first because this this one is it's a big one, but it's it's right at the heart of what you're talking about here, but if I can, let me put a pin in it for a few minutes. Um, in terms of other things that could could impact what's going on, um, one of the other things that we saw during COVID was, uh, a flood of people hopping on board the short-term rental game, right? Um, and and buying Airbnbs oftentimes as a firsttime participant in the industry, right? Um, and the dream that that these millions were sold on was, hey, you're going to become a passive millionaire, right? you're going to buy a couple Airbnbs and let the money roll in. And during COVID, you know, there was revenge travel and you know, for a little while people made money. Um, now we've got a much a great imbalance between demand and supply. There's much more supply than demand. You have a lot of again firsttime landlords here who are all of a sudden realizing, wait, this isn't putting money in my pocket every month. It's taking money from my pocket every month. What is the potential risk uh of, you know, that inventory getting flipped back onto the market as these people just capitulate and say, "Boy, this was a bad misadventure. I just need to cut the bleeding and get me out of this thing." I think it's happening already. I think it's what's contributing to surging inventories in certain markets. Um, you know, best example for short-term rentals is really the the Palm Desert area. And you know that was you know uh Joshua Tree you know there was so much uh demand there and now that market is flipped upside down and there's tremendous pressure significant inventory coming from those short-term short-term rental landlords but you don't you see it more in more resort areas as opposed to just you know primary owners and I think that it's somewhat limited where the problem is the most prevalent but you go into you know South Florida no question. Mom and pop investors that own a handful of properties or could own 50 properties might be pruning the portfolio and let's just clean it up. I just got back from a presentation for a large um national broker who is saying they're getting inquiries from property managers that have clients that want to sell and one property manager, for example, is listing 500 homes with this um broker and this is really them recognizing that they want to take some chips off the table. So, I think you're going to see more of that because of the costs, not only the higher financing costs that they are, whether they're financing these assets, but think about the property taxes and homeowners insurance and all the other upkeep, you know, that is necessary. I think, you know, it's probably a prudent thing at least to prune some of those um uh some of those homes in your portfolio. Okay. Um, so let me let me repeat back what you told me to make sure I got it right and I want to ask a follow-up question. So, it sounds like you're saying the impact from uh the re-equilibration of the short-term rental market is likely going to be felt most kind of in resort towns. It's not going to be like a general Main Street America kind of thing. And we're already seeing and feeling that that uh reequilibration. So, it's not so much of a shoe that's going to drop in the future. It's kind of already dropped or is dropping now. Correct. Yeah, I would say dropping. And I think in addition to short-term, you know, landlords, um you also have investors like from Canadian investors that are selling because they don't want to be in this country anymore. And you know, there's definitely uh foreign buyers that have been fleeing. So, you know, we try to look at what's driving the inventory higher. You know, many would say it's really primary sellers, but we think it's really second home sellers, foreigners, and short-term rental um short-term landlords or short-term rentals, as well as primary. But I it's a mix of what's driving inventories higher in more of those second home markets, resort areas. Okay. Um All right. Let me pull up this chart here and get your thoughts on it, Ivy. Um I don't know, that's the wrong chart. Um bear with me just one second here. Uh this is the one I want. Uh yes. Okay. Um so here this chart just basically shows you that um cap rates have have come down um and for a whole bunch of reasons but you know and you mentioned a bunch of them. I mean, just the cost of home ownership has gone up a lot in recent years, right? And so, in the current market, cap rates aren't that dissimilar from what you can get by owning treasuries, right? And so, the, you know, if you want to take on the risk of being a landlord, you know, with all the headaches and and risks that come along with that, you want a much bigger spread, more like we had, you know, historically in this chart. uh between a safe investment like a treasury and uh and you know cap rates on a on a real estate investment. Um, and so when the getting isn't as good, um, yeah, it it it's demand by investors to buy this stuff goes down, which I think we've seen. Um, but also you probably have investors who have been in it who are now skittish saying, you know, just just just kind of get me out, right? And you gave that example of um of of the broker who was just given 500 properties to sell, right? So, we've we've had um kind of like with short-term rentals this past housing cycle, we had much more participation by institutional investors in the retail, you even single family home market, right? And you and I have have talked in the past about the potential risk there that if things get bad, um selling is sort of an Excel decision for those companies. It's not a roof over their heads. It's just look, we had a we we had a forecast. it's turning out not to work out the way that we thought. So, let's just get rid of these things and you could potentially dump a lot of units in a market at the same time, maybe even 500 units, right? Um, so, uh, maybe we're already starting to see a little bit of that, but even just on the regular mom and pop side of things. Um, you know better than I, but I got to imagine a lot of mom and pop landlords are boomers because they've either just not sold the the the homes that they've moved out of over past years or they had the money, the discretionary money to to, you know, make some real estate investments. The boomers are getting older and they're getting that point where they're probably starting to kind of prune their investments. And again, if if hey, this thing's not really yielding me much more than a treasury and it's got headaches and broken plumbing that happens that in the middle of the night, I don't want to deal with it. Get rid of it. So, what's the potential risk here of of kind of continued downward pressure for selling because of these reasons by investors, both institutional and mom and pop? um on the mom and pop side, I think they're not as um educated to even probably know don't understand what a cap rate is. A cap rate is Yeah. You know, and I think about like the guy that is a vendor that came by my house and he was telling me about 35 homes that his son manages and they've he's accumulated. He's only 24. And I think it's definitely a lot younger uh cohort that's getting involved in real estate. It's sexy. They see it as a sexy business. And if their boomer parent or their exer, you know, exgeneration parent has already started it, it's a lot, wow, he's been, you know, dad's making a killing. So, I think it's probably more um a transfer of wealth to their children as opposed to selling those assets. Okay. Okay. Because they've they've held those assets, they built them, they didn't acquire them all in one year. They might be accumulating them over 20some years. So it could be a good business and and therefore I don't think that there's going to be a sign significant amount of selling pressure across the board, but I think pruning here and there. So it's just on the margin. I do think that the institutional investors have stepped to the sidelines in terms of buying today. They're still a relatively small part of the overall market in the low single digits. However, you know, they're pruning too here and there and getting, you know, the assets that are not getting the better returns and selling them. But I don't I don't really see a a a flood of inventory coming from SFR and mom and pops included. I think it's going to be on the margin incrementally more, but I don't think it's a flood. And I worry about you brought up the age, you know, we very politely say when people are aging out. There's two houses on my street that are estate sales. And you know, when you look at, you know, the average age today of a male and a a female and a male, we're in the 80, call it 80. And I think that when we get to 2030, we're going to see incrementally inventories rising as we see much more of those people aging out. So, it's going to be a ongoing headwind through the next decade. Okay. Yeah. You and I have talked about this a couple of times in our our last discussions, which is that the housing market may still have some hay to make over the rest of the 2020s, but sort of starting around the 2030s, uh, I mean, it'll still probably have its own cycles, but there's just going to be this sustained headwind of selling from this aging out factor, which in many ways is a polite way of saying lots of people are going to be going to the nursing home and dying soon. Yeah. Yeah. Unfortunately, it's um the demographics don't bode very well for the housing market right now based on the fact that death rates are accelerating. We've pretty much squashed immigration and birth rates have been under tremendous pressure, which just means less household growth going forward. And I think that, you know, that means less demand yet higher supply. If you think about the aging out, more supply coming with less household growth doesn't really work. And I think that's that's in store, call it, over a longer period that we'll have to deal with, but it's definitely headwinds that will be sustained into the next decade. Okay, let me ask you one more thing that could change things, then I want to get to my chart. Um, deportations. So, I just saw today the administration say that they estimate 1.6 million illegal immigrants have um self-epported already uh since the new Trump administration came into power. Um clearly it seems the administration's you know priority is to still have millions more deport whether self-deport or or forcibly deported through ICE. Um you know I've seen a lot of debate about what impact that could have on the housing market and it's been everything from oh it'll make a big difference to we won't see any difference at all. Where do you fit on this given what you see in the data? You know, I think when you think about the um immigration portion of the market, it's typically not going to be, at least in our work, we see it more not as a homeowner problem. It's more in the rental market that it's probably more prevalent where there'll be risk of, you know, occupancy being, you know, under pressure. We have not heard of anything yet from deportation from any of the builders or brokers or you know people that are leaving and they're listing their house because they're being deported. I we haven't had any um indication of that. So it might be like where there's multigenerational people living in a you know a rental and with family where they've been doubling up tripling up and that on the margin that's where you know the deportation is probably going to be the most impactful at least in what we've been hearing and we still haven't really had any negative impact even on the labor front which we were very concerned about. While there's been raids at job sites, a lot of those raids um have been limited to criminals andor people being uh questioned and then sent back. But what happens is in markets like Dallas, there'll be a raid and then people don't come to work for a few days even though they're legal because they're scared and they're carrying their passport around with them and you know, understandably so. But there's definitely like you know, a big movement out of that area when they know ICE is there. But as it relates to the housing market, I think it's more going to be a class C, class B rental problem as it as it compared to a class A um and ownership problem. Okay. And just to be clear, it doesn't sound like you're seeing much of an ripple effect where one might argue, all right, so if you're taking millions out of the rental pool, even at the lower end of the market, um you have less demand for rentals, therefore rental prices need to come down and ultimately home prices are a function of what local rents would bear. Um you're not seeing much if any notable propagation of that, at least not yet. No, we did we did see in 2Q when the public REITs reported the multif family REITs that they're seeing a slower um level of reaceleration than they had anticipated. So there's still a supply problem with more supply in the market, but nothing that would be specific to deportation being having been impactful yet. Okay. All right. Um, I want to marry the comments that we were just making about um, the aging out of the boomers, you know, really kind of hitting its stride and say about five years or starting to hit it stride in about five years. And I want to combine that with the unaffordability we talked about earlier with this chart, which I'm guessing you've probably seen, Ivy, because it's been making its way around the internet over the past week, but it's the estimated percentage of 30 year olds who were both married and homeowners over the past 75 years. And you've seen that this has basically decreased from about over 50% of them back in the 1950s were married homeowners and we're now down to like I think 13%ish today. Um and I'm sure a huge element of this is the increasing unaffordability of of housing um relative to wages. Um, so, you know, I I I understand everything you're telling me about why maybe we're we're grinding along the bottom here and things, you know, shouldn't get that much worse going forward. But when you see a chart like that that basically shows like the vast vast majority of your upcoming cohort um isn't married, isn't owning a home for whatever reason, but a large part of it I'm assuming is just an inability to um it just begs the question when these boomers start aging out of their homes, who's going to buy them for these existing price multiples, right? Well, I think if we looked at that same data and looked at single um households that own that are 30, you might see more people that are buying without um being married. Excuse me. Because many young women don't want to get married now. They're focused on their careers. So that could be somewhat of an offset. I'd like to see data that we can look at a single household as just compared to a married household. But your point is well made that there's going to be more inventory to be absorbed than there is demand. As I mentioned, household growth is slowing. So coming at it from a different perspective, I'm saying if we look at household growth, it's going to have the same challenge because that's slowing and yet we have more supply coming. So, if it's not that 30-year-old who's, you know, choosing not to get married and therefore delaying home ownership, we're going to have a lot more inventory on the market to be it will likely pressure. Yeah. And well, and I wonder if it's not going to be a multi-, you know, back to my double or triple barrel um analogy earlier where it may not just be more inventory coming on because of the the boomer generation moving on, but it's that this younger generation, you know, may not be as able to afford the prices that that the boomers houses are currently, you know, priced at. um because one, you know, the data clearly shows that they're they're not earning as much on a purchasing power basis as as previous generations did. Um and the argument that I hear, well, don't worry because there's 70 trillion or whatever that's going to get passed from the boomers to the millennials. Um, I agree that some material chunk of that is going to get passed along, but but I can definitely make the argument that perhaps a much larger percentage of it than most folks appreciate today uh may not pass along because it's going to get used up by the boomers to pay for their health care costs, you know, their end of life health care costs. um uh you know we we we are seeing you know definitely an escalation in the cost of of health care and certainly the cost of healthcare in the in the last years of life. Um and so I'm not sure all that 70 trillion is a is a lock. Well, I you know, we had personal my father-in-law and mother-in-law when they passed, they were, you know, have had a decent inheritance for their children and grandchildren, but they had um my father-in-law was in nursing home for, you know, more than a year, and that did eat into whatever proceeds they would have received, but they there was still left there was money left for the family. But, you know, you think about today, you know, whether it's, you know, my brother-in-law, for example, has, you know, three grown adult children in their, you know, 30s and 40s. And if it wasn't for them giving money to those three kids, they would have never been able to buy a house. And I was talking to a one of my industry contacts today who similarly had the same situation. My daughter would never have been able to buy a house if I hadn't helped her. So I think that's propping the market up. If it wasn't for wealth transfer, we would have a much more challenged market. And so I think that's going to help sustain demand more than anything else. you know, it's it's really a big part of the affluent that are doing that to help their families. And you know, other factor too, Adam, is that young adults don't necessarily want to leave home. You know, it in Europe, multigenerational living is um pretty common. It was, you know, what are we at? 1.6 people per household now. It's like the lowest it's ever been in the US. And yet, we're a tall when you think about, you know, the rest of the world in terms of households. And so, you know, I think, you know, I think the numbers 21% of 20 to 39 year olds live at home still. That was 24% in 2020, but we had given a lot of people money through stimulus and also rates were at, you know, record lows. So, we saw an uncoupling, a decoupling of of young adults leaving home or or decoupling as roommates and that totally got arrested once rates started backing up. So, you know, my my kids are, you know, fortunately, uh, they have a parent who can help them, but, you know, my 25-year-old who still lives at home, it's like, "Mom, none of my friends can afford even to rent an apartment by themselves." So, it's not just to buy. It's it's across the board shelter is just out of reach for many. And parents like myself make it pretty nice for them to stick around. and you know are you know it used to be you don't want to live in your parents' basement or you know god forbid you would tell your friends that you're 30 and living at home now now it's not so you know uncommon and the negative stigma is no longer as prevalent is is going away so um all right I'm going to I'm going to go a little tangential here but I think this is actually really interesting um so and and Ivy I've got two daughters who are you know hitting the escape velocity um part of life too one who's just a year and a half out of college, one that's right in the middle of college. Um, so I want to get your thoughts on on what it means for society, these these trends, right? So, um, because there's two things that I don't think are necessarily very good for society here. Um, one is, you know, this this sort of aristocracy, right, that's getting we we referenced the wealth inequality earlier on, right? And now it's kind of like want to be able to afford a home. Well, I hope you chose to be born to wealthy parents, right? That's that's becoming like one of, if not the most likely factor for whether you're going to be able to buy a home or not, right? Are you going to get help from your your wealthy parents? Um, secondly, I just did an interview. It's one of the more fascinating ones I've ever done with uh Greg Lucianoff, who's one of the co-founders of the book, The Coddling of the American Mind. And it's it's it's basically about how our culture has become less resilient over the past several generations here in America. You know, we're not the greatest generation in terms of grit and our ability to deal with adversity. And part of that is the price of comfort. Um and part of that is I mean really what's been happening economically, society, the factors that we've just talked about where where wealth has been concentrating um into the pockets of the few and the wealthy, right? Um, so when we we get to a part we're seeing this not just in America, right? So it's been a a European cultural thing for a long time, but I think in cultures like Japan and stuff, we're we've seen this too. Japan's a bit ahead of us on our our demographic trajectory where the opportunity set is narrower for the current generation than it was for previous generations. And so you have a lot of dependent adult children now, you know, living at home with their their their aging parents. Um, so to your point about where culturally when the younger generations begin to lose the stigma about staying at home and it's, hey, it's it's it's actually kind of nice here and you know, hopefully I'm going to get some help from my parents to be able to get a place, right? One of the things that has separated America at least from from most other countries has been this cand do spirit, this this fierce independence, this I can't wait to turn 16, get my license, get the hell out of the, you know, home and and burst into the world. if we start losing that sort of pioneering attitude. Um, and I'm I'm not I'm not slamming our younger kids because I get the difficult environment they're growing up in, but I I think we do lose something really value valuable culturally in terms of which made us successful and prosperous and in general happier than than most other countries. It's one of the reasons why everybody wants to come to America and then and and not immigrate from America. What are your thoughts on that? Wow, that's a lot. Um, it is a lot. I told you it's tangential, but I think it's really interesting. No, it's fascinating and and not in a good way, per se. I think all the points you brought up are very uh concerning. And I think that, you know, one of the challenges as an affluent parent is the disease that you give your children called affluenza and the lack of motivation or entitlement. And I think there's also this perspective, not just children that are fluent, is I don't really want to work 100 hours a week. You know, I want to have life work balance. You know, young adults that are coming in to uh to take uh interviewing with us for positions are more concerned how many weeks of vacation they're going to get. Yeah. And asking questions that really reflect that they're not going to be working the 80 to 100 hour weeks that, you know, historically had been the case. And we've seen that over the last decade that's unfolded. And so I think it's like we wanted our kids to have everything we didn't have. I came from nothing. And you know, I was out of the house at 17 and we didn't want our kids to have to experience the the the hard challenges we did. So we made it so easy for them. And I think that's not just affluent families, too, because a lot of people that are middle- inome are trying to keep up the Joneses and trying to get their kids to summer camp and sleep away camp and doing everything everyone else does. So it's uh maybe it's going to flip where you know the next generation will have to be the people that are starting from nothing and have to work as hard as we did as I'm an exer and assuming you're an exer too. So I I do see it as a societal problem. And you know my 16-year-old now is almost 21 when she was 16. She once um it was quite funny. She's like you know mom your generation has handed our generation a bag of rocks. And I just couldn't um say anything other than yeah, you're right. And and how how did that come to fruition? Our massive debt, you know, that we've accumulated as a nation and and continued, you know, nurturing. I I think there's so much that, you know, we can look back on and and talk about why kids are like where they are today. Social media, you know, the challenges of um keeping information, accurate information flowing. It there's a lot of lot of problems out there. Adam. Yeah. Well, look, at the Go ahead. Sorry. I was just gonna say to for folks listening so that I don't have to just go through the whole litany of of of the list of things that that Ivy's mentioning, um, go watch that interview if you're interested in this, go watch that interview with Greg Luke enough because we go into all this stuff in in great depth. So, you're exactly right, Ivy. Send me the link. I want to watch it. I mean, all right, I will. There's no question. I see it in my own family and I think it's really unusual to have a child in an affluent family that's, you know, gonna go, you know, conquer the world and hungry. Yeah. Yeah. That's hungry. That has grit. And I think that's this generation lacks grit and they want everything to be given to them because we've been so good at that as parents of giving them what we didn't have. So I I blame us as helicopter parents or nurturing parents and making it very easy for our kids like the remember back in the I don't know feels like 10 20 years ago when every kid gets a trophy you know the society has changed we don't want anybody to feel pain or feel bad and have to deal with failure I mean it all starts in the house it all starts with the parents so I I will steal one thing I talked about with Greg Luke and I've mentioned on this program a couple of times but I think you'll appreciate this Ivy. So, there's a there's a great book written in the '90s called The Millionaire Next Door. Don't know if you ever read it, but it was um it was written by two PhDs. So, they're not saying, "Oh, we've got the secret recipe to become a millionaire." They're just saying, "We talked to a couple thousand self-made millionaires. Statistically, these are the things they have in common." And frugality was the number one issue that they had in common. But um one of the things they discovered was that the wealth of the self-made generation was basically fully spent by the end of the second generation. That their kids had pretty much burned all the way through it. And it wasn't because their kids in most cases were super spoiled and was spending it on, you know, buying pet tigers and Maseratis. um they just um they just lived comfortably and and um but the biggest issue was that the um the entrepreneur who had made the wealth said exactly what you said Ivy which is hey look I had to just claw my way to the top I I it was so hard I don't want my kids because I love them to have to suffer the way that I did and they sheltered them from the very adversity that built the musculature to be a success essful entrepreneur, right? Um and so, you know, they raised kids um safely and and guided them into safe jobs that in a lot of cases made good salaries, but the kids just didn't know the true value of money and they lived comfortably and by the end of their lives, there really wasn't much to pass on to their kids, right? The whole shirt sleeves to shirt sleeves in three generations cycle. Um, so this is something that has gone on before that that that precluded the whole, you know, everybody gets a trophy error that you talked about, though certainly that has not helped. Um, but what we've done, I think it was it was mostly just affluent families that protected their kids in the past. Now it's sort of been everybody in this sort of safety, you know, uh, special snowflake era that that we've we've now adopted as parenting. So yeah, so you know um I I probably where the pendulum needs to swing society-wise is is yeah suffering is part of the journey. I remember reading a book u when I was raising my kids when they were little. It was called the blessing of a skinned knee and you know my kids would fall and I'd go grab the neosporin and god forbid they get hurt and you know supposed to let them go through the pain. Let them you know get hurt and experience um pain and not just rush to fix everything. And that book was pretty good for young parents out there. But, you know, it's I feel like I take responsibility as a parent for at least my children's um lack of grit except for one of the three. And I think there's so much mental health challenges that we shouldn't um not we should we should talk about because you know today whether it was starting in COVID and people were you know stuck in their homes and they have difficulty um socializing you know many kids today can't even look each other in the eye they're texting one another rather than and sitting next to each other and not even talking they're texting with with each other and the it's the dynamics of um social media I think have played a big role in the shaping of this generation. So, we're going kind of far field here and I'm going to bring back in just a second. Um, just a mother, but when when we're done, I'm going to send you the the Greg Luke link Ivy, but I'm also going to spend stay for an extra minute with you and talk about um uh this your skin knee aspect. I mean, literally the physical safety part of things, but but and I go into that with Greg. So, folks, if you want to hear that, listen to the Greg interview. Um, but one other interview I've done recently, Ivy, was with Kyla Scandlin, and I don't know if you've heard her name before. She's actually kind of made the the rounds on the the mainstream media like literally right after I interviewed her. Um, uh, she is is a a financial influencer, but she's 28, so she's she's talking to Jenzers on TikTok and really starting their journey of financial literacy. So, it it's great to see somebody of that generation kind of pick up the torch that we're trying to to carry here. Um, and I asked her at the end of the interview, I said, "Hey, what's something about your generation that you just would like us older folks, Gen Xers and boomers to know?" And she was talking about the workplace. and she said, "Look, I I we we kind of recognize that we're sort of damaged and um we know coming in we're not like the way you want us to be in terms of new workers uh and showing up in the way you want us to, but we do want to be better. So, like just have some patience with us. Like just understand we've been warped by a lot of these things, COVID and and the parenting style and all that stuff." and like just kind of under have a little bit of patience with us and and don't give up on us like like try to reach out and invest and and try to help us sort of see the light and maybe not all of us will but there are a number of us that do actually want to not be as damaged as we've been. Great. Well, hopefully she has a broad audience that uh will listen to her. Yeah, she's got a pretty big audience, so fingers crossed. Um all right, so bringing it back to um to to housing for a moment here. So, let me um let me ask you if I can some concluding questions on the retail side of things and then just ask you a question or two about um uh commercial real estate and then we'll wrap it up. Um what would what would your sort of parting bits of advice be to the following three people? Um the aspiring home buyer, um the person who is thinking of selling whether immediately or in the next couple years. uh and then the the retail uh real estate investor. So for the prospective buyer, I think that there are opportunities right now to really get value and I think it's a buyer market in um many of the markets that were co winners. So there's great opportunity if you've got the down payment, you can buy a brand new house, you know, for a mortgage rate south of 4%. So, I think that that's pretty compelling and that offsets the lack of affordability equation. All right. And sorry to interrupt, but it sounds like you're seeing more opportunity in new homes versus existing homes for that reason because builders are utilizing mortgage rate buyowns and I think the profess prospective buyers should really look at some of those communities where there have a lot of standing inventory. But thinking about, you know, savings, it's really hard for people to stick to a budget and, you know, it's something that will enable you, if you stick to your budget, to actually accumulate savings. But the down payment is some of the biggest impediments for prospective buyers. So figuring out how to accumulate savings and if you have that savings, I would go try to buy a new home for prospective buyers. Best deals in town, especially in Texas and Florida right now. um practically giving stuff away in Dallas right now. It's really been a bloodbath. They call it a Mexican knife fight. It's been there in Austin, Naples, Fort Meyers is the canary in the coal mine. There's some great opportunities if you have the the down payment and the credit scores to get to buy a home. If you're a seller, I think depending on the market, you need to be educated and recognize that you're not going to get COVID pricing that people your neighbors got and be more realistic and recognize you have carry costs. And if you're looking at buying another home, you might even have a contingent situation where you're waiting to sell your house because you want to buy a new home and that might fall through. Well, lower your price. You know, you I had a guy who wanted a that was an is architect locally and has a second home in Southwest Florida and said, "I don't know what to do. I can't even get a showing." And he bought a house at 400,000, tried to list it for 980. Then he told me at 775, he has had one showing. I said, 'Well, why don't you not be so greedy, Rick, and lower it to half a million? I guarantee you sell it. And he did. And so, I think people have to take off their their greed hats. Their egregiousness will keep them from selling and they're not going to get yesterday's prices and it could only likelihood it's only going to go down and you have carry cost and they're going to eat into whatever return you would have gotten. So, I think to tell your listeners that be be realistic and the investors, real estate investors, I think that depending on the market, it it really does vary. But if you're sitting in a market where you're hoping it gets better soon, it's not wine. It doesn't get better over time. And I would take chips off the table and recognize that you still have assets that are providing good returns, but I would definitely try to take some chips off the table and recognize some significant gains that you've probably realized. Okay. Uh, that makes sense. Uh, would you also encourage those people if they're if someone's looking to get into becoming an investor, look at buying some new homes in some of those markets that you mentioned? Yeah, and they are the builders are definitely selling to investors. They're selling to, you know, single family rental operators, but also to individuals. So, there are good deals to be had for those investors as well. Okay. All right. And then the commercial real estate. I mean, the majority of my my viewers are more retail oriented, but what's happening in the commercial space? Has has it has it bottomed? Is it starting to heal or are the, you know, beatings going to continue until morale improves? Well, we really only analyzed the multif family market, which is part of commercial real estate, and I'd say that that's bottomed and starting to improve. Um, especially in the non um um supply ridden markets. It's definitely been a much stronger market. For example, in the Midwest, the rental market's very strong there compared to the Southwest, Southeast. Um, single family rental similar. Where there's a lot of build for rent, there's pressure, but where you go in markets, there's lack of inventory, they're doing very well. Can't speak to the rest of the commercial market. No expertise there. Okay. All right. But you sounds like you're saying at least in multifamily, commercially, the um uh the worst appears to be behind us. I'd say the worst. It's not really accelerating as many had predicted as quickly. Um, but it's definitely bottomed and and marginally getting better. Okay. Well, Ivy, I am really looking forward to talking with you on one of these interviews in 2030 when we can really see some of the real data about our our long-term forecasting with the boomers. Uh, obviously hope to get a chance to talk to you a lot between now and then. Um, I do remember the last time we talked remarking that, "Wow, Ivy, you sound a lot more kind of pessimistic about the housing market than I I'd heard you in previous years." And again, this was a year ago. Um, and of course that the housing market did start to take lumps, you know, on a on an uneven basis, bifurcated basis, but it did definitely start to take its lumps over the past year. I don't see you as as as pessimistic this time around. I I'm not seeing you as being super optimistic, but but more kind of like, hey, it's it's gonna take a while, but it's probably going to start getting better. Am I Am I getting the right vibe here? Yeah, I think so. I think that, you know, really the supply that's been pressuring markets is starting to unwind. Even though it's going to take longer, it might take another year or two for all the spec inventory to be absorbed. Builders pulling back on starts will help. And affordability presumably gets better from here. if we're seeing less price appreciation and we're seeing certainly rates come down. That's the expectation now. A little bit of rate improvement could go a long way. So, you know, Fed, even if the Fed's cutting at the short end, it always um always perplexed why people are so optimistic that the long end of the curve will also come in. But, you know, so far it's been the case that rates are coming down. So, got to got to give you a little bit of optimism, a little bit of hope. Okay. All right. Um, well, look, Ivy, I can't thank you enough. Uh, it's always wonderful to catch back up with you. Thank you for making the time to come back on the program here. For folks that would like to follow you and your work in between now and the next time you come back on this channel, where should they go? Uh, zelmanassociates.com. All right. And uh, Ivy, when I edit this, I'll put that link up on the screen so folks know exactly where to go. Folks, the link will be in the description below this video there, too, so you can get there with one click. Um, folks, please let Ivy know how much you appreciate her coming on the channel by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. All right, and wrapping up here, if you are looking to perhaps make a decision around housing, you know, perhaps you're in one of those buckets that Ivy and I just talked about there, potential buyer, potential seller, potential investor, um, and would like to um, bounce your thinking off of a good uh, financial professional financial adviser because for a lot of people, housing is usually the largest asset decision they make in their lives, or at least it's one of them. um then feel free to consider scheduling a free consultation with one of the financial advisory firms that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. Uh to schedule one of those consultations, just fill out the very short form at thoughtfulmoney.com. Uh again, these consultations are totally free. Uh there's no uh strings attached. There's no commitment to work with these firms. It's just a free service they offer to help as many people as possible make the best financial decisions that they can make. Uh Ivy, as always, can't thank you enough. It's always such a joy to talk to you. Thanks so much for coming back on the program. Thank you. You, too. All right. And everybody else, thanks so much for watching.
