AirBnBust! How Desperate AirBnB Sellers Will Pull The Housing Market Down | Amy Nixon

foreign founder Adam Taggart I conducted an interview on Twitter spaces the other day about the unfolding catastrophe happening with Airbnb properties across the U.S I found the discussion both important and fascinating and I really enjoyed the analyst I had it with a new voice to the financial media space that I think you'll value getting introduced to so I'm released in the interview in its entirety here for you a heads up it's Audio Only so you don't need to be glued to your screen while it plays maybe get a walk in or get some chores done while you listen enjoy all right hopefully folks can hear me here uh welcome folks I'm Adam Taggart I'm at Menlo bear on Twitter I'm also founder of the macro YouTube channel wealthyon today here I'm joined by Amy who goes by the handle at Texas Runner DFW on Twitter she's got a background in economics in journalism and she covers the real estate market as closely as she's able to for her followers while she raises a family Amy thanks so much for joining me today I understand that this is your first Twitter space this is hopefully I'm doing this correct all right well it sounds good so far okay well look thanks for taking time out of your Sunday to do this for me Amy and for folks listening uh I just King gave me a couple hours ago we'd never talked before and uh kind of caught her in the middle of a regular Sunday there and she was uh gracious enough to carve out a little bit of time to do this space with us um so Amy let's just let's just jump right in here I got a couple of prepared questions um we'll talk for a bit and then maybe we'll take a couple of uh cute questions from the audience here um you and I have been tweeting a lot of late about the deteriorating health of the U.S real estate market um recently though you've been ringing a particularly loud Bell about the vulnerability of the Airbnb part of the market predicting what you're calling an airbnbust um what about it has you so worried um yeah I'm not sure if I coined that term or not but um I did call it an airbnbust I I'm speaking about all short-term rental markets not just necessarily Airbnb I just think Airbnb is the biggest brand so I kind of honed in on that one but like verbo and some of the other yeah it's all under the same short-term vacation rental umbrella um so I think what started triggling the alarm bells for me was about a year ago I just noticed an increase in just people anecdotally people I know people on Facebook people I know in real life picking up an extra vacation property here or there um and it started to sort of snowball into a scenario where I was starting to see people that have zero background in Property Management um very little background in real estate and they're out there suddenly now owning maybe 10 or 12 of these properties and some of their reviews were coming in one star there was a lot of uh PR problems for them there were people in Facebook groups saying you know do not stay at this person's property and meanwhile Airbnb has them as a super host and their properties are being promoted but then people that I knew in real life were like this experience was a nightmare and so I was kind of starting to see these two things don't quite line up with um reality here and so I sort of dug into it and started looking more and I forget I forget who posted the other day but somebody said I think over 50 of short-term location rentals have been purchased in the last two years in the U.S which is kind of an alarming number yeah so there's a there's a it's sort of like a there's a bit of an everybody's doing it now phenomenon going on here yes and to the point where I think now there's not just a market for a short-term rental income now there's a market for coaches and um you know influencers that want to sell how you can own your own little Airbnb Empire and then it started to remind me of an MLM which incidentally the people that are local here that first triggered me off to this I looked into their background and they actually were at the top of an MLM company for a while before they rolled into this right sorry I saw a lot of those just for people that maybe not don't know what MLM means you're talking about multi-level marketing scheme correct yes sorry like um Mary Kay is like Amway those um like some people come pyramid scheme um but it's where you start to make your money by selling the idea of the business rather than the business itself and there started to be a whole bunch of these groups I think there's a big is it bigger bigger Pockets podcast is one of them um there's like now this whole other Empire around selling the concept that you can get rich buying short-term rental properties even if you have no experience and that's to me we just got kind of scary because I think you know you've got people some of these loans are they're not Freddy Fanny loans the way you would buy a you know home for you to be unoccupied so people are taking personal loans their people are syndicating they're pooling money and grouping it together to purchase these properties um I think that there's a lot of Leverage in the system and it's all based on cash flow so my concern then was hey it looks like we're going to have this post-covered travel boom people have been locked in locked down for over a year they're antsy they want to take that vacation starting this spring we started to see a Florida vacationers a lot of people wanting to go on these trips I think a lot of these properties were getting booked yeah and by the way too they had you know stimulus payments burning a hole in their pockets too yes stock market was at an all-time high stimulus payments were hitting and people wanted to take that vacation so I think probably a lot of these properties got booked at first and it seemed really lucrative and they were telling other people about how lucrative it was and sort of an unfortunate snowballing effect was you reached a point about mid-summer this summer where there's suddenly too many properties in some regions it's just oversaturated and you're starting to see a Slowdown in demand because the prices have gone up the cleaning fees the extra taxes and fees have gone up and people are also starting to realize hey my 401k is down 20 hey I spent that same as money months ago maybe we're done with our vacationing and I think as the summer we're on that just continued to deteriorate and I started to see it in just friends that I know I started to see people advertising on Facebook hey my Airbnb is vacant all September is anybody interested we're going to offer this discount or that discount and that's what made me actually go to the Airbnb super host group online and find those posts that I put in my tweet which blew up the internet which I never expected it to do that um but yeah that's kind of how how we got there all right let's pause here for a minute because I I want to read first this tweet that you're talking about that uh Zero Hedge ended up retweeting as did other um Publishers myself included and uh uh you know it seems like you saw a huge flow of activity from that but you were you were retweeting basically a tweet here from the Airbnb super host group um it starts with this one question that one of us asking which is what's going on with Airbnb no bookings at all and then there's a another one under it here that says has anyone seen a huge decrease in bookings over the last three to four months we went from at least 50 occupancy to literally zero percent the last two months I'm just curious if this is something only going on in my property or if other people are seeing similar things I'm in Palm Springs um so we're beginning to see at least anecdotal evidence like this that bookings are drying up and you mentioned that's you know potentially likely due to following consumer demand um and you know on the macro side of things um you know I talk an awful lot about uh how you know every week we're seeing more and more data that the economy is continuing to slow that we are heading into recession um there's a lot of debate right now whether we're in one or not there was the the famous you know public discourse over hey what's the definition of a recession anyways um Bloomberg economics just came out earlier this week uh with their latest model forecasting a 100 chance of recession in the next 12 months so whether you think we're in one or not clearly the trajectory is downwards you know big thing that Jerome Powell head of the FED is trying to do is depress Demand by all the interest rate hikes that he's making um and the quantitative easing that he's begun so you know we're in an environment where the economy is cooling off and therefore demand for luxury travel um or discretionary travel should be coming down anyways right so you've got that the stimulus obviously is over um as you said people were feeling Cabin Fever from being locked down over covid that's in the past now too so they've gotten their you know they've gone out they've stretched their legs now they're getting back to real life um there's another thing you mentioned I just want to spend a moment on too which is there's become a real affordability issue with Airbnb now when it first came out like when it first came out it was kind of like the Couchsurfing solution right it was the way to kind of get a cheap listing uh in an area rather than having to buy a night at a hotel you know with all the expenses that come along with it well now what's happening is the script is basically flipped which is the hotels are seeing um falling demand uh and they're bringing their prices down as a result and Airbnb the prices had been pushed up by lots of consumers traveling and you mentioned cleaning fees because of inflation um the the cleaning crews are charging an awful lot more um it just costs more to to run these airbnbs The Mortgage Debt to buy them now costs more um and so now the price of the Airbnb is no longer competitive versus hotels and in a lot of cases it's more expensive and on top of that a lot of these Airbnb hosts are asking you yes I'm going to ask you to pay this exorbitant cleaning fee but I'm also going to ask you if you can like you know put everything in the dishwasher before you go if you can wash the sheets you know some of you have said like I need you to mow the lawn um so people are just like why would I stay in an Airbnb when I can go to a hotel when it's cheaper and I don't have any of these other hassles so there's all of a sudden kind of like this this affordability crisis going on there so I'll take a pause here but is there anything else you want to add to that yeah and I think with with the affordability aspect of it um I do think that that was one of the major advantages of Airbnb in the early years and with that gone I think they kind of need to have another competitive advantage and I was just um talking to a different reporter last week who asked me kind of like is this just Airbnb model no good or can people still succeed with it and my answer is people can still succeed with Airbnb but you need to have a competitive advantage to your property it needs to be unique in some way it needs to be exceptionally well run and you can no longer just buy you know Joe's house in Suburbia and go buy some Decor at Marshalls and expect that you're just going to be able to command top dollar you've got to have a really unique location or something really funky and interesting about your property that's going to draw people to say hey if this is the same price as a hotel or more I'm it's gonna be worth it because I'm getting some value that's extra that's a great point and I actually want to kind of at the end of this discussion kind of ask you to opine a little bit further about the Airbnb model let's let's put a pin in that just for a second um okay because I want to get into the cash flow part of it the negative cash flow before I do I just want to make one last point which is you know you were sort of saying that we saw this huge influx of people becoming Airbnb hosts um I think you said something like 50 of the the listings have been purchased in the past two years something like that if I got that stat right yeah it was a little over in the U.S it might have even been over 60. it was at least over 50 it's pretty okay so super high um there's another Dynamic going on in parallel which is the Baby Boomers as they have been so for years people expected that there was going to be uh kind of a depressing Factor on home prices as the Baby Boomers got to the age where their kids were out of the house they're now retiring and they're going to downsize right they're going to downsize to a more modest um sized residence and what they've found is a lot of them yes they they moved and downsized to a smaller residence but they actually didn't sell their older residents they um you know it had been appreciating so much every year that they just sort of held on to it like assuming it's sort of like a stock I'm just going to keep it in part of my Investment Portfolio because it goes up by X percent every year and so they would rent that out right either long-term rents um or they'd they'd make it an Airbnb property or Furbo or whatever um and so I just wanted folks to realize that it's not just the Branded airbnbs and burbos that are out there it's also just sort of a material part of the U.S housing stock has become rental property that that become incremental mental property that sort of folks weren't prepared for um and the reason why all this is important is now we get to the cash flow part right so you said Amy that uh you know a lot of these people are relatively recent buyers uh some percentage of them took out um probably uh you know uh irresponsible or near irresponsible type loans uh if they were you know getting pulled in as part of these MLM coaching you know services and whatnot um and so you know that all works fine as long as the the fees are going up and vacancy rates are good um but once people can't afford the fees and the vacancy rates start plummeting like we're seeing now um then all of a sudden this thing becomes an albatross around their neck right and a lot of people who really hit a bar to get into space they don't have a lot of uh cushion to absorb too many months of negative cash flow before they just have to get out right and so I'm gonna talk with you a little bit about sort of the state of the general real estate market but what's important to know about these Airbnb hosts especially the John income latlies especially the ones that are levered is that these are really weak hands in the real estate market right um if if housing prices start softening uh if it's your house you're going to be reluctant to sell and you're going to do everything possible to stay in your house for as long as you can afford to but if this is a investment property especially one that you got into with too much leverage especially pretty recently to try out hey this is something I might want to you know a way I might be able to make some extra money you're going to be like on a first and first out basis like whoa this thing isn't what I thought it was I'm getting out of here just sell the house right so it's going to be a depressing Factor as the housing market starts weakening you know a lot of people say well you know there's a lot of people sitting on three percent mortgages they're just not going to sell so there's not going to be an inventory so the housing market isn't going to go down you know I would pause it to say no you know a lot of these investors especially the the small retail ones like we're talking about they're going to be like the first ones out and they're going to be dragging all home prices down with them because real estate is priced at the margin so what do you think about that yeah I think that's absolutely true um I think some of the way that some of these loans are structured too I mean if they took a personal loan or they leveraged against their own home that they live in um these are not three percent rate loans some of these loans could be you know seven eight percent if they're personal loans that are off the books they cannot be um sold through Freddie Franny some of these loans are going to be floating rate loans so these interest rate Rises are really going to put these people in a pinch squeezing yeah if they aren't cash flowing and now suddenly they are owing more on their debt um that's going to be a real problem and yeah I think that probably they're from what I'm seeing there's going to be two instincts Instinct number one is going to be like this was a terrible idea I need to sell this property right away instant number two is for the person who's like eh maybe I can still make this work I'm going to turn it into a long-term rental so I'm also hearing from people saying yeah I pulled my vacation rental and I'm trying to now rent it out to a family like a long-term single-family rental which in my opinion is great for the housing market my goal is affordable housing for people that want to live in a house so if they want to take a short-term rental and turn it into long-term rental that's totally fine but what you're going to see then is that's going to start to put downward pressure on rental prices well rental prices and home prices because theoretically and hopefully yeah theoretic so it's in other words it's kind of great for renters right excess inventory all competing for renters it's going to bring the price of rents down so long-suffering renters are hopefully going to get a break here but if you're a homeowner you know homes are they're basically supposed to be priced on the rents that you could get for that home right or priced on what what incomes that area can afford um it's theoretically supposed to be a discounted cash flow valuation so rents come down theoretically home prices should come down too yeah which is interesting because I mean and Dallas Fort Worth I would say right now there is a large gap between um like what it would cost to service a mortgage on a home assuming a eight percent or seven percent or eight percent rate with 20 down versus renting a similar property there's already a pretty sizable Gap between those two it is significantly cheaper to rent so I can't imagine anybody buying right now would be able to cash flow a property yeah that's really interesting that's really interesting I don't know if every region I don't know how every region is like that but I know that our region because we have really high property taxes um I know our region is like that okay so it sounds like what you're saying is you know that that's that's you're hearing sort of plan a or Plan B plan a is I'm just getting out and selling it don't care what the price is I just got to protect whatever I can keep and then the second is I'm going to try to make this work as a long-term rental um I guess sort of TBD how successful that that cohort will be at being able to do it at a way that cash flows enough for them to want to continue doing it yeah because there's going to be a spiral a downward spiral I think in particular regions where they're very short-term rental heavy um I think you're starting to see it happen in the Phoenix Market there's certain markets in California as well um there's so many short-term rentals that you're going to start to see people trying to bail on them but you're also going to run into a problem where no one's going to want to buy them because they don't want to live in a hotel neighborhood and they don't want to be the person that's living around 15 airbnbs quite a bunch of transients a bunch of you know we hear all those horror stories about people who live next door to an Airbnb that's having all these you know unsanctioned parties and stuff like that yes and worse crime I mean there's really bad stories out there for some of these places but um yeah I think in general it probably brings down the value of properties in a neighborhood and certainly I think age of several HOAs ban them but there are certain regions where there are zero restrictions and some of those places have really gone downhill I've gotten a lot of DMS from people who have said um it's turned our Market into a complete mess yeah so yeah it's funny when you use the term Airbnb bus there's probably talk real quickly about this tweet that you retweeted earlier today from a guy named Mark Jenny um says comment from a realtor we talked to in Arizona this week quote I've never seen this many vacation rentals come on the market for sale every day someone is asking us to list their Airbnb for sale so it sounds like those folks that are in the category of I'm just pulling the rip cord I want to get out of here it sounds like that's already underway yeah and I think Phoenix I want to say it was like eight months ago um I kind of did a demographic search on a bunch of different local housing markets and I targeted Phoenix and Boise as two that I thought were very vulnerable to severe housing Corrections and I base it on investor activity at the time I hadn't broken down how much of the investor activity was for long-term rental versus short-term rental versus a flip but um you're already seeing especially in the Phoenix Market I mean home prices are collapsing there um rental inventory is skyrocketing there and this has only been I mean we're still in the early Innings of these interest rate Rises so if this is just the start I mean those markets I mean Phoenix has always been a boom bust Market but I mean it boomed pretty hard and I'm concerned that the bus end could be pretty ugly on this one yeah well I mean I think it's a big reason why you and I have been sort of ringing the bell in general about the condition of the real estate markets but you touch on something really important here that is sort of different this time with the real estate market which is um there's such a much larger investor ownership concentration in the single-family home Market this time around way more than ever before um I don't know what it is for those specific markets but I've heard in general that the percentage is something like a quarter to 30 percent of all single-family homes that are sold right now are going to an investor they're not all small you know Mom and Pops that might be buying one or two um there's an increasing amount of you know hedge funds uh or big companies in there um you know zillow's a a relatively recent famous example um that are buying you know hundreds thousands of homes in a particular geography and one they've been helping Drive prices up because they're all cash buyers they've got really Deep Pockets um one of the things that I think is really important to keep in mind it's the point I made earlier is these guys don't live in the house to them this is just an investment transaction and if the market gets to a point where they're realizing uh you know what like all right these numbers aren't penciling up for us anymore we've decided we don't want to be in these markets anymore they can like basically flood a market with inventory if they just decide all at once that they're gonna cut their losses and run and dump a bunch of inventory and you know yes they're going to try not to do that if they can but we've already seen an example with Zillow where Zillow realized that they overpaid for a bunch of properties and they unloaded them all at once now fortunately they were able to sell them to another big institutional buyer so they didn't all hit the market at the same time you just had one buyer kind of take over the portfolio but if if this is happening in the middle of a recession when companies are fighting for their lives it very well may not be that orderly and uh you know I I personally you know I'm quite concerned that that could be another risk factor here if we get a bad housing market correction that could make it even worse yes and that is something that I um flagged as an area of concern in Dallas in 2021 as well at the actual number for Dallas County was 43 percent of homes purchased in 2021 were by investors that's bananas 43 and I think it's 46 in Tarrant County which is our neighboring neighboring Dallas County um is Tarrant County um and that's just two regions of Dallas Fort Worth um I think the number today is around 20 for 2022 so your number was correct for current investor purchases but in 2021 it was over 40 I think part of that is why you're seeing now people have vaguely mentioned this sometimes on social media like why are so many homes for sale ones that people bought in the last two years well that's why because an investor bought it and they either flipped it or they rented it out and they took the appreciation money and now they're done so they have no attachment to the property they don't care to own it long term if it's not going to make them money and they're just it's purely a business deal for them yeah and so one thing I want to underscore here is I've been hearing this a lot on Twitter is people say hey you know look a lot of people have three percent mortgages they're not going to really worry about what happens in the real estate market here because they don't have to sell right so they're just going to sit on their properties and inventory is going to be tight and the Market's not really going to correct that much and I think those people really forgetting that real estate is priced at the margin which means you gotta you got a neighborhood of 10 homes if only one of those home sells whatever that home sells for sets the new comp for that neighborhood right so you know there are always going to be homes that need to to sell for whatever reason you know somebody gets divorced they die they lose their job they can't afford their mortgage anymore they have to move for work whatever so you're always going to have some inventory that's selling but you add into the mix what we're talking about here which are these investors who again they don't live in the house they don't have a reason like the other people in the neighborhood do to say hey let's not bring our prices down because we all want to keep our home values nice and flush um you get one of these guys who just decides he's out you know he can reset the price for everybody yeah and and I think that's a big that's that's a very valid point um I also try to keep having home you know it's priced at the margins and you've seen I've seen that in our region you know there's a lot of homes sitting on the market making these tiny price Cuts but the one that sold is the one that cut you know 10 percent so that one is the new comp and unfortunately I think part of what happened this Summer that slowed the process down a little bit was people were just pulling their houses off the market and listing them for rent so you weren't getting a car right right the the home sellers tried to go on strike right they just say okay nobody nobody sell nobody lowered their homes yeah okay maybe we'll take it off the listing off maybe we'll rent it for a bit but and then you I'm giving the torch back to you here but eventually somebody breaks from the herd right but eventually somebody has to sell and that's I mean it's always and it's usually a distressed situation um divorce death like you said or just financial distress from for any other reason they lost their job um and that I think is where we're going to start to see those homes as they slowly and it is moving really slowly because housing is so slow but as those homes slowly begin to sell the new comps are going to be reset lower and the Market's kind of going to sort of snowball down but it still kind of feels like this is the early stages of this correction and we've got many major very respected um housing analysts calling for you know 10 10 declines next year maybe 20 if we get a recession which supposedly we now have 100 chance of having according to a couple people so um yeah I mean it's just kind of scary because honestly I don't think we've ever in the history of our country had respected housing analysts forecasting a 20 drop right nobody did in 2008 because nobody'd ever seen the housing market right nobody thought it could happen and we had all the assurances from Bernanke and and the big housing market analysts back then um so yeah so yeah it's never been sort of telegraphed like this and of course one of the reasons why it hasn't is Gen people are our fearless leaders don't like to because they feel like if they tell people they think there's a chance of recession people will reign in their spending and then increase the odds of the recession actually happening but but now I think people right I just think it's so inevitable now that people can't ignore it right one other thing that's that's really important to know here too um going back to the Boomers is you know a lot of the Boomers that are sitting on those three percent mortgages um they have a lot of home equity locked up in there right and their plan has been hey you know eventually at some point you know I'll sell that home or I'll tap that equity and that's going to fund my retirement and if your strategy is okay well I'm gonna I'm gonna kind of wait this out and see if if we can all not sell and just ride it through this thing if you start seeing the comps in your neighborhood go down by twenty percent thirty percent lower than that potentially you're doing the math in your head and saying oh my God I'm losing all of my home equity so those people again are going to be relatively quick to move because they have a first mover Advantage got much better to lose you know cut my price by 10 and get out with you know still a good chunk of my home equity then ride this thing down and maybe not have any you know by the time I really need it all right yeah and honestly I'm already seeing that um it was some of my my parents are the boomer generation I I consider myself an elder Millennial so uh a geriatric I think is what they call this a geriatric Millennial yes I'm probably one of the oldest of the millennial group um so my parents their friends are all in that Boomer demographic and I'm actually starting to see what I'm seeing happen now is a lot of them are starting to sell their primary home which is large and more expensive and they're either downsizing and in the majority of cases these homes are paid off completely or they owe very little on it um and the majority of cases they're either downsizing to a small property in a cheap tax property tax date or some of them are selling their primary home and simply moving into a beach house they already own somewhere else a condo they own on the ocean and so that's putting a piece of inventory on the market and it's not taking one off correct correct um yeah no you're right um and of course you know that that is the smart thing to do at the individual level right yes downside let's reduce our cost footprint our you know the vast majority of our Equity is in that big primary home that we probably don't have a mortgage left on or whatever like let's lock that in now right so I think you know as the herd begins to realize that the race is on right to to lock in whatever Equity you've gained over the years again you know this this becomes a wave of selling right it becomes a wave of inventory that starts flooding the market well if you're going to sell shoot I'm going to sell two because I don't want to be the guy who's left holding the bag you know a year from now who didn't sell when the time is right right um all right well look uh two questions for you about this then we'll get to just general real estate comments and hey for folks listening I think there's a way in uh in Twitter spaces to like give a little high five or wave or something like that but if there is you know how to do it do it if you're enjoying this um these things are always a little bit hard to to know if folks are uh you know having a good time or not because there's no chat feature here but if you guys are able to do that that'd be great oh I see a couple of high fives great thanks guys I saw somebody do one earlier I don't remember what it was okay some kind of emoji all right that is a thumbs up there's a heart okay that's all good um all right so I think you already intimated this but like how worried are you about how bad this could get and and specifically too like what will you be monitoring to track how things are going here I know that you have access because you have a a family member who's who's works in the real estate industry um what will you be watching most closely to sort of track while this unfolds um I think probably the the biggest thing that I mean the most important thing to keep an eye on is how fast inventory is growing um but I think also a main driver of this is going to be a recession and if we have one which we're supposed to and how bad it is um I think that's gonna then you're gonna start to see that rush to the exits where people are looking to lock down whatever cash they can get um and just kind of hunker down so if we see worsening economic indicators that are indicating the recession is here I mean I know they changed the definition but even with the change definition if it starts to look like while we're really running into recession unemployment is is climbing um and especially we still have this entrenched inflation on top of climbing unemployment um that's going to be kind of a scenario at worst of everything yeah so I I'd probably be keeping an eye on you know inventory because you see it already in certain markets like Phoenix um both rental and for sale inventory is rapidly rising in certain regions and those are the regions where we're also seeing the fastest price Corrections so yeah I mean I want to I'm a little bit scared just because there are so many people forecasting a downturn and that's never happened and I generally think that like like you said the mainstream sort of media people tend to downplay things because they don't want to scare the public so if they're already saying hey we think there's going to be you know a 10 15 correction like yikes um what does that really mean but on the other hand there are people with cash out there there's people that DM me every single day and say Hey you know I didn't want to participate in the bidding Moore's I've set out this market for two years I really want to own a home you know I just need prices to come down to something reasonable and that number is different for every single person so I think a best case scenario in my opinion is prices start to come down and you start to slowly have buyers trickle back in as it reaches whatever their own affordability threshold is and that will sort of start setting a floor and cushioning some of these markets from just collapsing all right um yeah I mean the question isn't so multifactorial but you talked about kind of the role recession could play there you know the the big Boogeyman in all of this is layoffs right right now we're worried about or we're talking about people being worried about you know not making their investment property cash flow or you know eroding their home equity um but if you add in the Specter of people fearing for their income um or losing their income uh you know that that's a whole other sense of kind of panic that goes into this Market of hey you know I gotta get what I can get while there's still something to get here yeah and I think that will also keep buyers sidelined you know if people are wanting to buy a home and they're starting to see layoffs at their company they might say hey wow you know I have great income I've had this down payment saved up for three years just waiting on the sidelines but I'm afraid to buy now because what if I lose my job or my spouse loses my job I won't be able to service the debt right so it sounds like you know if if you're one of those people who is in that position um patience really is your greatest asset right now right just just just keep nurturing that dry powder keep adding to it if you can keep doing whatever you can to minimize your vulnerability to losing your income stream um sort of see how this is going to play out now nobody can pick the exact bottom but you can kind of get a sense for like hey if the FED is still hiking rates and then if if we do indeed enter a recession and they're in layoffs start as long as the layoffs are continuing to happen at volume you can kind of tell yourself right we're not we're not over yet if those two things are still going on right if the cost of debts continue to go up and people are losing their jobs you know once maybe both of those are over you know then you can say to yourself okay this might not be the exact bottom but you know the the worst of the things that are going to influence home prices are now behind us you know maybe I can start actively looking now um and and of course to your point the house has to be a good value based upon your financials no matter what's happening in the macro environment but once that dust has started to sell that we just talked about then you start looking at the targets you can afford and and maybe that's when you create your shopping list yeah that sounds about right yeah okay all right so um I did say I'd ask you about your thoughts on the Airbnb model um and you you already sort of partially answered this by saying hey you got to become really differentiated so do you think again once the dust settles and and let's say the real estate market reprices to something that's more sane and sustainable will we see The Return of of the whole short-term rental market uh back to its Old Glory or do you think it'll be something uh that'll be a little bit more selective going forward I think it will be more selective I don't know that we're ever going to have I hope we don't have this Mass um amount of short-term rentals like we've had this summer I really think this is like a one-time postcovid travel boom demand that is going to be pretty hard to replicate in the future so I I would love it if it was just you know some really cool properties um there's always been bigger groups that want that vacation house they don't want to have a little hotel room I think it'd be great if some regions could put some restrictions on maybe the amount of short-term rentals or just in some residential neighborhoods maybe even ban them um if local homeowners are having problems um I think you know that's gonna probably be something by each municipality like they need to make their own regulations and rules and some places already are um but no I don't think the Airbnb model just dies completely um but I do think we're probably going to see a Slowdown in this whole frenzy of pitching this get rich quick idea by owning a bunch of short-term rental properties okay yeah and I honestly can't say anything to uh to challenge that at this point so anyways presumably Amy will have you back on you know between now and then to give your color commentary if you see Trends changing or whatnot but but that logic extent's pretty sound to me um all right real quick I just want to talk about the general housing market and then if you've got time take a few questions from listeners um sure so I just want to read a couple of uh recent headlines these are all headlines from the past couple of days about the general real estate market uh this one's from the New York Post home asking prices tumble at record Pace as mortgage rates surge okay Redfin has U.S saw record drop in home sales in September Yahoo finance Buckle in for a brutal free fall in home prices uh because the U.S housing market is in a massive bubble experts say and then today on Zero Hedge a record number of real estate agents will quit due to the economy realtor predicts as I said the opening new monitor the real estate market pretty closely are headlines like these alarmist or are they just reflecting reality honestly I mean they are reflecting reality but you have to remember how alarmist things really were on the way up so it's pretty crazy to imagine that you're going to have this parabolic rise in two short years and not have some sort of equally bumpy ride on the way down um yeah these are rapid declines in some regions but at the same time we're not even back to you know 2021 prices yeah I mean just just in 2021 alone home prices appreciated by 20 . and that was with a three percent interest rate so in my opinion homes were already overpriced by early 2022 with the three assuming a three percent mortgage rate yeah and start interrupt too so I mean in my opinion because I've been following the housing market for a while I think the housing market was grossly overvalued prior to all the stimulus that then created the massive bubble we're just talking about here over the past year I could be right or wrong but you could make you could have made a pretty good argument that housing Nationwide was was still overvalued before the craziness of the past two years no I have I I have challenged a couple people on that topic just in terms of Dallas Fort Worth I do not think that our housing market was overpriced in say 2018 um other people have challenged me on this I actually think we were pretty much approaching fair value right before the whole covid stimulus and all of that boom um I think our region was actually underpriced for several years that many other regions in the country right they were already California obviously totally yeah and I'm in Northern California so I've I've had that in my face for a long time and and what you're saying and I'm not contending it at all because I think that's why Dallas has seen such an explosion in growth and in building over the past couple years because it was an underpriced Market beforehand yes I I do think it was and I do think some of the remote work and some of the um our our economy is really growing here I think there are valid reasons to say that the floor of our pricing has permanently moved up from you know those 2018 levels but that does not mean that it's you know the 2022 values are fair because we rapidly swung from underpriced to severely overpriced in about a two and a half year period yeah yeah and I I'm sure that's true for Dallas Fort Worth the only point I wanted to make was sort of Nationwide people are like yeah well things got crazy with the the stimulus uh that that resulted in the 20 year over year increase and stuff like that sort of with the with the assumption that hey if we just remove what happened over the past two years like if we just adjust down by what we appreciated over the past two years housing will be very fairly valued and my point is is at least for a number of markets in the country you can make a pretty good argument that they were overvalued still um coming into 2020 maybe not Dallas Fort Worth but certainly a number of others absolutely many others yes um okay so um since you are in Dallas Fort Worth though and that's the market you you look at most closely and and I guess you could say it's it's maybe one of the healthier markets I hate to use that word but it is because it was coming off of a a a a lower value you know maybe undervalued um state in the recent past um what are you seeing now um you know again not just the short-term rentals but just the overall housing market um is that cooling pretty quickly there it is cooling pretty quickly um starting around late June um houses aren't asked to be on the market for 30 60 days um Builders depending the smaller Builders are starting to slash prices especially in the excerpts where you had a lot of remote people kind of buying way out there and maybe they got called back to work maybe they just realized hey I don't want to live in the middle of nowhere um the excerpts are struggling the core areas um and the regular suburbs are holding up a little better but prices are coming down I probably about almost 10 percent down from the May 2022 peak in many regions of Dallas Fort Worth um but prices are still really high for our taxes and for when you compare to the owner occupied rents I mean it is still significantly cheaper to rent so I'm just not seeing where we're going to be getting these buyers especially if a lot of our a lot of the investors are kind of sidelined now and a lot of our real people buyers were people coming from New York or Seattle or California and if their markets are starting to correct now and they're having trouble selling their homes they're not going to be coming here either right right yep okay and I'm curious the softening that you just described how conceivable was that in May of this year like was that something anybody in the real estate market was even talking about or has this just like hit them across the side of the head like a two by four just something they were not expecting most people that I've spoken to said it uh I remember talking to a real estate agent on Mother's Day weekend and she said it was like the lights just got shut off like the open houses went from bidding wars which was people with expiring three percent rate locks um kind of like that last gasp frenzy it would be what I call our early spring Market and then as soon as those rates hit over five everything just stopped I mean showings were way down offers were way down and then when we hit that over six percent rate in June it was it dead I mean only the best houses were selling there's no more multiple offers there's no more most things I think the average right now they said are selling 96 or 97 below this so for the most part now everybody's bidding under list um probably 20 to 30 depending on the town of the homes that are sitting and have price Cuts now um and it was pretty abrupt because we had a lot of Agents here sticking to that Narrative of well Dallas didn't really correct very much during 2008. but Dallas didn't really go up very much during 2005 to 2007 either all right so we sort of what you're saying earlier is hey you know it Rose very sharply not surprising that the decline might be equally as sharp um all right well look um uh I want to get to q a real quick before I do um just give the 60 second version of your background um so you know you live in Texas you follow the Dallas Fort Worth Market but you've got a background in economics and in journalism correct yes yes I actually I am not um native to Dallas I grew up in the Chicago area but um so that's why I don't have a an accent although I do not live in a suburb where it's very Cowboy the joke is you have to live in Fort Worth to find the real Texan Cowboys um Dallas is a little bit more of kind of a blend it's very most of the people here are transplants um been watered down from Exiles from my state yeah a lot of them from California the California refugees we call them um but yeah my background is in journalism um I study my degree is in economics and I did some graduate coursework in journalism um was on the path to attend Madill um for a masters and life got in the way I got married had a baby and started really questioning that uh hundred thousand dollar student loan I would need for that uh graduate degree so um yeah and then I've been a stay-at-home mom for the last nine years so I've done some freelance writing but not a ton and I did a little bit of work in broadcast journalism back right when I graduated college but it wasn't a positive experience so kind of tries to transitioned out of that quickly all right well I I do want to say as somebody who sort of discovered you on Twitter um I have I really enjoyed um and valued the uh the insights that you share on your Twitter feed and folks watching if you don't already follow Amy you should her Twitter handle is at Texas Runner DFW you should go follow her now um all right so Amy if you got some time um I'd love to ask folks to raise their hands and we'll take a question or two okay all right folks if you'd like to ask a question um if you know how to use Twitter spaces just uh request to be a speaker and uh if I can figure this out I will bring you in all right I see Austin here Austin I'm going to try to bring you in and Amy usually takes him about five seconds or so for Twitter to activate them okay all right Austin we see you hey one thing I noticed that you said that um um as like prices decline you think that people are going to start jumping into the market because they just want a decent deal um as one of those people one thing I'm just trying to work through for myself is a big factor and that isn't necessarily just the price but also the financing cost there's people you talk to do you get the sense that people believe mortgage rates are going back down to a more normal level or do people believe that this is a new normal that's a great question um a lot of the people that I talk to you just continually refer back to historical interest rate charts which show that rates historically Trend down um whether or not this is a new normal you know that's kind of Up For Debate but traditionally rates Trend down and my opinion would be based on history what will probably happen is there will be some sort of a recession whether it's mild or deep and we'll start reverting back to rate cuts and the whole QE stimulus cycle um you know from a macroeconomic standpoint there's discussion of how many more of those Cycles we can get away with as a country before hyperinflation or whatever there's there's all sorts of possibilities there that I'm not um fully able to address but traditionally I do think that rates after these hikes will come down I don't know how soon they'll come down and I certainly would not buy a house that you're uncomfortable with the mortgage on right now thinking hey I'm just going to be able to refinance this later because you don't know when later will be I I entirely second her last point there which is um whenever you do buy at whatever interest rate it should be one that you could sustainably afford um even if rates don't come down um you know I talked to so for those of you that don't know me I run a macro Channel on YouTube I interview people every day I do five to six videos a week so I talk to a lot of experts in the markets in the economy and um they have different opinions but if I could sort of blend the consensus together um I think they think that uh the FED will largely keep hiking until something breaks uh that it then has to fix um meaning right hikes will probably continue up until some point where the FED changes policy as Amy said um the likelihood is at that point it will probably go back to to rate cuts at some point um I and I think you have to keep in mind too that right now the FED is hiking hard to kill inflation so you know last time we did this you can use as an analog you know volcker brought rates to Crazy levels but he didn't keep them there forever you know once the back was broken on inflation they came way back down again in fact we had 40 Years of interest rates you know trending down um I think most of the people I talk to are of the mindset that the zero to near zero interest rate policy the FED is probably over probably is a new average floor uh four they expect them to come down this level that it's in right now um don't expect it to go back as low as it was before um perhaps that means the days of three percent mortgage rates might be over um but I think they they would say in general yeah once the inflation monster is more or less slain uh the FED will for a whole bunch of reasons probably you know go back to at least bringing rates down to a a more manageable level for the overall economy and if something's really broken in there for a period of time may have to go back to the type of stimulus that we we saw over the past couple of years um but but most important message is uh you know and look I I I think if you if if prices come down to where you can buy them affordably at current interest rates I think if you do do that uh odds are pretty good that as the FED starts taking the actions that I talked about that you'll be able to refinance at more attractive rates but you should not make your purchase decision predicated on that yeah especially because um I think it was Lance uh Lambert who brought this up earlier is you cannot easily refinance and you may not even be able to at all if you have negative equity so that's another important thing to keep in mind um so you may find yourself in a situation where rates do start coming down but you're a little bit underwater on that property you're not refinancing a great caution to flag for folks um all right Austin thanks so much for the question um Andrew we're going to bring you in hi um I'm not sure Adam if you introduce me or not but yep no we can hear you okay hi guys Adam thanks for hosting Amy thanks for uh being interviewed by by Adam um one thing that's really different this time is the amount of institutional investors involved in real estate Nationwide are are you seeing that from your point of view in Dallas and how sticky is that is that going to help hold the floor up higher than people think that was my question that's a good question and that is really tough because this whole I buyer model is relatively newer um this was not around in the last housing crash um we do have a pretty sizable amount of Open Door owned properties sitting on the market right now that they're selling I don't know how much they're actively buying right now um based on people that I've spoken with the open door offers that are coming in now are so below what they consider market value right now that they're not even entertaining it um but yeah I mean I do think there could be a price floor that maybe where cash investors would be more willing to come in because they aren't as concerned about interest rates and they would say hey this property is cheap enough I'm gonna buy it um but I don't know because we've never really been in a situation before where we've had this many big players trying to buy single-family homes from what I've seen so far I'm not seeing it scale well um I think homes are very personal um property is personal buyers don't like vacant homes they don't like these generically staged homes um consistently what we see in our Market is a home that's well staged and lived in by a real family would be getting more competitive offers and be more attractive on the market and there's really nothing that the eye buyers can do about that and another point someone brought up to me that I thought was really great is the eye buyer model almost inadvertently selects for the worst homes because the people that have a home that's kind of a lemon or has mechanical problems or it's going to fail an inspection those people are going to seek out an eye buyer it's got cash who's going to say okay hey we're going to lower our offer by X because we found this foundation problem but we're still going to buy it um so I think I buy properties might have a bad stigma attached to them as being those like unsalable properties great I think the only thing I'd add to what you just said there Amy is um there are some players out there so Blackstone has already announced that they have are building a cash War chest Invitation Homes is that there I think that might be their company I'm not sure yeah I think I don't know but certainty either um but so you have some big players who are publicly saying yeah we're we're going to be poised to move you know if there are better values ahead um but that being said and Andrew I don't know when you logged into this space but we we talked uh probably about a half hour ago about some of the risks um of these institutional buyers as being um if they get in trouble you know more likely to be kind of cut and run uh holders of property and potentially you know flooding markets if they're just dumping a bunch of properties at once um TBD had the script actually plays out um but uh it'll also vary greatly depending upon you know which markets the more solvent guys are focused on um but I I think you're going to see a lot of variation I guess and um I I feel personally pretty confident that you're going to see some to a number of markets where the institutional buyers end up being a net um depressor of prices as they get in trouble totally makes sense thanks guys all right thanks for the question um Yemen I think you have been requested like the whole time so I'm hoping you have a question I'm going to let you in first and we'll see if you still uh have a question and if not we'll move on to Kevin Adam thank you I I heard I think you and then the rest was in transition did I miss something okay no worries okay just uh we're just letting you speak so okay two questions you got the floor thank you two guys thank you for hosting by the way and thank you thank you Amy for speaking um two questions there related how many units do you see switching from short-term rentals to long-term rentals or coming to the market as sale um this let's say in the next three to six months so in line with the airbnbust thing oh that is a really hard question um So based on the research I've been able to gather is there are currently around 2 million short-term rental properties in the U.S there have been a couple people that have refuted this with lower numbers or different numbers but pretty sure Ivy zelman backed that hers might have even been a little bit higher and I generally trust her so um if you could just restate the numbers I'm not sure everybody heard them oh I think around 2 million total are are what we have on market right now um okay and that's right how many of those yes um okay and so that's the most accurate but just so you know right before this space I went to the Airbnb website and at the end of 2021 they had over 2.1 million listings um which might not might not all be used maybe my number's low yeah your number might be a little more as a result yeah okay Ivy someone had 2.5 million um so that she might be more accurate then um there's various sources online that have all sort of pitched out different numbers and I'm not honestly sure which source is more accurate than another but um if you've got that data then that's great um but what percentage of those are going to come back on Market I mean put it this way 50 of those at least were purchased in the last two years so you've got to assume that a significant chunk of those people might start running into either cash flow problems or Equity problems if the market continues to correct down so a good chunk of those people are probably going to be forced to convert those into long-term rentals or sell them but in terms of a hard number it's really hard to say thank you and I trust Ivy's work as well and Amy I enjoy your tweets as well so with two million short-term rental units potentially half of which potentially could come to Market and then a record number of multi and single family units currently under construction and likely coming to Market this spring and next and demand seemingly dead at seven percent mortgage rates how far do mortgage rates have to come down to balance supply and demand Nationwide this year in 2023 let's say with what we know about Supply on demand today and thank you that's all um I don't know that mortgage rates have to come down it's it's either got to be rates or prices or some combination of the two to hit affordability um you've just got buyers looking at that monthly payment you know here's my budget here's what I can afford whatever combo of interest rate and home price can get them to that budget is when they're going to buy uh assuming also you know you've got to account for the recession fears and just general psychological fear you know if a market looks like it's crashing people might get cold feet even if they think the home is a good deal um they still might be scared like what if it falls another 10 I don't want to lose my down payment money um but yeah I don't necessarily think it's a matter of rates coming down I think it's a matter of prices coming down and I think especially with those units under construction by Builders you're going to see the builders more eager to cut prices swiftly because they've got a business to run and they don't live in the homes and they've got to move yeah they've got they've got a sunk cost they've got to sell it for something yeah right yeah um so I I totally agree with you um Amy and and yeah I've had some recent discussions on Wealthy on um you know about the high interest rates the high mortgage rates back in the 80s and uh yes they were High um but they were actually more affordable because the price to income ratio of the housing stock was much more reasonable than it is today so it's an exact validation of your point there which is um we don't so much have a an interest rate problem although of course nobody likes interest rates to go up if you're a homeowner or a home buyer um but uh what we really have is is a is a pricing problem and even even at the three percent mortgages that we were at earlier this year um we still had a massive affordability problem you know there Amy you read a lot about the plight of the millennial generations and younger Generations I mean there's just a ton of folks that were getting priced out uh at those prices let alone the fact that mortgage rates were the cheapest they'd ever been yep I completely agree with that okay all right um yeah guys I I promised Amy that I wouldn't keep her all night because she has a family that she has to get back to some some young ones that are depending on her um Amy we'll take just one or two last questions if that's okay with you Kevin has been patiently waiting so I'm going to bring him in okay all right Kevin the floor is yours oh hey Adam hey Amy just want to see both both you guys do a great job on Twitter and enjoy reading all your stuff thank you but I want to make a comment uh uh more so than a question that uh a lot of people listeners that might be on this everyone's always looking to increase their wealth but uh factors that people don't include in their calculations frequently or the transaction cost to acquire the asset of the house and then also the transaction cost to sell the asset if it doesn't work out so there's a lot more risk when you buy a house for five hundred thousand dollars with a twenty thousand dollar acquisition cost and then if you have to turn around and sell it for 500 000 and it costs you thirty thousand dollars to get rid of that it ends up being a really expensive mistake so to speak that's a great Point Kevin um and on top of that you know there's just all the costs of home ownership um you know that go along with it the maintenance insurance and all that stuff and Amy was saying earlier that um a lot of these short-term rentals you know might convert into long-term rentals and I don't know you know I mean maybe we will we'll see a finally a relief for renters where you know for the past 10 years rents have just been inexorably going higher and higher and higher uh for folks um you know I live in an area where most most families that grew up in this area have had to move because they've been priced out um maybe your people have brought that here Adam yeah well because they had to go somewhere so they went to work so um so maybe that Trend you know reverses or at least gets a breather where people all of a sudden realize hey not only can I get a cheaper house to rent um but maybe I was thinking about buying but but maybe I'm not going to buy right now because I've done the math and the math of renting at these lower rates is actually maybe favorable yeah I think that's a great Point yeah Kevin thank you for sharing that point I that is valid and I think that there is it is worth looking at your the opportunity cost of your Capital because the dollar is strong right now and if you've got cash you know do you want to deploy that cash you know spend fifty thousand dollars on a transaction or a down payment or whatever when you could be putting that money somewhere else and earning a certain yield versus an asset that questionably may go down in the next year and a lot of people say we'll go down in the next year exactly and that was more just for people that may be on this uh audiocast that are interested in possibly getting into the business versus people that already know what they're doing just a warning it cost zero money to trade stocks on Ameritrade or real estate again is expensive to transact when you both buy and sell right now I mean and there's and much less liquid that's less liquid now there are tax benefits and other things like that but Kevin your points are great and you sound like a man talking from experience do you work in the industry yeah I've been in uh real estate since 1989. okay well look why we have wow you as a speaker um what do you think about today's environment from a from a buying standpoint do you agree with our point of just look patience is your your best friend right now or or do you have a different opinion oh I I agree with that the other thing that's tough that I'm seeing I lived in New York state for 57 years and moved down to Florida here a year ago and it is local in nature uh the trend I see especially living down here is a massive migration of people from the northern states where they're unhappy with the weather the taxes and the politics and even though the market is slow dramatically I think in a lot of other areas of the country here it's been very minimal as far as the slowing the number of transactions aren't there but the pricing hasn't really come down that much yet and it's just a great reminder and we probably should have said this multiple times throughout this space you know local mileage always varies in real estate so a lot of the things that we're talking about are kind of at a general level but the way they play out in your particular Locale are going to be entirely dependent upon the idiosyncratic uh you know unique attributes of of where you are right and I've just I'd seen prior bust uh you know back in 0809 where people would literally have to come to the closing table with a check for 200 000 to liquidate their house and people just don't think that can happen and it can happen all right well folks that's the voice of experience there all right well look we're going to end on that so I can keep my promise to Amy um Amy thank you so much folks if you've enjoyed this uh again follow Amy on Twitter at uh at Texas Runner DFW if you don't follow me please follow me at Menlo bear and if you enjoy sort of long form macro interviews and discussions like this like I said I do them five to six times a week on my YouTube channel at wealthyon that's uh wealth iom feel free to go follow that for free as well um Amy it's been a pleasure I really hope we get to do this again at some point soon yeah I'd love to thanks for having me this is my first space so it was fun to fun to try it out and you were a great person to do it with awesome host so I appreciate it all right well thanks so much everybody else thanks for listening give a high five upon leaving and um have yourself a great Sunday night and we hope to see you on Twitter spaces again sometime soon I hope you enjoyed this Twitter space with Amy and me I do these Twitter interviews with increasing frequency so if you'd like to be kept in the loop when my next one is going to happen follow me on Twitter at Menlo bear I also share a steady stream of insights headlines and charts that catch my eye throughout the day on that platform it's a great way to stay connected with me as you wait for the next YouTube video to come out and as always if you enjoyed this interview about the airbnbust and would like to see coverage of similar topics on this channel in the future please do me a favor and support us by hitting the like button and then clicking on the red subscribe button below as well as that little bell icon right next to it thanks so much for doing that and thanks for watching foreign

Channel: Wealthion

Views: 362,988

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Id: rpB3258i9OA

Length: 74min 47sec (4487 seconds)

Published: Wed Oct 26 2022