The Norris Group’s annual award-winning event, I Survived Real Estate is back! Due to Covid-19, we are virtual. HOWEVER, our 14th annual black-tie gala that benefits Make-A-Wish and St. Jude Children’s Research Hospital will continue. Since 2008, together we’ve raised over $1,000,000 for charity!
Our network will want to pay special attention to The Norris Group Radio Show and Podcast as we will be doing pre-event shows featuring local experts as well as national leaders. There’s a lot at stake in 2021 for real estate investors. Will the real estate market remain scalding hot? Is a crash coming? How will the US handle the disappearance of Covid housing- and employment-related assistance?
I Survived Real Estate was created during a year in crisis and our mission continues to bring thought leaders together for a great cause while preparing our industry for the year ahead.
PLATINUM PARTNERS:
San Diego Creative Investors Association
Wilson Investment Properties,
uDirect IRA Services
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Inland Empire Board of Real Estate
Keller Williams Corona,
Keystone CPA Inc.
Las Brisas Escrow
Leivas Tax Wealth Management
NorCal REIA
NSDREI
Pasadena FIBI
Realty 411c
ThinkRealty Magazine
Episode Notes:
Narrator This is The Norris Group’s real estate investor radio show the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever -changing real estate market hosted by author, investor and hard money lender, Bruce notice. On November 5, 2021, The Norris Group proudly presented our 14th annual I Survived Real Estate charity event, industry experts joined Bruce and Aaron Norris to discuss evolving industry trends, real estate bubbles, inflation, and opportunities emerging for real estate professionals, all proceeds from the event benefit Make-a-Wish and St. Jude Children’s Research Hospital. We want to thank our Platinum partners, San Diego Creative Investors Association, Wilson Investment Properties, uDirect IRA Services. See ISurvivedRealEstate.com for event details, information on all our generous sponsors, watch the video uninterrupted and to connect with our speakers.
Aaron Norris  Alright, now we’ve got 45 minutes, we’re gonna start opening it up for questions. But how about we start with you to get the roundtable going?
Bruce Norris Sure. You know, Fannie Mae just announced a big increase in the loan, loan balance. So excuse me, the…
Aaron Norris  FHA loan limits?
Bruce Norris  Not FHA, FHA, I think it’s announced later, or maybe in December, but this is Fannie Mae’s loan limit. It went up, I think, what $75,000, Doug?
Doug Duncan  Yeah, the official release hasn’t gone. It’ll be at least that and it is, it’s FHFA the Federal Housing Finance Agency that does the calculation releases that should be coming out shortly. You’ve already seen some lenders are actually making loans close to what they think the projected amount will be. There was some discussion in the industry about with the outsized house price increases in last year, that is 2020, 15%, nationally, and this year, it looks like we pretty close to 20% nationally, whether or not they would move the limit up that far or not. But it appears that they’re probably gonna take it to their, to the level that the formula that they use suggests is the maximum.
Bruce Norris  When, when you have a big rise in the maximum loan, what typically happens to the two worlds; the purchase world and the loan refi world? Do they get very busy and prices attempt to run to that new limit?
Doug Duncan  Well, certainly, there is an interested in managing and being under the limit. So, you always see, just if you plot how many loans are made, at what level, then you see a bulge of loans just below the limit, because it’s the industry differential is worth people paying a little more equity, for example, to get just below that limit, then going above it and paying the jumbo level of cheese. So, activity moves up with the limited for sure.
Bruce Norris  What’s, what’s interesting about a lot of things, we’ve talked about housing shortage, and the cost increases. What that does put, it puts the demand that can’t land on new homes, to existing homes. In California, existing homes have been more expensive than new homes per square foot, only four times at 80, 89, 05 and right now. So the cost of old home per square foot is benefiting from you not being able to get a refrigerator to show up to your new house.
Doug Duncan  Hmm. There’s, there’s a number of interesting anecdotes. The one I was my favorite was when the month supply of existing homes reached 1.9 months, there was a story that ran and said there were essentially the same number of homes for sales as there were realtors. So, you could imagine each realtor trying to sell their home.
Bruce Norris  Their one home transaction.
Aaron Norris  So, if you have questions, if you want to type them in the Q&A, that would be great. Especially if it can touch multiple of the panelists. That would be awesome.
Bruce Norris  Can I ask you, and I’m going to ask this of, of anybody that wants input. Inflation. I’ll just say a little bit my story 74 to 80 was inflationary. But I owned, I owned a home and it took off and allowed me to buy three homes and it took off and by 1979 owner free and clear house. It was a big deal. Had I been renting, my rent would have exploded and my life would have been very different. So, what we, what we’ve experienced right now, if you if you own rentals, you’ve gotten one heck of an increase in the last 24 months. And so I know Fannie Mae does a lot of, a lot of good and have programs to reach out for first time buyers, a lot more than people think they do. But is there, I don’t know. Is there any special program that’s being contemplated by Fannie Mae to to reach across the aisle and say, ‘Okay, you can afford to own you would only have maybe a downpayment or something.’ But is there any willingness to let more people into ownership? Because that’s a big benefit going forward.
Doug Duncan  Yeah, they, one of the things that we’ve in my group, which is called the economic and strategic research group, had looked at and talked to the leadership about was the one of the kinds of programs that has historically been successful in helping people is downpayment assistance. And it’s, it depends on how it’s delivered. But there are ways to deliver downpayment assistance that do not distort the incentives, the, of the parties to the transaction. So, for example, a few years ago, there was a move by FHA to eliminate a builder assistant downpayment, because essentially, that assistance was being built into the price of the property. And the foreclosure rates on those particular products were higher so that that program was terminated. But that doesn’t mean that downpayment assistance isn’t, if delivered correctly, isn’t helpful. And so, I think you’re seeing discussion of that, across the policy arena, whether or not there’s a way to, to deliver on, on that kind of a product.
Bruce Norris  Is, is there any willingness to take? Okay, we’ve got, let’s say, this is the best interest rates we’ll ever see in our life. Maybe it’s not true. But we’ve got all this 2% money in a fixed loan, is there any willingness to let that walk forward to another transaction? What, in other words, and I’m not talking about formal assumption I’m talking about somebody who takes over the loan and its current is that white, that might be a very helpful thing. If that is a blend of the transactions, let’s get let’s say interest rates change to five, but you have an entire pile of loans in place for two or three, that might be very supportive of price and may in fact, prevent a foreclosure issue.
Doug Duncan  Well, there’s certainly some discussion of that, I wouldn’t say that it’s ready to come to market in the near term. Yeah. I know, we, we’ve had some conversations on that issue. And economists are fairly supportive of that as, as a strategy, and certainly the attractive component of that is the prevention of foreclosure.
Bruce Norris  Yeah.
Doug Duncan  Because it’s pretty much losses all around foreclosure. So, I think that’s the attractions. And the angle in which that could see that might be.
Bruce Norris  What’s really interesting in 80, and 81. So, you have the, like the worst charts ever, interest rates -17, unemployment – 10%, inventory explodes by you know, I think it’s probably 15 months, you don’t have a pricing, price decline. And half of the transactions were, were allowed to happen with existing financing that had 7% mortgages instead of 15. That kind of saved the day. So, it’s just nice sometimes to look back in history and okay, that’s, that’s not a bad idea.
Aaron Norris  We have some questions coming in. Martin asked many people are negative on California, but I understand many are still buying. Can you comment on which types of companies individuals are buying and why they are buying was so many bailing out of California, which areas of California? Where’s the money going? I’ll start, it was interesting. I was pulling some data, I think in Texas on entities of flippers, particularly. And it was very surprised year over year to see that there were so many different entities, like completely new and some had completely disappeared. So, I was really surprised but the flipping was still going on. It was just with different companies. And of course, real estate investors could technically be changing entities. But I’ve seen here in California, a lot of people have retired. They had a really great run from 2009 till now and they’re repositioning their portfolios and they’re just focusing on the rentals are building ADUs. They’re doing less flipping so I’ve definitely have seen my fair share of flippers retiring but I still see plenty of people doing it. There are some people who are just diehard Californians. You got, your Aaron Mazzrillo, the Mike Cantu’s, I follow people all the time to just actually they’re trying to get closer to where they live, not necessarily trying to go to Pacifics to build, flip a house out there. So, I think people just gravitate to where they’re most comfortable in the price point and the inventory that makes sense for them.
Bruce Norris  What’s really interesting about the charts, if you take a look at the migration loss of California, it’s been significant. But you haven’t had a price decline, you’ve had a price explosion. So, you know, you scratch your head and go, Okay, well, that’s, that’s interesting. So, how does that occur? And part of it is what Cornelious was talking about. When you have their cycle of construction, new single family construction typically hit a bottom at 60,000, you go up to 150,000 and the every 450, 130, 120, 110, well, you take an accumulative 10 years of that, in the last 10 years, we built 45,000 single family homes when we should have averaged 110. That’s 65. That’s 650,000 homes that are supposed to be out there that are not. And so you can have some people leave, and you still have a housing shortage, which is rather than astonishing thing.
Sean O’Toole  We’re working on a project with a major university on the migration question, right. And the reality is, like, we’re still looking at like things like U-Haul trucks, right? And the data is just really, really, really crappy. I mean, it’s just we don’t know, is, is really the true answer right now. And, you know, like, a lot of people say, Well, isn’t the high end, but it feels like, you know, the folks we’re losing are the folks that maybe can’t make it here. And they’re getting replaced by people who can, right, the economy generally gets stronger here. So, but, you know, we don’t know. There’s lots of different hypotheses, nobody knows right, and…
Bruce NorrisI love that U-Haul chart, by the way, I love it.
Sean O’Toole  But… I… would also… are the people. Yeah, you know.
Cornelious Burke  I will say that the media touches mostly people leaving the state, but a lot of internal migration. A lot of people are leaving the Bay Area coming to Sacramento lobby, we’re leaving LA, moving to Riverside, San Bernardino, or the Central Valley. So, a lot of the analysis has not been done by internal migration within California.
Bruce Norris  Yeah. And I think, I think it would make sense if you were trying to get a head start, or get your first start, and 800 grand median price be a little tough.
Aaron Norris  You know, $200,000, in school debt, go you.
Kacie Ricker  I loved your point, when we were doing the prep rate you talked about like, a lot of people haven’t gone through a winter, and where they’ve moved. And all of a sudden, like, when they get to the other side. It’s like, Oh, what did I do?
Aaron Norris  Yeah, Sean, I told her the story about people who are experiencing Tahoe for the first winter and rolling their trucks down the hill. And so you’ve got the great, great migration, but maybe you have the great re migration, like…
Sean O’Toole  Yeah, it’s big question. I mean, we have a really mild winter last year, and we still had some of those stories and what happens when we have a big winter? Right? You know, that’s, when I first moved here, the first thing you know, people would say, well, we can’t really be friends till you’ve been here like three to five years, because everybody leaves, right. And the big winter a lot different than a mild winter is completely different experience. And we had a mild winter last year. So, a lot of people right now are bullish on being here full time, it’ll be interesting to see a lot of things like that, a lot of people moved a lot of places, you know, on kind of a wing and a prayer, hoping a dream. And I think we’re gonna see some percentage of those people go, Oh, that was a mistake. Right? And, and that’s gonna be good for the real estate industry, because that’s gonna cause more churn and more movement and more transactions. But I do think, you know, over the next couple of years, we’re gonna see some people unwind the things they did the last couple of years. I think we’re gonna see some people be really happy with their change, too. Right. Like, but but it’ll be a mix. And I think it’ll cause some, some mixing.
Kacie Ricker I’m curious, do you think the pendulum will swing with I have to believe that employers will want their employees to come back to work even if they said that they were going to allow them to work full time from home, maybe they’ll see the pendulum swing back. And do you, have you, have you guys thought about that or predicted that in anyway?
Aaron Norris  That’s why Facebook, rebranded Meta. We’re gonna do the metaverse we’re gonna put our virtual reality glasses on and you know, around a virtual reality fireplace right?
Sean O’Toole  I think the swing two remotes relatively permanent I think, I don’t think we go back to the same degree of cube farms that we had before. There’s a business we back from the the late 90s that in the sense, I think, come on in the centerfold, our company was one of the first to bring in pool tables. And, you know, we had a beer tasting with the founder of Samuel Adams, like in our company, right. And we did all these things. And I gotta be honest, you know, it was, it was very leading edge at the time, we were a workforce management company. So, we’re trying to be leaders. But at the end of the day, it was about keeping people in the office a lot longer. Right. And a lot of people talk about how great that is, and the slides and this and that, you know, at my company, right, I want to come in and work really hard, and get out as fast as possible to go out and go skiing, mountain biking, and go do stuff. And I want focused, you know, quality time for some people, you know, like, a lot of software engineers, I’m the most as a software engineer, I am super productive, like 11 to 2am 11pm to 2am. Like, that’s when I get my flow state going right. And, you know, as, as employers, we should embrace that. Right. And maybe you have a three hour flow state. And that’s the whole entire productive piece that you have, but that may be five times more productive than sitting around an office getting interrupted all day. I think it changes forever.
Aaron Norris  That’s so interesting, because that’s gonna change so many markets, Idaho, you look at the places where a lot of people migrated to and all sudden they’ve brought those, do you think the incomes will stay the same? Will they keep the Silicon Valley money in their small town rural market?
Sean O’Toole  No, I mean, yes. And yes. And no, you seeing some companies say yes. And some companies say no. And, you know, right now, it’s I think it’s all bets are off, because so many people are just saying, You know what, I’m going to go gig it for a while. So, I think that’s, I think that’s yet to be determined. I think. I will say that, like real estate search is broken. I give a shit about city. Right? Every single real estate site, enter your city, city, city city, I don’t care about city. Tell me where good skiing is. Tell me where good, whatever the thing is that I love to do, where am I going to find a lot of people that love to do that thing? Right? And there are still going to be a lot of jobs that are, you know, hospitals, he can’t really do remote. So, if I’m a nurse, like, Where can I go where I’m going to get the best cost of living and be able to whatever it is ride my road bike, where’s the best place for that? Not a single real estate search site out there that does that. And I don’t think people have rethought right that everybody’s gone. Well, I live here because I have a job. So, now I need to look for real estate here in this location. I think that’s broke. And I think that’s completely gone. And every, every real estate portal website out there is completely has the wrong approach.
Kacie Ricker Glad to talk to you because we’re actually building out our new site. So, maybe I can make you part of my user research.
Doug Duncan  From the home builder perspective, to work from home has really increased the demand consumer preference for home office, smart homes, and obviously robust Wi Fi service. That’s those are the things I think you’ll be with us for a long time.
Aaron Norris  Cornelious, I was gonna ask you this as the average square footage, it’s been declining for a number of years that the builders were building, is it going to go back up?
Doug Duncan  A lot of people are moving to buy more room? Yeah, so we’ve seen that, we’ve seen that new product, they increase square footage and product types.
Aaron Norris  Okay. Question, do you see, Chris asks, do you see 40 to 50 year mortgage loan programs to help make high cost housing more affordable monthly? Anybody think 40 to 50 year loans are going to become norm?
Sean O’Toole  I do, I think we’re gonna follow Japan. I think it’s just a matter of time to over 40, 50 year mortgages in the ones.
Doug Duncan  It’s a it’s certainly possible, I think an important market signal would be if the federal government could rationalize their view of what constitutes infrastructure and float 40 year treasury bills to fund actual infrastructure investment. That’s a good investment. And at 2% or two and a half percent that’s actually been investment if that what signal went into the market, you may then see in the mortgage space, some following of that, but I think it might take a signal of that strong to get it on.
Bruce Norris  If we could get a 50 year loan at minus two, it just pays for itself. Right.
Aaron Norris  Aaron asked, Will the affordability get much worse as huge increase in property prices far outpaces wage increases? If so will the price correct back to equilibrium?
Bruce Norris  Okay, that for who?
Aaron Norris  You will have to take it.
Bruce Norris  Well, right now you’re at about 23%. California does have a history of getting to 17 repetitively. And when lending, the lending world wasn’t being honest with who actually should get a loan that got lower. So, if 17 is the breaking point, you’ve hit it a number of times. And so if you get if you hit it in 2022, it’ll be the fourth time, but the outcomes have been different. In 1982, never price decline 89, you had from 90 to 96, you had about a 15% or so price decline. And then prices crashed in 09, the difference was how many foreclosures dominated what was for sale? And so really the question, it’s, it’s a great question, but the answer actually is what’s going to be the policy of how many foreclosures are going to enter the marketplace simultaneously? Because it’s, if it’s pretty much just what’s for sale by owner, the owner is not going to be super motivated, take a gigantic discount or lose the property, because he’s got a 50% equity position and a two and a half percent mortgage rate. So, patients would be fine. And they just said, Okay, well, I just won’t, I just won’t tell it now. That’ll that’s really the dominant thing. So, there’s the problem. So, it’s a great question. How do you get back to a high affordability? See, that’s the difficulty now, you’re really going to need that 1% mortgage rate. Because from 17 and a half, to two and a half, we had a 40 year journey where affordability got replenished, we hit that number. But affordability got replenished, because prices went down, and interest rates went down. And also they recovered. So, you got back to 30%, affordability? 2009, we’re at 50 plus percent affordability. Now we’ve gone down to almost 20. Again. So, that’s really the problem of going forward for California, is that when you get to 17%, and you’re a 3% mortgage rate, where do you go? If you just bounced at 17, then you won’t have a price increase possible? Because in an honest lending environment, you get told no. You know, again, that’s when people people are really excited about buying homes at the peak of the market. That’s just human nature. But if we get told no, then that’s the end of the volume. And there’s a series of charts that do get negative. But I don’t see the willingness to foreclose on a bunch of people this time. I just don’t.
Sean O’Toole  I would add, you know, it’s not just foreclosures, right. It’s, it’s any distressed seller or sellers that can put enough, you know, and so in the 90s, you did have homebuilders, discounting, and that, you know, it was a lower drop, certainly than we had in 2008. I don’t think we’ll see 2008. But a lot of people say, Well, what if the institutional investors dump or Zillow dumps homes in, you know, Phoenix or things like that there are other possibilities of dumping homes, but I don’t see it, you know, I think would take I just don’t see, you know, I think it’s obvious enough that, that dumping homes becomes a, you know, a self reinforcing circle after 2008. I don’t see any of those groups doing it again, but I do you think it’s or other possibilities and foreclosures.
Doug Duncan  Yeah. The two quick thoughts. One is the millennials depending on how you measure that population group, the peak of that group, reaching 31, which is the median age at which first time homebuyers happened, that’s roughly three years from now. You’re also seeing an increasing share of the boomers the leading edge of the boomers that are going to start moving to assisted living, which means freeing up supply. So, you simultaneously three to four years from now, you’re going to see some movement on both easing of demand and increasing of supply. Now in some markets, your point shot in some markets, you might see if there were some institutional investors that were looking at both the capital gains benefit and the cash flow benefit and the capital gains go away because prices flatten you might in selected markets see some selected access, but I’m with you. I don’t think it’ll be, I don’t think it will be massive. And I’d forgotten the other thought that I had some…
Sean O’Toole  I think you did answer Bruce’s question though, that it’s demographics that create the next buying opportunity.
Doug Duncan  Yeah. I’m gonna add just real quickly on the political public policy side, digging in the land use soft costs, part of homebuilding for a lot of things that are very worrisome that might make the affordability crisis worse. I mean, rent control, and a statewide ballot in California have been defeated twice. There’s talk about returning various local rent control ordinance we help to defeat inclusionary zoning environmental regulations, there’s a new rules a new cities are, are a lot not allowing natural gas, only electric buildings now, there’s Sequa. That’s becoming more and more stronger. So, I think on the policy front, there are public policies that can be enacted that just couldn’t make this worse.
Aaron Norris  We don’t talk about Sequa on the show, it’s a dirty word.
Doug Duncan  But you trigger coronial. To trigger the other issue. I spoke to the board of a significant mortgage company recently I asked. I said at some point, here’s some questions that I would ask if I were on your board. And on the policy front, I would ask the question, is mortgage lending still secured financing? With all the regulatory rules that have been placed on against foreclosure? Is it still secured financing? If not, how would you change your business practices to account for that? I actually asked because I think it’s a serious question.
Sean O’Toole  Yeah.
Aaron Norris  Well, Doug, that was one of my questions. We’ve been talking about these trillions of dollars just hanging out and savings account and all of a sudden SB 9 here in California is where I can turn a single family home into a duplex so I’m like I got a lot of money. I’ve got a first in place they don’t, they don’t get a say what I’m about to do. I’m about to step my toe into a market with wage issues, supply chain issues, I could cause myself a lot of problems as a homeowner as used the mortgage company have no idea it’s coming fun. Huh? Oh, Sean, a new good idea. Homeowners in trouble because they couldn’t finish their product either that or a new TV show.
Bruce Norris  You can just follow every permit that’s gonna be an issue.
Aaron Norris  Seriously?
Narrator  We’d also like to thank our Gold Sponsors, Inland Empire Board of Real Estate, Keller Williams Corona, Keystone CPA, Inc. Las Brisas Escrow, Leivas Tax Wealth Management, NorCal REIA, NSDREI, Pasadena FIBI, Realt411, and Think Realty Magazine. See ISurvivedRealEstate.com for Event Details information on all our generous sponsors, watch the video uninterrupted and to connect with our speakers. For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.
Aaron Norris  The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.