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Masters in Business: CEO Jonathan J. Miller (Audio) · Masters in Business

0:03
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg
0:07
Speaker 1: Radio this week. I have a friend of mine, Jonathan
0:11
Speaker 1: Miller of Miller Matrix is his blog and Miller Samuel
0:16
Speaker 1: is his shop. Jonathan has been an observer of the
0:21
Speaker 1: real estate market and industry for for decades, literally decades.
0:28
Speaker 1: We met some years ago. I'm trying to remember if
0:31
Speaker 1: the first thing we did was a conference. We were
0:36
Speaker 1: on a panel with the old people, Bob Schiller and
0:39
Speaker 1: Dottie Herman, who I believe was the head of Prudential
0:42
Speaker 1: real Estate at the time, and it was oh seven
0:45
Speaker 1: or oh eight, and you know, she was the only
0:48
Speaker 1: one who was remotely bullish on the panel. It was Miller,
0:52
Speaker 1: Schiller and me, and it was like bear bearer and barrassed.
0:57
Speaker 1: It was was pretty amusing. We've been friendly for for
1:00
Speaker 1: quite a while. UM. I find him to be really
1:04
Speaker 1: a unique set of insights into what's going on in
1:08
Speaker 1: the real estate market. What his firm does is gathered
1:12
Speaker 1: data from around the country, very often in areas where
1:16
Speaker 1: there are no other form of data collection going on.
1:20
Speaker 1: Specific data far beyond what we see from the National
1:24
Speaker 1: Association of Realtors or what what the commerce department puts
1:29
Speaker 1: out about new houses, and he crunches the numbers and
1:32
Speaker 1: comes up with some really really interesting perspectives. If you
1:37
Speaker 1: go to a real estate agency somewhere and they give
1:40
Speaker 1: you a tear sheet that shows you lots and lots
1:43
Speaker 1: of information about recent sales and length of time on
1:46
Speaker 1: the market and all that sort of stuff. His firm
1:49
Speaker 1: is the firm that actually collects that data, analyzes it,
1:52
Speaker 1: interprets it, and puts it out. He's got deals with
1:55
Speaker 1: a number of different companies. Really a fascinating approach to UH,
2:00
Speaker 1: taking data and repurposing it in a way that's useful
2:04
Speaker 1: for consumers. I find him to be very, very insightful
2:08
Speaker 1: about all things real estate. He also has a column
2:12
Speaker 1: now he puts something out once or twice a week
2:15
Speaker 1: on Bloomberg View in addition to what he does for
2:19
Speaker 1: his UH daily blog at Miller Matrix. Just all around
2:25
Speaker 1: nice guy and tremendously knowledgeable and insightful. The most fascinating
2:29
Speaker 1: thing UH, and I hope this came across in the interview,
2:33
Speaker 1: is he often gets tagged as an expert in divorce
2:38
Speaker 1: settlements and litigation and all sorts of crazy stuff, and
2:42
Speaker 1: he's I am not exaggerating when I say he's pretty
2:46
Speaker 1: much been in every single penthouse in New York City.
2:51
Speaker 1: But he's the go to guy to a praise these
2:54
Speaker 1: fifty and a hundred million dollar properties. Not a lot
2:57
Speaker 1: of people with a deep expert teasing that. And he
3:01
Speaker 1: could tell stories and actually has, and we touch upon
3:05
Speaker 1: it about some of these apartments that are just un believable,
3:09
Speaker 1: just unbleeping believable. It's it's fascinating. And he tells um
3:15
Speaker 1: all sorts of fascinating tales about where he's been, what
3:17
Speaker 1: he's seen, how stuff gets priced. Is there really a
3:21
Speaker 1: difference between forty five and forty eight million dollars? Turns
3:25
Speaker 1: out an extra bathroom here and a little bigger window
3:28
Speaker 1: there worth three million dollars. It's really quite interesting. If
3:32
Speaker 1: you are all interested in real estate, and I am,
3:36
Speaker 1: and I assume many of you are, I suspect you'll
3:38
Speaker 1: find this conversation to be engrossing. Without any further ado,
3:42
Speaker 1: my conversation with Jonathan Miller. This is Masters in Business
3:49
Speaker 1: with Barry Ridholts on Bloomberg Radio Today. I'm actually thrilled
3:54
Speaker 1: to have an old friend in the studio. You may
3:58
Speaker 1: not have heard him directly, but you've probably read a
4:02
Speaker 1: quote of his in the New York Times or anywhere
4:05
Speaker 1: else somebody is talking about real estate. Today, I have
4:09
Speaker 1: Jonathan Miller, founder and CEO of Miller Samuel Welcome to
4:14
Speaker 1: the show. Great to be here. And I have to say, Barry,
4:16
Speaker 1: you have a great voice for radio. I have a
4:18
Speaker 1: face for radio, is what you're trying to say. So
4:21
Speaker 1: for those of you who really don't know who Jonathan is,
4:25
Speaker 1: he's fairly legendary in the world of real estate. I
4:28
Speaker 1: think that's a fair statement. Right, well, at least in
4:30
Speaker 1: my own mind. You're on legend in his own mind
4:32
Speaker 1: if you're in New York real estate or a few
4:36
Speaker 1: So let me back up and give your CV a
4:38
Speaker 1: little bit. You're so you started out in this industry
4:42
Speaker 1: as a agent and then an appraiser the mid eighties,
4:47
Speaker 1: all right, and and what kind of set you apart?
4:50
Speaker 1: I want to talk about three things so people know
4:53
Speaker 1: who you are. First, you were one of the first
4:56
Speaker 1: guys in the real estate world. And this sounds insane
4:59
Speaker 1: because you would thought this was going on for decades.
5:02
Speaker 1: Who said, Hey, all these transactions are generating a lot
5:06
Speaker 1: of data. Why don't we take this data and take
5:09
Speaker 1: a closer look at it and see if we can
5:11
Speaker 1: discern any sort of meaning from how long a home
5:15
Speaker 1: is on the market, for what it sells relative to
5:18
Speaker 1: its asking price, etcetera, etcetera, etcetera. No one was really
5:23
Speaker 1: doing this before you came along, not really. Most of
5:26
Speaker 1: what was being done was marketing brochure not or very
5:31
Speaker 1: complicated in the sense that it was sort of academia
5:34
Speaker 1: and it was hard for the consumer to digest. Uh.
5:37
Speaker 1: As journalists say the trend. Three data points make a trend,
5:41
Speaker 1: and then I like to say, the trend is your
5:42
Speaker 1: friend until it ends right depend at the end. I
5:46
Speaker 1: like that that's even better. So that that's my contribution
5:49
Speaker 1: to Uh. You know, it's true if it rhymes right right,
5:52
Speaker 1: absolutely so the second so, so, assembling the data was
5:55
Speaker 1: the first thing you did, and then miraculously you were
5:59
Speaker 1: an objective commentator observer. You know, I used to mock
6:05
Speaker 1: relentlessly the National Association of David Lay, the Chief Economists, right,
6:09
Speaker 1: is painful, just just everything out of their mouths were
6:13
Speaker 1: just horrific marketing spin. Well, you have this dilemma. So
6:16
Speaker 1: in real estate transaction, to have this, you have this
6:20
Speaker 1: if you look at the broad view, you've got it.
6:21
Speaker 1: One end of the spectrum. You've got the real estate community.
6:26
Speaker 1: It's always a good time to buy was literally it
6:29
Speaker 1: was literally an ad they put out in the midst
6:32
Speaker 1: of the housing collapse. It's always a great time to
6:36
Speaker 1: buy or sell a house. What that really means is
6:38
Speaker 1: it's always a great time to generate a commission based transaction.
6:42
Speaker 1: And ps, my mother was a real estate agent. This
6:45
Speaker 1: was dinner conversation. So I'm not bashing real estate agent
6:50
Speaker 1: as an outsider. This was literally what I grew up with.
6:55
Speaker 1: So when I mock these people, it's from the inside,
6:58
Speaker 1: not the outside, right absolutely. And and then the other
7:01
Speaker 1: end of the spectrum is the academics. You know, the
7:04
Speaker 1: case Shiller index and and and all the problems of
7:07
Speaker 1: that and what the purpose of it is and uh
7:09
Speaker 1: and we've really position yourself somewhere in the middle, which
7:13
Speaker 1: is essentially in the trenches, providing uh, sort of on
7:18
Speaker 1: the ground observations about the market. And one of the
7:21
Speaker 1: things that I found really fascinating being an appraiser was
7:25
Speaker 1: during the whole big sort of housing boom, run up,
7:28
Speaker 1: credit bubble back, uh starting circus, I started seeing it
7:34
Speaker 1: in oh three oh four. Uh, no one else was
7:38
Speaker 1: talking about it, and I thought it was really bizarre.
7:41
Speaker 1: It was you were out in left field, and in fact,
7:44
Speaker 1: to emphasize your data slicing skills. So first, the data
7:50
Speaker 1: runs that you put together, Actually it's a feed into Bloomberg.
7:54
Speaker 1: So if you're on a terminal, I don't know what
7:56
Speaker 1: it's called. The Yeah, we have a Manhattan Luxury price index.
7:59
Speaker 1: There's three different meat metrics that are used. We also
8:02
Speaker 1: have a luxury rental price index. And uh, and I've
8:07
Speaker 1: also seen your specific regional housing data. Yeah, here's NASA County,
8:14
Speaker 1: here's parts of Flower right. We cover eighteen different markets,
8:17
Speaker 1: so we cover we cover a whole bunch of markets
8:19
Speaker 1: in New York City, Metro for markets in South Florida,
8:23
Speaker 1: and then I'm now starting to develop research in Los Angeles.
8:27
Speaker 1: So it's amazing because I'd love to see the San
8:31
Speaker 1: Francisco think that would be Uh. I was approached about that,
8:35
Speaker 1: but but nothing has come to it yet. But what's
8:37
Speaker 1: amazing about it is the concepts of supply and demand
8:42
Speaker 1: they don't change all that much. I mean the numbers change,
8:44
Speaker 1: how many zeros are After it, I'm amazed what you
8:47
Speaker 1: get in l A for a couple of million dollars
8:51
Speaker 1: versus what you get in New Ye. Right, Well, you
8:52
Speaker 1: always see you always see the celebrity, you know, a
8:55
Speaker 1: Johnny Depp or whoever. It's like, Oh, they sold their
8:58
Speaker 1: palatial state for three and a half million dollars and
9:00
Speaker 1: I'm thinking, well, that's a large two bedroom in Manhattan.
9:05
Speaker 1: That is not a prestige play. Speaking of which I said,
9:09
Speaker 1: there are three things. The third thing, which is we'll
9:11
Speaker 1: get to You've been in pretty much every penthouse in Manhattan.
9:17
Speaker 1: Is that much of an overstatement? I have one of
9:19
Speaker 1: the most of the greatest experiences seeing these insane penthouses
9:24
Speaker 1: the design. However, what I don't usually get to see
9:28
Speaker 1: is them in the evening at night. It's always during
9:31
Speaker 1: the day, so I don't get to see them all
9:32
Speaker 1: lights on the city, which is you know, half of
9:35
Speaker 1: the spectacular aspect of review. But we see and you
9:39
Speaker 1: know that in itself is a whole different submarket of
9:41
Speaker 1: the housing market, uh, which is held up really well,
9:45
Speaker 1: which has held up really well because the money is
9:47
Speaker 1: almost an afterthought. It's irrelevant. I'm gonna buy this because
9:51
Speaker 1: I can, and I don't know. Well, the whole uh,
9:53
Speaker 1: just a digress to the whole phenomenon of this high
9:56
Speaker 1: end aspect is it's a global phenomenon. It's just unique.
10:01
Speaker 1: It's London, it's Hong Kong, it's Shanghai, it's it's to
10:05
Speaker 1: any major city. It's it's booming because there's a boatload
10:09
Speaker 1: of money. We're talking real estate with Jonathan Miller, CEO
10:13
Speaker 1: and founder of Miller Samuel. Let's hold off on discussing
10:18
Speaker 1: the penthouses just for a few seconds. I want to
10:21
Speaker 1: talk for a moment. I want to pick your brains
10:23
Speaker 1: for a moment about what it is that drives most
10:28
Speaker 1: of real estate. We put together we were talking about this,
10:31
Speaker 1: We're putting together a list, and it was everything from
10:34
Speaker 1: demographics and household formation to interest rate wages. But really
10:41
Speaker 1: all this comes back down to credit, doesn't it. It
10:43
Speaker 1: really doesn't. And that's actually one of the key components.
10:47
Speaker 1: If you look at the bulk of the housing market
10:50
Speaker 1: right now, it's really defined by access to credit. If
10:54
Speaker 1: you look at you know, I always like to say
10:56
Speaker 1: housing is local and credit is national, and and so
10:59
Speaker 1: literally you know, post Lehman, uh credit crunch. Uh. Every
11:05
Speaker 1: market started behaving the same way. We had things like
11:08
Speaker 1: rents rising because people were tipped back into the rental
11:11
Speaker 1: market because they couldn't qualify. We also had inventory begin
11:15
Speaker 1: to fall to record lows nearly universally across all housing
11:20
Speaker 1: markets because a homeowner with lower negative equity, which is
11:25
Speaker 1: roughly about all homeowners with a mortgage UH, don't qualify
11:31
Speaker 1: for that next purchase, either a trade up, a ladder, mover,
11:35
Speaker 1: or downsize. So what do they do. They sit and
11:38
Speaker 1: they don't. They don't ender the market organically the way
11:40
Speaker 1: that normally would bring their house to the market. And
11:43
Speaker 1: then people that don't have a credit condition are saying, well,
11:46
Speaker 1: I'm not I can't find the house I want, so
11:48
Speaker 1: I'm not gonna list my house, and you sort of
11:50
Speaker 1: double down on the problem. And only the only way
11:52
Speaker 1: out of that are is twofold one is housing prices rise,
11:56
Speaker 1: which naturally occurs because not necessarily own demand correct and
12:01
Speaker 1: and and or if strong fundamentals either. It literally is,
12:05
Speaker 1: if you can strain the supply, prices rise. And that's
12:08
Speaker 1: been my biggest criticism of the pronouncement of the US
12:12
Speaker 1: housing recovery as early as you know two years ago,
12:16
Speaker 1: because the fundamentals in terms, you know, incomes generally stagnant
12:20
Speaker 1: in the US, unemployment even though the numbers on the
12:23
Speaker 1: top level look good, it's still not good. And credit
12:26
Speaker 1: is about is tight, at least for residential mortgage, as
12:29
Speaker 1: it was in the days following Lehman. So so, I
12:33
Speaker 1: never thought in my career that I would be saying
12:35
Speaker 1: that tight lending conditions are making housing prices rise. But
12:41
Speaker 1: they are, but they really it's it's a combination of
12:44
Speaker 1: tight lending conditions following a boom and bust in real estate,
12:48
Speaker 1: because you end up with a lot of people who
12:51
Speaker 1: don't have any look, under normal circumstances, you're in the
12:54
Speaker 1: house for seven years. Even if you have tight credit conditions,
12:58
Speaker 1: you should have some equity in the house. But if
13:01
Speaker 1: you bought at the peak before at correction, if you
13:05
Speaker 1: put little or no money down, there is no equity there,
13:08
Speaker 1: and that locks you into that house unless you're just
13:11
Speaker 1: gonna walk away. And if you do that, good luck
13:13
Speaker 1: qualifying for right. And I think that you know, the
13:17
Speaker 1: narrative about housing right now is this idea that you know,
13:20
Speaker 1: is the housing recovery losing steam? You know, are we
13:24
Speaker 1: seeing you know, projections for housing price increases are going
13:27
Speaker 1: to be less this year than they were last year. Well,
13:30
Speaker 1: last year was based on artificial conditions. I must see
13:34
Speaker 1: two thousand thirteen from the context of the US housing
13:37
Speaker 1: market as as really a an anomaly. In other words,
13:42
Speaker 1: in two thousand ten, eleven twelve, we have this pent
13:45
Speaker 1: up demand the election cycle to build up to the
13:48
Speaker 1: fiscal cliff. The world apparently didn't end after the fiscal
13:52
Speaker 1: cliff expired, and there was all of a sudden a
13:55
Speaker 1: concern about rising interest rates because the economy was going
13:58
Speaker 1: to get better, and you had all the fence sitters
14:01
Speaker 1: moving out of them out of their tax change as well.
14:04
Speaker 1: And that if the tax change was certainly well on
14:07
Speaker 1: the high end of the market, especially and you had
14:09
Speaker 1: people rush in, and you still have the low inventory issue,
14:14
Speaker 1: prices rise. Now we're you know, we're doing these year
14:17
Speaker 1: over year comparisons and activity or prices. If they're not
14:21
Speaker 1: above last year, it's somehow a failure or a sign
14:24
Speaker 1: of weakness. When I contend it's the wrong comparison to make,
14:27
Speaker 1: it absolutely is. We're discussing real estate in America with
14:31
Speaker 1: Jonathan Miller. So now let's talk a little bit about
14:34
Speaker 1: the high end. We understand what's constraining everybody's houses. The
14:40
Speaker 1: normal I don't even know what to call of. The
14:43
Speaker 1: median house is about two D seven thousands, right, it's
14:46
Speaker 1: right exactly somewhere on that and you know, obviously it's
14:49
Speaker 1: really regional. Two seven thousand in the New York metro
14:53
Speaker 1: area doesn't get you a lot. One of the people,
14:56
Speaker 1: am I get to a closet in a hallway that
14:59
Speaker 1: you're going to buy from the co op to combine
15:01
Speaker 1: with your apartment. One of the people in my office
15:04
Speaker 1: transferred here from Syracuse. They sold a house for a
15:07
Speaker 1: hundred and seven thousand NOWS and I'm like, what is
15:10
Speaker 1: I don't understand. You look at a picture of it.
15:12
Speaker 1: It looks like a regular little you know, a starter house,
15:15
Speaker 1: a ranch. But it would go for three in change here.
15:18
Speaker 1: So when we talk about normal housing, what, what is
15:25
Speaker 1: the story? What should we expect in the near future
15:28
Speaker 1: from this housing market? Has the death of housing been exaggerated? Yes? Absolutely.
15:35
Speaker 1: I think all it is is a reset from the
15:39
Speaker 1: euphoria that we had last year, which was based on nothing.
15:42
Speaker 1: I like to say it really was based on this
15:45
Speaker 1: horrible skew created by by tight credit that we're already
15:50
Speaker 1: seeing a spread or a widening in general between the
15:54
Speaker 1: high higher end of the market and the balance of
15:57
Speaker 1: the market in the context of the credit conversation we're
16:01
Speaker 1: just having because it's so as you move up in price,
16:06
Speaker 1: there's a higher probability of either more cash paid or
16:10
Speaker 1: just all cash Outright. You also have the the the
16:15
Speaker 1: preference by foreign or international buyers towards the high end
16:19
Speaker 1: their global investors. Urban markets along the eastern seaboard, on
16:23
Speaker 1: the West coast very similar, Phene, San Francisco, Seattle, Vancouver, Canada,
16:30
Speaker 1: absolutely very similar. And and that's that's a key driver.
16:34
Speaker 1: But other is that we're seeing a disparity between conforming
16:38
Speaker 1: mortgages through the former g s c S versus jumbo
16:41
Speaker 1: right that that banks like jumbo mortgages. They make money
16:45
Speaker 1: on them, they want to so the business decision, well,
16:49
Speaker 1: slago is what and they like own the jumbo mortgage
16:52
Speaker 1: market right right there, they're they're a huge lion share
16:55
Speaker 1: of the market nationally. But but any lender right now
16:59
Speaker 1: is looking to do jumbo deals because they make a
17:03
Speaker 1: favorable return on it. And then and and the the
17:07
Speaker 1: the alternative, the the g SC related transactions, which is
17:11
Speaker 1: of the mortgage market is still burdened by in many ways,
17:16
Speaker 1: the credit outlook within that realm is very backward looking.
17:21
Speaker 1: It's looking at the transgressions. The conservative element is from
17:24
Speaker 1: the UH you know, the transgressions that were made several
17:28
Speaker 1: years ago, the Department Justice going after banks for bad
17:33
Speaker 1: lending practices, all those sorts of things. So it's very
17:36
Speaker 1: backward looking, whereas I think the jumbo finance arena is
17:39
Speaker 1: very much more current looking. Today, we're discussing real estate
17:43
Speaker 1: and housing with Jonathan Miller. Earlier we were talking about
17:48
Speaker 1: the difference regionally. How have these recoveries differed. You know,
17:53
Speaker 1: I know South Florida is different than Arizona, is different
17:57
Speaker 1: than Las Vegas, is different than Southern California, which is
18:00
Speaker 1: obviously different than On Valley in Northern California. How do
18:03
Speaker 1: these different regions compare and what does that mean for someone,
18:07
Speaker 1: let's say living in New York or Washington, d C. Well,
18:11
Speaker 1: when you look at you look at a lot of
18:13
Speaker 1: the the national housing metrics, and you look at the
18:16
Speaker 1: comparison by city, and you'll see generally what you see
18:20
Speaker 1: is markets that were hit very hard. Probably the hardest
18:23
Speaker 1: were the markets in the what fd i C calls
18:26
Speaker 1: the Sand States, the Las Vegas of the world, essentially,
18:29
Speaker 1: where there was a tremendous amount of speculation, carpenters and
18:31
Speaker 1: nurses quitting their jobs and becoming real estate speculators, and
18:35
Speaker 1: and so they fell much harder and farther. And you
18:41
Speaker 1: know that what I like, the way I like to
18:42
Speaker 1: describe it is when you go from a dollar to
18:44
Speaker 1: two dollars, it's a dred percent increase. So the metrics
18:48
Speaker 1: in terms of showing their increase made them look like, Wow,
18:51
Speaker 1: they're really recovering much more quickly than other other markets
18:55
Speaker 1: like New York, for example, that didn't have the speculation
18:58
Speaker 1: that you saw in these markets. So it's really almost
19:02
Speaker 1: in apples and orange comparison. What you're seeing now is
19:06
Speaker 1: the markets that are seeing rapid rapid price growth. Some
19:10
Speaker 1: of them, like in Las Vegas, the rates are cooling
19:13
Speaker 1: rapidly because they've they've essentially recovered a lot of the
19:19
Speaker 1: almost overcorrection that had occurred in those markets is a
19:22
Speaker 1: lot of low hanging fruit, a lot of low hanging fruit.
19:25
Speaker 1: Whereas markets were the economy is very fundamentally, very strong,
19:29
Speaker 1: they didn't have a lot of speculation. Uh, you would
19:33
Speaker 1: allude you had talked about it in an earlier segment
19:35
Speaker 1: about you know, someone from upstate New York and how
19:38
Speaker 1: much you got their market, their markets in the country
19:40
Speaker 1: that didn't experience the same boom and bust. So they're
19:44
Speaker 1: not going to rise from the the ashes because it
19:47
Speaker 1: didn't really fall to the ashes. So so I think
19:51
Speaker 1: the rule number one is there is no national housing market, uh,
19:55
Speaker 1: in the in the way that it's presented to us
19:58
Speaker 1: every month with all the reports. And and and secondly I too,
20:01
Speaker 1: by the way, to be fair to case Shiller, they
20:03
Speaker 1: do release their twenty and forty metro region housing prices
20:09
Speaker 1: and then they jumb them all together. So when you
20:14
Speaker 1: look at the individual index, you could still see and
20:17
Speaker 1: there are a number of people who then take the
20:18
Speaker 1: case Shiller data and slicing dice. In nice Land, you
20:21
Speaker 1: could see. A couple of weeks ago, I ran two
20:24
Speaker 1: different charts I forgot who I stole them from. One
20:27
Speaker 1: showed the percentage recovery off the lows and how far
20:32
Speaker 1: they still have to go to get to the highs,
20:34
Speaker 1: and they were like Las Vegas was in both they
20:36
Speaker 1: were crazy Wow. We're up off our lows, but we're
20:39
Speaker 1: still But remember the high point that was reached was
20:44
Speaker 1: complete fabrication and consense. It was based on right, it
20:49
Speaker 1: was based on They were building these excerbs in Las Vegas,
20:52
Speaker 1: these big McMansions. That was a two and a half
20:55
Speaker 1: hour drive from any urban center, any job center. So
21:00
Speaker 1: how are you going to support these homes if it
21:03
Speaker 1: takes you whatever four hours round? Because what was driving
21:06
Speaker 1: the demand was lenders were just looking to lend. That
21:11
Speaker 1: was how they made money. They package up the mortgages
21:13
Speaker 1: and sell them off to the offl of the risk
21:15
Speaker 1: of somebody else. We're not in that world anymore, that's right.
21:18
Speaker 1: The the shift in credit, and I've written about this
21:21
Speaker 1: over the years, went from the borrower's ability to service
21:26
Speaker 1: the loan to the lenders ability to sell the loan
21:29
Speaker 1: to a securitizer. Once that shifted in the borrower's ability
21:33
Speaker 1: to service, it no longer matter to hey, it was
21:35
Speaker 1: just a matter of time before it collapsed. So so
21:38
Speaker 1: now we talked before briefly about other regions. Texas is
21:43
Speaker 1: an unusual region. I don't think a lot of people
21:46
Speaker 1: realize why Texas avoided the boom and bust. There was
21:50
Speaker 1: a change in their constitution. I think it was like
21:53
Speaker 1: a century ago where they are not allowed to do
21:57
Speaker 1: cash out. No cash out refinances against their state constitution.
22:02
Speaker 1: So everybody maintaining their falling income, replacing it with helocks
22:07
Speaker 1: and financing their their day to day. Uh. When you
22:13
Speaker 1: run low on money, you just borrow more because how
22:16
Speaker 1: prices always go up. The other the other quirk in
22:19
Speaker 1: Texas is the idea that the transactions aren't publicly publicly recorded,
22:25
Speaker 1: So so any any studies that are done come out
22:29
Speaker 1: of the realtors, which is really a subset of the
22:32
Speaker 1: public record to begin with, so it's not a full
22:35
Speaker 1: data set. So you could almost argue too that ignorance
22:38
Speaker 1: is bliss, that that the market wasn't fully informed of.
22:44
Speaker 1: So if I use a Zilo app and show me
22:46
Speaker 1: what's sold nearby in Texas, I'm not going to see
22:49
Speaker 1: the same thing that I see anywhere in ins not
22:54
Speaker 1: necessarily because the information isn't it's a nondisclosure state. So
22:59
Speaker 1: there many non disclosure I don't know offhand. I want
23:02
Speaker 1: to say there's about a dozen. Okay, today I'm speaking
23:06
Speaker 1: with my friend Jonathan Miller of Miller Samuel. He is
23:10
Speaker 1: an expert on real estate appraisal, transactions, home values, etcetera.
23:16
Speaker 1: He has crunches, crunched a lot of data over the
23:20
Speaker 1: past few decades about what drives housing. And one of
23:23
Speaker 1: the things we really haven't talked about much but I
23:26
Speaker 1: want to discuss is the international component about this. The
23:31
Speaker 1: international buyers coming here to North America buying up real estate,
23:36
Speaker 1: and the booming real estate markets we see in big
23:40
Speaker 1: cities overseas. So why do we want to start with that, Well,
23:44
Speaker 1: we'll start with the basic driver of it is I'd
23:48
Speaker 1: like to say that global real estate, or specifically luxury
23:53
Speaker 1: real estate, high end real estate in the in in
23:57
Speaker 1: the context of world a worldwide content text is the
24:00
Speaker 1: world's new currency. In other words, you need bitcoin, You
24:04
Speaker 1: just need a really nice apartment for a nice mion
24:09
Speaker 1: dollar price tag. So what you're seeing is you're seeing
24:12
Speaker 1: across and this has really been a phenomenon that's virtually
24:17
Speaker 1: exploded in the last three to four years, is you
24:20
Speaker 1: have you have a lot of concern UH with wealthy
24:26
Speaker 1: investors in terms of exposure to higher taxation as governments
24:30
Speaker 1: grapple with UH weeken weakening or challenging economic conditions, political
24:37
Speaker 1: turnout turnover. So you look at Europe for example, uh,
24:40
Speaker 1: tremendous you know pressure, Uh, you know government shortfalls, where
24:46
Speaker 1: do we get the money from, limits on compensation for
24:49
Speaker 1: securities industry, all sorts of things. Uh. And then just
24:52
Speaker 1: on top of that, a higher regulatory overlay for you know,
24:55
Speaker 1: many of the wealthy that have their own businesses. You
24:58
Speaker 1: start looking around the w world for maybe other places
25:01
Speaker 1: to diversify your your your your net worth, and one
25:07
Speaker 1: of them, it could be pork bellies, but one of
25:10
Speaker 1: them is real estate and and real estate. Ironically, New
25:13
Speaker 1: York is very favorable in the international environment since we're
25:18
Speaker 1: sort of the starting place for a lot of them.
25:21
Speaker 1: What's wrong with the world right now in terms of
25:23
Speaker 1: credit problems? Um, so cash is king here. Cash is king,
25:28
Speaker 1: and not only that, but it's really I think the
25:32
Speaker 1: terminology here is this global safe haven that what you're
25:35
Speaker 1: looking for is people. I'd like to say that we're
25:38
Speaker 1: building the world's most expensive bank safety deposit boxes where
25:42
Speaker 1: you where you put your valuables in it, like your
25:45
Speaker 1: artwork and whatever else, and then you rarely go back.
25:49
Speaker 1: And there's a lot of that going on here. You've
25:51
Speaker 1: been in a number of those apartments. Oh absolutely, and
25:54
Speaker 1: and uh, I don't know what mistake I made in
25:57
Speaker 1: my career path, but but I'm not to own one
26:00
Speaker 1: of those at least is that necessarily a mistake. You
26:04
Speaker 1: have a very lovely home in Connecticut, and it's it's
26:07
Speaker 1: certainly not a hundred thousand dollar ranch. It's it's a
26:10
Speaker 1: little bit nicer than that. And so most of us,
26:15
Speaker 1: most of us are not going to be in a
26:17
Speaker 1: fifty hundred million dollar penthouse. In fact, nine percent of
26:22
Speaker 1: us are not going to be And what you're telling
26:24
Speaker 1: us is even the point of one percent who can
26:27
Speaker 1: be in it, they're not even there. They're not amazing views,
26:30
Speaker 1: aren't they. It really is. And the way you have
26:32
Speaker 1: to look at it. What I find almost humorous about
26:36
Speaker 1: the topic is when you'll see, for example, in London,
26:39
Speaker 1: there have been three transactions over two hundred millions. That's amazing.
26:43
Speaker 1: In the US, the three highest transactions there was one
26:45
Speaker 1: for millions in the Hampton's, there was another one in
26:49
Speaker 1: Connecticut for a hundred twenty million, and then there was
26:51
Speaker 1: another one in California for around a hundred million. And
26:55
Speaker 1: you throw those all together and it's not even a
26:58
Speaker 1: billion dollars. It doesn't have anything to do with the
27:03
Speaker 1: balance of the market. It is more like a circus
27:06
Speaker 1: side show. It's an anomaly. It has nothing to do.
27:10
Speaker 1: But but what it what I think the real estate
27:13
Speaker 1: industry sees it as, and you know, perhaps there's some
27:16
Speaker 1: truth to it. It's like, well, if someone's willing to
27:18
Speaker 1: invest ninety million dollars in a condo that they're rarely
27:21
Speaker 1: going to use, that means they're very confident about the
27:24
Speaker 1: New York real estate market and they'll there. You know,
27:27
Speaker 1: it's a good sign for everybody else. Maybe that's true.
27:30
Speaker 1: I can't maybe the million dollars then you don't know
27:33
Speaker 1: what the hell else to do. Well, I think that's
27:34
Speaker 1: really what it is. And then what you're seeing is
27:37
Speaker 1: you're seeing the other phenomenon you're seeing that's tied into
27:40
Speaker 1: this look of the regions I talked about Europe. You
27:43
Speaker 1: also have China. You have the wealthy Chinese trying to
27:46
Speaker 1: extract their money out. You know, there's a right to
27:50
Speaker 1: versify around the globe. Right Australia is undergoing Chinese investors
27:54
Speaker 1: right now, Sydney and Vancouver. I've always thought of as
27:57
Speaker 1: life raths for the wealthy Chinese absolutely who are concerned
28:01
Speaker 1: one day they have to hit the eject button and
28:03
Speaker 1: get the hell out of dome. And you have that
28:05
Speaker 1: in uh In South America, the Brazilians have single handedly
28:10
Speaker 1: bailed out the Miami housing market, which was a highly
28:13
Speaker 1: speculative market with ten years of shadow inventory, inventory that
28:17
Speaker 1: was essentially just built and can't be sold, and it's
28:21
Speaker 1: all been gobbled up. There's really not like a hundred
28:24
Speaker 1: thousand condos. It was a ten year absorption rate. It
28:28
Speaker 1: would take to you know, conservatively to and and it
28:32
Speaker 1: was done in three years. And it was primarily because
28:34
Speaker 1: of Brazilians and Venezuelans. With the wealthy Venezuelans with the
28:39
Speaker 1: regime change, we're looking to get out. And so you
28:42
Speaker 1: see those phenomenons, but they have nothing to do with
28:47
Speaker 1: any the average American homebuyers. So if someone is looking
28:51
Speaker 1: to pick up a vacation property in Miami, not that
28:54
Speaker 1: I am, but if you were, has that window closed,
28:57
Speaker 1: did you miss the bargain opportunity? Were still seeing a
29:00
Speaker 1: fairly brisk appreciation, right So that I'm sure there's you know,
29:04
Speaker 1: depends every every neighborhood, every market it's a little bit different.
29:08
Speaker 1: What's interesting, and this brings back to the credit discussion.
29:12
Speaker 1: If you look at Miami, which is a market that
29:14
Speaker 1: I prepare research for, about three quarters of all the
29:19
Speaker 1: distressed condo sales are cash, right, I knew you're going
29:24
Speaker 1: to go that way about that's amazing. Well compare that
29:29
Speaker 1: to what the rest of the country is normally like,
29:31
Speaker 1: right right, Well, it's about exactly. If you look at
29:38
Speaker 1: the non distress meaning anything that's not a foreclosure or
29:41
Speaker 1: a short sale condo market Miami, the cash buyers in
29:47
Speaker 1: that market account for about there's there's almost no difference there.
29:55
Speaker 1: The variation. It varies every quarter, but the variation is two.
30:00
Speaker 1: It's really not a big difference, which means that it
30:05
Speaker 1: is a cash market. It remains a cash market. So
30:07
Speaker 1: guess what kind of new development projects are being built
30:11
Speaker 1: in Misery appealing to international high end uh tremendous linkage
30:18
Speaker 1: with New York City. It's about the same time to
30:20
Speaker 1: fly to Miami as it is to take a car
30:23
Speaker 1: to the Hampton's or not quite the same, but that's
30:25
Speaker 1: sort of the three. It's seen as a competing element
30:29
Speaker 1: to it, especially markets like Palm Beach which are almost
30:33
Speaker 1: all New Yorkers, very high and very little foreign whereas
30:37
Speaker 1: Miami is almost all foreign. So the cash you can
30:41
Speaker 1: see for different reasons, the cash element of real estate really,
30:45
Speaker 1: or the access to credit really defines how markets behave.
30:48
Speaker 1: That's quite fascinating. So we we see foreigners coming to
30:52
Speaker 1: the US and buying real estate, is that what's driving
30:56
Speaker 1: things in London and Sydney and we're else it's exactly
31:02
Speaker 1: the same phenomenon. So you're so in almost every major
31:06
Speaker 1: how urban market in the in the world, you're seeing
31:10
Speaker 1: record prices. Uh. Incidentally, the high end market in London
31:14
Speaker 1: is about more expensive than the high end market in Manhattan.
31:18
Speaker 1: So we're is it just a matter of not that
31:21
Speaker 1: much more space there were more or I think it's Uh,
31:26
Speaker 1: I think there is less space. I think that's part
31:29
Speaker 1: of it. Also, there's a closer proximity to the Middle East,
31:33
Speaker 1: to Russia, who while they're touted here as big players
31:37
Speaker 1: in the real estate market here because they buy hope,
31:39
Speaker 1: high profile, they're not even the top twenty for tourism.
31:43
Speaker 1: It's completely overhyped. The foreigners that are very active in
31:48
Speaker 1: the New York market. Uh. And on the East coast
31:51
Speaker 1: tend to be from Europe and and the the Chinese
31:57
Speaker 1: or you know, the Asia in general is probably the
32:00
Speaker 1: fastest growing UH contributors to the market. There was just
32:04
Speaker 1: an article you mentioned Middle Eastern money boosting real estate prices.
32:08
Speaker 1: It was just an article on Bloomberg today that talked
32:11
Speaker 1: about how the Dubai International Airport just passed Heathrow as
32:17
Speaker 1: the biggest international airport in the world. That that's just unbelievable.
32:21
Speaker 1: Dubai sees more traffic than London and that market is
32:24
Speaker 1: largely driven by speculation. You know that It's it's a
32:28
Speaker 1: not in the context of the flipping, right, it's more
32:32
Speaker 1: of a long term equity play. I think a lot
32:35
Speaker 1: of real estate investment right now or is that speculation?
32:37
Speaker 1: Then if it's it is speculation, but not in terms
32:40
Speaker 1: of I think. I think the way I discerned from
32:44
Speaker 1: investment versus speculation is the time frame the window. So
32:49
Speaker 1: for example, the time frame in the last housing boom
32:53
Speaker 1: that got us got the real estate market into trouble,
32:56
Speaker 1: the time frame was weeks months quarters. That time frame
33:00
Speaker 1: now is five ten years. It's a much longer window.
33:03
Speaker 1: It's really his investment, isn't it. It is an investment,
33:06
Speaker 1: and that's really what real estate has always been. We
33:09
Speaker 1: just lost our minds as a as a housing market
33:13
Speaker 1: during the last cycle that that's quite called a systemic breakdown.
33:19
Speaker 1: I'm speaking with Jonathan Miller of Miller Samuel, New York Times,
33:24
Speaker 1: Washington Post, Wall Street Journal. There's a wall of quotes
33:29
Speaker 1: in your office. When I walk in, like I have
33:31
Speaker 1: five things frames I walk in, you have like a
33:35
Speaker 1: whole way with like nine seven was cheaper than artwork,
33:39
Speaker 1: I guess it is. So we're talking about real estate,
33:42
Speaker 1: and you and I know each other for a long time.
33:45
Speaker 1: There's a couple of things I wanted to share with
33:47
Speaker 1: you that we haven't caught up. So you know, our
33:50
Speaker 1: house has been on the market right for two weeks
33:53
Speaker 1: before we were sold. So someone said to me, wait,
33:56
Speaker 1: you sold your house in two weeks? Really liked seven
33:59
Speaker 1: to ten days. But we had to wait for the
34:01
Speaker 1: contract to come back. So someone said, how did you
34:04
Speaker 1: price your house? And we had gotten a huge This
34:08
Speaker 1: is like a middle class split level five hundred and change,
34:13
Speaker 1: New Long Island, suburban bedroomtown, had not a big mansion,
34:18
Speaker 1: a beautiful kitchen. I love our granite I actually haven't
34:21
Speaker 1: had an affair with our gran That's that's a whole
34:24
Speaker 1: another story. It is. It is, I just fell in
34:27
Speaker 1: love with this granite and it haunted me for days,
34:31
Speaker 1: and every other piece of granite just didn't do it.
34:34
Speaker 1: I know that sounds ridiculous. People don't think of me
34:37
Speaker 1: as a person in a kitchen stroking like this is
34:42
Speaker 1: a nice piece of mica. But it's not. My grant
34:48
Speaker 1: is a spectacular It is an So the that's another
34:52
Speaker 1: story I could share the granite. So before I tell
34:55
Speaker 1: you how we sold the house, the granite story was
35:00
Speaker 1: we finally so we we ended up in a house
35:02
Speaker 1: by accident. It's one of these stories. We had a
35:05
Speaker 1: bye and then we went and sold our house, and
35:07
Speaker 1: then we went back to our by where we had
35:10
Speaker 1: an agreed deal, but we weren't in contract yet and
35:13
Speaker 1: the seller had said to us, we decided we want more,
35:17
Speaker 1: And basically it was like, well, wait, you told us
35:20
Speaker 1: we had to do this really quickly, so we cut
35:23
Speaker 1: our price significant. We cut a price fifty grand. That
35:26
Speaker 1: house also first weekend, and that was in the midst
35:29
Speaker 1: of the frenzy, so it was relatively easy to do. Hey,
35:32
Speaker 1: if you want to more. That's fine, but then you
35:35
Speaker 1: get full price or you get fast. You don't get both.
35:38
Speaker 1: So if you want, I'll go break this deal and
35:43
Speaker 1: only cut the price twenty five brand and you could
35:45
Speaker 1: wait six months and we could do it at this price.
35:47
Speaker 1: But you don't get both. And what response, Um, well,
35:51
Speaker 1: we won more. By the way. The side note about
35:53
Speaker 1: that is they had fifty deposit on a house that
35:58
Speaker 1: they're six months in their kind tracked to close, elapsed,
36:02
Speaker 1: and in order to not lose the fifty, they had
36:03
Speaker 1: to come up with another fifty, which is why they
36:06
Speaker 1: were prushing us for the five. We walked away from that.
36:10
Speaker 1: Two years later they got their extra five, but they
36:14
Speaker 1: lost a hundred to get it. And I remember saying
36:17
Speaker 1: to the agent, look, I know I have a facility
36:19
Speaker 1: of numbers, but you don't need to be a rocket
36:22
Speaker 1: scientist to know that a hundred is a bigger number
36:25
Speaker 1: than twenty five. So that sort of stupidity is life.
36:30
Speaker 1: And here's the thing, And you made the comment, you know,
36:32
Speaker 1: we sold our house in seven to ten days, right.
36:35
Speaker 1: So what you're seeing now in the market in general,
36:37
Speaker 1: and many housing markets, is when a seller who feels
36:41
Speaker 1: very empowered because there's not a lot of supply out there,
36:45
Speaker 1: so they don't have a lot of competition. The notion
36:49
Speaker 1: that you sell in seven to ten days means too
36:52
Speaker 1: many sellers, that the broker priced it too lower, the
36:55
Speaker 1: seller priced it too low, they gave it away when
36:58
Speaker 1: the wrong But that is wrong. You're absolutely right, But
37:02
Speaker 1: that is that is a an assumption because it's sold quickly,
37:06
Speaker 1: and I contend in this market, it's either price correctly
37:11
Speaker 1: or it's not in the market. It's incorrectly right, right,
37:13
Speaker 1: It's not a dimmer switch, it's a it's a it's
37:18
Speaker 1: a it's an on off switch. So so here's what
37:21
Speaker 1: I did in order the price of the house. And understand,
37:24
Speaker 1: we found a house that we fell in love with.
37:27
Speaker 1: And I'll spare the grizzly details, but it's a divorce,
37:30
Speaker 1: and it's a little complex, and it's it's a nicer
37:34
Speaker 1: house on a bigger piece of land in a nicer town,
37:37
Speaker 1: right next to this big preserve. So I'm paying a
37:40
Speaker 1: couple of bucks more for than SEC. But that house
37:44
Speaker 1: was on the market. We haggled over the price. When
37:46
Speaker 1: we finally they priced it too high. It had been
37:49
Speaker 1: on the market for almost I think three hundred days,
37:53
Speaker 1: we're a live one. Oh look, we got someone interested.
37:55
Speaker 1: It's a contemporary house. You have to either like that
37:58
Speaker 1: or not, so I know it's kind of a little
38:00
Speaker 1: bit of a niche and it's an it's an odd price.
38:03
Speaker 1: It's not one of these big multimillion dollar houses, but
38:06
Speaker 1: it's not a five hundred thousand dollar house. And so
38:09
Speaker 1: it was a weird house. And so our concern was, Hey,
38:12
Speaker 1: we don't want to lose the house. We want to buy,
38:15
Speaker 1: so we're not gonna give our house away, but we're
38:18
Speaker 1: not gonna try and squeeze. Sometimes getting every last penny
38:22
Speaker 1: is expensive. So here's what I did. I want. I
38:24
Speaker 1: love the Zillo app. We've talked about this. We've both
38:28
Speaker 1: been on our boats in the Long Island Sound using
38:31
Speaker 1: the nearby button on the Zillo app to look at
38:34
Speaker 1: all the prices of the houses that are either for
38:37
Speaker 1: sale or sold that are waterfronts, and it's mind boggling.
38:42
Speaker 1: When I've been, when I've been in the harbor by
38:44
Speaker 1: Port Washington looking at King's Point, these houses are fourteen
38:49
Speaker 1: and sixteen million dollars, like the co ops and condos
38:53
Speaker 1: that are hundred million. That that's made up. Those are
38:55
Speaker 1: just that's just not real. But eight ten, twelve million
38:59
Speaker 1: dollar house, that's like a real number because there are
39:02
Speaker 1: three four five million dollar houses. So I used that
39:05
Speaker 1: Zillo app and I said, show me every house that's
39:08
Speaker 1: sold in my town with this many beds, three bedrooms,
39:13
Speaker 1: two baths, this this much, you know, and and then
39:17
Speaker 1: I looked at them, and I said, everything that sold
39:21
Speaker 1: at or above my price point. You know, I was
39:25
Speaker 1: looking for the price where everything was either much bigger,
39:28
Speaker 1: or nicer, or waterfront or some something that made it special,
39:32
Speaker 1: and where that line was. And then I looked at
39:34
Speaker 1: everything that was sold, and it was either not as
39:38
Speaker 1: nice as our house. You know, we stutted the whole
39:40
Speaker 1: house and completely and there's nothing, you know, what has
39:43
Speaker 1: to be replaced. The garage door that was the we
39:45
Speaker 1: ordered one, It never showed up, never paid for it.
39:48
Speaker 1: That's literally the only thing that we didn't turn over
39:51
Speaker 1: in the past seven years. And so in what you're
39:54
Speaker 1: describing is you're describing the aggregation of real estate information
39:58
Speaker 1: right to the consumer. And and so it's very different. Now,
40:01
Speaker 1: what's interesting when I was talking before about the buyer saying,
40:06
Speaker 1: or rather the sellers saying, oh, I sold it, price
40:09
Speaker 1: it too low because it's sold too quickly. Uh. What
40:13
Speaker 1: I also have seen through you know, decades of looking
40:16
Speaker 1: at transactions and appraising, is that if you overprice, you'll
40:22
Speaker 1: ultimately end up with selling your home for a lower
40:26
Speaker 1: price than if you had priced it very close to
40:29
Speaker 1: the market. It gets stale. That's a reality of it.
40:32
Speaker 1: And I think a lot of sellers don't get that,
40:35
Speaker 1: and they the agents lose interest. It's just you seeing
40:38
Speaker 1: all what there, there's a nice house, but what's well
40:40
Speaker 1: think of? Think of you know a lot of people,
40:42
Speaker 1: you know, on one hand where we have all this
40:45
Speaker 1: great transparency, but in the other hand, you're conveying a
40:49
Speaker 1: disconnect with the market. You're saying, uh, I don't know
40:54
Speaker 1: what's going on. This is what I want. So the
40:56
Speaker 1: buyer's thinking, well, this person is going to be really
40:59
Speaker 1: different cult to deal with. They're disconnected. Something wrong with
41:03
Speaker 1: the house that we don't know about. There's it's just
41:07
Speaker 1: it's all kinds of red flags and that slows down
41:10
Speaker 1: the the market in terms of the interest of your
41:13
Speaker 1: of your home. I see this over and over and
41:15
Speaker 1: over again. It's quite amazing. So so when I looked
41:18
Speaker 1: at the run of Zillo data. I said, when I
41:20
Speaker 1: put my house up for sale, there is not going
41:23
Speaker 1: to be a nicer house at this price point. In fact,
41:27
Speaker 1: everything else plus or minus ten or twenty is not
41:30
Speaker 1: going to be as nice because I'm trying to look
41:32
Speaker 1: at it as a buyer. Hey, if I'm trying to
41:35
Speaker 1: between choose between this house for and that, I'm gonna
41:39
Speaker 1: go with a nicer house. And I also saw what
41:42
Speaker 1: sold within that price point. I have a feeling that
41:47
Speaker 1: six d is a tough number to get over because
41:50
Speaker 1: if you're conforming mortgage, it's really tough. It's really tough
41:59
Speaker 1: to to sell something much above that. So could we
42:05
Speaker 1: have listed at six fort nine and and maybe squeezed
42:10
Speaker 1: another maybe, But then we're trying to buy, and that's
42:16
Speaker 1: the whole point of this is we want that house.
42:18
Speaker 1: So you know, when when I started as a trader
42:24
Speaker 1: early in my career, I remember one of the head
42:26
Speaker 1: traders once said to me, I was trying to squeeze
42:29
Speaker 1: like the last couple of eighths. This is back in
42:31
Speaker 1: the days of fractions out of a trade, and he's like, look,
42:35
Speaker 1: you could get out of this transaction a quarter point lower,
42:38
Speaker 1: just hit the bit and move on. But but but
42:40
Speaker 1: I could squeeze a few more eighths out of this.
42:42
Speaker 1: He goes, Hey, I remember this old guy said to me, Hey,
42:46
Speaker 1: leave a little something for the next guy. And can
42:49
Speaker 1: I tell you something. It's good advice if you're spending
42:52
Speaker 1: all this time and effort in energy to squeeze every
42:55
Speaker 1: last dime. There are a lot of non monetary fact
43:00
Speaker 1: there's that go into the transaction. How smooth it is,
43:03
Speaker 1: how easy the people were dealing with, it's it's he
43:06
Speaker 1: works at a finance company in New York. He's being
43:10
Speaker 1: transferred from else. They've been so far more or less
43:13
Speaker 1: a pleasure to deal with. And I can't help but wonder,
43:16
Speaker 1: if I'm beating people up for that last ten or
43:18
Speaker 1: twenty thou dollars, how much mental anguish is that going
43:23
Speaker 1: to generate? Right? Because the whole the whole process is
43:25
Speaker 1: so emotional. Anyway, it's surprisingly emotion it is, no matter what.
43:30
Speaker 1: And then that was one of the problems during the
43:31
Speaker 1: last boom and bus cycle was people are trying to
43:36
Speaker 1: view housing as a you know, a stock or commodity.
43:40
Speaker 1: But but you know what, and that's part of it.
43:42
Speaker 1: But The bigger part is it also has a you know,
43:46
Speaker 1: a use, a usage, that place to live part of
43:50
Speaker 1: what you pay for. And it's an emotional I recall
43:53
Speaker 1: the conversations I had with people. You oh, six oh
43:56
Speaker 1: seven o eight. I'm sure you went through this way.
43:59
Speaker 1: You're at a barb cure, a cocktail party. That was
44:02
Speaker 1: the only conversation. And neighbors, would you know. Neighbors would
44:05
Speaker 1: say to me, you know, I want to put my
44:07
Speaker 1: house up. And by the way, these numbers are real.
44:10
Speaker 1: That my house that I sold for five and change.
44:12
Speaker 1: People selling for seven eight nine, which never nine, but
44:16
Speaker 1: six seven almost eight. And I remember having a conversation saying, hey,
44:21
Speaker 1: the guy would say to me, the Smiths so their
44:24
Speaker 1: house for seven fifty. Why can't I get seven fifty.
44:29
Speaker 1: We have a better yard, a better location on the street,
44:31
Speaker 1: a nicer kitchen. Yeah, but the Smiths sold their house
44:35
Speaker 1: two years ago. That was two years. If you have
44:37
Speaker 1: a time machine, I promise you I could get you
44:40
Speaker 1: seven fifty if you don't have. But I'm gonna tell
44:43
Speaker 1: you I know people who still own Yahoo. It traded
44:46
Speaker 1: it almost two right, it's thirty bucks. They can't get
44:51
Speaker 1: to eighty. You can't get seven fifty. You have to
44:54
Speaker 1: recognize the more. And then I would watch these people
44:56
Speaker 1: put houses up for sale and they were all is
45:00
Speaker 1: six months to a year behind the market. So the
45:03
Speaker 1: market is at six hundred, there at seven hundred, the
45:05
Speaker 1: market drops the fire. They're chasing it, chasing it, but
45:08
Speaker 1: like on a year left we had and never hitting
45:11
Speaker 1: the bid. We had a situation in Manhattan sort of
45:14
Speaker 1: the the tipping point of the market, and we were
45:18
Speaker 1: the Manhattan market was about two years behind the national market.
45:21
Speaker 1: The national market peaked in the summer of six. Ours
45:25
Speaker 1: was with Lehman in September of eight, and UH prices
45:30
Speaker 1: within the next three to four months fell on average
45:33
Speaker 1: about thirty. So essentially New York was late to the party,
45:38
Speaker 1: but we caught up real quick. And remember most co
45:41
Speaker 1: ops were requiring thirty or the average co op is
45:46
Speaker 1: down so's so what we started to see is we
45:50
Speaker 1: started seeing people start to come out three or four
45:54
Speaker 1: months later to buy, and the broker feedback was, well,
45:57
Speaker 1: they're all lowballers. They're all offering about thirty below what
46:02
Speaker 1: it was six months ago. And my comment was, if
46:06
Speaker 1: the only people in the market are buying something for
46:10
Speaker 1: thirty only willing to pay less than what it was before.
46:14
Speaker 1: The there that is the new market bid, right. They're
46:18
Speaker 1: not low bowling, you're high bowling the ass. And it
46:21
Speaker 1: was fascinating because the real estate community in general was
46:25
Speaker 1: more negative than the consumer and and and it took
46:29
Speaker 1: them longer to sort of rebound because they were devastated
46:32
Speaker 1: because the whole principle of property going up forever was
46:36
Speaker 1: shattered essentially. But you know, especially here in New York.
46:40
Speaker 1: So I graduated grad school in eighty nine, and unlike
46:45
Speaker 1: many of my peers who immediately ran out and bought
46:47
Speaker 1: co ops and condos, the market crashed. First thing New
46:52
Speaker 1: Fed Chack Greenspan did was cut rates, and he had
46:55
Speaker 1: a little boom in real estate in nine and then
46:59
Speaker 1: as rates kind of normalized, if you bought something in
47:02
Speaker 1: eighty nine or ninety in New York City, you did
47:05
Speaker 1: not get back to break even until I want to
47:09
Speaker 1: say nineties six ninety seven, when the dot com boom
47:14
Speaker 1: really started to just started to kick in. And we
47:18
Speaker 1: were just discussing this in the office yesterday. I remember
47:23
Speaker 1: that was still early in my career. I was on
47:25
Speaker 1: a seal side. I worked in a brokerage farm, and
47:28
Speaker 1: I recall hearing people say repeatedly, Hey, I need to
47:32
Speaker 1: fifty from my account. I need a hundred eighty thousand.
47:35
Speaker 1: I'm trading up, I'm buying a vacation property, I'm buying waterfront.
47:40
Speaker 1: And back in the nineties, two thousand dollars was a
47:43
Speaker 1: huge move. To go from four hundred to six hundred
47:47
Speaker 1: was a big move in real estate. Now it's another
47:51
Speaker 1: bedroom and a little bigger yard. But in the nineties
47:54
Speaker 1: that was like five houses were really nice houses. Now
48:00
Speaker 1: it's a split level. You know, in a in a development,
48:02
Speaker 1: it's not a right. And what was what the conversation
48:07
Speaker 1: was during the nineties, especially the early nineties, was I
48:12
Speaker 1: know the market stinks, but I want to buy a house.
48:15
Speaker 1: I'm gonna be I lived twenty years and you know
48:18
Speaker 1: we're gonna be here. This is our home, and and
48:20
Speaker 1: so I think that's I think that's always the right approach.
48:24
Speaker 1: It has to be right for your situation. And I
48:27
Speaker 1: just what I marveled at how we lost our way
48:31
Speaker 1: during this last go round. You know, really you brought
48:34
Speaker 1: you brought in ten million people who previously did not
48:37
Speaker 1: qualify for mortgages. That creates a huge but it was
48:41
Speaker 1: more than clearly more than than just that, right, and
48:45
Speaker 1: so even you know, some people have pointed to as
48:51
Speaker 1: the start of housing becoming unhinged. I look at that
48:55
Speaker 1: as just getting back to where it was eight nine
48:58
Speaker 1: and a tremendous amount of stock market wealth. It was
49:02
Speaker 1: just diversification. There were people who turned to half a
49:06
Speaker 1: million dollars into five million, or a hundred thousand into
49:09
Speaker 1: a million. The numbers were just stupid. And so in
49:14
Speaker 1: terms of how many zeros are on your IRA, A
49:17
Speaker 1: doesn't affect your lifestyle. But moving to a fill in
49:21
Speaker 1: the blank, bigger, nicer, closer to the water attitude, it's
49:26
Speaker 1: a it's a huge lifestyle change. Also, you're no longer
49:29
Speaker 1: in the middle class suburb you were. You're now in
49:32
Speaker 1: a whatever, and people love those trade ups, which you know,
49:37
Speaker 1: we started talking about this during the break and I
49:40
Speaker 1: want during the broadcast, and I've written about this, I
49:45
Speaker 1: know if you've written about it. I think all these
49:48
Speaker 1: tales of this is the end of real estate as
49:51
Speaker 1: an American pastime, I think that's nonsense. Wherever I look,
49:55
Speaker 1: I see people still in love with real estate. So
49:59
Speaker 1: when it so, here's the thing when you what what
50:03
Speaker 1: I find after a change a condition where the markets
50:07
Speaker 1: either going up or going down, pundits, observers, participants in
50:11
Speaker 1: the real estate market, I think linear. In other words,
50:15
Speaker 1: when housing prices are rising, they're gonna rise forever, they're
50:21
Speaker 1: gonna fall forever. When inventory is falling, it's gonna fall forever.
50:25
Speaker 1: And there's kind of there's no web and flow. There's
50:28
Speaker 1: no it's not it's cyclical. It oscillates, it doesn't project
50:32
Speaker 1: out right, and and so I find that all the time.
50:35
Speaker 1: And then you know, the whole thing in you and
50:36
Speaker 1: I have talked about this, the whole thing about home
50:39
Speaker 1: ownership and how it's declined. Well, it it reached a
50:43
Speaker 1: point uh Fannie May and uh Fannie May stated goal
50:47
Speaker 1: at one point on their website was se home ownership
50:50
Speaker 1: in the US we got to sixty nine and change ridiculous.
50:54
Speaker 1: It's kind of ridiculous. And we're up from sixty nine
50:58
Speaker 1: was about three to four percent above what the fifty
51:01
Speaker 1: year norm normalized level was. So now we're falling below
51:06
Speaker 1: the you know, we've certainly have been falling from the
51:09
Speaker 1: sixty nine level, and now we're sort of right in
51:12
Speaker 1: the middle of the long term range, and it's continuing
51:16
Speaker 1: to fall. And and the pronouncement is, well, we're going
51:19
Speaker 1: to be a nation of renters. And and it's a
51:23
Speaker 1: kind of a ridiculous argument. It's as wrong to the
51:26
Speaker 1: downside to the upside correct, and and really what it
51:31
Speaker 1: is is, well, of course, home ownership is falling. Credit
51:35
Speaker 1: is historically the tightest it's been in the modern era.
51:38
Speaker 1: You have a weak economy, you have all these problems.
51:42
Speaker 1: That's why kids are living at home with their parents.
51:48
Speaker 1: It's it's not a lifestyle decision or a change, it's
51:52
Speaker 1: a it's an economic decision because things are still not
51:56
Speaker 1: that great. And let me tell you, by the time
51:58
Speaker 1: this airs, my or get my house probably closed on
52:02
Speaker 1: my mortgage with Wells Fargo either happened or didn't happen. Um,
52:06
Speaker 1: but I've never experienced anything like the Wells Fargo jumbo investigation. UM.
52:15
Speaker 1: I'm looking to see if I actually got an email
52:16
Speaker 1: from them right now. Uh that it's been pretty pretty
52:20
Speaker 1: astonishing the amount of detail that they've asked. They what
52:24
Speaker 1: did I did I ever ever told you my game
52:27
Speaker 1: show theory about banking with with lending. So think of
52:31
Speaker 1: it this way. This is This is the this is
52:34
Speaker 1: this is how to explain the irrational behavior that when
52:38
Speaker 1: you interact with a bank to get a mortgage. Look
52:40
Speaker 1: at a bank is playing a game show and let's
52:43
Speaker 1: make a deal. Right So, Door number one is bar
52:46
Speaker 1: from the FED for free, grow other lines of business,
52:49
Speaker 1: rebuild your capital base, all those sorts of things, anything
52:53
Speaker 1: but mortgage lending. Door number two is lend to Joe
52:56
Speaker 1: and Mary holmebuyer for thirty years. Maybe one of them
52:59
Speaker 1: lose the job. Maybe there's going to be uh decline
53:03
Speaker 1: in their local housing market at some point. So there
53:06
Speaker 1: there's there's risk, more risk associated with it. So they're
53:09
Speaker 1: trying to equalize the risk. This is very simplistic, but
53:12
Speaker 1: try to equalize the risk between the two choices. Now
53:15
Speaker 1: that now Joe and Mary holmebuyer more a third of
53:18
Speaker 1: your mortgage is never going to be the same risk
53:20
Speaker 1: level as as as borrowing from the FED as a lender, right, so,
53:26
Speaker 1: so they're gonna make them jump through hoops. And I
53:28
Speaker 1: contend it's not triple A. It's really quadruple A. It's irrational.
53:33
Speaker 1: It's irrational lending. And that's the condition. And then you's
53:36
Speaker 1: is that our current conditional condition of quadruple A credit
53:40
Speaker 1: and irrational. We have the cleanest mortgage product being created
53:45
Speaker 1: in the history of mortgages because lenders, essentially, no matter
53:50
Speaker 1: what the the ads say on TV, that's the sales side.
53:54
Speaker 1: The underwriting side is afraid of its own shadow. And
53:57
Speaker 1: part of that is because of uh, they're you know,
54:02
Speaker 1: we're still under quantitative easing, although that's changing, but that
54:06
Speaker 1: basically still very low. It's a little tight. But also
54:11
Speaker 1: also the economy is not robust. We're not seeing real
54:15
Speaker 1: strong income growth or employment numbers, you know when you
54:19
Speaker 1: really break it down. So they're very conservative, and that
54:24
Speaker 1: conservative is one thing. This is this, I think it's irrational.
54:27
Speaker 1: I think it's it's beyond it's one step beyond conservative.
54:31
Speaker 1: It's these guys have have examined me so closely. My
54:34
Speaker 1: proctologist is jealous. So they've asked they're looking for reasons
54:38
Speaker 1: not to lend to you. They've asked for three years
54:42
Speaker 1: of personal tax documents. They've asked for three years of
54:46
Speaker 1: business tax documents. They've asked for six months of corporate
54:51
Speaker 1: and personal bank statements. And I'm happy to give them.
54:55
Speaker 1: And every now and then they'll say what's this round
54:57
Speaker 1: number we see on the fifteenth of each month. Well,
55:01
Speaker 1: it's either drug lords giving me money or paycheck you
55:04
Speaker 1: which would you guess? By the way, you have the
55:07
Speaker 1: corporate account and the personal account, you can match. Oh
55:11
Speaker 1: you lost X here, You've got X there. Do you
55:13
Speaker 1: think maybe that's a coincidence or and some of the
55:16
Speaker 1: stuff it's really you know, it's called fishing. Is essentially
55:20
Speaker 1: they're looking for any reason not to lend to you.
55:23
Speaker 1: To be fair to Wells Fargo, their staff has been phenomenal.
55:27
Speaker 1: They've given us this checklist and they warned us, hey, listen,
55:30
Speaker 1: by the way, this isn't a multimillion dollar mortgage. This
55:33
Speaker 1: is barely more than the conforming mortgage a little more.
55:38
Speaker 1: And the quite the hoops they've had us jumped through.
55:41
Speaker 1: The one house we looked at that was in danger
55:45
Speaker 1: of collapsing into the you saw, it would have been
55:48
Speaker 1: double the mortgage, and the process was more or less
55:52
Speaker 1: the same. And I'm like, you know, this house is
55:54
Speaker 1: going to tumble into the sea. Rights, it's the risk,
55:57
Speaker 1: isn't me. It's it's gravity, right, you'reware of it, right,
56:01
Speaker 1: So so so we submitted the last of the paperwork,
56:04
Speaker 1: they start processing it and just before they submitted, they said,
56:08
Speaker 1: we have a question on your credit score. My credit
56:12
Speaker 1: scores okay, it's pretty good. My wife's credit score is phenomenal.
56:15
Speaker 1: And I said, well, what's the issue. You said, I
56:17
Speaker 1: was above this cut off that well, over the past month,
56:20
Speaker 1: your credit score dropped six points or something. Could you
56:23
Speaker 1: could you explain this thing? And I'm like, I look
56:28
Speaker 1: at this, I'm like, I don't know what be easy?
56:30
Speaker 1: What is this? So they have to translate it into English.
56:33
Speaker 1: And it turns out we hired two new people. We
56:36
Speaker 1: bought two new computers for them, and this was the
56:39
Speaker 1: Apple financing and I and they said, oh, well that
56:42
Speaker 1: affects your credit. I go, look, you guys, see our
56:45
Speaker 1: balance in our checking account. We could have gone out
56:49
Speaker 1: and spent three thousand dollars on two new computers. We
56:52
Speaker 1: could have done that thirty times over. But instead the
56:55
Speaker 1: account and said, hey, it's better for taxes to lease
56:57
Speaker 1: it then to buy. So we leased it for a
57:00
Speaker 1: hundred and thirty five dollars a month. That's what caused
57:04
Speaker 1: a credit score on the owner of the company. The
57:07
Speaker 1: company lease this. It was like an insane it was
57:13
Speaker 1: an insane. Yeah, but you go from whatever seven and
57:16
Speaker 1: something down seven points that that's a percentage change. That's
57:20
Speaker 1: the quadruple a standard debt everybody's being held to. And
57:24
Speaker 1: that's the challenge and that's what's defining the housing market
57:28
Speaker 1: right now. That that is. So I'm surprised if that's
57:32
Speaker 1: the case that any houses are getting. So, you know,
57:35
Speaker 1: we're here in Bloomberg. I have a contract I do.
57:38
Speaker 1: I do a column for Bloomberg View. And they said,
57:41
Speaker 1: you know, list all your sources of income. Well, here's
57:44
Speaker 1: what I get from Speaking Apparent, Here's what I get
57:46
Speaker 1: from our my day job, and here's what I get
57:49
Speaker 1: from Washington Post, and here's what I get from Colombia,
57:52
Speaker 1: and here's what I get from Bloomberg. And they're like, oh, well,
57:56
Speaker 1: is it looks like it's the same amount every month
57:58
Speaker 1: from Bloomberg. Well, yeah, a contract. Can you send us
58:01
Speaker 1: the contract? And I had to ask somebody here, hey,
58:04
Speaker 1: am I allowed to show this too, Like, yeah, I
58:06
Speaker 1: don't worry about it. But meanwhile, you're asking for a contract,
58:11
Speaker 1: and it's going to be a nineteen year old in
58:12
Speaker 1: Ohio that's viewing the document, right, it's a little more
58:16
Speaker 1: sophisticated than that, but not a whole lot more. And again,
58:19
Speaker 1: to be look, I've been one of the biggest critics
58:22
Speaker 1: of banks since the financial crisis. To be fair to
58:26
Speaker 1: Wells Fargo, they have been really extremely professional, very proactive.
58:32
Speaker 1: They would give us. It started out with this massive list.
58:34
Speaker 1: I'm holding my arms six ft apart, and each week
58:37
Speaker 1: I would get an update with okay, these three items
58:40
Speaker 1: have been collected. Now we're waiting for these things because
58:43
Speaker 1: to gather all this stuff up to get a p
58:46
Speaker 1: n L statement about two of the companies for the now,
58:50
Speaker 1: the accountants they're not going to do an audit unless
58:53
Speaker 1: we want to pay a boatload of money for it.
58:55
Speaker 1: And it turns out the words review are a term
58:59
Speaker 1: of our art that implies an audit like level of scrutiny.
59:03
Speaker 1: So Wells Fargo asked for a review of the p
59:06
Speaker 1: and L and the accountants turned around and say, these
59:10
Speaker 1: documents have been submitted in furtherance of federal tax filing.
59:14
Speaker 1: They appear to be in order to us. That's the
59:17
Speaker 1: most the accountants they wouldn't say we reviewed it. They
59:19
Speaker 1: certainly aren't gonna say we ordered it. But apparently submission
59:25
Speaker 1: in order to a furtherance of tax filings was sufficient
59:29
Speaker 1: for well, I think think about that. So you have
59:32
Speaker 1: that whole interplay between the consumer and the lender. And
59:36
Speaker 1: then you look at the fact that you know, with
59:39
Speaker 1: the upticking mortgage rates over the last year, the rates
59:41
Speaker 1: came back down. They came back down, But we're pretty
59:43
Speaker 1: close to the lows now, aren't we And we're still
59:46
Speaker 1: I think we're half a point up. But in a
59:49
Speaker 1: quarter when we have a really a three seven five
59:52
Speaker 1: for very long, you were there for short, they have
59:54
Speaker 1: a fifteen minutes and then it was back to four.
59:56
Speaker 1: I mean, that seems to be the floor you don't
59:59
Speaker 1: you're not gonna bring for when you look at that
1:00:01
Speaker 1: and and U which created a lot of in many
1:00:05
Speaker 1: ways sort of on one hand, the spike in rates
1:00:08
Speaker 1: last year created this the surge, the last minute sort
1:00:13
Speaker 1: of gasp of air of getting people off the fence.
1:00:17
Speaker 1: And now it's sort of framing the discussion about housing now,
1:00:21
Speaker 1: which is it's less than last year, but really it's
1:00:25
Speaker 1: not really from historical context, it's no different, and the
1:00:28
Speaker 1: rates are really nominally different, there's really no difference, but
1:00:31
Speaker 1: a four handle is still in insane But it actually
1:00:34
Speaker 1: feels tighter or weaker, and and it's all from the
1:00:40
Speaker 1: credit orientation that is driving housing. So we really didn't
1:00:44
Speaker 1: get to what the proper role of government is in
1:00:49
Speaker 1: this because what some of the arguments that are being
1:00:51
Speaker 1: made is you have rates at record lows, but we
1:00:56
Speaker 1: have most of America unable to take advantage and refinance
1:01:00
Speaker 1: because either they lack the credit history the income history. Amazingly,
1:01:04
Speaker 1: they're making payments on a house at six percent. Imagine
1:01:08
Speaker 1: if they could refi at four that would do the economy? Yeah,
1:01:11
Speaker 1: that would that would be a huge although you were
1:01:13
Speaker 1: effectively transferring some income from banks and giving it to everybody, uh,
1:01:18
Speaker 1: everybody else. But the question is what's the proper role
1:01:22
Speaker 1: for government and all this? And if Fannie and Freddie
1:01:25
Speaker 1: are ultimately on the hook, why not waive some of
1:01:29
Speaker 1: these requirements and allow refies because if they default at
1:01:32
Speaker 1: six percent, they're going to default at four percent, and
1:01:35
Speaker 1: they're less likely to default at four percent, So why
1:01:37
Speaker 1: not let them do a refi? Right? I think I
1:01:41
Speaker 1: think the thinking right now, there's there's a lot of
1:01:44
Speaker 1: uncertainties about the former g scs in terms of what
1:01:47
Speaker 1: the role is they're going to merge them into one institution.
1:01:50
Speaker 1: But Congress doesn't have the will to do that. What
1:01:53
Speaker 1: was the word you gonna say that the will to
1:01:56
Speaker 1: do that is that, yeah, exactly. Uh. That And the
1:02:02
Speaker 1: problem is that it is a one size fits all
1:02:06
Speaker 1: orientation in government in terms of terms of risk. I
1:02:11
Speaker 1: think part of it is the austerity concern, or maybe
1:02:17
Speaker 1: that's window dressing on the problem. And so there there,
1:02:21
Speaker 1: we're not giving anybody credit to be able to make
1:02:23
Speaker 1: intelligent decisions. We're really just saying we're not doing this
1:02:28
Speaker 1: and let the chips fall where they may. And that's
1:02:32
Speaker 1: it's a it's a short sighted solution because like you said,
1:02:37
Speaker 1: there's lots of people with plenty of income. Uh, they
1:02:40
Speaker 1: might be low on equity and they don't qualify for REFI,
1:02:45
Speaker 1: and yet there's an existing mortgage at that low equity level. Exactly.
1:02:49
Speaker 1: Another component has been uh, and there's been discussion about it,
1:02:54
Speaker 1: is that the whole concept of principal forgiveness focusing on
1:02:59
Speaker 1: the the borrowers instead of focusing on the making the
1:03:03
Speaker 1: bank's hole, focus on main street the economy hall would
1:03:06
Speaker 1: make the economy hole, and then they're likely make banking hole.
1:03:09
Speaker 1: But we're sort of stuck in this this box right now,
1:03:13
Speaker 1: which is you know, Fannie May, Freddie Mack or making
1:03:17
Speaker 1: a ton of money. It's highly volatile, it's it could
1:03:21
Speaker 1: turn on a dime. Uh. We're still dealing with the
1:03:25
Speaker 1: legacy issues of bad lending practices d o J going
1:03:30
Speaker 1: after everybody. We have, uh, we have the buy backs
1:03:33
Speaker 1: being forced on the g S c s. We have
1:03:35
Speaker 1: Congress saying forced by the g S, forced by the
1:03:38
Speaker 1: g S. Right. In other words, if you sold a
1:03:41
Speaker 1: pool of mortgages to Fannie of Freddy and there was
1:03:44
Speaker 1: some sort of misrepresentation, fraud, whatever, it can be very slight.
1:03:50
Speaker 1: Really Oh yeah, I mean it's not just because we
1:03:53
Speaker 1: know there was a ton of fraud all around. There
1:03:57
Speaker 1: was there was application fraud, there was underwriting fraud, there
1:04:00
Speaker 1: was somebody's there was liar loans the whole deal. Because
1:04:05
Speaker 1: it was just it was just semantics. I've gotten into
1:04:10
Speaker 1: arguments with some of my conservative buddies about the liar loans,
1:04:14
Speaker 1: and my argument goes something like this, you're the bank,
1:04:18
Speaker 1: it's your capital, you're lending it, right, You're the one
1:04:22
Speaker 1: who's taking the risk. It's incumbent on you to make
1:04:25
Speaker 1: sure that the person you're lending it to has an income,
1:04:28
Speaker 1: has a payment history, has a credit score. When you
1:04:32
Speaker 1: say don't tell me that, what you're effectively saying is
1:04:35
Speaker 1: I don't care, so to blame the buyers for you know, look,
1:04:40
Speaker 1: you we all know the story. Wink wink, nudge nudge.
1:04:42
Speaker 1: What was going on with mortgage brokers? Here? Leave that blank,
1:04:45
Speaker 1: I'll fill it in. I mean people signed it and
1:04:51
Speaker 1: holding aside the bad behavior of the mortgage folks. If
1:04:55
Speaker 1: you don't ask for an income history tax file, now,
1:04:59
Speaker 1: this is the opposite of of the proctology exam I'm
1:05:02
Speaker 1: going through with Wells Fargo. If you ask for none
1:05:05
Speaker 1: of that. By the way, we refinance the house we're selling.
1:05:08
Speaker 1: I don't know. Two years ago it was more than
1:05:11
Speaker 1: fog a mirror, but not a whole lot more. And
1:05:14
Speaker 1: the house we had sold before this, I think we
1:05:17
Speaker 1: refinanced that three times over seven years. I've been in
1:05:21
Speaker 1: my house for ten years. I think every year the
1:05:24
Speaker 1: first couple of years I had it, I think it
1:05:27
Speaker 1: four times. Yeah, it's and the process was signed here,
1:05:30
Speaker 1: initials here, checks in the mail. It was insane. So
1:05:34
Speaker 1: where has it's gone to? One ridiculous extreme. Now we
1:05:38
Speaker 1: started an opposite extreme. But I hold the banks responsible
1:05:42
Speaker 1: if you don't ask people what's your income, what's your
1:05:45
Speaker 1: credit score, what were your tax filings, what's your payment history?
1:05:49
Speaker 1: How could you complain when they default? You didn't ask
1:05:52
Speaker 1: for that information, you didn't verify it. Hey, by the way,
1:05:55
Speaker 1: wink wink, nudge, nudge, give us a ballpark. Because they could,
1:05:59
Speaker 1: They could package and sell off the risk to somebody
1:06:01
Speaker 1: else who was unsuspecting. Although oh no, they knew, but
1:06:07
Speaker 1: they were more than unsuspecting. They were Look, we're taking
1:06:12
Speaker 1: this risk and spreading it out. One of my favorite
1:06:15
Speaker 1: discoveries when I was researching bailout Nation was the warranty
1:06:20
Speaker 1: keep It was the warranty that that came with these
1:06:26
Speaker 1: non bank originated mortgages, primarily out of California. Were with
1:06:31
Speaker 1: these jobs right? They gave a warranty that said, this
1:06:38
Speaker 1: mortgage will not this thirty year mortgage, this three and
1:06:42
Speaker 1: sixty month mortgage will not default for ninety days, and
1:06:46
Speaker 1: if it does, you could put it back to us.
1:06:49
Speaker 1: A toaster comes with a longer warranty than that. So
1:06:53
Speaker 1: how long did it take for the salespeople to figure
1:06:56
Speaker 1: out Hey, I'm not looking for people who could qualify
1:06:58
Speaker 1: for a thirty year mortgage. I'm just looking for some
1:07:00
Speaker 1: pushchmuck who's going to make the first three payments. And
1:07:03
Speaker 1: by the way, the first payment is effectively waived. It's
1:07:06
Speaker 1: covered in closing about the so two payments and I'm
1:07:09
Speaker 1: out in days. Think of the irony of that though.
1:07:12
Speaker 1: So during that period you had no credit standards whatsoever,
1:07:17
Speaker 1: housings housing prices rose rapidly. Fast forward to today, excess credit.
1:07:24
Speaker 1: The pendulum has overcorrected to the opposite degree. Housing prices
1:07:29
Speaker 1: are rising and in many markets at a very brisk pace.
1:07:34
Speaker 1: Credit is in play in both cases, but for completely
1:07:38
Speaker 1: different reasons. So somewhere in the middle is the much healthier,
1:07:41
Speaker 1: slower growth, more reasonable housing market. And that doesn't happen
1:07:47
Speaker 1: until you get real job growth, real income growth. Not
1:07:52
Speaker 1: a booming, but but just you know, the whole notion
1:07:56
Speaker 1: that you actually have to have a job and have
1:07:58
Speaker 1: a reasonable income to qualify. When that, when those conditions improve,
1:08:03
Speaker 1: that's how you ease credit. That's how you get housing
1:08:07
Speaker 1: to be truly what I call recovered. All we've seen
1:08:10
Speaker 1: right now I characterized as it's a rebound it's essentially
1:08:13
Speaker 1: off of a low, but there's dead cat bounce are
1:08:16
Speaker 1: a little more than that. I think it's a little
1:08:18
Speaker 1: more than that, because you know, there's so much psychology.
1:08:21
Speaker 1: I know, I know we have we have two cats.
1:08:23
Speaker 1: I'm not allowed to say that phrase at home, but
1:08:26
Speaker 1: but you know there is some psychology to it. People
1:08:30
Speaker 1: not being afraid to venture into the market and buy.
1:08:33
Speaker 1: But the problem is that it's everything is going to
1:08:38
Speaker 1: happen in slow motion and we want quick, quick results.
1:08:41
Speaker 1: That's not how the real world operates. Now, you don't
1:08:44
Speaker 1: get that sort of stuff. So let's solve America's housing,
1:08:49
Speaker 1: credit and economic problems. All and one fell swoop. So
1:08:53
Speaker 1: here's what we're gonna do. So we've noticed that Obama
1:08:57
Speaker 1: has essentially given up on Congress US, who the day
1:09:01
Speaker 1: we're recording this, we see in a gallop pole is
1:09:04
Speaker 1: now down to a seven percent record low since Gallup
1:09:08
Speaker 1: started asking this question, and I think it was three
1:09:14
Speaker 1: record low. Not only is it the lowest Congress has
1:09:17
Speaker 1: ever been, it's the lowest any institution America has ever
1:09:21
Speaker 1: ever marked and ament. And so Obama has very interestingly said,
1:09:28
Speaker 1: I'm going to take a page out of the George
1:09:30
Speaker 1: Bush playbook and bypass Congress, and there's a lot of
1:09:33
Speaker 1: stuff I can do through an executive order. And so
1:09:37
Speaker 1: here's what I want to know. We we know that
1:09:41
Speaker 1: there's a tremendous amount of economic activity and economic potential
1:09:47
Speaker 1: locked up in people who are are stuck in their houses.
1:09:51
Speaker 1: We also know that ultimately Fannie and Freddie, meaning the taxpayer,
1:09:57
Speaker 1: is on the hook for those mortgages, whether they a
1:10:00
Speaker 1: fault at six p or default at a lower rate.
1:10:04
Speaker 1: What would happen if the President said to the head
1:10:07
Speaker 1: of Fannie and Freddy, I want to institute a policy
1:10:11
Speaker 1: that allows people who are current on their mortgages, so
1:10:14
Speaker 1: we're not dealing with short sales, we're not dealing with
1:10:16
Speaker 1: underwater sales, to refinance at their existing mortgage amount or lower,
1:10:22
Speaker 1: so there's no cash outs at the prevailing interest rate.
1:10:27
Speaker 1: I know in theory this may reduce the income to
1:10:30
Speaker 1: Fannie and Freddie, although there will be all these transaction
1:10:33
Speaker 1: fees that will help them. What is this a can
1:10:37
Speaker 1: we can the President order Fannie and Freddie to do
1:10:40
Speaker 1: that and be what would that do to the to
1:10:44
Speaker 1: the U S economy and to the U S housing market? Well? Uh,
1:10:48
Speaker 1: so the caveat that you're not an economist, I probably
1:10:52
Speaker 1: say I'm a non economist proudly. So the new head
1:10:57
Speaker 1: of f h f A, the regulatory agency that overseas
1:11:01
Speaker 1: Fannie and Freddy that was formerly called O H G
1:11:06
Speaker 1: O and uh, they were asleep at the switch. Worse
1:11:11
Speaker 1: than asleep at the switch. They're the ones who gave
1:11:13
Speaker 1: Fanny and the G S c S permission in late
1:11:16
Speaker 1: two thousand five. Hey, you're losing market share at Wall Street.
1:11:21
Speaker 1: You don't have to just do conforming loans. You can
1:11:23
Speaker 1: do non conforming meanings sub prime and all day. And
1:11:27
Speaker 1: so two thousand six, Fannie and Freddy go headlong into
1:11:31
Speaker 1: that just as the market is topic. They might have
1:11:34
Speaker 1: been his final spasm. And actually, when they changed their
1:11:38
Speaker 1: name to f h f A, it literally was the
1:11:41
Speaker 1: same website, just with different U R L and the logos.
1:11:46
Speaker 1: Everything was the same. So I never quite understood that.
1:11:48
Speaker 1: And I sort of feel like the the rejiggering of
1:11:52
Speaker 1: Fannie and Freddy, if that were ever to happen, is
1:11:54
Speaker 1: going to be kind of the same thing. It seems
1:11:58
Speaker 1: like a can of worms. But anyway, I think that
1:12:02
Speaker 1: I think that you you take away income from Fannie
1:12:06
Speaker 1: and Freddie to give it to I think it's more.
1:12:10
Speaker 1: I think it's more important for the public to be
1:12:12
Speaker 1: on their feet and spending in a consumer economy than
1:12:15
Speaker 1: it is about worrying about whether Fannie or or Freddie
1:12:18
Speaker 1: you're gonna make five million dollars this core. I think
1:12:22
Speaker 1: that's ultimately that just comes back to the text. It
1:12:24
Speaker 1: comes back to the taxpayer anyway. So so I think
1:12:26
Speaker 1: that's important. We do have the head of the f
1:12:30
Speaker 1: h A. F h f A is much more pro
1:12:35
Speaker 1: consumer in terms of their outlook and providing some flexibility,
1:12:40
Speaker 1: trying to give flexibility to Fannie and Freddie. So I
1:12:43
Speaker 1: think that's all good. I just I haven't heard any
1:12:48
Speaker 1: overtures that the Obama administration would even entertain that. Well,
1:12:51
Speaker 1: I haven't spoken to them yet. But once I planned
1:12:54
Speaker 1: this idea, well, I I have full confidence that you
1:12:57
Speaker 1: could sell them on the idea. I don't know if
1:12:59
Speaker 1: I could sell it, but it's a fascinating concept. I
1:13:02
Speaker 1: think it's a I think it's probably a good concept
1:13:05
Speaker 1: because so much of our wealth is tied up uh
1:13:08
Speaker 1: people that are stuck. It's tied up in housing, and
1:13:11
Speaker 1: I think that triggers a lot of other things. The mobility,
1:13:15
Speaker 1: it triggers its real estate mobility, employment mobility, geographic mobility.
1:13:21
Speaker 1: That's a key thing. And I'm looking for the downside there.
1:13:26
Speaker 1: I don't think there really is any downside, especially from
1:13:30
Speaker 1: the naysayers if it was if you were if you
1:13:34
Speaker 1: were ignoring principal reduction. Principal reduction is sort of a
1:13:39
Speaker 1: hot hotbed of debate. I'm in favor of it. Let
1:13:44
Speaker 1: we could hold that to put that to the side,
1:13:46
Speaker 1: and don't even do that. Just the people who are
1:13:49
Speaker 1: current have employed. You want to REFI to a lower
1:13:53
Speaker 1: rate and nothing else changes. Even you know, if you
1:13:57
Speaker 1: have a four thousand dollar Morgans in the house, that's
1:14:00
Speaker 1: or three fifty, does it matter if the interest rate
1:14:03
Speaker 1: to to the note holder, if it's six percent or
1:14:06
Speaker 1: four percent, it shouldn't make a difference. So that there
1:14:10
Speaker 1: are people who hold the securitized notes, they have to
1:14:13
Speaker 1: expect a certain amount of maturation that happens normally. This
1:14:18
Speaker 1: is gonna be a huge shift. Now in theory, it
1:14:21
Speaker 1: creates a whole bunch of new paper that Wall Street
1:14:23
Speaker 1: can then move about and sell to these people. And
1:14:27
Speaker 1: if you want to hold onto whatever you have, you
1:14:30
Speaker 1: can hold it. The way this gets called is kind
1:14:33
Speaker 1: of complicated. Back from the investors that we're expecting a
1:14:37
Speaker 1: six return. I'm sorry that you're you're gonna have to
1:14:42
Speaker 1: get a less of a return like everybody. But you're
1:14:44
Speaker 1: probably reducing dramatically the default that's right, that's the trade off.
1:14:49
Speaker 1: You're you're getting a lower default risk because people can
1:14:51
Speaker 1: afford it, and you're you're helping the overall economy. So
1:14:56
Speaker 1: I'm looking I've been playing with this idea. I'm looking
1:14:58
Speaker 1: for a downside to it, and other than the fact
1:15:01
Speaker 1: that people hate government intervention. But you know, there's an
1:15:06
Speaker 1: article in The Times today by Neil Irwin talking about
1:15:10
Speaker 1: formerly of the Washington Post, talking about the Import Export
1:15:15
Speaker 1: Bank and how certain people hate it because it's government
1:15:21
Speaker 1: in bed with big business. And but the reality is
1:15:24
Speaker 1: that's the nature of industry globally, it has to be.
1:15:28
Speaker 1: That's what's going Listen, If if the European banks are
1:15:31
Speaker 1: subsidizing air Bus, how can the US not allow Boeing
1:15:36
Speaker 1: to compete on the same planet playing field. And if
1:15:38
Speaker 1: you don't do that, what ends up happening is they
1:15:42
Speaker 1: lose the battle right to Airbus because it's subsidized. The
1:15:47
Speaker 1: ironic thing is the jackasses who were opposed to this
1:15:50
Speaker 1: are Delta Airlines, because, by the way, worst airline in
1:15:54
Speaker 1: the planet, run by morons. I can't begin to tell
1:15:57
Speaker 1: you how much I hate despise that airline, my least
1:16:01
Speaker 1: favorite airline. Search the blog, search redults dot com for it.
1:16:05
Speaker 1: You'll see. I don't know, and I don't care to
1:16:07
Speaker 1: tell you the truth. But here's the amazing thing. Delta
1:16:10
Speaker 1: opposes it because they say, oh, you're subsidizing bowing sales
1:16:14
Speaker 1: to competitive um carriers overseas, and that's not the government's role. Hey, morons,
1:16:22
Speaker 1: Neil Irwin points out, you guys were rescued in a
1:16:25
Speaker 1: government bail out, so just sit there and shut the
1:16:29
Speaker 1: hell up. Or right, it's like, you know, wait, so
1:16:32
Speaker 1: you got yours and that's the end of it. Nobody
1:16:36
Speaker 1: of all the hypocritical things. I don't know if they're
1:16:38
Speaker 1: more hypocritical than they are a lousy airline, but those
1:16:42
Speaker 1: are your choices. Most hypocritical company in America, worst airline
1:16:46
Speaker 1: in America. So that's uh. This message is brought to
1:16:49
Speaker 1: you by Delta. Fly Delta, and maybe you'll make it there.
1:16:54
Speaker 1: I just had a couple of really bad experiences with them.
1:16:56
Speaker 1: Other people disagree with me about Delta, but UM actually
1:17:01
Speaker 1: rarely fly it, so I don't fly it anymore, and
1:17:05
Speaker 1: I'll never forget. I was flying to Atlanta to give
1:17:08
Speaker 1: a speech. I booked first class and they do what
1:17:13
Speaker 1: a lot of legacy airlines do, which is when they
1:17:16
Speaker 1: don't have a full flight, they cancel it and they
1:17:18
Speaker 1: roll you into the next flight. And I'm like, listen,
1:17:21
Speaker 1: I gotta be somewhere at six o'clock tonight. I know
1:17:23
Speaker 1: your your cancelation was nonsense. So they give me. They get, well,
1:17:27
Speaker 1: we'll get you on this plane, and they go from
1:17:30
Speaker 1: to A to B which is the middle from from
1:17:36
Speaker 1: at back by the bathroom. And I'm like, I'm sorry,
1:17:39
Speaker 1: I had a first class ticket. Why am I? And
1:17:42
Speaker 1: the woman says, well, A, you didn't have a first
1:17:44
Speaker 1: class ticket, you had a six g Y ticket, and
1:17:47
Speaker 1: B that's the only seat we you know, that's all
1:17:50
Speaker 1: we have at this time. So I'm like, let me.
1:17:53
Speaker 1: I just have to stop you there. I don't know
1:17:55
Speaker 1: what a six G Y is. When I went on
1:17:57
Speaker 1: to Delta dot com, um, your choice is either first
1:18:02
Speaker 1: slash business class or Economy and there was like a
1:18:05
Speaker 1: six hundred dollar difference in in price. So I don't
1:18:10
Speaker 1: know how what what six g y is or whatever
1:18:12
Speaker 1: the code was, but you give me two choices, business
1:18:16
Speaker 1: or coach. I picked Business. Is there an empty business
1:18:19
Speaker 1: class seat? I would like to have it? And at
1:18:22
Speaker 1: that point it's like I had to get down there,
1:18:24
Speaker 1: so I get on the flight. To add insult to injury,
1:18:28
Speaker 1: there's an empty seat in business. And then to make
1:18:31
Speaker 1: matters worse, when I called out to to say, all
1:18:34
Speaker 1: I bought this ticket for whatever. I'd like a refund
1:18:39
Speaker 1: of the difference, they proceeded to explain to me that
1:18:42
Speaker 1: they couldn't tell the difference in price. Let me stop
1:18:45
Speaker 1: your second. I work in finance. I could tell you
1:18:48
Speaker 1: the price of any of ten thousand stocks on any
1:18:51
Speaker 1: day for the last hundred years, at any second of
1:18:55
Speaker 1: the day. Your own tickets. You can't tell me what
1:18:59
Speaker 1: the hell these are outing for. I bought it. You
1:19:01
Speaker 1: could see the day I bought it. What were you
1:19:04
Speaker 1: selling the coach tickets for? It? Just refund me the difference,
1:19:08
Speaker 1: and I said, you know what, and they refused to
1:19:11
Speaker 1: do it. They actually sent me a certificate for two
1:19:14
Speaker 1: fifty dollars, which when I went to use seven months
1:19:18
Speaker 1: later was expired. So I said, you know, my penalty
1:19:21
Speaker 1: for this is one day I'm gonna have a radio show,
1:19:24
Speaker 1: And on that radio show, I'm gonna tell people I
1:19:28
Speaker 1: love Virgin American Airlines. Even though the last trip back
1:19:30
Speaker 1: from San Francisco, the seat didn't work, the juice didn't work,
1:19:34
Speaker 1: at the power on, the electrical didn't work, the TV
1:19:39
Speaker 1: didn't work. Still better than Delta and UM anytime if
1:19:43
Speaker 1: I have to fly Jet Blue, Jet Blue is always fine.
1:19:47
Speaker 1: I get to sit in the front of Virgin and
1:19:48
Speaker 1: Jet Blue, it doesn't matter you sit even the even
1:19:51
Speaker 1: even more spaces like that is the greatest air travel
1:19:57
Speaker 1: bang for the buck. There is just those extra six
1:19:59
Speaker 1: in just by you make all the difference. It really, uh,
1:20:03
Speaker 1: it really does. So somehow the poor people on a
1:20:07
Speaker 1: treadmill listening to this, like I thought we were talking
1:20:10
Speaker 1: about this, red sky will not shut up. So let's
1:20:15
Speaker 1: bring this back to housing and what this means going forward.
1:20:21
Speaker 1: Assume the government does nothing. What what is them? Just
1:20:26
Speaker 1: play out? Yeah, what happens with Fannie and Freddie? What
1:20:29
Speaker 1: should the role of government be and and what do
1:20:32
Speaker 1: we do with this, what how does housing manifest itself
1:20:36
Speaker 1: over the next couple of years. So I think that
1:20:40
Speaker 1: housing will follow the path of what the economy does.
1:20:45
Speaker 1: In other words, I think, I think when we see
1:20:49
Speaker 1: real improvement in the economy, and what I mean by
1:20:52
Speaker 1: that is simply more job real job growth, I think
1:20:57
Speaker 1: that that makes all the difference in the world, and
1:20:59
Speaker 1: that'll start to melt the problem increases, a little wage increase,
1:21:05
Speaker 1: nothing more, you know, huge, just improvement, an uptick. I think,
1:21:11
Speaker 1: to me, all that matters of the fundamentals that you know,
1:21:14
Speaker 1: this whole notion, this whole this whole notion of like
1:21:18
Speaker 1: housing is going to lead us out of this. I
1:21:21
Speaker 1: feel it's just the opposite. It always has been the opposite.
1:21:25
Speaker 1: But it's always stated as housing, you know, brings us out.
1:21:29
Speaker 1: It's always the the economic sort of interpretation of housing
1:21:34
Speaker 1: is always how we get out of a you know,
1:21:37
Speaker 1: a week period, and and I feel it's I don't
1:21:40
Speaker 1: know how that where that math comes from, but it's
1:21:44
Speaker 1: always backwards because you actually have to have a job
1:21:46
Speaker 1: and have you know, income prospects to qualify for a mortgage.
1:21:50
Speaker 1: So I feel it all goes hand in hand on
1:21:53
Speaker 1: the on the more specific government aspect of it is
1:21:57
Speaker 1: that I don't think Congress has the will or the
1:22:01
Speaker 1: ability to make a sea change to what is responsible
1:22:06
Speaker 1: for of the housing of housing mortgages in the country.
1:22:11
Speaker 1: I think that is just a disaster waiting to happen.
1:22:15
Speaker 1: Meaning what should they be doing. I think they'll do nothing.
1:22:19
Speaker 1: I mean as opposed to what would you want them
1:22:22
Speaker 1: to do? Uh, I think what I'd want them to do.
1:22:25
Speaker 1: So so what I've found is is, uh, there has
1:22:32
Speaker 1: to be more awareness of sort of separation of church
1:22:37
Speaker 1: and state. In other words, for example, you know the
1:22:41
Speaker 1: biggest culprits, one of the biggest culprits in this whole
1:22:44
Speaker 1: last down cycle where the rating agencies right where they
1:22:49
Speaker 1: are basically joined at the hip with the people that
1:22:54
Speaker 1: that you know that they were. They were under partners
1:22:57
Speaker 1: with underwriters, just real state appraisers were joined at the
1:23:02
Speaker 1: hip with mortgage brokers. Right, find the right appraiser, make
1:23:05
Speaker 1: the number, we can do the deal. Right. We have
1:23:08
Speaker 1: that whole and then we have the revolving door between
1:23:11
Speaker 1: the regulators and private industry. So there's no real separation.
1:23:17
Speaker 1: And to me, the only way you reduce that you'll
1:23:21
Speaker 1: never eliminate it, because human beings are really good at
1:23:24
Speaker 1: screwing things up. Just everything sort of devolves into chaos
1:23:28
Speaker 1: over time. I think you're trying to reduce it. What
1:23:30
Speaker 1: Dodd Frank does the wrong It sort of takes the
1:23:33
Speaker 1: wrong approaches. Let's regulate what happened in the past, and
1:23:38
Speaker 1: that's always true. Isn't every regulation backwards looking? By absolutely?
1:23:43
Speaker 1: You know, it's amazing how well the formation of the
1:23:46
Speaker 1: SEC and and glasst Eagle worked from the thirties because
1:23:50
Speaker 1: it was backwards looking, but it was also when the
1:23:52
Speaker 1: pace of change was so slow. It was good for
1:23:54
Speaker 1: seventy five years. That's whatever you pass, it's got like
1:23:57
Speaker 1: that's part of my problem with this whole no stion
1:24:00
Speaker 1: of red revamping Fannie and Freddie. When Fanny worked okay,
1:24:05
Speaker 1: from the depression up until right up until ten years ago, right,
1:24:11
Speaker 1: and so you have to look at what changed in
1:24:13
Speaker 1: O five the middle last decade to make them implode
1:24:18
Speaker 1: and then eliminate that. That's the we don't just because
1:24:23
Speaker 1: you put window you know, new window dressing on an
1:24:25
Speaker 1: agency that's effectively going to do the same thing doesn't
1:24:28
Speaker 1: make the problems go away. It's a waste of time.
1:24:31
Speaker 1: You know, the Fannie and Freddie bashers always conflate two
1:24:36
Speaker 1: or three issues. One is, Fanny and Freddie was a
1:24:40
Speaker 1: horrifically corrupt organization who spread a lot of lucre around
1:24:45
Speaker 1: d C. So they were the biggest supporters of public
1:24:50
Speaker 1: relations agencies. Every agency in Washington had a Fannie May account.
1:24:56
Speaker 1: They they were dominating. They spread them. Anny Franklin Rains
1:25:01
Speaker 1: was not afraid to spend the cash, and it was funny.
1:25:06
Speaker 1: It was It was funny that I remember seeing guys
1:25:08
Speaker 1: like Newt Gingrich not complain about them, and then you
1:25:11
Speaker 1: find out years later, even though everybody thinks of Fannie
1:25:15
Speaker 1: and Freddy is a democratic entity, they were spreading the
1:25:18
Speaker 1: money around on both sides of the aisle, which is
1:25:21
Speaker 1: the smart way to do it. One of the good
1:25:24
Speaker 1: parts about the bail out is that we stopped all
1:25:27
Speaker 1: that lobbying, at least for Fannie and Freddie. We could
1:25:29
Speaker 1: have done it for the banks and for Wall Street
1:25:31
Speaker 1: would be a much healthier country. Nobody thought to say, hey,
1:25:35
Speaker 1: Goldman in Bank of America shouldn't really be in the
1:25:38
Speaker 1: corridors of power. As much as Fannie and Freddie were
1:25:41
Speaker 1: stopping both, but but hold that aside. Do we need
1:25:47
Speaker 1: an entity between the buyers and the banks, working either
1:25:53
Speaker 1: with or with the im premature of government to keep
1:25:57
Speaker 1: mortgage rates down? We we've seen European don't have this,
1:26:01
Speaker 1: although they also don't have thirty year fixed mortgages. How
1:26:05
Speaker 1: is this done around the world? Will make this our
1:26:07
Speaker 1: last question. How are other mortgages processed, underwritten, regulated elsewhere
1:26:15
Speaker 1: that might provide an alternative example versus what Fannie and
1:26:20
Speaker 1: Freddie does. Well, So what's popular around the world are
1:26:24
Speaker 1: adjustable rate mortgages. I mean, that's that's not popular that dominates.
1:26:29
Speaker 1: I think many countries look at US as so it
1:26:32
Speaker 1: makes homeowners slaves to interest rate fluctuation very much so.
1:26:37
Speaker 1: And then on top of it, so countries like Spain
1:26:40
Speaker 1: where you can't walk away from a mortgage ever ever,
1:26:44
Speaker 1: so you are tied to that and you have to
1:26:48
Speaker 1: pay it back. There is no there is no get
1:26:51
Speaker 1: out of jail free card in in the mortgage world
1:26:54
Speaker 1: in countries like Spain in the US is in half
1:26:57
Speaker 1: the US. In the US, it's basically just you know,
1:27:02
Speaker 1: it's just another process you go through. It's but there
1:27:05
Speaker 1: are some states that a recourse states, meaning that that
1:27:08
Speaker 1: it's a debt you can discharge in bankruptcy, but you
1:27:11
Speaker 1: can't just walk away. And then there are nonrecourse states
1:27:14
Speaker 1: where the state the contract says in the event that
1:27:18
Speaker 1: you failed to pay for the house, the bank gets
1:27:20
Speaker 1: the house. You're done, which was always thought of as Okay,
1:27:23
Speaker 1: I'm not making the payments, I lose the house. That
1:27:25
Speaker 1: was thought of as a kind of fair trade off.
1:27:27
Speaker 1: Nobody expected a million people to do what it wants, right,
1:27:30
Speaker 1: an inundation of it, right, Yeah, the states that are
1:27:33
Speaker 1: dependent on the court systems were the slowest to recover.
1:27:36
Speaker 1: Larida had a their own you know, hyper right, which
1:27:41
Speaker 1: by the way, was supposedly was a debacle, a a
1:27:44
Speaker 1: gnarly mess of corruption and lack of oversight that and
1:27:48
Speaker 1: of itself. I'm sure there's a book in that from
1:27:51
Speaker 1: to sift through it. So so really, the countries that
1:27:54
Speaker 1: don't have g s c s in the middle, the
1:27:58
Speaker 1: alternative is fluctuating rates. You know, at rates, it's a
1:28:02
Speaker 1: different perspective. You know, I'm, as you said, I'm not
1:28:06
Speaker 1: an economist, and I and and there's a lot of
1:28:09
Speaker 1: criticism about the the effort that it takes to to
1:28:12
Speaker 1: manage a thirty year mortgage, and we shouldn't be doing that,
1:28:16
Speaker 1: uh and and but it works so well for so
1:28:19
Speaker 1: long exactly. So my my view of that is, you know,
1:28:23
Speaker 1: we're we're you know, we're questioning homeownership or questioning uh
1:28:27
Speaker 1: Fanny May, and we're questioning thirty year fixed. Yet they
1:28:29
Speaker 1: worked really well until about ten years ago. So why
1:28:32
Speaker 1: don't we look at what happened ten years ago and
1:28:34
Speaker 1: focus on that. So that was sub prime, that was
1:28:38
Speaker 1: liar loans, that was mass securitization, that was a lack
1:28:42
Speaker 1: of rating agency accountability. There were a lot of factors
1:28:46
Speaker 1: caused a functional system to freeze, choke and spit everything
1:28:51
Speaker 1: out all at once. So then you like, then you
1:28:56
Speaker 1: think there's a place for the g S c S.
1:28:58
Speaker 1: I think there's a place. I don't I. I The
1:29:00
Speaker 1: way I look at it is funnaments of the economy
1:29:03
Speaker 1: get back on track. All most of the stuff goes away.
1:29:07
Speaker 1: It's just a long, gradual process. I fear that by
1:29:11
Speaker 1: embedding even more layers of Remember, all the regulators were
1:29:16
Speaker 1: asleep at the switch. Everyone Sheilla Beart maybe one of
1:29:19
Speaker 1: the few exceptions, and the same with a woman who
1:29:22
Speaker 1: was the head of the commodities futures trading. She actually was. Yeah,
1:29:26
Speaker 1: she was soundly ignored by Greens. She was Chastis and
1:29:30
Speaker 1: Greens absolutely, So I agree Sheilabert and Uh. I can't
1:29:35
Speaker 1: recall the woman's name, but I s' that's it. And
1:29:40
Speaker 1: and they were the ones that sort of the voice
1:29:42
Speaker 1: of reason. But the balance was they're caught up in
1:29:45
Speaker 1: it too, and then a lot of it they didn't understand. It,
1:29:50
Speaker 1: didn't understand you know, the all the the you know,
1:29:53
Speaker 1: the financial engineering. So I don't think the answer is
1:29:57
Speaker 1: add more. You made the basket. I don't think I
1:30:00
Speaker 1: don't think adding more solves anything. I think it's let's
1:30:04
Speaker 1: get back to like fixing the economy first, and a
1:30:07
Speaker 1: lot of this stuff plays out. It's not that we're
1:30:10
Speaker 1: going in the right direction. It's just a slow motion
1:30:12
Speaker 1: and slow motion ride. So as the economy goes, so
1:30:17
Speaker 1: goes real estate. Absolutely, Jonathan, I've had you here for
1:30:20
Speaker 1: two hours. Thank you so much for coming in. It's
1:30:23
Speaker 1: been a pleasure pleasure to you know, you and I
1:30:26
Speaker 1: talked about this stuff all the time, but it's rare
1:30:28
Speaker 1: when we actually get to sit down for an uninterrupted
1:30:33
Speaker 1: meandering conversation about I thought the airline discussion was really important. Though,
1:30:38
Speaker 1: let me tell you something, it doesn't take much to
1:30:42
Speaker 1: set me off. I'm I'm getting better, though. I'm I'm
1:30:46
Speaker 1: much more present. I read a fascinating study the other
1:30:49
Speaker 1: day that essentially said the cathartic release of anger does
1:30:55
Speaker 1: nothing too. Some people say, how you get it out
1:30:59
Speaker 1: of your system? It turns out they've done studies and
1:31:02
Speaker 1: people it becomes persistent and higher when you especially when
1:31:08
Speaker 1: you're driving. UM. So, really, I'm trying to learn how
1:31:12
Speaker 1: to let these slights go and find a degree of peace.
1:31:18
Speaker 1: I forgive Delta Airlines for their gross incompetence, and I
1:31:24
Speaker 1: choose to use my flying you have We know you
1:31:27
Speaker 1: have choices in airlines today. Hell yeah, and that's why
1:31:32
Speaker 1: I could at least get over my cost with with
1:31:37
Speaker 1: Delta and gratefully fly. They apparently weren't. That's you're listening
1:31:46
Speaker 1: to Masters in Business with Barry rid Holts on Bloomberg
1:31:50
Speaker 1: Radio