Latest / Real Investor Radio Podcast / Episode 20 | Melody Wright - Are US Builders Overbuilding?

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Episode 20 | Melody Wright - Are US Builders Overbuilding? · Real Investor Radio Podcast

• Craig Fuhr (00:03.849) All right. Hey, welcome to real investor radio. This is Craig Fuhr joined here today again by my co host Jack BeVier. Jack, good to see you. Jack BeVier (00:15.358) Absolutely. Good morning, sir. Craig Fuhr (00:17.208) It appears that we are up to episodes 20 and 21 today. Looking forward to jumping in. We have a very special guest. Can't, I just can't wait to jump into the conversation, but Jack, for the folks who are just tuning in, tuning in, you and I had a pretty good discussion on the last, uh, couple podcasts, um, regarding the market in general, uh, where things are heading sort of some of our prognostications and predictions as well as the Airbnb and bust. that everyone is talking about these days. So I'd encourage everybody who is tuning in for the first time or maybe even for the second or third to go back and check out those last two episodes because I think it was a pretty lively discussion. Jack and I don't always agree on where the market's heading so that we had a pretty lively debate there. So yeah, so how you been, man? Good. Jack BeVier (01:07.35) Good, absolutely. It's been, uh, it's, it's good that we release these podcasts on a timely basis because the world seems to be changing very quickly, like on a week over week basis. We had a huge run up in treasury rates last week, wall streets, freaking out, uh, the tone in the world's getting a little bit more pessimistic. And, um, so it was a super timely that, um, we were able to, to get our guests today on because she's got some, some strong Craig Fuhr (01:37.528) Yeah, we'll introduce her in just a second. But with regards to the market, I was watching an interesting interview yesterday where the gentleman who was giving the presentation sort of went through some key economic indicators that without exception point to recession. And Jack, I'm not really familiar with this first one here. So maybe you can jump in on this one. It's the twos and tens. So it's the two-year yield versus the 10-year yield and sort of looking at the 30-week moving average. Once it crosses above the 30-week moving average, that indicator, it is a 100% probability of a recession. It's never been wrong in the past. And so that average has now moved above the 30-week moving average. The second indicator that he mentioned, which is not always a precise predictor of recession, would be just consumer sentiment. And so it's basically, you know, future expectations minus current situation. And I think that we could all agree that the consumers are sort of, you know, there's a lackluster sentiment about the future. And I think a lot of people are very nervous about our situation today with the second war in Israel. People are now talking about Taiwan and China, you know, potentially invading Taiwan. So I think there's just a lot of anxiousness in the market. And then finally, the third indicator was unemployment. And it's still obviously low jack, but it has crossed, it is ticking up and it's crossed above the 12 month moving average. And once it goes above the 36 month moving average. That is a 100% probability historically of recession. So we're not there yet, but it's ticking up. And one of the big indicators that I've been reading more and more about, Jack, is these zombie corporations out there. These people who are basically borrowing to pay their interest, and these companies, I should say. And that, you know, they're all within, by 2025, they're all going to have to refi. Craig Fuhr (03:57.088) their debt, their corporate debt, at a rate that is now going to be double what their current rate is. And by the way, these companies that have to do this, Jack, employ over 11 million Americans. Talking about refinancing close to $2 trillion in corporate debt by 2025. And these companies employ 11 million Americans. So with that, you know, maybe get your overview on just as we get as we move on, Jack. But I would go ahead. Go ahead. You look like you want to say something. Jack BeVier (04:26.41) Yeah, yeah, I think the tone is getting definitely more pessimistic. All the indicators that you just described being, you know, primary drivers of that. At the same time, I think today this morning, the GDP numbers came out and the country is growing and I think it was like a 4.9% GDP growth rate for the year, which is incredibly strong. And so it's really odd because we've been, I feel like we've been talking for over a year. about this recession that's coming, right? In April, there was a recession coming in six months. In October of 2022, there was a recession coming in six months. In April of 2023, there was a recession coming in six months. And the strength of the consumer has been, has just punted and punted and punted that idea. And I feel like we're probably, we may be even beginning to a place where investors are, you know, it's the boy who cried wolf. Right? Like, you know, there, I think a certain segment of the population is just like, they've been talking about recession. This is just click bait. Like, this is never actually going to get here. Because the consumer just continues to defy all of these, you know, all of these prognostications. I was at I just got back from Miami, I was down at the asset based securities conference down in Miami. we did a securitization a couple of years ago. So we're very, you know, interested in what's going on with that market. It affects both the SCR and fix and flip, loan pricing. So we try to, you know, stay in front of those crowds as well. And the, you know, something that struck me was there was two, they had three economists and it's kind of like one of their keynote, you know, macro economist panels. And I was frankly shocked by the consensus, the fact that the panel on the stage had a consensus view that we are still going, we are going into a recession still. We're not going to soft land this thing. You know, two months ago, there was a lot of soft landing talk. I think that's turned, you know, six months ago, there was, it was 50 three months ago, it was, we're going to soft land this today. It's turned, we're not going to soft land this. Jack BeVier (06:42.422) the impact of a recession, I think is the X factor. You know, the consumer has been what has allowed the economy to punt and punt and punt and like, you know, housing prices have stayed up. And so the consumer has been the engine, the fuel to allow us to continue to have a good economy. But even the Wall Street folks now are, you know, kind of consensus planning for a third quarter of next year recession. And... Craig Fuhr (07:01.723) Mm-hmm. Jack BeVier (07:12.822) I'm sure we'll get into some of the, I'm sure we'll bring up some of the reasons why I don't want to go off on a long tie right here, but, uh, it's, uh, you know, the, the reasoning behind why they were saying this is, you know, what has happened. Here's why it's been that way, but here's why we're going to run out. And approximately when, uh, was a compelling argument that, um, really kind of changed my tune. So even from two weeks ago, when we were having that debate, I think I've probably gotten a little bit more pessimistic since then as well. So. Craig Fuhr (07:30.2) Sure. Craig Fuhr (07:42.937) You and our previous guest Logan Motashami were just absolute bulls on the market. And so it's funny to hear your changing sentiments. But let's go ahead and bring in our guest today. I'm so excited to have her. Melody, welcome to the show. Melody (08:00.127) Thank you so much and thank you for having me. Craig Fuhr (08:02.864) It's just such a pleasure. So folks, this is Melody Wright. Melody is a 24 year veteran in the banking and financial services industry. She was recently named as one of mortgage women magazines, woman of technology, and she's a contributing writer for multiple publications. I was introduced to Melody through my research and for the show and just sort of my general reading and watching. a pretty awesome article that you did for HousingWire called Debunking the Housing Inventory Myth which we'll get into today. And it's obviously an article that is creating a lot of controversy and sparking a lot of debate in the industry. So we're just so delighted to have you, Melody. Thanks for taking the time. Melody (08:51.603) Yes, and thank you so much for having me. It's a pleasure to be here. Craig Fuhr (08:54.788) Yeah, thanks. So listen, you know, we're Jack and I are longtime residential real estate investors, Jack, certainly far more than me, but we've invested in residential real estate all around the country. The Dominion Group, as you know, is also a one of the nation's largest lenders of DS so DSCR and bridge loans. And so that's sort of our jumping off point today in terms of, you know, what we hope to cover with you and just really like to have just a general debate on where the market is, where you're seeing residential around the country and where you think it's heading. So jump on in. We can jump off there. Maybe you could tell us quickly about how you've come to some of your findings and the way you feel about the market. Melody (09:35.726) Sure. Melody (09:45.035) Sure, yeah, so just a quick intro. I fell into mortgage finance and housing in 2006 by accident, which is how most people end up in mortgage. And right as things were topping, my company got purchased by private equity, Cerberus. So we actually led all the write downs of the crisis because Cerberus was looking for a purchase price adjustment because they could see the writing on the wall, things were slowing down. And so I kind of became their girl Friday going out across the company, teaching them how the company ran by gathering a lot of management reports. So as they learned, I kind of learned as well. And I got like a crazy education during that time period that I think I got a lifetime of education because it was just so intense. You know, you'd walk into the office, we're writing down another 800 million today, you know. things like that. So it was just a crazy, crazy time, but I started in mortgage finance where I really understood the intricacies of how origination work together with servicing. And servicing is that backend, like after you originate your loan, that's the taking of your payments. So fast forward, we got into a lot of trouble with the Federal Reserve Consent Order, the Attorney General's settlement on servicing practices. Craig Fuhr (10:56.198) Mm-hmm. Melody (11:07.899) I sort of helped manage that, got to get real familiar with how this entire thing worked from beginning to end. And then we kind of went into bankruptcy as well. And from there, to kind of keep our assets safe, I basically got tapped on the shoulder to run default and clean that up. So Because at the time at GMAC where I was, we had over 65,000 foreclosures and something had to be done. We were getting threatened by Fannie Mae and Freddie Mac that they were going to pull servicing if we didn't get rid of a certain percentage of our seriously delinquent loans. As I'm sure you guys know, the way that was affected. Yeah. Go ahead. Craig Fuhr (11:47.184) With. I was gonna say they must have really loved you boy. Love you huh? Melody (11:52.387) Yeah, oh, my Fannie rep won an award that year because it was just a problem. You know, the way that problem was solved is essentially a lot of the investors came in and started participating with Fannie and Freddie in the auctions, kind of offloading those properties. You know, we had tried loss mitigation options. And honestly, you know, I think that what people forget about that crisis, is that there was a lot of investor speculation then as well, you know, between like 23 and 26%. You know, now we're at about 30%. Depending on the market, it could be more. But I think a lot of people say think subprime is like low credit. And in reality, it was a lot of non-traditional products, like a lot of things like a DSCR loan, you know, kind of the Alte loans, etc. And so, you know, in reality, a lot of the inventory wasn't... Craig Fuhr (12:25.964) Mm-hmm. Melody (12:48.635) inventory of prime borrowers. Now later in the cycle, it became that. But there was so much investor speculation and that Wall Street came in and started buying those up to do long-term rental. So from there, I went out and worked at several non-bank origination and servicing companies trying to help get them up to where, sort of meet regulatory guidelines. Got very frustrated in the industry because the technology is so abysmal. Basically, their core created in 1968, 1972. It's just insane. You walk around some of these places today and it's blue and black screen still. So I went out to FinTech companies and try, and it's so true guys, and the paper, don't get me started on the paper. I can't even talk about the paper. But I went out, tried to build all these solutions to help the industry. Cause I really believed we could do this right. I believe that. But... Ultimately, to really change the game, it's, it's the entire industry would have to be disrupted. Uh, and you know, people just weren't at a place. They weren't willing to do that. And then we kind of hit that COVID boom and I was working at a fintech and he kind of said, Hey, listen, I need to understand when rates are going up because this is, you know, this is so crazy. It's awesome. We're making a lot of money. And so I really started diving into macro and I've spent. you know, last kind of three or four years, just getting a crash course, kind of education in the business cycle, in macroeconomics, you know, what are the drivers? I was very familiar with what drove our business, but I didn't really understand our business in context of the economy. And that's really kind of what I started looking into. And, you know, for the longest time, I thought mortgage was going to be totally fine. It's not even a big part of my thesis. But what I came to understand is essentially, a lot of the lending was done on inflated credit scores. And then the Fannie Freddie models that most people use, because 95% of origination is backed by the agencies or Jenny Mae, right? So 5% private, that's kind of a flip from what it used to be. But essentially, I realized too that we were probably going to have a little bit of trouble on mortgage. But this all brings me to a little bit of a Melody (15:11.511) probably last January, I wrote that article. Cause I was just seeing a lot of themes. The biggest theme that I thought people were missing were our demographics. But I was looking at this new building that was going on. I was looking at the short-term rental craze. I was looking at people thinking they were gonna be millionaires for long-term rental. And I was looking at everybody screaming that there was no inventory when... when you look at the numbers, that just didn't even make any sense. We have 15 million vacant properties in this country. The boomers are retiring at 10,000 a day. Why would they wanna carry multiple houses with expenses growing when they can make 5% on short-term treasuries or in money market funds? And so I couldn't understand why everyone thought housing looked so great. So what I did is I got in my car because kind of Logan and I wrote articles for the same series. His was very different than my, as you can imagine. But in honest, like you can read my, my article talked about pinup demand. Like nobody else was saying, I was like, no, we're going to have demand. And the, the builders figured it out. And the way that they got through it is through net price reduction. So the reason some of the prices have stayed where they were is because of all of these buy downs and concessions, but that, yeah. So I know I'm saying a lot. Yeah, go ahead. Craig Fuhr (16:09.924) Yes, decidedly different. Craig Fuhr (16:34.344) Can I just, yeah, no, that's, yeah, that's a, I just wanna just slow it all down here, you know, for the sake of the listener and just say again, so this, what time period was it where you wrote your great article for Housing Wire? Melody (16:39.764) Yes. Melody (16:48.811) So I wrote it, it got published in January. I wrote it in December. Yeah. Craig Fuhr (16:53.524) All right, so we're now close to a year away from it. And so going into that, you bring in all of the experience that you just spent the last 10 minutes explaining, which is awesome. But what was your guiding philosophy going in? You just didn't really believe what you were hearing or seeing in the residential market, correct? Melody (16:57.215) Yeah. Melody (17:16.979) Yeah. And I think that that's like all of my instincts from having been here before, right? Just a little bit. Like I honestly, I just kept asking kind of people in my industry, like, this isn't good. Like, you know, we're seeing these double digit increases in prices, like it's going insane, right? So, you know, I just couldn't, and nobody was as concerned as I was, which kind of set alarm bells in my head because Craig Fuhr (17:22.612) Mm-hmm. Melody (17:46.047) These are people that should have been a little bit more reasonable. So I kind of felt like some psychology was coming into play. But so that's kind of, you know, I based on my research, it just, I could not see how, you know, based on the fact that property taxes and insurance were going up, that we had already started to see borrowers come start struggling in December of last year. But you know, that's a seasonal thing. They typically get caught up with, you know, tax returns and bonuses. But, but I knew long term and that's the thing where I think I might be a little different than some is that I'm, I'm more concerned with the path. I'm not really concerned with predictions and I could just tell long term. We had serious headwinds for affordability, even for people that actually did qualify for these mortgages or for the investors that paid all cash. Craig Fuhr (18:18.728) Sure. Melody (18:43.647) because we knew that a lot of those investors, that was leveraged cash. Sure, some of it wasn't, but a lot of it was where they refied out of a bigger property or they took a home equity on another property or somewhere like PNC sent them a note from their wealth management division saying, listen, take a personal loan so you can show up with all cash. And so I was really more concerned with that. class of and not even mortgages, but I could just tell from the investor speculation that trouble was ahead. So, you know, that's kind of when, and I'm, I'm a, I'm a validate your assumptions kind of girl. Like I, I. Craig Fuhr (19:27.039) You are definitely a boots on the ground kind of gal. Melody (19:29.303) Exactly. And so I woke up in, you know, kind of late January, early February, and Joe from Bloomberg was like, the housing market is turning around, you know, there's, it's all going to be golden from here. And I was like, Oh my God, like, everybody's crazy. And I am within three days, I decided to get in my car and drive to Austin, because I knew that was kind of the epicenter. And if I could, because I was looking at the permits. I was looking at all the data. That was what was just driving me insane. And none of the pieces were making any sense together. And so I had to go see for myself. Craig Fuhr (20:07.472) you were looking at the permits being pulled by builders and or developers for residential and multifamily or single family and multifamily residential. And so you jump in the car, you decide to go validate, go to Austin, we all love Austin. So I'd have gone there with you. But so what did you discover when you got there? Melody (20:12.372) Yes. Yes. Yes, both of them. Melody (20:28.603) Yeah. Melody (20:32.691) Yeah, so I stopped in Nashville first on the way to Austin. And I was, you know, you could hear stories at that time on social media about exurbs, which are these, or these ideas that people, you know, went 40 miles out of the city in a cow pasture and started building homes because they thought people would wanna, you know, that would be the affordable option. Well, the cow pasture homes were not affordable. That's what I found, you know, so kind of my methodology is I would... you know, I do the perimeter of a city, you know, drive out from downtown to these places so I could get a sense of what's the commute, what's the traffic like, you know, and then also how many new-build sites are there. And just as I drove the perimeter of Nashville, you know, you go a couple of miles, there's another one, a couple of miles. And I was like, oh, okay, this is worse than I even thought. And then you go to these things called mega sites. I don't know. They were new to me. I had never seen them before where you would go and all the builders were there, the nationals plus the locals. And there was just a ton, like these whole little cities were being built. The idea that you could live, work, play here, club houses, all this, but it was all out in the middle of nowhere. Craig Fuhr (21:36.517) Yeah, all in one set. Melody (21:51.787) with no infrastructure. And so I was like, okay, this is pretty bad. And then the multifamily, like the multifamily in Nashville and I swear that first trip is such a blur. I feel like I have to go redo it because I had no idea what I was doing. But I would come upon this massive multifamily complex completely vacant, completely finished. And nobody was talking about this. Craig Fuhr (22:18.576) And it's all luxury, right? It's not like affordable malls, yeah. Melody (22:19.923) And it's all luxury. Yeah. You're going to make me start screaming, but anyway, sorry, but it's all luxury. And I was like, what is this thing? Is this Evergrande or am I in China? You know, I was just like, is this a bridge to nowhere? I don't understand. And, you know, and you would see a cross and this was my very first trip in Nashville across, and I can't even remember the area now, but from this huge multifamily, it was a brand new strip mall. And probably, you know, 16 to 17. Craig Fuhr (22:31.025) Hahaha! Melody (22:49.795) locations and only one was rented. And one thing that I can tell you at that trip, I saw a lot of coming soon signs, a lot of coming soon 2022, coming soon, you know, it was 2023. And, you know, and I think a lot of people could explain that to themselves that, oh, it's all the, you know, the disruption from the labor markets, things are just delayed. So it's coming, it's going to come. So I left Nashville. and drove through the floods to Austin. It was a crazy trip, by the way. And I get to Austin and I still can't articulate. The first mega site in Austin I went to was called Sweetwater and it was a complete accident. I was driving into the city, picked up my cousin because I had family there, driving in and I looked to my right. And I'm like, what is that? And I turn in and it is just, you know, 600,000 to two, $3 million homes being built up into the hills. Nobody was there. And I probably stood in the middle of that subdivision for five minutes, just, I couldn't process. Like, I was like, this isn't true. This isn't happening. Because how could it happen again? After we talked so much about Craig Fuhr (24:11.644) Yeah. Melody (24:16.723) you know, the overbuilding last time, the mania last time, like it was just, it was very difficult to accept. So go ahead. Craig Fuhr (24:25.076) Yeah, so I you know, what really strikes me as you're speaking there is that you know, I sort of lived through a lot of this and I told you I'd recount the story for you quickly as when you came on the show. I was listening to Lynette Zhang the other day from ITM trading and she's, you know, she's quite a character. But one of the things that she was talking about was just sort of the factual knowledge of the market which I'm sure we're about to get into. versus sort of the what I see and feel. And I think a lot of times, you know, people can get caught up in sort of the spreadsheets and the facts, which is great, but it's the, when you go out there and you stand amongst it and you say to yourself, hold on here, this doesn't make sense. It just doesn't look right. It doesn't, I can feel it in my gut. And so back in that 2010-ish time period, I get a call from a buddy of mine in Utah. brilliant rehab or fix and flip guy. And he said, man, the spreads in Phoenix right now are insane. You've got to come out here. So it took a ride out to Phoenix. And what we saw back then, Melody was I'm sure a lot of what you saw was these mega sites in the middle of nowhere. We're not talking Phoenix proper. We're talking out like Gilbert and Queen Creek and Apache Junction, which is a surprise. Melody (25:46.37) Yeah. Surprise. Yeah. Surprise. Craig Fuhr (25:51.008) All of those places which are now built up. However, back then they were just pig farms. You could still smell the pigs. Melody (25:57.303) You still can in some, Craig. You still can. Craig Fuhr (26:00.2) It was fun. And so you get in your car, I'll never forget, I you know, and I wasn't a guy who had known a whole lot about Arizona, we live here on the East Coast and in Maryland. So here I am, get off the plane, get a car, you know, jump in, and you're an hour and a half, or a good hour, at least from the airport getting out to these sites that are in the middle of nowhere. And you'd go and you would see here's what you would see, you'd ride up and you'd see the big cinder block fence that surrounded the entire development with a nice entrance. Melody (26:29.515) Yes. Craig Fuhr (26:29.912) And then it was like, you know, mains, main mains sticking out of the ground and one house. And then it was like six more mains and lots. And so what we were doing where we were buying these houses after the bus that were built for 350 in 2007, we're buying them for 85 grand at the courthouse steps, going in and putting patching them up and painting them with a little granite and carpet, selling them for a buck 60 on the following Monday. Melody (26:35.872) Yes. Melody (26:45.207) Mm-hmm. Melody (26:58.056) Right. Craig Fuhr (26:58.82) And that went on for a good six or seven months until, you know, every investor in the country decided that they wanted to also come to Arizona. But, but the point of, the point of bringing it all up melody was we did the same thing in Chicago. We did the same thing in parts of Florida, where you would just, you just could ride into these developments that were out in the middle of nowhere and say to yourself, this can't last. And so, Melody (27:04.131) figured it out. Yeah. Craig Fuhr (27:24.436) I'll finish up by just a quickie here. My wife and I were seriously considering earlier, right around the time where you wrote the article, moving to Florida. So we go down to St. Augustine, where they have decent school systems. And we ride into these communities where it's, yeah, we're doing 10,000 houses here. We're doing 15,000 houses here. We're doing 7,000 houses here. And you're like, holy shit, are you kidding me? Like, where's all this demand coming from? And so... Melody (27:40.455) Yeah, yeah, yeah. Melody (27:49.535) Right. Oh boy. Craig Fuhr (27:49.944) You know, I haven't been down there, but I, but you know, I was just reading St. Augustine is one of the, you know, largest declining markets in the country right now. So go ahead. I, that was all, that was a long way of me saying, I feel your pain and I've been there with you out there driving the streets. Melody (27:58.47) Yeah. Melody (28:01.748) No. Well, I think you would be so frustrated, Craig, because you would go back to like Buckeye, back to Phoenix, back even to Gilbert further over. And it's the bridges to nowhere. Again, you come into a subdivision, the walls, like you say, are built up, the basketball court for the playground. And then, you know, the flags are whipping in the wind, the tumbleweeds are, you know, it's just like one of the most bizarre experiences. Craig Fuhr (28:24.924) Yeah, right. Melody (28:33.063) And then, you know, over there in Surprise and in that area, I mean, again, they just went crazy in between the feedlots, but no infrastructure, none. And the craziest thing about Austin and one of the ex-Urbs way out in the middle of nowhere, you know, two RV camps down the road where people, retirees are living because they can't afford to live anywhere else, home selling for 400,000, median income was around 40,000, you know. Nothing there, no gas stations, but you would go in the subdivision and none of the houses were finished except you'd have this one little loan house and it would have a for rent sign out in the front. Because you know some guy bought that house. He built, he said, hey, broker or somebody, I want to buy an investment home in Austin to do long-term rental. And somebody said to him, there's no inventory. Okay, well, I'll build one. Let's build one. Craig Fuhr (29:12.197) Right. Melody (29:30.023) And that's what a lot of these individual investors took a brochure, a pamphlet, and kind of said, yeah, I'm gonna get my Austin, Texas long-term rental or I'm gonna turn it into short-term rental because one of these programs, I won't mention names, tells me I can get an average daily rate of $600 a day. Well, wait a minute, that's 30 miles from Austin. You know, there's no amenities and nobody's going to stay out there for an Airbnb when you've got 14,000 Airbnbs in Austin. So people just had all these what I call COVID fever dreams about getting rich quick. And I don't blame them, right? Like, you know, the idea of being able to do something besides, you know, sell your soul to corporate America is I want to do that, whatever that is as well, you know. Craig Fuhr (29:57.158) and Melody (30:22.431) So I understood it, but Austin was just, it was just overwhelming, cause you would go downtown. And so it was everywhere. The ex-serbs, like one, this is a funny story. I maybe shouldn't even tell it, but one investor built this whole huge community out in Maynard, Texas. Craig Fuhr (30:29.04) It is number one. Melody (30:40.831) I shouldn't have probably said the name, but anyway, it's very close to the highest percentage of registered sex offenders in the country. And they had no idea. And now it's completely empty. I mean, completely empty. And so, right? Okay, yeah, we can stop there, right? Cause it gets, it's just, but it just shows you, that's when I realized like, Craig Fuhr (30:55.432) Talk about your amenities. Melody (31:04.223) We have been taken over by the speculation, you know, genie, like everybody has gone a little bit crazy. A lot of... Go ahead. Craig Fuhr (31:12.04) A lot of exuberance. Hey, Jack, can you just give me one second, just a quick pause here. Does someone have their phone near the microphone or anything like that? Cause we're picking up like the phone interference. So we'll edit this part out. Jack BeVier (31:13.442) See. Melody (31:28.503) I'll turn mine off just in case. Craig Fuhr (31:31.276) I just threw mine across the room real quick. Melody (31:33.119) Okay, yeah, mine's going off. Craig Fuhr (31:39.472) We good? Check. Jack BeVier (31:43.338) Yeah. Craig Fuhr (31:44.38) All right, so let's just jump back in. You go ahead and start us off there, Jack. Jack BeVier (31:48.362) So is, you know, there are many pro you know, causes of the great recession, not the least of which was overbuilding. Um, do you think that we have been quietly overbuilding at the same level as, you know, 20 years ago or whatever it was 17 years ago? Melody (32:10.739) Yeah, so my answer is probably going to be controversial, but I think it's worse. I think you look at Lennar, we can take them in particular. There was a great article in 2009, you know, that was all about their tax bailout, because I think a lot of people forget they kind of got bailed out last time. And it was talking all about this exuberance, how they went crazy, they've learned their lesson. and talking about their biggest year where they delivered 38,000 homes. Okay. Their own pace to deliver two times that if not more this year. So, you know, what a lot of people are doing is they're looking at history and they're not taking into consideration our demographics. And they also don't understand that we pull forward demand during COVID. There's a great Harvard study out there. And this is born out by just talking to people. I, you know, it blows my mind, but I'll talk to a couple that says, Oh yeah, we bought, we each bought a house, but we don't use the other house, you know, like, uh, you know, and it's just, it's pervasive in a certain segment of our population, which I think is what is so confusing about this time, why the consumer seems so strong because that top 20% is still doing okay. Although I am seeing the super prime start to come under stress. But they have options, right? Like I have nine properties in my portfolio. I can let go of one. Whereas, you know, 60% of Americans can't afford a thousand dollar emergency. That's a whole different conversation when they can't, you know, when they come under stress, you know, it's a lot more dire. And so I think, you know, we're a tale of two economies, Jack, in my opinion, you know, to what you were saying earlier about the consumer seeming strong. I think. that top 10, top 20%, they are still strong. And there's some reasons for that, like the ERC tax credits, things like that money was still being pumped into the economy until really last month when the government decided to stop and start auditing those ERC rebates, and I don't know Craig how familiar you are with those. So yeah, so you know, you can't, exactly. Craig Fuhr (34:22.918) Wait. Jack BeVier (34:24.643) You've seen commercials on TV, billboards for employee retention tax credit. Craig Fuhr (34:29.43) I know guys that have created companies around those damn things. Melody (34:32.235) There you go. Jack BeVier (34:32.246) Dude, yeah, but the legit the last legit application was a year ago, like Melody (34:35.919) Right. And we just kept pumping the money in. Like, and you can even look at, you know, Daniel DiMartino Booth. I don't know if you guys know, but you can look. Yeah, you can look at one of her charts of like the travel chart. You know, it just it matches the ERC rebates exactly. And so. Craig Fuhr (34:36.264) I'm going to go to bed. Jack BeVier (34:44.138) Yeah, I'm a big fan. I'm a big fan. Melody (34:54.239) You know, we don't know yet what the economy looks like without money being pumped in. Because it's just, it was being pumped in all these little sneaky places, you know, even to the point like student loans weren't actually, you weren't looking at outstanding debt, you were looking at a $250 payment when you were writing a mortgage. I mean, so there's just so many things that everybody wants one answer. And in reality, it's just a very complicated picture, you know, so anyway. Jack BeVier (35:22.51) So let me, let me, yeah. So like, let me, um, cause I agree with the, you know, the, obviously I agree. It's like two different, you know, two different economies from the housing market perspective as well, though. Do you think that we've overbuilt? I think it's also there are multiple, you know, multiple markets. They are there, you know, all price points, all geographies are not act, do not act the same. Do you think that we've overbuilt period or do you think that we've overbuilt? Melody (35:23.519) Jack, go ahead. Yeah. Melody (35:45.431) Absolutely. Jack BeVier (35:51.814) the $600,000 plus house because, because particularly with that demographic, you know, the demographic thing that you picked up, I think, you know, affordability, obviously, especially where mortgage rates are right now has become the primary driver for the low levels of demand that we have right now. A recession would exacerbate that. I do agree that like, you know, I'm broad brushing here, you know, if you're $600,000 in California or, you know, Seattle, it's a different thing than being $600,000 in you know, wherever Kentucky, but, um, I do agree that perhaps, or not perhaps. I do agree that they've probably that they've overbuilt the $600,000 plus, um, price point, but there is a complete dearth of 300 to 450 new construction and something that even though that I was hearing as a theme, Zelman, uh, Ivy Zelman, I know you follow her as well. Um, her housing conference, I think it was a month ago. Melody (36:20.747) Of course. Melody (36:40.791) Totally. Jack BeVier (36:50.482) online housing conference referenced that, you know, a theme on that was that the builders are now shifting down to the more affordable price point because where these mortgage rates are there's just not enough demand for us to continue to build $800,000 houses. So do you think that it's like, is, is your is your concern segmented by price point? Are you know, are you less worried about the more affordable segment or more worried about the higher end segment? Or do you think this is an across the board problem that we're going to see issues regardless of price point? Melody (37:20.297) Yeah. Melody (37:27.479) So I think we're going to see issues regardless, but it's a structural problem like you're saying, Jack. Like to me, yeah, if all those homes being built out there were being built at 250,000 or 300,000 or 350,000, then I guarantee you there would be demand for that. I mean, cause you know, I would buy a house then. I'm refusing right now, you know, but I would buy a house. And so, so. I there's structurally we have built too many overpriced homes. I think we have an excess. We will have an excess of inventory regardless because of these boomer second homes and a lot. There's a lot of second home ownership in this country that I just don't think is going to be sustained due to kind of rising costs insurance taxes, et cetera, unless we have a price correction. So, you know, if all things kept going forward, we don't have affordable housing, but at the same time, when you look at what's actually being constructed out there for $400,000, $600,000, a lot of these look like homes that, you know, I wouldn't have paid $200,000 for, you know, and they're being very cheaply built at the same time, similar to the McMansions of last time, right? Like, and so really what they've done is try to spruce up. what is a starter home and make it look like it's luxury when in reality it really is just a starter home. And so I think that if there was repricing out there, I think a lot of this inventory would actually get bought. But until that happens, there's going to be this frozen market. But the builders... Jack BeVier (39:08.75) clear you. Melody (39:16.467) have affected a 15 to 25% price reduction. I mean, that's how they've gotten through the last year and they're going on overdrive right now. Like some of the advertisements we're getting are just kind of insane. So it's a complicated picture and you may know, Jack, I track 70 cities because real estate's local till it's not is kind of what I say. And I think each of these cities will be impacted very differently. But back to what you were saying, Craig, Florida. by far is again, and it's just hard for me to believe because I spent 2012 and 2013 down there cleaning up the default mess. I mean, I can't believe my eyes in Florida again, but because of things like the insurance four times the national average and people waking up to like two times insurance bills and then the taxes because it's on assessed value and then for new construction, the CDD tax, like Florida is just. in a world of hurt because they haven't stopped Jack building in like Lakewood Ranch, you know, million dollar homes. They have it. Yeah, they have. I mean, I can't even fit the video anywhere. Like I'm trying to work with someone to get it because you simply could not believe your eyes as you just kept driving and driving and driving and they were and in Lakewood Ranch in Florida in general. It seems like Craig Fuhr (40:18.484) It's where my in-laws live, by the way, in Lakewood Ranch. Jack BeVier (40:21.847) Hmph. Melody (40:42.683) The difference between when I was on the road in February and March and when I was just recently down there is that they're actually accelerating construction. A lot of the sites down in Austin and Florida back in February because I went to Florida like after I was done with Austin. I went over to Florida the first time. Not as many workers like they were it just but this last time ton of workers. It looks like they're pushing to year-end. Jack BeVier (41:07.17) So, so how do you explain that though? I mean, these are not dumb people, right? You can only kick the can for so long until you're real until you're just like, Hey, this is stupid. Stop building. Right? Like they don't have to build the next house and they, and they, and they're not going to build up a like, wall street won't let them build up an unlimited, you know, a massive amount of unsold inventory, especially on spec, like, you know, they're not going to have specs spec inventory for like longer than six months. They'll just stop building. Melody (41:30.235) It's already happened. Melody (41:35.975) No, they don't, they haven't. I mean, that's, and so I've heard, cause I kept asking these same questions because I actually know a lot of these people at the builders, cause they're in my industry. And I called a lot of people from the road, by the way, saying like, can you believe, like what is going on? And they would acknowledge it, but they would acknowledge the larger problem. So Jack, every time I listen to a earnings call, I get half convinced again, because they just, They really good at the gospel singing about what they learned from the last crisis. But all I have to do is get in my car and go to one of these new build sites. And by the way, there's maps of them. You can find them easily to realize like that. None of that. The idea that they are, they're smarter than this now. That's just not accurate. They're not seeing when you look at things in aggregate, that's when, and that's what a lot of people are doing is they look at the aggregate numbers, but there's been some. cool things I've done in my sub stack recently, because we know the Fed doesn't track cancellations. And so a lot of that inventory that people think, was sold, yeah, was canceled. Yeah, and so essentially you've got completed homes for sale growing exponentially. And then the second thing that Jack, you may not be thinking about, because I hear you, is the bill to rent. Jack BeVier (42:45.302) keep reporting contracts, but yeah, keep reporting contracts. But yeah. Melody (43:02.131) So everybody went crazy on bill to rent, but what's happening is American Homes for Rent and the bigger players are becoming net sellers. And so I think a lot of people, when they think about it, they don't think about single family residents and single family rental together. And that's what's happening is you've got so many of these single family residents, bill to rent and the multifamily, but now renting is cheaper than owning. And so you've got a competitive. like competition that I think a lot of people aren't used to and they don't understand that, you know, you're, and then you have the short-term rentals. We can't forget those because some of those will come onto the market. That's all going to pull away from what the builders are building. And so I think people aren't looking at housing stock in total and aren't understanding our changed economic dynamics that are a little different this time, where it's, it's cheaper to rent. Jack BeVier (43:59.426) But isn't the Craig Fuhr (44:00.748) Hey, I'd like to drill in on a bunch of that there. We got about a minute and a half that we can play with in this particular, it goes fast and we'll restart for the next episode and we can jump back in at that point. But one of the things I really wanna jump in there with you, Melody, is this sort of financial shell game that I feel like the builders are playing with. Melody (44:06.24) Yeah. Melody (44:10.611) It does, I'm sorry. Craig Fuhr (44:28.488) permits versus contracts versus land. You mentioned that I believe in one of your most recent episodes I think it was on wealthy on so I'd love to jump into that with you. Why don't we end it here and ask everybody to jump in for what should be an even better conversation on the next episode. This is Real Investor Radio and we're coming back on the next episode with Melody Wright so come on right back, we'll see you then.