Hello, my friends and welcome to another episode of Passive Real Estate Investing. I’m your host Marco Santarelli while I’m really excited about our guest to today, Mr. John Burns, he is a wealth of knowledge when it comes to housing and the economy and what is going on across the country in terms of demographics trends and everything else. That’s related to things that we’re interested in as real estate investors. So today I’m gonna have a conversation with him about the US housing market, the past present future. We are gonna talk about trends and discuss things such as interest rates appreciation. What is going on in terms of COVID debt, income ratios, appreciation rates, the tipping point that may happen in the housing market and how that might affect you and how to prepare for that. So it’s all a good conversation in today’s interview. So with that, we’re going to slide right in and talk to Mr. John Burns.
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It is an honor. And my pleasure to welcome John Burns to the show. John is the founder and CEO of John Burns Real Estate Consulting, a firm that is helping business executives make informed housing industry, investment decisions. And John also, co-authored an amazing easing book called Big Shifts Ahead. A book that was written to make demographic trends easier, to understand, quantify and anticipate. And I’m telling you, it’s a fantastic book for real estate investors. I’m holding a copy of it. In my hand right here, I highly recommend you pick up a copy. It’s only about six years ago that he wrote the book, but so much of it is still applicable to day. And it gives you a phenomenal understanding of demographics and what’s going on in the country as it relates to the economy and housing. So with that, John, welcome to the show.
Thanks Marco. Great to be here.
Well, I’m excited to have you on, because I’ve been looking forward to this interview for a long time. I’ve got about 10 questions or so not a lot, but I know that you literally talk forever about some of the stuff cuz the depth of your knowledge is amazing. Let’s just begin with a little bit about John Burns Real Estate Consulting. So people understand who they’re listening to before we dive in, just tell our audience a little bit about John Burns Real Estate.
I started it a little over 20 years ago because I realized well at the time, actually it was hard to go get the data and figure out what was going on in the housing market. Over 20 years, it’s changed to there being too much data, which, which you figure it out for me. But the commercial real estate industry was so sophisticated. They had their own research and it was easy to do cuz the buildings don’t move around residentials a lot harder. So I just saw an opportunity to create a research department that everybody could use. And as long as I’m charging them you know, less than the cost of a person, it’s hugely economical to them. And then we do supplement it with a consulting business. So we’ve got about 110 people, half of other than operations half are figuring out the housing market for our subscribers and the other half are doing consulting projects, very focused on new home development and growing in the building products in the single-family rental space.
Actually an amazing thing about your company is you have people scattered all over the country, even though you’re based in Irvine, California, which just 15 minutes north of where I’m sitting. You’ve got people from Hawaii to Florida. It’s amazing.
During COVID we had one go to England and one go to New Zealand and they’re still with us.
Congratulations!
Home thing pretty well.
That’s very cool. I love it. So let’s just start big picture here. You know, we’ve now had about two years of COVID and it’s affected us in so many different ways. And aside from, you know, all the health related issues and problems that that’s caused, it’s really affected supply chain, it’s affected migration patterns it’s affected the labor market. To what degree do you think this is still impacting the US economy and to, I guess a lesser degree housing.
Yeah. I, I don’t think it was the decease as much itself that that caused a lot of this. Although that was probably part of it. You know, in, in the book you pointed out, we, we talked about the four big influencers, the government policy, the economy, new technologies and societal shifts, none of which any of us can control, but government policy here has been massive. I mean, we got 5 trillion worth of stimulus, which is multiples of multiples of what the Fed did over the unprecedented stimulus in the great financial crisis. I think that that saved the day. I think part of that stimulus pulled rates way down, had two impacts on the industry. So first of all, it made it easier for people to buy a home. And then secondly, housing became an investment option for all these people that were looking for yield somewhere and couldn’t find it anywhere. You know, housing just became the trade of the year or a couple years at this point. I mean what’s yielding well and is an inflation hedge at the same time. Yeah. Yeah. I can’t think of anything else. I, and so that’s why the money has just been flowing in.
Well, as far as I know, investment real estate is not only the most historically favored asset class, but it is also the best hedge against inflation. And I’m not talking about crypto here at the moment. I’m just saying as far as all other investments in asset classes, real estate still is, you know, one of the best, if not the best hedges against inflation. And that’s why it’s still so popular, but you brought up a good point. You know, you mentioned how much burn creation there has been. And we’ve seen just unbelievable tremendous amount of currency creation over the last two years. I mean, we used to just look in awe at the 800 billion that was on the Fed balance sheet back in 2008, 2009, after the great recession today, we’ve got correct me if I’m wrong, approximately what 9 trillion on the Fed balance sheet and whopping 2 trillion of that is our mortgage back securities. How is that gonna impact the economy going forward? Because that’s a lot.
Yeah, I, you know, and I I’ve been going back and forth with the guy who follows the Fed from the wall street journal this whole time. I understand why the Fed started buying mortgage back securities, the great financial crisis, why they never unwound that never made any sense to me at all. And you know, everybody’s complaining about 20% price appreciation. Well, if the Fed would’ve just unwound that rate rates, would’ve gone up a bit. Maybe we would’ve had tent, which still would’ve been great. Now they’re talking about unwinding. It we’ll see, there was a Fed person who put out a piece that if they got out altogether, it would cause rates to go up 150 basis points. Now that’s been somewhat panned. So I’m not sure if that’s true or not, but that’s what I mean. This government policy that none of us could have predicted has worked out favorably for housing and maybe they’ll have a policy tomorrow that won’t work out so favorably. So you just gotta, you gotta watch it carefully.
Well, I guess there’s an argument to be made that we don’t live in a true free market. You know, it is constantly manipulated. And I guess you could also argue that the Fed is painted themselves into a corner where they have to do what they’re doing or they’re gonna force the economy into a recession. Right?
I, I think the Fed is paying themselves in the corner. I think, I think what doesn’t get said enough is that fiscal policy has painted them in too.
Yeah. That’s a good point as well. Yeah.
I’ve never seen this before in my career. So I’m reading as much as I can to understand it. Most of my clients, some of the people that just some of the most famed investors out there tell me that worldwide income producing real estate is their strongest conviction right now.
Yeah, I would agree. So based on the path that we’re on and what the Fed is doing both fiscal and monetary policy, if we stay on this course, could it lead to a recession and if you think it’s gonna lead to a recession, you think that’s gonna happen in the next year or two. I mean, what do you see on the horizon here?
For over a year now we’ve been calling this the high risk high reward part of the cycle. So usually at the end of the cycle, things start to look really frothy and people start throwing out the housing bubble and, and those, and I think we are to that stage, but trying to call the timing of that is you, you never will call it right. And actually at that stage historically, that’s when the most money is made too. So it’s almost like, you know, like a Ponzi scheme or a pump and dump. You just don’t want to be the last one in. That’s how I see it. I think it’s an extremely risky time for the us economy. I’m concerned about all the debt, not just on the government balance sheet, but on everybody else’s balance sheet, because everybody’s been loading up on debt because it’s been so cheap and I’m far more concerned about a recession. I’m glad you brought that up than I am rising rates because historically when rates have risen pretty significantly and the economy’s still growing, it doesn’t hurt that much, but it’s, it’s when the economy stops growing that things will get ugly.
So what you’re saying is there’s a tipping point somewhere, but you don’t know where that, I mean, I don’t know if anybody knows.
Well, you know, we went back and lasted the looked at the last 13 Fed rate cycles and nine times it resulted in a recession. The, the 13 times they started increasing rates. I saw, I think Gary Shilling said it was 11 out of the glass 12, so maybe there’s some disagreement there, but the bottom line is usually when the Fed is doing that. It usually results in a recession. I think people interpret it, that the Fed caused the recession. I think things are in place that are, that are, it usually involves too much debt that, that the Fed’s trying to cool it off and make the recession less mild is how I usually see it. And I think the Fed is telegraphing very carefully. They think things need to cool off. This is ridiculous. We’re gonna try and cool it. And we’re gonna try and do it in a way where the economy does not collapse. And I hope the, they pull it off.
Yeah. So I think there are a lot more people out there thinking about inflation than they are thinking about recessions and they go hand in hand. But based on that, you know, we’ve seen an unbelievable amount of inflation over the last couple years. I believe you had a chart that averaged it out to about 7% with, you know, energy gasoline being at the top of that chart in the 32% range. But there was just a lot of inflation across the board from food to clothing and housing and everything else. I think a lot of people are concerned about inflation and I don’t have a crystal ball. I would imagine that inflation is probably gonna taper down this year. But if I was to ask you what your prediction is for real rates of an inflation over the next 12 to 24 months, what would your prediction be?
You know, I, I don’t really have one because I threw up that chart because it’s been so different in the auto industry and in the housing industry and in the oil and gas industry and the lumber industry than it’s been in many other industries where there’s been very little so. And I think about it, you know, from a consumer standpoint, if you own a home, your housing costs haven’t really gone up at all. Cause you gotta fixed rate mortgage and maybe you’re getting a property tax increase, but if you’re a renter, you’re getting a 12% rent bump. So I don’t like to quote one inflation number because it’s so different for those two examples.
I guess the relief for those renters that so rents go up whatever, you know, 12% or, or more at the same time, you made an interesting point that a lot of their incomes have gone up. And I believe 12% was the number on that as well. So that was almost keeping up in lockstep.
I, you know, I’ve got a lot of anecdotal data and a lot of real that incomes have grown a ton. Yeah. That data was from real page where they see all the rental applications for a huge percentage of all the apartments in the country. People are putting 12% more income on their rental application today than they were a year ago. The three publicly traded single family rental companies all disclosed that the rent to income ratios are the same as a year ago or even lower. And they’ve raised rents on new leases. More than 12%, I just got back from a CEO conference. I spent the last three days with a bunch of CEOs and I was hearing stories of 15, 20, 25% wage increases generally at the lower level. You know, then you hear Goldman Sachs and JP Morgan come out and disclose how much money they’re giving people too. None of that is showing up in the Fed data or, and the Fed speak. And I’m sure this isn’t true for everybody in America, but incomes have risen a lot.
Yeah. I don’t know what the income changes have been with. You know, people in my own portfolio, cuz I have managers managing my rentals, but I have 22 rentals in Northeast Florida. And I raised rents about 35% over the last 18 months. And I still have zero vague can see, I mean, I didn’t skip a beat and I raised rents 35%. So there’s something to be said about, you know, the inflation rates on rents going up as well as the income being able to support it. And the fact that there’s very little supply. So you have nothing to choose from, but that’s been very inflationary.
Well for me, that would, that would be, you know, if somebody went from 20% of their going to rent to 25, that’s somebody who’s taken it on the chin. But if that rent income ratio stayed at 20 and you raised 35%, that means the incomes are up 35%, that person could afford it.
The market supports it. The market dictates the rents. All our comps in the area were in lockstep with what we raised it up to. So, you know, the market could support it, which was good thing.
Yeah. But that could be temporary. So, so if the rent income ratios were going up and that was going on, I would be concerned, right. If they’re flat, I’m less concerned. That’s what real page. And the three public traded companies are saying is that rent, income ratios have not increased despite the fact that they raised rents, which is amazing.
Yeah very much so. So we’re talking about, you know, rates going up, we’re talking about inflation, what about mortgage rates? I know that they’ve started to inch up and I assume the markets have already priced that in. But do you foresee the rest of the year seeing increases in mortgage rates? I’m not talking about, you know, the Fed funds rate or anything like that.
Yeah. So the way I mean we’re not smart enough to predict interest rates, but the, you can go on our, our Bloomberg terminal does the 10 year treasury forward. And I think they moved a lot in the last week. So I, and we’re early February. So I may not be current here, but the, the they were forecasting maybe about a 50 basis point rise in 10 year treasuries this year versus last year. And why that’s important for mortgage is, is a mortgage backed securities typically pay off after 10 years because it’s a pool of 30 year mortgages and somebody pays it off after two, when they refi somebody else holds it for 30 bond holders, look at it like a 10 year security. And it usually trades at 170 basis points over the 10 year. It had been trading below that because people were so confident in housing. I’m not sure where it’s at today, but that’s my long-winded answer to tell your listeners to look at the 10 year treasury, look at the futures and add 170 basis points and you should be getting close to what the market expects mortgage rates to be.
So let’s talk about the fallout or impact of that because I know at one point I heard you talk about and I quote surging mortgage rates and the impact that that would cause can you give a quick overview of how that would impact the market’s housing people?
So in my 30 plus your career, now when I’ve seen mortgage rates, surge, and they’ve never surged for a super long time, what usually happens is sales actually increase here because there’s FOMO like, oh my God, I’m not gonna be able to own this house I gotta get in. And then you kind of get through that FOMO period. And then you get people saying, well, wait a minute, I need to, to these new prices, or I wonder if it’s gonna come back down. I usually see a bit of a pause then. And then if they don’t come back down pretty quickly, what people do is they adjust their expectations. So I’m just gonna have to buy a smaller house or I’m have to drive five to 10 minutes further from work where it’s a little less expensive. That’s usually the progression I will add though, is that the stocks, the industry stocks tend to react violently to moves and mortgage rates. That’s not the market, that’s the stock market. And there’s probably some good reasons for somebody to pull their money outta housing and put it into another sector when they see that happening. And that cause is that. But I think particularly the wall street journal and the business press confuses that with what’s actually going on in the market. And that’s the case.
What about the impact on people who are just wanting to get into the housing market, new homeowners, you know, those who are aspiring to get in there?
Yeah. Well, at the very bottom it prices people out. Yeah. You know, it way below the median new home price where somebody was hoping to buy one of the least expensive homes, they could no longer do it. So you that’s where you’ll see the damage. And then it’ll trickle up a little bit to just forcing people to buy something a little bit less expensive. In my experience, it it’s rarely cause a price decline. When the economy’s growing, if the economy slows, you know, bets are off.
I guess the flip side of that is the benefit for landlords and people who own rental real estate is it puts more demand or pressure in the rental market. So we have higher rental demand. So that pushes prices up as oil is it gives you a, a larger pool of potential tenants to draw from, right?
No, that’s exactly right there. Be there’s less people transferring from renter to owning, which is good for rental units.
Yeah. So it’s been crazy to see the incredible appreciation rates over the last year. And I’m speaking nationwide, obviously all real estate is local. It has to be, you know, market specific, but it was like 19.6%. Let’s call it 20%. And a lot of that was driven because of supply and demand. It’s just very much out of balance. Can you comment on that? What do you have to say about this whole supply and demand imbalance? I mean, this has been going on for years. So what do you have to say about it?
I’m glad you prefaced it with that. So people that have rules of thumb on normal months of supply of being maybe six months, nationally, maybe four to five months in a healthy market, I think that’s come down two months permanently. Wow. Due to technology, you know, I used to call an agent two weeks later, we’d have the open house. I mean, things were on the market for a long time. Now I call an agent, they take some photos, they put it up on the internet, you got seven offices. We could be talking about hours of supply. Right. so, but that’s been a technology change permanently cuz you’re right. We had very low supply. Like Sacramento has less than two months of supply home prices were not growing that much. Cuz that was the new norm in Sacramento for a while. I actually think there’s a lot of really bad data out there.
Some, some huge errors and calculation about the undersupply in the country. But the bottom line is I’ll just get to it is I, I don’t think we were undersupplied at all nationally until about 20 and since 2019 we’ve been undersupplied we, we think, and, and part of this has been due to a surge in household formation that was caused by COVID and the ability to work from home, which allowed me to relocate. So we think we’re undersupplied if you look at the, how many households should be occupied, given the number of people we have are, are headed by somebody. We think we’re undersupplied by about 1.7 million units, but that’s a normal affordability because when you raise prices, a million, seven, people can’t afford to own a rent. You, you price some of those people out. So I think it’s less than that. I, I hear people running around quoting the five to 6 million number, which I’d have to give a 15 minute presentation on that, but it’s wrong.
And so that’s the supply related to shelter. And the home builders have had a really tough time bringing it to Marco. We just finished our home builder survey. We surveyed about 20% of all the home sold in the country at the local level. And they’re telling us it’s taking nine weeks longer to build a than it did a year ago. So it’s just, they’re we’re not bringing the new supply to the market. Our business has been booming, helping guys buy land though. So it’s coming and I think there’s been some people out there saying we’re going to oversupply the market at some point. And I would agree with that. It’s just not right now. The other side of the supply, which has nothing to do with shelter is just how many people are trying to buy something and how many people are selling it. And that’s the months of supply I told you earlier, that’s permanently two months lower than it always, but it’s just been insanely low now primarily because there’s not that many sellers and you have a surge consumers that are buying. And I, I wanna talk about relocation. Let me talk about investors first though. So you have surgeon consumers, but you simultaneously have a surgeon investors who I know are getting pooed and why are they doing this? And they keep calling it wall street. But I mean, wall street is just a small fraction of what’s going on out there. It’s it’s mostly the, and they don’t get that.
It’s like 5%, isn’t it of all housing purchases.
It’s not even that it’s between two and three. Okay. The big guys, because as you know, all your listeners probably are not that group. And they’re all they’re doing this.
They’re not I buyers, right?
No, but it it’s people that are looking for you yield in a world where there’s no yield for some, it’s probably a home price appreciation play. And there’s a lot of fix and flippers out there who realize there’s a lot of ratty old homes that are, will be worth a lot more based on their location. If someone would just clean it up and I know how to clean it up. So that’s a big business opportunity. And technology has enabled all these investors, frankly, you could be sitting in your desk and buy a home anywhere on the country right now you can even invest in portfolios of homes, starting with a hundred dollars.
And that was not available 10 years ago. So that’s caused the investor surge. But on the consumer side, the one thing that is getting very under reported Marco, this great relocation and, and work from home isn’t affordability solution for a lot of people, it’s allowed me to say, you know what? We’re never gonna buy out there cuz I couldn’t stomach the commute five days now. I’m pretty confident. I’m only gonna need to do a two or three so we can buy. Or my boss has said, you know, I don’t, boy, you’ve just killed it. The last 18 months live wherever you, you want. That’s created a ton of demand. And I do think that’s permanent, but there’s a surge going on right now that at some point it’ll slow down.
Interesting perspective. I never really stopped to think about the mobility being a solution to affordability. I mean, it makes complete sense, but you don’t really think about it that way. You think about a affordability in terms of price and interest rates. Not so much about mobility.
Yeah. The poster child for this is Austin, Texas. I think most of it is, is staying local and moving a little further away. But Austin prices were up, I think 40% last year. Yeah. And some good data that we have show that they have some of the lowest debt income rates in the country because people are moving from Silicon valley.
Yeah. Yeah. I mean I saw that stat and I was impressed. I never expected it. Right. I’m trying to wrap my head around this whole, you know, two month of supply being the new norm. Are you saying that it’s two months less from what we used to say is six months being equilibrium. Yeah. So now four months of supply is equilibrium.
Two months. It’s less than it used to be. So nationally it used to be six. Now it’s four. But in a lot of vibrant markets like in California, it used to be four. Now it’s probably two.
Okay. So let me close the loop on something we were talking about before in terms of mortgage rates. And I mentioned tipping point, if there is a tipping point when it comes to mortgage rates that would affect the housing market for or a correction, what do you think that might be? I know that’s a hard question to answer.
I mean, it really is a sliding scale cuz every 10 basis points kick somebody out of the market. I think the bigger issue is more the move up market. So when homeowners go buy another home, Hey, we’re sitting on this home that maybe we don’t love at a 3% mortgage. Am I gonna go get a nicer home at a 4% mortgage? That’s a really expensive move. And I think it’s less of an issue right now because you made so much money on your current home you’re okay. But someday in the future, when we to you know, home prices going up four or 5%, that’s not gonna be the case. You know, I’ll say four, I think will really slow some of that move up activity. But I, I don’t think there’s some sort of a cliff for other than I believe there’s kind of a psychological cliff for people to say, I gotta give up my two something or three something and get a four something. Right. Cause a lot of remodeling is what it would cause.
Yeah. Yeah. And that’s been going on for years and even myself, I’m doing it right now. So our listeners really like to hear from different guests about appreciation, forecasts as difficult they may be and rent growth forecasts. I know you do a lot of analysis on this and you have data and, and I’ve seen some of it. But in terms of a price appreciation forecast, what would you say is in for 2022 on both new construction and resale homes.
We do it by market cuz it varies by market. I’ll just say we’re in the high single digits for this year, which was, I think we were at nine last year, which was the most bullish and we turned out to be wage too low. But I think more importantly, I wouldn’t do anything with that number. I would realize we’re in the high risk, high reward part of the cycle. And so I’m forecasting that this high risk cycle continues for the end of the year, you know, but I’m not telling people lever up and we’re going to the moon cuz that’s that’s how you’re gonna get in trouble.
No, you have to invest intelligently and prudently. You have to be in the right market, the right neighborhood, the right property with the right cash flows, the right team. You know, it has to check all the boxes.
Well and you need to be able to withstand a recession is how I view it. I mean, you know, unless you’re really into taking big risks or just think you can get out faster than everybody else, which is fine. At some point we’re going to have a recession. You should just always keep that in the back of your mind with whatever you’re doing, whether it’s stocks, bonds, or housing or whatever.
Okay. So I have my answer to the question of how do you resist or brace yourself to live through or survive through a recession. I’m gonna ask you that question. I’m not gonna tell you what I’m thinking. I’m curious to know how you do that because probably people listening to you right now are saying well, okay, how, how do I protect myself from a recession?
Well, what you would not wanna do is you would not wanna be if you’re invested in housing in rental homes, which I guess a lot of your, your clients do in a less desirable submarket when people can now afford to live in a better submarket, all the demand is gonna go to a better submarket. So you’d want to be in a better location for that reason, even though it’s more expensive today, you would also want to avoid areas of high, new home construction. Because if you’ve got 300 brand new homes that are empty around you, there’s gonna be a hell of a lot of discounting going on around you versus in a low supply market. And then, you know, depending on where you are, there’s certain job sectors that are more volatile than others. If you’re in a tech market, you’re take more risk than if you’re banking on healthcare workers who are gonna be there all the time. So there’s a lot of things to think through. And then the last one would just be to make sure you can cover your debt service.
Yeah. To me, I put that at the top of the list, actually that’s my number one criteria.
Well, I do agree with that, but some of those other things will impact whether or not you can cut your debt.
Yeah, true. So, you know, for me it’s about jobs, job growth, population growth in an area, the desirability of the area neighborhood, of course the cash flow and the debt service coverage. Those are the boxes that I look to check whenever I’m looking for resilience in a particular investment.
You know, we do not have of subprime mortgages this cycle. The mortgages seem to be very pristine. I get asked a lot. What about areas with heavy investors when investors just stop making their payments and blow out and let it go to foreclosure. And I don’t know. So that’s something for your audience to think about.
So as I leave that area and just get to my last two questions for you, I, I out a tangent question to ask you, why do you think my buddy Doug Duncan is so bullish and optimistic from Fannie Mae about, you know, this year’s market appreciation.
Well, so am I, so I, I just say, cuz Doug’s a smart guy.
He’s more bullish than anybody I’ve seen though.
Yeah. I, last time I saw his forecast, he was maybe percent more than us.
Oh, that’s it. I thought it was much more than that.
Frankly. I think Doug I’ve known Doug for a super long time and you think he may be a puppet of Fannie Mae cuz that’s where he works or something like that. No, he’s not Doug calls it, like he sees it and that’s what he sees in the cards. And I think he’s seeing a lot of the same things I am.
Yeah. I think it was forecasting something like 13 point something, maybe 14% this year.
I never saw that.
Yeah. And I may be wrong. Don’t quote me on that. I just recall seeing it somewhere and I might be wrong on that.
That’s not crazy. I mean, if the economy continues growing and even if the Fed is raising rates here because of inflation, there’s gonna to be more investor money pouring in, he may be banking on investors, your audience continuing to invest. And that sounds like that’s where we’re headed right now.
And correct me if I’m wrong, but there’s trillions of dollars sitting out there in deployable capital from savings to and whatnot.
Yeah. No and I’m sure those people pulling money outta the stock market or outta crypto and looking to diversify from those things. And now there’s all these online sources where you can invest in a portfolio of homes and collect a yield and frankly do some pretty good research on it, sitting at, in your desk and saying, okay, well this looks like a really good city and a good property manager and count me in.
Speaker 2 ([spp-timestamp time=”29:45″]):
Yeah. Interesting. Okay. So let’s wrap up with two questions. As I mentioned before, our audience is made up of a wide array of people, both in the industry and out of the industry, but mom and pops all the way through professional and seasoned investors that hold very large portfolios. The first thing I’d like to ask, and I think a lot of people are wanting to know this is just based on market conditions right now. And the trends that you see, what would you as an investor, keep a watchful eye on going forward this year and into 2023 as a real estate investor.
Our reports in every metric area are 70 pages long. So it’s hard for me to pick one or two but
40,000 foot level.
It’s the economy stupid, right? It’s it? Yeah. You said earlier it’s jobs, as long as the economy’s growing, I think we’re gonna be fine. But the one thing people don’t talk about is leverage and a additional stock market collapse. We have the highest borrowing ever against stock portfolios. That’s got, got more margin calls and, and then you’re gonna find out some bank you hadn’t thought about own these securities. That’s what causes really nasty collapses. So watch for leverage debt.
So don’t be over-leveraged and I would assume that that is irresponsible. Leverage, not good debt.
Actually, I’m talking about other of people’s leverage, oh, you know, it’s other people’s debt that causes banks to fail and causes government bailouts of LTCM and failing out AIG. And you know, I know there’s at least one insurance company that’s lending against people’s crypto accounts. Yeah. That’s what keeps me up at night and that was going on at and mortgages last cycle, other industries, this like, but it could tip the economy just like mortgages did.
So do you think we’re on that path and are we in a danger zone?
I do think we’re in a danger zone.
Interesting.
I mean the, the highest level of borrowing against stock market ever this thirst for yield is causing all sorts of securitization. I saw Unison just announced that, you know, they co-invest with people in their home and their home equity. They just securitize that Toorak Capital is securitizing fix and flip loans. And, and these are just my, our industry and I’m sure those are being done very well, but people are securitizing loans to anything because people are just screaming for a 5% or higher yield. And that could end badly when those principal doesn’t get repaid.
Yeah. Well they’re screaming for yield and they’re very bullish. Everybody is very optimistic as far as I can tell. And so they’re willing to take on more risk and push the envelope.
It seems that way, particularly the under 35 crowd who really has never been an adult through one of these. So, you know, maybe they’re all saying, oh, he’s just an old foggy. He doesn’t get it. But you know, I was that age too, and I didn’t get it and I got it later. So
Yeah, me too twice. I mean, we all have to fall on our face in order to learn the lesson. Right. Experience is the best teacher.
There is some truth in some of this that’s going on, that’s changing the game. Yeah, but not all of all right.
My last question as a real estate investor, again, are there certain regions in the country or even markets that you’d be focused on more so than others right now?
So wall street is very averse to markets. You can’t fly in direct from New York. That’s my simple way of saying it. So I think there’s less competition in the Huntsville Alabamas and the Chatanooga Tennessee and places like that. We’re seeing a lot of money pivot there, a yield oriented money pivot there because the cap rates are better. And yeah, the growth story isn’t quite the same, but the dynamic is better. That being said, all the high growth markets are the big markets in the south that everybody is investing in. I do believe the Phoenixes and the Austins and the Dallases and the Orlandos and Atlantas are gonna be the big growth markets. They’re just so competitive right now. I see people pivoting to smaller markets for safety.
Yeah. I would say so too. And my concern with some of those markets is an overbuilding of supply in the years to come that will soften the market because there’s just too much inventory.
Yeah. Particularly on this build for rent.
Yeah. Absolutely.
Just a lot of going down.
Definitely. Well, John, your wealth of information, I love your content. I’m a happy client and keep up the good work again, you know, to my audience, definitely pick up a copy of Big Shifts Ahead. Great book share with our listeners where they can learn more about John Burns, real estate consulting and the things you do and your book and whatever else.
Okay. Well, our website is realestateconsulting.com. We pretty much have everything up there. You can learn about our research services like Marco is doing, or if you’ve got a big development project or you’re buying a big company, our consulting company can help you with that as well.
Perfect. We’ll put that in the show notes as well. And thank you for taking the time to come on today. I’m sure we’ll probably ask you to come back on in a year or so, and you know, just see how the market has changed, but thank you for taking the time today, John.
Yeah, my pleasure Marco.
Well, I hope you enjoyed that episode, John and his team are a wealth of information and you know, I’ve been looking forward to getting him on the show for a while now he’s super, super busy. So I’m appreciative of the fact that he took the time to come on today. But with that again, you know, if you’re in the market for real estate and you are looking at what markets make the most sense, you know, by all means contact our team. We can share whatever information you need in order to make a prudent decision on choosing a market. Remember we have a free guide that you can download off our website called The Ultimate Guide to Passive Real Estate Investing. There is no obligation. It’s been downloaded tens of thousands of times, just go to our website at noradarealestate.com or passiverealestateinvesting.com. Either one will work and you can just download it right there.
And as far as contacting my team, just set up a free strategy session from the contact form on our website. If you have questions about real estate investing, shoot them over to me, click the Ask Marco button at the top of the passiverealestateinvesting.com website. I read every one of them. I batch them and then I’ll cover them on one of my Ask Marco episodes. So I look forward to your questions. If you haven’t already subscribed, please remember to do so. That way you never miss a future episode. And that is it for today. Thank you for tuning in and listening. And we will see you all on our next episode.
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