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Mike Simonsen

A true data geek, Mike founded Altos Research in 2006 to bring data and insight on the U.S. housing market to those who need it most. The company now serves the largest Wall Street investment firms, banks, and tens of thousands of real estate professionals around the country.

In this episode of the Top of Mind podcast, Mike Simonsen sits down with Jay Parsons, VP, Head of Economics and Industry Principals for RealPage, to talk about what’s happening in the rental market. Jay explains how the rental market and housing market are interrelated, gives his take on which rental policies work, and shares leading indicators he’s watching to stay on top of the market in 2023.

About Jay Parsons

Jay Parsons

Jay Parsons serves as VP, Head of Economics and Industry Principals for RealPage. He is a frequent author and speaker on topics including rental housing investment and asset management strategy, rental housing policy issues, risk management, and property management — covering apartments and single-family rentals. Jay has been cited in the Wall Street Journal, Bloomberg, and CNBC, among other outlets. His commentaries have been published by the Pension Real Estate Association, the Mortgage Bankers Association, the National Apartment Association, American Banker, and GlobeSt.

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Here’s a glimpse of what you’ll learn: 

  • Why the rental market is often misunderstood
  • How rents will impact inflation and the CPI for the next year
  • How home prices and rental prices are interrelated
  • Why the surging supply of new construction may not help renter costs any time soon
  • What to expect for rents in 2023

Resources mentioned in this episode:

About Altos Research

The Top of Mind Podcast is produced by Altos Research.

Each week, Altos tracks every home for sale in the country - all the pricing, and all the changes in pricing - and synthesizes those analytics to make them available before becoming visible through traditional channels.

Schedule a demo to see Altos in action. You can also get a copy of our free eBook: How To Use Market Data to Build Your Real Estate Business.

Episode Transcript

Intro 0:02

Welcome to Top of Mind, the show where we talk to real estate industry insiders and experts about the biggest trends impacting the market today. Enjoy the show.

Mike Simonsen 0:13

Mike Simonsen here. Thanks for joining me today. Welcome to the Top of Mind podcast. This is where I talk to the smartest leaders thinkers, doers in the real estate industry. For few years now, we've been sharing the latest market data every week in our in our altos research weekly video series. With a with a Top of Mind podcast, we're looking to add some context to the discussion about what's happening in the market from the the leaders in the industry. Each week, Altos Research tracks every home for sale in the country, we track all the pricing, supply and demand we do all those analytics, all those changes in that data. We make it available to you before you see it in the traditional channels. People desperately need to know what's happening in the housing market right now. It's been so crazy, so hot in the beginning part of the year that it cooled so fast, like and the landscape is maybe suddenly changing again. So you know, people ask me, like, can I get the data from my local market? The answer is yes. Go to, book a free consultation with our team, you can look at their local data, and we can talk about using market data in your business. So without further ado, though, I am happy to introduce my guest today. Jay Parsons, Jay is the VP and head of economics and industry principles at RealPage, where he analyzes the rental housing market. And renters, Jay is a frequent author and speaker on topics such as rental housing, investment and asset management strategy, rental housing policy, risk management, property management, Jay's all over the media, Wall Street Journal, and Bloomberg and CNBC. Because it's got such strong and deep insights into the rental market. So I'm looking forward to this interview. You know, we've we touch we have touched on rents and the changes in rents and the rental market in these conversations we've been having over the last year. But there's a lot of depth here. And there's some real important factors that rent is rents and the changes in rents are contributing to the overall market message for housing right now. So, Jay, thanks for joining me today.

Jay Parsons 2:26

Thanks for having me, Mike. Looking forward to it. All right,

Mike Simonsen 2:28

let's start out with for those who aren't familiar with a real page, give us a quick overview of the company and your role there.

Jay Parsons 2:36

Sure, yeah. RealPage is a software platform, prop tech for property management and property ownership primarily in rental housing. And so we have millions of units running across our platform various ways. And so great thing on my job is that because there's all this data flowing around, we are harvesting that data, and then using the aggregate data for research and market trends, and of course in forecasting and whatnot. And so it gives us a lot of great visibility into some real time rent roll trends beyond just what we see in the traditional asking rents. So it's a lot of fun.

Mike Simonsen 3:09

Yeah, that's, that's super cool. And so he you have single family homes and apartments on the platform. Is that true? Yeah. Yes.

Jay Parsons 3:19

Yes. It's it's, it's mostly, I would say, a much larger share of the apart market, although we do the single family market as unit rental market, you know, as well as anybody is very fragmented, but our market share and multifamily is quite large. And we're have a growing single family group as well.

Mike Simonsen 3:35

That's great. And so super. So that's like, that's like lease management and advertisement, all those kinds of things that that big Property Management managers need to do.

Jay Parsons 3:44

Yes, everything from your core party management and your leasing operations, marketing, pricing of units, you know, the spin management screen resident screening services, renter's insurance, and all types of all types of stuff, payments, that goes through the real page platform.

Mike Simonsen 4:00

Got it. So, so let's start there, then, like, what do we know? It's, we're recording this now near the end of September? What do we know about rents across the country right now?

Jay Parsons 4:15

Yeah, you know, the word that I've been using a lot is, is normalizing, and you know, and as we're here, you know, kind of, I think 2020 2020 22 has been a year of normalization following what we're, I don't think I have to explain this thing, but everybody knows 2020 and 2012, were just crazy years. And so, you know, when you look at kind of the real time, month or month trends, it's it's really kind of back to normal in August, for instance, we had about 0.4% rent growth month over month and that's pretty typical for August versus August 2021 was closer to 2% month over month, which is, which is a huge number for just a one month jump now, you know, I know getting more into this now, what does that mean really going forward? There's obviously a lot of question marks right now about the path ahead, but you know, all in all, you know, Look at overall leasing and demand and rents. It's really been a much more normal year after two crazy years.

Mike Simonsen 5:07

Got it? So, so rents. So rents climbed a little bit in August, which is seasonally normal. There's some, there's still a lot of moving and people like moving into the best properties at that point and things like that. Is that Is that how we look at August? Like there's a lot of activity at that time?

Jay Parsons 5:25

Yeah, August is really the end of the leasing season. And so, you know, for rental housing, your key sees that your leasing season really starts in March is probably not that I'm not an expert in the for sale housing market is probably pretty similar. On March, and then by by the time school, even though most apartment residents in particular are not going to school, have kids in school, you know, it really does follow that school years, once you get into August and September, especially late August, I think sort of slowed down in the winter months, of course, very few people are moving.

Mike Simonsen 5:56

And you also when we track we track, you know prices of homes, we can see a real strong seasonal on pricing. So we actually see pricing, pull back in, you know, October, November, December, do you see that same pattern seasonal curve in rents

Jay Parsons 6:11

went up probably rents and demand. In fact, one of the things I'm a little worried about is in 2020 2001, the postcode, the COVID era, we really saw what I would call like a de seasonality effect, because of the craziness of the pandemic, where from home movement, you know, working from anywhere moving around. And so I think this will be the first year that we see seasonality return, which could mean some, you know, negative absorption, negative demand, and also negative rents. But, you know, if those numbers are mild, I think that's actually a good sign of a healthy market. That's what typically happens. There's slightly negative absorption, slightly negative rent cuts to stimulate a little bit demand and the slow months. And so if that happens, I would I hope people avoid sort of a panic view, just because, you know, everybody remembers kind of the short term, but our memories can be kind of short, but as long as they don't see big cuts, you know, that would actually be a pretty good sign.

Mike Simonsen 7:02

Yeah. Okay. So that so in that way, it mirrors exactly the the for sale market, the D seasonality that happened, it actually, I got all kinds of questions to come to about, like, what what we're seeing right now, but But this brings up a thing that that comes up from time to time. And I wonder if you have a take on it, which is and I was talking with a reporter recently, who was asking about, you know, trends and and purchase trends. And, and she was sort of assuming that there is a trade off that it's they're substitutes so that if if demand for homes falls to buy, rents would increase and vice versa. And so people are more people are moving to buy homes than rents would decrease. We haven't observed. I don't I have never observed I've actually observed a both moving in tandem. So like, it's like household formation. That is that's happening. And so people are either they're buying and they're renting at the same time. And that so, you know, during COVID, same thing de seasonality happened, like people were doing every they're moving out. They were buying, they were renting, we were in we're in growth mode. Do you over time, have a view on it? Like is that? does that jive with your view?

Jay Parsons 8:21

Absolutely. And you and I think like, you know, you're right, it's a rising tide lifts all ships effect. And the only time we really didn't see that, historically was during the foreclosure crisis and the GFC. And in the early stages of the economic recovery that began in 2010, we did see rental demand come back very quickly. And not just from you know, other time I remember saying you play over this, it's like every got foreclosed upon is going out to rent, it really was more of a household formation story among what at the time was the young adult Millennials going out? And you know, at that point, renting apartments, and of course, we saw some single family rental demand as well. But you know, that other than that very kind of weird period, which I would say was, you know, obviously, there was some structural problems with the forsale housing market at the time that had nothing to do with actual demand, you know, or household formation, I should say, we typically see them behaving in tandem. And I think, right now, what is happening, my view is that we're seeing moderate slowing demand for all types of housing. And I think, you know, people ask that question a lot is, hey, are rising rates impacting rental demand, and it's not so much a direct impact as much as that as homes get more expensive, as rates go up, as as inflation is roaring, that impacts the overall consumer sentiment, consumer confidence, and you think about it, if you don't feel secure in the economy, or in your situation? Are you worried about buying at the peak running at peak rents? Your natural reaction is to wait and see. I'm going to wait it out. I'm going to you know, ride it out. And so I think what we're seeing right now is just is just a lot of uncertainty. And that's leading to kind of a not a total freeze, but definitely a slowdown in demand.

Mike Simonsen 9:58

Yeah, That's That's exactly the way I view it. It's the the, that uncertainty is it actually undermines under underestimates, like how much cash there is out there. Like, I'm just going to hold on to my cash and wait. That's interesting. So the 2010 recovery so you guys can see in 2010, you could see signals of apartment recovery early in 2010. Is that right? You can see that in there.

Jay Parsons 10:25

Yeah, 2010 was a big year for apartment demand. They took awhile for rents to get back up after some pretty big cuts, but no it, it surged up. And a lot of that was you know, that the time, you know, it's funny to think about millennials are now like the homebuyer generation. Oh, back in 2010. You know, they were all in their early to mid 20s. And you know, and they were out going out and renting their first apartments and they won't be in the room. And when we mom and dad anymore. So that was a big tidal wave at the time that really boosted the upward market.

Mike Simonsen 10:53

That's fascinating. Because in the Altos data, one of the things that we watched in 2010 was there was a the 2009, there was a first time homebuyer tax credit. And it expired April of 2010. And what happened was it pulled demand purchase demand forward into the first quarter. And so the second part of 2010 looked like there's no housing demand. But there actually was because it had pulled forward. And then what we were able to watch in, in 2011, was we could watch the demand. Now there's absent any incentive. Now we could watch January 2011, demand for home purchases start fresh for the year. And so it was like mirroring that. And it's really that's a full year before the the traditional measures, you know, the Case Shiller types were were registering it were like they were January 2012. But you can really see it already, in January 2011. It meanwhile, the headlines were all we're all still super Armageddon, right? Things are crashing again. And it was, it's really fascinating, because they were still looking at, you know, at the end of 2020 10. So it's neat to to know that you were able to really track that as a as a boom year. And I want to ask

Jay Parsons 12:19

anybody just about 2010 as well before, so I did not know that. And actually, it makes the it makes the theory both have around the relationship even more powerful that you saw that even then as well.

Mike Simonsen 12:29

Yeah, they're like they're like, precisely tied to each other. Yeah, that's really fascinating. And it's gonna be fascinating to see like, next, like, next January, you know, what, what is what are people doing? Are we are even more afraid of a recession hitting, are we or are we repast that are like, where's the demand next January is a really pivotal time, in my view, like, I'm looking forward to seeing how the market responds in that moment. And we'll be it'll be fun to to visit both of the stats at the same time.

Jay Parsons 13:02

I completely agree. And I know that the hard thing about where we are right now is we're going into the seasonally slow months that everyone's going to read into way too much, but I'm with you, I think we really aren't going to know I've been kind of saying march for Reynolds, but maybe it'll be earlier but like, I think we don't we don't we don't really know the situation until the normal leasing season or buying season starts up again. And that's the part that's a little bit frustrating.

Mike Simonsen 13:27

Because yeah, right. There's, there's all kinds of conjecture. There's all kinds of like, oh, well, people, they're going to be, you know, the economy is going to tank or the, you know, the yield curves inverted. So these things are going to happen, but they haven't happened yet. And there's a lot of variables in the world. And it's going to be really fascinating to see what what how the year shapes up. Yeah, that's really cool. Do you have in your data, any leading indicators that you look at or like forecasting, things that that you lean on? Yeah, there's

Jay Parsons 13:58

a few things we look at one of those is we look at leasing traffic. And so we can look at our people who visit a property and a visit could be a virtual visit, it could be an in person visit, it could be a phone call, could be a chat on the website, things like that. And and, you know, those numbers are below where they were not only last year, but also, you know, we had expected to see numbers more like 2019 and they're a little bit below that as well. So that's been they're not off the cliff, but I wouldn't say they're like depression, like, you know, recessionary bad, but they're not that strong. And other things. We look at things like retention rates, which are still high, but they are trending down. They're much higher than pre COVID. But they are trending back down you know, those this is like renewal on my lease. Yes, people percentage people who are new and expiring lease and so, you know, we can look at some of those things as early indicators as well as some of the you know, kind of real time pricing changes as well.

Mike Simonsen 14:48

All right, that's really really interesting stuff. Okay, so do you so how far did those leading The indicators fall before you start to worry, right? Like for like, yeah, you know, like worry for your customers revenue. And you know, those kinds of things like housing economy in general?

Jay Parsons 15:14

Yeah, that's a great question. You know, in hindsight, so if I go back a little bit like we first started to see the traffic number, so we go back a little bit, q1 of this year, we go, we go into the year, expecting to see numbers that look more like 2019 and 2021. That was our basically, we thought, we're gonna see still big rent growth, upper single digits, but moderating traffic and demand, you know, if it comes down a little bit still is high. But then q1 happens in q1 was still off the charts really good. It's a seasonally slow period, but it was really strong. And so in hindsight, our mistake was, we took that as a too big of a sign for what's going to happen the rest of the year. And so it did start to slow down in the second half of q2, like May, June timeframe, when you really started usually see a big ramp up. It didn't happen. And so at that point, I was like, Alright, did we pull forward some demands into the winter months, we've seen this DC seasonality effect. And so it kind of went back to the Hey, it's that normalization, this is what you know, I think we got a little ahead of our skis a little bit in the first quarter. And then and then it was really like, Hey, look at not your year over year comparison, everybody in rental housing, you know, because it's operations you're looking at this year versus last year. And so it's telling our, you know, our customers, hey, don't look at last year as a comparison point. It's an unfair comparison. It's not a it's not a realistic one. Look at 2019 Look at 2018. And, you know, as we get more into the summer, and now into the fall, you know, I think the tone has changed a little bit where, you know, it's still normalizing, I think it's been good. But it's more, I would say just cautionary, as well, because of the big drops in consumer sentiment, because of what's going on with inflation and the foresail housing market, I always tell people in rental housing, we shouldn't be cheering on a strong Forrestdale housing market, because there's a lot of of good impacts the economy that come whether it's correlated or cause it or whatever, there's, we have parentals do well, when Forest Hill market does well. And so all of these things happening is certainly created some cloudiness in the market. So the tone has definitely changed a little bit, but still generally positive, but it's more yellow flag right now.

Mike Simonsen 17:18

Got it? Yeah. The Do you have views on? On supply? So in in the for sale side, you know, we've have this crisis of shortage of inventory, available inventory. And that's both because we haven't been building very much for the last 15 years, but also because Americans more and more, keeping their homes for investment, and and renting up and, you know, we can see by some measures, probably 8 million single family homes have switched from for sale to, to rental over the last whatever decade or 12 years or so. Do you have view of that? Like, is it? So it feels like a shortage? On for sale side? What does it does it does a parallel on the rental side?

Jay Parsons 18:08

Yeah, no, it does. And there are different trends. Obviously, we we've as a percent of inventory, we obviously built a lot more particularly multifamily rentals than we have, you know, built single family homes, especially for sale. But you know, even you know, the build trend, single family home phenomenon, I mean, well, while it's gone from zero to 60, it's still kind of a drop in the bucket right now in the big picture. So but to really answer your question, I think that the chant, the greatest challenge is in probably of all types of housing is the mismatch between the where the what's being built and where the bulk of the demand really is. And so there's frankly a lot more demand for for high rent luxury rental housing from six figure households than we ever would have anticipated, that's a great sign, because that means they're not living in cheaper apartments and homes that are better suited for somebody with a lesser income. But at the same time, you know, I'm sure everyone's seen those headlines, but how were, you know, for 6 million units under supplied, you know, and that's true, but the bulk of that is really, you know, low and mid income rental supply. And that's the kind of stuff that's very difficult for the private market to build without public assistance.

Mike Simonsen 19:17

So in your view, we are we have been under building on the rental side as well.

Jay Parsons 19:22

Yes, yeah. In short, you absolutely.

Mike Simonsen 19:25

Yeah. And and that really impacts the lower income side of the equation most.

Jay Parsons 19:33

Yeah, it's, I mean, we've seen this tightness all across the market. I mean, but it's, it's most pronounced at the lower tier of the market for sure.

Mike Simonsen 19:41

Yeah. That's so fascinating. And policy wise, do you see ways to get out of that? Do you see anybody doing it, right?

Jay Parsons 19:57

Yeah, no, it's a great topic. And you know, I'll tell you, I love The topic of housing policy because it's not your typical kind of red and blue party line, you know, kind of stuff like Welcome

Mike Simonsen 20:07

to our geeky little corner of the internet. Yes. It's,

Jay Parsons 20:11

it's, it's much more of a, like a fair debate. You know, it's not we're not in our camps. And yeah, and you know, you see that, especially on Twitter, it's like the NBA is the NIMBYs like, and they crossed party lines, both groups, and I love it, you know, because it just makes it much more unpredictable, but also fun. And so I'll give you an example. You know, you know, on the on the policy side, you know, you have, you know, all three, you have the Senate and the House and the White House all controlled by the Democrats. And you have a democratic White House, that proposed infrastructure plan that includes billions for housing creation, particularly affordable housing creation, and the House and the Senate still can't pass it. And and it's it's it's, it's, it's really unfortunate. I mean, that well, at the end of the day is there's been we're in an era where the focus is on tenant protections, rent control, eviction moratoria, things like this, you know, and regardless of review on these topics, they don't actually create any supply. And that's the big problem. And I think a lot of times have to explain it goes, Hey, like, no matter what you're doing on those issues, you need to know that you're not actually you're putting band aids on a problem, you're actually addressing the root issue, which is you need more supply. So that's funding affordable housing. And that could be through public private partnerships, such as the Low Income Housing Tax Credit program, it could be, you know, expanded voucher programs, rental assistance programs, there's lots of ways to do it. But the end of the day is, you know, we need more of it. And the only way to do it is with some, you know, public financing or tax credits that can make it financially feasible for the private sector to achieve it.

Mike Simonsen 21:45

Yeah. And that's a that's a great point. It's really fascinating. And I think about that policy, where you say, you know, we're in a protection mode, whether it's eviction moratorium or, you know, forbearance, like an all of the laws in the country, all the policies designed to protect the person already in the space. Yeah, and and that is to the detriment of the people that don't have one yet.

Jay Parsons 22:13

You're right, there was a great study done by an economist at Stanford, that studied rent control in San Francisco, pre COVID. And what she basically determined that is that rent control in particular was a tremendous benefit to those who are already in place, but came at a tremendous cost to a far greater number of future renters and everybody who moved in, and especially to low income renters, because everything gets built is now super, super expensive, catering to high income households. And that all in the those who are occupying lower rent households, relevant units are now incentivized to never move. And so if you have a low or moderate income, and we see the issue now, there's shortages for you know, they can't get teachers to be able to live in the city firefighters and police officers, you know, in blocked, it has a blockout effect. And so again, the other day is, you know, one of my concerns in these topics is that I think it gives local policymakers a false sense of achievement. It's like, Oh, we've solved this problem. And it's like, Matt, no, you haven't, you got to build supply. Like, you know, the more supply you build, the less relevant these other issues even our Yeah,

Mike Simonsen 23:19

and and oh, yeah, I live in the middle of San Francisco. So like, I like I live in that policy every day. I mean, I have a rent controlled apartment, you know, and it's, it's amazing. And it is, you know, in the state of California also has at the on the for sale side, prop 13, which keeps property taxes artificially low. So we have essentially rent control for every homeowner in California as well. So you never see you never move, you never sell that house either. And, and it's, it's, it's like nuts. And in fact, here's, you know, we're in this mode, where everybody in the country has a 3% or cheaper mortgage. And now with mortgages at six and a half per six, or six and a half percent. Now we have a rent control for every homeowner. And we're in the same boat for everyone in the country. And it's kind of scary.

Jay Parsons 24:19

Ya know, I was reading some of the debates about the the lockout effective of rates, and I'm certainly not an expert on that topic. But it's pretty interesting to think about that the impact of people who just won't move because of the your next mortgage rate could be two or three times where they're coming out of.

Mike Simonsen 24:34

Yeah. Have you are there any communities where you've seen smart housing policy being built, been implemented?

Jay Parsons 24:41

Yeah. So yes, but it's on a small scale. And so for example, like what I have seen is is you know, so I'm in Dallas and Dallas area we've seen the city has actually invested in buying apartment buildings, they bought a hotel they convert into affordable housing and And they're trying to actually fund a solution. Because again, you know, I think what, you know, they've sort of realizes, hey, you know, we got to create, supply or incentivize the private market to do it. And so those have been effective, just just directly investing in and creating public private partnerships to manage it with rents at a certain level that are locked in the other things that are effective, that have been proposed, we just don't see a lot because cities are wanting to do it, you know, cities own a lot of land. And so there's been a big push by housing advocates to say, hey, look, land is super expensive, if you can, you know, deed over land in exchange for housing the bill at lower, you know, lower price point, you know, and that, you know, kind of be locked in that that's a win win regulatory fees, the same thing. So, there's a lot of creative we've seen in California, like at us, you know, the the problem, though, is that all of these things are incremental, they're all very positive. Like, I know, you're in California, it's like, I talked to California media, and they love they always smile at us. I'm like, they're great. And so is buying an apartment building in Dallas. Great, but it's like, it's all incremental. And I think at the end of the day, is we need to, we need some big things, too. That's why I think something like the White House infrastructure plan 200 $300 billion, you know, that's gonna move the needle a lot faster than these excellent, but small, incremental programs.

Mike Simonsen 26:19

That's interesting. I haven't haven't paid attention to that infrastructure plan at all. Is there some stuff for affordable housing in there?

Jay Parsons 26:27

Yeah. So basically, the, you know, the campaign slogan is now like, housing is infrastructure, which, you know, personally, I think makes sense. But yeah, there's a depending on I remember, the latest version was somewhere between 200 $300 billion that would fund new construction of affordable housing, and also maintenance of existing, affordable housing that is right now lack sufficient funding to kind of modernise,

Mike Simonsen 26:49

but really, that's, that is exciting in, it feels like there is starting to be some recognition of good policy, there is a lot of momentum, I, you know, I love a lot of things about California, but the housing policy is, you know, still stuck in the 1970s. And it's, it's like impossible that move that battleship ban. It's really crazy. So on that side. So now we let's say, we get some big, you know, progress, and we get some we get some good construction growth, what happens? Like way, demographically, you know, over the next decade with those needs, and what shifts there, have you looked? Do you look that far out in the future?

Jay Parsons 27:32

Yeah, I mean, you know, you know, Mike, I'm sure you notice, as well as I mean, demographics. So the easiest thing to forecast and housing, and that makes it it's much we don't always know what's happening. The economy, we always guessed. But, you know, demographics, it's pretty much, you know, births and deaths and birthdays. And so, you know, the good news, I think, for all types of housing is, you know, we're entering a decade where in starting a decade, really, we've seen this last few years, that is very positive for all types of housing, and in the sense that you have the millennials that are much larger than the Gen X population that are now entering, you know, early 40s and 30s, late 30s, that they take at the top end. But right behind them, you have the Gen Z population, which is just as big or slightly bigger. And so as millennials move out of apartment and move into a single plane rental or purchase for sale home, they're being back filled by that demand. And the reason that's important is we go back to the 90s. The 90s was a low period for rental housing, and especially apartments, because you had this huge building period for the baby boomers in the 70s, and through the mid 80s. And then you had the baby bust, which is the Xers and they were like half the size of the boomers. And all of a sudden, there was just a limited number of people in that key demographic, especially for apartments which cater to those in their 20s to early to mid 30s. And so we just don't have to worry about that anymore. And so we're going to the growth rate basically slows down a lot, he'll make a big deal about this, but it's still going up and the overall population. I think that's a good thing. And the second part about that as well is that you know, there's also which we'll get into more of sort of the where people want to live versus where the housing or housing is right now. I think the the Twitter mafia gets twisted up over that topic. But you know, all in all, I think the demographic tailwinds are very positive for every type of housing for the next decade.

Mike Simonsen 29:24

Yeah, yeah. Gen X, like, smack in the middle of Gen X right here. And, you know, it's the it is watching the millennials hit their peak home buying years, they've moved from renting to peak homebuying years driving a ton of the demand of the last few years and the next few years. And, you know, frankly, 2008, like, that's when Gen X was in that in that period, and there's fewer of us and and they like it makes a lot of sense. There's so so you're broadly optimistic.

Jay Parsons 29:51

And Mike real quick, I think, you know, that's, I've never had the time to really study this. I'm not a formal housing expert, but it's like I think I wonder if that's kind of one of these big A kind of lesser told realities of the 2008 period as well as the for sale housing market is having what the apartment had dealt with in the 1990s. In terms of demographics. Yeah,

Mike Simonsen 30:09

I mean, I think so it was obviously, you know, it was like, it was probably like the marginal demand dropped because the P combine year people draw like and that marginal, that marginal demand can have a huge impact on on all kinds of things. Yeah, that's, that's really fascinating here, you're broadly optimistic about the next decade or so demand wise, because of demographics.

Jay Parsons 30:36

Absolutely. I mean, demographics think are very favorable end of the day, people need a place to live. I mean, it COVID taught us this, right. I mean, you can work from anywhere, you can order food from anywhere, you know, you can buy, you know, go to a store that send stuff to anywhere, buy from anywhere, but you got to have somewhere to live. And, and so I think that's a good reason to be, you know, everything. You know, I tell me all the time, you know, supply is structural demand is cyclical, I mean, demands gonna go up and down a little bit, but long term, you know, I think housing is a good thing to bet on.

Mike Simonsen 31:05

Yeah, that actually brings up a really fascinating point I've been talking with a lot of my guests about is work from home? And do you have a views on work on like, you know, the trend and be Do you have any specific data that might that that you might share, like insights that you think you have on the world of how we are? How that's changing? Yeah, anything on there?

Jay Parsons 31:31

So, yeah, we're getting there. So one of the things that, you know, we're able to track are things like employers from lease applications, but the problem is that we don't, it doesn't directly in the pre work from home, or it didn't really matter. Now we have large number people working from home, we're really more interested to know where they're working right. And so we have not yet fully solved that. But I'll tell you, what's really surprised me is that it's not the people that work from home a lot. But one of the things that we saw that's been very encouraging, is the even in the big cities, you know, whether it's New York, or even a downtown, like in downtown uptown, downtown Dallas, like where I am, or area, you know, people are still wanting, especially young people, they're choosing to live in the city, even if they don't go to work. They're fine living in a downtown apartment. Yeah, they want to do that the lifestyle though, and and I think that would in hindsight was really interesting is there's so much focus in the early stages of the recovery about the return to Office and the impact that can have on the cities. And it turned out that really, it was the return to city life that mattered it was the vaccines. And then it was, you know, the nightlife and the cities and restaurants Yatta Yatta, yatta. Like, that is what moved the needle for rental demand to come back into those downtown settings. And so I think that's, you know, I'm in the camp that says that's a permanent shift to a large degree,

Mike Simonsen 32:52

a permanent shift, meaning shift to what meaning like

Jay Parsons 32:57

more reveal working home longer term?

Mike Simonsen 32:59

Oh, yeah, yeah. Okay.

Jay Parsons 33:02

So they don't really want to live, right.

Mike Simonsen 33:04

But but in your, in your observation, and in your data, you're seeing, like, we had initial sort of outflow of city, but you'd say that that's no longer true. Like we don't have we don't have city outflow or we have, we have maybe moving back into city in terms of rental demand, you see that?

Jay Parsons 33:23

No, one kind of thing. I think, one of the great kind of untold stories of, of the housing migration shifts that occurred in COVID, was that, you know, initially, as you recall, the big story was everyone's moving out of the big cities moving out downtown, they're going to the suburbs, and going in the Sunbelt, and they're going to beach markets and mountain towns, you know, it's Boise, and it's, you know, it's, it's, you know, the the beaches and all this kind of stuff. And what was interesting, in we look back at the, you know, this whole time period, is that demand came back to the cities let in 2021, and 2022, but not at the expense of these other markets now the Sunbelt in the suburbs. And so, so that demand did return. So my Well, the way I think about it is that people who moved out of the big cities are probably gonna move anyway. And they accelerate that move, others came back. But the bigger factor was, I'm gonna give an example if you live in Manhattan, you know, Manhattan is a market where it thrives off that inbound train of young, highly paid education, highly educated adults who want to live in that that city in that lifestyle. Well, that train got shut down for a year, that was a bigger factor than all the move outs that occurred and so when that train reopening, and he'll come back into the city, it filled up again. And so and so I think that's kind of UPS I think, I think we're that we're gonna have to work from home or work from the office. You know, people it's really about where do you want to live that's going to impact this and I don't think it's one versus the other. And you've seen you've seen demand for all types of locations.

Mike Simonsen 34:53

That's that's really fascinating. Look at watch the people that you know, we have a friends that I know that moved out of San Francisco, it's like Do you want to move? Yeah, it's like they want to move to a more affordable place. So they go to Manhattan or LA from San Francisco, but they still want to be in the city. You know? So like, that's how they're fighting. They're, they're affordable, you know, change. They, but do they? So do you have in your data? Can you see migration trends?

Jay Parsons 35:22

Yeah, we can see that to some degree. It's, we're working to do a little better job of this. But we I mean, it's more of a, you know, kind of a net demand movement as opposed to individual households that we track. Yeah, I see that.

Mike Simonsen 35:34

The the one I'm thinking about is that we, you know, we call them the Zoom towns that were like Boise, Idaho, the Utah markets that that had a lot of on the, you know, on the east coast, it was like some of the Florida markets where you had, you know, you have your your destination migration from California to to Boise, and it was like, I'll buy whatever, it doesn't matter. I'll just buy it sight unseen. And my guess is that probably also, as we were talking, because the rental and the purchase actually move in tandem. My guess is that migration followed with with rental as well. And some people moved from San Francisco to Boise and rented their did and probably overpaid for their rent, too, because and then so then, do you see can you see like, I can we look like currently and say, Wow, we can actually see Boise the migration to Boise slowing slowing down Boise and the for sale side is the one that's actually slow gone from the fastest to the slowest. It's had the the, it's got the most price reductions right now it has the biggest percentage change in inventory. Like Boise is, is like the poster child of that change right now for us. Yeah. Can you see that in in the rental demand?

Jay Parsons 36:55

No, it is a handful of markets. And it's much more of the on the west half of the country than the eastern side. So for example, like Phoenix, especially has been the poster child in the rental market. significantly slow demand and grip places like Boise as well. But on much larger scale. You know, we've seen really weak demand and Phoenix.

Mike Simonsen 37:14

Phoenix is number two on my little list of that way. So yeah,

Jay Parsons 37:18

yeah, yeah. And then but you know, I'll give you like an aside like Florida, at least to this point. It's, it's no longer, you know, just ridiculously hot, but it's still doing really well. And so for now, at least, it seems to be holding up better than Phoenix and Vegas and Detroit, and whatnot. But I, I do expect that Florida markets to cool off here at some point to

Mike Simonsen 37:39

continue to keep going down there. And Phoenix is fascinating. So it's like I call some of these like high beta like a like a high beta stock that moves more than the market on the up and more than the market on the way down. And so like Phoenix is a classic high beta housing market. And and the question is then, like, when do we see it? When do we see that demand bottom and turn around? Do you have insights about when things like that might happen?

Jay Parsons 38:09

Well, I honestly I think we're aways from that, unfortunately, because I think we're just starting to see it, you know, but I think the positioning of a Phoenix especially is that a lot of investors really thought Phoenix had matured past that after the great financial crisis. And, you know, I talked to some of my colleagues about the industry who gives you really detailed reasons why that was the case. And you know, and we see this in the iPAR market, you know, if you look at trades or cap rates, you know, in apartment buildings in Phoenix are trading at Cap rates, the same as Dallas in Denver, which, which, you know, struck me as a little bit concerning even at the time, but I certainly didn't have Phoenix dropping as quickly as it did. But, you know, Phoenix is is not an IT to your point, it is a high beta market, it's reminded us of that fact, and I kind of doubted it for a minute, but it's there. It's it's it is a high beta market. And, you know, I, I My hope is that we start to, you know, I guess my best case scenario for Phoenix and the rest of the country here is because it will follow is that is that, you know, the consumers ultimately realized like they didn't summer 2020 that they still have money, the job market still good, unemployment is still low, and they start to behave normally again. But I think right now, there's kind of a, you know, kind of a freezing effect that we see having a grid, a good deal of impact on housing demand and in Phoenix.

Mike Simonsen 39:30

Yeah, for sure. A lot of a lot of fear about what happens next. So let's switch gears and talk about inflation, housing and rent breads, in particular, have been are a big chunk of the CPI that the headline inflation number that we hear. inflation's up super high. rents have been super high. There's some data and some evidence that says we still have even rents have probably topped off, or they're at least back to seasonal normal. There's still evidence that that the inflation numbers haven't yet captured all of the rental increases that have already happened. Yeah. What's your view on inflation and, and rental? And what do we need to know there?

Jay Parsons 40:20

Yeah, no, I think it's important to separate this topic into two questions. One is actual rent inflation, and the other is what a CPI actually show, right. And in a lot of in a mic, I know, you know, this, but a lot of people don't realize is that, you know, that rent really comprises about a third of CPI, because they're using the same rent survey, they used to track rentals. That's that's actually used as the as the leading input for the owners equivalent rent metric as well. And so it's supposed to be a proxy for the homeownership costs. So you know, it is a big deal. And the problem, though, is that it's attempting to measure the contractual rent mean, rent is not like buying a loaf of bread, your your rent changes around once a year or so. And so when you look at the contracted rent, it's a lagging figure where you really want to see a change. And by the way, even as a rental housing, I think it's important to see some moderation here we have, you're going to impact on the new lease rent, so people are signing for right now. And so that's already been moderating for quite a while. And the 2022 increases are much less than 2021. And but the problem is that just because of the way CPI is calculated and how it looks at Rent, we're just not going to see it until sometime in 21st, you know, first or early second quarter of 2023.

Mike Simonsen 41:36

Yeah, and so probably like, it'll be really fascinating. Like those of us watching the rental data will have seen, you know, rents moderating or even falling in that time. And meanwhile, every month, they're gonna be reporting the CPI climbing for there's still a lot to get through there.

Jay Parsons 41:56

Yeah, and just real quick, I'll tell you, like, I've gotten calls from reporters, you're asking, like, hey, like, tell us about these big rent numbers. It was the largest rent increase since 1991, or 1/3. Month, and I was gonna be like, well, not not exactly. And so why are rents dog especially? Well, like, it's just it's, it's a complicated story, but it's, but the reality again, is that is that we've already we're past the peak, we're what's happening now is what we wanted to see what the Fed wants to see. But she's not going to show up and CPI for a while,

Mike Simonsen 42:25

for a while. Yeah. And and it's really, it's nerve racking, right? Because, yeah, we have to, we have to wait and get through all the reporting lag before we actually see that the that inflation like the policy starts to change, right? Yes. Do you have do you have that forecast for like, rent appreciation for 2023? Do you do forecasts like that?

Jay Parsons 42:50

No, yeah, yeah, no, we're we've worked as a reporter, we're wrapping up third quarter now. And so there will be forecasting, updating our forecast your next couple of weeks. But, you know, we still think we'll see, you know, relatively sizable rent growth, but again, at much more normal levels, you know, I think we're gonna end up somewhere in the mid single digits, okay, which again, is much more typical than saying 10 to 15%. For by the time we get through next year.

Mike Simonsen 43:16

Yeah, 10 to 15% is nuts. But the mid single digits is actually still pretty significant. Do you have a sense of if if recession kicks when do rents adjust? Is that quickly? Or is that slowly?

Jay Parsons 43:31

Yeah, they'll they'll adjust quickly. But I think, you know, the bulk of leases are really signed, as I mentioned earlier, and q2 and q3. And so I don't think we're really going to see the impact until then. Now, if we do hit a real recession and last into the spring, then obviously that would throw the forecast out the window. Like I think we're we're still maintaining, you know, a more moderate growth continue with view softer landing. So it's gonna, you know, kind of current speak. But yes, if we hit a real recession, obviously, that would that would change the outlook for sure.

Mike Simonsen 44:01

It's funny how intensely people respond to using the phrase soft landing people. They react very, very Australia that so Okay, so that's great. So, so you're seeing assuming we have, you know, a moderating economy and you see rent growth for the year and that's really a you can see that because of supply and, and demographic demand. And what other kinds of things do you like to look at for your, for your forecasting?

Jay Parsons 44:31

Well, you know, when we look at forecasting specific markets, which I look at what are the best kind of predictors of of rent and demand and so that, you know, it's things to do expect jobs, migration patterns in migration population of young adults in particular, but also things like retail sales are a great indicator as well of particularly rent growth. So you know, in retail sales, by the way, that's obviously been a good indicator of late as well as people are still spending money for the Most part, although it seems to be moderating to some degree, so yeah, those are the those are the majors look at the part of it too is that well, there's a lot of supply next year, I mean apart, we're going to add more apartments in 2023 than we did in any year and since the mid 80s. And but the thing is that, you know, what that makes it a little bit kind of a quick changes the outlet a little bit is that the vast vast majority of the supply is what we would call Class A plus apartments, you know, your does, you know, it's like these are the highest and most expensive units catering to the wealthiest renters and the price point on these new rentals. And this is, you know, cost of construction costs, the land, regulatory fees, all of these things drive up the cost of the construction project and therefore require a higher rent, you know, that those, those costs have gotten so high, that the gap between a brand new property and your kind of average, we call a Class B apartment could be 30 to 40, or 50%. And so, so the thing that makes us unique is we're really not competing with the new supply isn't really competing with the bulk of the existing supply. And so I do think we'll see greater challenges in terms of like short term lease up challenges in these top tier properties. But I think that your kind of your typical existing 10 plus year old apartment community will have enough cushion there to continue to see a lot of demand and you know, a little bit of rent growth.

Mike Simonsen 46:22

That's interesting. So the supply is coming in at the ultra high end. So at what point do I as a renter who, let's say is, you know, maybe he lives in a city like San Francisco, and like, at what point do you get does a builder of those like the high end apartments? At what point did they start panicking and go we get to lease this thing up even if it's way low? Like what do you what are the bargains come to the new to the renters at the Hyatt when two people like the professional class in San Francisco, who maybe has been like, oh, work from home, I was scattered around the country. And now they come back to LA it's it's actually really cheap to rent in San Francisco now how, how soon is that come through?

Jay Parsons 47:04

Yeah, so So in these apartments, you know, like the term that uses concessions, and you're gonna see some, some pretty deep leasing concessions to see like, you know, one or two months free and it's really just amortized throughout the term of the lease. But it's you know, you're gonna see a lot of that, particularly a second half of 2023. And so if you if you want to live in a luxury high end, newer apartment building, I do think by the second half of next year, you're gonna see a lot of good deals, relatively speaking.

Mike Simonsen 47:29

Yeah, yeah, right. Right. Right. Right. And it's, it'll be fascinating in a in a higher interest rate market. It might be you know, those payments start to balance out a little bit more. They've been they've been so in favour of purchasing in the past few years that that's really that might change. But listen, Jay, we're getting to the top do a couple things. I want to make sure that we do let's Where do people find you and follow you on the socials and

Jay Parsons 47:51

I met on Twitter, just at Jay Parsons, my name that you can also find me on LinkedIn as well. I post a lot of content on LinkedIn also.

Mike Simonsen 47:58

Yeah, you do some good, LinkedIn work. Okay, so that's Jay Parsons there. And definitely follow Jay, if you're interested in those trends, because there's excellent data coming there. Alright. I think we should leave it there. That's all the time we have for today. Again, thank you for joining us on the Top of Mind podcast. I'm Mike Simonsen, I'm the CEO of Altos Research. At Altos we track every home for sale in the country, all the pricing all the supply and demand all the metrics, and we make it available to you before you see it in the traditional channels. So if you've got to communicate about the market to your clients right now, because who doesn't go to book time with our team, and check out the local data, find our guest, Jay, on Twitter and LinkedIn, Jay Parsons. And we will have all those notes in the show notes for the podcast as well. Jay, thank you so much for joining us today really informative, like learned a lot. And I look forward to let's let's connect in January to see what the what 2023 is, is revealing for us.

Jay Parsons 49:01

Sounds great. Well, thanks, Mike. I enjoyed it. Great conversation. Thanks so much.

Outro 49:05

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