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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 Mike Greene, CEO of ResiShares, to talk about the latest trends in real estate investing. Mike and Mike discuss how investors are thinking about real estate as the market shifts, how to spot opportunities now, which global economic forces pose the biggest risks to US real estate, and more.

About Mike Greene

mike-greene

Mike Greene’s fascination with the housing market began with a guest lecture in his undergrad economics class by Nobel-winning economist Robert Shiller. The lecture focused on Shiller’s home price indices, which first drew attention to the possibility of liquid, geographically-based investment products.

Over the past 15 years, Mike worked first as a Trader at Bocage Capital, and later at HouseCanary, where he witnessed the emergence of the single-family rental ecosystem that convinced him that the world was finally ready to see Shiller’s challenge accepted.

Mike is now the Founder and CEO of ResiShares, a real estate investment fund with a unique technology edge and an innovative approach to finding the best opportunities.

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

  • ResiShares’ mission to make real estate a more liquid and accessible asset class
  • Mike Greene’s surprising test for what presents the best investment opportunity
  • How ResiShares leverages data to achieve “neighborhood alpha” on their investment portfolio
  • The biggest long-term macroeconomic risks for the housing market
  • How real estate investment firms can help solve both the financial and social problems for housing
  • The key trends to watch in a recessionary economy

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 and doers in the real estate industry. For a couple of years now, we've been sharing the latest market data every week in our Altos Research market, video series weekly. With our new Top of Mind podcasts, we're looking to add some context to the discussion about about what's happening in the market from the leaders in the industry. Every week, Altos tracks every home for sale in the country, all the pricing, all the supply and demand, we analyze all the changes in that data and 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 hard, so competitive, and now suddenly the landscape is changing. So if you're in a business that and you need to communicate about the data, that changing data to your buyers and sellers, they visit altosresearch.com and book time with our team free consultation, and we can talk about the local data in your market and how you use the data in your business. Okay, so without further ado, let me introduce my guest today, Mike Greene. Mike is the co founder and CEO of ResiShares. My fascination with the housing market began with a guest lecturer in his undergrad economics class by Nobel winning economist Robert Shiller. The lecture focused on Schiller's home price indices, which first drew attention to the possibility of liquid geographically based investment products, products, products, and we're going to talk about shoulder today because I have some good Shiller stories. Over the past 15 years, Mike has worked as a trader at brokerage capital later at house Canary, where he witnessed the emergence of the single family rental ecosystem. And that convinced him that the world is ready for to see Schiller's challenge of how do you really do liquid investment products in real estate? Challenge accepted. So Mike is now the founder and CEO of ResiShares a real estate investment fund, with a unique technology edge and an innovative approach to finding the best investment opportunities. So Mike, welcome.

Mike Greene  2:35  

Thank you. Thank you, Mike. This is good. This is gonna be like that scene in the spies like aspirin, us calling each other by the same first name the whole time, but

Mike Simonsen  2:43  

Roger, Roger. Yeah. Exactly. Yeah. Cool. So yeah, like I said, I like I have some good Bob Shiller stories. So I'm interested in I have not

Mike Greene  2:54  

I was literally one of 40 kids in this, you know, classroom sitting in the back taking my notes as like a freshman or sophomore. So I this is a one way admiration society. He definitely doesn't know who I am. Okay, I was the one class from, you know, my, my glory undergrad years, right saying, Wow, this guy's onto something. He's pretty smart.

Mike Simonsen  3:13  

He's onto something. And he sure was and did some really, really neat stuff. irrational exuberance is terrific work. Okay. So let's start though, tell us about ResiShares, why it's cool, what you're doing?

Mike Greene  3:27  

Absolutely. So I think your your intro summed it up nicely what our what our long term vision is, which is to create an opportunity for more people to gain exposure to the equity piece of the housing market, and have that kind of more broadly, investable, tradable, et cetera, which I think just solved a tremendous number of social and financial problems. And that's all well and good. But in the meantime, you have to get there. And this is a big asset class, and it is it is big in every dimension. So I think what's what's somewhat unique about us is that we are, we have these kind of grandiose prop tech visions. But I think we're very realistic, or, hopefully realistic about how long and hard the slog is going to be to achieve that vision. Though, our path to market has been very non traditional, we did not go out and raise a bunch of VC money and kind of build a website or a trading game or something to get customer interested in kind of live round to round. We're always somewhat afraid of that, that VC ecosystem. So instead, we are applying what we do. You mentioned this idea of a unique way of buying real estate trying to find out performance opportunities to the current problem at hand, because now there are a lot of institutional investors who are trying to get a piece of this business and limited supply of folks who know how to do it. And we were fortunate enough to have some some capital partners who believe in both the short and long term visions and believe that we can help them kind of achieve alpha in their real estate returns and single family. So we are working on doing that for them making some good investment decisions over the next couple of years and and eventually finding a way to parlay that into our long term goals.

Mike Simonsen  5:04  

So you're buying houses,

Mike Greene  5:07  

or buying houses, that was a much, that's a much clearer way of explaining. We're buying houses. That's,

Mike Simonsen  5:11  

yep. So you're buying houses and you're buying houses for institutional individual

Mike Greene  5:16  

event, we do have a small fund for individual investors that is closed now. Definitely not out there pitching it than that. But predominantly, we're working in partnership with institutions.

Mike Simonsen  5:29  

Got it. And in the EU, you mentioned solving social and financial problems. As part of that. Tell me about how buying homes for institutional investors helps solve social and financial, it most

Mike Greene  5:47  

certainly doesn't, except to the extent that it allows us to achieve those kinds of long term objectives of increasing liquidity and accessibility. Okay. So look, in the long run, the vision is we open up kind of secondary trading into some series of vehicles that consolidates homes, at a level of abstraction that people understand. And what I mean by that, specifically, is, you might be at a backyard barbecue, and folks probably aren't going to say, I think the Case Shiller 20 is going to go up 6% Next year, national home price for the Freddie Mac index is no one's talking about national home prices. Similarly, while you certainly may be talking about your neighbor's house, down the street, they just sold for a bunch of money and but that, you know, print does to kind of support the value of your own home. You're not saying I want to buy this or that house as an investment necessarily. That's a level of specificity that people I think, unless they're in the business probably don't want to take on. And not to mention like, it's a job. operating at houses is not easy. Ask now I know what you might hear someone say, though, and living in the Bay Area over the past almost 20 years now, I heard this conversation a lot. Because the yard got so wide, you might hear people saying everyone's moving to Dallas, and everyone's moving to Austin, everyone moved to Denver and then moved to Seattle, that markets hot. How do I get involved with that. So what we would love to do is find a way to make it so that somebody can actually express that view. And, and by someone I mean make that as broadly accessible as possible in an ideal world where we have a series of publicly traded REITs, that you can go into your fidelity account or your Schwab account and just click a button. I think that's obviously a nice Northstar to have we also understand again, how long that path is going to be to get there. But there are lots of opportunities, intermediate steps, kind of along the way. In the meantime, no. Again, the question is how to get there. And we wanted to create a business that have a lot of, I guess, commercial optionality along the way, which is to say, a real business that tries to make money for people along the way. Yeah. And that's that kind of drew us to partner with with kind of alpha seeking institutions, because those are the folks that are most interested in kind of buying this stuff, right.

Mike Simonsen  8:02  

Got it. So the vision is that, you know, I as a, as an individual, or investors in general, we need to be able to say, like, like, I appreciate that Austin is a great market, I live in San Francisco and, and need to be able to have exposure to Austin. And therefore a vehicle like a publicly traded REIT would be like, here's the revenue shares, Austin reach. Is that ultimately the vision what we will see?

Mike Greene  8:36  

Yeah, absolutely. And I think that solves some financial problems. And we talk about social problems, because we get this question a lot like orange juice, kind of exacerbating the lack of supply. And I would contend that I am agnostic to whether somebody buys or rents their home as long as they live in one, the only thing that exacerbates lack lack of supply is a lack of building, I think it is probably especially in a world with that we now inhabit unrealistic to assume that everybody is going to want to take most of their net worth, and stick it in their house. I think 2008 taught us that that's probably not prudent for most folks. People forget those lessons. And now everyone's saying the opposite. I want you to buy a house and you buy a house. It's like, well, sure, it's because we're going up, it starts going down, we have the opposite problem. And that's really where this idea was hatched in 2010 ish. So I think the idea of fractional ownership of real estate is a great one. There are a lot of companies out there trying to fractionalize individual homes. There are a variety of reasons we don't love that business model. So we're just trying to offer fractional ownership in something a bit more diversified and a bit more understandable by the average person.

Mike Simonsen  9:42  

That's great. Okay, so as an investment vehicle, it gives me exposure to a region in a region of housing and and then allows me to bet on the future or that region would I be able to short it

Mike Greene  9:54  

depends where we go right. Okay, example I just gave you Yeah, absolutely. Yeah, again, If I'm too much of a realist, I think to just assume that that's definitely going to happen next week. That is absolutely the quarterly vision. Absolutely to create two way liquidity for the same exact reason, because I think it creates hedge opportunities. And I think, and this gets back to, you know, what, what inspired the whole idea back into the 1998, whatever it was, this was Schiller's idea to write as he tried to create that he did create this, there's futures based on his index, the trim CMA. And there are a variety of challenges. I think that he that he learned the hard way that, you know, are inherent to the futures in the derivatives market. But the idea was to effectively smooth out the transfer of asset exposure from home from people who are long housing, ie homeowners who are short housing, ie tenants, right, make it so that I don't have to sell my house that I live in to the next person because I still want to live in that house. And they might not have enough money to buy the house. But maybe I can short a little bit San Francisco, and they're saving up for home, they can buy a little bit of San Francisco. I would love to see this go there. That's absolutely where this is intended to land.

Mike Simonsen  11:06  

That's great. So yeah, so Sheila's company at the time was macro markets, and they, they created these derivatives, and ultimately, they were Exchange Traded derivatives and you could buy up housing and down housing. And what was fascinating at the time, here's my first Bob Shiller so so it was fascinating at the time, we just started Altos Research, and we could see that because the Case Shiller Index is lagging, it's and the way that Altos does, the data, as you know, is like we're tracking right now. We can see the houses listed now. And it's gonna get an offer next month, and it closes the month after that. And then the Schiller's starts using that data 123 months later, so six months down the road, you can see, and so we could see, when the Schiller downmarket funds were were mispriced. Sure, yeah. And so, you know, I didn't have any money because I just started my company, but like, I was like, going, hey, buy this one. And, of course, I also didn't have any confidence, because you know, who knew? Like I was new with our data to really know what was gonna go on? And I've proven over and over again, that I am not a trader. So

Mike Greene  12:18  

like, well, that said, I think it highlights exactly what was the challenge there is, you know, I think Schiller was hoping people like you would do that research. Because what he was really trying to do is make people forget about the index, and just have two way flow, right, buyers and sellers. I think the challenge is, is that even if you wanted to put that trade on, yeah, the market was very thin and very wide. And I think the reason for that is, is that, yeah, I used to be at bow cause we were we were commodity investors, we did a lot of futures trading. And like, if I am a market maker for, you know, West Texas crude oil, like, I can lay it and somebody goes and buys a bunch of futures AlphaBay. So I'm not short this oil, I can go like buy physical barrels of oil very, very quickly, and kind of get myself flat. Like a market maker on the Case Shiller San Francisco index is not going to get short this contract and go buy a bunch of San Francisco houses, right. Like, there's no way for them to hedge their risk. So it just became somewhat problematic.

Mike Simonsen  13:23  

And so that's where where the mother ResiShares model comes in. Because yeah, that's actually what you're doing.

Mike Greene  13:28  

Yeah, well, it's more direct, I always felt the solution for this was equity, just giving, finding a way to put home equity into the hands of lots of market participants and do so in a way that it's kind of fungible and understandable. And again, you know, there's folks out there you look at roof stock one, for example, if you look at some of the blockchain ideas, there's folks who are trying to get out of the house by house level, and we're just thinking about it differently. We're thinking about in terms of regions, as you said,

Mike Simonsen  13:57  

got it. Okay. I like the regional approach, because, you know, we can see very obvious trends, we can see, you know, we could see current migration trends. But we could also potentially place bets on climate trends. If they're, there are longer term risks that are, you know, really interesting, like, is Phoenix, a place that can continue its growth? And if you have a view on that, I could I could I, here's a question for you.

Mike Greene  14:29  

Here's a question for you. I think about this all the time. And Phoenix from what I understand, I'm not a Phoenix expert, but I believe actually that they have a deceptively deep aquifer, their Salt Lake City is that when you got to worry about with water, that's like something I read on the internet, that could be totally wrong, but I believe that's what I heard somewhere. But let's say let's take Phoenix, let's assume Phoenix is going to run out of water. Is that bearish? Or is that bullish? Oh, I don't know. Yeah. Because maybe like the people who were there. Katrina have It's what do we do? Do we move the people or rebuild? In the ball? We rebuild in the ball. Like once a city exists, it has a culture it has, like people who have family ties to it takes a lot to kind of make that city go away. So Phoenix runs out of water. Maybe that just means they stopped building in Phoenix and prices go up? I don't know.

Mike Simonsen  15:20  

Yeah. Could be that's,

Mike Greene  15:21  

like not not a strongly held view. I just I asked this question myself. Like, I'm not sure actually what the climate train change. Climate change trade is right now.

Mike Simonsen  15:30  

Fair enough. But it would be nice to have a vehicle where you could express that view here. If you had one. Correct. Yeah, that's really cool. Okay, so So ResiShares is, is buying properties in order to be able to participate in the equity in those regions, for investors is that the right way to look at it

Mike Greene  15:49  

in the long run, in the short run, we're just like every other group, we're trying to make money for private equity. Were bad guys. In the short term, we'd like to be good guys in the long term. I think that caricature all jokes aside is is unfair, I think I really do believe very much in this idea that the more seamless we make it, to move between buying and renting, that that is kind of good for the world. And I actually think that if you look at these private equity firms that led with their chin in 2010, when we had the opposite problem, they were able to keep a lot of people in their homes that otherwise would have been foreclosed upon. And

Mike Simonsen  16:25  

oh, yeah. And it's, you know, when when you're a fund going in to Vegas and Phoenix in 2010, you're taking real risk with a real view. And it's easy now 12 years later to to you know, villainize Yeah, those guys who say all right, exactly. But at that time, they bought houses, from people who needed their houses bought. And like, so it's

Mike Greene  16:52  

and they had financial incentives to keep those people in their homes. You know, as renters, I get it. Like, there's, there's a cost for liquidity. But you know, it prevented a lot of disruption. And now, if you look at, like, what's happening in the build to rent world and everything else, like, these people are sparking supply. And what we're short on is supply. So like, at the end of the day, I do think a lot of these guys, and obviously I'm biassed we haven't worked with them for the past five years. So these are my customers, my friends and everyone else. But like, I really do think in many cases, it isn't undeserved bad rap, because these folks are providing housing for people like all that said, I think it's worth mentioning that where we are applying our talents right now is not necessarily to the market structure side of this business is to be finding houses and growing areas and operating them very well.

Mike Simonsen  17:39  

So you have an operations group are you doing the operations,

Mike Greene  17:43  

we are quarterbacking the operations, we the way I like to think about it is at this point, we are neither raising money nor hammering nails, we're kind of an intelligence layer in between those two functions. Okay, so obviously, that is very heavy on the acquisition side, because that's where, you know, as you know, it's you make money on the bike, right? Yeah, so our goal was to help folks make money on the bike, but also you make money on the rehab, and you make money on the lease. And we do have kind of an in house a very talented kind of head of Field Operations, who coordinates all of that construction builds the design spec, everything else. And we have similarly we, you know, we underwrite all the rents. So when the leasing agents who are not employees of ours, go out and get these things leased up, they are doing so under our, our instructions.

Mike Simonsen  18:27  

That's great. So how far along are you? We started launching the company during the biggest boom ever so funny, because

Mike Greene  18:37  

we launched the company in July of 2020, right mid July of 2020. And the idea was, how am I ever going to get anybody to trust me on real estate calls, but when I made this one, the idea was, oh, everything's going to hell in a handbasket. It's a great time to buy real estate. So I should start this business. Now. That did not work out quite the way we thought it would. But here we are. By that point, it was too late to turn back. So yeah, we certainly didn't see that boom. Coming. We saw it, we saw a boom coming over the next five to 10 years, because we you know, like everybody else noticed that you had the short supply, I think our somewhat out of consensus view for years has been which has become consensus now is that millennials, whom 10 years ago, everyone said were going to raise their children in cities because they were just generationally different than anybody who preceded them. Well, you know, I think folks, we're just looking with 2020 hindsight, and when those millennials were 32, instead of 22 they wanted to move to the suburbs, just like the parents did. So we absolutely were bowled up on on real estate, but in the short term, we didn't realise what's gonna happen so quickly.

Mike Simonsen  19:40  

So are you so you were bullish? You started the company like next 510 years is a bull market for real estate. We have the demographic tailwinds. We have we have structural shortage in supply. The markets changed a lot. Do you still hold that? View?

Mike Greene  19:59  

Yeah, no. I absolutely still hold that view is just playing out very quickly because I think that that's no longer an out of consensus view by capital. Right. And I think that this is, what's interesting about residential real estate is it's, you know, no matter how much you hear about private equity piling in, this is still a market that is dominated by retail owner occupants who are not, you know, obviously, they want a good deal. No one wants to overpay for something, but the end of the day you're buying a house to live in that house?

Mike Simonsen  20:27  

Or buying that house for as long as I have one to one or two investment properties, like, yeah, it's like 90% of the investor properties are owned by individuals with one to four homes.

Mike Greene  20:40  

Yeah, no, that's right. And I haven't seen this, the updated stats. And the last stats I saw are from 2017, and 2018. But it's a trust your, your numbers are accurate. Yeah. So I guess the point is, is that once once that becomes the consensus view of big money, it's also kind of necessarily becomes the, the that that view gets incorporated into Mom and Pop as well, because they are now competing with that big money to buy houses. So I guess my view is that a lot of that demand got pulled forward. But the flip side is that inventory and supply, were so tight, that the pulling forward of demand does not necessarily make the future less bright, by any meaningful amount. I was actually having this conversation with a buddy of mine this morning, you know, he was talking about the way that housing prices went berserk in like the Lake Tahoe area with everybody going to remote work from the Bay Area. And he said, Oh, that's gonna come crashing down in the next 12 months, it's gonna be back to exactly where it was. I said, you know, I just I'm not sure about that, because it went up a lot. But it did. So on a volume of maybe what, 1000 homes 2000 homes, it's not like the whole housing stock is turning over. So this is just not a market that's at all, like the typical financial markets, it's going to have these these kind of massive fluctuations, I think this absolutely could just be a reset. And I think it's just a function of policy. And it's a function of much larger questions than just Oh, what was up now it's going down.

Mike Simonsen  22:12  

Okay, so, so it could be a reset a cup, I have a couple of questions on your view, they're like, what's that reset look like? And in a world where we shift from infinitely free money, to not infinitely free money? How does that change? How does that change our dynamic here?

Mike Greene  22:30  

Yeah, so first of all, I'm gonna give a disclaimer here. The macro keeps us up at night, we spend a lot of time looking at it, but it's not what we do. I would not claim to have any edge in predicting the macro better than anybody else. At the end of the day, our goal is to find the neighborhoods that are outperforming relative to their pure neighborhoods and find the assets within those neighborhoods that are, you know, kind of operationally the right assets. So and the the last thing I'd say on that is, if I really had a great macro call, I'd be trading treasuries instead of houses that are a lot more liquid and make a

Mike Simonsen  22:59  

lot I do the same thing. If I knew where interest rates were going, I wouldn't be in the real estate data business, I'd be in the interest rate business.

Mike Greene  23:06  

Exactly. So so with that caveat, this is just my view and not the deal residence here. But I think what we see day to day, is that the homes that are quite clearly the most supply and demand imbalance, which are the ones that we and many of our peers are aiming for. It hasn't slowed down one iota. Not a bit, it is exactly the same market we were in last August. Which is, which is interesting. And I think if you were to take a look at your data, and I know this because I use your data and cut it by that by box, you would see the exact same thing in terms of days on market, you know, Seller List and all that good stuff. I think, obviously, the data shows that home sales are slowing, which is what you'd expect here. But I think if you looked at what happened in 2008, and where the pain was concentrated most acutely, it was concentrated in terms of price reductions, it was concentrated most acutely where the houses had been most leveraged against the kind of the weakest credit attached to those mortgages, buy a lot like you had those kind of blighted, heavily foreclosed neighborhoods, if you looked at the areas of the country that at the time, were kind of cashed up. If you looked at like the, you know, the high end condos in San Francisco in New York, right? Where people tended to put down the full 20%, where people still had jobs. actual prices didn't dip very much. Now, if you had wanted to get rid of that condo, at the lows of the market, and you had no more than 60 days to dump it, you were going to get a bad price. But the median prices didn't dip that much because most folks just wrote it out because they could. Yeah. And I think what's interesting is people are coming into this consumer balance sheets are so cashed up. Equity is so high that I think what you're going to see is that phenomenon applied to the whole country you know, unnecessarily see prices go down, you just see liquidity become somewhat challenging.

Mike Simonsen  25:05  

Right? Okay, that's, that's a really, really great. So if you got to sell, it becomes if it's like, if you're under pressure to sell, that's when you take your hair cut. That's a really interesting view. And I, you know, we talk a lot about price reductions. And we've been talking a lot about price reductions recently, and watching, you know, price reductions start climbing nationally, and they've been ultra ultra few price reductions, and now we're rapidly approaching normal conditions. And in that in the bubble burst in that 2009 timeframe, we could watch the price reductions, like normal price reductions nationally might be like a third of the homes take a price cut before they sell. And we could watch, you do like a heat map on on the Bay Area, you could look at like, close in like Palo Alto had, you know, 20% price reductions, and then one ring out was about 25%. And then another ring out, there was about 35. And then you got out to the like, hour long hour and a half long commutes. And all of a sudden, it's like 50% of the market taking price cuts, like you could see exactly where it was where they were leveraged up, and where the liquidity challenges were happening, because it was radiating out from the center. And so that goes to your like, which, which neighborhoods are going to outperform?

Mike Greene  26:25  

And I think you're gonna see that, and this is obviously self serving. But I do think that, like neighborhood alpha is important here. Because, you know, I've been relatively bearish on the Bay Area and my neighborhood in particular for, you know, five years now, just because it certainly ever since the 2017 tax bill came in, I thought that that was obviously going to cause out migration and prices go down. What's funny, as you saw the out migration, but prices have accelerated higher, and it's the same kind of thing, it's if somebody in my neighborhood is going to, is going to sell their house to kind of monetize this huge rip that you've had, inherently, they have to buy something else or rent something else. Like, if, if you're making a purely financial trade, I guess I could sell my house and lease it back. That's pretty bold. Those folks aren't gonna do that. Yeah. Then if I'm selling my house, it's like, I gotta move somewhere. So the only thing that I think causes the mass wholesale, like, dumping of houses is true financial distress where people have to.

Mike Simonsen  27:29  

Yeah, yeah, exactly. And then the question is, like, do we get an economic scenario where where we have true financial distress? And that's above my paygrade, whether that's coming in,

Mike Greene  27:41  

like you're seeing it, you're actually see in financial distress, but if it's a question of, you know, relative versus kind of absolute, like, relative financial distress is, you know, I was a Bitcoin millionaire. Good for me. And now I'm not bad for me. Absolute financial distress is like, you know, which of my family vacations, which of my kids sports, whatever, which of these important lifestyle things to me do I have to get rid of to eat? Right, like, we're not anywhere close to there yet. Right. At least amongst homeowners, we are. I don't want to minimize the the challenges folks are going through it at other ends of the pay scale, when inflation is what it is, but certainly amongst homeowners right now, for the most part, I don't think you're there. Yeah.

Mike Simonsen  28:19  

Yeah, that's super, super interesting. I love the concept of neighborhood alpha. And you know, in the in, like, we can really start to see it in the side, like in the boom times, they they're, everything was booming. And maybe in these days, reset times, we have some that that reset said less sure. What else do you think about reset? What does reset mean to you,

Mike Greene  28:40  

I think reset means to me kind of exhaling a little bit and just allowing the market to reorient itself around the physical supply and demand characteristics of that particular neighborhood. But again, I just think that what's happening in the macro right now is so big, and so much bigger, even in this big market. It's just very difficult for me to get more specific than that. Yeah, I was like, okay, like I have I have strong opinions weekly held here, right? Like I'm making this these calls, but like, if 12 months from now, we do have some sort of massive crash. I'm not going to sit there, like terribly shocked. Like, I don't think that's going to happen, everything I'm looking at it. Just because you know, even this market is a discounting mechanism. And I think everybody can see that supply and demand is so favorable in real estate, but it just should be able to ride this out and Kennedy to go higher, but like, Yeah, I think deglobalization is a bigger deal than the real estate market. I think what's happened with the Fed is a bigger deal in the real estate market. And these are all things that I don't necessarily have any edge in making a call.

Mike Simonsen  29:49  

Right, right. Right. So deglobalization, but also does the work from home tread. Does that impact your view of neighborhood Alpha Absa Literally, what do you think like the work from home? Trent?

Mike Greene  30:02  

I will tell you that. You know, we started during the pandemic, we don't have any offices right now. Right? We're about to get our first two offices, one in Dallas, one in Oakland. And, you know, I've designed this whole, like write up this little memo about what that means to go to the office when you work at ResiShares. And let me tell you, it's not everybody shows up five days a week, because I would lose half my team. Yeah, nor should it necessarily be, you know, half my team of programmers and data scientists, and they work better alone. They just, they just do, it's, they don't want me bothering them every five minutes, because, you know, I'm a chatty guy, and I walked by their desk. So it's also not necessarily working from home permanently. But it's working from home enough that we have a guy who works out of the Boulder office that lives in Breckenridge, because it's nice there. And that's fine. It's a two hour drive and whatever, right you come in, when you come in, and we have to organize around that. Now, I will be the first say that if there is a set of established best practices about coming into work, this hybrid work, I don't know it, I think it's still new, I think folks are still figuring it out. I think there are a lot of vested interests, folks who have invested hundreds of millions of dollars into like custom T eyes in their office, and we're owning their own building, who really want everybody showing up. But I think that like that's gonna be a millstone around their neck. And folks who do figure this out, you're gonna beat them at their game. So I do think the extent to which work from home effects residential real estate, and is another tailwind for SFR. I think that's permanent. I think it's absolutely permanent.

Mike Simonsen  31:40  

And you view it as a tailwind for SFR, in that people are going to be able to live further to our commute, rather than

Mike Greene  31:48  

Absolutely. And I think, you know, the data over the last several years has reflected that. Right? Like, nothing has ripped faster than the quality housing and a good school district 45 minutes plus away from the city centre. And like, it's happening everywhere. It's not it's not specific to San Francisco, it's happening in every city in the country.

Mike Simonsen  32:14  

Right? Where are you guys buying most right now? Where do they can you give us can you give us any without giving away the secrets on the neighborhood off? Can you give us some,

Mike Greene  32:22  

I can't give you the secrets because you know, that side of our business is all quantitatively derived. So that that's my get my opinion, like I said, does not reflect what we're actually necessarily doing this is my job is just to pull the business together. And all these observations just come from having a loud mouth and looking at a lot of that all day. But look, I think

Mike Simonsen  32:43  

that's what I do for a living. Exactly.

Mike Greene  32:45  

So So I guess the long short of it is, we are we are long term bullish on SFR. We are opportunistic, and you know, if it does slow down for any particular reason, we would certainly be a an opportunistic buyer of the good stuff, the good stuff being defined by a long list of characteristics that may or may not have anything to do with what your average realtor or kind of buyer cares about. But I will also say that we have not seen those opportunities yet. Like right now this market is all systems go miraculously enough, because I think every other investor is making the same call we are, which is that you're still more people who want to live in houses, whether they buy or rent than there are houses for them.

Mike Simonsen  33:31  

That's really, really interesting. And I you know, as living in the data, and in my social media world, like I what I've published out is, you know, like we can see things slowing, but it's hard to dis it's hard to have this conversation right now, it is hard, because I can see we can see price reductions increasing rapidly, we can see inventory climbing inventory, year over year gain, but inventory is still less than half of what it was even 2019 by the last year pre pandemic. And so. So in that sense, it's still nuts, we track what we call immediate sales. And these are, you know, these are houses that get listed and go into contract essentially, immediately, hours or days. And it's been surprising to me that there are still a lot of immediate sales happening. 23% of the homes listed last week went into contract immediate, essentially immediately.

Mike Greene  34:29  

I mean, I think that's exactly that phenomenon that I'm seeing as an operator is, you know, it's funny, we are seeing a lot more stuff that's been on the market for 2030 4050 days than we than we used to. Yep, we don't want to buy any of it for the most part. Like for the for the most part the stuff that is priced right and is good housing stock. If we get if we don't get the offering within a couple of hours. We feel disadvantaged we don't even get a call back from the listing agent. Yeah, tell us why we lost like but the stuff that is mispriced or the stuff that is a poorly done unpermitted garage conversion or something else structurally wrong with it that like, the smart kind of buyers don't want to buy. That stuff is sitting on the market. I think this, this idea of buy me a house with a door at any price. That's gone.

Mike Simonsen  35:15  

That's good. But anyway, we

Mike Greene  35:19  

weren't but people were I guess people and yeah, and that was or not. Yeah, but they're still buying stuff. It's priced. Right. Like, yes. Yeah. Yeah.

Mike Simonsen  35:26  

That's fascinating. It'll be fascinating to see, you know, if over the next six months, if we, or eight months or 10 months, we roll into a recession, if that changes. Does your model change in a recession? Environment?

Mike Greene  35:39  

Yes, but again, I can't tell you how, Phil, the folks who are smarter than me who kind of okay, figure that out. Our models are tested through as many housing cycles as we can go back and see in the data. So we, we've trained them on 2008, we've trained many of them on the early 90s, as well, it's yeah, the goal is to buy things that have some level of resistance to a turn in the cycle. I think the recession is an interesting one, what I'd be looking for in a recession is what happens to rents because rents have not gone up as fast as prices. But they have gone up quite fast. And if you look at oh eight rents actually didn't have a single blip, mainly because there was all this new renter demand by everybody that got foreclosed on. Well, this time around if you don't have those foreclosures, which I don't think you will have people just have less money does that slow down rent growth? Almost impossible to prove the counterfactual because rent growth, I think has rent has so much to grow that even if it just if it grows at 5% instead of eight. Why did that happen? It's still quite good. Right? So yeah,

Mike Simonsen  36:45  

yeah. So yeah, certainly still super strong right now. So investors have no, no incentive to unload their properties. They're locked into those super low mortgage and, and rents are high and climbing. So we certainly haven't seen any pressure on that side yet. Yeah, I can imagine a world where as, as money is more expensive than the next deal that I might buy, doesn't pencil out there for like we there's either less demand there, or there is more supply, that that is like a property that might have got converted into a rental. Now,

Mike Greene  37:24  

yeah, that'll be another interesting one, again, because the marginal buyers here are typically people not not investors, like if this were the commercial space, the market should be relatively efficient between interest rates and cap rates, right? Like, you're not going to buy a two cap and finance, it was 6% money unless you have a very strong view of appreciation and rent growth. In housing, we've never been through a cycle now where there are investors kind of very active in certain segments of the market. So I think it'd be very interesting to see what happens here. Like, if interest rates keep going up, do cap rates eventually start to widen. And we haven't seen any evidence of it yet. Because again, I think people are bullish, rightfully. So they're looking at the same data we are. But it would tell you if that were to happen, that certain segments of this market are starting to become more commercial markets.

Mike Simonsen  38:15  

Yeah, that's fascinating. Do you do you have a pretty bullish view of, of the market? So it sounds like pretty bullish view of the market in terms of appreciation to the structural challenges that there's low supply, high demographic demand? So do you see risks that we're not talking about?

Mike Greene  38:37  

Definitely see risk. Let me try to think if we're not talking about it. Yeah, I think the biggest risk, the biggest risk I have, in my mind, I think is bigger than the real estate market. I think all of the risks that keep me up at night are the ones that the unknown unknowns, the things that I couldn't possibly have a an enlightened view upon deglobalization being chief among them, I were and that is a bigger problem than just real estate, like we have been de globalizing rapidly. There was already kind of I think global sentiment was turning against the Washington Consensus, so to speak, for years, and then COVID Just accelerated that. And I don't know when that stops and turns around, if it takes 30 years, like it took 30 years to go the other way. That would be terrible. Right? It's

Mike Simonsen  39:23  

terrible because deglobalization, that implies less efficiency and higher, higher things like inflation, structural inflation,

Mike Greene  39:34  

the interest rates have to rise to match that. So there's just less capital in the world. Yeah. And not to say that the way that we've operated and kind of the capitalism that we've chosen hasn't had its excesses, but like, there's a lot of baby with the bathwater fears that I have here. And you know, at the end of the day, I don't know that everybody sees the world the way that you and I do on this and like they see inflation they say Yeah, it's Joe Biden's fault. It's like, No, this is this is a bigger deal than just the President or something this is. So I, the idea that humanity may have to go through that valley of pain, to understand that we should not be turning our back on everything we've built over the past 70 years, I recognize this is out of scope of this conversation. But like, if something happens like that, there's just less capital available in the world and things just stopped growing forever, and I forever benefit from it. Well, then my call on whether this zip code versus that zip code, it just becomes less relevant. Right?

Mike Simonsen  40:34  

Yeah, exactly. You know, I watched a talk recently about, you know, the, his view of the future and, and, you know, most of humanity is really unable to head and in his Yeah, that's right. That's exactly right. But he was, you know, his view is, like, you know, the safest place for your money is in your mattress right now. And, and he's, he's black swan, you know, that gives me that gives me real, like, you know, pause to think of, you know, if we're, like shifting and, and, you know, you know, a lot of the innovation in housing, primarily, the biggest innovation I think, in in us real estate market in the last decade has been open door, and the the financial ability to like, well go buy your house quickly, because we have infinitely free money. And what happens when money isn't infinitely free? Like, what happens to those those big innovations? And how slow did things get, like, I don't have an ability to see, you know, the real implications of that. But those are interesting challenges and add to character, characterize it as d globalization. I think it's pretty powerful. It's like, it's like, we had this 3040 year trend of globalization with these Massey's and benefits, and then with some of the downsides that we're now trying to correct for, and like, what happens to all those benefits,

Mike Greene  42:08  

what happens, everybody who decried how Walmart came into their town and messed up Main Street, you know, now they're paying mainstream prices, we're seeing how much they like that. Like, let's not forget that a working class family could walk into Walmart and get everything they needed for a small percentage of their paycheck, you take that away, suddenly, it's like, you should switch. You gotta guys.

Mike Simonsen  42:27  

Yeah. So what do you think in terms of inflation? You know, obviously, inflation is biggest economic story the day? Does that? Does that change your view? So or, for example, you know, for me, a year ago, and even when I was doing some of these podcast interviews earlier this year, you know, we were still talking like some of my guests, were still talking, like probably transient inflation going to, you know, like its supply chain oriented, and therefore, you know, not super bearish implications of that. Every, you know, it seems like we're still accelerating inflation, and what does that mean to you. So I

Mike Greene  43:05  

have kind of a weird, maybe overdetermined view of inflation that I'm sure a real economists can scoff at. But this is just my way of digesting it, and kind of grasping what it means. I have always felt that inflation they sent it matters economically is just another word for like scarcity. What I mean by that is, when the stuff people buy a lot of is relatively scarce. The price of those things goes up and you you have a certain amount of inflation. So when I, you know, 10 years ago, when CPI was at, like, you know, half a percent or something. Now, there's no inflation, we got to we got to jack up inflation. And I was living in the Bay Area saying, you know, I recognize that the San Francisco CPI is technically whatever percent because the way you define that basket has in it like computer chips, or cards or other things that like, I actually don't buy. But my rent is certainly inflating a lot faster than than the cost of, you know, a drink at the local bar where all the other kind of finance and tech people hang out. That's, that's done up quite a bit. So in my personal CPI basket was experiencing a tremendous amount of inflation. And now I almost feel like, that's just kind of expanded rurals now, so all inflation is transitory. And it's specifically transitory. It's going to end at some point, it's going to shift to different sectors and in the middle part of the last decade, when, when, when the price of stocks was going up, because the earnings multiples were going up, I said, Well, investment opportunities are scarce. That's where we're seeing inflation. That's where that monetary pick in the Python. So to kind of answer your question a bit more specifically, right now, what's Scarce is food, energy and shelter. If we continue to globalize none of those problems are getting solved anytime. The only way to really care and so I don't care what the Fed does. Oh, actually, that's not true. You Two ways you can get inflation, only one of which the Fed has control over. Right? More supply or less demand, can kill demand, raise interest rates to 10% cause a recession, inflation will go down, because no one will be buying anything because they don't have any money. But to read, but to really give people the prospect feeling of prosperity that they want, what you need to do is increased supply. Which means more oil, more renewables more food grown domestically or more relationships with partners who are willing to trade freely with us to provide us with those things. And same with the precursors to housing, including labour, which means we have to open up immigration, which nobody seems to be excited about. The structural things that are making inflation go up, or outside of the Feds control. Its geopolitical, or domestic political.

Mike Simonsen  45:47  

Really neat. That's I love the big thinking, it's really fun to it's fun to explore it, right? Because Because we can sometimes be in the, you know, in the neighborhood, and the dynamics of the local dynamics and housing, but, but there's some really big economic shifts happening in the world. And, and like, those are, those are coming to play and, and they may be changing fundamental assumptions that we've grown up on. Now. I've done Altos Research in, you know, the last 1716 years and, and, like, there been some big changes in there. But But the fundamental assumptions have been basically the same throughout their

Mike Greene  46:25  

last time we had this kind of inflation. I was like, this is really something that I'm older than most people in the in the workforce, right. So like, this is really your component challenging fundamentals happens is very clear. What is done with this field? Yeah,

Mike Simonsen  46:40  

I've certainly never run a company in an inflationary environment. Yeah, exactly. never raised, we have never raised prices, and customers like, like, that's an interesting thing. Okay, let's do we're coming up to the top of the hour, let's, let's, where do people find more about ResiShares? Are you particular? Is there something you want them to? Are you writing stuff? I love this stuff that you write you do? You do investor updates and stuff, and it's super fun. Where should people should people find you?

Mike Greene  47:08  

So you know, we are not marketing right now. Like I said, we kind of have our Capital Partners, and we're focused on execution. But we intend to broaden our the scope of our offering very, very broadly at some point over the next decade. So I would say, you know, by all means, check us out of you curious, you're not going to find all that much. But watch this space, because we hope to become a household name. And you can go to WWE hyphen shares.com and navigate over to resume wrap inside. And I promise at some point you'll actually get an email or two but not 200.

Mike Simonsen  47:41  

Resi Resi-shares.com. And then you can you can jump on the newsletter there. Exactly. That's terrific. Yeah, I love the newsletter. I love it. I'm glad. Thanks very much. Yeah. Okay. Mike Greene, thank you so much for joining us on the top of mind podcast today, I really appreciate your thoughts, I love getting the different perspectives, I love the concepts of of neighborhood alpha, I love thinking about, you know, 2008 as as a as a leverage crash and we are significantly under leveraged right now, I'd like the love the insights about, you know, where the homes that are sitting around on the market now are already ones, you know, you don't want and and so the ones like, like that the competition is staying for the good properties, and it's gonna be really fascinating to see over the next six months, 12 months? If, if that continues, right, if that trend if, if if like, you know, the macro trends, that demographic trends and the and the supply trends allow us to essentially stay high hotter than you'd expect, you know, in a in a weakening economy like does that does that continue to hold up can be really fascinating. A good friend of mine lost on a multiple offer scenario yesterday. And, you know, meanwhile, I'm reporting on price reduction. So like if you're really gonna be really fascinated to get a K shaped, how do we do a K shaped real estate recovery? Exactly the real estate market that'd be really, really fascinate. Okay. Well, thank you so much for joining me, Mike. Thank you, everyone, for listening. This is the top of my podcast. I'm Mike Simonsen from Altos Research. If you need to learn about the data every week, make sure you follow our YouTube channel. Subscribe at your your all your your, your podcast places for the Top of Mind podcast and join us again next week. We'll have another Top of Mind. Thanks, everybody.

Mike Greene  49:52  

Thank you.

Outro  49:53  

Thanks. Thanks for listening to Top of Mind. See you again next time and be sure to click Subscribe to get future episodes.

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