Geeking Out On Housing Economics

Ralph McLaughlin is the Chief Economist at Kukun, an AI-powered property technology platform for homeowners and real estate investors. Kukun offers fast and intuitive access to the most important home data and analytics. Ralph advises Kukun’s data science team in developing predictive housing market analytics and products. He provides digestible applied research for local governments, public policymakers, and the general public. 

Previously, Ralph was the Chief Economist at Trulia and the Deputy Chief Economist at CoreLogic. He currently serves as an Adjunct Assistant Professor at the University of Southern California and is an Advisory Chief Economist at Haus Real Estate Group.

 

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

• Ralph McLaughlin discusses how Kukun evaluates the worth of a home
• How much value will a renovation project add to your home? 
• Turning real estate data into digestible information with Kukun
• Ralph discusses how he helps homeowners with his work at Haus Real Estate Group
• Innovation within the world of alternative home financing
• Benefits of shared equity financing plans
• Ralph explains the Common Haus Pricing Index (CHPI)
• Real estate trends for 2022
• What kinds of policies would make it easier for people to become homeowners?
• The underlying issue of under-building 
• How high inflation would impact the housing market
• Will demand stay high and supply remain low in the next 10-20 years?

In this episode…

Owning a home can seem daunting. How do you know when it's the best time to buy or sell? How do you know what your house is actually worth? 

Kukun takes mountains of real estate data and turns it into digestible information for homeowners. They follow real estate trends and produce predictive analysis reports to help you navigate the complex world of home ownership. Additionally, they can help you understand how renovations add value to your home and how alternative financing options can help you find a home sooner. 

In this episode of the Top of Mind podcast, host Mike Simonsen is joined by Ralph McLaughlin, Chief Economist at Kukun, to discuss today’s top real estate marketing trends. Ralph explains innovative financing options like shared equity, why he created resources like the Common Haus Pricing Index (CHPI), and what potential policies would benefit homeowners.

Resources mentioned in this episode:

• Ralph McLaughlin on LinkedIn 
• Ralph McLaughlin on Twitter
• Kukun
• Haus
• The Common Haus Price Index
• Mike Simonsen on LinkedIn
• Altos Research

Sponsor for this episode...

This episode is brought to you by Altos Research. Altos is the #1 market data company for realtors, title, and escrow. 

Each week, Altos Research 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.

Altos Research is a full-featured lead conversion engine. Their system uses real-time market reports to attract and engage prospective buyers and sellers. Designed to work with minimal setup, Altos helps you move leads through the funnel automatically, alerting you when they're ready to take action.

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

Visit Altos Research at altosresearch.com for more information or set up a contact with them here.

Episode Transcript

Intro 0:03  

Welcome to Top of Mind, the show where real estate industry insiders talk shop about the big trends shaping the market today. Enjoy the show.

Mike Simonsen  0:14  

I'm 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. This work This episode is brought to you by Altos Research because that's what we do each week it Altos Research we track every home for sale in the country, all the pricing, all the supply and demand and and all the changes in that data and we make it available to you before B. You see it in the traditional channels. So visit altosresearch.com For more on how we do work at Altos. For a couple of years now I've been we've been sharing the latest market data every week in our weekly video series. With the new Top of Mind podcast, we're looking to add some context to the discussion about what's actually happening, and do that with a conversation with leaders in the industry. So speaking of leaders in the industry, I am thrilled to announce today my guest, Ralph McLaughlin. Ralph is the Chief Economist at Kukun, and has more than a decade of experience in real estate analytics and development. He has held roles as Chief Economist at Trulia and Deputy Chief Economist at Core Logic. He currently serves as Adjunct Assistant professor at the University of Southern California and is an Advisory Chief Economist at Haus, which is also an Altos client. So welcome, Ralph

Ralph McLaughlin  1:49  

Mike, thank you. Great to Great to be with you. I’m humbled to be one of the first guests on your new podcast.

Mike Simonsen  1:58  

Yeah, looking forward to it. Okay, let's start off you are. You're the chief economist at Kukun. Tell us about Kukun, K, U K, U N. But set the sounds obviously, like a real estate play. So tell us about what you're doing there and what we should pay attention to.

Ralph McLaughlin  2:20  

Yeah, well, I'm heading up the economics analytics team at Tech Acumen got a team of very, very smart folks that come from many different backgrounds actually got a few persons from from from Zillow, Group X. X folks who worked at Zillow, a few that worked at Freddie Mac, and some that worked at Fannie Mae. So I've been very fortunate to assemble a crack team at Kukun, and one of the real differentiators at Kukun is the data assets that we have we have most building permits in the US. And the reason that matters is that in the real estate analytics space, one of the big wildcards is, you know, looking at real estate data is actual property condition, you know, you can come up with an estimate of the value of home, you can, you can come up with what you think it will sell for so on and so forth. But one of the things is real difficult was to know, well, especially on older homes hasn't come on or been keeping that home in good shape, have they made repairs, have they replaced things like water heaters? Have they replaced a new roof. And so we're trying to be on the cutting edge of real estate analytics, by solving this gap that's existed for a long time, you know, about the only persons that have had this information, have been appraisers. And that information typically isn't available in mass, where we've been able to find a great source of building permits for most, most jurisdictions in the US, I think we're we've just collected our 25th 100 jurisdiction. And so we're trying to disrupt the space by bringing that information in

Mike Simonsen  3:57  

so fascinating. So what you're saying is like the the old Zillow can't smell the cat problem. The like you you can't, it's hard to estimate the price of a home based on comps, if you don't have any idea that the kitchen has been redone, or all kinds of things and you can have a little bit of subjective things people a homeowner can can put in some data but but really Kukuns using building permit data to go reapply all that and is coming out is is ultimately valuation like how much is this house worth? Is that the question that the company is answering?

Ralph McLaughlin  4:35  

Yeah, well, I mean, there's a few things that we're trying to answer. Primarily number one is what what is this house worth? Can we build an AVM but actually incorporates this information and we just got our initial text test results back on five counties from from a testing company called ADM metrics and we are basically at the very top of 26 commercial grade ABMS when it comes to our median error, or our median absolute error which is Typical metric and and punching number two number three, and from just building putting building permits in an AVM model, it's amazing how much that's that's added to that mix. There are other products that we're working other analytics products. We're working on a home price index. And but yeah, great another home price index, who needs another home price index? Right? Everyone's everyone's got one. You got one. I got one. Yeah. But one of the things that we can do with this building permit information is we can actually separate out markets appreciation, from capital improvement. That's one thing that almost all home price indices aren't taking into account. They're attributing everything to market appreciation, when we know not everything is market based appreciation. And especially in this housing market over the last year or two year and a half, when there's been so few homes on the market, what have people done? Well, they've renovated their house. And so there is there's a lot of mismatch, I would say a lot. But we think there's substantial Mis measurement in home price growth, attributed to market conditions, when actually it's a mix of market conditions, and actual capital improvement. For example, we just rolled out a HPI for Phoenix will not publicly available yet, but internally. And we're estimating now I think he Shover shows 24% price growth in Phoenix, we're showing about 18% price growth. So six percentage points of that, you know, almost a full quarter is actually attributed people adding value to their house and making investments not from market fundamental supply.

Mike Simonsen  6:36  

That's fascinating. So yeah, the, the the quality of the stock is always a fascinating question and shift of what what are we measuring in there? So what does that mean then for, say, the end? Either homebuyer or the realtor? Like what does that like when when Kukun makes this data available? What does it mean for them? How do they help the end? buyer is better? Yeah.

Ralph McLaughlin  7:06  

That's a great point. So a third product that I didn't mention, but you just I mean, you set me up Mike was perfect I would this is not even scripted and set me up perfectly, is we're working on in ROI models, which is we can use information on the work that's being done on homes to estimate the additional value add of doing a project, we do have a big network of contractors so we can get a rough guess as to what it costs to actually do that work. And then we can present to either someone's thinking about selling their house, is it worth it? Should I actually do this work for somebody else? And also the buyers to say, oh, maybe you're going to buy a house that needs some work done? Is it? How much should I discount based on, you know, the additional value I'd get versus what's going to cost? So that is that consumer component that end user component that, you know, that we're really shooting for, of course, ATMs have value, right? People use ATMs. But this is something that's very actionable, very much related to what we've been seeing, which is an increasing trend of people of renovating, improving the quality of housing stuff.

Mike Simonsen  8:11  

That's good. So So you think you can buy just redid my kitchen in my, my mountain home is this summer, and you think that, like, we now have visibility on, like what that adds to the end value of the home? 

Ralph McLaughlin  8:30  

Yeah, I mean, we have. So there are some caveats here. And we're working through these caveats. But ultimately, not everything that I know not all work that's being done to a home needs a permit. So that's like, kind of one drawback. But we've got some tricks of our sleeve about how to how to solve that. The least of which is, well, oftentimes, when people are getting permits to do something on a house, they're also doing other work. And so you know, this a little tease about how we can figure that out. But yeah, pretty much, you know, so for example, we got about a year ago, we did a solar roof on our on our house here, because pg&e cuts the power off quite a bit, you know, living in the mountains that happens. And just say we had a neighbor with an identical property, but didn't put that roof on their home. We actually can see, in fact, I've gone through our permit database, and I've seen the permit there for us to get this roof done. And so we would know this house has had a new roof, the house next door that's identical didn't and we would be able to do that differential using broader analytics about how much more homes with solar feature sell for homes that don't have solar features. Now when it comes to things like a kitchen, sometimes kitchen requires permits, sometimes they don't. So at this point in time, if there was worked on that didn't have a permit, we might not be able to get that but we're still we're still progressing, right we're pushing past what is currently being done and not letting perfect The way to get

Mike Simonsen  10:01  

right right for sure lots lots of information to, to be had there and a lot of a lot of homebuyer questions too. I know. It's funny. I don't know if you've ever heard but the story of why I started Altos Research, no, I, I bought my little old piece of shit Silicon Valley house, you know, for you when I was 30, and you have this giant mortgage. And I bought it was 2001. It's, it's what two bubbles ago, and I had, you know, I had we knew we were buying the cheapest house in the expensive neighborhood. And one of the things that we assumed that we would do would be investing, add square footage, it was a 50 year old house at the time, and we were gonna add square footage and and could we, how much value could we get out of that. And one of the things that I did was, this is why Altos Research, why we look at every market in the country in four price range quartiles, the bottom of the market may be behaving very differently from the high end. And also, you'll notice in a place like Los Altos, the the bottom, the cheapest part of that neighborhood, those were all quarter acre lots. But you could get a little more expensive. But if you go much more, now you have half acre lots, you can't, you can't trade up that high up the stack. And so, but I could very well, I could see very clearly that that investment was going to pay off, like we could go make, move up, you know, the next range price range in that neighborhood and get the payoff. And that's exactly what we did. And and I did it because I was sitting there watching that data that way,

Ralph McLaughlin  11:50  

you know, and what we're doing, I mean, so it's like, you're an expert housing space, of course. And, and, you know, so you get that, and even then, it probably wasn't a trivial exercise for you to do that, right. I mean, you had to sit down and kind of look at a lot of things. And so we think there is real demand for non expert folks, for that type of knowledge, right? It's not just information, it's knowledge, just taking that extra step. You can have a lot of data and know nothing about that data. So we're going to produce knowledge from that data to help to help folks who maybe aren't experts like yourself. And I remember doing a similar similar thing in San Jose, when back from overseas in 2012, bought a house cash credit for two bedroom, one bath 900 square feet, university for 270,000 bucks. And that was like for us when I was young, breaking the breaking the bank, and you know, just having enough left over to do some renovations. And, and even then it was just a real whirlwind. And again, I was a, I was a practicing young practicing housing economist at the time and an event. So we're really trying to democratize that information and turn it into knowledge and help help help the next generation of first time homebuyers. Well, anyone for that matter, but especially, you know, less knowledgeable first time homebuyers do exactly what you and I did and help them you know, grow equity in their house, not just through buying and waiting for market appreciation, but but making smart investments in their home.

Mike Simonsen  13:18  

Yeah, that's fascinating. So that's really amazing. It'll be fun to watch the work that Kukun does and Kukun is KU KUN, and for people who are listening, and it'll be really cool to, to see what how that how that materializes as that product becomes available. Let's talk for a second about Haus ha us, which is where we started working together. And where you are the biggest consulting or consulting chief economist, and you built some really interesting stuff in Haus. Tell me quick about Haus and then let's talk about the work you did there.

Ralph McLaughlin  13:56  

Yeah, so Haus is an alternative home finance company, where we actually partner with homebuyers instead of put them into debt. So if you wanted to buy a house, in the US at any point over the last 60 70-80 years, you had to get a mortgage and I had to pay cash for it, or you had to get a mortgage and go into debt and all that. And so you're basically pigeonholed now, maybe that's different kinds of mortgages you could get, but you know, like, the most work the same, right? Our product is we actually will co purchase a home or CO invest in a home with a home buyer where they will actually be on title so you don't own the home. But we are on we have a lead that's equal to the share that we put down on the property. And it allows people to own in a flexible way and one of the advantages is that we can offer payments that are even cheaper than what you'd be able to rent that house for. So incredibly, incredibly low payments. I mean So we're talking considerably less than than a mortgage, we also offer the flexibility of cashing in and outs every month, if you need some extra cash, or you want to buy more equity in that in that house, that's an option. And then third, we allow people to make payments, their monthly payments with the equity in their home, should they run into a financial hardship. So say, for example, you were partnering with us, and you lost your job, maybe it was because COVID related or whatever reason, you know, pretty quickly, I mean, in normal times pretty quickly, you would start to enter in foreclosure, usually, it's about 90 days to start to become seriously delinquent, and then the banksters mafia, the lender comes after you and you start going through the foreclosure process. Well, it's a no one's best interest to foreclose, as long as the property's basically in good condition. And even if it's still going up in value, someone might want to stay in that house, so they get back on their feet. So we will do is we will say, okay, you don't have to make your payments, you know, till you get back on your feet, and you can just make payments, with the equity that you have in that house. And oftentimes, it, it comes down to a fraction of a percentage of that of the equity they have. So if someone would just say starts off with 50% equity in their house, and we have 85, every monthly payment would be like two tenths of a percentage point. So you know, you could say that it's not like they're giving up a whole lot of equity, but it means a lot to that person, you know, of all the stresses of being unemployed, trying to find another job. Entering foreclosure is just kind of a salt in wound, and we offer a product that basically eliminates that, that risk,

Mike Simonsen  16:39  

that's fastinating. Okay, so, there's so much going on in the alternative home financing world, right now, there's, there's all the rent to own, and the cash buyer stuff, like all kinds of crazy things going on. Like, some of me says, like, that's, it's remarkable, and a lot of its started with open door and open door, you know, doing the ibuyers, like, we're gonna, we got, we have infinitely free money, so we'll buy your house. And, you know, and and all of a sudden, they could buy a house real quickly and in turn around, and then hold it for a little bit and sell it and, and then, and then a lot of the derivatives have happened since then it's like, okay, well, we're not gonna buy a house. But if you can't sell your house, we'll buy that one real quick. And, you know, we'll do all these other things. Where is where? How do you see that landscape? And what do you think? And what do you think about the future that what's going on there?

Ralph McLaughlin  17:38  

Well, it's certainly I would say, it's the Wild West, but there's certainly a lot of innovation happening and innovation. You know, when you get big spurts of innovation, not everyone or not, not all companies tend to hang around, and not all business models tend to hang around. But overall, usually the industry is better off after that, that that burst of innovation, I think that's what we're seeing. I think that's what we're seeing now. I know, you know, certain ibuying, I don't think it's going away, despite Zelos departure from it, I don't think ibuying is going away that that's a that's a value add service, especially for folks that might be in a crunch. Like, say, for example, if you've got a job, you know, at the end of this year, right, maybe you were just offered a job last month, and you start you know, sometime next couple of weeks, and you have to relocate. Yeah, that was the worst, you know, this better 90, that was the worst time to sell a house, right. And, you know, if you're trying to buy another house in your future destination, it could be a real, real pain in the ass. This solves a lot of that problem, right? It solves the liquidity problem, especially folks that are moving, you know, between metropolitan areas. So I think that model is here to stay whether or not you know, I you know, open door offer pad or even Zillow comes back in who's going to dominate I don't know, open doors definitely seems to be you know, the leading player in the space. But yeah, again, a lot of it also comes down to being smart. And using analytics wisely. I must say, in order to make that business I'll happen on some of the other friends you know, there's still there's an equity equity share, and that's what Haus plays in right. But equity share is not equity share right there. There are varying degrees for example, there's another company out there called the points and basically you can you know, trade some of your equity for some cash and you actually don't have to make any payments. But you know, there are some differences right where they, you know, will actually bake in some buffer. So it's not just you know, the cash that you're getting but they bake in automatically some buffer on top of that, where, you know, they're guaranteed to make some money if you sell or if you buy them back in year two. You know, that that is that is growing it. I think there is a permanent future there. I'd like to think it's, you know, the type of product that we have in Haus. But being a little bit humble, yeah, it's really, it's really tough to, it's really tough to tell the downside of this equity sharing arrangement, it's really starting to get going, you know, maybe about a year or two before the pandemic point had been around for quite a while. But you know, Haus we launched our product about a year before the pandemic, what are the what are the trade offs of that is, of course, that home prices now have grown just incredibly right, it'd be perfect, they've grown incredibly, so much so that they run the fastest they've ever have in history, PR for PR records. And that actually, you know, makes an equity sharing product look not super attractive for buyers that are all about home price appreciation, right? Like, if you buy a house, you're thinking it's going to go up in value, be very clear that equity products are not for you. And this is coming from someone from a company who we want to if you're all about equity, and growing as much as you can, we're probably not the product for you. So but, you know, I have to be very clear and honest, when I talk with, you know, potential customers and clients that, you know, one of the big mistakes economist or anyone for that matter make is that they look at what happened in the recent past. And they try to apply that to the future. And they expect it right. And sometimes you're going to be right, but when you know, you're not always going to be right.

Mike Simonsen  21:23  

So that's right. So so like, you know, Americans, but invest, like, I have this hypothesis that, you know, Americans have such a housing fetish compared to much of the world, partly because we don't have another safety net. There's since there's no other social safety net like it's sort of a well I got my house and and because in the US we finance homeownership, we we all the legislation is not finance is in favor of homeownership, you know, we deduct mortgage interest and, you know, all the tax laws, like all the things are about helping the homeowner own that that, which is one of the reasons we have low inventory. And we and therefore, like we are we banked so much of our financial future, on the house, the equity gains of the house, it's a it's a fascinating challenge, like the only time I want to give you equity in my house is when the markets tanking. So, it'll be fascinating to see how that that plays out for folks. 

Ralph McLaughlin  22:39  

And I think there's, I think there's a nice middle ground here actually where the target the target client target market, might be the pre owner. Okay, and that is someone maybe who's ready to not rent anymore, but maybe not quite ready to buy. And this is an opportunity where they can still grow their equity share in a flexible way. Maybe they're young, and don't want to ask their landlord to mail, you know, pictures on the walls or whatever, but not quite, quite haven't found like their forever house that they could, okay, go go with us grow their equity and use it as a leg up into maybe over more traditional ownership type of model actually seen those folks have been more popular with those folks.

Mike Simonsen  23:24  

Yeah, that's, that's really interesting. That's a, you know, there are applications there. For an innovative buyer, somebody who's who's like, like, it can, especially in a world where it's actually because we have restricted inventory for the foreseeable future, like what's the best way for me to, to get in his market into a home that I want to build be in and, and build equity. So to build some equity. Like, that's an interesting, that's an interesting application. It's, it is encouraging, I think, to have that kind of innovation happening.

Ralph McLaughlin  23:59  

And something another benefit along those lines that I haven't quite mentioned yet. But it's also important is because our payments are so low, yes, you may be giving up some equity and growth in the equity. But because our payments are so low, it is actually allowing households to act to buy more house, they can potentially get into better neighborhoods that they might not otherwise get into. Because their payments are so so low. So if you look at the equivalent house, you could buy it with a mortgage versus us, you can buy a much more expensive house with us. The trade off, of course has its equity in the growth and that equity over time, but your equity still growing. It's just not growing as much as you would in a mortgage. But the trade off is you could probably live in a much better school district if you've got young kids, right. And so we think there's actually some some overall community benefits some some some some well being that would be created by this product because it actually opens up opportunities for households that might Not enough had those opportunities before, not just homeownership but actual where you live matters a lot. I mean, the Raj Chetty snapper did a ton of great work that places everything, when it comes to growing up and being able to be socially mobile. So if our product is actually allowing households to live in better neighborhoods and better neighborhoods, and maybe neighborhoods that they were, they would have been locked out of, because of, you know, their their their price maximums, we kind of unlocked that a little bit. So that's another type of you know, persona that really might benefit from our product.

Mike Simonsen  25:37  

That's, that's it. That's great. And one more question on this topic. And then let's move on to smell like we got lots to cover. What happened? Is it does it become more appealing in a rising interest rate environment. So if we finally get out of this, like under sub three mortgage rates, let's say let's say rates go to 4%, or four and a half percent. mortgage payments start climbing significantly for a first time homebuyer thinking about getting into that good neighborhood. Does it does a deal? Does the deal in this Shared Equity structure from Haus that get better? Does it feel better at that point? 

Ralph McLaughlin  26:15  

Yeah, it feels better for two reasons. One is going to be that of course, the differential between our monthly payment, which we call an option fee, because it's basically an option contract. And a an equivalent type of mortgage that that delta that gap grows, right? Yeah, yeah.

Mike Simonsen  26:31  

It's actually cheaper each month. It's like the payment is differentials bigger.

Ralph McLaughlin  26:35  

Exactly, exactly. And what also tends to happen when interest rates rise is that you actually get sort of a moderation in home price growth. So it actually means you would be giving up a little less as far as the me you're not giving up the equity that you put into the house, but of the home price. Growth. Yeah, future growth, you're giving up a little less because when interest rates rise, you tend to get prices but that price growth that moderates in the say, drop in extreme cases, it drops and most of the time, it just moderates a little bit

Mike Simonsen  27:08  

faster and faster. Okay, let's switch gears a little bit while in Haus you created the chippy the Common Haus Price Index. Tell us about it. And, and and why the world needed it.

Ralph McLaughlin  27:21  

Well, I gotta first before going to that. Thank you, Mike. I mean, Altos data has been just absolutely key and helping the chippy get off the ground and continue to do what it's doing. So I, I will start with that. So there are a lot of great home price indices out there. You got a number of them, right. You've got the Case Shiller Index, probably the most famous one. You have the chronological Price Index, you've got the Zillow HDI, you've got the FHFA, home price index. Those are all those are all great, good, solid indices. The thing that's not great about them is this one, they're usually pretty heavily lagged. I mean, Case Shiller is lag by you know, like, I think we had the release last week that was reporting for what I think July August and September, or maybe is September, again, August, not just September, just September, November, December, December, December, and we're getting July, August and September data, right. That's what it's based on. So that I mean, it's it's a great X is very well, you know, proper show, you know, hero of mine, right, but it's a flag, it's a flag. So that's once you the second is that it's an index. So for a lot of just your average consumers, they don't really know what the hell an index means, right? I mean, index of, you know, 156.345 didn't really, really mean a whole lot. Yeah, that gets translated into percentage year over year. But it doesn't really kind of meet mean mean mean a lot. So those are, those are a couple things that, you know, really weren't so great about these indices. And during a time when the market is going through an inflection point, that lag can actually be the difference between making smart decisions or making actually poor decisions when it comes to anything in the housing market. So what we've done with the chippy is we actually take this awesome feed that Altos has, that comes comes in every week. You know, all the listings on the market and characters, characteristics and its properties. And we feed it into a new home price index. That is not for the average house. It's not a meaningless index 150 6.35 It's not for a median home. We actually look at the most commonly specified house in the US, which is actually a three bedroom, two bath house on basically a quarter acre lot. That's 12 150 Square Square Feet are there about sorry, 1500 square feet. And we basically say, what would that house cost nationally, and in every single market, and then we pegged the index to that, that house and what that house would cost over time.

Mike Simonsen  30:13  

There's like the, like the Big Mac Index, like it's around the world, how much is a Big Mac cost and dollars,

Ralph McLaughlin  30:20  

that means a hell of a lot more to your your average consumer this information than it does the CPI. Right? The CPI less shelter the CPI, you know, for urban consumer, I mean, your average person doesn't know what that means, right? So we wanted to actually make a very accessible home price indices, and make it more more, more contemporary, more current. So we do actually know what it is we're estimating the value of the house for its standardized. And then we're also telling you what happened last week, not what happened three months ago. And again, this is where Altos has really come in. Because it's allowed us to be very, very current in our estimates. And thus far, I've been producing it now for publicly for about a year and a year in three, three months. And I didn't you know, I you know, was releasing at a time the housing market was just going crazy. I just thought out Oh, shit, well, yeah, here we go, it's gonna be a ride, it's either gonna be pretty good, and it's gonna be a leading indicator, or it's gonna flop and you know, my credibility out the window would be based on my methodology, not your data is great. And, you know, I was really nervous the first three, four or five months, because our index was just starting to skyrocket, it was starting to show prices going up. 1415 1617 18% and Keisha was reporting like, 8% or 7%. And I was just like, Well, okay, I, you know, I'm gonna ride this thing out. But, you know, they asked to go under, to go underground for a few years, you don't, it's back up. 

Mike Simonsen  31:55  

It’s funny. I've had a third, maybe three times in, in the history of the company, also switcher, which I started in 2006. To be when you get to be contrarian, and bullish at the same time. So when the market is when everybody thinks it's cratering, and you look around you guys, like, it's going up. Like that combination is a really fun time to do it. And I remember in the Altos data bottomed in the in February of 2010, which was the exact same time that the s&p bottomed and but but because there was a first time homebuyer tax credit, it pulled all this data for it. And and we were sitting there and we're looking for like, like, the, it's like the markets up and the tax credits now gone April 2010. And we could see and, you know, we were I remember, was it like Blackrock or some somebody on Wall Street, and they're looking around, they're saying, do the only people in the world who are bullish on US housing right now

Ralph McLaughlin  33:14  

and that was a good, that was a good year, before, you know, the the big, more bullish investors really started to get in the game. So I mean, talking about leading indicators, you know, certainly a lot of the work that we're doing chippies, you know, inspired by, you know, a lot of the work that you guys were doing, just reporting and making this information, you know, as available as you can, as you can make it and still have it be a business, right, which is great.

Mike Simonsen  33:41  

And so the question is, so what do you see now? And what do you see for 2022?

Ralph McLaughlin  33:46  

Yeah, well, I mean, I think you and I see eye to eye in a lot of things, not for the sake of seeing eye to eye, but I think because we're, you know, where we look, we look at these data in very, very similar similar ways, which is the way at least most economists and analytics analysts need to look at these data. The big, the big thing I'm seeing now, of course, is that home price growth on a year to year basis is starting to cool down. We are now down tomorrow, or at least the chippy, hello, tomorrow is going to be Tuesday, December 7, for for those in the future. This will be in the past, where home price growth is, you know, is down to about 6.5%. It peaked, at least according to Case Shiller at around 20%. Year over year back in, I think it was June or July is for lease. So our indicators are showing that price growth and your year is coming is coming down. So we certainly see some cooling at the end of this year. The big wildcard of course, is inventory. You've done a great job online every week showing what's happening with inventory, and it's just I don't think anyone could have predicted it. And it's the big wildcard going forward that you know, I don't think any of us really has a crystal ball to know what's going to happen. It looked like at the end of this year, it was starting to recover. Right? It was coming back. It was coming back. It's coming back. And then over the last basically month and a half, two months, it's just cratered again. And it's looking like it craters. It's cratered, more began to get your thoughts on this, but it's looking like historically speaking, it's cratering more than it normally would crater during the offseason, like it seems to be more than just a seasonal effect.

Mike Simonsen  35:28  

Yeah. I was gonna say, yeah, so So last December, the seasonal effect was was gone, people just plowed all the way through December. And, and that took us by surprise, this this one is not quite that nuts. But But like, it is still feels like demand is there in like the ad, and, you know, because people have such cheap mortgages. They don't need to sell even if they're buying another house. So there's still that there's still that that trend sure seems to be happening. Sure. It seems to, as far as I can tell, looks like we're gonna be, you know, beginning of the year with lower inventory than we started last year, like,

Ralph McLaughlin  36:12  

yeah, absolutely. No, it's just been an absolute. It's an absolute chaos for buyers. Right. And then that's kind of what I tend to think in my mind, it's not been great fire. So even though press both has come down, you know, this time last year, prices had already started to really escalate. So it's not really Yeah, growth has moderated, but it's still, you know, still incredibly higher than it was two years ago. Right. But But yeah, I mean, my my hope from an inventory perspective is was, you know, we hit a bottom, it looks some time around maybe April of last year, and then it started to come up. And now it's come back down again, my hope at that time was that we were going to have the slow steady recovery inventory, that bucks a the normal seasonal drop in inventory this year that it was going to keep charging up. And that by the time you would hit the peak buying season of 22. We've kind of be back to normal ish numbers. And I say normal ish. I mean, pre COVID? Not like historically normal. And we are below we were still below but followed it. Yeah. And now I just I mean, it's hard to imagine that that actually is going to be the case. So it looks like it might be another very, very chaotic spring buying season. Unless, of course, we suddenly get a bunch of pent up inventory that comes onto the market. It's possible,

Mike Simonsen  37:36  

I guess. Yeah, I don’t know who that is.

Ralph McLaughlin  37:38  

I mean, it's gonna it's, it's gonna have to be either folks that really wanting to sell over the past two spring seasons, and just got really freaked out by COVID. Maybe that's built up a little bit, or maybe, but But again, it would have to be a large amount. We're talking like almost double the amount of homes that we have in the market. And I don't know that that's going to be in a second second would be those maybe that suffered, you know, economic financial injury, a injury and built up a lot of equity because home prices gone nuts, and are just going to want to sell rather than foreclose. Right. But I, you know, looking to folks that say Realty Trac that study this stuff, it's still it seems like it'd be potentially pretty small, pretty, pretty small now. Yeah.

Mike Simonsen  38:30  

So okay, so let's do this. Let's, we're plowing through our time together already. So but his so we're in this multi year, low equity cycle, you know, low inventory cycle inventory has been falling, year over year, we start the year with your homes, and we started the year before. Do you have view of a like what might happen in the next five years? And be? Like, is there a way out of this crisis for buyers? We do all of our policy for owners. Is there is there anything we can do to help get out of this cycle to make it easier for buyers? Yeah, any ideas about the future that way?

Ralph McLaughlin  39:22  

Yeah. Great, great, great question. So um, you're right. I mean, absolutely, from a policy perspective, especially at the federal level, but also even, you know, down to the state and sometimes local governments. Most of the quick reaction policies tend to be demand focused because it's easy, it just basically give people more money or find a way to make them pay less taxes or a combination of both. Right that's easy quick and usually, you know, it's somewhat effective

Mike Simonsen  39:49  

like generate demand like first time homebuyer tax credit generate demand.

Ralph McLaughlin  39:54  

Go Go kid, just go help them get into homes, right. Yep. Which, you know, I guess maybe as a politician And I can appreciate it, it seems like you know, you're actually doing something. And you know, there are people that have, you know, the short term, it's not been a long term benefits that come from that. But if all that's happening at a time, when you the market is suffering from supply problem, you're really kicking the can down the road, right? You're not getting to the root of the problem. And to be frank, solving supply problems, a very, very tough one, both politically, but also just mechanically, right, because you're having to wait a long time, the supply doesn't happen instantly, especially new homebuilding, that doesn't happen instantly. Right. And also, to convince people to sell their homes, you know, that they're living in is also more difficult to do that it is to convince people to buy homes by giving them money. So So you know, so I think there are a couple things that could happen. You know, one, I wrote about this earlier earlier this year, and some people paid attention to it, I guess most people did not, but I'll share it here. Anyways, it is one thing that we have seen over the last year and a half, it's actually been a pretty well, even the last 234 years, a pretty steady pretty steady activity and involvement from investment companies, like people buying homes for investment purposes, whether it's Mom and Pop, or whether it's institutional investors, this has actually gone on for probably longer than three or four years, it's been going on, you know, 5678 years, those folks have a lot more equity in their homes in their in their investments they did before, if they were to sell, they would have to pay a significant amount of capital gains tax. Right. Right. So one way you might be able to get them to sell is to say we will reduce your capital gains were eliminated one time if you sell to an owner occupier Yeah. And that's a way to get some of the existing housing stock that's owned by investors into the hands of owner occupiers with you know, some cost so that should free up some inventory right like that a lot some transaction, not depending which side of the political spectrum you may not be in favor of that right now they want favors giving money to investors already mokhtar?

Mike Simonsen  42:15  

Very, very few lower, less less respected characters than the landlord. Investor. 

Ralph McLaughlin  42:29  

Nobody wants to come up. Right. But

Mike Simonsen  42:31  

my moustache that do my little handle

Ralph McLaughlin  42:34  

your monopoly hat, right. Yeah. Yeah. But but you know, but even if you disagree with with that approach, I mean, there's sort of, you know, a equally important approach that you could take on the other side, that would probably have the same, you know, same effect, which is, well, if you don't sell now to an owner, occupier, we're gonna raise your capital gains tax, or we're gonna cap urban attacks your rental income at a higher rate high, right. Yeah. Yeah. So so depending on, you know, like, the policies that I like to think of or come up with solutions, I don't, I just try to solve the problem. I don't try to think, well, who's gonna like that, or who isn't? But what do I think can solve the problem? These are things that I think would help solve the problem, and I'll let the policymakers fight over, you know, whatever they think is going to be but but that, in my mind, that helps to start getting towards the root cause of the problem, which is getting more existing supply into the market. And of course, anything long, long run that we can do to help increase new home building also is going to help, especially with population growth, right. So, you know, those are going to be anything from like tax breaks to, to developers, to incentivizing local governments to rezone land to accommodate more new home building.

Mike Simonsen  43:51  

So those are the California stuff. 

Ralph McLauglin  43:54  

That that’s ehxactly right. There's actually been some in the infrastructure plan that that that came out there actually was some promising stuff in there that was focused on incentivizing local governments to rezone land to build more homes.

Mike Simonsen  44:08  

That's, that's I love that policy. Yeah. Yeah, exactly. I there we're in this interesting mode, with new construction where we're actually starts are the highest the finally back to a high level. completions aren't high yet, because because of the whole global supply chain problem. What like, you see, is there any chance that all of a sudden we get a flood of new homes that are gonna change the dynamic

Ralph McLaughlin  44:38  

been, relatively speaking compared to last couple years as possible, we get a flood of new homes. So yeah, I guess I wouldn't necessarily want to be in that situation. If I were a homebuilder, but taking my my combo were held on. Yeah, we've been under building for like 30 or 40 years. I mean, this isn't a new problem. We have a and under building in this country, and that's partially why home prices relative to income are now you know, close to as high as that they ever they ever were, you know, interest rates are a part of that story too. But still, you know, we've been under building zone for a long in this country or building homes for a long, long time. So, I mean, I would have to think that even if there were, you know, a big flood of homes come out on the market, it wouldn't be anywhere near say 2000 567. I mean, home builders are not as reckless, there's not, you know, as much just inflated demand out there, and then the lending, these are the lending. So I would think any realistic flood of homes now would be catastrophic for the for the market, it might not be what home builders would want. But those are tangible additions to the housing stock, which it desperately needs, and has actually been needed for a long time. So I'm, I'm not, I'm so much more concerned about having low inventory, both new and existing, that that's such a buyer problem, that any potential risk on the other side of oversupply, kind of negates, it's, it's not something that I would be worried about. Right. I'm not worried about causing the housing market. Yeah, especially especially given we have a big demographic of, of, you know, of millennials entering, you know, kind of our middle age, and, you know, a young Gen Z that, you know, shows that they do want to buy homes. 

Mike Simonsen  46:31  

Yeah, do you? Have you done any work in a thinking about how all of this plays out in an inflationary market, like we've been, we've had no inflation for so long. What the hell happens if, if, you know, all of a sudden were at six, seven more, you know, if you listen to the Bitcoin crowd, it's even higher than that, like, what this plays out what happens to the housing market, in that space, you know, like, in a scary inflation space, that that all of a sudden the Feds behind the curve, and that can't, can't tame it fast enough?

Ralph McLaughlin  47:13  

Well, there's two opposing forces here, that I'll talk about, I can't anticipate which one's going to play out, but I will tell you, what a high inflationary environment might have on those forces and thus what the impact might be in the housing market. So the obvious thing is that when you have a high inflationary environment, you know, what can happen is you get rates that actually go up. And if mortgage rates go up, all is equal, that actually would tamp down demand for housing. Someone right, so that's, that's a, that's a positive possibility. The the other side of the coin is that in inflationary environment, housing, brick and mortar looks very good from an investment standpoint, as a hedge against inflation. Real estate has traditionally been an excellent hedge against inflation, because rents tend to go up, you know, at least with inflation, if not more like we're seeing now. and home prices also tend to go up more than inflation and your desk fixed in the old dollars. Yep, that's exactly right. It's fixed dollars. So it's one of those things where I can't I don't have a crystal ball tell you what would play out, I can tell you how I would want to see this play out as an economist is I would, I would want the Fed to take a still a very cautious approach with raising rates because we don't want to crash the market. Now, I think a little bit of inflation or even moderate inflation is not a terrible thing, given we haven't had it in so long, right? It's kind of like we're overdue. We don't want to have it happen all at once. But But that, you know, the Fed wrote them said fed, but the federal government's could also try to help work on inflation, through other means that have nothing to do with the Federal Reserve changing rates. And that is, let's look at some of the supply chain issues and labor market issues that have been caused by the pandemic that are leading to inflation. Are there other policies that can be implemented, that would help fix those, and this helped reduce inflation without putting the Fed in a tight spot between like raising rates and getting inflation under control, and potentially cooling the economy so much that you know, we actually lose full full employment, right? Are we rest away from full employment trajectory, which is what we're on? Again, I get very clear, this is coming from someone who's a macro economist, not a macro economist. So it's not my area forte, a lot of smarter people out there that to study and talk about these things. But, you know, at least as someone who, you know, does pay attention to the housing market does pay attention to inflation, that's kind of, you know, the outcome that I would, you know, I prefer to see.

Mike Simonsen  49:56  

Awesome, okay, that's interesting. Are there risks that If you're thinking about that are out there like we're in the smokin hot real estate market, it sure looks like supply is gonna stay low and demands gonna stay high. What the derails the train?

Ralph McLaughlin  50:12  

Yeah, I mean, I think over the next 10 years, I there's not a whole lot that's going to derail that train, I hope we get to a more normal looking market, you know, we're maybe we're in mid to high level, single digit price growth, and that we get inventory back to, you know, maybe around three to four months supply in six months was the traditional normal, but I think the new normal is probably more, you know, 234 months, for a variety of reasons that have, you know, some what related to technology and ability to buy and sell owns, but also for other reasons. So I think I'm very bullish on on that it was Miss 10, probably probably 15 years, maybe this is too far out, your forecast you read is the thing I'm most concerned with. And again, time will time will tell and I'll be very, very old and very gray by then. But you know, kind of around the year 2039 2040 2041, we really get to a point where, you know, household growth in the US household formation starts to look flat or even negative, depending on your assumptions around things like immigration, certainly, our birth rates, now, our natural birth rates are well below replacement levels, which means without immigration, we look like Scandinavia, and we look like Japan, that can have real severe consequences for household formation. And, you know, the housing market is basically totally dependent on household formation. And so I really going to start paying attention to what our federal policies look like, you know, and I have been paying attention to, but really start to pay attention to maybe advocate certain ways, probably by 2030 2031, you know, 10 year horizon, that's when policy discussions around immigration start to become very, very important for the housing market, and also for other producers of goods and services, and also for just general Well, being the country. I mean, we've always been initiative of immigrants. And there's some, you know, aside from the economic benefits, or some cultural benefits that we would lose, if we, if we, you know, if we aren't growing this company, this country as least partially through immigration, but at that point, we may not have no choice to grow this country, but clearly through immigration. So, again, maybe too, too far ahead feature for a lot of your listeners, but something that, you know, I do, I do think, you know, probably more about the nation today should give it so,

Mike Simonsen  52:41  

you know, that's a great point and population growth. And, you know, we got the boomers dying off, we have the millennials hitting their, their their peak, buying home buying years. So we have a few years of millennial tailwind. But after that, if we haven't resumed immigration, like that, like could all of a sudden shift a bunch of assumptions about who buys a how many people buy, how many, how many homes, we need to build it forever? If we're actually declining in population? That could be a real be all kinds of assumptions to be changing at that point.

Ralph McLaughlin  53:22  

Yeah, what you're exactly right. And so, I mean, we'll say anything, I'm not I'm not advocating any political side, I tend to be, you know, kind of down the middle when it comes to those things. But this is, really, if you look at the those that do demographic forecasting, I mean, most of the well respected demographic forecasters, that's what that's what they're forecasting around that time. And it's a matter of fact, I mean, it's, you know, if we want to grow this country, we want there to be more households. That's going to be about the only way we can do it, you know, unless we just spiked the water with libido enhancing drugs for decades to collar tax cuts

Mike Simonsen  54:01  

for Texas, right. Like in France, right. Yeah, there's, there's no there's no,

Ralph McLaughlin  54:07  

there's no libido better than they

Mike Simonsen  54:14  

exactly. So I'm watching the the December sun set behind your, your face there. Let's bring us to the close. Is there anything we missed today, like big things that that we should be paying attention to cool trends, things that you see?

Ralph McLaughlin  54:37  

I mean, the way that, you know, we all live at work is still something What's changing, and we don't know what sort of the end state is right. And we went through just a very big restructuring with all of us, you know, with how we live work, and some people have not been affected, but there has been a lot of people that have been affected and You know, we need to continue to pay attention to that and how that plays out spatially what it means for things like agglomeration economies. Right? And again, this is maybe, you know, a little your theoretical in some way, but But basically, I mean, cities for a long time had been the and still are, for that matter, but were the engines of this country's economic prowess. Right, and they continue to get more important and bigger and more productive. And now we've seen, you know, that sort of disrupted in a way that, you know, we're still having face to face interaction virtually, of course, but it's allowed people to do this in areas far away from one another. And so I'm very much continuing to look to see okay, what are what are the hot markets, right? And we've seen some of the hot markets lately not be the hot markets that we had before. COVID, right. That was the San Francisco's or the Denver's, or the, you know, LA's or whatnot, you know, really, it's, it's starting to go more and sandal places, right. So Texas is of course, you know, hot market, Florida has become a hot market, Phoenix just continues to be, you know, on a tear and so very much keeping my eye on those sorts of trends, how people live in work. And then of course, there's all the technology about how people find buy homes that's evolving. You know, we had the disruption with the zeros and maturity is the world that's probably not finished, right. There's probably going to be anything so So yeah, those are those are the things that you know, when I'm not not sleeping well at night, that kind of

Mike Simonsen  56:42  

make us infinitely entertaining to cocktail parties, right? Yeah. Yeah. Only if your foot attended by an economist or

Ralph McLaughlin  56:52  

analytics company. So yeah,

Mike Simonsen  56:53  

we a lot of fun. Alright, Ralph, so much. To to talk about today. Really? Great. Thank you for being with us. Where can people find you? And we talked about Kukun and, and Haus? How about those?

Ralph McLaughlin  57:10  

Yeah, I mean, the best way to find me is actually to go to Twitter@HousingRalph. And then from there, I've got links to a lot of the work that I do at Haus, which can be found at haus.com/resources. And we are still we're getting our blog up and running at Kukun, and you'll start to see some pieces there show up in the next couple months.

Mike Simonsen  57:29  

Look, they're looking forward to seeing that work for sure. So @HousingRalph, is the Twitter account. And tomorrow, or Tuesdays, is when the CHPI comes out. Each each week. Ralph, thank you so much. It's really, really been enjoyable talking to you and I'm looking at I will do it again.

Ralph McLaughlin  57:50  

pleasures Mike. pleasures, my thank you so much looking forward to next time to right here.

Mike Simonsen  57:57  

Alright, so everyone, thank you so much for joining me. And we will that's all for the Top of Mind podcast for the week, and we'll see you more next week.

Outro 58:09  

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