It’s not easy to predict the future. But when you’re buying a house, it’s nice to have an idea of what could happen. How can you interpret the real estate market data to accurately forecast what’s to come?
In this episode of the Top of Mind podcast, Mike Simonsen joins Bill McBride, housing market expert and author of the blog Calculated Risk, to discuss his 2022 real estate market predictions. Bill explains how home-buying trends changed during the pandemic, why there are fewer houses for sale, and what he thinks will be the next big shift in the market.
Bill McBride is a housing market expert and the author of the popular economics blog Calculated Risk. Nobel laureate Paul Krugman of the New York Times called Calculate Risk his “go-to website for housing matters.” Bill may be best known for accurately predicting the housing bubble in 2005 and the bottom of housing prices in early 2012.
Bill retired as a senior executive from a small public company in the '90s before becoming a full-time blogger. He holds an MBA from the University of California, Irvine, and has a background in management, finance, and economics.
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. Our 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 Altos in action. You can also get a copy of our 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 call with us here.
Introduction 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
Alright, 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 few years now, we've been sharing the latest market data every week in our Altos Research, weekly video series, which are now a new top of mine podcast. So we're looking to add some context to the discussion about what's happening. And so it's more than just the so each week Altos tracks every home for sale in the country, all the pricing, we do all the analytics on supply and demand, and all the changes in that data. And then we make it available to you before it becomes available in the traditional data channel. So visit altosresearch.com For more on the data and what we do, and Altos Research. So speaking of leaders in the industry, I am thrilled to introduce my guest today, Bill McBride. Bill is a housing market expert and the author of the popular economics blog Calculated Risk. This is one that Paul Krugman Nobel laureate Paul Krugman for the New York Times called the his go to website for housing matters. Bill maybe best known for accurately predicting the housing bubble in 2005. And the bottom of housing prices in early 2012. And Bill and Bill, welcome to the show you and I go back way away to that that 2005 time when we both started, I started Altos Research January one to 2006 and started blogging along that time, and you were one of the very first people who are in the space, blogging at that time, and communicating about what you were seeing in that. So welcome to the show. And I just, I'd love to start with like, tell us about the origin of Calculated Risk, the blog and your background before that, like, how did we get here.
Bill McBride 2:12
But thanks so much for having me, Mike. It's a real pleasure I looking back because now it was because my 18 years in 2004, I was reading about blogs. And I thought, well, what the heck are these things, and one of the best ways to understand something is just to do it. And so I said, Well, I'm gonna start a blog. And so I started it in January 2005. But then you have to think about, well, what do you want to write about? And one of the one of the things I've always been interested in is economics. I had retired from the high tech company, as a senior. And I said, Well, you want to write about economics, and especially about the thing that scares me the most housing. So right away, or coming out, you know, I think there's a housing bubble here. And and I think there's something strange going on with the lending. And it was, I think, in the middle or summer of 2005, that I started saying, if this really goes south, we could have a real financial crisis, because there's going to be so much losses associated with it. So that's really kind of the origin of the blog. I started writing about economics in general, and I still do that. But my focus is always on housing. And I grew up in my dad was a real estate agent and then a homebuilder. So I think he would still like to be doing it. He's 99 Now, but But yeah, so I've always kind of had an interest in housing, even though I didn't follow in his footsteps i and, and I'm more focused on the economics, the macro economics of housing, as opposed to what my dad was doing was putting up sticks.
Mike Simonsen 3:50
yeah, that's right. So Wow. So you're and you're in Orange County? Yeah. So Southern California, ground zero of the bubble, the housing bubble, and the financial aspect of the housing bubble, like right there. It did. You grew up there?
Bill McBride 4:06
I grew up in San Diego, but I've lived in Orange County for a long time. I have to say I, I was at the gym working out in 2004. And there was this cute girl that would frequently work out next to me and we chat. And one day she came in she goes Hey Bill, I bought a house now I knew what she had was you did for a living. She was young she was was a fairly low paid job. And she started telling me about this $400,000 condo that she had just bought. And I'm thinking Why didn't you tell me you're making like 40 grand a year? You know, how does that work? And so she started doing what you can get all the money you want for free. And that's it was really that conversation. I went home and I call some of the mortgage brokers I knew and they said oh ability we can get you whatever you want. Just name your number. Amazing. That doesn't sound right. And then I kept running into these guys at the gym. They had this spiky hair and they Look right out of that movie. There's two mortgage brokers he interviewed down in Florida, it looked just like those guys. And they were in one guy was driving a Ferrari and they were just going, Hey, any any equity in your house? And that's dead money, you got it, you got to pull all that out and buy more build an empire. I said, Okay, I think I'm gonna write about it.
Mike Simonsen 5:19
That's really it. And the thing that's that is powerful was powerful about your position is so many of the rest of us looked at that and said, What am I doing wrong? Like I was, at the time I was Silicon Valley, startup exact and making good money in my early 30s. But still, I'm living in this tiny little overpriced house, and see friends who are like a high school teacher in Vegas with four houses and driving BMWs. And, and I'm like, What am I doing wrong? It's so if I start questioning myself, and so many of us do, as opposed to questioning me, like what was going on in the world?
Bill McBride 6:03
Well there's that fear of missing out. And in a lot of people had that, you know, hey, if I don't do this, I'm gonna really miss out. We might be seen over that today. And luckily, we always have to say that lending standards are much better today. So when I every time I dig through the lending standards today, there's some areas that I'm a little concerned about. But it's nothing like what we saw in 2004 2005. It was just ridiculous. And, and so when I was telling one of the other housing analysts last week, I was going yeah, I'm looking at the credit, but that's kind of like fighting the last war. We're not if it was, if we were really seeing a problem in the credit markets, a lot of people would be over it right now. And we're not we're seeing some minor issues. So overall, everything's good.
Mike Simonsen 6:52
That's, you know, that's a great point that we deal with every day is that we went through this big housing crisis, it was a credit driven bubble, and crash. And so we look at the world through the lens. And when I publish data on the housing market that is continuing to, like, boom, there are a lot of people a lot of comments on social media comments, who say, who are ready, who have been planning for the next collapse, through the lens of the last one, and fighting the last war problem. So the question is, what's the next war? What is the one we look forward? What's the risk that we that we should be seeing? Or what that or you know, what's the what's the next war? For that one? Do you have any insight or ideas about what that might be?
Bill McBride 7:40
Yeah, well, first, like last year delinquencies, sky with the pandemic. And a lot of those people were just going into in forbearances, is actually a relatively painless process if you come back out of it. And I think the lenders did a great job. People come back out, they just added a year or whatever onto the end of their home and people start making they get their jobs back, they start making the payments again. And I never saw that as a big problem. But I know that that a lot of people did, oh, hey, we're going back into this delinquency thing. Again, we're gonna have all these houses in foreclosure. Now, that's not going to happen. So there's another last word that people have been trying to fight but if you want to look for the area, that there's probably some real risk. It's in the single family rent bill for rent buying spree that's going on right now. driven with low cost of money, I pulled up a an offering that was at 100% 105% loan to value based on BPOS, which is the broker's price opinions, which are not as high quality as appraisals. Right. So and it's already 105%. And, and it was, it wasn't a billion dollar offering. It was uh, it was just under a billion dollars. And, and we're seeing more and more of that, as a matter of fact, I think that if you look at the performance for some of these guys, it almost doesn't matter what they pay for the houses. And so when you because money's so cheap, yeah. And then they can turn right around and borrow 100% on their entire portfolio and be paying nothing and the performance show Hey, things are going to be great rents are going to be going up a whole bunch for a year so I if there's an issue now there's what are the risks of this? First of all these guys the amount of money in it isn't that huge, is this isn't one of these $10 trillion $20 trillion mortgage markets, it's gonna take down a bunch of banks, but But you know, they are buying 20 25% Of all the houses out there right now. And so if you all of a sudden had a slowdown in the number of homes that they were purchasing, that would really slow down the housing market and all of a sudden, where would we see that inventory? So that the first places that will show up as all of a sudden people are buying everything that comes on the market. So there is a, this is an area that I would be a little bit concerned about.
Mike Simonsen 10:08
Yeah, that's really a great point. It's been a quite a phenomenon the last 10 years, and there's big money behind it. And some of that big money could change very quickly.
Bill McBride 10:18
Right. That's what that's that's the point of what I'm looking for is if there's a rapid change, I don't think that there's a financial crisis component related to that. But there could be a rapid change in the buying pattern when those guys started really buying and maybe 2009 2010 in some low price areas, and then really buying in 2012 2013. I mean, that made absolute sense to me. As a matter of fact, I knew people that were doing it. And and I mean, you're clearly you're getting good prices on houses, and you're getting good rents, and that it was at that same time that we saw a nice surge in rental demand, because demographics are really positive rentals, which is now they're switching over more to be positive for homeownership. That's this frenzy that we're seeing right now. And then that's one of the things that sort of makes it make a little sense, is there is this big cohort is moved into the home buying. That's where the millennials, yeah, in 10 years ago, that cohort was in renting. And also at the same time, you had a bunch of people who got foreclosed on, they had to live somewhere. So they were renting. And in fact, I had a tenant who was got foreclosed. I was going great, you know, rented one of my place. And so it was a quality runner, he just got he just overpaid and got burned. So that's the area and I think what we'd be looking for is your data. And and if we start seeing inventory coming up, surprisingly, then that might be a flag.
Mike Simonsen 11:45
That'd be you mentioned it like investors buying 25% of homes right now. And I think are you using the folks that John Burns published a number about that? Is that that number from CoreLogic? Okay, and I think correct me if if you think this is wrong, but I think that includes individual investors, not just Yes, it does include subdivision. And that's actually an interesting thought. So from our data, we can show our inventory chart the declines every year, as more of those homes go from single family resale, to rental properties. And a lot of that is we've observed is individuals buying the next house and keeping the first one as a rental property, I see that all the time you see it all the time, it's a great, it's been a great deal, it's been a really good deal to build your little your portfolio. And so one of the things that I think about that, even if money is no longer cheap, and it becomes less of a good deal to do that, for those individuals that have already done it, and maybe they have one or two or three homes, and they moved and kept the others for for investment. Those are locked in forever cheap money. So those aren't coming back on the market, right?
Bill McBride 13:02
rarely makes sense to sell. Again. That's one thing my dad always used to say goes the only mistakes I ever made was selling. Selling. Yeah, yeah. buy low sell never. Yeah. And very Japanese view. I mean, they've been doing that for years is that clearly drives up the property and it pulls a lot of properties off the market. That's one of the things we saw happen in that one year 1120 12 period was a lot of these really low end properties. I remember you could be taking up condos around under 100 grand it would be renting that would be running for you know you could be getting 1400 a month on kick doors. Yeah, I mean, it is mind blowing. And so that's not happening now. See, I don't know the numbers don't make as much sense today. So to me, and I look at when I look at the demographics, I do think that there's been some household formation as people move out, and maybe younger adults living with their parents and stuff. But that's not something that I think is going to sustain. So yeah,
Mike Simonsen 14:05
let's talk about that for a second. So you've done some writing on household formation. We had a big surge. We've got the millennials. And then what's interesting. Some folks like Ivy Zelman has have talked about how they think Zelman thinks that we've actually we've been building enough homes. So we're not under built, what do you think about household formation population and those trends in the next few years?
Bill McBride 14:28
Well, you know, for let me say this, first of all, obviously, Ivy Zelman’s first rate, sort of string, when she speaks, you everybody should listen. I think the general view out there is there's 5 million too few house housing units out there. And she's coming out and saying well, no, I don't think so. And I first of all, when you talk about the number of housing units, a lot of it depends on the price. There's a lot of families that double up. That wouldn't double up if things were a little cheaper. So some of that depends on what price. Whereas if rents were much cheaper people with, you know, families would split, you know, and I'm talking, you see that all the time and immigrant families where the kids stay with their parents a little longer, because everybody's trying to save money and help out. So, and we'd see less than less of that. So there is a price component to it. But my view is that the millennials are in the age group now of preference for homeownership. Not everybody, of course, but there's so it made sense, as I think I first started writing about this in 2012 2013. Hey, we're gonna get a real drive on homeownership around 2020. And, and the first time I talked about it on TV, that people were just like, why are you even talking about 70 years from now? It's always good to plan ahead a little bit. And but that nap when you look at what's going on is where are where that would that made sense that we would hit this move to homeownership. But that should make sense that we would have fewer renters. But now we're seeing with rents going up and vacancy rates dropping, we're actually seeing more renters to, Where's that coming from? And that has to be these people moving out of their households, or maybe some people getting divorced after the pandemic, unfortunately. So there has been none of the reasons I could figure out for why we're seeing total household formation, both homeownership in rails going up, none of those would seem sustainable to me. So I don't think we're going to get this push on household formation. Now, the millennials are still gonna want to buy. Yeah, that's going to be true. So there's going to be a preference for homeownership. But I don't think the total household formation is going to continue to drive up like it did clearly in the last year, even though we don't have the numbers on inferring that from both home ownership demand and for rental demand. So I'm inferring it. There must be household formation.
Mike Simonsen 16:51
So okay, yeah. So So you see a decline in the pace of homeowners of household formation. But yeah, basically,
Bill McBride 17:00
it's gonna slow. And remember over the last few years, doing back to back years, slow as population growth ever in the US, percentage wise, we shrink, right, we shrink this year. Yeah, I mean, I think that's true. And I mean, it's between the excess deaths and lack of migration yet my immigration and yeah, I mean, we're, it's gonna be another tough year, and probably all through this. I mean, it's just, that's lower population. And so we're getting household formation without population growth, which is interesting, which means that we're going to see another drop in number of people in households, and that number comes out a year or two late, but we'll start seeing that.
Mike Simonsen 17:42
So at what point? Do we see that in our some of the demand metrics in housing or starting to see some of the we had, we've had pandemic, both pandemic and economy driven, mad, cheap, money driven household formation? So does that hit in 2022? Like is their second half of the year all of a sudden, people are backing off? Like, is it that quick?
Bill McBride 18:09
Yeah, the problem with housing is it moves slowly? Or maybe that's good. Because I'll rearview mirror? Yeah, you can be very well, you can be very patient, but it's slow moving. I mean, even when in 2005, I go on, when's this going to end? You know, and the flag, of course, was the second half of 2005, when the inventories really started increasing sharply. Yes. Okay. There it is now, and then prices started falling in 2006. So that's why the answer is I don't really know when it's going to happen. But I know that inventory will tell us if it is possible, that that we could see this household formation go on for a few years at a very high level, as people pour out, because we did have record number of young adults living with their parents a couple of years ago, we know that when by the time we get those numbers is going to be less now, where are these household formations coming from? It has to be a lot of that. But you know, and that may continue for a few years. And that trend may continue. Or it could slow that that's why the focus is always on inventory. Because if you if we start seeing inventory going up, we can start asking why are the investors buying fewer homes are these are this household formation slowing whatever the reason is, but it This isn't anywhere near like 2005 where I was going, it's coming soon. I just didn't happen. So we could easily go through 2022 So I have no significant increase in inventory. Although I do think that by the end of this year, we'll be seeing year over year inventory increases, just because it's so darn low. And and I and one of the things I'm watching your numbers for is if the bottoms earlier this year, more in a normal season, as opposed to last year when we saw the bottom in April. Yeah, I mean, I mean, that's insane. It's usually in January or February you know, I mean, I it going all the way to April was Crazy. And that really was a sign that there was something going to continue in when you get to house prices. Wow. I mean, his house prices, when you have record low inventory, house prices are gonna still be pretty hot to start the year. Now if we do see the inventory come up that house prices growth will slow. I mean that that's just that's how it works. So yeah. And I do expect inventory to come up. I don't know if we'll get back to those 2017 2018 type numbers. I don't think so. But But yeah, oh, my if I pull up your numbers first thing every Monday. And I'm not just looking to see if we bought them maybe in January or February and then start seeing that year over year number, which has actually not been think smaller. It's been getting bigger than the year over year decreases. And I'm going wait a second what's going on here? It's really hot out there. Now it's really a frenzy. Yeah. And in in January when everybody's supposed to not buy houses?
Mike Simonsen 20:56
Yeah, I have two thoughts that I want to go to pursue first is is one of the things on that inventory number as a risk for future price declines that I'm not sure if you if you've noticed this, but for us in the Altos data, we could do, we could look at not just inventory levels, but essentially inventory per capita, or flip it around people per available home. And the more people per the more inventory per capita, we could we could essentially plot a correlation of the the greater inventory per capita was the rise not just not just inventory, absolute levels. But we could watch, for example, Las Vegas’ inventory per number of people who live in Las Vegas was way out of whack, compared to San Jose. And so when the price is adjusted down, like the red, we could see that that Vegas had more to adjust back in an affordability sense. Have you ever looked at ever thought about it in that level of specificity?
Bill McBride 22:02
I know I don't really look at that, though. Okay, well, that's gonna keep an eye out for some local markets that I'm very interested in, but not generally. And not anything I ever write around.
Mike Simonsen 22:13
Yeah. And then I had another thought that I wanted to pursue there, which I will have to come back to because I've lost it now. So we all get older, like, yes, yeah, no, it's, it's like a mind like a sieve. So here's a question I have for you. Have you looked much international? To watch the markets internationally?
Bill McBride 22:31
Not really, some of them are crazy. They make it to make the US market looks normal?
Mike Simonsen 22:36
And that's my question for you. So we know that inventory is tight everywhere around the world, and that not everywhere, but you know, in, in most of the Western markets, and prices are rising Canada's nuts. And so that says to me, that maybe it's not an under building phenomenon in the US, it's a global phenomenon demand driven. And you have any thoughts on that?
Bill McBride 23:01
I mean, I've seen the numbers for some of the other markets, whether it's Australia or Canada, and Tesla, not in the poorer provinces, you have to really kind of understand the local market and understand what's happening. I mean, in all of the Western world, population growth has really slowed and it seems lendings pretty pretty solid worldwide. So why is it the low rates and I mean, that is as with driving it, maybe we're not thinking of investor buying I mostly I'm thinking US Is there a lot of that going on overseas probably in some areas, so I don't really know I you know, I I wish I had a little more time I look into some of those markets and people always go well what about you know, Canada? What about Yeah, I know a little about China was one of the interesting things in China they build like crazy there and although they're starting to have problems now, but when you build a condo building in China you don't build it out like you do here you have a space it's like an office building kind of and then the people who leased the space build it out where the order by the space and so if you're if you buy there's a whole industry there when it comes in build your kitchen and bathrooms and stuff in buildings that are built by the original developer and so in that in the owner does that so it's a completely it's a little different process in the US and you sell a condo in the US it's built out you come in you got your your beautiful counters, and everything's done right not in China and then what they do, at least and they may have changed this recently but they don't tax don't have a property tax if you don't build it out. They only charge you if it's built out so what a lot of people in China were doing was just buying these vacant condos and not building them out as a place to park their money and option. Yeah, they're going hey, it's I don't trust the stock market. I don't trust this. I don't You know, they grew up under communism, and still are. And so they don't trust a lot of things. But hey, I own this space in this building. And even though it's not built out, it's not returning any money. It's that I own it. And so there was a lot. So people would always say, Oh, look at all the vacant units in China. And I'm going, Yeah, that's people parking money. So that's why you have to really understand what happens in these countries. That wasn't this massive overbuilding, the developers, and all these developers have sold off, so they go on to the next project. Now, there are some things in the last year or two that have come to the surface that are where people are over leveraged, and then they're having financial problems as we know, it's that's completely different. I'm talking about 7-10 years ago, when people say China was never, you know, maybe they will,
Mike Simonsen 25:47
maybe maybe they're at the curve, yeah, so many variables in the world. And it's, I would say that the US real estate market is is so messed up that Altos Research has to exist, if it hadn't, but it's not quite so messed up that we can't exist. Like, in some countries, like even in France, you got to know the guy who's got the listing and like, you just you don't know what's going on. It's really fascinating, or like, one company controls the whole market, or Yeah, we just happen to have a sweet spot of just messed up enough in the US that.
Bill McBride 26:16
But there's in a tight market like this, there's plenty of pocket listings out there people keep they never get to the market. You know, if it's if it's somewhat reasonably priced, it's, you know, the, the brokers getting both sides.
Mike Simonsen 26:27
Yeah. And what do you think of that trend? That's, you know, we see it is we call it immediate sales where, you know, houses listed, and then it goes immediately in pending state. And the one of two things is happening, either they, they list it, they take offers, and and then they they turn it around in a couple days, or they've already got their offers done, and they just listed for a day, or then make it pending, because it's already done. What do you think about that trend? Is that
Bill McBride 26:54
like, well, first of all, I don't think it's, I don't think it's necessarily the best thing for the seller. Because I think it's it is much better to get multiple offers, especially in a hot market in any market. That's true. So I think that I do think that some sellers don't like having a bunch of people going through the house. And so they they're willing to have a here's, here's a good offer. And and so they're willing to go ahead and do it without getting multiple offers. So they think oh, that's, that's what my neighbor got. That's good advice, or I'm getting on more whatever. So. But my view is, I also don't think it's really I don't think it's good for the for buyers. I mean, they don't ever get a chance to see these houses, I don't think it's good for sellers, I think it might be really good for the agent. So I tend to not have a great opinion of that. I know it happens all the time. I see it happen all the time. And look, right now just these are gold. And the truth is they're always cool. So even in a bad market having a listing is not he said every agent out there knows that. So I remember my dad, when he started a real estate agency a long time ago that were it was a guy who was a gym coach, and a woman who was just a real go getter. And they were his top two agents that my dad was a broker. And the one person the gym coach never sold a single house. What he did was he was friends with everybody that was through their kids. And and they would all list with him. And and he looked like he was a really active sales guy, because he had all kinds of sales, and all kinds of listings. And the other woman, she didn't get any listings, but she sold things like crazy. And they're both making about the same amount of money. My dad used to say, this guy's magic. He just is listening. Like, you know, you know, tell tell your parents that they're gonna sell or he knows what to do kids will sell anywhere. Because the parents and so but right now my gosh, every agent I know, you say Hey, girl, you're hearing about anything.
Mike Simonsen 28:54
Yeah, are the Yeah, like the all the techniques for trying to pull listings to market it is a good time to sell, especially if you've already got something else lined up?
Bill McBride 29:04
Yeah, well, that's one of the things that's an interesting point. Because one of the things sometimes we see is people don't want to put their house on the market because they can't find anything else. They're really worried. I actually had a friend who just sold something. And the people wanted to buy it, but they they wanted to it was really they were really nervous because they wanted to make sure that they didn't want to lose their house because if they sold it and then this didn't go through then they were going to be what living in their cars. And so you know, you you have to make sure that keeps the inventory down because people don't want to lose their houses. But you know, that can work in the opposite direction too. Everybody will say oh well now there's a lot in modern marketing, I can list because I can have things to choose from and then of course you can't sell it you start getting all the offers that are coming in contingencies.
Mike Simonsen 29:58
I wonder Like, are there? What's the way out of that for home buyers and sellers? How do we, they what's the way to navigate that this year?
Bill McBride 30:11
I don't know if I'm the right guy to talk to you about that. I think you should. I mean, talking to some agents and brokers. I mean, they probably have some good ideas. Yeah. Yeah, I let's switch. Yeah. economic perspective. I don't know. Yeah.
Mike Simonsen 30:27
Let's switch back to the economics then let's talk about let's talk about the next 10 years. What do we so we talked a little bit about household formation, and that's likely to decline, which could lead to, which could be one thing in the next few years, especially as the millennials age, we start to get a little more inventory, and maybe as the boomers age out, and but
Bill McBride 30:52
well, you know, I, I wrote an article guy back in September, I think it was called the next big shift. And I feel like it's kind of the same thing I did with the millennials coming for buying in 2020 is, is, if you if I look at my parents generation, this is not monolithic. But people started moving into retirement communities around eighth. And I think it's going to play out somewhat the same way. Now, I mean, a certain percentage of people will always age in place. That's always been the case. And some people will move to retirement communities, whatever. But because I think he starts really seem right around when people turn 80. And the oldest boomers aren't at their, there may be 77, or something 1945 or something, verse 46, is the start of the boomer generation. So we probably are going to see and then the first few years of people turn the deal, that's when you start getting a bunch of people turn in your right, just like you're starting, you got a bunch of people right now, going on to Social Security, right, because they're all in there, there's a lot of the boomers 60s. So what we'll probably see is maybe at the end of 2030, we'll start seeing more inventory. Now this, one of the interesting things is there's some real opportunities they're not we'll see inventory in good areas, because that's where the boomers live closer to everything right there. They bought. And, but we'll also see that those homes, a lot of those homes need improvement. So there'll be probably a real improvement or home improvement market going on, you know, you come in and you go in, there's nothing you can do about a low ceiling, but you can redo the whole kitchen and bathrooms and make it more modern. So, or maybe maybe you just do ground up. And we're in you know where I live. That's whenever the happiest goes here. And I really nice community and near the beach. But so we'll probably see that starting to happen towards the end of this decade, and there'll be more inventory coming on the market, the millennials will probably be moving up at that time, the homes that they've already bought. So they'll be very anxious, they'll be wanting to buy some of these homes. It not because they're great homes, but because they're in good locations, and located really location matters completely. So I mean, everybody makes it a joke, but it's really true. You want to be in the right spot, and you don't want to be on a busy road. And not last year, I was telling people, the prices made me nervous. And it because in if you look at price to income or real prices, or price to rents, whatever you want to look at it, we're definitely expensive. But but you know, I tell people, hey, if the house makes sense to you go ahead and buy it. But don't buy anything. If it's on a busy street, it's always going to be in a busy street. You know, if there's if you're if you're down and a goalie and have water issues, you're going to have water issues for the rest of your life. That means there's defects and so I would stay and that's when those houses moved right? in markets like this. I know an agent in town who knows all the really crummy houses. And he's out talking to all those people saying, Hey, this is the time to sell. That's an interesting strategy for an agent. Yeah, I mean, you go look if your house is on a busy street, now's the time when are people going to want to buy it right now? Because there's nothing else right? There's other times when you can bring a house on it's on a busy street and it'll just sit you just kind of cry because you can't move it and you don't want to cut the price too much. Yeah, so now's the time for all the detective Holmes to come off market which means for the buyers they need to be aware of you feel like you have to get in that fear of missing out but don't buy a defective home at home that you can't you can't fix whatever the defect is for fix.
Mike Simonsen 34:52
Yeah, people ask me do I buy now or wait what if I'm buying it's a peak but all these questions and my role A thumb is if you love the house, and you can afford the house, buy the house. If you can't afford it, or you don't love it, don't buy the house, go buy it, because you think you have to, you know.
Bill McBride 35:11
Yeah. Well, that's, that's good advice. Because I mean, if you can go in, you can afford it, you love the house, I always tell people, Hey, if you can live there for seven years, you're gonna be fine. If you bought in 2005. See, I was telling people don't buy it. Because I was saying this is that you're really gonna see prices drop. I mean, I can't make that prediction. So but even if you bought in 2005, so what? You're right, if you'd like to, if you'd like to house and you were underwater for a number of years, you're not underwater anymore.
Mike Simonsen 35:44
That's exactly right. And the difference between now and then, is that you have a 3% mortgage now forever. And then if you got into a house, you couldn't afford you, you had an exploding mortgage, and you couldn’t afford it very quickly. And that's the difference. Like, that does not exist anymore. And so if you can afford it, you will be able to afford it probably forever.
Bill McBride 36:06
Right, inability to pay, it was one of the big rule changes, and even some of the loans like the non QM loans, that they still meet the ability to pay rules. And so that young woman I was telling you about that bought that $400,000 condo? I when I was asking her she was paying 1% teaser rate for the first year, maybe the first two years? Well, I mean, basically incentivizing you to move into this place. I mean, it was less than she was paying in rent somewhere else, right? I mean, it'd been ongoing was not gonna be 1% forever. Even if even in today's market, we jump to a triple right? Up to 3%. So yeah, I mean, those these are not comparable periods on a graph that you see the house prices. Yeah, they look very comparable. But the reasons behind it are very different. So although it still makes me nervous.
Mike Simonsen 37:00
Yes, because it has been so crazy. What do you think about it? Think about the the pandemic migration, the Zoom towns, the remote work trends that such a big deal does do places like, like we observed, like I have a home in Tahoe and exploded with remote work from the Bay Area, or Ben? Again, or Boise just that continued? Does that? Does it? Crater? What do you what do you see happening?
Bill McBride 37:23
I really don't know. I think it's a people like to live in the cities, for a lot of reasons. Work is obviously one of them. And that's the one that you're talking about for certain workers. But you know, we like to live in the city for other reasons, too. I mean, if you talk to people who live in New York, and they just love New York, and you go out to so many great restaurants, you've got all the plays you got whenever we have a fair amount of that here. Not to that level, of course. But every city has those kinds of amenities. So that's yes, people gathered work, but I think there are people gathered to do social activities too. And so and so when you move to I mean, going to Tahoe. I mean, I love Tahoe, but, but I don't think I could live there all the time. You get a little island fever, and maybe I could handle Hawaii 24/7 for 365. But but probably not Tahoe and and look, I love to hike. I love to ski. So but then I think I would go a little stir crazy. I mean, in the mountains, the mountains are always calling. So you know, it's just, I think, and look, certain people have moved to other strange places like Idaho, and I know a couple of them moved to Indiana from the Bay Area. They both could work remote. And they said, Hey, we can buy this house for out for pocket change. They wrote a check. And and there they were renting in the Bay Area, and it was killing it. You know, I mean, so what a difference now, the number one thing they were looking for was good internet. So but you know, the thing is, they're away from their family. They're the area they're living in a small town that has good internet. But I mean, maybe they'll love that maybe, you know, it's a younger couples, maybe that have kids were raising their I don't know, it's protecting all that behavior is really hard. I mean, will people work from home a lot more? Sure. I mean, that's that was a trend that was already happening. For certain white collar workers. I know a lot of lawyers who were working from home half the time already before the pandemic. So it's no big deal. They were already set up. You can do it, you know. So yeah, I think it's a trend that will continue. I just don't know how much that'll impact housing. I mean, you're looking at New York right now in New York. People are pouring into New York, right? Well, maybe not this month because of the new wave. That annoyed empty out in March or April of last year. And then that's all behind us people. Yeah, the day New York is still New York and say, hey, where you live in San Francisco, right? San Francisco's can be San Francisco. I think it's it's sort of amusing that people have a negative aggregate to San Francisco, because if you go to San Cisco, most of the areas you don't see bombs, you don't see. I mean, there are areas where you do. But that, and and you know, San Francisco with great amenities. And so it's kind of it's kind of amusing to me is I've actually been in areas where there was a major news story. And it was in a two block section, you're outside that two block section in the people leaving and as soon as they're off camera there, they behave differently. You know, I just I haven't done I see a negative story as
Mike Simonsen 40:40
I am an unabashed San Francisco propagandist. So, you know, yeah, I, but it will be fascinating. There's, like, there's some real changes and things that are way in San Francisco. And because the city, and the tech companies were so easy to be remote, they haven't really come back yet the in the downtown area. And so there's still some, there's still some real things like that, it's gonna be fascinating to see, a lot of them we're aiming for January, and all of a sudden, now the rules are changed again. So maybe January, maybe it's another few months, I think it's about to change, and we signed a lease downtown. And so it'll be really, like 18-20 months ago, you couldn't get it like it was not available at any price. And so, so we signed one, and I signed it, and never was August or September, and maybe I was a little early on it, but it was it's fine. I like being down there. And so it'll be it will be fascinating to see, hopefully, fingers crossed, finally emerged from the pandemic.
Bill McBride 41:38
But, you know, I mean, we're talking about residential real estate, but you know, there are some areas how offices may really lag for a while, leases come up 5-10 years, or whatever. And when those leases come up, people may say, I only need half the space now, because people are working a lot more. You know, we we see retail is was all retail has been under pressure three years from the online buying and just really crush retail he so there are sections of the commercial real estate that are struggling. I mean, even hotels are they're not back yet their best customers. So frequent ones are the business travelers and it's the leisure travelers come all the way back. It's not the business travel. And because I think a lot in that says a lot of people business people are doing zoom instead of flying. So I mean, you can't, you still have to meet face to face. And that will always be best that you can minimize it a little bit, or at least for a while now. Hope hope I hope you're right to pandemics behind this sometime this year. I was really hopeful at the beginning of last year when when the vaccines came out. And then but you know, this year, this may be a much more mild variant. And and we are starting to see some pretty good therapies, right. So with with that, with those two combinations, we could see some real progress starting the year hopeful but once again, once again, hey, mid year, we all behind us, you know, doing everything, and some of my friends are already.
Mike Simonsen 43:11
Yeah, we are in my search community. And it was fascinating. We have been a lot of years post vaccine a lot of year and a lot of gathering and really, essentially no impact. Tiny little bit around Delta like in San Francisco. Almost nobody had COVID the whole time until December 17. And then everybody had like all the rules changed Omicron happened and that it just exploded. hospitalizations are very low still in San Francisco, like all of that because vaccine vaccination rate is so high that that fingers crossed, we get our curve down and we start to see some normalcy this year.
Bill McBride 43:51
You know, I live in Orange County and we have some of the most anti mask anti vaccine people on the planet and it's Luke so we do have problems occasionally flares up. Right now of course, and hopefully, though, work our way through that. I do I you know, I am optimistic that the therapies are those pure good. I mean, things get better and better. If you look back at the AIDS crisis say I mean to visit it was a death sentence right and Magic Johnson got it and I and we were all going on, you know, on noise. Lakers on noise can be dead in five years, right? He's still around. So in doing and healthy so that we're gonna see that kind of improvement over the next few years. This may be around forever, but it may be something that's easily treatable or you know, we get an annual vaccine or whatever, no big deal. So it you know, we're going to somehow we're going to get back to our normal lives. Now the normal lives may be very different. They may be more work from home kind of stuff, interviews like this, you know, and I'm sure that we'll do that. I mean, a lot of good has come out of this all the technology has been awesome.
Mike Simonsen 44:59
Yeah. Really the remote Zoom competency has been, I think, a real boon to the economy, I think be really powerful. Yeah. All right, Bill. Well, I just have to say I really appreciate your work with Calculated Risk your analysis and insight. It's always so cogent and an independent, I guess, you're coming out into saying, Tell me what's going on as opposed to having a book to talk. And I think it's obviously you've been doing it for so long that you get you've gotten over the years, a lot of attention for that work. So I just wanted to say thank you for doing that work. And thank you for joining us today. So I know you're doing so we have Calculated Risk the blog is calculatedrisk.com is that the URL?
Bill McBride 45:39
It's Calculated calculateriskblog.com
Mike Simonsen 45:43
and you're doing a sub stack now. Yeah,
Bill McBride 45:45
I'm doing a newsletter, too. So where can people find that? It's calculatedrisk.substack.com. So if you go to my blog, it's right at the top, get the newsletter, I write an article three, four or five times a week, depending on on how I feel. And it's I started doing that just because it's more of a focus on just real estate. And why it's kind of the same reason I started the blog. Real estate is really interesting right now. There's something happening in I'm not sure what it is. I remember when I started thinking 2005 This is this is a bubble this Lindy but how can people lend money? People don't lend money, I wouldn't lend money to lose money. Right? And it was really when you start figuring out how the whole process worked. He said, Oh, here's how it is everybody's little hot potatoes. You know? What? What's the movie margin call? I don't know if you've ever seen that movie. Yeah, they're going oh, no, we're stuck with all this junk for 30 days, we got to get it off our books. And that was all the people were just it was the hot potato if you know that the mortgage broker would hand it off to New Century New Century handed off to some investor and made money on that. Yeah, it's so fascinating. Yeah, what it is you ever get stuck
Mike Simonsen 47:03
or in a very different space now? Oh, completely different. Alright, Bill, thank you so much for joining us today. Any last words?
Bill McBride 47:11
Well, thanks so much for having me Mike. I know I just rambled at times so we cut all that out
Mike Simonsen 47:18
I love your insight I love your your take on all the data appreciate the work you do
Bill McBride 47:24
and I really appreciate you sending me your data to that it's it's awesome. So it really to me it's incredibly useful just go through what you send me every week but I that you know the inventory obviously I focus on and I keep waiting to see that market you know index change. It seems like it's stuck. It seems
Mike Simonsen 47:46
it cooled off a little bit the fall, but now it's sooner on come back up again. Yeah, yeah, yeah. And for listeners if you follow the Altos Research video and the weekend, the work we do every week, if you follow Bill Calculated Risk on Twitter, you'll actually see him scoop us each week because he always publishes his his Twitter analysis earlier in the morning that I get on Mondays and then we get our data out so so you can actually follow a Calculated Risk for some for that insight as well. Sorry. Yeah.
Bill McBride 48:18
It's been really fun chatting.
Mike Simonsen 48:19
Thank you so muchl.
Outro 48:23
Thanks for listening to Top of Mind. See you again next time and be sure to click Subscribe to get future episodes.