Are We in a Housing Bubble? (Or Is it Much More Complicated than that?) | 7investing
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Are We in a Housing Bubble? (Or Is it Much More Complicated than that?)

September 12, 2021

Housing prices have been climbing in most parts of the country for a variety of reasons. The pandemic has caused some population shift to warm weather locations that were generally considered affordable compared to cities like Seattle, New York, and San Francisco. Interest rates have also been at or near historic lows for an extended period of time which makes it cheaper for people to pay higher prices.

Quick gains in home prices generally bring about talk of a bubble. In this case, however, it’s important to remember that there are some differences from the housing crash of 2008. That bubble bursting was largely caused by people defaulting on mortgages that they likely never should have been approved for in the first place. That’s not happening right now as mortgage standards have remained relatively tight and money has not been easy to come by for less-qualified buyers.

The current situation comes during an unprecedented event for the country. Some, likely most, of the population shift caused by the pandemic will be permanent. That makes housing more of a regional issue than it was during the 2008 crash. Prices in Southern Florida have risen dramatically but many of the people paying those prices come from markets that remain much more expensive.

Whether we’re in a housing bubble is not a simple question and Maxx Chatsko and Matt Cochrane joined Dan Kline for the September 10 7investing Now to share their thoughts.

A full transcript follows the video.

 

Dan Kline: We’re going to talk about the housing market being a bubble. We would like your questions and comments. If any of you live in a bubble, if any of you want to talk about the housing market. We are happy to take those questions and comments. We know that is the housing market is a bubble is a provocative question. And we’re gonna get into some of the nuance we got a lot of charts. But I wanted to start by giving Maxx and Matt each about a minute to just sort of give their top-line argument because I know they don’t agree. And this might come to virtual blows. Maxx, why don’t you go first here.

Maxx Chatsko  2:09 I just hope we penalize Matt when he goes way over a minute because I seen the sheet and he’s got a lot to say. So we’re scoring this correctly. So I mean, you know, look, is the housing market a bubble? I think you can make arguments for and against. One of the things I’ve just read all of Robert Shiller’s books again. So I’m a little biased here to thinking about financial markets right now. And the 7investing team has heard me go on about it internally. So I think they’re all want me to shut up. But Robert Shiller is not very optimistic about how the housing market might turn out. He thinks the housing market looks like very similar to 2003. So it’s kind of like the start of the last housing bubble peaked in 2006. Gradually actually deflated over the preceding years, of course, culminating with the financial crisis, in’08 ’09, so forth.

And we have one of these charts here. JT, the first chart. For me, this shows that the annual increase in the Case-Shiller composite home price index. So we see here, it’s recently shot up, right, since the pandemic since 2020, and 2021. It’s up over 20%, almost since a year ago. Now, obviously, we’ve seen this in earnings reports and things like that, year over year comparisons right now are a little wonky, right. They don’t make a whole lot of sense. But it is a pretty steep and historic increase, at least as far back as the 20 year chart goes. And Robert Shiller says that, you know, there’s three factors right now that are kind of driving what we’re seeing in the housing market. I don’t think he’s actually called it a bubble yet. But he says, Hey, you know, there’s maybe a proto bubble, there’s some things to keep an eye on.

One is low housing, I’m sorry. One is low interest rates. And, you know, these might be artificially low due to Fed policy, from the effects of the pandemic and what they’ve done to keep the economy afloat. Two, effects from the pandemic, with people moving around. I think Matt’s gonna talk about this a little bit later. I mean, maybe there’s new boomtowns now, right, with remote work, things like that. There’s just a shifting of the population. Dan’s talked about this a lot as well over the last year. And third, and this is the crucial factor. And what Matt is totally missing what most people are missing when they talk about financial markets and maybe even bubbles is the psychological factors is probably the most important factor in my mind. So you know, there’s like people who are just there’s this frenzy right. There’s like this frenzy feeling. People are way overbidding for asking prices paying all cash, naming firstborn children after you know the person who sold them the house like crazy, crazy things are going on in the housing market.

This is a very important metric here that a defining factor of a lot of bubbles. So we are seeing that right now. So Robert Shiller says, Hey, I think they’re going to come back down not overnight, because Real Estate’s you know, inherently slower moving and things like the stock market, but it’s going to come down enough to cause some pain, and he defines pain as a loss of equity. So you know, you might be Buying at these elevated prices now or a year from now, or two or three years from now. But eventually, maybe you’re gonna lose some of that equity, right. So even if you’re making your payments on time, you know, you might not actually have built up much equity in your home that you’re living in, if you’re participating in the frenzy. And importantly, this is the last point, we do have to think about the regional terms, I’m sorry, we have to think about real estate in regional terms.

So I have a couple of different charts to show some of the trends in different markets in different cities throughout the US. So JT, if you can bring up the first chart in that series. So look here, this is housing prices in Dallas, we see here in you know, in ’06, Dallas kind of was almost immune to the last housing bubble didn’t really see any changes in housing prices, then, but we’ve seen a lot of people move there in the last decade or so. And look what’s going on. Now. There’s certainly one of the steepest increases we’ve ever seen in Dallas housing prices, if you can show the next chart JT.

Now look at Las Vegas, you had a crazy, crazy hysteria in the last housing bubble, look at that in 2006, crazy peak there, almost, you know, a pretty steep drop there over the preceding years. And now it’s kind of going back up. You know, so that’s an extreme example, certainly, much different from Dallas. And the third chart, if you can show that and this is Cleveland, Cleveland rocks, according to Drew Carey, look at that, you know, a pretty steady increase into the 2006 Peak, and then, you know, a deflation, but now it’s peaking back up again. So, again, you think about real estate and regional terms. Is it a bubble on the national scale? You know, you can make arguments? Probably not. But certainly in some cities, prices are increasing pretty rapidly.

Matt Cochrane  6:45  Maxx, what are we looking because those are home prices? Right. That’s the Shiller-Case price Index. Like, what what is that? Exactly?

Maxx Chatsko  6:53 I have no idea. It’s like an average composite of home prices, and is based on, I think it’s adjusted for inflation. So it’s to a baseline level, right? So this compiled these across different regional markets. And now it’s also run by I think, like CoreLogic, or something. And in the Federal Reserve keeps these data for different regions. They also have like 10 city indexes, or indices and 20. City indices, they have a national composite as well. So just like a way to kind of normalize increases in prices to some baseline.

Dan Kline  7:34  It’s great, it’s great data. But you do also have to look at it on that regional basis. Because a 50% jump in housing prices in Miami is actually going to be dramatically bigger than a 50% housing price jump in, say Cincinnati. So that is important. And Maxx, some of these trends have actually happened before. Matt actually has a child named Previous Occupant. So this is one of those cases where some of these things have happened before.

Maxx Chatsko  7:59  And even though like a 50% increase in Miami might be more than in Cleveland. But if you live in Cleveland, a 50% increase is still a lot because you’re probably not earning the same amount of money. So you have to think about income on a relative basis too.

Dan Kline  8:13  Absolutely. As we see some of your comments coming in. We entirely appreciate you watching in Malaysia, I have no idea what time it is there, but late is going to be the answer. So very much we appreciate it. Matt Cochrane, Maxx does not know what a minute is. So you can take a couple of minutes here to get through. Maxx is apparently using the Australian metric time that Anirban uses.

Matt Cochrane  8:38 We’re supposed to quickly go over our arguments.

Maxx Chatsko  8:42  He’s got like 300 charts. You wait, everybody, I’m gonna be an indicator.

Matt Cochrane  8:46  Before diving into it. It’s all right, Maxx doesn’t understand the show’s format, that’s all right. So, look, I think housing prices have gone up a lot. I don’t think it’s a bubble or resembles the beginning of the last housing bubble. And there are a few reasons why. So JT, if you can bring up the first chart.

So this is the fresh chart the Federal Reserve economic data chart of, of housing supply, or houses being built, and this is over like, multi decades going back to the late 50s. And as you can see, after the financial crisis, this dropped to like a 50 year low like this, these were lows these were houses not being built on a scale we’ve never seen. So we have a decade right now of underdeveloped neighborhoods, we’re just under-building houses. So we have a a lot of demand out there and not a lot of supply and that’s doing a lot to drive the prices. One like Maxx said, it’s the interest rates right interest rates are at a multi-decade low and JT we can put up that chart.

So just do 10 year Treasury rates right. But again, this goes back to like the 70’s, we don’t see interest rates this low. So what does that mean? It means like people can buy a lot more house for the same monthly payment that they used to be able to buy. So like housing prices, right now, as far as payments go, they don’t need as much with low interest rates. And then finally, we have houses, they’re not being bought with subprime loans. They were in the great financial crisis, right? So like JT, we can throw up that chart. But look, look, the light blue here, those are mortgage originations with people with credit scores are over 760.

It’s almost that it’s about two-thirds now. And if  we can just throw that back on real quick, like in the dark blue and the yellow that you see on the left side of the chart, those are like subprime credit scores. And they’re they’re hardly a blip. They’re a fraction of what they used to be, that we saw on the lead up to the financial crisis. And then on top of that, like Maxx pointed out, like people are moving around, like technology has enabled a remote work, the pandemic was a huge catalyst for remote work. So now you have people that like used to have to live in San Francisco or New York for a job, and they can move to cheaper markets like Cleveland. I mean, I don’t think anybody wants to move to Cleveland. But theoretically, they could move to Cleveland.

Dan Kline  11:17 To our friends and fans in Cleveland, we will say no, just kidding. Go ahead.

Matt Cochrane  11:22  You know, so they can move anywhere, right? Well, a lot of people can move anywhere. So you have all these kinds of catalysts and reasons that housing prices are up, I don’t think we’re in a bubble, I don’t think we’re gonna see like a huge pop in home prices.

Dan Kline  11:39  Max, I know you want to respond here. But I’ll point out that we’re not going to watch what Matt says about construction is definitely an issue here in Florida. I’ve talked about how my wife and I, we sold our principal home, we’re living in a rental that makes sense for us during the pandemic, we bought a vacation place. But we’re starting to look for where do we want to be post-pandemic. And the challenges many of the new construction developments we’re interested in, are 12 to 15 months out. And there’s no guarantee that you won’t just have to take what you get.

That you’ll be able to like pick your finishes and things like that. There’s also no guarantee on pricing. So in some cases, you have to put down a pretty sizable deposit. Because they’re not building quickly. Some of that is materials, some of that is labor, some of that is you don’t want to end up with 100 houses and only have a market for 50. Because the market can change pretty quickly. But we are going to get to your questions and comments. But Maxx, I wanted to give you a chance to rebut because you put some notes in the doc here.

Maxx Chatsko  12:40  Yeah, so that’s true. That’s a good point. JT, actually, if we could bring up Matt’s first chart, which Dan just talked about, so housing starts over time. So that’s true, we did under build for a decade, a lot of builders got burned, and they felt like they didn’t want to keep building, especially after the the last, you know, real estate financial collapse. But if we look, I mean, you know, it’s actually a pretty encouraging trend. And especially if it can remain at about, you know, 1 million for a sustained period of time, 1 million housing starts on average, that’s actually really, really encouraging.

However, it’s really important to point out to, like, a lot of houses that are built are not entry level homes. So that’s still not good news for millennials or people who are buying their first homes, or maybe even people who are retiring and want to downsize, you know, new houses that are built. This is like, almost always lost in the discussion. These are pretty big, expensive homes. So that’s not gonna help people like me, who are maybe trying to buy my first house, I’m not going to go put down like, you know, 4, 5, $600,000 on a house somewhere. The first time around, right? So that’s important to point out, but Yes, that’s correct.

Matt Cochrane  13:41  Maxx. Doesn’t that mean, though, if they’re building those houses that somebody is moving into them, right. And so if I was in the house I I was at before the house I’m in now, right?  We upgraded, we use the equity in our house, and we bought a nicer house that was closer to my wife’s work, my kids school, etc. So if I’m moving out of that house, then someone coming in to buy their first house can move into the house that I’m leaving, I mean, yeah, that is more of a natural step up here.

Maxx Chatsko  14:11  Yeah. So that leaves more housing stock for like BlackRock or Goldman Sachs to come buy and then rent it out for three times the rate. You’re right, Matt, that’s absolutely what could happen.

Dan Kline  14:19  That actually has been part of the problem, at least in this market, where the market has gone up. Because if you’re buying a house to re-rent it, in many ways, the difference of 20 or 30,000, or even 100,000, depending on the price point, doesn’t matter that much. If you’re looking at your income chart over over 10 years. So we are seeing and look, we’re also getting blind bids. Usually you’re bidding against people who live in your market and a very small percentage of people who are moving to the market.

Now here in Florida, and I’m sure this is true in in lots of other desirable places to live. I’m sure it’s true in Houston, Texas, as well. where many of our colleagues live. You are getting people bidding sight unseen on houses. Because when you sell your two-bedroom Manhattan condo for $800,000, buying a 2500 square foot house in West Palm Beach, or Fort Lauderdale, or wherever, for $600,000 seems like an incredible bargain. So there’s absolutely some weirdness to this market. We’re going to get to your questions and comments at the end of the segment.

Maxx Chatsko  15:25  I have one more comment about if we can bring up that chart about credit scores. So this is another good point that Matt brought up. But I don’t think this really means anything about Is there a bubble or not? This just shows that one of the most important factors from the most recent housing and financial bubble is no longer present. So I think this chart shows more about, you know, increased and improved lending standards than anything else. But to say that that means we’re not in a bubble. So people with high credit scores can’t drive a bubble? That doesn’t really make any sense.

Matt Cochrane  15:54  But I think it’s one risk removed is what I’m saying.

Maxx Chatsko  15:56  So people could lose equity, but they wouldn’t be losing their homes, they’re not at risk of like having a foreclosure, they would just be like, Oh, crap, we paid our mortgage for five years. And we are back to where we started.

Matt Cochrane  16:06  I think that’s a possibility. So I actually think it’s possible that people are fine that they might be stuck at their homes or something like a, there’s been a lot of refinances and things like that. I’ve refinanced my home, I mean, it was just, we could get such a lower rate, but like, you know, I didn’t cash out or anything like that. But I think we could see people like frozen for a time, but a bubble implies that there’s going to be a pop, and that there’s going to be a rapid deceleration.

Dan Kline  16:34 Well, that leads to my next question. So the reason I think the credit score issue is important is part of the reasons prices fell so rapidly is as people were getting foreclosed upon, it caused a glut of houses to go into the market at very, very low prices, or taking over bank loans, like there were a lot of. There was a lot of excess inventory, if people are stuck in their house.

That’s just one thing that sort of props up the market at current levels. Now, that said, if equity stays the same, if values go down, that is a negative because you always have people that have to sell for work reasons, for family reasons, for whatever it is. So that can lead the market down. But Matt, I asked a question on here and I was being a little silly, but but I’d like your thought, can a bubble deflate but not pop?

Matt Cochrane  17:19  Yeah, I think so. I think to bea bubble, there’s different stages. Like economists have to find different stages of the bubble. And I have some point, there’s like irrational, you know, exuberance, right. That like, you know, prices, there’s a lot of speculative buying, and if that’s the case, right, right bubbles implies that something’s like being bought and sold at prices that are far above their intrinsic value. And if that’s truly the case, it’s going to be followed by rapid de-escalation of prices. Again, we don’t go back to those Benjamin Graham quotes, but like, you know, or Warren Buffett, I get them mixed up. But like, you know, like, over the short term, the market can be like, a popularity contest, but over the long term, it’s a weighing machine. So when prices get way out of whack, on the high side, they come down really fast. And so I think like, you know, any definition of a bubble you’re gonna find, by economists, it’s good. There’s a pop at the end is the last stage.

Dan Kline  18:12  So I absolutely want to come back to Maxx on the next one, because one of the things I wanted to talk about is, is this regional? Because I look here in West Palm Beach, and I don’t just see a crazy bit up, I also see the infrastructure changes that like Goldman Sachs rented, most have an office tower downtown, and that office tower in the lobby is going to have a New York famous bar. So that’s not a population that’s going to go away. So if you look at an area like Miami, like Austin, Texas, like Houston, Texas, like West Palm Beach, that’s building infrastructure to bring in companies, those high paid workers are not likely to go away unless we have like a banking crisis or something else. So is it possible that there are areas like New York and Seattle have always been very resilient? Even in the crashes? Are we just going to have more boomtowns? Because of this?

Maxx Chatsko  19:06 Yeah, no. We could have certain boomtowns for sure. I mean, I mean, look, I mean, in Seattle, one of the reasons to I mean, you have a lot of the big tech companies there, but you also have an growing, you know, biotech hub there. Right. So there’s a lot of new startups, some of those are pretty well funded. So there’s a lot of like high paying jobs, people who can afford those prices. But then there’s also a lot of people who obviously cannot afford those prices. Right. Yeah, I mean, I think some of these price increases can be sticky on a city-by-city or regional basis. Absolutely.

Dan Kline  19:34  Yeah, Seattle is daunting. So I worked for Microsoft. So I have a lot of friends out in that area. My college roommate now works for Facebook, but used to work for Microsoft. And I know what he paid for his house, and the number and it’s a beautiful house. But the number was scary when my wife and I contemplated maybe me having to move out there. We looked at two-bedroom condo as rentals in Bellevue, Washington. And it was a sobering number, even with the fact that my salary would have been very high and the benefits are good.

So, you know, I do think you’re gonna see some spreading of the wealth. But we’ve talked about this, New York’s not going to crash, there’s always going to be young people who will live four to a one bedroom apartment in New York, because they want to be near Broadway and Madison Square Garden and the bars and all of the restaurant scene and all the stuff that’s there.

You might see price dips, we certainly saw it easier at the top of the market, you know, to get a two-bedroom that used to be 8 grand now it was 7500. Like we saw some of that we didn’t see this major collapse. I’ve got a few rapid-fire questions. Either of you can can weigh in on this, and then we’re going to get to a whole bunch of your comments here. My first question, I’ll let Matt weigh in first, will we see any evolution to how Americans live and my first one thought here was tiny houses. And I bring this up, because here in West Palm, they built a bunch of tiny apartments, but instead of them being affordable, they’re tiny apartments for like rich people who work in Fort Lauderdale and want to be near the train station. But Matt, do you think we’re gonna see just like different forms of housing here?

Matt Cochrane  21:00 Yeah, I mean, I think it’s really possible. We talked about that before the show and some of your notes, but you talked about tiny houses and corporate dorms and things like that. One thing I think we’re already seeing is like long-term rentals, like Airbnb, like digital nomads, so to speak. Millennials like Maxx, they don’t like settling down necessarily right away. They like traveling. And so with remote work possible, it’s very possible. So Airbnb at their last earnings report, I forget the exact number. But they said about 25% of their rentals were for like 28 days or longer, something like that. So I think long-term rentals are definitely very appealing to certain people.

Dan Kline  21:44 Yeah. And we’ve actually seen multiple friends of ours over the summer when their kids weren’t in school, just be like, Hey, I live in this place. And I’m going to go live in this place for a month.

Matt Cochrane  21:53  Like RV sub-communities, communities and things like that. Yeah.

Dan Kline  21:56 Yeah. And obviously, Matt and I live in Florida, where there’s always been a seasonal community, like both of the areas we live in have swelling populations, in the cold northeast months, you know, something like the we used to live next to a Marriott Hotel, and it’s a relatively nice Marriott, a room would be at $99, like eight months out of the year. And then for like the winter season, it would be like $379. So you do see big shifts there. Maxx, are you going to see more multi-generational homes? If my mom is watching this? Don’t get any ideas? There will be no multi-generational homes in our family. You’re welcome to live nearby. Just not in the house. Maxx, do you think we’ll see more multi-generational homes?

Maxx Chatsko  22:38  I have no idea. I mean, I don’t think it’s gonna be by choice necessarily. And it kind of goes back to that last question. Right. Like, we like longer-term rentals and things like that. I mean, again, I don’t think that’s by choice. I don’t. And if it is, it’s a very small segment of the market. I think for most people, you know, rent is becoming a little less affordable, housing is becoming less affordable. So like, you know, do you if you have to live with your family or so whatever, I don’t think it was gonna be your first option, but you might be forced to do so just for affordability

Matt Cochrane  23:13  I think you do see a lot of this. And I think it’s a lot with like kids in like, I know a few people who like their kids, they have graduated college and they have real jobs. But maybe they couldn’t get into the housing market right away. And like, they basically, they still live at home in their bedrooms. And, you know, they save money for for a few years. And I think that’s like, you know, I feel like when I was growing up, like, you know, that was like a joke, like, Oh, you live in your parents basement or something like that, once you hit your 20s I think now it’s very acceptable.

Dan Kline  23:43  Yeah, that’s actually what I was gonna say. I think it depends on why you’re doing it. We’ve talked about that. My son will graduate high school, and he’s not going to go to traditional college, and that he will work. And when he’s ready to move, he’ll have significant money saved and invested. So he’ll be in a good position to put that first and last month or to buy a home or to, you know, to rent in some strange market. Obviously, real estate could become unaffordable. I also do think you’re going to see more, and I’ve seen some anecdotal evidence of multi-generations because some of the houses we’ve looked at have had very defined in-law suites in ways that I haven’t really seen in new construction.

I do think you might see more things like maybe at some point that my mom wanted to move to Florida, instead of her quote living with us. We might decide, hey, let’s purchase a home together that has multiple, you know, a main bedrooms or entrances or living areas. I think you might see that type of like, Hey, we’re both putting money into the pot. And if we bought two separate three-bedroom homes, we might not get anywhere near the value we would get on the five-bedroom home or four-bedroom home or whatever it is. Maxx, you are shaking your head is that because you don’t want Matt to come and move in with you?

Maxx Chatsko  24:56  No Matt is always allowed to live with me. I have a nice garage. He can live in there. No, it’s just funny to hear, like, you know, these two old men on the show talking. And like, people were in letter younger or in a totally different position. And it’s interesting, like, you guys aren’t really that much older than me. But I don’t think there’s an appreciation for how much different the financial pictures are, you know, if you’re my age, rent is expensive. And you have student loans, right? I mean, I went to grad school, but my monthly minimum payment for student loans is $650.

So there’s people and I’m gonna be fine. But there’s people who are like, in similar situations, and I don’t have family money, I grew up in poverty. So I don’t have like, you know, it’s harder to get started. You’re talking about, like, we might buy a three-bedroom house and have our in-laws come like a lot of people can’t even get started. So they’re kind of stuck renting for way longer, and just isn’t sustainable. You know, so like, living with your parents or having roommates longer than you want? Is that really sustainable? Like, I think there’s a lack of appreciation for how unsustainable and how different it really is for younger people.

Matt Cochrane  26:01  Yeah, I think you’re saying, though doesn’t it make it like, more necessary? Like what I’m saying is I think it’s very acceptable now for kids to live with their parents for those reasons, past college graduation. So I mean, I think that’s like, I think it’s acceptable, because it’s like, everybody’s going through that.

I have a teenage son who’s, who’s where the light at the end of the tunnel is kind of where, where I can kind of see that happening, you know, and, I don’t necessarily mind it as much as I used to, you know, what I mean, like the idea that, like, I think I used to more think like, oh, he has to get out, he has to get a job, he has to make it on his own. And now I think it’s just more like, no, I get why he would, he might have to live here for a few years. And I don’t think I would necessarily mind it.

Maxx Chatsko  26:48  Can I move in with you?

Dan Kline  26:50  I also think it is important to note, and Maxx brings it up that we all come from different positions. Now I’ve owned a house for a very long time as some form of property. And I’m not going to pretend part of that isn’t because I come from very beneficial circumstances, like did I work hard? Did we forego certain things in order to buy our first co-op in New York? Absolutely.

We made sacrifices. But it would be disingenuous to not pretend that I didn’t grow up in a family that owns a business, that’s been well off that, you know, even little things like, we sold our first home and bought our second home, which was an actual house. And I needed a pretty significant bridge loan for like 24 hours based on like the way money used to move back then. But now it’s instant. It didn’t used to be instant used to, like physically bring a check to a closing and I had to do another closing.

So like, I went to my parents, and I borrowed I don’t know, $20,000 for literally like 36 hours. But not everyone can do that. Now, obviously, you cannot have your closing, you can stay in a hotel for a night, there are things you can do. But yeah, we are very appreciative that these are different circumstances. I actually do think, Maxx with your generation, I’ll let you weigh in, and then we’ll get to questions and comments. I actually think people are going to be more willing to live different places.

I know that when it was time for me to pick where to live, I didn’t want to not live where my college friends were, I think there’s more people that are going to go like Geez, if I moved to Columbus, Ohio, which by the way is really awesome. Or, or Columbia, South Carolina, where we have friends, which is really nice. But I can have a much better life and there’s employment there or I do something remote. Do you think that’s gonna factor into living decisions more than that’s like, hey, that’s where my buddies live?

Maxx Chatsko  28:34 Yeah. And I see that anecdotally among, you know, my friends and so forth. More willingness to live in different areas, even within like the same city. Really Pittsburgh, housing prices are kind of a joke nationally, right? Like, it’s still very affordable here. But there’s different parts of the city that maybe like, other people won’t live there, but you’re like, Oh, I could afford a house and fix it up. And it’s some old brick mansion that the tycoons used to live in, who ran the steel mills. Like, that’s kind of cool and has an appeal. And, you know, younger people are more willing to, like, take that risk, or I can see myself living there for 20 years. Right. Or not right, like you said before moving from city to city and being a little more opportunistic. So yeah, I would agree. There’s generational differences, for sure.

Dan Kline  29:19 Yeah, and that’s absolutely one where we moved to Florida, because we had bought a vacation place here. A very modest vacation place, and then realize, wait a minute, if we lived here, our cost of living would be way lower, our quality of life would be way better. Oh, and by the way, it never snows. Not rarely snows it never snows. I want to get to your questions and comments. Let’s start with Daniel Delgado. So we will work through these. Property taxes going up outrageously in Texas plus the home insurance is going up. Homeowners find that they can’t afford the house they just bought.

I would argue if that’s the case, then you don’t have a very good Realtor. Because sadly my Realtor just passed away. It’s not something I particularly want to talk about. But I’ve worked with the same mother and daughter, Realtor team for the six years I’ve had property here in Florida. And I worked with the same gentleman in Connecticut for the 15 years before that for multiple transactions. And they would sit me down and say, Okay, this is what your mortgage is going to be. But here’s what all the other factors are. So yes, these things are going up, but you should know them going into the transaction. Matt, you want to weigh in on this one?

Matt Cochrane  30:27  Yeah, no, definitely no all the costs for homeownership. That includes insurance. And that includes taxes for sure.

Dan Kline  30:33  I also think people are very eager to talk about Zillow and Redfin, and alternative ways to buying a house based on the idea and I’m a fan of those companies. But based on the idea that a realtor is expensive. And I will point out that the property I just bought, I never in a million years would have been the winning bidder if I didn’t have a very active, very knowledgeable about the market person on this. And I’m going to cry. So let’s take the next comment. We’ll go a few in a row here from Max Lucas. Maxx, if you want to read these. Well, let’s let’s just completely screw up our transcription service by having Maxx read Max’s comment. Oh, Maxx, you are muted. So

Maxx Chatsko  31:14  The regional part is very important. You can still get a house in Detroit for $1,000. If you agree to live in it and fix it up. That’s probably true, I bet you could probably live for less than $1000 in your mortgage. Another common solution to how high housing prices are high housing prices. Seems like companies like Boxiful. I don’t know how to pronounce. I don’t know, I don’t know that one actually, later will start to be disruptive on making housing cheaper.

I actually agree with that. I mean, there is it seems like a market opportunity to build new houses that are smaller and more affordable, especially with Millennials are now the largest generation in the United States. And we’re on like peak Home Buying years. So that makes that’s a pretty good idea. Max keeps tearing it up. It’s a Maxx thing. Having big investors and single-family housing should be a net positive to housing, knowing there are big investors to sell to will help bring stability to an otherwise extremely cyclical industry.

Dan Kline  32:08  Yes, and No.

Maxx Chatsko  32:09  Yeah, that could also go off the rails really quick, right? If they’re greedy.

Dan Kline  32:13  Their metrics are different than the metrics of someone who’s living there. So it can price out the regular person, it could also turn a market that was previously you know, a family long term market into more of a transient short term market, which can be difficult. We see that happen here in Florida, where there’s there’s all sorts of different zoning, some are short-term, some allow seasonal, some allow, you know, you can’t rent it at all, I wanted to talk about the Detroit thing.

So yes, you can still buy a house in Detroit for $1,000. And I’ve driven around, I’ve seen some of those houses. But that doesn’t work on a standalone basis. That only works. And this is happening in Detroit, when you see industry go, Okay, we’re going to put our offices downtown, we’re going to have some of our workers live downtown, and you see wholesale changes to neighborhoods.

If I just fix up one house, you know, in a, in a downtrodden neighborhood that doesn’t change anything. But I saw it when I lived in Hartford, where some of those mansions you mentioned Maxx, you know, people were buying for 2 and $300,000 with commitments to put, you know, six figures into them, and really transforming neighborhoods, you’re seeing that in Detroit, my friends at Benzinga, which is a another financial news site, worked with the guys at Quicken Loans to move their office downtown to have some of their employees live there. And you’re seeing a slow revitalization of what has obviously not been the easiest place to live in the United States. Let’s take Josh Miller’s comment next. If you want to pull that one up, JT. I disagree. Young adults need to be on their own. Matt, you can go first I’ll go second.

Matt Cochrane  33:48  I think it’s a careful balance like, look, I think, I don’t know there’s one size that fits all for that. But yeah, like, young adults do need to learn responsibility. Right. And they, and that does mean like sometimes having to go through hard times at the same time. Like, you know, circumstances can be different for everyone. So I don’t know, like that mileage may vary. I don’t want to tell other people how to parent or anything like that.

Dan Kline  34:13  Yeah, I think that’s about knowing your kid. I mean, my son is 17 and cannot consistently check on what’s in the toaster without it, you know, burning it and almost lighting the house on fire. But he’s progressively gotten more responsible. I never could have imagined I’d let him use the toaster or frankly, at one point that we’d live someplace with stairs. You know, so you watch your kids grow, and you have to give them you know, the freedom to make mistakes. But not every kid at 18 is ready to leave the house and go live on their own. That’s why you know, a lot of kids college isn’t about the education. It’s about, you know, learning that just because you can stay up all night doesn’t mean you should stay up all night.

That is a hard-to-learn lesson for some kids and yeah, it becomes You know, something as a parent, like, Look, I’d love to at 20 say, hey, my kid can go get a place and move out in his own and begin his journey. I think it’s more realistic to think that that’s going to be 21-22. Now, if college is in the middle there, that’s great. If it’s not, you know, you have to make sure you’re giving them those experiences and, and making sure they understand money and you know, you know, hey, pay me rent, but that’s going to go into a an investment fund for you, because I don’t actually need the rent. But I want you to understand that just because you’re making this money, doesn’t mean you’d have this money.

We’ve got a few more here, why don’t we take Enrique’s comment before we move on to our next segment, I think that’s the goal to live with family and save money for something. But at the end of that, does your kid buy a nice car with a $600 payment, and also buy that new iPhone and so on? Yeah, that is a concern. But Matt, and Maxx, sorry to leave you out here, but you don’t have kids. So feel free to weigh in, if you’d like to. That is a concern, I spend an endless amount of time talking my son, you know, out of buying $300 sneakers just because he’s working, you know, and making $100 a week or whatever it is. Your thoughts here, man.

Matt Cochrane  36:07  It’s a careful balance with everything, you have to teach your kids responsibility. Like there’s no doubt about it. At the same time, you don’t want to spoil your kids at this at the same time, you don’t want to throw them to the wolves either. So it’s a careful balance. I think it’s different in every situation. So I don’t know if there’s a one size fits all answer there. But yeah, you don’t want to spoil kids. I mean, look, Thomas Stanley, the Millionaire Next Door, right?

I mean, he talks about this, like, if you spoil your kids, and give them an easy life, they’re not going to do well with money. And that’s why money leaves, you know, families after like, a couple generations, like traditionally, like it does, because people give the kids an easy life, and then they don’t do well with the money. And then it’s gone by the third generation. And that cycle repeats. If that being said, there’s no one size fits all answer, teach your kids responsibility, at the same time, you know, enable them to have a successful life. So we got to find that balance.

Dan Kline  36:57  It can be very difficult when you’re doing well, to explain to your child that you’re doing well, they’re not doing well. So like, you know, My son has had a Disney and a universal pass for five years. And those are very, very expensive, and I’ll talk to them about it, like you would have had to work 15 weeks to pay for, you know, one of these at the money you’re making. You know, and obviously that’s not tenable. If you have other things, Maxx, anything you want to weigh in on before we move on here.

Maxx Chatsko  37:26  I mean, some of those comments, like from Josh, and Enrique, I think, you know, about like young people living at home. I mean, the other aspect of that is, I mean, there is like, some of the social implications, right? It’s harder to, to date when you’re living with mom and dad, right, harder to bring people home or whatever. So it does delay certain other important life events and life decisions. And then, you know, I think that we’re already seeing that anyway, I think, right, like people have children later now. And they buy houses later now. And that’s partly due to being, you know, more highly educated than previous generations. But it does have an effect on the economy at large as that relative percentage increases.

Dan Kline  38:07  Yeah, and let’s close this topic out, Max Lucas, who actually works in mortgage and says in mortgage, I’m seeing a lot of multifamily situations like Dan is saying, where the kid lives at home, works and saves up to buy a house, a lot of parents gifting down payments too. Yeah, it’s something I’ve thought about a lot. You know, if my son doesn’t use the money, we would have used to send them to college and goes to college on Target, or Amazon or Starbucks’ dime, then I’ll absolutely use that money to help him set up with the home. But one of the things we want to do is teach our kids how to build long-term wealth and also how to be happy without having everything they want. Now we’re all doing reasonably well. Like we have good lives compared to most people.