tv Whatd You Miss Bloomberg November 8, 2021 4:30pm-5:00pm EST
caroline: from bloomberg's world headquarters in new york, and caroline hyde. romaine: i am romaine bostick. sonali: i'm sonali basak. taylor riggs is off today. caroline: historic run-up in home values during the pandemic. the u.s. market is at or near the peak. that's according to the housing analyst famous on wall street for calling the top of the market in 2005.
for the next half hour, we will focus in on the possible warning signs and impact on investors, whether it's today's news that homeowners are cashing out as a tell as they pull equity from their homes in the highest volume since the financial crisis. maybe it's the hedge fund driving the spree. builders are struggling to keep up with demand amid shortages. all the epic rise and fall of the business that has everyone fretting. we will break down the trouble and what a possible correction can mean for the market. romaine: remember the good old days when housing prices might go up by a single digit percentage wise? that has not happened. double-digit percentage gains here, measured by the case-shiller index here. we are looking at the main correlation, a big rise. it is not just the upward chart you are looking at. it is the rate of change here. the 11, 12, 13, 15, 17, 19%, 20%.
those are gains month-to-month we have seen all year long. the most recent months, we were something like 19.6% six year. we are starting to see upward pressure on this crisis. you start to wonder if that has any impact on appetite or demand. caroline: where is the by straight coming, or not? we were talking about lumber prices ad nausea met one point. we thought that would be the issue. but for now, we have the zelman and associates ceo with us to talk about the worries in the market. we saw it in before, 2005. . are you seeing it again and calling the top of the market? >> we are definitely cautioning people that today's market is not sustainable. while demand remains very, very strong, more strong in the last 60 days, we've seen bench hitters jumping in, but a lot of the demand is coming not just from primary buyers but investors, which is definitely
artificially cropping up overall home prices. i think there's a lot of sensitivity around interest rates that's not fully appreciated. definitely raising, i will call it yellow flags. sonali: all the private equity guys believe this is partially a supply problem. the single-family homes that need to be built, there needs to be money poured into them. are you saying that they are wrong? >> i think what we have is a level of household demand as well as the need for replacing those homes that get demolished or excess vacancy that we believe is much lower than much other fork -- most other forecasters. we are very much a contrarian that if you look apipeline of homes that are currently started, the latest twelve-month starts for single-family believed compared to what we believe was normal for single-family, that would be 20% plus above that level. i think we are starting from a
different perspective than the others for testing millions of homes at a current deficit situation. there is a ramp in supply, but one of the best parts of the backlash of covid is that -- or should i say the bottleneck of getting homes delivered because of the delays, getting building products, getting appliances, actually that is the industry's best friend because it is acting as a regulator that the supply is not ramping faster, but i think a lot of builders are bragging that i will add 20% more communities next year or 40%, and we've got 75 billion dollars of predominantly unlevered capital that is likely going to the same states to do a build for rent strategy and we will see a situation that we have a lot of shelter but not a lot of bodies. romaine: that is what i'm curious about, too. if you look at the housing markets, particularly out west like new mexico or arizona, you
can see it. you don't have to see -- be a housing expert to see the aries -- the issues. i wonder if there is an area that's more vulnerable to overestimation of the market. >> i think everywhere in the u.s. prior to the 10 year, household growth slowed. the united states, from the prior 10 years actually experienced the slowest household growth on record. if you have a market like utah or idaho that is growing at a double-digit level of household growth, the question is, how much incremental supply are you having? 30%? that's where we see the concentration. it is in the states that are more fight -- favorable and tax friendly. phoenix right now is the number one market we think is at risk of being oversupplied and also seeing home crisis correct --
prices correct because investors are invested in the existing home market as well as the supporting more pipeline for for sale and for rent. caroline: i wonder what investors will be hurt here. is it the big investors? or is it smaller, the people who are buying one, two, or three homes, being a smaller landlord? >> i think the latter. if you think about it, individuals today that are trying to diversify from the stock market and looking at residential real estate as if they plan to allocate their wealth, think if you are buying right now, there's no question there's a risk you will see home prices come under pressure. the good news is the mortgage industry is extremely sound. ever since dodd-frank legislation in 2014 for the ability to repay, better known as q m, has actually been a real regulator as well. we don't have the same mortgage problems we had in the last crisis, nor do we think there will be something anywhere near
the same level of the tfc. -- gf c. i think home pressures come under pressure, especially in the markets where we see a tremendous amount of new supply coming. it's very concentrated. i think the little guy gets hurt. the big guy, they might disappoint their investors where they raised a tremendous amount of capital and they won't hit the returns they said they will. that will be the likely worst-case for them. sonali: in 30 seconds or so, do you think there's a problem with so much of the mortgage activity going outside the banking system? >> not necessarily so much of a problem. i could nice thing that many of the mortgage entities that are nonbanks like rocket mortgage and uwm, these are companies providing the american dream to many homeowners and the ability for people to refinance and capture a low mortgage rate.
i think there's a balance sheet that says whether they are able to withstand a downturn, but if there is no regulation, there's a perception of more risk. i can tell you emphatically if we see anything suggesting a red flag, but certainly there is tfc, fannie freddie, government lending that has been the majority of what is funded which is not retained by those lenders, which is sold into the secondary market. caroline: ivy zelman, such a joy to have you on. we have you are -- on, thank you all about the housing market. we will stick with it. we will talk about the home fallout from zillow's home flipping explosion. we have a key take from a realtors perspective. it will be digging in to the highs and the lows of what zillow is up to in buying.
romaine: today, we will focus on the possible warning signs in the housing market. our previous guest had a prescient call in 2005 about the potential bubble that was booming in that market. here we are today. everyone is focused on zillow. zillow offers the algorithm, fueling house buying technology, which apparently unraveled because of an overestimation. let's bring in patrick clark, who wrote a great story about what went wrong over at zillow. let's start off with the algorithm. a lot of people are talking about the. anyone who has done these zestimates, there was always a
joke that it was inflated. if you look up your house, it's like, there's no way anyone is buying my house for that. at some point, the algorithm was accurate, or at least accurate enough to build a business around. >> at the very least, they had expertise in understanding what home values were and what home presses -- prices should be that would allow them to get into this business. in the fallout from the decision to pull the plug on it, one of the things that has emerged is they say we are good at knowing what house is worth right now at a static point in time, but we obviously struggled to figure out what the house would be worth six-month from now. that may be a terrible take from their perspective, nonetheless it gets at what the problem really was. you have to know with the house will be worth when you need to sell it. romaine: they are holding onto these assets for a certain period of time as they flip it. was that the disconnect? >> exactly, the home prices moved on them.
they were expecting home price appreciation affects and they got x minus something. all of a sudden they went to sell homes and put them on the market but they can't get what they thought in the homes sit on the market longer. all sorts of bad things happened. sonali: now 2000 jobs are at stake. what does it mean for zillow moving forward in terms of the company and how it moves on from something like this? does the damage continue to spread to competitors? >> i think zillow had a big hole in the middle of its business, spending the last three years during up around this buying business. what do they do now to replace it? it's a big question. i will go to zillow to look at houses. it will still probably be the best place to get me to hire them as a client, but it takes me back to a smaller business than what they were aiming for with zillow offers. so for the indications are that
the other buyers have basically gotten things right. we will see both opendoor and offer pad, publicly traded companies, you will get a sense of where things are at wednesday. as of now, it does not look like anyone else had the same problems. caroline: literally all my husband does to unwind his look at zillow at night, make up stories about where you could buy and where you couldn't. what are you finding in terms of which part of the market it was best at? i love that all the shots of zillow seem to show 88 million-dollar homes. is that the bit that they were flipping wrongly? [laughter] >> if they are flipping 40 million-dollar condos and penthouses, they would be in trouble. you know, they specialize in the same kind of -- caroline: that is $98 million. good. [laughter] >> exactly. it is the same types of markets iv was just talking about. phoenix, dallas, atlanta, rally
-- raleigh, place is relatively new into the housing stock, kind of commoditized. theoretically, you should have a better ability to have prices for one street to the next because the houses are not that different. caroline: really great to have the inside track. he did a great piece on that. if you want to see what happened with the booms and bust of the zillow house buying, you can read that. let's talk to a realtor who kind of saw it coming. courtney poulos is cofounder of acme real estate florida co-founder. really great to have you on with us. you had been talking about this, trying to have people take on your perspective, but you kind of saw the crash coming, right? >> i did. we are a design renovation firm in los angeles. i got my start in renovation resale. let me tell you, flipping is not for the faint of heart. in reality, it takes a local
specialist to understand what buyers really want, so when you are acquiring property, it is a careful estimate of how much work will be needed, layout changes, design, the whole lipstick on a pig thing doesn't work. it takes a real estate specialist with local knowledge to actually accomplish that thoughtfully for the clients. where zillow made a huge mistake i think is relying on algorithms to do that kind of work. so there's no replacement for a specialist. that is the suggestion here. we've seen this in big data for real estate markets for a lot of time. romaine: this is definitely your time to crow here. i'm curious about the algorithms and the broader technology that not only zillow used, but other technologies trying to use similar technologies to get a read here, maybe an aggregate of
what a home should be worth in a certain community, and then make an extrapolation as to whether it is worth buying. maybe it didn't work for zillow here, but do you see that there any sort of potential ab that technology can improve enough where it could work, maybe not nationwide, maybe not crazy markets like l.a. or new york, but are kits that are little more staid, that there could be some success? >> i think the problem is it tried to democratize real estate value. it doesn't take into account citing views, unique features, term -- charm, emotional components. that cannot be addressed by an algorithm. maybe in a suburban development were all the houses look exactly alike, you might have a better result. romaine: that's what i mean, we've tried to be nice about it, but we've all seen these cookie-cutter neighborhoods were all houses the same as all
hundreds of houses. in new york, block by block, things can change. a house on one corner can be vastly different from the house down the street, even though they might be the same size and layout. i guess what i'm saying is, forgive me for saying this, but our realtors, real real estate agents in certain communities, are they potentially replaceable by this type of technology? >> no, they are not, especially when it comes to flipping. for example, it is the uniqueness of a home that gives it value. if you take any designer in los angeles and let them add their value to an otherwise lipstick on a pig flip, it will sell for more money. the challenge in suburban communities for investors who want to do renovation resale is to bring something unique enough that it exceeds what the highest, most recent sale is. i don't see a lot of people flipping 1990's houses, but at the end of the day, i think you cannot rely on a computer to do the kind of work of a real
estate agent with a brain who's in the market. sonali: so hear me out, though. while it might be good for the real estate agent, was there some lament of these buyers, if the price was wrong, it was wrong on the low end for them -- can people be racing higher prices to some degree, because that online layer might be taken away? >> let's talk about who you are talking about. it might have been great for the people selling their houses to zillow for more than what zillow can resell them for. those are the sellers. for buyers who are being duped into agency by zillow using real estate listings, photos, trying to market for by your clients, how do we know that the buyer would have paid over those properties? it is acting as a brokerage, setting expectations of value for buyers and sellers with no
transparency. you are acting as the buyer, seller, and setting the value. romaine: there's definitely a conflict of interest. i'm curious, when zillow started doing this and other companies and by -- came by, part of the appeal was that it was much more of a slower process, a little more cumbersome with real real estates, and the ideas that zillow gave people who wanted to sell a much quicker way out, even if it meant maybe they had to give up a couple thousand bucks on the price? how do >> we know it was a couple thousand bucks? in my opinion, zillow would not make the offer unless they thought they would make money. a good real estate agent can make the sales prices less -- seamless. the idea that zillow was doing something magic by making a cash
offer, guess what? in l.a., we get cash offers all the time. if it's priced right, it will sell. the question is, who is making up the money on the table? zillow was banking on the fact that they were going to take that. i don't think it is smart for the seller. test the market. use a real estate agent who can make the process seamless and enjoy the fruits of your homeownership. caroline: how do you think in general we feel that any part of the real estate market isn't in some way against us? i think that is sometimes what people wanted with the transparency online, they felt they were getting someone who was not on one side or the other, which you sort of get for the one-on-one relationship as well, what would be a good answer do you think in the marriage of technology, which is coming no matter what, and what you do which is the outcome of it that makes a buyer or seller feel they are being acted for in good faith?
>> ok, i would like to take apart a few things you are saying. there is no presumption that zillow did not have an idea in mind about how it could make money off the process. that is why they turn into a brokerage. that's why they made a lot of their profit for real estate agents. for example, the idea of transparency should come from where they are getting their data from, but we don't have access to that. where are those estimates coming from? that's not transparent at all. this idea that somehow that is more transparent than working with a real estate agent i think is flawed. where technology helps us is in delivering listings to buyers. it is marketing and i think zillow has done a great job of creating a usable search platform. i think that's where it is working. it is better looking than a lot of mls platforms and where consumers like to sell. so yay, you did it.
can you let go of the fact that it's a one-stop shop and you want to wipe all the people who have been paying your bills out of jobs moving forward? romaine: we will have to leave it there, but we really appreciate getting your perspective here. definitely much different than what we've gotten from other folks here. courtney poulos, cofounder of acme real estate florida, in los angeles. we will be back in a moment. ♪ >>
caroline: it was accurate. [laughter] and then i flipped it. romaine: in all seriousness, this is becoming the future. while zillow might have gotten it wrong, you heard from a lot of analysts saying that the algorithms work a little better. caroline: we will see how that goes. that is it for "what'd you miss?" ♪
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