John Bick (4:49)

And are we seeing delisting rates climb? Is that where that comes in?

John Rubino (4:52)

Yeah, delisting rates are starting to climb, and that's a sign that we're topping now that all the things that happen normally at a top are beginning to happen. More listings coming on the market, more delistings as people can't sell their houses. Oh, and there are also a lot of price cuts. You go to Zillow and you'll notice that a lot of houses have already been reduced.

John Bick (5:13)

Now, you and the Wall Street Journal highlighted that there are some very significant regional differences in the real estate market. For example, Florida and Texas have an overabundance of supply, whereas other places have a persistent shortage. What's causing that?

John Rubino (5:27)

Well, there's just been a lot of action in Florida and Texas and a few other states. Those are the places that people have been moving to and where a lot of houses have been built in response. You know, there's a tremendous number of new houses in the process of being built there right now. So in other words, the bubble markets, the really hot markets, are the ones that break first. And where the real action is now.

John Bick (5:49)

Is the migration of people moving to those states slowing?

John Rubino (5:52)

Yeah, it's slowing, but it hasn't stopped yet. People are still moving to states that they perceive as better run, and they're moving out of states that they think are badly run. That's continuing, but it's slowing down because nobody can afford to buy the houses in the hot markets that they're moving to now. You know, for the past 20 or 30 years, if you sell your house in California, you could pretty much go anywhere and buy a really nice house. But now home prices are starting to equalize. They're going up even in. Well, Nashville, for instance, is a super hot market in Tennessee. And a lot of other Tennessee cities are starting to boom, and that always leads to higher prices. And in Florida and Texas, a lot of the formerly affordable neighborhoods aren't affordable anymore. So it's harder and harder to move to these places. Fewer and fewer people are doing it. And again, that's topping behavior. Once we reach the point where that rolls over and people actually start leaving the formerly hot states, that's when the real estate market really tanks.

John Bick (6:52)

Newsweek put out an article calling Austin, Texas, ground zero for the market downturn. First off, can you explain what you've seen there? And also, do you think other hot cities are going to follow? And how long will that take?

John Rubino (7:05)

Yeah, Austin has basically been the hottest city in the country for the past decade or so. But inevitably the pendulum swings too far. And Austin is now unaffordably expensive and the prices of houses are starting to go down there. I think I don't have the exact number, but I think it's something like 15% from the peak. Prices are down in Austin. And you know, there's an old saying that in a bull market, prices go up on the escalator, and in a bear market, they go down in an elevator. In other words, they go straight down when they start to fall. And yeah, we're heading for that in a lot of hot real estate markets where prices just start to gap down. And Austin is definitely one of those places. Some places, for instance, Ohio, prices there just aren't that expensive. So it's not going to plunge there. But in a lot of other places where home prices are wildly unaffordable, they're going to tank. You know, 30, 40, 50% declines are going to seem normal at some point in the next couple of years.

John Bick (8:07)

Now, you argue that the traditional boom bust resolutions aren't going to suffice this time around, in part because other costs are going up. What's unique about this bubble?

John Rubino (8:17)

Well, as you mentioned, there are other costs of homeownership that have really spiked as part of the whole inflation thing. The cost of homeowners insurance is spiking and home maintenance is much more expensive than it used to be. And taxes are going up, property taxes are going up in line with home prices. So owning a home is not only expensive because you have a high mortgage rate and the price was very high, but you've got insurance and taxes that are much higher than they used to be. So first of all, there's a lot of people who are priced out of buying a house. They can't do it. And then there are a lot of people who own houses but can't afford to keep those houses. So add it all up and there's just a massive amount of inventory coming our way.

John Bick (9:02)

Now, I know that in the past few years I had read that companies like BlackRock are buying up a lot of housing, and I imagine that's different from past generations. How widespread is corporate ownership of things like single family homes? And is that a big factor?

John Rubino (9:17)

Yeah, it's not the dominant factor in housing right now, but it's a very big one. And like you said, it's a very new one. Two other new ones are Airbnb properties where people built little empires of condos and rental houses. They're not making nearly as much money off of them as they thought they were going to, and a lot of them are going to have to dumped onto the market. And finally, baby boomers, you know, we're retiring and that three story McMansion with an acre of land to take care of just isn't as easy on our hips and knees as it seemed at the time when we bought it. So boomers are going to have to start selling their big houses and downsizing. So you take Wall street, you take Airbnb and boomers, put them all together, and you have this massive tidal wave of homes that are going to hit the market pretty soon. And it seems to be, you know, reaching kind of peak complexity right now where home prices are starting to roll over. And the next year the story is going to be instead of high house prices, it's going to be all the discounts you can get.

John Bick (10:17)

Wow. Now, do you think there are going to be some areas that are insulated from price drops? I know, for example, in 2008, some places the prices leveled out and other places it totally cratered. Where do you think is going to be relatively stable?

John Rubino (10:31)

Well, the places that didn't boom in the first place. I'm hearing a lot from a lot of people who are moving to, like Missouri, for instance, where prices are still completely affordable. And Ohio, as I mentioned before, same thing. So they're insulated from the worst of the housing bust because they didn't boom in the first place. And then other places that have some city specific or state specific thing going on, like for instance, there's a lot of technology companies that are moving to the Phoenix area and that will help support real estate prices going forward. In other words, they won't crash the way some other places will crash. But just as a general principle, home prices will probably be going down irregularly in different places. But generally speaking, they're going to drop going forward unless some really radical thing happens out there that's not on the horizon at all. So generally, if you've got a house now, your house will be less valuable in two or three years. And if it was wildly overpriced when you bought it, it's going to go down by a lot.

John Bick (11:37)

Well, John, thank you so much for coming on today.

John Rubino (11:39)

Oh, sure.

John Bick (11:40)

That was financial analyst and author John Rubino, and this has been an extra edition of Morning Wire.