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- [00:00]
Abby Newsham
Foreign. This is Abby and you are listening to Upzoned. Hey everyone, thanks for listening to another episode of Upzone, a show where we take a big story from the news each week that touches the Strong Towns conversation. And we Upzone it, we talk about it in depth. I'm Abby Newsham, a planner in Kansas City. And today I am joined by my friend Chuck Marone, founder of Strong Towns. Hi, Chuck. Welcome back.
- [00:41]
Chuck Marone
Hey. So nice to chat with you. I don't remember the last time we even did this. It feels like it's been way too long.
- [00:47]
Abby Newsham
It's been forever. We've just both had crazy schedules and traveling and other things going on. And thankfully I've been able to record this a couple of weeks with members of your staff. But yeah, it's, it's fun to have you back here.
- [01:03]
Chuck Marone
We have lots of smart people on the team, so it's been cool that other people have subbed in. But I miss chatting with you, which is my, like, great joy of doing this. So, yeah, yeah, it's nice to be back.
- [01:15]
Abby Newsham
Fun, fun weekly chat for sure.
- [01:17]
Chuck Marone
Well, people don't know too, that we start these and then like we're already 15 minutes in and we haven't even hit record yet because we have to catch up on life.
- [01:26]
Abby Newsham
I know. Exactly. For all those that are wondering about the weather in Brainerd, Minnesota, it is snowing.
- [01:33]
Chuck Marone
10 inches of snow. Yes.
- [01:34]
Abby Newsham
Yeah. And it is April 4th right now.
- [01:37]
Chuck Marone
Yeah, April. April. And we have, we have more snow now than we had at Christmas, which is just crazy because it was, we had a 70 degree day like two weeks ago and now it is, it is like you not only could cross country ski, but like it's just not stopping. So. Yeah.
- [01:54]
Abby Newsham
Well, it sounds like you live in Missouri, so.
- [01:58]
Chuck Marone
Yeah, not yet.
- [02:00]
Abby Newsham
Not yet. Okay. Well, let's talk housing. Today we are going to be discussing an article that was published via WBUR's On Point. And it is entitled How Trunk Plan Trump Plans to Get Government out of the Mortgage Business. And this was published by Paige Sunderland and Megan Chakrabarti. The piece explores the President's proposal to privatize mortgage finance giants Fannie Mae and Freddie Mac, which have been under a government conservatorship since the 2008 financial crisis. Together they back the majority of mortgages in the US Effectively shaping who can buy a home under what terms. This proposal would wind down these institutions and would apparently create a really size seismic shift in the American housing finance system, reducing federal involvement and opening the door for more private market Control supporters argue that privatization could reduce taxpayer risk and promote market efficiency. But critics say that it could lead to tighter lending standards, reduced access to homeownership, especially for first time, and lower income buyers, and increase housing instability. So today I want to zoom in to some of those big questions. What does it mean to center our housing system around government backed homeownership? What happens if the system is dismantled or privatized? And how does this all intersect with the strong towns conversation about financial resilience, neighborhood affordability and all of these, I guess, myths, you might say, around the American dream? So I'll leave it at that. Chuck, what are your first thoughts about the idea of privatizing Fannie Mae and Freddie Mac?
- [04:02]
Chuck Marone
Well, people can't see my face, but I was making faces and trying not to and I throw you off. I know, I was trying. I was like, please, I don't want to like mess with Abby' like great dissertation here. Because as you were describing the benefits from like, you know, okay, advocates of this think that this will happen. And I'm like, no, none of those things will happen. And then as detractors think that this could take away from this and I'm like, oh my gosh, it's the exact opposite. This is one of those issues where I feel like, you know, I'm crazy because everybody's wrong and I don't really know like what to do with that information. Here's where I'd like to start and I'm going to start with a defense of redlining. I'm actually not going to defend like the worst practices of redlining, but I want to give, I want to go back to the 1930s and explain how we got redlining because there's an instinct in it that is not wrong. And I talk about this in escaping the housing trap. So in the 1930s, all mortgages were local. They were through local banks. You were going to go and get, if you were going to, if you were going to get a mortgage for a home, you had to have a 50% down payment. You were going to go to a local bank to finance the rest. They were going to finance it in like a three year, five year interest only payments with a big balloon payment at the end. That's what housing mortgages looked like in the 1930s and really had looked that way. As far as I can tell, as far as I can see, like throughout all of human history, mortgages, there were no such thing as a 30 year mortgage. And I can explain why in a minute here. But all of these things like were not possible with local finance and local banks. It just didn't work that way. You had to have a lot of skin in the game. The bank was very, very risk averse. They didn't want to lose money and they didn't want to lose money because they were having your money as their deposit. That's what they were lending out was your money. And you were not going to as a depositor tolerate banks that would do, you know, huge risks. So in the 1930s, as housing is dropping in price, what you find is that when people's loans start to reset, these three or five year balloon payments come due, the, the banks won't refinance them because they don't have as much equity anymore. If you have to have 50% down and then your house drops in value, now when we refinance, you have to have 50% equity again. You don't have that cash, the bank's not going to refinance. And all of a sudden now you're in default. The federal government steps in and the federal government says, homeowners Loan Corporation, Local banks don't foreclose, we will buy those loans from you. And ultimately what the federal government does is they set up a system to where the local banks can make what in a local bank term would be a really risky loan, a loan with less down payment, a loan with longer terms. So first it was 12 years and then it was 15 years, and then it was 20 years and then it was 30 years. Longer terms are more risky for local, local banks can't write those loans. And so the federal government said, hey, if you meet these requirements, we will buy those loans from you. The requirements. And this is, I think this is like a really important part of this. The requirements were designed to be ultra, ultra, ultra conservative. And I don't mean that politically, I mean that financially. The idea was the federal government is collecting taxes from all these taxpayers and we are going to now back mortgages. And so what we want is we want the federal government not taking risks with our money, not gambling on, you know, weird housing. We want them to do just really conventional things, really risk adverse. And so if you meet all these requirements and remember there's no at this point, big secondary market, there's no credit scores, there's none of the stuff that we know today. Those are all downstream of this decision. What there is is you meeting with a banker underwriting your loan saying, yes, this person can qualify for a loan. So what they did is they set up things like the Homeowners loan corporation maps. If you're in a green area or a yellow area, hey, these are really good neighborhoods. Lend all the money there because we're not going to lose money. There's. If you're in a red neighborhood, red line neighborhood, nope, those are bad neighborhoods. Don't lend money there. The instinct behind it was if the federal government's going to put taxpayer money on the hook, on the line, we should not gamble with taxpayer money. We should make sure we get our money back. So only do it with high credit worthy individuals with lots of down payment in stable neighborhoods. The other side of that is you get, okay, what's a good neighborhood? Well, this one's got people we don't like. So this one's a bad neighborhood. Don't lend there. This one's got people we do like. So go ahead and, and do it there. And there was a racial component that's really gross and icky to us today. If we, if we look at it though, part of what they were doing, and I think this is important to understand this whole market is that they were trying to avoid the federal government taking on risk. What, where we are today in 2024 is the exact opposite. It's the federal government should take on all the risk and taxpayers should have all the risk and we can even privatize it and have the taxpayers backstop it and basically get none of the upside gain, but all of the downside risk. What we have done is we've taken a system that was originally set up to protect taxpayers and I think did real harm to neighborhoods and people. Right. And now have switched it the other way around, which is to say how do we take the maximum advantage of taxpayers without any of the upside?
- [10:00]
Abby Newsham
So you've taken us back to the early to mid-1900s and some of the initial structures that created the mortgage market that we see today. This article talks about in the interview talks about how we basically didn't have a completely. We didn't have a market that was under conservatorship until 2008. Can you explain and kind of what that looked like versus what it looks like today?
- [10:36]
Chuck Marone
That's not true. So Fannie Mae was set up in the 1930s and Fannie Mae was a government, in a sense, a government run, you can think of it as conservatorship, an entity that was backed by the government and run by the government, but it was a technically like a government run corporation and they would buy these loans from local banks. What they wanted is they wanted the Banks to lend a lot more. They wanted the banks to write more mortgages. Well, if you're a bank and you have, you know, X amount of reserves and you go out and you write a number of loans, you use up your reserves and you can't write more loans. What they said is that okay, banks, if you're holding these mortgages, we'll buy them from you, we'll give you cash and so then the government will own the loan and then you've got cash and you can go out and write more loans. The idea was to get the banks writing more and more loans. They also wanted to make it so the banks would write loans that they didn't want to hold. So a bank would do these short term loans. And the federal government said, we want you to lower the payments. We want to make it easier for people to basically borrow more and spend more on housing. So we'll finance that over a longer period of time. We know you as a local bank can't take that risk. So we, the government will take that risk for you. So for example, let's say that you're writing mortgages at 3% because interest rates are at 1%. That's kind of what we experienced over the last decade. And now all of a sudden interest rates go up to 5%. Well, if you're holding a 30 year mortgage at 3%, but you've got to pay your depositors 5% as a bank, you're losing money every month. Well, what do you do with that loan? Well, if it's a qualifying loan, you sell it to the government and now the government takes that loss and you can get your money back and then go write a loan at 5%. So now as a bank you're doing way better. So what this allowed is it allowed the government to backstop and basically be the loser, the sucker at the card table for home mortgages in order to create this bigger market. That's the way it was until the 1960s. As this system developed, the federal part of it started to get bigger and bigger and bigger. And what they did is they said, we got to get the government out of this business because it's a, it's a bad business to be in. What we want is we want the banks to basically own this secondary market. And so they started at a certain point in the 1960s saying, we're going to give you cash for your mortgage. Like you, you lent someone $100,000, we will give you $100,000 and take that loan and then we'll Collect the payments from the person. That was what it was in the depression. By the 1960s, what they say is, we'll give you $90,000 and then we'll give you $10,000 of stock in Fannie Mae. So you now own part of the bank and the government will, you know, pay you cash and stock. So ultimately what happened is the bank started to own this secondary market. So it was slowly privatized over time. Freddie Mac was introduced in 68 or 69 with the same kind of concept. The banks would buy this out and own it. And then ultimately these became publicly traded corporations. You and I could have in the 1990s and early 2000s, bought money in Freddie Mac and Fannie Mae. The difference is both of these entities have backing guarantees, like implied guarantee by the federal government. So if they went bad, which is what happened during the great financial crisis, because they made all kinds of risky bets and did all kinds of crazy stuff and is at the base of it, 30 year mortgages are a bad investment. Again, you go back to that. If you write a 3, if the prevailing rate is 3% and then it goes up to 5%, who wants those 3% loans? I mean, they're just, they're, they're bad performing loans at that point because they're paying a lower interest rate than market rate. This is why local banks won't take on that long term risk. So you had this company that was set up to lose money that you privatized because in a falling interest rate market, it can make a lot of money. As soon as interest rates start to go the other way, like they did in 2008 up to 2008, like they're doing now, the business model of Fannie Mae and Freddie Mac becomes really, really, really bad. Like really bad. I feel like I've walked you down this path now where we privatize this thing, this entity, because there was a period of time where they could make money. And then as soon as they started to lose money, the government had to step in and become again the loser at the card table, right?
- [15:31]
Abby Newsham
And now they want to unravel that and shift it to be a more privatized market.
- [15:39]
Chuck Marone
The idea was in, you know, in the last like 10 years, let's get this thing privatized again and let's do it for two reasons. One, interest rates are low and going down, so there's in a sense private money to be made. And two, and I think this is the more important one right now we can do. And this is why if we Go back to your initial list of, here's the benefits. The reason to privatize now is so that Fannie Mae and Freddie Mac can do riskier loans to higher risk individuals over longer terms. So 40 year mortgages, 50 year mortgages to people who can barely afford to pay. And the idea is, if you are, let's just say a banking advocate or a conservative politician, the idea is this is the free market at work. If you're a liberal progressive politician, it's the idea that we can get more people into housing without crashing housing prices. We can just make it. So Abby, instead of getting a 30 year mortgage, you can get a 50 year mortgage and pay more for that same house. Finance your payment. Yeah, right. This is to me like the sickest. This is like the sickest kind of thing that we can do for people. There was one point in the story where the interviewer said as like a Premise, well, the 30 year mortgage has worked out really well. Right. And then the guy being interviewed is like, oh absolutely, it's a great product. It is like the worst thing we've done to our society. And I realize it's like the bedrock of homeownership and it's the bed. If you want to point to one thing that has made housing absolutely unaffordable for people, it is the establishment of the 30 year mortgage. But then even more so than that, it is the series of downstream expansions, gambling hypothecations, securitization, it's all the stuff that has been derivative out of that. To take what is a bad financial investment, there's a reason why it didn't exist prior to 1930s because you can't make money off of it. You are guaranteed to lose money if you own 30 year mortgages. It took that investment and made it a like the foundational part of our financial system. The find the foundational part of our economy, the foundational part of like home ownership is a really bad financial product.
- [18:03]
Abby Newsham
So if I'm following you correctly, your thought is that they are moving to privatize Fannie Mae and Freddie Mac in some ways to extend, provide an extended mortgage timeline.
- [18:19]
Chuck Marone
Yeah, I think they're doing this to loot it really basically.
- [18:22]
Abby Newsham
Okay, so I mean in your perspective, what would be the outcome of a 40, 50 year mortgage? I mean, I think my thought is that at first people who are utilizing this tool would be able to buy housing, there would be expanded accessibility. And then as people realize that people can afford, I guess, more house with less monthly payments, housing prices may increase. Is that your perspective that eventually that would lead to more inflation in the home or housing market?
- [19:02]
Chuck Marone
Yeah, that's the, that's okay. So understand that from the finance sector, the thing that makes housing work better is when prices go up, if housing prices go down, AKA become more affordable, that's a really good outcome for people looking to buy. It's a horrible outcome for bankers, it's a horrible outcome for finance people. It's a horrible outcome for hedge funds and mortgage backed security owners and basically like, because we've built our economy on housing finance, it's a bad outcome for our economy.
- [19:36]
Abby Newsham
Well, I was going to say a bad outcome for like the global financial system.
- [19:41]
Chuck Marone
Global financial system, yeah.
- [19:42]
Abby Newsham
Yeah. It's a huge ripple effect.
- [19:45]
Chuck Marone
So if you like if Abby Newsham can afford $2,000 a month in rent, we could get you into and you can then take that and say $2,000 a month for a house payment with a 30 year mortgage, we can buy you. I don't know what the dollar amount would be but like X amount of house. If we make that a 50 year mortgage, we can buy you 140% of X amount of house for the same monthly payment. Now you can pay 40%, 50% more. Okay, who's going to own that 50 year bond? Well, in the short term it would be a privatized Fannie Mae or Freddie Mac. Yay. They can take that huge risk. And as long as interest rates are either flat or going down, they can make that kind of work. There's a whole bunch of things that are like embedded in Fannie and Freddie right now that are disastrous. But let's, let's pretend that those don't exist. They can make these things work. But as soon as interest rates go up substantially or we have a bout of inflation or anything like that, what you see is what we saw in the 1960s and the 1970s and the 1980s and again in 2008. People have to come in and bail these things out. It will be the government taking the loss and the private sector, which is basically like looted this thing to get a bunch of people into long term loans that they can't afford. Will, will, will get the gains in the short term. I feel like this is where both political dispositions at the national level conspire to screw everybody in the real world. And I don't know how else to.
- [21:15]
Abby Newsham
Say it, so maybe let's zoom in a little bit on some of the deeply rooted ideas around American housing policy that home ownership is kind of this ultimate Pathway to building wealth at the individual and family level. And this belief has shaped our society in a lot of ways from, you know, mortgage financing, but also local zoning.
- [21:44]
Chuck Marone
Laws to, to NIMBY to.
- [21:46]
Abby Newsham
Yeah, I mean it really like this, this is the thing that people see as like their, I mean it's, it's like, it's like the safety, you know, it's like the ultimate stability for people to own a home to acre wealth. I mean that is a goal that people have. Is this in your mind, is this the best way for us to be thinking about how we build strong towns? Is home ownership something that we should be utilizing as a wealth building tool in the next 50 to 100 years? Or should the way people build wealth become detached from the homeownership system? Should it be something else?
- [22:39]
Chuck Marone
This is like the core of the housing trap, right?
- [22:41]
Abby Newsham
Yeah.
- [22:42]
Chuck Marone
Because as you ask that question, there's a whole bunch of people listening who probably are very conflicted. They're like, yeah, it should be disconnected.
- [22:51]
Abby Newsham
Yeah. And I'm a homeowner and you're a homeowner. I mean I, it's like, I understand like it is something that is a privilege and something that is, you know, it's a wealth building tool. Right?
- [23:05]
Chuck Marone
It is. But what would happen to you today, Abby, if I said the value of your home is going to be cut in half? You're a recent homeowner, so my assumption would be you would be underwater. I'm a longer term homeowner, so what that would do is just wipe out all my equity, basically. And so the, you know, the question is like, could you tolerate that?
- [23:29]
Abby Newsham
Well, for me, yeah. It would mean that I just don't move like until further notice. Right.
- [23:36]
Chuck Marone
Okay, let's, let's suss that out a little bit. You don't move, you don't switch jobs outside of your market. You don't marry someone who already has a house where you would have to like, you know, sell your house or move or, you know, or someone who's underwater themselves. You, you know, it, it has so many like massive downstream effects where you are in a sense trapped because of this financial product. Right?
- [24:03]
Abby Newsham
Well, yeah, but let me, let me just say that people, I think in the past couple of years because of such a big change in interest rates, are also trapped in different ways.
- [24:15]
Chuck Marone
Yes. I mean, I am sitting on a three and five eighths mortgage.
- [24:20]
Abby Newsham
Right. So you're not going to sell your house?
- [24:23]
Chuck Marone
No, my wife and I are very happy in our house and we like our neighborhood and we're very happy here. But like, you know, we have a daughter, our younger daughter is going off to college in the fall, the other daughter's already in college. The idea that in the next couple years we might want to move or relocate or something, those are not really viable options for us because, you know, we'd have to basically like take out a new loan that would be very, very disadvantageous. On the other hand, drop the value of our house by 50%, which is what you would have if you didn't have this like crazy financialization of it. You know, allowing the, the, the prospective new buyer of my house to overpay by a significant amount from what they can afford. That's not possible. So I would have to adjust down our home price, do that to me. And I'm also not moving because, you know, I, I couldn't move without the equity. So I, I, I feel like the discussion and this, we get into this in the housing trap. I feel like the discussion about the trap part is something we almost have to live with because neither, neither political party in our country would be willing to do things that would make housing prices go down. We're never gonna. The reason why I think Fannie and Freddie will be privatized is because it would allow in the short term the market to be juiced for housing a little more. And we seem like we're entering a period of time where we actually, I mean, I think it would be disaster, but I think looking at it from their standpoint, we need it, right? Like there's not enough homes on the market, there's not enough buyers. There's, you know, this thing seems kind of stuck. The way you get it unstuck is to privatize it, allow it to become more risky, allow it to make riskier loans, longer bets, longer term mortgages that would get the market unstuck. I think what is not really talked about is that Fannie Mae and Freddie Mac have on their books right now a really high percentage of non performing loans. Something like 11% of loans at Fannie Mae are in some state of delinquency. There was a report in the Wall Street Journal last month where you have up to a million homes that as part of a COVID pandemic relief are having their mortgages paid and refinanced for them by the federal government. Most of, almost all of those are Fannie and Freddie mortgages. So there's a lot of people who, if that program ends, are going to lose their home very quickly. There's a lot of people that if this were privatized and had, you know, actual like, market responses would lose their homes very quickly. There's tension around all of that. And so, you know, if, if you said this is going to happen, I would say, yeah, I think that's where both political parties would probably like to go. If this doesn't happen, it's going to be because the actual balance sheets of Fannie and Freddie are so bad. In a rising interest rate environment with lots of delinquencies and no more Covid bailouts, these are companies that would not survive six months in a private sector. So I don't really know what's going to happen. I just know that this is of the most messed up things. This is one of the most messed up things in our economy today. Fannie and Freddie are a disaster in so many ways.
- [27:53]
Abby Newsham
So, I mean, obviously the title of this article is kind of politicizing, you know, making this kind of a partisan discussion. And so I do have to ask, do you think that this is a partisan issue necessarily? You do say that both parties want housing prices to go up, right? Because it's such an important financial aspect of our economy. I mean, how do you think the political parties have. Have been thinking about privatization over the past several decades?
- [28:28]
Chuck Marone
It's really, it's really interesting because there, I think if you go back to like the 80s or the 90s, there was an idea that the private market was going to be better at this and that the more we could privatize it, the more we could deregulate it, the better things would be. I think you look at the SNL crisis in the 1980s and what you see is an attempt to deregulate the housing market with the government as the backstop. So you have all these banks that had FDIC or the SNL equivalent insurance and they ran up huge, massive, massive liabilities and the taxpayers were forced to the tune of it was hundreds of billions at the time, which today it would be trillions. I mean, that's the way it works. Dollars of bailouts that were required to bring that under control. In the 90s, you had this kind of broad consensus between the two parties that the way we were actually going to do this well, was to not necessarily deregulate, but decentralize, use all these new tools of the Internet and the ability to create things like a credit score that would be less racist than an underwriter, but more egalitarian. We could just look at your spending habits and kind of discern that, oh, you know, you might be in a bad neighborhood. But look, you're making your credit card payments so you, you can, you're, you're responsible with credit. And we saw how that, you know, and, and then take these, you know, and I'm going to say bipartisan again. You know, innovations of securitization, which began with Fannie and Freddie in the, in the 1960s, I mean Ginnie Mae, the government entity, introduced the earliest securities. They were of really, really conservative loans and they were only sold to like major banks. But the idea that you could take the risk of, let's say a thousand high account, you know, high risk, people aggregate them together and then say is now low risk because all of these high risks kind of cancel each other out. That's what securitization became under this system. That, that was a theory from Ivy League economists, you know, like we, we can make the economy work, extend capital to more people who are on the margins who are shut out by the system, get them into loans. This was a Clinton era kind of innovation that then the Bush administration fully bought into. You know, this is how we look at, look at the robust housing market. It's, it's, it's carrying everybody to prosperity. I think since 2008, you can see the angst over Barack Obama's presidency in historical terms is he didn't go after the banks. The reality is there was nothing to go after. I mean there were people who did things that were clearly immoral. I think there were probably people who did things that were borderline illegal, but nothing that was so like definitively fraud. I take, I'm sure that there were in aggregate though, the thing that brought this thing down, I mean, like risky mortgage backed securities, you know, the, the, the things that aggregated into those were kind of like universally acceptable. It was like bad money driving out good money and all that was left was bad money. I mean that's what happens in a situation like this. When you sit here today. I think you hear Democrats lament, unafford the lack of affordability. You saw the Harris campaign really align themselves tightly with the YIMBY movement and vice versa. YIMBY's kind of identifying with Harris as, you know, the candidate that was committed to building more housing and really using the levers of government to build more housing. But there was also a strong argument within the Trump campaign that they were about deregulating housing and deregulating mortgage finance. Both of these sides were actually saying the same thing, which is a different emphasis. And the same thing was how do we make it Easier for people who can't afford homes today to be able to pay more for homes in the future and get into that housing. And you know, one side emphasized down payment assistance and government handouts to get people in houses. And the other side, the side that one emphasized cutting regulation and privatizing Fannie and Freddy so they could do riskier longer term products.
- [33:24]
Abby Newsham
Yeah. To extend the length of that loan, which really means you're probably paying more interest at the end of the day after 50 years. Right.
- [33:33]
Chuck Marone
Abby, what you just said is like one of the largest understatements. If you actually ran the 50 year mortgage to its end, I think like the first 20 years is just interest. I mean it's, it's, it's, the numbers actually don't work. I mean the, you, if, if you get into a 50 year mortgage, if that becomes a standard product, you are essentially just a debt slave at that point.
- [33:55]
Abby Newsham
Yeah. Like you're not paying any equity. Like you're, you're not paying servitude paying into the loan for a very long time unless you do so intentionally.
- [34:05]
Chuck Marone
But, but let's, let's make this clear. Historically, if we were in the 1930s and they came to you and said you're going to take on a 30 year mortgage, the, the Chuck and Abby at the time on a podcast, that Chuck would be saying, well, you're just going to be a debt slave. And that has become like normalized for us in a way that, you know, for, for my grandfather's generation or my great grandfather's generation would have seen seemed obscene to, you know, just like. Obscene?
- [34:35]
Abby Newsham
Hmm. Yeah. Well, I mean it enables, it supports the inflation and housing. Right. Like it supports the costs that have gone up and they would like to continue to go up. So one, one more thing that I do want to ask you about is do you think that this, do you think that we're headed towards a scenario where we don't have fixed rate mortgages.
- [35:01]
Chuck Marone
Anymore that would actually be a more stable scenario than otherwise. And I realize you ask that, like, oh, that sounds really risky. But what it would do is it would transfer the risk back to the buyer and I think buyers over time would become more conservative. And again, I don't mean that politically. I mean that in terms like it would be more risk adverse. And I think that that would actually for what they're buying. And I think that that risk aversion would actually reflect market reality more than just having the government assume that risk and have it be hidden from the market.
- [35:36]
Abby Newsham
Well, and If Fannie Mae and Freddie Mac become privatized, maybe that would be the case. Right?
- [35:43]
Chuck Marone
Yes. I mean, the way that adjustable rate mortgages tend to work in our marketplace today is that they are generally used as like teaser rates to get people in and then, you know, switch over to fixed rates over time. It's almost like a marketing con, you know, like we, it's like you see in rental units today, like we'll sign a 12 month lease and we'll give you the first four months free. Well, why don't you just, you know, reduce the rent by a third? And they're like, well, we can't do that because then the bank won't refinance our loan. We have to actually rent it out at such a high price or elsewise, you know, we've got to report lower earnings. It's a way to like game the system to kind of make your balance sheet look better than it is.
- [36:34]
Abby Newsham
Well, and optically it would be a great way to say, hey, we lowered interest rates by giving you a 3% interest rate for the first couple of years and then it changes.
- [36:46]
Chuck Marone
Right? The banks don't. I mean, I think what is, what is really clear is that the bank can't lose money or the bank goes away. The federal government has been able to, in a sense, backstop and absorb those losses only because we've been willing to or able to have massive budget deficits, not really care about it, not worry about the interest that we're paying on the federal debt. And I realize that there's whole economic theories around the idea that those things don't matter. I'm not even going to debate that. I'm just going to say like, it's, it's one thing to have those fantasies when interest rates for the federal government are less than 1%. It's another thing when they're 5% and you're paying more on interest than you are in defense. It does start to like, in a real world sense, squeeze out other things. I don't think we're going back to low interest rates anytime soon. I mean, if you just look at the demographics of this country without financial problems, we're still looking at higher rates of inflation, wage inflation, just because we have fewer workers than we need. You throw in things like tariffs, you throw in things like, you know, financial chicanery and, you know, all this stuff. And to me it feels like we are in for a decade or two of, you know, where we look back at this period of time we've been through, of Zero interest rates and say that is the anomaly, not the norm. That's the, that's weird part, not what's normal. And if that is true, Abby, then home prices should adjust way, way, way down and wages should go way, way up. And that would actually make things a lot more affordable for millennials. It would make life horrible for baby boomers.
- [38:36]
Abby Newsham
Oh, I'm just kidding.
- [38:38]
Chuck Marone
Well, yeah, let me. I say that not as a, like, divisive thing, but just to say that you and I live in a world today. All of our American, you know, and even global listeners, we live in a world today that is, in a sense, been shaped by what is good for boomers because they've been the dominant voting bloc. We are now moving into a world and I'm Gen X. So, like, no one gives a darn what I think or what's good for me. Like, we just don't matter.
- [39:12]
Abby Newsham
Your opinion doesn't matter?
- [39:13]
Chuck Marone
No. There's not enough of us to matter, matter. We're shifting into a world where the dominating voting block in America is millennials. And we are going to live in a world defined by their values. And it's unclear to me how their values will align with housing, especially with these constraints, you know?
- [39:35]
Abby Newsham
Right. It's a good question.
- [39:37]
Chuck Marone
Yeah, it's an open question. Will they continue to buy into the idea that prices should go up? If so, then I think you're talking about having people take on these longer term mortgages. If you think housing prices need to adjust, I think it could work out really well for millennials. But don't count on any inheritance because it's all going to. That equity is going to disappear overnight, as it probably should, because it's not real.
- [40:03]
Abby Newsham
Well, again, to the question of is homeownership? I mean, we created the idea of home ownership as the way, the primary way for families to build wealth. Is there another better financial model that isn't tied to housing that we could shift to? I would be open to that. I mean, I think building wealth is really important, but I do question whether this particular model of doing that is, is the best way of accomplishing that goal.
- [40:39]
Chuck Marone
Well, I don't know as there's a better model currently.
- [40:43]
Abby Newsham
There's not. No.
- [40:44]
Chuck Marone
Well, but throughout all of human history, I mean, people invested in a home and that home became like their estate, their property. I mean, you can even go back to the Bible and one of the reasons why you have hereditary succession where the oldest son is this is because the oldest son inherited the estate and was expected to like, look after everybody else in the family, right? You didn't subdivide it up into small units because then it would just get gobbled up by everybody else. You had to keep this big estate. There was wealth in your property. That's. That's what it meant. I think the nuance today is that we can see how the stock market is a lot about gambling on stocks, not the underlying performance of the company. And I think we can intuitively see that if you dig into the numbers, you see things like price to earning ratios way out of whack. You see reporting things way out of whack. This idea of earnings after taxes and depreciation is an insane thing that in the 1990s and 1980s, no one would have reported on. But we do these propaganda things to prop up stock prices. Today, the stock market is way overinflated, and it's crazy. It's crazy. Here's. I think what people should understand. Your house price is more now functioning like a stock than it is like a home to build wealth. And what that means is that, yes, you've got upside. Like, it can grow by 10, 20% a year, but it can also crash by 50% at any time, just like a stock will. Just like Apple stock today is down 14% or something like that. You know, your house could fall overnight by 14% and could fall by, you know, 50% in the next year, because that's what stocks do. So if you want that financial upside of a stock, you want that action, like we want to juice this thing and make it go up, you're also going to have the volatility because the reason stocks go down, you know, there's a lot of, like, market momentum reasons stocks go down. But at the end of the day, stocks go down because stocks go up irrationally. They go down irrationally and they go all over the place. Irrationally, yeah. If you're building wealth, you don't. I mean, this is where, like I look at my grandpa and my grandpa's like, you know, what do you do with your money? Well, I put it in money market accounts or stick it under the mattress. And you're like, that's so old fashioned, you know, grandpa. But my grandpa also lived through the Great Depression and I think had an intuitive sense of, like, things that go up also go down. I don't want to be stuck in a thing that goes up and down. I think Americans today have this unfounded faith in the stock market to be their friend. Because in your life, Abby, in your lifetime, I mean, you could almost extend this to my lifetime. But I'm 51. You are 22 or something. 31. Okay. You know, we've got 20. In, in, in your lifetime, there has never been an instance where stocks went down that they didn't instantly go back up. That is not true in any other point of American history or human history. There's always like 40 year periods of time where stocks reach a high and then go down and take 20, 30, 40 years to go back up to where they were.
- [44:19]
Abby Newsham
Yeah. Do you have any idea what it's like to live in a time where your whole life is an anomaly? Just, just anomaly after anomaly?
- [44:30]
Chuck Marone
It's like, it is, I feel like.
- [44:33]
Abby Newsham
Millennials or people younger than me have a sense of like, what is supposed to be normal.
- [44:39]
Chuck Marone
No, no, we, you know, you, you, you had that double, you know, double edged Chinese proverb, may you live in interesting times. Who knows what history will say about us, but it does feel like we are living through things that are historic. And I do think that this is, you can put the Trump administration in these first couple months of chaos, really, in the context of the calm that we've had for a long period of time. We've had an abnormally long period of calm. And I think you, like you say, well, millennials, we haven't. Yeah, I realize you've had 2008, but 2008 was supposed to be really painful. And you know what? It was, it was painful for millennials, but for baby boomers and really for Gen Xers, it wasn't painful.
- [45:29]
Abby Newsham
Yeah, it was a bailout.
- [45:31]
Chuck Marone
There was a huge bailout of us. Now you got out of college and couldn't find jobs and like, you know, struggled and couldn't get into housing and all this, you know, Covid was supposed to be like, okay, now stuff's going to hit the fan and it's going to get crazy and we're going to see all this tumult didn't happen. There's massive bailouts of kind of every vested interest. At some point, the vested interests shift and they don't get bailed out the way that they used to. And I don't know if the chaos we're going through right now is part of that shift or not. The thing that like pricks the bubble. But, you know, we, we live in a crazy, anomalous period of time.
- [46:14]
Abby Newsham
Yeah. And yeah, but to your point, at the same time, relatively stable for.
- [46:22]
Chuck Marone
Relatively stable.
- [46:23]
Abby Newsham
Like, it's very strange because it is relatively stable despite the major events that have happened, happened because of the bailouts. You know, there happened all these world events, these major events. And it, it's like, you know, I've been still going to my laptop every day. You know, it just hasn't been.
- [46:42]
Chuck Marone
Look at the stock market from 1989, the end of the end of the Cold War, it's been nothing but up. Home prices have done nothing but up. Interest rates have gone nothing but down. Inflation's nothing but down and flat. We have lived through really like 30 plus years of the most stable, prosperous illusion of stability. And I'll say this in Nassim Taleb's term, suppressed volatility is what we've had.
- [47:14]
Abby Newsham
Suppressed volatility?
- [47:15]
Chuck Marone
Yeah, suppressed volatility. Every time things get a little bit like the earthquake starts, we just suppress it. And so you build up, build up, build up, build up tension. And is the Trump administration, the beginning of the Trump administration, the thing that pops the bubble and lets out the tension? Maybe. We'll see. But I'm looking at Apple. I've got Apple stock up on my computer right now. And just to me, Apple is one of these companies that from a tariff standpoint is going to get creamed because Apple does 96% of its assembly overseas. They've tried really hard to get out of China and they've reduced their dependence on China by like from 96% to like 92%. I mean, it's like they, they do not have a fallback. And if you have 80% tariffs on what they're doing, it dramatically changes their business model. Even if we're all addicted to iPhones, you know, their stock price, you know, is at 188 today. It was last at 188 back in, you know, 2021. So it's dropped now back to where it was four years ago. Could it go back to where it was, you know? Yeah, I mean, it was, you know, $5 a share in comparison back in 2010. I mean, could it go back to that? Yeah, easily. And that would still be like a massively successful company. It would just be like a very different company than it is now. Right?
- [48:51]
Abby Newsham
Yeah.
- [48:52]
Chuck Marone
Yeah.
- [48:53]
Abby Newsham
Well, okay, I'll, I'll leave it there now. We've gone way out the weekend. No, that's okay. It's, I mean, this is, I'm not a finance person, so disclaimer. But I mean, this is obviously unprecedented times and interesting to talk about how the, how this all connects to the housing market. Before we finish today, I do want to do the down zone. This is the part of the show where we talk about anything that we have been up to lately that could be books, movies, shows, anything like that. So, Chuck, I'm going to put you on the spot.
- [49:29]
Chuck Marone
I feel like I shared this with you last time.
- [49:31]
Abby Newsham
Okay.
- [49:31]
Chuck Marone
Or maybe I've just done it in my brain many times, but I started reading earlier this year. The Three Body Problem.
- [49:39]
Abby Newsham
Yeah, we talked about this.
- [49:42]
Chuck Marone
Okay. I'm now almost done with the third book in the trilogy. This is the best. This is some of the best fiction I've ever read. It is so good. And I know it's good fiction because I can see where the story's going. And I start to get comfortable. I'm like, okay, I see this and then bam. It tricks me. And it goes in a different direction. And not a different direction that's implausible. A different direction. Like, oh, my God, I should have seen that coming. That's so obvious now. And then it does it again, and then it does it again. And I'm just like, I'm so into this book. It is so good. I'm on the third one now, which is called Death's End. And I finally. And I'm going to say this at the risk of people saying, gosh, you're ignorant. I finally gotten used to the Chinese names. I'm sure these names are beautiful, and I'm sure they have deep nuance, but I am not familiar enough with Chinese names to be able to tell them all apart in the rate that they come at you. I mean, there's like a hundred characters in this series. And I'm like, okay, I can't tell this person apart from this person. So I had to start taking notes.
- [50:48]
Abby Newsham
And be like, okay, yeah, keeping track.
- [50:50]
Chuck Marone
Keeping track. Because, like, the names are very similar to me. I'm sure it's like John and Mark and James. Like, if you don't know English, like, what's the difference between those. Those. Those names?
- [51:01]
Abby Newsham
Yeah. What's the significance?
- [51:03]
Chuck Marone
I finally gotten it, and I finally feel like I'm. And this book has been so good. Like, just. And I watched them. I watched the first season of the show. I know there's another season coming up. The book is infinitely. I mean, just like, not even compare. Comparable. It is. So this is some of the best fiction I've ever read. And I mean, it won. It won all kinds of awards. I mean, it is award. I'm not saying, like, I've discovered this thing that no one else knows about. Winner of the Hugo Award for best novel Over a million copies sold in North America. New York Times calls it a mind bending epic. That's what it is. It's a mind. It's mind bending. It is really cool. Yes.
- [51:44]
Abby Newsham
Okay. I've watched it, but I might have to add this. Yeah.
- [51:49]
Chuck Marone
Just. I just got through a part of the book where they encounter four dimensional space and they describe four dimensional space and the experience of going through it. And I have to tell you, I have spent a lot of time in my life thinking about this. Like, what does a fourth physical dimension look like? And I can't get my mind wrapped around it. And this book explained it in such a way that I feel like I can actually visualize it now that. That level. Okay, but he did that. And that's a geeky science nerd thing, but he did it in a novel with human. With human characters that was not nerdy and geeky. He just explained. He explained their emotions and what they were feeling and how they perceived it. And I'm like, this is sheer genius. This guy is so good at what he does. Yeah.
- [52:38]
Abby Newsham
All right, you've sold me. I'm adding this. It'll be an audiobook, though, because I'm always moving around, so hopefully I'll enjoy it as much as I've been reading.
- [52:47]
Chuck Marone
This one on my Kindle. And when I do audiobooks, I do a lot of them and I'm absorbing things when I read. It's like a religious experience. And this book has been like that. Like, I just, I. I can't wait to delve into it every night.
- [53:05]
Abby Newsham
So that's awesome. Well, I mean, aliens. That's like aliens.
- [53:10]
Chuck Marone
Can't beat it.
- [53:11]
Abby Newsham
You can't beat it. I totally.
- [53:13]
Chuck Marone
I don't. You. Okay. Not to get spoilers because people need to read it, but you don't know at the beginning that is aliens.
- [53:21]
Abby Newsham
Oh, sorry.
- [53:22]
Chuck Marone
No, you don't know at the beginning of the book that is aliens. The thing that is, I think the most, like mind blowing thing about this is that it uses physics as we understand it today.
- [53:34]
Abby Newsham
Yes.
- [53:35]
Chuck Marone
And so the idea of like a message going out to this alien society that's four light years away that it would take four light years to get there and four light years to get back is like a real thing that you have to deal with. They don't. It's not like Star Trek or Star wars where they go five parsecs in like two seconds. It's like, you know, time is real in terms of physics. And so it makes you have this deep appreciation for the Vastness of space. Because all of this happens, you know, over centuries because that's how long it takes to actually like move through space. Yeah, so good. Like so, so, so good.
- [54:15]
Abby Newsham
Yeah, you've sold me. Well, I guess what I, what I've been watching lately is White Lotus. Are you watching that, Chuck?
- [54:27]
Chuck Marone
It has become popular enough where I know what you're talking about, but not popular, not like to where I'm actually watching it.
- [54:35]
Abby Newsham
Well, that's really disappointing. I think you should really watch White Lotus.
- [54:39]
Chuck Marone
Okay.
- [54:40]
Abby Newsham
I mean, if you're interested in characters more than storyline, I think that that is, it's a great show. It's one of my favorite shows. For those who don't know what it is it's about, it basically follows the guests and the employees at like a five star resort in different places in the world called the White Lotus. So first season is in Hawaii, second season is in Sicily and the third season is in Thailand. And at the beginning of every season you learn that somebody dies. And so throughout the entire season you're trying to figure out who died, what happened, who murdered them. So it's kind of a murder mystery, but it's really about kind of the social dynamics between the gets who are all kind of wealthy people and all of their kind of worst tendencies come out throughout the week. So it's one of my favorite shows that I've ever watched. Chuck, I think you.
- [55:45]
Chuck Marone
Is it new characters every season?
- [55:47]
Abby Newsham
There's a couple of through lines, but for the most part, yes, it's new characters every season.
- [55:52]
Chuck Marone
I mean that's interesting premise because it would give you a lot of freedom as a writer to explore different people.
- [56:00]
Abby Newsham
Exactly, yeah. And exploring the relationship between the people who are visiting these places and the locals who are working in the resort and all of these different personalities and engagements between each other. And yeah, the guests interacting with each other. It's really, it's really fascinating and very psychological. So yeah, yeah, I highly recommend it.
- [56:27]
Chuck Marone
So I need to, I need to see. I'm on my 90 day of not watching TV or doing any of that. So I, I will put it on my list. I have a few that are on my list now that after Easter I will be be indulging in. I will add this to the list. You've never let me down in the past, Abby, so I don't think that.
- [56:47]
Abby Newsham
You will be let down by this. You can choose to watch just the third season, which is what it. What's on now. But if you really want to dedicate the time, I Would recommend starting at the first season and watching it all the way through. But because it is different characters, you really can watch them as a standalone season. There's a couple of things that you'll miss because there is a bigger picture story, but there are also smaller stories within each season, so.
- [57:17]
Chuck Marone
All right. I feel like when Peaky Blinders, the movie comes out, that I have to come to Kansas City and watch that with you.
- [57:24]
Abby Newsham
Yes. I love the Peaky Blinders.
- [57:27]
Chuck Marone
Well, you were the one who told me I needed to watch that, and.
- [57:30]
Abby Newsham
I know it was really, really good. It's a great show.
- [57:33]
Chuck Marone
I feel like, you know, because there is a movie coming out, right?
- [57:36]
Abby Newsham
I didn't know that, actually.
- [57:38]
Chuck Marone
Oh, yeah. No, there's a movie coming out, a Peaky Blinders movie. So when that happens, I feel like you and I need to.
- [57:44]
Abby Newsham
Need to go to that with Cillian Morphy.
- [57:47]
Chuck Marone
Yeah.
- [57:48]
Abby Newsham
Wow. Okay. Yeah, totally.
- [57:52]
Chuck Marone
Okay.
- [57:52]
Abby Newsham
We'll make it happen.
- [57:53]
Chuck Marone
That's the plan.
- [57:54]
Abby Newsham
All right, thanks everyone for listening to another episode of UPS Zoned. And thanks, Chuck. I'll see you next time.
- [58:01]
Chuck Marone
Hey, thank you. Hopefully it's soon.
- [58:03]
Abby Newsham
Yeah, talk to you soon. Bye.
- [58:23]
Chuck Marone
About to get down tonight. Hey, everybody, this is Chuck. About a year ago, Escaping the Housing Trap came out and you all made it a national bestseller. I'm very, very thankful. I've been out on the road ever since, chatting with places, talking with people about how they make their cities stronger. And a lot of people have asked me, chuck, this is really great, but it's so overwhelming. Can you break it down even further? Strong Towns has released a toolkit. It's the first in a series of three toolkits, but this one deals with regulatory reform. What are the changes that cities can make today to get housing going? We call it the Housing Ready City. So if you go to strongtowns.org housingready you can download the toolkit. You can take a quiz if your city is housing ready. If you meet the six criteria in the toolkit, if you're able to do these six things, we're going to put you on a map. We're going to celebrate you. We're going to send people to your city. We're going to send cap. You know, we're going to tell people, hey, this is the housing ready city. Like, go, go move to this place. Go invest in this place. Go be a developer in this place. This place is ready for housing development. Housing strongdowns. Org. HousingReady is the website. Go download the kit. By the way, it's free. Thank you, members, for helping us get this thing out.