New Listings “Normalize,” Inflation Ticks Up, and Airbnb

Dave:

Hey Everyone. Welcome to On The Market. Today we’re going to be doing one of our tried and true formats, talking about some of the most recent and important headlines for the real estate investing community. And to do that, we have James Dainard, Henry Washington, and Kathy Fettke joining me today. Thank you all for being here. And Henry, I think you’re in Kathy’s guest house right now, is that right?

Henry:

Yes, it pays to have wealthy friends.

Kathy:

We thought we’d bring the Santa Annas so that he could enjoy an eight hour earthquake kind of feeling all night.

Henry:

It has been pretty intense. For those of you who don’t know, Kathy lives up on a big hill and the California Santa Anna winds are blowing through and it sounds like the world is ending basically for all night.

Dave:

Well, I’m very jealous that you all are hanging out and are in the same area. And hope you guys have fun, Henry, you’re going to a big charity event, right?

Henry:

Yeah, going to a party tonight and get to see some more cool friends and do some fun stuff. And like I said, it’s good to have wealthy friends. You get to do fun things.

Dave:

Nice, nice. Well, in today’s show we have some great headlines and stories to talk to you about. We’ll be covering some big changes in some of the fundamental dynamics in the housing market. We’ll talk about recent economic data dropping, like job growth and inflation, and we’ll be covering Airbnb’s news about their policy update on security cameras.

Alright, well let’s just jump right into this. The headline is that new listings have surged, and this is according to Redfin, where they are saying that new listings are up 13% year over year, and that is a lot of growth, but I think it’s just important for people to know that even though they are up year over year, new listings are still historically low. They’re below where they were in 2022 and 2021. And this is a big change because even though a lot of people have forecasted a lot of inventory coming on the market last year, new listings were down, fewer and fewer people were listing their homes for sale. So I’m curious, James, let’s start with you. Is this something that you’re seeing in your market? Are you noticing more inventory coming online or maybe this isn’t happening in Seattle?

James:

I think it’s very market specific because in Seattle and the Pacific Northwest we have no inventory. We’re below two months of inventory again, and most of the stuff is sitting is not very good. It’s more overpriced junk and it’s hard to find a house if you’re a buyer. And there’s a lot of buyers in our market and it’s hard to find a deal right now if you’re an investor for 12 months, we had this kind of runway and the margins have really shrunk. A good example is you can’t be picky in this market. We just had to contract a house and I inherited a naked man inside the house and there’s no deals in, but I was like, you know what? I’m still going to buy it. And so now I got to deal with this. But baggers can’t be choose. There’s no inventory. You got to get whatever deal you can get.

Dave:

Well, I think it’s important to note here, I should probably explain the difference in two terms here. That new listings is the amount of people who put their properties up for sale. Inventory is a measure of how many properties are for sale at a given moment. And although those sound very similar, they actually tell you two different things. New listings again is just how comfortable people are and how eager people are to sell their homes. But inventory actually also measures demand. So as James was saying, new listings can actually go up while inventory stays low because as long as there are buyers to scoop up those new listings, you can see inventory stay the same or actually even go lower. Henry, are you seeing any noticeable changes in your market?

Henry:

We are getting a little boost in inventory, but to put some guide rails around it, we are still, I believe 3000 homes short to meet the demand in our market. So yes, new listings have gone up a little bit, but any of those new listings that are good, done well and priced are gone fast. We just listed a flip on the market last week. We had over 20 showings in three days and got a full price offer pretty quick. So I mean 20 showings is like 20, 22 numbers. When I first got into the business and flipping pre pandemic, we weren’t getting 20 showings on properties when they were listed immediately, we were getting a few a day maybe, and now 20 and two to three days is pretty crazy. So there’s absolutely buyers out there that are stupid up the new inventory that’s coming on the market.

Dave:

Well, that kind of seems good, right? I mean, I feel like the best thing that for a healthier market would be more new listings with demand keeping up. Is that sort of how you think about it?

Henry:

Yeah, no, it feels like this is what a healthy market should look like, right? If you’ve got good product, it should go fairly quickly if there’s market demand for it. And if you’ve got crap product, well, it probably should sit. And an unhealthy market was like what we had post pandemic when it didn’t matter the product you put out there, people were overpaying for it. That’s not a healthy real estate market. But what I’m seeing here is good product goes bad product sits, even though inventory is low, bad product is still sitting, which means buyers are either being smarter with the dollars that they have, probably because it’s expensive to buy houses. And it shows that A, if you’re going to be a flipper, you’ve got to do your job. If you want your product to move and you don’t want to be paying absorbent holding costs, which is great for the market, that means there’s good product out there.

Dave:

Kathy, what do you make of this? Do you think this increase in new listings is just sort of slowly getting back to a more normal level or is this sort of a sign to things to come where we might start to see a significant increase in the amount of homes being listed?

Kathy:

Well, like anything, there’s two sides of the coin, depending on who you are and what you’re trying to do. This is either good news or bad news. If you’re a buyer, you really want to see more inventory. So this is really good for buyers. You have more to choose from when there’s more competition you might be able to negotiate. If you’re a seller, well, just like Henry said, you got to be better, you got to be great. And so it is just seller’s market versus buyer’s market. But with that said, statistics can be really confusing if you don’t look at the whole picture. So yes, it’s a pretty dramatic increase, but from a very low place. So we’re still at about half of where we were before the pandemic in terms of overall listings. So it’s needed. So I look at it as this is great news, we’re not at equilibrium, we’re not really where we should be though this is good for the housing market.

Healthy people need options. And like Henry said, they don’t want to buy an older home. We do. We want to buy an old home that needs to be fixed as long as we can get it for the right price. But if you’re just looking for a home to live in, you don’t want to do that or go through that If you’re not an expert, most people just want to buy a house that’s ready for them to live in. So those older homes that are priced too high that need work are going to sit until the price is right and investors can come in and do something with that. So I see it as good news. It’s good news until it’s bad news, until there’s too much inventory. But we’re not there. We’re not even close to having too much inventory.

Dave:

We’re far, far cry from that. And I do want to reiterate, we always talk about national trends here on the show, but just want to share some regional differences and updates here because they’re pretty significant. If you look at the markets that have the biggest increases in new listings, they tend to be sort of, well, I think most of ’em are higher price like San Jose, California leads the way with a 30% year over year increase Phoenix at 30%, Las Vegas at 27%. Meanwhile, New York is actually negative 18%. So a really big difference from what they’re seeing in San Jose, but other probably more relevant to investor markets like Atlanta is minus 6%. Chicago’s minus 1%. Virginia Beach and Philadelphia are both declined as well. So this is not happening everywhere. And so another reason you should probably just look at this data for yourself. Again, this report was from Redfin and they have some great free data if you want to check out new listings in your individual market.

Kathy:

I just have one quick question, Dave. James, what did you do with Naked Man?

Dave:

Yeah, I, sorry, I don’t know how I skipped over that.

James:

That is a work in progress right now. Should bring in some clothes. What does that mean? Yeah, we’re strategizing that as a team right now. It was an unexpected surprise when my broker walked through the house, he’s like, oh, we got a problem here. We got a problem here. And so we’ve contacted the receiver and we’re trying to sort that out. But we’ll see. I mean, I might have to bring some baby oil. His eyes are up here, James, so I will let you know. I keep you guys updated on this.

Dave:

Alright, well so far we’ve discussed housing inventory and after this break we’re going to be talking about the macro economy and what the heck is going on with Airbnb’s camera policy. We’ll be right back. Welcome back to On The Market. So for our second headline, we’re going to be shifting gears and talking about more of the macro macroeconomic environment. The headline is that the US job growth totaled 275,000 jobs in February, but unemployment actually ticked up a little bit to 3.9%. And this story sort of bleeds into our third story, so we’ll get to that in a little bit. But Kathy, let’s just start with you. Are you surprised by the jobs numbers?

Kathy:

Everybody is consistently surprised by the job numbers. It has just been such a robust, strong market, but I will say we’re getting closer to where I think the Fed was hoping to be, and that was a little bit over 4% unemployment. And again, good news is bad news, bad news is good news. This is weird that the Fed would want to see more unemployment, but when you get down to those low levels of employment, it’s not necessarily great for the economy because businesses can’t find people to work. So getting a little bit over 4% would, I guess the Fed would consider to be a more healthy job market. And we’re getting closer, we’re inching towards it. It’s still a very strong market. It just will be a little bit more balanced, a little bit healthier, just like we’re talking about with the housing market. You just need people who are available to work and if everybody’s working, what are you going to do? Who are you going to hire? But at the same time, there’s still 9 million job openings, so very, very strong job market still. And that means that probably the Fed won’t be lowering rates anytime soon, probably not until this summer. And we just have to wait and see what the jobs tell us then it just keeps surprising people.

Dave:

Well, that’s a perfect segue, Kathy, and great points. But that’s a perfect segue to our third headline, which is that consumer prices, which is just one of the ways of measuring inflation. The CPI climb to 3.2% in February as 2% goal remains elusive. So we as a country had been making some slow progress on inflation. It’s been in the mid threes for a while, but it ticked back up from 3.1% to 3.2% in February. And so I wonder, James, what do you think? Does this sort of give the fed some pause about what they’ve been previously been talking about, which is that they were planning to cut rates three times in the coming year?

James:

Yeah, I think this is, we’re all hanging on. The rates are going to fall, but really what we’re seeing is a little bit of a normalization of our market, right? Jobs are still increasing, people are still making money and costs are still rising because the economy’s doing well. People have that money that they can spend. I was pretty hopeful that rates would start being cut in July because when the market I thought was going to cool down, everything was going to settle and I don’t see that happening right now. Pricing’s going to keep, it is just creeping up and I don’t see the Fed making any changes. I mean, they don’t want to go back into what we were in 12 to 18 months ago. And actually I don’t want it either because if rates fall consumer pricing, people’s disposable income’s going to go up and those pricings could spike as well.

And so I don’t see the fed really changing much right now. And the jobs that are coming in too, they’re in definitely specific sectors. We’ve seen a lot in healthcare. But one thing that we’ve noticed, which is great for real estate professionals is there is more contractors available, there is more staff available as far as accounting jobs, marketing assistance, real estate professionals. We have seen a lot of relief and our wage costs and costs have gone down a little bit in that sector. So I know that the jobs increase tell one story, but for us as real estate professionals, people need work a little bit more right now. And so that has loosened up a lot in the last six months, which has been a relief. So even though rates haven’t fallen, employment’s doing better, we’re seeing a little bit of a bonus in the real estate side.

Henry:

As I was reading the first three articles and doing the research, the word that kept popping into my head was normalization. Whether it’s normal or not, it feels like people are getting accustomed to the way things are. They’re getting accustomed to what the interest rates are. They’re getting accustomed to what home prices cost, they’re getting accustomed to what inflation is and they’re getting accustomed to the job market. There are lots of jobs out there and people have options. And so all of those things, they’re all kind of tying together in terms of nothing is stopping anything in its tracks. People are starting to live life again. They’re going out finding jobs, making money, and then spending money on homes and travel and trips. Again, I don’t want to use the word healthy out of context here because I’m not sure if it’s all healthy, but people are starting to just get used to the way things are and it seems like things are moving along we would want them to in a decent economy.

Dave:

Yeah, I agree. I think we’ve talked a lot on the show about the disconnect between economic data and sentiment, and I think that what’s driving a lot of the negative sentiment here is that inflation was so bad for a while that people still haven’t caught up to and understand what and sort of internalized prices for what they are. It is really shocking. I think all of us still feel that you go out to the store and see something and you think that is absolutely insane. But if you are able to just put that behind you and just say like, okay, that was crazy and it still hurts now, but if you look at the way things are today, they are a lot better than they were a year ago and it still might take some normalization as Henry was saying. But if you look at the data and suggest and look at what is actually happening in the market today, a lot of it is actually quite encouraging. And unfortunately for people who want rates to go down, that encouragement probably means rates are going to stay a little bit higher forever or not forever, please not for longer.

Henry:

While we’re talking about, I do want to put somebody on blast. I tried to get Popeye’s chicken in the airport and a five piece tender meal was like $15

Kathy:

That cheap. Wow.

Dave:

Yeah, that’s a good

Henry:

Deal. Chicken tenders, are you kidding

Dave:

Me? Did that come with a drinking fries?

Henry:

It came with. So that’s how they tried to make it better. They gave you two sides of processed potatoes. Oh my God.

Kathy:

Yeah. But In-N-Out was still pretty affordable, right

Henry:

In-N-Out was affordable and delicious.

Kathy:

I look at this all, it’s just math. I mean, if we’re coming back to real estate investors and what does this mean to them? I thought it was really interesting. My daughter bought a house, as you guys know, I encouraged her to buy a house probably at the peak. Oh, was that a bad mom move? I was scared, but she locked in those low rates and the payment was affordable. Again, just math. She could do it. Then when rates went up, I thought, oh, the values are going to go down. It won’t matter too much. She’s going to live there a long time. But sure enough, the house next door went for sale for more than what she paid. Somebody came in and bought it at those 7% rates, which is double her payment, double the person next door is paying twice what she’s paying, but they had the money to fix it up and make it beautiful.

So I think Henry, to your point, people are adjusting and this is what it is and it comes down to math and does it work or does it not work? And that’s what investors are doing, right? Same thing. Does it work or does it not work? Have rents gone up enough that I can handle these higher payments and these higher prices? And in a lot of cases, not everywhere, but in a lot of cases it does. It still works. You’ve got to negotiate the good price, maybe pay down the rate a little bit. But if you’re in an area where rents have gone up as well, it’s going to work. And one of the things I was just kind of reading is in the multifamily sector, we know there’s a lot of new supply coming in. That’s not so much the case with in single family or one to four units. There’s not enough supply and that’s our territory. That’s what we focus on. And there’s not enough of it, but people want it. So we’re seeing rents go up in the one to four unit world as well.

James:

And I think with investors, the sentiment with investors too is Hey, let’s wait until rates come down and I’m going to start buying more rental property. And what’s happening is they’re getting stuck on the fence for too long. Waiting, waiting, waiting. And why this information is so important to investors right now is you have to adjust your strategy. If you’re forecasting the rates are going to stay stable, that’s not a bad thing because the market should stabilize that as well. But you do have to adjust your strategy. And I think people are starting to do that a lot more right now. I know with our client base, there’s a lot more rooming houses being looked at because they can get a higher rent out of those units instead of the traditional two to four unit duplexes. You got to figure out how to drive that rent up.

Locational buying is really back with investors and you have to strategize behind that because seeing some pretty good equity growth right now in Seattle, I’ve seen houses now jump back up to pre interest rate pricing in the last 60 days. And so some of the strategies is park your money, let it grow with the equity right now, because we’re seeing a little bit of a catapult, you have to adjust your strategy for every market. And if you want to play, you have to look at, okay, where is the opportunity? It might not be cashflow and you might not see it for a little while and that’s okay, but if you’re waiting for rates to drop and pricing is creeping up like we are seeing across the board, you could get priced out forever. And so it’s all about adjusting that strategy, what will work with whatever comfort level you have.

And people are really having to do that, including myself. I want to pick up some more rentals too, and I’m like, man, this isn’t penciling, but I need to look at it different and look at a different asset class and then I can make it pencil in one financial way or other. Just don’t get stuck on that. Oh, does it hit the 1% rule? No, I’m out. It’s like, well look at it in a different way. And people are having to adjust in Seattle, they’re buying rental properties and building ADUs in the back because it makes more mathematical sense than buying a duplex. And so it’s a lot more work, but you can actually get it to ize. I

Henry:

Agree with you. One thing that I’m seeing a lot of both in my market but in other markets around the country is people buying properties that maybe break even as a long-term rental, but they’re getting them with a little bit of equity, so they buy ’em at a slight discount and then they’re turning them into mid level short-term rentals. And what I mean by that is when people think of short-term rentals, they think, well, you got to go buy the big house with all the amenities and you need a pool and a pickleball court and a butler and a concierge, but there’s plenty of just normal three bed, two bath in middle America towns where there’s some people who have to travel there for work or traveling nurses and they’re putting those things on Airbnb and they’re not done poorly, they’re done well. They just don’t offer the same crazy amenities as the more expensive units are, but they bring in money very steadily each month because you have a lower price point per night.

And there’s tons of people now who would rather rent those places than go get a room at the extended stay when they have to come to a town to just work at a hospital or work at the local corporation that’s in that town. That mid-level, not super fancy Airbnb method is where people are really increasing their cashflow and then if they have to pivot, they can put it in a long-term rental where it breaks even or maybe even sell that property break even and get their money back. And so I think a lot of people are pivoting to very similar strategies.

Dave:

That’s great advice. Thank you both. I do think I am hopeful that rates start trending down, but I do think we are all guessing and historically, if you look at the way rates decline, it’s slower than rates going up. And so I think this idea that it’s going to go down quickly and all of a sudden you’re going to just have this fundamentally different market in a few months is optimistic at best. And so I think it’s better to just start thinking about how you can cope with the existing environment. And if you’re right and rates go down, it’s just a benefit to you.

Kathy:

Well, and it’s going to be a frenzy, so take advantage of this opportunity right now where you have more time, you can do your due diligence, you can negotiate, you can find those deals that have been sitting because believe me, when those rates come down, you’re going to have other issues. And that’s like other people making better offers, right?

Dave:

Yeah, absolutely. Yeah. So I think as we’ve talked about on the show many times different markets have different pros and have different cons, and so although yes, financing is more difficult, there’s less competition to Kathy’s point and there’s more stuff on the market, there’s more opportunities to be creative than there were a few years ago, and you should start thinking about that. We have one more headline for you discussing Airbnb’s camera policy, which impacts operators and people renting in an Airbnb alike. So stick around to hear about that right after this break. Let’s move on to our final and weirdest headline of the day, which is that Airbnb just released an update to their policy and said that they’re no longer allowing security cameras inside Airbnbs. Now I got to tell you guys, I was pretty surprised. I kind of always assumed this was a rule. I just assumed you weren’t allowed to film people in an Airbnb.

Kathy:

I kind of freaked out, honestly, right?

Dave:

It’s so

Kathy:

Weird. Oh yeah. I got the message from Airbnb and was like, what do you mean? Has this said a thing?

James:

Can you see me right now, Kathy? Is that what this mirror is right

Dave:

Here? Oh my god. I don’t know. First of all, it proves that none of us read the terms and conditions of any website that we sign up for because it probably says that hosts can film you. And I was actually on the BiggerPockets forums and someone had posted, and this investor was disappointed because she had just bought a bunch of cameras to put around her house. But I think the overwhelming reaction on the forums was like, why do you have cameras in your house? I understand that you want to, if someone breaks something, catch it, but do you really want to know what’s going on in your Airbnbs?

Kathy:

I feel like that’s a law. I thought it was a law outside of Airbnb. I would think in California you’re just not allowed.

James:

I thought this was not, who knows? I thought this was a no fly zone. You can’t have cameras inside. I stayed in an Airbnb where I was waiting for my property to get renovated in Bellevue and it was the spookiest thing. So I get there and instead it was a vacant property, or not vacant on its own. I don’t know. I’m not the Airbnb specialist for investing, but I thought it was its own house. I get there late, I come in suitcase, drop it off, it says, take your shoes off. And I had to bring my suitcases in and then I go up, I take a shower, I’m walking around my towel trying to just get my stuff put together, and all of a sudden I get a text message saying, Hey, can you remember to take your shoes off? And I’m like, what? This is weird.

And then I’m kind of looking around and I’m like, oh man, they’re watching me. And then all of a sudden I hear a door shut in the basement and the owner was living downstairs and I had no idea this was going on. I got the spookiest. I was so creeped out by the thing. I had paid for three nights. I packed my stuff and bailed out to a hotel. I was like, I’m freaked out by this. It is too weird. I’m like, they’re watching me walk around in my towel. I told they took my shoes off and he’s living below me, and I didn’t even know it. I sent them a message. I’m like, I thought this was vacant. I was like, that was my last Airbnb. I thought this was not allowed at all. It I’m glad they passed this rule. That’s weird. James, all I wanted you to do is take your shoes off. I don’t understand why

Dave:

Problem.

James:

I’m sure you saw me messing with all the thermostats too, because I was freezing and I’m like cranking it up. It’s like, not about this. I’m like, yeah, right, I’m cold.

Dave:

Well, I wonder if, I do think it is illegal in certain states because in mine it’s a big house. People throw parties there. I understand, but they actually put in a decibel monitor. And so that, I think for people who do want to make sure that there’s not huge parties going on in their places, there are ways that you can do this and just try and monitor the amount of people or if there’s parties there without filming people. So I think there are alternative technical solutions here because honestly, when I go to my Airbnb, sometimes I’m disappointed. I’m like, someone’s used this house hard, but man, it would be worse to know exactly what was going on. Ignorance is bliss in a lot of situations, and I think this is one of

Henry:

Them. That’s why I’m a hotel guy. Just take me back to the good old days of being filmed in a hotel and not knowing it.

James:

Yeah, you don’t want to see that stuff. If you talk to cleaners that clean up after Airbnbs, if you go to an Airbnb house after they vacated, before the cleaners go in, it tells you a story. Every time. I remember I went to go look, in 2010, I was looking at houses for my own VRBO, short-term rental, and the broker took us through a couple that they had just left. There was so many hypnotic bottles, it was just a raging party inside and like, oh, and they didn’t know it wasn’t cleaned yet. I was like, oh yeah, I’m not into this. I’m not renting to this. This is not my business model right now.

Kathy:

I want to say, this is the email I got. It says, Airbnb action required remove or disclose security cameras. But it also says noise decibel monitors you guys.

Dave:

Oh, okay.

Kathy:

So maybe they don’t. And smart home devices, you have to at least disclose those. But read it carefully because I never had the noise one, but I like the idea. But we have the ring, right? Yeah. And I do have a funny story. I won’t say who, but I think I told you guys, a very famous rapper rented our place and there were music executives coming and our whole driveway was lined with very fancy cars and they said, you have to turn off your ring camera because we don’t want you to steal our music. But I walked down the street just to hear it. It was very loud. Very loud. So I thought I’m going to get the noise decibel monitor, but now just check out the new regulations because that’s part of it.

Dave:

Kathy, we’ve already established, we don’t read terms and conditions around here, so I will not be reading this email because I don’t want to monitor what’s going on in my guest house. Well, do you guys think, do any of you think this will actually have any sort of negative impact on hosts?

Henry:

I don’t think it’ll have any negative impact on hosts. I mean, you take the cameras out, right? I mean, if somebody’s not going to operate their property because they can’t have cameras inside, then they’ve got other problems that they need to be able to figure out a way to solve. I don’t know that it’s going to stop people from either running or operating Airbnb. Literally when I got this, I sent it to my property manager and said, let’s make sure we got to do to stay compliant. Now, not to say I do not have cameras inside, but we do have cameras outside. We’ve got doorbell cameras and cameras facing the doors just in case we ever have a break in or anything. We can capture who’s breaking into the house, but never any cameras inside. But I think almost every Airbnb does have some sort of smart home technology, and so people will have to figure out how to eliminate that stuff or disclose that stuff. But I don’t think it’s going to slow anything down.

Dave:

James, are you going to put a indoor camera in the house with the naked guy? That’s

Henry:

A great way to get him out or not. Maybe show. That’s

Dave:

Probably what he wants. I need the camera. He’s just there. You’re welcome to put right in.

Kathy:

It is kind of creepy when you think about it. Cameras are so tiny. For all we know, they might still be there. And that’s weird. That’s weird.

Dave:

Alright, well, this was a lot of fun. Thank you all so much for joining to talk about these important and timely headlines, and thank you all for listening. We’ll see you very soon for another episode of On The Market.

Dave:

On The Market was created by me, Dave Meyer and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.