Chief Economist of the California Association of Realtors, Leslie Appleton-Young

Jason Hartman welcomes Leslie Appleton-Young, vice-president and chief economist for the California Association of Realtors, in this episode. Leslie shares details about the movement in California’s real estate and the buyer/seller trends due to the Covid-19 impact. They also discuss predictions based on the Q2 hit in 2020 and the lack of supply and building restrictions that caused a reduced number of new homes being built.

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Jason Hartman 0:29
It’s my pleasure to welcome Leslie Appleton Young. I have been following her work for a long, long time, I’m talking decades. She is the chief economist with the California Association of Realtors, and a senior vice president with him as well. And I have been to so many of her speeches over the years when I lived in California. And she just does some great work talking about the housing market the economy. And I know I mentioned the chief economist for the California Association of Realtors. But as I’ve mentioned before, California is the largest state in the country, it is probably the sixth largest economy in the entire world if it were a country. So it’s a big deal. And as goes California, so goes the rest of the nation, sometimes not always, but not always. We’ll talk about that. But that used to be the saying at least. So it’s my pleasure to welcome Leslie Appleton Young, welcome. How are you?

Leslie Appleton-Young 1:25
Jason, I’m great. Really great to see you. Thanks for asking me.

Jason Hartman 1:29
It’s good to have you. I’ve wanted to have you on the show for a long time. So really a pleasure to have you here. Maybe we’ll start off I usually ask people where they’re located. And you have now moved to Sarasota, Florida. Is that correct?

Leslie Appleton-Young 1:41
Right. I’m living in Sarasota. I flew from Los Angeles on March 12. And got here, just in time, I was actually planning to be bi coastal this year, because I’m retiring from CAR at the end of this year. But with COVID. It just made a lot of sense to just do it. And everyone in the company at the association is remote. So we are just all zoom all the time. And it’s we haven’t missed a beat really.

Jason Hartman 2:09
No, I’m curious, you know, when it wasn’t remote. Where was your office? Was it in Los Angeles?

Leslie Appleton-Young 2:14
Yeah, absolutely. Downtown LA. We were in downtown LA, and then our lobbying offices in Sacramento.

Jason Hartman 2:19
Good stuff. So Leslie, we are definitely living in interesting times, you know, counter intuitively, you know, so many people in February, March, we’re predicting the end of the world, there’s going to be a giant crash. That may still come, I guess we’ll talk about that. But the Fed and the government have come to the rescue is I think is the new way. It’s just going to always go that’s what everybody expects now.

Leslie Appleton-Young 2:45
Well, we learned to fight the last war, right?

Jason Hartman 2:47
Right. Meaning the Great Recession, right?

Leslie Appleton-Young 2:50

Jason Hartman 2:51
Yeah. Yeah, with stimulus.

Leslie Appleton-Young 2:52
So a lot faster and a lot bigger this time around?

Jason Hartman 2:55
No question about it. I mean, GDP, down, what, a 30 ish percent or so this is truly a remarkable time. And it’s, it’s pretty crazy and scary time too. But in the midst of that there are definitely a lot of opportunities. You know, I predicted very early that there would be this mass migration to suburban markets back in early February, if you can believe that. I think I might have been the first person to, to make that prediction. And it’s certainly happening now. People are leaving high density urban areas. And that trend was already underway, because most of those areas are business unfriendly. And, you know, so there was a migration, but I think COVID accelerated it, you know, give us your take on things. I know, you’ve got some great slides, charts and graphs to share. For those of you listening via audio only and not seeing the visual, of course, it will be available on the YouTube channel. But we’ll try and elaborate on the visuals so that you can relate to them even though you’re not seeing them. Leslie, what do you think?

Leslie Appleton-Young 3:52
Hey, well, why don’t I just start with the with the sharing my screen? I mean, it’s a very big question that you’re you’re asking, and I guess I’ll just say there’s a tremendous amount of uncertainty out there. And the housing market has been incredibly strong, given the constraints of very limited inventory and, and new construction, right. So we’ve seen a very hot market, if certainly once the initial first round of the lockdown was lifted. So that’s really been the been the story. And looking forward. You know, we can talk about a couple of scenarios and I’m sure we will, but let me start with sharing my, sharing my screen.

Jason Hartman 4:33
Excellent. You always have such fantastic charts and graphs. So

Leslie Appleton-Young 4:39
You know, I have a great a great team behind me with Jordan Levine and Oscar Wei and Samantha Oles and George I mean, they are just so I look good because they are the ultimate kind of professional, incredible people. So, listen, one of the things that we we’ve started to do like everybody is pivot towards more high frequency data. And we’re doing weekly reads of the MLS actually daily reads and calculating weekly averages of key metrics. And we’re also serving our members every week. And I use this slide when I start speaking just to make a point about giving each other some grace about this pandemic, there is no consensus view on what it is and how it ought to be handled. I think our membership and the realtors are no different than anyone else. So way back in April, and may we asked, Is it too long? And are we taking too long to loosen up? Not long enough, or we don’t know. And it’s about a third, a third, a third. And then I also start out with just the summary of where the major forecasting financial, academic and governmental entities are with respect to what 2020 is going to look like to make a point of, nobody’s got the same numbers, but everybody’s got the big drop in the second quarter, which you just noted, was at an annualized rate, a drop of over 30% on a quarter

Jason Hartman 6:09
So just to elaborate on this slide a little bit. Yeah, Q2 being the second quarter being the really bad one. And, and the predictions go from the worst being UCLA predicting a 40. I’m going to round off here, a 42% reduction in GDP for the US economy

Leslie Appleton-Young 6:31
In an annualized rate. Right.

Jason Hartman 6:35
Yeah. And Bank of America, maybe being the most optimist or no, sorry, JP Morgan Chase, being the most optimistic at a 25% decline. So it’s kind of all over the board. Goldman Sachs has been a really, you know, a lot of people quoted that when they’re saying 39%. So this is pretty incredible. I mean, these numbers are staggering.

Leslie Appleton-Young 6:55
They all have the same trajectory, though, right? They all have the Q2 being the big hit, and then a gradual recovery after that, with the decline for the year as a whole, between five and 11%. So there is a lot of leeway. But there’s a general story, that at the time, and these this is, as of the end of June, all of these forecasts was the assumption that there wouldn’t be a second wave, and there wouldn’t be a second lockdown. And that is not clear at this point, right, as you know, states like Texas, or are backing back down and the whole confusion over schools and all that. So it could be worse, and hopefully it will be better. But I just again, want to make that point that a forecasting is always dangerous, but it’s particularly fraught, right now. One of the things as I mentioned, we’re doing weekly surveys, we’re doing polling. This is a monthly poll that we started in the fall of 2018. Just a Google poll once a month California consumers, is it a good time to buy Is it a good time to sell, and the buy side is really strong. It’s currently above what the norm was, until the pandemic. And to that I think you can attribute a couple of things but certainly record low rates, right with a 30 year fixed rate conventional mortgage under 3%. It’s an incredible stimulus coupled with the Coronavirus fear, and as you mentioned earlier, a flight to the suburbs and a desire for homes with more space around them. And then the work from home work from anywhere world where you don’t have to live within a horrible commuting distance from where you work anywhere for some jobs, right for white collar jobs. So I would say the buy side is definitely out of the COVID calm, I mean, the buyers are ready to go I describe it as let’s pretend it’s January, again where the buyers are ready to go. And on the sell side, you’ve had not only more hesitancy, but you had a huge drop between March and April in the perception of the desirability of selling and I think that was I don’t want people that might be sick. In my home. I’ve heard prices are going to soften. I don’t think this is a good time for me to go put my home on the market. But you can see over the last couple of months that started to heal and come back I think and reflective of that hot market that I described in the introduction.

Jason Hartman 9:31
So Leslie, let’s parse this and I don’t know if you have data on this. So you know if you don’t, just you say you don’t. But can we parse this up at all? When people talk about the housing market, it drives me crazy. I’m sure it does you too, because it’s more than one market obviously. Right so it’s it’s you know, geographically it’s by price segment, housing style, but you know, price segment might be a good one to really look at. The market is booming. It’s, I mean, these interest rates are so so low, it’s just literally negative interest rates are all segments of the market doing this, you know, what about the extreme high end the middle market? You know, the low end, certainly necessity, housing is booming. We all know that. Can you drill down on this at all?

Leslie Appleton-Young 10:17
Yeah, I think it’s really important to talk not just about the demand side, but the supply side. And the low end has been constrained because there’s literally almost no inventory. I mean, if you look in California, you know, under 400, under 300,000, there’s just very, very little there. And the upper ends been interesting, because the last two months of data have shown a resurgence of activity, at what I’ll call the high end in California, maybe the ultra high end in other parts of the country, but in the over 2 million. And it’s one of the reasons why in the June data, which is unfortunately, the last monthly data that I had, we had an all time high in our median home price of 625,000 highest monthly highest annual median home price in California. And again, it was two parts, it was more home sold at the upper end, and it was price appreciation in every single category. So I would never disagree with what your point about real estate being local. But I will tell you that my experience over the 30 plus years I’ve been doing this is that there are common themes than tell that tell a story, right, that it’s hard to evade. And certainly one of the really interesting things that we’re seeing in California is just really hot activity in the Central Valley, you know, the people from Los Angeles looking at, at homes in Bakersfield, right? And it used to be just an affordable housing driven migration story. And now it’s also a quality of life, COVID generation story.

Jason Hartman 12:01
Social distancing story,

Leslie Appleton-Young 12:04
right. Yeah, let’s move on. So just add up at a glance, here’s what we saw in June. And I’ll I won’t go in any detail. But we’re running a year to date in California down about 12% from 2009. And meaning down sales for your sales, your sales, you know, number of transactions. Yeah, sales volume. Okay.

Jason Hartman 12:29
So the important thing, I just want you to make sure, and you alluded to it a moment ago, it’s inventory. So you know, what people commonly, I think are misled by some of these stats, because they think, Oh, well, sales volume is down. That must be the market is bad. But the especially in the housing world, when you don’t have inventory, you can’t have any sales, okay? So it’s not that people don’t want to buy, you know, sales volume being down might be a sign that it’s a seller’s market, and everybody wants to buy, but there’s just nothing to buy.

Leslie Appleton-Young 13:07
Absolutely, it’s, it’s, it’s not even a nuance, that’s a huge point. You’ve got to look at at both sides. So we have 2.7 months of inventory in June,

Jason Hartman 13:19
What would be considered like a normal month supply of inventory,

Leslie Appleton-Young 13:25
Up until 2013. Looking back a couple decades, I would have told you six to seven months supply as normal

Jason Hartman 13:34
It’s like an even keel market,

Leslie Appleton-Young 13:36
Right? Since 2013, I will tell you, it’s three to four months of supply. In fact, in other words, we had an ad in California, and this is a national phenol, not just California, we have been at unusually low levels of of inventory. So 2.7 months is a very rapid market. So I think that’s really all and then look in June how low rates were and they were headed, headed, even lower. And then we also look at price per square foot as just I’m very I’m very agnostic. When it comes to data, I just want to understand the methodology. So people talk about median price, they talk about average price, they talk about price per square foot. And typically things track right typically you don’t see a different measure and oh my god, the story is totally different. It’s it’s typically not and, and we were seeing that with the price per square foot data, as well. So this is a history lesson in 15 years of looking at sales in in California and what’s a little bit sad is to look at the first two months of 2020 and just the anticipation that this was going to be just a banner breakout breakout year in real estate because we were above sales from 2008 19 and really looking forward to a great year. I also want you to see the V shaped recovery during the Great Recession. And then eyeballing this starting in 2011, we have essentially had a flat trend in home sales at a time when we have had job growth, income growth, household formation, growth and very low rates. So this market has been held 20 to 25%. below what you would expect inventory, expect sales volume two be because of two reasons, inventory, and affordability. Right. And so there’s just a lot we can talk about about those two things. But I just want, you know, everybody to understand that we have not had a breakout market over the last eight or nine years because of those two constraints.

Jason Hartman 15:55
Right. So what Leslie showing here, if you’re not seeing the video is a graph showing sales volume, you can see that the volume went down precipitously from 2005, bottoming out in late 2007, I guess, and then it started going up. And so that’s the V shaped recovery, you know, until 2009, and then it sort of stays relatively flat along the way, until maybe this is I’m gonna guess that is about February, where really or

Leslie Appleton-Young 16:28
April was when it dropped. Yeah.

Jason Hartman 16:31
Okay. Yeah. And now it’s going way back up. But, you know, we can only go up as much as there is inventory to supply the demand.

Leslie Appleton-Young 16:40
Right. And I think that the hesitancy in the market today is, is on the sale, the sell side. And that’s kind of where we are. So we have, as I mentioned, pivoted to what I’ll call high frequency data. So we are looking at the MLS data for the state of California on a daily basis and calculating a couple of averages. So this is a look at what’s happened to average daily close sales in the major regions of California and for the state, state as a whole. And you can see they, they can be a little noisy, right, these are like week to week changes. But in a market like we have today, set in the economy that we have today, we don’t have the luxury of waiting till the middle of August to know what happened in July, right, we need to kind of track things. And what you can see. And I’ll just focus here on the set of bars that describe the state as a whole, that when we were in the first week of March, we were looking at 631 average daily close sales in the state. And the week ending the first week in August, we are looking at 774 average daily close sales, which is down pretty sharply from from the week before. And I’m going to move ahead here to show you the drop in closed sales was almost 26% on a week to week basis. So that’s something we’re watching very carefully in terms of its relationship to the resurgence of cases and the you know, tighter lockdown regulations that can vary from county to county, right. And there’s a one, one situation. So we came back, this market is ready to go. It’s being fueled by by low rates and a change in how people want to live. And yet it’s really the virus that is setting and it’s the virus and the reaction to it by by the government that’s determining, I think the path of the overall recovery. So you asked me before about price points, if you will. And I made the point that the low end of the market is constrained by really tight supply. And the high end of the market in June, was up almost 7% on a year over year basis. Properties under 300,000 were constrained dropped on a year over year basis by 21 and a half percent

Jason Hartman 19:26
Amazing. You know, maybe it’s a good time to ask, you know, kind of our previous conversation off air. Just about the the general vibe with California. I mean, people have been leaving the state for many years. I left the state, you left the state. I mean, what what does the future look like for California just as a kind of a general comment, you know.

Leslie Appleton-Young 19:49
Yeah, I think in general, the country’s rebalancing towards the middle and the south and we’ve been tracking net domestic migration that you get Through the Census Bureau, the American Community Survey for for many years. And there’s kind of a myth out there that it’s our tax structure. And the reality is we’re not losing millionaires. There’s actually a net small net gain in terms of people that are making higher incomes into California. But the story has been that we are losing young people and we are losing the working middle class, you know, working class because they can’t afford housing in California, be it ownership, housing, or even a rental housing. And I think now overlaid on top of this is going to be an obviously it’s too early to see in any any data. Certainly, we have anecdotal stories, but I think you’re seeing an acceleration of this change, fueled by the work from anywhere, environment for for white collar workers.

Jason Hartman 20:57
Yeah, no question about it. And if you’re a billionaire, or a deca millionaire, or a centimillionaire, it doesn’t matter. You’re just gonna live where you want to live,

Leslie Appleton-Young 21:06
You can afford to live here. They’re, they’re not the people that are hurting. Right, right. They may not be happy. I know, they’re not happy about their taxes, but I just look at the data.

Jason Hartman 21:16
Right. And they have all sorts of teams of accountants and lawyers to get them out of the taxes because they can do all sorts of special sophisticated things to try and cope with with the tax burden. But you know, if someone’s just a you said, millionaire, and I think we got to revise our saying on that, because a millionaire, anybody used to be adjusted for inflation, it’s really no big deal to be a Millionaire anymore.

Leslie Appleton-Young 21:38
Let me tell you this, there’s a lot of people who just love lost their $600 employment supplement today that would see that as quite a quite a big amount of money. I mean, I know what you mean. But

Jason Hartman 21:51
No, I agree with you. I’m just saying that those people at the lower end of the socio-economic ladder, they don’t have a very high tax burden. Even in California. Yes, the cost of living is high. But the taxes are not that high. Where it hits people is those people making a million bucks a year? That’s the ones that really just get creamed tax-wise, you know,

Leslie Appleton-Young 22:13
I’m just saying that there’s a net inflow in that category. So

Jason Hartman 22:18
Yeah, in the in the higher end, and so that, is that an inflow, Leslie? Or is it a is it people that have risen to that level of economic achievement? I’m wondering,

Leslie Appleton-Young 22:30
We can’t tell. We, we essentially just know the income of the people, right, coming and going. So in terms of what their journey to that income level? We have no idea.

Jason Hartman 22:39
Yeah. Okay. Okay, good. Go ahead.

Leslie Appleton-Young 22:41
You know, this is just a chart that looks at the various price segments, it’s the 2 million or more price category that actually had the the increase in in June and added to that, that price number. Here’s a look at the kind of distribution of home sales by by region. And you might be surprised to know that the San Francisco Bay Area is only 19%. of the total state, even though they’re a huge part disproportionate share of the economic activity compared to the home sales and population numbers, Southern California is about 45%, Central Valley 23. And all of the major metropolitan areas had dropped on a year over year basis from June of june of 2020. The other kind of other counties, categories are very rural, and are benefiting again, from what you talked about earlier, a flight to less density and more open space. So looking forward, we felt very confident about our June numbers, because pending sales, and April, I’m sorry, in May, we’re so high. And then looking at the data that we’ll be getting in the next couple of days, pending sales increased by 22 and a half percent, not the 60 plus percent we saw the month before. But still pendings is going to tell you where where sales are, are headed. So what you see here is just a big, a big bounce back in housing, once the regulations were lifted, and you’ve had a huge adaptation of technology in the real estate industry. And we’ve been kind of tracking this with, you know, using zoom calls with clients and using virtual staging and doing virtual tour tours and all of the tools that have been available for quite some time, all of a sudden became a not an option, but a necessity. And that I think has been a huge facilitator, as

Jason Hartman 24:49
And I think that’s really good news for the economy overall. It’s so convenient. And the funny thing is, none of this technology is new. You know, we, it’s been here for many years. I mean, people I’ve been making Skype calls for many, many years.

Leslie Appleton-Young 25:02

Jason Hartman 25:03
And WebEx was around, I think 20 years ago, you know, but, but now everybody’s been forced to adopt it. So Necessity is the mother of invention. And it’s great news because there’s a certain amount of creative destruction going on, in all these old inconvenient, it’s making things a lot more frictionless. And I think that’s good for the economy, it’s going to increase the velocity of transactions velocity of money in many industries, you know, I’m looking for a new car now. And I haven’t even been to a dealership, you know, it’s great. They’re they’re doing like, you know, showcases where they give you these really detailed online tours via zoom. And it’s, it’s incredible. It’s really convenient apartment. A lot of apartment leasing offices are really adopting this technology really nicely. Yeah, it’s good.

Leslie Appleton-Young 25:49
Yeah, I don’t think there’ll be any any going back. And certainly the younger generations are so comfortable in a virtual world. And this is just kind of for, for sale stirs to get with the, with the program. So a couple of them, I think, have indicated caution going forward, about 40% of our members last month said they expect they were noticing a slowdown in activity. And again, this was correlated with the kind of resurgence of cases. So the price side is a whole nother story. As I mentioned, we were at a historic high median home price in June, the specific number was 626,001 76 and a half percent up from May, and two and a half percent on a year over year, year over year basis. So that has been really incredible. And as we look at it across all price categories in the state, every every price category, you know, is seeing is seeing a gain, and the biggest gains are at what I would call the top 20% of the market. And most of the pain of job losses is hitting people that are not homeowners, right, it’s hitting renters more because they’re in the service industries, which are lower paid, it’s and it’s really the white collar. And you can see that in these statistics that they are the ones that really are the lucky ones and all this that are able to take and take advantage if they need a mortgage. And and really,

Jason Hartman 27:28
I think society will reevaluate. And you know, this is just something that happens kind of slowly but reevaluate the amount of pay people get that you food service and grocery stores. I mean, why are these people so underpaid? It’s kind of strange, because these are the people that as we’ve realized society has depended on. I mean, you know,

Leslie Appleton-Young 27:51
Yeah, they are the essential workers

Jason Hartman 27:53
They are the essential workers. These are the heroes of course, they healthcare workers, too, but you know, they’re mostly paid pretty well. But, you know, the people at the grocery store and the people making your food at a restaurant, and it’s probably takeout food, why are they so underpaid? I mean, it’s just just kind of strange out that sort of came about that way? I don’t understand it sometimes.

Leslie Appleton-Young 28:11
It’s called pricing power.

Jason Hartman 28:14
Yeah, pricing power. Well, you know,

Leslie Appleton-Young 28:16
Lack of minimum wages in many, many areas. So it’s a, it’s something to look at, for sure.

Jason Hartman 28:22
It is. It is. Just as a society, but the skills needed to do those jobs are not rare. So that’s obviously the reason, you know, the demand is big now, but the skills aren’t, you know, they’re easily You know, a lot of people have those skills. Okay. Go ahead.

Leslie Appleton-Young 28:37
So just I thought this was really fascinating. This was the weekly survey of our members. And we asked, hey, were the people that you talked to last week, the buyers expecting prices to go down? And in the initial stages of this, when we started asking this at the end of May, early June 63% 67% said, Yes, my buyers are expecting to see lower prices. And now you get to the first week in August and less than half are so you’ve just had a gradual realization that that sellers are not with the program in terms of reducing their their prices, right, they’re not seeing a need to do that in in this this market. So a gradual, I think shift in expectations about what’s what’s happening with prices on the, on the fact on the part of buyers, and

Jason Hartman 29:33
So buyers are feeling a sense of urgency, and they’re not expecting any deals.

Leslie Appleton-Young 29:39
Well, less than half of. Few are expecting deals today than were 10 weeks ago. Okay, but it’s still a loved it’s just a little bit below half. And 15% of the realtor said they had a buyer who tried to renegotiate a purchase price before the close of escrow. So there’s still Some of that going on. So here’s a look at you asked me a question earlier about what was normal inventory. And I said that up until 2012, if I took a 30 year average, it would have been between six and seven months. And if you look at this inventory index that again goes back 15 years to 2005. You can see starting in the beginning of 2013, the average has been between a three and a four month supply. So we’ve just entered a new normal, if you will, and 2.7 is low, but it’s nothing we’re not we haven’t encountered before, during this period. And again, I mentioned all of the factors that were growing, but what hasn’t grown is new construction, at least in our in our state. So that’s that’s been an issue. And boomers are staying in their homes longer, right. There’s a financial incentive, they don’t want to pay the capital gains. Gains Tax is certainly one of the reasons prop 13 is another but when I started in the 80s people moved in California about every seven years. And now it’s about every 18 years.

Jason Hartman 31:18
Wow. Staggering

Leslie Appleton-Young 31:21
Yeah, a huge shift. And we’re becoming a little bit more like the European model.

Jason Hartman 31:27
That’s exactly what I was gonna say Europe has this very stagnant market where there’s just not much trading going on.

Leslie Appleton-Young 31:33
Okay. Kids inherit their parents homes.

Jason Hartman 31:36
Yeah. And I attributed that, Leslie to, you know, the fact that, obviously, prop 13, I think, actually hurts the market in a lot of ways, because it makes people stay put to some extent.

Leslie Appleton-Young 31:48
Yes, absolutely. I mean, just do the math. Right?

Jason Hartman 31:51
Yeah. So prop 13 is the Howard Jarvis, you know, from back from 19 1978, the thing that kept property tax increases in the state of California. So, you know, people won’t trade their house, because they’re gonna have to pay such a higher tax bill and the new property, because, because of the higher prices, but also, you know, the very low mortgage rates, you know, I think it’s kind of another thing that it’s not as big because people can always refi but, you know, sometimes the mortgage rates encourage people to trade houses when they’re really cheap, because they get an automatic refi when they trade and they get another house that they ostensibly like better, you know, if if those mortgage rates are higher, it really keeps people stuck and makes the mortgage market more stagnant. Because, you know, you just don’t want to lose that great mortgage you have. And I think that’s one of the dangers of these very low interest rates in the long term, is that it really causes the market to just be less active. What do you attribute a this dramatic rise from seven to 18 years to? Is it mostly prop 13 issues? Or what?

Leslie Appleton-Young 33:00
I think it’s, it’s just doing the math, you know, there’s, there’s certainly societal factors, right? I mean, 70 is the new 50. You know, people are more active, they don’t want to move to Sun City or Leisure World like their parents did, and, quote, unquote, retire and sit on a golf cart all day. So they’re just more with the mix. But, you know, what you find is there’s a lot of people who really don’t need a five bedroom home anymore. But the math just doesn’t work out for them. And what we hear over and over again, is it’s really the capital gains issue. Now we are, we have a proposition on the ballot in California coming up prop 19, that’ll help people over 55 to to move and take, you know, their tax basis, and so on. So that might, might help a little bit. But we can’t do anything about the fact that people have no huge gains. I mean, if someone’s been in their home, 30 years in Palo Alto, you can imagine there just is not going to be a way to to have it worked out in terms of the numbers.

Jason Hartman 34:09
They could always rent it for a couple of years, which will never make sense in Palo Alto, and then do a 1031 exchange. But yes, I totally agree with you. It’s

Leslie Appleton-Young 34:16
Yeah, yeah. So anyway, moving on. Here’s just a look at active listings, which have been declining on a year over year basis for the last year. And in June, they were down almost 44% from June of 2019

Jason Hartman 34:35
That is, that is staggering.

Leslie Appleton-Young 34:37
I know. Right. So when we focus when you mentioned the need to focus on the supply side, I could not agree more.

Jason Hartman 34:45
So let’s talk about that for a moment. So a massive supply shortage. And do you think California or you know, it’s really up to various municipalities, but we’ve got it well, it’s not not completely, but you know, they’ve got to loosen up On these these building requirements, say, you know, and maybe make it a little less expensive for builders to build homes and and loosen up on the environmental restrictions. I mean, the Coastal Commission in California, you can’t build anything if you can see it from the ocean. It’s it’s absolutely crazy. Do you see this happening? Or is the state just gonna say no, sorry, you know, tough?

Leslie Appleton-Young 35:24
I think it’s, it’s that and it’s also, neighborhood attitudes, which you find over and over again, are just simply opposed to anything and everything. And one of one of the things I’m really proudest of at car is a couple of years ago, we created a legal foundation called Californians for housing, and we are writing letters and then going in and suing cities that essentially are forbidding a project that meets all of the qualifications. And you know, every municipality has housing goals, right, there is a housing rent, you know, requirement that they’re supposed to meet, and none of them do. So it’s really time to play hardball a little bit and have people understand that this is something that can actually be a huge, huge benefit.

Jason Hartman 36:22
So here’s the thing about that. I mean, you would think that the municipalities want the property tax base, right, because that’s brings in revenue to

Leslie Appleton-Young 36:30
They want commercial property taxes, they don’t want the residential property tax nice.

Jason Hartman 36:34
That’s where I was going, Leslie. Since nobody’s gonna build any retail properties anytime soon. And nobody’s gonna build much office space, because we COVID has just creative destruction, you know, the home is the center of the universe, as I’ve been saying. And so you know, they’re just not going to have that they might have warehouses and distribution centers, but they’re not going to see a bunch of retail construction or office construction, right. Also, there is some light and maybe the the the alternate use of like hotel properties, turning him into residential, and the possibility of even converting flirting offices or shopping malls, residential. I don’t know, to me, this is a pretty complicated, expensive venture, but the hotels for low income housing, you know, turning hotels and a little condo units is pretty doable. What do you think?

Leslie Appleton-Young 37:24
I couldn’t agree more, I actually have that point at the end of my presentation, that that could be a real silver, silver lining, and even a mall, you know, it could be come of senior housing village, or affordable housing village or a homeless village, it’s got plenty of parking, you know, and there’s going to be more and more of these, because people’s behavior has has changed. And it’s been changing for a long time, right. The department store has been an endangered species for decades. But this has really been kind of the end of the line for, for some of them.

Jason Hartman 38:01
No question.

Leslie Appleton-Young 38:02
So we’ll see. I here’s kind of looking, again, at the weekly data, just show here, the average daily pendings. It’s been going up and down. But going down a little bit lately. And then I wanted to also say there’s been some changes that our members have seen that I think are really interesting. So 28% said they had noticed an increase in clients looking for second homes. And again, that’s rarefied air right now. But it’s indicative of the kind of work from home opportunity and less density, desirability. And then the other was Have you increase interest in selling investment properties? And in the first week, in August, about a third of them said, said, Yes, so I think that’s a whole nother topic about owning rental property. California right now that is, and the eviction wave. I mean, there’s, you know, people that are looking to get out. And then just in terms, we talked earlier about utilizing the tools. So over half of the realtor said, Yes, I’m doing a lot more virtual tours under COVID. In the first month of August 17%, said, I’ve actually put a buyer into contract who never saw the house. And, again, that’s something we didn’t see before. And almost half of them said they had a vacant listing. And in the world of COVID, it’s a lot easier to show show homes that don’t have a homeowner living living in them. So we’re seeing more of that. So those are just some of the threads that we’re following. In terms of the forecast. You know, everybody’s got a letter

Jason Hartman 39:50
You got the square root on there. I’ve been talking about the square root.

Leslie Appleton-Young 39:54
There you go. There’s just a lot to talk about here. I’ve been list originally in the swish category. And now I think I’m probably in the W category. But again,

Jason Hartman 40:05
So what she’s referring to, for those listening to the shape of the recovery is going to be a V and W. A square root, a swoosh, a Nike swoosh. So that’s what we’re talking about. Go ahead.

Leslie Appleton-Young 40:17
Alright. And then I’ve just got a, the forecasts from NAR, Fannie Mae and NBA that really mirror the trajectory of the GDP forecast that we saw in the very beginning of my presentation with the big drop in sales on a year over year basis, in the second quarter, and then recovering after that, okay. And in terms of prices, very little impact, certainly a bit of a softening, but everything in the low single digits with a delayed impact, right prices are typically sticky on the way down until they’re not. But here, you can see the big, the big hit. And again, the biggest drop was an IRS projection of a drop in the fourth quarter of 3.1%. And then by the middle of 2021, definitely back on track, and well above where prices were a year ago. And then this is just a look at where we are with the California Association of Realtors kind of looking at where we are now to the end of the year, ending up and I believe I put in the I didn’t put in the chart. But essentially what we’re looking at is about a 12% drop in home sales 2020 compared to 2019. And at this point about a 1% drop in the median home price. And we’re revising our forecasts every month, just because more data is very helpful in a in a world like this. But I would just say, you know, housing is a leading force coming out of the engineering recession, this time around. And we’ve seen that the last couple months. And while the future looks a little bit choppy based on how we do with the virus, I think the housing market is is just ready to, you know, ready to run. And then I’ll close with just a couple comments about what I think the future is going to look like. And just noting and we’ve talked about this the the work from home work from anywhere New Order, I think it’s going to be huge for housing. It’s not only one type of house do I want to live in and and how many of these white collar workers are now looking at meeting not just one home office, but to home, you know, to home?

Jason Hartman 42:49
What about the kids? The kids’ needs?

Leslie Appleton-Young 42:53
You know, a house isn’t just a house anymore, it’s where you work out. It’s your restaurant. And one thing we didn’t really talk about? What’s How many? How many more houses are multi-generational, right, you know, thinking twice about putting your parents in a system

Jason Hartman 43:08
Where they’re gonna die? Yeah.

Leslie Appleton-Young 43:10
Right? You know, exactly. So this was a really funny exercise that someone initiated on Twitter a month or two ago, asking people to post a picture of their home office. And for anyone who’s listening, I have six pictures that show a laptop on top of a washing machine, a laptop in a closet alcove, a laptop at the end of life that’s about three feet wide a laptop, in a kid’s room. And at the kitchen table and on a trash can outside. In other words, there were a lot of people that simply don’t have the type of home that makes working from home. easy to do. Right. So I think the winners coming out of this will be in as I’ve already said, residential real estate. Absolutely. The tech enabled agent has a huge advantage. And the good news is there are a lot more tech enabled agents today than there were six months ago, an agent who is able to leverage technology to enrich relationships with with clients, and the transition of commercial and retail. And as you mentioned hospitality spaces into into housing. So those would be the four kind of closing points. I would make kind of looking forward.

Jason Hartman 44:39
Good stuff. So Leslie, I have to ask you, thank you for that. By the way. I have to ask you, when we look at what’s coming, though, we still have some definitely some clouds on the horizon, right? I mean, we’ve got forbearance, we’ve got foreclosure moratoriums, we’ve got eviction, moratoriums are these chickens going to come home to roost in here at some point Because the economy is definitely, it’s very uneven. Okay. It’s very uneven. Some people, like you said, doing great, some people really suffering. It’s very sad and uneven in a lot of ways. What about next year or the year after? I mean, I don’t know, from from looking at this kind of stuff, it would seem like we’re all in the clear for a long time to come, but maybe not.

Leslie Appleton-Young 45:24
No, I mean, it really, I think all comes down to the kind of relief that the government is going to grant to the unemployed over the next six months, or however long the economy remains essentially paused. And that it all depends on that when you look backwards, I would say the government did an amazing job of getting relief out quickly. And were there people that got PPP loans that shouldn’t have, of course, are there people that are getting more in unemployment than they did when they were working? Yes. But you know, the, the general tenor of what was done was to support the economy, when it was shutting down by providing people with an income necessary to pay their rent and in and eat. And that’s what was done. And it was fabulous. And it’s it’s one of the reasons why we haven’t seen these things that you’re talking about, you know, coupled with the eviction moratorium and so on, going forward from today, I don’t know, I think there will be some type of relief. But how long can that go, you know, half of the rental properties are owned by small landlords that also have mortgages to pay. So there’s a lot of levels of levels to this. And it certainly is the thing that’s keeping me up at night. And I think we’re all watching the monthly corelogic data to just see how many people are 90 days behind how many people are 30 days behind. Now, I know not sure what the exact number is, I think about a third of the people that got forbearance are still paying on their mortgages, many, you know, they took it out as an insurance policy. But that’s the date I think we need to keep keep a really big, big tabs on because we know from the Great Recession how quickly this can shift when people start losing their homes.

Jason Hartman 47:23
Yeah, very interesting stuff. Leslie, do you want to share a website or just you know, wrap it up with a closing thought for us?

Leslie Appleton-Young 47:30
I really appreciate being here today. I’m extremely optimistic about real estate going forward with a tremendous amount of concern for keeping the economy going long enough that we can just hit the hit the ground running. Our website is CAR dot ORG and we do have information there on on the market and on the virus and we just try to keep our members informed and being able to be the best possible advisors to their to their clients

Jason Hartman 48:01
And stuff. Leslie Appleton Young, thank you for joining us.

Leslie Appleton-Young 48:05
My pleasure. Thanks for having me, Jason.

Jason Hartman 48:12
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