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Real(ty) Talk
Real(ty) Talk
Homebuying Hurdles and Espresso Adventures
Wondering how a citrus-infused espresso martini and the "OG Bug Thug" could possibly relate to real estate trends? Join us for a lively conversation as Suzanne and Paul share an unexpected journey through a unique team-building event at our brokerage, where creativity was the key ingredient. We recount the spirited competition among our agents to craft the ultimate espresso martini, with the winning citrus twist ready to steal the spotlight at our holiday party. This lighthearted start sets the stage for a deeper exploration of the changes brewing in the real estate market.
We tackle the evolving landscape of the 2025 housing market and the hurdles first-time homebuyers face today. The episode sheds light on the declining percentage of first-time buyers and the increasing age at which they enter the market, unraveling the complex web of rising costs, lifestyle choices, and social media influences. We also delve into generational shifts in homeownership preferences and the potential for savvy investments in a flat market, especially in California. With insights into strategic risk-taking and the revival of private credit opportunities, we paint a picture of optimism and growth for the real estate and lending sectors. Tune in to uncover the multifaceted challenges and promising prospects that define today's housing market.
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Suzanne Seini:
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Paul Hanson:
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Stephen Couig:
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Welcome back to your favorite podcast ever, the Realty Talk podcast. The queen of the closing table to my right, excited to talk about.
Speaker 2:Wait, Paul, what is your nickname? Like you are always referring to me as the queen of the closing table, but I don't know no one's referring to you as anything I'm just Paul. I'm feeling like our listeners need to help us out with this.
Speaker 1:A nickname.
Speaker 2:Yeah, definitely it can't always be, you know.
Speaker 1:I'm on board for a nickname. Okay, when do you think that happens? Yeah, I don't know. I can't give myself one.
Speaker 2:Okay, okay. So you just put it on me, yeah, which I'm bad at this, but I'm like, yeah, I'm going to do it.
Speaker 1:I do have a nickname in our pest control company, Okay, yeah. So for the listeners that don't know, I have a regional pest control company. We have. We do you know, general pest control termite work. We're in California and Phoenix and uh and I termed the phrase early on when we started it that we were bug thugs, oh, okay.
Speaker 2:I like that.
Speaker 1:So our lead technician actually he was the lead technician now he is our general manager here in the California market refers to me as the original bug thug.
Speaker 2:Oh, you're OG. Yeah, got it Okay.
Speaker 1:I couldn't be further from a bug thug on the planet like I don't know anything about.
Speaker 2:I actually, yeah, I don't think that I can refer to you as the og bug thug, but I agree with a straight face. For sure I can't. But you know, okay well, between myself and our listeners, my next there will be a new nickname. I can't wait, that's happening.
Speaker 1:What's new? I mean, I was so excited to get the invite to come to a. It was like a. It wasn't a Friendsgiving, it was like a holiday Thanksgiving team building event.
Speaker 2:Yeah, you know, at Innovate we try and put together events for our agents. The Christmas party is a big one. Everyone you remember when you you know we're kind of introduced to the agent family and as we were building the brokerage it was like every agent was like are we still going to have a nice Christmas party?
Speaker 1:That's what I need to know.
Speaker 2:Um. So yes, christmas parties are a thing for us and this year we decided, instead of just doing like a usual kind of Thanksgiving, eat some more turkey and everything else. We decided to switch it up a bit. So we did a team building activity where we divided the agents into groups and each table was making the best espresso martini. So you and I were the judges. So that was fun and we had some surprises in there. We didn't know, but I think the effort was there for all, for sure.
Speaker 1:I thought it was funny because they were tasked to make a cocktail we didn't know, but I think the effort was there for all for sure. I thought it was funny because they were tasked to make a cocktail but also have a name and a story. I think that half of the teams didn't hear that part. They just thought how do we make the best cocktail? So the names were kind of weak, but there were a couple of names that were awesome.
Speaker 2:Do you have one off the top of your head? Yeah, I have cartini okay, I have night stroke. The night stroke come on that one was so good.
Speaker 1:What was the winning cocktail name?
Speaker 2:it wasn't the cartini citro, citroni, citrini, yeah, okay okay, which was? Good. Yeah, it was a really good. No, I mean, it was the best. That's why I won, for sure, yes uh, I feel like you know.
Speaker 1:So, in the event, everyone came up and asked us like so? Do you like sweet or do you?
Speaker 2:like, what do you like? You know, and uh we tried to keep it, you know, keep it fair, but uh, I mean the spectrum was wide there was pepperminty, martini, espresso martinis which was pretty good yeah but the citrus one was like it was yeah, it was amazing and so the winning team their cocktail is the cocktail of choice at the holiday party.
Speaker 1:Yes, so the whole brokerage.
Speaker 2:So everyone gets it. Yeah mean, it was funny because I think a lot of people know that I am a chocolate mint person and so that spread around. So I felt that I mean we tasted one that was like tequila and mint. I think they like muddled an Andy's mint in the cocktail. So you know, but yeah, I mean we ended up going with the orange one.
Speaker 1:That was an awesome event. I think everyone had a great time. Yeah, I, when I got there, I'm like, oh, I'm going to probably have a few drinks tonight. I was actually.
Speaker 2:I didn't much because I just tasted them all. Yeah, we had to be on our A game for the tasting.
Speaker 1:Yeah. Yeah, we had to be able to taste it, so we're gonna have to do another podcast and explain if the resort or hotel or whatever it is where we're going for the holiday party makes the cocktail better than the people yeah, because their job is to write down the ingredients and yeah, yeah, I will be interested to know I will have a few, yeah cool.
Speaker 2:So today, what are we talking about?
Speaker 1:2025 market predictions. And I think it's a broad subject because when you think about the market in the businesses that we run, there's so many things that affect it. So at least my perspective when we looked at this subject the market prediction for buy-by-house in investment grade real estate transactions it's too broad. I mean you have to think about not just that, but you have to think about the stock market. What is that going to do? You have to think of the formation of new families. You have to think about aging demographics. So there's all these big data points that are going to lead somebody to sell a distressed property and then also have the property turn quickly and then have an end buyer that you know can pay for the asset.
Speaker 2:Right.
Speaker 1:And everything kind of plays into it. I mean, one of the most complicated predictions is what's going to happen in the labor market. I mean, one of the biggest issues we've had over the last three years are getting qualified skilled laborers to actually perform the work. And then, you know, I would say secondary is what regulation changes to actually go and acquire a permit. So you know, some of the toughest transactions we've ever had at Bye Bye House were within the last year or two and it was with municipalities that went from legacy permitting processes where you'd actually, you know, have an architect and engineer design plans. You'd go into a counter physically with the plans printed, you'd submit them.
Speaker 1:You know they'd give you notes back after a review and you'd kind of do this back and forth in person and at the beginning of 2024, they tried to move, which was really a post COVID kind of action. During COVID they were saying, basically, we're essential workers, we have to keep producing permits but, we have to have this personal interaction. So they tried to move to a digital process, and so two or three of the cities that we're doing business in, where we had pretty significant investments, moved from this legacy process to a online submission platform, and it was like a black box.
Speaker 1:I mean you submit something and it would sit for six months and you couldn't get an answer from anybody. I mean we would be at the city screaming like what in the fuck?
Speaker 2:is going on. What do we need to do?
Speaker 1:Yeah, yeah, and their answer was like yeah, we're understaffed and we're trying to get to it and so that stuff you just can't really predict, which is really complicated, yeah.
Speaker 2:I mean, I think that's something that we don't talk about enough. It's, I mean, that was that's a significant change. But also there are just changes with regulations and with. I mean we experienced it recently on a property in costa mesa where it's like you know, that's where something was okay last year but it is not okay this year like to the point where they signed the permit card.
Speaker 1:Yeah, and it was okay and now it's not okay, you year Like to the point where they signed the permit card. Yeah, and it was okay.
Speaker 2:And now it's not okay. You have to go back and redo it. It's crazy. The code change yeah. Yeah so.
Speaker 1:Yeah, I think it's a really tough question to unpack. I'd be interested to understand what your vantage point is like with, you know, listing and selling an asset and then you, you know, listing and selling an asset, and then you know and or buying something.
Speaker 2:What do you think 2025 looks like? Yeah, I mean, I think we don't anticipate that there are going to be any significant changes in what we've been seeing. I think we can all agree that. You know, we think rates might come down a bit, but I mean, as far as inventory goes, as far as far as affordability goes, I mean, you know, like you said, it's all of these other aspects are playing into it, and so it takes a long time to make significant changes and there's nothing really on the horizon that is contributing to potentially any significant changes outside of rates. You know rates changing, so you know we really think it's going to be more of the same. I don't anticipate that values are going down, especially where we're doing business. There were some interesting facts, though, that came up as far as first-time homebuyers entering the market. What was it? 24% of buyers this year are first-time homebuyers, but that's down from 32% previously. It's a big drop, yeah, and then the age of the average homebuyer is going up as well.
Speaker 1:So that first-time homebuyer in a traditional year well, not traditional, but in the previous year, 2023, it was 32% of transactions were first-time homebuyers and they were 35 or 36 years old. And in 2024, only 24% of all transactions were first-time homebuyers and on average, they went to 38 years old. So why is that? Is that affordability?
Speaker 2:I mean, I think, yeah, I feel that a lot have. You know there's a lot that goes into it, but I think the one that everyone can agree on is affordability. I mean it feels out of reach for a lot of people outside. I do have some great affordable listings here in Southern California, Anyone's interested. But yeah, it feels the the consensus is that things are just too expensive. I mean even, I would also say even on social media it's very discouraging, like the messaging that's out there, even talking about groceries and you know it's the overall feeling is that things are too expensive and so buying a home for most people, or for a lot of people for their first time, it just doesn't feel like it's achievable, although I will say I disagree. I think that there is a path to homeownership. We talk about it all the time. We actually have a class this week for our first time home buyers that we host and there are paths to get there, but I think that information is isn't really out there for everyone, you know.
Speaker 1:Yeah, I mean, there's two sides to every coin. I don't, you know I'll share my opinion, but I think the the argument on the other side right is that younger generations I think the book and I might have referenced it on this podcast before, but the Unintentional Superpower is the book written by Peter Zahan. He talks about, you know, population. He's really a global economist, but he talks about population, demand and supply and he cites in the book that I think it's Generation X and millennials, by population, consume more than any demographic on the planet, and so there is an argument that these younger generations that would be purchasing homes are purchasing other shit.
Speaker 2:Oh, I totally agree with that, I think. I think that is most of what's happening. It's it's not as prioritized as it was, you know, when we were younger, that you have to grow up and you're. This is what you do. You grow up, you buy a house and have a family you know.
Speaker 1:Yeah, so and and I think it adds up very quickly because you know, if you are 35 and or in your early thirties, maybe you started a family, but if you're buying a new iPhone every year, that's like $1,200 for you and your spouse. If you are buying a new laptop, it's like a thousand $2,000. And so there's all this inflationary adjustment to just like the cost of living or goods, or, and it's like, a thousand $2,000.
Speaker 1:And so there's all this inflationary adjustment to just like the cost of living or goods or and it's, and it's kind of complicated because, like you, don't have to have an iPhone, but you know the day and age that we live in, you know these younger generations that are supposed to be purchasing spend a tremendous amount of time on social media and comparing their lifestyle quality to other people, and I think they make sacrifices by purchasing goods that don't really benefit them.
Speaker 1:They're actually funneling dollars into depreciating assets versus saving those and making an investment into it and appreciating us.
Speaker 2:Yeah, I mean, I completely agree. I think that is definitely a piece of it and I feel that you know, taking those two things like that is what that is the lifestyle that they know, and you know you're right Like you don't have to buy an iPhone, but do you know anyone that doesn't have an iPhone? And how, how teased they are when they don't like the one friend with the Android? I mean, I was that person for a little while. I was the green bubble for a while. I tried to hold out, but you know it's. So I think that is it's. You know, I don't want to say it's not their fault, I, but I will say it's the life that they live, it's the time that that you know that they're in and you know we're in where that is what you do, you know and that is what you're trained, or even what you want.
Speaker 2:You know, ultimately, like social media did change the game for travel, you know it's like it is in your face at all times where you could be. You know, for and versus working your nine to five job and saving up for your house Like that is, that is life, so yeah.
Speaker 1:I think on the other side of that argument I mean, obviously, you know, rents have gone up pretty significantly in most of these major markets and so, um, yeah, I think the other side of that argument is that we come out of the great risk not the great recession, butcession, but 2008, 2009, the housing collapse and values went down aggressively in most markets, but real estate has been somewhat volatile because leading up to 2007, 2008, values were way higher and they were increasing faster than in a typical cycle higher and they were increasing faster than in a typical cycle. And so we've seen like 20 years of very volatile real estate pricing and, um, you know, there's a lot of reasons why, like, bad mortgages were written and all this other stuff, but I think there's a really strong argument that we just see 20 years of very vanilla pricing, like because we had this massive supply shortage post 2009,.
Speaker 1:Builders weren't starting, credit was impossible to get, so we were already at a massive deficit. We haven't caught up to that too. You know, 2020 COVID makes it a little bit worse.
Speaker 2:Yeah.
Speaker 1:And you know we have a an aging workforce, uh, but they're not selling. And then to add on top of that this low interest rate period of time I mean 2021 to 2023, you could go and get like a 2% or 3% mortgage.
Speaker 2:Yeah.
Speaker 1:I mean if you refied into a 2.5% or 3% mortgage. You can't afford to sell.
Speaker 2:Yeah, what are you going to do? You just can't, yeah.
Speaker 1:Yeah, so if you have enough capital to go and buy another property, you keep that as a rental and then you go and buy that other one. If you don't, then you just don't sell.
Speaker 2:Yeah.
Speaker 1:Unless you're forced to sell for some sort of weird issue right, yeah, yeah. So I think it's possible that we just see, you know, values pretty stable for a long period of time. Obviously there's going to be little ebbs and flows, but you know, even if interest rates come way down like yeah, they're not coming to two, you know.
Speaker 2:So no, I don't think ever again.
Speaker 1:No, no, so if 3.5, half or four and a half percent like is there going to be an onslaught of inventory? I don't know. I mean maybe a little bit, and I'm sure there's certain markets where there will be a ton of inventory, like South Florida right now is crazy. I mean, there's like a year of inventory now. And it's like impossible to get insurance there.
Speaker 2:Right.
Speaker 1:But nobody's buying there. Yeah yeah, rather live somewhere else. I guess yeah. So what does that mean for innovate? What do you, what do you predict in terms of? Is you know? If you think about agent count, if you think about total transactions, do you think the brokerage grows? Do you think deals per agent increases, stays the same or goes down? What do you think for Innovate?
Speaker 2:I think you know each agent is very different. I do feel that you know we're always going to grow agent count. We're focused on growth and I think you know we've talked about it before but we're also focused on solutions. So, like you said, you know there are a lot of homeowners that own and they don't really want to do a whole lot to their house and they're sitting on their, on their asset, but there are there are a lot of homeowners that do have a ton of equity in their home and, you know, maybe they do need to downsize. I think that we see where we are going to continue to provide our agents with solutions so that way they can speak to these sellers and buyers, educate them and provide them a solution for what they're going through. So we're going to continue to focus on that. We're going to continue to bring on agents that are also going to focus on that. We're not bringing on agents that are like I give up you know, this market's tough because it's really not about that.
Speaker 2:You know we've talked about it before, where if someone needs to move, they're going to move and you know you just need to be the agent that they call. So you know it's interesting. What I will say is, again, we've talked about we've only had a handful of agents leave Innovate, but you know the ones that there I mean one particular in my mind I'm thinking of it's often they don't do a ton of business after they leave, and I think it just comes down to the fact that if you are at the brokerage, you are provided with these tools to be successful if you want to be you know, yeah, so we'll continue to raise agent count and I think the people that we focus on will continue to get better and adapt in the market that we're in, especially with the solutions we're providing them.
Speaker 1:So Innovate's got about 175 agents at the moment. Do you have a number in your head that you think that gets to in 2025?
Speaker 2:Well, I can't give away some of this, paul, but I see big things on the horizon. I think, just if we're just talking Southern California, we're definitely going to be over 200 agents. But I do feel that it is important that we don't just bring any agent on at Innovate and so we are really focused on quality and we care about who is here, because we do invest a lot into every agent.
Speaker 1:Yeah, because we do invest a lot into every agent. Yeah, so the iconic CEO of GE for a long time, jack Welch, had this theory that if you just fire the bottom 10%, regardless of their level of production, everyone else in the business increases. Have you ever thought of something like that?
Speaker 2:You know I have to say that is not really Suzanne's style. You know, I think I definitely I understand it and you know I've encountered people that do it. You know, and I I get the concept behind it. It's not the way I lead, you know, I I feel um, yeah, not really my style, but I understand.
Speaker 1:You'd rather fire them up than fire them up? Yes, got it Exactly. Yeah, interesting, so I hear what you're saying is in 2025, innovate will have over 200 agents in Southern California and it's kind of unknown on how many deals they're going to do you know that's.
Speaker 1:I guess what I hear you saying is it's kind of partly dependent on what happens in the market, which we can't necessarily predict everything. We think it's going to be pretty stable. There's an interesting data point too that came to my mind when you were saying all that I think baby boomers over 50% of baby boomers don't have debt on the houses they own, which is a huge data point. I mean that's like you know, I think back to my parents. They're boomers.
Speaker 2:They bought a house, they pay it off and then that's it, so they're actually not locked into the 2% rates.
Speaker 1:Yeah, I mean, but they're also not going to move until they have a need to move, you know so but then younger generations, these ones that consume, aren't going to buy that house in a nice area that has, you know, kind of a funky floor plan and is maybe not, you know, white oak with white countertops and a big open you know, living space, like they're not going to buy that old house and make it that way. They want to buy it that way.
Speaker 2:Yes, enter buy-buy house. Yes, yes, exactly, you know it's um I. It's funny, that's where I thought you were going to go before, when we were talking about affordability and why the data changed. I thought you were just going to go to. The millennials are lazy, point, yeah things. And I think, going back to what we talked about with social media, it's, I mean, that's what we're looking at. No one's like, oh, look at these old, old cabinets. I'm, I'm interested Sold. I need to go see this house. You know it's, it's not, that's not what anyone is ever doing. So I think just all of these things are fed to consumers and that's what they want.
Speaker 1:So yeah, yeah, it's interesting. Yeah, I feel like in 2025, you know, specifically in the investment space in California um, it should be a very, very good year because if values are flat, that gives us a lot of confidence to take a little bit more risk. If you don't know if values are going up or down, like if you know they're going down, obviously you've got to underwrite and protect your downside. If you know they're going up, what generally happens is other investors go crazy, so they underwrite to these astronomical figures, and so it just becomes very difficult to purchase new inventory In a flat market.
Speaker 1:It goes back to, I think, just traditional blocking and tackling, like actually performing renovations on time and on budget, which is not a sexy part of flipping Right. That part is like the opposite of what people want to do.
Speaker 2:Yeah.
Speaker 1:Um, I mean, I get hit up once, twice, a week from people that are like hey, I want to go do my first flip, like it looks. So cool. Um, can you share some time and talk to me about what that would be like, and I'm like sure I mean I'm happy to.
Speaker 2:I promise it's not as cool as you think that is right.
Speaker 1:So I think actually it becomes really good, like if values are flat for a year or two or 20 years, which is what I kind of think will happen. I believe that a lot of my competition will kind of go away, because the necessity to hit budgets and hit timelines becomes even more important Totally. And so I think we'll have an opportunity to purchase more inventory. You know, bring on great people internally to help oversee that asset, and then you know, if values are pretty flat, then I think you know some of that buyer. I would call it confidence. It's not necessarily that younger generations aren't able to buy is my perspective. I think they lack the confidence to go and pull the trigger. You know my perspective. Again, in Southern California, the major markets we're in, you can purchase a million, $1.187 million house with 3.5% down. Yeah, so you can go buy something for like $40,000 out of your pocket at this point. And so I think if somebody's saying, hey, it's impossible, I can't afford, it.
Speaker 1:I just think they haven't really spent the time to understand how to get there.
Speaker 2:Yeah, they just don't know yeah.
Speaker 1:Yeah, and obviously $40,000 is a lot of money for anybody, but if that's your number one goal and it keeps you up at night and that's all you think about it's attainable, it is. And you can go and get that money saved pretty quickly. But I think that we'll see a big year for buy-buy. We'll probably see, I would think, 100% top-line growth, meaning we'll buy and flip 100% more transactions than we did last year, just based on our current momentum and the way it feels in the market. But I don't know.
Speaker 2:I guess time will tell hey, that's good for all of us, right?
Speaker 1:Yeah, it's really good for the brokerage.
Speaker 2:I like it. I like your predictions yeah.
Speaker 1:Yeah, I mean on the lending side. That's a component that we don't spend a lot of time talking about on a weekly basis when Steve's not here. But private credit is a very exciting space. You know, we've had this weird kind of few years where private credit was increasing as a sector and people were getting very excited about it and people were getting very excited about it.
Speaker 1:But you know you've got to be able to write a loan, fund it and then you either have to hold that on your balance sheet or sell it to somebody else, Right? So there were all these little private credit shops that popped up and then over the last two years, with all these regional banks that had issues, the supply of capital to hold that note, you know kind of dissolved, and so you know, on the lending side, you know it's going to be the best year by a long shot at Center Street, and I think that's primarily not because of anything changing internally, it's just competitors are going away because of supply. So it's kind of getting very exciting and securitizations are back. So you know that's, I think, also a very, very good thing for the fix and flip space specifically.
Speaker 2:Right.
Speaker 1:Sounds pretty positive.
Speaker 2:I feel good Positive predictions yeah.
Speaker 1:Yeah, I mean, I think 2025 will see some tough stuff too. I mean, I don't think.
Speaker 2:Always do, yeah.
Speaker 1:Yeah, but net-net. I think it'll be a really good year. I feel like it'll be tailwind for sure in all the businesses we're in. Yeah.
Speaker 2:Cool Okay.
Speaker 1:Anything else.
Speaker 2:No, that covers it All.
Speaker 1:Right, I'm going to say the same thing I say every week. If you haven't subscribed, please subscribe. Send it to agents, lenders, friends, family members.
Speaker 2:We have to come up with a nickname for Paul by next week.
Speaker 1:Yeah, friends, family members, we have to come up with a nickname for Paul by next week. Yeah, yeah, I don't know if I'm excited or nervous Probably nervous.
Speaker 2:We'll see.
Speaker 1:All right, we'll see you next week.
Speaker 2:See ya.