Deidre Woollard: All right Fools. It is two o'clock Eastern time, so it is time for the Millionacres hour. One of the things I've noticed last few weeks whenever we do this hour and I start talking about real estate, I get a lot of questions in this light about people wanting to know about particular markets. I want to dive into that today, we can't really give specific advice on your situation, but let's talk some real estate markets. I have a guest today Patrick Duffy, he's an economist, he just wrote a piece on millionacres.com about top rental markets some of them which might surprise people, it's far bigger than just Austin, Texas. A little bit on Patrick, he's an economist, a consultant, he focuses on real estate and land use, he also runs a business called Metro Intelligence, his own economics and real estate consulting firm, and he's an investor in short term and long term rentals so he's got a lot to say on this. Welcome Patrick.
Patrick Duffy: Thank you Deidre, good to be with you here this morning. Happy two days after 4th of July.
Deidre Woollard: Right now we're in such a weird real estate space. I mean, I'm trying to figure out how to wrap my head around it. When you're looking at stuff, are you using 2020 data and 2019 data? I'm noticing that some economists are doing that because last year's numbers are off.
Patrick Duffy: Going back further for this article that's flowing off on the top rental markets, the database that we built went back to 2014 because we get data back there but sometimes you get lost in the wits so you don't want to get too much data. Ultimately, we looked at the one year which was I think from May 2020 to May 2021, and then we looked at the three year, and then we looked at the five-year changes. The three-year changes were not that different than what we would see from a five year. We wanted to look at that long term trend what is really happened to these areas? But at the same time you want to look at 2020 and find out how quickly you set bouncing back in terms of rents, and home values, and also jobs like how's the job market doing? How did that local economy return? It's just so many different factors to look at. Then you also have things like, how long is this remote work from home trend going to continue? Because you're starting to see a lot of companies demanding people come back to the offices and we don't know who's going to win that battle; that's stone play and that's going to have a factor in the next six months.
Deidre Woollard: I keep calling the office being the wildcard from an investment standpoint, but you're absolutely right that it also connects directly to where people are living and we just don't know yet and so many companies I find have walked back their policies like they were going to say, "Oh, you can work remotely until 2022," now they're like, "Well, we like to have you back in 2021," and so you've got people who leased places, you've got people who have bought places. I keep thinking about Boise, Idaho. Boise, Idaho the prices have gone up so much, there was some CoreLogic data out today that prices in Idaho in general are up 30 percent year over year, I think it was in Boise specifically. Is everyone going to stay in Boise? Are they going back to California? I think that's one of the things we need to try to figure out.
Patrick Duffy: Yeah, and I think it depends on your situation. If am a young family and I'm raising kids then Boise is probably great, but if I'm a young single and I'm looking to find a partner then maybe Boise is not a big enough market, maybe it's good for a temporary one, or maybe a second home but then maybe I start to miss the activities and different types of people I can meet in a larger city. We saw that in the early odds people move to places like Quarterly in Idaho from LA, they cashed out during that last housing boom and then after about a year some of them moved back. They were like, "Oh, I miss this and this about LA," so they move back but we didn't see much remote work there.
Deidre Woollard: Yeah.
Patrick Duffy: That's going to throw an additional wrinkle into it and you've now two employers. Employers that are paying attention to the cultural shift and are allowing more flexibility, and then some that don't, or they don't care and they really want people in the office and maybe it's the bigger companies that people are willing to give up that remote work because it's such a good opportunity, you are seeing that with Gen Z's. Gen Z's, the younger people really want to be in the office more because they're looking at that as the opportunity to build relationships with people, to be visible in the workplace whereas someone who's older millennials and Gen X, maybe they think well I have already done that. I've already put in my time so now it's time for me to enjoy the fruits of my labor with remote work from the place like Boise.
Deidre Woollard: Interesting, yeah, I hadn't thought about how it breaks down generationally but you're absolutely right because when you're in your 20's and 30's, especially at early 30's your office life, at least for me, when I was that age was a lot of my social life and now, yeah, I don't need that as much because I've already have existing friendships, relationships, family, etc. I think that's a really good point especially with regard to cities too in general but I feel like there is a potential though when you talk about the millennial generation, some of them are turning 40, we're starting to see some of them wanting to own homes but housing affordability this year, you and I've talked about it before. It's just ridiculous and it's gotten to the point I kept thinking before this that we were going to get to that point of critical mass that the market is going to slow down because people won't pay the prices. Are we there yet? I mean, we've got 111 months in a row of existing home sales price gains.
Patrick Duffy: Well, you're starting to see some inventory come back on the market, the thing is there used to be this ratio, we need about six months and there have been some arguments lately that technology has moved out to four months and I sold a house two years ago, I wish I wouldn't know what's going to happen this [LAUGHTER] year, but I was amazed at how fast it was. Everything was online, I could do the contract online, I could manage things online, that sped up the whole process. I think we had a pretty quick close and so that six month ratio isn't what it used to be so I went back out of curiosity and looked at monthly supply for existing homes in May of 2019, it was 4.3 months. Could you say back in May of 2019 we had a bit more of a balanced market? Now, we're like in two and a half months so that's way below both four months and six months so we still have that pricing pressure. I think as more inventory comes online, its definitely interesting in the summer because people are going to start planning their fall. Like kids got to go back to school, we want to be in the house, I have a brother's whose going to sell his house, hopefully in August, they're going to put on the market. That will be a really good individual test case for that, to see how is that going to escalate prices and the other thing is interest rates. I see these prices that seem high but then you look at the payment and you compare that to rent and you add in the tax benefits that might be available to you depending on where you live, and that can make it a good decision depending on how long you tend to stay because life happens. Job changes, and divorces, new kids, and people moving to be closer to the family and that may happen at a point where if interest rates go up maybe the house prices are going to have to fluctuate quarterly too.
Deidre Woollard: Well, you mentioned an interesting point there that I've been thinking about a lot lately, is the speed of the market. The speed of the market has just gotten nuts, I think the NAR's most recent numbers we're at 17 days was the average sale. I've seen houses go on the market and go off the market in 24 hours a constantly and at the same time you've got what you talked about before with the platform is trying to speed up that process, Zillow, Redfin, Opendoor, all of the biggies are sort of working towards making the entire process faster at the same time so you've got this desire to get the deal and then you've also got these platforms that are speeding things up at the same rate. To talk to some people about like how fast can transaction get? I mean obviously, you've got loans, you've got inspection contingencies, things like that but I think all of the major platforms that we're following in and investing in are working to make that transaction happen so much faster.
Patrick Duffy: Well, and you also have technology and software inside of brokerage that with the contract sign this, sign this and this disclosure but in terms of speed you're also talking about people that are saying " We're not going to worry about that inspection," I have a friend that's in Escrow on something in Palm Springs and that's like a two million dollar listing and he was asking another friend who is a banker " What if this comes in below appraisal?" Where he has to keep an extra money. Come in for the extra money that clinically appraisal and the numbers work so again, for them, that's a long term investment that tend to make that retirement home, so they're not doing anything like a flip or anything like that but that could speed things up too. If you don't need a contingency for financing because you're a cash fire, that's going to speed things up. I get a little concern when people get rid of things like inspections because we all have heard horror stories about people buying something and even a good inspection may not turn up anything. You might have like foundation issues that your inspector didn't come up with so to just completely wave that, it depends on what you do. I know people who are contractors that can know what to do and go in and do their own inspections so for them because of their expertise at the waving down inspection from a third party, that's probably not as risky as if you have no idea what to look forward.
Deidre Woollard: People waiving inspections makes me so nervous, and you mentioned the appraisal thing. One of the things that we're seeing too is what you talked about, that appraisal guarantee where someone says if it doesn't appraise for the value of the offer we are going to kick in that extra. That's scary too but to me for some reason that doesn't scare me as much as waiving inspection contingencies just because I think I've just seen too many things go so wrong and foundation issues, and roof issues, and so many things that can cost a lot of money that people might not see on the outside but then will get a huge bill for in a few months.
Patrick Duffy: Well, and then you have condos. This horrible thing going on in Florida with this condo collapse and maintenance issues and we have this issue. I'm on the board of a condo for a second home off the desert and we constantly come up on history that people don't want to know history and when you don't want to know history you repeat the mistakes of the past. I bring this up because if you're going to live by in a condo you're becoming a member of the community, you're becoming like a stockholder in that community. It's incumbent upon you to look at the financials. What are the reserves? What does the reserve study say? Because some people want really low HOA fees but that could mean assessments down the road. Then real estate agents know about projects that have a lot of success and maybe they'll steer people away from that. When you start getting in your choice, in condos, in townhomes that brings on a whole different thing, and I don't know a lot of people that really get into the nitty-gritty of those financials. But that's something that's really important to look at.
Deidre Woollard: It really is and it has me thinking a lot in the wake of the Surfside tragedy, things like assessments and things like that. There's some talk and I want to get your take on this. Will people be afraid of buying condos? Is this going to be a concern that people are going to be afraid of larger buildings? This tragedy was awful and in some ways it looks like it may have been preventable in terms of past inspections, turning up things. What are you thinking about this?
Patrick Duffy: Well, I saw an article today that older condo buildings in Florida are being put in a different category of maybe we're not going to take that risk for that reason because a lot of this is just really age related. Then how comfortable agents help their potential clients get into the nitty-gritty of these financials to look into reserve study. Because this is where you really get in the weeks and that's where a good agent can help you. You have a good buyer's agent that really knows condos, they can help you steer in those directions. I know when I bought my place that I just mentioned, I had an agent that new project-by-project. She knew how strong they were, how popular they were with snowbirds from Canada, and so she steered me towards different particular opinion because she knew about them. Because agents know the reputations of a choice. It will be interesting here to say, what was the reputation of that HOA? It seemed like, and this can happen sometimes. You can be president of an HOA and have little power, you have one vote. You have the power to set the agenda but you can't make things happen without the support of your board and support of your association. I think we'll find out more about that in particular as time goes out. But I would say this is where really good buyer's agent comes in to help you steer through that because they might help you find some really good deals. If people are avoiding condos out of fear and they'll say no, this is destruction. They just have this inspection, here's this reserve study, everything's a plus. You might get some good deals.
Deidre Woollard: Yeah, I think that definitely there's going to be some perception issues that happen with people with condos. People are going to be looking at older condos a little more carefully. But I mean, on the good side, I think you may see some condo boards be more likely to do something that's going to like fixing the roof or something even if it's going to have a large assessment just because I think the owners may realize that this, yeah, it's no fun to have to chip in five or $10,000 for the roof of an entire building but also it's very necessary.
Patrick Duffy: Well, in the case of surf side it would have been over a 100,000 for a special assessment based on the number of units they have. Just two quick math I did at that. That would be an unfortunate surprise and that's one of those things where you look at those sorts of things. People don't like HOA fees but if you're charging a fee and you're able to put at least a third or more away towards your reserve fund, you could avoid those assessments and you keep up on maintenance. We have to have a board of directors that respects that too, that is all on the same page and that's again where good buyer's agent will probably help you get through those weeds. Such an important decision.
Deidre Woollard: Well, I'm also wondering, how long will this impact perception of condos? Because sometimes when something happens, there's a half-life of how long it sticks in memory. Unfortunately, that's just the way life works, but I'm wondering what developers will be changing things. I certainly think that it's going to have this longer-term impact.
Patrick Duffy: The article I read this morning about that, they said who knows? Months, not years. It's a matter of months. So months could be it, and I guess too it depends on the construction. There is a time again 15 years ago or something where regular single-family builders were starting to build high-rise condos but that wasn't their bread and butter. I would look at who built this, do they have experience in building this type of product type. Now, you see builders getting a lot more into mixed use, what they call condos over podium, concrete podiums, such structures, and they're getting really more comfortable with that. That is becoming the bread and butter. Like the Toll Brothers that normally build single-family, now builds all sorts of luxury homes that are condos and town homes. I guess it depends on who built this and do they know what they were doing, especially if it was an older project
Deidre Woollard: Let's talk about home builders because that's one of the things that you have expertise in. It's something that I think you had a really good point though. Toll Brothers, Lennar, others are building different types of properties than they used to just build homes for individual sale. Now you've got single-family built to rent, you've got town houses, you've got Lennar's doing some interesting things with multi-generational properties where you've got in low suites, separate entrance which is also great for someone who is going to house hack or get rental income. How is all of that going to contribute to making out of housing stock? Because we need millions of homes that don't exist right now.
Patrick Duffy: Yeah, and it depends where that, and we talked about markets where it's going to be and I think some builders are a little reticent exactly what's this demanding going to be. There are certain markets, like Texas is just, almost every market in Texas is doing really well and there's certain markets where it's just easier to build. It's flat. They have government that's more appropriate and people that really want to see this growth. You've geography that helps a lot so Texas, Georgia, Florida, Arizona, California. We have all these different ecosystems. We have mountains, we have valleys, we have deserts, and then you have people that are is meaningful to growth. Because they don't want, that's [inaudible 00:18:15] You do have some of that. You mentioned multi-generational housing. That's something that we've seen ebb and flow over the last years. One of the benefits of that, there's you have multiple people come in that can combine the rent and get a larger mortgage and get a bigger house. I think a lot of it comes down to creativity. There's another client we're working with where they're improving the process of production. You could customize homes without the additional cost because they're using software to make it much more quick to build, change orders are easier to implement, their throughputs are like 30 percent faster. I think we're going to see a lot of change just through creativity and technology. There have been hits and misses in this space. Different companies that we are going to completely change how we construct and I don't know if that's where it's going to come from. I think it's going to be, how do we improve the way that we construct homes? How do we make it faster? It's not just getting people who are politicians and city councils to prove it. It's to educate people that, we have a big homeless problem here from California too and part of that is because we don't build enough housing. People who live in Venice who complain about housing say, ''Well, what if we wanted to do high density building for homeless here and well, not my community, okay, well, then where are they supposed to go?'' I think collectively, we society have to look at all of these challenges, and then let the builders catch-up too. You're having some supply issues. Lumber Futures were sky high and now they've come down. This is some of the supply bottlenecks are starting to be figured out. But that's going to be turning on some markets. Some markets, you just can't even still find the supplies no matter what you want to pay. It's going to take some while, a few more months to come out of that.
Deidre Woollard: You just mentioned like so many things I wanted to talk about but let's start with Lumber. You're absolutely right that it was up 400 percent year-over-year and then it went down to 60 percent. I think Lumber Futures were the lowest they've been in years all of a sudden. Then of course everybody thinks, ''Oh, will the Lumber short?'' Lumber shortage is over. Lumber isn't a concern anymore. But we've had spikes in Lumber prices before. We are going to have them again. I feel like that's a little short sighted, and the supply chain issues you mentioned certainly appliances. We're still feeling the impact of the Suez Canal problem months ago in terms of getting some things shipped over, seems like that's starting to shift but I know that that's impacted the home builders as well.
Patrick Duffy: Yeah, I remember I was out. This picture behind me is where the Santee River empties into Pacific Ocean, where I live in Southern California. Out there, I counted 24 ships just waiting to unload at the twin ports of Los Angeles, Long Beach. We do have that, it takes a while, you have this huge economy. The US economy right now it's driving the world. We've not been in place for a long time and so it takes a while for the economy to speak complex, to grind back up after such a rapid shutdown. I think that's not what some people necessarily appreciate some times that these things take some time and like you said, like the number is starting to come down, I think new appliances is probably under shifts there's about that are going to be unloaded. Just be patient, I know that's troubling, you buy new home, you want to move in you're not going to be appliances, like how's that going to works. I think people are just being creative and asking for patience as they move through this. I think builders are doing a great job now with technology to keep people in, keep them informed and it's amazing how much builders have done. They've already done a lot before the pandemic, but now if you look at websites compared to what builder websites were like a few years ago it's night and day now, you can just look at almost everything you make decisions. You don't have to queue at the mall complexes and so that's actually also set up things. That's great for their backlog, but that's not necessarily great for sticking the timetables when things happen outside of their control.
Deidre Woollard: Yes, that's a really good point. You mentioned before, alternative manufacturing, wondering if you have an opinion on what happened with Cutera. Cutera was like that hope for manufacturing, modular construction and we're going to rebuild the world. I was totally sucked in by it, luckily, I'm not in investable idea. Softbank gave them so much money, they grew so rapidly, they filed chapter 11 last month. There were certainly some management issues, but do you feel there is potential for factory-built modular to really build at scale? There's a few companies that are doing it, but no one has really been able to do it at the scale that Cutera was planning to.
Patrick Duffy: I think the key is to bring in people who know the basis, it's like learning from history. Don't forget the history. From what I've read of Cutera, they had brought on a bunch of people that weren't necessarily building industry insiders because they thought were going to completely redo this way. Well, then there's all lessons that you don't learn on that. We're going to come in, we're going to change how you do things. I think the ones that will do better are the ones that are going to work hand-in-hand and hire people from inside the industry that knows how it works, that knows the day-to-day as constructing houses so they can raise their hand and say, "Wait I don't know if this is going to work because of this specific." Could be a biggest question. "It's not going to work because of this we can't do that," but that's a person hopefully, I hope you find a solution to that. I think to your point, we're going to find more of those lessons learned, we're going to bring in more people have an advisory board, people who have expertise in this. Bringing these drilling in lines for software world and in engineering worlds in order to make this whole business of home-building more efficient. It's been something we tried to do for decades.
Deidre Woollard: Absolutely. I noticed over the weekend it was announced that, Elon Musk is living at prefab Casita Boxabl. It's basically like a pop-up house. He's in a typical like a 350 a square foot. Little studio house. But I have a feeling that anytime Elon does anything, everyone pays attention. It will be interesting to see if that makes people more aware of modular and accessory dwelling units and things like that. If Elon lives tiny maybe everyone else can.
Patrick Duffy: You mean if someone that had several giant houses? [LAUGHTER] I am done with that I'm just going to see that. I heard this on a podcast too I can't remember, it was that somebody had a big house, it was like, it was so much easier and nice living in an apartment. I wasn't a homeowner and I didn't have to think about these things. I see it for someone like Elon who has enough on his plate already, not to have to worry about housing could be part of that decision. It's also simplifying delivery.
Deidre Woollard: We've got a question I wanted to ask you from Jenny McFall, can you comment on the home market in California and other Western states facing severe drought for the next 10-20 years?
Patrick Duffy: That's a thing. I think about that in Phoenix too. Because a lot of this goes to water rights, where there's senior water rights. California have some senior water rights versus other states, because we pull from the same, the Colorado River in that case. Here we're near the coast and we have several desalination plants up and down the coast, and that is expensive, but it's possible and it's something they do routinely in Israel, in Saudi Arabia, so that's an option. Whereas if you're in the middle of the country in a desert and you have the potential for drought. What does that mean? Does that mean the pipeline? I think here we're trying to reuse all of our existing water. California is actually has been really good about using about the same amount of water for its households, despite rapid population growth and a lot of that's just been more efficient. I just recently zero escaped my front yard, because I am preparing for the drought. Because a few years ago when it got cut down on it's just beautiful three stack because you're just getting enough water. I think it depends on how they're planning for it and are you living in a state where they're actively planning for it. Real quickly, a lot of them you have to prove you have water for a certain amount of years before you can get approved. That's certainly the case here in California and I think a lot of that comes down to efficiency.
Deidre Woollard: Do you think that's going to impact home prices in any way? Because one of the things I think about, I think about the opposite side, Florida sea-level rise, you have some places where a 30-year mortgage doesn't really make sense in some places, they're not even offering 30-year mortgages. Do you think we're going to see something similar on the west coast where there might be certain areas that people are going to say, you want to live out deep in Imperial Valley, maybe the water can't get there, maybe it's not going to be sustainable for the long term?
Patrick Duffy: Yeah. Well, then you have venue with the water rights and Imperial County has a whole very complete water rights thing. That might be a place where you're actually okay with water because if you are seeing your water rights or is that maybe unfair to people in Arizona, like it's just the way the history worked out. Then you mentioned sea level rise and we have some of that. We have some community here in my community of Long Beach that are like 3, 6 feet above sea level, so I wouldn't necessarily maybe invest there. You can look up how with the elevation of your houses and so I look that up here which is like 40 feet. When you talk about places in Florida, that's a wake-up call, I think in a way. They're not sure if it's because of the sea level rise of that collapse, you could just be a pullback. Pullbacks are always a problem, especially when you haven't built over a garage. It may just come down to that, but I remember reading stories about people buying properties in Miami, think well, that's 50 years from now, maybe it's 50 years from now. I think you're starting to see people think about that a lot more.
Deidre Woollard: The point about where pool is located is important too, because you also have a lot of developments with rooftop pools. Not even a pool over a garage, but a pool at the top of the building or something like that and pools, I mean that part of the problem is water is so heavy. You've really got this very heavy pressure on top of the building.
Patrick Duffy: Then it's like one of those things. I had a new patio concrete poured a couple of years ago and cautious like, I don't want to crack and they're like, of course it's going to crack. Pools are probably getting weak overtime, so you have to be prepared for that and have maintenance over that. I guess in the case in Florida that it was an engineering mistake, they didn't slope the pullback, so you'd have water running off, that's what's contributed to the mix. I know people that have managed condo communities where you have that pool over another area and it's just a constant prompts almost not worth that, but people want those pools. That's what people buy in high-rise condos, they want those event in the pools spot over the views. They are willing to pay those HOA fees, but the other unwritten part of that is, are we going to maintain this. High-rise buildings are very complicated to maintain.
Deidre Woollard: Absolutely true. I've got a question from Yair, brings to light asking about any thoughts on Hubzu or options that allow you to list on the MLS without using a realtor. He says, "I'm selling my parents' house for them and I can't justify the realtor fee, they call it marketing. All they do is posted on the MLS." I am not quite so sure I agree with that. I feel like the value of the real estate agent is not as much I mean, certainly in the marketing of the house and putting on the MLS, but it's a lot of it. Is just going through the transaction and all of the things that can go wrong because there is no such thing. I don't think as a seamless real estate deal, even though a lot of the eye buyers are getting to that point of a seamless real estate deal. If you're just on the regular traditional market, that's probably not going to happen there's always something. What do you think about that?
Patrick Duffy: I'd you say, how comfortable is he was selling and buying? Because I've tried this. I tried going with the discount broker and then I wasn't happy with them and I tried just doing the listing and then I found an agent that already had a buyer from someone who was a neighbor, so I went with her because it was just worth it. She helped go through it, but I'd say she would tell me, "You make it easier because you've been through this whole process before." If he is new to it, if he has time and want to try it out on the test that'd be one thing, but they still recommend you have someone on your side to help you with everything that maybe you pay them some commission, but it's a risk. If he wants to get it done in a certain amount of time, there were all people that offer negotiable commissions. Commissions here are at six percent. A lot of times it's five percent, but they're technically negotiable and then it's about finding the right agents that he is comfortable with and what the timeline is and his patience for being distressed. Because if you do everything yourself and this is all new to you, then it's going to be a really, maybe not a great experience. But if you have somebody that you're working with on both ends, I think it's worth it, if you new to it and you need that expertise. Otherwise, he's taking risk. But if he's really comfortable with it.
Deidre Woollard: What do you think about Redfin and others that are offering discount commissions? Do you feel like the commission is going away? I invest in some real estate brokerages, so clearly, I still believe there is value in the traditional market, but I am curious what your take is.
Patrick Duffy: Well, I've done those experiments that I just mentioned and I didn't really get a chance for just the listing on weight because then I found that agent that had a buyer, but I did try another one. It wasn't that good experience because they just didn't have enough people to help me in that particular case, that wasn't Redfin and was this someone else. I think that you're always going to have people come in because it's such an emotional purchase that you need some amount of hand-holding, that you need someone you trust. I had thought technology that you would get rid of, that hand-holding, we replaced a lot of that. But once I went through it personally, I don't think so. I think you could have still have good agents. If you talk to real estate is, the number 1 complaint from real estate agents is, agents that aren't agents. The key to find really good agents, and I found online through referrals over the years. Just a personal referrals and online reviews help with that. But they walk you through the different processes because so many different things could come up overtime. If you're new to doing something, whether you're buying or selling, I think going for an agent that if you can try to negotiate discounts. But these days, with so many offers coming in above listing price, what does it matter? This is probably not a bad time because demand so strong to go with that full-service agent. Because you're going to get all that additional handling for some people know it, which is not the headaches.
Deidre Woollard: Definitely. Well, I wanted to pivot a little bit and talk about short-term rentals and the Airbnb market in general, because I feel like last year, pandemic happened, a lot of people that had an Airbnb and were using it to generate income, bad year. Now we seem to be so back. The roads this weekend were crazy. People I know who have the Airbnbs are booked up all the way through the end of the year and sometimes into next year. What are you thinking about the short-term rental market and the Airbnb?
Patrick Duffy: I'm trying to find the state I was going through all those preparing for this today and I can't remember what was, but here it is. Long-term stays in Airbnb are up because of this remote work. Stays of four weeks and more almost doubled through in 2019 and the first few months of 2021. Which is really interesting. If you know what you're doing. But of course, the elevation of being a host on Airbnb has changed a lot too. That you have to be able to emulate what you get in the hotel more. I think you're going to get people that are like doing that. They like the hosting or they have the services they can outsource with but again, this is something I think we're going to see play out over in the next few months. I've done both. I've done the short-term versus the long term. There is a lot more work involved with the short-term, but the yields can be a lot higher and some of the markets we looked at. The very basic gross rental yield of what you can get per month versus what you paid for the house before expenses. It doesn't again a nitty-gritty of that. It's a very simple calculation, but it was double for short-term rentals, if you kept it occupied versus what we get for a long term. But you also have more costs. You have the commissions you got to pay. You got to make sure it's furnished. It's such a sea change in how people live, but it's gaining acceptance more. I wouldn't write that off. I think people are much more willing to travel and step another people's shoes, if you will, into their homes. What it's going to come down to is how flexible employees are.
Deidre Woollard: It's interesting for on Airbnb then you have that choice. Do you take the renter who wants two months, three months, or you do go for that shorter-term, bringing people in two, three-day week long stays, but also dealing with more wear and tear on your property perhaps, cleaning fees, all of that. There's so many different considerations now I think. It's an interesting thing that we've gone from, you have a choice of short-term rental, long-term rental. Now there's all this range in the middle of because the use cases have shifted like you mentioned with remote work.
Patrick Duffy: I think you can get a really good sense of what they prefer and what discount they offer for a longer-term rental. On Airbnb and Brbo and some of these others, you have your nightly rate, which is a percentage discount from your nightly, and then you have your monthly rate. Monthly rates could be 30 percent or more. The steeper is to be that's more an indication of that host prefers the longer-term rents. I once rented a place for three months. They had several rooms, I became a de facto host after a few months because I just became familiar with it. I think they will always prefer that because they have this constant influx of different people coming in. But if you're looking to rent, I think looking at the discount will indicate what they prefer. Now, some people because of the higher rate, are going to walk this two or three night months but now you're seeing condos saying, "Wait, there's too much hotel and too many strangers. We're going to slap a 28-day minimum", like we do out in Palm Springs and other desert communities and different cities are doing that. "We want 28 or 30 days and worse minimum because we don't want to turn what is the residential building into a hotel."
Deidre Woollard: That makes sense. A comment from Grant, he says I've sold by own homes twice in Madison, Wisconsin and Lawrence, Kansas. Both times worked with a real estate lawyer, both times paid $1,000, easy-peasy, maybe not for everyone, but the lawyers took me through the entire process. That's another option.
Patrick Duffy: That as an example, we're talking hire someone where you are hiring an attorney to take you through that. In other states outside of California, you often do you have a lawyer that handles fiasco process for you. Here we have escrows. They handle that but other states, especially where I don't know why they did that in this within the states, but going through attorneys is one of those things that's mentioned if you are going to do it by yourself. Now it sounds like he's really comfortable with it, easy-peasy. He's been through it before or maybe he had such a good attorney that walked him through it. He didn't need that. Again, especially for buyers it's such an emotional thing. If you are buyer, I would certainly want to be represented. If I'm a seller, I think it depends on how comfortable I'm with that. But in my own personal experience, it was faster and easier to just go to traditional way.
Deidre Woollard: It's interesting too because a few days ago we had the National Association of Realtors and Department of Justice. There was that agreement for settlement on buyer's agent disclosures and putting the buyer's agent commission in the MLSs. The DOJ voided out that agreement, so that sets us up for a larger probe about agent commissions, we're going to go through that whole process again. We've seen this in different states too that there's just a lot of concern about the consumer aspect of commissions in that they're not necessarily clear to buyers, especially the buyers don't know. They think that the commission, it's free. It's not free. It's the commission that the seller pays. A lot of people aren't aware of that. Do you think we're going to see more lawsuits, more probes on this?
Patrick Duffy: They're talking about a change where the buyer responsible for their house of that commission, equation and their salary-
Deidre Woollard: There has been some talk of that. It's hard for me to imagine the amount of disruption that would bring to the real estate community as a whole if the buyer actually had to pay, if they uncoupled and the buyer-paid their half and the seller paid their half.
Patrick Duffy: Well, they're paying for it anyway. It's just varying. I guess you have to separate that out, because you always have to pay for something like we had this big thing about the national debt. All of that will eventually need to be handled at some point. I think where people think it's unfair is if you have a high price, like here in California, where the average prices they're getting steadily up well over half a million. Is an agent doing that much more work for a much significantly higher commission than it was a few years ago. I remember the depths of recession when the average sales price in California was a quarter of million and was like really low. But they're arguably doing the same amount of work for that same amount of commission. Now you could argue, but their housing costs too or higher, living costs are higher. That's reflective of just higher living costs but I think people look at that line item and think, "Wait a minute, I paid $2,000 for commission, whatever number of years ago, now I'm paying 10 or 15 for the same amount of work." I think that's where people are getting a little frustrated. That's for agents have to really sell their value on something. Again, if you're making so much money off of a house, and it was quick and easy and you didn't lose your mind over it, then that's still a good investment. It's just part of the equation.
Deidre Woollard: Absolutely. Next question coming in from [inaudible 00:42:51] they're asking about innovation and disruption going on to help homeowners rent out a home similar to the way iBuyers are modernizing the experience of selling a home. I am seeing some, and maybe you Patrick you're seeing this too, some startups that are creating, I would call them rental property management platforms, where it's property management but it's also bookkeeping taxes. It's everything, but they're paying out quarterly and they're charging fees based on what rent you're bringing in. Are you seeing that? I feel like it's still a small, very emerging category. But have you seen anything on that?
Patrick Duffy: I had used it for long-term rentals where everything's automated, and it makes it really easy. For short-term rentals, I think it depends how expensive they get. I have a brother, and his wife just bought a home in Tennessee, somewhere that they're going to rent out. It's running 365 days a year. They're going to try to manage it on their own because they have some experience doing that. It's a bit interesting to see how they do that. I think they may find that it's so time intensive that you start to look at your opportunity cost, take your time doing this doing something else, then maybe it's time to bring someone on. I think if they get really expensive at first, like some maybe 30 percent to fill a rental. Well, that's a lot of money over a year. Maybe you're better off hiring your own person. What I've seen lately is people who worked in hospitality, starting their own businesses. Just very bespoke, it's just an individual, it's not maintaining an office, so their fees are a lot more reasonable where they handle the handyman in the cleaning, and now you don't have to have keys, you can just have codes. I know there's been issues like in Airbnb with giving keys out in a public place. Well who has those keys? There's a big story in Bloomberg Businessweek about this.
Deidre Woollard: Yes I saw that.
Patrick Duffy: Now you're having electronic codes that you can change all the time. Let's say you worked in hospitality, you helped work at a hotel, you were assistant manager. That's an ideal background to help people manage their properties.
Deidre Woollard: Well, we've got about 15 minutes left. I wanted to dive into some of the research that we're going to publish on Millionacres this week, because you had some really interesting results. You put as a top market, Jackson Mississippi, and that really surprised me. Sell me on Jackson. What should people know about Jackson Mississippi, if you're a real estate investor?
Patrick Duffy: Well, affordability. I think the average house was 160 something thousand versus a national average for that month of 287. This is according to Redfin. It's a significant haircut of what you pay nationally, and then the rest are also affordable. Then I took a look at their average income. What are average monthly wages? What is added percentage of rent? It's about 1/3. It's not cheap, but the national one using that same one was almost 40 percent. What that means is that you're going to invest in rental property in Jackson. People maybe aren't stretching as much for that rent as they are somewhere else, so you're going to have more stable tenants. I think the vacancy rate was fairly low. The vacancy rates you want it to be about five percent. Again, that's for equilibrium in the market. Significantly below that, then it's certainly a landlord's market. Jackson is in the middle of the State, its a State capital. They have a new convention center, they're trying to bring in tourism, they've have a big music scene, like the City of Blues, I think it's their motto. Again, when it came up as the top, I think the ratio is 9.69 percent in terms of just that really basic yield before expenses. But that's certainly better than you can get with most bonds and safe bonds. It's what you're going to get better than savings. If you don't want to be the highest and downs of the stock market, and then stock market was down a lot today because of a report that came out that people are having trouble hiring workers, again, this is going to sort itself out over the next few months.
Deidre Woollard: Yes.
Patrick Duffy: But I think it's a combination of affordability, so you can get into something really inexpensive. It's an interesting place with a lot of history and the rents aren't that high. I think for starter landlords, and I know a lot of people don't like renting out of their areas and that used to be in my family. That was you'd never buy anything more 90 miles away from home, because it's too hard to manage. Well, technology has changed that. Now you have people buying all over the country because you have local people that you could put in, everyone is online now, they've made it so much easier. For that reason, maybe I wouldn't even look in a place like Jackson, I've picked my interest in picking that area. Number 2 is in Memphis, for all different reasons. A lot of markets in the South, North Carolina on that list, Ohio. What you're seeing is some Rust Belt cities are really reinventing themselves, and new companies moving in, and expanding in a lot of entrepreneurial work. Lot of new businesses were started over the past year. I think you're seeing a new resurgence, remote work, and entrepreneurialism. That may benefit some of these outlying areas that you might not have thought of like Jackson.
Deidre Woollard: Well, I think you also made a point here that I really want to dive in on, which is this idea of best market for real estate investors may not be the one where rents are highest, but it may be the one where rents are at a rate that people can actually afford them. Because I think that is when we're looking at the last year with the eviction moratoriums, we're not even close to sorting out all of the impact of that. There is a lot of value to having rent in a place where it's not taking up 50, 60 percent of your renter's household income.
Patrick Duffy: Like here in LA or in California, I rent that same yield, and it's like two percent. That's not a great investment. Now if you bought years ago, and you have low fixed costs, it's a great market to be, because rents are slowly gone up. To your point, I'm not sure you want the widest pool of people to buy your unit. As an investor, what I've always done is I tend to be about 10 percent under market. That keeps my turnover really low, because it's expensive, you've got to update, and then you saw all that rent. Not having the highest and the best because that's good for people who know what they're doing in terms of the luxury, but you might earn more turnover and you have a smaller pool of people to choose from. That's why we look at markets where people are not spending more than 30 or 1/3, a max of 1/3. You're getting up to what you're top, 50, 60? That's tough, because then you have multiple people pooling in to make that rent every month. What happens when someone's roommate doesn't make it? No response, to the police. I think the largest pool of potential applicants is always the best way to go.
Deidre Woollard: True, because that's what we saw with San Francisco and New York during the pandemic. We saw rents dropped dramatically. In San Francisco, one point they were down about 30 percent year-over-year, coming back now. But in those markets where rent was really high, it seemed like there was more room for rent to immediately drop because so many people picked up stakes. New York is going to come back, San Francisco is going to come back, I'll never bet against the city. But I do believe that there's going to be some permanent price correction there.
Patrick Duffy: Well, also because of remote work. I did just for fun, looked at data in terms of what percentage of people could work remotely in San Jose, and that market was far above anything else. We know where you at, they went just like Tahoe, invented the prices there. Are they going to come back? It depends on their employer. Again, Apple wants I think people in on Wednesdays and Fridays. They're saying, "No, we want you in these two days a week." Then some other companies like Microsoft and Google, I think they're all figuring it out still. I think a pretty big portion of people are saying, "Well, if I can't work remotely like I did in the pandemic, I'm going to look to work for someone else." You're going to see who wins, I call that the battle of the workplace. Some workplaces you can't do it.
Deidre Woollard: For calling this the, what are they calling it, the great resignation, the news always gets just a hold of an idea. But as you had mentioned it earlier, you've got certainly restaurants, retail, hospitality, all looking for workers. But you also have these other workers, like you mentioned before, that they've just decided it's remote or nothing for me. That may keep some of these resort markets alive, because you mentioned Tahoe. Tahoe had a huge year, the Hamptons had a big year, Aspen had a big year. So many of these fast-work markets, which had a lot of inventory because there weren't a lot of sales in them, went through their inventory quickly and just had really odd years. It's a question of whether that or not that's going to be an anomaly.
Patrick Duffy: Yeah, and they're crowding out. Long time people lived there, so you're getting resentment from people who've lived there for a long time. These people that come in. Now there is a sensitivity about yeah moving to [inaudible 00:52:39] , but I need to become involved in the community. I need to become involved in the fabric of the community. I saw a story about that. That people should be sensitive to that. To say, they know they're pricing things out. I read a story about some [inaudible 00:52:51] for years and she is a frontline worker, I think at a restaurant, and then had to move to another side of the lake and thank God, she found a landlord willing to rent for her, because other people are just saying, well, I'm going to sell while the prices are high and get out of this market. Then the people come in with all this money, you can work remotely and so that's yeah, changed the fabric. Again yeah, to your point, this is going to take time to sort out. We're in a time of animal spirits, I think so, which is a term going by Robert Shiller, Dr. Robert Shiller, about how people can get on this train, they get excited about where things are going and it's this frenzy that has a lot of psychological underpinnings to it. I think we're still sailing in the middle of that.
Deidre Woollard: I think that the single-family rental boom that everyone's talking about is part of that too, because you've got Blackstone involved in the big single-family rental deal. You've got a fundraise raising 300 million from Goldman Sachs to go on and on build-to-rent. You've got the single-family rental boom that may or may not be permanent. But right now, I think that COVID desire for more space has pushed people a little bit away from condos, from communities, from living together in smaller spaces.
Patrick Duffy: Yeah for now and I think some people are going to really love that and want to stick with that and you're going to have some other people that come in these cities. I mean, New York is on its way back up again. I wouldn't count on LA either like I mentioned before, going out to other places and coming back after a year. That's why I mentioned the demographics. If you're in a multi-generational household and a distant supper, maybe that's perfect for you because you have kids or maybe even the grandparents, they'll babysit. It depends where you are in your life. If I'm on Gen Z and I want to be at work because I want to make all those relationships to further my career, I probably want to be the same because I'm single and I get to know the people. The interesting bit if someone did the demographics split of age groups for these different cities to see how this is playing in Texas city.
Deidre Woollard: Well, here's the thing that I start to think about with that though is so you've got younger workers. They want to be in the office, maybe other workers don't want to be in the office. But then you've self-selected a different type of office culture that is going to be different than the office culture that they would've gotten in a normal, in a traditional situation where they would have been exposed to a wide variety of people. But now, there is a chance that like maybe they're in the office with their coworkers, but their manager's only coming in twice a week or something like that. It starts to shift how the dynamics of the workplace really work long term and I think that's fascinating. I think that there's a hidden problem in there. I think that's one of the reasons that Apple is trying to figure out which days at the best ones for people to come in because you're going to lose some of those, it sounds like choosey, but those water cooler conversation, you're going to lose some of those innovation moments that are so hard to quantify and qualify because it's like when you think about building design. There have been all these studies about trying to create those incidental moments where people meet up and have casual conversation. That is going to be self-selected out to only the groups of people that actually want to be in the office. It's fascinating to think about how this is going to have long-term ramifications.
Patrick Duffy: What if it's all gen-wise? Couple of seniors.
Deidre Woollard: [LAUGHTER] Exactly.
Patrick Duffy: You're like, wait a minute, you were at the same events that I was over the weekend and where am I learning new things? To your point, maybe that's why companies like Albertsons know we want you in. Two days a week, we're going to test this out, and there's nothing to say that can't be modified in future, but to be able to have those mingling of people. I mean, I remember jobs I've worked where people are open to it, I'd go to someone else in completely different area and say, "Hey, can you take me under your wing and just teach me about this thing that I don't know about? " Sometimes they'd say yes, sometimes they'd say no, but they always had more experience. They weren't like an age pyramid or experienced here, they were someone who were an expert in that area. It can be interesting because Zoom can't really replace all that.
Deidre Woollard: No, Zoom and Slack can't quite replace the casual encounter, those incidental conversations and I think so much of that is while I'm thinking about real estate, I'm thinking about the office, but I'm also thinking about residential, how do they all work together? There's so much that is things are dependent on each other. The office is dependent on where residential goes and it's all connected and yet now we're decoupling them in a way that hasn't happened before. That's really the short-term ramifications that we've seen are interesting, but it's the long-term trends that I think we really don't know. I don't know how long it's going to take till we do know the office shakeout. What is your thought on that as we wrap up, do you think it's a five-year thing that we know we'll know whether or not people are going to be a hybrid workers, remote workers? How long do you think this whole cycle is going to take to go through?
Patrick Duffy: I think we'll know more the 4-5 years. I would probably look at markets. Most of the large commercial brokerage has come out with at least, sometimes monthly, usually quarterly. I'd probably look at these markets like every six months just to see what are we seeing in this and what quality of office space is changing. The cluster is going to be okay. If you're downtown in [inaudible 00:58:46] say a office building, you are going to have to add more of these [inaudible 00:58:49] people coming. If you're a Class B or C on the periphery, you're going to have more problems in terms of attracting tenants. That's just from the supply side that I'm bringing. I guess every six months, five years is long. I would say at the end of the year in the fall when we come back, kids go back to school. I know people are demanding more childcare on site, that's one thing.
Deidre Woollard: Yeah, definitely.
Patrick Duffy: This pandemic's accelerates things. I'm giving a speech at the end of the month that's focusing on the changes accelerating pandemics and what they happened in the past, and how is this happening. In the past, cities always rebounded, except they didn't have remote work. That's a big recall on this that we're going to see play out. I think that every six months I've looked at it, I think we'll know more a year from now and six months from now.
Deidre Woollard: I think we're going to definitely see things shift in the fall. Well, thank you so much Patrick for coming on today and just chatting with all of us about this. I think it's really important step.