Is the Housing Market Finally Improving—Or Is It a State of Emergency? With Jon Grauman

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It's time for some money rehab.

Everyone on Wall Street is wondering how the Fed meeting next week is going to affect interest rates.

But on Main Street, the big question is, how will the Fed meeting next week affect mortgage rates?

Today, with a poll check on the real estate market, I'm joined by John Grauman.

John is a real estate agent here in California who you might know from buying Beverly Hills on Netflix, or you might just know him from Money Rehab because I have him on the show every single time the real estate market needs decoding.

He is one of my faves.

Today, we talk about whether the Fed meeting will affect interest rates.

We break down the speculation that we might be headed for housing correction in some major real estate hubs, and we unpack Treasury Secretary Scott Besson's proposal to declare a housing state of emergency.

And of course, we talk about what all of these headlines mean for you.

John Grautman, welcome back to Money Rehab.

Is this the third time?

I think it is.

Third and fourth.

You've been to every one of our studios.

Yes, I'm definitely like the returning champion.

You're the only one.

Yeah.

We have to get you a jacket or a pin or a sash.

I don't know.

I want all the things.

Thank you.

Let's do a vibe check on the housing market.

What's going on?

How are you feeling?

You know, real estate is so hyper local specific that it's really hard to speak in generalities because how the market may be performing in LA might be very different than Boise than it might be in Miami or Austin, et cetera, et cetera.

So I would say that generally speaking, it's still a supply and demand issue, which I've talked about previously on this show.

I'm sure we'll talk about a lot more, in that

in most of the country, there's still not enough supply to meet the demand.

And that is only continuing to increase because there's been such a strain put on building new homes.

They're just not building enough of them.

And that really leads to what I think is probably the biggest issue that the housing market is facing right now.

And it's kind of the silent killer that no one's really talking about, which is that the rate of inflation of construction costs is far outpacing the rate of appreciation of home values.

Say that one more time.

The rate of inflation of construction costs is far outpacing the rate of appreciation in home values.

And that's a collision course when you start to think about it, right?

We've seen minimal adjustment to home prices or land value, let's just say.

But obviously the cost of debt has gone up significantly, right?

For a builder to borrow money on a construction loan is way more expensive now than it was a few years ago.

The cost of labor has gone up.

The cost of materials has gone up.

Everything has gone up.

But home prices have kind of started to slide back a little bit.

So again, if a builder is buying a property and they're underwriting the deal and what they would need to sell it for is not in line with where the market value currently is, builders start pulling back, which is what we've seen kind of across the board.

But on the other side of the aisle, you have a growing population.

You have the millennial generation that's putting a greater strain on the housing market that we've ever seen before, right?

They're all married and having kids and getting settled in their jobs.

They're ready to be homeowners, but it's very cost-prohibitive in today's interest rate environment, and it's a real problem.

More specifically, in some luxury markets like LA, a very different story.

In LA, we've seen about a 50% increase in inventory this year.

A huge increase because for the last three years, there's been a stranglehold on the inventory, right?

There were fewer buyers on the market by virtue of higher interest rates, but there were even fewer sellers on the market that felt like they had these golden handcuffs to these historically low rates that they thought we're never going to see again.

And it created the stranglehold.

And that helped inadvertently to stabilize home prices.

But it's now three years into this and you have people that are saying, okay, I have life circumstances.

I need to sell.

My mortgage is going to be adjusting the next couple of years.

I want to make a move into a different area, what have you.

And now we're seeing this influx of inventory.

Well, if the buy and demand doesn't show up to balance the scale, the only inevitable outcome is that it starts to apply downward pressure on home prices, which if you think about it, we've been in essentially a three-year housing recession with minimal adjustment to home prices.

We're at a tipping point right now.

We're either going to see some improvement in interest rates, which will compel people to get off the sidelines and then start to create some momentum and inertia, and maybe the market starts to pick up steam.

Or if that doesn't happen, the reality is it could get worse before it gets better.

I do think we're at this tipping point.

It almost feels like a game of chicken.

And I'm not surprised that LA is leading the way for people to say, okay, life circumstances, enough is enough.

I'm sitting on this beautiful, amazing 3% mortgage, but I need to move and I need to just

swallow the 6% or whatever I'm going to get on the next place.

And I think that we're starting to see that in correction territory for other places like Miami, like Texas.

Are you thinking that the way LA goes, so will places like North Carolina, Florida, Texas?

To an extent, but not really, because a lot of those places are the beneficiaries of markets like LA and San Francisco.

And I'll just say many parts of California that people and companies have moved from.

and they're moving to parts of Texas and they're moving to Miami and so on and so forth.

So I think what we're really seeing is the market is recalibrating from two years of unsustainable price growth, right?

We saw obviously prices skyrocket in 2021 and 22 and all during the pandemic.

And it wasn't sustainable.

Everyone knew that.

And the market's now recalibrating.

And in certain instances, in certain markets, that means we're going to see prices that are going to start to adjust downward a little bit.

And while that's painful, it's ultimately healthy.

They couldn't sustain where they were.

Painful for the seller.

Yeah, for sure.

Glorious for the buyer.

Yes.

People ask me all the time, you know, is it a buyer's market or is it a seller market?

And it's honestly neither.

Both are challenged in different ways.

From a buyer's standpoint, affordability is still a huge issue in the high interest rate environment we're in.

From a seller's standpoint, again, most of them feel like they're locked in these historically low interest rates.

And if they were to sell, what kind of a...

lateral or upward move could they make and going from a two and a half percent rate to a six percent rate and you know you have to study a lot of different things here there's various migration patterns in terms of where people have been moving to and from.

As I said, California, I think, has suffered in terms of losing a lot of people to other states, but it's still California.

And we still are welcoming people here, I feel like, every day that are still looking here from various parts of the world because it's still a very desirable place to live.

We can get into it, but yes, it's also not as desirable on the tax front, on the crime front, on many fronts.

But everybody probably asks you all the time, is it a good time to buy?

We've talked about it.

Each time you've been here, what do you say to them now?

I always try to explain to people, the question is really more rooted in, is it the right time for you, right?

It's really about sort of, is this the right moment for you to buy versus trying to meet the market or time the market, right?

What are your life circumstances?

Why are you looking to buy?

Are you currently a homeowner?

Are you looking to make an upward move from your current set of circumstances?

Do you have two kids and you're expecting your third and an extra bedroom?

If it's the time for you to buy, then it's a matter of then, okay, now let's go find the right opportunity.

And that doesn't necessarily mean the right deal.

It just means let's find the right house.

Let's obviously try to get it at the right price and get as good of a deal, of course, as the market will bear.

But to me, it's such a personal question.

So like I said, on a macro perspective, they're both challenged in different ways.

But

one could argue it'll be a better time to buy when interest rates come down, whenever that happens, but it's going to be a better time for everyone.

That just means more people are going to come off the sidelines.

That creates competition.

Competition inherently raises prices.

Again, supply and demand.

The better question is, is it a good time for you specifically to buy?

Don't let even interest rates make that decision for you.

It could be better, but again, that brings on a lot of competition.

Sounds like people are getting less home, though.

Interesting.

I mean, again, going back to what I was saying before about how there's not enough new homes being built, the trend right now is that everyone, especially new homeowners, everyone wants new construction, right?

They all want new.

That's just kind of become, I don't know, sort of the trend or the expectation, especially again with millennials.

So that is challenging because there's not, as I said, not enough of it being built.

And perhaps you're getting less for your buck.

Yeah, there are all these memes and stuff that are showing people with crappy places just not fixing it up, just being like, here you go, you're welcome.

Here's a plot of land to do with it as you, well, million dollars.

Yeah, it's really difficult right now, especially to be spending the amount that it costs to be able to buy in right now.

It's really just, again, personal sort of circumstances and whether it's the right time for you.

Are you following what's going on?

I'm assuming yes, with Treasury Secretary Besant and talking about declaring a housing state of emergency.

Do you think there's anything that government can do to help?

That's a loaded question.

I think there's a lot of things the government can do to help in theory, but this is like trying to turn a very old, big, archaic ship.

There's various things that they can do, particularly in the local levels

in terms of reforms to the building codes, in terms of expediting permitting fees or the permitting process rather, excuse me, in terms of just streamlining that process and making it less prohibitive for builders to develop.

But again, it's very helpful if it was being done effectively.

Why isn't it?

Who's stopping it?

I would say city officials at local levels.

For example, here in L.A., there are a number of elected officials in our city council.

The members of city council are really the ones that kind of dictate the agenda for L.A.

have a very different outlook.

A lot of them would like things to go back to the way they were and are not progressive in their thinking and trying to actually meet this demand and solve this problem.

And it's just everyone has their own opinion on it.

So sure, I think government has the power to do so.

Will they do it?

And can it be done and orchestrated in a way that will actually be effective?

I wish I had more confidence in it, but past experiences have left me somewhat jaded.

Fun fact, this happened after World War II.

There was a state of emergency allowed, but we have a lot of other issues that we're dealing with, a lot of other headwinds.

So far, all we've heard from the government is that they're studying ways to decrease closing costs, standardize building and zoning codes, which you talked about.

What would decreasing closing costs look like?

That's interesting because some of what's in closing costs could be

up to the banks to decrease.

Sure.

I think that there's a lot of BS fees in closing costs that could easily be done away with an underwriting fee, a dock prep fee.

There's so many fees.

It's ridiculous.

It's not going to move the needle in a measurable way.

Why?

Because we're talking about thousands and we need to be talking about tens of thousands or hundreds of thousands.

It's not your closing costs, it's a de minimis amount in the grand scheme of things.

Your closing costs are generally 1% of your purchase price somewhere in that ballpark.

So if you're taking off a fraction of that 1%, it's not going to move the needle in a measurable way.

But I think it would help.

Like, why haven't we done that before?

I don't know.

And I'm all for it.

Anything that contributes towards the cause, I'm all for

what we're talking about, though, doesn't build more homes.

And that's what we really need.

We need subsidies for builders.

We need building reform.

We need, again, to expedite the permitting process.

Those are all the things that will ultimately incentivize builders to get out there and build.

And there may be a whole new wave of how homes are built that I'm not going to get into a ton of detail on, but modular homes, which has often had a negative connotation sometimes associated with a mobile home or something like that, which which they are not.

This is the future of home building.

No, there are some sexy ones.

There are some sexy ones.

And by the way, they are...

House in a box.

They are oftentimes more solidly built and more resistant to all the outside threats like fire and like wind.

Some of these are fire resistant.

They can withstand winds of 180 miles an hour.

They can be built in a fraction of the time at a fraction of the cost.

I'm bullish.

For sure, where the future is going.

You do have to work within a box, right?

You can't then have free reign on your architectural design and so forth because it's being assembled at an assembly line and it needs to all fit within a cargo container that can't exceed a certain height limit for transportation purposes but again for mass building in let's just say the broader america you're not going to see one of these going up laurel canyon for example right it's just not going to happen too windy and twisty of a road going up those tight little hills But for broader America where there's more land, and that really kind of goes back to what Truman was hoping and trying to achieve after World War II, he had a lot of land to work with.

We're not experiencing the same thing here, at least in major metropolitan cities, right?

It's very condensed, very built up.

Land, of course, is the one thing everyone wants and the one thing they're not making any more of.

For sure.

Are these things coming from China or are there places in the U.S.?

Largely in part coming from China.

There are U.S.

plants that are manufacturing them.

The cost is substantially different as we're experiencing with every product coming from China that we're trying to now compete with in the U.S.

So it's also very difficult to try to coordinate that building from China.

If you don't have boots on the ground, if you don't have dedicated employees that are actually overseeing these projects for you, it can be a very sort of mixed bag of what you might be taking receipt of.

So if you want to buy a house in a box, I feel like there ought to be a terrible exchange.

I know.

Okay.

So if you want to buy a house.

This is not going to further the cause for modular homes.

If you want to buy a sexy modular home,

you need to get a general contractor here to deal with all the pieces that are coming from wherever.

Yeah, you need a GC that is specialized in modular homes, which many are not.

It's still a very new concept, relatively speaking.

There are very few builders that actually understand how to construct one of these, which manufacturers they're working with.

But this is going to be a big part of the future and potentially how we solve this housing crisis.

Because you can build that many more units that much quicker and for that much less.

I agree.

So it sounds like you're bullish.

If somebody was interested, where would they start?

JohnGrauman.com, somewhere around, you know, reach out to me and what's the space.

No, you should.

I feel like this is another business line for you.

I have some clients that are heavily involved and very bullish on it.

That's where I've learned about it from.

And yeah, it's hard to refute because the way of yesterday in terms of home building isn't sustainable today, not in the environment based on what I said earlier.

Agreed.

Hold onto your wallets.

Money rehab will be right back.

And now for some more Money Rehab.

Okay, so closing costs might not move the needle.

Zoning and standardized building costs and procedures are really dependent on local governments, and that's been challenging.

Where do the realtor fees come in?

Like, where's the line item for your commission for overall closing costs?

Well, that's changed since the NAR lawsuit, which was settled last year.

It's interesting.

There was so much made up about this going into it.

People thought this is going to forever change the real estate industry.

The buyer's agent will cease to exist, et cetera, et cetera.

It honestly proved to be kind of much ado about nothing, in my opinion, in as much that it really hasn't changed what the final outcome is.

There are different procedures and different documents that we have to use to get to that outcome.

But the simplest way to describe it is that previously the way it worked is as a listing agent, I would go meet with the homeowner.

I would sign a listing agreement with them.

That listing agreement would stipulate what the total commission is, generally about 5% here in Los Angeles.

And then that would be split equally 50-50 with the cooperating broker, i.e.

the buyer's agent.

And that was all stipulated in the agreement.

Now that agreement is only between the homeowner, i.e.

the seller, and myself as the listing broker.

There is no mention of what the buyer's agent makes because part of that settlement, or rather that lawsuit, was why is the listing agent negotiating the the buyer's fee for them?

Let them negotiate it on their own.

So we're no longer allowed to advertise what commission is being offered on the MLS, which is somewhat ironic because that's largely in part what the MLS was created for, to have a place to house that.

But buyers' agents are coming in and saying, here is my offer and included in it, I am asking for this commission.

99 out of 100 times, I'm seeing that it is the same commission as we saw before and that the seller is still paying for it.

It's a longer, more circuitous route to the same destination.

It's changed nothing in practice.

I mean, the closing costs are still basically the same amount in terms of what the realtor commissions are.

Technically, they are negotiable, and they've always been negotiable.

And that was a huge part of the case:

there's a bunch of splashy headlines.

You know, commissions are now negotiable.

They've always been negotiable.

Technically, contractually, you were only ever obligated to pay one penny.

Anything above that was negotiable.

There are certain customs and normalities in each respective marketplace, like here it's generally around 5%,

that vary from marketplace to marketplace.

And all of that that is negotiable.

But, you know, you can be the seller that says, I'm not offering a commission to the buy side.

Okay, that's your prerogative, no problem.

But if there's nine other homes in your neighborhood that are on the market and all of them are offering a commission, that puts you at a pretty big disadvantage.

How many people have successfully negotiated with you to lower your commission?

I'll say this.

I'm a full service, full-fee agent.

You get what you pay for it.

There's plenty of discount brokers that'd be happy to take it at a lesser amount.

I'm also a team player.

I see the big picture.

I see the field.

There are certain instances where, you know what?

Okay.

It makes sense for everyone's going to stand in line at the blood bank and make a donation.

I'm game.

But, you know, I try to obviously protect and guard my fee, which is my livelihood, because I feel that the value I provide is commensurate with that.

So you are obviously an elite real estate agent.

If somebody wants to negotiate their fee with their local realtor,

what works?

What are the catchphrases that work?

What's an argument that resonates with you if I want to lower my commission?

So I'm the seller right now and I'm trying to make an argument to you.

You're being me in this moment.

That's role play.

Oh, wow.

I don't know.

How would you get me to lower my commission successfully?

This is the opposite of the argument that I'm always in.

So this is a hard one for me.

I don't know.

I kind of feel like I've heard just about everything.

And what's worked.

For me, it's more just about, again, speaking candidly, if it's a listing that I know there's heavy competition for in terms of who might get it and the caliber of agents I know I'm competing with, and there's a squeeze on the commission to get that listing.

You know, I'm always of the mind that I'd rather have a part of something than all of nothing.

And each listing leads to the next listing because it's just, you know, success begets success.

So sometimes I might be willing to compromise a little bit there, but

I'm going to pass on this question.

So what if I said something to you like,

hey, John, there's so much competition.

You know, everybody wants to help represent me.

What if we could go down 50 basis points?

I would probably say something along the lines of,

I completely understand where you're coming from and I appreciate you sharing your perspective with me.

Listen, there's over 30,000 licensed agents in Los Angeles alone.

And I can tell you they're not all created equally.

And there's unfortunately an embarrassingly low bar for entry into this business.

And

ultimately, you get what you pay for.

And as I said before, I'm a full-service, full-fee agent.

I think my track record speaks for itself.

And the value that I'm going to deliver is going to be commensurate with the commission rate you're paying.

There's plenty of other discount brokers I'm sure would be willing to take this for less.

In fact, I'm happy to give you the number of a dozen of them if you'd like to call them when I leave.

But this is my fee.

Damn!

Okay.

Something like that.

Okay.

Some reverse psychology vibes.

It feels like, oh, okay.

Well, now I must use you because you're just willing to walk away.

That's the best tactic

of negotiation, right?

If you're really willing to walk away.

That's what it really comes down to.

And that's why I always say to my clients when, you know, we're in a negotiation.

And as sort of simplistic as it may sound, oftentimes what I'll say to them is make an offer that reflects your desire.

If your desire is, that's my house.

I have to own that house.

Then don't be cute and don't be coy.

And let's not be cheap trying to save a couple thousand dollars here or there.

Not to make light of a few thousand dollars.

My job is to also guard my clients' bottom line and try to get them the best deal.

But again, in a competitive situation, make an offer that reflects your desire.

If you're, I'm not sure about this house, okay, well then we don't need to be super aggressive about it.

If this is, you know, how's it going to feel?

You know, okay, I'm willing to offer $5 million on it.

Okay.

If I call you tomorrow and say, it's sold for 5.1.

Can you live with that?

Are you okay with that?

And it's a genuine question.

I'm not like, there's no reverse psychology.

It's a genuine question.

You really have to think about like, at what point are you willing to walk away and be okay with it?

Yes.

On the flip side,

if you weren't in love with it and you got a deal,

then that would make it more interesting.

Does it?

I always tell people, like, when I'm working with people that this is going to be their home, a great deal doesn't make it the right house.

If you're an investor, well, we're looking at it through a different lens.

But if you're a homeowner and I've had people be like, oh, we're really compromising here and I really don't like this and it's missing a bedroom, but I really love the deal.

Great.

If the deal is your driver, so be it.

But a great deal doesn't make it the right house.

Yes.

Your primary house is not a place to invest.

It's a place to live and raise your family.

That's it.

If you're a housing investor, it's a totally different story.

All of this is really driven by interest rates.

And I'm sure you saw it on the show because you're an avid listener of Money Rehab.

We had Fed president Austin Goolsby on who said not not to be mad at him for mortgage rates.

By the way, I want to play you this clip and let's talk after.

Remember that when people talk about interest rates, there's not one interest rate.

Okay.

There's short rates.

They influence things like credit card rates and stuff like that.

And that's what the Fed sets.

And then there's long rates, which influence mortgages.

and treasuries and things of that nature.

And the Fed doesn't set those.

And so they can go different ways.

So if you're an investor, let's say, and you're thinking about, ah, if the Fed's going to cut rates, what's going to happen to bonds?

It makes a big difference.

What kind of bonds are you talking about?

And take that to the bank and remember.

Yeah.

All right.

So if mortgage rates are up, don't be mad at you.

Don't be mad at me.

I didn't do it.

Yeah.

Exactly.

Right.

He didn't do it.

All look at what happens with the Fed, but the reality is that it's not a direct correlation to mortgages.

Correct.

First of all, that's a tough act for me to follow.

Just super clear for me to come in and speak about interest rates on the heels of that.

But I can only obviously concur with his sentiments that, look, the Federal Reserve has control over what's known as the federal fund rate, which as he was alluding to is short-term lending between banks, credit cards, et cetera.

It does not have any direct correlation to long-term interest rates, which is what the 10-year yield is based on.

And that's based on a much broader economic conversation about investor sentiment, consumer confidence, inflation, demand for treasury bonds, et cetera.

And the reality is we're living in a world right now that feels very uncertain to most people.

There's a palpable sense of uncertainty in the market right now.

And the natural human tendency when people feel uncertain is to pump the brakes, right?

So everyone's just kind of cautiously wading through this because we're in a very uncertain political time, a very uncertain geopolitical environment where, you know, if you don't know what the weather is going to be, most people don't want to go outside.

So you have a lot of people just staying in and just saying, okay, I'm going to watch and wait.

So that all directly impacts what the 10-year is doing.

And that's why even if the Fed does lower rates here by a quarter, a half, even a full point, the adjustment to mortgage rates might be minimal.

Yeah, we saw mortgage rates come down in the last couple weeks, but that was before the Fed even met.

So just basically, you know, the yield curve is a plot of yields and maturities.

And so when the Fed moves, it moves short-term rates, but long-term rates, the end of the curve, is really a referendum on inflation.

So if people think inflation is going to go up, they want to protect their money and buy long-term bonds.

If they think it's going to go down, not so much.

And so mortgages are more reflected on that than the 25 basis points that we're probably going to see from the Fed.

That's exactly right.

Yeah, it's all future forecasting.

It's the same way that the stock market will sometimes try to move four or six months in advance or anticipation of where they think her is going.

Everyone's trying to skate to the puck.

But I think it's an important nuance.

And you're one of the few brilliant real estate agents out there who can talk to that nuance.

Because I think that there's a lot of noise and a lot of information, especially online, shockingly.

With real estate agents really focused on the Fed decision as it relates to mortgages.

I think in large part, people think that it's a symbolic move that will help stimulate what happens to happen next, right?

That like we have to get things churning.

And if the Fed says, hey, we hear you, we see you, we know what's happening, we're going to lower interest rates, that many other things will follow suit because the real estate market really tends to follow these self-fulfilling prophecies.

If everyone starts talking about the market going up, gradually starts to go up.

Everyone says the market's going down.

Fear creeps into the market.

You start to see the market trend downward.

So I think the hope here is that a couple of cuts will start to demonstrate that confidence and move the market in the right direction.

And then it's just all momentum and inertia building in terms of where it goes from there.

So what are some better headlines that impact

your work besides the Fed meetings?

I've been looking for one for the last three years, to be honest with you.

The last three years have been really difficult and understandably so.

This is not all that dissimilar to kind of what we saw on the heels of the 2008 crisis, where they lowered interest rates so low and kept them there for so long, it became virtually impossible for them to raise the interest rates.

And then, of course, we got hit with the pandemic and they dropped interest rates to the floor.

They dropped rates to zero.

And in trying to kill one monster, they created a whole new one.

And this one, unfortunately, is going to have lingering effects.

for years in terms of these historically low interest rates that a lot of people are just saying, I'm not moving.

I'm not going anywhere.

So if you're limited in the supply that's coming from existing homeowners, where else can it come from?

Builders.

And then it comes right back to the conversation we were just having.

It's like if you give a mouse a cookie.

I read my kids that book recently.

Yeah.

It's just the start all over with this.

Did you know that book before you had a kid or is this like a kid when I was a kid?

Okay.

All right.

I don't know if this was new, like all of a sudden you start speaking in like a whole new sort of nomenclature once you're a parent.

I know.

Although, you know, my daughter, we've already talked about interest rates.

Sure.

That's natural for eight months.

Eight months.

Eight months.

That's time.

You're actually a little late.

You're a little daughter.

She's already trading derivatives.

Of course, she's all over.

Yeah, I'd love to see her portfolio.

I'm sure it's impressive.

I think we did a video with her what you should be doing around eight months old, sitting up, rolling over, trading stocks.

If not, go see your pediatrician at SafeP.

Follow me for more parental advice.

That's really good.

Okay, another hot topic in real estate is the potential IPO of Fannie and Freddie, which I told my husband I would like to be for a Halloween.

What's the costume look like?

We're not sure, like houses.

I don't know.

Or my daughter can be a small house.

We're still workshopping it.

So Fannie and Freddie right now, can you explain just sort of in

John conversational real estate lingo, what Fannie and Freddie do and why this is important?

I mean, this is a highly controversial topic in terms of whether or not Fannie and Freddie should IPO.

And there's multiple different sides to this, and it really kind of depends on, generally speaking, whether you're in favor of things remaining public or going private.

I'll give you a couple different sort of sides to this.

There's an argument for them going private for sure.

So Fannie and Freddie have been under government conservatorship since the 2008 mortgage crisis that I referenced earlier.

By going private, they could raise capital.

They could create more competition, innovation, flexibility in terms of loosening up certain guidelines so that more people can qualify.

So it has that going for it.

On the other hand, they have been the backbone of the American lending institution for a very long time here.

And that often is what helps give and create stability.

So again,

various sides to this argument, but that's how I see it.

I mean, the concern, right, is that the government guarantees the debt.

And so we don't know if that's going to be the case if they go public, but they could raise a bunch of money.

The plan could value them at 500 billion, raise around 30 billion for the government.

The government needs money.

That all checks out.

Yep.

And you can still buy them over the counter, by the way.

My husband did buy some Fannie and Freddie.

Fanny and Freddie have much lower loan limits than do conventional lenders like Wells Fargo and Bank of America and so forth.

So,

you know, the mortgage options that they provide aren't really applicable in many parts, many of the affluent parts of this country, in L.A., in San Francisco, in New York, and Miami, you're not seeing a lot of Fannie and Freddie product.

It's mostly in sort of the broader middle America.

And that's why I was saying before, it's kind of like the backbone of the American lending institution.

Yeah, which is why I think we should be talking about it more.

And conservatorship means what?

We think Brittany.

Not the same.

I couldn't speak to the specifics of what the U.S.

government's conservatorship over Fannie and Freddie entailed.

It's a backstop, basically.

When 2008 happened, the government swooped in, put, you know, $187 billion as a bailout for Fannie and Freddie.

Then they went under conservatorship.

So basically, they were under timeout and the government backed all the loans.

Yes.

There was a massive bailout for those of you listening and watching that didn't live through it.

God bless you because it was

that was a scary time.

In fact, so there were two great movies done on this.

One, obviously, is sort of a more of a major feature film called The Big Short that I'm sure a lot of people saw.

The other one that was equally good, in my opinion, is called Too Big to Fail.

And that was an HBO movie.

And I've watched that probably 20 plus times because every time it came on, I was like just a moth to a flame.

Most people don't realize how close we were to the brink of total financial collapse.

I mean, Armageddon.

Like no milk on the shelves, no cash in the ATMs.

Like we we were right on the brink.

So while the bailout, of course, was very controversial at the time and still continues to be, most people don't grasp just how serious it was.

I was a mortgage broker during the mortgage crisis, which was like having a front row seat for the end of the world.

And it was all unfolding so quickly.

I as well had no grasp or comprehension of just how severe and significant it was.

I was also in the front row covering it.

A lot of PTSD.

Maybe people are forgetting.

I don't know.

I just gave birth and I'm sort of in the time where you forget the pain.

I still remember that.

That's an honesty.

It's a real analogy.

That's a great analogy.

Yeah.

The Too Big to Fail is based on Andrew Ross Storkin's book.

So I was at CNBC at the time and covering all of this.

It felt like I couldn't watch the movie.

I watched it once.

I haven't watched it as many times as you because it just felt like deja vu.

It was just like too soon, still too soon.

Yeah.

And that's what worries me about interest rates, that we romanticize and glamorize this idea of low interest rates, like we were addicted to them for so long.

But the reason we did that was because we were so close to apocalypse, Armageddon.

Right.

And

that was an emergency extreme measure because everything else was on life support.

So getting back there doesn't feel

ideal to me.

We're continuing to solve for the problems that were created from previous solutions, if that makes sense.

That's a good one.

That's a bar, John.

Yeah.

that's really where we are.

The solution that they came up with then created a future problem that we had to solve for, that created another problem that we're trying to solve for.

We're constantly just going back and trying to solve for the previous solutions.

Hold on to your wallets.

Money rehab will be right back.

And now for some more money rehab.

So, for you, the solution was

to

not leave LA, but diversify away from LA after the fire, because that was its own micro-Armageddon that I lived through.

We've all lived through.

Yes.

So tell me more about that move for you personally.

Yeah, just to be clear, one thing doesn't have anything to do with another.

I wasn't trying to solve for anything as it pertains to the market or market conditions or the fires.

That didn't have anything to do with it.

I have been spending a lot of my adult life in Napa.

It's a place that I've come to just absolutely love and adore.

And it's been a very special place for my family and thought that my kids being of five and eight years old, that this would be perhaps the greatest gift that my wife and I could ever give to them is to give them the opportunity of maybe growing up outside of a big city where they can just ride their bikes in the street and drink wine.

Yeah, well, not yet for them, but so for me personally, I'm just splitting my time between LA and Napa, which are two great places to be spending your time.

So, I feel very lucky and fortunate.

My presence is still here, my business is still here.

Frankly, I spend about as much time commuting on an airplane as I would sitting on the 405 trying to get from Studio City to Brentwood.

So, for sure.

It's not too bad.

So, in the stock market, we buy low, sell high.

We actually have a sweatshirt right behind you that says that.

In a town after a disaster, I think I'm ready to talk about this from these terms after living through it.

Is there a strategy like that that can work?

Can you buy low or get deals after a disaster?

After the fires in LA?

Are there deals to be had?

I want to be careful how I answer that because I don't want to,

this sort of opportunistic viewpoint is not one that I identify with.

wholeheartedly.

I understand like there's always going to be opportunity and chaos.

And I have clients who want to,

I'll just say take advantage of those opportunities to try to buy low and sell high.

But there's so much sensitivity to what happened and real people that lost their homes and frankly lost everything.

So I just try to be a little bit more delicate in my handling of this.

But let me give you just an overall overview, which again is going to go right back to what I always talk about, supply and demand.

So there were about 6,000 homes that were lost in the Palisades fires and another 4,000 lost in the Altadena fires.

We estimate, and we could be wrong, that roughly about 20 20 to 30 percent of those homes or those lots now are going to be coming to market for sale.

Okay, so that's 1,900, 2,000 homes, or 2,000 lots, excuse me, a significant number.

So we started to see that happen over the last few months, and it quickly started to snowball.

And at one point, we were seeing about three and a half new lots hitting the market every day.

And that creates an oversaturation.

And when there's an oversaturation and an oversupply, it creates an imbalance between the supply and demand and starts to apply downward pressure on the values.

So while before some of these like 6,500 square foot lots were maybe getting 2 million, 2.1 million, they were quickly going down to 1.8, 1.7, 1.6.

So over the last few weeks or a couple of months, what we've seen is a reversal of this.

We've now seen less inventory coming to market because a lot of people realize, whoa, now's not the time to sell.

We've already very quickly created an oversaturation.

So a lot of people are pulling back on that and either holding off or assessing their options or perhaps still working through their various insurance claims.

As of right now, as we sit here, and this is real-time data, so this could obviously change tomorrow or the next day.

There's 191 lots that have sold.

There are 198 that are currently on the market and there are 28 that are currently in escrow.

That's real-time right now.

Of the 10,000.

I'm just speaking to the Palisades for a moment.

So let's just say 6,000, or let's say even more specifically of, let's say, the 2,000 that might come to market based on on our estimates.

It's still only a couple of hundred right now, right?

So we have a few hundred.

It's still only a few hundred right now.

So we have a lot more that we need to work through.

Now let's cross the bridge and get to the other side for a second.

Let's see about what happens once they're done.

Historically, there have only been about 25 new home sales in the Palisades per year.

What happens when there's hundreds of new homes coming on the market?

And further to that point, there are a number of people who are rebuilding, but may not move in, right?

They've either decided, hey, in order to maximize my insurance claim, I need to actually rebuild because if I sell the lot, I'm not going to take the full amount.

So I'll rebuild and then I'll sell it because I already moved to Huntington Beach or I already moved to Santa Barbara or what have you.

And it's a different time in my kids' lives.

They're going to a different school life circumstances.

Again, there will be at some point here an oversupply, an oversaturation of inventory, which is going to compress prices.

So if you're a builder, your objective is to be first to market right now because the first ones will ultimately be the first of their kind and hopefully will get really good prices.

But the process, I have to say, is going much faster than even I anticipated.

In terms of the permitting process, the expedition of that, there are 80 homes currently being built in the Palisades right now.

And there are almost 500 permits that have been issued.

The first house is going to be done in a couple months, which is crazy to think about.

This is a seasoned builder.

They know what they're doing.

They got their permits.

ASAP, they got in there.

They have their own crews.

Not everyone's going to follow suit.

But in four to five years, the Palisades, it's going to be on its way.

You're going to have a lot of the infrastructure back in place.

Schools, restaurants.

It'll be interesting to see where it goes.

It's really going to be so much about the ebbs and flows of supply and demand and catching, for example, if a few homes come on the market and they fetch big premiums and then a couple dozen come on and then a few hundred come on.

For a buyer, that's going to be your time to bounce.

This is such a hard conversation for me to have, obviously, objectively.

But even early on, there was like a

community WhatsApp that was going around with a Google form saying, if you lived in the Palisades and you want to buy in the Palisades, we're going to do a little database so we can sort of keep it in the family.

And as people, you know, think about putting their lots on,

you can sort of connect with them directly.

And I remember it was my birthday in March and I just wrote to this guy sobbing.

And I was like, All I want for my birthday is to go home.

Please send me whatever you guys find.

And we found that they said, What's your budget?

And he came back to me and he was like, Your budget is too low.

I was like,

you.

First of all.

Second of all, how do you guys know how to price these things?

I keep stocking like my area and my street, and I've seen such

disparate pricing.

Nobody really knows what does this plot of land that used to be such a special community.

And talking four or five years out, you know, I truly can only dream that something similar to what it was can come back.

We're just so far away from that.

And I don't know if anyone really knows where to price their lots.

No, and that's why, you know, ultimately there's a, I always say there's only one fundamental truth in this business, and that's that ultimately the market will dictate dictate what it's worth, but the market has to have an opportunity to weigh in.

And it's just still formulating its own sort of thought process as it pertains to this.

Meaning, a bunch of properties came on, varying price points.

Now we're trying to figure out like which ones have actually transacted, where the values are settling to try to give some guidance looking ahead.

I can tell you that as a whole, land value in the Palisades is down about 40 to 50 percent, except the Huntington.

Huntington is still so desirable that that has held pretty steady in terms of values.

But yeah, nobody really knows where it's going to go.

And there's a lot of talk about, well, there's going to be an increase.

A lot of people are talking about there's going to be

the Huntington just, so if anyone doesn't know, the area is like just close to the ocean.

It's close to the ocean.

It's close to the village.

It's like the 50-yard line, right?

It's where everyone wants to be.

I would just say that there's a lot of talk, a lot of...

misnomers out there about, you know, there's going to be a squeeze on construction and the cost of materials and labor is going to go up significantly as a result of this.

Okay, let's look at where labor comes from in Southern California.

Okay, it comes from all over.

It comes from LA, it's gonna come from San Bernardino, it's gonna come from Riverside, it's gonna come from Orange County.

In those four counties alone, there's about 42,000 new homes that are built every year.

Okay, so let's say it takes about four years to work through this.

That's about 170,000-ish.

We're talking about rebuilding 10,000 homes between Altadina, Pasadena, and the Palisades.

10,000 out of 170,000-ish over the course of four years.

That's 5%, 6%.

It's not enough, in my opinion, to make a justifiable argument for, well, my labor costs have gone up and my material costs have gone up.

No, 5% to 6% fluctuations shouldn't impact that.

So, you know, finding a reputable, credible, trustworthy builder that is not going to try to gouge in a situation like this is, I would say, critical.

What I've seen, and again, this is not like me.

This is more on vibes than data.

But

your comment to the prices going down 40 to 50%, like I've kind of seen that sentiment happen in real time.

There was a lot of obvious emotion around this where people were pricing it as if it used to be.

the house.

And then there was like this pullback of coming to terms with reality.

And now there's bills that are going through the state to put low-income housing in the area and all sorts of other factors that are going to weigh into what is this thing really worth.

What's it going to look like?

Yeah.

I've met with multiple homeowners, as you can imagine, that sadly, tragically lost their homes.

Some of whom have been in a very fortunate position, which not everyone finds themselves in, where they don't have to do anything with it right now.

They can sit on it and their insurance claim, you know, covered them.

And I've just said to them, if you don't have to, don't.

You're waiting for a few different things to happen right now over there.

You're waiting for an established proof of concept, which doesn't exist yet.

You're waiting for interest rates to hopefully come down, which is going to create more demand and more buyers in the market.

And you're waiting to get on the other side of this oversaturation.

That to me are like the three things that you just kind of, it's very fluid.

You really have to just be looking at this.

And it's going to largely come down to the Palisades will always be valuable and desirable, but how many people are going to come back?

And that's a question that bears no answer right now.

The people unfortunately lost their homes fall into three buckets as I see it.

There are the people who lost their homes who still want to be in proximity to the life they lost.

So areas like Brentwood, Santa Monica, right, the sort of tertiary areas, you know, saw extreme benefit and appreciation in the short term following the fires.

Then you have people who want to replicate the coastal living that they lost.

And they went to the South Bay, they went to Orange County, they went to Santa Barbara.

And for a lot of them, it's a nice life in those communities.

Not to say that it isn't in the Palisades or wasn't in the Palisades, but a lot of them are going to, you know, they're going to set up camp there and they're probably going to carve out a nice home for themselves.

And then the third bucket is the people that this was just the proverbial straw that broke the camel's back and said, you know what?

I'm done, right?

I've just lost everything.

What else do I have to lose?

I'm moving to Austin.

I'm moving to Nashville, Vegas, Miami, where have you.

I think early, early on, there were some really high

sales that happened with this idea that like foreign investors are coming in and it's going to go over market.

And that happened.

And I felt like there was a moment of rumor mill and some excitement, but that has faded.

And that's not what you want, I think, in a sustainable rebuild anyways, right?

You don't want these big conglomerates coming in, foreign conglomerates buying up city blocks and stuff like that.

I don't think restores the Palisades to what it once was that so many people want to come home to.

But there's nothing you can do about that, except my little WhatsApp group, I guess.

Not really.

Citizens against conglomerates.

I don't know.

Not really.

As of now, there's nothing to protect against that.

And I'm not really seeing that be the case.

But, you know, you asked earlier about like, when is it time to buy or when is it time to sell?

The people that bought the first few lots,

why?

I mean, they just paid such a premium relative to to what they were just a few months later.

There's, again, I said 191 lots that have sold, and I would estimate probably about half of those are homeowners and the other half are builders, developers.

So it'll be very interesting to see how this all plays out.

And it's all unfolding in real time.

We are in unprecedented uncharted waters here.

So.

You'll definitely please come back to recap on it.

I did want to tell you,

in my journey after the fires, I learned some a lot of people, as you know, were renting because a lot of policies, you pay for rentals, you know, while you're

additional living expenses for the win.

And the rental market was so, so, so, so competitive.

I found when I was going to try and find a place for my family, people were putting in applications before they saw the house to try and get approved before they even went there.

That really surprised me.

I was like, damn, I need to step up my game.

I need to get like much more crafty and creative.

What were some of the weird aggressive moves that people were making besides paying up front if you could do that?

It was, God, it was, you know, frantic and fast and furious during the immediate weeks and months following the fires.

Look, I want to be super clear.

I'm not the victim here.

I'm not the one that lost my home.

But the real estate community and realtors like myself, I got to say, probably worked as hard as we ever have for virtually nothing, which is fine.

This is our contribution, our way to give back, but make nothing on leases.

That's fine.

We were just trying to help so many displaced families find housing.

And to your point, and again, sorry to be repetitive, supply and demand, right?

All of a sudden, you saw this massive increase in demand, huge, and not nearly enough supply to meet it.

Then you had opportunistic homeowners that thought, oh, well, if I can lease, I've never thought about leasing my house, but if I can get 20, 30% over market, then I'll go ahead and do that.

So then there were those really just kind of sticky and icky situations that, you know, there are certain certain laws and price gouging protections in place that everyone needed to steer clear of but it also created so many misconceptions and again like misnomers about what this was going to be i had clients a week later calling me from los files going so i guess my house is probably worth about 20 more now right no if i let's go back two weeks before the fires and if i had polled 100 homeowners in the palisade and said hi mr and mrs smith would you ever consider living in los files most of them would just hang up on me like

it it's location specific people that lived in the palisades don't want to move to los files they want to again replicate that coastal living they just lost or be within close proximity to the life that they just had and where they go to school and where they pick up their dry cleaning and all those things so

we saw the demand spill about as far east as beverly hills and then it just kind of ran out of gas and even that was mostly just for leases But yeah, I'm glad to be on the other side of that because it was impossible.

You can only lease the house to one person and you have a dozen applicants who all lost their home, who all have a different story to tell.

And they're all tragic.

They're all heartbreaking.

It was really, I'll just say I'm glad to be on the other side of it, as I'm sure everyone else is.

You and me both.

Yeah.

Is there any takeaway from this that we can give listeners not in LA or not going through something like this?

As you know, we end our episodes by

giving a tip you can take straight to the bank.

I know you just.

Every time someone's like, I said everything.

I said, I said everything.

I got nothing left.

Is there any takeaway, even if somebody is looking at a competitive rental market or a competitive housing market that they can use from this conversation to get a leg up or an advantage?

Well, I guess the best I can really offer here is, first off, in your insurance coverage, which is something that I think a lot of us overlook and don't read the fine print.

Most areas today are under threat of some type of natural disaster, right?

Earthquake, fire, hurricane, tornado.

Really check with your carrier.

Understand what your coverage is.

Understand what your options are.

Understand what happens in the event of an X, Y, or Z scenario, and just better prepare yourself for that doomsday scenario that, like any insurance, you hope you never have to cash in on.

But I would say it's something people need to really explore much more closely.

I would say if you're building homes, be more thoughtful about fire-resistant materials and wind-resistant materials and how it's constructed and so forth.

And then I think I've ended on this same answer before, but it really just continues to be so true: who you work with matters, right?

So, in your respective market, find somebody that is really going to be your steward, your advisor, someone that's going to put your interests first and can help you through those moments that hopefully you never have to go through, but can at least, you know, again, in a situation like what happened here, having someone that can help you find those rental opportunities and position you for success, it's everything.

We had Barbara Corcoran on the show and she had a place in the Palisades and she fell in love with a place.

She said that she wrote a note.

Now, Grant, it's Barbara Corcoran.

And so if she's writing a note to a homeowner, they would be more stoked about potentially selling it to her.

Maybe.

Is there anything like that that people can use as an advantage, like personal touches that are within the legal realms?

Can you clarify what people can do legally or what they can do to position themselves in a competitive marketplace?

I know you can't send a photo, which I found out the hard way.

I tried to send like a photo of my family and a handwritten note to a homeowner and then I was told that's illegal.

A lot of people still do it, but yes, you're not allowed to include a photo, but you certainly can write a letter.

And it's all case by case.

There are certain sellers that just don't care.

They just are looking for, hey, who has the best terms and the cleanest

But all things being equal, in a multiple offer situation, if you are looking at multiple offers of comparable terms, but one of them wrote a letter and that letter really connects with you or resonates with you.

I mean, you know, buying and selling homes is very personal and very emotional.

So if you can connect with someone, that oftentimes can win the day.

I have actually some of one of the biggest deals I ever closed was a $26 million deal where it was in multiples.

I reped the buyer and it was very much a David versus Goliath situation.

The other buyer hailed from one of the wealthiest families in the world.

And my person, I'm not going to get into their specifics, but wasn't of the same caliber and had them write a letter that spoke to the sellers in a way that I knew they would connect with.

And they ended up actually accepting the lesser of the two offers because

go, David.

Money Rehab is a production of Money News Network.

I'm your host, Nicole Lappin.

Money Rehab's executive producer is Morgan Lavoie.

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