Unpacking the Housing Crisis: Affordable Housing Solutions with Michelle Young

00:00:12 - Mike Mills

Howdy, howdy, howdy. What's going on, guys? So, are you curious about the skyrocketing home prices, impact of institutional buyers, and the future of affordable housing? Well, today we're going to uncover the secrets of the housing market cris. By the end of this episode, we're going to answer the following questions for you. How are we going to stabilize this housing market? How did we get here? What policies can make homes more affordable? And how can realtors advocate for change? Plus, hopefully, some actionable steps for you to promote homeownership yourself. Whether you're a homeowner, first time home buyer, or real estate enthusiast, this episode promises to shed a lot of light on the path to a brighter future in housing. So, welcome to Mike Mills Mortgage and Finance, where we break down the complexities of the housing market and the financial world to empower you with knowledge. I'm your host, Mike Mills, and I've spent years navigating the intricacies of mortgage and finance. My mission is very simple to bring you insightful conversations with experts and thought leaders in the field, tackling the most pressing questions about homeownership, real estate and personal finance. With each episode, I aim to demystify the industry, provide actionable advice, and help you make more informed decisions on your journey to financial success and the dream of owning a piece of this earth. So, whether you're a seasoned pro or just starting out your financial journey, join me as we explore the world of real estate and finance together. So let's get ready to dive into this sucker. But before we do get in today's, a little bit controversial topic. A quick reminder for our listeners. If you find the value in these discussions, please don't forget to hit the subscribe button on your podcast platform or check out my YouTube channel at Mike Mills Mortgage and Finance for more content. Subscribing ensures that you never miss out on expert insights that we bring you every single week. All right, ladies and gentlemen, it is an honor to have with us today a true advocate for homeownership and a prominent figure in the world of housing policy. Our guest, Michelle Young, is a senior advisor at America's Homeowner Alliance, and she's been fighting the good fight for current and future homeowners of America for 17 years. Michelle's extensive experience in housing policy at all levels of government have provided her with invaluable insight into the challenges and opportunities facing homeowners or prospective buyers. She's a passionate advocate for making homeownership more attainable for all, and today she's here to share all of that wisdom with us just as we delve into the join us as we delve into the pressing issues of the housing market, skyrocketing home prices, and the path to affordable homeownership. Michelle, please welcome to the show. How are we doing?

00:02:41 - Michelle Young

I'm great. Thank you very much for having me.

00:02:43 - Mike Mills

You got it. My pleasure. So let's start here. I want to know a little bit about the advocacy group that you're working with to get an idea of how you got involved with them, what y'all's role is in the community right now, and what you're kind of doing to promote affordable housing in the United States.

00:03:03 - Michelle Young

Sure. I would love to share that with you. So I am a senior advisor with America's Homeowner Alliance. America's Homeowner Alliance is the only consumer advocacy group of its kind currently that is dedicated to promoting sustainable, responsible home. You know, let me tell you informally how this thing got started and who's really behind this group. It's really interesting. The group was started 17 years ago by an industry veteran by the name of Philip Bracken. And Philip Bracken is our chairman and founder, co founder, along with another gentleman who you might recognize. His name Tino Diaz. And Tino has been very prolific with the national association of Hispanic Real Estate Professionals. He is the former chairman of that group as well. So I met these guys separately before prior to the first financial crisis. So as an account executive with Mike Mills Mortgage and Finance, and I was managing the number one and two fraud markets in the country, I was actually at a 22 state, $4 billion, closed end, second correspondent territory. So I was buying 100% CLTV closed end seconds for handles of, like, 104, 105, 106 prior to the first crisis. It was pretty obvious at that point in time that things were not going in the right direction. I was extremely fearful for what was going to happen to the industry and globally and happened to meet both Phil and Tino around that time, separately. Tino was managing a mortgage company in South Miami. He was one of my clients, and he had the distinction of holding the highest loan performance in the country with all of the loans that were being sold to Fannie Mae at that time, which was incredible coming out of a South Florida mortgage company just prior to the first crisis in the number two fraud market in the yeah, yeah. And then Phil I met in the airport, and literally, at that point in time, he was was a it was a PowerPoint deck and an idea. And there was an endowment that was.

00:05:35 - Mike Mills

Made by Radian at the Mi Company. Radian.

00:05:40 - Michelle Young

Right.

00:05:40 - Mike Mills

Okay.

00:05:41 - Michelle Young

Teresa Bryce BAYSMORE and the executive team at Radiant at that time made a very generous endowment, and America's Homeowner Alliance was formed. Phil and a number of other very notable, again, industry veterans. We have some really good guys on our board. Ted Tozer five time Jenny Mae president Ted Tozer sits on our Paul Mullins. A number of executives and individuals who have been in the housing finance market for multiple decades and have seen multiple. And so, you know, Phil and Tino really started this as a vehicle and a mechanism to provide balance to some of the industry trade groups that were already in the space. There was nobody that was really specifically representing the voice of the consumer. Everybody else that was prolific in the space was organizations that we're all familiar with, such as Nar and the NAHB and the NBA, but nobody was specifically there to represent the consumers of America, both current homeowners and prospective. So that was how the organization was formed. And as you mentioned, I've been with them now for over 15 years serving as an advisor.

00:07:03 - Mike Mills

Long time. Yeah, you've been fighting the good fight for a while. So what do you think, at least in the market that we're in right now, what do you think are the biggest contributing factors to why we've seen home prices just skyrocket over the last couple of years? And I read something yesterday that when you go back and you take inflation out that in the last ten years it's gone up like 80%, which it just seems mind boggling to some extent to think that prices have gone up that much in real dollars. What have been the primary contributing factors as to why this has occurred?

00:07:38 - Michelle Young

Well, I think that's probably best answered by letting you know what the top three priorities for America's Homeowner Alliance are for the country, and that is in rank order, although you could argue that they all should be. Number one, inventory rates and credit, right? And specifically credit distribution in this country. And I think the thing that's really dominating the majority of our discussions at AHA currently is inventory. We really think much of what we're seeing comes down to supply and I think there was a lot of reasons for why we are where we are. Certainly go back to the loss and the degradation in single family building that we saw occur over the last ten years. We're behind from a housing unit inventory perspective, we're way behind in units and we're facing a massive shortage coming up.

00:08:45 - Mike Mills

Yeah, it seems like we're seeing I saw a graph the other day where they were showing new single family resident starts and they were leading into 2008. They had been on a really steadily incline up where there were a lot of homes that were being started and completed. And then when the crash occurred in 2008, you see that number drop dramatically because builders obviously at that point they got scared, okay, what's going to happen here? We don't know what the market is going to bear out over the next several years, so we're going to slow our building down. Not to mention, I think a lot of builders just got completely out of the market in general, which consolidated things and made it a little bit smaller. But the cost of homes has been higher to build, or the cost to build has been much greater in a lot of areas and I think there's a lot of things that factor into why that's happened. But overall we've seen such a fewer amount of housing starts compared to family or household growth. Right. I think they say the millennials are even. I don't think people realize that millennial, the generation of millennials, is bigger and more people than the baby boomers. There's more households that are being formed in the millennial area right now than there were during the baby boom era. So now we have all these households coming together, and you see these narratives out there about how, oh, well, millennials and gen z, they don't really want to live in homes. They want to live in apartments, and they want to have freedom and travel. They want to rent because they want to have flexibility. And my argument to that is like, okay, maybe. But once they have kids and they have a family, that changes the entire dynamic, and they want the single family residence. But now all we see is we see apartments going up all over the places. We see multi unit developments happening, townhomes condos, all that kind of stuff is through the roof, but single family is still down. So why is that?

00:10:33 - Michelle Young

Well, I think if you take a look at what is going into the average costs in terms of regulatory costs, the NAHB was last reporting, I believe, the number I last saw, and this was at the end of the year, so it could actually be greater at this point in time. But the NAHB was reporting $86 to $94,000 embedded in each single family home. Build of regulatory costs, really $86 to $94,000. I think if you go back to YouTube, the december chairman spoke, and that was the number that is embedded in his presentation. So I can't tell you what's in the 86 to 94,000. In terms of itemization, I know the NAHB is well aware of what's in that number, but when we talk about affordable housing and we talk about pricing, that's 350,000 and below, and you now have an understanding that builders have an $86 to $94,000 spread that they have to cover on that. That's why that is at least a significant driver for why you see less single family homes in the affordable price range being built. Because there's no margin in it.

00:11:59 - Mike Mills

Yeah, you couldn't even build. I bought my first house in 2004, which, I mean, I guess is 20 years ago. It doesn't seem like that long ago, but time goes fast. But I bought it in 2004, and I paid $130,000 for it, and it was in a nice neighborhood. It was a 1700 square foot property, good schools, the whole thing, and I paid 130 grand for it, and this was 20 years ago. And now what you're saying is that you couldn't even get 150 or $180,000 house built because 80 to 90 grand of it is already baked into the regulatory costs. So what are those regulatory costs? Like? What are builders having to pay? Is it zoning? Is it licensing? What all is having to be paid out?

00:12:42 - Michelle Young

Again, I don't have the itemization on that. So I wouldn't want to run through that. I think I would disadvantage the NHB by doing that. They clearly have some really good research on that. But I think what we've seen is at least in the marketplace from a permitting perspective, we're starting to see issues there. I can comment on that just in terms of observation in the marketplace.

00:13:10 - Mike Mills

Right? Just anecdotal stuff that you've seen on what it's costing to get permits done.

00:13:14 - Michelle Young

Absolutely. But this is all part of the larger affordability discussion around consumers. So if we look at you're talking about affordability, and if you're talking about $350,000 homes, you've got 86,000, $94,000 on average going into each build. Now, from a construction perspective, and we have 12,000 plus in manufacturing costs or wherever we're sitting today, I don't even know what the real number is. Maybe you do, but last I heard it was like $12,700. And it may be even more than that to manufacture a loan, we have borrowers, we have consumers coming to the table with 100 grand of just nothing, of just covering the spread that's just table states to just have a seat at the table.

00:14:04 - Mike Mills

Well, and it's terrible because our economy is built on incentives. I mean, that's what a free market economy is built on. You have incentives to grow and develop. And how do you put out the rules in order to make the incentives as such to where you get the desired result? And now we're talking about a situation where you're literally deincentivizing builders to build affordable housing. Because the amount of cost that you're building into just not even breaking ground just to get the permission, essentially to build, is so prohibitive that it doesn't even make sense for a builder to go in there and build anything less than 300, 350 or 400, because then there's no profit in it. So if you're running a business and you're building homes and that is your job, well, nobody's building homes for free. We're not trying to create homes that if I'm going to put my time and effort into doing it, I would like to be compensated to some extent. So if that's the case, then I'm going to pick a price point that's going to at least have some profit built into it so I can be sure that my business thrives. Otherwise it's not going to last for very long. And so why in the world would I want to build a $200,000 house? Because between the cost of the dirt, the regulatory requirements, and then all of the especially with the escalating building costs, there's no margin. So the only answer to that question is to start to get into the McMansions. You're building the four or five, which these days a $400,000 house didn't even qualify for that. But you're starting to build these higher tier homes, which is why when you're driving down the freeway and you're seeing the Lennar Builders or you're seeing Dr. Horton or whatever it'll say, homes starting at 300. Well, it might be starting at 300, but once you build in all the necessities of the package you have to put together, you're sitting at 400 really quickly. And that's why our average home prices or the median home price these days is like I think it's up to almost $400,000.

00:15:52 - Michelle Young

Right, you're right. So in terms of number one for the country is, as I said, inventory. And I think supply is paramount to that. And one of the other things that I think from a consumer perspective we need to fix, and I posted about this this morning on LinkedIn, is the concentration of institutional investors in the space. And I mean, the good news is, hey, for Realtors and other housing finance professionals, there is still a 60% to 70% of the market that's remaining out there and there are consumers that need to be served. And I don't want to lose sight of that when we start to talk about the components of the industry that have left us. Whether that's permanently or temporarily, I don't really know at this point in time. So I don't want to lose sight of the fact that it is so important that we maintain focus on the home ownership opportunities that we do have in this country and we are reminded to serve those consumers. But for all of the 33% of our marketplace that is left and is projected to be 40% next year, which has been taken over by single family rent to own and institutional investment markets, I think we have to find a way to effectively work with those partners and deal with that. Because we have a large portion of our inventory and our stock that's tied up in rental. And at some point in time, I think we'll need to look at how we're going to effectively convert that.

00:17:36 - Mike Mills

Do you know if there's a lot of delineation? Because I feel the same way that you do. I think institutional buyers have caused a major issue and right now, at this moment in time, it isn't quite as impactful as it has been for the previous, probably five years, I would say. But do you know when these studies and different readings of percentages on how much is actually being purchased and what they're doing in different markets? Because I get conflicting information. I don't know if you guys have done enough diving into it, but the difference between an institutional buyer and like the mom and pop investor right. Because sometimes if I'm a homeowner and I decide I want to get into the rental game a little bit, I might own four or five properties and I buy it with my LLC or I buy it in my own personal name and transfer it to the LLC or whatever the case may be. Do you know if there's a good way to differentiate between that? So we know, actually, how much is the true institutionals, the Ibuyers, the big boys out there, versus the mom and pops?

00:18:38 - Michelle Young

I don't have that data, and I think that's a great question. I wonder if urban does. It would be, I think, really difficult to extrapolate just because I think you'd have to get down to a pretty local level to understand. And then to your point, there's so many shell companies and LLCs you don't really know. A lot of times you think you're looking at regional and local institutional buyers, but it's really just a name that is rolling up to blackstone or one of the larger players. I think when we really start talking about disruption in the marketplace, for me, personally, I'm less concerned with mom and pop investors and small regional institutional investors. That's not really what I'm referring to when I talk about what I characterize as almost violent disruption to the industry, mom and pop didn't come in here and overnight grab 40% of the housing finance market, okay? It doesn't work that way. As powerful as the US. Consumer is, and as much as I want them to be that powerful, it doesn't work that way. We know how that happens. A behemoth like a BlackRock who owns one 6th of all the real estate on the entire globe right now. Let me point that out. One 6th of all of the real estate on the entire globe. I can hardly say it with a straight face, truly. I'm talking about these participants in the ecosystem, and I wish I had better data, because I can share with you. In 2019, st. Louis was the number one flipper market in the country. 18.8% of all of the purchases were flipped, and I don't see a great deal of evidence here of a big blackstone presence, but I could be mistaken.

00:20:35 - Mike Mills

Well, they come in many different forms. That's the problem, is you don't really know, because, look, when you just look at the system of how other industries have progressed, okay? Just what's happened with our food, what's happened with our communications, what's happened with our television networks, what's happened with the cars. We're in a place where we're running out of things that people actually own, okay? Those things are starting to decline, because I always use this example whenever I talk to people about this. I don't need a ton of information just to be able to see where things have gone in the past and where they're going to go in the future, because just take a look at media. Media is a good example, okay? Used to you had these regional I mean, media is in news outlets, and media is in radio or excuse me, music, television, all this kind of stuff, right? We used to drive around in our cars, and I'm 45. I'm not sure how old you are, but back in my day, we used to drive around with these big foldable CD. You had 8 million CDs in this big thing, or even go back further, you had your tape deck or whatever the case may be, right? And you would drive in your car, and you'd have to whether you had the changer, you put the CD or the tape in, and you would listen. Well, that was something that you went to the store and you purchased with your money, and it was $20 or $10 or whatever the cost was back then. And now you own that. It was yours. Okay. My very first CD was Garth Brooks Rope in the Wind. Okay, I'm in Texas, so country music is a little bit player down here. But you take that CD and now you own it. Right? Well, fast forward to today and my kids. I have a 16 year old and a 14 year old. They own Zero Media. They have no music. They have no DVDs. They have no anything, because now we subscribe to YouTube, Spotify, Apple, Netflix, whatever. And now it's a monthly subscription. You pay by the month to get access to the catalog of information. You don't own any of that. You have no ownership of it whatsoever. Even a lot of the artists barely own most of what they produce. It is given to you on a monthly subscription. Just like we're very quickly heading in the direction and I know the numbers grow every year on people that own their cars. Used to, you would go to the dealership. You'd pay $20,000 for this car at the dealership, and now you owned it. And then it went to okay, well, now that car prices have gone up, now we're getting into payments you're going to have to pay, but you're going to own it in three or five years or whatever. Now we're at a place like, hey, I know the payments get really expensive on this $100,000 car that we have now, but if you want to keep your payments less, we have another option for you. It's called leasing. So now you have this car, but you don't really own it. You just pay the dealership on a monthly basis for the right to drive it around. Okay, well, this has already existed because we have renting and real estate. It's been around for a very long time. But now, because we've lost the car ownership, we've lost our media ownership, we're getting to a place where now private companies are owning water sources, which is frightening in and of itself. All of these things are happening, and it's happening to housing. We are starting to commodify housing to where it's a place where on a monthly basis, you're going to pay some conglomerate for the right to live in their home. And if your water breaks, too bad, fix it. If you don't like the neighborhood, too bad. Go rent somewhere else where it's going to be just as expensive. And the idea of owning your home, it's like we're trying to filter it out, and it's terrifying to me, and I don't need to know that. 40% of I live in Texas, in Tarrant County, and there was an article in Mike Mills Mortgage and Finance that came out a couple six or eight months ago that said in 2021, 50% of the homes purchased in Tarrant County were purchased by non individuals, essentially LLCs, institutional buyers, whatever, 50% of the homes that year. So it's terrifying to me that that's where we're headed.

00:24:39 - Michelle Young

I would agree. And going back to inventory and affordability, because I outlined that there were three, so inventory kind of affordability goes with inventory, in my opinion. Number two is rates. I don't personally spend a lot of time talking about rates, even though yesterday the NHB, the NBA, and Nar issued a letter to the Fed asking for I saw that. Yes, mercy basically asking for, which, you know, I understand that, and I respect the need for that, but on behalf of American consumers, I think we would have liked to have seen the ask be a little bit more stimulative.

00:25:27 - Mike Mills

Well, the reality with rates and housing is that and I've used this before, too, is that the old school realtors will tell me, oh, I sold houses in 1983, and interest rates were 18 and a half percent, and people still bought homes. That's true, but the average price of a home was $70,000 in 1983. Okay, so 18% on 70 grand isn't too bad. It's not great, but it's not too bad. 7% or 8%, where we're at now on 400,000 is a whole other ballgame.

00:25:55 - Michelle Young

Agreed. I agree. The affordability component is a big one when entering these discussions. You can't just have them. That's why I don't necessarily like to participate, and we don't spend a lot of time at America's Homeowner Alliance on rates per se, but we haven't needed to because we haven't been in this epic cris situation that we are today. But again, I think the policies that we would like to see would be a little bit more constructive. It wouldn't just be like, please, I think when we write our letter, we're going to ask for a little bit more.

00:26:38 - Mike Mills

Well, you're going to probably offer some ideas on solutions rather than just say, please help us stop doing what you're doing. Right?

00:26:44 - Michelle Young

We're going to try to do that. The third piece is credit distribution, and I think that that's equally as important, too. And when Phil outlined the top three priorities for America's Homeowner Alliance this year, initially I was surprised to see credit hit number three. But now I'm in 100% agreement, especially with what we see going on with the buy merch trimerge discussion. So I think that that's really important. But probably paramount to two and three is still number one, and it's just going back to inventory and supply, and I think there's a lot going on right now. So we need to get in front of the regulatory cost issues that are embedded in single family housing. In my opinion. We need to get in front of that very quickly and unwind that because I don't see that there's any way out of this multifamily kind of spin that we're in until we peel back some of those regulatory costs that are embedded in those single family bills and we bring those bills back in line with some affordability. And I'm a taxpayer and I've also been in housing finance long enough to know that whatever's in that 86 to 94 can be negotiated. Okay, I don't know what's in there, but I'd really like to know what's in there.

00:28:14 - Mike Mills

Well, I would imagine a lot of it happens at the state and local level, too, as not as much on a federal level as far as what can be done, because real estate in and of itself is an extremely local you. When you see American housing numbers and average prices and default rates and all that kind of stuff, it's very hard to take a big US number and be able to associate it to your market because every market is extremely different. The California market right now is suffering worse than anybody else for a numerous reasons versus where I'm at in Texas, where companies are coming in, people are coming in. Even with high rates, we're still selling homes at a great clip, but a decent clip. It's still happening because people still have to move. They have to move for jobs, they have to move for growing families, all that kind of stuff. They don't have a choice and they can't pick the market in which they decide to move because it is what it is. And so when you have a need, you're still going to have demand for it and it's going to continue and you're not going to see the prices come down. I mean, it's basic economics, right? It's economics 101. Supply and demand. If you still have a high demand even with higher rates, and the supply is extremely low, which it has been since 2011, we haven't exceeded, and there are some numbers out there that say months of supply are up. You see six and seven months in certain markets. I think that that's the case. But as a whole, especially where I'm at, I don't buy that because a lot of that is included in new builds. So you see a lot of new builds that aren't actually ready to be moved into, and they won't be ready to be moved into for twelve to 18 months until it's complete. And so that house isn't really available. I mean, it's there. You can purchase it, but you can't move in, which means you can't sell your house that you were moving out of. So when you factor out those numbers, the month of supply shrinks dramatically. And the market that's doing well right now is new builds because the pre owned. Homes are not coming up for sale. Because if you have a 2% or 3% interest rate and you don't have to move, then you're probably not going to move. And you're going to sit put or stay put until the rates at least get into a more reasonable range into that maybe five or six or something like that. And then the desire can kick up then. But if you don't have the supply of homes available and the demand is still high even with the rates, you're not going to see these prices come down. Even if I think it's going to take and I want your opinion on this, what has to shift in order for us to get more supply? I mean, foreclosures are the lowest they've ever been. The foreclosure rates at or below 1%. And it's been that way for a long time. So unless the market takes a significant turn in the other direction, which isn't out of the realm of possibilities, the economy is not doing as good as maybe people believe it is. But unless that happens, people aren't selling their homes, builders aren't building them. Where does the supply come from?

00:31:19 - Michelle Young

We have to build. I mean, that's what it comes down to. And we have to build in the affordable sector. Going into 2032, the Urban Institute has projected that we have a three to 7 million house shortage, unit shortage. And that's not people. We know housing is not a one to one. We know that housing is a one to many. And with the population projections that the Urban Institute is making, much of, that is immigration related. And we know that a lot of the immigration related housing needs are multigenerational. So when we start to talk about having a shortage of, let's just call it in the middle, 5 million units of housing, we know that can be 1020, 30, 40, 50 million people that are going to be homeless. And we know with immigration surges that much of these needs are going to be in the affordable category, right? So the only way to be able to meet those needs is to be able to construct and build affordable supply. And in my opinion, you asked the question and at America's Homeowner Alliance, what we're attempting to do is to put together an inventory coalition and that really needs to include labor and construction. There are things that I feel that we don't talk enough about in housing finance and one of them is the partnership and the dependency that we have on our friends at the NAHB and within the skilled trades and labor unions. So we've got to do a better job, in my opinion, of helping these guys stand up the supply we need. So first of all, support them in being able to strip out the $86 to $94,000 worth of regulatory costs that are going into these affordable builds and then do what we need to do on our side of the fence to take care of the $13,000 in manufacturing costs that we have that are going into loan manufacturing. So those two things need to happen. We also need to understand what the impact is on the regional community banking center. Right now we've seen a massive amount of depository flight from the regional community banks. And what a lot of people don't realize is that that's the source of financing for most of our regional and local builders. So it's very important that we keep distributed risk within the retail banking sector so that it helps keep a healthy construction sector. I sound like I know what I'm talking about. I literally have just started reading. I want to let you know that both the NAHB and the NAIC have extensive white papers available on their websites about housing finance reformation. They have very well articulated points of view on how the US housing system should work. They employ some very bright economists. So I spent the last winter really poring through these white papers and that's when I really arrived at the conclusion that we were missing half of our partnership in housing finance. And just to take that a step further, when you look at labor and you look at specifically skilled labor, we have a massive, massive shortage. We have electricians that are like literally in five years, there's not going to be a skilled electrician left to train anyone. I think you and I had a discussion before the show. I've always been held myself very proudly as a fiscal conservative, and labor unions have never been a part of necessarily of my narrative. And I have become so intrigued and so interested in how do we partner with labor and with the unions. In my opinion, it's all hands on deck when you're talking about a five to 7 million household unit shortage. I've been homeless. I don't know if your guests are aware of that. I was homeless as a teen, and I recently wrote a book that I'm working on publishing, having published. It's really my story of homelessness to housing. So I spent a number of years homeless. It's not fun. It's a horrible existence. And right now we are manufacturing homeless in this country. We know we have a shortage of five to 7 million units. There should be a coalition in this country that is already active, that is being led by either one of the large labor unions or one of the large constructors. We should have a national coalition and we should have focus on this.

00:36:36 - Mike Mills

So two things there. So I didn't even consider the regional bank aspect of it because what we hear because I spend a lot of time reading financial news, so I at least have some idea of what I'm talking about sometimes. But there's a lot of focus on the regional bank issue with commercial real estate because a lot of commercial investors typically get lending and whatnot through the regional banks. When you had the SVP collapse and you had these other regional banks that were having issues that the Fed basically had to come in and bail out and then Chase got to buy them up at a discounted price, which is a whole other thing. But when that occurred, there was a lot of focus on, okay, how is this going to impact commercial real estate, how is this going to impact funding for that type of thing? And it still is a big concern because the regional banks are struggling right now. But I didn't even consider the fact that your small to medium builders who are a big part of the building community for these single family residences also get their funding from those small banks. I think of it in terms of how does the buyer get the funding to buy the house. They go through bankers like myself or anybody else that they can use. But I didn't consider or think about the builder itself and where the funding for those comes from because it does come from those regional banks as well. So if you start to see a stress on that market because I think that's where people get confused on or get lost in the minutiae on. If I'm a regional bank, and let's say I've got five, I don't even know the average, but let's just say I've got $5 million in deposits, I'm sure it's more than that. I have a percentage of that that I can actually lend out. So because of the FDIC rules, I can't lend out over a certain percentage of that money that I hold in deposits because I have to make sure if there's a run on my bank, I have money to give out. Well, if I lose deposits because people fear that my bank is going to collapse and they go stick all their money with Chase or bank of America or whoever because they're bigger and have less risk involved with them, then that limits how much money I can then lend out to anybody. Small businesses, small home builders, anybody that I'm now limited. Which is why if you go to Chase and you put your money in a savings account there, they're going to pay you zero for it right now. But if you go to small regional bank in midtown America, they're going to give you 5% interest on putting your money in their bank because they're trying to encourage more people to put deposits so they can lend out money. Well, if that market shrinks, then the market for building is even smaller. On who can build homes because this is the way I work is I'm a conspiratorial brain type of person. Good or bad, I can usually see both sides of it, but I always think there's somebody up there up to no good. And we are entering a place where we like to be told it's Republican and Democrat and red and blue, and you're on this team and you're on that team, and we don't like each other for these reasons and blah, blah, blah. But what it's really turning into is, or it has been for a long time, whether we realize it or not, is a have and a have not, right? Who has the money and power and control and who doesn't? And whether you're on the blue team or the red team, I tell people all the time, none of those people up there that have all the wealth and influence are advocating on your behalf, okay? They're not fighting for you or there are very few that are. So I'm curious. Your opinion. How much do you think of this stuff where you have limited coalitions of people that can get involved from labor movements and whatnot, but you have a lot of pressure from the top end pushing down, putting more regulatory requirements on it because it does benefit the bigger builders, it does benefit the larger companies because it pushes the little guy out. Do you feel like in some cases there are, I don't want to say coordinated, but is it just a function of the system being broken on how it's all put together? Or is there the blackrocks of the world that are really like, all right, we're going to create this rule. We're going to write this legislation, we're going to get this passed, because in ten years, this is what this market is going to look like.

00:40:35 - Michelle Young

So my personal opinion, having been in this industry for 35 years and worked for a number of private equity firms and made a lot of money for them and made a lot of money working for them, is, of course, there's a systemic effort to do that. It's the profitable play. It is the most profitable play. And these are not for profit organizations, and I don't think we need to vilify them as such. I've been very vocal about the fact that I have benefited personally and tremendously by private equity. Having said that, I can't deny the violent disruption in nature that they have brought to the housing ecosystem. And to kind of take this answer one step further is I write about this and I talk about it a lot, and it doesn't seem very consumer focused. But really, to be a consumer advocate in housing finance, my personal opinion is that you have to respect the fact that housing finance is very much an ecosystem that's been constructed on distributed risk for a reason. So when you upset that balance, much like the example that you're giving within the banking sector, anytime you come in too heavy on one side or another, and we know we disrupt that risk equation, we know that there can be catastrophic consequences associated with that. We've already lived through a couple of bank crises and financial crises and mortgage crises.

00:42:11 - Mike Mills

Maybe living through one right now. Coming up.

00:42:14 - Michelle Young

Yeah, so, yeah, absolutely. There's a concerted effort, and again, the average consumer doesn't understand what we were just discussing, the fragility of the housing finance sector and the fact that we are all codependent on one another here. We truly are. And the builders are dependent upon the deposits of the regional banks. This is why we need our regional banks. Here's the other reason, guys, they're the distribution for rural America, okay? There's a big section of this country that isn't located on either one of the coasts.

00:42:52 - Mike Mills

Right.

00:42:52 - Michelle Young

And regional banks and the loan officers and credit unions are a big part of building our communities in terms of being able to bring exposure to products. I don't want to say education because I know a lot of people don't appreciate that word. So we'll just call it exposure on the job training, learning to be a homeowner and a savvy holder of generational wealth, whatever you want to call it. But these guys are important to distribution, not just for builders, but also for the rest of us and for consumers.

00:43:25 - Mike Mills

Yeah. Well, do you think that okay, so getting on since we're on this topic, I was going to bring it up towards the end, but have you seen are you paying attention to the recent lawsuits that are going on with Nar and Remax and Keller Williams and the class action suits there? Have you seen?

00:43:44 - Michelle Young

I have not. And I will be really honest with you because I don't feel that I'm able to get a lot of traction on behalf of the consumer in that area. Right now. I feel like the biggest bang for my buck in terms of focusing for consumers has been on the inventory crisis. So I'm sorry, I'm just not probably as educated on that as I should be.

00:44:08 - Mike Mills

So I'll give you the quick hits on it, just so you know, because I really do want to see what you think about. There was there's been two class action lawsuits filed. There's a third one coming. The plaintiffs are sellers that were essentially required to pay buyers agent commissions as part of the agreement for selling their home. So in order for a realtor to have access to MLS, which is your local listings network in that area, there's a code of ethics and an agreement that you sign that says if you list someone's home that you have to offer buyers compensation as part of that. Okay. Now the limit is like one dollars. So it doesn't say you have to offer 3%. There's no requirement. It's kind of built into the ecosystem of buying and selling homes, but it does say you have to offer a dollar. Well, now these attorneys got a hold of this and Remax has settled for 55 million anywhere, which used to be Rheology, which is like Coldwell Banker and whatever. They settled for about $85 million. And Nar just this week came out and said that they were changing their policy to say, now, you did not have to offer buyer compensation as part of your listing agreement to the buyer's agent. Okay? So now they're basically saying that as a seller, I do not have to pay the buyer's agent in the transaction. Well, their argument on the consumer side is say, well, this will save consumer money because now there's more of a negotiation of commissions and to bring down the cost, and it'll help consumers in the long term save money. But on the other side of it, you go, okay, well, how long does it take before it deincentivizes buyer's agents to work with buyers? Okay. Because the whole idea of the transaction in a real estate deal is that you have an advocate for the seller and you have an advocate for the buyer. And both of those people are working to execute a contract. Repairs, negotiate, price, anything that comes up throughout the transaction to make sure that it's handled correctly, legally, all that kind of stuff. So everybody's protected. Well, if we go back to a market where we existed previously, where we were talking about before the show started, where we have ten or 15 offers per home. Okay, well, as a listing agent, if I have five buyers that are represented by buyer's agents, and I'm going to have to pay their commissions or I have five buyers that aren't and are coming to me directly, that I no longer have to pay a seller commission on, then I'm going to take those offers because it saves my seller money. Because they're not paying a commission any longer. Well, if I'm a buyer's agent and someone comes to my buyer and says, hey, I'll sell you this house, but you got to dump your agent because it's saving too much money, my seller is not going to accept your offer unless you get rid of that. Well, this is a relationship business. You get referrals. You're a buyer's agent. Your buyer comes to you and says, this is the house. This is the house of my dreams. This is the one I want, but they're not going to sell it to me unless they don't have to pay you. And I don't have enough money to pay you because I barely have enough to pay for my down payment and my closing costs as it is, and so I can't pay your commission. So what do you do as a buyer's agent? Well, that's your friend, that's your relative, whoever. Now, you've shown all these houses, you've done all this work, and you're like, okay, I understand. I'll get the next one, right? Well, fast forward five, six, seven years, and the next one becomes fewer and fewer and fewer. And now when someone calls you and says, hey, I want to look for houses, can you be my buyer's agent? You're going to go, no, I just represent listings. I don't do buyers. So now what happens to the advocacy and the representation for the buyer. Fast forward five to ten years when all these litigation are now saying, no, you don't have to pay the buyer's agent anymore, and then who does that ultimately benefit?

00:47:58 - Michelle Young

Well, it's a lot. I'm going to give you kind of an answer. Non answer.

00:48:06 - Mike Mills

Yeah, that's fine. I've just wanted your opinion on it. You don't have any information on it, so nobody's going to hold you to a court of law on this. I just want your initial opinion.

00:48:15 - Michelle Young

No, it's kind of a general statement, but it's twofold. I mean, number one is yeah, it sounds like it's additionally more concerted effort to take home ownership off the table and to take advocacy and responsible home ownership off the table. So that's alarming. And then number two would be, again, we're an ecosystem. Things are really screwed up. Why are we focusing on this? Right is I have done an about face my entire career. You can ask Brian view. You can ask anyone that, you know, that knew me. I was the queen of we're. Disruption, disruption, disruption. Now I've completely gone the other way. I'm like some old like, I joke with all the old men that I work with in housing finance. I'm like, I'm the oldest dude here. I want no changes to anything right now. They're all literally like, we need to do this. We need to like, no, no, we don't need to do anything. I'm like, I need to be the next president of Alta, because those guys know because Kurt Fodenhauer knows how to hold the line. I swear to God, I am like, no changes to the ecosystem right now. Things are so fragile. We have to fix the supply issues first. Let's not do anything else. I mean, it that's how I feel about it right now.

00:49:34 - Mike Mills

That's my answer. Yeah, that's true. But that's the thing, is there's so many things coming in so many different directions that are ultimately impacting the thing that has been in place for 100 years. Plus of if you want to grow your wealth as an American citizen, the quickest and easiest way to do that as an average person is through homeownership. Is through buying a house, living in that house for a period. Of time picking up the equity on that home, whether it be through appreciation or through paying down the debt, which more often than not, the bulk of it comes through appreciation and then selling that home and upgrading to that next level and putting more money down. So now you have less of a debt on that particular property, and now you grow in appreciation more, and you do that three or four times throughout your life. Then by the time you're in your whatever age you want to call it now, there's a good chance that house is paid for and this bigger house, and it might be worth five, six, $700,000. Well, that could be a good piece of your retirement that now allows you to not have to work for the rest of your life, or at least not have to work so hard. And now we are literally taking that path, and we are cutting it off for already, I think, right now, again, I don't know the exact number, but I want to say you might know this. I think it's is it like 40% or 50% of the American. It might even be 60 can't afford a basic house based on their income or what the average income is. I mean, they can't afford to buy a house. There's no way around it.

00:51:05 - Michelle Young

It's significant. I think the real answer is that what we're doing right now isn't working right. Most Americans, the majority of Americans are spending better than 50% of their pretax dollars on housing costs right now.

00:51:24 - Mike Mills

Yes.

00:51:24 - Michelle Young

And our answer has been, and that is in a market where we have a significant portion of build to rent and rent to own that we haven't seen in years prior. So my point is that that is not helping with affordability. That is not bringing the rent to own.

00:51:47 - Mike Mills

I want you to talk about that, because you had sent me something on that before, and that whole thing is such a well, I got a lot of opinions on that, but explain the article that you were sending over on what's happening with that and to some degree, what kind of scam this basically is.

00:52:03 - Michelle Young

Well, so single Family Rent to Own has been around for a while. And just to preface, if utilized correctly, it could be a very valuable program that could lead to sustainable, responsible home ownership. But what you have right now, you don't have a representation of that in the marketplace. And Invitation Homes is easy to pick on. They're Blackstone. They're the biggest guys in the space. They paid $6 billion to get into it and got a billion dollar interest only loan from Wells Fargo that was backed by Fannie Mae.

00:52:42 - Mike Mills

So you're saying they're not intending to take all that money and then just help people find the dream of homeownership?

00:52:48 - Michelle Young

Well, I think. Now, I don't have anything that's reportable on that, but one of their former employees, one of the former Invitation Homes employees that is working for one of their competitors, reported that the first year after they made the purchase, they had a conversion rate of 3%. And they've only been able to elevate that another 3%. It hovers somewhere around six. So 6% of the entire single family residential portfolio that Blackstone holds has been.

00:53:23 - Mike Mills

Actually converted to ownership. Correct. Yeah. Can you explain how the model works? Like, what the hook is to get you in, and then what happens when you get there, and then what happens on the way out.

00:53:35 - Michelle Young

So a basic model is that as a prospective buyer, you find a property that you would like to purchase, and you take the property to that single family rent owned operator. You present it, they purchase the property on your behalf, much like as a cash buyer, they rent it to you, and there's opportunity for you to work into homeownership.

00:54:05 - Mike Mills

Right.

00:54:05 - Michelle Young

So usually that involves some degree of credit counseling, and there's usually a runway associated with that because most of those borrowers are either ineligible or property.

00:54:19 - Mike Mills

And most of those rents, from what I understand, are higher than whatever the typical market rent in that area would be because of the idea of you're working towards the ownership piece. Is that right?

00:54:31 - Michelle Young

Well, if you look at the article so I referenced an article, I think, that was published in 2019, and there was data that accompanied that from the Urban Institute. And I think that when Invitation Homes First, when Blackstone first made the purchase, and Urban went in and took a look at the deal. I'm reading directly, but it says it found that 66.7% of the 7000 properties in the transaction are affordable to renters, earning 100% of the area median income, or less, far less than the 80% to 90% for recent Fannie Mae multifamily acquisitions. So they knew at the time that this was actually less affordable and that moving in this direction would result in less affordability.

00:55:27 - Mike Mills

Well, you're building a rental portfolio, and this is what some of these ibuyers, the open doors of the world, have done, and it's kind of in a underlying I don't want to put intent because you never know. There's always people have good intent with things, but it just didn't work out that way, where you go in and say, okay, hey, you individual, go find us a house that you feel like is worth it. Right. Bring us the house. So you're basically telling I mean, imagine a situation where I'm an individual, and I can go find a renter ahead of time and go, hey, renter, go find a house you want to buy, and the renter goes and finds or go find a house you want to rent. Go find a house you want to rent. Renter goes, oh, I like this house in this neighborhood. Okay, how much are you willing to okay. Yeah. All right. I'll charge you for that. What's the cost of it? Okay. I can make that math work. Yeah, great. You're going to be the renter. What did I have to do? I'd have to do anything. All I had to do was come up with the money need to buy the property so the person could rent. I didn't have to find the renter. I didn't have to go through the process of looking for the property. They handled all that for me. They did it on their own. Then they bring me the house, and now I've told them, you add the extra layer of, hey, oh, by the way, if you do this, this, and this, you can own this house. In three years or five years. Now we're going to sell it to you higher every year that you can't. We're going to make the price go up because the market appreciates. And even though your income isn't keeping up with it, which is a whole other thing, even though your income isn't keeping pace with the inflation of the house prices, we're still going to offer the ability for you to buy it if you want to. Oh, darn, you can't. Oh, darn, the rent went up and now you can't afford to rent it anymore. Well, I guess you're going to have to go find another place to live. And, oh, by the way, now I have a rental house in my portfolio that has been earning cash flow for me for years at a higher percentage with a higher appreciated value that I can now stick another renter in there and build my portfolio of rental properties that I can now turn around and sell as investments to big companies. So, I mean, from a business point of view, if you just want to examine it from I'm a businessman running a company trying to earn profit, it's freaking brilliant. It's brilliant.

00:57:25 - Michelle Young

100%. That's the conversation we were having earlier. That's why I was like, of course there's that kind of pressure.

00:57:33 - Mike Mills

You have to have rules in place to prevent that kind of stuff.

00:57:38 - Michelle Young

Secondary to that, there's another model that is the build to rent model. So a lot of the multifamily larger projects are being built to rent. So a pool of available properties and they say, versus you go out and find your own self, select your own property, we have these properties available for you and you can rent to own one of these. Now, there are operators out there that have higher conversion rates, just to be clear.

00:58:07 - Mike Mills

And like I said, conversion rate be like 60 or 70%. Isn't that the idea?

00:58:14 - Michelle Young

Honestly, let's be fair, because I'm trying to deliver a fair and kind of balanced view from my perspective, maybe not in this environment. I mean, rates are like crazy. Maybe not in this environment. Maybe that's not a reasonable expectation. But to your point, in a normalized environment, yeah, I would expect that we're going to be somewhere closer to in line with the national average if these guys are doing what they are supposed to be doing and say they're doing well.

00:58:41 - Mike Mills

I know we've given a lot of bad news or bad situations, but what I want to know is as an average consumer or a realtor in a particular market, what would you advise people to do to start helping turn the tide of this stuff? What kind of advocacy can they do? What kind of organizations can they get involved with? Because the thing, again, it's the forest through the trees type of deal, or it's the frog in the boiling water situation where this stuff is happening, but we all exist in. Our own little bubbles in our own little world and well, I closed this transaction and I got this buyer help and yeah, my transactions are slowing but I'm still doing deals and we're not looking at the long term because very few people have time to do it because we're living our lives. But if we're going to look up one day and the idea of a real estate agent and the idea of a mortgage broker and the idea of single family home ownership is going to be so minimal because it's just been this slow burn that's happened over the last 15 or 20 years. We've seen it accelerated the last three or four years but it's going to be this slow burn that continues. So how can we keep agents and buyers and sellers and just the average person on track to know, hey, look, this is important, you need to pay attention to this because it's going to affect you and your children and your grandchildren in the future.

01:00:03 - Michelle Young

I don't think there's a silver bullet and I think that's what we're always looking for in housing. Truly I do. And that's one of the reasons why I wanted to share today this notion of the fact that we're an ecosystem and that we are intra dependent and that we are partners and that it is a bigger place. Because to answer your question, what I think the real answer is, is that home ownership is always going to be important and it's always going to be important to this country. It is foundationally important to the economics and the socioeconomics of this country. That much is not going away. What I do think the opportunity and the challenges is that we've been spoiled by these incredibly low rates and this environment for a very long time. And I think not all of us, but some of us, present company included, maybe in the past, have been lazy sellers. Right. The business has come a little bit too easily and I think now we need to switch gears. And I think the answer is right here. What you're doing is we need to do business differently. We need to understand that business is probably going to be in our pipeline for a lot longer. We are going to need to educate or expose our work with them longer. We're going to have to be more compassionate, we're going to have to deliver more grace to them and ourselves and we're going to have to learn to use media and use the tool set that's available to us. It's changing. The face of this industry is changing but the opportunity is still there.

01:01:48 - Mike Mills

Yeah. Do you think there are things that on a governmental level or organizational level, like with advocacy groups like you guys have, are there organizations that agents or buyers or sellers can get involved with or just help out that are fighting these fights? Because I think that's the thing that gets lost a little bit. Is. It's not that there aren't people that are passionate about trying to fix this problem. It's that the vast majority of the money and the power, I guess you could call it, behind the other side of the fence is so heavy and so outweighs the ones that because I think there's more people that want to fix the problem, but there's a lot less money and attention on it because there's so much power and influence on the other side. Is there something that you would recommend to buyers, sellers, realtors to get involved or at least try to draw more attention to the subject?

01:02:43 - Michelle Young

What I would say is don't lose your voice. Don't lose your voice just because you think no one is listening. Don't stay silent. We can't rely on everyone else to fix the problems. Again, going back to I think for the last 20 years we've always just been like, oh well, supply is down. We'll just call up construction and labor and be like, hey, we need some supply over here, we're choking. Like come on, get with it. But never really considering like, wow, do they have challenges? Do they have interdependencies? We're all kind of joined at the hip. We haven't been. But I think moving forward over the next couple of decades we're going to have to be if we're going to make this work. So what I would say is talk to people, talk to the guys in construction, talk to the labor unions, join America's Homeowner Alliance. It's free. We don't charge for the memberships. Just because you're a member of Nar doesn't mean you shouldn't be a member of America's Homeowner Alliance. You're also a consumer in addition to being a Realtor or a member of housing finance.

01:03:52 - Mike Mills

Yeah, well, and you're an advocate for your buyers and sellers. So you want to be a part of groups that are advocating for them as well. Because we're all fighting the same not like you said, the ecosystem. We're all together. There isn't one group that pulls or makes greater impact than the other. We all have to do it as one.

01:04:11 - Michelle Young

Yeah. And I think one of the things that I would urge people to really resist and we have to remind ourselves of this daily at America's Homeowner Alliance, especially me, just full don't, don't allow this environment to cause any more divisiveness in the ecosystem. We need each other. That's what I've been trying to point out. We need labor, we need construction, we need policy, we need lawmakers, we need the guys in Mi, we need title. It's all hands on deck in this industry. Let's try to refrain from being divisive and throwing blame and pointing fingers. We need to come together in a coalition and we need to figure out how we're going to get in front of this and fix this for the country. It's serious. It's a very serious problem.

01:05:01 - Mike Mills

Yes, it is. Well, I wore my Batman shirt today because I was talking to a superhero out there fighting the fight as a know, battling against all the big guys. So this is my homage to you for but I really, really appreciate you coming on. Michelle, we're over an hour right now, and I want to be respectful of your time, so I really appreciate you hopping on and chatting about this. And I expect that we'll probably have some more conversations in the future about this because I don't think this problem is going away anytime soon. But I do think that we need more people like you on the front lines that are pushing back against this. Because all of us that are working in the industry on a day to day basis, we're busy trying to do loans, trying to sell homes and living our lives. And knowing that there's people out there that are focused on this issue and trying to help solve the problem makes me sleep better at night. It's not going to fix it overnight. But the more people that we draw attention to and the more people that get out there and fight against this change that's being torn away from us at every second that we breathe here, I really appreciate everything that you're doing. I appreciate everything that the advocacy group is doing, and I just hope that you guys keep getting support. Keep getting that's why I brought you on here, because I wanted to help spread your message as much as I can to my tens and tens of people just so we can make sure that this doesn't go away and it doesn't fall out of the spotlight. So thank you so much for coming on and anything else you want to leave us with before we go no.

01:06:34 - Michelle Young

Just thank you so much for your time.

01:06:36 - Mike Mills

Yes, my pleasure. Well, I appreciate everybody that stuck around. Check this out if you want to get a full breakdown of this on Spotify and Apple next week because I think this is an important conversation. And share this with your friends. Share this with Realtors, share this with homebuyers, because the more people are aware of this and the more people that spend time focusing on this, the better and more likely are to solve the problem because there's tons of us, there's millions of people that want to fix this problem. There's only a few people that don't. We just have to work against know with our numbers. So. Thank you, Michelle. Thanks for everybody that stuck around, and we will see you next week.