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May 18, 2020

Piecing The Housing Puzzle Back Together

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John Burns
John Burns | CEO, John Burns Real Estate Consulting

John Burns joins Richard Green to share proprietary tools he and his team developed during the Great Recession to monitor how the current crisis has unfolded. Burns illustrates that apartments are showing signs of weakness, but with a usual market-wide spring pickup despite the COVID -19 disruption. Burns credits the Federal Government’s actions to stabilize the marketplace as a key factor in the current resiliency of home sales. Burns also points out that Millennials with means are moving more and more towards homeownership as they age, though he cautions that the relatively good news today does not guarantee growth or “boom times” without resolution on how the US as a whole will manage COVID-19.

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Please note this automated transcription may contain errors.

Richard Green: Okay, it seems. We've stabilized on attendees a pleasant, good afternoon to everyone. Welcome to less perspectives for the week of May 18 2020 I'm Richard green I'm director of the USC left center for real estate. Always a pleasure to welcome you to these net our

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Richard Green: Weekly or bi weekly

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Richard Green: perspectives that we are doing. Before I introduce our guest today, just a little bit of housekeeping, first of all,

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Richard Green: There is a Q +A a function. If you have a question for john burns, please enter in there and what I will be doing is curating the questions after a John's presentation so that

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Richard Green: I can make sure everybody's question gets answered. Sometimes I combine questions, but we do try to get at least the germ of everybody's ideas out there in the conversation.

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Richard Green: Our next less perspectives will be coming this Thursday and it will again in future during shoot, who was our very first speaker on this event.

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Richard Green: Who spoke on testing. He has now been out in the field doesn't work and can share with us some of his findings about the prevalence of covert 19 and some of the implications of that. So I am sure that you will be very interested in

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Richard Green: What's up this coming Thursday.

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Richard Green: With that, let me turn it over to john burns john is very well known to I think most of you maybe almost all of you john is probably one of the best known analysts of the housing market.

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Richard Green: In the US, he has many homebuilder clients. He is particularly good at thinking about the Interrelations of changes in society and the demand for housing.

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Richard Green: Clearly, we are going through one of those phases right now where there are lots of changes in society that may have implications for housing.

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Richard Green: So john is I know going to talk to us some about the short run, but I'm hoping we'll find out. Also what he thinks about what's going to happen further down the road. So again, JOHN burns. It's a real pleasure to have you with us this afternoon.

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John Burns: Thanks, Richard. I'll do the screen.

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John Burns: Can you see me. Can you see the screen. Okay.

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Richard Green: Yes, thank you.

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Alright.

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John Burns: Well, thanks. Yeah, we wrote a book on demographics and folks. Fortunately, I have a consumer trend watcher, and boy, there's gonna be some great societal shifts that we've been paying attention to. But I'm not going to cover those today so

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John Burns: I realized I already went to the last slide. So

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John Burns: screwing up right off the beginning

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Richard Green: That was very efficient shot.

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John Burns: Thank you. We're done.

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John Burns: I'm

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John Burns: Going to start with the apartment market because I know the USC folks have a lot of apartment developers and

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John Burns: Its really shows the first signs of strength and weakness in the housing market. So I'm going to spend a little more time than usual there.

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John Burns: We started a weekly market post seven weeks ago and I'm going to show you what's happening there. And one of the reminders. I got is that, hey, it's springtime and good things happen during the spring. So I'll share that with you as well.

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John Burns: Then I'll bring in a little bit of demographics from our chief demographer we are seeing some millennial homeowners come to the rescue. Right now, which was quite interesting.

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John Burns: And then I'm going to wrap it up with our forecast, which is really just a good news today does not mean boom times tomorrow and I'm finding people are really confusing the two so

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John Burns: Let's get into it. So this is where it all starts. This is where I rented a home with four people in Palo Alto at that other PAC 12 University.

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John Burns: And then my first apartment. When I moved to LA. And the reason I'm showing you that is that this is housing demand.

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John Burns: You leave home, you get a job you usually start with rentals rental home, or more likely an apartment.

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John Burns: And then you move into a rental home or an own home when you get a better job when you get married when you've got more confidence, all these sorts of things. There's a reason I'm walking you through this

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John Burns: And you maybe you buy a second home and then maybe you end up at a rental. At the end of toward the end of your life.

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John Burns: But when the economy contracts, you see the reverse usually unless the government interferes and stops this and that's exactly what's going on right now is that the government is put all these incentives in place financially.

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John Burns: And morally and legally to keep everybody in place and so that that's where we're seeing. So in the apartment market may rent collections, despite the massive job losses are only one and a half.

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John Burns: Percent behind last year with that many people laid off. That's just incredible. You can see the collection here. Usually this far into may and this data is a week all to excuse me.

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John Burns: But usually by the sixth of May, the 82% of the rents are in, and there are excuse us at 85 on the class A, and it's it at to class B and usually at three class see a little bit harder hit

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John Burns: And it's not equal across the country. So you go to the Carolinas, the Midwest and the suburbs, the rent collections are really strong. You go to the urban areas.

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John Burns: Particularly the ones that had hardest hit economically like Las Vegas or hardest hit by coven like New York and the red collections. There are not nearly as good

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John Burns: At the government stimulus as helped a lot with read collections and even with eviction moratorium. See you think if you're not going to get evicted maybe you wouldn't pay your rent, but

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John Burns: You got a check from the government. You got an unemployment check if you got laid off my son. It was in college was making $200 a week working retail. Now he's making $700 a week doing nothing couldn't be happier.

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John Burns: And not paying around maybe I should be charging up. So Brad lives with us. And then the paycheck protection program which is keeping people employed and keeping

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John Burns: Payroll going all of this is helping but i think is creating some false positives out there, particularly amongst the development world and I know the USC a family is a little

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John Burns: skewed towards the development world. So I'm talk trying to talk directly to the audience here. So the question is going to is going to be one of them. We get

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John Burns: Particularly from our building products clients is what's going to happen to apartment construction.

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John Burns: Well, we are at a 33 year high on multifamily construction. So it's just let me see. Let that sink in for a minute. We built more apartments last year than we did in the last 33 years and yes it's includes condos and some other things but

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John Burns: slowing demand and a surge and supply or not a good thing for the housing market. So we're looking at the at the apartment market here two ways.

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John Burns: There is an argument for high construction that we hear a lot from our development clients because developers develop

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John Burns: We got record low borrowing costs. We got solid Monta multifamily fundamentals through April and I share with you the good read collections.

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John Burns: Development yields are better than buying the building. So the debt funds are ever raised a lot of money. And there's a school of thought that thinks, and I agree with that that

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John Burns: There's an inflation hedge to be owning income if inflation happen someday.

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John Burns: The argument for less construction has nothing to do with the capital. It's that we've seen 33 million unemployment claims.

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John Burns: The fundamentals are supported by government stimulus that I just walked you through and the CBS funds are ready to sell and looking for some newer product on the market for capital.

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John Burns: This is the last one is this 1234567 recessions. Here's what's happened to multifamily construction during those periods. And again, it's very sensitive to job growth. So you see something devastating like in the

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John Burns: early 70s or in the Great Recession, where it declined more than 70% but you see things less devastating like the 2001 recession.

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John Burns: Which has a lot of similarities to this one, where where construction line declined 7% and here's where we are in terms of total volume right now about 500,000 multifamily permits.

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John Burns: And the question is, how much is it going to go down. Here's our thesis. We stopped publishing our forecasts at the beginning of March, because there's just too much uncertainty and we've been more focused on our risk indicators and and more real time data.

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John Burns: But we didn't after May in the apartment market, you're going to see some pretty low consumer demand. Remember that about 8% of Lisa's role every month.

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John Burns: And our people really going to renew they have been when they're got no place to go. And they're stuck in place, but I think some of these renewals are going to slow, particularly if you lost your job.

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John Burns: So you've put in low consumer demand but high demand from capital means that you're going to get less construction than today.

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John Burns: But I believe it's more construction than is going to be needed.

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John Burns: So at the end of the day, what we're going to see in the apartment market is falling rants and falling noi, and a pretty long recovery, how far they're going to fall. I'm not quite sure and Noi income is going to be helped by lower borrowing costs, too. So it's not all Armageddon here.

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John Burns: As we look into what's been happening this spring. Here's a pulse of our about 2000 of our clients that we are pulsing every week right now.

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John Burns: Just simple question or is demand for your goods and services better than it was last week.

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John Burns: And you can see the green here is good on all of our charts Green is good, red is bad. Every week is consistently been getting a little bit better.

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John Burns: And when you drill into it by category or client and public public builders.

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John Burns: Are really seeing a pickup here and I'm going to show you that in a minute. But the private equity is also seeing more opportunities and things to do.

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John Burns: But it is the apartment market that's been the laggard here if you will still doing better than everybody thought it would

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John Burns: Mean, when we drill down into the six week trends here the trend start from the bottom up. It's the public builders that have just been been killing it. In fact, I

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John Burns: Three weeks ago, four weeks ago they were laying people off beating the hell out of their subcontractors planning for arm again and they've done a complete hundred 80 degrees in the last couple weeks private equity has been picking up

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John Burns: The building products, which usually is about two to three week lag in terms of real demand is probably a several month lag is also picking up but a laggard

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John Burns: And again, the apartments here not doing as well. Single Family rental has done better than apartment rental because people would rather be in a lower density environment to get away from the exposure to Kobe.

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John Burns: So last week resale prices actually roast. I mean 33 million job losses and rising home price.

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John Burns: Demand held steady. It's about 22% below the levels of pre coated we define the pre coated a little differently in each market depending on when it shut down.

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John Burns: The demand is now higher. This is for home sales then pre covert and six of the top 30 markets, the supply was low going into this and it's even 7% lower than that right now.

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John Burns: It's still higher the supply is up in about half of them and down in about half and the month of supply, which is really the ultimate determinant on price as now up 27% from pre co bid.

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John Burns: But it's still low 4.6 months of supply is still quite low. And when you put all that together prices have actually risen.

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John Burns: Now that they actually fell a little bit their backup. So they're the same that they were about 10 weeks ago and they're hiring a team of 30 markets not significantly higher.

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John Burns: And I have all of that by market, but I'll just show you that this is the listing prices.

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John Burns: So this is a little bit apples and oranges. Sometimes, you know, it's not the exact same homes as it was to pre co bed.

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John Burns: But we're seeing some markets like Phoenix and San Diego, where the listing prices are down. Others like Indianapolis. And surprisingly, New York. That's the whole that's the New York Metro area and not Manhattan and Brooklyn.

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John Burns: Houston has been just unbelievable. So we've got an office in Houston. Our Houston consulting team had their best month ever last

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John Burns: The last thing I predicted the home sales and Houston themselves. I did you know it was down to 20 bucks, apparently not everybody's still buying homes and it's very, very payment driven

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John Burns: Which I'll show you that in a minute. We're also using some tools to check demand about you. We can use Google Analytics.

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John Burns: Hall searches for new homes and resales fell, but now they're up 80% for new and 7% for resale.

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John Burns: Rental searches are are still down, but they've been getting better. They're down 8% and apartments and down 7% of single family rentals. So this is not Armageddon news. This is

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John Burns: Good news, and it is year over year. So it is comparing spring. The spring. So this is what the trends look like week by week the bottom here for our apartment searches was the end of March, picking up a bit since then, oops.

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John Burns: rental homes again bottomed at the end of March things getting better, the existing home market.

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John Burns: One of the things that's happened since this all started as we've seen mortgage rates fall to the lowest mortgage rates ever

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John Burns: And they're trading at a much higher than usual spread over the 10 year Treasury, which they usually trade off the 10 year Treasury. So most people believe mortgage rates are more likely to go down that up and that is driving a lot of activity.

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John Burns: New home searches are up substantially now.

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John Burns: And so this is a a graphic I'm putting together. So it's not real data. But this is a demonstration based on the phone calls that we're doing every week of what's happened in the new home market nationally

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John Burns: So if we were at 100% in a market in early March it plunged 85% by the end of March, then we started to see things pick up and this is about what we're seeing now. I had a client who had a record week last week and Tampa.

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John Burns: The market has really responded to low mortgage rates purchase applications are picking up so

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John Burns: A lot of different when you when you can look at five or six different data indicators and they're all pointing to the same thing. You have a lot of confidence in your conclusions here. And so I've got a lot of confidence that home sales have picked up.

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John Burns: So let's talk a little bit about why and who so

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John Burns: This is the way we look at the US housing popular the US population, if you will. This is you see the decade born. So you can find your year on 1963 there right right after that peak in orange.

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John Burns: This is the number of people alive today that were born in this given year. And then this is the people who are born in another country that year, who are now here.

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John Burns: And I'm not going to walk you through all of this, but we did it 10 by 10 year look we gave each generation figures that would go my phone would ring during this. Sorry about that.

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John Burns: And

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John Burns: I'm just going to skip to it. So the 1940s, the 1950s, the 60s, the 70s. Here's the early millennials those born in the 1980s. Mark Zuckerberg generation. There's 44 million of them. You can see that

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John Burns: that's bigger than the prior generation, they're now 31 to 44 years old.

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John Burns: If they've been renting this whole time. They're the ones that are now saying, Let's get out of our rental and get into homeownership because we're ready to rock and roll, that's who we're seeing buying

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John Burns: And also these younger millennials, which are even a bigger cohort 46 million people born in the 1990s.

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John Burns: The numbers go down after that. But you see that's due to that shaded piece immigration, usually you integrate here in your 20s and 30s. So those numbers should get bigger, too, but that's that's the cohort that we're seeing.

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John Burns: Obviously, the ones who have not been laid off, who are comfortable in their job just now's the time to move into homeownership that's that's what we're seeing.

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John Burns: So let me look at the homeownership rate for each of them. Those 1980s shares, we call them the shares because they're the ones that invented the the sharing economy. But let's look at people in their 30s.

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John Burns: The early boomers had a 68% homeownership rate in their 30s.

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John Burns: Those BORN IN THE 50s Bill Gates's generation had a 56% homeownership rate, then you get to 62%. This was at the peak of the housing market when subprime was going crazy.

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John Burns: Then it's plunged all the way down to 50% a couple years ago and back up to 53 so you can see that

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John Burns: homeownership in your 30s has been highly volatile over the years. But there's a lot of upside potential here at least demographically, and you can come up with a lot of reasons why they're low student debt and everything else, but this

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John Burns: This is part of the thesis here is that we're going to see higher homeownership amongst people on the third is, this is their time to get in. If you haven't been economically damaged.

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John Burns: However, that's not the case for the younger millennials. I'll just skip ahead here. See, you can see the thesis, but

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John Burns: They're at 28% right now, which is not historically low. It's similar to my generation at the same age, clearly it's below what it was during

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John Burns: The big boom before, but there's some upward demographic potential here for some strong homeownership that people have been talking about forever. And we're seeing some of that. Get off.

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John Burns: Move into homeownership right now.

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John Burns: Also demographically, this is simple math. It's a forecast over the top 2018 to 2028 of taking people and saying, Hey, I'm going to be one year older next year.

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John Burns: You can see that we are going to see population growth in America of 30 to 49 year old, which is more the homeownership years and less growth in your 20s.

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John Burns: And this has got a immigration assumption is probably too positive too. So it's actually probably going to be less than that. So the next decade is homeownership oriented.

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John Burns: And there is a big fear of missing out on 3.3% or less 30 year fixed rate mortgages.

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John Burns: I believe some of the headlines, including some of the things promoted by one of the guests, you had on one of your prior events is that mortgage credit is too tight.

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John Burns: Here's what they're looking at the data that doesn't go back that far, the mortgage credit availability has fallen.

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John Burns: But a lot of that analysis goes back to 2000 and doesn't it, which was the highest homeownership and lowest

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John Burns: Easiest credit ever at the time, then. But here's the actual qualifications that that people read about that mortgage tightness don't actually understand

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John Burns: Richard knows us better than anybody from his years of hard but we require accurate documentation, which is probably more strenuous than ever before.

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John Burns: The credit score say 646 50 is the above is is the top 75% of America, a lot of the rhetoric is that credit is too tight credit is too tight. But this is the top 75% of America who can qualify easily

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John Burns: The down payment requirement for most homes today is 5% or less and total debt payments can exceed 43% of your gross income. So just to say that you only need to be

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John Burns: paying your bills come up with 5% and you can use most of your, your income to get into home. I would not say is as overly tight. It's a little tighter than it was a few months ago, but not that tight so it's pretty easy to become a homeowner on the negative side. This is the

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John Burns: Industry employment by generation. And you can see the younger folks are more into the leisure and hospitality, which has been hurt. So there is an element of distress here.

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John Burns: The sentiment is actually bad, even if you look at millennials. This is the lowest time ever to buy a house in terms worst time ever, according to them.

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John Burns: But you really got two schools here you've got those that are fine and are ready to buy and then you've got those that are not

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John Burns: And then there's this whole student debt issue, which is really weighing on homeownership to. So here's my conclusion.

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John Burns: That this 63% which is a survey we did a 5000 consumers. A couple of weeks ago who are fine are better off. This is the group that is doing well and making the noise. The 37% they're not

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John Burns: So let's move into the forecast here and then we'll get into the questions so

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John Burns: Going back to what I showed you earlier, the lowest mortgage rates ever are simultaneously helping renters become homeowners in this big flashing orange. That's what's going on, moving from an apartment into an own home or a rental home into an own Tom

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John Burns: But mortgage forbearance eviction moratoriums and government stimulus are halting the opposite of what normally happens where people having to leave their own home and go into a rental move back in with mom and dad, and there's been some of that for safety reasons, but not not significant.

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John Burns: So be where the false positive news that's coming out.

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John Burns: Because it's government stimulus that's causing this positive and discover that stimulus that's going to help you with your rent and help you not pay your mortgage and help you not get evicted is not going to last forever.

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John Burns: So here's how we think the spring plays out. As a reminder, this is the spring. So it is leasing and selling season six months from now, the season will be very different.

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John Burns: The stay at home orders are really discouraging people from moving the government rent and mortgage payment assistance or helping the unemployment stay in place.

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John Burns: Whether you're getting a check from the IRS and unemployment check or the PPP eviction moratoriums which are at the city level or helping renter stay in place.

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John Burns: And the mortgage payment for parents is helping homeowners stay in place. You see a lot of quote unquote stay at home in terms of homeownership

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John Burns: Lowest mortgage rates ever I've got one employee who he and his wife are pregnant and a one bedroom apartment in San Diego, now's the time to move and all

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John Burns: new homes are taking market share, because it is so much easier to check out a new home, and there's nobody in it and it's clean and the home builders are actually paying extra commission to the real estate agents to bring their buyers. So the new homes are taking market share.

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John Burns: And then some of those buyers are still paying rent because they haven't moved yet so I do expect a little more distress in the rental market because of some of the strength in the market.

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John Burns: And then in terms of construction volume. The buildings are going to start a lot more homes and these are the 17 public builders that we're tracking. They've got 9 billion in cash on their 800,000,000,808 108 billion dollar assets combined their debt to equity is

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John Burns: Which I know private builders are anywhere close to that. And imagine this.

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John Burns: You went last week to the bond market and raised $500 million at a 2.6% interest rate do in five years, or you went to the bond market and got $600 million do in 10 years at a 3% interest rate or you went and exchanged and got $400 million at 5.8 4.95% doing

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John Burns: The markets, you can grade land with this you can buy land with this. You can do whatever you want the public builders are just going to keep plowing through here, because the capital markets have allowed it.

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John Burns: And also they need to start a lot more homes because because the sales have picked up so much more than they thought they would their number of unsold finished new homes per community is near an all time low.

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John Burns: And then

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John Burns: We're going to see a lot of people return to work now 88% of those who are currently unemployed have checked the box that said, I'm temporarily unemployed.

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John Burns: Versus the historical number of 23 now. I think it's pretty optimistic to think that they're all going to get their job back. But even if only half return to work. This is going to be a positive

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John Burns: But looking out further, I think, Chairman Mao got it right. There's far too much uncertainty to do anything more that run your business as best as you can. Here's his quote

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John Burns: While the economic response has been both timely and appropriately large, it may not be the final chapter

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John Burns: Given that the path ahead is both highly uncertain and subject to significant downside risk. And so that's how we're telling people to enjoy this take advantage of this, but this is there's a lot more news to come. So here I'm going to wrap it up and then we'll go to Q AMP a

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John Burns: So the class A apartment weakness that is already starting and I didn't show this to you. But according to real page new leases are already down rents are down 4% and classes already down 10%

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John Burns: Is exposing some demand weakness that we should all be watching is an early indicator

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John Burns: The remodeling, which we do a lot on remodeling and i but i want just want to show you the conclusion here it slowed less than expected.

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John Burns: It's going to rebound better than expected, due to the focus on the home in our consumer trend watcher, it has been paying a lot of attention this big. This has been

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John Burns: Me. Nothing could be better for remodeling company then to lock people in their house and stare at their ugly kitchen. And that is what's been going on. And that's some of what's driving the recovery here.

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John Burns: And in terms of construction starts I think it's going to slow but less than inspected.

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John Burns: Less than expected multifamily construction is going to fall, but I think the capital that's out there is going to build more than we need.

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John Burns: And the single family construction plunge. But now the builders are rubbing it back up. Thanks to strong recent sales.

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John Burns: The spring selling season, does not mean the fall is gonna be strong. Everything's being propped up by stimulus home searches are up resell for prices are flat last mortgage rates ever

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John Burns: If we've got to point something percent mortgage rates in the fall, sales could could still be strong, but remember that this is this spring selling season.

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John Burns: The older millennial homeownership is a real green shoot here this there. People are going to take advantage of this

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John Burns: But the high percentage of people and economic distress, I believe, is going to hold long term demand back a lot and I heard some of this bullishness about getting back to 1,000,005 million 6,000,007

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John Burns: Housing

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John Burns: Homes homes built per year. If that happens, it's only going to be due to tremendous government stimulus that's that's not what the markets going to demand for and the summer I think still going to look okay thanks to employment.

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John Burns: And we're going to get more stimulus, obviously. So that's, that's why I pulled the forecast here, I

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John Burns: It's so hard to predict what the politicians are going to do maybe Richards background, he can give us a more guidance there, but until we get more guidance there we're really not going to be able to to do a forecast because the true economic distress is not shown up yet.

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John Burns: So it's with that how all end with a little plug to give us a call to help you out if you're making any housing decisions and I'll turn it back over to you, Richard probably need to do the stop share

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Richard Green: So actually john put your screen back on there because people want to know how to reach out to you and find out to use your services. So why don't you just put

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Your

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Richard Green: Info up there for one more minute. So people make sure they can see that

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Richard Green: We have had that actually in the question box. So there you go. If you want to reach out to john i'll give you 30 seconds to get that information.

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John Burns: J burns a real estate consulting.com

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Richard Green: Okay. All right, great. Terrific john well there's a lot we can talk about

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Richard Green: And

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Richard Green: But before we get into the questions box that there is something you didn't touch on that I would like to see if you've thought about, which is the political risk in the rental market right now so

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Richard Green: We're seeing eviction moratoria we are seeing legislation from Sacramento, that would actually require landlords to reduce their rent if they couldn't come to an agreement with a tenant that was troubled. I don't know that that particular piece of legislation has any chance of passing

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Richard Green: By and I'm hearing a lot from apartment owners about

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Richard Green: What they consider to be burdensome new regulations and to how they do their business as a result of all this. Can you comment on that, and how much of an impact you think it might have an apartment investing

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John Burns: And better have a huge impact. So I, I just, I'm a member of the board of the national rental housing Council and I just spoke with that this is

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John Burns: A family rental guys they are deathly afraid of rent control and deathly afraid of being accused of Wall Street evicting for pain or rent, so there's there's a lot of political risk.

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John Burns: Landlords do not want to see rent control the other political risk. I don't know if you are thinking about Richard is. But what's the biggest expensive for a landlord property taxes.

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Richard Green: Property taxes.

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John Burns: The Mayor of Nashville just proposed a 32% increase in property taxes in Nashville all the cities and counties rely on property taxes and they're getting killed and retail taxes and other areas. So I

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John Burns: All taxes hotel taxes to my God, yeah, what's going to happen in Las Vegas, Nevada here.

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John Burns: There's a lot of political risk and being a landlord a lot

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Richard Green: So I have you

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Richard Green: Followed the heroes act that the house representatives past less Friday at all.

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John Burns: I just read an article

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Richard Green: Okay, because I there's so much and I'm still trying to suss it out because on the one hand, there's about 100 billion dollars set aside for rental assistance.

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Richard Green: Which is good for landlords, because that means people. I mean, it comes to your point, and I think you did this really well, pointing out that

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Richard Green: The extension of unemployment insurance benefits the stimulus check, etc. That's really helped in terms of rent collection that surely right

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Richard Green: hundred billion dollars of rental assistance would be that, even more so. But in exchange for that also in that bill are very strong tenant protection so eviction moratoria for

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Richard Green: however long the crisis is defined plus 90 days thereafter, for example. And so from the standpoint of owners of property. I'm not sure, you know,

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Richard Green: Is the rental assistance enough that it's more important than the tenant protections etc until I've been trying to work through that. And I was curious whether you had any thoughts about that.

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John Burns: David Howard, the National rental housing Council propose something pretty interesting. And I'm not sure if that's part of what they're talking about. But it's basically a bit if you can prove that you've been laid off or your, you can't pay your rent.

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John Burns: That you get a rent credit that the government will help you with your rent and that credit goes directly to the landlord. So they so the landlord gets covered that way.

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John Burns: And then they propose that, you know, if it's $5,000 or whatever it is, over the life of until you get a job back that you do have to pay that back but over 30 years or a very long time so

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Richard Green: I got

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Richard Green: One of the issues of course with rent moratoria. And again, I think that there's a lot to be said. You don't want to be evicted. There are a whole host of reasons. We don't want a bunch of fiction.

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Richard Green: That is the correct policy answer, but if you tell people they don't have to pay the rent for six months, but then they need to pay it all at once. Well, that's not doing anybody at all.

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John Burns: Like this is this was not a an all at once. But, you know, you also need to have everyone wants to know that the landlord, take the hit most landlords on one or two units.

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John Burns: And have a loan that needs to get paid. And you probably want them to be spending maintenance to money to spend, maintain the property to and if you're going to incent them to

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John Burns: Live very good rental unit for very long.

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Richard Green: Well well on the other end, by the way. According to the National rental survey 62% of all rental properties are owned by someone for whom, that's the only property that they have

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John Burns: That's right.

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I'm

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Richard Green: For units. It's about 48 49% because of course corporations to know bigger properties.

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Richard Green: And the other issue is, of course, if the rents fall and the value is going to fall in that hurts. Again, the property tax base for city so there's

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Richard Green: Is. Okay. All right. Let me turn to the audience for questions for john Luke or what are your predictions unchanged. The demand for the for sale product based on the demographics that we are looking for new residences suburban versus urban condo versus cows.

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Richard Green: So probably what kind of product type, you think

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John Burns: Well, we, we were already calling for more urban urban, suburban shift. Just do the demographics. I told you about. I mean name name a great urban area with a great public school system.

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John Burns: You can't, I can't either. So

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John Burns: Like okay, are there you go. You got one and some might argue that there's no really urban living in Salt Lake, although

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Richard Green: They're pretty good.

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Richard Green: Yeah, they're pretty good.

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Richard Green: Okay, so it's not. It's not. But yeah, I mean, big, big cities.

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Richard Green: I take your point.

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John Burns: Yeah, so there's a natural hey we move new we need to move to the suburbs demographic push that was going on anyway. I think you throw in a

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John Burns: Fear of being on public transit and pushing elevator buttons on top of it, at least for the next year or two. And you're going to see more of a search the suburbs.

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John Burns: You know whether that fear will still be there from five years from now, is a is a question mark.

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John Burns: One of the things I think that's the most important things to ask though is, where's the employment kind of come back because if it's gonna come back in the urban center.

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John Burns: You'll see you'll see a lot of the housing come back in the urban center if employment says, hey, we're moving to the suburbs. And by the way, a third of you can work out of your house permanently. Now you're going to see a lot less urban living

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Richard Green: I'm from Crystal Gutenberg or she has two questions. I'll put them together into one.

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Richard Green: First of all, she asked, and we get this question, pretty much on every one of our less perspectives. Do you think the monetary stimulus will lead to inflation and what will happen as a result of that.

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Richard Green: And then what do you think are some creative opportunities available right now and he's unusual times

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John Burns: So one of our guys is one six fed forecasting awards and he's actually doing a piece on that right now the whole deflation versus inflation and what I've told them, is if you can explain it to me, then we can explain it to our clients. So that's what we're going to do next week.

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John Burns: The pressure is very deflationary right now everything I learned in college is when you print money, it becomes very inflationary. But what I've learned since then is it only becomes inflationary when everybody started spending it. And so that's that's

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John Burns: I think we're going to see deflation, followed by inflation, the consensus is though that we're not going to see a lot of inflation and I'm challenging consensus on that there

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John Burns: To this property for housing. If all these building material companies lose a lot of their commercial product and need to make it up with the residential property prices.

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John Burns: If they can't build materials as efficiently as they used to. Because people have to be six feet apart. They're going to have to pass those additional costs on to you. So we're going to see certain materials have cost inflation. Inflation due to costs.

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John Burns: Pretty soon here.

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Richard Green: Yeah, and along with the other thing is, even though we are printing money now.

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Richard Green: On the flip side is and I'm going to take a little ISSUE WITH YOU, JOHN I think lending has gotten much tougher in the last couple of months.

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Richard Green: For example, there are a lot of lenders. Now, that won't do FHA case, they just won't do them. And while yes you can do a

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Richard Green: Low down payment love for Fannie, Freddie. The love level price adjustment matrix makes it then very expensive to do so. You really don't get that 3.2% interest rate. If you're getting that kind of loan which might mean it's just not attractive.

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Richard Green: At all. In any event, we could see throughout the spectrum of lending and not just housing that lend that lend blenders have tightened up.

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Richard Green: Which is something that basically reduces the money supply. There are three ways that the money supply can

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Richard Green: expand or contract and one of them is if banks hold more capital, you basically contract in the money supply. So it's not even clear to me. And if we look at like em wanted him to. You don't see this big spike.

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Richard Green: In them that we might have expected him in light of this, so I'm not even sure on the money monetary side there's, I agree with everything you said on the real side of the economy. But even on the monetary side. And I'm not sure that

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Richard Green: That's that much of an issue should already have a question. Jimmy RTC is fairly bullish on the single family built to rent space as your have you changed it to the positive data in the for sale market and both sides operate in parallel fashion in both see

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John Burns: Yes, I think they can. The single family, unlike the apartment market, the single family rental market, although there is some construction of it right now.

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John Burns: Is not very significant. And even if you look at it market by market during the last downturn. The, the biggest the worst hit market for rent declined during the last downturn was Phoenix before percent me foreclosures create rental demand.

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John Burns: Oh, and we've done a lot of research on this, and a huge percentage of and I'm talking about the upper half of renters, not the lower half the need, section eight that's

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John Burns: The upper half who could become homeowners, which I think that's what this person is talking about. There's a huge percentage of them that just for one reason or another, do not want to be homeowners right now and industry.

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John Burns: You know recently divorced might relocate. There's a lot of reasons people choose to run. I think both sectors are doing pretty well right now and can continue to do well.

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Richard Green: Do you think sort of made the and you've heard me talk about marriage and homeowning and how depressed. Marriage is something that's continued to depress home that the homeownership rate would be higher.

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Richard Green: If people were marrying at the rates they had in previous generations. Which leads me to my thought about how when you're not married. Just not having to deal with property management is a real benefit about name of renting instead of owning

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Richard Green: And for me the single family rental market. The issue has always been, you really manage them efficiently, because you don't have the obvious economies of scale, do you are you see people overcoming that hurdle is they're developing these

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John Burns: There are four publicly traded companies where you can look at their financials and see these guys are making money. They're audited financials and they're doing it.

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John Burns: So the answer is clearly yes and the apartment guys just completely missed that opportunity completely

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John Burns: They what they really missed was a lot of the technology ability, like the let yourself into showing the property to yourself and as a leasing solution.

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John Burns: As a maintenance solution like let's get on your phone with FaceTime, and you show me what's wrong. And I'll tell you how to fix yourself. I mean, these guys have really use technology to

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John Burns: To really streamline operations and they only getting started, frankly, they haven't got into the ancillary services that apartment owners sell

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John Burns: You know, pest control in Texas and other there's they're doing great. Okay.

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Richard Green: So again, if you have questions, please type them into the question and answer box and I will pass them along to john

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Richard Green: I always outliers always fascinated fascinated me. And so, Indianapolis.

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Richard Green: I think it was, I was it rents are house prices. I don't remember which now but they're up 8% and which is double anybody else's. This is that just an anomaly, or is there something special happening in any gap Indianapolis, that we should all know about

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John Burns: Something special. I haven't figured it out. So I've been asking my clients in Indianapolis. If they're and they're telling me the housing market is solid, but even the even the data we're seeing is surprising them being positive, so that's

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Richard Green: So let me ask you this. So you're you. And again, I, I completely agree with you that one of the reasons the housing market hasn't

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Richard Green: Collapsed for the light of, you know, 3036 million people filing for unemployment, which is just an astonishing number. In fact, I was typing in a presentation. Couple of days ago and literally got sick to my stomach as I was typing it.

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Richard Green: Is forbearance is clearly it's just preventing people from for sales, which has got to be enormously helpful and keeping this from

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Richard Green: Being a collapse and in fact for the maintaining keeping Aaron to the market.

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Richard Green: Now, Fannie and Freddie of both. And that's the way that you will be able to repay those missed payments. It's just with the mortgage is done, it will either be, you know, you pay off the mortgage on the almost nobody ever really does that

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Richard Green: Or when you next refinance. When you sell to buy another house at that point that amount will come do so there won't be any

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Richard Green: Won't be your PAYMENTS GO UP. There should be no pressure to shock the system. So in light of that you were still fairly bearish on single family housing in the sort of what I'll call medium term is I think a fair way want that help

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Richard Green: Prevent

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Richard Green: A bear market and has even the medium term that nobody will be forced to sell unless they really wanted

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John Burns: No, absolutely. I mean, it's going to be a huge difference in this cycle versus last cycle is that i mean they're playing hardball and there's some, there's some articles in the newspaper that to make a look like the servicers aren't being fair

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John Burns: But they're going to do their best to keep you in the house because the owner of the mortgage loses less money that way. And you're better off that way and

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John Burns: But you know the jumbo market, which is about a third of the market is not that way so you could see far more distress in the jumbo market, the guy.

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John Burns: One of the interesting side twists the last cycle is now the government controls and owns the mortgage mark or two thirds of it. And I think what they've been doing is very, very wise for everybody that's

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John Burns: Yeah, that's said, Richard. I still think there are going to be a lot of people 12 months from now, who don't have a job, who had one in February. And that's the reason for caution. Yeah.

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Richard Green: And let's give a shout out. I, I mean, he wasn't directly responsible for the issue for mortgage forbearance. But I do think we're very lucky to have Jay Paul and his job.

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Richard Green: Right now he is the Fed has done an amazing job. I think of learning lessons from the past crisis and applying them to this one.

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John Burns: No, no I mention those the mortgage bank.

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John Burns: He used to run that

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Richard Green: He made a made a lot of money off of distressed mortgages. Once upon a time. That's right.

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John Burns: You can say what you want about and politically, but at least they have experience in housing which is a good thing.

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Richard Green: Okay, a question for parish Silva. What are your thoughts on that housing in Dallas Vegas and Phoenix markets. These are perceived to be the low cost of these correct. These are were good from Los Angeles move to, um, these are perceived to be low cost alternatives to the LA market.

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John Burns: Yeah.

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Richard Green: Free Vegas Vegas Dallas Phoenix.

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John Burns: Vegas as the economy is a one trick pony and you tell me when the casinos are going to be 80% full again and I'll tell you in Vegas.

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John Burns: I intentionally didn't show some of the Vegas data there because intention, some of it looks better than it is and

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John Burns: So we're very, very cautious on Vegas because of its dependence on the casino industry and and what's going to happen in that. How's that government kind of get its act together when all the revenue just disappeared from hotel taxes.

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John Burns: Dallas is holding up okay, particularly at the lower end things are fine. And we're seeing a lot of people buying homes.

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John Burns: Coming out of a rental situation, Dallas added 100,000 jobs a year for year after year after year. And a lot of those people haven't really settled down into homeownership so it's doing okay.

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John Burns: Phoenix was our number one rated market in the country. In February, and I think because of that. It's the strong demand supply fundamentals there it's it's doing pretty well right now as well. And I think it's long term view is it's long term outlook is pretty solid as well. Okay.

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Richard Green: You know, I, I've long thought that California could learn a lot from Dallas and Houston that they're not so nice. Personally, I particularly care for when I visit them. Sorry for people who are from those places.

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Richard Green: But they have done a remarkable job of developing well diversified well educated important economies and and sometimes as you say john. The thing about Vegas is it is a one trick pony and they've never figured out how to really get beyond that.

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Richard Green: But, you know, the thing about Dallas and Houston. As you go back 50 years they were low skill city so now they're high skill cities will efforts to fight cities, there's probably some takeaways from those places that would be helpful as we think about California going forward.

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Richard Green: From a bread Ellsworth. Do you have a general opinion or viewpoint as second homes and a typical second home market given potential continue to decline in elective air travel.

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John Burns: Or, you know, I haven't done a lot of research on that. So I'm gonna I'm gonna pass on that one, if that's okay.

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Richard Green: Okay. All right. I'm from Michael banner you talking about demographic shifts and the single family market. What about multifamily market, how do you think demography, uh, what do you how do you think it speaks to the mathematically house in the years to come.

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John Burns: Well, our view was over a 10 year period. We're going to see about 12 and a half million households 7 million of them renters and a little more than 5 million of them owners, so we

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John Burns: We had a view that both homeownership and rentals. We're going to do well and we went through those demographics. We actually went, year by year and completed all that historical comparison, some of which I showed you

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John Burns: So we're we're optimistic on both sectors, I would say, we're a little less optimistic on multifamily right now, people come here from other countries, they tend to rent, you know, the borders or shot or at least restricted.

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John Burns: And when you know that whole get out of the household away from your parents happens when you've got a job and clearly people moving back in with their parents. Right. So the short term view is much more sanguine on apartments, but the long term view still fun

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Richard Green: You know, I can't help but think about Australia. The Wall Street Journal and about 2011 2012 where they asked

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Richard Green: Children who moved back in with their parents, whether they were satisfied with the arrangements and two thirds said they were but they didn't ask the parents, whether they were satisfied with the arrangements.

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John Burns: So actually, we did a survey and we did. And it was about 50 to 60% both the younger and older generation thought it was great.

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Richard Green: Oh,

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John Burns: Our generation we never went to live with our parents.

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Richard Green: Yeah, well, yeah, you know, the thing that I think is different about the millennials is they like their parents. I think it makes them.

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Richard Green: Unusual. You don't really. I mean, I have a question about commercial real estate. That's really not your you do any thinking about the market.

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John Burns: We're doing a lot more, but our focus is more residential that's

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Richard Green: Okay. All right. Well, just quickly if you could pick winners and losers in commercial real estate, who would you pick if you don't want to answer just say you don't want to answer.

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John Burns: They're all losers.

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John Burns: Hotels office buildings retail

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John Burns: They're all

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John Burns: They're all down for the count right now. So maybe maybe office will do a little bit better.

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John Burns: And hotel will do better. But I'm very bearish on on retail, although I think there's a real opportunity to there was all

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John Burns: One of the things I've learned during all this is, these type of events accelerate trends and there was already a trend to

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John Burns: Adaptive we reuse retail, you're going to see that fast forward 10 years and it's there's gonna be a lot of redevelopment opportunity they are after somebody gives it back to the bank.

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Richard Green: Well, it's what do you think of the possibility that people realize that single use zoning is obsolete.

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Richard Green: And that we have large changes in how zoning is done as a result of this, I just think about the fact that all of our houses are now workplaces. Right. So, where, where my home is a mixed use development at this very moment.

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John Burns: Yeah, I think that's brilliant. And I hope so. I hope planners start thinking that way because that's reality.

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Richard Green: So we have a question from is a very specific question for Jessica your thoughts on the Tacoma market.

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John Burns: You know, our kin permit from our team does a lot of work for Newland at their to Holly community. And actually, believe it or not they've had a really strong sales, the last few weeks in the Tacoma area, even with Seattle having a lockdown.

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John Burns: Except for the active adult which has really been slow

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John Burns: And Boeing is a big player there. So that's not a good thing, right.

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Richard Green: Yeah.

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Richard Green: Yeah, but, but, you know, again, the remarkable thing about shells. Another economy that's done an amazing job diversifying itself.

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Richard Green: Right and so yeah Boeing is trouble but Amazon doing

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John Burns: Microsoft is killing it.

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Richard Green: In Microsoft is killing it.

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Richard Green: Right. And, you know, if you're going to be or have a retailer Costco is not a bad one have is

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Richard Green: Headquartered in your city so

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Richard Green: I'm okay. From a

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Richard Green: Giant allayed. How do you view the DC market with the government jobs and lots of white collar millennials.

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John Burns: The DC market all of our data is showing up is that it's holding up as well or better than the country overall right now, which is fascinating.

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Richard Green: So do you think that that again. You think the Amazon effect might be, you know, the wrapping up there might be one of the mitigating

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John Burns: I think, I think it is. It's also very, at least from a single family standpoint, it's very supply constraint. There's been so little supply there.

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John Burns: And what has been a fair amount of apartment construction to, you know, ever since 2008

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John Burns: The world seem to think the closer I am to DC as a business. The smarter. I am and you've, you've seen a lot of companies moving to DC are moving operations see closer to the politicians.

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John Burns: And so that's, I thought it was going to be the opposite is like, why are people be worried about a regime change at the election and then they'll, they'll be they'll leave. That's not the case at all.

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Richard Green: Um,

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Richard Green: So I'm gonna have to

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Richard Green: Two more questions. So one is Crystal again and I usually don't give people too. But I like this question so much. I'm going to ask it.

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Richard Green: relates to something you were tight back, given that the State of California is being more aggressive to purchase hotels about Charles to convert homeless housing. What are your thoughts on the future of the hospitality market opportunities for affordable housing.

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Richard Green: So will you see conversions from hotels into affordable housing.

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John Burns: And that's a great question. I don't know the answer to. I want one of the things that we were pointing out going into this was how much debt. There was out there. And I think we're going to see which hotels have a lot of debt and which ones don't.

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John Burns: So,

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John Burns: It's, it's going to be a big loan restructure

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John Burns: If some of that gets restructured is as housing, like you're talking about. I think that would make some sense. But I don't have any more insight than that.

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John Burns: You know the other thing I'll just say as a hotels really need to be at 60 probably closer to 70% occupancy to make money. And I think the only way we see that this year is that have a lot of them just shut down all together.

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Richard Green: Well,

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Richard Green: The other ones could be. Oh.

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Richard Green: Yeah so rough part in Los Angeles right now and I noticed because a student rotor senior thesis for me about this is $25 a night.

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John Burns: Yeah, that's not sustainable.

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Richard Green: And and the theme of her thesis, and I think it's a really good one is La should be just running these things out like crazy for the homeless population. They can guarantee the owner stream of revenue that's much better than what they're getting right now and

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Richard Green: At the same time, get homeless people off the street, so I i thought it was a really. And again, the State is doing the some

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Richard Green: But I think it's 9000 units for the entire state. We have about 60,000 homeless in Los Angeles County, so

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Richard Green: That there seems like an opportunity. Okay. Final question of the afternoon comes from Steven Anderson, the curse. We haven't really done. This is what is your forecast for in Los Angeles, in terms of France and for sale housing.

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John Burns: I told you we suspended our forecast at the beginning.

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Richard Green: Ah yes, you did. Okay.

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John Burns: But you know i the wild card for me there. Richard that you'd be closer to is what sort of how are the laws going to change.

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John Burns: We're going to see rent control. Are we going to see rezoning or we, you know what, what are we going to see at a government. I just don't have a good finger on the pulse there.

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John Burns: So I'm sorry I don't have a forecast.

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Richard Green: No. Well, that was just that was helpful. JOHN well again john burns. Thank you very, very much for joining us today. That was a really terrific entertaining and insightful presentation.

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Richard Green: For everybody to getting questions about can you watch this. And the answer is yes, we have a lust perspectives page.

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Richard Green: www.usc.edu slash perspectives and we post all of our last perspective programming on the page about Texas about two days to get it up. So you'll find it there. JOHN. We've also been asked for the willing to share slides so

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John Burns: If you, if you want my side. Just send me an email to Jay burns it real estate consulting com I'll PDF them and said,

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Richard Green: Okay, can you, why don't you just share your screen real quick and

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Richard Green: Put that contact info back up again.

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John Burns: All right. Very kind.

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Richard Green: And there you go to

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John Burns: bottom left corner.

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Richard Green: Left corner. And so if you want the slides, please send an email directly to jerk. JOHN We will also say this on our website and he will send you a PDF of the slides, which

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Richard Green: Makes a lot of sense to me. Um so upcoming events we have, I just want to make sure I get the times and dates. Correct.

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Richard Green: This week again near-ish sued on results, he's finding on testing. And if you've been reading the LA Times New York Times, Wall Street Journal, etc. You will see what he's been up to. But this will be even more recent

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Richard Green: Stuff than what's been in the newspaper that will be this Thursday at 11am and then next Wednesday the 27th of May, we're going to have a reprise of our commercial

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Richard Green: Tenant best practices panel with Stanley iseman Dave doll ensure and ritual wine and Lisa ready will be able to join us on that panel. So we're looking forward to having her join us this time around.

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Richard Green: So with that, I'm just going to ask the team if there's anything else I need to say or do.

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USC Lusk Center for Real Estate: You're good.

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Richard Green: We're good again.

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Richard Green: Thank you everybody for joining us today. JOHN can't thank you enough.

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Richard Green: Because everybody stay safe. We'll see on Thursday.

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See, Richard.

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