SOTM 47: Airbnb Cuts 25% of Staff. Still Hope for a V-Shaped Recovery?

Aaron: Real Estate Rockstars, this is Aaron Amuchastegui and my co-host Paul Morris. We are here for State Of The Market number 47. We’re entering our second week of May and man, there is a ton of real estate news to talk about. Paul, say hi. Where are you calling from today?

Paul Morris: Same, same. Lockdown in Santa Monica. I know that it could be worse for sure, but if you talk to my 16-year-old daughter, she would tell you differently. That it could not be worse.

Stuck at house with me.

Aaron: My kids especially, they’re like, “We are so bored.” Out in Texas, we’re getting to go do a little bit more stuff. We got to go swimming creeks this week. They started to open restaurants. We went to a furniture store, and just even those little pieces or normalcy, but they’re still like, “When do we get to go and hang out with our friends?”

They’re learning technology stuff like crazy. Thank God for technology. I just have to say that before we get into the news part. When it comes to kids, it used to be kids texting and having phones could be so dangerous, but right now, they get to connect. If they didn’t have those to connect with their friends, I think they’d be feeling so much more loss than they are right now.

Paul: Yes, we need it. It’s caused me to do– Lot’s of my good friends, where you all are here, really, love the outdoors, and I just didn’t have the same appreciation as others naturally. I like it, but I just don’t get a chance to do as much. This week I went up to a giant poppy field, which was absolutely amazing. We walked out into the poppy fields with my girlfriend, social distancing from everyone.

The place was closed, but we went around which is very typical. Then, last night, I went with my daughter late at night to the beach. The beaches had been closed, but they just couldn’t keep everybody off the beach because there were luminescent tides.

Aaron: Yes, I saw some pictures of that stuff. Bright blue, like glow-in-the-dark, right?

Paul: Crazy, yes. It’s crazy. When I saw the pictures, it was one of things you couldn’t believe it was really– It was the real deal, but it was. Super cool.

Aaron: That is so awesome that you went out at night to do that. Being able to go enjoy the world and go see it. I was talking to somebody today and is said, “You know, when we can get out of crisis-mode, there’s also a moment to appreciate.” We are watching history in the making. I’m a history buff. I like studying history, I like studying big events.

Then, it’s like looking around and realizing, we are in a historic moment, so being able to look around, just see how are people acting? Who’s doing what? What is important now? All that stuff. The luminescent stuff, I am definitely missing, wishing I was out there in California. When I saw somebody in a video of seeing dolphins at night. They were glowing in the water and I was like, “Wow. That is cool.” I’m glad you got to go see that, man.

Paul: I’ll send you a photo, and if you can figure out how to post it later in the posts, that’ll be great, if not, I get that too. It was pretty crazy, that’s for sure.

Aaron: Real estate news. It is May, so we are– I don’t know what our count is. We should start a running ticker of the count, like day 45, day 50 of lockdown or whatever it is. Really quick, I was just saying, in April nearly all of our tenants paid rent, and it was a big scare at the beginning of the month. Now, and then near the end as well. Now we’re going to see May. Will everyone continue to pay rent?

So far, we’re recording in the seventh day of the month, and 90% of our tenants have already issued and started their May payment. I’m going to say for our average single family rentals, so far so good. People are doing okay, and that’s my fun, personal good news I get to share today. Let’s start getting into some of the headlines. There’s a few good news pieces out there that mostly  has posted.

There’s a few articles I want to bring up, and then see how you felt about them. I think you’ve got some statistics in those slides that you sent over that we can look at. A few positive news things. First one says, “Opendoor returns to home buying with contact-free selling.” Opendoor is a company out there that you can go to their website, and say, “Make me an offer,” they would make the people an offer and they would buy the house direct.

Then, after the people move out, they will fix it and sell it themselves. They’re essentially a big house flipper that was heavily funded. As soon as coronavirus started, they stopped buying. They aren’t rebuilding everywhere. They did a bunch of layoffs after the coronavirus stuff started. Now it says, “The companies is turning to Phoenix on May 4th, and Raleigh-Durham May 11th with two new platforms and updating itself to rent out for buyers.”

That’s not saying everywhere. They’re being very careful. They’re saying, “Hey, we’re going to go start investing in Phoenix again,” they’re going to go start investing in North Carolina again. They aren’t starting again in Austin. Austin was one of their first places. The biggest places where their office was located, not doing that here. That to me is a good news item. Before we jump onto the other ones, what do you think about that? I wasn’t sure if our buyers were dead for a while.

Paul: One of the things that they were sort of talking about, “Oh, we’re going to do a platform that will work during COVID.” That’s the least interesting part of the news. You tapped right into the most interesting part, and that is that, right now, I still think that buying is easy. If you have money, you can go out and buy. What do you do? How do you predict how you’re going to be able to sell?

When people are buying homes for themselves, it’s altruism, it’s an easy statement, it’s an easy fix to say, “Okay, look, we’re getting you a deal here. You can get this 15% or 20% less than it was on the market for just a month or so ago.” This is how I would advise a buyer. Then, they go, “Well, when I get in it, do you think the price is going to drop or not?” My answer to that would be, “Well, we don’t know.”

My best guess is, probably, it will drop some more, because you can never catch the bottom of a market. Smart investors and smart buyers, they don’t buy at the top of the market. On the other hand, they’re not waiting till the very bottom. You look at the house and you can get a significant cost reduction on it, because you’re not flipping it, we don’t need to know the answer of where it’s going to be six months from now.

We really need to know the answer of where it’s going to be five or six years from now. I’m pretty bullish on that. I can safely say that to a buyer. “Hey, this is a property that you’re going to be using for your family, buy now at a bit of a discount.” Could you have saved more? Maybe. Will the house sell to somebody else? Maybe. Will the market bounce back like a lot of people say, and then this opportunity is gone? Maybe.

We don’t know, but here is the opportunity now. Take it and you’re going to be in it, five or six years. I could give that sort of advice to a loved one and not feel bad about it at all. When you talk about Opendoor or people that are actually going to flip the houses, now I have a different view on it, and that’s, “We can get some good deals right now, but we don’t know what it’s going to be 30 days from now.”

That is scarier, and I think it’s very interesting that the big companies are willing to come back in. I think it’s good news, that they’re willing to come back in even with a toe in the water and do some buying.

Aaron: I think the best news of it is for home sellers in Phoenix and home sellers in Raleigh-Durham, what they’re seeing, Opendoor has a lot of money. They are a heavily invested, well capitalized company, and they have been studying stuff like crazy. They’re saying they feel safe enough to enter those markets, which means, they must think that they could buy at a price now that they’re going to be safe to sell 90 days from now. Whether that means they’re buying at 70 cents to the dollar instead of 80, who knows that part?

Paul: That’s right.

Aaron: They are willing to enter the market as a flipper. That’s a big, big change. Similar news is, this was another one. The Zillow Economist says, “Housing market bottom is pretty much now.” When you’re talking, “Are you going to own this house five years from now?” This is a story people want to hear. The pandemic drove real estate sales down, but a checkmark-type recovery may already be beginning. This came out two days ago, May 5th.

The top Zillow Economist said Tuesday, “The coronavirus pandemic has led to a drop in sales. That the market already appears to be hitting the bottom, and will likely recover going forward. Pending sales do seem to confirm the magnitude of the fall. A drop off in sales between 50 and 60%. Now, the bottom is pretty much now.” There’s a lot of things about that feeling just like you said, we can’t really time the bottom.

Bottom mean now could mean we’re within three months of it. It could mean within six months of it. That’s really that economist saying, “Hey, they don’t expect it to be down 20% a year from now or down 20% two years from now.” Because some crisis last multiple years, crisis go down for multiple years, that’s what we saw in 2007. I guess that’s similar statistics to what you’ve been feeling and seeing inside your network right?

Paul: Right, absolutely.

Aaron: What do you see now in LA?

Paul: I did some research, of course, prior to getting on this, and one of the ways to research is just reach out to the offices, 15 offices that I have ownership in, and the 36 that I oversee, and you’re looking a group together that was number one in the LA MLS, who has a pretty good sense of what’s going on here.

Then, I reached to fidelity title, which is big title company here to see what they were doing, what their activity was doing, and it was very, very similar, and that is that right when the crisis began, we saw up to, in terms of down, a 75% drop on year over year business. We’re now recovering to the point, we’re in a selling season, so February over February is going to be different numbers than March over March, because March is higher.

April is higher, so April over April, we’re now looking at only down 40%, instead of at the beginning of this when we were down 75%, so it looks like it’s getting a very healthy indicator that we’re coming out of this. Now, I talked directly to the LA Assessor, the largest assessor’s office in the United States, and he said, he’s keeping track very carefully of it, and he said that they’re down 61% in April over April transactions, that’s a massive number.

It only makes sense because in LA, the mayor said you can’t show houses. Now, in our particular group, maybe they’re a little more nimble than average, but we’re seeing more somewhat unscientific, because I’m going office by office, but somewhere between 50% and 25%, 25% to 50% down. Now, some of that could be closings coming through the pipeline, but we really are seeing an uptake for sure.

Aaron: They’re down 25% to 50%, you’re asking your office, “How many transactions you do in April?” They are saying, “Hey, we did half as many as last year in April or 25% less than last year in April.” That’s a number of transactions as you get to call them over there. The other good point is, yes, it’s like, “Duh”, people were inside, so we’ve been saying this all along, transactions are still happening, but there is less, so you need to up your game and you need to do a better job, you need to go through that.

The true California statistics, the truth that people should be watching or the Texas statistics people should be watching will be those closings in May and June, right? Because that is when people are– I saw a clip that showed based on cellphone traffic, last Sunday’s traffic in Texas was 90% of what is was before pre-COVID. That many people were out driving.

As people start to do that stuff again, now we’re going to really be able to see what their buying habits were because some people, they were on lockdown, sheltering place and they had no interest in looking at houses, trying to do it, now they’re going to be looking again. That’s what we’re really most interested in, not necessarily how many who got an escrow during the beginning of the crisis, now that we’re seeing the light at the end of the tunnel, what are people’s actions now? I was going to share– [crosstalk] Oh, go ahead.

Paul: It is some of the value that we’re really looking to add is that these statistics, statisticians, people who print the news are really more interested in the clickbait of it, and now like, “Oh, how’s it affecting realtors?” One of the weird things is, you’re going to see skewed numbers that don’t really show really what’s going on because of this. As we all know, as real estate professionals that the activities that we do now are going to generate what looks like business 30, 60, 90 days from now.

On the first 15 days of lockdown, let’s just say, no business was generated in the first 15 days of lockdown. Now, when we go and look, one of the closings and one of the statistics show, well, it might be as high or higher than ever, because that first 15 days when we’re doing nothing, the transactions are coming from 30, 60, 90 days ago when everything was fine.

Now, when we get out in May and June, we might really be humming, and you might see a dive in the statistics, because now it’s coming to bear those 15 days when we did nothing. People have to understand the difference between leading indicators and lagging indicators, and that is a product of the activity that’s done. Closing is the product of the activity that’s done 30, 60, 90 days before.

Aaron: Yes, that agents, those leading indicators, that’s the stuff that you can be looking at your market right now, and showing your buyers and your sellers how many went houses went pending last week in your area compared to a month ago. Pending is that leading indicator, if that was the lesson we learned in the homebuilding days back in 2007, that we learned partially, because we had all these contracts, where people had got into contract to buy the house, and then there’s a four-month construction.

We kept having revenue, we kept having revenue, and then all of a sudden our revenue dropped off and we really hadn’t had a new sale in four months. The statistics that we were operating off of was like, “Oh, we’re still okay.” Then, you start to forecast, so, yes, those leading indicators right now are going to be some of the most important things people can look at.

Paul: I’ll tell you, because another thing that we’re always aiming to do is, is give really usable information. Sometimes the state of the market, it’s really our job to take the information that’s out there and make it usable to our realtor audience, which is of vital importance to us. One of the things that would never show up in the statistics or the news that I’m finding is that, the top realtors are, for example, doing more business than ever.

Then, the midlevel or lower lever realtors are getting totally shut out, so maybe that 50% of the business that we’re having is coming very concentrated from the top realtors. For example, I talked to a good friend of mine, who is number one in some of the biggest areas near the beach where I am in LA, and she said like, “Oh, should it’s time to talk me.” Because her phone is ringing, not with, “Hey, we want to list our house, come and interview along with two or three, we want you to seat to two or three others and interview.”

She thinks, “Well, I’ll get that anyway.” Instead, she’s getting the, “Come and list, we’re not interviewing anybody, just come straight over here.” The question is, you’re not number one in your area, what do you do, and how do you get yourself to the table ahead of these people that are just getting the calls now? The answer absolutely is, don’t sit and do nothing.

The answer is, get really active on your sphere of influence, and if you’re texting them and saying, “Hey, let’s say I’m the number four realtor in Santa Monica, I may not even get the call when that person is ready to list their house, they’re going to call all the top three realtors, I’m number four in normal times.” Now, they’re not calling number one and number two, they’re just calling number one and saying, “Come list me.”

My advice for the number realtor is, send those emails, the I care messages that I talk about almost every week, out to your database, your sphere, anybody you can. “Hey, it’s Paul Morris, I know you because I’m a realtor in Santa Monica, just checking in on you and your family. Let me know if there’s anything that I can do. This too shall pass.”

When you get an answer back, then you send your informational text message back to them, so it’s not just a commercial upfront. That’s the formula that I use, and if you’re doing that, I believe when it comes to time, when they’re like, “Jeez, we’re thinking about selling before, but now we’re scared, we really want to sell or maybe we shouldn’t, let’s call Paul.” Now is the time where the activity, which anytime during any market, you have some activity that brings you a return on your activity. Right now, when almost no one is doing anything, you can get 10 times the return on your activity, you just have to make sure you’re doing it.

Aaron: You just have to reach out. I bet that thing that you’re seeing out in California would be the same throughout the country right now. People don’t have time to interview three or four agents anymore. The odds of nailing the deal at that first conversation are probably much higher than they used to be, if someone does want to sell, because they don’t want to go meet with a bunch of people and go through it. They want to start now, like, “Let’s not wait a week or two and make that happen.” Being able to be top of mind for your spear, if you’re top of mind, then you’re the first call.

Paul: I said I talked to my neighborhood realtor, but I also was talking to Mike McCann who’s the number one realtor in Philly. He’d be a great guy to interview on the podcast, we’ll get him actually because we have a queue of people, so if we interview somebody, they go down in the queue, maybe we’ll get an interview of Mike and put him right to the head of the queue because he’s the guy that’s doing a lot of business. Yes, he getting the like, “Oh, my gosh, let’s just call Mike because he’s number one.”

He is very active, so it would be a great interview for us, and also one of the top realtors at Atlanta, so we’re talking to people all around the country and this is what happens by the way. If you haven’t been in real estate that long, this is what happens. The top, top realtors when the market gets really great, everybody wants a great market, when the market gets really great, the top realtors if you talk to them, you know what? They complain, they’re like, “Oh, I would have been surely the listing agent for that house. I’ve sold their last three houses, but now the market’s so frothy that Susie’s aunt is now a realtor, she just got her license.” The only way I can really get this thing is to co-list with this brand new agent and split the commission. It starts getting like that.

When times get tough, those people drop out of it. If you’re a realtor, you’ve been in the game five, six years, and you’re seasoned, this COVID thing is not going to knock you out of the market, you’re very likely to come out much stronger. The key is to survive, and survive now and stay in touch. Survive, stabilize, and then thrive.

Aaron: That top of mind, it is a great point. There’s less competition right now, so whether you’re already at the top, or whether you’re number five or number 10 trying to get to the top, there’s less competition, less people doing stuff.

There’s a few more good news and slides before we get into.  I’m actually going to share my screen. For you guys that are watching us on YouTube, you should be able to see that. Paul, do you see the chart? This was a set of slides you got. It starts with saying, “You save when buying late, buying while rates are low.”

This was a presentation that was given, it talked about why the real estate market is great right now. This is a mortgage. It’s comparing a mortgage in December at 4% to interest rate today of 3.23%. Talk us through this in what you thought about in this slide, because you were talking about interest rates all the time, and this is some real statistics on a 30-year mortgage.

Paul: Right. One of the comments we go, I really appreciate when people send us comments, keep doing it because we learn and our job is to serve you. One of the things when I was talking about all these stats is you get a comment from more than one actually that said– More than one actually, it said, “Hey, if you could put some of those stats in the slides that we could then use,” and so, Aaron and I spoke offline about it.

We won’t do it every state of the market, but when we have slides that are usable that you can use to show to buyers and put in your listing presentations, we’re going to do that, making our news into something that you could actually use as a touch to your client base. That will be a huge value-add. This particular slide was generated by somebody else. It’s not what Aaron and I will create for you, but it does give you an idea, basically, it’s like Aaron said in the fair credit cut– Say it for me, Aaron.

Aaron: It is based on a 30-year amortization table from bank rate. It says $200,000 mortgage, the 30-year mortgage rate, the Freddie Mac weekly interest rate. December 2019 was 4.01%. This is for a $200,000. mortgage. Today, it’s at 3.23%. The table he showed is, on rates just from December, you’d be paying $144,000 interest over 30 years, but then today, you’d be paying $112,000 interest over 30 years. It’s essentially saving $30,000 over the life of the home. I don’t think that’s the most important part with interest rates, do you? There’s more to the interest rate story.

Paul: The thing I was trying to get you to tell me was the fair credit, the sheet that they send you, the name of that-

Aaron: Oh yes, the good faith estimate?

Paul: Good faith estimate, yes. Sorry. Everybody on the podcast knew that, but me. Thanks, it flipped my mind, so the good faith estimate. This is stats, we come up with good faith estimate and it’s also why I don’t find all that useful, statistics that aren’t very useful. We’ll put this into a chart. It just comes right out of my brain. 1986 was the peak and 18.6% was the high.

November of 2012, I think, was the– Now, I know we need it in a chart, but we have gone past the low point, which was 3.1%. Now, we’re at 3.2%. This may creep up a little bit, but all the experts are telling us that it’s going to again go back down. Now, the key and one of the things that Aaron and I were talking about is, putting a slide together for you guys to put in a listing presentation or to take your buyers is, this is how much house a certain payment could buy you today versus three or four months ago, that’s a very usable statistic.

In other words, nobody really cares, “30 years from now, I will have saved $30,000. Instead of that two-bedroom, one-bathroom house that we were going to shoehorn our family into in December, if we go right now, we can get a three-bedroom, two-bathroom house in the same neighborhood because we have that much more buying power at a lower interest rate.”

That’s something that’s going to be very, very useful because, as we were talking about before, when you’re buying a home for your family, it’s really about living in it statistically depending on where you are for about the next 10 years. The difference between the two-one and living in a three-two, three-bedroom, two-bath is a massive difference for you, and you can capture that right now.

We don’t know. We don’t have a crystal ball of where things are going, and they could go down. If I’m talking to a buyer, they could go down a bit more, it’s not going to go down forever. Housing is stable. We can’t pick the bottom of the market, but I can tell you that this is how much more buying power you can have, this is what you can get, and that’s a very valuable piece of information to give the buyers.

Aaron: Yes, that is the biggest thing with mortgage rates and interest rates right now. That means, if we’re down 0.75% since December, your $2,000 monthly payment, if it could buy you a $300,000 house before, now it can buy you a $350,000 house. Combine that with the idea that prices are– I’m going to say, they’re going to be 10% less than they were. I’m going to say, maybe right now we’re around a 10% discount from where they were pre-COVID, which isn’t huge.

Now, your buyers are saying, if they’re going to buy now, a year ago, they could have got a two-bedroom house, now they get a so much bigger house for the same monthly payment because that’s what most buyers care about, how much is their monthly payment. They aren’t really thinking about what’s the price of the house. They’ll buy the biggest house they can afford. Everybody will buy the biggest house they can afford, so what house can they afford? They can afford more than they used to be able to.

Paul: We talked about the buyers, we talked about the buyer script, I’ll give you a seller script. These scripts, they’re not trickster scripts, these scripts that come from authenticity from the heart, otherwise, I won’t use them. What Aaron just said was, let’s just say that right now, the market is off about 10%. If you’re in a home right now, and you were thinking about selling, and you had reasons to sell, like, “Oh my kids moved away to college. I’m really thinking about downsizing. Geez, let me talk to my realtor. Oh, didn’t get around to it. Now, it’s COVID. Now house is worth less. What do I do?”

What Aaron said in his example is, well, maybe the housing prices are off 10%. Now, depending on where this thing goes, it might be the right time to sell right now, and a house that’s priced right, that sells right away, and you take 10% less. That being said, most people have more equity in their homes than they ever had before, and it’s a good time to harvest that equity and essentially sit on some cash.

I’m living and breathing that because, at the same time that I’m inside of an escrow buying a piece of property which I got no discount on, I entered it before COVID, it was such a good deal, the seller just said, “No, no discount,” I tried and I’m going to close anyway. That’s on the buy-side.

Now, on the sell-side, I was getting ready to sell my house in Palm Springs. I’ve decided to lower the price by 10% and put it on the market anyway, because I’m just looking at my balance sheet, I’m going, “It was costing me this much a month, I wasn’t using it that much, I have equity in it, a 10% haircut is going to still cut my expenses, and still leave me with cash.”

My analysis of it is this, if you’re going to hold for the next five years, five or six years just like a buyer would right now, I would say, go ahead and buy, or in my case, hold on to that Palm Springs house. If I was going to hold on to it for six years, I’d hold on to it, I wouldn’t sell now. If I’m thinking about like, “Hey, I should sell. Should I sell now or two months from now?” I don’t know what two months from now looks like, I would go ahead out and sell it right now, and that’s what I’m doing. I put that house on the market last week.

Aaron: There’ll be buyers and sellers, and you want to be ahead of it. We do know that when the doors open, there’ll be a bunch of people trying to come back out. We don’t know how long that’s going to last, so if you’re ready and you’re listed. I did some quick calculations comparing those two rates to get some exact stuff for our listeners out there.

For a mortgage at $1,720 a month at 4%, you could have bought a $360,000 house in December. If somebody wanted to pay $1,700 a month, they could have bought a $360,000 house. Interest rates now being 0.8% lower, that same $1,720 now they can buy a $400,000 house. They’re getting a house that’s $40,000 more just because of interest rates.

Now, if you combine that with any market correction out there, hey you’re already getting it. That means that if you could have bought a $360,000 house in December, that same person can buy a house that would have been $440,000 back then.

Paul: That’s right.

Aaron: That’s the big change. I agree with that slide, I agree with that good news out there. Getting some interest rates on there. There’s a bunch of good news, bad news out there that offsets, but as far as interest rates, specifically, the buyers that are left, they have to be more well qualified they were before, they can afford more house, period. That is actionable. There’s another slide on here that you got over there that says major financial institutions are calling for a V-shaped recovery. How do you feel about that slide?

Paul: Well, that’s why I’m glad that this slide is backed by Goldman Sachs, JP Morgan, Morgan Stanley and Wells Fargo, because I’m not sure, to be honest. These are the big boys and they’re the ones doing the hardcore analysis, and it’s very interesting to note that these four giant institutions are really expecting a V-shaped recovery. To be clear, I think most of us know what that is.

V shape is a precipitous fall, you hit a point at the bottom, and then you do a strong climb out. Something very opposite of that was what happened to us in 2008, and what happened in 2008 was, we had the precipitous fall, and then we had the drag along the bottom for a long time. That’s an L-curve, and that’s what we don’t want, but nobody is saying that that’s what this is going to be, they’re looking at a V-shaped recovery.

I’ve now heard some people talk about a W, because as we’re reopening, maybe we get a resurgence of COVID and maybe we take another– Re-close, reopen. We’ve seen that in other countries, so that would be a W, but even that W, I think is an up-shaped W, if that makes any sense. We’ve got a strong dip, we’ll get a strong recovery, then we’ll have a smaller dip, followed by a smaller recovery, which at the end of the day looks like a V shape.

Aaron: Yes, it is really saying, so right now, people are taking losses. People are making less money, companies are making less money, companies are closed, so it’s like, hey, so for the second quarter, for March through June, they’re saying, “Hey, companies are taking a loss, but as soon as everyone gets to go back out, they’re projecting they’re going to start to have gains.”

Now, some of these companies, so Goldman Sachs, JP Morgan, Morgan Stanley, in this chart that we’re looking at, it’s saying like by quarter three, that could mean they even believe that by end of June, they’re going to start to see upticks. Gain in income for it’s their GDP what they’re looking at. Now, Wells Fargo says, “Hey, they’re not going to see a gain in income until late in quarter four,” the way you look at this chart, but you got three out of four saying, “Hey, by the end of the third quarter, we’re going to be looking pretty good, or anyway, as we’re approaching the third quarter, we’re going to be looking pretty good and then near the end.”

Yes, you’ve got big people saying that, we’ve heard a lot about will there be a V? Will there not be a V? It depends on as people are cashing into their houses and going into their accounts and everything else, what brings us back out. States will recover at different speeds too, so that could also impact like a V/W/ whatever for companies that operate nationwide. The ones that operate in Texas, their Texas balance sheet is going to be different than a California one, because Texas is going to be back to business this week. Was that [crosstalk]

Paul: This is a great slide.

Aaron: -in this one you want to talk about?

Paul: Well, this is a great slide that when Aaron and I were talking before about leaving some resources for our state of the market, one thing that we’re really encouraged by is, we’ve had– Normally, state of the market is like a lot of people download it and listen to it, but when we get our top realtors on talking, you get a skyrocket for those and we’ve really been finding a skyrocket from the state of the market. We really, really appreciate that support.

To further that support, as Aaron and I were talking about offline is adding some of these charts. This is a chart that I think that every realtor should have at their fingertips, because it comes from independent sources. I like the fact that it doesn’t come from the National Association of Realtors, it doesn’t come from the Mortgage Lending, people that want you to believe that the skies are blue even if they’re not.

The other thing about this chart, I know, Aaron said it already, but this is a prediction of GDP, so this is the entire economy. The big guys think that by quarter four, the entire economy will be back to normal, which is pretty astounding. I believe that real estate could well lead the way out of that, so 9 out of 10 recessions, there was a precipitous drop in real estate prices prior to the recession, not the case this time, real estate was very healthy before. I have reason to believe that real estate could lead us out of it and could be ahead of GDP for sure.

Aaron: Yes, I believe that a lot of people are going to be cashing out. I think a lot of people are going to be selling their houses, and I think as they’re going to be selling those houses, they’re going to be cashing out some of that equity and they’re going to use that to make up for the income loss. A few more slides I want to jump in before we go to the rest of the state of the market news.

This is an interesting slide that just says real estate showings. A lot of this is kind of like a dub, but it was really just showing from January to March 3rd, there were more and more people showing houses every month in North America. Week by week, more people were out looking at houses. Of course, we’re going into our spring season, and March was supposed to be even more and then it dropped down dramatically in March, but then by April, the number of showings bottomed in April, and since then there’s been more people showing houses and looking at houses every week since. In general, there’s a little dip the week of April 25th. There’s more people showing a house on a weekly basis, by next month we’ll probably see it normalized if it’s falling that short.

Paul: Yes.

Aaron: You guys are probably seeing the same stuff out in California, I guess in California, are you allowed to do showings yet?

Paul: It’s something, first of all, believe it or not, it varies from city to city.

Aaron: Oh, that’s right.

Paul: In certain areas and it varies so much from city to city that it can actually, people– I love California, I’m from the East Coast, people make fun of it out here, and I understand why. Palm Springs, where I mentioned, I’ve put a house for sale, they have figured out a way because it’s a vacation community to keep outsiders out, and without putting up a law saying, “Hey, if you’re from out of town, you can’t come here,” they just said, “All Airbnb, all hotels, everyone are shut out until June 15.”

If you don’t own a residence in Palm Springs, where do you stay? They’ve kept everybody out and that has made for example my decision, to put that house on the market now very tricky because it’s the second home market primarily, so who’s going to look at it?

Aaron: Right. Are they even allowed? They’re like, “No, we can’t even come to look at a house right now.”

Paul: Yes. You can’t stay anywhere, so you have to live in Palm Springs to buy, and that’s not where most of the buyers come from. It’s very tricky and it’s also a great testament to real estate is a local business and understanding the basics of the national curves like an interest rate is a national curve, a GDP is a national curve. Get some basic understanding, arm yourself with that, we’ll do that for you on this show, and then dive deep into your local market and get some local statistics.

That’s why I do like these next charts. They’re not super drilled down, but they are drilled down by the state. You can see, and this is very, very obvious stuff, but February fire traffic index, how many

buyers are out there running around looking was massive everywhere in February, except for two states where they viewed it as stable. All the other states were strong.

Aaron: Yes, so if you guys are listening out there, it’s just a map of the nation. It says, “Hey, in 48 of the states, February buyer traffic, there was a ton of people out there trying to buy as buyers.” Next, it jumps into March, and you could see in March, there’s still 40 states on there that they’re saying, “March buyer traffic strong.” Then maybe 10 that it says, “March buyer traffic stable.”

Paul: Yes, and the Midwest is more on the strong side than all the pieces on the coast, even Florida, Texas, Louisiana, California, Nevada, New York are all dropped from strong to stable. This is to be expected, but it’s interesting to see it graphically.

Aaron: Right, so I think the first two charts what they were trying to say here is in February and March, there’s still a lot of people trying to buy houses. Even though it’s down a little bit, it’s still stable. It’s really a comparison of that to inventory. It’s really trying to say, “Hey, what’s out there as far as what will happen to the housing market.” Now it shows a chart for February. This is the seller traffic index, but I think it’s just rated on how many people are out selling their houses.

In February, in two states, there was strong traffic. In about 10, 15 states there was stable traffic, but the rest of the states was weak, so not a whole lot of new listings were coming on in February. In February, I think everybody knows there was a shortage of inventory, right? I think that was everyone’s biggest complaint was there was a shortage of inventory.

Paul: Absolutely, yes.

Aaron: Then then you jump into March, and this is where the two worlds are really different, right, so the march buyer traffic was, “Hey, it’s strong in 40 states, stable in 10.” The March seller traffic, what does it say? “New listings are coming on the market in Alaska, but everywhere else, except for three states, this is Louisiana, Wyoming, and Virginia, in those places, it’s stable March seller traffic, no strong traffic and the rest of the states, it’s weak,” which means there isn’t very much new stuff coming on-

Paul: That’s correct.

Aaron: -but there is still a stable demand for buyers. How does that make you feel about the market?

Paul: Again, I look to how realtors could use these charts, and that’s the biggest reason why I pulled this from a presentation that I saw. It does come from NAR, so I wasn’t too worried about it. The stats and the charts come from National Association of Realtors so it’s a good source, but it just tells me that I think you can give great advice to buyers and sellers using those charts.

Well, certainly if you’re a seller, right, it makes sense to, “Hey, you know what, there’s still time to get this thing on the market.” You may not get the exact dollar that you were getting before, but in areas that were hot, it’s very anecdotal. It’s like the story of one house, but in one of our areas in LA that was very hot, it’s also a little bit lower price relative to other things, a gentrifying area.

We had one house that went out on the market, it was pretty aggressively priced, 10%, 15% lower than where it would have been pre-COVID. They had 40 offers, which is insane. They’re closing that house every bit because it went over ask, every bit as much as they would have pre-COVID. It was a smart seller and a smart realtor got together and said, “Hey, let’s market this in a way that’s going to get attention.” You get all that attention and then you get multiples. It’s really creating the market like it was before.

Aaron: Yes. How do you make your stuff set aside and how do you stand out? You stand out by just reaching out. Be the first people they see. A few other news pieces that I think are great, a couple weeks ago I talked about that in Mississippi they made it to where notary publics could appear over video conference. On April 27th, Governor Greg Abbott of Texas temporarily suspended section 121.006C of the Texas Civil Practice Remedies Code allowing for appearance before a notary public via video conference to acknowledge real estate instruments such as mortgages.

That’s one of the exciting things I hope that we’re going to see more of in this. That is saying that now someone can actually sign doc’s on a house. As I get into this, so that says documents such as mortgages, there’s a lot of stuff in that law if you’re in Texas, start to look at it. I think what that means is the title company can send them out their documents, they can get on a Zoom call like this, they can sign those documents, FedEx them back to the title company, the title company can notarize them, and send them off.

That is a cool technology change. Now, it does not say it’s going to stay forever. You know as well as I do that stuff that happens in crisis, it shows people like, “Hey, we did that and nothing went wrong, why don’t we continue that innovation?” We’ll see in other states. Listeners, if you’re in other states where they have made things like that change, let us know. Put it in comments on this. Send us emails to the show, or find us on social media.

I’d love to know how many states out there you don’t have to go to a notary public anymore, or where a notary public can do it over a video call. It’s going to change everything.

Paul: Even in California where the governor said, “Hey, real estate is essential.” Then the mayor came out and said, “You can’t even show houses,” trying to restrict it dramatically. Forget about the politics or the health piece of that, which sometimes we talk about, one of the workarounds that our people found immediately was if you open escrow it then becomes essential business. There you have it, right?

That is open escrow, then you can do anything. You can walk through the house, you can do whatever it takes to close the escrow so that was part of the workaround for sure.

Aaron: Yes, that makes a lot of sense. They’re saying, “No, you can’t show the house if you’re in escrow now it’s essential.” There’s a few more articles I want to talk about, and some news that have hit my inbox I wanted to share. I think we had some good stuff, some average news. This one, I would say, negative market news that’s out there. The first one said, REMAX quarterly earnings report was down and they had to adjust their earnings per share, and it fell slightly below what they were hoping.

Their highlighting was momentum unfortunately interrupted by the virus as they issued those reports. I think that’s a duh. The only maybe change in that is most of this started first week of March. By then, what we talked about, any March closings you were going to get were people that were already in escrow in February. I think second-quarter earnings you could blame a lot on the virus. First-quarter earnings blaming on the virus, I don’t know how many people canceled as soon as they went on certain place.

I think most of the people that had started their escrows before finished their escrows. That was one of the news pieces in there. If people want to see that that’s on Inman, that just came out a couple days ago. Bigger piece of news, yesterday I got an email from Airbnb. I’m a super host on Airbnb. You guys have heard me talk about it. It’s a special place in my heart out there. They made an announcement that they had to layoff 1,900 of their 7,500 employees. If you do the calculation, that’s 25.01% of their employees.

Paul: Wow.

Aaron: Airbnb lays off 25% of their employees, and they said they also know things are going to look a little different. They’re going to be a more focused company now. They were getting into transportation, and Airbnb studios, and investing in hotels, and luxury, and stuff like that. They’re saying, “Hey, we’re going to be more focused now,” but that’s also a duh, right? Yes, I’m not surprised they had to do layoffs. I’m not surprised they’re becoming more focused on the things that made them a big company.

I think that’s what so many companies are going to do right now. They’re going to get so focused, remembering what got them there. Over the last couple years, the market’s so good, people started expanding and investing money all over the place because you’ve got all these profits to shoot around. The interesting part about this that I thought was just crazy, it’s this long letter that they sent out, but they said, “Here’s what we’re going to do for severance. Employees in the US will receive 14 weeks of base pay, plus one additional week for every year at Airbnb, tenure will be rounded to the nearest year.”

“For example, if someone’s been at Airbnb for three years and seven months, they’re going to get an extra four weeks of salary. They’re going to get 18 weeks of total pay, plus we’re dropping the one-year cliff on equity,” so everyone they’ve hired in the past year is going to leave with some shareholder equity. They used to have some vesting for that. Additionally, everyone leaving is eligible for the May 25 vesting date. Health care, they’re going to pay everybody’s Cobra costs for 12 months.

They’re going to help people get rehired, they’re going to set up a website to get Airbnb people hired and replaced somewhere else. Airbnb is doing a ton of things for the people that they’re laying off. Way more than they need to, way more than I think any business has done so far. Most of that you could say, that’s good news. That’s actually like giving somebody four and a half months pay, five months pay, and getting them a new job and everything else, wow.

How grateful those people are going to be that they worked at a company like Airbnb. The other side of this that scares me a little bit is they’re giving away four to five months paid severance. Part of me says, “Hey, if they thought this was going to be a V-shaped recovery, they would just have people work for the next four or five months building out new things, and redoing stuff.”

I think, in general, when people pay multi-month severances, they’re thinking it’s going to take about twice as much to get that back. They think five months from now it’s not going to be much better, or they would have just kept everybody going and not paid them so much of a severance. What do you think? Am I wrong? Do you see in a different way, am I reading between the lines too much on that?

Paul: One of the things that I find really interesting is it doesn’t sound like an economically sound decision. Cutting costs right now is super important. Aaron, I’m going to ask you a dumb question, that is Airbnb publicly traded? I know that last year, they intended to become publicly traded and I don’t know whether they ever did it or not.

Aaron: I don’t think so. I will definitely get you that. They closed a billion in funding two years ago.

Paul: Wow, okay.

Aaron: They were a candidate for 2018 IPO, but they are still a private company. Yes, so they’re not publicly traded but you got a billion-dollar investment, that’s a big investment group for sure.

Paul: When I see these decisions that seem non-economic, because, on one hand, I would tell every business owner, including realtors, cut absolutely as deeply as you can. Do it to the point where it’s not really structurally hurting your business so long as that’s not necessary. That’s what you need. You got to do what you can to survive because if you survive this, you will come out stronger because just by virtue of not everybody will survive, it will get back to normal eventually.

Just do the math. If 25% of the realtors leave the business, and you’re not one of the 25%, there’s going to be just as many deals going around a smaller pool. This is what happened to my company 2008 in that L-shaped curve, which was so painful, I would not have wanted it. It was after that that we went to number one. Now in this very frothy upturn, you get companies that are funded by venture capital, they don’t have to make a real profit so they can make deals with my agents that don’t make sense for real people, like real people that face real economies.

When I look at a decision like that, that’s what immediately made me think, “Wow,” and I knew as late as 2019 they were still talking about a 2020 going IPO. This sounds more like a decision that’s made by a company that’s making non-economic decisions because even when you say like, “Wow, that worries me because if they really thought it was a V, they just keep the people on.” Well, even if they thought it wasn’t a V, it still wouldn’t make sense to pay them that much severance.

It’s like if you and I were CEO of Airbnb, we go, “Hey, we got to cut costs. Okay, great. Let’s cut costs. We can’t afford to pay this giant severance.” We either keep them or we don’t. If we’re not sure, then how about we keep them one month and then look at it again. It only makes sense rather than pay somebody four months severance. Look, I’m not being cold-hearted to the great people that got laid off from Airbnb and more of the benefactors of this. That’s awesome. That’s fantastic. I’m just saying it’s not an economic decision.

It’s not one that I would look at in a way as a market predictor, anything other than to look internally to them and say, “Hey, what’s the deal?” That brings us to another news story, which you and I talked about as well, and that was that Realogy did this deal with Amazon. When they did the deal with Amazon, they really pumped it. I looked at Realogy, and sorry, Realogy is the parent company of Coldwell Banker, Century 21, Sotheby’s, ERA, Corcoran Group, so many different brokerages.

They’ve been on a slow decline forever and they really haven’t shown a way to adapt to the market. Look we’re brand neutral. I’m not saying bad about Coldwell Banker or Sotheby’s. Sotheby’s a great luxury brand, all good. You don’t want your business to have no view to the future because that’s where the market is like, “Oh, well, Realogy is on this downhill slide forever, and we just don’t see a way out for them.”

They are dramatically undervalued. When they did this deal with Amazon, as being a competitor of theirs in the market I went, “Oh my gosh, that makes me nervous.”

Aaron: Right, Amazon’s huge.

Paul: Here’s this superpower that’s asleep at the wheel, Realogy, and now they’re getting into business with a superpower Amazon that’s not asleep at the wheel. It makes good news and they got a big stock bump after that happened, huge stock bump after. I didn’t even know what the deal was. I don’t think the market knew what the deal was, okay, but huge stock bump. Makes sense for Amazon too because they can get all of their smart home technology into homes, the more saturation they have.

To me, I’m like, “Oh, this deal makes sense all the way around and it scares me.” Now for them to say, “Hey, we’re out.” What happened in their deal was they had like any huge business deal they don’t go all-in on a marriage. One day you’re not married, now you’re married. They go, “Okay, well, let’s do an engagement.” They’re engaged, they’re doing this business together. It included a $5,000 credit.

If you sold a house through Realogy, you get $5,000 credit on Amazon for certain products, that includes their in-home smart technology, it includes people come in and assemble furniture, blah, blah, blah. It’s a great program as far as I can tell. Now they get into it and now they get to a point where either side can look at it and go like, “Oh, it’s not working out the way that we want it to. Let’s not move forward.” The CEO of Realogy said that COVID-19 “eviscerated” the value of that deal.

He was talking about it in the course of cost-cutting measures. What I think happened is, and this is speculation, as Realogy was looking at cutting all these costs, this was a program that was costing them money. Every time they sold a house and they gave a $5,000 Amazon credit, yes, I’m sure they got a deep discount on that but it wasn’t free. They were then closing a house writing a check to Amazon. They were like, “Hey, we can’t afford this.” They pulled the trigger, they pulled out of it. That’s what I see.

I don’t have all the inside details but that’s the sort of thing it sounds like. I understand cutting a bunch of costs, that was a cost that looked like it was partnering them, two Goliaths, together.

Aaron: I think that’s why it hit news because it was a big change. They started that about a year ago. It was July 2019. They were like, “Hey, we’re working together now.” Amazon was like, “We want to get into real estate.” They wanted to be a lead provider, Zillow is really a lead provider. They give people the info so they get people real estate leads. Amazon wanted to get into the lead provider business. realtor.com is a lead provider business too. They had those little partnerships.

I think you can buy a log home on Amazon now. I don’t know how much of their long-term plan that went into it but yes, as they were going into cutting costs, they said they are no longer going to have that partnership. Yes, something at the beginning, maybe they said, “We’re going to try this for a year,” and COVID could be the reason that they said, “Hey, it’s not working out,” it could be the excuse or it could be no, it was amplified because of that, that is a change.

Another lead provider, so realtor.com, realtor.com operator move announces layoffs. It supposed more than 100 employees across Move the owner of realtor.com were laid off on Tuesday. That was Tuesday this week. 100 people laid off. Under 20% of the company’s approximately 1400 employees, a lot of those employees are in Austin. It comes in the wake of a leadership reshuffle with Opcity.

Opcity was a company that was founded in Austin where they would call people and say, “Hey, do you want to sell your house?” If somebody said yes, realtor could buy that lead and they shared that. They were buying leads from realtor.com, sending them out to the agents, and realtor.com eventually bought them. Now those people that were part of the small Opcity, it said Ben Rubenstein was elevated to chief revenue officer and Michael Lam to the newly created role of Chief operations officer. Those are guys that were out the Opcity.

I’m out in Austin, I know that’s a big part of it but 100 employees getting laid off it says but more than 100 under 20%. We don’t know what the number is. Between 100 and 280 or something like that.

Paul: We’re just seeing it all around. I got to tell you, in addition to being in touch with a lot more people, a lot of the time my intention is like 2008 to come out of this stronger. In 2008 because it was that L-shaped recovery, we had a lot of time to sit on our bums and figure it out, and when we decided to get ourselves up and dust ourselves off and get into action, we had a lot of time to do that because it was that L-shape so everybody was still suffering in the real estate sales business, so-

Aaron: You’re right.

Paul: -I’m like, “Oh, hey, let me get my act together.” Eventually, I got my act together and other people didn’t. Now, I definitely had the help of our company, our franchise who were helping us lead that, but they’re saying, “Hey, dust yourself off, let’s go.” Now, being a leader in that group, I’m looking at this V-shape, and I’m saying, “Hey, you know what, we have the same opportunity this time. We got to act now, and now is the time to get smart and get moving.”

If anything, one of the things I’m doing is talking to so many people every single day. I learn a tremendous amount from this State of the Market Podcast. I guarantee it, I learn because Aaron knows stuff that I don’t know. Then I’m doing research prior to this call, in advance to this call every single time, so it’s forcing me to stay on top of things which is phenomenal.

I listened to an interview with a guy named Keith Cunningham who would be another guy that we’ll chase after to be a guest on this show. Keith Cunningham was the rich dad, okay?

Aaron: Right.

Paul: Sorry, Rich Dad Poor Dad, Robert Kiyosaki seminal book on wealth building, he was the guy. It’s a parable. As we were talking about before, maybe the poor dad wasn’t as bad as they said in the parable, and maybe the rich dad wasn’t as good. This guy, Keith Cunningham, was the guy that they modeled it after. He has a book called The Road Less Stupid, which I think is a hilarious title.  The Road Less Stupid.

Here’s what he says, and I’ve said it before, but I didn’t attribute to him, “Number one is to survive.” We’ve got to cut dramatically right now so we can stay alive, then stabilize. What stabilizing is, is looking at your dramatically reduced income and making sure that your costs have come all the way down so that, effectively, your burn rate is zero. If you can survive then stabilize, you will absolutely, I promise you, you will thrive, come through this stronger, better, even equal to when you went into it and you, by definition, will be stronger because a lot of your competitors will drop out of the market.

Use this time right now to educate yourself, become a national expert of sorts. Stay away from the conspiracy theories, stay with the big news and some of the stuff that we provide here, and then you dig down deep in your local area and make sure you do those “I care” calls. Every time we do State of the Market because I know what’s going to help the people that watch this on YouTube and listen to us on the podcast, reaching out, pick a number. I do 30 a day, and I track it.

Sometimes, “Oh hey, it was my birthday the other day. I didn’t do any,” okay, now I have 60. I’m making sure that I’m hitting 30 a day per business day, and that’s the tracker. Make it accountable, pick a specific goal, hold it accountable. Have at it, you will end up stronger at the end of this. I really believe it.

Aaron: I think a great point that you just made within that is I remember the crash in ’07, ’08. I remember being a home builder and getting a huge pay cut. I got a 70% pay cut, and my wife went back to as a waitress. We had a baby, and she would work nights. I’d get home from work, she’d hand me the baby, and then she’d go work at the casino as a waitress at night. I remember that time, and we were just scrambling for ideas.

We weren’t able to pivot, and I think a lot of people back in the crisis, back in ’07, ’08, ’09, everybody was like, “What do we do? What do we do?” Right now, the world is different. There’s more technology, there’s more everything, there’s more news. People are pivoting quicker, people are pivoting way, way quicker, so all of the new things that we’re seeing, people are hitting the ground running. There aren’t very many people that are saying, “Hey, I’m just going to wait this out, and in six months, I’ll get back to work.”

Every week, somebody is going, “Let’s try a new business plan, let’s try this.” The restaurants aren’t saying, “Hey, let’s just wait.” They’re saying, “Let’s pivot, let’s create drive-throughs out there.” Take the action to do it and, also, just realize in 2009, 2008, we could sit and wait because nothing was happening for a long time, nothing was working, right now, something is working out there, and so you got to be quick with it.

Rockstars, thanks for listening today. Paul and I, we love getting to talk to each other and to be able to dig into these. Like Paul said, him and I both, we learn a bunch every time, and we want to hear more from you guys. If you like this show, please share it. Let people know that it’s out there. Help them hear more about it. You can find us on Instagram, we’ve got @rerockstarts. You can find Real Estate Rockstars on YouTube and Facebook. You can find Paul. It’s @paulmarkmorris, is that right?

Paul: Yes. M-A-R-K, @paulmarkmorris, and you’ll find me on Instagram and Facebook that way. I’ve put a bunch of stuff up on my YouTube channel. Just put it up, and I think just #PaulMorris will help you. I did a CPA interview which is Paul Morris: How the Second Stimulus Package Impacts Real Estate Agents. That YouTube is available as well. That will direct you to some of our YouTube stuff. Make sure, hit us with questions in the comment box. Aaron and I look at it.

We really pivot what we do to make sure that we’re providing the resources that our listeners want to hear, so really appreciate the tons of positive responses, we really, really appreciate it. Like Pat always used to say, “Feedback is the breakfast of champions. Give me a review, give me a lousy review.” Pat used to say that. I don’t have the balls to that Pat has to say, “Give me a lousy review,” but, hey, if you got a great review, give us a great review. If you have any feedback, really, I promise you, we take it very seriously.

Aaron: Pat, he would dare people for that, and we get those, too. We get mostly great reviews, and we get some of the bad reviews, but no matter what, we’re going to take your reviews, we’re going to take them to heart, and we’re going to try to give you guys the best show we possibly can. Paul, thanks for joining us today.

Paul: All right, thank you very much.