Welcome to The Accelerated Investor Podcast with Josh Cantwell, if you love entrepreneurship and investing in real estate then you are in the right place. Josh is the CEO of Freeland Ventures Real Estate Private Equity and has personally invested in well over 500 properties all across the country. He’s also made hundreds of private lender loans and owns over 1,000 units of apartments. Josh is an expert at raising private money for deals and he prides himself on never having had a boss in his entire adult life. Josh and his team also mentor investors and entrepreneurs from all over the world. He doesn’t dream about doing deals, he actually does them and so do his listeners and students. Now sit back, listen, learn, and accelerate your business, your life, and your investing with The Accelerated Investor Podcast. 

Josh: So, everybody, what’s going on? Welcome back to Accelerated Investor. I am. As always, I’m really excited to be with all of you guys. I’m coming from my one of my home offices instead of my work office where I normally do these podcasts and solo casts and guest interviews. Obviously in the middle of this Corona virus pandemic. Hopefully things are starting to subside. So I just want to say thanks. I know all of you are hunkering down. A lot of you are operating from your homes, maybe your home office, sharing a lot more of your house space with your spouses and kids and your loved ones. I’m doing the same. Actually my wife and my kids are over in our home gym a couple doors over. So hopefully we can we can get through this amazing podcast, this information, without too many interruptions. Maybe you guys have listened to some recent podcasts and seen Dominic on a little bit more often than the past. So that’s just real world, right? Running our real estate businesses and our information and data that we put out this podcast and doing it in this environment. Today I’m excited because I have a regular recurring guest back with us. His name is Daren Blomquist. He is the vice president of Market Economics at auction.com. Daren’s been a regular contributor of the Accelerated Investor podcast for years and at our events and our stages and inside of our coaching programs. So I want to welcome Darren back to talk about the state of the market. Daren, what’s going on?

Daren: How are you doing? I’m doing well, thank you. And it’s good to be back in different circumstances. I may I may be interrupted as well. My son just popped his head through the door right before we started. So who knows? It could happen again.

Josh: Yeah. Yeah. The spouses and kids are welcome in this environment at any time. Just let him, let them jump on it. And that’s great. So how are things going for you? Daren, you’re obviously working from home. You worked from home a lot before. So you’re kind of used to it. But I know you guys are based out of California. So tell us just a little bit about how auction dot com is running and what’s your environment like for you personally in the pandemic?

Daren: Yeah, we’ve been on a stay at home. I think I’ve lost track of the weeks now, but I think I was about it was about March 15th. So over a month now, which is crazy. And yeah, luckily for me, my job is pretty conducive to doing it anywhere and in many ways. But I do miss the environment of going into the office for sure. And we’ve been, we had an incredible effort on the part of our I.T. team, because we have over 900 employees in three locations. But they did a great job of allowing everybody, pretty much everybody to return to work remotely. And so that was a Herculean effort. But we’re, you know, we’re in the in the throes of it. But look, definitely looking forward and starting to prepare for getting back to the office. The teams are prepping the offices to start coming back. We’re looking forward to that. And, you know, we’re kind of we’re in a weird space as a business to where the foreclosure auction that I’ll talk a little bit about this in some of the data I’m sharing. But these foreclosure moratoriums affect us very directly. Right.

Daren: And you shut you know, basically shut down a portion, a big portion of our business, at least temporarily. But we know that that’s based on past experience, and just looking at the data, we know that that’s going to result in a flood of foreclosures down the road, right? Even if it’s in a couple of months, as I said. So we’re trying to prep for that. You know, and the thing, that’s really what we’re seeing. And probably, I don’t want to steal too much of my thunder here, but we’re seen as a business is the online, not surprisingly, the online portion of our business is what is doing very well right now. And buyers can’t go to the in-person foreclosure auction. So they are coming online. And, you know, the other part of our business is selling those bank owned properties through online auctions where you can bid from anywhere. So it’s very, very conducive to this environment. And so we’re seeing more activity for those. More interest in those online auctions and more bidding on those online auctions. So that’s a big focus for us as well.

Josh: Nice. Yeah. Those online auctions can be done right from home. So I’ve actually bought many properties from auction dot com from my home computer sitting on my couch drinking a glass of wine next to my fireplace. That’s great.

Daren: Yeah I mean, the shameless plug in, you know, maybe we could talk about this later, but we are one of the things we’re developing further in anticipation for this backlog of foreclosures is being built up right now that eventually will hit, is technology to allow folks to bid remotely, not just for the online auctions, but for those live courthouse auctions? And actually, you can do that from, the cool thing about Ohio right now, is it passed legislation a couple of years ago and we helped advise on that. That allows the courthouse, traditional courthouse actions to happen online. So Ohio was actually ahead of the curve in that. So if you’re in Ohio buying properties in Ohio. Yes, you can do that online, which is really cool for those in person traditionally, courthouse foreclosure auctions. Most of the other states, that’s not the case. Florida is the one. One other state where that’s case. But we’re working on technology that’s going to allow that more across all the….. And we were working on this before the pandemic. So it’s a you know, somewhat serendipitous that we’re we launched it in March. And anyway, I can talk more about that if you want to. But it’s an exciting thing. I think that, we’ll, once those foreclosure, moratoriums are lifted will allow investors to access this inventory more conveniently and more safely than past.

Josh: Got it. So a lot of the data that Daren will share is direct data from the auction dot.com platform, their Web site, where they do list and sell foreclosure properties and bank owned properties and government foreclosures and things like that. So a lot of the data’s real time from their buyers who are clients of theirs, as well as the sellers who are typically institutions, who are also clients of Daren’s. And he’s got some updated information just over the last, you know, two full weeks of April. We’re recording this on April 24th. And Daren’s got some information literally that just rolled out this morning. So we’re going to talk a lot about Q1. What we were seeing as we do these once a quarter, we talk about the data and what we’re seeing about home prices and unit sales and foreclosure information. And then obviously, these numbers are all going to be a little bit off or different or skewed because of what’s happened in the last 30 days or so. So we’ll talk a little bit about retail market trends. We’ll talk about some investor insights and then the distressed market trends as well. So first, we always like to talk about number of unit sales, like home sales by the week and then also prices. That’s usually kind of where we start. And again, if you’re watching this or hearing this on a podcast on Stitcher or SoundCloud or i-Tunes, there is a corresponding presentation, PowerPoint slides that go with this podcast, which is going to be available on YouTube. So definitely look up Strategic Real Estate Coach on YouTube. And you’ll and you’ll find these slides there as well. So there let’s just talk a little bit about what we saw 2019 through 2020 regarding home sales. Tell us a little bit more about what you’ve seen so far.

Daren: And actually, for a lot of this data, we typically do look at this quarterly. But because of the nature of the market that we’re in right now, the fast moving pace of things where I started pull the data by week rather than quarter or even month. And so, you know, for instance, in NAR just came out with our March numbers yesterday, which is lagging. You know, the March numbers still show that are up year over year, although they did come down from the previous month, which is unusual for March. But so I start pulling this data by week from directly from the MLS, which is a little bit more Real-Time view of how things are going. And you do see that real estate did hold pretty steady through March. You started to see the fall off in the second half of March there. And then the big drop off that you see in sales comes in the first two weeks of April. So I think, you know, in March, you were still having sales happening that had been set in motion several weeks before. And so still closed. Those still got got through the door. And now you’re seeing the sales drop off pretty dramatically. And so when the NAR comes out with their April numbers in in about a month from now, you will see, I’m guessing, something along the lines of a 40 percent decrease in sales in April was what we’re seeing the first two weeks compared to last year. So the real estate market is everybody, you know, it’s slow moving. It wasn’t quite as fast to respond even as unemployment and things like that. But we are seeing the falloff in retail sales.

Josh: And remember, this is retail sales and this is home units. So a lot of people I’ve over and over and over, I’ve pounded this to my audience and tell them, pull them again and again. Look, there’s two major indicators. There’s a number of units sold per week and then there’s home prices. And in this environment, what we’re all seeing is that supply is down and so is demand. So they’re both decreasing. I don’t know if it’s at a similar rate, but they’re both decreasing simply because people aren’t getting out of their homes. People that would have listed their homes on a retail sale are not doing it. They don’t want people in and out of their homes showing properties. And buyers are not leaving their homes to go buy properties. So the total number of home units you can see from week 9 was nearly a hundred thousand sales that week. And now in week 16, which is coming up really close to the end of April here, middle to the end of April, we’re down to about fifty-five thousand units. So it’s down by 40, 45 percent total sales units. That doesn’t mean home prices just drop. Forty five percent. I want to make sure that that’s clear because some people are like, oh, my God.

Daren: Well, I think Josh, actually, yeah, you’re thinking exactly how I thought. If you go to the next slide, we do look get home prices, which this actually surprised me a little bit, practicing an acceleration in home price appreciation. Wow. So the blue line is last year home. And this is average home prices. It’s not median. It’s average, which is a little bit more volatile, but averages. But you still see the trend that, you know, not surprisingly, home prices in 2020 are higher, but they’re actually the gap between 2010 and 2019 is getting bigger in the last couple of weeks. Right. 10 percent in the first week of April and up 19 percent in the second week of April.

Josh: Wow. So beginning of the year, average home prices in the three seventy five range and now it’s up like close to 440. It’s all of a sudden jumped. Obviously it’s going to change every week and the numbers gonna change a lot. But it’s just good to see home sale prices going up. I would just be happy to see them staying steady. I mean, I don’t know that. Again, I think that’s can be fairly volatile over the next couple of weeks because supply and demand and a change a lot as certain markets open up and certain buyers are leaving their houses, more homeowners listing their properties for sale or even rehabbers who are rehabbing properties now are able to finish projects. Contractors are able to get to houses, finish rehabs and getting them on the market. I anticipate that that number is going to fluctuate probably more than we’ve ever seen over the next two or three months is my guess. Again, new home listings. This kind of follows along with that data of a number of units sold. So tell us about this. Looks like sales listings are way down as well.

Daren: Yes. So this is exactly the point you made a minute ago. That supply is down and that’s, so usually when you would see sales down, that would indicate demand is weak and so then you would expect prices to follow. But we’re not seeing that. And it’s because supply is actually leading here. Supply is down more than demand. So supply is down 52 percent year over year in terms of new listings. Wow. And so that is what’s driving this market right now, is people taking they’re either taking their homes off the market that were already listed or not listing them in the first place because they know who wants who would want to sell. If you have a choice, you know, you probably don’t want to sell in this environment. It’s just a probably a tough environment to sell and especially for a real retail seller. And so that’s really driving that trend that we saw in the last two slides.

Josh:So you could make a correlation between supply is way down 52 percent and prices are up. That would seem to make sense. Again, I’d like to see this play out over the next couple of weeks and months to see if that sticks that way. So growth in customers going on their first tour indicating their first time the property hits the market and going on a tour. Is that what we’re looking at here?

Daren: Yeah, this is data from Redfin and really trying to show the demand side of the equation is, so… The last slides in a roughly speaking supply is down 52 percent, demand is definitely down based on them measurement, which is basically yeah saying, what’s the percentage change in the number of folks going on their first tour of a home through the Redfin platform at least? And it’s down that’s down 25 percent, but it’s not down as much as supply and it’s actually bouncing back up a little bit. If you see there at the beginning of April, at the end of March, it was closer to 40 percent decrease in that demand. So folks are starting to slowly come back and look at homes. And that’s creating this environment where you have actually have prices still rising, even though the market is, you know, is really in a in a crazy, crazy town mode right now.

Josh: And I think one of the things that for our audience maybe that wasn’t around in 2008, 9 and 10. You have to remember. The 2008 everything about 2008 is when the market imploded. It actually started in the fall of 2006. Many people don’t remember this, but that’s when a lot of the foreclosure adjustments began to happen and the two year and five year arms started happening. And default started happening. So then Bear Stearns went bankrupt in the spring of 2007. That was the first major big company to go under because of the foreclosure crisis. And then Lehman Brothers was in the fall of 2007, and then AIG and Fannie Mae and Freddie Mac didn’t happen till 2008. So my point here is that real estate is a slow moving as Daren already mentioned. It’s a slow-moving economic niche because it’s not like stocks where stocks are traded and they can be bought and sold. Literally in a second. Through the click of a mouse. Real estate takes time to show properties, write contracts, get to the closing table, get to title and escrow. It takes time. So it tends to lag. And so when the stock market was down 50 percent in 2008, real estate didn’t hit its bottom until almost three years. It was about three years. It was in sometime in 2010, I believe, when real estate was down about 33 percent and at its bottom before it started to rebound. So I certainly expect with all these twenty six million people who have lost their jobs, there’s going to be more foreclosures. There’s going to be some of that stuff. But you’re not gonna see it tomorrow. It’s going to take 30, 60, 90 days. All these forbearance agreements, maybe 180 days, maybe a year until a lot of that stuff starts to rear its ugly head, if you will. Yeah. So.

Daren: Yeah that’s a really good point. And I think so we’re kind of in this weird environment where we and to be honest. We’re encouraging, and I think our sellers know this. And the banks who are selling our platform, the properties that they already have in their inventory. It’s actually a good time to sell those because you don’t have a lot of competition from other inventory and you still have, you know demand is weaker, but you still have demand up there. And so before that kind of slow moving train makes its way and probably we’ll see some it wouldn’t be surprising, to see some price declines down the road before that hits. Now, it’s kind of a good window of opportunity to sell.

Josh: Got it. Yeah. Now’s a good time. I agree. Supply is way down.

Daren: You know, it’s true for investors due to a certain extent, too. If you have inventory that you can get sold and of course, it’s a more difficult environment to sell into. But because so many people have pulled back in turn, including like the eye buyers, you may have this window of opportunity. That’s…to get out there and be the only the only house on the block that’s available for those buyers who are out there.

Josh: Got it. Yeah. So I’ve just skipped over a slide to here just because I see some things that I’m really interested in hearing more about in this particular survey that you guys did come this post pandemic survey. The biggest challenge, this was back. It looks like Q3. What was the biggest investing challenge? That just means question 3. Question 3 sorry. Question 3. This was this was a survey done between April 3rd and April 10th. So this is very recent. But two weeks ago, what was the biggest question given the recent market volatility? So tell us about that. There’s funding, inventory, market prices, contractors and demand. What did you guys find from the survey?

Daren: Well, we saw demand is the biggest challenge. And I actually called in. So this is a survey, just it to be clear, of our buyers who are real estate investors buying properties off of our platform. We surveyed about 200, actually it is exactly 250. There you can see is that people who answered this question 250 folks who responded. And this ranges from small mom and pop type investors to very large institutional investors who are answering this. But the demand was the biggest one. It wasn’t far, I wouldn’t say far and away. There was a lot of challenges across the board, but that was one that stuck out. And I did call and talk to a few people and just got some anecdotes. And certainly that is the issue, meaning. So it kind of it runs counter to what I just said. Now is a good window of opportunity to sell. But. On the rental side, if you own properties, rental properties. There’s a fear and possibly sometimes it’s happening where folks are not paying the rent because either they lost a job or they’re taking advantage of the situation, unfortunately. And then on the other side, on the home flippers.

Daren: This one guy I talked to, you know, you get 10 properties. He flips about, he said twelve to 20 a year. And he happened at 10. Right now that he’s trying to sell right in the middle of this. And it’s a little bit. It was a little tough. I actually talked to him, you know, a couple weeks ago, like I said, I do think there may be an opportunity now that things have calmed down a little bit for those properties to move, given that there’s less inventory on the market. But that’s that’s the biggest challenge for across the board is that. More of the I guess I call it the disposition side of things rather than the acquisition side of things.

Josh: Right. Yep, I agree. So decreased interest. Interest in occupied. So occupied versus vacant. Right. So this seems to make a lot of sense. Just people not willing wanting to go into environments or houses where other people could be. So this is it looks like, again, in the survey, a buyer survey. Auction dot.com buyers. Obviously, that is a lot more interest or no, no change in interest than vacant properties or even an increased interest in vacants versus a lot less interest in occupied homes. People want to buy properties that are vacant.

Daren: Yeah. And that’s that has that’s been true in the past that you tend, vacant properties have gotten tend to get more interest as you don’t have the eviction process potentially that’s happening. But now given the fact that there is an eviction moratorium at least through May 17th here, that has exacerbated that opinion and people are veering away at least in the short term from occupied properties for the most part, there are certain investors who we have who specialize in that and do who do seller financing back to the owner occupants. And so they’re actually, I talked to one guy who said, I actually like this because it means less competition for me. You know, if you have that niche where you can go in and you know how to deal with occupied properties, then it’s good. But most of the investors that we have are very in a way from that because of that eviction moratorium that’s…. And in fact, we’re actually just to be a good citizen in this environment. We’re asking all of our buyers who buy occupied properties to sign a pledge that they will stick to that eviction moratorium through May 17th.

Josh: Yeah, we’ve got one rental property out of our portfolio of single-family homes that’s was in the middle of an eviction. We can’t obviously push that forward. That’s on pause. And we’ve got a handful of foreclosures that we’ve got going on through our private equity fund on loans that we’ve made. And all of those foreclosures have been paused. So we’re in the middle of it. We see it actually in real time that those are happening. We did get to see as far as good news. You know, we have a pretty substantial portfolio of rental properties. We have over twenty six hundred rentals, better apartments, apartment doors. And we only saw we actually saw the same collection rate in April that we saw in March. Very interesting. Almost identical total dollars collected, total number of units collected in April as in March. And we’ll see what happens.

Josh:People are getting the stimulus money, the PPPs SBA loan money, people hopefully things are gonna on thaw. People get back to work here in in May. So I do think they won. This is going to be released right around May, early May. I do think in May, the whole month of May is going to be telling with all the people on unemployment, how many people pay the rent May and how would people got stimulus checks and what they use that stimulus money for? I’ll be interested to see how that flushes out, not only for all of our students and listeners, but for my own portfolio. Again, buyers seem to be shifting their strategy online. You talked about this in the lead in the open that a lot of people are looking to buy properties through online auctions. Just tell us more about some of the survey results that you got and what you’re seeing.

Daren: This was a you know, I think when people think auction dot com, they might think all of the properties are sold online. All the properties you can you can go in and find out about online. But about it’s about half of the properties to actually bid on them, you have to go physically to the courthouse steps. And those traditionally actually have been that’s the biggest interest has been in those properties on our platform. But that completely in a matter of just weeks, that completely flipped. So we see now. And not surprisingly, because of the moratoriums, but we see now 61 percent of folks said their preferred acquisition method is the online auction, whereas only 29 percent said that was their top acquisition method back in February. So that has completely flipped. And people are looking at the online auctions now and considering those where they may have been just considering the live foreclosure auctions in the past. I mean, obviously, our audience is going to skew toward auctions. But we did throw in there the off market and multiple listing, essentially multiple listing service stayed the same. Off market gained a little popularity where it was for 18 percent of folks. It was their number one acquisition source going direct to homeowners. It gained a little popularity. And I think the biggest loser here was the in-person foreclosure. And that’s really a matter of inventory. The inventory is dried up. I’ll show that in a second.

Josh: I mean down 70 percent basically, those in-person auctions. So those dollars of people are active professional investors. They’ve got to go somewhere. Right. So a little increase in direct owner, an increase in the online stuff. So page views, obviously, this tracks page views at auction dot com property. Page views is up big time. That’s sixty five percent. That’s amazing. And technology, right. Bidding remotely. I think we’re to see a lot more of this. I think we’re learning as a culture a whole new way, all new habits, all new techniques to just not only in real estate, but, you know, our entire lives running our entire lives, the ways that we’re gonna social distance or shop online, buy groceries and things like that. And so technology is going to be a big part of all of that, including real estate. So tell us about this. How is technology increasing people’s ability to buy properties and changing their strategy?

Daren: Yeah, I mentioned this earlier. So not to spend too much time on it, but we had been creating this. One of the biggest obstacles to buying at the courthouse steps is you actually have to be at the courthouse steps physically or at least have somebody there. And that’s a limitation for many investors. And, you know, to be honest, a lot of times the property gets the auction gets canceled at the last minute. So you go and the property you’re interested in and the properties you’re interested in don’t even go for auction. So we had already been building this remote bid technology that allows you to bid basically from your smartphone and track these live auctions in real time. And we actually launched that in March in four counties and it’s expanding soon to about over 300, close to 400 counties. But we think that it will be a great tool that will be in place once a foreclosure auction start up again to allow people to bid remotely at those traditionally very… Auctions that require a very high level of person-to-person interaction. And this is just showing how dramatic this is. The falloff has been. The green line is foreclosure, these in-person courthouse foreclosure auctions in 2019. The red line is 2020. You just see it. And this is our data, which we estimate we account for about half of the auctions nationwide that are happening. So it’s fallen off, which is you know, I’ve made that point several times.

Daren: But I do want to make the point that we have to look here at the unintended consequence of potentially unintended consequence of this is. Every month, just in our platform alone, which again is about half of the overall auctions nationwide. There is a backlog of about 6000 properties that are not going to auction every month that regularly would be. And that’s just that’s absent. That’s in a vacuum absent of the pandemic crisis. And so there is this backlog that’s building up in the longer. If this moratorium gets extended, the problem with that is at some point you’re going to have to deal with those properties.

Josh: You’re going to have to increase the supply and demand doesn’t catch up. You know, where for some reason people just aren’t buying as many real estate properties, then prices will come down. Right. But if there’s supply that starts to hit and there’s a bunch of pent up demand and that kind of equal each other, then property values could stay stabilized. So you’ve got that six thousand backlog and you’ve got potentially new foreclosures happening and you potentially have less liquidity in the market. You’re also going to have for some degree, Daren, for retail buyers, you’re going to have definitely an issue coming up with getting approved for mortgages because banks are going to see that people got furloughed. They’re going to see they’re on unemployment, you know, and the banks were really strict over the last five or six, seven years of making sure people had two years of uninterrupted employment on their employment history in order to get a mortgage. And so the fact that now you’re gonna have a twenty six million interruptions in unemployment. Now that’s going to affect how banks underwrite buyers. And it could be removing a significant portion of those buyers from the marketplace for the next two years if banks stick with that two year criteria of having to have two years on the job. It could take every single one of those 26 million take them out of the market. They won’t be back in the market for two years from now when they can establish two years of on the job history. I mean, I’m interested to see what that looks like, because if you remove all those buyers in the market and then bring all that inventory you just talked about on the market, it could drag prices down to some degree. I don’t think it’s going to kill it like two thousand eight, nine, 10. But I think there’s gonna be an adjustment. But when you factor all that in.

Daren: Yeah, I think you’re right. I mean, and my point is the I think the lesson from 2008 to me, maybe not everybody thinks this is a lesson, but the idea that you can just kick the can down the road with the foreclosures. There was this push to just, okay, let’s not foreclose. Right away. And you know, that’s well intended, but the problem is that that draws out the pain of the recovery because eventually you have to deal with those properties. And the longer you wait, the bigger there is this pent-up supply. To your point, and if it hits at the point that it hits, if you don’t have demand to soak that up, then it’s going to have a bigger impact on the housing market.

Josh: It looks like the FHA delinquency rates again, this is there’s a lot of data on this slide. I mean, the 30 day delinquent, 60 day, 90 day, it all seems to be obviously this only runs out through the end of February. So not taking into account a lot of the pandemic stuff yet. This is all pre-COVID. Everything looks to be roughly normal, like within the same range dating back since 2016. You know, but what’s really going to happen, when we have you back on in about three months. Then we’re going to have the April May data and then that’ll tell us what really happened, right?

Daren: Yeah. I mean, we were already expecting FHA to be a source of weakness in the market in terms of more foreclosures in 2020. But yeah, I mean, it wasn’t anything crazy. We were just seeing this uptick. If you look at that blue line and foreclosure starts, those were starting to come back up again and. I think that we’ll see, you know, unfortunately, FHA is the weakest link, I guess, in this housing market in terms of mortgages, because it is designed to expand access to homeownership. So you have the lower credit borrowers, those are going to be the folks who are most at risk in this environment as well.

Josh: Right. Same thing with delinquencies. Look like those popped up quite a bit. But again, this is Q4 2019 data kind of matches what we looked at on the previous slide there. So unemployment rate and mortgage performance, this is interesting data, especially because this is we’re really going to get this data coming out in May and June because this is obviously in arrears looking backwards. So help us understand what this looks like as this is a slide that although we’re tracking it now looks like a slide we’ll really want to track in the next couple, three months.

Daren: Yeah. This is analysis put out by Black Knight. I thought it was really good. Well, it’s really helpful to kind of see the potential impact. This is really a guess at this point. But they looked at the relationship between unemployment and delinquency rate basically. And back the baseline, if you look to the on the left side, there is the Great Recession when we saw a delinquency rate of a total non-current delinquency rate of fourteen point three percent. You had almost 8 million folks who missed their payments as a result of that. It’s looking at that. We’re getting, at least as of right now, we’re going to be around 20 percent unemployment when the April numbers come out. And so if that’s true and this relationship holds, they’re expecting to see 7 as well, under that 20 percent unemployment scenario there, 7 million folks who missed their mortgages go delinquent. So that’s that’s a huge increase of off the, what we’re what we’re at right now is two million people who are delinquent. So that’s kind of. Talking again about that potential flood of foreclosures we’re going to see at some point. As a result of all of this.

Josh: Yeah, and the question then becomes, are the banks taking those missed payments and what are they doing of them in forbearance agreements? Because if they’re just expecting that, look, nobody’s gotten paid for, let’s say, three months or six months and they give him a six month forbearance. But then on month seven the bank says, OK, we’ve given you forbearance for six months. Now we need all those payments at one time. Look, let’s use common sense here. Like nobody’s gonna be able no average American’s gonna be able to say, yeah, I’ve been paying $2000 a month. I missed my last six months of payments. Twelve thousand dollars plus some other fees. Here’s a check for 15 grand. Bring me current. That ain’thappening. So what’s interesting, what we’re gonna be interested to see is, are banks gonna be willing to wrap those missed payments, those forbearance payments to the back of a loan or give people a payment plan, because we know most Americans already are paycheck to paycheck. So there’s no way to assume that they can make up a big chunk of money in month four, month seven and after a 3 or a 6 month forbearance. It’s not going to happen. So in order to avoid significant foreclosures from Covid-19, banks are going to have to get creative with what they do.

Josh: And I’ve also seen data, Daren, maybe you’ve seen it, where Fannie Mae and Freddie Mac have now said that they’re going to start to buy some of these forbearance mortgages in bulk from banks. Because we have to remember what’s the what’s the secondary and the third, how do the dominoes fall, which is if banks have mortgages on their books that are nonpaying, that banks have to set aside more money in reserves to offset those delinquencies and defaults, the more money they have in the reserve, the less liquidity they have, the less loans they can make. So by having Fannie and Freddie buy those forbearance loans off their books now it creates liquidity for banks to keep lending. So there’s all those dominoes that are interconnected. And so it’s could be really interesting to see, because if banks aren’t willing to be flexible, this thing is going to get almost as bad as 2008, 9 and 10 because you’re gonna have tons of people. We’re already seeing 20 percent unemployment. It’s going to get very close to that very soon. So, you know, almost by accident, 2008, 9 and 10 can happen again if the banks don’t do this right.

Daren: Yeah, I think that’s really the big question is this going to look, I think to me there’s just using recent history as a guide. This could go one of two ways or somewhere in between. Most likely somewhere in between. It could go like 2008, although albeit at a much-accelerated pace, like things are happening so quickly, right. Or it could look more like and I’ll show this. You know, if you skip down a couple of slides, it could look more like, I guess in a best-case scenario, like the aftermath of some of the hurricanes that we’ve seen in the last. And actually, if you go up a slide, even in the last, back in 2017. And this is part of the Black Night analysis, is the loans that went into forbearance in the hurricanes. And of course, I’m not saying that what we’re experiencing is exactly like the hurricanes. But you do show that the forbearance was a success from the perspective of. Basically, the bottom line here is the percentage of those forbearance that ended up as going to foreclosure sale was only 1 percent.

Daren:So 99 percent of the people who got forbearance were able to come current. So, you know, 60 percent current. Some of them are still delinquent. A lot of, you know, another 20 percent sold or refinanced. So the vast majority were able to get out of that, recover, get back on their feet. That’s good. That’s kind of the other. I see. You know, this is a spectrum. There’s 2008 and there’s no hurricanes. I don’t think it’s going to be as clean as the hurricanes with this forbearance. But they’re trying. They saw that the success that was experienced with that forbearance program and the hurricanes and so to a certain extent are trying to recreate that. I think we’ll probably land somewhere in between. But yeah. Yeah, I mean, your point about how the what happens at the end of the forbearance period is a huge piece. And I think the banks at least learned some lessons from those hurricanes about how to then get people into loan mods that don’t give them this huge payment shock right at the end of the forbearance period.

Josh: What’s interesting and I relate this to, you know, owning a bond, owning rental properties, whether it’s apartments, multi-family or even a single family, SFR 1 to 4 unit rental. If you bought it right, you bought it a wholesale price and you fixed it up at a wholesale price and you’re renting it out and you have long term financing on that property. In the short term, it’s almost like a bond that has a coupon, let’s say a 5 percent coupon. It’s paying you a 5 percent interest rate, but the price of the bond comes down. You don’t really care if you have a 30 year bond or a 10 year bond because it’s going to mature out at the 10 year mark or the 30 year market’s going up mature out at the par value at full price. And you’ve gotten your 5 percent coupon. You don’t care what the what the volatility is in the meantime. Same with housing. If you bought an apartment or a multi-family house or an SFR and you’re getting your rent, which is essentially the coupon from the bond and you’re holding it and the tenants paying you rent or all of your tenants, if it’s an apartment, it’s paying you rent. Even if that coupon comes down a little bit because there’s some more vacancies and there’s less payment.

Josh: But even if the value of your building comes down in the short term, as long as you’re holding it and you’re not selling it in the middle of this chaos, you’re never going to lose. If you’re flipping houses and you’re dependent on an after repaired value. Then there’s the possibility that prices could get dragged down and you could lose. So the question becomes is what type of investor are you? Are you a buy and hold guy, which the markets have always proven that simply inflation over time is going to make the property value go up. And you’ve locked in your loan at, let’s say 3, 4, 5 percent interest with an amortization schedule, you’re gonna pay that loan down. So again, it’s just more proof that buying and holding properties for the long term is a strategy that’s going to win in this environment because now you’re not really honest are going to care that much about the foreclosures that happen or price decreases. But a matter of fact, even if there are more foreclosure, actually helps you if you’re renting houses, because typically when there’s more foreclosures, more people move into rental properties, apartments, rentals rent rates go up in a depression or in a recession. So it actually can help with that. This is great data to see what they’re saying about this. The only problem with this, Daren, as we know, is the whole country is like a hurricane right now as opposed to just one spot, right? That’s right. Yeah.

Daren: I want to be careful about making that comparison, but I do think. It’s also different. You can’t say 2008 because this is not some systemic, deeply rooted problem that’s ingrained in the whole structure of the of the housing market. Right. This is a black swan event, you know, classic black swan event where it’s just something coming in out of left field that hit a housing market that was very strong. And so I think that gives, depending, it really all hinges on how quickly the health piece of the pandemic. You know, on the one extreme, if you saw the pandemic ease as quickly, which is unlikely. But to see the pandemic go away as quickly as it hit, then, yeah, you would see this this quick rebound. But it’s really going to hinge on how quickly that pandemic is, you know, I don’t know what the word is solved, I guess. But that will really tell us how elastic the economy is in terms of bouncing back to where it was and the housing market as well.

Josh:So there we’ve got time for probably one more slide. I saw this one about servicing portfolio volume in forbearance. I thought this was interesting because this is still the early part of April. Now we’re into the end of April as of this recording. And the amount of properties going into forbearance is obviously skyrocketing. You know, very, very fast by all different investor types Fannie, Freddie, Ginnie than other others. It’s skyrocketing. And that just goes into what we did, the conversation we just had about banks and things looking at forbearance as a way to get through the hurricanes, get through natural disasters, offer some forbearance for the next three to six months and hopefully the market comes back. And very few of those properties, 1 percent, ended up in foreclosure. But it is interesting to look at the data and look at the colors and just see how it’s the hockey sticking up the amount of properties in forbearance.

Daren: Yeah, absolutely. And actually there some new numbers. So both these are numbers from the Mortgage Bankers Association, Black Knights also tracking this. And they came out with some numbers this morning that show it now at I mean, six point four percent of all loans are now in forbearance. These MBA numbers showed five point nine five percent. So it’s continuing to go up. Black Knight says it’s 3.4 million loans in terms of a number. And so it’s a significant number and. Yeah, I think there’s a lot of how those forbearance loans are dealt with and how quickly they can recover is going to tell us a lot about whether it, how the housing market does in the next couple of years.

Josh: Yeah, I feel like in a lot of ways, housing in this environment is hopefully going to be part of the solution, not the problem. Obviously in ’08, ’09, ’10, housing finance mortgages were the problem. So it was very hard for real estate to be the solution in this case. I do think that because the market was so good and we don’t have really a true you know, we don’t have a liquidity problem, we don’t have massive amounts of foreclosures. Not yet. It’s possible if if the banks and the major institutions don’t work this out the right way over the next three, six, twelve months, it’s possible to see a major, major foreclosure crisis again. But it is interesting to see that we have so much recent data from the ’08 that I think a lot of bankers and decision makers can make real good decisions based off a very recent scare just 12 years ago. And I guess so the lesson for me, talking to my real estate investors is that I think dry powder, cash, liquidity is really, really important right now because you are going to see an uptick in foreclosures. You are going to see an uptick in forbearance. You’re already seeing it. You are going to see an uptick in online auctions.

Josh: But it also doesn’t mean that prices are going to just crater through the floor. It’s going to take time if these forbearances help. It’s going to help to stabilize the market. Right now, as Darren said, one of my takeaways is supply is way down, down 50, 52 percent. Demand is only down 25 percent. So if you have properties to take to the market, I think you’ll do well to bring them to market because know people are looking for those, especially retail buyers are looking for those. I think investors are going to use this as an opportunity, Daren, to use the Covid-19 as an excuse to buy cheap. They’re going to go to sellers and say, hey, I see your properties at this price. And it’s probably a price that you would’ve paid 30, 60 days ago easily and say, now I want another 10 percent off on another 20 percent off just to use the virus as an excuse to get a lower price, even if you would have paid more. So tremendous amount of data here, Darren. Again, tell our audience, all of our listeners and students, where can they get more information from auction.com. And you guys have a fantastic newsroom. You guys put out a lot of information. If anybody wants to follow up on this and get more data and follow you guys or buy properties on your platform, where should they go?

Daren: Well, auction.com is where you can go to get all of that. Specifically, the newsroom if you get auction.com/inthenews. That’s where I’m putting all our research and analysis. And there’s a lot more. I mean, even the things you just said, I could I could give you some more data to just support that so that when we’ve written recent articles about that. So, yeah, we’re looking I think our buyers are on the front lines of this and they’re definitely the ones I’ve talked to, especially to the bigger ones are abiding by that philosophy that they do want to still buy. They see this as an opportunity to buy. They’re not necessarily in a rush to buy, but they see this as an opportunity and are keeping their powder dry. So anyway, we have I could talk about that a lot more, but, you know, to go to. Yeah, good auction.com. Check out the properties and check out our research and analysis feed. Hopefully that will be helpful for you.

Josh: Fantastic. Daren, I think in this pandemic environment probably is going to make sense to bring you back more than once a quarter. It’d be nice. It’d be interesting to see this data roll out month over month. So we’ll talk off line about bringing you back more often over the next couple of months here, because it’s gonna be interesting to see what happens in May, June and July before we get to the end of Q2. So listen, Darren, thanks a lot. Again, always so much information, a wealth of knowledge, pulling all this together and aggregating this for us. We really appreciate you being on Accelerated Investor.

Daren: Yeah, thanks for having me. Good to be here.

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