John leads a consulting firm that specializes in independent, unbiased analyses of the real estate industry. The company is on retainer with a very diversified group of companies to advise them on market conditions, and also completes a variety of project and portfolio specific advisory assignments. He was a CPA for 2 years and then spent 8 years in KPMG Peat Marwick’s Real Estate Consulting practice (now called Bearing Point). He was also a Principal for four years at a national consulting firm before starting our firm in 2001.
John has a M.B.A. from the University of California, Los Angeles and a B.A. in economics from Stanford University. Specialties: Real estate market research, Housing Analysis, Strategic Planning, Financial Analysis and Valuation
Bruce and John talk about the government’s response to the CoronaVirus and what the consequences of the stimulus package could be.
- Segments that are in danger now
- California Legislation
- What we know, what we think we know and what we don’t know
- What event should you look out for that will have the biggest impact on Real Estate
Narrator This is the Norris group’s real estate investor radio show, the award winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever changing real estate market hosted by author, investor and hard money lender, Bruce Norris.
Bruce Norris Hi, thank you for joining us. My name is Bruce Norris. And today our special guest is john burns. JOHN Burns owns a company John Burns consulting has for many years. He consults for many of the large real estate companies in the country, whether you’re a large builder or your hedge fund, John Burns should have your ear to be honest with you. I really appreciate his approach when we spoken privately. Even though he knows an awful lot, he’s always more concerned about what he doesn’t know and that’s always impressed me so john, by the way, thank you for always sharing your time with us at I survived real estate and welcome to our radio show.
John Burns Oh, that’s a good good segue, Bruce, because on these shows, I usually learn more from you than you learn from me. So I love doing this.
Bruce Norris I appreciate that. You know, I was looking at your website. And one of the things that you kind of it was just a niche, probably that emerged by necessity, but you ended up negotiating large blocks of assets, right for companies that were in trouble. So you were it’s kind of the negotiating arm that made that all work out
John Burns You know, when times get tough in real estate, we flourish. And it’s because a lot of new money comes in to take advantage of it or recapitalize it and doesn’t know the first thing about the industry and so we can help them out. So our business is more cyclical when when housing is really boring, that’s when we’re not doing so. Well.
Bruce Norris 0Well, that’s an interesting thought that one of the things that I read was one of the negotiations where you you worked on it And it was better for the company not to buy it. So you probably helped them make save a fortune not doing what they thought was going to be smart idea.
John Burns Yeah, so I one of the things I think or I hope makes us different is we don’t do anything on contingency. We have no biases. I don’t even allow any of our employees to buy or invest in stocks or real estate other than their own house. So we can call it like it is. And back, we just worked on a deal even in good times. That’s the case it was a huge deal. Where we said, well, here’s the revenue forecast, and our clients say, Well, that doesn’t support the price. And I said, both of you just got the answer. They want the guy that bought this company. It’s not going very well. It’s publicly traded, so I won’t disclose who it is. But
Bruce Norris yeah, well, you
John Burns know, that’s, we’ve been wrong plenty of times to.
Bruce Norris Oh, yeah. But you know what, that’s gonna happen. I mean, that No matter what you you’ve tried to figure out sometimes you look at, well, I thought prices were going to go down this year. And I said that prior to the Coronavirus. So I, I am still a little scratching my head about the reaction of the marketplace. I don’t I don’t know how you feel about the real estate market reaction I in the spring, I heard an interview that you did with I forget who it was, but it was around April and there was seemed like there was some concern and you were trying to make sure your clients were more afraid and giddy. And, man, I’d have been I’d been right there with you just because of the uncertainty. And then you know, right before in the last hour, I’ve just taken a look at some statistics year over year. I know the price is up. But what really kind of surprised me I had looked at in a while was the volume is up that I didn’t expect.
John Burns Most of my homebuilder clients are telling me they’re now ahead of their pro forma for this year in terms of volume after seeing probably an 80% decline in sales for a month,
Bruce Norris Right? I mean, there was that whole where you thought, okay, whenever I saw a month over month sales gain or price gain, I just wrote that off as of course there was nothing there. But now you’re talking year over year gains. That’s a bigger deal. So I’m, I guess I’m kind of surprised. I know. I know interest rates are great, but that to me is that translates to affordability and affordability has been much higher for instance, in California for years, then it then at a at a normal peak, you know, so I’ve always looked at real estate in California as more affordable than it can get. So I always thought, Okay, why are we only selling 400,000 houses a year when we’re at 30 some percent affordability. I was always concerned About that thinking, well, something is causing sales not to occur. So I, I thought when this stuff happened, I really thought that would be a bigger problem than it turned out. And I don’t you know, I didn’t look at the new home statistics. It’s hard. It’s hard for California to build new affordable homes. So I doubt the volume of new home sales in California has exploded as much as maybe across the country that’s probably going on.
John Burns Yeah. And even today, California is not as strong as the rest of the country.
Bruce Norris Yeah, you can’t you can’t get a yes answer on something that’s large. This is actually a crazy story, but I noticed a piece of land that’s been kind of in an option stage for a decade and the buyer trying to get whatever he wants approved, has been releasing a quarter of a million dollars a year for 10 years and it’s still not going. You kind of go Holy cow. That’s that’s pretty crazy.
John Burns So the very first, the very first masterpiece When community study I did in northern LA County was in 1989 8500 months. And there’s still no homes on that master plan community. Because of all the things you just said,
Bruce Norris Wow, well, you know,
John Burns years later, yeah, you
Bruce Norris just kind of go, okay, you win, we’ll go build somewhere else. That’s, that’s not that hard.
John Burns When you Well, you know, you mentioned that but a lot of the builders some, some have left the state and others have been allocating all their capital elsewhere. And what they have left in California is a very, very small part of their business for and, and there’s They’re so afraid of additional regulation and additional taxes and they’re like, I just can’t make it work here. The risk is not worth the reward.
Bruce Norris I think the biggest problem for me, you know, and you and I talked off air before I’ve moved to Florida, but one of the biggest concerns for me being an entrepreneur in Calgary, fornia and I still want a business there. And I know and I will. But I, I like to know the rules of engagement before I participate. And I like to feel like I participate if in fact those rules are going to change. And I have stopped feeling that way. in California. I feel like rules are basically mandated without my consent or even vote. And that’s problematic for me.
John Burns Yeah, that’s becoming national now, too. I mean, you know, our rental contract now can be overwritten by the federal government says you can’t evict people. And there’s a you know, a mortgage contract or contract can now be overwritten and says that people stopped paying their mortgage, you just have to let him not keep not paying for the next six months. It’s like, contracts don’t mean anything anymore.
Bruce Norris Yeah, it’s kind of funny because I moved into Lakewood Ranch. The first person I’ve met across the street was in New York, retired New York Attorney and he brought He brought that subject up. And I said, I said, Okay, well I own rentals. And when this occurred, the first thought would have mine would be that I would sit down and talk with the people that rented my property. And if if they legitimately had a problem, they owned a restaurant that couldn’t open for three months, we’d work something out. I mean, I would just do that. But his opinion was very different. He wanted to have that. mandated, you know, and that’s, that’s the difference. I as an entrepreneur, I would like that to be my choice, but maybe, maybe we’re not viewed as a very reasonable group that would do the right thing. I don’t know. But when you do when you do cross that line and tell me Okay, I thought I had this these rights, but I don’t. It makes me hesitant to participate. That’s exactly what that does.
John Burns And I don’t think people appreciate that. you’re totally right.
Bruce Norris No,
John Burns They regulate for the I think they regulate for the bad behavior of the minority. And the exactly the price.
Bruce Norris Exactly. It seems. It seems like this book’s been around a lot longer when you wrote Big Shifts Ahead. I know took you a long time and a lot of hours to to write. But I read it in one day, which is not an easy read, obviously, because it’s pretty, pretty involved. But I really thought you landed on the square that was really important. Like, instead of having the baby boom generation be so long you had the achievers in the 40s and the innovators in the 50s. How did how did you guys decide to divide the generations the way you did,
John Burns as we were doing all the historical study, it was very clear to me that, hey, somebody born in 1950, and somebody born in 1960, are both baby boomers but man have their lives been different and things impacting them a different times and so we broke it down. We started looking at it by year. And we said this is to micro. But clearly boomers, which is 17, or 19 years long, depending on how your definition is is way too broad. We settled on breaking it down by decade just because all of a sudden, you can compare a 10 year period to 10 year period. Everybody knows what decade they’re born. It just, it’s simplified things a lot. And that’s, that’s one of the challenges all decision makers and all investors have is trying to take all the confusion that’s out there in the world and boil it down to something that’s a little more simple to make a decision. So that’s why we did it that way.
Bruce Norris What was interesting after a while, it seemed like it was pretty much a dominant block of 40 40 million new people a decade.
John Burns It that was amazing to me. I did not realize that because we had the baby boom and the bust. But so much of that bust in the 70s was later filled in by people born in the 1970s in another country that moved here. 20 to 23% of people born in the 1970s were born in another country. You’re right, it was there was every decade was 40 to 46 million from 1940, all the way through 2000. That’s not that big of a boom and a bust.
Bruce Norris No, the one of the groups, that’s an interesting name that shares that they were born in the 80s. And they’re now between 30 and 40. What did some of their main characteristics? Well, then we call them the shares because they invented the sharing economy.
John Burns Their main thing they had in common was that they graduated from college right when the Great Recession hits, so they got off to some really tough start a lot of them or they just graduated a few years earlier. But you know, they got a really bad rap people calling them millennials is kind of like they were deadbeats and things and really actually if you look at what they did, they just they pivoted Hey, you know what I get along with my parents. I can live with my parents because it saves money and there’s nothing wrong with that. And the boomers were looking down on them all at the same time their own adult kids were in the house. And they said, You know, I don’t need to buy prom dress, I can rent it and share it. And that’s the group that invented Airbnb and Uber and all these sharing economy, big, great companies who came out of a white this, they looked at the room and said, Why do you have to own everything that’s financially stupid. And it was it was a big shift.
Bruce Norris Well, now how has that impacted housing since they are now in that they’re kind of in that main buying category,
John Burns how that’s impacted housing is they delayed their home buying decisions? And so and they’re the most educated generation ever. So you know, they’re having kids, I think, on average, five years later than their parents had them, but they’re also so you have a child you’re looking for a house, but you’re 32 years old and college educated and so is your spouse as opposed to your parents where, you know, one was college educated maybe, and you are 26 you’ve got more money. And so what we’re finding is a big bifurcation in society. But a lot of a bigger percentage of that group than ever before is buying their first house with six figure incomes and college education just because they’re older and they’ve done well, that that’s been the big change. And but they were not buying because there was there was the urban they were living in urban, and all that. That was probably the biggest ship. I don’t really understand completely why this happened, Bruce, but why all the jobs went urban during this expansion. Usually people flee to the suburbs and the jobs go suburban, they went urban. So that kept everybody closer to the urban center where things are expensive. And that’s been the big shift with COVID. Now Has everybody been given free pass if you’re a college educated person to go work from wherever you want, and we’re seeing the housing market boom, on the in the furthest out areas from the Job Center.
Bruce Norris Well, it’s interesting that was kind of leading to my next question. What are the main thesis of two big shifts ahead was that inside this block of 10 years ago, the group experienced something unique that altered how they viewed their future prospects. So in the spring of 2020, the world across all age groups, was introduced to the Coronavirus. So I’d like to ask you how you think the Coronavirus will impact some of these categories and I want to I want to ask the next So, in both of this is going to be maybe both answers long and short term. So the corona virus impact on on unemployment, short term and long term.
John Burns Well, short term is very obvious. I mean, unemployment was a historical low so call it the call it the virus or the recession. It’s pretty unemployment up dramatically. One of the things that I totally missed was most of the unemployment has been part time workers. And people who consider themselves temporarily unemployed, like the hotel is still gonna hire me back. The the number, the number of people that have been laid off permanently consider themselves permanently out of work. I think it’s only about only about 3 million more than the February I mean, 3 million is a lot. But compared to the 30 million that’s been reported that got unemployment, it’s really only about 10%. So the long term impact here is I think it’ll probably take a while to get back to the full employment we were at before Bruce. But I think we’re getting back there faster than people think. And I certainly thought thought we went two months ago,
Bruce Norris you know, when you it’s kind of like there’s two different takes on what’s next. You’ve got the doctor that’s been on TV, the whole Time. And his comment was basically Oh, yeah, we’re, you know, this is not over. Matter of fact, we’re about to have around two. And a lot of other people are going okay, we’re about done with the end of the virus completely, or at least its impact on business and all that. So that’ll be very interesting thing. how that turns out, because probably like me every day, you’re reminded that things aren’t normal. I mean, you like to go to baseball games for one thing. So, you know, you watch a baseball game and there’s not a soul in the stands it just constantly remind you Oh, yeah, this is not normal.
John Burns No, I agree with that. No, I think we I think we confuse expertise too much, though. I’m going to the doctor on TV referring to as an expert on medicine, but not the economy and not what local government policy is going to be.
Bruce Norris Yeah, I and I hope I hope that’s the way I hope that’s the way we lean that’s for sure. How would you assess the federal government response to that initial Great Depression basically, that we had for a month or two crazy levels of employment.
John Burns Yeah. So going back to the podcast, I guess you heard me on in March or early April, I was really trying to get my clients to think more negatively. Because they thought everyone was going to be back to work and virus would be gone by Easter. And like, What in the world makes you think that but that that is what was driving the optimism. Now, it turned out that the optimists are right, but they’re from all the wrong reasons. And this goes to the answer to your question, government stimulus here. It was something that nobody had found. So so the stimulus that Bernanke did last time, it took him six years to increase the Fed’s balance sheet by $3 trillion unprecedent going from 1 trillion to 14 How to look it up 3 trillion in six months. And the IRS which probably has to be the most bureaucratic government organization, slow moving, maybe except the DMV, but somehow miraculously got 1200 dollar plus checks into virtually everybody’s pocket. And the SBA, which is another I’ve never gotten an SBA loan, because I hear the bureaucracy there is just terrible. Did 14 years worth of loans and 14 days the government stimulus here was on believable and in terms of getting people out and spending and stabilizing the economy and turning things around? I think it’s been highly effective. Now, a lot of people think there’s going to be consequences for all this. And I do too. I mean, if there were no consequences, they’d be doing this all the time. But that’s been the big government response is the reason why the housing market is on fire right now. Do you think there’ll be around to both Democrats and Republicans saying they’re going to be it’s just a matter of what’s in it? So, yeah, and the timing of it. So I’m assuming there’s going to be around two. I think I think even they are have been stunned with how effective a lot of this has been. If there if there is one part of the economy that you and I understand that we shouldn’t have gotten crushed in this, it’s apartment, and even, you know, people are still paying the rent. I mean, somehow they’ve gotten enough money in people’s pockets, that the majority of them are still paying rent. One of my clients owns thousands of single family rental homes. We surveyed his tenants and found out 17% of them were out of work, which isn’t surprising. That’s what you would expect given the national numbers, yet collecting 96 us collecting 96 percent of the rent. And you’ve heard all these stories that people are living paycheck to paycheck or people have been finding a way to pay the rent. And it has to be due to that stimulus. I can’t I can’t fathom, what else would have caused that to happen.
Bruce Norris I think the speed of that and the size of it. Yeah, I was blown away. by that. I thought, Okay, well, that that’ll be three months for sure. And it was after that, that I thought things would, would probably revert. And we’d have to have round two, certainly by now. And we and we haven’t had it. So that’s, I’m a little surprised that hasn’t come yet. That’d be quite honest with you.
Joey Romero John, you said something really interesting right now. You said that there’s going to be some consequences of this. I’d be really interested to hear what you think those consequences are going to be.
Bruce Norris The consequences of giving people money they didn’t make
Joey Romero Yeah.
John Burns Well, the consequences everybody’s worried about inflation. And so for that
Bruce Norris Really?
John Burns for that, that Well, yeah, it’s the the money supply is in just last time I looked, it was about 13%. And so there’s 13% more cash out there and it’s flowing into the stock market and it’s flowing into housing. But a lot of is sitting in bank accounts. And you don’t see a lot you’re not gonna see a lot of inflation until it until people start spending it like crazy. And because you can’t get on a plane and the retail centers are still closed and yada, yada yada, and people are still afraid. They’re not. So that’s that’s the big. The economic theory would say this should create a lot of inflation. But it hasn’t. And the other thing that Raphael Bostic, the CEO of the Atlanta fed just did a really great interview on the rose did come on the wall street journal. He said one of the Fed lessons learned in this cycle is we were all taught that when unemployment get really look, I’d really love people’s wages will go through the roof and we’d have a lot of inflation. And that didn’t happen the cycle now, so they think something is something has fundamentally changed where we’re unlikely to have a lot of inflation and on the flip the Fed is actually trying to create inflation right now because deflation is really bad.
Bruce Norris Yeah, see, I land on that because, okay, I land on that square, to be honest with you. I think demographics, I can understand what they did created asset increase, you know, people that have the stocks in the Yeah. And the real estate. And I think that’s, I think that’s part of our society’s problem is that there, there’s, maybe they’re viewing it as not an equal share of the good of the goodies. So that’s just that just interesting. A lot, a lot of talk about, oh, we’re about to have a giant you know, giant foreclosure process. What’s your take on that?
John Burns Well, I don’t know why anybody would let the bank foreclose on their house right now, because there’s no equity in it. Right, right. And you could sell it and sell it in a minute. And what’s different this cycle is that it looks like the lenders learned her lesson in the last cycle, and they’ve incorporated in the documents instructions to the servicers to see what you can do to modify the loan because that keeps somebody in the house and it recovers more of the loan than going through the foreclosure process. So I’m sure foreclosures are going to go up because some people are not going to be able to be modified. But I don’t see anything coming like the last cycle. For that reason.
Joey Romero Well, for the past two years, all I’ve heard is to have a price hit. You would really need foreclosure inventory and REO’s dominate what’s for sale.
Bruce Norris Yeah, I completely I agree with that. Anyway, I don’t think we’re gonna have a foreclosure problem.
Joey Romero That’s gonna do it for part one of our interview with I Survive Real Estate favorite John Burns of John Burn’s Real Estate Consulting. Be sure you tune in next week for part two.
Narrator For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit dng trust deeds calm. The Norris Group originates and services loans in California and Florida under California DRE license 0121911. Florida mortgage lender license 1577 and NMLS license 1623669. For more information on hard money lending go to thenorrisgroup.com and click the hard money tab.