Jan. 17, 2022

Is This The Next Housing Bubble? Daryl Fairweather on Hyper-competition in Housing

We're back to blowing bubbles in the housing market with Daryl Fairweather, an acclaimed economist from Redfin, where we ask if the double-digit grow in housing prices indicates another bubble.


We're back to blowing bubbles in the housing market with Daryl Fairweather, an acclaimed economist from Redfin, where we ask if the double-digit grow in housing prices indicates another bubble.

Transcript

Will Page: Welcome back to Bubble Trouble, conversations between the economist and author Will Page, that's myself, and the independent analyst Richard Kramer, where we lay out some inconvenient truths about how the financial markets really work. Today we're back to blowing bubbles in the housing market with Daryl Fairweather, an acclaimed economist and a gifted communicator. More in a moment.

Daryl, welcome to the podcast. You wanna just explain the work that you're doing and your background as well?

Daryl Fairweath...: Sure. My name is Daryl Fairweather. I'm the chief economist of Redfin. In this role, I study the housing market. I research what's happening right now in the housing market, and also just how the housing market got to be the way that it is. Home prices are very high in the US, and there are a lot of reasons for that, so I explore all that in my research.

Redfin is trying to innovate to make home buying easier, more affordable, more accessible, and home selling as well. Well, one thing we've been working on is just trying to make a solution for everybody who's buying a home. Everybody's in a different space when they're buying a home. Some people are really experienced, they don't need much in terms of the way other real estate agents and people need a lot of hand-holding. So we're merging technology with actual human people to deliver that exact right service.

Will Page: Here's how we wanna cut up this podcast. We do it in two parts, and I'm gonna take the first part, Richard the second, and I wanna explore how I was introduced to your work, which is the great resignation. You did a speech on LinkedIn, which really grabbed me by the lapels, talking about why people are resigning. And in the second part, Richard will be bringing it forward in terms of housing bubbles, and there's a certain element of déjà vu when you have a podcast called Bubble Trouble and you have a housing expert.

Daryl Fairweath...: [laughs].

Will Page: We've been here before. But on the resignation, you introduced me to this concept of the great resignation on LinkedIn. I think that view has had maybe 25,000 views now, so an incredible achievement there. For people who are not aware of this, we think about employment, unemployment, and inactivity. You can be one, two or three. But you've introduced a fourth, which is you can just quit-

Daryl Fairweath...: [laughs].

Will Page: ... And people are quitting at scale. So why is this resignation thing happening in America? I mean, how does it unravel?

Daryl Fairweath...: Well, during the pandemic, we were all stuck at home. And if you had a job, you were taking in money, but you didn't really have a lot of places to spend it. You couldn't go out to eat, you couldn't go on vacations, and a lot of people decided to buy homes with all their excess savings. But not everybody decided to buy a home. Plenty of people just stayed where they were. So I sensed early on when the vaccine was coming out that a lot of people were gonna use this money to quit their jobs.

I don't think al-... many people understand that quitting your job is a bit of a luxury good. You can only do it if you have the savings to do it, if you have the confidence that you will find another job before you run out of savings, but so many people had extra savings. And then on top of that, the US was sending out stimulus checks, which was happening in a lot of developed countries. So I just anticipated that with all those extra savings, with people being stuck at home in jobs that they probably were [laughs] learning a lot about, maybe they just didn't want to be in the same job anymore. So I just anticipated that a lot of people will take this time to quit and find something new and reevaluate their life.

Will Page: And that stimulus point is interesting because here in Britain, we had furlough, which is you earn 80% of your basic salary. In America, you're actually giving out checks essentially. Is that a fair comment?

Daryl Fairweath...: Well, there were the stimulus checks that went to basically everybody below a certain income, but it was a really high income. And then there were also... There's also enhanced unemployment benefits. So if you lost your job, you got more unemployment than you would have, um, in a normal time.

Will Page: And what I like about this is that economics thinks... You know, we were known for being pessimistic and the pandemic was all bad, but here's an example of where it wasn't that bad. Your stock portfolio has gone through the roof, you got some disposable income, and your housing prices have gone up as well. So your balance... Your wealth has improved, even though we've gone into a lockdown and a pandemic like something that we've never seen before.

Daryl Fairweath...: Yes. Interest rates dropped to the bottom. I mean, the Fed dropped interest rates to 0% and mortgage rates dropped to all time low, so a lot of people were able to refinance their debt and they had-

Will Page: Interesting.

Daryl Fairweath...: ... more cash that way. Some people sold their homes and cashed out their equity and bought a home in a more affordable part of the country. Remote work allowed a lot of people to take their salaries with them to a more affordable place. That's even more disposable income that they have if they were able to change locations.

Richard Kramer: Something I noticed as running a small business is that because people were working remotely, they were less connected to their workplaces. Is that something you can factor in in economic terms, what value people have in, in attending the workplace and feeling part of a community and whether that value somehow bleeds out or goes to another part of the economy?

Daryl Fairweath...: Well, I think it depends on the person. There's some people who do very individual work to begin with, so they probably were more productive during the pandemic if they were just able to keep their head down and do the work that they needed to do. And more collaborative jobs, there probably was some loss there, that we couldn't interact with others and get the same kind of creativity that we could before.

But the pandemic also taught us how to use Zoom and Slack and all these other tools to communicate with people. So I think the jury's still kind of out on what the total productivity changed. Uh, I believe productivity did increase during the pandemic, but people were also bored at home with nothing else to do but work.

Richard Kramer: Mm.

Daryl Fairweath...: [laughs]. So that might be why their productivity increased and that might not be sustainable. Uh, a lot of businesses were formed during the pandemic. I believe more records were set on that front.

Richard Kramer: Mm-hmm [affirmative].

Daryl Fairweath...: So I think people were taking some of their extra time when they couldn't do other things like socialize or go out and started making business plans and thinking about how to start their own business. So I think that is also contributing to the great resignation.

Richard Kramer: And do you think there's a normalized baseline of activity that we'll return to, and how different will that look to the world that we had up until, let's say, February 2020?

Daryl Fairweath...: I think that we are returning to a new equilibrium. It won't be the equilibrium we were at before the pandemic.

Richard Kramer: Mm.

Daryl Fairweath...: More people than ever have moved out of their metro area to somewhere new. People have, um, gone from two income families to one income families when they make these moves because they have more disposable income. So I think the economy is just gonna look a lot different moving forward. I, I don't know exactly what it will look like, but I imagine there'll be more people starting their own businesses, there'll be more need to start businesses in new places because just the demographics of the country have changed. There are more people living in more affordable areas than in these expensive coastal cities than there were before the pandemic.

Richard Kramer: Mm.

Daryl Fairweath...: So just more opportunity to start something new. So I think we will still see more businesses form and more people adopt flexible work. A lot of people got to know what it was like to set your own hours when you're working from home, so I think people will demand that going forward.

Will Page: Going from the resignation to where this appears in the data. This is interesting for me because we have the Labor Force Survey here in the UK, which aims to get to 60,000 people. It has a response rate around 60%, so a reasonable football capacity stadium would be the entire response rate of our labor force survey. Very few tech companies are on that survey as well. So I have doubts about how you measure employment and unemployment. But if I resign, where do I sit in government data? 'Cause I'm not employed. I'm not unemployed. I'm not claiming unemployment benefit presumably. So do I sit out there in the ether? Am I being captured by policymakers?

Daryl Fairweath...: It... I, I guess it depends on how you respond to the survey. If you say you're looking for work, but not currently employed, then you would count as unemployed. If maybe you just quit your job, you're not quite looking for work yet, maybe you're in the phase where you're just trying to reassess and figure things out, then you wouldn't count as unemployed. So maybe... I think that adds actually a lot more murkiness to the situation 'cause I think people mentally are in flux as to whether they're actively looking for work or they're just taking the time to have a breather.

Will Page: And it flips over to the other big debate in economics right now, which is inflation. Because if I think back to university and learning the Phillips Curve, the trade off between unemployment and inflation, and we don't actually know how the x-axis of unemployment is working right now, we don't actually know the true drivers of inflation. I mean, is there anything that you could kind of observe of that relationship when people are quitting as opposed to being made redundant?

Daryl Fairweath...: Yeah, I think it's hard to know whether the inflation we're seeing right now is a cause for concern or not. A lot of it might just be the economy kinda working its way toward this new equilibrium. It's probably going to cost more to convince somebody to work in a restaurant moving forward because there are other jobs out there that pay better, that maybe offer more flexible hours where you don't have to be face to face with people. So I would expect to see wage inflation in a sector like that, and that will trickle down into more expensive restaurant prices and so forth.

But at the same time, people are a lot more willing to work remote jobs, and so you probably don't have to pay much to employ somebody if you're... if the job is a remote job. So I, I would expect in some areas the economy for prices to actually go down because more... it's more easy to get people to work in certain kinds of jobs going forward. But the dust certainly hasn't settled. There are still all kinds of just supply chain issues globally that make it even harder to disentangle what's happening with inflation. So [laughs] I think we just have to wait for things to settle down before we know exactly what's going on.

Richard Kramer: If, if I could ask about one aspect of that, just picking up on something you said about getting people to work in certain roles. If we've had the great resignation, how long until we see a great revaluation between commercial and residential real estate? Because the idea of everybody working from home doesn't sit with the huge amount of value that's captured in these 20 or 50 story office towers that no one seems to wanna populate anymore.

Daryl Fairweath...: Yeah, I think that's already happening. And on the residential side, home values have increased the most in the suburbs and in more affordable parts of the country that people are moving to.

Richard Kramer: Mm-hmm [affirmative].

Daryl Fairweath...: So there's already less value placed on real estate that's near downtown San Francisco or Manhattan or downtown Los Angeles. People are just willing to go much more further out to get the home that they want. I would expect that commercial real estate is gonna be pretty stagnant for a while. From what I've heard, companies are still holding on to their real estate just because they're not sure if and when people will come back to the office and they don't wanna get caught flat-footed.

Richard Kramer: Mm.

Daryl Fairweath...: 'Cause a lot of these tech companies were planning on expanding their office footprint, so maybe they're deciding not to build that additional office and just hold on to the offices that they have, which may be supporting those commercial real estate prices in the short-term. But long-term, I, I think that commercial real estate is gonna grow much more slowly than it would have without the pandemic.

Richard Kramer: Mm.

Will Page: They're [inaudible 00:10:39] the great resignation to the great migration, and I feel like a student speaking to my professor here, Daryl, but-

Daryl Fairweath...: [laughs].

Will Page: ... my attempt to do that with data was to look at the company U-Haul.

Daryl Fairweath...: Mm-hmm [affirmative].

Will Page: And look at the cost of going from California to Texas versus the cost of going from Texas to California, and the ratio was four to one.

Daryl Fairweath...: [laughs]. Smart.

Will Page: So you could quickly realize that people were migrating out of California towards Texas, and nobody was migrating back from Texas to California.

Daryl Fairweath...: That's pretty clever. I like that. [laughs].

Will Page: [laughs]. Yeah. One last question before the break, but before that, just to tell you a quick anecdote of I was working in a start-up when I started working on my book. I stepped down from Spotify to become a first time author, and the start-up was looking at moms returning to the workforce. And my idea, if you wanna fancy doing a start-up here on the podcast right now, was you've got full-time jobs, you got part-time jobs, but if you think about supply creating demand, what's not being advertised is term-time jobs.

Daryl Fairweath...: Mm.

Will Page: And if you had the labor market of advertising term-time jobs, that's an interesting supply side change to the market, let's see how labor demands to that. 'Cause I'm not wanting more wages or more comp or more stock. I just wanna work term-time, and that's how you get people back into labor market.

Daryl Fairweath...: Yeah, I think that's a real positive having a labor shortage, is that encourages employers to think about how they can tap workers that they wouldn't have considered catering to before. Whether it's mothers, or people who maybe are semi-retired, or the disabled. There are plenty of workers out there. It's just a matter of accommodating them.

Will Page: 100%. And the last question before the break is this: I am a big skeptic on government data. I've looked under the hood. I know where the bodies are buried.

Daryl Fairweath...: Mm-hmm [affirmative].

Will Page: There's skeletons everywhere. And I came across your work on LinkedIn and I remember being in a fierce debate with the chief statistician of the Office of National Statistics here in the UK. And I raised the question of maybe LinkedIn should be the Labor Force Survey. I mean, LinkedIn was able to plot AI as an employment category. It'll take years before the government even knows what AI stands for. LinkedIn was able to plot nurses returning back to their profession of nursing to help the pandemic. No government labor force survey could do that. Do you think there's a potential role for just tossing government data out and trusting tech companies to measure activity instead?

Daryl Fairweath...: I think there are positives and negatives to both kinds of data. Da- Data from tech companies is, is really great because it's often more real time and-

Will Page: Yeah.

Daryl Fairweath...: ... um, it just is what it is. If you're looking at user data, you know that it's user data. But a website like LinkedIn, not everybody uses it. It tends to cater towards white collar workers, um, so you're not... never gonna capture, uh, the full picture. And also people can respond any way they want. There are plenty of people with the title of CEO who don't actually [laughs] have a company that they're CEO of on LinkedIn. They just, uh, put it there because it looks nice. So I think you should be skeptical of that kind of data just as much as government data.

Will Page: Yeah. Great inflation. That's a big thing in America that you're beginning to see-

Daryl Fairweath...: [laughs].

Will Page: ... creep over here. Vice president of reception, you know? This... These types of job titles-

Daryl Fairweath...: [laughs].

Will Page: ... as well. Well, let's wrap it up for part one. And part two, I'm gonna toss the mic to Richard Kramer to explore the bubbles in the housing market. Again, déjà vu. We've seen this before and I think we may be seeing it again. And I'm keen to learn that if you build one too many houses, do you collapse the property market? We'll be back in a moment.

Richard Kramer: It's Richard Kramer, back with the second part of Bubble Trouble, and we're talking with Daryl Fairweather from Redfin about the US housing market. Now Daryl, I've been following the tech market for close to 30 years and certainly we've seen a fair few bubbles. And I guess there's a lot of commentary now about the rocketing house prices in the US and whether that constitutes a bubble. And certainly one of the tech companies seemed to get in a bit of hot water recently, uh, this company called Zillow, when they started to maybe get a bit over the skis and start to get into the business of buying houses themselves. Now, was this a bubble? Was this an arbitrage scheme gone wrong? Or was this just, uh, misexecution on the part of someone who had very good data but thought they could put it to use in a different way? What's your take on the lessons from Zillow and what that says about a US housing bubble?

Daryl Fairweath...: Just to start, a disclaimer, that I obviously don't work for Zillow, so I don't know exactly what was going on in their minds.

Richard Kramer: Absolutely.

Daryl Fairweath...: But I do have a good sense of what the market conditions were that they were facing. So for those who don't know, Zillow was in the business of buying homes with cash and then selling them in a short timeframe. So, like, maybe a month or two to flip the house essentially, put in some work and get the house right back on the market. This is called iBuying. Redfin does it too and a lot of other companies do it. It provides liquidity to the market. It's difficult for a lot of people to buy and sell a home at the same time because you have to get the money from selling your home before you go and buy your next home. And especially in a seller's market, that makes it even more difficult because you could sell your home and then it might take months for you to win your next home.

So this service gives you the cash. You can just have the confidence to know that your home is sold and go buy your next home. There are plenty of people who would want a service like that, but it's really not for everybody. I think a lot of people would prefer to sell their home the traditional way instead of paying extra fees to sell to a company like Zillow or to another iBuyer. From what I understand, Zillow was trying to expand this business, and it's inherently a difficult business to scale really quickly because you need people to do the renovations, you need people to go and look at the home to make sure it's worth what you're paying for it, and if you start making too many offers to too many people, the people who are taking you up on those offers may know that their home isn't worth what you are paying for them.

So it's just inherently a really difficult business to scale really quickly. And I think that may be where Zillow got into trouble, is they just tried to ramp up too fast and they ended up making offers that weren't profitable to them. Uh, so I think that's what happened there. I think overall iBuying is a fine business to be in. It's just in my opinion not gonna be the end all, be all of real estate. So it's... It might be a bit risky to bet your whole [laughs] business on it.

Richard Kramer: It's interesting as well that it obliges the buyer to add some value to the property. And typically what happens in the UK, there are chains of real estate transactions, there's something called gazumping, which I'll let Will try to explain. But typically when you buy a house, it's almost expected that the, the seller will have left a number of things undone that-

Daryl Fairweath...: Mm-hmm [affirmative].

Richard Kramer: ... one has to do. But that doesn't seem to be the primary business of real estate agencies, to, to take those risks on. Was it just a case that there was this additional level of risk in the transaction that wasn't reflected in the price that Zillow might have been paying?

Daryl Fairweath...: Well, I think that there are only so many home sellers who have a home that is ready for market who would also want an instant sale that's the lowest offering. If you're in the position where you want to make an instant sale, it might be because you need to move really quickly, you have a new job, you're getting a divorce. There's just some reason you wanna get out of the house right away. So I don't... But I think that's a pretty limited percent of people.

The other kinda people who wanna sell their home quickly are people who just don't wanna do the work. There is in the US a whole industry around buying homes that need work and putting the work in and selling them again, but that's not exactly what iBuying is, what Zillow was doing. I don't think Zillow was trying to, you know, get an army of contractors out to all of these houses to reno-... to put major renovations into them. And even if that's what they wanted, it wouldn't really be feasible when we have a labor shortage in the US, as we talked about before, to get all those workers scaled really quickly. So I think it, it just... Yeah, again, going back to what I said before, it's just really difficult to increase your market share in these kinds of conditions.

Richard Kramer: Let me move on to the next topic, which is near and dear to the hearts of Bubble Trouble. Has the spike in the US housing market been simply an inevitable consequence of this ZIRP, zero interest-rate policy money printing? The ease of obtaining mortgages that we saw lead to trouble, obviously, a decade ago, are we getting back to that situation now? There's just so much money washing through the system that it's inevitably going to create a, a bubble, and real estate, residential real estate, just seems to be a natural home for all that money.

Daryl Fairweath...: Well, one thing to understand about the US is that we already have a housing shortage. Uh, Freddie Mac estimates that we're 3.8 million housing units short, and that was in 2020, so we're probably even more in the hole right now. Introducing all this money into the economy at the same time that we already have a shortage of homes was inevitably going to shoot up home prices. I don't think that we are in bubble territory yet. I think that the increase in home prices is a natural result of how much money is flowing around and the lack of homes for sale. I would start to worry when it becomes detached from reality. If we start to see double digit home price growth even when mortgage rates are no longer falling, or maybe even rising. I think that would be very concerning. 

Will Page: Real quick. Just my, my dad, an economist, you know, makes economics so simple, like you, to follow. And he often said, "Money can go in three places: goods, services, and assets. So it works its way around the goods market, then it weaves its way into the services market, and there's nothing else to invest in there, it always finds itself in assets." Are we seeing that? You know, after the stock market rally that you got in America and to a certain extent we have here in Europe, we're now seeing all that loose money in the economy just, you know, saying, "All right, let's move the party over to the property market instead." As you, you... Do you see that type of scenario playing out?

Daryl Fairweath...: Yes, except many services people just couldn't buy. I think that's why we're seeing inflation in goods, like cars. Um, car prices are through the roof right now, uh, and home prices are through the roof too. There were... Those weren't a lot of options for people spend their money on and people had plenty of money, even though [laughs] we were in a pandemic recession. So I think, I think there you're right. I think that we should have anticipated this run-up in stock prices and home prices and other goods, like cars. Um, I, I don't know if there's any other way. It seems like, at least so far, the consequences haven't been too dire [laughs], um, but I think that we probably have to wait to really call it on whether it was the right thing to do to inject so much money into the economy.

Will Page: Interesting. You just said the word expectations there.

Daryl Fairweath...: [laughs].

Will Page: I know that you studied at the University of Chicago. Um, which side of the street of University Chicago were you on? Were you on the classical side or the behavioral economics side? 'Cause I've been up to that campus and there's a bit of a division between the two schools of thought.

Daryl Fairweath...: [laughs]. I've... I'm, I'm a behavioral economist. One of my advisors was Richard Thaler over at, uh, Booth, The Booth School of Business.

Will Page: Fantastic. And I worked with him on Spotify as well with Discover Weekly. But just on the expectations, on the other side of the street with Robert Lucas, and I always loved-

Daryl Fairweath...: Mm-hmm [affirmative].

Will Page: ... the story of rational expectations. His wife divorced him after he won the Nobel Prize because the rational expectation he was gonna win and cash out half of a million dollars.

Daryl Fairweath...: [laughs].

Will Page: Um, but how are expectations working here? I mean, if I'm expecting inflation to keep going, does that make me drive up the price of the home I'm trying to sell even more? Um, if I expect mortgage rates to go up, does that make me demand higher salaries? I- I'm interested in the flow of expectations, because there's been some really interesting academic work on this, which is questioning the whole Robert Lucas critique. Expectations could go the other way around from what many economists have accepted in the past.

Daryl Fairweath...: Yeah, so, so some people seem to think that people's expectations shouldn't change because the enhanced unemployment, the stimulus checks, those were only during the pandemic. People shouldn't expect that kind of cash going forward. Employers and suppliers, they shouldn't expect the same level of demand going forward either. Uh, the, the savings that people have from the pandemic is actually already starting to dwindle. Um, we may be back where we started by sometime next year. So, I don't know, all the cash that's floating around, it may just kind of disappear and not really affect the economy in the long run. But at the same time, uh, there is this infrastructure plan. There's a Build Back Better plan that could pass, that could send even more money to people, like the child tax credit that would go to families. So maybe people do expect just to get more money going forward, especially people at the bottom of the income distribution, which could change expectations long-term.

Richard Kramer: But I guess if we look at one of the key things you mentioned before, which is the supply side, you can't get building materials right now, you don't have labor to build the buildings. How long will it take, if possible, to close that gap of lack of supply in the market? And then on the flip side, it's, it's always a question of where the supply is, because you mentioned this great migration. So where the supply that people were building two or three years ago might be in the wrong place right now.

Daryl Fairweath...: I think these shortages are more demand-driven. Like, I think the jury's still out on that, but when I... Like, I don't think we would be having a lumber shortage if we didn't have this increase in demand for houses, where everybody wants to build more homes or renovate their homes. I think it's driven by demand. And once that dissipates, I think that the shortages will just kinda evaporate.

Richard Kramer: It's one thing to build houses, but it's another thing in the midst of this great migration to build them in the right place. And I think I remember-

Daryl Fairweath...: [laughs].

Richard Kramer: ... a few years ago seeing some of work from yourself or your firm or others about house prices in places like Seattle.

Daryl Fairweath...: Mm-hmm [affirmative].

Richard Kramer: Or just absolutely skyrocketing, going up double digits for several years in a row. But now if those prices price too many people out of the market, are the homes that were on the drawing board and getting planning permission and being built there now in the wrong place? And you can't pick them up easily and move them to, to Oregon or, or, or another part of Washington State, or god forbid to Texas.

Daryl Fairweath...: Uh, I don't think we have that problem just because we already are so in the hole when it comes to housing, especially in these expensive coastal cities. Uh, some of the pressure on that has dissipated because people are able to live further out because they can work remotely or move somewhere else. So I would actually worry more about the increase in demand for housing in more affordable places. Like, I moved from Seattle to southern Wisconsin [laughs] during the pandemic. Home prices here have gone up, uh, 20% since I moved out here, so that's, that's really a problem for people who have been living in these more affordable places long-term, and they don't have the option to move somewhere more affordable because their job is in-person.

But the same time, a little bit optimistic because there really isn't any place in America right now where you can't find a job for $15 an hour, which was not the case before the pandemic. So I think on an individual level, even though we have all this inflation, people have more opportunity than they ever had before to move somewhere where they can have more disposable income. So that makes me skeptical that this inflation is really a problem for everyday people, at least the majority of everyday people. I think the majority of people are better off, but there's probably a vocal minority of, of people who are worse off and that can have spillover effects [laughs] to their friends and family about how they feel about the economy.

Will Page: That's one of the things that fascinates me about America, is just labor mobility. You know, it's the heart of what holds your Federal Reserve currency together as people move around to equal deficits and surpluses. But how many Great Britains did you move in moving from Seattle to southern Wisconsin?

Daryl Fairweath...: [laughs].

Will Page: Incredible. And where you are now has got weather very similar to Scotland. We have two seasons, winter and June. I think that works for Wisconsin as well.

Daryl Fairweath...: Yes [laughs], yes.

Richard Kramer: So one of the things we wanna do in wrapping up part two is, is, is do a little bit of virtual smoking, and we try to get our guests to highlight a few of what they think of are smoke signals. Things that when you see them, you'd say, "Okay, that's smoke. There ought to be fire there." If there's a couple of things you worry about, when you've said before you don't think this is a housing bubble because there's tremendous un- untapped demand and, and, and a lack of supply. But what are the couple things that you would worry about as smoke signals that we would be entering bubble territory in the US housing market?

Daryl Fairweath...: If home prices are not growing in the single digits or if home prices aren't growing less than 10% by the end of next year, I would call that, uh, definitely smoke. I think that having double digit price growth year after year is unsustainable. It's happened in certain pockets of the US, like San Jose had double digit price growth for, like, five years, um, but I don't think it's sustainable for the entire country. It's... It would be worrisome even if it wasn't a bubble that people are having to pay so much in housing costs 'cause it means they don't have savings to invest in their education or health care or other things that are just as important as housing. So-

Richard Kramer: Mm.

Daryl Fairweath...: Yeah, I hope [laughs], I hope we get to a more stable place by the end of next year.

Will Page: I'll throw a different one out. Um, Daryl, just in chapter seven of my book, Judging the State We're In, I, I, I drew an interesting chart, which is, you know, for the US economy, relevant for yourself. The value of intellectual property now exceeds the value of residential real estate to American GDP.

Daryl Fairweath...: [laughs].

Will Page: So the value of our ideas in our head are worth more than the roofs above them.

Daryl Fairweath...: As they should be, I think. [laughs].

Will Page: [laughs]. But if you went back to 2006, 2007, it was the other way around.

Daryl Fairweath...: Mm.

Will Page: You know, real estate was well above the value of ideas, and the gap was widening. Would you see that trend reversing if we go into another housing bubble? Just... I'm just interested to know. Like, it's very telling to know that back before we went from boom to bust, real estate was above ideas. Now we're coming out of pandemic, ideas above real estate. Where would you see that pattern playing out in the future?

Daryl Fairweath...: I would hope that ideas stay more valuable than real estate. I think ideas can facilitate, um, lower housing costs. Like, if we have innovation in building homes-

Will Page: Oh.

Daryl Fairweath...: ... and three printing homes, or even just things like remote work and Zoom, it just allows people to live in different parts of the country that are more affordable. I guess I'd have to do some mental math on whether that means the total value of real estate is higher or lower, but at least on an individual level, I would hope that the more innovation we have, the lower our housing costs will be. So far, we really haven't had much innovation when it comes to bringing down housing costs. Uh, we've actually had a ton of research on how to do better urban planning to bring down housing costs, but a lot of it has not been implemented, especially in the cities that need it the most. Yeah, I'm optimistic that we can start putting this innovation to work to make housing more affordable for everybody.

Richard Kramer: Well, I was gonna say the one thing you have plenty of, of in America is, is space, so you can fit the entirety of the UK in the state of New Mexico. So you've got plenty of room-

Daryl Fairweath...: Mm-hmm [affirmative].

Richard Kramer: ... to expand into if you wanna look for it, and that's something we're-

Daryl Fairweath...: Right.

Richard Kramer: ... we're all unfortunately running out of in, uh, in the UK. Wrapping up, I wanna thank Daryl Fairweather from Redfin for a fascinating conversation. We'd gone into this thinking that the US was heading into bubble trouble in residential real estate, and she's managed to convince us, at least for the moment, it's maybe not happening. So maybe there are a few companies like Zillow that got their sums wrong when they went into the auto-buying of homes, but for the moment, it looks like Bubble Trouble will have to look elsewhere for it's next targets for what's likely to collapse. And thank you very much, Daryl, and to Will, my co-host, for some great questions.

Daryl Fairweath...: Thank you so much for having me.

Richard Kramer: If you're new to Bubble Trouble, we hope you'll follow the show wherever you listen to podcasts. Bubble Trouble is produced by Eric Nuzsum, Jesse Baker and Julia Natt at Magnificent Noise. You can learn more at bubbletroublepodcast.com. Will Page and I will see you next time.