The Data Driven Real Estate Podcast #3 – 2020 real estate forecast with Bruce Norris

Data Driven Real Estate: Bruce Norris

This week we welcome long-time real estate investor and hard money lender, Bruce Norris of The Norris Group.

Sean asks how Bruce got in the real estate game and how data has driven much of his success, how he evolved to educate real estate investors, and how Bruce went from investor, to California real estate timing expert.

Sean and Bruce discuss likely trends in 2020 and 2021, foreclosures, interest rates, and some important things the US might need to consider as technology continues to displace workers.

Have questions or feedback? Each show is posted on the Data Driven Real Estate Podcast #3 in our community. Catch pre-show research and continue the dialogue online after the show.

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Show Topics

  • 01:02 Bruce Norris got started in real estate knocking on doors?
  • 01:45 That one time in 1995 where Bruce bought a California house for LESS than a new Honda Civic
  • 03:27 Do you need a real estate license to be a real estate investor?
  • 06:35 Do you need amazing people skills to be a real estate investor?
  • 08:25 The hardest real estate deal Bruce ever closed
  • 10:13 When did Bruce make the move to hard money?
  • 21:42 Bruce has no formal training in statistics, what was his process?
  • 22:43 Why Bruce wrote the California Comeback report
  • 25:55 How quickly real estate prices dropped in Stockton during the Great Recession
  • 28:06 Should three morons raising their hands to buy a piece of real estate set the value? 28:30 An alternative to the current state of real estate appraisals specific to government-back loans
  • 29:08 What did Bruce see that had his predicting the market crash in 2006?
  • 31:07 How Bruce finally understood what a collateralized debt obligation was
  • 37:51 The year Sean’s real estate partner called him crazy
  • 41:28 A major reason there’s more competition at trustee sale (hint: thanks Sean!)
  • 44:04 Where are we in the real estate cycle in California and Florida?
  • 44:57 Will round two or three of Coronavirus have unemployment at Great Depression levels?
  • 45:44 When Bruce and Sean, free pandemic, predicted a 2% interest rate
  • 47:18 Who thought that interest rates would start with a 2% sooner
  • 47:24 The trouble with independent mortgage banks and interest payments no one is talking about
  • 49:43 Could the US interest rates mimic the journey of Japan’s?
  • 52:44 The US government printing all this money means inflation! Right?
  • 53:42 American needs to find out what to do with society when it doesn’t need 40% of the workforce?
  • 56:19 Will corporate debt be a drag on the economy in 2020?
  • 56:50 We are not living in a true capitalistic market

Show Transcript

Sean O’Toole [00:00:03] Well, hi, everybody, and welcome to the Data Driven Real Estate Podcast: the podcast for real estate professionals dedicated to driving business success using data. I’m Sean O’Toole. And today we have with us, Bruce Norris. Hi, Bruce.

Bruce Norris [00:00:17] Sean, how you doing?

Sean O’Toole [00:00:18] Doing awesome. This is so awesome that the tables are finally turned. You’ve interviewed me and had me on your panels so many times over the last 10 years. And I’ve never had the chance to interview you. So, I’m really excited about today.

Bruce Norris [00:00:34] Well, you know, I’ve had so many individual conversations soon, so I can’t wait.

Sean O’Toole [00:00:39] Yeah. Yeah. No, this will be good. I actually wanted to start way back at the beginning. And, you know, how did you get your start? Because you really started off as a real estate investor, right? Today, your hard money lender, you’re famous for your data-driven real estate reports, but you really got your start knocking on doors.

Bruce Norris [00:01:04] Yeah, I was just flipping houses, you know, various ways to do that. Started at about nineteen eighty one, worked for a company for three months and then did it on my own ever since. And I probably did it for almost fifteen years and about 10 years into it I just had the feeling that I just knew the business really well and there was no such thing as California real estate going in reverse. So I built seven custom homes in Palm Springs right at the wrong time. It took me about two and a half years of getting that solved. And then Aaron graduated from high school. And I remember buying a Honda Civic, this is where the data started to get into my head. I buy him aHonda Civic for $15.7k and the next day buy a house in Riverside, three-bedroom house for $13.3k.

Sean O’Toole [00:02:02] Wow.

Bruce Norris [00:02:03] Yeah. And it just those numbers happening right next to each other. And I had just emerged, you know, mentally from a market five years before that where real estate could do no wrong. And everybody’s house went through the roof. So that was the mindset until about ’90 when it reversed. And then in ninety-five, I’m buying a house for $13,000 to make it even more profound. It was a VA home that’s on a VA list. And you don’t even get to buy the house until it goes through the occupant group. So no one in existence wanted to buy the houses on the list for $15 grand. And then it went to the investors and I was literally the only bidder in the nation. And I got it for the maximum underbid. When you go to escrow and you’re the only one in America that wants a house, you think about that.

Sean O’Toole [00:02:58] Yeah. Yeah, no kidding. Now, like, you know, coming back to, like, first getting started. Right. Like, I know we see folks all the time saying, hey, I want to get started. I want to get into real estate investing. And I know this is dialing the clock way back, but I just meant you didn’t have. Did you have like a formal education in real estate or anything else? I mean, how did you make that very first step?

Bruce Norris [00:03:27] Someone that I knew said, you know, why you might be good at what I do. So he worked for a company that bought houses and. And I thought, you know what, it was really not even a formal introduction. I actually was told that to even apply for a job, I had to get a license will back then. You could accomplish it very easily. I took a two-day Lumblo class, got my license, and went applied for the job in front of the owner, who is a 28 year old, you know, and that’s what I was. And the first question he asked me was, how long have you had your license? I said one day. And he laughed at me. He’s the largest home buyer in Orange County. And he laughed at me. So, yeah, there’s no place for an inexperienced agent. So that was supposed to be the end of the interview. But I was from sales and I just thought, you know what? I’m not going to accept that in my head. That’s not the answer that I want. I said, well, let me ask you a question. I said, Isn’t the bottom line around here whether you buy properties for a profit or not? He says, Yeah. I said, you’ll know in 30 days and I can do that better than anybody you have. You know, I guess I passed the first test of being a property buyer, didn’t take No as a final answer and he says, Okay, pal, you got it. So I didn’t know anything. I knew nothing about real estate. I didn’t even know. I didn’t know what a grant deed was. I had no training. I went into office with five other buyers. He ran a full-page ad in the back of the PennySaver all over Orange County and Riverside and San Bernardino. And when the phone rang the sixth time it was all mine. I still had a job. I was selling electrical stuff for the first four hours a day, came in at noon, and I had 30 days to prove myself. So you know what? I didn’t know what a foreclosure was. I didn’t even know what escrow was. But what I did know, and I got pretty quickly the concept was that he had cash and you had equity in his stuff’s better than yours. And I could sell that proposition. And so in the first month, I literally bought 10 houses and made a year’s worth of money in commission. And I did the second and third month as well.

Sean O’Toole [00:05:34] You know, like I had I found my success in trustee sales, which you found success in later with your son, Greg. And I really like trustee sales because it was a very I’ve always been a data-driven person. Right. And it was very analytical. And, you know, we can argue whether or not I’m a good people person. I would say that I, you know, was not as good at. I don’t think I would have had your success back then responding, you know, to answering those calls that came in. And, you know, so strong people skills. Right. Would you say that was kind of the key to  understanding that or was there something more?

Bruce Norris [00:06:21] Yeah…

Sean O’Toole [00:06:21] There is other pieces. Is it like understanding, reading the person and understanding their needs? What what what’s kind of the key to being successful when you’re taking those calls that, you know, when you buy houses, calls?

Bruce Norris [00:06:35] For me, you know, when I went on my own just 90 days after my first phone call to anybody. And I continue to buy houses on my own and I thought the success that I had was because I was honestly listening to the person’s situation and bombarding it with solutions. That many times didn’t have anything to do with me. So there were times I’d get calls and I go, OK, well, I don’t think it’s necessary for you sell that house to an investor, who don’t you just listed with a Realtor. And you know, what I found out is that the person was going to sell me the house. And this is an actual conversation. There was home in Corona. Guy told me it’s worth about $135k, I owe $76k on it. And I just want to I just want to read it to somebody. That was the real conversation. I said, why would you do that? Why aren’t you listed as I was that. So want you read or enter more than a payment. And I gave him a few more and he goes, you know, you run an ad that you buy houses. Do you want to buy a house or not? I said, Are you telling me, like, you’re going to find somebody to deed the house to today? He said, yes. I said, OK. So I went over to see it. And when I’m talking to him, I said, I’m going to buy your house but I’m Completely confused about, the why. Why is this important to you? Because I could tell when we signed the deal. His shoulders relaxed and the pressure of the world came off of him. I said, I don’t understand that. What’s the deal? He said, I’ve never owed money in my entire life. I have income from a New York building. It’s $10 grand. I don’t need debt. I just don’t want it. I said, OK. And I realized, OK, sort of like CarMax, it was run your house by me. Let me give you an all-cash offer. You can say no, but I realized there were times that people wanted to say Yes, if you could give them a pretty good rationale for it. The hardest one I ever bought was a 7,000 square foot house in Orange County. And this guy was a hardcore business owner of like a call center that had 100 or 200 people that cold call. So he was the owner of that business. He can imagine his mentality. So I came in with an offer at 65 cents on the dollar of a home in Orange County. He took it to his accountant, the account came back and said, Yeah. Don’t do it. Well, he had explained me a situation. I thought he should do it. So the next day, I came back and I had a nine-page explanation of why you should do it. And when he saw me. So I told you, I don’t want to talk to you. I said, yeah, you told me that for all the wrong reasons, sit down with me for five minutes and you’ll make a better decision. And he did. Well, you know, when you’re buying $700 grand of real estate, getting paid three percent, that’s a $20 grand check. And for me, that was a big deal.

Sean O’Toole [00:09:17] Yeah.

Bruce Norris [00:09:18] So, you know, I think, you know, getting back to why it works. I think you have to have a pretty big why. Why do I need to make this happen? And I did that, I was a very motivated person. I saw a chance to get out from under. You know, making and living the normal way and, you know, living $30 grand. You know, I honestly, before I got that job, I thought making a grand per year per year you were old was my goal.

Sean O’Toole [00:09:51] You were making twenty eight thousand dollars per year at twenty eight.

Bruce Norris [00:09:55] I had just passed 30 and I thought, I’ve reached it then. And then you made $30 grand the first month doing something different. And I just went, holy cow, that is astonishing. And I just got jazzed about the potential.

Sean O’Toole [00:10:10] Yeah.

Bruce Norris [00:10:11] So yeah. I was motivated.

Sean O’Toole [00:10:13] Yeah. Yeah. Yeah. For sure. When did you make the transition to hard money. Was it straight from buying houses to hard money or was there something in between?

Bruce Norris [00:10:24] Was quite a long time because of the Norris Group really didn’t open for hard money till 1996? !997. Quite a ways, quite a ways after that. And how that occurred is that I was, I was really just working on my own guy in my 30-40 houses a year out of my house office, going to auctions, going to HUD auctions, all that stuff. And there was somebody that wanted to promote my seminars and she wanted to promote a boot camp. She says, you really do something very unusual. I could sell you an audience of 10 or 15 people out every month at three grand apiece. And she went off. She went after me for about a year on that and I finally thought, OK, you actually probably would work. So I decided on Sunday night after speaking in San Diego that I would find a commercial building. This is a true story. I look at Sunday night, I come home, open up the paper. And there’s a commercial building that’s got like a square box ad, it said, value three-hundred grand for sale for one hundred and twenty. I said, OK, well, that’s got my name on it. So I called up and the guy and her partner were splitting up. They owed seventy-two grand on a property and they want to carry the paper at four percent. I said you guys take $10 grand and split it and forget it. They did. So I bought it for $82 grand. And when I, and it was only a five-year old building when I went to the bank. I wanted to purposely assume there long because I wanted a relationship with the bank and get a credit line. And when the guy looked at the purchase prices, he says, is the building still there? I said, well, why do you ask that? He says they paid $90 grand for the building lot. And I thought, oh, that’s good news. So I had myself a five-year-old building. But. I was only going to use it three days a month in the education space and then. But I had been borrowing a lot of money from Craig Hill and I was their biggest customer. And, I called them. I said, would you consider coming to work for me instead of where you are? And that’s how it started. So for years, I was the biggest customer of the Norris Group had on the lending side.

Sean O’Toole [00:12:41] Now. Yeah. Yeah. Fund your own deals.

Bruce Norris [00:12:44] Yeah. That’s how it started.

Sean O’Toole [00:12:45] Wow. OK, now, so you mentioned there that you were recruited to do seminars. So was that the first time you started teaching and coaching or were you doing that before?

Bruce Norris [00:12:56] You know, I kind did it. I forget what it was. There was a program where you could just go talk at night. And I like to teach. I started speaking at clubs a little bit, so I enjoy it. And there was a there was a lady that was actually pretty good at promoting. And I actually paid to go to her seminar so I could hand her mine. She took it and she called me back. She says, I’ve never seen anything this good in my life. She says, I can definitely promote you. And so that’s how that started. And she promoted the one day or two-day seminar. And then she said I could promote a boot camp for you. And that’s that’s kind of how it went. So it’s in some ways, it was very gradual. I did enjoy teaching and I needed to get better at the speaking part of it. And I never intended to speak, to be honest with you, Sean. That is not it was not in my head to do that. That came about very accidentally, too. I was I did a trade. I couldn’t get rid of some duplexes in Palm Springs. I traded for, I don’t know, half a dozen mobile home lots in a park where you own the lot. So I had to figure out how to sell the lots by putting a mobile home on it. So there was a club in Orange County. They had a mobile home speaker that night means literally the day I decided I needed to get that, I talked to somebody and said, there’s a talk about that in Orange County. So I went to hear it. Jack Fullerton was the club owner. And the first thing he said that night to the audience was anybody who says they can flip houses for immediate profit in California’s is lying. I thought, wow, that’s what I do. So I thought I was. I thought I was gonna help him by letting him know that it was possible. So, you know, you know, at the end of the meeting that there’s one lingering person that’s usually gonna be like, no problem. Yeah, well, I was his problem. So I said I said, Jack, I just want you to know that with what you said can’t be done. I do all the time. And in the parking lot. And this is kind of funny because I had a brand new nineteen eighty-six gold Mercedes 426 SEL and he had a Ford Pinto and he was worth probably 20 times what I was, but he just looked at that car and wrote me off like there is no way this guy is serious. So it irritated me, so I took one hundred pictures of houses I had flipped with the numbers, put it in a package, and sent it to him really just to say, you know, Kiss my fanny. He calls me back and says, I’ve never seen anything like this. You can speak to my club like that was auditioning. I said, speak to your club? I don’t want to speak to your club. And though he was persistent. So I went to speak to his club. And that was a big deal. It changed who was in the audience. Also was a guy named AD Kessler who own Creative Real Estate Magazine. And he said, you know what you’re doing. How about writing for my magazine? So it was crazy that that whirlwind got me into the education side and I enjoyed it. I enjoy teaching. I really did.

Sean O’Toole [00:16:01] This was the late 90s and so it was nineteen ninety-seven, you wrote your first. I think it was your first report, The California Comeback.

Bruce Norris [00:16:09] Yeah, that was January 1997.

Sean O’Toole [00:16:11] And so here you are, a guy flipping houses. You start a hard money business, mostly to help with your own house flipping business. How do you make the jump to writing reports and you know, that report, you know, which really called the fact that the California real estate market was going to come back, followed by your report in two thousand, six, seven, six. And the 2006 right. Where you called the coming crash was that was I mean, those two things really kind of, I think. When I meet a real estate investor in California, right. They’ve all heard of Bruce Norris and they’ve all heard it because you made both those calls and you did it in in these big meaty, full-of-data reports. You know, so here’s a guy is a people person, closing deals because he’s a good listener, and you jump from that to writing these like in-depth industry reports. What prompted you to do that in 1997?

Bruce Norris [00:17:24] Well, when Aaron graduated in June of 1995. And I bought that house for 13 three. I realized, OK, I’ve been doing real estate flipping for 15 years and I have no idea what moves the market. Nothing. And I thought, well, somebody probably figured this out, so I went to the library and I pulled up every article in every newspaper and magazine for twenty-five years and read it about price movement.

Sean O’Toole [00:17:52] Wow, yeah.

Bruce Norris [00:17:54] It’s just like you and I went back to the Library of Congress and spent days looking at interest rates that I was looking at. I figured there’s gotta be somebody that predicted this stuff and there wasn’t. And I didn’t know what I was even after, so when you’re when you’re starting from scratch, you don’t know what chart matters. And so I thought, OK, I’m going to try to figure out what makes prices move up and move and go backwards. And for the next 18 months, that’s all I did was collect data. And it wasn’t easy like now or you punch in, OK, low interest rate chart for last 50 years pdf. Well, I had to go literally to libraries and with a pad and write down every number when I found the data and then make a chart of it. And then that took 18 months because they didn’t know what I was looking for and I didn’t want to eliminate something that might have mattered. So consumer confidence, I had those charts and. When I finally went to Maui, I had all the charts. Now, you’re coming from a computer background, will laugh. But this is the only way I knew how to do it is I laid them on the floor. All these charts and I had yardsticks and we had boom and bust cycles already. And so I was able to move the pieces on the ground to see if I could see a sequence of events. And then if it replicated in both of the boom cycles and bust cycles, then I, I thought, OK, I’ve I’m happy. And that’s, that’s what I look for. So that was the first chart. Now, what’s interesting about a report,if it’s timely, it’s too early. Right.

Sean O’Toole [00:19:33] Right.

Bruce Norris [00:19:34] What good is writing a California crash in 2010? It’s a little late. Thanks for the help.

Sean O’Toole [00:19:39] Yeah, right. Right.

Bruce Norris [00:19:40] So the mood of the participant in the audience is usually like the guy’s got a hole in his head. Now, sometimes you’re happy somebody’s saying something positive. Well, when I was walking around in 2006 saying California Crash, that foreclosures are going to go up by thousands of percent, you could get hit by half in price. That was not a popular thing to say. And it was not even believable. So I debated, john Burns had me debate a couple of years back to back. I think it was 05, 06 against Ph.Ds in economics. I’ve got a high school diploma and some street smarts, and I was standing my ground saying, guys, when I come back here next year, you’re not going to be happy. And so when that stuff happened, you know, that was so they weren’t in the mood to hear it, which is exactly kind of what you want. You want it to be before the event, but you have to be able to see charts, charts that clearly tell you it’s on its way.

Sean O’Toole [00:20:40] So, you know, coming back to the data-driven side, right. High school diploma versus these PhDs. Like, how did you even get to the point, you know, it’s charting and statistics, right? There is there’s lies, there’s damn lies and there’s statistics, right. But, you know, having done a lot with statistics and data science myself over the years. Right. It’s pretty easy to go wrong. We’ve got, one of the reasons I started this podcast is because I regularly see some really bad data in the market from big companies, even from folks who have PhDs who are putting up charts and don’t really understand what it is that they’re putting out there. How did you self educate on that enough to be able to actually put all those charts together? And, you know, I mean, it’s one thing just even just to do the charts and then to come to the conclusions is even harder. But like, how did you what was your process there?

Bruce Norris [00:21:43] I think the process, first of all, it had a purity to it. I didn’t go into it with a conclusion in mind. That was probably the best favor I did for myself. I wanted to understand how it worked. So that was that. By the way, whenever I do report, it’s the same thing. Because you and I have discussed things that you and I disagree with, that you’re locked in, you know, and we’ve been very kind to each other.

Sean O’Toole [00:22:05] I’ve rarely locked.

Bruce Norris [00:22:08] Yeah, you kind of you can always open to learn, especially if you respect the other person’s processes and what you’re kind of asking, you know, when you disagree with me, I go, OK, well, you know, Sean’s an honorable guy. For him to land on a different square, I’m going to listen. That doesn’t mean ultimately I’m going to disagree with my former conclusion, but it’s always added another slice to what I consider that’s absolutely true. So for this, there was no blueprint. I didn’t know what mattered. And so I literally started with those charts on the ground finding the sequence that looked like it made sense. And to be honest with you, why I wrote the report had to do with my son and my dad because I thought California was gonna take a run and my son got married at 18. My oldest son, I thought. And if you own a home now, it’s gonna be a big deal because this is gonna crank. And my dad, he hadn’t didn’t prepare for retirement really well. So if you owned an extra home, he’d make a big difference. That’s why I wrote it. And sure enough, you know, there was really Michael Carney was PhD at Cal Poly Pomona and they had the best data going way back maybe 40 years in the construction industry. As a thank you, I send him a copy of my report because I had found a lot of data with his reports and he looked at it. He called me up. He says, you know, I really disagree. I disagree with your conclusions. That cover said California Real Estate Comeback, California Comeback, why prices will double in the next eight years. So he disagrees with that conclusion. But, he said it so well done, I’ll let you speak to my group. Well, I didn’t know who his group was? His group was every major builder in California. The presidents of Fannie Mae, Freddie Mac. I mean, everybody was in this audience. I’m up in San Francisco. Behind me, behind the speaking podium, is a 30-foot wall of glass looking down at the San Francisco Bridge. And it’s just like, oh my God. And so, you know, I’m telling him how I came to the conclusion. And so it kind of put a stake in the ground because there was media there and all that. But who was I to listen to? You know, we probably sold, I don’t know, three dozen reports or some ridiculous thing. It wasn’t, but people remembered it.

Sean O’Toole [00:24:31] Yeah, for sure.

Bruce Norris [00:24:32] In some odd way they were just had. I remember speaking in Senate, San Diego and the club owner said. You know, it’s just good to hear somebody say something positive about real estate. So even if it was a bunch of baloney, it was better or something.

Sean O’Toole [00:24:47] Right.

Bruce Norris [00:24:49] And then gradually it turned out to be true. And now went home and then went crazy. The hardest part and for most people is they don’t have the reverse direction. So that’s what I love about what we’ve done, is we’re capable of saying, yes, prices are going to explode and they’re going to recede.

Sean O’Toole [00:25:12] Right. Right. Now, you’re the report in 2006. So you said, hey, guys, this is this market’s not good and it’s time to get out. It had to be especially hard in your business, right. Because you were basically telling people to stop doing business with you.

Bruce Norris [00:25:29] Oh, not only that, I mean, we were, it saved, there was probably a lot of hard money loans, businesses that didn’t survive that because prices went down so hard on that type of inventory that we normally lend on. I mean, I was buying properties in Moreno Valley, 20 percent of retail, former retail value. If had a hard money loan at 60, 65 percent of high value. Holy cow.

Sean O’Toole [00:25:55] Yeah, I had one in Stockton I bought, when I bought it, I thought I’d sell it for three-fifteen. I ended up selling it for two sixty. And two years later, it sold on the courthouse steps for forty five.

Bruce Norris [00:26:06] There you go. Yeah.

Sean O’Toole [00:26:07] I mean, that’s, that’s a big hit.

Bruce Norris [00:26:11] Yeah. So we were, we were aggressive in the sense that we called, like if I get somebody had a history of paying us all on time, when they got 30 days late, I called them. You know, do you still have a profit motive on this house? They said, no, man, I’m just trying to get out. I said, OK, let’s do it and I’ll buy it. We auctioned it off. I take a ten grand hit and instead of one hundred grand hit.

Sean O’Toole [00:26:33] RIght.

Bruce Norris [00:26:34] And so, you know, we chased it down really quickly because we could see it coming. And then, but when it really hit in Riverside, we were going down three percent a month.

Sean O’Toole [00:26:46] Yeah.

Bruce Norris [00:26:47] And we were still flipping houses. So we were projecting out, OK, changed the retail price 20 percent out six months. And, you know, you can figure out what you can sell it for.

Sean O’Toole [00:26:57] So you stayed transacting deals the whole, the whole way through?

Bruce Norris [00:27:01] Yeah, we did. Now, this is also something that comes up, it’s always good to be in the industry. Yeah. That’s the nice part about what we’ve done is it’s mostly from personal experience and it’s real time. So when I was selling houses and this is one of the interviews we did on the radio show at the time, it was a gentleman named Magdziarz, who was the president of the Appraisal Institute. We were a heck of of a time getting something appraised.

Sean O’Toole [00:27:30] RIght.

Bruce Norris [00:27:30] Let’s say on that Moreno Valley house. OK, $365k was the number. Two years later, I buy it at the court, at the courthouse steps, that was an REO, for $65k grand. Put $20k grand in it, put it on sale for one hundred and twenty or twenty-five. Twenty-five offers in two days and appraises for $100k. All right. Okay, well wait a minute. Twenty-five offers? And so, that’s why I interviewed him because he was, he was of the opinion that the appraisal world was broken, basically because of the fear of a second appraisal opinion being less than your original it you could lose your job.

Sean O’Toole [00:28:06] You know, the whole industry broke completely. And, you know, honestly, it should have. I think the fact that three morons were willing to overpay for a piece of property doesn’t change the value of every piece of property in a town, right? That whole concept is just.

Bruce Norris [00:28:22] I know, you and I have always, thought about, there should be a forth… Well, you well, there is sort of a piece of that. You want something connected to the cap rate reasonable.

Sean O’Toole [00:28:33] Yeah. I mean, income, median income for that area. Right. Especially for government-backed lending. Right. Like, I you know, I’m a free markets guy. So I think, you know, private companies should be able to lend whatever ridiculous amounts they want to lend and 100 percent loan to value and whatever. But, you know, figure, you know, if the taxpayers are going to back the thing, I think the loan should be supported by area incomes, which is basically the, you know, economic strength of that area.

Bruce Norris [00:29:03] Right. Yeah. We kind of left the building on that one for sure. In 2005, for sure.

Sean O’Toole [00:29:08] Yeah. Yeah. No, no kidding. No, we definitely left that fore sure. So, you know, cruising into what were the first things you saw, you know, coming back to this kind of data-driven thing? Were you just. Were you just going in 2006 and saying, hey, it’s time for another report? Because you said you usually go into these things, you don’t have a preconceived notion. So what prompted you to start the report in 2006 that led to that big conclusion that, you know, the markets were in real trouble?

Bruce Norris [00:29:41] I know you’re gonna really love this affordability number got too low. So, I do pay attention to that only because, again, I didn’t go into any of these studies with their preconceived idea that that affordability number is of any importance. But when it’s repetitively true that I pay attention to it. So, in a 1980 affordability got at 17%. 1989, 17%. 2005, 17%. Then it got to 13% in 2006.

Sean O’Toole [00:30:13] Right.

Bruce Norris [00:30:13] And I realized something was going on and I didn’t even know how the lending world had change, to be honest with you, Sean, because I hadn’t gotten the loan in quite a long time. And so, we interviewed a lender in front of the audience. And I said, stated income loans, where does the income number come from? And without batting an eye in front of hundreds of people, she said, oh, we just make it up. And I went, holy cow, it was the last question I asked her, I said, hey, thanks for the information. And I really thought about, wow, that is scary stuff. And so that was…Bu,t I knew we were already and we had written a report the year before, and it was sort of like a warning flashing saying you might want to get your stuff out of California. And then the crash was really when I looked at it and said, this is completely, completely overdone. And I didn’t even understand at the time what a collateralized debt obligation was. So that was really something I learned when my daughter got married. Strangely enough. I was sent an insurance policy in case. What if your daughter’s wedding doesn’t come about? You can insure against its outcome by writing a five hundred dollar check and getting your $25 grand back. And then when I look at the application, it said, who are you? And I was,  father of the bride. But then there was another box to check and it was other. And I realized, holy cow, I get it. I could have an audience of 200 people and say, we’re going to fill out this form. We’re going to bet against the outcome of my daughter’s wedding. And I’m going to make sure it doesn’t happen.

Bruce Norris [00:31:59] That’s a little scary, but that’s kind of what happened, you had companies in New York putting their clients in stuff that they were betting against themselves.

Sean O’Toole [00:32:07] Right.

Bruce Norris [00:32:08] When I figured that out, that was pretty scary.

Sean O’Toole [00:32:10] Yeah, no, definitely pretty scary. And that didn’t turn out well. For sure.

Bruce Norris [00:32:16] Really bad.

Sean O’Toole [00:32:17] All right.

Bruce Norris [00:32:17] To be on the right side of that statistically, though, was it was really important because you didn’t have to much chance to get out after it turned bad.

Sean O’Toole [00:32:27] Yes and no, though, right? Like because, I mean, you came to your. I decided at the end of 2005 I didn’t want to own anymore real estate. Right. You decided in 2006 yet? Middle of 2007. You still have Ben Bernanke’s saying, hey, this is a subprime crisis. It’s largely contained. You know, it’s really nothing to worry about. You know, house prices are going to be fine. You had the National Association of Realtors writing their book about. You know, there’s no bubble. And so, I mean, the thing I love about real estate is you actually have a lot of time. Right. Like, usually if you’re paying attention, you’ve got a year or more.

Bruce Norris [00:33:07] Well, you got to go back to think about why we had time, because it was all based on B.S.. See, that’s why like statistics. Because you can make. I wouldn’t mind making an early decision to avoid a 2008 crash.

Sean O’Toole [00:33:22] All right.

Bruce Norris [00:33:22] No, I was already all sold. By the time 2006 or whatever I wanted to sell in California was gone because I, was worried in 2005. That’s why I like a data-driven approach. Because it gives you a warning light where you can go, OK. I want to sell to a willing crowd. The last home I sold in California was in 2005. This is a home I’d only owned for a year. It flipped, got flipped to me by a friend. I promise to keep the tenant in there for a year. And then the day after year I said, I’m going to go ahead and list the house. Now, this was a crazy market in ’05. I said, I’m going to pay for you guys to enjoy the day of Disneyland. I’m going to list it in the morning. I’m going to pull the listing at night. So it was, it was basically a 10-hour listing that got twenty-seven offers. That was the market and I never painted the house.

Sean O’Toole [00:34:19] Oh my gosh.

Bruce Norris [00:34:20] So when I when I want to sell something, I want to sell it to a crowd that’s gonna be there. Now, the opposite of that. We were building a series of new homes in Rosemont. We got down, and the prices progressed from to $210k to $285k with people camping out. Whole deal in Rosemont, which is kind of in the middle of nowhere. But the last phase. There was there were things that started to occur, this is probably late 2005. And we had to escrows fall out at $285k and they ultimately sold at an auction for $205k. It happened fast.

Sean O’Toole [00:34:59] Yeah. Yeah, I’m sure for the. I do remember for the builders, and this was one of the things, you know, as a sign for me to get out was, you know, you went from the builders having a line of people, you know, out the door waiting for, you know, new inventory to come online and people putting down deposits and the rest to you know, there was a builder in Stockton that started to offer a free swimming pool. And it’s like, okay, wait. Something pretty seriously changed here.

Bruce Norris [00:35:31] Yeah.

Sean O’Toole [00:35:31] And, you know, and so I you know, I think there’s plenty of those signs. I guess for them it did happen quite fast.

Bruce Norris [00:35:42] Oh, it’s because they rely on, they don’t rely on the data. They honestly don’t. They rely on the physical evidence that they have is how many people showed up and willing to put something into escrow. But if at the time it changes, that whole world can change in 60 days. You can’t change your building model. You tied up land at the highest price and you’re stuck with it. You’re gonna lose it. That’s a bad way to operate as a builder. But that’s, somebody told me, that, OK, even if you are exactly right, there would be no way for me to be able to tell that to a builder right now. I’d be fired. They would find a consultant that would tell them what they wanted to hear.

Sean O’Toole [00:36:25] Yeah, right. Yeah, right. Agree. And, you know, probably some of them certainly put it took a lot of personal risk and others probably weren’t that much on the hook, right? It was banks and others that were on the hook.

Bruce Norris [00:36:41] Sure.

Sean O’Toole [00:36:42] So they were better off to keep the facade going than to acknowledge it because their income stopped when they stopped and they didn’t really have personally have the risk.

Bruce Norris [00:36:53] I can understand that completely. Can you imagine having a big company with one hundred employees in 2006 when it’s booming like crazy, have a company meeting and say, hey, guys, we’re gonna shut it down for two years? Get to the sideline, buy the stuff for 10 cents on the dollar and I’ll rehire you in a couple of years. How do you have that conversation?

Sean O’Toole [00:37:10] Right.

Bruce Norris [00:37:11] It’s tuff.

Sean O’Toole [00:37:14] Now, the banks probably calling you saying, hey, you know what, we’d really like to do another deal, we’d like to give you more money. You guys are such a successful operator, right? So even the banks are making that mistake and pushing you that direction.

Bruce Norris [00:37:24] Yeah, they used the same charts, apparently.

Sean O’Toole [00:37:29] Yeah, no doubt.

Bruce Norris [00:37:30] If you use how you feel, you know, that’s really the secret is I have to divorce myself from how I feel cause I feel like everyone else. All right. The charts to me and tell me this is locked and loaded and in the past has been a certainty that this is what unfolds and I’ve come to believe that.

Sean O’Toole [00:37:51] No… my partners and some of my vendors and the rest all thought I was crazy at the end of 2005 when I said I’m done. Yeah, I’m not behind anything else. And I said, this is the greatest market ever. Like, how could you possibly get out? And I probably got out a little early. You know, six months or so. Definitely, some guys made some more money, but most of those guys made some more money, also lost a bunch because they didn’t stop.

Bruce Norris [00:38:16] Yeah, well, Warren Buffett has a theory about that. It’s always best to sell early. He’s pretty smart guy.

Sean O’Toole [00:38:22] Yeah. Yeah, for sure. Out of all this, you came up with a quadrant system. You know, kind of your market cycles, market timing. I you know, I don’t know that I fully bought into the whole kind of market timing and that there’s these different quadrants. But so, look. Can you give us an overview of that?

Bruce Norris [00:38:46] And, well, I’ll even use that we’re really familiar with.

Sean O’Toole [00:38:50] OK.

Bruce Norris [00:38:51] So let’s say in 2008, It hit the fan, that’s Quadrant 2. Prices are now descending.

Sean O’Toole [00:39:01] Okay.

Bruce Norris [00:39:02] If I think it’s a rational decision to say that California is going to build a house again someday, I’m going to look for deals in two major spots. I’m going to look at inventory that’s coming from lenders that could be heavily discounted either by REO sales or opening visit trustee sale or even short sales. But if I was a land person, I’d go after dirt. Because you’re the only buyer in the world and that’s what Quadrant 2 to would tell me as to what inventory to go after that I literally might be able to buy for nothing.

Sean O’Toole [00:39:42] Because there’s just there’s nobody interested in that in that particular set of circumstances. There’s nobody that’s a buyer. Kind of back to your thirteen thousand dollar house. You are the only person in the nation that wanted to buy that house.

Bruce Norris [00:39:54] Right. So just to give you an example, Doug Duncan, chief economist of Fannie Mae, I’m going to do an interview with him first quarter of 2015. To prepare for that, I studied their last quarter, 2014 financials in that it said, twenty-five percent of all the Fannie Mae’s losses come from one state, Florida. And I thought, holy cow, that’s a pretty big number. I looked at why that was and they had a four-year foreclosure process. They were in 2011, In 2015. I called up my buddy Alex. I said, poke around and let’s buy the remaining lots of a building track that failed. And it took him the day because we were the only taker. And that’s where my rentals are. So, yeah, that Quadrant tells me now. So the skill level, think about the skill level that you’re talking about. What would you do a trustee sales? If that was your only skill right now, what would you do.

Sean O’Toole [00:40:53] In that particular market.

Bruce Norris [00:40:54] No, Right now.

Sean O’Toole [00:40:55] Oh right now. Yeah. There’s not really very many trustee sales at the moment. They are, they are coming back a little bit. They had stopped because of the foreclosure moratorium. And but we are seeing some signs of life there. But yeah, for the last couple of months. Right. You know..

Bruce Norris [00:41:14] I mean, honestly isn’t like the last five years when you’re in a bull market and you’re in Quadrant for running. There’s other ways.

Sean O’Toole [00:41:21] Yeah, but, you know, I did almost all my buying of trustee sales from 2002 to 2006.

Bruce Norris [00:41:27] It’s interesting.

Sean O’Toole [00:41:28] And there were more the last five years than there were 2002 to 2006. Right. So there were more competitors in the market, and that was partially my fault.

Bruce Norris [00:41:40] Yes, that’s funny.

Sean O’Toole [00:41:45] But, you know, there were more foreclosures. So, you know, you could still you know, it’s tough. It was very competitive. The margins were small. But, you know, I made a nice living and in a bull market, in trustee sales. Certainly not the foreclosures, in the moratoriums.

Bruce Norris [00:42:02] Let’s say in the last five years, you would’ve been well served to be building sitcoms.

Sean O’Toole [00:42:09] Oh, for sure.

Bruce Norris [00:42:10] Yeah. You get rewarded. So that’s so that’s a quadrant for activity. OK. Here’s the idea of all I know how to do is buy REOs.

Sean O’Toole [00:42:17] Right. In a specific quadrant.

Bruce Norris [00:42:19] Then, I’m going to be I’m going to have some dead time in my career.

Sean O’Toole [00:42:24] Right.

Bruce Norris [00:42:25] So I have to know how to talk to people. That’s quadrant four activity.

Sean O’Toole [00:42:28] Got it.

Bruce Norris [00:42:29] If quadrant 2, bunch of REOos. I need to build relationships with people that control inventory. That’s my skill.

Sean O’Toole [00:42:35] OK. So it’s more about there’s certain states of the market. Right. It’s not, it’s not so much a timing cycle. This one happens and then six months later this happens. And then six months later, as this happens, it’s more like there’s certain sets of conditions at which particular deals are more prevalent than other deals. Is that how you describe it?

Bruce Norris [00:42:57] Exactly. So let’s say you have the you have people skills and you can talk to people and you talk. You want to call people that are in foreclosure in 2010. At the end of the week, you’re going to need therapy because you’ll talk to over, the how many were there? Were there enough to talk to? Yeah. Do they have equity? No.

Sean O’Toole [00:43:16] Right.

Bruce Norris [00:43:17] Completely worthless function in quadrant in quadrant two, you don’t call people in foreclosure.

Sean O’Toole [00:43:23] OK, ok. I’m buying.

Bruce Norris [00:43:26] OK.

Sean O’Toole [00:43:30] It makes sense to me. So what in especially in California, I think we’re working on building a national audience. I think probably more of our listeners are California based. Where are we right now. Right?  I’ve been surprised and not surprised by some of the activity we’ve seen here as a result of Covid. What what are your takes on the market, maybe nationally and then maybe, you know, I know you’ve paid a lot attention to Florida, California. Any of those that you want to speak to and where you think we’re at?

Bruce Norris [00:44:04] Well, you know, for somebody who pays attention to charts to say that we’re in uncharted territory, it’s a pretty accurate statement. This reminds me a little bit of Grand Junction, Colorado, where the damage was caused by an industry leaving in day and creating unemployment that was 25 percent for an area. So we really have a very strange market. I mean, I know you pay attention to the market. We all have contacts where I don’t think too many people are having trouble selling inventory that they have even maybe even for more than they thought they would. So you’d have people pull inventory off. So you got a shortage of inventory. If you look at year over year volume, it’s down by quite a bit. But there was a big hole for two months or something. So, that’s California’s market. In Florida, we’re building homes and we’re selling them in a day.

Sean O’Toole [00:44:56] Right.

Bruce Norris [00:44:57] And so, here’s the question. Are we going to have round two, or around three of the Coronavirus take employment to a number that’s Great Depression levels? So that I don’t know the answer to and I think that’s the important answer. The foreclosure numbers to me matter, but I don’t think there’s any appetite to foreclose on people that lost their job. They’ll be policies that prevent that, by and large, I think.

Sean O’Toole [00:45:26] I agree. Yes.

Bruce Norris [00:45:28] You’re not going to have this avalanche of chart going crazy in foreclosures.

Sean O’Toole [00:45:32] You certainly and I think we’re going to certainly see more, but I don’t think we’re going to see a repeat of 2008.

Bruce Norris [00:45:38] Correct. So I I think real estate, especially, you know, you and I had no idea. I always remember that email where I emailed you my idea that someday when we had a recession, the next recession, we’d see mortgage rates start with a two.

Sean O’Toole [00:45:55] Right.

Bruce Norris [00:45:56] Your response to me was, I think you’re right.

Sean O’Toole [00:45:59] Yes.

Bruce Norris [00:46:00] So you were speaking in front of audiences and I was speaking in front of audiences about something that literally had never happened.

Sean O’Toole [00:46:08] Right.

Bruce Norris [00:46:08] And we knew it hadn’t happened because you and I went back to Washington, D.C. for, what, a few days and pulled up,.

Sean O’Toole [00:46:14] Looked at interest rates back in the [     ].

Bruce Norris [00:46:17] So, I mean, who would do that? That was fun.

Sean O’Toole [00:46:22] That was a great trip. And you know it and it know it was interesting to me. And it was great when I got that e-mail because, you know, there was such kind of a radical thought that, you know, okay, when we hit the next bit of trouble, interest rates are probably going to go into the twso. Right?. That was a, that was a radical thought at the time. And I had bounced it off some folks.  And I kind of thought I was crazy. And when you came to the same conclusion, it was like it was such a relief. Right? I had an email. I remember hopping on the phone and going, oh, my God. You think that, too. That was great.

Bruce Norris [00:47:01] You know, like you, I probably I was going to say it anyway because it’s where I had landed.

Sean O’Toole [00:47:06] Right. Exactly.

Bruce Norris [00:47:08] It didn’t mean there was a historic presence for it because there wasn’t.

Sean O’Toole [00:47:11] Right.

Bruce Norris [00:47:12] We’re looking at the tea leaves going, OK, well, where are we going to go? You know…

Sean O’Toole [00:47:18] It’s interesting. I’ve been following that here, and I thought we would get there faster. And…

Bruce Norris [00:47:23] I did too.

Sean O’Toole [00:47:24] The independent mortgage banks and the trouble they had around their business model with how they used the repo market. And, you know, how they used their servicing rights to fund the pool, to buy more, to sell and just kind of how tenuous that is and that they have to forward the payment even if they don’t receive it.

Bruce Norris [00:47:45] Yeah, I didn’t know it.

Sean O’Toole [00:47:47] That one was,  that was news to me. And it was, you know, it’s surprising, like, as much as I’ve dug into this over the last year or you have you know, that there’s still things like that that are like kind of like shockingly surprising. Right. That that a servicer who’s collecting money and forwarding it on, you know, to the ultimate lender has to forward the money even if they don’t receive the payment. Like who came up with that? Like, what a crappy idea that was.

Bruce Norris [00:48:19] Guarantor seat?  I like that.

Sean O’Toole [00:48:19] Well, yeah. I don’t see how they ended up in that business. Like, that’s not a business I would go into. Right. Like I got to forward it even if I don’t receive it now.

Bruce Norris [00:48:32] Well, if you think about I don’t know what percentage they charge of servicing, but let’s say it’s three percent or something like that. That means that they get three percent delinquent. They’re 100 percent down.

Sean O’Toole [00:48:44] Right, Yeah.

Bruce Norris [00:48:46] That’s a crazy risk.

Sean O’Toole [00:48:47] Yeah. Especially when a state comes in and says, oh by the way, we’re going to have a, you know, forbearance and moratorium and by the way, independent mortgage bank, we’re not going to help you with that. That’s on you.what? That doesn’t even make sense to me. So, you know, I think some of that kept rates and probably or is still keeping rates from being as low maybe as they should be right now. I mean, I think we just set a new record low in the last. It was yesterday or something.

Bruce Norris [00:49:18] The spread, though, is big. From 10-year to a mortgage is typically two percent to one point seven five. And it’s if that was true, you’d be at two and a half without batting an eye.

Sean O’Toole [00:49:29] Right. Right. And you know, the other thing that was surprising to me, because I keep looking at kind of where we’re at with this increasing debt. You know, I’m finding the best analog to be Japan. And, you know, Japan’s mortgage rates start with a number in the one. Right. And so when I found that out, that was the thing that solidified that idea for me, that it could be in the 2s here and our next downturn. And I don’t think we’re all the way there yet. But I still think I think we’re likely, I think we’re still headed in that direction because at least for now. You know, we’re talking about maybe another bailout and the rest and putting out much more debt out there, kind of you kind of have to force rates slower.

Bruce Norris [00:50:18] I think. Well, and see, this is the thing is that we didn’t have a strong enough economy to make the spread to where we could get to a four or five percent rate. And I think that was in your mind and mine, is how do you get back to normal before you need to take it away? And we never got to anywhere close to normal. And if you’re spread of taking away is usually four or four and a half percent. And you started two, that’s a problem.

Sean O’Toole [00:50:43] Yeah.

Bruce Norris [00:50:44] So you end up going to other types of policies quicker. You can’t just reduce interest rates. You have to start writing checks and you have to come, you know, with all these programs. That increases the debt. So, yeah, if you start having high-interest rates attached to ultimately, you know, what we put on that cover at the end of a decade at $40 trillion. You know, if that’s attached to a five percent mortgage rate, that’s a problem or five percent rate.

Sean O’Toole [00:51:08] Right?

Bruce Norris [00:51:09] It makes sense. And it almost none of it makes sense where you start looking at the numbers and go, OK, is this ever gonna get paid? It’s tongue in cheek. I don’t remember this, but when we had the September meeting, I Survived, there was negative interest rates in mortgages in one of one foreign country. And I said, so hypothetically, let’s do that. Let’s write a 50-year minus two percent loan and we’ll just it can make a credit every year. And in 50 years, we’ll have no debt. Right. It seems pretty simple,.

Sean O’Toole [00:51:43] It’s pretty simple. Negative interest rates, if we’re going to go there, just make them so they pay themselves off negativity.

Bruce Norris [00:51:51] All you want.

Sean O’Toole [00:51:53] Yeah, well, that’s the modern monetary theory, right? To some degree. Right. Like, to the degree that we don’t have inflation, there’s no reason not to print money and we should print money up until the point we achieve the inflation goals that we want to have. Right.

Bruce Norris [00:52:09] And see that staying is most of what we’re trying to accomplish is to get out of what I think is a deflationary environment in a GDP that’s above zero.

Sean O’Toole [00:52:19] Right.

Bruce Norris [00:52:20] You know, we’re not trying to. Oh, we’re bumping up against two percent. We’re not.

Sean O’Toole [00:52:27] Yeah, no. I mean, it’s I think one of the things that a lot of people misunderstand about. You know, when you print money, we all say, oh, print money, that’s inflationary, right? That’s kind of what we’ve heard, what we’ve been taught. But when you have this amount of deflation going on right from Covid and unemployment and the rest, you print that money and you’re really just reflating are getting it back to kind of the level we’re not really, you know. But I don’t think with the stimulus we’ve seen so far, we don’t really have any risk of inflation. I think it’s possible they could overstimulate to the point where we get inflation. But I don’t think we’re close.

Bruce Norris [00:53:06] Okay, well, there’s two things. You know, just look, let’s bat this around a little bit. As far as the population of Japan, that was very deflationary. Correct? As far as the makeup of their population. We’re not quite as exaggerated, but our population is more deflationary than inflationary. But the side of the world that you’re very familiar with is all the technology, the robotics and all that. That’s pretty deflationary. And I always enjoyed our rides to the Nixon Library because every year you come up with a zinger like self-driving cars that I laughed at, you know, and now it’s very much a reality. But you said one time America’s got to figure out how to have a society when 40 percent of the people don’t need to work. Wow.

Sean O’Toole [00:53:51] And I still believe that. I know. Yeah. We just saw Dorsey, I guess just did a doing a basic income experiment, too, or just Jack Dorsey, founder of Twitter. I think it was him that just said he wanted to he was funding a basic income experiment. And I think a lot of us in tech, you know, think that it’s going to take something along those lines. Right. And I think we have to think about. Like so many people find their personal value in the work that they do. Right. The value that they bring to society and the value that other brings to society. Like, that’s just kind of the lens we use to value or judge people. And. You know. When we reach a point where we really don’t need everybody to work, which is, you know, this technically very feasible, right? Like, I see that future easily. Where do you find that self-worth and value? And I think that’s something we’re going to have to confront for sure.

Bruce Norris [00:54:57] That’s a little scary. You get so efficient, we don’t need 40 percent of our workers. That’s just as an astounding thing. And yet…

Sean O’Toole [00:55:08] Soylent Green, right? Right.

Bruce Norris [00:55:11] Yeah. You don’t want to get up in the morning. Go. I mean, I don’t think most people would go. Well, I get a check today. I’m good. I just don’t think that would be very satisfactory existence.

Sean O’Toole [00:55:21] You know, I think that the you know. Like, I think there’s a lot of places that we can generate value that isn’t like handing stuff across the counter, that isn’t, you know, I think there’s a lot of jobs today and jobs are still important. Right. And that’s that’s where we’re at. But there’s a lot of jobs today that, you know, those folks could probably bring more value to society doing other things right.

Bruce Norris [00:55:54] I think some really smart people, you being one of them, now have a group meeting and figure out how to.

Sean O’Toole [00:56:02] Better get on that.

Bruce Norris [00:56:05] Better get on it.

Sean O’Toole [00:56:06] Well, that’s an interesting note to a close on, but we are coming up on a coming up on the hour. And if you have anything else you wanted to touch base on or bring up that I haven’t asked.

Bruce Norris [00:56:17] Let me just ask one thing, because the mortgage money was the problem before. Do you see the corporate debt in the CLO world causing a problem this time?

Sean O’Toole [00:56:27] Yeah. So, you know, it’s it’s interesting. Like, you look at some of these valuations, you know, 30 times, 50 times earnings. And like the tech sector, especially in this cycle, what madness is this? Right. And you have the Fed buying corporate debt for the first time. Right. So they’re propping that market up.

Bruce Norris [00:56:48] Right.

Sean O’Toole [00:56:50] You know, I guess my big picture takeaway is. That we are long past living in a free market or open markets or even a capitalistic, you know, I mean, it’s still capitalistic, but it’s not true capitalism that’s going on right now. Right? The government picks is picking winners and losers. Right, by buying corporate debt. Even by mortgage-backed securities. Right. They’re propping up the real estate industry. They’re propping up real estate prices by not having foreclosures. They’re going to keep real estate prices inflated. But these are just these are policy choices. Right? So I think. In my mind, this idea that that there are. Free markets is dead in my mind. So it’s important to look at where stimulus is coming from, where it can come from in the future and how far that will go. I personally think it will go quite far. So, no, I’m not worried about corporate debt.

Bruce Norris [00:58:00] They’ll just write a check and solve it?

Sean O’Toole [00:58:03] Yeah. I mean, again, there’s going to be winners and losers, right? So there will be companies that they let fail and make an example of and the others bailout probably comes down to, you know, the values at that company, you know, perceived value that that company provides to society and its importance. You know, it’s kind of like, you know, why we didn’t bail out the Weimar Republic, you know, after World War One and why we, you know, have continued to support Japan despite having, you know, terrible debt to GDP for the last 40 years, just picking winners and losers.

Bruce Norris [00:58:46] OK, well, that was my big question.

Sean O’Toole [00:58:49] That’s my take on it. What’s yours?

Bruce Norris [00:58:53] I think I agree with you. I think they’re going to write a check big enough to where they solve it because they can’t afford not to. Yeah, that’s the problem, is that like another Lehman in that world is a big it’s a big number. I just read a report before getting on this with you. And I forget where it was. But I talking about Wells Fargo. Well, off the books. Wells Fargo has a trillion dollars of like debt that doesn’t count on their books. You go, what?.

Sean O’Toole [00:59:23] A trillion dollars? It’s just a little number.

Bruce Norris [00:59:26] Yeah. OK, well, so I guess you’re right. Until you’re not. Or is it just like you say, modern monetary policy just takes it to never, never land?

Sean O’Toole [00:59:43] Yeah, I mean, I think, you know, you can continue to print money up until you start having serious inflation. Right. So that’s kind of what modern monetary theory says, right. Is that so long as it’s not inflation, you can. But then once you start having and I won’t pretend to be an expert on MMT, but, uh, you know, once you start having inflation, then you bring in in taxes to bring that back under control. So, um. You know, but I think bigger picture, right? It’s more kind of fall of empires kind of stuff, right. You know, us replacing Britain or, you know, before that Denmark and before that China. Right. Like, I think at some point. And this is, I think, where we were actually very lucky that Covid it was a worldwide phenomena and that all governments are having to stimulate. All governments are kind of in the same boat. Is because if it was just us being the world’s reserve currency and we started printing a loan to significantly. Right. That could have led to the end of the US dollar as the world’s reserve currency. And I think that is when that’s when it’s a very, very different game. Is that, you know, is that the next black swan or the one after or the one after? It’s a little hard to say, but the trend right now is not good. Right. So our economy versus China’s economy. You know, China looks like, you know, they could be the next world. Leader, if we don’t change course and make some, you know, make some improvements. So I think that’s the that’s where it ends, right. Is a shift in global leadership. And, you know, uh, countries, Denmark and other places that were, um you know, global leaders in the past, and so they’re not it’s not like…

Bruce Norris [01:01:54] They’re not gone.

Sean O’Toole [01:01:56] They’re not gone. You know, people are still there and doing their thing. And I don’t think it’s the end of the world, but it’s going to be a change.

Bruce Norris [01:02:04] Have you read Ray Dalio’s material?

Sean O’Toole [01:02:06] I’ve looked at that a little bit. Yeah, yeah, yeah. That’s definitely what he’s calling for. Right. He’s saying and he’s saying it’s pretty soon. I don’t know. You know, I hope he’s wrong about that. He’s saying it’s kind of a seventy-five year cycle and we’re five years away.

Bruce Norris [01:02:22] I think he thinks it’s inevitable. I don’t you know, the soon part, I guess, is I’ll play it out, but inevitable because of he’s such a history buff that, you know, when you go back 500 years and you go, okay, yeah, that’s what happens. So, yeah, it’s a scary thought we have.

Sean O’Toole [01:02:39] There’s a very different thing. Very different thing in the world now where the inevitable thing. I don’t buy into. Right. Because when you do have good hindsight and you can learn from it. Right. I don’t know. That, you know, in Denmark, with the rise of Britain, like they were looking back at, oh, OK, how did how did we take over from what were the 10 leading indicators of why we took over from China? Right. Like, I don’t think they were thinking like that. Like, we have the ability to look at all that data and think about that and go, what are these things that we have to do to make sure that we’re a leader? Right. And, you know. Yeah. Anyways, I want to say what I was about to say. I don’t think we are on that path to remain a leader right now. And I’m not optimistic about the leadership of either party to put us on that path. But I think we need to get on that path and on it soon.

Bruce Norris [01:03:39] I will agree with that. Sean, thanks for taking time to do this. I appreciate that.

Sean O’Toole [01:03:44] Yeah. Thank you, Bruce. This was a great. And our third edition of the Data Driven Real Estate Podcast. And glad we got into how you went from being a people person close in deals to being, you know, really, uh, you know, the leading voice of, uh, certainly the California market for sure. An industry with your, you know, major reports that so perfectly called the called the market. So great talking with you, Bruce. Thanks so much.

Bruce Norris [01:04:13] Thanks, Sean. All right. Take care.

Aaron Norris [01:04:16] Thanks so much for listening to the Data Driven Real Estate Podcast. Check out to find show notes, be able to find links to the resources mentioned on the show, but also to ask questions of today’s guest and possibly guests in the future. You’ll be able to click over to the community. And we’d love your input while you’re at your favorite place to listen to the podcast. Please don’t forget to like, favorite, subscribe, and share. We’d love your support! Once again, And we’ll see you next week.