Why the Housing Shortage Story Doesn't Add Up | Jon Brooks

We are seeing in many headlines the shortage in housing and the price of housing not coming down. Today we sit down with John Brooks who's actually telling us a different story. He's seeing how builders now have to discount their prices significantly but they don't show the discounts on paper and how rents are coming down in Florida, the market he's been watching and has hundreds of agents working for him in this market. The numbers on the headlines are completely manipulated because we have all of this shadow inventory that is not showing up. The problem with rents now is that so many people are becoming accidental landlords and they're competing with multi-family homes that have been overbuilt, apartment buildings that now rents are coming down and in some areas we're already seeing rents down 10 to 20 percent from the peak and this completely changes the calculus from an investor standpoint and now so we're seeing a you know inventory stack. I'm Siamak, welcome to Market Insider. John, it's great to have you on, welcome. Yeah, thanks for having me. You're in the real estate market in the Sunbelt area and you have your hands on the pulse of what's happening in that market. There's a lot of talk in the real estate market and there is a lot of confusion. Honestly, a lot of people don't know when can they buy the next home and who is buying, who can afford homes now and at the same time we are hearing the talks of not enough inventory being out there. There's a shortage and there's not as much inventory in the market. What are you seeing in your market and what do you think about the general market of real estate? Yeah, so we have the tale of two markets and there's a lot of people who say we have a housing shortage and that is a narrative that's put on by a lot of the media that's backed by basically paid media that's out there and so I want to share the perspective of what's actually happening here in Florida and in the Sunbelt areas because we don't have a shortage. What we have is a mismatch of supply so what we saw happen from 2020 to 2022 was something I refer to as a demand shock. We had all of these people migrating to Florida and in a short period of time it drove up prices on top of super low interest rates that caused hedge funds and investors and mom and pops to jump in and buy up a lot of starter homes which have been being bought up since 2012 but it just accelerated it because of the government policies making the financing so affordable and so we didn't have a shortage before 2020 and that's why it's not really appropriate to call it a shortage. We had a temporary demand shock and so you basically had 10 years of demand happen in three years because of the policies because what was happening with the pandemic during this time period that caused prices to skyrocket. Builders responded by building you know mid-level luxury where the highest profit margin stuff is which is 500 to 700 thousand dollar price point and now we're overbuilt at that price point and we're under supplied to starter homes. Meanwhile you know the prices here in Jacksonville Florida rose more than a hundred percent over the last decade but wages have only gone up 50 percent about 50 percent so there's a mismatch of what the locals can afford and what people can can pay now so now that we are seeing a massive change in migration where in 2020 we had peak net domestic migration of over 300,000 people moved to Florida and it's now it's all the way down to about 22,000 and so that drop in demand the builders did not understand that that could happen and that is really what's telling the story of right now and why we're seeing the number of transactions and pending transactions basically fall off a cliff and when I say a cliff at more than 30 percent is technically a crash and we've already crashed in demand. So there's not enough transactions but people are still not willing to sell or you have different kinds of inventory. Can you tell us about the mismatch? Yeah the mismatch is you know the the average person who lives here in Florida and it already is here the working middle class right the median household income is around 68,000 but they need about 100,000 115,000 to be able to afford a home and make that actual payment. They can't do that and we have rising rates even today you know yesterday the weeks before we've seen mortgage interest rates continue to move up which pushes the middle class out so if we don't have people relocating to Florida who have already earned their wealth and come here and purchase houses then the transaction volume stalls because the locals can't buy and we don't have new people entering. What happens then is we see you know basically supply increase we're seeing it first in the condos and townhomes which you know we are over 13 months of supply 12 months of supply in certain areas and now we're starting to see it happen in single family homes too and a lot of the people that get stuck around new construction communities with an existing home trying to sell one now they're competing against the builders and the builders have the negotiation power because they can buy forward commitments they can buy down the interest rate to make it much more affordable for the next people to buy in and you know keep prices higher for longer so there's a lot of distress that's happening underneath the surface in the Florida market that's just hasn't been exposed yet because the different you know like the builder groups are basically using up to 10 percent of their of their money of that of the value of the house to buy down mortgage interest rates to get buyers in there and this will cause a huge crisis over you know the next few years because those buyers if they go and try to turn around and sell in the next five years it's more likely than not that they're going to be under water because they bought at such a high price we're hearing that people don't have to sell you know right now people that own this real estate they don't really have to sell because they have low mortgages and they're locked in and do you see that in the Florida market yeah there's definitely people who are super wealthy and this is what we talk about with the k-shaped economy right if you're the top 10 you've seen a tremendous amount of gain in net worth the stock market's you know near record highs all of this is fantastic for this general top 10 that doesn't have to sell the people who are in trouble are the people who bought at the peak prices around 2022 to 2024 in new construction communities that have now either slashed prices or given massive incentives and then they have some sort of job loss and we see this every single day we're seeing short sales we're seeing foreclosures both start to move up here in the Florida market because of this phenomenon you mentioned transactions are down you have your agents are in the community what does it look like are the buyers walking away or are the sellers walking away we heard that some sellers took the homes off the market because they don't have to sell from what we're hearing what are you hearing on the on the ground with your team yeah sellers are frustrated so it again it depends on the sellers but a lot of sellers they test the market they think you know they're still going to get a 2022 or 2021 price they list their house it stays on the market they get a couple of showings no offers you know the agent tell them you know you need to reduce the price they're not willing to reduce the price so what do they do they take the house off of the market we're seeing record rates of what i call rage quitting or you know they just get frustrated they blame everybody else except for the price and they take it off the market and they either decide to stay there and make an addition or you know stay there and make it their forever home because they locked in their low rate or they turn it into a rental property but the problem with rents now is that so many people are becoming accidental landlords and they're competing with multi-family homes that have been overbuilt apartment buildings that now rents are coming down and in some areas we're already seeing rents down 10 to 20 percent from the peak and this completely changes the calculus from an investor standpoint and now so we're seeing a you know inventory stack now it's not necessarily happening right now but it's going to be into the end of the year because right now is busy season so you're still seeing a little bit of transactions go through right now on the rental side but the rents are coming down and tenants are becoming smarter they're renegotiating all these record high leases that they have so as they renew we're actually seeing the rent rates come down because the the tenants are becoming savvier what about the builders there are they still building and um are they what kind of homes it's crazy to me to see what what's happening on the builder side and uh what you can't see because it doesn't show up in the mls because most builders only list one or two of their models for mls but they have tons of lots tons of inventory that's off market that if you if you look at their site you can see that they have tons of houses that are basically vacant there is a lot more inventory that's available for that to be purchased than what is being that is showing up in the headline numbers so when you go in to negotiate with them they'll say hey it's doing great we've sold all of our units etc etc but they have phase two phase three phase four behind that because they did not expect the demand to drop so much so they overbuilt this mid-level luxury that no one can afford the migration stopped slowing and now they're just they're they're loaded up with this inventory and you can come and drive the communities we know this because our company uh you know lists these houses for the builders and they tell us the reps tell us what's going on and what is being told to the consumer on the front end isn't always necessarily what is being exposed on the back end right the the sales process is um is completely different and so it's important you know you always want to get with a top real estate agent that knows what's actually being negotiated with these builders versus you know walking in yourself because the the local who understands what's really going on in the market is going to be negotiate way harder for you because they know that there's a ton more inventory on the market than what is really on the headlines you don't think there's a shortage of inventory of housing right now but we are hearing from people that study demography that a lot of people are living with their parents and sharing homes and the percentage of that has increased significantly meaning people need the housing what are your thoughts on that it's it's absolutely true yeah we call it doubling up down here in florida you know people are we're in an affordability crisis so when that happens people start moving back in with their parents they can't get the job that they expected the rents are too much we also see two people you know working together to rent an apartment that maybe that don't know each other we see two people even team up that maybe know each other that go out and buy a house together because their single income doesn't you know isn't enough to go purchase a house so we are absolutely see absolutely seeing that the doubling up but in terms of the number of physical structures that we have to house people we absolutely don't have a shortage of any kind here in the sunbelt there are areas in the northeast for sure that have not had this massive building phase because of the restrictions that they have the costs that they have we don't have that here in the sunbelt everywhere and so where the builders were able to build there is an oversupply of this inventory and it will show up in the numbers you going into the next couple of years so how can you have you know a shortage when demand is it as at record lows and you see the inventory creeping up every single month the narrative from the media in that regard is starting to break down pretty drastically and then secondly we're starting to see the distress show up you know with the short sales with the foreclosures that's going to play out now that the government programs have become much more challenging to work through through the workout programs for FHA and VA loans as of October 2025 we're going to start seeing foreclosures and short sales start to move up you know in the next year or two because you know here in Florida we're a judicial state so the courts take time to process all of these delinquencies so we are even seeing you know delinquencies on FHA loans already at 11% and so you know I kind of view FHA loans as the next subprime well a lot of these builders gave out these FHA loans to try to get the demand to go through at these record prices and you know I think that's where the majority of the distress will be and that's also where the most of the supply is right now. You mentioned short selling and foreclosures the numbers have gone up but they they're up significantly compared to last few years but they're still very small what are you seeing in the market right now are you seeing more activity what are you hearing from your agents? Yeah the reason why we had such a low record of short sales and foreclosures was because of these government programs right you if you missed a payment you could lump it on to the back of your mortgage and pay it later and you could just keep doing that every single month by reapplying to the to the program and doing these basically loan modifications and just you know pay it later that is all coming due because the programs changed in October of 2025 so we are starting to see people who had that distress basically have all this distress from five years that didn't get processed and it's all going to be processed over the next few years through the court system so we're seeing banks load up on the short sale size side on the foreclosure side they're hiring more people you're starting to see it drift upwards I think you're going to continue to see this drift drift upward especially if we start seeing some sort of event that causes more job loss if we start seeing the stock market go down so I don't know if it's going to happen you know overnight I don't think any of this is going to play out overnight real estate's in a liquid asset it takes time for the system to process this through this could be a five to seven year type of time frame but we're seeing this stress creep up every single month because the workout programs basically became more challenging to jump through and we're starting to see the prices correct in the areas that are overbuilt are you hearing from people that want to short sell their homes have you guys have you guys seen that and have you seen an uptick anecdotally in your portfolio of customers yeah yeah every every day where it's it's horrible to to talk to these people they something like that comes through and they can't make the payment or the the taxes and insurance have increased so much that it impact their payments you know a lot of people think they have a fixed payment when they buy a house that's that's not true at all there's maintenance costs that increase the taxes insurance increase every single year your payment goes up and there's a lot of people who moved here and they just can't afford to live here anymore because the wages just don't support the prices at least for the locals so you know the locals are the ones who are experiencing this the stress the people who moved here in are retiring here it doesn't matter to them because they have their their cash and they have their windfall and that's where we're seeing the basically the tail of the two markets but for the k-shaped economy and i think it's going to get a lot worse for the bottom 80 percent here in florida over the next few years and honestly the government is you know trying to find any ways to stimulate the the demand but what we really need to do is create supply in affordable price points that you know the locals can actually afford which you know there's a lot of debate of how to do that you are mentioning that people are doubling up people are using the need is there but from what it seems like the supply is in a different bracket of pricing what's the price that people can afford in your area that that is missing the inventory two to three hundred thousand you know as a single family home but part of the issue is that the the cost of construction regulation the cost of the lot has all gone up over the last few years and so you can build a house you know for two hundred thousand but the builder needs to make their profit so they you know they they need to make a healthy profit and if it sits for a long period of time too it's it's going to be a problem so we see the builders they're incentivized to you know to build in the seven hundred eight hundred thousand price point because they can literally make you know five to ten times more at that price point than the two hundred thousand dollar price point so i don't blame the builders for doing what they did but now there there's just this massive mismatch of inventory we need two to three hundred thousand dollar houses and we need and we don't need a lot of those seven hundred to eight hundred thousand dollar houses especially because the migration patterns have already changed so what do you think is going to happen to the market based on what you're seeing prices will come down uh you know that's that's ultimately what has to happen you know i know a lot of people in the real estate market are begging for five percent mortgage rates it looks like we're going to hit seven percent before we hit five percent they're hoping that getting to five percent would bail them out look if we stay at seven percent demand will continue to stall inventory will creep up if there's more accidental landlords these multi-family projects finish you're going to see rents come down because there's just going to be a glut of supply it's not everywhere there's certain areas that are not overbuilt in florida but those areas that had that massive construction boom that that with the people buying at the peak between 2020 to 2025 that's where you're going to see a ton of distress showed up that will deflate the market for you know years to come because there has to be a reason for florida to continue to attract demand which originally 10 years ago it was affordable you know in 2014 i came to jacksonville and i could buy 190 000 house in an a-class area that same house is now 450 and wages have not kept up so you know what was possible a decade ago is just not even close to what's possible today and this is why you hear you know the next generation shouting hey the numbers aren't the same as as what as the boomers and so uh there's this huge disconnect between the young and old and the possibilities because the ratios have changed do you think this is uh this is fixable with policy or do you think it will take a while for the market to adjust i don't think i think the government needs to get out of this the government caused this by keeping interest rates you know the federal reserve did this by keeping interest rates too low for too long they shouldn't have done that it created this speculative boom between mom and pops primarily yes we had some institutional investor purchases and we had you know a lot of demand shock because of the migration patterns the the policy got us here the best thing that can happen for the real estate market is to just let it correct just let the market be free the market will fix itself so if we saw you know a correction of 20 to 30 percent then we saw wages go up you know and or some combination of that with mortgage rates even staying the same it'll work its way out you know way better than trying to keep this basically a bubble afloat for as long as possible so there's a lot of extend and pretend right now that's happening and i don't think that's a good strategy i think that makes things worse it's better to just face it head on and let it happen what amount of correction is needed in that market and will it happen quickly or will it happen over the next few years it's going to happen over years uh possibly a decade so when i did my real estate investment banking model on this scenario of how much could prices correct there's a floor of where investors will jump in and start purchasing properties for cash and turning them into rentals because the numbers just make sense and when i run those numbers it's like 300 a month cash flow it comes out to being about a 31 to 42 percent drop in home prices from the peak of october 2022 which was the peak prices in our market and so if we saw that i mean obviously the great financial crisis in our market prices dropped 36 percent so we're talking about you know a crash right now we're definitely in a correction we're in a crash in some condo markets we're in a crash in some townhouse markets the single family market is usually a little bit better but i could definitely see around these new construction communities prices going down you know 20 to 30 to 40 percent over the next decade i don't think it's something that's going to happen overnight because people are really sticky to their houses but it's going to happen primarily uh sooner rather than later if there's job loss it just it really comes down to what happens with with the jobs because that's going to be the the piece that could really cause the actual distress that moves the needle do you have any thoughts for people that are looking into buying do you think this is it's better to rent right now and wait or do you think it's better to to go and bargain hunting if you can it's a it's a great question so you have to be really careful as a buyer right now and everyone's situation is different but not all buyers buy because of financial reasons purely right there's a lot of emotions i would say about 80 of people actually buy emotionally and there's about 20 of people you know in our experience that buy just for the math perspective right now if you're a renter and you're looking at buying compare your options of how much you could save by renting versus owning a lot of times in our market it can be a savings of up to 1500 a month by renting instead of buying a home and you also don't have to do the maintenance and all the other issues that come along with with owning a home so if you could pack away that extra 1500 a month and invest it in some other asset versus just spending it like financially right now it absolutely makes more sense to rent than to buy now your time frame is also something that would be unique so this is the math is one thing but everyone has different time frames and different goals but if you're planning on you know selling the house and moving in two to three years the answer for me would be a no if you're looking at staying in the community for 18 years you know this is the school system that you want to be in it probably doesn't matter as much because you know in 20 to 30 years you know we don't we don't have a crystal ball for that time period but either way you want to negotiate the buyers in a lot of these areas as long as it's not a perfect house that has a compensating factor you're likely going to be able to negotiate maybe 10 off of the house it just depends on how long it's been on the market what about other markets do you have any thoughts on other markets that are not as built yeah i mean the northeast is on fire i talked to my friends up you know in rochester new york they they did not have the construction boom they are doing just fine but they have other issues they have aging inventory they have insurance costs that are going up because of the aging inventory they have young people migrating out of the area because it's very expensive so every market is very unique but they just don't have the supply glut issue that we have you know denver colorado overbill austin texas obviously leads the front you know areas of arizona have have overbuilt we're seeing even washington state now start to fall so we're seeing it across the board and it's spreading in these areas that just kind of just went crazy from 2020 to 2022 because of the construction and again in a lot of these areas not just ours the builders built at the price points that really are just not achievable they built for price points at two to three percent mortgage rates and now that we're seven percent it's just not it's just not achievable for the majority of americans and for those people that are looking at renting how much do you think the rents will come down it's so in in our it's already down 10 to 20 it it depends on the area so real estate is so hyper local even jacksonville which is the largest city by landmass we're like seven cities in one so i could you know each one has its own unique factors that would impact the supply and demand of that area but the areas where there's a ton of multifamily multifamily right now is getting crushed and that's a huge story that hasn't come up because of the extend and pretend from the banks but there's a lot of distress on the multifamily side because they overbuilt and rents are coming down and they these guys got it on bridge loans that were you know two to three years and now they have to refinance at seven percent you know whatever five six seven percent when they were expecting a four percent rate their economics went out the window uh so there there's you know news stories every single day of these people losing a ton of their money in that area you're going to be able to negotiate like crazy if you're a solid tenant that has a good track record payment good credit score you know month supply of cash those are the type of people where you're going to be able to get a deal there's people flipping their signs out here on the street across from me saying three months three three months free rent uh you know and now you have to compete with that right and it's a new construction community with amenities and so that's obviously going to impact every single renter in the area say should i go get those free three months and try to negotiate on the on the rent amount for me to fill that project because they're not filled they have to fill these units in order to do the refinance on them and they're not filling them fast enough because the demand from the relocations isn't is not happening anymore so they just the builders just overbuilt they overestimated and this happens every time we have a speculative bubble that's caused by record low rates and if rates go above seven and keep moving up it's going to really uh impact the market and it's the reset that we that we honestly need because prices went up just way too fast in such a short period of time so john you you're pretty confident that there is a lot of supply out there but there is a lot of other estimates that are saying there is a shortage we have heard estimate from estimates from 3.6 million to 4.5 million we've heard estimates of 10 million even the association of builders say at least is a million what are you seeing that makes you very confident there's a wide range of estimates and i track every single one of them so you know obviously the national association of realtors which has the largest incentive to say that there's a shortage to incentivize people to go out and buy right if there's a shortage of something it gives you the emotional incentive to go out there and hey i need to buy this because there's a shortage i got to get in before prices go up then you have people like jp morgan that comes out there and says oh you know it's not actually a 10 million shortage it's a 1 million shortage and we overestimated what the shortage is and the shortage is not everywhere and this is why you know it's housing is not a national story it's just not and so we might have a shortage in new york but the rest of the country doesn't so you really need to take it with a grain of salt when people say there's a shortage because you need to ask them what market what product right because if you look at the what's happening in florida you could say how's their housing shortage you have 13 months supply of of condos right so it's like how is that a shortage you know new new construction homes the number of new construction homes for sale every single month go up but the numbers on the headlines are completely manipulated because we have all of this shadow inventory that is not showing up in the headline numbers so as you dig deeper into the numbers you're going to be able to identify that oh that you know this this builder actually has 200 more lots that are easily available to develop and they want to develop but the demand's not there so we have the supply in the sunbelt this is not true everywhere but we have the supply in the sunbelt for sure and we're overbuilt in the sunbelt and unless we start seeing migration patterns change to come back to us which i don't think it'll happen anytime soon we're even seeing international immigration down 70 from the peak and that was a huge thing for florida so if we start to see these patterns change and stay that way we will see the supply continue to move up and the shadow inventory will be traded behind closed doors we see this happen we see hedge funds come in they gobble up an entire community and turn it into a rental community and so we see this type of action you know all the time and i this is this is the story that's going to this is why it's not going to happen overnight there's all these people who are trying to not let these numbers show up in the headlines and on the books because it changes the narrative completely so john you think that some of the builders are stressed and oh yeah they're there there's no reason why they wouldn't be if they're offering if they're bribing a buyer to buy the house for 10 to buy their interest rate down you know 10 using 10 of the value of the house to buy it down 50 60 70 000 yeah they're in distress yeah and how would you negotiate with them if if people want to buy right now you have to find a top agent yeah so so the bottom 80 90 of agents don't produce enough transactions for them to actually know what's going on so you have to find somebody who does a good volume of units that is used to selling new construction knows how to negotiate it knows the site agents right understands the game and then have that person negotiate for you and you can get tremendous deals we're seeing people get 100 150 000 off on some of these deals now some of these deals aren't recorded in mls because the builder doesn't put it in mls and the last thing that they try to do is cut the price of the home because then they have to change they have an appraisal problem on the rest of the homes in the community so they try to what they try to do is say oh i'm going to give you an upgrade to the house well they can basically make up the number of what that upgraded value is okay so they could say oh i'm giving you new floors it's 15 000 it might only cost them four right to do it but hey the value of it is this amount so there's a lot of games that builders can play including owning their own mortgage companies and using forward commitments to make it look like they're not as stressed as they are they absolutely are stressed i know this i have friends who are builders uh they talk about it every single day they're they are concerned because we're in june and july and it's busy season and we're seeing pending sales down 25 from last year and last year was not that great of a year either we're already down 35 so if we start to see this demand continue to drop they still have to pay their bills on all this inventory that they have because most of the builders do get loans for for their projects so john we will be checking back with you in the future it was great to have you on john brooks market insider it was great to have you on thank you thank you tell us what you think about this conversation with john how is your area if you're in the real estate space are you seeing prices coming down and buyers going away and also are you seeing the pressure on rents do you see rents going down make sure to tell us in the comments i'm siamak this market insider we'll see you next time