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The Elephant in the Real Estate Room Nobody is Talking About

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The Chris Williams Radio Show

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A discussion on the fundamental breakdown in the housing market and how that is affecting upward mobility. It's the elephant in the real estate room noboby wants to talk about.


0:23 Tony Vignieri

Hello and welcome to the real estate report with Chris Williams. I am Tony Vignieri, your moderator. Today's topic is an interesting one because it explores how the breakdown in the housing industry has and it's currently affecting upward mobility. With me on the show is real estate expert Chris Williams, the CEO of Blue Sky Capital in San Diego.

0:46 Chris Williams

Hi Tony, thanks for moderating the show.

0:49 Tony Vignieri

It always good to have to you on the show Chris and for our listening audience, some background on Chris and his real estate investment firm Blue Sky Capital. Chris Williams is an expert in real estate investment, finance and syndications. He has handled more than 300 real estate transactions and spent 13 years managing real estate teams. He is the proud recipient of the Prudential's President Award and he won that award nine years in a row. In 2011, Chris launched Blue Sky Capital, a private equity firm in San Diego that is helping to rebuild neighborhoods through their systematic and disciplined approach to buying and selling distressed real estate. Chris, our topic today, the fundamental breakdown in the housing market and how is it affected upward mobility. Now being in real estate for so many years, you've seen firsthand joy of your clients achieving the American dream of home ownership for the first time and then years later, selling that home and moving up into a large home in a more affluent neighborhood. That's the upward mobility that has gone on for a decades, but it has been interrupted of course because of the housing market. Tell us how this has happened.

2:00 Chris Williams

Tony I am happy to tell you that, you know this is something that is really missed by the experts you'll hear in the world, talking about real estate. This will also answer the question, why are housing prices staying flat and not going up. So, the way the housing market is designed, is like you said, upward mobility. So it's designed that the renter comes into the market place and buys that first-time home buyer home, but then someone that was in that home sold, pulled their equity out and moved it to the next home and they -- whoever they bought it from sold and put their equity out and moved it up to the next home. So you see the money is designed to flow upwards from the entry level market place. Does that make sense?

2:48 Tony Vignieri

Yeah. I guess it's something you know we've heard the term upward mobility, it's achieving and progressing and moving up the ladder as we've all done over the course our lives and our careers, but it is interesting that until you bring this up, you're not thinking that real estate has really put a roadblock in that.

3:08 Chris Williams

It really has indeed, you see the -- because here's the other piece of that, that's the way the market is designed that money must flow up. Therefore, you must have a healthy entry level market, then that will move everything up beyond it. So you see the California Association of Realtors say that it takes seven sales to get to the two million dollar sale. So, there are six sales that happen before that with the equity moving upwards in that chain to make that happen. So, here's the breakdown, and this is why prices are not rising and this is why there is no upward mobility. So, you see about half the deals that are happening in our market here are happening in the entry level. However, the buyer of those deals and then ultimately the seller, is an investor and not an end user. So what does this mean? You got these bank owned foreclosures, you've got trustee sales that are happening, you've got short sales that are happening in the entry level of our markets, investors are coming in and buying these things. They then turn around and flip them, but when they flip them that money does not move upward in the chain. That money stays in the entry level because the investor takes the money back and buys another entry level home. So you see there is a roadblock. There is a block to the flow of capital moving upward into the market.

4:27 Tony Vignieri

So, this really is a big shift than a detriment to upward mobility.

4:31 Chris Williams

It really is, you know, because prices can't go up here because the only way prices can rise is if money is moving upwards, the home owner that's in the second, third, fourth tier of home is literally stuck in the home because there is no money coming up to buy their house and there's no equity in their house to move out and move upward, so with the negative equity that we have, coupled with the fact that the majority of the deals are happening at the entry level, so there is no money flowing upwards. Upward mobility is at a dead stop and Tony I got to tell you, I foresee it being that way for many years to come.

5:07 Tony Vignieri

Yeah, because that was my next question and I think it is something were people might not connect the dots here, but you know, as you explained it, it makes perfect sense. You buy that first home, you live in it several years. You sell it with increased price, you buy a larger home and on and on, but it really is a shift?

5:31 Chris Williams

Yeah really. That's our American dream right? The American dream.

5:34 Tony Vignieri


5:35 Chris Williams

Is in the fabric of our society. You envision being a renter than buying a condo and then buying a small house and a bigger house and a bigger house and ultimately, you land in your dream house. Well that it is not happening in our economy because the money is stuck in the first tier or two and there is no equity moving upwards.

5:52 Tony Vignieri

And as you said, a lot of sales may be going on but it's not that entry level and it's not that you know, not that latter that has to happen as you explained it.

6:04 Chris Williams

For sure. I was reading the Wall Street Journal last night. A similar article on cnbc.com and this article talked about the fact that the number of transactions are up. The number of new listings coming in are down, which would historically set the market up for a price increase, but there's no price increase. In fact today, the case shiller index came out and it is the sixth month in a row that we've had a drop on the case shiller index, so how do you explain that?

6:31 Tony Vignieri


6:32 Chris Williams

If history were to be the guide, the market would be going up in value based on supply and demand not so, and it is because there's a roadblock here at the entry and second tier, so there's no money moving upwards.

6:44 Tony Vignieri

Yeah. And I heard that same report this morning and I was, wow six months in a row that it's been like that. How do you sort through all this stuff because again, as we pointed out here, a lot of these things are connected. How do you sort through it both as from your perspective in what Blue Sky Capital does and the standpoint of an investor, a seller, a buyer. It's a lot of confusing information.

7:09 Chris Williams

It really is and it depends on who is listening to the show. If you are a homeowner and you are stucked in one of these houses that there is no upward mobility, you are upside down in your mortgage. I invite you to get in contact with us. We can point you in the right direction of what to do, and if you are in our area, we will even buy your a house. And when we buy it, we will negotiate with the bank for you, so we can get that behind you. Now, if you're an investor, you know this is the time to be buying and selling houses. When you have got this kind of up and down volatility in the market, it really is the time to be doing the buy and flip model. Now, doing a buy and flip model of course is a very time consuming. It takes a lot of money and it takes a lot of effort, if you are not up for doing all of that yourself then you can find someone like us to partner with someone with the time and the expertise.

8:02 Tony Vignieri

And how do we get back to the way -- I mean, we are talking about here the old phase which is just a few years ago. Now, how do we get back to that, is that the process, the whole process of resetting and prices and stabilization?

8:17 Chris Williams

It is. Tony, how we have to get back to it is we must move all this distressed properties through the process, we got 11 million upside down mortgages.

8:28 Tony Vignieri


8:29 Chris Williams

There is five or six million that are currently in foreclosure and there's two million that only have 5% equity. So, there is like 20 million mortgages that's a rounded number.20 million that must move through the system. When those move through the system, prices will reset mortgages will be being paid and this thing will start to heal, but with the government intervention programs and with the banks attempting to do loan modifications, all this doing is slowing things down. I think we are in for a very long hole here.

8:56 Tony Vignieri

Yeah and it is interesting you say that because I will just talking to someone the other day who had a loan modification and said we are going to try for another one and I was like, wait a minute that's just pushing everything down the road. It's not really helping.

9:11 Chris Williams

So it does not help because the loan modifications don't address negative equity. You see, when the banks modify a loan, they may adjust the rate down, they may even if the borrower is behind in payments they may forgive that and just put it on the back of the loan to have it to be paid off in 10, 20 or 30 years, but until the negative equity is addressed from the real drop in values here, nothing is gonna change and it's is gonna keep investors like us in the market place buying and flipping houses in a particular sector of the marketplace, which will continue to affect upward mobility.

9:47 Tony Vignieri

And give me sense of -- again at Blue Sky Capital, how Blue Sky Capital fits into this puzzle in helping to reset the market?

9:57 Chris Williams

Yeah, we really do. We out there and we have a team and we have systems in place and we are assessing thousands of properties a month to see if we wanna buy them. The ones we do wanna buy we go and we buy them. When we buy them, we're buying them below market value. We're rehabbing them and selling them at market value, so we end up setting the market, setting the price of these back to market that's number one. Second thing we do, if we are part of the solution because we take a house that's in distress, just pulling down values of the houses around it. We stabilize it, make it pretty, make it a happy house and we put real qualified borrowers in there. So, our process Tony is really designed to help the neighborhoods one at a time. What we like to say is that one house at a time, we are rebuilding communities all throughout San Diego. Ultimately through Southern California. Ultimately throughout the nation.

10:51 Tony Vignieri

Right and as you said that really is rebuilding neighborhoods because you are taking something that may have gone in the foreclosure, the people moved out, they turned the water off, the grass is now dry, the shrubs are dry and you are really resuscitating that home in that neighborhood.

11:09 Chris Williams

Yeah, we really are, you know and we've taken it upon ourselves because it is our responsibility to be a part of the solution here and so literally, one house at the time, we're doing this and we can't just sit back and do nothing. If everyone sits back and does nothing, nothing will happen. It's gonna take massive action to turn this thing around, so we are part of that massive action to set things right in our economy.

11:31 Tony Vignieri

And where can people go? You have a website, tell us about that and the case studies that you have on it.

11:38 Chris Williams

Yeah sure. So, we do have a website. Any of the listeners can go to blueskycapital.com take a look at number of things on that website. The first is, the contact button is in the upper right hand corner. We invite you to send us an email. We will call you, we will talk to you. We can find out what you are dealing with. We can find out if you wanna -- if you are looking to make your money grow with your short seller or etc. Couple of other important things on that website is in the bottom, right hand corner is our blog feed. On our blog feed is where we keep our listeners and our customers up to date on the activities we are taking as a company and what's happening in the general market place. The last thing is we have two real life case studies spots in the middle of our website. I invite listeners to go and view that. These real life case studies are real deal properties that we have either bought and sold all the way through we bought and are currently under rehab or they're on the market right now. And we have virtual tours, photos, the whole thing.

12:35 Tony Vignieri

You really got a good sense of what you have on the website. That's great.

12:39 Chris Williams

Indeed. Indeed.

12:43 Tony Vignieri

In our final minutes here, any closing thoughts for the listening audience. Our topic today, of course, impeding upward mobility, any closing thoughts.

12:51 Chris Williams

For sure. Here is my closing thoughts for the upward mobility. If you are a homeowner and you are stuck in a house, and there is no upper mobility. I encourage you to be a part of solution. I really do encourage you to talk to your advisors, talk to your attorneys and lawyers about whether a short sale is right for you, call us and talk to us. If a short sale is right for you, I invite you to be a part of the solution. Get that house short sold get it behind you. So, that you can start the clock ticking for your financial well-being healing and you can be a part of the solution of our economy recovering. Now, if you are an investor, I invite you to get a hold of us. We'd love to tell you about our business model, about how and take a look to see if we might be able to work together.

13:31 Tony Vignieri

That's great. Thanks Chris. And again, the Blue Sky Capital website is blueskycapital.com or you can call them. Their phone number is 877-424-7479. Or an easier way to remember that number is 8774 Chris W. That's 8774--Chris W. Well, thanks for joining us today on The Real Estate Report with Chris Williams. We are on the air weekly, to keep you updated and to keep you informed about what's happening in real estate today. I am Tony Vignieri. For Chris Williams and the Blue Sky Capital team in San Diego, have a great real estate day.