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Housing prices: 'We're looking at 10-20% discount off retail prices,' real estate investor says

Kinloch Partners Co-Founder and CEO Bruce McNeilage gauges the financial temperament of the single family housing market, as well as looking at home prices, construction costs, and rising mortgage rates.

Video Transcript

[AUDIO LOGO]

DAVE BRIGGS: Mortgage rates at 15-year highs, approaching 7% on the 30-year, bringing a chill to the housing market from coast to coast. The rental market however, remains hot. And the result is a phenomenon not normally seen in home sales, bulk buying. Here to tell us more about that is Kinloch Partners Cofounder and CEO and President Bruce McNeilage. Good to see you, Bruce.

Before we get into what's happening with this bulk buying, what are you seeing, broadly speaking, out there-- and I know you're in the Georgia area-- in terms of the housing market and the impact these higher rates have had?

BRUCE MCNEILAGE: Yeah, we're all over the Southeast. And we have houses in three states. What we're seeing is people are just not walking in. And the traffic has stopped in looking at models and looking at houses in suburbs and the subdivisions.

And so what we're seeing is builders have to make their quota. They have to make the end of the year numbers. So they're reaching out to folks like us, the institutional owners of houses. And we're buying in bulk using those as rental homes.

SEANA SMITH: Bruce, how many calls are you getting, say, give in a day or per week from these home builders trying to offload some of those homes? And when you talk about buying in bulk, what does that do for prices? I guess how big of a discount are you potentially getting?

BRUCE MCNEILAGE: Yeah, I'm getting five to 10 emails or calls a day. It really has picked up and hasn't started. We're so far into the year, people are trying to make their numbers. And we're looking at a 10% to 20% discount off of retail pricing that's being offered to us if we're buying in bulk.

DAVE BRIGGS: Wow, that is a stunning number. Are you aware, Bruce, if this is happening in other parts of the country?

BRUCE MCNEILAGE: It's happening all over the country. The single-family rental business, primarily the build-to-rent business, is the purchasing or building of single-family rentals not to be used as individual homes for individual owners to buy but just specifically for institutional folks to own and bulk purchase or bulk build and offer to the public.

SEANA SMITH: So, Bruce, then you clearly have a pulse on the rental market as well. Prices have risen pretty dramatically over the last two years. I guess, where do you see prices headed? Do you see us keeping at these current levels?

BRUCE MCNEILAGE: Sure. So we've seen prices go up as much as 40% in Miami and South Florida. I see prices leveling off. I think the average has been something between 10% and 15% here this year. I see prices leveling off maybe in the 5%, 6%, 7% range because obviously these prices can't keep going up. People just won't be able to afford to live, whether it be in rental houses or purchased homes. So I think we'll see it leveling off going into next year.

DAVE BRIGGS: One of the big problems for the last couple of years, Bruce, has been the inventory levels nationwide. What is this going to do to the inventory issue?

BRUCE MCNEILAGE: Sure. These houses are not available to the public. Now, certainly, if the public wants to buy them right now-- but most of these houses, for the most part, are being built by these companies, these home builders, for the specific purpose of not selling to the public but selling to operators like us.

Now, for the inventory that's out there that nobody's buying, I think it's going to create an inventory problem and availability problem next year. But right now, there's just too much product. Too many houses have been specced that are just sitting on the ground. And these builders really need to move these houses. And folks like us in the institutional rental business are helping these builders by buying up the supply that they have right now.

SEANA SMITH: So Bruce, if you think that this could potentially create an inventory problem next year, we've heard Jerome Powell at the Fed saying that we need to see a larger correction in housing. We're waiting for prices to fall. If we have this inventory issue though, are prices not going to fall as dramatically as maybe we anticipate they will now?

BRUCE MCNEILAGE: So more and more people need houses. We have the Millennials buying houses, moving out to the suburbs. I think there will be an issue next year. Do I think prices will continue to come down? I hope not. But we will see some supply and demand issues in the new year that we didn't have this year. But I think most of the builders will slow down. I think some of the smaller builders may go under.

Financing and getting debt from banks is becoming tougher and tougher for home builders. And traditionally, home builders would pass that onto the buyers. They just can't right now. So margins are shrinking. And I think that's hurting home builders around the country.

DAVE BRIGGS: Where do you think rates are going, Bruce? And I'm hearing some that are concerned that the Fed might do too much damage to the housing sector. Do you agree?

BRUCE MCNEILAGE: Yeah. Right now, it's really hurting people. You see people wanting houses, but they can't afford them. When a payment goes up $100 or $200 or $300 a month, that really hurts the average person that's looking to buy maybe a starter home or to move up to their second home. I really think that's going to hurt. And I don't see that changing in the near future.

And it's very, very unfortunate that the government's doing that to us. And I think that'll have a significant effect long-term in people's ability to not only buy a house and own a house but houses being out there in general.

SEANA SMITH: Bruce, the rental houses that you have right now, how long are they typically on the market these days as demand increases? And, I guess, how does that compare to what you were seeing a year or two ago?

BRUCE MCNEILAGE: When we have a house available, it usually rents in two to three weeks. There's a very large demand. We have high quality rental houses. We are in the Southeast, which is just a great place to live. It's where people are retiring, the Southeast and the Southwest. As fast as we can build them, and buy them they're usually rented within just a few weeks

SEANA SMITH: Bruce McNeilage, great to have you, and giving us your perspective on housing. A lot to digest there. We'd love to have you back. So we hope you join us again here at Yahoo Finance, Kinloch Partners Cofounder and CEO.