Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Hallaway. So, Tracy, you
Speaker 1: bought a house recently. That's kind of like winning the
Speaker 1: lottery in this economy, I know. Well, okay, so first
Speaker 1: of all, we put in three offers for different houses,
Speaker 1: and we got kazumped on all of them. We got
Speaker 1: out bid, and then finally we found a house that
Speaker 1: we really liked and it happened to be a probate sale,
Speaker 1: so the owner had actually died and it was going
Speaker 1: through you know, this probate process, so no one else
Speaker 1: wanted it because no one else wanted to deal with that.
Speaker 1: So we actually got that house and it's been really amazing.
Speaker 1: It's kind of like an odd lots of housing, right,
Speaker 1: I mean like literally like here's like this like asset.
Speaker 1: It's not the normal thing, and you have to put
Speaker 1: it a little extra work to move it. And it
Speaker 1: took advantage of that. That's right. We did our due
Speaker 1: diligence and we were very patient at a time when
Speaker 1: a lot of people kind of are worried about missing out.
Speaker 1: Now it really has been an extreme I mean the
Speaker 1: last two years have been extraordinary for all kinds of reasons,
Speaker 1: particularly with housing. We've done We've done that a handful
Speaker 1: of housing episodes before, but it feels like maybe we're
Speaker 1: at some sort of turning point because rates have just
Speaker 1: seen one of the biggest upward move Mortgage rates just
Speaker 1: hit five Like, maybe maybe something's changing here. Is this
Speaker 1: the peak housing market episode that we're doing right after
Speaker 1: I bought a house and now right so we've jinxed
Speaker 1: your home bridges that you're gonna be underwater excellent years.
Speaker 1: But it does feel like something's changing here, that's right.
Speaker 1: So we saw the thirty year mortgage rate hit almost
Speaker 1: five percent quite recently, which is, you know, a very
Speaker 1: big increase from what it has been over the past
Speaker 1: couple of years. And there's this wider macro discussion going
Speaker 1: on right now about financial conditions. As interest rates rise,
Speaker 1: how much of an effect is that going to have
Speaker 1: on financial conditions and the overall health of the U
Speaker 1: S economy. Are homeowner is going to start feeling the
Speaker 1: pinch of these higher rates or have most people at
Speaker 1: this point actually refinance their mortgage at very very little Yeah,
Speaker 1: you know, I was thinking about this, you know, um,
Speaker 1: the other interesting thing about housing is it's such an
Speaker 1: important part of the economy. Obviously, it's a huge source
Speaker 1: of wealth housing assets, it's a huge source of consumption.
Speaker 1: People need to pay rent or have a place to live.
Speaker 1: And as we've sort of being reminded in the last
Speaker 1: six months or year, it's a manufactured asset, has a
Speaker 1: supply chain like everything else, and we don't I think,
Speaker 1: for like twenty years or for a long time, we
Speaker 1: did not think much about that aspect of housing. It
Speaker 1: just you just take it for granted. You get the wood,
Speaker 1: you get the workers, and so forth. The labor part
Speaker 1: had been stressed for a little while pre COVID. But
Speaker 1: I think that like we're all sort of being reminded
Speaker 1: that homes have like tons of parts, like a car
Speaker 1: has tons of parts, and if you're missing one thing
Speaker 1: or of a part of wood or for example, gets
Speaker 1: really expensive than that as building the new house difficult. Right,
Speaker 1: So it feels like we have all these different push
Speaker 1: pull factors. So on the one hand, housing finance, the
Speaker 1: cost of a house is very very expensive at the moment,
Speaker 1: and with rates going up, you would expect it to
Speaker 1: get even costlier. But on the other hand, you're not
Speaker 1: necessarily seeing the supply response because of all these supply
Speaker 1: chain and logistics issues that we've been talking about. Right, Well,
Speaker 1: I'm very excited we're gonna have a big housing conversation because,
Speaker 1: as you mentioned, mortgage grades nearing five percent, mac grow things,
Speaker 1: what's going on there, micro things, supply chain, commodity, all
Speaker 1: kinds of questions. We had to bring on two guests,
Speaker 1: uh this time to help us bring it down. We're
Speaker 1: gonna be speaking with Dustin Jailbird. He is the senior
Speaker 1: economist at Fast Markets in the wood products area. Great
Speaker 1: on the sort of supply chain costs, lumber, all those things,
Speaker 1: what's going on there. And we're also gonna be speaking
Speaker 1: with Connerson, columnist for Bloomberg Opinion, founder of Huge Treat
Speaker 1: Creek Investments, longtime friend of the podcast, but amazingly, I
Speaker 1: think this is his first time actually coming on. So
Speaker 1: I'm really excited about this conversation. Uh, Dustin and Connor,
Speaker 1: thank you so much for coming on. Odd lots, Thanks Joe,
Speaker 1: Thanks Tracy. It's it's a real pleasure to be here. Yeah. Likewise,
Speaker 1: I'm excited to be having this conversation. So Connor, actually,
Speaker 1: let's start with you, and you know, let's just start
Speaker 1: really big picture, like, Okay, we've seen this huge rate shock.
Speaker 1: Rates nominally are not that high, but the size of
Speaker 1: the move is absolutely historic over the last few months.
Speaker 1: What are the sort of immediate, sort of first order
Speaker 1: implications for the housing market from this big move to
Speaker 1: basically five percent thirty year mortgage as the most obvious
Speaker 1: one is that affordability has certainly taken a huge hit.
Speaker 1: I've seen things like the average mortgage cost for a
Speaker 1: first trip if you're buying a house now versus a
Speaker 1: year ago, is up around it's that's certainly going to
Speaker 1: impact demand to some extent. Although at the same point,
Speaker 1: rents are up seventeen percent year or a year, so
Speaker 1: it's not like this is happening in a vacuum. But
Speaker 1: I think just that affordability shock is the first thing
Speaker 1: we're trying to figure out. Yeah, this is something that
Speaker 1: came up recently, this idea of homeowners actually purchasing houses
Speaker 1: as basically inflation insurance, right, as a way to get
Speaker 1: away from increasing rents. Right. So in two thousands six,
Speaker 1: when everyone's worried about is this another housing bubble, housing
Speaker 1: crash thing going on that was really more about home
Speaker 1: price appreciation speculation, people putting down very little hoping that
Speaker 1: homes would go up a lot over the next two
Speaker 1: to three years, whereas now arguably it's more of like
Speaker 1: my rent is going up a ton, and I'm worried
Speaker 1: about inflation. Maybe it's more of rent inflation speculation than
Speaker 1: home price appreciation speculation. My impression is that overall in
Speaker 1: the economy right now, there may be some uh softening
Speaker 1: I don't know, logistics, maybe goods. Maybe what are you
Speaker 1: seeing on your side, like, because a huge question that
Speaker 1: we're you know, this issue is like, yeah, there's tons
Speaker 1: of demand for housing. We just can't get the ability
Speaker 1: of all these permits, but it takes forever. Is there
Speaker 1: any easing going on in any aspect of the sort
Speaker 1: of the construction of new homes yet? Yeah? I mean,
Speaker 1: you know, right now, it doesn't seem like there's a
Speaker 1: lot of good news, right I think you know that
Speaker 1: the if there are some kind of silver linings here,
Speaker 1: certainly in the wood product space that I cover, you
Speaker 1: know specifically, you know, with fast markets, we're seeing lumber
Speaker 1: prices come off kind of the peak levels that we
Speaker 1: saw sort of about a month ago. You know, the
Speaker 1: cash market that we report based on our you know,
Speaker 1: our random length editorial team what they but they report
Speaker 1: on the markets down probably almost three per thousand. Uh.
Speaker 1: You know a lot of people follow the futures market
Speaker 1: and it's fallen a lot more. Uh So, you know,
Speaker 1: there has been some loosening on the framing side, but
Speaker 1: everything we hear on the ground, trucking, you know, especially
Speaker 1: flat beds are still incredibly tight. I know there's been
Speaker 1: some talk recently on the van side of the trucking
Speaker 1: bar get things loosening substantially, but flatbeds, you know, it's
Speaker 1: it's a different animal. That's really how a lot of
Speaker 1: building materials go to market, and that is still incredibly tight.
Speaker 1: Part of it is seasonally, you know, demand is strong
Speaker 1: right now. We're entering the prime building season and so
Speaker 1: that is you know, still a challenge in the marketplace.
Speaker 1: Another maybe kind of green you know, kind of green
Speaker 1: shoot here, some some positive. The rail side is starting
Speaker 1: to loosen a little bit. Uh. There's a lot of
Speaker 1: framing lumber, as you've talked about with you know, previous guests,
Speaker 1: you know Stintson Dean on this, a lot of framing
Speaker 1: lumber comes from Canada and a lot of that is
Speaker 1: delivered via rail. We've had huge rail challenges for several months.
Speaker 1: Now we're starting to see some improvement there and that's
Speaker 1: helping deliver some of that that framing material to market.
Speaker 1: But it's still and you know, it's still very very tight,
Speaker 1: even as prices come off these these really hot levels.
Speaker 1: So can you just remind me what is the relationship
Speaker 1: between lumber prices and new housing inventory? So when lumber
Speaker 1: prices are going down, is that bullush on new houses
Speaker 1: because everyone's like, oh, it's cheaper to build them, let's
Speaker 1: get started, or does it suggest that construction is already
Speaker 1: coming down and so you know there's less demand and
Speaker 1: more supply. Well so, I mean, and this is probably
Speaker 1: something that that somewhat debate here. I would argue that,
Speaker 1: you know, the situation with lumber right now is more
Speaker 1: a function of the transport what we're seeing in the
Speaker 1: transportation markets this sort of loosening, right and what you're
Speaker 1: seeing on the housing side sort of the inventory effect.
Speaker 1: You know, there's still a lot of construction, actual physical
Speaker 1: construction going out in the marketplace, so you think about
Speaker 1: the actual would put in place or other building materials
Speaker 1: put in place. Right, there's still a you know, a
Speaker 1: borderline historic amount of homes currently under construction. Right, there's
Speaker 1: this sort of huge sort of unfinished inventory that's in progress. Right,
Speaker 1: So there's still good demand, especially on the new construction
Speaker 1: side in some parts of the remodeling space. So at
Speaker 1: least in the shore term, you know, the demand picture
Speaker 1: for us the next three six months looks, you know,
Speaker 1: hasn't really changed all that much. So again, a lot
Speaker 1: of what we see on the pricing side right now
Speaker 1: is more logistics and transportation issue as opposed to the
Speaker 1: building cycle. You know, that sort of actual starts slowing
Speaker 1: down or something like that. Right, that kind of makes sense, yeah,
Speaker 1: you know, and you know, it's something that I've been
Speaker 1: thinking about a lot. Obviously we've done quite a number
Speaker 1: of logistics episodes, but it's something more broader that I've
Speaker 1: been thinking about a lot, which is that, you know,
Speaker 1: in a downturn or in a crash like we saw
Speaker 1: in March April, you can sort of like build up
Speaker 1: these big stockpiles of goods, right, Lumber sits there, other
Speaker 1: goods sit there, but you can't really build up an
Speaker 1: inventory of logistics capacity like that's just gone forever and
Speaker 1: send then when the economy picks back up again and
Speaker 1: starts growing really hot, it's not like there's a bunch
Speaker 1: you can draw down. It just immediately gets a you
Speaker 1: see how it immediately gets squeezed. Yeah, for sure, you know.
Speaker 1: And and actually you know it's it's a good point, Joe,
Speaker 1: because one thing we see right now, it's kind of
Speaker 1: skewing more to what I see on a daily basis,
Speaker 1: this being lumber and wood products. But what's interesting right
Speaker 1: now is when you look back, say twelve to eighteen
Speaker 1: months ago, you know, we had this big sort of
Speaker 1: positive demand shock of home construction and this renovation boom,
Speaker 1: so positive demand shock. Some of it was sort of
Speaker 1: underlying demographics and demand, but certainly COVID has contributed to
Speaker 1: the to that. And the supply side was constrained for
Speaker 1: a lot of reasons. Some of it was actual plant
Speaker 1: capacity issues, but a lot of it too was the
Speaker 1: workers were furloughed, you know, sort of sent home, and
Speaker 1: it's taken a lot of time for for sawmills, would
Speaker 1: products mills, and other sort of building material producers to
Speaker 1: get those workers back and be able to sort of
Speaker 1: add shifts at overtime things like that. Now that's headcounts
Speaker 1: have more or less normalized that a lot in a
Speaker 1: lot of parts of the supply chain. What we're seeing
Speaker 1: now is, yeah, it's that that throughput via trucking via
Speaker 1: rail that are causing bottlenecks. And one thing we've seen
Speaker 1: in lumber specifically, mills are actually having to curtail production
Speaker 1: right now. Not because they're they're not profitable, you know,
Speaker 1: prices are still close to record levels and their margins
Speaker 1: are swelling, but the issue is they're overproducing what they
Speaker 1: can actually ship, you know, specifically in British Columbia. You
Speaker 1: know there's again there's a lot of sort of sawmill
Speaker 1: output and a lot of lumber that comes to the
Speaker 1: domestic market here in the US, some of that is
Speaker 1: sort of captive because of these rail bottleneck issues, which
Speaker 1: again from a builder perspective for your wholesale it's just
Speaker 1: incredibly frustrating, you know that the hits just keep on coming,
Speaker 1: even as we're seeing, at least at the plant level,
Speaker 1: some improvements in supply chain. Connor, could you come in
Speaker 1: on that demographics point that Dustin just mentioned, and you know,
Speaker 1: we hear a lot about this idea that millennials are
Speaker 1: finally getting into the housing market. People wanted to buy
Speaker 1: houses and move away from cities during the pandemic. What
Speaker 1: exactly is going on here and are there any historical
Speaker 1: analogies that we can look at for this particular era.
Speaker 1: So sure, this is the main difference between the current
Speaker 1: cycle and the mid two thousand's because the average age
Speaker 1: of the first on HomeBuyer tends to be in the
Speaker 1: early thirties. And so what's was strange about the housing
Speaker 1: bubbles that the people born in the early nineteen seventies
Speaker 1: that was actually like the smallest generation of people in
Speaker 1: in the long time in US history. Only about three
Speaker 1: point one million Americans are born every year during that time,
Speaker 1: and so as they were in their earlier thirties, that
Speaker 1: was the sort of peak at the housing bubble. So
Speaker 1: the demand that we had at that point was really
Speaker 1: unnatural driffern by speculation rather than demographics, whereas now it's
Speaker 1: the opposite. There were four million people born per year
Speaker 1: around they're the ones were in the early thirties now,
Speaker 1: and so that's why the demand picture is so much
Speaker 1: different now than it was then. This really fazing. I
Speaker 1: don't think I'd ever realized that aspect. I mean, I knew,
Speaker 1: you know that in the mid two thousands there was
Speaker 1: a lot of unhealthy respect that of activity, but I
Speaker 1: had never thought previously about how just there wasn't really
Speaker 1: a very large base of I guess you would say
Speaker 1: natural buyers um during that period. But I guess that's
Speaker 1: really interesting. But I guess what about the bigger questions,
Speaker 1: So like for people who aren't in the housing market,
Speaker 1: or for people who didn't lend the lottery like Tracy
Speaker 1: did and actually get get a house. The other question
Speaker 1: was said mortgages, like well, will housing ever go down?
Speaker 1: Will it ever get cheaper? Or it will it at
Speaker 1: least slow down in prices such that it's not a
Speaker 1: big risk to wait a couple of years. Is that
Speaker 1: a possibility, Like, could we see there's the nominal price
Speaker 1: of a house come down? And what are the factors
Speaker 1: that are sort of driving this? Maybe both of you
Speaker 1: can sort of come in on this question. Yeah, might
Speaker 1: doing this. There's sort of two ways in which that
Speaker 1: could happen over the next five to ten years. One
Speaker 1: is that you have millions and millions of people losing
Speaker 1: their jobs, because utimately, if you don't have a job,
Speaker 1: you can't pay mortgage. Maybe you're a FoST seller. And
Speaker 1: then the other is that we do you know, at
Speaker 1: some point baby boomers will transition out of their current homes,
Speaker 1: whether it's voluntarily or involuntarily, that's probably more of a late,
Speaker 1: later part of the decade story. But once that happens,
Speaker 1: particularly in places with that don't have great demographics maybe
Speaker 1: we're parts of the Northeast and Midwest places like that,
Speaker 1: then you just don't have people to step into buy
Speaker 1: those homes and they it out in price. Yeah, I mean,
Speaker 1: I generally agree with Connor. I mean I think you know,
Speaker 1: when you look at the dynamics in terms of demographics
Speaker 1: over the next five to ten years, you know, it's
Speaker 1: it's a very positive story. And again barring some sort
Speaker 1: of unexpected recession where yes, sort of employment goes down
Speaker 1: and you know, some aggregate demand the economy goes down,
Speaker 1: you know, for for're kind of having a steady sort
Speaker 1: of business cycle expansion. It seems hard to imagine a
Speaker 1: situation where you're gonna have broad based, sort of downward
Speaker 1: moves in home prices. And you know, another you know,
Speaker 1: and again we look at this from the building side
Speaker 1: of the equation here. You know, one thing that we
Speaker 1: think is going to be really challenging is just for
Speaker 1: construction activity to be able to ramp up sufficiently to
Speaker 1: build the number of homes that we need to meet,
Speaker 1: not only existing demand, you know, your to your demand
Speaker 1: in the marketplace. If you're a believer in this idea
Speaker 1: of pent up demand, sort of suppressed headship rates where
Speaker 1: people are not forming households and some of the key
Speaker 1: demographics we've talked about here at more kind of tradition
Speaker 1: rates we've seen over you know, over history, it's gonna
Speaker 1: be really problematic for the industry to ramp up. Labor
Speaker 1: is going to continue to be an issue. You know,
Speaker 1: we've heard a lot about the zoning and you know issues,
Speaker 1: particularly the multi family side. Think about that. In a hot,
Speaker 1: tight labor market, how are we going to ramp up
Speaker 1: you know, say half a million residential construction workers if
Speaker 1: we want to ramp up to say, you know, one
Speaker 1: point eight million starts or completions consistently, and we're seeing
Speaker 1: that right now to you know, it's completion rates. You know,
Speaker 1: we're starting homes at a one point you know, one
Speaker 1: point six one point seven million, you know pace. The
Speaker 1: completions are you know, pretty flat, around one point three million,
Speaker 1: you know completions, and that is some of that is
Speaker 1: is supply chain oriented in terms of actual building materials,
Speaker 1: but some of that is also labor, some of that
Speaker 1: is land availability. All those factors are gonna also on
Speaker 1: the supply side make construction constraint and kind of underpin
Speaker 1: home price appreciation. This is really striking. And I'm just
Speaker 1: looking at this chart on my terminal right now because
Speaker 1: I just want to drive home for listeners what you said,
Speaker 1: which is that we have had housing start pick up.
Speaker 1: You know, a home builder is gonna get a plot
Speaker 1: of land and start putting down a frame and all that,
Speaker 1: but completions like actually turning the housing start into a
Speaker 1: home that someone can then move into, has clearly not
Speaker 1: kept up. So currently, like just look at the February numbers,
Speaker 1: the official it's like close to one point eight one
Speaker 1: point eight million homes and the actually completions one point
Speaker 1: three and so yeah, I mean there's this huge gap
Speaker 1: that's emerged between Okay, you want to start a house,
Speaker 1: but actually get a house completed. Yeah, something that Dustin
Speaker 1: and I have talked about over the past few weeks
Speaker 1: in response to this rate shock, is that home builders
Speaker 1: have had this, you know, to the point of that data,
Speaker 1: they've been starting a lot more homes than they've been completing,
Speaker 1: and so they're inventories of homes that are construction. That
Speaker 1: backlog has been growing, and we wonder if that's going
Speaker 1: to be something that management teams think about over the
Speaker 1: next couple of months where they say, we have a
Speaker 1: lot of homes that are construction that are at risk,
Speaker 1: if you know, maybe they're supposed to be delivered in
Speaker 1: the first half of next year, and if market conditions
Speaker 1: really change, that could be the kind of thing where
Speaker 1: they might have to take losses or write downs. And
Speaker 1: I believe the homebuilding stocks are down year to day,
Speaker 1: so I think investors are worried about that as well,
Speaker 1: and that would just be really bad news. If they
Speaker 1: start to your homes and just focused on finishing their backlog,
Speaker 1: then you create more supply is shoes next year. I
Speaker 1: was about to ask about the home builder stock, So
Speaker 1: if you look at something like k b H, I
Speaker 1: think it's trading below its book value at the moment.
Speaker 1: What what is that telling us about the future direction
Speaker 1: of housing construction and profitability. I guess right, So the
Speaker 1: book value for a lot of these homebuilding stocks is
Speaker 1: really based on inventories, which is homes under construction and
Speaker 1: land that they own. And so to me, if homebuilding
Speaker 1: stocks are trading below book value, that's saying not only
Speaker 1: our investors thinking they're gonna miss earnings of the next
Speaker 1: few quarters, they're saying they're gonna take actual write downs
Speaker 1: on the land and the homes under construction that they have,
Speaker 1: which is to me a pretty severe forecast. But if
Speaker 1: that were to happen, that just shows that the economy
Speaker 1: I think is much much worse than appreciated. Or it
Speaker 1: could just be an overaction. M but like this is
Speaker 1: pretty wild. Like we're in a market in which demand
Speaker 1: for housing even seems to still be red hot, right
Speaker 1: five percent uh five percent mortgage rades despite that, I mean,
Speaker 1: it still sounds like there's huge lines and bidding wars,
Speaker 1: like it doesn't seem like that's gone away yet. And
Speaker 1: yet you have these home builders, which you know, are
Speaker 1: well off their recent highs, and investors saying like some
Speaker 1: of these plots like are they might take a loss
Speaker 1: they might just completely write them down like it does.
Speaker 1: It's like it feels like a pretty extraordinary disconnect. There's
Speaker 1: I think the sort of cell side view of what's
Speaker 1: going on with comboiling stocks is that the valuations are cheap,
Speaker 1: but when mortgage rates are rising, you don't own them,
Speaker 1: and it's sort of you just kind of wait until
Speaker 1: rates turn and see where things are and then reassess.
Speaker 1: It also just emphasizes to you know, it's interesting that
Speaker 1: I think the home builders have had a lot of
Speaker 1: confidence that demand was going to be there right even
Speaker 1: as cycle times for particularly the single family side of
Speaker 1: the market, cycle times have gone from say, you know,
Speaker 1: six to seven months on average pre pandemic, and now
Speaker 1: we're somewhere probably around eight nine, maybe even approaching ten
Speaker 1: months in some cases. You know, I think while you
Speaker 1: saw this growing delta between completions and starts go up,
Speaker 1: I think the home builders had some confidence that demand
Speaker 1: was going to be there months out, particularly given how
Speaker 1: low rates have been. But now as this affordability question
Speaker 1: has come into play, I think there's just generally less
Speaker 1: confidence what the home buying market will look like in
Speaker 1: three even though we have all these underlying sort of
Speaker 1: demographic tail winds, right. But you know, one thing that
Speaker 1: we all often remind clients is that just because there's
Speaker 1: pent up demand out there, it doesn't necessarily dictate that
Speaker 1: it has to be realized in the marketplace, and affordability
Speaker 1: does still matter. So I think you know, you're seeing
Speaker 1: it in some of the home builder sentiment data recently
Speaker 1: that you know, maybe they're getting a little bit skittish,
Speaker 1: and you know, I think completions are going to continue
Speaker 1: to move higher here, those start numbers could start to
Speaker 1: kind of flatline a little bit as they try to
Speaker 1: sort of focus on those backs. Can we talk a
Speaker 1: little bit more about what happens to affordability when rates
Speaker 1: go up? So, I mean, clearly you would expect higher
Speaker 1: interest rates to knock demand a little bit um, But
Speaker 1: what's your expectation for exactly what happens here and how
Speaker 1: much of it depends on how high FED actually raises rates.
Speaker 1: Something that that interests me is that redfin, they do
Speaker 1: housing analytics and help home buyers and comb sellers, put
Speaker 1: out a piece last week, I believe, talking about softening
Speaker 1: that they see or some ends the potential softening, and
Speaker 1: it was really focused on high cost markets like San Francisco,
Speaker 1: Los Angeles, New York, just because that affordability is is
Speaker 1: really really challenged. It was challenged to begin with, and
Speaker 1: it's even more so now, and they hadn't seen that
Speaker 1: to the same extent in the destination markets that people
Speaker 1: have been moving to during COVID with remote work and migration.
Speaker 1: And so something I wonder is that, arguably about like
Speaker 1: the Austin, Texas housing market has been driven more by
Speaker 1: the bio profile people moving there the local market conditions,
Speaker 1: and so could we start to see something where the
Speaker 1: high cost markets start to stagnate a little bit, But
Speaker 1: as long as people are still moving to those destination
Speaker 1: markets and bringing their bigger budgets with them, that doesn't
Speaker 1: impact their affordability issues. Well, so this raises another question.
Speaker 1: And of course, when COVID initially hit and suddenly everyone
Speaker 1: wanted to move or it seemed to catalyze some big
Speaker 1: shifts and we saw, okay, a bunch of people said,
Speaker 1: you know, left the Bay Area, We're going to move
Speaker 1: to Austin or somewhere else in Texas, and or maybe
Speaker 1: they went down to Florida or something like that, or
Speaker 1: some sort of Maybe people just want, you know what,
Speaker 1: I can't live in a city. I want to live
Speaker 1: in a suburb. But it doesn't feel like like the
Speaker 1: other places cooled down. Like are we seeing other other
Speaker 1: areas where prices are falling because everyone is moving out
Speaker 1: of them. It seems like some places got really hot, obviously,
Speaker 1: places in Texas, et cetera. But it doesn't seem like
Speaker 1: the other places like actually cool, they really got that cheap,
Speaker 1: or at least in New York here, you know, nothing
Speaker 1: seems to be particularly cheap. I think that gets to
Speaker 1: Dustin's point about the headship rate going up where And
Speaker 1: this could be a strong economy, strong job market thing
Speaker 1: as well. That in the twenty Times we spent all
Speaker 1: this time talking about people still living in their parents
Speaker 1: basements when the job market and wage growth was weak,
Speaker 1: and now that those things are strong, you have that
Speaker 1: pent up demand for new household formation and things like that. Yeah,
Speaker 1: and I was just gonna say too, I think that
Speaker 1: last point Connor on household formations. You know, you look
Speaker 1: at the official census data, you know, and you have
Speaker 1: to take it with a grain assault to some degree
Speaker 1: because the data can be quite choppy. But you know,
Speaker 1: at least looking at data, you know that when you
Speaker 1: look at sort of the number of households, it was
Speaker 1: sort of flat year over year. But again to Connor's point,
Speaker 1: you have to think that there's a lot of people
Speaker 1: returning to the shelter market, both on the ownership side
Speaker 1: but also the rental side of the market to right,
Speaker 1: and so you know, they kind of move hand in hand.
Speaker 1: You know, you're not seeing any relief on the ownership
Speaker 1: side of the market, but it's the same story in
Speaker 1: some cases, if not worse, on the rental side of
Speaker 1: the market. So you know, kind of the real estate
Speaker 1: market across the board is having this massive adjustment. As
Speaker 1: you know, a lot of especially young people who maybe
Speaker 1: live with parents during the pandemic, are stepping back into
Speaker 1: the rental market. You know, job growth and income growth
Speaker 1: is driving people to separate away from roommates, right, so
Speaker 1: you know, now you don't need to share an apartment.
Speaker 1: Maybe you're going out and getting your own place. I mean,
Speaker 1: all this is impacting the shelter market across the board here,
Speaker 1: so everything is really tight, and even in the high
Speaker 1: cost cities where people are migrating out of so that
Speaker 1: actually is a good sort of step back, and I
Speaker 1: want to go back to this question of pent up demand,
Speaker 1: And this was obviously something that we talked about a
Speaker 1: lot even prior to COVID, which is just like, Okay,
Speaker 1: there's this huge wave of potential millennial home buyers post
Speaker 1: Great Financial Crisis. We know that housing starts were very slow,
Speaker 1: So there's like this story of like the under housed
Speaker 1: economy was the thing that we were talking about prior
Speaker 1: to COVID hitting, and then it really seemed to accelerate.
Speaker 1: But what are the numbers, Like, what are we actually
Speaker 1: talking about in terms of how much pent up, how
Speaker 1: big that pent up demand is, and what we need
Speaker 1: to see on the sustained basis to do something about
Speaker 1: getting back in equilibrium, Like okay, at one point eight
Speaker 1: million annualized, how does it starts enough? Does it need
Speaker 1: to go to to like what it what seems like
Speaker 1: a reasonable like numbers here to bring into balance? What's
Speaker 1: the shortfall? So I think there are two ways of
Speaker 1: looking at this. First is looking at the vacancy rate
Speaker 1: of of homes that are like sort of owned homes
Speaker 1: and rental homes and looking at what a normalized level
Speaker 1: was over time, and that maybe tells you something about
Speaker 1: what the current shortfall is, and that numbers around two
Speaker 1: million housing units. And then sort of for pent up demand,
Speaker 1: that gets a little tougher because again you're making assumptions
Speaker 1: about what home ownership rates might be in an ideal environment,
Speaker 1: should they So the homeownership rate look like it did,
Speaker 1: but you're seeing that both say millennial households, but also
Speaker 1: households in their forties and fifties, that home ownership rate
Speaker 1: is much lower than it was pre two eight. And
Speaker 1: so if that were to normalize, that's several million more.
Speaker 1: And to Dustin's point, it's it's unclear whether we can
Speaker 1: meet that demand on the construction side over the next
Speaker 1: several years. Yeah. And and just to extend on Connor's point,
Speaker 1: it's something that we had fast markets. When we do
Speaker 1: our kind of long term housing forecasts, it's really a
Speaker 1: demographic story, right, And this is always a big point
Speaker 1: of debate is what is this pent up demand idea? Right?
Speaker 1: And you know when you look at other people who
Speaker 1: forecast the market, you know the ranges anywhere from there's
Speaker 1: there's zero pent demand. We're already over building too. We're
Speaker 1: six million units short, right, So I mean there's a
Speaker 1: massive range out there, you know, just kind of attach
Speaker 1: some more numbers to it. First of all, you need
Speaker 1: to think about what existing demand is for shelter, right,
Speaker 1: and that that number is when you think about what
Speaker 1: household formations could be trending at to just meet you know, again,
Speaker 1: existing demand, you're probably talking about anywhere between one point
Speaker 1: one and one point two million units. Then you tack
Speaker 1: on every year there's shelter loss that is either destroyed
Speaker 1: because of natural disasters wildfires, infills, so you know, homes
Speaker 1: that are torn down and then built on a new
Speaker 1: home built on that lot. You know that averages you know,
Speaker 1: two hundred to three hundred thousand units a year. And
Speaker 1: then you tack on second and third home ownership. You
Speaker 1: know that that puts us between somewhere around one point
Speaker 1: four and one point five million units of demand annually,
Speaker 1: just existing demand. So and then you have to build
Speaker 1: on top of that, right to deal with the pent
Speaker 1: up demand that Connor talked about. Let's say you think
Speaker 1: there's three million units of pent up demand because of
Speaker 1: the vacancy rate issues plus these four gone households. So
Speaker 1: if you build out a one, if you complete at
Speaker 1: a one, point eight million unit rate, that's going to
Speaker 1: take you ten years. You know, that extra three under
Speaker 1: thousand units you're getting a year a year, that's gonna
Speaker 1: take you ten years to fill that pent up demand gap.
Speaker 1: So that's just that's a that's a huge number that
Speaker 1: you're dealing with their right. So justin you mentioned this
Speaker 1: very wide range of expectations, is that historically is that unusual.
Speaker 1: Have we been in a situation like this before where
Speaker 1: people can't really agree on that number, or is this
Speaker 1: the result of just being in a very very weird
Speaker 1: post COVID time where there are a lot of different
Speaker 1: things going on and we're just not sure of how
Speaker 1: they're all going to play out. You know. I think
Speaker 1: it goes back to Connor's point, is that this idea
Speaker 1: of pent up demand is it's a little bit nebulous,
Speaker 1: and some of it is a function of what you
Speaker 1: think quote unquote normal headship and household formation rates should be,
Speaker 1: you know, looking at the key demographics as they kind
Speaker 1: of come of age in home buying years, and that
Speaker 1: is a difficult thing because it's it's somewhat arbitrary in
Speaker 1: terms of what that should be. Right, determining that in
Speaker 1: to some extent. It's also a function of where you
Speaker 1: start calculating, like what year you start calculating pent up demand, right,
Speaker 1: so if you start in two thousand verses, that starting
Speaker 1: point matters in terms of what that cumulative build up
Speaker 1: of pent up demand is. So so you can arrive
Speaker 1: to very different answers there. That's kind of where we
Speaker 1: see it when we kind of do this type of
Speaker 1: analysis internally ourselves, so we keep kind of arrange you know,
Speaker 1: I don't think anybody knows what that exact number is.
Speaker 1: So I've got a theory related to this pent up
Speaker 1: demand thing that's sort of in defensive data Boomers in
Speaker 1: the housing market. When people, when people our age think
Speaker 1: about baby boomers the sort of stereotype as they all
Speaker 1: got to buy a house in Los Angeles and made
Speaker 1: a gazillion dollars over the next thirty years. But it's
Speaker 1: sort of like, when did the baby boomer pent up
Speaker 1: demand in the housing market get met? And we know
Speaker 1: that mortgage rates in the nineteen eighties were still in
Speaker 1: the double digits, and you can imagine how we would
Speaker 1: feel today if mortgage rates were ten percent, how many
Speaker 1: people would be locked out of pot ownership and as
Speaker 1: rates kept declining, that allowed more and more people to
Speaker 1: get into homes. And I would argue in a sense
Speaker 1: that some of the early least mid two thousands housing
Speaker 1: construction boom was lagged pent up demand from thirty years
Speaker 1: of people who finally could buy a home based on
Speaker 1: four to mortgage rates. So this could go on for
Speaker 1: quite a long time. That's interesting. Yeah, And this also
Speaker 1: of course gets to the challenge of like what is
Speaker 1: a cheape house, right and when where when is housing affordable?
Speaker 1: Because okay, we could look back at the early eighties
Speaker 1: house we're su cheap, mortgages were of course uh much higher.
Speaker 1: Or we can look back at out of the Great
Speaker 1: Financial Crisis when houses were cheap and mortgages were cheap,
Speaker 1: and yet unemployment was close to ten pc, so there
Speaker 1: were not a lot of people at the time who
Speaker 1: could had the income or there you know, there were
Speaker 1: there was a significant curtailment of people at the time
Speaker 1: who even had the income to to get a mortgage.
Speaker 1: It kind of feels like there are very rarely sweet spots,
Speaker 1: maybe one with rapidly improving job growth and yet mortgage
Speaker 1: rates really low. Was like that sort of like brief
Speaker 1: like extreme sweet spot. But then again, I guess that
Speaker 1: was like a year of huge housing bidding wars, So
Speaker 1: it doesn't feel like there's ever like the perfect time. Yeah.
Speaker 1: I mean, I've been out of college for twenty years
Speaker 1: now and I've never once heard people say housing so
Speaker 1: cheap it's it's time to buy. And so maybe maybe
Speaker 1: the late were okay because the job market was strong,
Speaker 1: real hum price boom hadn't happened yet, mortgage rates were
Speaker 1: coming down. But it's if it's only a few years
Speaker 1: out of a multi decade period, then maybe housing just
Speaker 1: never gets cheap. Is there any prospect for something meaningfully
Speaker 1: different on the supply side, and like, is it a
Speaker 1: different kind of construction, is it something regulatory that could
Speaker 1: open up a lot of space like people always you know,
Speaker 1: it's like everyone on Twitter all the times like build, build, build,
Speaker 1: And it doesn't feel like that's a very controversial stance.
Speaker 1: Everyone likes the idea of more housing stock in general,
Speaker 1: but they're all kinds of constraints. There's the physical ones,
Speaker 1: just the sort of you know, labor and lumber, and
Speaker 1: then there's regulatory ones, whether that means to make cities
Speaker 1: where it's difficult to build, et cetera. Is there anything
Speaker 1: that could happen that would actually meaningfully just change the
Speaker 1: supply side of this applied demand equation? Yeah, you know, Joe,
Speaker 1: It's it's interesting because I think, you know, the last decade,
Speaker 1: we've been so worried about affordability on the demand side, right,
Speaker 1: it seems like we haven't really prepared ourselves for what
Speaker 1: we're gonna do when when we get there on the
Speaker 1: and and now the supply side is constrained, right, you know,
Speaker 1: And I'll kind of break it down between single family
Speaker 1: and multi family because I think you know, they're they're
Speaker 1: definitely crossover issues. But you know, to me, when I
Speaker 1: look at this, you know, on the multi family side,
Speaker 1: certainly the permitting and zoning issues seeing you know, like
Speaker 1: like major challenges right that are kind of installing the
Speaker 1: ability to gramp up apartment construction and smaller, more affordable
Speaker 1: sort of units out in the marketplace. And so that
Speaker 1: is going to continue to be a challenge, right for
Speaker 1: political reasons. I think you know, maybe Connor you could
Speaker 1: probably talk about better than I, but I think that's
Speaker 1: that's going to remain challenging. I think the advantage with
Speaker 1: multi family. Right, when you look at history in terms
Speaker 1: of productivity of construction, multifamily actually has a lot better
Speaker 1: sort of track record of increasing productivity growth. So I
Speaker 1: think even in a labor constrained environment, you know, we
Speaker 1: are seeing you know, sort of technology like wall panalization,
Speaker 1: off site construction that are being implemented, a component manufacturing,
Speaker 1: you know, more quickly adopted in the multi family space.
Speaker 1: So I think even if we're in a labor constrained environment,
Speaker 1: we probably have the ability to ramp up multi family
Speaker 1: given those factors. Single families very labor intensive. You know,
Speaker 1: you're you're building on site, your stick framing. In a
Speaker 1: lot of cases, most of our homes are built with wood.
Speaker 1: Historically it's been a cheap way to build, but it's
Speaker 1: it's kind of been contingent on a wall supply labor
Speaker 1: market in that context, you know, on the single family side,
Speaker 1: I mean, certainly zoning and things like that can help,
Speaker 1: But again I come back to really issues on the
Speaker 1: labor side. Can we pull in more sort of migrant
Speaker 1: workers in key building markets like in Texas and California.
Speaker 1: You're talking about the residential construction employment is dependent on
Speaker 1: you know, anywhere third of the labor market there in
Speaker 1: residential construction is our foreign born workers. So in an
Speaker 1: immigration constrained environment, you know, it's gonna be tough to
Speaker 1: ramp up. If that loosens up, maybe we get some
Speaker 1: some quick burst of production, but beyond you know, kind
Speaker 1: of really pivoting to off site construction, manufactured home construction. Um,
Speaker 1: it looks like a challenge we rode ahead for single
Speaker 1: family in particular. So I look at it sort of
Speaker 1: in two ways. I follow what the homebuilders do and
Speaker 1: say really closely, and they've really, in my opinion, to
Speaker 1: kind of optimize their businesses where they're really trying to
Speaker 1: be cautious about how many homes they build. They don't
Speaker 1: want to get caught with too much inventory. They're really
Speaker 1: focused on high profit margins, returning cash to investors. And
Speaker 1: that to me was isn't gonna be enough to meet
Speaker 1: the housing demand we have. I have this line that
Speaker 1: I like to use that the future as a policy choice,
Speaker 1: and I think ultimately that really is what it comes
Speaker 1: down to. And you can sort of look at in
Speaker 1: the response to the the return of soldiers from World
Speaker 1: War Two, and there was this sort of we're all
Speaker 1: in this together. We have to build enough homes to
Speaker 1: meet the demand for gis and people like that. And
Speaker 1: we met the challenge with zoning changes and giveaways to
Speaker 1: homebuilders and things like that. And I don't see that
Speaker 1: same political will right now, and you know, ultimately that's
Speaker 1: what we need. Otherwise I think this is just going
Speaker 1: to be the reality for at least this decade. Can
Speaker 1: I just ask going back to the baby boomer point
Speaker 1: and your well intentioned defense of baby boomers, Connor, But
Speaker 1: one of the things we hear, one of the things
Speaker 1: we hear a lot is this idea of either large
Speaker 1: financial institutions like private equity coming in and buying up
Speaker 1: a bunch of single family homes or sometimes multifamily. And
Speaker 1: this idea that you have a lot of baby boomers
Speaker 1: who have built up wealth over the years, and there
Speaker 1: are very low mortgage rates, and so what they do
Speaker 1: is they go out and buy second homes and then
Speaker 1: rent those out for additional income. How much does that
Speaker 1: constrain supply and how much would you expect or how
Speaker 1: much additional inventory would you expect to come on stream
Speaker 1: when um baby boomers? How do I put this? I
Speaker 1: guess when when they die so even though the numbers
Speaker 1: from institutional investors buying homes are large, like tens of
Speaker 1: billions of dollars, sounds like a lot when you're talking
Speaker 1: about tens of trillions of dollars of real estate value
Speaker 1: in the United States, that's not a very large percentage.
Speaker 1: And so it it gets a lot of headlines. But
Speaker 1: to your point, that's not really where the sort of
Speaker 1: soaking up the inventory is coming from. And an earlier guest,
Speaker 1: Mike Simonson, spoke to that when baby immersed die, I
Speaker 1: think the question is I mean, maybe they just give
Speaker 1: their homes in the real estate to their kids and
Speaker 1: it stays in the family and it doesn't get released
Speaker 1: onto the market. So I think that will help to
Speaker 1: some extent, but sort of there's magnitude wise, I don't know. Yeah,
Speaker 1: So there's a new startup that Andrews and Horowitz is
Speaker 1: funding that allows people to basically do what commercial real
Speaker 1: estate investors do, which is not they don't want to
Speaker 1: be a landlord and they don't want to sell their home,
Speaker 1: so they can like swap it in for this portfolio
Speaker 1: of like sort of like a quasi read and so
Speaker 1: they retain ownership, retain home housing equity, and so you know,
Speaker 1: they're I feel like they're going to find a way
Speaker 1: to prevent these houses. Capitalism will find a way to
Speaker 1: prevent these houses from coming out to the capitalism A yeah,
Speaker 1: you know. The the other thing going back to Connor's
Speaker 1: point to you know, one one question about you know,
Speaker 1: even if this sort of baby boom or supply is
Speaker 1: released into the market, it's a question of also the geography,
Speaker 1: Right where are these times located? So you know, if
Speaker 1: you have lots of migration to the sun Belt, you know,
Speaker 1: if if these are sort of whatever vacation homes or
Speaker 1: second homes in I don't know, Midwest or northeastern United States,
Speaker 1: you know, sort of cake cod like, are those places
Speaker 1: that we really need the housing supply to be released from? Right?
Speaker 1: So I think that's what also makes it quite uncertain,
Speaker 1: even if that supply side release occurs, is it geographically
Speaker 1: going to be in the place that you know, the
Speaker 1: locations that you need. So housing the original non fungible token,
Speaker 1: right like how housing like southern Illinois, It is not
Speaker 1: a house in uh central Texas between Austin and San Antonio.
Speaker 1: And so just because it exists doesn't mean it's going
Speaker 1: to solve an acute housing shortage that people immediately need.
Speaker 1: I think something we haven't talked about yet too, is
Speaker 1: that if hybrid remote work becomes a thing, yeah, tens
Speaker 1: of millions of workers need an extra bedroom as a
Speaker 1: home office. That's sort of tens of millions of bedrooms
Speaker 1: from the national housing stock that are going to be
Speaker 1: there because maybe now instead of needing a three or
Speaker 1: four bedroom home, you need four or five bedrooms or
Speaker 1: what have you. And so I do think that's sort
Speaker 1: of a subtle factor that hasn't been discussed enough in
Speaker 1: terms of why the shortages existing. Yeah, you think about
Speaker 1: the amount of floor space that's pivoted from the commercial
Speaker 1: space and the office space to the home right for
Speaker 1: that exact reason. Kind of people needing an extra you know,
Speaker 1: people needing an extra extra space for an home home
Speaker 1: office maybe two. That's a lot of demand in terms
Speaker 1: of floor space going to the residential side all of
Speaker 1: a sudden. And I know that the numbers are kind
Speaker 1: of squishy on the percentage of the population that's that
Speaker 1: was pre COVID remote work and now where we are now.
Speaker 1: But if that number doubles, let's say, just for just
Speaker 1: a thought exercise. That's incredibly bullish for real estate demand
Speaker 1: in general, not only new construction, but also renovation demand
Speaker 1: where we're seeing you know, particularly for lumber and structural panels.
Speaker 1: That's a huge category, a channel of demand that we're
Speaker 1: seeing being driven by this work from home movement and
Speaker 1: all by the way you have soaring home equity that's
Speaker 1: helping fund that. That's really interesting. How much are you
Speaker 1: seeing on that? So like we've we've been talking about
Speaker 1: all the housing starts, etcetera. But how important for lumber
Speaker 1: would products is the either renovation or someone wanting to
Speaker 1: add a deck to their home, Like how big of
Speaker 1: the how big of a contributor is that to overall demand.
Speaker 1: I'll speak to lumber mainly, and it's probably different by building,
Speaker 1: you know, the type of building material, but certainly for
Speaker 1: for software, lumber demand, what we call repairing or modeling
Speaker 1: is actually the largest single end use market in terms
Speaker 1: of volume. It's larger than new residential construction. Yes, and
Speaker 1: that always surprises people that would not have been like, yeah,
Speaker 1: and it's it's lumber is a little bit different than
Speaker 1: say even plywood or OSB you know, always be tends
Speaker 1: to skew a little bit more towards the new construction space.
Speaker 1: But you know, you mentioned it, Joe. You think about
Speaker 1: all the renovation that happens, you know, new decks, putting
Speaker 1: in fences, people putting in you know, those you know,
Speaker 1: flower beds, things like that. There's a lot of sort
Speaker 1: of home improvement that happens on the renovation side that
Speaker 1: is substantial, and probably the best number to kind of
Speaker 1: size up the market is from the Harvard Joint Center
Speaker 1: and Housing Studies, and that market based on their estimates
Speaker 1: including both improvements. So home renovation and maintenance is around
Speaker 1: a four hundred and thirty billion dollar market. So that's substantial.
Speaker 1: And to put some context to it, total construction spending,
Speaker 1: it is probably about over eight hundred eight hundred billion
Speaker 1: in total. Uh that excludes sort of the maintenance portion,
Speaker 1: So if you've tacked on maintenance, it's probably more like
Speaker 1: a trillion dollar market. So that's a pretty big chunk
Speaker 1: of total residential construction that that it goes into that
Speaker 1: renovation space. It's incredibly important, and I think it's going
Speaker 1: to remain outsized because of how you know, we have
Speaker 1: such a shortage of both new and existing home inventory,
Speaker 1: people are sort of pivoting to renovations to to enhance
Speaker 1: their shelter space. Can I just ask in terms of
Speaker 1: supply shortages, I mean, we've had lumber, trust plates, kitchen sink,
Speaker 1: garage doors. What's the sort of next thing on your
Speaker 1: radar or what is your pricing data telling you will
Speaker 1: be a future crunch point? Boy, it feels like we've
Speaker 1: covered everything, right because, like every component of a house,
Speaker 1: I'm not sure what the next thing is, tracy, because
Speaker 1: I mean, I think when you think about it, right
Speaker 1: that the way that the shortages have progressed, it's almost
Speaker 1: been in tandem with what the building cycle looks like.
Speaker 1: Right first it started with lumber and structural panels and
Speaker 1: engineered wood products, and now it seems like more of
Speaker 1: the shortages are stemming from what you know, how you
Speaker 1: finish at home. Again, you mentioned the windows, that h
Speaker 1: VAC systems, you know, so you know, you know, it
Speaker 1: was kind of joking at the beginning of the question,
Speaker 1: but it does feel like we've really touched a lot,
Speaker 1: you know, all points of the building cycle. So you know,
Speaker 1: it seems like again that those parts to finish a
Speaker 1: home are really going to be continue to be the
Speaker 1: critical determinant of of us being able to complete homes,
Speaker 1: especially considering a lot of that material either the components
Speaker 1: are the actual building materials themselves are sourced from offshore.
Speaker 1: I think why you're seeing maybe a little bit of
Speaker 1: relief on sort of the framing materials. A lot of
Speaker 1: it is sourced domestically, you know, the vast majority of it,
Speaker 1: and so it's it's a lot more function of the
Speaker 1: domestic transportation constraints, which are still tight but probably improving
Speaker 1: a bit on the margin. Well, you know, container ships
Speaker 1: and port throughput. You know, it continues to be a
Speaker 1: constant challenge with complex items like that. So you know,
Speaker 1: I don't know what's the next thing, but it seems
Speaker 1: like that area is still going to be problematic. What's
Speaker 1: the next thing you're thinking about right now? Like what
Speaker 1: should people be watching? And it can be anything but
Speaker 1: sort of like what's the what's the next thing on
Speaker 1: your mind? I think for me, since again we talked
Speaker 1: about how home building stocks are down so much this
Speaker 1: year and builders have been still trust saying they're trying
Speaker 1: to meet construction backlogs and growing community counts by ten
Speaker 1: percent this year, is that when they are part earnings
Speaker 1: over the next couple of months, what will they be
Speaker 1: pivoting at all in their business models and response to
Speaker 1: changing market conditions? Because as an investor, I'm looking at
Speaker 1: them trading in some in some cases three to four
Speaker 1: times estimated this year's earnings, saying, Okay, what's going on?
Speaker 1: Like the markets trade value like you're going out of business?
Speaker 1: Proved to me that you're you're gonna not have an
Speaker 1: issue a year from now. Yeah, And I mean, I
Speaker 1: think on our side of fast markets, we're obviously thinking
Speaker 1: a lot about what, you know, the picture, the building
Speaker 1: picture looks like in right, it feels like the market
Speaker 1: is kind of set here in terms of the construction
Speaker 1: activity we're going to see, except what maybe the exception
Speaker 1: sort of the d I Y side of the renovation market.
Speaker 1: We're seeing some softening there. But I think when you
Speaker 1: think about new construction and pro driven renovation, you know,
Speaker 1: a lot of that activity is already booked out for
Speaker 1: much of the year. We're wondering, now, okay, what does
Speaker 1: three look like with rates going up close to five
Speaker 1: percent now maybe going higher, building material costs continuing to
Speaker 1: remain elevated, you know, is that going to cool housing
Speaker 1: starts to some degree? Is that going to cool the
Speaker 1: renovation market between you know, a combination of demand destruction
Speaker 1: and also thinking about this pivot back to the service
Speaker 1: side of the economy, right if people are less inclined
Speaker 1: to renovate their homes because they're going on vacation again,
Speaker 1: and on top of that, you know, just demand destruction
Speaker 1: from elevated price levels, you know, will we see some
Speaker 1: cooling in three both on the new construction and maybe
Speaker 1: on that R and R piece too. So alright, well, guys,
Speaker 1: Dustin and Connor, that was fantastic. We covered a lot
Speaker 1: of ground. I learned a ton and great having you
Speaker 1: both on odd lots for the first time. Thanks for
Speaker 1: having me. Yeah, it's been a pleasure. Thanks to Jason Things. Yeah,
Speaker 1: that was great. It's almost like you don't even know
Speaker 1: where to begin to think about it. I had not
Speaker 1: thought previously about just like how much adding decks and
Speaker 1: fences and flower beds added to the lumber market. I
Speaker 1: guess that's true. I mean, I thought the point about
Speaker 1: how the supply shortages are sort of following the trajectory
Speaker 1: of actually building a home was very interesting. I do
Speaker 1: feel a little bit better about buying over the past
Speaker 1: few months, right before interest rates go up. I'm sure
Speaker 1: you're really worried that, like, well, what everyone does. I
Speaker 1: think there's like a thing people buy a house, like, oh,
Speaker 1: I definitely bought the top. Yeah. I mean I think
Speaker 1: everyone inevitably feels like that, and I suspect, you know,
Speaker 1: maybe that will turn out to be true. But I
Speaker 1: feel a little bit better. I have to say, you're
Speaker 1: feeling better. Is someone else's feeling worse like you? But no,
Speaker 1: it's it does not feel like from this conversation. And
Speaker 1: I guess this is probably one of my big takeaways
Speaker 1: that even with five percent mortgage rates, that there's gonna
Speaker 1: be like some major softening, Like there's too much structural demand,
Speaker 1: there's too much pent up demand, the demographics are too good,
Speaker 1: there's too the supply is too constrained for there to
Speaker 1: be like some sort of shift quality. We didn't really
Speaker 1: get into it, but like I know, like loan quality
Speaker 1: I believe is very high these days. It's like nothing
Speaker 1: like it was in the mid two thousands. So it
Speaker 1: does not feel like there's gonna be like some like
Speaker 1: wave of relief for a bunch of new homes that
Speaker 1: get really cheap. All of this. Well, you mentioned loan quality,
Speaker 1: and this is the other big thing that is emerging,
Speaker 1: and we just discussed it. But this idea that people
Speaker 1: who are buying houses now are not necessarily buying them
Speaker 1: as speculative assets and thinking that the price is just
Speaker 1: going to keep going up and up and up. Rather,
Speaker 1: a lot of people seem to be buying these as
Speaker 1: logical uh investments or a logical choice and inflation protection.
Speaker 1: So rents are going up enormously, I might as well
Speaker 1: own my own house in the current situation. Yeah, we
Speaker 1: had the CEO I forget, I forget which homebowner. It
Speaker 1: might have been Kaby Homes. Yeah, I knew you wrote
Speaker 1: about and saying like, look, you know he said housing
Speaker 1: a shelter and it's also shelter from rising rent. And
Speaker 1: I thought that was just like really fascinating, Like people want.
Speaker 1: People want a predictable monthly check and to not have
Speaker 1: to UH that they pay out and to not have
Speaker 1: to worry that their cost of rent is going to
Speaker 1: jump twenty next year when the landlord upset, and so
Speaker 1: in an environment in which there's a high degree of
Speaker 1: anxiety about rents, going up every year. You could pay
Speaker 1: extra and buy a house, but then you're you could
Speaker 1: theoretically lock in a monthly cost. It's stable for thirty
Speaker 1: years out right, And so even if mortgage rates are
Speaker 1: going up, at least they're relatively and predictable. And Connor
Speaker 1: made that point, like, yes, the all in affordability for
Speaker 1: homes is like up thirty percent, but rents are sevent
Speaker 1: and you have to have shelter. That makes it such
Speaker 1: that the price of you know, it has gone up
Speaker 1: to cost of bind but not it makes it sort
Speaker 1: of relativistically not as much anyway. So many, so many
Speaker 1: different angles. Yeah, but you're you're entirely right there. There
Speaker 1: is just so much to digest in the housing market
Speaker 1: at the moment. It does kind of feel like overwhelming. Well,
Speaker 1: we'll come back in six months. We'll see how far
Speaker 1: under the water you are or whether you're you're already
Speaker 1: ready another another episode based on my personal misfortunes. Excellent, Yeah,
Speaker 1: all right, shall we leave it there, Let's leave it there.
Speaker 1: This has been another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway, and I'm Joe Wi isn't though. You can
Speaker 1: follow me on Twitter at the Stalwart. Both of our
Speaker 1: guests are on Twitter and they're grade follows. Dustin Jailbert
Speaker 1: He's at two By Forecaster and Connorson. He's at Connorson.
Speaker 1: Follow our producer Carmen Rodriguez at Carmen Arman. Follow the
Speaker 1: Bloomberg had a podcast, Francesca Levi at Francesco Today, and
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Speaker 1: going to the handle at podcasts. Thanks for listening. Hey,
Speaker 1: there are All Thoughts listeners. We are very excited to
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Speaker 1: big awards person or get excited about that, but now
Speaker 1: that I saw that we were nominated for the Webby
Speaker 1: for Best Business Podcast, suddenly I'm feeling very competitive and
Speaker 1: I want you really want it. Yeah, okay, Well, on
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