Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wysenthal and I'm Tracy Alloway Tracy Housing. I
Speaker 1: feel like we'll never get away. I mean, it's so
Speaker 1: we'll never get away from this topic. Ever, it doesn't matter,
Speaker 1: boom buzz, We're going to be talking about this forever.
Speaker 2: Well, I mean, everyone lives somewhere right Like you're either
Speaker 2: in an apartment, probably hoping one day to own a house,
Speaker 2: or you're already in a house and you're very, very
Speaker 2: conscious of whatever is happening to the price of your
Speaker 2: most important financial asset. So I feel like this is
Speaker 2: on everyone's minds. Obviously there's been a lot of talk
Speaker 2: about it because rates have gone up, yeah, so much.
Speaker 2: And at the same time, I think we wrote about
Speaker 2: this late last year. It's been a really weird housing
Speaker 2: market in many ways.
Speaker 1: Well, and you know, we had that conversation of course
Speaker 1: with James Egan of Morgan Stanley and at the time
Speaker 1: he sort of made the bold prediction and he said,
Speaker 1: you know, even with the mortgage rate shock, it's like,
Speaker 1: I don't think prices are going to come down. And
Speaker 1: I think that's been pretty validated. The one thing that
Speaker 1: did come down in a meaningful way was housing starts
Speaker 1: in home builder activity, and you see all the lines
Speaker 1: sharply moving lower at the end, you know, throughout basically
Speaker 1: the second half of twenty twenty two, and yet here
Speaker 1: we are in you know, spring twenty twenty three, home
Speaker 1: builders docks are basically back near the tops, and housing
Speaker 1: starts picked up again, and it's not like rates have
Speaker 1: really come down. So even even the one category that
Speaker 1: was like affected by rates was not affected by rates.
Speaker 2: Well, it's sort of like a great microcosm of the
Speaker 2: soft versus hard data debate, which is the hard data
Speaker 2: is still coming in relatively active and strong, but the
Speaker 2: soft data is quite weak at the moment. And you
Speaker 2: see that in the home builders as well. So there's activity,
Speaker 2: but if you look at, for instance, the confidence survey
Speaker 2: of home builders, that's gone down quite a bit, although
Speaker 2: it is starting to pick up again, No it is.
Speaker 3: And you know, like I was reading through D. R.
Speaker 1: Horton's recent earnings report and they're like expressing some optimism.
Speaker 1: They said, some of the supply chain issues are behind us,
Speaker 1: but still like there's sort of like deep structural like underhousing,
Speaker 1: and I have like two questions sort of related to
Speaker 1: this that I'm thinking about. It is like still like
Speaker 1: the problems of like the post grade financial crisis period,
Speaker 1: And we talked there's like a big Odd Lots theme
Speaker 1: like how much did that scar the homebuilders?
Speaker 2: Right?
Speaker 3: And then this sort of like mini.
Speaker 1: Home builder recession that we got the second in the
Speaker 1: second half of twenty twenty two, is that like that
Speaker 1: all over again where the homebuilders were like, well, you
Speaker 1: just pulled the rugout from.
Speaker 3: Us once again.
Speaker 1: And if the whole point of rate hikes it's like
Speaker 1: easy supply, and Jerome Powell specifically talked about that as
Speaker 1: like one of the goals, like have we accomplished anything
Speaker 1: from these rate hikes so far?
Speaker 2: Definitely a lot to talk about.
Speaker 1: All Right, Well, I'm very excited about today's guest, the
Speaker 1: perfect guest. We've had her on before. We talked to
Speaker 1: her about the homebuilders during the absolute peak of the mania,
Speaker 1: and here we are again with Allie Wolf, chief economist
Speaker 1: at Zonda. So Ellie, thank you so much for coming
Speaker 1: back on Odd Lots.
Speaker 4: Hi, Joe, Hi, Tracy, thanks for having.
Speaker 3: Me, absolutely, thank you so much for coming back.
Speaker 1: So how is this that we had this huge rate
Speaker 1: shock like the one of the fascist hiking cycles ever,
Speaker 1: and we couldn't even like slow down like the.
Speaker 3: New construction market.
Speaker 1: It's like picking back up again, home building stocked, shooting
Speaker 1: up like we had a lot like a three month
Speaker 1: housing recession out of it.
Speaker 5: Yeah, So I think the important thing is to go
Speaker 5: back to the beginning of last year. So we had
Speaker 5: rates in the threes, and almost overnight it felt like
Speaker 5: rates went to the sixes yea, and there was just
Speaker 5: this huge fear that, Okay, no one's gonna want to
Speaker 5: buy anymore, when in fact we actually saw sales continue
Speaker 5: to be strong once rates got to six and there
Speaker 5: was this big question mark, this is kind of spring
Speaker 5: selling season last year.
Speaker 4: How is this happening.
Speaker 5: This kind of defies logic, This defies what's happened to
Speaker 5: the monthly payment change. And it was because there are
Speaker 5: a lot of people that were saying, oh gosh, if
Speaker 5: they've already gone up, are they going to continue to
Speaker 5: go more?
Speaker 4: I don't want to miss my opportunity to buy a home.
Speaker 5: That spurred some activity until about the middle of last year,
Speaker 5: and then you saw exactly what you thought would happen,
Speaker 5: which is consumers were like, whoa, never mind, housing's expensive,
Speaker 5: there may be a recession, I may lose my job,
Speaker 5: I don't want to buy a home. So demand froze
Speaker 5: up until we start to see the supply or the
Speaker 5: sellers adjust.
Speaker 4: And I think that's a really big.
Speaker 5: Part of what happened last year and how that's evolved
Speaker 5: this year.
Speaker 2: Well, talk to us about the sellers then, because I
Speaker 2: remember this was a big component of Jim Egan's argument
Speaker 2: at Morgan Stanley as well, this idea that with rates
Speaker 2: this high, you just don't why would you sell your house.
Speaker 2: It's going to be harder to get a mortgage at
Speaker 2: a low rate, and there's the possibility that you're selling
Speaker 2: your house maybe for less than what you bought it at.
Speaker 2: So what are sellers doing in this environment?
Speaker 5: Well, so last year we did see a little bit
Speaker 5: of an uptick towards the end of the year of
Speaker 5: resale supply, but I think it was a lot of
Speaker 5: the sellers thinking, oh, shoot, if I don't sell now,
Speaker 5: I don't want to sell for less. So that drove
Speaker 5: a little bit of an increase on the resale supply.
Speaker 5: But the real story came from the homebuilders. So homebuilders,
Speaker 5: as we talked about last time we met, we're dealing
Speaker 5: with the issue of not being able to get homes
Speaker 5: built quickly. They didn't know how much it would cost
Speaker 5: them to get those homes built, so then they started
Speaker 5: to build Speck homes. Speck Holmes was going back to
Speaker 5: scars of last cycle. A lot of builders weren't going
Speaker 5: speck heavy, meaning building a home without a buyer attached,
Speaker 5: because last cycle, when you build a home without a buyer,
Speaker 5: those became the most risky because the music stopped and
Speaker 5: then you had a whole bunch of standing inventory, and
Speaker 5: what were you going to do with those homes? This
Speaker 5: time around, builders started to do specs because they said,
Speaker 5: I can control for how expensive it is to get
Speaker 5: this home built, and I don't have a customer who's
Speaker 5: mad that it took fourteen months to get this home
Speaker 5: built instead of eight. So they built these homes, and
Speaker 5: all of these homes hit the market at the end
Speaker 5: of last year at just about the same time the
Speaker 5: demand fell off a cliff, and that's where you started
Speaker 5: to see and hear about fire sales that happened from
Speaker 5: the builder side. So they were really the sellers, Tracy,
Speaker 5: to your question, they were the sellers that were influencing
Speaker 5: the market the most at the end of last year.
Speaker 2: So the sort of like marginal supplier of houses.
Speaker 4: I guess that's exactly it.
Speaker 5: So they had standing inventory and they said, we don't
Speaker 5: want this, and if consumers don't want it at this price,
Speaker 5: what are they willing to buy this home for?
Speaker 1: Okay, but what now? Because now we're back here in
Speaker 1: spring of twenty twenty three, and I assume that it
Speaker 1: feels like that fire sale is over and we see
Speaker 1: housing starts picking up again. So that was like a
Speaker 1: one time shop where we had this like brief supply
Speaker 1: of I don't know, introduction of new supply onto the market,
Speaker 1: and now we're just back into tightness again.
Speaker 4: Yep. So what happened is inventory build up.
Speaker 5: Builders offered those discounts, builders offered incentives, consumers showed.
Speaker 4: Up, the inventory rolled over.
Speaker 5: So if you look at the chart, you have this
Speaker 5: rapid increase and now you have inventory coming down at
Speaker 5: the same time that you have sales going back up
Speaker 5: because those homes are being sold through. You then also
Speaker 5: have builders that are raising prices again. So instead of
Speaker 5: lowering prices like last year, you have builders raising prices
Speaker 5: and because demand is stronger, that is contributing to more
Speaker 5: builders feeling more confident to start more homes.
Speaker 1: But I get so here and I sort of brought
Speaker 1: this up at the intro, which to me is the
Speaker 1: big question. It's like, we did get this big raid shock,
Speaker 1: Like are we going to see scars of the last
Speaker 1: six months or the FEDS ongoing inclination whatever it is
Speaker 1: like tamp down this economy. Will it contribute to some Okay, yes,
Speaker 1: builders may be more confident than they were six months ago,
Speaker 1: but is there scars of it? Is there going to
Speaker 1: be a residual caution that once again sort of impairs
Speaker 1: the upward trajectory of new home supply.
Speaker 4: In a way.
Speaker 5: So I was on a call with a builder yesterday
Speaker 5: and as we were talking, they were saying a lot
Speaker 5: of this feels too good to be true. This feels
Speaker 5: like we shouldn't be having as much success as we are.
Speaker 5: But we're still going to go through with our land
Speaker 5: acquisition because as it stands right now, we think that
Speaker 5: there is a demand for more homes and we want
Speaker 5: to be backfilling that Now.
Speaker 4: You have to have enough confidence to do that.
Speaker 5: You have to have an equity partner that's willing to
Speaker 5: support that, and you also have to feel good.
Speaker 4: There was so much talk.
Speaker 5: On that call about, Yeah, we think we're going to
Speaker 5: go through with land acquisition, but we also think of
Speaker 5: recessions probably around the corner, and how are we trying
Speaker 5: to plan for a recession where maybe demands down and
Speaker 5: then we're actually increasing starts at again the wrong time
Speaker 5: of the market. What are you.
Speaker 2: Seeing in terms of product segmentation, because I think this
Speaker 2: is one way that a lot of different companies deal
Speaker 2: with the future economic uncertainty. Is the sort of tailor
Speaker 2: they're offering to maybe a level of person who is
Speaker 2: more price inelastic or less price sensitive. Is that what
Speaker 2: we're seeing in the housing market as well.
Speaker 5: Yeah, and we should talk about the different buyers because
Speaker 5: I think that's where the story gets interesting. But probably
Speaker 5: the most important trend is if you think about work
Speaker 5: from home. There was this discussion a couple of years
Speaker 5: ago that you just build a bigger home because people
Speaker 5: are going to move further out and they want more space,
Speaker 5: and so home size is going to go up. And
Speaker 5: in fact, if you look at what's happening with home size,
Speaker 5: it's not just about a certain buyer that's going to
Speaker 5: continue to purchase, because in a lot of cases, those
Speaker 5: were the buyers that were the most active over the
Speaker 5: past few years. The biggest pool of buyers that have
Speaker 5: been untapped are those that haven't been able to purchase
Speaker 5: because of what's happened with home prices and because of
Speaker 5: how competitive.
Speaker 4: The market was.
Speaker 5: So we're actually seeing that builders are reversing home size,
Speaker 5: so they're trying to make the home smaller to be
Speaker 5: able to account for the quantifiable demand pool that wants
Speaker 5: to purchase a home but just can't figure out how
Speaker 5: to make the math work.
Speaker 1: This is really interesting to me, and I do feel
Speaker 1: like in most of the housing discussions, and probably including
Speaker 1: the ones that we've had, this is a dynamic that
Speaker 1: strikes me is under discussed, which is that in twenty
Speaker 1: twenty or twenty twenty one, a bunch of people maybe
Speaker 1: like sort of woke up to the fact that on
Speaker 1: maybe the future of work is going to be hybrid
Speaker 1: or I'm going to work from home, and so where
Speaker 1: I move, I wanted to have space, but regardless of
Speaker 1: the macro situation, I would sort of assume that sort
Speaker 1: of like a one time readjustment. So It is the
Speaker 1: implication to some extent that the people who really feel
Speaker 1: they need work from home space like that is done.
Speaker 1: Like they got their house, whether it's a rental or
Speaker 1: they bought it, and at that point, like that kink
Speaker 1: is out.
Speaker 3: Of the market.
Speaker 4: If you look at sales, it backs that argument.
Speaker 5: So basically, if you think back to again last cycle,
Speaker 5: there was the drive to you qualify, so builders were
Speaker 5: going further and further away from the central business district
Speaker 5: because of affordability. That proved to be a poor investment
Speaker 5: when the market slowed because those were some of the
Speaker 5: buyers that had to move that far out that got
Speaker 5: hit the hardest during the Great Financial Crisis, and builders
Speaker 5: had the land that was out there and the homes
Speaker 5: that were out there at a price that people couldn't support,
Speaker 5: and those became kind of the ground zero for the
Speaker 5: price correction. So going back to scars, builders then didn't
Speaker 5: want to go to those areas really from the Great
Speaker 5: Financial Crisis up until twenty twenty, and then what happened
Speaker 5: is twenty twenty hits and all of a sudden, people say,
Speaker 5: you know what, I don't care about living an hour
Speaker 5: from the central business district because that means an hour away,
Speaker 5: I'm going to get a twenty percent discount in price
Speaker 5: and a thirty percent bump in square footage. So that
Speaker 5: basically said to builders, go go back to where you
Speaker 5: wouldn't touch before because that's where the demand is. Problem is,
Speaker 5: it takes a long time for that lot to become
Speaker 5: available for a builder to go vertical on, and over
Speaker 5: that period of time, more people are returning to the office,
Speaker 5: more people are doing a hybrid schedule, and that demand
Speaker 5: that thought was to be this huge pool of buyers
Speaker 5: has dwindled down. And so now when you think about
Speaker 5: the risk again, it goes back to the proofrey. It
Speaker 5: goes back to the same location that was the highest
Speaker 5: risk last time too.
Speaker 2: Can you talk to us about how that's playing out,
Speaker 2: you know, if you widen the geographic net a little
Speaker 2: bit more. What we have seen over the past couple
Speaker 2: of years is this idea of people moving, you know,
Speaker 2: away from maybe the biggest cities in the US, moving
Speaker 2: out to the sun Belt states, places like I mean,
Speaker 2: Austin was a big one. Is that like, is that
Speaker 2: just played out at the moment or what are you
Speaker 2: seeing in those markets?
Speaker 4: So when we look at the rate of migration.
Speaker 5: Luckily, Census just put out their data recently where you
Speaker 5: can look through the middle of last year you can
Speaker 5: see the higher rate of migration was happening the prior year.
Speaker 5: We're still seeing that there's some migration, but it's trending
Speaker 5: down in terms of new people that are moving. You
Speaker 5: don't have to Joe's point that one time kind of.
Speaker 4: Rush of people.
Speaker 5: There's still some people that are trickling out, that are moving,
Speaker 5: that still have work from home and maybe they feel
Speaker 5: more comfortable with where the market is. But I think
Speaker 5: you also have to take those markets separately because there's
Speaker 5: been this big discussion of Okay, everyone's leaving big cities,
Speaker 5: and so what this is doing is killing the Los
Speaker 5: Angeles housing market, or the San Francisco housing market, or
Speaker 5: the New York housing market, when in reality those markets
Speaker 5: became so expensive because.
Speaker 4: There wasn't enough building.
Speaker 5: And even if you subtract out however many people have left,
Speaker 5: they're still under supplied.
Speaker 4: So it's a tricky environment.
Speaker 5: Where then you go to the Southeast, which has been
Speaker 5: that kind of top market for migration. Southeast doesn't have
Speaker 5: all of the infrastructure in place, so we're hearing traffics
Speaker 5: getting more frustrating. Home prices in those areas relative themselves
Speaker 5: are going up, but they're also pipeline markets. There are
Speaker 5: markets that over time builders will likely be able to
Speaker 5: match demand with supply, but it's going to take time
Speaker 5: to get there.
Speaker 1: Now, there are a few markets and in the aggregate
Speaker 1: we sort of know that basically prices really have held
Speaker 1: up nationally or much better than maybe some people would
Speaker 1: have expected, et cetera. There are some markets that have
Speaker 1: seen price decreases. Is there like a common thread or
Speaker 1: sort of is it the ultra boom towns of the
Speaker 1: zoom tallengs of twenty twenty one? Is there a common
Speaker 1: thread of where it's like, actually, we kind of see
Speaker 1: a slowdown that's real.
Speaker 5: I would say there's a couple there's a couple of
Speaker 5: ways to cut that. Joe and Tracy. I think this
Speaker 5: is the most interesting part of the housing market from
Speaker 5: my opinion, is there was a discussion that home prices
Speaker 5: can't go down if the unemployment is at record lows
Speaker 5: and if resale inventory is at record lows. In reality,
Speaker 5: there are markets that it's not an oversupply issue or
Speaker 5: a credit issue like last cycle, but it's a fundamentals
Speaker 5: do not align issue where we found in some markets
Speaker 5: that home prices are so out of whack with incomes
Speaker 5: that sure, there's a certain pooll of buyers that have
Speaker 5: been able to buy homes, and maybe.
Speaker 4: We'll continue to buy homes.
Speaker 5: But if you're trying to cater to the Austin market,
Speaker 5: for example, not everyone is a transplant from San Francisco
Speaker 5: that can tap equity from California that has a high
Speaker 5: wage that can really going back to the price in elasticity,
Speaker 5: they don't care what the home is priced.
Speaker 4: That's only a certain subset of the market.
Speaker 5: So areas like Austin, Salt Lake City, Denver, Phoenix, these
Speaker 5: were areas that, oh, these are going to do fine
Speaker 5: because everyone wants to move there, But because everyone wanted to.
Speaker 4: Move there, they start to hit that price sealing.
Speaker 5: So part of it is the boom cities, and then
Speaker 5: part of it is some of the coastal Western cities
Speaker 5: that just inherently are more expensive, more interest rates sensitive.
Speaker 5: Despite having higher wealth individuals, they have a higher base price,
Speaker 5: and they did see that the prices were already.
Speaker 4: High going into the pandemic, and now they've.
Speaker 2: Only gone higher wait, so this is really interesting because
Speaker 2: unemployment was supposed to be the sort of wildcard in
Speaker 2: the housing market. As long as unemployment stays low, you
Speaker 2: won't get this wave of force selling that has contributed
Speaker 2: to previous crashes, I mean, notably the two thousand and
Speaker 2: eight financial crisis and housing bust. But you're saying we
Speaker 2: have seen some price decreases even in markets where unemployment
Speaker 2: is still relatively low.
Speaker 4: Yep, that's exactly it.
Speaker 5: Because I think what people say is, well, someone has
Speaker 5: to rent or own.
Speaker 4: Yeah, but they have a third option.
Speaker 5: They can move in with friends, they can move in
Speaker 5: with family, they can move in with roommates.
Speaker 4: And we didn't see that during the pandemic.
Speaker 5: During the pandemic was leaving family and leaving friends and
Speaker 5: leaving roommates. When inflation gets too high, when home prices
Speaker 5: get too high, people have a third option. And that
Speaker 5: third option is I don't want to play in this market.
Speaker 5: I don't want to pay more for rent. I don't
Speaker 5: want to have to pay at today's home prices. And
Speaker 5: I think that that also contributed. You had enough people
Speaker 5: step back that even though supplies low, fourth quarter really
Speaker 5: was the key component. Supply was low but demand got
Speaker 5: even lower for a while. That's again going back to
Speaker 5: Joe's point, that's changed this year because now the market's
Speaker 5: come back to life. But that's what we saw last year.
Speaker 1: Yeah, I forgot about that, like sort of third element.
Speaker 1: We talked about the work from a home one time
Speaker 1: shock and then the household formation boom that we saw
Speaker 1: as someone dealing with New York City housing right now,
Speaker 1: and I don't really want to talk about it. I
Speaker 1: would love a roommate. I want I want a roommate to.
Speaker 2: Move I'll move in with you. Honestly, this might solve
Speaker 2: both our problems.
Speaker 1: We get set up a studio at home, can we
Speaker 1: do that? Can we like split a house out? Going
Speaker 1: back to like these themes that I think were very
Speaker 1: prevalent the last time we talked, you know, I think
Speaker 1: a year and a half ago we might have been
Speaker 1: talking about like windows and garage doors and certainly lumber
Speaker 1: prices and all that labor. Top line we can get
Speaker 1: there's some specific details I want to get into, but
Speaker 1: like top line, it does seem like are those healed,
Speaker 1: Like the is the housing supply chain more or less
Speaker 1: healed at this point.
Speaker 4: Let's give numbers so supply chain issues. When we talked to.
Speaker 5: Builders for over a year, almost one hundred percent of
Speaker 5: them said supply chain was a massive issue for them.
Speaker 5: Our data as of April was that thirty five percent
Speaker 5: of builders are saying it's a massive issue.
Speaker 4: So I don't want to say it's healed.
Speaker 5: I want to say it is so significantly better that
Speaker 5: the issues that we're dealing with today feel like child's
Speaker 5: pay compared to what we have before.
Speaker 1: So just to follow up on this though, like I mentioned,
Speaker 1: I was like this morning, I was like reading the
Speaker 1: d R Horton earning call and they're like, yeah, we
Speaker 1: were you know, we're not really seeing many supply chain issues.
Speaker 1: But could this be the kind of thing where it's
Speaker 1: like all these individual builders say, yeah, there, our issues
Speaker 1: have gotten a lot better. But if there is this
Speaker 1: sort of sudden like you know, reacceleration, suddenly they all
Speaker 1: start thinking that they have an availability of supply. Meanwhile,
Speaker 1: that window company like shut down for a while because
Speaker 1: because of the slow down at the end of twenty
Speaker 1: twenty two, Like, is there the risk that these issues
Speaker 1: actually come back in a meaningful way? If this too
Speaker 1: good to be true? Market is sustained.
Speaker 4: Absolutely, Yeah, no doubt.
Speaker 5: I think that's something that that Luckily, though it's not
Speaker 5: just you that I have that's identified that as a
Speaker 5: potential risk.
Speaker 4: Builders have identified that as a potential risk.
Speaker 5: They're saying, if we all decide to start, we know
Speaker 5: that our suppliers forecast so that this year was going
Speaker 5: to be down for overall starts. It probably does still
Speaker 5: end up down from overall starts, but if it's way faster.
Speaker 5: That's what's been the weirdest thing about the market is
Speaker 5: it's whiplash. It's the market's going so fast, and then
Speaker 5: the market slowed so and then the market's coming back again,
Speaker 5: and then you're trying to plan production through all of
Speaker 5: these swings, and that's hard for builders to get right.
Speaker 5: That's hard for land developers to get right. That's hard
Speaker 5: for suppliers to get right.
Speaker 1: It Tracy listening to that, like it just seems like
Speaker 1: exactly classics.
Speaker 3: Well and also the.
Speaker 1: Opposite of what like the FED was hoping to achieve here,
Speaker 1: but they're like, let's just like bring some calm to
Speaker 1: this market.
Speaker 2: Well, I definitely want to ask about long term affordability
Speaker 2: trends and also credit availability because that's something that people
Speaker 2: are talking about in the wake of the banking crisis.
Speaker 2: But just before we do, in terms of how home
Speaker 2: builders are feeling about the outlook, can you maybe walk
Speaker 2: us through what exactly is happening with the survey because
Speaker 2: I think we have seen an improvement over the past
Speaker 2: three months, but if you look at the index, I
Speaker 2: think it's still at something like forty four for March
Speaker 2: something like that, so still below fifty, which would indicate
Speaker 2: like it's still a somewhat negative outlook. So what exactly
Speaker 2: is happening in that survey measure?
Speaker 4: Yep. So let's think about the demand side.
Speaker 5: So builders had the supply, they lowered prices, consumers returned.
Speaker 5: Now when we look at what's happening, we have sixty
Speaker 5: percent of builders that are raising prices again. And so
Speaker 5: this goes back to Joe kind of If you think
Speaker 5: about the policymakers, this is probably the opposite that they want.
Speaker 4: To see, is that prices are going back up.
Speaker 5: And that this is going to continue to stretch overall affordability.
Speaker 5: Builders are seeing this idea that Okay, now we've lowered prices,
Speaker 5: or now we've offered incentive.
Speaker 4: Now consumers have returned.
Speaker 5: We still feel uncomfortable about the market because again going
Speaker 5: back to is there going to be an increase in
Speaker 5: the unemployment rate? Are we operating on a demand pool
Speaker 5: that is pen up from last year? And so because
Speaker 5: so many people didn't buy in the fourth quarter they
Speaker 5: return this year. Is this artificially high or is this
Speaker 5: something sustainable? I think there's a lot of questions around that.
Speaker 5: So I don't think the confidence is fully back yet
Speaker 5: because it's part of the sales have been bought and
Speaker 5: part of the sale trajectory feels uncertain. What we know
Speaker 5: is at the end of last year, seventy five percent
Speaker 5: of builders thought they were going to slow starts this
Speaker 5: year compared to last year. Our data for April shows
Speaker 5: only forty five percent are planning to slow starts this
Speaker 5: year versus last year.
Speaker 4: And think about it, I think this is an important thing.
Speaker 5: The reason builder slowed starts is because they were aligning
Speaker 5: starts with sales. If sales are down, starts are down.
Speaker 5: But that realignment works both directions. If sales are up,
Speaker 5: as long as the land's there, as long as the
Speaker 5: labor's there, the materials there start should be up as well.
Speaker 5: So that's what we're seeing is this new realignment of
Speaker 5: starts coming back up to the fact that sales are
Speaker 5: stronger than expected.
Speaker 1: Well, you mentioned land there, which is a good sag
Speaker 1: to dive deeper into this, and we did. I think
Speaker 1: back in March an episode with Chase Emerson and the
Speaker 1: Arizona market, and he basically made this argument exactly, which
Speaker 1: is like, all these homebuilders walked away or wanted to
Speaker 1: walk away from deals or pause land acquisition, and they're
Speaker 1: going to regret it because they're going to fight. As
Speaker 1: soon as how home building picks up again, they're going
Speaker 1: to be short and they're going to have to come
Speaker 1: back and pay more. So what are you seeing like
Speaker 1: on the land acquisition front right now?
Speaker 5: So I think a really important difference between this cycle
Speaker 5: and past cycles too. As I remember when I joined
Speaker 5: the industry, there was just this common statement of land
Speaker 5: acquisition is a great role to be in, but when
Speaker 5: the market slows, you're the first person cut. And that's
Speaker 5: the complete opposite of what we're seeing now. We're actually
Speaker 5: finding that those land acquisition roles are still actually in
Speaker 5: very high demand because builders are thinking about not just
Speaker 5: the near term, but as I'm sure you and Chase
Speaker 5: and I listened.
Speaker 4: It was a great, great podcast you guys talked about
Speaker 4: it takes.
Speaker 5: A long time to take land through horizontal development to
Speaker 5: get it ready for the builders to have access to.
Speaker 5: You need to be thinking way more long term than
Speaker 5: just what next month is going to look like or
Speaker 5: what the next six months is going to look like.
Speaker 5: So we know right now from our builder survey at Zenda,
Speaker 5: ninety percent of builders feel that they have enough land
Speaker 5: for this year, seventy percent feel that they have enough
Speaker 5: land for next year, twenty five percent think they have
Speaker 5: enough land for the following year. So what we're seeing
Speaker 5: is this mad grab of what's available, what can I buy?
Speaker 5: To Chase's point, there were a lot of builders that
Speaker 5: dropped a deal last year or changed their terms, But
Speaker 5: let's focus on the drop drop a deal last year,
Speaker 5: went back to the land sellar this year and said, sorry,
Speaker 5: you know, the market's a lot stronger than I thought
Speaker 5: it was. I want that deal back, And the seller says, great,
Speaker 5: but you got to pay.
Speaker 4: More money for it.
Speaker 5: So that's already happening. That's not even something that might happen.
Speaker 5: That's what's happening right now. But it's also causing a
Speaker 5: gap between who is able to pay that top dollar.
Speaker 4: That's not going to be every builder.
Speaker 5: That's going to be certain builders that have good access
Speaker 5: to capital and has a good long term vision and
Speaker 5: believes that they should be investing to that point.
Speaker 2: So, just on this note, how much of the activity
Speaker 2: that we're seeing, whether it's land acquisition or starts, how
Speaker 2: much of that comes down to the experience of the
Speaker 2: past few years where we did see you know, timeframes
Speaker 2: for getting approvals and actually building things, getting the components
Speaker 2: that you need for a house extend. And I'm also
Speaker 2: thinking about something we saw in the labor market, which
Speaker 2: is this idea of labor hoarding, you know, companies acquiring
Speaker 2: more employees just in case it becomes more difficult in
Speaker 2: the future there's some sort of disruption. Is that basically
Speaker 2: what we're seeing with the home builders now.
Speaker 5: To the labor hoarding, you have some of the builders
Speaker 5: say that specifically is we don't want to going back
Speaker 5: to the whiplash. We don't want to be laying people
Speaker 5: off and then having to chase them back. We want
Speaker 5: to just try to provide steady employment if we can,
Speaker 5: because we want to have We know that there is
Speaker 5: a systemic undersupply in terms of the labor pool, especially
Speaker 5: of people of a certain skill set.
Speaker 4: So yes, that's happened.
Speaker 5: And then in terms of when you look at the
Speaker 5: land side, I think there is such a fundamental belief
Speaker 5: that we need so many more homes built and you
Speaker 5: can't replace land, especially in good locations, So you need
Speaker 5: to be absorbing whatever is available to get yourself in
Speaker 5: a good position in the future.
Speaker 2: So how much could that activity be sort of obscuring
Speaker 2: real demand at the moment? I guess this is the
Speaker 2: big question.
Speaker 4: So in terms of builder demand for land is your question?
Speaker 2: Yeah, or both demand for land and also just construction
Speaker 2: in order to get it out of the way in
Speaker 2: advance of any potential disruptions coming down the pipeline.
Speaker 5: Yeah, I think there's a lot of there's a lot
Speaker 5: of indicators in the housing market, from builders buying land,
Speaker 5: from consumers buying homes. That's looking artificial given the dynamics.
Speaker 5: So in the land side, because at least over the
Speaker 5: past couple of years, there hasn't been enough demand or
Speaker 5: hasn't been enough land, there's been such a rush with
Speaker 5: that demand.
Speaker 4: I think that evolves because what we're.
Speaker 5: Seeing, and I mentioned this to Joe before this call,
Speaker 5: we're finding in some markets because it takes two to
Speaker 5: four years for land to go through the horizontal development side,
Speaker 5: we're now finally seeing that there is some more land
Speaker 5: available after three years.
Speaker 4: Of it being so incredibly tight.
Speaker 5: Now we don't think we've solved the land and lot issue,
Speaker 5: but as starts activities down, even if it's going back up,
Speaker 5: it's down year over year, and that's contributing to an
Speaker 5: increase in overall land and a lot availability right now.
Speaker 1: Speaking of home builder activity, I'm always fascinated by any
Speaker 1: industry in which you have a significant number of public
Speaker 1: players versus up privately owned players and the different signals
Speaker 1: that they get from investors, and maybe public investors are
Speaker 1: rewarding one thing and the private investors could maybe think
Speaker 1: on different timeframes. Seeing with in respect to that. On
Speaker 1: any category, whether it's new construction, whether it's land acquisition,
Speaker 1: are we seeing any different types of behaviors public versus
Speaker 1: private players?
Speaker 4: Crazy difference?
Speaker 5: Yeah, So what we're seeing right now is if you
Speaker 5: look at of total transactions public versus private share publics
Speaker 5: are now almost at fifty percent of overall market share,
Speaker 5: where they were at about thirty.
Speaker 4: Five percent going into the pandemic.
Speaker 5: They were at twenty five percent during the Great Financial Crisis.
Speaker 5: So public private share absolutely skewing towards the publics in
Speaker 5: a lot of cases because they had better economies of scale,
Speaker 5: they had better margins. When the market slowed, they ripped
Speaker 5: the band aid off, they lowered prices way quicker, and
Speaker 5: they helped to stimulate some of that sales activity. They
Speaker 5: also generally have better access to labor. Generally will get
Speaker 5: the phone call first from the landslide, so they have
Speaker 5: a longer lead time, and they have better access to land.
Speaker 5: It's really just allowing the public builders to get bigger,
Speaker 5: and the private builders are having a lot harder of
Speaker 5: a time being competitive in today's market.
Speaker 2: You know, I mentioned unemployment as a sort of wild
Speaker 2: card for the market, and there's another one that people
Speaker 2: talk a lot about, and that's what the baby boomers
Speaker 2: actually do with their own houses as they age and
Speaker 2: start to die. Are we seeing any evidence of that
Speaker 2: sort of generational transfer of home ownership actually happen, Because
Speaker 2: I feel like this is something that people have talked
Speaker 2: about as a possibility for many, many years, and it
Speaker 2: has yet to really materialize. We are seeing some people
Speaker 2: maybe downsize, but we're also seeing a lot of baby
Speaker 2: boomers take advantage of the low rates of twenty twenty
Speaker 2: and twenty twenty one to maybe buy a second home
Speaker 2: for income and things like that.
Speaker 4: Tracy, this question is spot on.
Speaker 5: This is really the kind of the boomers hold the
Speaker 5: cards for what happens.
Speaker 4: I think in terms of the resale supply.
Speaker 5: So what we understand is, and I can't remember it's
Speaker 5: eighty three or eighty six percent, but AARP did a
Speaker 5: survey of boomers and said what do you want to do,
Speaker 5: and either eighty three or eighty six percent of them
Speaker 5: said I want.
Speaker 4: To stay in place. So their intention is I don't
Speaker 4: want to move.
Speaker 5: If they downsize, depending on what great they got and
Speaker 5: depending on if they still have a mortgage, they may
Speaker 5: not have any kind of affordability shock. They're not exhibiting
Speaker 5: the same kind of sticker shock that a normal buyer would.
Speaker 5: In fact, we know from the Census data forty three
Speaker 5: percent of people own their home free and clear, and
Speaker 5: that skewed towards those fifty five plus, So you have
Speaker 5: a lot of boomers that own their home free and clear.
Speaker 5: They are happy because maybe they're families close by. They're
Speaker 5: happy because their doctors are close, they know where their
Speaker 5: pharmacy is, they know where their grocery store is there.
Speaker 5: They're perfectly content where they are. With that being said,
Speaker 5: the National Association of Realtors put out their survey for
Speaker 5: twenty twenty two. They found that boomers are now the
Speaker 5: number one buyer and boomers are the number one seller.
Speaker 5: This group is actually more active than I think we
Speaker 5: believe them to be, because there are a lot that
Speaker 5: are staying put. When you think about why boomers are moving,
Speaker 5: United Band Lines says the third biggest reason people move
Speaker 5: is retirement. Boomers right now, all of them will be
Speaker 5: of retirement age by twenty thirty. So if they're not
Speaker 5: already moving now or changing their lifestyle now, that's likely
Speaker 5: going to happen over the next handful of years.
Speaker 4: And then when you.
Speaker 5: Look at this too, we get Zonda created a baby
Speaker 5: chaser index. It's not just retirement, but it's if your
Speaker 5: children were living. Let's just use California example. You and
Speaker 5: your children live in California, they move to the southeast
Speaker 5: because it's more affordable. They now have grand babies. Oftentimes,
Speaker 5: we find twenty five percent of boomers say they move
Speaker 5: to be close to their grand babies. So there's also
Speaker 5: if millennials move and migrate, that plays into boomers.
Speaker 1: So rather than boomers being this net marginal supply that's
Speaker 1: sort of like eases the market, Boomers are made to
Speaker 1: facto be competing with millennials because those retirement destinations, those
Speaker 1: baby chaser moves, which is a great term. I hadn't
Speaker 1: heard it before, they're essentially going to be going into
Speaker 1: the hot markets, perhaps not really solving any housing supply problems,
Speaker 1: perhaps worsening them.
Speaker 4: Yeah, we've seen that actually for years too, Joe.
Speaker 5: Is that they're looking to downsize, so they're looking for
Speaker 5: a smaller square footage. Entry level buyers are looking for
Speaker 5: smaller square footage because they're trying to adjust for price.
Speaker 4: But then you have an all cash boomer or.
Speaker 5: A millennial with three percent down, and there's one group
Speaker 5: that wins out over the other.
Speaker 2: So one of the things I wanted to ask you
Speaker 2: about as well is, you know, if you think about
Speaker 2: what moves the housing market, you have supply and demand,
Speaker 2: and we've been talking about that, but you also have
Speaker 2: credit availability, and affordability metrics, and those tend to be
Speaker 2: the two things that do actually move quite quickly. You know,
Speaker 2: you can get long running structural changes in supply and demand,
Speaker 2: but credit and affordability do kind of turn on a dime.
Speaker 2: So what are we seeing in terms of those two metrics,
Speaker 2: and especially in the wake of the you know, banking
Speaker 2: drama of March where we did see some banks start
Speaker 2: to report that they were tightening lending standards.
Speaker 5: Yep, so let's do Let's address the credit standards first,
Speaker 5: because affordability is a is a very wide discussion at
Speaker 5: this point. But when we look at credits availability, builders
Speaker 5: are feeling more optimistic that they want to start more homes.
Speaker 4: I shared this down more.
Speaker 5: Builders think that starts will be flat or up this
Speaker 5: year than down. A third of the builders we're talking to, though,
Speaker 5: we're saying, but buyers may be demanding more inventory, we
Speaker 5: may be wanting to build more homes. We may have
Speaker 5: now the supplies, the land, the labor to build it.
Speaker 5: We may not now have the credit component. So it's
Speaker 5: not going to apply. This goes back to Joe's question
Speaker 5: of public versus private. It doesn't apply to all builders equally.
Speaker 5: But we were just at an event in Seattle and
Speaker 5: we had some capital partners say in some cases, some
Speaker 5: capital partners are winning out because other banks or other
Speaker 5: lenders are seizing up, and so they're trying to gain
Speaker 5: market share during that time. But you're hearing it in
Speaker 5: real time that there's a pullback in overall construction financing.
Speaker 5: And I wouldn't say I know enough about this to
Speaker 5: go into detail, but we're also hearing from a consumer
Speaker 5: borrower point of view that there's a little bit of
Speaker 5: tightening on jumbo loan access, and jumbo loans are obviously
Speaker 5: those for the higher price point and usually higher buyers,
Speaker 5: and seeing that come down a little bit, and that's
Speaker 5: been a key driver of housing activity recently as well.
Speaker 1: It does also speak to this question of like, well,
Speaker 1: how effective is interest rate policy at solving any of
Speaker 1: these problems if one effect of it is just going
Speaker 1: to be at least some category of homebuilders, even if
Speaker 1: they have everything else in plays, feel that they do
Speaker 1: not have the financing in plays to continue to expand operations.
Speaker 5: Yeah, and in a way, and I know it sounds
Speaker 5: counterintuitive because we want to get more homes built, but
Speaker 5: because land development takes so much time. Not having as
Speaker 5: much start activity does allow the market to catch up
Speaker 5: a little bit. We were at a point where the
Speaker 5: suppliers couldn't keep up, the land developers couldn't keep up.
Speaker 5: And if you can get those land developers to keep
Speaker 5: moving forward, having more land inventory over time will be
Speaker 5: good to let us come out of.
Speaker 4: This, but it is.
Speaker 5: It's tricky because now you're having financing sees up to
Speaker 5: get new homes built, but you're also having builders raise
Speaker 5: prices again. So the market is operating completely out of
Speaker 5: whack where you should be seeing demand come down and
Speaker 5: prices come down, but now you're seeing prices up but
Speaker 5: inventory potentially going down. Well.
Speaker 2: Online, No talk to us about the affordability aspect of it,
Speaker 2: because it feels like we're still further away than ever
Speaker 2: to building a sort of sustainable market where people are
Speaker 2: able to get a foothold.
Speaker 5: Yeah, this is going to be the hardest issue to
Speaker 5: solve because even if we're saying land availability is a
Speaker 5: little bit better, land prices are still expensive. We're saying
Speaker 5: labor availability is better, it's still expensive. We're saying supply
Speaker 5: chain is better, Okay, good, So now you can get
Speaker 5: the windows, but the windows are still twenty percent more
Speaker 5: expensive than they were going into the pandemic. You're looking
Speaker 5: at government regulation. That's actually the number one issue that
Speaker 5: builders are saying right now that's impacting their ability to
Speaker 5: get more homes.
Speaker 4: Built and to be able to do it quickly.
Speaker 5: Time is money when it comes to home building, and
Speaker 5: again going back to Seattle, it should take three months
Speaker 5: to get a permit issued from the local government in Seattle,
Speaker 5: it's taking eight months. In Florida, it's taking five months.
Speaker 5: So that's stretching out that too. So this is great
Speaker 5: right that all of these problems are not getting worse,
Speaker 5: but if you look at where they are in terms
Speaker 5: of costs, they're still high, which is making it hard
Speaker 5: for builders to be able to.
Speaker 4: Bring a home to the market at a reasonable price point.
Speaker 1: I'm glad you brought that up because I meant to
Speaker 1: ask about that. I remember one of the bottlenecks, and
Speaker 1: there were a few stories where it's like these government
Speaker 1: offices in these places are just completely overwhelmed by like
Speaker 1: the literal paperwork aspect of it. There's always so many
Speaker 1: public sector employees, and we know that homebuilders have had
Speaker 1: a hard time like hiring, but also public sector is
Speaker 1: you know, continues to be in short supply of labor.
Speaker 1: But that's still a constraint. Even after all this time
Speaker 1: that the sort of permitting authorities, the paperwork authorities are
Speaker 1: still they're still overworked.
Speaker 5: Yeah, it's slow processing time, and it applies to permits,
Speaker 5: it applies to inspections, but it also applies to the
Speaker 5: land and lot development. I do want to say one
Speaker 5: thing though, because as we think about the constraints, so yes,
Speaker 5: a huge component is the regulatory component that's slowing.
Speaker 4: Down the ability to get more homes built quickly.
Speaker 5: But another thing, when you talk about supply chain, Yes,
Speaker 5: the cycle times are generally within reason of.
Speaker 4: Where they were going into the pandemic. But transformers are
Speaker 4: still a massive issue.
Speaker 5: Transformers are holding up the horizontal development to get land ready,
Speaker 5: and then builders are saying that they've started a home
Speaker 5: and then they can't get electricity to the home, and
Speaker 5: then they have to pause on that too. So I
Speaker 5: wouldn't say everything solved. Kind of the flavor of the
Speaker 5: week right now is transformers in the role it's playing
Speaker 5: in the market.
Speaker 2: Yeah, this was why I asked that question about stretch
Speaker 2: time frames. And whether or not that's sort of obscuring
Speaker 2: a lot of the real demand. But Ali, maybe one
Speaker 2: more question from me, but what are you looking at
Speaker 2: in terms of the catalyst for the rest of the
Speaker 2: year and something that could change the way the market
Speaker 2: has so far been functioning, which is, you know, in
Speaker 2: terms of at least house prices and activity, we have
Speaker 2: seen it be relatively resilient.
Speaker 4: Yeah, I think we're tracking.
Speaker 5: What we know is consumer confidence can change instantly, So
Speaker 5: we're tracking what happens with consumer confidence, and it's something
Speaker 5: where it literally can be weekend to weekend or day
Speaker 5: by day.
Speaker 4: A builder will say, oh, this article.
Speaker 5: Came out, the consumers read it and they said, you
Speaker 5: know what, I feel weird about the market. So I
Speaker 5: think there's still headline risk. I think there's still economic risk.
Speaker 5: I think there's still mortgage rate risk. As to how
Speaker 5: the market goes, we didn't talk about investors who are
Speaker 5: not as active today, but if there's any kind of
Speaker 5: financial distress to investors or flippers that may want them
Speaker 5: to offload any of their homes, I don't think it'll
Speaker 5: happen that quick. But we're still watching investors as it
Speaker 5: plays into the market and also, I think tracking that
Speaker 5: pent up demand. How much of this is sustainable demand
Speaker 5: and how much of this is people that didn't buy
Speaker 5: in the third and fourth quarter of last year that
Speaker 5: are accepting the new reality they've returned to the market.
Speaker 4: But it's not that deep of a pool.
Speaker 5: It's only a select pie people that are willing to
Speaker 5: give up their interest rate or are able to buy
Speaker 5: in today's market.
Speaker 1: All right, I have one more question, and it's kind
Speaker 1: of a wild card, and I've never asked a question
Speaker 1: like this before, but I asked this question to chat
Speaker 1: GPT and I was really unimpressed with the answer because
Speaker 1: I said, all right, what's the next Austin, Like, what's
Speaker 1: the next hot Citi?
Speaker 3: And it was like Bozeman, Montana.
Speaker 1: I'm like, yeah, I know, I've read like one hundred
Speaker 1: articles about Bozeman, Montana. What is a market that is
Speaker 1: genuinely under the radar in your view but actually interesting
Speaker 1: in terms of where things are bubbling up?
Speaker 5: So what I will say is under the radar is
Speaker 5: tricky because anything that was under the radar became on
Speaker 5: the radar if it was attractive over the past couple
Speaker 5: of years. So I don't want to say Charleston or
Speaker 5: Greenville or any of the small markets in the southeast,
Speaker 5: because those are not hidden gems anymore.
Speaker 3: Right, right, we know about markets.
Speaker 4: That I think potentially could grow.
Speaker 5: I always want to look at interstate highway connectivity, in airports.
Speaker 5: You want to look at a share of the population
Speaker 5: that's relatively young that maybe still doesn't have the whole
Speaker 5: ownership rate is allowing them to it's low enough that
Speaker 5: it's allowing for mobility.
Speaker 4: You want to see some kind of job stability.
Speaker 5: I am not biased, but I do think Columbus, Ohio
Speaker 5: is still a market that has the potential to grow.
Speaker 5: I think Richmond, Virginia is a market that has a
Speaker 5: lot of the It's close enough to DC, close enough
Speaker 5: to employment center, it has its own employment base, it
Speaker 5: has the interstate highway system. I think that that market
Speaker 5: has some potential. Thinking further out, Portland is not under
Speaker 5: the radar and that you don't know it, but it's
Speaker 5: a market that didn't really boom like some of the
Speaker 5: other areas because there was.
Speaker 3: Some which one which.
Speaker 4: Stigma about living in Portland, Oregon, oh Orgon.
Speaker 5: Yeah, yeah, and so I think that market can still
Speaker 5: see a lot more growth relative to what it has seen.
Speaker 4: But again, I mean.
Speaker 5: Even the Fayettevilles of the world have become on the map,
Speaker 5: so it's really hard to.
Speaker 1: Point and I were there and year ago. Crazy, it
Speaker 1: feels nice, but yeah, definitely not. That answer was so
Speaker 1: much better than the GPT answer. Allie, Well, thank you
Speaker 1: so much for coming back. That was such a helpful conversation.
Speaker 1: I really appreciate you coming back on Odd Loves.
Speaker 4: Thank you for having me.
Speaker 2: Thank so much, Ali, that was great.
Speaker 1: That was really good. I love talking to Ellie so much,
Speaker 1: just so much, like I just find her to be
Speaker 1: really good about big picture like themes, but also knows
Speaker 1: so much manular, granular specific data that I just feel
Speaker 1: like I learned a lot from her.
Speaker 2: No, there were a bunch of things that jumped out
Speaker 2: at me from that episode. One of them was this
Speaker 2: idea of the third option, which we're so used to
Speaker 2: talking about housing in terms of like you have two options,
Speaker 2: two binary options, you either buy house or you rent yea,
Speaker 2: And over the past year or two, because of high inflation,
Speaker 2: there was this argument that like, oh, it's actually a
Speaker 2: way of protecting yourself from higher prices, from higher rent
Speaker 2: if you go out and buy a house, get a mortgage.
Speaker 2: But there is that third option, which is you just
Speaker 2: opt out of the market entirely and say, you know what,
Speaker 2: rent prices are crazy, house prices are crazy. I'm going
Speaker 2: to move in with some roommates or move back with
Speaker 2: my family.
Speaker 1: So should we split a house?
Speaker 3: Should we split?
Speaker 5: Ah?
Speaker 2: Honestly, this would save me a lot of money.
Speaker 3: Same.
Speaker 1: There's another thing that she brought up that is one
Speaker 1: of these things that I've wanted to do an episode
Speaker 1: on for a long time, electrical components. If you go
Speaker 1: to the ISM Manufacturing Survey, there is a section in
Speaker 1: there on commodities and short supply, and there are not
Speaker 1: many left because actually most of the most of the
Speaker 1: supply chain crises have or problems have like eased. But
Speaker 1: the number of consecutive months the commodity that's been in
Speaker 1: short supply, electrical components thirty straight months have been listed
Speaker 1: in short supply. The next most common is electronic components
Speaker 1: twenty eight straight months. So this remains like this huge
Speaker 1: bottleneck to everything. And then when you think like layering
Speaker 1: on the Inflation Reduction Act in right and energy investments, etc.
Speaker 1: This is still just like and I don't think many
Speaker 1: people are talking about it, so I'm really glad that
Speaker 1: Ali brought that up.
Speaker 2: Well, since we're on the subject of bottlenecks, this is
Speaker 2: something else that kind of jumped out at me from
Speaker 2: that conversation. It's the idea of, like, maybe what we
Speaker 2: are seeing is a classic bullwhip effect amongst the home
Speaker 2: builders themselves. Yeah, because they know that time frames to
Speaker 2: complete construction have become much longer. They know that it
Speaker 2: takes a lot longer to get permits and things like that,
Speaker 2: So why not start now and even if the market
Speaker 2: softens a little bit down the road, you'll be better prepared.
Speaker 1: And I just think it was a question of Powell
Speaker 1: at the end of last year, and it was basically
Speaker 1: one of these questions like what do you say to
Speaker 1: the person who wants to buy a house and your
Speaker 1: Jackie up raids and what do you say to that
Speaker 1: first time home buyer? And his answer was something like, yeah,
Speaker 1: it's not great that rates are going up. We acknowledge
Speaker 1: the pain, but this is a necessary step to bring
Speaker 1: basically some level of sanity.
Speaker 3: Back to this market.
Speaker 1: And I see no evidence that that's happened.
Speaker 3: If anything, it just.
Speaker 1: Seems even more greater more bull whipping, more uncertain more
Speaker 1: reasons for homebuilders to not be able to plan these
Speaker 1: different timeframes, as you mentioned, with the sort of like
Speaker 1: you know, the sort of just the longer cycle, the
Speaker 1: multi year cycle for land acquisition. I do not get
Speaker 1: this sentence that the rate hikes, whether good or bad, said,
Speaker 1: have done much to restore something that people would resemble
Speaker 1: a healthy housing market.
Speaker 2: Well, also, if you're talking about inflation and you know,
Speaker 2: consumer power, it seems like there is still a large
Speaker 2: bulk of those that own homes who just like are
Speaker 2: not necessarily feeling any constraints at the moment. They would
Speaker 2: have gotten mortgages at relatively low rates, their home prices
Speaker 2: are still relatively high, and it feels like they have
Speaker 2: a lot of bargaining power still.
Speaker 1: And all the boer are going to move to the
Speaker 1: boomtown that too, the boomberg boomtowns. I was like, Oh,
Speaker 1: they're all going to move to Phoenix and the places
Speaker 1: where their kids are.
Speaker 2: So it always comes back to boomers. We can we
Speaker 2: can end every episode of Odd Lots by blaming baby
Speaker 2: boomers for something. But shall we leave it there?
Speaker 1: Let's leave it there, all right?
Speaker 2: This has been another episode of the Odd Lots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 2: Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal.
Speaker 1: You can follow me on Twitter at the Stalwart, follow
Speaker 1: our producers Carmen Rodriguez at Carmen Arman and Dashel Bennett
Speaker 1: at Dashbot. And check out all of the Bloomberg podcasts
Speaker 1: on Twitter under the handle at podcasts. And for more
Speaker 1: Oddlogs content, go to Bloomberg dot Bloomberg dot com slash
Speaker 1: odd Lots. We post transcripts, we have a blog, we
Speaker 1: have a newsletter that comes out Friday. And for even more,
Speaker 1: check out our discord where listeners and viewers are chatting
Speaker 1: twenty four seven about all of these topics. We have
Speaker 1: a great real estate channel in there, one of the
Speaker 1: most active ones. All kinds of interesting stories getting posted
Speaker 1: from around the country. What's really happening in the real
Speaker 1: estate market.
Speaker 3: Go there and check it out. Thanks for listening.