Broeb22

Increasing immigration right now would be a good response to the current set of circumstances. It's way better to increase supply where there are labor shortages than to kill demand. It won't fix some of the supply chain issues arising from supply chains originating in Asia, but additional labor availability would fix many, many issues.

Hey, it's anyone's guess but these charts tell me 1) that rates are playing catch up because the blue line has never exceeded the green line in the entire data series, and 2) that housing starts and home prices seem to be inversely correlated with interest rates. I guess I'm not buying the argument that interest rates won't dent housing demand....

How can you say that people buy the max they can afford but also believe that a 1-2% change in rates won't deter people from buying? So people are just going to accept being able to get significantly less house than they could have just 6 months ago? People also don't understand convexity either and if interest rates stay at these levels, everyone is going to get a real painful lesson in what that means, because its easy to say a 1-2 point move in rates "doesn't matter" but when you're starting from 2.5-3%, you just experienced a 40-80% increase in the discount rate being used to value your house. The real estate market moves slow, so this won't show up tomorrow, but if interest rates stay here, there are going to be some people in pain when they inevitably move for a new job or get closer to home or any of those life events that cause us to move.

I've struggled with the building products distributors because, while they would like you to believe they are consolidating, if you look at their market share graphs, nowhere do they show Home Depot or Lowe's. Yes, they may now be 20% players in the wholesale building products market, but I just have a sneaking suspicion that Home Depot and Lowe's are more competitive with parts of these businesses than they want you to believe. Gosh, I hope not that many people are consolidating high interest debt by refinancing. Not that its a bad idea, just that I hope not that many people need to do it after getting flooded with cash the last few years. Although, at the same time I have a good friend who shared his financials with me at one point (we were looking at getting a loan for a potential business venture) and his personal financial statement he sent to the bank was ugly. Tens of thousands of credit card debt, nearly $80,000 auto debt at a 6%+ rate, and he just refinanced most of that away with a refi. Maybe this message board or FinTwit is not a good barometer for how average non-financial people live their lives.

It's interesting, just looking at most of the homebuilders, they seem reasonably healthy. The one that perhaps seems a touch over-extended would be LGIH with 60% Debt/Equity. At the same time I think they have one of the best business models in the industry by (as others have pointed out) targeting first-time home buyers and actually "solving" the affordable housing deficit in this country. They have some ability to weather a homebuilding recession reasonably well because they can sell to SFH rental companies too, which didn't exist last cycle. Either way, owning suburban land positions could become challenging for them liquidity-wise because I'm not sure their land is as marketable as that of other major homebuilders. Could be a nice setup for a great buying opportunity down the road, although of course I always tend to think there is going to be a "better time" to buy. They're the only homebuilder that's cash-flow break-even or worse (COVID 2020 results notwithstanding) so they have very little buffer if things go sideways for them. Is there any logic to looking at LGIH as the canary in the coal mine for the cycle? I would think the entry-level home buyer would be the first to put off buying a house, and other buyers may not trade down to LGIH homes even if interest rates dent their ability to afford anything nicer. Similarly, I would expect LGIH to start growing first coming out of a cycle because their buyers are most sensitive to unemployment improvement (and less exposed to capital market fluctuations/the wealth effect). Please poke holes in that logic.

I do believe the homebuilders are healthier now than they were for a lot of the reasons Spek mentioned, healthier balance sheets, actual free cash flow, etc. One important point to make is that the % of optioned lots today is not significantly different than pre-GFC for many homebuilders. Like I said, I think they are generally healthier than pre-GFC, but I was surprised to learn that the land option strategy for some builders has not really changed as much as some people think. From PHM 2005 10-K: Land acquisition and development We select locations for development of homebuilding communities after completing extensive market research, enabling us to match the location and product offering with our targeted consumer group. We consider factors such as proximity to developed areas, population and job growth patterns and, if applicable, estimated development costs. We historically have managed the risk of controlling our land positions through use of option contracts and outright acquisition. We typically control land with the intent to complete sales of housing units within 24 to 36 months from the date of opening a community, except in the case of certain Del Webb active adult developments and other selected large projects for which the completion of community build out requires a longer time period due to typically larger project sizes. As a result, land is generally purchased after it is properly zoned and developed or is ready for development. In addition, we dispose of owned land not required in the business through sales to appropriate end users. Where we develop land, we engage directly in many phases of the development process, including land and site planning, obtaining environmental and other regulatory approvals, as well as constructing roads, sewers, water and drainage facilities and other amenities. We use our staff and the services of independent engineers and consultants for land development activities. Land development work is performed primarily by independent contractors and local government authorities who construct sewer and water systems in some areas. At December 31, 2005, we controlled approximately 363,000 lots, of which 174,000 were owned and 189,000 were under option agreements. From DHI 2005 10-K:

+1

@SpekulatiusI think the demand is quite likely to be transitory since there was massive fiscal and monetary stimulus pumped into the system, which may have been necessary at the time, but in hindsight some of the spending, particularly the later stimulus bills in the US, was probably wasted and contributed to the situation we're all in now. But I think the supply, i.e. labor, is where the persistent weakness is. Eventually, the truckers won't miss as many appointments at ports, and people will only buy what they need, but, and I don't have a specific data point for this, there are probably millions of people who are a combination of dead, disabled, forced into childcare and out of work, early retirees who suddenly see their own mortality, and more who won't work again. I think the solution to the problem, since in my opinion is its a labor problem, would be a greater focus on easing immigration for people who want to work, but I don't want to tread too far into politics since I am trying to make an economic comment about how to stem inflation before it becomes ingrained and not a political one.

I'm not sure I agree with this take. I think supply, mostly of labor, may be constrained for a while. In my consumer staple industry, where demand increases with population growth, we have seen orders for 4-5 months 20% above our 2019 pace (we use 2019 as a baseline since it was the last normal year we had). We didn't get better all of a sudden at selling product. Others in the industry can't service the volume, so folks are ordering with us. We can't service the volume and have seen lead times increase from 6 to nearly 20 days within that same 4-5 month period. We have lost bids for major pieces of business only to see that volume come back when the new supplier couldn't service the business. Our primary reason for falling behind is labor shortages. We are not running some lines right now despite being oversold. It's a crazy situation, and we're just one company, but I think a lot of industries are simply not capable of producing what they once could. Maybe companies will invest heavy in automation since the ROI is better now and this problem will go away over time, but I don't see it snapping back. There was a guy on Twitter showing a graph with durable goods inflation leading the way, but services inflation (which represents most of the US economy) is starting to tick up and if that is the case then inflation could become more persistent.

A co. I know sells to all three major MRO distributors and the rep believes they are the least organized out of their competitors at growing our category.

How does the 50% off pricing work? Is that $15 per month permanent or is the 50% discount off the list price (which may increase in the future)?

In fairness to Cathie, there's a lot of managers out there talking in their letters about how their stocks are at 50% of value (which I realize is different implied IRR than 40%) or something similar. She's just talking her book and I know a lot of managers would probably react similarly if several names in their book were down big. Instead of throwing in the towel, they would double down. And all of that doesn't matter one way or the other. Being right does, and I have my doubts about Cathie but what she's doing is not surprising. She's just being human IMHO.

Bought CURV after earnings and LESL

@matthew2129No they have not publicly stated an intention to do consistent buybacks, so there is a little bit of wishful thinking on my part. If I'm being honest, if NVR were capable of reinvesting all the cash they generate at returns remotely approaching their existing business, that would be even better, no? The DFH CEO has been pretty aggressive thus far in growing his company through acquisition, buying assets in NC/SC and more recently Texas. I think his plan may be to do the land-banking for DFH privately, which removes some of the challenges of scaling the options-only model. Either way he goes, I guess I'm hoping by him being a finance guy from a decent Florida school (Stetson) he is a little more educated in the principles of what made NVR succesful. I do know that the DFH roadshow compared NVR and DFH pretty explicitly, so I'm just hopeful, nothing more, that he learned those lessons from NVR related to just buying back stock if its cheap when there are limited reinvestment options.

I am also pretty intrigued by some of the fast-fashion names. Even though the young consumer claims to be interested in the ethical treatment of everything from the animals in the food they consume to the planet they live on, they still love to get their rocks off buying a cheap outfit to have something new to wear on Friday, even if its threadbare by Saturday morning. The whole industry is really quite interesting, from Inditex to Zalando to Asos to Boohoo and more. They all have slightly different propositions, but I think the notion that speed kills in the fashion business is a timeless principle that's even more true today, particularly online. Imagine designing 50 products on a Tuesday, getting a prototype by Friday, then making 25 of each on a Monday, then listing them on your website on a Wednesday, getting instant feedback on the popularity of designs, information which drives which garments you produce in quantities of 2,500 and sell like hotcakes. It's just a brilliant model that has the potential to reduce inventories as well as the massive markdowns endemic to the fashion industry. I can't decide which of these is likely to be the biggest winner, but at current valuations you don't have to be too picky when you can buy consistent mid-teens growers for ~15-25x earnings.