Gregmal

It’s a long term tailwind play. No need to raise the alarm every time a shadow emerges. Been that way for a while. Won’t just stop because costs go up. Nothing has really changed. We heard all last year how 3 caps were impossible. We hear now how cap rates must go up because treasuries are. But that’s not happening either. Go try to find a Chick-fil-A ground lease over a 4.5 in a decent area. Sunbelt MF is still transacting in the same ranges. I said a year ago I have no clue why people with a choice would own a treasury or a bond over a multifamily complex. Now you’re seeing that play out too. Markets rarely go up in straight lines. You need these sort of wash out scare periods to keep people honest every now and again. Let folks sell their stocks because in their heads things are changing that in the real world are staying the same or going the other way. A buddy sent me an email this morning with a Twitter link to a guy pitching a short on JOE. Basically said he thinks JOE is no different than it was in 2005 and he’s looking for a levered way to play inflation and rates. Somehow settled on shorting an unlevered land company…..LOL people do and believe dumb shit all the time. Who cares. If you control your own destiny and have a handle on the supply you’re going to make money. Which is why I’m not super excited about jumping into the home builders who kind of need to keep pumping out homes to meet those 5x PEs everyone is so excited about. Many of them are healthy but still, if you’ve got debt to roll, you need certain things to break your way. But if you are JOE, or a PCYO, you control the resources and play at your own pace. Balance sheets are indestructible. Same with ALCO. Good bid on your land? Take it. If not sell oranges and make money that way. Home builders rights now remind me a bit of CLF a year or two ago. Even prior, it was well thought that CLF needed $600 HRC to really “work”. This is when it was at $400 or so. Then you get the big move. The market still sits on its ass talking about this time not being different. You wait around for a year or so while people short it because the know for sure this is the cycle top. Or “it’s just supply and demand that is unsustainable at these prices”. And then they’re wrong again and the stock goes up 50%+ in short order.

Yup. Home builders are interesting for sure. But there’s much better ways to play this from a risk perspective.

The biggest contribution to the crisis IMO was loose lending and adjustable rate mortgages. I do not think the average home buyer today is any smarter than the ones in 2000-2007, but lending standards are significantly tighter and 19 out of 20 mortgages are fixed rate. As rates rise you also have the think fewer and fewer people are going to be looking to sell their homes. Local realtors I speak with regularly kind of hit on one of the things I think is fueling the low inventory numbers right now. They said prices were so strong that you had people willing to list and sell during the typically slow winter season. So when spring rolled in, a lot of that inventory folks were expecting simply wasn't there. For sure theres areas where you can overbuild, but if you stay in desirable locations I cant see anything stopping this anytime soon. During the GFC the NYC suburbs barely budged on price, at least the ones I was living in at the time(Bergen County).

Sellers sell because prices wow them. Then those sellers are removed from the market. Same as those who sold quality stocks when they thought they were “expensive”. Then years later it was a dumb move. The rest realize they have a good deal and it doesn’t make sense to transact. As I’ve said before, the housing bubble in 2007 was based on a foundation of 6-7% mortgages. It’s purely excel sheet nonsense to assume a 5% mortgage will stop people from buying a home. Wage inflation is driving the market. That bodes well for housing.

Think about it on a rational, normal person level. Take the price of renting. Call it a 4 cap on financial terms. What would you pay to have that option for 30 years at a relatively fixed cost? It’s definitely a premium to the rental rate. After last years rip, I think you need this year’s skeptics and uncertainty to set the stage for the next leg up. But it’s coming. Another way to look at it: I consider myself an above average personal in terms of financial awareness. When I was looking to buy a home, it was simple. Find a home I like and work out a deal to acquire it. Very different from the approach as an investor where I’ve literally lost units over a $1500 difference in price.

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? Because you can’t get homes. Good homes in good areas have off the charts demand against near zero supply. It’s like asking why WM or COST trade at 30-40x. Does it make sense? Not at first glance. Does it matter? Nope. In certain markets, simply being able to buy a house is not just something you can do. It’s considered getting lucky and winning a kind of mini lottery. As I’ve said before, look at Canada. you can’t really justify it on numbers but you can justify it in real life. Folks wanna live where life is good. It’s hard to put a precise cap rate or PE on that.

+1. Its one of the more bizarre current phenomenon to me. To normal people, the home buying process isnt all that different than buying a car. What's the max we can buy. Ok, lets find something. Mortgage people too know how to make shit work. 1-2% bumps in rates arent going to even remotely deter folks interest in purchasing, IMO. The other angle is all the "supply" coming on line, otherwise known as "overbuilding". Which short term, 1-3 years IMO, doesnt really solve the shortage. And 2)...the supply chain problems and business gurus cant even efficiently get portable AC units or chips for heated car seats squared away in any sort of reasonable period of time. But we're just gonna "overbuild" our way out of a housing shortage?......LOL ok.

I don’t think there’s much to read from entry level stuff. In addition to what’s already been discussed, it’s the perfect price point and market for investors. Is it not essentially what rentals are? Throw a cap rate on most 1-2 bedrooms and they’re in that 280-500k range. Many of those buyers(investors) are all cash. I would actually probably look at the 500-800k price point if that’s possible. I dont think mortgages are relevant as a look through either. I see a lot of folks making stupid assumptions based off newly released mortgage data the past 4-6 weeks but really that’s simple. 1) what idiot is refinancing now? No one. So that activity should be down huge. 2) in order to generate a mortgage you need to buy a property. Inventory is at record lows. Even compared to this time last year. So is it entirely logical for mortgage volume to plummet with zero relevance to housing slowing down? But I guess I’m the only one who sees those dots connecting as obvious and “duh” stuff .

I am always curious about psychology. And its bemused me a little bit over the past couple weeks seeing all the flags, bumper stickers, and whatnot. It doesnt serve any purpose that means anything towards an outcome, and in a way, kind of says something about the person. Im not totally sure what, and obviously it can differ person to person, but essentially, they are doing something that is totally useless. It is no different than having a Yankees sticker on your car. Whether you have the sticker or not, it has no bearing on whether or not they beat the Red Sox. But everyone who sees your car thinks..."that guys a sports fanatic". Disclosure I am not a flag flyer or sticker toter so maybe Im just missing something.

The real winner of the war is graphic t shirt, bumper sticker and flag makers. Nothing says go get em like virtue signaling Americans. interesting question, there’s people with slogans saying “we stand with Ukraine”. That’s nice, but, does it make any difference. What if it said “we don’t stand with Ukraine”? Any difference? So if no to both, what’s the point? Last I checked we still weren’t REALLY doing anything to actually help.

People constantly need to attribute what are generally meaningless market movements, to something. Makes them feel better. This is not to say it’s impossible to detect these things; but I’d say that applies to individual stocks more than broader markets. You can tell when there’s a big seller in a semi illiquid stock quite easily. Discerning why the QQQ moves is typically a waste of time.

You just have to figure out what you want to deal with as an investor. Theyre attractive on metrics and the most likely of outcomes. I agree. Do I want to do nothing and sleep like a baby and make 15% or do I wanna have to be repositioning and actively trading to make 30%? To each their own. I know what im getting with certain companies. With homebuilders, you need to trust but verify, constantly.

The institutions own very little housing. And THEY DONT CARE about overpaying 10-20%. Nobody seems to realize this. Its a Pacman game. Look at the REITS. All they care about reporting is growth in owned units. Not mark to market. I only briefly did some housing related companies start mentioning their mark to market and most of the ones I saw got bought out. EVERYONE is about how many units. From there they do the finance thing. Play with rents, utilize leverage. Move shit around. These homes that they buy, for the most part, are gone for the foreseeable future. No one has touched on why you STILL have 3 caps going off despite the rate rise? Again, no supply. Insatiable demand. But on to Joe and Sally the individual home buyer. Its bad enough they have to compete with ibuying and the tutes. Yes, theyre idiots because they spent their 20s and 30s renting in Brooklyn or in the San Diego MSA instead of owning. Now they need to buy. Except, again, theres SOOOO much competition. The Excel guy plugs in a rate increase and says Sally and Joe cant afford the same amount of house as they could in 2021. In the real world, rates are rising because of inflation and a big part of this is the labor market. What the pocket protectors dont have in their spreadsheets is that Joe works remotely and can choose to take on more or less work and thus compensation and Sally has recruiters lining up to offer her 20% more. These are the inputs the are causing rates to rise. Further, Sally and Joe are getting priced out of their rental. They might be uncomfortable pushing their limits on a mortgage, but see the writing on the wall with renting and also would like to have kids and maybe get a dog. Is it inconceivable they push things a bit and take on some "paper risk" to still get into a house(assuming they even can because again, NO SUPPLY)? Even if they took on risk, if rates keep going up so will their salaries and their 30 year fixed looks even nicer. If rates come down they refinance. Lastly, what did the average home prices look like in the early 1970s? You know, the last days of low rates, right before they walked into the teeth of the highest rates the country has ever seen? What were they like two decades later, when the housing market "rolled over"? From 1970-1990, the average home price in America quadrupled. Yup.

Generally, home building is a shitty business. We all thought airlines changed too and then they showed the same susceptibility to slowdowns. Just give me the asset owners not the builders, assuming they have good balance sheets and reasonable managers. in either event, using GFC for any sort of modeling today shows a general lack of awareness. There’s nothing remotely similar. Even probably the homebuilder balance sheets and business models. Yup. When I see people making that baseline, I laugh. Get off the excel sheets and into the real world.

Institutional presence in SFH housing is still tiny. Tutes ain’t gonna be forced sellers of housing either. Demand there is still insatiable Part of my comfort in the thesis is that every Tom, Dick and Harry underwrites their bear thesis based on GFC but really, that was a once in a generation and maybe even a once in a lifetime event. And even there, it was what? 30% mark to market drawdowns? Things are nowhere close to that. But even that hardly sounds like such a big deal to me. Bring it.

Giamattis character was great up til recently when they seemingly went way overboard making him into some sort of deranged socialist criminal.

Yea Chuck breaking into random storage units and knowing exactly where hard drives are and then getting caught only to have to DA secretly covering his tracks while putting up a facade to trick prince, let alone the way foes always have their issues come to an immediate head to head battle….pushed this from being a time killing show with occasional value to just downright dumb.

Paul Giamatti is one of the most underrated actors out there. He and Kevin Spacey probably two of my all time favorites for these type of roles. Saw 21 was back on NFLX. Great movie as well.

Yes

Got caught up on Billions. It’s crazy how the shows liberal writers go so far out of the way to make SDNY prosecutors look like the corrupt scum that they are. Chuck has lost his mind and the little sidekick is even more deranged. True to life it seems.

FOR is an interesting name to go in there as well. A leveraged land bank controlled by DR Horton. Sole purpose of being public IMO is to transfer traditional homebuilder risks to public shareholders. Located in all the right spots but also probably the most sensitive to hiccups.

+1. Getting what they deserve. What kind of idiot buys this stuff? Oh yea, the smart money.

I generally dont complain. Its not worth the energy. If a restaurant I go to is awful, I just dont go back. If a hotel I stay at is shit, I just dont go back. If a service I order isnt up to par, I cancel future service. Airlines are a bit tougher because its oligopoly like, but even there, to most of the US, I would rather just drive. When I go South for the winter, instead of paying $2000 to fly the family, we just get in the car and do 5-7 hours of driving a day and then stay at a nice hotel. Still comes out the same or less than flying+renting a car+wasting hours standing around at airport.

https://www.crexi.com/properties/798025/california-silver-oaks-plaza-chick-fil-a-san-jose-ca 3.8 on Chick-Fil-A not even commenced yet, located in a socialist stronghold. Bbbbut! rates rising means CRE has to do poorly!