So What Exactly Is The "Short Homebuilders" Thesis At This Point

[Spekulatius]

Well realtors and those business associated with realtors have a bunch of problems, both temporary (lack of transaction volume ) and probably permanent (falling commissions).

 

On single family homes in general we have hit the affordability limit in many cases - a result of a double whammy of higher prices and high interest rates, which typically don’t occur at the same time. The result is that affordability is at a historical low and it’s looking even worse than 2006/2007. Renting is much cheaper than buying even when you take out the amortization of a 30 year mortgage payment virtually anywhere.

 

Something is gotta give. Just two datapoints, Realtors in open houses I have visited have told me that the market has shifted into a buyer market here since May. This is not reflected in public statistics or even news articles here at all which still talk about a sellers market. A shift from seller to buyers markets generally means 5% off right off the bat, typically in the form of incentives, free repairs, rebates and what not. The price changes in stats come later.

Edited July 20, 2024 by Spekulatius

[handycap5]

On 6/14/2023 at 12:32 AM, Gregmal said:

So the stock peaked at $40, spent tons of time between $10-25, and wouldn’t have been a worthwhile investment? Especially with a common sense DCA strategy?

 

There is a reasonably lively thread under the DHI ticker on this website that I think can often be applied to other homebuilders as well. 

 

In my experience, 2003-2006 was a truly unique occurrence in the US housing industry. I might say "it was different that time" and now its just a more normal business in a sometimes cyclic industry with favorable medium-term supply-demand dynamics, scale advantages, etc. 

[Gregmal]

You know housing is a solid place to be when even Willie Browns ex lover’s economic platform hinges on plowing money into the housing ecosystem. 

[Red Lion]

On 8/16/2024 at 1:51 PM, Gregmal said:

You know housing is a solid place to be when even Willie Browns ex lover’s economic platform hinges on plowing money into the housing ecosystem. 

If the Cali contingent takes over we could easily see housing double from here again. 
 

In my hometown (about 3 hours from the sf Bay Area) housing is very affordable compared to the rest of the west coast, but they just finished a 59 unit “affordable housing” complex at over $700k per unit. You can buy a nice 2500 sf house for 700k in the same market. 
 

California has been playing lip service to affordable housing and infill development for at least 5 years now while the cost of replacement just keeps going higher.  

[brobro777]

I got a buddy who lives in Bergen County NJ and he tells me the home prices in his town are continuing to go crazy, year after year after year. That's with NJ property taxes - at least California has Prop 13

 

There sure seems to be lots of down payment assistance programs, 3% FHA loans, VA loans with 50% DTI, etc. etc....

 

[Gregmal]

9 minutes ago, brobro777 said:

I got a buddy who lives in Bergen County NJ and he tells me the home prices in his town are continuing to go crazy, year after year after year. That's with NJ property taxes - at least California has Prop 13

 

There sure seems to be lots of down payment assistance programs, 3% FHA loans, VA loans with 50% DTI, etc. etc....

 

The Bergen County property market literally never goes down. Never. GFC home prices basically just stayed flat and still sold inside a week. 
 

My sister in law was in the market for a starter home for 5 years. 2 years ago she finally threw in the towel and bought a 1930s 2/2 in Waldwick for $480k. List price was $400k. Her explanation was “I’m tired of being outbid for stuff that isn’t even on the market long enough to see. I’ve bid and missed out on 2 dozen homes over the last 3 years. I just wanna get on with my life”. 

[brobro777]

24 minutes ago, Gregmal said:

The Bergen County property market literally never goes down. Never. GFC home prices basically just stayed flat and still sold inside a week. 
 

My sister in law was in the market for a starter home for 5 years. 2 years ago she finally threw in the towel and bought a 1930s 2/2 in Waldwick for $480k. List price was $400k. Her explanation was “I’m tired of being outbid for stuff that isn’t even on the market long enough to see. I’ve bid and missed out on 2 dozen homes over the last 3 years. I just wanna get on with my life”. 

 

Yea I believe it. I remember hanging out with this buddy in the fall of 2009 and he was whining about how him and his wife were having a tough time buying a house in Bergen County (they ended up buying in Dec 2009 I think) because the sellers wouldn't negotiate and stuff. 

 

Now 15 years later he texts me that new builds in his neighborhoods are going off at $2M+

 

Haha

 

[Spooky]

https://on.ft.com/3XdktnN

 

Article in the FT on the US housing market - housing starts on track to fall 16% this year with US homebuilders facing their highest credit crunch in more than a decade and banks cutting lending for residential construction by more than 10%. All of this amid a housing shortage.

[handycap5]

57 minutes ago, Spooky said:

https://on.ft.com/3XdktnN

 

Article in the FT on the US housing market - housing starts on track to fall 16% this year with US homebuilders facing their highest credit crunch in more than a decade and banks cutting lending for residential construction by more than 10%. All of this amid a housing shortage.

 

Loans outstanding went to $92 billion compared to $102 billion last year. 

 

It is worth noting that 1) the large public builders are often near net cash, 2) generating ample cash flow, 3) increasingly use options, land banking arrangements reduce the capital tied up in the production of homes. If there is an adverse impact on the FDIC loan volume statistics the FT cited, it would disproportionately fall on the non-public and smaller builders. But the advent of land banking, etc. may reduce the need for bank financing in the entire industry. So the statistics might reflect financing mix change as opposed to something more fundamental. Do others have any insight on this? 

Edited September 4, 2024 by handycap5
spelling, ARGH!

[Gregmal]

So with this recent hurricane in view, I can’t help but think this highlights the current dynamic driving homebuilders. Much of the current US housing supply is simply not built to current housing standards. Everyone thinks of Florida, but really, so many markets are unprepared and ill suited for what many consider black swan weather events. 
 

We talked awhile back about supply, but I mentioned how millennials and current home buyers and prospective don’t want their parents homes. They want modern built homes with less space and shiny kitchens and huge great rooms. This begs the question…is the new build MPC centric, resort style, big builder home the home of the future? If so it’s hugely bullish for the big guys. I bought a bunch of TOL in July on the dip and it’s already up $40 a share. Will this trend only accelerate given the recent weather related news cycle?

[Spekulatius]

From my limited data looking at the CLT home market (a city with many Millenials moving here), they don’t want MPC’s either.

 

They want to live close to the town, near public transport and close to restaurants - the work life thing.

 

So what really is hot here is gutting out the 50’s and 60 ‘s ranch homes in certain areas with ~1300 sqft and creating  the open floor plan they like. Guess what, older folks where kids moved out already like these homes too.

 

The MPC and planned communities are too far out and without public transportation. They are for people with kids liking this lifestyle with pool, picket ball courts and all that.

Edited September 28, 2024 by Spekulatius

[Red Lion]

22 hours ago, Spekulatius said:

So what really is hot here is gutting out the 50’s and 60 ‘s ranch homes in certain areas with ~1300 sqft and creating  the open floor plan they like. Guess what, older folks where kids moved out already like these homes too.

 

I've done this on a couple houses recently and I can vouch for the fact that it's definitely cheaper and way less hassle to just buy a brand new track home. Not that I'd want one, even though I'm a (geriatric) millennial. 

[handycap5]

On 9/29/2024 at 10:19 AM, Red Lion said:

 

I've done this on a couple houses recently and I can vouch for the fact that it's definitely cheaper and way less hassle to just buy a brand new track home. Not that I'd want one, even though I'm a (geriatric) millennial. 

 

I think a "lollapalooza" is happening in the housing market, primarily due to classic supply-demand dynamics. Cherry on top - I think others underappreciate the marketing advantage that new single-family home sellers enjoy with a combination of move-in ready spec inventory and the ability to guarantee a predictable affordable 30-year monthly payment at signing through mortgage rate locks and mortgage buydowns. 

[Spekulatius]

American Homebuilding craftsmanship in one picture:

[Castanza]

20 minutes ago, Spekulatius said:

American Homebuilding craftsmanship in one picture:

Believe it or not that’s actually code in some places. Something to do with if it’s knocked out it’s likely to be knocked downward so the first point of contact is the ground. Electricians here asked me which way I wanted it as it’s more suggested than enforced. Also sometimes installed that way to show it’s tied to a wall switch for a lamp or something. I have a few like that in my place that I actually switched before knowing this. 

Edited March 11, 2025 by Castanza

[Gregmal]

I did always randomly wonder why it made a difference. 

[Eng12345]

Ha! I thought we were talking about the drywall nail, face plate screw not being horizontal, the trim paint on the floorboards, and possibly the cutout being on the tits edge of the faceplate. 

[gfp]

11 minutes ago, Eng12345 said:

Ha! I thought we were talking about the drywall nail, face plate screw not being horizontal, the trim paint on the floorboards, and possibly the cutout being on the tits edge of the faceplate. 

horizontal !??!!!  Always vertical!

[Spekulatius]

25 minutes ago, Eng12345 said:

Ha! I thought we were talking about the drywall nail, face plate screw not being horizontal, the trim paint on the floorboards, and possibly the cutout being on the tits edge of the faceplate. 

Yep everything above. I have 3 outlets in my house that are reversed, the rest has normal orientation. I don’t think it’s a code thing.

[Castanza]

This whole segment is getting crushed....Anyone been thinking about this? TOL, DFH, DHI etc. all trading way down. With tariffs driving prices up in an already expensive market, this seems like it could go on for a long time. If we (US) are undersupplied with starter homes, but prices continue to rise what's the solution? On the flip side, the builders are in general better capitalized and positioned than they were prior to GFC. High end market seems somewhat insulated but who knows?

[yesman182]

5 minutes ago, Castanza said:

If we (US) are undersupplied with starter homes, but prices continue to rise what's the solution?

in my area the solution is more and more apartments. 

[Spekulatius]

9 minutes ago, Castanza said:

This whole segment is getting crushed....Anyone been thinking about this? TOL, DFH, DHI etc. all trading way down. With tariffs driving prices up in an already expensive market, this seems like it could go on for a long time. If we (US) are undersupplied with starter homes, but prices continue to rise what's the solution? On the flip side, the builders are in general better capitalized and positioned than they were prior to GFC. High end market seems somewhat insulated but who knows?

Didn’t the home builder stock go parabolic exactly mode the reasons cited above?

 

I think the tariffs on lumber etc will add ~$20K to the cost of an average house but I think if you add furniture, appliances etc, it is likely more.

 

If it easy to build it’s like drill baby drill and the profits for home builders will decline on higher volumes and stocks likely will go down.

 

This will be different for supplier of home builder  like Lumbers, fasteners, hardware, retail, which depend more on Volume than pricing. Choose your segment carefully, I would say.

[Gregmal]

Everything is about the flow of convenience here. Next move is for rates to come down a little and then the builders exchange some margin for volume. This has all been very predictable, making and befuddlement of the "experts" even more bewildering. 

[Red Lion]

4 minutes ago, Spekulatius said:

think the tariffs on lumber etc will add ~$20K to the cost of an average house but I think if you add furniture, appliances etc, it is likely more.

If mass deportations ever end up materializing I think that could make an even bigger impact.

 

https://www.americanimmigrationcouncil.org/sites/default/files/research/council_empowering_texas_-_immigrants_contributions_to_the_construction_industry_2024.pdf

 

I don't know if this source is to be believed, but it's saying about 25% of the construction work force are illegal immigrants. 

[Castanza]

8 minutes ago, Spekulatius said:

Didn’t the home builder stock go parabolic exactly mode the reasons cited above?

 

I think the tariffs on lumber etc will add ~$20K to the cost of an average house but I think if you add furniture, appliances etc, it is likely more.

 

If it easy to build it’s like drill baby drill and the profits for home builders will decline on higher volumes and stocks likely will go down.

 

This will be different for supplier of home builder  like Lumbers, fasteners, hardware, retail, which depend more on Volume than pricing. Choose your segment carefully, I would say.

 

Exactly 

 

This tariffs situation is potentially ... Gasoline ->