Zelman on housing

[Gmthebeau]

17 hours ago, ValueArb said:

 

 

I love when people post things like this, because most people have severe recency bias.  They think that whatever happened from 2009 to today is the entirety of history, instead of the abnormality that is actually was.  It is interesting to note that I looked back at median home prices during this timeframe (1976-84) and they nearly doubled.....which is also not what most people think is going to happen.

[dealraker]

West Center Street Lexington NC builders supply since 1905, the most profitable "independent" builder supply based on profit margin in the southeast.  Status: Sales down 30% from one year ago and heading south.  The Sunday afternoon sitting on the farmstead porch Sunday afternoon hoisting 2 beers apiece.  "Heading down from here...8% ain't gunna work...nothing much over 6 gunna work either."  

 

The update!

Edited October 26, 2023 by dealraker

[RedLion]

4 hours ago, Gmthebeau said:

 

I love when people post things like this, because most people have severe recency bias.  They think that whatever happened from 2009 to today is the entirety of history, instead of the abnormality that is actually was.  It is interesting to note that I looked back at median home prices during this timeframe (1976-84) and they nearly doubled.....which is also not what most people think is going to happen.

You and I must somehow be wired to think alike. All I hear is the sky is falling because affordability is terrible because interest rates are up significantly. 
 

But stepping back, the demand situation is huge with most millennials wanting to buy homes and gen z as well. Now thanks to Ozempic all the diabetic boomers are gonna be kicking for another 20 years. Millennials bought over 40% of all housing in 2021 and down to 8% I read currently. 
 

On the supply front we have a lot of new multi family hitting the market, not a ton of single family homes, and construction on those is slowing. 
 

So lots of pent up demand. Not a lot of supply coming. 
 

 

And guess what, it was far far cheaper to build in the time frame above. As a percentage of family income. My parents built a gorgeous custom home in 82 on one bachelor’s degree level income, and I know a ton of other boomers did the same thing. 
 

Only the wealthiest millennials/gen z will have money for custom builds. Most can’t afford new builds in the sunbelt until rates come down and definitely can’t afford building in the previously desired coastal and west coast markets. 
 

So why are prices going to fall? There’s not any supply. The marginal buyer pushes the price, and we aren’t building enough sfh and the millenials definitely aren’t going to figure this out anytime soon. 
 

As soon as rates drop you have a huge pent up demand that’s going to flood back into the market. 
 

But even while rates are high, this is increasing the deficit spending, and as a result of high inflation. Construction is one of those pieces of the market that seems to inflate structurally faster than average (like healthcare but more volatile), so if we stay in a high inflation and high rate period for a matter of years, this should be a tailwind to housing since it continues to hold back supply, increase cost of new construction, and presumably the smart/lucky millenials/Z’s will benefit from this inflating economy and bid ever higher prices for their piece of the American dream. 
 

Either way housing seems like a solid bet right now unless your over leveraged. 
 

There’s clearly potential for a correction/hiccup as the market works through affordability issues, but I don’t see any reason to think the existing housing stock is overvalued on the whole. 
 

 

Edited October 26, 2023 by RedLion

[Cod Liver Oil]

@dealraker you are right. RE cycles are long and harsh. JOE as a business will do fine through the downturn. I'll keep picking up shares. @Gregmal do you have a sense if/when they might buy back stock?

[Gregmal]

36 minutes ago, Cod Liver Oil said:

@dealraker you are right. RE cycles are long and harsh. JOE as a business will do fine through the downturn. I'll keep picking up shares. @Gregmal do you have a sense if/when they might buy back stock?

I do and I’m hoping to refine that shortly. 

[Gmthebeau]

41 minutes ago, RedLion said:

You and I must somehow be wired to think alike. All I hear is the sky is falling because affordability is terrible because interest rates are up significantly. 
 

But stepping back, the demand situation is huge with most millennials wanting to buy homes and gen z as well. Now thanks to Ozempic all the diabetic boomers are gonna be kicking for another 20 years. Millennials bought over 40% of all housing in 2021 and down to 8% I read currently. 
 

On the supply front we have a lot of new multi family hitting the market, not a ton of single family homes, and construction on those is slowing. 
 

So lots of pent up demand. Not a lot of supply coming. 
 

 

And guess what, it was far far cheaper to build in the time frame above. As a percentage of family income. My parents built a gorgeous custom home in 82 on one bachelor’s degree level income, and I know a ton of other boomers did the same thing. 
 

Only the wealthiest millennials/gen z will have money for custom builds. Most can’t afford new builds in the sunbelt until rates come down and definitely can’t afford building in the previously desired coastal and west coast markets. 
 

So why are prices going to fall? There’s not any supply. The marginal buyer pushes the price, and we aren’t building enough sfh and the millenials definitely aren’t going to figure this out anytime soon. 
 

As soon as rates drop you have a huge pent up demand that’s going to flood back into the market. 
 

But even while rates are high, this is increasing the deficit spending, and as a result of high inflation. Construction is one of those pieces of the market that seems to inflate structurally faster than average (like healthcare but more volatile), so if we stay in a high inflation and high rate period for a matter of years, this should be a tailwind to housing since it continues to hold back supply, increase cost of new construction, and presumably the smart/lucky millenials/Z’s will benefit from this inflating economy and bid ever higher prices for their piece of the American dream. 
 

Either way housing seems like a solid bet right now unless your over leveraged. 
 

There’s clearly potential for a correction/hiccup as the market works through affordability issues, but I don’t see any reason to think the existing housing stock is overvalued on the whole. 
 

 

 

Yep, affordability and sales may very well drop...but prices will still go up because of limited supply.  We will likely be supply constrained for quite a few years in single family housing.  Prices already corrected (10-20%) in the hot markets, like Austin, San Francisco, etc...those areas may correct a bit more but probably not much.   In most areas prices will just keep going up.

[ValueArb]

5 hours ago, Gmthebeau said:

 

I love when people post things like this, because most people have severe recency bias.  They think that whatever happened from 2009 to today is the entirety of history, instead of the abnormality that is actually was.  It is interesting to note that I looked back at median home prices during this timeframe (1976-84) and they nearly doubled.....which is also not what most people think is going to happen.

 

The average price of anything increased 93% from 1976 to 1984 due to inflation.

 

Also median home prices can be misleading. Typically homes have grown significantly in size and standard features (AC, etc) over time, but during periods of high prices it's likely that that trend pauses or even reverses to maintain affordability. 

[dealraker]

I think we are discussing many things at once here.  Housing needs are a plenty, maybe even desperate almost, and getting more intense especially where I live. That won't change intermittent cyclical pricing and sales.  Been in this business a long long time.

 

Still I look forward to the possibility of adding to JOE.  Not only is capitalism via our banking system subject to boom bust, we can participate in the most boom bust sector of all.

 

Early 80's ain't recent, but in my view put 2009 to shame in many ways.

Edited October 26, 2023 by dealraker

[Gmthebeau]

1 hour ago, ValueArb said:

 

The average price of anything increased 93% from 1976 to 1984 due to inflation.

 

Also median home prices can be misleading. Typically homes have grown significantly in size and standard features (AC, etc) over time, but during periods of high prices it's likely that that trend pauses or even reverses to maintain affordability. 

 

Affordability doesn't determine prices if there is a shortage.  It is just like oil.  If they Saudi's stop pumping prices go up because there is less available (assuming nobody else starts pumping).   They said the EXACT same thing in the late 1970s, houses were unaffordable yet prices continued higher.  https://www.gao.gov/products/ced-78-101

 

[dealraker]

So here on the lake where I live the prices haven't subsided one bit according to realtors.  Sales?  None!  Not one single sale on the lake for two months.

 

Oh it gets complex doesn't it?!

[Gmthebeau]

8 minutes ago, dealraker said:

So here on the lake where I live the prices haven't subsided one bit according to realtors.  Sales?  None!  Not one single sale on the lake for two months.

 

Oh it gets complex doesn't it?!

 

Exactly, this is my point.  Sales dropped but not prices.  I believe this is what we will continue to see for years.  Slow sales, but continued increase in prices due to lack of supply.  Obviously, if you are a supplier of housing materials this may impact your business adversely.  If you are selling new homes business may slow, but none of that means anything to or impacts existing housing prices.

Edited October 26, 2023 by Gmthebeau

[dealraker]

And potentially buying JOE at $36 has absolutely nothing to do with house prices falling.  My earlier text had nothing to do with prices falling!

Edited October 26, 2023 by dealraker

[thepupil]

some news from "Rich Men North of Richmond" land. 

 

House 1 is 2200 sq feet, 4BR lot w/ old shitty house on it bought for $1.1mm in 2022. Builder planned to get variance to slap a Mcmansion on it. Didn't succeed (#NIMBYISM). Opts to do gut reno on the small house. Looks beautiful, fancy AF, but small for px . Throws it on the market for a whopping $1.7 million. Sitting without any action for weeks. 

 

House 2 is 1900 sq feet. 3BR. Nice old European lady who loves my dog has to go to the nursing home . my neighbor realtor works with her for a month to make the house updated/clean, but nothing flashy. Throws in on market for $995K vs $1.2mm zestimat estimate. Flies off the shelf w/i 2 days,  undoubtedly well above ask (don't know price), likely close to zestimate. 

 

these basically encapsulate what I'm seeing. the $2mm houses where someone's jumping from a $5K to $15K payment are moving slower than mollasses in winter. the more attainable there's near infinite demand and no supply. 

 

Edited October 26, 2023 by thepupil

[Gmthebeau]

5 minutes ago, dealraker said:

And potentially buying JOE at $36 has absolutely nothing to do with house prices falling.  My earlier text had nothing to do with prices falling!

 

Right, I have no opinion on JOE, not really looked at it.  Stocks can move far beyond fundamentals at times due to emotional trading so if their business of selling new homes goes south looking at a chart I could see it hitting $20.

[ValueArb]

2 minutes ago, thepupil said:

some news from "Rich Men North of Richmond" land. 

 

House 1 is 2200 sq feet, 4BR lot w/ old shitty house on it bought for $1.1mm in 2022. Builder planned to get variance to slap a Mcmansion on it. Didn't succeed (#NIMBYISM). Opts to do gut reno on the small house. Looks beautiful, fancy AF, but small for px . Throws it on the market for a whopping $1.7 million. Sitting without any action for weeks. 

 

House 2 is 1900 sq feet. 3BR. Nice old European lady who loves my dog has to go to the nursing home . my neighbor realtor works with her for a month to make the house updated/clean, but nothing flashy. Throws in on market for $995K vs $1.2mm zestimat estimate. Flies off the shelf w/i a week,  undoubtedly well above ask (don't know price), likely close to zestimate. 

 

these basically encapsulate what I'm seeing. the $2mm houses where someone's jumping from a $5K to $15K payment are moving slower than mollasses in winter. the more attainable there's near infinite demand and no supply. 

 

 

My advice to you is try to take your dog to that nursing home once a month. My 94 year old neighbor loved my dog and I'd always drop by to chat when walking her. Then I got divorced, had to sell the house and move to a place where I couldn't easily walk by. Didn't go back for months and he passed away and I felt terrible about it.

[thepupil]

On 10/26/2023 at 1:35 PM, thepupil said:

some news from "Rich Men North of Richmond" land. 

 

House 1 is 2200 sq feet, 4BR lot w/ old shitty house on it bought for $1.1mm in 2022. Builder planned to get variance to slap a Mcmansion on it. Didn't succeed (#NIMBYISM). Opts to do gut reno on the small house. Looks beautiful, fancy AF, but small for px . Throws it on the market for a whopping $1.7 million. Sitting without any action for weeks. 

 

House 2 is 1900 sq feet. 3BR. Nice old European lady who loves my dog has to go to the nursing home . my neighbor realtor works with her for a month to make the house updated/clean, but nothing flashy. Throws in on market for $995K vs $1.2mm zestimat estimate. Flies off the shelf w/i 2 days,  undoubtedly well above ask (don't know price), likely close to zestimate. 

 

these basically encapsulate what I'm seeing. the $2mm houses where someone's jumping from a $5K to $15K payment are moving slower than mollasses in winter. the more attainable there's near infinite demand and no supply. 

 

the old lady’s house sold for $1.3mm, demonstrating that purposefully underpricing remains best way to drive competition and get top dollar.