Zelman on housing

[maplevalue]

3 hours ago, Viking said:

The central problem we have today is historical analysis/numbers don’t really apply.

...
 

Bottom line, there is NO playbook for what is happening right now. History provides little guidance. Investors need to accept what they do not know. Be rational. And be prepared for most of the experts to be off base.

...
 

My ‘solution’ is pretty simple: to carry a higher than normal cash balance and wait for volatility. 

 

"Bankers know that history is inflationary and that money is the last thing a wise man will hoard." - The Lessons of History by Ariel & Will Durant (one of Dalio's favourite books)

[Gregmal]

A decade from now there will be much more cash out there but less Berkshire shares, the same amount of land in South Beach, and only one team named the NY Knicks. It really isn’t all that much more complicated than that. Much on the macro side can be simplified and reduced to such a way where things aren’t terribly hard to predict. 

[LearningMachine]

7 hours ago, Spekulatius said:

My wife was keen on paying back our mortgage (less than ~40% LTV) but not since we put some of her money into the 7.12% isavings bonds while we pay 2 3/4% on our mortgage.

 

Now that the inflation probability has finally materialized as expected, looking further out, how much of the excess M1/M2 supply do we think I-Bonds will be able to soak up and how long would that take?  Any readily available link out there on total amount of I-Bonds outstanding?  If 100 million folks could max out their $10K limit each year, it could soak up a trillion dollars a year.  But, we probably won't get that many folks buying it that fast. I-Bonds were not available in 1971, and people had to wait for interest rates to go up before high yielding treasuries could soak up extra supply at that time. 

 

Has anyone's barber started talking about I-Bonds yet? 

Edited December 14, 2021 by LearningMachine

[Cigarbutt]

8 hours ago, LearningMachine said:

 

Now that the inflation probability has finally materialized as expected, looking further out, how much of the excess M1/M2 supply do we think I-Bonds will be able to soak up and how long would that take?  Any readily available link out there on total amount of I-Bonds outstanding?  If 100 million folks could max out their $10K limit each year, it could soak up a trillion dollars a year.  But, we probably won't get that many folks buying it that fast. I-Bonds were not available in 1971, and people had to wait for interest rates to go up before high yielding treasuries could soak up extra supply at that time. 

If understood correctly, I-bonds outstanding were at about 180M in mid 2021.

Can you walk me through how buying  a savings bond results in a reduction of excess money supply?

[LearningMachine]

3 hours ago, Cigarbutt said:

If understood correctly, I-bonds outstanding were at about 180M in mid 2021.

Can you walk me through how buying  a savings bond results in a reduction of excess money supply?

 

Thanks @Cigarbutt, is there a link to it? I was trying to poke around the treasury website to find the report, but would appreciate if you have already figured out exactly which report.   Looks like this report only has the count: https://fiscaldata.treasury.gov/datasets/savings-bonds-issues-redemptions-maturities-by-series/paper-savings-bonds-issues-redemptions-and-maturities-by-series.

 

I wonder if that $180M figure is moving up a lot in November and December of 2021? 

 

Regarding reduction in excess money supply, I'm wondering if you are going to tell me I got it wrong, and I am happy to learn from your perspective.   I was just interpreting it from the perspective of M1 definition includes checking accounts but not I-Bonds.  So, when someone moves funds from their checking account to purchase I-Bonds, that should result in reduction of M1, and reduction in them blowing up that money on competing with other folks to raise prices on things.  I'm sure it is not that simple, and someone might come and educate me on the plumbing of it, e.g., no, no, no, that money now goes into the treasury's account with the Fed, and that should also be part of M1, or maybe that it ends up resulting in Fed, Treasury or banking system having to do something in the plumbing that results in not reducing M1 :-). 

Edited December 14, 2021 by LearningMachine

[Spekulatius]

4 hours ago, Cigarbutt said:

If understood correctly, I-bonds outstanding were at about 180M in mid 2021.

Can you walk me through how buying  a savings bond results in a reduction of excess money supply?

$180M is peanuts but I bet this number has gone up a lot since they became much more attractive in November after the interest rate reset.

 

In the end, isavings are pretty niche (none of my other friends knew about them) and because of the 10k limitation  / . individuals only it's going to be fairly limited in terms of total savings volume.

[fareastwarriors]

the kids are all grown up

 

 

Millennials Are Supercharging the Housing Market

The generation that supposedly didn’t want to buy things now accounts for over half of all home-purchase loan applications; economists expect them to bolster demand for years

https://archive.md/V7irg#selection-4683.3-4683.451

[Cigarbutt]

6 hours ago, LearningMachine said:

 

Regarding reduction in excess money supply..

I was just wondering how money transferred from Spekulatius’ wife account to (with some basic accrual short term adjustments during the transfer) another private account (for example, someone in the community who just had her account credited with unemployment benefits) results in an enduring change in 'excess' money supply.

[Gregmal]

Who doesnt love these headlines? 

 

https://seekingalpha.com/news/3783048-new-home-sales-miss-consensus-in-november-rising-124

 

Just like the Hedgeye chumps pushing their "sunbelt peak" thesis. Sorry folks. Gonna have to settle for 12% increases in sales and $10k increase in average price of a new home. Darnit. Time to buy some puts LOL. 

[Gregmal]

https://seekingalpha.com/news/3786402-opendoor-offerpad-among-ibuyers-selling-homes-to-corporate-landlords-boomberg

 

Wait so the iBuying is really just a funnel for institutions to accumulate properties? Again, who woulda thunk it?

 

This notion really isnt THAT farfetched. When you think of underwriting costs, loan discounts, selling concessions, all that shit and then some companies and institutions pay for other products...the idea that a long term, institutional holder would give a hoot about overpaying by 10-20% for a long duration asset like a home really kind of shows its immaterial. Especially since most of these long term holders will keep these assets own the books at cost and then split off cashflows to products/funds being managed. 

 

For those familiar with the WS game, its actually a perfect product. Have a third party acquire in bulk, then acquire those homes at a blended bulk rate, this rate can be sold to your investors as reasonable even if its slightly over market. Then you can play games with the financing and rents and its truly a great product. The chickens of course ONLY come home to roost if you are a forced seller, and given the dynamic nature of financing for housing, plus ridiculous amounts of liquidity out there, the music aint stopping any time soon. If fact, I think this is only just getting started. If a PE would buy a REIT for 30% premium to its public traded shares, why wouldnt they pay a 15% premium to current market for 1,000 SFH in a good area?

 

So this is all taking place in a market were supply is at all time lows.....building materials are expensive and also sometimes hard to acquire....sooo much liquidity out there and insatiable demand for good housing....bubble? Nope. Maybe the 3rd inning or so. 

[fareastwarriors]

37 minutes ago, Gregmal said:

....bubble? Nope. Maybe the 3rd inning or so. 

 

Play ball!

I'm closing on an investment SFH next week.

 

[thepupil]

recent anecdote from a family friend seeking $1.8mm home in south florida.

 

A house was put on market at 1.8x 2016 price, no major upgrades (maybe $100K of kitchen/bathrooms)

 

8 offers within 2 days (friend was trying to buy at $1.9mm w/ few contingencies).

 

seller pulled off market because got worried couldn't secure their upgrade home given the frenzied situation they were experiencing in looking for their new home. 

 

+50 bps on the mortgage rate isn't gonna stop that train. need people to become less liquid/rich or a big event. 

Edited January 20, 2022 by thepupil

[LearningMachine]

1 hour ago, thepupil said:

recent anecdote from a family friend seeking $1.8mm home in south florida.

 

Were they moving to south florida or moved their recently as a result of remote work, or already there before pandemic? 

[thepupil]

1/2 of couple already there, 1/2 of couple moved from NYC (met during covid)

Edited January 20, 2022 by thepupil

[Gregmal]

Ive always found anecdotal stuff useful. The only question I ask ahead of it, is does this experience reflect that of a typical person in a typical situation. IE is this indicative of the broader market. Whats cool with housing, is you can go make a few calls and get to the bottom right away. Take a brokerage statement(or another proof of resources) and contact a few agents anywhere you're looking to invest, letting them know you have the funding to buy already secured. In a day or two you can start making offers. See how easy or difficult it is to buy a house right now. Spoiler alert: its definitely not easy. 

[rohitc99]

On 12/23/2021 at 9:26 AM, Gregmal said:

Who doesnt love these headlines? 

 

https://seekingalpha.com/news/3783048-new-home-sales-miss-consensus-in-november-rising-124

 

Just like the Hedgeye chumps pushing their "sunbelt peak" thesis. Sorry folks. Gonna have to settle for 12% increases in sales and $10k increase in average price of a new home. Darnit. Time to buy some puts LOL. 

 

https://www.cnbc.com/2022/01/20/december-home-sales-drop-4point6percent-as-supply-hits-record-low.html

[thepupil]

yep, it's somewhat simple. granted the spring selling season hasn't started, but right now my general neighborhood of 800 homes has 2 homes for sale. 1 is $1.1mm the 2nd is $2.5mm and not even ready (it's under construction). i think it may even be 1 because i think the $2.5mm is in another neighborhood.

 

If you are the typical professional DC dual working family and want to live in my hood and you can't afford or wait for the $2.5mm home, you have one house to look at this week....and it will go under contract within 3 days. 

 

you're probably competing against 10 well qualified buyers, 1-2 of whom are all cash (family money often acting as a bridge loan to make all cash bid), none of which have substantial contingencies. 

 

the rate doesn't matter. the headwinds of WFH don't matter. Demand exceeds supply. if you have one spouse in big law, you're pay is massively increasing because there's a shortage of people willing to slave away in big law. it doesn't matter if the home price is 30%-40% more than 2 years ago. 

 

come and get it. 

 

so even in my low job growth, blue state, not sexy geography...i see the near term trend as up regardless of rates (within reason).

 

in other sexier markets, they may be bringing on more supply but demand is like 10x. so demand still vastly exceed supply...for now.

 

now id don't (fully) take mark to market gains based on a very small % of inventory turning over to the bank...I think other markets where there's more activity/market depth are probably safer, but to expect a sudden and dramatic decline in prices absent something cataclysmic or to call it a bubble, in my opinion, is not the right way to think about it. 

 

 

 

Edited January 20, 2022 by thepupil

[Viking]

KB Homes had their quarterly conference call last week. They were asked about higher rates. The CEO said higher rates will have no impact on their ability to sell new homes. And that is because most people buying are making a ‘needs based’ decision. So they will eat a higher mortgage rate. He said they have thousands of people on lists nationally who want to buy right now. The issue is supply - can’t make houses fast enough due to supply chain constraints/shortage of labour and materials.

 

When you have a shortage of houses - caused by under-building for a decade - and then you have three demand shocks all happening at once:

1.) covid/stay at home

2.) demographics - millennials are just entering prime home buying years

3.) investor demand - single family homes are the hot new investment class with individuals and also institutions (inflation hedge and more)

Is anyone surprised prices are rocking? And my guess is it last for a few years. My way to play the housing boom is to own lumber stocks (well just West Fraser today).

Edited January 20, 2022 by Viking

[ValueArb]

On 1/20/2022 at 12:50 PM, Viking said:

KB Homes had their quarterly conference call last week. They were asked about higher rates. The CEO said higher rates will have no impact on their ability to sell new homes. And that is because most people buying are making a ‘needs based’ decision. So they will eat a higher mortgage rate. He said they have thousands of people on lists nationally who want to buy right now. The issue is supply - can’t make houses fast enough due to supply chain constraints/shortage of labour and materials.

 

When you have a shortage of houses - caused by under-building for a decade - and then you have three demand shocks all happening at once:

1.) covid/stay at home

2.) demographics - millennials are just entering prime home buying years

3.) investor demand - single family homes are the hot new investment class with individuals and also institutions (inflation hedge and more)

Is anyone surprised prices are rocking? And my guess is it last for a few years. My way to play the housing boom is to own lumber stocks (well just West Fraser today).

 

Is the KB Homes CEO a net buyer or seller of KB Homes stock?

[Viking]

1 hour ago, ValueArb said:

 

Is the KB Homes CEO a net buyer or seller of KB Homes stock?

 
@ValueArb no idea. My read is the risk for housing today is not rising interest rates. It is a slowing economy. The PMI’s today were weak… due to Omicron? Or is the economy rolling over?

Edited January 24, 2022 by Viking

[ValueArb]

2 hours ago, Viking said:

 
@ValueArb no idea. My read is the risk for housing today is not rising interest rates. It is a slowing economy. The PMI’s today were weak… due to Omicron? Or is the economy rolling over?

 

I recognize I have no insight into the housing markets future. So when someone who has deep insight like KB homes CEO makes positive pronouncements about their markets future, my rule of thumb is to weight their opinion heavily if they are a net buyer of their stock, and weight it lightly if they are a net seller. In both cases they have incentives to "talk their book" but I give the buyer more credit for the long term thinking and honesty.

 

Now it occurs to me that I've never thought of how to weight someones opinion if they are sellers and their opinion of their markets future is negative, hmmm.

[Spekulatius]

Looks like he is the seller. 

 

1 hour ago, ValueArb said:

 

I recognize I have no insight into the housing markets future. So when someone who has deep insight like KB homes CEO makes positive pronouncements about their markets future, my rule of thumb is to weight their opinion heavily if they are a net buyer of their stock, and weight it lightly if they are a net seller. In both cases they have incentives to "talk their book" but I give the buyer more credit for the long term thinking and honesty.

 

Now it occurs to me that I've never thought of how to weight someones opinion if they are sellers and their opinion of their markets future is negative, hmmm.

He is a seller

http://openinsider.com/screener?s=KBH&o=&pl=&ph=&ll=&lh=&fd=365&fdr=&td=0&tdr=&fdlyl=&fdlyh=&daysago=&xp=1&xs=1&vl=&vh=&ocl=&och=&sic1=-1&sicl=100&sich=9999&grp=0&nfl=&nfh=&nil=&nih=&nol=&noh=&v2l=&v2h=&oc2l=&oc2h=&sortcol=0&cnt=100&page=1

 

[thepupil]

On 1/20/2022 at 11:05 AM, thepupil said:

yep, it's somewhat simple. granted the spring selling season hasn't started, but right now my general neighborhood of 800 homes has 2 homes for sale. 1 is $1.1mm the 2nd is $2.5mm and not even ready (it's under construction). i think it may even be 1 because i think the $2.5mm is in another neighborhood.

 

If you are the typical professional DC dual working family and want to live in my hood and you can't afford or wait for the $2.5mm home, you have one house to look at this week....and it will go under contract within 3 days. 

 

you're probably competing against 10 well qualified buyers, 1-2 of whom are all cash (family money often acting as a bridge loan to make all cash bid), none of which have substantial contingencies. 

 

the rate doesn't matter. the headwinds of WFH don't matter. Demand exceeds supply. if you have one spouse in big law, you're pay is massively increasing because there's a shortage of people willing to slave away in big law. it doesn't matter if the home price is 30%-40% more than 2 years ago. 

 

come and get it. 

 

so even in my low job growth, blue state, not sexy geography...i see the near term trend as up regardless of rates (within reason).

 

in other sexier markets, they may be bringing on more supply but demand is like 10x. so demand still vastly exceed supply...for now.

 

now id don't (fully) take mark to market gains based on a very small % of inventory turning over to the bank...I think other markets where there's more activity/market depth are probably safer, but to expect a sudden and dramatic decline in prices absent something cataclysmic or to call it a bubble, in my opinion, is not the right way to think about it. 

 

 

 

 

to follow up on this, the most recent "market update" from the realtor that's sent out notes that there is 1 home listed in our neighborhood of 800. she was lamenting that fact because she needs volume and her advertisement read like "please increase inventory for everyone's sake, sell your home now!". she did note that homes aren't quite getting the peak premiums to ask because of rates. 

 

when i texted this to my parents in sough florida, they said "our neighborhood has 250 and none are for sale". 

 

the house 2 doors down from us tenants just turned over. Asking rent went from $4K to $5K between the leases (in less than 12M's); i thought the landlord was crazy for buying this house for 15% more than what i paid in 2019 despite the home being in worse condition and havign 1 less bedroom (same-ish "model" but from the 1940's so 80 years of differences). the landlord seems less crazy now that his rents grew 25% (or whatever was negotiated). 

 

I spoke to the tenant yesterday and asked where he was moving from. Local family been here a while. He said "it's frustrating, we were going to buy our house from our landlord, then he got an all cash offer that he couldn't refuse and needed us to counter within 1-2 weeks". He said they couldn't find anywhere similar to live and signed an 18 month lease with this landlord as soon as they could

 

Good times. 

Edited February 15, 2022 by thepupil

[ValueArb]

10 hours ago, thepupil said:

 

to follow up on this, the most recent "market update" from the realtor that's sent out notes that there is 1 home listed in our neighborhood of 800. she was lamenting that fact because she needs volume and her advertisement read like "please increase inventory for everyone's sake, sell your home now!". she did note that homes aren't quite getting the peak premiums to ask because of rates. 

 

when i texted this to my parents in sough florida, they said "our neighborhood has 250 and none are for sale". 

 

the house 2 doors down from us tenants just turned over. Asking rent went from $4K to $5K between the leases (in less than 12M's); i thought the landlord was crazy for buying this house for 15% more than what i paid in 2019 despite the home being in worse condition and havign 1 less bedroom (same-ish "model" but from the 1940's so 80 years of differences). the landlord seems less crazy now that his rents grew 25% (or whatever was negotiated). 

 

I spoke to the tenant yesterday and asked where he was moving from. Local family been here a while. He said "it's frustrating, we were going to buy our house from our landlord, then he got an all cash offer that he couldn't refuse and needed us to counter within 1-2 weeks". He said they couldn't find anywhere similar to live and signed an 18 month lease with this landlord as soon as they could

 

Good times. 

 

If rates go up, houses become more expensive to own at same price but how does that impact prices if there is still no inventory? i can't imagine how higher rates is going to create more inventory to sell.

[thepupil]

yea...i mean the clear answer is more houses should be built, but that takes time...NIMBY-ism, construction costs, etc.