I’ll admit when I initially chose this title I was in feistier spirits, but I just engaged in a xTwitter debate that I find exhausting and sad. Originally my title referred to the fact that 2024 will be marked by fierce competition between the builders and existing homeowners during the Spring selling and buying season. After the politicized response I received this week to a post on food banks, I realize that the election games have started in earnest.
Perhaps it has always been so that people have no time to hold two ideas in their head at once….and I’m not just talking about contradictory ones. The days when I was able to on-demand describe schools of philosophical thought are long behind me, but I will never forget the Cartesian Can-Can, rooted in the separation of mind and body which made it easy to jump to Self and Other, Us versus Them….and on and on. Some may quibble with my recollection of these schools of thought, but this post is not for them. Importantly, we have long understood our lives only in opposition to something else and the algos know it. After posting about increases for those frequenting food banks, the conversation immediately jumped to immigration and folks taking advantage….of course. I came of age in this debate listening to my grandparents arguing with my parents at the dinner table. What I have always found is that when we stop and listen, we are so much more aligned than we think, but it is ever so hard for the ego to stand down and for our rudimentary understanding of the world to step aside to allow constructive debate.
Additionally, it is almost impossible to pull yourself from the now, and even from history, to find humanity within ourselves and others. It’s just all so hard. We can adopt learned helplessness as so many have, or we can actually look for solutions. To look and find solutions we have to know what we are fighting. Increasingly I believe we are not fighting each other, but forces that have vested interests in consolidating power to preserve their privileged way of life.
What does this have to do with housing? Some say real estate makes up 85% of global wealth. In the space of commercial and residential real estate, vested interest is an understatement. There are many players….some own Realtor.com while also owning The Wall Street Journal; some are family businesses that go back decades and sometimes centuries; some are criminal networks who launder money through real estate; some are state actors who are hedging bets; some are judges, lawyers, politicians who saw rare opportunity to gain wealth or passive income, through short or long-term rental; some are trying to enrich themselves and feed their families by wagering on these dynamics in the stock market; and some just want shelter. Which are you?
I honestly do not care about the answer, but in order to understand our current quandary, we have to be aware that it is nuanced and definitely not black and white. I have had some be angry that I won’t take a hard stance or position on some of these topics, but since those early days at the dinner table, I have learned that tearing things down without a plan to build them back up can be truly destructive. I will never stop listening to the other side no matter how brutal, if there is the slimmest of chances a breakthrough can occur. And a breakthrough in my book is not if I’m proven right - it’s when true, shared understanding occurs.
Never fear, I won’t linger here too long and will soon dive into New Construction, Existing Sales and Redfin data and my site visit to Wilmington, NC and Myrtle Beach, SC. But, lately I have felt more than ever that in this election year we have to try harder. None of us, or very few, want a repeat of the vitriol from our past two elections, but I think most of us don’t know what to do about it, don’t think there is anything to do about it. When I find myself in that place, I have to do something, take the smallest step or action to battle the inertia. Recently as I’ve surveyed the chaos in my house where I have brought three generations together, that action might be to unpack one more box, cook a meal, take a walk and more importantly be kind when it seems impossible as those old memories and former selves materialize powerfully, unexpectedly.
So, dear Reader, what can we do in this year when determinism, or the idea that we are helpless to change an outcome, seems to rule the day for those of us wanting a better future for our collective children? Firstly, we have to try and understand who gains from our inertia? Secondly, we must also realize that our actions and words do matter. For me, I have made tough decisions about how I will and won’t spend my money. And, no I won’t be perfect. But, if we think of our dollars as votes in an economy fueled by consumption (approx 70% of Gross Domestic Product), then we have much more agency than many want to admit.
Instead of giving in to the FOMO, the societal pressures of what you should and shouldn’t be, to the feelings of impending doom that justify that meal out, or the guilt-ridden Chocolate Chip Frappuccino you just bought your kid because you came home late from work, think about what you are perpetuating. Every time we buy something that does not productively contribute to society or the future of our kids, we are voting for our current reality. You may say what’s the point? I may as well enjoy myself, or give my kids that skiing vacation I never had. For many those choices come from the scarcity they experienced in their lifetimes, but is that really what was missing? Sugary drinks with zero health benefits will never take the place of quality time. And a relaxed game of UNO or shared family meal will always be a more positive force than a vacation you can’t afford which leaves you short-tempered and disappointed, leading to fights and contention.
Should you rent? Should you buy that starter home? Should you invest in that company, or long-term rental? Only you can make that ultimate choice based on your particular set of circumstances. But, stretching affordability leads to harsh outcomes. Is there anything you can do today, no matter how small, that could help build the future you want? One thing I learned from working for the filthy rich, they are not happy people. Rather, they are distrustful, angry, Gollum-like. One of my favorite books is The Infinite Game, by Simon Sinek, for its simple message - none of us win at life, we all die. So, what if instead of fighting each other, instead of trying to obtain more and more, we actually did try to fight to improve the world we live in today. I am no bleeding heart and have little patience for laziness or sloth, but I also know there are many forces that benefit when we think our enemy is our neighbor, or give up, thinking we will never own a home, or have the future we want. Adam Taggart recently told me about a series that asked folks who had lived to be 100 for their advice. Their lessons are important.
What I can do right now is write this post to try and equip you with the information you need to make better choices, but definitely not to make those choices for you. And, more information is sorely needed especially with the data that is being pushed out there. Today, we will start with New Construction. If you listened to the media, these results told you that housing is on the mend:
The more I dive into the raw data myself, the less patience I have for seasonally adjusted, annualized numbers. It reminds me how stupid the elite thinks we are. This is not to say that perhaps these adjustments once had usefulness, etc. but I for one don’t need their help anymore. And once you take the dive you realize that most of the media is legitimately talking about this distorted reality as absolute fact versus economic adjustments. While maybe once useful, I believe they are now truly misleading.
Although I am no ch-artist (putting it mildly), I have put together some simple graphs to show you what really happened with permits for new construction, housing starts and completions based on the non-seasonally adjusted data:
Although I’m only looking at a year above, does it look like Starts are near the high this year? Starts were indeed up, near December levels, but this is no blowout to the highest levels. Instead this tells me that the narrative machine for a soft landing is working quite nicely. The article above is referencing single-family starts only.
WASHINGTON, March 19 (Reuters) - U.S. single-family homebuilding rebounded sharply in February, hitting the highest level in nearly two years, boosted by mild temperatures and a persistent shortage of previously owned houses on the market.
I want you to look at the two sets of historical numbers for seasonally adjusted and non-seasonally adjusted side-by-side from the series, remembering that the seasonally adjusted is an annualized number.
Yes, for the modeled numbers this is the high over the past twelve months by a smidge (Nov was neck-in-neck), but if you look at the non-seasonally adjusted, there were 7 months last year that were higher. Would that change your perspective about these results in February which were lower than 7 other months? And, do you really care that the economists got it so wrong that this new number is the highest in almost two years? Even if the %s are somewhat close, these small nuances can mean a world of difference. Anybody who took college statistics knows you can pretty much find a stat to support any argument and that is what the media is doing led by Ivory Tower econometric models. Do they even realize what is happening? Likely not, and even if some do, I doubt it is the majority. That doesn’t matter though. I wrote last week about how my Senior Leadership made decisions based on these models that cost a lot of people their jobs and livelihoods. Intent is not the most important point - educating ourselves is, lest we find ourselves or our loved ones on the proverbial chopping block.
Completions were up, but they did not soar to the levels we saw in December.
Instead, it was more of a bounce off the January low. My theory is that the builders pushed very hard at the end of the year to get the product out there, especially as there was softening in rates, to meet guidance shared with Wall Street. What happened in January? Well, I can only tell you it jives with what I saw on the road - reduced construction. The why is the trickier part, but I also am a bit suspect of these preliminary numbers. The information we have for many of these metrics comes from the builders, not an objective third party. Maybe the December pivot scared some. What did JPow & Co. see? Or, perhaps February sped up as traffic increased in December and January and builders decided to push again as Nvidia raced to the moon stoking visions of a soft landing.
As for permits, or those who decided to file for a new building project?
Does that look like a whole bunch more people think it is a good time to build based on what we’ve seen over the last year? We are about 6% ahead of where we were last year when most everybody was bearish.
Sentiment was actually 6 points higher in Feb 2024 versus Feb 2023 which likely explains higher starts and permits as lending in the sector does not seem to have changed materially.
So what does all this gobbledegook mean? In my opinion it means not much has changed except for sentiment, and sentiment is indeed driving the market at the moment….and even sentiment isn’t that great. For me, one thing I’ve been monitoring is how the “For Sale At End of Period” Inventory which is Completed is building. In other words this is the inventory that is not sold, but completed. We finished 2023 at 86K and preliminary estimates have us there in Jan, but you can see below how that started building during the year and then after that Dec, remained high. Very much looking forward to this data for February next week.
And, for fun, see this article below from 2007. I remember quite well the builder group in my company being exceedingly confident that the builders would escape, calling into emergency meetings from the golf course where they were hosting clients. One of the reasons given for builder survival back during the GFC…..wait for it….affordable housing:
The spring buying and selling season are going to confound most as it did last year. Last week’s existing home sales blowout took many by surprise. But, if you had watched my YouTube the day prior to the announcement, you would not have been surprised. I’ve finally got enough data to do projections based on what I see in Redfin data for the 80 cities I track, and I could see February was going to be big for multiple reasons.
What caused such a spike in February and does it change our path? Let’s dig into what drove February home sales, what March might look like based on early data and my site visit to Wilmington, NC and Myrtle Beach, SC.
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