Happy holidays to our readers. This will be our last issue of 2022. If we can help you in the new year, please drop us a note.

Land sales are in a free fall in the major Texas markets. We measured land over 50 acres reported sold to Costar in the 4 major Texas markets - and the decline from 2021 to 2022 was pretty consistent in the 55%-67% range for Austin, Dallas and San Antonio. Houston has experienced a much more modest decline YTD at only 13%. It's uncertain why Houston has experienced such a more modest dropoff and it maybe the region is just late to experience it, but it remains an outlier among the 4 markets for now.


The chart above shows listings of new homes has grown dramatically in Houston (blue) and the new listings of new homes (green line) it would appear that additions of new homes peaked in June 2022 and has been declining. That's the good news - the bad news is that we are not really moving our existing new home inventory.


Dallas exhibits a similar pattern to Houston above, with inventories growing and new additions to inventory having peaked in mid-summer. There is one key difference: Dallas has fewer active new home listings in inventory, and is adding about 1,000 fewer new unsold homes per month.

When the FOMC met this week to raise rates, they produced the dot plot below based on the votes of the members; this suggests that rates will likely rise above 5% before slowly declining in 2024 and 2025. In other Fed news, the Philadelphia Fed issued a report this week that the BLS job counts overstated Q2 job growth by 1.2 million, in line with our explanations of the problems of job growth estimates.

US-FOMC-Dots2212150535 image

Historically, there is a five-month lag between the peak CPI and the last Fed hike. One of the fears of the Fed is that we will replay a 1970s type cycle where inflation peaked twice; so even though inflation appears to have peaked it's uncertain if that is the end of increases.

US-FOMC-Peak-CPI-v-last-hike2212150535 image

Eventually we will give up our hobby horse on inflation and housing prices and how important it is to use actual measures of transactions. This chart is why the lag in housing price changes is so important: housing weights 45% of CPI:

US-CPI-weights2212150535 image

The Federal Reserve has two objectives: minimize inflation and maximize employment. One of the consequences of reducing inflation is obviously increased joblessness. This week thee FOMC is expected to boost its projections for unemployment. The committee's track record for accurately forecasting unemployment as a result of its efforts is not very good.

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Real household net worth (blue line), inflated from stimulus and a housing wealth effect, has fallen back on the pre-COVID trend.

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As households have gotten smaller, the houses people buy have gotten larger, at least with respect to the number of bedrooms:

VTD-Smaller-households-larger-homes2212140526 image

We will end the year with this important chart for our 2023 investment thesis. The GFC in 2008 reversed the trend of 25-34 year-olds living at home and created the idea of the "boomerang child" who moved back home after college. This trend continued all the way through the pandemic. However, that event produced a dramatic change in the twin trends of that age cohort living at home/living alone. It would appear the experience of covid lockdowns at home with mom and dad have encouraged 25-34 year-olds to break out on their own. This reversal comes as the US prepares for the largest number of 30 year-olds in its history next year - a group that gives every indication of being ready to buy homes.

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Scott Davis


1302 Waugh Drive #178

Houston, Texas 77019


832.304.DIRT (3478)