THE LOCATION STRATEGY TOP 10

HALLOWEEN EDITION

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MARK YOUR CALENDAR

Scott Davis will be speaking at the North Houston Counties Builder Association meeting on December 7.  We’ll post the link as soon as it available.   This will be your only chance this fall to hear Scott’s public presentation on the state of the market.

INFLATION: THE DEATH OF EXPERTISE

Since it's Halloween, I wanted to lead off with the scariest chart I could find.   The experts have been consistently and persistently wrong about when inflation is coming down.  Don't worry, I'm sure this time is different.

SERVICES - WAGES - NOW LEAD INFLATION

Services - the primary costs for which are labor and wages - are the largest component of inflation and expected to persist at least through 2023.   Will the Fed continue increasing interest rates into a presidential election year, causing a recession and massive unemployment months before the election?  

WORKING TO LIVE

The number of hours required to work to afford the typical US rent is now 64 - up 15% since 2020.

WHY SINGLE FAMILY RENTALS ARE SO POPULAR

Single family rental growth is up 14% over last year - pretty much across all pricing tiers.   This is after a decade and a half of consistent 4% annual increases.

HONEY I SHRUNK THE MIDDLE CLASS

The share of households you could reasonably call "middle class" has shrunk by almost 20% since 1970.  In that year there were 63 million households, so 38 million would classify as "middle class."  In 2020 there were 128 million, so 64 million were "middle class."  A sizable increase to be sure;  had we kept the 60% ratio that would have added 13 million additional middle class households.

NEW HOME SALES WEAK

New home sales nationally have been weak but appear to be holding around 2015-2017 levels. I know from talking to you that not everyone is seeing this kind of result.

NEW HOME INVENTORIES CLIMBING FASTER THAN USED

New home inventories have jumped nationally, especially relative to existing homes.    This is both because of the pricing differential and because of the mortgage lock-up effect we've discussed in the last few weeks.

HOUSING INVENTORIES BELOW GFC LEVELS

Unlike 2008, we do not have large numbers of finished vacant homes on the ground.   That number (red) is building, but even compared to this point in the cycle then finished vacant inventory is low.  To be built (essentially lot inventory) is comparable to 2008 - while homes under construction are rising.   Even so, the total housing inventory is about 100,000 units below where it was entering into the 2008 financial crises.

BUT ALREADY AT RECESSION LEVELS ANYWAY

We went back to look at new home inventories since 1963. Rather than using the raw numbers, we've indexed them here to December 2007, the official start of the 2008 recession. The shaded areas are recessions.

What this chart shows is that every time the index level reached 100 - except for right now - the economy was in recession. Inventories did not reach that level - again except for now - without being in a recession.  And only two times, in1970 and in 1990, were recessions without housing inventories reaching the 100 index level. Both of those recessions were caused by high oil prices in combination with war.  Granted we have those too now, but we are already at that Dec 2007 index level anyway.

HOUSING RECESSION IS IN THE CARDS

The Atlanta Fed's GDP Now forecast actually shows the economy escaping recession and returning to 3% growth in 2023Q4.  But that forecast shows persistent negative contribution - meaning contraction - in the residential investment sector through the end of 2023.   It looks as though housing will have a recession whether the economy does or not.

JOB LISTINGS

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• Director, Land
• Director Of Builder Programs
• Division Vice President of Sales
• Land Development Project Manager
• Senior Conceptual Designer- Residential Architecture-Houston, TX
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• Real Estate Development Manager
• Development Associate
• Vice President, Land
• Senior Real Estate Associate, Asset Management
• VP Land Investment and Development Acquisition
• Sr. Development Manager
• REAL ESTATE ACQUISITIONS MANAGER (Texas)