THE LOCATION STRATEGY TOP 10 CHARTBOOK

A QUICK REVIEW OF MARKET CONDITIONS FOR HOUSING.

HAPPY EASTER!

Inflation hasn't gone away: 72% of people say rising food costs will impact their Easter plans.

A DISTURBING POLITICAL TREND

I try to stay away from politics generally, but I'm not ashamed to say that Location Strategy is a fervent supporter of property rights. There is a increasingly disturbing trend on both sides of the aisle however to divert private property rights to the service of public ends. One of these is surprisingly popular among people in our industry, so I wanted to share examples from other places of the same policy trying to achieve other ends we might not support. As someone once told me: once the camel gets its nose in the tent.....

• Texas: the Texas Senate is considering a bill that would prohibit you from selling your land to a person or entity who “poses a risk to the national security of the United States, as determined by the Director of National Intelligence”
• Colorado: the Colorado Senate is considering a bill that would give cities and counties an automatic 90-day ROFR on any building with 5 or more units sold in the state so the properties could be used for affordable housing
• Other: JP Morgan isn't a state, but in his 2022 letter to shareholders, Jamie Dimon advocated using eminent domain to seize land for solar and wind investments.
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If we are preventing foreign ownership to protect national security, why stop at sales? Why not seize properties already under foreign control if it presents such a threat? And do we plan to compensate sellers for reduced values after a significant pool of buyers has been eliminated for what is clearly a public purpose?

I would hope that we would focus our legislative efforts reducing the many regulations that we already face that make housing less affordable for Texans. I also hope that we would say no to largely emotional issues that will create burdensome processes for sellers to achieve dubious benefits, no matter how good they may initially sound. Once the government gets used to this kind of control, it's very difficult to stop. As  George Washington is believed to have said: ”Government is not reason; it is not eloquent; it is force. Like fire it is a dangerous servant and a fearsome master.”

PROBLEMS WITH SEASONAL ADJUSTMETNTS ARE HIDING JOB LOSSES

Challenger, Gray & Christmas report announced a bigger than expected 89,703 job cuts in March (270,416 year-to-date), up 319.4% YoY. The dataseries suggests both that seasonal adjustment distortions are currently depressing reported initial claims by 40-50k and that seasonal adjustment issues have masked a roughly 45k rise in initial claims since the start of the year. Correcting for those adjustments suggests job losses are far larger than thought:

Tech and Consumer Discretionary Goods are leading sectors for job losses since October 2022.

What is driving the recent layoffs? Weaker demand has now become the dominant reason. Demand destruction

Demand destruction has had a couple of consequences. One is that Americans are working fewer hours - the average work week is 30 minutes shorter than before the Pandemic.

The other is the despite household wealth being very high, at at this rate US excess savings are likely to be totally depleted by June 2023.

Texas hopefully should be relatively isolated from most of these trends. As measured by Texas’ gross domestic product, the value of all goods and services it produces, the Texas economy expanded at an annual rate of 7% – nearly triple the national GDP rate of 2.6%.

Federal emergency lending outstanding as a share of US commercial bank assets has surpassed the Pandemic and is near GFC levels.

This is causing a credit crunch. "A survey of 71 banks in the Dallas Fed district done after SVB went under shows a dramatic reversal in loan volumes." "Our analysis suggests that additional tightening in lending standards will subtract roughly 0.5pp from 2023 GDP growth."

This is leading to further reductions in construction spending, especially for residential. Texas may escape major job losses but this will present a challenge for us regardless of the job situation.

Compared to many other advanced economies, the US housing market has displayed some resilience.

MILLENNIALS ENTER PRIME EARNING AND PRIME HOMEBUYING YEARS

In spite of the growing gap between millennial home prices and millennial incomes, millennials are entering their prime earning years, making it a pivotal time to buy a home. The median income for homebuyers between 35 and 44 was $120,000 in 2021, which is 30% more than the median income for homebuyers between 25 and 34 ($92,000), and 103% more than that for homebuyers under 25 ($59,000). Gen X was the only age group earning more than millennials, with a median homebuyer income of $124,000—which also means that millennials can expect some remaining growth in purchasing power in the years ahead.

This additional income will likely come in handy, because despite millennials earning less than Gen X, they have been spending more on home purchases than any other generation. The median home purchase price for individuals ages 35 to 44 was $425,000. That’s 23% higher than the median home purchase price of individuals ages 25 to 34, and approximately 5% more than individuals ages 45 to 54.

It's never been more affordable to rent than to buy: The average monthly mortgage payment for Americans is 37% higher than the average rent.

 Owners vs. renters by income quintile in the US

Rate lock count very low, below 2018 levels - even on falling rates:

Reasons for moving:

Scott Davis

LOCATION STRATEGY, LLC

1302 Waugh Drive #178

Houston, Texas 77019

832.304.DIRT (3478)

www.locationstrategyllc.com