Real Estate: The Unstoppable Force
Ignore vapid rhetoric devoid of rigor. Not to fear. Opportunity is near!
Welcome to my weekly post right here on BP, from one investor to another.
The Weekly 3 in News:
- - Nashville News - Nashville could see a surge in data center development amid AI boom (Tennessean).
- - More Nashville News- The developers behind downtown’s Peabody Union are reinventing Nashville’s riverfront greenway to display the Cumberland River in a way the city has never seen (NBJ).
- - Nearly all US landlords are mom and pops, not large real estate companies. “The biggest owners of U.S. apartments and single-family rentals would be rounding errors in any other industry. See chart below. ‘Big’ is relative. There are no real behemoths in rental housing, contrary to narratives (Parsons).
Today’s Interest Rate: 6.77%
(👇.03% from this time last week, 30-yr mortgage)Today, we’re talkin’ recession talk, tariffs, future expectations and …. home remodeling costs! (it’s related, go with me here).
Let’s get into it.
Super quick: there’s a lot of doomer talk out there right now. It gets clicks, I can’t really blame them…Actually, I can. Sell-outs! 😝 So, if sentiment got you down? Read last week’s article: Pessimistic Economic Sentiment. Ignore the noise. This is when opportunity knocks.
And now, back to our regularly scheduled program…
Real estate: the unstoppable force
Let’s dig into real estate numbers, as it relates to inflation and tariff threats.
Inventory for homes is steadily rising (normalizing to historic levels)
And high interest rates have stagnated existing home sales for ~2 years.
And when accounting for population growth (households), existing home sales are quit low, historically (ResiClub).
But looking forward, home sales could be ticking up. Mortgage application data was up 6% YoY. “Growing inventories of homes on the market and steadier mortgage rates are supporting homebuying activity thus far this spring (MBA)”
A positive adjustment for homebuyers.
Tariffs: Is there a true cause for concern?
What about tariffs? Is this a “canary in the coal mine” for recession?…
I can hear your brain’s hampster wheel spinning from here.
Let’s all calm down and look at some data, and let my punchy commentary cheer you up.
Stuff and Information.
Material prices for homebuilding, like all the stuff, have been inflating. But so far, I am aware, but not concerned. In fact, the opposite. Let’s take lumber for instance.
Lumber prices are up from this time last year, 7.92%. AH!
But wait, there’s more…
This is up from multi-year decreases. Last year lumber was down -6.39% and in Jan 2023 was down -34.8%.
Remember the last few years real estate has been in an interest-rate-led sales recession. Last month was 18% below average (Lambert). (remember, real estate is highly cyclical. We are about to Spring. Literally).
Fewer homes sold (and fewer construction permits) mean less lumber, materials and labor needed.
Case in point, overall construction materials are down. Wow, look at that wild supply chain shock from shutting everything down during COVID.
This is good. Good for affordability. And it looks to me like we are normalizing material prices after COVID, near the historical average.
Let’s do another: industry labor demand.
Construction job openings, absolutely cratering, YoY. AH!
Oh wait. This is year-on-year percentage change for new construction jobs.
So, before you get all nihilst on me, overall residential construction employment is are still very strong. Phew….(always scrutinize the chart + what is being proclaimed at you by the author). Here is total employed residential construction workers:
And this nominal value is not as high as it looks, as the 10—yr chart may infer.
Let’s zoom out.
Chart context: We have the same number of folks employed in the residential construction industry that we had 20 years ago, but with +40 million US population since that time.
The takeaway for me is:…
Want the full article? DM me! The juicy part is next.
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Until next time. Stay Curious. Stay Skeptical.
Herzliche Grüße,
-The Skeptical Investor
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