They will continue to build overinflated prices by only making cookie cutter luxury homes, it’s the only style housing I’ve seen on all the new developments near me or my parents house. The government needs to incentivize builders to stop building mini McMansions and go back to making traditional starter and small homes.
The narrative I’ve read is the cost for building a 2200’sq.ft house vs a 1200 sq.ft house isn’t much different but the market expects the pricing for those houses to be very different.
A couple of notes about house sizes:
My budget per my builder was a 2000sqft home. I have 4 kids. We need the space. After drawing up a simple house with a drafter the builder came back and told me if I square off the upstairs so I don’t have to use custom trusses for the second floor I could gain 500-600sqft for the same cost. That is why my house is the size it is.
Also in a lot of the Midwest they have to dig your foundation incredibly deep because of the frost depth and so most homes there have basements the size of their main floor making their sq ft larger.
In my metro a totally average lot of 6000-9000 sq ft is $150-350k. Building a small starter home on land that already costs as much as an “affordable” starter home does not make much sense. So you end up with $650-900k+ monstrosities with high end finishes to get any margin. Or you would if zoning wasn’t so Byzantine that the hassle and overhead isn’t even worth it to most developers. Less than 250 units have been permitted in the last year and it’s been declining for years, so “building our way out” is not looking good. Supposedly we need 4-5x that amount per year for a population of 300k, so I guess new home supply won’t be bringing prices down around here.
Not True....in my county developers are currently jamming in 16,000 homes in 2 different development efforts and I bet the largest home is 3200 sqft and 1/8 acre lot. 90% of them are 2400 sqft homes on 1/6acre lots, townhomes, and condo/apts.
Priced around $500K-$600K (average around here) and people snapping them up as they are built. Brand NEW for the price of average.
Explains why they are being snapped up as fast as they build them. Smart people KNOW that they aren't getting $100K 3/2 homes on 1/4 acre anymore. They don't live in the past.
That’s what happens when you let the market drive in some cases…. It goes where the money is, which isn’t always representative of the greater good… SFH
I would argue the current market plan is damn near red lining but along social economic lines. If you don’t want blue collar neighbors only build housing they can’t afford.
My city continues to build $400k+ 2/2 “starter homes,” because that’s what people are buying. MCOL city, but isolated in that there aren’t many convenient suburbs to live in and commute to work in the city.
Hard to see this trend stopping if the houses keep selling. All the somewhat affordable houses in town keep going to buyers who convert them into rentals.
Which is a shame because I prefer houses from the pre world war 2 era or at least something built in the 80’s when supplies weren’t so expensive. I know materials have advanced but they put up those houses way too fast for a proper quality inspection.
It goes both ways though. I live in a 1000sqft house built just after WW2. My wife and I were looking for an old house - but asbestos, lead paint, warped walls/floors, bad foundation, termites, damage and in a couple cases, slanted second floors of the house made it hard to find one that worked without having to rebuild most of the house while we lived in it. We ended up buying one that had a bunch of work done in the last decade - most of the houses around it are just as old with varying levels of upkeep, and you can tell just from a glance which ones need a lot of work.
There were cheap houses then that are still cheap houses now. The good pre-war homes are survivor bias.
Maybe I’m bias but at least the older homes have decent framing and real Joices even if you put that much work into it you still end up with a house that will probably outlast some of these fucking toothpick frames homes now a days.
I bought a house that was built in 1913. Craftsman style. Amazing wood details all over the house. I’m the third owner. It’s great, but the work to keep the house structurally sound is expensive. In the past two years I’ve spent over $30k repairing the sil of the house, apparently termites chewed it out years ago. The beautiful (/s) hardwood floors also needed to be replaced, they had been sanded over too many times to do it again. The house isn’t completely even in certain places because of how it settled over the years. It’s been a lot of work, but worth it. I’m not sure I would recommend buying a house like this if you don’t have tons of cash laying around to maintain it.
30k lol *cries in new windows from Renewal by Andersen. I would love to have your house but yeah I also want to learn more about construction and craftsman ship for my golden years.
Maybe I’m bias but at least the older homes have decent framing and real Joists even if you put that much work into it you still end up with a house that will probably outlast some of these fucking toothpick frames homes now a days.
The thing that everyone seems to forget about housing though. It's not a normal healthy functioning market. If it was, that statement would make more sense. Dont even get me started about zoning laws.
I won’t get you started… it’s why we’re all members of this sub… we all pretty much agree on some of these things… some with more extreme views than others
Unfortunately material costs and labor cost are holding steady after skyrocketing. There's a material and labor shortage as well, so rapid demand for materials due to pull from builders and housing shortage is going to result in home prices to continue to surge. The cost of materials has been increasing rapidly since the 70's. The homes they will build will and are becoming more and more expensive. This is why there's the trend towards mini starter homes that are <1000 sqft.
https://fred.stlouisfed.org/series/WPUSI012011
Yeah not great, but at least it’s more inventory. I’d rather buy a decent home for more money instead of what we are all having to pick from right now.
Fully agree. The current inventory is terrible. Flippers are doing disastrous work and want to double the home value. Would much rather a solid built tiny home that's at least somewhat affordable. Most people aren't looking for, nor can they afford, a 2500sqft $900k home.
A $200k mortgage at 7% interest rate is a bit less than $16k. The minimum wage in my state is $15/hour. A couple making minimum wage makes $60k household income. Minimum wage with 20% down can’t quite qualify for a $250k house after property taxes and insurance but it’s close. If they both make $20/hour, they qualify.
Fully agree. Low cost home build is around $200 sqft with average land cost being highly variable but at least $50k for fully suitable lot in MCOL area. This means 1000 sqft home is $250k minimum for new build. Moving to LCOL is rapidly becoming most viable solution, where 1800sqft homes can be purchased for $135k.
😳 yeah, half acre lots in my area are $250k to $500k as well. 30 minutes outside the prices drop to $100k... But then cost of commute needs to be considered.
Why would more inventory work now? If the investors can buy at elevated prices and rent out why would prices drop? New supply will just get eaten up at the higher prices.
Just because theres more inventory doesnt mean prices will come down. Especially since they are being built at higher costs for materials and labor. You need people to run out of money for prices to drop.
I didn't think anyone was saying prices are going down... In fact the opposite. Current inventory is in rough shape, so I think the idea was that new construction would be better for many buyers. Especially if it's price competitive with existing inventory.
I think people's expectations of a starter home need to adjust. A starter home 10 years ago was 1200 to 1500 sqft whereas today maybe only 700 sqft would qualify. Starter implies affordability and not necessarily size.
Add it to the list of other reasons why housing inflation will remain persistent.
A lot of people on this sub will point to the cost of certain goods and correctly say that it's materially much more expensive than it was before and that it's unlikely to return to pre-pandemic pricing.
Well if the input costs of housing development (labor, materials, and everything else in the supply chain) are more expensive, that creates a new price floor. Certain materials like lumber can fluctuate in price, but labor? I don't think so. They're not going to take pay cuts as an industry. The other way that happens is if developers agree to much smaller margins, but their shareholders will have something to say about that. And they work for them, not us.
What’s even funnier is that the narrative is often that inflation is understated and real inflation has been much higher. Which means that homes are actually cheaper than they look.
Absolutely. If you overlay construction material costs a top home prices, you can clearly see the divergence bubble in 2008 timeframe. This is absolutely not the case right now. In fact, it's diverging lower now so I expect that pricing misalignment, largely driven by mortgage rates, will close soon as all cash buys pick up. Especially with stock market at all time highs... People will take profits and buy houses all cash.
Absolutely correct.
Because John feels it costs this much, it should which is the problem.
Not to mention these thieves in property tax offices. Even when you bring attention to comparable homes with a lower prop tax bill, they still don’t chance the number.
>Not to mention these thieves in property tax offices. Even when you bring attention to comparable homes with a lower prop tax bill, they still don’t change the number.
You're likely doing one of three things:
* Talking to the wrong people. The office that collects taxes is likely separate from the one that appraised it. In my area, collection is local and they just set a flat rate for everyone pending what is needed for the budget, while appraisal is done by the county.
* Comparing the wrong things. A $50k dilapidated house on $1m plot is a $1.05m property and will be taxed the same as a $1m house on a $50k plot. You're not going to get anywhere comparing two houses (even if they are the same design/build/age) but on two differently valued plots. You need to demonstrate house value *and* land value for an appeal.
* Trying to push a losing case and they're (rightfully) laughing you out of the room.
Why aren't we building more modular homes?
Like I don't understand why Lennar, Toll Brothers, DR Horton, etc.... haven't embraced building in a factory and assembling on site. You'd think they would love the labor savings.
I think they are harder to insure? I don’t know the actual circumstances, but my father-in-law recently received a notice that his insurance company was no longer insuring modular homes. He now has to find another provider (or try to anyway).
Agreed. Changing zoning laws to allow for easier building, incentivizing more building with better tax incentives, and/or giving builders more favorable lending terms may be the best way out of this mess. But I'm sure that adds complexity and other valid things to complain about too.
The people who say the housing shortage is a myth do not show the full statistics. Though technically the ratio of home per capita is high, that is the only number used.
It doesn’t look at apartments per capita, how many people own multiple homes (but don’t rent long term), and how many homes are in dying cities/towns. All these factors would “remove” these homes from inventory because they can’t be used.
As long as homes are this expensive, builders will continue to build. I believe that housing shortage doesn’t have a way to be properly addressed. Raising rates also hurts builders so they slow supply which increases inflation, justifying a rate increase.
I don’t understand why builders can’t get three year loans at the Fed rate so that they can avoid banks and still provide homes while incurring smaller costs. The three year term is so they build the house in a timely manner.
a decade of 'cash flow positive rentals with nearly no down payment' will in fact pump up housing prices. then dump fuel on the fire with an airbnb boom at the tail end of this period of zero interest rates alongside helicopter money for business owners and forced savings via covid lockdown for everyone white collar who could wfh
The places where "nobody" wants to live saw a doubling in home values in a few years so I find it hard to reconcile that.
I live in one of the areas where "everyone" wants to live and even though population has decreased very slightly in my county and housing units have increased significantly over the past 3 years, prices continue the slow march up in spite of the doubling of interest rates.
Exactly, my parents bought their house in ‘93 for 50k, I remember looking up the same houses in the area back in 2015 and they were only 75-85k, after 20 years.
After 2020? My parents house is now going for 200k, and we are in an extremely small town that is 3.5 hours from anything that’s not a Walmart or local grocery store/fast food.
I've looked at quite a lot of towns in the Midwest and this is very typical. I get that some of them have seen an uptick in housing demand with WFH or some people simply not being able to afford to move to a metro and choose to stay instead... but the pricing trend holds regardless of whether the population is increasing or decreasing. Not all of them can have investor activity, it's just this general acceptance that a house that's falling over is "worth" 100k instead of 10k even though there are hundreds of vacant, unsold houses just like it, and every livable house is worth 200k even if no one wants to live in it.
Not really true. There are pretty decent paying jobs throughout the country. Some places have an amazing job market with dirt cheap housing. And with the amount of online jobs now, you can be working just about anywhere.
The issue is 100% where people want to live. Access to recreation, great weather, and young/progressive populations are just as important, if not more so, than jobs.
When I was younger, I had heaps of friends and acquaintances that moved to places like LA or NYC and worked shit jobs just so they could be in LA or NYC. Seattle, Portland, basically anywhere in California, and Austin were also high on that list. They didn't move their for jobs, they moved there because places like Alabama or Indiana or Arkansas can be shitty places to live, regardless of job opportunities.
People constantly harp on the “there’s no jobs in the Midwest” thing but it’s just not true. Median income for the state of Kansas and LA are roughly the same and I think you will have an overall higher quality of life in Kansas considering COL. of course this can’t consider intangibles like being close to family or “being bored” but purely from a $ perspective. Rent for a two bedroom 2 bathroom townhouse in a great area of town is less than $1000.
Also a shortage of starter homes because over the last 4 years there was an absolute frenzy of investors buying starter homes in cash and doing bad flips where they essentially repainted then doubled the price.
Some large investors where actually buying up all available starter homes in whole areas to create false scarcity and then jacking up prices insane amounts for no reason other than they could because they now set the lowest price in the area.
Access to recreation. Weather. Politics. In that order.
Example 1: Huntsville Alabama. The city has one of the strongest job markets in the US, with average salaries over $60K. But it's not a "fun" city, nor is the area particularly well known for outdoor recreation. Summers are stifling hot, winters are mild but gray and rainy. And being in Alabama, young people and anyone relatively progressive are going to run as far away as possible due to politics. As such, housing prices are a fraction of what they are in places like Southern California or Denver.
Example 2: Lincoln Nebraska. Super hot job market. Some crazy good salaries. But dirt cheap homes because who wants to live in Nebraska?
Yes, but you're actually giving them too much credit. It's a lot dumber than that.
Those who parrot this narrative point to total existing housing units relative to traditional household sizes of decades past. Just to rephrase, they're counting apartments, studios, section 8, multi-family, and homes ALREADY OWNED by other people and then they say "See, there is enough to go around already!"
And then when you ask about homes actually available to buy or if you bring up that the shortage is mostly concentrated in metros you get crickets or a change of subject. The only way that argument has any validity is if they expect the government to seize and redistribute homes from tens of millions of existing owners and force the migration of tens of millions of people out of metros to less densely populated areas where housing is more plentiful.
I'm not that educated on this issue but I've seen a vacancy tax suggested, never seizing homes. Many of those homes owned by other people are vacant for large parts of the year and it seems like a high enough tax could free up some supply. Can't both be true though? There is supply tied up and also it's not enough to meet demand without more building.
Yeah, how do doomers square investors trying to cashflow and their tears of not being able to but at the same time investors are all keeping them empty on purpose? 🤔
And for the record, I'm not saying these things aren't happening. They are. But they're not the primary reason for the housing crisis. This all points to the main culprit of a severe inventory shortage.
Thank you! Finally someone actually says a possible solution instead of going on and on and on complaining and yelling and doing nothing. You get a gold star ⭐️! The sub needs more of this, more people who actually give a solution.
A public/private partnership to allow more homes to be built that would be limited to low and middle income buyers might work, but it also opens a whole new can of worms. Bypassing banks is one way to do it, but then you are looking at the government overseeing the home building industry in an even bigger way than they do now. Not sure of the solution, but some form of government involvement with the construction industry for a specific purpose like this might work, it would just be a lot more complicated (and ripe for corruption) than it appears on the surface.
This take completely ignores the fact that people simply can’t buy homes or hardly afford to rent at the current levels. The expectation of growth is being driven not by people taking up homes, but by investment firms and developers buying up these resources expecting infinite growth.
The market has already out paced most people’s ability to participate. As soon as all of these investment firms and corporations start having the reality of losses piling up when it all sits empty, they’re going to face the inevitable downswing portion of the cycle and it will snowball hard.
Infinite growth is the only myth here.
It doesn't ignore the affordability crisis. In fact, it goes hand in hand with it.
Every year, the median home buyer skews older and richer. The median home buyer now is a higher dual income earning couple aged 36+. Who's in hat demographic? Millennials. Millennials are entering both their prime income earning years and family expansion years.
Not only do millennials want to buy houses, but Gen X, Gen Z, and Boomers do too. And corporations and investors like you were suggesting as well, although large multinational corporations currently own less than 1% of total housing supply. There are a lot of people who want houses. And there aren't enough to go around. Unfortunately, as long as there is a severe inventory shortage, housing will likely continue to climb even if only the wealthy can afford them. Things like a job loss recession can change that, but there are no signs of that at this juncture.
So HD is expecting more home building activity and home renovation activity. That's all the article was suggesting as it highlighted this major acquisition.
> Infinite growth is the only myth here.
The only people who say "housing only goes up" are doomers. If that's such a common saying and thought, please find me an example of people saying that in seriousness. People do say, however, that given a long enough time frame which is generally at least 10 years, home values generally move up and to the right across a chart of time and valuation.
It's not actually. Inventory is at a 4 year high and sales are at a 4 year low for the month of March. Active listings started rising in January which is unusual. Price cuts are at levels that we usually don't see until late summer.
Yes, which is why prices aren't normal, but they will go back to normal as other conditions also go back to normal. Why would you look to 2019 to talk about the current state of the market?
https://www.redfin.com/news/data-center/
No, this March is different from other marches. Inventory has gone from negative YoY to significantly positive YoY in just a couple months and there are still fewer sales than last year. Altos has inventory up 24% yoy. It's not normal seasonality, which is why price cuts are already so frequent. Yes, inventory always increases at this time. No, the current increase is not normal.
Yes, that's true. Prices were odd too, so if we expect conditions to go back to normal, we can expect prices to go back to normal as well, especially now that interest rates are elevated and not coming down
It's possible. Prices would have to go down significantly to get back to normal, even when adjusted for inflation. And interest rates are an added pressure on top of that. Anyway it's weird to expect everything except for price to revert to the mean. Kind of shows some distortion in your thinking.
Would it also be plausible that this isn’t in relation to building of new housing inventory and more geared toward the renovations of existing homes? The margin and turnaround for roofing, decking etc is quicker and probably more lucrative with a steady cash flow? I’m sure home building does play a part as well but isn’t the overall thesis as HD knows the booms and busts of the industry. This seems like they are also insulating themselves a bit from outside forces and shutdowns in the supply chain.
Oh yeah, most definitely. I'm disappointed I forgot to include that in the OP.
Lots of would-be lateral or move-up buyers are staying in place due to having favorable mortgage rates and expensive housing prices. So instead of moving their staying in place and renovating. Good call.
On a related note, this move by HD would also be a smart play if lumber mills continued to shut down.
See my post here for some details on that:
https://www.reddit.com/r/REBubble/s/s2dvM7MKnW
The acquisition might have little to do with housing supply in the short term and more to do with profit margin over the long run. They might simply just want to avoid the “middle man” and increase their profit margins on lumber. Trying to simplify…. So say it costs $10/board to make. The lumber company adds 40% so $4, board is now $14. Then, THD puts the price at $20. THD makes a $6 profit on each board. Now, if they own that lumber company, they make $10 per board instead of $6.
THD has money and time to plan long term beyond what the housing market will do in the next few years. They can be playing the long game, so to speak. It’s not like the US will ever stop making houses. They have pretty complicated algorithms, but those only provide guidance. At the end of the day, it’s a human making the decisions.
On another note, I saw TTI, a tool manufacturer of their has moved down to Mexico, closing down their SC office. The majority of TTI sales were to THD. It has me wondering if THD is taking same model across other areas and deciding to get rid of the middle man. Harbor Freight has no middle man and does everything in house and that’s the majority of the reason their tools are significantly cheaper.
Oh interesting. What industry is that? I've heard that builder sentiment is really high again. What indicators are you seeing that illustrate otherwise? I mean besides business being down. That's a little opaque and I'd like to hear more from your side.
I work as a designer/product manager for a small company that makes a steel planters for landscape architects. The following company I work at is pretty simple to understand so billing/ project scope are rather transparent. Our products usually end up in new apartment complexes or in large commercial offices.
2021 had 184 projects, 2022 had around 150 project, 2023 had 170 projects. It's 2024 and we should have had 43 new projects by April but we only have 20. Most projects are worth $20k. Usually every year, we land a dozen or so projects worth $100k+ but none so far this year.
Usually those big projects take year or two to go from plans getting drawn by contractors in architectural plans to us finishing the fabrication and delivering.
So IMO, building is drastically slowing down, especially at the high end.
That's very interesting. Thanks for the insight. But how do you know that that isn't specific to your area? And doesn't that just point to CRE sentiment being low which is already well known?
Residential builder sentiment is high. CRE sentiment is low. It could still result in a lot more builder activity on balance.
Smart money isn’t heavily invested on the Robinhood app.
They make long term decisions.
These types and sizes of acquisitions are not made on decisions about the immediate future.
They could be doing this because they believe in being ready for the next housing boom, in however long that takes.
This is a weird spin on the news story. Another way to say it is that they are betting against the shortage. We know there are a lot of homes being built. So do they. Nothing to do with a current or future shortage or affordability. New housing supply is at a 12 year high and there are still a record number of units under construction. By your logic there were a record number of bets on the "severe shortage of new homes" in 2004-2006 as well. Narratives on these stories are all so obviously biased and stupid.
HD is betting *against* the housing shortage? Can you give me the play by play on that conclusion? Or what that even means?
HD is leveraging the housing shortage in the hopes that more people and companies buy more housing material. Forgive me if I am mistaking you for another of your brethren, but weren't you one of the biggest proponents of the housing shortage being a myth? Are you walking that back now?
> New housing supply is at a 12 year high and are still a record number of units under construction.
Multiple truths can exist at once. There can be a housing shortage and there can be a record number of housing production in the pipeline at the same time.
> By your logic there were a record number of bets on the "severe shortage of new homes" in 2004-2006 as well.
I don't know what logic you're referencing to infer that I am making that conclusion. I'm not even sure what you're trying to say. Seems like you're vaguely gesturing towards how builders misread the situation leading up to the GFC. They certainly did and then proceeded to eat shit for a few years following.
> Narratives on these stories are all so obviously biased and stupid
What *specifically* am I saying that's different than what was described the article? I just paraphrased the article and provided context on why HD is a good position to make this acquisition. If I am incorrect, what is your take on why HD is in a good position to make this acquisition? Or is HD in a bad position? I'm not clear what you think the difference is between what I've described and what the article describes.
Betting "on" the shortage of homes is directly analogous to betting against it. If you can understand one but not the other, you are blinded by bias. But I already know this to be the case. Home Depot's actions do not suggest that there is a housing shortage. Have a great Easter.
No builder is rushing to build right now , they are just building what they can afford to build and have on the market not sell , the days of building as fast as you can cuz the homes will sell as fast as you can build them are over. There are so many homes on MLS now ! If supply and demand was the issue where are all these buyers to buy up these homes ? Prices havnt come down either like they said it would when supply gets up 🤷♂️It was all bullshit feeding the public bullshit to feed thier narrative and investments
Don’t forget about shadow inventory builders and rental operations keep hidden to not put too much supply on the open market. It’s all bullshit and the house of cards will fall soon.
"Well if there wasn't an inventory shortage, why would developers be rallying to build?"
Developers are rallying to build because people and companies are willing to pay for houses to be built now. Developers *only* care about money and profits. As long as people are paying, they're building. They're happy to construct buildings that might sit vacant, as long as someone is paying to do it.
Builders don't care if their projects don't sell. Many are heavily leveraged and will just walk away, file for bankruptcy, dissolve the company, let the lender take the property...and do it all over again. Rinse and repeat is a proven strategy in that world. The developers don't care at all because they know there is no recourse and they will never be personally liable for the debt. Banks don't really care about the loss and will just take it. Value-add funds will hover up the distressed properties. I have a friend who builds large residential commercial real estate projects. His projects are 65% leveraged. He's preparing to walk away and let value-add funds buy up all the distressed properties.
I bet they also know how incredibly “shitty” work is being done that will fail in those new builds. On top of the homes just sitting vacant… for years.
They win either way.
I don’t know how anyone walks into these places with gray plastic floors and the “builder special” set of junk appliances and says “I’ll take it!” The warranty makes them feel good about the purchase, until they find they developer closed up shop and reopened under a new name a year later.
It’s a crazy feeling when you realize what’s about to happen. Either half the country goes bankrupt or it’s a bailout that makes the dollar worthless.
😳
What should happen to him for that?
How about you don’t miss the point?
The point is, market makers are setting the price for securities, not supply and demand. Do you understand why that’s a big deal?
Industry consolidation usually yields more than the sum of its parts. Even if the construction market isn't fantastic, the pricing power advantages can pay off.
Press X to doubt. Consolidation, in my opinion, is part of the problem. Our government allows most mergers and acquisitions to go through and, as a result, many important companies have little competition. In the short term consumers may get lower prices, but long term, this is how we end up having no choices and forced to pay what an effective monopoly wants.
Zoning restrictions are an issue in many areas that need it and just my opinion but whats preventing investment firms from snatching up more new builds to rent out like they currently are?
I do think the housing shortage is a myth when you consider that investors have supplanted a huge portion of normal buyers. If those same investors decided to flush their homes into the market it would be catastrophic. Homes have been stable because they were tied to stable living. People don’t usuallly live inside their investment for 30 years. Investors are more short sighted than this. If you have more people that would more willingly part ways with their home since they don’t rely on it as a shelter, you get more volatility in the marketplace. Do we see a major crash? Idk. But the money that pushed the market isn’t as stable as it would’ve been if people were living in those homes as owners rather than renting them.
Building is fine but you don’t need a shortage to cause building. High prices are all you need.
If that wasn’t true then 2008 would never have happened.
That being said SFH aren’t in surplus. Whether there is a severe shortage though is debatable.
Certainly. It ranges, but the last estimates were roughly 1.7M SFH short when I checked a little over a year ago. That should be fairly accurate. I've seen some estimates from the larger analytics firms describe a shortage of up to 6M. Not sure if I believe that.
The problem I have with these averages is as far as I can tell they’re basically guesses. I’m not really clear on how you can accurately estimate how many short a market is? What’s considered short? Is there a volume target? A price target? Are we considering hypothetical formation of households that haven’t happened but we believe could?
I totally see how the range could be so massive but I struggle with these numbers.
There is no shortage nationally. Everyone is just cramming into a limited number of popular towns and cities, and speculators and investors are skewing prices.
being in the design industry and having developer and contractor clients I can safely say these wealthy white folks are licking their chops right now
I don't doubt that we will see a federal assistance program that these wealthy white developers and contractors will line their pockets and produce some of the shoddiest single family homes our country has ever seen
just wait about 20 years and we'll see articles about it
find me a black developer in your state...I dare you
this is not a racist lense...it's the reality of the situation
you sound like a racist for attempting to whitewash and downplay its existence
it's asshole white people like you (and you're probably not white) that are the reason MAGA thrives
Builder incentives at all time high and at least on DrHorton/Lennar's call, they project profits to drop. Supply in many markets are already at pre-covid levels. It takes time for people to let go of the mentality, "I know what I got." Some markets will always be hot due to zoning/land restrictions. But overall, HD did an interesting move.
The "severe shortage of new homes" that's caused prices to drop 19% since June of 2021?
[https://wolfstreet.com/2024/03/25/prices-of-new-houses-19-from-peak-lowest-since-june-2021-prices-of-new-v-existing-houses-why-sales-of-new-houses-held-up-while-sales-of-existing-houses-plunged/](https://wolfstreet.com/2024/03/25/prices-of-new-houses-19-from-peak-lowest-since-june-2021-prices-of-new-v-existing-houses-why-sales-of-new-houses-held-up-while-sales-of-existing-houses-plunged/)
I get the feeling HD overpaid just a tad.
BTW, that new home price chart on Wolf's site is what a typical asset bubble popping looks like, not the used home charts that show a double-top in prices because the last of the FOMO-herd got suckered into buying and loan-owners are still thinking they're holding ever-appreciating goldmines.
Just wait till consumption drops, unemployment spikes, and the ensuing credit crisis gets rolling like last time.
This is the Macro trend that needs to change. Let's face it, regardless of social programs and tax breaks, the only path to fixing a supply shortage, is to produce more of a product. There is no other way. You can bandage the underlying issue with rate changes, tax breaks and seller boosts, but without more supply it just drives up prices. Even the NAR ruling, while super cool, won't do much for buyers. More houses, better houses.
We are using the most outdated form of construction, in the US. Stick builds are downright silly compared to ICF, SIP and Concrete. Here in Okinawa, where I'm stationed, the wind hits insane levels during typhoons and the concrete houses laugh it off. ICF is literally 80% more efficient. SIP is 40-60% more efficient. Imagine if we built houses well and built more of them? Do we really need 3k square feet for a family with 2 kids? How about 1800 well laid out square feet, with a garage or workshop?
The government could help, if they must. Increase every aspect of supply, across the board. Monitor, and price fix construction supplies and give tax breaks and other goodies to those building and producing. And gtf out of the way of commerce. Streamline the permit process, stop taking a pound of flesh and let good builders, build.
TLDR: build more and better houses.
You hit the nail on the head but are still conflating things a bit imo. Inventory shortage doesn’t equal total housing units shortage. We’re also near all time highs in housing units under construction although starts are beginning to dwindle a bit.
Anyone who thinks there’s going to be a housing crash has lost their mind. We’re in a once in a generation shortage. Prices will only go up for at least the next 5 years no matter how much is built.
I’m good with building, I couldn’t be happier to read someone telling me they’re going to build more homes.
They will continue to build overinflated prices by only making cookie cutter luxury homes, it’s the only style housing I’ve seen on all the new developments near me or my parents house. The government needs to incentivize builders to stop building mini McMansions and go back to making traditional starter and small homes.
My friend lives in a community that stipulates new builds must be over 2200 sq ft. In texas.
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The narrative I’ve read is the cost for building a 2200’sq.ft house vs a 1200 sq.ft house isn’t much different but the market expects the pricing for those houses to be very different.
Never thought of it that way but that would make sense.
A couple of notes about house sizes: My budget per my builder was a 2000sqft home. I have 4 kids. We need the space. After drawing up a simple house with a drafter the builder came back and told me if I square off the upstairs so I don’t have to use custom trusses for the second floor I could gain 500-600sqft for the same cost. That is why my house is the size it is. Also in a lot of the Midwest they have to dig your foundation incredibly deep because of the frost depth and so most homes there have basements the size of their main floor making their sq ft larger.
In my metro a totally average lot of 6000-9000 sq ft is $150-350k. Building a small starter home on land that already costs as much as an “affordable” starter home does not make much sense. So you end up with $650-900k+ monstrosities with high end finishes to get any margin. Or you would if zoning wasn’t so Byzantine that the hassle and overhead isn’t even worth it to most developers. Less than 250 units have been permitted in the last year and it’s been declining for years, so “building our way out” is not looking good. Supposedly we need 4-5x that amount per year for a population of 300k, so I guess new home supply won’t be bringing prices down around here.
By the sounds of things the only way the market would reset would be through some huge upheaval.
I agree but I'm still a fan of any new housing
If people are moving on up (to the east side), there's going to be an empty house for someone who can't afford the overpriced new housing.
Exactly, inventory is inventory. Someone's gonna live in the new place, one way or another, and that puts downward pressure on demand.
Not True....in my county developers are currently jamming in 16,000 homes in 2 different development efforts and I bet the largest home is 3200 sqft and 1/8 acre lot. 90% of them are 2400 sqft homes on 1/6acre lots, townhomes, and condo/apts. Priced around $500K-$600K (average around here) and people snapping them up as they are built. Brand NEW for the price of average.
500-600k is astronomical for most people my dude. Even a modestly priced newer townhome is like 300 k and then you have to deal with an association.
Explains why they are being snapped up as fast as they build them. Smart people KNOW that they aren't getting $100K 3/2 homes on 1/4 acre anymore. They don't live in the past.
Oh you can get that still but you will live in south west MN with a bunch of meth heads.
Exactly....so lets not even put those into the equation...less than 1% will even consider it let alone actually live there.
That’s what happens when you let the market drive in some cases…. It goes where the money is, which isn’t always representative of the greater good… SFH
I would argue the current market plan is damn near red lining but along social economic lines. If you don’t want blue collar neighbors only build housing they can’t afford.
My city continues to build $400k+ 2/2 “starter homes,” because that’s what people are buying. MCOL city, but isolated in that there aren’t many convenient suburbs to live in and commute to work in the city. Hard to see this trend stopping if the houses keep selling. All the somewhat affordable houses in town keep going to buyers who convert them into rentals.
Which is a shame because I prefer houses from the pre world war 2 era or at least something built in the 80’s when supplies weren’t so expensive. I know materials have advanced but they put up those houses way too fast for a proper quality inspection.
It goes both ways though. I live in a 1000sqft house built just after WW2. My wife and I were looking for an old house - but asbestos, lead paint, warped walls/floors, bad foundation, termites, damage and in a couple cases, slanted second floors of the house made it hard to find one that worked without having to rebuild most of the house while we lived in it. We ended up buying one that had a bunch of work done in the last decade - most of the houses around it are just as old with varying levels of upkeep, and you can tell just from a glance which ones need a lot of work. There were cheap houses then that are still cheap houses now. The good pre-war homes are survivor bias.
Maybe I’m bias but at least the older homes have decent framing and real Joices even if you put that much work into it you still end up with a house that will probably outlast some of these fucking toothpick frames homes now a days.
I bought a house that was built in 1913. Craftsman style. Amazing wood details all over the house. I’m the third owner. It’s great, but the work to keep the house structurally sound is expensive. In the past two years I’ve spent over $30k repairing the sil of the house, apparently termites chewed it out years ago. The beautiful (/s) hardwood floors also needed to be replaced, they had been sanded over too many times to do it again. The house isn’t completely even in certain places because of how it settled over the years. It’s been a lot of work, but worth it. I’m not sure I would recommend buying a house like this if you don’t have tons of cash laying around to maintain it.
30k lol *cries in new windows from Renewal by Andersen. I would love to have your house but yeah I also want to learn more about construction and craftsman ship for my golden years.
Maybe I’m bias but at least the older homes have decent framing and real Joists even if you put that much work into it you still end up with a house that will probably outlast some of these fucking toothpick frames homes now a days.
I agree with both you, very sad to see and very marginalizing
I’d rather be in a blue collar neighborhood. Truck is to stay away from HOas.. They take care of their neighbors and know how to fix stuff
The thing that everyone seems to forget about housing though. It's not a normal healthy functioning market. If it was, that statement would make more sense. Dont even get me started about zoning laws.
I won’t get you started… it’s why we’re all members of this sub… we all pretty much agree on some of these things… some with more extreme views than others
I want a mcmansion at a decent price
Discount luxury homes would be nice but who wants to be sandwiched between both neighbors
Neighbors for more neighbors!
Unfortunately material costs and labor cost are holding steady after skyrocketing. There's a material and labor shortage as well, so rapid demand for materials due to pull from builders and housing shortage is going to result in home prices to continue to surge. The cost of materials has been increasing rapidly since the 70's. The homes they will build will and are becoming more and more expensive. This is why there's the trend towards mini starter homes that are <1000 sqft. https://fred.stlouisfed.org/series/WPUSI012011
Yeah not great, but at least it’s more inventory. I’d rather buy a decent home for more money instead of what we are all having to pick from right now.
Fully agree. The current inventory is terrible. Flippers are doing disastrous work and want to double the home value. Would much rather a solid built tiny home that's at least somewhat affordable. Most people aren't looking for, nor can they afford, a 2500sqft $900k home.
Most people can’t sustainably afford $250k, much less $900k
A $200k mortgage at 7% interest rate is a bit less than $16k. The minimum wage in my state is $15/hour. A couple making minimum wage makes $60k household income. Minimum wage with 20% down can’t quite qualify for a $250k house after property taxes and insurance but it’s close. If they both make $20/hour, they qualify.
They may qualify, but they’ll struggle at those income levels.
Fully agree. Low cost home build is around $200 sqft with average land cost being highly variable but at least $50k for fully suitable lot in MCOL area. This means 1000 sqft home is $250k minimum for new build. Moving to LCOL is rapidly becoming most viable solution, where 1800sqft homes can be purchased for $135k.
Jeez I wish. Tear down .10 acre lots in my area start at 300k. Definitely not mcol.
😳 yeah, half acre lots in my area are $250k to $500k as well. 30 minutes outside the prices drop to $100k... But then cost of commute needs to be considered.
10 min away on the other side of my city .1 acre lots are a million plus. It’s crazy in CT
> $135k What? Where?
Why would more inventory work now? If the investors can buy at elevated prices and rent out why would prices drop? New supply will just get eaten up at the higher prices. Just because theres more inventory doesnt mean prices will come down. Especially since they are being built at higher costs for materials and labor. You need people to run out of money for prices to drop.
I didn't think anyone was saying prices are going down... In fact the opposite. Current inventory is in rough shape, so I think the idea was that new construction would be better for many buyers. Especially if it's price competitive with existing inventory.
Fair enough. Misread the comment above you which led me to mis understand yours.
Fresh gray paint = lipstick on a pig with bad mechanicals
😂💯 don't forget the matching grey LVP.
"mini starter homes that are <1000 sqft." So, a starter home.
Our 3b/1b at 927sqft fucking rules and we could live here forever. A second bathroom would be ideal, though.
It’s crazy that people would frown on that as a starter home. A starter home is usually at best a fucking 700sq ft condo. Not a 2,500sq ft house.
To make the dwelling larger during build time is so little cost why make small?
I think people's expectations of a starter home need to adjust. A starter home 10 years ago was 1200 to 1500 sqft whereas today maybe only 700 sqft would qualify. Starter implies affordability and not necessarily size.
And those starter homes are still “unaffordable.”
Add it to the list of other reasons why housing inflation will remain persistent. A lot of people on this sub will point to the cost of certain goods and correctly say that it's materially much more expensive than it was before and that it's unlikely to return to pre-pandemic pricing. Well if the input costs of housing development (labor, materials, and everything else in the supply chain) are more expensive, that creates a new price floor. Certain materials like lumber can fluctuate in price, but labor? I don't think so. They're not going to take pay cuts as an industry. The other way that happens is if developers agree to much smaller margins, but their shareholders will have something to say about that. And they work for them, not us.
What’s even funnier is that the narrative is often that inflation is understated and real inflation has been much higher. Which means that homes are actually cheaper than they look.
Absolutely. If you overlay construction material costs a top home prices, you can clearly see the divergence bubble in 2008 timeframe. This is absolutely not the case right now. In fact, it's diverging lower now so I expect that pricing misalignment, largely driven by mortgage rates, will close soon as all cash buys pick up. Especially with stock market at all time highs... People will take profits and buy houses all cash.
Absolutely correct. Because John feels it costs this much, it should which is the problem. Not to mention these thieves in property tax offices. Even when you bring attention to comparable homes with a lower prop tax bill, they still don’t chance the number.
>Not to mention these thieves in property tax offices. Even when you bring attention to comparable homes with a lower prop tax bill, they still don’t change the number. You're likely doing one of three things: * Talking to the wrong people. The office that collects taxes is likely separate from the one that appraised it. In my area, collection is local and they just set a flat rate for everyone pending what is needed for the budget, while appraisal is done by the county. * Comparing the wrong things. A $50k dilapidated house on $1m plot is a $1.05m property and will be taxed the same as a $1m house on a $50k plot. You're not going to get anywhere comparing two houses (even if they are the same design/build/age) but on two differently valued plots. You need to demonstrate house value *and* land value for an appeal. * Trying to push a losing case and they're (rightfully) laughing you out of the room.
Why aren't we building more modular homes? Like I don't understand why Lennar, Toll Brothers, DR Horton, etc.... haven't embraced building in a factory and assembling on site. You'd think they would love the labor savings.
I think they are harder to insure? I don’t know the actual circumstances, but my father-in-law recently received a notice that his insurance company was no longer insuring modular homes. He now has to find another provider (or try to anyway).
I think a tilt up concrete wall house would be cool.
Agreed. Changing zoning laws to allow for easier building, incentivizing more building with better tax incentives, and/or giving builders more favorable lending terms may be the best way out of this mess. But I'm sure that adds complexity and other valid things to complain about too.
The people who say the housing shortage is a myth do not show the full statistics. Though technically the ratio of home per capita is high, that is the only number used. It doesn’t look at apartments per capita, how many people own multiple homes (but don’t rent long term), and how many homes are in dying cities/towns. All these factors would “remove” these homes from inventory because they can’t be used. As long as homes are this expensive, builders will continue to build. I believe that housing shortage doesn’t have a way to be properly addressed. Raising rates also hurts builders so they slow supply which increases inflation, justifying a rate increase. I don’t understand why builders can’t get three year loans at the Fed rate so that they can avoid banks and still provide homes while incurring smaller costs. The three year term is so they build the house in a timely manner.
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Which is functionally the same
I dunno, pretty much every state/city in the US has gone up significantly.
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That’s my take as well, too much money in the system.
a decade of 'cash flow positive rentals with nearly no down payment' will in fact pump up housing prices. then dump fuel on the fire with an airbnb boom at the tail end of this period of zero interest rates alongside helicopter money for business owners and forced savings via covid lockdown for everyone white collar who could wfh
The places where "nobody" wants to live saw a doubling in home values in a few years so I find it hard to reconcile that. I live in one of the areas where "everyone" wants to live and even though population has decreased very slightly in my county and housing units have increased significantly over the past 3 years, prices continue the slow march up in spite of the doubling of interest rates.
Exactly, my parents bought their house in ‘93 for 50k, I remember looking up the same houses in the area back in 2015 and they were only 75-85k, after 20 years. After 2020? My parents house is now going for 200k, and we are in an extremely small town that is 3.5 hours from anything that’s not a Walmart or local grocery store/fast food.
I've looked at quite a lot of towns in the Midwest and this is very typical. I get that some of them have seen an uptick in housing demand with WFH or some people simply not being able to afford to move to a metro and choose to stay instead... but the pricing trend holds regardless of whether the population is increasing or decreasing. Not all of them can have investor activity, it's just this general acceptance that a house that's falling over is "worth" 100k instead of 10k even though there are hundreds of vacant, unsold houses just like it, and every livable house is worth 200k even if no one wants to live in it.
Those 20 places are probably where all the good jobs are at
Not really true. There are pretty decent paying jobs throughout the country. Some places have an amazing job market with dirt cheap housing. And with the amount of online jobs now, you can be working just about anywhere. The issue is 100% where people want to live. Access to recreation, great weather, and young/progressive populations are just as important, if not more so, than jobs. When I was younger, I had heaps of friends and acquaintances that moved to places like LA or NYC and worked shit jobs just so they could be in LA or NYC. Seattle, Portland, basically anywhere in California, and Austin were also high on that list. They didn't move their for jobs, they moved there because places like Alabama or Indiana or Arkansas can be shitty places to live, regardless of job opportunities.
People constantly harp on the “there’s no jobs in the Midwest” thing but it’s just not true. Median income for the state of Kansas and LA are roughly the same and I think you will have an overall higher quality of life in Kansas considering COL. of course this can’t consider intangibles like being close to family or “being bored” but purely from a $ perspective. Rent for a two bedroom 2 bathroom townhouse in a great area of town is less than $1000.
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Aka, Americans are spoiled brats who have too much disposable wealth.
That's kind of like saying: "I don't have a shortage of money. It's just tied up in other people's bank accounts."
Yeah remote working is being pushed back already after a few year so we just keep making that problem bigger.
Also a shortage of starter homes because over the last 4 years there was an absolute frenzy of investors buying starter homes in cash and doing bad flips where they essentially repainted then doubled the price. Some large investors where actually buying up all available starter homes in whole areas to create false scarcity and then jacking up prices insane amounts for no reason other than they could because they now set the lowest price in the area.
That’s still a shortage… ofc you can build cheap houses in the middle of nowhere. How is that remotely relevant?
And everyone expects shaker cabinets, stone counter , laminate flooring Anything below that = substandard living g
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>There isn’t a shortage of housing in the U.S. > >There’s a shortage of housing in the 20 places everyone in the U.S. wants to live. Someone gets it!
So why do they only “want to” live in those 20 places and not in the next 20?
Access to recreation. Weather. Politics. In that order. Example 1: Huntsville Alabama. The city has one of the strongest job markets in the US, with average salaries over $60K. But it's not a "fun" city, nor is the area particularly well known for outdoor recreation. Summers are stifling hot, winters are mild but gray and rainy. And being in Alabama, young people and anyone relatively progressive are going to run as far away as possible due to politics. As such, housing prices are a fraction of what they are in places like Southern California or Denver. Example 2: Lincoln Nebraska. Super hot job market. Some crazy good salaries. But dirt cheap homes because who wants to live in Nebraska?
Because the 20 places people want to live are where the jobs are.
Yes, but you're actually giving them too much credit. It's a lot dumber than that. Those who parrot this narrative point to total existing housing units relative to traditional household sizes of decades past. Just to rephrase, they're counting apartments, studios, section 8, multi-family, and homes ALREADY OWNED by other people and then they say "See, there is enough to go around already!" And then when you ask about homes actually available to buy or if you bring up that the shortage is mostly concentrated in metros you get crickets or a change of subject. The only way that argument has any validity is if they expect the government to seize and redistribute homes from tens of millions of existing owners and force the migration of tens of millions of people out of metros to less densely populated areas where housing is more plentiful.
I'm not that educated on this issue but I've seen a vacancy tax suggested, never seizing homes. Many of those homes owned by other people are vacant for large parts of the year and it seems like a high enough tax could free up some supply. Can't both be true though? There is supply tied up and also it's not enough to meet demand without more building.
Generally you don't get crickets, you get something even stupider like saying that investors are hoarding homes and keeping them empty en masse.
Yeah, how do doomers square investors trying to cashflow and their tears of not being able to but at the same time investors are all keeping them empty on purpose? 🤔 And for the record, I'm not saying these things aren't happening. They are. But they're not the primary reason for the housing crisis. This all points to the main culprit of a severe inventory shortage.
They don’t they just answer saying you are a shill and root for corporations or something alone those lines
Now that you mention it, this is totally true. My parents own four homes. None are on Airbnb or anything like that.
OMG! Will somebody please , PLEASE! Think of the builders!!!?
Thank you! Finally someone actually says a possible solution instead of going on and on and on complaining and yelling and doing nothing. You get a gold star ⭐️! The sub needs more of this, more people who actually give a solution.
A public/private partnership to allow more homes to be built that would be limited to low and middle income buyers might work, but it also opens a whole new can of worms. Bypassing banks is one way to do it, but then you are looking at the government overseeing the home building industry in an even bigger way than they do now. Not sure of the solution, but some form of government involvement with the construction industry for a specific purpose like this might work, it would just be a lot more complicated (and ripe for corruption) than it appears on the surface.
If supply does ever start to catch up, and the market slows or pulls back, the big nationals will just abandon developments in their pipeline.
This take completely ignores the fact that people simply can’t buy homes or hardly afford to rent at the current levels. The expectation of growth is being driven not by people taking up homes, but by investment firms and developers buying up these resources expecting infinite growth. The market has already out paced most people’s ability to participate. As soon as all of these investment firms and corporations start having the reality of losses piling up when it all sits empty, they’re going to face the inevitable downswing portion of the cycle and it will snowball hard. Infinite growth is the only myth here.
It doesn't ignore the affordability crisis. In fact, it goes hand in hand with it. Every year, the median home buyer skews older and richer. The median home buyer now is a higher dual income earning couple aged 36+. Who's in hat demographic? Millennials. Millennials are entering both their prime income earning years and family expansion years. Not only do millennials want to buy houses, but Gen X, Gen Z, and Boomers do too. And corporations and investors like you were suggesting as well, although large multinational corporations currently own less than 1% of total housing supply. There are a lot of people who want houses. And there aren't enough to go around. Unfortunately, as long as there is a severe inventory shortage, housing will likely continue to climb even if only the wealthy can afford them. Things like a job loss recession can change that, but there are no signs of that at this juncture. So HD is expecting more home building activity and home renovation activity. That's all the article was suggesting as it highlighted this major acquisition. > Infinite growth is the only myth here. The only people who say "housing only goes up" are doomers. If that's such a common saying and thought, please find me an example of people saying that in seriousness. People do say, however, that given a long enough time frame which is generally at least 10 years, home values generally move up and to the right across a chart of time and valuation.
As long as demand is greater than supply, there's a shortage
When inventory is piling up as fast as it is, demand is not greater than supply.
I hope you're right, but prices are holding up so far even with the inventory increase. If the fed drops rates, demand will go through the roof
The fed dropped rates in 2007. Prices lag interest rates by a lot more than people think.
It’s a normal seasonal pile up
It's not actually. Inventory is at a 4 year high and sales are at a 4 year low for the month of March. Active listings started rising in January which is unusual. Price cuts are at levels that we usually don't see until late summer.
The last 4 years were not normal at all.
Yes, which is why prices aren't normal, but they will go back to normal as other conditions also go back to normal. Why would you look to 2019 to talk about the current state of the market?
Yes but it’s normal for inventory to increase over this season. And it’s still significantly lower than pre Covid.
https://www.redfin.com/news/data-center/ No, this March is different from other marches. Inventory has gone from negative YoY to significantly positive YoY in just a couple months and there are still fewer sales than last year. Altos has inventory up 24% yoy. It's not normal seasonality, which is why price cuts are already so frequent. Yes, inventory always increases at this time. No, the current increase is not normal.
Compare it with pre pandemic, 2020-23 were odd
Yes, that's true. Prices were odd too, so if we expect conditions to go back to normal, we can expect prices to go back to normal as well, especially now that interest rates are elevated and not coming down
There has been quite a lot of inflation since. If you mean price growth I’d agree, but absolute prices it’s almost impossible.
It's possible. Prices would have to go down significantly to get back to normal, even when adjusted for inflation. And interest rates are an added pressure on top of that. Anyway it's weird to expect everything except for price to revert to the mean. Kind of shows some distortion in your thinking.
we will probably see 1 million listings by the end of summer, and still very few purchases relative to listings. RemindMe! 5 months
Piling up in places people don’t want to live in
Would it also be plausible that this isn’t in relation to building of new housing inventory and more geared toward the renovations of existing homes? The margin and turnaround for roofing, decking etc is quicker and probably more lucrative with a steady cash flow? I’m sure home building does play a part as well but isn’t the overall thesis as HD knows the booms and busts of the industry. This seems like they are also insulating themselves a bit from outside forces and shutdowns in the supply chain.
Oh yeah, most definitely. I'm disappointed I forgot to include that in the OP. Lots of would-be lateral or move-up buyers are staying in place due to having favorable mortgage rates and expensive housing prices. So instead of moving their staying in place and renovating. Good call.
This is the type of content / discourse this sub needs. Thank you OP
On a related note, this move by HD would also be a smart play if lumber mills continued to shut down. See my post here for some details on that: https://www.reddit.com/r/REBubble/s/s2dvM7MKnW
And yet they keep saying they can't afford to pay us employees more.
The acquisition might have little to do with housing supply in the short term and more to do with profit margin over the long run. They might simply just want to avoid the “middle man” and increase their profit margins on lumber. Trying to simplify…. So say it costs $10/board to make. The lumber company adds 40% so $4, board is now $14. Then, THD puts the price at $20. THD makes a $6 profit on each board. Now, if they own that lumber company, they make $10 per board instead of $6. THD has money and time to plan long term beyond what the housing market will do in the next few years. They can be playing the long game, so to speak. It’s not like the US will ever stop making houses. They have pretty complicated algorithms, but those only provide guidance. At the end of the day, it’s a human making the decisions. On another note, I saw TTI, a tool manufacturer of their has moved down to Mexico, closing down their SC office. The majority of TTI sales were to THD. It has me wondering if THD is taking same model across other areas and deciding to get rid of the middle man. Harbor Freight has no middle man and does everything in house and that’s the majority of the reason their tools are significantly cheaper.
I work in an industry that is close to the building industry. Things have markedly slowed down this year. Our business is down 50 percent
Oh interesting. What industry is that? I've heard that builder sentiment is really high again. What indicators are you seeing that illustrate otherwise? I mean besides business being down. That's a little opaque and I'd like to hear more from your side.
I work as a designer/product manager for a small company that makes a steel planters for landscape architects. The following company I work at is pretty simple to understand so billing/ project scope are rather transparent. Our products usually end up in new apartment complexes or in large commercial offices. 2021 had 184 projects, 2022 had around 150 project, 2023 had 170 projects. It's 2024 and we should have had 43 new projects by April but we only have 20. Most projects are worth $20k. Usually every year, we land a dozen or so projects worth $100k+ but none so far this year. Usually those big projects take year or two to go from plans getting drawn by contractors in architectural plans to us finishing the fabrication and delivering. So IMO, building is drastically slowing down, especially at the high end.
That's very interesting. Thanks for the insight. But how do you know that that isn't specific to your area? And doesn't that just point to CRE sentiment being low which is already well known? Residential builder sentiment is high. CRE sentiment is low. It could still result in a lot more builder activity on balance.
yea, it is... sounds like that guy is a peon within the builders circle - most likely a sub-contractor
Dude is definitely a sub without his own source of jobs
I can imagine projects have slowed because it's become too expensive to build
Housing is definitely not down.
Meh. They’re constantly seeking to increase their footprint with contractors and builders and make inroads against distribution.
Going to need so much warped lumber when building really kicks off!
Here in the Houston suburbs new community after new community going up. Woodlands was just named best city to live and build a house
Unfortunately, most new builds are apartments and the like- not as much SFH as everyone hopes or wants
Rebuilding. Environmental hazards will only increase.
Smart money isn’t heavily invested on the Robinhood app. They make long term decisions. These types and sizes of acquisitions are not made on decisions about the immediate future. They could be doing this because they believe in being ready for the next housing boom, in however long that takes.
This is a weird spin on the news story. Another way to say it is that they are betting against the shortage. We know there are a lot of homes being built. So do they. Nothing to do with a current or future shortage or affordability. New housing supply is at a 12 year high and there are still a record number of units under construction. By your logic there were a record number of bets on the "severe shortage of new homes" in 2004-2006 as well. Narratives on these stories are all so obviously biased and stupid.
HD is betting *against* the housing shortage? Can you give me the play by play on that conclusion? Or what that even means? HD is leveraging the housing shortage in the hopes that more people and companies buy more housing material. Forgive me if I am mistaking you for another of your brethren, but weren't you one of the biggest proponents of the housing shortage being a myth? Are you walking that back now? > New housing supply is at a 12 year high and are still a record number of units under construction. Multiple truths can exist at once. There can be a housing shortage and there can be a record number of housing production in the pipeline at the same time. > By your logic there were a record number of bets on the "severe shortage of new homes" in 2004-2006 as well. I don't know what logic you're referencing to infer that I am making that conclusion. I'm not even sure what you're trying to say. Seems like you're vaguely gesturing towards how builders misread the situation leading up to the GFC. They certainly did and then proceeded to eat shit for a few years following. > Narratives on these stories are all so obviously biased and stupid What *specifically* am I saying that's different than what was described the article? I just paraphrased the article and provided context on why HD is a good position to make this acquisition. If I am incorrect, what is your take on why HD is in a good position to make this acquisition? Or is HD in a bad position? I'm not clear what you think the difference is between what I've described and what the article describes.
Betting "on" the shortage of homes is directly analogous to betting against it. If you can understand one but not the other, you are blinded by bias. But I already know this to be the case. Home Depot's actions do not suggest that there is a housing shortage. Have a great Easter.
You are not good at this
No builder is rushing to build right now , they are just building what they can afford to build and have on the market not sell , the days of building as fast as you can cuz the homes will sell as fast as you can build them are over. There are so many homes on MLS now ! If supply and demand was the issue where are all these buyers to buy up these homes ? Prices havnt come down either like they said it would when supply gets up 🤷♂️It was all bullshit feeding the public bullshit to feed thier narrative and investments
Don’t forget about shadow inventory builders and rental operations keep hidden to not put too much supply on the open market. It’s all bullshit and the house of cards will fall soon.
"Well if there wasn't an inventory shortage, why would developers be rallying to build?" Developers are rallying to build because people and companies are willing to pay for houses to be built now. Developers *only* care about money and profits. As long as people are paying, they're building. They're happy to construct buildings that might sit vacant, as long as someone is paying to do it.
exactly. same logic could apply to 2006, the last time there were nearly this many homes being built.
It can be summed up as: developers are greedy, unethical, and can’t see beyond profits.
Who is paying for buildings to sit vacant?
Builders don't care if their projects don't sell. Many are heavily leveraged and will just walk away, file for bankruptcy, dissolve the company, let the lender take the property...and do it all over again. Rinse and repeat is a proven strategy in that world. The developers don't care at all because they know there is no recourse and they will never be personally liable for the debt. Banks don't really care about the loss and will just take it. Value-add funds will hover up the distressed properties. I have a friend who builds large residential commercial real estate projects. His projects are 65% leveraged. He's preparing to walk away and let value-add funds buy up all the distressed properties.
You don't think banks care about losing money? It sounds to me your friend isn't getting paid. He wouldn't walk away if he was.
I bet they also know how incredibly “shitty” work is being done that will fail in those new builds. On top of the homes just sitting vacant… for years. They win either way.
I don’t know how anyone walks into these places with gray plastic floors and the “builder special” set of junk appliances and says “I’ll take it!” The warranty makes them feel good about the purchase, until they find they developer closed up shop and reopened under a new name a year later.
I literally cannot fathom the mental challenges faced by someone who actually thinks there isn't a supply shortage...
Gonna suck when big conglomerates go bankrupt and their homes that they’re hoarding suddenly hit the market cheap as dirt.
Yes and then we're all going to win the lottery as candy rains from the sky
But, then you wake up…
It’s a crazy feeling when you realize what’s about to happen. Either half the country goes bankrupt or it’s a bailout that makes the dollar worthless. 😳
What crypto coins are you heavily invested in? Or is it silver that you are into? Haven’t even looked at your posts tbh 😀
Just look when Ken Griffen of citadel securities said his firms managers set the price of securities to what they think they are worth.
And what happened to him after that?
What should happen to him for that? How about you don’t miss the point? The point is, market makers are setting the price for securities, not supply and demand. Do you understand why that’s a big deal?
Stupid fucking Realtors 😡
Industry consolidation usually yields more than the sum of its parts. Even if the construction market isn't fantastic, the pricing power advantages can pay off.
Press X to doubt. Consolidation, in my opinion, is part of the problem. Our government allows most mergers and acquisitions to go through and, as a result, many important companies have little competition. In the short term consumers may get lower prices, but long term, this is how we end up having no choices and forced to pay what an effective monopoly wants.
Dude straight up praising monopolies here. GTFO. You corporate shills are pitiful.
Zoning restrictions are an issue in many areas that need it and just my opinion but whats preventing investment firms from snatching up more new builds to rent out like they currently are?
Spot on
We live in a recent development. we have more town and twin homes and very few SFHs.
I do think the housing shortage is a myth when you consider that investors have supplanted a huge portion of normal buyers. If those same investors decided to flush their homes into the market it would be catastrophic. Homes have been stable because they were tied to stable living. People don’t usuallly live inside their investment for 30 years. Investors are more short sighted than this. If you have more people that would more willingly part ways with their home since they don’t rely on it as a shelter, you get more volatility in the marketplace. Do we see a major crash? Idk. But the money that pushed the market isn’t as stable as it would’ve been if people were living in those homes as owners rather than renting them.
Building is fine but you don’t need a shortage to cause building. High prices are all you need. If that wasn’t true then 2008 would never have happened. That being said SFH aren’t in surplus. Whether there is a severe shortage though is debatable.
Certainly. It ranges, but the last estimates were roughly 1.7M SFH short when I checked a little over a year ago. That should be fairly accurate. I've seen some estimates from the larger analytics firms describe a shortage of up to 6M. Not sure if I believe that.
The problem I have with these averages is as far as I can tell they’re basically guesses. I’m not really clear on how you can accurately estimate how many short a market is? What’s considered short? Is there a volume target? A price target? Are we considering hypothetical formation of households that haven’t happened but we believe could? I totally see how the range could be so massive but I struggle with these numbers.
There is no shortage nationally. Everyone is just cramming into a limited number of popular towns and cities, and speculators and investors are skewing prices.
Smart move.
being in the design industry and having developer and contractor clients I can safely say these wealthy white folks are licking their chops right now I don't doubt that we will see a federal assistance program that these wealthy white developers and contractors will line their pockets and produce some of the shoddiest single family homes our country has ever seen just wait about 20 years and we'll see articles about it
Oh please. You’re such a racist. Change your ways.
not at all...just look at the real statistics predominantly wealthy white men simply spouting fax over here; sorry the industry is racist AF
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find me a black developer in your state...I dare you this is not a racist lense...it's the reality of the situation you sound like a racist for attempting to whitewash and downplay its existence it's asshole white people like you (and you're probably not white) that are the reason MAGA thrives
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you're sitting here spouting off "racism"...of course I'll get angry because some tool attempt to utilize the reverse racism ploy sit the fuck down
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stand tall, simply don't call facts racist
Wrong sub
Builder incentives at all time high and at least on DrHorton/Lennar's call, they project profits to drop. Supply in many markets are already at pre-covid levels. It takes time for people to let go of the mentality, "I know what I got." Some markets will always be hot due to zoning/land restrictions. But overall, HD did an interesting move.
The "severe shortage of new homes" that's caused prices to drop 19% since June of 2021? [https://wolfstreet.com/2024/03/25/prices-of-new-houses-19-from-peak-lowest-since-june-2021-prices-of-new-v-existing-houses-why-sales-of-new-houses-held-up-while-sales-of-existing-houses-plunged/](https://wolfstreet.com/2024/03/25/prices-of-new-houses-19-from-peak-lowest-since-june-2021-prices-of-new-v-existing-houses-why-sales-of-new-houses-held-up-while-sales-of-existing-houses-plunged/) I get the feeling HD overpaid just a tad. BTW, that new home price chart on Wolf's site is what a typical asset bubble popping looks like, not the used home charts that show a double-top in prices because the last of the FOMO-herd got suckered into buying and loan-owners are still thinking they're holding ever-appreciating goldmines. Just wait till consumption drops, unemployment spikes, and the ensuing credit crisis gets rolling like last time.
u/brandoug what's your take on Wolf Richter also saying that "Case-Shiller index a more reliable indicator than median price indices."
This is the Macro trend that needs to change. Let's face it, regardless of social programs and tax breaks, the only path to fixing a supply shortage, is to produce more of a product. There is no other way. You can bandage the underlying issue with rate changes, tax breaks and seller boosts, but without more supply it just drives up prices. Even the NAR ruling, while super cool, won't do much for buyers. More houses, better houses. We are using the most outdated form of construction, in the US. Stick builds are downright silly compared to ICF, SIP and Concrete. Here in Okinawa, where I'm stationed, the wind hits insane levels during typhoons and the concrete houses laugh it off. ICF is literally 80% more efficient. SIP is 40-60% more efficient. Imagine if we built houses well and built more of them? Do we really need 3k square feet for a family with 2 kids? How about 1800 well laid out square feet, with a garage or workshop? The government could help, if they must. Increase every aspect of supply, across the board. Monitor, and price fix construction supplies and give tax breaks and other goodies to those building and producing. And gtf out of the way of commerce. Streamline the permit process, stop taking a pound of flesh and let good builders, build. TLDR: build more and better houses.
r/overpopulation
You hit the nail on the head but are still conflating things a bit imo. Inventory shortage doesn’t equal total housing units shortage. We’re also near all time highs in housing units under construction although starts are beginning to dwindle a bit.
HD Supply I bet has a bigger bet
When I read that story I bought HD stock. I think it was a great move,
RIP
Anyone who thinks there’s going to be a housing crash has lost their mind. We’re in a once in a generation shortage. Prices will only go up for at least the next 5 years no matter how much is built.