NEW HOME SALES CRUMBLE. Is it Time to Get a Deal? When Might Max Pain Be?

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good morning good afternoon good evening

folks michael zuber one rental at a time

back with his monday expert mr greg

dickerson how you doing sir feel great

michael how are you today i’m doing

really well man first i just want to

give you another shout out for just

nailing what is happening in the new

home building market we have seen

uh a complete collapse right i think it

was down 14.4 percent

way more than expected i think it was

supposed to be down 2.7 it was down 14.

uh we are now seeing more and more

really price cuts which again you told

us was coming that was after buying

points and all these other things so i

think there’s really going to be a

two-step function in the home building

market but i’d love to get your kind of

take on where it is today because

it’s it’s not in a good place i don’t

think

well it’s just getting started so you

know the builders still help have a lot

of inventory in the pipeline that

they’re finishing they’re cutting back

on starts or eliminating them all

together

they’re offering incentives discounts uh

you know all those types of things to

try to get traffic because they’re you

know there’s just no traffic into the

new home communities

and uh you know like i told everybody

watching if you’ve been wanting to buy a

house you know that’s the first place

you’re going to get a deal but i think

it’s a little early yet because they’re

going to get more incentivized to you

know cut even deeper and offer even more

incentives and interest rates are going

to go higher so it’s you know it’s kind

of relative the higher the rates go the

prices drop you know lower the rates the

higher the house you know prices go so

it’s it’s kind of a relative thing but

right now we’re out of whack because

rates are high and prices are still high

so you got to let prices correct a

little bit more the other thing to keep

in mind the fed is just getting started

they really haven’t done anything yet

0.7 we have 75 basis points they haven’t

started rolling off the balance sheet

selling those security mortgage-backed

mortgage-backed securities and you know

bonds and all that stuff so we’ve got a

long way to go yet yeah so when i look

at the home builders and again this is

all because i’ve been listening to you

for well over two years now i just want

to say what i think’s coming and i’d

love for you to correct me or or or add

to it so absolutely right as you’ve said

and you just you know builders are going

to cut first you told us the price cuts

in housing are going to come for

builders first right they have to react

right they don’t really have options

they have to they have to blow out the

inventory they have

uh and again

this i don’t know i see this first phase

kind of dealing with the inventory they

have as step one which means lower

prices terms all of that but there is i

think a phase two which maybe it’s nine

months from now maybe it’s a year i

don’t know the duration

um but i think they’re going to

significantly slow building so they

don’t get caught and potentially

tweak what they built you know maybe

they were building the 2 000

uh square foot move up maybe in a year

they’re building the 1200 first time

home i don’t know but i really do think

there’s going to be two steps to this is

that is that a way to think of it or am

i just off

yeah well you know like we said there

there’s a lot of stuff in the pipeline

they have to finish they can’t just stop

unless something really bad happens and

they’ll stop like they didn’t know 809 i

mean we saw stuff stop right in the

middle you know back then but um you

know as far as new starts go yeah so you

know that’s going to help relieve a

little pressure in the job market you

know in terms of you know costs coming

down more workers available to do things

you know it’ll eliminate some of the

stress there uh you know as far as what

kind of changes we’re going to see

you know that’s hard to say because we

did go from the mansion in 2009 you know

down to smaller houses people really

reduced because of cost because of you

know

the leverage that they had in the system

and the result of the housing market but

then from the pandemic we expanded

because people needed work from home

solutions i don’t think that’s gone away

i think the whole work from home thing

now maybe the home schooling and all

that you know that people added for but

the work from home thing i think is here

to stay and people are going to want

that space

um and they’re going to want to have in

the back of their mind space for the

kids if that ever happens again

snow storms and weather events and

things like that so

the trends in the in the way we live and

the way we use our homes it’s hard to

forecast that but okay builders are on

the forefront that’s the reason home

builder sentiment comes out regularly

that’s the reason we monitor home

builders because home builders are at

the front lines of the economy

recessions things like that that’s where

a lot of forecasts and changes you know

in the economy you know can be

can be seen in advances in the home

builders oh and you’re so right i mean i

don’t know if you saw it but um

i think it’s the atlanta fed

puts out this gdp kind of q2 forward

looking thing and they put out a

forecast i want to say it was

nine days ago that was 0.9

growth in q2 we got new new housing uh

sales down 14 percent they redid it and

now it shows zero so yeah you’re right

builders are the front end there’s a the

real estate is a big part of gdp right

all

all inclusive and yeah all the residual

stuff there was a great article i

pointed out the other day that shows how

many dollars in a community

um you know

goes out into the community from a real

estate transaction not a new

construction but just a resale

home of all the vendors and you know

just all of the money that’s generated

then when you look at the building

industry and that’s what drove the

economy primarily in you know the lead

up to the 0809 crash and then when that

you know building industry went out you

know a lot of a lot of you know

spending was sucked out of the economy

because all the money that was being

flooded into it through construction

we’re going to see that a little bit too

so that’s one of the downsides of the

contraction the good news is housing is

going to come down it’s going to correct

but you know as people get laid off and

the industry contracts as a whole you

know that affects the overall economy

and powell said we’re coming after

housing he did his last question housing

we’re going to make it more affordable

first-time buyers are priced out we’re

going to fix that yeah he did he

certainly did he really did point in

inventory as kind of one of those

numbers i even think he said that

i hate it when he said the great reset

or the housing recent i think was

housing reset he said housing reset

we’re gonna reset housing yeah it’s like

oh great now we’re gonna get all these

people talking about the great reset and

powell is part of it it’s funny you know

a lot of people don’t understand what’s

really going on so they are doing this

intentionally they want to destroy

demand they want to reduce people’s

feeling of wealth so that it reduces

their uh appetite for spending which

helps bring everything back into check

so they want the stock market to go down

oh yeah they want housing values to come

down you know they want the economy to

contract you know a certain degree they

don’t want recession necessarily that’s

the soft landing they’re trying to avoid

that you know janet yellen is out again

saying well it’s not necessarily

imminent you know we’re not necessarily

good we don’t have to go in recession

yeah which she also said that it was not

going to be in the inflation either yes

she did

yeah you need to put her and jim kramer

together yeah exactly the ultimate

bottom when they say yeah exactly those

two kind of funny but i want to talk one

more thing about housing prices because

i think people hear you and they know

they hear me talk about housing i think

i think we have to appreciate the timing

a lot of people have timing off

right so i think as you’ve educated us

new homes they adjust very quickly right

their their debt structure they don’t

have another option right they they need

to sell

the other thing i think is very obvious

is transactions will crash immediately

we get we get existing home sales

tomorrow which i can’t believe they’re

forecasting 5.4 million which is down

like 2 percent from the month before i

think it’s going to be ugly tomorrow

because again transactions go first and

then we have to figure this out this

reset to take powells i think a lot of

that is next year i think people hear

you talk about prizing crash and think

it’s going to happen like tomorrow and

there are channels talking like that i

don’t

housing is too sticky we’re still way

below supply i think any talk of a

pricing class

crash in prices existing homes that’s a

2023 discussion at least in my book do

you disagree

uh no i mean we’re seeing so what’s

what’s skewing that is you’re seeing

price reductions and you know a lot of

the youtubers are putting these charts

up showing you know austin’s 30 down and

tech you know these markets are cutting

prices 30 but they’re already way

overpriced to begin with exactly i’ve

seen properties listed in my market that

are just way overpriced

you know even before they were still

overpriced before when interest rates

were still at two or three percent okay

so they’re cutting prices by you know 30

40

you would think that’s a housing crash

but it’s really not because now the

price is where it should be sort of but

it’s still overpriced even when it comes

down 20 or 30 percent so right you know

it’s really hard to gauge that what you

got to look at is transactions that’s

right that’s really what you have to

look at as the transactions decline

values will come way back in the check

the question is what is a real fair

value now given the interest rate

environment and it’s that affordability

index right so you can easily take the

median home price right now at 460 or

whatever it is based on current interest

rates now from where they were two

months ago because that’s lagging as

well

brings you down to about 360. it drops

it by about 100 grand so that’s really

where the median price should be so

that’s you know that’s what you got to

watch and like you said the bottom end

of that dropped out well as we go the

top end of that’s gonna drop out yeah

yeah i think this the the housing market

is a complex beast we are going through

something we haven’t gone through right

i’ve studied housing back 52 years and

we haven’t we’ve seen interest rates

double before but we haven’t seen them

double in 120 days this is new

uh

so again i i think there’s just a lot of

things and i think the clearest thing

because we’ve seen i just reported this

morning somebody did the math for me

how many people were priced out because

demand’s a two-step function right you

have to have the desire and the ability

well we just lost 18 million people they

were qualified at roughly three they’re

not qualified at six that’s demand

destruction just straight up demand

destruction then you take on top of that

all the scary headlines about a

recession in job losses and job cuts you

have a lot of people that were ready to

sign on the dotted line and qualified

that aren’t going to sign on the dotted

line so demand destruction i think we

have crazy supply destruction which

again hasn’t happened before the move up

buyer the first time that’s why that’s

why the median home price i believe is

again median home price national median

home price is going to shock people as

it surprises to the upside

throughout the rest of the year yeah

because that bottom that bottom half has

fallen out

and you know and these things take time

so like you said we saw rates go up

quickly we’ve seen the markets start to

correct quickly you know things like

that but when it comes to housing when

it comes to the overall economy and the

consumer you gotta understand where we

came from so there’s a lot of cabin

fever out there we’re in summer people

are going to take their vacations when

we went through 0-809 the great

financial crisis you know the the

biggest event we’d seen in our lifetimes

since the depression people still took

their vacations in the summer oh yeah

what they did was they cut back on what

they did while they were there they

didn’t go out to eat they brought food

they didn’t spend excessively on little

things but they still went to the beach

and because it’s a cheap vacation yeah

they had it booked and they’re like you

know what if i’m going to lose my job if

the economy is going to fall in

depression i’m taking this last trip so

people have that mindset now we’ve been

locked up for two years we couldn’t

travel abroad now all the restrictions

have been lifted no more you know

vaccine you know no more tests no more

vaccine proof none of that you can get

on a plane go wherever you want

if you can get there because they can’t

service it yeah exactly the airlines had

a rough weekend

if there’s no flying but um anyways

people are out spending right there

they’re tired of that they’re gonna go

you know to that vacation they’re gonna

make up for that lost time they have you

know had built up some savings they’ve

you know reduced debt so it takes a

little while for all that to reverse you

know they start working through savings

they start racking up debt we’re seeing

you know debt balances increase and

things like that so i think by the end

of the summer going to the fall winter

you’re gonna have a very different

consumer if we stay on this path and

then you know housing kind of lags all

that so going into next year i think is

yeah you know when you can see the

biggest you know form of the corrections

versus what we’re seeing now yeah i

don’t think we’re gonna the median home

price again in 2022 is not coming down

it’ll shock people to the upside because

of the structural imbalances in in the

transactions that will close

uh i it’s just math so i think that’s

pretty obvious

i know you won’t know but i’m gonna

hopefully you’ll take a guess if not i

will when you if you are looking for a

new home

and given kind of the two steps that

we’ve talked about do you think max

payne

might be six months out right because

we’ll have a couple more rate increases

they’ll be blowing through some of their

last inventory that might be the best

time to kind of negotiate strong you

think it’s earlier than that what do you

think

yeah

you know it depends on the seller right

and it depends on the market so every

market’s different every seller is

different but on average what we saw

last time even in the you know as bad as

that was it still took people six months

to a year

sellers to adjust to you know new prices

except for the ones that had to sell and

then the banks were in control there

from a short sale and all that so

you know it’s a different borrower this

time it’s a different resale market yeah

sorry

sorry greg i was specifically for

builders new new oh builders okay yeah

so builders yeah i mean you’ll see that

by the end of the year because they’ve

got this inventory in the pipeline and

if they start having units stack up

they’ll see

discounts because they’re going to want

to clear the books before the end of the

year i think that’s important i think

really i mean a lot of people follow us

they’ve been following your talk about

new home construction i do think max

payne

kind of between thanksgiving and

christmas because again they want to get

it off the books right they want to have

them sold i think if if you’re again

every market is different

some of them won’t get there but if i

were to pick a national time frame like

that’s kind of where my head went as

well yeah they’re going to hit it and

get it to get them done they want them

done in out there for sale so they can

burn through what what this backlog is

while there’s still some demand because

there’s still some demand in some

markets but they want to get these units

done get them out to the market and get

them off the books um you know because

they don’t want to stop that’s the worst

thing that could happen they don’t want

to sit there with foundations in the

ground houses framed and they just have

to wait yeah

and again uh

new builders need need to sell because

of their debt structure right they have

what’s called construction financing it

needs to be paid in increments or like

every 10 homes there’s a big chunk due

all of this means they have to sell

that’s why max payne will build up later

in the year is that fair yeah yeah and

they’re all reporting this week so

you’ll see what this happened tomorrow

lennar kb homes wednesday it’s going to

be a lot of fun greg where can people

find you yeah greg dickerson.com that’s

where all my info lives go check it out

awesome thanks buddy

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