Odd Lots - This Is How the U.S. Ran Out of Homes for Sale

Episode Date: June 7, 2021

Home demand is booming. By some measures, the market is even hotter than it was during the peak prior to the financial crisis. But there's one big problem: There just aren't many homes available to buy. Whether it's existing inventory or new home sales, there simply isn't enough to meet the demand, even with prices surging. On this episode of Odd Lots, we speak with housing economist Ali Wolf, the chief economist at the data and research firm Zonda, about how the boom happened; how America became so under-housed; and how constraints of land, labor and materials are making it brutal to build more of them.See omnystudio.com/listener for privacy information.

Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. So Tracy, it's been a long time since I visited you in Hong Kong. But one thing I remember, I know it's too long. And as soon as I can, whether like after the virus or whatever, I got to make that happen. Yeah, I totally agree. I just, I'm thinking like I haven't left this relatively small area for a year and a half now. And I am. You're getting stir crazy. Yeah. But one thing that I remember like about Hong Kong is like people there like are just obsessed

with like real estate. Yes. Right. Like I just remember it just sort of like real estate buying, home buying speculation. It just seemed to be in the air in Hong Kong. Absolutely. It's sort of almost a way of life here. I guess it's the thing everyone aspires to is eventually owning a house.

House prices are absolutely insane. There's a perpetual shortage of housing, although there's a big. debate about whether that's in fact true or whether it's because of ill-considered government policy and things like that. But yes, if you walk down the street, almost every other building probably has some sort of real estate office in it. And everyone just loves to talk about home buying, home prices, speculation. So I think in the U.S., it more like goes in waves. Like obviously 2005, 2006, that was crazy. And then it sort of crashed for a while.

But right now, I don't think there's any doubt that sort of like home buying mania, the desire to own a home, is absolutely in a full swing in the United States. Yeah. So even me over here in Hong Kong, I have seen some of these crazy news stories about house prices. I saw that one about someone put in an offer for a house and then said they would name their house. a child after the seller if they got the house. Crazy things like that. These are things that you would normally, well, maybe not normally, but you would find in the Hong Kong market, they seem to have been transferred over to the U.S.

where everyone is clamoring for, it seems like, limited supply. Yeah, very much. So every day there's like stories about like someone putting up a home for sale and within five minutes, they get like five offers that are half a million dollars over their ask. All cash. We are in housing mania here, but we are also, you know, basically running out of homes. And, you know, in theory, you just build a lot more, but putting that into practice is a lot harder, especially with the lumber shortage and the labor shortage and all the other shortages that we've talked about several times on this show before. Yeah. So I feel like this is going to be

another episode where we talk a lot about expectations and how those sort of feed into our existing reality. And obviously there's the lumber angle, too, lumber being an important component into house prices. So I am looking forward to this one. I am very excited about this episode. So we're going to be speaking with Ellie Wolf. She is the chief economist at Zonda, which is a housing data and consultancy firm. I've talked to her on TV a few times. She has a fantastic perspective on the sort of nitty, gritty level of what's really going on in the housing market. And we're going to ask her how the U.S. ran out of home. So, Ali, thank you so much for joining us. Hi, Joe. Hi, Tracy. Thanks for having me. Absolutely. Excited. You're here. So before we talk about, I mean,

obviously, we're going to get into the details of what's going on now and how the sort of housing market has gone nuts over the last year post-COVID. But I'd love for you to, like, set the scene a little bit, the housing market pre-COVID, because even before all this, there was a lot of talk about how in the wake of the great financial crisis, the U.S. was already just underhoused that you could just see in the demographics and the volume of houses out there that if people wanted to own a home, there just wasn't enough housing stock out there to absorb it. Well, and that's a great place to pick it up is because when we think about the great financial crisis, there are so many people that are scarred from what happened. They remember maybe they lost their home, maybe they

lost their job, maybe they saw friends or family. And I think that, That's often when we think back to the great financial crisis, it's so much about, okay, how are the individuals dealing with it? Have they been able to get their wealth back after, you know, however long it's been since then? What we have to remember, too, is the builders were really at the forefront of that crisis and they're scarred as well. And they were scarred, basically, I would say, until 2020, there was a lot of fear on the builder side. I would hear stories of teams that would go from 500 to 5 during the great financial crisis. And there are division presidents that are still around and they would say it was so

hard to live through those periods. And what that did is really change the mindset for a lot of the legacy builders, for a lot of the legacy leaders that are in the homebuilding industry, where when they were going to buy land over the past 10, 15 years, that deal had to pencil. You are not going to fudge the numbers. you are going to be realistic about, I'm going to buy this land, and I think home price appreciation will be X. I think my sales rate will be Y, and we're going to build this on it. And it had to be

what would match the market. And the problem with that is if you're a land seller, and you know that during the heyday of last cycle, you could have gotten a huge dollar amount. Yes, it's come down during the slowdown, the land sellers were a lot more sticky on their prices. Builders weren't going to pay for it. Land sellers didn't want to budge. Wait, where was that? When you think about land, and this is going to be an obvious statement, but when you're thinking about land, you can't replace it.

And so the land seller says, well, I can just sit on this land because I know prices are going to come back. And so the land seller is going to say, I want this price. And there were some builders that were able to make it work, some land sellers that were willing to budge their price. but ultimately before COVID, I was doing presentations with builders and developers and private equity and all we talked about was land prices and labor shortages. Those were the common themes.

And it was all about what do you build attainably? What do you build that someone can actually afford? And I think starting in 2017, that was all of our discussions. And it's funny to talk about it now, but we were just like work on density, work on on what you can control, pay attention to the square footage. Those were conversations that I'd say over the past 14 months we haven't had. We are having again, though, today as prices go up as quickly as they are. So this is really interesting because, you know, one of the themes, I mean, already you've like hit on like five themes that Tracy and I talk about a lot. But one of the themes that we

sort of talk about in the last year is the sort of like great acceleration thesis, which is the idea that the post-COVID economic environment really in many ways has accelerated a lot of pre-existing trends. And so what you're saying is like, you know, we everyone knows now about labor shortages and land shortages and housing, although we'll get more into the details. But these were the conversations that were already happening, you're saying, prior to the virus hitting. Yeah, no doubt. And basically what you're hitting on to fast forward today is that housing's trendy again. For the past 10, 15 years, housing wasn't trendy. It was something that you bought, but the common thing you would hear, I would hear among friends, I would hear among people in the industry is don't buy your house as a investment tool and that you're wanting it to go up in value.

And this is a really good bet on where you should place your money. You buy the home because that's where you want to live, because that's where you want to plant roots and you want to lock in that rate. That, I think that discussion has changed a lot since COVID. Can we talk about that a little bit more because, you know, as I mentioned earlier, I'm outside of the states and I'm kind of wondering like, where did this wave of demand suddenly come from? So on the one hand, you have COVID, you have the work from home situation, maybe some people moving out of the cities. But speaking to that great acceleration theme, you also have a wave of, I guess, elder millennials who might be, you know, getting to the point in their lives where they have enough money to buy a house.

maybe they're looking to start families, things like that. So I guess I'm just curious if you can sort of disaggregate those different sources of demand. Yes, and there's a lot. And you had so many, there were so many questions in that question that I heard that I want to answer. And the first direction I want to go is just to wrap up the before COVID time is on the resale side. And this will make sense into your question, Tracy, of why I'm answering it like this. So what I want to give the example of is I bought my home in 20, And when I bought my home, all we talked about was how we were buying in a limited supply environment. And it's almost a joke now because we were talking two or three months of supply on the market when I bought.

Equilibrium is generally four to six. Today in some markets, you have 0.5 months of supply. So it was a tight inventory market in 2017, 18, 19, 20 for a whole bunch of reasons. investors actually getting active in the market. Prop 13 in California allows a lot of people to age in place. Not enough building. If there's not enough new construction, then you don't entice people to move. So there were all of these factors that were keeping inventory tight before COVID. And then you really had the entire buyer spectrum wake up. One more thing I want to say is housing did slow for, if you guys remember, it was really four to eight weeks, March and April of last year.

And when we started to watch data, we were doing presentation store clients on a weekly basis. And we were like holding, they were holding our hands. We were holding their hands. We were just like, hang on. This is going to be okay. We hope this isn't like the great financial crisis. And then we started to see sales start to pick up. And we started to wonder, how is this even?

possible. And so this is going now to Tracy's question, which is the first thing was work from home. And the reason I say this over demographics is I have been doing presentations in the industry for years. And what I've said is, hey, you can continue to build. You can feel confidence in the strength of the housing market because we have such demographic tailwinds and we have low interest rates. Again, that was before COVID. So now you only have exaggerated demographic tailwinds and even lower interest rates combined with work from home. And I'm going to phrase this, the sleepy Gen Xers finally woke up. We didn't talk about Gen Xers that much. And I'm saying this is generally age 40 to 60. They weren't as active in the market as the millennials and as the

baby boomers. And now all of a sudden you have your Gen Xers who have saved money, who were scarred from the great financial crisis, but who are feeling enabled to move partly because of their financial situation and partly because their lifestyle changed so much over the past year. So we have work from home. We have Gen Xers. We have the relocation buyers, which we need to make sure we hit on. The equity in the house, the stock market, the low interest rates. And then the FOMO, which is the part that I think makes me the most anxious about where the

market is, is how much of it is friends. I'm glad you said Gen Xers. No one ever talks about Gen Xer, but I'm 40, and so I kind of consider, I guess I'm like right on the cusp, but I appreciate that our generation gets a little, gets a little bit of recognition. I just want to go back to one last point you made before we really get into what's going on now, because I'm interested in this idea. I've heard this before that owners of land sort of view it as a bit of a call option of sorts, that they can sell at any time. You mentioned that, okay, the prices, maybe the market clearing price of land came down, but that didn't induce land owners to sell. Is this like a permanent feature of the market that basically people who own land just wait?

If they can't get the price they want, they don't sell at the lower price. They just sort of, they know that eventually real estate always comes back around and that allows them to just hold out. Like, what is the general mentality of people who own land? I would say you know that that's what it is. Unless you have to sell the land and then you're going to take what the market is. And there are going to be different reasons why someone needs to sell the land and not wait for top dollar. But I was talking to a builder the other day and he was saying they're dealing a lot with farmers. And the farmers would love the money, but they also would like top dollar.

And so they're going to wait until they're able to get that. It goes back to you can't recreate it. And if you own land within 40 miles of a central business district, don't give that up for a lower price because there's no reason you should. So why don't we talk a little bit about how crazy it is right now then? I guess my first question is how do you measure the deviation from what the normal increase in house prices might look like? And how far away from that are we right now? Yeah. So what our company does is we track actively selling communities across the country.

And we have what we call the new home pending sales index, which is looking at transactions in the housing market by two different lenses. Lens one is just how many homes have sold. So think of this as a census equivalent. So just count the number of home sales. Okay, you know, we've sold X many. Then we also look at the average sales rate per month per community, which is a measure of demand. on the builder side. And historically, these two components, the total number of homes sold in an index and then

the average sales rate per community in an index have just moved in lockstep, that you basically can't see the two lines separated from each other. We've now seen that completely diverge. So one line is going up, one line is going down. You can imagine it's the demand component continues to go up. The supply is going down. And when we're looking at the different deals and we're saying, okay, you know, you buy the land for this price expecting your homes to go up ex appreciation, we're having builders say

at minimum the raising prices $20,000 every month. Or we're having builders say we're raising prices, Joe had talked about like 500,000 over, we're having builders say like within a couple months, you're raising prices 200,000. The LAs and the San Francisco's and the D.C.'s and Miami's are basically going up, I would say, at a level that's on the high end of their healthy clip, you're definitely seeing prices going above asking, but those are not markets that are fundamentally transforming because of our relocation buyers. It's the markets that are becoming the hardest to understand become Austin, Dallas, Jacksonville, Las Vegas, Phoenix, Salt Lake City, Denver. These are the markets where you would expect historically, let's say, four to six percent home price appreciation,

and now you're seeing numbers that don't even register. It's going to be Austin year over year. Home prices are up 25%. So those numbers to us don't really match what we're seeing on local incomes, but those numbers completely make sense when you have a California income moving into Austin. So this is really the key thing is the, the rise of the relocation homebuyer. How big, you know, in a typical year, how much would a sort of like relocation from a California or New York to a Austin or to a Denver or to Montana? Like how much is

that typically part of the market? And then how much is that part of the market these days? Yeah. And I'll have to give it in percent. But what we, and this comes from a division president survey that we do. And we ask the division presidents, what are your most active buyers? And how has that changed? Sorry, would you say division presidents? These are presidents of home builders? Yeah, presidents of home builders where if they're active in Las Vegas, they don't just look at one community. They're looking at their entire Las Vegas portfolio or their entire Southern California portfolio. So they have a good sense of a lot of the different communities at a lot of different prices. It's not just something very specific.

So the first thing I would say to answer your question directly is that the percent in some markets, it would be the smile states, a lot of the ones I just mentioned, we are having division presidents say it can be up to 50 to 80 percent of all of their sales right now are coming from reload buyers. That's not normal. I don't have the exact like for like. I know that the majority of them are saying that. increasing, I would say from what we heard before pandemic, it was probably closer to 10 to 20.

Wow. Because you did have people moving before the pandemic, just not to the same extent that you're seeing today. So that's a huge shift in some markets. But second to that, going back to our sleepy gen Xers, we now have from the division presidents that the move-up buyers are the most active and they've overtaken the entry level. And then the third most active of all the different buyer groups, relocation. So to me, that's really saying that's within, well, it's obviously within the top three, but those are the buyers that, again, have transformed the housing market. So I have a dumb question, and you just touched on it a tiny bit there. But I'm curious, what is happening to the people who are actually selling their houses? So are they buying new

ones and trading up to something bigger and better or in a different location? Or are they all deciding to rent and just take advantage of high prices and try to monetize their house and then hope for the prices to come down. Like, where are they all going? Great question. And the answer is all of the above. And it's also one of the reasons inventory is so low, Tracy, because a lot of people are asking the same question. So, okay, I'm going to sell my home. Everything else has become more expensive. Where am I going to move to? So you do have some people, And it's kind of increasingly common that some people are just worried about the market and they're saying, I am going to sell, just like what you said, I'm going to enjoy my equity and I'm going to go into a rental community and I'm going to wait for this market to cool down. There are some buyers that are going into the new home space.

And the issue with that is you can't really in a lot of markets walk into a new home community and buy a home today. a little bit of an exaggeration, but there are some communities that have just completely stopped entirely. You could also be a seller who's going to try to compete in the resale market. The biggest thing that I'm hearing, though, is don't have a sale contingency. So you can buy another home, and the theory is, or I guess the commonly accepted idea is that you're going to sell your home so quickly that you're not going to have to worry about whether or not you sell your home to move into the other home, but the answer is all of the above. Can you explain it? Just explain that last part real quickly. What do you mean don't have a sale

contingency? So if you're going into the market today and into the resale market, so this is not the new home market now. But if you're going into the resale market and you want to buy a home, you basically want to have as few contingencies as possible. So obviously, if you're a cash buyer, you're the preferred buyer. If you can remove a loan contingency, that's important. But if you say, I want to buy your house, but for me to close on the transaction, I have to sell my house. Historically, that was totally acceptable. That was a, yeah, of course. You buy the house if you haven't sold your house yet.

But now you can't go into the deal and say, I need to sell my house to buy your house. It needs to be, I'm ready to buy your house and nothing's going to hold me back. So at what point do buyers start to protest the high prices and just say, you know what, This is getting too crazy for me, and I'm going to sit this one out and wait for prices to come down. Perfect question, because the answer is we're seeing it right now. And I would say May is the first time that we've even heard of a big bump in buyer hesitancy. What we're hearing is things like the buyers are coming in and they're worried about buying at the top. Or buyers are coming in and they're saying, you know, I was looking at.

at this house last month and it was $30,000 below where it was today, I don't want to jump in today. Or you guys may have seen if you sign a contract with a builder, sometimes if the builder has written their contract right, the builder can come back to you and say, our prices have gone up and we're not going to cover that entire cost. So we're going to split that with you. So I know you thought you bought this home for $300,000, but I need you to bring $30,000 or $40,000 extra to the table. So that's, we're seeing a lot of headlines on that. And they're true. Like, this is truly happening. But I think there are some people that are saying, oh, like, I'm not sure I want to commit to one price and then have my price go up. So we are seeing, and you use the right phrase,

what we're calling is the buyer's protest. We are seeing the start of a buyer's protest for the first time. I wouldn't say it's that demand has fallen off because we haven't truly seen that impact sales yet. It's just when builders are planning forward, they'll say, wow, our interest list is, one example we heard in the mountain region is two years long. So that two years long interest list could become

six months long if prices go up too much and people are saying, no, no, no, like, home's not worth it. I'm not going to buy. It's like the first derivative of this or the second derivative of demand is starting to slow down. Yeah, yep, you are starting to see that. And I think what I'm

trying to make sense of, and I don't have the full answer is if you do have so many people sitting on the sidelines waiting for prices to come down, if prices reset, does it start the frenzy all over again? And I guess it depends on where mortgage rates are. But again, using myself as an example, we want to buy a move-up house, but I'm not going to go into the market right now. But if the market slows or softens, I'm going to be the first person knocking at that door. So does that make the market kind of maybe not permanently higher, but higher for longer because it is kind of a longer stretched out demand cycle. Well, this is something that I wanted to ask you, actually. So when we think about the supply

demand mismatch, does that mean that we have to start thinking differently about what constitutes weak or strong housing data? So for instance, if we start to see housing data soften in May, like you just mentioned, because people are sitting out the high prices, that doesn't actually mean that the housing market is necessarily getting fundamentally weaker. Like, I'm not sure how to phrase this question, but basically, are you sort of rethinking the way you interpret housing data in the current conditions? It's one of the hardest things, I would say, to grasp is this idea that we know the demand is out there.

And I know, Joe, you've seen some things on Twitter about this where we see phrases like the entry level buyer is left in the dust. The entry level buyer has no chance to buy a home in today's market. And what we've tried to do every year for the past five years, I've done millennial surveys, and I don't try to survey an active new home shopper, an active resale shopper in this survey. I try to, the way I phrase it is, I want to find the millennial on the couch who's just scrolling through Facebook and who sees the survey and takes the survey to get a sense of where their mind is. And what we see in that is there are still so many buyers that are looking to purchase a home,

but to the point earlier about the buyer's protest, or just getting frustrated in the process, they can't find anything in their price point. We're trying to think that through. and as we work with the builders, and as the builders are just looking at what land they have, what I keep hearing is we cannot assume this is going to last forever. We've got to assume it's going to be less frenzied. And what we as the building community need to do is make sure that we're successful, even if things slowed down.

And the only way you can control that is by controlling what you bring to the market. Maybe it's a more dense product. Maybe it's what we call right size. So right sizes, you have a slightly smaller square foot, but the home is so functional, it's not that big of a deal, and you're able to adjust your price. Maybe it's a higher density community. Maybe it's a duplex community, you know, or three-story. So builders are trying to think through all of that because I think ultimately they know the answer to your question, which is the data is not going to really tell us the story about how strong demand is. The conversations we're having with people on the ground on a regular basis, that's telling us. us that there's so much hunger and so much demand, but also so much frustration and, frankly,

a price ceiling for some buyers. And you have to be able to adjust for that, if possible. So this, I mean, it's just incredible how many like consistent themes this discussion hits on. But one of the, I mean, one of the issues is obviously, as you just stated, is the question of whether the boom continues. Let's say, and that that dictates or that informs builder behavior right now, So if they knew that there would be strong demand for the next five years, that's a very different picture that if it's going to like fade in 2022 as things get normalized. What would they be doing? Like, let's say your data was saying, you know what, this is going to last. There's a lot of people that are going to keep buying homes.

It's going to keep coming. This is not just a 2021 phenomenon. It's not just 2022. This is a sustainable boom. What would we see? Like, would the dealers be or the builders be going out and acquiring more expensive land? Like, what are some of the. things that that would unlock if the boom continued in terms of home builder behavior.

So I love the question because we don't even have to guess because we just have to look at what's happening because there is so much enthusiasm around the demographic charts that builders are saying it is going to continue because we have been underbuilding and there aren't enough homes on the market and we are losing buyers that are waiting on the sidelines. So to, answer your question and and honestly it's going to be a little bit I'm alarmed by the way I'm going to answer this question. Okay. This is going to be good. It is exactly what you said in that they are paying more money for land. I know this is not eloquent, but the way that I'm hearing it is builders are paying stupid prices for land. And I have a friend who works in the homebuilding industry and

he called and said he felt a little bit uncomfortable about a land deal he just pushed through. And I said, well, why did you do it? And he said, well, you can lose your job today. by not making the deal happen, or you can lose your job in two years by making a bad deal happen. And there's conversations like that where a builder needs to make a deal look profitable right now, and you may have to assume today's level of appreciation, today's level of heightened demand is going to continue for that to make sense. And one thing I heard is if you're being realistic when trying to buy land, good luck. I think that is probably what makes me a little bit anxious is there is this idea that, yes,

this is going to go on forever and you need to tie up the land. And I guess you hope that they're able to adjust their price, but we know all the other costs are going up. I think there is a little bit of a mindset that lumber prices aren't going to stay as high for that long. So if you pay a little bit more for the dirt, but then you have your lumber prices come down, maybe you can continue to hit the right price point. but the land grab is very, very real.

Land development is going on across the country. Like I said, I don't think that's a hypothetical. I think that's what we're seeing right now. So I have another dumb question, or maybe this one is more provocative than dumb, but we haven't spoken that much about the role of interest rates in the market. So obviously, interest rates very, very low at the moment. Is that a lever that could be pulled to potentially cool down the market? market? Like, does the Fed need to keep on buying mortgage-backed securities if we know that the

housing market is going nuts in this way? And I'll have a controversial answer is that I don't think they need to continue to support the housing market. I think what we're finding is, if you're pricing out entry-level buyers because so many investors see that there's a good return and there's a reason to jump into the market, I don't know why we're incentivizing investors to get in and making it harder for actual buyers to purchase their home. So I do struggle with that a lot. What builders can do back in, when would have been probably like 2018, 2019, builders would have started to do rate buy downs.

So if interest rates started to go up and a buyer couldn't afford the home right then, a builder could step in and say, you know, you can't afford it at 4%, but could you afford it at 3.5? And so the builder has some tools that they can use via incentives where They don't actually lower the average sales price, but they're able to give a little bit of assistance on the mortgage rate front. The issue will be interest rates have been so low for so long and home prices are based on where the monthly payment is and where the interest rates are. And the concern is if interest rates go up too much, can those home prices hold? and that poses some risks to the prices go up forever,

the prices actually come down. The interest rates really are, I think, should be everyone's concern when you're trying to look at the sustainability of the housing market. So I kind of said both answers. It's like you don't want to continue to support the housing market, but you also need to be careful because if interest rates go up too much, that really will put a wet blanket on demand. That makes sense.

So let's talk a little bit more about, constraints on supply. And so obviously we've talked a lot about land costs. And as you said, some home builders have decided to bite the bullet and pay, quote, stupid amounts for land. But then there's also the materials that you need and, you know, the lumber conversation is well known. And but also, you know, you hear about like window shortages and gutter shortages and all that stuff. And then, of course, labor. And as you mentioned, a lot of these homebuilding companies, they saw their workforces get obliterated and people went on to other. things after the great financial crisis and maybe they haven't come back into the home building

trade yet. So can you talk a little bit more about these other constraints on creating new homes besides land and how much of a factor that is on limiting supply? Yeah. And I think the best stat I can give you on this comes from the National Association of Home Builders. And they have a team of economists that have run this stat. And to me, this is the wow stat of how far can housing go and how fast can it go. So we finished 2020 with 1.4 million total housing starts. And there's some forecast that this year we're going to get to 1.7 million total housing starts. For us to get from 1.4 to 1.7, we would need 400,000 more workers. And right now, residential construction is up 43,000, not 400,000.

And builders are trying to hire. And what we just keep hearing is that there's not enough crews to keep up with building. And so I do think the labor issue, which has been on the back burner, because of all of the different supply issues that we can talk about in a moment, you're finally starting to hear that all of a sudden the workers are becoming a bigger frustration and harder to get on the site than some of even the building materials. So it is pushing prices up. We've heard a lot of stories about how builders are willing to pay overtime if you're going to come on the weekend so that you can continue to build the homes and try to catch up. But you ultimately just don't have enough. And frankly, from both sides on the construction side and on the office side, workers are getting burnt out. We are working so hard at all hours because we're trying to make sense of the market, trying to forecast the market, trying to build for the market, trying to handle the work.

trying to handle the whack-a-mole on the supply chain. And that's really what it is. It's when one issue becomes solved, now tubs are a problem. When tubs get better, then it's steel studs. When steel studs get better, now you have nail problems. And you've got to hope that they're not all hitting at the same time, but right now it does feel like there's enough components that go into building a home that are becoming increasingly harder to get builders for them to get their hands on

and more expensive, which is just making it an absolute headache. Finally, I would say, too, just on the government side is we're looking at the time from a contract sale to a start. And historically, that'd be 60 days. And now it's closer to 90 days for a bunch of different reasons. But one of them will be just a slow permitting process as the cities are inundated with requests as well. Are there, you mentioned a bunch of potential supply shortages in components that you need to build a house. Are there idiosyncratic reasons for those supply shortages? Like, would the reason that you can't get enough tubs be different to the reason that you can't get enough windows?

Or is it all being driven by the sort of same COVID-related chaos? A lot of it is related to going back before the pandemic, builders and suppliers would have created their forecast for the next few years. And we were part of the forecasting process and we know that it was not for a 30% jump. It would have been for maybe a 5% jump in starts. And so everyone would have communicated that, you know, down the line, hey, we're going to need 5% more windows and we're going to need this and we're going to need that. And it seems like a lot of it just comes down to everyone was caught flat-footed. No one knew this was going to happen. And now you are running into just COVID issues with, oh, and also COVID issues with getting items in and

out of the states with different issues we saw for sure on the production line that this is not as big of an issue now. But if one person gets COVID and you're in a factory, they shut it down for two weeks. But also the truckers are in short supply. And I don't, I don't think they were in as short of supply before demand got so heightened. But what we're hearing is that that impacts two different directions. It impacts getting your raw materials to the factory, but then getting it out of the factory, you need the truckers on both ends. And so that's impacting it. So I think it becomes more of a common story. I'm sure there are more idiosyncratic things as you look at the specifics, but it is really this common theme that no one knew what to plan for. Do you see any

signs of these things easing yet? I mean, we're always sort of like on the lookout. across all areas whether some of these bottlenecks and shortages are starting to ease. Is there any evidence of that yet? I would not say, actually, no. From our most recent survey, which was conducted last week, it actually has gotten worse when we ask builders, are you having any supply shortages? It's actually, that's become, I think it's like 94% of builders are now saying that's a huge issue compared to a slight made-up number, but it's something like 86, 87% last month.

So that's gotten worse. what I would say on the labor side, this is not every market. So don't take it as that, but it's definitely happening in that you have some suppliers, let's say like a plumbing crew or a painting crew where their owner had been through the last cycle and knew what it was like to enjoy the boom, knew what was like to do the bust. You know, they're getting a little bit older and they're saying, I'm going to retire. I'm going to sit this one out. I'm going to get out of the industry. And that's causing issues where people are like, well, you can't retire because we don't even have enough crew as it is. And then you have people leaving. So I don't think that's going away

anytime soon either. So one of the things that keeps coming up in the discussion of the housing market and also lumber and, Ali, you touched on this before, but this idea of the scarring from the great financial crisis, things were so bad that, you know, people pulled back on supply for years and years and years and years and we're more cautious. If we get a hot market now, which clearly we have, do you think that results in a permanent change in behavior by the housing industry? Or is it just a case of, you know, bad things tend to lead you to be more cautious and it takes, like, you're not as incentivized by a positive thing happening? Oh, that one's interesting. What I would share is you basically can't be on a call with a bunch of people in the industry without them

looking for the boogeyman. And they think he's coming and they think he's right behind them. And you definitely hear this constant angst of, is this a sugar high? Is this too good to be true? Geez, we're all competing for the same land. Land is getting so expensive. And I should say, the publics are way better positioned than anyone else than any of the privates. But what we're hearing from the privates is it's grow or die. If you want to compete with the publics who are getting stronger, more powerful, who are able to get the laborers easier than anyone else, because if you're, you know, a framer, you're going to support Lenar over one of the smaller guys because he's going to give you more consistent work. We're definitely hearing there's this, you got to do it, you got to grow,

you got to figure out a way to make it happen. But I would say almost everyone is very spooked out about oh, are we setting ourselves up for last cycle to look like last cycle, though the lending standards look nothing like that. I want to ask sort of like one really big sort of big picture question. So like you're in the data business or a big part of what you do is collect data and present data to your clients. And you mentioned that when COVID hit, we had this like four to six week collapse in the housing market.

And then it was really the entire economy. Everything kind of went to zero in a way. and then things started picking up. And I remember, like, at the time, like, things started picking up. And I was kind of in disbelief about the data. Like, it's one thing to say, like, oh, we're going to be cool and data dependent, but it's like, I didn't really believe it because, like, everyone seemed to be, like, in their homes and everyone seemed to be terrified.

And the stock market had crashed and so forth. They just felt like deja vu all over again. And I'm curious, like, you know, like thinking back to last spring when you saw how quickly the housing market started to rebound. how long it took, like, you know, you mentioned people always think, oh, the boogeyman's right around the quarter, like, did people believe the data? Like, did you believe the data at first? Or did it take a while before people started to accept that the numbers they were seeing on their screen or other places actually reflected this improved reality?

It's an important question for a whole bunch of different reasons. So the first reason it's important is if you're going to pause on land deals from a builder's point of view, the market was slow in March, the second half of March and then through the end of April, but there were a lot of land deals that were still on pause going into May because there was this disbelief. And I hate to say it, but like I said, we were doing presentations weekly. The data was turning and we were cautioning this could be not true. Like I remember so vividly, I remember showing a chart that one of the questions we asked is have your sales increase. In that case, it was have your sales increased month over month, or sorry, week over week. And we were showing it.

And we were like, well, yeah, they're saying it increased week over week, but it was from this really low level. So like, don't take this as this huge shift in the market. It's just that you're not at rock bottom anymore. And I'm embarrassed to say it, but we did. Like, we were like, this is not happening. Like, there are 20 million people out of work. The unemployment is crazy. No. One of my biggest regrets in looking back is if you think about Seattle, Seattle. had the COVID cases earlier than the rest of the country and I think had shut down like Amazon sent people home before the rest of the country. And I remember Wall Street Journal, they posted a story about how Seattle had come back and how the housing market was really strong. And I remember sending

it to my team going, what are they talking about? Like the market is crushed. But our early warning sign was Seattle that said, you put people in your home and people want bigger space because now they're stuck in their home and because interest rates are rock bottom. So, there were some writing on the wall that I think not just we ignored, but I think the industry ignored because we just didn't believe it was true. What would make you think that the housing market was turning now? Like what would you be watching out for? Well, it will depend on the market. I'm not, we are starting to see that, depending on where the seller had priced the home, we're sometimes seeing that the seller isn't getting full ask. This is the minority.

versus the norm, but this is the first time we've really seen that start to shift where it's not, of course it's going to go 50,000 over. You're starting to see a little bit of that bump. So I would say that's for a normal market. For a relocation market, some of those relocation buyers were able to push up those prices and that group is finite. And at the end of the day, if you're in Las Vegas, Las Vegas incomes have not increased in the same way home prices have increased. So to me, it's when you strip away some of the COVID additional demand, how well-suited are the local buyers to continue to purchase those homes? And so we're going to keep a close eye on what we're seeing

because we obviously just ask builders about demand and their model traffic. We're going to check what's happening with model traffic. We're going to check clicks on a new home builder websites. We'll check what's happening with inventory, which inventory going up is not necessarily a sign that the market's slowing. It could just mean that more people are able to move now. But it would be some combination. To me, it's the early indications we own a company that, or I guess we partner with a company,

that is able to track new home clicks online. And I think that was a good indicator because that was actually showing an increase. Back to Joe's question, that was showing an increase early on, earlier than what we saw in contract sales. Ellie, that was amazing. I learned so much talking to you. and I really appreciate you coming on an outlaw. Thanks so much for having me. Thanks, Howley.

Yeah, that was fantastic. Take care, Ellie. So Tracy, I guess don't come back to the U.S., huh? Yeah, well, I'm now, well, it's not like I was ever going to buy a property in New York City, but I am worried that I'll never be able to afford anything. But I got to say, so we spoke about this a lot already, but clearly this whole discussion fits into our wider supply shortage themes. This idea that everything comes back to expectations and we seem to be not that great at making

forecasts. So at the beginning of COVID, everyone was freaking out. Everyone thought the housing market was going to just crash and instead we saw it surge. And now we're dealing with the consequences of getting that bet wrong. The other thing that I was thinking a lot about is just that data question and this idea that even if we start to see housing data soften, is that, or slow, is that actually a sign of weakness, or is that just a sign of, you know, price outstripping supply in the short term? Yeah, yeah, like this idea that essentially like, and Ellie described herself in this boat,

which is like, okay, she's not really, she doesn't want to buy a step-up house right now because the market's crazy, but if there's some softening, she'll be back in, kind of reminded me, of like what Stinson was telling us in the lumber episode, which is like, we're probably at some sort of like new pyre equilibrium, such that, okay, like maybe, you know, the prices have come down a little bit lately, but such that there is this sort of like new baseline level of demand for lumber that's going to keep prices to just like, or to keep the market at a higher state than it was prior to all this.

Yeah, that feels right to me. No, it really just feels like, to your point, though, like, the housing story is like the sum of all stories, isn't it? Like, every macro thing and even micro thing that we talk about kind of was brought up in that episode in some way, whether it's the scarring, whether it's the supply chain issues, whether it's Fed policy and the impact of interest rates, demographics. Like, that episode feels like the er episode, everything all in one. You know, it would be fun to do. And we should ask, someone at Bloomberg to do this, but do a graphic explainer where you have like a picture of a

house and here are all the things that go in it from the land to the labor of building it, to individual components like lumber or bathtubs or windows and things like that, and just talk about the supply challenges or shortages for each one of those components and how they're affecting a house. So the next, yes, I love it. Like, let's get a bathtub maker on. Okay. I'm serious.

Like, our listeners will love it. Like, we'll just go super micro and we'll just like, let's talk about the economics of bathtubs for an hour and it will be a huge hit. I would love to do that. But this is the other thing we're sort of figuring out this year is everyone is sort of grappling with the same issues. But within that, it feels like every market is incredibly individual and distinct. So, like, you know, sawmills are grappling with things like restrictions on Canadian lumber. And maybe semiconductors are grappling with, you know, water restrictions and all these idiosyncratic things as well. Yeah.

No, absolutely. It's all like, it's like this. It's like compounding. Everything compounds. I think two episodes we need to do. So we need to do a bathtub maker episode. Just get like super micro. It's like, let's talk about the economics of making bathtubs on an industrial scale.

But actually one other really big part of this that I don't think we've really done is we should do a truck driver episode. Oh, I would love that. Because I think that like that's such a big, a huge part of the labor market, a huge part of the economy, a huge part of the supply chain. It's being disrupted by all kinds of like tech, all kinds of interesting things. There were booms and busts even on the few years leading up to COVID. So let's do a big trucking episode soon. Yeah, let's do that. I will confess when I was young, I always wanted to.

to be a truck driver. So yes, I'm totally into that. Okay, cool. We'll do that. Okay. Shall we leave it there? Let's leave it there. Okay. This has been another episode of the Odd Thoughts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. And you should follow our guest on Twitter, Ellie Wolf. She's great. She's at Ellie Wolf Econ. Follow our producer on Twitter, Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy at Francesca today. And check out all of our podcasts at Bloomberg under the handle at podcasts. And, oh, right, be sure to check out the Odd Lots blog for Tracy and I have been writing about all this stuff, supply chain shortages, all these different kinds of things.

Bloomberg.com slash Oddlots. Thanks for listening.