Specialist
Former executive to the VP at The White House
Agenda
- Expectations for 2023 housing starts, discussing single- vs multi-family trends
- Regional demand trends, assessing resilient vs at-risk markets
- Demand expectations across customer groups – first-time mover, move up, over-55 and others
- US homebuyer credit assessment and implications of rising rates
- 2023 outlook, discussing AVMs (automated valuation models), iBuying and mortgage REITs’ mortgaged-backed security portfolios
Questions
1.
In our previous Interview [see US Homebuilding Industry – H2 2022 Supply & Demand Outlook 17 August 2022], we discussed how we’re in a much more inelastic supply environment today than ever before. It’s harder than ever to get permits and build new homes. We’ve seen some clarity from the Federal Reserve since we last spoke, and we actually saw a dip in real median household income, which you alluded to last time. How are you thinking about the trajectory of the US housing market today? The last time we had you on, you compared it to the ’70s and ’80s. Is that still your expectation?
2.
How could inflated Fico scores and the current credit environment ripple through the housing market over the next few years? During our previous Interview, you mentioned that you thought Fico scores were elevated 15-20 points during the pandemic, and you cautioned around investor activity given the use of leverage.
3.
How should we think about the foreclosure piece? Foreclosures were held low during the pandemic, but how should we think about the outlook as they come back? We saw lenders start the process for 67,000 properties in Q3 2022, but this figure peaked above 500,000 during the last crisis. What could be the knock-on effects across buyer groups?
4.
Last time, you expected 1.3 million starts for 2023 and 1.4 million in 2024. Does that remain your expectation? If not, what’s changed? In 2021, it was 0.5 million multi-family and 1.1 million single-family. How will that mix look going forwards, giving some comparisons to previous cycles?
5.
You said the number of multi-family builds is out of line with historical norms. How should we think about the risk that multi-family starts to get oversupplied given we’ve seen nine months of declines in new home sales? Are there certain indicators that you’d be watching closely to get a sense for oversupply risk?
6.
What’s driving the historic absorption rates you mentioned? Is it just a function of the rent vs buy equation, which today skews more towards rent, or are there structural demand trends for multi-family that could reduce the oversupply risk? Are we seeing older cohorts move into renting more easily or anything like that?
7.
Which US regions are most undersupplied? My understanding is California, but where could we see prolonged softness vs areas recovering faster across the US?
8.
How are you gauging the strength of regional markets? What are your criteria? Obviously new builds, demographics, household formation and income growth trends are important, but are there other factors to screen, particularly in Q4 2022 and going into 2023?
9.
What are your 2023 demand expectations across customers groups, discussing first-time movers, move up, active and 55-plus?
10.
Have builders exhausted all their tools to stimulate demand, or is there more left in the clip? They’ve offered mortgage rate buy-downs, giving away design centre spend and the more typical price reductions. What else can builders do to stimulate demand and keep prices stable?
11.
You said builders could push cost down the supply chain. Whose margins are most at risk over the next 2-5 years across the homebuilding value chain? Is it the builders? Is it the materials suppliers? Is it perhaps investors in multi-family developments?
12.
What level of home sales comes from natural life events such as a divorce or job change? How could this figure evolve in the coming years?
13.
How do you estimate a bottom? Is it when 50% of builders are offering discounts on new builds, as you alluded to last time? Is it when we start to see builders trading at 0.5 on price-to-book? What are your indicators for a bottom?
14.
We’ve discussed your regional and customer-group expectations, but is there anywhere else where you see froth in the market? We saw the iBuying woes and those companies’ challenges. We saw a lot of speculative buying with things like Airbnbs, and we saw the WFH market skyrocket and subsequently come back down.
15.
What risk are AVMs [automated valuation models] not accounting for properly? You mentioned the wider standard deviations.
16.
What’s your forecast for 2023? What could investors be over- and under-appreciating? Will we see asset-light single-family builders benefit in the same way as they did last cycle?
