Specialist
Former VP at Taylor Morrison Home Corp
Agenda
- Pandemic impacts – evolving trends and expectations for post-pandemic US homebuilding trends
- Implications of rising mortgage rates and historical comparisons, along with decreasing affordability across owning and renting
- Labour and supply chain trends and evolving regional dynamics
- 2022 outlook – impact of demographic shifts and eviction moratoriums ending
Questions
1.
Could you outline major changes or trends that have emerged as a result of the pandemic for the US homebuilding industry, specifically trends you expect will stick around as we exit the pandemic and return to some sort of normalcy?
2.
You mentioned some markets that have historically been hit harder won’t be this time around. Could you outline what markets you’re referring to, and if it won’t be those markets that are the first to fall or the heaviest decliners, what markets will take their place as the bigger decliners?
3.
Where do you think we are in the current housing cycle, and what indicators would you point to reinforce where you believe we are in the cycle?
4.
What indicators would inform you that homebuilding demand is softening? Does inventory mean more to you? Is it percent of homes with price reductions or percentage of homes with immediate sales?
5.
Have we historically seen a similar housing environment to the one we’re in today where affordability of housing is nearing all-time lows while rents are rising at the same time? If so, how did things play out?
6.
You pointed us to the 1970s as a similar housing environment to now and you were also spot on with the interest rate figure of 16.63% back in the 1980s. However, I recently saw the home ownership premium – the spread between owning and renting – is the largest we’ve seen since 2007. How much value do you put on something such as that? We know how 2007 played out, but do you expect we’re on the same path this time around or are things different, and why or why not?
7.
How do decreasing affordability and rising rents usually shake out? Are there winners and losers in that environment? Obviously, renting would seem to win there, but where would the winners be in that situation?
8.
It seems you’ve laid out that the bigger builders are better-positioned mostly due to scale, their ability to control costs and go on both sides of the demand. However, who might be the losers in this situation? Is it regional builders or tertiary markets? You mentioned that tertiary markets are usually the ones that are hardest hit. Maybe not so this time around, maybe it’s regional players, as you’ve just outlined.
9.
You highlighted we could see a rise in single-family rentals. Is any public builder better-positioned regarding single-family rentals or are they all similarly positioned? What would differentiate a good public builder’s exposure vs a poor one?
10.
Mortgage rates reached near 5% not too long ago. How do you expect the rising rates will impact current, pending and future home sales in 2022?
11.
You mentioned the speed at which we’ve seen mortgage rates increase. It wasn’t a typical steady climb that we saw over the last months, but rather a rapid jump. What are some potential warning signs when rates jump this much? What can investors be looking at within the metrics to assess how customers are digesting rate increases?
12.
Household formation is obviously needs-based, but at some point, people have no choice and need to downsize to afford it, or perhaps move in with friends and family. Are any markets more likely to see a large shift in the demographics or people moving and downgrading as rates rise?
13.
How well do you expect firms can hold the order pace? We’ve seen record levels of orders and just a strong order pace over the last couple of years. What impact do you expect there to be on order pace as a result of the rate and macro environment?
14.
How do you expect a builder’s ability to pass on cost will trend for the next 12-24 months, and what is your outlook for pricing? Do you expect that builders can continue to pass on cost or might we reach a point where customers aren’t paying any more?
15.
Do any builders have an advantage when it comes to passing price through? Are larger players such as DR Horton advantaged? Are players that play in a premium market advantaged? How should we think through the difference in the ability to pass through?
16.
Do you expect cancellations, or an increase or decrease as a result of the labour and supply chain pressures we’re seeing? How do you expect cancellations will trend in 2022 and beyond?
17.
What typically drives customers to cancel? You said earlier it’s mostly needs-based rather than financial, but if you could give us some sort of ballpark of perhaps 50% needs based and 50% financial?
18.
We discussed the presence of investors in general markets, and particularly hot markets. It’s been highlighted in news flow that investors have bought a record share of homes in 2021. What are the implications of that? What are some of the less-appreciated impacts of investors buying a higher share of homes?
19.
Are eviction moratoriums ending having any impact on the broader housing market? Might we see increased supply at lower price points, and therefore declines in those markets?
20.
How might public builders pivot to address the market climate we’ve outlined? You touched on single-family rentals.
21.
You mentioned larger builders being better-positioned, and perhaps some of the luxury builders being able to weather the storm. What are your views on the competitive landscape? How are you assessing the public builders, and are there any you’re more optimistic or concerned about?
22.
Are there any markets you’re more optimistic about? We talked about the Sun Belt and the migration away from there when it comes to affordability.
23.
Are there any markets you might be concerned about? Many builders piled into areas such as Boise, Idaho, but are there any markets that you worry might become a bit overheated or oversupplied as a result of the last few years?
24.
Would you expect consolidation among smaller and regional builders, given you highlighted the challenging environment for them? Would you expect larger publics to start acquiring regionals or would you expect regionals to start merging together? How do you expect consolidation might look over the next 3-5 years?
25.
What could materially disrupt the homebuilding market? Rates are rising, but are there any regulatory changes or potential new technologies within building that could hurt public or regional builders?
26.
What are the most important indicators, trends and topics that our clients and investors should be monitoring over the next 12-24 months?
27.
You mentioned investors should be watching to see how build-to-rent players monetise these assets and their return profile, but what else would you be looking for within that build-to-rent transition that would be a warning or an optimistic sign?
28.
What questions should our clients be asking management of public builders?
29.
Is there anything about the housing market commonly misunderstood or under-appreciated by investors and outsiders that you’d like to highlight?
30.
How do millennials think about home ownership? What do they demand differently than what we’ve seen in the past from baby boomers or Gen X? What are the material differences among millennials, Gen Z and historical buyers?
31.
What is your outlook for the US homebuilding sector?
