[00:00:10] Welcome to the Dearwood Realty YouTube channel. I'm John Schenck. How are you today?

[00:00:16] You know, the narrative is if we just build more houses, there's a supply problem. You see, John, and if you just build more houses, then the prices will all go down. Right? Houses. The averages are like $400,000 for an average home in the United States. With all the construction, we're going to get it down to like $150,000. Right? See, it seems so easy.

[00:00:40] It's not that easy.

[00:00:43] It's not even close to likely had a store here. I wanted to show you.

[00:00:49] This is from Reuters. And this was on the 18 October. And I kind of wanted to let you know the time because if you see this video three years from now, who knows? Who knows what's going to happen, right? But let's get into it. It starts off with us. Single family starts rise, soaring mortgage rates. A challenge. Well, great. Look, they're building all those houses that are going to make it so that we can have affordable homes again. By affordable, I mean like normal people that go to work can actually afford a home. I don't mean some sort of subsidy for some particular economic group.

[00:01:24] US single family home building rebounded in September, boosted by the demand for new construction amid an acute housing shortage. But the highest mortgage rates in nearly 23 years could slow momentum and delay the overall housing market recovery. Now just that paragraph alone, it says delay the overall housing market recovery. So that would lead, I think, many to believe that we're in crisis now or that we were in crisis before.

[00:01:55] We've had the strongest housing market in my lifetime over the last three years.

[00:02:03] And now somehow the housing market needs to recover. This is a little bit oD, okay? But I want to go through this article because it's a very fascinating article.

[00:02:15] It's, I think, well done. I just think every once in a while that I don't disagree.

[00:02:22] And then, by the way, the demand for new construction amid an acute housing shortage.

[00:02:30] Yes. That was flagged by other data on Wednesday showing applications for loans to purchase home plunged last week to levels last seen in 1995, which is the year I graduated high school. Go Cougars.

[00:02:46] In addition, the jump in housing starts partially recouped the decline in August. Now I want to go back to that line in a minute. So let's keep going. It says the rebound in home building probably reflected permits approved several months ago before mortgage rates broke above seven. So what they're saying is, look, the data is delayed, all right? We don't know what home builders are doing now that the rates are above seven. I wonder what the homebuilders are doing now. With rates above eight, probably not much. New developments are probably being tabled right now. A survey this week showed confidence among single family homebuilders slumped to a nine month low in October, with builders reporting lower levels of traffic. And I'm not going to put the link, I don't think, but I just did a video about the National association of Home Builders Confidence Index going down. So that is somewhat related to this. In the very short term, single family construction activity is likely to increase with permits rising in every month of 2023 thus far.

[00:03:57] So that says likely to increase with permits rising in every month of 2023 thus far.

[00:04:05] And it says here the jump in housing starts were partially recouped the decline in August.

[00:04:15] So maybe we're talking about two different things, but at some point mortgage rates are likely to put a lid on new construction activity for home purchases. Sure. Like if borrowing rates are 10%, it's either going to be a very expensive house that's built or you're not going to build it. That's true. We just don't know what that number is.

[00:04:35] Says single family housing starts, which account for the bulk of home building, increased 3.2% to a seasonally adjusted rate of 963,000 units last month. So the starts 963,000.

[00:04:51] The Commerce Department said data for August was revised to show starts dropping to a rate of 933,000 units instead of 941,000 units as previously reported. Have you ever seen data honestly out of, and I say out of this administration because I've noticed it more? It's possible it could have always been this way, but have you ever seen so many numbers get adjusted to the way that would be negative to the crew in charge?

[00:05:25] It's always a great number to start and then it's revised down. Or if it's, if, if what's required for good news is the number is higher, it starts off higher and then it's revised lower or it starts off low. Like, I can't think of anything off the top of my head. I'm trying to think like employment. Those numbers keep getting completely readjusted.

[00:05:55] Inflation.

[00:05:57] Inflation is one that gets adjusted low or it starts off low, which would be good news, and gets adjusted higher. That's one. So anyway, however much confidence you have in the numbers anymore, that's great.

[00:06:13] I'm very suspect of what's going on. It said the housing market had shown signs of stabilizing before mortgage rates resumed their upward trend late in the summer with the rate on the popular 30 year fixed mortgage rate vaulting above 7% in August, had shown signs of stabilizing.

[00:06:35] Where do you live that your market was crushed, at least in St. Louis last two years, three years have been ridiculous and actually before that. But they just threw like gasoline on the fire when it was, you know, when we went to the lower.

[00:06:52] It says residential investment has contracted for nine straight quarters, the longest such stretch since the housing market bubble burst. Triggering. Triggering, which isn't a word. Triggering the 2008 global financial crisis and the Great Recession.

[00:07:11] That downturn probably extended into the third quarter, although overall gross domestic product growth, gross domestic product growth last quarter was likely the fastest since late 2021, thanks to a tight labor market that is underpinning consumer spending. Well, now we're getting into the broader economy.

[00:07:30] The labor market is tight, right? If you agree with the numbers. And then the Fed needs to slow that down. They feel, and so they will. I forgot what they were calling it, but they're going to shorten employment maybe or something. It was weird. But look, I would like to know the definition in this article of residential investment because we know that there's plenty of investors in the real estate marketplace buying single family homes anyway. It says overall housing starts accelerated 7% to rate of 1.35 8 million units in September.

[00:08:15] That's a lot, I would think, right? But it says permits for future construction of single family homes rose 1.8% to a rate of 965,000 units, the highest since May of 2022. Though permits are a leading indicator, economists cautioned against being too optimistic about homebuilding prospects, citing the soaring mortgage rates and souring builder sentiment.

[00:08:42] So what they're saying is just because they got a permit doesn't mean they're actually going to build the house. And then there's a quote. It's not lights out for home building, but we don't know how many more body blows. With the Fed's interest rate hammer, the nation's housing sector can restand can withstand.

[00:08:59] My reading skills have gone poor today, or I've lost them.

[00:09:05] I don't know. Seems a bit like hyperbole. An alliteration interest rate hammer the nation's housing sector can resist. It may be a little dramatic.

[00:09:18] Okay. The single family home building backlog was unchanged at 142,000 units, while the completion rates for this segment increased 5.3% to 998,000 units. Realtors, I'm a realtor, estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to bridge the inventory gap. Well, we're not anywhere close.

[00:09:49] Interesting. The stock of multifamily housing under construction slipped 0.7% to 986,000 units, still near record highs. That, together with the decline in permits, suggests limited scope for further groundbreaking on new multifamily housing projects. So multifamily going down now? It's really interesting. Look, there's housing, right? And then there's single family housing and multifamily housing. And how does that play into home affordability? I don't know.

[00:10:30] I know that last year rents were rising as fast of a rate as mortgages, and it just killed the rental market as well.

[00:10:42] As far as people being able to rent a place that's decent, save money for a down payment, and then move to a house, which is what I would care about, because I spend most of my time helping buyers buy homes and sellers selling theirs. It says the under construction pipeline remains extremely elevated relative to historical averages, suggesting that a backlog of inventory will be coming to market in the next few months and years.

[00:11:05] This backlog, once in the market, could help alleviate price pressures, although this remains to be seen until the under construction number begins to show consistent declines. Now. So what do you think this is about?

[00:11:17] The under construction pipeline is extremely elevated relative to historical averages, suggesting that a backlog of inventory will be coming to market in the next few months. So what they're saying is that builders are not apparently just rushing out to build house after house. They're kind of waiting for things to come online.

[00:11:42] They're kind of releasing the houses slowly. And if I may, I feel like just in general, thoughts on economics have changed, at least in my lifetime.

[00:11:59] As an example, Toyota right now isn't producing enough vehicles for demand.

[00:12:08] People want their vehicles, but they could increase the supply of those vehicles. They could build more cars. However, they don't. Well, why don't they? Well, because they can charge a lot more for those cars.

[00:12:27] I'm seeing, in my opinion, some real scary things in the economy and have been for a while. Motor oil. Do you know that certain brands of motor oil, very popular brands, are hard to acquire? I can't just go to Walmart and buy the oil. It's not there.

[00:12:49] I can't go to Amazon and buy the oil. It's not there. It takes, like, they put you on a list and they say, you can buy it today. We don't know when it will ship.

[00:12:59] So in this case, I'm not so certain that homebuilders haven't taken the same approach.

[00:13:06] After all, why would you, why would you build a bunch of houses just to increase home affordability? You want to make, at least now you want to make the most money possible.

[00:13:20] So that's another thing that I think has changed in my lifetime.

[00:13:28] Why would you shoot yourself in the foot by putting out more supply and lowering prices?

[00:13:35] Doesn't make any sense.

[00:13:38] Am I saying that the housing market is in collusion? No. I don't know that you can go with exactly what I said, which is I think that there's been a shift in the way people think about economics, and I think that restricting the supply of available homes and new construction will cause prices to go higher. The only thing that's hurting demand is the crazy interest rate or mortgage rate, and that will continue to stay high, higher for longer. That's what the Fed says. So anyway, I thought this was an interesting thing. Look, don't expect any relief anytime soon from the new home construction market with affordability, okay? I mean, depending on what you consider affordability, if you think home prices are going down 30, $40,000 because of new construction coming online, I just don't see it.

[00:14:45] I just don't see it. I don't think that's the way it's going to go. But anyway, tell me what you think in the comment section below.

[00:14:52] Always like to see what people are thinking, as long as it's well reasoned.

[00:14:58] Anyway, that's all I have. We're today. Thank you for watching. Thank you for listening. And I will catch you on the next one.