[Music]

welcome to the Deerwood Realty YouTube channel I'm John Schink you know the weird thing about economics is that it kind of depends on where you sit right so if you're at work and you're getting raises and you're moving up the company ladder life is pretty good right and then if you're not say your business is going south say you've lost your job in a competitive industry and have not been able to get another one well you probably think the economy is terrible right that's just kind of how we are as as as human nature and so I'm in this situation where my business has fallen off dramatically since last year and I know that the Fed and everyone else wants that to happen because housing is such a large part of the economy now there has been strength in new home sales but it's it's relative relative strength and there's reasons for that there's incentives that they can do that regular homes can't but maybe maybe I've been too harsh maybe the economy is wonderful maybe things are great and maybe things will be continue to do well up into the future I mean why should we be concerned about housing we can be concerned about other things right there's no point so I you know to try to keep myself sharp I saw an article today and I I wanted to share it with you I thought it was kind of fascinating um here it is it's off of CNBC and it's from um it's from the bottom line let's go over just the headline as the market enters correction territory don't blame the American Consumer so the question one asks is is just is consumer spending okay the Bell weather for the economy does that make everything go I remember during the Iraq War uh the second one Bush just said go go spend pretend that the war is not even happening uh that was that was something but uh let's let's go through this and just you know maybe I'm wrong maybe things are great and I just don't realize it because housing is down it says the initial third quarter report on the gross domestic product showed consumer spending zooming Higher by 4% a year after inflation the best in almost two years September's retail sales report showed uh spending climbing almost twice as fast as the average for last year and yet bears like hedge fund Trader Bill Amman argued that a recession is coming as soon as this quarter and the market has entered correction territory so I think that there's so many data points that you can show that say things are good or things are bad that people I mean once there's consensus of things being awful I guess look out at that point right or will things never be awful depending on uh your political beliefs or depending on you know um well just pretending on your political beliefs uh it says for an economy that rises or falls on the state of the consumer third quarter earnings data supports a view of spending that remains mostly good right so that's that the statement by the author is that the state of the consumer and their spending is the most important part of the economy most important way to look at how things are going it says people are kind of Scrat scratching their heads and saying the consumer is holding up far better than expected said CFR research strateg strategist Sam stoval consumers are employed they continue to buy Goods as well as pursue experiences and they don't seem to worry about debt levels their own debt levels and that's the other thing that I've been I've been kind of wrestling with myself is look are people just going to spend until they can't spend

anymore has it gotten to that point how is this possible with interest rates on everything from credit cards to cars and homes soaring how is this possible like what is going on says it's the does from bellweather companies across key Industries to tell the real story so there's a real story and we just don't know it Delta Airlines and United Airlines sharing how their most expensive seats are filling f are selling fastest homeowners using High interest rate fighting mortgage buy Downs Amazon saying it's hiring 250,000 seasonal workers so so the real story is home owners are using High interest rate fighting mortgage buy Downs like see see to me like they're they they almost have to use buy Downs because they can't afford a home any other way like that's not a good thing to me so see how it's just it's just all in how you look at things the author looks at this as saying that's a wonderful thing that they can buy down the mortgage and I'm sitting there going if you got to buy down the mortgage rate something's not

right says the picture they paint largely matches the economic data generally positive but with some warts so so so things are great right like you feel it things are good it's so strange says no so then this is what caught my eye because it was it was about housing and as a real estate broker I kind of I kind of pay attention to these things it says how home builders are solving for mortgage rates well okay let's go it says no industry is more Central to the Market's notion that the consumer is falling from the sky than housing because the number of existing home sales have dropped almost 40% from Co ER era P Peaks now I'm going to get I'm going to get shadowbanned because I said the word Co in in the real estate space but while Coldwell Banker owner anywhere real estate saw a profit Fall by half news from Builders of new homes has been pretty

good it's like the whole the the residential Market is cratering but new home builders are doing okay and therefore it's great it says most consumers have mortgages below 5% but for new home buyers one reason that rates are not biting quite as sharply as they should is that Builders have figured out ways around the 8% interest rates that are beving existing hom sellers that helps explain why new home sales are up this year home builders are dipping into money that previously paid for other incentives to pay for offering mortgages at 5.75% rather than the 8% level other mortgages have hit now see to me this is a joke the mortgage buy down that they're offering is like one or two years and you still have to qualify for the uh overall payment before you can get the home it says at py group the nation's third biggest Builder that helped drive an 8% third quarter profit jump and 43% climb in new home orders for delivery later much better than the government reported 4.5% gain in new home sales year today

H what we've done is simply redistribute the incentives we've already historically offered towards cabinets and countertops and redirected those to interest rate incentives and that has been the most powerful thing now to me for for me the for me to know things are very bad in in in the housing market is when when home new home builders start lowering their prices that's that's when it I mean right now they're getting by on incentives not on lowering prices and I I'll be honest with you like to me buying a new home and having crappy countertops and and all that stuff I mean I see it in I see it in I it's actually probably a newer phenomenon I see it a lot now is somebody will buy a big house and they'll have the worst fixtures in it okay and then somebody else will buy the same house in the same neighborhood or the same style and put everything in it like you know you know granite countertops and just a fat you know just a a a great home and the person that put nothing in their house uh is like they think that it's worth the same amount as the other house that has everything in it and it's it's a very bizarre thing I've seen that more and I think that's I think that's a sign of how how home builders have kind of learned um to to to not have to uh not have to offer the greatest things for people to move into the homes says the mechanics are complex they're not but work but work out to this P he sets aside around 35,000 for incentives to get each home to sell or around 6% of its price the company set on its Earnest conference call part of that is paying for a mortgage buy down about 80 to 85% of buyers are taking advantage of the buy down offer but many are splitting the funds including mixing a smaller rate buy down and keeping some goodies for the house so can you imagine 80 to 85% of buyers taking advantage of the buy down offer and somehow this is a positive

thing Wells Fargo Economist Jackie Benson said in a report that Builders May struggle to keep this strategy going if mortgage rates still stay near 8% but new home prices have dropped 12% in the last year see they haven't dropped that much where I'm at it could be true other places in her view incentives plus bigger price Cuts than most existing homes owners will offer offer is giving Builders an edge well that's right that's that's absolutely right the problem that I see is the homes the new homes are so much more expensive for what you're getting it's like you know half a million dollars for 1,200 ft house in St Louis is with no yard and it just seems kind of not good but you know other play I mean if it was a house in California it's supposed to be wonderful says that auto companies price cuts are in and more are coming Car Sales peaked picked up notably in September Rising 24% year-over-year more than twice the year-to-date gain in unit sales which is amazing I mean what is going on I can't just can't emphasize this enough that for the vast majority of people buying a car it's about the monthly payment Tesla CEO said must said on its earning call and as interest rates rise the proportion of that monthly payment that his interest increases okay so he's so so musk is saying um monthly payments are key and this is bad and then the counter that is General Motors it says even if investors reaction to good numbers at gym was muted because of the strike by the Auto Workers unit see to me okay the strike is all about cost of living increases it's so expensive to live that they actually went on strike now you may not see it that way um but I don't think a strike is a positive thing especially when they gave in what 25% price or wage increase over 3 years GM beat earnings Expectations by 40 cents a share but shares fell 3% because of investors worry about the strike which forced GM to withdraw its fourth quarter earnings forecast on October 24th Ford which settled with the UAW in October 25th said the next day had a mixed quarter as profit Miss Wall Street targets due to the strike consumers came through as unit sales Rose 7. 7% for the quarter with truck and EV sales both up 15% GM CEO Mary Baris said on GM's analyst called that the company gained market share posting a 21% gain in unit sales despite offering incentives below the industry average are there people really out there paying $100,000 for pickup trucks and is that going to end well I mean is that really is that really what we're doing here says while we hear reports out there in the macro that consumer sentiment might be weakening we haven't seen that in demand for our

vehicles really see it's hard it's just it's hard for me to believe that I mean it could be true it could be true I just don't see it but maybe I'm just the odd one out it says then it says then they talk about Banks which you know I don't know that banks are that solid if all of their um all of their Investments are much of their Investments are considered in in safe mortgage back Securities it seems like this is a bad deal says as Bank of America consumer balances are still about onethird higher than before coid I'm going to get Shadow banned again balances have eroded 3% in the last year but consumer loan delinquencies declined during the quarter where am I seeing the softness in consumer credit uh said chief officer Jeremy barnham repeating an analyst question on the earnings call I think the answer to that is actually nowhere we're not seeing any any softness in consumer's credit I mean the reality is unemployment levels are near alltime record lows MasterCard Chief Financial offer sain mea said guess they're not bothered by the resumption of student loan payments stoval said so you go in and says our M and then discover got hammered because they actually had to um make additions to its loan loss reserves for Consumer Debt so that would be a negative right but it says our macro assumptions reflect a relatively strong labor market but also consumer headwinds from a declining savings rate and increasing debt burdens H and then you get to this as has been the case throughout much of 2023 richer consumers who contribute the greatest share of spending are doing better than moderate income families and then it says the goods recession is for Real so they're talking about like durable goods it says at world poool would set in a second quarter earnings that it was moving to make up slowing sales to Consumers by selling more appliances to home builders discretionary purchases have been even softer than anticipated as a result of increased mortgage rates and low consumer confidence but could that just be that no one wants a world pool you know does does anybody really even want a world pool branded

Appliance but I think the key in this article and I'm going to go through right here is as has been the case throughout much of 23 richer consumers who contribute a greater share of spending are doing better than the moderate income families I think that's the key okay I think I think the people that are doing well in this economy are doing really well right and I think that the people that are you know not doing well um are really getting hammered due to inflation and that's what I'm seeing in my family um I'd be interested to know how things are going in yours I mean look I drive down the road and I see brand new cars and I and I just I shake my head I I just can't believe it um I can understand like why travel and air flights would be higher now I mean for two years we were kind of locked down and there wasn't a whole lot of travel you could do to foreign countries I I I can see that and housing I think that there's tremendous headwinds I just I mean even if you could get through um the affordability problem which you're not going to anytime soon um you just I mean the inventory the inventory itself isn't isn't there I mean there's just not a good home to buy I mean out of a 100 homes you might find one or two most of them are deaths Estates divorces uh you know not a lot of movement so look we have to we have to always keep our our eyes open keep our thoughts open to what could be um a fact I mean up until it it's I mean things are going to be great up until they aren't right so I mean they've been good can't argue but I did want to bring I don't want to always be negative okay I don't always want to be look out I just I mean I think we should at times you know this is how great things are for people it's just not my people so with that I'm going to head on out thank you for watching thank you for listening and I'll catch you on the next one