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Welcome back to Trust the Process, podcast where we take you behind the scenes
of real estate, new home construction and everything in between.
So we're going to talk today on Christa, I'm joined by Michael Johnson,
and we're going to talk today about 20, 24 as we close out from that year,
looking forward into 2025 and what we predict or some of the forecasts
that we made to say, yes, yes.
So looking at not just for Las Vegas market,
well, we know that influence is us specifically,
that there is a bigger pendulum that swings in terms of the national market
and those are actually where most of the trends are set.
And then Vegas obviously follows suit with that.
So we wanted to take a broad look at a more national market
and how it has affected the 2024 trends interest rates
and influencing everything overall and how that.
Everything in the industry now that has kind of trickled down to our markets specifically.
So it's kind of where we wanted to start today and we're going to break it into two sessions.
So we'll have our 2024 and then we're going to follow right with a 2025
kind of a prediction on where we're going to go with the next round.
So you can, we'll do two back to backs here for you.
I wanted to give you an opportunity I know with both looked at the 2024 market.
Obviously historically we know what has happened and so summarizing that
in a way that allows us to see exactly where we are today
before we take a look forward.
What have been some of the things that you've influenced the 2024 market?
I think the biggest...
Let down was that interest rates just didn't budge the way that we thought they would.
If 23 they had a high watermark of 8%
around October 2023 and we thought for sure by October 2024 we'd be in a much better position than that.
We saw mostly middle sixes, high sixes.
We hit the sevens many more times than I would have liked
and we never really saw that despite a few rate drops by the feds
we didn't see that trickle on into the 30 year of fakes or the 15 year of fakes.
Mortgage market, those are determined just stuff of supplying demand
and how ready willing and able people are to invest in the mortgage back security.
How are people buying bonds and as long as bond yields are where they are
interest rates are always going to be elevated until we see some confidence in the market
back to say okay inflation is under control is not spiraling
and we'll see bond yields go down which will help bring the 30 year fakes
and the 15 year fakes mortgage rates down until that happens.
We're not going to see it and it's nothing that the feds are going to be able to do
despite lowering the the prime rate down.
It hasn't helped the 30 year fakes.
Talk to a lot about the shock of that and what that meant for people
after having been at rates that were 3% for pretty much.
It's such a low extreme lows that those 6% 7% rates were shocking to people
and so it really influenced the market as a whole because people were shy to buy at that time.
It did and what was a disappointment from me.
I mean, 2024 and that being a great year for equity, a great year for new home construction.
Great year on the real estate market, a great year for trust home builders.
A great year for me.
But what I would have liked to see is more normalization in the mortgage market
because it's really skewed and already skewed housing market.
That's increasingly unforetable for the average consumer.
And I did not see any relief from that in 2024 and I don't know that we're going to see much of it.
25, that's for our next episode.
But despite all of that, we saw some decent appreciation nationwide,
depending on what figures you look at around 4%
and I'm not exactly sure we're 2024's inflation rate landed,
but I would bet in real estate appreciation outperformed inflation.
Even in the hyperinflation area,
are an a period of inflation, which is a testament to real estate as an asset class,
but also on the other hand, a little depressing that we still saw elevated mortgage rates
and elevated home prices that are continuing to appreciate.
We'll talk about that throughout the course of the podcast,
but it's important to note that it's a blind demand
and when you have a supply shock,
where you have shocks to the industry that bear out as supply shocks.
So, first one, that comes to mind and it would be the GFC, the global financial crisis.
So, 2008, lending everything collapses under its own weight.
Builders are stuck holding the bag, a lot of medium and small builders
that weren't publicly traded left the business or a one bankrupt.
They were not no longer creating inventory for us.
So, we saw consolidation and now we're left with this collection of 15,
20 publicly traded home builders.
Maybe not even that many.
If I had to count them out, probably couldn't give you more than 15.
Major home builders that drive the entire market.
So, of our generation supply shock number one,
it back to our footing, a lot of markets,
Southern Nevada Market got exceptionally hard, so it took a lot longer for builders
to gain their confidence to come back into the marketplace and add inventory.
Which helped our home values rebound a little bit quicker.
But the stability wasn't there to break around on a 500-home master plan.
There was just a fear.
It was a fight and that last permit said been bold.
That's right.
So, that was a potential for a lot of build, but it was built in San Diego.
A lot of holding back and a lot of land was locked up in bankruptcies and locked up in for closure.
A lot of our small and medium-sized builders locally went under.
And that land was stuck in bankruptcy courts and in asset sales and things like that.
Even had built her head on it to develop and motor humming again.
Right.
Couldn't do it.
There was no where to do it.
I think that we had a lot of things to sort through.
And that took us till about 2015.
And we run for good four years, five years, second supply shock.
COVID.
Which started off as a, this is a confidence.
And builders pulled the plug on a lot of things.
It had permits sitting and in Las Vegas.
You could skate board down the strip.
A strip that hosts 44 million people a year.
It was dead.
It was barren.
Other confidence was on a scale of 100 probably a two.
In the beginning.
In the beginning of the pandemic.
At the moment, it proved to be a really great time.
It really, a lot of it was quantitative easing.
The feds pretty much just dumped a bunch of money into the money supply and savvy investors.
Flock to assets, especially non-fungible assets like homes.
Right.
And real estate had what I thought was a bit of an asset bubble.
And I thought was propped up by low rates.
And ended up not being that way.
We haven't seen any pullback.
We've seen pullback in the rate of appreciation.
Sure.
But we're still seeing appreciation.
We are.
I'm gaining 10 pounds a year.
Not only gaining three pounds a year.
You're still getting fat.
And you got it.
Right.
You're going to have to get control of that.
So that's kind of what we're seeing here.
So then we came where I got some quantitative easing rates are dropping as low as 2%
and 2021 for some people getting 30 year fixed in the twos.
Which was an unnaturally low rate.
We knew it was going to be.
And we knew what the party was going to end.
What I thought was both string a lot of home values turned out.
The demand really was there.
And let's go to supply shop number three.
And the last 15 years was the spike in interest rates.
So by April 2022,
only about two years in to that.
Appreciation was on the order of 25% nationwide in 2021.
Early 22 when inflation data came out.
The yields went through the roof.
When bond yields went through the roof,
we saw rates go pretty much overnight.
From 3.75 for an average 30 year fixed.
To 4.75.
I'm talking in the span that people were under contract.
And a 1% rate bump on a $500,000 mortgage.
It's $5,000 a year in interest.
Which is around $500 a month in your monthly mortgage payment.
So you're getting ready to sign your docs.
You didn't lock.
Yeah, two weeks you did your home inspection.
You did your appraisal.
You're ready to sign at what you thought was a $2200 mortgage payment.
Now it was a 2850.
And some people just literally no longer could qualify.
You're right online if you're just barely squares or just barely there.
That's right.
And it's there's that little bit of swing.
Not some right out of the game.
Exactly.
So we can't sustain those payment shocks in spoiler.
A lot of move up and move up two buyers stretch it as well.
Right.
So as a really had a lot of canceling.
Right.
We saw a lot of cancellations kind of start in that in the beginning of quarter two,
2022.
So now builders are sitting here and dancing.
Wait a minute.
Just ramped up all of this new home construction.
Pulti.
Not today.
It makes options more or less sealed bits for their homes.
And they would have sealed bits even for parcels that they were going to build your home home.
You would have to state what you were willing to pay for that home.
And it was shooting in the dark.
Good.
No idea.
23 on a square foot home.
9.
50.
It would.
It wouldn't.
You would even get it.
You would have one shot and you'd have to have another front of the
deposit and okay someone went 9.70.
So try again next time.
And two years later rates.
So through the roof.
Right.
We thought 4.75 was scary and then we saw them.
Tick right past.
Well into the five by the late summer of 22.
We're seeing sixes.
Yeah.
And then we were starting to flirt with sevens in the 22 and most to 23.
We were sevens and eights.
We didn't spend a lot of time over eights.
But we didn't.
But it was enough to to stress.
Yeah.
Start with an eight.
It was a start with a two couple years earlier.
Right.
So now you're a builder.
You've got a lot of exposure and your development projects are five to six years on the horizon.
If you're doing massive on that supply and communities and things that really add a lot of inventory.
Those are long horizons.
And at minimum of 30 to 48 month horizon.
And the market can change a lot in that time period.
So we're seeing that bear out in the numbers.
And that reason I had a 12 minute lead up to the statistics are the statistics are what they are.
But the why behind them.
I'm not going to remember the statistics.
But you'll remember the why.
And we still saw around 4% price growth.
We saw new home sales.
This is for 2024.
And this is for nation wide.
We saw new homes sales as total number of homes sold up about two and a half percent.
So a lot of that was just simply having the inventory.
So builders work through the supply chain shortages of 2022 and you know, like,
21.
And we started to finally see that inventory of our parents all out in 2024.
Builders have the confidence to say, okay, I'm not going to wait four months for windows.
I'm going to be a confident to start these homes because I'm not going to have a whole house done and I can't get a dishwasher.
Right.
So we have the confidence.
We saw the supply chain really hiring itself out by early 23 right over all I would say we could become more normal than it had.
And builders had a lot of confidence to then, okay, let's start and then boom, get the high rates.
Hey, well, can people still sustain these high rates.
People still buy homes.
And largely they did a home builder's nationwide build about 1.4 million homes in 2024.
About 950 to a million of those are single families.
This multi family condo town home, not all of those are four sell.
Most of the single family stuff ends up for sale.
You know, it ends up being purchased a lot of the multi family.
I would say it's kept into hedge funds and things like that.
That ended being a part of the complex is a share.
Yeah, but it still has to be numbers.
So it was, it was a good year.
Now for reference in 1985, we built 1.7 million homes.
And our population was 100 million people fewer.
To highlight this market fact, in 1985, the US population was 238 million.
And we built 1.7 million new homes that year.
In 2024, the US population was up by more than 100 million people from what it was in 85.
And despite that increase, we built 300,000 fewer homes.
This just highlights the growing housing shortage in this country.
And we'll talk more about that US housing crisis and the implications on affordability and accessibility.
In future episodes.
So we are still drastically underbuilt.
They'll sound like great numbers, but we are still wildly underbuilt.
Well, here at that.
When you hear it in that yes.
You think about so many more people as to your homes under construction.
That's right.
It's a population that's got about 33%.
In a sick twist of irony, the amount of new homes completed is about 33% lower than it was in 85.
Just astounding.
And we could have an entire episode on why that is.
It's not just builder green.
Part of it is the consolidation of the builder market and energy efficiency.
Homes are way more expensive to build now.
Buyers demand larger homes.
Development projects don't pencil out unless you build larger homes.
And the country has moved around.
And they've country has moved out of the Northeast Corridor.
A lot of those places are losing population.
And people are moving to some.
States that are not equipped to have a hundred thousand people.
You're moving there.
The Denver's of the world, the Houston's of the world.
The Las Vegas is of the world.
The Phoenix is of the world.
We're not built for that.
So it's not just how many doors you have.
It's where are they?
And without them being in the right places.
If we have this migration, people are around the country.
We're always going to have it.
And Las Vegas is a great microcosm, which is why in second part of the steps.
So I want to talk largely about Las Vegas and use it as a microcosm for their
rest of the country.
I think it'd be a good time to transition to that.
Great.
So we'll see you in the next episode.
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