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Welcome to Trust the Process Podcast.

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We're going to pull back the curtain on new home construction,

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the real estate market and the trends shaping it all.

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Discover the stories, insights, and expertise behind the process

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of building an home.

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Join us and let's build something great together.

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Welcome back to Trust the Process, podcast where we take you behind the scenes

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of real estate, new home construction and everything in between.

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So we're going to talk today on Christa, I'm joined by Michael Johnson,

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and we're going to talk today about 20, 24 as we close out from that year,

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looking forward into 2025 and what we predict or some of the forecasts

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that we made to say, yes, yes.

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So looking at not just for Las Vegas market,

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well, we know that influence is us specifically,

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that there is a bigger pendulum that swings in terms of the national market

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and those are actually where most of the trends are set.

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And then Vegas obviously follows suit with that.

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So we wanted to take a broad look at a more national market

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and how it has affected the 2024 trends interest rates

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and influencing everything overall and how that.

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Everything in the industry now that has kind of trickled down to our markets specifically.

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So it's kind of where we wanted to start today and we're going to break it into two sessions.

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So we'll have our 2024 and then we're going to follow right with a 2025

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kind of a prediction on where we're going to go with the next round.

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So you can, we'll do two back to backs here for you.

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I wanted to give you an opportunity I know with both looked at the 2024 market.

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Obviously historically we know what has happened and so summarizing that

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in a way that allows us to see exactly where we are today

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before we take a look forward.

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What have been some of the things that you've influenced the 2024 market?

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I think the biggest...

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Let down was that interest rates just didn't budge the way that we thought they would.

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If 23 they had a high watermark of 8%

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around October 2023 and we thought for sure by October 2024 we'd be in a much better position than that.

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We saw mostly middle sixes, high sixes.

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We hit the sevens many more times than I would have liked

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and we never really saw that despite a few rate drops by the feds

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we didn't see that trickle on into the 30 year of fakes or the 15 year of fakes.

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Mortgage market, those are determined just stuff of supplying demand

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and how ready willing and able people are to invest in the mortgage back security.

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How are people buying bonds and as long as bond yields are where they are

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interest rates are always going to be elevated until we see some confidence in the market

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back to say okay inflation is under control is not spiraling

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and we'll see bond yields go down which will help bring the 30 year fakes

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and the 15 year fakes mortgage rates down until that happens.

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We're not going to see it and it's nothing that the feds are going to be able to do

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despite lowering the the prime rate down.

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It hasn't helped the 30 year fakes.

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Talk to a lot about the shock of that and what that meant for people

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after having been at rates that were 3% for pretty much.

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It's such a low extreme lows that those 6% 7% rates were shocking to people

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and so it really influenced the market as a whole because people were shy to buy at that time.

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It did and what was a disappointment from me.

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I mean, 2024 and that being a great year for equity, a great year for new home construction.

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Great year on the real estate market, a great year for trust home builders.

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A great year for me.

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But what I would have liked to see is more normalization in the mortgage market

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because it's really skewed and already skewed housing market.

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That's increasingly unforetable for the average consumer.

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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.

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25, that's for our next episode.

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But despite all of that, we saw some decent appreciation nationwide,

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depending on what figures you look at around 4%

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and I'm not exactly sure we're 2024's inflation rate landed,

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but I would bet in real estate appreciation outperformed inflation.

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Even in the hyperinflation area,

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are an a period of inflation, which is a testament to real estate as an asset class,

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but also on the other hand, a little depressing that we still saw elevated mortgage rates

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and elevated home prices that are continuing to appreciate.

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We'll talk about that throughout the course of the podcast,

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but it's important to note that it's a blind demand

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and when you have a supply shock,

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where you have shocks to the industry that bear out as supply shocks.

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So, first one, that comes to mind and it would be the GFC, the global financial crisis.

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So, 2008, lending everything collapses under its own weight.

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Builders are stuck holding the bag, a lot of medium and small builders

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that weren't publicly traded left the business or a one bankrupt.

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They were not no longer creating inventory for us.

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So, we saw consolidation and now we're left with this collection of 15,

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20 publicly traded home builders.

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Maybe not even that many.

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If I had to count them out, probably couldn't give you more than 15.

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Major home builders that drive the entire market.

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So, of our generation supply shock number one,

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it back to our footing, a lot of markets,

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Southern Nevada Market got exceptionally hard, so it took a lot longer for builders

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to gain their confidence to come back into the marketplace and add inventory.

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Which helped our home values rebound a little bit quicker.

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But the stability wasn't there to break around on a 500-home master plan.

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There was just a fear.

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It was a fight and that last permit said been bold.

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That's right.

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So, that was a potential for a lot of build, but it was built in San Diego.

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A lot of holding back and a lot of land was locked up in bankruptcies and locked up in for closure.

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A lot of our small and medium-sized builders locally went under.

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And that land was stuck in bankruptcy courts and in asset sales and things like that.

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Even had built her head on it to develop and motor humming again.

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Right.

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Couldn't do it.

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There was no where to do it.

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I think that we had a lot of things to sort through.

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And that took us till about 2015.

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And we run for good four years, five years, second supply shock.

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COVID.

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Which started off as a, this is a confidence.

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And builders pulled the plug on a lot of things.

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It had permits sitting and in Las Vegas.

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You could skate board down the strip.

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A strip that hosts 44 million people a year.

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It was dead.

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It was barren.

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Other confidence was on a scale of 100 probably a two.

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In the beginning.

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In the beginning of the pandemic.

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At the moment, it proved to be a really great time.

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It really, a lot of it was quantitative easing.

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The feds pretty much just dumped a bunch of money into the money supply and savvy investors.

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Flock to assets, especially non-fungible assets like homes.

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Right.

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And real estate had what I thought was a bit of an asset bubble.

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And I thought was propped up by low rates.

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And ended up not being that way.

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We haven't seen any pullback.

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We've seen pullback in the rate of appreciation.

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Sure.

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But we're still seeing appreciation.

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We are.

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I'm gaining 10 pounds a year.

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Not only gaining three pounds a year.

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You're still getting fat.

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And you got it.

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Right.

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You're going to have to get control of that.

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So that's kind of what we're seeing here.

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So then we came where I got some quantitative easing rates are dropping as low as 2%

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and 2021 for some people getting 30 year fixed in the twos.

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Which was an unnaturally low rate.

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We knew it was going to be.

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And we knew what the party was going to end.

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What I thought was both string a lot of home values turned out.

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The demand really was there.

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And let's go to supply shop number three.

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And the last 15 years was the spike in interest rates.

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So by April 2022,

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only about two years in to that.

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Appreciation was on the order of 25% nationwide in 2021.

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Early 22 when inflation data came out.

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The yields went through the roof.

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When bond yields went through the roof,

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we saw rates go pretty much overnight.

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From 3.75 for an average 30 year fixed.

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To 4.75.

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I'm talking in the span that people were under contract.

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And a 1% rate bump on a $500,000 mortgage.

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It's $5,000 a year in interest.

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Which is around $500 a month in your monthly mortgage payment.

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So you're getting ready to sign your docs.

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You didn't lock.

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Yeah, two weeks you did your home inspection.

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You did your appraisal.

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You're ready to sign at what you thought was a $2200 mortgage payment.

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Now it was a 2850.

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And some people just literally no longer could qualify.

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You're right online if you're just barely squares or just barely there.

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That's right.

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And it's there's that little bit of swing.

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Not some right out of the game.

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Exactly.

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So we can't sustain those payment shocks in spoiler.

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A lot of move up and move up two buyers stretch it as well.

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Right.

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So as a really had a lot of canceling.

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Right.

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We saw a lot of cancellations kind of start in that in the beginning of quarter two,

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2022.

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So now builders are sitting here and dancing.

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Wait a minute.

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Just ramped up all of this new home construction.

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Pulti.

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Not today.

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It makes options more or less sealed bits for their homes.

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And they would have sealed bits even for parcels that they were going to build your home home.

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You would have to state what you were willing to pay for that home.

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And it was shooting in the dark.

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Good.

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No idea.

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23 on a square foot home.

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9.

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50.

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It would.

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It wouldn't.

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You would even get it.

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You would have one shot and you'd have to have another front of the

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deposit and okay someone went 9.70.

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So try again next time.

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And two years later rates.

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So through the roof.

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Right.

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We thought 4.75 was scary and then we saw them.

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Tick right past.

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Well into the five by the late summer of 22.

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We're seeing sixes.

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Yeah.

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And then we were starting to flirt with sevens in the 22 and most to 23.

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We were sevens and eights.

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We didn't spend a lot of time over eights.

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But we didn't.

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But it was enough to to stress.

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Yeah.

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Yeah.

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Yeah.

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Yeah.

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Yeah.

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Start with an eight.

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It was a start with a two couple years earlier.

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Right.

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Right.

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So now you're a builder.

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You've got a lot of exposure and your development projects are five to six years on the horizon.

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If you're doing massive on that supply and communities and things that really add a lot of inventory.

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Those are long horizons.

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And at minimum of 30 to 48 month horizon.

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And the market can change a lot in that time period.

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So we're seeing that bear out in the numbers.

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And that reason I had a 12 minute lead up to the statistics are the statistics are what they are.

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But the why behind them.

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I'm not going to remember the statistics.

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But you'll remember the why.

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And we still saw around 4% price growth.

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We saw new home sales.

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This is for 2024.

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And this is for nation wide.

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We saw new homes sales as total number of homes sold up about two and a half percent.

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So a lot of that was just simply having the inventory.

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So builders work through the supply chain shortages of 2022 and you know, like,

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21.

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And we started to finally see that inventory of our parents all out in 2024.

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Builders have the confidence to say, okay, I'm not going to wait four months for windows.

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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.

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Right.

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So we have the confidence.

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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.

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And builders had a lot of confidence to then, okay, let's start and then boom, get the high rates.

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Hey, well, can people still sustain these high rates.

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People still buy homes.

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And largely they did a home builder's nationwide build about 1.4 million homes in 2024.

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About 950 to a million of those are single families.

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This multi family condo town home, not all of those are four sell.

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Most of the single family stuff ends up for sale.

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You know, it ends up being purchased a lot of the multi family.

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I would say it's kept into hedge funds and things like that.

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That ended being a part of the complex is a share.

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Yeah, but it still has to be numbers.

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So it was, it was a good year.

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Now for reference in 1985, we built 1.7 million homes.

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And our population was 100 million people fewer.

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To highlight this market fact, in 1985, the US population was 238 million.

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And we built 1.7 million new homes that year.

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In 2024, the US population was up by more than 100 million people from what it was in 85.

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And despite that increase, we built 300,000 fewer homes.

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This just highlights the growing housing shortage in this country.

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And we'll talk more about that US housing crisis and the implications on affordability and accessibility.

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In future episodes.

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So we are still drastically underbuilt.

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They'll sound like great numbers, but we are still wildly underbuilt.

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Well, here at that.

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When you hear it in that yes.

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You think about so many more people as to your homes under construction.

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That's right.

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It's a population that's got about 33%.

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In a sick twist of irony, the amount of new homes completed is about 33% lower than it was in 85.

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Just astounding.

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And we could have an entire episode on why that is.

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It's not just builder green.

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Part of it is the consolidation of the builder market and energy efficiency.

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Homes are way more expensive to build now.

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Buyers demand larger homes.

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Development projects don't pencil out unless you build larger homes.

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And the country has moved around.

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And they've country has moved out of the Northeast Corridor.

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A lot of those places are losing population.

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And people are moving to some.

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States that are not equipped to have a hundred thousand people.

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You're moving there.

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The Denver's of the world, the Houston's of the world.

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The Las Vegas is of the world.

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The Phoenix is of the world.

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We're not built for that.

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So it's not just how many doors you have.

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It's where are they?

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And without them being in the right places.

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If we have this migration, people are around the country.

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We're always going to have it.

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And Las Vegas is a great microcosm, which is why in second part of the steps.

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So I want to talk largely about Las Vegas and use it as a microcosm for their

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rest of the country.

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I think it'd be a good time to transition to that.

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Great.

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So we'll see you in the next episode.

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Thanks for joining us.

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Thanks for tuning in to the press for process podcast.

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Make sure to follow us on Spotify to stay in the loop with the latest insights, project updates, and everything in between.

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