WEBVTT 00:00:00.000 --> 00:00:02.879 Welcome back to Trust the Process podcast, where 00:00:02.879 --> 00:00:06.120 we talk about new home construction, real estate, 00:00:06.459 --> 00:00:09.039 the housing market, and everything in between. 00:00:09.519 --> 00:00:12.699 I'm Krista. I'm here with Michael. And we've 00:00:12.699 --> 00:00:15.720 been talking a lot lately about vendors and vendor 00:00:15.720 --> 00:00:18.579 pricing and having a conversation about it. We 00:00:18.579 --> 00:00:20.420 thought we'd turn on the cameras, let you guys 00:00:20.420 --> 00:00:22.100 join us for this conversation. There's a lot 00:00:22.100 --> 00:00:23.760 of really good information. I know Michael's 00:00:23.760 --> 00:00:27.789 pulled some data to share too. Great topic and 00:00:27.789 --> 00:00:30.429 an opportunity to share a little insight with 00:00:30.429 --> 00:00:33.950 you guys. So thanks for joining us today. And 00:00:33.950 --> 00:00:37.810 hi, Michael. Hello. Hi. How you doing? Good to 00:00:37.810 --> 00:00:40.649 see you. Good lead -in. And this is on the heels 00:00:40.649 --> 00:00:42.950 of a conversation that we had with a potential 00:00:42.950 --> 00:00:46.289 build the suit client who's building a very luxurious 00:00:46.289 --> 00:00:49.390 home in South Shore Country Club. But it's a 00:00:49.390 --> 00:00:51.469 conversation I've had with almost every build 00:00:51.469 --> 00:00:55.130 the suit client ever. And it's, is it a good 00:00:55.130 --> 00:00:57.909 time to build? Uh, what are prices like? Do you 00:00:57.909 --> 00:01:00.170 think prices are going to come down? Do you think 00:01:00.170 --> 00:01:01.750 we're going to be midway through construction 00:01:01.750 --> 00:01:03.850 and prices are going to shoot up? And I think 00:01:03.850 --> 00:01:05.989 some of that is, you know, our battle wounds 00:01:05.989 --> 00:01:09.650 from COVID era. They may have heard horror stories 00:01:09.650 --> 00:01:11.930 of their friends who were in middle of remodels 00:01:11.930 --> 00:01:14.790 or construction projects or whatever. And the 00:01:14.790 --> 00:01:18.329 price of lumber shoots up 300 % in a two week 00:01:18.329 --> 00:01:21.109 period. Um, we were building homes during that 00:01:21.109 --> 00:01:24.189 time as a company and I bought many overpriced 00:01:24.189 --> 00:01:27.950 lumber packages for homes. And I that's a stinging 00:01:27.950 --> 00:01:31.549 feeling, right? Yeah, your slabs poured and yeah, 00:01:32.010 --> 00:01:34.530 if you wanted lumber, you had to overpay, you 00:01:34.530 --> 00:01:36.689 had to pay. And everyone was doing it. And you 00:01:36.689 --> 00:01:38.769 couldn't readjust until several months later, 00:01:38.769 --> 00:01:40.250 when you say if you're a production builder, 00:01:40.349 --> 00:01:42.030 well, let's pull back on the next few phases 00:01:42.030 --> 00:01:44.250 or raise our prices. Because we've published 00:01:44.250 --> 00:01:46.349 all these prices and based on these build costs. 00:01:46.390 --> 00:01:49.510 And now the costs are 2030 % higher in a two 00:01:49.510 --> 00:01:53.569 month period, cumulatively. So I think people, 00:01:53.930 --> 00:01:57.269 you know, I was never a big builder. Not that 00:01:57.269 --> 00:01:59.030 I'm the one now, but I was never the builder 00:01:59.030 --> 00:02:00.969 pre -COVID really. I mean, we built a lot of 00:02:00.969 --> 00:02:02.629 spec homes, but we never did any build to suit 00:02:02.629 --> 00:02:05.090 contracts. So I don't know if those questions 00:02:05.090 --> 00:02:09.129 came up in the early 2010s and the early aughts 00:02:09.129 --> 00:02:12.289 and the early teens. But I can tell you that 00:02:12.289 --> 00:02:14.689 as I started a build to suit division of the 00:02:14.689 --> 00:02:17.870 company, it definitely has always been a question. 00:02:18.650 --> 00:02:21.330 And I never know how to answer it. Um, because 00:02:21.330 --> 00:02:25.189 if I had all the answers, I would adjust my business 00:02:25.189 --> 00:02:27.949 model accordingly. So I just go off of the info 00:02:27.949 --> 00:02:30.169 that I have and the predictions that my magic 00:02:30.169 --> 00:02:35.530 eight ball tell me and, uh, give them those insights 00:02:35.530 --> 00:02:38.009 and say, look, I'm still pulling permits. I'm 00:02:38.009 --> 00:02:40.250 still building neighborhoods. I'm still moving 00:02:40.250 --> 00:02:43.770 full steam ahead. I am cautious about this because 00:02:43.770 --> 00:02:48.139 of X, Y, and Z and Now, this person asked this 00:02:48.139 --> 00:02:52.439 yesterday, so it's late January 2026, and my 00:02:52.439 --> 00:02:57.580 answer was 25 was very favorable for builders 00:02:57.580 --> 00:03:03.539 in terms of price indexes or indices. Commodities 00:03:03.539 --> 00:03:09.740 were generally soft, so from a top -down perspective, 00:03:10.080 --> 00:03:13.240 A lot of raw goods were just cheaper. Demand 00:03:13.240 --> 00:03:15.900 was down in the residential sector. Demand was 00:03:15.900 --> 00:03:17.740 down even in the commercial sector, for sure 00:03:17.740 --> 00:03:21.699 the office sector. So we had just a kind of a 00:03:21.699 --> 00:03:23.960 contraction in the construction industry that 00:03:23.960 --> 00:03:26.879 was really only bolstered probably by data centers, 00:03:27.020 --> 00:03:29.819 maybe distribution centers. So consequently, 00:03:30.199 --> 00:03:34.400 we didn't see pullbacks in drywall and concrete, 00:03:34.639 --> 00:03:36.500 because those are kind of fungible items that 00:03:36.500 --> 00:03:39.639 are used in a lot of applications. But we did 00:03:39.639 --> 00:03:42.879 see things. I think you see a pullback in lumber 00:03:42.879 --> 00:03:46.419 prices, because lumber is generally a residential 00:03:46.419 --> 00:03:49.039 building product. You're not seeing that a lot 00:03:49.039 --> 00:03:51.340 of lumber in data centers and things like that. 00:03:51.460 --> 00:03:53.000 Versus steel in a more commercial application. 00:03:53.360 --> 00:03:55.120 Yeah, versus steel. And there's still some build 00:03:55.120 --> 00:03:57.740 -back cutters spending on infrastructure. So 00:03:57.740 --> 00:04:00.860 there's upward pressure on rebar and concrete. 00:04:01.739 --> 00:04:04.479 asphalt and things that we had those funds from 00:04:04.479 --> 00:04:07.580 2022 from that bill set aside that we're still 00:04:07.580 --> 00:04:09.360 spending on that. A lot of those were 10 year, 00:04:09.360 --> 00:04:12.039 you know, projects or funds that we're going 00:04:12.039 --> 00:04:15.419 to trickle in over 10 years. So that did give 00:04:15.419 --> 00:04:19.300 some of a backstop to construction prices and 00:04:19.300 --> 00:04:22.279 some of the raw commodities, but overall in the 00:04:22.279 --> 00:04:25.439 residential sector, everything was largely softer 00:04:25.439 --> 00:04:28.639 than the year before and definitely softer than 00:04:28.639 --> 00:04:31.250 two and three years before. where things were 00:04:31.250 --> 00:04:34.610 artificially elevated. So just to give perspective 00:04:34.610 --> 00:04:38.129 on that, however, we're still we're at about 00:04:38.129 --> 00:04:40.949 $600 per thousand board feet for lumber to use 00:04:40.949 --> 00:04:44.670 lumber as an indicator. And pre COVID, that was 00:04:44.670 --> 00:04:49.569 around $300, maybe 350. And we never got that 00:04:49.569 --> 00:04:56.829 low. Again, we dipped into the low for and the 00:04:56.829 --> 00:05:00.610 mid 400s. in mid -2024 and have kind of hovered 00:05:00.610 --> 00:05:03.689 around there with random spikes around tariff 00:05:03.689 --> 00:05:08.290 scares and other kind of black swan events. So 00:05:08.290 --> 00:05:10.329 it shows you that we've still got nowhere near. 00:05:10.430 --> 00:05:13.610 I mean, 470 sounds close to 300, but it's a 50 00:05:13.610 --> 00:05:16.430 % increase if you think about it that way in 00:05:16.430 --> 00:05:18.250 terms of percentage increase. And right now we're 00:05:18.250 --> 00:05:21.709 at 600, which is a 100 % increase from pre -COVID. 00:05:22.430 --> 00:05:24.709 Now for context for our viewers or listeners, 00:05:25.069 --> 00:05:28.410 I have paid as high as $1 ,700 per 1 ,000 bore 00:05:28.410 --> 00:05:31.269 feet, which is right around the peak because 00:05:31.269 --> 00:05:33.810 my timing is impeccable. And I wanted the braggart 00:05:33.810 --> 00:05:35.750 to say I bought lumber at the peak. You said 00:05:35.750 --> 00:05:38.310 that before. I feel like I think I set that peak. 00:05:38.329 --> 00:05:44.750 I think that was my purchase. So we're still 00:05:44.750 --> 00:05:48.250 at about a third of where we were in 2021, which 00:05:48.250 --> 00:05:51.990 is good. I mean, that shows you that lumber at 00:05:51.990 --> 00:05:57.209 least, which also dictates trusses. OSB is oriented 00:05:57.209 --> 00:05:59.009 strand board. So it's basically just wood scraps 00:05:59.009 --> 00:06:01.569 glued together in sheets, not necessarily plywood, 00:06:01.649 --> 00:06:03.350 but it kind of looks like plywood or is a proxy 00:06:03.350 --> 00:06:06.889 for plywood. So other things that pushed up OSB, 00:06:07.230 --> 00:06:10.449 it's an extra step beyond the milling process 00:06:10.449 --> 00:06:13.589 and it uses a lot of glue. So if there's glue 00:06:13.589 --> 00:06:17.420 and resin increases, so we haven't seen. those 00:06:17.420 --> 00:06:19.519 commodities that wasn't available during a certain 00:06:19.519 --> 00:06:22.740 period. So OSB, that's otherwise a very affordable 00:06:22.740 --> 00:06:25.100 product type and kind of a low -end product, 00:06:25.560 --> 00:06:27.399 suddenly you couldn't get the resin to hold it 00:06:27.399 --> 00:06:30.759 together. So it became super expensive and hard 00:06:30.759 --> 00:06:32.980 to get. And you just don't realize how often 00:06:32.980 --> 00:06:35.839 you use that kind of product until it's not available. 00:06:36.180 --> 00:06:38.860 Until it's not available and until you're paying 00:06:38.860 --> 00:06:43.800 through the nose for it. And it's funny because 00:06:44.889 --> 00:06:47.149 It was there was a time when it actually because 00:06:47.149 --> 00:06:49.569 it uses so much more resin. It was more expensive 00:06:49.569 --> 00:06:53.129 than plywood Which is a way higher quality product. 00:06:53.649 --> 00:06:56.410 Yeah And it's still come down, but the gap is 00:06:56.410 --> 00:06:58.649 closed for sure and plywood does use resins too, 00:06:58.649 --> 00:07:03.410 but just not nearly as much so Again lumber is 00:07:03.410 --> 00:07:05.250 just one aspect everyone thinks Oh lumber is 00:07:05.250 --> 00:07:07.430 like 20 % of the house budget. No, it's it's 00:07:07.430 --> 00:07:10.089 not even 10 % It's on our custom builds. It's 00:07:10.089 --> 00:07:13.449 about 4 % the lumber package. Maybe people are 00:07:13.449 --> 00:07:16.490 always shocked by that And we did that episode, 00:07:16.490 --> 00:07:18.790 um, in the first season where we talked about 00:07:18.790 --> 00:07:21.889 it and we got so much feedback and so many comments 00:07:21.889 --> 00:07:23.709 from it because it was people who were like, 00:07:23.769 --> 00:07:26.290 are you sure that can't be right? Yeah. It's 00:07:26.290 --> 00:07:29.250 not as big a chunk as you imagine it to be. No, 00:07:29.370 --> 00:07:32.069 it is. Uh, like I said, the lumber and trusses, 00:07:32.209 --> 00:07:34.050 maybe if you include the trusses, maybe five 00:07:34.050 --> 00:07:37.430 to 6 % of the total construction budget and framing 00:07:37.430 --> 00:07:39.649 is about five to 6 % of the total construction 00:07:39.649 --> 00:07:43.529 budget. If that honestly between the two, about 00:07:43.529 --> 00:07:48.050 10%. So that shows you everything else. We spend 00:07:48.050 --> 00:07:51.290 as much in engineering, architectural and permitting 00:07:51.290 --> 00:07:54.769 and impact fees on a custom home as we do a lumber 00:07:54.769 --> 00:07:58.350 package. So that gives you a kind of a good idea 00:07:58.350 --> 00:08:03.329 at current lumber prices. So you can see how 00:08:03.329 --> 00:08:04.910 convoluted it is. And there's so many aspects. 00:08:05.149 --> 00:08:07.730 So if we're, you know, that's probably the most 00:08:07.730 --> 00:08:10.230 volatile commodity that goes into residential 00:08:10.230 --> 00:08:13.439 construction. would be your lumber prices. Concrete's 00:08:13.439 --> 00:08:15.939 relatively stable. You'll see random price spikes. 00:08:16.319 --> 00:08:18.620 Like I said, there's so many backstops for concrete. 00:08:19.779 --> 00:08:23.519 And it's so, trees are harvested, right? And 00:08:23.519 --> 00:08:26.459 it's very long downstream before it becomes lumber. 00:08:27.220 --> 00:08:30.379 So that ball kind of is bouncing long before. 00:08:30.680 --> 00:08:33.720 So that means the supply is largely fixed one 00:08:33.720 --> 00:08:36.539 way or another. So the only thing that affects 00:08:36.539 --> 00:08:39.850 the pricing is the demand. Whereas concrete and 00:08:39.850 --> 00:08:42.710 other suppliers can throttle down the supply 00:08:42.710 --> 00:08:46.629 to match demand, so they become much more balanced 00:08:46.629 --> 00:08:50.490 markets. You know, concrete doesn't expire. I 00:08:50.490 --> 00:08:53.830 mean, I'm not saying that lumber does, but the 00:08:53.830 --> 00:08:55.950 Portland cement and all the things that go into 00:08:55.950 --> 00:08:57.750 making concrete, it's pretty much ready mix. 00:08:57.830 --> 00:09:00.870 We make it the day we need it largely, right? 00:09:01.409 --> 00:09:03.340 So... It can sit there. It doesn't expire the 00:09:03.340 --> 00:09:05.159 way that lumber can only sit in a lumber yard 00:09:05.159 --> 00:09:07.480 rendered ready to go for so long before it starts 00:09:07.480 --> 00:09:09.759 to rot. And before it starts to become... I hadn't 00:09:09.759 --> 00:09:12.799 thought about the storage part of it. Yeah. And 00:09:12.799 --> 00:09:16.200 the harvesting is a factory process. So generally 00:09:16.200 --> 00:09:18.820 they're harvesting regardless of demand. And 00:09:18.820 --> 00:09:21.220 they need to make room for new trees because 00:09:21.220 --> 00:09:24.700 there's a sweet spot with Douglas for it to harvest 00:09:24.700 --> 00:09:28.240 it. So... And it has to age, it has to be a certain, 00:09:28.399 --> 00:09:30.019 you know, it can't be too soft, but it can't 00:09:30.019 --> 00:09:32.379 be too, you know, too old or brittle. Right. 00:09:33.059 --> 00:09:35.460 So those are the things that kind of keep it 00:09:35.460 --> 00:09:38.100 volatile. Oh, the other things can be brought 00:09:38.100 --> 00:09:40.519 down. Stucco in the, you know, out west, since 00:09:40.519 --> 00:09:42.340 stucco is largely the material we use to clad 00:09:42.340 --> 00:09:45.429 our houses, stucco is... Concrete product more 00:09:45.429 --> 00:09:48.269 or less. So that's relatively stable windows 00:09:48.269 --> 00:09:51.490 are three degrees removed. It's not a raw good 00:09:51.490 --> 00:09:53.909 I mean lumber is not necessarily raw. It needs 00:09:53.909 --> 00:09:55.870 that rendering step and the transporting but 00:09:55.870 --> 00:09:58.669 windows are a production item right there a consumer 00:09:58.669 --> 00:10:01.610 good Where I don't really see lumber as a consumer 00:10:01.610 --> 00:10:03.750 good it goes I could think of it more as a commodity 00:10:03.750 --> 00:10:07.230 so Window manufacturers can just dial down a 00:10:07.230 --> 00:10:08.830 factory right there and a lot of those windows 00:10:08.830 --> 00:10:15.240 are made to order anyway, so windows Things like 00:10:15.240 --> 00:10:19.259 doors and trim. Those are really durable So they 00:10:19.259 --> 00:10:21.940 can sit in storage, you know, no one's gonna 00:10:21.940 --> 00:10:24.700 want to hold seven houses worth of doors But 00:10:24.700 --> 00:10:27.340 doors are only about four different sizes in 00:10:27.340 --> 00:10:30.279 general a few different jam sizes And then they're 00:10:30.279 --> 00:10:32.000 built with you know, they're made pre hung doors 00:10:32.269 --> 00:10:35.190 to order so the jams lay flat i mean think about 00:10:35.190 --> 00:10:37.409 how many doors you can store you can store hundreds 00:10:37.409 --> 00:10:39.570 of thousands of dollars worth of doors in one 00:10:39.570 --> 00:10:42.330 little warehouse in in one city so imagine times 00:10:42.330 --> 00:10:45.409 you know times the whole country so finished 00:10:45.409 --> 00:10:49.730 goods are largely stable really all you have 00:10:49.730 --> 00:10:54.009 to look out for are softness in in the market 00:10:54.009 --> 00:10:58.210 to where you can pick up on a deal on doors flooring, 00:10:58.389 --> 00:11:00.509 where a vendor is more motivated to clear his 00:11:00.509 --> 00:11:04.909 stock. So our conversation yesterday was, if 00:11:04.909 --> 00:11:07.830 you exclude the commodities, all we're talking 00:11:07.830 --> 00:11:11.429 about saving in a soft market is maybe 10 % of 00:11:11.429 --> 00:11:13.929 the entire build, which again is not nothing. 00:11:14.370 --> 00:11:16.990 But that's saying we saved and we timed everything 00:11:16.990 --> 00:11:19.740 right. When we are ready for Windows. the window 00:11:19.740 --> 00:11:21.519 guy was ready to make a deal. The kind of windows 00:11:21.519 --> 00:11:24.259 you chose were windows that are not made to order, 00:11:24.360 --> 00:11:26.919 that there are willing to will and deal. So the 00:11:26.919 --> 00:11:28.899 product has to match your specifications. The 00:11:28.899 --> 00:11:31.620 timing has to match that is very unlikely that 00:11:31.620 --> 00:11:34.080 it would hit every single item, which would be 00:11:34.080 --> 00:11:38.659 what it would take to save 10%. So things like 00:11:38.659 --> 00:11:41.259 lumber, drywall, again, drywall is very stable 00:11:41.259 --> 00:11:44.840 for the most part. You're not going to be able 00:11:44.840 --> 00:11:46.779 to time that right. You're not going to be able 00:11:46.779 --> 00:11:48.600 to say, well, I really want to take a road trip. 00:11:49.189 --> 00:11:52.470 But I want to go when gas is at its 30 -day low. 00:11:53.490 --> 00:11:55.509 You're either going to go when you want to go 00:11:55.509 --> 00:11:57.129 or you're going to go when the gas is at its 00:11:57.129 --> 00:11:59.509 30 -day low. And usually that's backwards looking 00:11:59.509 --> 00:12:01.649 anyway, because you're going to say, oh, I bought 00:12:01.649 --> 00:12:03.889 it for $3 .35 a gallon and then the next day 00:12:03.889 --> 00:12:05.870 it was $3 .25 a gallon. Damn it, I wish I wouldn't 00:12:05.870 --> 00:12:07.610 have gone on that trip. You're not going to look 00:12:07.610 --> 00:12:09.370 at it that way. And you're not going to head 00:12:09.370 --> 00:12:11.330 out on the trip without knowing that there's 00:12:11.330 --> 00:12:13.789 a potential that's going to be more expensive 00:12:13.789 --> 00:12:15.809 than you want it to be. And the same is true 00:12:15.809 --> 00:12:19.799 with building a home. Exactly. Yeah, I agree. 00:12:20.980 --> 00:12:24.480 So those are the conversations. And when you're 00:12:24.480 --> 00:12:26.299 a build -to -sell builder, we largely are a build 00:12:26.299 --> 00:12:28.059 -to -sell builder. We don't do a ton of build 00:12:28.059 --> 00:12:31.519 -to -sue just because that is a smaller market, 00:12:31.779 --> 00:12:33.899 number one. And number two, there's more people 00:12:33.899 --> 00:12:36.480 who do bespoke custom homes and don't do any 00:12:36.480 --> 00:12:40.259 build -to -sell. So it's not a huge part of our 00:12:40.259 --> 00:12:42.679 business. We love it. We love those types of 00:12:42.679 --> 00:12:46.139 clients. but it's not a huge part of our business. 00:12:46.419 --> 00:12:49.639 So largely I'm making these decisions as it pertains 00:12:49.639 --> 00:12:54.080 to build the cell, right? And the same way that 00:12:54.080 --> 00:12:56.299 windows or cabinets or appliances are kind of 00:12:56.299 --> 00:13:00.259 just made and they have a little bit of an expiration 00:13:00.259 --> 00:13:03.740 date, but not really. But my point is that if 00:13:03.740 --> 00:13:05.620 Whirlpool is making a thousand refrigerators 00:13:05.620 --> 00:13:08.059 and the demand is soft, they're just going to 00:13:08.059 --> 00:13:09.870 have to discount those refrigerators. Because 00:13:09.870 --> 00:13:11.549 they're not going to sit on 101 refrigerators, 00:13:11.710 --> 00:13:13.470 right? They're not going to be there to smash 00:13:13.470 --> 00:13:15.490 the record to say, we sold that side by side. 00:13:15.909 --> 00:13:18.909 Once it's made, you got to get it moving, right? 00:13:18.990 --> 00:13:21.570 So that's kind of how homes are. If a window 00:13:21.570 --> 00:13:24.289 is 3 degrees removed from a raw material, but 00:13:24.289 --> 00:13:27.330 a house is probably 100 degrees removed on a 00:13:27.330 --> 00:13:30.149 unique lot, it's a unique design for the most 00:13:30.149 --> 00:13:33.649 part. Right. And because of what we build, because 00:13:33.649 --> 00:13:36.090 we're in a more luxury market, you're not going 00:13:36.090 --> 00:13:40.399 to buy, you know, 100 fridges when the price 00:13:40.399 --> 00:13:42.360 is right because that's not the same fridge we 00:13:42.360 --> 00:13:44.799 use in every home So we're not doing that manufactured 00:13:44.799 --> 00:13:46.960 production cookie -cutter situation where this 00:13:46.960 --> 00:13:49.279 fridge goes in every house We're gonna stock 00:13:49.279 --> 00:13:51.440 up and get a warehouse warehouse fees will cover 00:13:51.440 --> 00:13:53.700 whatever it would have cost. Otherwise, it's 00:13:53.700 --> 00:13:57.700 not feasible Let let appliance by design let 00:13:57.700 --> 00:14:00.759 one of our appliance vendors deal with that right 00:14:00.759 --> 00:14:05.129 story story so When I was recounting these things 00:14:05.129 --> 00:14:08.230 with him, it's just a case by case basis. Okay, 00:14:08.250 --> 00:14:10.990 we're ready for appliances. Let me call Appliance 00:14:10.990 --> 00:14:13.350 by Design and say, hey, what is Thermador running 00:14:13.350 --> 00:14:15.809 right now if we were to combine two dishwashers 00:14:15.809 --> 00:14:18.169 or whatever? Is there anything special? And every 00:14:18.169 --> 00:14:19.649 now and then you'll just catch a really good 00:14:19.649 --> 00:14:22.269 deal. But again, we're talking on a $2 million 00:14:22.269 --> 00:14:25.149 bill. Okay, well you saved, instead of your appliance 00:14:25.149 --> 00:14:28.690 package being $47 ,000, it was $46 ,000 or $45 00:14:28.690 --> 00:14:32.580 ,000. It adds up. Don't get me wrong, but it 00:14:32.580 --> 00:14:34.960 adds up because we've got a few of those in the 00:14:34.960 --> 00:14:38.620 home and now your margin matches. Our build costs 00:14:38.620 --> 00:14:41.500 today are approximately, we've gotten better 00:14:41.500 --> 00:14:43.600 at building homes. We've gotten better at sourcing 00:14:43.600 --> 00:14:45.500 materials. We've gotten more leverage with our 00:14:45.500 --> 00:14:49.259 vendors. We built in a soft build year and it 00:14:49.259 --> 00:14:52.860 resulted in our build costs are about 20 % lower 00:14:52.860 --> 00:14:57.820 than they were in 22 and 23. And that's a function 00:14:57.820 --> 00:15:02.220 of a lot of things. It is. We did build one house 00:15:02.220 --> 00:15:05.559 this 24 that we built in 21, the same model match. 00:15:06.139 --> 00:15:10.519 And we were into that home for about 12 % less 00:15:10.519 --> 00:15:13.860 than we were in 21. And it was a nicer spec level. 00:15:14.580 --> 00:15:17.360 So it shows you that even apples to apples we 00:15:17.360 --> 00:15:20.940 are probably as a company about 15 % better off. 00:15:21.159 --> 00:15:24.940 21 was also a hard. Cluthier, things were hard 00:15:24.940 --> 00:15:27.919 to get and everything was expensive and the market 00:15:27.919 --> 00:15:30.240 was booming in a different way. Undoubtedly a 00:15:30.240 --> 00:15:34.899 high watermark, 21. But that being said, let's 00:15:34.899 --> 00:15:38.039 just say over mean reversion, we've kind of gone, 00:15:38.580 --> 00:15:40.360 you know, we're getting closer and closer to 00:15:40.360 --> 00:15:44.039 what I would say normal build cycle or build 00:15:44.039 --> 00:15:46.080 costs. And I think we've kind of settled into 00:15:46.080 --> 00:15:49.460 where they land. So then as a builder, especially 00:15:49.460 --> 00:15:51.460 a build to sell builder, you have to value engineer 00:15:51.460 --> 00:15:53.860 your homes. You have to squeeze your vendors 00:15:53.860 --> 00:15:59.320 and hope that the market stays friendly to builders. 00:16:00.080 --> 00:16:02.419 And as we're also, every home we build is largely 00:16:02.419 --> 00:16:05.639 home we sell, has friendly to sellers. So 25, 00:16:05.779 --> 00:16:07.759 it flipped and it's not so friendly to sellers, 00:16:07.899 --> 00:16:10.320 but it became friendly to builders. So it was 00:16:10.320 --> 00:16:14.100 a yin and a yang. It definitely was probably 00:16:14.100 --> 00:16:16.080 an equivalent pullback, right? So has that pulled 00:16:16.080 --> 00:16:19.820 back? It stands to reason because we were in 00:16:19.820 --> 00:16:23.360 a market with a lot of production builders. So 00:16:23.360 --> 00:16:25.879 we have the infrastructure around us with these 00:16:25.879 --> 00:16:28.179 suppliers and vendors that are used to catering 00:16:28.179 --> 00:16:32.220 to production builders. If they pull back 10%, 00:16:32.220 --> 00:16:34.539 we benefit from that. Production builders pull 00:16:34.539 --> 00:16:36.600 back 10%. Because the market pulled back 10 % 00:16:36.600 --> 00:16:38.320 in terms of demand, not necessarily in prices. 00:16:39.000 --> 00:16:41.820 I read we still broke another record on prices 00:16:41.820 --> 00:16:44.299 and we're still ended up higher than last year, 00:16:44.440 --> 00:16:46.559 higher than 24. So we didn't pull back, but our 00:16:46.559 --> 00:16:48.419 demand pulled back for sure. And part of why 00:16:48.419 --> 00:16:51.600 the prices had a backstop is because supply shrunk 00:16:51.600 --> 00:16:55.179 and builders that can move the market in that 00:16:55.179 --> 00:16:58.720 way by how they pull their permits. We had that. 00:16:58.720 --> 00:17:03.100 We had that benefit. So it's a hard question 00:17:03.100 --> 00:17:05.920 to answer. I think I rambled. with him. And I 00:17:05.920 --> 00:17:08.700 think I rambled here. But it made sense. And 00:17:08.700 --> 00:17:10.700 the interesting part to me, and this was the 00:17:10.700 --> 00:17:12.539 realization that I had in our conversation with 00:17:12.539 --> 00:17:15.779 this particular client, is that it doesn't, you 00:17:15.779 --> 00:17:18.000 know, I mean, I obviously were in the building 00:17:18.000 --> 00:17:20.319 industry. And so that's what I imagine it pertaining 00:17:20.319 --> 00:17:22.640 to. But this is a business model that carries 00:17:22.640 --> 00:17:26.000 across every industry. And so this particular 00:17:26.000 --> 00:17:28.140 client happens to be in the restaurant industry. 00:17:28.140 --> 00:17:31.329 And they really this is how this is how we supply 00:17:31.329 --> 00:17:33.569 our kitchens this you know these are the commodities 00:17:33.569 --> 00:17:35.990 are available the times of it you know and so 00:17:35.990 --> 00:17:38.029 maybe it's that or maybe it's manufacturing maybe 00:17:38.029 --> 00:17:40.089 it's the car industry and they're doing the same 00:17:40.089 --> 00:17:43.230 thing and whatever whatever it is you're you're 00:17:43.230 --> 00:17:46.650 manufacturing widgets there's gonna be some push 00:17:46.650 --> 00:17:49.430 and pull that is just the way the industry happens 00:17:49.430 --> 00:17:51.690 i don't think building is necessarily unique 00:17:51.690 --> 00:17:55.130 in that regard no the components the door manufacturer 00:17:55.130 --> 00:17:56.829 is dealing with the same things i'm like i said 00:17:56.829 --> 00:17:58.750 they're a three degree they're four maybe four 00:17:58.799 --> 00:18:02.059 degrees removed, a hundred degrees removed, but 00:18:02.059 --> 00:18:04.359 it just ratchets up and it's kind of like how 00:18:04.359 --> 00:18:06.559 a gear gets, a small gear can turn a huge gear. 00:18:06.619 --> 00:18:10.099 Like it just slowly turns and it affects things 00:18:10.099 --> 00:18:13.319 way down the road. And it's the economy at large 00:18:13.319 --> 00:18:17.839 too. I mean, you think about it. It does, growth 00:18:17.839 --> 00:18:21.319 begets growth that is never been more obvious. 00:18:22.480 --> 00:18:27.529 Yes. If you were in... on planet Earth in between 00:18:27.529 --> 00:18:31.410 2020 and 2026, you've seen, whoa, when things 00:18:31.410 --> 00:18:33.190 started to grow, it really, and then you couldn't 00:18:33.190 --> 00:18:34.990 get a car because everyone had all this money 00:18:34.990 --> 00:18:36.769 because they were making great money with their 00:18:36.769 --> 00:18:39.029 jobs or they had stimulus or whatever. Their 00:18:39.029 --> 00:18:41.630 businesses are doing well. They're getting all 00:18:41.630 --> 00:18:44.849 this wealth. Home values went up and then because 00:18:44.849 --> 00:18:46.890 home values went up, home values went up because 00:18:46.890 --> 00:18:48.329 you had all this equity in your home and now 00:18:48.329 --> 00:18:51.109 you're competing with other buyers. that you're 00:18:51.109 --> 00:18:52.309 buying toys, you're buying boats, you're buying 00:18:52.309 --> 00:18:55.069 things, so. Whatever it is, yeah. Clothes, toys, 00:18:55.549 --> 00:18:57.690 new services. Yeah, services. They got the hotel 00:18:57.690 --> 00:19:01.630 industry. Yeah. Yes. I remember when they opened 00:19:01.630 --> 00:19:04.650 the strip, you couldn't even exit off of Tropicana 00:19:04.650 --> 00:19:08.230 because it was so backed up. I remember Channel 00:19:08.230 --> 00:19:10.829 5 did a spot on it, like, look at all these people 00:19:10.829 --> 00:19:14.609 going to... Get out of town get out of California 00:19:14.609 --> 00:19:16.789 for the weekend because they heard the casinos 00:19:16.789 --> 00:19:19.009 are open or you know The restaurants are open 00:19:19.009 --> 00:19:21.470 and we can go live a little bit of a night. It 00:19:21.470 --> 00:19:25.230 brings back quickly So that's why and then start 00:19:25.230 --> 00:19:26.829 thinking about the Department of Transportation 00:19:26.829 --> 00:19:28.490 and the roads they had to build to accommodate 00:19:28.490 --> 00:19:30.170 and they're dealing with that same push and pull 00:19:30.170 --> 00:19:34.190 of the economic growth and it's just everywhere 00:19:34.190 --> 00:19:38.490 To pull back the curtain from the business perspective 00:19:38.490 --> 00:19:41.509 so to put a pin in the build -to -suit question 00:19:42.339 --> 00:19:45.039 you're never gonna use the road trip analogy. 00:19:45.339 --> 00:19:47.880 You're never going to time your road trip with 00:19:47.880 --> 00:19:51.079 the cheapest gas for the year. You'll never time 00:19:51.079 --> 00:19:53.519 your build with the most favorable. I didn't 00:19:53.519 --> 00:19:55.660 go 25 thinking it was gonna be one of the most 00:19:55.660 --> 00:19:58.240 favorable years in my career as a builder in 00:19:58.240 --> 00:20:01.099 terms of negotiating contracts with vendors and 00:20:01.099 --> 00:20:05.440 suppliers and the scale. I didn't know that. 00:20:05.480 --> 00:20:08.799 So I left for... the road trip when gas was $5 00:20:08.799 --> 00:20:12.980 a gallon and ended up being $3 .75, right? And 00:20:12.980 --> 00:20:15.980 you just, and I get that this is their retirement 00:20:15.980 --> 00:20:17.460 home and they're putting a lot of money into 00:20:17.460 --> 00:20:19.980 it and it's probably the last home they'll build. 00:20:20.700 --> 00:20:22.859 I get that. And it's a very, very fair question. 00:20:22.880 --> 00:20:24.500 Like I said, everyone has asked me this question 00:20:24.500 --> 00:20:26.420 that's ever - It is a fair question. So I think 00:20:26.420 --> 00:20:30.599 that - You said you're never gonna time it when, 00:20:30.839 --> 00:20:32.619 you know, you're never gonna time the road trip. 00:20:33.180 --> 00:20:36.880 But never is kind of a stretch. You might. But 00:20:36.880 --> 00:20:40.480 it's our lucky chance. We can't bank on that 00:20:40.480 --> 00:20:42.460 and let's not try and pretend it could happen. 00:20:42.720 --> 00:20:44.660 Let's look at the biggest picture we can, the 00:20:44.660 --> 00:20:46.779 worst case scenario or what we think it is or 00:20:46.779 --> 00:20:49.099 what we're currently basing it on. And if we 00:20:49.099 --> 00:20:51.859 happen to strike gold and it is cheap that day, 00:20:52.119 --> 00:20:53.660 great, all the better. But we don't want to make 00:20:53.660 --> 00:20:58.259 any promises or take realism out of what is otherwise 00:20:58.259 --> 00:21:01.039 a formula we can't control. All we can use, right, 00:21:01.299 --> 00:21:03.440 is the factors that will affect it. And that's 00:21:03.440 --> 00:21:05.559 kind of, I hope, the message that I conveyed 00:21:05.559 --> 00:21:08.200 to this really great couple, that you can look 00:21:08.200 --> 00:21:09.640 at other factors. So if we use the road trip 00:21:09.640 --> 00:21:11.940 analogy, well, if you're leaving on Memorial 00:21:11.940 --> 00:21:14.660 Day, and you're traveling during that weekend, 00:21:14.920 --> 00:21:16.099 you're probably going to pay more for hotels, 00:21:16.220 --> 00:21:17.519 you're probably going to pay more for gas, you're 00:21:17.519 --> 00:21:19.259 probably going to pay more for all your services, 00:21:19.640 --> 00:21:21.839 and everything's going to be busier. So yes, 00:21:21.940 --> 00:21:24.660 I can't guarantee, but I can look at other factors 00:21:24.660 --> 00:21:27.869 and say, It's probably gonna be as favorable 00:21:27.869 --> 00:21:31.670 as it's gonna get for you now in the next You 00:21:31.670 --> 00:21:34.849 know three to twelve months. I feel that it's 00:21:34.849 --> 00:21:38.670 probably not going to get friendlier in terms 00:21:38.670 --> 00:21:40.890 of costs when it as it pertains to building a 00:21:40.890 --> 00:21:44.130 home And we're using that as a company or I'm 00:21:44.130 --> 00:21:49.109 using that you know as as the owner to say I'm 00:21:49.109 --> 00:21:51.750 trying to lock in as much as I can now pricing 00:21:51.750 --> 00:21:54.230 wise and trying to keep these relationships with 00:21:54.230 --> 00:21:57.410 vendors really solid for Sure. Because I do feel 00:21:57.410 --> 00:21:59.150 that we're probably going to run into a little 00:21:59.150 --> 00:22:02.470 bit of an inventory shortage this time next year 00:22:02.470 --> 00:22:05.470 if we have the kind of sales year that I think 00:22:05.470 --> 00:22:07.849 we're going to have, because builders are going 00:22:07.849 --> 00:22:10.789 to be caught off guard. They've reduced their 00:22:10.789 --> 00:22:13.970 permits tremendously, most of the big builders 00:22:13.970 --> 00:22:19.250 by 15 % or more. So with that being said... Starts 00:22:19.250 --> 00:22:22.990 are down. Yeah, starts are down. That being said... 00:22:23.469 --> 00:22:26.049 This is probably our last year to bask in the 00:22:26.049 --> 00:22:30.990 sunshine, and I think 27 could be a challenging 00:22:30.990 --> 00:22:35.029 year as a builder in terms of the prices that 00:22:35.029 --> 00:22:37.309 we've gotten kind of used to. And I'm not talking 00:22:37.309 --> 00:22:39.609 sales prices, I'm talking build prices. I've 00:22:39.609 --> 00:22:43.269 kind of gotten spoiled now. I mean, one affects 00:22:43.269 --> 00:22:45.109 the other. They're not working independently. 00:22:45.450 --> 00:22:47.849 If it costs you more to build it, obviously that's 00:22:47.849 --> 00:22:50.150 reflected in the total sales price. And as a 00:22:50.150 --> 00:22:52.789 company with land out in front of us, those are 00:22:52.789 --> 00:22:54.430 the things you're paying attention to because 00:22:54.430 --> 00:22:57.470 you're building homes on the land that's going 00:22:57.470 --> 00:23:02.789 to have to fall into whatever best -case scenario 00:23:02.789 --> 00:23:06.190 we could hope for at the time. Right. It really 00:23:06.190 --> 00:23:08.430 flows effortlessly into our next project, but 00:23:08.430 --> 00:23:10.829 I think we should separate that to another episode. 00:23:11.349 --> 00:23:13.970 Thank you, Michael, for your information and 00:23:13.970 --> 00:23:16.789 your time today was a good chat, and we're glad 00:23:16.789 --> 00:23:19.410 that we could bring you guys in on it and share 00:23:19.410 --> 00:23:21.609 the conversation with you as well. So thanks 00:23:21.609 --> 00:23:23.529 for being here, and we'll see you again on the 00:23:23.529 --> 00:23:26.730 next episode of Trust the Process Podcast. Thanks. 00:23:26.970 --> 00:23:27.309 Bye -bye.